LINENS 'N THINGS, INC.
6 Brighton Road
Clifton, New Jersey 07015
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 21, 1999
----------------
To Linens 'n Things, Inc. Shareholders:
The Annual Meeting of Shareholders of Linens 'n Things, Inc., a Delaware
corporation (the "Company"), will be held at the Company's headquarters at 6
Brighton Road, Clifton, New Jersey, on Wednesday, April 21, 1999, at 11:00 a.m.,
for the following purposes:
1. To elect two directors for a three-year term.
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the authorized shares of
Common Stock from 60 million shares to 135 million shares.
3. To act upon such other business as may properly come before the
Annual Meeting or any postponement or adjournment.
Shareholders of record at the close of business on March 1, 1999 are
entitled to notice of and to vote at the Annual Meeting or at any postponement
or adjournment.
By order of the Board of Directors,
/s/ Brian D. Silva
BRIAN D. SILVA
Senior Vice President,
Human Resources and
Secretary
March 25, 1999
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING,
PLEASE COMPLETE THE ENCLOSED PROXY AND RETURN IT PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING.
- --------------------------------------------------------------------------------
<PAGE>
LINENS 'N THINGS, INC.
6 Brighton Road
Clifton, New Jersey 07015
----------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 21, 1999
----------------
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 Wednesday, April 21,
1999, at 11:00 a.m., at 6 Brighton Road, Clifton, New Jersey and at any
postponement or adjournment (the "Annual Meeting"). At the Annual Meeting,
shareholders of the Company are being asked to consider and vote on (1) the
election of two directors, each for a three-year term, and (2) a proposal to
increase the authorized Common Stock of the Company from 60 million shares to
135 million shares.
This Proxy Statement, Notice of Meeting and accompanying proxy are first
being mailed to shareholders on or about March 25, 1999.
GENERAL
The holders of shares of the Company's Common Stock of record at the close
of business on March 1, 1999 are entitled to vote such shares at the Annual
Meeting. On February 1, 1999, there were outstanding 39,047,733 shares of Common
Stock. All references to shares of Common Stock throughout this Proxy Statement
have been adjusted as appropriate to reflect the Company's 2-for-1 stock split
in May 1998.
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 at the Annual Meeting. 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. Approval of the proposal to increase the
authorized Common Stock of the Company requires the affirmative vote of a
majority of the outstanding Common Stock entitled to vote at the Annual Meeting
on this proposal.
Abstentions and broker non-votes are included in determining the number of
shares present or represented at the Annual Meeting for purposes of determining
whether a quorum exists. Neither abstentions nor broker non-votes are counted as
votes in connection with determining the plurality required to elect directors
and have no effect on the outcome of that vote. In determining whether the
proposed increase in authorized Common Stock receives the requisite shareholder
votes for approval, abstentions and broker non-votes are counted and have the
same effect as a vote against the proposal. 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. The Company believes that the
Company's proposals will be considered "discretionary" items under New York
Stock Exchange Rules upon which member firms holding Company shares in street
name may vote if beneficial owners have not timely furnished voting
instructions.
Shares of Common Stock represented by a properly executed proxy received
in time for the Annual Meeting 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 persons designated in the proxy as the Board
of Directors' nominees for director, for the proposal to increase the authorized
Common Stock of the Company, 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.
<PAGE>
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.
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 has also retained
Corporate Investor Communications, Inc. to assist it in the solicitation of
proxies for a fee of $5,000, plus out-of-pocket expenses. 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 TWO DIRECTORS
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 each year the
term of office of one class will expire and the terms of office of the other
classes will extend for additional periods of one and two years respectively.
This year's nominees have each been nominated to serve for a three-year term
expiring in the year 2002. The Company has inquired of such nominees and
determined that each will serve if elected. If, for any reason, either nominee
is not available for election, which is not expected, the proxy committee would
vote for such substitute nominee as may be recommended by the Board of
Directors.
The nominees to the Board of Directors at the Annual Meeting are current
directors of the Company. Set forth below is a brief description of the
background of the nominees for election. Also set forth below are descriptions
of the backgrounds of the existing directors whose terms of office extend beyond
the Annual Meeting. The Board of Directors recommends that shareholders vote
"FOR" the Company's nominees for director.
Nominees For Election At The Annual Meeting
NORMAN AXELROD Director since 1996
Mr. Axelrod, age 46, has been Chairman, Chief Executive Officer and
President of the Company since 1997 and President and Chief Executive Officer of
the Company since 1988. Between 1976 and 1988, Mr. Axelrod held various
management positions at Bloomingdale's, ending with Senior Vice President,
General Merchandise Manager.
CHARLES C. CONAWAY Director since 1996
Mr. Conaway, age 38, will become Chief Operating Officer and President of
CVS Corporation ("CVS") in April 1999, and since 1995 has been Executive Vice
President and Chief Financial Officer of CVS. 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.
Directors Whose Terms Do Not Expire This Year
STANLEY P. GOLDSTEIN Director since 1996
Mr. Goldstein, age 64, is currently Chairman of the Board of CVS (formerly
known as Melville Corporation) and until May 1998 was Chairman of the Board and
Chief Executive Officer of CVS. Mr. Goldstein co-founded Consumer Value Stores,
a retail drug 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 1986 President of Melville Corporation, and in 1987 Chairman and
Chief Executive Officer of Melville Corporation. Mr. Goldstein's term as a
director of the Company expires in 2001. Mr. Goldstein is also a director of
Bell Atlantic Corporation and Footstar, Inc. and is on the board of overseers of
The Wharton School, University of Pennsylvania.
PHILIP E. BEEKMAN Director since 1997
Mr. Beekman, age 67, is 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.,
Kendle Company International and the Ladies Professional Golf Association.
HAROLD F. COMPTON Director since 1998
Mr. Compton, age 51, 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 Company expires in
2000. Mr. Compton joined CompUSA in 1994 as Executive Vice
President--Operations, becoming Chief Operating Officer in 1995 and President of
CompUSA Stores in 1996. From 1993 to 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
3
<PAGE>
Human Resources and Director of Stores for HomeBase. Mr. Compton is also a
director of Jumbo Sports, Inc. and Stage Stores, Inc.
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 Common Stock of the Company. 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 appointed or elected to the Board is currently eligible to receive,
upon his or her initial election or appointment to the Board, an option to
purchase 6,000 shares of the Common Stock of the Company and 400 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 approximately six months
thereafter, 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 age 65. In addition, each non-employee director receives
400 stock units and also an option to purchase up to 2,000 shares of Common
Stock on the date of each Annual Meeting.
In 1998, the Board of Directors held four meetings, the Audit Committee
held four meetings and the Compensation Committee held two meetings. 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.
Beekman and Conaway are the current members of the Audit Committee. Messrs.
Goldstein, Conaway and Compton are the current members of the Compensation
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 for the
Company's Chairman, Chief Executive Officer and President, and for the four
other most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------------
Annual Compensation Awards
--------------------- --------------------------------------
Number of
Securities All Other
Name and Principal Fiscal Restricted Stock Underlying Options/ Compensation
Position Year Salary ($) Bonus ($) Award(s) ($) SARs # ($) (3)
- ----------------------------------- ------ --------- -------- ---------------- ------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Norman Axelrod, Chairman, 1998 548,846 707,945 548,373(1) 378,774 9,600
Chief Executive Officer and 1997 496,920 513,838 0 300,000 9,500
President 1996 475,000 65,313 998,707(2) 770,710 3,167
Steven B. Silverstein, Executive 1998 304,808 234,192 211,436(1) 109,376 9,600
Vice President, Chief 1997 282,310 210,900 0 60,000 9,500
Merchandising Officer 1996 275,000 27,500 290,250(2) 150,000 3,167
Hugh J. Scullin, 1998 215,000 153,940 149,053(1) 27,509 9,600
Senior Vice President, Store 1997 213,650 159,100 0 30,000 9,500
Operations 1996 210,000 21,000 174,150(2) 90,000 3,167
Brian D. Silva, 1998 208,769 151,792 146,976(1) 28,345 9,600
Senior Vice President, 1997 191,210 148,000 0 36,000 9,500
Human Resources and Secretary
William T. Giles, Vice President, 1998 200,000 121,720 110,927(1) 28,345 9,600
Chief Financial Officer 1997 163,210 96,971 0 30,000 9,500
</TABLE>
- ------------
(1) Valuation of the restricted stock awarded on July 1, 1998 is based on the
closing price of $30.56 on June 30, 1998, net of consideration paid of
$0.01 per share. The restricted stock awards for each of the named
executives are: Mr. Axelrod, 17,950 shares; Mr. Silverstein, 6,921 shares;
Mr. Scullin, 4,879 shares; Mr. Silva, 4,811 shares; and Mr. Giles, 3,631
shares. Shares of restricted stock vest 100% on July 1, 2001. Holders of
restricted stock are entitled to receive dividends, if any, on the
restricted stock. The number and value of the aggregate of all restricted
stock holdings at the end of fiscal 1998 for each of the named executives
are: Mr. Axelrod, 118,208 shares, $4,682,810; Mr. Silverstein, 35,045
shares, $1,388,308; Mr. Scullin, 24,870 shares, $985,225; Mr. Silva,
16,466 shares, $652,301; and Mr. Giles, 15,286 shares, $605,555. 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 1998, $39.625, net of consideration paid of $0.01
per share.
(2) Valuation of the restricted stock awarded in 1996 is based on the IPO price
of $7.75, net of consideration paid of $0.01 per share. The restricted
stock awards for each of the named executives are: Mr. Axelrod, 129,032
shares; Mr. Silverstein, 37,500 shares; and Mr. Scullin, 22,500 shares.
Shares of restricted stock vest 25% on July 1, 1997, July 1, 1998, July 1,
1999 and July 1, 2000. Holders of restricted stock are entitled to receive
dividends, if any, on the restricted stock.
(3) For each of fiscal years 1998 and 1997, represents amounts contributed
under the Company's 401(k) profit sharing plan. For fiscal year 1996,
represents amounts contributed under the CVS 401(k) profit sharing plan
from January through November 1996.
Option Grants in Last Fiscal Year. The table below sets forth certain
information concerning stock options granted during 1998 by the Company to the
named executive officers. The hypothetical present values on date of grant are
presented pursuant to the rules of the Securities and Exchange Commission (the
"SEC") and are calculated under the Black-Scholes Model for pricing options. No
stock appreciation rights ("SARs") have been granted or are outstanding.
5
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------
Number of Percent of
Securities Total Options Grant Date
Underlying Granted to Exercise or Present
Options Granted Employees in Base Price Expiration Value
Name (#) Fiscal Year ($/Share) Date ($)(3)
- ------------------------------- --------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Norman Axelrod ................ 28,774 (1) 3.4 26.06 09/18/03 325,972
350,000 (2) 41.0 30.65 11/25/08 4,664,660
Steven B. Silverstein ......... 9,376 (1) 1.1 26.06 09/18/03 106,218
100,000 (2) 11.7 30.65 11/25/08 1,332,760
Hugh J. Scullin ............... 2,509 (1) 0.3 26.06 09/18/03 28,424
25,000 (2) 2.9 30.65 11/25/08 333,190
Brian D. Silva ................ 3,345 (1) 0.4 26.06 09/18/03 37,895
25,000 (2) 2.9 30.65 11/25/08 333,190
William T. Giles .............. 3,345 (1) 0.4 26.06 09/18/03 37,895
25,000 (2) 2.9 30.65 11/25/08 333,190
</TABLE>
- ------------
(1) These options were granted in connection with an early distribution of
vested restricted stock from the Deferred Compensation Plan due to changes
in accounting rules effective September 30, 1998. These options were
issued at fair market value and vested and become exercisable six months
from the grant date.
(2) These options were granted at fair market value and vest and become
exercisable in 33.3% annual increments beginning the third year from the
grant date.
(3) The hypothetical present values on grant date are calculated under the
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 (4.7%), dividend yield (0%), projected time of exercise (4.5
years) and projected risk of forfeiture and non-marketability for the
vesting period (6.21% per annum).
Option Exercises And Year-End Option Holdings. The following table shows
information regarding option exercises during 1998 as well as 1998 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 Unexercisable
- ------------------------------- ---------- ----------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
Norman Axelrod ................ 192,500 3,198,900 267,855/989,129 7,811,316/20,806,876
Steven B. Silverstein ......... 30,000 462,450 60,000/229,376 1,767,188/4,413,725
Hugh J. Scullin ............... 22,500 358,875 30,000/95,009 883,594/2,191,997
Brian D. Silva ................ 13,000 223,925 26,000/85,345 741,563/1,825,054
William T. Giles .............. 0 0 37,500/80,845 1,122,656/1,725,210
</TABLE>
6
<PAGE>
Employment Agreements and Change in Control Agreements. The Company has
employment agreements with Messrs. Axelrod, Silverstein and Scullin (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 a minimum of 40% and a maximum of 80% of base salary for the other
named executive officers.
The Employment Agreements generally provide for (i) continued payment of
annual 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.
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)
annual 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 1998 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.
7
<PAGE>
The Company's executive compensation program for 1998 was reviewed and
approved by the Compensation Committee of the Board of Directors. Before the
Company's 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 its 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
pre-IPO survey as well as its own subjective view of the appropriate level and
competitiveness of such compensation levels.
Annual Base Salary. Based on this survey group review, annual base
salaries for the Chief Executive Officer and the other named executives were
established prior to the IPO at approximately the mean of the range of salaries
considered in the survey group, with increases through fiscal 1998 made by the
Compensation Committee based on its subjective view of appropriate, competitive
annual base salary levels for such executives 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 IPO, the
Company entered into employment agreements with the Chief Executive Officer and
Messrs. Scullin and Silverstein under which a 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 1998, the target award was 70% for the Chief Executive
Officer, a blended target rate equivalent to 42% for Mr. Silverstein, 40% for
Messrs. 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 1998,
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 1998. Such goals for 1998 having been surpassed
by a substantial margin, actual 1998 incentive awards were determined to be 179%
of the target levels for each of the named executive officers (see Summary
Compensation Table above).
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 1998 were made in two segments. The first grant (see option grant table
above) was made in connection with early distributions of restricted stock from
the Company's Deferred Compensation Plan as a result of changes in accounting
rules. The second grant was part of the Compensation Committee's customary
review and these option grants were made at levels which the Compensation
Committee determined to be appropriate long-term equity based incentives to such
executives and were made at approximately the mean level for each of the named
executives based on the survey group. Vesting under these latter stock option
grants generally does not begin until three years from date of grant and then
only in one-third annual increments. 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.
Restricted stock awards made in fiscal 1998 (see Summary Compensation Table)
were made by the Compensation Committee to the named executive officers based on
such executives having exceeded certain established performance objectives for
earnings and net return on assets, with each named executive having an award
incentive rate ranging from 55% of annual base salary to, in the case of Mr.
Axelrod, 96% of annual base salary. Such restricted stock vests three years from
the date of grant.
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 1999 will
8
<PAGE>
not be applicable or, if applicable, will 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 1999 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
Harold F. Compton
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, through
December 31, 1998, 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.; The 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.
Comparison of Year End Cumulative Total Return of Linens 'n Things, Inc.,
Standard & Poor's Specialty Retail Index, 14 Company Peer Group Index
and Standard & Poor's 500 Index
[LINE CHART OMITTED]
<TABLE>
<CAPTION>
11/26/96 12/31/96 3/29/97 6/28/97 9/27/97 12/31/97 3/28/98 6/27/98 9/26/98 12/31/98
-------- -------- ------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Linens 'n Things ........... $100 $126 $154 $182 $222 $279 $344 $371 $356 $507
S&P Specialty Retail ....... 100 86 82 91 94 86 91 76 52 67
14 Company Peer Group ...... 100 96 100 107 117 122 146 142 104 129
S&P 500 .................... 100 98 102 117 125 128 145 150 138 163
</TABLE>
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 has been Chairman of the Board and a
director of CVS and Mr. Conaway has been Executive Vice President and Chief
Financial Officer of CVS. Immediately following the 1996 IPO and prior to the
secondary offering of Common Stock in fiscal 1997, 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.
10
<PAGE>
The following are summary descriptions of the Transitional Services
Agreement, Stockholder Agreement 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 has 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.
Stockholder Agreement. The Company and CVS entered into a 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 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.
Tax Disaffiliation Agreement. CVS and the Company entered into a tax
disaffiliation agreement (the "Tax Disaffiliation Agreement") in connection with
the 1996 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.
11
<PAGE>
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 agreed 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 February 1, 1999.
<TABLE>
<CAPTION>
Beneficial Owner Number of Shares Percent of Class
- --------------------------------------- ------------------ -----------------
<S> <C> <C>
Putnam Investments, Inc. (1) .......... 5,230,260 13.4%
One Post Office Square
Boston, Massachusetts 02109
Oppenheimer Funds, Inc. (2) ........... 2,052,800 5.3%
Two World Trade Center, Suite 3400
New York, New York 10048-0203
</TABLE>
- ------------
(1) Based on a Report on Schedule 13G dated January 26, 1999, which was jointly
filed by Marsh & McLennan Companies, Inc., Putnam Investment Management,
Inc. and The Putnam Advisory Company, Inc.
(2) Based on a Report on Schedule 13G dated February 11, 1999, which was filed
by Oppenheimer Funds, Inc.
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 February 1, 1999, 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 1.45% of the total outstanding Common Stock.
<TABLE>
<CAPTION>
No. of Shares No. of Shares
of Common of Common
Name of Beneficial Owner Stock (1)(2) Name of Beneficial Owner Stock(1)(2)
- -------------------------- ------------------ -------------------------------- -----------------
<S> <C> <C> <C>
N. Axelrod ............... 332,970 (3) S. Silverstein ................. 80,752
P. Beekman ............... 10,986 H. Scullin. .................... 45,650 (4)
C. Conaway ............... 10,986 B. Silva ....................... 33,500
S. Goldstein ............. 10,986 W. Giles ....................... 45,000
H. Compton ............... 3,190 All executive officers and
directors as a group .......... 574,020
</TABLE>
- ------------
(1) Includes shares of restricted stock which were vested as of February 1,
1999 (or will vest within 60 days thereafter), as follows: Mr. Axelrod,
35,741; Mr. Beekman, 3,200; Mr. Conaway, 3,200; Mr. Goldstein, 3,200; Mr.
Compton, 800; Mr. Silverstein, 9,376; Mr. Scullin, 8,741; Mr. Silva,
4,155; Mr. Giles, 4,155; and all directors and executive officers as a
group, 72,567.
(2) Includes shares subject to stock options which were exercisable as of
February 1, 1999 (or will become exercisable within 60 days thereafter),
as follows: Mr. Axelrod, 296,629; Mr. Beekman, 7,350; Mr. Conaway, 7,350;
Mr. Goldstein, 7,350; Mr. Compton, 2,000; Mr. Silverstein, 69,376; Mr.
Scullin, 32,509; Mr. Silva, 29,345; Mr. Giles, 40,845; and all directors
and executive officers as a group, 492,754.
(3) Includes 400 shares held by Mr. Axelrod's minor children, as to which
shares Mr. Axelrod disclaims beneficial ownership.
(4) Includes 1,000 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.
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.
13
<PAGE>
Item 2
PROPOSED INCREASE IN AUTHORIZED COMMON STOCK
The Board of Directors has approved a proposal to amend the Company's
Amended and Restated Certificate of Incorporation to increase the authorized
Common Stock from 60 million shares to 135 million shares. If approved by
shareholders at this Annual Meeting, the proposed amendment would become
effective upon filing with the Secretary of State of Delaware, which will occur
promptly following the Annual Meeting.
The Board of Directors believes that it is in the Company's best interests
to increase the number of authorized shares of Common Stock in order to have
additional authorized but unissued shares available to meet business needs as
they arise.
The Company's Amended and Restated Certificate of Incorporation currently
authorizes the issuance of a total of 60 million shares of Common Stock and one
million shares of Preferred Stock without designation.
On May 7, 1998 the Company effected a 2-for-1 split of the Common Stock of
the Company in the form of a stock dividend. As a result of the 2-for-1 stock
split, together with the additional shares of Common Stock issued under the
Company's equity incentive plans following the stock split, as of February 1,
1999 there were 39,047,733 shares of Common Stock outstanding and 53,333
treasury shares. In addition, as of February 1, 1999, there were approximately
4.5 million shares of Common Stock currently reserved for future issuance under
the Company's equity incentive plans. No shares of Preferred Stock are currently
outstanding or reserved.
The increased authorized shares of Common Stock would be available for
issuance at such times and for such corporate purposes as the Board of Directors
may deem advisable, without further action by the Company's shareholders except
as may be required by applicable law, by the Company's Amended and Restated
Certificate of Incorporation, or by the rules of the New York Stock Exchange or
any other stock exchange or national securities association trading systems on
which the securities may then be listed or traded.
The Board of Directors believes that the availability of such additional
authorized Common Stock will provide the Company with the flexibility to issue
Common Stock for possible future stock splits or stock dividends, if such action
is determined by the Board to be advisable, or in connection with acquisitions,
equity incentive plans, financings or other corporate purposes which may be
identified in the future by the Board of Directors, without the possible expense
or delay of a special shareholders' meeting. Upon issuance, such shares of
Common Stock will have the same rights as the outstanding shares of Common
Stock. Issuance of additional shares of Common Stock may have a dilutive effect
on existing holders of Common Stock. Holders of Common Stock have no preemptive
rights.
The proposed increase in the authorized Common Stock is not designed to
have an anti-takeover effect. However, although the Board of Directors has no
present intention of doing so, it could issue shares of Common Stock or
Preferred Stock (within the limits imposed by applicable law, by the Amended and
Restated Certificate of Incorporation and by the rules of applicable
self-regulatory organizations) which could, depending upon the circumstances,
make more difficult or discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or other means, including sale or
issuance to persons favorable to the Board or management or otherwise having the
effect of diluting the stock ownership of a person or entity. The Company
currently has no firm plans or commitments involving the issuance of Common
Stock, other than under its equity incentive plans.
INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP (formerly known as KPMG Peat
Marwick LLP) as the Company's independent auditors to make an examination of the
accounts of the Company for the 1999 fiscal year. KPMG LLP has served as the
independent auditors of the Company since November 26, 1996. Representatives of
KPMG 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.
14
<PAGE>
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Any proposal of a shareholder intended to be presented at the Company's
2000 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 2000 Annual Meeting, not later than November 27, 1999.
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 to Shareholders 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 1998 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.
15
<PAGE>
LINSAU DETACH HERE
- --------------------------------------------------------------------------------
PROXY
LINENS 'N THINGS, INC.
April 21, 1999
This Proxy is Solicited on Behalf
of the Board of Directors of Linens 'n Things, Inc.
The undersigned hereby appoints Brian D. Silva, William T. Giles and Denise
Tolles, and each 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 April 21, 1999 and at any adjournment or postponement 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 AND PROPOSAL 2. PLEASE VOTE PROMPTLY.
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE>
LINSAU DETACH HERE
- --------------------------------------------------------------------------------
[X] Please mark
votes as in
this example.
1. ELECTION OF TWO DIRECTORS.
To elect Norman Axelrod as director for a three-year term:
FOR WITHHELD
[_] [_]
To elect Charles C. Conaway as director for a three-year term:
FOR WITHHELD
[_] [_]
2. Proposal to increase authorized FOR AGAINST ABSTAIN
Common Stock to 135,000,000 shares. [_] [_] [_]
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:
-------------- ---------- --------------- ----------
