DESTINATION XL GROUP, INC. 10-K 2006
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
CASUAL MALE RETAIL GROUP, INC.
(Exact name of registrant as specified in its charter)
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
As of July 30, 2005, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $187.3 million, based on the last reported sale price on that date. Shares of Common Stock held by each executive officer and director and by each person who owns 10% or more of the outstanding Common Stock have been excluded on the basis that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily determinative for other purposes.
The registrant had 35,316,478 shares of Common Stock, $0.01 par value, outstanding as of May 10, 2006.
DOCUMENTS INCORPORATED BY REFERENCE
The undersigned registrant hereby amends its Annual Report on Form 10-K for the fiscal year ending January 28, 2006 by amending PART III thereof to read in its entirety as follows:
Item 10. Directors and Executive Officers of the Registrant
Certain information concerning the directors of the Company is set forth below:
Seymour Holtzman, has been a director of the Company since April 7, 2000 and Chairman of the Board since April 11, 2000. On May 25, 2001, the Board of Directors of the Company hired Mr. Holtzman as an officer and an employee of the Company. Mr. Holtzman has been involved in the retail business for over 30 years. For many years, he has been the President and Chief Executive Officer of Jewelcor, Inc., a former New York Stock Exchange listed company that operated a chain of retail stores. From 1986 to 1988, Mr. Holtzman was Chairman of the Board and Chief Executive Officer of Gruen Marketing Corporation, an American Stock Exchange listed company involved in the nationwide distribution of watches. For at least the last five years, Mr. Holtzman has served as Chairman and Chief Executive Officer of each of Jewelcor Management, Inc., a company primarily involved in investment and management services; C.D. Peacock, Inc., a Chicago, Illinois retail jewelry establishment; and S.A. Peck & Company, a retail and mail order jewelry company based in Chicago, Illinois. Mr. Holtzman is currently the Chief Executive Officer and Co-Chairman of the Board of George Foreman Enterprises, Inc. (OTCBB: GFME.OB), formerly MM Companies, Inc.; Chairman of the Board of Web.com, Inc. (NASDAQ: WWWW), formerly Interland, Inc.; and a member of the Board of Directors of Whitehall Jewellers, Inc. (OTC: JWLR.PK). Mr. Holtzman is a well-known shareholder activist who specializes in the banking industry and the retail industry.
David A. Levin has been President and Chief Executive Officer of the Company since April 10, 2000 and a director of the Company since April 11, 2000. From 1999 to 2000, he served as the Executive Vice President of eOutlet.com. Mr. Levin was President of Camp Coleman, a division of The Coleman Company, from 1998 to 1999. Prior to that, Mr. Levin was President of Parade of Shoes, a division of J. Baker, Inc., from 1995 to 1997. Mr. Levin was also President of Prestige Fragrance & Cosmetics, a division of Revlon, Inc., from 1991 to 1995. Mr. Levin has worked in the retail industry for over 30 years.
Alan S. Bernikow has been a director of the Company since June 29, 2003. From 1998 until his retirement in May 2003, Mr. Bernikow was the Deputy Chief Executive Officer at Deloitte & Touche LLP where he was responsible for assisting the firm on special projects such as firm mergers and acquisitions, litigation matters and partner affairs. Mr. Bernikow joined Touche Ross, the predecessor firm of Deloitte & Touche LLP, in 1977, prior to which Mr. Bernikow was the National Administrative Partner in Charge for the accounting firm of J.K. Lasser & Company. Mr. Bernikow is a member of the Board of Directors and Chairman of the Audit Committee of Revlon, Inc.; a member of the Board of Directors of Revlon Consumer Products Corporations; a member of the Board of Directors and Chairman of the Audit Committee of Mack-Cali; a member of the Board of Directors and Chairman of the Audit Committee of UBS Global Asset Management Inc., a wholly owned subsidiary of UBS AG; a member of the Board of Directors and Chairman of the Audit Committee of the FOJP Service Corporation; a member of the Board of Trustees for the Jewish Communal Fund; a member of the Board of Directors and Chairman of the Audit Committee of Saint Vincent Catholic Medical Centers; and a member of the Executive Board for The Sass Foundation Medical Research, Inc.
Jesse Choper has been a director of the Company since October 8, 1999. Mr. Choper is the Earl Warren Professor of Public Law at the University of California at Berkeley School of Law, where he has taught since 1965. From 1960 to 1961, Professor Choper was a law clerk for Supreme Court Chief Justice Earl Warren. Mr. Choper is a member of the Board of Directors of George Foreman Enterprises, Inc. (OTCBB: GFME.OB)
James P. Frain has been a director of the Company since April 2, 2004. Since June 1999, Mr. Frain has been with Chicos, a specialty retailer of womens apparel. Mr. Frain started with Chicos as the Marketing Director and most recently Mr. Frain was promoted to Executive Vice President and Chief Marketing Officer for Chicos.
George T. Porter, Jr. has been a director of the Company since October 28, 1999. Mr. Porter was President of Levis USA for Levi Strauss & Co. from 1994 to 1997. Beginning in 1974, Mr. Porter held various positions at Levi Strauss & Co., including President of Levis Mens Jeans Division. Mr. Porter was also Corporate Vice President and General Manager of Nike USA from 1997 to 1998.
Robert L. Sockolov has been a director of the Company since October 27, 2004. In connection with the Companys acquisition of Rochester Big & Tall Clothing (Rochester), Mr. Sockolov was appointed a director of the Company and also appointed Chief Executive Officer of the Rochester division. Prior to joining the Company, Mr. Sockolov had been with Rochester since 1951 and, since 1967, was Rochesters President and Chief Executive Officer.
All directors hold office until the next Annual Meeting of Stockholders and until their respective successors have been duly elected and qualified or until their earlier death, resignation or removal.
Non-Director Executive Officers
Dennis R. Hernreich, 49, has been Executive Vice President, Chief Operating Officer and Chief Financial Officer of the Company since September 2002. Prior to that, Mr. Hernreich served as the Senior Vice President, Chief Financial Officer and Treasurer upon joining the Company on September 5, 2000. Prior to joining the Company, from 1996 through 1999, Mr. Hernreich held the position of Senior Vice President and Chief Financial Officer of Loehmanns Inc., a national retailer of womens apparel. From 1999 to August 2000, Mr. Hernreich was Senior Vice President and Chief Financial Officer of Pennsylvania Fashions, Inc., a 275-store retail outlet chain operating under the name Rue 21.
Linda B. Carlo, 59, has been the Executive Vice President of Business Development & Global Sourcing since June 2005. From August 2003 through June 2005, Ms. Carlo was the Executive Vice President, General Merchandise Manager of the Casual Male division. Prior to joining the Company, from 2002 to 2003, Ms. Carlo served as the General Manager for the Jessica London Catalog, a division of Chadwick of Boston/Brylane. Prior to that, Ms. Carlo was the Vice President, Divisional Merchandise Manager at Lane Bryant, a division of The Limited, Inc. from 1998 to 2002.
Joseph H. Cornely III, 54, is currently the Companys Executive Vice President and Director of Store Development. Mr. Cornely began his career with Casual Male Corp. in 1972 and joined the Company in May 2002 as part of the Companys acquisition of Casual Male.
There are no family relationships between any of the Companys directors and executive officers.
The Company has a separately-designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The Audit Committee is currently comprised of Messrs. Choper, Bernikow and Porter. Each of the members of the Audit Committee is independent, as independence for audit committee members is defined under the rules of the Nasdaq National Market. In addition, the Board of Directors has determined that Mr. Bernikow is an audit committee financial expert under the rules of the Securities and Exchange Commission (the SEC).
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, requires the Companys executive officers and directors, and persons who own more than 10% of a registered class of the Companys equity securities (collectively, the Reporting Persons), to file reports of ownership and changes in ownership with the SEC. The Reporting Persons are required to furnish the Company with copies of all Section 16(a) reports they file. Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to the Company during fiscal 2005, the Company believes that the current Reporting Persons complied with all applicable Section 16(a) reporting requirements and that all required reports were filed in a timely manner, with the exception of the following filings:
Mr. Porter filed a late Form 4 in May 2005 with respect to shares he gifted to his wife in March 2005. Messrs. Porter and Choper each filed a late Form 4 in January 2006 for stock compensation received for a compensation committee meeting held in December 2005. Mr. Sockolov filed a late Form 4 in January 2006 for a stock option grant he received from the Company in December 2005.
Code of Ethics
The Company has adopted a Code of Ethics which applies to the Companys directors, Chief Executive Officer and Chief Financial Officer, as well as the Companys other senior financial officers. The full text of the Code of Ethics can be found under Corporate Governance on the Investor Relations page of the Companys corporate web site, which is at www.cmrginc.com.
Summary Compensation Table. The following Summary Compensation Table sets forth certain information regarding compensation paid or accrued by the Company with respect to the Chief Executive Officer, the Chief Financial Officer, the Executive Vice President of Business Development & Global Sourcing, the Executive Vice President and Director of Store Development and the Chief Executive Officer of the Rochester division (collectively, the Named Executive Officers), for fiscal 2005 and for the fiscal years ended January 29, 2005 (fiscal 2004) and January 31, 2004 (fiscal 2003).
Summary Compensation Table
Chairman Compensation (Direct and Indirect)
Seymour Holtzman, the Chairman of the Board of Directors of the Company, is compensated by the Company both directly (as an executive officer of the Company) and indirectly (as the president and chief executive officer and, together with his wife, the sole shareholder of Jewelcor Management Inc. (JMI)).
Since October 1999, the Company has had an ongoing consulting agreement with JMI to assist in developing and implementing a strategic plan for the Company and for other related consulting services as may be agreed upon between JMI and the Company. The consulting agreement dated April 29, 2003, and most recently amended by a letter agreement dated May 26, 2006, is for a three-year term and automatically renews on each anniversary of the agreements commencement date for additional one-year periods, unless ninety-days notice by either party is otherwise given. The initial three-year term was from April 29, 2003 until April 28, 2006. On each anniversary of the agreements commencement date, the term was extended for a one-year period. Accordingly, as of April 26, 2006, the most recent anniversary of the consulting agreement, the term was extended to April 28, 2009. The consulting agreement with JMI includes a significant disincentive for non-performance, which would require JMI to pay to the Company a penalty equal to 150% of any unearned consulting services.
On April 24, 2006, the Company granted to Mr. Holtzman stock options with respect to 160,000 shares of the Companys common stock. These stock options have an exercise price of $9.27 per share and will vest ratably over a three-year period, with the first one-third vesting on April 24, 2007.
On May 26, 2006, the Compensation Committee of the Board of Directors increased JMIs annual consulting fees from $412,000 to $527,000. In addition, JMI will continue to receive $24,000 annually for expense reimbursements. JMI will also be entitled to receive a cash bonus for fiscal 2006 ranging from 80% to 150% of a bonus target of $575,000 if the Company achieves a certain range of EBITDA (earnings before interest, taxes and depreciation and amortization) for fiscal 2006. Mr. Holtzman will continue to receive an annual salary of $24,000.
The following table summarizes the total compensation Mr. Holtzman has received, directly as an officer of the Company and indirectly through JMI, over the past three fiscal years on a combined basis.
Option Grants Table. The following Option Grants Table sets forth certain information as of January 28, 2006 regarding stock options granted during fiscal 2005 by the Company to the Named Executive Officers.
Option Grants In Fiscal 2005
Companys 1992 Stock Incentive Plan. Accordingly, the above issuances became fully vested on January 27, 2006. See Stock-Based Compensation in Note A to the Notes of the Consolidated Financial Statements for the year ended January 28, 2006 for a complete discussion of the acceleration.
Aggregated Option Exercises and Fiscal Year-End Option Value Table. The following table sets forth information for the Named Executive Officers with respect to the exercise of stock options during the fiscal year ended January 28, 2006 and the year-end value of unexercised options.
Aggregated Option Exercises in Fiscal 2005 and Fiscal Year-End Option Values
As part of the Casual Male acquisition, the Company assumed Casual Male Corp.s obligations under its Pension Plan and its Supplemental Plan (see Note I to the Notes to Consolidated Financial Statements). The following table shows the aggregate annual benefits payable under both the Pension Plan and Supplemental Plan to persons in specified compensation and years of service classifications, based on a straight line annuity form of retirement income:
In December 1993, Casual Male Corp. established the Supplemental Plan to provide benefits attributable to compensation in excess of the qualified plan limit, which was $160,000 but less than $267,326. The benefits provided by the Pension Plan and the Supplemental Plan are equal to (i) the sum of 0.75% of the executives highest consecutive five year average annual compensation plus 0.65% of the excess of the executives highest consecutive five year average annual compensation over the average of the Social Security taxable wage bases, multiplied by (ii) the executives years of benefit service with the Company (not to exceed 30 years). Effective February 1, 1995, compensation for such purposes was defined as all compensation reported on Form W-2 (excluding such items as bonus and stock options) up to a maximum of $267,326 for the calendar year ended December 31, 1998. Annual benefits are payable under the Pension Plan for retirees at age 65, prior to the offset, if any, for benefits accrued under the retirement plan of Casual Male Corp. and for Social Security benefits.
On May 3, 1997, Casual Male Corp.s board of directors voted to amend the Pension Plan to cease all benefits accruals under the Pension Plan as of that date. Effective December 31, 1998, the Casual Male Corp.s board of directors voted to cease all benefit accruals under its Supplemental Plan.
As of January 28, 2006, Mr. Cornely was the only Named Executive Officer of the Company who was a participant in the Pension Plan and Supplemental Plan. As such, Mr. Cornely will be entitled to an accrued benefit under the Pension Plan upon turning 65 year of age of $11,981.38 and a benefit of $4,715.07 under the Supplemental Plan.
The Company has a 401(k) Plan for which all eligible employees of the Company may participate. The 401(k) Plan, which is a defined contribution plan, permits each participant to defer up to 15% of such participants annual salary up to a maximum annual amount ($14,000 in calendar 2005, $13,000 in calendar 2004 and $12,000 in calendar 2003). The Board of Directors of the Company may determine, from fiscal year to fiscal year, whether and to what extent the Company will contribute to the 401(k) Plan by matching contributions made to such plan by eligible employees. During fiscal 2005, the matching contribution by the Company continued to be 50% of contributions by eligible employees up to a maximum of six percent of salary.
Key Man Insurance
In fiscal 2000, the Company obtained a key man life insurance policy in the amount of $2,000,000 on the life of Mr. Levin. In fiscal 2001, the Company obtained a key man life insurance policy in the amount of $2,000,000 on the life of Mr. Hernreich.
The Company has employment agreements, which were most recently amended by letter agreements dated May 26, 2006 (collectively, the Employment Agreements), with David A. Levin and Dennis R. Hernreich. The Employment Agreements are for three-year terms, and automatically renew on each anniversary of the agreements commencement date for additional one-year periods, unless ninety-day notice by either party is otherwise given. The initial three-year term of Mr. Levins Employment Agreement was from April 10, 2000 until April 10, 2003. On each anniversary of the agreements commencement date, the term was extended for a one-year period. Accordingly, as of April 10, 2006, the most recent anniversary of Mr. Levins agreements commencement date, Mr. Levins employment with the Company was extended for an additional one-year period thereby extending the agreement to April 10, 2009. The initial three-year term of Mr. Hernreichs Employment Agreement was from September 4, 2000 until September 4, 2003. On each anniversary of the agreements commencement date, the term was extended for a one-year period. Accordingly, as of September 4, 2005, the most recent anniversary of Mr. Hernreichs agreements commencement date, Mr. Hernreichs Employment Agreement with the Company was extended for an additional one-year period thereby extending the agreement to September 4, 2008.
These Employment Agreements require each executive officer to devote substantially all of the executive officers time and attention to the business of the Company as necessary to fulfill his respective duties. The Employment Agreements, as most recently amended, provide that Messrs. Levin and Hernreich would be paid base salaries at annual rates of $750,000 and $575,000, respectively. The Employment Agreements provide that the annual rate of base salary for the renewal term may be increased by the Compensation Committee of the Board of Directors in its sole discretion.
The Employment Agreements also provide for the payment of bonuses in such amounts as may be determined by the Compensation Committee. The Compensation Committee of the Board of Directors shall determine, in its sole discretion, the amount of bonus to be paid to the executive officers. While Messrs. Levin and Hernreich are employed by the Company, the Company will provide each executive an automobile allowance in the amount of $800 and $700 per month, respectively. Each executive is entitled to vacation and to participate in and receive any other benefits customarily provided by the Company to its senior executives (including any bonus, retirement, short and long-term disability insurance, major medical insurance and group life insurance plans in accordance with the terms of such plans), including stock option plans, all as determined from time to time by the Compensation Committee.
Pursuant to the Companys Executive Incentive Plan for fiscal 2005, on April 14, 2006, Messrs. Levin and Hernreich received bonuses of $450,000 and $345,000, respectively, based on the achievement of certain performance targets in fiscal 2005.
On April 24, 2006, the Company granted to Messrs. Levin and Hernreich stock options with respect to 200,000 and 160,000 shares of the Companys common stock, respectively. These stock options have an exercise price of $9.27 per share and will vest ratably over a three-year period, with the first one-third vesting on April 24, 2007.
Pursuant to the recent letter agreements dated May 26, 2006, Messrs. Levin and Hernreich will each be entitled to receive a cash bonus for fiscal 2006 ranging from 80% to 150% of their respective annual salaries if the Company achieves a certain range of EBITDA (earnings before interest, taxes and depreciation and amortization) for fiscal 2006.
The Employment Agreements provide that in the event the executive officers employment is terminated by the Company at any time for any reason other than justifiable cause (as defined in the Employment Agreements), disability or death, the Company is required to pay the executive officer the greater of (1) the base salary for the remaining term of the related Employment Agreement or (2) an amount equal to one half of the executive officers annual salary. If the remaining term of the related Employment Agreement on the date of termination is more than six months, the executive officer must make a good faith effort to find new employment and mitigate damages, costs and expenses to the Company. The Employment Agreements also provide that if the executive is terminated without justifiable cause within one year after a Change of Control of the Company (as defined below) has occurred, the executive officer shall receive a lump sum payment in an amount equal to the greater of (1) the base salary for the remaining term of the related Employment Agreement or (2) the current base salary for one year.
The Employment Agreements contain confidentiality provisions pursuant to which each executive officer agrees not to disclose confidential information regarding the Company. The Employment Agreements also contain covenants pursuant to which each executive officer agrees, during the term of his employment and for a one-year period following the termination of his employment, not to have any connection with any business which competes with the business of the Company.
For purposes of the Employment Agreements, a Change in Control of the Company shall mean (i) any sale of all or substantially all of the assets of the Company to any person or group of related persons within the meaning of Section 13(d) of the Exchange Act (Group), (ii) any acquisition by any person or Group of shares of capital stock of the Company representing more than 50% of the aggregate voting power of the outstanding capital stock of the Company entitled under ordinary circumstances to elect the directors of the Company (Voting Stock) or (iii) any replacement of a majority of the Board of Directors of the Company over the twelve-month period following the acquisition of shares of the capital
stock of the Company representing more than 10% of the Voting Stock by any person or Group which does not currently own more than 10% of such Voting Stock (unless such replacement shall have been approved by the vote of the majority of the directors then in office who either were members of the Board of Directors at the beginning of such twelve-month period or whose elections as directors were previously so approved).
The Company also has employment agreements with Mr. Cornely, Ms. Carlo and Mr. Sockolov.
When the Company acquired the Casual Male business in May 2002, the Company agreed to abide by the terms of Mr. Cornelys Severance Compensation Agreement, which was entered into with Casual Male Corp. Pursuant to the terms of this Severance Compensation Agreement, in the event that Mr. Cornelys employment with the Company is terminated for reasons defined in the agreement, the Company will pay to Mr. Cornely a severance payment of up to 14 months of his annual salary. The amount actually paid would be dependent on the reason for termination, decreased by the amount earned as the result of any subsequent employment obtained during the severance period.
The Companys employment agreement with Ms. Carlo, which was most recently amended on June 29, 2004, is for a two-year term beginning on August 4, 2004. Pursuant to that agreement, Ms. Carlo receives an annual salary of $303,000 and is entitled to participate in the Companys bonus program at a bonus incentive rate of 40% of her annual base salary, depending on the performance of the Company and at the sole discretion of the Compensation Committee. Ms. Carlo receives an automobile allowance in the amount of $700 per month and is entitled to vacation and to participate in and receive any other benefits customarily provided by the Company to its senior executives.
On October 29, 2004, the Company entered into an employment agreement with Mr. Sockolov. Under the terms of that employment agreement, which will terminate January 31, 2008, Mr. Sockolov serves as the Chief Executive Officer of the Companys Rochester division. The Company pays Mr. Sockolov an annual base salary of $250,000, subject to annual increases as determined by the Board of Directors or a committee thereof. Mr. Sockolov receives an automobile allowance of $700 per month and is entitled to six weeks of vacation and other benefits customarily provided by the Company to its senior executives. On December 19, 2005, Mr. Sockolov received an option to purchase 50,000 shares of the Companys Common Stock at an exercise price of $5.97 per share. This option became fully vested on January 27, 2006 in connection with the Companys acceleration of all of its outstanding stock options.
The employment agreement provides that in the event Mr. Sockolovs employment is terminated by the Company for any reason other than cause (as defined in the agreement) or death, Mr. Sockolov will be entitled to receive his full compensation and benefits under the employment agreement through January 31, 2008.
During fiscal 2005, non-employee directors of the Company were paid $3,000 plus expenses for each meeting of the Board of Directors which they attended. During fiscal 2005, non-employee directors of the Company were also paid $3,000 plus expenses for each committee meeting they attended. Non-employee directors received $500 for certain telephonic board or committee meetings. In addition, the Chairman of the Audit Committee receives an additional $10,000 on an annual basis for serving in such capacity.
During fiscal 2005, non-employee directors of the Company were also eligible to participate in the Companys 1992 Stock Incentive Plan, as amended (the 1992 Plan). Pursuant to the 1992 Plan, each non-employee director of the Company is entitled to receive a stock option to purchase 15,000 shares of Common Stock upon such directors election and a stock option to purchase 15,000 shares of Common Stock upon such directors re-election. Such stock options were originally structured to become exercisable in three equal annual installments commencing with the date of grant. These options became fully vested on January 27, 2006 in connection with the Companys acceleration of all of its outstanding stock options. All options are granted with a term of ten years.
The 1992 Plan provides that non-employee directors of the Company may elect to receive all or a portion of their directors fees, on a current or deferred basis, in shares of Common Stock that are free of any restrictions under the 1992 Plan. A director wishing to receive Common Stock in lieu of cash would enter into an irrevocable agreement with the Company in advance of the beginning of a calendar year. During fiscal 2005, all non-employee directors elected to receive their directors fees in Common Stock.
Compensation Committee Interlocks and Insider Participation
For fiscal 2005, the members of the Compensation Committee were Messrs. Choper and Porter. Joseph Pennacchio also served as a member of the Compensation Committee through October 12, 2005 when he retired as a director of the Company. Persons serving on the Compensation Committee had no relationships with the Company in fiscal 2005 other than their relationship to the Company as directors entitled to the receipt of standard compensation as directors and members of certain committees of the Board and their relationship to the Company as beneficial owners of shares of Common Stock and options exercisable for shares of Common Stock. No person serving on the Compensation Committee or on the Board of Directors is an executive officer of another entity for which an executive officer of the Company serves on such entitys board of directors or compensation committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information with respect to persons known to the Company to be the beneficial owners of more than five percent of the issued and outstanding shares of Common Stock as of May 10, 2006. The Company is informed that, except as indicated, each person has sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by such person, subject to community property laws where applicable.
Percentage ownership is based on 35,316,478 shares of Common Stock outstanding as of May 10, 2006, plus securities deemed to be outstanding with respect to individual stockholders pursuant to Rule 13d-3(d)(1) under the Exchange Act.
Security Ownership of Management
The following table sets forth certain information as of May 10, 2006, with respect to the directors of the Company, the Named Executive Officers and the directors and executive officers of the Company as a group. Except as indicated, each person has sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by such person, subject to community property laws where applicable.
beneficially owned by JMI, of which Mr. Holtzman is the chairman, president and chief executive officer and indirectly, with his wife, the primary shareholder. Includes 1,690,000 shares subject to stock options exercisable within 60 days.
Equity Compensation Plan Information
The following is a summary of information with respect to the Companys equity compensation plans as of January 28, 2006:
Item 13. Certain Relationships and Related Transactions
Seymour Holtzman/Jewelcor Management, Inc.
Seymour Holtzman, the Chairman of the Board of Directors of the Company, is compensated by the Company both directly (as an executive officer of the Company) and indirectly (as the president and chief executive officer and, together with his wife, the sole shareholder of JMI). Since October 1999, the Company has had an ongoing consulting agreement with JMI to assist in developing and implementing a strategic plan for the Company and for other related consulting services as may be agreed upon between JMI and the Company. Mr. Holtzman, who became the Companys Chairman of the Board on April 11, 2000, is the beneficial holder of approximately 15.8% of the outstanding Common Stock of the Company.
A summary of all compensation and consulting fees paid to Mr. Holtzman and JMI are included above under Item 11. Executive Compensation -Chairman Compensation (Direct and Indirect).
During the first quarter of fiscal 2006, the Company paid JMI $370,000 as reimbursement of legal costs incurred by JMI unrelated to the operations of the Company.
Item 14. Principal Accounting Fees and Services
Ernst & Young LLP has served as the Companys principal accountant and independent auditor since October 2000. Below is a summary of the fees for each of the last two fiscal years
Ernst & Young LLP billed the Company an aggregate of $483,302 and $822,926 in fees for fiscal years 2005 and 2004, respectively, for professional services rendered in connection with the audits of the Companys financial statements for the fiscal years ended January 28, 2006 and January 29, 2005 included in the Companys Annual Reports on Form 10-K, the reviews of the financial statements included in each of the Companys Quarterly Reports on Form 10-Q and the filing of SEC registration statements.
In addition, the Company was also billed an aggregate of $330,000 and $443,300 in fees in fiscal years 2005 and 2004, respectively, for services performed related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
Audit - Related Fees
For fiscal year 2005, Ernst & Young billed $75,900 in fees for work related to certain transactions. For fiscal year 2004, Ernst & Young LLP billed the Company an aggregate of $57,900 in fees for assurance and related services, including services related to benefit plan audits.
No fees were billed by Ernst & Young for fiscal 2005. For fiscal 2004, Ernst & Young LLP billed the Company an aggregate of $144,544 in fees for professional services related to tax compliance, tax planning and tax advice. Tax compliance services consisted of preparation of original and amended income tax, sales and use tax, property, and all other tax returns; claims for refunds; and tax payment planning services. Tax advisory services consisted of a wide range of services, including assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from taxing authorities.
All Other Fees
Ernst & Young LLP did not bill the Company in fiscal 2005 or 2004 for services other than those described above.
Pre-Approval of Services by Independent Auditors
The Audit Committee has adopted a policy governing the provision of audit and non-audit services by the Companys independent registered public accounting firm. Pursuant to this policy, the Audit Committee will consider annually and, if appropriate, approve the provision of audit services (including audit review and attest services) by its independent registered public accounting firm and consider and, if appropriate, pre-approve the provision of certain defined permitted non-audit services within a specified dollar limit. It will also consider on a case-by-case basis and, if appropriate, approve specific engagements that do not fit within the definition of pre-approved services or established fee limits.
The policy provides that any proposed engagement that does not fit within the definition of a pre-approved service or is not within the fee limits must be presented to the Audit Committee for consideration at its next regular meeting or to the Chairman of the Audit Committee in time sensitive cases. The Audit Committee will regularly review summary reports detailing all services (and related fees and expenses) being provided to the Company by the independent registered public accounting firm.
All of the services provided under Audit-Related Fees, Tax Fees and All Other Fees were approved by the Audit Committee.
Item 15. Exhibits, Financial Statement Schedules
Index to Exhibits
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.