<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-12188
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DEB SHOPS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1913593
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9401 Blue Grass Road, Philadelphia, Pennsylvania 19114
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(Address of principal executive offices) (Zip Code)
(215) 676-6000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name and address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, Par Value $.01 13,124,680
- ---------------------------- -------------------------------------
(Class) (Outstanding at October 31, 1998)
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
I N D E X
---------
Page
----
PART I. Financial Information:
Consolidated Balance Sheets - 1
October 31, 1998 and January 31, 1998
Consolidated Statements of Operations Nine Months and 2
Three Months Ended October 31, 1998 and October 31, 1997
Consolidated Statements of Cash Flows - 3
Nine Months Ended October 31, 1998 and October 31, 1997
Notes to Consolidated Financial Statements - 4-5
October 31, 1998
Management's Discussion and Analysis of Financial
Condition and Results of Operations - October 31, 1998 6-12
PART II. Other Information 13-14
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 31,1998 JANUARY 31, 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 57,835,666 $ 57,912,689
Merchandise inventories 26,280,656 22,107,228
Prepaid expenses and other 2,112,714 1,488,748
Current deferred income taxes 1,379,100 1,307,600
------------ ------------
Total Current Assets 87,608,136 82,816,265
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 150,000 150,000
Buildings 4,338,863 4,338,863
Leasehold improvements 29,748,460 29,068,033
Furniture and equipment 16,370,350 15,399,733
------------ ------------
50,607,673 48,956,629
Less accumulated depreciation
and amortization 35,810,470 34,168,084
------------ ------------
Total Property, Plant and Equipment 14,797,203 14,788,545
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated amortization
of $660,561 and $499,884, respectively 2,557,844 2,718,521
Long term deferred income taxes 3,487,240 2,003,740
Other 1,712,223 1,167,514
------------ ------------
Total Other Assets 7,757,307 5,889,775
------------ ------------
$110,162,646 $103,494,585
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 17,084,007 $ 16,098,296
Accrued expenses 6,482,653 5,879,551
Income taxes payable 1,495,000 1,858,379
------------ ------------
Total Current Liabilities 25,061,660 23,836,226
------------ ------------
Capital Lease Obligation 1,452,057 1,631,463
------------ ------------
Shareholders' Equity
Series A Preferred Stock, par value $1.00
a share:
Authorized - 5,000,000 shares
Issued and outstanding - 460 shares,
liquidation value $460,000 460 460
Common Stock, par value $.01 a share:
Authorized - 25,000,000 shares
Issued Shares - October 31, 1998: 15,688,290;
January 31, 1998: 15,688,290 156,883 156,883
Additional paid in capital 5,541,944 5,541,944
Retained earnings 93,795,385 89,904,032
------------ ------------
99,494,672 95,603,319
Less common treasury shares, at cost -
October 31, 1998: 2,563,610;
January 31, 1998: 2,843,610 15,845,743 17,576,423
------------ ------------
Total Shareholders' Equity 83,648,929 78,026,896
------------ ------------
$110,162,646 $103,494,585
============ ============
</TABLE>
The notes to consolidated financial statements are an integral part of these
financial statements.
-1-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended October 31 Three Months Ended October 31
-----------------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Net Sales $ 168,254,026 $144,918,407 $60,007,204 $52,409,278
------------- ------------ ----------- -----------
Costs and Expenses
Cost of Sales, including
buying and occupancy costs 123,757,904 112,143,055 44,350,323 40,206,473
Selling and administrative 33,592,561 30,008,634 11,553,550 10,200,161
Depreciation and amortization 2,815,049 3,247,391 940,392 1,128,950
------------- ------------ ----------- -----------
160,165,514 145,399,080 56,844,265 51,535,584
------------- ------------ ----------- -----------
Operating Income (Loss) 8,088,512 (480,673) 3,162,939 873,694
Other income, principally interest 2,229,628 1,523,713 669,038 573,893
------------- ------------ ----------- -----------
Income Before Income Taxes 10,318,140 1,043,040 3,831,977 1,447,587
Income Taxes 3,611,000 339,000 1,341,000 470,000
------------- ------------ ----------- -----------
Net Income $ 6,707,140 $ 704,040 $ 2,490,977 $ 977,587
============= ============ =========== ===========
Net Income Per Common Share
Basic $ 0.51 $ 0.05 $ 0.19 $ 0.08
============= ============ =========== ===========
Diluted $ 0.51 $ 0.05 $ 0.19 $ 0.07
============= ============ =========== ===========
Cash Dividend Declared
Per Common Share $ 0.15 $ 0.15 $ 0.05 $ 0.05
============= ============ =========== ===========
Weighted Average Number of
Common Shares Outstanding
Basic 13,025,968 12,844,680 13,118,430 12,844 680
============= ============ =========== ===========
Diluted 13,172,141 12,957,036 13,255,390 12,986,413
============= ============ =========== ===========
</TABLE>
The notes to consolidated financial statements are an integral part of these
financial statements.
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<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows provided by operating activities:
Net Income $ 6,707,140 $ 704,040
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,815,049 3,247,391
Deferred income tax (benefit) ( 1,555,000) ( 220,000)
Loss on retirement of property, plant and equipment 146,282 463,432
Change in assets and liabilities:
(Increase) in merchandise inventories ( 4,173,428) ( 2,760,833)
(Increase) decrease in prepaid expenses and other (623,966) 1,546,590
Increase (decrease) in trade accounts payable 985,711 ( 191,832)
Increase in accrued expenses 603,102 959,835
(Decrease) in income taxes payable ( 363,379) --
------------ ------------
Net cash provided by operating activities 4,541,511 3,748,623
------------ ------------
Cash flows (used in) investing activities:
Purchase of property, plant and equipment, net ( 2,809,312) ( 1,396,205)
------------ ------------
Net cash (used in) investing activities ( 2,809,312) ( 1,396,205)
------------ ------------
Cash flows (used in) financing activities:
Preferred Stock cash dividends paid ( 41,400) ( 41,400)
Common Stock cash dividends paid ( 1,962,457) ( 1,926,702)
Proceeds from stock options exercised 918,750 --
Principal payment under capital lease obligations ( 179,406) ( 146,493)
Other investing activities ( 544,709) --
------------ ------------
Net cash (used in) financing activities ( 1,809,222) ( 2,114,595)
------------ ------------
(Decrease) Increase in cash and cash equivalents ( 77,023) 237,823
Cash and cash equivalents at beginning of period 57,912,689 44,850,895
------------ ------------
Cash and cash equivalents at end of period $ 57,835,666 $ 45,088,718
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on capital lease obligation $ 233,094 $ 266,000
Income taxes, net $ 5,799,412 $ 1,110,795
</TABLE>
The notes to consolidated financial statements are an integral part of these
financial statements.
-3-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
October 31, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended October 31, 1998 are
not necessarily indicative of the results that may be expected for the fiscal
year ending January 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1998. The Balance
Sheet at January 31, 1998 has been derived from the audited financial statements
at that date.
NOTE B - INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that are expected to be in effect when the
differences reverse. Deferred income taxes result principally from differences
in the time of recognition of overhead in inventory, deductibility of certain
liabilities and depreciation expense.
NOTE C - NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." This statement established new standards for computing and presenting
earnings per share and requires the restatement of prior years amounts. The
Company adopted SFAS No. 128 effective January 31, 1998. Basic net income per
common share was computed by dividing net income applicable to common
shareholders by the weighted average number of shares of common stock
outstanding during the periods presented. Diluted net income per common share
has been presented based upon the weighted average common shares outstanding
during each period including the dilutive effect of stock options and restricted
incentive stock, if any.
-4-
<PAGE>
The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income per common share computations.
As required by SFAS No. 128 all prior-period per share data has been restated to
conform with the provisions of this statement.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended October 31,
------------------------------------------------------------------------
1998 1997
------------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
Net income $6,707,140 $704,040
Dividends on preferred stock (41,400) (41,400)
---------- --------
Basic income
available to common
shareholders 6,665,740 13,025,968 $.51 662,640 12,844,680 $.05
Effect of dilutive securities -- 146,173 -- -- 112,356 --
---------- ---------- ------ -------- ---------- ------
Dilutive income
available to common
shareholders $6,665,740 13,172,141 $.51 $662,640 12,957,036 $.05
========== ========== ====== ======== ========== ======
Three Months Ended October 31,
------------------------------------------------------------------------
1998 1997
------------------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
Net income $2,490,977 $977,587
Dividends on preferred stock (13,800) (13,800)
---------- --------
Basic income
available to common
shareholders 2,477,177 13,118,430 $.19 $963,787 12,844,680 $.08
Effect of dilutive securities -- 136,960 -- -- 141,733 --
---------- ---------- ------ -------- ---------- ------
Dilutive income
available to common
shareholders $2,477,177 13,255,390 $.19 $963,787 12,986,413 $.07
========== ========== ====== ======== ========== ======
</TABLE>
NOTE D - REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive Income."
This statement requires companies to classify items of other comprehensive
income by their nature in the financial statements and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for financial statements issued for fiscal
years beginning after December 15, 1997. The Company believes that SFAS No. 130
does not have a material effect on its financial statements.
-5-
<PAGE>
DEB SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
October 31, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The Company has made in this report, and from time to time may
otherwise make, "forward-looking statements" (as that term is defined under
Federal Securities Laws) concerning the Company's future operations,
performance, profitability, revenues, expenses and financial condition. This
report includes, in particular, forward-looking statements regarding store
openings, closings and other matters. Such forward-looking statements are
subject to various risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors. Such
factors may include, but are not limited to, the Company's ability to improve
margins, respond to changes in fashion, and the Company's ability to attract and
retain key management personnel. Such factors may also include other risks and
uncertainties detailed in the Company's filings with the Securities and Exchange
Commission, including the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1998.
Overview
As of October 31, 1998, Deb Shops, Inc. (the "Company") operates 269
women's specialty apparel retail stores offering moderately priced, fashionable,
coordinated sportswear, dresses, coats, lingerie, accessories and shoes for
junior and plus sized women. The Company also operates nine Tops `N Bottoms
stores which sell moderately priced men's and women's apparel.
The Company also operates 18 Atlantic book stores. The book division
includes 12 "Atlantic Book Shops", which are small limited selection book
stores, generally open seasonally in Delaware, Maryland, Pennsylvania and New
Jersey resort towns. Atlantic Books also operates six much larger "Atlantic Book
Warehouses" which carry a full line of best sellers, new titles and magazines in
addition to remainder books. The Atlantic Book Warehouse stores are located in
Delaware, Maryland, Minnesota, New Jersey and Pennsylvania.
Results of operations for the Company for the nine and three months
ended October 31, 1998 and 1997, are presented on a consolidated basis and are
discussed here on a segmented basis to provide relevant information concerning
the Company's retail apparel store business, which is the Company's principal
line of business, and the retail book business.
Results of Operations - Consolidated
Consolidated net sales increased $23,336,000 (16.1%) and $7,598,000
(14.5%), respectively, for the nine and three months ended October 31, 1998, as
compared to an increase of $12,033,000 (9.1%) and $6,023,000 (13.0%) for the
nine and three months ended October 31, 1997. The increase during the nine
months ended October 31, 1998 and 1997 and for the three months ended October
31, 1998 and 1997 is primarily the result of increased sales in the apparel
business and, to a lesser extent, an increase in the number of book stores.
The change in net sales, cost of sales, selling and administrative
expense and net income are more fully described in the sections on "Apparel
Business" and "Book Business" that follow.
-6-
<PAGE>
Other income, principally interest, increased $706,000 (46.3%) and
$95,000 (16.6%), respectively, for the nine and three months ended October 31,
1998 as compared to a (decrease) of ($105,000) (6.5%) and an increase of
$172,000 (42.7%), respectively, for the nine and three months ended October 31,
1997. Interest income is offset by losses on the disposition of fixed assets.
The increase during the nine and three months ended October 31, 1998 is
primarily the result of earnings on higher cash balances. The decrease for the
nine months ended October 31, 1997 is primarily attributable to an increase in
the losses incurred on the disposition of fixed assets.
Income before income taxes increased $9,275,000 (889.2%) and $2,384,000
(164.7%), respectively, for the nine and three months ended October 31, 1998 as
compared to an increase of $10,005,000 (111.6%) and $5,089,000 (138.9%),
respectively, for the nine and three months ended October 31, 1997. The
improvement for the nine and three months ended October 31, 1998 from 1997, is
primarily comprised of an increase in apparel business sales and apparel
business margins. The improvement for the nine and three months ended October
31, 1997 from 1996 is also attributable to an increase in apparel business sales
and apparel business margins.
Results of Operations - Apparel Business
Net sales increased to $155,761,000 from $134,470,000, or $21,291,000
(15.8%) in the nine months ended October 31, 1998 and 1997, respectively, and
increased to $134,470,000 from $125,435,000, or $9,035,000 (7.2%), in the nine
months ended October 31, 1997 and 1996, respectively. Net sales increased to
$55,070,000 from $48,395,000, or $6,675,000 (13.8%), in the three months ended
October 31, 1998 and 1997, respectively, and increased to $48,395,000 from
$43,516,000, or $4,879,000 (11.2%) in the three months ended October 31, 1997
and 1996, respectively. The increase in net sales for the nine and three months
ended October 31, 1998 and 1997 was principally attributable to a return of
fashion direction in the woman's specialty apparel industry, the Company's new
focus on a younger customer, and improved visual merchandising in the stores.
The following table sets forth certain per store information.
<TABLE>
<CAPTION>
Per Store Data(1) Per Store Data(1)
Nine Months Ended Three Months Ended
----------------- ------------------
October 31, October 31,
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stores open at end of the period 278 275 278 275
Average number in operation during the period 278 279 278 278
Average net sales per store (in thousands) $ 560 $482 $198 $174
Average operating income (loss) per store
(in thousands) $ 25 ($ 5) $ 9 $ 2
Comparable Store Sales(2)-Percent Change 12.3% 11.7% 10.0% 11.0%
</TABLE>
Cost of sales, including buying and occupancy costs, increased to
$115,191,000 from $104,911,000, or $10,280,000 (9.8%) in the nine months ended
October 31, 1998 and 1997, respectively, and decreased to $104,911,000 from
$105,939,000, or ($1,028,000) (1.0%), in the nine months ended October 31, 1997
and
-7-
- -----------------------
(1) Includes Tops 'N Bottoms stores
(2) Comparable store sales include stores open for both periods in the current
format and location. A store is added to the comparable store base in its
13th month of operation.
<PAGE>
1996, respectively. Cost of sales, including buying and occupancy costs,
increased to $40,997,000 from $37,419,000, or $3,578,000 (9.6%), in the three
months ended October 31, 1998 and 1997, respectively, and increased to
$37,419,000 from $36,951,000, or $468,000 (1.3%), in the three months ended
October 31, 1997 and 1996, respectively. The increase in cost of sales,
including buying and occupancy costs in the nine and three months ended October
31, 1998 was principally due to the increase in net sales during the period,
offset by the result of selling merchandise at higher margins. The (decrease) in
cost of sales, including buying and occupancy costs, in the nine months ended
October 31, 1997 was primarily the result of selling merchandise at higher
margins, partially offset by the increase in net sales during the period. As a
percentage of net sales, cost of sales, including buying and occupancy costs,
were 74.0% and 78.0% in the nine months ended October 31, 1998 and 1997,
respectively, and 74.4% and 77.3% in the three months ended October 31, 1998 and
1997, respectively. As a percentage of net sales, buying and occupancy costs
were 17.3% and 18.5% in the nine months ended October 31, 1998 and 1997,
respectively, and 16.1% and 17.2% in the three months ended October 31, 1998 and
1997.
Selling and administrative expenses increased to $31,269,000 from
$28,058,000, or $3,211,000 (11.4%), in the nine months ended October 31, 1998
and 1997, respectively, and (decreased) to $28,058,000 from $28,475,000, or
($418,000) (1.5%), in the nine months ended October 31, 1997 and 1996,
respectively. Selling and administrative expenses increased to $10,765,000 from
$9,486,000, or $1,279,000 (13.5%), in the three months ended October 31, 1998
and 1997, respectively, and (decreased) to $9,486,000 from $10,148,000, or
($661,000) (0.7%), in the three months ended October 31, 1997 and 1996,
respectively. The increase in selling and administrative expenses for the nine
and three months ended October 31, 1998 was mainly due to an increase in store
operating cost. The (decrease) in selling and administrative expenses for the
nine months ended October 31, 1997 was primarily due to a one-time cost of
$560,000 for the termination of the Company's private label credit card program,
in the prior year, offset by increased insurance costs. As a percentage of net
sales, selling and administrative expenses were 20.1% and 20.9% in the nine
months ended October 31, 1998 and 1997, respectively, and 19.5% and 19.6% in the
three months ended October 31, 1998 and 1997, respectively.
Depreciation expenses decreased ($466,000) and ($192,000) in the nine
and three months ended October 31, 1998, respectively. Depreciation expenses
increased $512,000 and $203,000 in the nine and three months ended October 31,
1997, respectively. The decrease for the nine and three months ended October 31,
1998, is principally attributable to a reduction in the number of stores to be
closed and the write-offs associated with them. The increase for the nine and
three months ended October 31, 1997 is principally attributable to the
accelerated write-off of leasehold improvements.
Operating income increased to $6,861,000 from an operating (loss) of
($1,404,000), or $8,265,000, in the nine months ended October 31, 1998 and 1997,
respectively, and the operating (loss) decreased to ($1,404,000) from
($11,373,000), or $9,969,000, in the nine months ended October 31, 1997 and
1996, respectively. The operating income increased to $2,531,000 from $484,000,
or $2,047,000 (422.9%), in the three months ended October 31, 1998 and 1997,
respectively and the operating income increased to $484,000 from an operating
(loss) of ($4,386,000), or $4,870,000, in the three months ended October 31,
1997 and 1996, respectively. As a percentage of net sales, the operating income
(loss) was 4.4% and (1.0%) in the nine months ended October 31, 1998 and 1997,
respectively, and 4.6% and 1.0% in the three months ended October 31, 1998 and
1997, respectively. The increase in the operating income for the nine and three
months ended October 31, 1998 was primarily attributed to an increase in sales
and an increase in margins, partially offset by an increase in selling and
administrative expenses. The decrease in the operating loss for the nine months
ended October 31, 1997 was primarily attributed to an increase in net sales and
an increase in margins. During the nine months ended October 31, 1997 the
Company decreased the number of "Plus Size" selling units by almost 50%. This
reduction did not result in a proportionate reduction in sales and did result in
an improvement in "Plus Size" margins.
Results of Operations - Book Business
Net sales increased to $12,493,000 from $10,448,000, or $2,045,000
(19.6%), in the nine months ended October 31, 1998 and 1997, respectively, and
increased to $10,448,000 from $7,450,000, or
-8-
<PAGE>
$2,998,000 (40.2%), in the nine months ended October 31, 1997 and 1996,
respectively. Net sales increased to $4,937,000 from $4,015,000, or $922,000
(23.0%), in the three months ended October 31, 1998 and 1997, respectively, and
increased to $4,015,000 from $2,871,000, or $1,144,000 (39.8%), in the three
months ended October 31, 1997 and 1996, respectively. The increase in net sales
in the nine and three months ended October 31, 1998 resulted primarily from the
addition of two resort stores and one warehouse store. The increase in net sales
in the nine and three months ended October 31, 1997 resulted primarily from the
addition of two warehouse stores and the increase in size of a resort store.
The following table sets forth certain per store information.
<TABLE>
<CAPTION>
Per Store Data Per Store Data
Nine Months Ended Three Months Ended
----------------- ------------------
October 31, October 31,
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Stores open at end of the period-Resort Stores 12 10 12 10
Average number in operation during the period 12 10 11 10
Average net sales per Resort store (in thousands) $ 376 $ 356 $201 $175
Stores open at end of the period-Warehouse Stores 6 5 6 5
Average number in operation during the period 6 5 6 5
Average net sales per Warehouse store (in thousands) $1,304 $1,361 $448 $445
Comparable Store Sales(3)-Percent Change --- 3.3% --- 3.3%
</TABLE>
Cost of sales, including buying and occupancy costs, increased to
$8,702,000 from $7,367,000, or $1,335,000 (18.1%), in the nine months ended
October 31, 1998 and 1997, respectively, and increased to $7,367,000 from
$5,015,000, or $2,352,000 (46.9%), in the nine months ended October 31, 1997 and
1996, respectively. Cost of sales, including buying and occupancy costs,
increased to $3,398,000 from $2,833,000, or $565,000 (19.9%), in the three
months ended October 31, 1998 and 1997, respectively, and increased to
$2,833,000 from $1,933,000, or $900,000 (46.6%) in the three months ended
October 31, 1997 and 1996, respectively. As a percentage of net sales, cost of
sales, including buying and occupancy costs were 69.6% and 70.5% in the nine
months ended October 31, 1998 and 1997, respectively, and 68.8% and 70.6% in the
three months ended October 31, 1998 and 1997. The increase in cost of sales,
including buying and occupancy costs, in the nine and three months ended October
31, 1998 and 1997 is primarily the result of increased sales. As a percentage of
net sales, buying and occupancy costs were 15.5% and 16.1% in the nine months
ended October 31, 1998 and 1997, respectively, and 14.5% and 16.3% in the three
months ended October 31, 1998 and 1997, respectively.
Selling and administrative expenses increased to $2,316,000 from
$1,945,000, or $371,000 (19.1%), in the nine months ended October 31, 1998 and
1997, respectively, and increased to $1,945,000 from $1,413,000, or $533,000
(37.7%), in the nine months ended October 31, 1997 and 1996, respectively.
Selling and administrative expenses increased to $822,000 from $712,000, or
$110,000 (15.4%), in the three months ended October 31, 1998 and 1997,
respectively, and increased to $712,000 from $515,000, or $197,000 (38.3%), in
the three months ended October 31, 1997 and 1996, respectively. The increase in
the nine and
- --------------------
(3) Comparable store sales include stores open for both periods in the current
format and location. A store is added to the comparable store base in its 13th
month of operations.
-9-
<PAGE>
three months ended October 31, 1998 and 1997 is primarily the result of
additional stores. As a percentage of net sales, selling and administrative
expenses were 18.5% and 18.6% in the nine months ended October 31, 1998 and
1997, respectively, and 16.6% and 17.8% in the three months ended October 31,
1998 and 1997, respectively.
Depreciation expense increased $33,000 and $4,000, in the nine months
and three months ended October 31,1998, respectively.
Operating income increased to $1,145,000 from $839,000, or $306,000
(36.5%), in the nine months ended October 31, 1998 and 1997, respectively, and
increased to $839,000 from $794,000, or $45,000 (5.7%), in the nine months ended
October 31, 1997 and 1996, respectively. Operating income increased to $605,000
from $361,000, or $244,000 (67.6%), in the three months ended October 31, 1998
and 1997, respectively, and increased to $361,000 from $347,000, or $14,000
(4.1%), in the three months ended October 31, 1997 and 1996, respectively. The
changes in operating income for the nine and three months ended October 31, 1998
and 1997 are primarily the result of the factors described above. As a
percentage of net sales, operating income was 9.2% and 8.0% in the nine months
ended October 31, 1998 and 1997, respectively, and 12.3% and 9.0% in the three
months ended October 31, 1998 and 1997, respectively.
Liquidity and Capital Resources
During the three and nine months ended October 31, 1998 and 1997, the
Company funded internally all of its operating needs, including capital
expenditures for the opening of new apparel and book stores and for the
remodeling of existing apparel and book stores. Total cash provided by operating
activities for the nine months ended October 31, 1998 and 1997 was $4,542,000
and $3,749,000, respectively. For the nine months ended October 31, 1998, cash
provided by operations was the result of the net income, increases in trade
accounts payable and non-cash charges for depreciation and amortization,
partially offset by the deferred income tax benefit, the decrease in income
taxes payable and an increase in merchandise inventories. For the nine months
ended October 31, 1997, cash provided by operations was the result of the net
income, a decrease in prepaid expenses and other, and increase in accrued
expenses, and non-cash charges for depreciation and amortization, partially
offset by an increase in merchandise inventories. The inventory turn-over rate
for the apparel business was approximately 2.4 times during the nine months
ended October 31, 1998 and 2.2 times during the nine months ended October 31,
1997. The inventory turn-over rate for the book business was approximately 1.0
times during the nine months ended October 31, 1998 and 1.1 times during the
nine months ended October 31, 1997.
Net cash used in investing activities was $2,809,000 and $1,396,000 for
the nine months ended October 31, 1998 and 1997, respectively. The increase in
net cash used in investing activities was principally due to the remodeling of
existing stores and the opening of new stores.
Net cash used in financing activities was $1,809,000 and $2,115,000 for
the nine months ended October 31, 1998 and 1997, respectively. For the nine
months ended October 31, 1998, these funds were principally used for the payment
of dividends on preferred and common stock and other investing activities,
partially offset by the proceeds from incentive stock options exercised. For the
nine months ended October 31, 1997, these funds were principally used for the
payment of dividends on preferred and common stock.
As of October 31, 1998, the Company had cash and cash equivalents of
$57,836,000 compared with $45,089,000 at October 31, 1997. In February 1998, the
Company purchased nine stores from Petrie Retail, Inc. and subsidiaries, for
$720,000. These locations were made available as a result of Petrie's ongoing
bankruptcy proceedings. The stores are located in regional malls and were opened
during the quarter ended April 30, 1998. At the end of the first quarter of
fiscal 1998, the Company reduced the size of the plus sized operation by
approximately 50%.
-10-
<PAGE>
The Company's intention is to expand the book store business. Opening a
warehouse book store is capital intensive, because of the leasehold improvements
and initial inventory required. It is anticipated that the funds to finance
expansion will come from the cash and cash equivalents on hand. As of the
balance sheet date, there were no commitments for the opening of any additional
warehouse or resort stores. Other than these items, there are no known trends or
commitments, events or other uncertainties that are reasonably likely to result
in the Company's liquidity increasing or decreasing in any material way. The
Company believes that internally generated funds will be sufficient to meet its
anticipated capital expenditures, which are not expected to be material, and
current operating needs.
YEAR 2000 READINESS DISCLOSURE
The operation of the Company's business is dependent, in part, on its
computer software programs and operating systems (collectively, "Programs and
Systems"). The Programs and Systems are used in several key areas of the
Company's business, including merchandising, inventory management, pricing,
sales, distribution, financial reporting, as well as in various administrative
functions. The Company has been evaluating its Programs and Systems to identify
potential Year 2000 compliance issues. These actions are necessary to ensure
that the Programs and Systems will recognize and process in the Year 2000 and
beyond. It is anticipated that remediation of some of the Company's Programs and
Systems and replacement of some of the Company's Programs and Systems will be
necessary to make such Programs and Systems Year 2000 compliant. As part of its
evaluation the Company looked at both Information Technology ("IT") and non-"IT"
systems. The Company has concluded that non-"IT" systems are not significant to
the ongoing operation of its business. Although the Company is not currently
aware of material Year 2000 compliance issues relating to systems of other
companies with which the Company does business, there is no assurance that the
Company will not be materially adversely affected by such issues affecting the
systems of such other companies. The Company has not developed contingency
plans. Development of such plans will be considered if the Company believes that
its replacement/remediation efforts may not be completed on a timely basis.
The status of the Company's progress toward becoming Year 2000
compliant is as follows:
<TABLE>
<CAPTION>
Estimated Estimated Approximate Amount Estimated Completion
System % Complete Total Cost Expended to Date Quarter Ending
- ------ ---------- ---------- ---------------- ------------------
<S> <C> <C> <C> <C>
Financial 85% $530,000 $315,000 January, 1999
P.C. & Mainframe
including operating
systems 75% $200,000 $155,000 July, 1999
Merchandising/
Distribution/
Warehousing 50% $155,000 $ 35,000 July, 1999
======== =========
$885,000 $505,000
</TABLE>
These projects will be paid from internally generated funds. Based on
present information, the Company believes that it will be able to achieve such
Year 2000 compliance through the remediation of some Programs and Systems and
through the replacement of some Programs and Systems. However, no assurance can
be given that these efforts will be successful, or that the Company will not be
materially adversely affected by any failures of these remediation and
replacement projects.
-11-
<PAGE>
SEASONAL NATURE OF OPERATIONS
The following table shows the Company's net sales and net earnings per quarter
for the fiscal year ended January 31, 1998 on an unaudited basis.
Net Sales Net Income(Loss)
------------------------------------------------------
Amount % Amount %
------ - ------ -
(Dollars in Thousands)
----------------------
1st Quarter $ 43,929 21.4% ($ 1,530) ( 23.0%)
2nd Quarter 48,580 23.7% 1,256 18.9%
3rd Quarter 52,409 25.6% 978 14.7%
4th Quarter 60,148 29.3% 5,933 89.4%
-------- ------ -------- ------
TOTAL $205,066 100.0% $ 6,637 100.0%
======== ====== ======== ======
Approximately 55% and 104% of the Company's net sales and net income,
respectively, for fiscal 1998 occurred during the last six months, which
includes the Back-to-School and Christmas selling seasons.
-12-
<PAGE>
PART II. OTHER INFORMATION
Items 1 - 3. NOT APPLICABLE
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The annual meeting of the company was held on Wednesday, May
27, 1998. Total votes present either in person or by proxy were 12,490,717. The
votes were cast as follows for the election of directors:
FOR WITHHELD
--- --------
Marvin Rounick 12,478,897 11,820
Warren Weiner 12,479,077 11,640
Jack A. Rounick 12,480,377 10,340
Paul S. Bachow 12,479,467 11,250
Barry H. Feinberg 12,480,377 10,340
Barry H. Frank 12,480,377 10,340
There were no other matters voted on at the meeting.
Item 5. NOT APPLICABLE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description of Document
10-14.4 Agreement of Settlement and General
Release dated May 5, 1998 between Jack
A. Rounick and Stuart Savett, Trustees
under the Rounick Family Irrevocable
Insurance Trust dated October 27, 1986
and the Manufacturers Life Insurance
Company.
10-14.5 Amended and Restated Split Dollar
Insurance Agreement dated July 31, 1998
between the Company and Jack A. Rounick
and Stuart Savett, Trustees under the
Rounick Family Irrevocable Insurance
Trust dated October 27, 1986
10-14.6 Amended and Restated Collateral
Assignment dated July 31, 1998 from
Jack. A. Rounick and Stuart Savett,
Trustees under the Rounick Family
Irrevocable Insurance Trust dated
October 27, 1986, as assignor, and the
Company, as assignee.
10-15.4 Agreement of Settlement and General
Release dated May 5, 1998 between Barry
H. Frank and Robert Shein, Trustees
under the Weiner Family Irrevocable
Insurance Trust dated October 27, 1986
and the Manufacturers Life Insurance
Company.
-13-
<PAGE>
10-15.5 Amended and Restated Split Dollar
Insurance Agreement dated July 31, 1998
between the Company and Barry H. Frank
and Robert Shein, Trustees under the
Weiner Family Irrevocable Insurance
Trust dated October 27, 1986
10-15.6 Amended and Restated Collateral
Assignment dated July 31, 1998 from
Barry H. Frank and Robert Shein,
Trustees under the Weiner Family
Irrevocable Insurance Trust dated
October 27, 1986, as assignor, and the
Company, as assignee.
27 Financial Data Schedule
(b) Reports on Form 8-K
A Report on Form 8-K was filed on June 12, 1998 and a
Report on Form 8-K/A was filed on June 18, 1998. Both reported, under Item 4, a
change of Certifying Accountant.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DEB SHOPS, INC.
DATE: December 14, 1998 By /s/ Marvin Rounick
-----------------------------
Marvin Rounick
President
DATE: December 14, 1998 By /s/ Lewis Lyons
-----------------------------
Lewis Lyons
Vice President, Finance
Chief Financial Officer
<PAGE>
Exhibit 10-14.4
AGREEMENT OF SETTLEMENT AND GENERAL RELEASE
WHEREAS, The Manufacturers Life Insurance Company, ("Manulife")
issued a life insurance policy to Jack A. Rounick and Stuart Savett as Trustees
of the Rounick Family Irrevocable Insurance Trust dated October 27, 1986,
("Owners/Trustees") on the joint lives of Marvin J. Rounick and Judith L.
Rounick, (the "Insureds"), policy number 3,779,930-1, (the "policy"); and
WHEREAS, a dispute has arisen between Manulife on the one hand
and the Owners/Trustees and Insureds on the other with respect to the nature and
extent of premiums and coverages under said policy; and,
WHEREAS, the parties desire to settle and compromise their
differences amicably;
This agreement shall be effective on the last date written below;
NOW, THEREFORE, IT IS AGREED that in consideration of the mutual
covenants contained herein, the sufficiency and adequacy of which are mutually
acknowledged;
1. Manulife shall adjust the illustrated policy values to match
the attached Appendix "A" (illustration dated February 1, 1996) which is
incorporated herein by reference, such that policy loans outstanding on February
1, 1996 are reduced by $229,348.00. The surrender of the policy prior to the
death of the Insureds will result in an adjustment of the cash surrender value
not to exceed $229,348.00.
2. Manulife shall adjust the illustrated policy values to
implement a reduction in the face amount of the policy from $20,000,000.00 to
$15,000,000.00 effective February 1, 1997 as reflected in the attached Appendix
"A". Any then available policy guaranteed cash value will be used to purchase
paid up additions.
3. The Owners/Trustees will pay $397,286.00 into the policy
within 30 days of the date of this agreement and this money will be used to
eliminate any remaining indebtedness on the policy as though the payment had
been made on February 1, 1996 such that the current policy debt will incur no
further loan interest charges as of that date as depicted in the attached
Appendix "A".
4. The payment made by Manulife referred to above is not nor
shall it be construed as an admission of fault or liability and is made solely
in the interest of resolving a disputed matter. This Agreement and General
Release, including the consideration provided, shall be kept strictly
confidential and shall not be hereafter disclosed to any third parties by the
Insureds or Owners/Trustees except by permission of Manulife, or as may be
necessary for tax and estate planning purposes, an order of the court, or other
legal process. Breach of this provision is likely to lead to serious
consequential damages to Manulife and its agent by virtue of
<PAGE>
the existence of unresolved and disputed fact matters and damages arising there
would be from difficult to resolve in the event of such breach. Consequently,
the parties hereto stipulate that damages arising from a breach shall cause the
loan and premium payments to be readjusted such that the changes described in
paragraph one (1) would be reversed. This shall be done upon proof of a
substantial breach of this provision subsequent to the date of this agreement,
by either the Insureds or the Owners/Trustees in its capacity as Trustee, in a
Federal or State court in Pennsylvania.
5. The undersigneds, jointly and severally, on their own behalf,
and that of their heirs, successors and assigns hereby release, acquit and
discharge Manulife and any of their agents, officers, employees, directors,
successors and assigns of and from any and all claims and causes of action, of
any name and nature arising from the sale, solicitation, purchase or issuance of
the policy described herein including any act omission, transaction, dealing,
conduct or negotiation of any kind whatsoever arising from the solicitation,
purchase or issuance of any contract with Manulife. Insureds do not waive any
rights under the contract itself.
DATED this 5th day of May 1998.
---- -----
MANULIFE The Manufacturers Life Insurance Company
BY: /s/ Paul L. Gallagher
------------------------------------------
Paul L. Gallagher
ITS: Assistant Vice President & Senior Counsel
--------------------------------------------
/s/ Marvin J. Rounick
INSUREDS --------------------------------------------
Marvin J. Rounick
/s/ Judith L. Rounick
--------------------------------------------
Judith L. Rounick
/s/ Jack A. Rounick
OWNERS/TRUSTEES --------------------------------------------
Jack A. Rounick
/s/ Stuart Savett
--------------------------------------------
Stuart Savett
<PAGE>
APPENDIX "A"
ADVANCED SURVIRORSHIP LEDGER
PREPARED FOR INFORCE POLICY #3779930
M & J ROUNICK M & J ROUNICK
FEMALE, AGE 42 MALE NONSMOKER, AGE 47
$20000000 MANULIFE PRINCIPAL'S SURVIVORSHIP LIFE AT 95 - B84 $157020.00
SINGLE CEO II RIDER $362905.00
- --------------------------------------------------------------------------------
$20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $519925.00
<TABLE>
<CAPTION>
DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS
WITH EXCESS APPLIED TO PURCHASE PUA'S
******* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT *******
** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS **
*** THIS ILLUSTRATION ASSUMES THAT THE LOAN OUTSTANDING AT THE BEGINNING OF YEAR 10 OF ***
*** $626,634.47 HAS BEEN REPAID AT THE BEGINNING OF THE YEAR 10 I.E. FEBRUARY 1, 1996 ***
CASH TOTAL TIO PUA TOTAL
GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH
ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT
YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR
- ---- ------- ------- --------- --------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 157020 0 0 0 98000 0 1092600 0 0 20000O00
11 117770 0 96400 0 96400 251780 1212530 0 803428 15803428
12 117770 0 72300 8468 80768 223561 1332811 0 689336 15689336
13 117770 0 77550 7517 85067 198597 1463547 0 591872 15551872
14 117770 0 80850 6676 87526 175174 1603474 0 504730 15504730
------- ------ -------- -------
628100 0 327100 447762
15 117770 0 84000 5887 89887 153261 1752861 0 427039 15427039
16 117770 0 87450 5149 92599 133273 1912573 0 359199 15359199
17 117770 0 90300 4477 94777 114754 2082454 0 299240 15299240
18 117770 0 93300 3864 97154 97962 2263062 0 247214 15247214
19 117770 0 96450 3289 99739 83171 2454371 0 203168 15203168
------- ------ -------- -------
1216950 0 778600 921918
20 117770 0 99900 2792 102692 70821 2653471 0 167505 15167505
21 117770 0 103350 2376 105726 61078 2873728 0 139916 15139916
22 117770 0 106950 2049 108599 54269 3100619 0 120448 15120448
23 117770 0 110700 1820 112520 50737 3339337 0 109153 15109153
24 117770 0 114600 1700 116300 50851 3590102 0 106087 15106087
------- ------ -------- -------
1805800 0 1314100 1468155
25 117770 0 117770 1703 119473 54116 3852416 0 109535 15109535
26 117770 0 117770 1812 119582 57563 4123613 0 113095 15113095
27 117770 0 117770 1926 119696 61200 4403700 0 116772 15116772
28 117770 0 117770 2047 119827 65037 4692837 0 120566 15120566
29 117770 0 117710 2174 119944 69082 4990432 0 124484 15124484
------- ------ -------- -------
2394650 0 1902950 2066668
</TABLE>
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
<PAGE>
ADVANCED SURVIRORSHIP LEDGER
PREPARED FOR INFORCE POLICY #3779930
M & J ROUNICK M & J ROUNICK
FEMALE, AGE 42 MALE NONSMOKER, AGE 47
$20000000 MANULIFE PRINCIPAL'S SURVIVORSHIP LIFE AT 95 - B84 $157020.00
SINGLE CEO II RIDER $362905.00
- --------------------------------------------------------------------------------
$20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $519925.00
<TABLE>
<CAPTION>
DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS
WITH EXCESS APPLIED TO PURCHASE PUA'S
******* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT *******
** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS **
*** THIS ILLUSTRATION ASSUMES THAT THE LOAN OUTSTANDING AT THE BEGINNING OF YEAR 10 OF ***
*** $626,634.47 HAS BEEN REPAID AT THE BEGINNING OF THE YEAR 10 I.E. FEBRUARY 1, 1996 ***
CASH TOTAL TIO PUA TOTAL
GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH
ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT
YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR
- ---- ------- ------- --------- --------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 117770 0 117770 2309 120079 73341 5295592 0 128530 15128530
31 117770 0 117770 2450 120220 77819 5407269 0 132707 15132707
32 117770 0 117770 2597 120367 82517 5924117 0 137020 15137020
33 117170 0 117170 2752 120522 87435 6245086 0 141473 15141473
34 111110 0 111110 2914 120684 92576 6568826 0 146071 15146071
------- ----- ------- -------
2983500 0 2492800 2668540
35 117770 0 117770 3083 120853 97939 6894740 0 150818 15160818
36 111770 0 111770 3259 121029 103530 7222230 0 155720 15155702
17 117770 0 117770 3442 121212 109351 7550552 0 160781 15160781
38 117770 0 117770 3633 121403 115407 7879258 0 166006 15166006
39 117770 0 117770 3831 121601 121704 8207454 0 171401 15171401
------- ----- ------- -------
3572350 0 3080650 3274937
40 117770 0 117770 4037 121807 128241 8534241 0 176972 15176972
41 111770 0 111770 4250 122020 135021 8858871 0 182723 15182723
42 117770 0 117770 4471 122241 142043 9180893 0 189662 15188662
43 117770 0 117770 4700 122470 149310 9501060 0 194793 15194793
44 117770 0 117770 4937 122707 156836 9821336 0 201124 15201124
------- ----- ------- -------
4161200 0 3669500 3885881
45 117770 0 117770 5182 122952 164642 10144592 0 207661 15207661
46 117770 0 117770 5438 123208 172761 10473861 0 214410 15214410
47 117770 0 117770 5705 123475 181236 10810386 0 221378 15221378
48 117770 0 117770 5984 123754 190116 11148516 0 228573 15228573
49 117770 0 117770 6278 124048 199442 11501792 0 236002 15236002
------- ----- ------- -------
4750050 0 4258350 4503315
</TABLE>
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
<PAGE>
ADVANCED SURVIRORSHIP LEDGER
PREPARED FOR INFORCE POLICY #3779930
M & J ROUNICK M & J ROUNICK
FEMALE, AGE 42 MALE NONSMOKER, AGE 47
$20000000 MANULIFE PRINCIPAL'S SURVIVORSHIP LIFE AT 95 - B84 $157020.00
SINGLE CEO II RIDER $362905.00
- --------------------------------------------------------------------------------
$20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $519925.00
<TABLE>
<CAPTION>
DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS
WITH EXCESS APPLIED TO PURCHASE PUA'S
******* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT *******
** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS **
*** THIS ILLUSTRATION ASSUMES THAT THE LOAN OUTSTANDING AT THE BEGINNING OF YEAR 10 OF ***
*** $626,634.47 HAS BEEN REPAID AT THE BEGINNING OF THE YEAR 10 I.E. FEBRUARY 1, 1996 ***
CASH TOTAL TIO PUA TOTAL
GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH
ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT
YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR
- ---- ------- ------- --------- --------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 117770 0 117770 6586 124356 209240 11870990 0 243672 15243672
51 111770 0 111770 6910 124680 219610 12266210 0 252591 15251591
52 117770 0 117770 7247 125017 230223 12666823 0 259768 15255768
53 117770 0 117770 7597 125367 241344 13031844 0 268210 15266210
54 0 0 117770 7941 125711 370038 13444939 0 406209 15406209
------- ----- ------- -------
5221130 0 4847200 5128449
55 0 0 19350 12184 31534 406441 13798842 0 440376 15440376
56 0 0 19800 13392 33192 445250 14148351 0 475849 15475849
57 0 0 20250 14673 34923 466414 14505114 0 512657 15512657
------- ----- ------- -------
5221130 0 4906600 5228099
</TABLE>
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
<PAGE>
INFORCE POLICY REVIEW
PROPOSAL DATE: FEBRUARY 1, 1996
LIFE INSUREDS: M & J ROUNICK PLAN: SURVIVORSHIP LIFE AT 95 -B84
POLICY NUMBER: 3779930 RIDERS: SINGLE CEO
DATE POLICY ISSUED: FEBRUARY 1, 1987
ISSUE AGE: 42 NON-SMOKER: YES
CURRENT POLICY YEAR: 10 LOAN INTEREST RATE: VARIABLE
CURRENT ANNUALIZED PREMIUM: $157020.00
POLICY BENEFITS
- ---------------
CURRENT DEATH BENEFIT (DIVIDEND INCLUDED): $20000000 LESS TOTAL LOAN.
CASH VALUE AT THE END OF THE CURRENT YEAR: $1092600 LESS TOTAL LOAN.
POLICY LOANS
- ------------
THIS PROPOSAL ASSUMES THAT NO LOANS WERE OUTSTANDING ON THIS POLICY
AS OP AUGUST 1, 1996.
DIVIDENDS
- ---------
ANNUAL DIVIDEND AT LAST ANNIVERSARY: $98000.00
VANISH
- ------
THIS PROPOSAL ASSUMES THAT $98000.00 WAS SURRENDERED TO PAY THE PREMIUM AT THE
BEGINNING OF THE YEAR.
POLICY VALUES
- -------------
THE SINGLE CEO RIDER PREMIUM SHOWN IN THE HEADING OF THIS PROPOSAL REPRESENTS
THE SINGLE PREMIUM APPLIED FOR AT THE TIME OF ISSUE. HOWEVER, THE ACTUAL SINGLE
CEO PREMIUM PAID MAY BE EQUAL TO OR LESS THAN THE STATED CEO SINGLE
PREMIUM. THE VALUES ILLUSTRATED ABOVE ARE BASED ON THE ACTUAL CEO SINGLE
PREMIUM PAID.
A POLICY FROM MANULIFE FINANCIAL IS BACKED BY 0VER 100 YEARS OF EXPERIENCE
AND EXPERTISE.
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
<PAGE>
IMPORTANT INFORMATION ABOUT THIS PROPOSAL
Manulife Financial has a reputation for its financial integrity and for
providing solid, long term value to our policyholders. In keeping with that
tradition, we encourage our clients to fully examine and understand the
assumptions used in a life insurance proposal.
This proposal is not a contract; we recommend that you refer to your policy for
a complete explanation of your policy benefits.
GUARANTEES
ONLY THOSE PREMIUMS AND VALUES LABELLED AS 'GUARANTEED' IN THIS PROPOSAL WILL BE
CONTRACTUALLY GUARANTEED IN YOUR POLICY.
DIVIDENDS
ILLUSTRATED DIVIDENDS, AND ALL VALUES DEPENDING ON ILLUSTRATED DIVIDENDS, ARE
BASED ON THE JULY 1995 DIVIDEND SCALE. THEY ARE NEITHER GUARANTEES NOR ESTIMATES
OF FUTURE DIVIDENDS.
PREMIUM
Premiums cease at the earlier of second death or the youngest surviving life
reaching age 95.
This proposal assumes all previous premiums have been paid in full.
Premiums due, when reduced by dividends, may vary substantially from the
illustrated premiums due, depending on the actual dividends paid in future
years.
VANISHING PREMIUMS
THE POLICY ILLUSTRATED REQUIRES THAT PREMIUMS BE PAID EACH YEAR WITHOUT
LIMITATION. HOWEVER, IT IS POSSIBLE THAT AT SOME FUTURE DATE, DIVIDENDS, AND IF
NECESSARY, THE SURRENDER OF PAID UP ADDITIONS MAY BECOME SUFFICIENT TO PAY
CURRENT AND FUTURE PREMIUMS DUE. THE PROPOSAL SHOWS THIS BY INDICATING A TIME
WHEN PREMIUMS 'VANISH'.
IF ACTUAL DIVIDENDS ARE LOWER THAN ILLUSTRATED, YOU WOULD HAVE TO PAY PREMIUMS
BEYOND THE DATE AT WHICH THIS PROPOSAL SHOWS THAT PREMIUMS MIGHT 'VANISH'. FOR
POLICIES WHERE PREMIUMS HAVE ALREADY 'VANISHED', FUTURE PREMIUMS COULD BE
REQUIRED.
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
<PAGE>
IMPORTANT INFORMATION ABOUT THIS PROPOSAL
LOANS AND SURRENDER
The dividends shown in this proposal reflect the loans and 1oan interest rates
as illustrated. Actual policy dividends will vary according to actual loan
interest rates and loan activity.
THE LOAN INTEREST RATE ILLUSTRATED IS 7.25% AND MAY DIFFER FROM THE CURRENT
RATE.
MANULIFE FINANCIAL RESERVES THE RIGHT TO INCREASE OR DECREASE THE POLICY LOAN
INTEREST RATE AT EACH POLICY ANNIVERSARY - SUCH RATE WILL NEVER EXCEED THE
MAXIMUM PERMITTED BY STATE LAW.
TAXATION
The Individual's illustrated tax bracket is 28%.
This proposal may not fully reflect your actual tax or accounting situation. We
suggest that you consult your professional advisors regarding the interpretation
of current and proposed tax laws and accounting principles.
PROPOSAL DESIGN
This proposal assumes older life dies in year 99. This proposal assumes younger
life dies in year 99.
ALTERNATE PROPOSALS
CURRENT INTEREST RATE TRENDS INDICATE THAT DIVIDEND SCALES AT MANULIFE FINANCIAL
AND THROUGHOUT THE LIFE INSURANCE INDUSTRY WILL BE REDUCED IN THE FUTURE. AS
VALUES ILLUSTRATED ON THIS OR ANY OTHER POLICY ARE SENSITIVE TO CHANGES IN THE
DIVIDEND SCALE, AND IN KEEPING WITH OUR POLICY OF FULL DISCLOSURE TO OUR
POLICYHOLDERS, MANULIFE FINANCIAL RECOMMENDS THAT YOU REVIEW AN ADDITIONAL
ILLUSTRATION(S) THAT WILL DEMONSTRATE THE SENSITIVITY OF PRODUCT VALUES TO
LOWER DIVIDEND SCALES THAN CURRENTLY CREDITED.
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
<PAGE>
IMPORTANT INFORMATION ABOUT THIS PROPOSAL
FACE DECREASE
THIS PROPOSAL IS ILLUSTRATED WITH A FACE AMOUNT REDUCTION FROM $20000000 TO
$15000000 IN YEAR 11.
ONCE THE FACE AMOUNT REDUCTION HAS BEEN PROCESSED, IF ADDITIONAL COVERAGE IS
NEEDED IN THE FUTURE, THE INSURED WOULD NEED TO SUBMIT A NEW APPLICATION FOR
INSURANCE WHICH WILL REQUIRE MEDICAL EVIDENCE. THE NEW INSURANCE WILL BE BASED
ON THE INSURED'S AGE AT THAT TIME.
THIS PROPOSAL DOES NOT REFLECT ANY TAX CONSEQUENCES OR POLICY CHANGE FEES
RESULTING FROM THE PARTIAL SURRENDER TO REDUCE THE FACE AMOUNT.
This proposal assumes that the cash value allowance of $273,150.00 resulting
from the partial surrender to reduce the face amount is used to purchase paid up
additions.
YOU SHOULD CAREFULLY REVIEW THE FULL PROPOSAL INCLUDING THE SECTION ENTITLED
'IMPORTANT INFORMATION ABOUT THIS PROPOSAL'.
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
<PAGE>
Exhibit 10-14.5
AMENDED AND RESTATED
SPLIT-DOLLAR INSURANCE AGREEMENT
THIS AMENDED AND RESTATED SPLIT DOLLAR INSURANCE AGREEMENT is made and
entered into this 31st day of July, 1998, by and between DEB SHOPS, INC. (the
"Assignee"), and JACK A. ROUNICK and STUART SAVETT, Trustees under the Rounick
Family Irrevocable Insurance Trust dated October 27, 1986 (the "Owner").
WITNESSETH:
WHEREAS, the parties entered into a certain Split Dollar Insurance
Agreement dated July 31, 1987 (the "Old Agreement") with respect to a policy of
life insurance in the face amount of Twenty Million Dollars ($20,000,000.00),
policy number 3,779,930-1 (the "Policy") issued by Manufacturer's Life Insurance
Company (the "Insurer"); and
WHEREAS, a dispute has arisen between the Insurer, the Owner, and the
Assignee regarding the payment of additional premiums to the Insurer under the
Policy; and
WHEREAS, the dispute has been settled by the Insurer reducing the face
value of the Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen
Million Dollars ($15,000,000.00) and adjusting the illustrated policy values and
eliminating any remaining indebtedness on the Policy, effective February 1,
1996; and
WHEREAS, the Assignee in consideration for the Insurer eliminating any
indebtedness on the Policy and reducing the premium obligation to maintain the
Policy in force, will agree to pay any additional premiums on the Policy if they
become due; and
WHEREAS, the Owner has agreed to the reduction in the face value of the
Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars
($15,000,000.00); and
<PAGE>
WHEREAS, this Amended and Restated Split Dollar Insurance Agreement
("Agreement") is intended to replace and supersede the Old Agreement.
NOW, THEREFORE, the Assignee, Owner, and Marvin Rounick and Judy
Rounick (the "Insured") agree to completely amend and restate the Agreement as
hereinafter set forth:
1. The life insurance policy with which this Agreement deals is the
Policy issued by Manufacturer's Life Insurance Company on the life of the last
to die of the Insured.
2. The Owner, or its transferee, shall be the owner of the Policy, and
may exercise all ownership rights inuring to the owner under the terms of the
Policy, except as specifically provided in this Agreement.
(a) Notwithstanding any other provision of this Agreement and
notwithstanding any assignment executed by the Owner or its transferee in
connection with this Agreement, it is the express intention of the Owner and the
Assignee to reserve to the Owner (i) the right to transfer its interest in the
Policy, (ii) the right to change the beneficiary of that portion of the proceeds
to which it is entitled under paragraph 7, and (iii) the right to exercise
settlement options.
(b) The rights in the Policy granted to the Assignee are limited
solely to its security interest in a portion of the cash surrender value and a
portion of the death benefit as defined and limited by this Agreement.
(c) Policy loans may only be made to pay Policy premiums.
3. Effective on the execution of this Agreement, the Assignee hereby
agrees to pay a one-time, lump sum premium to the Insurer in the amount of Three
Hundred Ninety-Seven
2
<PAGE>
Thousand Two Hundred Eighty-Six Dollars ($397,286.00). In addition, the Assignee
hereby agrees to pay future premiums, if any, net of any dividends on the Policy
and/or from the surrender of paid-up additions to the Policy. The Insured,
Marvin Rounick, an employee of Assignee, shall include in income each year for
federal income tax purposes, an amount equal to the value of the "economic
benefit" of the life insurance protection enjoyed by the Insured as provided
under applicable Internal Revenue Service Regulations and Revenue Rulings.
4. In consideration of the payment of the Policy premiums by Assignee,
the Owner has assigned the Policy to the Assignee, which Assignment solely gives
the Assignee the limited power to enforce its rights to be paid the amount
provided in paragraph 4(b) from the cash surrender value or a portion of the
death benefit, as defined and limited by the following terms. Such interest of
the Assignee in the Policy shall be specifically limited to:
(a) the right to pledge or assign its interest in the Policy,
subject to the terms of this Agreement and to any assignment executed in
connection with this Agreement;
(b) the right to be paid its net premium outlay (i.e.
cumulative gross premiums paid less payments made by Owner and less any Policy
loan of the Assignee encumbering the Policy); payable upon (i) the surrender or
cancellation of the Policy, as provided in paragraph 6; (ii) the death of the
Insured, as provided in paragraph 7, or (iii) the termination of this Agreement,
as provided in paragraph 8. In the event the cash surrender value is less than
the net premiums paid, the Assignee's interest shall be limited to the cash
surrender value.
5. Policy dividends shall be applied to the payment of the premiums, as
premiums fall due.
3
<PAGE>
6. In the event of the surrender or cancellation of the Policy, the
Assignee shall be entitled to receive a portion of the cash surrender value
equal to the amount provided in paragraph 4 (b). The balance of the cash
surrender value, if any, shall be paid to the Owner.
7. Upon the death of the Insured, the Assignee shall be entitled to
receive a portion of the death benefit equal to the amount provided in paragraph
4(b). The balance of the death benefit, if any, shall be paid directly to the
Owner, in the manner and in the amount provided by the beneficiary designation
provision endorsed on the Policy.
8. This Agreement may be terminated by the Owner as follows:
(a) If the Owner intends to terminate this Agreement, it
should notify the Assignee in writing, not less than sixty (60) days prior to
the effective date of such termination.
(b) The Owner shall reimburse the Assignee no later than the
effective date of such termination in an amount equal to the net premium outlay
as defined in Paragraph 4(b). Upon receipt of such payment, the Assignee shall
execute an appropriate instrument to release the Collateral Assignment of the
Policy.
(c) If the Owner fails to reimburse the Assignee within the
time specified, the Owner shall execute any and all instruments that may be
required to vest ownership of the Policy in the Assignee; provided the Assignee
reimburses the Owner for the premium payments made by the Owner, if any.
9. This Agreement may be terminated by the Assignee as follows:
(a) If the Assignee intends to terminate this Agreement, it
should notify the Owner in writing, not less than sixty (60) days prior to the
effective date of such termination.
(b) Following receipt of notice from the Assignee, the Owner
shall reimburse the Assignee no later than the effective date of such
termination in an amount equal to
4
<PAGE>
the net premium outlay as defined in Paragraph 4(b). Upon receipt of such
payment, the Assignee shall execute an appropriate instrument to release the
Collateral Assignment of the Policy.
(c) In the event the Assignee shall fail to pay any Policy
premium as required under Paragraph 3, the Owner shall have the option to pay
the premium and keep the Policy in force and shall have the right to recoup the
premium from the Assignee. In the alternative, the Owner shall have the right
to deem the Assignee's failure to pay the premium as a notice of termination.
The Owner shall advise the Assignee in writing of its determination and the
sixty (60) days notice of termination shall be effective on the date such notice
is sent to Assignee.
(d) If the Owner fails to reimburse the Assignee within sixty
(60) days of the date of termination, the Owner shall execute any and all
instruments required to vest ownership of the Policy in the Assignee; provided
that the Assignee shall reimburse the Owner for the premium payments made by the
Assignee, if any.
(e) On receipt of the notice of termination from the Assignee,
the Owner shall reimburse the Assignee in the amount equal to the net premium
outlay as defined in Paragraph 4(b). Upon receipt of such payment, the Assignee
shall execute an appropriate instrument of release of the Collateral Assignment
of the Policy.
10. Notwithstanding anything to the contrary in Paragraph 9 above,
(a) The Owner shall have the right to repay the Assignee its
net premium outlay (i.e. cumulative gross premiums paid less payments made by
Owner, less any Policy loan of the Assignee encumbering the Policy) in six (6)
equal annual installments, due on the first and each succeeding anniversary of
the termination of the Policy. The Owner shall also pay interest
5
<PAGE>
on the unpaid portion of the net premium outlay at the applicable federal rate
of interest in effect at the time of termination. The Owner shall have a right
to prepay all or any portion of the net premium outlay at any time in its sole
discretion. In the event Owner defaults for more than ten (10) days after notice
in the payment of any installment, the entire net premium outlay shall become
immediately due and payable. The Policy of insurance shall remain as collateral
until the Owner has paid the Assignee in full.
(b) The provisions of Paragraph 10(a) notwithstanding, in the
event the Policy is terminated by the Assignee (i) as a result of a sale of more
than fifty (50%) percent of the stock of the Corporation or substantially all of
the assets of the Corporation and at least fifty (50%) percent of the
consideration for such sale is in cash, or (ii) in the event that the
Assignee's available cash and cash equivalents are less than Fifteen Million
Dollars ($15,000,000), then the net premium outlay shall be paid by the Owner to
the Assignee on the termination of this Agreement and the Assignee shall release
the Collateral Assignment of the Policy.
11.In the event the Owner transfers all of its interest in the Policy,
then all of Owner's interest in the Policy and in this Agreement shall be vested
in such transferee, and such transferee shall be substituted as a party
hereunder, and the Owner shall have no further interest in the Policy.
12. Except as may otherwise be provided by paragraph 8, this Agreement
may not be canceled, amended, altered or modified, except by a written
instrument signed by all of the parties hereto.
13. All notices or other instruments or communications shall be in
writing and shall be deemed delivered (and signed receipt obtained therefor) or
sent by postage prepaid, actually delivered by Federal Express or a comparable
private courier service, actually delivered
6
<PAGE>
by telecopier or similar "FAX" equipment. Any notice shall be effective on the
date on which it was delivered or on the date actually delivered by other means.
Each party may, by notice to the other parties specify any other address for the
receipt of such instruments or communications.
14. This Agreement shall bind Owner, Assignee and their successors and
assignees, and any Policy beneficiaries. Owner and Assignee intend to be legally
bound hereby.
15. This Amended and Restated Split Dollar Agreement, and the rights of
the parties hereunder, shall be governed by and construed pursuant to the laws
of the Commonwealth of Pennsylvania.
16. This Agreement and the Collateral Assignment contain the entire
understanding among the parties hereto and supersedes any prior agreements.
Assignee:
ATTEST DEB SHOPS, INC.
/s/ Warren Weiner By: /s/ Marvin Rounick
- ----------------------------- --------------------------------
Warren Weiner, Secretary Marvin Rounick, President
Owner:
INSURED: ROUNICK FAMILY IRREVOCABLE
INSURANCE TRUST
/s/ Marvin Rounick /s/ Jack A. Rounick
- ----------------------------- -----------------------------------
Marvin Rounick Jack A. Rounick, Trustee
/s/ Judy Rounick /s/ Stuart Savett
- ----------------------------- -----------------------------------
Judy Rounick Stuart Savett, Trustee
(7)
<PAGE>
Exhibit 10-14.6
AMENDED AND RESTATED COLLATERAL ASSIGNMENT
------------------------------------------
THIS AMENDED AND RESTATED COLLATERAL ASSIGNMENT, made and entered into
this 31st day of July, 1998, by and between JACK A. ROUNICK and STUART SAVETT,
Trustees under the Rounick Irrevocable Insurance Trust dated October 27, 1986
(the "Owner") and DEB SHOPS, INC. (the "Assignee").
WITNESSETH:
----------
WHEREAS, the parties hereto entered into a Collateral Assignment
Agreement dated July 31, 1987 (the "Old Agreement") with respect to a policy of
life insurance in the face amount of Twenty Million Dollars ($20,000,000.00),
issued by Manufacturer's Life Insurance Company (the "Insurer"); and
WHEREAS, the Owner owns Life Insurance Policy No. 3,779,930-1 issued by
the Insurer and any supplemental contracts issued in connection therewith (such
policy and contracts herein called "Policy"); and
WHEREAS, the Policy insures the lives of the last to die of Marvin
Rounick and Judy Rounick ("Insured"); and
WHEREAS, the Assignee has contributed the annual premium due on the
Policy, as more specifically provided in the Split Dollar Insurance Agreement
dated July 31, 1987 and the Amended and Restated Split Dollar Agreement of even
date herewith, between the Insured and the Assignee; and
WHEREAS, in consideration of the Assignee having paid the premiums, the
Owner granted to the Assignee a security interest in the Policy as collateral
security for the payment to the Assignee of all amounts due to Assignee pursuant
to the Agreement; and
<PAGE>
WHEREAS, a dispute has arisen between the Insurer, the Owner, and the
Assignee regarding the payment of additional premiums to the Insurer, and
WHEREAS, the Insurer has reduced the face value of the Policy from,
Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars
(15,000,000.00); and
WHEREAS, the Insurer has adjusted the illustrated policy values and
eliminated any remaining indebtedness on the Policy effective February 1, 1996;
and
WHEREAS, the Assignee in consideration for the Insurer's eliminating
any indebtedness on the Policy and reducing the premium obligation to maintain
the policy in force, will agree to pay additional premiums on the Policy; and
WHEREAS, the Owner has agreed to the reduction of the face value of the
Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars
(15,000,000.00); and
WHEREAS, this Amended and Restated Collateral Assignment ("Agreement")
is intended to replace and supersede the Old Agreement.
NOW, THEREFORE, for value received, the undersigned hereby assigns,
transfers and sets over to the Assignee, its successors and assigns, the Policy,
subject to the following terms and conditions:
1. This Assignment is made, and the Policy is to be held, as collateral
security for the payments required to be received by Assignee, pursuant to the
terms of the Agreement.
2. The Assignee shall have the right to pledge or assign its interest
in the Policy, subject to the terms of the Agreement and to this Assignment.
(2)
<PAGE>
3. The Assignee's interest in the Policy shall further be limited to
the right to recover its net premium outlay (i.e., gross premiums paid less
payments made by Owner and less any policy loan of the Assignee encumbering the
Policy), but if the Policy is canceled and the cash surrender value is less than
the net premium outlay, the Assignee's interest shall be limited to the cash
surrender value.
4. Except as specifically herein granted to the Assignee, the Owner
shall retain all incidents of ownership in the Policy, including, but not
limited to, the right to assign its interest in the Policy, the right to change
the beneficiary of the Policy, and the right to exercise all settlement options
permitted by the terms of the Policy; provided, however, that all rights
retained by the Owner, transferee and beneficiary shall be subject to the terms
and conditions of the Agreement and this Assignment and the Owner and Assignee
agree that no loan may be made against the Policy except for the payment of
premiums on the Policy.
5. Assignee shall, upon request, forward the Policy to the Insurer,
without unreasonable delay, for endorsement of any designation or change of
beneficiary, any election of optional mode of settlement, or the exercise of any
other right reserved by the Owner hereunder.
6. The Insurer is hereby authorized to recognize the Assignee's claims
to rights hereunder without investigating the reason for any action taken by the
Assignee, the amount of its net premium outlay, the termination of the
Agreement, the giving of any notice required herein, or the application to be
made by the Assignee of any amounts to be paid to the Assignee. The signature of
the Assignee shall be sufficient for the exercise of any rights under the Policy
assigned hereby to the Assignee and the receipt of the Assignee for any sums
received by him shall be a full discharge and release therefor to the Insurer.
(3)
<PAGE>
7. If the Insurer is made or elects to become a party to any litigation
concerning the proper apportionment of the death proceeds, cash surrender value,
loan value or ownership rights under this Agreement, the Owner and Assignee and
their transferees agree to be jointly and severally liable for the Insurer's
litigation expenses, including reasonable attorney fees.
8. Upon the full payment to the Assignee of the amount to which it is
entitled under paragraph 3 hereof, the Assignee shall reassign the Policy to the
Owner and all specific rights included in this Collateral Assignment; provided,
however, the Insurer shall only be required to release this Assignment pursuant
to written instructions received from the Assignee.
9. All matters respecting the validity, effect and interpretation of
this Assignment shall be determined in accord with the laws of the Commonwealth
of Pennsylvania.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Agreement the date and year first above written.
Assignee:
ATTEST: DEB SHOPS, INC.
/s/ Warren Weiner By: /s/ Marvin Rounick
- -------------------------- ----------------------------------
Warren Weiner, Secretary Marvin Rounick, President
Owner:
WITNESS: ROUNICK FAMILY IRREVOCABLE
INSURANCE TRUST
/s/ Jack A. Rounick
- -------------------------- ----------------------------------
Jack A. Rounick, Trustee
/s/ Stuart Savett
- -------------------------- ----------------------------------
Stuart Savett, Trustee
(4)
<PAGE>
Exhibit 10-15.4
AGREEMENT OF SETTLEMENT AND GENERAL RELEASE
WHEREAS, The Manufacturers Life Insurance Company,
("Manulife") issued a life insurance policy to Barry H. Frank and Robert Shein
as Trustees of the Weiner Family Irrevocable Insurance Trust dated October 27,
1986,("Owners/Trustees") on the joint lives of Warren Weiner and Penny Weiner,
(the "Insureds"), policy number 3,779,931-9, (the "policy"); and
WHEREAS, a dispute has arisen between Manulife on the one hand
and the Owners/Trustees and Insureds on the other with respect to the nature and
extent of premiums and coverages under said policy; and
WHEREAS, the parties desire to settle and compromise their
differences amicably;
This agreement shall be effective on the date last written below;
NOW, THEREFORE, IT IS AGREED that in consideration of the
mutual covenants contained herein, the sufficiency and adequacy of which are
mutually acknowledged;
1. Manulife shall adjust the illustrated policy values to
match the attached Appendix "A" (illustration dated February 1, 1996) which is
incorporated herein by reference, such that policy loans outstanding on February
1, 1996 are reduced by $85,105.00. The surrender of the policy prior to the
death of the Insureds will result in an adjustment of the cash surrender value
not to exceed $85,105.00.
2. Manulife shall adjust the illustrated policy values to
implement a reduction in the face amount of the policy from $20,000,000.00 to
$15,000,000.00 effective February 1, 1997 as reflected in the attached Appendix
"A". Any then available policy guaranteed cash value will be used to purchase
paid up additions.
3. The Owners/Trustees will pay $147,423.00 into the policy
within 30 days of the date of this agreement and this money will be used to
eliminate any remaining indebtedness on the policy as though the payment had
been made February 1, 1996 such that the current policy debt will incur no
further loan interest charges as of that date as depicted in the attached
Appendix "A".
4. The payment made by Manulife referred to above is not nor
shall it be construed as an admission of fault or liability and is made solely
in the interest of resolving a disputed matter. This Agreement and General
Release, including the consideration provided, shall be kept strictly
confidential and shall not be hereafter disclosed to any third parties by the
Insureds or Owners/Trustees except by permission of Manulife, or as may be
necessary for tax and estate planning purposes, an order of the court, or other
legal process. Any disclosure to third parties for tax and estate planning
purposes shall be accompanied by a disclosure of this confidentiality provision
and an agreement on the part of such third party to keep this Agreement
<PAGE>
and General Release, including the consideration provided, confidential. Breach
of this provision is likely to lead to serious consequential damages to Manulife
and its agent by virtue of the existence of unresolved and disputed fact matters
and damages arising therefrom would be difficult to resolve in the event of such
breach. Consequently, the parties hereto stipulate that damages arising from a
breach shall cause the policy values to be readjusted to reverse the change
described in paragraphs one (1) and two (2) herein. This shall be done upon
proof of a substantial breach of this provision subsequent to the date of this
agreement, by either the Insureds or the Owners/Trustees in its capacity as
Trustee, in a Federal or State court in Pennsylvania.
5. The undersigneds, jointly and severally, on their own
behalf, and that of their heirs, successors and assigns, hereby release, acquit
and discharge Manulife and any of their agents, officers, employees, directors,
successors and assigns of and from any and all claims and causes of action, of
any name and nature arising from the sale, solicitation, purchase or issuance of
the policy described herein including any act, omission, transaction, dealing,
conduct or negotiation of any kind whatsoever arising from the solicitation,
purchase or issuance of any contract with Manulife. Insureds do not waive any
rights under the contract itself.
DATED this 5th day of May, 1998.
MANULIFE The Manufacturers Life Insurance Company
BY: /s/ Paul L. Gallagher
-----------------------------------------
Paul L. Gallagher
ITS: Assistant Vice President & Senior Counsel
INSUREDS
/s/ Warren Weiner
-----------------------------------------
Warren Weiner
/s/ Penny Weiner
-----------------------------------------
Penny Weiner
OWNERS/TRUSTEES /s/ Barry H. Frank
-----------------------------------------
Barry H. Frank
/s/ Robert Shein
-----------------------------------------
Robert Shein
<PAGE>
ADVANCED SURVIVORSHIP LEDGER
PREPARED FOR INFORCE POLICY #3779931
W & P WEINER W & P WEINER
FEMALE NONSMOKER, AGE 39 MALE NONSMOKER, AGE 43
$20000000 MANULIFE FINANCIAL'S SURVIVORSHIP LIFE AT 95 - B84 $115020.00
SINGLE CEO II RIDER $374651.00
- -----------------------------------------------------------------------------
$20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $489671.00
DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS
WITH EXCESS APPLIED TO PURCHASE PUA'S
********* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT *********
** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS **
<TABLE>
<CAPTION>
CASH TOTAL TIO PUA TOTAL
GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH
ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT
YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR END OF YR BEG OF YR BEG OF YR BEG OF YR
---- ------- --- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 115020 0 0 0 66400 0 865200 0 0 20000000
11 86270 20630 66000 0 66000 216660 983160 0 776186 15776186
12 86270 0 49500 8640 56140 196278 1086528 0 678888 15678888
13 86270 0 49800 7825 57625 174606 1195206 0 583210 15583210
14 86270 0 52200 6960 59160 153657 1311057 0 495744 15495744
------- ----- --------- -------
460100 20630 217500 307324
15 86270 0 54900 6123 61023 133794 1434894 0 417047 15417047
16 86270 0 57750 5330 63080 115255 1567255 0 347191 15347190
17 86270 0 60150 4590 64740 97703 1708103 0 284499 15284499
18 86270 0 62700 3890 66590 81369 1857969 0 229092 15229092
19 86270 0 65400 3239 68639 66504 2017554 0 181084 15181084
------- ----- --------- -------
891450 20630 518400 631398
20 86270 0 68250 2647 70897 53375 2187575 0 140591 15140551
21 86270 0 71250 2124 73374 42268 2368318 0 107723 15107723
22 86270 0 74350 1681 75931 33335 2560385 0 82223 15082223
23 86270 0 77550 1326 78976 27041 2763941 0 64567 15064567
24 86270 0 81000 1075 82075 23729 2979479 0 54867 15054867
------- ----- --------- -------
1322800 20630 890700 1012550
25 86270 0 84450 943 85393 23619 3206769 0 52903 15052903
26 86270 0 84450 938 85388 23489 3442439 0 50989 15050989
27 86270 0 84450 933 85383 23339 3686638 0 49122 15049122
28 86270 0 84450 926 85376 23167 3939217 0 47297 15047297
29 86270 0 84450 919 85369 22971 4200471 0 45512 15045512
------- ----- --------- -------
1754150 20630 1312950 1439460
</TABLE>
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
FEBRUARY 1, 1996 V2.3U1 JDB PAGE 1 OF 7
<PAGE>
ADVANCED SURVIVORSHIP LEDGER
PREPARED FOR INFORCE POLICY #3779931
W & P WEINER W & P WEINER
FEMALE NONSMOKER, AGE 39 MALE NONSMOKER, AGE 43
$20000000 MANULIFE FINANCIAL'S SURVIVORSHIP LIFE AT 95 - B84 $115020.00
SINGLE CEO II RIDER $374651.00
- -----------------------------------------------------------------------------
$20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $489671.00
DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS
WITH EXCESS APPLIED TO PURCHASE PUA'S
********* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT *********
** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS **
<TABLE>
<CAPTION>
CASH TOTAL TIO PUA TOTAL
GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH
ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT
YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR END OF YR BEG OF YR BEG OF YR BEG OF YR
---- ------- --- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30 86270 0 84450 911 85361 22750 4470700 0 43763 15043763
31 86270 0 84450 902 85352 22502 4749603 0 42047 15042047
32 86270 0 84450 891 85341 22227 5036577 0 40361 15040361
33 86270 0 84450 880 85330 21920 5330871 0 38702 15038702
34 86270 0 84450 867 85317 21579 5630979 0 37066 15037066
------- ----- -------- --------
2185500 20630 1735200 1866162
35 86270 0 84450 853 85303 21299 5935700 0 35449 15035449
36 86270 0 84450 838 85288 20777 6244127 0 33849 15033849
37 86270 0 84450 820 85270 20310 6555510 0 32261 15032261
38 86270 0 84450 801 85251 19795 6868954 0 30682 15030682
39 86270 0 84450 780 85230 19231 7184281 0 29109 15029109
------- ----- -------- --------
2616850 20630 2157450 2292505
40 86270 0 84450 758 85208 16614 7500765 0 27537 15027537
41 86270 0 84450 733 85183 17944 7817345 0 25964 15025964
42 86270 0 84450 706 85156 17218 8133118 0 24386 15024386
43 86270 0 84450 677 85127 16432 8446432 0 22799 15022799
44 86270 0 84450 645 85095 15585 8756235 0 21201 15021201
------- ----- -------- --------
3048200 20630 2579700 2718273
45 86270 0 84450 611 85061 14673 9061923 0 19588 15019588
46 86270 0 84450 575 85025 13694 9363644 0 17955 15017955
47 86270 0 84450 536 84986 12648 9663498 0 16301 15016301
48 86270 0 84450 495 84945 11533 9964033 0 14621 15014621
49 86270 0 84450 451 84901 10350 10268700 0 12913 15012913
------- ----- -------- --------
3479550 20630 3001950 3143192
</TABLE>
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
FEBRUARY 1, 1996 V2.3U1 JDB PAGE 2 OF 7
<PAGE>
ADVANCED SURVIVORSHIP LEDGER
PREPARED FOR INFORCE POLICY #3779931
W & P WEINER W & P WEINER
FEMALE NONSMOKER, AGE 39 MALE NONSMOKER, AGE 43
$20000000 MANULIFE FINANCIAL'S SURVIVORSHIP LIFE AT 95 - B84 $115020.00
SINGLE CEO II RIDER $374651.00
- -----------------------------------------------------------------------------
$20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $489671.00
DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS
WITH EXCESS APPLIED TO PURCHASE PUA'S
********* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT *********
** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS **
<TABLE>
<CAPTION>
CASH TOTAL TIO PUA TOTAL
GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH
ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT
YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR END OF YR BEG OF YR BEG OF YR BEG OF YR
---- ------- --- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 86270 0 84450 405 84555 9098 10581548 0 11175 15011175
51 86270 0 84450 356 84806 7777 10904977 0 9404 15009404
52 86270 0 84450 304 84754 6384 11235234 0 7600 15007600
53 86270 0 84450 250 84700 4916 11586116 0 5760 15005760
54 86270 0 84450 192 84642 3368 11960162 0 3883 15003883
------- ----- ------- --------
3910900 20630 3424200 3566949
55 86270 0 84450 132 84582 1736 12359786 0 1969 15001969
56 86270 0 84450 68 84518 12 12790512 0 14 15000014
57 0 0 84450 0 84450 84463 13159364 0 92719 15092719
58 0 0 19350 3295 22645 108219 13490620 0 117255 15117255
59 0 0 19800 4224 24024 133739 13836840 0 142930 15142930
------- ----- ------- --------
4083440 20630 3716700 3867168
60 0 0 20250 5221 25471 161084 14175784 0 169775 15169775
------- ----- ------- --------
4083440 20630 3736950 3892639
</TABLE>
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
FEBRUARY 1, 1996 V2.3U1 JDB PAGE 3 OF 7
<PAGE>
INFORCE POLICY REVIEW
PROPOSAL DATE: FEBRUARY 1, 1996
PLAN: SURVIVORSHIP LIFE AT 95 -B84
LIFE INSUREDS: W & P WEINER RIDERS: SINGLE CEO
POLICY NUMBER: 3779931
DATE POLICY ISSUED: FEBRUARY 1, 1987 NON-SMOKER: YES
ISSUE AGE: 39 LOAN INTEREST RATE: VARIABLE
CURRENT POLICY YEAR: 10
CURRENT ANNUALIZED PREMIUM: $115020.00
POLICY BENEFITS
- ---------------
CURRENT DEATH BENEFIT (DIVIDEND INCLUDED): $20000000 LESS TOTAL LOAN.
CASH VALUE AT THE END OF THE CURRENT YEAR: $865200 LESS TOTAL LOAN.
POLICY LOANS
- ------------
THIS PROPOSAL ASSUMES THAT NO LOANS WERE OUTSTANDING ON THIS POLICY AS OF
AUGUST 1, 1996,
DIVIDENDS
- ---------
ANNUAL DIVIDEND AT LAST ANNIVERSARY: $66400.00
VANISH
- ------
THIS PROPOSAL ASSUMES THAT $66400.00 WAS SURRENDERED TO PAY THE PREMIUM AT THE
BEGINNING OF THE YEAR.
POLICY VALUES
- -------------
THE SINGLE CEO RIDER PREMIUM SHOWN IN THE HEADING OF THIS PROPOSAL REPRESENTS
THE SINGLE PREMIUM APPLIED FOR AT THE TIME OF ISSUE. HOWEVER, THE ACTUAL SINGLE
CEO PREMIUM PAID MAY BE EQUAL TO OR LESS THAN THE STATED CEO SINGLE PREMIUM. THE
VALUES ILLUSTRATED ABOVE ARE BASED ON THE ACTUAL CEO SINGLE PREMIUM PAID.
A POLICY FROM MANULIFE FINANCIAL IS BACKED BY OVER 100 YEARS OF EXPERIENCE
AND EXPERTISE.
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
FEBRUARY 1, 1996 V2.3U1 JDB PAGE 4 OF 7
<PAGE>
IMPORTANT INFORMATION ABOUT THIS PROPOSAL
Manulife Financial has a reputation for its financial integrity and for
providing solid, long term value to our policyholders. In keeping with that
tradition, we encourage our clients to fully examine and understand the
assumptions used in a life insurance proposal.
This proposal is not a contract; we recommend that you refer to your policy for
a complete explanation of your policy benefits.
GUARANTEES
ONLY THOSE PREMIUMS AND VALUES LABELLED AS 'GUARANTEED' IN THIS PROPOSAL WILL BE
CONTRACTUALLY GUARANTEED IN YOUR POLICY.
DIVIDENDS
ILLUSTRATED DIVIDENDS, AND ALL VALUES DEPENDING ON ILLUSTRATED DIVIDENDS, ARE
BASED ON THE JULY 1995 DIVIDEND SCALE. THEY ARE NEITHER GUARANTEES NOR ESTIMATES
OF FUTURE DIVIDENDS.
PREMIUM
Premiums cease at the earlier of second death or the youngest surviving life
reaching age 95.
This proposal assumes all previous premiums have been paid in full.
Premiums due, when reduced by dividends, may vary substantially from the
illustrated premiums due, depending on the actual dividends paid in future
years.
VANISHING PREMIUMS
THE POLICY ILLUSTRATED REQUIRES THAT PREMIUMS BE PAID EACH YEAR WITHOUT
LIMITATION. HOWEVER, IT IS POSSIBLE THAT AT SOME FUTURE DATE, DIVIDENDS, AND IF
NECESSARY, THE SURRENDER OF PAID UP ADDITIONS MAY BECOME SUFFICIENT TO PAY
CURRENT AND FUTURE PREMIUMS DUE. THE PROPOSAL SHOWS THIS BY INDICATING A TIME
WHEN PREMIUMS 'VANISH'.
IF ACTUAL DIVIDENDS ARE LOWER THAN ILLUSTRATED, YOU WOULD HAVE TO PAY PREMIUMS
BEYOND THE DATE AT WHICH THIS PROPOSAL SHOWS THAT PREMIUMS MIGHT 'VANISH'. FOR
POLICIES WHERE PREMIUMS HAVE ALREADY 'VANISHED', FUTURE PREMIUMS COULD BE
REQUIRED.
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
FEBRUARY 1, 1996 V2.3U1 JDB PAGE 5 OF 7
<PAGE>
IMPORTANT INFORMATION ABOUT THIS PROPOSAL
LOANS AND SURRENDERS
The dividends shown in this proposal reflect the loans and loan interest rates
as illustrated. Actual policy dividends will vary according to actual loan
interest rates and loan activity.
THE LOAN INTEREST RATE ILLUSTRATED IS 7.25% AND MAY DIFFER FROM THE CURRENT
RATE.
MANULIFE FINANCIAL RESERVES THE RIGHT TO INCREASE OR DECREASE THE POLICY LOAN
INTEREST RATE AT EACH POLICY ANNIVERSARY - SUCH RATE WILL NEVER EXCEED THE
MAXIMUM PERMITTED BY STATE LAW.
TAXATION
The Individual's illustrated tax bracket is 28%.
This proposal may not fully reflect your actual tax or accounting situation. We
suggest that you consult your professional advisors regarding the interpretation
of current and proposed tax laws an accounting principles.
PROPOSAL DESIGN
This proposal assumes older life dies in year 99. This proposal assumes younger
life dies in year 99.
ALTERNATE PROPOSALS
CURRENT INTEREST RATE TRENDS INDICATE THAT DIVIDEND SCALES AT MANULIFE FINANCIAL
AND THROUGHOUT THE LIFE INSURANCE INDUSTRY WILL BE REDUCED IN THE FUTURE. AS
VALUES ILLUSTRATED ON THIS OR ANY OTHER POLICY ARE SENSITIVE TO CHANGES IN THE
DIVIDEND SCALE, AND IN KEEPING WITH OUR POLICY OF FULL DISCLOSURE TO OUR
POLICYHOLDERS, MANULIFE FINANCIAL RECOMMENDS THAT YOU REVIEW AN ADDITIONAL
ILLUSTRATION(S) THAT WILL DEMONSTRATE THE SENSITIVITY OF PRODUCT VALUES TO LOWER
DIVIDEND SCALES THAN CURRENTLY CREDITED.
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED
FEBRUARY 1, 1996 V2.3U1 JDB PAGE 6 OF 7
<PAGE>
IMPORTANT INFORMATION ABOUT THIS PROPOSAL
FACE DECREASE
THIS PROPOSAL IS ILLUSTRATED WITH A FACE AMOUNT REDUCTION FROM $20000000 TO
$15000000 IN YEAR 11.
ONCE THE FACE AMOUNT REDUCTION HAS BEEN PROCESSED, IF ADDITIONAL COVERAGE IS
NEEDED IN THE FUTURE, THE INSURED WOULD NEED TO SUBMIT A NEW APPLICATION FOR
INSURANCE WHICH WILL REQUIRE MEDICAL EVIDENCE. THE NEW INSURANCE WILL BE BASED
ON THE INSURED'S AGE AT THAT TIME.
THIS PROPOSAL DOES NOT REFLECT ANY TAX CONSEQUENCES OR POLICY CHANGE FEES
RESULTING FROM THE PARTIAL SURRENDER TO REDUCE THE FACE AMOUNT.
This proposal assumes that the cash value allowance of $216,299.98 resulting
from the partial surrender to reduce the face amount is used to purchase paid up
additions.
YOU SHOULD CAREFULLY REVIEW THE FULL PROPOSAL INCLUDING THE SECTION ENTITLED
'IMPORTANT INFORMATION ABOUT THIS PROPOSAL'.
THIS PROPOSAL IS VALID ONLY IF ALL PAGES ARE INCLUDED
FEBRUARY 1, 1996 V2.3U1 JDB PAGE 7 OF 7
<PAGE>
Exhibit 10-15.5
AMENDED AND RESTATED
SPLIT DOLLAR INSURANCE AGREEMENT
-------------------------------
THIS AMENDED AND RESTATED SPLIT DOLLAR INSURANCE AGREEMENT is
made and entered into this 31st day of July, 1998, by and between DEB SHOPS,
INC. (the "Assignee"), and BARRY H. FRANK and ROBERT SHEIN, Trustees under the
Weiner Family Irrevocable Insurance Trust dated October 27, 1986 (the "Owner").
W I T N E S S E T H:
WHEREAS, the parties entered into a certain Split Dollar
Insurance Agreement dated July 31, 1987 (the "Old Agreement") with respect to a
policy of life insurance in the face amount of Twenty Million Dollars
($20,000,000.00), policy number 3,779,931-9 (the "Policy") issued by
Manufacturer's Life Insurance Company (the "Insurer"); and
WHEREAS, a dispute has arisen between the Insurer, the Owner,
and the Assignee regarding the payment of additional premiums to the Insurer
under the Policy; and
WHEREAS, the dispute has been settled by the Insurer reducing
the face value of the Policy from Twenty Million Dollars ($20,000,000.00) to
Fifteen Million Dollars ($15,000,000.00) and adjusting the illustrated policy
values and eliminating any remaining indebtedness on the Policy, effective
February 1, 1996; and
WHEREAS, the Assignee in consideration for the Insurer
eliminating any indebtedness on the Policy and reducing the premium obligation
to maintain the Policy in force, will agree to pay any additional premiums on
the Policy if they become due; and
WHEREAS, the Owner has agreed to the reduction in the face
value of the Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen
Million Dollars ($15,000,000.00); and
<PAGE>
WHEREAS, this Amended and Restated Split Dollar Insurance
Agreement ("Agreement") is intended to replace and supersede the Old Agreement.
NOW, THEREFORE, the Assignee, Owner, and Warren Weiner and
Penny Weiner (the "Insured") agree to completely amend and restate the Agreement
as hereinafter set forth:
1. The life insurance policy with which this Agreement deals
is the Policy issued by Manufacturer's Life Insurance Company on the life of the
last to die of the Insured.
2. The Owner, or its transferee, shall be the owner of the
Policy, and may exercise all ownership rights inuring to the owner under the
terms of the Policy, except as specifically provided in this Agreement.
(a) Notwithstanding any other provision of this Agreement
and notwithstanding any assignment executed by the Owner or its transferee in
connection with this Agreement, it is the express intention of the Owner and the
Assignee to reserve to the Owner (i) the right to transfer its interest in the
Policy, (ii) the right to change the beneficiary of that portion of the proceeds
to which it is entitled under paragraph 7, and (iii) the right to exercise
settlement options.
(b) The rights in the Policy granted to the Assignee are
limited solely to its security interest in a portion of the cash surrender value
and a portion of the death benefit as defined and limited by this Agreement.
(c) Policy loans may only be made to pay Policy premiums.
3. Effective on the execution of this Agreement, the Assignee
hereby agrees to pay a one-time, lump sum premium to the Insurer in the amount
of One Hundred Forty-Seven
(2)
<PAGE>
Thousand Four Hundred Twenty-Three Dollars ($147,423.00). In addition, the
Assignee hereby agrees to pay future premiums, if any, net of any dividends on
the Policy and/or from the surrender of paid-up additions to the Policy. The
Insured, Warren Weiner, an employee of Assignee, shall include in income each
year for federal income tax purposes, an amount equal to the value of the
"economic benefit" of the life insurance protection enjoyed by the Insured as
provided under applicable Internal Revenue Service Regulations and Revenue
Rulings.
4. In consideration of the payment of the Policy premiums by
Assignee, the Owner has assigned the Policy to the Assignee, which Assignment
solely gives the Assignee the limited power to enforce its rights to be paid the
amount provided in paragraph 4(b) from the cash surrender value or a portion of
the death benefit, as defined and limited by the following terms. Such interest
of the Assignee in the Policy shall be specifically limited to:
(a) the right to pledge or assign its interest in the
Policy, subject to the terms of this Agreement and to any assignment executed in
connection with this Agreement;
(b) the right to be paid its net premium outlay (i.e.
cumulative gross premiums paid less payments made by Owner and less any Policy
loan of the Assignee encumbering the Policy); payable upon (i) the surrender or
cancellation of the Policy, as provided in paragraph 6; (ii) the death of the
Insured, as provided in paragraph 7, or (iii) the termination of this Agreement,
as provided in paragraph 8. In the event the cash surrender value is less than
the net premiums paid, the Assignee's interest shall be limited to the cash
surrender value.
5. Policy dividends shall be applied to the payment of the
premiums, as premiums fall due.
(3)
<PAGE>
6. In the event of the surrender or cancellation of the
Policy, the Assignee shall be entitled to receive a portion of the cash
surrender value equal to the amount provided in paragraph 4(b). The balance of
the cash surrender value, if any, shall be paid to the Owner.
7. Upon the death of the Insured, the Assignee shall be
entitled to receive a portion of the death benefit equal to the amount provided
in paragraph 4(b). The balance of the death benefit, if any, shall be paid
directly to the Owner, in the manner and in the amount provided by the
beneficiary designation provision endorsed on the Policy.
8. This Agreement may be terminated by the Owner as follows:
(a) If the Owner intends to terminate this Agreement, it
should notify the Assignee in writing, not less than sixty (60) days prior to
the effective date of such termination.
(b) The Owner shall reimburse the Assignee no later than
the effective date of such termination in an amount equal to the net premium
outlay as defined in Paragraph 4(b). Upon receipt of such payment, the Assignee
shall execute an appropriate instrument to release the Collateral Assignment of
the Policy.
(c) If the Owner fails to reimburse the Assignee within the
time specified, the Owner shall execute any and all instruments that may be
required to vest ownership of the Policy in the Assignee; provided the Assignee
reimburses the Owner for the premium payments made by the Owner, if any.
9. This Agreement may be terminated by the Assignee as
follows:
(a) If the Assignee intends to terminate this Agreement, it
should notify the Owner in writing, not less than sixty (60) days prior to the
effective date of such termination.
(b) Following receipt of notice from the Assignee, the
Owner shall
(4)
<PAGE>
reimburse the Assignee no later than the effective date of such termination in
an amount equal to the net premium outlay as defined in Paragraph 4(b). Upon
receipt of such payment, the Assignee shall execute an appropriate instrument to
release the Collateral Assignment of the Policy.
(c) In the event the Assignee shall fail to pay any Policy
premium as required under Paragraph 3, the Owner shall have the option to pay
the premium and keep the Policy in force and shall have the right to recoup the
premium from the Assignee. In the alternative, the Owner shall have the right to
deem the Assignee's failure to pay the premium as a notice of termination. The
Owner shall advise the Assignee in writing of its determination and the sixty
(60) days notice of termination shall be effective on the date such notice is
sent to Assignee.
(d) If the Owner fails to reimburse the Assignee within
sixty (60) days of the date of termination, the Owner shall execute any and all
instruments required to vest ownership of the Policy in the Assignee; provided
that the Assignee shall reimburse the Owner for the premium payments made by the
Assignee, if any.
(e) On receipt of the notice of termination from the
Assignee, the Owner shall reimburse the Assignee in the amount equal to the net
premium outlay as defined in Paragraph 4(b). Upon receipt of such payment, the
Assignee shall execute an appropriate instrument of release of the Collateral
Assignment of the Policy.
10. Notwithstanding anything to the contrary in Paragraph 9
above,
(a) The Owner shall have the right to repay the Assignee
its net premium outlay (i.e. cumulative gross premiums paid less payments made
by Owner, less any Policy loan
(5)
<PAGE>
of the Assignee encumbering the Policy) in six (6) equal annual installments,
due on the first and each succeeding anniversary of the termination of the
Policy. The Owner shall also pay interest on the unpaid portion of the net
premium outlay at the applicable federal rate of interest in effect at the time
of termination. The Owner shall have a right to prepay all or any portion of the
net premium outlay at any time in its sole discretion. In the event Owner
defaults for more than ten (10) days after notice in the payment of any
installment, the entire net premium outlay shall become immediately due and
payable. The Policy of insurance shall remain as collateral until the Owner has
paid the Assignee in full.
(b) The provisions of Paragraph 10(a) notwithstanding, in
the event the Policy is terminated by the Assignee (i) as a result of a sale
of more than fifty (50%) percent of the stock of the Corporation or
substantially all of the assets of the Corporation and at least fifty (50%)
percent of the consideration for such sale is in cash, or (ii) in the event
that the Assignee's available cash and cash equivalents are less than Fifteen
Million Dollars ($15,000,000), then the net premium outlay shall be paid by the
Owner to the Assignee on the termination of this Agreement and the Assignee
shall release the Collateral Assignment of the Policy.
11. In the event the Owner transfers all of its interest in
the Policy, then all of Owner's interest in the Policy and in this Agreement
shall be vested in such transferee, and such transferee shall be substituted as
a party hereunder, and the Owner shall have no further interest in the Policy.
12. Except as may otherwise be provided by paragraph 8, this
Agreement may not be canceled, amended, altered or modified, except by a written
instrument signed by all of the parties hereto.
(6)
<PAGE>
13. All notices or other instruments or communications shall
be in writing and shall be deemed delivered (and signed receipt obtained
therefor) or sent by postage prepaid, actually delivered by Federal Express or a
comparable private courier service, actually delivered by telecopier or similar
"FAX" equipment. Any notice shall be effective on the date on which it was
delivered or on the date actually delivered by other means. Each party may, by
notice to the other parties specify any other address for the receipt of such
instruments or communications.
14. This Agreement shall bind Owner, Assignee and their
successors and assignees, and any Policy beneficiaries. Owner and Assignee
intend to be legally bound hereby.
15. This Amended and Restated Split Dollar Agreement, and the
rights of the parties hereunder, shall be governed by and construed pursuant to
the laws of the Commonwealth of Pennsylvania.
16. This Agreement and the Collateral Assignment contain the
entire understanding among the parties hereto and supersedes any prior
agreements.
Assignee:
ATTEST: DEB SHOPS, INC.
/s/ Warren Weiner /s/ Marvin Rounick
___________________________ By: ________________________________
Warren Weiner, Secretary Marvin Rounick, President
Owner:
INSURED: WEINER FAMILY IRREVOCABLE
INSURANCE TRUST
/s/ Warren Weiner /s/ Barry H. Frank
___________________________ ____________________________________
Warren Weiner Barry H. Frank, Trustee
/s/ Penny Weiner /s/ Robert Shein
___________________________ ____________________________________
Penny Weiner Robert Shein, Trustee
(7)
<PAGE>
Exhibit 10-15.6
AMENDED AND RESTATED COLLATERAL ASSIGNMENT
THIS AMENDED AND RESTATED COLLATERAL ASSIGNMENT, made and entered into
this 31st day of July, 1998, by and between BARRY H. FRANK and ROBERT SHEIN,
Trustees under the Weiner Irrevocable Insurance Trust dated October 27,1986 (the
"Owner" and DEB SHOPS, INC. (the "Assignee").
WITNESSETH:
WHEREAS, the parties hereto entered into a Collateral Assignment
Agreement dated July 31, 1987 (the "Old Agreement") with respect to a policy of
life insurance in the face amount of Twenty Million Dollars ($20,000,000.00),
issued by Manufacturer's Life Insurance Company (the "Insurer"); and
WHEREAS, the Owner owns Life Insurance Policy No. 3,779,931.9 issued by
the Insurer and any supplemental contracts issued in connection therewith (such
policy and contracts herein called "Policy"); and
WHEREAS, the Policy insures the lives of the last to die of Warren
Weiner and Penny Weiner ("Insured"); and
WHEREAS, the Assignee has contributed the annual premium due on the
Policy, as more specifically provided in the Split Dollar Insurance Agreement
dated July 31, 1987 and the Amended and Restated Split Dollar Agreement of even
date herewith, between the Insured and the Assignee; and
WHEREAS, in consideration of the Assignee having paid the premiums, the
Owner granted to the Assignee a security interest in the Policy as collateral
security for the payment to the Assignee of all amounts due to Assignee pursuant
to the Agreement; and
<PAGE>
WHEREAS, a dispute has arisen between the Insurer, the Owner, and the
Assignee regarding the payment of additional premiums to the Insurer, and
WHEREAS, the Insurer has reduced the face value of the Policy from
Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars
($15,000,000.00); and
WHEREAS, the Insurer has adjusted the illustrated policy values and
eliminated any remaining indebtedness on the Policy effective February 1, 1996;
and
WHEREAS, the Assignee in consideration for the Insurer's eliminating
any indebtedness on the Policy and reducing the premium obligation to maintain
the policy in force, will agree to pay additional premiums on the Policy; and
WHEREAS, the Owner has agreed to the reduction of the face value of the
Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars
($5,000,000.00); and
WHEREAS, this Amended and Restated Collateral Assignment ("Agreement")
is intended to replace and supersede the Old Agreement.
NOW, THEREFORE, for value received, the undersigned hereby assigns,
transfers and sets over to the Assignee, its successors and assigns, the
Policy, subject to the following terms and conditions:
1. This Assignment is made, and the Policy is to be held, as collateral
security for the payments required to be received by Assignee, pursuant to the
terms of the Agreement.
2. The Assignee shall have the right to pledge or assign its interest
in the Policy, subject to the terms of the Agreement and to this Assignment.
3. The Assignee's interest in the Policy shall further be limited to
the right to recover its net premium outlay (i.e., gross premiums paid less
payments made by Owner and less
2
<PAGE>
any policy loan of the Assignee encumbering the Policy), but if the Policy is
canceled and the cash surrender value is less than the net premium outlay, the
Assignee's interest shall be limited to the cash surrender value.
4. Except as specifically herein granted to the Assignee, the Owner
shall retain all incidents of ownership in the Policy, including, but not
limited to, the right to assign its interest in the Policy, the right to change
the beneficiary of the Policy, and the right to exercise all settlement options
permitted by the terms of the Policy; provided, however, that all rights
retained by the Owner, transferee and beneficiary shall be subject to the terms
and conditions of the Agreement and this Assignment and the Owner and Assignee
agree that no loan may be made against the Policy except for the payment of
premiums on the Policy.
5. Assignee shall, upon request, forward the Policy to the Insurer,
without unreasonable delay, for endorsement of any designation or change of
beneficiary, any election of optional mode of settlement, or the exercise of any
other right reserved by the Owner hereunder.
6. The Insurer is hereby authorized to recognize the Assignee's claims
to rights hereunder without investigating the reason for any action taken by the
Assignee, the amount of its net premium outlay, the termination of the
Agreement, the giving of any notice required herein, or the application to be
made by the Assignee of any amounts to be paid to the Assignee. The signature of
the Assignee shall be sufficient for the exercise of any rights under the Policy
assigned hereby to the Assignee and the receipt of the Assignee for any sums
received by him shall be a full discharge and release therefor to the Insurer.
7. If the Insurer is made or elects to become a party to any litigation
concerning the proper apportionment of the death proceeds, cash surrender value,
loan value or ownership
3
<PAGE>
rights under this Agreement, the Owner and Assignee and their transferees agree
to be jointly and severally liable for the Insurer's litigation expenses,
including reasonable attorney fees.
8. Upon the full payment to the Assignee of the amount to which it is
entitled under paragraph 3 hereof, the Assignee shall reassign the Policy to the
Owner and all specific rights included in this Collateral Assignment; provided,
however, the Insurer shall only be required to release this Assignment pursuant
to written instructions received from the Assignee.
9. All matters respecting the validity, effect and interpretation of
this Assignment shall be determined in accord with the laws of the Commonwealth
of Pennsylvania.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Agreement the date and year first above written.
Assignee:
ATTEST: DEB SHOPS, INC.
/s/ Warren Weiner BY: /s/ Marvin Rounick
- -------------------------- -----------------------------------
Warren Weiner, Secretary Marvin Rounick, President
Owner:
WITNESS: WEINER FAMILY IRREVOCABLE
INSURANCE TRUST
/s/ Barry H. Frank
- -------------------------- --------------------------------------
Barry H. Frank Trustee
/s/ Robert Shein
- -------------------------- --------------------------------------
Robert Shein, Trustee
4
<TABLE> <S> <C>
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