EXHIBIT 4.1
5% CONVERTIBLE DEBENTURES
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
No. CD-____ $__________
SIGNAL APPAREL COMPANY, INC.
5% CONVERTIBLE DEBENTURES DUE MARCH 3, 2002
Signal Apparel Company, an Indiana corporation (the "Issuer"), for value
received hereby promises to pay to _________________________________ or its
registered assigns ("Holder") the principal sum of ______________________
($__________) Dollars at the Issuer's office or agency for said purpose in New
York, New York on March 3, 2002 in such coin or currency (or, as provided
herein, at the Holder's option in Common Stock) of the United States of America
as at the time of payment shall be legal tender for the payment of public and
private debts at the last address of the Holder (as defined herein) last
appearing on the Register (as defined herein).
This Security is one of a duly authorized issue of 5% Convertible
Debentures, due March 3, 2002 of the Issuer (the "Security") referred to in the
Securities Purchase Agreement (the "Purchase Agreement"), dated as of March 3,
1999, by and among the Issuer and the Purchasers listed on Schedule I thereto.
The Securities are subject to the terms and conditions of the Purchase
Agreement. The Issuer agrees to issue from time to time replacement Securities
in the form hereof to facilitate any transfers and assignments. In addition,
after delivery of an indemnity in form and substance reasonably satisfactory to
the Issuer, the Issuer also agrees to issue replacement Securities for
securities which have been lost, stolen, mutilated or destroyed.
The Issuer shall keep at its principal office a register (the "Register")
in which shall be entered the names and addresses of the registered holders of
the Securities and particulars of the respective Securities held by them and of
all transfers of such Securities. References to the "Holder" or "Holders" shall
mean the Person listed in the Register as the payee of any Security unless the
payee shall have presented such Security to the Issuer for transfer and the
transferee shall have been entered in the Register as a
subsequent holder, in which case the term shall mean such subsequent holder. The
ownership of the Securities shall be proven by the Register, absent manifest
error. For the purpose of paying interest and principal on the Securities, the
Issuer shall be entitled to rely on the names and addresses in the Register.
No provision of this Security shall alter or impair the obligations of the
Issuer, which are absolute and unconditional, to pay the principal of and
interest on this Security at the place, times, rate, and in the currency, herein
prescribed.
The principal of this Security shall bear interest at the rate of 5% per
annum (the "Interest Rate") which shall accrue daily from the most recent
Interest Payment Date to which interest has been paid on this Security, or if no
interest has been paid on this Security from the date hereof until payment in
full of the principal amount has been made and be payable in cash quarterly on
January 1, April 1, July 1 and October 1 of each year (an "Interest Payment
Date"), commencing on July 1, 1999, to the Holder hereof until the principal
amount is paid or made available for payment. The interest so payable on any
Interest Payment Date will be paid to the Holder of the Security at the close of
business on the Record Date for the interest payable on such Interest Payment
Date. The "Record Date" for any interest payment is the close of business on
December 15, March 15, June 15 or September 15, as the case may be, whether or
not a Business Day, immediately preceding the Interest Payment Date on which
such Interest is payable.
Any amounts that have become due and payable hereunder and remain unpaid by
the Issuer shall accrue interest daily thereafter (in accordance with Section
3.1 hereof) until payment in full of such amount at the rate of twenty percent
(20%) (the "Default Rate") per annum and shall be payable upon demand by the
Holder.
Interest, whether at the Interest Rate or the Default Rate, will be
computed on the basis of a fraction, the denominator of which is 365 (or 366 for
any leap year) and the numerator of which is the actual number of days elapsed
from the date such interest begins to accrue, in the case of the Interest Rate,
or becomes due and payable, in the case of the Default Rate.
Each of the Interest Rate and the Default Rate shall be effective both
before and after any judgment may be rendered in a court of competent
jurisdiction, provided, however, that if either the Interest Rate or Default
Rate is deemed to be in excess of the amount permitted to be charged by the
Issuer under applicable laws, the Holder shall be entitled to collect an
Interest Rate or Default Rate, as the case may be, only at the highest rate
permitted by law, and any interest collected by the Holder in excess of such
lawful amount shall be deemed a payment in reduction of the principal amount
then outstanding under this Security and shall be so applied.
The principal of, and interest on, this Security are payable in coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public or private debts, at the last address of the Holder
last appearing on the Register, except that interest due on the principal
amount, if any (but not interest overdue for more than five days), may, at the
Issuer's option be paid in shares of Common Stock
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calculated based upon the Average Price (as defined herein) on the date such
interest was due. It shall be assumed that the Issuer shall elect to make all
payments of interest in Common Stock (payable at the Average Price on the date
such interest was due) unless the Issuer shall have given thirty (30) days prior
written notice to each Holder of its intention to pay such interest in cash.
Notwithstanding anything to the contrary contained herein, the Issuer may not
issue shares of Common Stock in payment of the interest on principal if: (i) the
number of shares of Common Stock at the time authorized, unissued and unreserved
for all other purposes is insufficient to pay interest hereunder in shares of
Common Stock or there is an insufficient number of authorized shares of Common
Stock reserved (pursuant to Section 3.6(b) of the Purchase Agreement) for issue
for full conversion of all of the Debentures issued pursuant to the Purchase
Agreement; (ii) such shares are not either registered for resale pursuant to the
Registration Statement (as defined in the Registration Rights Agreement (as
defined herein)) or freely transferable without volume restrictions pursuant to
Rule 144(k) promulgated under the Act, as determined by counsel to the Issuer
pursuant to a written opinion letter addressed and in form and substance
acceptable to the Holder and the transfer agent for such shares, subject to
receipt from the Holder of a representation from such Holder that it is not an
Affiliate (as defined herein) of the Issuer; (iii) such shares are not listed or
quoted on the NYSE (as defined herein) or a Subsequent Market (as defined
herein); (iv) the issuance of such shares would result in the recipient thereof
beneficially owning more than 4.99% of the issued and outstanding shares of
Common Stock as determined in accordance with Section 4.6 hereof; or (v) an
Event of Default has occurred and is continuing or an event that, with the
passage of time or giving of notice or both would constitute an Event of
Default, has occurred and is continuing. In addition, at the Holder's option,
any principal payments due hereunder may be paid in shares of Common Stock,
which calculation shall be based upon the Average Price on the date such
principal was due.
DEFINITIONS
1.1. Certain Terms Defined. The following terms (except as otherwise
expressly provided or unless the context otherwise clearly requires) for all
purposes of this Security shall have the respective meanings specified below.
All accounting terms used herein and not expressly defined shall have the
meanings given to them in accordance with generally accepted accounting
principles (as defined herein). Capitalized terms not otherwise defined herein
shall have the meanings assigned to them in the Purchase Agreement. The terms
defined in this Section 1.1 include the plural as well as the singular.
"Acceleration Notice" has the meaning set forth in Section 3.1.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have
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meanings correlative to the foregoing.
"Appraiser" shall mean a nationally recognized or major regional investment
banking firm or firm of independent certified public accountants of recognized
standing.
"Average Price" on any date means (x) the sum of the Per Share Market Value
for the ten (10) Trading Days immediately preceding such date minus (y) the
highest and lowest Per Share Market Value during the ten (10) Trading Days
immediately preceding such date, divided by (z) eight (8).
"Board of Directors" means either the Board of Directors of the Issuer or
any committee of such Board duly authorized to act hereunder.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock whether now outstanding or issued after the Original
Issue Date, including, without limitation, all Common Stock and all Preferred
Stock.
"Change of Control" means the occurrence of any of (i) an acquisition after
the date hereof by an individual or legal entity or "group" (as described in
Section 13(d)(3) of the Exchange Act) of in excess of 50% of the voting
securities of the Company, (ii) a replacement of more than one-half of the
members of the Company's board of directors which is not approved by a majority
of those individuals who are members of the board of directors on the date
hereof, or their duly elected successors who are directors immediately prior to
such transaction, in one or a series of related transactions, (iii) the merger
of the Company with or into another entity, unless following such transaction,
the Holders of the Company's securities continue to hold at least 50% of such
securities following such transaction, (iv) the consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii), (iii) or (iv).
"Common Stock" means the common stock, par value $.01 per share, of the
Issuer.
"Converted Debentures" has the meaning set forth in Section 3.1.
"Convertible Securities" has the meaning set forth in Section 4.5(h)(A).
"Conversion Date" has the meaning set forth in Section 4.4(a).
"Conversion Price" has the meaning set forth in Section 4.2.
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"Debt" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person in respect of letters of credit or bankers'
acceptance or other similar instruments (or reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred
purchase price of property or services, (v) all obligations of such Person as
lessee under capitalized leases, (vi) all Debt of others secured by a Lien on
any asset of such Person, whether or not such Debt is assumed by such Person,
provided that for purposes of determining the amount of any Debt of the type
described in this clause, if recourse with respect to such Debt is limited to
such asset, the amount of such Debt shall be limited to the fair market value of
such asset, (vii) all Debt of others guaranteed by such Person, and (viii) all
redeemable stock valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends.
"Debenture Shares" has the meaning set forth in the Purchase Agreement.
"Default Rate" has the meaning set forth in the sixth paragraph hereof.
"Event of Default" has the meaning set forth in Section 3.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"GAAP" or "generally accepted accounting principles" means generally
accepted accounting principles in the United States, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession.
"Holder", "Holder of Securities", "Securityholder" or other similar terms
means the registered holder of any Security.
"Incurrence" means the incurrence, creation, assumption or in any other
manner becoming liable with respect to, or the extension of the maturity of or
becoming responsible for the payment of, any Debt. "Incur" shall have a
comparable meaning.
"Interest Payment Date" has the meaning set forth in the fifth paragraph
hereof.
"Interest Rate" has the meaning set forth in the fifth paragraph hereof.
"Issuer" has the meaning set forth in the first paragraph hereof.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Security, the Issuer shall be deemed to own subject to
a Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any
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conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Mandatory Prepayment Amount" for any Security means the sum of (x) 120% of
the principal amount of the Security to be prepaid and (y) all other amounts,
costs, interest, expenses and liquidated damages due in respect of such
principal amount; provided, however, that for the purposes of Section 3.1(k)
only, "Mandatory Prepayment Amount" means the greater of (i) the sum of (x) 120%
of the principal amount of the Security to be prepaid and (y) all other amounts,
costs, interest, expenses and liquidated damages due in respect of such
principal amount and (ii) the sum of (x) at the option of the Holder, either (I)
the principal amount of the Security to be repaid, plus all accrued and unpaid
interest thereon, divided by the Conversion Price on the date the Mandatory
Prepayment Amount is demanded or otherwise due, multiplied by the Per Share
Market Value on the date the Mandatory Prepayment Amount is demanded or
otherwise due or (II) the principal amount of the Security to be prepaid, plus
all accrued and unpaid interest thereon, divided by the Conversion Price on the
Trading Day immediately prior to the date the Mandatory Prepayment Amount is
paid in full, multiplied by the Per Share Market Value on the Trading Day
immediately prior to the date the Mandatory Prepayment Amount is paid in full,
and (y) all other amounts, costs, interest, expenses and liquidated damages due
in respect of such principal amount.
"Maturity Date" means the date on which the principal of a Security becomes
due and payable as herein provided, whether on the Stated Maturity Date or
pursuant to acceleration upon an Event of Default.
"NYSE" means the New York Stock Exchange.
"Notice of Conversion" has the meaning set forth in Section 4.2.
"Options" has the meaning set forth in Section 4.5(g)(A).
"Original Issue Date" of any Security (or portion thereof) means the
earlier of (i) the date of such Security and (ii) the date of any Security (or
portion thereof) for which such security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.
"Payment Blockage Notice" has the meaning set forth in Section 6.2(b).
"Payment Due Date" has the meaning set forth in Section 4.5(i).
"Per Share Market Value" means (i) on any particular date the closing bid
price per share of the Common Stock on the NYSE, if the Common Stock is not then
quoted on the NYSE, any Subsequent Market on which the Common Stock is then
listed or if there is no such price on such date, then the closing bid price on
such exchange or quotation system on the date nearest preceding such date or
(ii) if the Common Stock is not listed then on the NYSE or any Subsequent
Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
6
reporting prices) at the close of business on such date, or (iii) if the Common
Stock is not then publicly traded the fair market value of a share of Common
Stock as determined by an Appraiser selected in good faith by the holder of this
Security; provided, however, that the Issuer, after receipt of the determination
by such Appraiser, shall have the right to select in good faith an additional
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Appraiser; and provided, further that all
determinations of the Per Share Market Value shall be appropriately adjusted for
any stock dividends, stock splits or other similar transactions during such
period.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date of this Security, and includes, without limitation, all classes and
series of preferred or preference stock.
"principal", wherever used with reference to the Securities or any Security
or any portion thereof, shall be deemed to include "and premium or interest, if
any."
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under generally accepted
accounting principles.
"Purchase Agreement" means that Securities Purchase Agreement dated as of
March 3, 1999 by and among the Issuer and the Purchasers.
"Purchase Price" means, with respect to any Security, the purchase price
paid to the Issuer upon issuance of such Security.
"Purchasers" has the meaning ascribed thereto in the Purchase Agreement.
"Record Date" has the meaning set forth in the fifth paragraph hereof.
"Redemption Date" has the meaning set forth in section 4.5(g).
"Redemption Price" has the meaning set forth in Section 4.5(f).
"Register" has the meaning set forth in the third paragraph hereof.
"Registration Rights Agreement" means that Registration Rights Agreement
dated as of March 3, 1999 by and among the Issuer and the Purchasers.
"Reserved Amount" has the meaning set forth in Section 4.8.
7
"Security" or "Securities" has the meaning set forth in the second
paragraph hereof.
"Stated Maturity Date" means March 3, 2002.
"Stock Option Plan" means any contract, plan or agreement which has been
approved by the Board of Directors of the Issuer, pursuant to which the Issuer's
securities may be issued to any employee, officer, director or consultant.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the Capital Stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person.
"Subsequent Market" means the American Stock Exchange, the National Market
System of the Nasdaq Stock Market or the Nasdaq Smallcap Market.
"Trading Day" means (a) a day on which the Common Stock is traded on the
NYSE or, if the Common Stock is not then designated on the NYSE, on such
Subsequent Market on which the Common Stock is then listed or quoted or (b) if
the Common Stock is not listed on the NYSE or a Subsequent Market, a day on
which the Common Stock is traded in the over-the-counter Market, as reported by
the OTC Bulletin Board, or (c) if the Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions or reporting prices) provided,
however that in any event that the Common Stock is not listed or quoted as set
forth in (a), (b), or (c) hereof, then a Trading Day shall mean any Business
Day.
"Underlying Shares" has the meaning set forth in Section 4.5(h)(A).
"Valuation Event" has the meaning set forth in Section 4.5(h)(i)(D)(I).
"Void Redemption Notice" has the meaning set forth in Section 4.5(g).
"Warrants" has the meaning set forth in the Purchase Agreement.
ARTICLE II
PAYMENT; THE SECURITIES
2.1. Payment of Principal and Interest. The Issuer covenants and agrees
that it will duly and punctually pay or cause to be paid the principal and
interest on overdue principal (to the extent enforceable under applicable law),
with respect to each of the Securities at the place or places, at the respective
times and in the manner provided in the Securities.
8
2.2. Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In case any
temporary or definitive Security shall become mutilated, defaced or be
apparently destroyed, lost or stolen, the Issuer shall execute and deliver a new
Security, bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated or defaced Security. In every case the applicant
for a substitute Security shall furnish to the Issuer such security or indemnity
as it may reasonably require to indemnify and defend and to save it harmless
and, in every case of destruction, loss or theft evidence to the Issuer's
satisfaction of the apparent destruction, loss or theft of such Security and of
the ownership thereof.
Upon the issuance of any substitute Security, the Issuer may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith.
In case any Security which has matured or is about to mature, or has been called
for redemption in full, or is being surrendered for conversion in full shall
become mutilated or defaced or be apparently destroyed, lost or stolen, the
Issuer may, instead of issuing a substitute Security, with the holder's consent,
pay or authorize the payment or conversion of the same (without surrender
thereof except in the case of a mutilated or defaced Security), if the applicant
for such payment shall furnish to the Issuer such security or indemnity as it
may reasonably require to save it harmless from all risks, however remote, and,
in every case of apparent destruction, loss or theft, the applicant shall also
furnish to the Issuer evidence to the Issuer's reasonable satisfaction of the
apparent destruction, loss or theft of such Security and of the ownership
thereof.
Every substitute Security issued pursuant to the provisions of this Section
by virtue of the fact that any Security is apparently destroyed, lost or stolen
shall constitute an additional contractual obligation of the Issuer, whether or
not the apparently destroyed, lost or stolen Security shall be at any time
enforceable by anyone and shall be entitled to all the benefits of (but shall be
subject to all the limitations of rights set forth in) this Security equally and
proportionately with any and all other Securities duly authenticated and
delivered hereunder. All Securities shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of mutilated,
defaced, or apparently destroyed, lost or stolen Securities and shall preclude
any and all other rights or remedies notwithstanding any law or statute existing
or hereafter enacted to the contrary with respect to the replacement or payment
of negotiable instruments or other securities without their surrender.
2.3. Cancellation of Securities; Destruction Thereof. All Securities
surrendered for payment, redemption, registration of transfer or exchange shall
be delivered to the Issuer for cancellation, and no Securities shall be issued
in lieu thereof except as expressly permitted by any of the provisions of this
Security. The Issuer shall destroy canceled Securities held by it and deliver a
certificate of destruction to the Holder, unless otherwise required. If the
Issuer shall acquire any of the Securities, such acquisition alone shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Securities unless and until such indebtedness is satisfied.
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ARTICLE III
DEFAULTS
3.1. Event of Default Defined; Acceleration of Maturity; Waiver of Default.
In case one or more of the following events ("Events of Default") (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:
a. default in the payment of all or any part of the principal of or
interest on overdue principal on, any of the Securities as and when the
same shall become due and payable either at maturity, upon any redemption,
by declaration or otherwise; provided, however, that with respect to any
payment of interest, an Event of Default shall not be deemed to have
occurred unless such interest payment has remain unpaid for five days
following the date that such interest payment was due;
b. failure on the part of the Issuer to duly observe or perform any
other of the covenants or agreements on the part of the Issuer contained in
this Security (including the failure to issue Common Stock upon conversion
of this Security in accordance with the terms hereof) or the Purchase
Agreement or the Registration Rights Agreement for a period of thirty (30)
Business Days after the earlier of (x) the date on which any officer of the
Issuer shall have obtained actual knowledge of such failure or (y) the date
on which written notice thereof has been given to the Issuer by the Holder;
or
c. there shall have occurred with respect to any issue or issues of
Debt of the Issuer and/or one or more Subsidiaries having an outstanding
principal amount of $1,000,000 or more in the aggregate for all such issues
of all such Persons, whether such Debt now exists or shall hereafter be
created, an event of default which has caused the holder thereof to declare
such debt to be due and payable prior to its stated maturity; or
d. a judgment or order (not covered by insurance) for the payment of
money shall be rendered against the Issuer or any Subsidiary of the Issuer
in excess of $1,000,000 in the aggregate for all such judgments or orders
against all such Persons (treating any deductibles, self insurance or
retention as not so covered) that shall not be discharged, and all such
judgments and orders remain outstanding and there shall be any period of
thirty (30) consecutive days following entry of the judgment or order in
excess of $1,000,000 or the judgment or order which causes the aggregate
amount described above to exceed $1,000,000 during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
e. a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Issuer or any of its subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Issuer or any of its Subsidiaries or for any substantial
part of the property
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of the Issuer or any of its Subsidiaries or ordering the winding up or
liquidation of the affairs of the Issuer or any of its Subsidiaries, and
such decree or order shall remain unstayed and in effect for a period of
sixty (60) consecutive days; or
f. the Issuer or any of its Subsidiaries shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or consent to the entry of an order for relief in
an involuntary case under any such law, or consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Issuer or any of its Subsidiaries
or for any substantial part of the property of the Issuer or any of its
Subsidiaries, or the Issuer or any of its Subsidiaries shall make any
general assignment for the benefit of creditors; or
g. any representation, warranty, certification or statement made by
the Issuer in the Purchase Agreement or in any certificate, financial
statement or other document delivered pursuant to the Purchase Agreement
shall prove to have been incorrect in any material respect when made; or
h. the Common Stock shall be delisted from the NYSE or shall be
suspended from trading on the NYSE without resuming trading and/or being
relisted thereon or on a Subsequent Market or having such suspension
lifted, as the case may be, within three (3) Business Days; or
i. a Registration Statement for the Underlying Securities (each as
defined in the Purchase Agreement) shall not have been declared by the
Securities and Exchange Commission on or prior to the 30th day after the
Effectiveness Date (as defined in the Registration Rights Agreement) or
after its initial effectiveness, such Registration Statement lapses in
effect or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) otherwise cannot be made thereunder (whether
by reason of the Issuer's failure to amend or supplement the prospectus
included therein in accordance with the Registration Rights Agreement or
otherwise) for more than fifteen (15) consecutive days or thirty (30) days
in any twelve (12) month period; or
j. a Change of Control shall occur; or
k. the Company shall fail to issue shares of Common Stock within three
(3) Trading Days after the Holder delivers a Notice of Conversion pursuant
to Section 4.2 hereof;
then, in each and every such case (other than an Event of Default specified in
Section 3.1(e) or 3.1(f) hereof), unless the principal shall have already become
due and payable, by notice in writing to the Issuer (the "Acceleration Notice"),
a majority of the Holders of the Securities then outstanding may declare the
entire principal amount of the Securities owned by such Holders and any interest
accrued thereon (and the aggregate amounts described below) to be due and
payable immediately, and upon any such declaration the same shall become
immediately due and payable. If an Event of Default specified in Section 3.1(e)
or 3.1(f) occurs, the principal of and any accrued interest on the Securities
(and the aggregate amounts described below) shall become and be immediately due
and
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payable without any declaration or other act on the part of any Securityholder.
In the event that the Issuer shall not have promptly, but in any event within
five (5) Business Days upon receipt of an Acceleration Notice, paid the Holder
the amount specified below, the Conversion Price shall automatically be adjusted
to equal the average Per Share Market Value of the Common Stock during the
preceding thirty (30) consecutive Trading Days immediately preceding the date of
computation; provided, that such Per Share Market Value is lower than the
Conversion Price.
The aggregate amount payable upon an Event of Default described in Section
3.1(a), (e), (f) and (i) shall be equal to the sum of (i) the Mandatory
Prepayment Amount plus (ii) at the option of the Holder, the Mandatory
Prepayment Amount for the principal amount of the Securities (the "Converted
Debentures") that would then be held by such Holder had the principal amount of
Securities converted into Underlying Shares that are then held by the Holder not
been so converted; provided, that the Holder shall not be entitled to a
Mandatory Prepayment Amount with respect to Converted Debentures if both the
following have occurred: (i) prior to the occurrence of an Event of Default, the
Underlying Shares into which the Converted Debentures were converted had been
held by the Holder for more than thirty (30) days and (ii) prior to the
occurrence of the Event of Default and after receipt by the Holder of the
Underlying Shares that are held by the Holder at the time of the occurrence of
the Event of Default, the Registration Statement with respect to such Underlying
Shares had been continuously effective, and the Common Stock has been quoted on
the NYSE, for more than thirty (30) days.
The aggregate principal amount payable on each Event of Default other than
as described in Section 3.1(a), (e), (f) and (i) shall be equal to the sum of
(i) the Mandatory Prepayment Amount plus (ii) at the option of the Holder, the
Mandatory Prepayment Amount for the Converted Debentures that would then be held
by such Holder had the principal amount of Securities converted into Underlying
Shares (as defined herein) that are then held by the Holder not been so
converted; provided, that the Holder shall not be entitled to a Mandatory
Prepayment Amount with respect to Converted Debentures if prior to the
occurrence of an Event of Default, the Underlying Shares into which the
Converted Debentures were converted had been held by the Holder for more than
three (3) Trading Days.
For purposes of this Section 3.1, principal amount of the Securities are
outstanding until such date as the Holder shall have been issued Underlying
Shares upon a conversion (or attempted conversion) thereof. Interest shall
accrue on the Mandatory Prepayment Amount hereunder from the day after such
amount is due (being the date of an Event of Default) through the date of
payment in full thereof at the rate of 20% per annum, accruing daily from the
date of conversion until such amount, plus any interest thereon, if any, is paid
in full. Payment of the Mandatory Prepayment Amount pursuant to this Section 3.1
shall be in addition to any other amounts that may be due to the Holder pursuant
to this Security. Within five (5) Business Days of receipt by the Holder of
payments of amounts due to the Holder, (i) the Holder shall return the
Securities to the Issuer and (ii) in the event the Mandatory Prepayment Amount
relates to the Converted Debentures, the Holder shall return the Underlying
Shares into which such Converted
12
Debentures were converted. In the event of the occurrence of an Event of
Default, the Holder need not provide and the Issuer hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Any demand for payment may be rescinded and annulled by the
Holder at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
Upon delivery of any Acceleration Notice to the Issuer, the Issuer shall
provide a copy of such notice to the other Holders, if any, within two (2)
Business Days of the Issuer's receipt thereof. Failure to deliver such notice
shall not affect the validity of the notice delivered by the Holders in
accordance with the provisions referred to above.
3.2. Powers and Remedies Cumulative; Delay or Omission Not Waiver of
Default. No right or remedy herein conferred upon or reserved to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Holders to exercise any right or power accruing
upon any Event of Default occurring and continuing as aforesaid shall impair any
such right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein; and every power and remedy given by the
Securities or by law may be exercised from time to time, and as often as shall
be deemed expedient, by the Holders.
ARTICLE IV
EXCHANGE; CONVERSION; CALL OPTION
4.1. Right of Securityholders to Exchange Securities. Subject to and upon
compliance with the provisions of this Section, this Security is exchangeable
for an equal principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange.
4.2. Right of Securityholders to Convert Securities into Common Stock.
Subject to and upon compliance with the provisions of this Section, the
principal amount of this Security, or any portion thereof (and any accrued but
unpaid interest thereon) may, at any time and at or before the close of business
on the Maturity Date be converted into duly authorized, validly issued,
fully-paid and nonassesable shares of Common Stock at $2.00 (the "Conversion
Price"), or, in case an adjustment in the
13
Conversion Price and, if applicable, the securities or other property issuable
upon conversion has taken place pursuant to Article III or IV or V hereof, then
at the applicable Conversion Price and in such securities or other property as
so adjusted, upon surrender of the Security or Securities, if required, the
principal amount of which is so to be converted, to the transfer agent of the
Issuer at any time during usual business hours at the transfer agent's offices,
accompanied by a written notice of election to convert as provided in the form
attached hereto as Exhibit A (a "Notice of Conversion").
4.3. Adjustment for Dividends. No payment or adjustment will be made for
dividends on any Common Stock except as provided herein. On conversion of a
Security, that portion of interest accrued and unpaid attributable to the period
from the Original Issuance Date to the Conversion Date with respect to the
converted Security shall not be canceled, extinguished or forfeited, but rather
shall be paid in full to the Holder thereof by the payment of an amount of
shares of Common Stock valued at the Average Price equal thereto; provided,
however, that the Issuer may pay such amount in cash if the Issuer provides the
Holder with ten (10) days prior written notice of its intention to pay the
Holder in cash. If the Holder converts more than one Security at the same time,
the number of shares of Common Stock issuable upon the conversion shall be based
on the total principal amount of the Securities converted.
4.4. Issuance of Shares Upon Conversion.
a. As promptly as practicable, but in any event no later than three
(3) Trading Days after delivery of a Notice of Conversion and, if required,
the surrender, as herein provided, of any Security or securities for
conversion, the Issuer shall deliver or cause to be delivered to, or upon
the written order of, the holder of the Security or securities so
surrendered a certificate or certificates representing the number of duly
authorized, validly issued, fully-paid and nonassesable shares of Common
Stock, into which such Security or Securities may be converted in
accordance with the provisions of this Article IV. Such conversion shall be
deemed to have been made at the time and on the date the Notice of
Conversion is delivered to the transfer agent, provided, that if required
the Security or Securities being converted are promptly delivered to the
Issuer and the rights of the Holder of such Security or Securities as a
Holder (subject to the Issuer's satisfaction of its obligations hereunder
with respect to such conversion) shall cease at such time with respect to
the Converted Debentures and, the Person or Persons entitled to receive the
shares of Common Stock, upon conversion of such Security or Securities
shall be treated for all purposes as having become the record holder or
holders of such shares of Common Stock at such time and such conversion
shall be at the Conversion Price in effect at such time (the "Conversion
Date"). Subject to paragraph 4.4(b), in the case of any Security which is
converted in part only, upon such conversion the Issuer shall execute and
deliver to the Holder thereof, as requested by such Holder, a new Security
or securities of authorized denominations in aggregate principal amount
equal to the unconverted portion of such Security. Without in any way
limiting the Holder's right to pursue other remedies, including actual
damages and/or equitable relief, the parties hereto agree that in the event
that the Issuer fails to deliver the shares of Common Stock required to be
issued upon the conversion of such Security or Securities
14
pursuant to this Section 4.4 within the three (3) Trading Day period
referred above, the Issuer shall pay to the Holder upon demand an amount of
cash (at the Holder's option) equal to: (i) the commissions, discounts and
similar expenses of the Holder in purchasing the number of shares of Common
Stock no greater than the number of shares of Common Stock required to be
issued upon the conversion of the Security or Securities, or (ii) the
product of (w) the number of shares of Common Stock required to be issued
upon the conversion of the Security or Securities, (x) the Per Share Market
Value of such shares on the Conversion Date, (y) the number of days after
such three (3) day period that such shares are not delivered to the Holder,
and (z) 0.005.
b. Notwithstanding anything to the contrary set forth herein, upon
conversion of a Security in accordance with the terms thereof, the Holder
shall not be required to physically surrender the Security to the Issuer
unless the entire unpaid principal amount of the Security is so converted.
The Holder and the Issuer shall maintain records showing the principal
amount so converted and the dates of such conversions or shall use such
other method, reasonably satisfactory to the Holder and the Issuer, so as
not to require physical surrender of the Security upon each such
conversion. In the event of any dispute or discrepancy, such records of the
Issuer shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion of the Security is
converted as aforesaid, the Holder may not transfer the Security unless the
Holder first physically surrenders the Security to the Issuer, whereupon
the Issuer shall forthwith issue and deliver upon the order of the Holder a
new Security of like tenor, registered as the Holder (upon payment by the
Holder of any applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid principal amount of the Security. The Holder
and any assignee, by acceptance of the Security, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion
of a portion of a Security, the unpaid and unconverted principal amount of
such Security represented by such Security may be less than the amount
stated on the face thereof.
c. In lieu of delivering physical certificates representing the
Debenture Shares, provided the Issuer's transfer agent is participating in
the Depositary Trust Issuer Fast Automated Securities Transfer ("FAST")
program, upon request of the Holder and in compliance with the provisions
of Sections 4.1, 4.2 and 4.4, the Issuer shall use its best efforts to
cause its transfer agent to electronically transmit the shares of Common
Stock issuable upon conversion of the Security to the Holder by crediting
the account of the Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system. The time period for delivery described
in the immediately preceding paragraph shall apply to the electronic
transmittals described herein.
4.5. Adjustment of Conversion Price. In addition to any adjustment to the
Conversion Price provided elsewhere in this Security, the Conversion Price in
effect at any time shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
a. Common Stock Dividends; Common Stock Splits; Reverse Common Stock
Splits. If the Issuer, at any time while this Security is outstanding, (a)
shall pay a
15
stock dividend on its Common Stock, (b) subdivide outstanding shares of
Common Stock into a larger number of shares, (c) combine outstanding shares
of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of Capital Stock of
the Issuer, the Conversion Price shall be multiplied by a fraction the
numerator of which shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and the denominator
of which shall be the number of shares of Common Stock outstanding after
such event. Any adjustment made pursuant to this paragraph 4.5(a) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification. Notwithstanding the
foregoing, if the Issuer shall combine outstanding shares of Common Stock
into a smaller number of shares (a "reverse stock split") at any time
before December 31, 1999, then the Conversion Price in effect immediately
prior to such reverse stock split shall not be adjusted and shall remain in
effect after giving effect to such reverse stock split.
b. Rights; Warrants. If the Issuer, at any time while this Security is
outstanding, shall issue rights or warrants to all of the holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at
a price per share less than the Conversion Price, the Conversion Price
shall be multiplied by a fraction, the denominator of which shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and the numerator of which shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at the Conversion Price. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately
after the record date for the determination of shareholders entitled to
receive such rights or warrants.
c. Subscription Rights. If the Issuer, at any time while this Security
is outstanding, shall distribute to all of the holders of Common Stock
evidence of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security (excluding those referred to in Sections
4.5(a) and (b) above), then in each such case the Conversion Price at which
the Security shall thereafter be exercisable shall be determined by
multiplying the Conversion Price in effect immediately prior to the record
date fixed for determination of shareholders entitled to receive such
distribution by a fraction, the denominator of which shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned
above, and the numerator of which shall be such Per Share Market Value of
the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of Common Stock as
determined by the Board of Directors in good faith; provided, however, that
in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by an
Appraiser selected in good faith by the Holder; and provided, further, that
the Company, after receipt of the determination by such Appraiser shall
have
16
the right to select in good faith an additional Appraiser meeting the same
qualifications, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. Such adjustment shall
be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
d. Rounding. All calculations under this Section 4.5 shall be made to
the nearest cent or the nearest l/l00th of a share, as the case may be.
e. Notice of Adjustment. Whenever the Conversion Price is adjusted
pursuant to paragraphs 4.5(a), (b) or (c), the Issuer shall promptly
deliver to the Holder a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
f. Redemption Events. In case of (A) any reclassification of the
Common Stock, (B) any Change of Control, (C) any compulsory share exchange
pursuant to which the Common Stock is converted into other securities, cash
or property, or (D) (i) the Issuer's notice to any registered owner of the
Securities, including by way of public announcement, at any time, of its
intention, for any reason, not to comply with proper requests for the
conversion of any such Securities or (ii) the Issuer's refusal to convert
the Securities into shares of Common Stock pursuant to a Notice of
Conversion delivered pursuant to Section 4.2 hereof (clauses (A) through
(D) above are referred to as a "Redemption Event"), the Holder shall have
the right thereafter to convert the Security for shares of stock and other
securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such Redemption Event, and the Holder
shall be entitled upon such event to receive such amount of securities,
cash or property as the shares of the Common Stock of the Issuer into which
the Security could have been converted immediately prior to such Redemption
Event (without taking into account any limitations or restrictions on the
convertibility of the Securities) would have been entitled; provided,
however, that in the case of a transaction specified in (B) in which
holders of the Issuer's Common Stock receive cash, if the Holder's are
unable to sell the Company's Common Stock pursuant to an effective
registration statement, the Holder shall have the right to convert the
Security for such number of shares of the surviving company equal to the
amount of cash into which the Security is convertible divided by the fair
market value of the shares of the surviving company on the effective date
of the merger; provided, further, that in the case of an event specified in
(D), the Holder shall have the option to require the Issuer to redeem, from
funds legally available therefor at the time of such redemption, its shares
of Common Stock immediately theretofore acquirable and receivable upon the
conversion of such Holder's Securities at a price per share (the
"Redemption Price") equal to the product of (i) the average Per Share
Market Value for the five Trading Days immediately preceding (1) the
effective date, the date of the closing, date of occurrence or the date of
the announcement, as the case may be, of the Redemption Event triggering
such redemption right or (2) the date of payment in full by the Issuer of
the Redemption Price hereunder, whichever is greater, and (ii) the number
of shares of Common Stock of the Issuer into which the Security could have
been converted immediately prior to such Redemption Event. The entire
Redemption Price shall be paid in cash and the terms of payment of such
Redemption Price shall be subject to the provisions set forth in Section
4.5(g). In the case of (A), (B) and (C), the terms of
17
any such Redemption Event shall include such terms so as to continue to
give to the Holder the right to receive the securities, cash or property
set forth in this Section 4.5(f) upon any conversion or redemption
following such Redemption Event. This provision shall similarly apply to
successive Redemption Events. Notwithstanding the foregoing, in the event
of an Event of Default and the issuance of an Acceleration Notice, the
rights of the Holder to redeem the Securities hereunder, and the obligation
of the Company to redeem such Securities, shall be suspended for as long as
there shall have occurred and be continuing an Event of Default and an
Acceleration Notice.
g. Payment of Redemption Price. The Issuer shall pay the applicable
Redemption Price to the Holder of the Securities being redeemed in cash on
the date that the Issuer shall effect the Redemption (the "Redemption
Date"). If the Issuer shall fail to pay the applicable Redemption Price to
such Holder on the Redemption Date, in addition to any remedy such Holder
may have under this Debenture and the Purchase Agreement, such unpaid
amount shall bear interest at the rate of 2.0% per month until paid in
full. Until the Issuer pays such unpaid applicable Redemption Price in full
to each Holder, each Holder of Securities submitted for redemption pursuant
to this Section 4.5(g) and for which the applicable Redemption Price has
not been paid, shall have the option, in lieu of redemption, (A) to require
the Issuer to promptly return to such Holder all of the Securities that
were submitted for redemption by such Holder under Section 4.5(f) and for
which the applicable Redemption Price has not been paid or (B) to convert
those Securities for which the applicable Redemption Price has not been
paid at a Conversion Price equal to the lesser of (I) the Conversion Price
applicable to such conversion on the Redemption Date and (II) the lowest
Per Share Market Value from the Redemption Date to the date the Holder
gives a Void Redemption Notice by sending written notice thereof to the
Issuer via facsimile (the "Void Redemption Notice"). Upon the Issuer's
receipt of such Void Redemption Notice(s) requesting the return of the
Securities and prior to payment of the full applicable Redemption Price to
each Holder, (i) the redemption shall be null and void with respect to
those Securities submitted for redemption and for which the applicable
Redemption Price has not been paid, (ii) the Issuer shall immediately
return any Securities submitted to the Issuer by each Holder for redemption
under this Section 4.5(g) and for which the applicable Redemption Price has
not been paid and (iii) the Conversion Price of such returned Securities
shall be adjusted to the lesser of (I) the Conversion Price applicable to
such conversion on the date on which such Securities were originally
presented for redemption and (II) the lowest Per Share Market Value from
the Redemption Date to the date the Holder gives a Void Redemption Notice.
h. Adjustment to Conversion Price. If the Issuer, at any time while
this Security is outstanding, takes any of the actions described in this
Section 4.5(h), then, in order to prevent dilution of the rights granted
under this Security, at any time prior to the Maturity Date, the Conversion
Price will be subject to adjustment from time to time as provided in this
Section 4.5(h).
(i) Adjustment of Conversion Price upon Issuance of Common Stock.
If at any time while this Security is outstanding the Issuer issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the shares of Common Stock underlying the Warrants or the
Securities or shares
18
issued upon exercise of the Warrants or conversion of the Securities
(collectively, the "Underlying Shares")) or shares of Common Stock
deemed to have been issued by the Issuer in connection with a Stock
Option Plan, or shares of Common Stock issuable upon the exercise of
any options or warrants outstanding on the date hereof and listed in
Schedule 2.1(c) of the Purchase Agreement or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Issuer of a division, assets or business (or stock
constituting any portion thereof) from another Person), for a
consideration per share less than the Conversion Price in effect
immediately prior to such issuance or sale, then immediately after
such issuance or sale the Conversion Price then in effect shall be
reduced to an amount equal to the consideration per share of Common
Stock in such issuance or sale. For the purpose of determining the
adjusted Conversion Price under this Section 4.5(h), the following
shall be applicable:
(A) Issuance of Options. Except for the warrants issued to
BNY Financial Corp. pursuant to that certain $98 million Credit
Facility currently being negotiated between the Company and BNY
Financial Corp., if at any time while this Security is
outstanding the Issuer in any manner grants any rights or options
to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common
Stock (other than the Underlying Shares or shares of Common Stock
deemed to have been issued by the Issuer in connection with a
Stock Option Plan, or shares of Common Stock issuable upon the
exercise of any options or warrants outstanding on the date
hereof and listed in Schedule 2.1(c) of the Purchase Agreement,
or shares of Common Stock issued or deemed to have been issued as
consideration for an acquisition by the Issuer of a division,
assets or business (or stock constituting any portion thereof)
from another Person) (such rights or options being herein called
"Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") and the
price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities is less than the Conversion Price in
effect immediately prior to such grant, then the Conversion Price
then in effect shall be reduced to equal the price per share for
which Common Stock is issuable upon the exercise of such Options
or upon the conversion or exchange of such Convertible
Securities. No adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. If at any time while
this Security is outstanding the Issuer in any manner issues or
sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange
(other than the Underlying Shares or shares of Common Stock
deemed to have been
19
issued by the Issuer in connection with a Stock Option Plan,
shares of Common Stock issuable upon the exercise of any options
or warrants outstanding on the date hereof and listed in Schedule
2.1(c) of the Purchase Agreement, shares of Common Stock issued
or deemed to have been issued as consideration for an acquisition
by the Issuer of a division, assets or business (or stock
constituting any portion thereof) from another Person) is (i)
less than the Conversion Price in effect immediately prior to
issuance or sale or (ii) with respect to any Convertible
Securities issued with a floating conversion or exchange price,
is converted at a price that is less than the Conversion Price
then in effect, the Conversion Price then in effect shall be
reduced to an amount equal to the price per share for which the
Common Stock is issuable upon the conversion or exchange of such
Convertible Securities. No adjustment of the Conversion Price
shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(C) Change in Option Price or Rate of Conversion. If there
is a change at any time in (i) the Purchase Price provided for in
any Options, (ii) the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible
Securities or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock, then
immediately after such change in option price or rate of
conversion the Conversion Price in effect at the time of such
change shall be readjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed Purchase
Price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold;
provided that no adjustment shall be made if such adjustment
would result in an increase of the Conversion Price then in
effect.
(D) Effect on Conversion Price of Certain Events. For
purposes of determining the adjusted Conversion Price under this
Section 4.5(h)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Issuer therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Issuer will be
the fair value of such consideration, except where such
consideration consists of securities, in which case the
amount of consideration received by the Issuer will be the
arithmetic average of the Per Share Market
20
Values of such security for the five (5) consecutive Trading
Days immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with
any merger in which the Issuer is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Issuer and the
Holders of Securities representing a majority of the
aggregate principal amount of Securities then outstanding.
If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event
by an Appraiser selected in good faith by the Issuer and
agreed upon by the Holders of Securities representing a
majority of the aggregate principal amount of Securities
then outstanding. The determination of such Appraiser shall
be binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Issuer, together comprising one integrated
transaction in which no specific consideration is allocated
to such Options by the parties thereto, the Options will be
deemed to have been issued for an aggregate consideration of
$.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares
owned or held by or for the account of the Issuer, and the
disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Issuer takes a record of the
holders of Common Stock for the purpose of entitling them
(1) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
21
(E) Certain Events. If any event occurs of the type
contemplated by the provisions of Section 4.5(h) (subject to the
exceptions stated therein) but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with
equity features), then the Issuer's Board of Directors will make
an appropriate adjustment in the Conversion Price so as to
protect the rights of the Holder, or assigns, of this Security;
provided, however, that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section
4.5(h).
(F) Notices. The Issuer shall give the Holder written notice
of the occurrence of any of the events specified in paragraphs
(i), (ii), (iii) or (iv) above as soon as practicable, but in no
event later than three (3) Business Days, after such event and
shall publicly disclose such event prior to or concurrently with
the giving of such notice. Such notice shall contain at least:
(A) a description of the event, (B) the adjusted Conversion Price
with a reference to the applicable paragraph in Section 4.5(h)
hereof, (C) the dates of the five (5) Trading Day period during
which the adjusted Conversion Price is in effect.
4.6. Restriction on Conversion by Either the Holder or the Issuer.
Notwithstanding anything herein to the contrary, in no event shall any Holder or
the Issuer have the right or be required to convert any or all of the aggregate
principal amount and interest accrued thereon of this Security if as a result of
such conversion the aggregate number of shares of Common Stock beneficially
owned by such Holder and its Affiliates would exceed 4.99% of the outstanding
shares of the Common Stock following such conversion. For purposes of this
Section 4.6, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. The provisions of this
Section 4.6 may be waived by a Holder as to itself (and solely as to itself)
upon not less than 65 days prior written notice to the Company, and the
provisions of this Section 4.6 shall continue to apply until such 65th day (or
later, if stated in the notice of waiver).
4.7. Officer's Certificate. Whenever the number of shares purchasable upon
conversion shall be adjusted as required by the provisions of Section 4.5, the
Issuer shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted number of shares determined as herein
provided, setting forth in reasonable detail the facts requiring such adjustment
and the manner of computing such adjustment. Each such officer's certificate
shall be signed by the chairman, president or chief financial officer of the
Issuer and by the secretary or any assistant secretary of the Issuer. Each such
officer's certificate shall be made available at all reasonable times for
inspection by any holder of the Securities and the Issuer shall, forthwith after
each such adjustment, deliver a copy of such certificate to the each of the
Holders.
4.8. Reservation of Shares. The Issuer covenants that it will at all times
reserve and keep available out of its authorized shares of Common Stock, free
from
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preemptive rights, solely for the purpose of issue upon conversion of the
Securities as herein provided, such number of shares of the Common Stock as
shall then be issuable upon the conversion of all outstanding Securities into
Common Stock in accordance with Section 3.6(b) of the Purchase Agreement (the
"Reserved Amount"). The Issuer covenants that all shares of the Common Stock
issued upon conversion of the Security which shall be so issuable shall, when
issued, be duly and validly issued and fully paid and non-assessable.
4.9. Compliance With Governmental Requirements. The Issuer covenants that
if any shares of Common Stock required to be reserved for purposes of conversion
of Securities hereunder require registration with or approval of any
governmental authority under any Federal or state law, or any national
securities exchange, before such shares may be issued upon conversion, the
Issuer will use its commercially reasonable best efforts to cause such shares to
be duly registered or approved, as the case may be.
4.10. Fractional Shares. Upon a conversion hereunder, the Issuer shall not
be required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Issuer elects not, or is unable, to make such a cash payment, the holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
4.11. Payment of Tax Upon Issue or Transfer. The issuance of certificates
for shares of the Common Stock on conversion of the Securities shall be made
without charge to the Holders thereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such certificate,
provided that the Issuer shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the Holder of such
Securities so converted and the Issuer shall not be required to issue or deliver
such certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Issuer the amount of such tax or shall have
established to the satisfaction of the Issuer that such tax has been paid.
4.12. Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if received by 8:00 p.m. EST
where such notice is to be received), or the first Business Day following such
delivery (if received after 8:00 p.m. EST where such notice is to be received)
or (b) on the second Business Day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications are (i) if to the Issuer to Signal Apparel Company, Inc., 200A
Manufactures Road, Chattanooga, Tennessee 37405 and 500 Seventh Avenue, 7th
Floor, New York, New York 10018, Attn: President and General Counsel, fax no.
23
(423) 752-2040 (TN) and (212) 944-7667 (NY) with copies to Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, Attn: Robert A
Copen, Esq., fax no. (212) 735-2000 and (ii) if to any Holder to the address set
forth on Schedule II to the Purchase Agreement with copies to Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022,
Attn: James Kaye, fax no. (212) 872-1002 or such other address as may be
designated in writing hereafter, in the same manner, by such Person.
ARTICLE V
OPTIONAL REDEMPTION
5.1. Optional Redemption. The Security will not be redeemable at the option
of the Issuer ("Optional Redemption") prior to the one year anniversary of the
Original Issue Date. At any time following the one year anniversary of the
Original Issue Date, and so long as (i) no Event of Default (or any event that
with the passage of time or giving of notice or both would constitute an Event
of Default) shall have occurred and be continuing, (ii) any Registration
Statement required to be filed and be effective pursuant to the Registration
Rights Agreement is then in effect and has been in effect and sales of all of
the Registrable Securities can be made thereunder for at least twenty (20) days
prior to the date of the Notice of Issuer Redemption (as defined below) (the
"Notice of Issuer Redemption Date"), (iii) the Issuer has a sufficient number of
authorized shares of Common Stock reserved for issuance upon full conversion of
the Securities and (iv) the Per Share Market Value of the Company's Common Stock
is $4.00 or more for twenty (20) out of thirty (30) Trading Days prior to the
date of Notice of Issuer Redemption, the Issuer may, at its option, redeem the
entire principal amount of the outstanding Security, together with any accrued
but unpaid interest (the "Optional Redemption Price") upon thirty (30) days
prior written notice to the Holders. In addition to the payment of the Optional
Redemption Price the Issuer shall deliver to the Holders such number of warrants
of the Issuer's Common Stock as is determined by a fraction, the numerator of
which is the interest which would have been paid to the Holders had the Security
remained outstanding from the period commencing on the Notice of Issuer
Redemption Date and ending on the Stated Maturity Date and the denominator of
which is the Average Price of the Issuer's Common Stock (measured from the date
of the Notice of Issuer Redemption Date). Such warrants will be in substantially
the same form as the Warrants issued pursuant to the Purchase Agreement, except
the Exercise Price shall be 120% of the Average Price (measured from the date of
the Notice of Issuer Redemption Date).
5.2. Mechanics of Redemption. The Issuer shall exercise its right to redeem
by delivering a written notice by facsimile and overnight courier (the "Notice
of Issuer Redemption") to the Holders. Such Notice of Issuer Redemption shall
indicate (A) the Optional Redemption Price and (B) confirm the date (the
"Optional Redemption Date") the Issuer shall effect the Optional Redemption,
which date shall be not less than thirty (30) calendar days and not more than
fifty (50) calendar days after the Notice of Issuer Redemption Date.
Notwithstanding the foregoing, the Issuer shall convert any
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Security submitted by a Holder pursuant to Article 4 if the Notice of Conversion
for such Security is submitted prior to the Optional Redemption Date.
5.3. Payment of Optional Redemption Price. The Issuer shall pay the
applicable Optional Redemption Price to the Holders in cash on the Optional
Redemption Date. If the Issuer shall fail to pay the applicable Optional
Redemption Price to the Holders within three (3)Trading Days after the Optional
Redemption Date, the provisions of Section 4.5(g) shall apply, with "Section
5.1" being substituted in each place where "Section 4.5(f)" is written, with
"Section 5.3" being substituted in each place where "Section 4.5(g)" is written
and with the terms "Optional Redemption Price" and "Optional Redemption Date"
being substituted for the terms "Redemption Price" and "Redemption Date",
respectively.
ARTICLE VI
MISCELLANEOUS
6.1. Modification of Securities. This Security may be modified without
prior notice to any Holder upon the written consent of the Issuer and the
Holders of more than 75% of the principal amount of the Securities then
outstanding. The Holders of more than 75% of the principal amount of the
Securities then outstanding may waive compliance by the Issuer with any
provision of this Security without prior notice to any Holder. However, without
the consent of each Holder affected, an amendment, supplement or waiver may not
(1) reduce the amount of Securities whose Holders must consent to an amendment,
supplement or waiver, (2) reduce the principal amount of or extend the fixed
maturity of any Security or (3) make any Security payable in money or property
other than as stated in the Securities.
6.2. Miscellaneous. This Security shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. The parties hereto, including all
guarantors or endorsers, hereby waive presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Security, except as specifically provided
herein, and assent to extensions of the time of payment, or forbearance or other
indulgence without notice. The Holder of this Security by acceptance of this
Security agrees to be bound by the provisions of this Security which are
expressly binding on such Holder.
6.3. Rank and Subordination. The Securities shall be and hereby are
expressly made subordinate and junior in right of payment to all indebtedness,
obligations and liabilities of the Issuer, whether now existing or hereafter
incurred or
25
created ("Senior Indebtedness"), to the extent and in the manner provided in
this subordination provision. All Senior Indebtedness must be paid before the
Securities may be paid. This subordination provision is made for the benefit of
the holders of such Senior Indebtedness, and such holders are hereby made
obligees hereunder with the same effect as if their names were written as such
in this subordination provision and any such holder or all of them may proceed
to enforce such provisions. The Holders waive any and all notice of the creation
or accrual of any such Senior Indebtedness and notice of proof of reliance upon
these subordination provisions by any holder of any Senior Indebtedness.
Moreover, the Holders agree to be bound by this subordination provision and the
Senior Indebtedness shall conclusively be deemed to have been created,
contracted or incurred in reliance upon this subordination provisions and all
dealings between the Issuer and the holders of any such Senior Indebtedness so
arising shall be deemed to have been consummated in reliance upon this
subordination provision. Notwithstanding the foregoing, the Securities shall
rank pari passu to any future convertible debt incurred by the Company.
6.4. Securities Owned by Issuer Deemed Not Outstanding. In determining
whether the holders of the requisite aggregate principal amount of Securities
have concurred in any direction, consent or waiver under this Security,
Securities which are owned by the Issuer or any other obligor on the Securities
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Issuer or any other obligor on the
Securities shall be disregarded and deemed not to be outstanding for the purpose
of any such determination; provided that any Securities owned by the Purchasers
shall be deemed outstanding for purposes of making such a determination.
Securities so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Issuer the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer or any other obligor upon the securities or any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer or any other obligor on the Securities.
6.5. Notice to Securityholders Prior to Taking Certain Types of Action. In
case:
a. the Issuer shall authorize the issuance, at any time from and after
the Original Issue Date, to all holders of any class or series of its
Capital Stock, of rights or warrants to subscribe for or purchase shares of
its capital stock or of any other right;
b. the Issuer shall authorize, at any time from and after the Original
Issue Date, the distribution to all holders of any class or series of its
Capital Stock, of evidences of its indebtedness or assets;
c. the Issuer shall declare a dividend (or other distribution) on its
Common Stock or the Issuer shall declare a special nonrecurring dividend on
or a redemption of its Common Stock;
26
d. of any subdivision, combination or reclassification of any class or
series of Capital Stock of the Issuer at any time from and after the
Original Issue Date or of any consolidation or merger to which the Issuer
is a party and for which approval by the shareholders of the Issuer is
required, or of the sale or transfer of all or substantially all of the
assets of the Issuer or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; or
e. of the voluntary or involuntary dissolution, liquidation or winding
up of the Issuer;
then the Issuer shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Security, and shall cause to be mailed to the
Holder of this Security, at least ten (10) Business Days prior to the earlier of
any applicable record or the effective date hereinafter specified, a notice
(provided such notice shall not include any material non-public information)
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
6.6. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
6.7. No Rights as Stockholder. This Security shall not entitle the Holder
to any rights as a stockholder of the Issuer, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive
notice of, or to attend, meetings of stockholders or any other proceedings of
the Issuer, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
6.8. Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.
SIGNAL APPAREL COMPANY, INC.
By _________________________________
Name:
Title:
Dated:
28
EXHIBIT A
SIGNAL APPAREL COMPANY, INC.
CONVERSION NOTICE
Reference is made to the Debenture issued by Signal Apparel Company, Inc. (the
"Debenture"). In accordance with and pursuant to the Debenture, the undersigned
hereby irrevocably elects to convert the principal amount of the Debenture,
indicated below into shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Issuer, by tendering the Debenture specified below as of
the date specified below.
Date of Conversion:_______________________________________________________
Aggregate Principal Amount to be converted:___________________________________
Debenture no(s). of Debenture to be converted:________________________________
Please confirm the following information:
Conversion Price:_________________________________________________________
Number of shares of Common Stock to be issued:_______________________________
Please issue the Common Stock into which the Debenture is being converted and,
if applicable, any check drawn on an account of the Issuer in the following name
and to the following address:
Issue to:_________________________________________________________________
Facsimile Number:________________________________________________________
Authorization: By:______________________________
Title:
Dated:_______________________________
Account Number (if electronic book entry transfer):____________________________
Transaction Code Number (if electronic book entry transfer):___________________
29