<PAGE>
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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 Section 240.14a-12
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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.
- -------------------------------------------------------------------
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<PAGE>
STAGE II APPAREL CORP.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1999
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., CPA, P.C., at 111 West
40(th) Street, 12(th) Floor, New York, New York at 9:00 a.m. on Thursday, May
27, 1999. The shareholders will be asked to vote on the following:
1. To elect two Class II directors of the Company for a term expiring at its
2001 annual meeting of shareholders.
2. To approve an incentive stock option plan; 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, 1999 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
April 29, 1999
<PAGE>
PROXY STATEMENT
---------------
STAGE II APPAREL CORP.
1385 BROADWAY
NEW YORK, NY 10018
------------------------
1999 ANNUAL MEETING OF SHAREHOLDERS
MAY 27, 1999
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 1999 Annual Meeting of Shareholders on May 27, 1999 or
any adjournment. The meeting will be held at 9:00 a.m. at the offices of Mahoney
Cohen & Co, CPA, P.C., 111 West 40(th) Street, 12(th)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 an incentive stock option plan. See "Election of
Directors" and "Approval of Stock Option Plan." 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 1998 Annual Report on Form 10-K (the "Annual Report"), are being
mailed to shareholders on or about April 30, 1999. 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 April 29, 1999 are
entitled to notice of and to vote at the meeting. As of that date, the Company
had outstanding 3,903,267 shares of its common stock ("Common Stock"). On all
matters submitted to the shareholders of the Company, each share of Common Stock
entitles the holder 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.
BACKGROUND
In May 1998, the Company and three of its founders (the "Founders")
completed the transactions (the "Change of Control Transactions") contemplated
by a Stock Purchase Agreement with Richard Siskind, the principal shareholder
and CEO of several companies engaged in various segments of the apparel
industry. The Change of Control Transactions included the Founders' sale to Mr.
Siskind of 1.9 million shares (the "Control Shares") of Common Stock,
representing 48.7% of the Common Stock outstanding as of the date of this Proxy
Statement. See "Principal Shareholders." In consideration for the Control
Shares, Mr. Siskind arranged for the Founders' release from their guarantees of
the Company's indebtedness to its factor and their receipt of options to
reacquire a total of 1.5 million Control Shares from Mr. Siskind at exercise
prices ranging from $.50 to $1.50 per share (the "Founders Options"). Later in
1998, Founder Options for 1.35 million Control Shares were acquired from the
Founders by Jon Siskind, an officer and director of the Company.
<PAGE>
The Change of Control Transactions also included (a) the Company's issuance
to Mr. Siskind of 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 (the "Mirror Options"), (b) the reconstitution of
the Board with designees of Mr. Siskind, (c) the addition of a new management
team headed by Mr. Siskind and (d) the arrangement by Mr. Siskind of a new
credit facility for the Company. In addition, in lieu of a market rate salary,
Mr. Siskind received options to purchase 900,000 shares of Common Stock at $.75
per share under a nonqualified plan approved by the shareholders at the 1998
annual meeting (the "NSO Plan"). See "Executive Compensation--Stock Options."
PROPOSAL 1--ELECTION OF DIRECTORS
GENERAL
The Board is divided into two classes. Two Class II directors are to be
elected at the 1999 Annual Meeting to serve for a two-year term expiring at the
2001 annual meeting of shareholders or until their successors are chosen and
have qualified. Information about of Class II nominees is provided below under
the caption "Nominees," and information about the incumbent Class I directors is
included under the caption "Other Members of 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 II director is a current director of the
Company, having joined the Board in connection with the Change of Control
Transactions. The names of the nominees, along with information on their
business experience and background, are set forth below.
<TABLE>
<S> <C> <C>
BARRY FERTEL AGE 45 Barry Fertel was appointed as a director of the Company
in May 1998. He has been a partner in the law firm of
[LOGO] 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 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.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
JON SISKIND AGE 30 Jon Siskind joined the Company as a Vice President and
director in May 1998. He graduated from the University of
[LOGO] 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 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.
</TABLE>
OTHER MEMBERS OF THE BOARD
In addition to the Class II directors of the Company standing for reelection
at the 1999 Annual Meeting, the Board includes three Class I directors. Each of
the Class I directors joined the Board in connection with the Change of Control
Transactions and is currently serving for a two-year term to expire at the 2000
annual meeting of shareholders. Biographical information for these directors is
set forth below.
<TABLE>
<S> <C> <C>
RICHARD SISKIND AGE 53 Richard Siskind joined the Company as President, Chief
Executive Officer and a director in May 1998 after
[LOGO] acquiring a controlling interest from three of its
founders. 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
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.
ROBERT GREENBERG AGE 58 Robert Greenberg was appointed as a director of the
Company in May 1998. He founded LA Gear, a publicly held
[LOGO] 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 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.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
BEVERLY ROSEMAN AGE 41 Beverly Roseman joined the Company as a Vice President
and director in May 1998. She joined RSC in 1992 as the
[LOGO] 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
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.
</TABLE>
PROPOSAL 2--APPROVAL OF STOCK OPTION PLAN
GENERAL
In December 1998, the Board adopted the Stage II Apparel Corp. 1998
Incentive Stock Option Plan (the "1998 Plan"), subject to approval by the
shareholders at the Annual Meeting. The Company maintains three prior employee
stock option plans adopted since 1994, providing for the grant of options to
purchase an aggregate of 2.7 million shares of Common Stock, all of which have
been previously granted. See "Executive Compensation--Stock Options. The Board
has recommended the 1998 Plan to offer eligible employees an opportunity to
acquire or increase their proprietary interests in the Company, adding to their
incentive to contribute to its performance and growth.
TERMS OF THE 1998 PLAN
The 1998 Plan authorizes the grant of options to purchase a aggregate of 1
million shares of Common Stock. Options may be granted under the 1998 Plan
either as incentive stock options ("ISOs") or nonqualified stock options
("NSO's") within the meaning of section 422 of the Internal Revenue Code (the
"Code"). See "Federal Income Tax Matters" below. Shares covered by the 1998 Plan
may be either previously unissued or reacquired shares. Shares that cease to be
subject to an option because of its expiration or termination will again be
available for the grant of options until termination of the 1998 Plan.
The 1998 Plan is administered by the Compensation Committee of the Board
(the "Committee"). Members of the Committee are not eligible to receive options
under the 1998 Plan. The Committee has sole discretion to select optionees,
determine the number of shares subject to each grant and prescribe the other
terms and conditions of each award, including vesting schedules, which are
automatically accelerated in the event of a change in control of the Company (as
defined in the 1998 Plan). All officers and other employees of the Company are
eligible to receive options under the 1998 Plan, except that any person
possessing more than 10% of the outstanding Common Stock may only receive
options in the form of NSOs.
The exercise price of each option granted under the 1998 Plan must be equal
to the fair market value of the Common Stock at the time the option is granted.
Payment in full of the exercise price must be made upon the exercise of each
option either in cash, shares of Common Stock 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 options granted
under the 1998 Plan will be used for general corporate purposes.
Options granted under the 1998 Plan may not be transferred except to the
personal representative of a deceased employee. The 1998 Plan provides for a
period of three months during which an option, to the extent vested, may be
exercised after the termination of an optionee's employment for any reason other
4
<PAGE>
than cause, as defined in the 1998 Plan. No options may be granted under the
1998 Plan after December 30, 2008, although the expiration date of previously
granted options may extend beyond that date. The maximum term of any option is
ten years.
The number of shares covered by the 1998 Plan and the exercise price of
outstanding options are subject to customary antidilution adjustments in the
event of any recapitalization or similar change affecting the Common Stock. In
the event the Company sells all or substantially all its assets, dissolves,
merges or consolidates with another company or is involved in a tender offer for
all or a substantial portion of the Common Stock, the Committee may amend all
outstanding options to (i) permit their exercise prior to the effective date of
the transaction or terminate unexercised options as of that date, (ii) require
the forfeiture of all options, provided the Company pays each grantee the excess
of the fair market value of the Common Stock on that date over the option
exercise price, or (iii) make other provisions that it deems equitable.
The Board may amend the 1998 Plan without further shareholder action, except
for any modifications that would (i) increase the number of covered shares, (ii)
extend the maximum option term or the expiration date of the 1998 Plan, (iii)
permit grants below the fair market value of the Common Stock on the date of
grant or (iv) materially increase the benefits or modify the eligibility
requirements under the 1998 Plan. No amendment may adversely affect any then
outstanding option without the consent of the optionee.
During December 1998, the Committee granted 12 employees of the Company
options to purchase a total of 607,500 shares of Common Stock under the 1998
Plan at an exercise price of $(13)/16 per share. The grants provide for 50%
vesting after one year and the balance after two years in most cases or 100%
after one year in the case of three of the smaller grants. The following table
provides information about options granted during 1998 under the 1998 Plan to
(i) the Company's five most highly compensated executive officers during 1998,
(ii) all executive officers as a group and (iii) all employees other than
executive officers. The dollar value of options listed in the table reflects the
difference between the exercise price of the options and the market price of
$1 5/8 for the Common Stock on April 26, 1998. The ultimate value of the options
may be more or less than the listed amounts.
GRANTS UNDER 1998 PLAN
<TABLE>
<CAPTION>
NUMBER
OF SHARES EXERCISE DOLLAR
NAME POSITION COVERED PRICE VALUE (1)
- ---------------------------------------------------- -------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Richard Siskind..................................... President and CEO 400,000 $ 13/16 $ 325,000
Beverly Roseman..................................... Vice President 75,000 13/16 61,000
Jon Siskind......................................... Vice President 75,000 13/16 61,000
Leonard Plavin...................................... Chief Financial Officer 15,000 13/16 12,000
All employees other than executive officers (8
persons).......................................... 42,500 13/16 35,000
</TABLE>
- ------------------------
(1) Reflects the difference between the exercise price of the options and the
market price of $1 5/8 for the Common Stock on April 26, 1999 and may not
reflect the ultimate value of the options when exercised.
FEDERAL INCOME TAX MATTERS
The following discussion summarizes relevant federal income tax
considerations relating to options issued under the 1998 Plan. The summary is
based on existing provisions of the Code, and could be affected by future
changes in the tax laws.
5
<PAGE>
An employee receiving an ISO under the 1998 Plan will not be in receipt of
taxable income upon the grant of the ISO or upon its timely exercise except
under alternative minimum tax rules. Generally, exercise of an ISO will be
timely if made during its term and if the optionee remains an employee of the
Company or a subsidiary at all times during the period beginning on the date of
grant of the ISO and ending on the date three months before the date of exercise
(or one year before the date of exercise in the case of a deceased employee).
Upon ultimate sale of the stock received upon exercise, except as noted below,
the employee will recognize long term capital gain or loss (if the stock is a
capital asset of the employee) equal to the difference between the amount
realized upon the sale and the option exercise price. The Company, under these
circumstances, will not be entitled to any federal income tax deduction in
connection with either the exercise of the ISO or the sale of the underlying
stock by the employee.
For purposes of the alternative minimum tax, an employee exercising an ISO
will have alternative minimum taxable income resulting from the exercise. The
amount of the alternative minimum taxable income and the tax basis in the shares
received upon exercise of an ISO will be determined in the year of exercise
unless the shares received upon exercise are sold to an unrelated party in the
same tax year. In that event, there will generally be no adverse effect because
the alternative minimum taxable income will then be limited to the taxable gain
on the sale as determined for regular tax purposes.
An employee receiving an NSO or electing to sell Common Stock acquired upon
the exercise of an ISO prior to the expiration of two years from the grant date
of the ISO or within one year from the exercise date (a "disqualified ISO") will
not be in receipt of taxable income upon the grant of the NSO or ISO. Upon
exercise of the NSO or disqualified ISO, an employee will recognize ordinary
income to the extent of the difference between the option exercise price and the
fair market value of the stock on the date the option is exercised (the
"Compensation Element"). Upon ultimate sale of the stock received upon exercise,
the employee will recognize capital gain or loss (if the stock is a capital
asset of the employee) 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 an NSO or disqualified ISO. If an ISO
is exercised by a former employee more than three months after his termination
of employment, the ISO will be treated as a disqualified ISO for federal income
tax purposes.
If an employee uses previously owned shares of Common Stock to exercise an
ISO or NSO, the transaction will generally not be considered to be a taxable
disposition of the previously owned shares. However, if the previously owned
shares had been acquired upon exercise of a prior tax qualified stock option and
the holding period requirement for those tendered shares was not satisfied at
the time they were used to exercise the ISO, the use of the tendered shares
would cause the ISO to be treaded as a disqualified ISO for federal income tax
purposes.
VOTE REQUIRED
The Board believes the supplemental and flexible noncash incentive
compensation provided by the 1998 Plan will be useful in enabling the Company to
attract and retain qualified executives and other employees who can make
important contributions to the Company and recommends that shareholders vote to
approve the adoption of the 1998 Plan. Approval of the 1998 Plan requires the
affirmative vote of a majority of the total shares represented in person or by
proxy and entitled to vote at the meeting. Abstentions will be treated as shares
represented at the meeting and will have the same effect as votes against the
proposal. Broker non-votes will not be treated as votes cast for or against the
proposal and will not affect the outcome of the proposal to approve the adoption
of the 1998 Plan.
6
<PAGE>
ADDITIONAL INFORMATION ABOUT THE BOARD
ACTIONS BY THE BOARD IN 1998
During 1998, 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 compensation arrangements for all officers and key
employees and for administering the Company's employee benefit plans. During
1998, each of these Committees held two meetings. The Board of Directors has no
other standing committees.
BENEFICIAL OWNERSHIP REPORTING
Based on a review of reporting forms filed with the Securities and Exchange
Commission by officers and directors of the Company to disclose changes in their
beneficial ownership of the Company's Common Stock, none of the Company's
officers or directors failed to file any required reports on a timely basis
during 1998.
COMPENSATION OF DIRECTORS
Prior to the Change of Control Transactions, the outside directors of the
Company received directors' fees at the rate of $3,000 per meeting. No fees were
paid to the outside directors added to the Board for the balance of 1998
following the Change of Control Transactions.
7
<PAGE>
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND 1998 -------------------------------------- LONG TERM COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER(1) OPTION/SAR AWARDS (#) COMPENSATION(2)
- ------------------------------------- --------- ---------- ----------- ------------- ----------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard Siskind (3) 1998 $ 131,000 -- -- 1,300,000(4) $ --
Carl Jenkins (3) 1998 127,000 -- -- -- --
EVP-Production and 1997 156,000 -- -- -- 2,000
Foreign Operations 1996 109,000 -- -- -- 3,000
Ronald Cohen (3) 1998 108,000 -- -- --
Executive VP- 1997 156,000 -- -- --
Operations 1996 124,000 -- -- -- -- 3,000 3,000
Jack Clark (3) 1998 77,000 -- -- -- --
Chairman of 1997 298,000 -- -- -- 4,000
the Board 1996 345,000 -- -- -- 4,000
Michael Hanrahan (3) 1998 69,000 -- -- -- --
Chief Financial Officer 1997 10,000 -- -- -- --
</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 Plan" below.
(3) Served as an executive officer of the Company for only a portion of 1998.
(4) Excludes the Mirror Options, which are not compensatory. See "Background"
and "Stock Options" below.
STOCK OPTIONS
The Company maintains four stock option plans, comprised of (a) the 1998
Plan, (b) an incentive stock option plan adopted in 1994 (the "1994 Plan" and,
collectively, the 1998 Plan, "ISO Plans"), (c) the NSO Plan (collectively with
the ISO Plans, the "Plans"), and (d) a nonqualified stock option plan covering
the Mirror Options adopted as part of the Change of Control Transactions. See
"Background." The 1994 Plan and the 1998 Plan cover 300,000 shares and 1 million
shares, respectively, of Common Stock. The NSO plans covers 900,000 shares of
Common Stock. See "Employee Benefit Plans--Stock Option Plans" below. The
following table sets forth information as of December 31, 1998 on stock options
held by the Company's five most highly compensated executive officers in 1998,
none of whom exercised any stock options during 1998. The dollar value of
options listed in the table reflects the difference between the exercise price
of the options and the market price of $1.00 for the Common Stock on December
31, 1998. The ultimate value of the options may be more or less than the listed
amounts. The Mirror Options are not compensatory and are not included in the
table.
8
<PAGE>
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 YEAR END(1)
- ----------------------------------------------------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Richard Siskind.................................................. None N/A 1,300,000 $ 300,000
Carl Jenkins..................................................... None N/A -- N/A
Ronald Cohen..................................................... None N/A -- N/A
Jack Clark....................................................... None N/A -- N/A
Michael Hanrahan................................................. None N/A -- N/A
</TABLE>
- ------------------------
(1) Reflects the difference between the exercise price of the options and the
market price of $1.00 for the Common Stock on December 31, 1998 and may not
reflect the ultimate value of the options when exercised.
The following table provides information about options granted during 1998
under the Plans to the Company's five most highly compensated executive officers
during 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------------ AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------------------- ------------- --------------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard Siskind.................. 900,000(2) 50% $ 3/4 5/2003-5/2005 $ 216,000 $ 525,000
400,000(3) 22 13/16 12/2008 204,391 516,705
Carl Jenkins..................... 5,000 -- 3/4 Expired N/A N/A
Ronald Cohen..................... -- N/A N/A Expired N/A N/A
Jack Clark....................... -- N/A N/A Expired N/A N/A
Michael Hanrahan................. 5,000 -- 3/4 Expired N/A N/A
</TABLE>
- ------------------------
(1) Based solely on assumed rates of appreciation (5% and 10% per annum)
pursuant to rules of the Securities and Exchange Commission. Actual gains,
if any, upon exercise of options and sales of the underlying shares of
Common Stock will be dependent on future performance and stock market
conditions, which may not reflect the potential realizable values shown in
the table.
(2) Represents options granted under the NSO Plan during 1998.
(3) Represents options granted under the 1998 Plan during 1998.
9
<PAGE>
EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANs. The Company maintains the ISO Plans to provide its
employees an opportunity to acquire or increase their proprietary interests in
the Company, adding to their incentive to contribute to its performance and
growth. The terms of the ISO Plans are substantially identical, except for the
additional shares of Common Stock covered by the 1998 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. 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, 1998, the 1994 Plan was
fully granted, and options to purchase a total of 393,500 shares of Common Stock
were available for future grants under the 1998 Plan.
The NSO Plan was adopted as part of the Change of Control Transactions
solely to compensate Richard Siskind for accepting a salary as President and CEO
of the Company substantially below prevailing market rates. See "Background."
Under the NSO Plan, Mr. Siskind received options to purchase a total of 900,000
shares of Common Stock at an exercise price of $.75 per share. The options vest
in one-third annual cumulative installments, beginning in May 1999, and expire
four years after the vesting date.
The Mirror Options granted to Mr. Siskind as part of the Change of Control
Transactions are not compensatory, since they are intended solely to enable him
to maintain his equity position in the Company, without gain or loss, to the
extent that the Founders Options granted by him are exercised. See "Background."
EMPLOYEE STOCK OWNERSHIP AND SALARY DEFERRAL PLAN. Between 1994 and 1997,
the Company maintained 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 Code. The Company's expense for these
contributions in 1997 and 1996 $16,000 and $38,000, respectively. The Company
terminated the Savings Plan in 1998.
MANAGEMENT AGREEMENT
As part of the Change of Control Transactions, the Company entered into a
Management Agreement with Richard Siskind (the "Management Agreement"),
providing for Mr. Siskind to join the Company as President and Chief Executive
Officer for a three-year term beginning in May 1998. In accordance with the
Management Agreement, Mr. Siskind arranged a new credit facility for the
Company, part of which he guaranteed, to provide the Company with adequate
financial flexibility at lower costs than the facility in place prior to the
Change of Control Transactions. Consistent with his objective of reducing the
Company's overhead, Mr. Siskind receives an annual salary of $200,000 for his
services under the Management Agreement. In lieu of salary at a market rate, the
Management Agreement provides for his receipt of the Mirror Options, the options
contemplated by the NSO Plan and any additional options deemed appropriate by
the Committee. See "Stock Options" above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Change of Control Transactions in May 1998, the Compensation
Committee of the Board was comprised of Steven Jelin and Eugene Myers (the
"Prior Committee"). Since the Change of Control Transactions, the Compensation
Committee has been comprised of Messrs. Fertel and Greenberg. 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 during 1998,
except that the law firm in which Mr. Fertel is a partner has provided legal
services to the Company. See "Certain Transactions."
10
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL. This Proxy Statement does not include a report by the Prior
Committee because the Board's compensation policies were changed substantially
as part of the Change of Control Transactions. See "Background." Moreover,
during the first four months of 1998, the Company was subject to covenants
relating to the Change of Control Transactions (the "Restrictive Covenants")
limiting its ability to increase compensation for its executive officers and
other employees. In addition, none of the Company's five most highly compensated
officers prior to the Change of Control Transactions remained with the Company
past October 1998.
As part of the Change of Control Transactions, the Company entered into an
employment agreement with Jack Clark (the "JC Employment Agreement"), providing
for the termination of his existing employment agreement and his buy-sell
agreement with the Company at the closing of those transactions (the "Closing")
and continuation of his employment in a transitional role as Consulting
Executive for a term of one year at an annual salary of $100,000. At the
Closing, the Company also entered into the Management Agreement with Richard
Siskind and obtained the new credit facility arranged by him, as contemplated by
the Management Agreement. See "Management Agreement" above. The credit facility,
part of which is guaranteed by Mr. Siskind, provides the Company with adequate
financial flexibility at lower costs than the facility in place prior to the
Change of Control Transactions. In the absence of the Change of Control
Transactions or other strategic alternative, the Company could have been
expected to experience increasing pressures from its previous factor as a result
of its deteriorating financial performance prior to the Closing.
COMPENSATION POLICY. In connection with the Change of Control Transactions,
the Board adopted a business plan developed by Richard Siskind for accelerating
the Company's efforts to achieve a return to profitability (the "Mission
Statement"). The Mission Statement included the following measures intended to
achieve increased product sales and profit margins as well as reductions in
overhead as part of this strategy:
- INCREASING SALES. The new management team added as part of the Change of
Control Transactions ("New Management"), headed by Richard Siskind,
Beverly Roseman and Jon Siskind, refocused on sales by division or brand
name rather than continuing the Company's prior approach in which its
sales personnel were responsible for all product lines. This structure,
together with a greater emphasis on performance based compensation, was
implemented to promote increased sales through a more highly motivated
sales staff with a deeper knowledge of each product line and targeted
customer base.
- INCREASING PROFIT MARGINS. An effort was made to increase profit margins
on all sales through reductions in manufacturing inefficiencies and
greater control of inventories, with a view to lowering the cost of sales
and creating faster inventory turn, thereby avoiding unnecessary
markdowns.
- ADMINISTRATIVE EFFICIENCIES. The Company continued the cost cutting
efforts undertaken by prior management, but on a more aggressive basis
where appropriate, with a minimum objective of bringing overhead costs in
line with sales.
- REDUCTIONS IN FIXED OVERHEAD. New Management prioritized efforts for
terminating the Company's prior lease for office and showroom space in
Empire State Building and replaced that lease with a sublease for office
and showroom space from a company owned by Jon Siskind, generating annual
savings to the Company over $330,000. See "Certain Transactions."
- FINANCIAL CONTROLS. New Management implemented more stringent financial
controls with a view to reducing factoring charges and debt levels. The
Company also focused more aggressively on collection of accounts
receivable and on the management of returns and allowances.
11
<PAGE>
- MANAGEMENT COSTS AND EFFICIENCIES. The Board prioritized efforts to keep
the Company's cost of management below prior ratios as a percentage of
sales and increase organizational efficiencies. To achieve these cost
cutting goals, the Board increased the use of stock options to offset
substantial reductions in salary levels.
In keeping with the Mission Statement, the Company's executive compensation
policy was revamped as part of the Change of Control Transactions to implement
below market levels of pay, augmented 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 was implemented
through participation in the Plans, including the 1998 Plan. The Board's
objective, reflected in recommendations by the Committee, 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. In
this way, the Committee believes that the Company's new compensation program
enables it to balance the relationship between compensation and performance in
the best interests of the shareholders.
SALARY REDUCTIONS. In accordance with the Restrictive Covenants, annual
salaries paid to the Company's named executive officers in place prior to the
Change of Control Transactions ("Prior Management") was frozen at 1997 levels,
with the exception of a $10,000 raise awarded to Michael Hanrahan by Prior
Management. In addition, because the salary of Jack Clark, the Chairman of the
Board prior to the Change of Control Transactions, had been reduced to $100,000
during September 1997 in view of the Company's weak financial performance, Mr.
Clark's 1998 salary was maintained at that level.
Based on recommendations by the Committee in connection with the Change of
Control Transactions, annual salary levels for Carl Jenkins and Ronald Cohen
were reduced by $33,000 and $74,000, respectively, following those transactions.
In addition, Mr. Clark's salary was maintained at $100,000 for his transitional
services in accordance with the JC Employment Agreement.
Commencing in May 1998, New Management substantially replaced the members of
Prior Management, who resigned their positions with the Company between August
and October 1998. They were replaced by Richard Siskind as President and CEO,
Beverly Roseman and Jon Siskind as Vice Presidents and Leonard Plavin as Chief
Financial Officer. Until the Company achieves profitability, each member of New
Management other than Richard Siskind agreed to accept options in lieu of any
salary, and Richard Siskind accepted a below market salary of $200,000 in
accordance with the Management Agreement. See "Management Agreement" above.
STOCK OPTIONS. As contemplated by the Mission Statement, the Committee
recommended that members of New Management receive substantial option grants as
the major or sole form of their compensation in 1998. In addition to the Mirror
Options, which are not compensatory, Richard Siskind was awarded options to
purchase 900,000 shares of Common Stock at an exercise price of $.75 per share
under the NSO Plan and options to purchase 400,000 shares of Common Stock at an
exercise price of $.8125 per share under the 1998 Plan See "Background." The
other members of New Management received option grants under the 1998 Plan, as
listed in the table on page 5 of this Proxy Statement and, in the case of both
Beverly Roseman and Jon Siskind, options to purchase 150,000 shares of Common
Stock at an exercise price of $.625 per share under the 1994 Plan. See "Stock
Options" above.
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.
<TABLE>
<S> <C> <C>
THIS REPORT HAS BEEN APPROVED BY THE
FOLLOWING Barry
MEMBERS OF THE COMPENSATION COMMITTEE: Fertel Robert Greenberg
</TABLE>
12
<PAGE>
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.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Stage II Apparel Corp, Russell 2000 Index And Value Line Apparel Index
(Performance Results Through 12/31/98)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAGE II APPAREL CORP. RUSSELL 200 INDEX APPAREL
<S> <C> <C> <C>
1993 $100.00 $100.00 $100.00
1994 $85.01 $98.02 $110.17
1995 $61.82 $126.80 $120.83
1996 $41.22 $146.59 $165.49
1997 $18.06 $179.13 $193.05
1998 $20.64 $174.23 $238.83
</TABLE>
Assumes $100 invested at the close of trading 12/93 in Stage II Apparel Corp
common stock, Russell 2000 Index, and Apparel.
* Cumulative total return assumes reinvestment of dividends.
Source: Value Line, Inc.
Factual material is obtained from sources believed to be reliable, but the
publisher is not responsible for any errors or omissions contained herein.
13
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information on the beneficial ownership of
the Common Stock as of March 31, 1999 by (i)) each person known by the Company
to own beneficially more than 5% of the outstanding Common Stock, (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>
Richard Siskind 1385 Broadway 2,340,260(1) 55.7%
New York, NY 10018
</TABLE>
<TABLE>
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Richard Siskind...................................................... 2,340,260(1) 55.7%
Carl Jenkins(2)...................................................... -- --
Ronald Cohen(2)...................................................... -- --
Jack Clark(2)........................................................ 89,479 2.3
Michael Hanrahan(2).................................................. -- --
Barry Fertel......................................................... -- --
Robert Greenberg..................................................... 190,000 4.9
All officers and directors
as a group (10 persons)............................................ 2,619,739(6) 67.1
</TABLE>
- ------------------------
(1) Excludes 900,000 shares issuable under the NSO Plan at an exercise price of
$.75 per share and vesting in one-third cumulative annual installments
commencing in May 1999, (b) 400,000 shares issuable under the 1998 Plan at
an exercise price of $.8125 per share and vesting 50% in December 1999 and
the balance in December 2000 or (c) a total of up to 1,500,000 shares
issuable upon exercise of the Mirror Options at exercise prices ranging from
$.50 to $1.50 per share, exercisable only to the extent that the Founders
Options granted by him in the Change of Control Transactions for the same
number of shares are exercised by the holders of the Founders Options. See
"Background."
(2) A member of Prior Management.
(3) Excludes a total of (a) 1,765,000 shares subject to unvested stock options
and (b) up to 1,500,000 shares issuable upon exercise of the Mirror Options.
14
<PAGE>
CERTAIN TRANSACTIONS
During 1998, RSC, a company controlled by Richard Siskind, the President,
Chief Executive Officer and a director and principal shareholder of the Company,
opened letters of credit of approximately $2.1 million for the purchase of
merchandise by the Company. During the year, certain employees of the RSC also
performed services for the Company at no charge, and the Company shared certain
office and warehouse space of RSC at no charge. At December 31, 1998, the
Company was indebted to RSC in the amount of $26,000.
In 1998, after obtaining the cancellation of its prior office and showroom
lease at the Empire State Building, the Company entered into a sublease for
showroom and office space at 1385 Broadway in New York City with a company owned
by Jon Siskind, an officer and director of the Company and the son of Richard
Siskind. Rent expense charged to operations for the sublease during the portion
of 1998 that the Company occupied the new space was approximately $12,000,
representing a pass-through of rent under the primary lease.
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
2000 annual meeting must be received by the Company at its principal executive
offices no later than December 31, 1999. This date will provide sufficient time
for consideration of the proposal for inclusion in the 1999 proxy materials.
By Order of the Board of Directors
RICHARD SISKIND
President and Chief Executive Officer
New York, New York
April 29, 1999
15
<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., MAY 27, 1999, AT 111 WEST 40TH STREET, 12TH FLOOR, NEW YORK, NEW YORK
The undersigned hereby appoints Leonard Plavin and Beverly Roseman, 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) Barry Fertel (2) Jon Siskind
/ / FOR ALL NOMINEES / / AGAINST ALL NOMINEES
/ / FOR ALL NOMINEES, except the following
--------------------------
2. APPROVAL OF STOCK OPTION PLAN
/ / 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: , 1999
----------------------
-----------------------------------
-----------------------------------
(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.)
- --------------------------------------------------------------------------------
