LINENS 'N THINGS, INC.
6 Brighton Road
Clifton, New Jersey 07015
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 1998
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To Linens 'n Things, Inc. Shareholders:
The Annual Meeting of Shareholders of Linens 'n Things, Inc., a Delaware
corporation, will be held at the Company's headquarters at 6 Brighton Road,
Clifton, New Jersey, on Tuesday, May 5, 1998, at 10:30 a.m., for the following
purposes:
1. To elect one director for a three year term.
2. To act upon such other business as may properly come before the
Annual Meeting or any postponement or adjournment thereof.
Shareholders of record at the close of business on March 17, 1998 are
entitled to notice of and to vote at the Annual Meeting or at any postponement
or adjournment thereof.
By order of the Board of Directors,
/s/BRIAN D. SILVA
BRIAN D. SILVA
Secretary
March 26, 1998
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YOUR VOTE IS IMPORTANT. TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE
COMPLETE THE ENCLOSED PROXY AND RETURN IT PROMPTLY, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING.
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<PAGE>
LINENS 'N THINGS, INC.
6 Brighton Road
Clifton, New Jersey 07015
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ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 1998
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PROXY STATEMENT
This Proxy Statement is being furnished to the shareholders of Linens 'n
Things, Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Shareholders of the Company to be held on Tuesday, May 5,
1998, at 10:30 a.m., at 6 Brighton Road, Clifton, New Jersey and at any and all
postponements or adjournments thereof (the "Annual Meeting"). At the Annual
Meeting, shareholders of the Company are being asked to consider and vote on the
election of one director for a three year term.
This Proxy Statement, Notice of Meeting and accompanying proxy are first
being mailed to shareholders on or about April 1, 1998.
GENERAL
The holders of shares of the Company's Common Stock of record at the close
of business on March 17, 1998 are entitled to vote such shares at the Annual
Meeting. On March 17, 1998, there were outstanding 19,430,519 shares of Common
Stock. The presence in person or by proxy of the holders of a majority of the
shares outstanding on the record date is necessary to constitute a quorum for
the transaction of business.
Each shareholder is entitled to one vote, in person or by proxy, for each
share of Common Stock held as of the record date on each matter to be voted on
at the Annual Meeting. Directors are elected by the affirmative vote of a
plurality of the votes cast at the Annual Meeting and entitled to vote.
Abstentions and broker non-votes will be included in determining the
number of shares present or represented at the Annual Meeting for purposes of
determining whether a quorum exists. In determining whether a particular
proposal submitted to shareholders has received the requisite votes for
approval, abstentions are counted and will have the same effect as a vote
against the proposal, and broker non-votes are not counted and will have no
effect on the outcome of that vote. However, neither abstentions nor broker
non-votes are counted as votes cast in connection with determining the plurality
required to elect directors and will have no effect on the outcome of that vote.
Broker non-votes occur when a broker nominee does not vote on one or more
matters at the meeting because it has not received voting instructions from the
beneficial owner and does not have discretionary authority to vote on such
matter.
Shares of Common Stock represented by a proxy received in time for the
Annual Meeting and properly executed will be voted as specified in the proxy,
unless the proxy has previously been revoked. Unless contrary instructions are
given in the proxy, it will be voted for the person designated in the proxy as
the Board of Directors' nominee for director and, with respect to any other
matters properly submitted to shareholders at the Annual Meeting, as recommended
by the Board of Directors or, if no recommendation is given, in its discretion.
A proxy may be revoked by filing with the Secretary of the Company, prior
to the exercise of such proxy, either a written revocation of that proxy or a
new proxy bearing a later date. A proxy may also be revoked by voting in person
at the Annual Meeting. Attendance at the Annual Meeting will not in itself
constitute revocation of a proxy.
<PAGE>
This proxy solicitation is being made on behalf of the Company and the
expense of preparing, printing and mailing this Proxy Statement and proxy is
being paid by the Company. In addition to use of the mails, proxies may be
solicited personally or by telephone, telefax or telex by regular employees of
the Company without additional compensation. The Company will reimburse banks,
brokers and other custodians, nominees and fiduciaries for their costs in
sending proxy materials to the beneficial owners of Common Stock.
2
<PAGE>
ITEM 1
ELECTION OF ONE DIRECTOR
General. The Board of Directors currently consists of five members and is
divided into three classes approximately equal in size. Directors are generally
elected for three-year terms on a staggered term basis, so that the term of
office of one class will expire each year and the terms of office of the other
classes will extend for additional periods of one and two years respectively.
This year's nominee has been nominated to serve for a three-year term expiring
in the year 2001. The Company has inquired of such nominee and determined that
he will serve if elected. If the nominee is not available for election for any
reason, which is not expected, the proxy committee would vote for such
substitute nominee as may be recommended by the Board of Directors.
The nominee to the Board of Directors at this Annual Meeting is a current
director of the Company. Set forth below is a brief description of the
background of the nominee for election to the Board of Directors at this Annual
Meeting. Also set forth below are the existing directors whose terms of office
extend beyond this Annual Meeting. The Board of Directors recommends that
shareholders vote "FOR" the Company's nominee for director.
Nominee for Election at the Annual Meeting
STANLEY P. GOLDSTEIN Director since October 1996
Mr. Goldstein, age 63, is Chairman and Chief Executive Officer of CVS
Corporation ("CVS") (formerly known as Melville Corporation). Mr. Goldstein
co-founded Consumer Value Stores, a retail drug store chain, in 1963. CVS was
acquired by Melville Corporation in 1969, at which time Mr. Goldstein became
President of the CVS Division of Melville Corporation. In 1984 he was appointed
Executive Vice President of Melville Corporation, in January 1986, President of
Melville Corporation and in January 1987, Chairman and Chief Executive Officer
of Melville Corporation. Mr. Goldstein is on the board of directors of CVS, Bell
Atlantic Corporation and Footstar, Inc. and on the board of overseers of The
Wharton School, University of Pennsylvania.
Directors Whose Terms Do Not Expire this Year
NORMAN AXELROD Director since September 1996
Mr. Axelrod, age 45, has been Chairman, Chief Executive Officer and
President of the Company since 1997 and President and Chief Executive Officer of
the Company since 1988. Mr. Axelrod's term as a director of the Company expires
in 1999. Prior to joining Linens 'n Things, Mr. Axelrod held various management
positions at Bloomingdale's between 1976 and 1988 including: Buyer, Divisional
Merchandise Manager, Vice President/Merchandise Manager and Senior Vice
President/General Merchandise Manager.
PHILIP E. BEEKMAN Director since January 1997
Mr. Beekman, age 66, is currently President of Owl Hollow Enterprises,
Inc., a consulting and investment company. Mr. Beekman's term as a director of
the Company expires in 2000. From 1986 to 1994, Mr. Beekman was Chairman of the
Board and Chief Executive Officer of Hook SupeRx, Inc., a retail drug store
chain. Prior to that he was President and Chief Operating Officer of Seagram
Company Limited. Mr. Beekman is also a director of General Chemical Group, Inc.,
BT Office Products International, Consolidated Cigar Corporation, Kendle Company
International and the Ladies Professional Golf Association.
HAROLD F. COMPTON Director since March 1998
Mr. Compton, age 50, is President and Chief Operating Officer of CompUSA
Stores Inc. ("CompUSA Stores") and Executive Vice President and Chief Operating
Officer of CompUSA Inc. ("CompUSA"). Mr. Compton was elected as a director by
the Board in March 1998 and his term as a director of the
3
<PAGE>
Company expires in 2000. Mr. Compton joined CompUSA in 1994 as Executive Vice
President - Operations, becoming Chief Operating Officer in January 1995 and
President of CompUSA Stores in July 1996. From December 1993 to August 1994 he
served as President and Chief Operating Officer of Central Electric, Inc. and
from 1989 to 1993 he served as Executive Vice President - Operations and Human
Resources and Director of Stores for HomeBase. Mr. Compton is also a director of
Jumbo Sports, Inc. and Stage Stores, Inc.
CHARLES C. CONAWAY Director since September 1996
Mr. Conaway, age 37, is Executive Vice President and Chief Financial
Officer of CVS. Mr. Conaway's term as director of the Company expires in 1999.
Prior to joining CVS, he held the position of Executive Vice President and Chief
Operating Officer for Reliable Drug Stores, Inc. Mr. Conaway joined CVS in 1992
as the Senior Vice President, Pharmacy, and has held his current positions since
1995. Mr. Conaway is also a director of Health Care Market Research Corporation.
Director Compensation - Attendance; Committees. Directors who are not
employees of the Company are paid an annual retainer of $10,000 which may be
taken either in cash or Company Common Stock. Each director has currently
elected to accept such retainer in the form of Common Stock. Non-employee
directors are also eligible to participate in the 1996 Non-Employee Director
Stock Plan. Under the 1996 Non-Employee Director Stock Plan, each non-employee
director had received an option grant to purchase 7,000 shares of the Company's
Common Stock as of the date of the Company's November 1996 initial public
offering ("IPO") or, if later, the date of such director's first election to the
Board of Directors. The Board of Directors had reduced the amount of the initial
option grant from options to purchase 7,000 shares to options to purchase 3,000
shares, which Mr. Compton received upon his election to the Board. In addition,
each non-employee director is currently entitled to receive an option grant to
purchase up to 1,000 shares of the Company's Common Stock on the date of each
Annual Meeting.
The 1996 Non-Employee Director Stock Plan had also provided for automatic
grants of up to 700 stock units ("Stock Units") to each non-employee director on
the date of the IPO or, if later, the date of such director's first election to
the Board of Directors and thereafter on the date of each Annual Meeting. In
1998, the Board of Directors reduced the annual grant to 200 Stock Units. Each
Stock Unit represents the right to receive one share of Common Stock at the end
of a specified period. One-half of such Stock Units will be paid six months and
a day after the grant date and the other half on the date of the next Annual
Meeting, provided that on such date the non-employee director has not ceased to
serve as a director for any reason other than death, disability, or retirement
at or after attaining age 65.
The Board of Directors held four meetings in 1997. The Audit Committee
held three meetings and the Compensation Committee held two meetings in 1997.
There is no standing nominating committee. Each director attended 100% of the
meetings of the Board of Directors and of the Committees of which he was a
member. Messrs. Goldstein, Conaway and Compton are the current members of the
Compensation Committee. Messrs. Beekman and Conaway are the current members of
the Audit Committee.
Audit Committee. The Audit Committee is intended to function as a
communication point among non-Audit Committee directors, internal auditors, the
independent auditors and Company management as their respective duties relate to
financial accounting, reporting and internal controls. The Audit Committee is
also intended to assist the Board of Directors in fulfilling its responsibility
with respect to accounting policies, internal controls, financial and operating
controls, standards of corporate conduct and performance, and reporting
practices of the Company and the sufficiency of auditing. Mr. Beekman is
Chairman of the Audit Committee.
Compensation Committee. The principal responsibilities of the Compensation
Committee include the determination and administration of compensation for the
senior officers of the Company and other key members of the Company's
management, including salary and incentive based plans and ongoing review, in
consultation with the Company's executive management and the Board of Directors,
of the policies relating to compensation of the Company's senior officers and
other key members of the Company's management. Mr. Goldstein is Chairman of the
Compensation Committee.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information on compensation by the
Company's Chairman, Chief Executive Officer and President, the four other most
highly compensated executive officers of the Company, and Mr. Tomaszewski who
was an executive officer of the Company prior to fiscal year end.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------
Annual Compensation Awards
---------------------- ------------------------------
Number of
Restricted Securities All Other
Name and Principal Fiscal Stock Underlying Options/ Compensation
Position Year Salary ($) Bonus ($) Award(s) ($) SARs # ($)
----------------- ----- -------- -------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Norman Axelrod, Chairman, 1997 496,920 513,838 0 150,000 9,500(5)
Chief Executive 1996 475,000 65,313 999,353(1) 385,355 3,167(6)
Officer and President 1995 455,000 0 750,004(2) 75,069(3)(4) 6,918(7)
Steven B. Silverstein, Senior 1997 282,310 210,900 0 30,000 9,500(5)
Vice President, General 1996 275,000 27,500 290,438(1) 75,000 3,167(6)
Merchandise Manager 1995 265,000 0 200,031(2) 23,098(3)(4) 7,069(7)
Hugh J. Scullin, 1997 213,650 159,100 0 15,000 9,500(5)
Senior Vice President, 1996 210,000 21,000 174,263(1) 45,000 3,167(6)
Store Operations 1995 210,000 0 0 6,929(3)(4) 8,519(7)
Brian D. Silva, Senior 1997 191,210 148,000 0 18,000 9,500(5)
Vice President, Human
Resources, and Secretary
William T. Giles 1997 163,210 96,971 0 15,000 9,500(5)
Chief Financial Officer
James M. Tomaszewski, Senior 1997 289,620 200,200 0 0 9,500(5)
Vice President, Chief 1996 279,000 27,900 290,438(1) 75,000 1,357(6)
Financial Officer 1995 264,000 0 100,016(2) 17,324(3)(4) 5,373(7)
</TABLE>
- ---------------------
(1) Valuation of the restricted stock awards in the above table is based on
the IPO price of $15.50, net of consideration paid of $0.01 per share. The
number and value of the restricted stock holdings at the end of fiscal
1997 for each of the named executives are: Mr. Axelrod, 48,387 shares,
$2,110,399; Mr. Silverstein 14,063 shares, $613,358; Mr. Scullin 8,438
shares, $368,023; Mr. Silva 5,625 shares, $245,334 and Mr. Giles 5,625
shares, $245,334. The foregoing values are calculated by multiplying the
total number of restricted shares by the closing price of the Company's
Common Stock on the last day of fiscal 1997, $43.625, net of consideration
paid of $0.01 per share. Shares of restricted stock vest 25% on July 1,
1997, July 1, 1998, July 1, 1999 and July 1, 2000. Holders of restricted
stock are entitled to receive dividends, if any, on the restricted stock.
The unvested portion of Mr. Tomaszewski's restricted stock award was
canceled on his separation from the Company.
(2) Represents CVS restricted stock which was subject to a four year vesting
period from the date of grant, April 11, 1995. As of the date of the
Company's IPO on November 26, 1996, Messrs. Silverstein and Tomaszewski
elected to surrender 6,182 and 3,091 shares of CVS restricted stock,
respectively, with a value of $259,644 and $129,822, respectively (based
on the value of CVS common stock on the IPO date of $42.00) for an
equivalent number of vested CVS share units payable on November 26, 1999.
With respect to Mr. Axelrod, all remaining shares of CVS restricted stock
became immediately vested in connection with the IPO and along with
certain stock options and accumulated pension benefits, were terminated
and a deferred compensation account was established for him in lieu
thereof. See "Employment Agreements and Change in Control Agreements."
(3) These options were granted to buy CVS common stock which became
exercisable in one-third increments over a three year period, except for
Mr. Scullin who received a grant which was exercisable one year after the
grant date. An additional one-third of the options granted to Messrs.
Silverstein and Tomaszewski became vested and were exercisable for
approximately a 90-day period following the IPO at which time the exercise
period expired. In the case of Mr. Scullin, his options were fully
exercisable for approximately a 90-day period following the IPO. In the
case of Mr. Axelrod, his options are fully exercisable until December 31,
1999. See footnote (1) to the table entitled "Aggregated Option/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values" for a
description of option exercises in fiscal 1997. Except for Mr. Axelrod,
all CVS options were canceled following the expiration of the 90-day
period after the IPO.
5
<PAGE>
(4) The information shown in the table reflects the spin-off by CVS of
Footstar, Inc. in October 1996 which resulted in (i) reducing the exercise
price of the options to buy CVS common stock to 86.59% of the original
exercise price and increasing the number of securities underlying such
options by 15.49%; and (ii) increasing the number of shares of restricted
stock by 15.49%.
(5) Represents amounts contributed under the Company's 401(k) profit sharing
plan in 1997, including certain allocations made in 1998 which are
attributable to the 1997 plan year.
(6) Represents amounts contributed under the CVS 401(k) profit sharing plan
from January through November 1996.
(7) Represents $3,918, $4,069, $5,519 and $2,373 contributed under the CVS
401(k) profit sharing plan for Messrs. Axelrod, Silverstein, Scullin and
Tomaszewski, respectively, and shares of CVS common stock with a value of
$3,000 contributed under the CVS employee stock ownership plan for each of
the named executives.
Option Grants in Last Fiscal Year. The table below sets forth certain
information concerning stock options granted during 1997 by the Company to the
named executive officers. The hypothetical present values on date of grant shown
in the last column for stock options granted in 1997 are presented pursuant to
the rules of the Securities and Exchange Commission (the "SEC") and are
calculated under the modified Black-Scholes Model for pricing options. The
Company is not aware of any model or formula which will determine with
reasonable accuracy a present value for stock options. The actual before-tax
amount, if any, realized upon the exercise of stock options will depend on the
excess, if any, of the market price of the Company's Common Stock over the
exercise price per share of Common Stock of the option at the time the stock
option is exercised. There is no assurance that the hypothetical present values
of the stock options reflected in this table will be realized. No stock
appreciation rights ("SARs") have been granted or are outstanding.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------
Number of Percent of
Securities Total Options Grant Date
Underlying Granted to Exercise or Present
Options Granted Employees in Base Price Expiration Value
Name(1) (#)(2) Fiscal Year ($/Share) Date ($)(3)
-------- -------------- ------------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Norman Axelrod....................... 150,000 40 34.875 11/26/2007 2,416,500
Steven B. Silverstein................ 30,000 8 34.875 11/26/2007 483,300
Hugh J. Scullin...................... 15,000 4 34.875 11/26/2007 241,650
Brian D. Silva....................... 18,000 5 34.875 11/26/2007 289,980
William T. Giles..................... 15,000 4 34.875 11/26/2007 241,650
</TABLE>
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(1) No options were granted to Mr. Tomaszewski in 1997.
(2) These options were granted under the 1996 Incentive Compensation Plan at
fair market value and vest and become exercisable with respect to 25% of
the underlying shares in annual increments beginning one year from the
grant date.
(3) The hypothetical present values on grant date are calculated under the
modified Black-Scholes Model, which is a mathematical formula used to
value options traded on stock exchanges. This formula considers a number
of factors in hypothesizing an option's present value. Factors used to
value options granted include the stock's expected volatility rate (45%),
risk free rate of return (5.7%), dividend yield (0%), projected time of
exercise (5 years) and projected risk of forfeiture and non-marketability
for the vesting period (2.5% per annum).
6
<PAGE>
Option Exercises and Year-End Option Holdings. The following table shows
information regarding option exercises during 1997 as well as 1997 year-end
option holdings for each of the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Securities In-the-Money
Acquired Underlying Unexercised Options/SARs
on Value Options/SARs at FY- End at FY-End ($)
Exercise Realized (#) Exercisable/ Exercisable/
Name (#) ($) Unexercisable(1) Unexercisable(1)
----- -------- ------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
Norman Axelrod...................... 0 0 96,338/439,017 2,709,506/9,441,082
Steven B. Silverstein............... 0 0 18,750/86,250 527,344/1,844,531
Hugh J. Scullin..................... 0 0 11,250/48,750 316,406/1,080,469
Brian D. Silva...................... 0 0 7,500/40,500 210,938/790,313
William T. Giles.................... 0 0 7,500/37,500 210,938/764,063
James M. Tomaszewski................ 0 0 18,750/0(2) 527,344/0(2)
</TABLE>
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(1) Mr. Axelrod also has outstanding options to purchase shares of CVS common
stock received from CVS prior to the Company's IPO. As of December 31,
1997, Mr. Axelrod had 75,069 exercisable options to purchase shares of CVS
common stock and no unexercisable options. The value of unexercised,
in-the-money options as of December 31, 1997, measured against the closing
price of CVS common stock of $64.0625 was $2,379,687. Mr. Axelrod did not
exercise any of the CVS options during the 1997 fiscal year. The
information in this footnote reflects the spin-off by CVS of Footstar,
Inc. in October 1996 which resulted in reducing the exercise price of the
options to buy CVS common stock to 86.59% of the original exercise price
and increasing the number of securities underlying such options by 15.49%.
In 1997, Messrs. Silverstein, Scullin, Silva, Giles and Tomaszewski
exercised CVS options to purchase 25,212, 12,705, 2,080, 6,352 and 20,210
shares of CVS stock, respectively, resulting in a value realized of
$249,466, $75,330, $29,272, $64,698 and $233,273, respectively.
(2) On the date of his separation from the Company in December 1997, Mr.
Tomaszewski had vested options to purchase 18,750 shares of the Company's
Common Stock which are exercisable until December 1, 1998. The remainder
of his options were unvested on such date and were canceled.
Employment Agreements and Change in Control Agreements. The Company entered
into employment agreements with Messrs. Axelrod, Silverstein, Scullin and
Tomaszewski (each referred to individually as an "Employment Agreement"). The
following briefly summarizes the principal terms of the Employment Agreements.
The period of employment under the Employment Agreements extends initially
for four years subject to automatic one-year extensions at the end of the
initial term unless either party gives notice of non-renewal at least 180 days
prior to expiration of the term. The Employment Agreements generally provide for
payment of an annual base salary that will be reviewed each year, but may not be
decreased from the amount in effect in the previous year, and there is an annual
target bonus of a minimum of 55% and a maximum of 110% of base salary for Mr.
Axelrod and 40% of base salary for the other named executive officers.
The Employment Agreements generally provide for (i) continued payment of
base salary, incentive compensation, and other benefits for 24 months in the
case of Mr. Axelrod and for 12 months in the case of the other executives in the
event the executive's employment is terminated other than in connection with a
termination by the Company for "cause" or voluntary termination by the executive
without "good reason"; (ii) other restrictive covenants including
non-disclosure, non-solicitation of employees and availability for litigation
support; (iii) participation in certain benefit plans and programs (including
retirement benefits, disability and life insurance, and medical benefits); (iv)
annual and long-term incentive compensation opportunities; and (v) deferred
compensation arrangements. Mr. Axelrod also received from CVS an initial
crediting to a deferred compensation account of approximately $2.2 million in
lieu of certain accumulated pension benefits, outstanding CVS restricted stock
awards and outstanding CVS stock options.
7
<PAGE>
Upon Mr. Tomaszewski's separation from the Company in December 1997, he was
entitled to receive a continuation of base salary for one year, incentive
compensation for fiscal 1997 equal to 40% of base salary as well as an
additional 30% of base salary, and benefits for one year pursuant to the terms
of his Employment Agreement, including a one year period to exercise vested
options.
In the event of a "change in control," the Employment Agreements generally
provide lump sum severance benefits equal to 2 times (2.99 for Mr. Axelrod) base
salary and target bonus and continued participation in certain welfare benefit
plans for 24 months (36 months for Mr. Axelrod). In addition, in the case of
voluntary termination, the Company may elect to pay the executive over a 12
month period an amount equal to annual base salary plus target annual bonus in
exchange for the executive's agreement not to compete with the Company for a
period of one year. Upon a termination for cause, the executives have agreed not
to compete with the Company for a period of one year.
A "change in control" is defined to include a variety of events, including
significant changes in the stock ownership of the Company or a significant
subsidiary, certain changes in the Company's Board of Directors, certain mergers
and consolidations of the Company or a significant subsidiary, and the sale or
disposition of all or substantially all the consolidated assets of the Company.
"Good reason" is defined generally as demotion, reduction in compensation,
unapproved relocation in the case of Mr. Axelrod or a material breach of the
Employment Agreement by the Company. "Cause" is defined generally as a breach of
the restrictive covenants contained in the Employment Agreements, certain felony
convictions, or willful acts or gross negligence that are materially damaging to
the Company.
If payments under the Employment Agreements following a change in control
are subject to the "golden parachute" excise tax, the Company will make an
additional "gross-up" payment sufficient to ensure that the net after-tax amount
retained by the executive (taking into account all taxes, including those on the
gross-up payment) is the same as it would have been had such excise tax not
applied. The Employment Agreements obligate the Company to indemnify the
executives to the fullest extent permitted by law, including the advancement of
expenses, and, in the case of Mr. Axelrod, generally provides that the Company
will reimburse Mr. Axelrod for expenses incurred in seeking enforcement of his
Employment Agreement, unless Mr. Axelrod's assertion of such rights is in bad
faith or is frivolous.
Report on Compensation of Executive Officers
Compensation decisions for the Company's Chief Executive Officer and the
other named executive officers for fiscal 1997 were reviewed and determined by
the Compensation Committee of the Board of Directors.
The overall objectives of the Company's executive compensation program are
to attract and retain the highest quality executives to manage and lead the
Company, and to provide annual and long term incentives to management, based on
both Company performance and individual performance, in order to build and
sustain value for shareholders.
The Company's executive compensation program for 1997 was reviewed and
approved by the Compensation Committee of the Board of Directors. Before the
1996 IPO, a national compensation consultant was retained by the Compensation
Committee to assist the Compensation Committee in reviewing competitive
compensation programs for the Company. The consultant reviewed competitive
compensation in connection with the Company's senior officers, including the
Chief Executive Officer and each of the other named executive officers as well
as other members of the management group. This review included compensation
levels reported for senior executives of a survey group of 14 retailers. The
survey group is not the same group of companies included in the Peer Group index
set forth in the Company's Performance Graph below because, in the view of the
Compensation Committee and such compensation consultant, such survey group is
not necessarily the most representative group for purposes of determining
competitive compensation pay practices for the senior executives. Since that
time, the Compensation Committee has continued to review the competitiveness of
the Company's executive compensation practices based on the original pre-IPO
survey as well as its own subjective view of the appropriate level and
competitiveness of such compensation levels.
8
<PAGE>
Base Salary. Based on this survey group review, base salaries for the Chief
Executive Officer and the other named executives were established at
approximately the mean of the range of salaries considered in the survey group,
with only minor modification for fiscal 1997 made without specific reference to
such survey group. Actual total remuneration levels may range below or above
target in any one year and over a period of years based on performance against
annual and long term goals and return to shareholders. At the time of the
November 1996 IPO the Company entered into employment agreements with the Chief
Executive Officer and Messrs. Scullin, Silverstein and Tomaszewski under which
the minimum base pay level for each individual was established.
Incentive Awards. The Company's incentive program provides for cash bonuses
based on performance relative to predetermined objectives established for the
year. For 1997, the target award was 55% for the Chief Executive Officer, 40%
for Messrs. Silverstein, Scullin and Silva and 34% for Mr. Giles. Larger awards
may be permitted from time to time if performance exceeds predetermined
objectives. Smaller or no awards may be made if performance falls below such
objectives. Eligible members of management, including the Chief Executive
Officer and the other named executives, can defer receipt of a portion of their
incentive award. For 1997, incentive bonuses payable to the Chief Executive
Officer and the other named executives were based on specific earnings
objectives established by the Compensation Committee in early 1997. Based on
such goals for 1997 having been surpassed by a substantial margin, actual 1997
incentive awards were determined to be one hundred eighty-five percent of the
target levels for Messrs. Axelrod, Silverstein, Scullin, Silva and Giles.
Stock Based Compensation. The Board of Directors and the Compensation
Committee are of the view that stock ownership or its equivalent by management
aligns the interest of management with the Company's shareholders. Stock options
are granted at fair market value and are intended to align executive
compensation opportunities with shareholder returns. Stock options granted
during 1997 were made at levels determined by the Board of Directors of the
Company to be approximately the mean with annual stock option grants of the
survey group. Stock options are intended to provide long term compensation
incentive, and future grants of options or other awards will be periodically
reviewed and determined by the Compensation Committee of the Board. No
restricted stock awards were made in 1997.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally allows a deduction to publicly
traded companies for certain qualifying performance based compensation. Section
162(m), however, disallows a deduction to the extent of excess non-performance
based compensation over $1 million paid to the Chief Executive Officer or to any
of the four other most highly compensated executive officers. The Company
believes that Section 162(m) deduction limits for fiscal 1998 will not be
applicable or, if applicable, would not be material in terms of net financial
effect or number of persons covered and therefore the Company does not intend to
seek to restructure any fiscal 1998 compensation arrangements. The Company and
the Compensation Committee will continue to monitor this matter.
Compensation Committee of the
Board of Directors:
Stanley P. Goldstein, Chairman
Charles C. Conaway
9
<PAGE>
Performance Graph
The following graph compares the percentage change in the cumulative total
shareholders' return on the Company's Common Stock on a quarterly basis from
November 26, 1996, the first trading day of the Company's Common Stock, to
December 31, 1997, with the cumulative total return on the Standard & Poor's
Specialty Retail Index, the 14 Company Peer Group Index and the Standard &
Poor's 500 Index for the same period. In accordance with the SEC rules, the
returns are indexed to a value of $100 at November 26, 1996 and it is assumed
that all dividends were reinvested.
The 14 Company Peer Group Index is comprised of the following companies in
the retail industry: Bed, Bath & Beyond; Bombay Company; Borders Group;
Fabri-Centers of America; General Nutrition Cos.; Haverty Furniture Cos.;
Lechters, Inc.; Michaels Stores, Inc.; Petsmart, Inc.; Pier 1 Imports, Inc.;
Sharper Image, Inc.; Sports Authority, Inc.; Strouds, Inc. and Williams-Sonoma,
Inc. The returns of each issuer in the 14 Company Peer Group Index have been
weighted according to the issuer's stock market capitalization at the beginning
of each period for which a return is indicated.
[The following table was depicted as a line graph in the printed material]
Comparison of Year End Cumulative Total Return of
Linens 'n Things, Inc., Standard & Poor's Specialty Retail Index,
14 Company Peer Group and Standard & Poor's 500 Index.
<TABLE>
<CAPTION>
11/26/96 12/31/96 3/29/97 6/28/97 9/27/97 12/31/97
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Linens 'n Things, Inc. $100 $126 $154 $182 $222 $279
S&P Specialty Retail Index 100 86 82 91 94 86
14 Company Peer Group 100 94 96 112 122 137
S&P 500 100 98 102 117 125 128
</TABLE>
10
<PAGE>
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Board of Directors is comprised of Mr. Goldstein,
Mr. Conaway and Mr. Compton. Mr. Goldstein is Chairman of the Board, Chief
Executive Officer and a director of CVS and Mr. Conaway is Executive Vice
President and Chief Financial Officer of CVS. Following the IPO, CVS owned
approximately 32.5% of the Company's Common Stock.
Certain Transactions With Related Parties. The Company was acquired by
Melville Corporation in 1983. After the Company's IPO in November 1996, CVS, as
successor in interest to Melville Corporation, retained approximately 32.5% of
the Common Stock of the Company. During fiscal 1997, CVS sold substantially all
of its equity interest in the Company's Common Stock in an underwritten public
offering by the Company (the "CVS Offering").
The following are summary descriptions of the terms and conditions of the
Transitional Services Agreement, Stockholder Agreement, Note and Tax
Disaffiliation Agreement. The descriptions do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of such documents, which have been filed with the SEC.
Lease Guarantees. CVS guarantees the leases of certain stores operated by
the Company and, prior to the IPO, charged a fee for that service. Since the
IPO, CVS has no longer charged the Company a fee for this service. Although CVS
remains obligated under its existing guarantees of the Company's store leases
entered into prior to the IPO, CVS will not enter into any additional guarantees
of leases on behalf of the Company. The Company has agreed to indemnify CVS
under the Stockholder Agreement for any losses arising in connection with such
lease guarantees.
Transitional Services Agreement. CVS and the Company entered into a
transitional services agreement (the "Transitional Services Agreement")
effective concurrently with the IPO under which CVS provided or caused to be
provided to the Company certain specified services for a transitional period
after the IPO, including check authorization and collection. The Transitional
Services Agreement provides that the services would be provided in exchange for
fees based on CVS's cost for such services.
Financing. In conjunction with the IPO, the Company issued a four-year,
$13.5 million subordinated note (the "Note") to CVS. The Note contained no
principal amortization prior to maturity in December 2000, and required
quarterly interest payments at the 90-day LIBOR rate plus the applicable spread
under the Company's credit facility. The Note also provided for forgiveness by
CVS, at varying amounts based upon the proceeds from any sales by CVS of the
Company's Common Stock together with the market value of the Common Stock which
CVS continued to own at December 31, 1997. During fiscal 1997, CVS sold
6,267,658 of its remaining shares of Common Stock (representing substantially
all of its holdings). As a result of the net proceeds received, $3.5 million was
forgiven and contributed as equity by CVS. In July 1997, the Company pre-paid
the remaining $10 million to CVS utilizing cash flows from operations. The Note
contained no prepayment penalties.
The Stockholder Agreement. The Company and CVS entered into the Stockholder
Agreement as of December 2, 1996 in connection with the IPO. The Stockholder
Agreement provided that the Company and CVS will indemnify each other against
certain liabilities. In addition, pursuant to the Stockholder Agreement no
person or group shall acquire a majority of the beneficial ownership of the
Common Stock of the Company unless (i) CVS receives prior written notice that
such person or group proposes to acquire such majority beneficial ownership and
(ii) prior to such acquisition such person or group provides to CVS (unless
waived by CVS in writing) a guarantee, in form and substance acceptable to CVS,
of the obligations of the Company under the Stockholder Agreement to indemnify
the CVS Group in respect of the CVS Lease Guarantees. Upon such person or group
acquiring majority ownership, CVS may terminate the provision of any or all of
its services under the Transitional Services Agreement.
The Stockholder Agreement also provided that, at the request of CVS, the
Company would use its best efforts to effect registration under the applicable
federal and state securities laws of the shares of the Common Stock held by CVS
in accordance with certain specified methods described in the Stockholder
Agreement on up to two occasions (which included the CVS Offering), and would
take such other action necessary to permit
11
<PAGE>
the sale thereof in other jurisdictions, subject to certain specified methods
described in the Stockholder Agreement. The Company was responsible for
customary registration and related expenses in connection with the CVS Offering.
CVS was required to pay one-half of such expenses in connection with each demand
registration requested by CVS and the excess of the Company's share of such CVS
demand registration expenses over $200,000 in the aggregate.
The Stockholder Agreement provides generally that CVS will cease to have
any liability under its employee benefit plans with respect to employees and
former employees of the Company after the IPO, except that (i) the full account
balances of current employees of the Company in CVS's 401(k) profit sharing plan
were transferred to a similar successor plan of the Company and (ii) employees
of the Company were entitled to exercise applicable distribution rights under
CVS's employee stock ownership plan.
Terms of the Tax Disaffiliation Agreement. CVS and the Company entered
into a tax disaffiliation agreement (the "Tax Disaffiliation Agreement") in
connection with the IPO that sets forth each party's rights and obligations with
respect to payments and refunds, if any, with respect to taxes for periods
before and after the IPO and related matters such as the filing of tax returns
and the conduct of audits or other proceedings involving claims made by taxing
authorities.
In general, CVS is responsible for filing consolidated federal and
consolidated, combined or unitary state income tax returns for periods through
the date on which the IPO was completed, and paying the associated taxes. The
Company will reimburse CVS for the portion of such taxes, if any, relating to
the Company's businesses, provided, however, that with respect to any combined
and unitary state income taxes based in part on allocation percentages, the
Company will reimburse CVS for the portion of such taxes attributable to the
Company's businesses' contribution to the relevant allocation percentage. The
Company will be reimbursed, however, for tax attributes, such as net operating
losses, when and to the extent that they are used on a consolidated, combined or
unitary basis. The Company is responsible for filing, and paying the taxes
associated with, all other tax returns for tax periods (or portions thereof)
relating solely to the Company's businesses. CVS, however, is responsible for
preparing all income tax returns to be filed by the Company for tax periods that
end on or before the date on which the IPO was completed.
In general, the Company has agreed to indemnify CVS for taxes relating to
a tax period (or portion thereof) ending on or before the completion of the IPO
to the extent such taxes are attributable to the Company's businesses or, in the
case of any combined and unitary state income taxes based in part on allocation
percentages, to the extent such taxes are attributable to the contribution of
the Company's businesses to the relevant allocation percentage and CVS will
agree to indemnify the Company for all other taxes relating to a tax period (or
portion thereof) ending on or before the completion of the IPO. The Tax
Disaffiliation Agreement also provides that CVS will generally pay to the
Company the net benefit realized by CVS relating to the Company's businesses
from the carryback to tax periods or portions thereof ending on or before the
completion of the IPO of certain tax attributes of the Company arising in tax
periods or portions thereof beginning after the completion of the IPO.
The Company and CVS have agreed not to take (or omit to take) any action
that results in any increased liability relating to a tax period (or portion
thereof) ending on or before the completion of the IPO. The Company and CVS have
each agreed to indemnify the other for liabilities arising as a result of the
breach of this agreement. The Company also agrees to indemnify CVS for
liabilities resulting from a breach by the Company of a similar agreement and
certain other agreements contained in the Tax Disaffiliation Agreement among
Footstar, Inc., Melville Corporation (CVS's predecessor) and their respective
affiliates, to which the Company continues to be a party.
12
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
Certain Beneficial Owners. The following table sets forth certain
information as to beneficial ownership of each person known to the Company to
own beneficially more than 5% of the outstanding Common Stock of the Company as
of March 1, 1998.
Beneficial Owner Number of Shares Percent of Class
- --------------- ---------------- ----------------
Putnam Investments, Inc.(1) .......... 1,666,600 8.6%
One Post Office Square
Boston, Massachusetts 02109
FMR Corp. (2) ........................ 1,126,500 5.8%
82 Devonshire Street
Boston, Massachusetts 02109
- --------------
(1) Based on a Report on Schedule 13G dated January 21, 1998, which was
jointly filed with the SEC by Marsh & McLennan Companies, Inc., Putnam
Investment Management, Inc. and The Putnam Advisory Company, Inc.
(2) Based on a Report on Schedule 13G dated January 12, 1998, which was
jointly filed with the SEC by Edward C. Johnson 3rd and Abigail P.
Johnson.
Stock Ownership of Directors and Executive Officers. The following table
sets forth certain information as to beneficial ownership of the outstanding
Common Stock of the Company as of March 1, 1998, by each director and nominee of
the Company, each of the named executive officers listed in the Summary
Compensation Table, and all executive officers and directors of the Company as a
group. Except as otherwise indicated, all persons listed below have sole voting
and investment power with respect to such shares. No director, nominee or
executive officer beneficially owns more than one percent of the total
outstanding Common Stock, and all directors and executive officers as a group
own less than one percent of the total outstanding Common Stock.
No. of Shares
of Common
Name of Beneficial Owner Stock (1)(2)
------------------------ ------------
N. Axelrod ........................................................ 86,154(3)
P. Beekman ........................................................ 4,325
C. Conaway ........................................................ 3,325
S. Goldstein ...................................................... 3,325
S. Silverstein .................................................... 23,500
H. Scullin ........................................................ 13,950(4)
B. Silva .......................................................... 8,500
W. Giles .......................................................... 15,000
J. Tomaszewski .................................................... 23,375
All executive officers and
directors as a group ........................................... 158,079(5)
- --------------
(1) The shares listed include shares of restricted stock as follows: Mr.
Axelrod, 48,387, Mr. Beekman, 700, Mr. Conaway, 700, Mr. Goldstein, 700,
Mr. Silverstein, 14,063, Mr. Scullin, 8,438, Mr. Silva, 5,625, and Mr.
Giles, 5,625, and all directors and executive officers as a group, 84,238.
(2) The shares listed include shares subject to currently exercisable stock
options as follows: Mr. Axelrod, 21,338, Mr. Beekman, 1,925, Mr. Conaway,
1,925, Mr. Goldstein, 1,925, Mr. Silverstein, 3,750, Mr. Silva, 1,000, Mr.
Giles, 7,500 and Mr. Tomaszewski, 18,750, and all directors and executive
officers as a group, 39,363.
(3) Includes 200 shares held by Mr. Axelrod's minor children, as to which
shares Mr. Axelrod disclaims beneficial ownership.
(4) Includes 500 shares held by Mr. Scullin's minor child and 1,000 shares
held by Mr. Scullin's spouse, as to which shares Mr. Scullin disclaims
beneficial ownership.
(5) Excludes 200 shares of restricted stock and options to purchase 3,000
shares granted to Mr. Compton on March 16, 1998, the date he was elected
to the Board of Directors of the Company.
13
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors to file reports regarding ownership
of the Company's Common Stock with the Securities and Exchange Commission, and
to furnish the Company with copies of all such filings. Based on a review of
these filings, the Company believes all such filings were timely made.
INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP as the Company's
independent auditors to make an examination of the accounts of the Company for
the 1998 fiscal year. KPMG Peat Marwick LLP has served as the independent
auditors of the Company since November 26, 1996. Representatives of KPMG Peat
Marwick LLP are expected to be present at the Annual Meeting and will be
available to respond to appropriate questions and to make such statements as
they may desire.
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Any proposal of a shareholder intended to be presented at the Company's
1999 Annual Meeting of Shareholders must be received by the Secretary of the
Company, for inclusion in the Company's Proxy Statement, Notice of Meeting and
Proxy relating to the 1999 Annual Meeting, not later than December 3, 1998.
The Company's Bylaws establish an advance written notice procedure for
shareholders seeking to nominate candidates for election as directors at any
Annual Meeting of Shareholders, or to bring business before an Annual Meeting of
Shareholders of the Company. The Bylaws provide that only persons who are
nominated by, or at the direction of, the Board, or by a shareholder who has
given timely written notice to the Secretary of the Company prior to the meeting
at which directors are to be elected, will be eligible for election as directors
of the Company. The Bylaws also provide that at any meeting of shareholders only
such business may be conducted as has been brought before the meeting by, or at
the direction of, the Board or, in the case of an Annual Meeting of
Shareholders, by a shareholder who has given timely written notice to the
Secretary of the Company of such shareholder's intention to bring such business
before such meeting. Under the Bylaws, for any such shareholder notice to be
timely, such notice must be received by the Company in writing not less than 60
days nor more than 90 days prior to the meeting, or in the event that less than
70 days' notice or prior public disclosure of the date of the Annual Meeting is
given or made to shareholders, to be timely, notice by the shareholder must be
received not later than the close of business on the 10th day following the day
on which such notice of the date of the meeting or such public disclosure was
made. Under the Bylaws, a shareholder's notice must also contain certain
information specified in the Bylaws.
ANNUAL REPORT
A copy of the Company's Annual Report has been mailed to all shareholders
of record. Shareholders, upon written request to the Investor Relations
Department of the Company, 6 Brighton Road, Clifton, New Jersey 07015, may
receive, without charge, a copy of the Company's Annual Report on Form 10-K,
including the financial statements and financial statement schedules, required
to be filed with the Securities and Exchange Commission for the 1997 fiscal
year.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no business
that will be presented for consideration at the Annual Meeting other than the
items referred to above. Proxies in the enclosed form will be voted in respect
of any other business that is properly brought before the Annual Meeting as
recommended by the Board of Directors or, if no such recommendation is given, in
the discretion of the proxy holders.
14
<PAGE>
PROXY
LINENS 'N THINGS, INC.
May 5, 1998
This Proxy is Solicited on Behalf of the Board of Directors of
Linens 'n Things, Inc.
The undersigned hereby appoints Brian D. Silva and Denise Tolles, and each
or either of them, with power of substitution, proxies for the undersigned and
authorizes each of them to represent and vote, as designated, all of the shares
of stock of Linens 'n Things, Inc. (the "Company") which the undersigned may be
entitled to vote at the Annual Meeting of Shareholders of the Company to be held
at the Company's headquarters at 6 Brighton Road, Clifton, New Jersey on May 5,
1998 and at any adjornments or postponements of such meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO CONTRARY DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" PROPOSAL 1. PLEASE VOTE PROMPTLY.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE -----------
SEE REVERSE
SIDE
-----------
<PAGE>
|X| Please mark
vote as in
this example.
1. ELECTION OF ONE DIRECTOR
To elect Stanley P. Goldstein as Director for a three-year term.
FOR WITHHELD
|_| |_|
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT |_|
Please sign exactly as your name or
names appear hereon. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title as such. If a corporation,
please print the full corporate name and
sign by president or other authorized
officer. If a partnership, please print
the full partnership name and sign by
authorized person.
Signature: _______________ Date: ______ Signature: _______________ Date: _______
