SIGNAL APPAREL COMPANY, INC.
SECURITIES TRANSFER AGREEMENT
This Securities Transfer Agreement (this "Agreement") is entered into as of
the 16th day of March, 1999, by and between Signal Apparel Company, Inc., an
Indiana corporation (the "Company"), and Michael Harary (the "Purchaser").
The parties hereto agree as follows:
1. Purchase and Sale. In consideration for the Purchaser entering into
employment agreement (the "Employment Agreement"), dated as of March 16, 1999,
between Purchaser and the Company and subject to the terms and conditions set
forth in this Agreement:
a. Initial Warrants. The Company agrees to issue a warrant to the
Purchaser on the Closing Date (each an "Initial Warrant") in the form
attached hereto as Exhibit A (the "Warrant Certificate"), to purchase
shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"). Each Initial Warrant shall entitle the holder thereof to
purchase up to 500,000 Warrant Shares (as defined below) at the price of
$1.75 per share.
b. Additional Warrants. The Company agrees to issue additional
Warrants to the Purchaser in accordance with Schedule I attached hereto
(the "Additional Warrants"; and together with each Initial Warrant, the
"Warrants"). All Additional Warrants issued pursuant to this Agreement
shall be in the form of the Warrant Certificate. The shares of Common Stock
issuable pursuant to the Warrants are referred to herein as the "Warrant
Shares".
c. In lieu of exercising the Warrants in the manner herein provided,
the Purchaser may elect to receive shares equal to the value of the
Warrants by surrender of this Warrant at the principal office of the
Company together with notice of such election in which event the Company
shall issue to the Purchaser a number of shares of the Common Stock
computed using the following formula:
X= Y(A-B)
------
A
Where: X = the number of shares of the Common Stock to be issued to
the Purchaser.
Y = the number of shares of the Common Stock purchasable
under this Warrant (at the date of such calculation).
A = the fair market value of one share of the Common Stock
(at the date of such calculation)
B = the purchase price (as adjusted to the date of such
calculation)
2. Closing Date Purchase. The delivery of the Initial Warrants shall occur
at a closing (the "Closing") to be held at 10:00 a.m., New York time, on March
22, 1999 at the offices of Wachtel & Masyr, LLP, 110 East 59th Street, New York,
New York 10022, (such date of the Closing referred to hereinafter as the
"Closing Date").
3. Representations and Warranties of the Company. The Company represents
and warrants to the Purchasers as follows:
a. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Indiana and has all requisite corporate power and authority to own
or lease and operate its properties and assets and to carry on its business
as now conducted and as proposed to be conducted. The Company is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in all jurisdictions in which it owns or leases property or in
which the conduct of its business requires it to be so qualified or
licensed, except where the failure to be so qualified or licensed would
not, individually or in the aggregate, have a material adverse effect on
the business, assets, results of operations or condition (financial or
otherwise) of the Company.
b. Authorization. All corporate action on the part of the Company
necessary for the authorization, execution, delivery and performance of
this Agreement by the Company, and for the authorization, issuance and
delivery of the Shares and the Warrant being sold under this Agreement, has
been taken. This Agreement has been duly executed and delivered by the
Company, and assuming that this Agreement has been duly executed and
delivered by each of the other parties hereto, shall constitute the valid
and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent the
enforceability thereof may be limited by bankruptcy laws, insolvency laws,
reorganization laws, moratorium laws or other laws affecting creditors'
rights generally or by general equitable principles.
c. Validity of Shares. Each Warrant, when issued, sold and delivered
in accordance with the terms of this Agreement, shall be duly and validly
issued, and fully paid.
d. Securities Act. The issuance of each Warrant in accordance with the
terms of this Agreement (assuming the accuracy of the representations and
warranties of the Purchaser contained in Section 5 hereof) is exempt from
the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act").
e. The Company has reserved 4,000,000 shares for issuance pursuant to
the Warrants. When issued to the Purchaser in accordance with the terms of
this Agreement and each Warrant Certificate, each Warrant and each Warrant
Share:
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(1) will have been duly and validly authorized, duly and validly
issued, fully paid and non-assessable;
(2) will be free and clear of any security interests, liens, claims
or other encumbrances (other than those resulting solely from
actions by the Purchaser); and
(3) will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the
Company.
4. Registration Provisions.
a. The Company shall, at its own expense, file a registration
statement (the "Registration Statement") under the Securities Act covering
the sale or resale of the Warrant Shares, and shall use its commercially
reasonable best efforts to cause such Registration Statement to be declared
effective not later than November 1, 1999 (i) with respect to the Initial
Warrants, and (ii) with respect to the Additional Warrants, the date such
Additional Warrants are issued to the Purchaser, provided that the
Purchaser shall have provided such information and cooperation in
connection therewith as the Company may request.
b. The Company will use its commercially reasonable best efforts to:
(i) provide a transfer agent and registrar for all Warrant Shares and a
CUSIP number for all Warrant Shares; (ii) use its commercially reasonable
best efforts to comply with all applicable rules and regulations of the
Securities and Exchange Commission (the "SEC"); and (iii) file the
documents required of the Company.
c. The Company may postpone, for up to three (3) months, the filing or
the effectiveness of any registration required by Section 4.a. if the board
of directors of the Company determines in good faith that such registration
would have a material adverse effect on any proposal or plan of the Company
to engage in any transaction involving an acquisition, financing or similar
transactions not in the ordinary course of business.
d. The Company may include in any registration pursuant to Section
4.a. newly-issued shares of Common Stock to be sold by the Company on a
primary basis.
e. It shall be a condition precedent to the obligation of the Company
to take any action pursuant to this Section 4 in respect of the securities
which are to be registered that the Purchaser shall furnish to the Company
such information regarding the securities held by the Purchaser and the
intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company.
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f. Notwithstanding any other provisions of this Section 4, the Company
shall not be obligated to register any Warrant Shares of any holder after
such Warrant Shares are deemed to be freely tradable securities pursuant to
Rule 144(k) under the Securities Act.
5. Representations, Warranties and Agreements of the Purchaser. The
Purchaser represents and warrants to the Company as follows:
a. Authorization. The execution and delivery by the Purchaser of this
Agreement and the consummation by the Purchaser of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Purchaser. The Purchaser represents and warrants
that this Agreement, when executed and delivered by it, will constitute its
valid and legally binding obligation, enforceable against the Purchaser in
accordance with its terms, except to the extent the enforceability thereof
may be limited by bankruptcy laws, insolvency laws, reorganization laws,
moratorium laws or other laws affecting creditors' rights generally or by
general equitable principles.
b. Investment Representations.
i. This Agreement is made in reliance upon the Purchaser's
representations to the Company, which by execution hereof the
Purchaser hereby confirms, that (A) each Warrant to be received by it
will be acquired by it for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of
any part thereof in violation of applicable federal or state
securities laws, and (B) it has no current intention of selling,
granting participation in or otherwise distributing the same in
violation of applicable federal or state securities laws. By executing
this Agreement, each Purchaser further represents that it does not
have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person, or to
any third person, with respect to each Warrant in violation of
applicable federal or state securities laws.
ii. The Purchaser understands that each Warrant, when issued,
shall not be registered under the Securities Act on the basis that the
sale provided for in this Agreement and the issuance of securities
hereunder is exempt from registration under the Securities Act
pursuant to Section 4(2) thereof and regulations issued thereunder,
and that the reliance of the Company on such exemption is predicated
on representations of the Purchaser set forth herein.
6. Legends.
a The Purchaser acknowledges that all certificates evidencing each
Warrant
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shall bear the following legend:
"TRANSFER RESTRICTED
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend if, unless otherwise required by
state securities laws, (a) such shares are sold pursuant to an effective
registration statement under the Securities Act, or (b) such holder
provides the Company with assurances satisfactory to the Company that such
shares may be publicly sold pursuant to Rule 144 (or similar regulation
hereinafter adopted) without restriction.
b. The certificates evidencing each Warrant shall also bear any legend
required by any applicable state securities law.
7. Adjustments. In the event that the Company shall declare a dividend or
make a distribution on or with respect to the outstanding shares of its Common
Stock in the form of shares of its Common Stock, subdivide its outstanding
shares of Common Stock into a greater number of shares, combine its outstanding
shares of Common Stock into a smaller number of shares or sell shares of Common
Stock for a price less than the fair market value for such shares, then, in each
such event, the number of Warrant Shares issuable and the per share price of
such Warrant Shares stated in this Agreement in effect at the time of the record
date for such dividend or distribution or the effective date of such subdivision
or combination shall be proportionately adjusted, if necessary, as determined in
good faith by the Board of Directors of the Company, so that the Purchaser shall
be entitled to receive the aggregate number of shares of Common Stock for the
aggregate price that the Purchaser would have received immediately following
such action if the Purchaser had exercised his rights immediately prior to such
action. Such adjustment shall be made successively whenever any event specified
above shall occur.
8. Conditions to the Obligations of the Purchaser at Closing. The
obligations of the Purchaser under this Agreement are subject to the fulfillment
of each of the following conditions:
a. Representations and Warranties. The representations and warranties
of the Company contained in Section 5 hereof shall be true and correct as
of the date of this
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Agreement and as of the Closing Date, with the same force and effect as if
they had been made on and as of the Closing Date.
b. Performance. The Company shall have performed in all material
respects and materially complied with each and all of its covenants and
agreements contained in this Agreement required to be performed or complied
with by it on or before the Closing Date.
c. Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance of each
Warrant pursuant to this Agreement shall have been obtained and shall be
effective on and as of the Closing Date.
9. Conditions to the Obligations of the Company at Closing. The obligations
of the Company under this Agreement are subject to the fulfillment of each of
the following conditions:
a. Representations and Warranties. The representations and warranties
of the Purchaser contained in Section 5 hereof shall be true and correct as
of the date of this Agreement and as of the Closing Date with the same
force and effect as if they had been made on and as of the Closing Date.
b. Performance. The Purchaser shall have performed in all material
respects all of his obligations and materially complied with each and all
of his covenants and agreements contained in this Agreement required to be
performed or complied with on or prior to the Closing, including without
limitation the execution and delivery of the agreements and undertakings
provided for in this Agreement.
c. Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance of each
Warrant pursuant to this Agreement shall have been obtained and shall be
effective on and as of the Closing Date.
10. Covenants.
a. Financial Statement. The Company will, and at any time when the
Company has subsidiaries will cause each of its subsidiaries to, maintain a
standard system of accounts in accordance with generally accepted
accounting principles consistently applied, and the Company will, and will
cause each of its subsidiaries to, keep full and complete financial
records.
b. Offer or Sale. Neither the Purchaser nor any of his affiliates nor
any person acting on his behalf will at any time offer or sell any of the
Warrant Shares other than pursuant to registration under the Securities Act
or pursuant to an available exemption therefrom.
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c. Further Assurances. Each party hereto shall cooperate with the
other, and execute and deliver, or use all reasonable efforts to cause to
be executed and delivered, all such other instruments, including
instruments of conveyance, assignment and transfer, and to make all filings
with and to obtain all consents, approvals or authorizations of any
governmental or regulatory authority or any other person or entity under
any permit, license, agreement, indenture or other instrument, and take all
such other actions as such party may reasonably be requested to take by the
other parties hereto from time to time, consistent with the terms of this
Agreement, in order to effectuate the provisions and purposes of this
Agreement and the transactions contemplated hereby.
11. Miscellaneous
a. No Waiver; Modifications in Writing. This Agreement, together with
the Exhibits hereto, and the Employment Agreement, sets forth the entire
understanding of the parties, and supersedes all prior agreements,
arrangements and communications, whether oral or written, with respect to
the subject matter hereof. No waiver of or consent to any departure from
any provision of this Agreement shall be effective unless such waiver or
consent is signed in writing by the party entitled to the benefit thereof
and written notice of any such waiver or consent is given to each party
hereto as set forth below. Except as otherwise provided herein, no
amendment, supplement, modification or termination of any provision of this
Agreement shall be effective unless signed in writing by or on behalf of
the Company and the Purchaser. Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Company from the terms
of any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand
on the Company or the Purchaser in any case shall entitle the Company or
the Purchaser to any other or further notice or demand in similar or other
circumstances.
b. Notices. All notices and other communications necessary or
contemplated under this Agreement shall be in writing and shall be
delivered in the manner specified herein or, in the absence of such
specification, shall be deemed to have been duly given when delivered by
hand, one day after sending by overnight delivery service, upon receipt of
written confirmation if sent by telecopy, or three days after sending by
certified mail, postage prepaid, return receipt requested to the respective
addresses of the parties set forth below:
If to the Purchaser: c/o Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Telecopy: (212) 371-0320
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Attention: Morris Missry, Esq.
If to the Company: Signal Apparel Company, Inc.
500 7th Avenue
7th Floor
New York, NY 10018
Telecopy: (212) 354-5314
Attention: Howard Weinberg
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 3rd Avenue
New York, NY 10022
Telecopy: (212) 735-2000
Attention: Robert Copen
By notice complying with the foregoing provisions of this Section 11.b.,
each party shall have the right to change the mailing address for future
notices and communications to such party.
c. Execution of Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered,
shall be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same Agreement.
d. Binding Effect; Assignment. The rights and obligations of the
Purchaser under this Agreement may only be assigned to another person with
the prior written consent of the Company. Except as expressly provided in
this Agreement, this Agreement shall not be construed so as to confer any
right or benefit upon any person other than the parties to this Agreement
and their respective successors and assigns. This Agreement shall be
binding upon the Company and the Purchaser and their respective successors
and assigns.
e. Governing Law. This Agreement shall be governed by the laws of the
State of New York as to all matters, including but not limited to matters
of validity, construction, effect, performance and remedies.
f. Severability of Provisions. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
g. Exhibits and Headings. All Exhibits to this Agreement shall be
deemed to be a part of this Agreement. The Section headings used or
contained in this Agreement
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are for convenience of reference only and shall not affect the construction
of this Agreement.
h. Consent to Jurisdiction. The Company and the Purchaser, by its
execution hereof, (i) hereby irrevocably submit to the exclusive
jurisdiction of the state courts of the State of New York or Federal Court
for the Eastern or Southern District in the State of New York for the
purposes of any claim or action arising out of or based upon this Agreement
or relating to the subject matter hereof, (ii) hereby waives, to the extent
not prohibited by applicable law, and agrees not to assert by way of
motion, as a defense or otherwise, in any such claim or action, any claim
that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution,
that any such proceeding brought in the above-named court is improper, or
that this Agreement or the subject matter hereof may not be enforced in or
by such court, and (iii) hereby agrees not to commence any claim or action
arising out of or based upon this Agreement or relating to the subject
matter hereof other than before the above-named courts nor to make any
motion or take any other action seeking or intending to cause the transfer
or removal of any such claim or action to any court other than the
above-named courts whether on the grounds of inconvenient forum or
otherwise. The Company and the Purchaser hereby consent to service of
process in any such proceeding in any manner permitted by New York law, and
agrees that service of process by registered or certified mail, return
receipt requested, at its address specified pursuant to Section 12.b.
hereof is reasonably calculated to give actual notice.
WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY AND THE PURCHASER, BY THEIR
EXECUTION HEREOF, WAIVES THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
DEALINGS BETWEEN OR AMONG THEM RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION AND THE RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE
COMPANY AND THE PURCHASER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY
RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF
THE COMPANY AND THE PURCHASERS FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER
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IS IRREVOCABLE, MEANING THAT IT SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Thomas McFall
--------------------------------
Name: Thomas McFall
Title: Chief Executive Officer
MICHAEL HARARY
/s/ Michael Harary
--------------------------