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 ------------ ------------------------ 1996 1995 1994 ---- ---- ---- 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 ------ ------ ------ 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.
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.
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.
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.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
MARKET PRICES AND DIVIDENDS
Quarter Ended - -------------------------------------------------------------------------------- March 31 June 30 September 30 December 31 1996 1995 1996 1995 1996 1995 1996 1995 - -------------------------------------------------------------------------------- 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.
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.
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.
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 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.
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.
Item 10. Directors and Executive Officers of the Registrant
Election of Directors and Executive Officers
Item 11.
Item 11. Executive Compensation
Executive Compensation and Employment Agreements
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners and Management
Election of Directors
Item 13.
Item 13. Certain Relationships and Related Transactions
Compensation Committee Interlocks and Insider Participation
PART IV
Item 14.
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)
(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