ESCROW AGREEMENT
ESCROW AGREEMENT dated as of March 16, 1999 ("Agreement") by and among
Tahiti Apparel, Inc., a New Jersey corporation ("Seller") and Signal Apparel
Company, Inc., an Indiana corporation ("Buyer") and Wachtel and Masyr, LLP, a
New York limited liability partnership ("Escrow Agent").
W I T N E S S E T H
WHEREAS, pursuant to that certain Asset Purchase Agreement between Buyer
and Seller dated December 17, 1998 (the "Asset Purchase Agreement"), the Buyer
has purchased substantially all of the assets of the Seller;
WHEREAS, the Buyer has agreed to pay to Seller, and Seller has agreed to
accept from Buyer, shares of the Buyer's common stock in consideration for its
assets; and
WHEREAS, Buyer and Seller have agreed to deposit One Million (1,000,000)
shares of the Buyer's common stock in escrow with the Escrow Agent for
disposition in accordance with this Escrow Agreement (the "Escrowed Shares").
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. Appointment of Escrow Agent. The Escrow Agent is hereby appointed to act
as the Escrow Agent hereunder in accordance with the terms set forth herein, and
the Escrow Agent hereby accepts such appointment.
2. Deposit. Upon execution of this Escrow Agreement, pursuant to the Asset
Purchase Agreement, the Buyer shall deliver to the Escrow Agent, for deposit
into escrow, stock certificates for the Escrowed Shares together with stock
powers duly endorsed in blank. The Escrow Agent shall maintain an account (the
"Escrow Account") for the Buyer showing the number of the Escrowed Shares held
by the Escrow Agent. The initial balance in the Escrow Account shall be
1,000,000 shares of the Buyer's Common Stock.
3. Valuation of Escrowed Shares. For all purposes of this Agreement, the
value of each share of the Escrowed Shares shall be equal to the greater of
$1.75 per share and the average of the Closing Prices during the 10 consecutive
trading days immediately preceding the date that any amount is due and payable
to the Buyer under Section 10.1(a) of the Asset Purchase Agreement (or such date
as otherwise agreed by the parties) ("Valuation Price"). "Closing Price" on any
day when used with respect to the Buyer's Common Stock means the reported last
sale price regular way on composite tape, or, if the shares of the Buyer's
Common Stock are not quoted on the composite tape, the reported last sale price
on the New York or the American Stock Exchange or, if the shares of the Buyer's
Common Stock are not listed or admitted to trading on either such Exchange, as
reported on the National Association of Securities Dealers Automated Quotation
System, or if the shares of the Buyer's Common Stock are not quoted on such
system, the average of the closing bid and asked prices as furnished by any
member of
2
the National Association of Securities Dealers, Inc. selected by the Company for
that purpose.
4. Reservations of Escrowed Shares. Whenever the Buyer gives a Notice (as
defined in the Asset Purchase Agreement) to the Seller, it shall send a copy
thereof to the Escrow Agent. Promptly after receipt of a Notice, the Escrow
Agent shall reserve on the records of the Escrow Agent such number of shares of
the Escrowed Shares (rounded to the nearest whole share) as is equal to the
amount of the claim set forth in such Notice (the "Claim Amount") divided by
$1.75 or, if the Claim Amount is greater than product of $1.75 multiplied by the
amount of all unreserved shares, all remaining shares of the Escrowed Shares
("Reserved Shares").
5. Distributions of Escrowed Shares. The Escrow Agent shall distribute the
Escrowed Shares in accordance with the following provisions:
a. The Escrow Agent shall distribute shares of the Escrowed Shares at such
time and in such manner as is set forth in any written agreement or written
instructions signed by the Buyer and the Seller and delivered to the Escrow
Agent.
b. Whenever the Buyer gives a "Payment Notice" to the Seller, it shall send
a copy thereof to the Escrow Agent. A Payment Notice shall be a demand for
payment by the Seller to the Buyer of amounts owed under Section 10.1(a) of the
Asset Purchase Agreement (the "Indemnification Amount") which notice may only be
given by the Buyer to the Seller after the entry of a final judgment (without
further rights of appeal) is entered determining the amount owed or after a
final settlement or agreement is executed by the Buyer and Seller. Within ten
(10) business day after receipt of a Payment Notice, the Escrow Agent shall
distribute from the Escrow Account to the Buyer (by delivery of a
3
proper share certificate therefor) such number of shares of the Escrowed Shares
(rounded to the nearest whole share) as is equal to the Indemnification Amount
set forth in such Payment Notice divided by the Valuation Price, or, if
Indemnification Amount is greater that the Valuation Price of the remaining
Escrow Shares, all remaining shares of the Escrowed Shares, provided that the
Seller has not objected to the release of the Escrowed Shares within such ten
(10) day period on the grounds that a proper Payment Notice has not been given.
If the Seller timely delivers an objection notice as provided in sub-section
4(b) hereof, then the Escrow Agent shall continue to hold the Escrowed Shares,
or portion thereof, in escrow and thereafter deliver it to the party entitled
thereto when the Escrow Agent receives: (a) a notice from the Seller withdrawing
the objection notice, (b) a notice signed by the Seller and Buyer directing
disposition of all or such portion of the Escrowed Shares as to which the
objection notice was given or, in neither (a) nor (b) is applicable, (c) a
judgment or order from a court of competent jurisdiction directing the Escrow
Agent to deliver all or a portion of the Escrowed Shares to the Buyer or the
Seller. The Escrow Agent shall have the right in the event of any dispute to
deposit such Escrowed Shares with the clerk of the court in the jurisdiction in
which it maintains its principal office.
c. If there are no Claim Notices outstanding on June 30, 2000 (the
"Expiration Date"), then, within five (5) business days after the Expiration
Date, the Escrow Agent shall distribute to the Seller (by delivery of a proper
share certificate therefor) any remaining shares of the Escrowed Shares then
held in the Escrow Account.
d. If there are Claim Notices outstanding on the Expiration Date, then (i)
within five (5) business days after the Expiration Date, the Escrow Agent shall
distribute to the Seller (by delivery of a proper share certificate therefor)
any remaining
4
shares of the Escrowed Shares then held in his Escrow Account other than
Reserved Shares, (ii) as each such outstanding Notice is resolved, the Escrow
Agent shall (A) distribute to the Buyer any Escrowed Shares to which the Buyer
becomes entitled in accordance with Section 5 hereof with respect to a resolved
Notice with respect to which a Payment Notice is given and (B) if applicable,
distribute to the Seller (by delivery of a proper share certificate therefor) a
number of the Reserved Shares reserved in respect of the resolved Notice equal
to the difference between the Reserved Shares in respect of said Notice minus
the number of shares of the Escrowed Shares delivered under Section 5(d)(ii)(A),
and (iii) within five (5) business days after the last such outstanding Notice
is resolved and any corresponding distributions to the Buyer are made, the
Escrow Agent shall distribute to the Seller (by delivery of a proper share
certificate therefor) any remaining shares of the Escrowed Shares then held in
the Escrow Account.
5. Exchange of Collateral. At any time, the Seller may, at its option
deposit with the Escrow Agent an equivalent value, based upon the Valuation
Price on such date, of cash ("Escrowed Cash") in exchange for all remaining
Escrowed Shares in the Escrow Account. Upon exercise of such option, references
to the Escrowed Shares and reservations and distributions therefor shall
thereafter be deemed to refer instead to equivalent amounts of the Escrowed Cash
and reservations thereof.
7. Term. The term of this Escrow Agreement shall commence on the receipt by
the Escrow Agent of the Escrowed Shares and shall terminate upon the complete
distribution (which will include the deposit of all of the Escrowed Shares then
held into a court of proper jurisdiction) of the Escrowed Shares.
5
8. The Escrow Agent. The acceptance by the Escrow Agent of the Escrow
Agent's duties under this Escrow Agreement is expressly subject to the following
terms and conditions, which the parties hereto agree shall govern and control
with respect to their respective rights, duties, liabilities and immunities:
(a) The Escrow Agent is acting solely as a stakeholder at the request of
the Seller and the Buyer and for their convenience and shall not incur any
liability whatsoever, except for its own willful misconduct or bad faith.
(b) The Escrow Agent may consult with, and obtain advice from, counsel of
its own choice in the event of any bona fide question as to any of the
provisions hereof or the Escrow Agent's duties hereunder. The Escrow Agent shall
incur no liability and shall be fully protected in acting in good faith in
accordance with the opinion and instructions of such counsel.
(c) The Escrow Agent or any member of its firm shall be permitted to act as
counsel for the Seller in any dispute relating to, or arising from, this Escrow
Agreement or the Asset Purchase Agreement, or any other agreement contemplated
thereby.
(d) The Escrow Agent shall not be bound or affected in any way by any
notice of modification or cancellation of this Escrow Agreement unless written
notice thereof is given to the Escrow Agent by the Seller and the Buyer in
accordance with Section 11 hereof. The Escrow Agent shall not be bound by any
modifications of its obligations hereunder unless the Escrow Agent consents in
writing thereto. The Escrow Agent shall be entitled to rely upon any judgment,
certification, demand, notice or other writing delivered to it hereunder without
being required to determine the authenticity or the
6
correctness of any fact stated therein or the propriety or validity of the
service thereof, provided that the Escrow Agent is delivered proof of service of
notice as provided in Section 11 hereof.
(e) The Escrow Agent may act in reliance upon any instrument or signature
reasonably believed by it to be genuine and the Escrow Agent may assume that any
person purporting to give any notice or receipt of advice or make any statement
in connection herewith has been duly authorized so to do.
(f) The Seller and the Buyer, jointly and severally, agree to indemnify and
hold harmless the Escrow Agent from and against any loss, liability, cost and
expense (including attorneys' fees under Section 7(b) hereof or otherwise),
claim or demand arising out of, or in connection with, the performance of its
obligations in accordance with the provisions of this Escrow Agreement, except
for any of the foregoing arising out of the gross negligence, willful misconduct
or bad faith of the Escrow Agent.
(g) Upon ten (10) days prior written notice to the Seller and the Buyer,
the Escrow Agent shall have the absolute right at any time to resign as the
Escrow Agent hereunder. If the Escrow Agent exercises such right, the Seller and
the Buyer shall designate a new Escrow Agent hereunder within such ten (10) day
period. Upon the effective date of such resignation, the Escrow Agent shall
deliver all property then held by it to such person or entity as may be
designated in writing by the Seller and the Buyer, whereupon all of the Escrow
Agent's duties and obligations hereunder shall cease and terminate. If no such
person shall have been designated by such time, all duties and obligations of
the Escrow Agent shall
7
nevertheless terminate and the Escrow Agent shall deposit the Escrowed Shares
with the clerk of the court in the jurisdiction in which it maintains its
principal office.
9. Amendments. This Escrow Agreement may be waived, amended or terminated
only by written notice signed by the Seller and the Buyer to the Escrow Agent,
but the duties or responsibilities of the Escrow Agent may not be changed
without the Escrow Agent's prior written consent.
10. Partial Invalidity. This Escrow Agreement shall be construed so that
each of its provisions shall be valid and enforceable to the fullest extent
permitted by law, and any such invalidity or unenforceability shall not affect
or render invalid or unenforceable any other provision of this Escrow Agreement.
11. Survival of Escrow Agreement. This Escrow Agreement is irrevocable and
is made for the benefit of the Seller and the Buyer. The obligations of the
Seller and the Buyer hereunder shall not be terminated by any act of any of them
or by operation of law and the Escrow Agent shall be authorized and directed to
hold and dispose of the Escrowed Shares in accordance with this Escrow Agreement
as if such event had not occurred.
12. Notices. All notices, demands, consents or other communications
provided for hereunder shall be in writing and shall be deemed to have been duly
given when delivered personally or one business day after being sent by a
nationally recognized overnight delivery service, or three business days after
being sent by registered or certified mail, return receipt requested, in each
case postage or delivery charges prepaid. All such communication shall be made
at the following addresses:
8
To Seller: Tahiti Apparel, Inc.
500 Seventh Avenue
New York, New York 10018
With a Copy to: Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Attention: Morris Missry, Esq.
To Purchaser: Signal Apparel Company, Inc.
500 Seventh Avenue
New York, New York 10018
To Escrow Agent: Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Attention.: Morris Missry, Esq.
Each of the foregoing shall be entitled to specify a different address by giving
notice in writing thereof to the other parties in the manner specified above.
13. Successors and Assigns. This Escrow Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, distributees, successors and assigns. This Escrow Agreement
contains the entire understanding of the parties hereto with respect to the
subject matter hereof.
14. Governing Law. This Escrow Agreement shall be construed (both as to
validity and performance) and enforced in accordance with, and governed by, the
laws of the State of New York applicable to contracts to be performed entirely
within that State, without giving effect to the principles of conflicts of law.
Any and all proceedings in court with respect to this Escrow Agreement shall
only be initiated and pursued in the state or federal courts located in the
City, County or State of New York and the parties hereto specifically hereby
consent to such jurisdiction and venue. The parties hereto each waive
9
any claim that such jurisdiction is not a convenient forum for any such suit or
proceeding and the defense of lack of personal jurisdiction.
IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow
Agreement as of the date first above written.
Buyer:
Signal Apparel Company, Inc.
By: /s/ Thomas A. McFall
-----------------------------
Name: Thomas A. McFall
Title: CEO
Seller:
Tahiti Apparel, Inc.
By: /s/ Zvi Ben-Haim
-----------------------------
Name: Zvi Ben-Haim
Title: President
Escrow Agent:
Wachtel & Masyr, LLP
By: /s/ Morris Missry
-----------------------------
Name: Morris Missry, Esq.
Title: Partner
10