<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential,
for Use of the Commission Only
/X/ Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Charming Shoppes, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Charming Shoppes, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total Fee Paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE> 2
CHARMING SHOPPES, INC.
450 WINKS LANE
BENSALEM, PENNSYLVANIA 19020
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 27, 1996
------------------------
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Charming
Shoppes, Inc. will be held at the offices of Charming Shoppes, Inc. at 450 Winks
Lane, Bensalem, Pennsylvania 19020, on June 27, 1996 at 10:00 A.M. for the
following purposes:
1. To elect two Class C Directors of the Company.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only Shareholders of record at the close of business on May 10, 1996 will
be entitled to notice of and to vote at the meeting.
A Proxy Statement, Proxy Card, Annual Report and postage-paid return
envelope are enclosed.
By Order of the Board of Directors
BERNARD BRODSKY
Secretary
May 23, 1996
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING.
SHAREHOLDERS UNABLE TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO VOTE, DATE
AND SIGN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, AND TO MAIL THE SAME
IN THE ENVELOPE ENCLOSED FOR THAT PURPOSE. NO POSTAGE IS REQUIRED IF IT IS
MAILED IN THE UNITED STATES.
<PAGE> 3
CHARMING SHOPPES, INC.
450 WINKS LANE
BENSALEM, PA 19020
------------------------
PROXY STATEMENT
------------------------
Execution and return of the enclosed Proxy Card is being solicited by the
Board of Directors of Charming Shoppes, Inc. (the "Company") for use at the
Annual Meeting of Shareholders to be held on June 27, 1996 at 10:00 A.M. at the
offices of the Company at 450 Winks Lane, Bensalem, Pennsylvania 19020, or at
any adjournments thereof (the "Meeting"). Shares of the Company's Common Stock
represented by any unrevoked Proxy in the enclosed form, if such Proxy is
properly executed and is received prior to the Meeting, will be voted in
accordance with the specifications made on such Proxy. Any properly executed
Proxy received on a timely basis on which no specification has been made by the
Shareholder will be voted "FOR" the election as Directors of the nominees listed
herein (or for such substitute nominee as may be nominated by the Board of
Directors in the event any initial nominee becomes unavailable, which event is
not anticipated), and, in the discretion of the Proxy Committee, upon all other
matters requiring a vote of Shareholders which may come before the Meeting, and
of which the Board of Directors was not aware a reasonable time before this
solicitation, and as otherwise permitted under the Rules of the Securities and
Exchange Commission ("SEC"). This Proxy Statement, the accompanying Notice of
Annual Meeting of Shareholders and Proxy Card and the Company's 1996 Annual
Report have been mailed on or about May 23, 1996. Only Shareholders of record as
of the close of business on May 10, 1996 are entitled to notice of and to vote
at the Meeting.
The Proxy Committee consists of Joseph L. Castle, II, Chairman of the Board
of Directors, and Dorrit J. Bern, Vice Chairman of the Board of Directors,
President and Chief Executive Officer. Any Shareholder who executes and delivers
a Proxy may revoke it at any time prior to its use by delivering a duly executed
Proxy bearing a later date or by sending notice to the Secretary of the Company
at the address of the Company listed above. Any Shareholder may choose to attend
the Meeting and vote in person, in which case any Proxy previously executed by
such Shareholder will be revoked.
As of May 10, 1996 the Company had outstanding 103,876,925 shares of Common
Stock, the holders of which are entitled to one vote per share. Presence at the
Meeting, in person or by proxy, of the holders of a majority of the shares of
Common Stock entitled to vote is necessary to constitute a quorum. The election
of Directors will be determined by a plurality of the votes cast. With regard to
the election of Directors, votes may be cast in favor or withheld; votes that
are withheld will be excluded entirely from the vote and will have no effect. If
a nominee, broker or other person holding shares on behalf of a beneficial owner
specifies that shares are not to be voted on a given matter (a "non-vote"), such
non-vote will be excluded entirely from the vote and will have no effect.
RECENT MANAGEMENT CHANGES
On May 17, 1995, David V. Wachs resigned from his offices as Chairman of
the Board, Chief Executive Officer and a Director of the Company. The Company
entered into an agreement with David V. Wachs pursuant to which he continues to
render services to the Company as a non-officer employee. See "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements". At that
time, Philip Wachs, the Company's then President and Chief Operating Officer,
was elected to the office of Chairman of the Board. He also assumed the role of
acting Chief Executive Officer while the Company conducted a search for a new
President and Chief Executive Officer. Philip Wachs resigned from the offices of
President and acting Chief Executive Officer on the appointment of Dorrit J.
Bern to those offices on August 23, 1995. He continued to serve the Company as
Chairman of the Board and Chief Operating Officer until February 9, 1996 when he
resigned from those offices and terminated his employment with the Company.
Philip Wachs has entered into a severance agreement with the Company. See
"MANAGEMENT COMPENSATION -- Employment, Change of Control and Severance
Agreements". On April 25, 1996, he resigned as a Director of the Company.
<PAGE> 4
On August 23, 1995, Dorrit J. Bern was appointed President, Chief Executive
Officer and Vice Chairman of the Board of the Company. The Company entered into
an employment agreement with Ms. Bern pursuant to which she will render services
to the Company in those capacities. See "MANAGEMENT COMPENSATION -- Employment,
Change of Control and Severance Agreements".
On December 22, 1995 and January 15, 1996, respectively, Ivan M. Szeftel,
the Company's Executive Vice President and Chief Financial Officer, and
Mordechay Kafry, the Company's Executive Vice President -- Merchandise
Procurement, resigned from their respective offices. Mr. Kafry had previously
resigned as a Director of the Company on November 27, 1995. The Company has
entered into severance agreements with Messrs. Szeftel and Kafry. See
"MANAGEMENT COMPENSATION -- Employment, Change of Control and Severance
Agreements". On December 22, 1995, Eric M. Specter, the Company's Vice President
and Controller succeeded Mr. Szeftel as the Company's Chief Financial Officer.
In addition, on January 15, 1996, Erna Zint, the Company's Executive Vice
President -- Overseas Sourcing, succeeded Mr. Kafry in that capacity.
On March 21, 1996, Joseph L. Castle, II, a Director, was elected Chairman
of the Board of Directors of the Company. On April 25, 1996, Samuel Sidewater
resigned from the office of Executive Vice President -- Mens Division and as a
Director of the Company. See "MANAGEMENT COMPENSATION -- Employment, Change of
Control and Severance Agreements".
ELECTION OF DIRECTORS
GENERAL
Pursuant to the Company's Restated Articles of Incorporation, which
provides for a classified Board of Directors, the Board of Directors consists of
three classes of Directors with overlapping three-year terms. One class of
Directors is to be elected each year with terms expiring on the third succeeding
Annual Meeting after such election and until their successors shall have been
duly elected and qualified. The terms of two Class C Directors, namely Dorrit J.
Bern and Alan Rosskamm, are scheduled to expire as of the date of the Meeting.
At the Meeting Dorrit J. Bern and Alan Rosskamm will be nominated to serve as
Class C Directors for an additional three-year term and until their successors
shall have been duly elected and qualified. Ms. Bern was elected as a Class C
Director on August 23, 1995 to fill the vacancy created by the resignation of
David V. Wachs. Mr. Rosskamm was last elected as a Class C Director to the Board
at the Company's Annual Meeting held on June 29, 1993.
Unless otherwise directed, the Proxy solicited hereby will be voted for the
election of Dorrit J. Bern and Alan Rosskamm as Class C Directors.
If any of the nominees refuses or is unable to serve as a Director (which
event is not anticipated), discretionary authority may be exercised by the Proxy
Committee to vote for a substitute to be named by the present Board of
Directors. The election of Directors will be determined by a plurality of the
votes cast.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL THE
NOMINEES.
2
<PAGE> 5
BIOGRAPHICAL INFORMATION
The following information is submitted as of May 16, 1996, concerning each
nominee for election as a Director and each person whose term of office as a
Director will continue after the Annual Meeting:
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
POSITION HELD YEAR FIRST TERM
NAME WITH THE COMPANY AGE BECAME DIRECTOR TO EXPIRE
- ----------------------------- ----------------------------- --- --------------- ---------
<S> <C> <C> <C> <C>
Dorrit J. Bern............... Vice Chairman of the Board, 46 1995 1999
President and Chief Executive
Officer
Alan Rosskamm................ Director 46 1992 1999
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
Marvin L. Slomowitz.......... Director 66 1990 1997
Geoffrey W. Levy............. Director 48 1993 1997
Joseph L. Castle, II......... Chairman of the Board 63 1990 1998
Michael Solomon.............. Director 48 1990 1998
</TABLE>
Dorrit J. Bern has been President, Chief Executive Officer and Vice
Chairman of the Board since August 23, 1995 when she joined the Company. Prior
to that time, Ms. Bern was employed by Sears, Roebuck & Co. since 1987. As
Divisional Vice President of Misses and Junior Sportswear, Dresses, Outerwear,
Petite and Large Size Sportswear and Dresses, and Maternity, Ms. Bern was
instrumental in the creation and execution of the women's apparel strategy at
Sears. In December 1992 she was promoted to Category Vice President of Womens
Apparel. In December 1993 she was promoted to Group Vice President of Women's
Apparel and Home Fashions. Prior to joining Sears, Roebuck & Co., Ms. Bern held
merchandising positions at The Bon Marche and Joske's, divisions of Allied
Department Stores, Inc.
Alan Rosskamm has been a Director of the Company since March 1992. He has
been Chairman of the Board of Directors of Fabri-Centers of America, Inc. since
July 1992. He has also been the Chief Executive Officer and a Director of
Fabri-Centers of America, Inc. for more than five years. Its principal business
is conducted in the retail fabric industry through specialty fabric stores which
sell a wide variety of fashion and decorator fabrics and notions, crafts,
patterns and sewing accessories.
Marvin L. Slomowitz has been a Director of the Company for over five years.
He has served as Chairman of the Board and Chief Executive Officer of Mark
Centers Trust since June 1993 and as President of Mark Centers Trust from June
1993 to February 1994. He has also served as Chairman of the Board of Directors,
President and Chief Executive Officer of the predecessor to Mark Centers Trust,
Mark Development Company, from 1955 through June 1993. Mark Centers Trust is
principally engaged in the development of shopping centers.
Geoffrey W. Levy has been a Director of the Company since January 1993.
Since 1969 he has been principally engaged in the development of shopping
centers in the northeastern section of the United States. He has also acted as a
consultant to national and regional retail chains providing them with advisory
services on site selection and lease negotiations. Prior to 1988, Mr. Levy owned
and operated twenty-five movie theaters in the northeastern section of the
United States. From 1988 until 1995, Mr. Levy served as President of Southbridge
Cinema, Inc. which owned and operated a movie theater in Massachusetts and from
1988 until the present he has served as Treasurer of Fishkill Cinema, Inc. which
owns and operates a movie theater in New York. In September 1995 Southbridge
Cinema, Inc. was dissolved. Mr. Levy is also the general partner of Wakefield
Mall Associates which owns and operates a shopping center in Wakefield, Rhode
Island.
Joseph L. Castle, II has been a Director of the Company since 1990 and has
been Chairman of its Board of Directors since March 21, 1996. He has served as
Chairman of the Board of Castle Energy Corporation ("CEC") since December 1993.
He has also served as President, Chief Executive Officer and a Director of CEC
since December 1985 and was the President and Chairman of the Board of Directors
of its predecessor
3
<PAGE> 6
(which merged with a subsidiary of CEC in December 1985) from February 1981
through December 1985. He is also a Director of Comcast Corporation and Mark
Centers Trust.
Michael Solomon has been a Director of the Company since 1990. He has been
associated with the investment banking firm of Lazard Freres & Co. LLC since
1981 and is currently a Managing Director of that firm.
Information concerning the beneficial ownership of the Company's shares of
Common Stock by each nominee for election as a Director and each person whose
term of office as a Director will continue is set forth under "PRINCIPAL
SHAREHOLDERS AND MANAGEMENT OWNERSHIP".
COMMITTEES OF THE BOARD
The Board of Directors has an Audit Committee, a Compensation Committee,
certain Stock Option Committees and an Administration Committee. During the
Company's 1996 fiscal year, Joseph L. Castle, II, Alan Rosskamm and Geoffrey W.
Levy were members of the Audit Committee. The Audit Committee monitors the
activities of the Company's independent auditors and the Company's internal
audit functions. The Audit Committee met once during the Company's 1996 fiscal
year. During the Company's 1996 fiscal year, Joseph L. Castle, II, Michael
Solomon and Marvin L. Slomowitz were members of the Compensation Committee and
Stock Option Committees. At the Company's Annual Meeting of the Board of
Directors on June 29, 1995, Alan Rosskamm was also appointed to serve on the
Compensation and Stock Option Committees. The Compensation Committee reviews the
compensation of the Company's Executive Officers. See "REPORT OF THE
COMPENSATION AND STOCK OPTION COMMITTEES OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION". The Compensation Committee had nine meetings during the Company's
1996 fiscal year and, on three occasions, acted by unanimous consent. The Stock
Option Committees have the responsibility to administer the Company's employee
stock option and stock incentive plans; to determine the individuals from among
those eligible under these plans to whom, and the time or times at which,
options and awards shall be granted and the number of shares to be subject to
each option or award; and to make all other determinations necessary or
advisable for the administration of these plans. The Stock Option Committees had
eleven meetings during the Company's 1996 fiscal year and, on fourteen
occasions, acted by unanimous consent.
During the Company's 1996 fiscal year, David V. Wachs, Philip Wachs and
Samuel Sidewater were members of the Board of Directors' Administration
Committee (the "Administration Committee"). Geoffrey W. Levy was appointed to
fill the vacancy resulting from the resignation of David V. Wachs during the
1996 fiscal year. Since then, Dorrit J. Bern and Joseph L. Castle, II, have been
appointed to fill the vacancies resulting from the resignations of Philip Wachs
and Samuel Sidewater, respectively. The Administration Committee is authorized
to exercise the authority of the Board of Directors on matters of a routine
nature between meetings of the Board of Directors. The Administration Committee
acted by unanimous consent on one occasion during fiscal 1996. The Board has no
standing nominating committee as the selection of nominees for the Board of
Directors is deemed to be the responsibility of the entire Board.
The Company does not have a formal nominating committee, and nominations
for Director candidates are determined by the Board of Directors. The Company's
Bylaws establish advance notice procedures with regard to the nomination, other
than by or at the direction of the Board of Directors or a committee thereof, of
candidates for election as Directors. These procedures generally provide that
the notice of proposed shareholder nominations for the election of Directors
must be given in writing to the Secretary of the Company not later than the date
on which a shareholder proposal would be required to be submitted to the Company
in order to be set forth in the Company's Proxy Statement, in accordance with
SEC Rules. See "PROPOSALS FOR 1997 ANNUAL MEETING". Such notice generally must
(i) identify the name and address of the nominating shareholder and nominee,
(ii) contain representations concerning the nominating shareholder's ownership
of Common Stock and intention to appear at the meeting and make the nomination
and (iii) include all relevant information concerning the nominee and his or her
relationship or transactions with the Company that are required to be disclosed
in the Proxy Statement pursuant to SEC Rules.
4
<PAGE> 7
Seventeen meetings of the Board of Directors were held during the Company's
fiscal year ended February 3, 1996. Each incumbent Director attended at least
75% of the meetings of the Board and Committees on which he served (held at a
time at which he was a Director).
COMPENSATION OF DIRECTORS
Directors who are not also employees of the Company are paid $20,000 per
year for their service on the Board and any Committees. Such non-employee
Directors also participate in the Company's 1989 Non-Employee Director Stock
Option Plan (the "1989 Plan"). A Director who is also a Company employee is not
separately compensated for his service as a Director.
The 1989 Plan provides that each person who after the inception of the 1989
Plan becomes a non-employee Director of the Company shall automatically receive
an option under the 1989 Plan, as of the date of such Director's commencement of
service as a non-employee Director, to purchase 30,000 shares of Common Stock.
The exercise price for the shares of Common Stock to be purchased upon exercise
of such option is equal to the fair market value of the shares covered by such
option on the date of grant. Options granted under the 1989 Plan generally have
a term of ten years and become cumulatively exercisable as to 20% of the shares
subject to the option on each of the first five anniversaries of the date of
grant.
The Company's Non-Employee Directors' Restricted Stock Plan (the
"Restricted Stock Plan") expired April 3, 1996. The Restricted Stock Plan
provided for a one-time grant of 5,000 shares of restricted stock to each
non-employee Director who was serving at the effective date of the Restricted
Stock Plan and, during the five-year life of the Restricted Stock Plan, a
pro-rata grant to each newly elected or appointed non-employee Director who at
the time he joined the Board was not related to another Director and had not
been an employee of the Company for at least three years.
5
<PAGE> 8
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years (ended February 3,
1996 ("fiscal 1996"), January 28, 1995 ("fiscal 1995") and January 29, 1994
("fiscal 1994")) to the two individuals who served as the Company's Chief
Executive Officer during the 1996 fiscal year, each of the Company's four other
most highly compensated Executive Officers who were serving as Executive
Officers at the end of the 1996 fiscal year and the two Executive Officers whose
actual compensation, but for their resignations, would have placed them among
the four most highly compensated Executive Officers excluding the Chief
Executive Officers, all based on salary and bonus earned during the 1996 fiscal
year.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------------------------ ------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND FISCAL SALARY COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR(1) ($) BONUS($)(2) ($)(3) OPTIONS(#) ($)(4)(5)
- ----------------------------- ------- --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Dorrit J. Bern(6),........... 1996 $438,462 (7) -- -- 1,000,000 $1,000,000(6)
Vice Chairman of the Board, 1995 -- -- -- -- --
President and Chief Executive 1994 -- -- -- -- --
Officer
David V. Wachs(8),........... 1996 471,346 -- -- 250,000 78,129
Former Chairman of the Board 1995 570,000 -- -- 210,000(8) 102,161
and former Chief Executive 1994 570,000 -- -- 135,000(8) 112,040
Officer
Philip Wachs(9),............. 1996 360,000 -- -- 230,000(9) 2,305,162(9)
Former Chairman of the Board, 1995 360,000 -- -- 210,000(9) 77,490
former President and Chief 1994 360,000 -- -- 135,000(9) 11,586
Operating Officer, and former
acting Chief Executive
Officer
Mordechay Kafry(10),......... 1996 460,000 -- $187,785 185,000(10) 1,968,604(10)
Former Executive Vice 1995 460,000 -- 162,000 173,700(10) 39,028
President -- Merchandise 1994 460,000 -- 134,012 115,800(10) 39,428
Procurement and former
Director
Ivan M. Szeftel(11),......... 1996 325,000 -- -- 165,000(11) 396,852(11)
Former Executive Vice 1995 325,000 -- -- 157,500(11) 8,547
President -- Finance 1994 325,000 -- -- 104,700(11) 12,208
Vivian Behrens,.............. 1996 310,000 -- -- 35,000 48,048(12)
Vice President -- Marketing 1995 119,251 (7) -- -- 43,500 77,751(12)
1994 -- -- -- --
Colin D. Stern,.............. 1996 300,000 -- -- 145,000 19,096
Executive Vice President and 1995 300,000 -- -- 133,500 22,220
General Counsel 1994 300,000 -- -- 89,000 24,868
Terry G. Pritikin,........... 1996 280,000 -- -- -- --
Vice President -- Director of 1995 53,846 (7) -- -- 40,000 20,000(13)
Stores 1994 -- -- -- -- --
</TABLE>
- ---------------
(1) The Company has a 52-53 week fiscal year ending the Saturday nearest
January 31. The Company had a 53 week fiscal year for the fiscal year ended
February 3, 1996. All amounts in the table have been adjusted to reflect
the fiscal year ended February 3, 1996 as a 52 week fiscal year.
(2) The Company has an annual incentive plan for key employees (the
"Participants"). Each Participant receives a specified percentage of his or
her base salary on a graduated scale as a bonus, if and to the extent the
performance goals prescribed for that Participant are met. The performance
goals vary depending on the functions of each Participant. The plan and the
performance goals are reviewed and approved by the Compensation Committee
prior to implementation. See "REPORT OF THE
Notes continued on following page
6
<PAGE> 9
COMPENSATION AND STOCK OPTION COMMITTEES OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION". As reflected in the table no bonuses were paid to
or accrued for the named Executive Officers under the plan with respect to
the 1994, 1995 and 1996 fiscal years.
(3) The amount set forth under the caption "Other Annual Compensation" with
respect to Mordechay Kafry for the 1996 fiscal year includes $154,000
attributable to him for the rent-free use of an apartment in Hong Kong. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS". No amount has been
disclosed under the caption "Other Annual Compensation" with respect to the
other named Executive Officers in accordance with SEC Rules as the value of
perquisites or other personal benefits received by each such Executive
Officer does not equal or exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported for each such Executive Officer.
(4) The Company has enabled Dorrit J. Bern, David V. Wachs, Philip Wachs,
Mordechay Kafry, Ivan M. Szeftel and Colin D. Stern to obtain life
insurance pursuant to "Split Dollar" arrangements. The Company is either
the owner or the assignee of these policies and is the beneficiary under
such policies either to the extent of the premiums paid by it or to the
extent of the greater of the cash value or premiums paid by it.
Accordingly, the economic value of this benefit to each named Executive
Officer included under the caption "All Other Compensation" with respect to
the 1996 fiscal year are as follows: Dorrit J. Bern, $0; David V. Wachs,
$75,429; Philip Wachs, $68,056; Mordechay Kafry, $1,732; Ivan M. Szeftel,
$3,027; and Colin D. Stern, $10,396. Also included under the caption "All
Other Compensation" with respect to Mr. Stern are premiums in the amount of
$6,000 paid by the Company on behalf of Mr. Stern for a cash-value type
insurance policy on the life of Mr. Stern. With respect to the life
insurance coverage for David V. Wachs, Philip Wachs and Dorrit J. Bern, see
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
(5) Included under the caption "All Other Compensation" are contributions in
the following amounts made or accrued by the Company under its defined
contribution plan on behalf of the named Executive Officers during the 1996
fiscal year: Dorrit J. Bern, $0; David V. Wachs, $2,700; Philip Wachs,
$2,700; Mordechay Kafry, $49,577; Ivan M. Szeftel, $2,700; Vivian Behrens,
$0; Colin D. Stern, $2,700; and Terry G. Pritikin, $0.
(6) On August 23, 1995, Dorrit J. Bern was appointed President, Chief Executive
Officer and Vice Chairman of the Board of the Company. The Company entered
into an employment agreement with Ms. Bern pursuant to which she will
render services to the Company in those capacities. See "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements".
Included under the Caption "All Other Compensation" is a $1,000,000 cash
bonus paid to Ms. Bern in conjunction with her acceptance of employment
with the Company. See "REPORT OF THE COMPENSATION AND STOCK OPTION
COMMITTEES OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION -- Compensation of the Chairmen and Chief Executive Officers
for the 1996 Fiscal Year".
(7) Mss. Bern and Behrens and Mr. Pritikin commenced employment with the
Company on August 23, 1995, September 12, 1994 and November 24, 1994,
respectively. The salaries which were paid to them during the year of
commencement of employment with the Company reflect payment for services
rendered for only that portion of the year during which they were employed
by the Company.
(8) On May 17, 1995, David V. Wachs resigned from his offices as Chairman of
the Board, Chief Executive Officer and a Director of the Company. The
Company entered into an agreement with David V. Wachs pursuant to which he
continues to render services to the Company as a non-officer employee. His
salary reflects an annual rate of $570,000 through the date of his
resignation and an annual rate of $427,500 as a non-officer employee for
the remainder of the year. The options reflected herein which were granted
to David V. Wachs in fiscal 1994 and fiscal 1995 were cancelled on his
resignation. See "MANAGEMENT COMPENSATION -- Employment, Change of Control
and Severance Agreements".
Notes continued on following page
7
<PAGE> 10
(9) On May 17, 1995, Philip Wachs, the Company's then President and Chief
Operating Officer, was elected to the office of Chairman of the Board. He
also assumed the role of acting Chief Executive Officer while the Company
conducted a search for a new President and Chief Executive Officer. Philip
Wachs resigned from the offices of President and acting Chief Executive
Officer on the appointment of Dorrit J. Bern to those offices on August 23,
1995. He continued to serve the Company as Chairman of the Board and Chief
Operating Officer until February 9, 1996 when he resigned from those
offices and terminated his employment with the Company. Philip Wachs has
entered into a severance agreement with the Company. See "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements". On
April 25, 1996, he resigned as a Director of the Company. The options
reflected herein which were granted to Philip Wachs during fiscal 1994 and
fiscal 1995 were cancelled on his resignation. The options to purchase
115,000 shares of Common Stock which were granted to Philip Wachs during
fiscal 1996 were cancelled on his resignation. The amount shown as "All
Other Compensation" includes $2,234,406 which was paid or accrued under Mr.
Wachs' severance agreement. See "MANAGEMENT COMPENSATION -- Employment,
Change of Control and Severance Agreements".
(10) On January 15, 1996, Mordechay Kafry, the Company's Executive Vice
President -- Merchandise Procurement, resigned from his office. Mr. Kafry
had previously resigned as Director of the Company on November 27, 1995.
The Company has entered into a severance agreement with Mr. Kafry under
which the options to purchase 83,400, 125,700 and 149,000 shares of Common
Stock which were granted to Mr. Kafry during fiscal 1994, 1995 and 1996,
respectively, were cancelled. The amount shown as "All Other Compensation"
includes $1,917,295 which was paid or accrued under Mr. Kafry's severance
agreement. See "MANAGEMENT COMPENSATION -- Employment, Change of Control
and Severance Agreements".
(11) On December 22, 1995, Ivan M. Szeftel, the Company's Executive Vice
President and Chief Financial Officer, resigned from his office. The
Company has entered into a severance agreement with Mr. Szeftel under which
the options to purchase 72,300, 109,500 and 131,000 shares of Common Stock
which were granted to Mr. Szeftel during fiscal 1994, 1995 and 1996,
respectively, were cancelled. The amount shown as "All Other Compensation"
includes $391,125 which was paid or accrued under Mr. Szeftel's severance
agreement. See "MANAGEMENT COMPENSATION -- Employment, Change of Control
and Severance Agreements".
(12) Included under the caption "All Other Compensation" are relocation expenses
in the aggregate amount of $125,799 paid to Vivian Behrens in fiscal 1995
and fiscal 1996 in conjunction with her acceptance of employment with the
Company.
(13) Included under the caption "All Other Compensation" is a $20,000 cash bonus
paid to Terry G. Pritikin in conjunction with his acceptance of employment
with the Company.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to options granted to the
named Executive Officers during the 1996 fiscal year. The table indicates the
potential realizable value of options granted during fiscal 1996 which were not
cancelled in connection with severance agreements disclosed herein, assuming the
options are exercised immediately prior to their expiration date and assuming
the occurrence of the specified compounded rates of appreciation of the
Company's Common Stock over the term of such options. The potential realizable
value of such options is approximately equal to the amount a purchaser of Common
Stock would realize, exclusive of brokerage commissions, assuming (i) the
purchase of an equivalent number of shares of Common Stock at the closing market
price on the date of grant of the options depicted, (ii) the sale of such shares
immediately prior to the expiration date of such options at the closing market
price on such date and (iii) the occurrence of the specified compounded rates of
appreciation of the Common Stock over such holding period. This table is
presented solely for purposes of complying with SEC Rules, and there can be no
assurance that the optionees or any purchaser of the Common Stock under the
circumstances described herein will actually realize the returns assumed herein
under the circumstances depicted or under any other
8
<PAGE> 11
circumstances. The actual amounts, if any, realized by an optionee or the
purchaser of Common Stock will be dependent upon a number of factors, including
the future performance of the Company and overall stock market conditions.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES % OF TOTAL AT ASSUMED ANNUAL RATES
UNDERLYING OPTIONS OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(1)
GRANTED EMPLOYEES PRICE EXPIRATION -----------------------------------
NAME (#)(2) IN FISCAL YEAR ($/SH) DATE 0%($) 5%($) 10%($)
- ------------------------- --------- -------------- -------- ---------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dorrit J. Bern........... 1,000,000(3) 26.7% $4.6250 08/23/05 $ 0 $2,908,638 $7,371,059
David V. Wachs........... 125,000 (3)(4) 3.3% 6.00 05/17/00(4) 0 220,222 490,162
125,000 (5) 3.3% 6.00 02/06/05 0 471,671 1,195,307
Philip Wachs............. 115,000 (3)(6) 3.1% 6.00 02/06/05(6) 0 433,937(6) 1,099,682(6)
115,000 (5)(6) 3.1% 6.00 02/06/05(6) 0 433,937(6) 1,099,682(6)
Mordechay Kafry.......... 90,000 (3)(7) 2.4% 6.00 11/30/98(7) 0 44,174(7) 94,680(7)
95,000 (5)(7) 2.5% 6.00 (7) 0 (7) (7)
Ivan M. Szeftel.......... 85,000 (3)(8) 2.3% 6.00 02/13/98(8) 0 32,377(8) 68,021(8)
80,000 (5)(8) 2.1% 6.00 (8) 0 (8) (8)
Vivian Behrens........... 25,000 (3) .7% 6.00 02/06/05 0 94,334 239,061
10,000 (5) .3% 6.00 02/06/05 0 37,734 95,625
Colin D. Stern........... 85,000 (3) 2.3% 6.00 02/06/05 0 320,736 812,809
60,000 (5) 1.6% 6.00 02/06/05 0 226,402 573,747
Terry G. Pritikin........ 0 -- -- -- -- -- --
</TABLE>
- ---------------
(1) The potential realizable value of the options depicted above does not take
into account provisions of certain options providing for termination of the
options following the termination of employment, the non-transferability of
the options or the vesting requirements of the options. Such potential
realizable value is calculated based on those options which remained
outstanding at the end of the 1996 fiscal year, based on the expiration date
as in effect at that time.
(2) All of these options to acquire shares of the Company's Common Stock are
non-qualified options and were granted with an exercise price equal to the
fair market value of the shares of Common Stock on the date of the grant.
Such options have a term of ten years subject to earlier expiration at or
following termination of employment in certain circumstances. The option
exercise price may be paid in cash or, with the approval of the Stock Option
Committee, in shares of Common Stock owned by the Executive Officer or a
combination of cash and such shares. In the event of a change of control of
the Company, any unexercisable portion of the options will become
immediately exercisable. See "MANAGEMENT COMPENSATION -- Employment, Change
of Control and Severance Agreements". An Executive Officer can elect to have
the Company withhold shares upon exercise to satisfy tax withholding
obligations.
(3) Under their original terms these options become exercisable as to one-fifth
of the shares subject thereto on each of the first, second, third, fourth
and fifth anniversaries of the date of grant.
(4) In connection with the resignation of David V. Wachs, the expiration date of
the indicated options (originally February 6, 2005) was modified to provide
for expiration on May 17, 2000.
(5) Upon grant, these performance-accelerated options were scheduled to become
cumulatively exercisable as to one-fifth of the shares subject to the option
on each of the fifth, sixth, seventh, eighth and ninth anniversaries of the
date of grant. Such options will, however, become exercisable on an
accelerated basis if the Company's compounded rate of growth of its earnings
per share over any period of three consecutive fiscal years from fiscal 1996
through fiscal 2000 equals or exceeds a certain percentage determined by the
Stock Option Committee; if such performance is achieved, the options will
become cumulatively exercisable as to one-half of the shares subject to the
option on each of the next two anniversaries of the date of grant.
Notes continued on following page
9
<PAGE> 12
(6) Performance-accelerated options to purchase 115,000 shares of Common Stock
which were granted to Philip Wachs during fiscal 1996 were cancelled on his
resignation after the end of the 1996 fiscal year. In connection with Philip
Wachs' resignation after the end of fiscal 1996, the expiration date of the
other indicated options (originally February 6, 2005) was modified to
provide for expiration on February 28, 2002. See "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements".
(7) Options to purchase 54,000 of the 90,000 shares of Common Stock were
cancelled upon Mr. Kafry's resignation, and the expiration date of such
remaining options (originally February 6, 2005) was modified to provide for
expiration on November 30, 1998. All of the performance-accelerated options
to purchase 95,000 shares of Common Stock were cancelled in connection with
Mr. Kafry's resignation. See "MANAGEMENT COMPENSATION -- Employment, Change
of Control and Severance Agreements".
(8) Options to purchase 51,000 of the 85,000 shares of Common Stock were
cancelled upon Mr. Szeftel's resignation, and the expiration date of such
remaining options (originally February 6, 2005) was modified to provide for
expiration on February 13, 1998. All of the performance-accelerated options
to purchase 80,000 shares of Common Stock were cancelled in connection with
Mr. Szeftel's resignation. See "MANAGEMENT COMPENSATION -- Employment,
Change of Control and Severance Agreements".
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information relating to options exercised by
the named Executive Officers during the 1996 fiscal year and the number and
value of options held at fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT FISCAL YEAR-END
AT FISCAL YEAR-END(#) ($)(1)(2)
SHARE ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dorrit J. Bern............... -- -- -- 1,000,000 $ 0 $ 0
David V. Wachs(3)............ -- -- 2,573,333 276,667 808,333 66,668
Philip Wachs(3).............. -- -- 879,000 536,000 410,000 75,000
Mordechay Kafry(3)........... -- -- 865,068 0 341,670 0
Ivan M. Szeftel(3)........... -- -- 739,818 0 316,670 0
Vivian Behrens............... -- -- 7,000 71,500 0 17,000
Colin D. Stern............... -- -- 317,766 337,234 116,665 58,335
Terry G. Pritikin............ -- -- 7,000 33,000 0 10,000
</TABLE>
- ---------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market on February 2, 1996 was $3.00. Value is calculated on the
basis of the aggregate of the difference between the option exercise price
of in-the-money options and $3.00 multiplied by the number of shares of
Common Stock underlying such options.
(2) See "REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION".
(3) In connection with his resignation as an officer, each of the following
persons surrendered options to purchase the indicated number of shares of
the Company's Common Stock prior to the end of the fiscal year: David V.
Wachs: 345,000 shares; Mordechay Kafry: 358,100 shares; Ivan M. Szeftel:
312,800 shares. In connection with his resignation as an officer, Philip
Wachs surrendered options to purchase 530,000 shares of the Company's Common
Stock after the end of the fiscal year. See "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements".
Notes continued on following page
10
<PAGE> 13
EMPLOYMENT, CHANGE OF CONTROL AND SEVERANCE AGREEMENTS
On May 17, 1995, David V. Wachs resigned from his positions as a Director
of the Company as well as the Company's Chairman of the Board and Chief
Executive Officer. In connection therewith, the Company and Mr. Wachs entered
into an agreement which provides for Mr. Wachs to continue to render services to
the Company as a non-officer employee for six years. Mr. Wachs will be
compensated at an annual rate of $427,500 per year during the first five years
of the agreement and at an annual rate of $200,000 during the final year of the
agreement. The Company's obligations to continue paying premiums on certain
Split Dollar life insurance policies remained unaffected. However, the Company
has since entered into an agreement with Mr. Wachs which provides that he will
be personally responsible for making such premium payments in the future and
that the Company will be relieved of all liability therefor. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS". In connection with the agreement, Mr.
Wachs surrendered previously granted options to purchase 135,000 shares of the
Company's Common Stock at $15.125 per share and options to purchase 210,000
shares at $11.125 per share.
On August 22, 1995, Dorrit J. Bern entered into an Employment Agreement
(the "Agreement") with the Company pursuant to which Ms. Bern is employed as the
Company's President and Chief Executive Officer at an annual salary of
$1,000,000 for an initial term of five years commencing August 23, 1995 (the
"Initial Term"). The Agreement continues in full force and effect from year to
year after the expiration of the Initial Term unless either Ms. Bern or the
Company gives the other before the commencement of any such year at least ninety
days prior written notice of such party's intention to terminate the Agreement.
Such annual salary may be increased or decreased at the discretion of the
Company's Board of Directors, but in no event may the annual salary be less than
$1,000,000. Ms. Bern received a cash bonus of $1,000,000 under the Agreement.
Commencing with the fiscal year beginning February 4, 1996 Ms. Bern is entitled
to receive additional compensation ("Performance Payout") if the Company
achieves certain performance criteria established under the Company's Annual
Incentive Plan. The formula and standards for determining this Performance
Payout are determined by the Compensation Committee, but may not exceed 120% of
Ms. Bern's annual base salary for the applicable year. The Agreement provides
that Ms. Bern will receive a Performance Payout of not less than 30% of her
annual salary for the fiscal year commencing February 4, 1996. The Company's
obligations under the Agreement are secured by a Letter of Credit in the face
amount of $2,500,000.
Under the Agreement, Ms. Bern was granted options to purchase up to
1,000,000 shares of the Company's Common Stock under the Company's 1993
Employees' Stock Incentive Plan. The options were granted at an exercise price
of $4.625 per share, the closing price per common share on the Nasdaq National
Market on the date of grant. Options covering 200,000 shares become exercisable
on the first anniversary of the date of grant and options covering an additional
200,000 shares vest on each succeeding anniversary of the date of grant until
the fifth anniversary at which time all options are fully vested. All options
become fully vested if Ms. Bern resigns for Good Reason or is discharged without
Cause. As defined in the Agreement, "Good Reason" means: (i) a substantial
change in her duties and responsibilities, which change would materially reduce
her stature, importance and dignity within the Company; (ii) the appointment of
an executive officer superior in rank to her; (iii) the failure of the Board to
nominate her for re-election as a director, or the failure of the stockholders
to re-elect her; (iv) the failure of the Company to pay any amount due to her
hereunder which failure shall persist for ten (10) days after written notice of
such failure shall have been given to the Company; and/or (v) the assignment of
her to office space which is not commensurate with her position and title, the
failure of the Company to provide the ministerial, administrative and
secretarial support customarily associated with her title and position or the
withdrawal by the Company of any such ministerial, administrative and
secretarial support. As defined in the Agreement, "Cause" includes but is not
limited to her chronic neglect, refusal or failure to perform her employment
duties and responsibilities, other than for reasons of sickness, accident or
other similar causes beyond her control; or her commission of any dishonest act
or intentional wrongdoing committed against the Company, its agents or employees
or otherwise in connection with her employment by the Company or a conviction of
a felony, whether or not in connection with employment. The Agreement also
provides for Ms. Bern's participation in the Company's retirement, insurance and
other benefit programs. In particular, the Company has undertaken to purchase
and pay the
11
<PAGE> 14
premium on a $4,000,000 split dollar life insurance policy on Ms. Bern's life,
subject to the execution of a Collateral Assignment Split Dollar Insurance
Agreement with the Company. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS".
Ms. Bern's employment may be terminated (a) in the event of her disability
or incapacity, (b) death, (c) on her resignation for Good Reason, (d) on her
resignation without Good Reason, (e) on her resignation upon a Change of Control
which is defined in the Agreement on substantially the same terms as are set
forth in the agreements evidencing options granted under the 1993 Employees'
Stock Incentive Plan and the 1990 Employees' Stock Incentive Plan as more fully
described below, (f) for Cause, or (g) by the Company without Cause. If Ms. Bern
is discharged without Cause or resigns for Good Reason or the Agreement is not
extended, she will continue to receive her base salary, paid in monthly
installments, for the greater of the remaining term of the Agreement or 18
months and her Performance Payout provided that the Company's obligation for
base salary will be offset by 65% of any compensation from other employment or
self-employment during this period (the "Mitigation Reduction"). If Ms. Bern
resigns upon a Change of Control, she will be entitled to post-termination
compensation on these same terms for a period of two years, subject to the
Mitigation Reduction. If within 12 months following a Change of Control, Ms.
Bern's employment is terminated by her for Good Reason or if her employment is
terminated without Cause then, in lieu of any other severance payments under the
Agreement, the Company will pay Ms. Bern on termination a lump sum amount equal
to 2.5 times her "base amount" within the meaning of Section 280G(b)(3) of the
Internal Revenue Code of 1986, as amended. On death or on termination for
disability or incapacity, Ms. Bern will be entitled to her base salary for any
days worked prior to the date of death or termination, a Performance Payout and
amounts payable under disability or insurance plans or policies maintained by
the Company for her benefit. If Ms. Bern is discharged for Cause or she resigns
without Good Reason, her sole entitlement will be the receipt of base salary for
any days worked through the date of termination. During the term of the
Agreement and for a period equal to the greater of two years following the
termination of employment for any reason or the period during which Ms. Bern is
entitled to payments upon termination under the Agreement, she may not, among
other things, engage in or be financially interested in any business which is in
competition with the Company.
The Company has severance arrangements with Ms. Behrens and Mr. Pritikin,
who commenced employment with the Company on September 12, 1994 and November 24,
1994, respectively. Under these arrangements, if either Ms. Behrens or Mr.
Pritikin is terminated during the second year of employment with the Company,
the terminated party will be paid three months' salary at the terminated party's
original base salary, less withholdings, provided the terminated party executes
a general release in the form generally used by the Company. The Company has no
obligation for severance to either Ms. Behrens or Mr. Pritikin after completion
of the second year of employment.
The agreements evidencing options granted to each of the named Executives
under the Company's stock option plans provide that in the event of a change of
control of the Company the options become fully exercisable. In the case of
options granted under the 1993 Employees' Stock Incentive Plan and the 1990
Employees' Stock Incentive Plan, a change of control is defined to mean (i) an
acquisition of shares giving a person or group beneficial ownership of more than
20% of the voting power of the Company's voting securities, (ii) a change in the
Board's membership such that the current members, or those elected or nominated
by vote of two-thirds of the current members and successors elected or nominated
by them, cease to represent a majority of the Board, (iii) certain mergers,
recapitalizations, reorganizations, or similar transactions substantially
reducing the percentage of voting power held by shareholders of the Company
prior to such transactions (unless otherwise determined by the Board), and (iv)
liquidation or sale of all or substantially all of the assets of the Company,
except that transactions involving subsidiaries or employee benefit plans of the
Company or parties whose acquisitions of shares in excess of ten percent of the
voting power of the Company have been approved in each case in advance by the
Board of Directors will not trigger a change of control. In the case of options
granted under the 1988 Key Employee Stock Option Plan and the 1986 Employees'
Stock Option Plan, a change of control will be deemed to occur if any person,
together with such person's affiliates and associates, becomes a beneficial
owner (including through any right to acquire) of securities having 20% or more
of the votes entitled to be cast for the election of directors, or if, in
connection with or during the two
12
<PAGE> 15
years following an extraordinary transaction, the persons who were Directors
immediately before the transaction cease to constitute a majority of the Board
of the Company or a successor corporation (not counting terminations due to
death, disability or normal retirement), except that the Board of Directors may
determine in advance that a given event will not be a change of control.
The Company has entered into severance agreements with Philip Wachs, the
Company's former President, Chairman of the Board and Chief Operating Officer,
Mordechay Kafry, the Company's former Executive Vice President -- Merchandise
Procurement and Director, Ivan M. Szeftel, the Company's former Executive Vice
President -- Finance and Chief Financial Officer and Samuel Sidewater, the
Company's former Executive Vice President -- Mens Division and Director.
Under his agreement, Philip Wachs will be paid an aggregate amount of
$2,160,000 in equal weekly installments and benefits, including health care
insurance and a car, through February 2002. The Company's obligation to continue
paying premiums on certain split dollar life insurance policies remains
unaffected. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS". Philip Wachs
surrendered previously granted options to purchase 70,000 shares of the
Company's Common Stock at $13.50 per share, 135,000 shares of the Company's
Common Stock at $15.125 per share, 210,000 shares of the Company's Common Stock
at $11.125 per share and 115,000 shares of the Company's Common Stock at $6.00
per share. The period during which Philip Wachs may exercise the balance of his
previously granted options (885,000 options at a weighted average exercise price
of $4.016 per share) was extended until the earlier of February 28, 2002 and the
scheduled expiration date of such previously granted options.
Under his agreement, Mordechay Kafry will be paid an aggregate amount of
$1,826,000. An initial payment of $938,000 was made to Mr. Kafry within eight
days of the execution of his agreement. The balance is payable in four
substantially equal installments with the final payment due on December 31,
1996. Benefits, including health care insurance and a car will be provided to
Mr. Kafry until November 1998. The Company has also undertaken to provide Mr.
Kafry with one set of round-trip airline tickets per year for himself and his
immediate family to and from Israel during 1996, 1997 and 1998. The Company will
continue to provide Mr. Kafry split dollar life insurance coverage which was in
effect prior to the termination of his employment so long as the Company
continues to maintain or provide similar types of coverage for other persons
employed by the Company at the level of Executive Vice President or below. Mr.
Kafry surrendered previously granted options to purchase 83,400 shares of the
Company's Common Stock at $15.125 per share, 125,700 shares of the Company's
Common Stock at $11.125 per share and 149,000 shares of the Company's Common
Stock at $6.00 per share. The period during which Mr. Kafry may exercise the
balance of his previously granted options (865,068 options at a weighted average
exercise price of $5.667 per share) was extended until the earlier of November
30, 1998 and the scheduled expiration dates of such previously granted options.
Under his agreement, Ivan M. Szeftel will be paid an aggregate amount of
$379,000 in installments through November 8, 1996. Benefits, including health
care insurance and a car will be provided to Mr. Szeftel through February 1997.
The Company will continue to provide Mr. Szeftel with split dollar life
insurance coverage which was in effect prior to termination of his employment so
long as the Company continues to maintain or provide similar types of coverage
for other persons employed by the Company at the level of Executive Vice
President or below. Mr. Szeftel surrendered previously granted options to
purchase 72,300 shares of the Company's Common Stock at $15.125 per share,
109,500 shares of the Company's Common Stock at $11.125 per share and 131,000
shares of the Company's Common Stock at $6.00 per share. The period during which
Mr. Szeftel may exercise the balance of his previously granted options (739,818
options at a weighted average exercise price of $5.631 per share) was extended
until the earlier of February 13, 1998 and the scheduled expiration dates of
such previously granted options. Mr. Szeftel has also agreed, among other
things, not to engage in any business in competition with the Company through
February 14, 1997, provided that Mr. Szeftel is permitted to act as a consultant
for any such business under the auspices of a bona fide consulting arrangement.
Under his agreement, Samuel Sidewater will be paid an aggregate amount of
$555,001 in equal weekly installments over a period of three years. Benefits,
including health care insurance and a car will be provided to Mr. Sidewater
through November 30, 1998. The Company will continue to provide Mr. Sidewater
with split
13
<PAGE> 16
dollar life insurance coverage which was in effect prior to termination of his
employment so long as the Company continues to maintain or provide similar types
of coverage for other persons employed by the Company covered by similar split
dollar insurance arrangements. Mr. Sidewater surrendered previously granted
options to purchase 6,700 shares of the Company's Common Stock at $15.125 per
share and 7,500 shares of the Company's Common Stock at $11.125 per share. The
period during which Mr. Sidewater may exercise the balance of his previously
granted options (140,000 options at a weighted average exercise price of $4.143
per share) was extended until November 30, 1998.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
Compensation Strategy
The primary objectives of the Compensation and Stock Option Committees of
the Company's Board of Directors (collectively, the "Committee") are to assure
that the Company's executive compensation and benefit program:
- reflects the Company's unique, entrepreneurial and customer-focused
orientation;
- provides competitive compensation opportunities relative to profitable
and growing retail industry organizations;
- is effective in driving performance to achieve financial goals and
create Shareholder value;
- is cost-efficient and fair to employees, management and Shareholders;
and
- is well communicated and understood by program participants.
The Committee, which is comprised of independent, non-employee Directors of
the Company (See "ELECTION OF DIRECTORS -- Committees of the Board"),
periodically engages an independent compensation and benefits consulting firm to
review the Company's compensation and benefits program. In this regard
consideration is given to:
- business direction and strategy;
- comparisons of compensation forms and levels with peer companies in
the retail industry; and
- interests of Shareholders, customers, communities, management and
other employees.
The Company's executive compensation and benefits program reflects its
entrepreneurial business strategy and its need to retain and attract high
quality key employees. The Company's compensation strategy is to place the major
portion of total compensation at risk in the form of annual incentives and
long-term, stock-based compensation programs. The program gives great weight to
stock compensation opportunities thereby aligning management's interests with
those of the Company's Shareholders. These stock compensation programs have been
critical factors in attracting and retaining key employees and are intended to
contribute to a high level of employee commitment to the Company's business
success.
The Company's target total compensation levels (base salary, annual bonus
and long-term incentives) for Executives are set to reflect the Company's size
and financial performance as compared to the size, financial performance and
corresponding compensation levels of a group of high growth, retail industry
companies (the "Compensation Peer Group"). Cash compensation (base salary and
cash bonuses) targets for each Executive generally are set at no more than the
performance and size adjusted median level of cash compensation of the
Compensation Peer Group. The Company's Executives can achieve total compensation
in excess of the performance and size adjusted median level of total
compensation of such Compensation Peer Group when annual and long-term
performance significantly exceed established goals (see "Annual Incentive Plan")
and Shareholders are rewarded through stock price growth (see "Long-Term
Incentive Plans"). Likewise, the Company's Executives' total compensation levels
could fall below the performance and size adjusted median compensation level of
such Compensation Peer Group when established goals are not achieved and
14
<PAGE> 17
Shareholder value is not created. These results are consistent with the
Company's business strategy and its compensation philosophy of placing the major
portion of total compensation opportunity at risk.
Each year, the Committee reviews the selection of peer companies which
comprise the Compensation Peer Group. The Committee believes that the Company's
most direct competitors for executive talent are not necessarily restricted to
those specialty apparel retail companies that are included in the
line-of-business industry index used to compare Shareholder returns, but
encompass a broader group of companies which are engaged in the recruitment and
retention of executive talent in competition with the Company. Thus, the
Compensation Peer Group is not the same as, and is broader than, the companies
comprising the specialty apparel retail industry index in the graph under the
caption "Comparison of Five-Year Cumulative Total Returns". See "STOCK
PERFORMANCE CHART".
Base Salaries
Executive base salaries reflect the Company's operating philosophy, culture
and business direction, with each salary determined subjectively by an annual
assessment of a number of factors, including job responsibilities, impact on
development and achievement of business strategy, labor market compensation
data, corporate performance (earnings per share), individual performance
relative to job requirements, the Company's ability to attract and retain
critical executives and relative job and industry experience criteria. No
specific weighting criteria are utilized among these factors. Executive salaries
are targeted to be no more than the performance and size adjusted median level
of salaries of the Compensation Peer Group. The Committee may, from time to time
as business conditions and the Company's need to attract top industry talent
warrant, provide salaries to selected executives above the performance and size
adjusted median level of salaries of the Compensation Peer Group. See
"MANAGEMENT COMPENSATION -- Employment, Change of Control and Severance
Agreements".
Annual Incentive Plan
The fiscal 1996 annual incentive program established annual incentive
opportunities for Executives ranging from zero to a maximum 120% of salary at
the end of the 1996 fiscal year. The amount of these incentive payments was
dependent on the extent to which individual performance goals were met or
exceeded and/or the extent to which the Company achieved earnings per share
goals (reflecting earnings growth). These goals were set in expectation of a
stretch performance level (target performance) and were approved by the
Compensation Committee prior to implementation.
The target performance incentive payment opportunity for each named
Executive Officer was based on factors similar to those used to determine base
salary (discussed above) and ranged from 50% to 60% of fiscal year-end salaries.
If minimum (threshold) performance was achieved, the level at which each
Executive Officer could earn an incentive payment ranged from 25% to 30% of
fiscal year-end salaries to a maximum incentive payment in a range from 100% to
120% of fiscal year-end salaries. These minimum and maximum payment levels were
prescribed by the Compensation Committee at the beginning of the 1996 fiscal
year. No awards may be granted if corporate earnings per share (reflecting
earnings growth) performance does not reach the established minimum performance
level.
The annual incentive payment opportunities for the Chairmen and for the
Chief Executive Officers were based entirely on the quantitative corporate
earnings per share (reflecting earnings growth) goal achievement. The annual
incentive award opportunities for the other named Executive Officers were based
50% on the quantitative corporate earnings per share (reflecting earnings
growth) goal achievement and 50% on performance relative to individual (and
business unit, where applicable) responsibilities and objectives as
quantitatively and subjectively assessed by the Committee upon the
recommendation of the Chief Executive Officer.
The Committee may, from time to time as business conditions and the
Company's need to attract, retain or recognize the contributions of key
executives warrant, provide special incentive award opportunities to selected
executives to secure the employment of such executives, retain such executives
or reward such executives for contributions made to the Company's success over
extended or extraordinary periods of service.
15
<PAGE> 18
See "MANAGEMENT COMPENSATION -- Employment, Change of Control and Severance
Agreements".
Under the Company's Annual Incentive Plan for the 1996 fiscal year, the
payment of awards for performance in excess of target performance was to be made
as to one-half in the form of restricted stock and as to the other half in cash.
For the named Executive Officers, restricted stock awards, when granted as a
result of above target financial performance, would vest commencing on the first
anniversary of the award at the rate of 20% per year. This form of payout was
intended to further align compensation awards with Shareholder interests, and
encourage continued, long-term service.
Long-Term Incentive Plans
The Company's long-term executive incentive program currently consists of
"market value" stock options (having a per share exercise price of 100% of the
fair market value of the Company's Common Stock on the date of grant) ("Standard
Options") and performance-accelerated stock options ("PSO's") also having a per
share exercise price of 100% of the fair market value of the Company's stock on
the date of grant. The Company occasionally grants "below market" stock options,
primarily to attract new executives and retain key employees. See "MANAGEMENT
COMPENSATION -- Summary Compensation Table". Long-term incentives involving
Standard Options and PSO's reward the Executives for successful Company
performance as reflected by appreciation in the market price of the Company's
Common Stock. The Company's long-term executive incentive program currently
consists of the following plans under which awards may be granted:
1. The 1993 Employees' Stock Incentive Plan (the "1993 Plan")
authorizes the granting of a variety of stock-based awards. The Company has
granted options with an exercise price equal to 100% of the fair market
value of the Company's Common Stock at the date of grant up to target award
levels to the named Executive Officers and other key employees. These
option grants continue to align the major portion of long-term compensation
opportunities with the creation of Shareholder value. These options
generally become exercisable at the rate of 20% per year commencing with
the first anniversary of the date of grant. The 1993 Plan also authorizes
grants of restricted stock.
Under the 1993 Plan, the Company has granted PSO's which have an
exercise price equal to 100% of the fair market value of the Company's
Common Stock at the date of grant. The exercisability of these options can
vary depending on the Company's performance. The 1996 fiscal year grants of
PSO's become exercisable on an accelerated basis if the Company's
compounded rate of growth of its earnings per share (exclusive of unusual
events as determined by the Committee) over any period of three consecutive
fiscal years from 1996 through fiscal 2000 equals or exceeds a percentage
target determined by the Stock Option Committee. If such performance is
achieved, the options will become cumulatively exercisable as to 50% of the
shares subject to the option on each of the next two anniversaries of the
date of grant. If such performance target is not achieved, these options
generally become cumulatively exercisable as to 20% of the shares subject
to the option on each of the fifth, sixth, seventh, eighth and ninth
anniversaries of the date of grant. See also "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements".
2. The 1988 Key Employee Stock Option Plan ("KESOP") authorizes the
granting of "below market" options to senior executives and other key
employees. In recent years, grants under the KESOP generally have been used
as an important recruiting tool to attract new employees. Options under the
KESOP generally become exercisable in one-third increments at the end of
the third, fourth and fifth years after the date of grant.
In accordance with its business strategy and compensation philosophy, the
Company has granted stock options and awards in the nature of restricted stock
to a significant number of employees to afford them an opportunity to
participate in the Company's future growth and to focus them on their
contributions which are necessary for the financial success and business growth
of the Company and, thereby, the creation of value for its Shareholders.
16
<PAGE> 19
The Committee may, from time to time as business conditions and the
Company's need to attract, retain or recognize the contributions of key
executives warrant, provide special incentive award opportunities to selected
executives to secure the employment of such executives, retain such executives
or to reward such executives for contributions made to the Company's success
over extended or extraordinary periods of service. See "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements".
Compensation of the Chairmen and Chief Executive Officers for the 1996 Fiscal
Year
As a result of the 1995 fiscal year financial performance, specifically
earnings per share, falling below the threshold levels for the 1995 fiscal year
Annual Incentive Plan and other subjective factors (see "Base Salaries"), the
Committee determined that the salary for David V. Wachs, the then Chairman and
the then Chief Executive Officer, would not be increased for the 1996 fiscal
year. This determination is consistent with the Company's compensation strategy
of adjusting compensation awards to reflect performance.
Effective February 6, 1995, David V. Wachs, then Chairman and Chief
Executive Officer was granted 125,000 Standard Options and 125,000 PSO's at an
exercise price of $6.00 per share. Such exercise price was equal to the fair
market value of the Company's Common Stock at the date of grant. David V. Wachs
resigned from these offices on May 17, 1995 and continues to be an employee of
the Company. See "MANAGEMENT COMPENSATION -- Employment, Change of Control and
Severance Agreements".
Effective February 6, 1995, Philip Wachs, President and acting Chief
Executive Officer from May 17, 1995 through August 23, 1995 and Chairman and
Chief Operating Officer from August 23, 1995 through February 9, 1996, was
granted 115,000 Standard Options and 115,000 PSO's at an exercise price of $6.00
per share. Such exercise price was equal to the fair market value of the
Company's Common Stock at the date of grant. Philip Wachs resigned from the
Company on February 9, 1996, at which time the February 6, 1995 grant of 115,000
PSO's was cancelled. See "MANAGEMENT COMPENSATION -- Employment, Change of
Control and Severance Agreements".
These grants were made with the objective of continuing to focus a
significant portion of the overall executive compensation program on the
achievement of earnings growth and earnings per share targets and the creation
of Shareholder value. The number of Standard Options granted to each Executive
was determined by the portion of that Executive's target total compensation
level which was allocated to the long-term incentive component. The Standard
Options granted to each Executive corresponded with the performance and size
adjusted median level of the Compensation Peer Group's long-term incentive
component applicable to such Executive. The grants of PSO's to each Executive,
when added to the Standard Option grants, exceeded that median level. PSO's were
granted as an additional incentive to exceed prescribed long-term earnings per
share goals in conformity with the Company's compensation philosophy which is to
link a significant portion of compensation to the Company's long-term
performance. These grants of Standard Options and PSO's were not related to the
amount of long-term incentive awards which were made in prior years.
During the 1996 fiscal year, total compensation for David V. Wachs and
Philip Wachs was below the performance and size adjusted median level of total
compensation levels for the Compensation Peer Group. In particular, base
salaries for David V. Wachs and for Philip Wachs were below the performance and
size adjusted median level of base salary levels for the Compensation Peer
Group. No incentive payments were made to David V. Wachs and Philip Wachs under
the Annual Incentive Plan. Long-term incentive awards in the form of both
Standard Option grants and grants of PSO's to David V. Wachs and Philip Wachs
during the 1996 fiscal year exceeded the performance and size adjusted median
level of long-term incentive award levels for the Compensation Peer Group.
On August 23, 1995, Dorrit J. Bern was appointed President, Chief Executive
Officer and Vice Chairman of the Board of the Company. In order to attract Ms.
Bern to the employ of the Company, the Committee provided her with a base salary
of $1,000,000. See "MANAGEMENT COMPENSATION -- Employment, Change of Control and
Severance Agreements". This salary recognized the value of Ms. Bern's experience
and skills in the industry and the premium for moving to the Company during a
period of exceptional business
17
<PAGE> 20
challenge from a highly stable employment situation. Ms. Bern's salary is well
above the performance and size adjusted median level of base salary levels for
the Compensation Peer Group.
Additionally, Ms. Bern was granted a cash bonus of $1,000,000 in
conjunction with her acceptance of employment with the Company. This bonus was
in recognition of Ms. Bern's foregoing a performance bonus from her prior
employer for the same fiscal year and for the loss of continuing employee and
executive benefits that she would have otherwise been most likely to earn at her
prior employer. The combination of Ms. Bern's annual salary and cash bonus
awarded during fiscal 1996 placed her cash compensation well above the
performance and size adjusted median level of base salary and annual incentive
levels for the Compensation Peer Group.
Furthermore, Ms. Bern was provided a grant of 1,000,000 Standard Options on
August 23, 1995 at an exercise price of $4.625 per share. Such exercise price
was equal to the fair market value of the Company's Common Stock at the date of
grant. The options become first exercisable in equal amounts each year on the
first through fifth anniversaries of the date of grant. As stipulated in the
Employment Agreement with Ms. Bern, this grant represents stock option grants
that would otherwise be made on an annual basis over the 1996 through 2001
fiscal years and is similar to the aggregate grants made to her predecessor
Chief Executive Officers over equivalent time periods. On an annualized basis,
the combination of Ms. Bern's annual salary, cash bonus awarded during fiscal
1996 and stock option grant made during fiscal 1996 placed her total
compensation well above the performance and size adjusted median level of total
compensation levels for the Compensation Peer Group.
No annual incentive payments were made under the Company's Annual Incentive
Plan to Dorrit J. Bern, the Company's President and Chief Executive Officer at
the end of the 1996 fiscal year as she only became eligible to receive such
payments under her employment agreement with the Company beginning February 4,
1996. See "MANAGEMENT COMPENSATION -- Employment, Change of Control and
Severance Agreements". In any event, no annual incentive payments would have
been made under the Annual Incentive Plan to her as the Company's performance
fell below the pre-established threshold level for awards under the Annual
Incentive Plan.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code subjects public companies to
limits on the deductibility of certain executive compensation. It limits
deductible compensation for each Executive Officer named in the Summary
Compensation Table and serving as such at the end of the fiscal year to $1
million per year. See "MANAGEMENT COMPENSATION". Certain forms of compensation
are exempt from this deductibility limit, primarily performance-based
compensation under plans approved by Shareholders.
The Committee recognizes that a portion of the cash compensation which was
paid to Ms. Bern in fiscal 1996 does not qualify for exemption under the
legislation, although all of the options granted to Ms. Bern in fiscal 1996
should qualify for the exemption. While the Committee's policy is to consider
the deductibility of compensation under Section 162(m) in designing and
assessing the cost to the Company of compensatory arrangements, deductibility is
but one consideration among many. The Committee believes that the need for the
Company's compensation program to address the business challenges currently
facing the Company, particularly the need to attract and retain top industry
executive talent, will result in compensation that may be subject to the
limitation on deductibility. As circumstances change, the Committee will
determine what actions, if any, are appropriate to change the compensation
program.
While the Annual Incentive Plan described above consists of
performance-based awards, cash payments thereunder will not comply with the
requirements for exemption from the deductibility limit under the Internal
Revenue Service regulations as Shareholders have not been asked to approve the
stated performance goals.
Outstanding Standard Options and PSO awards appear to meet the exemption
requirements for performance-based compensation under Section 162(m). Awards of
restricted stock, to the extent made, will not meet the exemption requirements
for performance-based compensation under Section 162(m). Awards of
18
<PAGE> 21
"below market" stock options to any of the named Executive Officers which were
made under written agreements prior to February 17, 1993 should meet the
exemption requirements under certain transition rules as long as these awards
are not materially modified.
Compensation Committee and Stock Option
Committees:
Joseph L. Castle, II
Michael Solomon
Marvin L. Slomowitz
Alan Rosskamm
19
<PAGE> 22
STOCK PERFORMANCE CHART
The following graph shows a five-year comparison of cumulative total
returns on Common Stock for the Company, the Standard and Poor's 500 Composite
Index, and the Dow Jones Retailers -- Specialty Apparel Index. The Company's
fiscal year ends on the Saturday nearest January 31 in each year. The dates
plotted on the chart below correspond with the last trading day of each fiscal
year.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
CHARMING SHOPPES, INC., S&P 500 COMPOSITE INDEX AND
DOW JONES RETAILERS -- SPECIALTY APPAREL INDEX
<TABLE>
<CAPTION>
DOW JONES
RETAILERS -
S&P 500 SPECIAL TY
MEASUREMENT PERIOD CHARMING COMPOSITE APPAREL IN-
(FISCAL YEAR COVERED) SHOPPES, INC. INDEX DEX
<S> <C> <C> <C>
2/1/91 100 100 100
1/31/92 233 123 153
1/29/93 322 136 145
1/28/94 208 152 135
1/27/95 115 154 123
2/2/96 55 213 143
</TABLE>
The chart above assumes $100 invested on February 1, 1991 in Charming
Shoppes, Inc., the S&P 500 Composite Index, and the Dow Jones
Retailers -- Specialty Apparel Index, and was plotted using the data above.
20
<PAGE> 23
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
The following table shows the beneficial ownership of the Company's Common
Stock of (1) each person or group known to the Company to be beneficial owners
of more than five percent of the outstanding shares of Common Stock; (2) each
Director individually; (3) each of the Company's named Executive Officers for
the 1996 fiscal year and (4) all current Directors, nominees and Executive
Officers of the Company as a group. Unless otherwise indicated, beneficial
ownership information is presented as of April 12, 1996.
<TABLE>
<CAPTION>
COMMON STOCK (1)
-----------------------------
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES OWNED CLASS
----------------------------------------------------------- ------------ ----------
<S> <C> <C>
Dorrit J. Bern............................................. 400,000(2) (16)
David V. Wachs............................................. 5,057,003(3) 4.8%
Samuel Sidewater........................................... 2,170,900(4) 2.1%
Philip Wachs............................................... 1,905,499(5) 1.8%
Mordechay Kafry............................................ 865,068(6) (16)
Michael Solomon............................................ 110,000(7) (16)
Marvin L. Slomowitz........................................ 35,000(8) (16)
Joseph L. Castle, II....................................... 22,000(8) (16)
Alan Rosskamm.............................................. 29,484(8) (16)
Geoffrey W. Levy........................................... 26,250(8) (16)
Ivan M. Szeftel............................................ 837,942(9) (16)
Colin D. Stern............................................. 468,033(10) (16)
Vivian Behrens............................................. 12,000(11) (16)
Terry G. Pritikin.......................................... 7,000(12) (16)
Ryback Management Corporation.............................. 9,958,800(13) 9.6%
First Pacific Advisors, Inc................................ 6,741,800(14) 6.5%
All current Directors, nominees and Executive Officers
as a Group (17 persons).................................. 1,648,477(15) 1.6%
</TABLE>
- ---------------
(1) Unless otherwise indicated, the persons named have sole voting and
investment power over the number of shares of the Company's Common Stock
shown as being beneficially owned by them.
(2) Includes a stock award of 400,000 shares to Ms. Bern comprising 160,000
shares which were granted without risk of forfeiture and 240,000 shares of
Restricted Stock subject to risk of forfeiture and restrictions. These
restrictions expire as to 60,000 shares of Restricted Stock on each of the
third and fourth anniversaries of March 20, 1996, which is the date of the
stock award, and the restrictions on the remaining 120,000 shares of
Restricted Stock expire on the fifth anniversary of the date of the stock
award.
(3) Includes 40,000 shares owned by a charitable foundation of which David V.
Wachs is co-trustee, as to which shares David V. Wachs disclaims any
beneficial ownership and 1,000,000 shares owned by a grantor retained
annuity trust of which David V. Wachs is a trustee. Also includes 2,598,333
shares as to which David V. Wachs holds options exercisable within sixty
days.
(4) Includes 426,060 shares owned by an irrevocable trust of which Mr.
Sidewater is beneficiary and 36,150 shares owned by a charitable foundation
of which Mr. Sidewater is a trustee, with respect to all of which shares
Mr. Sidewater disclaims any beneficial interest. Also includes 131,020
shares as to which Mr. Sidewater holds options exercisable within sixty
days.
(5) Includes 60,000 shares owned by a charitable foundation of which Philip
Wachs is a co-trustee, 180,000 shares owned by a grantor retained annuity
trust of which Philip Wachs is trustee, and 763,000 shares as to which
Philip Wachs holds options exercisable within sixty days. Also includes
44,600 shares owned by
Notes continued on following page
21
<PAGE> 24
five irrevocable trusts of which Philip Wachs is co-trustee, as to which
Philip Wachs disclaims any beneficial ownership. The shares owned by these
trusts are also included in the number of shares reflected as beneficially
owned by Colin D. Stern. Excludes 23,289 shares held by three irrevocable
trusts for the benefit of Philip Wachs' children.
(6) Includes 865,068 shares as to which Mr. Kafry holds options exercisable
within sixty days.
(7) Includes 45,000 shares owned by a trust for the benefit of Mr. Solomon's
daughter, as to which shares Mr. Solomon disclaims any beneficial
ownership. Also includes 30,000 shares owned by Mr. Solomon's profit
sharing and savings plan and 30,000 shares as to which Mr. Solomon holds
options exercisable within sixty days. See "ELECTION OF
DIRECTORS -- Compensation of Directors".
(8) Includes 18,000 shares for Mr. Castle, 30,000 shares for Mr. Slomowitz,
24,000 shares for Mr. Rosskamm and 18,000 shares for Mr. Levy, as to which
such persons hold options exercisable within sixty days. See "ELECTION OF
DIRECTORS -- Compensation of Directors".
(9) Includes 739,818 shares as to which Mr. Szeftel holds options exercisable
within sixty days.
(10) Includes an aggregate of 71,200 shares owned by nine irrevocable trusts of
which Mr. Stern is co-trustee, as to which shares Mr. Stern disclaims any
beneficial ownership. The shares owned by five of these trusts in the
aggregate amount of 44,600 are included in the number of shares reflected
as beneficially owned by Philip Wachs. Also includes 352,233 shares as to
which Mr. Stern holds options exercisable within sixty days.
(11) Includes 12,000 shares as to which Ms. Behrens holds options exercisable
within sixty days.
(12) Includes 7,000 shares as to which Mr. Pritikin holds options exercisable
within sixty days.
(13) The source of this information is a Schedule 13G dated January 25, 1996,
filed by Ryback Management Corporation, reporting that it had sole power to
vote or direct the vote of 9,958,800 shares and sole power to dispose or to
direct the disposition of 9,958,800 shares at that date. The shares
reported as beneficially owned by Ryback Management Corporation include
6,950,000 shares, or 6.7% of the outstanding class beneficially owned by
Lindner Growth Fund, a separate series of the Lindner Investment Series
Trust. The address of Ryback Management Corporation is 7711 Carondelet
Avenue, Box 16900, St. Louis, MO 63105.
(14) The source of this information is a Schedule 13G dated February 13, 1996,
filed by First Pacific Advisors, Inc., reporting that it had shared power
to vote or direct the vote of 5,766,800 shares and shared power to dispose
or direct the disposition of 6,741,800 shares. The address of First Pacific
Advisors, Inc. is 11400 West Olympic Boulevard, Suite 1200, Los Angeles, CA
90064.
(15) Includes 935,477 shares as to which Directors and Executive Officers hold
options exercisable within sixty days.
(16) The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the Company's issued and outstanding shares of Common Stock.
22
<PAGE> 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Philip Wachs, a former Director and former Executive Officer, and members
of his immediate family own equity interests in three entities which own
shopping centers in which the Company leases stores. These shopping centers are
located in Massena, New York, Newark, New York and Logan, West Virginia. Ivan M.
Szeftel, a former Executive Officer, owns equity interests in the shopping
center located in Newark, New York. Michael Solomon, a Director, owns equity
interests in the shopping centers located in Massena, New York and Logan, West
Virginia. The amounts (including rent, common area maintenance charges, taxes,
insurance and other charges payable under the lease) (the "Lease Amount") paid
by the Company for the 1996 fiscal year with respect to each store in each
shopping center are as follows: Massena, New York: $34,445; Newark, New York:
$125,608; and Logan, West Virginia: $98,293. The Company received a construction
allowance in the amount of $45,000 to offset the cost of certain leasehold
improvements to its store in the shopping center located in Newark, New York.
Philip Wachs and members of his immediate family and Ivan M. Szeftel own equity
interests in an entity which owned a shopping center in Mt. Vernon, Illinois in
which the Company leases a store. This shopping center has been sold. Certain
amounts remain outstanding on account of payment of the purchase price. The
Lease Amount paid by the Company during the 1996 fiscal year with respect to the
lease of that store is $79,546. The foregoing leases involve less than one
percent of the Company's stores, and are not individually or in the aggregate
material to the Company. The Company believes that the terms thereof are no less
favorable to the Company than the Company could have negotiated with an
unaffiliated third party.
Bernard Brodsky, an Executive Officer, and his wife (the "Brodskys"), are
personally indebted to the Company for a loan made to them in the aggregate
amount of $150,000 (the "Loan"). The Loan bears interest, payable monthly, at an
annual rate of 6 1/2%, and is payable in full on January 31, 1997. The Loan is
secured by a first mortgage on a residence owned by the Brodskys. The principal
amount outstanding as of April 1, 1996 was $125,000. The largest aggregate
amount of indebtedness outstanding at any time during the 1996 fiscal year was
$146,504.
In previous years, including the 1996 fiscal year, the Company provided
additional life insurance coverage for David V. Wachs, a former Director and
former Executive Officer. Under this split dollar arrangement, the Company was
required to pay annual premiums of $514,923, provided, however, that the
proceeds of such policies be first used to repay all premiums paid by the
Company plus interest thereon at a compounded rate of 4 1/2% per annum. Under
this arrangement, a sufficient amount of insurance coverage would be in place at
all times to insure, at a minimum, that the amount of all premiums paid by the
Company would be repaid plus such interest. The Company has entered into an
agreement with David V. Wachs which provides that he will be personally
responsible for making such premium payments in the future and that the Company
will be relieved of all liability therefor. Under this agreement the Company
will be entitled to receive $3,347,263, representing previously paid premiums
and accrued interest, from the proceeds of these policies. The balance of such
policy proceeds will be paid to certain designated beneficiaries. See also,
"MANAGEMENT COMPENSATION -- Summary Compensation Table: Footnote (4)".
The Company provides additional life insurance coverage for Philip Wachs.
Under the split dollar arrangement, the Company will pay annual premiums of
$83,317, provided, however, that the proceeds of such policies shall be first
used to repay all premiums paid by the Company. Under this arrangement, a
sufficient amount of insurance coverage will be in place at all times to insure,
at a minimum, that the amount of all premiums paid by the Company will be
repaid. The balance of such policy proceeds will be paid to certain designated
beneficiaries. See also, "MANAGEMENT COMPENSATION -- Summary Compensation Table:
Footnote (4)".
The Company provides additional life insurance coverage for Dorrit J. Bern.
Under the split dollar arrangement, the Company will pay annual premiums of
$78,500, provided, however, that the proceeds of such policies shall be first
used to repay all premiums paid by the Company. Under this arrangement, a
sufficient amount of insurance coverage will be in place at all times to insure,
at a minimum, that the amount of all premiums paid by the Company will be
repaid. The balance of such policy proceeds will be paid to certain
23
<PAGE> 26
designated beneficiaries. See also, "MANAGEMENT COMPENSATION -- Summary
Compensation Table: Footnote (4)".
During fiscal 1996, a Hong Kong subsidiary of the Company (the "Tenant")
leased an apartment in Hong Kong from a corporation owned and controlled by
Mordechay Kafry, the Company's former Executive Vice President-Merchandise
Procurement and a former Director, pursuant to a lease agreement (the "Lease
Agreement"). Mr. Kafry resigned his office on January 15, 1996 and terminated
his employment pursuant to a severance agreement with the Company. See
"MANAGEMENT COMPENSATION -- Employment, Change of Control and Severance
Agreements." The Lease Agreement, which was for a term of two (2) years expiring
on September 30, 1996, was terminated effective March 1, 1996. Mr. Kafry's
corporate duties and functions required that he reside in Hong Kong on a
permanent basis. In furtherance of this requirement the Tenant permitted Mr.
Kafry to occupy the apartment on a rent-free basis. During the 1996 fiscal year,
Tenant paid rental of approximately $12,800 per month and maintenance, utility,
management and insurance charges under the Lease Agreement. The Company believes
that the terms thereof were no less favorable to the Company than the Company
could have negotiated with an unaffiliated third party.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 1996 fiscal year the members of the Compensation Committee and
Stock Option Committees were: Joseph L. Castle, II, Michael Solomon, Marvin L.
Slomowitz and Alan Rosskamm. Marvin L. Slomowitz is also Chairman of the Board,
Chief Executive Officer and a shareholder of Mark Centers Trust which is the
general partner of Mark Centers Limited Partnership (the "Partnership"). See
"ELECTION OF DIRECTORS -- Compensation of Directors". Mr. Slomowitz is also a
principal shareholder of the Partnership, which owns shopping centers in which
the Company leased twelve stores during the 1996 fiscal year. The aggregate
amounts (including rent, common area maintenance charges, taxes, insurance and
other charges payable under the leases (the "Lease Amounts")) paid by the
Company for the 1996 fiscal year with respect to these twelve stores was
$861,758, which is less than two percent of the aggregate rental revenues of the
Partnership. As part of the expansion of one of the Company's stores in a
shopping center owned by the Partnership, the Company received a construction
allowance in the amount of $225,000 to offset the cost of certain leasehold
improvements. As of April 6, 1996 the balance of the allowance receivable was
$217,161. The Company also leases a store in a shopping center located in
Pittston, Pennsylvania. Mr. Slomowitz owns a mortgage over this shopping center.
The Lease Amount paid by the Company for the 1996 fiscal year with respect to
the Pittston store is approximately $43,663. Such leases currently involve fewer
than one percent of the Company's stores, and are not individually or in the
aggregate material to the Company. The Company believes that the terms thereof
are no less favorable to the Company than the Company could have negotiated with
an unaffiliated third party.
Michael Solomon is a Managing Director of Lazard Freres & Co. LLC which was
retained by the Company during the latter part of the 1996 fiscal year to
provide advisory services in connection with the negotiation of the Company's
financing arrangements. Lazard Freres & Co. LLC also has been retained during
fiscal 1997 to act as managing underwriter in a public offering of the Company's
Convertible Subordinated Notes. Michael Solomon also owns equity interests in
two entities which own shopping centers located in Massena, New York and Logan,
West Virginia and in which the Company leases stores. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS".
OTHER BUSINESS
The management of the Company knows of no other matters to be presented to
the Annual Meeting. However, if any matters other than those referred to herein
should properly come before the Meeting, it is the intention of the persons
named in the enclosed Proxy Card (namely Joseph L. Castle, II and Dorrit J.
Bern) to vote in accordance with their best judgment.
24
<PAGE> 27
RELATIONSHIP WITH AUDITORS
The firm of Ernst & Young LLP served as the Company's independent auditors
for the fiscal year ended February 3, 1996. Ernst & Young LLP has no direct
financial interest and no material indirect financial interest in the Company.
Representatives of the auditors are expected to be present at the Annual Meeting
and available to make a statement, if they desire, or to answer appropriate
questions.
The Board of Directors selects the independent auditors of the Company upon
recommendation by the Audit Committee. The Board has selected Ernst & Young LLP
as the Company's independent auditors for the current fiscal year.
PROPOSALS FOR 1997 ANNUAL MEETING
Any proposals of Shareholders that are intended to be presented at the
Company's 1997 Annual Meeting of Shareholders must be received at the Company's
principal executive offices no later than January 23, 1997 and must comply with
all other applicable legal requirements in order to be included in the Company's
Proxy Statement and Proxy Card for that Meeting.
COST OF SOLICITATION
The cost of soliciting Proxies in the accompanying form will be borne by
the Company. The solicitation will be conducted primarily by mail, although
Directors, Officers and employees of the Company may solicit Proxies personally
or by telephone or telegram. Arrangements will be made with brokerage firms and
other custodians, nominees and fiduciaries for proxy material to be sent to
their principals, and the Company will reimburse them for their reasonable
expenses in so doing.
ADDITIONAL INFORMATION
A copy of the Annual Report of the Company for the fiscal year ended
February 3, 1996, which contains financial statements audited by the Company's
independent auditors, accompanies this Proxy Statement.
A copy of the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission (including financial statements and schedules
thereto) will be furnished without charge to Shareholders upon written request
to Bernard Brodsky, Secretary, at 450 Winks Lane, Bensalem, Pennsylvania 19020.
It is important that your shares be represented at the Meeting. If you are
unable to be present in person, you are respectfully requested to sign the
enclosed Proxy Card and return it in the enclosed stamped and addressed envelope
as promptly as possible.
By Order of the Board of Directors
BERNARD BRODSKY
Secretary
Bensalem, Pennsylvania
May 23, 1996
25
<PAGE> 28
CHARMING SHOPPES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Dorrit J. Bern and Joseph
L. Castle, II, and each of them, Proxies of the undersigned, with full power of
substitution, to vote and act as designated on the reverse side with respect
to all shares of Common Stock of Charming Shoppes, Inc. ("Company") which the
undersigned would be entitled to vote, as fully as the undersigned could vote
and act if personally present, at the Annual Meeting of Shareholders of the
Company to be held on Thursday, June 27, 1996 and at any adjournments thereof.
UNLESS OTHERWISE INDICATED ON THE REVERSE SIDE, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR AS SET FORTH
IN THE PROXY STATEMENT.
(continued on reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 29
Please mark
your votes as / X /
indictated in
this example
1. ELECTION OF CLASS C DIRECTORS (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE
FOR ANY INDIVIDUAL NOMINEE: WRITE THAT
NOMINEE'S NAME BELOW.)
Vote FOR Vote
all nominees WITHHELD Dorrit J. Bern Alan Rosskamm
(except as marked
to the contrary)
--------------------------------------------
------ ------
THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR
DISCRETION UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
The undersigned acknowledges receipt of the
Annual Report, the Notice of Annual Meeting
of Shareholders and the Proxy Statement, and
revokes all previously granted Proxies.
DATED:________________________________, 1996
--------------------------------------------
Signature
--------------------------------------------
Signature
Please date and sign as name appears hereon,
and return promptly. If the stock is
registered in the name of two or more
persons, each should sign. Executors,
administrators, trustees, guardians,
attorneys and corporate officers should add
their titles. Please note any change in your
address as it appears on this Proxy.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
ANNUAL MEETING OF SHAREHOLDERS
OF
CHARMING SHOPPES, INC.
THURSDAY, JUNE 27, 1996
10:00 A.M.
CHARMING SHOPPES, INC.
450 WINKS LANE
BENSALEM, PA 19020
