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PRELIMINARY COPY
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant | |
Filed by a party other than the Registrant |X|
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 Rule 14a-11(c) or Rule 14a-12
DESIGNS, INC.
--------------------
(Name of Registrant as Specified in Its Charter)
JEWELCOR MANAGEMENT, INC.
-------------------------
(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:
(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:
ANNUAL MEETING OF STOCKHOLDERS
OF DESIGNS, INC.
TO BE HELD ON SEPTEMBER 13, 1999
PROXY STATEMENT OF
JEWELCOR MANAGEMENT, INC.
IN OPPOSITION TO THE BOARD OF DIRECTORS OF
DESIGNS, INC.
AND IN SUPPORT OF PROPOSAL TO TERMINATE "POISON PILL"
TO ALL STOCKHOLDERS OF DESIGNS, INC.:
This Proxy Statement and the accompanying WHITE PROXY CARD are being
furnished by Jewelcor Management, Inc., a Nevada corporation ("JMI"), to the
stockholders of Designs, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies to be used at the 1999 annual
meeting of the stockholders of the Company and any adjournments or postponements
thereof (the "Annual Meeting"). JMI understands that the Company plans to hold
the Annual Meeting on September 13, 1999 at 1:00 P.M. eastern standard time at
________________________________________________________.
JMI is soliciting your proxy (i) to elect Seymour Holtzman, Joseph
Pennacchio, John J. Schultz, Peter R. McMullin, Robert L. Patron and Jeremiah P.
Murphy, Jr. (the "JMI Nominees") to the Board of Directors of the Company at the
Annual Meeting and (ii) to adopt JMI's proposal to terminate the Company's
Shareholder Rights Agreement, commonly known as a "Poison Pill," dated as of May
1, 1995, and all amendments thereto (the "Poison Pill"). JMI is proposing a
slate of nominees for the Board of Directors because it believes a new Board is
needed to seek to reverse the Company's decline and pursue ways to enhance
shareholder value. It believes termination of the Company's Poison Pill is in
the best interest of shareholders because, among other things, it is widely
perceived that institutional investors view a poison pill as having a negative
effect on the price of stock. Each director of the Company will be elected for a
term of one (1) year expiring at the 2000 annual meeting, each until their
successors are duly elected and qualified.
JMI understands that the Company has fixed August 5, 1999 as the record
date (the "Record Date") for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting. Because this Proxy Statement has
been prepared in preliminary form prior to the Record Date, JMI does not know
the number of shares of Common Stock that will be outstanding and entitled to
vote on the matters described herein on the Record Date.
According to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended May 1, 1999 there were 15,930,000 shares of Common Stock
outstanding.
YOUR VOTE IS IMPORTANT - VOTE FOR EACH OF JMI's PROPOSALS
Carefully review this Proxy Statement and the enclosed WHITE PROXY
CARD. No matter how many or how few shares of Common Stock you own, YOUR VOTE IS
IMPORTANT. Please vote FOR the election of the JMI Nominees to the Board of
Directors and FOR the proposal to terminate the Poison Pill by so indicating and
by signing, dating and promptly mailing the WHITE PROXY CARD in the enclosed
postage-paid envelope.
No Proxy Card will be furnished by JMI until such time as a definitive
form of the Proxy Statement has been filed with the Securities and Exchange
Commission. This Proxy Statement is first being sent or given to holders of the
Company's Common Stock on or about ______, 1999. This Proxy Statement has been
filed in preliminary form with the Securities and Exchange Commission on July
15, 1999, and such preliminary form may thereafter be furnished to stockholders
of the Company.
VERY IMPORTANT
JMI REQUESTS THAT YOU DO NOT VOTE ON OR RETURN TO THE COMPANY ANY PROXY
CARD PROVIDED TO YOU BY THE COMPANY, EVEN TO VOTE AGAINST THE INCUMBENT MEMBERS
OF THE BOARD OF DIRECTORS. RETURNING ANY PROXY CARD PROVIDED TO YOU BY THE
COMPANY COULD REVOKE THE PROXY CARD THAT YOU SIGN, DATE AND SEND TO JMI.
REMEMBER - ONLY YOUR LATEST DATED PROXY CARD WILL COUNT AT THE MEETING!
DO NOT SEND ANY PROXY CARD TO THE COMPANY!
If you own shares of Common Stock and the stock certificate is in your
name, please vote FOR the election of the JMI Nominees to the Board of Directors
and FOR the proposal to terminate the Poison Pill by marking, signing, dating
and mailing the WHITE PROXY CARD only.
If you own shares of Common Stock, but your stock certificate is held
for you by a brokerage firm, bank or other institution, it is very likely that
the stock certificate is actually in the name of that brokerage firm, bank or
other institution. If so, only that entity can execute a Proxy Card and vote
your shares of Common Stock. The brokerage firm, bank, or other institution
holding the shares of Common Stock for you is required to forward proxy
materials to you and to solicit your instructions with respect to the granting
of proxies. It cannot vote your shares of Common Stock unless it receives your
instructions. IF A BROKERAGE FIRM,
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BANK, OR OTHER INSTITUTION IS HOLDING SHARES OF COMMON STOCK FOR YOU, PLEASE
INSTRUCT THAT ENTITY TO VOTE SUCH SHARES FOR THE ELECTION OF THE JMI NOMINEES TO
THE BOARD OF DIRECTORS AND FOR THE PROPOSAL TO TERMINATE THE POISON PILL BY
SIGNING, DATING AND MAILING TO JMI ON YOUR BEHALF THE WHITE PROXY CARD PROMPTLY.
JMI URGES YOU TO CONFIRM IN WRITING YOUR INSTRUCTIONS TO THE PERSON RESPONSIBLE
FOR YOUR ACCOUNT AND TO PROVIDE A COPY OF THOSE INSTRUCTIONS TO JMI IN CARE OF
D.F. KING & CO., INC. ("D.F.KING") AT THE ADDRESS SET FORTH BELOW SO THAT JMI
WILL BE AWARE OF ALL INSTRUCTIONS GIVEN AND CAN ATTEMPT TO ENSURE THAT SUCH
INSTRUCTIONS ARE FOLLOWED.
Any stockholder giving a proxy may revoke it at any time before it is
voted by attending the Annual Meeting and voting his or her shares of Common
Stock in person, by giving written notice to the Secretary of the Company at 66
B Street, Needham, Massachusetts 02194 stating that the proxy has been revoked,
or by delivery of a proxy bearing a later date.
IF YOU HAVE ALREADY RETURNED THE PROXY CARD SUPPLIED BY THE COMPANY'S
BOARD OF DIRECTORS, YOU HAVE EVERY RIGHT TO CHANGE YOUR VOTE BY SIGNING DATING
AND RETURNING THE WHITE PROXY CARD.
If you have any questions about executing your WHITE PROXY CARD or
require assistance, please contact:
D.F. King & Co., Inc.
77 Water Street, 20th Floor
New York, NY 10005
Toll Free: (800) 290-6424
Banks and Brokers call collect: (212) 269-5550
INFORMATION ABOUT JMI
JMI is a major stockholder of the Company which, as of the date of this
Proxy Statement, is the beneficial owner of 1,570,200 shares of the Company's
Common Stock (or approximately 9.9% of the shares issued and outstanding). It
intends to vote its shares FOR the election of the JMI Nominees and FOR the
proposal to terminate the Poison Pill.
JMI is a wholly-owned subsidiary of Jewelcor, Inc., a Pennsylvania
corporation ("JI"), which is a wholly-owned subsidiary of S.H. Holdings, Inc.
("SH"). Seymour Holtzman and Evelyn Holtzman, husband and wife, own, as tenants
by the entirety, a controlling interest of SH. The principal businesses of JMI
and its related companies are the ownership and operation of upscale retail
jewelry stores, the ownership of commercial real estate and investment and
management services. Mr. Holtzman is the Chairman of the Board and Chief
Executive Officer of each of JMI, JI and SH. The business address and the
address of the principal executive offices of JMI is 100 North Wilkes-Barre
Blvd., 4th Floor, Wilkes-Barre, Pennsylvania 18702.
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Additional information about JMI and the JMI Nominees is set forth
under the heading "Certain Other Information Regarding JMI and The JMI Nominees"
below and in Annex A attached to this Proxy Statement.
REASONS FOR THIS SOLICITATION
Since Joel Reichman took over as President and CEO of the Company in
December 1994, shareholders have watched the value of their investment in the
Company steadily erode. Under the "leadership" of Joel Reichman and the current
members of the Board of Directors, the Company has suffered $77 million in
operating losses and alarming decreases in both comparable store sales and stock
price. The Company belongs to you, the stockholders, and you must decide who
should lead it. Don't let the Company's management distract you with unfulfilled
promises and personal attacks on stockholders who question management's failure
to perform. The real issue is that Joel Reichman and the current Board of
Directors are responsible for the 79% decline in the Company's stock price since
January 1995 and for the astronomical losses over the last two years.
Do you want to keep the current Board of Directors and executive
management with the following performance record? We don't think so.
[GRAPHIC OMITTED]
$52 MILLION IN CASH SQUANDERED SINCE JOEL REICHMAN TOOK OVER
o When Joel Reichman replaced Stanley Berger as President, the Company
had approximately $38 million in cash and investments and no bank
debt. Now, under the reign of Joel Reichman, the Company has no cash
and over $14 million in bank debt (including $2.3 million borrowed
just two months ago to fund a trust to provide potential future
payments for Joel Reichman and other members of senior management).
HUGE OPERATING LOSSES
o Over the last two fiscal years and the first fiscal quarter of 1999,
the Company has suffered enormous operating losses totalling
approximately $77 million, or $4.82 per share. The Company has
sustained operating losses for nine straight quarters and these losses
are continuing.
[GRAPHIC OMITTED]
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STOCK PRICE PLUMMETS
o Since Joel Reichman became President and CEO, the Company's stock
price has dropped from $7.75 on January 28, 1995, to $1.59 at the
close of business on July 15, 1999, a decline of approximately 79%.
This decline occurred during a period in which the stock market
generally has achieved unprecedented increases in value.
[GRAPHIC OMITTED]
GROSS MARGINS TUMBLE
o Since Joel Reichman became President and CEO, the Company has
experienced a substantial erosion in its gross margins. For the fiscal
year ended January 28, 1995, the Company's gross margin was 31.6%,
compared to 21% for the fiscal year ended January 30, 1999, a decrease
of 33%.
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SALES COLLAPSE
o Since January 28, 1995, the Company's annual sales have fallen
precipitously from $301,074,000 to $201,634,000, a 33% decline during
one of the most robust periods of economic growth in recent history,
and comparable store sales within the Company have also decreased. The
losing trend continues - the Company's comparable store sales were
down 10% in April 1999, down 2.6% in May 1999, and down 3% in June
1999, despite the fact that U.S. retail sales generally at stores open
at least one year rose by 7.4% in June 1999.
NET WORTH DECIMATED
o The tangible net worth of the Company decreased by $31.5 million since
Joel Reichman became CEO.
JMI believes that Joel Reichman and the current Board of Directors are
clearly responsible for the Company going from being highly profitable to
enormously unprofitable, and from being a financially sound company to where it
is today. Rather than replacing members of senior management, the Board of
Directors continues to retain the same highly paid individuals who have caused
the Company's financial crisis.
WHAT HAS THE BOARD OF DIRECTORS DONE FOR ITSELF AND THE
EXECUTIVES WHILE STOCKHOLDER VALUE HAS ERODED?
While stockholder value has plummeted under the leadership of Joel
Reichman and the current Board of Directors, the Company's management continues
to receive many of the luxuries and executive benefits found in profitable
businesses.
Moreover, the current Directors, with the exception of Stanley Berger,
own less than 1% of the outstanding Common Stock, and a substantial portion of
the Directors' small ownership was given to them by the Company as director fees
at no cost to them. After losing approximately $77 million in the past 2 1/4
years, how can a responsible Board of Directors not make a change in senior
management? JMI believes part of the answer is that these Directors do not share
your financial stake in the Company. With the exception of Stanley Berger, the
Board of Directors and senior management have very little invested in the
Company.
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DIRECTORS' RECENT SCHEME FOR $3.4 MILLION TO BENEFIT MANAGEMENT
o Directors Borrow $2.3 Million To Benefit Joel Reichman and Two Other
Executives. Under the pretense of retaining certain members of senior
management, the Board of Directors had the audacity to borrow $2.3
million in late May to fund a Trust for the benefit of Joel Reichman
and two other members of senior management. The Trust, which was
created to pay for "golden parachutes" for Joel Reichman, Scott Semel,
and Carolyn Faulkner and for other unknown items, has caused the
Company to incur interest costs which JMI estimates will amount to
approximately $15,000 per month or $90,000 for the initial six month
period. These expenses do not include the additional costs of
establishing and maintaining the Trust, which are unknown at this
time. The Company has failed to file the Trust with the Securities and
Exchange Commission or fully disclose the terms of the Trust to the
shareholders. Why won't they disclose all the facts?
o $1.1 million For Other Executives. In April 1999, the Company
disclosed that it had recently entered into additional agreements with
"key associates" under which they could receive as much as $1.1
million from the Company under certain circumstances.
o Based on the current market capitalization of the Company, under these
arrangements management could receive amounts totaling more than 13%
of the total current market capitalization.
EXECUTIVES STILL RECEIVE HIGH SALARIES AND PERQUISITES
o Despite the Company's financial woes, the Company's executives still
receive the high salaries, perquisites and amenities found in very
profitable businesses. Examples include:
o Joel Reichman's $375,000 annual salary
o Scott Semel's $290,000 annual salary
o Carolyn Faulkner's $210,000 annual salary
o The value of the Company vehicles has increased approximately
400% from $79,000 in 1994 to approximately $355,000 in 1998,
while overall sales have declined by $100 million over the same
period.
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DIRECTORS GRONINGER AND MANUEL PROFIT IN TRANSACTIONS WITH COMPANY
o In 1994 and 1995, the Company paid $432,000 to a division of
Cygne Design, Inc. ("Cygne"), a troubled private label apparel
manufacturer, for merchandise to be sold by the Company through
its new, and spectacularly unsuccessful, Boston Trader label. The
apparent strategy was for Cygne to become a supplier to the
Company. The Boston Trader product line resulted in devastating
losses for the Company. Two of the architects of the ill-fated
Boston Trader fiasco, which seriously injured the Company, are
Bernard Manuel and James Groninger, current members of the
Company's Board of Directors and of the Special Committee created
with the stated purpose of enhancing shareholder value. Bernard
Manuel is also the principal shareholder and one of two directors
of Cygne, with James Groninger, also a Cygne shareholder, being
the only other director.
o James Groninger, a Director of the Company, is also the President
of the BaySouth Company. The Company apparently retained outside
legal counsel to prepare its Poison Pill and then paid Bay South
Company $29,000 just to review this legal document. Why couldn't
the Company's in-house legal staff complete this review?
JMI'S STRATEGY TO ENHANCE SHAREHOLDER VALUE
If the JMI Nominees are elected as Directors of the Company, they
intend to immediately take steps designed to enhance shareholder value,
including:
o Sell the Company - The JMI Nominees intend to take all necessary
action to pursue a sale of the Company to enhance value for all
shareholders, including promptly retaining a New York investment
banking firm for that purpose. Any reasonable offer to purchase
the Company will be submitted to the shareholders for their vote.
o Substantially Reduce Overhead - The JMI Nominees intend to cause
the Company to engage the services of the public accounting firm
of Deloitte & Touche, LLP to assist in developing strategies
reducing overhead so that the Company can attain a sustainable
competitive advantage, including pursuing the following steps:
1. Substantially reduce the size of the Company's corporate
office space, together with a commensurate reduction in
personnel and other office overhead.
2. Eliminate warehouse expenses by shipping merchandise directly
to store locations.
3. Eliminate all company vehicles and institute a mileage
reimbursement program for business related travel.
4. Control corporate expenses relating to travel, lodging, and
attending conferences, conventions and trade shows.
5. Substantially reduce recurring legal, investment banking and
other professional consulting fees.
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6. Reduce the number of buyers since the Company has essentially
only one supplier of merchandise. The Company had been, and
should again be, able to run a low overhead operation.
7. Eliminate in-house legal staff.
8. Maintain better inventory management.
o Eliminate All Anti-Takeover Provisions - All of the anti-takeover
provisions contained in the Company's By-Laws and Certificate of
Incorporation shall be removed. The financial community generally
abhors anti-takeover provisions since they may have a negative
impact on stock value.
o Implement a Stock Repurchase Program - The JMI Nominees intend to
cause the Company to initiate a stock repurchase program to
purchase five million (5,000,000) shares of Common Stock. JMI
expects that it would join the Company in purchasing outstanding
shares of Common Stock and, obviously, JMI would also undertake
not to sell any of its shares under the Company's stock
repurchase program, giving other shareholders an opportunity to
sell more of their shares if they chose to do so. JMI has
obtained three financing proposals that provide for a stock
repurchase program and adequate working capital for the Company.
JMI'S PROPOSALS
JMI is seeking votes from the holders of shares of Common Stock (i) to
elect the JMI Nominees to the Board of Directors of the Company and (ii) to
adopt the proposal to terminate the Poison Pill. JMI believes that the members
of the existing Board of Directors have failed to enhance shareholder value and
RECOMMENDS THAT YOU VOTE FOR EACH OF ITS PROPOSALS.
Termination of Poison Pill
On May 1, 1995, the current Board of Directors of the Company adopted a
Poison Pill. According to the Poison Pill, if a person either (i) acquires the
beneficial ownership of 15% or more of the Company's Common Stock (an "Acquiring
Person") or (ii) acquires the beneficial ownership of 10% or more of the
outstanding shares of Common Stock and is declared to be an "Adverse Person" by
the Board of Directors (an "Adverse Person"), all shareholders, with the
exception of the Acquiring Person or Adverse Person, can exercise certain rights
under the
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Poison Pill that will substantially diminish the voting and ownership rights of
the Acquiring Person or Adverse Person.
JMI believes that the Poison Pill is an impediment to the sale of the
Company and serves to perpetuate the incumbency of the Board of Directors and
management. The Poison Pill has the purpose and effect of discouraging efforts
to acquire the Company that might be beneficial to, and supported by, a majority
of shareholders. The following proposal would recommend that the Board of
Directors of the Company terminate the Poison Pill. The text of the resolution
is as follows:
"RESOLVED, it is recommended that the Board of Directors of
the Company take the necessary steps to terminate the Company's
Shareholder Rights Agreement dated as of May 1, 1995, together with any
amendments thereto."
Election of Directors
The Board of Directors of the Company currently consists of six
members, each of which shall hold office until the Annual Meeting and until his
successor is elected and qualified. The Directors elected at the Annual Meeting
will serve until the 2000 Annual Meeting of Stockholders and until their
respective successors are elected and qualified. JMI is soliciting your proxy at
the Annual Meeting for the election of Seymour Holtzman, Joseph Pennacchio, John
J. Schultz, Peter R. McMullin, Robert L. Patron and Jeremiah P. Murphy, Jr. to
the Board of Directors of the Company.
CERTAIN OTHER INFORMATION REGARDING JMI AND THE JMI NOMINEES
Set forth below are the name, age, business address, present principal
occupation and employment history of each of the JMI Nominees for at least the
past five years. This information has been furnished to JMI by the respective
Nominees. Each of the Nominees is at least 18 years of age. None of the entities
referenced below is a parent or subsidiary of the Company.
JMI NOMINEES
Name, Age and
Business Address Principal Occupation and Five Year History
- ---------------- ------------------------------------------
Seymour Holtzman, 63 Mr. Holtzman has been involved in the retail
100 North Wilkes-Barre business for over 30 years. For many years he
Blvd. has been the President and Chief Executive
Wilkes-Barre, PA 18702 Officer of Jewelcor, Inc., formerly a New
York Stock Exchange company that operated a
nationwide chain of retail stores. In
addition, from 1986 to 1988 Mr. Holtzman
was the Chairman of the Board and Chief
Executive Officer of Gruen Marketing
Corporation, an American Stock Exchange
company involved in the nationwide
distribution of watches and the operation of
retail factory outlet stores. Mr. Holtzman is
the Chief
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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 based
in Chicago, Illinois, which has operated a
retail internet division for over 5 years; as
well as other affiliated entities. Mr.
Holtzman is also a member of the Board of
Directors of Ambanc Holding Co., Inc., the
parent company for a $730 million bank.
Joseph Pennacchio, 52 Mr. Pennacchio has been the President of
14001 N.W. 4th Street Aurafin LLC, a privately held jewelry
Sunrise, FL manufacturer and wholesaler since December
1997. From June 1996 to December 1997 he was
a retail consultant. From May 1994 to May
1996 Mr. Pennacchio was the President of Jan
Bell Marketing, Inc., a $250 million jewelry
retailer, which is traded on the New York
Stock Exchange. He has previously served as
the President of Jordan Marsh Department
Stores; the Senior Vice President for all
Merchandising at Abraham & Strauss Department
Stores; the Group Vice President of
Merchandising - Textiles at R.H. Macy.
John J. Schultz, 62 Mr. Schultz, who has more than thirty-five
142 Wilton Road West years of retail experience, has served as an
Ridgefield, CT 06877 active consultant to the retail industry
since 1993, dealing with virtually all major
segments of the retail industry. From 1991 to
1993, Mr. Schultz served as President of the
National Retail Federation, a leading retail
industry trade association. Previously, Mr.
Schultz served as Executive Vice President
and General Merchandise Manager for
Bloomingdale's Department Stores and Sanger
Harris Department Stores and as President and
Chief Executive Officer of B. Altman & Co.
Mr. Schultz currently serves as a member of
the Board of Directors of Great Train Store
Co., Big Smith Brands, Inc. and A.R.
Accessories, Inc. Mr. Schultz is a graduate
of Fairleigh Dickenson University, Dartmouth
Institute and the Federated Senior Management
Institute.
Peter R. McMullin, 56 Mr. McMullin, is an investment analyst and
2101 Corporate Boulevard the co-founder of Southeast Research
Suite 402 Partners, Inc. ("Southeast"). Mr. McMullin
Boca Raton, FL 33431 had been an Executive Vice President and a
Managing Director of Southeast from its
inception in June 1990 until July 1999, when
it merged with Ryan, Beck & Co. Since 1997,
Mr. McMullin has been the Executive Vice
President, Chief Investment Officer and a
director of Research Partners International,
a company that provides institutional
research, investment banking, securities
brokerage and trading services through its
principal subsidiaries. Mr. McMullin has 29
years experience as an analyst in the retail
and consumer products areas in both the U.S.
and Canada.
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Jeremiah P. Murphy, Jr., 47 Mr. Murphy is the President of the Harvard
1400 Massachusetts Ave. Cooperative (the "Cooperative"), a 117 year
Cambridge, MA 02138 old member based retail business. Since
becoming President in November of 1991, Mr.
Murphy has directed the restructuring and
right-sizing of the Cooperative's retail
operations and has returned the Cooperative
to profitability. Mr. Murphy is presently
overseeing the expansion of the Cooperative's
catalog operations and web based membership
system with E-Commerce capabilities. From
July 1987 to November 1991, Mr. Murphy was
Vice-President/General Manager for Neiman
Marcus' largest and most profitable retail
store, located in Northpark Mall, Dallas,
Texas. Mr. Murphy previously served in
various other managerial capacities with
Neiman Marcus from July 1977 to July 1987.
Mr. Murphy received a B.A. from Harvard
College in 1973 and his M.B.A. from Harvard
Business School in 1977.
Robert L. Patron, 53 Mr. Patron is a lawyer and investor. Mr.
641 Seneca Road Patron had been a real estate developer who,
Great Falls, VA 22066 since 1968, was engaged in the construction
and commercial leasing of shopping centers.
From his years of leasing to national retail
department stores and other tenants, Mr.
Patron has acquired extensive experience in
addressing and negotiating the various real
estate issues that confront retail
operations. Through the years, Mr. Patron has
developed or acquired a financial interest in
over 65 commercial and residential properties
located in 13 states. In 1994 Mr. Patron
temporarily curtailed his activities to
attend the George Washington University
School of Law where he attained his law
degree at the age of 53.
Each of the JMI Nominees has consented to serve as a director of the
Company and, if elected, intends to discharge his duties as a director in
compliance with all applicable legal requirements, including the general
fiduciary obligations imposed upon corporate directors.
Except as set forth in this Proxy Statement or in Annex A hereto, to
the best knowledge of JMI, none of the Nominees is employed by JMI or Seymour
Holtzman. All of the Nominees are citizens of the United States. Mr. McMullin is
also a citizen of Canada.
Except as set forth in this Proxy Statement or in Annex A hereto, to
the best knowledge of JMI, none of JMI, any of the persons participating in this
solicitation on behalf of JMI, the JMI Nominees and, with respect to items (i),
(vii) and (viii) of this paragraph, any associate (within the meaning of Rule
14a-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of the foregoing persons (i) owns beneficially, directly or indirectly any
securities of the Company, (ii) owns beneficially, directly or indirectly, any
securities of any parent or subsidiary of the Company, (iii) owns any securities
of the Company of record but not beneficially, (iv) has purchased or sold any
securities of the Company within the past two years, (v) has incurred
indebtedness for the purpose of acquiring or holding securities of the Company,
(vi) is or has within the past year been a party to any contract, arrangement or
understanding with respect to any securities of the Company, (vii) since the
beginning of the Company's last fiscal year has been indebted to the Company or
any of its subsidiaries in excess of $60,000 or (viii) has any arrangement or
understanding with respect to future employment by the Company or with respect
to any future transactions to which the Company or any of its affiliates will or
may be a party. In addition, except as set
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forth in this Proxy Statement or in Annex A hereto, to the best knowledge of
JMI, none of JMI, any of the persons participating in this solicitation on
behalf of JMI, the JMI Nominees and any associates of the foregoing persons, has
had or is to have a direct or indirect material interest in any transaction or
proposed transaction with the Company in which the amount involved exceeds
$60,000, since the beginning of the Company's last fiscal year.
Except as set forth in this Proxy Statement or in Annex A hereto, to
the best knowledge of JMI, none of the Nominees, since the beginning of the
Company's last fiscal year, has been affiliated with (i) any entity that made or
received, or during the Company's current fiscal year proposes to make or
receive, payments to or from the Company or its subsidiaries for property or
services in excess of five percent of either the Company's or such entity's
consolidated gross revenues for its last full fiscal year, or (ii) any entity to
which the Company or its subsidiaries was indebted at the end of the Company's
last full fiscal year in an aggregate amount exceeding five percent of the
Company's total consolidated assets at the end of such year. None of the JMI
Nominees is or during the Company's last fiscal year has been affiliated with
any law or investment banking firm that has performed or proposes to perform
services for the Company.
To the best knowledge of JMI, none of the corporations or organizations
in which the JMI Nominees have conducted their principal occupation or
employment was a parent, subsidiary or other affiliate of the Company, and the
JMI Nominees do not hold any position or office with the Company or have any
family relationship with any executive officer or director of the Company or
have been involved in any proceedings, legal or otherwise, of the type required
to be disclosed by the rules governing this solicitation.
JMI has agreed to indemnify each of the Nominees against certain
liabilities, including liabilities under the federal securities laws, in
connection with this proxy solicitation and such person's involvement in the
operation of the Company and to reimburse such Nominee for his out-of-pocket
expenses.
BACKGROUND OF JMI'S INVESTMENT IN DESIGNS, INC.
Beginning in October 1998, JMI began to acquire shares of Common Stock
because JMI believed that the then current trading prices of the Common Stock
did not adequately reflect the value of the underlying business and assets of
the Company.
On November 27, 1998, JMI, JI, SH and Seymour and Evelyn Holtzman (the
"Reporting Persons") filed with the Securities and Exchange Commission a
Statement on Schedule 13D (the "Schedule 13D") reporting that JMI had acquired
in excess of 5% of the outstanding shares of the Common Stock. On December 1,
1998 the Reporting Persons filed an amendment to the Schedule 13D reporting that
JMI had acquired an additional 528,500 shares of Common Stock, bringing JMI's
ownership to approximately 9.9% of the Common Stock last reported by the Company
as outstanding. The total amount of funds required to purchase the shares of
Common Stock acquired by JMI since October 26, 1998 was $976,978.50, all of
which was obtained through credit made available to JMI under standard margin
agreements with a registered broker dealer entered into in the ordinary course
of business.
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On December 7, 1998, JMI commenced a consent solicitation requesting
that the shareholders of the Company vote for its proposals to (i) remove all
current members of the Company's Board of Directors other than Stanley I.
Berger; (ii) elect Seymour Holtzman, Peter R. McMullin, Steve R. Tomasi, Jesse
H. Choper and Deborah M. Rhem-Jackson as directors of the Company; (iii) amend
certain sections of the By-Laws of the Company; and (iv) repeal any By-Laws
adopted by the Board of Directors subsequent to December 11, 1995 other than the
By-Laws adopted as contemplated by the consent solicitation.
Based on information obtained from JMI's proxy solicitation firm,
shareholders representing approximately 42.8% of the total outstanding shares of
Common Stock of the Company voted in favor of JMI's proposals in response to the
December 1998 solicitation.
In response to the consent solicitation the Company indicated a
commitment to sell the Company at the highest available price in the near term.
Thereafter, JMI pursued preliminary discussions with the Company with respect to
a potential acquisition.
Although JMI indicated, based on the status of discussions and
outstanding questions and issues regarding the Company, that it was not yet
prepared to make an unconditional proposal to acquire the Company, the Company's
investment bankers requested that JMI submit an immediate proposal subject to
any appropriate conditions. Accordingly, on April 28, 1999, JMI submitted to the
Company a proposal, subject to certain express terms and conditions, under which
JMI stated it would explore the purchase of all of the issued and outstanding
capital stock of the Company. A copy of JMI's April 28, 1998 letter is annexed
hereto as Annex B.
On May 5, 1999, the Special Committee of the Board of Directors of the
Company responded to JMI's April 28, 1999 proposal.
On June 24, 1999, JMI withdrew its April 28, 1999 proposal based on
Designs' failure to comply with JMI's conditions and requests and to provide JMI
with all of the information that it sought in connection with its due diligence.
Copies of Seymour Holtzman's correspondence to James G. Groninger, Chairman of
the Special Committee of the Board of Directors of the Company, which set forth
the basis of JMI's withdrawal of its proposal, are annexed hereto as Annex C and
Annex D.
CERTAIN POTENTIAL EFFECTS OF THE PROPOSALS
Set forth below is a description of certain provisions of certain
agreements to which the Company is a party which may be affected as a result of
the election of the JMI Nominees. This description is qualified in its entirety
by reference to such agreements which have been filed by the Company with the
Commission. The election of the JMI Nominees may trigger "change of control"
provisions in certain agreements to which the Company is a party. Other
documents or arrangements applicable to the Company not available to or not
reviewed by JMI may affect the matters described below or may be affected by the
matters contemplated by this Proxy Statement.
14
Credit Agreement
On June 4, 1998 the Company amended its asset based lending agreement
(the "Lending Agreement") with BankBoston Retail Finance, Inc. ("BankBoston").
The Lending Agreement allows the Company to borrow an amount equal to up to 65%
of its inventory. The aggregate amount currently available to be borrowed is
approximately $37 million and the Company currently has an outstanding balance
under the Lending Agreement of approximately $14 million. The Lending Agreement
provides that the removal and replacement of a majority of the Board of
Directors would constitute a change of control which would constitute an "event
of default." Upon the occurrence of an "event of default" any and all
"Liabilities" shall either (i) become due and payable without any further act on
the part of BankBoston or any other lender or (ii) become immediately due and
payable, at the option of BankBoston without notice or demand. Liabilities
include, among other things, the obligation to pay any loan or advance and any
interest thereon. JMI expects to cause the Company to seek confirmation from
BankBoston that no "change of control" has occurred or waive the effects of any
such "change of control." If BankBoston declares a default, JMI will assist the
Company in making other financing arrangements to replace the Lending Agreement.
In this regard, JMI has already received three comparable proposals from
financial institutions. There can be no assurance that either of the foregoing
can be implemented or agreed, or if implemented or agreed, the terms on which
such implementation or agreement may be reached.
Employment Agreements
The Company has entered into employment agreements (each an "Employment
Agreement" and collectively, the "Employment Agreements") with each of Joel H.
Reichman, the President and Chief Executive Officer, Scott N. Semel, Senior Vice
President, General Counsel and Secretary, and Carolyn Faulkner, Vice President
and Chief Financial Officer (each an "Executive" and collectively, the
"Executives") which contain "golden parachute provisions". The Employment
Agreements provide that removal and replacement of a majority of the Board of
Directors would constitute a "change of control."
If, among other things, the Company shall fail to renew such
Executive's Employment Agreement within two years of a "change of control," or
if any of the Executives is terminated without justifiable cause, the Company
shall upon such termination, immediately pay such Executive, the greater of (i)
two times the then annual salary of such Executive or (ii) 1/12 of such
Executive's then annual salary multiplied by the number of months remaining in
the term (the "Severance Period"). In addition, the Company shall continue to
allow such Executive to participate, at the Company's expense, in the Company's
health insurance and disability insurance programs, to the extent permitted
under such programs, during the Severance Period and shall pay such Executive
additional compensation to enable such Executive to pay any tax that may be
imposed by Section 280G of the Internal Revenue Code of 1986, as amended. Based
on publicly available filings, the current annual salaries of each of Mr.
Reichman, Mr. Semel and Ms. Faulkner are $375,000, $290,000 and $210,000,
respectively.
15
Stock Options
Pursuant to the Company's 1992 Stock Incentive Plan, as amended (the
"1992 Stock Incentive Plan"), incentive and non-incentive stock options,
unrestricted and restricted stock awards and performance share awards may be
granted to full or part time officers and other selected employees of the
Company and its subsidiaries. In addition, the 1992 Stock Incentive Plan
provides that each non-employee director of the Company that is elected by the
stockholders initially will be granted, upon such election, a stock option to
purchase up to 10,000 shares of the Company's Common Stock at the then fair
market value of the Common Stock. The 1992 Stock Incentive Plan also provides
that each non-employee director of the Company that is re-elected to the Board
is granted, upon such re-election, a stock option to purchase up to 3,000 shares
of Common Stock at the then fair market value of the Common Stock.
Each stock option granted under the 1992 Stock Incentive Plan will
automatically become fully exercisable upon a "change of control." For purposes
of the 1992 Stock Incentive Plan, the Election of the JMI Nominees would
constitute a "change of control." In addition, upon a "change of control" all
restrictions on restricted stock are automatically deemed waived and the
recipients of such restricted stock awards shall become entitled to receipt of
the stock subject to such awards.
Based on the Company's proxy statements for the annual meetings of
stockholders for each of 1996, 1997, and 1998 hold options to acquire a total of
700,000 shares at prices ranging from $6.125 to $12.00 per share.
Trademark and License Agreement
The Company is a party to an Amended and Restated Trademark License
Agreement (the "License Agreement") with Levi Strauss & Co. ("Levi Strauss")
pursuant to which, among other things, Levi Strauss has granted certain rights
to use certain Levi Strauss trademarks in connection with the Company's
business. The License Agreement purports to restrict assignments, sublicenses or
other transfers (a "transfer") by the Company of its rights or obligations under
the License Agreement without the prior written approval of Levi Strauss, and to
further provide that a "transfer" shall include any direct or indirect transfer
of control of the Company. This is a typical provision in a license agreement.
The License Agreement does not specifically define "transfer of
control" and JMI believes that the election of the JMI Nominees is not a
transfer of control and will not cause a concern under the License Agreement
with Levi Strauss. The License Agreement further provides that any attempt to
"transfer" without the prior written consent of Levi Strauss shall be void and
deemed a material breach of the License Agreement, which would purport to permit
Levi Strauss to, among other remedies available under law, terminate the License
Agreement 120 days after written notice is given to the Company, unless the
breach is cured.
While JMI does not believe that a change in the Board of Directors
pursuant to a validly authorized shareholder action constitutes a "transfer"
under the License Agreement, in the event that Levi Strauss was to take the
position that election of the JMI Nominees
16
constitutes a "transfer" or other material breach under the License Agreement,
JMI would seek to have Levi Strauss confirm that no "transfer" or breach has
occurred or waive the occurrence of any "transfer" or breach. There can be no
assurance that Levi Strauss would so agree and, if (i) it were ultimately
determined that a "transfer" and breach had occurred, (ii) such breach were not
cured within the requisite time period and (iii) Levi Strauss were to ultimately
terminate the License Agreement, the Company's business could be materially
adversely effected.
VOTING AND PROXY PROCEDURES
The presence in person or by proxy of a majority of the outstanding
shares of the Common Stock will constitute a quorum at the Annual Meeting. Each
outstanding share of Common Stock is entitled to one vote on each matter
properly presented at that meeting and a majority vote of the shares of Common
Stock present in person or by proxy at that meeting will be required to approve
any proposal presented at the Annual Meeting, with the exception of the election
of directors.
Directors of the Company are elected by a plurality of the votes cast
by the stockholders entitled to vote at a meeting at which a quorum is present.
A plurality means that the nominees with the largest number of votes are elected
as directors, up to the maximum number of directors to be chosen at the meeting.
Consequently, election of the JMI Nominees requires the affirmative vote of a
plurality of the votes cast in the election at the Annual Meeting, assuming a
quorum is present or otherwise represented at the Annual Meeting.
Shares of Common Stock that reflect abstentions or "broker non-votes"
(i.e., shares represented at the meeting held by brokers or nominees as to which
instructions have not been received from the beneficial owners or persons
entitled to vote such shares and with respect to which the broker or nominee
does not have discretionary voting power to vote such shares) will be counted
for purposes of determining whether a quorum is present for the transaction of
business at the Annual Meeting. In addition, abstentions will be treated as
votes cast against a particular proposal while broker non-votes will have no
impact on the outcome of the vote on a particular proposal. With respect to the
election of the JMI Nominees as directors, votes may only be cast in favor of or
withheld from the JMI Nominees; there is no ability to abstain. In addition,
broker non-votes will have no effect on the outcome of the election of JMI
Nominees as directors.
If no directions are given and the signed WHITE PROXY CARD is returned,
the attorneys-in-fact appointed in the proxy will vote the shares of Common
Stock represented by that WHITE PROXY CARD FOR the election of the JMI Nominees
and FOR the proposal to terminate the Poison Pill.
Stockholders of record as of the close of business on the Record Date
will be entitled to vote at the Annual Meeting. IF YOU WERE A STOCKHOLDER OF
RECORD ON THE RECORD DATE, YOU WILL RETAIN THE VOTING RIGHTS IN CONNECTION WITH
THE ANNUAL MEETING EVEN IF YOU SELL OR SOLD YOUR SHARES OF THE COMPANY'S COMMON
STOCK AFTER THE RECORD DATE. Accordingly, it is
17
important that you vote the shares of Common Stock held by you on the Record
Date or grant a proxy to vote such shares whether or not you still own such
shares.
At the Annual Meeting, six Directors are to be elected for a term
expiring at the 2000 annual meeting and until their successors have been duly
elected and qualified. JMI is soliciting your proxy in support of the election
of the JMI Nominees. If you wish to vote for the JMI Nominees by proxy, you must
submit the WHITE PROXY CARD furnished to you by JMI and must NOT submit the
Board of Directors' Proxy Card. A stockholder may not submit a proxy card to
vote for both the JMI Nominees and the Company's nominees. If a stockholder
submits both a WHITE PROXY CARD and the Company's Proxy Card, only the latest
dated proxy will be counted.
IMPORTANT
JMI REQUESTS THAT YOU DO NOT VOTE ON OR RETURN TO THE COMPANY ANY PROXY
CARD PROVIDED TO YOU BY THE COMPANY, EVEN TO VOTE AGAINST THE INCUMBENT BOARD'S
SLATE OF NOMINEES. RETURNING ANY PROXY CARD PROVIDED TO YOU BY THE COMPANY COULD
REVOKE THE WHITE PROXY CARD THAT YOU SIGN, DATE AND SEND TO JMI.
Any stockholder giving a proxy may revoke it at any time before it is
voted by attending the Annual Meeting and voting his or her shares of the
Company's Common Stock in person, by giving written notice to the Secretary of
the Company at 66 B Street, Needham, Massachusetts 02494 stating that the proxy
has been revoked, or by delivery of a proxy bearing a later date.
An executed proxy card may be revoked at any time before its expiration
by marking, dating, signing and delivering a written revocation before the time
that the action authorized by the executed proxy becomes effective. A revocation
may be in any written form validly signed by the record holder as long as it
clearly states that the proxy card which is properly completed will constitute a
revocation of an earlier proxy. Although a revocation is effective if delivered
to the Company, JMI requests that either the original or photostatic copies of
all revocations of proxies be mailed or delivered to D.F. King & Co., Inc., at
the address set forth below, so that it will be aware of all revocations and can
more accurately determine which proxies that have been received are valid.
D.F. King & Co., Inc.
77 Water Street, 20th Floor
New York, NY 10005
Toll Free: 800-290-6424
Banks and Brokers call collect: 212-269-5550
STOCKHOLDERS OF RECORD ON THE RECORD DATE ARE ELIGIBLE TO VOTE ON THE
MATTERS DISCUSSED ABOVE. ANYONE OWNING SHARES OF THE
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COMPANY'S COMMON STOCK BENEFICIALLY (BUT NOT OF RECORD), SUCH AS A PERSON WHOSE
OWNERSHIP OF SHARES IS THROUGH A BROKER, BANK OR OTHER FINANCIAL INSTITUTION,
SHOULD CONTACT THAT BROKER, BANK OR FINANCIAL INSTITUTION WITH INSTRUCTIONS TO
EXECUTE THE WHITE PROXY CARD ON HIS OR HER BEHALF OR TO HAVE THE BROKER, BANK OR
FINANCIAL INSTITUTION'S NOMINEE EXECUTE THE WHITE PROXY CARD.
SOLICITATION OF PROXIES AND EXPENSES
Proxies may be solicited by JMI and by its agents by mail, telephone,
telegraph and personal solicitation. Banks, brokerage houses and other
custodians, nominees and fiduciaries will be requested to forward proxy
solicitation material to the beneficial owners of Common Stock that such
institutions hold of record.
JMI has retained D.F. King & Co., Inc. to assist it in the solicitation
of proxies and for related services. Approximately 20 employees of D.F. King &
Co., Inc. will engage in the solicitation. JMI has agreed to pay D.F. King &
Co., Inc. an estimated fee of up to $30,000 and has agreed to reimburse it for
its reasonable out-of-pocket expenses. D.F. King & Co., Inc. will solicit
proxies for the Annual Meeting from individuals, brokers, banks, nominees and
other institutional holders. JMI estimates that its total expenditures relating
to this proxy solicitation by D.F. King & Co. will be approximately $30,000.
Total expenditures to date relating to this proxy solicitation have been
approximately $2,000.
The entire expense of preparing and mailing this Proxy Statement and
the total expenditures relating to the solicitation of proxies (including,
without limitation, costs, if any, related to advertising, printing, fees of
attorneys, financial advisors, solicitors, consultants, accountants, public
relations, transportation and litigation) will be borne by JMI.
JMI expects to seek reimbursement from the Company for its expenses in
connection with this proxy solicitation if the JMI Nominees are elected to the
Board of Directors. This request will not be submitted to a stockholder vote.
ADDITIONAL INFORMATION
Certain information about JMI, the JMI Nominees and other participants
in the proxy solicitations is set forth in Annex A attached hereto.
Reference is made to the Proxy Statement that JMI expects will be filed
by the Board of Directors of the Company for information concerning the Common
Stock (including the number of issued and outstanding shares as of the Record
Date), beneficial ownership of Common Stock by, and other information
concerning, the Company's management and directors, the Company's independent
public accountants, the principal holders of Common Stock and producers for
submitting proposals for consideration at the 1999 Annual Meeting.
19
Stockholders are referred to the Company's Proxy Statement with respect
to the compensation and remuneration paid and payable and other information
related to the Company's officers and directors, beneficial ownership of the
Company's securities and the procedures for submitting proposals for
consideration at the 2000 annual meeting of the stockholders of the Company.
Stockholders of the Company are not entitled to appraisal rights in
connection with the matters set forth in this Proxy Statement.
Except as otherwise noted herein, the information concerning the
Company has been taken from or is based upon documents, and records on file with
the Securities and Exchange Commission and other publicly available information.
JMI does not take responsibility for the accuracy or completeness of the
information contained in such documents and records, or for any failure by the
Company to disclose events that may affect the significance or accuracy of any
such information.
Time is critically short. Please sign, date and mail the enclosed WHITE
PROXY CARD today in the envelope provided. Only your latest dated Proxy Card
will count.
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If you have any questions about giving your proxy or require assistance
in voting your shares of Common Stock, please call:
Seymour Holtzman Richard Huffsmith
Jewelcor Companies Jewelcor Companies
100 North Wilkes-Barre Boulevard or 100 North Wilkes-Barre Boulevard
Wilkes-Barre, PA 18702 Wilkes-Barre, PA 18702
Phone: (800) 888-6972 Phone: (800) 888-6972
JEWELCOR MANAGEMENT, INC.
July _______, 1999
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ANNEX A
TRANSACTIONS IN DESIGNS, INC. COMMON STOCK
BY JMI AND JMI NOMINEES
The following table sets forth information with respect to all purchases of
Common Stock of the Company by JMI during the past two years. Except as set
forth below, to the knowledge of JMI, no participant in this solicitation or JMI
Nominee has purchased or sold securities of the Company within the past two
years.
JEWELCOR MANAGEMENT, INC.
Trade Date Number of Shares Purchased Total Cost
10/26/98 50,000 $36,765.00
11/9/98 225,000 $164,265.00
11/10/98 166,700 $105,036.00
11/17/98 600,000 $330,015.00
11/30/98 528,500 $340,897.50
Please see the section titled "Information about JMI" in this Proxy Statement
for information regarding the relationship between JMI, Mr. Seymour Holtzman and
certain other persons.
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