<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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 Section 240.14a-11(c) or Section
240.14a-12
Dayton Hudson Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / 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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
DAYTON HUDSON CORPORATION
777 Nicollet Mall
Minneapolis, MN 55402-2055
(612) 370-6948
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 1999
<PAGE>
VOTING METHODS
The accompanying Proxy Statement describes important issues affecting Dayton
Hudson Corporation. If you are a shareholder of record, you have the right to
vote your shares through the Internet, by telephone or by mail. You may also
revoke your proxy any time before the Annual Meeting. Please help us save time
and postage costs by voting through the Internet or by telephone. Each method is
generally available 24 hours a day and will ensure that your vote is confirmed
and posted immediately. To vote:
1. VIA INTERNET
a. Go to the web site at "HTTP://WWW.EPROXYVOTE.COM/DH", 24 hours a day,
7 days a week.
b. Enter the series of numbers that appear in the proxy card box, just
below the perforation.
c. Follow the simple instructions.
2. BY TELEPHONE
a. On a touch-tone telephone, call toll-free 1-877-PRX-VOTE
(1-877-779-8683) 24 hours a day, 7 days a week.
b. Enter the series of numbers that appear in the proxy card box, just
below the perforation.
c. Follow the simple recorded instructions.
3. BY MAIL
(DO NOT MAIL THE PROXY CARD IF YOU ARE VOTING BY INTERNET OR TELEPHONE.)
a. Mark your selections on the proxy card.
b. Date and sign your name exactly as it appears on your proxy card.
c. Mail the proxy card in the enclosed postage-paid envelope.
If your shares are held in the name of a bank, broker or other holder of
record, you will receive instructions from the holder of record that you must
follow in order for your shares to be voted.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
<PAGE>
DAYTON HUDSON CORPORATION
[LOGO] 777 Nicollet Mall
Minneapolis, Minnesota 55402
(612) 370-6948
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<CAPTION>
<S> <C>
TIME...................................... 9:30 a.m., Central Daylight Time, on Wednesday, May 19, 1999
PLACE..................................... The Children's Theatre
2400 Third Avenue South
Minneapolis, Minnesota
ITEMS OF BUSINESS......................... (1) To elect four directors for three-year terms.
(2) To approve the appointment of Ernst & Young LLP as independent
auditors.
(3) To approve the Long-Term Incentive Plan of 1999.
(4) To act upon any other business that may properly come before the
meeting.
RECORD DATE............................... You may vote if you are a shareholder of record at the close of
business on March 26, 1999.
ANNUAL REPORT............................. Our 1998 Annual Report, which is not part of the proxy soliciting
material, is enclosed.
PROXY VOTING.............................. It is important that your shares be represented and voted at the
Meeting. Please vote in one of these three ways:
(1) VISIT THE WEB SITE shown on your proxy card to vote via the
Internet,
(2) USE THE TOLL-FREE TELEPHONE NUMBER shown on the proxy card, OR
(3) MARK, SIGN, DATE AND PROMPTLY RETURN the enclosed proxy card in
the postage-paid envelope.
Any proxy may be revoked at any time prior to its exercise at the
Annual Meeting.
</TABLE>
[JAMES T. HALE SIGNATURE]
James T. Hale
SECRETARY
Approximate Date of Mailing of Proxy
Material: April 12, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GENERAL INFORMATION ABOUT THE MEETING AND VOTING........................................................... 1
What is the purpose of the Annual Meeting?............................................................... 1
Who may vote?............................................................................................ 1
Who may attend the Annual Meeting?....................................................................... 1
What constitutes a quorum?............................................................................... 1
May I vote by proxy card, telephone or through the Internet?............................................. 2
May I vote confidentially?............................................................................... 2
May I change my vote?.................................................................................... 2
How does the Board recommend I vote?..................................................................... 2
How many votes are required to approve each item?........................................................ 2
What if other matters are presented for determination at the Annual Meeting?............................. 3
Who pays the expenses incurred in connection with the solicitation of proxies?........................... 3
How do I get additional copies of the Annual Report?..................................................... 3
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN................................................ 4
ITEM ONE--ELECTION OF DIRECTORS............................................................................ 5
Director Nominees........................................................................................ 5
General Information About the Board of Directors......................................................... 5
Director Compensation.................................................................................... 8
Certain Transactions..................................................................................... 9
Board Meetings During Fiscal 1998........................................................................ 9
Board Committees......................................................................................... 9
Stock Ownership of Directors and Officers................................................................ 11
Largest Owners of the Corporation's Stock................................................................ 12
Executive Compensation................................................................................... 13
Summary Compensation Table............................................................................. 13
Option Grants in Last Fiscal Year...................................................................... 16
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values...................... 16
Income Continuance Policy.............................................................................. 17
Amounts Paid Upon Termination.......................................................................... 17
Pension................................................................................................ 18
Report of Compensation Committee on Executive Compensation............................................... 19
General................................................................................................ 19
Individual Performance Evaluations..................................................................... 19
Base Salary............................................................................................ 20
Short-Term Incentive Compensation...................................................................... 20
Long-Term Incentive Compensation....................................................................... 21
Corporate Governance and Certain Tax Consequences of Plans............................................. 22
ITEM TWO--APPOINTMENT OF INDEPENDENT AUDITORS.............................................................. 24
ITEM THREE--APPROVAL OF THE LONG-TERM INCENTIVE PLAN OF 1999............................................... 24
ADDITIONAL INFORMATION..................................................................................... 30
Section 16(a) Beneficial Ownership Reporting Compliance.................................................. 30
Vendor Standards and Compliance.......................................................................... 30
Commitment to Diversity.................................................................................. 30
Shareholder Proposals.................................................................................... 30
</TABLE>
<PAGE>
DAYTON HUDSON CORPORATION
777 NICOLLET MALL
MINNEAPOLIS, MINNESOTA 55402
------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 1999
------------------------
The Board of Directors of Dayton Hudson Corporation (the "Corporation," "we"
or "us") solicits the enclosed proxy for the Annual Meeting of Shareholders to
be held at The Children's Theatre, 2400 Third Avenue South, Minneapolis,
Minnesota, on Wednesday, May 19, 1999, at 9:30 a.m., Central Daylight Time, and
for any adjournment thereof.
GENERAL INFORMATION ABOUT THE MEETING AND VOTING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At our Annual Meeting, shareholders will act upon the matters described in
the accompanying notice of meeting, including the election of four directors,
appointment of the Corporation's independent auditors and approval of the
Long-Term Incentive Plan of 1999. In addition, our management will report on the
performance of the Corporation during fiscal 1998 and respond to questions from
shareholders.
WHO MAY VOTE?
We have two classes of voting stock, Common Stock and Series B ESOP
Convertible Preferred Stock (the "401(k) Preferred Shares"). The 401(k)
Preferred Shares were issued by the Corporation to match employee contributions
to our 401(k) plan (the "DHC 401(k) Plan"). Only shareholders of record of
Common Stock and 401(k) Preferred Shares at the close of business on the record
date, March 26, 1999, are entitled to receive notice of the Annual Meeting and
to vote the shares of Common Stock and the 401(k) Preferred Shares that they
held on the record date, at the meeting, or any postponement or adjournment of
the meeting. As of the record date for the Annual Meeting, each share of Common
Stock had one vote and each 401(k) Preferred Share was convertible into 60
shares of Common Stock and had 60 votes on each matter to be voted upon. Common
Stock and the 401(k) Preferred Shares vote as a single class, except as required
by law.
WHO MAY ATTEND THE ANNUAL MEETING?
All shareholders as of the record date, or their duly appointed proxies, may
attend the meeting. Seating, however, is limited. Admission to the meeting is on
a first-come, first-served basis and seating begins at approximately 9:00 a.m.
The admission ticket attached to the enclosed proxy card is required for
admission to the meeting. Cameras and recording devices are not permitted at the
meeting.
Please note that if you hold shares in "street name" (that is, through a
bank, broker or other nominee), you will need to bring a copy of a statement
reflecting your stock ownership as of the record date and check in at the
registration desk at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of Common Stock and 401(k) Preferred Shares outstanding on the record
date will constitute a quorum, permitting the meeting
1
<PAGE>
to conduct its business. As of the record date, 442,606,040 shares of Common
Stock and 334,383 401(k) Preferred Shares of the Corporation were outstanding.
Proxies received but marked as abstentions and broker non-votes will be included
in the calculation of the number of shares considered to be present at the
meeting for purposes of determining whether there is a quorum.
MAY I VOTE BY PROXY CARD, TELEPHONE OR THROUGH THE INTERNET?
You may vote by completing and properly signing the enclosed proxy card and
returning it to the Corporation in the envelope provided. If you attend the
meeting, you may deliver your completed proxy card in person. In addition,
registered shareholders (those whose shares are owned in their name and not in
"street name") may vote by either telephone or through the Internet by following
the instructions on the inside of the front cover of these materials and on the
reverse side of the enclosed admission ticket.
MAY I VOTE CONFIDENTIALLY?
Yes. Our policy is to treat all shareholder meeting proxies, ballots and
voting tabulations of a shareholder confidentially, if the shareholder has
requested confidentiality on the proxy card or ballot.
If you so request, your proxy will not be available for examination nor will
your vote be disclosed prior to the tabulation of the final vote at the Annual
Meeting except (i) to meet applicable legal requirements, (ii) to allow the
independent election inspectors to count and certify the results of the vote or
(iii) where there is a proxy solicitation in opposition to the Board of
Directors, based upon an opposition proxy statement filed with the Securities
and Exchange Commission (the "SEC"). The independent election inspectors may at
any time inform us whether or not a shareholder has voted.
MAY I CHANGE MY VOTE?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with the Secretary of the
Corporation either a notice of revocation or a duly executed proxy bearing a
later date. Alternatively, if you have voted by telephone or through the
Internet, you may change your vote by calling the toll free number again and
following the instructions or signing on to the website and following the
prompts. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy.
HOW DOES THE BOARD RECOMMEND I VOTE?
Unless you give instructions on your proxy card, the persons named as proxy
holders on the proxy card will vote in accordance with the recommendations of
the Board of Directors. The Board's recommendation is set forth together with
the description of each item in this proxy statement. In summary, the Board of
Directors recommends a vote:
FOR election of the director nominees (see pages 5-23),
FOR approval of the appointment of Ernst & Young LLP as the Corporation's
independent auditors (see page 24) and
FOR approval of the Long-Term Incentive Plan of 1999 (see pages 24-29).
With respect to any other matter that properly comes before the meeting, the
proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
HOW MANY VOTES ARE REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS. The affirmative vote of a majority of the
outstanding shares of Common Stock and the 401(k) Preferred Shares of the
Corporation entitled to vote on the election of directors
2
<PAGE>
and present in person or by proxy at the Annual Meeting is required for the
election to the Board of Directors of each of the four director nominees.
For this purpose, a properly executed proxy marked "WITHHOLD" with respect
to the election of director nominees will be counted for purposes of
determining whether there is a quorum, but will not be considered present in
person or by proxy and entitled to vote on the election of directors.
OTHER ITEMS. For appointment of our independent auditors, approval of
the Long-Term Incentive Plan of 1999 and any other items that properly come
before the meeting, the affirmative vote of a majority of the outstanding
shares of Common Stock and the 401(k) Preferred Shares of the Corporation
entitled to vote on the item and present in person or by proxy at the Annual
Meeting will be required for approval. A properly executed proxy marked
"ABSTAIN" with respect to any such matter will be counted for purposes of
determining whether there is a quorum and will be considered present in
person or by proxy and entitled to vote. Accordingly, an abstention will
have the effect of a negative vote.
WHAT IF OTHER MATTERS ARE PRESENTED FOR DETERMINATION AT THE ANNUAL MEETING?
As of the date of this Proxy Statement, management knows of no matters that
will be presented for determination at the meeting other than those referred to
herein. If any other matters properly come before the meeting calling for a vote
of shareholders, proxies in the enclosed form returned to us will be voted in
accordance with the recommendation of the Board of Directors, or, in the absence
of such a recommendation, in accordance with the judgment of the proxy holders.
WHO PAYS THE EXPENSES INCURRED IN CONNECTION WITH THE SOLICITATION OF PROXIES?
Expenses in connection with the solicitation of proxies will be paid by us.
Proxies are being solicited principally by mail, by telephone and through the
Internet. We have retained Thomson Investor Relations to act as a proxy
solicitor for a fee estimated not to exceed $20,000, plus reimbursement of
out-of-pocket expenses. In addition, our directors, officers and regular
employees may solicit proxies personally, by telephone, fax or special letter.
We may reimburse brokerage firms and others for their expenses in forwarding
proxy materials to the beneficial owners of shares of the Corporation.
HOW DO I GET ADDITIONAL COPIES OF THE ANNUAL REPORT?
The Annual Report of the Corporation for the fiscal year ended January 30,
1999, including financial statements, is enclosed. For additional copies, please
contact our Investor Relations representative at (612) 370-6736 or mail your
request to our Vice President, Investor Relations.
3
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DAYTON HUDSON S&P 500
CORPORATION INDEX PEER GROUP INDEX
<S> <C> <C> <C>
1994 $100.00 $100.00 $100.00
1995 106.61 100.53 85.94
1996 118.18 139.40 96.72
1997 183.10 176.12 115.41
1998 354.51 223.51 174.19
1999 633.83 296.13 299.45
</TABLE>
FISCAL YEARS ENDING JANUARY 31
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Dayton Hudson Corporation 100 106.61 118.18 183.10 354.51 633.83
S&P 500 Index 100 100.53 139.40 176.12 223.51 296.13
Peer Group Index 100 85.94 96.72 115.41 174.19 299.45
</TABLE>
The graph above compares the cumulative total shareholder return on our
Common Stock for the last five fiscal years with cumulative total return on the
S&P 500 Index and an index composed of the Corporation's peer group companies
(the "Peer Group Index") over the same period. The Peer Group Index consists of
the following companies: the Corporation, Dillard's, Inc., Federated Department
Stores, Inc., The Gap, Inc., Kmart Corporation, Kohl's Corporation, The Limited,
Inc., The May Department Stores Company, Nordstrom, Inc., J.C. Penney Company,
Inc., Sears, Roebuck and Co., The TJX Companies, Inc. and Wal-Mart Stores, Inc.
The graph assumes the investment of $100 in the Corporation's Common Stock, the
S&P 500 Index and the Peer Group Index on January 31, 1994, and reinvestment of
all dividends.
4
<PAGE>
ITEM ONE--ELECTION OF DIRECTORS
DIRECTOR NOMINEES
Proxies solicited by the Board of Directors will, unless otherwise directed,
be voted for the election of four nominees to serve as Class II directors for
three-year terms expiring in 2002 and until their successors are elected. The
four nominees are Livio D. DeSimone, Roger A. Enrico, William W. George and
James A. Johnson. All of the nominees are currently directors.
The Board of Directors has no reason to believe that any of the nominees is
not available or will not serve if elected. If for any reason any nominee
becomes unavailable for election, the Board of Directors may designate
substitute nominees, in which event the shares represented by proxies returned
to us will be voted for such substitute nominees, unless an instruction to the
contrary is indicated on the proxy.
GENERAL INFORMATION ABOUT THE BOARD OF DIRECTORS
The Corporation's Restated Articles of Incorporation, as amended, provide
that our business and affairs shall be managed by, or under the direction of, a
Board of Directors consisting of not less than five nor more than 21 persons.
Directors are divided into three classes. Directors of one class are elected
each year for a term of three years. The Board of Directors currently consists
of 11 members, four of whom are Class I directors whose terms expire at the 2001
Annual Meeting, four of whom are Class II directors whose terms expire at this
Annual Meeting and three of whom are Class III directors whose terms expire at
our 2000 Annual Meeting.
Following is information regarding the nominees and directors, including
information furnished by them as to their principal occupations. All of the
present directors were elected to the Board of Directors by our shareholders.
See page 11 for a table showing the number of shares of Common Stock of the
Corporation beneficially owned by each director as of April 1, 1999.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- ---------------------- ---------------------------------------------------------------------- --- --------
<S> <C> <C> <C>
Livio D. DeSimone is Chairman of the Board and Chief Executive Officer 62 1987
[PHOTO] of 3M, a diversified manufacturer. Mr. DeSimone joined 3M in 1957 and
held various international and domestic positions. He was elected Area
LIVIO D. DESIMONE Vice President, Latin America in 1975, Vice President in 1979 and
Class II Executive Vice President in 1981. He was elected Chairman and
Nominee for term Chief Executive Officer in 1991. Mr. DeSimone is a director of
expiring in 2002 Cargill, Incorporated, General Mills, Inc., 3M and Vulcan
Materials Company. He is also Vice Chairman of the
Executive Committee of the Board of Directors of the Corporation.
Roger A. Enrico is Chairman of the Board and Chief Executive Officer 54 1990
[PHOTO] of PepsiCo, Inc., a domestic and international beverage and food
business. He joined PepsiCo in 1971. He was President and Chief
ROGER A. ENRICO Executive Officer of Pepsi-Cola USA from 1983 to 1986 when he became
Class II President and Chief Executive Officer of PepsiCo Worldwide Beverages.
Nominee for term He was Chairman and Chief Executive Officer of Frito-Lay from 1990 to
expiring in 2002 1992. In 1992, he was elected Chairman and Chief Executive Officer of
PepsiCo Worldwide Foods. In 1993, he was elected Vice Chairman of
PepsiCo, Inc. and in 1994, Chairman and Chief Executive Officer of
PepsiCo Worldwide Restaurants. In 1996, he was elected Chairman of the
Board and Chief Executive Officer of PepsiCo, Inc. He is a director of
A.H. Belo Corp., PepsiCo, Inc. and The Prudential Insurance Company of
America.
</TABLE>
5
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<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- ---------------------- ---------------------------------------------------------------------- --- --------
<S> <C> <C> <C>
William W. George is Chairman of the Board and Chief Executive Officer 56 1993
[PHOTO] of Medtronic, Inc., a therapeutic medical device company. He served in
the United States Department of Defense from 1966 to 1968 and worked
WILLIAM W. GEORGE in the United States Department of the Navy from 1968 to 1969. From
Class II 1969 to 1978, he worked for Litton Industries, Inc., serving as
Nominee for term President of Litton Microwave Cooking Products from 1973 to 1978. He
expiring in 2002 was elected to various officer positions at Honeywell Inc. from 1978
to 1989, including President, Europe from 1980 to 1983, President,
Industrial Automation & Controls from 1987 to 1988 and President,
Space & Aviation Controls from 1988 to 1989. He was elected President
and Chief Operating Officer of Medtronic in 1989, President and Chief
Executive Officer in 1991 and was elected Chairman of the Board and
Chief Executive Officer in 1996. He is a director of Imation Corp. and
Medtronic, Inc.
Michele J. Hooper was President and Chief Executive Officer of 47 1990
[PHOTO] Stadtlander Drug Company, Inc., a pharmaceutical drug company, from
July 1998 until January 1999 when the company was acquired. Prior to
MICHELE J. HOOPER joining Stadtlander Drug Company, Inc., she was Corporate Vice
Class I President and President, International Businesses, Caremark
Term expires in 2001 International, Inc., a health care company. She joined Baxter
Healthcare Corporation in 1976 and served in various management
positions before being named Vice President, Corporate Planning for
Baxter International in 1984. In 1988, she was elected President of
Baxter Healthcare Corporation, Canada. From 1991 to 1992 she was
President, Alternate Site International, a unit of Baxter Corporation.
In 1992, she became President, International Business Group, Caremark
International, Inc. and in 1993, she became Corporate Vice President,
International Businesses, Caremark International, Inc. She is a
director of PPG Industries, Inc. and the Seagrams Company Ltd.
James A. Johnson is Chairman of the Executive Committee of the Board 55 1996
[PHOTO] of Fannie Mae, a Congressionally chartered financial services company.
From 1977 to 1981 he was Executive Assistant to Vice President Walter
JAMES A. JOHNSON F. Mondale. From 1981 to 1985 he was President of Public Strategies, a
Class II strategic consulting firm and from 1985 to 1989, he was a managing
Nominee for term director of Lehman Bros. In 1990, he was elected Vice Chairman of
expiring in 2002 Fannie Mae. In 1991, he was elected Chairman and Chief Executive
Officer of Fannie Mae and held that position through 1998 when he was
elected to his current position. He is a director of Cummins Engine
Company, Inc., Fannie Mae, Kaufman & Broad Home Corporation and
UnitedHealth Group.
</TABLE>
6
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<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- ---------------------- ---------------------------------------------------------------------- --- --------
<S> <C> <C> <C>
Richard M. Kovacevich is President and Chief Executive Officer of 55 1996
[PHOTO] Wells Fargo & Co., a banking and financial services company. He was
elected President and Chief Operating Officer of Norwest Corporation,
RICHARD M. KOVACEVICH a banking and financial services company, in 1989, and President and
Class III Chief Executive Officer of Norwest in 1993. He was elected Chairman of
Term expires in 2000 the Board and Chief Executive Officer of Norwest in 1995 and held that
position until Norwest merged with Wells Fargo in 1998 when he was
elected to his current position. He is a director of Cargill,
Incorporated, ReliaStar Financial Corp. and Wells Fargo & Co.
Susan A. McLaughlin is President of Consumer Services, BellSouth 46 1997
[PHOTO] Telecommunications, Inc., a communications services company. From 1996
to February 1998, she was Vice President and Chief Operating Officer,
SUSAN A. MCLAUGHLIN Kodak Professional Division, Eastman Kodak Company, an imaging
Class I company. She joined Eastman Kodak in 1987 and held several other
Term expires in 2001 management positions across the company's divisions including General
Manager, U.S., Operations and Vice President Imaging, and President
and General Manager, Kodak Imaging Services, Inc. She is a director of
Delphi Automotive Systems Corporation.
Anne M. Mulcahy is Executive Vice President; President, General 46 1997
[PHOTO] Markets Operations, Xerox Corporation, a document management company.
She joined Xerox in 1976 and held several sales and management
ANNE M. MULCAHY positions in marketing until 1991, when she was named Vice President,
Class I Worldwide Marketing Operations Planning and Director, Corporate Human
Term expires in 2001 Services. From 1992 until 1995, she served as Vice President for Human
Resources. From 1995 to 1997, she served as Staff Officer for Customer
Operations. From 1997, until being elected to her current position in
1998, she was Vice President and Chief Staff Officer of Xerox
Corporation. She serves on the Board of Trustees of Marymount College.
Stephen W. Sanger is Chairman of the Board and Chief Executive Officer 52 1996
[PHOTO] of General Mills, Inc., a consumer food products company. He joined
General Mills in 1974 and held a series of positions in marketing and
STEPHEN W. SANGER management across the company's consumer food businesses. He served as
Class I President of the Big G Division, President of Yoplait USA and General
Term expires in 2001 Manager of the New Business Development Division. In 1991, he was
elected Executive Vice President. In 1992, he was elected Vice
Chairman. In 1993, he was elected President. In 1995, he was elected
Chairman of the Board and Chief Executive Officer. He is a director of
Donaldson Company, Inc. and General Mills, Inc.
</TABLE>
7
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<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR PRINCIPAL OCCUPATION AND OTHER INFORMATION AGE SINCE
- ---------------------- ---------------------------------------------------------------------- --- --------
<S> <C> <C> <C>
Solomon D. Trujillo is President and Chief Executive Officer of U S 47 1994
[PHOTO] WEST, Inc., a telecommunications company, which became a separate
entity in June 1998. From 1995 until June 1998, Mr. Trujillo was
SOLOMON D. TRUJILLO President and Chief Executive Officer of U S WEST Communications
Class III Group, Inc., a business of U S WEST that provided telecommunication
Term Expires in 2000 services to customers in 14 Western and Midwestern states. He joined
Mountain Bell in 1974 and held various management positions before
being named Vice President and Chief Executive Officer of Mountain
Bell New Mexico in 1984. He served as Vice President and General
Manager of the Small Business Services Market Unit of U S WEST from
1987 until he was elected President and Chief Executive Officer of U S
WEST Marketing Resources Group in 1992. He is a director of Bank of
America, FSB and U S WEST, Inc.
Robert J. Ulrich is Chairman of the Board, Chief Executive Officer and 55 1993
[PHOTO] Chairman of the Executive Committee of the Corporation and Chairman
and Chief Executive Officer of Target, a division of the Corporation.
ROBERT J. ULRICH Mr. Ulrich began his retailing career as a merchandising trainee at
Class III Dayton's in 1967 and advanced through various management positions. In
Term Expires in 2000 1981, Mr. Ulrich was named Executive Vice President of Dayton's and
later that year was named President and Chief Executive Officer of
Diamond's, a former operating company of the Corporation. In 1984, Mr.
Ulrich was named President of the Department Store Division. Later
that year he was named President of Target. He became Chairman and
Chief Executive Officer of Target in 1987. He was elected Chairman and
Chief Executive Officer of the Corporation in 1994. He is a director
of Tricon Global Restaurants, Inc.
</TABLE>
DIRECTOR COMPENSATION
Directors who are not employees of the Corporation are paid an annual fee of
$25,000, plus $1,000 for each directors' or committee meeting they attend.
Directors may defer receipt of their fees. If they do, their fees are credited
at rates based upon the return earned by various investment alternatives chosen
by the director. Directors may also direct us to forward their fees to the
Corporation's transfer agent to purchase Common Stock of the Corporation for
their account at then current prices. We pay the brokerage fees for such
purchases. Non-employee directors also receive $15,000 of restricted stock of
the Corporation per year. Those shares are restricted until the director leaves
the Board. The Vice Chairman of the Executive Committee receives an additional
$10,000 of our restricted stock each year. Non-employee directors receive an
annual grant of options to purchase the number of shares of our Common Stock
determined by dividing $150,000 by the fair market value of the Common Stock on
the day of grant. Non-employee directors also receive merchandise discounts of
varying amounts at the stores of each of our operating companies. Those
discounts are the same as the discounts our employees receive. Employee
directors are not compensated separately for services as a director or committee
member but receive their regular compensation as employees.
8
<PAGE>
CERTAIN TRANSACTIONS
The Corporation and our operating companies have transactions in the
ordinary course of business with unaffiliated corporations of which certain of
the non-employee directors are officers. We do not consider the amounts involved
in such transactions material in relation to our business and believe that any
such amounts are not material in relation to the business of such other
unaffiliated corporations or the interests of the non-employee directors
involved.
BOARD MEETINGS DURING FISCAL 1998
The Board of Directors met six times during fiscal 1998. The Securities and
Exchange Commission ("SEC") rules require disclosure of those directors who
attended fewer than 75% of the aggregate total of meetings of the Board and
Board Committees on which the director served during the last fiscal year. No
director attended fewer than 75% of the aggregate total of such meetings.
BOARD COMMITTEES
EXECUTIVE COMMITTEE
The Executive Committee of the Board of Directors consists of the Chairman
of the Board of the Corporation and all the independent directors. The members
of the Executive Committee are Directors Ulrich (Chair), DeSimone (Vice Chair),
Enrico, George, Hooper, Johnson, Kovacevich, McLaughlin, Mulcahy, Sanger and
Trujillo. During the last fiscal year, the Executive Committee held two
meetings. The Executive Committee reviews the Compensation Committee's
recommendations on performance and compensation of all senior corporate officers
and certain other senior executives within the Corporation. As part of their
responsibilities, the independent director members of the Executive Committee
conduct the annual evaluation of our Chief Executive Officer. The Executive
Committee also reviews the Corporation's managerial capabilities and
requirements.
NOMINATING COMMITTEE
The Board of Directors has a Nominating Committee, consisting solely of
independent directors. The members of the Nominating Committee are Directors
Sanger (Chair), DeSimone, Hooper and Kovacevich. The Nominating Committee held
one meeting during the last fiscal year. The Nominating Committee considers the
qualifications of and recommends each candidate and incumbent for election as a
director of the Corporation and nominates candidates to fill Board vacancies.
The Board of Directors created the Nominating Committee so that the selection of
directors would be made solely by independent directors.
The Nominating Committee will consider nomination by a shareholder of a
candidate for election as a director of the Corporation. Any shareholder who
wishes the Nominating Committee to consider a candidate should submit a written
request and related information to the Secretary of the Corporation on behalf of
the Nominating Committee no later than December 31 of the calendar year
preceding the next Annual Meeting of Shareholders (currently held in May). Under
the Corporation's Restated Articles of Incorporation, as amended, if a
shareholder plans to nominate a person as a director at a meeting, the
shareholder is required to place a proposed director's name in nomination by
written request received by the Secretary of the Corporation at least 60 days
prior to an annual or special meeting, together with the written consent of such
person to serve as a director.
COMPENSATION COMMITTEE
The Board of Directors has a Compensation Committee, consisting solely of
independent directors. The members of the Compensation Committee are Directors
Enrico (Chair), Sanger (Vice Chair), Johnson and Trujillo. The Compensation
Committee held three meetings during the last fiscal year. The
9
<PAGE>
Compensation Committee reviews management proposals regarding compensation
programs, plans and guidelines, focusing on a "pay-for-performance" compensation
philosophy. The Compensation Committee reviews the performance of all senior
corporate officers and certain other senior executives within the Corporation
and recommends their compensation based on their performance. The Compensation
Committee also determines certain awards and payouts under our long-term
incentive plan and makes certain determinations regarding short-term incentive
compensation.
AUDIT COMMITTEE
The Board of Directors has an Audit Committee, consisting solely of
independent directors. The members of the Audit Committee are Directors Hooper
(Chair), Kovacevich (Vice Chair), Enrico, George and McLaughlin. The Audit
Committee held two meetings during the last fiscal year. In designating the
members of the Audit Committee, the Board specifically evaluates their
independence of judgment according to guidelines published by the New York Stock
Exchange. The Audit Committee, among other duties, reviews the overall audit
scope, plans for internal and independent audits, our internal controls,
emerging accounting issues, officer and director expenses, audit fees and
retirement plans. The Audit Committee met individually with the internal
auditors and independent auditors, without management present, to discuss the
results of their audits. The Audit Committee encourages the internal and
independent auditors to communicate closely with the Audit Committee.
FINANCE COMMITTEE
The Board of Directors has a Finance Committee, consisting solely of
independent directors. The members of the Finance Committee are Directors
DeSimone (Chair), Johnson (Vice Chair), Mulcahy, Sanger and Trujillo. The
Finance Committee met two times during the last fiscal year. The duties of the
Finance Committee include reviewing our financial policies, financing
requirements and our pension and 401(k) Plan investment programs.
CORPORATE RESPONSIBILITY COMMITTEE
The Board of Directors has a Corporate Responsibility Committee, consisting
solely of independent directors. The members of the Corporate Responsibility
Committee are Directors George (Chair), Trujillo (Vice Chair), Johnson,
McLaughlin and Mulcahy. The Corporate Responsibility Committee held two meetings
during the last fiscal year. The duties of the Corporate Responsibility
Committee include review and evaluation of our public affairs and community
development programs. The Corporate Responsibility Committee also reviews and
evaluates our community giving programs and those of the Dayton Hudson
Foundation.
10
<PAGE>
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
Set forth below is information regarding equity securities of the
Corporation owned beneficially on April 1, 1999 by all directors and nominees,
each of the executive officers named in the Summary Compensation Table on page
13, and all directors and executive officers of the Corporation as a group. None
of the named individuals nor the group owned one percent or more of the total
outstanding shares.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AGGREGATE NUMBER ACQUIRABLE
OR NUMBER OF TITLE OF OF SHARES WITHIN 60
PERSONS IN GROUP CLASS BENEFICIALLY OWNED(1) DAYS(2)
- ------------------------------------------------------------------ -------- --------------------- ----------
<S> <C> <C> <C>
Livio D. DeSimone................................................. Common 12,815(3) 14,828
Roger A. Enrico................................................... Common 29,627 14,828
William W. George................................................. Common 13,579 14,828
Michele J. Hooper................................................. Common 7,785 14,828
James A. Johnson.................................................. Common 9,569 10,520
Richard M. Kovacevich............................................. Common 25,141 6,992
Susan A. McLaughlin............................................... Common 1,761 2,346
Anne M. Mulcahy................................................... Common 2,161 2,346
Stephen W. Sanger................................................. Common 3,251 10,520
Solomon D. Trujillo............................................... Common 4,355 14,828
Robert J. Ulrich(4)............................................... Common 496,237(5)(6) 681,078
Gregg W. Steinhafel(4)............................................ Common 85,561(5)(6) 300,579
Kenneth B. Woodrow(4)............................................. Common 112,280(5)(6) 378,105
Linda L. Ahlers(4)................................................ Common 64,548(5)(6) 204,899
John E. Pellegrene(4)............................................. Common 80,612(5)(6) 142,882
All directors and executive officers of the Corporation as a group
(23 persons).................................................... Common 1,327,612 2,814,659
</TABLE>
- ------------------------
(1) The persons listed have sole voting and investment power with respect to the
shares listed except that Directors DeSimone, Johnson and Mulcahy have (i)
sole voting and sole investment power over 0 shares, 0 shares and 1,761
shares, respectively, and (ii) shared voting and investment power over 9,215
shares, 9,569 shares and 400 shares, respectively. Directors are deemed to
have sole voting and investment power as to restricted stock they own.
(2) Includes shares that the named individuals may acquire on or before June 12,
1999 pursuant to options held by them under the Corporation's Long-Term
Incentive Plan of 1981 ("LTIP") or 1995 Director Stock Option Plan.
(3) Includes 3,600 shares of Common Stock owned as of April 1, 1999 by certain
of Mr. DeSimone's family members as to which shares he disclaims beneficial
ownership.
(4) Executive officer.
(5) Includes shares of Common Stock owned by such person in the DHC 401(k) Plan
as of January 30, 1999.
(6) Does not include ownership of 401(k) Preferred Shares. As of January 30,
1999, Executives Ulrich, Steinhafel, Woodrow, Ahlers and Pellegrene each
owned 73, 74, 75, 75 and 74 401(k) Preferred Shares, respectively, and all
directors and executive officers of the Corporation owned 807 401(k)
Preferred Shares. Each 401(k) Preferred Share is convertible into 60 shares
of the Corporation's Common Stock.
11
<PAGE>
LARGEST OWNERS OF THE CORPORATION'S STOCK
The table below sets forth certain information, as to each person or entity
known to the Corporation to be the beneficial owner of more than 5 percent of
any class of the Corporation's voting securities:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS TITLE OF BENEFICIALLY PERCENT
OF BENEFICIAL OWNER CLASS OWNED OF CLASS
- -------------------------------------------------- ---------- ----------------- -----------
<S> <C> <C> <C>
FMR Corp.......................................... Common 44,589,281(1) 10.11%
82 Devonshire Street
Boston, Massachusetts 02109
State Street Bank and Trust Company............... Common 41,504,978(2) 8.99%
225 Franklin Street
Boston, Massachusetts 02110
</TABLE>
- ------------------------
(1) FMR Corp. ("FMR") reported its beneficial ownership as of February 10, 1999
on a Schedule 13G filed with the SEC. The filing indicates that FMR has sole
voting power for 1,903,104 shares, shared voting power for 0 shares, sole
dispositive power for 44,589,281 shares and shared dispositive power for 0
shares.
(2) State Street Bank and Trust Company ("State Street") reported its beneficial
ownership as of February 11, 1999 on a Schedule 13G filed with the SEC. The
filing indicates that State Street has sole voting power for 7,557,510
shares, shared voting power for 33,410,997 shares, sole dispositive power
for 7,791,599 shares and shared dispositive power for 33,713,379 shares.
These shares include the Common Stock equivalent of the 401(k) Preferred
Shares that has been allocated to employee accounts in the DHC 401(k) Plan
of which State Street is trustee.
12
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION --------------------------------- --------
------------------------- RESTRICTED SECURITIES LTIP ALL OTHER
BONUS STOCK UNDERLYING PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) ($)(1)(2) AWARDS($)(3) OPTIONS(#)(4) ($)(5) ($)(6)(7)
- ------------------------------ ----- ------------- ---------- ------------ ------------------ -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Ulrich.............. 1998 1,027,874 2,314,650 0 0 2,610,052 463,901(9)
Chairman and Chief 1997 1,027,874 3,257,150 0 1,000,000(8) 1,503,635 440,697
Executive Officer of the 1996 1,027,874 3,169,685 0 321,072 453,234 355,023
Corporation and Target
Gregg W. Steinhafel........... 1998 648,454 743,584 0 132,859 474,300 178,114(10)
Executive Vice 1997 594,073 825,168 0 101,176 244,398 180,814
President, Merchandising of 1996 528,712 1,431,026 0 287,126 90,688 120,766
Target
Kenneth B. Woodrow............ 1998 651,085 731,896 0 66,430 664,020 216,033(11)
President of Target 1997 613,983 942,117 0 101,176 375,909 220,839
1996 579,600 1,723,072 0 287,126 113,369 155,459
Linda L. Ahlers............... 1998 589,167 630,032 0 94,900 474,300 137,972(12)
President of the 1997 538,333 517,315 0 101,176 225,647 103,610
Department 1996 471,667 143,019 0 187,292 90,688 111,462
Store Division (DSD)
John E. Pellegrene............ 1998 513,115 467,791 0 37,960 379,440 126,415(13)
Executive Vice 1997 495,893 599,008 0 57,814 225,647 131,668
President, Marketing of 1996 474,141 1,086,012 0 166,928 90,688 81,298
Target
</TABLE>
- ------------------------
(1) Significant amounts of salary and bonus for the five named executive
officers were not actually received. Receipt of such amounts was deferred
through the Dayton Hudson Corporation SMG Executive Deferred Compensation
Plan (the "New Plan"). Under the New Plan, participants may elect to defer
up to 80% of annual base salary and bonus. The crediting rate alternatives
under the New Plan mirror the investment accounts available for the DHC
401(k) Plan. Payout from the New Plan cannot be made until retirement,
death or termination. Amounts deferred are subject to the same bankruptcy
rules as are the Corporation's general debt obligations. Deferred amounts
earn a return, a portion of which is categorized as reportable by the SEC
proxy rules. Prior to December 31, 1996, deferrals were made in the
Corporation's Deferred Compensation Plan (the "Old Plan"). Under the Old
Plan, new deferrals were terminated except for deferrals in amounts equal
to amounts automatically paid out eight years after their initial deferral.
Earnings on the Old Plan are determined in accordance with a formula set
forth in that plan. The Old Plan is otherwise substantially similar to the
New Plan. Further information regarding reportable earnings under both
plans is provided in the footnotes below.
(2) The Corporation's executive officers and certain other members of
management of the Corporation and its operating companies are eligible for
incentive bonuses under the Corporation's Personal Score Plan and the PTOC
and EVA components of its Executive Incentive Plan (the "EIP"). Information
regarding the bonus plans is found in the Report of the Compensation
Committee on Executive Compensation.
13
<PAGE>
(3) The Restricted Stock Awards column reflects rights to receive restricted
stock of the Corporation under the LTIP. The restricted shares are not
issued unless the executive remains employed by the Corporation for four
years from the date of award and provides at least one year's notice prior
to retiring from the Corporation. Upon expiration of the four-year period,
the shares are issued and put into escrow and generally restricted until
retirement. The holders of rights to receive restricted stock do not hold
voting or dividend rights until after the shares are issued. Further
information regarding restricted stock is included in the Report of the
Compensation Committee on Executive Compensation. The number and value of
restricted stock rights holdings at the end of the 1998 fiscal year (based
on the closing price of $63.75 per share at the end of the fiscal year) are
as follows:
<TABLE>
<CAPTION>
NUMBER VALUE
------------ ------------
<S> <C> <C>
Robert J. Ulrich.......................................... 61,674 $ 3,931,718
Gregg W. Steinhafel....................................... 13,680 872,100
Kenneth B. Woodrow........................................ 19,044 1,214,055
Linda L. Ahlers........................................... 9,672 616,590
John E. Pellegrene........................................ 15,384 980,730
</TABLE>
(4) These options to purchase shares of the Corporation's Common Stock were
awarded under the LTIP. The Report of the Compensation Committee on
Executive Compensation includes further information regarding stock
options.
(5) Amounts reflect earnouts of performance shares under the LTIP. Based on the
Corporation's competitive performance over the last four years, 68.8% of
the performance shares granted to Mr. Ulrich in 1994 and to be issued as
restricted stock in 1998 were earned. Based on Target's competitive
performance over the last four years, 100% of the performance shares
granted to the four remaining named executives in 1994 and to be issued as
restricted stock in 1998 were earned. Those four named executives were
Target employees on the date the award was made. The Report of the
Compensation Committee on Executive Compensation includes further
information regarding performance shares.
(6) The Corporation has an Excess Long-Term Disability Program for certain key
executives, including those executive officers listed above. The program is
integrated with the employee-paid broad-based group disability plan
(non-taxable benefit of $82,000 maximum per individual per year). Taxable
excess disability benefits are paid according to a schedule based on
compensation with the objective of replacing total after-tax income of
approximately 80% at a compensation level of $50,000 per year, decreasing
to approximately 40% at a compensation level of $2,000,000 per year. In
order to receive excess benefits, the executive must be participating under
the broad-based group disability plan. In the event of a qualifying
disability, the actual cost to the Corporation would be the after-tax cost
of the disability payments. No claims for benefits have ever been filed
under the Excess Long-Term Disability Program. No compensation is assumed
for this program since the incremental cost to the Corporation of this
benefit cannot be determined actuarily.
(7) The amounts reported include the following:
- Matching contributions to the DHC 401(k) Plan, which all
participating employees receive.
- Amounts credited to the New Plan for matching contributions that
could not be made to the DHC 401(k) Plan because of limitations imposed by
the Internal Revenue Code of 1986, as amended (the "Tax Code").
- Amounts categorized by the SEC as reportable earnings on compensation
deferred in current and previous years.
(8) This grant was made on March 6, 1998 and was described in our Proxy
Statement last year.
14
<PAGE>
(9) Includes
<TABLE>
<C> <S>
$ 6,844 DHC 401(k) Plan matching contribution
$ 160,875 deferred compensation credit for matching contributions which could not
be made to the DHC 401(k) Plan
$ 296,182 reportable earnings on deferred compensation
</TABLE>
(10) Includes
<TABLE>
<C> <S>
$ 6,457 DHC 401(k) Plan matching contribution
$ 65,983 deferred compensation credit for matching contributions which could not
be made to the DHC 401(k) Plan
$ 105,674 reportable earnings on deferred compensation
</TABLE>
(11) Includes
<TABLE>
<C> <S>
$ 6,625 DHC 401(k) Plan matching contribution
$ 72,018 deferred compensation credit for matching contributions which could not
be made to the DHC 401(k) Plan
$ 137,390 reportable earnings on deferred compensation
</TABLE>
(12) Includes
<TABLE>
<C> <S>
$ 5,865 DHC 401(k) Plan matching contribution
$ 49,153 deferred compensation credit for matching contributions which could not
be made to the DHC 401(k) Plan
$ 82,954 reportable earnings on deferred compensation
</TABLE>
(13) Includes
<TABLE>
<C> <S>
$ 6,542 DHC 401(k) Plan matching contribution
$ 48,238 deferred compensation credit for matching contributions which could not
be made to the DHC 401(k) Plan
$ 71,635 reportable earnings on deferred compensation
</TABLE>
15
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------------ AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS GRANTED EMPLOYEES IN BASE PRICE EXPIRATION --------------------------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------- --------------- ------------- ------------ ------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Ulrich......... 0(2) 0% -- -- -- --
Gregg W. Steinhafel...... 132,859(3) 4.08% $ 52.6875 01/13/09 $ 4,402,268 $ 11,156,211
Kenneth B. Woodrow....... 66,430(3) 2.04% $ 52.6875 01/13/09 $ 2,201,150 $ 5,578,147
Linda L. Ahlers.......... 94,900(3) 2.91% $ 52.6875 01/13/09 $ 3,144,501 $ 7,968,782
John E. Pellegrene....... 37,960(3) 1.16% $ 52.6875 01/13/09 $ 1,257,800 $ 3,187,513
All Shareholders......... $ 14.6 billion(5) $ 37.1 billion(5)
</TABLE>
- ------------------------
(1) Under the LTIP each option was granted at the market value of the underlying
Common Stock on the date of grant and has a ten-year term. The options are
exercisable 25% on the first anniversary of the date of grant, with an
additional 25% becoming exercisable on each of the next three anniversaries
of the date of grant. The Report of the Compensation Committee on Executive
Compensation includes additional information regarding the LTIP.
(2) A grant to Mr. Ulrich on March 6, 1998 was disclosed in our Proxy Statement
last year.
(3) Granted January 13, 1999.
(4) SEC rules require the information set forth in the 5% and 10% columns. The
actual gains, if any, on stock option exercises depend on the future stock
price of the Corporation's Common Stock. Since there is no means of
accurately predicting the future price of the Corporation's Common Stock, no
accurate determination can be made as to the value of a stock option at the
time of the grant.
(5) Increase in value of shares held by all shareholders based upon 441,479,162
shares outstanding on January 13, 1999, at a price of $52.6875 per share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED -------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Ulrich.............. 163,302 5,514,679 499,797 2,241,817 24,702,536 86,453,580
Gregg W. Steinhafel........... 32,706 1,317,654 236,685 391,240 10,980,515 12,362,122
Kenneth B. Woodrow............ 0 0 280,653 358,369 13,269,996 13,342,488
Linda L. Ahlers............... 0 0 175,639 318,647 7,827,273 10,193,941
John E. Pellegrene............ 60,246 1,911,377 122,528 175,292 5,596,713 6,136,428
</TABLE>
16
<PAGE>
INCOME CONTINUANCE POLICY
No officer of the Corporation is a party to an employment contract with the
Corporation. As an alternative to the use of such contracts, the Corporation has
adopted an Income Continuance Policy (the "ICP") and a Senior Management Group
Income Continuance Policy for certain officers of the Corporation (the "SMG
ICP").
Mr. Ulrich, together with others, participates in the ICP. In 1988, the ICP
was amended to exclude additional participants. Executives Steinhafel, Woodrow,
Ahlers and Pellegrene were not participants under the ICP at the time it was
amended. In the event a participant's employment is terminated by the
Corporation, the ICP participant's compensation (salary and bonus) continues for
a period of 18 to 24 months, depending on his or her length of service. If the
participant's service with the Corporation is less than three years, the
continuation is for 18 months; over eight years, the continuation is for 24
months; and between three and eight years, an amount determined by a schedule
(more than 18 months but less than 24 months).
Participants under the SMG ICP are members of the Corporation's Senior
Management Group who are not participants under the ICP. The policy is similar
to the ICP, except its time parameters are based on the participant's salary
grade. Compensation may extend from 12 months to 24 months, based on a schedule
which provides longer income continuation to those participants with higher
grade levels. Executives Steinhafel, Woodrow, Ahlers and Pellegrene participate
in the SMG ICP.
All executive officers who are members of the Corporation's Senior
Management Group are covered by one of these policies. Both policies include
offset provisions for certain other compensation from the Corporation and may
include non-disparagement, non-competition and other requirements. Both policies
provide that the policies cannot be terminated or amended to reduce future
benefits unless two years prior notice is given to the participants in the
policies. Both policies also provide that any executive who terminates
employment or is terminated within two years of a change in control (as defined
in the LTIP) will be paid the present value of payments owing under the policies
immediately after termination.
AMOUNTS PAID UPON TERMINATION
When an executive's employment with the Corporation terminates, the
executive receives payments under the Corporation's deferred compensation
plan(s), the DHC 401(k) Plan and our pension plans. Executives may also be
entitled to exercise previously granted stock options that are then outstanding
and, in certain circumstances, receive previously granted performance shares and
restricted stock under the LTIP that are then outstanding. Further information
regarding stock options, performance shares and restricted stock is provided in
the Report of the Compensation Committee on Executive Compensation.
17
<PAGE>
PENSION
All executive officers and other employees of the Corporation and our
subsidiaries who have worked over 1,000 hours in a year and are at least 21
years of age are initially covered by the Corporation's pension plans. The
following table shows the annual benefits under the Corporation's pension plans
at age 65, on a life only basis, given the years of service and compensation
levels set forth below:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- ------------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 15,825 $ 21,100 $ 26,375 $ 27,625 $ 28,875
200,000 35,325 47,100 58,875 61,375 63,875
300,000 54,825 73,100 91,375 95,125 98,875
400,000 74,325 99,100 123,875 128,875 133,875
500,000 93,825 125,100 156,375 162,625 168,875
1,000,000 191,325 255,100 318,875 331,375 343,875
1,500,000 288,825 385,100 481,375 500,125 518,875
2,000,000 386,325 515,100 643,875 668,875 693,875
2,500,000 483,825 645,100 806,375 837,625 868,875
3,000,000 581,325 775,100 968,875 1,006,375 1,043,875
3,500,000 678,825 905,100 1,131,375 1,175,125 1,218,875
4,000,000 776,325 1,035,100 1,293,875 1,343,875 1,393,875
4,500,000 873,825 1,165,100 1,456,375 1,512,625 1,568,875
5,000,000 971,325 1,295,100 1,618,875 1,681,375 1,743,875
</TABLE>
Currently under the Employee Retirement Income Security Act, as amended
("ERISA"), the maximum annual amount that can be paid under the Qualified
Pension Plans to any individual is $130,000, unless grandfathered under prior
limits. Amounts in excess of that maximum are paid under separate plans. In
addition, the Corporation has supplemental plans that use the same formula as
the Qualified Pension Plans use to pay benefits on compensation that is excluded
from the Qualified Pension Plans formula by ERISA. The years of present credited
service for benefit purposes of the Corporation's executive officers named in
the Summary Compensation Table are as follows: Executives Ulrich, 31 years;
Steinhafel, 19 years; Woodrow, 28 years; Ahlers, 21 years; and Pellegrene, 29
years. Average Compensation is the average cash remuneration, including deferred
compensation, for the highest five calendar years of credited service in the
last ten years. The compensation reflected in the "Salary" and "Bonus" columns
of the Summary Compensation Table is cash compensation, including deferred
compensation, for the fiscal year. If the employment of a participant is
terminated prior to age 55, his or her pension will be less than the amount
shown in the table, even if commencement of benefit payments is deferred until
age 65. The actual amounts payable from the qualified pension trust are not
subject to any deductions for Social Security benefits or other offset amounts.
All executive officers who are members of the Senior Management Group
participate in a program whereby such person's surviving spouse will receive the
equivalent of a joint and 100% surviving spouse option with no reduction from
the life only pension amount, payable to the officer's spouse for as long as he
or she lives. Normally the life only amount would be reduced by approximately
20% for this option. The percentage reduction depends on age differentials. The
Corporation also has a supplemental plan that treats certain of its Senior
Management Group as being five years older, but not older than 65, for purposes
of the actuarial reduction of pension benefits at early retirement. All excess
and supplemental plans pay the lump sum present value of their respective
benefits in the year following retirement. The pension table reflects amounts
payable under all pension plans, whether qualified or non-qualified.
18
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
General
The Corporation has a pay-for-performance compensation philosophy for its
management employees, including its executive officers. The total compensation
plan for our executive officers includes base salary and the opportunity for an
annual incentive bonus, long-term incentive compensation and other benefits.
The Compensation Committee is responsible for developing and administering
the total compensation plan for executive officers of the Corporation. In
addition, the Compensation Committee reviews compensation levels of executive
officers who are members of the Corporate Operating Committee and evaluates the
performance of senior management. Individual written performance appraisals are
given annually to each executive officer, including the Chief Executive Officer
(the "CEO").
Pursuant to the Corporation's pay-for-performance philosophy, the
compensation policies established by the Compensation Committee provide that a
significant portion of the annual compensation of each executive officer is
contingent upon the financial performance of the Corporation or relevant
operating company, as well as the individual performance of the executive
officer.
Individual Performance Evaluations
Mr. Ulrich is separately evaluated in his roles as Chairman of the Board and
as Chief Executive Officer. The Compensation Committee, together with all other
independent directors, established the performance criteria used to evaluate Mr.
Ulrich's fiscal 1998 performance as Chairman and as CEO. A variety of factors
are used to evaluate Mr. Ulrich's performance as CEO including operating company
performance, control of the business, management succession planning, strategic
planning, business development, organizational development and formulation and
delivery of major corporate policies. In his role as Chairman of the Board, Mr.
Ulrich was evaluated on his ability to chair effective meetings of the Board of
Directors and the Executive Committee, keep the Board fully informed of the
condition of the Corporation, develop sound corporate governance policies and
work with the directors to effectively use their talents to the best strategic
advantage of the Corporation.
The Compensation Committee prepares an annual written evaluation of Mr.
Ulrich's performance and determines his personal score. The written evaluation
was reviewed with Mr. Ulrich and constituted 33 1/3% of the weighting for his
fiscal 1998 incentive bonus compensation. The remaining 66 2/3% of Mr. Ulrich's
incentive bonus compensation was based on the Corporation's financial
performance as further described under Short-Term Incentive Compensation. In
addition, Mr. Ulrich's performance was discussed with him in a meeting with all
of the independent directors.
All other executive officers of the Corporation received performance
appraisals based on prescribed objectives such as strategy execution, key job
responsibilities, financial performance and succession planning. The fiscal 1998
Personal Scores and Personal Score Plan bonuses of the executive officers were
approved by the Compensation Committee.
As part of the performance evaluation process, each executive is assigned a
Personal Score which is applied to the Corporation's Personal Score Plan for
purposes of determining a bonus amount. For purposes of the Personal Score Plan,
the Compensation Committee adopts a "Bonus Matrix" which assigns varying bonus
percentages based on the participant's job grade and Personal Score. The bonus
amount for each participant under the Personal Score Plan is calculated by
multiplying the participant's bonus percentage from the Bonus Matrix by the
midpoint of the salary range of the participant's job grade level (except for
our CEO, whose base salary is used), and then multiplying that result by the
participant's percentage of participation in the Personal Score Plan.
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Base Salary
The Compensation Committee approved Mr. Ulrich's current base salary in
1994. When the Compensation Committee considered Mr. Ulrich's base salary, it
reviewed two established annual third-party retail compensation surveys covering
approximately 90 retailers throughout the United States (the "Competitive
Surveys"). Many, but not all, of the companies included in the Peer Group Index
in the stock performance graph are included in the Competitive Surveys. The
Compensation Committee has since received regularly updated information on CEO
base salaries and other compensation from third-party compensation studies. The
Compensation Committee has maintained Mr. Ulrich's base salary rate at the 1994
level (with minor adjustments) and put greater emphasis on performance based pay
in the form of short-term and long-term incentive plans.
Base salaries of the other executive officers of the Corporation are based
on competitive practices, and are at approximately the 60th percentile of base
salary when compared with domestic, non-food retailers, adjusted for the size of
the companies. The Competitive Surveys are used to determine base salaries.
Executive officers receive a higher base salary than the industry median because
the threshold for payout of short-term incentive compensation by the Corporation
is set at a higher level than it is for a majority of competitive retailers.
Increases in base salary result from promotional increases reflecting job scope
changes and from merit increases determined by the executive's Personal Score,
the executive's position in the salary range and the Corporation's performance.
Merit increase guidelines are established each year based on the performance of
the relevant operating company or the Corporation and current economic and
market conditions. Once overall guidelines are established and an individual
performance score is assigned, the actual percentage increase is affected by the
executive's position in the salary range for his or her grade; that is, the
lower the placement in the range the greater the percentage increase.
Short-Term Incentive Compensation
In addition to the Personal Score Plan, for fiscal 1998 the Corporation had
a financial performance based short-term incentive plan (referred to generally
as "EIP" or "Executive Incentive Plan") that includes two performance measures:
PTOC (pre-tax operating contribution) and EVA (economic value added). Under the
EIP, executive officers of the Corporation and certain other members of the
senior management of the Corporation and its operating companies were eligible
for annual incentive bonuses for fiscal 1998.
PTOC. PTOC is the same as pre-tax segment profit which is
first-in-first-out earnings from operations before securitization effects,
interest, corporate and other and unusual items. The PTOC part of the EIP
measures an operating company's or the Corporation's performance against
annually pre-determined PTOC goals to determine bonus amounts. The outside
directors set PTOC goals when establishing other financial performance goals for
the operating companies and the Corporation. The Compensation Committee then
uses the PTOC goals to establish the PTOC bonus range for use with the PTOC part
of the EIP. The PTOC Score for the fiscal year is determined from a schedule,
approved by the Compensation Committee, that designates a score for each varying
level of PTOC performance achieved by an operating company or the Corporation.
The Compensation Committee also adopts a "Bonus Matrix" which assigns varying
bonus percentages based on the participant's job grade and PTOC Score.
The bonus amount for each participant is calculated by multiplying the
participant's bonus percentage from the Bonus Matrix by the midpoint of the
salary range of the participant's job grade level (except for our CEO, whose
base salary is used), and then multiplying that result by the participant's
percentage of participation in the PTOC part of the EIP. In order to receive a
bonus under the PTOC part of the EIP, a participant's score under the Personal
Score Plan must equal or exceed a minimum score set by the Compensation
Committee.
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EVA. EVA is PTOC after taxes less a Capital Charge. The "Capital Charge" is
the cost of capital invested in the business operation, adjusted for the
maturity of the assets employed by that business operation. The EVA part of the
EIP measures an operating company's or the Corporation's performance against
annually pre-determined EVA goals to determine bonus amounts. The outside
directors set EVA goals in conjunction with establishing other financial
performance goals for the operating companies and the Corporation. The
Compensation Committee then uses the EVA goals to establish the EVA bonus range
for use in conjunction with the EVA part of the EIP. The EVA Score for the
fiscal year is determined from a schedule, approved by the Compensation
Committee, that designates a score for each varying level of EVA performance
achieved by an operating company or the Corporation. The Compensation Committee
also adopts a "Bonus Matrix" which assigns varying bonus percentages based on
the participant's job grade and EVA Score.
The bonus amount for each participant is calculated by multiplying the
participant's bonus percentage from the Bonus Matrix by the midpoint of the
salary range of a participant's job grade level (except for our CEO, whose base
salary is used), and then multiplying that result by the participant's
percentage of participation in the EVA part of the EIP. In order to receive a
bonus under the EVA part of the EIP a participant's score under the Personal
Score Plan must equal or exceed a minimum score set by the Compensation
Committee.
The maximum bonus payable to an officer covered by the limitations set forth
in Section 162(m) of the Tax Code under the EIP (PTOC and EVA combined) together
with the Personal Score Plan is 400% of that person's salary set forth in the
Proxy Statement for the year during which the bonus was earned. If the covered
officer held a different office or was not employed in his or her position for
the full year covered by that Proxy Statement, the maximum bonus is 400% of the
highest salary reported in such year. However, for purposes of calculating the
maximum bonus payable to any covered officer, the salary of the participant may
not exceed 200% of the fiscal 1996 salary of the CEO as reported in the Summary
Compensation Table in the Corporation's Proxy Statement dated April 14, 1997.
The aggregate of all bonuses payable to any other executive under any
combination of the EIP and the Personal Score Plan may not exceed 400% of his or
her base salary.
Mr. Ulrich's bonus for fiscal 1998 was based on 33 1/3% Personal Score Plan,
33 1/3% EIP-PTOC (Corporation) and 33 1/3% EIP-EVA (Corporation). Mr.
Steinhafel's, Mr. Woodrow's and Mr. Pellegrene's bonuses were based on 33 1/3%
Personal Score Plan, 33 1/3% EIP-PTOC (Corporation and Target) and 33 1/3%
EIP-EVA (Corporation and Target). Ms. Ahler's bonus was based on 33 1/3%
Personal Score Plan, 33 1/3% EIP-PTOC (DSD) and 33 1/3% EIP-EVA (DSD). For
fiscal 1998, financial performance thresholds were exceeded at Target, DSD and
the Corporation and bonuses were paid to employees of those units based on
Personal Score, EIP-PTOC and EIP-EVA.
Long-Term Incentive Compensation
The Compensation Committee determines the amount of options, performance
shares and restricted stock awarded annually under the Long-Term Incentive Plan
of 1981. The Compensation Committee reviews data from third-party compensation
studies and sets the grants at approximately the median of competitive companies
of similar size. The Compensation Committee, using judgment and data from the
third party compensation studies, determines the grant size for the CEO and
other Corporate Operating Committee members. The Compensation Committee then
approves separate long-term incentive pools for each operating company and
corporate staff. The size of the pool varies with the Corporation's or relevant
operating company's performance. However, the precise size of each pool is based
on the subjective judgment of the Compensation Committee. A subcommittee of the
Compensation Committee is authorized to grant stock options from a defined pool
to employees who are not subject to the short-swing trading rules under Section
16(b) of the Securities Exchange Act of 1934. The Compensation Committee
determined in 1998 that all pools would consist entirely of non-qualified stock
options. Individual awards from the pool are based on the individual's
responsibilities, performance and previous grants. Awards in
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any year to any person covered by the limitations in Section 162(m) of the Tax
Code may not include more than 2,000,000 shares in the aggregate, subject to
certain anti-dilution adjustments.
PERFORMANCE SHARES. The performance shares provide for the potential of
earning awards of Corporation Common Stock during a cycle of four fiscal years
based upon the Corporation's or relevant operating company's performance,
measured by defined criteria. For the presently outstanding grants, the criteria
used were the same as those used for the short-term incentive plan in the years
that the grants were made. As with short-term incentive compensation, a
threshold level of performance is required before any payout occurs. A matrix is
used to determine the actual payout amount. Target's and the Corporation's
financial performance during the performance cycle of four fiscal years
beginning in 1994 surpassed the performance share threshold for its 1994 grant
and a payout was made in 1998. All 1994 performance share grants made to
Mervyn's and DSD executives were forfeited because those operating companies
failed to achieve their performance share goals.
As performance share grants are earned, the Common Stock to be issued is put
into escrow and restricted until retirement. Any participant who terminates
employment prior to early retirement (age 55 and five years of service) and
fails to meet certain requirements forfeits all the Common Stock held in escrow.
If the executive terminates employment after age 55, and provides the
Corporation with one year's notice of retirement, 100% of the Common Stock is
released to the executive. In such cases, if the executive fails to give one
year's notice, the shares are forfeited unless the committee administering the
LTIP approves the release of all or part of the shares. If the executive is
terminated, qualifies for early retirement under the Corporation's pension plans
and receives payments under the Corporation's Income Continuance Policies ("ICP
Payments"), 100% of the Common Stock is paid to the executive. If the executive
terminates other than for early retirement and receives ICP Payments (but is not
part of a reduction in force), 50% of the Common Stock is released to the
executive. If the executive does not receive ICP Payments, the executive
forfeits all the shares. If at any time the executive's termination is a result
of death, total and permanent disability, reduction in force or change of
control, 100% of the Common Stock is released to the executive. Recipients hold
voting and dividend rights for all shares held in escrow during the restriction
period; however, they may not sell or assign the shares. The Corporation has not
made any performance share grants since fiscal 1995.
RESTRICTED STOCK. The terms of the restricted stock grants require the
executive to remain an employee of the Corporation for four years from the date
of grant. Upon expiration of the four-year period, the shares are then issued,
put into escrow and restricted until retirement. The escrow release events are
the same as described above for performance shares. After the shares are issued
and put into escrow, holders of restricted stock hold voting and dividend rights
during the restriction period; however, they may not sell or assign the shares.
The Corporation has not made any restricted stock grants since fiscal 1995.
STOCK OPTIONS. During 1998, the Compensation Committee made stock option
grants to the executive officers of the Corporation. These grants were based on
the individual's responsibilities, performance and previous grants. Each option
was granted at the market value of the underlying Common Stock on the date of
grant and has a ten-year and one day term. The options are exercisable 25% after
the first year, with an additional 25% after each of the next three years.
Corporate Governance and Certain Tax Consequences of Plans
As part of its corporate governance responsibilities, the Compensation
Committee, together with all the other outside directors, has established
certain measures of performance for members of the Corporate Operating
Committee, including the CEO, that it believes are critical to the overall
performance of the Corporation. Those measures of performance, which include key
employee retention, succession planning and strategic planning, are vital to the
long-term performance of the Corporation.
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Section 162(m) of the Tax Code prohibits the Corporation from deducting as
compensation expense amounts exceeding $1,000,000 a year for the CEO and the
other officers named in the Summary Compensation Table relating to the period
during which the compensation is earned, unless the payment of such compensation
is based on pre-established, objective performance goals approved by the
shareholders (the "Section 162(m) Cap"). A significant part of the Corporation's
executive compensation will meet the Tax Code requirements for deductibility
under the Section 162(m) rules. A portion of such compensation, however, will
continue to be based on critical, subjective measures that may cause certain
compensation not to be deductible under the Tax Code. The Compensation Committee
and the other outside directors strongly believe that the benefit of their
ability to evaluate the performance of members of the Corporate Operating
Committee, including the CEO, on vital subjective performance measures outweighs
the cost of the Tax Code's limitation on such deductibility.
No member of the Compensation Committee is a current or former officer or
employee of the Corporation or any of its subsidiaries.
COMPENSATION COMMITTEE
Roger A. Enrico, Chair
Stephen W. Sanger, Vice Chair
James A. Johnson
Solomon D. Trujillo
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ITEM TWO--APPOINTMENT OF INDEPENDENT AUDITORS
Proxies solicited by the Board of Directors will, unless otherwise directed,
be voted to approve the appointment by the Board of Directors of Ernst & Young
LLP as independent auditors of the Corporation and its subsidiaries for the
fiscal year ending January 29, 2000. Ernst & Young LLP has been employed in this
capacity by the Corporation since 1931.
A representative from Ernst & Young LLP will be at the Annual Meeting and
will have the opportunity to make a statement if such representative so desires
and will be available to respond to questions during the meeting.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS THAT THE SHAREHOLDERS
OF THE CORPORATION VOTE TO APPROVE THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS.
ITEM THREE--APPROVAL OF THE LONG-TERM INCENTIVE PLAN OF 1999
INTRODUCTION
The purpose of the Long-Term Incentive Plan of 1999 (the "LTIP") is to
advance the interests of the Corporation and its shareholders by offering
long-term incentives, in addition to current compensation and other benefits, to
directors and employees of the Corporation and its subsidiaries and to such
other advisors or consultants to the Corporation who the Plan Committee
determines will contribute to the benefit of the shareholders of the
Corporation. The LTIP is also intended to facilitate recruiting and retaining
personnel of outstanding ability. As of April 1, 1999, only 3,736,000 shares of
Common Stock were available for future grants under the Corporation's existing
Long-Term Incentive Plan of 1981, as amended (the "1981 Plan"), excluding
15,580,000 shares reserved for stock options already outstanding. Upon approval
of the LTIP by the shareholders, the Plan Committee may not make any additional
grants or awards pursuant to the 1981 Plan or the Director Stock Option Plan of
1995. The basic features of the LTIP are summarized below. This summary
narrative, however, is qualified in its entirety by the LTIP, copies of which
are available upon request from our Secretary.
GENERAL
SHARES SUBJECT TO THE PLAN; MAXIMUM AWARD. The LTIP authorizes the issuance
of options, which may be incentive stock options as defined in Section 422 of
the Tax Code or non-statutory stock options, performance shares and restricted
stock. The number of shares of the Corporation's Common Stock available for
issuance under the LTIP shall not exceed 22,000,000 shares. The Plan Committee
may not issue more than 10% of such shares in the aggregate pursuant to
performance share or restricted stock awards; and no participant may receive
aggregate awards in any year relating to more than 2,000,000 shares of Common
Stock, subject to anti-dilution adjustments as provided in the LTIP. The LTIP
has been structured, and shareholder approval is being sought, so that
compensation associated with stock options and performance shares will not be
subject to the deduction limits of Section 162(m) of the Tax Code. The per share
closing price of the Corporation's Common Stock on the New York Stock Exchange
composite listing on April 1, 1999 was $67.5625.
Shares subject to options that are not exercised prior to the expiration or
termination of the options, and shares subject to performance share or
restricted stock awards that are not earned or are forfeited or otherwise are
not transferred to the eligible participant, may thereafter be available under
the LTIP for the granting of stock options, performance shares or restricted
stock. Shares for which a cash equivalent payment is received are treated as no
longer available for grant. Under the LTIP, the Plan Committee may, in its
discretion, make appropriate adjustments in the number of shares and in the
option price to give effect to adjustments made in the number of shares of
Common Stock effected through a merger, stock dividend, stock split or other
relevant change.
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ELIGIBLE PARTICIPANTS. Under the LTIP, stock options, restricted stock and
performance shares may be granted to any employee or director of the Corporation
or any subsidiary or to other service providers determined by the Plan
Committee. The Corporation currently has over 200,000 employees and 11
directors. It is not presently possible to specifically identify those
employees, directors or other participants, or the number thereof, to whom stock
options, restricted stock or performance shares may be granted under the LTIP
since no such determination has been made. Incentive stock options may not be
granted to any person who is not employed by the Corporation or who holds more
than 10% of the stock of the Corporation.
RIGHTS AS A SHAREHOLDER. A participant has no rights as a shareholder with
respect to any shares covered by any stock options, performance shares or
restricted stock granted until the date of issuance of a stock certificate.
ADMINISTRATION, DURATION AND AMENDMENT. The LTIP is administered by the
Plan Committee appointed by the Board of Directors. The present Plan Committee
is composed of members of the Compensation Committee of the Board of Directors
who are not officers or employees of the Corporation and are considered
"non-employee directors" under the applicable regulations of the federal
Securities and Exchange Commission and "outside directors" under Section 162(m)
of the Tax Code.
The Plan Committee is vested with the power to select the participants to
whom stock options, performance shares and/or restricted stock awards will be
granted and to determine the performance goals for the earn-out of the
performance shares granted. The Plan Committee determines the ultimate earn-out
of such performance shares at the end of a performance period. It also
interprets, construes and implements the provisions of the LTIP and may
prospectively amend the deferral arrangements for performance share earn-out.
The LTIP remains in effect until all shares under the LTIP are purchased
pursuant to options granted under the plan or distributed or paid out pursuant
to performance shares and/ or restricted stock awards granted under the LTIP or
unless sooner terminated or supplanted. The LTIP may be suspended, terminated,
modified or amended by the Board of Directors, but the Board of Directors may
not, without shareholder approval, increase the maximum number of shares of
Common Stock which may be made subject to the LTIP.
The Plan Committee has delegated its authority under the LTIP to a
subcommittee of officers of the Corporation for purposes of determining and
administering awards granted to persons who are not then subject to the
reporting requirements of Section 16 of the Securities Exchange Act of 1934.
ANTIDILUTION AND REORGANIZATION PROVISIONS. Under the LTIP, the Plan
Committee may, in its discretion, make appropriate adjustments in the number of
shares and in the option price to give effect to adjustment made in the number
of shares of Common Stock of the Corporation effected through a merger,
consolidation, recapitalization, reclassification, combination, spin-off, stock
dividend, stock split or other relevant change. If the Corporation is
reorganized, the LTIP provides that procedures be undertaken by the Plan
Committee to provide certain alternatives to holders of stock options,
restricted stock awards and performance shares.
WITHHOLDING. Under the LTIP, all distributions are subject to any required
withholding taxes and other withholdings. The LTIP provides that, subject to
rules established by the Plan Committee, the required withholdings may be
satisfied by the Corporation withholding shares of the Corporation's Common
Stock issued on exercise or otherwise released, that have a market value equal
to or less than the required withholding.
STOCK OPTIONS
TERM AND PRICE. Except in the case of a participant's death, as described
below, any stock option granted under the LTIP expires not later than ten years
from the date of grant. The purchase price for any stock option is 100% of the
fair market value of the stock on the day the option is granted.
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WAITING PERIOD AND EXERCISE. Under the LTIP, an individual entitled to
exercise a stock option may, subject to its terms and conditions and the terms
and conditions of the plan (which do not permit exercise for at least one year
after the date of grant except in the event of a change in control or otherwise
determined by the Plan Committee), exercise it in whole at any time or in part
at any time.
PAYMENT. Under the LTIP, stock purchased pursuant to an option agreement
must be paid for in full together with any applicable withholding taxes before
stock may be issued. Payment may be made in cash, by the delivery of owned
Corporation Common Stock or by a combination of cash and Corporation Common
Stock.
TERMINATION OF EMPLOYMENT OR DEATH. An option issued under the LTIP is
generally exercisable only while the optionee is an employee of the Corporation
or a subsidiary, or within 90 days of the date of termination of employment of
the participant (210 days in the case of a participant who is a statutory
insider under the federal securities laws). However, in case of a participant's
termination at normal retirement or later, or, with approval of the Plan
Committee, by reason of early retirement under any Corporation retirement plan,
by reason of total and permanent disability without retirement, or by reason of
a spin-off, the option is exercisable for up to five years after such
termination event or the life of the option, whichever is less, during which
time installments would continue to accrue. If a participant dies while
employed, the option is exercisable within five years after death or the life of
the option, whichever is less, but in no event less than one year after the
participant's death, during which time installments would continue to accrue. If
a participant's termination event occurs after 15 years of service, the Plan
Committee may allow exercise for up to five years or the life of the option,
whichever is less, subject to any other conditions it may set. Termination of
employment by reason of dishonest or other illegal act immediately terminates
all rights under the option.
ASSIGNABILITY. During the lifetime of the participant, options are
exercisable only by the participant, except as otherwise provided in the
applicable option agreement. Options are also transferable by will or by reason
of the laws of descent and distribution.
CHANGE IN CONTROL. Under the LTIP, in the event of a change in control, all
outstanding options granted under the plan accelerate and are exercisable in
full; provided that no option can be exercised by a participant after the
termination of the option. Upon a change in control, the Plan Committee, in its
sole discretion and without the consent of any participant affected thereby, may
determine that some or all participants holding outstanding options shall
receive a cash payment equal to the amount by which the fair market value of the
shares of Common Stock subject to options held by such participants immediately
before the change in control exceeds the exercise price of such options. Under
the LTIP, a change in control includes a person or group becoming the beneficial
owner of 30% or more of the voting stock of the Corporation, certain changes of
a majority of the Board of Directors of the Corporation or approval by the
shareholders of the Corporation of certain agreements or plans of merger,
consolidation, stock exchange, disposition of substantially all assets,
liquidation or dissolution involving the Corporation.
FEDERAL TAX CONSEQUENCES. A participant will realize no taxable income at
the time a non-qualified option is granted under the LTIP, but generally at the
time such non-qualified option is exercised, the participant will realize
ordinary income in an amount equal to the excess of the fair market value of the
shares on the date of exercise over the option price. Upon a disposition of such
shares, the difference between the amount received and the fair market value on
the date of exercise will generally be treated as long-term or short-term
capital gain or loss, depending on the holding period of the shares. The
Corporation will generally be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the participant is
considered to have realized ordinary income in connection with the exercise of a
non-qualified option.
A participant will realize no taxable income, and the Corporation will not
be entitled to any related deduction, at the time any incentive stock option is
granted. If certain employment and holding period
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conditions are satisfied before the participant disposes of shares acquired
pursuant to the exercise of the option, then no taxable income will result upon
the exercise of such option and the Corporation will not be entitled to any
deduction in connection with such exercise. Upon disposition of the shares after
expiration of the statutory holding periods, any gain realized by a participant
will be taxed as long-term capital gain and any loss sustained will be long-term
capital loss, and the Corporation will not be entitled to a deduction in respect
to such disposition. For alternative minimum tax purposes, an incentive stock
option will be treated as if it were a non-qualified stock option.
Except in the event of death, if shares acquired by a participant upon the
exercise of an incentive stock option are disposed of by such participant before
the expiration of the statutory holding periods (i.e., a "disqualifying
disposition"), such participant will be considered to have realized as
compensation taxed as ordinary income in the year of such disposition an amount,
not exceeding the gain realized on such disposition, equal to the difference
between the option price and the fair market value of such shares on the date of
exercise of such option. Generally any gain realized on the disposition in
excess of the amount treated as compensation or any loss realized on the
disposition will constitute capital gain or loss, respectively. If a participant
makes a "disqualifying disposition", generally in the fiscal year of such
"disqualifying disposition", the Corporation will be allowed a deduction for
federal income tax purposes in an amount equal to the compensation realized by
such participant.
If the participant pays the option price with shares that were originally
acquired pursuant to the exercise of an incentive stock option and the statutory
holding periods for such shares have not been met, the optionee will be treated
for tax purposes as having made a "disqualifying disposition" of such shares.
RESTRICTED STOCK
RIGHTS DURING RESTICTED PERIOD. The LTIP gives the Plan Committee the
authority to award shares of Common Stock which are subject to certain
restrictions to eligible participants. Recipients are entitled to vote the
restricted stock and to exercise other shareholder rights, except that (i) the
Corporation may retain custody of the stock certificate during the restriction
period of not less than three years, (ii) the participant may not sell,
transfer, pledge, exchange or otherwise dispose of the stock during the
restriction period and (iii) any dividends that may be payable in cash or in
shares of stock or otherwise may be withheld by the Corporation until the
restrictions lapse.
DELIVERY OF THE STOCK. If the participant has satisfied all of the
conditions established by the Plan Committee, the Corporation will deliver the
stock certificate representing the shares at the end of the restriction period,
as well as any accumulated dividends. At the discretion of the Plan Committee,
interest may be paid by the Corporation on any dividends withheld.
TERMINATION OF EMPLOYMENT OR DEATH. The Plan Committee may establish rules
regarding restricted stock awards in the event of termination of employment by
reason of death, total and permanent disability, retirement, spin-off or
termination of employment after 15 years of employment with the Corporation or a
subsidiary or any combination.
ASSIGNABILITY. Transfer of restricted stock is not permitted during the
restriction period.
CHANGE IN CONTROL. Under the LTIP, in the event of a change in control, all
outstanding restricted stock awards granted under the plan will be proratably
payable ten days after the change in control. The amount of Common Stock payable
is determined by multiplying 100% of each restricted stock award granted by a
fraction, the numerator of which is the number of months that have elapsed in
the applicable restriction period and the denominator of which is the number of
months in the restriction period.
FEDERAL TAX CONSEQUENCES. A participant receiving restricted stock under
the LTIP may be taxed in one of two ways: the participant (1) pays tax when the
restrictions lapse, or (2) makes a special election to pay tax in the year the
grant is made. At either time the value of the award for tax purposes is the
fair
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market value of the shares at that time. This value is taxed as ordinary income
and is subject to income tax withholding. The Corporation receives a tax
deduction at the same time and for the same amount taxable to the participant.
If a participant elects to be taxed at grant, then, when the restrictions lapse
there will be no further tax consequences attributable to the awarded stock
until disposition of the stock.
When a restricted stock award is made, the value of the shares at the date
of grant will be charged against corporate earnings pro rata over the
restriction period. If the participant does not elect to be taxed on the grant
of his or her restricted stock award, a tax deduction by the Corporation at the
expiration of the restriction period would be greater than the amount charged to
earnings if the value of Common Stock has increased and less if the value has
declined.
PERFORMANCE SHARES
PERFORMANCE SHARES. Under the LTIP, a performance share consists of the
opportunity to receive up to one and one-half shares of the Corporation's Common
Stock for every share subject to the award, or a lesser number of shares and a
cash payment equal to the fair market value of the remaining shares as may be
established by the Plan Committee. The percentage paid in cash shall be uniform
for all participants in a particular performance period.
A performance share at the time of grant is not a fixed commitment of the
Corporation but becomes such only as earned by the participants at the end of a
performance period. The ultimate number of performance shares with respect to
which a recipient shall be entitled to payment depends upon the level of
achievement by the Corporation, operating company, test strategy or new venture,
of pre-established performance goals during applicable performance periods.
PERFORMANCE GOALS. In order for an earn-out of performance shares to be
achieved, the Corporation, or in certain instances, alternatively as to
specified participants, the related operating company, test strategy or new
venture must meet or exceed performance goals which have been or will be set by
the Plan Committee within a reasonable period of time after the beginning of a
performance period. These performance goals are set at the sole discretion of
the Plan Committee and may include criteria such as PTOC, EVA, amount or rate of
growth in consolidated profits of the Corporation expressed as a percent,
earnings per share, return on capital, return on investment or return on
shareholders' equity, and may be absolute in their terms or measured against or
in relationship to other companies comparably, similarly or otherwise situated
and may, as to certain participants, relate performance to a specific operating
company, test strategy or new venture of the Corporation. The Plan Committee, in
its sole discretion, may modify the performance goals if it determines that
circumstances have changed and modification is required to reflect the original
intent of the performance goals. The Plan Committee, as soon as practicable
after the close of each performance period, makes a determination of the extent,
if any, to which the Corporation, operating company or test strategy or new
venture has met or exceeded performance goals and the percentage of the
performance shares earned by participants for such performance period.
PERFORMANCE PERIOD. A performance period under the LTIP consists of a
designated period of not less than three consecutive fiscal years. Performance
Shares are earned only at the end of a performance period and require that the
recipient be continuously employed by the Corporation or any subsidiary during
the subject performance period, except for certain limited exceptions as
described below under the headings "Termination of Employment or Death" and
"Change in Control."
DEFERRAL. The Participant may elect to defer receipt of all or any part of
the cash-stock distribution associated with the earnout by compliance with rules
promulgated from time to time by the Plan Committee.
TERMINATION OF EMPLOYMENT OR DEATH. The LTIP requires that the participant
be continuously employed by the Corporation or a subsidiary during the subject
performance period for the participant to have any earn-out rights under a
performance share except in case of termination of employment by
28
<PAGE>
reason of death, total and permanent disability, or by reason of a spin-off with
the consent of the Plan Committee, normal or late retirement or early retirement
with consent of the Plan Committee, in which instance 100% of the performance
shares ultimately earned out would be paid, or if a participant's termination of
employment occurs after 15 years of service, the Plan Committee may set forth
conditions that would allow all or part of the performance shares to be earned.
ASSIGNABILITY. During the lifetime of the participant, a performance share
may only be earned by the participant. A performance share is transferable only
by will or by reason of the laws of descent and distribution.
CHANGE IN CONTROL. In the event of a change in control, all outstanding
performance shares will be proratably payable ten days after the change in
control. The number of performance shares payable is determined by multiplying
100% of each performance share grant by a fraction, the numerator of which is
the number of months that have elapsed in the applicable performance period and
the denominator of which is the number of months in the performance period.
FEDERAL TAX CONSEQUENCES. The participant will not realize income when a
performance share is granted, but will realize ordinary income when shares and
cash are transferred to the participant. The amount of such income will be equal
to the fair market value of such transferred shares on the date of transfer and
the cash received in lieu of shares. The Corporation will be entitled to a
deduction for federal income tax purposes at the same time and in the same
amount as the participant is considered to have realized ordinary income as a
result of the transfer of cash or shares to the participant.
REGISTRATION WITH THE SEC
Following approval of the LTIP by the shareholders, the Corporation intends
to file a registration statement covering the offering of the shares of Common
Stock issuable under the LTIP with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS THAT THE SHAREHOLDERS
OF THE CORPORATION VOTE TO APPROVE THE LONG-TERM INCENTIVE PLAN OF 1999.
29
<PAGE>
ADDITIONAL INFORMATION
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The SEC rules require disclosure of those directors, officers and beneficial
owners of more than 10% of the Corporation's Common Stock who fail to file on a
timely basis reports required by Section 16(a) of the Securities Exchange Act of
1934, as amended, during the most recent fiscal year. Based solely on review of
reports furnished to the Corporation and written representations that no other
reports were required during the fiscal year ended January 30, 1999, all Section
16(a) filing requirements were met except as follows: officer Bart Butzer filed
one late Form 4 showing the purchase of 14 shares by his wife.
VENDOR STANDARDS AND COMPLIANCE
To ensure that the products we carry in our stores are made legally and
ethically, we require our vendors to abide by certain standards. Copies of those
standards and a report relating to vendor compliance with those standards are
available upon request from our Corporate Secretary.
COMMITMENT TO DIVERSITY
We believe that attracting and retaining an employee population reflecting
the diversity of our guests and communities we serve is an important goal and
will provide a competitive advantage. We are an equal opportunity employer and
we communicate to our employees information regarding equal employment
opportunities. We also encourage the use of minority and women-owned contractors
and service providers and we support the efforts of our employees, suppliers and
vendors to adhere to these principles of corporate responsibility.
We provide detailed statistical information on equal employment opportunity
to the federal government as required by law. Information regarding our
diversity programs and its diverse employee population are available upon
request from our Secretary.
For the benefit of hearing impaired persons, a sign language interpreter
will be present at our 1999 Annual Meeting.
SHAREHOLDER PROPOSALS
Shareholder proposals for consideration at the Corporation's 2000 Annual
Meeting must follow the procedures set forth in Rule 14a-8 under the Securities
Exchange Act of 1934 and the Corporation's By-laws. To be timely under Rule
14a-8, they must be received by the Secretary of the Corporation by December 13,
1999 in order to be included in the Proxy Statement. Under the Corporation's
By-laws, as amended, if a shareholder plans to propose an item of business to be
considered at any annual meeting of shareholders, that shareholder is required
to give notice of such proposal to the Secretary of the Corporation at least 90
days prior to the anniversary of the most recent annual meeting and to comply
with certain other requirements. The proposals also must comply with all
applicable statutes and regulations.
30
<PAGE>
http://www.dhc.com
<PAGE>
DAYTON HUDSON CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF SHAREHOLDERS MAY 19, 1999
P
Robert J. Ulrich, Douglas A. Scovanner and James T. Hale, and each
of them, are hereby appointed proxies, with power of substitution to
R each, to represent and to vote as designated below and on the reverse
side hereof, all shares of capital stock of Dayton Hudson Corporation, a
Minnesota corporation, held by the undersigned at the Annual Meeting of
O Shareholders to be held on May 19, 1999, and at any adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS GIVEN IT
WILL BE VOTED FOR PROPOSALS SET FORTH IN ITEMS 1, 2 AND 3. THE PROXIES
X CANNOT VOTE YOUR SHARES UNLESS YOU SIGN THIS CARD ON THE REVERSE SIDE
AND RETURN THIS CARD.
Y For participants in the DHC 401(k) Plan, this proxy card will
constitute voting instructions to the Trustee under this Plan. As a
participant in this Plan, the undersigned understands that, in
accordance with the terms of the Plan, these instructions shall be held
in the strictest confidence by the Trustee and shall not be divulged or
released to any person, including officers or employees of the Company.
THESE INSTRUCTIONS WILL BE FOLLOWED AS DIRECTED, BUT IF NO DIRECTION IS
GIVEN, THE TRUSTEE IS INSTRUCTED TO VOTE FOR PROPOSALS SET FORTH IN
ITEMS 1, 2 AND 3. SHARES HELD IN THE PLAN FOR WHICH NO VOTING INSTRUCTIONS
ARE RECEIVED BY THE TRUSTEE, AS WELL AS SHARES NOT ALLOCATED TO ANY
PARTICIPANTS, WILL BE VOTED IN THE SAME PROPORTION AS VOTES ACTUALLY
CAST BY PLAN PARTICIPANTS. INSTRUCTION CARDS RECEIVED BY THE TRUSTEE
AFTER MAY 14, 1999, WILL NOT BE COUNTED.
(INSTRUCTION: To withhold authority to vote for any named nominee or a
substitute nominee designated by the Board of Directors, write that
nominee's name or the words "substitute nominee" on the space provided
on the reverse side.)
/SEE REVERSE SIDE/
- --------------------------------------------------------------------------------
TRIANGLE FOLD AND DETACH HERE TRIANGLE
ANNUAL MEETING
OF
DAYTON HUDSON CORPORATION SHAREHOLDERS
WEDNESDAY, MAY 19, 1999
9:30 A.M. CDT
THE CHILDREN'S THEATRE
2400 THIRD AVENUE SOUTH
MINNEAPOLIS, MINNESOTA
Please present this ADMISSION TICKET at the Annual
Shareholders' Meeting as verification of your
Dayton Hudson share ownership.
<PAGE>
/X/ Please mark your votes as in this example. 0361
As an alternative to completing this form, you may vote via the Internet
or by telephone by following the instructions below.
The Board of Directors recommends a vote FOR proposals 1, 2 and 3.
1. Election of Directors
Election of Directors, Nominees:
1. Livio D. DeSimone
2. Roger A. Enrico
3. William W. George
4. James A. Johnson
FOR WITHHELD
/ / / /
For, except withheld from the following nominee(s):
- --------------------------------------------------------
2. Appointment of Ernst & Young LLP as Independent Auditors
FOR AGAINST ABSTAIN
/ / / / / /
3. Approval of the Long-Term Incentive Plan of 1999
FOR AGAINST ABSTAIN
/ / / / / /
The proxies are authorized to vote upon such other business as may properly
come before the meeting in accordance with the recommendation of the Board of
Directors, or, in the absence of such a recommendation, in the proxies'
discretion.
Mark here if you would like your voting instructions to be confidential
pursuant to the Dayton Hudson Corporation Policy on Confidential Voting
described in the 1999 Proxy Statement. / /
Signature(s) Date
----------------------------------- --------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- --------------------------------------------------------------------------------
TRIANGLE FOLD AND DETACH HERE TRIANGLE
[LOGO] DAYTON HUDSON CORPORATION
Dayton Hudson Corporation encourages you to take advantage of a new and
convenient way to vote your shares - by either telephone or the Internet.
- BY TELEPHONE. On a touch-tone telephone call 1-877-PRX-VOTE. Listen to
the recorded instructions, use the control number printed in the box in
the upper right corner of this proxy card to access the system, and use
your telephone key pad to vote.
- OVER THE INTERNET. Access the World Wide Web site
"http://www.eproxyvote.com/dh" and follow the instructions posted on the
web site.
Your vote by telephone or over the Internet authorizes the proxies named on
the front of this proxy card in the same manner as if you marked, signed,
dated and returned the proxy card. If you choose to vote your shares by
either of these electronic means, there is no need for you to mail back your
proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
<PAGE>
DAYTON HUDSON CORPORATION
LONG-TERM INCENTIVE PLAN OF 1999
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.1 The name of this plan shall be "The Dayton Hudson Corporation
Long-Term Incentive Plan of 1999" (hereinafter called the "Plan").
1.2 The purpose of the Plan is to advance the interim performance and
long-term growth of the Company by offering long-term incentives, in addition to
current compensation and other benefits, to directors and employees of the
Company and its Subsidiaries and such other Participants who the Plan Committee
determines will contribute to such performance and growth inuring to the benefit
of the shareholders of the Company. This Plan is also intended to facilitate
recruiting and retaining personnel of outstanding ability. Such long-term
incentives may take the form of Stock Options, Performance Shares, Restricted
Stock Awards or any combination of such Awards.
ARTICLE II
DEFINITIONS
2.1 AWARD. An "Award" is used at times in the Plan to refer to the act
of granting a Stock Option, Performance Share or Restricted Stock Award under
the Plan.
2.2 BOARD. "Board" is the Board of Directors of the Company.
2.3 CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred if:
(a) a majority of the directors of the Company shall be persons other
than persons
(i) for whose election proxies shall have been solicited by the
Board or
(ii) who are then serving as directors appointed by the Board to
fill vacancies on the Board caused by death or resignation
(but not by removal) or to fill newly-created
directorships,
(b) 30% or more of the outstanding Voting Stock (as defined in Article
IV of the Restated Articles of Incorporation, as amended, of the
Company) of the Company is acquired or beneficially owned (as
defined in Article IV of the Restated Articles of Incorporation,
as amended, of the Company) by any person (as defined in Article
IV of the Restated Articles of Incorporation, as amended, of the
Company), or
<PAGE>
(c) the shareholders of the Company approve a definitive agreement or
plan to:
(i) merge or consolidate the Company with or into another
corporation (other than (1) a merger or consolidation with
a Subsidiary of the Company or (2) a merger in which the
Company is the surviving corporation and either (A) no
outstanding Voting Stock of the Company (other than
fractional shares) held by shareholders immediately prior
to the merger is converted into cash (except cash upon the
exercise by holders of Voting Stock of the Company of
statutory dissenters' rights), securities, or other
property or (B) all holders of outstanding Voting Stock of
the Company (other than fractional shares) immediately
prior to the merger (except those that exercise statutory
dissenters' rights) have substantially the same
proportionate ownership of the Voting Stock of the Company
or its parent corporation immediately after the merger),
(ii) exchange, pursuant to a statutory exchange of shares of
Voting Stock of the Company held by shareholders of the
Company immediately prior to the exchange, shares of one or
more classes or series of Voting Stock of the Company for
shares of another corporation or other securities, cash or
other property,
(iii) sell or otherwise dispose of all or substantially all of
the assets of the Company (in one transaction or a series
of transactions) or
(iv) liquidate or dissolve the Company.
2.4 CODE. "Code" is the Internal Revenue Code of 1986, as amended, and
rules and regulations thereunder, as now in force or as hereafter amended.
2.5 COMPANY. "Company" is Dayton Hudson Corporation, a Minnesota
corporation, and any successor thereof.
2.6 COMMON STOCK. "Common Stock" is the common stock, $.1667 par value
per share (as such par value may be adjusted from time to time) of the Company.
2.7 DATE OF GRANT. "Date of Grant" shall be the date designated in the
resolution by the Plan Committee as the date of such Stock Options or
Performance Shares or Restricted Stock Awards, but such date shall not be
earlier than the date of the resolution and action thereon by the Plan
Committee, or earlier than the effective date of the Plan, and in the absence of
a date of grant or a fixed method of computing such date being specifically set
forth in the Plan Committee's resolution, then the Date of Grant shall be the
date of such Plan Committee's resolution or action.
2.8 EXCHANGE ACT. "Exchange Act" is the Securities Exchange Act of
1934, as amended, and rules and regulations thereunder, as now in force or as
hereafter amended.
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<PAGE>
2.9 FAIR MARKET VALUE. "Fair Market Value" of a share of Common Stock
on any date is the Volume Weighted Average Price for such stock as reported for
such stock by Bloomberg L.P. on such date, or in the absence of such report the
Volume Weighted Average Price for such stock as reported for such stock by the
New York Stock Exchange on such date or, if no sale has been recorded by
Bloomberg L.P. or the New York Stock Exchange on such date, then on the last
preceding date on which any such sale shall have been made in the order of
primacy indicated above.
2.10 HOLDER. A "Holder" is a person who has been granted a Restricted
Stock Award.
2.11 INCENTIVE STOCK OPTIONS. "Incentive Stock Options" are Stock
Options that are intended to qualify under Section 422 of the Code.
2.12 NON-QUALIFIED OPTIONS. "Non-Qualified Options" are Stock Options
that are not intended to qualify under Section 422 of the Code.
2.13 PARTICIPANT. A "Participant" is a person designated as such by the
Plan Committee, pursuant to Article III hereof, for participation in the Plan.
2.14 PERFORMANCE GOALS. "Performance Goals" are defined in Section 4.1
hereof.
2.15 PERFORMANCE PERIOD. "Performance Period", with respect to a
Performance Share, is a period of not less than three consecutive fiscal years
of the Company, beginning with the fiscal year in which such Performance Share
is granted and may be referred to herein and by the Plan Committee by use of the
calendar year in which a particular Performance Period commences.
2.16 PERFORMANCE SHARE. A "Performance Share" is a potential award
consisting of a right to one share of Common Stock (subject to increase as
provided in Section 4.2 hereof) or a lesser number of shares and the cash
payment set forth in Section 5.2 hereof. A Performance Share shall be of no
value to a Participant unless and until earned in accordance with Article V
hereof.
2.17 PLAN COMMITTEE. The "Plan Committee" is the Committee referenced
in Article IX hereof.
2.18 PLAN YEAR. The "Plan Year" shall be a fiscal year of the Company
falling within the term of this Plan.
2.19 RESTRICTED STOCK AWARD. A "Restricted Stock Award" is an Award
granted under Article VII of this Plan.
2.20 STOCK OPTION. A "Stock Option" is a right accruing in a
Participant to purchase from the Company one share of Common Stock at the Fair
Market Value of such share of Common Stock on the Date of Grant of the Stock
Option, such exercise of option to be made any time within ten years following
the Date of Grant, and containing the terms and conditions set forth or allowed
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<PAGE>
under Article VI hereof. Stock Options may be either Non-Qualified Options or
Incentive Stock Options.
2.21 SUBSIDIARY CORPORATION. For purposes of this Plan, the term
"Subsidiary" or "Subsidiary Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, in
which each of the corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain as
determined at the point in time when reference is made to such "Subsidiary" or
"Subsidiary Corporation" in this Plan.
ARTICLE III
GRANTING OF STOCK OPTIONS, PERFORMANCE SHARES
AND RESTRICTED STOCK AWARDS TO PARTICIPANTS
3.1 ELIGIBLE PARTICIPANTS. Stock Options, Restricted Stock Awards or
Performance Shares may be granted by the Plan Committee to any employee of the
Company or a Subsidiary Corporation, including any employee who is also a
director of the Company or a Subsidiary Corporation. Non-Qualified Options,
Performance Shares or Restricted Stock Awards may also be granted to (i) a
director of the Company who is not an employee of the Company or a Subsidiary
Corporation and (ii) other individuals or entities who are not employees but who
provide services to the Company or a Subsidiary Corporation in the capacity of
an advisor or consultant. References in this Plan to "employment" and similar
terms (except "employee") shall include the providing of services in the
capacity of a director, advisor or consultant. A person who has been engaged by
the Company for employment shall be eligible for grants under the Plan, provided
such person actually reports for and commences such employment within 90 days
after the Date of Grant.
3.2 DESIGNATION OF PARTICIPANTS. At any time and from time to time
during the Plan Year, the Plan Committee may designate the employees of the
Company and its Subsidiaries and other Participants eligible for Awards.
3.3 ALLOCATION OF STOCK OPTIONS, PERFORMANCE SHARES OR RESTRICTED STOCK
AWARDS. Contemporaneously with the designation of a Participant pursuant to
Section 3.2 hereof, the Plan Committee shall determine the number of Stock
Options and/or Restricted Stock Awards and/or Performance Shares to be granted
to such Participant and the Date of Grant for such related Stock Option or
Performance Share or Restricted Stock Award, taking into consideration such
factors as it deems relevant, which may include the following:
(a) the total number of Stock Options and/or Restricted Stock Awards
and/or Performance Shares available for allocation to all
Participants; and
(b) the work assignment or the position of the Participant and its
sensitivity and/or impact in relationship to the profitability and
growth of the Company and its Subsidiaries; and
-4-
<PAGE>
(c) the Participant's performance in reference to such factors.
Allocation of Awards may, in the discretion of the Plan Committee, be in the
form of Stock Options solely or Performance Shares solely, or Restricted Stock
Awards solely, or any combination in whatever relationship one to the other, if
any, as the Plan Committee in its discretion so determines. Allocation of Stock
Options may, in the discretion of the Plan Committee, be in the form of
Incentive Stock Options solely or Non-Qualified Options solely or a combination
in whatever relationship to the other, if any, as the Plan Committee in its
discretion so determines.
3.4 NOTIFICATION TO PARTICIPANTS AND DELIVERY OF DOCUMENTS. As soon as
practicable after such determinations have been made, each Participant, shall be
notified of (i) his/her designation as a Participant, (ii) the Date of Grant,
and (iii) the number of Stock Options, and/or Restricted Stock Awards and/or the
number of Performance Shares granted to the Participant, and in the case of
Performance Shares, the Performance Period and in the case of Restricted Stock
Awards, the Restriction Period. The Participant shall thereafter be supplied
with written evidence of any such granted Performance Shares and/or Restricted
Stock Awards, and shall receive a Stock Option exercisable for purchase of one
share of Common Stock for each Stock Option granted to the Participant pursuant
to this Plan or indicating the aggregate of such grant, which option
agreement(s) shall be in conformity with the provisions of Article VI hereof.
ARTICLE IV
PERFORMANCE GOALS
4.1 ESTABLISHMENT OF GOALS. Within a reasonable period of time after
the beginning of each Performance Period, Performance Goals relative to such
Performance Period shall be established by the Plan Committee in its absolute
discretion. Such Performance Goals may include any of the following criteria:
PTOC, EVA, amount or rate of growth in consolidated profits of the Company
expressed as a percent, earnings per share, return on capital, return on
investment, and return on shareholders' equity. Performance Goals may be
absolute in their terms or be measured against or in relationship to other
companies comparably, similarly or otherwise situated. The Plan Committee, in
its sole discretion, may modify the Performance Goals if it determines that
circumstances have changed and modification is required to reflect the original
intent of the Performance Goals. The Plan Committee may in its discretion
classify Participants into as many groups as it determines, and as to any
Participant relate his/her Performance Goals partially, or entirely, to the
measured performance, either absolutely or relatively, of an identified
Subsidiary, operating company or test strategy or new venture of the Company.
4.2 LEVELS OF PERFORMANCE REQUIRED TO EARN PERFORMANCE SHARES. At or
about the same time that Performance Goals are established for a specific
period, the Plan Committee shall in its absolute discretion establish the
percentage (not to exceed 150% thereof) of the Performance Shares granted for
such Performance Period which shall be earned by the Participant for various
levels of performance measured in relation to achievement of Performance Goals
for such Performance Period.
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<PAGE>
4.3 OTHER RESTRICTIONS. The Plan Committee may provide restrictions on
the delivery of Common Stock upon the earning of Performance Shares, including
the future forfeiture of all or part of the Common Stock earned. The Plan
Committee may provide that the shares of Common Stock issued on Performance
Shares Earned be held in escrow and/or legended.
4.4 NOTIFICATION TO PARTICIPANTS. Promptly after the Plan Committee has
established Performance Goals for a specific Performance Period or modified such
goals, each Participant who has received a grant of any Performance Shares for
that period shall be provided with written evidence of the Performance Goals so
established or modified.
ARTICLE V
EARNING OF PERFORMANCE SHARES
5.1 MEASUREMENT OF PERFORMANCE AGAINST PERFORMANCE GOALS. The Plan
Committee shall as soon as practicable after the close of each Performance
Period, make a determination of:
(a) the extent to which the Performance Goals for such Performance
Period have been achieved;
(b) the percentage of the Performance Shares granted for such
Performance Period which are earned for such Performance Period by
Participants who have been from his/her date of hire in the
continuous employ of the Company or Subsidiary or a combination
thereof, during the subject Performance Period; and
(c) the percentage of Performance Shares to be paid in cash, if any.
The percentage paid in cash shall be uniform for all Participants
in a particular Performance Period.
These determinations shall be absolute and final as to the facts and conclusions
therein made and be binding on all parties. Promptly after the Plan Committee
has made the foregoing determination, each Participant who has earned
Performance Shares based thereon shall be notified, in writing, of the number of
Performance Shares so earned. For all purposes of this Plan, notice shall be
deemed to have been given the date action is taken by the Plan Committee making
the determination.
5.2 TREATMENT OF PERFORMANCE SHARES EARNED. Upon the determination that
a percentage of the Performance Shares has been earned for a Performance Period,
a Participant to whom such earned Performance Shares have been granted and who
has been (or was) in the employ of the Company or a Subsidiary thereof
continuously from the date of his/her hire during the subject Performance Period
to which the grant relates, subject to the exceptions set forth at Section 5.5
and Section 5.6 hereof, shall be entitled, subject to the other conditions of
this Plan, to receive the shares of Common Stock for each Performance Share
earned (less the shares paid in cash), plus a cash payment in the amount of the
Fair Market Value of the shares of Common Stock to be paid in cash as determined
in Section 5.1(c) hereof, calculated as of the close of business on the date of
the notice referred to in Section 5.1 hereof. The provisions of Section 5.5 to
the contrary notwithstanding, the Plan Committee may provide that the issued
shares of Common Stock be held
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<PAGE>
in escrow and/or be legended and that the Common Stock be subject to
restrictions, including the future forfeiture of all or a part of the shares.
Performance Shares shall under no circumstances become earned or have any value
whatsoever for any Participant who is not in the employ of the Company or its
Subsidiaries continuously during the entire Performance Period for which such
Performance Shares are granted, except as provided at Section 5.5 or Section 5.6
hereof.
5.3 STOCK-CASH DISTRIBUTION. Each distribution determined in accordance
with Section 5.2 above shall be made as soon as practicable after Performance
Shares have been determined to have been earned unless the provisions of Section
5.4(a) hereof are applicable to a Participant.
5.4(a) DEFERRAL OF RECEIPT OF PERFORMANCE SHARE EARNOUT. A Participant
who has received a grant of Performance Shares may by compliance with the then
applicable procedures under the Plan irrevocably elect in writing to defer
receipt of all or any part of the stock-cash distribution associated with the
earnout, if any, of the Performance Shares (the combination thereof hereafter
referred to as the "deferred account"). The deferral shall be effective until
the Participant terminates his/her employment with the Company and its
Subsidiaries except as otherwise provided herein.
The terms and conditions of such deferral, including but not limited to,
the period of time for, and form of, election; the manner and method of payout;
the form in which the deferred account shall be held; the interest equivalent or
other payment that shall accrue upon the deferred account pending its payout;
and the use and form of dividend equivalents in respect of stock units included
within any deferred account, shall be as determined from time to time by the
Plan Committee, which Plan Committee may change any and all of the terms and
conditions at any time applicable to deferrals thereafter made.
5.4(b) AMENDMENT OF DEFERRAL ARRANGEMENTS. The Plan Committee may, at
any time and from time to time, but prospectively only except as hereinafter
provided, amend, modify, change, suspend or cancel any and all of the rights,
procedures, mechanics and timing parameters relating to the deferral of receipt
of Performance Share earnout under the Plan as set forth at Section 5.4(a)
hereof. In addition, the Plan Committee may, in its sole discretion, accelerate
the payout of the deferred account, or any portion thereof, either in a lump sum
or in a series of payments, but under the following conditions only:
(i) the Federal tax statutes, regulations or interpretations are
amended, modified, or otherwise changed or affected in such a
manner as to adversely alter or modify the tax effect of the
"deferred account" as it is comprehended under the tax law and
interpretations in effect for deferred accounts as of the
effective date of this Plan, or
(ii) the deferred account holder suffers or incurs an event that would
qualify for a "withdrawal" of contributions that have not been
accumulated for two years without adverse consequences on the tax
status of a qualified profit-sharing or stock bonus plan under the
Federal tax laws applicable from time to time to such types of
plans.
5.5 NON-DISQUALIFYING TERMINATION OF EMPLOYMENT. Except for Section 5.6
hereof, the only exceptions to the requirement of continuous employment during a
Performance Period for
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Performance Share earnout eligibility are termination of a Participant's
employment by reason of death (in which event the Performance Shares may be
transferable by will or the laws of descent and distribution only to such
Participant's beneficiary designated to receive the Performance Shares or to the
Participant's applicable legal representatives, heirs or legatees), total and
permanent disability, normal or late retirement or early retirement, with the
consent of the Plan Committee, or transfer of an executive in a spin-off, with
the consent of the Plan Committee, occurring during the Performance Period
applicable to the subject Performance share grant. In such instance an earnout
of the Performance Shares shall be made, as of the end of the Performance
Period, and 100% of the total Performance Shares that would have been earned
during the Performance Period shall be earned and paid out; provided, however,
in a spin-off situation the Plan Committee may set additional conditions, such
as, without limiting the generality of the foregoing, continuous employment with
the spin-off entity. If a Participant's termination of employment does not meet
the criteria set forth above, but the Participant had at least 15 years of
continuous employment with the Company or a Subsidiary or any combination
thereof, provided that if the person is not an Executive Officer (as defined
under the Exchange Act) of the Company at time of termination such 15 years need
not be continuous, the Plan Committee may allow earn-outs of up to 100% of the
total Performance Shares for the Performance Period(s) in which the termination
of employment occurred, subject to any conditions that the Plan Committee shall
determine.
5.6 CHANGE IN CONTROL. In the event of a Change in Control, all
outstanding Performance Shares granted under the Plan shall be proratably
payable ten days after the Change in Control. The amount of Performance Shares
payable shall be determined by multiplying 100% of each Performance Share grant
by a fraction, the numerator of which shall be the number of months that have
elapsed in the applicable Performance Period and the denominator of which shall
be the total number of months in the Performance Period.
ARTICLE VI
STOCK OPTIONS
6.1 NON-QUALIFIED OPTION. Non-Qualified Options granted under the Plan
are not intended to be Incentive Stock Options under the provisions of Section
422 of the Code. The Non-Qualified Options shall be evidenced by Non-Qualified
Option agreements in such form and not inconsistent with the Plan as the Plan
Committee shall in its sole discretion approve from time to time, which
agreements shall specify the number of shares to which they pertain and the
purchase price of such shares and shall, but without limitation, contain in
substance the following terms and conditions:
(a) OPTION PERIOD. Each option granted shall expire and all rights to
purchase shares thereunder shall cease ten years after the Date of
Grant of the Stock Option or on such date prior thereto as may be
fixed by the Plan Committee, or on such other date as is provided
by this Plan in the event of termination of employment, death or
reorganization. No option shall permit the purchase of any shares
thereunder during the first year after the Date of Grant of such
option, except as provided in Section 6.3 hereof or as otherwise
determined by the Plan Committee.
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(b) TRANSFERABILITY AND TERMINATION OF OPTIONS. During the lifetime
of an individual to whom an option is granted, the option may be
exercised only by such individual and only while such individual
is an employee of the Company or a Subsidiary and only if the
Participant has been continuously so employed by any one or
combination thereof since the Date of Grant of the option,
provided, however, that if the employment of such Participant by
the Company or a Subsidiary Corporation terminates, the option may
additionally be exercised as follows, or in any other manner
provided by the Plan Committee, but in no event later than ten
years after the Date of Grant of the Stock Option, except as set
forth in (ii) below:
(i) if a Participant's termination of employment occurs by
reason of normal or late retirement under any retirement
plan of the Company or its Subsidiaries, such Participant's
Stock Options may be exercised within five years after the
date of such termination of employment. If a Participant's
termination of employment occurs by reason of early
retirement under any retirement plan of the Company or its
Subsidiaries, or by reason of the transfer of a Participant
in a spin-off, or by reason of total and permanent
disability, as determined by the Plan Committee, without
retirement, then such Participant's Stock Options shall be
exercisable for a period of up to five years after the date
of such termination of employment if the Plan Committee
consents to such an extension. During the extension
period, the right to exercise options, if any, accruing in
installments, shall continue; provided, however, that the
Plan Committee may set additional conditions, such as,
without limiting the generality of the foregoing, an
agreement to not provide services to a competitor of the
Company and its Subsidiaries and/or continuous employment
with a spin-off entity.
(ii) if a Participant's termination of employment occurs by
reason of death, then within five years after the date of
death or the life of the option, whichever is less, but in
no event less than one year after the date of death, during
which time installments shall continue to accrue.
(iii) if a Participant's termination of employment occurs for any
reason other than as specified in Section 6.1(b)(i) or (ii)
hereof, the Participant has been continuously employed by
the Company or a Subsidiary or any combination for more
than 15 years, provided that if the person is not an
Executive Officer (as defined under the Exchange Act) of
the Company at the time of termination such 15 years need
not be continuous, and if the Plan Committee so approves,
then within a period of up to five years after the date of
termination of employment. During the extension period,
the right to exercise options, if any, accruing in
installments shall continue; provided, however, the Plan
Committee may set additional conditions.
(iv) if a Participant's termination of employment occurs for any
reason other than as specified in Section 6.1(b)(i) or (ii)
hereof, the Plan Committee has not
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approved an extension and Participant's termination of
employment is not occasioned by the commission of a
dishonest or other illegal act, then, but only with respect
to installments that have as of the date of termination
already accrued, within ninety days after the date of such
termination of employment except in the case of
Participants who would at the time be subject to the
provisions of Section 16(b) of the Exchange Act, in which
instance the period of exercise shall be two hundred ten
days after termination. Those Participants terminated
because of the commission of a dishonest or other illegal
act shall have no additional period after termination of
employment in which to exercise their options. Absence on
a leave of absence approved by the Plan Committee shall not
be deemed a termination or interruption of continuous
employment for the purposes of the Plan.
(v) Rights accruing to a Participant under Sections 6.1(b)(i),
6.1(b)(iii) and 6.1(b)(iv) may, upon the death of a
Participant subsequent to his/her termination of
employment, be exercised by his/her duly designated
beneficiary or otherwise by his/her applicable legal
representatives, heirs or legatees to the extent vested in
and unexercised or perfected by the Participant at the date
of his/her death.
No option shall be assignable or transferable by the individual to
whom it is granted, except that it may be transferable (X) by
assignment by the Participant to the extent provided in the
applicable option agreement, or (Y) by will or the laws of descent
and distribution in accordance with the provisions of this Plan.
An option transferred after the death of the Participant to whom
it is granted may only be exercised by such individual's
beneficiary designated to exercise the option or otherwise by
his/her applicable legal representatives, heirs or legatees, and
only within the specific time period set forth above and only to
the extent vested in and unexercised by the Participant at the
date of his/her death, except as provided in Section 6.1(b)(ii).
In no event, whether by the Participant directly or by his/her
proper assignee or beneficiary or other representative, shall any
option be exercisable at any time after its expiration date as
stated in the option agreement, except as provided in Section
6.1(b)(ii). When an option is no longer exercisable it shall be
deemed for all purposes and without further act to have lapsed and
terminated. The Plan Committee may in its sole discretion, but
shall not be required to, determine, solely for the purposes of
the Plan, that a Participant is permanently and totally disabled,
and the acts and decisions of the Plan Committee made in good
faith in relation to any such determination shall be conclusive
upon all persons and interests affected thereby.
(c) EXERCISE OF OPTIONS. An individual entitled to exercise an option
may, subject to its terms and conditions and the terms and
conditions of the Plan, exercise it in whole
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at any time, or in part from time to time, by delivery to the
Company at its principal office of written notice of exercise,
specifying the number of whole shares with respect to which the
option is being exercised. Before shares may be issued, payment
must be made in full, in legal United States tender, in the amount
of the purchase price of the shares to be purchased at the time
and any amounts for withholding as provided in Section 11.9
hereof; provided, however, in lieu of paying for the exercise
price in cash as described above, the individual may pay (subject
to such conditions and procedures as the Plan Committee may
establish) all or part of such exercise price by delivering or
tendering owned and unencumbered shares of Common Stock acceptable
to the Plan Committee and having a Fair Market Value on the date
of exercise of the option equal to or less than the exercise price
of the options exercised, with cash, as set forth above, for the
remainder, if any, of the purchase price; provided, further, that
the Plan Committee may permit a Participant to elect to pay the
exercise price by authorizing a third party to sell shares of
Common Stock (or a sufficient portion of the shares) acquired upon
exercise of the option and remit to the Company a sufficient
portion of the sale proceeds to pay the entire exercise price and
any tax withholding resulting from such exercise. Subject to
rules established by the Plan Committee, the withholdings required
by Section 11.9 hereof may be satisfied by the Company withholding
shares of Common Stock issued on exercise that have a Fair Market
Value on the date of exercise of the option equal to or less than
the withholding required by Section 11.9 hereof.
6.2 INCENTIVE STOCK OPTION. Incentive Stock Options granted under the
Plan are intended to be incentive stock options under Section 422 of the Code,
and the Plan shall be administered, except with respect to the right to exercise
options after termination of employment, to qualify Incentive Stock Options
issued hereunder as incentive stock options under Section 422 of the Code. An
Incentive Stock Option shall not be granted to an employee who owns, or is
deemed under Section 424(d) of the Code to own, stock of the Company (or of any
parent or Subsidiary of the Company) possessing more than 10% of the total
combined voting power of all classes of stock therein. The aggregate Fair
Market Value (determined as of the time the option is granted) of the stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Participant during any calendar year (under all incentive stock option plans
of the Company or any parent or Subsidiary of the Company) shall not exceed
$100,000. The Incentive Stock Options shall be evidenced by Incentive Stock
Option Agreements in such form and not inconsistent with the Plan as the Plan
Committee shall in its sole discretion approve from time to time, which
agreements shall specify the number of shares to which they pertain and the
purchase price of such shares.
The terms and conditions set forth in Sections 6.1(a) through (c) hereof
shall apply to an Incentive Stock Option; provided that, in the event Section
6.1(b)(i) hereof is applicable, all installments shall become immediately
exercisable.
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6.3 CHANGE IN CONTROL. In the event of a Change in Control:
(a) Without any action by the Plan Committee or the Board, each Stock
Option granted under the Plan that has not been previously
exercised or otherwise lapsed and terminated shall become
immediately exercisable in full.
(b) The Plan Committee, in its sole discretion, and without the
consent of any Participant affected thereby, may determine that
some or all Participants holding outstanding Stock Options shall
receive, with respect to each share of Common Stock subject to a
Stock Option, cash in an amount equal to the excess of the Fair
Market Value of a share of Common Stock immediately prior to such
Change in Control over the exercise price of such share.
(c) The cash payment described in Section 6.3(b) shall be made
promptly following the effective date of such Change in Control.
Upon a determination by the Plan Committee in accordance with
Section 6.3(b), each Stock Option with respect to which a cash
payment is to be made shall terminate, and the Participant holding
such Stock Option shall have no further rights thereunder except
the right to receive such cash payment.
ARTICLE VII
RESTRICTED STOCK
7.1 RESTRICTION PERIOD TO BE ESTABLISHED BY THE PLAN COMMITTEE. At the
time a Restricted Stock Award is made, the Plan Committee shall establish a
period of time (the "Restriction Period") applicable to such Award, which shall
be not less than three years. Each Restricted Stock Award may have a different
Restriction Period, at the discretion of the Plan Committee. Except as
permitted or pursuant to Sections 7.4, 7.5 or 11.8 hereof, the Restriction
Period applicable to a particular Restricted Stock Award shall not be changed.
7.2 OTHER TERMS AND CONDITIONS. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. The Holder shall have
the right to enjoy all shareholder rights during the Restriction Period with the
exception that:
(i) The Holder shall not be entitled to delivery of the stock
certificate until the Restriction Period shall have expired.
(ii) The Company may either issue shares subject to such restrictive
legends and/or stop-transfer instructions as it deems appropriate
or provide for retention of custody of the Common Stock during the
Restriction Period.
(iii) The Holder may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of the Common Stock during the Restriction
Period.
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(iv) A breach of the terms and conditions established by the Plan
Committee pursuant to the Restricted Stock Award shall cause a
forfeiture of the Restricted Stock Award, and any dividends
withheld thereon.
(v) Dividends payable in cash or in shares of stock or otherwise may
be either currently paid or withheld by the Company for the
Holder's account. At the discretion of the Plan Committee,
interest may be paid on the amount of cash dividends withheld,
including cash dividends on stock dividends, at a rate and subject
to such terms as determined by the Plan Committee.
Provided, however, and the provisions of Section 7.4 to the contrary
notwithstanding, in lieu of the foregoing, the Plan Committee may provide that
no shares of Common Stock be issued until the Restriction Period is over and
further provide that the shares of Common Stock issued after the Restriction
Period has been completed, be issued in escrow and/or be legended and that the
Common Stock be subject to restrictions including the forfeiture of all or a
part of the shares.
7.3 PAYMENT FOR RESTRICTED STOCK. A Holder shall not be required to
make any payment for Common Stock received pursuant to a Restricted Stock Award,
unless the Plan Committee requires payment for such stock in the Restricted
Stock Award.
7.4 FORFEITURE PROVISIONS. Subject to Section 7.5, in the event a
Holder terminates employment during a Restriction Period, a Restricted Stock
Award will be forfeited; provided, however, when the Plan Committee issues the
Restricted Stock Award, it may provide in the Restricted Stock Award agreement
for proration or full payout in the event of (i) a termination of employment
because of normal or late retirement, (ii) with the consent of the Plan
Committee, early retirement or spin-off, (iii) death, (iv) total and permanent
disability, as determined by the Plan Committee, or (v) with the consent of the
Plan Committee, termination of employment after 15 years of continuous
employment with the Company or a Subsidiary or any combination thereof, provided
that if the person is not an Executive Officer (as defined under the Exchange
Act) of the Company at the time of termination such 15 years need not be
continuous, all subject to any other conditions the Plan Committee may
determine.
7.5 CHANGE IN CONTROL. In the event of a Change in Control, all
outstanding Restricted Stock Awards granted under the Plan will be proratably
payable ten days after the Change in Control. The amount of Common Stock
payable shall be determined by multiplying each Restricted Stock Award granted
by a fraction, the numerator of which shall be the number of months that have
elapsed in the applicable Restriction Period and the denominator of which shall
be the number of months in the Restriction Period.
ARTICLE VIII
SHARES OF STOCK SUBJECT TO THE PLAN; MAXIMUM AWARD
8.1 SHARES AVAILABLE; PERFORMANCE SHARE AND RESTRICTED STOCK AWARD
LIMITATION. The total number of shares available for issuance under all Awards
pursuant to the Plan shall not exceed in the aggregate 22,000,000 shares of
Common Stock, subject to adjustment as provided in Section
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8.3 hereof; provided, however, that no more than 10% of all shares of Common
Stock subject to this Plan may be issued in the aggregate pursuant to
Performance Share or Restricted Stock Awards. Such shares may be authorized and
unissued shares, or may be treasury shares held by the Company or may be shares
purchased or held by the Company or a Subsidiary for purposes of the Plan, or
any combination thereof.
8.2 SHARES AGAIN AVAILABLE. Shares covered by granted Performance
Shares which are not earned pursuant to any of the provisions of Article V
hereof, or Stock Options, Performance Shares or Restricted Stock Awards which
are forfeited for any reason or are not distributed or are covered by options
that lapse or are cancelled before exercise, shall (unless the Plan shall have
been terminated) again be available in the same relative amounts for other Award
grants under the Plan. If, in accordance with the Plan, a Participant uses
shares of Common Stock to pay a purchase or exercise price or satisfy tax
withholdings, such shares may again be used for an Award under the Plan.
8.3 RELEVANT CHANGE ADJUSTMENTS. Appropriate adjustments in the number
of shares and in the option price per share as authorized herein may be made by
the Plan Committee, in its discretion (except as provided in Section 11.8
hereof), to give effect to adjustments made in the number of shares of Common
Stock through a merger, consolidation, recapitalization, reclassification,
combination, spin-off, common stock dividend, stock split or other relevant
change.
8.4 MAXIMUM AWARD. During any Plan Year, no Participant may receive
Awards that, in the aggregate, could result in that Participant receiving,
earning or acquiring more than 2,000,000 shares of Common Stock, subject to the
adjustments described in Section 8.3.
ARTICLE IX
ADMINISTRATION OF THE PLAN
9.1 The Plan will be administered by a committee of two or more members
of the Board appointed from time to time by the Board.
9.2 The Plan Committee shall have and exercise all of the powers and
responsibilities granted expressly or by implication to it by the provisions of
the Plan. Subject to and as limited by such provisions, the Plan Committee may
from time to time enact, amend and rescind such rules, regulations and
procedures with respect to the administration of the Plan as it deems
appropriate or convenient.
9.3 All questions arising under the Plan, any Incentive Stock Option,
Non-Qualified Stock Option, Performance Share or Restricted Stock Award
agreement, or any rule, regulation or procedure adopted by the Plan Committee
shall be determined by the Plan Committee, and its determination thereof shall
be conclusive and binding upon all parties.
9.4 Any action required or permitted to be taken by the Plan Committee
under the Plan shall require the affirmative vote of a majority of a quorum of
the members of the Plan Committee.
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A majority of all members of the Plan Committee shall constitute a "quorum" for
Plan Committee business. The Plan Committee may act by written determination
instead of by affirmative vote at a meeting, provided that any written
determination shall be signed by all members of the Plan Committee, and any such
written determination shall be as fully effective as a majority vote of a quorum
at a meeting.
9.5 The Plan Committee may delegate all or any part of its authority
under the Plan to a subcommittee of directors and/or officers of the Company for
purposes of determining and administering Awards granted to persons who are not
then subject to the reporting requirements of Section 16 of the Exchange Act.
ARTICLE X
REDUCTION IN AWARDS
10.1 Anything in this Plan to the contrary notwithstanding, the
provisions of this Article X shall apply to a Participant if Ernst & Young
determines that each of (a) and (b) below are applicable.
(a) Payments or distributions hereunder, determined without
application of this Article X, either alone or together with other
payments in the nature of compensation to the Participant which
are contingent on a change in the ownership or effective control
of the Company, or in the ownership of a substantial portion of
the assets of the Company, or otherwise (but after any elimination
or reduction of such payments under the terms of the Company's
Income Continuance Policy Statement or SMG Income Continuance
Policy Statement), would result in any portion of the payments
hereunder being subject to an excise tax on excess parachute
payments imposed under Section 4999 of the Code.
(b) The excise tax imposed on the Participant under Section 4999 of
the Code on excess parachute payments, from whatever source, would
result in a lesser net aggregate present value of payments and
distributions to the Participant (after subtraction of the excise
tax) than if payments and distributions to the Participant were
reduced to the maximum amount that could be made without incurring
the excise tax.
10.2 Under this Article X the payments and distributions under this Plan
shall be reduced (but not below zero) so that the present value of such payments
and distributions shall equal the Reduced Amount. The "Reduced Amount" (which
may be zero) shall be an amount expressed in present value which maximizes the
aggregate present value of payments and distributions under this Plan which can
be made without causing any such payment to be subject to the excise tax under
Section 4999 of the Code. The determinations and reductions under this Section
10.2 shall be made after eliminations or reductions, if any, have been made
under the Company's Income Continuance Policy Statement or SMG Income
Continuance Policy Statement.
10.3 If Ernst & Young determines that this Article X is applicable to a
Participant, it shall so advise the Plan Committee in writing. The Plan
Committee shall then promptly give the
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Participant notice to that effect together with a copy of the detailed
calculation supporting such determination which shall include a statement of the
Reduced Amount. The Participant may then elect, in his/her sole discretion,
which and how much of the Stock Options, Restricted Stock Awards and/or
Performance Shares otherwise awarded under this Plan shall be eliminated or
reduced (as long as after such election the aggregate present value of the
remaining Stock Options, Restricted Stock Awards and/or Performance Shares under
this Plan equals the Reduced Amount), and shall advise the Plan Committee in
writing of his/her election within ten days of his/her receipt of notice. If no
such election is made by the Participant within such ten-day period, the Plan
Committee may elect which and how much of the Stock Options, Restricted Stock
Awards, and/or Performance Shares shall be eliminated or reduced (as long as
after such election their aggregate present value equals the Reduced Amount) and
shall notify the Participant promptly of such election. For purposes of this
Article X, present value shall be determined in accordance with Section 280G of
the Code. All the foregoing determinations made by Ernst & Young under this
Article X shall be made as promptly as practicable after it is determined that
excess parachute payments (as defined in Section 280G of the Code) will be made
to the Participant if an elimination or reduction is not made. As promptly as
practicable following the election hereunder, the Company shall provide to or
for the benefit of the Participant such amounts and shares as are then due to
the Participant under this Plan and shall promptly provide to or for the benefit
of the Participant in the future such amounts and shares as become due to the
Participant under this Plan.
10.4 As a result of the uncertainty in the application of Section 280G
of the Code at the time of the initial determination by Ernst & Young hereunder,
it is possible that payments or distributions under this Plan will have been
made which should not have been made ("Overpayment") or that additional payments
or distributions which will have not been made could have been made
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that Ernst & Young, based upon the assertion of
a deficiency by the Internal Revenue Service against the Company or the
Participant which Ernst & Young believes has a high probability of success,
determines that an Overpayment has been made, any such Overpayment shall be
treated for all purposes as a loan to the Participant which the Participant
shall repay together with interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant if and to the extent such payment would not reduce
the amount which is subject to the excise tax under Section 4999 of the Code. In
the event that Ernst & Young, based upon controlling precedent, determines that
an Underpayment has occurred, any such Underpayment shall be promptly paid to or
for the benefit of the Participant together with interest at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
10.5 In making its determination under this Article X, the value of any
non-cash benefit shall be determined by Ernst & Young in accordance with the
principles of Section 280G(d)(3) of the Code.
10.6 All determinations made by Ernst & Young under this Article X shall
be binding upon the Company, the Plan Committee and the Participant.
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ARTICLE XI
GENERAL PROVISIONS
11.1 AMENDMENT OR TERMINATION OF PLAN. The Board may at any time amend,
suspend, discontinue or terminate the Plan (including the making of any
necessary enabling, conforming and procedural amendments to the Plan to
authorize and implement the granting of qualified Stock Options or other income
tax preferred stock options which may be authorized by enactment of the United
States Congress and/or the Internal Revenue Service subsequent to the effective
date of this Plan); provided, however, that no amendment by the Board shall,
without further approval of the shareholders of the Company, increase the total
number of shares of Common Stock which may be made subject to the Plan, except
as provided at Section 8.3 hereof. No action taken pursuant to this Section
11.1 of the Plan shall, without the consent of the Participant, alter or impair
any Awards which have been previously granted to a Participant.
11.2 NON-ALIENATION OF RIGHTS AND BENEFITS. Except as expressly
provided herein, no right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance or charge and
any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge
the same shall be void. No right or benefit hereunder shall in any manner be
liable for or subject to the debts, contracts, liabilities or torts of the
person entitled to such right or benefit. If any Participant or beneficiary
hereunder should become bankrupt or attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge any right or benefit hereunder (other than as
expressly provided herein), then such right or benefit shall, in the sole
discretion of the Plan Committee, cease and in such event the Company may hold
or apply the same or any or no part thereof for the benefit of the Participant
or beneficiary, his/her spouse, children or other dependents or any of them in
any such manner and in such proportion as the Plan Committee in its sole
discretion may deem proper.
11.3 NO RIGHTS AS SHAREHOLDER. The granting of Performance Shares
and/or Stock Options and/or Restricted Stock Awards under the Plan shall not
entitle a Participant or any other person succeeding to his/her rights, to any
dividend, voting or other right as a shareholder of the Company unless and until
the issuance of a stock certificate to the Participant or such other person
pursuant to the provisions of the Plan and then only subsequent to the date of
issuance thereof.
11.4 LIMITATION OF LIABILITY OR OBLIGATION OF THE COMPANY. As
illustrative only of the limitations of liability or obligation of the Company
and not intended to be exhaustive thereof, nothing in the Plan shall be
construed:
(a) to give any employee of the Company any right to be granted any
Award other than at the sole discretion of the Plan Committee;
(b) to give any Participant any rights whatsoever with respect to
shares of Common Stock except as specifically provided in the
Plan;
(c) to limit in any way the right of the Company or any Subsidiary to
terminate, change or modify, with or without cause, the employment
of any Participant at any time; or
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(d) to be evidence of any agreement or understanding, express or
implied, that the Company or any Subsidiary will employ any
Participant in any particular position at any particular rate of
compensation or for any particular period of time.
Payments and other benefits received by a Participant under an Award shall not
be deemed part of a Participant's regular, recurring compensation for purposes
of any termination, indemnity or severance pay laws and shall not be included
in, nor have any effect on, the determination of benefits under any other
employee benefit plan, contract or similar arrangement provided by the Company
or any Subsidiary, unless expressly so provided by such other plan, contract or
arrangement or the Committee determines that an Award or portion of an Award
should be included to reflect competitive compensation practices or to recognize
that an Award has been made in lieu of a portion of competitive cash
compensation.
11.5 GOVERNMENT REGULATIONS. Notwithstanding any other provisions of
the Plan seemingly to the contrary, the obligation of the Company with respect
to Awards granted under the Plan shall at all times be subject to any and all
applicable laws, rules, and regulations and such approvals by any government
agencies as may be required or deemed by the Board or Plan Committee as
reasonably necessary or appropriate for the protection of the Company.
In connection with any sale, issuance or transfer hereunder, the
Participant acquiring the shares shall, if requested by the Company, give
assurances satisfactory to counsel of the Company that the shares are being
acquired for investment and not with a view to resale or distribution thereof
and assurances in respect of such other matters as the Company may deem
desirable to assure compliance with all applicable legal requirements.
11.6 NON-EXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board nor the submission of the Plan to shareholders of the Company for
approval shall be construed as creating any limitations on the power or
authority of the Board to adopt such other or additional incentive or other
compensation arrangements of whatever nature as the Board may deem necessary or
desirable or preclude or limit the continuation of any other plan, practice or
arrangement for the payment of compensation or fringe benefits to employees
generally, or to any class or group of employees, which the Company or any
Subsidiary now has lawfully put into effect, including, without limitation, any
retirement, pension, savings, profit sharing or stock purchase plan, insurance,
death and disability benefits, and executive short term incentive plans.
11.7 EFFECTIVE DATE. Subject to the approval of this restated Plan by
the holders of a majority of the voting power of the shares present and entitled
to vote at the Company's Annual Meeting of Shareholders to be held May 19, 1999
and any necessary approval being obtained from any department, board or agency
of the United States or states having jurisdiction, the Plan shall be effective
as of May 19, 1999.
11.8 REORGANIZATION. In case the Company is merged or consolidated with
another corporation, or in case the property or stock of the Company is acquired
by another corporation, or in case of a separation, reorganization or
liquidation of the Company (for purposes hereof any such
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occurrence being referred to as an "Event"), the Plan Committee or a comparable
committee of any corporation assuming the obligations of the Company hereunder,
shall either:
(a) make appropriate provision for the protection of any outstanding
Performance Shares, Stock Options and Restricted Stock Awards
granted thereunder by the substitution on an equitable basis of
appropriate stock or options of the Company, or of the merged,
consolidated or otherwise reorganized corporation which will be
issuable in respect to the shares of Common Stock. Stock to be
issued pursuant to such Performance Shares shall be limited so
that the excess of the aggregate fair market value of the shares
subject to the Performance Shares immediately after such
substitution over the purchase price thereof is not more than the
excess of the aggregate fair market value of the shares subject to
such Performance Shares immediately before such substitution over
the purchase price thereof; or
(b) upon written notice to the Participant, declare that all
Performance Shares granted to the Participant are deemed earned,
that the Restriction Period of all Restricted Stock Awards has
been eliminated and that all outstanding Stock Options shall
accelerate and become exercisable in full but that all outstanding
Stock Options, whether or not exercisable prior to such
acceleration, must be exercised within the period of time set
forth in such notice or they will terminate. In connection with
any declaration pursuant to this Section 11.8(b), the Plan
Committee may, but shall not be obligated to, cause a cash payment
to be made to each Participant who holds a Stock Option that is
terminated in an amount equal to the product obtained by
multiplying (x) the amount (if any) by which the Event Proceeds
Per Share (as hereinafter defined) exceeds the exercise price per
share covered by such Stock Option times (y) the number of shares
of Common Stock covered by such Stock Option. For purposes of
this Section 11.8(b), "Event Proceeds Per Share" shall mean the
cash plus the fair market value, as determined in good faith by
the Plan Committee, of the non-cash consideration to be received
per share by the shareholders of the Company upon the occurrence
of the Event.
11.9 WITHHOLDING TAXES, ETC. All distributions under the Plan shall be
subject to any required withholding taxes and other withholdings and, in case of
distributions in Common Stock, the Participant or other recipient may, as a
condition precedent to the delivery of Common Stock, be required to pay to
his/her participating employer the excess, if any, of the amount of required
withholding over the withholdings, if any, from any distributions in cash under
the Plan. No distribution under the Plan shall be made in fractional shares of
Common Stock, but the proportional market value thereof shall be paid in cash.
11.10 GENERAL RESTRICTION. Each Award shall be subject to the
requirement that, if at any time the Board shall determine, in its discretion,
that the listing, registration or qualification of the shares subject to such
option and/or right upon any securities exchange or under any state or federal
law, or the consent or approval of any government regulatory body, is necessary
or desirable as a condition of, or in connection with the granting of such Award
or the issue or purchase of shares respectively thereunder, such Award may not
be exercised in whole or in part unless such listing,
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registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board.
11.11 USE OF PROCEEDS. The proceeds derived from the sale of the stock
pursuant to Stock Options or Restricted Stock Awards granted under the Plan
shall constitute general funds of the Company.
11.12 PRIOR PLANS. Notwithstanding the adoption of this Plan by the
Board and approval of this Plan by the Company's shareholders as provided in
Section 11.7 hereof, the Company's Executive Long Term Incentive Plan of 1981
and the Director Stock Option Plan of 1995, as the same have been amended from
time to time (the "Prior Plans"), shall remain in effect, and all grants and
awards heretofore made under the Prior Plans shall be governed by the terms of
the Prior Plans. The Plan Committee shall not, however, make any additional
grants of performance shares, restricted stock or stock option awards pursuant
to the Prior Plans.
11.13 DURATION OF PLAN. This Plan shall remain in effect until all
shares of Common Stock subject to the Plan are distributed or this Plan is
terminated under Section 11.1 hereof.
11.14 SEVERABILITY. In the event any provision of this Plan shall be
held to be illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of this Plan, and this Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
11.15 GOVERNING LAW. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken pursuant to
this Plan shall be governed by the laws of Minnesota and construed accordingly.
11.16 HEADINGS. The headings of the Articles and their subparts in this
Plan are for convenience of reading only and are not meant to be of substantive
significance and shall not add to or detract from the meaning of such Article or
subpart to which it refers.
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