RESTRUCTURING AGREEMENT
This Restructuring Agreement is made as of the 21st day of November, 1997,
by and among Signal Apparel Company, Inc., an Indiana corporation (the
"Company") and WGI, LLC, a New York limited liability company ("WGI").
WHEREAS, as of the end of the Company's third fiscal quarter (September 30,
1997), the Company was indebted to WGI and/or its affiliates in the principal
amount of $20,000,000 (plus accrued interest of $8,271,832), pursuant to the
terms of a Credit Agreement dated as of March 31, 1995, as amended, (the "WGI
Credit Agreement Debt"), with additional interest accruing on such indebtedness
at the rate of 10% per annum; and
WHEREAS, as of the end of the Company's third fiscal quarter (September 30,
1997), the Company was indebted to WGI and/or its affiliates in the principal
amount of $23,584,000 (plus accrued interest of $4,305,546), pursuant to
additional advances of funds to the Company through August 22, 1997, which were
intended by the Company and WGI as additional financing to be documented on
substantially the same terms as those of the Credit Agreement dated as of March
31, 1995, as amended, (the "WGI Advances Debt"), with additional interest
accruing on such indebtedness at the rate of 10% per annum; and
WHEREAS, WGI presently holds 177.969 shares of the Company's Series C Preferred
Stock, which shares represent an aggregate of $20,513,958.31 in stated value
plus cumulative accrued and unpaid dividends (dividends having ceased to accrue
on such stock pursuant to the terms of an
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agreement between the Company and all of the holders thereof dated March 31,
1995); and
WHEREAS, WGI presently holds Warrants, exercisable through September 1, 1998, to
purchase a total of 345,000 additional shares of the Company's Common Stock with
an exercise price of $7.06 per share; and
WHEREAS, as of the end of the Company's third fiscal quarter (September 30,
1997), the Company was indebted to WGI and/or its affiliates in the principal
amount of $6,500,000 (plus accrued interest of $1,381,286), pursuant to the
terms of certain indebtedness formerly owed by a subsidiary of the Company to an
affiliate of NationsBank, which debt was subsequently purchased from the
NationsBank affiliate by WGI (the "WGI/Greyrock Debt"), with additional interest
accruing on such indebtedness at the rate of 11% per annum; and
WHEREAS, in contemplation of this Restructuring Agreement, WGI has (effective
November 7, 1997) exercised outstanding Warrants which it held to acquire a
total of 4,630,000 shares of the Company's Common Stock, with the aggregate
$12,827,120 exercise price for such Warrants being paid through (i) tender to
the Company of shares of the Company's Series C Preferred Stock held by WGI with
a stated value of $3,375,000 and (ii) extinguishment of $9,452,120 of the
outstanding balance owed by the Company pursuant to the WGI Advances Debt;
WHEREAS, in contemplation of this Restructuring Agreement, the Company has
(effective November 10, 1997) applied $20,000,000 of additional funding which it
obtained under the recent amendment and restatement of its factoring arrangement
with its Senior Lender to pay off the
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WGI/Greyrock Debt and to further reduce the outstanding balance owed by the
Company pursuant to the WGI Advances Debt; and
WHEREAS, the Company and WGI desire to restructure the Company's obligations
under the WGI Credit Agreement Debt and the WGI Advances Debt in the manner set
forth in this Restructuring Agreement, in order to (i) facilitate and provide
for additional equity investment in the Company and (ii) facilitate the
Company's survival as a going concern while implementing management's turnaround
plans for its business operations by improving the Company's working capital
situation and reducing the financial pressure on its operations.
NOW THEREFORE, in consideration of the foregoing premises and of the mutual
promises made hereinafter, the parties hereto agree as follows:
1. Board and Shareholder Approval Required
Consummation of the transactions which are the subject of this
Restructuring Agreement shall be conditioned upon and subject to (i) approval of
this Restructuring Agreement and the transactions contemplated hereby by the
Company's Board of Directors in accordance with all applicable requirements of
the Indiana Business Corporation Law and of the Company's Restated Articles of
Incorporation and (ii) approval of the issuance of shares of the Company's
Common Stock in connection with certain of the transactions contemplated by this
Restructuring Agreement at the Company's 1997 Annual Meeting of Shareholders.
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2. Creation of Series F Preferred Stock
The Company shall create a series of Preferred Stock to be designated:
"Series F Preferred Stock," having the rights, restrictions, terms and
conditions described in this paragraph. The Series F Preferred Stock: (i) shall
consist of a total of 1,000 authorized shares, stated value $100,000 per share;
(ii) shall bear Cumulative Undeclared Dividends at the rate of 9.0% per annum,
payable in cash when declared; (iii) shall not have any mandatory redemption or
call features; (iv) shall not be convertible into any other security of the
Company; and (v) shall be equal to the Corporation's Series A Preferred Stock
and senior to all other classes or series of the Company's equity securities in
all regards, including dividends, distributions and redemptions. All of the
foregoing shall be as set forth in the document entitled "Certificate of the
Voting Powers, Designations, Preferences and Relative, Participating, Optional
or Other Special Rights, and Qualifications, Limitations or Restrictions
Thereof, of the Series F Preferred Stock of Signal Apparel Company, Inc.,"
attached to this Restructuring Agreement as Annex I. The creation and terms of
the Series F Preferred Stock will be submitted to the Company's Board of
Directors for approval in the manner contemplated by the Company's Restated
Certificate of Incorporation in connection with the consideration and approval
of this Restructuring Agreement by the Company's Board of Directors. The
creation and authorization of the Series F Preferred Stock shall be contingent
upon approval of this Restructuring Agreement and the transactions described
herein by the Company's Board of Directors.
3. Amendment of Outstanding WGI Warrants
Effective immediately upon approval of the issuance of shares of the
Company's Common Stock in connection with certain of the transactions
contemplated by this Restructuring
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Agreement by the Company's shareholders at its 1997 Annual Meeting, the Company
shall effect the amendment of the outstanding Warrants to purchase 345,000
shares of the Company's Common Stock held by WGI, to reset the exercise price
thereof from $7.06 per share to $1.75 per share, resulting in a net realizable
economic benefit to WGI of $1,831,950.
4. Exchange of Common Stock for Debt
Effective immediately upon approval of the issuance of shares of the
Company's Common Stock in connection with certain of the transactions
contemplated by this Restructuring Agreement by the Company's shareholders at
its 1997 Annual Meeting, the Company will issue 8,000,000 shares of Common Stock
to WGI in exchange for the cancellation/extinguishment by WGI of $15,831,950 of
the outstanding indebtedness owed by the Company pursuant to the WGI Credit
Agreement and/or the WGI Advances Debt. This transaction will result in a
valuation of approximately $1.98 per share for such shares of Common Stock,
representing a premium of approximately 13% over the current market price of
approximately $1.75 per share for such stock and resulting in a discount on the
extinguishment of such debt of approximately $1,831,950, which is equivalent to
the net realizable economic benefit to WGI of repricing WGI's outstanding
Warrants as called for by Paragraph 3 of this Restructuring Agreement.
Such shares of the Company's Common Stock will not be registered under the
Securities Act of 1933, as amended (the "Securities Act") and will be issued to
WGI in reliance upon an exemption from the registration requirements of the
Securities Act. Such shares cannot be transferred by WGI without an exemption
from such registration requirements or pursuant to an effective registration
statement. As an inducement to the Company to issue such shares to WGI in
accordance with the terms of this Restructuring Agreement, WGI hereby represents
to the
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Company that it is acquiring such shares for investment purposes only.
5. Issuance of Series F Preferred Stock in Exchange for Series C
Preferred Stock and Debt
Effective immediately upon approval of the issuance of shares of the
Company's Common Stock in connection with certain of the transactions
contemplated by this Restructuring Agreement by the Company's shareholders at
its 1997 Annual Meeting, the Company shall issue shares of its Series F
Preferred Stock to WGI in an amount (at the stated value of $100,000 per share)
equal to: (i) the $20,513,958.31 in stated value (plus accrued and unpaid
dividends) of the Company's Series C Preferred Stock held by WGI and (ii) all
remaining outstanding indebtedness of the Company (plus accrued interest thereon
through the date of such transaction) pursuant to the WGI Credit Agreement Debt
and/or the WGI Advances Debt. WGI hereby agrees to accept such shares of Series
F Preferred Stock in full satisfaction of all of the Company's then-remaining
obligations to WGI with respect to: (i) such shares of Series C Preferred Stock
(which WGI agrees to tender to the Company for cancellation immediately
following such transaction); (ii) the WGI Credit Agreement Debt and (iii) the
WGI Advances Debt.
Such shares of the Company's Series F Preferred Stock will not be
registered under the Securities Act of 1933, as amended (the "Securities Act")
and will be issued to WGI in reliance upon an exemption from the registration
requirements of the Securities Act. Such shares cannot be transferred by WGI
without an exemption from such registration requirements or pursuant to an
effective registration statement. As an inducement to the Company to issue such
shares to WGI in accordance with the terms of this Restructuring Agreement, WGI
hereby represents to the Company that it is acquiring such shares for investment
purposes only.
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6. Exercise of the Company's Rights Under the Preferred Stock Agreement
Both the Company and WGI hereby acknowledge and agree that one purpose of
the transactions contemplated by this Restructuring Agreement is to facilitate
the intended exercise by the Company, in conjunction with such transactions, of
its rights under Paragraph 2 of that certain Agreement, dated March 31, 1995,
between the Company and the holders of all outstanding shares of its Series A
Preferred Stock and Series C Preferred Stock (the "Preferred Stock Agreement").
Paragraph 2 of the Preferred Stock Agreement gives the Company the right,
exercisable through June 30, 1998 upon satisfaction of certain conditions, to
redeem all outstanding shares of the Company's Series A Preferred Stock and
Series C Preferred Stock (including any accrued and unpaid dividends thereon)
with shares of the Company's Common Stock valued for such purpose at $7.00 per
share. Certain of the transactions contemplated by this Restructuring Agreement
will result in the satisfaction of all conditions precedent to the Company's
ability to exercise its right of redemption under Paragraph 2 of the Preferred
Stock Agreement, and the Company hereby agrees to exercise such right with
respect to all then outstanding shares of its Series A Preferred Stock and
Series C Preferred Stock immediately upon completion of the transactions called
for by this Restructuring Agreement.
7. WGI to Cause Its Affiliates to Take All Necessary Actions
By entering into this Agreement, WGI agrees that it shall cause any action
whatsoever to be taken or delivery to be made, by any of its affiliates,
necessary to implement and effectuate this Agreement, including but not limited
to any execution or delivery of any document.
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IN WITNESS WHEREOF, the undersigned hereby set forth their hands to be
effective as of the date and year first written above. SIGNAL APPAREL COMPANY,
INC.
/s/ Xxxxxx X. Xxxxxx
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By: Xxxxxx X. Xxxxxx
Title: Vice President
WGI, LLC
/s/ Xxxx X. Xxxxxxxxx
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By: Xxxx X. Xxxxxxxxx
Title: Manager
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