<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
DEB SHOPS, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
DEB SHOPS INC.
9401 Blue Grass Road, Philadelphia, PA 19114
(215) 676-6000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on
Wednesday, May 19, 1999
at 10:00 a.m.
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Deb
Shops, Inc., a Pennsylvania corporation (the "Company"), will be held on
Wednesday, May 19, 1999 at 10:00 a.m. at the offices of the Company, 9401 Blue
Grass Road, Philadelphia, Pennsylvania. The purposes of the meeting are to:
1. Elect six directors to serve until the next Annual Meeting of
Shareholders and until the election and qualification of their
respective successors;
2. Amend the Company's Articles of Incorporation to increase the number
of shares of authorized Common Stock from 25,000,000 to 50,000,000
shares.
3. Transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
Information concerning such matters is set forth in the following Proxy
Statement.
March 31, 1999 is the Record Date for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting or any adjournments or
postponements thereof.
The accompanying form of Proxy is solicited by the Board of Directors of
the Company. Even if you are planning to attend the Annual Meeting in person,
please complete, date, sign and return the enclosed Proxy.
By Order of the Board of Directors of the Company
WARREN WEINER, Secretary MARVIN ROUNICK, President
Dated: April 28, 1999
<PAGE>
DEB SHOPS INC.
9401 Blue Grass Road, Philadelphia, PA 19114
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
MAY 19, 1999
---------------------
This Proxy Statement is submitted with the attached Notice (the "Notice")
of Annual Meeting of Shareholders of Deb Shops, Inc. (the "Company") to be held
on Wednesday, May 19, 1999 at 10:00 a.m., at the offices of the Company, 9401
Blue Grass Road, Philadelphia, Pennsylvania. The form of Proxy is enclosed.
This Proxy Statement is first being sent or given to shareholders of the
Company on or about April 28, 1999.
The Board of Directors of the Company does not intend to bring any matter
before the Annual Meeting except as specifically indicated in the attached
Notice and does not know of anyone else who intends to do so. If any other
matters properly come before the Annual Meeting, however, the persons named in
the enclosed Proxy, or their duly constituted substitutes, will be authorized
to vote or otherwise act thereon in accordance with their judgment on such
matters.
REVOCABILITY OF PROXY
A Proxy executed in the form enclosed may be revoked at any time prior to
its exercise by notifying the Secretary of the Company in writing, by
delivering a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person.
PERSONS MAKING THE SOLICITATION
The accompanying Proxy is being solicited on behalf of the Board of
Directors of the Company. In addition to mailing the proxy materials,
solicitation may be made in person or by telephone or telegraph by directors,
officers or regular employees of the Company or of its subsidiaries, none of
whom will receive additional compensation in connection with such solicitation.
The expense of the solicitation of Proxies for the Annual Meeting will be borne
by the Company. The Company will request banks, brokers and other nominees to
forward proxy materials to beneficial owners of the Company's common stock,
$0.01 par value per share ("Common Stock"), held by them, and will reimburse
such banks, brokers and other nominees for their reasonable out-of-pocket
expenses in doing so.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The holders of record of the Common Stock of the Company at the close of
business on March 31, 1999 (the "Record Date") will be entitled to notice of
and to vote on all matters presented for vote at the Annual Meeting. At the
close of business on March 31, 1999, the total number of outstanding shares of
Common Stock was 13,198,880 shares. Each share of Common Stock will be entitled
to one vote on all business to come before the Annual Meeting on which a vote
is taken. The presence, in person or by proxy, of shareholders entitled to cast
a majority of the votes which all shareholders are entitled to cast is
necessary for a quorum to be present at the Annual Meeting. Abstentions and
broker non-votes are counted for purposes of determining whether a quorum is
present at the Annual Meeting.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 3l, 1999
(February 11, 1999 as to Dimensional Fund Advisors, Inc.), regarding the shares
of each class of equity securities of the Company owned by (i) each person who
is known to the Company to be the beneficial owner of more than 5% of any class
of the Company's voting securities, (ii) each director, (iii) the chief
executive officer and each of the four other most highly compensated executive
officers, and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percent
Beneficial Owner (1) Ownership Title of Class of Class
- -------------------------------- ------------------------------ --------------------- ---------------
<S> <C> <C> <C>
Marvin Rounick (2) 3,849,656 (3) Common Stock 29.2%
9401 Blue Grass Road 230 Non-Voting Series A 50.0%
Philadelphia, PA 19114 Preferred Stock
Judy Rounick 683,736 (4) Common Stock 5.2%
9401 Blue Grass Road
Philadelphia, PA 19114
Warren Weiner 2,700,264 (5) Common Stock 20.5%
9401 Blue Grass Road 230 Non-Voting Series A 50.0%
Philadelphia, PA 19114 Preferred Stock
Penny Weiner 1,616,238 (6) Common Stock 12.3%
9401 Blue Grass Road
Philadelphia, PA 19114
Barry H. Frank 1,628,982 (7) Common Stock 12.3%
1735 Market Street
Philadelphia, PA 19103-7598
Robert Shein 1,629,882 (7)(8) Common Stock 12.4%
896 Roscommon Road
Bryn Mawr, PA 19010
Jack A. Rounick (2) 1,318,158 (9) Common Stock 10.0%
3 Penn Court
325 Swede Street
Norristown, PA 19404
Stuart H. Savett 754,000 (10) Common Stock 5.7%
325 Chestnut Street
Suite 700
Philadelphia, PA 19106
Dimensional Fund Advisors Inc. 690,900 (11) Common Stock 5.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Paul S. Bachow -0- Common Stock -0-
Barry H. Feinberg -0- Common Stock -0-
Allan Laufgraben 75,000 (12) Common Stock Less than 1%
Barry Vesotsky 45,000 Common Stock Less than 1%
Stanley A. Uhr 15,180 (13) Common Stock Less than 1%
All Directors and Executive 9,722,840 (12)(14) Common Stock 73.4%
Officers as a Group 460 Non-Voting Series A 100.0%
(12 persons) Preferred Stock
</TABLE>
2
<PAGE>
- ------------
(1) Addresses are included for beneficial owners of more than 5% of the Common
Stock of the Company. Information as to certain of such shareholders has
been derived from filings made with the Securities and Exchange Commission
(the "Commission").
(2) Marvin Rounick and Jack A. Rounick are brothers.
(3) Marvin Rounick has sole voting and dispositive power with respect to
3,165,920 shares of Common Stock (24.0% of the class), and shared voting
and dispositive power with Judy Rounick, his wife, with respect to the
remaining 683,736 shares of Common Stock (5.2% of the class). See note (4)
below. The foregoing table does not include 750,000 shares of Common Stock
(5.7% of the class) held by a trust of which Mr. Rounick is the sole
beneficiary, but as to which neither Mr. nor Mrs. Rounick has voting or
dispositive power. See notes (9) and (10) below.
(4) Judy Rounick has shared voting and dispositive power with Marvin Rounick,
her husband, with respect to these shares. See note (3) above.
(5) Warren Weiner has sole voting and dispositive power with respect to
1,047,766 shares of Common Stock (7.9% of the class) and shared voting and
dispositive power with Penny Weiner, his wife, with respect to 1,616,238
shares of Common Stock (12.3% of the class). See note (6) below. The table
also includes 25,000 shares of Common Stock held by trusts for the benefit
of Mr. Weiner's nephew and nieces, as to which Mr. Weiner has sole voting
and dispositive power as trustee. The foregoing table does not include
605,504 shares of Common Stock (4.6% of the class) held by a trust of which
Mr. Weiner is the sole beneficiary, or 1,023,478 shares of Common Stock
(7.8% of the class) held by a trust of which Mrs. Weiner is the sole
beneficiary, but as to which neither Mr. nor Mrs. Weiner has voting or
dispositive power. See note (7) below. The table includes 11,260 shares of
Common Stock to which Mr. Weiner may become entitled under the Company's
Employee Savings and Protection Plan.
(6) Penny Weiner has shared voting and dispositive power with Warren Weiner,
her husband, with respect to these shares. See note (5) above.
(7) Includes 1,628,982 shares held by trusts for the benefit of Mr. or Mrs.
Warren Weiner, of which Messrs. Frank and Shein share voting and
dispositive power as co-trustees. Messrs. Frank and Shein disclaim
beneficial ownership of these shares.
(8) Includes 900 shares held by a child of Mr. Shein as to which he disclaims
beneficial ownership.
(9) Jack A. Rounick has sole voting power with respect to 511,258 shares of
Common Stock (3.9% of the class). Of these shares he has sole dispositive
power with respect to 91,434 shares and shared dispositive power with
Noreen Rounick, his wife, with respect to the remaining 419,824 shares. Mr.
Rounick also has shared voting and dispositive power, with his wife, with
respect to 56,900 shares of Common Stock included in the table. The table
also includes 750,000 shares of Common Stock (5.7% of the class) held by a
trust for the benefit of Marvin Rounick, in which Jack Rounick shares
voting and dispositive power as a co-trustee with Stuart Savett; Mr.
Rounick disclaims beneficial ownership of these shares.
(10) Includes 750,000 shares of Common Stock (5.7% of the class) held by a
trust for the benefit of Marvin Rounick, in which Mr. Savett shares voting
and dispositive power as a co-trustee with Jack A. Rounick; Mr. Savett
disclaims beneficial ownership of such shares.
(11) Based solely on the Schedule 13G, dated February 11, 1999, filed with the
Commission by Dimensional Fund Advisors, Inc. ("Dimensional"). The
Schedule 13G reports that Dimensional, an investment advisor registered
under Section 203 of the Investment Advisors Act of 1940, furnishes
investment advice to four investment companies registered under the
Investment Company Act of 1940, and serves as investment manager to
certain other investment vehicles, including commingled group trusts.
These investment companies and investment vehicles are referred to
collectively hereinafter as the "Portfolios." In its role as investment
advisor and investment manager, Dimensional possesses both voting and
investment power over these securities, all of which are owned by the
Portfolios. Dimensional disclaims beneficial ownership of such securities.
(12) Beneficial ownership has been determined pursuant to Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
therefore, includes shares of Common Stock covered by options granted to
officers pursuant to the Company's 1995 Incentive Stock Option Plan which
are currently exercisable or exercisable within 60 days of March 31, 1999
as follows: Mr. Laufgraben -- 25,000; All Directors and Executive Officers
as a Group (12 persons) -- 42,000 shares.
(13) Includes 60 shares held by children of Mr. Uhr as to which he disclaims
beneficial ownership.
(14) See prior footnotes.
3
<PAGE>
ELECTION OF DIRECTORS
Six directors will be elected to hold office subject to the provisions of
the Company's ByLaws until the next Annual Meeting of Shareholders and until
their respective successors are duly elected and qualified.
The following table sets forth the name, age, position with the Company
and respective service dates of each person who has been nominated to be a
director of the Company.
<TABLE>
<CAPTION>
Director
Name Age Position with the Company Since
- --------------------------- ----- ------------------------------------------------- ---------
<S> <C> <C> <C>
Marvin Rounick ............ 59 Director, President and Chief Executive Officer 1973
Warren Weiner ............. 55 Director, Executive Vice President, Secretary 1973
and Treasurer
Jack A. Rounick ........... 63 Director, Assistant Secretary 1973
Paul S. Bachow ............ 48 Director 1989
Barry H. Feinberg ......... 53 Director 1989
Barry H. Frank ............ 60 Director 1989
</TABLE>
Marvin Rounick and Jack A. Rounick are brothers.
A plurality of the votes cast by all shareholders entitled to vote with
respect to the election of directors at the Annual Meeting is required for the
election of directors. Shareholders may vote "FOR" or "AUTHORITY WITHHELD" with
respect to the election of the entire slate of directors by marking the proper
box on the enclosed form of Proxy, or may vote "AUTHORITY WITHHELD" with
respect to any one or more nominees by marking the proper box and writing out
the names of such nominees on the Proxy, as instructed therein. Abstentions and
broker non-votes will have the same effect as votes of "AUTHORITY WITHHELD" in
the case of the election of directors. Upon the execution and return of the
enclosed form of Proxy, the shares represented thereby will be voted in
accordance with the terms of the Proxy, unless the Proxy is revoked. If no
directions are indicated in such Proxy, the shares represented thereby will be
voted "FOR" the above nominees in the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
THE ABOVE NOMINEES FOR DIRECTOR.
Principal Occupations of the Nominees to be Directors
Marvin Rounick has been employed by the Company since 1961. Since 1979, he
has served as the President and Chief Executive Officer.
Warren Weiner was employed by the Company from 1965 until 1975. He
rejoined the Company in January, 1982 as Executive Vice President, Secretary
and Treasurer.
Jack A. Rounick is Assistant Secretary of the Company. Since November,
1997, he has been counsel to the law firm of Wolf, Block, Schorr and
Solis-Cohen LLP, Philadelphia, Pennsylvania, which provides legal services to
the Company. From October, 1995 to November, 1997, he was engaged in the
private practice of law in Norristown, Pennsylvania. From 1984 to 1993, Mr.
Rounick was Vice President and General Counsel of Martin Lawrence Limited
Editions, Inc., a public company engaged in the business of publishing and
selling lithographs, paintings and other works of art on a wholesale basis and
through company-owned art galleries. Mr. Rounick was also, from May 1992 to
December 1995, President of THINK BIG!, Inc., Conshohocken, Pennsylvania, which
sold oversized gift products.
Paul S. Bachow has been, since December, 1985, President of Bachow and
Associates, Inc. or its predecessor firms, Philadelphia, Pennsylvania, and
affiliated companies, private companies engaged in the business of buying and
operating or investing in manufacturing, software, communications and service
companies. Mr. Bachow is also a director of Anadigics, Inc., Crusader Holding
Corporation and Digital Microwave Corporation, each of which is a company with
a class of securities registered under the Exchange Act.
4
<PAGE>
Barry H. Feinberg has been, since January, 1992, President of The Feinberg
Group or its predecessor firms, Philadelphia, Pennsylvania, a marketing
company. From July 1992 to October 1993, Mr. Feinberg was President of
Nationwide Automotive, Inc., a retailer of automotive parts. Since 1991 Mr.
Feinberg also has been an Adjunct Professor of Marketing at the Wharton School,
University of Pennsylvania. Mr. Feinberg is also a director of Hippo Graphics,
Inc., a company with a class of securities registered under the Exchange Act.
Barry H. Frank has been, since May, 1987, a partner in the law firm of
Mesirov Gelman Jaffe Cramer & Jamieson, LLP, Philadelphia, Pennsylvania, which
provides legal services to the Company.
Meetings of the Board of Directors and Committees
The Board of Directors holds formal meetings and also discusses matters on
an informal basis. The Board held one meeting during the fiscal year ended
January 31, 1999 and acted by written consent 12 times during the year. The
Company has no nominating committee. However, the Board has established an
Audit Committee, a Stock Option Committee, a Compensation Committee, and an
Employee Savings and Protection Plan Committee ("ESP Plan Committee"). Each
director attended all meetings of the Board and of the Committees on which he
served.
The Audit Committee consists of Paul S. Bachow, Barry H. Feinberg and
Barry H. Frank. The function of the Audit Committee is to recommend to the
Board the employment of the Company's independent auditors and to review with
management and the independent auditors the Company's financial statements,
basic accounting and financial policies and practices, audit scope, and the
competency of internal audit personnel. The Audit Committee held one meeting
during the last fiscal year.
The Stock Option Committee, consisting of Marvin Rounick, Warren Weiner
and Jack A. Rounick, administers the Company's 1995 Incentive Stock Option Plan
and determines the employees eligible to be granted stock options and the
number of options to be granted. The Stock Option Committee also administers
the Company's Restricted Stock Incentive Plan and determines the employees
eligible to be granted common stock and the number of shares to be granted. The
Stock Option Committee held no meetings and acted by written consent one time
during the last fiscal year.
The Compensation Committee consists of Paul S. Bachow, Barry H. Feinberg
and Barry H. Frank. The function of the Compensation Committee is to consider
and make recommendations to the Board of Directors, at its request, with
respect to appropriate levels of compensation for the President, Executive Vice
President, and other officers and employees of the Company. The Compensation
Committee held no meetings during the last fiscal year.
The ESP Plan Committee, consisting of Marvin Rounick, Warren Weiner and
Stanley A. Uhr, administers the Company's Employee Savings and Protection Plan
("ESP Plan"), a 401(k) plan under the Internal Revenue Code. The ESP Plan
Committee held one meeting during the last fiscal year.
Directors of the Company, other than Directors who are also employees of
the Company, receive $500 for each meeting of the Board of Directors and
Committees of the Board attended, plus expenses.
Compensation Committee Interlocks and Insider Participation
Barry H. Frank, a member of the Compensation Committee of the Company, was
during the last fiscal year, and continues to be, a partner in the law firm of
Mesirov Gelman Jaffe Cramer & Jamieson, LLP, Philadelphia, Pennsylvania, which
provided during the last fiscal year, and continues to provide, legal services
to the Company.
5
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL
SHAREHOLDER RETURNS
The following graph compares the cumulative total shareholder return for
the last five fiscal years for the Company's Common Stock to the cumulative
total returns of (i) The Nasdaq Stock Market (U.S. Companies) and (ii) the Dow
Jones Retailers -- Specialty Apparel Index.
[GRAPHIC OMITTED]
Legend
------
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------
Symbol Index Description 1/31/94 1/31/95 1/31/96 1/31/97 1/31/98 1/31/99
- ------ ----------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Deb Shops, Inc. 100 81 56 80 114 215
Nasdaq Stock Market (U.S) 100 95 135 177 209 326
Dow Jones Retailers-Specialty Apparel Index 100 90 105 124 204 378
</TABLE>
Notes:
A. The lines represent annual index levels, assuming reinvestment of all
dividends paid during the measurement period.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the annual interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to 100.0 on 01/31/94.
6
<PAGE>
EXECUTIVE COMPENSATION
The following information is furnished for the fiscal years ended January
31, 1999, 1998 and 1997, with respect to the Company's Chief Executive Officer
and each of the four other most highly compensated executive officers of the
Company during the last fiscal year whose salary and bonus exceeded $100,000.
The Summary Compensation Table includes amounts deferred at the officer's
election.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
---------------------------------------- -------------------------- ---------
Number of
Fiscal Other Shares
Year Annual Restricted Underlying All Other
Name and Ended Compensation Stock Options/ LTIP Compensation
Principal Position 1/31 Salary Bonus (1) Award(s) SARS Payouts (2)
- -------------------- -------- ----------- ----------- -------------- ------------ ------------ --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin Rounick 1999 $405,012 -- -- -- -- -- $ 397,286(3)
President and 1998 $405,012 -- -- -- -- -- --
Chief Executive 1997 $407,705 -- -- -- -- -- --
Officer
Warren Weiner 1999 $297,600 -- -- -- -- -- $ 151,423(3)
Executive Vice 1998 $297,816 -- -- -- -- -- $ 4,000
President, 1997 $299,620 -- -- -- -- -- $ 3,750
Secretary, and
Treasurer
Allan Laufgraben 1999 $250,016 $300,000 -- -- 150,000 -- $ 4,000
Senior Vice- 1998 $250,016 $300,000 -- -- -- -- $ 4,000
President, 1997 $251,939 -- -- -- -- -- --
Merchandising
Barry Vesotsky 1999 $160,004 $150,000 -- -- 50,000 -- $ 4,000
Vice President, 1998 $150,004 $150,000 -- -- 50,000 -- $ 3,556
Merchandising 1997 $162,235 -- -- -- -- -- $ 3,750
Stanley A. Uhr 1999 $108,500 -- -- -- 30,000 -- --
Vice President, 1998 $104,800 -- -- -- 30,000 -- --
Real Estate and 1997 $104,800 $ 10,000 -- -- -- -- --
Corporate Counsel
</TABLE>
- ------------
(1) The named executive officers received various personal benefits, the total
value of which did not exceed for any fiscal year as to any such person
the lesser of $50,000 or 10% of his annual salary and bonus.
(2) Consists of Company contributions to the ESP Plan for the account of the
named executive subject to vesting by lapse of time.
(3) Includes payments of $397,286 and $147,423 made in connection with split
dollar increasing whole life insurance policies providing coverage for
Marvin Rounick and Warren Weiner, respectively. The payments were made to
eliminate indebtedness incurred on the policies to pay past premiums and
included interest incurred on such indebtedness through February 1, 1996.
It is expected that there will be no further premium payments made by, or
on behalf of, the Company with respect to either of these insurance
policies. See "Executive Compensation -- Insurance."
7
<PAGE>
Grant of Stock Options
The following table sets forth information regarding grants of stock
options made during the Company's fiscal year ended January 31, 1999 to each of
the named executive officers pursuant to the Company's 1995 Incentive Stock
Option Plan:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value
------------------------------ At Assumed Annual
Number of Percentage of Rates of Stock Price
Shares Options Appreciation For
Underlying Granted to Exercise Option Term (1)
Options Employees in Price Expiration -------------------------
Name Granted Fiscal Year Per Share Date 5% 10%
- ------------------ ------------ --------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Marvin Rounick N/A(2) -- -- -- -- --
Warren Weiner N/A(2) -- -- -- -- --
Allan Laufgraben 150,000 49.18% $ 7.00 1/31/2004 $290,096 $641,036
Barry Vesotsky 50,000 16.39% $ 7.00 1/31/2004 $ 96,699 $213,679
Stanley A. Uhr 30,000 9.84% $ 7.00 1/31/2004 $ 58,019 $128,207
</TABLE>
- ------------
(1) Potential realizable value is based on the assumption that the stock price
of the Common Stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the option term. These
numbers are calculated based on the requirements promulgated by the
Commission and do not reflect the Company's estimate of future stock price
performance.
(2) Mr. Rounick and Mr. Weiner do not participate in the Company's 1995
Incentive Stock Option Plan.
Exercise of Stock Options
The following table sets forth information regarding the exercise of stock
options by each of the named executive officers of the Company during the
fiscal year ended January 31, 1999, as well as the value of any unexercised
options:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Total Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End (1)
Shares ------------------------------ -----------------------------
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------- ------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Marvin Rounick ........... N/A(2) -- -- -- -- --
Warren Weiner ............ N/A(2) -- -- -- -- --
Allan Laufgraben ......... 125,000 $575,340 25,000 200,000 $200,000 $1,037,500
Barry Vesotsky ........... 75,000 $447,420 -- 75,000 -- $ 343,750
Stanley A. Uhr ........... 45,000 $257,650 -- 45,000 -- $ 206,250
</TABLE>
- ------------
(1) Options are In-the-Money at the fiscal year end if the fair market value of
the underlying securities on such date exceeds the exercise or base price
of the option.
(2) Mr. Rounick and Mr. Weiner do not participate in the Company's 1995
Incentive Stock Option Plan.
Insurance
In 1983, the Company purchased split dollar increasing whole life
insurance policies providing $5,000,000 coverage for each of Marvin Rounick and
Warren Weiner. In 1987, at the request of the insureds, the Company surrendered
these policies, which had cash surrender values of $519,925 and $489,691,
respectively, for two new whole life policies each in the amount of
$20,000,000. In 1998, the owner of each of the policies agreed to a reduction
in the face value of the policy from $20,000,000 to $15,000,000 and the
Company, in consideration for the insurer eliminating any indebtedness on the
policies of insurance and reducing the premium obligation
8
<PAGE>
to maintain the policy in force, agreed to pay a one-time, lump-sum premium on
each of the policies in the amount of $397,286 and $147,423, respectively,
which included interest through February 1, 1996. One policy insures the joint
lives of Marvin Rounick and his wife, and the other policy insures the joint
lives of Warren Weiner and his wife. The cash surrender values of the prior
policies were applied as prepaid premiums for the new policies. The policies
are payable upon the death of the later to die of the executive and his spouse.
The premiums referred to above were paid by the Company on these policies in
the last fiscal year.
Upon the death of an insured, or at such earlier date as the Company's
interest in the policy may be terminated at the election of the Company or the
owner of the policy, the Company will be entitled to receive from the death
benefits or the cash surrender value, as the case may be, an amount equal to
the lesser of (i) all premiums paid by it directly or through loans on the
policy, plus any remaining dividend credits, less any indebtedness to the
insurance company incurred by the Company to pay premiums, or (ii) the amount
of the cash surrender value of the policy. The balance of any death benefits
will be paid to a certain Rounick family insurance trust or a certain Weiner
family insurance trust, as the case may be, which are the owners and
beneficiaries of the respective policies.
Employment Contracts
Allan Laufgraben has a written agreement with the Company which provides
that Mr. Laufgraben will serve as the Company's Senior Vice
President-Merchandising, will be paid a base salary of $325,000 per year, and
will be entitled to receive a bonus not to exceed $300,000 with respect to
fiscal years 2000, 2001 and 2002 equal to four percent of the increase in
earnings before interest and taxes on a consolidated basis of the Company's
apparel business (excluding Tops 'N Bottoms) for such fiscal year over the
corresponding amount for the preceding fiscal year. Mr. Laufgraben was also
awarded the option to purchase up to 150,000 shares of the Common Stock of the
Company pursuant to the agreement.
Report on Executive Compensation
The compensation of the President and Executive Vice President is set by
the Board of Directors. The cash compensation of the other executive officers
is set by the President, as authorized by the Board of Directors. The Stock
Option Committee is authorized to make awards of stock options under the
Company's 1995 Incentive Stock Option Plan and of restricted stock under the
Company's Restricted Stock Incentive Plan.
In fiscal year 1999 the Board of Directors continued its previous practice
of compensating the President/Chief Executive Officer and the Executive Vice
President on the basis of fixed salaries, supplemented by various perquisites
which are included as "salary" in the Summary Compensation Table above. Such
compensation is considered by the Board to be appropriate for those positions,
irrespective of the Company's performance. The compensation of those officers
has not, therefore, increased materially in years of above-average Company
performance and has not decreased materially in years of below-average
performance. The President/Chief Executive Officer and the Executive Vice
President, alone or together with spouses and various trusts and partnerships
for family members, are principal shareholders of the Company and, in the
Board's view, derive sufficient incentive to maximize Company performance
through their status as shareholders without receiving incentive compensation
in addition to, or as part of, their regular compensation. Accordingly, neither
the President/Chief Executive Officer nor the Executive Vice President receives
bonuses or participates in either of the Company's two plans referred to above.
The other executive officers of the Company are principally compensated
through fixed salaries, except Messrs. Vesotsky and Laufgraben who received
bonuses in fiscal year 1999 based on the increase in earnings before interest
and taxes on a consolidated basis of the Company's apparel business over the
corresponding amount for the preceding fiscal year. These bonuses were paid
pursuant to employment contracts in effect in fiscal year 1999.
The foregoing report is submitted by the Board of Directors: Paul Bachow,
Barry Feinberg, Barry Frank, Jack Rounick, Marvin Rounick and Warren Weiner.
9
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PROPOSAL TO AMEND THE RESTATED ARTICLES OF INCORPORATION
Introduction
The Company's Restated Articles of Incorporation, as currently in effect
(the "Articles"), provide that the Company's authorized capital stock shall
consist of 25,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock, $1.00 par value per share. On February 26, 1999, the Company's Board of
Directors approved an amendment of the Articles (the "Amendment") in order to
increase the number of shares of Common Stock authorized for issuance under the
Articles by 25,000,000 shares to a total of 50,000,000 shares. The text of the
Amendment is set forth below. If the Amendment is adopted, it will become
effective upon the filing of the Amendment with the Secretary of State of the
Commonwealth of Pennsylvania (which the Company expects to do as soon as is
practicable after adoption).
Current Use of Shares
As of the Record Date, the Company had 13,198,880 shares of Common Stock
outstanding and 1,851,800 shares reserved for issuance under the Company's 1995
Incentive Stock Option and Restricted Stock Incentive Plans (collectively, the
"Employee Stock Plans"), of which 495,800 were covered by outstanding options
and 1,356,000 were available for grant. Therefore, the Company's total share
requirement as of the Record Date was 15,050,680 shares. In the event
shareholder approval of this proposal is obtained, following the effectiveness
of the Amendment, the Company would have a total of 34,949,320 authorized and
unissued shares remaining available pursuant to its Articles.
Purpose of the Proposed Amendment
The Board of Directors believes that the availability of additional
authorized but unissued shares of Common Stock will provide the Company with
the flexibility to issue Common Stock for appropriate corporate purposes which
may be identified in the future. Such future purposes may include, without
limitation, raising equity capital, issuing shares pursuant to the conversion
or exercise of convertible preferred stock, convertible debt, warrants or other
securities that may be issued in the future, adopting additional employee stock
option, purchase or similar plans or reserving additional shares for issuance
under its existing Employee Stock Plans, making acquisitions through the use of
Common Stock and effecting stock splits and/or declaring stock dividends. Other
than as permitted or required under the Company's existing Employee Stock Plans
and outstanding options, the Board of Directors has no immediate plans,
understandings, agreements or commitments to issue additional shares of Common
Stock for any purpose.
The Board of Directors believes that the proposed increase in the
authorized Common Stock will make a sufficient number of shares available
should the Company decide to use its shares for one or more of such previously
mentioned purposes or otherwise. The Company may seek further increases in
authorized shares from time to time in the future as considered appropriate by
the Board of Directors.
Possible Effects of the Proposed Amendment
If the shareholders approve the proposed Amendment, the Board of Directors
may cause the issuance of additional shares of Common Stock without further
vote of the shareholders of the Company, except as provided under Pennsylvania
corporate law or under the rules of any national securities exchange on which
shares of Common Stock are then listed. Under the Articles, the Company's
shareholders do not have preemptive rights to subscribe to additional
securities which may be issued by the Company, which means that current
shareholders do not have a prior right to purchase any new issue of capital
stock of the Company in order to maintain their proportionate ownership of
Common Stock. In addition, if the Board of Directors elects to issue additional
shares of Common Stock, such issuance could have a dilutive effect on the
earnings per share, voting power and shareholdings of current shareholders.
In addition to the corporate purposes discussed above, the proposed
Amendment could, under certain circumstances, have an anti-takeover effect,
although this is not the intent of the Board of Directors. For example,
10
<PAGE>
it may be possible for the Board of Directors to delay or impede a takeover or
transfer of control of the Company by causing such additional authorized shares
to be issued to holders who might side with the Board in opposing a takeover
bid that the Board of Directors determines is not in the best interests of the
Company and its shareholders. The Amendment therefore may have the effect of
discouraging unsolicited takeover attempts. By potentially discouraging
initiation of any such unsolicited takeover attempt, the proposed Amendment may
limit the opportunity for the Company's shareholders to dispose of their shares
at the higher price generally available in takeover attempts or that may be
available pursuant to a merger proposal. The proposed Amendment may have the
effect of permitting the Company's current management, including the current
Board of Directors, to retain its position, and place it in a better position
to resist changes that shareholders may wish to make if they are dissatisfied
with the conduct of the Company's business. However, The Board of Directors has
not presented this proposal with the intent that it be utilized as a type of
anti-takeover device.
Required Vote; Recommendation of Board of Directors
Affirmative votes constituting a majority of the votes cast by all
shareholders entitled to vote with respect to the Amendment at the Annual
Meeting will be required to approve the Amendment. Shareholders may vote "FOR,"
"AGAINST" or to "ABSTAIN" with respect to approval of the Amendment by marking
the proper box on the enclosed form of Proxy. For voting purposes, only shares
voted either "FOR" or "AGAINST" approval of the Amendment, and neither
abstentions nor broker non-votes, will be counted as votes in determining
whether or not the Amendment is approved. As a consequence, abstentions and
broker non-votes will have no effect on the vote on the Amendment. Upon the
execution and return of the enclosed form of Proxy, the shares represented
thereby will be voted in accordance with the terms of the Proxy, unless the
Proxy is revoked. If no directions are indicated in such Proxy, the shares
represented thereby will be voted "FOR" the approval of the proposed Amendment.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
APPROVAL OF THE AMENDMENT
TO THE RESTATED ARTICLES OF INCORPORATION.
The following is the text of Article 5 of the Articles as it would read,
and marked to show the changes that would result, in the event the Amendment is
approved:
"5. The aggregate number of shares which the corporation shall have
authority to issue is:
[Twenty-five]* Fifty million [(25,000,000)]* (50,000,000) shares of
Common Stock with a par value of one cent ($.01) per share and five
million (5,000,000) shares of Preferred Stock, issuable in series, with a
par value of one dollar ($1.00) per share.
Each share of Common Stock shall entitle the holder thereof to one (1)
vote. No holder of Common Stock shall be entitled to cumulative voting
rights.
The shares of Preferred Stock may be divided into and issued in series,
from time to time, as herein provided, each of such series to be
distinctly designated. The shares of the Preferred Stock of different
series, subject to any applicable provision of law, may vary and the
designations, preferences, voting powers, qualifications, limitations,
restrictions, privileges, options, conversion rights, relative rights,
liquidation rights, dividend rights, or other special rights of any
series of Preferred Stock that is desired but which has not been fixed
herein shall be fixed in the case of each such series at any time prior
to the issuance of the shares thereof by resolution or resolutions
adopted by the Board of Directors. No holder of any series of Preferred
Stock, however designated, shall be entitled to cumulative voting
rights."
*Bracketed material has been deleted.
11
<PAGE>
TRANSACTIONS WITH MANAGEMENT
AND CERTAIN BUSINESS RELATIONSHIPS
The Company leases its warehouse and office facility (the "Facility")
totaling approximately 280,000 square feet pursuant to a twenty year lease
dated and effective June 15, 1982, as amended ("the Lease"), from the Blue
Grass Partnership ("Landlord"). The partners of the Landlord are Marvin
Rounick, Director, President and Chief Executive Officer of the Company, Warren
Weiner, Director, Executive Vice President, Secretary and Treasurer of the
Company, Jack A. Rounick, Director and Assistant Secretary of the Company, and
their respective spouses. Under the terms of the Lease, the Company must pay
all maintenance, repairs, insurance, utilities, taxes, improvements and
modifications to the Facility. On January 3, 1999, the Lease was amended to
extend the term for an additional five years. During the fiscal year ended
January 31, 1999, the Company accrued and paid a rental expense of $550,000
under the Lease.
A loan in the amount of $500,000 from the Pennsylvania Industrial
Development Authority ("PIDA") was made to the Lessor in December 1984 to
finance the Facility. The PIDA loan is payable over a 15 year term at an
interest rate of 5% per annum. The Company has guaranteed the repayment of the
PIDA loan. At January 31, 1999, the outstanding principal amount of the PIDA
loan was approximately $42,400.
The Company believes that the terms of these transactions, including the
Lease, are fair, reasonable and consistent with the terms that would have been
available to the Company if made with unaffiliated parties.
In December 1994, the Company made a $95,000 loan to Lewis Lyons, its Vice
President, Finance and Chief Financial Officer. The loan, which is unsecured
and does not bear interest, had an unpaid balance of $23,500 as of January 31,
1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of copies of Forms 3, 4 and 5 furnished to the
Company under Section 16(a) of the Exchange Act or written representations from
persons required to furnish to the Company copies of such Forms 3, 4 and 5 if
filed with the Commission, the Company has determined that its directors,
officers and more than 10% shareholders filed when due all reports required by
Section 16(a) of the Exchange Act during the fiscal year ended January 31,
1999; except that Stephen Smith, Vice President, Information Systems of the
Company, did not include in his Form 3 filed on June 2, 1998 beneficial
ownership of 200 shares of Common Stock and corrected such deficiency by way of
an amendment to such Form 3 filed on March 3, 1999, and Joan M. Nolan,
Controller of the Company, did not file a Form 3 within 10 days of becoming a
reporting person and corrected such deficiency by filing a Form 5 on March 3,
1999.
RELATIONSHIPS WITH INDEPENDENT AUDITORS
The firm of Ernst & Young LLP was the Company's independent auditors for
the fiscal year ended January 31, 1999. Representatives of Ernst & Young LLP
are expected to be present at the Annual Meeting, with the opportunity to make
a statement if they desire to do so, and will be available to respond to
appropriate questions of shareholders.
The Board of Directors selects, upon recommendation by the Audit
Committee, the independent auditors for the Company. The Board has not yet
selected the independent auditors for the current fiscal year.
Effective June 1, 1998, the Company dismissed its prior independent
accountants, Arthur Andersen LLP, and retained for fiscal year 1999 new
independent accountants, Ernst & Young LLP. Arthur Andersen LLP's reports on
the Company's financial statements for the two most recent fiscal years (i.e.,
the fiscal years ended January 31, 1998 and January 31, 1997) contained no
adverse opinion or a disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principles. The decision to change
the Company's accountants was approved by the Company's Board of Directors.
During the Company's last two fiscal years and the subsequent interim
period to the date of dismissal, there were no disagreements between the
Company and Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Arthur Andersen
LLP, would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports.
12
<PAGE>
None of the "reportable events" described in Item 304(a)(1)(v) of
Regulation S-K occurred with respect to the Company within the last two fiscal
years and the subsequent interim period to the date of dismissal.
Effective June 1, 1998, the Company engaged Ernst & Young LLP as its
independent accountants for fiscal year 1999. During the last two fiscal years
and the subsequent interim period to the date of engagement, the Company did
not consult Ernst & Young LLP regarding any of the matters or events set forth
in Item 304(a)(2) of Regulation S-K.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any proposal of a shareholder intended to be presented at the Annual
Meeting of Shareholders in 2000 must be received at the Company's principal
executive offices no later than December 31, 1999 in order to be considered for
inclusion in the Company's proxy statement and form of proxy relating to that
meeting.
A shareholder of the Company may wish to have a proposal presented at the
2000 Annual Meeting, but not to have such proposal included in the Company's
proxy statement and form of proxy relating to that meeting. If notice of any
such proposal is not received by the Company at the address appearing on the
first page of this proxy statement by March 15, 2000, then such proposal shall
be deemed "untimely" for purposes of Rule 14a-4(c) promulgated under the
Exchange Act and, therefore, the Company will have the right to exercise
discretionary voting authority with respect to such proposal.
FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON SOLICITED BY THIS PROXY
STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K INCLUDING FINANCIAL STATEMENTS AND THE SCHEDULES
THERETO. SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO THE COMPANY AT 9401 BLUE
GRASS ROAD, PHILADELPHIA, PENNSYLVANIA 19114, ATTENTION: CORPORATE COUNSEL.
13
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
DEB SHOPS, INC.
May 19, 1999
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
A / X / Please mark your
votes as in this example
<S> <C> <C> <C>
FOR AUTHORITY
WITHHELD FOR AGAINST ABSTAIN
1. Election of Nominees: Paul S. Bachow 2. Amend the Company's Articles of / / / / / /
Directors: / / / / Barry H. Feinberg Incorporation to increase the number
Barry H. Frank of shares of authorized Common
To withhold authority for any Marvin Rounick Stock from 25,000,000 to 50,000,000
individual nominee(s), check the Jack A. Rounick shares.
box, and insert the nominee(s) Warren Weiner
name(s) on the line below: 3. In their discretion, on such other business as may
properly come before the Annual Meeting or any adjournment
FOR ALL EXCEPT or postponement thereof.
/ /_________________________________________________________ This Proxy when properly executed will be voted as
specified above. If not otherwise specified, this Proxy
will be voted FOR the election of the nominees of the Board
of Directors named in Item 1 and FOR approval of the
amendment of the Company's Articles of Incorporation as
described in Item 2.
SIGNATURE______________________________ DATE____________ SIGNATURE_______________________________ DATE_____________
Note: Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as an
attorney, executor, administrator, trustee or guardian, give the full title. If a corporation name by President or other
authorized officer. If a partnership, sign in partnership name by authorized persons.
</TABLE>
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
DEB SHOPS, INC.
9401 Blue Grass Road, Philadelphia, PA 19114
The undersigned hereby appoints Marvin Rounick and Warren Weiner, and each
of them, proxies with full power of substitution to vote all the shares of
Common Stock of Deb Shops, Inc., which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Shareholders to be held on May
19, 1999, at 10 A.M., local time, and at any adjournment or postponement
thereof, upon the following matters set forth in the notice of such meeting.
(To Be Signed on Reverse Side)
