<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(A) Of The Securities
Exchange Act Of 1934
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12 [ ]
Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
DESIGNS, 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>
DSN74B DETACH HERE
PROXY
DESIGNS, INC.
66 B STREET, NEEDHAM, MASSACHUSETTS 02494
This Proxy is solicited on behalf of the Board of Directors for the Annual
Meeting of Stockholders to be held on June 26, 2000.
The undersigned stockholder of Designs, Inc., hereby appoints David A. Levin and
Jeffrey M. Unger, and each of them, proxies, with full power of substitution to
each and to each substitute appointed pursuant to such power, to vote all shares
of Common Stock of the Company which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Stockholders of the Company to be
held on Monday, June 26, 2000, at the Sheraton Needham Hotel, 100 Cabot Street,
Needham, Massachusetts, and at any adjournment thereof, with all powers the
undersigned would possess if personally present, as set forth on the reverse
hereof, upon the matters set forth thereon and more fully described in the
Notice and Proxy Statement for such Annual Meeting, and, in their discretion,
upon all such other matters as may properly come before the Annual Meeting. The
undersigned hereby revokes all proxies, if any, hitherto given by the
undersigned to others for such Annual Meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
SEE REVERSE SIDE SEE REVERSE SIDE
<PAGE>
DSN74A DETACH HERE
[X]Please mark
votes as in
this example.
IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED IT WILL BE VOTED AS SPECIFIED
HEREIN. IF NO SPECIFIC DIRECTION IS GIVEN, IT WILL BE VOTED "FOR" THE ELECTION
OF THE DIRECTOR NOMINEES. RECEIPT IS HEREBY ACKNOWLEDGED OF THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT OF DESIGNS, INC. DATED MAY 30, 2000.
The Board of Directors recommends a vote "FOR" Items 1 and 2.
1. Election of Directors:
Nominees: (01) Seymour Holtzman, (02) David A. Levin, (03) Stanley I. Berger,
(04) Alan Cohen, (05) Jesse Choper, (06) Jeremiah P. Murphy,Jr.,
(07) Robert L. Patron, (08) Joseph Pennacchio, (09) George T. Porter, Jr.and
(10) John J. Schultz
____ ____
FOR | | WITHHELD| |
ALL NOMINEES|____| FROM ALL|____|
NOMINEES
____
| |
|____| ____________________________
For, except vote withheld from the nominee(s) as noted above.
2. To act upon the proposal to amend the Company's 1992 Stock Incentive Plan to
increase the number of shares available for issuance thereunder and to extend
the termination date of the 1992 Plan until April 2, 2007.
FOR AGAINST ABSTAIN
____ ___ ___
| | | | | |
|____| |___| |___|
__
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [__]
__
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [__]
IMPORTANT: Please sign your name or names exactly as printed on this proxy and
fill in the date next to your signature. If more than one person is named, each
must sign. When signing as attorney, executor, administrator, trustee or
guardian, give title as such. If the stockholder is a corporation, this proxy
should be signed by an authorized officer and such officer should state his/her
title.
Signature:_____________ Date:_________ Signature:______________ Date:__________
<PAGE> 2
DESIGNS, INC.
Notice of Annual Meeting of Stockholders
to be held on June 26, 2000
Notice is hereby given that the 2000 Annual Meeting of Stockholders of Designs,
Inc. (the "Company") will be held at the Sheraton Needham Hotel, 100 Cabot
Street, Needham, Massachusetts, 02494 at 10:00 A.M., local time, on Monday, June
26, 2000 for the following purposes:
1. To elect ten directors to serve until the next Annual
Meeting of Stockholders and until their respective
successors have been duly elected and qualified.
2. To act upon a proposal to amend the Company's 1992 Stock
Incentive Plan to increase the number of shares available
for issuance thereunder and to extend the termination date
of the 1992 Stock Incentive Plan until April 2, 2007.
3. To transact such other business as may properly come before
the Annual Meeting and any adjournment thereof.
The Board of Directors recommends that you vote FOR the election of all ten
nominees to serve as directors of the Company and FOR the proposal to amend the
Company's 1992 Stock Incentive Plan.
The Company's Annual Report on Form 10-K for the fiscal year ending January 29,
2000 is being mailed to stockholders along with the attached proxy statement.
The Board of Directors has fixed the close of business on May 15, 2000 as the
record date for the determination of the stockholders entitled to notice of, and
to vote at, the Annual Meeting. Accordingly, only stockholders of record at the
close of business on that date will be entitled to vote at the Annual Meeting. A
list of the stockholders of record as of the close of business on May 15, 2000
will be available for inspection by any stockholder of the Company for any
purpose germane to the Annual Meeting during normal business hours at the
Company's principal executive office, 66 B Street, Needham, Massachusetts,
02494, beginning on June 15, 2000 and at the Annual Meeting.
Stockholders are cordially invited to attend the Annual Meeting in person.
Whether or not you plan to attend the Annual Meeting, please mark, date, sign
and return the enclosed proxy to ensure that your shares are represented at the
Annual Meeting. Stockholders who attend the Annual Meeting may vote their shares
personally, even though they have sent in proxies.
By order of the Board of Directors,
JEFFREY M. UNGER
Assistant Secretary
Needham, Massachusetts
May 30, 2000
-----------------------------------------------------------------------------
IMPORTANT: Please mark, date, sign and return the enclosed proxy as soon as
possible. The proxy is revocable and it will not be used if you give written
notice of revocation to the Secretary of the Company at 66 B Street, Needham,
Massachusetts 02494, prior to the vote to be taken at the Annual Meeting, if you
lodge a later-dated proxy or if you attend and vote at the Annual Meeting.
------------------------------------------------------------------------------
<PAGE>
1
DESIGNS, INC.
66 B Street
Needham, Massachusetts 02494
(781) 444-7222
Proxy Statement
Annual Meeting of Stockholders
June 26, 2000
USE OF PROXIES
This Proxy Statement and the enclosed form of proxy are being mailed to
stockholders on or about May 30, 2000, in connection with the solicitation by
the Board of Directors of Designs, Inc. (the "Company") of proxies to be used at
the Annual Meeting of Stockholders, to be held on Monday, June 26, 2000, and at
any and all adjournments thereof (the "Annual Meeting"). When proxies are
returned properly executed, the shares represented will be voted in accordance
with the stockholders' direction. Stockholders are encouraged to vote on the
matters to be considered. However, if no choice has been specified by a
stockholder, the shares covered by an executed proxy will be voted as
recommended by management. Any stockholder may revoke such stockholder's proxy
at any time before it has been exercised by attending the Annual Meeting and
voting in person or by filing with the Secretary of the Company either an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date.
At the close of business on May 15, 2000, the record date for the Annual
Meeting, there was 16,441,251 shares of the Company's Common Stock, $0.01 par
value ("Common Stock") issued and outstanding. Each share is entitled to one
vote at the Annual Meeting. A plurality of the votes of shares of the Common
Stock properly cast is required to elect directors. No votes may be taken at the
Annual Meeting, other than a vote to adjourn, unless a quorum, consisting of a
majority of the shares of Common Stock outstanding as of the record date, is
present or represented at the Annual Meeting. Any stockholder who attends the
Annual Meeting may not withhold such stockholder's shares from the quorum count
by declaring such shares absent from the Annual Meeting. Shares voted to abstain
or to withhold as to a particular matter, or as to which a nominee (such as a
broker holding shares in street name for a beneficial owner) has no voting
authority in respect of a particular matter, shall be deemed present for quorum
purposes. Such shares, however, will not be deemed to be voting with respect to
election of directors and will not count as votes for or against such election.
Votes will be tabulated by the Company's transfer agent subject to the
supervision of persons designated by the Board of Directors as inspectors.
<PAGE>
ITEM 1
ELECTION OF DIRECTORS
The Board of Directors has determined, in accordance with the By-Laws of the
Company, as amended (the "By-Laws"), that the Board of Directors to be elected
at the Annual Meeting shall consist of ten members. There are ten nominees, each
of whom currently serves as a member of the Board of Directors of the Company,
to be elected to serve on the Board until the 2001 Annual Meeting of
Stockholders and until their respective successors have been duly elected and
qualified. Unless a proxy shall specify that it is not to be voted for a
nominee, it is intended that the shares represented by each duly executed and
returned proxy will be voted in favor of the election as directors of Seymour
Holtzman, David A. Levin, Stanley I. Berger, Jesse Choper, Alan Cohen, Jeremiah
P. Murphy, Jr., Robert L. Patron, Joseph Pennacchio, George T. Porter, Jr. and
John J. Schultz. Although management expects all nominees to accept nomination
and to serve if elected, proxies will be voted for a substitute if a nominee is
unable or unwilling to accept nomination or election.
Set forth below is certain information regarding the Company's nominees for
directors, including information furnished by them as to their principal
occupations and business experience for the past five years, certain
directorships held by each director, their respective ages as of May 15, 2000
and the year in which each became a director of the Company:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
--------- ------- -------------- ---------
<S> <C> <C> <C>
Seymour Holtzman.......... 63 Chairman of the Board and Director 2000
David A. Levin............ 49 President, Chief Executive Officer 2000
and Director
Stanley I. Berger.......... 70 Director 1976-1999
and 2000
Jesse Choper............... 64 Director 1999
Alan Cohen................. 63 Director 2000
Jeremiah P. Murphy, Jr.... 48 Director 1999
Robert L. Patron.....-..... 54 Director 1999
Joseph Pennacchio......... 53 Director 1999
George T. Porter, Jr....... 53 Director 1999
John J. Schultz............. 63 Director 1999
</TABLE>
The Board of Directors unanimously recommends that you vote FOR the election of
the ten individuals named above as directors of the Company.
Directors
Seymour Holtzman was appointed a director of the Company on April 7, 2000 and
Chairman of the Board on April 11, 2000. Mr. Holtzman is Chairman and Chief
Executive Officer of Jewelcor Management Inc.; C.D. Peacock, Inc., a prominent
Chicago, Illinois retail jewelry establishment; and S.A. Peck & Company, a
retail and mail order jewelry company. In addition, Mr. Holtzman served as
President and Chief Executive Officer of Jewelcor Incorporated (a formerly New
York Stock Exchange listed company) from 1973 to 1988. From 1986 to 1988, Mr.
Holtzman was Chairman and Chief Executive Officer of Gruen Marketing Corporation
(a formerly American Stock Exchange listed company), which distributed watches
nationwide and operated retail factory outlets. Mr. Holtzman is currently on the
Board of Directors of Little Switzerland, Inc. and Ambanc Holding Co., Inc.
David A. Levin was appointed President and Chief Executive Officer of
the Company on April 10, 2000 and a director of the Company on April 11,
2000. From 1999 to 2000, he served as the Executive Vice President of
eOutlet.com. Mr. Levin was President of Camp Coleman, a division of The
Coleman Company from 1998 to 1999. Prior to that, Mr. Levin was President of
Parade of Shoes, a division of J. Baker, Inc. from 1995 to 1997. In addition,
Mr. Levin was President of Prestige Fragrance & Cosmetics, a division of
Revlon, Inc. from 1991 to 1995. Mr.Levin has worked in the retail industry
for more than 29 years.
Stanley I. Berger is a founder of the Company and served as Chairman of the
Board from 1976 to 1999. Mr. Berger also served as the Company's Chief
Executive Officer from January 1993 until December 1994. Prior to January
1993, Mr. Berger served as the President and Chief Operating Officer of the
Company since 1977. Mr. Berger has been a director of the Company since its
inception, except for the period between October 8, 1999 and April 11,
2000.
Alan Cohen was appointed as a director of the Company on May 2, 2000.
Mr. Cohen has been Chairman of Alco Capital Group, which specializes in
corporate restructuring, reorganizations, and other turnaround situations,
since 1975. Currently he serves as the court appointed trustee of County Seat
Stores, Inc., a nation-wide chain of specialty apparel stores. Mr. Cohen is
also on the Board of Directors of Ames Department Stores, Inc.
Jesse Choper was elected a director of the Company on October 8, 1999. Mr.
Choper is the Earl Warren Professor of Public Law at the University of
California at Berkeley School of Law where he has taught since 1965. From 1960
to 1961 Professor Choper was a law clerk for Supreme Court Chief Justice Earl
Warren.
Jeremiah P. Murphy, Jr. was elected a director of the Company on October 8,
1999. Mr. Murphy has been the President of the Harvard Cooperative Society,
a 177-year-old member based retail business, since 1991. From 1987 to 1991,
Mr. Murphy was Vice-President/General Manager of Neiman Marcus' largest and
most profitable store, North Park, Dallas, Texas.
Robert L. Patron was elected a director of the Company on October 8, 1999.
Mr. Patron is a lawyer and successful real estate developer. Over the last 30
years, Mr. Patron has developed 65 commercial and residential properties in 13
states.
Joseph Pennacchio was elected a director of the Company on October 8, 1999.
Mr. Pennacchio has been President of Aurafin LLC, a privately held jewelry
manufacturer and wholesaler, since 1997. From May 1994 to May 1996, Mr.
Pennacchio was President of Jan Bell Marketing, a $250 million jewelry retailer,
which is listed on the American Stock Exchange. Mr. Pennacchio was also
President of Jordan Marsh Department Stores from 1992 to 1994.
George T. Porter, Jr. was appointed a director of the Company on October 28,
1999. Mr. Porter was President of Levi's USA for Levi Strauss & Co. from 1994
to 1997. Since 1974, Mr.Porter held various positions at Levi Strauss & Co.,
including President of Levi's Men's Jeans Division. Mr. Porter was also
Corporate Vice President, General Manager, Nike USA from 1997 to 1998.
John J. Schultz was elected a director of the Company on October 8, 1999.
Mr. Schultz served as the Company's interim President and Chief Executive
Officer from October 20, 1999 until April 10, 2000. Mr. Schultz has more than
thirty-five years of retail experience and has been an active consultant to the
retail industry since 1983. Mr. Schultz served as President of the National
Retail Federation, a leading retail industry trade association from 1991 to
1995.
All directors hold office until the next Annual Meeting of Stockholders and
until their respective successors have been duly elected and qualified.
Executive Officers
Daniel O. Paulus, 52, has been Senior Vice President, General Merchandise
Manager since February 4, 2000. Mr. Paulus joined the Company in 1998 after
operating The Designs/OLS Partnership for 4 years. The Designs/OLS Partnership
was a joint venture between subsidiaries of the Company and Levi Strauss & Co.
The Company was a 70% partner in the joint venture.
Kenneth F. Rogers Jr., 52, has been Senior Vice President, Chief Financial
Officer and Treasurer since February 4, 2000. Mr. Rogers joined the Company as
its Vice President and Special Assistant to the Chief Executive Officer in
November 1999. Prior to joining the Company, from 1982 through May 1999, Mr.
Rogers held the position of Chief Financial Officer, Vice President and Director
with Leejay, Inc. D/B/A Boston Bed and Bath, a regional operator of better linen
and domestic specialty stores.
Executive officers serve at the discretion of the Board of Directors.
Board of Directors and Committee Meetings
The Board of Directors met thirteen times during the Company's fiscal year ended
January 29, 2000 ("fiscal year 2000"). At the 1999 Annual Meeting of
Stockholders on October 8, 1999, the Company's stockholders voted not to
re-elect any members of the Board who had served during the first eight months
of fiscal year 2000. Of these prior directors, Messrs. Berger, Joel H. Reichman,
James G. Groninger, and Peter L. Thigpen attended all nine meetings which were
held during their tenure on the Board. Messrs. Melvin I. Shapiro and Bernard M.
Manuel attended eight meetings during their tenure. The new Board of Directors
held four meetings during fiscal year 2000 after their election at the October
8, 1999 Annual Meeting. Messrs. Pennacchio, Schultz, Murphy, Patron and Choper
attended all four meetings. Messrs. Porter and James Mitarotonda, who later
resigned from the Board, were elected to the Board on October 28, 1999 and
attended both meetings held after their appointment to the Board.
Because the stockholders of the Company voted not to re-elect any of the
Company's former directors on October 8, 1999, the Company had two groups of
Committee members for all Committees during fiscal year 2000. Prior to October
8, 1999, the Board of Directors had an Audit Committee consisting of Messrs.
Berger, Groninger, Shapiro, and Thigpen, a Compensation Committee consisting of
Messrs. Groninger, Manuel and Thigpen, a Corporate Governance Committee
consisting of Messrs. Berger, Groninger, Manuel, Shapiro and Thigpen, and a
Special Committee consisting of Messrs. Groninger, Thigpen and Manuel. After
October 8, 1999, the new Board of Directors had an Audit Committee consisting of
Messrs. Choper, Murphy and Mitarotonda, a Compensation Committee consisting of
Messrs. Choper and Pennacchio, a Corporate Governance Committee consisting of
Messrs. Pennacchio, Schultz and Murphy, and a Real Estate Committee consisting
of Messrs. Patron, Schultz and Murphy. None of the Committees as constituted
after October 8, 1999, held any formal meetings in fiscal year 2000.
The Audit Committee meets periodically with management and the Company's
independent accountants to review matters relating to the Company's financial
reporting, the adequacy of internal accounting controls and the scope and
results of audit work. The Audit Committee as constituted prior to October 8,
1999 met two times during fiscal year 2000. Messrs. Berger, Groninger, Shapiro
and Thigpen attended both of those meetings of the Audit Committee.
The Compensation Committee meets periodically to review executive and employee
compensation and benefits (including stock-based compensation awards under the
1992 Stock Incentive Plan), supervises benefit plans and makes recommendations
regarding them to the Board of Directors. The Compensation Committee met two
times during fiscal year 2000 and all members attended all of the meetings
during their tenure on the Compensation Committee.
The Corporate Governance Committee is responsible for performing functions
related to governance of the Company, including, but not limited to, planning
for the succession and promotion of executive officers of the Company,
nominating individuals for election to the Board of Directors and establishing,
coordinating and maintaining the Company's corporate compliance programs. The
Corporate Governance Committee met once during fiscal year 2000. Messrs. Berger,
Groninger, Manuel, Shapiro and Thigpen attended that Corporate Governance
Committee meeting.
The Corporate Governance Committee is responsible for reviewing the nomination
of individuals for election to the Board of Directors by stockholders of the
Company. Any stockholder wishing to nominate an individual for election to the
Board of Directors must send a letter to the Secretary of the Company stating
the name and qualifications of the proposed nominee. The letter must be received
by the Company within the time limits set by, and must in all other respects
comply with, Section 4.16 of the Company's By-Laws in order for the proposed
nominee to be considered for election to the Board of Directors. Any stockholder
who has complied with the timing, informational and other requirements set forth
in Section 4.16 and who seeks to make such a nomination, or such stockholder's
representative, must be present in person at the Annual Meeting of Stockholders
of the Company at which such nominee's election is to be considered.
The Special Committee of the Board was created on December 11, 1998 for the
purpose of managing the process of seeking a buyer of the Company and to review
any and all proposals for the Company. The Special Committee met thirty-four
times during fiscal 2000 prior to the vote by stockholders not to re-elect the
former directors on October 8, 1999. Messrs. Groninger and Thigpen attended all
thirty-four meetings, while Mr. Manuel attended twenty-three meetings. Such
Special Committee is no longer in existence.
Audit Committee
On December 14, 1999, the Securities and Exchange Commission (the "Commission")
adopted new rules designed to improve disclosure relating to the functioning of
audit committees and to enhance the reliability and creditability of financial
statements of public companies. On April 11, 2000, the Board of Directors
appointed Mr. Joseph Pennacchio to the Audit Committee to replace Mr. James
Mitarotonda, who resigned from the Board of Directors on April 4, 2000. In
accordance with these new rules, the Audit Committee, comprised of Mr. Jesse
Choper, Chairman, Mr. Joseph Pennacchio and Mr. Jeremiah P. Murphy Jr., approved
on May 12, 2000 a written charter for the committee. The Company is required to
attach a copy of the charter every three years, effective for all proxy
statements relating to meetings of stockholders held after December 15, 2000. A
copy of the Charter of the Audit Committee is attached to this Proxy Statement
as Exhibit A. In addition, the three members of the Committee are "independent"
as defined by the standards of The Nasdaq Stock Market ("Nasdaq").
Compensation Committee Interlocks and Insider Participation
James G. Groninger, Bernard M. Manuel and Peter L. Thigpen served on the
Compensation Committee during fiscal year 2000 until they were not re-elected as
directors by the Company's stockholders on October 8, 1999. Thereafter, the
Compensation Committee consisted of Messrs. Choper and Pennacchio. Persons
serving on the Compensation Committee had no relationships with the Company in
fiscal year 2000 other than their relationship to the Company as directors
entitled to the receipt of standard compensation as directors and members of
certain committees of the Board and their relationship to the Company as
beneficial owners of shares of Common Stock and options exercisable for shares
of Common Stock. No person serving on the Compensation Committee or on the Board
of Directors is an executive officer of another entity for which an executive
officer of the Company serves on such entity's board of directors or
compensation committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's executive officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities (collectively, the "Reporting Persons"), to file
reports of ownership and changes in ownership with the Commission. The Reporting
Persons are required to furnish the Company with copies of all Section 16(a)
reports they file. Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to the Company during fiscal year 2000 and Forms 5 and
amendments thereto furnished to the Company with respect to fiscal year 2000,
the Company believes that the current Reporting Persons complied with all
applicable Section 16(a) reporting requirements and all required reports were
filed in a timely manner.
Executive Compensation
Summary Compensation Table. The following Summary Compensation Table sets forth
certain information regarding compensation paid or accrued by the Company with
respect to the Chief Executive Officer, the Chief Financial Officer and the
General Merchandise Manager of the Company as of January 29, 2000 and for the
three former executive officers of the Company, including Joel H. Reichman,
former Chief Executive Officer, who resigned in October 1999, Scott N. Semel,
former General Counsel, who resigned in January 2000, and Carolyn R. Faulkner,
former Chief Financial Officer, who resigned in January 2000 (collectively, the
"Named Executive Officers"), for fiscal year 2000 and the fiscal years ended
January 30, 1999 ("fiscal year 1999") and January 31, 1998 ("fiscal year 1998").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Name and Annual Compensation
Principal Position Fiscal Compensation Awards All Other
(at January 29, 2000) Year Salary Bonus Options Compensation(1)
--------------------- ---- ------ ----- ------- ---------------
<S> <C> <C> <C> <C> <C>
John J. Schultz 2000 $ 58,000 $ -0- 30,000 $ -0-
Interim President and
Chief Executive Officer (2)
Kenneth Rogers 2000 $ 28,269 $ -0- -0- $ 42
Senior Vice President,
Chief Financial Officer and Treasurer
Dan O. Paulus 2000 $233,700 $ 70,000 -0- $ 3,540
Senior Vice President and
General Merchandise Manager
Joel H. Reichman 2000 $358,324(3) $ -0- -0- $ 2,815
Former President and 1999 $375,000 $ -0- 270,000 $ 3,671
Chief Executive Officer 1998 $375,000 $ -0- 40,000 $ 3,621
Scott N. Semel 2000 $294,471 $ -0- -0- $ 3,134
Former Executive Vice President, 1999 $290,000 $ -0- 150,000 $ 3,566
General Counsel and Secretary 1998 $290,000 $ -0- 40,000 $ 3,472
Carolyn R. Faulkner 2000 $218,508 $ -0- -0- $ 3,018
Former Vice President, Chief Financial 1999 $210,000 $ -0- 80,000 $ 3,497
Officer and Treasurer 1998 $210,000 $ -0- 5,000 $ 3,453
</TABLE>
---------------
(1) The amounts disclosed in this column covering fiscal year 2000 represent:
(i) payments by the Company of insurance premiums for term life insurance
for the benefit of the executive officers (Mr. Schultz $0, Mr. Rogers $42
and Mr. Paulus $324) and former executive officers (Mr. Reichman $480; Mr.
Semel $419, and Mrs. Faulkner $303); (ii) matching contributions made by
the Company for the benefit of each of the following Named Executive
Officers to the Company's retirement plan (the "401(k) Plan") established
pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), (Mr. Paulus $3,216, Mr. Reichman $2,335, Mr.
Semel $ 2,715 and Mrs. Faulkner $ 2,715); and (iii) severance benefits to
Mr. Reichman, Mr. Semel and Mrs. Faulkner under the terms of their
Severance Agreements with the Company (described below), which are dated
January 13, 2000, January 20, 2000, and January 15, 2000, respectively,
pursuant to which Severance Agreements, bi-weekly payments will be made to
the executives until November 9, 2001 for Mr. Reichman, November 9, 2001
for Mr. Semel and December 7, 2001 for Mrs. Faulkner; in fiscal year 2000,
the Company established reserves to meet the obligations under the
Severance Agreements for the three former executives. For fiscal year 2000,
no payments were made under these respective Severance Agreements.
(2 Mr. Schultz acted in the position of interim President and Chief Executive
Officer from October 20, 1999 until April 10, 2000.
(3) Includes payment for vacation time not taken in the amount of $42,314.
Option Grants Table. The following Option Grants Table sets forth certain
information as of January 29, 2000, regarding stock options granted during
fiscal year 2000 by the Company to the Named Executive Officers.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value of Assumed
Number of Percent of Annual Rates of
Shares of Common Stock Total Options Stock Price
Underlying Granted Exercise Appreciation for
Options Granted to Employees in Price Per Expiration Option Term (2)
Fiscal Year Share Date 5% 10%
------------- -------------- ------- ------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
John J. Schultz(1) 30,000 100% $1.297 10/28/09 $ 24,470 $ 62,013
</TABLE>
---------------
(1) Options were granted to Mr. Schultz pursuant to his consulting agreement.
The options granted are non-qualified and were granted outside of the 1992
Stock Incentive Plan.
(2) The amounts shown on these columns represent hypothetical gains that could
be achieved for the options if exercised at the end of the option term.
These gains are based on assumed rates of stock appreciation (based on a
market value on the date of the grant of $1.297 per share for Mr. Schultz's
options) of 5% and 10% compounded annually from the date the options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock and the
date on which the options are exercised.
401(k) Plan
On January 27, 1993, the Board of Directors adopted the 401(k) Plan. All
eligible employees of the Company are entitled to participate in such plan. The
401(k) Plan permits each participant to defer up to fifteen percent of such
participant's annual salary up to a maximum annual amount ($10,500 in calendar
years 1998 and 1999). The Board of Directors of the Company may determine, from
fiscal year to fiscal year, whether and to what extent the Company will
contribute to the 401(k) Plan by matching contributions made to such plan by
eligible employees. During fiscal year 2000, the matching contribution by the
Company continued to be 50% of contributions by eligible employees up to a
maximum of six percent of salary.
Senior Executive Incentive Plan
The Company's Senior Executive Incentive Plan (the "SEIP") was initially adopted
by the Board of Directors of the Company during the fiscal year 1996. The SEIP
is an incentive compensation plan under which executive officers of the Company
may be eligible to receive annual cash bonus payments. For a more complete
description of the SEIP, please refer to the "Compensation Policies" portion of
the Compensation Committee Report set forth below.
Key Man Insurance
The Company had obtained a key man life insurance policy in the amount of
$2,000,000 on the life of Mr. Reichman. However, the policy was cancelled when
Mr. Reichman resigned in October 1999.
Employment Agreement
The Company entered into an employment agreement ("Employment Agreement"),
effective as of March 31, 2000, with David A. Levin for a two-year term ending
March 31, 2002. The Employment Agreement will automatically renew for successive
one-year terms unless either party notifies the other to the contrary at least
90 days prior to expiration of the then current term. The Employment Agreement
requires Mr. Levin to devote substantially all of his time and attention to the
business of the Company as necessary to fulfill his duties. Pursuant to the
Employment Agreement, Mr. Levin will be paid a base salary at an annual rate of
$375,000 for the two-year term. The Employment Agreement provides that the
annual rate of base salary for the renewal term may be increased by the
Compensation Committee of the Board of Directors in its sole discretion. The
Employment Agreement also provides for the payment of bonuses in such amounts as
may be determined by the Compensation Committee. While Mr. Levin is employed by
the Company, the Company will provide him an automobile allowance in the amount
of $600.00 per month. He is entitled to vacation and to participate in and
receive any other benefits customarily provided by the Company to its senior
executives (including any bonus, retirement, short and long-term disability
insurance, major medical insurance and group life insurance plans in accordance
with the terms of such plans), including stock option plans, all as determined
from time to time by the Compensation Committee.
The Employment Agreement provides that in the event Mr. Levin's employment is
terminated by the Company at any time for any reason other than "justifiable
cause" (as defined in the Employment Agreement), disability or death, the
Company is required to pay executive the lesser of (1) the base salary for the
remaining term of the Employment Agreement or (2) an amount equal to one half of
Mr. Levin's annual salary. If the remaining term of the Employment Agreement on
the date of termination is more than six months, Mr. Levin must make a good
faith effort to find new employment and mitigate damages, costs and expenses to
the Company. If he is terminated without justifiable cause within one year after
a Change of Control of the Company (as defined in the Employment Agreement) has
occurred, Mr. Levin shall receive a lump sum payment in the amount of (1) the
base salary for the remaining term of the Employment Agreement or (2) an amount
equal to the current base salary for one year. The Employment Agreement contains
confidentiality provisions pursuant to which Mr. Levin agrees not to disclose
confidential information regarding the Company. The Employment Agreement also
contains covenants pursuant to which the Mr. Levin agrees, during the term of
his employment and for a one-year period following the termination of his
employment, not to have any connection with any business which competes with the
business of the Company.
For purposes of the Employment Agreement, a "Change in Control of the Company"
shall mean (i) any sale of all or substantially all of the assets of the Company
to any person or group of related persons within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended ("Group"), (ii) any acquisition
by any person or Group of shares of capital stock of the Company representing
more than 50% of the aggregate voting power of the outstanding capital stock of
the Company entitled under ordinary circumstances to elect the directors of the
Company ("Voting Stock") or (iii) any replacement of a majority of the Board of
Directors of the Company over the twelve-month period following the acquisition
of shares of the capital stock of the Company representing more than 10% of the
Voting Stock by any person or Group which does not currently own more than 10%
of such Voting Stock (unless such replacement shall have been approved by the
vote of the majority of the directors then in office who either were members of
the Board of Directors at the beginning of such twelve-month period or whose
elections as directors were previously so approved).
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following named persons were the only persons or entities believed
by the Company to be the beneficial owners of more than five percent of the
issued and outstanding shares of Common Stock as of May, 15, 2000. The Company
is informed that, except as indicated, all of them have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned of Class (1)
------------------------------------------ ------------------ -----------
<S> <C> <C>
Jewelcor Management, Inc................. 2,464,671 (2) 14.99%
100 N. Wilkes Barre Blvd.
Wilkes Barre, Pa. 18702
Grace & White, Inc....................... 1,954,457 (3) 11.89%
515 Madison Avenue
New York, New York 10022
Franklin Resources, Inc.................. 1,870,000 (4) 11.37%
777 Mariners Island Boulevard
San Mateo, California 94403
Stanley I. Berger........................ 968,994 5.89%
100 Essex Road
Chestnut Hill, Massachusetts 02467
</TABLE>
--------------
(1) As of May 15, 2000, 16,441,251 shares of Common Stock were issued and
outstanding.
(2) The Company received an Amendment No. 24 to Schedule 13D dated April 11,
2000, stating that Jewelcor Management Inc. ("JMI") was the beneficial
owner of the number of shares of Common Stock set forth opposite its name
in the table. As of such date, JMI had sole voting and dispositive power
with respect to 2,464,671 of those shares, within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
(3) The Company received an Amendment No. 2 to the Schedule 13G dated February
7, 2000, stating that Grace & White, Inc. ("Grace & White") was the
beneficial owner of the number of shares of Common Stock set forth opposite
its name in the table. The report on Schedule 13G indicates that at
December 31, 1999 Grace & White had sole voting power with respect to
183,000 shares and that Grace & White may be deemed to beneficially own,
within the meaning of Rule 13d-3 of the Exchange Act, 1,954,457 shares over
which it had sole dispositive power. In the past, Grace & White indicated
that the shares were acquired in the ordinary course of investment advisory
business and not with the purpose of changing or influencing the control of
the Company.
(4) The Company received an Amendment No. 2 to Schedule 13G dated January 20,
2000 and filed jointly by Franklin Resources, Inc. ("Franklin"), Franklin
Advisor Services, Inc. ("FASI"), Charles B. Johnson and Rupert H. Johnson,
Jr. FASI is an investment advisor; Franklin is the parent holding company
of FASI; and Charles B. Johnson and Rupert H. Johnson, Jr. each own in
excess of 10% of the outstanding stock and are principal stockholders of
Franklin. The report on Schedule 13G states that Franklin has sole voting
and sole dispositive power over 1,870,000 shares as of January 19, 2000.
The report further states that the shares were beneficially owned by one or
more open or closed-end investment companies or other managed accounts
which are advised by direct or indirect investment adviser subsidiaries of
Franklin. In the past, Franklin indicated that the shares were acquired in
the ordinary course of investment advisory business and not with the
purpose of changing or influencing the control of the Company.
Security Ownership of Management
As of May 15, 2000, the following directors of the Company, executive officers
of the Company and the three former executive officers of the Company named in
the Summary Compensation Table set forth below, and such directors, executive
officers and former executive officers as a group, were the beneficial owners of
the indicated number of issued and outstanding shares of Common Stock. Except as
indicated, all of them have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Title Beneficially Owned Of Class (1)
--------------------------------------- ------------------------ ---------------
<S> <C> <C>
Seymour Holtzman 2,464,671 (2) 14.99%
Chairman of the Board and Director
David A. Levin -- --
Chief Executive Officer, President and Director
John J. Schultz 35,635 (3) *
Director and former interim President
and Chief Executive Officer
Kenneth F. Rogers, Jr. -- --
Senior Vice President, Chief Financial Officer
and Treasurer
Daniel O. Paulus 30,000 *
Senior Vice President
and General Merchandising Manager
Stanley I. Berger 968,994 5.89%
Director
Jesse Choper 20,399 *
Director
Alan Cohen -- --
Director
Jeremiah P. Murphy, Jr. 15,429 *
Director
Robert L. Patron 285,819 (4) 1.74%
Director
Joseph Pennacchio 13,236 *
Director
George T. Porter, Jr. 37,038 (5) *
Director
Joel H. Reichman 45,955 (6) *
Former President, Chief Executive Officer
and Director
Scott N. Semel 38,037 (7) *
Former Executive Vice President, General Counsel
and Secretary
Carolyn R. Faulkner 13,000 (8) *
Former Vice President, Chief Financial Officer
and Treasurer
Directors, Executive Officers and former
Executive Officers as a group (13 persons) 3,938,213 23.95%
</TABLE>
---------------
* Less than 1%
(1) As of May 15, 2000, 16,441,251 shares of Common Stock were issued and
outstanding.
(2) Mr. Holtzman may be deemed to have shared voting and investment power over
2,464,671 shares of Common Stock beneficially owned by JMI, of which Mr.
Holtzman is the Chairman, President and Chief Executive Officer.
(3) Includes 30,000 shares subject to stock options exercisable within 60 days.
(4) Includes 30,000 shares subject to stock options exercisable within 60 days
held by Business Ventures International, Inc. Mr. Patron is the sole owner
of Business Ventures International, Inc.
(5) Includes 30,000 shares subject to stock options exercisable within 60 days.
(6) Mr. Reichman's employment with the Company and services as an officer ended
on October 20, 1999. Includes 280 shares owned by Mr. Reichman's wife and
427 shares owned by Mr. Reichman's children, as to which 707 shares Mr.
Reichman disclaims beneficial ownership.
(7) Mr. Semel's employment with the Company and services as an officer ended on
January 20, 2000. Includes 450 shares owned by Mr. Semel's daughter, as to
which he disclaims beneficial ownership.
(8) Ms. Faulkner's employment with the Company and services as an officer ended
on January 15, 2000. Includes 12,000 shares beneficially owned by Mrs.
Faulkner's husband, as to which she disclaims beneficial ownership.
Director Compensation
During fiscal year 2000, non-employee directors of the Company were paid $3,000
plus expenses for each meeting of the Board of Directors in which they
participated. During fiscal year 2000, non-employee directors of the Company
were paid, in addition to reimbursement of expenses, for meetings of committees
of the Board in which they participated as follows: $3,000 for each Compensation
Committee meeting; $3,000 for each Special Committee meeting, $1,500 for each
Audit Committee meeting; and $1,500 for each Corporate Governance Committee
meeting. During fiscal year 2000, non-employee directors of the Company were
also eligible to participate in the Company's 1992 Stock Incentive Plan, as
amended (the "1992 Stock Incentive Plan"). Prior to January 20, 2000, under the
provisions of the 1992 Stock Incentive Plan, each non-employee director of the
Company who was elected by the stockholders to the Board would automatically be
granted, upon such election, a stock option to purchase 10,000 shares of Common
Stock at the fair market value of Common Stock on the date of grant. Each
non-employee director of the Company who was re-elected by the stockholders to
the Board would be granted, upon such re-election, a stock option to purchase
3,000 shares of Common Stock at the then fair market value of Common Stock. On
January 20, 2000, the Board of Directors amended the plan to provide for the
grant to each non-employee director of the Company a stock option to purchase
15,000 shares of Common Stock upon such director's election and a stock option
to purchase 15,000 shares of Common Stock upon such director's re-election. The
1992 Stock Incentive Plan further provides that each of such stock options
becomes exercisable in three equal annual installments commencing twelve months
following the date of grant and has a ten-year term. The 1992 Stock Incentive
Plan also provides that non-employee directors of the Company may elect to
receive all or a portion of their directors' fees, on a current or deferred
basis, in shares of Common Stock that are free of any restrictions under the
1992 Stock Incentive Plan ("Unrestricted Stock") by entering into an irrevocable
agreement with the Company in advance of the beginning of a calendar year.
ITEM 2
PROPOSAL TO AMEND THE COMPANY'S 1992 STOCK INCENTIVE PLAN
TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE THEREUNDER
AND TO EXTEND THE 1992 STOCK INCENTIVE PLAN'S
DATE OF TERMINATION UNTIL APRIL 2, 2007
On May 19, 2000, the Board of Directors approved an amendment to the Company's
1992 Stock Incentive Plan ("the 1992 Plan") which, if approved by Stockholders,
would increase the number of shares authorized for issuance thereunder from
2,430,000 shares to 4,430,000 shares and to extend the date of termination of
the 1992 Plan from April 2, 2002 until April 2, 2007.
The 1992 Plan is administered by the non-employee director members of the
Compensation Committee or any other committee of not less than two non-employee
directors performing similar functions, as appointed by the Company's Board of
Directors from time to time (the "Committee"), and permits the granting to
officers and key employees, at the discretion of such Committee, of a variety of
stock incentive awards based on the Common Stock of the Company. Awards under
the 1992 Plan include stock options (both incentive options and non-qualified
options), grants of conditioned stock, grants of stock contingent upon the
attainment of performance goals, and unrestricted grants of stock. Non-employee
directors are also eligible to participate in the 1992 Plan on a limited basis.
Effective May 1, 1991, the Commission substantially amended its rules governing
short-swing profit recapture under Section 16 of the Securities Exchange Act of
1934, as amended. Section 16, which applies to directors, officers and
greater-than-10%-stockholders of the Company, provides that any profit resulting
from the purchase and sale, or sale and purchase, of the Company's Common Stock
within a six-month period is recoverable by the Company. Under the amended
rules, the grant of a stock option or other award under the 1992 Plan will,
unless exempt pursuant to Rule 16b-3, be treated as a purchase of the underlying
stock, while the exercise of a stock option will normally be exempt and not
treated as a purchase. The 1992 Plan is intended to conform to the requirements
of amended Rule 16b-3 and if the proposed amendments are approved by
Stockholders, the 1992 Plan will continue to qualify thereunder.
The Board of Directors believes that stock options and other stock based awards
can play an important role in the success of the Company, by encouraging and
enabling the officers, key employees and directors of the Company upon whose
judgment, initiative and efforts the Company largely depends for the successful
conduct of its business to acquire a proprietary interest in the Company. The
Company is located in Boston, Massachusetts and is competing with many start-up
ventures that grant large number of stock options as a means to recruit highly
skilled employees. The Board of Directors anticipates that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of the interests of employees with those of the Company and its
stockholders. Thereby stimulating employees efforts on the Company's behalf and
strengthening their desire to remain with the Company. However, as a May 19,
2000, there are only 1,087,214 remaining shares available for grant.
The Board of Directors believes that the proposed amendment to the 1992 Plan,
will provide a greater range of stock based incentive awards and permit greater
flexibility in the terms of such awards then are currently available.
Accordingly, the Board of Directors recommends that shareholders approve an
increase in the number of authorized shares under the 1992 Plan by 2,000,000 to
a total of 4,230,000 shares and extend the termination date of the 1992 Plan
from April 2, 2002 to April 2, 2007.
Approval of the amendments to the 1992 Plan requires the affirmative vote of a
majority of the outstanding shares of Common Stock present in person or
represented by proxy at the Annual Meeting.
The Board of Directors unanimously recommends that you vote FOR the amendments
to the 1992 Plan to increase the number of shares available in the 1992 Plan and
to extend the 1992 Plan's expiration date.
Summary of the 1992 Plan
The following description of certain features of the 1992 Plan is intended to be
a summary only. The summary is qualified in its entirety by the full text of the
1992 Plan. The Company will furnish without charge a copy of the 1992 Plan to
any stockholder of the Company upon receipt from any such person of an oral,
written or e-mail request for the Plan. Such request should be sent to the
Company at Designs, Inc. 66 B Street, Needham, Massachusetts 02494, or made by
telephone at (781) 444-7222 ext. 6299 or by e-mail at [email protected].
Plan Administration; Eligibility. The 1992 Plan is administered by the
Compensation Committee. All members of the Committee must be "disinterested
persons" as that term is defined under the rules promulgated by the Commission.
The Committee has full power to select, from among the employees eligible for
awards, the individuals to whom awards will be granted, to make any combination
of awards to participants, and to determine the specific terms of each award,
subject to the provisions of the 1992 Plan. Persons eligible to participate in
the 1992 Plan will be those employees of the Company and its subsidiaries who
are responsible for or contribute to the management, growth or profitability of
the Company and its subsidiaries, as selected from time to time by the
Committee. Non-employee directors are also eligible to participate in the 1992
Plan on a limited basis.
Stock Options for Employees. The 1992 Plan permits the granting of (i) options
to purchase Common Stock intended to qualify as incentive stock options
("Incentive Options") under Section 422 of the Internal Revenue Code, and (ii)
options that do not so qualify ("Non-Qualified Options"). The option exercise
price of each option shall be determined by the Committee but shall not be less
than 100% of the fair market value of the shares on the date of grant in the
case of Incentive Options and not be less than 85% of the fair market value of
the shares on the date of grant in the case of Non- Qualified Options.
The term of each option shall be fixed by the Committee and may not exceed 10
years from date of grant in the case of an Incentive Option. The Committee shall
determine at what time or times each option may be exercised and, subject to the
provisions of the 1992 Plan, the period of time, if any, after death, disability
or termination of employment during which options may be exercised. Options may
be made exercisable in installments, and the exercisability of options may be
accelerated by the Committee. In general, no stock option may be exercisable
until at least six months after the date of grant.
Upon exercise of options, the option exercise price must be paid in full either
in cash or by certified or bank check or other instrument acceptable to the
Committee or, if the Committee so permits, by delivery of shares of Common Stock
already owned by the optionee. The exercise price may also be delivered to the
Company by a broker pursuant to irrevocable instruction to the broker from the
optionee.
At the discretion of the Committee, options granted under the 1992 Plan may
include a so-called "reload" feature pursuant to which an optionee exercising an
option by delivery of shares of Common Stock may be automatically granted an
additional option to purchase that number of shares equal to the number
delivered to exercise the original option.
To qualify as Incentive Options, options must meet additional federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one year, and a shorter term and
higher minimum exercise price in the case of certain large stockholders.
Stock Options for Non-Employee Directors. Under the 1992 Plan, all directors of
the Company who are not employees of the Company and who are initially elected
to the Board of Directors on or after the approval of the 1992 Plan by the
stockholders shall automatically be granted at such election a Non-Qualified
Option to purchase 10,000 shares of Common Stock. Upon re-election of any
non-employee director on or after the date of approval of the 1992 Plan by the
stockholders, such non-employee director will automatically be granted a
Non-Qualified Option to purchase 3,000 shares of Common Stock. The exercise
price per share of each option will be equal to the fair market value of the
shares of Common Stock on the date the option is granted. In general, options
granted to non-employee directors will become exercisable over a three-year
period after the date of grant, and no such option will be exercisable during
the first year after its grant. In November 1999, the Board of Directors amended
the 1992 Plan to provided a grant of 15,000 options upon election and automatic
grant of 15,000 options upon re-election.
Conditioned Stock. The Committee may also award shares of Common Stock to
officers and key employees subject to such conditions and restrictions as such
Committee may determine ("Conditioned Stock"). These conditions and restrictions
may include the achievement of certain performance objectives and/or continued
employment with the Company through a specified restricted period. The purchase
price, if any, of shares of Conditioned Stock shall be determined by the
Committee.
If a participant who holds shares of Conditioned Stock terminates employment for
any reason (including death) prior to the achievement of certain performance
objectives and/or prior to the end of the restricted period applicable to such
Conditioned Stock, the Company shall have the right to repurchase the shares or
to require their forfeiture in exchange for the amount, if any, which the
participant paid for them. Prior to the fulfillment of the applicable
conditions, the participant will have all rights of a stockholder with respect
to the shares of Conditioned Stock, including voting and dividend rights,
subject only to the conditions and restrictions set forth in the 1992 Plan or in
his Conditioned Stock award.
Unrestricted Stock. The Committee may also grant shares (at no cost or for a
purchase price determined by the Committee) which are free from any restrictions
under the 1992 Plan ("Unrestricted Stock"). Unrestricted Stock may be issued to
employees in recognition of past services or other valid consideration, and may
be issued in lieu of cash bonuses to be paid to employees pursuant to other
bonus plans of the Company. Non-employee directors of the Company may elect to
receive all or a portion of their directors' fees, on a current or deferred
basis, in shares of Unrestricted Stock by entering into an irrevocable agreement
with the Company at least six months in advance of the beginning of a calendar
year. Employees, with the permission of the Committee, may make similar
irrevocable elections to receive a portion of their compensation in Unrestricted
Stock.
Performance Share Awards. The Committee may also grant a performance share award
to employees entitling the recipient to receive shares of Common Stock upon the
achievement of individual or Company performance goals and such other conditions
as the Committee shall determine ("Performance Share Award"). Except as
otherwise determined by the Committee, rights under a Performance Share Award
not yet earned will terminate upon a participant's termination of employment.
Deferrals; Nature of Company's Obligations Under the 1992 Plan. The Committee
may require or may permit participants to make elections to defer receipt of
benefits under the 1992 Plan. The Committee may also provide for the accrual of
interest or dividends on benefits deferred under the 1992 Plan on such terms as
the Committee may determine. Unless the Committee expressly determines
otherwise, participants in the 1992 Plan will have no rights greater than those
of a general creditor of the Company. The Committee may authorize the creation
of trusts and other arrangements to meet the Company's obligations under the
1992 Plan, provided that such trusts and arrangements are consistent with the
foregoing sentence.
Adjustments for Stock Dividends, Mergers, Etc. The Committee shall make
appropriate adjustments in connection with outstanding awards to reflect stock
dividends, stock splits and similar events. In the event of a merger,
liquidation or similar event, the Committee in its discretion may provide for
substitution or adjustments or may (subject to the provisions described below
under "Change of Control Provisions") accelerate or, upon payment or other
consideration for the vested portion of any award as the Committee deems
equitable in the circumstances, terminate such awards.
Amendments and Termination. The Board of Directors may at any time amend or
discontinue the 1992 Plan and the Committee may at any time amend or cancel
outstanding awards (or provide substitute awards at the same or a reduced
exercise or purchase price) for the purpose of satisfying changes in the law or
for any other lawful purpose. However, no such action shall be taken which
adversely affects any rights under outstanding awards without the holder's
consent. Moreover, no such amendment, unless approved by the stockholders of the
Company, shall be effective if it would cause the 1992 Plan to fail to satisfy
any then applicable incentive stock option rules under federal tax law or
applicable requirements of Rule 16b-3 under the Securities Exchange Act of 1934,
or cause any member of the Committee to cease to be a "disinterested person" as
defined thereunder. Currently, the incentive stock option regulations would
require stockholder approval for an increase in the maximum number of shares
issuable pursuant to Incentive Options under the 1992 Plan or a modification in
eligibility requirements under the 1992 Plan, and Rule 16b-3 would currently
require such approval if the amendment materially increased benefits accruing to
participants under the 1992 Plan, materially increased the number of securities
issuable under the 1992 Plan or materially modified eligibility requirements
under the 1992 Plan.
Change of Control Provisions. The 1992 Plan provides that in the event of a
"Change of Control" (as defined in the 1992 Plan) of the Company, all stock
options shall automatically become fully exercisable, subject to the limitations
on exercisability applicable to Incentive Options. Restrictions and conditions
on awards of Conditioned Stock shall automatically be deemed waived. In
addition, at any time prior to or after a Change of Control, the Committee may
accelerate awards and waive conditions and restrictions on any awards to the
extent it may determine appropriate.
Tax Aspects Under the U.S. Internal Revenue Code
The following is a summary of the principal federal income tax consequences of
transactions under the 1992 Plan. It does not describe all federal tax
consequences under the 1992 Plan, nor does it describe state or local tax
consequences.
Incentive Options. No taxable income is realized by an optionee upon the grant
or exercise of an Incentive Option. If shares issued to an optionee pursuant to
the exercise of an Incentive Option are not sold or transferred within two years
from the date of grant or within one year after the date of exercise, then (a)
upon sale of such shares, any amount realized in excess of the option price (the
amount paid for the shares) will be taxed to the optionee as a long-term capital
gain and any loss sustained will be a long-term capital loss, and (b) there will
be no deduction for the Company for Federal income tax purposes. The exercise of
an Incentive Option will give rise to an item of tax preference that may result
in alternative minimum tax liability for the optionee.
If shares of Common Stock acquired upon the exercise of an Incentive Option are
disposed of prior to the expiration of the two-year and one-year holding periods
described above (a "disqualifying disposition"), generally (a) the optionee will
realize ordinary income in the year of disposition in an amount equal to the
excess (if any) of the fair market value of the shares at exercise (or, if less,
the amount realized on a sale of such shares) over the option price thereof, and
(b) the Company will be entitled to deduct such amount. Special rules will apply
where all or a portion of the exercise price of the Incentive Option is paid by
tendering shares of Common Stock.
If an Incentive Option is exercised at a time when it no longer qualifies for
the tax treatment described above, the option is treated as a Non-Qualified
Option. Generally, an Incentive Option will not be eligible for the tax
treatment described above if it is exercised more than three months following
termination of employment (or one year in the case of termination of employment
by reason of disability).
Non-Qualified Options. With respect to Non-Qualified Options under the 1992
Plan, no income is realized by the optionee at the time the option is granted.
Generally, (a) at exercise, ordinary income is realized by the optionee in an
amount equal to the difference between the option price and the fair market
value of the shares on the date of exercise, and the Company receives a tax
deduction for the same amount, and (b) at disposition, appreciation or
depreciation after the date of exercise is treated as either short-term or
long-term capital gain or loss depending on how long the shares have been held.
Conditioned Stock. A recipient of Conditioned Stock generally will be subject to
tax at ordinary income rates on the fair market value of the stock at the time
that the stock is no longer subject to forfeiture, minus any amount paid for
such stock. However, a recipient who so elects under Section 83(b) of the Code,
within 30 days of the date of issuance of the Conditioned Stock, will realize
ordinary income on the date of issuance equal to the fair market value of the
shares of Conditioned Stock at that time (measured as if the shares were
unrestricted and could be sold immediately), minus any amount paid for such
stock. If the shares subject to such election are forfeited, the recipient will
not he entitled to any deduction, refund or loss for tax purposes with respect
to the forfeited shares. The Company generally will receive a tax deduction
equal to the amount includable as ordinary income to the recipient.
Unrestricted Stock. The recipient of Unrestricted Stock will generally be
subject to tax at ordinary income rates on the fair market value of such
Unrestricted Stock on the date that such Unrestricted Stock is issued to the
participant. The Company generally will be entitled to a deduction equal to the
amount treated as compensation that is taxable as ordinary income to the
recipient.
Performance Shares. The recipient of a Performance Share Award will generally be
subject to tax at ordinary income rates on the fair market value of any Common
Stock issued under the award, and the Company will generally be entitled to a
deduction equal to the amount of ordinary income realized by the recipient.
Dividends. Dividends paid on Common Stock (including Conditioned Stock) will be
taxed at ordinary income rates to the recipients Generally, the Company will not
be entitled to any deduction for dividends, except in the case of dividends paid
on Conditioned Stock with respect to which no Section 83(b) election has been
filed.
Payment In Respect of a Change of Control. The 1992 Plan provides for
acceleration or payment of awards and related shares in the event of a Change of
Control as defined in the 1992 Plan. Such acceleration or payment may cause the
consideration involved to be treated in whole or in part as "parachute payments"
under the Code. Any such "parachute payments" may be non-deductible to the
Company in whole or in part, and the recipient may be subject to a 20% excise
tax on all or part of such payments.
<PAGE>
COMPENSATION COMMITTEE REPORT
Decisions concerning the compensation of the Company's executive officers
generally are made by the three-member Compensation Committee. Each member of
the Compensation Committee is a non-employee director of the Company. This
Compensation Committee Report summarizes the Company's executive officer
compensation practices and policies for fiscal year 2000. Messrs. Groninger,
Manuel and Thigpen were members of the Committee during the fiscal year 2000
until they were not re-elected as members of the Board of Directors by the
Company's stockholders on October 8, 1999. The new Compensation Committee
consists of two members, Joseph Pennacchio and Jesse Choper. The new
Compensation Committee followed the guidelines already established for the
Company for fiscal year 2000.
Compensation Policies
The Company's compensation policies are designed to link executive officer
compensation to the annual and long-term performance of the Company and to
provide industry-competitive compensation for such officers. The Company's
executive officer compensation consists of two key components: (1) an annual
component, consisting of annual base salary and annual incentive bonus, if any,
and (2) a long-term component consisting of the grant of stock options. Annual
incentive cash bonuses are earned by eligible executive officers under the
Company's Senior Executive Incentive Plan (the "SEIP") adopted in fiscal year
1996 based upon the achievement of measurable corporate performance goals
established prior to or in the first quarter of each fiscal year. However,
emphasis in incentive compensation is placed on the more strategic stock-based
plans which more closely align the interests of the executive officers with
those of the stockholders of the Company and which provide incentives to attract
individuals and to motivate and retain executive officers over the long-term.
The policies with respect to each of these elements, as well as the bases for
determining the compensation of the Company's former Chief Executive Officer,
Joel H. Reichman, are described below.
(1) Annual Component: Base Salary and Annual Incentive Bonus Annual Base Salary:
The Compensation Committee reviews all base salaries for executive officers and
establishes them by reviewing the performance of each executive officer,
evaluating the responsibilities of each executive officer's position and
comparing the executive officers' salaries with salaries of executive officers
of other companies in the specialty retail apparel industry (the "Industry").
The Compensation Committee defines the Industry as public companies in the
specialty retail apparel business with similar sales and market capitalization.
Annual base salary adjustments are influenced by the Company's performance in
the previous fiscal year and the individual's contribution to that performance,
the individual's performance, promotions of the individual that may have
occurred during the fiscal year, and any increases in the individual's level of
responsibility (which is measured by various factors including, but not limited
to, the number of departments and employees for which the executive officer is
responsible). Under the Company's employment agreements with Mr. Reichman, Mr.
Semel and Mrs. Faulkner, compensation for such executive officers had a base
salary element and annual cost of living increases for fiscal year 2000. Each of
the three former executive officers declined to accept cost of living increases
set forth in their employment agreements for fiscal year 2000.
Annual Incentive Bonus: The concept underlying the SEIP is to link compensation
to the performance of the Company based on measurable corporate performance
criteria. The Compensation Committee annually determines which executive
officers are eligible to participate in the SEIP for the following fiscal year.
Generally, an executive officer's eligibility is determined based upon an
assessment of such officer's performance during the previous fiscal year as well
as other factors which members of the Compensation Committee may take into
account. In order for bonuses to be paid under the SEIP in fiscal year 2000, the
SEIP required the achievement of quantifiable corporate performance goals
measured by earnings per share and the employees must be employed by the Company
as of the date payment is to be made. In the first quarter of fiscal 2000, the
Compensation Committee established the goals for each measure of performance.
These corporate performance goals, as well as certain other features of the
SEIP, are the same performance criteria and features used in the annual
incentive compensation plans in which other eligible employees of the Company
participate.
However, Mr. Reichman, Mr. Semel and Mrs. Faulkner were not employees of the
Company on April 27, 2000, the date when payment was made under the SEIP.
Therefore, they were not entitled to receive the bonus.
(2) Long-Term Component: Stock Options
To align executive officers' interests more closely with the interests of the
stockholders of the Company, the Company's long-term compensation program
emphasizes the grant of stock options exercisable for shares of Common Stock.
The amount of such awards is determined one or more times in each fiscal year by
the Compensation Committee. Stock options normally are granted to executive
officers in amounts based largely upon the size of stock-based awards of other
companies in the Industry for comparable positions as well as the availability
of shares of Common Stock under the 1992 Stock Incentive Plan. The Compensation
Committee may take into account other factors in determining the size of stock
option grants, including, but not limited to, the need to attract and retain
individuals the Compensation Committee perceives to be valuable to the Company.
No stock options were granted under this program in fiscal year 2000.
In addition to the foregoing, executive officers receive benefits under certain
group health, long-term disability and life insurance plans, which are generally
available to the Company's eligible employees. After one year of service with
the Company, the executive officers are eligible to participate in the 401(k)
Plan. Benefits under these plans are not tied to corporate performance.
The Commission requires that this Compensation Committee Report comment upon the
Compensation Committee's policy with respect to Section 162(m) of the Internal
Revenue Code, which limits the Company's tax deduction with regard to
compensation in excess of $1 million paid to the chief executive officer and the
four most highly compensated executive officers (other than the chief executive
officer) at the end of any fiscal year unless the compensation qualifies as
"performance-based compensation." The Compensation Committee's policy with
respect to Section 162(m) is to make every reasonable effort to cause
compensation to be deductible by the Company while simultaneously providing
executive officers of the Company with appropriate rewards for their
performance.
Compensation for the Chief Executive Officer
Mr. Reichman served as the Company's President and Chief Executive Officer until
his resignation on October 20, 1999. The following discussion sets forth the
bases for Mr. Reichman's compensation during fiscal year 2000 and the
relationship between his compensation and the performance of the Company.
Annual Base Salary: Mr. Reichman's base salary was initially fixed in October
1995 by his employment agreement at $375,000 per annum. Thereafter, it was
subject to increase by the Compensation Committee and, as of the first day of
each fiscal year of the Company, was to be increased by at least the percentage
increase in the cost of living in Boston, Massachusetts. The Compensation
Committee did not authorize an increase in Mr. Reichman's base salary for fiscal
year 2000 and Mr. Reichman declined to accept a cost of living increase set
forth in his employment agreement for fiscal year 1998, fiscal year 1999 and
fiscal year 2000.
Annual Incentive Bonus: As in the case of the other former executive
officers of the Company, Mr. Reichman did not receive a bonus for fiscal
year 2000 because he was not employed at the time of payment.
Stock Options: In light of the Company's performance in fiscal year 2000 and Mr.
Reichman's contribution to that performance and in furtherance of the
Compensation Committee's policy of more closely aligning the executive officers
interests with those of the stockholders, no stock options were granted.
The new Compensation Committee consisting of Joseph Pennacchio and Jesse Choper
approved the hiring of John J. Schultz as interim Chief Executive Officer and
President after Mr. Reichman resigned on October 20, 1999. The new Committee
negotiated a consulting agreement ("Consulting Agreement") with Mr. Schultz. The
Consulting Agreement paid Mr. Schultz $2,000 per day of service, plus
out-of-pocket expenses. In addition, Mr. Schultz received 15,000 options per
year of service. These options are fully vested and have a ten-year expiration
period. On April 10, 2000, the Committee granted Mr. Schultz additional 65,000
options, which have a thirty-month vesting period and a ten-year term.
THE COMPENSATION COMMITTEE
Joseph Pennacchio
Jesse Choper
<PAGE>
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative
stockholder return with that of a broad market index (Standard & Poor's
Industrials Index) and one published industry index (Standard & Poor's Retail
(Specialty-Apparel) Index) for each of the most recent five years ended January
31. The cumulative stockholder return for shares of Common Stock and each of the
indices is calculated assuming that $100 was invested on January 31, 1995. The
Company paid no cash dividends during the periods shown. The performance of the
indices is shown on a total return (dividends reinvested) basis. The graph lines
merely connect January 31 of each year and do not reflect fluctuations between
those dates. In addition there is a chart of the annual percentage return of the
Company's Common Stock, the S & P Industrial-Wed and Retail (Specialty Apparel)
500.
Annual Return Percentage
Years Ending
Company/Index Jan 96 Jan 97 Jan 98 Jan99 Jan 00
-------------------------------------------------------------------------------
DESIGNS, INC. (22.03) 4.35 (63.55) 28.58 (46.66)
S&P INDUSTRIALS-WED 37.58 24.05 27.98 33.90 17.37
RETAIL (SPECLTY-APPAREL)- 500 19.08 26.62 81.54 107.05 (4.64)
Indexed Returns
Base Period
Company/Index Jan 95 Jan 96 Jan 97 Jan 98 Jan99 Jan 00
-------------------------------------------------------------------------------
DESIGNS, INC. 100 77.97 81.36 29.65 38.13 20.34
S&P INDUSTRIALS-WED 100 137.58 170.66 218.42 292.46 343.26
RETAIL (SPECLTY-APPAREL)- 500 100 119.08 150.78 273.73 566.75 540.42
The graph and other data above were prepared by Standard & Poor's Compustat
Services, a division of The McGraw-Hill Companies.
Limitation of Liability; Indemnification
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provides that no director of the Company shall
be personally liable to the Company or to any of its stockholders for monetary
damages arising out of such director's breach of fiduciary duty, except to the
extent that the elimination or limitation of liability is not permitted by the
Delaware General Corporation Law. The Delaware General Corporation Law, as
currently in effect, permits charter provisions eliminating the liability of
directors for breach of fiduciary duty, except that directors remain liable for
(i) any breach of the directors' duty of loyalty to a company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) any payment of a
dividend or approval of a stock repurchase that is illegal under Section 174 of
the Delaware General Corporation Law, or (iv) any transaction from which the
directors derived an improper personal benefit. The effect of this provision of
the Certificate of Incorporation is that directors cannot be held liable for
monetary damages arising from breaches of their duty of care, unless the breach
involves one of the four exceptions described in the preceding sentence. The
provision does not prevent stockholders from obtaining injunctive or other
equitable relief against directors, nor does it shield directors from liability
under federal or state securities laws.
The Certificate of Incorporation and the Company's By-Laws further provide for
indemnification of the Company's directors and officers to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, including
circumstances in which indemnification is otherwise discretionary.
Certain Relationships and Related Transactions
On October 28, 1999, the Company entered into a consulting agreement with
Jewelcor Management, Inc. ("JMI"), then a 9.9% stockholder of the Company, to
assist in developing a strategic plan for the Company and for other related
consulting services as may be agreed upon between JMI and the Company. As
compensation for these services, JMI received a non-qualified stock option to
purchase up to 400,000 shares of the Company's Common Stock, exercisable at the
closing price of the Common Stock on the Nasdaq National Market on October 28,
1999. Any remaining compensation due, subject to final determination in
accordance with the terms of such consulting agreement, will be paid to JMI in
cash or stock. In October 1999, the Company also reimbursed JMI in the amount of
$400,000, which was paid in the form of 346,021 shares of the Company's Common
Stock, based on the closing price of the Common Stock on October 29, 1999 for
expenses incurred by JMI in connection with the recent proxy solicitation.
Subsequently, on April 7, 2000, Seymour Holtzman, President and Chief Executive
Officer of JMI, was elected to the Company's Board of Directors and on April 11,
2000 was elected Chairman of the Board.
The Company has also entered into separate consulting agreements with three
of its Board members: John J. Schultz, Robert L. Patron and
George T. Porter, Jr.
On October 20, 1999, the Company engaged John J. Schultz to act as President and
Chief Executive Officer of the Company on an interim basis and to assist in the
search for a permanent President and Chief Executive Officer. As compensation
for those services and additional services he may provide in the future, Mr.
Schultz was paid a rate of $2,000 per day, payable at his election in cash or in
shares of Common Stock, plus reimbursement of reasonable out-of-pocket expenses.
Mr. Schultz' compensation also included the grant of stock options to purchase
15,000 shares of the Company's Common Stock for each calendar year in which Mr.
Schultz served as President and Chief Executive Officer. The per share exercise
price of these options was the closing price of shares of Common Stock on the
date of the grant. For fiscal year 2000, Mr. Schultz was paid $75,371 as
compensation and reimbursement of expenses and received 30,000 options. On April
10, 2000, the Compensation Committee granted Mr. Schultz, as a bonus, an
additional 65,000 options. The exercise price is the closing price of the Common
Stock on the day of the grant.
<PAGE>
On November 19, 1999, the Company entered into a consulting agreement with
Business Ventures International, Inc., a company affiliated with Robert L.
Patron, a member of the Board of Directors, to advise the Company with regard to
real estate matters. As compensation for these services, Business Ventures
International, Inc. was paid a rate of $2,000 per day, payable at their election
in cash or Common Stock, plus reasonable out-of-pocket expenses. Business
Ventures International, Inc.'s compensation also included the grant of stock
options to purchase 15,000 shares of the Company's Common Stock for each year in
which Business Ventures International, Inc. furnished real estate consulting
services to the Company. The per share exercise price of these options was the
closing price of shares of Common Stock on the date of grant. For fiscal year
2000, Business Ventures International, Inc. was paid $14,000 as compensation and
received 30,000 options.
On February 8, 2000, the Company retained George T. Porter, Jr. to advise the
Company with regard to merchandising strategies and operations. As compensation
for these services, Mr. Porter was paid a rate of $2,000 per day, payable at his
election in cash or Common Stock, plus reasonable out-of-pocket expenses. Mr.
Porter's compensation also included the grant of stock options to purchase
15,000 shares of the Company's Common Stock for each year in which Mr. Porter
furnished consulting services to the Company. The per share exercise price of
these options was the closing price of shares of Common Stock on the date of
grant. For fiscal year, 2000, Mr. Porter was paid $7,373 as compensation and
reimbursement of expenses and received 30,000 options.
Relationship with Independent Public Accountants
On December 21, 1999, the Company dismissed its principal independent
accountants, Arthur Anderson LLP ("Arthur Andersen") and engaged Deloitte &
Touche LLP (Deloitte & Touche") as its new principal independent accountants.
The Company's Board of Directors and its Audit Committee unanimously approved
the change of principal independent accountants. Representatives of Deloitte &
Touche are expected to be present at the Annual Meeting and will have the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
During fiscal year 1998 and 1999 and thereafter until the engagement of Deloitte
& Touche, the Company did not consult Deloitte & Touche regarding the type of
audit opinions that might be rendered on the Company's financial statements
relating to such periods. Throughout those same periods, there were no matters
that occurred that constituted either a disagreement or the kind of event
described in Item 304(a)(1)(v) of Regulations S-K promulgated by the Commission.
Arthur Andersen served as the Company's principal independent accountants from
June 19, 1998 to December 21, 1999. During fiscal year 1999 and thereafter
through December 21, 1999, there were no disagreements between the Company and
Arthur Andersen on matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of Arthur Andersen, would have caused Arthur Andersen to make
reference to the subject matters thereof in its reports. During the fiscal year
1999 and thereafter through December 21, 1999, there was no occurrence of the
kinds of events described in Item 304(a)(1)(v) of Regulations S-K promulgated by
the Commission. In addition, none of the reports issued by Arthur Andersen
concerning the Company's financial statements for the fiscal year end January
27, 1999 and thereafter through December 21, 1999 contained any adverse opinion
or disclaimer of opinion. Such reports were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
Coopers & Lybrand LLP ("Coopers & Lybrand") served as the Company's independent
accountants from 1981 to June 19, 1998. During fiscal year 1998 and thereafter
through June 19, 1998, there were no disagreements between the Company and
Coopers & Lybrand on matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of Coopers & Lybrand, would have caused Coopers & Lybrand to
make reference to the subject matters thereof in its reports. During the fiscal
year 1998 and thereafter through June 19,1998 there was no occurrence of the
kinds of events described in Item 304(a)(1)(v) of Regulations S-K promulgated by
the Commission. In addition, none of the reports issued by Coopers & Lybrand
concerning the Company's financial statements for the Company's fiscal years
ended January 31, 1998 and February 1, 1997 and thereafter through June 19,
1998, contained any adverse opinion or disclaimer of opinion. Such reports were
not qualified or modified as to uncertainty, audit scope, or accounting
principles.
Shares Entitled to Vote
At the close of business on May 15, 2000, the record date for the Annual
Meeting, there were 16,441,251 shares of Common Stock issued and outstanding.
Each share is entitled to one vote at the Annual Meeting.
Solicitation
The Company will bear the cost of solicitation of proxies. In addition to the
use of the mails, proxies may be solicited by certain officers, directors and
employees of the Company without extra compensation, by telephone, facsimile or
personal interview. D.F. King & Company, Inc. has been retained by the Company
for a fee not to exceed $5,000 to aid in solicitation of proxies.
<PAGE>
STOCKHOLDER PROPOSALS
The By-Laws provide that for business to be properly brought before an Annual
Meeting of Stockholders (or any Special Meeting in lieu of Annual Meeting of
Stockholders), a stockholder must: (i) give timely written notice to the
Secretary of the Company describing any proposal to be brought before such
meeting; and (ii) be present at such Annual Meeting, either in person or by a
representative. Such procedural requirements are fully set forth in Section 3.14
of the By-Laws. A stockholder's notice will be timely if delivered to, or mailed
to and received by, the Company not less than seventy-five days nor more than
one hundred twenty days prior to the anniversary date of the immediately
preceding Annual Meeting (the "Anniversary Date"). To bring an item of business
before the 2001 Annual Meeting, a stockholder must deliver the requisite notice
of such item to the Secretary of the Company not before February 26, 2001 nor
later than April 12, 2001. In the event the Annual Meeting is scheduled to be
held on a date more than thirty days before the Anniversary date or more than
sixty days after the Anniversary Date, however, a stockholder's notice will be
timely delivered to, or mailed to, and received by, the Company not later than
the close of business on the later of (a) the seventy-fifth day prior to the
scheduled date of such Annual Meeting or (b) the fifteenth day following the day
on which public announcement of the date of such Annual Meeting is first made by
the Company.
OTHER MATTERS
As of this date, management knows of no business which may properly come
before the Annual Meeting other than that stated in the Notice of Annual Meeting
of Stockholders. Should any other business arise, proxies given in the
accompanying form will be voted in accordance with the discretion of the person
or persons voting them. The Annual Report on Form 10-K for fiscal year 2000 is
accompanying the Proxy Statement.
<PAGE>
Exhibit A
DESIGNS, INC.
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
ROLE AND RESPONSIBILITY
A. INTRODUCTION
The role of the audit committee is to supervise and ensure the soundness of the
Designs, Inc. ("Company") audit and its relationship with its independent
accountants; and provide the Board, the independent accountants and the internal
auditors with direct, non-management access to each other on a regular basis.
The primary objective of the Audit Committee is to promote and preserve the
integrity of the Company's financial statements and the independence and
performance of the Company's external independent auditor.
B. COMPOSITION
The Committee shall consist of not less than three non-employee Directors
elected the Board of Directors who are not otherwise affiliates of the
Corporation. The membership of the Committee must meet the requirements set
forth in Rule 4310 of the Marketplace Rules of the National Association of
Securities Dealers, Inc. The Board shall designate one member of the Audit
Committee to be Chairman of the Committee. Accordingly, all members must be
Directors independent of management and free of any relationships which, in the
opinion of the Board, would interfere with independent judgment as Committee
members. A majority of the members shall be Directors who were not formerly
officers of the Corporation or any of its subsidiaries. The Secretary of the
Corporation shall serve as Secretary of the committee.
C. ROLE OF THE COMMITTEE
1. Reviews and sets the scope of the Accountants' annual examination
and reviews the engagement letter and fees prior to the
commencement of such examination.
2. At the completion of the annual examination and prior to any
public disclosure, the committee reviews:
A. the financial statements, proxy and 10K;
B. the independent public accountants "management letter"
recommendations; and C. post-audit matters, including any
differences between planned and actual scope of the audit.
D. Review earnings releases.
E. Review significant or unusual transactions and accounting
estimates.
3. Reviews recent and prospective opinions of the Accounting
Principles Board and their impact upon the Corporation's
accounting and financial statements.
4. Reviews the adequacy of the Corporation's internal accounting
controls and management information systems and reviews the
quality and depth of staffing in the accounting and financial
areas including internal controls.
5. Reviews on an annual basis non-audit services and fees of public
accounting firm responsible for the annual audit.
6. The Committee Chairperson has authority to act for the Committee
in engaging outside consultants for a special Audit Committee
matter assignment up to $25,000.
The Committee reviews with management the adequacy of the Corporation's
accounting controls and management information systems. In doing so, it:
1. Reviews alternate accounting methods, practices and policies and
authorized changes to be made where appropriate. Such changes are
reported to the Board of Directors.
2. Reviews implementation of recommendations made by the
Corporation's independent public accountants including the
"management letter" recommendations.
3. Reviews additions or changes to internal controls, policies and
practices.
4. Reviews with the Vice President, Internal Auditing, the adequacy
of the internal audit program and staff, and the findings of any
significant reviews and audits.
In addition, the Committee:
1. Reviews the performance of the corporation's independent public
accountants and recommends to the Board the selection and
engagement of such accountants.
2. Reviews the results of the annual ethics and sensitive payments
questionnaires and makes any additional inquiries it may deem
appropriate.
3. Reviews or directs the Vice President, Internal Auditing, to
review any areas of concern with respect to the internal
accounting system.
4. Reports a summary of its actions and the results of its reviews
to the next meeting of the Board.
5. Provides the Corporation's independent public accountants and
internal control staff with normal and easy access to the Board.
6. Authorized special audits as needed.
7. Reviews the consistency and adequacy of all interim financial
disclosures based upon the limited review by the independent
public accountants.
8. Discusses with the internal auditor and the independent public
accountant what steps are planned for a review of the
Corporation's electronic data processing procedures and controls,
and inquires as to the specific security programs to protect
against computer fraud or misuse from both within and outside the
Corporation.
9. Inquiries as to the extent to which independent public accountants
other than the principal auditor are to be used and understand the
rationale for using them. The Committee should request that their
work be coordinated and that an appropriate review of their work
be performed by the principal auditor.
10. Review in-house policies and procedures for regular review of
officers' expenses and perquisites including any use of corporate
assets, inquiries as to the results of the review and, if
appropriate, reviews a summarization of the expenses and
perquisites of the period under review.
D. QUORUM
Majority of current membership.
<PAGE>
E. REPORTING
At the next regularly scheduled meeting of the Board.
F. MEETING SCHEDULE
Meets in March, June and December at the time of the regularly
scheduled Board meetings and other times on call of its Chairperson.
<PAGE>
DESIGNS, INC.
Notice Of 2000
Annual Meeting of
Stockholders and
Proxy Statement
Monday, June 26, 2000 10:00
A.M.
Sheraton Needham Hotel
100 Cabot Street
Needham, Massachusetts 02494
Please sign your proxy and
return it in the enclosed
postage-paid envelope so that
you may be represented at the
Annual Meeting.
