Securities and Exchange Commission
Washington, DC 20549
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 1999 Commission File
(Fiscal 1998) Number 0-15898
DESIGNS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2623104
(State or other jurisdiction of (IRS Employer
incorporation) Identification No.)
66 B Street, Needham, MA 02494
(Address of principal executive office) (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
Preferred Stock Purchase Rights
(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 28, 1999 was approximately $30.5 million.
The registrant had 15,927,551 shares of Common Stock, $0.01 par value,
outstanding as of April 28, 1999.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934,
the registrant hereby amends its Annual Report on Form 10-K for the year
ended January 30, 1999 (the "1998 Form 10-K") (i) to include Items 10, 11,
12 and 13 thereof and (ii) to include an additional exhibit. The Company's
1998 Form 10-K, as filed with the Securities and Exchange Commission (the
"Commission") on April 30, 1999, incorporated into such form the
information required by Items 10, 11, 12 and 13 of Form 10-K by reference
to the Company's Definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders (the "Proxy Statement"). The Proxy Statement will not be filed
with the Commission within 120 days after the end of the Company's fiscal
year ended January 30, 1999. Accordingly, the 1998 Form 10-K is being
amended hereby to include the information that was originally expected to
be incorporated by reference to the Proxy Statement and to include such
additional exhibit.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of Designs, Inc. (the
"Company"), their age and their positions with the Company are as follows:
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- --------
Stanley I. Berger............ 69 Chairman of the Board 1976
and Director
Joel H. Reichman............. 49 President, Chief Executive 1987
Officer and Director
James G. Groninger........... 55 Director 1987
Bernard M. Manuel............ 51 Director 1990
Melvin I. Shapiro............ 84 Director 1990
Peter L. Thigpen............. 59 Director 1994
--------------
Joel H. Reichman has been President and Chief Executive Officer of
the Company since December 1994. Prior to that time, he served as the
Company's President and Chief Operating Officer since January 1993. Mr.
Reichman has been employed by the Company since 1976 and served as its
Executive Vice President from 1985 until January 1993. Mr. Reichman has
been a director of the Company since 1987. Mr. Reichman has worked in the
retail clothing business for more than 25 years.
Scott N. Semel, 43, has been employed as General Counsel to the
Company since 1986. Mr. Semel was elected Secretary and Vice President of
the Company in March 1990, and Senior Vice President of the Company in
March 1994. Mr. Semel was elected Executive Vice President of the Company
in April 1996.
Carolyn R. Faulkner, 37, joined the Company as its Controller in June
1993. In March 1994, Mrs. Faulkner was elected as a Vice President of the
Company. In July 1996, Mrs. Faulkner was elected Chief Financial Officer.
On January 20, 1998, Mrs. Faulkner was elected Treasurer of the Company.
Prior to joining the Company, from 1985 through May 1993, Mrs. Faulkner
held various positions with Coopers & Lybrand L.L.P., an independent
accounting firm, including the position of Business Assurance Manager.
Stanley I. Berger is a founder of the Company and has been its
Chairman of the Board since January 1993. 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.
James G. Groninger was elected a director of the Company in 1987. Mr.
Groninger is the founder and president of The BaySouth Company, a financial
advisory firm. Prior to becoming associated with The BaySouth Company, from
1988 through 1994, Mr. Groninger held various positions with PaineWebber
Incorporated, an investment banking and brokerage firm, including the
position of Managing Director. Mr. Groninger is a member of the Board of
Directors of Cygne Designs, Inc., a private label designer and manufacturer
of clothing for women, and NPS Pharmaceuticals, Inc., a research and
development pharmaceutical company.
Bernard M. Manuel was elected a director of the Company in 1990. Mr.
Manuel is the Chairman of the Board and Chief Executive Officer of Cygne
Designs, Inc., and Chairman of the Board and Chief Executive Officer of
Amvent, Inc., an international financial consulting company. Mr. Manuel has
been associated with these companies since prior to 1990.
Melvin I. Shapiro was elected a director of the Company in 1990. Mr.
Shapiro retired from the independent accounting firm of Tofias, Fleishman,
Shapiro & Co., P.C. in April 1998. Until his retirement, Mr. Shapiro had
been a partner in that firm for more than 25 years.
Peter L. Thigpen was elected a director of the Company in March 1994.
Mr. Thigpen is a partner and a founder of Executive Reserves, a consulting
firm specializing in marketing strategy, quality processes and the
development of strategic business plans. Prior to becoming associated with
Executive Reserves, Mr. Thigpen held various positions with Levi Strauss &
Co. covering a period of more than 23 years, including the position of
Senior Vice President, U.S. Operations. Mr. Thigpen has been a lecturer at
the Haas School of Business at the University of California, Berkeley since
1992. Mr. Thigpen is a member of the Board of Directors of Radica Games
Limited, a developer, manufacturer and distributor of electronic handheld
and tabletop games.
All directors hold office until the next Annual Meeting of
Stockholders or Special Meeting in lieu thereof. Executive officers, once
elected, serve at the discretion of the Board of Directors.
The Board of Directors has an Audit Committee consisting of Messrs.
Berger, Groninger, Shapiro and Thigpen, a Compensation Committee consisting
of Messrs. Groninger, Manuel and Thigpen, and a Corporate Governance
Committee consisting of Messrs. Berger, Groninger, Manuel, Shapiro and
Thigpen. The Audit Committee meets periodically with management and the
Company's independent accountants to review matters relating to the
Company's financial reporting, the adequacy of internal accounting controls
and the scope and results of audit work. The Compensation Committee meets
periodically to review executive and employee compensation and benefits
(including stock-based compensation awards under the Company's 1992 Stock
Incentive Plan, as amended (the "1992 Stock Incentive Plan")), supervise
benefit plans and make recommendations regarding benefit plans to the Board
of Directors. The Corporate Governance Committee is responsible for
performing functions related to the governance of the Company, including,
but not limited to, planning for the succession and promotion of executive
officers of the Company, nominating individuals for election to the Board
of Directors and establishing, coordinating and maintaining the Company's
corporate compliance programs.
On December 11, 1998, the Company announced that the Board of
Directors had formed a committee of independent outside directors (the
"Special Committee") to consider the Company's strategic alternatives,
including a possible sale of the Company, with a view towards maximizing
stockholder value in the near term. The members of the Special Committee
are Messrs. Groninger, Manuel and Thigpen.
DIRECTOR COMPENSATION
During the Company's fiscal year ended January 30, 1999 ("fiscal year
1998"), non-employee directors of the Company were, and during the fiscal
year ending January 29, 2000 ("fiscal year 1999") such directors will
continue to be, eligible to participate in the 1992 Stock Incentive Plan.
The 1992 Stock Incentive Plan provides that each non-employee director of
the Company who is elected by the stockholders to the Board initially will
automatically be granted, upon such election, a stock option to purchase up
to 10,000 shares of Common Stock at the then fair market value of Common
Stock. Each non-employee director of the Company who is re-elected by the
stockholders to the Board is granted, upon such re-election, a stock option
to purchase up to 3,000 shares of Common Stock at the then fair market
value of Common Stock. 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.
During fiscal year 1998, non-employee directors of the Company were
entitled to receive, in addition to reimbursement of expenses, fees for
each meeting of the Board of Directors or committees of the Board in which
they participated, as follows: $3,000 for each meeting of the Board of
Directors; $3,000 for each Compensation Committee meeting; $1,500 for each
Audit Committee meeting; $1,500 for each Corporate Governance Committee
meeting; and $3,000 for each meeting of the Special Committee. 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").
Non-employee directors who are members of the Audit Committee received cash
payments as their full compensation for two Audit Committee meetings in
fiscal year 1998 that occurred before April 13, 1998. On April 13, 1998 the
Board of Directors amended the 1992 Stock Incentive Plan expressly to
provide the Compensation Committee of the Board of Directors (the
"Compensation Committee") with the authority to waive the requirement that
such an irrevocable agreement be delivered prior to the beginning of the
calendar year in which a non-employee director wishes to receive shares of
Unrestricted Stock in lieu of directors' fees otherwise due. On April 13,
1998 the Compensation Committee waived, with respect to calendar year 1998,
compliance with the requirement that such irrevocable agreements be
delivered prior to the beginning of the calendar year. This waiver was
applicable to meetings of the Board of Directors and its committees held on
April 13, 1998 and thereafter through the end of calendar year 1998. All
non-employee directors elected to receive one-half of their directors' fees
(excluding reimbursement of expenses) in shares of Unrestricted Stock for
meetings of the Board of Directors and its committees in which they
participated in fiscal year 1998, beginning with the meetings held on April
13, 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and 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 in ownership with the Commission. Officers, directors
and greater-than-10% stockholders are required by Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Company during fiscal year 1998 and Forms 5 and amendments thereto
furnished to the Company with respect to fiscal year 1998, the Company
believes that all Section 16(a) filing requirements applicable to its
officers, directors and greater-than-10% stockholders were fulfilled 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 of the Company during fiscal year
1998 and the other two executive officers of the Company as of January 30,
1999 (collectively, the "Named Executive Officers"), for the fiscal years
ended January 30, 1999, January 31, 1998 ("fiscal year 1997") and February
1, 1997 ("fiscal year 1996"):
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(1) AWARDS
--------------- ------------
SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(2)
------------------ ------ --------- -------- ------------ ------------------
Joel H. Reichman......... 1998 $375,000 $0 0 $3,671
President and Chief 1997 375,000 0 270,000 3,621
Executive Officer 1996 375,000 0 40,000 2,451
Scott N. Semel............. 1998 $290,000 $0 0 $3,610
Executive Vice President, 1997 290,000 0 150,000 3,566
General Counsel and 1996 290,000 0 40,000 3,472
Secretary(3)
Carolyn R. Faulkner........ 1998 $210,000 $0 0 $3,497
Vice President, Chief 1997 210,000 0 80,000 3,453
Financial Officer 1996 158,808 0 20,000 2,412
and Treasurer(4)
- ----------------------
(1) Other than as described in this table or the footnotes to this table,
the Company did not pay any Named Executive Officer any compensation,
including incidental personal benefits, in excess of 10% of such
Named Executive Officer's base salary.
(2) The amounts disclosed in this column covering fiscal year 1998
represent: (i) payments by the Company of insurance premiums for term
life insurance for the benefit of the executive officers (Mr.
Reichman, $471; Mr. Semel, $410; and Mrs. Faulkner, $297); and (ii)
matching contributions equal to $3,200 that were made by the Company
for the benefit of each of the Named Executive Officers to the
Company's retirement plan (the "401(k) Plan") established pursuant to
Section 401(k) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code").
(3) Mr. Semel was elected Executive Vice President of the Company on
April 17, 1996.
(4) Mrs. Faulkner was elected Chief Financial Officer of the Company on
July 16, 1996 and was elected Treasurer of the Company on January 20,
1998.
OPTIONS/SAR GRANTS
The Company did not grant any stock options during fiscal year 1998
to any of the Named Executive Officers.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following Fiscal Year-End Option Table sets forth certain
information regarding stock options held as of January 30, 1999 by the
Named Executive Officers. None of the Named Executive Officers exercised
any stock options during fiscal 1998:
COMMON STOCK
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS HELD
FISCAL YEAR-END(1) AT FISCAL YEAR-END($)(2)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Joel H. Reichman 303,166 229,334 $0 $0
Scott N. Semel 229,166 133,334 0 0
Carolyn R. Faulkner 42,333 73,667 0 0
- --------------
(1) Includes 270,000, 150,000 and 80,000 options for Mr. Reichman, Mr.
Semel and Mrs. Faulkner, respectively, which are subject to
forfeiture if the per share price of Common Stock does not close at
or above $12.00 for at least five trading days ending on or prior to
April 28, 2002.
(2) "Value" means the difference between the option exercise price and
the market value, as of the fiscal year-end, of the shares of Common
Stock acquired upon exercise. Based on the last sale price of Common
Stock ($2.81 per share) on January 29, 1999, as reported by The
Nasdaq Stock Market, less the applicable option exercise price, no
option held by a Named Executive Officer was "in the money" as of the
end of fiscal year 1998.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements, effective as of
October 16, 1995, with each of Joel H. Reichman and Scott N. Semel for
three-year terms ending October 15, 1998, and an employment agreement,
effective as of May 9, 1997, with Carolyn R. Faulkner for a three-year term
ending May 8, 2000. Each of these employment agreements (collectively, the
"Employment Agreements") provides for automatic renewal 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. Each of Mr.
Reichman's and Mr Semel's employment agreements renewed pursuant to this
automatic renewal provision as of October 15, 1998.
The Employment Agreements require 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 or her duties. Pursuant
to the Employment Agreements, Messrs. Reichman and Semel and Mrs. Faulkner
were each initially entitled to be paid base salary at an annual rate of
$375,000, $255,000 and $210,000, respectively. The Employment Agreements
provide that the executive officers' annual rate of base salary for the
remaining years of employment may be increased by the Compensation
Committee in its sole discretion. The Employment Agreements further provide
that, effective as of the first day of each fiscal year of the Company,
each executive officer's annual rate of base salary will be increased by at
least the percentage increase in the cost of living in Boston,
Massachusetts. Each of Messrs. Reichman and Semel and Mrs. Faulkner waived
their right to receive this increase for fiscal 1998. The Employment
Agreements also provide for the payment of bonuses in such amounts as may
be determined by the Compensation Committee. While an executive officer is
employed by the Company, the Company provides the executive officer with a
full-size automobile for the executive officer's personal use and for use
in performance of his or her employment duties and obligations, including
maintenance of and fuel for such automobile. Each executive officer is
entitled to vacations 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.
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, or in the event that the Company shall
fail to renew the Employment Agreement at any time within two years
following the date of a "Change in Control of the Company," the Company is
required, upon such termination or failure to renew, immediately to pay to
the executive officer, in a lump sum, a severance payment equal to the
greater of (i) one-twelfth of the executive officer's then annual base
salary multiplied by the number of months remaining in the term of the
Employment Agreement or (ii) a sum equal to his or her annual base salary
then in effect multiplied by two. In addition, in the event the executive
officer's employment is terminated under such circumstances, the executive
officer is also entitled to continue to participate, at the Company's
expense, in the Company's health insurance and disability insurance
programs to the extent permitted by such programs for a period of two
years. The Employment Agreements also provide that in the event the Company
elects not to renew the Employment Agreement (other than within two years
following a Change of Control of the Company), the Company will pay the
executive officer a sum equal to the greater of (i) one year's annual base
salary or (ii) two months' base salary plus one-sixth of the executive
officer's bonus, if any, relating to the most recently completed fiscal
year, for each year the executive officer has been employed by the Company.
If an executive officer dies while he or she is on Company business, then
the Company is required to pay such executive officer's estate one-half of
his or her then annual base salary.
Each Employment Agreement contains confidentiality provisions
pursuant to which each executive officer agrees not to disclose
confidential information regarding the Company. Each Employment Agreement
also contains covenants pursuant to which each executive officer agrees
during the term of his or her employment and for a one-year period
following the termination of his or her employment, not to have any
connection with any business which competes with the business of the
Company. Each Employment Agreement provides that in the event of
termination of employment (unless such termination is because the Company
fails to renew the Employment Agreement or the Company terminates the
executive officer's employment within two years following a Change in
Control of the Company), the executive officer will be available on a
part-time basis to advise and consult with the Company, with respect to the
affairs of the Company, for up to one year following termination of
employment. In the event the Company elects not to renew an executive
officer's Employment Agreement, or terminates the executive officer's
employment within two years following a Change in Control of the Company,
or fails to make the required severance payments described above, then the
non-competition covenants contained in such executive officer's Employment
Agreement will automatically terminate.
Under the Employment Agreements, the executive officer may terminate
his or her employment at any time upon 30 days' prior notice. Upon the
executive officer's termination of employment or election not to renew his
or her Employment Agreement, the non-competition covenants contained in
such executive officer's Employment Agreement will terminate unless the
Company pays the executive officer the severance payments described above.
In such event, the executive officer will be entitled to receive such
portion of his or her annual base salary and bonus, if any, as had been
accrued to date.
For purposes of the Employment Agreements, a "Change in Control of
the Company" is deemed to occur if: (i) there is consummated (a) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (b) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company; or (ii) the
stockholders of the Company approve any plan or proposal for liquidation or
dissolution of the Company; or (iii) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the beneficial
owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 40% or more of the Company's outstanding Common Stock other than
pursuant to a plan or arrangement entered into by such person and the
Company; or (iv) during any period of two consecutive years, individuals
who at the beginning of such period constitute the entire Board of
Directors of the Company cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors
at the beginning of the period.
The Employment Agreements also provide that if, in connection with a
change of ownership or control of the Company or a change in ownership of a
substantial portion of the assets of the Company (all within the meaning of
Section 280G(b)(2) of the Internal Revenue Code), an excise tax is payable
by the executive officer under Section 4999 of the Internal Revenue Code,
then the Company will pay to the executive officer additional compensation
which will be sufficient to enable the executive officer to pay such excise
tax as well as the income tax and excise tax on such additional
compensation, such that, after the payment of income and excise taxes, the
executive officer is in the same economic position in which he would have
been if the provisions of Section 4999 of the Internal Revenue Code had not
been applicable.
In May 1999, the Company established a trust (the "Trust") for the
purpose of securing already existing obligations of the Company to Messrs.
Reichman and Semel and Mrs. Faulkner (the "Trust Executives") under the
Employment Agreements, the "Indemnification Agreements" (as defined below)
and the Company's By-Laws. The Company deposited $2.3 million in the Trust
for these obligations. The funds will be held in the Trust to pay the
amounts due under the Employment Agreements to the Trust Executives in the
event of a Change in Control of the Company and also to pay any amounts due
to the Trust Executives pursuant to the Indemnification Agreements or the
Company's By-Laws.
The Trust may be revoked by the Company, and the funds withdrawn,
after (i) November 11, 1999, if no Change in Control of the Company has
occurred or (ii) a period of twenty-eight months following a Change in
Control of the Company. In addition, the Trust may terminate on the date on
which the Trust Executives and their beneficiaries are no longer entitled
to benefits under the terms of the Employment Agreements, the
Indemnification Agreements or the Company's By-Laws, unless sooner revoked
by the Company as described above. The Trust may not be amended by the
Company in any manner adverse to the Trust Executives and their
beneficiaries following a Change in Control of the Company.
The Trust Executives have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any rights created under
the Employment Agreements, the Indemnification Agreements or the Company's
By-Laws and the Trust are unsecured contractual rights of the Trust
Executives against the Company. Any assets of the Trust are subject to the
claims of the Company's creditors in the event the Company becomes
insolvent or in certain circumstances if the Lenders (as defined herein)
accelerate time for payment under the Amended and Restated Loan and
Security Agreement dated as of June 4, 1998, by and among the Company and
BankBoston Retail Finance Inc. and Norwest Business Credit Inc. now known
as Wells Fargo Business Credit Inc. (collectively, the "Lenders").
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James G. Groninger, Bernard M. Manuel and Peter L. Thigpen served on
the Compensation Committee during all of fiscal year 1998. Persons serving
on the Compensation Committee had no relationships with the Company in
fiscal year 1998 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 the board of directors
or on that entity's compensation committee.
ADDITIONAL INFORMATION CONCERNING EXECUTIVE COMPENSATION
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 the
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
($9,500 in calendar year 1997 and $10,000 in calendar year 1998). 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 the Plan by eligible employees. During
fiscal year 1998, the matching contribution by the Company continued to be
50% of contributions by eligible employees up to a maximum of six percent
of salary.
SENIOR EXECUTIVE INCENTIVE PLAN
The SEIP was initially adopted by the Board of Directors of the
Company during fiscal year 1996. The SEIP is an incentive compensation plan
under which executive officers of the Company may be eligible to receive
annual cash bonus payments. The Compensation Committee determined that none
of the Named Executive Officers were eligible to participate, and did not
designate any Named Executive Officers as participants, in the SEIP for
fiscal 1998.
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. Reichman. The Company pays the
premium for such policy and is the sole beneficiary thereof.
LIMITATION OF LIABILITY; INDEMNIFICATION
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provides that no director of the Company
shall be personally liable to the Company or to any of its stockholders for
monetary damages arising out of such director's breach of fiduciary duty,
except to the extent that the elimination or limitation of liability is not
permitted by the Delaware General Corporation Law. The Delaware General
Corporation Law, as currently in effect, permits charter provisions
eliminating the liability of directors for breach of fiduciary duty, except
that directors remain liable for (i) any breach of the directors' duty of
loyalty to a company or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation
of law, (iii) any payment of a dividend or approval of a stock repurchase
that is illegal under Section 174 of the Delaware General Corporation Law,
or (iv) any transaction from which the directors derived an improper
personal benefit. The effect of this provision of the Certificate of
Incorporation is that directors cannot be held liable for monetary damages
arising from breaches of their duty of care, unless the breach involves one
of the four exceptions described in the preceding sentence. The provision
does not prevent stockholders from obtaining injunctive or other equitable
relief against directors, nor does it shield directors from liability under
federal or state securities laws.
The Certificate of Incorporation and the Company's by-laws further
provide for indemnification of the Company's directors and officers to the
fullest extent permitted by Section 145 of the Delaware General Corporation
Law, including circumstances in which indemnification is otherwise
discretionary.
On December 10, 1998, the Company's Board of Directors authorized the
Company to enter into indemnification arrangements (the "Indemnification
Agreements") with each of the Company's directors and executive officers
(collectively, the "Indemnitees"). The Indemnification Agreements provide
for the indemnification of, and advancing of expenses incurred by, each
Indemnitee, by reason of any event or occurrence (an "Indemnifiable Event")
related to the fact that such Indemnitee is or was a director or officer of
the Company. Such expenses include attorneys' fees and all other costs or
obligations paid or incurred in connection with investigating, defending or
being a witness in or preparing to defend, be a witness in or participate
in, any claim relating to an Indemnifiable Event.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The following named persons were the only individuals 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 April
20, 1999. 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 PERCENTAGE(1) OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
- ------------------------------------ ------------------ ----------------
Grace & White, Inc.
515 Madison Avenue
New York, New York 10022 .............. 2,057,100(2) 12.9%
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, California 94403 ........... 1,900,000(3) 11.9
Jewelcor Management Inc.
100 North Wilkes-Barre Boulevard
Wilkes-Barre, PA 18702................. 1,570,200(4) 9.9
Stanley I. Berger
100 Essex Road
Chestnut Hill, Massachusetts 02467..... 1,203,029(5) 7.4
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401......... 838,400(6) 5.3
- ------------------
(1) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission 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 become exercisable by June
19, 1999 (60 days after April 20, 1999), 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 15,926,219 shares of Common Stock outstanding
on April 20, 1999, plus securities deemed to be outstanding with
respect to individual stockholders pursuant to Rule 13d-3(d)(1) under
the Exchange Act. The information as to each person has been
furnished by such person.
(2) The Company received a report styled "Amendment No. 1 to Schedule
13G" dated February 8, 1999, 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 above. The report
indicates that at December 31, 1998 Grace & White had sole voting
power with respect to 194,000 shares and that Grace & White may be
deemed to beneficially own, within the meaning of Rule 13d-3 of the
Exchange Act, 2,057,100 shares over which it had sole dispositive
power. The report indicates that the shares were acquired in the
ordinary course of Grace & White's investment advisory business and
not with the purpose of changing or influencing the control of the
Company.
(3) The Company received a report on Schedule 13G/A dated May 8, 1999 and
filed jointly by Franklin Resources, Inc. ("FRI"), Franklin Advisory
Services, Inc. ("FASI"), Charles B. Johnson and Rupert H. Johnson,
Jr. FASI is an investment adviser; FRI is the parent holding company
of FASI; and Charles B. Johnson and Rupert H. Johnson, Jr. each own
in excess of 10% of the outstanding stock, and are the principal
stockholders, of FRI. The report states that FASI had sole voting
power and sole dispositive power over 1,900,000 shares as of that
date. The report further states that the shares were beneficially
owned by one or more open or closed-end investment companies or other
managed accounts which are advised by direct and indirect investment
adviser subsidiaries of FRI. The report indicates that the shares
were acquired in the ordinary course of business and not with the
purpose of changing or influencing the control of the Company. The
report describes the relationship among Franklin, FASI, Charles B.
Johnson and Rupert H. Johnson, Jr., but it does not affirm the
existence of a "group" as that term is used in Section 13(d)(3) of
the Exchange Act; nevertheless, the Company believes that FRI, FASI,
Charles B. Johnson and Rupert H. Johnson, Jr. may be deemed to
constitute a group under Section 13(d)(3) of the Exchange Act and
that such group may be deemed to be the beneficial owner of the
shares described in this footnote.
(4) The Company has received reports on Schedule 13D, initially dated as
of November 27, 1998 and amended through May 12, 1999 and filed
jointly on behalf of Jewelcor Management, Inc., ("Jewelcor"),
Jewelcor, Inc., S.H. Holdings, Inc., Seymour Holtzman and Evelyn
Holtzman. Jewelcor is a wholly-owned subsidiary of Jewelcor Inc.
Jewelcor, Inc. is a wholly-owned subsidiary of S.H. Holdings, Inc.
Seymour Holtzman and Evelyn Holtzman own, as tenants by the entirety,
a controlling interest of S.H. Holdings, Inc. The last report filed
before the date of this table, filed as of March 25, 1999, states
that Jewelcor had sole voting power and sole dispositive power over
1,570,200 shares as of that date. The report describes the
relationship among Jewelcor, Jewelcor, Inc., S.H. Holdings, Inc.,
Seymour Holtzman and Evelyn Holtzman, but it does not affirm the
existence of a "group" as that term is used in Section 13(d)(3) of
the Exchange Act; nevertheless, the Company believes that Jewelcor,
Jewelcor, Inc., S.H. Holdings, Inc., Seymour Holtzman and Evelyn
Holtzman may be deemed to constitute a group under Section 13(d)(3)
of the Exchange Act and that such group may be deemed to be the
beneficial owner of the shares described in this footnote. See
"Changes in Control."
(5) Includes 241,500 shares issuable pursuant to outstanding stock
options exercisable within 60 days of April 20, 1999. Stanley I.
Berger filed a Schedule 13D with the Securities and Exchange
Commission as of December 29, 1998, stating that he had consented or
would consent in his capacity as a shareholder to the proposals
described in the Consent Solicitation Statement of Jewelcor. The
Jewelcor Consent Solicitation Statement expired without the election
of any new members to the Company's Board of Directors. See "Changes
in Control."
(6) The Company received a report on Schedule 13G dated February 12, 1999
stating that Dimensional Fund Advisors Inc. ("DFAI") was reporting
the beneficial ownership of an aggregate of 838,400 shares by four
investment companies to which DFAI furnishes investment advice and
certain other investment vehicles to which DFAI serves as an
investment adviser. These investment companies and other investment
vehicles are referred to as the "Portfolios" in the Schedule 13G
filed by DFAI. The Schedule 13G states that all securities reported
in the Schedule 13G are owned by advisory clients of DFAI, none of
which, to DFAI's knowledge, owns more than five percent of the
outstanding shares of Common Stock of the Company. The report on
Schedule 13G indicates that at December 31, 1998 DFAI had sole voting
power and with respect to all 838,400 shares reported and that DFAI
may be deemed to beneficially own such shares within the meaning of
Rule 13d-3 of the Exchange Act in that it had sole dispositive power
over them. The report indicates that the shares were acquired in the
ordinary course of business and not with the purpose of changing or
influencing the control of the Company. The report describes the
relationship among DFAI and its advisory clients but does not affirm
the existence of a "group" as that term is used in Section 13(d)(3)
of the Exchange Act. DFAI disclaims beneficial ownership of the
shares; nevertheless, the Company believes that DFAI and its advisory
clients may be deemed to constitute a group under Section 13(d)(3) of
the Exchange Act and that such group may be deemed to be the
beneficial owner of the shares described in this footnote.
(b) Security Ownership of Management
As of April 20, 1999, the following directors of the Company, the
Named Executive Officers and the directors and Named Executive Officers as
a group were the beneficial owners of the indicated amount of issued and
outstanding shares of Common Stock. 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
OF PERCENTAGE
COMMON STOCK (1) OF
BENEFICIALLY COMMON STOCK
NAME AND TITLE OF BENEFICIAL OWNER OWNED OUTSTANDING
---------------------------------- ---------------- ------------
Stanley I. Berger
Chairman of the Board and Director...... 1,203,029(2) 7.4%
Joel H. Reichman
President, Chief Executive Officer and
Director................................ 416,455(3) 2.6
Scott N. Semel
Executive Vice President, General
Counsel and Secretary................... 310,537(4) 1.9
Carolyn R. Faulkner
Vice President, Chief Financial Officer
and Treasurer........................... 60,333(5) *
James G. Groninger
Director................................ 69,294(6) *
Melvin I. Shapiro
Director................................ 62,779(7) *
Bernard M. Manuel
Director................................ 80,375(8) *
Peter L. Thigpen
Director................................ 47,994(9) *
All directors and executive officers as a
group 8 persons).......................... 2,250,796(10) 13.2%
- ------------------
* Less than 1.0%.
(1) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission 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 become exercisable by June 19, 1999 (60
days after April 20, 1999), 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 15,926,219 shares of Common Stock outstanding on April 20,
1999, plus securities deemed to be outstanding with respect to
individual stockholders pursuant to Rule 13d-3(d)(1) under the
Exchange Act. The information as to each person has been furnished by
such person.
(2) Includes 241,500 shares issuable pursuant to outstanding stock
options exercisable within 60 days of April 20, 1999.
(3) Includes 370,500 shares issuable pursuant to outstanding stock
options exercisable within 60 days of April 20, 1999, as well as 280
shares owned by Mr. Reichman's wife and 427 shares owned by Mr.
Reichman's children, as to which 707 shares Mr. Reichman disclaims
beneficial ownership.
(4) Includes 272,500 shares issuable pursuant to outstanding stock
options exercisable within 60 days of April 20, 1999, as well as 450
shares owned by Mr. Semel's daughter, as to which he disclaims
beneficial ownership.
(5) Includes 59,333 shares issuable pursuant to outstanding stock options
exercisable within 60 days of April 20, 1999.
(6) Includes 43,500 shares issuable pursuant to outstanding stock options
exercisable within 60 days of April 20, 1999.
(7) Includes 43,500 shares issuable pursuant to outstanding stock options
exercisable within 60 days of April 20, 1999 and 450 shares owned by
Mr. Shapiro's wife as to which he disclaims beneficial ownership.
(8) Includes 43,500 shares issuable pursuant to outstanding stock options
exercisable within 60 days of April 20, 1999.
(9) Includes 22,000 shares issuable pursuant to outstanding stock options
exercisable within 60 days of April 20, 1999.
(10) Includes 1,096,333 shares issuable pursuant to outstanding stock
options exercisable within 60 days of April 20, 1999. See also Notes
2 through 9 above for further details concerning such options.
(c) Changes in Control
On December 7, 1998, a Consent Solicitation with respect to 1,570,200
shares of Common Stock executed on behalf of Jewelcor and its controlling
shareholder, Seymour Holtzman, was delivered to the Company for the purpose
of removing and replacing the members of the Company's Board of Directors
other than Chairman Stanley I. Berger. A preliminary Consent Solicitation
Statement was filed on December 7, 1998 by the Holtzman Group with the
Securities and Exchange Commission. On December 11, 1998, the Board of
Directors of the Company determined to oppose the Consent Solicitation by
Jewelcor and Mr. Holtzman.
Stanley I. Berger filed a Schedule 13D with the Securities and
Exchange Commission as of December 29, 1998, stating that he had consented
or would consent in his capacity as a shareholder to the proposals
described in the Consent Solicitation Statement of Jewelcor.
The Consent Solicitation expired without the election of any new
members to the Company's Board of Directors. Accordingly, Stanley I.
Berger, Joel H. Reichman, James G. Groninger, Melvin I. Shapiro, Peter L.
Thigpen and Bernard M. Manuel remained in office as members of the
Company's Board of Directors following the termination of the Consent
Solicitation.
The Company did not enter into any settlement with Jewelcor or Mr.
Holtzman terminating the Consent Solicitation.
On December 11, 1998, the Company announced that its Board of
Directors had formed a committee of independent outside directors to
consider the Company's strategic alternatives, including a possible sale of
the Company, with a view towards maximizing shareholder value. To date, the
Company has not entered into an agreement providing for the sale of the
Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a consulting agreement with Mr. Berger dated
as of December 21, 1994 (the "Consulting Agreement") in which he agreed to
provide an average of four days per week of consulting services to the
Company until December 20, 1997. As compensation for such services, among
other things, the Company paid Mr. Berger $250,000 per year and provided
health benefits to him and his spouse. The Consulting Agreement contained
covenants pursuant to which Mr. Berger agreed that, during the term of the
Consulting Agreement and for a two-year period following expiration of the
Consulting Agreement, not to have any connection with any business that
competes with the business of the Company in the eastern United States.
Under the Consulting Agreement, the Company also agreed, during the term of
the Consulting Agreement, to make available to Mr. Berger an automobile for
use in connection with his work for the Company and to reimburse him for
the expenses of operation of the automobile. The Company further agreed to
transfer title to such automobile to Mr. Berger, without charge to him,
promptly after expiration of the term of the Consulting Agreement, and such
automobile, having a value of approximately $19,800 at the time of
transfer, was transferred to Mr. Berger in January 1998. From January 1,
1998 through December 31, 1998, Mr. Berger was paid to provide consulting
services to the Company on a month-to-month basis at the rate of $50,000
per annum. During this period and thereafter, the Company has provided, and
will continue to provide, health benefits to Mr. Berger and his spouse
pursuant to the Consulting Agreement. The Company paid Mr. Berger $45,833
in consulting fees pursuant to this arrangement for his services in fiscal
1998.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
amendment to be signed on its behalf by the undersigned, thereunto duly
authorized.
Designs, Inc.
Date: May 28, 1999 By: /s/ Joel H. Reichman
-----------------------
Joel H. Reichman
President and Chief
Executive Officer
EXHIBIT INDEX
3.4 By-Laws of the Company, as amended.