SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _______________
Commission File No. 1-2782
SIGNAL APPAREL COMPANY, INC.
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(Exact name of Registrant as specified in its charter)
Indiana 62-0641635
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(State of Incorporation) (I.R.S. Employer Identification Number)
200 Manufacturers Road, Chattanooga, Tennessee 37405
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (423) 266-2175
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock: Par value $.01 a share New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant: $10,157,464 calculated by using
the closing price on the New York Stock Exchange on March 27,
1997 of the Company's Common stock, and excluding common shares
owned beneficially by directors and officers of the Company, and
by certain other entities, who may be deemed to be "affiliates",
certain of whom disclaim such status.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of March 17, 1997
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Common Stock, $.01 par value 11,578,046 shares
DOCUMENTS INCORPORATED BY REFERENCE
Part of Documents from Which Portions are
Form 10-K Incorporated by Reference
- --------- ---------------------------------
Part III Proxy Statement for Annual Meeting of Shareholders
SIGNAL APPAREL COMPANY, INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
INDEX
Item
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PART I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8. Financial Statements and Supplementary Data
9. Disagreements on Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners
and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
PART I
Item 1. BUSINESS
(a) Signal Apparel Company, Inc. ("Signal" or the "Company") is
engaged in the manufacture and marketing of apparel within
the following product lines: knit sportswear and activewear,
women's knit apparel and screenprinted knit apparel.
In November 1994, the Company purchased all the outstanding
capital stock of American Marketing Works, Inc. ("AMW"), a
branded licensed apparel company.
(b) The Company is engaged in the single line of business of
apparel manufacturing and marketing.
For financial information about the Company, see the
information discussed in Item 8 below.
(c) GENERAL
Founded in 1891 as Wayne Knitting Mills, a women's hosiery
company, in Fort Wayne, Indiana, the Company merged with the
H. W. Gossard Co. of Chicago, Illinois in 1967 and became
Wayne-Gossard Corporation. The Company's name was changed
to Signal Apparel Company, Inc. in February 1987. As a
result of a merger in July 1991, The Shirt Shed, Inc. became
a wholly-owned subsidiary of the Company. During 1993, The
Shirt Shed, Inc. began doing business under the name Signal
Artwear. In November 1994, the Company purchased all the
outstanding capital stock of American Marketing Works, Inc.
("AMW"), a branded licensed apparel company.
The Company manufactures and markets activewear in juvenile,
youth and adult size ranges and upscale knit apparel for the
ladies' market. The Company's products are sold primarily
to wholesalers and retail accounts primarily with the Signal
Sport or Signal Artwear label, or with a customer's label
or, under applicable license agreements, with the label of
designers (joan vass, u.s.a. and Cynthia Rowley), sports
personalities (Magic Johnson and Hank Aaron) or licensed
brands (Looney Tunes, Riddell, etc.) Currently, a major
portion of the products manufactured by the Company consists
of products generally similar in design and composition to
those produced by the Company's competition. The Company's
business is therefore highly subject to competitive
pressures.
In December 1996, Barton J. Bresky was elected President and
Chief Executive Officer of the Company. Mr. Bresky was
formerly President of the Signal Artwear Division of the
Company.
Mr. Bresky has continued the Company's aggressive cost
reduction program and continued the Company's focus on its
core licensed character and sports businesses.
The Company presently operates under the following strategic
business unit structure:
SIGNAL KNITWEAR BUSINESS UNIT:
Signal Knitwear manufactures T-shirts, fleece garments, and
other sportswear. Signal Knitwear is the primary source of
unprinted products for other units of the Company. Signal
Knitwear also provides contract sewing services to select
customers.
LICENSED SPORTS BUSINESS UNIT:
The Licensed Sports Business Unit is engaged in selling
screenprinted apparel to mid-tier and mass merchants, chain
stores, sporting goods and sport specialty stores and
department stores as a line of popularly priced sportswear,
ranging from children's to adult sizes. This unit markets
tops and bottoms from the Signal Knitwear unit and other
suppliers with a variety of silkscreened and embroidered
graphics derived under license from popular cartoons,
colleges and professional sports leagues. Finished products
are generally sold under licensed brands such as Hank Aaron
Originals, Magic Johnson Originals and Riddell.
LICENSED CHARACTER BUSINESS UNIT:
The Licensed Character Business Unit is engaged in selling
to mid-tier and mass merchants and chain stores a line of
popularly priced sportswear, ranging from children's to adult
sizes. This unit utilizes unprinted tops and bottoms from
Signal Knitwear and other suppliers and produces its finished
products through the addition of a variety of silkscreened
graphics derived under license from popular cartoons, movies,
and television shows, as well as original concepts produced
by an internal art staff.
HERITAGE SPORTSWEAR BUSINESS UNIT:
Heritage Sportswear produces and sells two designer lines of
tailored knits designed under license by Joan Vass and
Cynthia Rowley which bear the "joan vass, u.s.a." and
"Cynthia Rowley" labels, respectively. These designer lines
are sold to fine specialty stores, department stores, and
Joan Vass and Cynthia Rowley stores, respectively. The unit
also produces knit shirts and fashion fleece products which
are marketed by other units of the Company.
SALES BY PRODUCT LINE
The following table reflects the percentage of net sales
contributed by the Company's product lines to net sales
during 1996, 1995, and 1994:
Percentage of
Product Line Net Sales
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1996 1995 1994
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Active sportswear 18% 32% 48%
Screenprinted apparel 58% 51% 31%
Women's knit apparel 24% 17% 21%
In 1996 Walmart accounted for 14% and K-Mart accounted for
12% of total Signal sales. In 1995 and 1994 no one customer
accounted for as much as 10% of sales.
DESCRIPTION OF OPERATIONS
The primary raw material used by the Company is yarn made
from both synthetic and natural fibers which it purchases
from several different suppliers. The Company also
purchases finished cloth, blank garments, sewing thread,
dyes and chemicals, inks, elastic, hangers, cartons and
printed bags. Supplies of synthetic fibers are dependent
upon the availability of petroleum, while supplies of
natural fibers are dependent upon worldwide crop conditions.
These factors generally have had a greater effect on price
than on availability.
Although the Company does not have formal arrangements
extending beyond one year with its suppliers, the Company
has not experienced any significant difficulty obtaining any
raw materials from its current sources and believes that, in
any event, adequate alternative sources of supply are
available.
"Signal Artwear" and "Signal Sport" are the principal
registered trademarks of the Company. In addition to the
license to use the "Riddell" trademark and logo, the Company
is licensed to use the registered trademark "joan vass,
u.s.a." in connection with women's knit apparel. The
Company is also licensed to use the "Cynthia Rowley"
registered trademark in connection with women's knit
apparel. The Company and its various subsidiaries are
licensed to use various trademarks of the National Football
League, the National Basketball Association, Major League
Baseball, the National Hockey League and various colleges in
connection with collections of activewear. The Company is
also licensed by Warner Brothers and other companies to
print various cartoon, movie and celebrity characters and
other graphics on garments. The Company is licensed by
affiliates of well known athletes Magic Johnson and Hank
Aaron to produce and sell products bearing labels with their
respective names. The ability to use the foregoing
trademarks is important to the implementation of the
Company's strategy of expanding sales of products directed
to the retail market. Sales under the license to use the
"joan vass, u.s.a." trademark have represented a significant
portion of the sales of the Company's Heritage Sportswear
unit.
The licenses held by the Company vary significantly in their
terms and duration.
For the Company's primary licenses with the NFL, the Company
has reached an agreement in principle for the renewal of
those licenses through March 31, 1998. The Company is
currently in negotiation for the renewal of its licenses
with the NBA scheduled to expire July 31, 1997.
The Cynthia Rowley license has a term ending December 31,
1998 and the interim extension of the joan vass, u.s.a.
license is currently scheduled to expire on August 30, 1997.
Renewal negotiations are currently underway for the joan
vass, u.s.a. license.
The business of the Company tends to be seasonal with peak
shipping months varying from product line to product line.
To meet the demands of peak shipping months, it is necessary
to build inventories of some products well in advance of
expected shipping dates. The Company believes that its
credit practices and merchandise return policy are customary
in the industry. Borrowings are used to the extent
necessary to finance seasonal inventories and receivables.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition".
During 1996, the Company sold its products to over 1,700
customers, including department stores, mass merchandisers,
other retailers and specialty stores, wholesalers,
distributors, screenprinters, and other manufacturers.
Products are shipped directly from the Company's
manufacturing facilities and warehouses.
The chart below shows Signal's scheduled backorders at year-
end.
Dollars in thousands 1996 1995 1994
---- ---- ----
Screenprinted products 4,238 11,140 12,515
Knitwear 518 2,941 7,050
Heritage Sportswear 1,997 2,807 2,322
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Total 6,753 16,888 21,887
Scheduled order backlogs consist of orders received from
customers and entered into the Company's order entry system,
at which point the orders are scheduled for production. The
Company expects to ship substantially all of its December
31, 1996 backlog of unfilled orders by December 31, 1997;
however, orders are subject to cancellation, generally
without penalty, by customers prior to shipment. The
Company's backlog of orders on December 31, 1996 is not
necessarily indicative of actual shipments or sales for any
future period, and period-to-period comparisons from 1995 to
1996 may not be meaningful.
The apparel industry as a whole, including the part of the
industry engaged in by the Company, is highly competitive.
The Company believes that the principal methods of
competition in the markets in which it competes are design
and styling, price and quality. The designer and brand name
markets are influenced by fashion, design, color, consistent
quality and consumer loyalty. Imports offer competition
throughout the Company's product lines. The industry is
very fragmented, and the Company's relative position in the
industry is not known.
Compliance with federal, state and local provisions which
have been enacted regulating the discharge of materials into
the environment, or otherwise relating to the protection of
the environment, have not had, and are not expected to have,
any material effect upon the capital expenditures, operating
results, or the competitive position of the Company.
The Company had approximately 850 employees at
March 1, 1997, compared to 1,200 employees at March 1, 1996.
The reduction of 350 employees since March 1, 1996 is the
result of extensive actions to reduce costs as well as
reduced manufacturing volume.
(d) All of the Company's manufacturing facilities are located in
the United States. Substantially all (over 95%) of the
Company's sales are domestic.
Item 2. PROPERTIES
The Company operates owned and leased facilities, aggregating
approximately 1,079,500 square feet of usable space. The
following table sets forth certain information concerning each of
these facilities:
Facility Square Owned/ Products/
Location Feet Leased Operations
- -------- ------ ------ ----------
SIGNAL KNITWEAR:
Chattanooga, TN 192,200 Owned Sportswear - warehouse,
distribution and
offices
New Tazewell, TN 91,300 Owned Sportswear - cut and
sew, warehouse and
distribution
HERITAGE SPORTSWEAR:
Marion, SC 164,600 Owned Women's apparel, knit
sweaters and skirts -
knitting, cut and sew,
and offices
Lakeview, SC 85,100 Owned Women's apparel, knit
sweaters and skirts -
warehouse and
distribution
New York, NY 3,900 Leased Showroom and offices
SIGNAL ARTWEAR:
Chattanooga, TN 250,000 Leased Screen printing -
printing, warehouse,
distribution and
offices
IDLE FACILITIES:
LaGrange, GA 134,500 Owned
Marion, SC 29,200 Owned
Rutledge, TN 59,700 Owned
Wabash, IN 69,000 Owned
The buildings at all facilities set forth in the table above and
the machinery and equipment contained therein are well maintained
and are suitable for the Company's needs (see later paragraph for
a discussion of the idle facilities). Substantially all of the
buildings are protected by sprinkler systems and automatic alarm
systems, and all are insured for amounts which the Company
considers adequate. The plant in Rutledge, Tennessee is subject
to mortgage liens incurred in connection with industrial
development financing. The plants in New Tazewell, Tennessee,
LaGrange, Georgia, Wabash, Indiana and Marion and Lakeview, South
Carolina are subject to mortgage liens incurred in connection
with financing with the senior lender and a principal
shareholder, Walsh Greenwood and affiliates.
The Company owns several facilities, aggregating approximately
292,400 square feet, which were idle at December 31, 1996. At
the present time the Company intends to sell these facilities.
As part of its strategic plan, the Company uses independent
contractors to supplement the productive capacities of its own
manufacturing facilities. The Company believes the production of
its own facilities plus the contracted production will support
the expected level of business in 1997.
Item 3. Legal Proceedings
The Company is unaware of any material pending legal proceeding
other than ordinary, routine litigation incidental to its
business.
Item 4. Submission of Matters To A Vote of Security Holders
No matters were submitted to a vote of security holders in the
fourth quarter of 1996.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
MARKET PRICES AND DIVIDENDS
Quarter Ended
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March 31 June 30 September 30 December 31
1996 1995 1996 1995 1996 1995 1996 1995
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Common Stock:
High $8.00 $8.13 $7.38 $7.38 $4.38 $5.88 $3.75 $7.75
Low 6.25 6.50 4.38 5.25 3.50 5.25 2.88 5.50
Cash dividends -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------
The Company's loan agreements contain provisions which currently
restrict the Company's ability to pay dividends (see Note 4 of
Notes to Consolidated Financial Statements). No Common Stock
dividends were declared during the five-year period ended
December 31, 1996. (See Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 4 of Notes
to Consolidated Financial Statements.)
Shareholders of record as of March 26, 1997:
Common 995
The Company's Common Stock is listed on the New York Stock
Exchange.
Item 6. Selected Financial Data
SUMMARY OF SELECTED FINANCIAL DATA
Dollars in Thousands (Except Per Share Data)
1996 1995 1994(a) 1993 1992
- --------------------------------------------------------------------------------
Net Sales $58,808 $89,883 $95,818 $131,000 $172,194
================================================================================
Net loss (33,696) (39,959) (53,304) (34,878) (20,210)
================================================================================
Net loss per common
share (2.91) (3.80) (6.88) (4.17) (2.41)
================================================================================
Total assets 26,167 43,229 69,448 87,914 121,280
================================================================================
Long-term obligations 66,423 57,243 49,258 26,748 72,126
================================================================================
(a) The data includes amounts applicable to American Marketing
Works from date of acquisition, November 22, 1994.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
Net sales of $58.8 million for 1996 represent a decrease of 34.6%
or $31.1 million when compared to the $89.9 million in net sales
for 1995. This decrease is comprised of a $16.1 million
reduction for undecorated activewear, a $1.7 million reduction
for women's fashion knitwear and a $13.3 million reduction for
screenprinted products.
Sales of undecorated activewear decreased 60.6% to $10.5 million
in 1996 as compared to $26.6 million in 1995. Of the $16.1
million reduction, $9.3 million is the result of Signal's
decision in the last quarter of 1995 to discontinue use of
distributors, and $2.3 million is the result of reduced sales to
a large customer. The Company has made the decision to
concentrate its marketing efforts on screenprinted products in
an effort to produce higher margin sales than can be made with
undecorated activewear. As a result of this decision, it is
expected that the Company's sales of undecorated activewear will
continue to decline during 1997 and will no longer represent a
significant share of the Company's total sales. Reduction of
unit volume accounted for 85% of the total reduction of
undecorated activewear sales during 1996 while reduction in
average selling price accounted for the remaining 15%. The
decrease in average selling price was due to a combination of
product mix and unit selling price changes.
Sales of women's fashion knitwear decreased 10.8% to $13.9
million in 1996 as compared to $15.6 million in 1995. The $1.7
million sales reduction was primarily due to competition from
garments selling at lower retail prices. Unit volume accounted
for a $2.3 million reduction which was partially offset by an
increase in average selling price. The increase in average
selling price was due to a combination of product mix and unit
selling price changes.
Sales of screenprinted products were $34.4 million for 1996
versus $47.7 million in 1995. The sales reduction was primarily
the result of reduced sales to several large customers. Based on
its sales data during 1996 as compared to 1995, the Company
believes that it is seeing a shift in demand in the market for
its screenprinted products away from the smaller specialty
retailers and towards larger chain stores, thereby making this
portion of the Company's business more dependent on a few large
customers which possess significant negotiating power with regard
to the terms of sale. Unit volume accounted for a $19.8 million
reduction which was partially offset by an increase in average
selling price. The increase in average selling price was due to
a combination of product mix (including fewer closeouts in 1996)
and unit selling price changes.
Gross profit was $3.8 million (6.5% of sales) in 1996 compared to
$14.0 million (15.6% of sales) in 1995. The $10.2 million
decrease in gross profit in 1996 was the result of decreased
first quality sales and decreased manufacturing efficiencies
partially offset by improved margins on first quality sales due
to sales mix and decreased closeout sales.
Royalty expense related to licensed product sales was 8.2% and
7.1% of total sales for 1996 and 1995, respectively. The
increase in royalty expense percentage over 1995 is the result of
increased sales of licensed products relative to total sales.
Selling, general and administrative ("SG&A") expenses were 30% of
sales for the years ended December 31, 1996 and 1995. Actual
SG&A expense decreased $9.5 million to $17.7 million due to the
Company's aggressive cost reduction efforts.
The primary elements making up the 1996 other expense amount of
$4.1 million are a $3.1 million write-down of property, plant and
equipment which have been idled and/or held for resale, $.2
million in factor charges for customer late payments and $.2
million accrued severance. The primary elements making up the
1995 other expense amount of $1.3 million are $.4 million
amortization of goodwill and $.1 million in factor charges for
customer late payments.
The write-down of property, plant and equipment was necessary
because during 1996 Signal completed the closing of the Signal
Artwear Indiana facility and moved that production to a new
facility in Chattanooga, Tennessee. Additionally, the
Company abandoned certain other facilities.
In December 1996, Barton J. Bresky was elected President and
Chief Executive Officer of the Company. Mr. Bresky was formerly
President of the Signal Artwear Division of the Company. Mr.
Bresky has continued the Company's aggressive cost reduction
program and continued the Company's focus on its core licensed
character and sports businesses.
1995 COMPARED WITH 1994
Net sales of $89.9 million for 1995 represent a decrease of 6.2%
or $5.9 million when compared to the $95.8 million in net sales
for 1994. This decrease is comprised of a $17.0 million
reduction for active sportswear, a $4.3 million reduction for
women's fashion knitwear and a $1.2 million reduction for Signal
Artwear screenprinted products, partially offset by a $16.6
million increase due to the inclusion of sales of American
Marketing Works, Inc. (AMW).
Sales of active sportswear decreased 37% to $28.9 million in 1995
as compared to $45.9 million in 1994. Of the $17.0 million
reduction, $4.2 million resulted from reduced sales of Riddell
products while $4.5 million is reduced sales to distributors and
$2.4 million is a result of reduced sales to a large customer.
As of 1995 year-end, Signal withdrew from the distributor
business. Reduction in unit volume accounted for 79% of the
total reduction of active sportswear sales while reduction in
average selling price accounted for the remaining 21%. The
decrease in average selling price was due to a combination of
product mix and unit selling price changes.
Sales of women's fashion knitwear decreased 22% to $15.6 million
in 1995 as compared to $19.9 million in 1994. The $4.3 million
sales reduction was primarily due to competition from garments
selling at lower retail prices. Unit volume accounted for a $4.4
million reduction which was partially offset by an increase in
average selling price. The increase in average selling price was
due to a combination of product mix and unit selling price
changes.
Signal Artwear sales were $27.0 million for 1995 versus $28.2
million in 1994. The sales reduction was primarily the result of
reduced sales to a large customer. Unit volume accounted for a
$2.6 million reduction which was partially offset by an increase
in average selling price. The increase in average selling price
was due to a combination of product mix (including fewer
closeouts in 1995) and unit selling price changes.
Gross profit was $14.0 million (15.6% of sales) in 1995 compared
to $8.4 million (8.7% of sales) in 1994. The $5.6 million
increase in gross profit in 1995 was the result of decreased
closeout sales ($5.5 million) and improved manufacturing
efficiencies ($1.4 million) partially offset by lower margins on
first quality sales due to sales mix ($1.3 million). The 1995
gross profit includes a $2.0 million charge for inventory write-
downs which compares to a $7.7 million charge for inventory
write-downs in 1994.
Royalty expense related to licensed product sales was 7.1% and
3.5% of total sales for 1995 and 1994, respectively. In 1995
$1.0 million was accrued for unearned minimum royalties which
accounts for one-seventh of the royalty expense experienced in
1995. The balance of the increase in royalty expense percentage
over 1994 is the result of increased sales of licensed products
relative to total sales.
Selling, general and administrative ("SG&A") expenses were 30%
and 28% of sales for the years ended December 31, 1995 and 1994
respectively. Actual SG&A expense increased $.5 million to $27.3
million. SG&A expenses for AMW of $7.4 million were included in
1995 (where SG&A expenses for AMW of only $1.0 million were
included in 1994) but this was partially offset by SG&A expense
reductions at other divisions.
The primary elements making up the 1995 other expense amount of
$1.3 million are $.4 million amortization of goodwill and $.1
million in factor charges for customer late payments. The
primary elements making up the 1994 other expense amount of $2.0
million are $1.0 million amortization of goodwill, and $.2
million in factor charges for customer late payments.
During 1995 Signal, in an aggressive cost reduction program,
consolidated the divisional sales, merchandising and
manufacturing functions into corporate functions, merging the
Rutledge, Tennessee cut and sew facility into the Tazewell,
Tennessee cut and sew facility, closed American Marketing Works'
California facilities, announced the closing of the Signal
Artwear Indiana facilities and the Company satellite art facility
in Charlotte, North Carolina.
FINANCIAL CONDITION
Additional working capital was required in 1996 to fund the
continued losses incurred by the Company. The Company's need was
met through several transactions with the Company's principal
shareholders and the senior lender. In 1996, the Company
received $12.0 million from Walsh Greenwood and Company, a
principal shareholder ("Walsh Greenwood"). This was to help fund
the deficit during 1996. The Company is in the process of
amending the Walsh Greenwood Credit Agreement dated March 31, 1995
to include the additional funds. Therefore, the Company is currently
accruing interest on these additional funds at an annual rate of
25%, based on the terms of the Walsh Greenwood Credit Agreement.
At December 31, 1996, the Company had overadvance borrowings of
approximately $14.1 million with its senior lender compared to
$8.3 million at December 31, 1995. (Please see Note 4 to the
accompanying Consolidated Financial Statements of the Company for
a more detailed discussion of the discretionary overadvance
facilities with the Company's senior lender).
The working capital deficit at December 31, 1996 increased $9.4
million from the prior year. The increase in the working capital
deficit was primarily due to a decrease in inventories ($7.4
million), a decrease in accounts receivable ($3.6 million), an
increase in the discretionary overadvance ($5.7 million) and an
increase in accounts payable and accrued liabilities and interest
($2.2 million). These were partially offset by a decrease in
current portion of long term debt ($9.9 million).
Accounts receivable decreased $3.6 million or 82.7% compared to
the prior year, due primarily to reduced sales and the timing of
funding from the Company's senior lender on factored
receivables.
Inventories decreased $7.4 million or 33.6% compared to last
year. Inventories decreased as a result of the Company's sale of
excess and closeout inventory as well as reduced inventory in the
undecorated activewear segment, resulting from the Company's
focus on screenprinted products.
Total current liabilities decreased $2.0 million or 4% over
year-end 1995.
Cash used in operations was $11.4 million in 1996, compared to
$11.3 million used in operating activities in 1995. The net loss
of $33.7 million was the primary use of funds in 1996. These
items were partially offset by depreciation and amortization
($2.9 million), significantly lower inventory levels
($7.4 million), a decrease in accounts receivable ($3.6 million),
an increase in accounts payable and accrued liabilities ($5.0
million) and write-down of property, plant and equipment held for
sale ($2.3 million).
Cash provided by investing activities of $.2 million resulted
from sales of property and equipment exceeding purchases of
property, plant and equipment. There were no commitments
to purchase equipment at December 31, 1996. During 1997, the
Company anticipates capital expenditures of approximately $.7
million.
Cash provided by financing activities was $11.4 million in 1996.
The Company borrowed an additional $12.0 million from Walsh
Greenwood as well as $.8 million from other lenders. This was
partially offset by principal payments on borrowings of $1.8
million.
The revolving advance account increased $.7 million from $19.6
million at year-end 1995 to $20.4 million at December 31, 1996.
Under the current financing arrangement with its senior lender
the Company's total outstanding obligations cannot exceed the
lower of $40 million or the borrowing base as defined. At
year-end, the borrowing base was $6.3 million. Therefore,
approximately $14.1 million was overadvanced under the
revolving advance account.
The Company and the senior lender have agreed in principle to
adjust and to extend through March 31, 2000 the current credit
facility. The new agreement will provide a $67,000,000 credit
facility consisting of (i) a $33,000,000 revolving advance
account which is similar in terms to the Company's current
revolving advance account, (ii) a $34,000,000 additional
facility replacing the existing $14,000,000 overadvance facility
and which will provide an additional $5,000,000 of debt
availability for the Company for which no additional collateral
will be required, (iii) a significant reduction in the fees
charged for services as a result of lowered volume guarantees
and the elimination and reduction of certain other fees, and
(iv) issuance to the senior lender of warrants for 250,000
shares of Common Stock at $2.50 per share.
The Company believes that this credit agreement which is subject
to final documentation will be adequate to provide for the
Company's financing through at least 1997 assuming that current
projections are met.
Interest expense was $10.8 million in 1996 compared to $8.3
million in 1995. Total outstanding debt averaged $61.8 million
and $55.2 million for 1996 and 1995, respectively, with average
interest rates of 17.5% and 15.0%. Average outstanding debt
and the average interest rate increased due to the borrowings
under the Walsh Greenwood Credit Agreement totalling $32.0
million with an annual interest rate of 25%. As a result of
continued losses, the Company has been unable to fund its cash
needs from operating activities. The Company's liquidity
shortfalls were primarily funded through the additional $12.0
million advanced from Walsh Greenwood.
The Company also uses letters of credit to support some domestic
sourcing of inventory and certain other obligations. Outstanding
letters of credit were $1.9 million at December 31, 1996,
(excluding collateral of $2.0 million pledged to the senior
lender in the form of a standby letter of credit).
In January 1997, in connection with the issuance of certain
substitute or replacement letters of credit (aggregating $4.5
million) with respect to which two of the Company's principal
shareholders (FS Signal Associates Limited Partnership and FS
Signal Associates II Limited Partnership, collectively "FS Signal
Associates") have agreed to reimburse the issuer for any draws
related to amounts owed by the Company, the Company entered into
a Reimbursement Agreement with FS Signal Associates and a related
Promissory Note for $4.5 million, each dated January 30, 1997.
Under the Reimbursement Agreement and Promissory Note, the
Company has agreed to repay any amounts that FS Signal Associates
may be required to pay to the issuer of these letters of credit,
with interest at an annual rate of 5.5% until fully repaid. The
Company's obligations under the Reimbursement Agreement and
Promissory Note are subordinate to its obligations to its senior
lender and under the Tranche A and Tranche B Notes, and are parri
passu with the Company's obligations under the Walsh Greenwood
Credit Agreement.
In accordance with the Company's strategic plan to focus on its
core business activities and reduce non-core operating expenses,
the Company has decided to seek purchasers for its Heritage
Sportswear unit and LaGrange, Georgia fabric manufacturing
facility.
Potential purchasers for both the LaGrange and Heritage
operations have been identified and negotiations are currently
underway. The vacant Rutledge, Tennessee, and Wabash, Indiana plants
are also for sale.
Total shareholders' deficit increased by $33.2 million compared
to year-end 1995. The Company sustained losses of $33.7 million
during 1996.
LIQUIDITY AND CAPITAL RESOURCES
As a result of continuing losses, the Company has been unable to
fund its cash needs through cash generated by operations during
1995 and 1996. The Company's liquidity shortfalls from
operations during these periods have been funded through several
transactions with its principal shareholders and with the
Company's senior lender. These transactions are detailed above
in the Financial Condition section.
The Company's senior lender waived all existing loan covenant
violations as of December 31, 1996. However, as the Company is
not currently in compliance with certain financial covenants,
all long-term debt due the senior lender is subject to
accelerated maturity and as such, has been classified as a
current liability in the consolidated balance sheets. If the
senior lender were to accelerate the maturity of the debt,
the Company would not have funds available to repay this debt.
Actions taken by the Company to improve its operations and
liquidity have included: (i) the institution of an
extensive cost reduction program that has reduced general and
administrative expenses during 1995 and 1996 and is expected to
further reduce such expenses during 1997; (ii) the sale of excess
and close-out inventories during 1995 and 1996; (iii) the
implementation of an inventory control program in order to
eliminate the manufacture of excess goods and to more effectively
utilize working capital; (iv) obtaining $20.0 million in
financing under the Walsh Greenwood Credit Agreement and further
financial support by Walsh Greenwood in the amount of $12.0
million in cash during 1996; and (v) further guarantees by Walsh
Greenwood to the senior lender in order to support an increase in
the Company's overadvance position with the senior lender. The
Company believes it can improve its operating margins as a result
of certain of the actions being taken. The Company has also
considered the sale of certain assets. The Company closed its
Rutledge, Tennessee sewing plant on November 29, 1995. The
Company closed its Wabash, Indiana facility on May 30, 1996.
If the Company's sales and profit margins for 1997 do not meet
projected levels, management will be required to reduce the
Company's activities or seek additional capital to complete its
plan for improving the Company's performance. In any event,
additional capital will be required to continue the Company's
operations. In order to obtain such additional capital,
the Company may be required to issue securities that
would dilute the interests of the stockholders of the Company.
No assurance can be given that any such additional financing will
be available to the Company on commercially reasonable terms or
otherwise. If sales and profit margins continue to fall below
projected levels or if additional funds cannot be raised, the
Company will be unable to continue as a going concern.
The Company may actively pursue the possibility of
issuing a significant amount of its Common Stock
in a private placement transaction exempt from registration under
the Securities Act of 1933. The Company believes that any such
offering may require that the shares of Common Stock issued
therein be offered at a price below the then current quoted
market price for such shares. The Company will continue to
explore financing alternatives.
INFLATION AND CHANGING PRICES
Inflation and changing prices have not had a material effect on
the Company's results of operations or financial condition during
the past three years.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and
December 31, 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity (Deficit)
for the Years Ended December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
Financial Statement Schedules:
See Part IV, Item 14 (a) 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Signal Apparel Company, Inc.:
We have audited the accompanying consolidated balance sheets of
SIGNAL APPAREL COMPANY, INC. (an Indiana corporation) AND
SUBSIDIARIES as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity
(deficit) and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Signal Apparel Company, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements,
the liquidity of the Company has been adversely affected by
recurring losses from operations, which raises substantial doubt
about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result
should the Company be unable to continue as a going concern.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 26, 1997
CONSOLIDATED BALANCE SHEETS
Signal Apparel Company, Inc. and Subsidiaries
December 31, 1996 and 1995
(Dollars in thousands, except per share amounts)
1996 1995
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 1,713 $ 1,495
Receivables, less allowance for
doubtful accounts of $1,573
in 1996 and $1,703 in 1995 755 4,358
Inventories 14,687 22,122
Prepaid expenses and other 769 1,346
--------- ---------
Total current assets 17,924 29,321
--------- ---------
Property, plant and equipment, at cost:
Land 500 505
Buildings and improvements 12,102 12,460
Machinery and equipment 32,767 37,103
--------- ---------
Total property, plant and equipment 45,369 50,068
Less accumulated depreciation 37,199 36,431
--------- ---------
Net property, plant and equipment 8,170 13,637
--------- ---------
Other assets 73 271
--------- ---------
Total assets $ 26,167 $ 43,229
========= =========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 5,055 $ 7,030
Accrued liabilities 9,003 9,834
Accrued interest 7,044 2,076
Current portion of long-term debt 6,795 11,695
Revolving advance account 20,362 19,640
--------- ---------
Total current liabilities 48,259 50,275
--------- ---------
Long-term debt, principally from
related parties 39,266 23,841
--------- ---------
Other noncurrent liabilities 4,797 2,067
--------- ---------
Commitments and Contingencies (Notes 1,
2, 4, 5 and 9)
Redeemable Series D Preferred Stock,
$100,000 stated value per share,
100 shares authorized, none out-
standing in 1996 and 1995 -- --
Shareholders' deficit:
Series A Preferred Stock, $100,000
stated value per share, 400 shares
authorized, 327.087 shares issued and
outstanding in 1996 and 1995
(liquidation preference of $100,000
per share plus cumulative unpaid
dividends of $6,875 in 1996 and 1995) 39,584 39,584
Series B Preferred Stock, $100,000
stated value per share, 250 shares
authorized, none outstanding in
1996 and 1995 -- --
Series C Preferred Stock, $100,000
stated value per share, 1,000 shares
authorized, 317.678 shares issued
and outstanding in 1996 and in 1995
(liquidation preference of $100,000
per share plus cumulative unpaid
dividends of $4,850 in 1996 and 1995) 36,618 36,618
Series E Preferred Stock,$1,000 stated
value per share, 20,000 shares
authorized, none outstanding in
1996 and 1995 -- --
Common Stock, 40,000,000 shares
authorized in 1996 and 1995,
$.01 par value per share,
11,578,046 shares issued in 1996
and 11,528,046 shares issued in 1995 115 115
Additional paid-in capital 73,507 73,012
Accumulated deficit (214,862) (181,166)
--------- ---------
Subtotal (65,038) (31,837)
Less cost of common treasury
shares (140,220 shares) (1,117) (1,117)
--------- ---------
Total shareholders' deficit (66,155) (32,954)
--------- ---------
Total liabilities and
shareholders' deficit $ 26,167 $ 43,229
========= =========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Signal Apparel Company, Inc. and Subsidiaries
Years ended December 31, 1996, 1995, and 1994
(In thousands, except per share data)
1996 1995 1994
- -----------------------------------------------------------------
Net sales $ 58,808 $ 89,883 $ 95,818
Cost of sales 54,974 75,896 87,450
- -----------------------------------------------------------------
Gross profit 3,834 13,987 8,368
Royalty expense (4,822) (6,362) (3,342)
Selling, general and
administrative expenses (17,742) (27,279) (26,803)
Interest expense (10,833) (8,255) (3,002)
Other expense, net (4,133) (1,314) (2,044)
Write-off of goodwill -- (10,736) (26,481)
- -----------------------------------------------------------------
Loss before income taxes (33,696) (39,959) (53,304)
Income taxes -- -- --
- -----------------------------------------------------------------
Net loss (33,696) (39,959) (53,304)
Less Preferred Stock dividends -- -- (9,224)
- -----------------------------------------------------------------
Net loss applicable to
Common Stock $ (33,696) $ (39,959) $ (62,528)
=================================================================
Weighted average common and
common equivalent shares
outstanding 11,566 10,503 9,082
=================================================================
Net loss per common share $ (2.91) $ (3.80) $ (6.88)
=================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Signal Apparel Company, Inc. and Subsidiaries
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands, except share data)
Preferred Stock Addt'l
----------------------------- Common Paid-In Accum. Treasury
Series A Series B Series C Stock Capital Deficit Stock Total
- --------------------------- ------- ------- ------- ----- ------- ---------- -------- --------
Balance, December 31, 1993 $34,164 $22,814 $ - $ 91 $68,632 $ (78,679) $(1,117) $ 45,905
Net loss - - - - - (53,304) - (53,304)
Issuance of 70 shares of
Series C Preferred Stock - - 7,000 - - - - 7,000
Exchange of 287.678 shares
of Series B Preferred Stock
for 287.678 shares of
Series C Preferred Stock - (22,814) 22,814 - - - - -
Cumulative accrued dividends
on Preferred Stock 5,420 - 3,804 - - (9,224) - -
Issuance of 1,100,000 shares
of restricted Common Stock
in connection with the
acquisition of American
Marketing Works, Inc. - - - 11 1,089 - - 1,100
- --------------------------- ------- ------- ------- ------ ------- --------- ------- --------
Balance, December 31, 1994 $39,584 $ - $33,618 $ 102 $69,721 $(141,207) $(1,117) $ 701
Net loss - - - - - (39,959) - (39,959)
Exercise of employee stock
options - - - - 97 - - 97
Issuance of 30 shares of
Series C Preferred Stock - - 3,000 - - - - 3,000
Issuance of 1,310,000 shares of
Common Stock - - - 13 2,740 - - 2,753
Grant of 200,000 options of
Common Stock below quoted
market value - - - - 454 - - 454
- --------------------------- ------- ----- ------- ----- ------- --------- ------- --------
Balance, December 31, 1995 $39,584 $ - $36,618 $ 115 $73,012 $(181,166) $(1,117) $(32,954)
Net loss - - - - - (33,696) - (33,696)
Exercise of employee stock
options - - - - 200 - - 200
Compensation expense related
to stock options granted
below quoted market value - - - - 295 - - 295
- --------------------------- ------- ----- ------- ----- ------- --------- ------- --------
Balance, December 31, 1996 $39,584 $ - $36,618 $ 115 $73,507 $(214,862) $(1,117) $(66,155)
=========================== ======= ===== ======= ===== ======= ========= ======= ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Signal Apparel Company, Inc.
and Subsidiaries
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands)
1996 1995 1994
--------- --------- ---------
Operating Activities:
Net loss $(33,696) $(39,959) $(53,304)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 2,924 3,708 4,653
Loss on disposal and write-down
of property, plant and equipment 2,340 166 251
Write-off of goodwill -- 10,736 26,481
Compensation expense related to
stock options granted below
quoted market value 295 454 --
Changes in operating assets and
liabilities, net of effects of
business acquired:
Decrease in receivables 3,603 2,354 5,273
Decrease in inventories 7,435 11,229 6,858
(Increase) Decrease in prepaid
expenses and other 775 (130) 330
Increase (Decrease) in accounts
payable and accrued
liabilities 4,958 118 (1,790)
--------- --------- ---------
Net cash used in operating
activities (11,366) (11,324) (11,248)
--------- --------- ---------
Investing activities:
Purchases of property, plant and
equipment (285) (452) (2,168)
Proceeds from the sale of property,
plant and equipment 488 81 20
Acquisition of business, less cash
acquired -- -- (1,343)
--------- --------- ---------
Net cash provided by
(used in) investing
activities 203 (371) (3,491)
--------- --------- ---------
Financing activities:
Net increase (decrease) in revolving
advance account 724 (9,244) 8,918
Proceeds from borrowings 12,533 20,000 3,000
Principal payments on borrowings (1,830) (668) (4,102)
Principal payments on multiemployer
withdrawal liability (246) (298) (218)
Proceeds from issuance of stock -- 3,000 7,000
Proceeds from exercise of stock options 200 97 --
--------- --------- ---------
Net cash provided by
financing activities 11,381 12,887 14,598
--------- --------- ---------
Increase (decrease) in cash 218 1,192 (141)
Cash and cash equivalents at
beginning of year 1,495 303 444
--------- --------- ---------
Cash and cash equivalents at
end of year $ 1,713 $ 1,495 $ 303
========= ========= =========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Signal Apparel Company, Inc. and Subsidiaries
1. Summary of Significant Accounting Policies
Basis of Presentation
The Company's consolidated financial statements have been
presented on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company reported a net loss
applicable to Common Stock of $33,696,000 for the year ended
December 31, 1996, and cumulative losses for the past three years
of $136,183,000. The 1994 loss includes a write-down of goodwill
of approximately $26,481,000 related to the acquisition of The
Shirt Shed, Inc., while the 1995 loss includes a write-down of
goodwill of approximately $10,736,000 related to the acquisition
of American Marketing Works, Inc. ("AMW"). As a result of these
losses, shareholders' equity has declined to a deficit of
$66,155,000 at December 31, 1996.
As the Company is not currently in compliance with certain
financial covenants of its financing agreement with the senior
lender, all long-term debt due the senior lender is subject to
accelerated maturity and as such, has been classified as a
current liability in the consolidated balance sheets. If the
senior lender were to accelerate the maturity of the debt, the
Company would not have funds available to repay this debt.
Over 1996 and during the first quarter of 1997, the Company
experienced liquidity shortfalls from operations that were
resolved through advances to the Company from its principal
shareholder Walsh Greenwood. The Company's continued existence
is dependent upon its raising additional financing or equity
funds, maintaining existing credit facilities in place and
substantially improving its operating results during 1997.
Plans to improve operations include: (i) reducing general and
administrative costs, (ii) focusing the Company's efforts on the
screenprinting business, including licensed NFL, NBA, MLB, NHL,
and various characters, (iii) reducing costs of sales through
outsourcing and other measures, and (iv) the sale of idle
facilities.
In order for the Company to have sufficient liquidity for it to
continue as a going concern in its present form, the Company will
need to raise additional funds and execute planned improvements.
The Company has no assurances it will be able to raise additional
funds. The consolidated financial statements do not include any
adjustments relating to recoverability and classification of
recorded asset amounts or the amount and classification of
liabilities or any other adjustments that might become necessary
should the Company be unable to continue as a going concern in
its present form. There can be no assurances that the Company's
operations can be returned to profitability.
Nature of Operations
The Company manufactures and markets activewear in juvenile,
youth and adult size ranges and upscale knit apparel for the
ladies' market. The Company's products are sold to wholesalers
and retail accounts, primarily in the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of
Signal Apparel Company, Inc. ("Signal") and its wholly-owned
subsidiaries (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition
Revenue is recognized when the Company's products are shipped to
its customers.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and investments with
original maturities of three months or less.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO)
cost or market for all inventories. For discontinued and
closeout inventories, the Company evaluates the need for write-
downs on an item by item basis. Market value for finished goods
and blank (unprinted) goods is net realizable value.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided over
the estimated useful lives of the assets principally using
accelerated methods. Assets under capital leases are included in
property, plant and equipment, and amortization of such assets is
included with depreciation expense. The estimated useful lives
of the assets range from 4 to 32 years for buildings and
improvements and from 3 to 10 years for machinery and equipment.
Expenditures for maintenance and repairs are charged to expense
as incurred. Depreciation and amortization of property, plant
and equipment for financial statement purposes amounted to
$2,924,000 in 1996, $3,353,000 in 1995, and $3,635,000 in 1994.
The Company has idle facilities in LaGrange, Georgia, Marion,
South Carolina, Rutledge, Tennessee, and Wabash, Indiana.
At December 31, 1996, the Company had idle property, plant and
equipment held for sale with a net book value of approximately
$4,336,000. The Company has written the property, plant and
equipment down to its estimated fair value less estimated costs to
sell. A $1,845,000 write-down has been included in other expense
for 1996 in the Consolidated Statement of Operations. The Company
plans to relocate certain machinery and equipment, and has written
the property, plant and equipment down to its estimated net
realizable value.
Net Loss Per Common Share
The net loss per common share is based on the weighted average
number of common shares outstanding during each year after giving
effect to dividend requirements of the preferred stock. Effects
of the Company's Common Stock equivalents (see Note 5) have been
excluded from the per share computations as they are anti-
dilutive for all periods presented.
Stock-Based Compensation
The Company accounts for its stock-based compensation plan under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25). Effective in 1996, the
Company adopted the disclosure option of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 requires
companies that do not choose to account for stock-based
compensation as prescribed by the statement to disclose the pro
forma effects on net income and earnings per share as if SFAS No.
123 had been adopted. Additionally, certain other disclosures
are required with respect to stock-based compensation and the
assumptions used to determine the pro forma effects of SFAS No.
123. See Note 5 for disclosures required under SFAS No. 123.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Credit and Market Risk
The Company sells products to a wide variety of customers
servicing the ultimate consumer. Pursuant to the terms of a
factoring agreement with its senior lender, the Company sells
substantially all accounts receivable, except cash in advance or
cash on delivery sales, to the factor on a preapproved basis.
The Company pays a factoring commission as compensation for the
credit risk and other services provided by the factor.
With regard to credit-approved sales, the factor accepts the
credit risk for nonpayment due to financial inability to pay.
With regard to noncredit approved sales, the Company accepts all
credit risk of nonpayment for any reason. At December 31, 1996,
the factor had outstanding receivables from the Company's sales
totaling $6.1 million, of which $2.8 million was not credit-
approved by the factor. The Company performs ongoing credit
evaluations of those customers carried at its own risk and
generally does not require collateral for such receivables. The
Company maintains an allowance for doubtful accounts at a level
which management believes is sufficient to cover potential credit
losses.
In 1996 Walmart accounted for 14% and K-Mart accounted for 12% of
net sales. In 1995 and 1994, no one customer accounted for more
than 10% of net sales.
Goodwill
In connection with the 1994 acquisition of AMW, the Company
recorded goodwill for the excess of the cost over the net assets
acquired. In 1995, the Company determined that the goodwill
related to the acquisition of AMW had been impaired. This
impairment was due to operating losses by AMW, the loss of
significant licenses, shortfalls in sales projections, and the
uncertainty about AMW's return to profitability. As a result,
the unamortized balance of the AMW goodwill was written off.
In 1994, the Company determined that goodwill related to the
acquisition of The Shirt Shed, Inc. had been impaired due to
continuing operating losses along with the uncertainty about
Shirt Shed's return to profitability. As a result, the
unamortized balance of the Shirt Shed goodwill was written off.
The charges for the goodwill write-offs were $10,736,000 and
$26,481,000 in 1995 and 1994, respectively, and have been
separately presented in the accompanying statements of
operations.
Reclassifications
Certain reclassifications have been made in the fiscal 1995 and
1994 financial statements to conform with the 1996 presentation.
2. Acquisition of American Marketing Works
Pursuant to a Stock Purchase Agreement dated October 6, 1994, as
subsequently amended (as so amended, the "Purchase Agreement"),
the Company acquired, as of November 22, 1994, all of the
outstanding capital stock of AMW from Kidd, Kamm Equity Partners,
L.P., a Delaware limited partnership ("KKEP"), MW Holdings, L.P.,
a California limited partnership ("MWH"), Marvin Winkler, Sherri
Winkler and certain investment companies (collectively, the "AMW
Shareholders"), in exchange for 1,400,000 shares of the Company's
Common stock, $.01 par value per share (the "AMW Acquisition").
Included in the 1,400,000 shares were 150,000 unvested shares and
150,000 shares subject to being returned to the Company. These
300,000 shares became fully vested (and nonreturnable) in 1995.
An Amendment to the Purchase Agreement provided for the issuance
of an additional 10,000 shares of Common Stock to certain of the
AMW Shareholders in further consideration of the sale of their
entire equity interest in the Company.
The shares of the Company's Common stock issued in connection
with the AMW Acquisition were issued as unregistered, restricted
shares of stock pursuant to the rules and regulations of the
Securities and Exchange Commission. As an additional inducement
to the AMW Shareholders to enter into the Purchase Agreement, the
Company entered into a Registration Rights Agreement dated
November 22, 1994 with KKEP as "nominee" for all of the AMW
Shareholders (other than Marvin Winkler and Sherri Winkler, who
did not receive any shares) under a separate agreement between
KKEP and such shareholders. The Registration Rights Agreement
effectively grants KKEP (as "Holder," as defined therein, of a
majority of the "Registrable Securities" issued in the AMW
Acquisition) the right to require the Company, upon written
notice given anytime within two years after November 22, 1994, to
effect one registration of all "Registrable Securities" issued in
the AMW Acquisition for sale under the Securities Act of 1933, as
amended.
On November 30, 1994, KKEP, in its capacity as nominee for the
AMW Shareholders, notified the Company of its exercise of the
demand registration rights. In accordance with the terms of the
Registration Rights Agreement, the Company requested, as a matter
of right, an initial delay of up to 180 days in the registration
of shares pursuant to such notice. KKEP has subsequently
notified the Company that it believes that it is now entitled to
have its shares registered pursuant to the Registration Rights
Agreement, and that it regards the Company as being in default
under that agreement. KKEP has not commenced any litigation
regarding its purported claims under the Registration Rights
Agreement, and the Company intends to vigorously defend itself
against any claim that it is required to register such stock at
this time.
In connection with the AMW Acquisition, the Company agreed with
the other parties to the Purchase Agreement that (i) a
subordinated promissory note of AMW in the principal amount of
$1,560,000 from MWH and (ii) a subordinated promissory note of
AMW in the principal amount of $750,000 from Marvin Winkler
(president of the general partner of MWH as well as former
Chairman and CEO of AMW) and his wife, Sherri Winkler
(collectively, the "Subordinated Notes") would be amended and
restated in principal amounts equal to the outstanding principal
plus accrued and unpaid interest on each of the Subordinated
Notes as of November 22, 1994 (totalling $1,635,400 and $798,300,
respectively) (said amended and restated notes, collectively, the
"Purchase Notes"). In 1995 the Company entered into an agreement
with Marvin and Sherri Winkler and MW Holdings whereby the
Purchase Notes were converted into 1,000,000 shares of Common
Stock.
The AMW acquisition was accounted for as a purchase in accordance
with Accounting Principles Board Opinion No. 16, and accordingly,
the purchase price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values as of the
acquisition date. The net excess of the cost over the estimated
fair values of the acquired net assets as a result of the
acquisition was allocated to goodwill.
The results of operations of AMW are included in the accompanying
financial statements from the date of acquisition. The following
summarized unaudited pro forma financial information gives effect
to the acquisition as if it had occurred on January 1, 1994 and
has been prepared for comparative purposes only. The information
does not purport to be indicative of the results of operations
had the transaction been in effect on the date indicated or which
may occur in the future:
Year Ended
Dollars in Thousands December 31,
(except per share data) 1994
----
(unaudited)
Net sales $125,603
Net loss applicable to
common shareholders 71,407
Net loss per common share 6.99
3. Inventories
Inventories consisted of the following at December 31, 1996
and 1995:
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------
Raw materials $ 794 $ 1,343
Work in process 2,060 2,855
Finished goods 11,383 16,742
Supplies 450 1,182
- -----------------------------------------------------------------
$14,687 $22,122
=================================================================
4. Debt
Debt consisted of the following at December 31, 1996 and 1995:
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------
Senior obligations:
Revolving advance account under
credit facility -- interest payable
monthly at the alternate base rate
(as defined) plus 1.25% (9.5% at
December 31, 1996); secured by
accounts receivable, inventories
and certain machinery and equipment $20,362 $19,640
Senior term note -- interest payable
monthly at the alternate base rate
(as defined) plus 1.5% (9.75% at
December 31, 1996); secured by real
estate; payable in equal monthly
installments of $17,600 over a
period through July 1999 with a
balloon payment due August 1999 995 1,209
Senior term note -- interest payable
monthly at the alternate base rate
(as defined) plus 1.5% (9.75% at
December 31, 1996); secured by
accounts receivable, inventories,
and machinery and equipment; payable
in equal monthly installments of
$49,500 over a period through
July 1999 with a balloon payment
due August 1999 2,576 3,394
Tranche A note to related party --
interest payable monthly at the
commercial paper rate (as defined)
plus 4.75% (10.7% at December 31,
1996); secured by certain machinery
and equipment and certain issued
and outstanding stock; payable
on January 1, 1998 4,750 4,750
Tranche B note to related party --
interest payable monthly at the
commercial paper rate (as defined)
plus 7.65% (13.6% at December 31,
1996); secured by certain machinery
and equipment and certain issued
and outstanding stock; payable on
January 1, 1998 1,750 1,750
Senior secured subordinated promissory
note to related party -- interest at
25% (15% payable quarterly and 10%
payable at maturity); secured by a
second lien on accounts receivable,
inventory, machinery and equipment,
and certain real estate; payable on
March 31, 1998 32,049 20,000
Subordinated debt to related party 3,000 3,000
Obligations under capital leases 278 386
Mortgage notes payable 314 347
Other 349 700
- -----------------------------------------------------------------
Total 66,423 55,176
Less: Current portion of
long-term debt 6,795 11,695
Revolving advance account 20,362 19,640
- -----------------------------------------------------------------
Long Term Debt, excluding current
portion and revolving advance account 39,266 23,841
=================================================================
On November 7, 1995, the financing arrangement with the Company's
senior lender was extended through December 31, 1997. Under the
current financing arrangement, the Company's total outstanding
obligations (including the revolving advance account and senior
term notes) at any month-end cannot exceed the lower of
$40,000,000 or the borrowing base, as defined in the agreement.
The borrowing base is generally equal to the sum of 85% of
eligible receivables (as defined), plus the lower of the
inventory cap ($16,000,000, subject to adjustment) or 50% of
eligible inventory (as defined), less certain reserves, plus the
discretionary overadvances and the senior term notes.
The senior lender has agreed to allow certain discretionary
overadvances in excess of the borrowing base. At December 31,
1996, the discretionary overadvance facilities aggregated
$14,072,000, $4,000,000 of which is secured by a collateral
pledge by two principal shareholders, FS Signal Associates II and
Walsh Greenwood. All such overadvance facilities with the senior
lender are discretionary. The balance of $10,072,000 is
guaranteed by the principal shareholder, Walsh Greenwood. The
collateral pledge may only be repaid after repayment of all
outstanding borrowings under the discretionary overadvance
facility from the senior lender. Such overadvances are
classified in the revolving advance account.
Under the revolving advance account, interest is at the alternate
base rate plus 1.25%. The alternate base rate is a fluctuating
rate equal to the higher of the prime rate (as defined) or the
federal funds rate plus .5%, and is payable monthly. In addition
to the amounts due to the senior lender for interest, the Company
is obligated to pay a quarterly fee of .25% per annum on the
difference between $40,000,000 and the average amount of
obligations outstanding, as defined, to such lender.
The current financing arrangement requires, among other things,
the maintenance of minimum amounts of working capital, cumulative
pretax operating results and net worth, and also limits the
Company's ability to pay dividends and limits the amount of
indebtedness the Company may incur. As of December 31, 1996, the
Company was not in compliance with various covenants of the
credit facility. Due to the Company's noncompliance with certain
financial covenants, all long-term debt with the senior lender
is classified as a current liability in the accompanying
consolidated balance sheets at December 31, 1996.
In connection with the AMW Acquisition, the senior lender amended
its agreement with the Company. In connection with these
amendments, AMW granted security interests in all of its
inventory, equipment and trademarks to the senior lender. The
Company pledged all the issued and outstanding stock of both AMW
and Shirt Shed to the senior lender. Walsh Greenwood and
affiliates, principal shareholders of the Company, guaranteed up
to $250,000 of the obligations of AMW to the senior lender and to
AMW's prior fixed assets lender (in addition to the guarantees of
such AMW debt by the Company and KKEP, as discussed above). FS
Signal Associates II, another of the Company's principal
shareholders, pledged 500,000 shares of the Company's Common
Stock to the senior lender to secure the obligations of AMW to
the senior lender.
In connection with the acquisition of AMW, the Company assumed
two promissory notes ("Tranche A" and "Tranche B"). The
notes are secured by a first lien on AMW's machinery and
equipment. Additionally, the Company pledged all of the
issued and outstanding stock of AMW to this lender as
collateral. A principal shareholder, FS Signal Associates II,
pledged 500,000 shares of the Company's Common Stock to this
lender to secure AMW's obligations. Another shareholder, KKEP
pledged 1,400,000 shares of the Company's Common Stock to this
lender, also. The Tranche A and Tranche B notes were bought by
an affiliate of Walsh Greenwood in September 1996.
Effective March 31, 1994, the Company signed a promissory note
for $3,000,000 with a related party, FS Signal Associates I. The
promissory note is due on April 30, 1997, subject to the terms of
the subordination agreement with the Company's senior lender.
Interest is payable at maturity at the prime rate, as defined,
plus 3%. In connection with this promissory note, accrued
interest payable at maturity to FS Signal Associates I was
approximately $989,000, $638,000 and $276,000 at December 31,
1996, 1995 and 1994, respectively.
On March 31, 1995, the Company executed the Walsh Greenwood
Credit Agreement with Walsh Greenwood and affiliates. The
related promissory note had an original face amount of
$15,000,000, was amended to $20,000,000 at December 31,
1995, and as a result of Walsh Greenwood's advance to the
Company of $12,049,000 in 1996 is currently being amended
to $32,049,000. The credit agreement, as amended, matures on
March 31, 1998 and may be prepaid in whole or in part at any
time. Interest is at a fixed rate of 25% of the face amount.
Interest at the rate of 15% is payable quarterly. The remaining
10% is payable on March 31, 1998. If any principal or interest
payment is not paid when due, the overdue amount earns interest
at an annual rate of 27% until such amount is paid. The Company
did not pay any interest currently due in 1996 and is accruing
interest on this past due amount at 27%. Funds prepaid cannot
be redrawn. The promissory note is secured by a security
interest immediately after the security interest of the
Company's senior lender and a first lien on any acquisition.
The funds received from the promissory note could only be used
for working capital requirements and could not be used to repay
any principal on debt with the Company's senior lender. The
credit agreement prohibits, among other things, the payment of
cash dividends to any class of stock, except required dividends
on the Company's Preferred Stock.
As additional conditions to the extension of credit under this
agreement, the Company obtained an agreement from the holders of
the Company's Preferred Stock (i) to waive accrual and payment of
all future dividends and dividend accumulations from January 1,
1995 until the earlier of January 1, 2001, or such time as all
outstanding principal and interest under the credit agreement
with Walsh Greenwood and affiliates has been paid in full and
(ii) to grant the Company the right, upon payment in full of all
principal and interest due under the credit agreement with Walsh
Greenwood and upon repayment of $6,500,000 in outstanding Tranche
A and Tranche B notes, to redeem all of the Company's outstanding
Preferred Stock with shares of the Company's Common Stock valued
for such purposes at $7.00 per share. Such right of redemption
extends until June 30, 1998. In the event the Company files for
bankruptcy protection, the waiver on dividend accumulation and
accrual would be of no force and effect. Based on this
agreement, the Company considers the waiver to be permanent in
nature and dividends have not been accrued since January 1, 1995.
In connection with the Walsh Greenwood Credit Agreement, the
portion of accrued interest payable due at maturity was
approximately $4,447,000 at December 31, 1996,
which is classified as an other noncurrent liability in the
accompanying consolidated balance sheets. Accrued interest
currently payable at December 31, 1996, (including past due
interest) was approximately $5,575,000. As of
December 31, 1996, Walsh Greenwood agreed to waive certain
defaults by the Company under the Walsh Greenwood Credit
Agreement, including payment (but not the accrual) of interest
charges and compliance with financial covenants through
January 1, 1998.
Subsequent to December 31, 1996, the Company received $5,385,000
in additional advances from Walsh Greenwood. These amounts are
expected to be considered additional funding under the Walsh
Greenwood Credit Agreement.
Interest expense in the Consolidated Statements of Operations
includes accrued interest to related parties of $7,119,000,
$3,852,000, and $298,000 during 1996, 1995, and 1994,
respectively.
The Company made cash payments for interest of $2,649,000,
$4,634,000, and $2,674,000 during 1996, 1995, and 1994,
respectively. The aggregate future scheduled maturities of
debt for the five years subsequent to December 31, 1996,
are as follows: 1997 - $27,157,000; 1998 - $38,750,000;
1999 - $191,000; 2000 - $132,000; 2001 -$114,000.
5. Capital Stock
On May 11, 1995, the shareholders approved an amendment to the
Company's 1985 Stock Option Plan to increase the number of shares
of Common Stock available for grant thereunder from 1,160,000 to
1,910,000 shares. The options have a term of 10 years and vest
over periods from one to four years from date of grant.
The Company accounts for its stock-based compensation under APB
No. 25, under which no compensation expense has been recognized
for stock options granted with exercise prices equal to the fair
value of the Company's Common Stock on the date of grant. The
Company adopted SFAS No. 123 for disclosure purposes only in
1996. For SFAS No. 123 purposes, the fair value of each employee
option grant has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted
average assumptions for 1996 and 1995, respectively: risk-free
interest rate of 6.52% and 6.40%, expected life of 5.0 and 5.4
years, expected dividend yield of 0% and expected volatility of
46% for 1996 and 1995. Using these assumptions, the fair value
of the employee stock options granted in 1996 and 1995 is
$913,000 and $967,000, respectively, which would be amortized as
compensation expense over the vesting period of the options.
Compensation expense recognized under APB No. 25 in 1996 and 1995
was $295,000 and $454,000, respectively. Had compensation cost
for the plan been determined in accordance with SFAS No. 123,
utilizing the assumptions detailed above, the Company's pro forma
net loss would have been $34,314,000 and $40,472,000 for the
years ended December 31, 1996 and 1995, respectively. Pro forma
net loss per share would have been $2.97 and $3.85 for the years
ended December 31, 1996 and 1995, respectively.
The pro forma effect on net loss in this pro forma disclosure may
not be representative of the pro forma effect on net loss in future
years because it does not take into consideration expense related
to grants made prior to 1995.
A summary of the Company's stock option activity for 1996, 1995
and 1994 is as follows:
1994 1995 1996
--------------- --------------- ---------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- ---- -------- ---- -------- ----
Outstanding at beginning
of year 498,500 7.06 483,500 6.27 760,236 5.47
Granted, at market price 150,000 4.50 305,000 5.60 18,000 6.19
Granted, at below market
price 0 0.00 200,000 4.00 52,500 4.48
Exercised 0 0.00 (13,750) 7.06 (50,000) 4.00
Canceled or expired (165,000) 7.07 (214,514) 5.98 (287,136) 5.90
-------- ---- ------- ---- ------- ----
Outstanding at end of year 483,500 6.27 760,236 5.47 493,600 5.29
-------- ---- ------- ---- ------- ----
Exercisable at end of year 160,625 7.06 201,786 6.30 433,825 5.31
Weighted average fair value
of options granted, at
market price N/A $3.25 $3.27
Weighted average fair value
of options granted, at
below market price N/A $4.01 $3.30
There are 493,600 options outstanding at December 31, 1996,
including 227,500 having exercise prices between $3.00 and $4.00,
with a weighted average exercise price of $3.91 and a weighted
average remaining contractual life of 8.3 years. Of these
options, 200,000 are exercisable at a weighted average exercise
price of $4.00. The remaining 266,100 options have exercise
prices between $5.00 and $7.06, with a weighted average
exercise price of $6.46 and a weighted average remaining
contractual life of 7.4 years. Of these options, 233,825
are exercisable at a weighted average exercise price of $6.43.
Subsequent to year-end, the Company approved the issuance of
1,449,000 stock options to substantially all of its employees.
These options have an exercise price equal to the quoted market
price on the date of the grant and are exercisable for five years
from the grant date. The vesting periods on the grants range
from one to three years.
Under the restated articles of incorporation, the Company has the
authority to issue 1,600,000 shares of preferred stock having no
par value, issuable in series, with the designation, powers,
preferences, rights, qualifications and restrictions to be
established by the board of directors. At December 31, 1996, the
Company had authorized 400 shares of Series A Preferred Stock,
250 shares of Series B Preferred Stock, 1,000 shares of Series C
Preferred Stock, 100 shares of Series D Preferred Stock and
20,000 shares of Series E Preferred Stock.
The Series A Preferred Stock bears a 15% cumulative, undeclared
dividend, compounded quarterly, and is senior to all other
classes or series of the Company's equity securities in all
regards, including dividends, distributions and redemptions. The
Series B Preferred Stock bears a 12.5% cumulative, undeclared
dividend, compounded quarterly, and is junior to the Company's
Series A Preferred Stock, but senior to all other equity of the
Company in all regards, including dividends, distributions and
redemptions. The Series C Preferred Stock bears a 12.5%
cumulative, undeclared dividend, compounded quarterly; is junior
to the Company's Series A Preferred Stock and is equivalent with
the Company's Series B Preferred Stock, but senior to all other
equity of the Company in all regards, including dividends,
distributions and redemptions. The Series A, B, and C Preferred
Stock have a stated value of $100,000 per share and a liquidation
preference of $100,000 per share, plus cumulative unpaid
dividends. See Note 6 for discussion of the Series D Redeemable
Preferred Stock.
The Series E Preferred Stock is junior to all other series of
outstanding Preferred Stock of the Company and bears a cumulative
dividend at an annual rate equal to seven percent (7%) of the
stock's $1,000 stated value, to be paid quarterly. The Series E
Preferred Stock is convertible into shares of Common Stock at the
price per share equal to the lower of (i) the product of .60
multiplied by the average daily closing bid prices of Common
Stock for the period of five (5) consecutive trading days
immediately preceding the date of conversion of the shares of
Series E Preferred Stock or (ii) the product of .60 multiplied by
the average daily closing bid prices of Common Stock for the
period of five (5) consecutive trading days immediately preceding
the date of closing of the offering of the Series E Preferred
Stock.
The Series A, B, C, D and E shareholders' voting rights are
limited to certain consent actions as defined in the Preferred
Stock certificates. At December 31, 1996, there were no shares
of the Series B, D or E Preferred Stock outstanding.
Pursuant to a license agreement between the Company and an
affiliate of Time Warner, Inc., the Company canceled a warrant
previously issued to purchase 171,173 shares of Common Stock at
an exercise price of $12.61 per share and issued two new warrants
in 1994 to the same affiliate, one to purchase 193,386 shares of
Common Stock at $11.61 per share and expiring July 22, 2001, and
the other to purchase 38,674 shares of Common Stock at $8.52 per
share and expiring April 30, 2003. Both of these new warrants
were exercisable as of the date of issuance.
In 1993, the Company, FS Signal and Walsh Greenwood entered into
a restructuring agreement pursuant to which outstanding debt and
unpaid fees owed to Walsh Greenwood and FS Signal were canceled
and extinguished. Also, the outstanding warrants issued in
connection with all such debt were canceled. In consideration of
this cancellation, the Company issued shares of Preferred Stock
at the rate of one share of Preferred Stock per $100,000
principal amount of debt extinguished, together with fractional
shares of such stock in consideration of accrued interest which
was extinguished. This resulted in the issuance of an aggregate
of 176.587 shares of Series A Preferred Stock and 217.678 shares
of Series B Preferred Stock. As an inducement to Walsh Greenwood
and FS Signal to enter into the restructuring agreement, the
Company issued warrants to acquire 675,000 shares of Common Stock
at a price of $7.06 per share to Walsh Greenwood and warrants to
acquire an aggregate of 2,047,500 shares of Common Stock at a
price of $7.06 per share to FS Signal. The Company also agreed
to make available, by private placement, up to 200 additional
shares of Series A Preferred Stock at a price of $100,000 per
share. As an inducement to purchase such Preferred Stock, the
Company granted FS Signal a warrant to acquire up to 2,000,000
additional shares of Common Stock at $7.06 per share, which vests
at the rate of 100,000 warrant shares per $1,000,000 invested in
Preferred Stock. As of December 31, 1996, FS Signal had invested
an additional $15,050,000 in the Company in the form of purchases
of 150.5 shares of such Series A Preferred Stock, and warrants to
acquire 1,500,000 shares of Common Stock had vested.
In February 1994, the Company exchanged 70 shares of the Series C
Preferred Stock for $7,000,000 of collateral pledged by Walsh
Greenwood to the senior lender at the rate of $100,000 per share.
In conjunction with financing provided to the Company in March
1994 (Note 4), the Company issued warrants to FS Signal
Associates I to purchase 300,000 shares of the Company's Common
Stock at an exercise price of $7.06 per share, such warrants
expire on April 30, 1999.
In June 1994, the Company issued 130.334 shares of Series C
Preferred Stock to FS Signal Associates I, 9.375 shares to FS
Signal Associates II, and 77.969 shares to Walsh Greenwood in
exchange for 217.678 shares of Series B Preferred Stock
previously issued to these related parties.
In consideration of funding provided by the senior lender to AMW
(Note 4), the Company issued warrants, effective November 18,
1994, to the senior lender to purchase 100,000 shares of Common
Stock at $7.06 per share, expiring November 18, 1997.
In January 1995, Walsh Greenwood made an equity investment in the
Company of $3,000,000 for which they received 30 shares of Series
C Preferred Stock. In connection with this investment, the
Company issued warrants to Walsh Greenwood to purchase 300,000
shares of the Company's Common Stock at an exercise price of
$7.625 per share. Such warrants expire on February 1, 2000.
In conjunction with the Walsh Greenwood Credit Agreement (Note
4), in 1995 the Company issued warrants to Walsh Greenwood to
purchase 4,000,000 shares of Common Stock. Of these, warrants
to purchase 2,000,000 shares have an exercise price of
$2.25 per share expiring on March 31, 1998. Such warrants vested
as funds were drawn at the rate of 100,000 warrants for each
$1,000,000 drawn. Additionally, Walsh Greenwood received
warrants to purchase 2,000,000 shares with an exercise
price at a 25% discount to the 20-day average trading price in
December 1996 ($2.32 per share). These warrants vested upon
issuance and are exercisable for a period of three years
commencing on January 1, 1997. In connection with the
$12,049,000 advance the Company by Walsh Greenwood in 1996,
it is expected that Walsh Greenwood will receive, in 1997,
warrants to purchase 2,400,000 shares of Common Stock.
The warrants will be adjusted for dilution caused by certain
dilutive transactions. Additionally, the warrants have
registration rights no more favorable than the equivalent
provisions in the currently outstanding warrants issued to
principal shareholders of the Company, except that the
registration rights shall include three demand registrations.
Pursuant to the acquisition of American Marketing Works, Inc.
(AMW), the Company issued 1,410,000 shares of the Company's
Common Stock (Note 2).
On November 5, 1995, Marvin and Sherri Winkler and MW Holdings
agreed to convert outstanding promissory notes totaling
approximately $2,434,000 into 1,000,000 unregistered shares of
the Company's Common Stock. The Company agreed to use its best
efforts to include such shares in the next registration statement
under the Securities Act of 1933 that the Company files, and, if
such registration does not occur by November 1996, the Company
agreed to pay interest at the rate of 7% per annum on the value
of the unregistered shares (half of said interest to be paid in
cash, half to be paid in shares of Common Stock) until such
shares are registered or disposed of. The Company has not
registered the 1,000,000 shares.
Pursuant to the engagement of Grisanti, Galef and Goldress, Inc.
as interim manager of the Company in July 1993, the Company
issued warrants, effective August 13, 1993, to purchase up to
200,000 shares of the Company's Common Stock at an exercise price
of $7.06 per share, expiring on September 1, 1998. In October
1994, the Company amended this warrant by decreasing the warrant
shares outstanding to 100,000 and immediately vesting the 50,000
shares not previously vested.
A summary of the Company's warrant activity for 1996, 1995 and
1994 is as follows:
1994 1995 1996
----------------- --------------- ---------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ----- --------- ---- --------- ----
Outstanding at beginning
of year 5,093,673 7.25 5,454,560 7.23 9,754,560 5.22
Issued, at market price 0 0.00 300,000 7.63 0 0.00
Issued, at above market
price 632,060 8.54 0 0.00 0 0.00
Issued, at below market
price 0 0.00 4,000,000 2.28 0 0.00
Canceled or expired (271,173) 10.56 0 0.00 0 0.00
--------- ----- --------- ---- --------- ----
Outstanding at end of year 5,454,560 7.23 9,754,560 5.22 9,754,560 5.22
--------- ----- --------- ---- --------- ----
Exercisable at end of year 4,954,560 7.25 9,254,560 5.12 9,254,560 5.12
Of the 9,754,560 warrants outstanding at December 31, 1996,
4,000,000 have exercise prices between $2.25 and $2.32, with a
weighted average exercise price of $2.28 and a weighted average
remaining contractual life of 2.1 years. All of these warrants
are exercisable. The remaining 5,754,560 warrants have exercise
prices between $7.06 and $11.61, with a weighted average exercise
price of $7.25 and a weighted average remaining contractual life
of 1.9 years. Of these warrants, 5,254,560 are exercisable at a
weighted average exercise price of $7.27.
6. Redeemable Preferred Stock
The Series D Preferred Stock is junior to the Series A, B and C
Preferred Stock of the Company (see Note 5); bears a cumulative
dividend at an annual rate equal to ten percent (10%) of the
stated value of such stock, compounded quarterly; and is required
to be redeemed by the Company on November 22, 1999 at a
redemption price equal to the stated value per share for such
stock plus accrued and unpaid dividends, subject to the rights of
the holders of the Company's other outstanding series of
Preferred Stock which are senior to the Series D Preferred Stock.
The Series D Redeemable Preferred Stock has a stated value of
$100,000 per share and a liquidation preference of $100,000 per
share, plus cumulative unpaid dividends.
7. Income Taxes
The Company recognizes deferred tax assets and liabilities for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based
on the differences between the financial reporting and income tax
bases using enacted tax rates in effect for the year in which the
differences are expected to reverse.
There was no income tax provision or benefit recorded during the
years ended December 31, 1996, 1995, and 1994 due to the losses
sustained by the Company.
Deferred income tax assets and liabilities for 1996 and 1995
reflect the impact of temporary differences between the amount of
assets and liabilities for financial reporting and income tax
reporting purposes. The Company has established a valuation
allowance for the entire amount of the net deferred tax asset due
to the uncertainty regarding the realizability of these assets.
Temporary differences and carryforwards which give rise to
deferred tax assets at December 31, 1996 and 1995 are as follows
(in thousands):
1996 1995
---- ----
Deferred tax assets:
Tax loss carryforwards $73,140 $61,767
Inventory reserves 1,346 1,208
Other reserves 1,740 1,859
Multi-employer withdrawal liability 435 492
Other 2,690 2,230
-------- --------
Total deferred tax assets 79,351 67,556
Valuation allowance (78,635) (66,602)
Deferred tax liabilities:
LIFO to FIFO change (716) (954)
-------- --------
Net deferred tax asset $ 0 $ 0
======== =========
The Company and its subsidiaries file a consolidated federal
income tax return. At December 31, 1996, the Company had tax
loss carryforwards of approximately $192,000,000 which expire in
years 1999 through 2011 if not utilized earlier. At the time
Shirt Shed and AMW were acquired, they had tax loss carryforwards
of $17,400,000 and $11,800,000, respectively, which are included
above. These tax loss carryforwards are subject to annual
limitations imposed for the change in ownership (as defined in
Section 382 of the Internal Revenue Code) and application of the
consolidated income tax return rules.
The Company did not pay any income taxes in 1996, 1995 and 1994.
8. Pension and Retirement Plans
The Company sponsors defined contribution plans for employees.
The Company makes contributions to the plans equal to a
percentage of the participants' contributions within certain
limitations. The Company recognized expense related to these
plans of $124,000 in 1996, $109,000 in 1995, and $154,000 in
1994. The Company's policy is to fund amounts accrued annually.
Certain former employees of Signal participate in a defined
benefit pension plan negotiated with a union (multi-employer
plan) that no longer represents any employee of the Company. The
total multiemployer withdrawal liability was $1,146,000 and
$1,294,000 at December 31, 1996 and 1995, respectively.
9. Commitments and Contingencies
Operating Leases
The Company occupies certain manufacturing facilities, sales and
administrative offices and uses certain equipment under operating
lease arrangements. Rent expense aggregated approximately
$1,263,000 in 1996, $1,729,000 in 1995, and $2,205,000 in 1994.
Approximate future minimum rental commitments for all
noncancelable operating leases as of December 31, 1996 are as
follows (dollars in thousands):
1997 $ 1,089
1998 943
1999 287
2000 39
2001 29
-------
$ 2,387
=======
Real estate taxes, insurance, and maintenance expense are
generally obligations of the Company.
Letters of Credit Supported by Related Parties
The Company uses letters of credit (which are supported by
commitments from entities controlled by Walsh Greenwood and FS
Signal) to assist the Company in purchasing inventory,
maintaining licenses and other matters. Subsequent to
December 31, 996, the Company entered into a Reimbursement
Agreement and a Promissory Note with FS Signal whereby the
Company agreed to repay amounts that FS Signal pays in support of
these letters of credit. At December 31, 1996, the Company had
$490,000 in accrued liabilities due to FS Signal for creditor
drawdowns on these letters of credit which were repaid by FS
Signal in 1996.
Royalty and Other Commitments
Pursuant to the terms of various license agreements, the Company
is obligated to pay future minimum royalties of approximately
$1,900,000 due in 1997. The Company has estimated that certain
guaranteed royalties will not be met through the normal course of
business and has accrued approximately $1,000,000 at December 31,
1996 to cover such guarantees.
Legal Proceedings
The Company is a party to various legal proceedings incidental to
its business. The ultimate disposition of these matters is not
presently determinable but will not, in the opinion of
management, have a material adverse effect on the Company's
financial condition or results of operations.
10. Fair Value of Financial Instruments
The carrying amount of cash, receivables and short-term payables
approximates fair value because of the short maturity of these
financial instruments. Due to the current financial condition
(Note 1) and the ongoing attempts to raise additional funds, it
is not practical to estimate the fair value of the Company's debt.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
PART III
Those portions of the Company's Proxy Statement for its 1997
Annual Meeting of Shareholders described below are incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant
Election of Directors and Executive Officers
Item 11. Executive Compensation
Executive Compensation and Employment Agreements
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Security Ownership of Certain Beneficial Owners and Management
Election of Directors
Item 13. Certain Relationships and Related Transactions
Compensation Committee Interlocks and Insider Participation
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 1. Financial Statements and Schedules
The financial statements are incorporated by reference under
Part II, Item 8 and are set forth in the Index to Financial
Statements and Schedules found in Part II, Item 8.
(a) 2. Financial Statement Schedules:
Report of Independent Public Accountants
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted as the required information
is inapplicable or the information is presented in the
consolidated financial statements or related notes.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholders of Signal Apparel Company, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Part
II, Item 8 of this Form 10-K and have issued our report thereon
dated March 26, 1997. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. Our
report on the consolidated financial statements includes an
explanatory paragraph with respect to the Company's ability to
continue as a going concern as described in Note 1 to the
financial statements. Schedule II is the responsibility of the
Company's management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to
be set forth therein in relation to the basic financial
statements taken as a whole.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 26, 1997
SIGNAL APPAREL COMPANY, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Additions
---------------------
Balance at Charged to Balance
Beginning Costs and at End
of Period Expense Other Deductions of Period
--------- -------- ------- ------- -------
Year ended December 31, 1996
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 3,179 $ 2,355 $ $ 1,990 $ 3,544
Allowance for doubtful accounts 1,703 55 185 (1) 1,573
------- ------- ------- ------- -------
$ 4,882 $ 2,410 $ $ 2,175 $ 5,117
======= ======= ======= ======= =======
Year ended December 31, 1995
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 5,933 $ 1,804 $ $ 4,558 $ 3,179
Allowance for doubtful accounts 1,787 264 348 (1) 1,703
------- ------- ------- ------- -------
$ 7,720 $ 2,068 $ $ 4,906 $ 4,882
======= ======= ======= ======= =======
Year ended December 31, 1994
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 7,886 $ 7,675 $ $ 9,628 $ 5,933
Allowance for doubtful acco 1,060 710 256 (2) 239 (1) 1,787
------- ------- ------- ------- -------
$ 8,946 $ 8,385 $ 256 $ 9,867 $ 7,720
======= ======= ======= ======= =======
<FN>
<F1>
(1) Uncollectible accounts written off, net of recoveries.
<F2>
(2) Represents allowance for doubtful accounts acquired in acquisition of AMW.
</FN>
(a) 3. Exhibits:
(2.1) Stock Purchase Agreement dated October 6, 1994,
by and among the Company, Kidd, Kamm Equity Partners, L.P., MW
Holdings, L.P., and the additional parties listed on the
signature pages thereto. Incorporated by reference to Exhibit
2-1 to current report on Form 8-K dated November 22, 1994.
(2.2) Amendment, dated November 1, 1994, to Stock
Purchase Agreement dated October 6, 1994. Incorporated by
reference to Exhibit 2-2 to current report on Form 8-K dated
November 22, 1994.
(2.3) Amendment No. 2, dated November 21, 1994, to
Stock Purchase Agreement dated October 6, 1994. Incorporated by
reference to Exhibit 2-3 to current report on Form 8-K dated
November 22, 1994.
(3.1) Copy of Restated Articles of Incorporation, as
amended November 15, 1995. Incorporated by reference to Exhibit
3-1 to Form 10-K for the year ended December 31, 1995.
(3.2) Copy of Bylaws as amended March 23, 1992.
Incorporated by reference to Exhibit 3-2 to Form 10-K for the
year ended December 31, 1991.
(10.1) License Agreement, dated June 1, 1992, between
the Company and Joan Vass, Inc. Incorporated by reference to
Exhibit 10-1 to Form 10-K for the year ended December 31, 1992.
(10.2) Factoring Agreement dated as of May 23, 1991
between the Company and BNY Financial Corporation, together with
BNY Financial Corporation General Security Agreement, Inventory
Security Agreement, Equipment Security Agreement, and related
documents, all dated as of May 23, 1991 relating to a
$60,000,000) credit facility. Incorporated by reference to
Exhibit 10-10 to Form S-4 Registration Statement filed with the
Commission on May 28, 1991.
(10.3) Factoring Agreement dated as of July 25, 1991
between The Shirt Shed, Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10-1 to Current Report on
Form 8-K dated July 22, 1991.
(10.4) General Security Agreement, Inventory Security
Agreement, Equipment Security Agreement, and related documents,
all dated as of July 25, 1991 between The Shirt Shed, Inc. and
BNY Financial Corporation. Incorporated by reference to Exhibit
10-10 to Form 10-K for the year ended December 31, 1991.
(10.5) Promissory Note of Signal Apparel Company, Inc.,
for $5,000,000 dated as of November 12, 1992, and payable to BNY
Financial Corporation and related letter dated October 15, 1992,
canceling the Promissory Note for $3,500,000 payable to BNY
Financial Corporation. Incorporated by reference to Exhibit
10-8 to Form 10-K for the year ended December 31, 1992.
(10.6) June 12, 1991 Letter Agreement to Factoring
Agreement dated as of May 23, 1991, between the Company and BNY
Financial Corporation. Incorporated by reference to Exhibit
10-12 to Form 10-K for the year ended December 31, 1991.
(10.7) Letter Amendments, dated as of July 22, 1991, to
Factoring Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii) July 25, 1991
between The Shirt Shed, Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10-13 to Form 10-K for the
year ended December 31, 1991.
(10.8) July 25, 1991 Letter Amendments to Factoring
Agreement dated as of July 25, 1991, between The Shirt Shed, Inc.
and BNY Financial Corporation. Incorporated by reference to
Exhibit 10-14 to Form 10-K for the year ended December 31, 1991.
(10.9) July 25, 1991 Letter Amendments to Factoring
Agreements dated as of (i) May 23, 1991, between the Company and
BNY Financial Corporation, and (ii) July 25, 1991, between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-15 to Form 10-K for the year ended
December 31, 1991.
(10.10) Letter Amendment dated as of October 23, 1991,
to prior Letter Amendment, dated July 25, 1991, to factoring
Agreements dated (i) May 23, 1991, between the Company and BNY
Financial Corporation, and (ii) July 25, 1991, between The Shirt
Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-16 to Form 10-K for the year ended
December 31, 1991.
(10.11) January 24, 1992 Letter Amendment to Factorin
Agreements dated as of (i) May 23, 1991 between the Company and
BNY Financial Corporation and (ii) July 25, 1991, between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-14 to Form 10-K for the year ended
December 31, 1992.
(10.12) January 31, 1992 Letter Amendment to Factoring
Agreement dated as of May 23, 1991, between the Company and BNY
Financial Corporation. Incorporated by reference to Exhibit
10-18 to Form 10-K for the year ended December 31, 1991.
(10.13) February 21, 1992 Letter Amendments to
Factoring Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii) July 25, 1991,
between The Shirt Shed, Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10-19 to Form 10-K for the
year ended December 31, 1991.
(10.14) Guaranty by the Company of obligations of The
Shirt Shed, Inc. to BNY Financial Corporation, dated July 25,
1991. Incorporated by reference to Exhibit 10-21 to Form 10-K
for the year ended December 31, 1991.
(10.15) Guaranty by The Shirt Shed, Inc. of obligations
of the Company to BNY Financial Corporation, dated July 25, 1991.
Incorporated by reference to Exhibit 10-23 to Form 10-K for the
year ended December 31, 1992.
(10.16) Execution version (March 27, 1992) of Letter
Amendment dated as of January 24, 1992 to Factoring Agreements
dated as of (i) May 23, 1991, between the Company and BNY
Financial Corporation, and (ii) July 25, 1991, between The Shirt
Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-1 to Form 10-Q for the quarter ended
March 31, 1992.
(10.17) March 20, 1992 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the Company and
BNY Financial Corporation, and (ii) July 25, 1991, between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-2 to Form 10-Q for the quarter ended
March 31, 1992.
(10.18) March 28, 1992 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the Company and
BNY Financial Corporation, and (ii) July 25, 1991, between the
Company and The Shirt Shed, Inc. Incorporated by reference to
Exhibit 10-3 to Form 10-Q for the quarter ended March 31, 1992.
(10.19) July 31, 1992 Letter concerning Factoring
Agreements dated as of (i) May 23, 1991, between the Company and
BNY Financial Corporation and (ii) July 25, 1991, between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-4 to Form 10-Q for the quarter ended
September 30, 1992.
(10.20) November 12, 1992 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the Company and
BNY Financial Corporation and (ii) July 25, 1991, between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-24 to Form 10-K for the year ended
December 31, 1992.
(10.21) March 29, 1993 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the Company and
BNY Financial Corporation, and (ii) July 25, 1991, between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-25 to Form 10-K for the year ended
December 31, 1992.
(10.22) March 1, 1993 Letter concerning Factoring
Agreements dated as of (i) May 23, 1991, between the Company and
BNY Financial Corporation and (ii) July 25, 1991, between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-26 to Form 10-K for the year ended
December 31, 1992.
(10.23) May 14, 1993 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the Company and
BNY Financial Corporation, and (ii) July 25, 1991, between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-1 to Form 10-Q for the quarter ended
March 31, 1993.
(10.24) August 12, 1993 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the Company and
BNY Financial Corporation, and (ii) July 25, 1991, between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-5 to Form 10-Q for the quarter ended June
30, 1993.
(10.25) November 8, 1993 Waiver concerning Factoring
Agreements dated as of (i) May 23, 1991, between the Company and
BNY Financial Corporation, and (ii) July 25, 1991 between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-7 to Form 10-Q for the quarter ended
September 30, 1993.
(10.26) Letter Agreement dated as of March 31, 1994 to
Factoring Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii) July 25, 1991,
between The Shirt Shed, Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10-28 to Form 10-K for the
year ended December 31, 1993.
(10.27) Subordination Agreement, dated March 31, 1994
between the Company, FS Signal Associates I and BNY Financial
Corporation. Incorporated by reference to Exhibit 10-3 to Form
10-Q for the quarter ended March 31, 1994.
(10.28) July 14, 1994 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991 between the Company and
BNY Financial Corporation and (ii) July 25, 1991, between The
Shirt Shed, Inc., and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-2 to Form 10-Q for the quarter ended June
30, 1994.
(10.29) July 29, 1994 Letter Amendment to Factoring
Agreement, dated May 23, 1991 between the Company and BNY
Financial Corporation, and The Shirt Shed, Inc. as guarantor.
Incorporated by reference to Exhibit 10-3 to the Form 10-Q for
the quarter ended June 30, 1994.
(10.30) Promissory Note of the Company for $4,157,000
dated July 29, 1994 and payable to BNY Financial Corporation.
Incorporated by reference to Exhibit 10-4 to the Form 10-Q for
the quarter ended June 30, 1994.
(10.31) Promissory Note of the Company for $1,480,000
dated July 29, 1994 and payable to BNY Financial Corporation.
Incorporated by reference to Exhibit 10-5 to the Form 10-Q for
the quarter ended June 30, 1994.
(10.32) Guaranty by The Shirt Shed, Inc. of the
obligations of the Company to pay a Promissory Note in the amount
of $1,480,000 to BNY Financial Corporation. Incorporated by
reference to Exhibit 10-6 to the Form 10-Q for the quarter ended
June 30, 1994.
(10.33) Deed to Secure Debt and Security Agreement
dated July 29, 1994 between the Company and BNY Financial
Corporation. Incorporated by reference to Exhibit 10-7 to the
Form 10-Q for the quarter ended June 30, 1994.
(10.34) Real Estate Mortgage, Security Agreement,
Assignment of Leases and Rents, and Fixture Filing dated July 29,
1994 between the Shirt Shed, Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10-8 to the Form 10-Q for
the quarter ended June 30, 1994.
(10.35) Deed of Trust, Assignment of Leases and
Security Agreement dated July 29, 1994 between the Company and
BNY Financial Corporation. Incorporated by reference to Exhibit
10-9 to the Form 10-Q for the quarter ended June 30, 1994.
(10.36) Letter Agreement dated September 1, 1994
between the Company, BNY Financial Corporation, FS Signal
Associates II and WG Trading Co. Incorporated by reference to
Exhibit 10-4 to the Form 10-Q for the quarter ended September 30,
1994.
(10.37) November 14, 1994 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991 between the Company and
BNY Financial Corporation and (ii) July 25, 1991 between The
Shirt Shed, Inc. and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-3 to current report on Form 8-K dated
November 22, 1994.
(10.38) November 22, 1994 Letter Amendments to
Factoring Agreements dated as of (i) May 23, 1991 between the
Company and BNY Financial Corporation and (ii) July 25, 1991
between The Shirt Shed, Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10-4 to current report on
Form 8-K dated November 22, 1994.
(10.39) Factoring Agreement dated as of November 22,
1994 between American Marketing Works, Inc. and BNY Financial
Corporation, together with Equipment Security Agreement,
Inventory Security Agreement and Trademark Assignment of Security
related thereto, all dated as of November 22, 1994 relating to a
$14,000,000 credit facility. Incorporated by reference to
Exhibit 10-5 to current report on form 8-K dated November 22,
1994.
(10.40) November 22, 1994 Letter Amendment to Factoring
Agreement dated as of November 22, 1994 between American
Marketing Works, Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10-6 to current report on
Form 8-K dated November 22, 1994.
(10.41) November 22, 1994 Letter Amendments to
Factoring Agreements dated as of (i) May 23, 1991 between the
Company and BNY Financial Corporation; (ii) July 25, 1991 between
the Shirt Shed, Inc. and BNY Financial Corporation; and (iii)
November 22, 1994 between American Marketing Works, Inc. and BNY
Financial Corporation. Incorporated by reference to Exhibit 10-7
to current report on Form 8-K dated November 22, 1994.
(10.42) Guaranty by the Company of obligations of
American Marketing Works, Inc. to BNY Financial Corporation,
dated November 22, 1994. Incorporated by reference to Exhibit
10-8 to current report on Form 8-K dated November 22, 1994.
(10.43) Guaranty by The Shirt Shed, Inc. of obligations
of American Marketing Works, Inc. to BNY Financial Corporation,
dated November 22, 1994. Incorporated by reference to Exhibit
10-9 to current report on Form 8-K dated November 22, 1994.
(10.44) Guaranty by American Marketing Works, Inc. of
obligations of the Company to BNY Financial Corporation, dated
November 22, 1994. Incorporated by reference to Exhibit 10-10 to
current report on Form 8-K dated November 22, 1994.
(10.45) Guaranty by American Marketing Works, Inc. of
obligations of The Shirt Shed, Inc. to BNY Financial Corporation,
dated November 22, 1994. Incorporated by reference to Exhibit
10-11 to current report on Form 8-K dated November 22, 1994.
(10.46) Pledge Agreement, dated November 22, 1994,
between the Company and BNY Financial Corporation re: capital
stock of The Shirt Shed, Inc. and American Marketing Works, Inc.
Incorporated by reference to Exhibit 10-12 to current report on
Form 8-K dated November 22, 1994.
(10.47) Letter Agreement dated March 30, 1995 amending
the Factoring Agreement dated as of May 23, 1991 by and between
BNY Financial Corp. and the Company waiving compliance with
certain provisions thereof. Incorporated by reference to Exhibit
10-1 to Form 10-Q for the quarter ended June 30, 1995.
(10.48) Letter Amendment dated November 7, 1995
amending the Factoring Agreements dated as of May 23, 1991 by and
between BNY Financial Corp. and the Company, dated July 25, 1991
by and between BNY Financial Corp. and Shirt Shed and dated
November 22, 1994 by and between BNY Financial Corp. and AMW
waiving compliance with certain provisions thereof. Incorporated
by reference to Exhibit 10-48 to Form 10-K for the year ended
December 31, 1995.
(10.49) Letter Amendment dated March 14, 1996 amending
the Factoring Agreements dated ass of May 23, 1991 by and between
BNY Financial Corp. and the Company, and dated July 25, 1991 by
and between BNY Financial Corp. and Shirt Shed waiving compliance
with certain provisions thereof. Incorporated by reference to
Exhibit 10-49 to Form 10-K for the year ended December 31, 1995.
(10.50) Letter Amendment dated March 29, 1996, amending
the Factoring Agreements dated as of May 23, 1991, by and between
BNY Financial Corp. and the Company, and dated July 25, 1991, by
and between BNY Financial Corp. and Shirt Shed waiving compliance
with certain provisions thereof. Incorporated by reference to
Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 1996.
(10.51) Letter Amendment dated April 24, 1996, amending
the Factoring Agreements dated as of May 23, 1991, by and between
BNY Financial Corp. and the Company, and dated July 25, 1991, by
and between BNY Financial Corp. and Shirt Shed, amending certain
provisions thereof. Incorporated by reference to Exhibit 10.2 to
Form 10-Q for the quarter ended March 31, 1996.
(10.52) Letter Amendment dated August 9, 1996, amending
the Factoring Agreements dated as of May 23, 1991, by and between
BNY Financial Corp. and the Company, and dated July 25, 1991, by
and between BNY Financial Corp. and Shirt Shed waiving compliance
with certain provisions thereof. Incorporated by reference to
Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 1996.
(10.53) Letter Amendment dated October 31, 1996,
amending the Factoring Agreements dated as of May 23, 1991, by
and between BNY Financial Corp. and the Company, and dated July
25, 1991, by and between BNY Financial Corp. and Shirt Shed
waiving compliance with certain provisions thereof. Incorporated
by reference to Exhibit 10 to Form 10-Q for the quarter ended
September 30, 1996.
(10.54) Letter Amendment dated March 19, 1997, amending
the Factoring Agreements dated as of May 23, 1991, by and between
BNY Financial Corp. and the Company, and dated July 25, 1991, by
and between BNY Financial Corp. and Shirt Shed waiving compliance
with certain provisions thereof.
(10.55) Warrant Certificate covering 100,000 shares of
Common Stock of the Company, issues to BNY Financial Corporation
in connection with transactions related to the Company's
acquisition of American Marketing Works, Inc. Incorporated by
reference to Exhibit 10-13 to current report on Form 8-K dated
November 22, 1994.
(10.56) Amended and Restated Credit Agreement dated as
of February 16, 1995 among American Marketing Works, Inc.,
certain Lenders and Greyrock Capital Group, Inc. Incorporated by
reference to Exhibit 10-48 to Form 10-K for the year ended
December 31, 1995.
(10.57) Tranche A Note of American Marketing Works,
Inc. for $4,750,000 to Greyrock Capital Group, Inc. dated
February 16, 1993. Incorporated by reference to Exhibit 10-49 to
Form 10-K for the year ended December 31, 1995.
(10.58) Tranche B Note of American Marketing Works,
Inc. for $1,750,000 to Greyrock Capital Group, Inc. dated
February 16, 1993. Incorporated by reference to Exhibit 10-50 to
Form 10-K for the year ended December 31, 1995.
(10.59) Security Agreement dated February 16, 1993
between American Marketing Works, Inc. and Greyrock Capital
Group, Inc. Incorporated by reference to Exhibit 10-51 to Form
10-K for the year ended December 31, 1995.
(10.60) Guaranty and Security Agreement dated as of
November 22, 1994 between the Company and Greyrock Capital Group,
Inc. guaranteeing the obligations of American Marketing Works,
Inc. to Greyrock Capital Group, Inc. Incorporated by reference to
Exhibit 10-52 to Form 10-K for the year ended December 31, 1995.
(10.61) Guaranty and Security Agreement dated as of
November 22, 1994 between The Shirt Shed and Greyrock Capital
Group, Inc. guaranteeing the obligations of American Marketing
Works, Inc. to Greyrock Capital Group, Inc. Incorporated by
reference to Exhibit 10-53 to Form 10-K for the year ended
December 31, 1995.
(10.62) Agreement dated as of March 31, 1995 among
AMW, The Shirt Shed, the Company, certain lenders and Greyrock
Capital Group, Inc. amending the Amended and Restated Credit
Agreement dated as of February 16, 1993 between AMW, certain
lenders and Greyrock. Incorporated by reference to Exhibit 10-8
to Form 10-Q for the quarter ended March 31, 1995.
(10.63) License Agreement between the Company, The
Shirt Shed, Inc. and LCA Entertainment (as agent for DC Comics,
Inc.) dated as of February 1, 1991, regarding exclusive rights to
use certain elements from "BATMAN II" sequel motion picture,
"BATMAN" comic books and planned "BATMAN" television series in
connection with certain categories of apparel products.
Incorporated by reference to Exhibit 10-4 to Form 10-K for the
year ended December 31, 1991.
(10.64)Warrant Purchase Agreement, dated as of March 1,
1991, between the Company, The Shirt Shed, Inc. and Licensing
Corporation of America. Incorporated by reference to Exhibit
10-25 to Form 10-K for the year ended December 31, 1991.
(10.65) Warrant No. 002 issued to Licensing Corporation
of America, covering 193,386 shares of the Company's Common
Stock, dated as of July 27, 1991 and expiring July 22, 2001.
Incorporated by reference to Exhibit 10-1 to the Form 10-Q for
the quarter ended September 30, 1994.
(10.66) Warrant No. 003 issued to Licensing Corporation
of America, covering 38,674 shares of the Company's Common Stock,
dated as of April 30, 1993 and expiring April 30, 2003.
Incorporated by reference to Exhibit 10-2 to the Form 10-Q for
the quarter ended September 30, 1994.
(10.67) Restructuring Agreement, dated as of August 13,
1993 by and among the Company, FS Signal Associates, and Walsh
Greenwood & Co. Incorporated by reference to Exhibit 10-3 to Form
10-Q for the quarter ended September 30, 1993.
(10.68) Waiver Letter, dated as of June 12, 1992,
pertaining to Credit Agreement dated as of October 23, 1991, as
amended, between the Company and FS Signal Associates.
Incorporated by reference to Exhibit 10-1 to Form 10-Q for the
quarter ended September 30, 1992.
(10.69) Waiver Letter, dated as of June 12, 1992,
pertaining to Credit Agreement dated as of October 23, 1991, as
amended, between the Company and WG Partners, L.P. Incorporated
by reference to Exhibit 10-2 to Form 10-Q for the quarter ended
September 30, 1992.
(10.70) Subordination Agreement, dated as of June 12,
1992, between the Company, FS Signal Associates and BNY Financial
Corporation. Incorporated by reference to Exhibit 10-3 to Form
10-Q for the quarter ended September 30, 1992.
(10.71) Subordination Agreement, dated March 30, 1994,
between the Company, FS Signal Associates and BNY Financial
Corporation. Incorporated by reference to Exhibit 10-47 to Form
10-K for the year ended December 31, 1993.
(10.72) Promissory Note dated March 31, 1994 between
the Company and FS Signal Associates I. Incorporated by
reference to Exhibit 10-2 to Form 10-Q for the quarter ended
March 31, 1994.
(10.73) Warrant Certificate covering 2,047,500 shares
of Common Stock of the Company, issued to FS Signal Associates in
connection with the Restructuring Agreement dated as of August
13, 1993. Incorporated by reference to Exhibit 10-4 to Form 10-Q
for the quarter ended September 30, 1993.
(10.74) Warrant Certificate covering 2,000,000 shares
of Common Stock of the Company, issued to FS Signal Associates in
connection with the Restructuring Agreement dated as of August
13, 1993. Incorporated by reference to Exhibit 10-5 to Form 10-Q
for the quarter ended September 30, 1993.
(10.75) Warrant Certificate dated April 1, 1994 to
purchase 300,000 shares of Common Stock of the Company, issued to
FS Signal Associates I in connection with the promissory note
dated March 31, 1994. Incorporated by reference to Exhibit 10-4
to Form 10-Q for the quarter ended March 31, 1994.
(10.76) Warrant Certificate covering 675,000 shares of
Common Stock of the Company, issued to Walsh Greenwood in
connection with the Restructuring Agreement dated as of August
13, 1993. Incorporated by reference to Exhibit 10-6 to Form 10-Q
for the quarter ended September 30, 1993.
(10.77) License Agreement between the Company and RHC
Licensing Corporation dated June 2, 1992. Incorporated by
reference to Exhibit 10-52 to Form 10-K for the year ended
December 31, 1992.
(10.78) Warrant Certificate covering 200,000 shares of
Common Stock of the Company issued to Grissanti, Galef &
Goldress, Inc. in connection with their engagement. Incorporated
by reference to Exhibit 10-1 to Form 10-Q for the quarter ended
September 30, 1993.
(10.79) Amendment to Warrant Certificate dated October
18, 1994 reducing the shares issuable from 200,000 to 100,000 to
Grisanti, Galef & Goldress, Inc. Incorporated by reference to
Exhibit 10-3 to Form 10-Q for the quarter ended September 30,
1994.
(10.80) Agreement dated June 21, 1994 by and among the
Company, FS Signal Associates I, and Walsh Greenwood & Co.
exchanging all outstanding shares of the Company's Series B
Preferred Stock on a one-per-one basis for shares of the
Company's Series C Preferred Stock. Incorporated by reference to
Exhibit 10-1 to form 10-Q for the quarter ended June 30, 1994.
(10.81) Registration Rights Agreement dated November
22, 1994, between the Company and Kidd, Kamm Equity Partners,
Inc. Incorporated by reference to Exhibit 10-2 to current report
on Form 8-K dated November 22, 1994.
(10.82) Agreement dated May 10, 1995 by and between the
Company and Sherri Winkler and MW Holdings, Inc. Incorporated by
reference to Exhibit 10-4 to Form 10-Q for the quarter ended
March 31, 1995 .
(10.83) Employment Agreement with Leon Ruchlamer dated
as of March 27, 1995. Incorporated by reference to Exhibit 10-5
to Form 10-Q for the quarter ended March 31, 1995.
(10.84) Employment Agreement with William Watts dated
as of March 15, 1995. Incorporated by reference to Exhibit 10-6
to Form 10-Q for the quarter ended March 31, 1995.
(10.85) Agreement dated April 24, 1995 between the
Company and MC Properties I. L.P. Incorporated by reference to
Exhibit 10-7 t Form 10-Q for the quarter ended March 31, 1995.
(10.86) Settlement Agreement dated as of March 1, 1995
with Glenn Grandin. Incorporated by reference to Exhibit 10-9 to
Form 10-Q for the quarter ended March 31, 1995.
(10.87) Settlement Agreement dated as of April 13, 1995
with Daniel Cox. Incorporated by reference to Exhibit 10-10 to
Form 10-Q for the quarter ended March 31, 1995.
(10.88) Credit Agreement dated as of March 31, 1995
between the Company and Walsh Greenwood & Co. Incorporated by
reference to Exhibit 4-1 to current report on Form 8-K filed on
May 10, 1995.
(10.89) Promissory Note in face amount of $15,000,000
dated March 31, 1995 issued to Walsh Greenwood by the Company.
Incorporated by reference to Exhibit 4-2 to current report on
Form 8-K filed on May 10, 1995.
(10.90) Fixed Rate Warrant Certificate for 1,500,000
Warrants dated March 31, 1995 issued to Walsh Greenwood by the
Company. Incorporated by reference to Exhibit 4-3 to current
report on Form 8-K filed on May 10, 1995.
(10.91) Discount Rate Warrant Certificate for 1,500,000
Warrants dated March 31, 1995 issued to Walsh Greenwood by the
Company. Incorporated by reference to Exhibit 10-1 to current
report on Form 8-K filed on May 10, 1995.
(10.92) Agreement among Signal Apparel Company, Inc.
and certain shareholders of Signal Apparel Company, Inc.
Incorporated by reference to Exhibit 10-1 to current report on
Form 8-K filed on May 10, 1995.
(10.93) Tennessee Deed of Trust and Security Agreement
dated March 31, 1995 between the Company and Walsh Greenwood.
Incorporated by reference to Exhibit 10-2 to current report on
Form 8-K filed on May 10, 1995.
(10.94) Deed to Secure Debt and Security Agreement
dated March 31, 1995 between the Company and Walsh Greenwood.
Incorporated by reference to Exhibit 10-3 to current report on
Form 8-K filed on May 10, 1995.
(10.95) Real Estate Mortgage, Security Agreement,
Assignment of Lease and Rents and Fixture filing dated March 31,
1995 between The Shirt Shed and Walsh Greenwood. Incorporated by
reference to Exhibit 10-4 to current report on Form 8-K filed on
May 10, 1995.
(10.96) Severance Agreement dated November 5, 1995 with
Marvin Winkler. Incorporated by reference to Exhibit 10-93 to
Form 10-K for the year ended December 31, 1995.
(10.97) Employment Agreement with Bruce Krebs dated
November 27, 1995. Incorporated by reference to Exhibit 10-94 to
Form 10-K for the year ended December 31, 1995.
(10.98) Employment Agreement with Gary LaBelle dated
November 30, 1995. Incorporated by reference to Exhibit 10-95 to
Form 10-K for the year ended December 31, 1995.
(10.99) First Amendment dated August 10, 1995, to
Credit Agreement dated March 31, 1995, between the Company and
Walsh Greenwood. Incorporated by reference to Exhibit 10-96 to
Form 10-K for the year ended December 31, 1995.
(10.100) Replacement Promissory Note in the face amount
of $20,000,000 dated August 10, 1995, between the Company and
Walsh Greenwood. Incorporated by reference to Exhibit 10-97 to
Form 10-K for the year ended December 31, 1995.
(10.101) Fixed Rate Warrant Certificate for 500,000
Warrants dated August 10, 1995, issued to Walsh Greenwood by the
Company. Incorporated by reference to Exhibit 10-98 to Form 10-K
for the year ended December 31, 1995.
(10.102) Discount Rate Warrant Certificate for 500,000
Warrants dated August 10, 1995, issued to Walsh Greenwood by the
Company. Incorporated by reference to Exhibit 10-99 to Form 10-K
for the year ended December 31, 1995.
(10.103) First Amendment dated August 10, 1995, to
Tennessee Deed of Trust and Security Agreement dated March 31,
1995, between the Company and Walsh Greenwood. Incorporated by
reference to Exhibit 10-100 to Form 10-K for the year ended
December 31, 1995.
(10.104) First Amendment dated August 10, 1995, to
Secured Debt and Security Agreement dated March 31, 1995, between
the Company and Walsh Greenwood. Incorporated by reference to
Exhibit 10-101 to Form 10-K for the year ended December 31, 1995.
(10.105) First Amendment dated August 10, 1995, to Real
Estate Mortgage, Security Agreement, Assignment of Lease and
Rents and Fixture Filing dated March 31, 1995, between The Shirt
Shed and Walsh Greenwood. Incorporated by reference to Exhibit
10-102 to Form 10-K for the year ended December 31, 1995.
(10.106) Letter Agreement dated March 27, 1996 waiving
certain defaults under the Walsh Greenwood Credit Agreement.
Incorporated by reference to Exhibit 10-103 to Form 10-K for the
year ended December 31, 1995.
(10.107) Waiver Letter dated March 19, 1997 by and
among Walsh Greenwood & Co., the Company, Shirt Shed and American
Marketing Works, waiving certain defaults under the Walsh
Greenwood Credit Agreement and under the Tranche A and Tranche B
Notes, and extending the maturity of the Tranche A and Tranche B
Notes to January 1, 1998.
(10.108) Reimbursement Agreement and related Promissory
Note dated January 30, 1997, among the Company, FS Signal
Associates Limited Partnership and FS Signal Associates II
Limited Partnership, concerning renewal and guaranty arrangements
with respect to certain letters of credit.
(10.109) Employment Agreement with Barton Bresky, dated
January 7, 1997.
(21) List of Subsidiaries
(23) Consent of Arthur Andersen LLP, Independent
Public Accountants
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SIGNAL APPAREL COMPANY, INC.
By /s/ Barton J. Bresky
------------------------------
Barton J. Bresky
President and
Chief Executive Officer
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below or on counterparts
thereof by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Barton J. Bresky President and Chief March 31, 1997
- --------------------- Executive Officer --------------
Barton J. Bresky
/s/ William H. Watts Executive Vice President March 31, 1997
- --------------------- and Chief Financial --------------
William H. Watts Officer
/s/ James V. Elkins Controller March 31, 1997
- --------------------- --------------
James V. Elkins
/s/ Jacob I.Feigenbaum Director March 31, 1997
- --------------------- --------------
Jacob I. Feigenbaum
/s/ Paul R. Greenwood Director March 31, 1997
- --------------------- --------------
Paul R. Greenwood
/s/ Leon Ruchlamer Director March 31, 1997
- --------------------- --------------
Leon Ruchlamer
/s/ Stephen Walsh Director March 31, 1997
- --------------------- --------------
Stephen Walsh
EXHIBIT INDEX
Exhibit No.
per Item 601
of Reg. S-K Description of Exhibit
(10.54) Letter Amendment dated March 19, 1997,
amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and
dated July 25, 1991, by and between BNY
Financial Corp. and Shirt Shed waiving
compliance with certain provisions
thereof.
(10.107) Waiver Letter dated March 19, 1997 by
and among Walsh Greenwood & Co., the
Company, Shirt Shed and American
Marketing Works, waiving certain
defaults under the Walsh Greenwood
Credit Agreement and under the Tranche A
and Tranche B Notes, and extending the
maturity of the Tranche A and Tranche B
Notes to January 1, 1998.
(10.108) Reimbursement Agreement and related
Promissory Note dated January 30, 1997,
among the Company, FS Signal Associates
Limited Partnership and FS Signal
Associates II Limited Partnership,
concerning renewal and guaranty
arrangements with respect to certain
letters of credit.
(10.109) Employment Agreement with Barton Bresky,
dated January 7, 1997.
(21) List of Subsidiaries
(23) Consent of Arthur Andersen LLP,
Independent Public Accountants
(27) Financial Data Schedule