<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 [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Charming Shoppes, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CHARMING SHOPPES, INC.
450 WINKS LANE
BENSALEM, PENNSYLVANIA 19020
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JULY 15, 1998
------------------------
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 July 15, 1998 at 10:00 A.M. for the
following purposes:
1. To elect two Class B Directors of the Company; and
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 18, 1998 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
COLIN D. STERN
Secretary
May 28, 1998
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 July 15, 1998 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 1998 Annual
Report have been mailed on or about May 28, 1998. Only Shareholders of record as
of the close of business on May 18, 1998 are entitled to notice of and to vote
at the Meeting.
The Proxy Committee consists of Dorrit J. Bern, Chairman of the Board of
Directors, President and Chief Executive Officer, and Joseph L. Castle, II, a
member of the Board of Directors. 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 18, 1998 the Company had 100,499,842 shares of Common Stock
outstanding, 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. Votes
may be cast in favor or withheld; votes that are withheld will be excluded
entirely from the vote and will have no effect. Other matters properly coming
before the Meeting will be determined by a majority of the votes cast. 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.
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 three Class B Directors, namely, Joseph
L. Castle, II, Michael Solomon and Laura A. Liswood, are scheduled to expire as
of the date of the Meeting. Mr. Solomon has informed the Company that he does
not wish to stand for re-election as a Director. At the Meeting, Joseph L.
Castle, II and Laura A. Liswood will be nominated to serve as Class B Directors
for additional three-year terms and until their successors shall have been duly
elected and qualified. Mr. Castle was last elected as a Class B Director to the
Board at the Company's Annual Meeting held on June 29, 1995. Ms. Liswood was
elected as a Class B Director on December 4, 1997 to fill the vacancy created by
the resignation of Philip Wachs, a former Chairman of the Board and Chief
Operating
<PAGE> 4
Officer of the Company. Geoffrey W. Levy, whose term as a Director is scheduled
to expire as of the date of the Company's Annual Meeting of Shareholders in
2000, has informed the Company that he will be resigning as a Director with
effect from July 14, 1998 the day preceding the Meeting.
Unless otherwise directed, the Proxy solicited hereby will be voted for the
election of Joseph L. Castle, II and Laura A. Liswood as Class B 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 BOTH
NOMINEES.
BIOGRAPHICAL INFORMATION
The following information is submitted as of May 18, 1998 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>
Joseph L. Castle, II......... Director 65 1990 2001
Laura A. Liswood............. Director 48 1997 2001
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
Dorrit J. Bern............... Chairman of the Board, 48 1995 1999
President and Chief Executive
Officer
Alan Rosskamm................ Director 48 1992 1999
Marvin L. Slomowitz.......... Director 68 1990 2000
Marjorie Director 55 1997 2000
Margolies-Mezvinsky........
</TABLE>
Joseph L. Castle, II was Chairman of the Company's Board of Directors for
the period March 21, 1996 through January 30, 1997. 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 President and Chairman of the Board of Directors of its
predecessor (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.
Laura A. Liswood has been Director of the Council of Women World Leaders at
the John F. Kennedy School of Government at Harvard University since August
1997. In 1988 she founded the Liswood Marketing Group and through that firm has
rendered consulting services to multi-national clients concerning the
development of quality assurance and customer retention programs. Ms. Liswood
has also lectured and written on these topics.
Dorrit J. Bern has been President and Chief Executive Officer since August
23, 1995 when she joined the Company. She also served as Vice Chairman of the
Board from August 23, 1995 until January 30, 1997 when she was elected Chairman
of the Board. Prior to her employment with the Company, 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 Women's 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.
2
<PAGE> 5
Alan Rosskamm has been Chairman of the Board of Directors of Fabri-Centers
of America, Inc. ("FCA") since July 1992 and has been the Chief Executive
Officer and a Director of FCA for more than five years. FCA sells a wide variety
of fashion and decorator fabrics, notions, patterns, sewing accessories, crafts
and seasonal merchandise under the Jo-Ann, Cloth World and New York Fabric
names. In February 1997, FCA reached a settlement with the SEC, without
admitting or denying the allegations, concerning alleged violations of the
securities laws primarily in connection with certain inventory reserve estimates
in the Company's 1992 financial statements and their use in a 1992 securities
offering. Concurrently, Mr. Rosskamm consented to a separate SEC administrative
cease and desist order against violations of the federal securities laws,
without admitting or denying the SEC's allegations. The SEC contended that Mr.
Rosskamm violated certain federal securities laws in connection with the 1992
offering by not making adequate inquiries of his financial staff before signing
representation letters to FCA's auditors and by signing a Form 10-Q which was
filed following the offering.
Marvin L. Slomowitz 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.
Marjorie Margolies-Mezvinsky has served as President of the Women's
Campaign International since March 1998. She has also served as President of the
Women's Campaign Fund and the Women's Campaign Research Fund from March 1996 to
February 1998. In 1995 she served as Director of the United States Delegation to
the United Nations Fourth World Conference on Women. From 1992 to 1994, she
served as the United States representative from Pennsylvania's 13th
Congressional District in the 103rd Congressional Session. From 1971 to 1991,
Ms. Margolies-Mezvinsky was a television journalist with NBC and its owned and
operated stations in both New York and Washington, D.C.
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, an Administration Committee and a Corporate
Governance Committee.
During the Company's 1998 fiscal year, Joseph L. Castle, II, Geoffrey W.
Levy and Marvin L. Slomowitz were members of the Audit Committee. Alan Rosskamm
also served as a member of the Audit Committee until March 10, 1997 when he was
replaced by Marvin L. Slomowitz. The Audit Committee monitors the activities of
the Company's independent auditors and the Company's internal audit functions.
The Audit Committee met six times during the Company's 1998 fiscal year.
During the Company's 1998 fiscal year, Joseph L. Castle, II, Alan Rosskamm,
Michael Solomon and Marjorie Margolies-Mezvinsky were members of the
Compensation Committee and Stock Option Committee. Marvin L. Slomowitz also
served as a member of the Compensation Committee and the Stock Option Committee
until March 10, 1997 when he was replaced by Marjorie Margolies-Mezvinsky. 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
six meetings (some of which were joint meetings with the Stock Option Committee)
during the Company's 1998 fiscal year. The Stock Option Committee has 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 Committee had five meetings (some of which were
joint meetings with the Compensation Committee) during the Company's 1998 fiscal
year and, on two occasions, acted by unanimous consent.
3
<PAGE> 6
During the Company's 1998 fiscal year, the Board of Directors established the
Compensation/Stock Option Committee Subcommittee which also serves as a
committee which administers the Company's employee stock option and stock
incentive plans. Joseph L. Castle, II and Marjorie Margolies-Mezvinsky have been
members of this Subcommittee since its inception. This Subcommittee did not meet
during the Company's 1998 fiscal year.
During the Company's 1998 fiscal year, Geoffrey W. Levy, Dorrit J. Bern and
Joseph L. Castle, II were members of the Board of Directors' Administration
Committee (the "Administration Committee"). 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 did not act during the Company's 1998 fiscal year.
On March 5, 1998 the Board of Directors established the Corporate
Governance Committee which will oversee the Company's corporate governance and
advise and report to the Board on such matters from time to time. Laura A.
Liswood, Marjorie Margolies-Mezvinsky and Joseph L. Castle, II have been members
of this Committee since its inception.
The Company does not have a formal nominating committee, and nominations
for Director candidates are determined by the Board of Directors. The Company's
By-laws 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 1999 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.
Six meetings of the Board of Directors were held during the Company's
fiscal year ended January 31, 1998. Each incumbent Director attended at least
75% of the meetings of the Board and Committees on which he or she served (held
at a time at which he or she was a Director) except Michael Solomon who attended
58% of the meetings of the Board and Committees on which he served.
COMPENSATION OF DIRECTORS
Directors who are not also employees are compensated under the Non-Employee
Directors Program which was adopted by the Board of Directors on August 21,
1996. Under the Non-Employee Directors Program, each non-employee Director is
entitled to receive an award of shares with a fair market value equal to 60% of
the annual fee payable thereunder. The annual fee currently is $60,000. The
balance of the annual fee is payable in cash to each non-employee Director. A
Director who is also a Company employee is not separately compensated for his or
her service as a Director or Chairman of the Board.
Non-employee Directors have participated and continue to participate in the
Company's 1989 Non-Employee Director Stock Option Plan (the "1989 Plan"). The
1989 Plan provides that each person who after the inception of the 1989 Plan
becomes a non-employee Director of the Company shall automatically receive an
option under the 1989 Plan, as of the date of such Director's commencement of
service as a non-employee Director, to purchase 30,000 shares of Common Stock.
The exercise price for the shares of Common Stock to be purchased upon exercise
of such option is equal to the fair market value of the shares covered by such
option on the date of grant. Options granted under the 1989 Plan generally have
a term of ten years and become cumulatively exercisable as to 20% of the shares
subject to the option on each of the first five anniversaries of the date of
grant.
4
<PAGE> 7
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years (ended January 31,
1998 ("1998 fiscal year"), February 1, 1997 ("1997 fiscal year"), and February
3, 1996 ("1996 fiscal year")) to the Company's Chief Executive Officer and each
of the Company's four other most highly compensated Executive Officers who were
serving in such capacities at the end of the 1998 fiscal year based on salary
and bonus earned during the 1998 fiscal year.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------------- ------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND FISCAL COMPENSATION STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR(1) SALARY($)(2) BONUS($)(3) ($)(4) AWARD(S)($) OPTIONS(#) ($)(5)(6)
------------------ ------- ------------ ----------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dorrit J. Bern.......... 1998 $1,000,000 $492,000 $ 65,837 $ -- -- $ 77,344
Chairman of the Board, 1997 1,000,000 570,000 67,978 1,900,000(7) -- 58,392
President and Chief 1996 438,462(8) -- -- -- 1,000,000 1,000,000
Executive Officer
Erna Zint............... 1998 400,000 164,000 151,072 -- 40,000 --
Executive Vice 1997 400,000 190,000 150,568 -- -- --
President -- Sourcing 1996 16,667(8) -- -- -- 250,000 150,000
Elizabeth Williams...... 1998 350,000 121,975 -- -- 75,000 9,334
Executive Vice 1997 300,000 130,924 -- -- 200,000 70,843
President -- Merchandising 1996 86,538(8) -- -- -- 100,000 259,991
Colin D. Stern.......... 1998 300,000 98,400 -- -- 40,000 20,676
Executive Vice 1997 300,000 136,806 -- -- 100,000 48,862
President, General 1996 300,000 -- -- -- 145,000 19,096
Counsel and Secretary
Anthony A. DeSabato..... 1998 290,000 95,120 -- -- 40,000 13,917
Executive Vice 1997 239,000 86,412 -- -- 100,000 44,000
President and Corporate 1996 214,000 -- -- -- 65,000 14,006
Director of Human
Resources
</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) Includes all amounts deferred under qualified and non-qualified deferred
compensation plans.
(3) Includes all amounts deferred under qualified and non-qualified deferred
compensation plans. 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
COMPENSATION AND STOCK OPTION COMMITTEES OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION."
(4) The amount disclosed under the caption "Other Annual Compensation" for the
1998 fiscal year with respect to Dorrit J. Bern includes $12,262 paid on her
behalf for air travel commuting expenses between Ms. Bern's home in Illinois
and the Company's main office in Pennsylvania and $49,701 attributable to
her for the rent-free use of an apartment in Philadelphia, Pennsylvania. The
amount disclosed under the caption "Other Annual Compensation" for the 1998
fiscal year with respect to Erna Zint includes $144,000 paid on her behalf
as a housing allowance for living accommodations in Hong Kong. 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.
(notes continued on following page)
5
<PAGE> 8
(5) The Company has enabled Dorrit J. Bern, Elizabeth Williams, Colin D. Stern
and Anthony A. DeSabato to obtain life insurance pursuant to "Split Dollar"
arrangements. The Company is the beneficiary under such policies to the
extent of the 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 1998 fiscal year are as follows:
Dorrit J. Bern, $57,622; Elizabeth Williams, $3,976; Colin D. Stern, $9,668;
and Anthony A. DeSabato, $8,960. 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.
(6) Included under the caption "All Other Compensation" are contributions in the
following amounts made or accrued by the Company under its qualified and
non-qualified deferred compensation plans on behalf of the named Executive
Officers during the 1998 fiscal year: Dorrit J. Bern, $19,722; Erna Zint,
$0; Elizabeth Williams, $5,358; Colin D. Stern, $5,008; and Anthony A.
DeSabato, $4,957.
(7) Included under the caption "Restricted Stock Award(s)" is the value of a
stock award of 400,000 shares with a market value of $4.75 per share on
March 20, 1996 the date of the grant. Based on the closing price of $4.0625
per share on January 30, 1998 the 240,000 shares still subject to risk of
forfeiture and restrictions had an aggregate value of $975,000.
(8) Mss. Bern, Zint and Williams commenced employment with the Company on August
23, 1995, January 15, 1996, and October 16, 1995, 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.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to options granted to the
named Executive Officers during the 1998 fiscal year. The table indicates the
potential realizable value of options granted during the 1998 fiscal year
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
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.
6
<PAGE> 9
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(1)
GRANTED EMPLOYEES PRICE EXPIRATION ------------------------
NAME (#)(2) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dorrit J. Bern.......... -- -- -- -- -- --
Erna Zint............... 40,000 3.4% $6.00 3/13/07 $150,935 $382,498
Elizabeth Williams...... 75,000 6.3% 6.00 3/13/07 283,003 717,184
Colin D. Stern.......... 40,000 3.4% 6.00 3/13/07 150,935 382,498
Anthony A. DeSabato..... 40,000 3.4% 6.00 3/13/07 150,935 382,498
</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.
(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 become exercisable as to 20% of the shares subject thereto on
each succeeding anniversary of the date of grant until the fifth anniversary
at which time all options are fully vested. 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.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The table below provides the following information with respect to options
exercised by each of the named Executive Officers during the 1998 fiscal year:
(i) the number of shares of the Company's Common Stock acquired upon exercise of
options during the 1998 fiscal year, (ii) the aggregate dollar value realized
upon the exercise of such options, (iii) the total number of exercisable and
unexercisable stock options held at January 30, 1998 and (iv) the aggregate
dollar value of the in-the-money exercisable and unexercisable options at
January 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END ($)(1)
SHARE ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dorrit J. Bern............... -- -- 400,000 600,000 $ -- $ --
Erna Zint.................... -- -- 100,000 190,000 118,750 178,125
Elizabeth Williams........... -- -- 100,000 275,000 72,500 115,000
Colin D. Stern............... -- -- 392,700 352,300 75,000 8,750
Anthony A. DeSabato.......... -- -- 188,348 207,720 102,317 8,750
</TABLE>
- ---------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market on January 30, 1998 was $4.0625. Value is calculated on the
basis of the aggregate of the difference between the option exercise price
of in-the-money options and $4.0625 multiplied by the number of shares of
Common Stock underlying such options.
7
<PAGE> 10
EMPLOYMENT, CHANGE OF CONTROL AND SEVERANCE AGREEMENTS
On August 22, 1995 Dorrit J. Bern entered into an Employment Agreement (the
"Bern 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 Bern 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 at least ninety days prior written notice before the
commencement of any such year of such party's intention to terminate the Bern
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 Bern
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 Bern
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.
For the fiscal years beginning February 4, 1996 and February 2, 1997,
respectively, the Compensation Committee determined that Ms. Bern's Performance
Payout could not exceed 90% of her annual base salary for either of those years.
Ms. Bern received a Performance Payout of $570,000 and $492,000 for the fiscal
years beginning February 4, 1996 and February 2, 1997, respectively. See "REPORT
OF THE COMPENSATION AND STOCK OPTION COMMITTEES OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION." The Company's obligations under the Bern Agreement are
secured by a Letter of Credit in the face amount of $2,500,000.
Under the Bern 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 Bern 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 Bern 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 Bern Agreement also provides for Ms. Bern's participation in the
Company's retirement, insurance and other benefit programs. In particular, the
Company has purchased a $4,000,000 split dollar life insurance policy on Ms.
Bern's life.
Ms. Bern's employment may be terminated (a) in the event of her disability
or incapacity, (b) on her 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 Bern 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 Bern
8
<PAGE> 11
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 Bern
Agreement or 18 months and her Performance Payout for such period 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 Bern 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 entitlement
to further compensation generally will be limited to the receipt of base salary
for any days worked through the date of termination. During the term of the Bern
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 Bern Agreement, she may not,
among other things, engage in or be financially interested in any business which
is in competition with the Company.
On January 15, 1996 Erna Zint entered into an Employment Agreement (the
"Zint Agreement") with the Company pursuant to which Ms. Zint is employed as the
Company's Executive Vice President -- Sourcing at an annual salary of $400,000
for an initial term of five years commencing January 15, 1996 (the "Term"). Ms.
Zint is assigned to perform her duties under the Zint Agreement outside the
United States and initially in Hong Kong. Ms. Zint's salary will be reviewed at
least annually by the Company's Board of Directors to determine if an increase
is appropriate, which increase is in the sole discretion of the Company's Board
of Directors. Commencing with the fiscal year beginning February 4, 1996, Ms.
Zint is entitled to receive additional compensation ("Performance Compensation")
if the Company achieves certain performance objectives established under the
Company's Annual Incentive Plan. The formula and standards for determining this
Performance Compensation are determined by the Compensation Committee, but may
not exceed 100% of Ms. Zint's annual base salary for the applicable year.
Under the Zint Agreement, Ms. Zint was granted options to purchase up to
250,000 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 $2.875
per share, the closing price per common share on the Nasdaq National Market on
the date of grant. Options covering 50,000 shares become exercisable on the
first anniversary of the date of grant and options covering an additional 50,000
shares vest on each succeeding anniversary of the date of grant until the fifth
anniversary at which time all options are fully vested. In addition, Ms. Zint is
entitled to certain other benefits including, among others, a housing allowance
of $12,000 per month during the Term of her employment, the payment of club
membership fees and a round-trip airline ticket per year to Europe or the United
States in connection with her annual leave which, when possible, will coincide
with a business trip. The Zint Agreement also provides for Ms. Zint's
participation in the Company's retirement, insurance and other benefit programs.
The Company may terminate Ms. Zint's employment (a) in the event of her
disability or death, or (b) for Cause. As defined in the Zint Agreement, "Cause"
means (i) a material breach by Ms. Zint of the provisions of the Zint Agreement;
(ii) the commission by Ms. Zint of fraud against the Company or the conviction
of Ms. Zint for aiding or abetting, or the commission of, a felony or of a fraud
or a crime involving moral turpitude or a business crime, or (iii) certain
events relating to drug or alcohol abuse which materially impair Ms. Zint's
ability to perform her duties under the Zint Agreement. The Company may also
terminate Ms. Zint's employment at any time during the Term upon written notice
to Ms. Zint for any reason that does not constitute "Cause" as defined above
provided that the Company pays to Ms. Zint the lesser of the amount to be paid
during the remainder of the Term or one year's base salary (severance) at the
rate in effect on the date of any such termination and continues to provide
those benefits due to Ms. Zint under the Zint Agreement for the period of time
covered by such severance. Ms. Zint has also agreed that, for a period of one
year after the termination of her employment, she will not solicit the
employment of any person who was employed by the Company or any of its
affiliates or subsidiaries on a full or part-time basis at the
9
<PAGE> 12
time of Ms. Zint's termination unless such person was involuntarily discharged
by the Company or such affiliate or subsidiary, without the prior consent of the
Company.
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, except an Excluded Party,
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 such transaction which
would result in Excluded Parties owning or acquiring more than 50% of the assets
owned by the Company immediately prior to the transaction. An "Excluded Party"
includes subsidiaries of the Company, employee benefit plans of the Company and
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. 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 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.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The following report of the Compensation and Stock Option Committees of the
Board of Directors and the performance graph included elsewhere in this Proxy
Statement shall not be deemed soliciting material or otherwise deemed filed and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any other filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent the Company specifically incorporates this Report or the performance
graph by reference therein.
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 retail
industry organizations or other companies that may reasonably reflect
our market for high caliber executive talent;
- 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
10
<PAGE> 13
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 other retail
companies or in industry more generally; 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 attract and retain 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. Combinations of cash and stock compensation
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 opportunities (base salary, bonus
and long-term incentives) for Executives are set to reflect the Company's size
and/or financial performance as compared to the size, financial performance and
corresponding compensation levels of a group of retail industry companies (the
"Compensation Peer Group"), its markets for executive talent, and the
expectation that the executive team should possess the necessary skills,
experience and motivations to attain ambitious goals for business
revitalization. In the aggregate, total compensation opportunities will rest at
or near competitive 50th percentile levels. Pay opportunities for specific
individuals will vary based on skills, experience and assessments with respect
to individual performance. Actual total compensation will vary above or below
market standards based primarily on the attainment of operating goals and the
creation of shareholder value.
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 (corporate operating earnings), 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. Over time,
Executive salaries generally are targeted at or near to the size adjusted 50th
percentile level of salaries of the Compensation Peer Group. The Committee may,
as business conditions and the need to attract and retain top talent warrants,
provide salaries to selected executives above the size adjusted 50th percentile
level of salaries of the Compensation Peer Group. See also "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements."
Annual Incentive Plan
The fiscal 1998 annual incentive program established annual incentive
opportunities for Executives ranging from zero to a maximum 90% of salary at the
end of the 1998 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 corporate operating
earnings goals (reflecting corporate
11
<PAGE> 14
operating 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 40% 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 20% to 30% of
fiscal year-end salaries to a maximum incentive payment in a range from 60% to
90% of fiscal year-end salaries. These minimum and maximum payment levels were
prescribed by the Compensation Committee at the beginning of the 1998 fiscal
year. No awards may be paid out if corporate operating earnings performance
(reflecting corporate operating earnings growth) does not reach the established
minimum performance level.
The annual incentive payment opportunities for Dorrit J. Bern, the
Company's Chairman of the Board, President and Chief Executive Officer, were
based entirely on the quantitative corporate operating earnings goal (reflecting
corporate operating earnings growth). See "MANAGEMENT COMPENSATION --
Employment, Change of Control and Severance Agreements." The annual incentive
award opportunities for the other named Executive Officers were based 70% on the
quantitative corporate operating earnings goal (reflecting corporate operating
earnings growth) and 30% 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, except that the annual incentive payment opportunities for
Colin D. Stern, the Company's Executive Vice President, General Counsel and
Secretary, were based entirely on the quantitative corporate operating earnings
goals (reflecting corporate operating earnings growth).
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. 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. The 1998 fiscal year
grants of these options to the named Executive Officers generally become
exercisable at the rate of 20% per year commencing with the first
anniversary of the date of grant and thereafter on each succeeding
anniversary of the date of grant. The 1993 Plan also authorizes grants of
restricted stock. The Company did not make any 1998 fiscal year grants of
PSO's. 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
12
<PAGE> 15
necessary for the financial success and business growth of the Company and,
thereby, the creation of value for its Shareholders.
Other
The Committee may, from time to time as warranted by business conditions
and the Company's need to attract, retain or recognize the contributions of key
executives, 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 also "MANAGEMENT
COMPENSATION -- Employment, Change of Control and Severance Agreements."
Compensation of the Chief Executive Officer for the 1998 Fiscal Year
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 included a premium for moving to the Company
during a period of exceptional business challenge from a highly stable
employment situation. Ms. Bern's salary was not increased for the 1998 fiscal
year and remains at $1,000,000. Ms. Bern's salary is above the performance and
size adjusted 50th percentile level of base salary levels for the Compensation
Peer Group.
No stock options were granted to Ms. Bern during the 1998 fiscal year. On
the basis of the Committee's review and certification of the Company's 1998
fiscal year operating earnings in relation to Ms. Bern's goals under the Annual
Incentive Plan, an annual incentive payment of $492,000 was made to Ms. Bern
under the Annual Incentive Plan.
On an annualized basis, the combination of Ms. Bern's annual salary and
cash bonus awarded during the 1998 fiscal year placed her total compensation
above the performance and size adjusted 50th percentile level of total
compensation levels for the Compensation Peer Group.
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
$1,000,000 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 the 1998 fiscal year does not qualify for deduction under
Section 162(m). The Committee considered the deductibility of compensation under
Section 162(m) in designing compensatory arrangements and assessing the cost to
the Company of such compensatory arrangements and determined that the need to
attract and retain top industry executive talent considerably outweighed
deductibility considerations. The Committee therefore determined that it was
necessary and in the best interests of the Company to authorize compensation for
Ms. Bern that was, in part, in excess of the limitation on deductibility. As
circumstances change, the Committee will determine what actions are appropriate
in order to preserve tax deductibility of executive compensation paid by the
Company.
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.
Standard Options and PSO awards granted through the 1998 fiscal year appear
to meet the exemption requirements for performance-based compensation under
Section 162(m). Such awards granted in the 1999
13
<PAGE> 16
fiscal year, and other awards such as restricted stock, to the extent made, will
not meet the exemption requirements for performance-based compensation under
Section 162(m).
Compensation Committee and Stock Option
Committee:
Alan Rosskamm
Joseph L. Castle, II
Michael Solomon
Marjorie Margolies-Mezvinsky
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.
<TABLE>
<CAPTION>
Dow Jones
Retailers -
Measurement Period 'Charming S&P 500 Specialty Apparel
(Fiscal Year Covered) Shoppes, Inc.' Composite Index Index
<S> <C> <C> <C>
1/29/93 100.00 100.00 100.00
1/28/94 63.57 112.13 85.85
1/27/95 35.22 113.43 69.13
2/2/96 16.71 156.66 82.31
1/31/97 28.87 197.92 102.77
1/30/98 24.69 251.17 186.56
</TABLE>
The chart above assumes $100 invested on January 29, 1993 in Charming
Shoppes, Inc., the S&P 500 Composite Index, and the Dow Jones
Retailers -- Specialty Apparel Index, and was plotted using the following data:
<TABLE>
<CAPTION>
1/29/93 1/28/94 1/27/95 2/2/96 1/31/97 1/30/98
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Charming Shoppes, Inc. ....................... $100 $ 64 $ 35 $ 17 $ 29 $ 25
S&P 500 Composite Index....................... $100 $112 $113 $157 $198 $251
Dow Jones Retailers -- Specialty Apparel
Index......................................... $100 $ 86 $ 69 $ 82 $103 $187
</TABLE>
14
<PAGE> 17
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 a beneficial owner
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 1998 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 May 1, 1998.
<TABLE>
<CAPTION>
COMMON STOCK(1)
----------------------------
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES OWNED CLASS
------------------------ ------------ ----------
<S> <C> <C>
Dorrit J. Bern............................................. 800,000(2) (16)
Michael Solomon............................................ 121,865(3) (16)
Geoffrey W. Levy........................................... 50,115(4) (16)
Alan Rosskamm.............................................. 47,349(4) (16)
Marvin L. Slomowitz........................................ 46,865(4) (16)
Joseph L. Castle, II....................................... 42,890(4) (16)
Marjorie Margolies-Mezvinsky............................... 16,057(4) (16)
Laura A. Liswood........................................... 3,555(5) (16)
Colin D. Stern............................................. 481,500(6) (16)
Anthony A. DeSabato........................................ 248,428(7) (16)
Elizabeth Williams......................................... 185,600(8) (16)
Erna Zint.................................................. 108,000(9) (16)
FMR Corp................................................... 15,816,911(10) 15.6%
First Pacific Advisors, Inc................................ 12,076,707(11) 11.7%
The Prudential Insurance Company of America................ 8,350,258(12) 8.2%
Ryback Management Corporation.............................. 6,929,403(13) 6.7%
Royce & Associates, Inc.................................... 5,420,819(14) 5.4%
All current Directors, nominees and Executive Officers as a
Group (15 persons)....................................... 2,524,281(15) 2.5%
</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 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. Also includes 400,000 shares as
to which Ms. Bern holds options exercisable within sixty days.
(3) 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 Director."
(4) Includes 18,000 shares for Mr. Castle, 30,000 shares for Mr. Slomowitz,
30,000 shares for Mr. Rosskamm, 30,000 shares for Mr. Levy, and 6,000
shares for Ms. Margolies-Mezvinsky, as to which such persons hold options
exercisable within sixty days. See "ELECTION OF DIRECTORS -- Compensation
of Directors."
(5) Includes 889 shares which are not transferable until June 18, 1998.
(6) Includes 481,500 shares as to which Mr. Stern holds options exercisable
within sixty days.
(7) Includes 248,428 shares as to which Mr. DeSabato holds options exercisable
within sixty days.
(8) Includes 175,000 shares as to which Ms. Williams holds options exercisable
within sixty days.
(9) Includes 108,000 shares as to which Ms. Zint holds options exercisable
within sixty days.
(notes continued on following page)
15
<PAGE> 18
(10) The source of this information is an Amendment to Schedule 13G dated
February 14, 1998 filed by FMR Corp. and certain other persons reporting
beneficial ownership as of December 31, 1997. FMR Corp. reported that it
had sole power to vote or direct the vote of 401,411 shares and sole power
to dispose or direct the disposition of 15,816,911 shares. This Schedule
13G reported that Edward C. Johnson, 3rd and certain of his family members
and trusts form a controlling group with respect to FMR Corp. and that he
and Abigail P. Johnson each also had beneficial ownership of 15,816,911
shares (which shares are the same shares as those beneficially owned by FMR
Corp.), including sole voting power over 401,411 shares and sole
dispositive power over 15,816,911 shares. The 15,816,911 shares include
860,990 shares which may be acquired by conversion of $6,423,000 principal
amount of the Company's 7.5% Convertible Subordinated Notes due July 15,
2006 ("Convertible Debentures"). The Schedule 13G stated that Fidelity
Management & Research Company ("FMRC"), a wholly owned subsidiary of FMR
Corp. and a registered investment advisor, beneficially owned 15,350,948
shares or 14.34% of the outstanding class of Common Stock including 715,548
shares that may be acquired upon conversion of Convertible Debentures (all
of which shares are included in the shares beneficially owned by FMR
Corp.). The Schedule 13G also stated that Fidelity Contrafund, a registered
investment company, was the beneficial owner of 10,593,300 shares or 9.9%
of the outstanding class of Common Stock (all of which shares are included
in the shares beneficially owned by FMR Corp.). The address of FMR Corp.
and its affiliates is 82 Devonshire Street, Boston, MA 02109.
(11) The source of this information is an Amendment to Schedule 13G dated
February 9, 1998 filed by First Pacific Advisors, Inc., reporting that it
had shared power to vote or direct the vote of 6,582,015 shares of Common
Stock and shared power to dispose or direct the disposition of 12,076,707
shares of Common Stock at December 31, 1997. The 12,076,707 shares include
3,126,006 shares that may be acquired upon conversion of Convertible
Debentures. The address of First Pacific Advisors, Inc. is 11400 West
Olympic Boulevard, Suite 1200, Los Angeles, CA 90064.
(12) The source of this information is a Schedule 13G dated February 10, 1998
filed by The Prudential Insurance Company of America, reporting that it had
sole power to vote or direct the vote of 811,964 shares of Common Stock,
sole power to dispose or direct the disposition of 811,964 shares of Common
Stock, shared power to vote or direct the vote of 5,365,921 shares of
Common Stock and shared power to dispose or direct the disposition of
5,393,521 shares of Common Stock, at December 31, 1997. Also included are
2,144,773 shares of Common Stock which may be acquired upon conversion of
Convertible Debentures. The address of the Prudential Insurance Company of
America is 751 Broad Street, Newark, NJ 07102-3777.
(13) The source of this information is an Amendment to Schedule 13G dated March
19, 1998 filed by Ryback Management Corporation, reporting that it had sole
voting and dispositive power over 6,929,403 shares of Common Stock at March
19, 1998 of which 3,756,703 shares may be acquired upon conversion of
Convertible Debentures. The address of Ryback Management Corporation and
the other reporting persons is 7711 Carondelet Avenue, Box 16900, St.
Louis, MO 63105.
(14) The source of this information is a Schedule 13G dated February 5, 1998
filed by Royce & Associates, Inc. ("Royce"), Royce Management Company
("RMC") and Charles M. Royce reporting beneficial ownership at December 31,
1997. The Schedule 13G reported that the filing persons constitute a group
and that Charles M. Royce may be deemed to be a controlling person of Royce
and RMC, and as such may be deemed to beneficially own 5,420,819 shares of
Common Stock which shares are the same shares as those beneficially owned
by Royce and RMC. The Schedule 13G also reported that Royce and RMC each
had the sole power to vote or direct the vote of 5,420,819 and 289,800
shares of Common Stock, respectively, and the sole power to dispose or
direct the disposition of 5,420,819 and 289,800 shares of Common Stock,
respectively. The address of Charles M. Royce, Royce & Associates, Inc. and
Royce Management Company is 1414 Avenue of the Americas, New York, NY
10019.
(15) Includes 1,925,768 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.
16
<PAGE> 19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Geoffrey W. Levy, a Director, owns equity interests in shopping centers
located in Gilford, Massachusetts and Wakefield, Rhode Island. Members of Mr.
Levy's immediate family also own equity interests in the shopping center located
in Wakefield, Rhode Island. The amounts (including rent, common area maintenance
charges, taxes, insurance and other charges payable under the lease) paid by the
Company for the 1998 fiscal year with respect to each store in each shopping
center are as follows: Gilford, Massachusetts: $79,941; and Wakefield, Rhode
Island: $63,235. Mr. Levy also owns a mortgage over the shopping center located
in Wakefield, Rhode Island. 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. See "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 1998 fiscal year Joseph L. Castle, II, Michael Solomon, Alan
Rosskamm and Marjorie Margolies-Mezvinsky served as members of the Compensation
Committee and Stock Option Committee. Marvin L. Slomowitz also served as a
member of the Compensation Committee and Stock Option Committee until March 10,
1997 when he was replaced by Marjorie Margolies-Mezvinsky. Mr. Slomowitz is
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 eleven stores during the 1998
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 1998 fiscal year with respect to these
eleven stores was $792,429, which is less than two percent of the aggregate
rental revenues of the Partnership. As part of the construction and expansion of
three of the stores owned by the Partnership, the Company received construction
allowances in the aggregate amount of $1,050,000 to fund the cost of certain
leasehold improvements. Under the leases for these three stores, a portion of
the rent payable by the Company is used by the Partnership to amortize the
construction allowances paid to the Company. The rent payable by the Company
will be reduced by such portion after such construction allowances have been
amortized. As of January 31, 1998 an additional construction allowance in the
amount of $109,734 was due to the Company. 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 1998
fiscal year with respect to the Pittston store is approximately $42,684.
Michael Solomon owns equity interests in two entities which own shopping
centers located in Massena, New York and Rita, West Virginia and in which the
Company leases stores. The Lease Amounts paid by the Company for the 1998 fiscal
year with respect to each store in each shopping center are as follows: Massena,
New York: $37,239; and Rita, West Virginia: $98,713.
Alan Rosskamm owns equity interests in an entity which owns a shopping
center located in Napoleon, Ohio and in which the Company leases a store. The
Lease Amounts paid by the Company for the 1998 fiscal year with respect to such
store was $29,305.
The foregoing 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 foregoing leases and transaction terms
are no less favorable to the Company than the Company could have negotiated with
an unaffiliated third party.
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
17
<PAGE> 20
intention of the persons named in the enclosed Proxy Card (namely Dorrit J. Bern
and Joseph L. Castle, II) to vote in accordance with their best judgment.
RELATIONSHIP WITH AUDITORS
The firm of Ernst & Young LLP served as the Company's independent auditors
for the fiscal year ended January 31, 1998. 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 1999 ANNUAL MEETING
Any proposals of Shareholders that are intended to be presented at the
Company's 1999 Annual Meeting of Shareholders must be received at the Company's
principal executive offices no later than January 28, 1999 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. See "ELECTION OF
DIRECTORS -- Committees of the Board."
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
January 31, 1998 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 Colin D. Stern, Secretary, 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
COLIN D. STERN
Secretary
Bensalem, Pennsylvania
May 28, 1998
18
<PAGE> 21
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 Wednesday, July 15, 1998 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, ALL AS SET
FORTH IN THE PROXY STATEMENT.
(continued on reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 22
Please mark
your votes as [X]
indicated in
this example
1. ELECTION OF CLASS B DIRECTORS
Vote FOR Vote
both nominees WITHHELD
(except as marked
to the contrary)
----- ------
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE: WRITE
THAT NOMINEE'S NAME BELOW.)
Joseph L. Castle, II Laura A. Liswood
________________________________________________________________________________
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:____________________________________________________________________, 1998
________________________________________________________________________________
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.
WEDNESDAY, JULY 15, 1998
10:00 A.M.
CHARMING SHOPPES, INC.
450 WINKS LANE
BENSALEM, PA 19020
