SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______ to _______
Commission File No. 1-2782
SIGNAL APPAREL COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Indiana 62-0641635
(State of Incorporation) (I.R.S. Employer
Identification Number)
200 Manufacturers Road, Chattanooga, Tennessee 37405
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (423) 266-2175
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock: Par value $.01 a share New York Stock Exchange
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [_]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant: $4,948,685, calculated by using the closing price on the New
York Stock Exchange on April 20, 1998 of the Company's Common stock, and
excluding common shares owned beneficially by directors and officers of the
Company, and by certain other entities, who may be deemed to be "affiliates",
certain of whom disclaim such status.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 20, 1998
----- --------------------------------
Common Stock, $.01 par value 32,661,460 shares
<PAGE>
The registrant hereby amends the following items, financial statements, exhibits
or other portions of its Annual Report on Form 10-K for the year ended December
31, 1997, which was filed with the Commission on March 31, 1998:
Part III, Item 10:
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
The following is a list of the names, ages, positions held with the Company and
business experience during the past five years of all directors:
<TABLE>
<CAPTION>
Year First
Business Experience Became a
Name and Address Age and Directorships Director
- ---------------- --- ------------------- ----------
<S> <C> <C> <C>
Jacob I. Feigenbaum 50 President of Miracle Suit by Swim Shaper since 1994
c/o Miracle Suit February 1996; President and owner of Sea Q.
1411 Broadway, 30th America, August 1994 to 1996; President of Robby
Floor Len Swimwear division of Apparel America, 1980 to
New York, NY 10018 1994.
Paul R. Greenwood 51 Managing General Partner of Walsh Greenwood & Co., 1990
One East Putnam Ave. a broker-dealer engaged in effecting transactions
Greenwich, CT 06830 in securities for others and for its own account.
David E. Houseman 57 Chief Executive Officer since September 1997; 1997
200-A Manufacturers President from August 1997 to September 1997;
Road Chief Operating Officer and Chief Financial
Chattanooga,TN 37405 Officer since June 1997; Senior Vice President
Finance and Chief Financial Officer of Bayer
Clothing Group, Inc., April 1993 to June 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year First
Business Experience Became a
Name and Address Age and Directorships Director
- ---------------- --- ------------------- ----------
<S> <C> <C> <C>
Thomas A. McFall 44 Chairman, Weatherly Financial Companies, since 1997
950 Lakeview Pkwy. 1984.
Vernon Hills, IL
60061
John W. Prutch 45 President of the Company since October 1997; 1997
1088 National Pkwy. 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 from 1995
200-A Manufacturers August 1995 to December 1997; President, February
Road 1995 to August 1995; Consultant within apparel and
Chattanooga,TN 37405 textile industry, 1992 to January 1995.
Stephen Walsh 53 Chariman of the Board of Directors since September 1990
3333 New Hyde Park 1997; General Partner of Walsh Greenwood & Co.,
Road broker-dealer engaged in effecting transactions in
North Hills, NY securities for others and for its own account.
11040
</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 director.
Pursuant to an agreement among the Company and certain shareholders (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. As
of the date of this Report, neither FS Signal Associates, L.P. nor FS Signal
Associates II, L.P. has exercised this right by nominating any individuals for
election to the Board of Directors.
Pursuant to an agreement between the Company and Weatherly Financial, the
Company will use its best efforts to cause two (2)
<PAGE>
persons selected by Weatherly Financial (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 Annual Meetings until
1999 or the termination of said agreement, whichever is sooner. Messrs. McFall
and Prutch were nominated as directors at the 1997 Annual Meeting pursuant to
this agreement.
The Board of Directors held six meetings in 1997.
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:
Name Age Office and Business Experience
- ---- --- ------------------------------
David E. Houseman 57 Director; Chief Executive Officer since
September 1997; Chief Operating Officer and
Chief Financial Officer since June 1997;
President from August 1997 to September
1997; Senior Vice President Finance and
Chief Financial Officer of Bayer Clothing
Group, Inc., April 1993 to June 1997.
Leslie W. Levy 60 Vice President of the Company and President
of the Heritage Sportswear business unit of
the Company since 1977.
Robert J. Powell 49 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 since October 1997; President,
GIDI Holdings, Inc., imprinted activewear
manufacturer, July 1994 to October 1997;
President, Merchant Capital Group, Ltd.,
1984 to January 1993.
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 and directors.
<PAGE>
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 1997 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 late
filing by each of Messrs. Prutch, Ruchlamer, Feigenbaum, and McFall, and by each
of Walsh Greenwood & Co., WG Partners, L.P., WG Trading Company Limited
Partnership, FS Signal Associates, L.P. and FS Signal Associates II, L.P., and
two late filings by each of WGI, LLC. and Messrs. Walsh and Greenwood.
<PAGE>
Part III, Item 11:
EXECUTIVE COMPENSATION
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) Barton J. Bresky,
the Company's Chief Executive Officer from December 6, 1996 until August 20,
1997 (ii) David E. Houseman, Chief Executive Officer since September 1997, and
(iii) the Company's other four most highly compensated executive officers
serving as of December 31, 1997 (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------
Long-Term
Compensation
Awards
------------
Other Securities All
Annual Underlying Other
Name and Principal Salary Bonus Compensation Options/SARs Compensation
Position Year ($) ($) ($) (#)(2) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Barton J. Bresky, ........... 1997 223,383 -- -- 265,000 7,378
President and Chief ........ 1996 108,608 -- 40,092 -- 7,273
Executive Officer .......... 1995 -- -- -- -- --
(until August 1997)
David E. Houseman, .......... 1997 90,805 -- 104,226(1) 300,000 562
Chief Executive ............ 1996 -- -- -- -- --
Officer, .................. 1995 -- -- -- -- --
Chief Operating
Officer, and Chief
Financial Officer
Robert J. Powell, ........... 1997 180,418 -- -- 150,000 4,868
Vice President ............ 1996 185,000 -- -- -- 5,645
and Secretary ............. 1995 191,125 -- -- 50,000 5,595
John W. Prutch, ............. 1997 31,705 -- -- 150,000 87
President (since ........... 1996 -- -- -- -- --
October 1997) .............. 1995 -- -- -- -- --
Leslie W. Levy, ............. 1997 145,192 -- -- -- 12,514
Vice President ............. 1996 145,000 -- -- -- 9,062
and President, ............. 1995 145,000 -- -- -- 8,872
Heritage Sportswear
Division
</TABLE>
<PAGE>
NOTES TO SUMMARY COMPENSATION TABLE
(1) $100,475 of this amount consisted of moving and temporary living expenses
and related reimbursements.
(2) Reflects the number of shares of the Company's Common Stock subject to
options granted to the Named Executive Officers for the periods presented.
(3) These amounts include the portion of life insurance premiums paid by the
Company that represents term life insurance on each of the Named
Executives. In 1997, these amounts were as follows: Mr. Bresky, $4,242; Mr.
Houseman, $562; Mr. Powell, $1,117;Mr. Prutch, $87; and Mr. Levy, $9,547.
All other amounts represent Company matching contributions to a 401(k) plan
maintained by the Company for the accounts of the Named Executives. In
1997, these amounts were as follows: Mr. Bresky, $3,136; Mr. Houseman,
none; Mr. Powell, $3,751; Mr. Prutch, none; and Mr. Levy, $2,967.
The table below sets forth certain information concerning grants of options
during the year ended December 31, 1997, to the Company's Named Executives. The
plan does not provide for the granting of stock appreciation rights.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
---------------------------- Potential Realizable Value
% of Total at Assumed Annual Rates of
Options Stock Price Appreciation
Granted to Exercise or for Option Term*
Options Employees In Base Price Expiration --------------------------
Name granted (#) Fiscal Year ($/Share) Date 5%($) 10%($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Barton J. Bresky(1) 250,000 10.01% $ 2.375 3/03/02 $164,042 $362,490
15,000 0.6% 2.375 8/21/02 Nil Nil
David E. Houseman(2) 300,000 14.02% 2.50 6/02/02 Nil Nil
Robert J. Powell(3) 150,000 6.01% 2.375 3/03/02 98,425 217,494
John W. Prutch(4) 150,000 6.01% 2.375 10/02/02 Nil 66,509
Leslie W. Levy -- -- -- -- -- --
</TABLE>
* The dollar gains under these columns result from calculations assuming 5%
and 10% growth rates as required by the Securities and Exchange Commission
and
<PAGE>
are not intended to forecast future price appreciation of Company Common
Stock. The gains reflect a future value based upon growth at these
prescribed rates.
(1) Options with respect to 250,000 shares were issued under the Company's 1985
Stock Option Plan as a component of Mr. Bresky's compensation, with an
exercise price equal to the market price on the date of grant. Under the
original terms of this grant, options with respect to 83,333 such shares
vested two years after the date of grant and the remaining 166,667 options
vested three years after the date of grant. Options with respect to 15,000
additional shares were issued pursuant to the Amendment to Employment
Agreement dated August 21, 1997, exercisable one year after the date of
grant with an exercise price that was $1.4375 above the market price on the
date of grant. Pursuant to the August 1997 Amendment to Mr. Bresky's
Employmet Agreement, vesting of the original options for 250,000 shares was
accellerated to March 2, 1998.
(2) Options were issued to induce Mr. Houseman to accept employment with the
Company, with 200,000 options vesting two years after the date of the grant
and the remaining 100,000 options vesting three years after the date of
grant. The options were issued with an exercise price that was $1.125 above
the market price on the date of grant.
(3) Options were issued under the Company's 1985 Stock Option Plan as a
component of Mr. Powell's compensation. Options with respect to 100,000
shares vest two years after the date of grant and the remaining 50,000
options vest three years after the date of grant. The options were issued
with an exercise price that was equal to the market price on the date of
grant.
(4) Options were issued to induce Mr. Prutch to accept employment with the
Company, 2/3 of the options vest two years after the date of grant and the
remaining 1/3 of the options vest three years after the date of grant. The
options were issued with an exercise price that is subject to adjustment
and was $.625 above the market price on the date of grant.
<PAGE>
The following table provides information about options held by the Named
Executives. The 1985 Stock Option Plan does not provide for the granting of
stock appreciation rights.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End($)(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ---------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Barton J. Bresky -- -- 250,000 exer./ --
15,000 unexer. --
David E. Houseman -- -- 0 exer./ --
300,000 unexer. --
Robert J. Powell
-- -- 125,000 exer./ --
150,000 unexer. --
John W. Prutch
-- -- 0 exer./ --
150,000 unexer. --
Leslie W. Levy
-- -- 30,000 exer./ --
0 unexer. --
</TABLE>
(1) Value of unexercised in-the-money options based on a fair market value of a
share of the Company's Common Stock of $1.25 as of December 31, 1997. Based
on such value, none of the options held by any of the Named Executives were
"in-the-money" at December 31, 1997.
<PAGE>
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.
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 (i)
options to purchase 300,000 shares of the Company's Common Stock and (ii)
warrants to purchase 50,000 shares of the Company's Common Stock, both at an
exercise price of $2.50 per share ($1.125 above the market price on the date of
grant). The warrants were immediately exercisable and the options vest at the
rate of 200,000 shares two years from the date of grant, and 100,000 shares
three years from the date of grant. All such warrants and options expire five
years from the date of grant. The shares subject to the warrants and 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 and/or warrants to purchase additional shares of Common Stock such that
the total number of shares subject to options and/or warrants 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 or warrants shall
expire five years from the date of grant, shall have a vesting schedule similar
to his initial options/warrants 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
<PAGE>
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 or warrants
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 or warrants. Any vested Incentive Stock Options will expire three
months from the date of termination, and any vested Non-Incentive Stock Options
or warrants 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 or warrants 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.
John W. Prutch is employed as the Company's President. Pursuant to the
terms of his employment agreement, which commenced October 2, 1997, Mr. Prutch's
base salary is $150,000 with the right to receive an annual bonus. As a further
inducement to employment, the Company granted Mr. Prutch options pursuant to the
Company's 1985 Stock Option Plan to purchase 150,000 shares of the Company's
Common Stock at an exercise price of $2.375 per share, subject to adjustment
($.625 above the market price on the date of grant), with such options vesting
at the rate of 100,000 shares two years after the date of grant and the
remaining 50,000 shares three years after the date of grant. All such options
expire five years from the date of grant. Additionally, Mr. Prutch 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. Prutch's employment is
terminated for cause or, under certain circumstances, Mr. Prutch voluntarily
terminates his employment, the Company shall pay Mr. Prutch (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. Prutch shall expire. If Mr. Prutch 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.
<PAGE>
Prutch's employment is terminated without cause (as defined in his employment
agreement then he will be entitled to payments equal to one year's base salary.
Furthermore, all unvested options shall become immediately exercisable. 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.
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 be continued until August 19, 1998, vesting of optons previously
granted with respect to 250,000 shares of the Company's Common Stock was
accellerated to March 2, 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Jacob I. Feigenbaum, Paul R. Greenwood and Stephen Walsh 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 included three
demand registrations; (v) stated interest upon the outstanding balance of the
credit at the rate of 25% per annum; (vi) all borrowings were secured by a
security interest in all assets of the Company then pledged to two other
lenders,
<PAGE>
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 contained 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 was
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 were 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 extended 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
<PAGE>
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 December 1997, the Company 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 December 1997. 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 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 issued 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 market price on the date of grant).
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 vested as to all 4,500,000 shares upon issuance. All of such warrants
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.
At the 1997 Annual Meeting of the Company, the Shareholders approved a plan
for restructuring the Company's debt and preferred stock (the "Restructuring
Plan"). The Restructuring Plan included certain provisions 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. Pursuant to the
agreement between the Company and WGI concerning the Restructuring Plan, the
Company applied $20,000,000 of
<PAGE>
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 provided 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) to reset the exercise
price of such warrants to $1.75 per share (approximately equal to the then
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
then current market price) in payment for $15,831,950 of the remaining
subordinated debt then owed by the Company to WGI (representing a discount on
the debt repayment of $1,831,950, which equaled the net economic benefit of
repricing the WGI warrants); and (iii) conversion of both the remaining
outstanding balance of such debt (approximately $24,930,400 including accrued
interest) 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 accrues cumulative undeclared dividends at
the rate of 9% per annum. These dividends are payable in cash when declared. The
Series F Preferred Stock is not convertible into Common Stock or into any other
security issued by the Company, and does not have any mandatory redemption or
call features.
In addition to the transactions described above between the Company and
WGI, the Restructuring Plan involved 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. WGI held 177.969 shares of the Company's Series C
Preferred Stock at the time of said redemption.
Stephen Walsh and Paul R. Greenwood, directors of the Company and members
of the Compensation Committee and the Executive Committee of the Board of
Directors, are the managers of WGI.
Part III, Item 12:
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 April 20, 1998, by each
shareholder that the Company knows to own beneficially more than 5% of the
issued and outstanding shares
<PAGE>
of the Company's Common Stock, director of the Company, Named Executive (as
defined herein) and by the directors and Named Executives of the Company as a
group.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Title of Beneficial Percent
Beneficial Owner of Class Ownership(1) of Class
---------------- -------- ------------ --------
<S> <C> <C> <C>
FS Signal Associates, L.P.; FS Signal Common Stock 15,987,502 43.2%
Associates II, L.P.; FS Signal, Inc.; and $.01 par value
Kevin S. Penn, as a group
65 E. 55th St., 18th Floor
New York, New York 10022(2)
Kevin S. Penn Common Stock 15,987,502 43.2%
65 E. 55th St., 18th Floor $.01 par value
New York, New York 10022(2)
FS Signal, Inc. Common Stock $.01 15,687,502 42.7%
65 E. 55th St., 18th Floor par value
New York, New York 10022(2)(3)
FS Signal Associates, L.P. Common Stock 5,380,013 16.1%
c/o Kenneth Musen $.01 par value
157 Church Street, Box 426
New Haven, Connecticut 06502(2)(4)
FS Signal Associates II, L.P. Common Stock 10,307,489 28.7%
c/o Kenneth Musen $.01 par value
157 Church Street, Box 426
New Haven, Connecticut 06502 (2)(5)
WGI, LLC Common Stock 21,452,349 57.2%
One East Putnam Avenue $.01 par value
Greenwich, Connecticut 06830 (6)
Series F
Preferred Stock
$100,000 stated 454.444 100%
value
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Title of Beneficial Percent
Beneficial Owner of Class Ownership(1) of Class
---------------- -------- ------------ --------
<S> <C> <C> <C>
Jacob I. Feigenbaum Common Stock -- --
$.01 par value
Paul R. Greenwood (6) Common Stock 21,452,349 57.2%
$.01 par value
Series F
Preferred Stock
$100,000 stated 454.444 100%
value
Leon Ruchlamer (7) Common Stock 100,000 *
$.01 par value
Stephen Walsh (6) Common Stock 21,452,349 57.2%
$.01 par value
Series F
Preferred Stock
$100,000 stated 454.444 100%
value
David E. Houseman (8) Common Stock 55,000 *
$.01 par value
Barton J. Bresky (7) Common Stock 250,000 *
$.01 par value
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Title of Beneficial Percent
Beneficial Owner of Class Ownership(1) of Class
---------------- -------- ------------ --------
<S> <C> <C> <C>
Leslie W. Levy (9) Common Stock 40,278 *
$.01 par value
Tom McFall Common Stock -- --
$.01 par value
Robert J. Powell (7) Common Stock 125,000 *
$.01 par value
John W. Prutch Common Stock -- --
$.01 par value
All directors and executive Common Stock 21,772,627 57.6%
officers as a group $.01 par value
[9 individuals] (10)
Series F
Preferred Stock
$100,000 stated 454.444 100%
value
</TABLE>
- ----------
* Less than 1%
NOTES TO TABLE OF BENEFICIAL OWNERSHIP
(1) As of April 20, 1998, the Company had issued and outstanding 32,661,460
shares of Common Stock, 454.444 shares of Series F 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
<PAGE>
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 April 20, 1998, 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 15,987,502 shares of Common Stock
include (i) 4,645,013 shares of Common Stock held directly by FS Signal;
(ii) 6,994,989 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 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 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 such Common 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 and FS Signal II, FSSI may be
deemed to be the beneficial owner of (i) 4,645,013 shares of Common Stock
held directly by FS Signal; (ii) 6,994,989 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; and (iv) warrants held directly by
FS Signal II to acquire 3,312,500 shares of Common Stock. 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.
(4) FS Signal, a Connecticut limited partnership, owns directly (i) 4,645,013
shares of Common Stock and (ii) warrants to acquire 735,000 shares of
Common 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 II, a Connecticut limited partnership, owns directly (i)
6,994,989 shares of Common Stock and (ii) warrants to acquire 3,312,500
<PAGE>
shares of Common 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)
16,607,349 shares of Common Stock; (ii) warrants to acquire a total of
4,845,000 shares of Common Stock; and (iii) 454.444 shares of Series F
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 the
shares of Series F Preferred Stock beneficially owned by WGI.
(7) The beneficial ownership reported for Messrs. Ruchlamer, Bresky 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 warrants 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 30,000 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 4,895,000 shares of Common
Stock and options to acquire 255,000 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.
Part III, Item 13:
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective May 9, 1997, the Company entered into an agreement with Weatherly
Financial ("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
<PAGE>
election as directors of the Company at the Company's Annual Meetings throughout
the term of the Agreement. Messrs. McFall and Prutch were nominated for election
(and subsequently elected) to the Company's Board of Directors at the 1997
Annual Meeting 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.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Robert J. Powell
---------------------------
Robert J. Powell
Vice President and
Secretary
Date: April 30, 1998
