SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 4, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________________ to_____________________
Commission file number 1-2782
SIGNAL APPAREL COMPANY, INC.
(Exact name of registrant as specified in its charter)
Indiana 62-0641635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200A Manufacturers Road, Chattanooga, Tennessee 37405
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (423) 266-2175
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 4, 1998
-------- ----------------------------
Common Stock 32,636,547 shares
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
July 4, Dec. 31,
1998 1997
--------- ---------
<S> <C> <C>
Assets
Current Assets:
Cash & cash equivalents $ 20 $ 384
Receivables, less allowance for doubtful 5,054 3,203
accounts of $1331 in 1998 and $2,665 in 1997
Note receivable 384 500
Inventories 12,557 10,390
Prepaid expenses and other 596 531
--------- ---------
18,611 15,008
Property, plant and equipment, net 5,128 6,045
Goodwill, less accumulated amortization
of $192 in 1998 and $56 in 1997 4,640 4,832
Debt issuance costs, net 3,320 3,716
Other assets 59 59
--------- ---------
Total assets $ 31,758 $ 29,660
========= =========
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 4,664 $ 2,577
Accrued liabilities 5,382 6,617
Accrued interest 2,630 1,603
Current portion of long-term debt 6,302 7,110
Revolving advance account 42,464 40,457
--------- ---------
Total current liabilities 61,442 58,364
--------- ---------
Long-term debt, principally from
related parties 19,575 12,580
--------- ---------
Shareholders' Equity (Deficit):
Common stock 325 325
Preferred stock 44,316 44,316
Additional paid-in capital 160,399 160,399
Accumulated deficit (253,182) (245,207)
Treasury shares (at cost) (1,117) (1,117)
--------- ---------
Total shareholders' equity (deficit) (49,259) (41,284)
--------- ---------
Total liabilities and
shareholders' equity (deficit) $ 31,758 $ 29,660
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 4, June 30, July 4, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 12,483 $ 11,891 $ 24,044 $ 22,257
Cost of sales 9,472 8,375 17,979 16,921
-------- -------- -------- --------
Gross profit 3,011 3,516 6,065 5,336
Royalty expense 1,059 1,651 1,856 2,512
Selling, general and administrative
expenses 4,494 3,108 9,502 5,812
Interest expense 1,669 3,713 3,218 7,199
Other (income)/expenses, net (90) 653 (536) 762
-------- -------- -------- --------
Loss before income taxes (4,121) (5,609) (7,975) (10,949)
Income taxes -- -- -- --
-------- -------- -------- --------
Net loss $ (4,121) $ 5,609 $ (7,975) $(10,949)
======== ======== ======== ========
Basic/diluted net loss per share $ (.13) $ (.48) $ (.24) $ (.95)
======== ======== ======== ========
Weighted average shares outstanding 32,662 11,578 32,641 11,578
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited) Six Months Ended
July 4, June 30,
1998 1997
-------- --------
Operating Activities:
Net loss $ (7,975) $(10,949)
-------- --------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,397 639
(Gain) loss on disposal of equipment (609) 482
Changes in operating assets
and liabilities:
Receivables (1,851) (3,273)
Inventories (2,167) 2,437
Prepaid expenses and other assets (65) (157)
Accounts payable and accrued
liabilities 1,879 2,160
-------- --------
Net cash used in operating
activities (9,391) (8,661)
-------- --------
Investing Activities:
Purchases of property, plant and
equipment (158) (58)
Proceeds from notes receivable 116 --
Proceeds from the sale of property,
plant and equipment 875 456
-------- --------
Net cash provided by
investing activities 833 398
-------- --------
Financing Activities:
Net increase/(decrease) in revolving
advance account 2,007 (748)
Borrowings from related party 7,350 8,878
Principal payments on borrowings (1,163) (1,335)
-------- --------
Net cash provided by
financing activities 8,194 6,795
-------- --------
Decrease in cash (364) (1,468)
Cash and Cash equivalents at beginning of period 384 1,713
-------- --------
Cash and Cash equivalents at end of period $ 20 $ 245
======== ========
See accompanying notes to financial statements.
<PAGE>
Part I Item 1. (cont'd)
SIGNAL APPAREL COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying consolidated condensed financial statements have been
prepared on a basis consistent with that of the consolidated financial
statements for the year ended December 31, 1997. The accompanying financial
statements include all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of the Company, necessary to present
fairly the financial position of the Company as of July 4, 1998 and its
results of operations and cash flows for the three and six months ended
July 4, 1998 and June 30, 1997. These consolidated condensed financial
statements should be read in conjunction with the Company's audited
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
2. The results of operations for the six months ended July 4, 1998 are not
necessarily indicative of the results to be expected for the full year.
3. Inventories consisted of the following:
July 4, December 31,
1998 1997
------- ------------
(In thousands)
Raw materials and supplies $ 1,176 $ 1,238
Work in process 3,558 1,032
Finished goods 7,823 8,120
------- -------
$12,557 $10,390
======= =======
4. Pursuant to the terms of various license agreements, the Company is
obligated to pay future minimum royalties of approximately $.4 million in
1998.
5. During the three months ended July 4, 1998, Signal was advanced
approximately an additional $2.4 million (bringing the year to date total
to $7.4 million) by WGI, LLC and certain of its affiliates (collectively,
"WGI"), a principal shareholder, bringing the Company's total indebtedness
to
<PAGE>
WGI for funds advanced to approximately $18.6 million as of the end of the
quarter. Based on negotiations with WGI, (as described in footnote #7) the
Company is accruing interest on such indebtedness at a rate of 10% per
annum. This debt is classified as long term debt in the accompanying
financial statements.
6. The computation of basic net loss per share is based on the weighted
average number of common shares outstanding during the period. Diluted
earnings per share would also include common share equivalents outstanding.
Due to the Company's net loss for all periods presented, all common stock
equivalents would be anti-dilutive to basic earnings per share.
7. At the 1997 Annual Meeting, the Company's Shareholders approved a plan for
restructuring the Company's then-outstanding preferred stock and the
majority of its subordinated debt (the "Restructuring Plan"). In connection
with the implementation of the Restructuring Plan (which was effective
December 30, 1997), the Company had agreed with one of its principal
shareholders, WGI, LLC, that all funds advanced to the Company by WGI after
August 21, 1997 (which indebtedness was not part of the Restructuring Plan)
would be documented in the form of a new Credit Agreement with interest
payable quarterly at a rate of 10% per annum and with other terms to be
agreed upon between the Company and WGI. As of August 10, 1998, the Company
was indebted to WGI in an aggregate principal amount of $19,360,000
pursuant to such advances.
On August 10, 1998, the Company's Board of Directors approved a new Credit
Agreement between the Company and WGI, to be effective as of May 8, 1998
(the "WGI Credit Agreement"), pursuant to which WGI will lend the Company
up to $25,000,000 for a three-year term ending May 8, 2001. Additional
material terms of the WGI Credit Agreement are as follows: (i) a maximum
borrowing of $25,000,000, which shall be available to the Company in
increments of $100,000 or any integral multiple of $5,000 in excess of
$100,000; (ii) the issuance to WGI of warrants to purchase up to 5,000,000
shares of the Company's Common Stock at $1.75 per share, which warrants
vest on the basis of 200,000 warrants for each $1,000,000 increase in the
maximum aggregate principal indebtedness outstanding at any one time over
the life of the agreement, are exercisable for three years from vesting,
and have registration rights no more favorable than the equivalent
provisions in the currently outstanding warrants issued to principal
shareholders of the Company, except that such rights include three demand
registrations (3,892,000 of such warrants would be treated as having vested
based on the Company's maximum aggregate borrowings as of the date hereof);
(iii) all borrowings are secured by a security interest in all of the
Company's assets (except for the assets of its Heritage division and
certain former plant locations which are currently held for sale),
subordinate to the security interests of the Company's senior lender; and
(iv) all borrowings may be used for any purpose approved by the Company's
directors and executive officers, including repayment of any other existing
indebtedness of the Company. In addition to the terms described above, the
Warrants issued in connection with the WGI Credit Agreement will contain
antidilution provisions which provide that the number of shares subject to
such Warrants shall be adjusted in connection with any future issuance of
the Company's Common Stock (or of other securities exercisable for or
convertible into Common Stock) such the aggregate number of shares issued
or issuable subject to these Warrants will always represent
<PAGE>
ten percent (10%) of the total number of shares of the Company's Common
Stock on a fully diluted basis.
Stephen Walsh, Chairman and Chief Executive Officer of the Company, and
Paul R. Greenwood, a director of the Company, are the managers of WGI.
Accordingly, pursuant to the requirements of New York Stock Exchange rules,
the Warrants to be issued as described above in connection with the WGI
Credit Agreement will be subject to approval by the Company's shareholders
at its 1998 Annual Meeting.
Additionally, as previously disclosed, the Company had entered into an
agreement with Weatherly Financial ("Weatherly"), effective May 9, 1997,
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 had a term of two years, subject to the Company's
right to terminate the agreement upon ninety days' prior written notice
after May 9, 1998. Weatherly was to be compensated for these services
through (i) a $5,000 base monthly fee and (ii) prescribed additional
success fees for completed financing or acquisition transactions arranged
with Weatherly's assistance. In addition, Weatherly was granted Warrants,
effective May 9, 1997, to purchase 805,000 shares of the Company's Common
Stock at $2.50 per share in connection with such services, which warrants
vested upon achievement of certain objectives with respect to the Company's
business performance and were part of a complex overall arrangement that
also included additional warrant opportunities. Subject to its fiduciary
duties, the Company also agreed to use its best efforts to cause two (2)
persons selected by Weatherly to be nominated for election to the Company's
Board of Directors at each annual shareholders meeting throughout the term
of the Agreement.
When the Weatherly Agreement was executed, all of the parties thereto
anticipated that Thomas A. McFall and John W. Prutch, in their capacities
as associates 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 the Company's subsequent employment
of Mr. McFall as Co-CEO of the Company and Mr. Prutch as President of the
Company, the Company has renegotiated the former arrangement with
Weatherly, replacing it with an agreement, approved by the Board of
Directors on August 10 to be effective as of May 8, 1998, directly with
Messrs. McFall and Prutch.
<PAGE>
Under the terms of the new agreement, the Warrants previously issued to
Weatherly have been assigned 50% to Mr. McFall and 50% to Mr. Prutch, and
have been repriced to $1.75 per share. Each of Messrs. McFall and Prutch
also have been issued additional non-transferable warrants, with a term of
10 years, for the purchase of up to 1,902,273 shares of Common Stock at an
exercise price of $1.75 per share (giving each of them Warrants to purchase
approximately 5% of the Company's outstanding shares of Common Stock on a
fully-diluted basis). All of these Warrants are now subject to a new
vesting schedule which provides that 33.4% of the Warrants (777,309 shares
for each of Messrs. McFall and Prutch) will be immediately exercisable.
Each of three remaining incremental installments of 22.2% of the total
Warrants (approximately 516,655 shares for each of Messrs. McFall and
Prutch) will vest on the basis of the achievement of goals concerning
prescribed increases in the Company's annual pre-tax earnings and/or the
average public trading price of its Common Stock over any period of 120
consecutive calendar days. The Warrants also will contain customary
antidilution provisions and piggyback registration rights, and Messrs.
McFall and Prutch will be restricted in their ability to dispose of the
Common Stock issuable under the Warrants without the prior consent of WGI,
LLC.
The new agreement also provides that Messrs. McFall and Prutch,
collectively, will receive a success fee equal to three percent (3%) of the
proceeds of any financing transactions which they participate in
developing, negotiating and closing with third parties for the benefit of
the Company, a portion of which may be paid in additional equity under
certain circumstances. They also (collectively) will receive a success fee
in connection with identifying, negotiating and closing any Acquisition
Transactions (as defined in the agreement) equal to three percent (3%) of
the Aggregate Consideration paid by the Company (as defined in the
agreement). All cash payments to Messrs. McFall and Prutch called for under
the terms of this agreement will be subject to reduction by the amount of
any compensation which they receive in their capacities as officers of the
Company.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
Net sales of $12.5 million for the quarter ended July 4, 1998 represents an
increase of $.6 million or 5% from the $11.9 million in net sales for the
corresponding period of 1997. This increase is comprised of a $2.0 million
increase in screenprinted products, offset by a $.2 million decrease in women's
fashion knitwear and a $1.2 million reduction in undecorated activewear.
Sales of screenprinted products were $9.8 million for the quarter ended July 4,
1998 versus $7.8 million for the corresponding period of 1997. The increase was
the result of the inclusion of Big Ball Sports, Inc., ("Big Ball") and G.I.D.I.
Holdings, Inc. doing business as Grand Illusion Sportswear, Inc. ("Grand
Illusion").
Sales of women's fashion knitwear decreased to $2.3 million for the quarter
ended July 4, 1998 as compared to $2.5 million for the corresponding period of
1997. The $.2 million sales decrease was composed of a $.6 million decrease in
women's fashion knitwear offset by a $.4 million increase in contract sales. The
reduction in women's fashion knitwear sales is primarily due to competition from
garments selling at lower retail prices.
Net sales of $24.0 million for the six months ended July 4, 1998 represents an
increase of $1.8 million or 8% from the $22.2 million in net sales for the
corresponding period of 1997. This
<PAGE>
increase is comprised of a $3.6 million increase in screenprinted products, a
$.4 million increase in women's fashion knitwear, offset by a $2.2 million
reduction in undecorated activewear.
Sales of screenprinted products were $17.6 million for the six months ended July
4, 1998 versus $14.0 million for the corresponding period of 1997. The increase
was the result of the inclusion of Big Ball and Grand Illusion.
Sales of women's fashion knitwear increased 7% to $5.8 million for the six
months ended July 4, 1998 as compared to $5.4 million for the corresponding
period of 1997. The $.4 million sales increase was composed of a $.8 million
increase in contract sales offset by a $.4 million reduction in women's fashion
knitwear. The reduction in women's fashion knitwear was primarily due to
competition from garments selling at lower retail prices.
Gross profit was $3.0 million (24% of sales) for the quarter ended July 4, 1998
compared to $3.5 million (30% of sales) for the corresponding period in 1997.
The reduction in margin was primarily the result of the sales mix, including
increased closeout sales.
Gross profit was $6.1 million (25% of sales) for the six months ended July 4,
1998 compared to $5.3 million (24% of sales) for the corresponding period in
1997. The margin improvement was primarily the result of the inclusion of Big
Ball and Grand Illusion in 1998.
Royalty expense related to licensed product sales was 8% of sales for the
quarter ended July 4, 1998 compared to 14% for the corresponding period of 1997.
This decrease was primarily caused by an decrease in the percentage of licensed
versus non-licensed sales.
Royalty expense related to licensed product sales was 8% of sales for the six
months ended July 4, 1998 compared to 11% for the corresponding period of 1997.
This decrease was primarily caused by an decrease in the percentage of licensed
versus non-licensed sales.
Selling, general and administrative (SG&A) expenses were 36% of sales for the
quarter ended July 4, 1998 and 26% of sales for corresponding period of 1997.
Actual SG&A expense increased $1.4 million, with $1.3 million being attributable
to Big Ball and Grand Illusion, and $.2 million for amortization of debt
issuance cost both of which were partially offset by reduction in other areas.
<PAGE>
Selling, general and administrative (SG&A) expenses were 40% of sales for the
six months ended July 4, 1998 and 26% of sales for the corresponding period of
1997. Actual SG&A expense increased $3.7 million, with $2.8 million being
attributable to Big Ball and Grand Illusion, $.4 million for legal and
professional and $.4 million for amortization of debt issuance cost.
FINANCIAL CONDITION
Additional working capital was required in the first half of 1998 to fund the
continued losses, payment of a portion of the purchase price for Big Ball, and
payments of principal on the Company's long-term debt to its secured lenders.
The Company's need was met through several transactions with the Company's
principal shareholders and the senior lender. During the first half of fiscal
1998, the Company received an additional $7.4 million (approximately) in
advances from WGI, a principal shareholder, bringing the Company's total
indebtedness to WGI for funds advanced to approximately $18.6 million as of July
4, 1998. At July 4, 1998, the Company had overadvance borrowings of
approximately $36.7 million with its senior lender compared to $34.0 million at
December 31, 1997.
The Company's working capital deficit at July 4, 1998 decreased $0.5 million or
1.2% compared to year end 1997. The decrease in working capital deficit was
primarily due to increases in accounts receivable ($1.9 million), inventory
($2.2 million), and prepaid expenses ($.1 million), and decreases in accrued
liabilities ($1.2 million), and current portion of long-term debt ($.8 million)
which were partially offset by a decrease in cash ($.4 million), an increase in
accrued interest ($1.0 million),an increase in accounts payable ($2.1 million)
and an increase in borrowings under the revolving advance account ($2.0
million).
Accounts receivable increased $1.9 million or 57.8% over year-end 1997. The
increase was primarily a result of the additional receivables from increased
sales for Big Ball and Grand Illusion and the timing of payments from the senior
lender on factored receivables.
Inventories increased $2.2 million or 20.9% compared to year-end
<PAGE>
1997. Inventories increased as a result of increased purchases to have the
proper product mix for seasonally stronger, third quarter sales.
Total current liabilities increased $3.1 million or .5% over year-end 1997,
primarily due to increases in accounts payable ($2.1 million), the revolving
advance account ($2.0 million) and accrued interest ($1.0 million), partially
offset by decreases in the current portion of long term-debt ($.8 million), and
in accrued liabilities ($1.2 million).
Cash used in operations was $9.4 million during the first six months of 1998
compared to $8.7 million used in operating activities during the same period in
1997. The net loss of $8.0 million, was primarily due to increases in accounts
receivable ($1.9 million) and inventory ($2.2 million) were the primary uses of
funds in the first six months of 1998. Primary items partially offsetting the
uses of funds were depreciation and amortization ($1.4 million)and an increase
in accounts payable and accrued liabilities ($1.9 million).
Commitments to purchase equipment totaled approximately $.4 million at July 4,
1998. During 1998, the Company anticipates capital expenditures of approximately
$.9 million.
Cash provided by financing activities was $8.2 million for the first six months
of 1998. The Company borrowed approximately $7.4 million from WGI, LLC and an
additional $2.0 million from the senior lender. This was partially offset by
principal payments on borrowings of $1.2 million.
The revolving advance account increased $2.0 million from $40.4 million at
year-end 1997 to $42.5 million at July 4, 1998. Under the current financing
arrangement with its senior lender the Company's total outstanding obligations
cannot exceed the lower of $55.0 million or the borrowing base as defined. At
July 4, 1998, the borrowing base was $5.8 million. Therefore, approximately
$36.7 million was overadvanced under the revolving advance account. The
overadvance is secured by treasury bills pledged by a principal shareholder, and
in part, by the guarantee of two principal shareholders.
Interest expense for the six months ended July 4, 1998 was $3.2 million compared
to $7.2 million for the same period in 1997. Total outstanding debt averaged
$64.2 million and $72.5 million for the first six months of 1998 and
1997,respectively, with average interest rates of 10.0%,and 19.9%. The reduction
in interest expense was primarily the result of the implementation
<PAGE>
of a restructuring plan for the Company's preferred equity and the majority of
its subordinated indebtedness at the end of fiscal 1997.
The Company uses letters of credit to support foreign and some domestic sourcing
of inventory and certain other obligations. Outstanding letters of credit were
$1.2 million at July 4, 1998 (excluding collateral of $2.0 million pledged to
the senior lender in the form of a standby letter of credit).
Total Shareholders' Deficit increased $8.0 million compared to year-end 1997.
LIQUIDITY AND CAPITAL RESOURCES
As a result of continuing losses, the Company has been unable to fund its cash
needs through cash generated by operations. The Company's liquidity shortfalls
from operations during these periods have been funded through several
transactions with its principal shareholders and with the Company's senior
lender. These transactions are detailed above in the Financial Condition
section.
As of July 4, 1998, the Company's senior lender waived certain covenant
violations (pertaining to cumulative pre-tax operating earnings) under the
Company's amended and restated factoring agreement. Nevertheless, on the basis
of such violations (which could also serve as a basis for the senior lender
enforcing its remedies under defaults preserved from the Company's prior
factoring agreement), all of the Company's long-term debt owed to the senior
lender at July 4, 1998 was subject to accelerated maturity and, as such, has
been classified as a current liability in the consolidated balance sheets. If
the senior lender were to accelerate the maturity of such debt, the Company
would not have funds available to repay the debt.
If the Company's sales and profit margins do not substantially improve in the
near term, the Company will be required to seek additional capital in order to
continue its operations and to move forward with the Company's turnaround plans,
which include seeking appropriate additional acquisitions. To obtain such
additional capital and such financing, the Company may be required to issue
additional securities that may dilute the interests of its stockholders. At the
end of fiscal 1997, the Company implemented a restructuring plan for its
preferred equity and the majority of its subordinated indebtedness (following
approval by shareholders of the issuance of Common Stock in connection
therewith), which resulted in a significant increase
<PAGE>
in the Company's overall equity as well as a significant reduction in the
Company's level of indebtedness and ongoing interest expense. Although
management believes that the restructuring has enhanced the Company's
opportunities for obtaining the needed funding, no assurance can be given that
any such additional financing will be available to the Company on commercially
reasonable terms or otherwise. The Company will need to significantly improve
sales and profit margins or raise additional funds to continue as a going
concern.
Part II. OTHER INFORMATION
Items 1-5
Not Required
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Waiver Letter, dated as of June 30, 1998, pertaining to the
Amended and Restated Factoring Agreement dated as of October 31, 1997
between the Company and BNY Financial Corporation.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNAL APPAREL COMPANY, INC.
------------------------------
(Registrant)
Date: August 14, 1998 /s/ Stephen Walsh
------------------- ------------------------------
Stephen Walsh
Chief Executive Officer
Date: August 14, 1998 /s/ David E. Houseman
------------------- ------------------------------
David E. Houseman
Chief Financial Officer
<PAGE>
SIGNAL APPAREL COMPANY, INC.
FORM 10-Q
FOR THE QUARTER ENDED JULY 4, 1998
EXHIBIT INDEX
Exhibit No.
per Item 601 Sequential
of Reg. S-K Description of Exhibit Page No.
- ------------ ---------------------- ----------
(10.1) Waiver Letter, dated as of
June 30, 1998, pertaining to
the Amended and Restated
Factoring Agreement dated as of
October 31, 1997 between the Company
and BNY Financial Corporation.
(27) Financial Data Schedule
<PAGE>
BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, NY 10104
As of June 30, 1998
SIGNAL APPAREL COMPANY, INC.
THE SHIRT SHED, INC.
P. O. Box 4296
200-A Manufacturers Road
Chattanooga, TN 37405
BIG BALL SPORTS, INC.
5708 North Shepherd, #B6
Houston, TX 77091
Re: Waiver
Gentlemen:
Reference is made to the (i) Amended and Restated Factoring Agreement dated
as of October 31, 1997 (the "Signal Factoring Agreement") by and between Signal
Apparel Company, Inc. ("Signal") and BNY Financial Corporation ("BNYFC"),
Amended and Restated Factoring Agreement dated as of October 31, 1997 (the
"Shirt Factoring Agreement") by and between The Shirt Shed, Inc. ("Shirt") and
BNYFC, and the Factoring Agreement dated January 30, 1998 (the "Big Ball
Factoring Agreement"; and together with the Signal Factoring Agreement and the
Shirt Factoring Agreement, as heretofore amended and as amended from time to
time hereafter, the "Factoring Agreements") by and between BNYFC and Big Ball
Sports, Inc. ("Big Ball"; and together with Signal and Shirt, collectively, the
"Clients"); and (ii) the Guaranty dated February 27, 1996 (as heretofore amended
and as amended from time to time hereafter, the "Guaranty") by WG Trading
Company LP ("WG") in favor of BNYFC. All capitalized terms used and not
otherwise defined herein shall have the respective meanings ascribed to them in
the Factoring Agreements.
1. The clients have advised BNYFC that, for the fiscal period commencing
January 1, 1998 and ending June 30, 1998, their Cumulative Pre-Tax Operating
Earnings is less than ($5,000,000), the minimum Cumulative Pre-Tax Operating
Earnings permitted for the fiscal period commencing January 1, 1998 and ending
on June 30, 1998 under Paragraph 11(a)(iv) of the Factoring Agreements ("Subject
Termination Event"). As a result of such Subject Termination Event, BNYFC is
entitled, as of the date hereof, to terminate the Factoring Agreements and to
exercise its rights and remedies under the Factoring Agreements, applicable law
or otherwise to realize upon its collateral and to collect the Obligations. The
Clients have requested BNYFC to waive the Subject Termination Event, and BNYFC
hereby agrees to do so.
<PAGE>
2. The Clients and WG hereby acknowledge, confirm and agree that the waiver
by BNYFC of the Subject Termination Event is solely for the benefit of the
Clients under the Factoring Agreements, that for the purposes of the Guaranty,
BNYFC shall be deemed not to have waived the Subject Event of Termination, and
that conditions precedent to the "First Reduction Date", under and as said
quoted term is defined in the Guaranty, have not been satisfied and such First
Reduction Date has not occurred.
3. Except as specifically set forth herein, no other changes or
modifications to the Factoring Agreements are intended or implied, and, in all
other respects, the Factoring Agreements shall continue to remain in full force
and effect in accordance with its terms as of the date hereof. Except as
specifically set forth herein, nothing contained herein shall evidence a waiver
or amendment by BNYFC of any other provision of the Factoring Agreements nor
shall anything contained herein be construed as a consent by BNYFC to any
transaction other than those specifically consented to herein.
4. The terms and provisions of this agreement shall be for the benefit of
the parties hereto and their respective successors and assigns; no other person,
firm, entity or corporation shall have any right, benefit or interest under this
agreement.
5. This agreement may be signed in counterparts, each of which shall be an
original and all of which taken together constitute one amendment. In making
proof of this agreement, it shall not be necessary to produce or account for
more than one counterpart signed by the party to be charged.
6. This agreement sets forth the entire agreement and understanding of the
parties with respect to the matters set forth herein. This agreement cannot be
changed, modified, amended or terminated except in a writing executed by the
party to be charged.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/ Wayne Miller
Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACKNOWLEDGED AND AGREED:
SIGNAL APPAREL COMPANY, INC.
By: /s/ Jim Elkins
Title: Controller
THE SHIRT SHED, INC.
By: /s/ Jim Elkins
Title: Controller
WG TRADING COMPANY LP
By: /s/ Paul R. Greenwood
Title: Managing Partner
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