SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _______ to _______
Commission file number 333-24507
WILLCOX & GIBBS, INC.
(Exact name of registrant as specified in charter)
DELAWARE 22-3308457
(State of Incorporation) (I.R.S. Employer Identification No.)
900 Milik Street, Carteret, New Jersey 07008
(Address of principal executive offices)
732-541-6255
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
(Cover sheet continued on next page)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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As of March 1, 1998: 976,055 shares of Common Stock of the Company were
outstanding. The Company's Common Stock is not publicly traded.
Documents incorporated by reference: None.
<PAGE>
PART I
ITEM 1. BUSINESS
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OVERVIEW
Willcox & Gibbs, Inc. ("Willcox & Gibbs" or the "Company") is a
holding company engaged through its subsidiaries in the distribution of
replacement parts, supplies and ancillary equipment to the apparel and other
sewn products industry. The Company currently operates through six principal
business units: (i) its Sunbrand division ("Sunbrand"), which is a distributor
of replacement parts, supplies and ancillary equipment to manufacturers of
apparel and other sewn products; (ii) its Unity Sewing Supply Co. division
("Unity"), which is a wholesale distributor to dealers of replacement parts and
supplies for use by the apparel and other sewn products industry; (iii) its
Willcox & Gibbs, Ltd. ("W&G, Ltd.") subsidiary, which is a distributor to
manufacturers and dealers in the United Kingdom and Europe of replacement parts
and supplies for use by the apparel and other sewn products industry; (iv) its
Clinton Management Corp. and Clinton Machinery Corp. subsidiaries (together,
"Clinton"), which distribute screen printing equipment and supplies principally
for the apparel industry; (v) its Leadtec Systems, Inc. ("Leadtec") subsidiary,
which develops and supplies computer-based production planning and control
systems for the apparel and other sewn products industry; and (vi) Macpherson
Meistergram, Inc. and its subsidiary, Geoffrey E. Macpherson Canada, Inc.
(collectively, "Macpherson") which principally distributes embroidery equipment
and supplies used in the apparel and other sewn products industry.
The Company believes that it is the largest independent distributor in
North America of replacement parts, supplies and ancillary equipment to
manufacturers of apparel and other sewn products, offering a broad product line
of over 200,000 items. These products include industrial sewing equipment parts,
such as needles, hooks, motors, tools and other accessories, and ancillary
equipment, such as embroidery equipment and supplies, screen printing equipment
and supplies and production planning and control systems. The Company believes
that its broad product line gives it the advantage of being the apparel and sewn
products industry's leading one-stop shop.
Manufacturers of apparel and other sewn products generally utilize a
variety of modern equipment and supplies in their production processes. Although
there have been advances in the speed of equipment and automation of
manufacturing methods, the basic sewing process has changed very little since
the first sewing machines were introduced over 125 years ago. Accordingly, the
basic design of sewing equipment and replacement parts and supplies used with
respect to such equipment has remained stable for many years, and new
generations of sewing equipment have frequently utilized many parts designed for
prior generations. In addition, since numerous manufacturers of sewn products do
not regularly replace major equipment upon the introduction of new models,
substantial numbers of older machines typically continue to be used for many
years after the production of more advanced units.
<PAGE>
The improvements in speed of equipment and the trend toward automation
in apparel and sewn products manufacturing have increased the demand for
replacement parts and supplies by manufacturers, since high speed production
increases the wear and tear on equipment. In addition, automation results in the
utilization of other equipment, such as cutting and finishing devices, that must
be maintained. As a result of the large number of differing replacement parts
and supplies utilized by apparel and sewn products manufacturers and the
relatively small quantity of many items required at varying times, such
manufacturers generally prefer to obtain replacement parts and supplies from
dealers that stock a wide range of products and offer prompt delivery. In
addition, manufacturers of such replacement parts, supplies and ancillary
equipment often prefer to sell such products through distributors who can
provide wide market coverage, assume credit risk and stock inventory, thereby
limiting the manufacturers' costs of marketing and distribution.
The replacement parts distribution business involves both "genuine"
and "generic" parts. "Genuine" parts are replacement parts manufactured by the
original equipment manufacturer. "Generic" parts are non-branded replacement
parts manufactured by someone other than the original equipment manufacturer.
The market for screen printing equipment and embroidery equipment used
to add decoration to apparel products has grown over the past several years.
This growth has been propelled by expansion of the market for casual wear, such
as T-shirts, sweatshirts and caps, which frequently feature printed or
embroidered trademarks, slogans or other designs. In addition, improvements in
technology have made screen printing and embroidery equipment less expensive and
more sophisticated.
ACQUISITIONS
Willcox & Gibbs is a Delaware corporation organized in 1994 by members
of the Company's current management and certain other investors to acquire the
sewn products replacement parts, supply and ancillary equipment distribution
businesses of the Company's predecessor (the "Company's Predecessor"), which
occurred on July 13, 1994 (the "Management Buyout"). Pursuant to the Management
Buyout, the Company, through its wholly owned subsidiary, WG Apparel, Inc. ("WG
Apparel"), acquired the assets of Sunbrand and Unity, as well as the stock of
Leadtec and W&G, Ltd., and certain other assets in exchange for $41.0 million in
cash, $3.0 million principal amount of subordinated debt and a warrant to
purchase 122,970 shares of Common Stock of the Company. The cash portion of such
purchase price was funded through approximately $36.2 million of borrowings and
$4.8 million from the sale of Common Stock of the Company. On July 26, 1995, the
Company repurchased from the Company's Predecessor such subordinated debt and
warrants, together with certain other assets (including the name "Willcox &
Gibbs, Inc."), for approximately $4.1 million in cash.
Effective as of February 1, 1996, the Company acquired all of the
outstanding capital stock of Clinton (the "Clinton Acquisition"). The purchase
price for Clinton consisted of $4.0 million in cash, the assumption of $4.5
million of indebtedness and payables, which was subsequently repaid, and
contingent payments of up to 35% of the operating income of Clinton during each
of the five years ending December 31, 2000. Such contingent payments may not
<PAGE>
exceed $10.5 million in the aggregate over such five year period. In addition,
the former shareholders of Clinton have the right to require WG Apparel to
purchase their shares of Company Common Stock at a purchase price of $30 per
share on the earliest of (i) the day after the Company's 12 1/4% Senior Notes
(the "Senior Notes") have become due by occurrence of the scheduled maturity
date or sooner acceleration, (ii) the fourth anniversary of the closing date of
the Clinton Acquisition, (iii) the occurrence of an initial public offering of
equity securities by the Company and (iv) a change of control of the Company,
PROVIDED that in all cases such purchase is then permitted under the Indenture
for the Senior Notes and the Company's Revolving Credit Agreement.
Effective November 27, 1996, the Company acquired certain assets of
E.C. Mitchell Co., Inc. ("Mitchell") for $3.0 million in cash (the "Mitchell
Acquisition"). The acquired assets relate to the manufacture and sale of
abrasive cords and tapes used principally in the apparel industry.
Effective January 3, 1997, the Company acquired all of the outstanding
capital stock of Macpherson for a cash purchase price of $24.0 million (the
"Macpherson Acquisition"). In connection with the Macpherson Acquisition, the
Company assumed and repaid immediately approximately $6.1 million of
indebtedness of Macpherson and approximately $6.4 million of trade payables of
Macpherson. In connection with the Macpherson Acquisition, the Company acquired
Embroidery Leasing Corp., which changed its name to Emtex Leasing Corp. (the
"Leasing Company"), a leasing company affiliate of Macpherson, for approximately
$0.9 million including a note for approximately $0.5 million, payable over three
years, plus interest at 6.0% per annum. The Leasing Company offers lease
financing to the Company's customers to support the Company's sales of
equipment.
THE OPERATING UNITS
SUNBRAND
Sunbrand, which has been operating for over 40 years, believes it is
the largest distributor in North America of replacement parts, supplies and
ancillary equipment to manufacturers of apparel and other sewn products.
Sunbrand's products are purchased from many of the leading manufacturers of
equipment for the apparel and sewn products industry. Sunbrand's net sales
accounted for approximately 38.0% of the Company's 1997 consolidated net sales.
Sunbrand carries one of the most extensive lines of replacement parts
and supplies for the apparel and other sewn products industry in North America.
Its product line includes a full range of replacement parts for sewing machines,
spreading and cutting equipment, finishing equipment, and general supplies.
Sunbrand also offers a broad base of manufacturing equipment, distribution
systems, information systems and management services.
Sunbrand has its headquarters and principal warehouse facility in
Atlanta, Georgia. In addition, Sunbrand maintains six strategically located
<PAGE>
branches that serve as regional sales offices and distribution points: Fall
River, Massachusetts; Miami, Florida; El Paso, Texas; Mexico City and Gomez
Palacio/Torreon, Mexico; Santo Domingo, Dominican Republic; and Bogota,
Colombia.
While there is strong competition throughout the markets served by
Sunbrand, Sunbrand believes that it is the largest distributor in North America
of replacement parts and supplies to manufacturers of apparel and other sewn
products. Most of Sunbrand's competitors are small, regional distributors. In
addition, there are three national competitors to Sunbrand, some of which may
have greater financial resources than the Company. Competition is principally
based on product availability, price and speed of delivery.
UNITY
Unity, founded over 50 years ago in New York City, is a leading
wholesale distributor to dealers in North America of replacement parts and
supplies for use in the apparel and sewn products industry. Unity does not sell
directly to manufacturers or other end-users. Unity's net sales accounted for
approximately 6.1% of the Company's 1997 consolidated net sales.
Unity's product line includes genuine and generic replacement parts,
needles, motors, tables, stands, cleaning guns and sewing lights. Since Unity's
customers (other than Sunbrand) are dealers who typically resell to medium-sized
and smaller apparel manufacturers, Unity's sales have generally been
substantially comprised of more economical generic replacement parts rather than
genuine parts.
Unity purchases generic parts from hundreds of small manufacturers,
principally through trading houses or similar arrangements. Unity purchases the
majority of its products from the Far East and Germany. Unity operates
warehouses in Carteret, New Jersey; Los Angeles, California; Miami, Florida; and
Medellin, Colombia.
Unity's business is highly competitive. There are four other
significant wholesalers that supply dealers with apparel parts and supplies,
none of which has more than two warehouses, as compared to Unity's three
distribution centers. In addition, there are numerous smaller, regional
competitors, and in some instances dealers bypass wholesalers and buy directly
from manufacturers or trading companies when purchasing a significant quantity
of parts or supplies or if it is otherwise cost effective. Competition is
principally based on product availability, price and speed of delivery.
W&G, LTD.
W&G, Ltd., a United Kingdom corporation organized in 1908, is a
leading distributor of generic and genuine replacement parts, supplies and
ancillary equipment to apparel manufacturers and dealers in the United Kingdom
and Europe. The Company believes that the breadth of W&G, Ltd.'s inventory and
its attainment of certain quality control standards make it a leading one-stop
provider for apparel manufacturers and dealers in the United Kingdom and Europe.
<PAGE>
W&G, Ltd.'s net sales accounted for approximately 4.2% of the Company's 1997
consolidated net sales.
W&G, Ltd. maintains an inventory of generic parts for sewing machines
from virtually every manufacturer in the industry. In addition to generic
machine parts, W&G, Ltd. sells two needle lines, sewing equipment, cutting
equipment and pressing equipment.
W&G, Ltd. purchases a majority of its products from the Far East and
Germany, and also purchases a considerable amount of its products from Sunbrand
and Unity. W&G, Ltd. has long standing non-exclusive relationships with its
primary suppliers.
W&G, Ltd.'s central warehouse in Braintree, Essex is located close to
major highways, railways to London and Stanstead Airport. In addition to the
Braintree warehouse, two additional stocking facilities are located in
Nottingham and Leicester.
W&G, Ltd.'s business is highly competitive. There are a number of
smaller, local competitors, as well as one major national U.K. competitor
comparable in size to W&G, Ltd. Competition is principally based on product
availability, price and speed of delivery.
CLINTON
Clinton, founded by its current management in 1985 and acquired by the
Company in February 1996, is a distributor of screen printing equipment and
supplies principally for the apparel industry. Screen printing is the process by
which designs are applied to fabric or other material using patterned screens.
The Company acquired Clinton pursuant to its business strategy of expanding the
product lines it is able to offer through its existing distribution network.
Clinton accounted for approximately 14.7% of the Company's 1997 consolidated net
sales.
Clinton sells and services a complete line of automatic and manual
screen printers, gas and electric dryers and other accessory equipment for the
screen printing industry. Clinton also offers a comprehensive line of textile
screen printing supplies, including inks, chemicals, emulsions, screen frames,
screen mesh and other accessory items.
The majority of Clinton's products are used to produce designs on
men's, women's and children's T-shirts and sweatshirts and other apparel items.
Other significant applications include home furnishings, towels, hats,
industrial fabrics and other non-apparel promotional articles made from fabric
materials. Clinton also sells a complete line of equipment to graphics customers
primarily for promotional signs and posters.
Clinton has its headquarters in Miami Lakes, Florida with distribution
warehouses in Miami Lakes, Florida; Charlotte, North Carolina; Los Angeles,
California; Nashville, Tennessee; and Mexico City, Mexico.
<PAGE>
M&R Printing Equipment, Inc. ("M&R") screen printing equipment, which
Clinton discontinued distributing in 1997 (see "-Suppliers" below), had a
majority share of the U.S. market for such equipment in 1997, and Clinton's new
line of screen printing equipment is not yet well established in the United
States. Competition with respect to Clinton's other products is strong, mainly
from a variety of distributors of general printing equipment and supplies.
MACPHERSON
Macpherson, founded in 1976, is principally engaged in the
distribution throughout the United States and Canada of embroidery equipment
used in the apparel industry. Such embroidery equipment is used to create
designs on apparel and other products utilizing one or more needle heads and
thread. Embroidery can add value to a finished product with little incremental
expense, and technological developments in recent years have improved equipment
capabilities and lowered capital costs. Macpherson accounted for approximately
33.8% of the Company's 1997 consolidated net sales.
Macpherson provides a complete line of technologically advanced
embroidery equipment for the apparel industry, as well as customer service,
support and training, and a comprehensive line of embroidery supplies and
accessories. Macpherson's principal supplier of embroidery machines is Barudan
Company, Ltd., a Japanese manufacturer.
Embroidery machines may contain single or multiple sewing heads. Each
sewing head consists of a group of needles that are fed by spools of thread
attached to the equipment. The needles operate in conjunction with each other to
embroider the thread into the cloth or other surface in such configuration as to
produce the intended design. Thread flowing to each needle can be of the same or
varying color. Each head creates a design, and heads operating at the same time
create the same size and shape designs. Thus, a 30 head machine with all heads
operating simultaneously can create an identical-design on thirty surfaces. The
design and production capabilities are enhanced through the integration of
computers and specialized software applications.
Macpherson is headquartered in Greensboro, North Carolina, and has
seven additional sales offices located throughout the United States and in
Canada. Each location has showrooms for the demonstration of equipment and
embroidery techniques.
Macpherson competes with Hirsch International Corp., a distributor of
Tajima singlehead and multihead embroidery machines. The Company believes that
Tajima has the largest share of the U.S. market for embroidery machines and that
Barudan has the second largest share of such market. Macpherson also competes
with a number of smaller distributors of competitive embroidery machines and
with original equipment manufacturers, such as Melco Industries, which
distribute products directly into Macpherson's markets. Macpherson believes it
competes on the basis of the quality of the embroidery equipment it distributes,
as well as its knowledge, experience and customer service. Macpherson's
<PAGE>
customers are subject to competition from importers of embroidered products,
which could effect Macpherson's operations.
THE LEASING COMPANY
In connection with the Macpherson Acquisition, the Company acquired
the Leasing Company, a leasing company affiliate of Macpherson. Prior to its
acquisition by the Company, substantially all of the assets and liabilities of
the Leasing Company were removed. Accordingly, the principal benefit of the
acquisition was the existing organization of the Leasing Company. The Leasing
Company commenced operations in March 1996. The Company intends to utilize the
Leasing Company to offer flexible lease financing to its customers to support
the Company's sales of equipment.
LEADTEC
Leadtec, founded by its current chief executive officer in 1978 and
acquired by the Company's Predecessor in 1985, develops, distributes and
supports computer software and specialized hardware for sewn products
manufacturers. Leadtec's net sales accounted for approximately 2.8% of the
Company's 1997 consolidated net sales.
Leadtec's primary product is "Satelite Plus", which is a production
planning and control system designed to allow apparel factory operators to
monitor production progress and efficiency. Satelite Plus is available in both
"batch" and "real-time" formats. Under the batch product, production operators
clip bar-coded coupons to capture data for each bundle or lot they produce. This
data is then processed by the Satelite Plus system to calculate pay and generate
reports for management. The real-time Satelite Plus product is a computerized
system that captures production events as they occur through terminals at
workstations that communicate with the computer system.
Sales of Satelite Plus factory installations typically require long
lead-times to develop, given the significant capital expenditure and management
resource commitment required. Accordingly, Leadtec's sales may vary
significantly from year to year, as an installation of numerous plants for a
single large customer can have a major impact on sales volume in any single
year.
Leadtec is not aware of any system similar to Satelite Plus' real-time
system. However, its real-time system competes with traditional batch systems.
There are numerous competitors with respect to the batch system. Competition is
usually based on price, functionality and support.
SUPPLIERS
The Company purchases products from over 1,200 different vendors,
including many of the leading manufacturers of equipment for the apparel and
sewn products industry. The Company's largest supplier accounted for
<PAGE>
approximately 26% of the Company's 1997 total purchases, and the Company's five
largest suppliers accounted for approximately 44% of its total purchases in
1997.
Sunbrand is currently the exclusive distributor of genuine replacement
parts in the United States for Pfaff AG ("Pfaff") and for Pegasus Sewing Machine
Mfg. Co., Ltd. ("Pegasus"). Pfaff, a German company, is a major manufacturer of
industrial sewing equipment for the apparel industry, including "lock-stitch"
industrial sewing machines. The Company (including its predecessor) has been the
exclusive distributor in the United States of Pfaff genuine parts since 1958.
Pfaff has given notice of termination of its distributor agreement with the
Company, effective December 31, 1998. The Company is negotiating with Pfaff to
continue as a distributor of Pfaff parts, although no assurance can be given
that the Company will continue as a distributor for Pfaff. The Company believes
that the termination of its right to distribute Pfaff parts as of December 31,
1998, could have an adverse effect on the Company. See"--Liquidity and Capital
Resources" under Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this Report.
Pegasus is a significant Japanese manufacturer of industrial sewing
equipment, including "chain-stitch" industrial sewing machines. The Company
(including its predecessor) has been the exclusive distributor in the United
States of Pegasus genuine parts since 1966. Under the Company's distributor
agreement with Pegasus, the Company is the exclusive United States distributor
of Pegasus genuine parts through 2000, which exclusive arrangements
automatically renew for successive two year periods unless notice of termination
is given at least one year prior to December 31, 2000 or the end of any
successive two year period of exclusivity. In order to maintain the exclusivity
of the Pegasus distribution agreement, the Company must meet certain performance
targets. Historically the Company has generally satisfied these requirements,
although in certain prior years they were not satisfied and Pegasus waived such
shortfalls. Although the Company believes that its relationship with Pegasus has
been good, there can be no assurance that the Pegasus distribution agreement
will be extended beyond its current term or that the Company will continue to be
the distributor for Pegasus parts. No assurance can be given that the failure to
extend the Pegasus distribution agreement or the loss by the Company of its
supplier relationship with Pegasus would not have an adverse effect on the
Company's business, financial condition and results of operations.
During 1997, the Company experienced a decline in demand for apparel
screen printing equipment supplied by M&R and an increase in costs associated
with marketing efforts in the Company's European and Asian sales territories for
M&R equipment. Accordingly, the Company discontinued its marketing of M&R
equipment and entered into an exclusive distribution agreement with MHM
Siebdruckmaschinen Gesmbh. KG. ("MHM"), an Austrian company, to distribute its
apparel screen printing equipment in North and South America (excluding Brazil).
The initial term of the contract is for five years with automatic renewals for
successive two year periods unless canceled by either party six months in
advance. The agreement calls for annual sales quotas. Although MHM's share of
the apparel screen printing market in the U.S. is currently substantially less
<PAGE>
than that of M&R, the Company believes that it should be able to increase MHM's
market penetration in the Western Hemisphere. However, no assurance can be given
as to the future levels of sales of MHM equipment.
Barudan is one of the world's major manufacturers of embroidery
machines. Under the distribution agreement among Macpherson, Barudan and certain
of their affiliates, Macpherson is the exclusive distributor of new Barudan
embroidery equipment in the United States and Canada until December 31, 2003
(the "Barudan Agreement"). The Barudan Agreement automatically renews for a
period of five years unless either party terminates such agreement on not less
than 30 days notice. During 1997, it became apparent that a new line of
embroidery machines produced by Barudan, Macpherson's principal supplier,
included a defect, which resulted in a halt of all deliveries of such machines
in August 1997 until the defect was corrected in October 1997. In addition,
during 1997 Barudan was late in supplying certain new machines, and it imposed a
limit on the available quantities of other new machines that will continue
through the first quarter of 1998.
CUSTOMERS
The Company serviced over 15,000 customers in 1997, no one of which
accounted for more than 3.1% of the Company's 1997 net sales. The Company's top
ten customers, which included Levi Strauss, Fieldcrest Cannon, and VF
Corporation, represented approximately 13.4% of the Company's net sales in 1997.
Historically, a majority of the Company's sales have been to customers
in the United States, although sales to customers in Latin America have
increased significantly in recent years. Approximately 21.0% of the Company's
net sales in 1997 were to Latin America. The balance of the Company's sales were
to customers primarily in the United States, Europe and Canada. Mexico was the
principal location of the Company's customers outside of the United States in
1997, followed by the Caribbean Basin Initiative ("CBI") countries and other
South American countries. The Company may continue to follow important customers
from the U.S. as they pursue opportunities in Mexico, the CBI and other South
American countries.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 600 full
time employees. The Company's employees are not represented by any labor union.
The Company considers its employee relations to be good.
For information regarding the Company's foreign operations, see Note
13 of the Notes to Consolidated Financial Statements of the Company included in
Item 8 of this Report.
ITEM 2. PROPERTIES
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The Company leases all of its office and warehouse properties at its
various locations, except for the facilities owned by W&G, Ltd. in Braintree,
England. The Company's headquarters are located in approximately 33,000 square
<PAGE>
feet of space in Carteret, New Jersey under a lease expiring in 2005, which also
serves as the headquarters and principal warehouse for Unity. Sunbrand's Atlanta
offices and warehouse occupy approximately 88,000 square feet under a lease
expiring in 2001. Clinton operates its headquarters, showroom and warehouse and
shipping facilities out of approximately 40,000 square feet located in Miami
Lakes, Florida under a lease expiring in 1998. The Company's other operations
are located in smaller leased spaces. The Company believes that, if necessary,
it would be able to lease adequate replacement space without material additional
expense.
ITEM 3. LEGAL PROCEEDINGS
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There are no material pending legal proceedings as of the date of this
Report to which the Company or any of its subsidiaries is a party or to which
any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the last quarter of the Company's 1997 fiscal year no matters
were submitted to a vote of the Company's security holders.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- ---------------------------------------------------------------------
There is no established public trading market for the Company's Common
Stock.
As of March 1, 1998, there were 25 holders of record of the Company's
Common Stock.
The Company has not paid any dividends since its organization in 1994.
Future payment of cash dividends by the Company will be dependent on such
factors as business conditions, earnings and the financial condition of the
Company. The Revolving Credit Agreement and the Indenture relating to the Senior
Notes restrict the payment of dividends by the Company. Under the most
restrictive of these debt agreements, no amount was available for the payment of
dividends and other distributions as of December 31, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA
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The following table sets forth certain financial data for the years
ended December 31, 1997, 1996 and 1995 and the period from July 13, 1994 to
December 31, 1994, which have been derived from the audited consolidated
financial statements of the Company. The financial data of the Company's
Predecessor for the period from January 1, 1994 to July 12, 1994 and for the
year ended December 31, 1993 have been prepared as if the apparel operations had
been operated as a separate entity during those periods. However, such financial
statements do not reflect a complete allocation of all expenses applicable to
the operation of an independent company. Certain expenses were allocated to the
apparel operations by the Company's Predecessor based on actual usage or other
allocation methods that approximate actual usage. The consolidated financial
statements of the Company as of December 31, 1997 and 1996, and for each of the
years in the three-year period ended December 31, 1997, and the report thereon,
are included elsewhere herein. The selected financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto of the Company included elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
COMPANY COMPANY'S PREDECESSOR
-------------------------------------------------------------- --------------------------
JULY 13, 1994 JANUARY 1,
YEAR ENDED YEAR ENDED YEAR ENDED TO 1994 YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, TO JULY 12, DECEMBER 31,
1997 1996 1995 1994 1994 1993
------------ ------------ ------------ ------------- ----------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $180,332 $113,851 $90,431 $41,644 $41,309 $77,574
Income (loss) before income
taxes and extraordinary
item........................ (4,705) 2,450 1,952 (642) 789 4,579
Income tax expense (benefit).. (1,434) 1,137 558 (288) 426 146
-------- -------- ------- ------- ------- -------
Income (loss) before
extraordinary item.......... (3,271) 1,313 1,394 (354) 363 4,433
Extraordinary item, net....... (1,557) -- (152) -- -- --
-------- -------- ------- ------- ------- -------
Net income (loss)........... $ (4,828) $ 1,313 $ 1,242 $ (354) $ 363 $ 4,433
======== ======== ======= ======= ======= =======
Diluted income (loss)
per share:
Income (loss) before
extraordinary item $ (3.37) $ 1.25 $ 1.84 $ (.74) -- --
Extraordinary item, net (1.61) -- (0.20) -- -- --
-------- -------- ------- ------- ------- ------
Net income (loss) $ (4.98) $ 1.25 $ 1.64 $ (.74) -- --
======== ======== ======= ======= ======= ======
Working capital............... $ 48,311 $ 18,653 $21,924 $24,563 -- --
Total assets.................. 140,501 79,778 52,528 51,717 -- --
Total debt.................... 95,954 41,436 31,109 32,224 -- --
Common stock subject to put
option...................... 3,000 3,000 -- -- -- --
Total stockholders' equity.... 5,087 12,677 7,892 5,967 -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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GENERAL
Willcox & Gibbs, Inc. (the "Company") was organized in 1994 by members
of the Company's current management and certain other investors (the "Management
Buyout") to acquire the sewn products replacement parts, supply and ancillary
equipment distribution businesses of the Company's predecessor (the
"Distribution Business"), which occurred on July 13, 1994.
Effective February 1, 1996, the Company acquired Clinton Management
Corp. and Clinton Machinery Corp. (together, "Clinton"), a distributor of screen
printing equipment (the "Clinton Acquisition"). Approximately 14.7% of the
Company's net sales for the year ended December 31, 1997 are attributable to the
operations of Clinton. Accordingly, the results of the Company for the year
ended December 31, 1997 are not directly comparable to the results for the year
ended December 31, 1996 due to the inclusion of the operations of Clinton in the
full 1997 period.
On January 3, 1997, the Company acquired Macpherson Meistergram, Inc.
and its subsidiary, Geoffrey E. Macpherson Canada, Inc. (collectively,
"Macpherson"), a distributor of embroidery equipment and supplies for the
apparel industry. Approximately 33.8% of the Company's net sales for the year
<PAGE>
ended December 31, 1997 are attributable to the operations of Macpherson.
Accordingly, the results of the Company for 1997 are not directly comparable to
the results for the same period in 1996 due to the inclusion of the operations
of Macpherson in the 1997 period.
The Company currently operates through six principal business units:
(1) its Sunbrand division ("Sunbrand"), which is a distributor of replacement
parts, supplies and ancillary equipment to manufacturers of apparel and other
sewn products; (ii) its Unity Sewing Supply Co. division ("Unity"), which is a
wholesale distributor to dealers of replacement parts and supplies for use by
the apparel and other sewn products industry; (iii) its Willcox & Gibbs, Ltd.
("W&G, Ltd.") subsidiary, which is a distributor to manufacturers and dealers in
the United Kingdom and Europe of replacement parts and supplies for use by the
apparel and other sewn products industry; (iv) its Clinton subsidiaries, which
distribute screen printing equipment and supplies primarily for the apparel
industry; (v) its Leadtec Systems, Inc. ("Leadtec") subsidiary, which develops
and supplies computer-based production planning and control systems for the
apparel industry; and (vi) Macpherson, which distributes embroidery equipment
and supplies used in the apparel industry.
CERTAIN FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS
The Company is highly leveraged and has significant debt service
requirements. The Company faces many uncertainties in 1998 and beyond, and the
Company cannot predict whether the Company's business will continue to generate
sufficient cash flow from operations in the future to service debt requirements
and to meet working capital and capital expenditure needs. See "-Liquidity and
Capital Resources".
Inventory management is an important factor that may affect the
Company's result of operations. The carrying value of the Company's inventory
increased significantly in 1997 as a result of the acquisition of Macpherson.
Macpherson distributes embroidery equipment that is substantially more expensive
on a per item basis than the Company's historic inventory, which was composed
principally of replacement parts and supplies for use in the apparel and sewn
products industry. The Company maintains an inventory of a large number of
items, many of which need not be replaced frequently. In general, the Company's
experience over many years of supplying the apparel and sewn products
industries, combined with the Company's technologically advanced inventory
control system, provide guidance on prudent inventory levels. However, because
demand for the Company's products is dependent on the needs of the apparel and
sewn products industries, a decline in the operations of the Company's customers
will reduce demand for the Company's products. Any such reduction in demand over
an extended period could result in price reductions and inventory writedowns,
which in turn could adversely affect the Company's gross margins.
Willcox & Gibbs is a holding company, the only assets of which are the
stock of its subsidiaries. All of the operations of Willcox & Gibbs are
conducted through its direct and indirect wholly owned subsidiaries.
Accordingly, Willcox & Gibbs' ability to service its indebtedness and meet its
other obligations are dependent upon earnings and cash flow of its subsidiaries
and the payment of funds by those subsidiaries to Willcox & Gibbs in the form of
<PAGE>
loans, dividends or otherwise. In addition, the ability of Willcox & Gibbs'
subsidiaries to pay dividends, repay intercompany liabilities or make other
advances to Willcox & Gibbs is subject to restrictions imposed by corporate law
and certain United States, state and foreign tax considerations. Several of the
Company's subsidiaries are incorporated outside the United States.
The Company derives significant revenues and operating income from
certain lines of replacement parts and equipment distributed under its
distribution agreements with certain suppliers. The Company's distribution
agreements, both exclusive and non-exclusive, and other supply arrangements with
manufacturers are important to enable the Company to obtain products sought by
the Company's customers and to maintain the Company's broad product selection.
Substantially all of such distribution agreements and other arrangements may be
terminated by the supplier for any reason, although most exclusive distribution
agreements require advance written notice. No assurance can be given that any of
the Company's distribution agreements will be extended beyond their current term
or that the Company will continue to be the distributor for any particular
product. Pfaff AG, a significant supplier to the Company, has given notice of
termination of its distributor agreement with the Company, effective December
31, 1998. The Company is negotiating with Pfaff to continue as a distributor of
Pfaff parts, although no assurance can be given that the Company will continue
as a distributor for Pfaff. The Company believes that the termination of its
right to distribute Pfaff parts as of December 31, 1998 could have an adverse
effect on the Company. See "--Liquidity and Capital Resources" below.
In the years ended December 31, 1997, 1996 and 1995, approximately
27.9%, 34.1% and 25.9%, respectively, of the Company's revenues were derived
from international operations and export sales, which are subject in varying
degrees to risks inherent in doing business abroad. Such risks include the
possibility of unfavorable circumstances arising from host country laws or
regulations. In addition, foreign operations include risks of partial or total
expropriation; currency exchange rate fluctuations and restrictions on currency
repatriation; the disruption of operations from labor and political
disturbances, insurrection or war; and the requirements of partial local
ownership of operations in certain countries.
Any change in the value of the currencies of the foreign countries in
which the Company does business against the U.S. dollar will result in
corresponding changes in the price and affordability of the Company's products,
which could have a material adverse impact on the Company's business, financial
condition and results of operations. The Company purchases a substantial amount
of its inventories with foreign currencies. Most of the Company's net sales are
in U.S. dollars. Although the Company, from time to time, enters into forward
exchange contracts to hedge against foreign currency exchange risks, there can
be no assurance that the Company will not experience foreign currency losses.
See Note 1 of the Notes to Consolidated Financial Statements of the Company. In
addition, the economies of certain of the Company's target Latin American
markets have experienced significant and in some periods extremely high rates of
inflation over the past few years. Inflation and rapid fluctuation in inflation
<PAGE>
rates have had and may continue to have negative effects on these economies and
could have a material adverse impact on the Company's business, financial
condition and results of operations.
The North American Free Trade Agreement ("NAFTA"), implemented on
January 1, 1994, removes barriers to free trade among Canada, the United States
and Mexico. The removal of barriers will take place over a 10 year period
between Mexico and the United States and over five years between Canada and the
United States. There can be no assurance that NAFTA will not result in an
increase in apparel imports from Mexico that compete against products
manufactured by the Company's customers in the United States, thereby adversely
affecting the Company's sales in the United States. Historically, a majority of
the Company's net sales have been to customers in the United States. No
assurance can be given that the Company will be able to increase sales outside
of the United States in the event of a decline in sales to customers in the
United States.
The Company is in the process of assessing the Year 2000 issue and the
estimated costs necessary for the Company's remediation plan. The Company plans
to remediate all Year 2000 issues during 1998 and does not expect remediation
costs to have a material impact on results of operations, liquidity and capital
resources.
The markets in which the Company competes are subject to intense
competition. In addition, certain of the Company's competitors have greater
financial resources than the Company and are less leveraged than the Company.
Inflation has not affected the Company's results over the last several
years, given its relatively low level in the United States during such period.
RESULTS OF OPERATIONS
The following table sets forth the percentages that certain income and
expense items bear to net sales for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net Sales............................................ 100.0% 100.0% 100.0%
Gross profit......................................... 30.4 31.8 32.9
Selling, general and administrative expenses......... 26.3 25.4 26.1
Operating income..................................... 4.1 6.4 6.8
Interest expense..................................... 6.7 4.2 4.7
Income taxes......................................... (0.8) 1.0 0.6
Net income........................................... (2.7) 1.2 1.4
===== === ===
</TABLE>
1997 COMPARED TO 1996
Net sales were $180.3 million in 1997, an increase of $66.5 million,
or 58.4%, as compared to 1996. Net sales increased primarily as a result of the
<PAGE>
inclusion in the 1997 period of the results of Macpherson, acquired in January
1997, Clinton, acquired in February 1996, and Mitchell, acquired in November
1996, which contributed an aggregate additional $64.2 million to net sales in
1997 compared with 1996.
Net sales of Macpherson and Clinton declined, while the aggregate
sales of the Company's other principal subsidiaries increased, in 1997 as
compared to the 1996 period. During 1997, it became apparent that a new line of
embroidery machines produced by Barudan, Macpherson's principal supplier,
included a defect, which resulted in a halt of all deliveries of such machines
in August 1997 until the defect was corrected in October 1997. In addition,
during the 1997 period Barudan was late in supplying certain new machines, and
it imposed a limit on the available quantities of other new machines that will
continue through the first quarter of 1998. In the case of Clinton, during the
1997 period, the Company experienced a decline in demand for apparel screen
printing equipment supplied by M&R Printing Equipment, Inc. ("M&R") and an
increase in costs associated with marketing efforts in the Company's European
and Asian sales territories for M&R equipment. The Company discontinued its
operations in Europe and Asia with respect to Clinton's businesses and marketing
of M&R equipment and has entered into an exclusive distribution agreement with
MHM Siebdruckmaschinen Gesmbh. KG. ("MHM"), an Austrian company, to distribute
its apparel screen printing equipment in North and South America (excluding
Brazil). The initial term of the contract is for five years with automatic
renewals for successive two year periods unless canceled by either party six
months in advance. The agreement calls for annual sales quotas. Although MHM's
share of the apparel screen printing market in the U.S. is currently
substantially less than that of M&R, the Company believes that it should be able
to increase MHM's market penetration in the Western Hemisphere. However, no
assurance can be given as to the future levels of sales of MHM equipment.
Gross profit in 1997 was $54.8 million, an increase of $18.5 million,
or 51.1%, as compared with 1996. Gross profit increased primarily due to the
inclusion of Macpherson, Clinton and Mitchell in the 1997 period. As a
percentage of net sales, gross profit in 1997 was 30.4%, as compared with 31.8%
in 1996. The decrease in gross profit percentage was attributable to Macpherson
and Clinton. Macpherson's and Clinton's gross profit margins have traditionally
been lower than the gross profit margin associated with the Company's parts and
supplies businesses because a larger percentage of their sales are for
equipment. In addition, the Company discontinued several product lines,
including the M&R equipment line, in the fourth quarter of 1997. The 1997 gross
profit was charged $0.5 million to adjust the product lines to their liquidation
value.
Selling, general and administrative expenses in 1997 were $47.4
million, an increase of $18.4 million, or 63.6%, as compared to 1996. The
increase consisted primarily of the addition of $13.3 million of operating
expenses for Macpherson, Clinton and Mitchell in 1997. Included in selling,
general and administrative expenses was approximately $1.8 million in costs
associated with the defect on a new line of embroidery machines, discontinued
product lines and the transfer of Macpherson's supply distribution to the
Company's Sunbrand division distribution center. The Company believes that this
<PAGE>
consolidation will result in lower overhead and improved service levels to
customers. In addition, Clinton incurred higher marketing expenses in its
discontinued European and Asian markets. As a percentage of sales, such expenses
increased to 26.3% for 1997, from 25.4% for 1996, primarily related to the
factors above.
Operating income in 1997 was $7.4 million, an increase of $0.1
million, or 1.7% as compared to 1996. The increase in operating income resulted
from an increase in sales and the factors discussed above. As a percentage of
net sales, operating income was 4.1% for 1997 as compared to 6.4% for 1996. The
decrease was principally attributable to the lower gross margins from
Macpherson's and Clinton's sales and the additional costs described above.
Interest expense was $12.1 million in 1997, an increase of $7.3
million, or 151.7%, as compared with 1996. The increase in interest expense was
a result of the issuance by the Company of $85.0 million aggregate principal
amount of its 12 1/4% Series A Senior Notes due 2003 (the "Senior Notes") as of
January 3, 1997, the proceeds of which were used to finance the acquisition of
Macpherson and to refinance existing indebtedness.
Provision for income taxes for 1997 was a benefit of $1.4 million, a
decrease of $2.6 million, as compared to 1996. The Company's effective tax rate
was 30.5% in 1997, as compared to 46.4% in 1996.
The Company's results for 1997 reflect an extraordinary loss from the
extinguishment of debt (net of income tax benefit) of $1.6 million owing to the
refinancing of the Company's indebtedness in connection with the Macpherson
Acquisition and the issuance of the Senior Notes.
Net loss in 1997 was $4.8 million compared to net income of $1.3
million in 1996. The decrease was attributable to the additional cost factors
discussed above.
1996 COMPARED TO 1995
Net sales were $113.9 million in 1996, an increase of $23.4 million,
or 25.9%, as compared to 1995. Net sales increased primarily as a result of the
Clinton Acquisition, which contributed $28.7 million to net sales in 1996. The
increase was partially offset by a decline in sales by the Company of capital
equipment resulting from general market conditions for apparel manufacturers.
Gross profit in 1996 was $36.2 million, an increase of $6.4 million,
or 21.6%, as compared with 1995. As a percentage of net sales, gross profit in
1996 was 31.8% as compared with 32.9% period in 1995. The decrease in gross
profit was primarily attributable to Clinton's contribution to gross profit.
Clinton's gross profit margin has traditionally been lower than the Company's
parts and supplies businesses because a larger percentage of Clinton's sales are
attributable to capital equipment. The decrease in gross profit margin in 1996
was partially offset by a decrease in the percentage of net sales comprised of
<PAGE>
capital equipment and the corresponding increase in the percentage comprised of
parts and supplies, since parts and supplies generally have higher margins than
capital equipment.
Selling, general and administrative expenses in 1996 were $29.0
million, an increase of $5.4 million, or 22.7%, as compared to 1995. The
increase consisted primarily of the addition of expenses for Clinton, which were
$5.5 million. The increase was partially offset by a reduction of expenses as a
result of management's continued efforts to lower costs of operations, coupled
with lower sales expenses as a result of the decline in capital equipment sales.
Operating income in 1996 was $7.3 million, an increase of $1.1
million, or 17.4%, as compared to 1995. As a percentage of net sales, operating
income was 6.4% in 1996 as compared to 6.8% in 1995. The increase in operating
income resulted primarily from an increase in sales and the efforts to reduce
costs.
Interest expense was $4.8 million in 1996, an increase of $0.6
million, or 13.6%, as compared with 1995. The increase in interest expense was
primarily a result of the additional borrowings incurred as of February 1, 1996
used to finance the acquisition of Clinton.
Provision for income taxes for 1996 was $1.1 million, an increase of
$0.6 million, as compared to 1995. The Company's effective tax rate was 46.4% in
1996, as compared to 28.6% in 1995.
Net income in 1996 was $1.3 million, an increase of $0.1 million or
5.7% compared to 1995. The increase was attributable to the factors discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements, capital
expenditures and acquisitions from net cash provided by operations, borrowings
under its credit facilities and proceeds from the issuance of debt and equity
securities.
On January 3, 1997, the Company issued and sold $85.0 million
aggregate principal amount of its Senior Notes pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended. The net
proceeds from the sale of the Senior Notes were used to repay substantially all
of the Company's existing debt, most of which was incurred to fund the
Management Buyout in July 1994, the Clinton Acquisition in February 1996, the
Mitchell Acquisition in November 1996, and to satisfy working capital
requirements. The balance of such net proceeds was used to fund the $24.0
million purchase price of the Macpherson Acquisition, to repay approximately
$6.1 million of indebtedness of Macpherson and to pay approximately $6.4 million
trade payables of Macpherson.
The Company has a Credit Agreement (the "Credit Agreement") with its
principal lenders which provides for a revolving credit facility through July
2001 of up to the lesser of (i) $22,000,000 or (ii) the sum of 85% of eligible
accounts receivable, less outstanding letters of credit. At December 31, 1997,
approximately $2,798,000 was available under the facility. Under the Credit
<PAGE>
Agreement, substantially all receivables of the Company are pledged as security.
Borrowings under the facility bear interest at LIBOR or the bank's base rate
plus the "Applicable Margin" depending on the Company's "Consolidated Total Debt
to Adjusted EBITDA" as defined in the Credit Agreement (9.0% at December 31,
1997). The Company pays an annual fee of 0.5% of the total unused availability
of the facility. The Company also pays an annual fee of 2% on outstanding
letters of credit. Letters of credit approximating $5,386,000 were outstanding
at December 31, 1997. The Company had available approximately $4,614,000 in
unused letters of credit at December 31, 1997. The Credit Agreement includes
various covenants, including restrictions on liens, capital expenditures, debt,
dividends, and requirements that certain financial ratios be maintained. At
December 31, 1997, the Company was not in compliance with various covenants.
These covenant violations were waived for the year ended December 31, 1997.
In October 1996, W&G, Ltd. borrowed(pound)1.0 million under the W&G,
Ltd. Credit Facility with Coutts & Co. The loan under the W&G, Ltd. Credit
Facility bears interest at a rate per annum equal to the bank's prevailing Base
Rate, which is currently 7.0% per annum, plus a margin of 2.25% per annum. The
loan is payable in eight semiannual installments of (pound)125,000, commencing
April 1997. The W&G, Ltd. Credit Facility is secured by substantially all of the
assets of W&G, Ltd. The proceeds of this loan were used to repay indebtedness of
W&G, Ltd. to the Company, and the Company used such funds to repay higher cost
indebtedness.
In connection with the Macpherson Acquisition, the Company acquired
the Leasing Company, a leasing company affiliate of Macpherson, for
approximately $0.9 million including a note for approximately $0.5 million,
payable over three years, plus interest at 6.0% annum. The Company utilizes the
Leasing Company to offer flexible lease financing to its customers to support
the Company's sales of equipment. The Company intends to fund its investment in
the Leasing Company through borrowings under the Credit Facility. The Company
plans for the Leasing Company to arrange additional borrowings to finance its
operations and sell a portion of its leases on a nonrecourse basis.
The Company's net capital expenditures during 1997 aggregated
approximately $1.9 million. Such expenditures were primarily for computer,
office and warehouse equipment and improvements, including $0.5 million in the
fourth quarter of 1997 primarily related to the consolidation of certain of
Macpherson's operations with Sunbrand. The Company expects its capital
expenditures to aggregate approximately $1.5 million in 1998, to be used for
purposes similar to uses in 1997.
Under the terms of the Indenture relating to the Senior Notes, the
Company may not pay dividends or repurchase shares of its capital stock unless,
among other things, (i) it could incur $1.00 of additional indebtedness under
such Indenture by virtue of satisfying a pro forma fixed charge coverage ratio
of at least 2 to 1 and (ii) the aggregate amount of all such payments since
October 1, 1996 would not exceed 50% of the Consolidated Net Income (as defined)
of the Company for such period, plus net cash proceeds from the sale of equity
<PAGE>
securities of the Company during such period. Pursuant to such Indenture
requirement, as of December 31, 1997, no amount was available for the payment of
dividends.
Net cash used in the Company's operating activities was $7.8 million
during 1997, principally due to working capital changes. Net cash used in the
Company's investing activities during 1997 were $39.2 million, related
principally to the Macpherson Acquisition. Net cash provided by financing
activities during 1997 aggregated $47.5 million, reflecting $84.0 million
borrowings from the issuance of the Senior Notes used to extinguish debt of
$41.1 million, $4.5 million in financing costs and $3.0 million to repurchase
and retire warrants.
Net cash used in the Company's operating activities was $0.3 million
during 1996. Principal working capital changes included a $4.5 million increase
in accounts receivable and a $1.0 million increase in inventories. The Company's
investing activities during 1996 related principally to $12.0 million utilized
in the Clinton and Mitchell acquisitions. Net cash provided by financing
activities aggregated $13.4 million, principally reflecting $10.4 million of net
borrowings and $2.3 million from the sale of Company Common Stock in connection
with the Clinton acquisition.
Net cash generated by the Company's operations in 1995 was $1.8
million. Principal working capital changes included a $0.7 million decrease in
accounts receivable and a $0.8 million increase in inventories. Cash used in
financing activities in 1995 aggregated $0.8 million, reflecting a net increase
in borrowings of $1.0 million, $1.8 million from the sale of Company Common
Stock to the Company's Savings and Employee Stock Ownership Plan and the payment
to the Company's Predecessor of $3.5 million to retire indebtedness and redeem
warrants issued in connection with the Management Buyout.
The Company is highly leveraged and has significant debt service
requirements. At December 31, 1997, the total indebtedness of the Company was
$96.0 million. The degree to which the Company is leveraged has important
consequences, including the following: (i) the ability of the Company to obtain
additional financing in the future, whether for working capital, capital
expenditures, acquisitions or other purposes, may be impaired; (ii) a
substantial portion of the Company's cash flow from operations will be required
to be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing funds available to the Company for other purposes; (iii) the
Company's flexibility in planning for or reacting to changes in market
conditions may be limited; (iv) the Company may be more vulnerable in the event
of a downturn in its business; and (v) to the extent that the Company incurs any
indebtedness under its Credit Facility, the W&G, Ltd. Credit Facility or any
other working capital agreements, which indebtedness will be at variable rates,
the Company will be vulnerable to increases in interest rates.
The Company's cash interest requirements in 1997 aggregated
approximately $11.3 million, and the Company's income before income taxes, plus
interest expense, depreciation and amortization in 1997 was approximately $9.8
million. The Company estimates that its cash interest requirements in 1998 will
aggregate approximately $11.5 million (which is subject to change if borrowing
levels and floating interest rates vary from current estimates).
<PAGE>
The Company faces many uncertainties during 1998 and beyond. The
Company believes that NAFTA has resulted in a substantial shift of sewn products
manufacturing facilities from the United States to Mexico, and the Company
cannot predict whether it will be able to increase sales in Mexico sufficiently
to offset the decline in sales in the United States. In addition, during 1997
the Company's Macpherson and Clinton businesses suffered a decline in sales due
to difficulties with their principal equipment products, and Clinton terminated
its distribution agreement with a major supplier of screen printing equipment
and entered into a new agreement with a supplier having a substantially smaller
share of the U.S. market for such equipment. Also, in 1997 Clinton terminated
its European and Asian marketing efforts. Moreover, the termination by Pfaff of
its distributor agreement with the Company, effective December 31, 1998, could
adversely effect the Company's sales and profitability, unless the Company is
able to negotiate a new distributor arrangement with Pfaff. Furthermore, the
Company's future performance will be subject to future economic conditions,
which are beyond the Company's control. Accordingly, the Company cannot predict
whether the Company's business will continue to generate cash flow at levels
sufficient to meet its short term and long term liquidity requirements. If the
Company is unable to generate sufficient cash flow from operations in the future
to service its debt and capital expenditure needs and to meet working capital
requirements, it may be required to sell assets, reduce capital expenditures,
refinance all or a portion of its existing debt (including the Senior Notes) or
obtain additional financings. The Senior Notes are not redeemable at the
Company's option prior to December 15, 2001, except that on or prior to December
15, 1999, the Company may redeem 30% of the Senior Notes with the proceeds of an
equity offering. There can be no assurance that any such asset sales or
refinancing would be possible or that any additional financing would be on terms
acceptable to the Company.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
believes that its components of comprehensive income will consist principally of
traditionally-determined net income and foreign currency translation
adjustments. This Statement is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" establishes revised
standards for the manner in which public business enterprises report information
about operating segments. The Company does not believe that this Statement will
significantly alter the segment disclosures it currently provides. This
Statement is effective for fiscal years beginning after December 15, 1997.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The following financial statements, supplementary financial
information and schedules are filed as part of this Report:
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets,
December 31, 1997 and 1996
Consolidated Statements of Operations,
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows,
Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1997, 1996
and 1995
All schedules not mentioned above are omitted for the reason that they
are not required or are not applicable, or the information is included in the
Consolidated Financial Statements or the Notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Willcox & Gibbs, Inc.:
We have audited the accompanying consolidated financial statements of Willcox &
Gibbs, Inc. and subsidiaries (the "Company") as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we have also audited the financial statement schedule listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Willcox & Gibbs,
Inc. and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Atlanta, Georgia
February 27, 1998, except for
the second paragraph of
note 5, which is as of
March 18, 1998
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 1,325,314 881,500
Trade accounts receivable, net of allowance for doubtful
accounts of $4,315,000 in 1997 and $2,419,000 in 1996
(note 5) 38,465,525 22,335,977
Inventories (note 3) 48,734,769 34,223,674
Prepaid expenses and other current assets 3,495,686 2,705,412
Deferred income taxes (note 7) 1,402,437 804,006
------------ -----------
Total current assets 93,423,731 60,950,569
Property and equipment, net (note 4) 5,594,700 4,400,341
Deferred financing costs, less accumulated amortization of
$650,481 in 1997 and $811,755 in 1996 (notes 2 and 6) 3,902,883 2,323,168
Intangible assets, less accumulated amortization of
$1,059,711 in 1997 and $228,622 in 1996 (notes 2 and 10) 32,385,755 11,059,878
Deferred income taxes (note 7) 1,313,171 -
Other assets 3,881,017 1,044,532
------------ -----------
$140,501,257 $79,778,488
============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Revolving line of credit (note 5) $ 10,617,344 19,347,392
Book overdrafts 3,232,667 1,499,297
Current installments of long-term debt (note 6) 594,383 3,195,401
Trade accounts payable 23,253,455 12,131,438
Income taxes payable 23,943 641,568
Accrued liabilities and other current liabilities 7,360,903 5,482,789
------------ -----------
Total current liabilities 45,082,695 42,297,885
Deferred income taxes (note 7) - 290,113
Accrued retirement benefits (note 8) 2,431,455 2,451,939
Long-term debt, excluding current installments 84,741,918 18,893,332
(notes 2, 6, and 16)
Other liabilities 158,372 168,258
------------ -----------
Total liabilities 132,414,440 64,101,527
============ ===========
Common stock subject to put option (note 2) 3,000,000 3,000,000
Stockholders' equity (notes 2, 9, 10, and 11):
Common stock:
Class A, $10 stated value. Authorized 1,500,000 shares;
issued and outstanding (including 100,000 shares subject to
put option) 1,001,319 shares in 1997 and 976,277 shares in
1996 9,013,190 8,762,770
Class B, no par value. Authorized 250,000 shares; none
issued - -
Class C, no par value. Authorized 250,000 shares; none
issued - -
Additional paid-in capital - 1,904,398
Class A common stock subscriptions receivable (378,967) (429,462)
Retained earnings (accumulated deficit) (3,623,617) 2,201,527
Cumulative translation adjustments 76,211 237,728
------------ -----------
Total stockholders' equity 5,086,817 12,676,961
Commitments (note 15)
------------ -----------
$140,501,257 79,778,488
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 180,331,561 113,851,258 90,431,431
Cost of goods sold (note 14) 125,572,796 77,623,034 60,642,521
------------- ----------- -----------
Gross profit 54,758,765 36,228,224 29,788,910
Selling, general, and administrative expenses 47,377,092 28,968,827 23,606,126
------------- ----------- -----------
Operating income 7,381,673 7,259,397 6,182,784
Other income (expense):
Interest expense (12,141,756) (4,824,553) (4,248,820)
Other, net 55,311 14,968 17,806
------------- ----------- -----------
Income (loss) before income taxes
and extraordinary item (4,704,772) 2,449,812 1,951,770
Income tax (benefit) expense - (note 7) (1,434,258) 1,136,685 557,513
------------- ----------- -----------
Income (loss) before
extraordinary item (3,270,514) 1,313,127 1,394,257
Extraordinary loss, net of income tax benefit
of $954,228 in 1997 and $92,901 in 1995
(notes 6 and 10) (1,556,898) - (151,574)
------------- ----------- -----------
Net income (loss) $ (4,827,412) 1,313,127 1,242,683
============= =========== ===========
Basic income (loss) per share (note 12):
Income (loss) before extraordinary item $ (3.37) 1.46 2.44
Extraordinary item, net (1.61) - (0.26)
------------- ----------- -----------
Net income (loss) $ (4.98) 1.46 2.18
============= =========== ===========
Diluted income (loss) per share (note 12):
Income (loss) before extraordinary item $ (3.37) 1.25 1.84
Extraordinary item, net (1.61) - (0.20)
------------- ----------- -----------
Net income (loss) $ (4.98) 1.25 1.64
============= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Retained Class A
Class A common stock Additional earnings common stock Cumulative Total
----------------------- paid-in (accumulated subscriptions translation stockholders'
Shares Amount capital deficit) receivable adjustments equity
--------- ---------- ----------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 607,577 $6,075,767 1,688,000 (354,283) (1,263,267) (179,710) 5,966,507
Net income - - - 1,242,683 - - 1,242,683
Proceeds from subscriptions
receivable - - - - 1,263,267 - 1,263,267
Class A common stock issued to
the Company's ESOP 50,671 506,713 138,612 - (113,881) - 531,444
Repurchase and retirement of
warrants (note 10) - - (1,000,000) - - - (1,000,000)
Translation adjustments - - - - - (111,951) (111,951)
Balance at December 31, 1995 658,248 6,582,480 826,612 888,400 (113,881) (291,661) 7,891,950
Net income - - - 1,313,127 - - 1,313,127
Proceeds from subscriptions
receivable - - - - 113,881 - 113,881
Class A common stock issued to
the Company's ESOP 33,715 337,150 281,781 - (429,462) - 189,469
Fair value of common stock
warrants issued (note 9) - - 357,000 - - - 357,000
Class A common stock issued in
Clinton acquisition (note 2) 100,000 - - - - - -
Class A common stock sold in
private placement (note 2) 184,314 1,843,140 439,005 - - - 2,282,145
Translation adjustments - - - - - 529,389 529,389
--------- ---------- ---------- ---------- ---------- -------- ----------
Balance at December 31, 1996 976,277 8,762,770 1,904,398 2,201,527 (429,462) 237,728 12,676,961
Net loss - - - (4,827,412) - - (4,827,412)
Proceeds from subscription
receivable - - - - 425,239 - 425,239
Class A common stock issued to
the Company's ESOP 25,042 250,420 124,324 - (374,744) - -
Repurchase and retirement of
warrants (note 9) - - (2,028,722) (997,732) - - (3,026,454)
Translation adjustments - - - - - (161,517) (161,517)
--------- ---------- ---------- ---------- ---------- -------- ----------
Balance at December 31, 1997 1,001,319 $9,013,190 - (3,623,617) (378,967) 76,211 5,086,817
========= ========== ========== ========== ========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(4,827,412) 1,313,127 1,242,683
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,246,019 651,606 458,514
Provision for losses on accounts receivable 1,119,906 267,034 580,520
Amortization of deferred financing costs and
intangible assets 1,481,570 604,938 290,292
Amortization of debt discounts 211,093 175,929 187,786
Deferred income taxes (2,201,715) 271,252 17,424
Extraordinary loss on debt extinguishment, net 1,556,898 - 151,574
Changes in operating assets and liabilities,
net of effects of business acquisitions:
Trade accounts receivable (3,014,032) (4,462,574) 723,813
Inventories 1,328,001 (1,005,426) (797,067)
Prepaid expenses and other current assets 277,737 (413,358) (371,160)
Other assets (2,473,763) (203,064) (652,758)
Income taxes payable (617,625) 332,843 201,605
Trade accounts payable and other liabilities (1,915,294) 2,214,304 (191,825)
----------- ----------- ----------
Net cash provided by (used in) operating
activities
(7,828,617) (253,389) 1,841,401
----------- ----------- ----------
Cash flows from investing activities:
Capital expenditures (1,966,796) (1,247,380) (772,575)
Proceeds from sale of property and equipment 107,671 76,094 14,716
Payments for business acquisitions, net of cash
acquired (37,368,785) (12,012,103) -
----------- ----------- ----------
Net cash used in investing activities (39,227,910) (13,183,389) (757,859)
----------- ----------- ----------
Cash flows from financing activities:
Net proceeds from revolving line of credit, net
of proceeds from debt issued in business
acquisitions 10,551,761 1,738,579 2,327,342
Increase (decrease) in book overdraft 1,733,370 902,187 (22,497)
Proceeds from debt issued for business acquisitions 83,980,050 9,167,439 -
Proceeds from other debt - 1,603,500 -
Principal payments on long-term debt (545,178) (2,110,083) (1,375,000)
Payment of financing costs (4,461,635) (530,930) -
Proceeds from common stock sold in private
placement - 2,282,145 -
Extinguishment of debt (41,137,297) - (2,500,000)
Repurchase and retirement of warrants (3,026,454) - (1,000,000)
Proceeds from common stock issued to the
Company's ESOP 425,239 303,350 1,794,711
----------- ----------- ----------
Net cash provided by (used in) financing
activities 47,519,856 13,356,187 (775,444)
Effect of exchange rate changes on cash (19,515) 41,853 (22,162)
----------- ----------- ----------
Net change in cash, carried forward $ 443,814 (38,738) 285,936
=========== =========== ==========
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net change in cash, brought forward $ 443,814 (38,738) 285,936
Cash at beginning of year 881,500 920,238 634,302
----------- --------- ---------
Cash at end of year $ 1,325,314 881,500 920,238
=========== ========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $11,107,155 4,157,170 3,618,429
=========== ========= =========
Income taxes, net of refunds $ 262,571 320,277 339,185
=========== ========= =========
Supplemental disclosure of noncash
investing and financing activities:
Issuance of common stock subscriptions
receivable $ 378,967 429,462 113,881
=========== ========= =========
Effects of business acquisitions:
Fair value of assets acquired $33,403,582 8,875,546 -
=========== ========= =========
Liabilities assumed $17,043,864 4,167,724 -
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------
(a) OPERATIONS AND PRINCIPLES OF CONSOLIDATION
------------------------------------------
Willcox & Gibbs, Inc. and subsidiaries (the "Company") is engaged
principally in the distribution of replacement parts, supplies, and
ancillary equipment to manufacturers of apparel and other sewn
products in the domestic and export markets. The accompanying
consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) INVENTORIES
-----------
Inventories are stated at the lower of cost or market. Cost is
determined primarily by using the first-in, first-out method.
(c) PROPERTY AND EQUIPMENT
----------------------
Property and equipment are recorded at cost. Depreciation is provided
primarily using the straight-line method over the following estimated
useful lives of the respective assets:
<TABLE>
<CAPTION>
<S> <C>
Buildings 40 years
Machinery and equipment 3 to 7 years
Furniture and fixtures 5 to 7 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
(d) DEFERRED FINANCING COSTS
------------------------
Deferred financing costs represent origination fees and other related
costs incurred in connection with establishment of the Company's
credit facilities. These costs have been deferred and are being
amortized using the straight-line method over the term of the related
debt.
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) INTANGIBLE ASSETS
-----------------
Intangible assets consist primarily of costs in excess of the fair
value of net assets acquired in business combinations. Intangible
assets are amortized on a straight-line basis over the expected
periods to be benefited, generally 40 years. The Company assesses the
recoverability of its intangible assets by determining whether the
amortization of such balances over their remaining life can be
recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is measured
based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of intangible assets may be impacted
if estimated future operating cash flows are not achieved.
(f) BOOK OVERDRAFTS
---------------
Under the Company's cash management system, checks issued but not
presented to banks frequently result in overdraft balances for
accounting purposes and are classified as book overdrafts in the
accompanying consolidated balance sheets.
(g) INCOME TAXES
------------
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(h) FORWARD EXCHANGE CONTRACTS
--------------------------
The Company, from time to time, enters into forward exchange contracts
for foreign currency as a hedge against accounts payable denominated
in a foreign currency. These contracts are used by the Company to
minimize exposure and reduce risk from exchange rate fluctuations in
the normal course of its foreign business. Gains and losses on forward
exchange contracts are deferred and included in the measurement of
foreign currency transaction gains and losses when realized. Cash
provided and used for forward exchange contracts is included in the
cash flows resulting from changes in trade accounts payable. Contracts
amounting to $1,153,846 and $45,514, whose contractual amounts
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
approximate market value, were outstanding at December 31, 1997 and
1996, respectively.
(i) FOREIGN CURRENCY TRANSLATION
----------------------------
The local currency has been used as the functional currency of the
Company's subsidiaries located outside of the United States. Assets
and liabilities denominated in foreign currency are translated from
their respective foreign currencies into U.S. dollars using exchange
rates in effect at the balance sheet date. Revenues and expenses are
translated at the average exchange rates in effect during the period.
Translation gains and losses are included as a separate component of
stockholders' equity. Foreign currency transaction gains and losses
included in results of operations are not material in 1997, 1996, or
1995.
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The fair value of the Company's 12.25% Series B senior notes is
estimated based upon quotes obtained from a registered broker-dealer.
The fair values of the Company's remaining notes payable are estimated
based upon cash flows discounted using the interest rate available to
the Company for debt with similar terms and remaining maturities. The
carrying value of the Company's remaining borrowings approximate fair
value due to the variable rate nature of the borrowings and/or the
short maturity of the borrowings. The fair value of the Company's
forward exchange contracts is estimated by obtaining quotes for
contracts with similar terms. The fair value of letters of credit are
based on fees currently charged for similar arrangements. The carrying
value of all other financial instruments approximate fair value due to
the short-term nature of such instruments.
(k) INCOME PER SHARE
----------------
Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE. This
pronouncement required the restatement of all prior-period earnings
per share data presented to conform to its provisions. Basic income
(loss) per share is computed by dividing net income (loss) by the
weighted-average number of shares of common stock outstanding during
the year. Diluted income (loss) per share is computed by dividing net
income (loss) by the sum of (1) the weighted-average number of shares
of common stock outstanding during the period, (2) the dilutive effect
of the assumed exercise of stock options using the treasury stock
method, and (3) dilutive effect of other potentially dilutive
securities.
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(l) STOCK OPTIONS
-------------
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
related interpretations. As such, compensation expense is recorded on
the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, the Company
adopted Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement 123"), which
permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant.
Alternatively, Statement 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method
defined in Statement 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosures of Statement 123.
(m) USE OF ESTIMATES
----------------
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of
these financial statements and the reported amounts of revenues and
expenses during the period to prepare these consolidated financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
(n) RECLASSIFICATIONS
-----------------
Certain reclassifications were made to the 1996 and 1995 accounts to
conform to classifications adopted in 1997.
(2) ACQUISITIONS
------------
On July 13, 1994, the Company was incorporated and entered into a Sale and
Purchase Agreement to acquire the net assets and certain common stock of
the apparel operations of Rexel, Inc. The aggregate purchase price
consisted of $41,000,000 in cash and a $3,000,000 8% subordinated note with
detachable Class B common stock warrants issued to Rexel, Inc. Concurrent
with the acquisition, the Company sold common stock of the Company totaling
$4,812,500 (note 9) and borrowed $35,680,000 from a lender and $507,500
from two officers of the Company. As discussed in note 10, the subordinated
note, warrants, and loan from two officers were retired in 1995.
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective February 1, 1996, the Company purchased Clinton Machinery
Corporation and Clinton Management Corporation (collectively, "Clinton").
Clinton is a distributor of screen-printing equipment and supplies for the
apparel industry. The aggregate purchase price consisted of $4,000,000 in
cash; 100,000 shares of the Company's Class A common stock; the assumption
of approximately $4,500,000 of indebtedness and payables, which was
subsequently repaid; and contingent payments of up to 35% of the operating
income, as defined, of Clinton during each of the five years ending through
December 31, 2000. Such contingent payments may not exceed $10,500,000 in
the aggregate and will be recorded as additional purchase consideration as
such amounts become determinable. The Company has made contingent payments
of approximately $730,000 through December 31, 1997. The acquisition was
financed by the issuance of 184,314 shares of Class A common stock, with
proceeds of a 10.98% senior note payable for $1,200,000, and with proceeds
of an increase of $1,050,000 in the Company's variable rate senior note
payable (note 6). As a result of the transaction, the Company recorded
approximately $9,089,000 of intangible assets and $463,000 of deferred
financing costs. As discussed in note 6, the senior notes were refinanced
in 1997. In addition, the former stockholders of Clinton received a put
option, giving them the right to sell the Class A common shares to the
Company at $30 per share on the earliest of (i) the day after the Company's
12.25% Series B senior notes described in note 6 have become due by
occurrence of the scheduled maturity date or sooner acceleration; (ii) the
fourth anniversary of the closing date of the acquisition of Clinton; (iii)
the occurrence of an initial public offering of equity securities by the
Company; and (iv) a change in control of the Company, provided that in all
cases such purchase is then permitted under the indenture for the senior
notes and the Company's revolving credit agreement (note 5). In accordance
with the rules and regulations of the Securities and Exchange Commission,
the equity subject to this put option has been classified as common stock
subject to put option in the accompanying consolidated balance sheets.
Effective November 27, 1996, the Company acquired certain assets of E. C.
Mitchell Co., Inc. for $3,000,000 in cash. The acquired assets relate to
the manufacture and sale of abrasive cords and tape used principally in the
apparel industry. The Company financed the acquisition primarily by an
increase of $2,050,000 in its variable rate senior note payable and by
issuing an 11.66% senior note payable for $200,000 (note 6). As a result of
the transaction, the Company recorded approximately $1,900,000 of
intangible assets and $68,000 of deferred financing costs. As discussed in
note 6, the senior notes were refinanced in 1997.
Effective January 3, 1997, the Company acquired all of the outstanding
capital stock of Macpherson Meistergram, Inc. ("Macpherson"). Macpherson is
primarily engaged in the distribution of embroidery equipment and supplies
to the apparel industry. The aggregate purchase price consisted of
$24,000,000 in cash and the assumption of approximately $6,100,000 of
indebtedness and $6,400,000 of trade payables. The Company financed the
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
acquisition through the issuance of $85,000,000 of senior notes (note 6).
As a result of the transaction, the Company recorded approximately
$21,117,000 of intangible assets and $4,553,000 of deferred financing
costs.
Also effective January 3, 1997, the Company acquired all of the outstanding
capital stock of Embroidery Leasing Corp., which changed its name to Emtex
Leasing Corp. ("ELC"), a leasing affiliate of Macpherson, for approximately
$925,000. The Company financed the acquisition through the issuance of a
promissory note of approximately $507,000 (note 6). As a result of the
transaction, the Company recorded approximately $675,000 of intangible
assets.
Each of the acquisitions have been accounted for using the purchase method
of accounting and, accordingly, the assets acquired and liabilities assumed
have been recorded at their estimated fair market values at the date of
acquisition. The results of operations of the acquired companies have been
included in the accompanying consolidated financial statements as of the
respective acquisition dates.
The following represents the summary unaudited pro forma results of
operations for the years ended December 31, 1997 and 1996 as if the
acquisitions of Macpherson, ELC, Clinton, and E. C. Mitchell Co., Inc. had
occurred at the beginning of 1996. The pro forma results are not
necessarily indicative of the results which may occur in the future.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $180,331,561 184,592,698
============ ===========
Income (loss) before extraordinary item $ (3,270,514) 1,040,666
============ ===========
Net income (loss) $ (4,827,412) 1,040,666
============ ===========
Basic income (loss) per share:
Income (loss) before extraordinary item $ (3.37) 1.15
Extraordinary item, net (1.61) -
Net income (loss) $ (4.98) 1.15
==== ====
Diluted income (loss) per share:
Income (loss) before extraordinary item $ (3.37) 0.99
Extraordinary item, net (1.61) -
---- ----
Net income (loss) $ (4.98) 0.99
==== ====
</TABLE>
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) INVENTORIES
-----------
Inventories consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Parts and supplies $34,801,415 29,501,944
Machinery and equipment 13,933,354 4,721,730
----------- ----------
$48,734,769 34,223,674
=========== ==========
</TABLE>
(4) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consists of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Buildings and leasehold improvements $2,317,303 2,139,416
Machinery and equipment 4,961,710 3,006,760
Furniture and fixtures 985,622 699,096
---------- ---------
8,264,635 5,845,272
Less accumulated depreciation and
amortization 2,669,935 1,444,931
---------- ---------
Net property and equipment $5,594,700 4,400,341
========== =========
</TABLE>
(5) REVOLVING LINE OF CREDIT
------------------------
The Company has a Credit Agreement with its principal lenders which
provides for a revolving credit facility through July 2001 of up to the
lesser of (i) $22,000,000 or (ii) 85% of eligible accounts receivable less
outstanding letters of credit. At December 31, 1997, approximately
$2,798,000 was available under the facility. Under the Credit Agreement,
substantially all receivables of the Company are pledged as security.
Borrowings under the facility bear interest at LIBOR or the bank's base
rate plus the "Applicable Margin" depending on the Company's "Consolidated
Total Debt to Adjusted EBITDA" as defined in the Credit Agreement (9.0% per
annum at December 31, 1997). The Company pays an annual fee of 0.5% of the
total unused availability of the facility. The Company also pays an annual
fee of 2% on outstanding letters of credit. Letters of credit approximating
$5,386,000 and $1,467,000 were outstanding at December 31, 1997 and 1996,
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
respectively. The Company had available approximately $4,614,000 and
$3,533,000 in unused letters of credit at December 31, 1997 and 1996,
respectively.
The Credit Agreement includes various covenants, including restrictions on
liens, capital expenditures, debt, dividends, and requirements that certain
financial ratios be maintained. At December 31, 1997, the Company was not
in compliance with various covenants. On March 18, 1998, these covenant
violations were waived for the year ended December 31, 1997.
(6) LONG-TERM DEBT
--------------
Long-term debt at December 31, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
12.25% Series B senior notes, due December
15, 2003, net of unamortized discount of
$1,276,407 $83,723,593 -
6.00% promissory note, principal and interest
payable in quarterly installments of $50,000,
with final installment due September 30, 1999 374,683 -
Variable rate UK note payable 1,238,025 1,712,600
Variable rate senior notes payable, with final
installment due July 13, 2000 - 12,802,417
12.95% senior note payable, due July 13, 2001,
net of unamortized discount of $528,784 at
December 31, 1996 - 6,471,216
10.98% senior note payable, due July 13, 2001,
net of unamortized discount of $297,500 at
December 31, 1996 - 902,500
11.66% senior note payable, due July 13, 2001 - 200,000
----------- ----------
85,336,301 22,088,733
Less current installments 594,383 3,195,401
----------- ----------
Long-term debt, excluding current
installments $84,741,918 18,893,332
=========== ==========
</TABLE>
Effective January 3, 1997, the Company issued $85,000,000 principal amount
(less a discount of $1,487,000) of 12.25% senior notes due December 2003.
The Company used the proceeds, in part, to retire its outstanding senior
notes, to redeem common stock warrants for a total of $3,026,000 (note 9),
and to finance the acquisition of Macpherson (note 2). As result, the
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Company recorded an extraordinary loss from the extinguishment of debt (net
of income tax benefit of $954,228) in the accompanying financial
statements.
In connection with the $85,000,000 12.25% senior notes issued on January 3,
1997, the Company entered into an indenture which provides that the notes
are unconditionally guaranteed by each of the U.S. subsidiaries of the
Company. The Company may redeem the notes on or after December 15, 2001, at
redemption prices ranging from 106.125% in 2001 to 103.063% in 2002. Up to
30% of the originally issued aggregate principal amount may be redeemed at
a price of 112.25% with the net proceeds of a public offering of common
stock at any time on or before December 15, 1999. The indenture restricts
the ability of the Company and its subsidiaries to incur additional
indebtedness and issue preferred stock, pay dividends or other restricted
payments, enter into sale/leaseback transactions, incur liens, enter into
certain transactions with affiliates, apply net proceeds from certain asset
sales, and assign, lease, convey or otherwise dispose of substantially all
of the assets of the Company. At December 31, 1997, the Company was in
compliance with the various covenants.
In addition, on January 3, 1997, the Company issued a 6.00% promissory note
for approximately $507,000, payable over three years, to finance the
acquisition of ELC (note 2).
The variable rate UK note payable is denominated in pounds sterling and is
an obligation of the Company's United Kingdom subsidiary. The note is
subject to certain financial covenants, accrues interest at 2.25% plus the
bank's prevailing base rate (9.25% per annum at December 31, 1997), and is
payable in equal semiannual installments through September 2000.
The aggregate maturities of long-term debt, excluding unamortized debt
discount, at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending
DECEMBER 31,
------------
<S> <C>
1998 $ 594,383
1999 605,650
2000 412,675
2001 -
2002 -
2003 85,000,000
-----------
$86,612,708
===========
</TABLE>
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) INCOME TAXES
------------
Total income tax expense (benefit) for the years ended December 31, 1997,
1996, and 1995 was allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income (loss) from
continuing operations $ (1,434,258) 1,136,685 557,513
Extraordinary item (954,228) - (92,901)
------------ --------- -------
$ (2,388,486) 1,136,685 464,612
============ ========= =======
</TABLE>
Income tax expense (benefit) attributable to continuing operations for the
years ended December 31, 1997, 1996, and 1995 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ (197,035) 641,255 240,210
State (23,181) 75,442 75,604
Foreign 33,445 148,736 224,275
----------- --------- -------
(186,771) 865,433 540,089
----------- --------- -------
Deferred:
Federal (1,116,173) 242,689 15,590
State (131,314) 28,563 1,834
----------- --------- -------
(1,247,487) 271,252 17,424
----------- --------- -------
$(1,434,258) 1,136,685 557,513
=========== ========= =======
</TABLE>
Actual income tax expense (benefit) attributable to continuing operations
differs from expected income tax expense (benefit) (computed by applying
the U.S. Federal statutory income tax rate of 34% to income (loss) before
income taxes and extraordinary item) for the years ended December 31, 1997,
1996, and 1995 as follows:
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" income
tax expense (benefit) $(1,599,622) 832,936 663,602
Increase (decrease) in income
taxes resulting from:
Effect of lower foreign tax rates (159,965) (100,866) (164,898)
Nondeductible expenses 205,642 70,437 60,862
State taxes, net of Federal income
tax benefit (101,967) 68,643 51,109
Other, net 221,654 265,535 (53,162)
----------- --------- --------
$(1,434,258) 1,136,685 557,513
=========== ========= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for
doubtful accounts $ 635,769 251,424
Inventory, due to reserves for obsolescence
and costs capitalized for tax purposes 766,668 532,466
Accrued expenses deductible for tax purposes
when paid - 20,116
Net operating loss carryforward 1,895,277 -
Total deferred tax assets 3,297,714 804,006
---------- --------
Deferred tax liabilities:
Accelerated depreciation (532,747) (242,074)
Other (49,359) (48,039)
---------- --------
Total deferred tax liabilities (582,106) (290,113)
---------- --------
Net deferred tax asset $2,715,608 513,893
========== ========
</TABLE>
Income (loss) before income taxes and extraordinary item for the years
ended December 31, 1997, 1996 and 1995 is composed of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. $(5,933,662) 1,715,726 807,145
Foreign 1,228,890 734,086 1,144,625
----------- --------- ---------
$(4,704,772) 2,449,812 1,951,770
=========== ========= =========
</TABLE>
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $5,000,000 for Federal income tax purposes, which will expire
in 2012 if not utilized to offset future taxable earnings of the Company.
At December 31, 1997 and 1996, there was no valuation allowance recorded
for deferred tax assets. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. Based upon the nature of
the temporary differences and projections for future taxable income over
the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits
of these deductible differences.
(8) PENSION BENEFITS AND OTHER RETIREMENT PLANS
-------------------------------------------
The Company has a qualified noncontributory defined benefit pension plan
covering substantially all of its domestic employees. The benefits are
based on years of service and defined levels of compensation. The Company
makes annual contributions to the plan based on amounts determined by its
actuaries. The Company also has a nonqualified supplemental retirement plan
covering key employees, which is not funded.
The Company also maintains a defined benefit plan for substantially all
employees of its United Kingdom subsidiary. The plan is funded annually for
the maximum amount permitted by local statute. The benefits are based on
years of service and defined levels of compensation.
The following table sets forth the plans' funded status and amounts
recognized in the accompanying consolidated balance sheets at December 31,
1997 and 1996.
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1996
----------------------------- ---------------------------
United United
Domestic Kingdom Domestic Kingdom
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 7,611,427 1,876,415 7,020,864 1,944,989
Accumulated benefit obligation $ 7,717,737 2,056,478 7,136,559 2,109,029
Projected benefit obligation $ 8,621,944 2,645,455 8,055,925 2,620,021
Plan assets at fair value 7,433,877 2,459,837 6,730,352 2,305,726
----------- --------- --------- ---------
Projected benefit obligation in
excess of plan assets 1,188,067 185,618 1,325,573 314,295
Unrecognized net gain 109,991 - 11,911 -
----------- --------- --------- ---------
Total accrued pension benefits 1,298,058 185,618 1,337,484 314,295
Supplemental retirement plan
accrued liability 947,779 - 800,160 -
----------- --------- --------- ---------
Total accrued retirement benefits $ 2,245,837 185,618 2,137,644 314,295
=========== ========= ========= =========
</TABLE>
For the nonqualified supplemental retirement plan, the assumed discount
rate was 8% at December 31, 1997, 1996, and 1995. No salary increase was
assumed as the Company has frozen salaries at specified amounts. Net
periodic supplemental retirement plan expense included in the accompanying
consolidated statements of operations for the years ended December 31,
1997, 1996, and 1995 was approximately $148,000, $60,000, and $56,000,
respectively.
Net pension cost for the years ended December 31, 1997, 1996, and 1995
include the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------ ------------------------
United United United
Domestic Kingdom Domestic Kingdom Domestic Kingdom
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned
during the year $360,178 170,336 338,182 128,732 264,428 113,766
Interest cost on projected
benefit obligation 586,981 237,491 548,625 216,485 456,836 199,169
Actual return on plan assets (768,700) (220,822) (785,405) (190,516) (702,713) (136,114)
Net amortization and deferral 236,050 12,347 323,959 - 321,963 -
-------- -------- -------- -------- -------- --------
Net pension cost $414,509 199,352 425,361 154,701 340,514 176,821
======== ======== ======== ======== ======== ========
</TABLE>
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Assumptions used in accounting for the pension plans as of December 31,
1997, 1996, and 1995 were as follows:
<TABLE>
<CAPTION>
DOMESTIC UNITED KINGDOM
-------- --------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rates 7.5% 7.5 7.5 9.0 9.0 9.0
Rates of increase in compensation levels 4.5 4.5 4.5 8.0 8.0 8.0
Expected long-term rate of return on assets 8.0 8.0 8.0 9.0 9.0 9.0
</TABLE>
The Company also maintains the Willcox & Gibbs, Inc. Savings and Employee
Stock Ownership Plan to provide eligible employees with an opportunity to
purchase the Company's Class A common stock through payroll deductions,
which are matched by the Company, subject to certain limitations. The
purchase price is based on an independent appraisal of the value of the
Company's shares at the subscription date. The Company's matching
contributions vest at a rate of 20% for each year of service by the
employee, with 100% vesting after five years of service. The Company's
contribution to the plan, net of forfeitures, was approximately $304,000,
$305,000, and $272,000 for the years ended December 31, 1997, 1996, and
1995, respectively.
The Company also has a 401(k) profit sharing plan covering substantially
all full-time employees of Macpherson. The Company matches 25% of eligible
employees' contributions up to 4% of the eligible employees' compensation
for the year. The Company may make additional contributions to the plan at
the discretion of the Board of Directors. The contribution to the plan was
approximately $38,000 for the year ended December 31, 1997. On January 1,
1998, the Company merged this plan with the Willcox & Gibbs, Inc. Savings
and Employee Stock Ownership Plan.
(9) STOCKHOLDERS' EQUITY
--------------------
On July 13, 1994, the Company authorized 1,500,000 shares of Class A common
stock, no par value; 250,000 shares of Class B common stock, no par value;
and 250,000 shares of Class C common stock, no par value. All classes of
common stock have identical rights and privileges. Also on July 13, 1994,
the Company entered into a Stockholders' Agreement to sell 481,250 shares
of Class A common stock at $10 per share to certain investors and issued
detachable warrants for 122,970 shares of Class B common stock attached to
the 8% subordinated note to Rexel, Inc. (note 10) and 114,773 shares of
Class C common stock attached to the 12.95% senior note payable to its
principal lender (note 6). The warrants for the Class C shares are
exercisable at any time for nominal consideration, subject to certain
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
redemption provisions. As discussed in note 10, all of the warrants for the
Class B shares were repurchased and retired by the Company in 1995.
In February 1996, the Company issued additional detachable warrants for
32,985 shares of Class C common stock attached to the 10.98% senior note
payable to its principal lender (note 6). As part of the refinancing
discussed in note 6, warrants for 110,818 Class C shares were repurchased
and retired by the Company on January 3, 1997.
(10) TRANSACTION WITH FORMER STOCKHOLDER
-----------------------------------
On July 26, 1995, the Company retired its 8% subordinated note payable to
Rexel, Inc. and repurchased the associated detachable warrants and certain
other assets for $4,050,000 in cash. The Company also acquired the rights
to the Willcox & Gibbs, Inc. name as a result of this transaction and
changed the Company name from WG, Inc. effective January 1, 1996. The
purchase price was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
8% subordinated note $ 2,500,000
Common stock warrants 1,000,000
Trademark 250,000
Other assets 300,000
-----------
$ 4,050,000
===========
</TABLE>
As a result of the transaction, the Company recorded an extraordinary loss
from the extinguishment of debt (net of the income tax benefit of $92,901)
of $151,574 in the accompanying financial statements. The Company funded
the transaction with its revolving line of credit.
(11) STOCK OPTIONS
-------------
On August 15, 1994, the Company adopted the Willcox & Gibbs, Inc. Stock
Incentive Plan. Under the plan, options to purchase 41,250 shares were
authorized in 1994 to be granted to key employees of the Company and in
1997 an additional 12,000 shares were authorized to be issued. All options
granted through December 31, 1997 expire after ten years. The options are
exercisable and vest at a rate of 20% per year of service from date of
grant and are fully exercisable and vested after five years of service from
date of grant.
Pro forma information regarding net income (loss) and income (loss) per
share as required by Statement 123 has been determined as if the Company
had accounted for its employee stock options under the fair value method of
Statement 123. The fair value of these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Risk-free interest rate 6.00%
Dividend yield -
Volatility factor of expected market price 15.00%
Weighted-average expected life of option 8 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information for the year ended December 31, 1997
follows:
<TABLE>
<CAPTION>
<S> <C>
Net loss before pro forma effect of
compensation expense recognition provisions
of Statement 123 $(4,827,412)
Pro forma effect of compensation expense
recognition provisions of Statement 123 (47,369)
-----------
Pro forma net loss $(4,874,781)
===========
Pro forma net loss per share:
Basic $ (5.03)
====
Diluted $ (5.03)
====
</TABLE>
A summary of the Company's stock option activity and related information
for the years ended December 31, 1997, 1996, and 1995 is as follows:
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------- --------------------- ---------------------
Weighted-
Weighted- average Weighted- Weighted-
average remaining average average
exercise contract exercise exercise
Options price life (years) Options price Options price
------- --------- ------------ ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 36,500 $10.00 6.66 36,500 $10.00 36,500 $10.00
Granted 12,000 15.00 9.58 - - - -
Exercised - - - - - - -
Forfeited (700) 10.00 - - - - -
------ ----- ---- ------ ------ ------ ------
Outstanding - end of year 47,800 $10.61 7.40 36,500 $10.00 36,500 $10.00
====== ====== ==== ====== ====== ====== ======
Exercisable at end of year 21,800 $10.00 6.66 14,600 $10.00 7,300 $10.00
Weighted-average fair value of
options granted during year $15.00 N/A N/A
</TABLE>
(12) INCOME PER SHARE
----------------
The following table sets forth the computations of basic and diluted income
(loss) per share, before extraordinary item, for the years ended December
31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Numerator for basic and diluted earnings (loss)
per share $ (3,270,514) 1,313,127 1,394,257
============= ========= =========
Denominator:
Denominator for basic earnings (loss) per
share - weighted-average shares
outstanding 969,169 900,255 570,401
Effect of dilutive securities:
Employee stock options - 6,916 1,574
Warrants - 145,009 186,506
------------ --------- ---------
Denominator for diluted earnings (loss) per
share 969,169 1,052,180 758,481
============ ========= =========
Income (loss) per share - basic $ (3.37) 1.46 2.44
==== ==== ====
Income (loss) per share - diluted $ (3.37) 1.25 1.84
==== ==== ====
</TABLE>
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Employee stock options and warrants which were outstanding during 1997 were
excluded from the computation of diluted earnings (loss) per share because
the effect would be antidilutive.
(13) FOREIGN OPERATIONS
------------------
Following is a summary of geographic area information, as measured by the
locale of revenue-producing operations, for the years ended December 31,
1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales:
United States $163,188,037 101,022,121 79,381,846
United Kingdom 7,591,263 7,371,861 6,535,063
Latin America 9,552,261 5,457,276 4,514,522
------------ ----------- ----------
$180,331,561 113,851,258 90,431,431
============ =========== ==========
Net income (loss):
United States $ (5,685,902) 680,988 322,333
United Kingdom 138,424 301,818 429,264
Latin America 720,066 330,321 491,086
------------ ----------- ----------
$ (4,827,412) 1,313,127 1,242,683
============ =========== ==========
Identifiable assets:
United States $126,549,690 69,484,993 44,281,551
United Kingdom 7,535,673 7,110,908 6,333,340
Latin America 6,415,894 3,182,587 1,912,632
------------ ----------- ----------
$140,501,257 79,778,488 52,527,523
============ =========== ==========
</TABLE>
Export sales from the United States to unaffiliated customers were
approximately $33,100,000, $26,000,000, and $12,400,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
No provision is made for income taxes which may be payable if undistributed
earnings of foreign subsidiaries were to be paid as dividends to the
Company, since the Company intends that such earnings will continue to be
invested in those countries. Foreign tax credits may be available as a
reduction of United States income taxes in the event of such distributions.
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) SIGNIFICANT SUPPLIERS
---------------------
The Company is the exclusive distributor of genuine replacement parts in
the United States for Pfaff AG ("Pfaff"), a German sewing equipment
manufacturer, and for Pegasus Sewing Machine Mfg. Co., Ltd. ("Pegasus"), a
Japanese sewing equipment manufacturer. In December 1997, Pfaff gave the
Company notice that the exclusive distributor agreement will cease
effective December 31, 1998. The Company's distribution agreement with
Pegasus extends through 2000 and automatically renews for successive
two-year periods unless notice of termination is given at least one year
prior to December 31, 2000 or the end of any successive two-year period of
exclusivity. In order to maintain the exclusivity of the Pegasus
distribution agreement, the Company must meet certain performance targets.
Historically, the Company has generally satisfied these requirements,
although in certain prior years they were not satisfied and Pegasus waived
such shortfalls. During the years ended December 31, 1997 and 1996, the
Company's total purchases were approximately 4% and 6%, respectively, from
Pfaff and approximately 5% and 7%, respectively, from Pegasus.
In 1997, through its acquisition of Macpherson, the Company obtained
exclusive distribution rights in the United States and Canada for Barudan
embroidery machines under a distribution agreement among the Company,
Barudan Company, Ltd. ("Barudan"), and certain of its affiliates. The
distribution agreement is effective until December 31, 2003 and
automatically renews for a period of five years unless either party
terminates such agreement on not less than 30 days notice. During the year
ended December 31, 1997, approximately 26% of the Company's total purchases
were from Barudan and affiliated companies.
In 1996, through its acquisition of Clinton, the Company obtained exclusive
distribution rights in certain territories for M&R Printing Equipment, Inc.
("M&R"), a manufacturer of screen-printing equipment for the apparel
industry. The Company's distribution agreements with M&R were terminated
during 1997. During the years ended December 31, 1997 and 1996,
approximately 6% and 16%, respectively, of the Company's total purchases
were from M&R.
(15) COMMITMENTS
-----------
The Company has several noncancelable operating leases, primarily for
buildings and equipment. These leases generally contain renewal options for
periods ranging from three to seven years and require the Company to pay
most executory costs such as maintenance and insurance.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31,
1997 are approximately:
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998 $1,497,000
1999 965,000
2000 875,000
2001 745,000
2002 424,000
Thereafter 486,000
----------
$4,992,000
==========
</TABLE>
Total rental expense for the years ended December 31, 1997, 1996, and 1995
was approximately $2,043,000, $1,559,000, and $1,229,000, respectively.
(16) GUARANTOR SUBSIDIARIES
----------------------
Set forth below are condensed consolidating financial statements of the
subsidiaries of the Company that have fully and unconditionally, jointly
and severally guaranteed the Company's 12.25% Series B senior notes (the
"Guarantor Subsidiaries") and the nonguarantor subsidiaries of the Company
(the "Nonguarantor Subsidiaries"). Information with respect to the Company
(parent only) is not presented since it is a holding company with no
operations and no assets other than its investments in its subsidiaries. As
of the date of issuance of the 12.25% Series B senior notes, the Guarantor
Subsidiaries were WG Apparel, Inc.; Leadtec Systems, Inc.; J&E Sewing
Supplies, Inc.; W&G Daon, Inc; W&G Tennessee Imports, Inc.; Clinton
Management Corp.; Clinton Machinery Corporation; Clinton Leasing Corp.;
Clinton Equipment Corp.; Macpherson Meistergram, Inc.; and Paradise Color
Incorporated, and the Nonguarantor Subsidiaries were Willcox & Gibbs, Ltd.;
Sunbrand S.A. de C.V.; Sunbrand Caribe S.A.; Allied Machine Parts Ltd.;
M.E.C. (Sewing Machine Limited); Unity Sewing Supply Company (UK) Limited;
Allide Machine Parts Limited; Matyork Limited; Forest Needle Company
Limited; Morris & Ingram (Textiles) Limited; Eildon Electronics Limited;
and Geoffrey E. Macpherson Canada, Inc. The Guarantor Subsidiaries are
wholly owned by the Company, and there are no restrictions on the ability
of the Guarantor Subsidiaries to make distributions to the Company, except
those generally applicable under relevant corporation laws. Separate
financial statements of each Guarantor Subsidiary and the eliminating
entries have not been included because management believes that they are
not material to investors.
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
December 31, 1997
(amounts in thousands)
---------------------------------------------------
Guarantor Nonguarantor
Assets Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C>
Cash $ 1,254 71 1,325
Accounts receivable, net 33,208 5,257 38,465
Inventories 42,369 6,366 48,735
Other current assets 4,706 192 4,898
--------- ------ -------
Total current assets 81,537 11,886 93,423
Property and equipment, net 4,037 1,558 5,595
Intangible assets, net 36,289 - 36,289
Other assets 3,307 1,887 5,194
--------- ------ -------
$ 125,170 15,331 140,501
========= ====== =======
Liabilities and Stockholders' Equity
- ------------------------------------
Current notes and installments of long-term debt $ 10,798 413 11,211
Book overdrafts 3,233 - 3,233
Trade accounts payable 20,699 2,554 23,253
Income taxes payable - 24 24
Accrued liabilities and other current liabilities 5,823 1,538 7,361
--------- ------ -------
Total current liabilities 40,553 4,529 45,082
Long-term debt, excluding current installments 83,917 825 84,742
Other liabilities 2,228 362 2,590
--------- ------ -------
Total liabilities 126,698 5,716 132,414
--------- ------ -------
Common stock subject to put option 3,000 - 3,000
Common stock 9,013 - 9,013
Other equity (13,541) 9,615 (3,926)
--------- ------ -------
Total stockholders' equity (4,528) 9,615 5,087
--------- ------ -------
$ 125,170 15,331 140,501
========= ====== =======
</TABLE>
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
December 31, 1996
(amounts in thousands)
---------------------------------------------------
Guarantor Nonguarantor
Assets Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C>
Cash $ 343 539 882
Accounts receivable, net 18,941 3,395 22,336
Inventories 30,133 4,091 34,224
Other current assets 3,183 326 3,509
--------- ----- ------
Total current assets 52,600 8,351 60,951
Property and equipment, net 2,853 1,547 4,400
Intangible assets, net 13,383 - 13,383
Other assets 1,025 19 1,044
--------- ----- ------
$ 69,861 9,917 79,778
========= ===== ======
Liabilities and Stockholders' Equity
- ------------------------------------
Current notes and current installments of long-term debt $ 22,114 428 22,542
Trade accounts payable 13,429 844 14,273
Accrued liabilities 4,314 1,169 5,483
--------- ----- ------
Total current liabilities 39,857 2,441 42,298
Long-term debt 17,609 1,284 18,893
Other liabilities 2,910 - 2,910
--------- ----- ------
Total liabilities 60,376 3,725 64,101
--------- ----- ------
Common stock subject to put option 3,000 - 3,000
Common stock 8,763 - 8,763
Other equity (2,278) 6,192 3,914
--------- ----- ------
Total stockholders' equity 6,485 6,192 12,677
--------- ----- ------
$ 69,861 9,917 79,778
========= ===== ======
</TABLE>
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statements of Operations
<TABLE>
<CAPTION>
For the Year ended December 31, 1997
(amounts in thousands)
---------------------------------------------------
Guarantor Nonguarantor
Subsidiaries Subsidiaries Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 161,346 18,986 180,332
Cost of goods sold 113,493 12,080 125,573
--------- ------ -------
Gross profit 47,853 6,906 54,759
Selling, general, and administrative expenses 41,966 5,411 47,377
--------- ------ -------
Operating income 5,887 1,495 7,382
Interest expense (11,960) (181) (12,141)
Other, net (26) 81 55
--------- ------ -------
Income (loss) before income taxes and
extraordinary item
(6,099) 1,395 (4,704)
Income tax (benefit) expense (1,467) 33 (1,434)
--------- ------ -------
Income (loss) before extraordinary item (4,632) 1,362 (3,270)
--------- ------ -------
Extraordinary loss, net of income tax benefit (1,557) - (1,557)
--------- ------ -------
Net income (loss) $ (6,189) 1,362 (4,827)
========= ====== =======
</TABLE>
<TABLE>
<CAPTION>
For the Year ended December 31, 1996
(amounts in thousands)
---------------------------------------------------
Guarantor Nonguarantor
Subsidiaries Subsidiaries Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 100,995 12,856 113,851
Cost of goods sold 68,712 8,911 77,623
--------- ------ -------
Gross profit 32,283 3,945 36,228
Selling, general, and administrative expenses 25,661 3,308 28,969
--------- ------ -------
Operating income 6,622 637 7,259
Interest expense (4,602) (222) (4,824)
Other income, net (118) 133 15
--------- ------ -------
Income before income taxes 1,902 548 2,450
Income tax expense 940 197 1,137
--------- ------ -------
Net income $ 962 351 1,313
========= ====== =======
</TABLE>
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statements of Operations
<TABLE>
<CAPTION>
For the Year ended December 31, 1995
(amounts in thousands)
---------------------------------------------------
Guarantor Nonguarantor
Subsidiaries Subsidiaries Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 79,382 11,049 90,431
Cost of goods sold 53,287 7,355 60,642
-------- ------- ------
Gross profit 26,095 3,694 29,789
Selling, general, and administrative expenses 20,862 2,744 23,606
-------- ------- ------
Operating income 5,233 950 6,183
Interest expense (4,066) (183) (4,249)
Other income, net (180) 198 18
-------- ------- ------
Income before income taxes and extraordinary item 987 965 1,952
Income tax expense 254 304 558
-------- ------- ------
Income before extraordinary item 733 661 1,394
Extraordinary item, net (151) - (151)
-------- ------- ------
Net income $ 582 661 1,243
======== ======= ======
</TABLE>
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Cash Flows
<TABLE>
<CAPTION>
For the Year ended December 31, 1997
(amounts in thousands)
---------------------------------------------------
Guarantor Nonguarantor
Subsidiaries Subsidiaries Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities $ (8,132) 303 (7,829)
-------- ---- ------
Cash flows from investing activities:
Payment for business acquisitions (37,369) - (37,369)
Other changes (1,520) (339) (1,859)
-------- ---- ------
(38,889) (339) (39,228)
-------- ---- ------
Cash flows from financing activities:
Proceeds from debt issuance 94,532 - 94,532
Principal payments on debt (41,270) (412) (41,682)
Payments for financing costs (4,462) - (4,462)
Repurchase and retirement of warrant (3,026) - (3,026)
Other changes 2,159 - 2,159
-------- ---- ------
47,933 (412) 47,521
Effect of exchange rates - (20) (20)
-------- ---- ------
Net change in cash 912 (468) 444
Cash at beginning of period 342 539 881
-------- ---- ------
Cash at end of period $ 1,254 71 1,325
======== ==== ======
</TABLE>
(Continued)
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Consolidating Statement of Cash Flows
<TABLE>
<CAPTION>
For the Year ended December 31, 1996
(amounts in thousands)
---------------------------------------------------
Guarantor Nonguarantor
Subsidiaries Subsidiaries Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities $ 1,209 (1,462) (253)
-------- ------ -------
Cash flows from investing activities:
Payment for business acquisitions, net of assets
acquired (12,012) - (12,012)
Other changes (921) (250) (1,171)
-------- ------ -------
(12,933) (250) (13,183)
-------- ------ -------
Cash flows from financing activities:
Proceeds from debt issuance 10,906 1,604 12,510
Proceeds from sale of common stock 2,585 - 2,585
Other changes (1,739) - (1,739)
-------- ------ -------
11,752 1,604 13,356
-------- ------ -------
Effect of exchange rates - 42 42
-------- ------ -------
Net change in cash 28 (66) (38)
Cash at beginning of period 315 605 920
-------- ------ -------
Cash at end of period $ 343 539 882
======== ====== =======
</TABLE>
<TABLE>
<CAPTION>
For the Year ended December 31, 1995
(amounts in thousands)
---------------------------------------------------
Guarantor Nonguarantor
Subsidiaries Subsidiaries Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities $ 1,533 308 1,841
-------- --- -----
Cash flows from investing activities (670) (88) (758)
-------- --- -----
Cash flows from financing activities:
Proceeds from debt issuance 2,327 - 2,327
Payments on debt (3,875) - (3,875)
Proceeds from sale of common stock 1,795 - 1,795
Other changes (1,022) - (1,022)
-------- --- -----
(775) - (775)
-------- --- -----
Effect of exchange rates - (22) (22)
-------- --- -----
Net change in cash 88 198 286
Cash at beginning of period 227 407 634
-------- --- -----
Cash at end of period $ 315 605 920
======== === =====
</TABLE>
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
----------------------------
Balance at Charged to Allowance Deductions Balance at
Beginning Costs and of acquired From End
of Period Expenses subsidiaries Reserves of Period
----------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997: $ 2,419,000 1,594,000 780,000 478,000 4,315,000
Allowance for doubtful accounts =========== ========= ======= ======= =========
Year ended December 31, 1996: $ 1,596,000 267,000 746,000 190,000 2,419,000
Allowance for doubtful accounts =========== ========= ======= ======= =========
Year ended December 31, 1995: $ 2,002,000 580,000 - 986,000 1,596,000
Allowance for doubtful accounts =========== ========= ======= ======= =========
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------- ----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
<TABLE>
<CAPTION>
Age (as of Office & Principal Occupations
Name 12/31/97) During Last Five Years
- ----------------------- --------- ----------------------------------------
<S> <C> <C>
John K. Ziegler(1)(3) 60 Chairman of the Board, Chief Executive
Officer and a Director of the Company
(1994 to present); Chairman of the Board
and Chief Executive Officer of the
Company's Predecessor (1987 to 1994).
Maxwell L. Tripp(4) 58 President, Chief Operating Officer and a
Director of the Company (1997 to
present); Vice President of the Company
(1994-1997); President of Sunbrand
(1985-1997).
John K. Ziegler, Jr.(5) 29 Chief Financial Officer of the Company
(1995-to present); Treasurer and
Secretary of the Company (1994-1995);
CPA at Coopers & Lybrand (1990-1994).
Jack Klasky(6) 54 Vice President and a Director of the
Company (1994 to present); President of
Leadtec (1978 to present).
Alan B. Lee(7) 50 Vice President and a Director of the
Company (1994 to present); President of
Unity (1985 to present).
Mary-Anne Kieran 38 Secretary of the Company (1995 to
present); Secretary of the Company's
Predecessor (1992-1994).
<PAGE>
Age (as of Office & Principal Occupations
Name 12/31/97) During Last Five Years
- ----------------------- --------- ----------------------------------------
Marc Glazer(8) 36 Vice President of Operations/Domestic
Sales and a Director of the Company
(Feb. 1996 to present); Vice President
of Operations/Domestic Sales and a
Director of Clinton (1985-Feb. 1996)
Richard J. Mackey(1) 66
Director of the Company and Consultant
to the Company (1997 to present);
President and a Director of the Company
(1994-1996); Chairman of the Board and
Chief Financial Officer (August 1992 to
present) and Chief Executive Officer
(August 1992 to May 1994) of Worldtex,
Inc. (manufacturer of covered elastic
yarns and narrow elastic fabrics).
Christopher W. Roser(2) 39 Director of the Company (1994 to
present); General Partner of the Roser
Partnerships I, II and III (venture
capital partnerships) (1987 to present)
Frank E. Walsh, III(1)(2) 31 Director of the Company (1994 to
present); Vice President of Jupiter
Capital Management (a New Jersey
registered investment advisory firm)
(1991 to present); Director of
Dynamotion/ATI, a publicly traded
capital goods manufacturer for the
printed circuit board industry
- ------------------------
<FN>
(1) Member of the Compensation and Stock Incentive Committee of the Board of
Directors.
(2) Member of the Audit Committee of the Board of Directors.
<PAGE>
(3) Mr. Ziegler and WG Apparel are parties to an employment contract pursuant
to which WG Apparel employs Mr. Ziegler in an executive officer capacity.
See "Executive Compensation--Employment Contracts" below.
(4) Mr. Tripp and WG Apparel are parties to an employment contract pursuant to
which WG Apparel employs Mr. Tripp in an executive officer capacity. See
"Executive Compensation--Employment Contracts" below.
(5) Mr. Ziegler, Jr. and WG Apparel are parties to an employment contract
pursuant to which WG Apparel employs Mr. Ziegler, Jr. in an executive
officer capacity. See "Executive Compensation--Employment Contracts" below.
(6) Mr. Klasky, WG Apparel and Leadtec are parties to an employment contract
pursuant to which WG Apparel and Leadtec employ Mr. Klasky in an executive
officer capacity. See "Executive Compensation--Employment Contracts" below.
(7) Mr. Lee and WG Apparel are parties to an employment contract pursuant to
which WG Apparel employs Mr. Lee in an executive officer capacity. See
"Executive Compensation--Employment Contracts" below.
(8) Mr. Glazer and Clinton are parties to an employment contract pursuant to
which Clinton employs Mr. Glazer in an executive officer capacity. See
"Executive Compensation--Employment Contracts" below.
</FN>
</TABLE>
John K. Ziegler is the father of John K. Ziegler, Jr.
The officers of the Company are elected annually by the Board of Directors.
Mr. Glazer serves as a director of the Company pursuant to the terms of the
merger agreement relating to the Clinton Acquisition, which requires that a
nominee of the former shareholders of Clinton be elected as a director of the
Company through December 31, 2000.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
SUMMARY COMPENSATION. The following table sets forth certain
information concerning the compensation earned during the years ended December
31, 1997 and 1996 for the Chief Executive Officer of the Company and its four
other most highly compensated executive officers (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation All Other
---------------------------- Compensation
Name and Principal Position Year Salary Bonus (1)(2)
- ------------------------------------------------------------ -------- -------- ------------
<S> <C> <C> <C> <C>
John K. Ziegler.................................................. 1997 $246,631 (3) $3,000
Chairman of the Board, Chief Executive Officer 1996 200,000 $100,000 3,000
and Director
Jack Klasky...................................................... 1997 159,856 (3) 3,000
Vice President, President of Leadtec and Director.......... 1996 154,908 100,151 3,000
Maxwell L. Tripp................................................. 1997 155,728 (3) 3,000
Vice President, President of Sunbrand and Director 1996 124,840 105,910 3,000
Alan B. Lee...................................................... 1997 117,911 (3) 3,000
Vice President, President of Unity and Director 1996 110,000 36,000 3,000
John K. Ziegler, Jr.............................................. 1997 95,419 (3) 3,000
Chief Financial Officer 1996 88,422 25,000 3,000
- ------------------------
<FN>
(1) The aggregate amount of perquisites and other personal benefits, if any,
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each Named Executive Officer and has therefore been
omitted.
(2) Amounts shown reflect matching contributions made by the Company to the
Company's Savings and Employer Stock Ownership Plan, a defined contribution
plan, of $3,000 on behalf of the indicated Named Executive Officers.
(3) Bonus awards for 1997, if any, had not been determined as of the date of
the Annual Report on Form 10-K for 1997.
</FN>
</TABLE>
<PAGE>
AGGREGATED OPTIONS. The table below sets forth certain information
with respect to options held as of December 31, 1997 by each Named Executive
Officer.
<TABLE>
<CAPTION>
AGGREGATED FISCAL YEAR-END OPTIONS VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year-End (#) at Fiscal Year-End($)
------------------------------- ----------------------
Exercisable(E)/ Exercisable (E)/
Name Unexercisable (U) Unexercisable (U)
- ---------------------------------------- ------------------------------- ----------------------
<S> <C> <C>
John K. Ziegler......................... 2,400(E) $36,000
1,600(U) 24,000
Maxwell L. Tripp........................ 3,000(E) 45,000
2,000(U) 30,000
Jack Klasky............................. 3,000(E) 45,000
2,000(U) 30,000
Alan B. Lee............................. 3,000(E) 45,000
2,000(U) 30,000
John K. Ziegler, Jr..................... 1,200(E) 18,000
800(U) 12,000
</TABLE>
RETIREMENT PLAN. Under the Company's non-contributory retirement plan,
eligible employees will be entitled at the normal retirement age of 65 to an
annual retirement benefit equal to 1-(0)% of their earnings up to the maximum
earnings subject to Social Security withholding and 1% of all earnings in excess
of such amount but less than $228,400 (as adjusted annually for cost of living
increases) for each full year of service under the plan. Benefits under this
plan are 100% vested after five years of service. The estimated annual
retirement benefits payable under the plan formula described above at current
Social Security withholding rates, assuming that normal retirement occurs at age
65, to the Named Executive Officers are as follows: to Mr. Ziegler, $108,070; to
Mr. Tripp, $46,495; to Mr. Klasky, $41,125; to Mr. Lee $58,485; to Mr. Ziegler,
Jr., $59,668.
Under the Company's supplemental retirement plan, key employees
selected by the Compensation and Stock Incentive Committee (the "Committee") are
entitled to an amount, payable monthly over a ten-year period following any
specified event of retirement, death, disability or termination of employment,
equal to a percentage (up to 40%) determined by the Committee of the portion
(determined by the Committee) of the employee's base salary, (determined by the
Committee), multiplied by the employee's years of participation in the plan (not
exceeding 10). Thus, upon normal retirement at age 65 (or, if later, then years
as a participant), an employee receiving the maximum award possible under the
plan will receive a total retirement of 400% of base salary. If death or
disability occurs prior to age 65, the employee will receive a total death or
<PAGE>
disability benefit of up to 400% of base salary. After three full years as a
plan participant, 30% of the retirement benefit becomes vested and thereafter an
additional 10% of the retirement benefit vests for each additional full year of
service. Upon involuntary termination (other than for cause, a defined) of any
participant's employment or upon voluntary early retirement of any "designated
participant" selected by the Committee, a portion of the vested retirement
benefit will be paid which is in the same ratio to the full vested benefit as
the ratio of the total years worked for the Company to the total years which
would have been worked to age 65. Amounts representing annual accruals under the
plan have not been and cannot be readily calculated for individual participants.
Messrs. Ziegler, Tripp, Klasky, Lee and Ziegler, Jr. participate in the plan,
and are entitled to benefits of 40% of their base salary (determined by the
Committee) per year for 10 years.
EMPLOYMENT CONTRACTS
Mr. Ziegler and WG Apparel are parties to an employment contract
pursuant to which WG Apparel employs Mr. Ziegler in an executive officer
capacity for an indefinite period, subject to termination by WG Apparel upon not
less than one year written notice. The employment contract provides that Mr.
Ziegler shall serve as Chairman of the Board and Chief Executive Officer of WG
Apparel for so long as requested by WG Apparel's Board of Directors. Under the
employment contract, Mr. Ziegler is entitled to receive a base salary of no less
than $200,000 per annum and bonus or bonuses as may be provided by the
Compensation Committee of the Board of Directors of WG Apparel (the
"Compensation Committee") pursuant to WG Apparel's Incentive Compensation Plan
for Key Employees (the "WG Plan"), or any successor, replacement or additional
incentive plan, provided, however, that with respect to each annual amount
available for distribution, if any, Mr. Ziegler will receive no less than eight
percent (8%).
Mr. Tripp and WG Apparel are parties to an employment contract
pursuant to which WG Apparel employs Mr. Tripp in an executive officer capacity
for an indefinite period, subject to termination by WG Apparel upon not less
than one year written notice. The employment contract provides that Mr. Tripp
shall serve as a Vice President of WG Apparel and as President of Sunbrand for
so long as requested by WG Apparel's Board of Directors. Under the employment
contract, Mr. Tripp is entitled to receive a base salary of no less than
$115,000 per annum and bonus or bonuses as may be provided by the Compensation
Committee pursuant to the WG Plan, and Sunbrand's Incentive Compensation Plan,
or any successor, replacement or additional incentive plan, provided, however,
that with respect to each annual amount available for distribution, if any,
pursuant to the WG Plan, Mr. Tripp will receive no less than eight percent (8%)
and from Sunbrand's Incentive Compensation Plan, Mr. Tripp will receive no less
than thirty percent (30%) or such lessor amount as provided for under Sunbrand's
Incentive Compensation Plan.
Mr. Ziegler, Jr. and WG Apparel are parties to an employment contract
pursuant to which WG Apparel employs Mr. Ziegler, Jr. in an executive officer
capacity for an indefinite period, subject to termination by WG Apparel upon not
less than one year written notice. The employment contract provides that Mr.
Ziegler, Jr. shall serve as Controller and Secretary of WG Apparel for so long
<PAGE>
as requested by WG Apparel's Board of Directors. Under the employment contract,
Mr. Ziegler, Jr. is entitled to receive a base salary of no less than $60,000
per annum and bonus or bonuses as may be provided by the Compensation Committee
pursuant to the WG Plan, or any successor, replacement or additional incentive
plan, provided, however, that with respect to each annual amount available for
distribution, if any, pursuant to the WG Plan, Mr. Ziegler, Jr. will receive no
less than three percent (3%).
Mr. Klasky, WG Apparel and Leadtec are parties to an employment
contract pursuant to which WG Apparel and Leadtec employ Mr. Klasky in an
executive officer capacity for an indefinite period, subject to termination by
WG Apparel and Leadtec upon not less than one year written notice. The
employment contract provides that Mr. Klasky shall serve as a Vice President of
WG Apparel and as President of Leadtec for so long as requested by WG Apparel's
and Leadtec's Board of Directors. Under the employment contract, Mr. Klasky is
entitled to receive a base salary of no less than $150,000 per annum and bonus
or bonuses as may be provided by the Compensation Committee pursuant to the WG
Plan, and Leadtec's Incentive Compensation Plan, or any successor, replacement
or additional incentive plan, provided, however, that with respect to each
annual amount available for distribution, if any, pursuant to the WG Plan, Mr.
Klasky will receive no less than eight percent (8%) and from Leadtec's Incentive
Compensation Plan, Mr. Klasky will receive no less than twenty percent (20%).
Mr. Lee and WG Apparel are parties to an employment contract pursuant
to which WG Apparel employs Mr. Lee in an executive officer capacity for an
indefinite period, subject to termination by WG Apparel upon not less than one
year written notice. The employment contract provides that Mr. Lee shall serve
as a Vice President of WG Apparel and as President of Unity for so long as
requested by WG Apparel's Board of Directors. Under the employment contract, Mr.
Lee is entitled to receive a base salary of no less than $110,000 per annum and
bonus or bonuses as may be provided by the Compensation Committee pursuant to
the WG Plan and Unity's Incentive Compensation Plan, or any successor,
replacement or additional incentive plan, provided, however, that with respect
to each annual amount available for distribution, if any, pursuant to the WG
Plan, Mr. Lee will receive no less than eight percent (8%) and from Unity's
Incentive Compensation Plan, Mr. Lee will receive no less than one and three
quarters percent (1.75%).
Mr. Glazer and Clinton are parties to an employment contract pursuant
to which Clinton employs Mr. Glazer in an executive officer capacity for the
period commencing February 1, 1996 and ending December 31, 2000. The employment
contract provides that Mr. Glazer shall be employed as Vice President of
Clinton. Under the employment contract, Mr. Glazer is entitled to receive a
salary of $150,000 per annum.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Mackey, Ziegler and Walsh comprised the Compensation and Stock
Incentive Committee of the Board of Directors during 1997. During such time, Mr.
Ziegler was an officer of the Company, and Mr. Mackey was a consultant to the
Company and was paid a consulting fee of $45,000. Mr. Mackey served as President
of the Company from 1994 to 1996.
<PAGE>
COMPENSATION OF DIRECTORS
The Company does not pay fees to its directors for their services in
such capacity.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The following table sets forth certain information as of December 31,
1997 regarding the beneficial ownership of: (i) each class of the Company's
voting securities by each person who is known by the Company to be the
beneficial owner of more than 5% of any class of the Company's voting
securities, and (ii) each class of equity securities of the Company by (a) each
director of the Company, (b) each of the Named Executive Officers (as defined
under the heading "Executive Compensation"), and (c) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) CLASS(2)
- ------------------------------------ ------------------- --------
<S> <C> <C>
John K. Ziegler............................................ 118,469(3) 11.2%
c/o Willcox & Gibbs, Inc.
900 Milik Street
Carteret, New Jersey 07008
Richard J. Mackey.......................................... 66,958(4) 6.3
c/o Worldtex, Inc.
212 12th Avenue, N.E.
Hickory, North Carolina 28601
The Roser Partnership II, Ltd.............................. 65,483(5) 6.2
1105 Spruce Street
Boulder, Colorado 80302
Frank E. Walsh, III........................................ 130,965(6) 12.4
330 South Street
Morristown, New Jersey 07962
Marc Glazer................................................ 34,389 3.2
c/o Clinton Machinery & Supply Co.
5800 Miami Lakes Drive
Miami Lakes, Florida 33014
Jack Klasky................................................ 37,957(7) 3.6
c/o Leadtec Systems, Inc.
6800 Owensmouth Avenue
Suite 320
Canoga Park, California 91303
Alan B. Lee................................................ 14,150(8) 1.3
c/o Unity Sewing Supply Co.
900 Milik Street
Carteret, New Jersey 07008
<PAGE>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) CLASS(2)
- ------------------------------------ ------------------- --------
Maxwell L. Tripp........................................... 44,986(9) 4.2
c/o Sunbrand
3900 Green Industrial Way
Atlanta, Georgia 30341
John K. Ziegler, Jr........................................ 8,878(10) 0.8
c/o Willcox & Gibbs, Inc.
900 Milik Street
Carteret, New Jersey 07008
Company's Savings and Employee Stock Ownership Plan........ 208,669 19.7
Riggs Bank N.A., as Trustee
808 17th St., N.W.
Washington, D.C. 20006
All directors and executive officers of the Company as a
group (10 persons)......................................... 730,904(11) 68.9
- -----------------------
<FN>
(1) The persons included in the table had sole voting and investment power with
respect to shares reported as beneficially owned, except as otherwise
indicated in the following notes. The table includes shares beneficially
owned through the Company's Savings and Employee Stock Ownership Plan as of
December 31, 1997.
(2) Percentages are calculated by dividing (x) shares in the "Number of Shares"
column by (y) the sum of shares outstanding on December 31, 1997 and the
shares which a particular owner (or group of owners) has a right to acquire
within 60 days of such dates.
(3) Included 16,730 shares of common stock held by Mr. Ziegler as trustee for
the benefit of his wife, as to which Mr. Ziegler shares voting and
investment power, and 2,400 shares for which options are presently
exercisable.
(4) Included 1,200 shares for common stock for which options are presently
exercisable.
(5) Christopher W. Roser, a director of the Company, is a principal of the
general partner of the Roser Partnership II, Ltd.
(6) Includes 130,965 shares of common stock held by the WG Trust under which an
uncle of Mr. Walsh acts as trustee and holds voting and investment power.
Mr. Walsh is a beneficiary of such trust.
(7) Includes 3,000 shares of common stock for which options are presently
exercisable.
(8) Includes 3,000 shares of common stock for which options are presently
exercisable.
(9) Includes 3,000 shares of common stock for which options are presently
exercisable.
(10) Includes 1,200 shares of common stock for which options are presently
exercisable.
(11) Includes 13,800 shares of common stock for which options are presently
exercisable.
</FN>
</TABLE>
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------- ---------------------------------------------------------------
FINANCIAL STATEMENTS AND SCHEDULES
- ----------------------------------
The financial statements and financial statement schedules included in
this Report are listed in the introductory portion of Item 8.
EXHIBITS
- --------
The following exhibits are filed as part of this Report (for
convenience of reference, exhibits are listed according to numbers assigned in
the exhibit tables of Item 601 of Regulation S-K under the Securities Exchange
Act of 1934 and management contracts or compensatory plans are indicated by an
asterisk):
INDEX TO EXHIBITS
- -----------------
EXHIBIT DESCRIPTION
NUMBER -----------
------
2.1 Stock Purchase Agreement, dated November 27, 1996, among WG
Apparel, Inc., Willcox & Gibbs, Inc. and Macpherson Meistergram,
Inc., Geoffrey E. Macpherson Canada, Inc., Neil A. Macpherson,
Bridget Macpherson, Bridget Macpherson as Trustee under the Mark
Edward Macpherson Trust Agreement, dated February 1, 1982, Ouida
B. Brown as Trustee under the Mark Edward Macpherson Trust No. 2,
Bridget M. Macpherson as Trustee under the Katherine Emma
Macpherson Trust Agreement, dated February 1, 1982, Ouida B.
Brown as Trustee under the Katherine Emma Macpherson Trust No. 2,
and Neil A. Macpherson as Trustee under the Nicholas Ian
Macpherson Trust Agreement -- Filed as Exhibit 2.1 to the
Company's Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
3.1 Second Amended and Restated Certificate of Incorporation of
Willcox & Gibbs, Inc. -- Filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
3.2 Bylaws of Willcox & Gibbs, Inc. -- Filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
<PAGE>
EXHIBIT DESCRIPTION
NUMBER -----------
------
4.1 Indenture, dated as of January 3, 1997, by and among Willcox &
Gibbs, Inc., WG Apparel, Inc., Clinton Management Corp., Clinton
Machinery Corporation, Leadtec Systems, Inc., W&G Daon, Inc., J&E
Sewing Supplies, Inc., W&G Tennessee Imports, Inc., Clinton
Leasing Corp., Clinton Equipment Corp., Paradise Color Corp.
(collectively, the "Subsidiary Guarantors"), and IBJ Schroder
Bank & Trust Company, as Trustee, with respect to the 12(0)%
Senior Notes due 2003 -- Filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
4.2 Supplemental Indenture, dated as of January 3, 1997, by and among
Willcox & Gibbs, Inc., the Subsidiary Guarantors and IBJ Schroder
Bank & Trust Company, as Trustee -- Filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
4.3 Pledge and Security Agreement, dated January 3, 1997, between WG
Apparel, Inc. and IBJ Schroder Bank & Trust Company, as Trustee
-- Filed as Exhibit 4.5 to the Company's Registration Statement
on Form S-4 (No. 333-24507) and incorporated herein by reference.
4.4 Form of New Note -- Included in Exhibit 4.1.
10.1 Agreement to Purchase Stock, dated November 27, 1996, of
Embroidery Leasing Company, between Michael Bennett and WG
Apparel, Inc. -- Filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
10.2 Amendment No. 1, dated December 17, 1996, to Merger Agreement
among Willcox & Gibbs, Inc., Clinton Machinery Corporation, WG
Apparel, Inc., Frank Scannavino, Charles Nall and Marc Glazer --
Filed as Exhibit 10.2 to the Company's Registration Statement on
Form S-4 (No. 333-24507) and incorporated herein by reference.
10.3 Financing and Security Agreement, dated December 17, 1996, among
WG Apparel, Inc., Willcox & Gibbs, Inc., Leadtec Systems, Inc.,
Clinton Management Corp., Clinton Machinery Corporation and
Macpherson Meistergram, Inc., as Borrowers, and NationsBank,
N.A., as Lender -- Filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
10.4 First Amendment to Financing and Security Agreement, dated April
23, 1997, among WG Apparel, Inc., Willcox & Gibbs, Inc., Leadtec
Systems Inc., Clinton Management Corp., Clinton Machinery
Corporation, Macpherson Meistergram, Inc., as Borrowers, and
NationsBank, N.A., as Lender -- Filed as Exhibit 10.35 to the
Company's Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference
<PAGE>
EXHIBIT DESCRIPTION
NUMBER -----------
------
10.5 Termination of Security Agreement, dated January 3, 1997, among
Willcox & Gibbs, Inc., Clinton Machinery Corporation, WG Apparel,
Inc., Frank Scannavino, Charles Nall and Marc Glazer -- Filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-4
(No. 333-24507) and incorporated herein by reference.
10.6 Employment Agreement, dated February 1, 1996, among Clinton
Machinery Corp. and Clinton Management Corp. and Frank Scannavino
-- Filed as Exhibit 10.5 to the Company's Registration Statement
on Form S-4 (No. 333-24507) and incorporated herein by
reference.*
10.7 Employment Agreement, dated February 1, 1996, among Clinton
Machinery Corp. and Clinton Management and Marc Glazer -- Filed
as Exhibit 10.6 to the Company's Registration Statement on Form
S-4 (No. 333-24507) and incorporated herein by reference.*
10.8 Employment Agreement, dated February 1, 1996, among Clinton
Machinery Corp. and Clinton Management Corp. and Charles Nall --
Filed as Exhibit 10.7 to the Company's Registration Statement on
Form S-4 (No. 333-24507) and incorporated herein by reference.*
10.9 Employment Agreement, dated June 27, 1994, between WG Apparel,
Inc. and Alan B. Lee -- Filed as Exhibit 10.8 to the Company's
Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.*
10.10 Employment Agreement, dated June 27, 1994, between WG Apparel,
Inc. and John K. Ziegler, Sr. -- Filed as Exhibit 10.9 to the
Company's Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.*
10.11 Employment Agreement, dated June 27, 1994, among WG Apparel,
Inc., WG Leadtec of Delaware, Inc. and Jack Klasky -- Filed as
Exhibit 10.10 to the Company's Registration Statement on Form S-4
(No. 333-24507) and incorporated herein by reference.*
10.12 Employment Agreement, dated June 27, 1994, between WG Apparel,
Inc. and Maxwell Tripp -- Filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.*
10.13 Pegasus Sewing Machine Mfg. Co., Ltd. Distribution Agreement,
dated January 1, 1995, between Pegasus Sewing Machine Mfg. Co.,
Ltd. and WG, Inc., as amended as of June 8, 1995 -- Filed as
Exhibit 10.12 to the Company's Registration Statement on Form S-4
(No. 333-24507) and incorporated herein by reference.
10.14 GM Pfaff AG Distribution Agreement, dated October 1, 1994,
between GM Pfaff AG and WG, Inc. -- Filed as Exhibit 10.13 to the
Company's Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
<PAGE>
EXHIBIT DESCRIPTION
NUMBER -----------
------
10.15 Distribution Agreement, dated October 15, 1997, between MHM
Siebdruckmashinen Gesmbh. KG. and Clinton Machinery Corp. --
Filed herewith.
10.16 Distribution Agreement, dated June 27, 1996, among Rhein-Nadel
Maschinennadel Gmbh, Muva Maschinennadel Gmbh, WG, Inc., Unity
Sewing Supply Co. and Sunbrand, as amended as of October 4, 1996.
-- Filed as Exhibit 10.16 to the Company's Registration Statement
on Form S-4 (No. 333-24507) and incorporated herein by reference.
10.17 Second Revision of Fundamental Barudan Agreements and Contracts,
dated November 27, 1996, among Barudan Company, Ltd., Barudan
America, Inc. and Macpherson Meistergram, Inc. as amended by
letter agreement dated December 4, 1996 -- Filed as Exhibit 10.17
to the Company's Registration Statement on Form S-4 (No.
333-24507) and incorporated herein by reference.
10.18 Revision of Fundamental Agreements and Contracts, dated June 1,
1994, among Barudan Company, Ltd., Barudan America, Inc. and
Macpherson Meistergram, Inc. -- Filed as Exhibit 10.18 to the
Company's Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
10.19 Distribution Agreement, dated November 7, 1985, among Barudan
Company, Ltd., Barudan America, Inc. and Macpherson Meistergram,
Inc. -- Filed as Exhibit 10.19 to the Company's Registration
Statement on Form S-4 (No. 333-24507) and incorporated herein by
reference.
10.20 Asset Purchase Agreement, dated October 1996, between E.C.
Mitchell Co. Inc., Everett Mitchell, as Seller, and WG Apparel,
Inc., as Buyer -- Filed as Exhibit 10.20 to the Company's
Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
10.21 Loan Agreement, dated October 1996, between W&G, Ltd., as
Borrower, and Coutts & Co., as Lender -- Filed as Exhibit 10.21
to the Company's Registration Statement on Form S-4 (No.
333-24507) and incorporated herein by reference.
10.22 Consulting Agreement, dated January 3, 1997, between Macpherson
Meistergram, Inc. and Neil A. Macpherson -- Filed as Exhibit
10.22 to the Company's Registration Statement on Form S-4 (No.
333-24507) and incorporated herein by reference.*
10.23 Employment Agreement, dated January 3, 1997, between Macpherson
Meistergram, Inc. and Jerry Lee -- Filed as Exhibit 10.23 to the
Company's Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.*
<PAGE>
EXHIBIT DESCRIPTION
NUMBER -----------
------
10.24 Employment Agreement, dated January 3, 1997, between Macpherson
Meistergram, Inc. and Ronald P. Emerman -- Filed as Exhibit 10.24
to the Company's Registration Statement on Form S-4 (No.
333-24507) and incorporated herein by reference.*
10.25 Employment Agreement, dated January 3, 1997, between Macpherson
Meistergram, Inc. and Jeffrey L. Hickman -- Filed as Exhibit
10.25 to the Company's Registration Statement on Form S-4 (No.
333-24507) and incorporated herein by reference.*
10.26 Employment Agreement, dated January 3, 1997, between Macpherson
Meistergram, Inc. and Jacob G. Bumm -- Filed as Exhibit 10.26 to
the Company's Registration Statement on Form S-4 (No. 333-24507)
and incorporated herein by reference.*
10.27 Employment Agreement, dated January 3, 1997, between Macpherson
Meistergram, Inc. and Steven C. Edwards -- Filed as Exhibit 10.27
to the Company's Registration Statement on Form S-4 (No.
333-24507) and incorporated herein by reference.*
10.28 Warrant Redemption Agreement, dated December 17, 1996, among
Willcox & Gibbs, Inc., NationsCredit Commercial Corporation and
Bank of America Illinois -- Filed as Exhibit 10.28 to the
Company's Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
10.29 Fundamental Agreement, dated October 1, 1986, among Barudan Co.,
Ltd., Geoffrey E. Macpherson Ltd. and Macpherson Inc.-- Filed as
Exhibit 10.29 to the Company's Registration Statement on Form S-4
(No. 333-24507) and incorporated herein by reference.
10.30 Employment Agreement, dated June 27, 1994, between WG Apparel,
Inc. and John K. Ziegler, Jr. -- Filed as Exhibit 10.30 to the
Company's Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.*
10.31 Amendment No. 2 to Warrantholders Rights Agreement, dated January
3, 1997, among Willcox & Gibbs, Inc., the Stockholders and
Warrantholders -- Filed as Exhibit 10.31 to the Company's
Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
10.32 Amendment No. 1 to Warrantholders Rights Agreements, dated
February 1, 1996, among Willcox & Gibbs, Inc., the Stockholders
and Warrantholders -- Filed as Exhibit 10.32 to the Company's
Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
<PAGE>
EXHIBIT DESCRIPTION
NUMBER -----------
------
10.33 Warrantholders Rights Agreement, dated July 13, 1994, among
Investors, Stockholders and Warrantholders -- Filed as Exhibit
10.33 to the Company's Registration Statement on Form S-4 (No.
333-24507) and incorporated herein by reference.
10.34 Form of Warrant -- Filed as Exhibit 10.34 to the Company's
Registration Statement on Form S-4 (No. 333-24507) and
incorporated herein by reference.
21.1 Subsidiaries of Willcox & Gibbs, Inc. -- Filed as Exhibit 21.1 to
the Company's Registration Statement on Form S-4 (No. 333-24507)
and incorporated herein by reference.
24.1 Powers of Attorney of certain directors and officers of the
Company -- Filed herewith.
27.1 Financial Data Schedule -- Filed with EDGAR copy only.
8-K REPORTS
- -----------
No Current Report on Form 8-K was filed during the fourth quarter of
1997.
<PAGE>
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.
Dated: March 31, 1998
WILLCOX & GIBBS, INC.
By: /s/ John K. Ziegler
------------------------------------
John K. Ziegler
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 31, 1998 by the following persons on
behalf of the registrant and in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/ John K. Ziegler Chairman, Chief Executive Officer,
- --------------------------------------- Director and attorney-in-fact for
John K. Ziegler persons indicated by an asterisk
(Principal Executive Officer)
Maxwell L. Tripp* President, Chief Operating Officer
- --------------------------------------- and Director
Maxwell L. Tripp
John K. Ziegler, Jr.* Chief Financial Officer (Principal
- --------------------------------------- Financial and Accounting Officer)
John K. Ziegler, Jr.
Jack Klasky* Vice President and Director
- ---------------------------------------
Jack Klasky
Alan B. Lee* Vice President and Director
- ---------------------------------------
Alan B. Lee
<PAGE>
SIGNATURE TITLE
--------- -----
Richard J. Mackey* Director
- ---------------------------------------
Richard J. Mackey
Marc Glazer* Director
- ---------------------------------------
Marc Glazer
Christopher W. Roser* Director
- ---------------------------------------
Christopher W. Roser
Frank E. Walsh, III* Director
- ---------------------------------------
Frank E. Walsh, III
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy material has been sent to security holders.
DISTRIBUTION AGREEMENT
This AGREEMENT is made as of October 15, 1997, between MHM
Siebdruckmaschinen Gesmbh. KG., ("MHM") an Austrian corporation and its
affiliates, and Willcox & Gibbs, Inc. ("WG") a Delaware corporation and its
affiliates.
This Agreement shall take effect as of this date to govern the
distribution by WG in all countries in North America, Middle (Central) America,
South America (except Brazil) and the Caribbean Basin (the "Territory") of all
new screen printing machines ("Machines") and all spare or replacement parts
("Parts") for machines and related accessories and attachments manufactured or
sold by MHM and its Affiliates (collectively known as "Products").
1. APPOINTMENT
-----------
1.1 Subject to the terms and conditions of this Agreement, MHM grants
to WG the exclusive right to promote and sell new Machines and Products and a
non exclusive right to sell Parts in the Territory.
For purposes of this Agreement, an "Affiliate" of a person shall mean: (i) a
corporation when more than 5% of the outstanding voting shares or total
outstanding shares is owned directly or indirectly by one of the partners of
this agreement, or (ii) a partnership, trust or other entity when the person
controls such entity or has any equity interest therein greater than 5%.
1.2 Except for replacement parts, used machines, dryers and automatic
screen printing machines with a base retail price under $45,000 which are not
manufactured by MHM, during the exclusive term of this Agreement, WG and its
Affiliates shall not engage in the sale or distribution of competitive Machines.
Used Machines are machines that have been use at customers for at least six
months.
If there any customers in the Territory who want to purchase
Products only from MHM, than MHM will inform WG about these customers and inform
WG further about the purchase price for these customers. If the purchase price
is equal or below the purchase price the purchase price that WG would offer
those customers, then MHM has the right to sell Products to customers within the
Territory. In such cases MHM will pay WG 50% of the profit MHM makes out of
these transactions.
Furthermore MHM has the right to control all of its Machines,
their installation and there adjustment on the site of the customer. WG will be
notified of these controls by MHM. Also these controls will be made only by a
technician of MHM.
Subject to the exceptions contained in this Agreement, during the
exclusive term of this Agreement WG and its Affiliates shall not directly or
indirectly (by equity or management participation, beneficial ownership,
<PAGE>
contract arrangement or otherwise) contribute to, participate in or furnish
material goods or information for the selling, offering for sale or distribution
of competitive Products in the Territory, and shall each use its best efforts to
prevent any such sale, offer or distribution, other than by WG. Without
limitation, WG and its Affiliates shall not so contribute to, participate in, or
furnish material goods or information for the selling, offering for sale or
distribution of competitive Products in the Territory other than under the
Trademarks.
2. TERMS OF SALE
-------------
2.1 MHM shall provide WG such technical assistance and such printed
material (including operating and service manuals and sales literature) as may
be reasonably required by WG in the promotion, sale and servicing of Products.
Technical assistance shall mean telephone assistance for service problems and
on-site assistance for assembly of Machines and Products until such time as WG
employees are qualified to provide said service. WG will pay all traveling
expenses (including airfares, motel and daily food allowance of $33 per day) for
MHM employees traveling out of the office of MHM. After the period of training
WG will pay for all expenses of MHM employees who provide any service.
2.2 WG shall purchase Machines, Parts and Products in US Dollars
("USD") at the wholesale price list (copy of current price list attached as
Exhibit "A") published by MHM ("Trader Price"), F.O.B. the factor in Kufstein,
Austria. WG will bear the cost of transportation, custom duties, etc. Prices are
subject to change from time to time by MHM on 120 days' written notice prior to
the effective date of any such change. Price changes shall apply to orders
submitted after the expiration of the 120-day period.
Changes in the USD rate in relation to the ATS that exceed 5% will
give MHM, upon notice, the right to immediate changes in its Trader Prices on
all orders submitted by WG after notice from MHM.
2.3 MHM shall grant credit terms to WG as follows:
For the period ending twelve months after the date of this
agreement, terms will be as follows:
Down payment 20%
Credit terms 60 days
The down payment will be due and payable at the time the order is
submitted by W&G. 60 days after shipment from Kufstein, Austria, the balance of
the purchase price is due and payable (i.e.) the sum of 80% of the purchase
price has to be paid within 60 days upon delivery to carrier in Kufstein).
For subsequent periods:
Down payment 0%
<PAGE>
Credit terms 60 days for Products sold in the USA
90 days for Products sold outside the USA
The credit terms of 60 or 90 days indicated above will be due and
payable, as mentioned above, will start with delivery to carriers in Kufstein,
Austria.
Notwithstanding the agreed credit terms indicated above, the total
credit to be extended by MHM (unless the excess is covered by irrevocable
Letters of Credit) will not exceed $500,000 (the "Credit Limit"). MHM therefore
has the right to stop deliveries until the total amount owed by WG is less than
$500,000 or the Credit Limit. It is the intention of the parties to review the
Credit Limit quarterly, starting with the beginning of 1999, then the Credit
Limit can be increased, as required by the agreed credit terms, as far as the
credit (soundness) of WG is given and no other important reasons on the side of
MHM contradict this increase.
2.4 MHM hereby extends to WG MHM's standard warranty included in MHM's
General Terms and Conditions of Sale as indicated in the attached Exhibit B with
respect to Products. MHM disclaims, both under this Agreement and in connection
with any sales pursuant hereto, in all express and implied warranties, including
any warranties of merchantability and fitness for purpose, other than those
express warranties specifically stated in MHM's then current standard warranty,
and MHM further excludes all remedies other than those specifically set forth in
such standard warranty. Under all circumstances special consequential, punitive,
and all other similar damages are excluded. WG agrees that it shall not give any
warranty or remedy in regard to Products that is any longer in duration or
broader in scope than such MHM's warranty without the prior written approval of
MHM. Warranty for customers, domestic & international will begin from the date
customer receives machine.
MHM's General Terms and Condition of Sale as indicated in the
attached Exhibit B are an integral part of this agreement and are in full force,
so far as there are not changes insofar stated explicitly within this agreement.
Any warranty of MHM, that goes beyond the warranty, as stated in MHM's General
Terms and Condition of Sale, shall be excluded.
2.5 If WG does not pay in the agreed time for payment as indicated in
Paragraph 2.4, MHM will have the right to stop all deliveries of goods to WG.
The further delivery of goods by MHM shall only take place when the unsettled
accounts are paid. WG recognizes that any warranty claims against MHM do not
entitle WG to stop payment to MHM or to compensate with claims by MHM and that
WG is furthermore not entitled to offset any claims by WG whatsoever against
delivery claims of MHM.
3. TRADEMARKS, TRADENAMES AND PATENTS
----------------------------------
3.1 MHM grants to WG the right and license to use in the Territory,
without right of sublicense, all of the following now or hereafter during the
term of the Agreement owned or possessed by MHM:
(i) all trademarks that are used in the manufacture, promotion or
sale of Products ("Trademarks");
<PAGE>
(ii) the trademarks that are used in the manufacture, promotion or
sale of Products ("Tradenames"); and
(iii) all patents and patent applications relating to the
manufacture, use or sale of Products ("Patents");
but only for the purpose of promoting and selling Machines and Products in the
Territory and for no other purpose. The foregoing shall not constitute an
assignment of the Trademarks, Tradenames or Patents.
3.2 WG may place the Trademarks and Tradenames on its stationery,
catalogues, promotional literature, advertising material and signs, but only in
connection with the promotion, sale and servicing of Machines and Products in
the Territory and only during the continuance of this agreement.
4. RESPONSIBILITIES OF WG
----------------------
WG will use its best effort to perform the following:
4.1 Provide quarterly Machine and Product sales projections
(forecasts) to MHM in advance;
4.2 Maintain an inventory of an adequate number of MHM Machines to
satisfy sales and delivery needs;
4.3 Provide sufficient resources for advertising, promotion (including
trade shows) and marketing of MHM Machines and Products in order
to achieve sales goals. Pay 60% of the cost of booth space for up
to 5 international trade shows in the USA and 4 international
trade shows outside the USA pay 100% of all other expenses related
to said international trade shows. MHM shall pay the 40% balance
for booth space.
4.4 Provide sufficient resources for the training and servicing of MHM
Machines sold in the Territory;
4.5 Maintain an inventory of spare parts which is adequate to satisfy
the service needs of customers;
4.6 Work closely with MHM to provide the highest degree of quality and
service to the end user. WG will be solely responsible for
providing service to the end user except as otherwise stated
herein;
4.7 Provide MHM with the names and addresses of all customers after
delivery to these customers.
<PAGE>
5. RESPONSIBILITIES OF MHM
-----------------------
MHM will use its best efforts to perform the following:
5.1 Provide sales and service training to WG employees. For a period
of one year or until such time as WG employees are qualified,
service training shall include the on-site assembly of Machines
delivered to customers. WG shall pay for all traveling expenses of
these MHM employees for outside the office of MHM (including
airfare, motel and daily food allowance of $33 per day);
5.2 Maintain an inventory of Machines and Products equal to the
greater of 6 machines or two average months' supply based on WG's
latest six months purchases. Machines in transit shall be
considered inventory. This clause shall take effect only six
months after the beginning of this agreement, i.e. from the
seventh month after the beginning of this agreement.
5.3 Inventory spare parts in sufficient quantity to satisfy service
needs;
5.4 Deliver goods according to the date of delivery, as published by
MHM (confirmation of order), in a timely manner;
5.5 Provide a complete list of current MHM customers and prospective
customers in the Territory and forward all sales leads directly to
WG for follow-up and sale.
6. TERMINATION
-----------
6.1 Except as stated herein, this Agreement shall continue in full
force and effect on an exclusive basis until December 31, 2002. It shall
automatically be renewed on such exclusive basis for successive periods of two
years each, unless one of the parties to this Agreement gives written notice of
termination to the other at least six (6) months prior to the expiration of said
initial period or any successive two-year period, whichever is applicable.
6.2 MHM shall have the right to terminate this Agreement upon 30 days
prior written notice given within days after the end of any calendar year ending
after January 1, 1999, if in the calendar year in question WG failed to purchase
Machines and Products having an aggregate Trader Price, based upon the invoice
price set forth on this invoice from MHM to WG (without consideration of any
charges for taxes, freight, shipping costs, or the like), (the "Purchase Price")
equal to the amounts set forth below:
<TABLE>
<CAPTION>
Number of
Machines Purchase Price
<S> <C> <C>
14 months ended Dec. 31, 1998 40 $2,500,000
12 months ended Dec. 31, 1999 60 3,750,000
12 months ended Dec. 31, 2000 80 5,000,000
12 months ended Dec. 31, 2001 90 5,805,000
12 months ended Dec. 31, 2002 100 6,250,000
</TABLE>
<PAGE>
If MHM exercises its right to terminate this agreement as provided in
this Section 6.2, and WG fails to purchase Machines during each 30 day
period included in the 120 day period mentioned above in at least the
same quantity purchased in the prior year period, MHM will be entitled
to distribute Machines in the territory through other distributors or
directly by MHM.
For purposes of this Section 6.2:
(i) Machines and Products purchased during a calendar year shall
mean Machines and Products actually invoiced by MHM during such year
plus Machines and Products on order as of October 1 of such year but
not delivered during the year, provided, however, that such ordered
but not delivered Machines and Products shall not be included in the
calculation of purchases the following year.
(ii) If purchases of Machines and Products by WG during the
calendar year immediately preceding the calendar year in question
exceeded the amount of purchases required for such year in order to
meet the aforesaid purchases of Machines and Products, the amount of
such excess may be carried forward and applied as a credit against the
purchase requirement for the subsequent calendar year or years.
6.3 Notwithstanding the provisions of Section 6.2, MHM, beginning with
the first quarter of 1999, shall have the right to terminate this agreement upon
written notice given within 30 days after the end of each quarter in which WG
fails to order Machines and Products with a Purchase price of $900,000 per
quarter.
6.4 Notwithstanding the provisions of Sections 6.2 and 6.3, MHM shall
have the right to terminate this agreement with immediate effect upon written
notice if WG fails to pay MHM on the due date (i.e., within 14 days upon written
demand for payment). WG recognizes that MHM has the right to charge 15% interest
if WG fails to pay on the due date.
6.5 This Agreement may be terminated by the aggrieved party
immediately upon written notice to the other ("Defaulting Party") in the event
that after the date hereof the Defaulting Party commits a material breach or
default under this Agreement, which breach or default shall not be remedied
within 30 days after giving of notice thereof to the Defaulting Party.
6.6 Upon termination of this Agreement, MHM is entitled to restrict or
even stop entirely deliveries of Machines and Products to WG, including
deliveries on orders already received at the time of notice of termination.
However, MHM is required to make Products available to WG in order to enable WG
to maintain its own delivery commitments existing before termination becomes
effective subject to proof of being given by WG to MHM.
6.7 Upon termination of this Agreement, all of WG's rights with
respect to the Trademarks shall immediately cease, and MHM shall repurchase all
new spare parts held by WG. MHM shall pay 50% of the selling price for the new
spare parts. WG shall pay the freight charges incurred in returning the said
<PAGE>
spare parts to MHM. WG shall return to MHM all unused advertising and printed
matter which had been provided by MHM. WG shall have no further right to use the
designation "MHM" in any manner.
6.8 Neither party hereto is under any obligation to continue this
Agreement in effect, nor to continue the legal and contractual arrangement
established hereunder, after termination of this Agreement in accordance with
this Article 6. Both parties recognize the necessity of making expenditures in
performing and in preparing this Agreement. The parties nevertheless agree that
neither party shall be liable to the other for termination of this Agreement in
accordance with this Article 6, including, but not limited to, for loss or
damage due to investments, leases and sales, and advertising and promotional
activities, whether incurred in connection with the preparation to perform or
the performance of this Agreement or in the expectation of its renewal or
extension.
7. NON-COMPETITION
---------------
Subject to the exceptions contained in Section 1, during the
exclusive term of this Agreement MHM and its Affiliates shall not directly or
indirectly (by equity or management participation, beneficial ownership,
contract arrangement or otherwise) contribute to, participate in or furnish
material goods or information for the selling, offering for sale or distribution
of Products in the Territory, and shall each use its best efforts to prevent any
such sale, offer or distribution, other than by WG. Without limitation, MHM and
its Affiliates shall not so contribute to, participate in, or furnish material
goods or information for the selling, offering for sale or distribution of
Machines and Products in the Territory other than under one of the Trademarks.
8. MISCELLANEOUS PROVISIONS
------------------------
8.1 Neither of the parties hereto shall be responsible for or liable
to the other party for any damages or loss of any kind, directly or indirectly
resulting from fire, flood, explosion, riot, rebellion, revolution, war, labor
trouble (whether or not due to the fault of either party), requirements or acts
of any government or subdivision thereof, mechanical breakdown or any other
cause beyond the reasonable control of the party. The occurrence and the
termination of such force majeure shall be promptly communicated to the other
party.
8.2 All notices, requests, demands, and other communications hereunder
shall be in writing and shall be given by delivery against receipt, by facsimile
transmission, by telex or by registered or certified mail, postage prepaid,
addressed as follows, or such other address or person as a party may designate
by notice to the other party hereunder:
<TABLE>
<CAPTION>
(i) If to WG, to: (ii) If to MHM, to:
<S> <C>
Willcox & Gibbs, Inc. MHM Siebdruckmaschinen Gesmbh KG.
900 Milik Street Trutweinstrasse 2
Carteret, New Jersey 07008 A-6330 Kufstein
United States of America Austria
</TABLE>
<PAGE>
Communications hereunder by facsimile transmission or telex shall be deemed
given at the time of transmission and communications hereunder by mail shall be
deemed given ten (10) days after the date of registration or certification.
8.3 This Agreement shall be governed by the laws of Austria. All
disputes arising out of this contract or related to its violation, termination
or nullity shall be finally settled under the Rules of Arbitration and
Conciliation of the International Arbitral Centre of the Austrian Federal
Economic Chamber in Vienna (Vienna Rules) by one or more arbitrators appointed
in accordance with these rules.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day first above written.
MHM Siebdruckmaschinen Gesmbh KG Willcox & Gibbs, Inc.
By:______________________________ By:______________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director
and/or officer of Willcox & Gibbs, Inc. (the "Corporation"), does hereby
constitute and appoint John K. Ziegler, John K. Ziegler, Jr. and Mary-Anne
Kieran, and each of them, his true and lawful attorney to execute in his name,
place and stead in such capacity or capacities (whether on behalf of the
Corporation, or as a director and/or officer of the Corporation, or otherwise),
any and all instruments which said attorney or attorneys may deem necessary or
advisable in order to enable the Corporation to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, pertaining to annual reports of the
Corporation on Form 10-K and amendments thereof, including without limitation,
power and authority to sign his name (whether on behalf of the corporation, or
as a director and/or officer of the Corporation, or by attesting the seal of the
Corporation, or otherwise) to any such annual reports on Form 10-K, and any
amendments thereof, and other documents in connection therewith, and to file any
of the aforementioned documents with the Securities and Exchange Commission,
said attorney to have full power and authority to do and perform in the name and
on behalf of the undersigned, every act whatsoever necessary or advisable to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned has signed his name hereto on the
date set opposite his name.
Dated: March 24, 1998
/S/ MAXWELL L. TRIPP
--------------------------------
Maxwell L. Tripp
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director
and/or officer of Willcox & Gibbs, Inc. (the "Corporation"), does hereby
constitute and appoint John K. Ziegler, John K. Ziegler, Jr. and Mary-Anne
Kieran, and each of them, his true and lawful attorney to execute in his name,
place and stead in such capacity or capacities (whether on behalf of the
Corporation, or as a director and/or officer of the Corporation, or otherwise),
any and all instruments which said attorney or attorneys may deem necessary or
advisable in order to enable the Corporation to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, pertaining to annual reports of the
Corporation on Form 10-K and amendments thereof, including without limitation,
power and authority to sign his name (whether on behalf of the corporation, or
as a director and/or officer of the Corporation, or by attesting the seal of the
Corporation, or otherwise) to any such annual reports on Form 10-K, and any
amendments thereof, and other documents in connection therewith, and to file any
of the aforementioned documents with the Securities and Exchange Commission,
said attorney to have full power and authority to do and perform in the name and
on behalf of the undersigned, every act whatsoever necessary or advisable to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned has signed his name hereto on the
date set opposite his name.
Dated: March 24, 1998
/S/ JOHN K. ZIEGLER, JR.
--------------------------------
John K. Ziegler, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director
and/or officer of Willcox & Gibbs, Inc. (the "Corporation"), does hereby
constitute and appoint John K. Ziegler, John K. Ziegler, Jr. and Mary-Anne
Kieran, and each of them, his true and lawful attorney to execute in his name,
place and stead in such capacity or capacities (whether on behalf of the
Corporation, or as a director and/or officer of the Corporation, or otherwise),
any and all instruments which said attorney or attorneys may deem necessary or
advisable in order to enable the Corporation to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, pertaining to annual reports of the
Corporation on Form 10-K and amendments thereof, including without limitation,
power and authority to sign his name (whether on behalf of the corporation, or
as a director and/or officer of the Corporation, or by attesting the seal of the
Corporation, or otherwise) to any such annual reports on Form 10-K, and any
amendments thereof, and other documents in connection therewith, and to file any
of the aforementioned documents with the Securities and Exchange Commission,
said attorney to have full power and authority to do and perform in the name and
on behalf of the undersigned, every act whatsoever necessary or advisable to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned has signed his name hereto on the
date set opposite his name.
Dated: 3/20/98
/S/ JACK KLASKY
--------------------------------
Jack Klasky
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director
and/or officer of Willcox & Gibbs, Inc. (the "Corporation"), does hereby
constitute and appoint John K. Ziegler, John K. Ziegler, Jr. and Mary-Anne
Kieran, and each of them, his true and lawful attorney to execute in his name,
place and stead in such capacity or capacities (whether on behalf of the
Corporation, or as a director and/or officer of the Corporation, or otherwise),
any and all instruments which said attorney or attorneys may deem necessary or
advisable in order to enable the Corporation to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, pertaining to annual reports of the
Corporation on Form 10-K and amendments thereof, including without limitation,
power and authority to sign his name (whether on behalf of the corporation, or
as a director and/or officer of the Corporation, or by attesting the seal of the
Corporation, or otherwise) to any such annual reports on Form 10-K, and any
amendments thereof, and other documents in connection therewith, and to file any
of the aforementioned documents with the Securities and Exchange Commission,
said attorney to have full power and authority to do and perform in the name and
on behalf of the undersigned, every act whatsoever necessary or advisable to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned has signed his name hereto on the
date set opposite his name.
Dated: March 24, 1998
/S/ ALAN B. LEE
--------------------------------
Alan B. Lee
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director
and/or officer of Willcox & Gibbs, Inc. (the "Corporation"), does hereby
constitute and appoint John K. Ziegler, John K. Ziegler, Jr. and Mary-Anne
Kieran, and each of them, his true and lawful attorney to execute in his name,
place and stead in such capacity or capacities (whether on behalf of the
Corporation, or as a director and/or officer of the Corporation, or otherwise),
any and all instruments which said attorney or attorneys may deem necessary or
advisable in order to enable the Corporation to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, pertaining to annual reports of the
Corporation on Form 10-K and amendments thereof, including without limitation,
power and authority to sign his name (whether on behalf of the corporation, or
as a director and/or officer of the Corporation, or by attesting the seal of the
Corporation, or otherwise) to any such annual reports on Form 10-K, and any
amendments thereof, and other documents in connection therewith, and to file any
of the aforementioned documents with the Securities and Exchange Commission,
said attorney to have full power and authority to do and perform in the name and
on behalf of the undersigned, every act whatsoever necessary or advisable to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned has signed his name hereto on the
date set opposite his name.
Dated: March 24, 1998
/S/ RICHARD J. MACKEY
--------------------------------
Richard J. Mackey
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director
and/or officer of Willcox & Gibbs, Inc. (the "Corporation"), does hereby
constitute and appoint John K. Ziegler, John K. Ziegler, Jr. and Mary-Anne
Kieran, and each of them, his true and lawful attorney to execute in his name,
place and stead in such capacity or capacities (whether on behalf of the
Corporation, or as a director and/or officer of the Corporation, or otherwise),
any and all instruments which said attorney or attorneys may deem necessary or
advisable in order to enable the Corporation to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, pertaining to annual reports of the
Corporation on Form 10-K and amendments thereof, including without limitation,
power and authority to sign his name (whether on behalf of the corporation, or
as a director and/or officer of the Corporation, or by attesting the seal of the
Corporation, or otherwise) to any such annual reports on Form 10-K, and any
amendments thereof, and other documents in connection therewith, and to file any
of the aforementioned documents with the Securities and Exchange Commission,
said attorney to have full power and authority to do and perform in the name and
on behalf of the undersigned, every act whatsoever necessary or advisable to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned has signed his name hereto on the
date set opposite his name.
Dated: 3/18/98
/S/ MARC GLAZER
--------------------------------
Marc Glazer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director
and/or officer of Willcox & Gibbs, Inc. (the "Corporation"), does hereby
constitute and appoint John K. Ziegler, John K. Ziegler, Jr. and Mary-Anne
Kieran, and each of them, his true and lawful attorney to execute in his name,
place and stead in such capacity or capacities (whether on behalf of the
Corporation, or as a director and/or officer of the Corporation, or otherwise),
any and all instruments which said attorney or attorneys may deem necessary or
advisable in order to enable the Corporation to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, pertaining to annual reports of the
Corporation on Form 10-K and amendments thereof, including without limitation,
power and authority to sign his name (whether on behalf of the corporation, or
as a director and/or officer of the Corporation, or by attesting the seal of the
Corporation, or otherwise) to any such annual reports on Form 10-K, and any
amendments thereof, and other documents in connection therewith, and to file any
of the aforementioned documents with the Securities and Exchange Commission,
said attorney to have full power and authority to do and perform in the name and
on behalf of the undersigned, every act whatsoever necessary or advisable to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned has signed his name hereto on the
date set opposite his name.
Dated: 3/25/98
/S/ CHRISTOPHER ROSER
--------------------------------
Christopher Roser
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director
and/or officer of Willcox & Gibbs, Inc. (the "Corporation"), does hereby
constitute and appoint John K. Ziegler, John K. Ziegler, Jr. and Mary-Anne
Kieran, and each of them, his true and lawful attorney to execute in his name,
place and stead in such capacity or capacities (whether on behalf of the
Corporation, or as a director and/or officer of the Corporation, or otherwise),
any and all instruments which said attorney or attorneys may deem necessary or
advisable in order to enable the Corporation to comply with the Securities
Exchange Act of 1934, as amended, and any requirements of the Securities and
Exchange Commission in respect thereof, pertaining to annual reports of the
Corporation on Form 10-K and amendments thereof, including without limitation,
power and authority to sign his name (whether on behalf of the corporation, or
as a director and/or officer of the Corporation, or by attesting the seal of the
Corporation, or otherwise) to any such annual reports on Form 10-K, and any
amendments thereof, and other documents in connection therewith, and to file any
of the aforementioned documents with the Securities and Exchange Commission,
said attorney to have full power and authority to do and perform in the name and
on behalf of the undersigned, every act whatsoever necessary or advisable to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned has signed his name hereto on the
date set opposite his name.
Dated: 3/24/98
/S/ FRANK E. WALSH, III
--------------------------------
Frank E. Walsh, III
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM WILLCOX &
GIBBS, INC. FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,325
<SECURITIES> 0
<RECEIVABLES> 38,466
<ALLOWANCES> 4,315
<INVENTORY> 48,735
<CURRENT-ASSETS> 93,424
<PP&E> 5,595
<DEPRECIATION> 2,670
<TOTAL-ASSETS> 140,501
<CURRENT-LIABILITIES> 45,083
<BONDS> 84,742
0
0
<COMMON> 9,013
<OTHER-SE> (3,926)
<TOTAL-LIABILITY-AND-EQUITY> 140,501
<SALES> 180,332
<TOTAL-REVENUES> 180,332
<CGS> 125,573
<TOTAL-COSTS> 125,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,120
<INTEREST-EXPENSE> 12,142
<INCOME-PRETAX> (4,705)
<INCOME-TAX> (1,434)
<INCOME-CONTINUING> (3,271)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,557)
<CHANGES> 0
<NET-INCOME> (4,827)
<EPS-BASIC> (4.98)
<EPS-DILUTED> (4.98)
</TABLE>
