<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
LINENS 'N THINGS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</TABLE>
<PAGE>
LINENS 'N THINGS, INC.
6 BRIGHTON ROAD
CLIFTON, NEW JERSEY 07015
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 10, 2000
------------------------
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, May 10, 2000, at 11:00 a.m.
(the "Annual Meeting"), for the following purposes:
1. To elect two directors, each for a three-year term.
2. To consider and act upon a proposal to approve the adoption of the
2000 Stock Award and Incentive Plan.
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 16, 2000 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 30, 2000
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 ANNUAL MEETING.
<PAGE>
LINENS 'N THINGS, INC.
6 BRIGHTON ROAD
CLIFTON, NEW JERSEY 07015
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 10, 2000
------------------------
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, May 10,
2000, 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) the approval of
the adoption of the 2000 Stock Award and Incentive Plan (the "2000 Plan").
This Proxy Statement, the Notice of Meeting and accompanying proxy are first
being mailed to shareholders on or about March 30, 2000.
GENERAL
The holders of record of shares of the Company's Common Stock at the close
of business on March 16, 2000 are entitled to vote such shares at the Annual
Meeting. On February 1, 2000, there were outstanding 39,478,802 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 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. 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. 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 under New York Stock Exchange rules does not have
discretionary authority to vote on such matter.
Directors are elected by the affirmative vote of a plurality of the votes
cast at the Annual Meeting and entitled to vote. Abstentions are not counted as
votes in connection with determining the plurality required to elect directors
and have no effect on the outcome of that vote.
Under New York Stock Exchange rules for listing purposes, the adoption of
the 2000 Plan will be approved by shareholders if approved by a majority of the
votes cast on the proposal in person or by proxy, provided that the total votes
cast on the proposal represent more than 50% of all shares entitled to vote on
the matter at the Annual Meeting. Abstentions will not be counted in connection
with the approval of this proposal, but will be counted in determining whether
the votes cast represent 50% of the shares entitled to vote at the Annual
Meeting. Any broker non-votes will be disregarded and will have no effect on the
outcome of this proposal.
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 approve the adoption of
the 2000 Plan, and, with respect to any other matter 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 the proxy, either a written revocation of that proxy or a new
proxy bearing a later date. A proxy may also be
<PAGE>
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 e-mail 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 $7,500, 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 2003. The Company has inquired of each nominee and
determined that he will serve if elected. If, for any reason, a nominee is not
available for election, which is not expected, the proxy committee may vote for
such substitute nominee as may be recommended by the Board of Directors.
The two nominees to the Board of Directors at the Annual Meeting are current
directors of the Company. Set forth below is a description of the background of
the nominees. Also set forth below is a description of the background 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
PHILIP E. BEEKMAN Director since 1997
Mr. Beekman, age 68, is President of Owl Hollow Enterprises, Inc., a
consulting and investment company. 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 International Inc. and Sunbeam Corporation.
HAROLD F. COMPTON Director since 1998
Mr. Compton, age 52, 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 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 Human Resources and
Director of Stores for HomeBase. Mr. Compton is also a director of Stage
Stores, Inc.
DIRECTORS WHOSE TERMS DO NOT EXPIRE THIS YEAR
NORMAN AXELROD Director since 1996
Mr. Axelrod, age 47, has been President and Chief Executive Officer of the
Company since 1988, and in 1997 also became the Chairman of the Board of the
Company. Between 1976 and 1988 Mr. Axelrod held various management positions at
Bloomingdale's, ending with Senior Vice President, General Merchandise Manager.
Mr. Axelrod's term as a director of the Company expires in 2002.
CHARLES C. CONAWAY Director since 1996
Mr. Conaway, age 39, is President and Chief Operating Officer of CVS
Corporation ("CVS"), and President and Chief Operating Officer of CVS
Pharmacy, Inc. Mr. Conaway joined CVS in 1992 as Senior Vice President,
Pharmacy, and was Executive Vice President and Chief Financial Officer of CVS
from 1995 until April 1999. Prior to joining CVS, he was Executive Vice
President and Chief Operating Officer of Reliable Drug Stores, Inc. Mr. Conaway
is also a director of David's Bridal, Inc. and Streamline.com, Inc.
Mr. Conaway's term as a director of the Company expires in 2002.
3
<PAGE>
STANLEY P. GOLDSTEIN Director since 1996
Mr. Goldstein, age 65, was Chairman of the Board of CVS until he retired in
April 1999, and prior to May 1998 was Chairman 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 is also a director of CVS, Bell
Atlantic Corporation and Footstar, Inc. and is on the Board of Overseers of The
Wharton School of the University of Pennsylvania. Mr. Goldstein's term as a
director of the Company expires in 2001.
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. Upon his or her
initial election or appointment to the Board, each non-employee director
receives an option to purchase 6,000 shares of Common Stock 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 a stock unit is 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 an option to purchase 2,000 shares of Common Stock on the date of each
annual meeting.
In 1999, the Board of Directors held four meetings, the Audit Committee held
four meetings and the Compensation Committee held five meetings. There is no
standing nominating committee. Each director attended at least 90% of the
meetings of the Board of Directors and of the committees of which he was a
member.
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, reporting practices of
the Company and the sufficiency of auditing. Messrs. Beekman (Chairman), Compton
and Conaway are the current members of the Audit Committee.
The New York Stock Exchange recently adopted changes in its listing rules
relating to audit committees. One change relates to the independence of
directors named to an audit committee and requires, among other things, that
audit committee members have not had an employment relationship with the listed
company or its affiliates (including a former parent entity of a listed company)
for three years. Recognizing that it might be in a company's best interest to
retain on its audit committee a director who does not meet this three year
requirement, the rule permits one such director on the audit committee if the
company's board of directors determines in its business judgment that membership
by that director on the audit committee is in the best interests of the company
and its shareholders. The Board of Directors of the Company has made such a
determination concerning Mr. Conaway, who is currently employed by CVS, a former
parent of the Company. The Board's determination was based on the exceptional
character and extensive financial and business experience of Mr. Conaway.
Mr. Conaway will qualify as independent under the new rule prior to the end of
the current fiscal year.
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. Messrs. Goldstein (Chairman),
Compton and Conaway are the current members 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 ALL OTHER
NAME AND PRINCIPAL FISCAL RESTRICTED STOCK SECURITIES COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) AWARD(S) ($) (1) UNDERLYING OPTIONS ($) (2)
- -------------------------- -------- ---------- --------- ----------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Norman Axelrod, Chairman, 1999 638,076 665,665 1,254,026 300,000 505,468
Chief Executive Officer 1998 548,846 707,945 548,373 378,774 9,600
and President 1997 496,920 513,838 0 300,000 9,500
Steven B. Silverstein, 1999 350,000 250,250 565,733 75,000 9,600
Executive Vice 1998 304,808 234,192 211,436 109,376 9,600
President, Chief 1997 282,310 210,900 0 60,000 9,500
Merchandising Officer
Hugh J. Scullin, Senior 1999 215,000 122,980 289,603 20,000 9,600
Vice President, Store 1998 215,000 153,940 149,053 27,509 9,600
Operations 1997 213,650 159,100 0 30,000 9,500
Brian D. Silva, Senior 1999 222,962 129,844 305,743 25,000 9,600
Vice President, Human 1998 208,769 151,792 146,976 28,345 9,600
Resources, and Secretary 1997 191,210 148,000 0 36,000 9,500
William T. Giles, Vice 1999 221,923 124,982 309,810 30,000 9,600
President and Chief 1998 200,000 121,720 110,927 28,345 9,600
Financial Officer 1997 163,210 96,971 0 30,000 9,500
</TABLE>
- ------------------------
(1) Valuation of restricted stock awards is based on the fair market value of
the shares on the date of grant. The 1999 restricted stock awards for each
of the named executives are: Mr. Axelrod, 28,670 shares; Mr. Silverstein,
12,934 shares; Mr. Scullin, 6,621 shares; Mr. Silva, 6,990 shares; and
Mr. Giles, 7,083 shares. Such restricted stock vests two years from grant
date. The number and value of the aggregate of all restricted stock holdings
determined as of the end of fiscal 1999 for each of the named executives
are: Mr. Axelrod, 78,878 shares, $2,335,972; Mr. Silverstein, 29,229 shares,
$865,617; Mr. Scullin, 17,125 shares, $507,157; Mr. Silva, 15,551 shares,
$460,543; and Mr. Giles, 14,464 shares, $428,351. Holders of restricted
stock are entitled to receive dividends, if any, on restricted stock.
(2) For each of fiscal years 1999, 1998 and 1997, represents amounts contributed
under the Company's 401(k) profit sharing plan. In addition, for
Mr. Axelrod, the fiscal 1999 amount includes the present value cost of
$459,842 of the Company's portion of 1999 premiums for split-dollar
insurance above the term coverage level, $23,064 of imputed income
associated with the term portion of the split-dollar arrangement and $12,962
of related tax reimbursement obligations.
5
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR. The table below sets forth certain
information concerning stock options granted during 1999 by the Company to the
named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
PERCENT OF
NUMBER OF SECURITIES TOTAL OPTIONS GRANTED EXERCISE OR GRANT DATE
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE) DATE ($)(2)
- ---- -------------------- --------------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Norman Axelrod.......... 300,000 38.6% 31.00 11/25/09 4,238,520
Steven B. Silverstein... 75,000 9.6% 31.00 11/25/09 1,059,630
Hugh J. Scullin......... 20,000 2.6% 31.00 11/25/09 282,568
Brian D. Silva.......... 25,000 3.2% 31.00 11/25/09 353,210
William T. Giles........ 30,000 3.9% 31.00 11/25/09 423,852
</TABLE>
- ------------------------
(1) These options were granted at fair market value and vest and become
exercisable in 33.3% annual increments beginning three years from the grant
date.
(2) The hypothetical present values on grant date are calculated under the
modified Black-Scholes Model, which is a mathematical formula used to value
options traded on stock exchanges. This formula considers a number of
factors in hypothesizing an option's present value. Factors used to value
options granted include the stock's expected volatility rate (45%),
risk-free rate of return (6.15%), dividend yield (0%), projected time of
exercise (4.5 years) and projected risk of forfeiture and non-marketability
for the vesting period (6.50% per annum).
OPTION EXERCISES AND YEAR-END OPTION HOLDINGS. The following table shows
information regarding option exercises during 1999 as well as 1999 year-end
option holdings for each of the named executive officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END AT FY-END ($)
ACQUIRED ON (#) EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------- ------------ ------------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Norman Axelrod........................ 216,000 5,825,749 348,306/992,678 6,371,696/6,044,295
Steven B. Silverstein................. 30,000 935,625 91,876/242,500 1,547,465/1,186,200
Hugh J. Scullin....................... 12,000 375,063 50,509/82,500 913,626/675,150
Brian D. Silva........................ 0 0 53,345/83,000 931,292/547,620
William T. Giles...................... 25,000 762,500 38,345/85,000 632,229/511,050
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS; OTHER EXECUTIVE
AGREEMENTS.
Employment and Change in Control Agreements. The Company has employment
agreements with Messrs. Axelrod, Silverstein and Scullin (the "Employment
Agreements"). 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
6
<PAGE>
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. The Employment Agreements also include provisions concerning
annual incentive compensation.
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.
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.
Supplemental Executive Retirement Compensation; Split-Dollar Insurance
Arrangement. The Company has a supplemental executive retirement benefit plan
for Mr. Axelrod, which will provide annual retirement benefits, commencing at or
after age 55, to Mr. Axelrod following his retirement from active service. The
net annual benefit under the plan is determined based on three primary
components: (i) 1.6% of final average compensation, multiplied by (ii) years of
service, reduced by (iii) a "reduction amount" ranging from $38,000 (assuming
retirement were to occur at age 47) to $530,000 (assuming retirement were to
occur at or following age 55). In no event will the annual benefit amount exceed
50% of final average compensation. "Final average compensation" means the
average of the participant's base salary and bonus compensation (excluding
equity compensation) for the three years (which need not be consecutive) with
the Company or its affiliates that yield the highest average compensation.
Mr. Axelrod currently has 12 years of credited service. Assuming a twenty
percent increase in final average compensation from the highest annual covered
compensation in the Summary Compensation Table above and assuming retirement
from service at age 60, the estimated annual retirement benefit payable by the
Company under the plan would be approximately $90,800. There is no offset for
social security benefits.
7
<PAGE>
The Company also has a collateral assignment split-dollar insurance
arrangement with Mr. Axelrod. See footnote (2) to Summary Compensation Table
above. The Company pays an annual premium under the policy until the earlier of
age 55 or Mr. Axelrod's retirement. The arrangement is designed so that the
Company ultimately receives back from the policy value (the "Company Amount")
the sum of (i) all annual premium payments made by the Company, plus (ii) an
interest factor of 3.4% annually. Mr. Axelrod's interest in the cash value and
death benefit value under the policy is equal to the total policy value minus
the Company Amount as calculated above.
REPORT ON COMPENSATION OF EXECUTIVE OFFICERS
Compensation decisions for the Company's Chief Executive Officer and the
other named executive officers for fiscal 1999 were reviewed and determined by
the Compensation Committee.
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 1999 was reviewed and
approved by the Compensation Committee. 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 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 1999 made by the Compensation
Committee based on its 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 1999, the target award rate was 70% for the Chief Executive Officer
and the target award rate was 50% for Mr. Silverstein, 40% for Messrs. Scullin
and Silva and 38% 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 1999,
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 1999. Such goals for 1999 having been surpassed,
actual 1999 incentive awards were determined to be 143% of the target levels for
each of the named executive officers (see Summary Compensation Table above).
8
<PAGE>
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 1999 were part of the Compensation Committee's customary annual 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. In determining the specific levels of individual option grants for
fiscal 1999, including the Chief Executive Officer and each of the other named
executive officers, the Compensation Committee considered and weighed a number
of factors, including annual stock option grant levels of a peer group of retail
companies, past levels of annual option grants to Company executives, the
executive's position, salary and performance levels, and projected stock option
grant values. Vesting of these stock options does not begin until three years
from date of grant and then 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 in fiscal 1999 (see Summary
Compensation Table above) were made by the Compensation Committee to the named
executive officers based on such executives having exceeded certain
pre-established performance objectives based on earnings and net return on
assets, with Mr. Axelrod receiving an award equivalent to 195% of base salary,
Mr. Silverstein receiving an award equivalent to 161% of base salary and
Messrs. Scullin, Silva and Giles receiving awards equivalent to 139% of base
salary. Such restricted stock vests two years from date of grant.
OTHER. In 1999 the Compensation Committee implemented an executive
split-dollar insurance arrangement and a supplemental retirement benefit
arrangement for Mr. Axelrod (see "Supplemental Executive Retirement
Compensation; Split-Dollar Insurance Arrangement" above). In reviewing these
arrangements, the Compensation Committee considered similar arrangements among
other similarly situated companies and implemented these arrangements based on
the absence of a defined benefit retirement plan at the Company and to promote
retention.
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 2000 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 2000 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
Harold F. Compton
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 an annual basis from
November 26, 1996 through December 31, 1999, with the cumulative total return on
the Standard & Poor's Specialty Retail Index, the 13 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 13 Company Peer Group Index is comprised of the following companies in
the retail industry: Bed Bath & Beyond, Inc.; The Bombay Company, Inc.; Borders
Group, Inc.; Jo-Ann Stores, Inc.; Haverty Furniture Companies, Inc.;
Lechters, Inc.; Michaels Stores, Inc.; Petsmart, Inc.; Pier 1 Imports, Inc.;
Sharper Image Corporation; The Sports Authority, Inc.; Strouds, Inc.; and
Williams-Sonoma, Inc. The returns of each issuer in the 13 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, 13 COMPANY PEER GROUP INDEX*
AND STANDARD & POOR'S 500 INDEX
(See chart below)
<TABLE>
11/26/96 12/31/96 12/31/97 12/31/98 12/31/99
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Linens 'n Things $100 $127 $281 $511 $382
S&P Specialty Retail 100 92 92 79 56
13 Company Peer Group 100 96 114 135 123
S&P 500 100 105 141 181 219
</TABLE>
* Fabri-Centers of America, Inc. formally changed its name to Jo-Ann
Stores, Inc. on September 1, 1998. General Nutrition Companies, Inc. no
longer trades on the Nasdaq National Market System and as a result is
excluded from this performance graph.
10
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The
Compensation Committee is comprised of Messrs. Goldstein, Compton and Conaway.
Mr. Goldstein was Chairman of the Board and an executive officer of CVS and
Mr. Conaway is an executive officer of CVS. Immediately following the Company's
1996 IPO CVS owned approximately 32.5% of the Company's Common Stock. During
1997 CVS sold substantially all of its remaining equity interest in the
Company's Common Stock in an underwritten secondary offering by the Company.
CERTAIN TRANSACTIONS WITH RELATED PARTIES. The following are summary
descriptions of certain agreements with CVS which were entered into in
connection with the Company's 1996 IPO. The descriptions do not purport to be
complete and are qualified in their entirety by reference to such documents,
which have been filed with the SEC.
LEASE GUARANTEES. CVS guaranteed the leases of certain stores operated by
the Company prior to the IPO and charged a fee for that service. Since the IPO,
CVS no longer charges 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 these
outstanding 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 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 may 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.
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 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 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 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.
11
<PAGE>
In general, the Company has agreed to indemnify CVS for taxes relating to a
tax period (or portion) 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 agreed to
indemnify the Company for all other taxes relating to a tax period (or portion)
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) ending on or before the completion of the IPO of certain
tax attributes of the Company arising in tax periods (or portions) 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)
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, 2000.
<TABLE>
<CAPTION>
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ---------------- ---------------- ----------------
<S> <C> <C>
Marsh & McLennan Companies, Inc. (1)........................ 4,830,353 12.24%
FMR Corp. (2)............................................... 3,406,500 8.63%
AMVESCAP PLC (3)............................................ 3,122,140 7.91%
American Express Company (4)................................ 2,101,256 5.32%
</TABLE>
- ------------------------
(1) Pursuant to an amended Schedule 13G dated February 7, 2000 and filed with
the Securities and Exchange Commission (the "Commission") by Marsh &
McLennan Companies, Inc., Putnam Investments, Inc., Putnam Investment
Management, Inc., The Putnam Advisory Company, Inc. and Putnam Vista Fund,
Marsh & McLennan Companies, Inc. has sole voting power, shared voting power,
sole dispositive power and shared dispositive power with respect to no
shares; Putnam Investments, Inc. has sole voting power and sole dispositive
power with respect to no shares, shared voting power with respect to 485,200
shares and shared dispositive power with respect to 4,830,353 shares; Putnam
Investment Management, Inc. has sole voting power, shared voting power and
sole dispositive power with respect to no shares and shared dispositive
power with respect to 3,380,450 shares; The Putnam Advisory Company, Inc.
has sole voting power and sole dispositive power with respect to no shares,
shared voting power with respect to 485,200 shares and shared dispositive
power with respect to 1,449,903 shares; and Putnam Vista Fund has sole
voting power, shared voting power and sole dispositive power with respect to
no shares and shared dispositive power with respect to 2,646,400 shares. The
address for Marsh & McLennan Companies, Inc. is 1166 Avenue of the Americas,
New York, New York 10036, and the address for Putnam Investments, Inc.,
Putnam Investment Management, Inc., The Putnam Advisory Company, Inc. and
Putnam Vista Fund is One Post Office Square, Boston, Massachusetts 02109.
(2) Pursuant to a Schedule 13G dated February 14, 2000 and filed with the
Commission by FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson
(collectively, "FMR Corp. Group"), FMR Corp. has sole voting power with
respect to 62,200 shares and sole dispositive power with respect to
3,406,500 shares. The address for FMR Corp. Group is 82 Devonshire Street,
Boston, Massachusetts 02109.
On March 10, 2000, the FMR Corp. Group filed an amended Schedule 13G with
the Commission, increasing beneficial ownership from 3,406,500 shares
(8.63%) to 4,224,400 shares (10.71%).
(3) Pursuant to a Schedule 13G dated February 3, 2000 and filed with the
Commission by AMVESCAP PLC on behalf of itself and its subsidiaries
AVZ, Inc., AIM Management Group, Inc., AMVESCAP Group Services, Inc.,
INVESCO, Inc., INVESCO North American Holdings, Inc., INVESCO Capital
Management, Inc., INVESCO Funds Group, Inc., INVESCO Management &
Research, Inc., INVESCO Realty Advisers, Inc. and INVESCO (NY) Asset
Management, Inc. (collectively, "AMVESCAP"), AMVESCAP has shared voting
power and shared dispositive power with respect to 3,122,140 shares. The
address for AMVESCAP is 11 Devonshire Square, London, EC2M 4YR, England, and
1315 Peachtree Street, N.E., Atlanta, Georgia 30309.
(4) Pursuant to a Schedule 13G dated February 9, 2000 and filed with the
Commission by American Express Company and American Express Financial
Corporation (collectively, "American Express"), American Express has shared
voting power and shared dispositive power with respect to 2,101,256 shares.
The address for American Express Company is American Express Tower, 200
Vesey Street, New York, New York 10285; and for American Express Financial
Corporation is IDS Tower 10, Minneapolis, Minnesota 55440.
13
<PAGE>
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, 2000, 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, each person listed below has sole voting
and investment power with respect to such shares. No director or executive
officer beneficially owns more than one percent of the total outstanding Common
Stock other than Mr. Axelrod who would be deemed beneficially to own 1% and all
directors and executive officers as a group would be deemed beneficially to own
1.89% of the outstanding Common Stock.
<TABLE>
<CAPTION>
NO. OF NO. OF
SHARES OF SHARES OF
COMMON COMMON
NAME OF BENEFICIAL OWNER STOCK(1) NAME OF BENEFICIAL OWNER STOCK(1)
- ------------------------ --------- ------------------------------- ---------
<S> <C> <C> <C>
N. Axelrod................................ 405,784(2) S. Silverstein................. 108,736(3)
P. Beekman................................ 18,967 H. Scullin..................... 69,273(4)
C. Conaway................................ 15,967 B. Silva....................... 59,450
S. Goldstein.............................. 15,967 W. Giles....................... 44,957
H. Compton................................ 6,321
All executive officers and
directors as a group........... 745,422
</TABLE>
- ------------------------
(1) Includes shares subject to stock options that were exercisable as of
February 1, 2000 or will become exercisable within 60 days thereafter, as
follows: Mr. Axelrod, 348,306; Mr. Beekman, 11,867; Mr. Conaway, 11,867;
Mr. Goldstein, 11,867; Mr. Compton, 4,667; Mr. Silverstein, 91,876;
Mr. Scullin, 50,509; Mr. Silva, 53,345; Mr. Giles, 38,345; and all directors
and executive officers as a group, 622,649.
(2) Includes 400 shares held by Mr. Axelrod's minor children, as to which shares
Mr. Axelrod disclaims beneficial ownership.
(3) Includes 800 shares held by Mr. Silverstein's minor children, as to which
shares Mr. Silverstein 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 beneficial ownership
of the Company's Common Stock with the 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 other than a Form 4 which was
inadvertently filed late on behalf of Mr. Beekman in connection with the
purchase of 1,000 shares of the Company's Common Stock and an amended Form 5
which was inadvertently filed late on behalf of Mr. Silverstein in connection
with the gift of 800 shares to his minor children.
14
<PAGE>
ITEM 2
APPROVAL OF THE
ADOPTION OF THE 2000 STOCK AWARD AND INCENTIVE PLAN
GENERAL
The Board of Directors has determined that it is in the best interests of
the Company to adopt the 2000 Stock Award and Incentive Plan (the "2000 Plan"),
with the approval of shareholders, to enhance the ability of the Company to link
pay to performance on a tax-efficient basis. The Board of Directors and the
Compensation Committee (the "Committee") believe that attracting and retaining
executives and other key employees of high quality has been and will continue to
be essential to the Company's growth and success. The 2000 Plan would allow the
Company to grant performance-based awards including options, restricted and
deferred stock, performance awards, stock appreciation rights ("SARs"), other
types of awards based on the Company's Common Stock, and cash performance awards
(collectively, "Awards").
The Board of Directors and the Committee believe that a comprehensive
compensation program which includes different types of incentives for motivating
employees and rewards key employees for outstanding service can contribute to
the Company's future success. In particular, the Company intends to use stock
options and stock-related awards as an important element of compensation for
executives and other employees, because such awards enable them to acquire or
increase their proprietary interest in the Company, thereby promoting a closer
identity of interests between them and the Company's shareholders. In addition,
annual incentive awards and other performance-based awards will provide
incentives for achieving specific performance objectives. The Board of Directors
and the Committee therefore view the 2000 Plan as a key part of the Company's
compensation program.
REASONS FOR SHAREHOLDER APPROVAL
The Board of Directors and the Committee seek shareholder approval of the
2000 Plan in order to satisfy certain legal requirements and to provide tax
advantages to the Company and participants. Thus, approval of the 2000 Plan will
meet certain listing requirements of the New York Stock Exchange.
In addition, the Board of Directors and the Committee seek to preserve the
Company's ability to claim tax deductions for compensation to the greatest
extent practicable. Therefore, the Company is seeking shareholder approval of
the material terms of performance awards to named executive officers under the
2000 Plan, in order to meet a key requirement for such awards to qualify as
"performance-based" compensation under Section 162(m) of the Internal Revenue
Code (the "Code"). Section 162(m) limits the deductions a publicly held company
can claim for compensation in excess of $1 million paid to certain executive
officers (generally, the officers who are "named executive officers" in the
summary compensation table in the company's proxy statement).
"Performance-based" compensation is not counted against the $1 million
deductibility cap. If the 2000 Plan is approved by shareholders, performance
awards intended by the Committee to qualify as "performance-based" compensation
will be payable only upon achievement of pre-established performance goals,
subject to any additional requirements and terms as the Committee may establish.
Such performance awards can be used to place strong emphasis on the building of
value for all shareholders. For purposes of Code Section 162(m), approval of the
2000 Plan will be deemed also to include approval of the eligibility of
executive officers and other eligible persons to participate, the per-person
limitations described below under the caption "SHARES AVAILABLE AND AWARD
LIMITATIONS," and the general business criteria upon which performance
objectives for performance awards are based, described below under the caption
"PERFORMANCE-BASED AWARDS." Because shareholder approval of general business
criteria, without specific targeted levels of performance, qualifies performance
awards for a period of approximately five years, shareholder approval of such
business criteria will meet the requirements under Section 162(m) until 2005.
Shareholder approval of the performance goal inherent in stock options and SARs
(increases in the market price of shares) is not subject to a time limit under
Section 162(m).
15
<PAGE>
Shareholder approval will also allow the Committee to designate options as
"incentive stock options," if it chooses, to provide tax advantages to
participants. These advantages are explained below.
DESCRIPTION OF THE 2000 PLAN
The following is a brief description of the material features of the 2000
Plan. This description is qualified in its entirety by reference to the full
text of the 2000 Plan, a copy of which is attached to this Proxy Statement as
Exhibit A.
SHARES AVAILABLE AND AWARD LIMITATIONS. Under the 2000 Plan, the number of
shares of Common Stock reserved and available for Awards will be 2,000,000
shares (which represents 5.07% of the outstanding Common Stock as of
February 1, 2000). Of such 2.0 million shares available under the 2000 Plan, a
maximum of 200,000 will be available for the issuance of Awards (for example, as
restricted stock) other than nonqualified stock options and incentive stock
options. As discussed below, these numbers are subject to adjustment in the
event of stock splits, stock dividends, and other extraordinary events.
The 2000 Plan replaces both the Company's 1996 Incentive Compensation Plan
and the 1996 Non-Employee Director Stock Plan (collectively, the "Preexisting
Plans"), each of which Preexisting Plans would be terminated as to any future
awards. Therefore, upon the effectiveness of the 2000 Plan, no future awards
will be made under either of the Preexisting Plans, although outstanding awards
under each of those plans will continue to be in effect. Other than the
Preexisting Plans (which would be terminated as to future awards) and the
proposed 2000 Plan, the Company has no plan in effect under which options and
stock-based awards may be granted to employees or directors.
Shares subject to forfeited or expired Awards or to Awards settled in cash
or otherwise terminated without issuance of shares to the participant and shares
withheld by or surrendered to the Company to satisfy withholding tax obligations
or in payment of the exercise price of an Award ("share counting rules") will be
deemed to be available for new Awards under the 2000 Plan. These same "share
counting rules" (e.g., shares subject to forfeiture or expired awards or awards
settled in cash or otherwise terminated without issuance of shares or shares
withheld or surrendered to satisfy tax withholding or payment of the exercise
price of an award) will apply to outstanding awards under the Preexisting Plans,
and any such shares which become available pursuant to such "share counting
rules" for outstanding awards under the Preexisting Plans will become available
for Awards under the 2000 Plan for purposes of determining the total number of
shares which will become available under the 2000 Plan.
Under the 2000 Plan, shares subject to an Award granted in substitution for
an award of a company or business acquired by the Company or a subsidiary will
not count against the number of shares reserved and available. Shares delivered
under the 2000 Plan may be either newly issued or treasury shares. On March 24,
2000, the closing price of the Company's Common Stock on the composite tape for
New York Stock Exchange-listed securities was $29.25 per share.
In addition, the 2000 Plan includes a limitation on the amount of Awards
that may be granted to any one participant in a given year in order to qualify
Awards as "performance-based" compensation not subject to the limitation on
deductibility under Section 162(m) of the Code. Under this annual per-person
limitation, no participant may in any year be granted share-denominated Awards
under the 2000 Plan relating to more than his or her "Annual Limit" for each
type of Award. The Annual Limit equals one million shares plus the amount of the
participant's unused Annual Limits relating to the same type of Award as of the
close of the previous year, subject to adjustment for stock splits and other
extraordinary corporate events. For purposes of this limitation, options, SARs,
restricted stock, deferred stock, and other stock-based awards are separate
types of Awards subject to a separate limitation. In the case of Awards not
relating to shares in a way in which the share limitation can apply, no
participant may be granted Awards authorizing the earning during any year of an
amount that exceeds the participant's Annual Limit which for this purpose equals
$5 million plus the amount of the participant's unused cash Annual Limits as of
the
16
<PAGE>
close of the previous year. The Annual Limit for non-share-based Awards is
separate from the Annual Limit for each type of share-based Award.
Adjustments to the number and kind of shares subject to the share
limitations and specified in the Annual Limits are authorized in the event of a
large, special or non-recurring dividend or distribution, recapitalization,
stock split, stock dividend, reorganization, business combination, or other
similar corporate transaction or event affecting the Common Stock. The Committee
is also authorized to adjust performance conditions and other terms of Awards in
response to these kinds of events or to changes in applicable laws, regulations,
or accounting principles, except that adjustments to Awards intended to qualify
as "performance-based" generally must conform to requirements under
Section 162(m).
ELIGIBILITY. Executive officers and other employees of the Company and its
subsidiaries, and non-employee directors, consultants and others who provide
substantial services to the Company and its subsidiaries, are eligible to be
granted Awards under the 2000 Plan. In addition, any person who has been offered
employment by the Company or a subsidiary may be granted Awards, but such
prospective employee may not receive any payment or exercise any right relating
to the Award until he or she has commenced employment. At present, approximately
550 persons would be eligible for Awards under the 2000 Plan.
ADMINISTRATION. The 2000 Plan is administered by the Committee, except that
the Board of Directors may appoint any other committee to administer the 2000
Plan and may itself act to administer the 2000 Plan. The Board of Directors must
perform the functions of the Committee for purposes of granting Awards to
non-employee directors. (References to the "Committee" below mean the committee
or the full Board of Directors exercising authority with respect to a given
Award.) Subject to the terms and conditions of the 2000 Plan, the Committee is
authorized to select participants, determine the type and number of Awards to be
granted and the number of shares to which Awards will relate or the amount of a
performance award, specify times at which Awards will be exercisable or settled,
including performance conditions that may be required as a condition thereof,
set other terms and conditions of such Awards, prescribe forms of Award
agreements, interpret and specify rules and regulations relating to the 2000
Plan, and make all other determinations which may be necessary or advisable for
the administration of the 2000 Plan. Nothing in the 2000 Plan precludes the
Committee from authorizing payment of other compensation, including bonuses
based upon performance, to officers and employees, including the executive
officers, or non-employee directors. The 2000 Plan provides that Committee
members shall not be personally liable, and shall be fully indemnified, in
connection with any action, determination, or interpretation taken or made in
good faith under the 2000 Plan.
STOCK OPTIONS AND SARS. The Committee is authorized to grant stock options,
including both incentive stock options ("ISOs"), which can result in potentially
favorable tax treatment to the participant, and nonqualified stock options and
SARs entitling the participant to receive the excess of the fair market value of
a share on the date of exercise or other specified date over the grant price of
the SAR. The exercise price of an option and the grant price of an SAR is
determined by the Committee, but generally may not be less than the fair market
value of the shares on the date of grant (except as described below). The
maximum term of each option or SAR, the times at which each option or SAR will
be exercisable, and provisions requiring forfeiture of unexercised options at or
following termination of employment or upon the occurrence of other events,
generally are fixed by the Committee, subject to a restriction that no ISO, or
SAR in tandem therewith, may have a term exceeding ten years. Options may be
exercised by payment of the exercise price in cash, shares or other property
(possibly including notes or obligations to make payment on a deferred basis, or
through broker-assisted cashless exercise procedures) or by surrender of other
outstanding awards having a fair market value equal to the exercise price.
Methods of exercise and settlement and other terms of SARs will be determined by
the Committee. SARs granted under the 2000 Plan may include "limited SARs"
exercisable for a stated period of time following a "change in control" of the
Company, as discussed below.
17
<PAGE>
RESTRICTED AND DEFERRED STOCK. The Committee is authorized to make Awards
of restricted stock and deferred stock. Prior to the end of the restricted
period, shares received as restricted stock may not be sold or disposed of by
participants, and may be forfeited in the event of termination of employment.
The restricted period generally is established by the Committee, but restricted
stock must vest over a minimum period of one year except in the case of the
participant's death, disability or retirement, a change in control of the
Company, or other special circumstances. An Award of restricted stock entitles
the participant to all of the rights of a shareholder of the Company, including
the right to vote the shares and the right to receive any dividends thereon,
unless otherwise determined by the Committee. Deferred stock gives participants
the right to receive shares at the end of a specified deferral period, subject
to forfeiture of the Award in the event of termination of employment under
certain circumstances prior to the end of a specified restricted period (which
need not be the same as the deferral period). Prior to settlement, deferred
stock awards carry no voting or dividend rights or other rights associated with
stock ownership, but dividend equivalents may be paid on such deferred stock.
OTHER STOCK-BASED AWARDS, BONUS SHARES, AND AWARDS IN LIEU OF CASH
OBLIGATIONS. The 2000 Plan authorizes the Committee to grant Awards that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares. The Committee will determine the terms
and conditions if such Awards, including the consideration to be paid to
exercise Awards in the nature of purchase rights, the periods during which
Awards will be outstanding, and any forfeiture conditions and restrictions on
Awards. In addition, the Committee is authorized to grant shares as a bonus free
of restrictions, or to grant shares or other Awards in lieu of the Company's
obligations under other plans or compensatory arrangements, subject to such
terms as the Committee may specify. The number of shares granted to an executive
officer or non-employee director in place of salary, fees or other cash
compensation must be reasonable, as determined by the Committee.
PERFORMANCE-BASED AWARDS. The Committee may require satisfaction of
pre-established performance goals, consisting of one or more business criteria
and a targeted performance level with respect to such criteria, as a condition
of Awards being granted or becoming exercisable or settleable under the 2000
Plan, or as a condition to accelerating the timing of such events. If so
determined by the Committee, in order to avoid the limitations on deductibility
under Section 162(m) of the Code, the business criteria used by the Committee in
establishing performance goals applicable to performance Awards to named
executives will be selected from among the following: (1) net sales;
(2) earnings from operations, earnings before or after taxes, earnings before or
after interest, depreciation, amortization, incentives, service fees, or
extraordinary or special items; (3) net income or net income per common share
(basic or diluted); (4) return on assets, return on investment, return on
capital, or return on equity; (5) cash flow, free cash flow, cash flow return on
investment, or net cash provided by operations; (6) economic value created;
(7) operating margin or profit margin; (8) stock price or total stockholder
return; and (9) strategic business criteria, consisting of one or more
objectives based on meeting specified market penetration, geographic business
expansion goals, cost targets, customer satisfaction, employee satisfaction,
management of employment practices and employee benefits, supervision of
litigation and information technology, and goals relating to acquisitions or
divestitures of subsidiaries, affiliates or joint ventures. The Committee may
specify that any such criteria will be measured before or after extraordinary or
non-recurring items, before or after service fees, or before or after payments
of Awards under the 2000 Plan. The Committee may set the levels of performance
required in connection with performance awards as fixed amounts, goals relative
to performance in prior periods, as goals compared to the performance of one or
more comparable companies or an index covering multiple companies, or in any
other way the Committee may determine.
ANNUAL INCENTIVE AWARDS. The Committee is authorized to grant annual
incentive awards, settleable in cash or in shares upon achievement of
pre-established performance objectives achieved during a specified period of up
to one year. The performance objectives will be one or more of the performance
objectives available for other performance awards under the 2000 Plan, as
described in the preceding paragraph. As discussed above, annual incentive
awards granted to named executives may be intended as
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"performance-based compensation" not subject to the limitation on deductibility
under Section 162(m) of the Code. The Committee generally must establish the
performance objectives, the corresponding amount payable (subject to per-person
limits), other terms of settlement, and all other terms of such awards not later
than 90 days after the beginning of the fiscal year.
OTHER TERMS OF AWARDS. Awards may be settled in cash, shares, other Awards
or other property, in the discretion of the Committee. The Committee may require
or permit participants to defer the settlement of all or part of an Award in
accordance with such terms and conditions as the Committee may establish,
including payment or crediting of interest or dividend equivalents on any
deferred amounts. The Committee is authorized to place cash, shares or other
property in trusts or make other arrangements to provide for payment of the
Company's obligations under the 2000 Plan. The Committee may condition Awards on
the payment of taxes such as by withholding a portion of the shares or other
property to be distributed (or receiving previously acquired shares or other
property surrendered by the participant) in order to satisfy tax obligations.
Awards granted under the 2000 Plan generally may not be pledged or otherwise
encumbered and are not transferable except by will or by the laws of descent and
distribution, or to a designated beneficiary upon the participant's death,
except that the Committee may permit transfers to beneficiaries during the
participant's lifetime, primarily for estate planning purposes.
Awards under the 2000 Plan are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Committee may, however, grant Awards in substitution for, exchange for or as a
buyout of other Awards under the 2000 Plan, awards under other Company plans, or
other rights to payment from the Company, and may exchange or buyout outstanding
Awards for cash or other property. The Committee also may grant Awards in
addition to and in tandem with other Awards, awards, or rights as well. In
granting a new Award, the Committee may determine that the in-the-money value of
any surrendered Award or award may be applied to reduce the exercise price of
any option, grant price of any SAR, or purchase price of any other Award.
VESTING, FORFEITURES, AND ACCELERATION THEREOF. The Committee may, in its
discretion, determine the vesting schedule of options and other Awards, the
circumstances that will result in forfeiture of the Awards, the post-termination
exercise periods of options and similar Awards, and the events that will result
in acceleration of the ability to exercise and the lapse of restrictions, or the
expiration of any deferral period, on any Award. In addition, the 2000 Plan
provides that, in the event of a Change in Control of the Company, outstanding
Awards will immediately vest and be fully exercisable, any restrictions,
deferral of settlement and forfeiture conditions of such Awards will lapse, and
goals relating to performance-based awards will be deemed met or exceeded to the
extent specified in the performance-award documents. A Change in Control means
generally (i) any person or group becomes a beneficial owner of 25% or more of
the voting power of the Company's voting securities, (ii) a change in the Board
of Director's membership such that the current members, or those elected or
nominated by vote of two-thirds of the current members and successors elected or
nominated by them, cease to represent a majority of the Board of Directors in
any period of less than two years, (iii) certain mergers or consolidations
substantially reducing the percentage of voting power held by shareholders prior
to such transactions, (iv) shareholder approval of a sale or liquidation of all
or substantially all of the assets of the Company, or (v) any other event which
the Board of Directors determines shall constitute a Change in Control for
purposes of the 2000 Plan.
AMENDMENT AND TERMINATION OF THE 2000 PLAN. The Board of Directors may
amend, alter, suspend, discontinue, or terminate the 2000 Plan or the
Committee's authority to grant awards thereunder without shareholder approval
unless shareholder approval is required by law, regulation, or stock exchange
rule. The Board of Directors may, in its discretion, submit other amendments to
shareholders for approval. Under these provisions, shareholder approval will not
necessarily be required for amendments which might increase the cost of the 2000
Plan or broaden eligibility. Unless earlier terminated, the 2000 Plan will
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terminate at such time that no shares reserved under the 2000 Plan remain
available and the Company has no further rights or obligations with respect to
any outstanding Award.
Without the approval of shareholders, the Committee will not amend or
replace previously granted options in a transaction that constitutes a
"repricing," as such term is used in Instruction 3 to Item 402(b)(2)(iv) of SEC
Regulation S-K.
Because future Awards under the 2000 Plan will be granted in the discretion
of the Committee, the type, number, recipients, and other terms of such Awards
cannot be determined at this time. Information regarding the Company's recent
practices with respect to annual, long-term, and stock-based compensation and
other plans is presented in the Summary Compensation Table above, and in the
Company's financial statements for the year ended January 1, 2000 included in
the Annual Report to Shareholders which accompanies this Proxy Statement.
FEDERAL INCOME TAX IMPLICATIONS OF THE 2000 PLAN
The following is a brief description of the federal income tax consequences
generally arising with respect to Awards that may be granted under the 2000
Plan. The grant of an option (including a stock-based award in the nature of a
purchase right) or an SAR will create no federal income tax consequences for the
participant or the Company. A participant will not have taxable income upon
exercising an option which is an ISO (except that the alternative minimum tax
may apply). Upon exercising an option which is not an ISO, the participant must
generally recognize ordinary income equal to the difference between the exercise
price and the fair market value of the freely transferable and nonforfeitable
shares acquired on the date of exercise. Upon exercising a SAR, the participant
must generally recognize ordinary income equal to the cash received.
Upon a disposition of shares acquired upon exercise of an ISO before the end
of the applicable ISO holding periods, the participant must generally recognize
ordinary income equal to the lesser of (i) the fair market value of the shares
at the date of exercise of the ISO minus the exercise price or (ii) the amount
realized upon the disposition of the ISO shares minus the exercise price.
Otherwise, a participant's disposition of shares acquired upon the exercise of
an option generally will result in short-term or long-term capital gain or loss
measured by the difference between the sale price and the participant's "basis"
in such shares (generally, the tax "basis" is the exercise price plus any amount
previously recognized as ordinary income in connection with the exercise of the
option).
The Company generally will be entitled to a deduction equal to the amount
recognized as ordinary income by the participant in connection with options and
SARs. The Company generally is not entitled to a tax deduction relating to
amounts that represent a capital gain to a participant. Accordingly, the Company
will not be entitled to any tax deduction with respect to an ISO if the
participant holds the shares for the applicable ISO holding periods prior to
disposition of the shares.
With respect to other Awards granted under the 2000 Plan that result in a
transfer to the participant of cash or shares or other property that is either
not restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property actually received.
Except as discussed below, the Company generally will be entitled to a deduction
for the same amount. With respect to Awards involving shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received at the earliest
time the shares or other property become transferable or not subject to a
substantial risk of forfeiture. Except as discussed below, the Company generally
will be entitled to a deduction in an amount equal to the ordinary income
recognized by the participant. A participant may elect to be taxed at the time
of receipt of shares (e.g., restricted stock) or other property rather than upon
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lapse of restrictions on transferability or the substantial risk of forfeiture,
but if the participant subsequently forfeits such shares or property he or she
would not be entitled to any tax deduction, including as a capital loss, for the
value of the shares or property on which he or she previously paid tax.
As discussed above, compensation that qualifies as "performance-based"
compensation is excluded from the $1 million deductibility cap of
Section 162(m) of the Code, and therefore remains fully deductible by the
company that pays it. Under the 2000 Plan, options granted with an exercise
price or grant price at least equal to 100% of fair market value of the
underlying shares at the date of grant will be, and Awards which are conditioned
upon achievement of performance goals may be, intended to qualify as such
"performance-based" compensation. A number of requirements must be met, however,
in order for particular compensation to so qualify. Accordingly, there can be no
assurance that such compensation under the 2000 Plan will be fully deductible
under all circumstances. In addition, other Awards under the 2000 Plan generally
will not so qualify, so that compensation paid to certain executives in
connection with such Awards may, to the extent it and other compensation subject
to Section 162(m)'s deductibility cap exceed $1 million in a given year, be
subject to the limitation of Section 162(m).
The foregoing provides only a general description of the application of
federal income tax laws to certain types of Awards under the 2000 Plan. This
discussion is intended for the information of shareholders considering how to
vote at the Annual Meeting and not as tax guidance to participants in the 2000
Plan, as the consequences may vary with the types of awards made, the identity
of the recipients and the method of payment or settlement. Different tax rules
may apply, including in the case of variations in transactions that are
permitted under the 2000 Plan (such as payment of the exercise price of an
option by surrender of previously acquired shares). The summary does not address
the effects of other federal taxes (including possible "golden parachute" excise
taxes) or taxes imposed under state, local or foreign tax laws.
The Board of Directors considers the 2000 Plan to be in the best interests
of the Company and its shareholders and recommends that shareholders vote "FOR"
approval.
INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP as the Company's independent
auditors to make an examination of the accounts of the Company for the fiscal
year 2000. KPMG LLP has served as the independent auditors of the Company since
the Company's 1996 IPO. 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.
SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Any proposal of a shareholder intended to be presented at the Company's 2001
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 2001 Annual Meeting, not later than December 1, 2000.
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 of Directors 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
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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, FINANCIAL STATEMENT SCHEDULES AND
LIST OF EXHIBITS, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE 1999 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
matters 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.
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EXHIBIT A
LINENS 'N THINGS, INC.
2000 STOCK AWARD AND INCENTIVE PLAN
1. PURPOSE. The purpose of this 2000 Stock Award and Incentive Plan (the
"Plan") is to aid Linens 'n Things, Inc., a Delaware corporation (the
"Company"), in attracting, retaining, motivating and rewarding employees,
non-employee directors, and other persons who provide substantial services to
the Company or its subsidiaries or affiliates, to provide for equitable and
competitive compensation opportunities, to recognize individual contributions
and reward achievement of Company goals, and promote the creation of long-term
value for stockholders by closely aligning the interests of Participants with
those of stockholders. The Plan authorizes stock-based and cash-based incentives
for Participants.
2. DEFINITIONS. In addition to the terms defined in Section 1 above and
elsewhere in the Plan, the following capitalized terms used in the Plan have the
respective meanings set forth in this Section:
(a) "Annual Incentive Award" means a type of Performance Award granted
to a Participant under Section 7(c) representing a conditional right to
receive cash, Stock or other Awards or payments, as determined by the
Committee, based on performance in a performance period of one fiscal year
or a portion thereof.
(b) "Award" means any Option, SAR, Restricted Stock, Deferred Stock,
Stock granted as a bonus or in lieu of another award, Dividend Equivalent,
Other Stock-Based Award, Performance Award or Annual Incentive Award,
together with any related right or interest, granted to a Participant under
the Plan.
(c) "Beneficiary" means the legal representatives of the Participant's
estate entitled by will or the laws of descent and distribution to receive
the benefits under a Participant's Award upon a Participant's death,
provided that, if and to the extent authorized by the Committee, a
Participant may be permitted to designate a Beneficiary, in which case the
"Beneficiary" instead will be the person, persons, trust or trusts (if any
are then surviving) which have been designated by the Participant in his or
her most recent written beneficiary designation filed with the Committee to
receive the benefits specified under the Participant's Award upon such
Participant's death. Unless otherwise determined by the Committee, any
designation of a Beneficiary other than a Participant's spouse shall be
subject to the written consent of such spouse.
(d) "Board" means the Company's Board of Directors.
(e) "Change in Control" and related terms have the meanings specified in
Section 9.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation (including a proposed
regulation) thereunder shall include any successor provisions and
regulations.
(g) "Committee" means a committee of two or more directors designated by
the Board to administer the Plan; provided, however, that, directors
appointed or serving as members of a Board committee designated as the
Committee shall not be employees of the Company or any subsidiary or
affiliate. In appointing members of the Committee, the Board will consider
whether a member is or will be a Qualified Member, but such members are not
required to be Qualified Members at the time of appointment or during their
term of service on the Committee. The full Board may perform any function of
the Committee hereunder, in which case the term "Committee" shall refer to
the Board.
(h) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 11(j).
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(i) "Deferred Stock" means a right, granted to a Participant under
Section 6(e), to receive Stock or other Awards or a combination thereof at
the end of a specified deferral period.
(j) "Dividend Equivalent" means a right, granted to a Participant under
Section 6(g), to receive cash, Stock, other Awards or other property equal
in value to all or a specified portion of the dividends paid with respect to
a specified number of shares of Stock.
(k) "Effective Date" means the effective date specified in
Section 11(p).
(l) "Eligible Person" has the meaning specified in Section 5.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act or rule (including
a proposed rule) thereunder shall include any successor provisions and
rules.
(n) "Fair Market Value" means the fair market value of Stock, Awards or
other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee,
the Fair Market Value of Stock as of any given date shall be the closing
sale price per share of Stock reported on a consolidated basis for
securities listed on the principal stock exchange or market on which Stock
is traded on the date as of which such value is being determined or, if
there is no sale on that day, then on the last previous day on which a sale
was reported.
(o) "Incentive Stock Option" or "ISO" means any Option designated as an
incentive stock option within the meaning of Code Section 422 or any
successor provision thereto and qualifying thereunder.
(p) "Option" means a right, granted to a Participant under
Section 6(b), to purchase Stock or other Awards at a specified price during
specified time periods.
(q) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(h).
(r) "Participant" means a person who has been granted an Award under the
Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(s) "Performance Award" means a conditional right, granted to a
Participant under Sections 6(i) and 7, to receive cash, Stock or other
Awards or payments, as determined by the Committee, based upon performance
criteria specified by the Committee.
(t) "Preexisting Plans" means the Company's 1996 Incentive Compensation
Plan and 1996 Non-Employee Director Stock Plan.
(u) "Qualified Member" means a member of the Committee who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an
"outside director" within the meaning of Regulation 1.162-27 under Code
Section 162(m).
(v) "Restricted Stock" means Stock granted to a Participant under
Section 6(d) which is subject to certain restrictions and to a risk of
forfeiture.
(w) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to Participants, promulgated by the Securities and Exchange
Commission under Section 16 of the Exchange Act.
(x) "Stock" means the Company's Common Stock, and any other equity
securities of the Company that may be substituted or resubstituted for Stock
pursuant to Section 11(c).
(y) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c).
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3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee, which shall have full and final authority, in each case subject
to and consistent with the provisions of the Plan, to select Eligible
Persons to become Participants; to grant Awards; to determine the type and
number of Awards, the dates on which Awards may be exercised and on which
the risk of forfeiture or deferral period relating to Awards shall lapse or
terminate, the acceleration of any such dates, the expiration date of any
Award, whether, to what extent, and under what circumstances an Award may be
settled, or the exercise price of an Award may be paid, in cash, Stock,
other Awards, or other property, and other terms and conditions of, and all
other matters relating to, Awards; to prescribe documents evidencing or
setting terms of Awards (such Award documents need not be identical for each
Participant), amendments thereto, and rules and regulations for the
administration of the Plan and amendments thereto; to construe and interpret
the Plan and Award documents and correct defects, supply omissions or
reconcile inconsistencies therein; and to make all other decisions and
determinations as the Committee may deem necessary or advisable for the
administration of the Plan. Decisions of the Committee with respect to the
administration and interpretation of the Plan shall be final, conclusive,
and binding upon all persons interested in the Plan, including Participants,
Beneficiaries, transferees under Section 11(b) and other persons claiming
rights from or through a Participant, and stockholders. The foregoing
notwithstanding, the Board shall perform the functions of the Committee for
purposes of granting Awards under the Plan to non-employee directors
(authority with respect to other aspects of non-employee director awards is
not exclusive to the Board, however).
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. At any time that a
member of the Committee is not a Qualified Member, (i) any action of the
Committee relating to an Award intended by the Committee to qualify as
"performance-based compensation" within the meaning of Code Section 162(m)
and regulations thereunder may be taken by a subcommittee, designated by the
Committee or the Board, composed solely of two or more Qualified Members,
and (ii) any action relating to an Award granted or to be granted to a
Participant who is then subject to Section 16 of the Exchange Act in respect
of the Company may be taken either by such a subcommittee or by the
Committee but with each such member who is not a Qualified Member abstaining
or recusing himself or herself from such action, provided that, upon such
abstention or recusal, the Committee remains composed of two or more
Qualified Members. Such action, authorized by such a subcommittee or by the
Committee upon the abstention or recusal of such non-Qualified Member(s),
shall be the action of the Committee for purposes of the Plan. The express
grant of any specific power to the Committee, and the taking of any action
by the Committee, shall not be construed as limiting any power or authority
of the Committee. The Committee may delegate to officers or managers of the
Company or any subsidiary or affiliate, or committees thereof, the
authority, subject to such terms as the Committee shall determine, to
perform such functions, including administrative functions, as the Committee
may determine, to the extent that such delegation will not result in the
loss of an exemption under Rule 16b-3(d) for Awards granted to Participants
subject to Section 16 of the Exchange Act in respect of the Company and will
not cause Awards intended to qualify as "performance-based compensation"
under Code Section 162(m) to fail to so qualify.
(c) LIMITATION OF LIABILITY. The Committee and each member thereof,
and any person acting pursuant to authority delegated by the Committee,
shall be entitled, in good faith, to rely or act upon any report or other
information furnished by any executive officer, other officer or employee of
the Company or a subsidiary or affiliate, the Company's independent
auditors, consultants or any other agents assisting in the administration of
the Plan. Members of the Committee, any person acting pursuant to authority
delegated by the Committee, and any officer or employee of the Company or a
subsidiary or affiliate acting at the direction or on behalf of the
Committee or a delegee shall not be personally liable for any action or
determination taken or made in good faith with respect to the Plan, and
shall, to the extent permitted by law, be fully indemnified and protected by
the Company with respect to any such action or determination.
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4. STOCK SUBJECT TO PLAN.
(a) OVERALL NUMBER OF SHARES AVAILABLE FOR DELIVERY. Subject to
adjustment as provided in Section 11(c), the total number of shares of Stock
reserved and available for delivery in connection with Awards under the Plan
shall be (i) 2,000,000 plus (ii) the number of shares subject to Awards
under the Plan or awards under the Preexisting Plans which become available
in accordance with Section 4(b) after the Effective Date; provided, however,
that the total number of shares with respect to which ISOs may be granted
shall not exceed the number specified under clause (i) above; and provided
further, that the total number of shares which may be issued and delivered
in connection with Awards other than Options shall not exceed 200,000 shares
reserved under the Plan, subject to adjustment as provided in
Section 11(c). Any shares of Stock delivered under the Plan shall consist of
authorized and unissued shares or treasury shares.
(b) SHARE COUNTING RULES. The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting (as, for
example, in the case of tandem or substitute awards) and make adjustments if
the number of shares of Stock actually delivered differs from the number of
shares previously counted in connection with an Award. Shares subject to an
Award under the Plan or an award under any Preexisting Plan that is
canceled, expired, forfeited, settled in cash or otherwise terminated
without a delivery of shares to the Participant will again be available for
Awards, and shares withheld in payment of the exercise price or taxes
relating to an Award or Preexisting Plan award and shares equal to the
number surrendered in payment of any exercise price or taxes relating to an
Award or Preexisting Plan award shall be deemed to constitute shares not
delivered to the Participant and shall be deemed to be available for Awards
under the Plan. In addition, in the case of any Award granted in
substitution for an award of a company or business acquired by the Company
or a subsidiary or affiliate, shares issued or issuable in connection with
such substitute Award shall not be counted against the number of shares
reserved under the Plan, but shall be available under the Plan by virtue of
the Company's assumption of the plan or arrangement of the acquired company
or business. This Section 4(b) shall apply to the number of shares reserved
and available for ISOs only to the extent consistent with applicable
regulations relating to ISOs under the Code.
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS. Awards may be granted under
the Plan only to Eligible Persons. For purposes of the Plan, an "Eligible
Person" means an employee of the Company or any subsidiary or affiliate,
including any executive officer, a non-employee director of the Company, a
consultant or other person who provides substantial services to the Company or a
subsidiary or affiliate, and any person who has been offered employment by the
Company or a subsidiary or affiliate, provided that such prospective employee
may not receive any payment or exercise any right relating to an Award until
such person has commenced employment with the Company or a subsidiary or
affiliate. An employee on leave of absence may be considered as still in the
employ of the Company or a subsidiary or affiliate for purposes of eligibility
for participation in the Plan. For purposes of the Plan, a joint venture in
which the Company or a subsidiary has a substantial direct or indirect equity
investment shall be deemed an affiliate, if so determined by the Committee. In
each calendar year during any part of which the Plan is in effect, an Eligible
Person may be granted Awards intended to qualify as "performance-based
compensation" under Code Section 162(m) under each of Section 6(b), 6(c), 6(d),
6(e), 6(f), 6(g) or 6(h) relating to up to his or her Annual Limit (such Annual
Limit to apply separately to the type of Award authorized under each specified
subsection, except that the limitation applies to Dividend Equivalents under
Section 6(g) only if such Dividend Equivalents are granted separately from and
not as a feature of another Award). Subject to Section 4(a), a Participant's
Annual Limit, in any year during any part of which the Participant is then
eligible under the Plan, shall equal one million shares plus the amount of the
Participant's unused Annual Limit relating to the same type of Award as of the
close of the previous year, subject to adjustment as provided in Section 11(c).
In the case of an Award which is not valued in a way in which the limitation set
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forth in the preceding sentence would operate as an effective limitation
satisfying Treasury Regulation 1.162-27(e)(4) (including a Performance Award
under Section 7 not related to an Award specified in Section 6), an Eligible
Person may not be granted Awards authorizing the earning during any calendar
year of an amount that exceeds the Participant's Annual Limit, which for this
purpose shall equal $5 million plus the amount of the Participant's unused cash
Annual Limit as of the close of the previous year (this limitation is separate
and not affected by the number of Awards granted during such calendar year
subject to the limitation in the preceding sentence). For this purpose,
(i) "earning" means satisfying performance conditions so that an amount becomes
payable, without regard to whether it is to be paid currently or on a deferred
basis or continues to be subject to any service requirement or other
non-performance condition, and (ii) a Participant's Annual Limit is used to the
extent an amount or number of shares may be potentially earned or paid under an
Award, regardless of whether such amount or shares are in fact earned or paid.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to
Section 11(e)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including
terms requiring forfeiture of Awards in the event of termination of
employment or service by the Participant and terms permitting a Participant
to make elections relating to his or her Award. The Committee shall retain
full power and discretion with respect to any term or condition of an Award
that is not mandatory under the Plan. The Committee shall require the
payment of lawful consideration for an Award to the extent necessary to
satisfy the requirements of the Delaware General Corporation Law, and may
otherwise require payment of consideration for an Award except as limited by
the Plan.
(b) OPTIONS. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option (including both ISOs and non-qualified
Options) shall be determined by the Committee, provided that such
exercise price shall be not less than the Fair Market Value of a share of
Stock on the date of grant of such Option, subject to Sections 6(f) and
8(a).
(ii) OPTION TERM; TIME AND METHOD OF EXERCISE. The Committee shall
determine the term of each Option, provided that in no event shall the
term of any ISO or SAR in tandem therewith exceed a period of ten years
from the date of grant. The Committee shall determine the time or times
at which or the circumstances under which an Option may be exercised in
whole or in part (including based on achievement of performance goals
and/or future service requirements), the methods by which such exercise
price may be paid or deemed to be paid and the form of such payment
(subject to Section 11(k)), including, without limitation, cash, Stock,
other Awards or awards granted under other plans of the Company or any
subsidiary or affiliate, or other property (including notes and other
contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent
permitted by applicable law), and the methods by or forms in which Stock
will be delivered or deemed to be delivered in satisfaction of Options to
Participants (including deferred delivery of shares representing the
Option "profit," at the election of the Participant or as mandated by the
Committee, with such deferred shares subject to any vesting, forfeiture
or other terms as the Committee may specify).
(iii) ISOS. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Code Section 422, including
but not limited to the requirement that no ISO shall be granted more than
ten years after the Effective Date.
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(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant
SARs to Participants on the following terms and conditions:
(i) RIGHT TO PAYMENT. A SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of
(A) the Fair Market Value of one share of Stock on the date of exercise
(or, in the case of a "Limited SAR," the Fair Market Value determined by
reference to the Change in Control Price, as defined under Section 9(c)
hereof) over (B) the grant price of the SAR as determined by the
Committee.
(ii) OTHER TERMS. The Committee shall determine at the date of
grant or thereafter, the time or times at which and the circumstances
under which a SAR may be exercised in whole or in part (including based
on achievement of performance goals and/or future service requirements),
the method of exercise, method of settlement, form of consideration
payable in settlement, method by or forms in which Stock will be
delivered or deemed to be delivered to Participants, and whether or not a
SAR shall be free-standing or in tandem or combination with any other
Award. Limited SARs that may only be exercised in connection with a
Change in Control or other event as specified by the Committee may be
granted on such terms, not inconsistent with this Section 6(c), as the
Committee may determine.
(d) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions may
lapse separately or in combination at such times, under such
circumstances (including based on achievement of performance goals and/or
future service requirements), in such installments or otherwise and under
such other circumstances as the Committee may determine at the date of
grant or thereafter. Except to the extent restricted under the terms of
the Plan and any Award document relating to the Restricted Stock, a
Participant granted Restricted Stock shall have all of the rights of a
stockholder, including the right to vote the Restricted Stock and the
right to receive dividends thereon (subject to any mandatory reinvestment
or other requirement imposed by the Committee).
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Company; provided
that the Committee may provide, by rule or regulation or in any Award
document, or may determine in any individual case, that restrictions or
forfeiture conditions relating to Restricted Stock will lapse in whole or
in part, including in the event of terminations resulting from specified
causes.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Company retain physical
possession of the certificates, and that the Participant deliver a stock
power to the Company, endorsed in blank, relating to the Restricted
Stock.
(iv) DIVIDENDS AND SPLITS. As a condition to the grant of an Award
of Restricted Stock, the Committee may require that any dividends paid on
a share of Restricted Stock shall be either (A) paid with respect to such
Restricted Stock at the dividend payment date in cash, in kind, or in a
number of shares of unrestricted Stock having a Fair Market Value equal
to the amount of such dividends, or (B) automatically reinvested in
additional Restricted Stock or held in kind, which shall be subject to
the same terms as applied to the original Restricted Stock to which it
relates,
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or (C) deferred as to payment, either as a cash deferral or with the
amount or value thereof automatically deemed reinvested in shares of
Deferred Stock, other Awards or other investment vehicles, subject to
such terms as the Committee shall determine or permit a Participant to
elect. Unless otherwise determined by the Committee, Stock distributed in
connection with a Stock split or Stock dividend, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with respect to
which such Stock or other property has been distributed.
(e) DEFERRED STOCK. The Committee is authorized to grant Deferred
Stock to Participants, which are rights to receive Stock, other Awards, or a
combination thereof at the end of a specified deferral period, subject to
the following terms and conditions:
(i) AWARD AND RESTRICTIONS. Issuance of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred
Stock by the Committee (or, if permitted by the Committee, as elected by
the Participant). In addition, Deferred Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions may
lapse at the expiration of the deferral period or at earlier specified
times (including based on achievement of performance goals and/or future
service requirements), separately or in combination, in installments or
otherwise, and under such other circumstances as the Committee may
determine at the date of grant or thereafter. Deferred Stock may be
satisfied by delivery of Stock, other Awards, or a combination thereof
(subject to Section 11(k)), as determined by the Committee at the date of
grant or thereafter.
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service during the applicable deferral
period or portion thereof to which forfeiture conditions apply (as
provided in the Award document evidencing the Deferred Stock), all
Deferred Stock that is at that time subject to such forfeiture conditions
shall be forfeited; provided that the Committee may provide, by rule or
regulation or in any Award document, or may determine in any individual
case, that restrictions or forfeiture conditions relating to Deferred
Stock will lapse in whole or in part, including in the event of
terminations resulting from specified causes.
(iii) DIVIDEND EQUIVALENTS. Unless otherwise determined by the
Committee, Dividend Equivalents on the specified number of shares of
Stock covered by an Award of Deferred Stock shall be either (A) paid with
respect to such Deferred Stock at the dividend payment date in cash or in
shares of unrestricted Stock having a Fair Market Value equal to the
amount of such dividends, or (B) deferred with respect to such Deferred
Stock, either as a cash deferral or with the amount or value thereof
automatically deemed reinvested in additional Deferred Stock, other
Awards or other investment vehicles having a Fair Market Value equal to
the amount of such dividends, as the Committee shall determine or permit
a Participant to elect.
(f) BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of obligations of the Company or a subsidiary or affiliate to pay cash
or deliver other property under the Plan or under other plans or
compensatory arrangements, subject to such terms as shall be determined by
the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to receive
cash, Stock, other Awards, or other property equivalent to all or a portion
of the dividends paid with respect to a specified number of shares of Stock.
Dividend Equivalents may be awarded on a free-standing basis or in
connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to
have been reinvested in additional Stock, Awards, or other investment
vehicles, and subject to restrictions on transferability, risks of
forfeiture and such other terms as the Committee may specify.
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(h) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock or factors that
may influence the value of Stock, including, without limitation, convertible
or exchangeable debt securities, other rights convertible or exchangeable
into Stock, purchase rights for Stock, Awards with value and payment
contingent upon performance of the Company or business units thereof or any
other factors designated by the Committee, and Awards valued by reference to
the book value of Stock or the value of securities of or the performance of
specified subsidiaries or affiliates or other business units. The Committee
shall determine the terms and conditions of such Awards. Stock delivered
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation,
cash, Stock, other Awards, notes, or other property, as the Committee shall
determine. Cash awards, as an element of or supplement to any other Award
under the Plan, may also be granted pursuant to this Section 6(h).
(i) PERFORMANCE AWARDS. Performance Awards, denominated in cash or in
Stock or other Awards, may be granted by the Committee in accordance with
Section 7.
7. PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS.
(a) PERFORMANCE AWARDS GENERALLY. The Committee is authorized to grant
Performance Awards on the terms and conditions specified in this Section 7.
Performance Awards may be denominated as a cash amount, number of shares of
Stock, or specified number of other Awards (or a combination) which may be
earned upon achievement or satisfaction of performance conditions specified
by the Committee. In addition, the Committee may specify that any other
Award shall constitute a Performance Award by conditioning the right of a
Participant to exercise the Award or have it settled, and the timing
thereof, upon achievement or satisfaction of such performance conditions as
may be specified by the Committee. The Committee may use such business
criteria and other measures of performance as it may deem appropriate in
establishing any performance conditions, and may exercise its discretion to
reduce or increase the amounts payable under any Award subject to
performance conditions, except as limited under Sections 7(b) and 7(c) in
the case of a Performance Award intended to qualify as "performance-based
compensation" under Code Section 162(m).
(b) PERFORMANCE AWARDS GRANTED TO COVERED EMPLOYEES. If the Committee
determines that a Performance Award to be granted to an Eligible Person who
is designated by the Committee as likely to be a Covered Employee should
qualify as "performance-based compensation" for purposes of Code
Section 162(m), the grant, exercise and/or settlement of such Performance
Award shall be contingent upon achievement of a preestablished performance
goal and other terms set forth in this Section 7(b).
(i) PERFORMANCE GOAL GENERALLY. The performance goal for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this
Section 7(b). The performance goal shall be objective and shall otherwise
meet the requirements of Code Section 162(m) and regulations thereunder
(including Regulation 1.162-27 and successor regulations thereto),
including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance goals
being "substantially uncertain." The Committee may determine that such
Performance Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise
and/or settlement of such Performance Awards. Performance goals may
differ for Performance Awards granted to any one Participant or to
different Participants.
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(ii) BUSINESS CRITERIA. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries or affiliates or other business units of the Company, shall
be used by the Committee in establishing performance goals for such
Performance Awards: (1) net sales; (2) earnings from operations, earnings
before or after taxes, earnings before or after interest, depreciation,
amortization, incentives, service fees or extraordinary or special items;
(3) net income or net income per common share (basic or diluted);
(4) return on assets, return on investment, return on capital, or return
on equity; (5) cash flow, free cash flow, cash flow return on investment,
or net cash provided by operations; (6) economic value created;
(7) operating margin or profit margin; (8) stock price or total
stockholder return; and (9) strategic business criteria, consisting of
one or more objectives based on meeting specified market penetration,
geographic business expansion goals, cost targets, customer satisfaction,
employee satisfaction, management of employment practices and employee
benefits, supervision of litigation and information technology, and goals
relating to acquisitions or divestitures of subsidiaries, affiliates or
joint ventures. The targeted level or levels of performance with respect
to such business criteria may be established at such levels and in such
terms as the Committee may determine, in its discretion, including in
absolute terms, as a goal relative to performance in prior periods, or as
a goal compared to the performance of one or more comparable companies or
an index covering multiple companies.
(iii) PERFORMANCE PERIOD; TIMING FOR ESTABLISHING PERFORMANCE
GOALS. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of up to one year or
more than one year, as specified by the Committee. A performance goal
shall be established not later than the earlier of (A) 90 days after the
beginning of any performance period applicable to such Performance Award
or (B) the time 25% of such performance period has elapsed.
(iv) PERFORMANCE AWARD POOL. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes of
measuring performance of the Company in connection with Performance
Awards. The amount of such Performance Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 7(b)(ii) during the given
performance period, as specified by the Committee in accordance with
Section 7(b)(iv). The Committee may specify the amount of the Performance
Award pool as a percentage of any of such business criteria, a percentage
thereof in excess of a threshold amount, or as another amount which need
not bear a strictly mathematical relationship to such business criteria.
(v) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS. Settlement of
such Performance Awards shall be in cash, Stock, other Awards or other
property, in the discretion of the Committee. The Committee may, in its
discretion, increase or reduce the amount of a settlement otherwise to be
made in connection with such Performance Awards, but may not exercise
discretion to increase any such amount payable to a Covered Employee in
respect of a Performance Award subject to this Section 7(b). Any
settlement which changes the form of payment from that originally
specified shall be implemented in a manner such that the Performance
Award and other related Awards do not, solely for that reason, fail to
qualify as "performance-based compensation" for purposes of Code
Section 162(m). The Committee shall specify the circumstances in which
such Performance Awards shall be paid or forfeited in the event of
termination of employment by the Participant or other event (including a
Change in Control) prior to the end of a performance period or settlement
of such Performance Awards.
(c) ANNUAL INCENTIVE AWARDS GRANTED TO DESIGNATED COVERED
EMPLOYEES. The Committee may grant an Annual Incentive Award to an Eligible
Person who is designated by the Committee as likely to be a Covered
Employee. Such Annual Incentive Award will be intended to qualify as
"performance-based compensation" for purposes of Code Section 162(m), and
therefore its grant, exercise and/or settlement shall be contingent upon
achievement of preestablished performance goals and other terms set forth in
this Section 7(c).
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(i) GRANT OF ANNUAL INCENTIVE AWARDS. Not later than the earlier of
90 days after the beginning of any performance period applicable to such
Annual Incentive Award or the time 25% of such performance period has
elapsed, the Committee shall determine the Covered Employees who will
potentially receive Annual Incentive Awards, and the amount(s)
potentially payable thereunder, for that performance period. The
amount(s) potentially payable shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria
set forth in Section 7(b)(ii) in the given performance period, as
specified by the Committee. The Committee may designate an annual
incentive award pool as the means by which Annual Incentive Awards will
be measured, which pool shall conform to the provisions of
Section 7(b)(iv). In such case, the portion of the Annual Incentive Award
pool potentially payable to each Covered Employee shall be preestablished
by the Committee. In all cases, the maximum Annual Incentive Award of any
Participant shall be subject to the limitation set forth in Section 5.
(ii) PAYOUT OF ANNUAL INCENTIVE AWARDS. After the end of each
performance period, the Committee shall determine the amount, if any, of
the Annual Incentive Award for that performance period payable to each
Participant. The Committee may, in its discretion, determine that the
amount payable to any Participant as a final Annual Incentive Award shall
be reduced from the amount of his or her potential Annual Incentive
Award, including a determination to make no final Award whatsoever, but
may not exercise discretion to increase any such amount. The Committee
shall specify the circumstances in which an Annual Incentive Award shall
be paid or forfeited in the event of termination of employment by the
Participant or other event (including a Change in Control) prior to the
end of a performance period or settlement of such Annual Incentive Award.
(d) WRITTEN DETERMINATIONS. Determinations by the Committee as to the
establishment of performance goals, the amount potentially payable in
respect of Performance Awards and Annual Incentive Awards, the level of
actual achievement of the specified performance goals relating to
Performance Awards and Annual Incentive Awards, and the amount of any final
Performance Award and Annual Incentive Award shall be recorded in writing in
the case of Performance Awards intended to qualify under Section 162(m).
Specifically, the Committee shall certify in writing, in a manner conforming
to applicable regulations under Section 162(m), prior to settlement of each
such Award granted to a Covered Employee, that the performance objective
relating to the Performance Award and other material terms of the Award upon
which settlement of the Award was conditioned have been satisfied.
8. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any subsidiary or affiliate, or any business entity to be acquired
by the Company or a subsidiary or affiliate, or any other right of a
Participant to receive payment from the Company or any subsidiary or
affiliate. Awards granted in addition to or in tandem with other Awards or
awards may be granted either as of the same time as or a different time from
the grant of such other Awards or awards. Subject to Section 11(k), the
Committee may determine that, in granting a new Award, the in-the-money
value of any surrendered Award or award may be applied to reduce the
exercise price of any Option, grant price of any SAR, or purchase price of
any other Award.
(b) TERM OF AWARDS. The term of each Award shall be for such period as
may be determined by the Committee, subject to the express limitations set
forth in Section 6(b)(ii).
(c) FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS. Subject to the
terms of the Plan (including Section 11(k)) and any applicable Award
document, payments to be made by the Company
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or a subsidiary or affiliate upon the exercise of an Option or other Award
or settlement of an Award may be made in such forms as the Committee shall
determine, including, without limitation, cash, Stock, other Awards or other
property, and may be made in a single payment or transfer, in installments,
or on a deferred basis. The settlement of any Award may be accelerated, and
cash paid in lieu of Stock in connection with such settlement, in the
discretion of the Committee or upon occurrence of one or more specified
events (subject to Section 11(k)). Installment or deferred payments may be
required by the Committee (subject to Section 11(e)) or permitted at the
election of the Participant on terms and conditions established by the
Committee. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents or other amounts
in respect of installment or deferred payments denominated in Stock.
(d) EXEMPTIONS FROM SECTION 16(B) LIABILITY. With respect to a
Participant who is then subject to the reporting requirements of
Section 16(a) of the Exchange Act in respect of the Company, the Committee
shall implement transactions under the Plan and administer the Plan in a
manner that will ensure that each transaction with respect to such a
Participant is exempt from liability under Rule 16b-3 or otherwise not
subject to liability under Section 16(b)), except that this provision shall
not limit sales by such a Participant, and such a Participant may engage in
other non-exempt transactions under the Plan. The Committee may authorize
the Company to repurchase any Award or shares of Stock deliverable or
delivered in connection with any Award (subject to Section 11(k)) in order
to avoid a Participant who is subject to Section 16 of the Exchange Act
incurring liability under Section 16(b). Unless otherwise specified by the
Participant, equity securities or derivative securities acquired under the
Plan which are disposed of by a Participant shall be deemed to be disposed
of in the order acquired by the Participant.
(e) LOAN PROVISIONS. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, permitted under and in
accordance with, laws and regulations and other binding obligations or
provisions applicable to the Company, the Company may make, guarantee, or
arrange for a loan or loans to a Participant with respect to the exercise of
any Option or other payment in connection with any Award, including the
payment by a Participant of any or all federal, state, or local income or
other taxes due in connection with any Award. Subject to such limitations,
the Committee shall have full authority to decide whether to make a loan or
loans hereunder and to determine the amount, terms, and provisions of any
such loan or loans, including the interest rate, if any, to be charged in
respect of any such loan or loans, whether the loan or loans are to be with
or without recourse against the borrower, the terms on which the loan is to
be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(f) LIMITATION ON VESTING OF CERTAIN AWARDS. Restricted Stock will
vest over a minimum period of three years except in the event of a
Participant's death, disability, or retirement, or in the event of a Change
in Control or other special circumstances. The foregoing notwithstanding,
(i) Restricted Stock as to which either the grant or vesting is based on,
among other things, the achievement of one or more performance conditions
generally will vest over a minimum period of one year except in the event of
a Participant's death, disability, or retirement, or in the event of a
Change in Control or other special circumstances, and (ii) up to 5% of the
shares of Stock authorized under the Plan may be granted as Restricted Stock
without any minimum vesting requirements. For purposes of this
Section 8(f), vesting over a three-year period or one-year period will
include periodic vesting over such period if the rate of such vesting is
proportional throughout such period.
9. CHANGE IN CONTROL.
(a) EFFECT OF "CHANGE IN CONTROL" ON NON-PERFORMANCE BASED AWARDS. In
the event of a "Change in Control," the following provisions shall apply to
non-performance based Awards, including Awards as to which performance
conditions previously have been satisfied or are deemed satisfied under
Section 9(b), unless otherwise provided by the Committee in the Award
document:
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(i) All deferral of settlement, forfeiture conditions and other
restrictions applicable to Awards granted under the Plan shall lapse and
such Awards shall be fully payable as of the time of the Change in
Control without regard to deferral and vesting conditions, except to the
extent of any waiver by the Participant or other express election to
defer beyond a Change in Control and subject to applicable restrictions
set forth in Section 11(a);
(ii) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested as of
the time of the Change in Control and shall remain exercisable and vested
for the balance of the stated term of such Award without regard to any
termination of employment or service by the Participant other than a
termination for "cause" (as defined in any employment or severance
agreement between the Company or a subsidiary or affiliate and the
Participant then in effect or, if none, as defined by the Committee and
in effect at the time of the Change in Control), subject only to
applicable restrictions set forth in Section 11(a); and
(iii) The Committee may, in its discretion, determine to extend to
any Participant who holds an Option the right to elect, during the 60-day
period immediately following the Change in Control, in lieu of acquiring
the shares of Stock covered by such Option, to receive in cash the excess
of the Change in Control Price over the exercise price of such Option,
multiplied by the number of shares of Stock covered by such Option, and
to extend to any Participant who holds other types of Awards denominated
in shares the right to elect, during the 60-day period immediately
following the Change in Control, in lieu of receiving the shares of Stock
covered by such Award, to receive in cash the Change in Control Price
multiplied by the number of shares of Stock covered by such Award.
(b) EFFECT OF "CHANGE IN CONTROL" ON PERFORMANCE-BASED AWARDS. In the
event of a "Change in Control," with respect to an outstanding Award subject
to achievement of performance goals and conditions, such performance goals
and conditions shall be deemed to be met or exceeded if and to the extent so
provided by the Committee in the Award document governing such Award or
other agreement with the Participant.
(c) DEFINITION OF "CHANGE IN CONTROL." A "Change in Control" shall be
deemed to have occurred if, after the Effective Date, there shall have
occurred any of the following:
(i) any Person (other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan of the
Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of the common stock of the Company) becomes the
beneficial owner (except that a Person shall be deemed to be the
beneficial owner of all shares that any such Person has the right to
acquire pursuant to any agreement or arrangement or upon exercise of
conversion rights, warrants or options or otherwise, without regard to
the sixty day period referred to in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company or any Significant
Subsidiary (as defined below), representing 25% or more of the combined
voting power of the Company's or such subsidiary's then outstanding
securities;
(ii) during any period of two consecutive years (not including any
period prior to the adoption of the Plan), individuals who at the
beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
clause (i), (iii), or (iv) of this paragraph) whose election by the Board
or nomination for election by the Company's stockholders was approved by
a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the two-year period or whose
election or nomination for election was previously so approved but
excluding for this purpose any such new director whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as
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such terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of an individual, corporation, partnership,
group, associate or other entity or Person other than the Board, cease
for any reason to constitute at least a majority of the Board;
(iii) the consummation of a merger or consolidation of the Company or
any subsidiary owning directly or indirectly all or substantially all of
the consolidated assets of the Company (a "Significant Subsidiary") with
any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company or a Significant
Subsidiary outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving or resulting entity) more than 50% of the
combined voting power of the surviving or resulting entity outstanding
immediately after such merger or consolidation;
(iv) the stockholders of the Company or any affiliate approve a plan
or agreement for the sale or disposition of all or substantially all of
the consolidated assets of the Company (other than such a sale or
disposition immediately after which such assets will be owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of the common stock of the Company
immediately prior to such sale or disposition) in which case the Board
shall determine the effective date of the Change in Control resulting
therefrom; or
(v) any other event occurs which the Board determines, in its
discretion, would materially alter the structure of the Company or its
ownership.
(d) DEFINITION OF "CHANGE IN CONTROL PRICE." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the amount of cash
and fair market value of property that is the highest price per share paid
(including extraordinary dividends) in any transaction triggering the Change
in Control or any liquidation of shares following a sale of substantially
all assets of the Company, or (ii) the highest Fair Market Value per share
at any time during the 60-day period preceding and 60-day period following
the Change in Control.
10. ADDITIONAL AWARD FORFEITURE PROVISIONS.
(a) FORFEITURE OF OPTIONS AND OTHER AWARDS AND GAINS REALIZED UPON
PRIOR OPTION EXERCISES OR AWARD SETTLEMENTS. Unless otherwise determined by
the Committee, each Award granted hereunder shall be subject to the
following additional forfeiture conditions, to which the Participant, by
accepting an Award hereunder, agrees. If any of the events specified in
Section 10(b)(i), (ii), or (iii) occurs (a "Forfeiture Event"), all of the
following forfeitures will result:
(i) The unexercised portion of the Option, whether or not vested, and
any other Award not then settled (except for an Award that has not been
settled solely due to an elective deferral by the Participant and
otherwise is not forfeitable in the event of any termination of service
of the Participant) will be immediately forfeited and canceled upon the
occurrence of the Forfeiture Event; and
(ii) The Participant will be obligated to repay to the Company, in
cash, within five business days after demand is made therefor by the
Company, the total amount of Award Gain (as defined herein) realized by
the Participant upon each exercise of an Option or settlement of an Award
(regardless of any elective deferral) that occurred on or after (A) the
date that is six months prior to the occurrence of the Forfeiture Event,
if the Forfeiture Event occurred while the Participant was employed by
the Company or a subsidiary or affiliate, or (B) the date that is six
months prior to the date the Participant's employment by the Company or a
subsidiary or affiliate terminated, if the Forfeiture Event occurred
after the Participant ceased to be so employed. For purposes of this
Section, the term "Award Gain" shall mean (i) in respect of a given
Option exercise, the product of (X) the Fair Market Value per share of
Stock at the date of such exercise (without
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<PAGE>
regard to any subsequent change in the market price of shares) minus the
exercise price times (Y) the number of shares as to which the Option was
exercised at that date, and (ii) in respect of any other settlement of an
Award granted to the Participant, the Fair Market Value of the cash or
Stock paid or payable to Participant (regardless of any elective
deferral) less any cash or the Fair Market Value of any Stock or property
(other than an Award or award which would have itself then been
forfeitable hereunder and excluding any payment of tax withholding) paid
by the Participant to the Company as a condition of or in connection with
such settlement.
(b) EVENTS TRIGGERING FORFEITURE. The forfeitures specified in
Section 10(a) will be triggered upon the occurrence of any one of the
following Forfeiture Events at any time during the Participant's employment
by the Company or a subsidiary or affiliate or during the one-year period
following termination of such employment:
(i) The Participant, acting alone or with others, directly or
indirectly, prior to a Change in Control, (A) engages, either as
employee, employer, consultant, advisor, or director, or as an owner,
investor, partner, or stockholder unless the Participant's interest is
insubstantial, in any business in an area or region in which the Company
conducts business at the date the event occurs, which is directly in
competition with a business then conducted by the Company or a subsidiary
or affiliate; (B) induces any customer or supplier of the Company or a
subsidiary or affiliate, or other company with which the Company or a
subsidiary or affiliate has a business relationship, to curtail, cancel,
not renew, or not continue his or her or its business with the Company or
any subsidiary or affiliate; or (C) induces, or attempts to influence,
any employee of or service provider to the Company or a subsidiary or
affiliate to terminate such employment or service. The Committee shall,
in its discretion, determine which lines of business the Company conducts
on any particular date and which third parties may reasonably be deemed
to be in competition with the Company. For purposes of this
Section 10(b)(i), a Participant's interest as a stockholder is
insubstantial if it represents beneficial ownership of less than five
percent of the outstanding class of stock, and a Participant's interest
as an owner, investor, or partner is insubstantial if it represents
ownership, as determined by the Committee in its discretion, of less than
five percent of the outstanding equity of the entity;
(ii) The Participant discloses, uses, sells, or otherwise transfers,
except in the course of employment with or other service to the Company
or any subsidiary or affiliate, any confidential or proprietary
information of the Company or any subsidiary or affiliate, including but
not limited to information regarding the Company's current and potential
customers, organization, employees, finances, and methods of operations
and investments, so long as such information has not otherwise been
disclosed to the public or is not otherwise in the public domain, except
as required by law or pursuant to legal process, or the Participant makes
statements or representations, or otherwise communicates, directly or
indirectly, in writing, orally, or otherwise, or takes any other action
which may, directly or indirectly, disparage or be damaging to the
Company or any of its subsidiaries or affiliates or their respective
officers, directors, employees, advisors, businesses or reputations,
except as required by law or pursuant to legal process; or
(iii) The Participant fails to cooperate with the Company or any
subsidiary or affiliate by making himself or herself available to testify
on behalf of the Company or such subsidiary or affiliate in any action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative, or otherwise fails to assist the Company or any subsidiary
or affiliate in any such action, suit, or proceeding by providing
information and meeting and consulting with members of management of,
other representatives of, or counsel to, the Company or such subsidiary
or affiliate, as reasonably requested.
(c) AGREEMENT DOES NOT PROHIBIT COMPETITION OR OTHER PARTICIPANT
ACTIVITIES. Although the conditions set forth in this Section 10 shall be
deemed to be incorporated into an Award, a Participant
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<PAGE>
is not thereby prohibited from engaging in any activity, including but not
limited to competition with the Company and its subsidiaries and affiliates.
Rather, the non-occurrence of the Forfeiture Events set forth in
Section 10(b) is a condition to the Participant's right to realize and
retain value from his or her compensatory Options and Awards, and the
consequence under the Plan if the Participant engages in an activity giving
rise to any such Forfeiture Event are the forfeitures specified herein. The
Company and the Participant shall not be precluded by this provision or
otherwise from entering into other agreements concerning the subject matter
of Section 10(a) and 10(b).
(d) COMMITTEE DISCRETION. The Committee may, in its discretion, waive
in whole or in part the Company's right to forfeiture under this Section,
but no such waiver shall be effective unless evidenced by a writing signed
by a duly authorized officer of the Company. In addition, the Committee may
impose additional conditions on Awards, by inclusion of appropriate
provisions in the document evidencing or governing any such Award.
11. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS. The Company may, to
the extent deemed necessary or advisable by the Committee, postpone the
issuance or delivery of Stock or payment of other benefits under any Award
until completion of such registration or qualification of such Stock or
other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or
automated quotation system upon which the Stock or other securities of the
Company are listed or quoted, or compliance with any other obligation of the
Company, as the Committee may consider appropriate, and may require any
Participant to make such representations, furnish such information and
comply with or be subject to such other conditions as it may consider
appropriate in connection with the issuance or delivery of Stock or payment
of other benefits in compliance with applicable laws, rules, and
regulations, listing requirements, or other obligations. The foregoing
notwithstanding, in connection with a Change in Control, the Company shall
take or cause to be taken no action, and shall undertake or permit to arise
no legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits
under any Award or the imposition of any other conditions on such issuance,
delivery or payment, to the extent that such postponement or other condition
would represent a greater burden on a Participant than existed on the 90th
day preceding the Change in Control.
(b) LIMITS ON TRANSFERABILITY; BENEFICIARIES. No Award or other right
or interest of a Participant under the Plan shall be pledged, hypothecated
or otherwise encumbered or subject to any lien, obligation or liability of
such Participant to any party (other than the Company or a subsidiary or
affiliate thereof), or assigned or transferred by such Participant otherwise
than by will or the laws of descent and distribution or to a Beneficiary
upon the death of a Participant, and such Awards or rights that may be
exercisable shall be exercised during the lifetime of the Participant only
by the Participant or his or her guardian or legal representative, except
that Awards and other rights (other than ISOs and SARs in tandem therewith)
may be transferred to one or more transferees during the lifetime of the
Participant, and may be exercised by such transferees in accordance with the
terms of such Award, but only if and to the extent such transfers are
permitted by the Committee, subject to any terms and conditions which the
Committee may impose thereon (including limitations the Committee may deem
appropriate in order that offers and sales under the Plan will meet
applicable requirements of registration forms under the Securities Act of
1933 specified by the Securities and Exchange Commission). A Beneficiary,
transferee, or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the
Plan and any Award document applicable to such Participant, except as
otherwise determined by the Committee, and to any additional terms and
conditions deemed necessary or appropriate by the Committee.
(c) ADJUSTMENTS. In the event that any large, special and
non-recurring dividend or other distribution (whether in the form of cash or
property other than Stock), recapitalization, forward or
37
<PAGE>
reverse split, Stock dividend, reorganization, merger, consolidation,
spin-off, combination, repurchase, share exchange, liquidation, dissolution
or other similar corporate transaction or event affects the Stock such that
an adjustment is determined by the Committee to be appropriate under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock which may be
delivered in connection with Awards granted thereafter, (ii) the number and
kind of shares of Stock by which annual per-person Award limitations are
measured under Section 5, (iii) the number and kind of shares of Stock
subject to or deliverable in respect of outstanding Awards and (iv) the
exercise price, grant price or purchase price relating to any Award or, if
deemed appropriate, the Committee may make provision for a payment of cash
or property to the holder of an outstanding Option (subject to
Section 11(k)). In addition, the Committee is authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards
(including Performance Awards and performance goals and any hypothetical
funding pool relating thereto) in recognition of unusual or nonrecurring
events (including, without limitation, events described in the preceding
sentence, as well as acquisitions and dispositions of businesses and assets)
affecting the Company, any subsidiary or affiliate or other business unit,
or the financial statements of the Company or any subsidiary or affiliate,
or in response to changes in applicable laws, regulations, accounting
principles, tax rates and regulations or business conditions or in view of
the Committee's assessment of the business strategy of the Company, any
subsidiary or affiliate or business unit thereof, performance of comparable
organizations, economic and business conditions, personal performance of a
Participant, and any other circumstances deemed relevant; provided that no
such adjustment shall be authorized or made if and to the extent that the
existence of such authority (i) would cause Options, SARs, or Performance
Awards granted under Section 8 to Participants designated by the Committee
as Covered Employees and intended to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder to
otherwise fail to qualify as "performance-based compensation" under Code
Section 162(m) and regulations thereunder, or (ii) would cause the Committee
to be deemed to have authority to change the targets, within the meaning of
Treasury Regulation 1.162-27(e)(4)(vi), under the performance goals relating
to Options or SARs granted to Covered Employees and intended to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder.
(d) TAX PROVISIONS.
(i) WITHHOLDING. The Company and any subsidiary or affiliate is
authorized to withhold from any Award granted, any payment relating to an
Award under the Plan, including from a distribution of Stock, or any
payroll or other payment to a Participant, amounts of withholding and
other taxes due or potentially payable in connection with any transaction
involving an Award, and to take such other action as the Committee may
deem advisable to enable the Company and Participants to satisfy
obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include authority
to withhold or receive Stock or other property and to make cash payments
in respect thereof in satisfaction of a Participant's withholding
obligations, either on a mandatory or elective basis in the discretion of
the Committee. Other provisions of the Plan notwithstanding, only the
minimum amount of Stock deliverable in connection with an Award necessary
to satisfy statutory withholding requirements will be withheld.
(ii) REQUIRED CONSENT TO AND NOTIFICATION OF CODE SECTION 83(B)
ELECTION. No election under Section 83(b) of the Code (to include in
gross income in the year of transfer the amounts specified in Code
Section 83(b)) or under a similar provision of the laws of a jurisdiction
outside the United States may be made unless expressly permitted by the
terms of the Award document or by action of the Committee in writing
prior to the making of such election. In any case in which a Participant
is permitted to make such an election in connection with an Award, the
Participant shall notify the Company of such election within ten days of
filing notice of the election with the
38
<PAGE>
Internal Revenue Service or other governmental authority, in addition to
any filing and notification required pursuant to regulations issued under
Code Section 83(b) or other applicable provision.
(iii) REQUIREMENT OF NOTIFICATION UPON DISQUALIFYING DISPOSITION
UNDER CODE SECTION 421(B). If any Participant shall make any disposition
of shares of Stock delivered pursuant to the exercise of an Incentive
Stock Option under the circumstances described in Code Section 421(b)
(relating to certain disqualifying dispositions), such Participant shall
notify the Company of such disposition within ten days thereof.
(e) CHANGES TO THE PLAN. The Board may amend, suspend or terminate the
Plan or the Committee's authority to grant Awards under the Plan without the
consent of stockholders or Participants; provided, however, that any
amendment to the Plan shall be submitted to the Company's stockholders for
approval not later than the earliest annual meeting for which the record
date is after the date of such Board action if such stockholder approval is
required by any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Stock may then be listed
or quoted, and the Board may otherwise, in its discretion, determine to
submit other amendments to the Plan to stockholders for approval; and
provided further, that, without the consent of an affected Participant, no
such Board action may materially and adversely affect the rights of such
Participant under any outstanding Award. Without the approval of
stockholders, the Committee will not amend or replace previously granted
Options in a transaction that constitutes a "repricing," as such term is
used in Instruction 3 to Item 402(b)(2)(iv) of Regulation S-K, as
promulgated by the Securities and Exchange Commission.
(f) RIGHT OF SETOFF. The Company or any subsidiary or affiliate may, to
the extent permitted by applicable law, deduct from and set off against any
amounts the Company or a subsidiary or affiliate may owe to the Participant
from time to time, including amounts payable in connection with any Award,
owed as wages, fringe benefits, or other compensation owed to the
Participant, such amounts as may be owed by the Participant to the Company,
including but not limited to amounts owed under Section 10(a), although the
Participant shall remain liable for any part of the Participant's payment
obligation not satisfied through such deduction and setoff. By accepting any
Award granted hereunder, the Participant agrees to any deduction or setoff
under this Section 11(f).
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Stock pursuant to an Award, nothing contained in the
Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company; provided that the
Committee may authorize the creation of trusts and deposit therein cash,
Stock, other Awards or other property, or make other arrangements to meet
the Company's obligations under the Plan. Such trusts or other arrangements
shall be consistent with the "unfunded" status of the Plan unless the
Committee otherwise determines with the consent of each affected
Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board nor its submission to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board or
a committee thereof to adopt such other incentive arrangements, apart from
the Plan, as it may deem desirable, including incentive arrangements and
awards which do not qualify under Code Section 162(m), and such other
arrangements may be either applicable generally or only in specific cases.
(i) PAYMENTS IN THE EVENT OF FORFEITURES; FRACTIONAL SHARES. Unless
otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash consideration, the
Participant shall be repaid the amount of such cash consideration. No
fractional shares of Stock shall be issued or delivered pursuant to the Plan
or any Award. The Committee shall
39
<PAGE>
determine whether cash, other Awards or other property shall be issued or
paid in lieu of such fractional shares or whether such fractional shares or
any rights thereto shall be forfeited or otherwise eliminated.
(j) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the
Company that Options and SARs granted to Covered Employees and other Awards
designated as Awards to Covered Employees subject to Section 7 shall
constitute qualified "performance-based compensation" within the meaning of
Code Section 162(m) and regulations thereunder, unless otherwise determined
by the Committee at the time of allocation of an Award. Accordingly, the
terms of Sections 7(b), (c), and (d), including the definitions of Covered
Employee and other terms used therein, shall be interpreted in a manner
consistent with Code Section 162(m) and regulations thereunder. The
foregoing notwithstanding, because the Committee cannot determine with
certainty whether a given Participant will be a Covered Employee with
respect to a fiscal year that has not yet been completed, the term Covered
Employee as used herein shall mean only a person designated by the Committee
as likely to be a Covered Employee with respect to a specified fiscal year.
If any provision of the Plan or any Award document relating to a Performance
Award that is designated as intended to comply with Code Section 162(m) does
not comply or is inconsistent with the requirements of Code Section 162(m)
or regulations thereunder, such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements, and no
provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the applicable performance
objectives.
(k) CERTAIN LIMITATIONS RELATING TO ACCOUNTING TREATMENT OF
AWARDS. Other provisions of the Plan notwithstanding, the Committee's
authority under the Plan (including under Sections 8(c), 8(d), 11(c) and
11(d)) is limited to the extent necessary to ensure that any Option or other
Award of a type that the Committee has intended to be subject to fixed
accounting with a measurement date at the date of grant or the date
performance conditions are satisfied under APB 25 shall not become subject
to "variable" accounting solely due to the existence of such authority,
unless the Committee specifically determines that the Award shall remain
outstanding despite such "variable" accounting. In addition, other
provisions of the Plan notwithstanding, (i) if any right under this Plan
would cause a transaction to be ineligible for pooling-of-interests
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, such right shall be automatically adjusted so that
pooling-of-interests accounting shall be available, including by
substituting Stock or cash having a Fair Market Value equal to any cash or
Stock otherwise payable in respect of any right to cash which would cause
the transaction to be ineligible for pooling-of-interests accounting, and
(ii) if the authority of the Continuing Directors to determine that an event
shall not constitute a Change in Control or other authority under
Section 9(c) would cause a transaction to be ineligible for
pooling-of-interests accounting that would, but for such authority, be
eligible for such accounting treatment, such authority shall be limited to
the extent necessary so that such transaction would be eligible for
pooling-of-interests accounting.
(l) GOVERNING LAW. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan and any Award document shall
be determined in accordance with the laws of the State of Delaware, without
giving effect to principles of conflicts of laws, and applicable provisions
of federal law.
(m) AWARDS TO PARTICIPANTS OUTSIDE THE UNITED STATES. The Committee
may modify the terms of any Award under the Plan made to or held by a
Participant who is then resident or primarily employed outside of the United
States in any manner deemed by the Committee to be necessary or appropriate
in order that such Award shall conform to laws, regulations, and customs of
the country in which the Participant is then resident or primarily employed,
or so that the value and other benefits of the Award to the Participant, as
affected by foreign tax laws and other restrictions applicable as a result
of the Participant's residence or employment abroad shall be comparable to
the value of such an Award
40
<PAGE>
to a Participant who is resident or primarily employed in the United States.
An Award may be modified under this Section 11(m) in a manner that is
inconsistent with the express terms of the Plan, so long as such
modifications will not contravene any applicable law or regulation or result
in actual liability under Section 16(b) for the Participant whose Award is
modified.
(n) LIMITATION ON RIGHTS CONFERRED UNDER PLAN. Neither the Plan nor
any action taken hereunder shall be construed as (i) giving any Eligible
Person or Participant the right to continue as an Eligible Person or
Participant or in the employ or service of the Company or a subsidiary or
affiliate, (ii) interfering in any way with the right of the Company or a
subsidiary or affiliate to terminate any Eligible Person's or Participant's
employment or service at any time, (iii) giving an Eligible Person or
Participant any claim to be granted any Award under the Plan or to be
treated uniformly with other Participants and employees, or (iv) conferring
on a Participant any of the rights of a stockholder of the Company unless
and until the Participant is duly issued or transferred shares of Stock in
accordance with the terms of an Award or an Option is duly exercised. Except
as expressly provided in the Plan and an Award document, neither the Plan
nor any Award document shall confer on any person other than the Company and
the Participant any rights or remedies thereunder.
(o) SEVERABILITY; ENTIRE AGREEMENT. If any of the provisions of this
Plan or any Award document is finally held to be invalid, illegal or
unenforceable (whether in whole or in part), such provision shall be deemed
modified to the extent, but only to the extent, of such invalidity,
illegality or unenforceability, and the remaining provisions shall not be
affected thereby; provided, that, if any of such provisions is finally held
to be invalid, illegal, or unenforceable because it exceeds the maximum
scope determined to be acceptable to permit such provision to be
enforceable, such provision shall be deemed to be modified to the minimum
extent necessary to modify such scope in order to make such provision
enforceable hereunder. The Plan and any Award documents contain the entire
agreement of the parties with respect to the subject matter thereof and
supersede all prior agreements, promises, covenants, arrangements,
communications, representations and warranties between them, whether written
or oral with respect to the subject matter thereof.
(p) PLAN EFFECTIVE DATE AND TERMINATION. The Plan shall become
effective if, and at such time as, the stockholders of the Company have
approved it by the affirmative votes of the holders of a majority of the
voting securities of the Company cast in person or by proxy and entitled to
vote on the subject matter at a duly held meeting of stockholders at which a
quorum is present. Unless earlier terminated by action of the Board of
Directors, the Plan will remain in effect until such time as no Stock
remains available for delivery under the Plan and the Company has no further
rights or obligations under the Plan with respect to outstanding Awards
under the Plan.
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Detach Here
PROXY
LINENS `N THINGS, INC.
MAY 10, 2000
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 May 10, 2000 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 PROMTPLY.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE>
DETACH HERE
Please mark
/X/ votes as in
this example.
1. ELECTION OF TWO DIRECTORS
To elect (01) Philip E. Beekman as director for a three-year
term:
For Withheld
/ / / /
To elect (02) Harold F. Compton as director for a three-year term.
For Withheld
/ / / /
2. To approve the adoption of the 2000 Stock Award and Incentive Plan.
For Against Abstain
/ / / / / /
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:________________
