-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TgeMfwje5Ic3UwOsvGqfz0wWJ2KQn0g7sMFktSudF0lK72EYWQ7YVKCxoV8fzN7S NKUqeujgh8MSDnsF2ted3A== 0000950116-98-002419.txt : 19981215 0000950116-98-002419.hdr.sgml : 19981215 ACCESSION NUMBER: 0000950116-98-002419 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEB SHOPS INC CENTRAL INDEX KEY: 0000715779 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 231913593 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12188 FILM NUMBER: 98768758 BUSINESS ADDRESS: STREET 1: 9401 BLUE GRASS RD CITY: PHILADELPHIA STATE: PA ZIP: 19144 BUSINESS PHONE: 2156766000 MAIL ADDRESS: STREET 1: 9401 BLUE GRASS ROAD CITY: PHILADELPHIA STATE: PA ZIP: 19114 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 1998 ------------------------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------------------------------- Commission File Number 0-12188 ---------------------------------------------------------- DEB SHOPS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1913593 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9401 Blue Grass Road, Philadelphia, Pennsylvania 19114 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (215) 676-6000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name and address and former fiscal year, if changed since last report) 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 l934 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 the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, Par Value $.01 13,124,680 - ---------------------------- ------------------------------------- (Class) (Outstanding at October 31, 1998) DEB SHOPS, INC. AND SUBSIDIARIES I N D E X --------- Page ---- PART I. Financial Information: Consolidated Balance Sheets - 1 October 31, 1998 and January 31, 1998 Consolidated Statements of Operations Nine Months and 2 Three Months Ended October 31, 1998 and October 31, 1997 Consolidated Statements of Cash Flows - 3 Nine Months Ended October 31, 1998 and October 31, 1997 Notes to Consolidated Financial Statements - 4-5 October 31, 1998 Management's Discussion and Analysis of Financial Condition and Results of Operations - October 31, 1998 6-12 PART II. Other Information 13-14 CONSOLIDATED BALANCE SHEETS (Unaudited)
OCTOBER 31,1998 JANUARY 31, 1998 - ---------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 57,835,666 $ 57,912,689 Merchandise inventories 26,280,656 22,107,228 Prepaid expenses and other 2,112,714 1,488,748 Current deferred income taxes 1,379,100 1,307,600 ------------ ------------ Total Current Assets 87,608,136 82,816,265 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, at cost Land 150,000 150,000 Buildings 4,338,863 4,338,863 Leasehold improvements 29,748,460 29,068,033 Furniture and equipment 16,370,350 15,399,733 ------------ ------------ 50,607,673 48,956,629 Less accumulated depreciation and amortization 35,810,470 34,168,084 ------------ ------------ Total Property, Plant and Equipment 14,797,203 14,788,545 ------------ ------------ OTHER ASSETS Goodwill, net of accumulated amortization of $660,561 and $499,884, respectively 2,557,844 2,718,521 Long term deferred income taxes 3,487,240 2,003,740 Other 1,712,223 1,167,514 ------------ ------------ Total Other Assets 7,757,307 5,889,775 ------------ ------------ $110,162,646 $103,494,585 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Trade accounts payable $ 17,084,007 $ 16,098,296 Accrued expenses 6,482,653 5,879,551 Income taxes payable 1,495,000 1,858,379 ------------ ------------ Total Current Liabilities 25,061,660 23,836,226 ------------ ------------ Capital Lease Obligation 1,452,057 1,631,463 ------------ ------------ Shareholders' Equity Series A Preferred Stock, par value $1.00 a share: Authorized - 5,000,000 shares Issued and outstanding - 460 shares, liquidation value $460,000 460 460 Common Stock, par value $.01 a share: Authorized - 25,000,000 shares Issued Shares - October 31, 1998: 15,688,290; January 31, 1998: 15,688,290 156,883 156,883 Additional paid in capital 5,541,944 5,541,944 Retained earnings 93,795,385 89,904,032 ------------ ------------ 99,494,672 95,603,319 Less common treasury shares, at cost - October 31, 1998: 2,563,610; January 31, 1998: 2,843,610 15,845,743 17,576,423 ------------ ------------ Total Shareholders' Equity 83,648,929 78,026,896 ------------ ------------ $110,162,646 $103,494,585 ============ ============
The notes to consolidated financial statements are an integral part of these financial statements. -1- DEB SHOPS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended October 31 Three Months Ended October 31 ----------------------------------------------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenues Net Sales $ 168,254,026 $144,918,407 $60,007,204 $52,409,278 ------------- ------------ ----------- ----------- Costs and Expenses Cost of Sales, including buying and occupancy costs 123,757,904 112,143,055 44,350,323 40,206,473 Selling and administrative 33,592,561 30,008,634 11,553,550 10,200,161 Depreciation and amortization 2,815,049 3,247,391 940,392 1,128,950 ------------- ------------ ----------- ----------- 160,165,514 145,399,080 56,844,265 51,535,584 ------------- ------------ ----------- ----------- Operating Income (Loss) 8,088,512 (480,673) 3,162,939 873,694 Other income, principally interest 2,229,628 1,523,713 669,038 573,893 ------------- ------------ ----------- ----------- Income Before Income Taxes 10,318,140 1,043,040 3,831,977 1,447,587 Income Taxes 3,611,000 339,000 1,341,000 470,000 ------------- ------------ ----------- ----------- Net Income $ 6,707,140 $ 704,040 $ 2,490,977 $ 977,587 ============= ============ =========== =========== Net Income Per Common Share Basic $ 0.51 $ 0.05 $ 0.19 $ 0.08 ============= ============ =========== =========== Diluted $ 0.51 $ 0.05 $ 0.19 $ 0.07 ============= ============ =========== =========== Cash Dividend Declared Per Common Share $ 0.15 $ 0.15 $ 0.05 $ 0.05 ============= ============ =========== =========== Weighted Average Number of Common Shares Outstanding Basic 13,025,968 12,844,680 13,118,430 12,844 680 ============= ============ =========== =========== Diluted 13,172,141 12,957,036 13,255,390 12,986,413 ============= ============ =========== ===========
The notes to consolidated financial statements are an integral part of these financial statements. -2- DEB SHOPS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended October 31, ------------------------------------ 1998 1997 ---- ---- Cash flows provided by operating activities: Net Income $ 6,707,140 $ 704,040 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,815,049 3,247,391 Deferred income tax (benefit) ( 1,555,000) ( 220,000) Loss on retirement of property, plant and equipment 146,282 463,432 Change in assets and liabilities: (Increase) in merchandise inventories ( 4,173,428) ( 2,760,833) (Increase) decrease in prepaid expenses and other (623,966) 1,546,590 Increase (decrease) in trade accounts payable 985,711 ( 191,832) Increase in accrued expenses 603,102 959,835 (Decrease) in income taxes payable ( 363,379) -- ------------ ------------ Net cash provided by operating activities 4,541,511 3,748,623 ------------ ------------ Cash flows (used in) investing activities: Purchase of property, plant and equipment, net ( 2,809,312) ( 1,396,205) ------------ ------------ Net cash (used in) investing activities ( 2,809,312) ( 1,396,205) ------------ ------------ Cash flows (used in) financing activities: Preferred Stock cash dividends paid ( 41,400) ( 41,400) Common Stock cash dividends paid ( 1,962,457) ( 1,926,702) Proceeds from stock options exercised 918,750 -- Principal payment under capital lease obligations ( 179,406) ( 146,493) Other investing activities ( 544,709) -- ------------ ------------ Net cash (used in) financing activities ( 1,809,222) ( 2,114,595) ------------ ------------ (Decrease) Increase in cash and cash equivalents ( 77,023) 237,823 Cash and cash equivalents at beginning of period 57,912,689 44,850,895 ------------ ------------ Cash and cash equivalents at end of period $ 57,835,666 $ 45,088,718 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest on capital lease obligation $ 233,094 $ 266,000 Income taxes, net $ 5,799,412 $ 1,110,795
The notes to consolidated financial statements are an integral part of these financial statements. -3- DEB SHOPS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) October 31, 1998 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended October 31, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998. The Balance Sheet at January 31, 1998 has been derived from the audited financial statements at that date. NOTE B - INCOME TAXES The liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred income taxes result principally from differences in the time of recognition of overhead in inventory, deductibility of certain liabilities and depreciation expense. NOTE C - NET INCOME PER SHARE In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." This statement established new standards for computing and presenting earnings per share and requires the restatement of prior years amounts. The Company adopted SFAS No. 128 effective January 31, 1998. Basic net income per common share was computed by dividing net income applicable to common shareholders by the weighted average number of shares of common stock outstanding during the periods presented. Diluted net income per common share has been presented based upon the weighted average common shares outstanding during each period including the dilutive effect of stock options and restricted incentive stock, if any. -4- The table below sets forth the reconciliation of the numerators and denominators of the basic and diluted net income per common share computations. As required by SFAS No. 128 all prior-period per share data has been restated to conform with the provisions of this statement.
Nine Months Ended October 31, ------------------------------------------------------------------------ 1998 1997 ------------------------------------------------------------------------ Net Per Share Net Per Share Income Shares Amount Income Shares Amount Net income $6,707,140 $704,040 Dividends on preferred stock (41,400) (41,400) ---------- -------- Basic income available to common shareholders 6,665,740 13,025,968 $.51 662,640 12,844,680 $.05 Effect of dilutive securities -- 146,173 -- -- 112,356 -- ---------- ---------- ------ -------- ---------- ------ Dilutive income available to common shareholders $6,665,740 13,172,141 $.51 $662,640 12,957,036 $.05 ========== ========== ====== ======== ========== ====== Three Months Ended October 31, ------------------------------------------------------------------------ 1998 1997 ------------------------------------------------------------------------ Net Per Share Net Per Share Income Shares Amount Income Shares Amount Net income $2,490,977 $977,587 Dividends on preferred stock (13,800) (13,800) ---------- -------- Basic income available to common shareholders 2,477,177 13,118,430 $.19 $963,787 12,844,680 $.08 Effect of dilutive securities -- 136,960 -- -- 141,733 -- ---------- ---------- ------ -------- ---------- ------ Dilutive income available to common shareholders $2,477,177 13,255,390 $.19 $963,787 12,986,413 $.07 ========== ========== ====== ======== ========== ======
NOTE D - REPORTING COMPREHENSIVE INCOME In June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive Income." This statement requires companies to classify items of other comprehensive income by their nature in the financial statements and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of a statement of financial position. SFAS No. 130 is effective for financial statements issued for fiscal years beginning after December 15, 1997. The Company believes that SFAS No. 130 does not have a material effect on its financial statements. -5- DEB SHOPS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) October 31, 1998 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements The Company has made in this report, and from time to time may otherwise make, "forward-looking statements" (as that term is defined under Federal Securities Laws) concerning the Company's future operations, performance, profitability, revenues, expenses and financial condition. This report includes, in particular, forward-looking statements regarding store openings, closings and other matters. Such forward-looking statements are subject to various risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors. Such factors may include, but are not limited to, the Company's ability to improve margins, respond to changes in fashion, and the Company's ability to attract and retain key management personnel. Such factors may also include other risks and uncertainties detailed in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998. Overview As of October 31, 1998, Deb Shops, Inc. (the "Company") operates 269 women's specialty apparel retail stores offering moderately priced, fashionable, coordinated sportswear, dresses, coats, lingerie, accessories and shoes for junior and plus sized women. The Company also operates nine Tops `N Bottoms stores which sell moderately priced men's and women's apparel. The Company also operates 18 Atlantic book stores. The book division includes 12 "Atlantic Book Shops", which are small limited selection book stores, generally open seasonally in Delaware, Maryland, Pennsylvania and New Jersey resort towns. Atlantic Books also operates six much larger "Atlantic Book Warehouses" which carry a full line of best sellers, new titles and magazines in addition to remainder books. The Atlantic Book Warehouse stores are located in Delaware, Maryland, Minnesota, New Jersey and Pennsylvania. Results of operations for the Company for the nine and three months ended October 31, 1998 and 1997, are presented on a consolidated basis and are discussed here on a segmented basis to provide relevant information concerning the Company's retail apparel store business, which is the Company's principal line of business, and the retail book business. Results of Operations - Consolidated Consolidated net sales increased $23,336,000 (16.1%) and $7,598,000 (14.5%), respectively, for the nine and three months ended October 31, 1998, as compared to an increase of $12,033,000 (9.1%) and $6,023,000 (13.0%) for the nine and three months ended October 31, 1997. The increase during the nine months ended October 31, 1998 and 1997 and for the three months ended October 31, 1998 and 1997 is primarily the result of increased sales in the apparel business and, to a lesser extent, an increase in the number of book stores. The change in net sales, cost of sales, selling and administrative expense and net income are more fully described in the sections on "Apparel Business" and "Book Business" that follow. -6- Other income, principally interest, increased $706,000 (46.3%) and $95,000 (16.6%), respectively, for the nine and three months ended October 31, 1998 as compared to a (decrease) of ($105,000) (6.5%) and an increase of $172,000 (42.7%), respectively, for the nine and three months ended October 31, 1997. Interest income is offset by losses on the disposition of fixed assets. The increase during the nine and three months ended October 31, 1998 is primarily the result of earnings on higher cash balances. The decrease for the nine months ended October 31, 1997 is primarily attributable to an increase in the losses incurred on the disposition of fixed assets. Income before income taxes increased $9,275,000 (889.2%) and $2,384,000 (164.7%), respectively, for the nine and three months ended October 31, 1998 as compared to an increase of $10,005,000 (111.6%) and $5,089,000 (138.9%), respectively, for the nine and three months ended October 31, 1997. The improvement for the nine and three months ended October 31, 1998 from 1997, is primarily comprised of an increase in apparel business sales and apparel business margins. The improvement for the nine and three months ended October 31, 1997 from 1996 is also attributable to an increase in apparel business sales and apparel business margins. Results of Operations - Apparel Business Net sales increased to $155,761,000 from $134,470,000, or $21,291,000 (15.8%) in the nine months ended October 31, 1998 and 1997, respectively, and increased to $134,470,000 from $125,435,000, or $9,035,000 (7.2%), in the nine months ended October 31, 1997 and 1996, respectively. Net sales increased to $55,070,000 from $48,395,000, or $6,675,000 (13.8%), in the three months ended October 31, 1998 and 1997, respectively, and increased to $48,395,000 from $43,516,000, or $4,879,000 (11.2%) in the three months ended October 31, 1997 and 1996, respectively. The increase in net sales for the nine and three months ended October 31, 1998 and 1997 was principally attributable to a return of fashion direction in the woman's specialty apparel industry, the Company's new focus on a younger customer, and improved visual merchandising in the stores. The following table sets forth certain per store information.
Per Store Data(1) Per Store Data(1) Nine Months Ended Three Months Ended ----------------- ------------------ October 31, October 31, ----------- ----------- 1998 1997 1998 1997 ---- ---- ---- ---- Stores open at end of the period 278 275 278 275 Average number in operation during the period 278 279 278 278 Average net sales per store (in thousands) $ 560 $482 $198 $174 Average operating income (loss) per store (in thousands) $ 25 ($ 5) $ 9 $ 2 Comparable Store Sales(2)-Percent Change 12.3% 11.7% 10.0% 11.0%
Cost of sales, including buying and occupancy costs, increased to $115,191,000 from $104,911,000, or $10,280,000 (9.8%) in the nine months ended October 31, 1998 and 1997, respectively, and decreased to $104,911,000 from $105,939,000, or ($1,028,000) (1.0%), in the nine months ended October 31, 1997 and -7- - ----------------------- (1) Includes Tops 'N Bottoms stores (2) Comparable store sales include stores open for both periods in the current format and location. A store is added to the comparable store base in its 13th month of operation. 1996, respectively. Cost of sales, including buying and occupancy costs, increased to $40,997,000 from $37,419,000, or $3,578,000 (9.6%), in the three months ended October 31, 1998 and 1997, respectively, and increased to $37,419,000 from $36,951,000, or $468,000 (1.3%), in the three months ended October 31, 1997 and 1996, respectively. The increase in cost of sales, including buying and occupancy costs in the nine and three months ended October 31, 1998 was principally due to the increase in net sales during the period, offset by the result of selling merchandise at higher margins. The (decrease) in cost of sales, including buying and occupancy costs, in the nine months ended October 31, 1997 was primarily the result of selling merchandise at higher margins, partially offset by the increase in net sales during the period. As a percentage of net sales, cost of sales, including buying and occupancy costs, were 74.0% and 78.0% in the nine months ended October 31, 1998 and 1997, respectively, and 74.4% and 77.3% in the three months ended October 31, 1998 and 1997, respectively. As a percentage of net sales, buying and occupancy costs were 17.3% and 18.5% in the nine months ended October 31, 1998 and 1997, respectively, and 16.1% and 17.2% in the three months ended October 31, 1998 and 1997. Selling and administrative expenses increased to $31,269,000 from $28,058,000, or $3,211,000 (11.4%), in the nine months ended October 31, 1998 and 1997, respectively, and (decreased) to $28,058,000 from $28,475,000, or ($418,000) (1.5%), in the nine months ended October 31, 1997 and 1996, respectively. Selling and administrative expenses increased to $10,765,000 from $9,486,000, or $1,279,000 (13.5%), in the three months ended October 31, 1998 and 1997, respectively, and (decreased) to $9,486,000 from $10,148,000, or ($661,000) (0.7%), in the three months ended October 31, 1997 and 1996, respectively. The increase in selling and administrative expenses for the nine and three months ended October 31, 1998 was mainly due to an increase in store operating cost. The (decrease) in selling and administrative expenses for the nine months ended October 31, 1997 was primarily due to a one-time cost of $560,000 for the termination of the Company's private label credit card program, in the prior year, offset by increased insurance costs. As a percentage of net sales, selling and administrative expenses were 20.1% and 20.9% in the nine months ended October 31, 1998 and 1997, respectively, and 19.5% and 19.6% in the three months ended October 31, 1998 and 1997, respectively. Depreciation expenses decreased ($466,000) and ($192,000) in the nine and three months ended October 31, 1998, respectively. Depreciation expenses increased $512,000 and $203,000 in the nine and three months ended October 31, 1997, respectively. The decrease for the nine and three months ended October 31, 1998, is principally attributable to a reduction in the number of stores to be closed and the write-offs associated with them. The increase for the nine and three months ended October 31, 1997 is principally attributable to the accelerated write-off of leasehold improvements. Operating income increased to $6,861,000 from an operating (loss) of ($1,404,000), or $8,265,000, in the nine months ended October 31, 1998 and 1997, respectively, and the operating (loss) decreased to ($1,404,000) from ($11,373,000), or $9,969,000, in the nine months ended October 31, 1997 and 1996, respectively. The operating income increased to $2,531,000 from $484,000, or $2,047,000 (422.9%), in the three months ended October 31, 1998 and 1997, respectively and the operating income increased to $484,000 from an operating (loss) of ($4,386,000), or $4,870,000, in the three months ended October 31, 1997 and 1996, respectively. As a percentage of net sales, the operating income (loss) was 4.4% and (1.0%) in the nine months ended October 31, 1998 and 1997, respectively, and 4.6% and 1.0% in the three months ended October 31, 1998 and 1997, respectively. The increase in the operating income for the nine and three months ended October 31, 1998 was primarily attributed to an increase in sales and an increase in margins, partially offset by an increase in selling and administrative expenses. The decrease in the operating loss for the nine months ended October 31, 1997 was primarily attributed to an increase in net sales and an increase in margins. During the nine months ended October 31, 1997 the Company decreased the number of "Plus Size" selling units by almost 50%. This reduction did not result in a proportionate reduction in sales and did result in an improvement in "Plus Size" margins. Results of Operations - Book Business Net sales increased to $12,493,000 from $10,448,000, or $2,045,000 (19.6%), in the nine months ended October 31, 1998 and 1997, respectively, and increased to $10,448,000 from $7,450,000, or -8- $2,998,000 (40.2%), in the nine months ended October 31, 1997 and 1996, respectively. Net sales increased to $4,937,000 from $4,015,000, or $922,000 (23.0%), in the three months ended October 31, 1998 and 1997, respectively, and increased to $4,015,000 from $2,871,000, or $1,144,000 (39.8%), in the three months ended October 31, 1997 and 1996, respectively. The increase in net sales in the nine and three months ended October 31, 1998 resulted primarily from the addition of two resort stores and one warehouse store. The increase in net sales in the nine and three months ended October 31, 1997 resulted primarily from the addition of two warehouse stores and the increase in size of a resort store. The following table sets forth certain per store information.
Per Store Data Per Store Data Nine Months Ended Three Months Ended ----------------- ------------------ October 31, October 31, ----------- ----------- 1998 1997 1998 1997 ---- ---- ---- ---- Stores open at end of the period-Resort Stores 12 10 12 10 Average number in operation during the period 12 10 11 10 Average net sales per Resort store (in thousands) $ 376 $ 356 $201 $175 Stores open at end of the period-Warehouse Stores 6 5 6 5 Average number in operation during the period 6 5 6 5 Average net sales per Warehouse store (in thousands) $1,304 $1,361 $448 $445 Comparable Store Sales(3)-Percent Change --- 3.3% --- 3.3%
Cost of sales, including buying and occupancy costs, increased to $8,702,000 from $7,367,000, or $1,335,000 (18.1%), in the nine months ended October 31, 1998 and 1997, respectively, and increased to $7,367,000 from $5,015,000, or $2,352,000 (46.9%), in the nine months ended October 31, 1997 and 1996, respectively. Cost of sales, including buying and occupancy costs, increased to $3,398,000 from $2,833,000, or $565,000 (19.9%), in the three months ended October 31, 1998 and 1997, respectively, and increased to $2,833,000 from $1,933,000, or $900,000 (46.6%) in the three months ended October 31, 1997 and 1996, respectively. As a percentage of net sales, cost of sales, including buying and occupancy costs were 69.6% and 70.5% in the nine months ended October 31, 1998 and 1997, respectively, and 68.8% and 70.6% in the three months ended October 31, 1998 and 1997. The increase in cost of sales, including buying and occupancy costs, in the nine and three months ended October 31, 1998 and 1997 is primarily the result of increased sales. As a percentage of net sales, buying and occupancy costs were 15.5% and 16.1% in the nine months ended October 31, 1998 and 1997, respectively, and 14.5% and 16.3% in the three months ended October 31, 1998 and 1997, respectively. Selling and administrative expenses increased to $2,316,000 from $1,945,000, or $371,000 (19.1%), in the nine months ended October 31, 1998 and 1997, respectively, and increased to $1,945,000 from $1,413,000, or $533,000 (37.7%), in the nine months ended October 31, 1997 and 1996, respectively. Selling and administrative expenses increased to $822,000 from $712,000, or $110,000 (15.4%), in the three months ended October 31, 1998 and 1997, respectively, and increased to $712,000 from $515,000, or $197,000 (38.3%), in the three months ended October 31, 1997 and 1996, respectively. The increase in the nine and - -------------------- (3) Comparable store sales include stores open for both periods in the current format and location. A store is added to the comparable store base in its 13th month of operations. -9- three months ended October 31, 1998 and 1997 is primarily the result of additional stores. As a percentage of net sales, selling and administrative expenses were 18.5% and 18.6% in the nine months ended October 31, 1998 and 1997, respectively, and 16.6% and 17.8% in the three months ended October 31, 1998 and 1997, respectively. Depreciation expense increased $33,000 and $4,000, in the nine months and three months ended October 31,1998, respectively. Operating income increased to $1,145,000 from $839,000, or $306,000 (36.5%), in the nine months ended October 31, 1998 and 1997, respectively, and increased to $839,000 from $794,000, or $45,000 (5.7%), in the nine months ended October 31, 1997 and 1996, respectively. Operating income increased to $605,000 from $361,000, or $244,000 (67.6%), in the three months ended October 31, 1998 and 1997, respectively, and increased to $361,000 from $347,000, or $14,000 (4.1%), in the three months ended October 31, 1997 and 1996, respectively. The changes in operating income for the nine and three months ended October 31, 1998 and 1997 are primarily the result of the factors described above. As a percentage of net sales, operating income was 9.2% and 8.0% in the nine months ended October 31, 1998 and 1997, respectively, and 12.3% and 9.0% in the three months ended October 31, 1998 and 1997, respectively. Liquidity and Capital Resources During the three and nine months ended October 31, 1998 and 1997, the Company funded internally all of its operating needs, including capital expenditures for the opening of new apparel and book stores and for the remodeling of existing apparel and book stores. Total cash provided by operating activities for the nine months ended October 31, 1998 and 1997 was $4,542,000 and $3,749,000, respectively. For the nine months ended October 31, 1998, cash provided by operations was the result of the net income, increases in trade accounts payable and non-cash charges for depreciation and amortization, partially offset by the deferred income tax benefit, the decrease in income taxes payable and an increase in merchandise inventories. For the nine months ended October 31, 1997, cash provided by operations was the result of the net income, a decrease in prepaid expenses and other, and increase in accrued expenses, and non-cash charges for depreciation and amortization, partially offset by an increase in merchandise inventories. The inventory turn-over rate for the apparel business was approximately 2.4 times during the nine months ended October 31, 1998 and 2.2 times during the nine months ended October 31, 1997. The inventory turn-over rate for the book business was approximately 1.0 times during the nine months ended October 31, 1998 and 1.1 times during the nine months ended October 31, 1997. Net cash used in investing activities was $2,809,000 and $1,396,000 for the nine months ended October 31, 1998 and 1997, respectively. The increase in net cash used in investing activities was principally due to the remodeling of existing stores and the opening of new stores. Net cash used in financing activities was $1,809,000 and $2,115,000 for the nine months ended October 31, 1998 and 1997, respectively. For the nine months ended October 31, 1998, these funds were principally used for the payment of dividends on preferred and common stock and other investing activities, partially offset by the proceeds from incentive stock options exercised. For the nine months ended October 31, 1997, these funds were principally used for the payment of dividends on preferred and common stock. As of October 31, 1998, the Company had cash and cash equivalents of $57,836,000 compared with $45,089,000 at October 31, 1997. In February 1998, the Company purchased nine stores from Petrie Retail, Inc. and subsidiaries, for $720,000. These locations were made available as a result of Petrie's ongoing bankruptcy proceedings. The stores are located in regional malls and were opened during the quarter ended April 30, 1998. At the end of the first quarter of fiscal 1998, the Company reduced the size of the plus sized operation by approximately 50%. -10- The Company's intention is to expand the book store business. Opening a warehouse book store is capital intensive, because of the leasehold improvements and initial inventory required. It is anticipated that the funds to finance expansion will come from the cash and cash equivalents on hand. As of the balance sheet date, there were no commitments for the opening of any additional warehouse or resort stores. Other than these items, there are no known trends or commitments, events or other uncertainties that are reasonably likely to result in the Company's liquidity increasing or decreasing in any material way. The Company believes that internally generated funds will be sufficient to meet its anticipated capital expenditures, which are not expected to be material, and current operating needs. YEAR 2000 READINESS DISCLOSURE The operation of the Company's business is dependent, in part, on its computer software programs and operating systems (collectively, "Programs and Systems"). The Programs and Systems are used in several key areas of the Company's business, including merchandising, inventory management, pricing, sales, distribution, financial reporting, as well as in various administrative functions. The Company has been evaluating its Programs and Systems to identify potential Year 2000 compliance issues. These actions are necessary to ensure that the Programs and Systems will recognize and process in the Year 2000 and beyond. It is anticipated that remediation of some of the Company's Programs and Systems and replacement of some of the Company's Programs and Systems will be necessary to make such Programs and Systems Year 2000 compliant. As part of its evaluation the Company looked at both Information Technology ("IT") and non-"IT" systems. The Company has concluded that non-"IT" systems are not significant to the ongoing operation of its business. Although the Company is not currently aware of material Year 2000 compliance issues relating to systems of other companies with which the Company does business, there is no assurance that the Company will not be materially adversely affected by such issues affecting the systems of such other companies. The Company has not developed contingency plans. Development of such plans will be considered if the Company believes that its replacement/remediation efforts may not be completed on a timely basis. The status of the Company's progress toward becoming Year 2000 compliant is as follows:
Estimated Estimated Approximate Amount Estimated Completion System % Complete Total Cost Expended to Date Quarter Ending - ------ ---------- ---------- ---------------- ------------------ Financial 85% $530,000 $315,000 January, 1999 P.C. & Mainframe including operating systems 75% $200,000 $155,000 July, 1999 Merchandising/ Distribution/ Warehousing 50% $155,000 $ 35,000 July, 1999 ======== ========= $885,000 $505,000
These projects will be paid from internally generated funds. Based on present information, the Company believes that it will be able to achieve such Year 2000 compliance through the remediation of some Programs and Systems and through the replacement of some Programs and Systems. However, no assurance can be given that these efforts will be successful, or that the Company will not be materially adversely affected by any failures of these remediation and replacement projects. -11- SEASONAL NATURE OF OPERATIONS The following table shows the Company's net sales and net earnings per quarter for the fiscal year ended January 31, 1998 on an unaudited basis. Net Sales Net Income(Loss) ------------------------------------------------------ Amount % Amount % ------ - ------ - (Dollars in Thousands) ---------------------- 1st Quarter $ 43,929 21.4% ($ 1,530) ( 23.0%) 2nd Quarter 48,580 23.7% 1,256 18.9% 3rd Quarter 52,409 25.6% 978 14.7% 4th Quarter 60,148 29.3% 5,933 89.4% -------- ------ -------- ------ TOTAL $205,066 100.0% $ 6,637 100.0% ======== ====== ======== ====== Approximately 55% and 104% of the Company's net sales and net income, respectively, for fiscal 1998 occurred during the last six months, which includes the Back-to-School and Christmas selling seasons. -12- PART II. OTHER INFORMATION Items 1 - 3. NOT APPLICABLE Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: The annual meeting of the company was held on Wednesday, May 27, 1998. Total votes present either in person or by proxy were 12,490,717. The votes were cast as follows for the election of directors: FOR WITHHELD --- -------- Marvin Rounick 12,478,897 11,820 Warren Weiner 12,479,077 11,640 Jack A. Rounick 12,480,377 10,340 Paul S. Bachow 12,479,467 11,250 Barry H. Feinberg 12,480,377 10,340 Barry H. Frank 12,480,377 10,340 There were no other matters voted on at the meeting. Item 5. NOT APPLICABLE Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit No. Description of Document 10-14.4 Agreement of Settlement and General Release dated May 5, 1998 between Jack A. Rounick and Stuart Savett, Trustees under the Rounick Family Irrevocable Insurance Trust dated October 27, 1986 and the Manufacturers Life Insurance Company. 10-14.5 Amended and Restated Split Dollar Insurance Agreement dated July 31, 1998 between the Company and Jack A. Rounick and Stuart Savett, Trustees under the Rounick Family Irrevocable Insurance Trust dated October 27, 1986 10-14.6 Amended and Restated Collateral Assignment dated July 31, 1998 from Jack. A. Rounick and Stuart Savett, Trustees under the Rounick Family Irrevocable Insurance Trust dated October 27, 1986, as assignor, and the Company, as assignee. 10-15.4 Agreement of Settlement and General Release dated May 5, 1998 between Barry H. Frank and Robert Shein, Trustees under the Weiner Family Irrevocable Insurance Trust dated October 27, 1986 and the Manufacturers Life Insurance Company. -13- 10-15.5 Amended and Restated Split Dollar Insurance Agreement dated July 31, 1998 between the Company and Barry H. Frank and Robert Shein, Trustees under the Weiner Family Irrevocable Insurance Trust dated October 27, 1986 10-15.6 Amended and Restated Collateral Assignment dated July 31, 1998 from Barry H. Frank and Robert Shein, Trustees under the Weiner Family Irrevocable Insurance Trust dated October 27, 1986, as assignor, and the Company, as assignee. 27 Financial Data Schedule (b) Reports on Form 8-K A Report on Form 8-K was filed on June 12, 1998 and a Report on Form 8-K/A was filed on June 18, 1998. Both reported, under Item 4, a change of Certifying Accountant. -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DEB SHOPS, INC. DATE: December 14, 1998 By /s/ Marvin Rounick ----------------------------- Marvin Rounick President DATE: December 14, 1998 By /s/ Lewis Lyons ----------------------------- Lewis Lyons Vice President, Finance Chief Financial Officer EX-10 2 EXHIBIT 10-14.4 Exhibit 10-14.4 AGREEMENT OF SETTLEMENT AND GENERAL RELEASE WHEREAS, The Manufacturers Life Insurance Company, ("Manulife") issued a life insurance policy to Jack A. Rounick and Stuart Savett as Trustees of the Rounick Family Irrevocable Insurance Trust dated October 27, 1986, ("Owners/Trustees") on the joint lives of Marvin J. Rounick and Judith L. Rounick, (the "Insureds"), policy number 3,779,930-1, (the "policy"); and WHEREAS, a dispute has arisen between Manulife on the one hand and the Owners/Trustees and Insureds on the other with respect to the nature and extent of premiums and coverages under said policy; and, WHEREAS, the parties desire to settle and compromise their differences amicably; This agreement shall be effective on the last date written below; NOW, THEREFORE, IT IS AGREED that in consideration of the mutual covenants contained herein, the sufficiency and adequacy of which are mutually acknowledged; 1. Manulife shall adjust the illustrated policy values to match the attached Appendix "A" (illustration dated February 1, 1996) which is incorporated herein by reference, such that policy loans outstanding on February 1, 1996 are reduced by $229,348.00. The surrender of the policy prior to the death of the Insureds will result in an adjustment of the cash surrender value not to exceed $229,348.00. 2. Manulife shall adjust the illustrated policy values to implement a reduction in the face amount of the policy from $20,000,000.00 to $15,000,000.00 effective February 1, 1997 as reflected in the attached Appendix "A". Any then available policy guaranteed cash value will be used to purchase paid up additions. 3. The Owners/Trustees will pay $397,286.00 into the policy within 30 days of the date of this agreement and this money will be used to eliminate any remaining indebtedness on the policy as though the payment had been made on February 1, 1996 such that the current policy debt will incur no further loan interest charges as of that date as depicted in the attached Appendix "A". 4. The payment made by Manulife referred to above is not nor shall it be construed as an admission of fault or liability and is made solely in the interest of resolving a disputed matter. This Agreement and General Release, including the consideration provided, shall be kept strictly confidential and shall not be hereafter disclosed to any third parties by the Insureds or Owners/Trustees except by permission of Manulife, or as may be necessary for tax and estate planning purposes, an order of the court, or other legal process. Breach of this provision is likely to lead to serious consequential damages to Manulife and its agent by virtue of the existence of unresolved and disputed fact matters and damages arising there would be from difficult to resolve in the event of such breach. Consequently, the parties hereto stipulate that damages arising from a breach shall cause the loan and premium payments to be readjusted such that the changes described in paragraph one (1) would be reversed. This shall be done upon proof of a substantial breach of this provision subsequent to the date of this agreement, by either the Insureds or the Owners/Trustees in its capacity as Trustee, in a Federal or State court in Pennsylvania. 5. The undersigneds, jointly and severally, on their own behalf, and that of their heirs, successors and assigns hereby release, acquit and discharge Manulife and any of their agents, officers, employees, directors, successors and assigns of and from any and all claims and causes of action, of any name and nature arising from the sale, solicitation, purchase or issuance of the policy described herein including any act omission, transaction, dealing, conduct or negotiation of any kind whatsoever arising from the solicitation, purchase or issuance of any contract with Manulife. Insureds do not waive any rights under the contract itself. DATED this 5th day of May 1998. ---- ----- MANULIFE The Manufacturers Life Insurance Company BY: /s/ Paul L. Gallagher ------------------------------------------ Paul L. Gallagher ITS: Assistant Vice President & Senior Counsel -------------------------------------------- /s/ Marvin J. Rounick INSUREDS -------------------------------------------- Marvin J. Rounick /s/ Judith L. Rounick -------------------------------------------- Judith L. Rounick /s/ Jack A. Rounick OWNERS/TRUSTEES -------------------------------------------- Jack A. Rounick /s/ Stuart Savett -------------------------------------------- Stuart Savett APPENDIX "A" ADVANCED SURVIRORSHIP LEDGER PREPARED FOR INFORCE POLICY #3779930 M & J ROUNICK M & J ROUNICK FEMALE, AGE 42 MALE NONSMOKER, AGE 47 $20000000 MANULIFE PRINCIPAL'S SURVIVORSHIP LIFE AT 95 - B84 $157020.00 SINGLE CEO II RIDER $362905.00 - -------------------------------------------------------------------------------- $20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $519925.00
DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS WITH EXCESS APPLIED TO PURCHASE PUA'S ******* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT ******* ** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS ** *** THIS ILLUSTRATION ASSUMES THAT THE LOAN OUTSTANDING AT THE BEGINNING OF YEAR 10 OF *** *** $626,634.47 HAS BEEN REPAID AT THE BEGINNING OF THE YEAR 10 I.E. FEBRUARY 1, 1996 *** CASH TOTAL TIO PUA TOTAL GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR - ---- ------- ------- --------- --------- ----------- ----------- ----------- ----------- ----------- ----------- 10 157020 0 0 0 98000 0 1092600 0 0 20000O00 11 117770 0 96400 0 96400 251780 1212530 0 803428 15803428 12 117770 0 72300 8468 80768 223561 1332811 0 689336 15689336 13 117770 0 77550 7517 85067 198597 1463547 0 591872 15551872 14 117770 0 80850 6676 87526 175174 1603474 0 504730 15504730 ------- ------ -------- ------- 628100 0 327100 447762 15 117770 0 84000 5887 89887 153261 1752861 0 427039 15427039 16 117770 0 87450 5149 92599 133273 1912573 0 359199 15359199 17 117770 0 90300 4477 94777 114754 2082454 0 299240 15299240 18 117770 0 93300 3864 97154 97962 2263062 0 247214 15247214 19 117770 0 96450 3289 99739 83171 2454371 0 203168 15203168 ------- ------ -------- ------- 1216950 0 778600 921918 20 117770 0 99900 2792 102692 70821 2653471 0 167505 15167505 21 117770 0 103350 2376 105726 61078 2873728 0 139916 15139916 22 117770 0 106950 2049 108599 54269 3100619 0 120448 15120448 23 117770 0 110700 1820 112520 50737 3339337 0 109153 15109153 24 117770 0 114600 1700 116300 50851 3590102 0 106087 15106087 ------- ------ -------- ------- 1805800 0 1314100 1468155 25 117770 0 117770 1703 119473 54116 3852416 0 109535 15109535 26 117770 0 117770 1812 119582 57563 4123613 0 113095 15113095 27 117770 0 117770 1926 119696 61200 4403700 0 116772 15116772 28 117770 0 117770 2047 119827 65037 4692837 0 120566 15120566 29 117770 0 117710 2174 119944 69082 4990432 0 124484 15124484 ------- ------ -------- ------- 2394650 0 1902950 2066668
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED ADVANCED SURVIRORSHIP LEDGER PREPARED FOR INFORCE POLICY #3779930 M & J ROUNICK M & J ROUNICK FEMALE, AGE 42 MALE NONSMOKER, AGE 47 $20000000 MANULIFE PRINCIPAL'S SURVIVORSHIP LIFE AT 95 - B84 $157020.00 SINGLE CEO II RIDER $362905.00 - -------------------------------------------------------------------------------- $20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $519925.00
DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS WITH EXCESS APPLIED TO PURCHASE PUA'S ******* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT ******* ** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS ** *** THIS ILLUSTRATION ASSUMES THAT THE LOAN OUTSTANDING AT THE BEGINNING OF YEAR 10 OF *** *** $626,634.47 HAS BEEN REPAID AT THE BEGINNING OF THE YEAR 10 I.E. FEBRUARY 1, 1996 *** CASH TOTAL TIO PUA TOTAL GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR - ---- ------- ------- --------- --------- ----------- ----------- ----------- ----------- ----------- ----------- 30 117770 0 117770 2309 120079 73341 5295592 0 128530 15128530 31 117770 0 117770 2450 120220 77819 5407269 0 132707 15132707 32 117770 0 117770 2597 120367 82517 5924117 0 137020 15137020 33 117170 0 117170 2752 120522 87435 6245086 0 141473 15141473 34 111110 0 111110 2914 120684 92576 6568826 0 146071 15146071 ------- ----- ------- ------- 2983500 0 2492800 2668540 35 117770 0 117770 3083 120853 97939 6894740 0 150818 15160818 36 111770 0 111770 3259 121029 103530 7222230 0 155720 15155702 17 117770 0 117770 3442 121212 109351 7550552 0 160781 15160781 38 117770 0 117770 3633 121403 115407 7879258 0 166006 15166006 39 117770 0 117770 3831 121601 121704 8207454 0 171401 15171401 ------- ----- ------- ------- 3572350 0 3080650 3274937 40 117770 0 117770 4037 121807 128241 8534241 0 176972 15176972 41 111770 0 111770 4250 122020 135021 8858871 0 182723 15182723 42 117770 0 117770 4471 122241 142043 9180893 0 189662 15188662 43 117770 0 117770 4700 122470 149310 9501060 0 194793 15194793 44 117770 0 117770 4937 122707 156836 9821336 0 201124 15201124 ------- ----- ------- ------- 4161200 0 3669500 3885881 45 117770 0 117770 5182 122952 164642 10144592 0 207661 15207661 46 117770 0 117770 5438 123208 172761 10473861 0 214410 15214410 47 117770 0 117770 5705 123475 181236 10810386 0 221378 15221378 48 117770 0 117770 5984 123754 190116 11148516 0 228573 15228573 49 117770 0 117770 6278 124048 199442 11501792 0 236002 15236002 ------- ----- ------- ------- 4750050 0 4258350 4503315
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED ADVANCED SURVIRORSHIP LEDGER PREPARED FOR INFORCE POLICY #3779930 M & J ROUNICK M & J ROUNICK FEMALE, AGE 42 MALE NONSMOKER, AGE 47 $20000000 MANULIFE PRINCIPAL'S SURVIVORSHIP LIFE AT 95 - B84 $157020.00 SINGLE CEO II RIDER $362905.00 - -------------------------------------------------------------------------------- $20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $519925.00
DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS WITH EXCESS APPLIED TO PURCHASE PUA'S ******* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT ******* ** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS ** *** THIS ILLUSTRATION ASSUMES THAT THE LOAN OUTSTANDING AT THE BEGINNING OF YEAR 10 OF *** *** $626,634.47 HAS BEEN REPAID AT THE BEGINNING OF THE YEAR 10 I.E. FEBRUARY 1, 1996 *** CASH TOTAL TIO PUA TOTAL GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR BEG OF YR - ---- ------- ------- --------- --------- ----------- ----------- ----------- ----------- ----------- ----------- 50 117770 0 117770 6586 124356 209240 11870990 0 243672 15243672 51 111770 0 111770 6910 124680 219610 12266210 0 252591 15251591 52 117770 0 117770 7247 125017 230223 12666823 0 259768 15255768 53 117770 0 117770 7597 125367 241344 13031844 0 268210 15266210 54 0 0 117770 7941 125711 370038 13444939 0 406209 15406209 ------- ----- ------- ------- 5221130 0 4847200 5128449 55 0 0 19350 12184 31534 406441 13798842 0 440376 15440376 56 0 0 19800 13392 33192 445250 14148351 0 475849 15475849 57 0 0 20250 14673 34923 466414 14505114 0 512657 15512657 ------- ----- ------- ------- 5221130 0 4906600 5228099
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED INFORCE POLICY REVIEW PROPOSAL DATE: FEBRUARY 1, 1996 LIFE INSUREDS: M & J ROUNICK PLAN: SURVIVORSHIP LIFE AT 95 -B84 POLICY NUMBER: 3779930 RIDERS: SINGLE CEO DATE POLICY ISSUED: FEBRUARY 1, 1987 ISSUE AGE: 42 NON-SMOKER: YES CURRENT POLICY YEAR: 10 LOAN INTEREST RATE: VARIABLE CURRENT ANNUALIZED PREMIUM: $157020.00 POLICY BENEFITS - --------------- CURRENT DEATH BENEFIT (DIVIDEND INCLUDED): $20000000 LESS TOTAL LOAN. CASH VALUE AT THE END OF THE CURRENT YEAR: $1092600 LESS TOTAL LOAN. POLICY LOANS - ------------ THIS PROPOSAL ASSUMES THAT NO LOANS WERE OUTSTANDING ON THIS POLICY AS OP AUGUST 1, 1996. DIVIDENDS - --------- ANNUAL DIVIDEND AT LAST ANNIVERSARY: $98000.00 VANISH - ------ THIS PROPOSAL ASSUMES THAT $98000.00 WAS SURRENDERED TO PAY THE PREMIUM AT THE BEGINNING OF THE YEAR. POLICY VALUES - ------------- THE SINGLE CEO RIDER PREMIUM SHOWN IN THE HEADING OF THIS PROPOSAL REPRESENTS THE SINGLE PREMIUM APPLIED FOR AT THE TIME OF ISSUE. HOWEVER, THE ACTUAL SINGLE CEO PREMIUM PAID MAY BE EQUAL TO OR LESS THAN THE STATED CEO SINGLE PREMIUM. THE VALUES ILLUSTRATED ABOVE ARE BASED ON THE ACTUAL CEO SINGLE PREMIUM PAID. A POLICY FROM MANULIFE FINANCIAL IS BACKED BY 0VER 100 YEARS OF EXPERIENCE AND EXPERTISE. THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED IMPORTANT INFORMATION ABOUT THIS PROPOSAL Manulife Financial has a reputation for its financial integrity and for providing solid, long term value to our policyholders. In keeping with that tradition, we encourage our clients to fully examine and understand the assumptions used in a life insurance proposal. This proposal is not a contract; we recommend that you refer to your policy for a complete explanation of your policy benefits. GUARANTEES ONLY THOSE PREMIUMS AND VALUES LABELLED AS 'GUARANTEED' IN THIS PROPOSAL WILL BE CONTRACTUALLY GUARANTEED IN YOUR POLICY. DIVIDENDS ILLUSTRATED DIVIDENDS, AND ALL VALUES DEPENDING ON ILLUSTRATED DIVIDENDS, ARE BASED ON THE JULY 1995 DIVIDEND SCALE. THEY ARE NEITHER GUARANTEES NOR ESTIMATES OF FUTURE DIVIDENDS. PREMIUM Premiums cease at the earlier of second death or the youngest surviving life reaching age 95. This proposal assumes all previous premiums have been paid in full. Premiums due, when reduced by dividends, may vary substantially from the illustrated premiums due, depending on the actual dividends paid in future years. VANISHING PREMIUMS THE POLICY ILLUSTRATED REQUIRES THAT PREMIUMS BE PAID EACH YEAR WITHOUT LIMITATION. HOWEVER, IT IS POSSIBLE THAT AT SOME FUTURE DATE, DIVIDENDS, AND IF NECESSARY, THE SURRENDER OF PAID UP ADDITIONS MAY BECOME SUFFICIENT TO PAY CURRENT AND FUTURE PREMIUMS DUE. THE PROPOSAL SHOWS THIS BY INDICATING A TIME WHEN PREMIUMS 'VANISH'. IF ACTUAL DIVIDENDS ARE LOWER THAN ILLUSTRATED, YOU WOULD HAVE TO PAY PREMIUMS BEYOND THE DATE AT WHICH THIS PROPOSAL SHOWS THAT PREMIUMS MIGHT 'VANISH'. FOR POLICIES WHERE PREMIUMS HAVE ALREADY 'VANISHED', FUTURE PREMIUMS COULD BE REQUIRED. THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED IMPORTANT INFORMATION ABOUT THIS PROPOSAL LOANS AND SURRENDER The dividends shown in this proposal reflect the loans and 1oan interest rates as illustrated. Actual policy dividends will vary according to actual loan interest rates and loan activity. THE LOAN INTEREST RATE ILLUSTRATED IS 7.25% AND MAY DIFFER FROM THE CURRENT RATE. MANULIFE FINANCIAL RESERVES THE RIGHT TO INCREASE OR DECREASE THE POLICY LOAN INTEREST RATE AT EACH POLICY ANNIVERSARY - SUCH RATE WILL NEVER EXCEED THE MAXIMUM PERMITTED BY STATE LAW. TAXATION The Individual's illustrated tax bracket is 28%. This proposal may not fully reflect your actual tax or accounting situation. We suggest that you consult your professional advisors regarding the interpretation of current and proposed tax laws and accounting principles. PROPOSAL DESIGN This proposal assumes older life dies in year 99. This proposal assumes younger life dies in year 99. ALTERNATE PROPOSALS CURRENT INTEREST RATE TRENDS INDICATE THAT DIVIDEND SCALES AT MANULIFE FINANCIAL AND THROUGHOUT THE LIFE INSURANCE INDUSTRY WILL BE REDUCED IN THE FUTURE. AS VALUES ILLUSTRATED ON THIS OR ANY OTHER POLICY ARE SENSITIVE TO CHANGES IN THE DIVIDEND SCALE, AND IN KEEPING WITH OUR POLICY OF FULL DISCLOSURE TO OUR POLICYHOLDERS, MANULIFE FINANCIAL RECOMMENDS THAT YOU REVIEW AN ADDITIONAL ILLUSTRATION(S) THAT WILL DEMONSTRATE THE SENSITIVITY OF PRODUCT VALUES TO LOWER DIVIDEND SCALES THAN CURRENTLY CREDITED. THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED IMPORTANT INFORMATION ABOUT THIS PROPOSAL FACE DECREASE THIS PROPOSAL IS ILLUSTRATED WITH A FACE AMOUNT REDUCTION FROM $20000000 TO $15000000 IN YEAR 11. ONCE THE FACE AMOUNT REDUCTION HAS BEEN PROCESSED, IF ADDITIONAL COVERAGE IS NEEDED IN THE FUTURE, THE INSURED WOULD NEED TO SUBMIT A NEW APPLICATION FOR INSURANCE WHICH WILL REQUIRE MEDICAL EVIDENCE. THE NEW INSURANCE WILL BE BASED ON THE INSURED'S AGE AT THAT TIME. THIS PROPOSAL DOES NOT REFLECT ANY TAX CONSEQUENCES OR POLICY CHANGE FEES RESULTING FROM THE PARTIAL SURRENDER TO REDUCE THE FACE AMOUNT. This proposal assumes that the cash value allowance of $273,150.00 resulting from the partial surrender to reduce the face amount is used to purchase paid up additions. YOU SHOULD CAREFULLY REVIEW THE FULL PROPOSAL INCLUDING THE SECTION ENTITLED 'IMPORTANT INFORMATION ABOUT THIS PROPOSAL'. THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED EX-10 3 EXHIBIT 10-14.5 Exhibit 10-14.5 AMENDED AND RESTATED SPLIT-DOLLAR INSURANCE AGREEMENT THIS AMENDED AND RESTATED SPLIT DOLLAR INSURANCE AGREEMENT is made and entered into this 31st day of July, 1998, by and between DEB SHOPS, INC. (the "Assignee"), and JACK A. ROUNICK and STUART SAVETT, Trustees under the Rounick Family Irrevocable Insurance Trust dated October 27, 1986 (the "Owner"). WITNESSETH: WHEREAS, the parties entered into a certain Split Dollar Insurance Agreement dated July 31, 1987 (the "Old Agreement") with respect to a policy of life insurance in the face amount of Twenty Million Dollars ($20,000,000.00), policy number 3,779,930-1 (the "Policy") issued by Manufacturer's Life Insurance Company (the "Insurer"); and WHEREAS, a dispute has arisen between the Insurer, the Owner, and the Assignee regarding the payment of additional premiums to the Insurer under the Policy; and WHEREAS, the dispute has been settled by the Insurer reducing the face value of the Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars ($15,000,000.00) and adjusting the illustrated policy values and eliminating any remaining indebtedness on the Policy, effective February 1, 1996; and WHEREAS, the Assignee in consideration for the Insurer eliminating any indebtedness on the Policy and reducing the premium obligation to maintain the Policy in force, will agree to pay any additional premiums on the Policy if they become due; and WHEREAS, the Owner has agreed to the reduction in the face value of the Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars ($15,000,000.00); and WHEREAS, this Amended and Restated Split Dollar Insurance Agreement ("Agreement") is intended to replace and supersede the Old Agreement. NOW, THEREFORE, the Assignee, Owner, and Marvin Rounick and Judy Rounick (the "Insured") agree to completely amend and restate the Agreement as hereinafter set forth: 1. The life insurance policy with which this Agreement deals is the Policy issued by Manufacturer's Life Insurance Company on the life of the last to die of the Insured. 2. The Owner, or its transferee, shall be the owner of the Policy, and may exercise all ownership rights inuring to the owner under the terms of the Policy, except as specifically provided in this Agreement. (a) Notwithstanding any other provision of this Agreement and notwithstanding any assignment executed by the Owner or its transferee in connection with this Agreement, it is the express intention of the Owner and the Assignee to reserve to the Owner (i) the right to transfer its interest in the Policy, (ii) the right to change the beneficiary of that portion of the proceeds to which it is entitled under paragraph 7, and (iii) the right to exercise settlement options. (b) The rights in the Policy granted to the Assignee are limited solely to its security interest in a portion of the cash surrender value and a portion of the death benefit as defined and limited by this Agreement. (c) Policy loans may only be made to pay Policy premiums. 3. Effective on the execution of this Agreement, the Assignee hereby agrees to pay a one-time, lump sum premium to the Insurer in the amount of Three Hundred Ninety-Seven 2 Thousand Two Hundred Eighty-Six Dollars ($397,286.00). In addition, the Assignee hereby agrees to pay future premiums, if any, net of any dividends on the Policy and/or from the surrender of paid-up additions to the Policy. The Insured, Marvin Rounick, an employee of Assignee, shall include in income each year for federal income tax purposes, an amount equal to the value of the "economic benefit" of the life insurance protection enjoyed by the Insured as provided under applicable Internal Revenue Service Regulations and Revenue Rulings. 4. In consideration of the payment of the Policy premiums by Assignee, the Owner has assigned the Policy to the Assignee, which Assignment solely gives the Assignee the limited power to enforce its rights to be paid the amount provided in paragraph 4(b) from the cash surrender value or a portion of the death benefit, as defined and limited by the following terms. Such interest of the Assignee in the Policy shall be specifically limited to: (a) the right to pledge or assign its interest in the Policy, subject to the terms of this Agreement and to any assignment executed in connection with this Agreement; (b) the right to be paid its net premium outlay (i.e. cumulative gross premiums paid less payments made by Owner and less any Policy loan of the Assignee encumbering the Policy); payable upon (i) the surrender or cancellation of the Policy, as provided in paragraph 6; (ii) the death of the Insured, as provided in paragraph 7, or (iii) the termination of this Agreement, as provided in paragraph 8. In the event the cash surrender value is less than the net premiums paid, the Assignee's interest shall be limited to the cash surrender value. 5. Policy dividends shall be applied to the payment of the premiums, as premiums fall due. 3 6. In the event of the surrender or cancellation of the Policy, the Assignee shall be entitled to receive a portion of the cash surrender value equal to the amount provided in paragraph 4 (b). The balance of the cash surrender value, if any, shall be paid to the Owner. 7. Upon the death of the Insured, the Assignee shall be entitled to receive a portion of the death benefit equal to the amount provided in paragraph 4(b). The balance of the death benefit, if any, shall be paid directly to the Owner, in the manner and in the amount provided by the beneficiary designation provision endorsed on the Policy. 8. This Agreement may be terminated by the Owner as follows: (a) If the Owner intends to terminate this Agreement, it should notify the Assignee in writing, not less than sixty (60) days prior to the effective date of such termination. (b) The Owner shall reimburse the Assignee no later than the effective date of such termination in an amount equal to the net premium outlay as defined in Paragraph 4(b). Upon receipt of such payment, the Assignee shall execute an appropriate instrument to release the Collateral Assignment of the Policy. (c) If the Owner fails to reimburse the Assignee within the time specified, the Owner shall execute any and all instruments that may be required to vest ownership of the Policy in the Assignee; provided the Assignee reimburses the Owner for the premium payments made by the Owner, if any. 9. This Agreement may be terminated by the Assignee as follows: (a) If the Assignee intends to terminate this Agreement, it should notify the Owner in writing, not less than sixty (60) days prior to the effective date of such termination. (b) Following receipt of notice from the Assignee, the Owner shall reimburse the Assignee no later than the effective date of such termination in an amount equal to 4 the net premium outlay as defined in Paragraph 4(b). Upon receipt of such payment, the Assignee shall execute an appropriate instrument to release the Collateral Assignment of the Policy. (c) In the event the Assignee shall fail to pay any Policy premium as required under Paragraph 3, the Owner shall have the option to pay the premium and keep the Policy in force and shall have the right to recoup the premium from the Assignee. In the alternative, the Owner shall have the right to deem the Assignee's failure to pay the premium as a notice of termination. The Owner shall advise the Assignee in writing of its determination and the sixty (60) days notice of termination shall be effective on the date such notice is sent to Assignee. (d) If the Owner fails to reimburse the Assignee within sixty (60) days of the date of termination, the Owner shall execute any and all instruments required to vest ownership of the Policy in the Assignee; provided that the Assignee shall reimburse the Owner for the premium payments made by the Assignee, if any. (e) On receipt of the notice of termination from the Assignee, the Owner shall reimburse the Assignee in the amount equal to the net premium outlay as defined in Paragraph 4(b). Upon receipt of such payment, the Assignee shall execute an appropriate instrument of release of the Collateral Assignment of the Policy. 10. Notwithstanding anything to the contrary in Paragraph 9 above, (a) The Owner shall have the right to repay the Assignee its net premium outlay (i.e. cumulative gross premiums paid less payments made by Owner, less any Policy loan of the Assignee encumbering the Policy) in six (6) equal annual installments, due on the first and each succeeding anniversary of the termination of the Policy. The Owner shall also pay interest 5 on the unpaid portion of the net premium outlay at the applicable federal rate of interest in effect at the time of termination. The Owner shall have a right to prepay all or any portion of the net premium outlay at any time in its sole discretion. In the event Owner defaults for more than ten (10) days after notice in the payment of any installment, the entire net premium outlay shall become immediately due and payable. The Policy of insurance shall remain as collateral until the Owner has paid the Assignee in full. (b) The provisions of Paragraph 10(a) notwithstanding, in the event the Policy is terminated by the Assignee (i) as a result of a sale of more than fifty (50%) percent of the stock of the Corporation or substantially all of the assets of the Corporation and at least fifty (50%) percent of the consideration for such sale is in cash, or (ii) in the event that the Assignee's available cash and cash equivalents are less than Fifteen Million Dollars ($15,000,000), then the net premium outlay shall be paid by the Owner to the Assignee on the termination of this Agreement and the Assignee shall release the Collateral Assignment of the Policy. 11.In the event the Owner transfers all of its interest in the Policy, then all of Owner's interest in the Policy and in this Agreement shall be vested in such transferee, and such transferee shall be substituted as a party hereunder, and the Owner shall have no further interest in the Policy. 12. Except as may otherwise be provided by paragraph 8, this Agreement may not be canceled, amended, altered or modified, except by a written instrument signed by all of the parties hereto. 13. All notices or other instruments or communications shall be in writing and shall be deemed delivered (and signed receipt obtained therefor) or sent by postage prepaid, actually delivered by Federal Express or a comparable private courier service, actually delivered 6 by telecopier or similar "FAX" equipment. Any notice shall be effective on the date on which it was delivered or on the date actually delivered by other means. Each party may, by notice to the other parties specify any other address for the receipt of such instruments or communications. 14. This Agreement shall bind Owner, Assignee and their successors and assignees, and any Policy beneficiaries. Owner and Assignee intend to be legally bound hereby. 15. This Amended and Restated Split Dollar Agreement, and the rights of the parties hereunder, shall be governed by and construed pursuant to the laws of the Commonwealth of Pennsylvania. 16. This Agreement and the Collateral Assignment contain the entire understanding among the parties hereto and supersedes any prior agreements. Assignee: ATTEST DEB SHOPS, INC. /s/ Warren Weiner By: /s/ Marvin Rounick - ----------------------------- -------------------------------- Warren Weiner, Secretary Marvin Rounick, President Owner: INSURED: ROUNICK FAMILY IRREVOCABLE INSURANCE TRUST /s/ Marvin Rounick /s/ Jack A. Rounick - ----------------------------- ----------------------------------- Marvin Rounick Jack A. Rounick, Trustee /s/ Judy Rounick /s/ Stuart Savett - ----------------------------- ----------------------------------- Judy Rounick Stuart Savett, Trustee (7) EX-10 4 EXHIBIT 10-14.6 Exhibit 10-14.6 AMENDED AND RESTATED COLLATERAL ASSIGNMENT ------------------------------------------ THIS AMENDED AND RESTATED COLLATERAL ASSIGNMENT, made and entered into this 31st day of July, 1998, by and between JACK A. ROUNICK and STUART SAVETT, Trustees under the Rounick Irrevocable Insurance Trust dated October 27, 1986 (the "Owner") and DEB SHOPS, INC. (the "Assignee"). WITNESSETH: ---------- WHEREAS, the parties hereto entered into a Collateral Assignment Agreement dated July 31, 1987 (the "Old Agreement") with respect to a policy of life insurance in the face amount of Twenty Million Dollars ($20,000,000.00), issued by Manufacturer's Life Insurance Company (the "Insurer"); and WHEREAS, the Owner owns Life Insurance Policy No. 3,779,930-1 issued by the Insurer and any supplemental contracts issued in connection therewith (such policy and contracts herein called "Policy"); and WHEREAS, the Policy insures the lives of the last to die of Marvin Rounick and Judy Rounick ("Insured"); and WHEREAS, the Assignee has contributed the annual premium due on the Policy, as more specifically provided in the Split Dollar Insurance Agreement dated July 31, 1987 and the Amended and Restated Split Dollar Agreement of even date herewith, between the Insured and the Assignee; and WHEREAS, in consideration of the Assignee having paid the premiums, the Owner granted to the Assignee a security interest in the Policy as collateral security for the payment to the Assignee of all amounts due to Assignee pursuant to the Agreement; and WHEREAS, a dispute has arisen between the Insurer, the Owner, and the Assignee regarding the payment of additional premiums to the Insurer, and WHEREAS, the Insurer has reduced the face value of the Policy from, Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars (15,000,000.00); and WHEREAS, the Insurer has adjusted the illustrated policy values and eliminated any remaining indebtedness on the Policy effective February 1, 1996; and WHEREAS, the Assignee in consideration for the Insurer's eliminating any indebtedness on the Policy and reducing the premium obligation to maintain the policy in force, will agree to pay additional premiums on the Policy; and WHEREAS, the Owner has agreed to the reduction of the face value of the Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars (15,000,000.00); and WHEREAS, this Amended and Restated Collateral Assignment ("Agreement") is intended to replace and supersede the Old Agreement. NOW, THEREFORE, for value received, the undersigned hereby assigns, transfers and sets over to the Assignee, its successors and assigns, the Policy, subject to the following terms and conditions: 1. This Assignment is made, and the Policy is to be held, as collateral security for the payments required to be received by Assignee, pursuant to the terms of the Agreement. 2. The Assignee shall have the right to pledge or assign its interest in the Policy, subject to the terms of the Agreement and to this Assignment. (2) 3. The Assignee's interest in the Policy shall further be limited to the right to recover its net premium outlay (i.e., gross premiums paid less payments made by Owner and less any policy loan of the Assignee encumbering the Policy), but if the Policy is canceled and the cash surrender value is less than the net premium outlay, the Assignee's interest shall be limited to the cash surrender value. 4. Except as specifically herein granted to the Assignee, the Owner shall retain all incidents of ownership in the Policy, including, but not limited to, the right to assign its interest in the Policy, the right to change the beneficiary of the Policy, and the right to exercise all settlement options permitted by the terms of the Policy; provided, however, that all rights retained by the Owner, transferee and beneficiary shall be subject to the terms and conditions of the Agreement and this Assignment and the Owner and Assignee agree that no loan may be made against the Policy except for the payment of premiums on the Policy. 5. Assignee shall, upon request, forward the Policy to the Insurer, without unreasonable delay, for endorsement of any designation or change of beneficiary, any election of optional mode of settlement, or the exercise of any other right reserved by the Owner hereunder. 6. The Insurer is hereby authorized to recognize the Assignee's claims to rights hereunder without investigating the reason for any action taken by the Assignee, the amount of its net premium outlay, the termination of the Agreement, the giving of any notice required herein, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The signature of the Assignee shall be sufficient for the exercise of any rights under the Policy assigned hereby to the Assignee and the receipt of the Assignee for any sums received by him shall be a full discharge and release therefor to the Insurer. (3) 7. If the Insurer is made or elects to become a party to any litigation concerning the proper apportionment of the death proceeds, cash surrender value, loan value or ownership rights under this Agreement, the Owner and Assignee and their transferees agree to be jointly and severally liable for the Insurer's litigation expenses, including reasonable attorney fees. 8. Upon the full payment to the Assignee of the amount to which it is entitled under paragraph 3 hereof, the Assignee shall reassign the Policy to the Owner and all specific rights included in this Collateral Assignment; provided, however, the Insurer shall only be required to release this Assignment pursuant to written instructions received from the Assignee. 9. All matters respecting the validity, effect and interpretation of this Assignment shall be determined in accord with the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement the date and year first above written. Assignee: ATTEST: DEB SHOPS, INC. /s/ Warren Weiner By: /s/ Marvin Rounick - -------------------------- ---------------------------------- Warren Weiner, Secretary Marvin Rounick, President Owner: WITNESS: ROUNICK FAMILY IRREVOCABLE INSURANCE TRUST /s/ Jack A. Rounick - -------------------------- ---------------------------------- Jack A. Rounick, Trustee /s/ Stuart Savett - -------------------------- ---------------------------------- Stuart Savett, Trustee (4) EX-10 5 EXHIBIT 10-15.4 Exhibit 10-15.4 AGREEMENT OF SETTLEMENT AND GENERAL RELEASE WHEREAS, The Manufacturers Life Insurance Company, ("Manulife") issued a life insurance policy to Barry H. Frank and Robert Shein as Trustees of the Weiner Family Irrevocable Insurance Trust dated October 27, 1986,("Owners/Trustees") on the joint lives of Warren Weiner and Penny Weiner, (the "Insureds"), policy number 3,779,931-9, (the "policy"); and WHEREAS, a dispute has arisen between Manulife on the one hand and the Owners/Trustees and Insureds on the other with respect to the nature and extent of premiums and coverages under said policy; and WHEREAS, the parties desire to settle and compromise their differences amicably; This agreement shall be effective on the date last written below; NOW, THEREFORE, IT IS AGREED that in consideration of the mutual covenants contained herein, the sufficiency and adequacy of which are mutually acknowledged; 1. Manulife shall adjust the illustrated policy values to match the attached Appendix "A" (illustration dated February 1, 1996) which is incorporated herein by reference, such that policy loans outstanding on February 1, 1996 are reduced by $85,105.00. The surrender of the policy prior to the death of the Insureds will result in an adjustment of the cash surrender value not to exceed $85,105.00. 2. Manulife shall adjust the illustrated policy values to implement a reduction in the face amount of the policy from $20,000,000.00 to $15,000,000.00 effective February 1, 1997 as reflected in the attached Appendix "A". Any then available policy guaranteed cash value will be used to purchase paid up additions. 3. The Owners/Trustees will pay $147,423.00 into the policy within 30 days of the date of this agreement and this money will be used to eliminate any remaining indebtedness on the policy as though the payment had been made February 1, 1996 such that the current policy debt will incur no further loan interest charges as of that date as depicted in the attached Appendix "A". 4. The payment made by Manulife referred to above is not nor shall it be construed as an admission of fault or liability and is made solely in the interest of resolving a disputed matter. This Agreement and General Release, including the consideration provided, shall be kept strictly confidential and shall not be hereafter disclosed to any third parties by the Insureds or Owners/Trustees except by permission of Manulife, or as may be necessary for tax and estate planning purposes, an order of the court, or other legal process. Any disclosure to third parties for tax and estate planning purposes shall be accompanied by a disclosure of this confidentiality provision and an agreement on the part of such third party to keep this Agreement and General Release, including the consideration provided, confidential. Breach of this provision is likely to lead to serious consequential damages to Manulife and its agent by virtue of the existence of unresolved and disputed fact matters and damages arising therefrom would be difficult to resolve in the event of such breach. Consequently, the parties hereto stipulate that damages arising from a breach shall cause the policy values to be readjusted to reverse the change described in paragraphs one (1) and two (2) herein. This shall be done upon proof of a substantial breach of this provision subsequent to the date of this agreement, by either the Insureds or the Owners/Trustees in its capacity as Trustee, in a Federal or State court in Pennsylvania. 5. The undersigneds, jointly and severally, on their own behalf, and that of their heirs, successors and assigns, hereby release, acquit and discharge Manulife and any of their agents, officers, employees, directors, successors and assigns of and from any and all claims and causes of action, of any name and nature arising from the sale, solicitation, purchase or issuance of the policy described herein including any act, omission, transaction, dealing, conduct or negotiation of any kind whatsoever arising from the solicitation, purchase or issuance of any contract with Manulife. Insureds do not waive any rights under the contract itself. DATED this 5th day of May, 1998. MANULIFE The Manufacturers Life Insurance Company BY: /s/ Paul L. Gallagher ----------------------------------------- Paul L. Gallagher ITS: Assistant Vice President & Senior Counsel INSUREDS /s/ Warren Weiner ----------------------------------------- Warren Weiner /s/ Penny Weiner ----------------------------------------- Penny Weiner OWNERS/TRUSTEES /s/ Barry H. Frank ----------------------------------------- Barry H. Frank /s/ Robert Shein ----------------------------------------- Robert Shein ADVANCED SURVIVORSHIP LEDGER PREPARED FOR INFORCE POLICY #3779931 W & P WEINER W & P WEINER FEMALE NONSMOKER, AGE 39 MALE NONSMOKER, AGE 43 $20000000 MANULIFE FINANCIAL'S SURVIVORSHIP LIFE AT 95 - B84 $115020.00 SINGLE CEO II RIDER $374651.00 - ----------------------------------------------------------------------------- $20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $489671.00 DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS WITH EXCESS APPLIED TO PURCHASE PUA'S ********* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT ********* ** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS **
CASH TOTAL TIO PUA TOTAL GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR END OF YR BEG OF YR BEG OF YR BEG OF YR ---- ------- --- --------- --------- --------- --------- --------- --------- --------- --------- 10 115020 0 0 0 66400 0 865200 0 0 20000000 11 86270 20630 66000 0 66000 216660 983160 0 776186 15776186 12 86270 0 49500 8640 56140 196278 1086528 0 678888 15678888 13 86270 0 49800 7825 57625 174606 1195206 0 583210 15583210 14 86270 0 52200 6960 59160 153657 1311057 0 495744 15495744 ------- ----- --------- ------- 460100 20630 217500 307324 15 86270 0 54900 6123 61023 133794 1434894 0 417047 15417047 16 86270 0 57750 5330 63080 115255 1567255 0 347191 15347190 17 86270 0 60150 4590 64740 97703 1708103 0 284499 15284499 18 86270 0 62700 3890 66590 81369 1857969 0 229092 15229092 19 86270 0 65400 3239 68639 66504 2017554 0 181084 15181084 ------- ----- --------- ------- 891450 20630 518400 631398 20 86270 0 68250 2647 70897 53375 2187575 0 140591 15140551 21 86270 0 71250 2124 73374 42268 2368318 0 107723 15107723 22 86270 0 74350 1681 75931 33335 2560385 0 82223 15082223 23 86270 0 77550 1326 78976 27041 2763941 0 64567 15064567 24 86270 0 81000 1075 82075 23729 2979479 0 54867 15054867 ------- ----- --------- ------- 1322800 20630 890700 1012550 25 86270 0 84450 943 85393 23619 3206769 0 52903 15052903 26 86270 0 84450 938 85388 23489 3442439 0 50989 15050989 27 86270 0 84450 933 85383 23339 3686638 0 49122 15049122 28 86270 0 84450 926 85376 23167 3939217 0 47297 15047297 29 86270 0 84450 919 85369 22971 4200471 0 45512 15045512 ------- ----- --------- ------- 1754150 20630 1312950 1439460
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED FEBRUARY 1, 1996 V2.3U1 JDB PAGE 1 OF 7 ADVANCED SURVIVORSHIP LEDGER PREPARED FOR INFORCE POLICY #3779931 W & P WEINER W & P WEINER FEMALE NONSMOKER, AGE 39 MALE NONSMOKER, AGE 43 $20000000 MANULIFE FINANCIAL'S SURVIVORSHIP LIFE AT 95 - B84 $115020.00 SINGLE CEO II RIDER $374651.00 - ----------------------------------------------------------------------------- $20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $489671.00 DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS WITH EXCESS APPLIED TO PURCHASE PUA'S ********* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT ********* ** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS **
CASH TOTAL TIO PUA TOTAL GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR END OF YR BEG OF YR BEG OF YR BEG OF YR ---- ------- --- --------- --------- --------- --------- --------- --------- --------- --------- 30 86270 0 84450 911 85361 22750 4470700 0 43763 15043763 31 86270 0 84450 902 85352 22502 4749603 0 42047 15042047 32 86270 0 84450 891 85341 22227 5036577 0 40361 15040361 33 86270 0 84450 880 85330 21920 5330871 0 38702 15038702 34 86270 0 84450 867 85317 21579 5630979 0 37066 15037066 ------- ----- -------- -------- 2185500 20630 1735200 1866162 35 86270 0 84450 853 85303 21299 5935700 0 35449 15035449 36 86270 0 84450 838 85288 20777 6244127 0 33849 15033849 37 86270 0 84450 820 85270 20310 6555510 0 32261 15032261 38 86270 0 84450 801 85251 19795 6868954 0 30682 15030682 39 86270 0 84450 780 85230 19231 7184281 0 29109 15029109 ------- ----- -------- -------- 2616850 20630 2157450 2292505 40 86270 0 84450 758 85208 16614 7500765 0 27537 15027537 41 86270 0 84450 733 85183 17944 7817345 0 25964 15025964 42 86270 0 84450 706 85156 17218 8133118 0 24386 15024386 43 86270 0 84450 677 85127 16432 8446432 0 22799 15022799 44 86270 0 84450 645 85095 15585 8756235 0 21201 15021201 ------- ----- -------- -------- 3048200 20630 2579700 2718273 45 86270 0 84450 611 85061 14673 9061923 0 19588 15019588 46 86270 0 84450 575 85025 13694 9363644 0 17955 15017955 47 86270 0 84450 536 84986 12648 9663498 0 16301 15016301 48 86270 0 84450 495 84945 11533 9964033 0 14621 15014621 49 86270 0 84450 451 84901 10350 10268700 0 12913 15012913 ------- ----- -------- -------- 3479550 20630 3001950 3143192
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED FEBRUARY 1, 1996 V2.3U1 JDB PAGE 2 OF 7 ADVANCED SURVIVORSHIP LEDGER PREPARED FOR INFORCE POLICY #3779931 W & P WEINER W & P WEINER FEMALE NONSMOKER, AGE 39 MALE NONSMOKER, AGE 43 $20000000 MANULIFE FINANCIAL'S SURVIVORSHIP LIFE AT 95 - B84 $115020.00 SINGLE CEO II RIDER $374651.00 - ----------------------------------------------------------------------------- $20000000 TOTAL INITIAL INSURANCE INITIAL ANNUAL PREMIUM $489671.00 DIVIDENDS BUY PUA'S FOR 10 YEARS, THEREAFTER DIVIDENDS REDUCE PREMIUMS WITH EXCESS APPLIED TO PURCHASE PUA'S ********* THIS PROPOSAL ASSUMES A DECREASE IN THE INSURANCE AMOUNT ********* ** PLEASE REFER TO THE FACE DECREASE SECTION OF THE FOOTNOTES FOR DETAILS **
CASH TOTAL TIO PUA TOTAL GROSS CASH ANNUAL DIVIDEND TOTAL VALUE CASH DEATH DEATH DEATH ANNUAL PREMIUM DIVIDEND ON PUA'S DIVIDEND OF PUA'S VALUE BENEFIT BENEFIT BENEFIT YEAR PREMIUM DUE BEG OF YR BEG OF YR BEG OF YR BEG OF YR END OF YR BEG OF YR BEG OF YR BEG OF YR ---- ------- --- --------- --------- --------- --------- --------- --------- --------- --------- 50 86270 0 84450 405 84555 9098 10581548 0 11175 15011175 51 86270 0 84450 356 84806 7777 10904977 0 9404 15009404 52 86270 0 84450 304 84754 6384 11235234 0 7600 15007600 53 86270 0 84450 250 84700 4916 11586116 0 5760 15005760 54 86270 0 84450 192 84642 3368 11960162 0 3883 15003883 ------- ----- ------- -------- 3910900 20630 3424200 3566949 55 86270 0 84450 132 84582 1736 12359786 0 1969 15001969 56 86270 0 84450 68 84518 12 12790512 0 14 15000014 57 0 0 84450 0 84450 84463 13159364 0 92719 15092719 58 0 0 19350 3295 22645 108219 13490620 0 117255 15117255 59 0 0 19800 4224 24024 133739 13836840 0 142930 15142930 ------- ----- ------- -------- 4083440 20630 3716700 3867168 60 0 0 20250 5221 25471 161084 14175784 0 169775 15169775 ------- ----- ------- -------- 4083440 20630 3736950 3892639
THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED FEBRUARY 1, 1996 V2.3U1 JDB PAGE 3 OF 7 INFORCE POLICY REVIEW PROPOSAL DATE: FEBRUARY 1, 1996 PLAN: SURVIVORSHIP LIFE AT 95 -B84 LIFE INSUREDS: W & P WEINER RIDERS: SINGLE CEO POLICY NUMBER: 3779931 DATE POLICY ISSUED: FEBRUARY 1, 1987 NON-SMOKER: YES ISSUE AGE: 39 LOAN INTEREST RATE: VARIABLE CURRENT POLICY YEAR: 10 CURRENT ANNUALIZED PREMIUM: $115020.00 POLICY BENEFITS - --------------- CURRENT DEATH BENEFIT (DIVIDEND INCLUDED): $20000000 LESS TOTAL LOAN. CASH VALUE AT THE END OF THE CURRENT YEAR: $865200 LESS TOTAL LOAN. POLICY LOANS - ------------ THIS PROPOSAL ASSUMES THAT NO LOANS WERE OUTSTANDING ON THIS POLICY AS OF AUGUST 1, 1996, DIVIDENDS - --------- ANNUAL DIVIDEND AT LAST ANNIVERSARY: $66400.00 VANISH - ------ THIS PROPOSAL ASSUMES THAT $66400.00 WAS SURRENDERED TO PAY THE PREMIUM AT THE BEGINNING OF THE YEAR. POLICY VALUES - ------------- THE SINGLE CEO RIDER PREMIUM SHOWN IN THE HEADING OF THIS PROPOSAL REPRESENTS THE SINGLE PREMIUM APPLIED FOR AT THE TIME OF ISSUE. HOWEVER, THE ACTUAL SINGLE CEO PREMIUM PAID MAY BE EQUAL TO OR LESS THAN THE STATED CEO SINGLE PREMIUM. THE VALUES ILLUSTRATED ABOVE ARE BASED ON THE ACTUAL CEO SINGLE PREMIUM PAID. A POLICY FROM MANULIFE FINANCIAL IS BACKED BY OVER 100 YEARS OF EXPERIENCE AND EXPERTISE. THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED FEBRUARY 1, 1996 V2.3U1 JDB PAGE 4 OF 7 IMPORTANT INFORMATION ABOUT THIS PROPOSAL Manulife Financial has a reputation for its financial integrity and for providing solid, long term value to our policyholders. In keeping with that tradition, we encourage our clients to fully examine and understand the assumptions used in a life insurance proposal. This proposal is not a contract; we recommend that you refer to your policy for a complete explanation of your policy benefits. GUARANTEES ONLY THOSE PREMIUMS AND VALUES LABELLED AS 'GUARANTEED' IN THIS PROPOSAL WILL BE CONTRACTUALLY GUARANTEED IN YOUR POLICY. DIVIDENDS ILLUSTRATED DIVIDENDS, AND ALL VALUES DEPENDING ON ILLUSTRATED DIVIDENDS, ARE BASED ON THE JULY 1995 DIVIDEND SCALE. THEY ARE NEITHER GUARANTEES NOR ESTIMATES OF FUTURE DIVIDENDS. PREMIUM Premiums cease at the earlier of second death or the youngest surviving life reaching age 95. This proposal assumes all previous premiums have been paid in full. Premiums due, when reduced by dividends, may vary substantially from the illustrated premiums due, depending on the actual dividends paid in future years. VANISHING PREMIUMS THE POLICY ILLUSTRATED REQUIRES THAT PREMIUMS BE PAID EACH YEAR WITHOUT LIMITATION. HOWEVER, IT IS POSSIBLE THAT AT SOME FUTURE DATE, DIVIDENDS, AND IF NECESSARY, THE SURRENDER OF PAID UP ADDITIONS MAY BECOME SUFFICIENT TO PAY CURRENT AND FUTURE PREMIUMS DUE. THE PROPOSAL SHOWS THIS BY INDICATING A TIME WHEN PREMIUMS 'VANISH'. IF ACTUAL DIVIDENDS ARE LOWER THAN ILLUSTRATED, YOU WOULD HAVE TO PAY PREMIUMS BEYOND THE DATE AT WHICH THIS PROPOSAL SHOWS THAT PREMIUMS MIGHT 'VANISH'. FOR POLICIES WHERE PREMIUMS HAVE ALREADY 'VANISHED', FUTURE PREMIUMS COULD BE REQUIRED. THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED FEBRUARY 1, 1996 V2.3U1 JDB PAGE 5 OF 7 IMPORTANT INFORMATION ABOUT THIS PROPOSAL LOANS AND SURRENDERS The dividends shown in this proposal reflect the loans and loan interest rates as illustrated. Actual policy dividends will vary according to actual loan interest rates and loan activity. THE LOAN INTEREST RATE ILLUSTRATED IS 7.25% AND MAY DIFFER FROM THE CURRENT RATE. MANULIFE FINANCIAL RESERVES THE RIGHT TO INCREASE OR DECREASE THE POLICY LOAN INTEREST RATE AT EACH POLICY ANNIVERSARY - SUCH RATE WILL NEVER EXCEED THE MAXIMUM PERMITTED BY STATE LAW. TAXATION The Individual's illustrated tax bracket is 28%. This proposal may not fully reflect your actual tax or accounting situation. We suggest that you consult your professional advisors regarding the interpretation of current and proposed tax laws an accounting principles. PROPOSAL DESIGN This proposal assumes older life dies in year 99. This proposal assumes younger life dies in year 99. ALTERNATE PROPOSALS CURRENT INTEREST RATE TRENDS INDICATE THAT DIVIDEND SCALES AT MANULIFE FINANCIAL AND THROUGHOUT THE LIFE INSURANCE INDUSTRY WILL BE REDUCED IN THE FUTURE. AS VALUES ILLUSTRATED ON THIS OR ANY OTHER POLICY ARE SENSITIVE TO CHANGES IN THE DIVIDEND SCALE, AND IN KEEPING WITH OUR POLICY OF FULL DISCLOSURE TO OUR POLICYHOLDERS, MANULIFE FINANCIAL RECOMMENDS THAT YOU REVIEW AN ADDITIONAL ILLUSTRATION(S) THAT WILL DEMONSTRATE THE SENSITIVITY OF PRODUCT VALUES TO LOWER DIVIDEND SCALES THAN CURRENTLY CREDITED. THIS PROPOSAL IS ONLY VALID IF ALL PAGES ARE INCLUDED FEBRUARY 1, 1996 V2.3U1 JDB PAGE 6 OF 7 IMPORTANT INFORMATION ABOUT THIS PROPOSAL FACE DECREASE THIS PROPOSAL IS ILLUSTRATED WITH A FACE AMOUNT REDUCTION FROM $20000000 TO $15000000 IN YEAR 11. ONCE THE FACE AMOUNT REDUCTION HAS BEEN PROCESSED, IF ADDITIONAL COVERAGE IS NEEDED IN THE FUTURE, THE INSURED WOULD NEED TO SUBMIT A NEW APPLICATION FOR INSURANCE WHICH WILL REQUIRE MEDICAL EVIDENCE. THE NEW INSURANCE WILL BE BASED ON THE INSURED'S AGE AT THAT TIME. THIS PROPOSAL DOES NOT REFLECT ANY TAX CONSEQUENCES OR POLICY CHANGE FEES RESULTING FROM THE PARTIAL SURRENDER TO REDUCE THE FACE AMOUNT. This proposal assumes that the cash value allowance of $216,299.98 resulting from the partial surrender to reduce the face amount is used to purchase paid up additions. YOU SHOULD CAREFULLY REVIEW THE FULL PROPOSAL INCLUDING THE SECTION ENTITLED 'IMPORTANT INFORMATION ABOUT THIS PROPOSAL'. THIS PROPOSAL IS VALID ONLY IF ALL PAGES ARE INCLUDED FEBRUARY 1, 1996 V2.3U1 JDB PAGE 7 OF 7 EX-10 6 EXHIBIT 10-15.5 Exhibit 10-15.5 AMENDED AND RESTATED SPLIT DOLLAR INSURANCE AGREEMENT ------------------------------- THIS AMENDED AND RESTATED SPLIT DOLLAR INSURANCE AGREEMENT is made and entered into this 31st day of July, 1998, by and between DEB SHOPS, INC. (the "Assignee"), and BARRY H. FRANK and ROBERT SHEIN, Trustees under the Weiner Family Irrevocable Insurance Trust dated October 27, 1986 (the "Owner"). W I T N E S S E T H: WHEREAS, the parties entered into a certain Split Dollar Insurance Agreement dated July 31, 1987 (the "Old Agreement") with respect to a policy of life insurance in the face amount of Twenty Million Dollars ($20,000,000.00), policy number 3,779,931-9 (the "Policy") issued by Manufacturer's Life Insurance Company (the "Insurer"); and WHEREAS, a dispute has arisen between the Insurer, the Owner, and the Assignee regarding the payment of additional premiums to the Insurer under the Policy; and WHEREAS, the dispute has been settled by the Insurer reducing the face value of the Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars ($15,000,000.00) and adjusting the illustrated policy values and eliminating any remaining indebtedness on the Policy, effective February 1, 1996; and WHEREAS, the Assignee in consideration for the Insurer eliminating any indebtedness on the Policy and reducing the premium obligation to maintain the Policy in force, will agree to pay any additional premiums on the Policy if they become due; and WHEREAS, the Owner has agreed to the reduction in the face value of the Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars ($15,000,000.00); and WHEREAS, this Amended and Restated Split Dollar Insurance Agreement ("Agreement") is intended to replace and supersede the Old Agreement. NOW, THEREFORE, the Assignee, Owner, and Warren Weiner and Penny Weiner (the "Insured") agree to completely amend and restate the Agreement as hereinafter set forth: 1. The life insurance policy with which this Agreement deals is the Policy issued by Manufacturer's Life Insurance Company on the life of the last to die of the Insured. 2. The Owner, or its transferee, shall be the owner of the Policy, and may exercise all ownership rights inuring to the owner under the terms of the Policy, except as specifically provided in this Agreement. (a) Notwithstanding any other provision of this Agreement and notwithstanding any assignment executed by the Owner or its transferee in connection with this Agreement, it is the express intention of the Owner and the Assignee to reserve to the Owner (i) the right to transfer its interest in the Policy, (ii) the right to change the beneficiary of that portion of the proceeds to which it is entitled under paragraph 7, and (iii) the right to exercise settlement options. (b) The rights in the Policy granted to the Assignee are limited solely to its security interest in a portion of the cash surrender value and a portion of the death benefit as defined and limited by this Agreement. (c) Policy loans may only be made to pay Policy premiums. 3. Effective on the execution of this Agreement, the Assignee hereby agrees to pay a one-time, lump sum premium to the Insurer in the amount of One Hundred Forty-Seven (2) Thousand Four Hundred Twenty-Three Dollars ($147,423.00). In addition, the Assignee hereby agrees to pay future premiums, if any, net of any dividends on the Policy and/or from the surrender of paid-up additions to the Policy. The Insured, Warren Weiner, an employee of Assignee, shall include in income each year for federal income tax purposes, an amount equal to the value of the "economic benefit" of the life insurance protection enjoyed by the Insured as provided under applicable Internal Revenue Service Regulations and Revenue Rulings. 4. In consideration of the payment of the Policy premiums by Assignee, the Owner has assigned the Policy to the Assignee, which Assignment solely gives the Assignee the limited power to enforce its rights to be paid the amount provided in paragraph 4(b) from the cash surrender value or a portion of the death benefit, as defined and limited by the following terms. Such interest of the Assignee in the Policy shall be specifically limited to: (a) the right to pledge or assign its interest in the Policy, subject to the terms of this Agreement and to any assignment executed in connection with this Agreement; (b) the right to be paid its net premium outlay (i.e. cumulative gross premiums paid less payments made by Owner and less any Policy loan of the Assignee encumbering the Policy); payable upon (i) the surrender or cancellation of the Policy, as provided in paragraph 6; (ii) the death of the Insured, as provided in paragraph 7, or (iii) the termination of this Agreement, as provided in paragraph 8. In the event the cash surrender value is less than the net premiums paid, the Assignee's interest shall be limited to the cash surrender value. 5. Policy dividends shall be applied to the payment of the premiums, as premiums fall due. (3) 6. In the event of the surrender or cancellation of the Policy, the Assignee shall be entitled to receive a portion of the cash surrender value equal to the amount provided in paragraph 4(b). The balance of the cash surrender value, if any, shall be paid to the Owner. 7. Upon the death of the Insured, the Assignee shall be entitled to receive a portion of the death benefit equal to the amount provided in paragraph 4(b). The balance of the death benefit, if any, shall be paid directly to the Owner, in the manner and in the amount provided by the beneficiary designation provision endorsed on the Policy. 8. This Agreement may be terminated by the Owner as follows: (a) If the Owner intends to terminate this Agreement, it should notify the Assignee in writing, not less than sixty (60) days prior to the effective date of such termination. (b) The Owner shall reimburse the Assignee no later than the effective date of such termination in an amount equal to the net premium outlay as defined in Paragraph 4(b). Upon receipt of such payment, the Assignee shall execute an appropriate instrument to release the Collateral Assignment of the Policy. (c) If the Owner fails to reimburse the Assignee within the time specified, the Owner shall execute any and all instruments that may be required to vest ownership of the Policy in the Assignee; provided the Assignee reimburses the Owner for the premium payments made by the Owner, if any. 9. This Agreement may be terminated by the Assignee as follows: (a) If the Assignee intends to terminate this Agreement, it should notify the Owner in writing, not less than sixty (60) days prior to the effective date of such termination. (b) Following receipt of notice from the Assignee, the Owner shall (4) reimburse the Assignee no later than the effective date of such termination in an amount equal to the net premium outlay as defined in Paragraph 4(b). Upon receipt of such payment, the Assignee shall execute an appropriate instrument to release the Collateral Assignment of the Policy. (c) In the event the Assignee shall fail to pay any Policy premium as required under Paragraph 3, the Owner shall have the option to pay the premium and keep the Policy in force and shall have the right to recoup the premium from the Assignee. In the alternative, the Owner shall have the right to deem the Assignee's failure to pay the premium as a notice of termination. The Owner shall advise the Assignee in writing of its determination and the sixty (60) days notice of termination shall be effective on the date such notice is sent to Assignee. (d) If the Owner fails to reimburse the Assignee within sixty (60) days of the date of termination, the Owner shall execute any and all instruments required to vest ownership of the Policy in the Assignee; provided that the Assignee shall reimburse the Owner for the premium payments made by the Assignee, if any. (e) On receipt of the notice of termination from the Assignee, the Owner shall reimburse the Assignee in the amount equal to the net premium outlay as defined in Paragraph 4(b). Upon receipt of such payment, the Assignee shall execute an appropriate instrument of release of the Collateral Assignment of the Policy. 10. Notwithstanding anything to the contrary in Paragraph 9 above, (a) The Owner shall have the right to repay the Assignee its net premium outlay (i.e. cumulative gross premiums paid less payments made by Owner, less any Policy loan (5) of the Assignee encumbering the Policy) in six (6) equal annual installments, due on the first and each succeeding anniversary of the termination of the Policy. The Owner shall also pay interest on the unpaid portion of the net premium outlay at the applicable federal rate of interest in effect at the time of termination. The Owner shall have a right to prepay all or any portion of the net premium outlay at any time in its sole discretion. In the event Owner defaults for more than ten (10) days after notice in the payment of any installment, the entire net premium outlay shall become immediately due and payable. The Policy of insurance shall remain as collateral until the Owner has paid the Assignee in full. (b) The provisions of Paragraph 10(a) notwithstanding, in the event the Policy is terminated by the Assignee (i) as a result of a sale of more than fifty (50%) percent of the stock of the Corporation or substantially all of the assets of the Corporation and at least fifty (50%) percent of the consideration for such sale is in cash, or (ii) in the event that the Assignee's available cash and cash equivalents are less than Fifteen Million Dollars ($15,000,000), then the net premium outlay shall be paid by the Owner to the Assignee on the termination of this Agreement and the Assignee shall release the Collateral Assignment of the Policy. 11. In the event the Owner transfers all of its interest in the Policy, then all of Owner's interest in the Policy and in this Agreement shall be vested in such transferee, and such transferee shall be substituted as a party hereunder, and the Owner shall have no further interest in the Policy. 12. Except as may otherwise be provided by paragraph 8, this Agreement may not be canceled, amended, altered or modified, except by a written instrument signed by all of the parties hereto. (6) 13. All notices or other instruments or communications shall be in writing and shall be deemed delivered (and signed receipt obtained therefor) or sent by postage prepaid, actually delivered by Federal Express or a comparable private courier service, actually delivered by telecopier or similar "FAX" equipment. Any notice shall be effective on the date on which it was delivered or on the date actually delivered by other means. Each party may, by notice to the other parties specify any other address for the receipt of such instruments or communications. 14. This Agreement shall bind Owner, Assignee and their successors and assignees, and any Policy beneficiaries. Owner and Assignee intend to be legally bound hereby. 15. This Amended and Restated Split Dollar Agreement, and the rights of the parties hereunder, shall be governed by and construed pursuant to the laws of the Commonwealth of Pennsylvania. 16. This Agreement and the Collateral Assignment contain the entire understanding among the parties hereto and supersedes any prior agreements. Assignee: ATTEST: DEB SHOPS, INC. /s/ Warren Weiner /s/ Marvin Rounick ___________________________ By: ________________________________ Warren Weiner, Secretary Marvin Rounick, President Owner: INSURED: WEINER FAMILY IRREVOCABLE INSURANCE TRUST /s/ Warren Weiner /s/ Barry H. Frank ___________________________ ____________________________________ Warren Weiner Barry H. Frank, Trustee /s/ Penny Weiner /s/ Robert Shein ___________________________ ____________________________________ Penny Weiner Robert Shein, Trustee (7) EX-10 7 EXHIBIT 10-15.6 Exhibit 10-15.6 AMENDED AND RESTATED COLLATERAL ASSIGNMENT THIS AMENDED AND RESTATED COLLATERAL ASSIGNMENT, made and entered into this 31st day of July, 1998, by and between BARRY H. FRANK and ROBERT SHEIN, Trustees under the Weiner Irrevocable Insurance Trust dated October 27,1986 (the "Owner" and DEB SHOPS, INC. (the "Assignee"). WITNESSETH: WHEREAS, the parties hereto entered into a Collateral Assignment Agreement dated July 31, 1987 (the "Old Agreement") with respect to a policy of life insurance in the face amount of Twenty Million Dollars ($20,000,000.00), issued by Manufacturer's Life Insurance Company (the "Insurer"); and WHEREAS, the Owner owns Life Insurance Policy No. 3,779,931.9 issued by the Insurer and any supplemental contracts issued in connection therewith (such policy and contracts herein called "Policy"); and WHEREAS, the Policy insures the lives of the last to die of Warren Weiner and Penny Weiner ("Insured"); and WHEREAS, the Assignee has contributed the annual premium due on the Policy, as more specifically provided in the Split Dollar Insurance Agreement dated July 31, 1987 and the Amended and Restated Split Dollar Agreement of even date herewith, between the Insured and the Assignee; and WHEREAS, in consideration of the Assignee having paid the premiums, the Owner granted to the Assignee a security interest in the Policy as collateral security for the payment to the Assignee of all amounts due to Assignee pursuant to the Agreement; and WHEREAS, a dispute has arisen between the Insurer, the Owner, and the Assignee regarding the payment of additional premiums to the Insurer, and WHEREAS, the Insurer has reduced the face value of the Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars ($15,000,000.00); and WHEREAS, the Insurer has adjusted the illustrated policy values and eliminated any remaining indebtedness on the Policy effective February 1, 1996; and WHEREAS, the Assignee in consideration for the Insurer's eliminating any indebtedness on the Policy and reducing the premium obligation to maintain the policy in force, will agree to pay additional premiums on the Policy; and WHEREAS, the Owner has agreed to the reduction of the face value of the Policy from Twenty Million Dollars ($20,000,000.00) to Fifteen Million Dollars ($5,000,000.00); and WHEREAS, this Amended and Restated Collateral Assignment ("Agreement") is intended to replace and supersede the Old Agreement. NOW, THEREFORE, for value received, the undersigned hereby assigns, transfers and sets over to the Assignee, its successors and assigns, the Policy, subject to the following terms and conditions: 1. This Assignment is made, and the Policy is to be held, as collateral security for the payments required to be received by Assignee, pursuant to the terms of the Agreement. 2. The Assignee shall have the right to pledge or assign its interest in the Policy, subject to the terms of the Agreement and to this Assignment. 3. The Assignee's interest in the Policy shall further be limited to the right to recover its net premium outlay (i.e., gross premiums paid less payments made by Owner and less 2 any policy loan of the Assignee encumbering the Policy), but if the Policy is canceled and the cash surrender value is less than the net premium outlay, the Assignee's interest shall be limited to the cash surrender value. 4. Except as specifically herein granted to the Assignee, the Owner shall retain all incidents of ownership in the Policy, including, but not limited to, the right to assign its interest in the Policy, the right to change the beneficiary of the Policy, and the right to exercise all settlement options permitted by the terms of the Policy; provided, however, that all rights retained by the Owner, transferee and beneficiary shall be subject to the terms and conditions of the Agreement and this Assignment and the Owner and Assignee agree that no loan may be made against the Policy except for the payment of premiums on the Policy. 5. Assignee shall, upon request, forward the Policy to the Insurer, without unreasonable delay, for endorsement of any designation or change of beneficiary, any election of optional mode of settlement, or the exercise of any other right reserved by the Owner hereunder. 6. The Insurer is hereby authorized to recognize the Assignee's claims to rights hereunder without investigating the reason for any action taken by the Assignee, the amount of its net premium outlay, the termination of the Agreement, the giving of any notice required herein, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The signature of the Assignee shall be sufficient for the exercise of any rights under the Policy assigned hereby to the Assignee and the receipt of the Assignee for any sums received by him shall be a full discharge and release therefor to the Insurer. 7. If the Insurer is made or elects to become a party to any litigation concerning the proper apportionment of the death proceeds, cash surrender value, loan value or ownership 3 rights under this Agreement, the Owner and Assignee and their transferees agree to be jointly and severally liable for the Insurer's litigation expenses, including reasonable attorney fees. 8. Upon the full payment to the Assignee of the amount to which it is entitled under paragraph 3 hereof, the Assignee shall reassign the Policy to the Owner and all specific rights included in this Collateral Assignment; provided, however, the Insurer shall only be required to release this Assignment pursuant to written instructions received from the Assignee. 9. All matters respecting the validity, effect and interpretation of this Assignment shall be determined in accord with the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement the date and year first above written. Assignee: ATTEST: DEB SHOPS, INC. /s/ Warren Weiner BY: /s/ Marvin Rounick - -------------------------- ----------------------------------- Warren Weiner, Secretary Marvin Rounick, President Owner: WITNESS: WEINER FAMILY IRREVOCABLE INSURANCE TRUST /s/ Barry H. Frank - -------------------------- -------------------------------------- Barry H. Frank Trustee /s/ Robert Shein - -------------------------- -------------------------------------- Robert Shein, Trustee 4 EX-27 8 FINANCIAL DATA SCHEDULE
5 1 9-MOS JAN-31-1999 OCT-31-1998 57,835,666 0 0 0 26,280,656 87,608,136 50,607,673 35,810,470 110,162,646 25,061,660 0 460 0 156,883 83,491,586 110,162,646 168,254,026 170,483,654 95,029,181 160,165,514 0 0 0 10,318,140 3,611,000 6,707,140 0 0 0 6,707,140 .51 .51
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