UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
--------------------------------------------
For the fiscal year ended January 2, 1999 Commission File Number 1-63
PREMIUMWEAR, INC.
(formerly known as Munsingwear, Inc.)
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 41-0429620
(State of Incorporation) (I.R.S. Employer Identification No.)
5500 FELTL ROAD, MINNETONKA, MINNESOTA 55343-7902
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (612) 979-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
- --------------------------------- ---------------------------
Common Stock, $.01 par value New York Stock Exchange
Preferred share purchase rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements 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 or any amendment to this
Form 10-K.
The aggregate market value of the voting and non-voting common equity held
by nonaffiliates of the Registrant at March 25, 1999 was $10,227,000, based upon
the closing price of $5.00 per share on that date.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES _X_ NO ___
The number of shares of common stock outstanding at March 25, 1999 was
2,581,422.
--------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Documents incorporated in part by reference in Parts I and II of this
report: Portions of PremiumWear, Inc. 1998 Annual Report to Shareholders for the
fiscal year ended January 2, 1999.
Documents incorporated in part by reference in Part III of this report:
Portions of definitive proxy statement for the 1999 Annual Meeting of
Shareholders.
This Form 10-K consists of 86 total pages: The exhibit index is on page 18.
<PAGE>
PART I
Item 1. Business
A. GENERAL DEVELOPMENT OF BUSINESS
The Company was incorporated under the laws of Delaware in 1923 as the
successor to a business founded in 1886. On July 3, 1991, the Company
filed a voluntary petition for bankruptcy under Chapter 11 of the United
States Bankruptcy Code, together with a proposed Plan of Reorganization.
The Company emerged from bankruptcy on October 29, 1991.
In two separate transactions in 1996, the Company sold its tradenames and
trademarks, and certain associated assets relating to the retail and
professional golf businesses for $23,000,000 in cash.
The Company then changed its name from Munsingwear, Inc. to PremiumWear,
Inc. and entered into a license agreement with Supreme International
Corporation for the use of the Munsingwear(R) brand in the sale of knit
and woven shirts to the promotional products/advertising specialty
channels of distribution which includes advertising specialty incentive
customers, specialty distributors and uniform market customers. In early
1998, the Company introduced its own Page & Tuttle(R) brand of knit and
woven golf shirts to the golf pro shop market and, in late 1998, expanded
this product line to include fleece, windshirts, sweaters, pants and
shorts. In late 1998 the Company announced it would also market the Page
& Tuttle(R) brand to the promotional products/advertising specialty
markets starting in 1999.
The Company's principal executive offices are located at 5500 Feltl Road,
Minnetonka, Minnesota 55343-7902, and its telephone number is (612)
979-1700. As used in this document, the term "Company" refers to
PremiumWear, Inc. and its subsidiary unless otherwise noted or indicated
by the context. At January 2, 1999, the Company had one idle foreign
subsidiary.
B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one industry segment, apparel manufacturing. As
of January 2, 1999, the Company's foreign operations were not material.
Financial information regarding the Company's revenue, operating profit
and assets can be found in the Company's audited Financial Statements for
the fiscal Year Ended January 2, 1999, included in Exhibit 13 to this
Form 10-K.
2
<PAGE>
C. NARRATIVE DESCRIPTION OF BUSINESS
Principal Products:
The Company sells knit and woven sport shirts under the Munsingwear(R)
label to promotional products/advertising specialty markets customers
pursuant to a license from Supreme International Corporation. The Company
sells its Page & Tuttle(R) brand of knit golf shirts and coordinated
bottoms and outerwear to golf pro shops, resorts and to promotional
products/advertising specialty markets customers.
Methods of Distribution of Products:
The Company utilizes independent sales representative firms to solicit
orders from customers. All products are distributed to customers through
the Company's North Carolina distribution facility.
Sources and Availability of Raw Materials and Products:
Approximately one-third of the Company's products were manufactured
domestically in 1998. The balance was sourced primarily from "full
package" manufacturers in the Far East, Central and South America and
through the 807 program (assembly only) in Central America. The principal
raw materials used in the domestic production process are cotton,
synthetic and cotton/synthetic blended goods obtained principally from
United States sources. The Company purchases fabrics from approximately
five sources. There are currently no major problems in availability of
raw materials and alternative sources are available. The Company's
Fairmont, NC manufacturing facility includes a raw material warehouse,
cutting, sewing and embroidery operations, and a finished goods
distribution center. The Company occasionally utilizes contract sewing
manufacturers in close proximity to its North Carolina facility to handle
seasonal peak demand.
Trademarks and Trade Names:
The Company owns the Page & Tuttle(R) trademark for apparel and is a
licensee of the Munsingwear(R) brand under a license agreement entered
into in September 1996, which allows the Company to use the
Munsingwear(R) name on knit shirts for an initial term of 20 years and on
woven shirts for an initial term of 5 years. For the first 5 years, knit
shirt sales are subject to payment of royalties only after annual sales
reach a certain aggregate total, at which time license fees are due on
all such sales. After 2001, all knit shirt sales are subject to royalty
payments. Management expects to reach the annual sales threshold at which
royalties are due in 2001. All sales of woven shirts are subject to
royalty payments.
3
<PAGE>
Seasonal Aspects of the Business:
The Company generally experiences peak seasonal demand for its products
in the second and third quarters of the fiscal year.
Working Capital Practices:
The Company maintains a secured bank line of credit of $6,000,000 to meet
its working capital needs. The bank line of credit is also used for
letters of credit that are required for some purchases from Far East
sources. The Company allows returns of merchandise as a result of
shipping errors, damaged merchandise and for other reasons. Returns have
historically been less than 2% of sales.
Customers:
The Company sells to approximately 3,300 customers. In the promotional
products/specialty advertising market, the Company sells primarily to
wholesale distributors, uniform companies and advertising specialty
dealers. Wholesale distributors comprised approximately 60% of the
Company's 1998 sales volume and included eight individual distributors
who generally are located in key geographic areas of distribution. In
1998, Alpha Shirt Company, Broder Bros. and San Mar Corporation
represented 17%, 14% and 11%, respectively, of total Company net sales.
No other customer represented more than 10% of total Company sales. While
a loss of one of these customers could have a material short-term impact
on the Company's business, management believes that alternate customers
are available to minimize the long-term impact of any such loss.
Backlog of Orders:
The Company's backlog of unfilled orders at January 2, 1999 was
approximately $2,000,000 as compared to $1,400,000 a year ago. The
unfilled order backlog consists of orders received for subsequent
delivery. However, since it includes orders subject to change for color,
size, stock adjustments, extension of delivery dates and cancellation,
the unfilled order backlog does not necessarily relate directly to future
sales.
Competition:
The promotional products/advertising specialty marketplace for apparel is
increasingly competitive and is characterized by a number of broad-line
companies. The principal methods of competition are pricing, styling,
quality (both in material and production), inventory replenishment
programs, brand recognition, and customization services such as
embroidery. Recently, deflationary pricing practices have increasingly
been used by the Company and its competition, primarily the result of
increased offshore sourcing that has lowered unit production
4
<PAGE>
costs. Many of the Company's competitors have greater financial and other
resources than the Company.
Research and Development:
The Company is involved in limited experimental research activities
related to the development of new fabrics and customization processes.
Research and development expenses, other than for product design, are not
significant.
Environmental Considerations:
The Company's manufacturing operations are subject to various federal,
state and local laws restricting the discharge of materials into the
environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of its operations because of
such regulations. In 1998, the Company's capital expenditures for
environmental control facilities were not significant, and no significant
capital expenditures related to environmental issues are projected in
1999.
Employees:
As of January 2, 1999, there were 265 employees, none of whom were
represented by a union.
Special Cash Distribution to Shareholders:
On January 27, 1997, the Board of Directors declared a special cash
distribution of $5.39 per share, or approximately $12,500,000, to
shareholders of record on February 19, 1997 which was paid on March 5,
1997. The funds utilized were proceeds from the 1996 sales of trademarks
and collection of accounts receivable and liquidation of inventories
related to the former retail and golf businesses.
Subsequent Events:
On March 25, 1999, the Company acquired Klouda-Lenz, Inc., its
independent sales representative agency for the promotional
products/advertising specialty market. Klouda-Lenz, Inc. merged into a
wholly-owned acquisition subsidiary of the Company. The purchase price
was $1,510,634 in cash and 241,892 newly issued shares of common stock,
which are subject to a two-year holding restriction. Klouda-Lenz' 1998
revenues totaled approximately $4.4 million, about 44% of which
represented commissions from the Company.
D. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Sales to foreign customers located outside the United States and its
territories for the past three years were not significant.
5
<PAGE>
Item 2. Properties
At January 2, 1999, the Company occupied the following properties:
Approximate
Square Percentage Lease
Property Footage Utilized Expires
-------- ------- -------- -------
Minnetonka, MN - Headquarters 23,000 100 2003
Fairmont, NC - Cutting and
sewing plant, warehouse and
distribution center
139,100 50 Owned
Approximately half of the Minnetonka, MN facility is subleased to the
Company's special markets sales representative agency.
Management has decided to reduce the production capacity of its Fairmont,
North Carolina manufacturing facility in order to take advantage of lower
unit production costs in offshore locations. 1998 financial results
included an asset impairment charge to reduce the carrying value of this
facility.
At January 2, 1999, no facilities were occupied under capitalized leases.
Item 3. Legal Proceedings
None of a significant nature or which is expected to have a material
impact on the Company's business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
None.
6
<PAGE>
Executive Officers of the Registrant
The following information is furnished with respect to the Company's executive
officers as of the date hereof, pursuant to Item 401(b) of Regulation S-K. Each
of the officers has been appointed to serve in his respective office until his
successor has been elected.
Executive
Officer
Name and Age Position Since
- ------------ -------- -----
Thomas D. Gleason (63) Chief Executive Officer September 1996 to 1996
present; Chairman and director of the
Company 1995 to present; Vice Chairman of
Wolverine World Wide, Inc. (footwear
manufacturing and marketing), 1993 through
April 17, 1996; Chief Executive Officer of
Wolverine World Wide, Inc. from 1972 to
1993.
David E. Berg (42) President, August 1997 to present; Chief 1995
Operating Officer, December 1996 to
present; Executive Vice President, Sales &
Marketing May 1995 to August 1997; Vice
President, General Manager, Special
Markets, October 1993 to May 1995; Vice
President, National Sales Manager, Retail
Division, January 1990 to October 1993;
Vice President, General Manager,
Furnishings Division, February 1989 to
January 1990.
James S. Bury (55) Vice President of Finance, December 1996 to 1990
present; Vice President and Controller, May
1990 to December 1996; Corporate
Controller, August 1989 to May 1990; Vice
President Finance, Men's Apparel Division,
February 1988 to August 1989.
Cynthia L. Boeddeker (41) Vice President and General Merchandise 1996
Manager, December 1996 to present; Director
of Sourcing and Inventory Management,
February 1994 to December 1996; Import
Manager, March 1992 to February 1994;
Sourcing Administrator, July 1991 to March
1992.
7
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information required under this caption in incorporated herein by
reference to the information set forth under caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- Market Statistics" contained in the Company's 1998 Annual Report to
Shareholders.
Item 6. Selected Financial Data
The information required under this caption is incorporated herein by
reference to the information set forth under caption "Five Year Financial
Review" contained in the Company's 1998 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this caption is incorporated herein by
reference to the information set forth under captions "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the Company's 1998 Annual Report to Shareholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required under this caption is incorporated herein by
reference to the information set forth under caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- Market Risk" and "Notes to Consolidated Financial Statements - Note 1 -
New Accounting Pronouncements" contained in the Company's 1998 Annual
Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required under this caption is incorporated herein by
reference to the information set forth under captions "Consolidated
Statements of Operations," "Consolidated Balance Sheets," "Consolidated
Statements of Cash Flows," "Consolidated Statements of Shareholders'
Equity," "Notes to Consolidated Financial Statements," "Report of
Independent Public Accountants," and "Five Year Financial Review"
contained in the Company's 1998 Annual Report to Shareholders.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
8
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required under this caption is incorporated by reference
to the information set forth under the caption "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" of the
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days of Registrant's fiscal year ended January 2,
1999.
Information regarding executive officers is included in Part I
of this Report.
Item 11. Executive Compensation
The information required under this caption is incorporated by reference
to the information set forth under the caption "Executive Compensation
and Other Information" of the definitive proxy statement to be filed with
the Securities and Exchange Commission within 120 days of the
Registrant's fiscal year ended January 2, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this caption is incorporated by reference
to the information set forth under the caption "Security Ownership of
Certain Beneficial Owners, Directors and Executive Officers" of the
definitive proxy statement to be filed with the Securities and Exchange
Commission within 120 days of the Registrant's fiscal year ended January
2, 1999.
Item 13. Certain Relationships and Related Transactions
The information required under this caption is incorporated by reference
to the information set forth under the caption "Executive Compensation
and Other Information" of the definitive proxy statement to be filed
within 120 days of the Registrant's fiscal year ended January 2, 1999.
9
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Financial statements, included under the following headings in the
1998 Annual Report to Shareholders, are incorporated by reference
in Item 8:
- Consolidated Statements of Operations for the three years
ended January 2, 1999.
- Consolidated Balance Sheets as of January 2, 1999 and
January 3, 1998.
- Consolidated Statements of Cash Flows for the three years
ended January 2, 1999.
- Consolidated Statements of Shareholders' Equity for the
three years ended January 2, 1999.
- Notes to Consolidated Financial Statements.
- Report of Independent Public Accountants.
2. Financial Statement Schedules for the three years ended January 2,
1999.
- Schedule II - Valuation and Qualifying Accounts, pages
13-15 of this report.
- Report of Independent Public Accountants on Schedules, page
16 of this report.
- All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are not applicable and, therefore, have
been omitted.
3. Exhibits:
- Exhibit 2 - Plan of Reorganization, as confirmed October 1,
1991 by the United States Bankruptcy Court. (2)
10
<PAGE>
- Exhibit 3 - Restated Certificate of Incorporation and
By-Laws, as amended. (2) (3)
- Exhibit 4 - Form of Rights Agreement dated as of July 25,
1997, between the Registrant and Norwest Bank Minnesota,
N.A.(6)
- Exhibit 10 - Material Contracts (Management Contracts or
Compensatory Plans or Agreements):
(A) Employment Agreement with James S. Bury dated April
24, 1990. (1)
(B) The Registrant's 1991 Stock Plan, as amended. (5)
(C) The Registrant's 1999 Stock Plan. (7)
- Exhibit 10 - Material Contracts (Other):
(D) Purchase and Sale Agreement, dated May 22, 1996,
between the Registrant and Supreme International
Corporation, as amended. (4)
(E) License Agreement, dated September 6, 1996, between
the Registrant and Supreme International
Corporation. (4)
(F) Credit and Security Agreement, dated February 4,
1997, between the Registrant and U.S. Bank National
Association. (5)
(G) Agreement and Plan of Merger, dated March 25, 1999,
between the Registrant, Klouda-Lenz, Inc., and the
other parties named therein. (7)
- Exhibit 13 - PremiumWear, Inc. 1998 Annual Report to
Shareholders - Such report, except for those portions
thereof which are expressly incorporated by reference in
this report, is furnished for the information of the
Securities and Exchange Commission and is not to be deemed
"filed" as part of this filing. (7)
- Exhibit 23 - Consent of Independent Public Accountants. (7)
- Exhibit 27 - Financial Data Schedule. (7)
----------------------------
11
<PAGE>
(1) Incorporated herein by reference to Exhibit 10(N) of
the Registrant's Annual Report on Form 10-K for the
year ended January 5, 1991 (File No. 1-63).
(2) Incorporated herein by reference to Exhibits 2 and
3, respectively, of the Registrant's Annual Report
on Form 10-K for the year ended January 4, 1992
(File No. 1-63).
(3) Incorporated herein by reference to Form 8-K, dated
August 1, 1995 (File No. 1-63).
(4) Incorporated herein by reference to Exhibits 2.1 and
2.2 respectively of the Registrant's Form 8-K, dated
September 12, 1996 (File No. 1-63).
(5) Incorporated herein by reference to Exhibits 10(B),
(G) and (H) respectively of the Registrant's Annual
Report on Form 10-K for the year ended January 4,
1997 (File No. 1-63).
(6) Incorporated herein by reference to Exhibit 1 of the
Registrants' Registration Statement on Form 8-A
filed with the SEC, dated September 22, 1997.
(7) Filed herewith.
---------------------------------
(b) REPORTS ON FORM 8-K: None.
(c) EXHIBITS: Reference is made to Item 14(a) (3).
(d) SCHEDULES: Reference is made to Item 14 (a) (2).
12
<PAGE>
SCHEDULE II
PREMIUMWEAR, INC.
Valuation and Qualifying Accounts
Year ended January 2, 1999
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
----------------------------
Balance Charged to
Beginning Costs and Charged to Balance at
Description of Year Expenses Net Sales Deductions End of Year
- ----------- ------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances deducted
from trade receivables
Allowance for cash
discounts and other
customer credits $ 318,000 $(116,000)(d) $ 75,000 $ (1,000)(a) $ 278,000
Allowance for
doubtful accounts 170,000 262,000 -- 32,000 (b) 400,000
Allowance for
returns 50,000 -- 539,000 539,000 (c) 50,000
--------- --------- --------- --------- ---------
$ 538,000 $ 146,000 $ 614,000 $ 570,000 $ 728,000
========= ========= ========= ========= =========
Reserve for
liabilities related to
sold assets $ 578,000 $(398,000)(e) $ -- $ 180,000 $ --
========= ========= ========= ========= =========
</TABLE>
(a) Discounts allowed and other credits to customers' accounts
receivable.
(b) Uncollectable accounts written off, net of recoveries.
(c) Returns applied to customers' accounts receivable.
(d) $149,000 charged to cost of goods sold, $265,000 credited to
bad debt provision.
(e) Credited to gain on sale of trademarks.
13
<PAGE>
SCHEDULE II
PREMIUMWEAR, INC.
Valuation and Qualifying Accounts
Year ended January 3, 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
----------------------------
Balance Charged to
Beginning Costs and Charged to Balance at
Description of Year Expenses Net Sales Deductions End of Year
- ----------- ------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances deducted
from trade receivables
Allowance for cash
discounts and other
customer credits $ 709,000 $ (350,000)(d) $ 42,000 $ 83,000(a) $ 318,000
Allowance for
doubtful accounts 150,000 74,000 -- 54,000(b) 170,000
Allowance for
returns 50,000 -- 457,000 457,000(c) 50,000
----------- ----------- ----------- ----------- -----------
$ 909,000 $ (276,000) $ 499,000 $ 594,000 $ 538,000
=========== =========== =========== =========== ===========
Reserve for liabilities
related to sold assets $ 1,530,000 $ -- $ -- $ 952,000 $ 578,000
=========== =========== =========== =========== ===========
</TABLE>
Notes:
(a) Discounts allowed and other credits to customers' accounts receivable.
(b) Uncollectable accounts written off, net of recoveries.
(c) Returns applied to customers' accounts receivable.
(d) Credited to bad debt expense.
14
<PAGE>
SCHEDULE II
PREMIUMWEAR, INC.
Valuation and Qualifying Accounts
Year ended January 4, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
----------------------------
Balance Charged to
Beginning Costs and Charged to Balance at
Description of Year Expenses Net Sales Deductions End of Year
- ----------- ----------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances deducted
from trade receivables
Allowance for cash
discounts and other
customer credits $ 219,000 $ 648,000(d) $ 516,000 $ 674,000(a) $ 709,000
Allowance for
doubtful accounts 242,000 (12,000) -- 80,000(b) 150,000
Allowance for
returns 50,000 -- 1,933,000 1,933,000(c) 50,000
----------- ----------- ----------- ----------- -----------
$ 511,000 $ 636,000 $ 2,449,000 $ 2,687,000 $ 909,000
=========== =========== =========== =========== ===========
Reserve for
restructuring $ 193,000 $ -- $ -- $ 193,000 $ --
=========== =========== =========== =========== ===========
Reserve for
liabilities related to
sold assets $ -- $ 4,437,000(d) $ -- $ 2,907,000 $ 1,530,000
=========== =========== =========== =========== ===========
</TABLE>
Notes:
(a) Discounts allowed and other credits to customers' accounts receivable.
(b) Uncollectable accounts written off, net of recoveries.
(c) Returns applied to customers' accounts receivable.
(d) Charged against gain on sales of trademarks.
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE II
To PremiumWear, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in the Company's annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 19, 1999. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The accompanying
schedule is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
---------------------------------
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 19, 1999
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
act of 1934, the Registrant has duly caused this report to be signed on behalf
of the undersigned, thereunto duly authorized.
PREMIUMWEAR, INC.
Date: APRIL 1, 1999 By: /S/ THOMAS D. GLEASON
---------------------------------
Thomas D. Gleason,
Chairman and
Chief Executive Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
NAME TITLE
- ------------------------- ------------------------------------
/S/ THOMAS D. GLEASON Chairman and Chief Executive Officer April 1, 1999
- ------------------------- (Principal Executive Officer)
Thomas D. Gleason and Director
/S/ JAMES S. BURY V. P. of Finance April 1, 1999
- ------------------------- Principal Accounting Officer
James S. Bury
/S/ C. D. ANDERSON Director April 1, 1999
- -------------------------
C. D. Anderson
/S/ KEITH A. BENSON Director April 1, 1999
- -------------------------
Keith A. Benson
/S/ ALAN W. KOSLOFF
- -------------------------
Alan W. Kosloff Director April 1, 1999
/S/ GERALD E. MAGNUSON Director April 1, 1999
- -------------------------
Gerald E. Magnuson
/S/ MARK B. VITTERT Director April 1, 1999
- -------------------------
Mark B. Vittert
17
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ------------ ----------------------------------------------------- --------
10(C) 1999 Stock Plan. 19-32
10(G) Agreement and Plan of Merger. 33-51
13 PremiumWear, Inc. 1998 Annual Report to Shareholders.
52-83
21 Subsidiary of the Registrant. 84
23 Consent of Independent Public Accountants. 85
27 Financial Data Schedule. 86
18
EXHIBIT 10(C)
PREMIUMWEAR, INC.
1999 STOCK PLAN
<PAGE>
SECTION CONTENTS PAGE
1. General Purpose of Plan; Definitions 1
2. Administration 3
3. Stock Subject to Plan 4
4. Eligibility 4
5. Stock Options 4
6. Restricted Stock 8
7. Transfer, Leave of Absence, etc. 9
8. Amendments and Termination 10
9. Unfunded Status of Plan 10
10. General Provisions 10
11. Effective Date of Plan 12
<PAGE>
PREMIUMWEAR, INC.
1999 STOCK PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the PremiumWear, Inc. 1999 Stock Plan (the
"Plan"). The purpose of the Plan is to enable PremiumWear, Inc. (the "Company")
and its Subsidiaries to retain and attract executives, other key employees,
consultants and directors who contribute to the Company's success by their
ability, ingenuity and industry, and to enable such individuals to participate
in the long-term success and growth of the Company by giving them a proprietary
interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Board" means the Board of Directors of the Company.
b. "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony,
or a participant's willful misconduct or dishonesty, any of
which is directly and materially harmful to the business or
reputation of the Company.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Committee" means the Committee referred to in Section 2 of
the Plan. If at any time no Committee shall be in office, then
the functions of the Committee specified in the Plan shall be
exercised by the Board.
e. "Company" means PremiumWear, Inc., a corporation organized
under the laws of the State of Delaware (or any successor
corporation).
f. "Disability" means permanent and total disability as
determined by the Committee.
g. "Early Retirement" means retirement, with consent of the
Committee at the time of retirement, from active employment
with the Company and any Subsidiary or Parent Corporation of
the Company.
h. "Fair Market Value" means the value of the Stock on a given
date as determined by the Committee in accordance with Section
422 of the Code and any applicable Treasury Department
regulations with respect to "incentive stock options."
i. "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the
meaning of Section 422 of the Code.
<PAGE>
j. "Non-Employee Director" means a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) under the Securities Exchange
Act of 1934, as amended, or any successor rule.
k. "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option, and is intended to be and is
designated as a "Non-Qualified Stock Option."
l. "Normal Retirement" means retirement from active employment
with the Company and any Subsidiary or Parent Corporation of
the Company on or after age 65.
m. "Outside Director" means a director who (a) is not a current
employee of the Company or any member of an affiliated group
which includes the Company; (b) is not a former employee of
the Company who receives compensation for prior services
(other than benefits under a tax-qualified retirement plan)
during the taxable year; (c) has not been an officer of the
Company; (d) does not receive remuneration from the Company,
either directly or indirectly, in any capacity other than as a
director, except as otherwise permitted under Code Section
162(m) and regulations thereunder. For this purpose,
remuneration includes any payment in exchange for goods or
services. This definition shall be further governed by the
provisions of Code Section 162(m) and regulations promulgated
thereunder.
n. "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the
Company if each of the corporations (other than the Company)
owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in the chain.
o. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 6 below.
p. "Retirement" means Normal Retirement or Early Retirement.
q. "Stock" means the Common Stock, $.01 par value per share, of
the Company.
r. "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5 below.
s. "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
if each of the corporations (other than the last corporation
in the unbroken chain) owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one
of the other corporations in the chain.
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SECTION 2. Administration.
The Plan shall be administered by the Board or by a Committee appointed
by the Board consisting of at least two directors, all of whom shall be Outside
Directors and Non-Employee Directors, and who shall serve at the pleasure of the
Board. The Committee may be a subcommittee of the Compensation Committee of the
Board
The Committee shall have the power and authority to grant to eligible
employees, consultants and directors pursuant to the terms of the Plan: (i)
Stock Options and (ii) Restricted Stock.
In particular, the Committee shall have the authority:
(i) to select the officers, other key employees, directors and
consultants of the Company and its Subsidiaries to whom Stock
Options and/or Restricted Stock awards may from time to time
be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, or Restricted Stock
awards, or a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder
(including, but not limited to, any restriction on any Stock
Option or other award and/or the shares of Stock relating
thereto); and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to
an award under this Plan shall be deferred either
automatically or at the election of the participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
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SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 120,000. Such shares may consist, in whole
or in part, of authorized and unissued shares.
If any shares that have been optioned cease to be subject to Stock
Options, or if any shares subject to any Restricted Stock award granted
hereunder are forfeited or such award otherwise terminates without a payment
being made to the participant, such shares shall again be available for
distribution in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding Stock Options granted under the Plan, and in the number
of shares subject to Restricted Stock awards granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
SECTION 4. Eligibility.
Officers, other key employees, consultants and members of the Board of
the Company and Subsidiaries who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company and its
Subsidiaries are eligible to be granted Stock Options or Restricted Stock awards
under the Plan. The optionees and participants under the Plan shall be selected
from time to time by the Committee, in its sole discretion, from among those
eligible, and the Committee shall determine, in its sole discretion, the number
of shares covered by each award.
Notwithstanding the foregoing, no person shall receive grants of Stock
Options and Restricted Stock awards under this Plan which exceed 50,000 shares
during any fiscal year of the Company.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after February 22, 2009.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options. To the
extent that any option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option.
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Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Stock
Option as an Incentive Stock Option, provided the optionee consents in writing
to the modification or amendment.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option be less than 100% of the Fair Market Value of the Stock on the date
of the grant of the Stock Option. If an employee owns or is deemed to own (by
reason of the attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is
granted to such employee, the option price shall be no less than 110% of the
Fair Market Value of the Stock on the date the option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time, provided, however, that unless the Stock Option has been approved by
the Board, the Committee or the stockholders of the Company, a Stock Option
granted to an officer, director or 10% stockholder of the Company shall not be
exercisable for a period of six (6) months after the date of grant.
Notwithstanding the foregoing, unless the Stock Option Agreement provides
otherwise, any Stock Option granted under this Plan shall be exercisable in
full, without regard to any installment exercise or vesting provisions, for a
period specified by the Committee, but not to exceed sixty (60) days nor be less
than seven (7) days, prior to the occurrence of any of the following events: (i)
dissolution or liquidation of the Company other than in conjunction with a
bankruptcy of the Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar occurrence,
where the Company will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or 75% or more of the outstanding
Stock of the Company.
5
<PAGE>
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by
certified or bank check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose and
applicable law, including promissory notes or a properly executed exercise
notice together with irrevocable instructions to a broker acceptable to the
Company to promptly deliver to the Company the amount of sale or loan proceeds
to pay the exercise price. As determined by the Committee, in its sole
discretion, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or Restricted Stock subject to
an award hereunder (based on the Fair Market Value of the Stock on the date the
option is exercised, as determined by the Committee); provided, however, that in
the event payment is made in the form of shares of Restricted Stock, the
optionee will receive a portion of the option shares in the form of, and in an
amount equal to, the Restricted Stock award tendered as payment by the optionee.
If the terms of an option so permit, an optionee may elect to pay all or part of
the option exercise price by having the Company withhold from the shares of
Stock that would otherwise be issued upon exercise that number of shares of
Stock having a Fair Market Value equal to the aggregate option exercise price
for the shares with respect to which such election is made. No shares of Stock
shall be issued until full payment therefor has been made. An optionee generally
shall have the rights to dividends and other rights of a shareholder with
respect to shares subject to the option when the optionee has given written
notice of exercise, has paid in full for such shares, and, if requested, has
given the representation described in paragraph (a) of Section 10.
(e) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
in the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(f) Termination by Death. If an optionee's employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of death, the
Stock Option may thereafter be immediately exercised, to the extent then
exercisable (or on such accelerated basis as the Committee shall determine at or
after grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of nine months (or such
shorter period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter.
(g) Termination by Reason of Disability. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after nine months (or such shorter period as
the Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is shorter. In the event of termination of employment by reason
6
<PAGE>
of Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a NonQualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement, but may not be
exercised after three months (or such shorter period as Committee shall specify
at grant) from the date of such termination of employment or the expiration of
the stated term of the option, whichever period is shorter. In the event of
termination of employment by reason of Retirement, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee, if
an optionee's employment by the Company and any Subsidiary or Parent Corporation
terminates for any reason other than death, Disability or Retirement, the Stock
Option shall thereupon terminate.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Common Stock with
respect to which an Incentive Stock Option under this Plan or any other plan of
the Company and any Subsidiary or Parent Corporation is exercisable for the
first time by an optionee during any calendar year shall not exceed $100,000.
(k) Directors Who Are Not Employees. Each person who (i) is not an
employee of the Company or its Subsidiaries, and (ii) is elected or reelected to
the Board at any annual or special meeting of the shareholders of the Company,
or (iii) is serving an unexpired term as Director on the date of an annual
meeting at which any other director is elected, shall as of the date of such
meeting automatically be granted a Stock Option to purchase 1,000 shares of the
Company's Stock at an exercise price per share equal to 100% of the Fair Market
Value of a share of the Company's Stock on the date of the grant of the Stock
Option. In the case of an annual or special meeting, the action of the
shareholders in electing or reelecting a director who is not an employee shall
constitute the granting of Stock Options to all such directors who are not
employees, and the date when the shareholders shall take such action shall be
the date of grant of the Stock Options. All such options shall be designated as
Non-Qualified Stock Options and shall be subject to the same terms and
provisions as are then in effect with respect to the grant of Non-Qualified
Stock Options to officers and key employees of the Company, except that the term
of each such Stock Option shall be equal to five years. In the event
discretionary Stock Options are granted to members of the Committee, such Stock
Options shall be granted by the Board. The provisions of this Section 5(k) shall
become effective the day following approval of this Plan by the shareholder of
the Company and shall then replace and supercede Section 5(k) of the Company's
1991 stock Plan.
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SECTION 6. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and Subsidiaries to
whom, and the time or times at which, grants of Restricted Stock will be made,
the number of shares to be awarded, the time or times within which such awards
may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the attainment
of specified performance goals. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.
In the event that Restricted Stock awards are granted to members of the
Committee, such awards shall be granted by the Board.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in
respect of shares of Restricted Stock awarded under the Plan. Such
certificate shall be registered in the name of the participant, and
shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the PremiumWear, Inc.
1999 Stock Plan and an Agreement entered into between the
registered owner and PremiumWear, Inc. Copies of such Plan and
Agreement are on file in the executive offices of PremiumWear,
Inc.
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the
date of such award (the
8
<PAGE>
"Restriction Period"), the participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded under the
Plan. Within these limits, the Committee may provide for the lapse of
such restrictions in installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 6,
the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including the
right to vote the shares and the right to receive any cash dividends.
The Committee, in its sole discretion, may permit or require the
payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional shares of Restricted Stock (to the
extent shares are available under Section 3 and subject to paragraph
(f) of Section 10). Certificates for shares of Unrestricted Stock shall
be delivered to the grantee promptly after, and only after, the period
of forfeiture shall have expired without forfeiture in respect of such
shares of Restricted Stock.
(iii) Subject to the provisions of the award agreement and
paragraph (c)(iv) of this Section 6, upon termination of employment for
any reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause),
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part
any or all remaining restrictions with respect to such participant's
shares of Restricted Stock.
(v) All restrictions with respect to any participant's shares
of Restricted Stock shall lapse or be deemed to have lapsed or been
terminated on the tenth (10th) business day prior to the occurrence of
any of the following events: (i) dissolution or liquidation of the
Company, other than in conjunction with a bankruptcy of the Company or
any similar occurrence, (ii) any merger, consolidation, acquisition,
separation, reorganization or similar occurrence, where the Company
will not be the surviving entity or (iii) the transfer of substantially
all of the assets of the Company or 75% or more of the outstanding
Stock of the Company.
SECTION 7. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
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(a) a transfer of an employee from the Company to a Parent Corporation
or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or
from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 8. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option or Restricted Stock award
theretofore granted, without the optionee's or participant's consent, or (ii)
which without the approval of the stockholders of the Company would cause the
Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of
1934, Section 422 of the Code or any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted options,
including previously granted options having higher option prices.
SECTION 9. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 10. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
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All certificates for shares of Stock delivered under the Plan pursuant
to any Restricted Stock awards shall be subject to such stock-transfer orders
and other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Stock is then listed, and any applicable
Federal or state securities laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock
awards under the Plan (not including Stock Options) are not required to make any
payment or provide consideration other than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 10(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
(e) At the time of grant, the Committee may provide in connection with
any grant or award made under this Plan that the shares of Stock received as a
result of such grant shall be subject to a repurchase right in favor of the
Company, pursuant to which the participant shall be required to offer to the
Company upon termination of employment for any reason any shares that the
participant acquired under the Plan, with the price being the then Fair Market
Value of the Stock or, in the case of a termination for Cause, an amount equal
to the cash consideration paid for the Stock, subject to such other terms and
conditions as the Committee may specify at the time of grant. The Committee may,
at the time of the grant of an award under the Plan, provide the Company with
the
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right to repurchase, or require the forfeiture of, shares of Stock acquired
pursuant to the Plan by any participant who, at any time within two years after
termination of employment with the Company, directly or indirectly competes
with, or is employed by a competitor of, the Company.
(f) The reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if the Committee (or the
Company's chief executive or chief financial officer) certifies in writing that
under Section 3 sufficient shares are available for such reinvestment (taking
into account then outstanding Stock Options and other Plan awards).
SECTION 11. Effective Date of Plan.
The Plan became effective on February 22, 1999.
12
EXHIBIT 10(G)
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated effective
March 25, 1999, is among PremiumWear, Inc., a Delaware corporation
("PremiumWear"), KLI Acquisition Corp., a Minnesota corporation and a
wholly-owned subsidiary of PremiumWear ("Acquisition Corp."), Klouda- Lenz,
Inc., a Minnesota corporation ("KLI"), and Timothy C. Klouda and Dennis G. Lenz,
the shareholders of KLI (individually, the "Shareholder" and collectively, the
"Shareholders").
BACKGROUND:
KLI has been and continues to act as PremiumWear's independent sales
representative organization. PremiumWear desires to acquire KLI by means of a
merger (the "Merger") of KLI into Acquisition Corp. with Acquisition Corp. as
the surviving corporation ("Surviving Corporation") and the separate corporate
existence of KLI shall cease, on the terms and conditions set forth in this
Agreement and in the Plan of Merger attached as Exhibit A.
NOW, THEREFORE, it is agreed:
1. Merger.
1.1 Closing. The closing (the "Closing") of the Merger will take
place at such time and place as may be mutually agreeable to
the parties as soon as practicable after satisfaction of the
conditions stated in Sections 4.1 and 4.2 (the "Closing
Date"), and no later than April 5, 1999, unless a later date
is subsequently agreed to by the parties hereto in writing.
1.2 The Merger. As soon as practicable after satisfaction, or, to
the extent permitted under this Agreement, the written waiver,
of all conditions to the Merger set forth in Sections 4.1 and
4.2, the parties must cause the Merger to be consummated by
filing articles of merger (the "Articles of Merger") with the
Minnesota Secretary of State, in such form as required by, and
executed in accordance with, the relevant provisions of the
Minnesota Business Corporation Act ("MBCA"), and the parties
must make all other filings or recordings required by the MBCA
in connection with the Merger and the transactions
contemplated by this Agreement. The Merger shall be effective
when the Articles of Merger are duly filed with the Minnesota
Secretary of State or such later date as may be set forth in
the Articles of Merger (the "Effective Time"), but in no event
later than the date of Closing unless a later date is
subsequently agreed to by the parties in writing.
1.3 Merger Consideration; Exchange of Shares. Each share of common
stock, no par value per share, of KLI ("KLI Common Stock")
outstanding immediately prior to the Effective Time will, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into
(A) 0.241892 of shares of newly authorized $.01 par value
Common Stock of PremiumWear ("PremiumWear Common
Stock"), as a result of which the
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aggregate number of shares of PremiumWear Common
Stock to be received by each of the two Shareholders
shall be 120,946; and
(B) $1.510634 in cash, as a result of which the aggregate
cash to be received by each of the two Shareholders
shall be $755,317.
1.4 Additional Effects of the Merger.
(A) Rights and Obligations. All the properties, rights,
privileges, powers and franchises of KLI and
Acquisition Corp. shall vest in the Surviving
Corporation, and all debts, liabilities and duties of
KLI and Acquisition Corp. shall become the debts,
liabilities and duties of the Surviving Corporation.
(B) Articles of Incorporation and Bylaws. The articles of
incorporation of Acquisition Corp. in effect at the
Effective Time shall be the articles of incorporation
of the Surviving Corporation until amended in
accordance with applicable law. The bylaws of
Acquisition Corp. in effect at the Effective Time
shall be the bylaws of the Surviving Corporation
until amended in accordance with applicable law.
(C) Directors. The directors of Acquisition Corp. at the
Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in
accordance with the articles of incorporation and
bylaws of the Surviving Corporation until each such
director's successor is duly elected or appointed.
(D) Officers. The officers of Acquisition Corp. at the
Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in
accordance with the articles of incorporation and
bylaws of the Surviving Corporation until each such
officer's successor is duly elected or appointed.
1.5 Facilitation of Closing. Between the date of this Agreement
and the Closing Date, the parties to this Agreement must take
all actions reasonably necessary to promptly facilitate the
Closing, including, but not limited to working toward
satisfying the conditions to Closing set forth in Sections 4.1
and 4.2 over which such party has control. In particular:
(A) Conduct of Business. KLI will conduct its business
only in the ordinary course and use its reasonable
efforts to preserve intact its business organization
and goodwill, keep available the services of its
officers and employees and maintain satisfactory
relations with suppliers, customers and others having
a business relationship with KLI.
(B) Negative Covenants. KLI will not (i) make any changes
with respect to its management or supervisory
personnel or its employment arrangements; (ii)
create, incur or assume any debt without the written
consent of PremiumWear; (iii) directly or indirectly
encourage, solicit or initiate discussions or
negotiations with any corporation, partnership,
person or any other entity or group (other than
PremiumWear) concerning any sale, merger or other
transaction related to the sale of its business prior
to April 5, 1999 and will not permit its officers,
directors or
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agents to do any of the foregoing; or (iv) take any
action which would cause a breach of any of the
representations in Section 2.
(C) Director and Shareholder Vote. The Shareholders, as
the only two shareholders and directors KLI, will
vote their shares in favor of approval of the Merger
and all transactions related to the completion of the
Merger.
(D) State Merger Filings. Upon approval of the Boards of
Directors and the shareholders of KLI and Acquisition
Corp., the officers of each corporation must file all
appropriate documents with the Secretary of State of
Minnesota necessary to consummate the Merger.
(E) Due Diligence. KLI shall grant PremiumWear full
access to the employees, properties, books,
accounting and financial records, corporate records
and other business files of KLI for purposes of
examining the same in connection with the Merger.
(F) Target Closing Date. The parties to this Agreement
shall utilize their best faith efforts to complete
the Merger prior to April 5, 1999.
2. Representations and Warranties of KLI and the Shareholders. KLI and the
Shareholders, jointly and severally, make the following representations
and warranties to PremiumWear and Acquisition Corp.:
2.1 Organization and Qualifications of KLI. KLI is a corporation
lawfully existing and in good standing under the laws of
Minnesota with full corporate power and authority to own and
lease its properties and to conduct its business in the manner
and in the places where such properties are owned or leased or
such business is conducted by it. Except its ownership of
100,000 shares in Future Products, Inc., a Minnesota
corporation (which will be divested by KLI prior to Closing),
KLI does not have any subsidiaries or own any securities
issued by any other entity, except for securities held for
investment in publicly held companies representing less than
one percent of the outstanding Common Stock of each such
publicly held company. KLI is not a partner or joint venturer
in any partnership or joint venture.
2.2 Capitalization of KLI. The authorized capital stock of KLI
consists of 1,000,000 shares of common stock, no par value per
share, of which 1,000,000 shares are issued and outstanding,
fully paid and non-assessable. Schedule 2.2 attached hereto
sets forth a complete and correct list of the shareholders of
KLI and the number of shares of KLI's capital stock owned by
each shareholder. None of the KLI Common Stock has been issued
in violation of any federal or state securities laws or other
applicable laws. There are no outstanding warrants, options,
preemptive rights, or other rights to purchase or acquire
shares of KLI Common Stock or any other KLI capital stock. No
securities or other instruments of KLI are either directly or
indirectly convertible into or exchangeable for shares of
capital stock of KLI and there are no stock appreciation,
phantom or similar rights based on the book value or any other
attribute of any capital stock of KLI. No restrictions exist
on the transfer of shares of KLI Common Stock.
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2.3 Authority of KLI and the Shareholders. This Agreement is the
valid and binding obligation of KLI and each of the
Shareholders in accordance with its terms. The execution,
delivery and performance by KLI of this Agreement and the
consummation by KLI of the transactions contemplated hereby
have been duly and validly authorized by all necessary action
on the part of KLI and no other corporate proceedings on the
part of KLI are necessary to authorize the execution and
delivery of this Agreement and to consummate the transactions
so contemplated. The execution, delivery and performance of
this Agreement by KLI and the Shareholders and the
consummation of the transactions contemplated by this
Agreement will not violate or result in a default under
(A) any provision of the articles of incorporation or
bylaws of KLI;
(B) any provision of any agreement or obligation to which
KLI or either Shareholder is party or by which any of
KLI's property is bound; or
(C) any laws, rules or regulations to which KLI, either
Shareholder or any of their respective properties may
be subject.
2.4 Title to Properties; Condition of Properties. Except as listed
on Schedule 2.4, KLI has good and marketable title to all of
the assets owned or used in its business, including, without
limitation, all assets listed on the KLI Financial Statements
(as defined in Section 2.6), free and clear of any lien,
security interest, mortgage, pledge or other encumbrance of
any kind (collectively, "Encumbrances"). All assets owned or
used by KLI are in good working order, normal wear and tear
excepted. All assets necessary for the continued operation of
KLI's business as it is currently being conducted are owned by
KLI.
2.5 Real Property. KLI owns no real property.
2.6 Financial Statements. KLI has delivered to PremiumWear the
unaudited income statement and balance sheet of KLI for each
of the preceding three years with the last one ended December
31, 1998 (the "KLI Financial Statements"). Except as disclosed
on Schedule 2.6, all of the KLI Financial Statements referred
to in this Section have been prepared in accordance with
generally accepted accounting principles applied on a basis
consistent with KLI's past practices, are complete and correct
and present fairly the financial condition of KLI as of the
dates of said statements and the results of its operations for
the periods covered.
2.7 Taxes. KLI filed an election to be treated as an S Corporation
effective November 1, 1986, and from that date through the
Closing has been and will be fully qualified as an S
Corporation under the Internal Revenue Code (the "Code"). In
the event that KLI's Subchapter S Corporation election and
status under the Code is held invalid with respect to any
period of time prior to the Closing Date and, as a result,
Acquisition Corp. as a successor to KLI, or PremiumWear, is
required to pay corporate Taxes with respect to any period of
time prior to the Closing Date, the Shareholders shall
promptly reimburse PremiumWear for any and all such Tax
payments. Subject to the foregoing, KLI and the Shareholders
have timely filed and will timely file all federal, state,
county, local and foreign income, excise, property, franchise,
and other tax returns which are required to be filed by it and
them (in connection with income from KLI), respectively, with
respect to any period of time ending
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on or before the Closing Date and, subject to the foregoing,
have paid or will pay all Taxes, if any, with respect to such
periods which have or may hereafter become due so that
Acquisition Corp. as a successor to KLI, or PremiumWear, will
not have any tax deficiencies, including penalties and
interest, assessed against them arising from any audit by any
tax authority with respect to any period ending on or prior to
the Closing Date. Such returns are true, complete and correct
in all material respects. Neither KLI nor any Shareholder has
received notice of any tax deficiency proposed or assessed
against it or him which has not been paid through settlement
or otherwise, and has not executed any waiver of any statute
of limitations on the assessment or collection of any tax.
None of KLI's or any Shareholder's tax returns has been
audited by governmental authorities in or during the three
most recent full fiscal years of KLI. Neither KLI nor any
Shareholder has received any notice of any impending audit by
any taxing authority. None of KLI or its Affiliates are
subject to or bound by any agreement which imposes an actual
or potential tax indemnification obligation on KLI. The terms
"Tax" or "Taxes" shall mean any kind of tax imposed by a
local, state, federal or foreign tax authority.
2.8 Absence of Undisclosed Liabilities. Except as reflected or
reserved against on the KLI Financial Statements and except
for liabilities (none of which individually or in the
aggregate are material) incurred in the ordinary course of
business since the date of the KLI Financial Statements, KLI
has no liabilities of any nature, whether accrued, absolute or
contingent. There are no agreements, judgments, decrees,
orders or, to the best of KLI's and the Shareholders'
knowledge, any facts which materially affect, or may in the
future (so far as can now be reasonably foreseen) materially
affect, the business, properties, operations or condition of
KLI which have not been specifically disclosed in this
Agreement.
2.9 Accounts Receivable. To the best of KLI's and the
Shareholders' knowledge, all of the accounts receivable of KLI
reflected on the KLI Financial Statements or thereafter
acquired (including KLI Receivables) are valid and enforceable
claims, fully collectible and subject to no setoff or
counterclaim in the recorded amounts, subject only to the
allowance for doubtful accounts maintained in accordance with
KLI's past practices and reflected on the KLI Financial
Statements.
2.10 Inventories. To the best of KLI's and the Shareholders'
knowledge, the inventory of KLI consists of items of a
quantity consistent with normal inventory levels of KLI and of
a quality and condition that is usable and saleable in the
ordinary course of business for the purposes for which the
inventory is intended, reasonable wear and tear excepted. Such
inventory is carried on KLI's books of account in accordance
with generally accepted accounting principles consistently
applied.
2.11 Conduct of Business in the Ordinary Course. KLI has conducted
its business since December 31, 1998, only in the usual and
ordinary course consistent with past practice and since such
date, KLI has not
(A) sold or transferred any of its assets, except
inventory in the ordinary course of business;
(B) changed any method of accounting or accounting
practice;
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(C) increased or promised to increase the compensation
payable to any employee or independent contractor,
other than in the ordinary course of business
consistent with past practice;
(D) except as otherwise expressly contemplated by this
Agreement, made any direct or indirect payments,
dividends, distributions, sales or transfers of
assets, other than normal compensation consistent
with past practices, to any officer, director,
shareholder or employee of KLI or any of their
affiliates;
(E) changed its outstanding shares of capital stock or
repurchased, redeemed or acquired any outstanding
shares of capital stock or other ownership interest
in securities of KLI; or
(F) to the best of KLI's and the Shareholders' knowledge,
suffered any damage or casualty to its assets.
2.12 Intellectual Property. KLI does not own any patents,
copyrights, trademarks or tradenames, nor, to the best of
KLI's and the Shareholders' knowledge, has it infringed upon
any intellectual property rights owned, held or used by any
person or entity. KLI has the right to use, free and clear of
any claims or rights of any person or entity, all trademarks,
service marks, tradenames, trade secrets and customer lists
which KLI is using, to the best of KLI's and the Shareholders'
knowledge.
2.13 Contracts and Loans.
(A) Except for contracts, commitments, plans, agreements
and licenses described on Schedule 2.13
("Commitments"), KLI is not a party to or subject to
any agreement:
(1) creating any obligation of KLI to pay more
than $1,000;
(2) providing for the purchase of all or
substantially all of KLI's requirements of a
particular product or service from a
supplier, or for periodic minimum purchases
of a particular product or service from a
supplier;
(3) not terminable on 30 days notice without
penalty to or additional consideration from
KLI, other than sales and purchase
commitments entered into in the ordinary
course of business for less than $1,000
each;
(4) with any sales agent or distributor;
(5) other than as otherwise expressly provided
in this Agreement, containing covenants
limiting KLI's freedom to compete in any
line of business, or with any person or
entity, in any location;
(6) for the licensure of any property (either as
licensor or licensee); or
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(7) with any present or former officer,
director, employee, agent or shareholder of
KLI or with any person or entity controlled
by or affiliated with any of them.
(B) True, correct and complete copies of the Commitments
have been provided to PremiumWear prior to the
execution of this Agreement. All Commitments are in
full force and effect and have not been amended,
extended or otherwise modified. Other than as
disclosed on Schedule 2.13, neither KLI nor, to the
best knowledge of KLI and each Shareholder, any other
person or entity is in default under any Commitments.
(C) Notwithstanding the foregoing, except with respect to
the $100,000 line of credit with First Minnetonka
City Bank ("Line of Credit"), KLI is not a party to,
and none of the Commitments constitutes, a loan
agreement, a promissory note or indebtedness for
borrowed money which KLI has an obligation to repay
whether in the form of bank borrowings, guarantee of
indebtedness of a third party or otherwise. There is
no outstanding balance or any other amounts due under
the Line of Credit, except as may have been incurred
in the ordinary course of business consistent with
past practice. The Shareholders agree to pay any and
all outstanding balance or other amounts due under
the Line of Credit as of the Closing Date without
regard to the indemnification limitation contained in
Section 5.4(D), except as may have been incurred in
the ordinary course of business consistent with past
practice.
2.14 Litigation. There is no legal, administrative, arbitration or
other proceeding or governmental investigation pending or, to
the best knowledge of KLI or any Shareholder, threatened
against KLI, or against any Shareholder relating to the
business of KLI or the KLI Common Stock.
2.15 Compliance with Laws. Neither KLI, nor any Shareholder with
respect to the business of KLI, has violated, and neither are
violating, any statutes, regulations, ordinances or other
laws. There has never been any citation, fine or penalty
imposed or asserted against KLI, or any Shareholder relating
to the business of KLI or the KLI Common Stock, under any
foreign, federal, state or local law or regulation.
2.16 Insurance. Schedule 2.16 lists each insurance policy
maintained by KLI with respect to its properties, assets and
business and a brief description of their respective
coverages, including coverage dates, deductibles, premiums and
policy limits.
2.17 Permits. KLI holds all licenses, permits and franchises which
are required to permit it to conduct its business, and all
such licenses, permits and franchises are listed on Schedule
2.17.
2.18 Consents and Approvals. No consent, authorization, order, or
approval of or filing with any governmental authority, person
or entity, including, without limitation, consents from
parties to the Commitments, is required for the execution and
delivery of this Agreement or the consummation by KLI and the
Shareholders of the transactions contemplated by this
Agreement.
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2.19 Warranty or Other Claims. To the best of KLI's and the
Shareholders' knowledge, there are no existing claims against
KLI for goods or services sold, transferred or marketed which
are defective or fail to meet any product warranties or
contract or industry standards and, to the best knowledge of
KLI or each Shareholder, there are no threatened claims, or
any facts upon which a claim could be based, against KLI for
goods or services which are defective or fail to meet any
product warranties or contract or industry standards.
2.20 Finder's Fee. Neither Shareholder nor KLI has incurred
liability or will become liable for any broker's commission or
finder's fee relating to or in connection with the transaction
contemplated by this Agreement.
2.21 Employee Benefit Plans and Compensation.
(A) All employee benefit plans (as that term is defined
in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA")), as amended, which
are maintained or contributed to by KLI for the
benefit of its employees or former employees are
described in Schedule 2.21, and KLI is in full
compliance with the Code and ERISA with respect to
all such employee benefit plans.
(B) Other than claims for benefits by employees,
beneficiaries or dependents arising in the normal
course of the operation of such plans, no claim is
currently pending or, to the best knowledge of KLI or
any Shareholder, threatened against any such employee
benefit plan. There are no unfunded obligations of
KLI under any of its retirement, pension,
profit-sharing and deferred compensation plans and
programs. Except as disclosed in Schedule 2.21, each
such plan or program can be terminated at any time by
PremiumWear without penalty or material expense. The
Shareholders agree to pay any and all required
funding to KLI's pension plan for all periods before
and after the Closing Date without regard to the
indemnification limitations contained in Section
5.4(D).
(C) KLI has filed all returns required under the Code
with respect to its employee benefit plans, including
returns required by the Department of Labor.
(D) Schedule 2.21 sets forth the current compensation of
each employee of KLI.
2.22 Bank Accounts. All of the bank accounts of KLI, and the
individuals with signature authority, are listed on Schedule
2.22.
2.23 No Default. Neither KLI nor any Shareholder is in default or
violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation)
of any term, condition or provision of (i) KLI's articles of
incorporation or bylaws (or similar governing documents), (ii)
any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which KLI, or a
Shareholder with respect to the business of KLI, is now a
party or by which either of them or any of their respective
properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation
applicable to KLI, or to a Shareholder with respect to the
business of KLI or any of their respective properties or
assets.
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2.24 Investment Intent of Shareholder and Two-Year Holding Period.
Each Shareholder agrees, represents and warrants to
PremiumWear with respect to the shares of PremiumWear Common
Stock to be received in the Merger as follows:
(A) Each Shareholder is acquiring beneficial ownership in
the PremiumWear Common Stock for investment for his
own account and not with a view to, or for resale in
connection with, any distribution thereof. Each
Shareholder understands that the shares of
PremiumWear Common Stock to be acquired have not been
registered under the Securities Act of 1933, as
amended, (the "Act") by reason of a specific
exemption from the registration provisions of the Act
which depends upon, among other things, the bona fide
nature of the investment intent as expressed herein;
(B) Each Shareholder acknowledges that the shares of
PremiumWear Common Stock must be held indefinitely
unless subsequently registered under the Act or an
exemption from such registration is available. More
specifically, each Shareholder agrees to hold the
shares of PremiumWear Common Stock received by the
Shareholder in the Merger for a minimum holding
period of two (2) years from the date of Closing.
Nothing contained in this subsection (B) shall
prevent the Shareholders from participating in a
tender offer, merger or a similar transaction for the
purchase of all outstanding shares of PremiumWear;
(C) Each Shareholder has such knowledge and experience in
financial and business matters that he is able to
evaluate the merits and risks of an investment in the
PremiumWear Common Stock and has determined to bear
and can well afford to bear the economic risks of
such investment;
(D) Each Shareholder has had access to all material
information concerning PremiumWear and its
businesses, financial condition, and prospects for
the future, and to all additional information each
has deemed necessary to verify the accuracy of such
information;
(E) Each Shareholder has had the ongoing opportunity to
ask questions of and receive answers from the
officers of PremiumWear regarding the businesses,
financial condition and future prospects of
PremiumWear; and
(F) Each Shareholder agrees that each certificate
representing shares of PremiumWear Common Stock
issued in the Merger shall be endorsed with
substantially the following legend: "THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933." Each Shareholder further
agrees that such certificates shall also be endorsed
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with a legend with respect to the two-year holding
period set forth in Section 2.24(B) above, which
legend shall automatically expire at the end of such
two-year period.
2.25 No Tax Advice. Each Shareholder has received his own
independent advice with respect to the tax treatment of the
transactions contemplated hereby under federal, state and
local tax laws, and neither Shareholder has received or relied
upon any tax advice from PremiumWear, Acquisition Corp. or
their counsel in connection with such transactions.
2.26 Customer Relationships. To the best of KLI's and the
Shareholders' knowledge, there has not occurred any material
or significant change in KLI's customer or vendor
relationships.
3. Representations and Warranties of PremiumWear and Acquisition Corp.
PremiumWear and Acquisition Corp., jointly and severally, make the
following representations and warranties to KLI and each Shareholder:
3.1 Organization and Qualifications of Acquisition Corp.
Acquisition Corp. and PremiumWear are corporations lawfully
existing and in good standing under the laws of the states of
Minnesota and Delaware, respectively, with full corporate
power and authority to own or lease their respective
properties and to conduct their respective businesses in the
manner and in the places where such properties are owned or
leased or such businesses are conducted by them.
3.2 Authority of PremiumWear and Acquisition Corp. This Agreement
is a valid and binding obligation of PremiumWear and
Acquisition Corp. in accordance with its terms. The execution,
delivery and performance by PremiumWear and Acquisition Corp.
of this Agreement and the consummation by such parties of the
transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of PremiumWear and
Acquisition Corp., and no other corporate proceedings on the
part of any of them are necessary to authorize the execution
and delivery of this Agreement or to consummate the
transactions so contemplated. The execution, delivery and
performance of this Agreement by Acquisition Corp. and
PremiumWear and the consummation of the transactions
contemplated by this Agreement will not violate or result in a
default under
(A) any provision of the articles or certificate of
incorporation or bylaws of Acquisition Corp. or
PremiumWear;
(B) any provision of any agreement or obligation to which
Acquisition Corp. or PremiumWear is a party or by
which any of their respective properties is bound; or
(C) any laws, rules or regulations to which Acquisition
Corp. or PremiumWear or any of their respective
properties may be subject.
3.3 PremiumWear Common Stock. The shares of PremiumWear Common
Stock to be issued and delivered to the Shareholders by
PremiumWear pursuant to this Agreement will, on delivery of
the certificates therefor in accordance with the terms hereof,
be validly issued, fully paid, and nonassessable.
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3.4 SEC Filings. PremiumWear has filed all reports required to be
filed by it under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date
hereof (the foregoing materials being collectively referred to
herein as the "SEC Documents") on a timely basis, or has
received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any
such extension. As of their respective dates, the SEC
Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations
of the Securities and Exchange Commission (the "Commission")
promulgated thereunder. All material agreements to which
PremiumWear is a party or by which the property or assets of
PremiumWear is subject have been filed as exhibits to the SEC
Documents in accordance with applicable law to the extent such
documents were required to have been filed. The financial
statements of PremiumWear included in the SEC Documents,
including the notes thereto, (i) are true, complete and
correct in all material respects, (ii) comply in all material
respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect
thereto, (iii) have been prepared in accordance with GAAP
consistently maintained and applied throughout the periods
indicated and consistent with past practices, except as may be
otherwise indicated in such financial statements or the notes
thereto, and (iv) present fairly and accurately in all
material respects the financial position of PremiumWear and
its wholly-owned subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to
normal year-end audit adjustments, (v) are in accordance with
the books and records of PremiumWear and its wholly-owned
subsidiaries for the respective periods indicated, and (vi) do
not omit to state or reflect any material fact concerning
PremiumWear and its wholly-owned subsidiaries required by GAAP
to be stated or reflected therein.
4. Conditions to Closing.
4.1 Conditions to Obligations of KLI and the Shareholders. The
obligations of KLI and the Shareholders to consummate the
transactions contemplated by this Agreement are subject to the
fulfillment, prior to or at the Closing, of all of the
following conditions:
(A) Each of the representations and warranties of
PremiumWear and Acquisition Corp. contained in
Section 3 must be true and correct in all material
respects as though made on and as of the Closing Date
and PremiumWear and Acquisition Corp. must, on or
before the Closing, have each performed all of their
respective obligations under this Agreement which are
to be performed on or before the Closing;
(B) At the Closing, KLI shall have received a certificate
of the Secretary of Acquisition Corp. certifying as
to:
(1) a copy of the resolutions of Acquisition
Corp.'s board of directors which authorize
the execution, delivery and performance of
this Agreement as having been duly adopted
and as being in full force and effect on the
Closing Date; and
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(2) a copy of the articles of incorporation and
bylaws of Acquisition Corp. as in effect on
the Closing Date;
(C) At the Closing, KLI shall have received a certificate
of the Secretary of PremiumWear certifying as to a
copy of the resolutions of PremiumWear's Board of
Directors which authorize the execution, delivery and
performance of this Agreement as having been duly
adopted and as being in full force and effect on the
Closing Date;
(D) At the Closing, the Shareholders shall have received
the cash portion of the Merger consideration set
forth in Section 1.3 and a copy of instructions to
PremiumWear's transfer agent to promptly issue the
stock portion of the Merger consideration set forth
in Section 1.3;
(E) The Articles of Merger shall have been filed in
accordance with the MBCA;
(F) There shall not have occurred any material adverse
change in the business of PremiumWear subsequent to
the date of this Agreement;
(G) Each of the Shareholders and PremiumWear shall have
executed an employment agreement in the form attached
hereto as Exhibit B;
(H) All agreements, documents and other instruments to be
executed by the parties shall have been approved by
KLI's legal counsel which approval shall not be
unreasonably withheld;
(I) KLI shall have completed its due diligence review of
PremiumWear to its reasonable satisfaction; and
(J) All material consents and approvals of third parties
required under any contract to which KLI, any
Shareholder or PremiumWear is a party shall have been
received.
4.2 Conditions to Obligations of PremiumWear and Acquisition
Corp.. The obligations of PremiumWear and Acquisition Corp. to
consummate the transactions contemplated by this Agreement are
subject to the fulfillment, prior to or at the Closing, of all
of the following conditions:
(A) Each of the representations and warranties of KLI and
each Shareholder contained in Section 2 must be true
and correct in all material respects as though made
on and as of the Closing Date and KLI and each
Shareholder must, on or before the Closing, have
performed all of their respective obligations which
are to be performed on or before the Closing;
(B) At the Closing, PremiumWear shall have received a
certificate of the Secretary of KLI certifying as to:
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(1) a copy of the resolutions of KLI's board of
directors and shareholders authorizing the
execution, delivery and performance of this
Agreement as having been duly adopted and as
being in full force and effect on the
Closing Date; and
(2) a copy of the articles of incorporation and
bylaws of KLI as in effect on the Closing
Date;
(C) At the Closing, PremiumWear shall have received all
certificates and other instruments or documents
representing shares of KLI Common Stock;
(D) The Articles of Merger shall have been filed in
accordance with MBCA;
(E) There shall not have occurred any material adverse
change in the business of KLI subsequent to the date
of this Agreement;
(F) Each of the Shareholders and PremiumWear shall have
executed an employment agreement in the form attached
hereto as Exhibit B;
(G) KLI and each Shareholder shall have executed and
delivered to PremiumWear such certificates as may be
reasonably requested by PremiumWear;
(H) All agreements, documents and other instruments to be
executed by the parties shall have been approved by
PremiumWear' legal counsel which approval shall not
be unreasonably withheld;
(I) PremiumWear shall have completed its due diligence
investigation of KLI to its reasonable satisfaction;
(J) All material consents and approvals of third parties
required under any contract to which KLI, any
Shareholder or PremiumWear is a party shall have been
received;
(K) The Shareholders shall have provided to PremiumWear
assurances, in each case satisfactory to PremiumWear
in its sole discretion, that the following current
vendors of KLI will remain vendors of KLI follow the
Merger: California Manufacturing; Nucom, Ltd./Burks'
Bay; American Dry Goods; and Winona Knitting Mills;
and
(L) KLI shall have delivered PremiumWear with evidence
satisfactory to PremiumWear that KLI shall have
divested its ownership in Future Products, Inc.
(identified as 100,000 shares of Common Stock of
Future Products, Inc.) and, shall have transferred
from KLI all accounts receivable and payable with
respect to which Future Products, Inc. has the right
to receive payment or has an obligation to make a
payment and shall have transferred from KLI all of
its employee receivables (identified to be $32,000 as
of 12/31/1998), such that in each case, KLI shall
have no further right or obligation with respect
thereto.
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5. Indemnification.
5.1 Indemnification of PremiumWear. Subject to the provisions of
this Section 5, PremiumWear shall be indemnified by the
Shareholders, jointly and severally, against any damages,
claims, liabilities, losses and expenses, of any kind or
nature whatsoever which may be sustained or suffered by
PremiumWear as a result of any breach of any agreement,
representation, warranty or covenant made by KLI or any
Shareholder in this Agreement (each a "Loss" and collectively
"Losses").
5.2 Indemnification of the Shareholders. Subject to the provisions
of this Section 5, the Shareholders shall be indemnified by
PremiumWear, against any damages, claims, liabilities, losses
and expenses, of any kind or nature whatsoever which may be
sustained or suffered by the Shareholders as a result of any
breach of any agreement, representation, warranty or covenant
made by PremiumWear in this Agreement (each a "Loss" and
collectively "Losses").
5.3 Notice of Indemnification Claims. Promptly after the receipt
by an indemnified party of notice of any Loss as to which such
party may seek indemnification under this Agreement, the party
receiving such notice shall notify the party or parties from
whom it is seeking indemnification (the "Indemnifying Party").
In the case of a claim asserted by a third party, such
Indemnifying Party shall have the right to defend at its own
expense by its own counsel such matter to the extent of the
potential indemnification liability of the Indemnifying Party.
If the Indemnifying Party shall undertake to defend the
matter, it shall promptly notify the other party or parties of
such determination.
5.4 Limitations on Indemnification Claims. The right to
indemnification under this Agreement shall be limited as
follows:
(A) No claims for indemnification shall be made more than
two years after the Closing Date, and any such claims
which have been made and remain outstanding two years
after the Closing Date shall be processed to a
conclusion.
(B) Any proceeds from insurance paid to the party seeking
indemnification as a result of the Loss shall
constitute a reduction of the amount of the Loss for
purposes of indemnification.
(C) The calculation of the Loss shall take into account
any tax liabilities and/or tax benefits attributable
to the Loss.
(D) No claim for indemnification shall be made unless the
amount of the Loss for which the claim is made, after
any reductions as provided in (B) and (C) above,
exceeds a threshold of $5,000 and the claim shall be
only for the amount of the Loss in excess of such
$5,000 threshold, provided, however, that
indemnification pursuant to Section 2.7 (taxes) of
this Agreement shall not be subject to the threshold
set forth above.
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6. Termination.
6.1 Notwithstanding any provision in this Agreement to the
contrary, this Agreement may be terminated, and the
transactions contemplated by this Agreement abandoned, at any
time on or prior to the Closing Date:
(A) by mutual written consent of PremiumWear and KLI;
(B) by PremiumWear if any of the conditions set forth in
Section 4.2 have not been satisfied, or waived in
writing by PremiumWear, on the Closing Date;
(C) by KLI if any of the conditions set forth in Section
4.1 have not been satisfied, or waived in writing by
KLI, on the Closing Date; or
(D) by either PremiumWear or KLI in writing if the
Closing does not occur by April 5, 1999.
7. Miscellaneous; Other Agreements.
7.1 Survival. All representations, warranties, agreements,
covenants and obligations herein shall survive the execution
and delivery of this Agreement and the Closing and the
consummation of the transactions contemplated hereby and shall
not be affected by any examination made for or on behalf of
PremiumWear, Acquisition Corp. or KLI. Notwithstanding
anything contained herein to the contrary, the representations
and warranties of the parties shall survive the Closing for a
period of two years after the Closing Date, except for the
representations and warranties of KLI and Shareholder under
Sections 2.7, 2.15 and 2.21, which shall survive for the
period of the applicable statute of limitations.
7.2 Cash Distributions to Shareholders. There shall have been no
cash distributions to the Shareholders since December 31, 1998
except for salaries and normal travel expense reimbursements.
7.3 Restrictions on Transactions in PremiumWear Common Stock.
PremiumWear, KLI and each Shareholder agree not to effect any
purchases or sales of PremiumWear Common Stock during the 10
trading days immediately prior to Closing and agree to use
their best efforts to restrict such purchases and sales by
their respective directors and officers during such 10-day
period.
7.4 Directorship. After Closing, PremiumWear shall nominate and
recommend that Mr. Klouda become a member of the Board of
Directors of PremiumWear at the 1999 Annual Meeting of
Shareholders; provided, however, if the Closing does not occur
prior to the mailing of PremiumWear's proxy materials to its
shareholders, the Board of Directors of PremiumWear shall
appoint Mr. Klouda to the Board following the 1999 Annual
Meeting of Shareholders and shall include him in management's
slate of nominees to the Board at the 2000 Annual Meeting of
Shareholders.
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<PAGE>
7.5 Shareholder and Shareholder Spouse Car Leases.
(A) The Shareholders represent and warrant that as of the
Closing, the following vehicle leases are the only
vehicle leases to which KLI is a party: (1) Motor
Vehicle Lease Agreement dated 9/6/1997 with respect
to a 1997 Infiniti QX4 Truck; (2) Closed End Motor
Vehicle Lease Agreement, as extended by the Matured
Lease Extension Agreement dated 10/23/1998 with
respect to a 1995 Toyota Sport Van; and (3) Closed
End Motor Vehicle Lease Agreement dated 7/13/1998
with respect to a 1999 Lexus RX300.
(B) Mr. Klouda agrees that Mr. Klouda, individually,
shall be solely responsible for payments under and
for complying with the terms and conditions of the
vehicle leases set forth in section 7.5(A)(1) and
7.5(A)(3) above. Mr. Lenz agrees that Mr. Lenz,
individually, shall be solely responsible for
payments under and for complying with the terms and
conditions of the vehicle lease set forth in section
7.5(A)(2) above. In addition, the responsible party
for each lease shall be obligated to pay any and all
amounts that are now due or may hereafter become due
under the leases, adequate insurance for the
operation of such vehicles, annual registration fees
and any other fees and taxes that may be imposed by
the vehicle lease or by the State of Minnesota for
the operation of such vehicles. The obligations set
forth above shall apply regardless of who operates or
uses the vehicle. It is understood between the
parties that the only payment or other obligation of
PremiumWear or KLI with respect to the vehicles set
forth above shall be those which arise from under the
Employment Agreements between PremiumWear and each of
Messrs. Klouda and Lenz.
(C) Messrs. Klouda and Lenz shall indemnify and hold
harmless PremiumWear and KLI (with respect to the
vehicle lease with respect to which such party is
responsible) against (i) any damages, claims,
liabilities, losses and expenses, of any kind or
nature whatsoever which may be sustained or suffered
by PremiumWear or KLI as a result of any breach of
any agreement, representation, warranty or covenant
made by Messrs. Klouda and Lenz in this Section 7.5
and (ii) any cost, tax, expense, liability or
obligation which may arise out of the lease
agreements set forth in Section 7.5(A) above or arise
out of the operation or use of the vehicle subject to
the lease, including as a result of accidents, other
moving violations or parking tickets.
(D) Messrs. Klouda and Lenz further agree that they will
not renew or extend the vehicle leases listed in
Section 7.5(A) above in the name of KLI and shall not
enter into new vehicle leases of any kind in the name
of KLI.
7.6 Publicity and Confidentiality. KLI and PremiumWear shall
consult each other prior to issuing any press release or
otherwise making any public statements with respect to the
transactions contemplated hereby, and neither shall issue any
such press release or make any such public statement without
the prior consent of the other, except as may be required by
applicable law.
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<PAGE>
The parties have signed a Confidentiality Agreement dated
January 18, 1999. Such Confidentiality Agreement shall
continue in effect notwithstanding a termination of this
Agreement.
7.7 Fees and Expenses. Each party will bear all of its own
expenses in connection with the negotiation and the
consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing, all such expenses
incurred by KLI and the Shareholders subsequent to December
31, 1998 shall be paid by the Shareholders. Furthermore, if
either PremiumWear on one hand, or KLI and the Shareholders,
on the other hand, terminate this Agreement and fail to
consummate the transactions contemplated hereby, and the other
party is not then in material breach or default under this
Agreement, the party terminating this Agreement and failing to
consummate the transaction shall reimburse the other party for
its out-of-pocket costs and expenses (including reasonable
attorneys' fees) incurred in the preparation, negotiation and
due diligence performed in connection with this Agreement and
the transactions contemplated hereby. This Section shall
survive the Termination of this Agreement.
7.8 Governing Law. This Agreement, and all ancillary documents
related to this Agreement, is governed by the internal laws of
the state of Minnesota, without regard to the conflict of laws
provisions of any jurisdiction. KLI, THE SHAREHOLDERS,
PREMIUMWEAR AND ACQUISITION CORP. HEREBY IRREVOCABLY SUBMIT TO
THE JURISDICTION OF THE MINNESOTA STATE COURTS AND FEDERAL
COURTS SITTING IN OR ENCOMPASSING HENNEPIN COUNTY, MINNESOTA,
OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER ANCILLARY DOCUMENTS RELATED
TO THIS AGREEMENT AND AGREE THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY ONLY BE HEARD AND DETERMINED IN ANY
SUCH COURT.
7.9 Notices. All notices required or permitted to be given under
this Agreement must be in writing and are deemed given when
delivered in person (or three business days after being
deposited in the United States mail, postage prepaid,
registered or certified mail, addressed as set forth below, or
on the next business day after being deposited with a
nationally-recognized overnight courier service, addressed as
set forth below, or upon dispatch if sent by facsimile with
telephonic confirmation of receipt from the intended recipient
to the facsimile number set forth below):
To PremiumWear, PremiumWear, Inc.
Acquisition Corp., 5500 Feltl Road
or the Surviving Minnetonka, MN 55343
Corporation: Attention: James S. Bury
Fax No.: (612) 979-1717
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<PAGE>
With a copy to: Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Attention: John R. Houston, Esq.
Fax No.: (612) 371-3207
To either Shareholder: Timothy C. Klouda
Dennis G. Lenz
5500 Feltl Road
Minnetonka, MN 55343
Fax No.: (612) 979-1717
With a copy to: Standke, Greene & Greenstein, Ltd.
17717 Highway No. 7
Minnetonka, MN 55345
Attn: H. Kelsey Page, Esq.
Fax No.: (612) 474-2575
7.10 Entire Agreement. This Agreement, including the Schedules and
Exhibits, constitute the entire agreement between the parties
with respect to its subject matter of this Agreement.
7.11 Assignability. This Agreement is enforceable by, and will
inure to the benefit of, the parties to this Agreement and
their successors and assigns, provided no party may assign its
rights or obligations under this Agreement without the prior
written consent of the other parties.
7.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, once delivered, shall be deemed
an original and all of which, once delivered, shall constitute
one agreement.
7.13 Headings. The descriptive headings in this Agreement are
inserted for convenience only and do not constitute a part of
this Agreement.
7.14 Non-exclusivity. The rights, remedies, powers and privileges
provided in this Agreement are cumulative and not exclusive
and shall be in addition to any and all rights, remedies,
powers and privileges granted by law, rule, regulation or
instrument.
7.15 Amendments; Waivers. Any provision of this Agreement may be
amended or waived prior to the Effective Time, only if such
amendment or waiver is in writing and signed, in the case of
an amendment, by both parties, or in the case of a waiver, by
the parties against whom the waiver is to be effective.
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<PAGE>
IN WITNESS WHEREOF, this Agreement is executed effective as of the date
first above written.
KLI ACQUISITION CORP.
By /s/ Thomas D. Gleason
-----------------------------------
Its Chairman
PREMIUMWEAR, INC.
By /s/ Thomas D. Gleason
-----------------------------------
Its Chairman and CEO
-------------------------------
KLOUDA-LENZ, INC.
By /s/ Timothy C. Klouda
-----------------------------------
Its CEO
-------------------------------
SHAREHOLDERS:
/s/ Timothy C. Klouda
--------------------------------------
Timothy C. Klouda
/s/ Dennis G. Lenz
--------------------------------------
Dennis G. Lenz
19
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES, WHICH PROVIDE ADDITIONAL INFORMATION
CONCERNING THE COMPANY'S FINANCIAL ACTIVITIES AND CONDITION.
CAPITAL RESOURCES AND LIQUIDITY
In two separate transactions in 1996 the Company sold all of its then-existing
trade names and trademarks for cash totaling $23,000,000. Proceeds from the
transactions and the liquidation of assets related to the exited retail and
professional golf-oriented businesses were used to pay off the Company's
previous asset-based lender, pay transaction expenses, provide funds for
operations and for a $12,500,000 special cash distribution to shareholders on
March 5, 1997. These 1996 transactions, subsequent increased profit from
operations and improved inventory management have significantly strengthened the
Company's financial position.
At January 2, 1999, working capital totaled $14,824,000 compared to $11,149,000
the previous year and the current ratio was 4.0:1 compared to 3.3:1 in 1997.
During 1998 operating activities provided $888,000 of cash, primarily due to net
earnings of $1,453,000, depreciation and amortization of $989,000 and $731,000
from the utilization of net operating loss carryforwards. These sources of cash
were offset by a $2,089,000 increase in receivables due to higher sales in the
fourth quarter of 1998 compared to the comparable 1997 quarter. Capital
expenditures totaled $609,000, primarily for purchases of embroidery equipment,
leasehold improvements and upgrading of the Company's information systems. At
1998 year-end cash and cash equivalents totaling $3,215,000 were essentially all
invested in short-term government securities.
At January 3, 1998, working capital totaled $11,149,000 compared to $21,266,000
the previous year and the current ratio was 3.3:1 compared to 3.9:1 in 1996.
After giving effect, on a pro forma basis, to the $12,500,000 special cash
distribution in early 1997, working capital at January 4, 1997 would have
totaled $8,766,000 and the current ratio would have been 2.2:1. During 1997,
operating activities provided $392,000 of cash, primarily due to a $1,214,000
decrease in inventories as a result of more effective inventory management
practices, $837,000 of net earnings, $463,000 from the utilization of net
operating loss carryforwards and $439,000 of depreciation. These sources of cash
were offset by a $2,441,000 reduction in payables and other liabilities,
primarily due to payments of severance and professional services related to the
1996 sales of trade names and trademarks and reduced trade payables as a result
of lower year-end inventories. Capital expenditures totaled $435,000, primarily
for purchases of manufacturing equipment, leasehold improvements and upgrading
of the Company's information systems. Financing activities included the March
1997 special cash distribution of $12,500,000 and $959,000 received from
officers, directors and employees in the exercise of common stock options. At
1997 year-end cash and cash equivalents totaling $2,870,000 were essentially all
invested in short-term government securities.
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At January 4, 1997, working capital totaled $21,266,000 compared to $3,926,000
the previous year and the current ratio was 3.9:1 compared to 1.2:1 in 1995.
During 1996 operating activities provided $2,195,000 of cash, the result of a
combined $6,692,000 reduction in receivables and inventories offset by a
$3,677,000 decrease in accounts payable and other liabilities, all of which
related primarily to the liquidation of inventories, collection of receivables
and payment of liabilities related to the exited retail and golf-oriented
businesses. Capital expenditures totaled $689,000 primarily for information
systems improvements and purchases of manufacturing equipment. Proceeds of
$23,000,000 were received in 1996 from the sale of trademarks and $819,000 was
received from the exercise of common stock options.
As a result of the 1996 sale of trademarks the Company's previous asset-based
credit arrangement was terminated and all funds due the lender were repaid. On
February 4, 1997, the Company entered into a long-term bank line of credit with
a new lender which provides up to $6,000,000 of funds available based on certain
financial formulas.
Management expects the Company's financial resources and liquidity to continue
to improve through profitable development of the promotional
products/advertising specialty ("special markets") and golf businesses. In
addition, management will continue to focus effort on inventory control, where
improved practices and forecasting procedures led to an increase in inventory
turns from 2.7 in 1997 to 3.5 in 1998, generating significant positive cash
flow. Finally, the Company has net operating loss carryforwards of approximately
$19,000,000 for domestic federal income tax purposes, which will reduce cash
outlays otherwise necessary for income taxes.
Management expects to be able to finance working capital needs and capital
expenditures, which will be at least $1,000,000 in fiscal 1999, through a
combination of funds from operations and its bank line of credit.
RESULTS OF OPERATIONS
1998 NET SALES increased 25% primarily due to a 22% increase in sales to special
markets customers. Sales growth was due to both added customers and additional
volume with existing customers. The remaining growth came from the introduction
of the Page & Tuttle(R) brand into the golf market, where the Company opened
nearly 500 accounts. Selling prices remained relatively constant from 1997 to
1998.
1997 net sales to special markets customers increased 25% over 1996. Sales
growth was from added customers and additional volume with existing customers.
Management believes the increase was due in part to the Company's product
offering, which generally included more fashion than many of its competitors,
and improved delivery performance. In total, net sales decreased from 1996
levels, which included $23,000,000 of sales related to the exited retail and
golf-oriented businesses. Selling prices remained relatively constant from 1996
to 1997.
Following the 1996 sales of trademarks, the Company no longer receives income
from ROYALTIES. As a result, no such income was realized in 1998 or 1997.
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GROSS MARGIN increased to 25.2% in 1998 compared to 23.4% in 1997. The increase
was due to increased offshore manufacturing, which comprised approximately
two-thirds of 1998 production versus 40% in 1997. The improved gross margin
ratio was even more dramatic when considering the Company recognized a charge of
$472,000 to cost of goods sold, or 1.1% of net sales, related to asset
impairment of its North Carolina production facility where production levels are
less than half of year ago levels. This was the result of management's strategy
to expand offshore sourcing in order to reduce costs and remain competitive in
the marketplace. Golf market sales, while modest, helped gross margins.
Gross margin of 23.4% for special market sales was relatively flat in 1997
compared to 23.6% the prior year. Lower unit costs achieved through additional
off-shore sourcing were offset by increased sales to advertising specialty
distributors who receive volume discounts on large quantity purchases. 1996
margins in the special markets business were 23.6%, but total Company margins
were 19.1% due to significant markdowns encountered while liquidating
inventories related to the exited retail-oriented business.
SELLING, GENERAL AND ADMINISTRATIVE expenses increased $2,323,000 over the prior
year and also reached 20.8% of sales versus 19.2% in 1997. Selling expenses
accounted for $1,155,000 of the increase, primarily due to the volume affect on
such variable costs as commissions, advertising and warehouse expenses. The bad
debt reserve increased by $230,000 during the year, and management incentives
and profit sharing covering all employees increased $507,000 versus 1997. Other
administrative expenses increased $431,000 primarily due to costs related to
various potential acquisition activities, public and shareholder relations
expenses and accelerated depreciation on computer systems which will be retired
in mid-1999 as a result of the Year 2000 project.
Selling, general and administrative expenses for 1997 were 19.2% of net sales
and were $4,923,000 lower than the prior year due to exit from the
retail-oriented business which required substantial design, merchandising and
sales support spending. Selling expenses dropped $1,130,000 primarily due to
elimination or reduction of expenses such as commissions, sales management,
market shows and travel related to the exited businesses. Advertising and
promotion spending decreased $834,000 as a result of elimination of significant
spending required by the former retail-oriented business. Warehouse and
distribution costs dropped $694,000 due in part to reduced volume but also due
to efficiencies realized in 1997 as a result of improved systems and workflow.
1996 included $605,000 of royalty expense and trademark amortization, costs not
encountered after the sale of trademarks. Information systems expenditures
dropped $458,000 as a result of reduced manning and outside programming services
related to the Company's business software systems installed in late 1995 which
required heavy support throughout 1996. Other administrative costs dropped
$232,000 due to lower legal, consulting and investment banker fees, $193,000 as
a result of the early 1997 headquarters office relocation, and $140,000 due to a
reduction in the number of Board members and meetings.
INTEREST EXPENSE dropped dramatically the past two years due to excess funds
generated from the 1996 sale of trademarks and improved inventory management.
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1996 interest expense was 33% below 1995's level due to payoff of the bank line
of credit from proceeds generated from the sale of trademarks and collection of
receivables from the retail-oriented business. INTEREST INCOME of $180,000 in
1998 was the result of excess funds invested in short-term government securities
throughout the entire year. 1997 interest income of $114,000 was primarily due
to excess funds during the first quarter prior to the payment of the $12,500,000
special cash distribution. In 1996, excess funds during the fourth quarter
following the sale of trademarks led to $247,000 of interest income.
In 1996 GAIN ON SALE OF TRADEMARKS included $4,383,000 realized on the June 1996
sale of certain Far Eastern trademarks and $6,244,000 realized on the September
1996 sale of the Company's remaining trademarks and certain associated assets
related to the retail and professional golf-oriented businesses. The gains were
comprised of proceeds less transaction and disposition costs. In 1998, the
Company recognized an additional $398,000 gain from these transactions due to
remaining accruals that were no longer deemed necessary.
PROVISION FOR INCOME TAXES represents federal, state, local and foreign taxes.
At January 2, 1999, the Company had net operating loss carryforwards of
approximately $19,000,000 for domestic federal income tax purposes. Due to the
adoption of "Fresh Start Reporting" in 1991, the Company recognized no benefit
from net operating loss carryforwards in its statement of operations, but rather
reflected such benefit as a direct credit to shareholders' equity, which amount
totaled $731,000 in 1998.
LOOKING FORWARD
In late 1995 the Company retained an investment banker to explore a range of
opportunities to maximize shareholder value. These actions led directly to the
1996 sale of trademarks and exit from the retail and professional golf-oriented
businesses. During this period management continued to increase its focus on and
commitment to development of the special markets channel of distribution, and
following the 1996 sale of trademarks and other assets related to the retail and
professional golf-oriented businesses the Company operated entirely in the
special markets channel of distribution, no longer soliciting orders from
department stores, chain stores, specialty retail shops and professional golf
accounts. In early 1998 the Company re-entered the golf-oriented apparel market
under its internally developed Page & Tuttle(R) brand, following management's
strategy to develop and/or acquire complementary brands, markets and products.
Management expects to continue to pursue such opportunities through development
of additional brands and products and potentially through acquisitions. In
addition, management expects to increase off-shore production in 1999 in order
to achieve lower unit costs which will help the Company to remain competitive in
the apparel marketplace, where deflationary pricing practices are expected to be
encountered. Such action will likely lead to further significant reductions in
production levels at the Company's North Carolina manufacturing facility and
could result in severance and other shutdown costs in 1999. However, there can
be no assurance that these events will occur nor that this strategy will be
successful. The Company currently pays no license fees on the majority of its
sales under the terms of its licensing agreement with Supreme International
Corporation and is not required to pay any such
4
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fees until aggregate sales dollars reach a specific amount which will not likely
occur until the year 2001. At that time, license fees will represent an
additional expense to the Company which management plans to recover through
improved margins and reduced costs in other areas.
MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency exchange rates, interest rates and
commodity futures pricing. The Company is exposed to various market risks,
including fluctuations in foreign currency exchange rates, interest rates and
cotton prices. The Company does not enter into derivatives or other financial
instruments for trading, speculative or hedging purposes.
The Company follows certain practices to manage market risk. Contracts for the
purchase of goods from Far East suppliers are negotiated in U.S. dollars, which
tends to minimize the potential for short-term loss due to adverse changes in
foreign currency exchange rates. The Company invests excess funds in U.S.
government securities with maturities of 30 days or less, minimizing the effect
of short-term interest rate changes on investments. The Company's products are
made chiefly of cotton, the price of which is effected by world-wide commodity
futures markets. The Company negotiates fabric purchases for twelve-month
intervals which minimizes the effect of short-term fluctuations in the price of
cotton.
YEAR 2000
The Year 2000 issue is the result of computer programs using a two-digit format,
as opposed to four digits, to indicate the year. Computer systems based on a
two-digit format will be unable to interpret dates beyond the year 1999 which
could cause a system failure or other computer errors, leading to disruption in
operations.
Readiness:
The Company has a Year 2000 Project Team, whose objective is to determine and
assess the risks of the Year 2000 issue and plan actions to minimize those
risks. A project team leader reports directly to a corporate officer, who is a
member of the Company's Management Information Systems Steering Committee, which
is responsible for the overall direction and development of the Company's
information systems strategy. The Project Team is comprised of a key member from
each of the Company's organizational departments.
The Project Team is identifying, inventorying and cataloging information
technology (IT) systems and non-IT systems, equipment and processes used by the
Company and then researching each one to determine the vulnerability to
date-sensitive transactions. This process is expected to be complete in early
1999. In addition, the Project Team is assessing the risk on the Company of any
Year 2000 non-compliance by any key customer, which could adversely affect the
Company's future revenues, or supplier of goods and services, which could
adversely affect the Company's future availability of product for sale. This
assessment includes questionnaires sent to and other
5
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communications with each of the key customers and suppliers and is also expected
to be complete in early 1999.
The Company uses primarily licensed software products in its operations with a
significant portion of processes and transactions centralized in one particular
software package. Internally developed systems are limited primarily to
management reporting systems and electronic data interface with a few key
customers and its sales representative organization. In early 1998 the Company
began a project to upgrade to the most current version of the core software
package which, among other things, is Year 2000 compliant. Installation of the
software in a test environment and education and training started in the third
quarter of 1998. Management estimates the upgraded version of the software will
be operational during the second quarter of 1999, which is when the Company will
begin to encounter Year 2000 dates in its forecasting and inventory planning
activities. In addition, the Company will be upgrading other licensed software
products which interface with this central software package and primarily
include shop floor control management, warehouse and distribution operations and
demand forecasting.
During the next several months, the Company is focusing the activities of its
information systems department on the Year 2000 issue, maintaining existing
systems and limiting any other systems development. Significant additional
outside resources are being coordinated through the Company's core business
systems software vendor, who also has an assigned project team to assist the
Company in the systems upgrade.
Costs:
Approximately $400,000 of incremental costs are anticipated and will be
comprised primarily of outside consulting, programming and training costs in
addition to the purchase costs of software upgrades and the installation of new
hardware. At 1998 year-end, approximately one-fourth of the anticipated costs
had been incurred. Based on current assessment, management does not expect any
material adverse impact on the Company's financial condition or results of
operations as a result of costs associated with Year 2000 compliance, and will
follow established Company policy in accounting for such costs as capital or
expense.
Risks:
The Company is exercising its best efforts to identify and remedy any potential
Year 2000 exposures within its control. It is directing significant resources in
manpower, services, and equipment to upgrade its internal systems and to
identify any potential Year 2000 problems with key suppliers and customers.
However, the Company relies heavily on telecommunications and other essential
utilities which, to a significant extent, are beyond the immediate control of
the Company. Risks range from slight delays and inefficiencies in data
processing and business interruptions at small customers and suppliers to, in a
worst case scenario, extensive and costly inability to process data, and
business interruptions at certain key customers and suppliers, which could
result in lost sales and limited product availability, respectively.
Primary risks to the Company are in the following areas:
6
<PAGE>
o Implementation of the upgraded core business software prior to the end of
the second quarter of 1999, which is essential for the Company to process
data efficiently.
o Year 2000 non-compliance by certain key customers, which could adversely
affect the Company's revenues in the year 2000.
o Year 2000 non-compliance by certain key suppliers, which could adversely
affect the Company's availability of inventory for sale in the year 2000.
o Readiness of public utilities which supply essential services such as
telecommunications, electricity and gas.
Contingency Plans:
Contingency plans to protect the Company from Year 2000-related interruptions
are not final and will, to a large extent, depend on the findings of the Year
2000 Project Team's identification, cataloging and research activities and
timely completion of the core business systems upgrade. Contingency plans will
likely include, but not be limited to, identification of manual systems required
for less critical computerized systems and identification of alternate suppliers
and additional customers, where appropriate.
While the Company anticipates achieving Year 2000 compliance in a timely manner,
there can be no assurance that all processes will be efficient, that no revenues
will be lost, or that no sources of supply will be interrupted. However, the
Company believes that its planning and action efforts to date will help to
minimize any disruption.
CAUTIONARY STATEMENT
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, in the Letter to Shareholders, elsewhere in
the Annual Report, in the Company's Form 10-K, in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases and
in oral statements made with the approval of an authorized executive officer
which are not historical or current facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made. The following important factors, among others, in some cases
have affected and in the future could affect the Company's actual results and
could cause the Company's actual financial performance to differ materially from
that expressed in any forward-looking statement: (i) competitive conditions that
currently exist, including the entry into the market by a number of competitors
with significantly greater financial resources than the Company, are expected to
continue, placing pressure on selling prices which could adversely impact sales
and gross margins; (ii) continued implementation of the North American Free
Trade Agreement (NAFTA) is expected to put competitive cost pressure on apparel
wholesalers with domestic production facilities such as the Company; (iii) the
inability to carry out marketing and sales plans would have a materially adverse
impact on the Company's projections; (iv) the Company is a licensee of the
Munsingwear(R) name and maintaining a harmonious
7
<PAGE>
working relationship with the licensor is important for continued successful
development of the special markets business; (v) as a licensee, the Company is
dependent on the licensor to adequately promote the brand and defend it from
trademark infringement; (vi) the possible events described above under Year 2000
as Risks could, if they materialize, adversely impact financial performance. The
foregoing list should not be construed as exhaustive and the Company disclaims
any obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
8
<PAGE>
IMPACT OF INFLATION
Inflation affects the Company's business principally in the form of cost
increases for materials and wages. The Company generally attempts to offset
these cost increases by a combination of merchandising and design techniques,
purchasing practices, improved workflow efficiencies, increased off-shore
sourcing and selective price increases.
MARKET STATISTICS
The Company's common stock is listed on the New York Stock Exchange under the
symbol PWA. The 1998 and 1997 market price high and low were as follows:
<TABLE>
<CAPTION>
QUARTER
- ------------------------------------------------------------------------------------------------------------------
1ST 2ND 3RD 4TH
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
- ------------------------------------------------------------------------------------------------------------------
High 5 7/8 5 9/16 7 13/16 7 5/8
Low 4 11/16 4 3/4 4 7/8 6
1997
- ------------------------------------------------------------------------------------------------------------------
High 9 1/8 6 1/8 5 7/16 5 5/16
Low 3 1/4 3 3/4 4 3/16 4 9/16
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
On March 5, 1997, the Company paid a special cash distribution to shareholders
of $5.39 per share which resulted in a comparable reduction in the market price
on March 6, 1997. Otherwise, the Company has not paid dividends in the past two
years. The Company's long-term bank line of credit restricts the payment of
dividends.
As of February 19, 1999, the Company had 854 shareholders of record.
9
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS PremiumWear, Inc.
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 2, January 3, January 4,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Net sales $ 42,445 $ 33,820 $ 49,948
Royalties - - 2,969
- --------------------------------------------------------------------------------------------------------------
42,445 33,820 52,917
- --------------------------------------------------------------------------------------------------------------
EXPENSES:
Cost of goods sold 31,744 25,907 40,402
Selling, general and administrative 8,818 6,495 11,418
- --------------------------------------------------------------------------------------------------------------
40,562 32,402 51,820
- --------------------------------------------------------------------------------------------------------------
OPERATING INCOME 1,883 1,418 1,097
- --------------------------------------------------------------------------------------------------------------
Interest expense (40) (91) (771)
Interest income 180 114 247
Gain on sale of trademarks (See Note 2) 398 - 10,627
Other (57) 6 52
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 2,364 1,447 11,252
Provision for income taxes 911 610 4,071
- --------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,453 $ 837 $ 7,181
- --------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE:
Basic $ .63 $ .36 $ 3.47
Diluted $ .60 $ .36 $ 3.37
- --------------------------------------------------------------------------------------------------------------
Weighted average shares of common stock outstanding:
Basic 2,324 2,309 2,068
Diluted, including common stock equivalents 2,405 2,338 2,130
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE>
CONSOLIDATED BALANCE SHEETS PremiumWear, Inc.
<TABLE>
<CAPTION>
January 2, January 3,
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,215 $ 2,870
Receivables:
Trade, net of allowances of $728 and $538 5,670 4,155
Other 356 44
- -------------------------------------------------------------------------------------------------
6,026 4,199
Inventories 9,037 8,590
Deferred taxes 944 -
Prepaid expenses 624 279
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 19,846 15,938
- -------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 15 15
Buildings and leasehold improvements 738 584
Machinery and equipment 4,700 4,343
- -------------------------------------------------------------------------------------------------
5,453 4,942
Less accumulated depreciation and amortization 4,335 3,329
- -------------------------------------------------------------------------------------------------
1,118 1,613
- -------------------------------------------------------------------------------------------------
DEFERRED TAXES, net of valuation allowance of $6,961 and $10,637 1,556 -
- -------------------------------------------------------------------------------------------------
$22,520 $17,551
- -------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,061 $ 2,821
Accrued payroll and employee benefits 1,552 1,034
Liabilities related to sold assets - 578
Other accruals 409 356
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,022 4,789
- -------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Postretirement benefits 695 709
- -------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 695 709
- -------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 2, 3, 7-9 AND 11)
SHAREHOLDERS' EQUITY
Series B preferred stock, $100 stated value; voting, cumulative and
participating (authorized 75,000 shares, none issued)
Preferred stock, no par value (authorized 925,000 shares, none issued)
Common stock, $.01 par value (authorized 20,000,000 shares, 2,339,530
and 2,319,330 shares issued) 23 23
Additional paid-in capital 14,490 11,193
Retained earnings 2,290 837
- -------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 16,803 12,053
- -------------------------------------------------------------------------------------------------
$22,520 $17,551
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS PremiumWear, Inc.
<TABLE>
<CAPTION>
Year Year Year
ended ended ended
January 2, January 3, January 4,
(AMOUNTS IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income from operations $ 1,453 $ 837 $ 7,181
Reconciling items:
Depreciation and amortization 989 439 847
Deferred taxes 731 463 3,507
Provision for losses on accounts receivable 262 74 75
Gain on sale of trademarks (398) - (10,627)
Loss on sale of property, plant and equipment 64 - -
Change in unearned royalty income - - (1,988)
Changes in operating assets and liabilities:
Receivables (2,089) (43) 3,456
Inventories (447) 1,214 3,236
Prepaid expenses (345) (151) 185
Accounts payable 240 (1,188) (1,129)
Other accrued liabilities 377 (1,253) (2,548)
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 837 392 2,195
- --------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (609) (435) (689)
Proceeds from sale of property, plant and equipment 51 - -
Proceeds from sale of trademarks - - 23,000
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (558) (435) 22,311
- --------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in line of credit borrowings - - (10,890)
Net change in restricted cash - 447 (447)
Principal payments on long-term debt and capital lease
obligations - (23) (20)
Special cash distribution - (12,500) -
Proceeds from exercise of stock options 66 959 819
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 66 (11,117) (10,538)
- --------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 345 (11,160) 13,968
Cash and cash equivalents at beginning of period 2,870 14,030 62
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,215 $ 2,870 $ 14,030
- --------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for taxes $ 69 $ 368 $ 390
- --------------------------------------------------------------------------------------------------------------
Cash paid for interest $ 40 $ 84 $ 728
- --------------------------------------------------------------------------------------------------------------
Cashless exercise of stock options $ - $ 112 $ -
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY PremiumWear, Inc.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- ------------------------------------------------------------------------------------------------------
Common Stock Additional Retained
Issued Paid-in Earnings
Shares Amount Capital (Deficit)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 6, 1996 2,026,768 $ 21 $ 15,112 $ (2,149)
Stock grant 3,500 - - -
Exercise of stock options 132,885 1 818 -
Utilization of net operating loss carryforwards - - 1,198 -
Net income - - - 7,181
- ------------------------------------------------------------------------------------------------------
Balance at January 4, 1997 2,163,153 $ 22 $ 17,128 $ 5,032
- ------------------------------------------------------------------------------------------------------
Exercise of stock options 156,177 1 1,070 -
Utilization of net operating loss carryforwards - - 463 -
Special cash distribution - - (7,468) (5,032)
Net income - - - 837
- ------------------------------------------------------------------------------------------------------
Balance at January 3, 1998 2,319,330 $ 23 $ 11,193 $ 837
- ------------------------------------------------------------------------------------------------------
Exercise of stock options 20,200 - 66 -
Utilization of net operating loss carryforwards
and adjustment of related valuation reserves - - 3,231 -
Net income - - - 1,453
- ------------------------------------------------------------------------------------------------------
Balance at January 2, 1999 2,339,530 $ 23 $ 14,490 $ 2,290
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
PremiumWear, Inc. ("the Company") designs, sources and markets knit and
woven shirts and other apparel to the promotional products/advertising
specialty industry and to golf pro and resort shops utilizing its Page
& Tuttle(R) brand and other licensed brands. Over 90% of all sales are
to customers in the United States. Approximately one-third of the
Company's products are manufactured in the United States in one
company-owned facility. The remaining products are assembled or
manufactured primarily in Central America, South America and the Far
East. In 1996 the Company sold all rights to its Munsingwear(R) related
trademarks.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of PremiumWear, Inc. and
one inactive foreign subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The carrying
value of cash equivalents approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventoriable costs include raw materials, labor and related
manufacturing overhead expenses. Inventories consist of:
January 2, January 3,
(IN THOUSANDS) 1999 1998
-------------------------------------------------------------------
Raw materials $ 632 $1,751
Work in process 1,432 1,825
Finished goods 6,973 5,014
-------------------------------------------------------------------
$9,037 $8,590
-------------------------------------------------------------------
14
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. The Company provides
for depreciation using the straight line method for financial reporting
purposes and generally uses accelerated methods for income tax
purposes. Estimated useful lives used in computing depreciation and
amortization for financial reporting purposes range from five to forty
years for buildings and leasehold improvements and from two to ten
years for machinery and equipment. Assets recorded under leasehold
improvements are amortized over the lease terms. The Company
periodically reviews property, plant and equipment to determine that
the carrying values have not been impaired (see Note 10).
INCOME TAXES
The Company accounts for income taxes under the liability method. In
accordance with Fresh Start Reporting, any tax benefit associated with
utilization of the net operating loss carryforwards which survived a
1991 reorganization is reflected as additional paid-in capital.
REVENUES
Net sales are recognized at the time of shipment and reserves are
established for returns and allowances at that time. Sales to one
customer in 1998 and 1997 totaled 17% and 15%, respectively, of total
net sales. Sales to another customer in 1998 totaled 14% of total net
sales. Sales to a third customer in 1998, 1997 and 1996 totaled 11%,
16% and 12%, respectively, of total net sales. Following the 1996 sale
of its trademarks the Company no longer receives royalty income, which
had been recorded as earned in accordance with specific terms of each
license agreement.
ADVERTISING COSTS
Advertising costs are comprised primarily of cooperative advertising
programs, catalogs and trade advertising. Cooperative advertising
obligations are expensed at the time the related revenues are
generated. Catalog and trade advertising costs are capitalized upon
production and expensed ratably over the corresponding sales period.
Advertising expense for the three fiscal years was $770,000, $537,000
and $1,371,000.
15
<PAGE>
FISCAL YEAR
The Company's fiscal year ends on the first Saturday following December
31. The 1998, 1997 and 1996 fiscal years ended January 2, 1999, January
3, 1998 and January 4, 1997, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income," in 1998, which establishes
standards of disclosure and financial statement display for reporting
total comprehensive income and the individual components thereof. The
adoption of SFAS No. 130 did not have an impact on the Company's
disclosures as it has no items of other comprehensive income.
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in 1998, which establishes new
standards for segment reporting. The adoption did not affect the
Company's disclosures as it operates in one segment.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," becomes effective for the years beginning after June 15,
1999. SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair
value. SFAS No. 133 requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
criteria are met. Special accounting for qualifying hedges allow a
derivative's gains or losses to offset related results on the hedged
item in the income statement and requires that a company must formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. Management believes the adoption of SFAS No.
133 will not have a material impact on the Company's financial position
or results of operations since the Company has not historically entered
into significant derivative transactions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Ultimate results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified
to conform to 1998 presentation. These reclassifications had no effect
on previously reported net income or shareholders' equity.
16
<PAGE>
2. TRADEMARK SALES AND LICENSING AGREEMENT
On June 28, 1996, the Company sold its trademarks and pending trademark
applications for certain Far Eastern countries to ITOCHU Corporation,
Toyobo Co., Ltd., and Descente, Ltd. for $5,000,000 cash, resulting in
a gain before income taxes of $4,383,000. Proceeds were used to pay
down line of credit borrowings.
On September 6, 1996, the Company sold all of its rights to its
remaining trademarks and certain associated assets relating to the
retail and professional golf-oriented businesses to Supreme for
$18,000,000 in cash, resulting in a gain before income taxes of
$6,244,000. As part of the purchase and sale agreement the Company was
required to change its corporate name. At the 1996 Annual Meeting of
Shareholders, a name change from Munsingwear, Inc. to PremiumWear, Inc.
was approved by shareholders.
At the time of the September 1996 sale of trademarks, the Company also
entered into a license agreement with Supreme for the use of the
Munsingwear(R) brand for knit shirts for twenty years and certain other
products for five years. The license agreement includes an obligation
to pay license fees through 2001 on the sales of knit shirts when such
sales reach specified annual amounts. After 2001 license fees will be
payable on all sales of knit shirts. In the last three fiscal years,
sales did not reach the specified annual amount for knit shirt sales,
and management estimates the annual threshold will not be met until the
year 2001 at which time license fees will become payable on all knit
shirt sales. The Company pays license fees on all sales of other
Munsingwear(R) products. There are no guaranteed minimum royalty
payments on the license agreements.
In 1998, $398,000 of liabilities established at the time of the
trademark sales were deemed no longer required and were reversed.
17
<PAGE>
3. FINANCING AGREEMENTS AND LONG-TERM DEBT
The Company has a bank line-of-credit under which up to $6,000,000 is
available for borrowings and letters of credit through February 2000.
Borrowings and letters of credit are limited to an aggregate amount
equaling approximately 80% of eligible receivables and 50% of eligible
finished goods inventories. Essentially all the assets of the Company
except property, plant and equipment are pledged as collateral under
the agreement. Borrowings under the facility bear interest at the
bank's base rate of interest (7.75% at January 2, 1999). At January 2,
1999, $1,153,000 was utilized for letters of credit, resulting in
unused availability of $4,847,000. The agreement contains a commitment
fee of .5% per annum on the unused line of credit and also contains
cross default provisions to other agreements and other covenants which,
among other matters, require maintenance of certain financial ratios,
restrict the sale of assets, restrict payment of dividends and restrict
consolidation or merger of the Company with another entity.
Additionally, the Company is limited in incurring additional
indebtedness and liens on assets. At January 2, 1999 the Company was in
compliance with all debt covenants.
18
<PAGE>
4. INCOME TAXES
The income tax provision for the past three years consisted of the
following:
(IN THOUSANDS) 1998 1997 1996
----------------------------------------------------------------
Current $ 180 $ 147 $ 564
Deferred 731 463 3,507
----------------------------------------------------------------
$ 911 $ 610 $ 4,071
----------------------------------------------------------------
The current provision resulted from federal alternative minimum, state
income, franchise and foreign taxes payable. As of January 2, 1999, the
Company had net operating loss carryforwards for regular federal income
tax purposes of approximately $19,000,000, which will begin to expire
in 2005.
The components of the net deferred tax asset were as follows:
January 2, January 3,
(IN THOUSANDS) 1999 1998
-----------------------------------------------------------------------
Net operating loss carryforwards $ 6,884 $ 7,852
Tax credit carryforwards 864 845
Deductible temporary differences 1,713 2,247
Taxable temporary differences - (307)
-----------------------------------------------------------------------
9,461 10,637
Valuation allowance (6,961) (10,637)
-----------------------------------------------------------------------
$ 2,500 $ -
-----------------------------------------------------------------------
A valuation allowance has been established to reduce the deferred tax
asset to estimated realizable amounts. In 1998 the Company reversed
previously established valuation reserves of $2,500,000 for the
estimated realizable portion of the deferred tax asset and, in
accordance with "Fresh Start Reporting", credited additional paid-in
capital for the adjustment.
A reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
1998 1997
---------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0%
State income taxes, net of federal income tax benefits 4.0% 5.5%
Other .5% 2.7%
---------------------------------------------------------------------
38.5% 42.2%
---------------------------------------------------------------------
The effective tax rate was reduced by the result of certain state taxes
which do not vary with income and by permanent differences that become
less significant as income increases.
19
<PAGE>
5. NET INCOME PER COMMON SHARE
Net income per common share was computed by dividing net income by the
weighted average number of common shares outstanding during the year.
Diluted income per common share includes the dilutive effect of
outstanding stock options using the treasury stock method.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $1,453 $837 $7,181
---------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding 2,324 2,309 2,068
Dilutive effect of outstanding stock options
after application of the treasury stock method 81 29 62
---------------------------------------------------------------------------------------
Common and common equivalent shares
outstanding - diluted 2,405 2,338 2,130
---------------------------------------------------------------------------------------
Basic net income per common share $ .63 $ .36 $3.47
---------------------------------------------------------------------------------------
Diluted net income per common share $ .60 $ .36 $3.37
---------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
6. SHAREHOLDERS' EQUITY
At January 2, 1999, the Company's capital structure included 20,000,000
shares authorized for all classes of common stock and 1,000,000 shares
authorized for all classes of preferred stock, of which 75,000 shares
are reserved for Class B preferred stock. In 1997, the Company canceled
all of its Class A shares of preferred stock, none of which were issued
or outstanding. There are restrictions with respect to the trading of
common stock to or from Five Percent Holders, as defined in the
Company's 1991 Plan of Reorganization, through October 2001 as a means
of preserving the benefits of the net operating loss carryforwards
following the Company's reorganization in 1991.
Preferred stock has been reserved for issuance under a shareholders'
rights plan which replaced the prior rights plan which expired in late
1997. Upon the occurrence of certain events, the shareholders' rights
plan entitles the registered holder to purchase one one-hundredth of a
share of preferred stock at a stated price or to purchase either the
Company's shares or stock in an acquiring entity at half their market
value.
On March 5, 1997 a special cash distribution of $5.39 per share, or
approximately $12,500,000, was paid to shareholders of record February
19, 1997, using proceeds from the 1996 sales of trademarks.
21
<PAGE>
7. STOCK OPTIONS AND RESTRICTED STOCK
The Company's 1991 Stock Plan includes a provision for the granting of
stock options, which are accounted for under Accounting Principles
Board (APB) Opinion No. 25, under which no compensation cost has been
recognized. Had compensation costs for these plans been determined
consistent with SFAS Statement No. 123, the Company's net income and
earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income: As Reported $1,453 $837 $7,181
Pro Forma $1,410 $821 $6,750
------------------------------------------------------------------------------------------------------------
Basic earnings per share: As Reported $0.63 $0.36 $3.47
Pro Forma $0.61 $0.36 $3.26
------------------------------------------------------------------------------------------------------------
Diluted earnings per share: As Reported $0.60 $0.36 $3.37
Pro Forma $0.59 $0.35 $3.17
------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk free interest rate 4.28% to 5.66% 6.34% to 6.58% 5.84% to 7.55%
Expected life of options granted 5 to 10 years 5 years 0 to 5 years
Expected volatility of options granted 44% to 52% 48% 40% to 44%
Expected dividend yield $0 $0 $0 to $5
-----------------------------------------------------------------------------------------------------------
Shares granted 261,600 131,950 75,000
Weighted average fair value
of options granted $2.34 $1.73 $3.03
-----------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
A total of 873,500 shares of common stock was reserved under the 1991
Stock Plan for grants to employees in the form of restricted stock
awards and incentive and non-qualified stock options. In addition, the
Plan annually grants to each non-employee director an option to
purchase 1,000 shares of common stock. At January 2, 1999 there were
13,304 shares available for future grants under this Plan. Information
regarding the 1991 Stock Plan is summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 153,750 $4.70 255,800 $7.73 318,485 $6.72
Granted 261,600 5.05 131,950 3.31 75,000 7.80
Canceled (4,950) 7.56 (37,900) 8.61 (4,800) 8.90
Exercised (20,200) 3.25 (196,100) 6.86 (132,885) 6.17
-----------------------------------------------------------------------------------------------------------
Options outstanding,
end of year 390,200 $4.99 153,750 $4.70 255,800 $7.73
-----------------------------------------------------------------------------------------------------------
Options exercisable,
end of year 93,975 $6.49 64,815 $6.67 255,800 $7.73
-----------------------------------------------------------------------------------------------------------
</TABLE>
In 1996, under another agreement, options to purchase 10,000 shares of
common stock, at a price of $7.50 per share were granted to a
non-employee director. All 10,000 options were exercised in 1997.
23
<PAGE>
8. RETIREMENT PLAN
The Company has a 401(k) profit-sharing plan covering all employees.
The Company also matches one-half of the employee's first 5%
contribution. Expense under this plan, including profit sharing and
company match, totaled $289,000, $164,000 and $216,000 for 1998, 1997
and 1996, respectively.
24
<PAGE>
9. POSTRETIREMENT MEDICAL AND LIFE INSURANCE PLANS
The Company sponsors postretirement benefit plans for certain retirees.
The Company has adopted SFAS No. 132 "Employer's Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 132 is intended
to standardize certain footnote disclosure requirements for pension and
other retirement benefits.
The Company has unfunded plans providing certain medical and life
insurance benefits to specific retiree groups. Future retirees are not
covered by these plans. The Company accounts for these plans under the
accrual method of accounting. Information concerning these plans is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS:
Benefit obligation at beginning of year $ 869 $ 792
Service cost - -
Interest cost 55 59
Actuarial (gains)/losses (7) 87
Benefits paid (73) (69)
------------------------------------------------------------------------------------
Benefit obligations at end of year $ 844 $ 869
------------------------------------------------------------------------------------
FUNDED STATUS RECONCILIATION:
Funded status $(844) $(869)
Unrecognized actuarial losses 90 90
------------------------------------------------------------------------------------
Net accrued liability recognized $(754) $(779)
------------------------------------------------------------------------------------
</TABLE>
The following table provides the components of net periodic benefit
cost for the plans for the past three years:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest cost on accumulated postretirement
benefit obligation $55 $59 $59
Net amortization and deferral - 1 -
Service cost - - 38
-------------------------------------------------------------------------------------------------
Annual net benefit expense $55 $60 $97
-------------------------------------------------------------------------------------------------
</TABLE>
A 7.5% increase in the cost of covered medical benefits was assumed for
1998. This rate is assumed to decrease incrementally to 5.5% after 7
years and remain at that level thereafter. The discount rate used in
determining the accumulated benefit obligation was 6.75% for 1998, 7%
for 1997 and 7.5% for 1996.
25
<PAGE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the post retirement medical plans. A 1% change in
assumed health care costs trend rates would have the following effects:
<TABLE>
<CAPTION>
(In thousands) 1% Increase 1% Decrease
---------------------------------------------------- ----------- -----------
<S> <C> <C>
Effect on total service and interest cost components $ 3 $ (3)
Effect on the accumulated benefit obligation $ 50 $ (48)
</TABLE>
26
<PAGE>
10. ASSET IMPAIRMENT
During the last half of 1998 the Company reduced sewing production
levels at its North Carolina facility to one-half the previous level.
As a result, the Company recognized a $472,000 asset impairment charge
to cost of goods sold to write-down the facility to net realizable
value. In accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the
carrying value was determined by projecting cash flows over the
expected remaining useful productive life of the facility.
27
<PAGE>
11. LEASES
The Company is party to certain operating lease agreements covering
office space and equipment through 2003. Minimum future obligations on
operating leases in effect that have initial or remaining noncancelable
lease terms in excess of one year as of January 2, 1999 are as follows:
(IN THOUSANDS)
--------------------------------------------------------------------
1999 $ 308
2000 316
2001 193
2002 135
2003 114
--------------------------------------------------------------------
$1,066
--------------------------------------------------------------------
Total rent expense under operating leases was $443,000, $437,000 and
$655,000 for 1998, 1997 and 1996, respectively.
28
<PAGE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a condensed summary of actual quarterly results for
1998 and 1997.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------------------------------------
Net income per
Operating Net common share
Quarter Net sales income income (Basic) (Diluted)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998: First $9,350 $ 419 $ 256 $.11 $.11
Second 12,938 736 460 .20 .19
Third 10,719 444 293 .13 .12
Fourth 9,438 284 444(1) .19 .18
-------------------------------------------------------------------------------------------------------
$42,445 $1,883 $ 1,453 $.63 $.60
-------------------------------------------------------------------------------------------------------
1997: First $9,192 $ 277 $ 222 $.10 $.10
Second 9,210 508 287 .12 .12
Third 7,836 325 159 .07 .07
Fourth 7,582 308 169 .07 .07
-------------------------------------------------------------------------------------------------------
$33,820 $ 1,418 $ 837 $.36 $.36
-------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $472,000 and asset impairment charge and $398,000 gain
from the reversal of liabilities related to sold assets, before income
taxes.
29
<PAGE>
13. EVENT SUBSEQUENT TO JANUARY 2, 1999
On March 25, 1999, the Company acquired Klouda-Lenz, Inc., its
independent sales representative agency for the promotional
products/advertising specialty market. Klouda-Lenz, Inc. merged into a
wholly-owned acquisition subsidiary of the Company. The purchase price
was $1,510,634 in cash and 241,892 newly issued shares of common stock,
which are subject to a two-year holding restriction. Klouda-Lenz' 1998
revenues totaled approximately $4.4 million, about 44% of which
represented commissions from the Company.
30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PremiumWear, Inc.
We have audited the accompanying consolidated balance sheets of PremiumWear,
Inc. (a Delaware corporation and formerly Munsingwear, Inc.) and subsidiary as
of January 2, 1999 and January 3, 1998, and the related consolidated statements
of operations, cash flows and shareholders' equity for each of the three fiscal
years in the period ended January 2, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PremiumWear, Inc. and
subsidiary as of January 2, 1999 and January 3, 1998 and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended January 2, 1999 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
---------------------------------
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 19, 1999
31
<PAGE>
FIVE YEAR FINANCIAL REVIEW
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
FOR THE YEAR
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $42,445 $33,820 $49,948 $51,512 $37,407
Royalty income - - 2,969 4,609 4,528
Cost of sales 31,744 25,907 40,402 42,714 30,029
Gross margin % 25.2% 23.4% 19.1% 17.1% 19.7%
Interest expense 40 91 771 1,158 353
Income (loss) before income taxes
and extraordinary item 2,364 1,447 11,252 (2,230) (304)
Net income (loss) 1,453 837 7,181 (2,335) (573)
Earnings per share before extraordinary item $0.60 $0.36 $3.37 ($1.13) ($0.20)
Purchases of property, plant and equipment 609 435 689 1,201 865
Depreciation and amortization 989 439 847 782 712
Special cash distribution - 12,500 - - -
AS OF THE END OF THE YEAR
- ----------------------------------------------------------------------------------------------------------------------
Total assets $22,520 $17,551 $30,256 $33,653 $29,738
Current assets 19,846 15,938 28,639 24,244 20,716
Current liabilities 5,022 4,789 7,373 20,318 13,869
Working capital 14,824 11,149 21,266 3,926 6,847
Current ratio 4.0 3.3 3.9 1.2 1.5
Long-term debt - - - 22 38
Common shareholders' equity 16,803 12,053 22,182 12,984 15,319
Number of employees 265 261 312 343 348
- ----------------------------------------------------------------------------------------------------------------------
No dividends were declared or paid for the years listed.
</TABLE>
32
EXHIBIT 21
PREMIUMWEAR, INC. and SUBSIDIARY
Subsidiary of the Registrant
State of Jurisdiction
of Incorporation
---------------------
Munsingwear Canada Limited (inactive) Canada
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement File No. 33-833386.
/s/ Arthur Andersen LLP
-------------------------
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
April 1, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 3,215
<SECURITIES> 0
<RECEIVABLES> 6,026
<ALLOWANCES> 728
<INVENTORY> 9,037
<CURRENT-ASSETS> 19,846
<PP&E> 5,453
<DEPRECIATION> 4,335
<TOTAL-ASSETS> 22,520
<CURRENT-LIABILITIES> 5,022
<BONDS> 0
<COMMON> 23
0
0
<OTHER-SE> 16,780
<TOTAL-LIABILITY-AND-EQUITY> 22,520
<SALES> 42,445
<TOTAL-REVENUES> 42,445
<CGS> 31,000
<TOTAL-COSTS> 25,907
<OTHER-EXPENSES> 8,818
<LOSS-PROVISION> 262
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 2,364
<INCOME-TAX> 398
<INCOME-CONTINUING> 1,453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,453
<EPS-PRIMARY> .63
<EPS-DILUTED> .60
</TABLE>
