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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934 [NO FEE REQUIRED]
Commission File Number: 0-18054
BRAZOS SPORTSWEAR, INC.
(exact name of registrant as specified in its charter)
DELAWARE 91-1770931
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4101 FOUNDERS BLVD.
BATAVIA, OHIO 45103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(513) 753-3400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
COMMON STOCK, $.001 PAR VALUE NASDAQ NATIONAL MARKET
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of
the registrant was $11,800,000 at March 23, 1998. At that date, there were
4,419,479 shares of Common Stock outstanding.
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<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth certain information regarding the executive
officers and directors of the Company:
NAME AGE POSITION
---- --- --------
Randall B. Hale(1)....... 35 Chairman of the Board and Director
J. Ford Taylor........... 40 President, Chief Executive Officer and
Director
F. Clayton Chambers...... 38 Vice President, Chief Financial Officer,
Treasurer, Secretary and Director
Robert C. Klein.......... 47 President-- Branded Products Division
Deborah S. Williams...... 39 President-- Licensed Products Division
Samuel T. McKnight....... 53 President-- Wholesale Distribution Division
Nolan Lehmann(1)......... 53 Director
Michael S. Chadwick(1)... 46 Director
Alan Elenson............. 48 Director
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(1) Member, audit and compensation committees of the board of directors.
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.
J. FORD TAYLOR. Mr. Taylor has been president, chief executive officer and
a director of the Company since March 1997. He was president of the decorated
sportswear operations of BSI Holdings, Inc. ("BSI"), which merged into the
Company in March 1997, from 1995 until 1996 and vice president-operations of
BSI's decorated sportswear operations from 1993 until 1995. Mr. Taylor served as
president of BSI's CC Creations and Red Oak facility in College Station, Texas
from 1990 to 1993. He founded CC Creations in 1982 which he owned and operated
before its acquisition by BSI.
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. From May 1994 until January 1995, he served as a
consultant to the Company. 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.
ROBERT C. KLEIN. Mr. Klein served as president and chief executive officer
of Morning Sun, Inc. from 1993 until it was acquired by the Company in July
1997. Since the acquisition, he has served as president of the 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.
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<PAGE>
DEBORAH S. WILLIAMS. Ms. Williams was president of the licensed products
division of BSI from 1996 until it merged with the Company in March 1997, and
has served in that capacity with the Company subsequent to the merger. She
served as vice president of purchasing of BSI from 1994 until 1996. From 1990 to
1994, Ms. Williams served as director of purchasing of BSI's Cincinnati facility
and from 1982 to 1990 was a buyer at that facility.
SAMUEL T. MCKNIGHT. Mr. McKnight was president of the wholesale
distribution division of BSI from 1974 until it merged with the Company in March
1997, and has served in that capacity with the Company subsequent to the merger.
He founded Gulf Coast Sportswear, the predecessor of BSI, in 1974. From 1972 to
1974 Mr. McKnight served as president of M & M Designs, a shirt printing
company.
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.
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, publicly traded corporations, and Moody-Price, Inc., a privately-owned
corporation.
ALAN ELENSON. Mr. Elenson has been a director of Brazos or its predecessors
since August 1996. He founded Plymouth Mills, Inc. ("Plymouth") in 1975 and
owned and operated Plymouth prior to its acquisition by the Company in August
1996.
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.
ITEM 11. 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").
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<PAGE>
SUMMARY COMPENSATION TABLE. The following table sets forth certain
summary information concerning the compensation paid or accrued, during the
fiscal years indicated, by Brazos 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>
J. Ford Taylor(2)................ 1997 $209,616 $15,000 $47,707 --
F. Clayton Chambers(2)............ 1997 $136,134 $5,000 -- --
Robert C. Klein................... 1997 $125,000 -- -- 45,000
Deborah S. Williams(2)............ 1997 $112,308 -- -- --
Samuel T. McKnight(2)............. 1997 $115,385 $14,100 -- --
</TABLE>
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(1) Represents payments made to Mr. Taylor for reimbursement of moving expenses
and membership dues included in his employment agreement.
(2) Employment commenced March 14, 1997, the date on which BSI Holdings, Inc.
merged with the Company.
OPTION GRANTS
The following table sets forth certain information with respect to stock
options granted to executive officers during fiscal 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
--------------------------------------------------------------------- ------------------------------
PERCENT OF
TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR ($/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>
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(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.
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<PAGE>
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 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 -- --
Deborah S. Williams -- -- 13,268 9,477 $69,260 $30,195
</TABLE>
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(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.
DIRECTOR COMPENSATION
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.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Taylor and
Chambers that provide for current annual base salaries of $275,000 and $175,000,
respectively. The agreements expire on December 31, 1999. Mr. Taylor's agreement
provides for minimum cash bonuses of $15,000, $17,500 and $20,000 for calendar
years ending 1997, 1998 and 1999, respectively, and for discretionary bonuses.
Mr. Chambers' agreement provides for minimum cash bonuses of $5,000, $7,500 and
$10,000 for calendar years ending 1997, 1998 and 1999, respectively, and for
discretionary bonuses. Messrs. Taylor and Chambers are entitled to participate
in the
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<PAGE>
Company's incentive plan (the "Plan") and may receive benefits under such Plan
in an amount of up to 100% of base salary. If the employment agreements of
Messrs. Taylor and Chambers are terminated without cause prior to the end of the
term of those agreements, the Company must pay an amount equal to the employee's
base salary and guaranteed bonuses for the remainder of the term of the
employment agreement. If the agreements of Messrs. Taylor and Chambers are
terminated with cause prior to the end of the term of those agreements, the
Company is obligated to pay an amount equal to the employee's base salary
accrued to the date of discharge. In addition, the agreements provide that upon
termination of employment, the terminated officer will be prohibited from
competing with the Company for a period of two years. Mr. McKnight is also a
party to an employment agreement which expires in December 1998, which provides
for an annual salary of $150,000, as well as terms and severance arrangement
similar to those in Mr. Taylor's and Mr. Chambers agreements.
In July 1997, in connection with the acquisition of Morning Sun, Inc.,
the Company entered into an employment agreement with Mr. Klein that provides
for a current annual base salary of $250,000. The agreement expires on July 1,
2000. Mr. Klein's agreement entitles him to participate in the Plan and to
receive benefits under such Plan in an amount of up to 100% of his base salary.
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 of the Company. 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 the
term of that agreement, the Company must pay an amount equal to base salary for
the one-year period following such termination, plus the pro rata portion of the
bonus under the Plan 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock at April 4, 1998, by (i) all
directors, (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............................. 2,922,955(1) 56.4%
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
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<PAGE>
NUMBER OF PERCENT
NAME SHARES OF CLASS
---- ------------- --------
George Warny............................. 269,762(2) 6.0%
215 Flag Lake Drive
Clute, Texas 77531
Samuel T. McKnight....................... 227,741(3) 5.1%
215 Flag Lake Drive
Clute, Texas 77531
Alan B. Elenson.......................... 232,575(4) 5.0%
330 Tompkins Avenue
Staten Island, New York 10304
J. Ford Taylor........................... 265,620(5) 5.8%
4101 Founders Blvd.
Batavia, Ohio 45103
F. Clayton Chambers...................... 256,713(6) 5.7%
4101 Founders Blvd.
Batavia, Ohio 45103
Michael S. Chadwick...................... 269,967(7) 6.0%
3100 Chase Tower
Houston, Texas 77002
Robert C. Klein.......................... 88,171(8) 2.0%
Deborah S. Williams...................... 23,202(9) 0.5%
Randall B. Hale.......................... 2,958,119(10)(11) 56.7%
Nolan Lehmann............................ 2,947,433(10)(12) 56.6%
All directors and executive officers
as a group (nine persons).............. 4,346,586(1)(3)-(12) 74.7%
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(1) Includes 170,839 shares which may be acquired upon exercise of warrants and
591,808 shares issuable upon conversion of preferred stock.
(2) Includes 6,824 shares which may be acquired upon exercise of warrants and
40,083 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 35,141 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.
(4) Includes 232,575 shares that may be acquired upon exercise of warrants and
options. Includes 226,896 shares held jointly with, or separately by, Joann
Elenson, Mr. Elenson's spouse.
(5) Includes 122,425 shares that may be acquired upon exercise of warrants and
options and 32,401 shares issuable upon conversion of preferred stock.
Includes 123,193 shares held jointly by Sandra Taylor, Mr. Taylor's spouse.
(6) Includes 31,754 shares that may be acquired upon exercise of warrants and
options and 23,563 shares issuable upon conversion of preferred stock of
which 5,041 shares and 2,588 shares upon conversion are held in trust for
Mr. Chambers' children.
(7) Includes 37,367 shares that may be acquired upon exercise of warrants and
options and 26,157 shares issuable upon conversion of preferred stock.
(8) Includes 15,000 shares that may be acquired upon exercise of options.
(9) Includes 22,214 shares that may be acquired upon exercise of warrants and
options and 988 shares issuable upon conversion of preferred stock.
(10) Includes 2,922,955 shares beneficially owned by Equus II; each holder
disclaims beneficial ownership of such shares.
(11) Includes 35,164 shares that may be acquired upon exercise of options.
(12) Includes 24,478 shares that may be acquired upon exercise of options.
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BRAZOS SPORTSWEAR, INC.
By: /s/ F. CLAYTON CHAMBERS
F. Clayton Chambers
Vice President and Chief
Financial Officer
Date: April 27, 1998
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