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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.1a-12
CYGNE DESIGNS, INC.
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(Name of Registrant as Specified In Its Charter)
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(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:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
CYGNE DESIGNS, INC.
1410 Broadway
New York, New York 10018
(212) 997-7767
October __, 2000
Dear Fellow Stockholder:
You are cordially invited to attend Cygne's annual meeting of stockholders
to be held at 9:30 a.m. (local time), on ________, ________, 2000, at the
offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York.
At the annual meeting you will be asked to consider and vote upon the
following:
1. the election of two directors of Cygne; and
2. approval and adoption of an amendment to our certificate of
incorporation that would impose certain restrictions upon the transfer of
shares of Cygne common stock to designated persons that could result in the
imposition of limitations on the use, for federal, state and city income
tax purposes, of Cygne's carryforwards of net operating losses and certain
federal income tax credits.
In addition, I will be pleased to report on the affairs of Cygne and a
discussion period will be provided for questions and comments of general
interest to stockholders.
YOUR BOARD OF DIRECTORS BELIEVES THAT IT IS IN THE BEST INTERESTS OF CYGNE
THAT THE DIRECTORS NOMINATED BY CYGNE'S BOARD OF DIRECTORS ARE ELECTED AND THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION BE ADOPTED. ACCORDINGLY, YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF THE PROPOSED
NOMINEES AND FOR THE AMENDMENT TO OUR CERTIFICATE OF INCORPORATION.
We look forward to greeting personally those stockholders who are able to
be present at the meeting; however, whether or not you plan to be with us at the
meeting, it is important that your shares be represented. Accordingly, you are
requested to sign and date the enclosed proxy and mail it in the envelope
provided at your earliest convenience.
Thank you for your cooperation.
Very truly yours,
Bernard M. Manuel
Chief Executive Officer
<PAGE>
CYGNE DESIGNS, INC.
1410 Broadway
New York, New York 10018
(212) 997-7767
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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New York, New York
October __, 2000
The annual meeting of stockholders of Cygne Designs, Inc. will be held at
the offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York
on _______ ___, 2000 at 9:30 a.m. (local time) for the following purposes:
1. To elect two directors to serve until the next annual meeting of
stockholders or until their respective successors shall have been duly
elected and qualified to serve.
2. To consider and vote upon a proposal to approve and adopt an
amendment to Cygne's certificate of incorporation that would impose certain
restrictions upon the transfer of shares of Cygne common stock to
designated persons that could result in the imposition of limitations on
the use, for federal, state and city income tax purposes, of Cygne's
carryforwards of net operating losses and certain federal tax income
credits.
3. To transact such other business as may properly come before the
annual meeting.
The full text of the proposed amendment to Cygne's certificate of
incorporation is included as Appendix A to the attached proxy statement. Cygne's
board of directors unanimously recommends that you vote FOR both this amendment
and the election of the directors nominated by the board of directors.
Only stockholders of record at the close of business on September 21, 2000
will be entitled to notice of, and to vote at, the annual meeting. A list of
stockholders eligible to vote at the meeting will be available for inspection at
the meeting and for a period of ten days prior to the meeting during regular
business hours at our corporate headquarters at the address specified above.
Whether or not you expect to attend the annual meeting, your proxy vote is
important. Stockholders who are unable to attend the meeting in person are
requested to sign and date the enclosed proxy card and return it promptly in the
enclosed envelope, which requires no additional postage if mailed in the United
States or Canada.
By Order of the Board of Directors
Roy E. Green
Secretary
<PAGE>
CYGNE DESIGNS, INC.
1410 Broadway
New York, New York 10018
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PROXY STATEMENT
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The annual meeting of stockholders of Cygne Designs, Inc. will be held on
_________, 2000, at 9:30 a.m. (local time) at the offices of Fulbright &
Jaworski L.L.P., 666 Fifth Avenue, New York, New York. Copies of this proxy
statement, the attached notice of annual meeting of stockholders and the
enclosed proxy card are being mailed to stockholders on or about ___________,
2000.
ABOUT THE ANNUAL MEETING
WHAT IS THE PURPOSE OF THE MEETING?
At our annual meeting, stockholders will act upon the matters outlined in the
notice of meeting on the cover page of this proxy statement, including the
election of directors and proposed amendment to our certificate of
incorporation. In addition, our management will report on the performance of
Cygne during the fiscal year ended January 29, 2000 and respond to questions
from stockholders.
WHO IS ENTITLED TO VOTE AT THE MEETING?
Only stockholders of record at the close of business on the record date,
September 21, 2000, are entitled to receive notice of and to vote at the annual
meeting.
WHAT ARE THE VOTING RIGHTS OF CYGNE STOCKHOLDERS?
Each stockholder is entitled to cast one vote for each share of common stock
that he or she held as of the record date on each matter to be voted upon at the
meeting or any postponements or adjournments of the meeting.
WHAT CONSTITUTES A QUORUM?
In order to carry on the business of the meeting, there must be a quorum. This
means at least a majority of the outstanding shares eligible to vote on the
record date must be represented at the meeting, either by proxy or in person. As
of the record date, 12,438,038 shares of our common stock were outstanding.
Proxies received but marked as abstentions and broker non-votes will be included
in the calculation of the number of shares considered to be present at the
meeting.
HOW DO PROXIES WORK?
The board of directors is asking for your proxy. Giving us your proxy means that
you authorize us to vote your shares at the annual meeting in the manner you
direct. You may vote for all, some or none of
<PAGE>
our director candidates. You may also vote for or against, or abstain from
voting on, the approval and adoption of the proposed amendment to our
certificate of incorporation.
HOW DO I VOTE?
You may vote in person at the meeting or by proxy by completing and mailing the
enclosed proxy card. The board of directors recommends that you vote by proxy
even if you plan to attend the meeting. "Street name" stockholders who wish to
vote at the meeting will need to obtain a proxy form from the institution that
holds their shares.
HOW DO I VOTE BY TELEPHONE OR ELECTRONICALLY?
If your shares are registered in the name of a bank or brokerage firm, you may
be able to vote electronically through the Internet or by telephone. A large
number of banks and brokerage firms are participating in the ADP Investor
Communication Services online program. This program provides eligible
stockholders the opportunity to vote via the Internet or by telephone. Voting
forms will provide instructions for stockholders whose bank or brokerage firm is
participating in ADP's program. If you do not wish to vote by telephone or
electronically through the Internet, or if your form does not reference
telephone or Internet voting information, you should complete and return the
enclosed paper proxy card. IF YOU VOTE BY TELEPHONE OR ELECTRONICALLY USING THE
INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.
CAN I CHANGE MY VOTE AFTER I SUBMIT MY PROXY?
Even after you have submitted your proxy, you may change your vote at any time
before the proxy is exercised by filing with the Corporate Secretary of Cygne
either a notice of revocation or a duly executed proxy bearing a later date. The
powers of the proxy holders will be suspended if you attend the meeting in
person and so request, although attendance at the meeting will not by itself
revoke a previously granted proxy.
WHAT ARE THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS?
The board of directors recommends a vote:
o For election of the nominated directors; and
o For approval and adoption of an amendment to our certificate of
incorporation that would impose certain restrictions upon the transfer of
shares of Cygne common stock to designated persons that could result in the
imposition of limitations on the use, for federal, state and city income
tax purposes, of Cygne's carryforwards of net operating losses and certain
federal income tax credits.
If you sign and return the enclosed proxy card but do not specify how to vote,
we will vote your shares in favor of our director nominees and in favor of the
approval and adoption of the proposed amendment to our certificate of
incorporation. If any other matters are properly presented for consideration at
the meeting, the individuals named as proxies on the enclosed proxy card will
vote the shares that they represent on those matters as recommended by the board
of directors. If the board does not make a recommendation, then they will vote
in accordance with their best judgment.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS. The affirmative vote of a plurality of votes cast at the
meeting is required for the election of directors. A properly executed proxy
marked "WITHHOLD AUTHORITY" with respect to
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the election of one or more directors will not be voted with respect to the
director or directors indicated, although it will be counted for purposes of
determining whether or not there is a quorum present.
AMENDMENT OF OUR CERTIFICATE OF INCORPORATION. The affirmative vote of a
majority of the outstanding shares of our common stock will be required to
approve the proposed amendment to our certificate of incorporation. A properly
executed proxy marked "ABSTAIN" with respect to this matter will not be voted.
Therefore, any abstention will have the effect of a negative vote. Similarly,
because broker non-votes, which occur when a broker returns a proxy but does not
have authority to vote on a particular proposal, will not be voted, broker
non-votes will also have the effect of a negative vote.
OTHER ITEMS. For each other item, the affirmative vote of the holders of a
majority of the shares represented in person or by proxy at the meeting and
entitled to vote on the item will be required for approval. A properly executed
proxy marked "ABSTAIN" with respect to any such matter will not be voted,
although it will be counted for purposes of determining whether there is a
quorum. Therefore, any abstention will have the effect of a negative vote. The
affect of a broker non-vote will depend on the vote required to approve the
other item. If approval of a majority of the outstanding shares is required, a
broker non-vote will have the effect of a vote against the matter. In all other
situations, such shares will not be counted in determining the number of shares
necessary for approval, although they will be counted for determining whether a
quorum is present.
If you hold your shares in "street name" through a broker or other nominee, your
broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters and will not be counted in determining the number of shares necessary
for approval. Shares represented by such "broker non-votes" will, however, be
counted in determining whether there is a quorum.
VOTING AGREEMENT BY PRINCIPAL STOCKHOLDER
Bernard Manuel, our chairman and chief executive officer, owns 4,946,975 shares
of our outstanding common stock, representing approximately 40.0% of our
outstanding common stock. Mr. Manuel has agreed to vote his shares of common
stock in favor of the adoption of an amendment to our certificate of
incorporation. See "Beneficial Ownership of Common Stock."
WHO IS SOLICITING THESE PROXIES?
The board of directors of Cygne is soliciting the execution and return of the
enclosed proxy card for the purposes set forth in the notice of meeting. We will
bear the costs incidental to soliciting and obtaining proxies, including the
cost of reimbursing banks and brokers for forwarding proxy materials to their
principals. Proxies may be solicited, without extra compensation, by our
officers and employees by mail, telephone, telefax, personal interviews and
other methods of communication. Although we have no present plans to hire paid
solicitors to assist us in obtaining proxies, we may do so if we determine it
will be helpful in obtaining stockholder approval of the matters to be voted
upon at the meeting. We will pay all the fees and expenses of any firm engaged
by us.
STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY IN
THE ENVELOPE PROVIDED. IN ORDER TO AVOID UNNECESSARY EXPENSE, WE ASK YOUR
COOPERATION IN MAILING YOUR PROXY PROMPTLY, NO MATTER HOW LARGE OR HOW SMALL
YOUR HOLDINGS MAY BE.
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<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of September 30, 2000
regarding the beneficial ownership of our common stock by (i) each person known
by us to own beneficially more than five percent of our outstanding common
stock; (ii) each director and nominee for election as a director of Cygne; (iii)
each executive officer named in the Summary Compensation Table (see "Executive
Compensation"); and (iv) all of our directors and executive officers as a group.
Except as otherwise specified, the named beneficial owner has the sole voting
and investment power over the shares listed.
<TABLE>
<CAPTION>
Amount and Nature of Percentage of
Beneficial Ownership Cygne
Name and Address of Cygne Common Stock (1) Common Stock
---------------- ------------------------- ------------
<S> <C> <C>
James G. Groninger (2)....................................... 24,000 *
Bernard M. Manuel (3)........................................ 5,001,975 40.0%
Roy E. Green (4)............................................. 80,000 *
Directors and executive officers as a group (3 persons)(5)... 5,105,975 40.0%
</TABLE>
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* Less than one percent.
(1) A person has beneficial ownership over shares if the person has voting or
investment power over the shares or the right to acquire such power within 60
days. Investment power means the power to direct the sale or other disposition
of the shares.
(2) Includes 22,000 shares issuable pursuant to options which are exercisable
within 60 days of September 30, 2000. Does not include 2,000 shares which are
the subject of options which are not exercisable within 60 days of September 30,
2000.
(3) Includes 55,000 shares issuable pursuant to options. Mr. Manuel's address is
c/o Cygne, 1410 Broadway, New York, New York 10018.
(4) Consists of shares issuable pursuant to options.
(5) Includes 157,000 shares issuable pursuant to options which are exercisable
within 60 days of September 30, 2000. See notes 2, 3 and 4.
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<PAGE>
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The board of directors currently has two members, both of whom are nominees
for re-election. The board of directors proposes that the nominees below be
elected for a term of one year or until their successors are duly elected and
qualified. Should one or more of these nominees be unable to accept nomination
or election as a director, the individuals named as proxies on the enclosed
proxy card will vote the shares that they represent for such other persons as
the board of directors may recommend.
The nominees standing for election are:
<TABLE>
<CAPTION>
YEAR FIRST PRINCIPAL OCCUPATION
NOMINEE AGE BECAME DIRECTOR DURING THE PAST FIVE YEARS
------- --- --------------- --------------------------
<S> <C> <C> <C>
James G. Groninger ........... 56 1993 President of The BaySouth Company since
January 1995.
Bernard M. Manuel ............ 53 1988 Chief executive officer of Cygne since
October 1988 and chairman of the board
since December 1989.
</TABLE>
Mr. Groninger is a director of Layton BioScience, Inc. and NPS
Pharmaceuticals.
BOARD COMMITTEES
In September 1993 we established an audit committee and a compensation
committee. Mr. Groninger is the sole member of the compensation committee and
the audit committee. The audit committee reviews our annual audit and meets with
our independent accountants to review our internal controls and financial
management practices. The compensation committee reviews compensation practices,
recommends compensation for our executives and key employees and functions as
the committee under our 1993 Stock Option Plan. Each of the compensation
committee and the audit committee met once during the year ended January 29,
2000.
BOARD MEETINGS
During the fiscal year ended January 29, 2000, our board of directors held
three meetings. Each director attended at least 75% of the meetings of the board
of directors held when he was a director and of all committees of the board of
directors on which he served.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THESE NOMINEES
AS DIRECTORS.
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<PAGE>
EXECUTIVE COMPENSATION
The following table provides information concerning all cash and
non-cash compensation awarded to, earned by or paid to our chief executive
officer and our only other executive officer at January 29, 2000.
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
All Other
Year Salary Compensation(1)
---- ------ ---------------
<S> <C> <C> <C>
Bernard M. Manuel ............................ 1999 $400,000 $ 941(2)
Chairman of the Board ........................ 1998 403,000 1,001(2)
and Chief Executive Officer .............. 1997 448,620 1,224(2)
Roy E. Green ................................. 1999 245,000 3,141(3)
Senior Vice President--Chief Financial ....... 1998 245,000 3,685(3)
Officer, Treasurer and Secretary ......... 1997 245,000 3,181(3)
</TABLE>
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(1) Consists of certain insurance premiums on term life insurance paid by Cygne
for the benefit of the named individuals, except as otherwise indicated.
(2) Includes $818, $822 and $999 for years 1999, 1998 and 1997, respectively,
representing Cygne's matching contribution pursuant to its 401(k) defined
contribution plan.
(3) Includes $2,251, $2,425, and $2,425 for years 1999, 1998 and 1997,
respectively, representing Cygne's matching contribution pursuant to its 401(k)
defined contribution plan.
During the fiscal year ended January 29, 2000, no options were granted to the
executive officers named in the Summary Compensation Table.
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<PAGE>
The following table sets forth at January 29, 2000 the number of options
and the value of unexercised options held by each of the executive officers
named in the Summary Compensation Table.
<TABLE>
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Unexercised Value of Unexercised,
Options Held at In-the-Money Options at
Fiscal Year End (#) Fiscal Year End (1)
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Shares
Acquired on Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bernard M. Manuel ......... -- -- 55,000 -- $ 0 $ 0
Roy E. Green .............. -- -- 80,000 -- $ 0 $ 0
</TABLE>
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(1) Based on the closing stock price of our Common Stock on January 28, 2000 of
$0.19.
EMPLOYMENT AGREEMENTS
We currently have employment agreements with Bernard M. Manuel, our
chairman and chief executive officer, and Roy Green, our senior vice
president--chief financial officer, treasurer and secretary. These employment
agreements, which currently expire on April 30, 2001, provide for their
automatic renewal for successive one year terms unless either party notifies the
other to the contrary at least 90 days prior to their expiration. The employment
agreements require each employee to devote substantially all of his time and
attention to our business as necessary to fulfill his duties. Under these
employment agreements Messrs. Manuel and Green are currently entitled to an
annual salary at a rate of $570,047 and $245,000, respectively, subject to
annual cost of living increases, although Mr. Manuel has accepted a reduction in
salary to $400,000. The employment agreements also provide for the payment of
bonuses in such amounts as may be determined by the board. Under the employment
agreements, the employee may terminate his employment upon 30 days' notice. The
employment agreements provide that in the event the employee's employment is
terminated by us at any time for any reason other than justifiable cause,
disability or death, or we fail to renew the agreement at any time within two
years following a "Change of Control of the Company," we must pay the employee
his base salary and permit participation in benefit programs for the greater of
(i) the remaining term of the agreement or (ii) two years in the case of Mr.
Manuel and one year in the case of Mr. Green. In the event we elect not to renew
the agreement (other than within two years following a "Change in Control of the
Company"), we will, (a) in the case of Mr. Manuel, pay him a severance payment
equal to the lesser of (i) two months' salary plus one-sixth of his most
recently declared bonus for each year he has been employed by us or (ii) one
year's annual salary, and (b) in the case of Mr. Green, pay him a severance
payment equal to the lesser of (i) one month's salary plus one-twelfth of his
most recently declared bonus for each year he has been employed by us or (ii)
six months' salary. Each agreement contains confidentiality provisions, whereby
each executive agrees not to disclose any confidential information regarding us,
as well as non-competition covenants. The non-competition covenants survive the
termination of an employee's employment for the greater
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<PAGE>
of (i) the remaining term of the agreement or (ii) two years in the case of Mr.
Manuel and one year in the case of Mr. Green.
For purposes of the employment agreements, a "Change in Control of the
Company" shall be deemed to occur if (i) there shall be consummated (x) any
consolidation or merger of Cygne in which Cygne is not the continuing or
surviving corporation or pursuant to which shares of our common stock would be
converted into cash, securities or other property, other than a merger of Cygne
in which the holders of our common stock immediately prior to the merger have
the same proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (y) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of our assets, or (ii) our stockholders shall approve any
plan or proposal for liquidation or dissolution of Cygne or (iii) any person (as
such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act of 1934, as
amended (the "Exchange Act")) shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 40% or more of our outstanding
common stock other than pursuant to a plan or arrangement entered into by such
person and us, or (iv) during any period of two consecutive years, individuals
who at the beginning of such period constitute the entire board of directors
shall cease for any reason to constitute a majority thereof unless the election,
or the nomination for election by our stockholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
The employment agreements also provide that if, in connection with a change
of ownership or control of Cygne or a change in ownership of a substantial
portion of our assets (all within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")), an excise tax is
payable by the employee under Section 4999 of the Code, then we will pay to the
employee additional compensation which will be sufficient to enable the employee
to pay such excise tax as well as the income tax and excise tax on such
additional compensation, such that, after the payment of income and excise
taxes, the employee is in the same economic position in which he would have been
if the provisions of Section 4999 of the Code had not been applicable.
COMPENSATION OF DIRECTORS
Each non-employee director receives $3,500 for each board of directors
meeting attended, and $1,500 for each meeting of any committee of the board of
directors attended. In addition, directors who are not employees are compensated
through stock options.
We adopted a Stock Option Plan for Non-Employee Directors (the "Directors'
Plan"), pursuant to which options to acquire a maximum aggregate of 100,000
shares of common stock may be granted to non-employee directors. Options granted
under the Directors' Plan do not qualify as incentive stock options within the
meaning of Section 422 of the Code. The Directors' Plan provides for the
automatic grant to each of our non-employee directors of (1) an option to
purchase 10,000 shares of common stock on the date of such director's initial
election or appointment to the board to directors, and (2) an option to purchase
2,000 shares of common stock on each annual anniversary of such election or
appointment, provided that such individual is on such anniversary date a
non-employee director. The options have an exercise price of
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<PAGE>
100% of the fair market value of our common stock on the date of grant, have a
ten-year term and become exercisable in four equal annual installments
commencing on the first anniversary of the grant thereof, subject to
acceleration in the event of a change of control (as defined in the Directors'
Plan). The options may be exercised by payment in cash, check or shares of
common stock. On April 15, 1993 Mr. Groninger was elected as a director of Cygne
and was granted an option to purchase 10,000 shares of common stock at a
purchase price of $4.00 per share, the fair market value of the common stock on
the date of grant. On each of April 15, 1994, April 15, 1995, April 15, 1996,
April 15, 1997, April 15, 1998, April 15, 1999, and April 15, 2000, the
anniversary dates of his initial election to the board of directors, Mr.
Groninger was granted options to purchase 2,000 shares of common stock at a
purchase price of $23.50, $11.75, $1.75, $0.687, $0.281, $0.156, and $0.234 per
share, respectively, the fair market values of our common stock on the dates of
grant.
On September 20, 1996, we engaged in the Ann Taylor Disposition. As a
result of the Ann Taylor Disposition, a change in control under the Directors'
Plan was deemed to have occurred and all options granted under the Directors'
Plan prior to September 20, 1996 became vested.
On November 15, 1999, with an effective date of October 31, 1999, we sold
our Israeli based Knit business to Jordache Limited. As a result of this
disposition, a change in control under the Director's Plan was deemed to have
occurred and all options granted after September 20, 1996 and before November
16, 1999 became vested.
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<PAGE>
COMPENSATION COMMITTEE REPORT
The compensation committee of our board of directors advises our chief
executive officer and our board of directors on compensation matters and reviews
and recommends the appropriate compensation of executives and key personnel. The
compensation committee is also responsible for administrating Cygne's stock
option plan. The compensation committee is comprised of one director.
COMPENSATION PHILOSOPHY AND PRACTICES
Cygne is a private label manufacturer of women's apparel. The central goal
of the compensation committee is to ensure that Cygne's remuneration policy is
such that Cygne is able to attract, retain and reward capable employees who can
contribute both short- and longer-term to the success of Cygne. Equity
participation and a strong alignment to stockholders' interest are key elements
of Cygne's compensation philosophy. Cygne's executive compensation program
consists of three parts: base salary, annual bonus and stock options.
Base salary represents the fixed component of the executive compensation
program. We determine base salary levels based on an annual review of
marketplace competitiveness with similar companies, and on internal
relationships. We periodically increase base salary in accordance with an
individual's contributions to Cygne's overall performance, relative marketplace
competitiveness levels, length of service and the industry's annual competitive
pay practice movement.
The compensation committee, which administers Cygne's stock option plan,
believes that one important goal of the executive compensation program should be
to provide executives, key employees and consultants who have significant
responsibility for the management, growth and future success of Cygne with an
opportunity to increase their ownership and potentially gain financially from
Cygne's stock price increases. This approach ensures that the best interests of
the stockholders, executives and employees will be closely aligned. Therefore,
executive officers and other key employees of Cygne are granted stock options
from time to time, giving them a right to purchase shares of our common stock at
a specified price in the future. The grant of options is based primarily on an
employee's potential contribution to Cygne's growth and financial results. In
determining the size of option grants, the compensation committee considers the
number of options owned by such officer, the number of options previously
granted and currently outstanding, and the aggregate size of the current option
grants. Options generally are granted at the prevailing market value of our
common stock and will only have value if Cygne's stock price increases.
Generally, options become exercisable in equal amounts over four years and the
individual must be employed by Cygne for such options to become exercisable. No
options were granted to executive officers of Cygne during the fiscal year ended
January 29, 2000.
No bonuses were awarded to executive officers for the year ended January
29, 2000.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
denies
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publicly-held corporations a federal income tax deduction for compensation
exceeding $1,000,000 paid to the chief executive officer or any of the four
other highest paid executive officers, excluding performance-based compensation.
It is possible that at least some of the cash and equity-based compensation paid
or payable to our executive officers will not quality for this performance-based
compensation exclusion. The compensation committee will continue to monitor the
potential impact of Section 162(m) on our ability to deduct executive
compensation.
1999 COMPENSATION TO CHIEF EXECUTIVE OFFICER
The base salary for Mr. Manuel during 1999 was $570,047, which has been
unchanged since June 1994 except for contractually provided cost of living
adjustments. The compensation committee determined during 1999 that, in light of
Cygne's financial condition, it was not appropriate to increase Mr. Manuel's
salary. In addition, in June 1995, Mr. Manuel accepted a reduction in salary to
$400,000 that remains in effect. During the fiscal year ended January 29, 2000,
Mr. Manuel was not granted any stock options.
Respectfully submitted,
James G. Groninger
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers to file with the Securities and Exchange Commission
reports of ownership and changes in ownership of any securities of the Company.
To the Company's knowledge, based solely on review of the copies of such reports
furnished to us and written representations that no other reports were required,
during the fiscal year ended January 29, 2000, all required filings were made on
a timely basis.
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PROPOSAL NO. 2:
APPROVAL OF AMENDMENT TO CERTIFICATE OF
INCORPORATION TO PLACE RESTRICTION
ON TRANSFER OF COMMON STOCK
GENERAL
At the meeting, stockholders will consider and vote upon a proposal
providing for an amendment (the "Stock Transfer Amendment") to Cygne's
certificate of incorporation that would impose certain restrictions upon the
transfer of shares of Cygne common stock to designated persons (the "Stock
Transfer Restrictions"). It is currently possible that certain future transfers
of Cygne's capital stock could result in the imposition of limitations on the
ability of Cygne to utilize its carryforwards of net operating losses for
federal, state and city income tax purposes and certain federal income tax
credits. Our board of directors believes that it is advisable and in the best
interests of Cygne to attempt to prevent the imposition of such limitations by
adopting the amendment described below.
The proposed Stock Transfer Restrictions will be effected by means of an
amendment to Cygne's certificate of incorporation. As such, pursuant to the
Delaware General Corporation Law, no appraisal rights will be available to
dissenting stockholders under Delaware law. The text of the proposed Stock
Transfer Amendment is contained as a proposed new Article XI to our certificate
of incorporation. The text of the proposed new Article XI to our certificate of
incorporation is attached as Exhibit A to this proxy statement. The discussion
set forth below is qualified in its entirety by reference to Exhibit A.
BACKGROUND REGARDING DELAWARE LAW
Under the laws of the State of Delaware, Cygne's jurisdiction of
incorporation, a corporation may provide in its certificate of incorporation or
by-laws that a transfer of a security of the corporation to designated persons
or classes of persons may be prohibited so long as the designation of the
persons or classes of persons is not manifestly unreasonable. Under Delaware
law, a restriction on the transfer of shares of common stock of a company for
the purpose of maintaining any tax advantage is conclusively presumed to be for
a reasonable purpose. The transfer restriction must be noted conspicuously on
the certificate representing the shares to be enforceable against the holder of
the restricted shares or any successor or transferee of the holder. If the
restriction is not conspicuously noted on the certificate representing the
shares, Delaware law provides that the restriction is ineffective except against
a person with actual knowledge of the restriction. Finally, no restriction so
imposed is binding with respect to shares issued prior to the inclusion of such
restrictions in the certificate of incorporation or by-laws unless the holders
of such shares agree thereto or vote in favor thereof.
REASONS FOR ADOPTION OF STOCK TRANSFER AMENDMENT
The restrictions imposed by the proposed Stock Transfer Amendment are
designed to restrict transfers of shares of our common stock that could result
in the imposition of limitations on the use, for federal, state and city income
tax purposes, of our carryforwards of net operating losses and certain federal
income tax credits. We estimate that we had, as of January 29, 2000,
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the last day of our most recent fiscal year, carryforwards of net operating
losses of approximately $114 million. For federal income tax purposes, the
carryforwards of net operating losses will expire in Cygne's taxable years
ending 2011 through 2015. Net operating losses benefit Cygne by offsetting
taxable income dollar-for-dollar by the amount of the net operating losses,
thereby eliminating (subject to a relatively minor alternative minimum tax) the
federal corporate tax on such income. The maximum federal corporate tax rate is
currently 35%. Because the amount and timing of our taxable income, if any, in
the current fiscal year and thereafter cannot be accurately predicted, it is not
presently feasible to estimate the amount, if any, of carryforwards that
ultimately may be used to reduce our federal income tax liability.
The benefit of the Cygne's existing and future loss and credit
carryforwards can be reduced or eliminated if we undergo an "ownership change,"
as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"). Generally, an "ownership change" occurs if one or more stockholders,
any of whom owns five percent or more in value of a company's capital stock,
increase their aggregate percentage ownership by more than 50 percentage points
over the lowest percentage of stock owned by such stockholders over the
preceding three-year period. For this purpose, all holders who each own less
than five percent of a company's capital stock generally are treated together as
one five-percent stockholder. In addition, certain attribution rules, which
generally attribute ownership of stock to the ultimate beneficial owner thereof
without regard to ownership by nominees, trusts, corporations, partnerships or
other entities, are applied to determine the level of stock ownership of a
particular stockholder. If a principal purpose of the issuance, transfer or
structuring of an option (including a warrant) to acquire stock is to avoid or
ameliorate the impact of an "ownership change," and the issuance, transfer or
structuring of the option satisfies the ownership, control or income test under
the applicable Treasury regulations, such option may be treated as if it had
been exercised for purposes of determining whether an "ownership change" has
occurred. All percentage determinations are based on the fair market value of a
company's capital stock, including, if any, preferred stock that is voting or
convertible or otherwise participates in corporate growth and certain other
interests in Cygne.
Transactions in the public markets among stockholders owning less than five
percent of the equity securities are not included in the calculation, but
acquisitions by a stockholder causing that person to become a five percent or
more stockholder are treated as a five percentage point change in ownership,
regardless of the size of the purchase that caused the threshold to be exceeded.
As examples, if a single stockholder owning 10% of our equity securities
acquired an additional 50.1% of our equity securities in a three-year period, a
change of ownership would occur. Similarly, if ten persons, none of whom owned
our equity securities, each acquired at least 5% of our equity securities within
the three-year period (so that such ten persons own, in the aggregate, more than
50%,) an ownership change would occur.
If Cygne were to undergo an "ownership change," the amount of future
taxable income of Cygne that could be offset in any year by its carryforwards of
net operating losses and credits incurred prior to such "ownership change" could
not exceed an amount equal to the product obtained by multiplying (i) the
aggregate value of Cygne's outstanding capital stock immediately prior to the
"ownership change" (reduced by certain capital contributions made during the
immediately preceding two years and certain other items) by (ii) the federal
long-term tax-exempt interest rate (5.79% at September 2000). We would incur
corporate income tax on any future taxable income during a given year in excess
of such limitation. Because the aggregate
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value of Cygne's outstanding stock and the federal long-term tax-exempt interest
rate fluctuate, it is impossible to predict with any accuracy the annual
limitation upon the amount of Cygne's taxable income that could be offset by
such loss carryforwards and credits were an "ownership change" to occur in the
future. However, assuming a total share value of $4 million and a 5.79% interest
rate, an ownership change would result in Cygne having available $231,600 of net
operating losses for each year of the net operating losses' remaining life.
While the carryovers not used as a result of this limitation would remain
available to offset variable income in future years (again, subject to the
limitation), an ownership change could significantly defer the utilization of
the carryovers, accelerate payment of federal income tax and cause nearly all of
the carryovers to expire unused. Specifically, to continue the preceding
example, a maximum of $2,316,000 in net operating losses would be available to
us over the next ten years, as opposed to the current $114 million.
DESCRIPTION AND EFFECT OF PROPOSED STOCK TRANSFER AMENDMENT
The following is a brief summary of the proposed transfer restrictions.
This summary is qualified in its entirety by reference to the full text of the
proposed transfer restrictions. You are urged to read the transfer restrictions
set forth in Exhibit A to this proxy statement in their entirety.
The certificate of incorporation generally will restrict any direct or
indirect transfer of Cygne "stock" (which term, for purposes of the Stock
Transfer Restrictions, includes our common stock and any other equity security
of Cygne treated as "stock" under Section 382 of the Code) if the effect would
be to increase the ownership of our stock by any person who, during the
preceding three-year period, owned 5.0% or more of our stock, would otherwise
increase the percentage of stock owned by a "5 percent stockholder" (as defined
in Section 382 of the Code), or otherwise would cause an ownership change of
Cygne within the meaning of Section 382 of the Code (any such event being
referred to as a "Restricted Transfer " and any person who is, or by reason of a
transfer will become, a 5% stockholder (as defined in Section 382 of the Code)
being referred to as a "Restricted Holder"). Transfers included under the Stock
Transfer Restrictions include sales to persons whose resulting percentage
ownership would exceed the thresholds discussed above, or to persons whose
ownership of shares would by attribution cause another person to exceed such
thresholds, as well as sales by persons who exceeded such thresholds prior to
the Stock Transfer Restrictions becoming effective. Numerous rules of
attribution, aggregation and calculation prescribed under the Code (and related
U.S. Treasury regulations) will be applied in determining whether the 5%
threshold has been met and whether a group of less than 5% stockholders will be
treated as a "public group" that is a 5% stockholder under Section 382 of the
Code. As a result of these attribution rules, the Stock Transfer Restrictions
could result in prohibiting ownership of our stock as a result of a change in
the relationship between two or more persons or entities, or a transfer of an
interest other than our stock, such as an interest in an entity that, directly
or indirectly, owns Cygne stock. The Stock Transfer Restrictions may also apply
to proscribe the creation or transfer of certain "options" (which are broadly
defined by Section 382 of the Code) in respect of our stock to the extent,
generally, that exercise of the option would result in a proscribed level of
ownership.
Generally, the Stock Transfer Restrictions will be imposed only with
respect to the amount of the Cygne's stock (or options with respect to Cygne's
stock) purportedly transferred in excess of the threshold established in the
Stock Transfer Restrictions. In any event, the
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restrictions will not prevent a transfer to Bernard Manuel or if the purported
transferee obtains the approval of the board of directors, which approval shall
be granted or withheld in the sole and absolute discretion of the board of
directors, after considering all facts and circumstances including but not
limited to future events deemed by the board of directors to be reasonably
possible.
In order for the Stock Transfer Restrictions to be effectively enforced,
the Stock Transfer Amendment will further provide that a Restricted Holder will
be required, prior to the date of any proposed transfer, to request in writing
that the board of directors review the proposed transfer and authorize or not
authorize such proposed transfer. Any transfer attempted to be made in violation
of the Stock Transfer Restrictions will be null and void. In the event of an
attempted or purported transfer involving a sale or disposition of capital stock
in violation of the Stock Transfer Restrictions, the transferor shall remain the
owner of such shares. In the event of an attempted or purported transfer
involving the purchase or acquisition by a Restricted Holder in violation of the
Transfer Restrictions, Cygne shall be deemed to be the exclusive and irrevocable
agent for the transferor of such capital stock. Cygne shall be such agent for
the limited purpose of consummating a sale of such shares to a person who is not
a Restricted Holder (an "eligible transferee"), which may include, without
limitation, the transferor. The record ownership of the subject shares shall
remain in the name of the transferor until the shares have been sold by Cygne or
its assignee, as agent, to an eligible transferee and the purported transferee
would not be recognized as the owner of the shares owned in violation of the
restrictions for any purpose, including for purposes of voting and receiving
dividends or other distributions in respect of such stock, or in the case of
options, receiving stock in respect of their exercise.
Our board of directors has the discretion to approve a transfer of stock
that would otherwise violate the Stock Transfer Restrictions see "-Board Power
To Waive Stock Transfer Restrictions." In deciding whether to approve any
proposed Restricted Transfer of capital stock by or to a Restricted Holder, our
board of directors may seek the advice of counsel with respect to Cygne's
preservation of its federal, state and local income tax attributes pursuant to
Section 382 of the Code and may request all relevant information from the
Restricted Holder with respect to all capital stock directly or indirectly owned
by such Restricted Holder. Any Restricted Holder who makes such a request of the
board of directors to transfer shares of capital stock shall reimburse Cygne, on
demand, for all costs and expenses incurred by Cygne with respect to any
proposed transfer of capital stock, including, without limitation, Cygne's costs
and expenses incurred in determining whether to authorize that proposed
Restricted Transfer.
The Stock Transfer Amendment provides that any person who knowingly
violates the Stock Transfer Restrictions or any persons in the same control
group with such person shall be jointly and severally liable to Cygne for, and
shall indemnify and hold Cygne harmless against, any and all damages suffered as
a result of such violation, including but not limited to damages resulting from
a reduction in or elimination of Cygne's ability to use its net operating
losses.
The Stock Transfer Restrictions will not apply to (i) any transfer
described in Section 382(1)(3)(B) of the Code (relating to transfers upon death
or divorce and certain gifts) if the transferor held the stock transferred for
longer than the entire three-year period preceding the date of the transfer,
(ii) any sale of our common stock by a person who owns more than 5% of our
outstanding common stock on the date of this proxy statement if such sale would
not result in a net increase in the amount of stock owned by 5% stockholders (as
determined for purposes of
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Section 382 of the Code) during the three-year period ending on the date of such
sale, provided such sale would not otherwise be prohibited under the Stock
Transfer Restrictions but for such transferor's ownership of stock of Cygne, and
(iii) any transfer which the board of directors has approved in writing, which
approval may be given in the sole and absolute discretion of our board of
directors after considering all facts and circumstances, including but not
limited to future events the occurrence of which are deemed to be reasonably
possible. Such approval may be granted if, in the judgment of the board of
directors, the benefits of doing so outweigh the costs of limitations on the
availability of the net operating losses.
We believe that, as of the date of this proxy statement, the only
stockholder that would, or may, be treated under Section 382 of the Code as
beneficially owning 5% or more of our stock is Bernard Manuel. See "Beneficial
Ownership of Common Stock." There may be other stockholders that beneficially
own 5% or more of our stock, although we are not aware of any such stockholders.
Except as discussed below (including the discussion of the board of directors'
power to waive the Stock Transfer Restrictions,) the Stock Transfer Restrictions
would restrict any other person or entity (or group thereof) from acquiring
sufficient stock of Cygne to cause such person or entity to become the owner of
5% or more of our stock, and would prohibit persons that own over 5% of our
stock generally from increasing their ownership of our stock, without obtaining
the approval of our board of directors.
Assuming adoption by stockholders of the Stock Transfer Amendment, Article
XI will provide that all certificates representing shares of our Common Stock
must bear the following legend:
"The Certificate of Incorporation (the "Certificate") of the Corporation
contains restrictions prohibiting the sale, transfer, disposition, purchase
or acquisition of any capital stock, without the authorization of the Board
of Directors of the Corporation (the "Board of Directors",) by or to any
holder (a) who beneficially owns directly or through attribution (as
generally determined under Section 382 of the Internal Revenue Code of
1986, as amended (the "Code")) five percent or more of the value of the
then issued and outstanding shares of capital stock of the Corporation or
(b) who, upon the sale, transfer, disposition, purchase or acquisition of
any capital stock of the Corporation, would beneficially own directly or
through attribution (as generally determined under Section 382 of the Code)
five percent or more of the value of the then issued and outstanding
capital stock of the Corporation, if that sale, transfer, disposition,
purchase or acquisition would, in the sole discretion and judgment of the
Board of Directors, jeopardize the Corporation's preservation of its
federal income tax attributes pursuant to Section 382 of the Code and is
not otherwise in the best interests of the Corporation and it stockholders.
The Corporation will furnish without charge to the holder of record of this
certificate a copy of the Certificate containing the above-referenced
restrictions on transfer of stock, upon written request to the Corporation
at its principal place of business."
We intend to issue instructions to or make arrangements with the transfer
agent for our common stock to implement the Stock Transfer Restrictions. These
instructions or arrangements may result in the delay or refusal of transfers
initially determined by the transfer agent to be in violation of the Stock
Transfer Restrictions, including such transfers as might be ultimately
determined by Cygne and its transfer agent not to be in violation of such
restrictions. We believe
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that such delays would be minimal but could occur at any time while the Stock
Transfer Restrictions are in effect.
PROPOSED AMENDMENT NO GUARANTEE
Although the Stock Transfer Amendments are intended to reduce the
likelihood of an ownership change, it will not prevent all transfers that might
result in an "ownership change." Furthermore, certain changes in relationships
and other events not addressed by the Stock Transfer Amendments could cause
Cygne to undergo an "ownership change." Section 382 of the Code is an extremely
complex provision with respect to which there are many uncertainties. In
addition, we have not requested a ruling from the IRS regarding the
effectiveness of the Stock Transfer Amendment and, therefore, there can be no
assurance that the IRS will agree that the Stock Transfer Amendment is effective
for purposes of Section 382 of the Code. In addition, the Stock Transfer
Amendment does not apply to Bernard Manuel, who currently owns approximately
40.0% of our stock. Further, our board of directors may determine in its sole
discretion to permit a Restricted Transfer that results in an "ownership change"
if it determines that such transfer is in the best interests of Cygne. As a
result of the foregoing, the Stock Transfer Amendment serves to reduce, but does
not eliminate, the risk that Cygne will undergo an ownership change. In
addition, although we believe that no "ownership change" has occurred as of the
date of this proxy statement since December 15, 1989, we cannot assure you that
Cygne has not already undergone an "ownership change." Finally, we cannot assure
you that upon audit, the IRS would agree that all of Cygne net operating loss,
capital loss and tax credit carryforwards are allowable. Our board of directors
nevertheless believes that the adoption of the Stock Transfer Amendment is in
the best interests of Cygne because it discourages transfers that could cause or
contribute to an "ownership change."
Even if the Stock Transfer Restrictions are approved, we cannot assure you
that the Stock Transfer Restrictions or portions thereof will be enforceable in
Delaware courts. Under Delaware law, the Stock Transfer Restrictions are not
binding with respect to shares issued prior to the adoption of the Stock
Transfer Restrictions unless the holder of the shares voted in favor of the
Stock Transfer Restrictions Charter Amendment. For the purpose of determining
whether a stockholder is subject to the Stock Transfer Restrictions, we intend
to take the position that all shares were voted in favor of the Stock Transfer
Amendment unless the contrary is established to our satisfaction. We also intend
in certain circumstances to assert the position that stockholders have waived
the right to challenge or are estopped from challenging the enforceability of
the Stock Transfer Restrictions, regardless of whether they voted in favor of
the Stock Transfer Amendment.
BOARD POWER TO WAIVE STOCK TRANSFER RESTRICTIONS
The board of directors has the discretion to approve a transfer of stock
that would otherwise violate the Stock Transfer Restrictions. If the board of
directors decides to permit a transfer that would otherwise violate the Stock
Transfer Restrictions, that transfer or later transfers may result in an
ownership change that would limit the use of our net operating losses. The board
of directors would only permit such an attempted transfer after making the
determination that it is in the best interests of Cygne and its stockholders,
after consideration of the risk that an ownership change might occur and any
other factors that the board deems
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relevant (including possible future events). The board of directors may grant
such a waiver in order to raise additional capital or to acquire a business.
As a result of the foregoing, the Stock Transfer Restrictions serve to
reduce, but not necessarily eliminate, the risk that Section 382 of the Code
will cause the limitations described above on the use of tax attributes of
Cygne.
OTHER CONSIDERATIONS
Because some corporate takeovers occur through the acquiror's purchase, in
the public market or otherwise, of sufficient stock to give it control of a
company, any provision that restricts the transferability of shares can have the
effect of preventing such a takeover. The Stock Transfer Amendment, if adopted,
may be deemed to have an "anti-takeover" effect because it will restrict the
ability of a person, entity or group to accumulate in the aggregate, through
transfers of our common stock, more than five percent, in value, of our capital
stock and the ability of persons, entities or groups other than Bernard Manuel
now owning more than five percent, in value, of our capital stock from acquiring
additional shares of our common stock without the approval of our board of
directors, with the result that our board of directors may be able to prevent
any future takeover attempt, in its discretion. Therefore, the Stock Transfer
Amendment would discourage or prevent accumulations of substantial blocks of
shares in which stockholders might receive a substantial premium above market
value. Similarly, because the Stock Transfer Amendment operates to prevent the
accumulation of more than five percent of Cygne common stock, it will discourage
the assumption of control by third parties and tend to insulate management
against the possibility of removal. These results might be considered
disadvantageous by some stockholders. However, such disadvantages are
outweighed, in the opinion of the board of directors, by the fundamental
importance to our stockholders of maintaining the availability of our tax
benefits. The board of directors is not aware of any efforts of others to take
control of Cygne and has no present intent to propose any provisions designed to
inhibit a change of control. The aforementioned "anti-takeover" effect of the
proposed Stock Transfer Amendment is not, however, the reason for the Stock
Transfer Restrictions. The board of directors has adopted and proposed the Stock
Transfer Amendment in an effort to reduce the risk that Cygne may be unable to
fully utilize the tax benefits described above as a result of future transfers
of Cygne common stock.
The board of directors believes that attempting to safeguard the tax
benefits of Cygne as described above is in the best interests of Cygne and its
stockholders. Nonetheless, the Stock Transfer Amendment, if adopted, could
restrict a stockholder's ability to acquire additional shares of our common
stock to the extent those shares exceed the specified limitations of the Stock
Transfer Restrictions. Furthermore, a stockholder's ability to dispose of his
common stock could be restricted as a result of the Stock Transfer Restrictions.
The board of directors has the discretion to approve a transfer of the Company's
common stock that would otherwise violate the Stock Transfer Restrictions. If
the board of directors decides to permit a transfer that would otherwise violate
the Stock Transfer Restrictions, that transfer or later transfers may result in
an "ownership change" that would limit Cygne's use of its carryforwards. The
board of directors intends to consider any such attempted transfer individually
and determine at the time whether it is in the best interests of Cygne and its
stockholders, after consideration of any factors that the board deems relevant,
to permit such transfer notwithstanding that an "ownership change" may then
occur.
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POSSIBLE EFFECT ON LIQUIDITY
The Stock Transfer Restrictions will restrict a stockholder's ability to
acquire, directly or indirectly, additional stock of Cygne in excess of the
specified limitations. Furthermore, a stockholder's ability to dispose of his
Cygne stock (or any other stock of Cygne such stockholder may acquire) may be
restricted as a result of the Stock Transfer Restrictions, and a stockholder's
ownership of Cygne stock may become subject to the Stock Transfer Restrictions
upon the actions taken by related persons. If the Stock Transfer Amendment is
approved, Cygne would impose a legend reflecting the Stock Transfer Restrictions
on certificates representing newly issued or transferred shares. This legend may
result in a decreased valuation of our common stock due to the resulting
restrictions on transfers to persons directly or indirectly owning or seeking to
acquire a significant block of our common stock.
VOTE NEEDED FOR APPROVAL
Pursuant to the Delaware General Corporation Law, approval and adoption of
the proposed Stock Transfer Amendment requires the affirmative vote of a
majority of the outstanding shares of Common Stock of Cygne, whether voted at
the meeting in person or by proxy. The Stock Transfer Amendment, if approved,
will become effective immediately following stockholder approval of the same and
the filing of the Certificate of Amendment with the Secretary of State of the
State of Delaware, which we would do as soon as practicable following receipt of
stockholder approval.
Stockholders should be aware that a vote in favor of the Stock Transfer
Amendment may result in a waiver of the stockholder's ability to contest the
enforceability of the Stock Transfer Restrictions. Consequently, all
stockholders should carefully consider this in determining whether to vote in
favor of the Stock Transfer Restrictions. We intend to enforce vigorously the
Stock Transfer Restrictions against all current and future holders of its stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN
FAVOR OF THIS PROPOSAL NO. 2.
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PERFORMANCE GRAPH
The graph compares our performance from January 27, 1995, the first day of
our 1995 fiscal year to January 29, 2000, the last business day of our fiscal
year, against the cumulative total return of the S&P 500 Stock Index and the S&P
Textile - Apparel Index.
COMPARE CUMULATIVE TOTAL RETURN AMONG CYGNE DESIGNS, INC.,
S&P 500 STOCK INDEX AND THE S&P TEXTILE - APPAREL INDEX
<TABLE>
[GRAPHICAL REPRESENTATION OF DATA CHART]
<CAPTION>
1/27/95 2/2/96 1/31/97 1/30/98 1/30/99 1/29/00
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Cygne Designs, Inc. ................... 100.00 10.32 7.82 2.71 0.82 2.00
Total return S&P 500
Stock Index ....................... 100.00 139.00 175.00 222.00 295.00 342.00
Total return textile -
Apparel Index ...................... 100.00 111.00 153.00 152.00 135.00 89.00
</TABLE>
ASSUMES $100 INVESTMENT ON JANUARY 27, 1995
ASSUMES DIVIDEND REINVESTMENT FISCAL YEAR ENDING JANUARY 29, 2000
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RELATIONSHIP WITH INDEPENDENT AUDITORS
Ernst & Young LLP have been our independent auditors during the 1999 fiscal
year and will serve in that capacity in the 2000 fiscal year. A representative
of Ernst & Young is expected to be present at the meeting where he will be
available to respond to appropriate questions and have the opportunity to make a
statement if he so desires.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL STOCKHOLDERS' MEETING
We must receive all stockholder proposals that are intended to be included
in our proxy statement for our 2001 annual meeting of stockholders no later than
April 19, 2001 at Cygne Designs, Inc., Attn: Secretary at 1410 Broadway, New
York, New York 10018. If we are not notified of a stockholder proposal by
February 8, 2001, then the proxies held by our management provide them with
discretionary authority to vote against the stockholder proposal, even though
the proposal is not discussed in the proxy statement.
OTHER MATTERS
We do not know of any matters that are to be presented for action at the
annual meeting other than those set forth above. If any other matters properly
come before the annual meeting, the persons named in the enclosed form of proxy
will vote the shares represented by proxies in accordance with their best
judgment on such matters.
Proxies will be solicited by mail and may also be solicited in person or by
telephone by some of our regular employees.
By order of the board of directors
Roy E. Green
Secretary
New York, New York
October __, 2000
IF YOU WOULD LIKE TO RECEIVE A FREE COPY OF OUR ANNUAL REPORT ON FORM 10-K, YOU
SHOULD REQUEST ONE IN WRITING FROM: CYGNE DESIGNS, INC., 1410 BROADWAY, NEW
YORK, NEW YORK 10018, ATTENTION: ROY E. GREEN.
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EXHIBIT A
TEXT OF PROPOSED NEW ARTICLE XI TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
"Limitation on Transfer of Shares. Except as expressly provided below in
this Article XI, shares of capital stock of the Corporation are fully and freely
transferable.
A. Certain Transfers Prohibited.
(i) No individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity, as well as any syndicate
or group deemed to be a person under Section 14(d)(2) of the
Securities Exchange Act of 1934, as amended (each a "Person",) who (i)
purports to purchase or acquire any shares of capital stock of the
Corporation from the Corporation by the exercise of a warrant or
option or otherwise or (ii) beneficially owns directly or through
attribution (as determined under Section 382 of the Internal Revenue
Code of 1986, as amended (the "Code")) five percent or more of the
value of the outstanding shares of capital stock of the Corporation or
who, upon the acquisition of any shares of capital stock of the
Corporation, would beneficially own directly or through attribution
(as determined under Code Section 382) five percent or more of the
value of the outstanding shares of capital stock of the Corporation
(each such Person described in (i) or (ii) above being a "Restricted
Holder",) shall sell, transfer or dispose, or purchase or acquire in
any manner whatsoever, whether voluntarily or involuntarily, by
operation of law or otherwise (any such sale, transfer, disposition,
purchase, acquisition or contract being a "Transfer"), any shares of
capital stock of the Corporation or any option, warrant or other right
to purchase or acquire capital stock of the Corporation (such warrant,
option or security being an "Option") or any securities convertible
into or exchangeable for capital stock of the Corporation, except as
authorized pursuant to this Article XI. For purposes of this Article
XI, "capital stock" shall include the Common Stock and the Preferred
Stock of the Corporation and any Option. Notwithstanding the preceding
sentence, for purposes of determining whether a Person owns five
percent or more of the value of the outstanding shares of capital
stock of the Corporation, Options shall be taken into account to the
extent taking such Options into account would cause a Person to become
a Restricted Holder. Notwithstanding the provisions of this clause
(i,) nothing herein shall prohibit the acquisition or disposition by
Bernard Manuel of any capital stock.
(ii) The restrictions contained in this Article XI are for the purpose
of reducing the risk that any change in stock ownership may jeopardize
the preservation of the
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<PAGE>
Corporation's federal, state and local income tax attributes. In
connection therewith, and to provide for the effective policing of
these provisions, a Restricted Holder who proposes to Transfer shares
of capital stock shall, prior to the date of the proposed Transfer,
request in writing (a "Request") that the Board of Directors of the
Corporation review the proposed Transfer and authorize or not
authorize the proposed Transfer pursuant to subsection C hereof. A
Request shall be mailed or delivered to the President of the
Corporation at the Corporation's principal place of business or
telecopied to the Corporation's telecopier number at its principal
place of business. Such Request shall be deemed to have been delivered
when actually received by the Corporation. A Request shall include (a)
the name, address and telephone number of the Restricted Holder, (b) a
description of the shares of capital stock proposed to be Transferred
by or to the Restricted Holder, (c) the date on which the proposed
Transfer is expected to take place, (d) the name of the proposed
transferor and transferee of the capital stock to be Transferred by or
to the Restricted Holder, and (e) a Request that the Board of
Directors authorize, if appropriate, the Transfer pursuant to
subsection C hereof and inform the Restricted Holder of its
determination regarding the proposed Transfer. If the Restricted
Holder seeks to sell or dispose of shares of capital stock, then,
within five business days of receipt by the President of a Request, a
meeting of the Board of Directors shall be held to determine whether
to authorize the proposed Transfer described in the Request under
subsection C hereof. If the Restricted Holder seeks to purchase or
acquire shares of capital stock, at the next regularly scheduled
meeting of the Board of Directors following the fifth business day
after receipt by the President of a Request, the Board of Directors
will meet to determine whether to authorize the proposed Transfer
described in the Request under subsection C hereof. The Board of
Directors shall conclusively determine whether to authorize the
proposed Transfer, in its sole discretion and judgment, and shall
immediately cause the Restricted Holder making the Request to be
informed of such determination.
B. Effect of Unauthorized Transfer. Any Transfer attempted to be made
in violation of this Article XI will be null and void. In the event of an
attempted or purported Transfer involving a sale or disposition of capital
stock in violation of this Article XI, the Restricted Holder shall remain
the owner of such shares. In the event of an attempted or purported
Transfer involving the purchase or acquisition by a Restricted Holder in
violation of this Article XI, the Corporation shall be deemed to be the
exclusive and irrevocable agent for the transferor of such capital stock.
The Corporation shall be such agent for the limited purpose of consummating
a sale of such shares to a Person who is not a Restricted Holder (an
"eligible transferee",) which may include, without limitation, the
transferor. The record ownership of the subject shares shall remain in the
name of the transferor until the shares have been sold by the Corporation
or its assignee, as agent, to an eligible transferee. The Corporation shall
be entitled to assign its agency hereunder to any person or entity
including, but not limited to, the intended transferee of
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<PAGE>
the shares, for the purpose of effecting a permitted sale of such shares.
Neither the Corporation, as agent, nor any assignee of its agency
hereunder, shall be deemed to be a stockholder of the Corporation nor be
entitled to any rights of a stockholder of the Corporation, including, but
not limited to, any right to vote such capital stock or to receive
dividends or liquidating distributions in respect thereof, if any, but the
Corporation or its assignee shall only have the right to sell and transfer
such shares on behalf of and as agent for the transferor to another person
or entity; provided, however, that a Transfer to such other person or
entity does not violate the provisions of this Article XI. The rights to
vote and to receive dividends and liquidating distributions with respect to
such shares shall remain with the transferor. The intended transferee shall
not be entitled to any rights of stockholders of the Corporation,
including, but not limited to, the rights to vote or to receive dividends
and liquidating distributions with respect to such shares. In the event of
a permitted sale and transfer, whether by the Corporation or its assignee,
as agent, the proceeds of such sale shall be applied first to reimburse the
Corporation or its assignee for any expenses incurred by the Corporation
acting in its role as the agent for the sale of such shares, second to the
extent of any remaining proceeds, to reimburse the intended transferee for
any payments made to the transferor by such intended transferee for such
shares, and the remainder, if any, to the original transferor.
C. Authorization of Transfer of Capital Stock by a Restricted Holder.
The Board of Directors may authorize a Transfer by a Restricted Holder, or
to a Restricted Holder, if, in its sole discretion and judgment it
determines that the Transfer is in the best interests of the Corporation
and its Stockholders. In deciding whether to approve any proposed Transfer
of capital stock by or to a Restricted Holder, the Board of Directors may
seek the advice of counsel with respect to the Corporation's preservation
of its federal income tax attributes pursuant to Code Section 382 and may
request all relevant information from the Restricted Holder with respect to
all capital stock directly or indirectly owned by such Restricted Holder.
Any Person who makes a Request of the Board of Directors pursuant to this
subsection C to Transfer shares of capital stock shall reimburse the
Corporation, on demand, for all costs and expenses incurred by the
Corporation with respect to any proposed Transfer of capital stock,
including, without limitation, the Corporation's costs and expenses
incurred in determining whether to authorize that proposed Transfer.
D. Damages. Any Restricted Holder who knowingly violates the
provisions of this Article XI, and any persons controlling, controlled by
or under common control with such a Restricted Holder, shall be jointly and
several liable to the Corporation for, and shall indemnify and hold the
Corporation harmless against, any and all damages suffered as a result of
such violation, including but not limited to damages resulting from a
reduction in or elimination of the Corporation's ability to utilize its
federal, state and local income tax attributes under Code Section 382, and
attorneys' and accountants' fees incurred in connection with such
violation.
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<PAGE>
E. Legend on Certificates. All certificates for shares of Common Stock
issued by the Corporation shall conspicuously bear the following legend:
"The Certificate of Incorporation (the "Certificate") of the
Corporation contains restrictions prohibiting the sale, transfer,
disposition, purchase or acquisition of any capital stock without the
authorization of the Board of Directors of the Corporation (the "Board
of Directors",) by or to any holder (a) who beneficially owns directly
or through attribution (as generally determined under Section 382 of
the Internal Revenue Code of 1986, as amended (the "Code")) five
percent or more of the value of the then issued and outstanding shares
of capital stock of the Corporation or (b) who, upon the sale,
transfer, disposition, purchase or acquisition of any capital stock of
the Corporation, would beneficially own directly or through
attribution (as generally determined under Section 382 of the Code)
five percent or more of the value of the then issued and outstanding
capital stock of the Corporation, if that sale, transfer, disposition,
purchase or acquisition would, in the sole discretion and judgment of
the Board of Directors, jeopardize the Corporation's preservation of
its federal income tax attributes pursuant to Section 382 of the Code
and is not otherwise in the best interests of the Corporation and its
stockholders. The Corporation will furnish without charge to the
holder of record of this certificate a copy of the Certificate,
containing the above-referenced restrictions on transfer of stock,
upon written request to the Corporation at its principal place of
business."
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<PAGE>
CYGNE DESIGNS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON ______, ___, 2000
Bernard Manuel and Roy Green, and each of them, as the true and lawful
attorneys, agents and proxies of the undersigned, with full power of
substitution, are hereby authorized to represent and to vote all shares of
Common Stock of Cygne Designs, Inc. (the "Company") held of record by the
undersigned on September 21, 2000, at the Annual Meeting of Stockholders to be
held at 9:30 A.M. (local time) on ________, ____ 2000, at the offices of
Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103 and any
adjournment thereof. Any and all proxies heretofore given are hereby revoked.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BY THE
UNDERSIGNED. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR EACH OF THE
NOMINEES LISTED IN PROPOSAL NO. 1 AND FOR PROPOSAL NO. 2.
Proposal No. 1 - Election of Directors - Nominees are:
James G. Groninger and Bernard M. Manuel
|_| FOR all listed nominees (except do not vote for the
nominee(s) whose name(s) appears(s) below):
--------------------------------------------------------------
|_| WITHHOLD AUTHORITY to vote for the listed nominees.
Proposal No. 2 - Proposal to adopt an amendment to the Company's Certificate of
Incorporation to place restrictions on the transfer of Common Stock.
|_| FOR
|_| AGAINST
|_| ABSTAIN
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
Discretionary authority is hereby granted with respect to such other matters as
may properly come before the meeting.
DATED ____________________, 2000
--------------------------------
SIGNATURE
--------------------------------
SIGNATURE IF HELD JOINTLY
IMPORTANT: PLEASE SIGN EXACTLY AS NAME APPEARS ABOVE. EACH JOINT OWNER SHALL
SIGN. EXECUTORS, ADMINISTRATORS, TRUSTEES, ETC. SHOULD GIVE FULL TITLE AS SUCH.
IF SIGNOR IS A CORPORATION, PLEASE GIVE FULL CORPORATE NAME BY DULY AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
THE ABOVE-SIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS AND THE PROXY STATEMENT FURNISHED THEREWITH. PLEASE MARK, SIGN,
DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
