SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(C) or Rule 14a-12
BRAZOS SPORTSWEAR, INC.
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
1) Title of each class of securities to which transaction applies: __________
2) Aggregate number of securities to which transaction applies: ____________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction: $_______________
5) Total fee paid: $__________________
[ ] 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 for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ________________
2) Form, Schedule or Registration Statement No.: _________________
3) Filing Party: _________________
4) Date Filed: __________________
<PAGE>
BRAZOS SPORTSWEAR, INC.
4101 FOUNDERS BLVD.
BATAVIA, OHIO 45103
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 9, 1998
Notice is hereby given that the annual meeting of the stockholders of Brazos
Sportswear, Inc. (the "Company") will be held at the offices of Equus II
Incorporated, 2929 Allen Parkway, Suite 2500, Houston, Texas 77019 on Friday,
October 9, 1998, at 8:30 a.m., local time, for the following purposes:
1. To elect two Class III directors of the Company to hold office until
the third succeeding annual meeting of stockholders after their election (the
2001 Annual Meeting) or until their successors are elected and qualified;
2. To consider and act upon a proposal to amend the Company's 1997
Incentive Plan to increase the minimum number of shares available for
issuance under the plan to 1,000,000 from 750,000; and
3. To consider and act upon such other business as may properly be
presented to the meeting.
A record of stockholders has been taken as of the close of business on
September 9, 1998, and only those stockholders of record on that date will be
entitled to notice of and to vote at the meeting. A list of stockholders will be
available at the offices of the Company commencing September 25, 1998, and may
be inspected during normal business hours before the annual meeting.
If you do not expect to be present at the meeting, please sign and date the
enclosed proxy and return it promptly in the enclosed stamped envelope which has
been provided for your convenience. The prompt return of proxies will ensure a
quorum and save the Company the expense of further solicitation.
By Order of the Board of Directors,
F. CLAYTON CHAMBERS,
SECRETARY
September 15, 1998
<PAGE>
BRAZOS SPORTSWEAR, INC.
4101 FOUNDERS BLVD.
BATAVIA, OHIO 45103
PROXY STATEMENT
This Proxy Statement is being mailed to stockholders commencing on or
about September 15, 1998, in connection with the solicitation by the board of
directors of Brazos Sportswear, Inc. (the "Company") of proxies to be voted at
the annual meeting of stockholders to be held at the offices of Equus II
Incorporated, 2929 Allen Parkway, Suite 2500, Houston, Texas 77019, on Friday,
October 9, 1998, and any adjournment thereof, for the purposes set forth in the
accompanying notice. Proxies will be voted in accordance with the directions
specified thereon and otherwise in accordance with the judgment of the persons
designated as the holders of the proxies. Proxies marked as abstaining on any
matter to be acted on by the stockholders will be treated as present at the
annual meeting for purposes of determining a quorum but will not be counted as
votes cast on such matters. Any proxy on which no direction is specified will be
voted for the election of each of the directors nominated by the Company named
herein and for the approval of the amendment to the Company's 1997 Incentive
Plan, or otherwise in accordance with the judgment of the person specified
thereon. A stockholder may revoke a proxy by delivering to the Company written
notice of revocation, delivering to the Company a proxy signed on a later date
or voting in person at the annual meeting.
OUTSTANDING VOTING SECURITIES
As of September 9, 1998, the record date for the determination of
stockholders entitled to vote at the annual meeting, there were 4,421,752 shares
of the common stock ("Common Stock") of the Company outstanding. Each share of
Common Stock entitles the holder to one vote on all matters presented at the
meeting. In addition, as of September 9, 1998, there were 2,903,902 shares of
the Series B-2 preferred stock of the Company ("Series B-2 Preferred Stock")
outstanding. The shares of Series B-2 Preferred Stock vote with the Common Stock
based on the number of shares of Common Stock into which such preferred stock is
then convertible. As of September 9, 1998, each share of Series B-2 Preferred
Stock is convertible into approximately .0909 shares of Common Stock, which on
an as-converted basis represents an aggregate of 263,991 shares of Common Stock.
ELECTION OF DIRECTORS
At the meeting, two Class III directors are to be elected, each director
to hold office until the third succeeding annual meeting of the stockholders, or
until his successor is elected and qualified. The persons named in the
accompanying proxy have been designated by the board of directors and, unless
authority is withheld, they intend to vote for the election of the nominees
named below to the board of directors. If any nominee should become unavailable
for election, the proxy may be voted for a substitute nominee selected by the
persons named in the proxy, or the board may be reduced accordingly; however,
the board of directors is not aware of any circumstances likely to render any
nominee unavailable.
1
<PAGE>
INFORMATION REGARDING THE NOMINEES
The following table contains certain information with respect to the
persons who have been nominated to serve as Class III directors of the Company:
DIRECTOR
NAME POSITION AGE SINCE
- ---- -------- --- -----
CLASS III DIRECTORS WHOSE TERM WILL EXPIRE IN 2001
Michael S. Chadwick........ Director 46 1997
Robert C. Klein............ Director, president and chief
executive officer 47 1998
MICHAEL S. CHADWICK. Mr. Chadwick has been a director of the Company since
March 1997. He is a senior vice president and a managing director of the
corporate finance department of Sanders Morris Mundy, a Houston-based financial
services and investment banking firm. From 1988 to 1994, Mr. Chadwick served as
president of Chadwick, Chambers & Associates, Inc., an investment and merchant
banking firm located in Houston, Texas. Mr. Chadwick presently serves on the
board of directors of Watermarc Food Management Company and Blue Dolphin Energy
Company, both publicly traded corporations, and Moody-Price, Inc., a
privately-owned corporation.
ROBERT C. KLEIN. Mr. Klein has served as a director and as president and
chief executive officer of the Company since April 1998. He served as president
and chief executive officer of Morning Sun, Inc. from 1993 until it was acquired
by the Company in July 1997. Prior to his appointment as president and chief
executive officer, he served as president of the Company's Branded Products
Division. From 1978 until 1993, Mr. Klein served in a variety of positions in
manufacturing, merchandising and sales at Jantzen, Inc., a division of VF Corp.,
and was vice president of womenswear before he left Jantzen to join Morning Sun,
Inc.
INCUMBENT DIRECTORS
DIRECTOR
NAME POSITION AGE SINCE
- ---- -------- --- -----
CLASS I DIRECTORS WHOSE TERM WILL EXPIRE IN 2000
Randall B. Hale............ Director and chairman of the board 36 1997
CLASS II DIRECTORS WHOSE TERM WILL EXPIRE IN 1999
Nolan Lehmann.............. Director 54 1997
F. Clayton Chambers........ Director, vice president, chief
financial officer secretary and
treasurer 38 1997
RANDALL B. HALE. Mr. Hale has been a director and chairman of the board of
the Company since March 1997. He has served as a vice president of Equus II
Incorporated ("Equus II") and Equus Capital Management Company ("Equus") since
1992 and as a director of Equus since 1996. From 1985 to 1992, he was employed
by Andersen Worldwide. Mr. Hale is a director of American Residential Services,
Inc. and is also a director of numerous privately-owned companies. Mr. Hale is a
certified public accountant.
NOLAN LEHMANN. Mr. Lehmann has been a director of the Company since March
1997. He has served as a director and president of Equus since 1980, and as a
director and president of Equus II since inception. Before joining Equus, Mr.
Lehmann served in a number of executive management positions with Service
Corporation International from 1973 to 1980. Mr. Lehmann is also a director of
Allied Waste Industries, Inc., American Residential Services, Inc., Drypers
Corporation and Garden Ridge Corporation. In addition, he serves as a director
of several privately-owned companies. Mr. Lehmann is a certified public
accountant.
F. CLAYTON CHAMBERS. Mr. Chambers has served as vice president, chief
financial officer, treasurer, secretary and a director of the Company since
March 1997. From January 1995 until March 1997 he served as vice president and
chief financial officer of BSI Holdings, Inc. ("BSI"), which merged with the
Company in March 1997. From May 1994 until January 1995, he served as a
consultant to BSI. Mr. Chambers was a principal in the firm of Chadwick,
Chambers & Associates, Inc., an investment and merchant banking firm located in
Houston, Texas, from 1988 until 1994. He was employed by Lovett Mitchell Webb &
Garrison, an investment banking firm, from 1986 until 1987.
2
<PAGE>
For certain information regarding the beneficial ownership of the Common
Stock by each of the nominees and incumbent directors, see "Other Information
- --Principal Stockholders."
VOTE REQUIRED FOR ELECTION AND RECOMMENDATION
The two nominees for Class III director who receive the greatest number of
votes cast for election by the holders of Common Stock (including Common Stock
resulting from the deemed conversion of the Series B-2 Preferred Stock as of the
record date) of record shall be the duly elected Class III directors upon
completion of the vote tabulation at the annual meeting, provided a majority of
the outstanding shares as of the record date are present in person or by proxy
at the meeting. Under applicable provisions of the Company's bylaws, any proxy
containing an abstention from voting for any nominee will be sufficient to
represent the shares at the meeting for purposes of determining whether a quorum
is present, but will count neither as a vote for nor against any nominee with
respect to whom the holder has abstained from voting. In tabulating votes, a
record will be made of the number of shares voted for each nominee, the number
of shares with respect to which authority to vote for that nominee has been
withheld, and the number of shares held of record by broker-dealers and present
at the meeting but not voting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE TWO NOMINEES FOR CLASS
III DIRECTOR OF THE COMPANY.
BOARD AND COMMITTEE ACTIVITY, STRUCTURE AND COMPENSATION
During 1997, the board of directors convened on three regularly scheduled
occasions. Committees of the board held meetings as follows: audit
committee--two meetings and compensation committee--two meetings. Each director
attended at least 75% of all meetings of the board and all committees on which
he served during the year.
The Company's operations are managed under the broad supervision and
direction of the board of directors, which has the ultimate responsibility for
the establishment and implementation of the Company's general operating
philosophy, objectives, goals and policies. Pursuant to delegated authority,
certain board functions are discharged by the standing committees of the board.
The compensation committee is responsible for the formulation and adoption of
all executive compensation, benefit and insurance programs, subject to full
board approval where legally required, and supervises the administration of all
executive compensation and benefit programs, including the establishment of
specific criteria against which all annual performance based benefits are to be
measured. The audit committee assists the board in assuring that the accounting
and reporting practices of the Company are in accordance with all applicable
requirements. The current members of the audit committee and compensation
committee are Messrs. Hale, Lehmann and Chadwick. The board of directors does
not presently maintain a nominating committee; stockholders who may wish to
suggest individuals for possible future consideration for board positions should
direct recommendations to the board of directors at the Company's principal
offices.
Directors not employed by the Company ("Non-Employee Directors") receive
compensation of $16,000 annually for service on the board plus reimbursement of
expenses in attending meetings. Under the Company's 1997 Incentive Plan, each
current Non-Employee Director elected for the first time to the board will
receive a one-time grant of options to purchase 15,000 shares of Common Stock,
and beginning with the Company's 1998 annual meeting, the Company anticipates
that each Non-Employee Director will receive an additional grant of options to
purchase 5,000 shares of Common Stock on the date of each stockholder vote
regarding election of directors. All such options will be granted at an exercise
price per share equal to the fair market value of a share of Common Stock on the
date of grant.
3
<PAGE>
PROPOSED AMENDMENT TO
1997 INCENTIVE PLAN
The Brazos Sportswear, Inc. 1997 Incentive Plan (the "Plan") was
originally approved by the Company's stockholders in September 1997. The Plan
entitles directors, officers and other key employees of the Company and its
subsidiaries to receive options to purchase an aggregate of the greater of (i)
12.5% of the Company's outstanding Common Stock or (ii) 750,000 shares of Common
Stock. In August 1998, the Board of Directors approved an amendment to the Plan
that would increase the minimum aggregate number of shares of Common Stock which
may be issued or covered by options pursuant to the Plan.
The Board of Directors adopted this amendment as a means to provide
directors, officers and other key employees with a continuing proprietary
interest in the Company. The Company will continue to grant options under the
Plan until the earlier to occur of (i) the Plan's expiration or (ii) the
issuance of options covering all shares of Common Stock reserved for issuance
under the Plan.
The proposed amendment would increase the minimum number of shares of
Common Stock which may be issued or covered by options pursuant to the Plan by
250,000. Of the original 750,000 options authorized for grant under the Plan,
157,932 options remained available for grant as of August 1, 1998. If the
proposed amendment is approved, the aggregate number of shares which may be
issued or covered by options pursuant to the Plan would be (i) the greater of
12.5% of the Company's outstanding Common Stock or (ii) 1,000,000 shares of
Common Stock. On August 27, 1998, Robert C. Klein, president and chief executive
officer, and F. Clayton Chambers, vice president and chief financial officer,
were granted options to purchase 210,000 and 10,000 shares, respectively, of
Common Stock at the current market price under the terms of the Plan.
APPROVAL
The affirmative vote of the holders of a majority of the shares of Common
Stock outstanding and represented at the meeting, in person or by proxy, is
required to approve the proposed amendment to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED
AMENDMENT TO THE PLAN.
4
<PAGE>
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock at August 15, 1998, by (i)
all directors and nominees for director, (ii) the chief executive officer and
other executive officers, (iii) each person who beneficially owns more than five
percent of the Company's common stock and (iv) all directors and executive
officers as a group.
NUMBER OF PERCENT
NAME SHARES OF CLASS
-------------- --------
Equus II Incorporated ............................. 2,934,233(1) 56.5%
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Allied Investment Corporation ..................... 342,938 7.8%
Allied Investment Corporation II
1666 K Street, N.W., Suite 901
Washington, D.C. 20006
Bank of America NW, N.A., d/b/a Seafirst Bank ..... 307,552 7.0%
820 A Street, Suite 250
P.O. Box 1493
Tacoma, Washington 98401
George Warny ...................................... 270,527(2) 6.1%
215 Flag Lake Drive
Clute, Texas 77531
Samuel T. McKnight ................................ 228,411(3) 5.1%
215 Flag Lake Drive
Clute, Texas 77531
J. Ford Taylor .................................... 266,239(4) 5.8%
4101 Founders Blvd .............................
Batavia, Ohio 45103
F. Clayton Chambers ............................... 257,166(5) 5.7%
4101 Founders Blvd .............................
Batavia, Ohio 45103
Michael S. Chadwick ............................... 270,467(6) 6.0%
3100 Chase Tower
Houston, Texas 77002
Robert C. Klein ................................... 103,171(7) 2.3%
Randall B. Hale ................................... 2,969,397(8)(9) 56.8%
Nolan Lehmann ..................................... 2,958,711(8)(10) 56.7%
All directors and executive officers as a group
(five persons) .................................. 3,624,679(1)(5)-(10) 67.1%
- -------------
(1) Includes 170,839 shares which may be acquired upon exercise of warrants
and 603,086 shares issuable upon conversion of preferred stock.
(2) Includes 6,824 shares which may be acquired upon exercise of warrants and
40,848 shares issuable upon conversion of preferred stock. Includes
106,116 shares as to which Mr. Warny serves as trustee and as to which Mr.
Warny disclaims beneficial ownership. Excludes 90,988 shares held by
trusts for the benefit of Mr. Warny's children and for which Mr. McKnight
serves as trustee and as to which Mr. Warny disclaims beneficial
ownership.
(3) Includes 35,812 shares issuable upon conversion of preferred stock and
includes 90,988 shares to which Mr. McKnight serves as trustee and as to
which Mr. McKnight disclaims beneficial ownership. Excludes 106,116 shares
held by trusts for the benefit of Mr. McKnight's children and for which
Mr. Warny serves as trustee and as to which Mr. McKnight disclaims
beneficial ownership.
5
<PAGE>
(4) Includes 122,425 shares that may be acquired upon exercise of warrants and
options and 33,020 shares issuable upon conversion of preferred stock.
Includes 121,296 shares held jointly by Sandra Taylor, Mr. Taylor's
spouse.
(5) Includes 31,754 shares that may be acquired upon exercise of warrants and
options and 24,016 shares issuable upon conversion of preferred stock of
which 5,041 shares and 2,639 shares upon conversion are held in trust for
Mr. Chambers' children.
(6) Includes 37,367 shares that may be acquired upon exercise of warrants and
options and 26,657 shares issuable upon conversion of preferred stock.
(7) Includes 30,000 shares that may be acquired upon exercise of options.
(8) Includes 2,934,233 shares beneficially owned by Equus II; each holder
disclaims beneficial ownership of such shares.
(9) Includes 35,164 shares that may be acquired upon exercise of options.
(10) Includes 24,478 shares that may be acquired upon exercise of options.
EMPLOYMENT AGREEMENTS
In July 1997, in connection with the acquisition of Morning Sun, Inc., the
Company entered into an employment agreement with Mr. Klein that provided for an
annual base salary of $250,000. Subsequent to his appointment as president and
chief executive officer of the Company, Mr. Klein's base salary was increased to
$325,000. The agreement expires on July 1, 2000. Mr. Klein's agreement entitles
him to participate in the Plan and to receive benefits in an amount of up to
100% of his base salary under the Company's incentive compensation plan. In
addition, Mr. Klein may receive discretionary bonuses, and his employment
agreement provided for the grant on the date of the agreement of options to
purchase 45,000 shares of the Common Stock. Mr. Klein's options vest 33 1/3% per
year for three years beginning on the date of grant. If Mr. Klein's employment
agreement is terminated without cause prior to the end of its term, the Company
must pay an amount equal to the base salary for the one-year period following
such termination, plus the pro rata portion of any bonus through such
termination. If the agreement is terminated with cause prior to the end of its
term, the Company is obligated to pay an amount equal to the base salary accrued
to the date of discharge. In addition, the agreement provides that upon
termination of employment, Mr. Klein will be prohibited from competing with the
Company for a period of one year.
The Company has entered into an employment agreement with Mr. Chambers
that provides for a current annual base salary of an $175,000. The agreement
expires on December 31, 1999, and provides for minimum cash bonuses of $7,500
and $10,000 for calendar years ending 1998 and 1999, respectively, and for
discretionary bonuses. Mr. Chambers is entitled to participate in the Company's
Plan and may receive benefits in an amount of up to 100% of base salary under
the Company's incentive compensation plan. If the agreement is terminated
without cause prior to the end of the term, the Company must pay an amount equal
to Mr. Chambers' base salary and guaranteed bonuses for the remainder of the
term of the employment agreement. If the agreement is terminated with cause
prior to the end of its term, the Company is obligated to pay an amount equal to
the base salary accrued to the date of discharge. In addition, the agreement
provides that upon termination of employment, Mr. Chambers will be prohibited
from competing with the Company for a period of two years.
On April 30, 1998, the Company and J. Ford Taylor entered into a Severance
Agreement which provides for the continuation of Mr. Taylor's base salary of
$275,000 through December 31, 1999. In addition, the Company agreed to reimburse
Mr. Taylor up to a maximum of $50,000 for certain expenses in connection with a
relocation of his permanent residence if he relocates prior to April 30, 1999.
The Severance Agreement also provides for (i) the continuation of certain
Company benefits prior to December 31, 1999 and (ii) immediate vesting of
115,601 options to purchase Common Stock, with the options remaining exercisable
until December 31, 1999.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to the
Company for the periods indicated of each individual who was (i) the chief
executive officer at any time during the period or (ii) an executive officer at
December 27, 1997 whose annual compensation exceeded $100,000 (collectively, the
"Named Executives").
SUMMARY COMPENSATION TABLE. The following table sets forth certain summary
information concerning the compensation paid or accrued, during the fiscal years
indicated, by the Company to its executive officers.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- -------------
SECURITIES
UNDERLYING
STOCK OPTION
AWARDS
NAME YEAR SALARY BONUS OTHER(1) (SHARES)
------ --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
J. Ford Taylor(2)(3).. 1997 $209,616 $15,000 $47,707 --
F. Clayton Chambers(3). 1997 $136,134 $5,000 -- --
Robert C. Klein........ 1997 $125,000 -- -- 45,000
</TABLE>
(1) Represents payments made to Mr. Taylor for reimbursement of moving
expenses and membership dues included in his employment agreement.
(2) Mr. Taylor resigned as a director and officer of the Company in April
1998.
(3) Employment commenced March 14, 1997, the date on which BSI Holdings, Inc.
merged with the Company.
7
<PAGE>
OPTION GRANTS
The following table sets forth certain information with respect to stock
options granted to executive officers during fiscal 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
----------------------------------------------- --------------------
PERCENT OF
TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR ($/SHARE) DATE 5% 10%
---- ------- ------ ----------- ------ -- ---
<S> <C> <C> <C> <C> <C> <C>
Robert C. Klein 45,000 25% 10.375 7/07 $293,615 $744,079
</TABLE>
(1) Potential values stated are the result of using the SEC method of
calculations of annually compounding 5% and 10% appreciation in value from
the date of grant to the end of the option term. Such assumed rates of
appreciation and potential realizable values are not necessarily
indicative of the appreciation, if any, which may be realized in future
periods.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to options
exercised during the fiscal year ended December 27, 1997 and unexercised options
to purchase shares of common stock for each of the executive officers at
December 27, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 27, 1997 DECEMBER 27, 1997(1)
ON VALUE -------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Ford Taylor(2) 11,700 $79,209 77,689 37,912 $440,829 $228,230
F. Clayton Chambers -- -- 21,139 3,791 $100,414 $22,822
Robert C. Klein -- -- 15,000 30,000 -- --
</TABLE>
(1) Calculated by multiplying the number of shares underlying outstanding
in-the-money options by the difference between the last sales price of the
common stock on December 27, 1997 and the exercise price per share.
Options are in-the-money if the fair market value of the underlying common
stock exceeds the exercise price of the option.
(2) Mr. Taylor resigned as a director and officer of the Company in April
1998.
8
<PAGE>
ANNUAL INCENTIVE COMPENSATION PLAN
Effective January 1, 1998, the Company adopted an annual incentive
compensation plan which provides executives and other Company management with
the opportunity to receive an annual cash bonus based on the achievement of
Company financial performance goals set by the compensation committee of the
board. The compensation committee determines the target levels of earnings
before interest, taxes, depreciation and amortization (EBITDA), the management
personnel eligible to participate in the plan, and the funding percentages for
different levels of management participants at certain EBITDA levels. If the
Company fails to achieve a threshold level of EBITDA in a given year, no bonus
can be earned under the plan. The Compensation Committee also determines the
total annual incentive pool available to be paid to personnel and the annual
awards that will be made to plan participants based on individual performance
criteria.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In March 1997, the Company merged with BSI Holdings, Inc. ("BSI"), and the
Company's board of directors was reconstituted with the former directors of BSI.
The reconstituted board then made certain changes in the Company's management
and in the composition of various board committees. The compensation committee
of the board of directors, as the committee was reconstituted following the
March 1997 merger, has furnished the following report on executive compensation
for 1997:
The objective of the compensation committee is to enhance the Company's
profitability, and thus the value of its common stock, by relating executive
compensation and stock-based benefits to the Company's financial performance. In
general, executive financial rewards may be segregated into the following
significant components: base compensation, bonus and stock-based benefits.
Messrs. J. Ford Taylor and F. Clayton Chambers were subject to employment
contracts at the date of the merger with BSI which established their respective
salaries at $250,000 and $150,000, respectively. In August 1997, Mr. Taylor's
and Mr. Chambers' base salaries were increased to $275,000 and $175,000,
respectively, reflecting their increased responsibilities resulting from
acquisitions completed during 1997. At the time of the acquisition of Morning
Sun, the Company entered into an employment agreement with Robert C. Klein which
provided for a base salary of $250,000.
Base compensation for senior executives (including the chief executive
officer and the other Named Executives) is intended to be competitive with that
paid in comparably situated industries, with a reasonable degree of financial
security and flexibility afforded to those individuals who are regarding by the
board of directors as acceptably discharging the levels and types of
responsibility implicit in the various senior executive positions. In the course
of considering annual executive salary increases, appropriate consideration is
given to the credentials and experience of the individual senior executives, as
viewed in the compensation committee's collective best judgment, which
necessarily involves subjective as well as objective elements. Should the
committee be persuaded that an executive has not met expectations for a
protracted period, a recommendation to the board of directors that the executive
be terminated would be a more likely eventuality than a reduction in his based
compensation.
Under the Company's bonus program, bonuses are capped at percentages of
base pay not to exceed 100% for the most senior executive officers and lesser
percentages for subordinate senior executives. The program is intended to
reflect a policy of requiring a minimum level of Company financial performance
for the year before any bonus amount is earned by the executive, with bonus
amounts for higher levels of performance directly related to the level achieved.
Discretionary bonuses may also be awarded to reflect the individual executive's
achievements during the year. Since the Company did not achieve its financial
goals for 1997, bonuses were only awarded under the terms of each executive's
employment agreement.
The board of directors is of the view that properly designed and
administered stock-based incentives for senior executives closely align the
executives' economic interests with those of stockholders and provide a direct
and continuing focus upon the goal of constantly striving to increase long-term
stockholder value. Except for the 45,000 share option grant to Mr. Klein
pursuant to his employment agreement, no options were awarded during 1997 to the
Named Executives.
The compensation committee intends, with any necessary concurrence of the
board of directors, to continue to consider alternate forms of stock-based
incentives with a view to affording the maximum possible long-term
performance-based benefits to senior executives at the least possible cost and
the greatest attainable economic efficiency to the Company, with such benefits
designed as nearly as practicable to align directly the economic interests of
professional managers with those of the Company's stockholders.
The Compensation Committee
Randall B. Hale
Michael S. Chadwick
Nolan Lehmann
9
<PAGE>
COMMON STOCK PERFORMANCE GRAPH
The following graph illustrates the yearly percentage change in the
cumulative total shareholder return on the Company's common stock, compared with
the cumulative total return on (i) the Standard & Poor's 500 Stock Index (the
"Standard & Poor's 500") and (ii) the Standard and Poor's Textiles Stock Index
(the "Textiles Index"), for the five years ended December 27, 1997:
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/27/97
<S> <C> <C> <C> <C> <C> <C>
Brazos Sportswear, Inc. 100 200 130 87 56 47
Standard & Poors's 500 100 110 112 153 189 252
Textiles Index 100 76 74 83 114 123
</TABLE>
In all cases, the cumulative total return assumes, as contemplated by
Securities and Exchange Commission rules, that any cash dividends on the common
stock of each entity included in the data presented above were reinvested in
that security.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
In April 1997, the Company entered into a financial advisory agreement
with SMM pursuant to which SMM agreed to provide certain financial advisory
services to the Company. The agreement provides for payments to SMM in the
amount of $10,000 per month, for a period of 12 months, but the Company has the
right to terminate the agreement after the cumulative payment to SMM of $60,000.
SMM also received a lump sum success fee of $50,000 in connection with the
Company's acquisition of all of the capital stock of SolarCo, Inc., the parent
of Morning Sun (the "Morning Sun Acquisition"). In connection with the public
offering of 10 1/2% of Senior Notes due 2007 (the "Offering"), SMM received an
amount equal to the product of 0.25% multiplied by the gross proceeds of the
Offering, which amounted to $250,000. SMM agreed to forego, after completion of
the Offering, the $50,000 contingent lump sum success fee payable by the Company
in connection with the Morning Sun acquisition.
Mr. Klein was a shareholder of Morning Sun, Inc. and in consideration for
the sale of his shares to the Company, he received 73,171 shares of Company
common stock and cash in the amount of $1,339,882.
A subsidiary of the Company leases a 88,625 square foot office and
production facility in College Station, Texas, from a partnership whose owners
include corporations in which Equus II and Messrs. Taylor, Chambers, Chadwick,
McKnight and Warny have an ownership interest. The two leases are for a ten-year
term expiring 2002 and provide for aggregate monthly lease payments of $18,500.
Management is of the opinion that all the transactions described were on
terms at least as favorable as could have been obtained from unaffiliated third
parties.
10
<PAGE>
CHANGE IN CONTROL
On March 14, 1997, the Company, formerly Sun Sportswear, Inc., a
Washington corporation ("Sun"), consummated a merger (the "Merger") with BSI
Holdings, Inc. ("BSI"), with the Company being the surviving corporation.
Following the Merger, Sun was reincorporated in Delaware under the name of
"Brazos Sportswear, Inc. (the "Reincorporation"). Pursuant to the Merger and
Reincorporation, the former directors of BSI, with the addition of one executive
officer of BSI, became and currently serve as the directors of the Company. In
addition, Equus II, formerly the majority stockholder of BSI, acquired
beneficial ownership of 57.6% of the Common Stock of the Company. As of August
15, 1998, Equus II beneficially owned 56.5% of the Company's Common Stock. Equus
II received its beneficial ownership in the Company's Common Stock based on its
prior holdings of BSI capital stock and Sun capital stock surrendered in the
Merger and Reincorporation, respectively. Prior to the Merger and
Reincorporation, Bank of America NW, N.A., doing business as Seafirst Bank, was
Sun's majority stockholder.
AUDITORS
On May 12, 1997, the Company determined, pursuant to the authority and
approval of the board of directors, to dismiss Price Waterhouse LLP ("Price
Waterhouse"), the Company's independent accountants, who were previously engaged
as the independent accountant to audit the financial statements of the Company.
Price Waterhouse's report on the Company's financial statements for each of the
last two fiscal years did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles. During the Company's two most recent fiscal years and
subsequent interim period preceding the replacement of Price Waterhouse, there
were no disagreements with Price Waterhouse on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement(s), if not resolved to the satisfaction of Price
Waterhouse, would have caused them to make a reference to the subject matter of
the disagreement(s) in connection with its report. The Company has authorized
Price Waterhouse to respond fully to any inquiries by Arthur Andersen LLP.
On May 12, 1997, pursuant to the authority and approval of the Company's
board of directors, Arthur Andersen LLP ("Arthur Andersen") was selected as the
Company's independent accountants to audit the consolidated statements of the
Company for fiscal 1997. Arthur Andersen was previously engaged as the
independent accountant to audit the consolidated financial statements of BSI.
While management anticipates that the Company's relationship with Arthur
Andersen will continue to be maintained during 1998, no formal action is
proposed to be taken at the annual meeting with respect to the continued
employment of Arthur Andersen inasmuch as no such action is legally required.
Representatives of Arthur Andersen, but not Price Waterhouse, plan to attend the
annual meeting and will be available to answer appropriate questions. Its
representatives also will have an opportunity to make a statement at the meeting
if they so desire, although it is not expected that any statement will be made.
The audit committee of the board of directors assists the board in
assuring that the accounting and reporting practices of the Company are in
accordance with all applicable requirements. The committee reviews with the
auditors the scope of the proposed audit work and meets with the auditors to
discuss matters pertaining to the audit and any other matter which the committee
or the auditors may wish to discuss. In addition, the audit committee would
recommend the appointment of new auditors to the board of directors if future
circumstances were to indicate that such action is desirable.
LIMITATION ON INCORPORATION BY REFERENCE
Notwithstanding any reference in prior or future filings of the Company
with the Securities and Exchange Commission which purports to incorporate this
proxy statement by reference into another filing, such incorporation does not
include any material included herein under the captions "Other
Information--Compensation Committee Report on Executive Compensation" or "Other
Information--Common Stock Performance Graph."
SECTION 16(A) - BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who own more than 10% of
a registered class of the Company's equity securities, to file reports of
ownership and changes of ownership with the Commission. With respect to the year
ended December 27, 1997, the Company believes that all filing requirements
applicable to the Company's executive officers, directors and 10% shareholders
have been met, except for Equus II and Messrs. Taylor, Chambers and Chadwick,
each of whom was late in filing a Form 4 on one instance upon the issuance of
preferred stock in payment of preferred stock dividends.
11
<PAGE>
OTHER MATTERS
The annual report to stockholders covering the year ended December 27,
1997 either has been mailed to each stockholder entitled to vote at the annual
meeting or accompanies this proxy statement.
Any stockholder who wishes to submit a proposal for action to be included
in the proxy statement and form of proxy relating to the Company's 1999 annual
meeting of stockholders is required to submit such proposal to the Company on or
before March 15, 1999.
The cost of soliciting proxies in the accompanying form will be borne by
the Company. In addition to solicitations by mail, several regular employees of
the Company may, if necessary to assure the presence of a quorum, solicit
proxies in person or by telephone.
The persons designated as proxies to vote shares at the meeting intend to
exercise their judgment in voting such shares on other matters that may properly
come before the meeting. Management does not expect that any matters other than
those referred to in this proxy statement will be presented for action at the
meeting.
By Order of the Board of Directors,
/s/ F. CLAYTON CHAMBERS,
F. CLAYTON CHAMBERS,
SECRETARY
September 15, 1998
12
<PAGE>
(FRONT)
BRAZOS SPORTSWEAR, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON OCTOBER 9, 1998
The undersigned stockholder appoints Robert C. Klein or F. Clayton Chambers, or
either of them, each with power of substitution, attorneys and proxies of the
undersigned to vote all shares of common stock or Series B-2 Preferred Stock of
Brazos Sportswear, Inc. ("Company") which the undersigned is entitled to vote at
the annual meeting of stockholders to be held on October 9, 1998, at the offices
of Equus II Incorporated, 2929 Allen Parkway, Suite 2500, Houston, Texas at 8:30
a.m. local time, and at any adjournments.
PLEASE MARK
[ ] I do [ ] I do not
plan to attend the meeting.
(BACK)
1. Election (except as indicated below) as Class III directors of Michael S.
Chadwick and Robert C. Klein.
[ ] FOR all nominees [ ] WITHHELD from all nominees [ ] EXCEPTIONS
(as marked below)
To withhold the vote for any nominee, write that nominee's name below:
*EXCEPTIONS ________________________________________________
2. Approval of amendment to 1997 Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon other matters (including procedural and other
matters relating to the conduct of the meeting) as may properly come before the
meeting and any adjournment.
THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATION MADE HEREON. IF
NO CONTRARY SPECIFICATION IS MADE, THE PROXY WILL BE VOTED "FOR" THE PROPOSALS.
Please sign name(s) exactly as printed hereon. If your shares are held jointly,
both holders must sign. If signing as attorney, administrator, executor,
guardian or trustee, please give title as such. If you are an authorized
individual signing on behalf of a corporation or partnership, please state the
full corporate or partnership name.
___________________________________ _______________________________________
Signature Date Signature Date
