SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
February 3, 2001 (Fiscal 2001) 0-15898
DESIGNS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2623104
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of principal executive offices)
66 B Street, Needham, MA 02494
(Address of principal executive offices) (Zip Code)
(781) 444-7222
(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:
Common Stock, $0.01 par value
(Title of each Class)
-----------------
Indicate by check mark whether the registrant (1) 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 (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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. [X]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant, based on the last sales price of such stock on
April 20, 2001, was approximately $22.6 million.
The registrant had 14,473,486 shares of Common Stock, $0.01 par value,
outstanding as of June 4, 2001.
continued
DOCUMENTS INCORPORATED BY REFERENCE
None.
The undersigned registrant hereby amends its Annual Report on Form 10-K
for the fiscal year ending February 3, 2001 by amending PART III thereof to read
in its entirety as follows:
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Certain information concerning the directors and executive officers
of the Company is set forth below:
DIRECTOR
NAME AGE POSITION SINCE
--------- ------- ------------- ----------
Seymour Holtzman.... 64 Chairman of the Board and Director 2000
David A. Levin......... 50 President, Chief Executive Officer 2000
and Director
Stanley I. Berger...... 71 Director 1976-1999
and 2000
Jesse Choper........... 65 Director (1),(2) 1999
Alan Cohen............. 64 Director 2000
Jeremiah P. Murphy, Jr. 49 Director (1),(3) 1999
Robert L. Patron....... 55 Director 1999
Joseph Pennacchio...... 54 Director (1),(2),(3) 1999
George T. Porter, Jr... 54 Director 1999
Dennis R. Hernreich.... 44 Senior Vice President, Chief Financial
Officer, Treasurer and Secretary 2000
(1) Current member of the Audit Committee.
(2) Current member of the Compensation Committee.
(3) Current member of the Corporate Governance Committee.
Seymour Holtzman was appointed a director of the Company on April 7, 2000
and Chairman of the Board on April 11, 2000. Mr. Holtzman is Chairman and Chief
Executive Officer of: Jewelcor Management Inc.; C.D. Peacock, Inc., a prominent
Chicago, Illinois retail jewelry establishment; and S.A.Peck & Company, a retail
and mail order jewelry company. In addition, Mr. Holtzman served as President
and Chief Executive Officer of Jewelcor Incorporated (a formerly New York Stock
Exchange listed company) from 1973 to 1988. From 1986 to 1988, Mr. Holtzman was
Chairman and Chief Executive Officer of Gruen Marketing Corporation (a formerly
American Stock Exchange listed company), which distributed watches nationwide
and operated retail factory outlets. Mr. Holtzman is currently on the Board of
Directors of Little Switzerland, Inc. and Ambanc Holding Co., Inc.
David A. Levin was appointed President and Chief Executive Officer of the
Company on April 10, 2000 and a director of the Company on April 11, 2000.
From 1999 to 2000, he served as the Executive Vice President of
eOutlet.com. Mr. Levin was President of Camp Coleman, a division of The
Coleman Company, from 1998 to 1999. Prior to that, Mr. Levin was President
of Parade of Shoes, a division of J. Baker, Inc., from 1995 to 1997. In
addition, Mr. Levin was President of Prestige Fragrance & Cosmetics, a
division of Revlon, Inc., from 1991 to 1995. Mr. Levin has worked in the
retail industry for almost 30 years.
Stanley I. Berger is a founder of the Company and served as Chairman of the
Board from 1976 to 1999. Mr. Berger also served as the Company's Chief
Executive Officer from January 1993 until December 1994. Prior to January
1993, Mr. Berger served as the President and Chief Operating Officer of the
Company since 1977. Mr. Berger has been a director of the Company since its
inception, except for the period between October 8, 1999 and April 11, 2000.
Jesse Choper was elected a director of the Company on October 8, 1999. Mr.
Choper is the Earl Warren Professor of Public Law at the University of
California at Berkeley School of Law, where he has taught since 1965. From 1960
to 1961 Professor Choper was a law clerk for Supreme Court Chief Justice Earl
Warren.
Alan Cohen was appointed as a director of the Company on May 2, 2000.
Mr. Cohen has been Chairman of Alco Capital Group, which specializes in
corporate restructuring, reorganizations, and other turnaround situations,
since 1975. Currently he serves as the court appointed trustee of County Seat
Stores, Inc., a nation-wide chain of specialty apparel stores. Mr. Cohen is
also on the Board of Directors of Ames Department Stores, Inc.
Jeremiah P. Murphy, Jr. was elected a director of the Company on
October 8, 1999. Mr. Murphy has been the President of the Harvard Cooperative
Society, a 177-year-old member based retail business, since 1991. From 1987
to 1991, Mr. Murphy was Vice-President/General Manager of Neiman Marcus'
largest and most profitable store, North Park, Dallas, Texas.
Robert L. Patron was elected a director of the Company on October 8, 1999.
Mr. Patron is a lawyer and successful real estate developer. Over the last
30 years, Mr. Patron has developed 65 commercial and residential properties
in 13 states.
Joseph Pennacchio was elected a director of the Company on October 8, 1999.
Mr. Pennacchio has been President of Aurafin LLC, a privately held jewelry
manufacturer and wholesaler, since 1997. From May 1994 to May 1996, Mr.
Pennacchio was President of Jan Bell Marketing, a $250 million jewelry
retailer, which is listed on the American Stock Exchange. Mr. Pennacchio was
also President of Jordan Marsh Department Stores from 1992 to 1994.
George T. Porter, Jr. was appointed a director of the Company on October 28,
1999. Mr. Porter was President of Levi's USA for Levi Strauss & Co. from
1994 to 1997. Beginning in 1974, Mr. Porter held various positions at Levi
Strauss & Co., including President of Levi's Men's Jeans Division. Mr.
Porter was also Corporate Vice President, General Manager, Nike USA from 1997
to 1998.
All directors hold office until the next Annual Meeting of Stockholders and
until their respective successors have been duly elected and qualified.
Dennis R. Hernreich., 44, has been Senior Vice President, Chief Financial
Officer and Treasurer since September 5, 2000. Prior to joining the Company,
from 1996 through 1999, Mr. Hernreich held the position of Senior Vice President
and Chief Financial Officer of Loehmann's Inc., a national retailer of women's
apparel. Most recently, from 1999 to August 2000, Mr. Hernreich was Senior Vice
President and Chief Financial Officer of Pennsylvania Fashions, Inc., a
275-store retail outlet chain operating under the name Rue 21.
Executive officers serve at the discretion of the Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors, and
persons who own more than 10% of a registered class of the Company's equity
securities (collectively, the "Reporting Persons"), to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. The
Reporting Persons are required to furnish the Company with copies of all Section
16(a) reports they file. Based solely upon a review of Forms 3 and 4 and
amendments thereto furnished to the Company during fiscal year 2001 and Forms 5
and amendments thereto furnished to the Company with respect to fiscal year
2001, the Company believes that the current Reporting Persons complied with all
applicable Section 16(a) reporting requirements and all required reports were
filed in a timely manner.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The following Summary Compensation Table sets
forth certain information regarding compensation paid or accrued by the Company
with respect to the Chief Executive Officer and the Chief Financial Officer of
the Company as of February 3, 2001, the end of fiscal year 2001. The table also
includes two former executives of the Company, including John J. Schultz,
former Interim President and Chief Executive Officer from January 2000 through
April 2000, and Dan O. Paulus, former Senior Vice President and General
Merchandising Manager who resigned November 2000 (collectively, the "Named
Executive Officers"), for fiscal year 2001 and the fiscal year ended January 29,
2000 ("fiscal year 2000") and January 30, 1999 ("fiscal year 1999").
Summary Compensation Table
Name and Annual Long-Term All
Principal Position Compensation Compensation Other
(at February 3, 2001) Fiscal Awards Compen-
Year Salary Bonus Options sation(1)
- --------------------- ---- ------ ----- ------- --------
David A. Levin 2001 $ 311,758 $ -0- 300,000 $ 449
President and Chief Executive
Officer
Dennis R. Hernreich 2001 $ 121,610 $ 6,250 85,000 $ 307
Senior Vice President and
Chief Financial Officer and
Treasurer (2)
John J. Schultz 2001 $ 63,179 $ -0- 60,000 $ -0-
Former Interim President and 2000 $ 58,000 $ -0- 30,000 $ -0-
Chief Executive Officer (3)
Dan O. Paulus 2001 $ 221,928 $ -0- 35,000 $ 5,570
Former Senior Vice President 2000 $ 233,700 $ 70,000 -0- $ 3,540
and General Merchandise
Manager (4)
- ---------------
(1) The amounts disclosed in this column with respect to fiscal year 2001
represent: (i) payments by the Company of insurance premiums for term life
insurance for the benefit of the executive officers (Mr. Levin $449 and Mr.
Hernreich $307) and a former executive officer (Mr. Paulus $320);
(ii) matching contributions made by the Company for the benefit of
each of the following a former executive officer to the Company's retirement
plan (the "401(k) Plan") established pursuant to Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code")
(Mr. Paulus $5,250); and (iii) reimbursement for relocation costs (Mr.
Hernreich $85,000).
(2) Mr. Hernreich's employment agreement entitles him to receive minimum monthly
payments in respect of his annual bonus at the rate of $1,250 per month. Any
annual bonus that the Compensation Committee determines shall be paid to Mr.
Hernreich would be reduced by the total of all such payments made to the
executive. During fiscal 2001, Mr. Hernreich received a total of $6,250,
which represents five months from when Mr. Hernreich's started with the
Company.
(3) Mr. Schultz acted as the Company's President and Chief Executive
Officer from October 20, 1999 until April 10, 2000.
(4) Mr. Paulus served as the Company's Senior Vice President and General
Merchandise Manager from February 4, 2000 to November 14, 2000.
Option Grants Table. The following Option Grants Table sets forth certain
information as of February 3, 2001, regarding stock options granted during
fiscal year 2001 by the Company to the Named Executive Officers.
Option Grants In Last Fiscal Year
Individual Grants Potential Realizable
Number of Percent of Value of Assumed
Shares of Total Options Annual Rates of
Common Stock Granted to Stock Price
Underlying Employees Exercise Expir- Appreciation for
Options in Fiscal Price Per ation Option Term(1)
Granted (2) Year Share Date 5% 10%
- ------------- -------- --------- ---- ------- ------- ---------
David A. Levin (3) 300,000 33.8% $1.19 3/21/10 $ 224,515 $ 568,966
Dennis R. Hernreich (3)60,000 6.8% 2.06 9/4/10 $ 77,731 $ 196,987
25,000 2.8% 2.38 11/27/10 $ 37,419 $ 94,828
- ---------------
(1) The amounts shown on these columns represent hypothetical gains that could
be achieved for the options if exercised at the end of the option term.
These gains are based on assumed rates of stock appreciation (based on a
market value on the date of the grant) of 5% and 10% compounded annually
from the date the options were granted to their expiration date. The gains
shown are net of the option exercise price, but do not include deductions
for taxes or other expenses associated with the exercise. Actual gains, if
any, on stock option exercises will depend on the future performance of the
Common Stock and the date on which the options are exercised.
(2) During fiscal 2001, the Company also granted options to former executives,
Mr. Schultz and Mr. Paulus. Mr. Schultz resigned as a Director of the
Company in January 2001. Mr. Schultz was granted 45,000 options on
April 11, 2000 and 15,000 options on June 26, 2000. In conjunction with
his resignation, Mr. Schultz exercised and sold back to the Company all
vested options at that time, see "Certain Relationships and Related
Transactions-Arrangements with Other Directors" for more discussion.
Mr. Paulus who resigned in November 2000, was granted 35,000 options in
May 2000, these options expired unexercised.
(3) On May 26, 2001, subsequent to the end of the fiscal year, the Company
granted Mr. Holtzman, Mr. Levin and Mr. Hernreich 300,000, 125,000 and
100,000 stock options, respectively. All stock options have a three year
vesting and an exercise price of $3.88, the closing price of the stock on
the date of grant.
Aggregated Option Exercises in Fiscal 2001 and Fiscal Year-End Option Values
The following table sets forth information for the Named Executive Officers and
former Executive Officers with respect to the exercise of stock options during
the fiscal year ended February 3, 2001 and the year-end value of unexercised
options.
Number of Securities
Underlying Unexercised Shares
Shares Unexercisable Shares (1)
Acquired on Value ----------------------------
Name Exercise (#) Realized($) # of Shares Value $
- -------------- ----------- ----------- ------------- -----------
David A. Levin -0- -0- 300,000 $318,750
Dennis R. Hernreich -0- -0- 60,000 $ 11,250
John J. Schultz 105,000 $97,032 -0- -0-
Dan O. Paulus 25,000 $21,093 -0- -0-
(1) Amounts are based on the difference between the closing price of the
Company's Common Stock on February 2, 2001 ($2.25) and the exercise price.
There were no shares exercisable by the Named Executive Officers at
February 3, 2001.
401(k) Plan
On January 27, 1993, the Board of Directors adopted the 401(k) Plan. All
eligible employees of the Company are entitled to participate in such plan. The
401(k) Plan permits each participant to defer up to fifteen percent of such
participant's annual salary up to a maximum annual amount ($10,500 in calendar
years 2000 and 1999). The Board of Directors of the Company may determine, from
fiscal year to fiscal year, whether and to what extent the Company will
contribute to the 401(k) Plan by matching contributions made to such plan by
eligible employees. During fiscal year 2001, the matching contribution by the
Company continued to be 50% of contributions by eligible employees up to a
maximum of six percent of salary.
Key Man Insurance
The Company has obtained a key man life insurance policy in the amount of
$2,000,000 on the life of Mr. Levin.
Employment Agreements
The Company entered into an employment agreement, effective as of March 31,
2000, with David A. Levin for a two-year term ending April 10, 2002. Mr. Levin's
agreement was extended as of April 10, 2001 by unanimous consent of the Board of
Directors for an additional two-year term to end on April 10, 2004.
As of September 4, 2000, the Company entered into an employment agreement with
Dennis R. Hernreich for a one-year term ending September 1, 2001. Mr.
Hernreich's agreement was also extended as of April 25, 2001 by the unanimous
consent of the Board of Directors for an additional one-year term to end on
September 4, 2002.
Both Mr. Levin's and Mr. Hernreich's employment agreements (collectively, the
"Employment Agreements") automatically renew for successive one-year terms
unless either party notifies the other to the contrary at least 90 days prior to
expiration of the then current term.
The Employment Agreements requires each executive officer to devote
substantially all of the executive officer's time and attention to the business
of the Company as necessary to fulfill his duties. Pursuant to the Employment
Agreements, Messrs. Levin and Hernreich will be paid a base salary at an annual
rate of $375,000 and $225,000, respectively. Mr. Hernreich's Agreement also
contains a guaranteed discretionary prepayment of bonus in the amount of $15,000
annually. The Employment Agreements provide that the annual rate of base salary
for the renewal term may be increased by the Compensation Committee of the Board
of Directors in its sole discretion. The Employment Agreements also provide for
the payment of bonuses in such amounts as may be determined by the Compensation
Committee. While Messrs. Levin and Hernreich are employed by the Company, the
Company will provide each executive an automobile allowance in the amount of
$600.00 per month. Each executive is entitled to vacation and to participate in
and receive any other benefits customarily provided by the Company to its senior
executives (including any bonus, retirement, short and long-term disability
insurance, major medical insurance and group life insurance plans in accordance
with the terms of such plans), including stock option plans, all as determined
from time to time by the Compensation Committee.
Mr. Levin is entitled to receive an annual bonus of up to 50%, and Mr. Hernreich
is entitled to receive an annual bonus of up to 45%, of their respective annual
base salaries depending on the performance of the Company. The Compensation
Committee of the Board of Directors shall determine, in its sole discretion, the
amount of bonus to be paid to the Executive Officers. Mr. Levin is entitled to
receive an annual bonus of 10% if the Company meets its annual projections for
its fiscal budget plan, as approved by the Board of Directors. Any bonus paid to
Mr. Hernreich will first be reduced by the amount of the prepaid discretionary
bonus discussed above. No bonuses above the $15,000 paid to Mr. Hernreich were
paid to either Mr. Hernreich or Mr. Levin for the fiscal year ending February 3,
2001.
Mr. Hernreich's Employment Agreement also provides for compensation to relocate
to the Boston area. In accordance with his Agreement, Mr. Hernreich is entitled
to receive a total amount of $85,000 for moving costs associated with his
relocation to Boston. In addition, Mr. Hernreich is entitled to receive
reimbursement for reasonable expenses associated with his temporary living
arrangements.
The Employment Agreements provide that in the event the executive officer's
employment is terminated by the Company at any time for any reason other than
"justifiable cause" (as defined in the Employment Agreements), disability or
death, the Company is required to pay executive the lesser of (1) the base
salary for the remaining term of the Employment Agreement or (2) an amount equal
to one half of the executive's annual salary. If the remaining term of the
Employment Agreements on the date of termination is more than six months, the
executives must make a good faith effort to find new employment and mitigate
damages, costs and expenses to the Company. If he is terminated without
justifiable cause within one year after a Change of Control of the Company (as
defined in the Employment Agreement) has occurred, the executive shall receive a
lump sum payment in the amount of (1) the base salary for the remaining term of
the Employment Agreement or (2) an amount equal to the current base salary for
one year. The Employment Agreements contain confidentiality provisions pursuant
to which each executive agrees not to disclose confidential information
regarding the Company. The Employment Agreements also contain covenants pursuant
to which each executive agrees, during the term of his employment and for a
one-year period following the termination of his employment, not to have any
connection with any business which competes with the business of the Company.
For purposes of the Employment Agreements, a "Change in Control of the Company"
shall mean (i) any sale of all or substantially all of the assets of the Company
to any person or group of related persons within the meaning of Section 13(d) of
the Exchange Act ("Group"), (ii) any acquisition by any person or Group of
shares of capital stock of the Company representing more than 50% of the
aggregate voting power of the outstanding capital stock of the Company entitled
under ordinary circumstances to elect the directors of the Company
("Voting Stock") or (iii) any replacement of a majority of the Board of
Directors of the Company over the twelve-month period following the acquisition
of shares of the capital stock of the Company representing more than 10% of the
Voting Stock by any person or Group which does not currently own more than 10%
of such Voting Stock (unless such replacement shall have been approved by the
vote of the majority of the directors then in office who either were members of
the Board of Directors at the beginning of such twelve-month period or whose
elections as directors were previously so approved).
On May 25, 2001, the Board of Directors determined to hire Seymour Holtzman, who
has served as the Company's non-employee Chairman of the Board, as an employee
of the Company and to extend the Company's consulting agreement with Jewelcor
Management, Inc. on a reduced basis, subject to further negotiation and
documentation. In connection with the hiring of Mr. Holtzman, the Board
determined to award Mr. Holtzman an option to purchase and aggregate of 300,000
shares of the Company's Common Stock at $3.88 per share, equal to the closing
price of the Common Stock on that date. The option will vest at a rate of
100,000 shares per year over three years and expire ten years from the date of
grant. It is anticipated that the option will represent the principal portion
of Mr. Holtzman's compensation as an employee of the Company. The other terms
of Mr. Holtzman's employment remain subject to further negotiation and
documentation.
Director Compensation
During fiscal year 2001, non-employee directors of the Company were paid $3,000
plus expenses for each meeting of the Board of Directors in which they
participated. During fiscal year 2001, non-employee directors of the Company
were paid, in addition to reimbursement of expenses, for meetings of committees
of the Board in which they participated as follows: $3,000 for each Compensation
Committee meeting;, $1,500 for each Audit Committee meeting; and $1,500 for each
Corporate Governance Committee meeting. During fiscal year 2001, non-employee
directors of the Company were also eligible to participate in the Company's 1992
Stock Incentive Plan, as amended (the "1992 Stock Incentive Plan"). Prior to
January 20, 2000, under the provisions of the 1992 Stock Incentive Plan, each
non-employee director of the Company who was elected by the stockholders to the
Board would automatically be granted, upon such election, a stock option to
purchase 10,000 shares of Common Stock at the fair market value of Common Stock
on the date of grant. Each non-employee director of the Company who was
re-elected by the stockholders to the Board would be granted, upon such
re-election, a stock option to purchase 3,000 shares of Common Stock at the then
fair market value of Common Stock. On January 20, 2000, the Board of Directors
amended the plan to provide for the grant to each non-employee director of the
Company a stock option to purchase 15,000 shares of Common Stock upon such
director's election and a stock option to purchase 15,000 shares of Common Stock
upon such director's re-election. The 1992 Stock Incentive Plan further provides
that each of such stock options becomes exercisable in three equal annual
installments commencing twelve months following the date of grant and has a
ten-year term.
The 1992 Stock Incentive Plan also provides that non-employee directors of the
Company may elect to receive all or a portion of their directors' fees, on a
current or deferred basis, in shares of Common Stock that are free of any
restrictions under the 1992 Stock Incentive Plan ("Unrestricted Stock") by
entering into an irrevocable agreement with the Company in advance of the
beginning of a calendar year. During fiscal year 2001, all non-employee
directors elected to receive their directors' fees in Common Stock.
Compensation Committee Interlocks and Insider Participation
Persons serving on the Compensation Committee had no relationships with the
Company in fiscal year 2001 other than their relationship to the Company as
directors entitled to the receipt of standard compensation as directors and
members of certain committees of the Board and their relationship to the Company
as beneficial owners of shares of Common Stock and options exercisable for
shares of Common Stock. No person serving on the Compensation Committee or on
the Board of Directors is an executive officer of another entity for which an
executive officer of the Company serves on such entity's board of directors or
compensation committee.
COMPENSATION COMMITTEE REPORT
Decisions concerning the compensation of the Company's executive officers
generally are made by the two-member Compensation Committee. Each member of
the Compensation Committee is a non-employee director of the Company. This
Compensation Committee Report summarizes the Company's executive officer
compensation practices and policies for fiscal year 2001. The Compensation
Committee consists of two members, Joseph Pennacchio and Jesse Choper.
Compensation Policies
The Company's compensation policies are designed to link executive officer
compensation to the annual and long-term performance of the Company and to
provide industry-competitive compensation for such officers. The Company's
executive officer compensation consists of two key components: (1) an annual
component, consisting of annual base salary and annual incentive bonus, if any,
and (2) a long-term component consisting of the grant of stock options.
The policies with respect to each of these elements, as well as the bases for
determining the compensation of the Company's executives, are described below.
(1) Annual Component: Annual Base Salary
The Compensation Committee reviews all base salaries for
executive officers and establishes them by reviewing the performance of each
executive officer, evaluating the responsibilities of each executive officer's
position and comparing the executive officer's salaries with salaries of
executive officers of other companies in the specialty retail apparel industry
(the "Industry"). The Compensation Committee defines the Industry as public
companies in the specialty retail apparel business with similar sales and market
capitalization. Annual base salary adjustments are influenced by the Company's
performance in the previous fiscal year and the individual's contribution to
that performance, the individual's performance, promotions of the individual
that may have occurred during the fiscal year, and any increases in the
individual's level of responsibility (which is measured by various factors
including, but not limited to, the number of departments and employees for which
the executive officer is responsible). Under the Company's employment agreements
with Mr. Levin and Mr. Hernreich, compensation for such executive officers had a
base salary element and annual cost of living increases for fiscal year 2002.
(2) Long-Term Component: Stock Options
To align executive officers' interests more closely with the interests of the
stockholders of the Company, the Company's long-term compensation program
emphasizes the grant of stock options exercisable for shares of Common Stock.
The amount of such awards is determined one or more times in each fiscal year by
the Compensation Committee. Stock options normally are granted to executive
officers in amounts based largely upon the size of stock-based awards of other
companies in the Industry for comparable positions as well as the availability
of shares of Common Stock under the 1992 Stock Incentive Plan. The Compensation
Committee may take into account other factors in determining the size of stock
option grants, including, but not limited to, the need to attract and retain
individuals the Compensation Committee perceives to be valuable to the Company.
In addition to the foregoing, executive officers receive benefits under certain
group health, long-term disability and life insurance plans, which are generally
available to the Company's eligible employees. After one year of service with
the Company, the executive officers are eligible to participate in the 401(k)
Plan. Benefits under these plans are not tied to corporate performance.
The Commission requires that this Compensation Committee Report comment upon the
Compensation Committee's policy with respect to Section 162(m) of the Internal
Revenue Code, which limits the Company's tax deduction with regard to
compensation in excess of $1 million paid to the chief executive officer and the
four most highly compensated executive officers (other than the chief executive
officer) at the end of any fiscal year unless the compensation qualifies as
"performance-based compensation." The Compensation Committee's policy with
respect to Section 162(m) is to make every reasonable effort to cause
compensation to be deductible by the Company while simultaneously providing
executive officers of the Company with appropriate rewards for their
performance.
Prior to the hiring of Mr. Levin as President and Chief Executive Officer in
April 2000, the Compensation Committee approved the appointment of John J.
Schultz as interim Chief Executive Officer and President after Mr. Reichman
resigned on October 20, 1999. The Committee negotiated a consulting agreement
("Consulting Agreement") with Mr. Schultz. The Consulting Agreement paid Mr.
Schultz $2,000 per day of service, plus out-of-pocket expenses. In addition,
Mr. Schultz received 15,000 options per year of service. These options were
fully vested and had a ten-year expiration period. On April 10, 2000, the
Committee granted Mr. Schultz additional 65,000 options, which had a
thirty-month vesting period and a ten-year term. Mr. Shultz's duties as Chief
Executive Officer and President ended on April 11, 2000 and Mr. Schultz
remained a Director of the Company until January 2001.
THE COMPENSATION COMMITTEE
Joseph Pennacchio
Jesse Choper
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative
stockholder return with that of a broad market index (Standard & Poor's
Industrials Index) and one published industry index (Standard & Poor's 500
Composite Retail Index) for each of the most recent five years ended January 31.
The cumulative stockholder return for shares of Common Stock and each of the
indices is calculated assuming that $100 was invested on January 31, 1996. The
Company paid no cash dividends during the periods shown. The performance of the
indices is shown on a total return (dividends reinvested) basis. The graph lines
merely connect January 31 of each year and do not reflect fluctuations between
those dates. In addition there is a chart of the annual percentage return of the
Company's Common Stock, the S & P Industrial-Wed and Composite Retail 500.
[Chart showing Total Shareholder Return for the past five fiscal years omitted.]
Annual Return Percentage
Years Ending
Company/Index Jan 97 Jan 98 Jan99 Jan 00 Jan 01 May 01
- -------------------------------------------------------------------------------
DESIGNS, INC. 4.35 (63.54) 28.58 (46.67) 50.00 86.67
S&P INDUSTRIALS-WED 21.18 23.80 32.14 16.12 (8.48) (10.32)
COMPOSITE RETAIL- 500 17.92 46.73 62.73 (1.65) 3.46 0.08
Indexed Returns
Base Period
Company/Index Jan 96 Jan 97 Jan 98 Jan 99 Jan00 Jan 01 May 01
- ------------------------------------------------------------------------------
DESIGNS, INC. 100 104.35 38.04 48.91 26.09 39.13 73.04
S&P INDUSTRIALS-WED 100 121.18 150.02 198.23 230.19 210.67 188.92
COMPOSITE RETAIL - 500 100 117.92 173.03 281.57 276.94 286.51 286.75
To supplement the five year historical performance shown above, below is a
Performance Graph which compares the Company's cumulative stockholder return
since the change in control which occurred in October 1999. At the Company's
Annual Meeting of Shareholders, which was held in October 1999, the shareholders
voted to elect a new slate of directors supported by Seymour Holtzman, principal
of Jewelcor Management, Inc.
[Chart showing Total Shareholder Returns since October 1999 omitted.]
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following named persons were the only persons or entities believed
by the Company to be the beneficial owners of more than five percent of the
issued and outstanding shares of Common Stock as of June 4, 2001. The Company is
informed that, except as indicated, all of them have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable.
Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned of Class (1)
- ------------------------------------- ----------------------- ---------------
Jewelcor Management, Inc......... 3,052,024 (2) 20.50%
100 N. Wilkes Barre Blvd.
Wilkes Barre, Pennsylvania 18702
Grace & White, Inc............... 1,147,457 (3) 11.89%
515 Madison Avenue
New York, New York 10022
Stanley I. Berger..................... 976,602 5.89%
100 Essex Road
Chestnut Hill, Massachusetts 02467
- --------------
(1) As of June 4, 2001, 14,473,486 shares of Common Stock were issued and
outstanding.
(2) The Company received an Amendment No. 34 to Schedule 13D dated June 4, 2001
stating that Jewelcor Management Inc. ("JMI") was the beneficial owner of
the number of shares of Common Stock set forth opposite its name in the
table.
(3) The Company received an Amendment No. 3 to the Schedule 13G dated January
22, 2001, stating that Grace & White, Inc. ("Grace & White") was the
beneficial owner of the number of shares of Common Stock set forth opposite
its name in the table. The report on Schedule 13G indicates that at
December 31, 2000 Grace & White had sole voting power with respect to
161,500 shares and that Grace & White may be deemed to beneficially own,
within the meaning of Rule 13d-3 of the Exchange Act, 1,147,457 shares over
which it had sole dispositive power. In the past, Grace & White indicated
that the shares were acquired in the ordinary course of investment advisory
business and not with the purpose of changing or influencing the control of
the Company.
Security Ownership of Management
As of June 4, 2001, the directors and executive officers of the Company who
served the Company during fiscal 2001 and are named in the Summary Compensation
Table set forth above, and such directors and executive officers as a group,
were the beneficial owners of the number of issued and outstanding shares of
Common Stock indicated below. Except as indicated, each person has sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by such person, subject to community property laws where
applicable.
Number of Shares Percent
Name and Title Beneficially Owned Of Class (1),(9)
- --------------------------- ------------------------ ---------------
Seymour Holtzman 3,052,024 (2) 20.50%
Chairman of the Board and Director
David A. Levin 315,500 (3) 2.16%
Chief Executive Officer, President
and Director
Dennis R. Hernreich 22,600 *
Chief Financial Officer, Senior Vice
President, Treasurer and Secretary
Stanley I. Berger 991,602 (4) 6.84%
Director
Jesse Choper 50,740 (5) *
Director
Alan Cohen 21,378 (4) *
Director
Jeremiah P. Murphy, Jr. 42,665 (5) *
Director
Robert L. Patron 594,714 (6) 4.10%
Director
Joseph Pennacchio 40,069 (5) *
Director
George T. Porter, Jr. 58,207 (7) *
Director
Directors and Executive Officers
as a group (10 persons) 5,145,801 (8) 34.25%
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Except as indicated, each person possesses sole voting and
investment power with respect to all of the shares of Common Stock owned by
such person, subject to community property laws where applicable. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable, or that become
exercisable within 60 days, are deemed outstanding. Such shares, however,
are not deemed outstanding for the purpose of computing the percentage
ownership of any other person. Percentage ownership is based on 14,473,486
shares of Common Stock outstanding as of June 4, 2001, plus securities
deemed to be outstanding with respect to individual stockholders pursuant
to Rule 13d-3(d)(1) under the Exchange Act.
(2) Mr. Holtzman may be deemed to have shared voting and investment power over
3,052,024 shares of Common Stock beneficially owned by JMI, of which Mr.
Holtzman is the Chairman, President and Chief Executive Officer. Includes
415,000 shares subject to stock options exercisable within 60 days.
Includes 17,500 shares owned by Mr. Holtzman's grandchildren as to which he
disclaims beneficial ownership.
(3) Includes 100,000 shares subject to stock options exercisable within
60 days.
(4) Includes 15,000 shares subject to stock options exercisable within 60 days.
(5) Includes 15,001 shares subject to stock options exercisable within 60 days.
(6) Includes 45,001 shares subject to stock options exercisable within 60
days held by Business Ventures International, Inc., of which Mr. Patron
is the sole owner.
(7) Includes 45,001 shares subject to stock options exercisable within 60 days.
(8) Includes 680,005 shares subject to stock options exercisable within 60
days.
(9) Excludes shares, if any, owned by Mr. Schultz and Mr. Paulus, each of whom
ceased to be an executive officer of the Company during fiscal 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jewelcor Management, Inc.
On October 28, 1999, the Company entered into a consulting agreement with
Jewelcor Management, Inc. ("JMI") to assist in developing and implementing a
strategic plan for the Company and for other related consulting services as may
be agreed upon between JMI and the Company. Seymour Holtzman, who became the
Company's Chairman of the Board on April 11, 2000, is beneficial holder of
approximately 20.2% of the Common Stock of the Company (principally held by
JMI). He is also the President and Chief Executive Officer, and indirectly, with
his wife, the shareholder of JMI. The total value of the compensation paid to
JMI under this agreement for services through April 2000 consisted of (i) a
stock option to purchase 400,000 shares of the Company's Common Stock, which
was valued by an independent third party, using a growth model, at $63,560, and
(ii) the issuance of 203,489 shares of the Company's Common Stock, which had an
aggregate market value of $240,000, totaling compensation paid of $347,560.
On June 26, 2000, the Company extended its consulting arrangement with JMI for
an additional one-year period commencing on April 29, 2000 and ending on April
29, 2001. As payment for services rendered under this extended agreement, the
Company issued to JMI 182,857 non-forfeitable and fully vested shares of the
Company's Common Stock. The fair value of those shares on June 26, 2000, the
date of issuance, was $240,000 or $1.3125 per share. The agreement also includes
a significant disincentive for non-performance, which would require JMI to pay
to the Company a penalty equal to 150% of any unearned consulting services.
In fiscal year 2000, the Company also reimbursed JMI in the amount of $400,000,
which was paid in shares of the Company's Common Stock, for expenses incurred
by JMI in connection with the October 1999 proxy solicitation. Based on the
closing price of the stock on October 29, 1999, JMI received 346,021 shares of
the Company's Common Stock.
Arrangements with Other Directors
In fiscal year 2000, the Company also entered into three consulting agreements
with three of its other Board members: John J. Schultz, Robert L. Patron and
George T. Porter, Jr.
On October 28, 1999, the Company engaged John J. Schultz, under a consulting
agreement, to act as President and Chief Executive Officer of the Company on an
interim basis and to assist in the search for a permanent President and Chief
Executive Officer. Mr. Schultz was paid a rate of $2,000 per day, payable at his
election in cash or in shares of Common Stock, plus reimbursement of reasonable
out-of-pocket expenses. Mr. Schultz was paid $63,179 and $83,311 as compensation
and reimbursement of related expenses during fiscal year 2001 and 2000,
respectively. As part of his compensation, Mr. Schultz was also granted stock
options exercisable for up to 95,000 shares of the Company's Common Stock. The
per share exercise price of these options was the closing price of the Common
Stock on the date of grant. On January 12, 2001, Mr. Schultz resigned as a
Director of the Company. In conjunction with his resignation, Mr. Schultz
exercised 105,000 options and sold the shares issued upon exercise back to the
Company. Such options related to his services as a board member in addition to
his consulting agreement. The Company paid Mr. Schultz $97,032, which
represented the spread between the closing price of the Company's Common Stock
on January 12, 2001 of $2.1875 per share and the exercise price of the various
options. The Company holds these 105,000 repurchased shares as treasury stock at
February 3, 2001.
On November 19, 1999, the Company entered into a consulting agreement with
Business Ventures International, Inc., a company affiliated with Robert Patron,
a member of the Company's Board, to advise the Company with regard to real
estate matters. As compensation for these services, Mr. Patron is paid a rate of
$2,000 per day, payable at his election in cash or in shares of Common Stock,
plus reimbursement of reasonable out-of-pocket expenses. Mr. Patron was paid
$35,362 and $14,000 as compensation and reimbursement of related expenses for
fiscal 2001 and 2000, respectively. As part of his compensation, Mr. Patron was
also granted stock options exercisable for up to 30,000 shares of the Company's
Common Stock. The per share exercise price of these options was the closing
price of shares of Common Stock on the date of grant.
On February 8, 2000, the Company retained Mr. Porter as a consultant to advise
the Company with regard to merchandising strategies and operations. As
compensation for these services, Mr. Porter is paid a rate of $2,000 per day,
payable at his election in cash or in shares of Common Stock, plus reimbursement
of reasonable out-of-pocket expenses. Mr. Porter was paid $13,661 and $7,373 as
compensation and reimbursement of related expenses for fiscal 2001 and 2000,
respectively. As part of his compensation, Mr. Porter was also granted stock
options exercisable for up to 30,000 shares of the Company's Common Stock. The
per share exercise price of these options was the closing price of shares of
Common Stock on the date of grant.
On June 26, 2000, the Company extended a loan to David A. Levin, its President
and Chief Executive Officer, in the amount of $196,875 in order for Mr. Levin to
acquire from the Company 150,000 newly issued shares of the Company's Common
Stock at the closing price of the Common Stock on that day. The Company and Mr.
Levin entered into a secured promissory note, whereby Mr. Levin agrees to pay to
the Company the principal sum of $196,875 plus interest due and payable on June
26, 2003. The promissory note bears interest at a rate of 6.53% per annum and is
secured by the 150,000 acquired shares of the Company's Common Stock.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DESIGNS, INC.
By: /s/ Dennis R. Hernreich
Dennis R. Hernreich, Senior Vice President,
Chief Financial Officer, Treasurer and
Secretary
DATE: June 4, 2001