<PAGE>
SIGNAL APPAREL COMPANY, INC.
200-A MANUFACTURERS ROAD
CHATTANOOGA, TENNESSEE 37405
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 30, 1997
------------------------
Notice is hereby given that the Annual Meeting of Shareholders of Signal
Apparel Company, Inc. (the "Company") will be held at 200-A Manufacturers Road,
Chattanooga, Tennessee, on December 30, 1997, at 1:00 p.m. for the following
purposes:
1. To elect seven directors;
2. To approve the amendment, described in the accompanying proxy statement,
to the Company's 1985 Stock Option Plan to increase the number of shares of the
Company's Common Stock issuable thereunder from 1,910,000 to 4,000,000;
3. To approve the issuance of warrants to purchase up to 4,500,000 shares
of the Company's Common Stock to WGI, LLC in connection with certain additional
funding and waivers under the Credit Agreement between the Company and WGI, LLC
as described in the accompanying proxy statement;
4. To approve the issuance of an additional 15,473,220 shares of the
Company's Common Stock in connection with the Company's plan to restructure its
presently outstanding debt and preferred stock;
5. To approve the amendment, described in the accompanying proxy statement,
to the Company's Restated Articles of Incorporation increasing the number of
authorized shares of Common Stock from 40,000,000 to 80,000,000;
6. To approve the issuance of warrants to purchase 250,000 shares of the
Company's Common Stock to a director/consultant of the Company, as described in
the accompanying proxy statement;
7. To approve the issuance of warrants to purchase 10,000 shares of the
Company's Common Stock to another director of the Company, as described in the
accompanying proxy statement;
8. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed November 20, 1997, as the record date for
the determination of shareholders entitled to vote at the Annual Meeting and to
receive notice thereof. The Board of Directors recommends that shareholders vote
FOR each of Proposals 1 through 7 described above. Directors Leon Ruchlamer and
Jacob I. Feigenbaum abstained from voting on the Board's approval and
recommendation to the Company's shareholders with respect to Proposals 6 and 7
(concerning the issuance to Messrs. Ruchlamer and Feigenbaum, respectively, of
warrants to purchase Common Stock). Directors Paul R. Greenwood and Stephen
Walsh abstained from voting on the Board's approval and recommendation to the
Company's shareholders with respect to Proposal 3 and the issuance of shares of
the Company's Common Stock to WGI, LLC under Proposal 4, due to the fact that
Messrs. Walsh and Greenwood are managers of WGI, LLC.
Shareholders are cordially invited to attend the meeting in person. IF YOU
CANNOT ATTEND, PLEASE RECORD YOUR VOTE AND SIGN AND DATE THE ACCOMPANYING PROXY
WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND RETURN IT IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
Robert J. Powell
SECRETARY
Chattanooga, Tennessee
December 12, 1997
<PAGE>
SIGNAL APPAREL COMPANY, INC.
CHATTANOOGA, TENNESSEE 37405
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 30, 1997
---------------------
This Proxy Statement, which is to be mailed on or about December 12, 1997,
is furnished to shareholders on behalf of the Board of Directors for
solicitation of proxies for use at the Annual Meeting of Shareholders of Signal
Apparel Company, Inc. (the "Company") to be held on December 30, 1997, at 1:00
p.m., and at all adjournments thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders. Any proxy given pursuant
to this solicitation may be revoked by the person giving it at any time before
it is exercised by giving written notice to the Secretary of the Company.
The cost of this solicitation will be paid by the Company. In addition to
solicitation by mail, certain officers, directors and other employees of the
Company, who will receive no additional compensation for their services, may
solicit proxies by telephone, telegraph or personal call. The Company has
engaged Corporate Communications, Inc. to distribute soliciting material to
shareholders of record and to solicit brokers and other persons holding shares
beneficially owned by others to procure from such beneficial owners consents to
the execution of proxies. In addition to a fee of approximately $4,000 to be
paid to Corporate Communications, Inc., the Company will reimburse brokers and
others for their expense in sending proxy material to beneficial owners.
On November 20, 1997, the outstanding securities of the Company consisted of
17,063,240 shares of Common Stock, par value $.01 per share; 327.087 shares of
Series A Preferred Stock, stated value $100,000 per share; and 283.928 shares of
Series C Preferred Stock, stated value $100,000 per share. Each outstanding
share of the Common Stock is entitled to one vote per share on each matter to be
brought before the Annual Meeting. Neither the Series A Preferred Stock nor the
Series C Preferred Stock is entitled to vote on any matter scheduled to be
brought before the Annual Meeting.
Shares represented at the Annual Meeting by properly executed proxies will
be voted in accordance with the instructions indicated in the proxies unless
such proxies have previously been revoked. Shares represented by duly executed
proxies on which no instructions are indicated will be voted (i) FOR electing
the Board of Directors' seven nominees for director; (ii) FOR amending the
Company's 1985 Stock Option Plan to increase the number of issuable shares
thereunder from 1,910,000 to 4,000,000; (iii) FOR approving the issuance of
warrants to purchase up to 4,500,000 shares of the Company's Common Stock to
WGI, LLC in connection with certain additional funding and waivers under the
Credit Agreement between the Company and WGI, LLC; (iv) FOR approving the
issuance of an additional 15,473,220 shares of the Company's Common Stock in
connection with the Company's plan to restructure its presently outstanding debt
and preferred stock; (v) FOR amending the Company's Restated Articles of
Incorporation increasing the number of authorized shares of Common Stock from
40,000,000 to 80,000,000; (vi) FOR approving the issuance of 250,000 warrants to
purchase the Company's Common Stock to a certain director/consultant; and (vii)
FOR approving the issuance of warrants to purchase 10,000 shares of the
Company's Common Stock to another director of the Company.
Any proxy given pursuant to this solicitation may be revoked at any time by
the shareholder giving it, insofar as it has not been exercised, by delivering
to the Secretary of the Company a written notice of revocation bearing a later
date than the proxy or by submission of a later-dated, properly executed proxy.
Attendance at the Annual Meeting will not, in and of itself, constitute a
revocation of a proxy. Any written notice revoking a proxy should be sent to
Signal Apparel Company, Inc., 200-A Manufacturers Road, Chattanooga, Tennessee
37405, Attention: Robert J. Powell, Secretary.
1
<PAGE>
The Board of Directors expects all nominees named below to be available for
election. In case any nominee is not available, the proxy holders may vote for a
substitute. The Company knows of no specific matter to be brought before the
meeting that is not referred to in the Notice of Meeting or this Proxy
Statement. Regulations of the Securities and Exchange Commission permit the
proxies solicited pursuant to this Proxy Statement to confer discretionary
authority with respect to matters of which the Company did not know a reasonable
time before the meeting. Accordingly, the proxy holders may use their
discretionary authority to vote with respect to any such matter pursuant to the
proxy solicited hereby.
The persons designated by the Board of Directors as proxy holders in the
accompanying form of proxy are Robert J. Powell and David E. Houseman, officers
of the Company. The cost of solicitation of proxies will be borne by the
Company.
The presence, in person or by proxy, of the holders of a majority of the
votes eligible to be cast by the holders of the outstanding shares of Common
Stock entitled to vote is necessary to constitute a quorum at the Annual
Meeting. Directors are elected by a plurality of the votes cast by the shares
entitled to vote in the election at which a quorum is present. Approval of all
other Proposals requires the affirmative vote of the majority of the votes cast
by the shares entitled to vote in the election at which a quorum is present.
Abstentions and broker non-votes are counted as present for determination of a
quorum, but are not counted as affirmative or negative votes on any item to be
voted upon and are not counted in determining the number of shares voted on any
item.
The Board of Directors has been informed that WGI, LLC intends to vote a
total of 8,607,349 shares of the Company's Common Stock which it holds
(representing approximately 50.4% of the votes eligible to be cast by holders of
the Company's outstanding shares of Common Stock): (i) FOR electing the Board of
Directors' seven nominees for director; (ii) FOR amending the Company's 1985
Stock Option Plan to increase the number of issuable shares thereunder from
1,910,000 to 4,000,000; (iii) FOR approving the issuance of warrants to purchase
up to 4,500,000 shares of the Company's Common Stock to WGI, LLC in connection
with certain additional funding and waivers under the Credit Agreement between
the Company and WGI, LLC; (iv) FOR approving the issuance of an additional
15,473,220 shares of the Company's Common Stock in connection with the Company's
plan to restructure its presently outstanding debt and preferred stock; (v) FOR
amending the Company's Restated Articles of Incorporation increasing the number
of authorized shares of Common Stock from 40,000,000 to 80,000,000; (vi) FOR
approving the issuance of 250,000 warrants to purchase the Company's Common
Stock to a certain director/consultant; and (vii) FOR approving the issuance of
warrants to purchase 10,000 shares of the Company's Common Stock to another
director of the Company. Accordingly, it is anticipated that each of Proposals 1
through 7 will receive all required approvals from the Company's shareholders at
the 1997 Annual Meeting.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE VOTED UPON
Messrs. Walsh and Greenwood, both directors of the Company, are the managers
of WGI, LLC. Both Messrs. Walsh and Greenwood abstained when the Board voted
upon approval of the warrant that is the subject of Proposal 3. The Board of
Directors believes that the proposed issuance of such warrant to WGI, LLC is
fair and reasonable as additional compensation for the benefits provided to the
Company by WGI, LLC as described more fully in the discussion of Proposal 3.
Accordingly, the Board of Directors believes that the issuance of warrants is
fair to, and in the best interest of, the Company and its shareholders.
Due to their status as managers of WGI, LLC, Messrs. Walsh and Greenwood
also abstained when the Board voted upon approval of the issuance of shares of
the Company's Common Stock in connection with the Restructuring Plan described
in Proposal 4. The Board of Directors believes that the Restructuring Plan
(including such issuance of shares) is necessary to enable the Company to
continue to operate as a going concern while implementing management's
turnaround strategy for the Company's business. As discussed in greater detail
under Proposal 4 herein, the Board of Directors does not believe, given the
Company's current financial condition, that additional bank financing could be
obtained or that any other
2
<PAGE>
commercially reasonable alternatives to this Restructuring Plan would be
available to the Company for achieving a similar increase in its overall equity
and reduction in its level of indebtedness and ongoing interest expense.
Accordingly, the Board of Directors believes that the issuance of 15,473,220
shares of the Company's Common Stock in connection with the Restructuring Plan
is fair to, and in the best interest of, the Company and its shareholders.
Messrs. Ruchlamer and Feigenbaum, both directors of the Company, abstained
when the Board voted upon approval of the issuance of warrants to purchase
shares of the Company's Common Stock to each of them (Proposals 6 and 7,
respectively). In light of the Company's current financial situation, the Board
of Directors believes that the issuance of these warrants in lieu of cash
payments for services as described in Proposals 6 and 7 is fair to, an in the
best interest of, the Company and its shareholders.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's equity securities as of November 20, 1997, by each
shareholder that the Company knows to own beneficially more than 5% of the
issued and outstanding shares of the Company's Common Stock, each director of
the Company, each nominee for director, each Named Executive (as defined herein)
and by the directors and Named Executives of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP(1) PERCENT OF CLASS
- -------------------------------------- -------------------------------------- ---------------------- -----------------
<S> <C> <C> <C>
FS Signal Associates, L.P.; Common Stock $.01 par value 8,514,282 39.8%
FS Signal Associates II, L.P.;
FS Signal, Inc.; and Kevin S. Penn, as Series A Preferred Stock $100,000 327.087 100.0%
a group stated value
65 E. 55th St., 18th Floor
New York, New York 10022(2) Series C Preferred Stock $100,000 105.959 37.3%
stated value
Kevin S. Penn Common Stock $.01 par value 8,514,282 39.8%
65 E. 55th St., 18th Floor
New York, New York 10022 (2) Series A Preferred Stock $100,000 327.087 100.0%
stated value
Series C Preferred Stock $100,000 105.959 37.3%
stated value
FS Signal, Inc. 65 E. 55th St., 18th Common Stock $.01 par value 8,214,282 38.9%
Floor
New York, New York 10022(2)(3) Series A Preferred Stock $100,000 327.087 100.0%
stated value
Series C Preferred Stock $100,000 105.959 37.3%
stated value
FS Signal Associates, L.P. Common Stock $.01 par value 3,715,983 20.9%
c/o Kenneth Musen
157 Church Street, Box 426 Series C Preferred Stock $100,000 96.584 34.0%
New Haven, Connecticut 06502(2)(4) stated value
FS Signal Associates II, L.P. Common Stock $.01 par value 4,498,299 22.1%
c/o Kenneth Musen
157 Church Street, Box 426 Series A Preferred Stock $100,000 327.087 100.0%
New Haven, Connecticut 06502(2)(5) stated value
Series C Preferred Stock $100,000 9.375 3.3%
stated value
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP(1) PERCENT OF CLASS
- -------------------------------------- -------------------------------------- ---------------------- -----------------
<S> <C> <C> <C>
WGI, LLC Common Stock $.01 par value 8,952,349 51.4%
One East Putnam Avenue
Greenwich, Connecticut 06830(6) Series C Preferred Stock $100,000 177.969 62.7%
stated value
Kidd, Kamm Equity Partners, L.P. Common Stock $.01 par value 1,046,300 6.1%
Three Pickwick Plaza
Greenwich, Connecticut 06830
Barton J. Bresky Common Stock $.01 par value -- --
Jacob I. Feigenbaum Common Stock $.01 par value -- --
Paul R. Greenwood(6) Common Stock $.01 par value 8,952,349 51.4%
Series C Preferred Stock $100,000 177.969 62.7%
stated value
Leon Ruchlamer(7) Common Stock $.01 par value 100,000 *
Stephen Walsh (6) Common Stock $.01 par value 8,952,349 51.4%
Series C Preferred Stock $100,000 177.969 62.7%
stated value
William H. Watts Common Stock $.01 par value -- --
David E. Houseman(8) Common Stock $.01 par value 55,000 *
Bruce E. Krebs Common Stock $.01 par value -- --
Leslie W. Levy(9) Common Stock $.01 par value 32,778 *
Thomas A. McFall Common Stock $.01 par value -- --
Robert J. Powell(7) Common Stock $.01 par value 125,000 *
John W. Prutch Common Stock $.01 par value -- --
All directors and executive Common Stock $.01 par value 9,215,127 52.2%
officers as a group(10)
</TABLE>
- ------------------------
* Less than 1%
5
<PAGE>
NOTES TO TABLE OF BENEFICIAL OWNERSHIP
(1) As of November 20, 1997, the Company had issued and outstanding 17,063,240
shares of Common Stock, 327.087 shares of Series A Preferred Stock and
283.928 shares of Series C Preferred Stock. In general, a person is deemed
to be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or direct the voting of
such security, or "investment power," which includes the power to dispose
of or to direct the disposition of such security, or if a person has the
right to acquire either voting power or investment power over such security
through the exercise of an option or the conversion of another security
within 60 days. More than one person may be a beneficial owner of the same
security, and a person may be deemed to be a beneficial owner of securities
as to which he has no personal economic interest or which he may not vote.
In the case of persons who hold options or warrants to purchase shares of
Common Stock that are exercisable either immediately or within 60 days of
November 20, 1997, the shares of Common Stock represented thereby have been
treated as outstanding for purposes of calculating the ownership totals and
percentages (and the percentage of voting power) for only the persons
holding such options and warrants, and have not otherwise been treated as
outstanding shares.
(2) FS Signal Associates, L.P. ("FS Signal"); FS Signal Associates II, L.P.
("FS Signal II"); FS Signal, Inc. ("FSSI"); and Kevin S. Penn ("Penn") have
filed a report, as a group, on Schedule 13D disclosing their various
relationships. Such persons may be deemed to be a group for purposes of the
beneficial ownership of the securities disclosed in the table, although
they disclaim membership in a group. The 8,514,282 shares of Common Stock
include (i) 2,980,983 shares of Common Stock held directly by FS Signal;
(ii) 1,185,799 shares of Common Stock held directly by FS Signal II; (iii)
warrants held directly by FS Signal to acquire 735,000 shares of Common
Stock; (iv) warrants held directly by FS Signal II to acquire 3,312,500
shares of Common Stock; and (v) warrants held directly by Penn to acquire
300,000 shares of Common Stock. The 327.087 shares of Series A Preferred
Stock are held directly by FS Signal II. The 105.959 shares of Series C
Preferred Stock include (i) 96.584 shares of Series C Preferred Stock held
directly by FS Signal and (ii) 9.375 shares of Series C Preferred Stock
held directly by FS Signal II. The reporting persons may be deemed to be
members of a group and, accordingly, could each be deemed to have
beneficial ownership (by virtue of Rule 13(d)-5) of all shares of Common
Stock, Series A Preferred Stock and Series C Preferred Stock held directly
by the various members of the group. Except as disclosed herein, no other
entity or person that may be deemed to be a member of the group holds
direct beneficial ownership of any Common Stock, Series A Preferred Stock
or Series C Preferred Stock. Penn is the President of FSSI, which is the
general partner of both FS Signal and FS Signal II. Both FS Signal and FS
Signal II are limited partnerships. Pursuant to both the bylaws of FSSI and
an understanding among the limited partners of FS Signal and FS Signal II,
Penn, as President of FSSI, has the sole voting and investment power over
the securities held by both limited partnerships.
(3) As the general partner of both FS Signal Associates, L.P. ("FS Signal") and
FS Signal Associates II, L.P. ("FS Signal II"), FS Signal, Inc. ("FSSI")
may be deemed to be the beneficial owner of (i) 2,980,983 shares of Common
Stock held directly by FS Signal; (ii) 1,185,799 shares of Common Stock
held directly by FS Signal II; (iii) warrants held directly by FS Signal to
acquire 735,000 shares of Common Stock; (iv) warrants held directly by FS
Signal II to acquire 3,312,500 shares of Common Stock; (v) 327.087 shares
of Series A Preferred Stock held directly by FS Signal II; (vi) 96.584
shares of Series C Preferred Stock held directly by FS Signal; and (vii)
9.375 shares of Series C Preferred Stock held directly by FS Signal II.
Kevin S. Penn ("Penn") is the President of FSSI. Pursuant to both the
bylaws of FSSI and an understanding among the limited partners of FS Signal
and FS Signal II, Penn, as President of FSSI, has the sole voting and
investment power over the securities held by both limited partnerships.
6
<PAGE>
(4) FS Signal Associates, L.P. ("FS Signal"), a Connecticut limited
partnership, owns directly (i) 2,980,983 shares of Common Stock; (ii)
warrants to acquire 735,000 shares of Common Stock; and (iii) 96.584 shares
of Series C Preferred Stock. Kevin S. Penn, in his capacity as President of
FS Signal, Inc., the general partner of FS Signal, may be deemed to own
beneficially all shares of Common Stock and Series C Preferred Stock held
by FS Signal.
(5) FS Signal Associates II, L.P. ("FS Signal II"), a Connecticut limited
partnership, owns directly (i) 1,185,799 shares of Common Stock; (ii)
warrants to acquire 3,312,500 shares of Common Stock; (iii) 327.087 shares
of Series A Preferred Stock; and (iv) 9.375 shares of Series C Preferred
Stock. Kevin S. Penn, in his capacity as the President of FS Signal, Inc.,
the general partner of FS Signal II, may be deemed to own beneficially all
shares of Common Stock, Series A Preferred Stock and Series C Preferred
Stock held by FS Signal II.
(6) WGI, LLC ("WGI"), a New York limited liability company owns directly (i)
8,607,349 shares of Common Stock; (ii) warrants to acquire a total of
345,000 shares of Common Stock (which number does not include warrants to
acquire up to 4,500,000 additional shares of Common Stock that are subject
to shareholder approval as described in Proposal 3 herein); and (iii)
177.969 shares of Series C Preferred Stock. WGI's managers, Stephen Walsh
and Paul R. Greenwood, may be deemed to share the power to vote and direct
the disposition of the shares of Common Stock, the warrants to purchase
Common Stock and Series C Preferred Stock beneficially owned by WGI.
(7) The beneficial ownership reported for Messrs. Ruchlamer and Powell
represents options that are immediately exercisable to acquire shares of
Common Stock, which were issued pursuant to the Company's 1985 Stock Option
Plan.
(8) This figure includes presently exercisable options to acquire 50,000 shares
of Common Stock which were issued pursuant to Mr. Houseman's Employment
Agreement.
(9) This figure includes presently exercisable options to acquire 22,500 shares
of Common Stock which were issued under the Company's 1985 Stock Option
Plan.
(10) This figure includes shares for which indirect beneficial ownership may be
attributed to certain directors of the Company, as discussed in Note (6)
above. The figure includes warrants to acquire 345,000 shares of Common
Stock and options to acquire 247,500 shares of Common Stock. All such
warrants and options are immediately exercisable and, consequently, have
been treated as outstanding shares of Common Stock for calculations of
share ownership and voting power for the group of directors and executive
officers. See Note (1) above.
7
<PAGE>
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Company's Restated Articles of Incorporation provide for a board of
directors consisting of not less than five nor more than ten persons, with the
exact number to be set by the Board of Directors. The Board of Directors has set
the number of directors at seven. All directors are elected to serve a one year
term, or until their respective successors are elected and qualified. The
persons named in the enclosed form of proxy will vote for the election of the
seven nominees named below, unless such authority is withheld on the enclosed
form of proxy. In the event any of the nominees should become unavailable to
serve as a director, the proxy will be voted by the persons named therein in
accordance with their best judgment.
The following is a list of the names, ages, positions held with the Company
and business experience during the past five years of all nominees for director:
<TABLE>
<CAPTION>
YEAR FIRST
BECAME A
NAME AND ADDRESS AGE BUSINESS EXPERIENCE AND DIRECTORSHIPS DIRECTOR
- --------------------------------------------- --- --------------------------------------------- ----------
<S> <C> <C> <C>
Jacob I. Feigenbaum.......................... 49 President of Miracle Suit by Swim Shaper 1994
c/o Miracle Suit since February 1996; President and owner of
1411 Broadway, 30th Floor Sea Q. America, August 1994 to 1996;
New York, NY 10018 President of Robby Len Swimwear division of
Apparel America, 1980 to 1994.
Paul R. Greenwood............................ 50 Managing General Partner of Walsh, Greenwood 1990
One East Putnam Avenue & Co., a broker-dealer engaged in effecting
Greenwich, CT 06830 transactions in securities for others and for
its own account.
David E. Houseman............................ 56 Chief Executive Officer and Treasurer since 1997
200-A Manufacturers Rd. September 1997; President from August 1997 to
Chattanooga, TN 37405 September 1997; Chief Operating Officer and
Chief Financial Officer since June 1997;
Senior Vice President Finance and Chief
Financial Officer of Bayer Clothing
Group,Inc., April 1993 to June 1997; Vice
President Finance and Chief Financial Officer
of Chalk Line, Inc., October 1992 to March
1993.
Thomas A. McFall............................. 43 Chairman, Weatherly Financial Nominee
950 Lakeview Parkway Companies, since 1984.
Vernon Hills, IL 60061
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
BECAME A
NAME AND ADDRESS AGE BUSINESS EXPERIENCE AND DIRECTORSHIPS DIRECTOR
- --------------------------------------------- --- --------------------------------------------- ----------
<S> <C> <C> <C>
John W. Prutch............................... 45 President of the Company since October 1997; Nominee
1088 National Parkway President, GIDI Holdings, Inc., imprinted
Schaumburg, IL 60173 activewear manufacturer, from July 1994 to
October 1997; President, Merchant Capital
Group, Ltd., 1984 to January 1993.
Leon Ruchlamer............................... 68 Vice Chairman of the Board of Directors since 1995
200-A Manufacturers Road August 1995; President, February 1995 to
Chattanooga, TN 37405 August 1995; Consultant within apparel and
textile industry, 1992 to January 1995.
Stephen Walsh................................ 52 General Partner of Walsh, Greenwood & Co., 1990
3333 New Hyde Park Road broker-dealer engaged in effecting
North Hills, NY 11040 transactions in securities for others and for
its own account.
</TABLE>
The information set forth above with respect to the principal occupation or
employment of each nominee during the past five years has been furnished to the
Company by the respective nominee.
Pursuant to an agreement among the Company and certain shareholders (a
predecessor to WGI, LLC; FS Signal Associates, L.P.; and FS Signal Associates
II, L.P.), FS Signal Associates, L.P. and FS Signal Associates II, L.P.,
together, have the right until 2001 to nominate two directors to be included in
the slate of nominees.
The Board of Directors held six meetings in 1996.
9
<PAGE>
COMMITTEES OF THE BOARD
AUDIT COMMITTEE. This committee recommends, for appointment by the Board of
Directors, a firm of independent certified public accountants to serve as
auditors for the Company; makes recommendations to the Board of Directors with
respect to the scope of the annual audit; approves the services which the
auditors may render to the Company without impairing the auditors' independence;
approves the auditors' fees; and may undertake investigations of any financial
matter and make recommendations to the Board of Directors with respect thereto.
This committee meets on an as needed basis with the auditors to review the
results of the audit and to review all recommendations made by the auditors with
respect to the accounting methods used and the system of internal control
followed by the Company and advises the Board of Directors with respect thereto.
The independent auditors have direct access to the members of this committee on
any matter at any time. This committee did not meet formally in 1996; however,
the committee was presented periodically with relevant information for its
review and comments, if any. The only current member of this committee is Mr.
Feigenbaum. The Board of Directors plans to add additional members to this
committee.
COMPENSATION COMMITTEE. This committee recommends to the Board of Directors
the amount of compensation and the terms and conditions of employment of each
officer of the Company, and also approves all employment contracts and
agreements for executive officers. This committee administers the 1985 Stock
Option Plan and makes recommendations to the Board of Directors with respect to
employee benefit plans. The Committee did not meet formally in 1996; however,
the committee met informally several times to discuss and review relevant
compensation information and to prepare the Compensation Committee report below.
Current members of this committee are Messrs. Feigenbaum and Greenwood.
EXECUTIVE COMMITTEE. This committee has and may exercise, except as
otherwise provided by statute or by the Restated Articles of Incorporation, all
the powers and authority of the Board of Directors. The Committee did not meet
in 1996. Current members of this committee are Messrs. Greenwood and Walsh.
THE BOARD HAS NO STANDING NOMINATING COMMITTEE. Individual directors and
management recommend to the full Board qualified candidates for election as
directors and officers of the Company. The Board will consider nominees for
director recommended by shareholders. Such recommendations may be submitted in
writing to the Secretary of the Company.
10
<PAGE>
EXECUTIVE OFFICERS
The following is a list of the names, ages, positions with the Company and
business experience during the past five years of the executive officers of the
Company:
<TABLE>
<CAPTION>
NAME AGE OFFICE AND BUSINESS EXPERIENCE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David E. Houseman.................................... 56 Director; Chief Executive Officer and Treasurer since
September 1997; President from August 1997 to
September 1997; Chief Operating Officer and Chief
Financial Officer since June 1997; Senior Vice
President Finance and Chief Financial Officer of
Bayer Clothing Group, Inc., April 1993 to June 1997;
Vice President Finance and Chief Financial Officer of
Chalk Line, Inc., October 1992 to March 1993.
Leslie W. Levy....................................... 59 Vice President of the Company and President of the
Heritage Sportswear business unit of the Company
since 1977.
Robert J. Powell..................................... 48 Vice President of Licensing and General Counsel since
September 1992; Secretary since January 1993; Vice
President of International and Domestic Licensing of
Champion Products, Inc., May 1990 to September 1992;
General Counsel and Secretary of Champion Products,
Inc., June 1987 to September 1992.
John W. Prutch....................................... 45 President of the Company since October 1997;
President, GIDI Holdings, Inc., imprinted activewear
manufacturer, from July 1994 to October 1997;
President, Merchant Capital Group, Ltd., 1984 to
January 1993.
</TABLE>
Officers are elected annually and serve at the pleasure of the Board of
Directors. There is no family relationship between any of the above executive
officers, directors and nominees for director.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and regulations of the
Securities and Exchange Commission thereunder require the Company's executive
officers and directors and persons who own more than ten percent of the
Company's Common Stock, as well as certain affiliates of such persons, to file
initial reports of ownership and monthly transaction reports covering any
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Executive officers, directors and persons owning more than
ten percent of the Company's Common Stock are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all such
reports they file. Based solely on its review of the copies of such reports
received by it and written representations that no other reports were required
for those persons, the Company believes that during 1996 all filing requirements
applicable to its executive officers, directors and owners of more then ten
percent of the Company's Common Stock were complied with except for one report
which was filed late by Barton Bresky, former President, Chief Executive Officer
and a Director.
11
<PAGE>
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Board of Directors of the Company has a Compensation Committee
consisting of three members. Two non-employee directors are chosen to serve
one-year terms at the first Board meeting following the Annual Meeting, and the
third member is typically a director who is an officer of the Company. The
Committee meets on an as needed basis during the year. The Committee's
responsibilities include recommending to the Board of Directors the amount of
compensation and terms of employment of each executive officer of the Company.
The Committee approves all employment contracts and agreements for each
executive officer of the Company. Additionally, the Committee administers the
Company's 1985 Stock Option Plan and makes recommendations to the Board of
Directors with respect to the Company's other benefits and all employee benefit
plans applicable to the Company's executive officers. The following is the
report of the Committee:
COMPENSATION POLICY
The Company makes an effort to offer competitive compensation packages that
allow the Company to attract and retain highly qualified individuals. The
Committee believes the long-term strategic goals of the Company can be
accomplished only if the Company employs management with experience and skills
relevant to the changing nature of the Company's products, sales and marketing
efforts. A substantial portion of each executive officer's total compensation is
incentive-based in order to motivate the Company's executive officers in the
performance of their duties and to encourage a continued focus on Company
profitability. For those executive officers responsible for particular business
units, the financial and non-financial results of their business units are also
considered. The Committee believes that by emphasizing performance based
compensation, it will encourage the Company's management to act in concert with
the interests of the Company's shareholders.
Compensation packages offered to the Company's senior management are thought
to be competitive within the domestic apparel industry and have not been tied
directly to short-term results of operations. The Committee believes the
compensation packages for its senior management are competitive with
compensation packages for executives of other public domestic apparel companies.
The Committee meets with the CEO to evaluate the performance of the other
executive officers and meets in the absence of the CEO to evaluate his
performance. The Committee reports its executive evaluations to the other
outside members of the Board.
The overall compensation of each of the Company's executive officers
consists of three principal elements:
- Base Salary
Executive officers' base salaries are reviewed annually by the Compensation
Committee. In the case of all executive officers, their base salary is their
principal element of compensation. In an effort to ensure that the Company can
obtain the talent it needs to effectuate its long-term strategies, the base
salary of all executive officers has been set at a level that is thought to be
competitive within the group of public businesses identified as similar to the
Company. Among the businesses with which the Company compares itself are those
included within the companies that comprise the Value Line Apparel Industry
Group. Based on information available to the Company, the Committee believes
that the overall compensation of its executive officers, taken in the aggregate,
places them in the median range of the compensation scale of similarly situated
executive officers in the industry. Factors considered in establishing base
salaries include the requisite skill and experience required in a particular
position, the range of duties and responsibilities attributable to that
position, the individual's prior experience and compensation, the compensation
of similarly situated individuals in the apparel industry and the overall past
and expected future contributions of the individual. Generally, in establishing
such salaries, the greatest weight is given to ensuring that a competitive
salary level is established. Overall, the process is subjective, with no
precise, mathematical weight given to the enumerated factors.
12
<PAGE>
- Annual Bonus
The Company operates an annual discretionary bonus plan, the terms of which
vary in accordance with the participant's position with the Company. The amount
of the annual bonus is determined, if earned, at the conclusion of the Company's
fiscal year following a review of Company, business unit and individual
performance, and is generally based on certain performance objectives, cash
flows and pre-tax earnings.
The Committee's discretion includes both whether and the extent to which any
bonus is awarded. The bonus element of each executive officer's compensation is
set at a level that the Committee believes is necessary to compensate executive
officers for the achievement of short-term goals forming part of the Company's
overall strategic objectives. Short-term sales, profit and performance goals for
each business unit and for the Company as a whole are developed annually and in
advance by the Company's management and then reviewed by the Company's Board of
Directors. Performance is monitored against established goals throughout the
year.
No bonuses were awarded to executive officers for 1996.
- Stock Options
To establish a link between compensation and management's performance in
creating value for shareholders, evidenced by increases in the Company's stock
price, the Company has implemented a stock option plan (the "1985 Stock Option
Plan"). The Committee is responsible for administering the 1985 Stock Option
Plan, which provides for options to purchase the Company's Common Stock
generally issued at or above market value on the date of grant. Accordingly, the
value of such options to the Company's participating executive officers will
depend directly on increases in the price of the Company's securities. Because
the Committee believes such compensation should result from long-term increases
in value, such options do not vest at a minimum until one year from the date of
grant; and, to serve as an incentive for such executives to continue in the
Company's service through the implementation of its plans, such options are
typically divested upon termination of employment or within a period of up to
one year thereafter as determined by the Compensation Committee.
The Compensation Committee has exclusive discretion to (i) select the
persons to whom options will be granted and to determine the type, amount and
terms of each option; (ii) modify, within certain limits, the terms of any
option which has been granted, including replacement or exchange of options
without the consent of the option holder under certain circumstances; (iii)
determine the time when options will be granted; and (iv) make all other
determinations that it deems necessary or desirable in the interpretation and
administration of the 1985 Stock Option Plan. The Compensation Committee has the
authority to administer, construe and interpret the 1985 Stock Option Plan, and
its decisions are final, binding and conclusive.
In determining the size and vesting of option awards, the Committee
considers the amount of options currently held by an officer, the results
achieved by each officer relative to that officer's assigned responsibilities
and the overall performance of the Company.
No Stock Options were awarded to executive officers in 1996.
- Chief Executive Officer/Chief Operating Officer.
The compensation of the Chief Executive Officer and/or Chief Operating
Officer consists of the same components as for other executive officers, namely
base salary, annual bonus and stock options. In an effort to ensure that the
Company can obtain the talent it needs to effectuate its long-term strategies,
the base salary of all executive officers has been set at a level that is
thought to be competitive within the group of public businesses identified as
similar to the Company. As with other executive officers, the factors considered
by the Committee in establishing the base salary of the chief executive officer
include the requisite skill and experience required in a particular position,
the range of duties and responsibilities attributable to that position, the
individual's prior experience and compensation, the compensation of similarly
situated individuals in the apparel industry and the overall past and expected
future contributions
13
<PAGE>
of the individual. The process is likewise subjective, with no precise,
mathematical weight given to the enumerated factors.
In December 1996, the Company named Barton Bresky President and Chief
Executive Officer. In determining Mr. Bresky's salary, the Committee put a major
emphasis on Mr. Bresky's prior experience with the Company--- he had served as
President of the Signal Artwear division before being named President--and his
vast experience and success as a consultant in the apparel industry. Mr. Bresky
resigned his positions with the Company effective August 20, 1997. David E.
Houseman was named Chief Executive Officer of the Company in September 1997.
Although Mr. Bresky served as a member of the Committee while he was
President, he did not participate in any of the Committee's decisions related to
the determination of his compensation.
Jacob I. Feigenbaum
Paul R. Greenwood
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Jacob I. Feigenbaum and Paul R. Greenwood are the current members of the
Board's Compensation Committee.
Effective March 31, 1995, the Company entered into a credit agreement (the
"WGI Credit Agreement") with Walsh Greenwood & Co. ( "Walsh Greenwood"), an
entity in which Paul R Greenwood is a general partner. Under the WGI Credit
Agreement, Walsh Greenwood lent the Company $15,000,000 for a three-year term.
The terms of the WGI Credit Agreement initially included: (i) a maximum
borrowing of $15,000,000; (ii) the issuance to Walsh Greenwood of warrants to
purchase 1,500,000 shares of the Company's Common Stock at $2.25 per share,
which warrants vested on the basis of 100,000 warrants for each $1,000,000 drawn
and which are exercisable for three years from vesting (the "Fixed Rate
Warrants"); (iii) the issuance to Walsh Greenwood of warrants to purchase
1,500,000 shares of the Company's Common Stock at a 25% discount to the 20 day
average trade price in December 1996, which warrants vested upon the commitment
by Walsh Greenwood of the full amount of the credit and which are exercisable
for three years beginning January 1, 1997 at a price (pursuant to such terms) of
approximately $2.42 per share (the "Discount Rate Warrants"); (iv) antidilution
provisions and registration rights for all such warrants no more favorable than
the equivalent provisions in other outstanding warrants issued to principal
shareholders of the Company, except that the registration rights shall include
three demand registrations; (v) stated interest upon the outstanding balance of
the credit at the rate of 25% per annum; (vi) all borrowings are secured by a
security interest in all assets of the Company currently pledged to two other
lenders, subordinate to the security interests of such lenders; and (vii) all
borrowings could be used only for working capital and could not be used to repay
any principal of any bank debt. The WGI Credit Agreement also contains certain
covenants regarding the operation of the Company's business, including
limitations on investments and incurring additional indebtedness and required
compliance with all of the financial covenants contained in the Company's
factoring agreement with its senior lender, BNY Financial Corporation (the
"Senior Lender"). All indebtedness under the WGI Credit Agreement is
subordinated to the Company's obligations to its Senior Lender.
As additional conditions to the foregoing extension of credit, Walsh
Greenwood required the Company and FS Signal to enter into a contemporaneous
agreement (the "Preferred Stock Agreement") pursuant to which, among other
things: (i) FS Signal and Walsh Greenwood (as the holders of all of the
Company's outstanding preferred stock) agreed to forego accrual of all future
dividends from January 1, 1995, until the principal and interest of all
borrowings under the WGI Credit Agreement have been paid in full; (ii) FS Signal
and Walsh Greenwood granted the Company the right, after repayment of a
$6,500,000 NationsBank loan pertaining to the Company's 1994 acquisition of
American Marketing Works, Inc. (the "AMW Loan," which was subsequently purchased
from NationsBank by Walsh Greenwood) and the borrowings under the WGI Credit
Agreement, to redeem the outstanding shares of preferred stock with shares of
its Common Stock valued for such purpose at $7.00 per share, which right of
redemption will
14
<PAGE>
extend until June 30, 1998; and (iii) FS Signal granted Walsh Greenwood the
right to require FS Signal to transfer to Walsh Greenwood, for use as
consideration in the exercise of warrants to purchase the Company's Common
Stock, up to $3,375,000 in stated value of Series C Signal Preferred Stock held
by FS Signal.
Effective August 10, 1995, Walsh Greenwood and the Company agreed to
increase the principal amount available under the WGI Credit Agreement to $20
million. In consideration of this additional extension of credit, the Company
issued to Walsh Greenwood an additional 500,000 Fixed Rate Warrants and an
additional 500,000 Discount Rate Warrants. All Fixed Rate Warrants and all
Discount Rate Warrants have vested and are presently exercisable. Effective
September 25, 1997, Walsh Greenwood exercised its right under the Preferred
Stock Agreement, by notice to FS Signal, to require FS Signal to transfer
$3,375,000 in stated value of the Company's Series C Preferred Stock to Walsh
Greenwood, for use as consideration in the exercise of warrants. In October
1997, the WGI Credit Agreement and all warrants issued pursuant thereto were
assigned to WGI, an affiliate of Walsh Greenwood. Subsequently, effective
November 7, 1997, WGI exercised warrants to acquire an aggregate of 4,630,000
additional shares of Common Stock, using the $3,375,000 of Series C Preferred
Stock transferred by FS Signal to exercise warrants to acquire 1,500,000 shares
at a price of $2.25 per share and extinguishing $9,452,120 of debt owed by the
Company under the WGI Credit Agreement to exercise: (i) warrants to acquire an
additional 500,000 shares at a price of $2.25 per share; (ii) warrants to
acquire an additional 2,000,000 shares at a price of approximately $2.42 per
share (such warrants having an exercise price set at a 25% discount to the
20-day average trading price for the Common Stock on the NYSE in December 1996);
(iii) warrants to acquire an additional 300,000 shares at a price of $7.625 per
share; and (iv) warrants to acquire an additional 300,000 shares at a price of
$7.06 per share. WGI thereby increased its aggregate ownership of the Company's
Common Stock from 3,977,349 shares (34.35% of the total outstanding shares) to
8,607,349 shares (50.44% of the total outstanding shares).
From June 1996 through the date of this Proxy Statement, the Company has
incurred additional indebtedness to WGI for funds advanced in an aggregate
amount of $31,544,000, bringing the Company's total indebtedness to WGI
(including accrued interest thereon) to approximately $49,995,000 as of the date
hereof. These funds were advanced to the Company on an "as needed" basis with
the understanding that the additional indebtedness would be documented on the
same terms as the existing WGI Credit Agreement. Additionally, as of December
31, 1996, the Company had not made all interest payments required by the WGI
Credit Agreement and had breached the financial covenants specified by the
agreement. In March 1997, Walsh Greenwood agreed to waive those conditions.
Finally, in connection with the Company's October 31, 1997 amendment and
restatement of the factoring agreement with its Senior Lender (and pursuant to a
separate reimbursement agreement between the Company and WGI), Walsh Greenwood
has deposited $15,000,000 of collateral with BNY in support of a portion of the
Company's borrowing base under the facility. As an inducement to Walsh Greenwood
to provide such additional funding to the Company, and in connection with such
waiver and collateral deposit, the Company has agreed to issue warrants to Walsh
Greenwood to purchase up to 4,500,000 additional shares of the Company's Common
Stock at an exercise price of $1.75 per share (the approximate current market
price). Using a formula vesting such warrants at the rate of 100,000 shares for
each $1,000,000 of additional funding (as under the WGI Credit Agreement), these
warrants would presently be vested as to all 4,500,000 shares. These warrants
are subject to shareholder approval as described in Proposal 3 herein. All of
such warrants will have antidilution provisions and registration rights no more
favorable than the equivalent provisions in other outstanding warrants issued to
principal shareholders of the Company, except that the registration rights shall
include three demand registrations.
Stephen Walsh, a director of the Company, and Paul R. Greenwood, a director
of the Company and a member of the Compensation Committee, are the managers of
WGI.
15
<PAGE>
CERTAIN RELATED TRANSACTIONS
Effective May 9, 1997, the Company entered into an agreement with Weatherly
Financial, an affiliate of Weatherly Hospitality Group ("Weatherly"), pursuant
to which Weatherly was engaged to act as financial advisor to the Company on an
exclusive basis with respect to evaluating, pricing, negotiating and closing
mergers and acquisitions and other investments and arranging financing on the
Company's behalf (the "Weatherly Agreement"). The Weatherly Agreement has a term
of two years, subject to the Company's right to terminate the agreement upon
ninety days' prior written notice at any time after May 9, 1998. The agreement
provides that, subject to its fiduciary duties, the Company will use its best
efforts to cause two (2) persons selected by Weatherly (which persons shall be
reasonably acceptable to the Company) to be nominated by the Company's Board of
Directors for election as directors of the Company at the Company's 1997 Annual
Meeting and at subsequent Annual Meetings throughout the term of the Agreement.
Messrs. McFall and Prutch have been nominated for election to the Company's
Board of Directors pursuant to the terms of the Weatherly Agreement.
The Weatherly Agreement provides that Weatherly will receive a base monthly
fee of $5,000 in performing such services for the Company. It also provides for
a fee of up to 10% of the gross proceeds of capital raising transactions
consummated with Weatherly's assistance. If Weatherly acts as a "finder" in
connection with any merger, consolidation, reorganization or other similar
transaction, Weatherly's fee will be determined in accordance with a sliding
scale based on the size of the transaction, but limited to a maximum of 10% of
the total transaction value and subject to reduction by the amount of any
compensation that Weatherly may be entitled to receive from any other party as a
result of any such transaction. The Weatherly Agreement also provides for
additional compensation to Weatherly in the form of warrants which vest based
upon the achievement of certain targeted improvements in the Company's
operations as a result of acquisitions consummated with Weatherly's assistance.
These targets consist of increasing the Company's annual net sales by
$50,000,000 and increasing its annual pre-tax profits by $5,000,000. The
Agreement provides that Weatherly will initially receive warrants exercisable
for a period of 7 years from May 9, 1997 to purchase a number of shares of
Common Stock representing 3% of the total number of outstanding shares of such
stock on a fully-diluted basis at an exercise price of $2.50 per share. These
warrants vest in full if the Company realizes the targeted increases by May 9,
2000, and vest in proportion to actual improvements achieved if the targets are
not fully met by such date. Additional warrants may be issued to Weatherly upon
the consummation of any merger or acquisition transaction consummated by the
Company with Weatherly's assistance, pursuant to a detailed formula prescribed
in the Agreement. In no event, however, may the aggregate number of warrants
issued pursuant to the Weatherly Agreement exceed 10% of the Company's
outstanding shares of Common Stock on a fully-diluted basis.
When the Weatherly Agreement was executed, all of the parties thereto
anticipated that John W. Prutch, in his capacity as an associate of Weatherly,
would play a significant role in performing the services to be provided to the
Company by Weatherly and, in such capacity, would receive a significant portion
of the compensation payable under the Weatherly Agreement. In connection with
Mr. Prutch's subsequent employment as President of the Company effective October
2, 1997, the Company and Weatherly agreed that Mr. Prutch shall be entitled to
receive one-half of the compensation (including both cash payments and issuance
of warrants) otherwise payable to Weatherly under the terms of the Weatherly
Agreement.
16
<PAGE>
EXECUTIVE COMPENSATION INFORMATION
Set forth below is a summary of the annual and long-term compensation paid
by the Company for each of the last three fiscal years to: (i) Bruce E. Krebs,
the Company's President and Chief Operating Officer until December 6, 1996; (ii)
Barton J. Bresky, the Company's Chief Executive Officer from December 6, 1996
until August 20, 1997, and (iii) the Company's other three most highly
compensated executive officers serving as of December 31, 1996 and Mr. Leon
Ruchlamer, who served as a consultant to the Company in 1996 (the "Named
Executives"). Mr. Krebs, as the Company's highest ranking executive officer and
as President and Chief Operating Officer, was considered the Company's chief
executive officer during his tenure.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------
AWARDS
----------- PAYOUTS
ANNUAL COMPENSATION SECURITIES -----------
------------------------------------------ UNDERLYING LTIP
NAME AND OTHER ANNUAL OPTIONS/ PAYOUTS
PRINCIPAL POSITION YEAR SALARY ($) BONUS($) COMPENSATION($) SARS(#) ($)
- ------------------------------------- --------- ----------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Bruce E. Krebs,...................... 1996 280,769 -- 28,332(1)
President & Chief Operating Officer 1995 126,154 -- 64,379 100,000 --
(until December 1996)
Barton J. Bresky,.................... 1996 108,608 -- 40,092(2) -- --
President & Chief Executive Officer
(from December 1996 until August
1997)
Robert J.Powell,..................... 1996 185,000 -- -- -- --
Vice President and Secretary 1995 191,125 -- -- 50,000 --
1994 125,375 -- -- 75,000 --
William Watts,....................... 1996 175,000 -- 33,630(3) -- --
Executive Vice President & Chief 1995 168,370 -- 55,543 100,000 --
Financial Officer(5)
Leon Ruchlamer,...................... 1996 155,200 -- -- -- --
Consultant 1995 203,400 -- -- 100,000 --
Leslie W. Levy,...................... 1996 145,000 -- -- -- --
Vice President and President 1995 145,000 -- -- -- --
Heritage Sportswear 1994 128,690 30,000 -- -- --
<CAPTION>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)(4)
- ------------------------------------- ---------------
<S> <C>
Bruce E. Krebs,...................... 1,813
President & Chief Operating Officer 370
(until December 1996)
Barton J. Bresky,.................... 7,273
President & Chief Executive Officer
(from December 1996 until August
1997)
Robert J.Powell,..................... 5,645
Vice President and Secretary 5,595
3,700
William Watts,....................... 6,978
Executive Vice President & Chief 1,610
Financial Officer(5)
Leon Ruchlamer,...................... 2,671
Consultant 6,220
Leslie W. Levy,...................... 9,062
Vice President and President 8,872
Heritage Sportswear 8,204
</TABLE>
NOTES TO TABLE OF SUMMARY COMPENSATION TABLE
(1) This amount consisted entirely of moving and temporary living expenses and
related reimbursements.
(2) $30,492 of this amount consisted of moving and temporary living expenses and
related reimbursements.
(3) $29,784 of this amount consisted of moving and temporary living expenses and
related reimbursements.
(4) These amounts include the portion of life insurance premiums paid by the
Company that represents term life insurance on Messrs. Krebs, Bresky,
Powell, Watts, Ruchlamer and Levy. In 1996, these amounts were $813, $4,284,
$1,760, $2,750, $2,671 and $6,086, respectively. All other amounts represent
Company matching contributions to a 401(k) plan maintained by the Company
for the accounts of Messrs. Krebs, Bresky, Powell, Watts and Levy. In 1996,
these amounts were $1,000, $2,989, $3,855, $4,228 and $2,976, respectively.
(5) Mr. Watts' employment was terminated on June 27, 1997.
17
<PAGE>
The following table provides information about options held by the Named
Executives. The 1985 Stock Option Plan does not provide for the granting of
stock appreciation rights.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END(#) FY-END($)(1)
--------------- ---------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------- --------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Bruce E. Krebs................................... -- -- 0 exer./ --
0 unexer. --
Barton J. Bresky................................. -- -- 0 exer./ --
0 unexer. --
Robert J. Powell................................. -- -- 125,000 exer./ --
0 unexer. --
Leon Ruchlamer................................... -- -- 100,000 exer./ --
0 unexer. --
William H. Watts................................. 50,000 150,000 50,000 exer./ --
0 unexer. --
Leslie W. Levy................................... -- -- 22,500 exer./ --
7,500 unexer. --
</TABLE>
- ------------------------
(1) Value of unexercised in-the-money options based on the fair market value of
a share of the Company's Common Stock as of December 31, 1996 ($3.00). Based
on such value, none of the options held by any of the Named Executives were
"in-the-money" at December 31, 1996.
18
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock against
the total return of the S & P composite 500 Stock Index and the Value Line
Apparel Industry Group for the five year period ending December 31, 1996.
Comparison of Five-Year Cumulative Total Return*
Signal Apparel Company, Inc., Standard & Poors 500 and Value Line Apparel Index
(Performance Results Through 12/31/96)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SIGNAL APPAREL COMPANY, INC. STANDARD & POORS 500 APPAREL
<S> <C> <C> <C>
1991 $100.00 $100.00 $100.00
1992 $73.58 $107.79 $122.33
1993 $37.11 $118.66 $91.62
1994 $39.62 $120.56 $85.18
1995 $36.48 $165.78 $91.16
1996 $14.37 $204.32 $122.92
</TABLE>
Assumes $100 invested at the close of trading 12/91 in Signal Apparel Company,
Inc. common stock, Standard & Poors 500, and Apparel.
*Cumulative total return assumes reinvestment of dividends.
19
<PAGE>
EMPLOYMENT AGREEMENTS
David E. Houseman is employed as the Company's Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer. Pursuant to the terms of
his employment agreement, which commenced June 2, 1997. Mr. Houseman's base
salary is $175,000 during the first year of the agreement (June 2, 1997 to June
1, 1998), $200,000 during the second year of the agreement and $225,000 during
the third year of the agreement, with the right to participate in the Company's
bonus plan and receive an annual bonus of up to 50% of his base salary (with a
minimum bonus payment of $75,000 guaranteed after the first year of employment).
As a further inducement to employment, the Company agreed to reimburse certain
additional expenses related to Mr. Houseman's relocation to the Company's
corporate offices in Chattanooga. The Company also granted Mr. Houseman options
to purchase 350,000 shares of the Company's Common Stock at an exercise price of
$2.50 per share ($1.125 above the market price on the date of grant), with such
options vesting at the rate of 50,000 shares on the date of grant, 200,000
shares two years from the date of grant, and 100,000 shares three years from the
date of grant. All such options expire five years from the date of grant. The
options granted to Mr. Houseman represent approximately three percent of the
Company's outstanding shares of Common Stock on the date of grant, and the
Company has agreed that upon the issuance of additional shares of Common Stock
by the Company (other than to Mr. Houseman), the Company shall issue to Mr.
Houseman options to purchase additional shares of Common Stock such that the
total number of options held by Mr. Houseman shall always equal a minimum of
three percent of the outstanding shares of the Company's Common Stock. Any such
additional options shall expire five years from the date of grant, shall have a
vesting schedule similar to his initial options and shall have an exercise price
equal to the market price on the date of grant. Additionally, Mr. Houseman is
entitled to participate in all other incentive bonus, stock option, savings and
retirement programs and benefit programs maintained for the Company's executive
officers from time to time. In the event that Mr. Houseman's employment is
terminated for cause or, under certain circumstances, Mr. Houseman voluntarily
terminates his employment, the Company shall pay Mr. Houseman (or his legal
representative) only those amounts of compensation attributable to periods prior
to the termination. If the termination is for cause, all outstanding stock
options held by Mr. Houseman shall expire. If Mr. Houseman voluntarily
terminates his employment, all options vested as of the date of termination
shall expire ninety days after the date of termination. In the event that Mr.
Houseman's employment is terminated without cause (as defined in his employment
agreement), and if such termination of employment occurs before June 1, 1999,
then Mr. Houseman shall be entitled to payments equal to either one year's base
salary or his base salary through June 1, 1999, whichever is greater.
Furthermore, all unvested options shall become proportionately exercisable based
upon the number of months Mr. Houseman has been employed by the Company relative
to the vesting schedule of such options. Any vested Incentive Stock Options will
expire three months from the date of termination, and any vested Non-Incentive
Stock Options will expire one year from the date of termination. In addition,
Mr. Houseman will be paid a pro-rata share of any annual bonus otherwise payable
based upon the number of complete months he has been employed during that fiscal
year. In the event that Mr. Houseman's employment is terminated without cause
(as defined in his employment agreement), and if such termination of employment
occurs after June 1, 1999 but prior to June 2, 2000, then Mr. Houseman will be
entitled to one year's base salary. Any vested Incentive Stock Options will
expire three months from the date of termination, and any vested Non-Incentive
Stock Options will expire one year from the date of termination. In addition,
Mr. Houseman will be paid a pro-rata share of any annual bonus otherwise payable
based upon the number of complete months he has been employed during that fiscal
year. Mr. Houseman's employment agreement expires on June 1, 2000.
Barton J. Bresky was employed as President and Chief Executive Officer of
the Company from December 6, 1996, until his resignation on August 20, 1997.
Pursuant to the terms of his employment agreement, Mr. Bresky was paid an annual
base salary of $250,000. Pursuant to the terms of the Amendment to Employment
Agreement dated August 21, 1997, by and between the Company and Mr. Bresky, Mr.
Bresky will receive severance payments equal to one year's salary, his health
benefits will
20
<PAGE>
be continued until August 19, 1998 and he received an option to purchase up to
15,000 shares of the Company's Common Stock at an exercise price of $2.375 per
share, vesting August 21, 1998 and exercisable until August 21, 2002.
Bruce E. Krebs was employed by the Company from August 1995 until December
6, 1996, when he was replaced by Barton J. Bresky. Pursuant to the terms of his
employment agreement, Mr. Krebs was paid an annual base salary of $300,000, and
he was eligible to receive an annual bonus equal to 10% of the Company's pre-tax
earnings up to $5 million and 5% of the Company's pre-tax earnings in excess of
$5 million. As an inducement to employment, the Company granted Mr. Krebs
options to purchase 100,000 shares of Common Stock with an exercise price per
share of $5.56 (the market price on the date of grant), exercisable one year
from the date of grant and governed by the Company's 1985 Stock Option Plan.
Pursuant to the terms of the Company's 1985 Stock Option Plan, said options
terminated upon the termination of Mr. Krebs' employment with the Company. Mr.
Krebs is bound by a covenant not to compete that survives termination of his
employment agreement for one year. Pursuant to a settlement agreement dated
March 31, 1997, the Company paid Mr. Krebs $165,000 to settle any potential
claims between Mr. Krebs and the Company, including any claims for severance
pay.
William H. Watts was employed February 1995 as Chief Financial Officer and
Executive Vice President pursuant to an employment agreement with a three year
term. His employment with the Company was terminated on June 27, 1997. Pursuant
to the terms of his employment agreement, Mr. Watts' annual base salary was
$175,000. He was eligible to receive an annual bonus based upon his personal
performance and the Company's performance. As an inducement to employment, the
Company gave Mr. Watts an allowance of approximately $80,000 to cover the
expenses of his relocation to the Company's corporate offices and granted him
options to purchase 100,000 shares of Common Stock effective February 24, 1995,
with an exercise price per share of $4.00 ($3.75 below the market price on the
date of grant), exercisable one year from the date of grant and governed by the
Company's 1985 Stock Option Plan. Pursuant to the terms of the Separation
Agreement dated June 26, 1997, by and between the Company and Mr. Watts, the
Company is paying severance pay to Mr. Watts at his then existing salary until
December 31, 1997. The Company will also maintain Mr. Watt's Company-provided
health and dental insurance policies until December 31, 1997. The remaining
50,000 options to purchase the Company's Common Stock were also terminated
pursuant to the terms of the separation agreement.
DIRECTORS' COMPENSATION
Directors who are not employees of the Company are paid (i) $4,000 for each
Board meeting attended in person up to a maximum of $20,000 per year and (ii)
$500 for each Board committee meeting attended in person or telephonically.
PROPOSAL 2
AMENDMENT TO THE COMPANY'S 1985
STOCK OPTION PLAN INCREASING THE NUMBER
OF SHARES ISSUABLE THEREUNDER FROM 1,910,000 TO 4,000,000
The Company's 1985 Stock Option Plan, as amended (the "Plan"), reserves for
issuance a total of 1,910,000 shares of Common Stock pursuant to options granted
under the Plan. In order to ensure that all employees' compensation is tied
directly to the performance of the Company, the Company's Board of Directors and
the Compensation Committee thereof has recommended creating a pool of stock
options to grant to all full-time employees of the Company. The Company's Board
of Directors and the Compensation Committee thereof have determined that a
portion of compensation of all full-time employees should have a direct link to
the success of the Company, thus aligning the interests of the Company's
employees with those of the Company's shareholders. To ensure that there is an
adequate number of shares of the
21
<PAGE>
Company's Common Stock that can be issued under such a pool, the Board of
Directors has approved and recommended to shareholders for their approval, a
resolution to increase the number of shares subject to the Plan by 2,090,000
shares to a total of 4,000,000 shares.
The Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has exclusive discretion: (i) to select
the persons to whom options will be granted and to determine the type, amount
and terms of each option; (ii) to modify, within certain limits, the terms of
any option which has been granted, including replacement or exchange of options
and relinquishment of one option for another option without the consent of
option holders under certain circumstances; (iii) to determine the time when
options will be granted; and (iv) to make all other determinations which it
deems necessary or desirable in the interpretation and administration of the
Plan. The Compensation Committee has the authority to administer, construe and
interpret the Plan, and its decisions are final, binding and conclusive.
The number of shares subject to options granted under the Plan is subject to
adjustment by the Compensation Committee in the event of a stock split, stock
dividend, combination, subdivision or exchange of shares, recapitalization,
merger, consolidation, reorganization or other extraordinary or unusual event.
If any Common Stock issued under the Plan and subject to repurchase or
forfeiture rights is reacquired by the Company pursuant to such rights, or if
any option is canceled, terminates, or expires unexercised, the Common Stock
which would otherwise have been issuable pursuant thereto will be available for
issuance pursuant to new options.
Options may be granted having an exercise price less than, equal to, or
greater than the fair market value of the underlying Common Stock on the date of
grant; provided, however, that the exercise price must be at least one-third of
the market price of such stock as of the date of grant. In the case of Incentive
Stock Options, however, the option price may not be less than 100% of the fair
market value on the date of grant.
Options granted pursuant to the Plan are not transferable during the
lifetime of the optionee and will generally expire not later than five or ten
years after the date on which they are granted, depending on the terms of the
option. Options become exercisable at such times and in such installments as the
Compensation Committee shall determine. Payment of the option price must be made
in full at the time of exercise in cash, by tendering shares of Common Stock
having a fair market value equal to the option price, by a combination of cash
and shares or by any other means that the Compensation Committee deems
appropriate (including the relinquishment of rights in one or more outstanding
options).
Generally, no option may be exercised unless the holder has been, at all
times during the period from the date of grant through the date of exercise,
employed by or performing services for the Company; however, the Compensation
Committee may provide for certain limited exceptions to the foregoing
requirement.
The Board of Directors may amend the Plan at any time and from time to time
for any purpose consistent with the goals of the Plan, but no such amendment
shall be effective unless and until the same is approved by the shareholders if
such amendment would materially modify the eligibility requirements for
receiving stock options; increase the total number of shares subject to the
Plan; reduce the minimum option price per share; extend the period of granting
options; or materially increase in any other way the benefits accruing to the
optionees.
As discussed above, the primary purpose of the new pool of stock options is
to enhance the Company's ability to achieve better financial performance by
offering all employees of the Company incentives to bring about such results. In
order to create a pool that has adequate shares in it for issuance under the
Plan, more shares of Common Stock must be available for issuance pursuant to the
Plan. Accordingly, the Board has approved, and recommends to the Company's
shareholders for approval,
22
<PAGE>
adding 2,090,000 shares to the number of shares of Common Stock available under
the Plan, thereby increasing the total number of shares issuable under the Plan
from 1,910,000 to 4,000,000.
PROPOSAL 3
APPROVAL OF THE ISSUANCE OF
WARRANTS TO PURCHASE UP TO
4,500,000 ADDITIONAL SHARES OF
COMMON STOCK TO WGI, LLC
The Board of Directors has approved, and recommends to the Shareholders for
their approval, the issuance of warrants to purchase up to an additional
4,500,000 shares of the Company's Common Stock to WGI, in connection with (i)
the waiver by WGI of certain conditions contained in the WGI Credit Agreement
and (ii) additional extensions of credit to the Company pursuant to the WGI
Credit Agreement.
From June 1996 through the date of this Proxy Statement, the Company has
incurred additional indebtedness to WGI for funds advanced in an aggregate
amount of $31,544,000, bringing the Company's total indebtedness to WGI
(including accrued interest thereon) to approximately $49,995,000 as of the date
hereof. These funds were advanced to the Company on an "as needed" basis with
the understanding that the additional indebtedness would be documented on the
same terms as the existing WGI Credit Agreement. Additionally, as of December
31, 1996, the Company had not made all interest payments required by the WGI
Credit Agreement and had breached the financial covenants specified by the
agreement. In March 1997, Walsh Greenwood agreed to waive those conditions.
Finally, as a condition to the Company's Senior Lender entering into an amended
and restated factoring agreement with the Company dated October 31, 1997, the
Senior Lender required WGI to (i) deposit $15,000,000 of collateral as security
in support of a portion of the Company's borrowing base under the facility and
(ii) to continue in place a guaranty of a portion of the Company's obligations
in the amount of $9,000,000, which was originally entered into February 27, 1996
by another affiliate of Walsh Greenwood. The Company has entered into a
Reimbursement Agreement and related Promissory Note with WGI, dated October 31,
1997, pursuant to which the Company has agreed to repay any amounts that WGI may
be required to pay to the Senior Lender by virtue of these arrangements, with
interest thereon at an annual rate of prime plus 2.0% until fully repaid. The
Company's obligations under this Reimbursement Agreement and Promissory Note are
subordinate to its obligations to the Senior Lender and are parri passu with the
Company's obligations to FS Signal.
As an inducement to Walsh Greenwood to provide such additional funding to
the Company, and in connection with such waiver and collateral deposit, the
Company has agreed to issue warrants to Walsh Greenwood to purchase up to
4,500,000 additional shares of the Company's Common Stock at an exercise price
of $1.75 per share (the approximate current market price). Using a formula
vesting such warrants at the rate of 100,000 shares for each $1,000,000 of
additional funding (as under the WGI Credit Agreement), these warrants would
presently be vested as to all 4,500,000 shares. All of such warrants will have
antidilution provisions and registration rights no more favorable than the
equivalent provisions in other outstanding warrants issued to principal
shareholders of the Company, except that the registration rights shall include
three demand registrations.
The New York Stock Exchange rules (pursuant to Paragraph 312.03(c) of the
Listed Company Manual) require shareholder approval when a listed company plans
to issue additional shares of Common Stock, or securities convertible into or
exercisable for Common Stock (E.G., warrants), if the Common Stock to be issued
has (or will have upon issuance) voting power greater than or equal to 20% of
the total voting power of the shares of the Company's Common Stock outstanding
before the issuance of such stock or other securities. As of November 20, 1997,
there were 17,063,240 shares of Common Stock outstanding.
23
<PAGE>
Accordingly, shareholder approval is required for the proposed issuance to WGI
of warrants to purchase up to 4,500,000 shares of Common Stock as described in
this Proposal 3.
Messrs. Walsh and Greenwood, both directors of the Company, are the managers
of WGI. Both Messrs. Walsh and Greenwood abstained when the Board voted upon
this matter. The Board of Directors believes that the proposed issuance of such
warrants to WGI is fair and reasonable as additional compensation for the
benefits described above provided to the Company by WGI. Accordingly, the Board
of Directors believes that the issuance of warrants is fair to, and in the best
interest of, the Company and its shareholders.
PROPOSAL 4
APPROVAL OF THE ISSUANCE OF 15,473,220 ADDITIONAL SHARES OF
COMMON STOCK IN CONNECTION WITH THE RESTRUCTURING
OF THE COMPANY'S OUTSTANDING
DEBT AND PREFERRED STOCK
The Board of Directors has approved, and recommends to the Shareholders for
their approval, the issuance of an aggregate of 15,473,220 shares of the
Company's Common Stock in connection with a plan (the "Restructuring Plan") for
the restructuring of all of the Company's presently outstanding debt and
preferred stock, other than (i) indebtedness owed to the Company's Senior
Lender, (ii) subordinated indebtedness for additional funds advanced to the
Company by WGI after August 22, 1997 (together with accrued interest thereon)
and (iii) certain subordinated indebtedness owed to FS Signal. As explained
below, approval by the Company's shareholders of the issuance of such shares,
thereby making them available for use in consummating the Restructuring Plan, is
required by the rules of the New York Stock Exchange.
HISTORICAL BACKGROUND AND REASONS FOR THE RESTRUCTURING
Since fiscal 1990, the Company has been unable to fund its cash requirements
through cash generated by operations, due to significant operating losses which
have been sustained as a result of adverse economic conditions in the apparel
industry and declining demand for the Company's products. The Company has
continued to experience liquidity problems during 1997, due to the fact that its
sales and profit margins have not met projected levels. These difficulties have
resulted in a critical need for the Company to seek additional capital in order
to maintain its operations and continue as a going concern while implementing
management's business plan to return the Company to profitability.
Prior to entering into the negotiations with Walsh Greenwood that led to the
development of the Restructuring Plan, the Company's efforts to generate
additional capital through asset sales or the sale of equity to unaffiliated
third parties had proven unsuccessful. Beginning in December 1995 and continuing
throughout the first half of fiscal 1996, the Company actively pursued the
possibility of issuing a significant amount of its Common Stock in a private
placement transaction exempt from registration under the Securities Act of 1933,
which could have included an offshore private placement pursuant to Regulation S
under such Act and/or other issuances of shares below the then current quoted
market price for such shares. The Company did not succeed in its efforts to
raise additional equity through such a transaction. Additionally, the Company to
date has been unable to find a buyer for its Heritage Sportswear unit or to
generate significant additional funds through the sale of idle plant facilities
or other assets. Given the Company's current financial condition, the Board of
Directors does not believe that additional bank financing could be obtained or
that any other commercially reasonable alternatives to the Restructuring Plan
would be available to the Company for achieving a similar increase in its
overall equity and reduction in its level of indebtedness and ongoing interest
expense.
24
<PAGE>
In anticipation of the Restructuring Plan, the Company has already applied
$20,000,000 of increased funding available under the amended and restated
factoring agreement with its Senior Lender to retire the entire balance due
under the AMW Loan (which had been purchased by WGI) and to reduce its
outstanding indebtedness under the WGI Credit Agreement. This action reduced the
Company's effective annual interest rate on this portion of its debt from over
20% per annum to prime plus 1 1/4% (currently 9.75%). Implementation of the
Restructuring Plan will further reduce the financial pressure on the Company in
several ways. First, it will eliminate approximately $40,000,000 of indebtedness
from the Company's balance sheet, leaving: (i) indebtedness owed to the Senior
Lender (with a current balance of approximately $47,003,000); (ii) indebtedness
owed to WGI for all funds advanced after August 22, 1997, plus accrued interest
thereon (with a current balance of $9,891,000), and (iii) approximately
$5,900,000 owed to FS Signal. This debt reduction, in turn, will significantly
reduce the Company's annual interest expense. The Restructuring Plan also will
eliminate a liability of $11,725,000 for accrued but unpaid preferred stock
dividends and will reduce the Company's accumulated deficit by over 50%, from
approximately $82.6 million to approximately $34.6 million. Although there can
be no assurance concerning the ultimate impact of the Restructuring Plan on the
Company's operations, the Company believes that these actions will significantly
increase its ability to fund both capital and other expenditures needed to
return its operations to profitability through the issuance of additional debt
or equity securities. Accordingly, the Board of Directors believes that
implementation of the proposed Restructuring Plan is essential to the Company's
ability to continue to operate as a going concern while implementing
management's turnaround strategy for the Company's business.
Over the past five years, the Company has funded its continuing losses
through several series of transactions with its principal shareholders and with
its Senior Lender. Effective August 13, 1993, the Company entered into a
Restructuring Agreement (the "1993 RESTRUCTURING") with FS Signal and Walsh
Greenwood, pursuant to which the Company issued preferred stock with a stated
value of $100,000 per share in exchange for all then outstanding debt, related
accrued interest, and unpaid fees owed to Walsh Greenwood and FS Signal. The
1993 Restructuring resulted in the issuance of a total of 176.587 shares of
Series A Preferred Stock and 139.709 shares of Series B Preferred Stock (later
converted to Series C Preferred Stock) to FS Signal, and the issuance of 107.969
shares of Series B Preferred Stock (later converted to Series C Preferred Stock)
to Walsh Greenwood.
As an inducement to Walsh Greenwood and FS Signal to enter into the 1993
Restructuring, the Company issued warrants to acquire 675,000 shares of Common
Stock at an exercise price of $7.06 per share to Walsh Greenwood and issued
warrants to acquire an aggregate 2,047,500 shares of Common Stock at an exercise
price of $7.06 per share to FS Signal. The Company also agreed to make
available, by private placement, up to 200 additional shares of Series A
Preferred Stock at a price of $100,000 per share. As an inducement to purchase
such preferred stock, the Company granted FS Signal a warrant to acquire up to
2,000,000 additional shares of Common Stock at an exercise price of $7.06 per
share, vesting at the rate of warrants to acquire 100,000 shares for each
$1,000,000 invested in additional Series A Preferred Stock. During the balance
of fiscal 1993, the Company obtained additional funding from FS Signal through
the purchase of an additional 150.5 shares of Series A Preferred Stock with a
stated value of $100,000 per share.
During the first quarter of fiscal of 1994, the Company agreed to issue 70
additional shares of Series B Preferred Stock (later converted to Series C
Preferred Stock) to Walsh Greenwood in consideration for $7,000,000 of
collateral which Walsh Greenwood had previously pledged to the Company's Senior
Lender. The proceeds from this exchange were used to reduce the outstanding
revolving advance account balance with the Senior Lender. The Company also
borrowed an additional $3,000,000 from FS Signal during the first quarter of
1994, which debt was represented by a Promissory Note subordinated to the
Company's obligations to its Senior Lender, due April 30, 1997 and bearing
interest at the rate of 3% per annum over the prime lending rate charged by the
Senior Lender. In consideration of this additional funding, the
25
<PAGE>
Company issued warrants to FS Signal to purchase 300,000 shares of Common Stock
at an exercise price of $7.06 per share, expiring on April 30, 1999.
In January 1995, Walsh Greenwood invested an additional $3,000,000 in the
Company through the purchase of 30 additional shares of the Company's Series C
Preferred Stock. Effective March 31, 1995, the Company entered into a secured
credit agreement (subordinated to all of the Company's obligations to its Senior
Lender) with Walsh Greenwood (the WGI Credit Agreement), pursuant to which the
Company borrowed $15,000,000. Effective August 10, 1995, the Company amended the
WGI Credit Agreement to increase the principal amount of borrowings thereunder
to $20,000,000.
In conjunction with the initial execution and subsequent amendment of the
WGI Credit Agreement, the Company issued warrants to purchase an aggregate of
2,000,000 additional shares of Common Stock at an exercise price of $2.25 per
share expiring on March 31, 1998. Additionally, Walsh Greenwood received a
second warrant to purchase 2,000,000 shares of Common Stock with an exercise
price set at a 25% discount to the 20-day average trading price for the Common
Stock on the NYSE in December 1996. These warrants vested upon issuance and are
exercisable for a period of three years commencing on January 1, 1997. The
issuance of these warrants in conjunction with the WGI Credit Agreement was
subject to shareholder approval, which was obtained at the Company's Annual
Meeting of Shareholders on May 11, 1995. During October 1997, the WGI Credit
Agreement and all warrants issued pursuant thereto were assigned to WGI, an
affiliate of Walsh Greenwood.
In January 1997, in connection with the issuance of certain substitute or
replacement letters of credit (aggregating $4,500,000) with respect to which FS
Signal has agreed to reimburse the issuer for any draws related to amounts owed
by the Company, the Company entered into a Reimbursement Agreement with FS
Signal and a related Promissory Note for $4,500,000, each dated January 30,
1997. Under the Reimbursement Agreement and Promissory Note, the Company has
agreed to repay any amounts that FS Signal may be required to pay to the issuer
of these letters of credit, with interest at an annual rate of 5.5% until fully
repaid. The Company's obligations under the Reimbursement Agreement and
Promissory Note are subordinate to its obligations to the Senior Lender and
under the AMW Loan, and are parri passu with the Company's obligations under the
WGI Credit Agreement.
From June 1996 through the date of this Proxy Statement, the Company has
incurred additional indebtedness to WGI for funds advanced in an aggregate
amount of $31,544,000 bringing the Company's total indebtedness to WGI
(including accrued interest thereon) to approximately $49,995,000 as of the date
hereof. These funds were advanced to the Company on an "as needed" basis with
the understanding that the additional indebtedness would be documented on the
same terms as the existing WGI Credit Agreement. Additionally, as of December
31, 1996, the Company had not made all interest payments required by the WGI
Credit Agreement and had breached the financial covenants specified by the
agreement. In March 1997, Walsh Greenwood agreed to waive those conditions.
Finally, as a condition to the Company's Senior Lender entering into an amended
and restated factoring agreement with the Company dated October 31, 1997, the
Senior Lender required WGI to (i) deposit $15,000,000 of collateral as security
in support of a portion of the Company's borrowing base under the facility and
(ii) continue in place a guaranty of a portion of the Company's obligations in
the amount of $9,000,000, which was originally entered into February 27, 1996 by
another affiliate of Walsh Greenwood. The Company has entered into a
Reimbursement Agreement and related Promissory Note with WGI, dated October 31,
1997, pursuant to which the Company has agreed to repay any amounts that WGI may
be required to pay to the Senior Lender by virtue of these arrangements, with
interest thereon at an annual rate of prime plus 2.0% until fully repaid. The
Company's obligations under this Reimbursement Agreement and Promissory Note are
subordinate to its obligations to the Senior Lender and are parri passu with the
Company's obligations to FS Signal.
As an inducement to Walsh Greenwood to provide such additional funding to
the Company, and in connection with such waiver and collateral deposit, the
Company has agreed to issue warrants to Walsh
26
<PAGE>
Greenwood to purchase up to 4,500,000 additional shares of the Company's Common
Stock at an exercise price of $1.75 per share (the approximate current market
price). Using a formula vesting such warrants at the rate of 100,000 shares for
each $1,000,000 of additional funding (as under the WGI Credit Agreement), these
warrants would presently be vested as to all 4,500,000 shares. All of such
warrants will have antidilution provisions and registration rights no more
favorable than the equivalent provisions in other outstanding warrants issued to
principal shareholders of the Company, except that the registration rights shall
include three demand registrations. These warrants are subject to shareholder
approval, as described in Proposal 3 above.
The Preferred Stock Agreement, which was also executed in conjunction with
the initial execution of the WGI Credit Agreement, gave Walsh Greenwood the
right (in addition to the rights of the Company to redeem the Company's Series A
Preferred Stock and Series C Preferred Stock with shares of Common Stock as
described above) to require FS Signal to transfer to Walsh Greenwood, for use as
consideration in the exercise of warrants to purchase the Company's Common
Stock, up to $3,375,000 in stated value of Series C Preferred Stock held by FS
Signal. Walsh Greenwood exercised this right by notice to FS Signal effective
September 25, 1997. Subsequently, effective November 7, 1997, WGI exercised
warrants to acquire an aggregate of 4,630,000 additional shares of Common Stock,
using the $3,375,000 of Series C Preferred Stock transferred by FS Signal to
exercise warrants to acquire 1,500,000 shares at a price of $2.25 per share and
extinguishing $9,452,120 of debt owed by the Company under the WGI Credit
Agreement to exercise: (i) warrants to acquire an additional 500,000 shares at a
price of $2.25 per share; (ii) warrants to acquire an additional 1,630,000
shares at a price of approximately $2.42 per share (such warrants having an
exercise price set at a 25% discount to the 20-day average trading price for the
Common Stock on the NYSE in December 1996); (iii) warrants to acquire an
additional 300,000 shares at a price of $7.625 per share; and (iv) warrants to
acquire an additional 300,000 shares at a price of $7.06 per share. Accordingly,
WGI has increased its present aggregate ownership of the Company's Common Stock
from 3,977,349 shares (34.35% of the total outstanding shares) to 8,607,349
shares (50.44% of the total outstanding shares).
DESCRIPTION AND EFFECTS OF THE RESTRUCTURING PLAN
The Restructuring Plan includes certain provisions recently negotiated
between the Company and WGI as well as the Company's exercise (as described
below) of certain of its rights under the Preferred Stock Agreement dated March
31, 1995. Pursuant to the agreement between the Company and WGI concerning the
Restructuring Plan, the Company has already applied $20,000,000 of increased
funding available under the amended and restated factoring agreement with its
Senior Lender to retire the entire balance due under the AMW Loan (which had
been purchased by WGI) and to reduce its outstanding indebtedness under the WGI
Credit Agreement. The Restructuring Plan also calls for: (i) amendment of all
remaining outstanding warrants held by WGI (covering a total of 345,000 shares
with an exercise price of $7.06 per share, which excludes the new warrants that
are the subject of Proposal 3) to reset the exercise price of such warrants to
$1.75 per share (approximately equal to the current market price); (ii) issuance
to WGI of 8,000,000 shares of Common Stock valued at approximately $1.98 per
share (a premium of approximately 13% over the current market price) in payment
for $15,831,950 of the remaining subordinated debt owed by the Company to WGI
(representing a discount on the debt repayment of $1,831,950, which equals the
net economic benefit of repricing the WGI warrants); and (iii) conversion of
both the remaining outstanding balance of such debt (projected to be
approximately $24,930,400 including accrued interest through the date of the
Annual Meeting) and the $20,513,958.31 in stated value (plus accumulated
dividends) of Series C Preferred Stock held by WGI into a total of approximately
454.444 shares of a new Series F Preferred Stock, stated value $100,000 per
share.
The new Series F Preferred Stock will accrue cumulative undeclared dividends
at the rate of 9% per annum. These dividends will be payable in cash when
declared. The Series F Preferred Stock will not be
27
<PAGE>
convertible into Common Stock or into any other security issued by the Company,
and will not have any mandatory redemption or call features.
In addition to the transactions described above between the Company and WGI,
the Restructuring Plan involves the exercise by the Company of its right under
the Preferred Stock Agreement to redeem all of the remaining outstanding shares
(including accumulated dividends) of the Company's Series A Preferred Stock and
Series C Preferred Stock with shares of Common Stock valued for such purpose at
$7 per share. Following the completion of the transactions described above
involving WGI, FS Signal will be the only remaining holder of shares of the
Company's Series A Preferred Stock and Series C Preferred Stock. The redemption
of all of such stock held by FS Signal ($39,583,700.00 in stated value plus
accrued dividends in Series A Preferred Stock and $12,728,841.69 in stated value
plus accrued dividends in Series C Preferred Stock) will result in the issuance
of an additional 7,473,220 shares of the Company's Common Stock to FS Signal and
its affiliates.
The issuance of Common Stock as described above in connection with the
Restructuring Plan will result in each shareholder (except WGI and FS Signal)
having a lower percentage of voting power following implementation of the plan.
Such issuance is expected, however, to be anti-dilutive with respect to earnings
per share because the effective price per share for such issuance will be the
current market price. Currently, WGI owns 50.44% and FS Signal owns 24.42% of
the issued and outstanding shares Common Stock (not including exercisable
warrants). Assuming approval by the Company's shareholders of the issuance of
shares under this Proposal 4 and the implementation of the Restructuring Plan,
WGI would own 50.85% of the issued and outstanding shares of the Company's
Common Stock and FS Signal would own 35.64% of such shares (not counting
exercisable warrants held by either such party). As of the date of this Proxy
Statement, shareholders of the Company other than WGI and FS Signal hold 25.14%
of the issued and outstanding shares of the Company's Common Stock. Assuming
implementation of the Restructuring Plan, such shareholders would own
approximately 13.51% of the outstanding shares of Common Stock (again, ignoring
any effects from exercisable warrants and options).
The following table sets forth the current maturities of long-term debt and
the capitalization of the Company as of September 30, 1997, and as adjusted for
the consummation of the Restructuring Plan as described above:
CAPITALIZATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPT. 30, SEPT. 30,
1997 1997
(ACTUAL) (ADJUSTED)(1)
------------- ------------
<S> <C> <C>
Current portion of long-term debt and revolving advance account.................. $ 27,003 $ 47,003(2)
------------- ------------
Long-term debt, principally from related parties................................. 52,021 3,687(3)
------------- ------------
Redeemable Series D Preferred Stock, $100,000 stated value per share, 100 shares
authorized, none outstanding................................................... -- --
Shareholders' deficit:
Series A Preferred Stock, $100,000 stated value per share, 400 shares
authorized, 327.087 shares issued and outstanding at September 30, 1997 with
none outstanding after adjustment............................................ 39,584 --(4)
Series B Preferred Stock $100,000 stated value per share, 250 shares
authorized, none outstanding................................................. -- --
Series C Preferred Stock, $100,000 stated value per share, 1,000 shares
authorized, 317.678 shares issued and outstanding at September 30, 1997 with
none outstanding after adjustment............................................ 36,618 --(5)
Series E Preferred Stock, $1,000 stated value per share, 20,000 shares
authorized, none outstanding................................................. -- --
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SEPT. 30, SEPT. 30,
1997 1997
(ACTUAL) (ADJUSTED)(1)
------------- ------------
<S> <C> <C>
Series F Preferred Stock, $1,000 stated value per share, 1,000 shares
authorized, 442.926 shares issued and outstanding in 1997 after adjustment... -- 43,211(6)
Common Stock, 40,000,000 shares authorized in 1997, $.01 par value per share,
11,578,046 shares issued at September 30, 1997 and 31,681,266 shares
outstanding after adjustment................................................. 115 317(7)
Additional paid-in capital..................................................... 73,507 154,277(7)
Accumulated deficit.............................................................. (232,390) (232,390)
------------- ------------
Subtotal................................................................... (82,566) (34,585)
Less cost of common treasury shares (140,220 shares)............................. (1,117) (1,117)
------------- ------------
Total shareholders' deficit.................................................... (83,683) (35,702)
------------- ------------
Total capitalization....................................................... $ (4,659) $ 14,988
------------- ------------
------------- ------------
</TABLE>
(FOOTNOTES FOR PRECEDING PAGE)
- ------------------------
Footnotes:
(1) Adjusted figures illustrate the effects of consummating the transactions
called for by the Restructuring Plan, as if such transactions had occurred
as of September 30, 1997. The adjusted figures also include the effects of
the following transactions related to the Restructuring Plan, as if such
transactions had occurred as of such date: (i) the exercise by WGI (which
actually occurred as of November 7, 1997) of warrants to acquire, 4,630,000
additional shares of Common Stock, with the exercise price for such warrants
being paid through (A) surrender to the Company of 33.75 shares of Series C
Preferred Stock and (B) the extinguishment of $9,452,120 of the indebtedness
owed to WGI by the Company and (ii) the repayment of $20,000,000 of
indebtedness owed by the Company to WGI with additional funds available to
the Company under the amended and restated factoring agreement with its
Senior Lender (which actually occurred as of November 10, 1997). NOTE: The
adjusted figures DO NOT include: (a) advances of additional funds to the
Company by WGI (plus accrued interest thereon) from September 30 through the
date of this Proxy Statement in the aggregate amount of approximately
$8,119,700 and (b) the issuance of 855,194 additional shares of Common Stock
in connection with the Company's acquisition of Big Ball Sports, Inc. and
Print the Planet, Inc., which occurred as of November 5, 1997.
(2) The adjustment reflects the $20,000,000 of additional funding obtained by
the Company under the amended and restated factoring agreement with its
Senior Lender.
(3) The adjusted total as of September 30, 1997 reflects: (i) the extinguishment
of $9,452,120 of the indebtedness owed to WGI by the Company in connection
with WGI's exercise of warrants (which actually occurred as of November 7,
1997); (ii) the repayment of $20,000,000 of indebtedness owed by the Company
to WGI with additional funds available to the Company under the amended and
restated factoring agreement with its Senior Lender (which actually occurred
as of November 10, 1997); (iii) the issuance to WGI, as part of the
Restructuring Plan, of 8,000,000 shares of Common Stock in payment for
$15,831,950 of the remaining outstanding debt owed by the Company to WGI;
and (iv) the conversion, as part of the Restructuring Plan, of all remaining
indebtedness (including accrued interest thereon through September 30, 1997)
owed to WGI for financing provided to the Company through August 22, 1997 (a
total of approximately $22,696,300) into approximately 226.963 shares of
Series F Preferred Stock. NOTE: The adjusted total as of September 30, 1997
DOES NOT include: (a) interest (in the amount of approximately $2,234,150)
on WGI's financing provided to the Company through August 22, 1997 that will
accrue between September 30, 1997 and December 30, 1997 (the anticipated
effective date of the Restructuring Plan), and will be converted into
approximately 22.342 shares of Series F Preferred Stock or (b) advances of
additional funds to the Company
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
29
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
by WGI (plus accrued interest thereon) from September 30 through December 30
in the aggregate amount of approximately $8,119,700 (this assumes no
additional funds advanced after the date of this Proxy Statement). Including
such amounts (and including the conversion of Series C Preferred Stock held
by WGI as discussed in Note (5) below), there will actually be approximately
454.444 shares of Series F Preferred Stock issued to WGI pursuant to the
Restructuring Plan, and the actual amount of subordinated indebtedness owed
by the Company to WGI after implementing the Restructuring Plan will be
approximately $9,891,000.
(4) The adjustment showing no shares of Series A Preferred Stock outstanding as
of September 30, 1997 reflects the exercise by the Company pursuant to the
Restructuring Plan, of its right under the Preferred Stock Agreement to
redeem all of the remaining outstanding shares (including accumulated
dividends) of the Series A Preferred Stock and Series C Preferred Stock held
by FS Signal and its affiliates with a total of 7,473,220 shares of Common
Stock valued for such purpose at $7.00 per share.
(5) The adjustment showing no shares of Series C Preferred Stock outstanding as
of September 30, 1997 reflects: (i) the surrender to the Company by WGI of
33.75 shares of Series C Preferred Stock in connection with WGI's exercise
of warrants (which actually occurred as of November 7, 1997); (ii) the
conversion of 177.969 shares of Series C Preferred Stock (representing a
total of $20,513,958.31 in stated value plus accrued dividends) into
approximately 205.140 shares of Series F Preferred Stock as part of the
Restructuring Plan; and (iii) the exercise by the Company, pursuant to the
Restructuring Plan, of its right under the Preferred Stock Agreement to
redeem all of the remaining outstanding shares (including accumulated
dividends) of the Series A Preferred Stock and Series C Preferred Stock held
by FS Signal and its affiliates with a total of 7,473,220 shares of Common
Stock valued for such purpose at $7.00 per share.
(6) This adjustment results from the issuance of approximately 432.103 shares of
Series F Preferred Stock, stated value $100,000 per share, as part of the
Restructuring Plan, pursuant to: (i) the conversion of approximately
$22,696,300 of indebtedness owed by the Company to WGI into approximately
226.963 shares of Series F Preferred Stock and (ii) the conversion of
177.969 shares of Series C Preferred Stock (representing a total of
$20,513,958.31 in stated value plus accrued dividends) into approximately
205.140 shares of Series F Preferred Stock. NOTE: As discussed in Note (3)
above, this adjustment DOES NOT include the conversion into approximately
22.342 shares of Series F Preferred Stock of interest (in the amount of
$2,234,150) on WGI's financing provided to the Company through August 22,
1997 that will accrue between September 30, 1997 and December 30, 1997 (the
anticipated effective date of the Restructuring Plan).
(7) The increase in the number of shares of Common Stock outstanding (and the
resulting increase in Additional paid-in capital) as of September 30, 1997
results from (i) the issuance of 4,630,000 additional shares of Common Stock
in connection with the exercise of warrants by WGI (which actually occurred
as of November 7, 1997); (ii) the issuance to WGI, as part of the
Restructuring Plan, of 8,000,000 shares of Common Stock in payment for
$15,831,950 of the remaining outstanding debt owed by the Company to WGI;
and (iii) the issuance of 7,473,220 additional shares of Common Stock in
connection with the exercise by the Company, pursuant to the Restructuring
Plan, of its right under the Preferred Stock Agreement to redeem all of the
remaining outstanding shares (including accumulated dividends) of the Series
A Preferred Stock and Series C Preferred Stock held by FS Signal and its
affiliates with shares of Common Stock valued for such purpose at $7.00 per
share. NOTE: The adjusted number of shares of Common Stock DOES NOT include
the issuance of 855,194 additional shares of Common Stock in connection with
the Company's acquisition of Big Ball Sports, Inc. and Print the Planet,
Inc., which occurred as of November 5, 1997.
APPROVAL OF THE RESTRUCTURING PLAN
The New York Stock Exchange rules (pursuant to Paragraph 312.03 (c) of the
Listed Company Manual) require shareholder approval when a listed company plans
to issue additional shares of Common
30
<PAGE>
Stock, or securities convertible into or exercisable for Common Stock (E.G.,
warrants), if the Common Stock to be issued has (or will have upon issuance)
voting power greater than or equal to 20% of the total voting power of the
shares of the Company's Common Stock outstanding before the issuance of such
stock or other securities. As of November 20, 1997, there were 17,063,240 shares
of Common Stock outstanding. Accordingly, shareholder approval is required for
the proposed issuance of 15,473,220 shares of Common Stock in connection with
the Restructuring Plan.
Messrs. Walsh and Greenwood, both directors of the Company, are managers of
WGI. Both Messrs. Walsh and Greenwood abstained when the Board voted upon this
matter. The Board of Directors believes the Restructuring Plan is necessary to
enable the Company to continue to operate as a going concern while implementing
management's turnaround strategy for the Company's business. Given the Company's
current financial condition, the Board of Directors does not believe that
additional bank financing could be obtained or that any other commercially
reasonable alternatives would be available to the Company for achieving a
similar increase in its overall equity and reductions in its level of
indebtedness and ongoing interest expense. Accordingly, the Board of Directors
believes hat the issuance of 15,473,220 shares of the Company's Common Stock in
connection with the Restructuring Plan is fair to, and in the best interest of,
the Company and its shareholders.
PROPOSAL 5
INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors of the Company has adopted a resolution recommending
to the shareholders the adoption of an amendment to the Restated Articles of
Incorporation of the Company to increase the authorized number of shares of
Common Stock, $0.01 par value, from 40,000,000 to 80,000,000.
The Company's Restated Articles of Incorporation provide that the authorized
capital of the Company is 41,600,000 shares consisting of 40,000,000 shares of
Common Stock, $0.01 par value and 1,600,000 shares of Preferred Stock, no par
value. There are presently 17,063,240 shares of Common Stock outstanding. The
Company also has an additional 8,329,160 shares reserved for issuance upon the
exercise of outstanding warrants and options to acquire shares of Common Stock.
Assuming approval by the Company's shareholders of (i) the increase in the
number of shares of Common Stock issuable under the Company's 1985 Stock Option
Plan, as provided in Proposal 2 in this Proxy Statement, and (ii) the issuance
of warrants to acquire additional shares of Common Stock to WGI and to two
directors of the Company, as provided in Proposals 3, 6 and 7 in this Proxy
Statement, the number of additional shares of Common Stock reserved for issuance
by the Company will be increased to 15,179,160 shares. Accordingly, in order to
effectuate the restructuring discussed in Proposal 4 above, involving the
issuance of an additional 15,473,220 shares of Common Stock, the Company will be
required to amend its Restated Articles of Incorporation to increase the number
of shares of Common Stock available for issuance. The Board has determined that
it is in the best interests of the Company to have additional shares of Common
Stock authorized and available for issuance so that it may effectuate said
restructuring. The authorization of the amendment to the Restated Articles of
Incorporation, of and by itself will have no effect upon the rights of the
existing shareholders.
If approved by the shareholders, the initial paragraph of Article Fourth of
the Company's Restated Articles of Incorporation will be amended to read as
follows:
FOURTH: The total number of shares of capital stock of all
classifications which the Corporation shall have authority to issue is
Eighty-One Million Six Hundred Thousand (81,600,000) shares, divided into
two classes, as follows: Eighty Million (80,000,000) shares of Common Stock
having a par value of $.01 per share, One Million Six Hundred Thousand
(1,600,000) shares of Preferred Stock having no par value.
31
<PAGE>
PROPOSAL 6
APPROVAL OF THE ISSUANCE OF 250,000
WARRANTS TO LEON RUCHLAMER
The Board of Directors has approved, and recommends to the Shareholders for
their approval, the issuance of a warrant certificate to purchase 250,000 shares
of the Company's Common Stock to Leon Ruchlamer, Vice-Chairman of the Board of
Directors and a consultant to the Company, effective March 3, 1997. The warrants
(1) would allow Mr. Ruchlamer to purchase up to 250,000 shares of the Company's
Common Stock at $2.375 per share, (2) would vest on the following schedule: 2/3
on the second anniversary of the date of issuance and the remaining third on the
third anniversary of the date of issuance; and (3) would expire five years from
the date of issuance. The Board of Directors believes this transaction is
necessary and in the best interests of the Company and its shareholders.
Mr. Ruchlamer, in addition to his service as a director of the Company, acts
as a consultant to the Company with respect to securing and maintaining
relationships with various suppliers which have helped to facilitate the
Company's continued operations throughout the financial difficulties that it has
faced in recent periods. Mr. Ruchlamer performs such additional services for the
Company from time to time on an "as needed" basis. The Company is awarding the
250,000 warrants to Mr. Ruchlamer as compensation for his past, present and
future consulting services to the Company.
The New York Stock Exchange rules require shareholder approval when a listed
company plans to issue additional shares of Common Stock, or securities
exercisable into Common Stock (e.g., warrants) to officers or directors pursuant
to a plan or an arrangement, except for warrants or rights issued pursuant to a
broadly-based plan or arrangement (e.g., an employee stock option plan). The
warrants to be issued to Mr. Ruchlamer are not being issued pursuant to a
broadly-based plan or arrangement. Accordingly, shareholder approval is required
for the proposed issuance to Mr. Ruchlamer of the warrants to purchase 250,000
shares of Common Stock.
The proposed warrants, if exercised, will result in each Common shareholder
(except Mr. Ruchlamer) having a slightly lower percentage of voting power. These
warrants will not be dilutive with respect to earnings per share, however,
because the exercise price for the warrants was set equal to the current market
price for the Common Stock on the date of grant. At present, the exercise price
is above the current market price for the Common Stock.
As stated above, Mr. Ruchlamer is a director of the Company. Mr. Ruchlamer
abstained when the Board voted upon this matter.
PROPOSAL 7
APPROVAL OF THE ISSUANCE OF 10,000
WARRANTS TO JACOB I. FEIGENBAUM
The Board of Directors has approved, and recommends to the Shareholders for
their approval, the issuance of a warrant certificate to purchase 10,000 shares
of the Company's Common Stock to Jacob I. Feigenbaum, a director the Company,
effective September 25, 1997. The warrants (1) would allow Mr. Feigenbaum to
purchase up to 10,000 shares of the Company's Common Stock at $2.375 per share,
(2) would vest on the first anniversary of the date of issuance; and (3) would
expire five years from the date of issuance.
The Company is awarding the 10,000 warrants to Mr. Feigenbaum as additional
compensation for his services as a director of the Company in lieu of certain
directors fees. In light of the Company's current
32
<PAGE>
financial condition, the Board of Directors believes that this transaction
benefits the Company, and is fair to and in the best interests of the Company
and its shareholders.
The New York Stock Exchange rules require shareholder approval when a listed
company plans to issue additional shares of Common Stock, or securities
exercisable into Common Stock (e.g., warrants) to officers or directors pursuant
to a plan or an arrangement, except for warrants or rights issued pursuant to a
broadly-based plan or arrangement (e.g., and employee stock option plan). The
warrants to be issued to Mr. Feigenbaum are not being issued pursuant to a
broadly-based plan or arrangement. Accordingly, shareholder approval is required
for the proposed issuance to Mr. Feigenbaum of the warrants to purchase 10,000
shares of Common Stock.
The proposed warrants, if exercised, will result in each Common shareholder
(except Mr. Feigenbaum) having a slightly lower percentage of voting power.
These warrants will not be dilutive with respect to earnings per share, however,
because the exercise price for the warrants was above the current market price
for the Common Stock on the date of grant. The exercise price is also above the
current market price for the Common Stock.
As stated above, Mr. Feigenbaum is a director of the Company. Mr. Feigenbaum
abstained when the Board voted upon this matter.
OTHER MATTERS
The Company does not intend to bring before the meeting any matters other
than those hereinbefore set forth, and has no present knowledge that any other
matters will be or may be brought before the meeting by others. However, if any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the proxy in accordance with
their judgment.
Representatives of the firm of Arthur Andersen LLP are expected to be
present at the 1997 Annual Meeting. The representatives will have the
opportunity to make a statement at the meeting if they desire to do so and are
expected to be available to respond to appropriate questions from shareholders.
INCORPORATION BY REFERENCE OF CERTAIN FINANCIAL INFORMATION
A copy of the Company's 1996 Annual Report to Shareholders is being
delivered to each shareholder along with this Proxy Statement. The Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Summary of Selected Financial Data, Report of Independent Public Accountants,
and Financial Statements and Notes sections of such Annual Report (pages 3
through 28 thereof) are hereby incorporated by reference into this Proxy
Statement. Additionally, copies of each of the following documents (excluding
any exhibits thereto), previously filed by the Company with the U.S. Securities
and Exchange Commission, are being delivered to each shareholder along with this
Proxy Statement and are incorporated herein by reference in their entirety: (i)
Schedule II to the audited financial statements filed by the Company as part of
its Annual Report on Form 10-K for the fiscal year ended December 31, 1996, (ii)
the Company's Quarterly Report on Form 10-Q for its quarter ended March 31,
1997; (iii) the Company's Quarterly Report on Form 10-Q for its quarter ended
June 30, 1997; and (iv) the Company's Quarterly Report on Form 10-Q for its
quarter ended September 30, 1997.
SHAREHOLDERS' PROPOSALS
In order for shareholder proposals for the 1998 Annual Meeting of
Shareholders to be eligible for inclusion in the Company's Proxy Statement,
proposals must be received by the Company at its principal office in
Chattanooga, Tennessee, prior to January 8, 1998.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT J. POWELL
Secretary
33
<PAGE>
PROXY SIGNAL APPAREL COMPANY, INC.
200-A MANUFACTURERS ROAD
P.O. BOX 4296
CHATTANOOGA, TENNESSEE 37405
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS, DECEMBER 30, 1997
The undersigned hereby appoints Robert J. Powell and David E. Houseman, and
each of them, Proxies, with full power of substitution, to act and to vote the
shares of common stock which the undersigned is entitled to vote at the Annual
Meeting of Shareholders to be held at 200-A Manufacturers Road, Chattanooga,
Tennessee 37405, at 1 P.M., E.S.T., on December 30, 1997, and any adjournment or
adjournments thereof as follows:
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS: / / FOR all nominees / / WITHHOLD ALL AUTHORITY
(EXCEPT AS INDICATED TO THE CONTRARY TO VOTE FOR ALL NOMINEES LISTED
BELOW) BELOW
Jacob I. Feigenbaum; Paul R. Greenwood; David E. Houseman; Thomas A. McFall; John W. Prutch; Leon Ruchlammer;
Stephen Walsh.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL, WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW)
2. APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1985 STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES OF
THE COMPANY'S COMMON STOCK ISSUABLE THEREUNDER FROM 1,190,000 TO 4,000,000.
/ / FOR / / AGAINST / / ABSTAIN
3. TO APPROVE THE ISSUANCE OF WARRANTS TO PURCHASE UP TO 4,500,000 SHARES OF THE COMPANY'S COMMON STOCK
TO WGI, LLC IN CONNECTION WITH THE CERTAIN WAIVERS AND ADDITIONAL FUNDING UNDER THE CREDIT AGREEMENT
BETWEEN THE COMPANY AND WGI, LLC AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
/ / FOR / / AGAINST / / ABSTAIN
4. APPROVAL OF THE ISSUANCE OF 15,473,220 ADDITIONAL SHARES OF COMMON STOCK IN CONNECTION WITH THE
RESTRUCTURING OF THE COMPANY'S OUTSTANDING DEBT AND PREFERED STOCK.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED ON REVERSE SIDE)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
5. APPROVAL OF AN AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF INCORPORATION INCREASING THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 40,000,000 TO 80,000,000.
/ / FOR / / AGAINST / / ABSTAIN
6. APPROVAL OF THE ISSUANCE OF WARRANTS TO PURCHASE UP TO 250,000 SHARES OF THE COMPANY'S COMMON STOCK TO
A DIRECTOR/CONSULTANT OF THE COMPANY.
/ / FOR / / AGAINST / / ABSTAIN
7. APPROVAL OF THE ISSUANCE OF WARRANTS TO PURCHASE UP TO 10,000 SHARES OF THE COMPANY'S COMMON STOCK TO
ANOTHER DIRECTOR OF THE COMPANY.
/ / FOR / / AGAINST / / ABSTAIN
8. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN
FAVOR OF PROPOSALS 1 THROUGH 7. THE BOARD IS NOT AWARE OF ANY OTHER MATTER TO BE
BROUGHT BEFORE THE ANNUAL MEETING FOR A VOTE OF SHAREHOLDERS. IF, HOWEVER, OTHER
MATTERS ARE PROPERLY PRESENTED , THE PROXIES WILL VOTE IN ACCORDANCE WITH THEIR
BEST JUDGMENT.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders, dated December 12, 1997, and the Proxy Statement furnished
therewith.
Dated this ____ day of _____________,
1997.
----------------------------------------- (Seal)
Note: Signature should agree with name on
stock certificate as printed thereon.
Executors, administrators, trustees and
other fiduciaries and persons signing on
behalf of corporations or partnerships,
should so indicate when signing.
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ACCOMPANYING PREPAID
SELF-ADDRESSED ENVELOPE. THANK YOU.
