MOVIE STAR, INC.
NOTICE OF ANNUAL SHAREHOLDERS' MEETING
The Annual Meeting of Shareholders of Movie Star, Inc. will be held on
Monday, December 3, 2001, at 10:00 A.M. at Club 101 on the Main Floor at 101
Park Avenue, New York, New York, for the following purposes:
1) To elect directors.
2) To ratify the selection of Deloitte & Touche LLP as auditors.
3) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Company's Board of Directors has fixed October 15, 2001 as the
record date for the determination of shareholders entitled to receive notice of
and to vote at the Annual Meeting, and only shareholders of record at the close
of business on that date will be entitled to vote at the Annual Meeting.
By Authority of the Board of Directors
Saul Pomerantz, Secretary
New York, New York
October 29, 2001
All shareholders are cordially invited to attend the Annual Meeting in
person. YOU ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND
THE ANNUAL MEETING. Your proxy will not be used if you are present at the Annual
Meeting and desire to vote your shares personally.
MOVIE STAR, INC.
1115 Broadway
New York, New York 10010
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement and the accompanying form of proxy are furnished
in connection with the solicitation of proxies by the Board of Directors of
Movie Star, Inc., a New York corporation (the "Company"), for use at the Annual
Meeting of its Shareholders to be held at Club 101 on the Main Floor at 101 Park
Avenue, New York, New York, on Monday, December 3, 2001, at 10:00 A.M. local
time. The Annual Report to Shareholders for the fiscal year ended June 30, 2001,
including financial statements and the report of the independent accountants,
also accompanies this statement.
This Proxy Statement, the accompanying Notice and the accompanying
proxy card are first being mailed on or about October 29, 2001, to shareholders
of record on October 15, 2001.
What matters am I voting on?
You are being asked to vote on the following matters:
o The election of Directors to serve for the ensuing one-year
period and until their respective successors are elected and
qualified;
o To ratify the selection of Deloitte & Touche LLP as auditors.
o To transact such other business as may properly come before
the meeting and any and all adjournments thereof.
Who is entitled to vote?
Persons who were holders of our common stock as of the close of
business on October 15, 2001, the record date, are entitled to vote at the
meeting. As of October 15, 2001, we had issued and outstanding 15,084,975 shares
of the Company's common stock, par value $0.01 per share (the "Common Stock"),
the Company's only class of voting securities outstanding.
What is the effect of giving a proxy?
Proxies in the form enclosed are solicited by and on behalf of the
board. The persons named in the proxy have been designated as proxies by the
board. If you sign and return the proxy in accordance with the procedures set
forth in this proxy statement, the persons designated as proxies by the board
will vote your shares at the meeting as specified in your proxy.
If you sign and return your proxy in accordance with the procedures set
forth in this proxy statement but you do not provide any instructions as to how
your shares should be voted, your shares will be voted as follows:
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o FOR the election of the nominees listed below under Proposal
1;
o FOR the ratification of the selection of Deloitte & Touche LLP
as auditors under Proposal 2.
If you give your proxy, your shares also will be voted in the
discretion of the proxies named on the proxy card with respect to any other
matters properly brought before the meeting and any adjournments thereof. In the
event that any other matters are properly presented at the meeting for action,
the persons named in the proxy will vote the proxies in accordance with their
best judgment.
May I change my vote after I return my proxy card?
Any proxy given pursuant to this solicitation may be revoked by you at
any time before it is exercised. You may effectively revoke your proxy by:
o delivering written notification of your revocation to the
Secretary of Movie Star;
o voting in person at the meeting; or
o delivering another proxy bearing a later date.
Please note that your attendance at the meeting will not alone serve to
revoke your proxy.
What is a quorum?
The presence, in person or by proxy, of a majority of the votes
entitled to be cast at the meeting will constitute a quorum at the meeting. A
proxy submitted by a shareholder may indicate that all or a portion of the
shares represented by the proxy are not being voted ("shareholder withholding")
with respect to a particular matter. Proxies that are marked "abstain" and
proxies relating to "street name" shares that are returned to the Company but
marked by brokers as "not voted" ("broker non-votes") and proxies reflecting
shares subject to shareholder withholding will be treated as shares present for
purposes of determining the presence of a quorum on all matters unless authority
to vote is completely withheld on the proxy. Abstentions are voted neither "for"
nor "against" a matter, but are counted in the determination of a quorum.
What is a "broker non-vote"?
A "broker non-vote" occurs when a broker submits a proxy that states
that the broker does not vote for some of the proposals because the broker has
not received instructions from the beneficial owners on how to vote on such
proposals and does not have discretionary authority to vote in the absence of
instructions.
How many votes are needed for approval of each matter?
o The election of directors requires a plurality vote of the
votes cast at the meeting. "Plurality" means that the
individuals who receive the largest number of votes cast "FOR"
are elected as directors. Consequently, any shares not voted
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"FOR" a particular nominee (whether as a result of a direction
of the shareholder to withhold authority, abstentions or a
broker non-vote) will not be counted in such nominee's favor.
o The ratification of the selection of Deloitte & Touche LLP
must be approved by the affirmative of a majority of the votes
cast at the meeting. Abstentions from voting with respect to
this proposal are counted as "votes cast" with respect to such
proposal and, therefore, have the same effect as a vote
against the proposal. Shares which are subject to shareholder
withholding or broker non-vote are not counted as "votes cast"
with respect to such proposal and therefore will have no
effect on such vote.
How do I vote?
You may vote your shares in one of two ways: by mail or in person at
the meeting. The prompt return of the completed proxy card vote will assist
Movie Star in preparing for the meeting. Date, sign and return the accompanying
proxy in the envelope enclosed for that purpose (to which no postage need to be
affixed if mailed in the United States). You can specify your choices by marking
the appropriate boxes on the proxy card. If you attend the meeting, you may
deliver your completed proxy card in person or fill out and return a ballot that
will be supplied to you.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AS OF AUGUST 31, 2001
The following table sets forth certain information as of August 31,
2001 with respect to the stock ownership of (i) those persons or groups (as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) who
beneficially own more than 5% of the Company's Common Stock, (ii) each director
of the Company and (iii) all directors and officers of the Company as a group.
NAME OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS(1)
---------------- ----------------------- ----------
Mark M. David 3,095,428(2)(6) 20.5199%
1115 Broadway
New York, NY 10010
HSBC 638,690;Direct 4.2339%
as Trustee for
the Movie Star, Inc.
Employee Stock
Ownership Plan
452 Fifth Avenue
New York, NY 10018
Mrs. Abraham David 1,582,159(3)(7) 10.4883%
3100 North Ocean Blvd.
Ft. Lauderdale, FL 33308
Melvyn Knigin 568,468(4) 3.6586%
1115 Broadway
New York, NY 10010
Saul Pomerantz 549,867(5) 3.5377%
1115 Broadway
New York, NY 10010
Thomas Rende 260,300(12) 1.7148%
1115 Broadway
New York, NY 10010
Joel M. Simon 74,166(10) 0.4917%
1115 Broadway
New York, NY 10010
Gary W. Krat 253,333(11) 1.6794%
1115 Broadway
New York, NY 10010
Michael A. Salberg 93,333(13) 0.6187%
600 Third Avenue
New York, NY 10016
Abraham David 25,000;Direct(9) 0.1657%
3100 North Ocean Blvd.
Ft. Lauderdale, FL 33308
All directors and officers 6,477,054(2)(4)(5)(8)(10)(11)(12)(13) 40.2529%
as a group (7 persons)
-----------------
(1) Based upon 15,084,975 shares (excluding 2,016,802 treasury shares)
outstanding and options, where applicable, to purchase shares of Common
Stock, exercisable within 60 days.
5
(2) Includes 336,072 shares owned by his spouse.
(3) Includes 542,697 shares owned by Annie David as a trustee for the
benefit of her daughters, Marcia Sussman and Elaine Greenberg and her
grandchildren, Michael Sussman and David Greenberg.
(4) Includes options granted to Melvyn Knigin for 342,968 shares pursuant
to the 1994 Plan, 50,000 pursuant to the 1988 Plan and 60,000 pursuant
to the 2000 Plan exercisable within 60 days and 100,000 shares subject
to the Affiliates Agreement (see Certain Transactions).
(5) Includes options granted to Saul Pomerantz for 338,957 shares and
Shelley Pomerantz for 50,000 shares (his wife who also is employed by
the Company) pursuant to the 1994 Plan, 30,000 pursuant to the 1988
Plan and 39,000 pursuant to the 2000 Plan exercisable within 60 days,
66,666 shares subject to the Affiliates Agreement (see Certain
Transactions); and 244 shares owned by his spouse and 8,000 shares held
jointly with his spouse.
(6) Does not include Mrs. Abraham David's shares for which he holds the
proxy.
(7) Mark M. David holds a proxy for these shares.
(8) Includes the shares held by Mrs. Abraham David.
(9) Abraham David is the husband of Annie David and the father of Mark M.
David.
(10) Includes 26,666 shares subject to the Affiliates Agreement (see Certain
Transactions).
(11) Includes 233,333 shares subject to the Affiliates Agreement (see
Certain Transactions).
(12) Represents options granted to Thomas Rende for 74,000 shares, pursuant
to the 1994 Plan, and 21,000 pursuant to the 2000 Plan exercisable
within 60 days, 46,000 shares held jointly with his spouse, 3,300
shares owned by his spouse and 116,000 shares subject to the Affiliates
Agreement (see Certain Transactions).
(13) Includes 93,333 shares owned by Mr. Salberg's wife, subject to the
Affiliates Agreement (see Certain Transactions).
6
PROPOSAL 1
Election of Directors
The Board of Directors, pursuant to the Bylaws, has set the number of
directors constituting the full Board at six directors. All six nominees have
agreed to serve if elected. All directors hold office until the next Annual
Meeting of Shareholders and until their successors have been elected and
qualified. Assuming the presence of a quorum, the directors shall be elected by
a plurality of the votes cast at the meeting with respect to the election of
directors. "Plurality" means that the individuals who receive the largest number
of votes cast "For" are elected as directors up to the maximum number of
directors to be elected. Consequently, any shares not voted "For" a particular
director (whether as a result of a direction to withhold authority or a broker
non-vote) will not be counted for purposes of determining a plurality.
-----------------------------------
Information Concerning Nominees for Directors a) All nominees are the current
directors.
Director
Since Name Age Position
-------- ---- --- --------
1981 Mark M. David 54 Chairman of the Board
1997 Melvyn Knigin 58 President, Chief Executive
Officer and Director
1983 Saul Pomerantz 52 Executive Vice President,
Chief Operating Officer,
Secretary and Director
1996 Joel M. Simon 56 Director
1996 Gary W. Krat 53 Director
2001 Michael A. Salberg 49 Director
Mark M. David was re-elected Chairman of the Board on November 28,
2000. Effective as of July 1, 1999, Mr. David retired as a full-time executive
employee of the Company. Mr. David relinquished the position of Chief Executive
Officer in February 1999, but remained as Chairman of the Board. He had been
Chairman of the Board and Chief Executive Officer from December 1985 to August
1995 and from April 1996 until February 1999, President from April 1983 to
December 1987 and Chief Operating Officer of the Company since the merger with
Stardust Inc. in 1981 until December 1987. Prior to the merger, he was founder,
Executive Vice President and Chief Operating Officer of Sanmark Industries Inc.
Melvyn Knigin was re-elected Chief Executive Officer and to the Board
of Directors on November 28, 2000. Mr. Knigin had been appointed Chief Executive
Officer in February 1999. Mr. Knigin was appointed to fill a vacancy on the
Board of Directors and promoted to Senior Vice President and Chief Operating
Officer on February 5, 1997 and was promoted to President on September 4, 1997.
Since joining the Company in 1987, he was the President of Cinema Etoile, the
Company's upscale intimate apparel division. Prior to joining the Company, he
had spent most of his career in the intimate apparel industry.
Saul Pomerantz, CPA, was re-elected to the Board of Directors and Chief
Operating Officer on November 28, 2000. Mr. Pomerantz had been appointed Chief
Operating Officer in February 1999. Mr. Pomerantz was elected Senior Vice
President on December 3, 1987 and was promoted to Executive Vice President on
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September 4, 1997. Previously, he was Vice President-Finance since 1981. He was
Chief Financial Officer from 1982 to February 1999 and has been Secretary of the
Company since 1983.
Gary W. Krat was re-elected to the Board of Directors on November 28,
2000. Mr. Krat is currently Chairman Emeritus of SunAmerica, Inc. From 1990 and
until his retirement in 1999, Mr. Krat was Senior Vice President of SunAmerica
Inc. and Chairman and Chief Executive Officer of SunAmerica Financial Network,
Inc. and its six NASD broker dealer companies with nearly ten thousand
registered representatives. From 1977 until 1990, Mr. Krat was a senior
executive with Integrated Resources, Inc. Prior to joining Integrated Resources,
Mr. Krat was a practicing attorney. He has a law degree from Fordham University
and a Bachelor of Arts degree from the University of Pittsburgh.
Joel M. Simon was re-elected to the Board of Directors on November 28,
2000. Mr. Simon is a principal of Crossroads, LLC, a financial consulting firm.
Mr. Simon was the President and Chief Executive Officer of Starrett Corporation,
a real estate construction, development and management company from March to
December 1998. From 1996 to 1998, Mr. Simon was self-employed as a private
investor.
Michael A. Salberg was appointed to fill a vacancy on the Board of
Directors on May 25, 2001. Mr. Salberg is a practicing attorney in New York and
was admitted to the New York bar in 1977. Since 1989, he has been a partner in
the New York law firm of Graubard Miller and its predecessors. The Graubard
Miller firm and its predecessors have represented the Company as legal counsel
for many years. Mr. Salberg received his Juris Doctor degree from New York Law
School in 1976 and a Bachelor of Arts degree from the University of Cincinnati
in 1973.
The Board of Directors unanimously recommends that you mark your proxy
"FOR" the election of all nominees to the Board.
Board of Directors Meetings and Committees
The Board of Directors, pursuant to the Bylaws, has set the number of
directors constituting the full Board of Directors at six directors. Six
directors will be elected at the Annual Meeting, each to hold office for a term
of one year or until his or her successor is duly elected and qualified or until
his or her earlier resignation or removal. During the fiscal year ended June 30,
2001, the Board of Directors met three times.
The members of the Nominating Committee are Mark M. David, Saul
Pomerantz and Gary W. Krat. This committee was formed in order to nominate
officers and/or directors. The Nominating Committee met once during the fiscal
year. Mark M. David, Saul Pomerantz and Gary W. Krat will serve on the
Nominating Committee again, subject to their election as directors.
Three non-employee directors, Messrs. Krat, Salberg and Simon, serve as
the Audit Committee. It recommends to the Board the engagement and discharge of
the independent auditors for the Company (subject to shareholder ratification),
analyzes the reports of such auditors, and makes such recommendations to the
Board with respect thereto as the committee may deem advisable. The Audit
Committee, met four times relating to fiscal year 2001. Messrs. Krat, Salberg
and Simon will serve on the Audit Committee again, subject to their election as
directors.
The members of the Compensation Committee are Mark M. David, Gary W.
Krat and Joel M. Simon. This committee was formed in order to set compensation
and benefit levels for the Company's officers and other highly paid employees
and to decide which employees would be granted options. Prior to the appointment
8
of Messrs. Krat and Simon as Directors, decisions on executive compensation were
made by the entire Board of Directors. Mark M. David, Gary W. Krat and Joel M.
Simon will serve on the Compensation Committee again, subject to their election
as directors. The Compensation Committee met once during fiscal year 2001.
Board of Directors Compensation
The Company currently pays its outside directors an annual fee of
$15,000 and a fee of $1,500 per meeting for attendance at meetings of the Board
and its Committees. Directors are also reimbursed for out-of-pocket expenses.
There are no family relationships between the various executive
officers and directors.
Consulting and Employment Agreements
Effective as of July 1, 1999, Mr. David retired as a full-time
executive employee of the Company. The Company and Mr. David have entered into a
series of written agreements which provided for the payment to Mr. David of a
lump sum retirement benefit of $500,000, the continuation of health insurance
benefits and a split dollar life insurance policy on Mr. David's life and the
retention of Mr. David's services as a consultant to the Company for a term of
five years. Pursuant to the consulting agreement, Mr. David receives an annual
fee of $200,000 and is prohibited from disclosing any confidential information
of the Company and from engaging in any business which is competitive with the
business of the Company.
Also effective as of July 1, 1999, the Company entered into written
employment agreements with each of Messrs. Knigin and Pomerantz. The agreements
provided for an initial term of two years ending June 30, 2001. Mr. Knigin's
annual base salary during the initial term was $400,000 and Mr. Pomerantz's
annual base salary was $250,000. In addition, they were each entitled to bonuses
under the Movie Star Senior Executive Incentive Compensation Plan (the "IC
Plan"). Each of Messrs. Knigin and Pomerantz were granted incentive options
pursuant to the 2000 Plan, which was approved by the shareholders at the
Company's Annual Meeting on November 28, 2000. The agreements with Messrs.
Knigin and Pomerantz provided that for a period of one year after termination of
employment in certain circumstances, they are prohibited from competing with the
Company without our prior written consent. The terms of the employment
agreements for Messrs. Knigin and Pomerantz expired on June 30, 2001. Mr.
Knigin's employment agreement was extended for an additional term of three years
ending on June 30, 2004 at an annual base salary of $450,000.00 for fiscal year
2002, $475,000.00 for fiscal year 2003 and $500,000.00 for fiscal year 2004. Mr.
Pomerantz's employment agreement was not extended. Mr. Pomerantz will continue
in his position as Executive Vice President and Chief Operating Officer on
substantially the same terms as were set forth in the employment agreement that
expired on June 30, 2001, except that there will be no term of years. Mr.
Pomerantz's base salary for fiscal year 2002 is the same as it was for fiscal
year 2001. In addition, Mr. Pomerantz and the Company entered into a written
agreement providing for the payment of severance benefits to Mr. Pomerantz in
the event his employment is terminated under certain circumstances.
Mr. Rende does not have a written employment agreement with Movie Star.
However, the Compensation Committee has determined that Mr. Rende is eligible to
receive a bonus under the IC Plan.
9
Executive Officers
The Company's executive officers are Melvyn Knigin, President and Chief
Executive Officer, Saul Pomerantz, Executive Vice President, Secretary and Chief
Operating Officer and Thomas Rende, Chief Financial Officer. Effective as of
June 30, 1999, Mark M. David is no longer an executive officer of the Company.
Except for the Company's Chief Financial Officer, Thomas Rende, information
concerning each executive officer's age and length of service with the Company
can be found herein under the section entitled "ELECTION OF DIRECTORS." Mr.
Rende is forty years old and was appointed Chief Financial Officer in February
1999. Since joining Movie Star in 1989, Mr. Rende has held various positions
within the finance department.
Report of the Compensation Committee on Executive Compensation
Joel M. Simon, Gary W. Krat and Mark M. David were appointed by the
Board of Directors, and each of them agreed to serve, as members of the
Compensation Committee (the "Committee").
Following the realignment of senior management which resulted from the
retirement of Mark M. David at the end of fiscal year 1999, the Company entered
into comprehensive written employment agreements with Melvyn Knigin, who assumed
the additional position of Chief Executive Officer, and Saul Pomerantz, who
assumed the additional duties of Chief Operating Officer. In addition, Thomas
Rende was promoted to the position of Chief Financial Officer. The terms of the
employment agreements for Messrs. Knigin and Pomerantz expired on June 30, 2001.
Mr. Knigin's employment agreement was extended for an additional term of three
years ending on June 30, 2004. Mr. Pomerantz's employment agreement was not
extended. Mr. Pomerantz will continue in his position as Executive Vice
President and Chief Operating Officer on substantially the same terms as were
set forth in the employment agreement that expired on June 30, 2001, except that
there will be no term of years. In addition, Mr. Pomerantz and the Company
entered into a written agreement providing for the payment of severance benefits
to Mr. Pomerantz in the event his employment is terminated under certain
circumstances.
Compensation Policies
In determining the appropriate levels of executive compensation for
fiscal year 2001, the Committee based its decisions on (1) the success of the
Company's restructuring of its manufacturing operations, (2) the Company's
improved financial condition, (3) the need to retain experienced individuals
with proven leadership and managerial skills, (4) the executives' motivation to
enhance the Company's performance for the benefit of its shareholders and
customers, and (5) the executives' contributions to the accomplishment of the
Company's annual and long-term business objectives.
Salaries generally are determined based on the Committee's evaluation
of the value of each executive's contribution to the Company, the results of
recent past fiscal years in light of prevailing business conditions, the
Company's goals for the ensuing fiscal year and, to a lesser extent, prevailing
levels at companies considered to be comparable to and competitors of the
Company.
In addition to base salary compensation, the Committee has also, from
time to time, recommended that stock options be granted to the executive
officers of the Company in order to reward the officers' commitment to
maximizing shareholder return and long-term results.
10
Base Salary Compensation
Based on recommendations from the Company's Chairman of the Board, the
collective business experience of the other Committee members and negotiations
with Messrs. Knigin and Pomerantz, the Committee established the base salaries
for each of Messrs. Knigin and Pomerantz. Mr. Knigin's base salary is set forth
in the written extension of his employment agreement and is fixed at $450,000.00
for fiscal year 2002, $475,000.00 for fiscal year 2003 and $500,000.00 for
fiscal year 2004. Mr. Pomerantz's base salary for fiscal year 2002 is the same
as it was for fiscal year 2001. The Committee does not utilize outside
consultants to obtain comparative salary information, but believes that the
salaries paid by the Company are competitive, by industry standards, with those
paid by companies with similar sales volume to the Company. The Committee places
considerably more weight on each executive's contribution to the Company's
development and maintenance of its sources of supply, manufacturing
capabilities, marketing strategies and customer relationships than on the
compensation policies of the Company's competitors; however, the Committee does
not establish or rely on target levels of performance in any of these areas to
arrive at its recommendations.
The current senior executives of the Company have been associated with
the Company in senior management positions for periods ranging from twelve to
more than twenty-two years. They have been primarily responsible for the
formulation and implementation of the Company's recent financial and operational
restructuring and provide the Company with a broad range of management skills
which are considered by the Committee to be an essential source of stability and
a base for the Company's future growth.
Stock Option Grants
In 1983, the Company adopted an Incentive Stock Option Plan (the
"ISOP") to provide a vehicle to supplement the base salary compensation paid to
key employees. All of the Company's senior executives were eligible to receive
grants under the ISOP. Options under the ISOP are granted at fair market value
at the date of grant. In the past, the Committee has recommended and the Board
of Directors granted options under the ISOP to each of the senior executives,
except Mr. David. The options granted under the ISOP were exercisable at a rate
of 11% per year for the first eight years of service after grant and 12% for the
ninth year after grant. No options have been granted to the Company's senior
executives under the ISOP since 1986 and no further options may be granted under
the ISOP. The 1983 ISOP has expired.
On July 15, 1994, the Committee adopted a new Incentive Stock Option
Plan (the "1994 ISOP") to replace the expired 1983 ISOP. The 1994 ISOP
authorized the grant of options to purchase up to 2,000,000 shares of the
Company's common stock. Options for all of the shares of the Company's common
stock under the 1994 ISOP have been granted. As a result of forfeitures by
participants, there are presently 160,000 shares available to be granted. All of
the Company's management and administrative employees are eligible to receive
grants under the 1994 ISOP. Subject to shareholder approval, options under the
1994 ISOP were granted to each of the Company's senior executives (except Mark
M. David) on July 15, 1994 at fair market value at that date. As a condition to
the grant of options to the Company's senior executives, the Committee required
each of the recipients to surrender for cancellation any interest in options
granted prior to July 15, 1994. The 1994 ISOP was approved by the Company's
shareholders at the Company's Annual Meeting on December 8, 1994.
On February 21, 2000, the Committee adopted a new Performance Equity
Plan (including a new Incentive Stock Option Plan) (the "2000 Plan"). The 2000
Plan authorizes the Company to grant qualified and non-qualified options to
11
participants for the purchase of up to an additional 750,000 shares of the
Company's common stock and to grant other stock-based awards to eligible
employees of the Company. The 2000 Plan was approved by the Company's
shareholders at the Annual Meeting on November 28, 2000.
In addition to the ISOP, in 1988, the Committee recommended and the
Board of Directors adopted a non-qualified Management Option Plan (the "1988
Non-qualified Plan") to provide an additional continuing form of long-term
incentive to selected officers of the Company. The 1988 Non-qualified Plan was
approved by the Company's shareholders at the Company's Annual Meeting on
December 13, 1988. Generally, options under the 1988 Non-qualified Plan are
issued with a 10-year exercise period in order to encourage the executive
officers to take a long-term approach to the formulation and accomplishment of
the Company's goals. In 1988, the Committee recommended and the Board of
Directors approved the grant of options under the non-qualified option plan to
all of the Company's then executive officers.
In January 1997, the independent directors serving on the Committee
recommended that the Company grant new options under the 1994 ISOP to Saul
Pomerantz and Melvyn Knigin at a price equal to the market price for the
Company's shares on the date of the grant. The grant of new options to Messrs.
Pomerantz and Knigin was also subject to the condition that they surrender for
cancellation any interest in options granted to them prior to January 29, 1997.
In November 1998, the independent directors serving on the Committee
recommended that the Company grant new options to Messrs. Knigin and Pomerantz
under the 1994 ISOP and the 1988 Non-qualified Plan and to Mr. Rende under the
1994 ISOP.
In February 2000, the Committee recommended that the Company grant
additional options to Messrs. Knigin and Pomerantz in conjunction with their
respective employment agreements and to Mr. Rende in connection with his
promotion to Chief Financial Officer.
Pursuant to the extension of Mr. Knigin's employment agreement, he was
granted an additional option to purchase an aggregate of 300,000 shares of the
Company's Common Stock. These additional options are to be issued in allotments
of 100,000 each on July 1, 2001, July 1, 2002 and July 1, 2003 at a price per
share equal to the closing market price of the Company's shares on the American
Stock Exchange on the trading day preceding the issuance. The additional options
granted to Mr. Knigin are intended to be qualified options under the 1994 ISOP
or the 2000 Plan and the Company has agreed that if there are not sufficient
shares available under the 2000 Plan, the Company will seek the approval of its
shareholders for an amendment of the 2000 Plan providing for an appropriate
increase in the number of shares available under the 2000 Plan in order to meet
the contractual obligation to Mr. Knigin.
Incentive Compensation
In September 1998, the Compensation Committee adopted an incentive
compensation plan for senior executives, other than Mr. David (the "1998
Incentive Plan"). Under the 1998 Incentive Plan, the Compensation Committee had
the discretion to award bonus compensation to senior executives in an amount not
to exceed five (5%) percent of any increases in net income before taxes over the
base amount of $1,200,000 (the "Bonus Pool"). Based on the collective efforts of
Messrs. Knigin and Pomerantz, the Compensation Committee determined to award
bonuses to them under the 1998 Incentive Plan for fiscal year 1999. Mr. Knigin
was eligible to receive incentive compensation equal to three (3%) percent and
Mr. Pomerantz was eligible to receive two (2%) of net income before taxes in
excess of $1,200,000.
12
In fiscal 2000, the Committee amended the 1998 Incentive Plan to
increase the Bonus Pool from 5% to 6.75%. Pursuant to their respective
employment agreements, Mr. Knigin was eligible to receive incentive compensation
equal to three (3%) percent and Mr. Pomerantz was eligible to receive two (2%)
percent of net income before taxes in excess of $1,200,000 for fiscal year 2000.
In addition, the Committee determined that Mr. Rende was eligible to participate
in the Bonus Pool and awarded him incentive compensation equal to 0.25% of net
income before taxes in excess of $1,200,000 for fiscal year 2000. In fiscal year
2001, Messrs. Knigin, Pomerantz and Rende were eligible to receive incentive
compensation in the same percentages as the prior fiscal year.
Compensation of the Chief Executive Officer
For fiscal year 2001, the annual base salary paid to the Company's
Chief Executive Officer, Melvyn Knigin, pursuant to his employment agreement was
$400,000. Mr. Knigin's employment agreement provides for an annual base salary
of $450,000 in fiscal year 2002.
Compensation Committee Interlocks and Insider Participation
There are no Compensation Committee interlocks or insider
participation.
Mark M. David
Gary W. Krat
Joel M. Simon
13
Summary Compensation Table
LONG-TERM COMPENSATION
----------------------
ANNUAL RESTRICTED
NAME AND PRINCIPAL FISCAL COMPENSATION STOCK OPTIONS ALL OTHER
POSITION YEAR SALARY ($) AWARDS($) (# SHARES) COMPENSATION
------------------------- ----- ----------- --------- ---------- ------------
Mark M. David 2001 - - - -
Chairman of the Board 2000 - - - -
1999 340,355 - - 508,145(1)
Melvyn Knigin 2001 402.340 - 800,000(2) 53,354
President and Chief 2000 405,127 - 800,000(2) 52,194
Executive Officer of 1999 405,406 - 600,000(2) 67,495
the Company; Director
Saul Pomerantz 2001 250,000 - 630,000(3) 29,384
Executive Vice President 2000 252,254 - 630,000(3) 38,005
and Chief Operating 1999 228,342 - 500,000(3) 44,996
Officer of the
Company; Director
Thomas Rende 2001 167,860 - 175,000(4) 3,283
Chief Financial Officer 2000 148,843 - 175,000(4) 3,772
1999 126,300 - 105,000(4) -
(1) Represents annual premiums of $8,145 paid by the Company for a
split dollar form of life insurance policy on the life of Mark
M. David and an accrual for the retirement payment made to Mr.
David in connection with his retirement as a full-time
employee of the Company.
(2) Represents options to purchase shares of Common Stock under
the 1994 Incentive Stock Option Plan (the "1994 Plan") of
which 350,000 shares were granted on January 29, 1997 and
125,000 were granted on November 4, 1998 and 125,000 shares
granted on November 4, 1998 under the Company's Non-Qualified
Stock Option Plan (the "1988 Plan"). Fiscal Year 2000 also
includes 200,000 shares granted on February 22, 2000 pursuant
to the 2000 Incentive Stock Option Plan (the "2000 Plan").
(3) Represents options to purchase shares of Common Stock under
the 1994 Incentive Stock Option Plan (the "1994 Plan") of
which 350,000 shares were granted on January 29, 1997 and
75,000 were granted on November 4, 1998 and 75,000 shares
granted on November 4, 1998 under the Company's Non-Qualified
Stock Option Plan (the "1988 Plan"). Fiscal Year 2000 also
includes 130,000 shares granted on February 22, 2000 pursuant
to the 2000 Incentive Stock Option Plan (the "2000 Plan").
(4) Represents options to purchase shares of Common Stock under
the 1994 Incentive Stock Option Plan (the "1994 Plan") of
which 20,000 shares were granted on July 15, 1994, 50,000 were
granted on January 29, 1997 and 35,000 were granted on
November 4, 1998. Fiscal Year 2000 also includes 70,000 shares
granted on February 22, 2000 pursuant to the 2000 Incentive
Stock Option Plan (the "2000 Plan").
14
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Shares Dollar Value of Unexercised,
Acquired on Value Number of Unexercised In-the-Money Options/SARs
Name Exercise Realized Optins/SARs at Fiscal Year-End(#) at Fiscal Year-End ($)(3)
---- -------- -------- -------------------------------- ------------------------
Exercisable Unexercisable Exercisable Unexercisable
MELVYN KNIGIN - - 452,968(1) 347,032(1) - -
SAUL POMERANTZ - - 407,957(1) 222,043(1) - -
THOMAS RENDE - - 95,000(2) 80,000(2) - -
(1) Consists of options to purchase shares pursuant to the
Company's 1988 Non-Qualified Plan, the 1994 ISOP, and the 2000
Plan.
(2) Consists of options granted pursuant to the 1994 ISOP and the
2000 Plan..
(3) The value attributed to unexercised options/SARs at fiscal
year-end is based on the market value at June 30, 2001 less
the cost to exercise the Options/SARs.
15
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph below compares cumulative total
return of the Company, the S&P 500 Index and a selected peer group index
selected by the Company.* The graph plots the growth in value of an initial $100
investment over the indicated time periods, with dividends reinvested. The stock
price performance shown on the graph below is not necessarily indicative of
future price performance.
----------------------------------------------------------
Comparison of Cumulative Total Return
----------------------------------------------------------
06/30/96 06/30/97 06/30/98 06/30/99 06/30/00 06/30/01
-------- -------- -------- -------- -------- --------
MSI 0.00% -38.46% -15.38% 107.69% -15.38% -38.46%
S&P 0.00% 31.99% 69.07% 104.69% 116.90% 82.57%
Peer Group 0.00% -13.59% -18.22% -30.19% -44.18% -50.34%
-----------------------------
* The peer group index is selected by the Company and is comprised of
the Company and the following companies, as adjusted from relative market
capitalization: Nitches, Inc., Wacoal Corporation, Warnaco Group, Inc. and
Donnkenny, Inc.
16
Employee Stock Ownership Plan
The Company adopted an Employee Stock Ownership and Capital
Accumulation Plan ("ESOP") as of July 1, 1983. The ESOP is intended to comply
with the provisions of the Employee Retirement Income Security Act of 1974, as
amended, the Tax Equity and Fiscal Responsibility Act of 1982, the Deficit
Reduction Act of 1984 and the Retirement Equity Act of 1984. A favorable
determination letter was initially issued by the Internal Revenue Service with
regard to the ESOP in February 1985. From time to time, the ESOP is amended as
required to comply with amendments to the applicable statutes. Contributions to
the ESOP by the Company are discretionary. The allocation of the contribution
made in any year to eligible employees is based on their earnings. All employees
over the age of 18 years who have been employed by the Company for one year are
eligible to participate in the ESOP. All participants in the ESOP at June 30,
1996 are fully vested. Employees hired on and after July 1, 1996 vest in the
ESOP as follows:
Service with Company after June 30, 1996
up to five years.... 0%
five years.......... 100%
For the fiscal year ended June 30, 2001, the Company did not make a
contribution.
As of August 31, 2001, the ESOP owns 638,690 shares or 4.2339% of the
outstanding shares of the Company's Common Stock. Withdrawal of vested balances
by participants can take place upon death, disability or early or normal
retirement. Vested benefits will be paid to participants who have terminated
their employment for reasons other than death, disability or early or normal
retirement as quickly as possible after the third June 30 following departure.
Stock Options
2000 Performance Equity Plan
On February 21, 2000, the Board of Directors adopted the 2000
Performance Equity Plan authorizing the grant of up to 750,000 options, subject
to shareholder approval. As of June 30, 2001, options to purchase 540,000 shares
have been granted under the plan, of which 138,000 are vested.
1994 Incentive Stock Option Plan
In 1994, the Company adopted an Incentive Stock Option Plan (the "1994
ISOP"). The 1994 ISOP was approved by the shareholders of the Company on
December 8, 1994. The purpose of the 1994 ISOP is to enable the Company to
attract and retain key employees by providing them with an opportunity to
participate in the Company's ownership. Awards under the 1994 ISOP are made by
the Compensation Committee. The 1994 ISOP is intended to comply with Section
422A of the Internal Revenue Code of 1986, as amended. All options are granted
at market value as determined by reference to the price of shares of the Common
Stock on the American Stock Exchange.
As of June 30, 2001, there were options outstanding to purchase
1,820,000 shares, exercisable at prices ranging from $.625 to $1.125 over the
period June 30, 2001 to December 20, 2009, of which 1,357,925 are vested. An
aggregate of twenty-five persons hold options under the 1994 ISOP.
17
1988 Non-Qualified Stock Option Plan
On December 13, 1988, the Company's shareholders approved a
non-qualified stock option plan of up to 1,666,666 shares. As of June 30, 2001,
two persons hold options to purchase an aggregate of 200,000 shares, at an
exercise price of $.625 per share. These options vest over a period of five
years commencing November 4, 1999 and the vested portion may be exercised at any
time until November 3, 2008.
Certain Transactions
In December 1997, certain affiliates of the Company including Messrs.
Knigin, Pomerantz, Krat, Simon and Rende (collectively, the "Affiliates"),
purchased from unrelated third parties 8% Convertible Senior Notes of the
Company in the aggregate face amount of $278,500 (the "Notes"). The Affiliates
entered into a written Agreement with the Company dated December 7, 1997 (the
"Affiliates Agreement") pursuant to which they agreed to (i) certain
restrictions on the circumstances under which the Notes and the shares of Common
Stock underlying the Notes could be sold or transferred, and (ii) granted the
Company the right to purchase the shares of Common Stock underlying the Notes at
a price equal to ninety (90%) of the market price at the time any of the
Affiliates is permitted under the Affiliates Agreement to sell the shares of
Common Stock in the open market and wishes to do so. As required by the
Affiliates Agreement, all of the Affiliates converted the Notes into shares of
Common Stock on March 31, 1999. On January 2, 2001, these restrictions expired.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who beneficially own more than ten
percent of our Common Stock to file initial reports of ownership and reports of
changes of in ownership of Common Stock with the Securities and Exchange
Commission ("SEC") and the American Stock Exchange. Executive officers,
directors and greater-than-ten percent shareholders are required by SEC
regulations to furnish us with copies of all such reports they file. To our
knowledge, based solely on review of the copies of such reports furnished to us
and written representations that no other reports were required during the year
ended June 30, 2001, all filings under Section 16(a) were made as required.
Audit Committee Report
The Audit Committee reviews the Company's financial reporting process
on behalf of the Board of Directors. Management has the primary responsibility
for the financial statements and reporting process. The Company's independent
auditors are responsible for expressing an opinion on the conformity of the
Company's audited financial statements to accounting principles generally
accepted in the United States of America.
In this context, the Audit Committee has reviewed and discussed with
management and the independent auditors the Company's audited financial
statements. The Audit Committee has discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees." In addition, the Audit Committee has
received from the independent auditors the written disclosures required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," and discussed with them their independence from the Company
and its management.
18
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has approved that
the Company's audited financial statements be included in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30,2001, for filing with the
Securities and Exchange Commission.
Audit Committee
Joel S. Simon
Gary W. Krat
Michael A. Salberg
PROPOSAL 2
Ratification of Selection of Deloitte & Touche LLP as Auditors
The Board of Directors has selected Deloitte & Touche LLP to audit the
books and records of the Company for its fiscal year ending June 30, 2002. The
Company has been advised by Deloitte & Touche LLP, that the firm has no
relationship with the Company or its subsidiary other than that arising from the
firm's engagement as auditors, tax advisors and consultants.
In the event the shareholders fail to ratify the appointment, the Board
of Directors will consider it as direction to select other auditors for the
subsequent year. Even if the selection is ratified, the Board in its discretion
may direct the appointment of a different independent accounting firm at any
time during the year if the Board feels that such a change would be in the best
interest of the Company and its shareholders. The ratification requires a
majority vote of those shares of Common Stock represented at the meeting.
Consequently, any shares not voted "For" ratification (whether as a result of a
direction to withhold authority or a broker non-vote) will not be counted for
purposes of determining a majority.
The appointment of Deloitte & Touche LLP continues a relationship that
began prior to 1980. Representatives of Deloitte & Touche LLP will be present at
the Annual Meeting, during which they will be afforded the opportunity to make a
statement if they so desire, and shareholders will be afforded the opportunity
to ask appropriate questions.
Audit Fees: Audit fees billed to the Company by Deloitte & Touche LLP
for auditing the Company's annual financial statements for the fiscal year ended
June 30, 2001 and reviewing the financial statements included in the Company's
quarterly reports on Form 10-Q amounted to $92,500.
Financial Information Systems Design and Implementation Fees: No
services were performed by, or fees incurred to, Deloitte & Touche LLP in
connection with the financial information services design and implementation
projects for the fiscal year ended June 30, 2001.
All Other Fees: All other fees, including employee benefit related
services, billed by Deloitte & Touche LLP with respect to the fiscal year ended
June 30, 2001 amounted to approximately $57,500.
-----------------------------------------------------
19
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU MARK
YOUR PROXY "FOR" RATIFICATION OF THE SELECTION OF DELOITTE
& TOUCHE LLP TO AUDIT THE BOOKS AND RECORDS OF THE COMPANY
FOR THE FISCAL YEAR ENDING JUNE 30, 2002
-----------------------------------------------------
OTHER BUSINESS
The Board of Directors does not intend to present any other business
for action at the Annual Meeting and does not know of any other business
intended to be presented by others.
SHAREHOLDERS' PROPOSALS
Proposals of shareholders for consideration at the 2002 Annual Meeting
of Shareholders must be received by the Company no later than September 1, 2002,
in order to be included in the Company's Proxy Statement and proxy relating to
the meeting.
20
ANNUAL REPORT AND FINANCIAL INFORMATION
A copy of the Company's Annual Report to Shareholders for the year
ended June 30, 2001 has been or will be mailed on or about October 29, 2001,
concurrently with or prior to the mailing of this Proxy Statement, by first
class mail, to each shareholder of record as of October 15, 2001.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2001, filed by the Company with the Securities and Exchange
Commission, will be furnished without charge to any person requesting a copy
thereof in writing and stating that he is a beneficial Holder of shares of the
Company's Common Stock. The Company will also furnish copies of exhibits, if
any, to the Form 10-K to eligible persons requesting exhibits, at a charge of
$0.50 per page, paid in advance. The Company will indicate the number of pages
to be charged for upon written inquiry. Requests and inquiries should be
addressed to:
Saul Pomerantz, Secretary
Movie Star, Inc.
1115 Broadway
New York, New York 10010
Nothing contained in the Annual Report to Shareholders or in the Form
10-K is to be regarded as proxy soliciting material or as a communication by
means of which a solicitation of proxies is to be made.
By Order of the Board of Directors
Saul Pomerantz, Secretary
October 29, 2001
21
MOVIE STAR, INC., - PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 3, 2001
P The undersigned hereby appoints MARK M. DAVID, and SAUL POMERANTZ, and each
of them, with full power of substitution, to represent the undersigned and
R to vote all of the shares of stock in Movie Star, Inc. which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of
O said Company to be held at Club 101 on the Main Floor, 101 Park Avenue, New
York, New York, on December 3, 2001 at 10:00 A.M., and at any adjournments
X thereof;
Y IF NO DIRECTIONS ARE GIVEN, THE INDIVIDUALS DESIGNATED ABOVE WILL VOTE FOR
ALL PROPOSALS IN ACCORDANCE WITH THE DIRECTORS' RECOMMENDATIONS.
1. Election of Directors
FOR all nominees listed below except WITHHOLD AUTHORITY to vote
as marked to the contrary below |_| for all nominees listed below |_|
Mark M. David Melvyn Knigin Saul Pomerantz
Gary W. Krat Joel M. Simon Michael A. Salberg
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through such nominee's name.)
------------------------------------------
2. Ratification of selection of Deloitte & Touch LLP as auditors
FOR |_| AGAINST |_| ABSTAIN |_|
3. To transact such other business as may properly come before the meeting or
adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Date __________________, 2001
----------------------------------
SIGNATURE(S)
----------------------------------
SIGNATURE IF HELD JOINTLY
Note: Please sign exactly as your name appears hereon indicating your official
title when signing in a representative capacity.