<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the Appropriate Box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6[c][2])
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
- -------------------------------------------------------------------------------
STAGE II APPAREL CORP.
(Name of Registrant as Specified in its Charter)
and
(Name of Person Filing Proxy Statement)
(Name of Persons Filing Proxy Statement if other than the Registrant) -- N/A
- -------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed per Exchange Act Rules 14a-6(i)(1) and 0-11
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing with which the offsetting fee was previously
paid. Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
STAGE II APPAREL CORP.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 29, 1998
To Our Shareholders:
The Annual Meeting of Shareholders of Stage II Apparel Corp. (the
"Company") will be held at the offices of Mahoney Cohen & Co. at 111 West 40th
Street, 12th Floor, New York, New York at 9:00 a.m. on Friday, June 26, 1998.
The shareholders will be asked to vote on the following:
1. To elect three Class I directors of the Company for a term expiring
at its 2000 annual meeting of shareholders.
2. To approve two nonqualified stock option plans; and
3. To act upon any other matters that may be properly brought before
the meeting or any adjournment.
Shareholders of record at the close of business on April 29, 1998 are
entitled to this notice and to vote at the meeting. If you do not expect to
attend the meeting in person, please complete, date and sign the enclosed proxy
card and return it in the accompanying envelope at your earliest convenience. If
you attend the meeting, you may vote either in person or by your proxy. The
Company values your opinion and encourages your participation. The enclosed
proxy is being solicited by the Board of Directors.
Richard Siskind,
President and Chief Executive Officer
New York, New York
May 21, 1998
<PAGE>
PROXY STATEMENT
------------------
STAGE II APPAREL CORP.
350 Fifth Avenue
New York, NY 10118
------------------
1998 ANNUAL MEETING OF SHAREHOLDERS
June 26, 1998
PROXY SOLICITATION
This Proxy Statement is furnished on behalf of the Board of Directors
(the "Board") of Stage II Apparel Corp. (the "Company") for soliciting proxies
to be voted at the Company's 1998 Annual Meeting of Shareholders on June 26,
1998 or any adjournment. The meeting will be held at 9:00 a.m. at the offices of
Mahoney Cohen & Co, 111 West 40th Street, 12th Floor, New York, New York 10018.
All properly executed proxies received prior to the meeting will be
voted in accordance with the instructions marked on the proxy cards. If no
instructions are made, the shares will be voted "for" the election of the
nominees to the Board and "for" the approval of two nonqualified stock option
plans. See "Election of Directors" and "Approval of Option Plans." The Company
knows of no other business to be presented for consideration at the meeting. If
any other matter is properly presented, the proxy holders will have
discretionary authority to vote in accordance with their best judgment. A
shareholder giving a proxy may revoke it at any time by giving written notice to
the Secretary of the Company before it is voted, by executing a proxy bearing a
later date or by attending the meeting and voting in person.
This Proxy Statement and related proxy card, together with a copy of
the Company's 1997 Annual Report on Form 10-K (the "Annual Report"), are being
mailed to shareholders on or about May 26, 1998. Upon request, additional proxy
materials will be furnished without cost to brokers and other nominees for
forwarding to beneficial owners of shares held in their names. In addition to
the use of the mails, proxies may be solicited by directors, officers and
employees of the Company, without additional compensation, by personal
interview, telephone or otherwise.
SHAREHOLDERS ENTITLED TO VOTE
Shareholders of record as of the close of business on Wednesday, April
29, 1998 are entitled to notice of and to vote at the meeting. As of that date,
the Company had outstanding 3,903,267 shares of common stock ("Common Stock").
On all matters submitted to the shareholders of the Company, each share of
Common Stock is entitled to one vote. Cumulative voting is not allowed in the
election of directors or for any other purpose. The Company's bylaws provide
that a majority of the outstanding shares entitled to vote, represented in
person or by proxy, constitute a quorum at the meeting.
CHANGE OF CONTROL TRANSACTIONS
In February 1998, the Company entered into a Stock Purchase Agreement
(the "Purchase Agreement") with Jack Clark, Robert Plotkin and Steven R. Clark,
founders of the Company (the "Founders"), and Richard Siskind, the principal
shareholder and CEO of several companies engaged in various segments of the
apparel industry. The transactions contemplated by the Purchase Agreement (the
"Change of Control Transactions") were consummated in May 1998 and included the
sale to Mr. Siskind of approximately 1.9 million shares of Common Stock held by
the Founders (the "Control Shares") in consideration for their release from
guarantees of the Company's indebtedness to its factor and their receipt of
options to reacquire a total of 1.5 million shares of Common Stock from Mr.
Siskind at exercise prices ranging from $.50 to $1.50 per share (the "Founders
Options"). The Control Shares represent 48.7% of the Common Stock outstanding as
of the date of this Proxy Statement.
<PAGE>
In addition to the sale of the Control Shares, the Change of Control
Transactions included (i) the Board's adoption of a 1998 Nonqualified Stock
Option Plan -A ("Option Plan A") under which the Company issued to Mr. Siskind
options to purchase up to 1.5 million shares of Common Stock on the same terms
as the Founders Options, exercisable only to the extent the Founders Options are
exercised, (ii) the Board's adoption of a 1998 Nonqualified Stock Option Plan -B
("Option Plan B") under which the Company issued to Mr. Siskind options to
purchase up to 900,000 shares of Common Stock at an exercise price of $.75 per
share, (iii) the reconstitution of the Board with designees of Mr. Siskind, (iv)
the addition of a new management team headed by Mr. Siskind and (v) the
arrangement by Mr. Siskind of a new credit facility for the Company. All of the
options issued to Mr. Siskind are subject to shareholder approval at the 1998
Annual Meeting. See "Approval of Option Plans."
ELECTION OF DIRECTORS
General
The Board is divided into two classes. As part of the Change of Control
Transactions, all of the former directors of the Company relinquished their
seats to Mr. Siskind and his designees following the mailing to the Company's
shareholders of an Information Statement describing the Board reconstitution.
Three Class I directors included in the Board reconstitution are to be elected
at the 1998 Annual Meeting to serve for a two-year term expiring at the 2000
annual meeting of shareholders or until their successors are chosen and have
qualified. Information about of Class I nominees is provided below under the
caption "Nominees," and information about the incumbent Class II directors is
included under the caption "Additional Information About the Board."
Except where authority to vote for one or more nominees is withheld,
the designated proxy holders will vote all shares represented by an executed
proxy for the election of the nominees listed below. The Company expects each of
the nominees to be able to serve as a director. If a nominee should become
unavailable to serve as a director for any reason presently not known or
contemplated, the proxy holders will have discretionary authority to vote for a
substitute designated by the Board. Nominees receiving a plurality of votes cast
at the meeting will be elected as directors. Abstentions and broker non-votes
will not be treated as votes cast for or against any particular director and
will not affect the outcome of the election.
Nominees
Each of the nominees for Class I director is a current director of the
Company. The names of the nominees, along with information on their business
experience and background, are set forth below.
- --------------------------------------------------------------------------------
Richard Siskind Richard Siskind joined the Company as President,
Chief Executive Officer and a director in May 1998
in connection with the Change of Control
Transactions. He has been in the apparel business
for over 30 years, serving in a variety of roles and
positions. By 1977, Mr. Siskind had assumed the
position of president of David Small Industries,
Inc. In 1982, he co-founded Apparel Exchange, Inc.,
an affiliated company. Both companies sold off-price
men's, women's and children's apparel and reached
sales aggregating over $100 million by 1989. Mr.
Siskind sold both companies in 1989. In 1991, he
founded R. Siskind and Company ("RSC"). He is a
Age 52 director, sole shareholder and chief executive
officer of RSC, which is in the business of
purchasing top brand name men's and women's apparel
and accessories, and redistributing it to a global
clientele of upscale off-price retailers.
2
<PAGE>
Robert Greenberg Robert Greenberg was appointed as a director of the
Company in May 1998 in connection with the Change of
Control Transactions. He founded LA Gear, a publicly
held footwear company noted for making athletic
footwear fashionable. Mr. Greenberg launched his
second footwear venture with his sons in 1992. He is
now the Chairman and CEO of Skechers USA, Inc.,
which sells casual lifestyle footwear to major
Age 57 retailers throughout the United States and in
approximately sixty other countries. Since its
inception, Skechers, Inc. has become one of the
largest privately held footwear companies in the
United States.
- --------------------------------------------------------------------------------
Beverly Roseman Beverly Roseman joined the Company as a Vice
President and director in May 1998 in connection
with the Change of Control Transactions. She joined
RSC in 1992 as the Merchandise Manager. In 1995,
Mrs. Roseman was appointed as RSC's Vice President
of Buying, Merchandising and Operations. Mrs.
Roseman also oversees the Human Resources, MIS and
Operational divisions of RSC. From 1975 to 1980,
Mrs. Roseman worked for R.H. Macy's, first as
trainee and then as a buyer. She was employed from
Age 40 1980 to 1982 as a buyer for The Broadway Department
Stores in California, from 1982 to 1988 as a buyer
for Marshall's Inc. and from 1988 to 1992 as a
Senior Buyer for T.J. Maxx. Mrs. Roseman is a
graduate of Adelphi University.
- --------------------------------------------------------------------------------
COMPOSITION OF THE BOARD
In addition to the Class I directors of the Company standing for
reelection at the 1998 Annual Meeting, the Board includes two Class II
directors. Each of the Class II directors is currently serving for a two-year
term to expire at the 1999 annual meeting of shareholders. Biographical
information for these directors is set forth below.
- --------------------------------------------------------------------------------
Barry Fertel Barry Fertel was appointed as a director of the
Company in May 1998 in connection with the Change of
Control Transactions. He has been a partner in the
law firm of Roper, Barandes & Fertel since 1988. His
practice is concentrated in the field of commercial
litigation. From 1980 to 1988, Mr. Fertel was an
associate and later a partner of Bell, Kalnick,
Klee, Green & Beckman, a New York City law firm.
From 1978 to 1980, he was an Assistant Attorney
General for the State of New York. He is a graduate
of the State University of New York at Stony Brook
Age 44 and received his law degree from the State
University of New York at Buffalo. Mr. Fertel
currently serves as Vice President of the Board of
Education of the New Rochelle, New York School
District.
3
<PAGE>
Jon Siskind Jon Siskind joined the Company as a Vice President
and director in May 1998 in connection with the
Change of Control Transactions. He graduated from
the University of Hartford in 1991, where he
received his B.A. in Economics. He joined RSC in the
same year as an account executive handling the
Northeast and Mid West territories. In 1994, he was
Age 29 appointed National Sales Manager and given the
additional responsibility for overseeing all sales
and distribution. In 1995, he was appointed as RSC's
Vice President of Sales. Jon Siskind is the son of
Richard Siskind.
- --------------------------------------------------------------------------------
APPROVAL OF OPTION PLANS
General
As part of the Change of Control Transactions, the Company entered into
a Management Agreement with Richard Siskind (the "Management Agreement"),
providing for his engagement as President and Chief Executive Officer of the
Company for a three-year term that commenced at the closing of the Change of
Control Transactions at annual salary of $200,000. The Management Agreement also
provides for the grant of options to Mr. Siskind under Option Plan A and Option
Plan B (collectively, the "Nonqualified Plans").
Under Option Plan A , at the closing of the Change of Control
Transactions in May 1998 (the "Closing"), the Company issued to Mr. Siskind
options to purchase up to 900,000 shares of Common Stock (the "Executive
Options"), exercisable in one-third cumulative annual installments, commencing
one year after the Closing, at an exercise price of $.75 per share. Under Option
Plan B, the Company also issued to Mr. Siskind at the Closing options to
purchase up to 1.5 million shares of Common Stock (the "Mirror Options"). The
Mirror Options are exercisable on the same terms as the Founders Options issued
by Mr. Siskind to the Founders, but only to the extent that the Founders Options
are exercised. The effectiveness of the Executive Options and the Mirror Options
(collectively, the "Siskind Options") is subject to shareholder approval at the
1998 Annual Meeting
The Executive Options were issued to Mr. Siskind in lieu of higher
salary and as consideration for his arrangement of a new credit facility for the
Company. They are intended to offer Mr. Siskind an opportunity to increase his
proprietary interest in the Company and provide additional incentive to
contribute to its performance and growth. The Mirror Options were issued to
enable Mr. Siskind to maintain his ownership position in the Common Stock,
without any financial gain or loss, to the extent he is required to transfer
Control Shares to the Founders upon exercise of the Founders Options.
Information about the Nonqualified Plans governing the Siskind Options is
provided below.
Option Plan A
The Board adopted Option Plan A in accordance with the terms of the
Management Agreement. It provides solely for the issuance of the Executive
Options to Mr. Siskind. The 900,000 shares of Common Stock issuable upon
exercise of the Executive Options may be either previously unissued or
reacquired shares. Shares that cease to be subject to an Executive Option
because of its expiration or termination will not be available for the grant of
any additional options under Option Plan A.
Option Plan A is administered by the Compensation Committee of the
Board (the "Committee"), comprised of the Company's independent directors, who
are not eligible to receive options under any of the Company's option plans. The
Committee has sole discretion to determine any issues that may arise under
Option Plan A.
4
<PAGE>
Under Option Plan A, the exercise prices, vesting dates and terms of
all the Executive Options were established in three series (each, an "Option
Series"), as follows:
<TABLE>
<CAPTION>
Shares Subject Vesting Date--Years Exercise Expiration Date--
Series To Option After Closing Price Years After Closing
------ -------------- ------------------- -------- -------------------
<S> <C> <C> <C> <C>
A 300,000 One $ .75 Five
B 300,000 Two .75 Six
C 300,000 Three .75 Seven
</TABLE>
Option Plan B
The Board adopted Option Plan B in accordance with the terms of the
Management Agreement. It provides solely for the issuance of the Mirror Options
to Mr. Siskind. The 1.5 million shares of Common Stock issuable upon exercise of
the Mirror Options may be either previously unissued or reacquired shares.
Shares that cease to be subject to a Mirror Option because of its expiration or
termination will not be available for the grant of any additional options under
Option Plan B.
Option Plan B is administered by the Committee. The Committee has sole
discretion to determine any issues that may arise under Option Plan B.
Under Option Plan B, the exercise prices, vesting dates and terms of
the Mirror Options were established to coincide with the exercise prices,
vesting dates and terms of the Founders Options issued by Mr. Siskind to the
Founders as part of the Change of Control Transactions. The Mirror Options are
allocated among three series (each, an "Option Series"), entitling Mr. Siskind
to purchase the same number of shares of Common Stock from the Company as the
number of shares reacquired from him by the Founders upon exercise of the
Founders Options and at the same price as the corresponding Founders Options, as
follows:
<TABLE>
<CAPTION>
Shares Subject Vesting Date--Years Exercise Expiration Date--
Series To Option After Closing Price Years After Closing
------ -------------- ------------------- -------- -------------------
<S> <C> <C> <C> <C>
A 500,000 One $ .50 Five
B 500,000 Two 1.00 Six
C 500,000 Three 1.50 Seven
</TABLE>
Other Terms of the Nonqualified Plans
Payment in full of the exercise price of the Siskind Options issued
under the Nonqualified Plans must be made upon the exercise of each Siskind
Option either in cash, shares of Common Stock already owned by Mr. Siskind with
a fair market value equal to the exercise price or by a combination of cash and
shares equal to the exercise price. The proceeds received by the Company upon
the exercise of the Siskind Options will be used for general corporate purposes.
The Siskind Options granted under the Nonqualified Plans may not be
transferred except to the personal representative of Mr. Siskind in the event of
his death prior to the expiration of the Siskind Options. The maximum term of
the Siskind Options is seven years.
Notwithstanding the vesting schedules for the Siskind Options, the
unvested portion of the Siskind Options will become 100% vested upon any Change
of Control (as defined below) or any action by the Board in contemplation of a
transaction that would result in a Change of Control. Change of Control for this
purpose means
5
<PAGE>
an event or series of events after the Closing by which (a) any person is or
becomes the beneficial owner of 30% or more of the total voting power of the
outstanding voting stock of the Company, (b) the Company conveys, transfers,
sells or leases all or substantially all of its assets to any person other than
to a wholly owned subsidiary of the Company, (c) the shareholders of the Company
approve any plan of liquidation or dissolution of the Company or (d) during any
period of 12 consecutive months, individuals who, at the beginning of that
period, constituted the Board (together with any new directors whose election by
the Board or whose nomination for election was approved by a vote of not less
than a majority of the directors then still in office who were either directors
at the beginning of that period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board then in office. For this purpose, a Change of Control does not include the
Change of Control Transactions.
In the event the shares of Common Stock, as presently constituted, are
changed into or exchanged for a different number or kind of shares of capital
stock or other securities of the Company or of another corporation (whether by
reason of merger, consolidation, recapitalization, reclassification, split,
reverse split, combination of shares or otherwise), then there shall be
substituted for or added to each share subject to an outstanding Siskind Option
the number and kind of shares of capital stock or other securities into which
each outstanding share of Common Stock was so changed, for which it was
exchanged or to which each its holders become entitled, as the case may be. The
price and other terms of any unexercised portion of the Siskind Options will
also be appropriately amended to reflect the foregoing events.
The Nonqualified Plans may be amended by the Board only with the
consent of Mr. Siskind and only to correct any defect, supply any omission or
reconcile any inconsistency in the manner and to the extent deemed desirable to
carry out the Nonqualified Plans. Accordingly, the Nonqualified Plans may not be
amended to (a) increase the number of covered shares, (b) extend the maximum
option term or (c) increase the benefits contemplated thereby.
The following table provides summary information about the Siskind
Options. The dollar value of options listed in the table reflects the difference
between the exercise price of the options and the market price of $3/4 for the
Common Stock on May 10, 1998, the date immediately preceding the Closing. The
ultimate value of the Siskind Options may be more or less than the listed
amounts.
Grants under the Nonqualified Plans
<TABLE>
<CAPTION>
Option Plan A Option Plan B
------------------------------- -------------------------------
Number Number
Name of of Shares Exercise Dollar of Shares Exercise Dollar
Optionee Position Covered Price Value Covered Price Value
- -------- ---------------------- -------- ----------- --------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard Siskind President and CEO 900,000 $ .75 $ --- 300,000 $ .50 $ ---
300,000 1.00
300,000 1.50
</TABLE>
Federal Income Tax Matters
The following discussion summarizes relevant federal income tax
considerations relating to options issued under the Nonqualified Plans. The
summary is based on existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and could be affected by future changes in the tax laws.
All options granted under the Nonqualified Plans will be treated as
nonqualified stock options within the meaning of Section 422 of the Code. Mr.
Siskind will not be required to recognize taxable income upon the grant of the
Siskind Options. Upon exercise of a Siskind Option, he will recognize ordinary
income to the extent of the
6
<PAGE>
difference between the option exercise price and the fair market value of the
stock on the date the Siskind Option is exercised (the "Compensation Element").
Upon ultimate sale of the stock received upon exercise, he will recognize
capital gain or loss (if the stock is a capital asset) equal to the difference
between the amount realized upon the sale and the fair market value of the
Common Stock on the date of exercise. The Company will be entitled to a federal
income tax deduction equal to the Compensation Element upon the exercise of a
Siskind Option.
Vote Required
The effectiveness of the Nonqualified Plans is subject to shareholder
approval at the 1998 Annual Meeting. Approval of the Nonqualified Plans requires
the affirmative vote, in person or by proxy, by holders of a majority of the
Common Stock. Mr. Siskind owns 48.7% of the Common Stock outstanding as of the
record date and intends to vote in favor of the proposal to approve the
Nonqualified Plans. The Board believes the approval of the this proposal is in
the best interests of the Company and its shareholders and recommends that
shareholders vote "for" its approval.
Shares of Common Stock represented by proxies that reflect abstentions
or broker non-votes will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. In determining voting
results, an abstention is treated as a share present and entitled to vote on the
approval of the Nonqualified Plans, but is counted neither "for" nor "against."
Therefore, an abstention has the same effect as a negative vote on the approval
of the Nonqualified Plans. In tabulating a vote, broker non-votes will be
disregarded and will have no effect on the outcome of the vote.
ADDITIONAL INFORMATION ABOUT THE BOARD
Actions by the Board in 1997
During 1997, the Board took action, either at meetings or by consent,
on a total of four occasions. No director attended or participated in fewer than
75% of these meetings or action by consent.
Committees and Committee Meetings
The Board has an Audit Committee and a Compensation Committee. Both
committees were comprised of Stephen J. Jelin and Eugene Myers prior to the
Change of Control Transactions and are now comprised of Robert Greenberg and
Berry Fertel. The Audit Committee is responsible for monitoring and reviewing
the financial affairs and financial statements of the Company and performing
related internal financial review procedures. The Compensation Committee is
responsible for evaluating salary and bonus arrangements for all officers and
key employees and for administering the Company's employee benefit plans. During
1997, each of these Committees held one meeting. The Board of Directors has no
other standing committees.
Compensation of Directors
The outside directors of the Company received directors' fees at the
rate of $3,000 per meeting during 1997.
EXECUTIVE COMPENSATION
Compensation of Named Executive Officers
The following table sets forth the total remuneration paid during the
last three years to the five most highly compensated executive officers of the
Company.
7
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Name and 1997 -------------------------- ---------------------- All Other
Principal Position Year Salary Bonus Other(1) Option/SAR Awards (#) Compensation(2)
- ------------------ ---- ------ ----- -------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jack Clark 1997......$ 298,000 --- --- --- $ 4,000
Chairman of 1996...... 345,000 --- --- --- 4,000
the Board 1995...... 543,000 --- --- --- 4,000
Ronald Cohen 1997...... 156,000 --- --- --- 3,000
Executive VP- 1996...... 124,000 --- --- --- 3,000
Operations 1995...... 123,000 --- --- --- 3,000
Carl Jenkins 1997...... 156,000 --- --- --- 2,000
EVP-Production and 1996...... 109,000 --- --- --- 3,000
Foreign Operations 1995...... 109,000 --- --- --- ---
Steven R. Clark 1997...... 122,000 --- --- --- 2,000
President 1996...... 118,000 --- --- --- 3,000
1995...... 121,000 --- --- --- 2,000
Anthony M. Pisano(3) 1997...... 101,000 --- --- --- ---
Chief Financial 1996...... 10,000 --- --- --- ---
Officer 1995...... --- --- --- --- ---
</TABLE>
- ----------------------
(1) Perquisites and other benefits did not exceed 10% of any named
officer's total annual salary.
(2) Reflects the Company's contribution to the accounts of the named
executive officers under its Employee Stock Ownership and Salary Deferral Plan.
See "Employee Benefit Plans" below.
(3) Mr. Pisano joined the Company in December 1996 and resigned from his
position with the Company in the third quarter of 1997.
Stock Options
The Company maintains two incentive stock option plans (the "ISO
Plans"). See "Employee Benefit Plans-- Employee Stock Option Plans" below. The
following table sets forth information as of December 31, 1997 on stock options
held under the ISO Plans by the Company's five most highly compensated executive
officers in 1997, none of whom received any option grants or exercised any stock
options during 1997.
Aggregated Option Exercises In Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Value of
Shares Number of Unexercised
Acquired Unexercised In-the-Money
on Value Options at Options at
Name Exercise Realized Year End(1) Year End(2)
- ---- ---------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
Jack Clark........................... None N/A 40,000 N/A
Ronald Cohen......................... None N/A 10,000 N/A
Carl Jenkins......................... None N/A 5,000 N/A
Steven R. Clark...................... None N/A --- N/A
Anthony M. Pisano.................... None N/A --- N/A
</TABLE>
- ----------------------
(1) All of the stock options are currently exercisable.
(2) The closing price of the Common Stock on the AMEX on December 31,
1997 was below the exercise price of the options.
8
<PAGE>
Employee Benefit Plans
Stock Option Plans. The ISO Plans maintained by the Company were adopted
in 1987 (the "1987 Plan") and 1994 (the "1994 Plan") to provide for the grant of
options to purchase up to 200,000 shares and 300,000 shares, respectively, of
Common Stock to key employees. The terms of the two ISO Plans are identical,
except for the additional shares of Common Stock covered by the 1994 Plan.
The exercise price for options granted under the ISO Plans is fixed by a
Compensation Committee of the Board at 100% of the market price of the Common
Stock on the date of the grant or 110% of the market price for any optionee who
is a principal shareholder. Each option granted under the ISO Plans is
exercisable for periods of up to ten years from the date of grant, or three
months after termination of employment, with certain exceptions.
At December 31, 1997, options to purchase a total of 55,000 shares at
exercise prices ranging from $3 to $4 1/2 per share were outstanding under the
ISO Plans, and options to purchase 445,000 shares were reserved for future
grants. No options were exercised during 1997, 1996 or 1995.
Employee Stock Ownership and Salary Deferral Plan. In 1994, the Company
converted its Profit Sharing Plan into an Employee Stock Ownership and Salary
Deferral Plan (the "Savings Plan"). Under the Savings Plan, for each dollar
contributed by electing employees to a retirement savings account from up to 12%
of their annual compensation, the Company may contribute up to $.40, subject to
certain limitations under Section 401(k) of the Internal Revenue Code (the
"Code"). The Company's expense for these contributions in 1997, 1996 and 1995
aggregated $16,000, $38,000 $69,000, respectively.
The Saving Plan also enables the Company to make discretionary
contributions for open market purchases of its Common Stock to be allocated to
the accounts of all employees in proportion to their annual compensation. This
feature was added in 1994 and is intended to qualify for treatment under Section
401(a) of the Code. The Company did not make any discretionary contributions to
the Savings Plan for this purpose in 1997, 1996 or 1995.
Salary Protection Agreements
The Company is a party to Salary Protection Agreements with Ronald Cohen
and Carl Jenkins. The agreements provide for severance payments to these
executives equal to six months' base salary plus $30,000 in the Case of Mr.
Cohen, and four months' base salary plus $25,000, in the case of Mr. Jenkins, if
their employment is terminated by the Company without cause or by the executive
for good reason. The agreements define cause as willful misfeasance or
malfeasance in the performance of an executive's duties and good reason as a
reduction of the executive's responsibilities or compensation or an increase in
his time or travel requirements by the Company. The agreements expire in
December 1999, in the case of Mr. Cohen, and August 1999, in the case of Mr.
Jenkins..
Compensation Committee Interlocks and Insider Participation
During 1997, the Compensation Committee of the Board was comprised of
Messrs. Jelin and Myers. Neither one of these directors has ever served as an
officer of the Company or any of its subsidiaries or had any related party
transactions with the Company.
Compensation Committee Report on Executive Compensation
General. In recommending 1997 compensation levels for the Company's
officers, including the Chief Executive Officer and other named executive
officers, the Compensation Committee of the Board applied the Board's
established compensation policies and criteria intended to promote the Company's
overall objective of maximizing shareholder value over time. These procedures
are aimed at maintaining a competitive compensation package to attract and
retain talented personnel while also responding to both individual and corporate
performance measures. Recommendations for 1996 salary levels and long term
compensation were based on evaluations during January 1997
9
<PAGE>
and thereafter.
Compensation Policy. The Company's executive compensation policy is
designed to maintain competitive levels of pay along with equity incentives to
attract and retain qualified executives with interests, as co-owners of the
Company, identical to those of its unaffiliated shareholders. This policy is
implemented through a salary structure augmented by stock option and Savings
Plan participation. The Committee's objective is to integrate these compensation
components with the annual and long term performance of the Company as well as
the achievements and contributions of the individual executives.
While the Committee's goal is to maintain executive compensation at
levels that are competitive with industry peers and linked to corporate
performance, actual compensation in any particular year may be above or below
published rates for competitors. In addition, due to the overall weakness of the
retail apparel market, the Company's compensation levels from year to year may
not correlate directly with various corporate performance measures in a
particular year. The Committee believes, however, that the Company's
compensation program enables it to balance the relationship between compensation
and performance in the best interests of the shareholders.
The separate components of the Company's executive compensation program
for 1997 are described below, along with a discussion of the evaluations made by
the Committee in recommending 1997 compensation levels for the five most senior
executive officers.
Annual Compensation. Annual compensation paid to the Company's named
executive officers is limited to base salaries, without any bonus or commission
payments, plus contributions to their accounts under the Company's Savings Plan,
which are generally dependent upon the amount of their own contributions. Salary
levels for the Company's top five executive officers are established by the
Board based on recommendations of the Committee.
Recommendations by the Committee for salary levels in 1997 were based on
several historical and comparative performance factors. The Committee also
considered comparative compensation and performance data for various other
apparel companies and the performance of each of the Company's senior officers
within his particular area of operating responsibility. The Committee reached
favorable evaluations on the basis of performance but determined that 1996
salary levels were not competitive with industry peers. Based on these
determinations, the Committee recommended that the Board increase 1997 salaries
for Ronald Cohen, Carl Jenkins and Steven Clark by $32,000, $47,000 and $4,000,
respectively.
The Committee's 1997 salary recommendation for Jack Clark, the Chairman
of the Board, was based on similar criteria as well as considerations of overall
corporate leadership, contribution to the Company's performance and assumption
of increased responsibilities. These positive considerations were offset by the
Company's cost containment objectives, resulting in the Committee's
recommendation for the maintenance of Mr. Clark's 1997 salary at the reduced
level established for 1996. In September 1997, in view of the Company's weak
financial performance, Mr. Clark voluntarily reduced his salary to an annual
rate of $100,000, resulting in his total annual compensation of $298,000 in
1997.
Long Term Compensation. Long term incentives are provided through the
Company's ISO Plans. Options provide executives and other key employees with the
opportunity to establish or increase their equity interest in the Company and to
share in any appreciation in the value of the Common Stock. As a result of the
Company's disappointing financial results, no options were granted to its five
most highly compensated executive officers during 1997.
Conclusion. The Committee believes that the executive compensation
policies implemented through its recommendations serve the interest of the
Company's shareholders and the long range goals of the Company.
This report has been approved by the following
members of the Compensation Committee: STEPHEN JELIN EUGENE MYERS
10
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Performance Graph
The following graph compares the yearly percentage change in the
Company's cumulative total shareholder return with the cumulative return
(assuming reinvestment of dividends) of (i) the Russell 2,000 Index and (ii) an
Apparel Index group as published by Value Line. Inc.
PRINCIPAL SHAREHOLDERS
The following table sets forth information on the beneficial ownership
of the Common Stock as of March 31, 1998 by (i) ) each person known by the
Company to own beneficially more than 5% of the outstanding Common Stock, based
on Statements on Schedule 13D filed with the SEC, (ii) the Company's five most
highly compensated executive officers during its last fiscal year, (iii) each
director of the Company and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Common Stock
Address of Beneficially Percentage
5% Shareholders 5% Beneficial Owners Owned of Class
- --------------- ----------------------------- ------------- -----------
<S> <C> <C> <C>
Fortuna Investment Partners, L.P. 100 Wilshire Boulevard 425,900(1) 10.9%
Fortuna Capital Management, Inc. Santa Monica, CA 90401
Ronald J. Vannuki
Named Executive Officers and Directors
Jack Clark........................................................................ 1,381,479(2) 35.4
Ronald Cohen...................................................................... 10,000(3) .1
Carl Jenkins...................................................................... 5,000(3) ---
Steven R. Clark................................................................... 169,080(4) 4.3
Anthony M. Pisano................................................................. --- ---
Eugene Myers ..................................................................... 400 ---
Robert Plotkin.................................................................... 502,363(5) 12.9
All officers and directors
as a group (11 persons).......................................................... 2,108,917(6) 54.0
</TABLE>
- ----------------------
(1) Based on a Statement on Schedule 13D, reflects shares held directly by
Fortuna Investment Partners, L.P. ("FIP") and indirectly by Fortuna Capital
Management, Inc. ("FCP"), the general partner of FIP, and by Mr. Vannuki, as
President and Chief Executive Officer of FCP. Excludes (i) 700 shares of Common
Stock held in Mr. Vannuki's IRA.
(2) Includes (I) 13,700 shares owned by Mr. Clark's IRA, (ii) 36,519 shares
held by a foundation owned by Mr. Clark, (iii) 400 shares owned by his wife and
(iv) 40,000 shares subject to stock options. Does not reflect the Change of
Control Transactions.
(3) Represents shares subject to stock options.
(4) Does not reflect the Change of Control Transactions.
(5) Includes 1,500 shares owned by Mr. Plotkin's IRA, 1,000 shares owned by
his wife and 1,500 shares held by her IRA. Does not reflect the Change of
Control Transactions.
(6) Includes (i) a total of 54,619 shares owned indirectly by officers and
directors of the Company and (ii) an aggregate of 55,000 shares subject to stock
options.
11
<PAGE>
CERTAIN TRANSACTIONS
During 1997, the Company was a party to a 1992 buy-sell agreement with
Jack Clark, a director and officer of the Company, providing for the Company's
repurchase of the shares of Common Stock by his estate in the event of his
death. The agreement was terminated in April 1998 as part of the Change of
Control Transactions. See "Change of Control Transactions."
During 1997, consulting services were provided to the Company by Robert
Plotkin, an incumbent director and former President of Stage II. The consulting
services provided by Mr. Plotkin consisted primarily of coordinating the
Company's foreign manufacturing arrangements. Mr. Plotkin received consulting
fees for these services during 1997 aggregating $101,000. The consulting
arrangements with Mr. Plotkin were terminated at the end of 1997.
It is the Company's policy to structure any transactions with related
parties only on terms that are no less favorable to the Company than could be
obtained on an arm's length basis from unrelated parties.
SOLICITATION OF PROXIES
The cost of solicitation of proxies will be borne by the Company. Proxy
cards and materials will also be distributed to beneficial owners of the
Company's Common Stock through brokers, custodians and other nominees who will
be reimbursed by the Company for their charges and expenses.
PROPOSALS BY SHAREHOLDERS
Any proposal that a shareholder wishes to present for consideration at
the 1999 annual meeting must be received by the Company at its principal
executive offices no later than December 31, 1998. This date will provide
sufficient time for consideration of the proposal for inclusion in the 1998
proxy materials.
By Order of the Board of Directors
Richard Siskind
President and Chief Executive Officer
New York, New York
May 21, 1998
12
<PAGE>
Form of Proxy Card
Front:
- --------------------------------------------------------------------------------
STAGE II APPAREL CORP.
(THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
STAGE II APPAREL CORP.--Proxy for the Annual Meeting of
Shareholders at 9:00 a.m., June 26, 1998, at 111 West 40th
Street, 12th Floor, New York, New York
The undersigned hereby appoints Michael Hanrahan and Dayna Clark
Higley, and each of them, with full power of substitution, as Proxies to vote
the Common Stock of the undersigned at the aforementioned Annual Meeting, and
any adjournments thereof, upon the matters set forth in the Notice of Annual
Meeting and Proxy Statement, as follows:
1. ELECTION OF DIRECTORS -- for the terms set forth in the Proxy
Statement. The nominees are:
(1) Richard Siskind (3) Beverly Roseman
(2) Robert Greenberg
[ ] FOR ALL NOMINEES [_] AGAINST ALL NOMINEES
[ ] FOR ALL NOMINEES, except the following
2. APPROVAL OF NONQUALIFIED STOCK OPTION PLANS
[_] FOR [_] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such
matters as may properly come before the Annual Meeting.
This Proxy will be voted as specified. If no specification is made, it will
be voted FOR Proposals 1 and 2, and at the discretion of the Proxies on any
other business.
- --------------------------------------------------------------------------------
Back:
- --------------------------------------------------------------------------------
Any Proxy heretofore given by the undersigned with respect to such stock is
hereby revoked.
Receipt of the Notice of Annual Meeting and Proxy Statement is hereby
acknowledged.
Do you plan to attend the Meeting? [ ] Yes [ ] No
Please mark, sign, date and return the Proxy Card
promptly using the enclosed envelope.
DATED: _______________ , 1998
-----------------------------
-----------------------------
(Joint owners must EACH sign. Please sign EXACTLY as your name(s) appear(s) on
the card. When signing as attorney, trustee, executor, administrator, guardian
or corporate officer, please give your FULL title.)
- --------------------------------------------------------------------------------
