<PAGE>
Notice of
Annual Meeting
of Shareholders
To Be Held
On May 27, 1994
-----------------------------------------------
Proxy Statement
<PAGE>
FAY'S INCORPORATED
7245 HENRY CLAY BOULEVARD
LIVERPOOL, NEW YORK 13088
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1994
- --------------------------------------------------------------------------------
To the Shareholders of FAY'S INCORPORATED:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Fay's
Incorporated, a New York corporation (the "Company"), will be held at the
Syracuse Marriott, 6302 Carrier Parkway, Thruway Exit 35, East Syracuse, New
York at 10:00 a.m., Friday, May 27, 1994, for the following purposes:
1. To elect three Class III directors for a term of three years.
2. To ratify the appointment by the Board of Directors of Deloitte & Touche
to audit the financial statements of the Company and its subsidiaries for
the fiscal year ending January 28, 1995.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
Only holders of record of the Company's Common Shares as of the close of
business on April 8, 1994 are entitled to notice of and to vote at the Annual
Meeting.
A Proxy Statement and form of proxy are furnished herewith.
Please sign and date the enclosed proxy and return it in the enclosed
self-addressed, postage-paid envelope. Prompt response by shareholders will
reduce the time and expense of solicitation. The proxy is revocable at any time
before it is voted by delivery of a duly executed proxy bearing a later date or
by attending the Meeting and voting in person.
By Order of the Board of Directors
WARREN D. WOLFSON
Senior Vice President and Secretary
Liverpool, New York
April 27, 1994
<PAGE>
FAY'S INCORPORATED/7245 HENRY CLAY BOULEVARD
LIVERPOOL, NEW YORK 13088
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
MAY 27, 1994
This Proxy Statement is furnished to the shareholders of Fay's Incorporated
(the "Company") in connection with the solicitation on behalf of the Board of
Directors of proxies to be voted at the Annual Meeting of Shareholders scheduled
to be held at 10:00 a.m. Friday, May 27, 1994 at the Syracuse Marriott, 6302
Carrier Parkway, Thruway Exit 35, East Syracuse, New York and any adjournment or
adjournments thereof. The Proxy Statement and form of proxy are being mailed on
or about April 27, 1994 to shareholders of record on April 8, 1994.
The cost of soliciting proxies in the form enclosed will be borne by the
Company. Proxies may be solicited by directors, officers and regular employees
of the Company personally or by telephone, for which they will receive no
additional compensation. The Company may reimburse brokers and others for
reasonable expenses incurred by them in obtaining voting instructions from
beneficial owners of Common Shares held of record by such brokers and other
persons.
Proxies in the form enclosed, unless previously revoked, will be voted at
the Annual Meeting in accordance with the instructions indicated thereon. If
proxies which are signed and returned do not specify a vote on any proposal,
such proxies will be voted FOR the election of nominees for directors named
herein, and FOR the ratification of the appointment by the Board of Directors of
Deloitte & Touche to audit the financial statements of the Company and its
subsidiaries for the fiscal year ending January 28, 1995. All proxies delivered
pursuant to this solicitation are revocable at the option of the person issuing
same at any time prior to the voting thereof. To accomplish revocation, written
notice or a substitute proxy must be received by the Secretary prior to the date
of the Meeting at the Company's executive office, 7245 Henry Clay Boulevard,
Liverpool, New York 13088. Proxies may also be revoked by a vote cast in person
at the Annual Meeting. Attendance at the Meeting will not, in itself, constitute
revocation of the proxy.
The Annual Report of the Company for the fiscal year ended January 29, 1994
is being sent to shareholders together with this Proxy Statement.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only holders of record of the Company's $.10 par value common stock ("Common
Shares") as of the close of business on April 8, 1994 are entitled to notice of
and to vote at the Annual Meeting. On that date there were 20,269,946 Common
Shares issued and outstanding, each share entitled to one vote.
The election of each nominee for director requires a plurality of the votes
cast. An affirmative vote of the majority of the votes cast is required for
approval of all other matters submitted to the shareholders. Abstentions and
broker non-votes are not counted as votes cast on any matter to which they
relate and will have no effect on the outcome of the vote. Proxy ballots are
received and tabulated by the Company's transfer agent and certified by the
inspectors of election.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Company, as of March 25, 1994, the following named
persons beneficially owned more than 5 percent of the Company's issued and
outstanding Common Shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------------------------- ------------------- ------------
<S> <C> <C>
Henry A. Panasci, Jr. 5,646,003(a)(b) 27.8%
7245 Henry Clay Boulevard
Liverpool, New York 13088
Estate of Henry Panasci 1,117,175(b) 5.5%
3000 Howlett Hill Road
Camillus, New York 13031
<FN>
(a) Includes 1,117,175 shares held as co-executor under the Will of Henry
Panasci being the same shares shown as beneficially owned by the Estate of
Henry Panasci. Also includes 1,646,175 shares held as trustee in trust for
the benefit of Mr. Panasci's children and sister, 54,691 shares held as
trustee in trust for the benefit of an unrelated party and currently
exercisable options to purchase 19,000 shares.
(b) Henry A. Panasci, Jr. possesses sole voting and sole investment power with
respect to all shares indicated as beneficially owned, except for 1,117,175
shares beneficially owned by the Estate of Henry Panasci over which Mr.
Panasci shares voting and investment power with David H. Panasci (an
officer and director of the Company and Mr. Panasci's son) and Beth
Leventhal (Mr. Panasci's daughter), and 54,691 shares held in trust as
trustee for the benefit of an unrelated party over which Mr. Panasci shares
voting and investment power.
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning Common Shares
beneficially owned as of March 25, 1994 by each director, by each executive
officer named in the Summary Compensation Table, and by all directors and
executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP (A) OF CLASS
- --------------------------------------------- ----------------- --------
<S> <C> <C>
Robert H. Altman 13,202(b) .1%
Robert J. Bennett 2,000 *
John D. Burke 31,632 .2%
John A. Kogut 60,113 .3%
Tarky Lombardi, Jr. 24,159(c) .1%
Hyman M. Miller 95,033(d) .5%
Gary L. Moreau 2,500 *
David H. Panasci 1,488,330(e) 7.3%
Henry A. Panasci, Jr. 5,646,003(f) 27.8%
James F. Poole, Jr. 38,508 .2%
John Saril 33,375(g) .2%
Warren D. Wolfson 41,310 .2%
Directors and executive officers as a group 6,388,847(h) 31.2%
<FN>
* Less than .1% of the Common Shares outstanding
(a) The number of Common Shares shown in the table includes currently
exercisable options to purchase: 35,839 shares held by Mr. Kogut; 35,839
shares held by Mr. D. Panasci; 19,000 shares held by Mr. H. Panasci; 32,814
shares held by Mr. Poole; 22,064 shares held by Mr. Wolfson; 6,750 shares
held by each of Messrs. Altman, Burke, Lombardi, Miller, and Saril; and
1,500 shares held by each of Messrs. Bennett and Moreau.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
(b) Includes 3,106 shares held in trust by Mr. Altman's wife for the benefit of
their children. Mr. Altman disclaims any beneficial interest in such
shares.
(c) Includes 6,044 shares owned by Mr. Lombardi's wife, 753 shares held in
trust by Mr. Lombardi for the benefit of his children, and 3,541 shares
held as trustee for the benefit of his mother under his father's Will. Mr.
Lombardi disclaims any beneficial interest in the shares owned by his wife.
(d) Includes 57,012 shares owned by Mr. Miller's wife. Mr. Miller disclaims any
beneficial interest in such shares.
(e) Includes 1,117,715 shares held as co-executor under the Will of Henry
Panasci. Also includes 4,936 shares owned by Mr. Panasci's wife. Mr.
Panasci disclaims any beneficial interest in such shares.
(f) Includes 1,117,715 shares held as co-executor under the Will of Henry
Panasci. Also includes 1,646,176 shares held in trust for the benefit of
Mr. Panasci's children and sister, and 54,691 shares held in trust for the
benefit of an unrelated party.
(g) Includes 3,250 shares held as trustee under trust for the benefit of Mr.
Saril's grandson. Mr. Saril disclaims any beneficial interest in such
shares.
(h) Includes currently exercisable options to purchase 217,392 shares and
1,117,715 shares beneficially owned by the Estate of Henry Panasci.
</TABLE>
PROPOSAL 1.
ELECTION OF DIRECTORS
The Certificate of Incorporation of the Company provides for a Board of
Directors consisting of not less than 9 nor more than 18 members, the exact
number to be determined prior to each Annual Meeting of Shareholders by a
majority of the directors then in office. The Certificate of Incorporation also
divides directors into three classes consisting of no less than three directors
per class, with the number of members comprising each class as equal as possible
to the number of members in each other class. The terms of office of each class
expire at Annual Meetings of Shareholders in each of the succeeding three years.
The Board of Directors has fixed the number of directors at 13, three
members whose terms expire at the forthcoming Annual Meeting; four members whose
terms expire in 1995; four members whose terms expire in 1996; and two
vacancies. The vacancies which exist on the Board of Directors allow the Board
to fill such vacancies between Annual Meetings of Shareholders. The term of
office of any director elected by the Board to fill a vacancy expires on the
date of the subsequent Annual Meeting of Shareholders. Proxies cannot be voted
for a greater number of persons than the number of nominees named.
At this Meeting, three Class III directors will be elected to serve until
the 1997 Annual Meeting, or until their successors are duly elected and
qualified. All nominees are presently members of the Board of Directors and all
were last elected as directors by shareholders at the Annual Meeting held on May
21, 1991.
The persons named in the proxy card as proxies intend to nominate and vote
for the election of Tarky Lombardi, Jr., Hyman M. Miller, and Warren D. Wolfson
as directors. Unless authority is withheld in the space provided on the enclosed
proxy card, the proxy will be voted for such nominees. In the event that one or
more of the nominees is unable to serve as a director by reason of any
unforeseen circumstance, it is intended that the proxies solicited hereby will
be voted for such other person or persons as may be nominated by the Board of
Directors. Proxies may not be voted for the election to the Board of Directors
of a greater number of persons than the number of nominees named.
3
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
BUSINESS EXPERIENCE, AND DIRECTOR
NAME OTHER DIRECTORSHIPS AGE SINCE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS III -- TO BE ELECTED FOR A TERM OF THREE YEARS
UNTIL THE 1997 ANNUAL MEETING
Tarky Lombardi, Jr. Partner in the law firm of Devorsetz, 64 1971
(a)(c)(e) Stinziano, Gilberti, Heintz & Smith;
Director and Treasurer of Syracuse Tank &
Manufacturing Co., Inc. (manufacturer of
tanks, pipes and culverts); former New York
State Senator.
Hyman M. Miller (a)(c) Private investor; Trustee of State of New 71 1967
York Power Authority; retired New York State
Assemblyman; founder and former officer of
The Miller Agency of New York, Inc.
Warren D. Wolfson Senior Vice President, General Counsel and 45 1987
Secretary of the Company; former Vice
President, General Counsel and Secretary of
the Company.
CLASS I -- TERM EXPIRES AT THE 1995 ANNUAL MEETING
Robert J. Bennett (b)(c) Chairman of the Board, President and Chief 52 1992
Executive Officer of ONBANCorp, Inc., OnBank
& Trust Co. and OnBank; Director of
ONBANCorp, Inc., OnBank & Trust Co. and
OnBank; former President and Chief Operating
Officer of ONBANCorp., Inc. and OnBank.
John D. Burke (a)(b) Shareholder in the accounting firm of 70 1970
Dermody, Burke & Brown CPAs, P.C.
John A. Kogut (c) President of the Fay's Drug Store Division 51 1987
of the Company; former Senior Vice
President-Operations of the Company.
Henry A. Panasci, Jr. (d) Chairman of the Board and Chief Executive 65 1966
Officer of the Company; Director of Niagara
Mohawk Power Corporation.
CLASS II -- TERM EXPIRES AT THE 1996 ANNUAL MEETING
Robert H. Altman Member of the law firm of Holtzmann, Wise & 49 1984
(a)(b)(e) Shepard; former member of the law firm of
Bangser, Klein & Rocca.
Gary L. Moreau (b) President and Chief Operating Officer of 39 1992
Oneida Ltd. (a manufacturer and marketer of
tableware and industrial wire products);
Director of Oneida Ltd.; formerly President
of the Oneida Silversmiths Division of
Oneida Ltd.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
BUSINESS EXPERIENCE, AND DIRECTOR
NAME OTHER DIRECTORSHIPS AGE SINCE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
David H. Panasci (d) President and Chief Operating Officer of the 35 1984
Company; former Executive Vice President of
the Company; former President of The Paper
Cutter Division of the Company; former Vice
President-Corporate Development of the
Company.
John Saril (b) Private investor 65 1978
<FN>
(a) Member of the Compensation Committee.
(b) Member of the Audit Committee.
(c) Member of the Nominating Committee.
(d) Henry A. Panasci, Jr. is the father of David H. Panasci, an officer and
director of the Company.
(e) See "Compensation Committee Interlocks and Insider Participation" and
"Certain Business Relationships" on page 13 of this Proxy Statement.
</TABLE>
CORPORATE GOVERNANCE INFORMATION
The Board of Directors of the Company held six regularly scheduled meetings
during the fiscal year ended January 29, 1994. The Board of Directors has
standing Audit, Compensation and Nominating Committees. Members of each such
Committee are identified in the table listing nominees for election of directors
and directors whose terms continue.
The Compensation Committee held five meetings during the fiscal year ended
January 29, 1994. The Compensation Committee is authorized to review and set the
compensation (including salary and bonus) of officers of the Company. The
Compensation Committee is also empowered to grant stock options to officers of
the Company and to set exercise prices and dates of exercisability in respect
thereof.
The Audit Committee held three meetings during the fiscal year ended January
29, 1994. The Audit Committee reviews the work and procedures of the Company's
independent certified public accountants, Deloitte & Touche; the recommendations
of such accountants; the action taken or contemplated by Management on such
recommendations; and the scope of the audit work performed by Deloitte & Touche.
The Audit Committee also reviews the work, policies and procedures of the
Company's Internal Audit Department.
The Nominating Committee held one meeting during the fiscal year ended
January 29, 1994. The Nominating Committee nominates corporate officers and
directors and proposes candidates to fill vacancies on the Board of Directors.
The Nominating Committee does not have the authority to consider nominations to
the Board of Directors made or recommended by shareholders. Such nominations are
considered by the full Board of Directors.
During the fiscal year ended January 29, 1994, no incumbent director
attended fewer than 75 percent of the aggregate total number of meetings of the
Board of Directors and the number of meetings of the committees of which the
director was a member. All committees report the activities and actions taken by
them to the Board of Directors.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table shows, for the fiscal years ended
January 25, 1992 (52 weeks), January 30, 1993 (53 weeks), and January 29, 1994
(52 weeks), compensation paid by the Company to the five highest compensated
executive officers of the Company in all capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION (4)
----------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
NAME AND YEAR ------------------------------------ OPTION ALL OTHER
PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) OTHER ($)(3) AWARDS (#)(4) COMPENSATION ($)(5)
- ----------------------------------- -------- ---------- --------- ------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Henry A. Panasci, Jr. 01/29/94 357,578 80,000 0 10,000 1,669
Chairman of the Board and 01/30/93 350,730(2) 80,000 0 3,125 2,072
Chief Executive Officer (1) 01/25/92 332,523 10,000 0 12,500 1,748
David H. Panasci 01/29/94 189,344 30,000 2,317 10,000 1,561
President and Chief 01/30/93 137,918(2) 30,000 909 3,125 1,309
Operating Officer (1) 01/25/92 127,731 10,000 0 12,500 1,201
John A. Kogut 01/29/94 164,876 45,000 3,763 10,000 3,085
President -- Fay's Drug 01/30/93 161,509(2) 45,000 19,662 3,125 3,236
Store Division 01/25/92 152,654 10,000 0 12,500 3,344
Warren D. Wolfson 01/29/94 152,963 35,000 6,955 10,000 2,834
Senior Vice President, General 01/30/93 149,884(2) 35,000 0 3,125 2,897
Counsel and Secretary 01/25/92 141,123 10,000 33,379 12,500 3,006
James F. Poole, Jr. 01/29/94 128,097 25,000 0 10,000 1,094
Vice President -- Finance and Chief 01/30/93 120,518(2) 25,000 0 3,125 1,158
Financial Officer 01/25/92 110,731 10,000 0 12,500 1,098
<FN>
(1) Between August 7, 1992, and March 26, 1993, Henry A. Panasci, Jr. also
served as the Company's President and Chief Operating Officer. Prior to
July 24, 1992, David H. Panasci served as President -- The Paper Cutter
Division of the Company. Between July 24, 1992 and March 25, 1993 David H.
Panasci served as the Company's Executive Vice President. On March 26,
1993, David H. Panasci was elected President and Chief Operating Officer of
the Company.
(2) The fiscal year ended January 30, 1993 was comprised of 53 weeks, as
compared to 52 weeks for the years ended January 25, 1992 and January 29,
1994. Had the fiscal year ended January 30, 1993 been comprised of 52
weeks, the salaries of Messrs. H. Panasci, D. Panasci, Kogut, Wolfson and
Poole, for such period would have been $344,076, $135,257, $158,442,
$147,038, and $118,230, respectively.
(3) Amounts reported represent the dollar value of the difference between the
price paid for the Company's Common Shares upon the exercise of stock
options under the Company's 1982 Stock Option Plan and the fair market
value of such Common Shares at the date of exercise.
(4) Other than stock options granted under the Company's 1982 Stock Option
Plan, during the period covered, the Company did not make any awards or
payouts of long-term compensation and does not maintain plans that make
awards or payouts of restricted stock, stock appreciation rights or
long-term incentive compensation. Amounts reported represent stock options
granted pursuant to the Company's 1982 Stock Option Plan and have been
adjusted to reflect a 5 for 4 stock split distributed on June 19, 1992.
(5) For the year ended January 29, 1994, includes (i) Company contributions to
the Company's Profit Sharing Plan (Mr. H. Panasci $1,669; Mr. D. Panasci
$1,561; Mr. Kogut $1,530; Mr. Wolfson $1,397; and Mr. Poole $1,094) and
(ii) the dollar value of split dollar life insurance premiums (Mr. Kogut
$1,555 and Mr. Wolfson $1,437).
</TABLE>
6
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during the fiscal year ended January 29, 1994 under the Companys 1982
Stock Option Plan to the five highest compensated executive officers of the
Company.
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------------- VALUE AT ASSUMED RATES
NUMBER OF OF STOCK PRICE
SECURITIES APPRECIATION FOR OPTION
UNDERLYING PERCENT OF TOTAL OPTIONS EXERCISE TERM (3)
OPTIONS GRANTED TO EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED (1) IN FISCAL YEAR ($/SH.) DATE (2) 5% ($) 10% ($)
- ------------------------ ----------- --------------------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Henry A. Panasci, Jr. 10,000 2.5% 7.25 03/22/03 45,600 115,500
David H. Panasci 10,000 2.5% 7.25 03/22/03 45,600 115,500
John A. Kogut 10,000 2.5% 7.25 03/22/03 45,600 115,500
Warren D. Wolfson 10,000 2.5% 7.25 03/22/03 45,600 115,500
James F. Poole, Jr. 10,000 2.5% 7.25 03/22/03 45,600 115,500
<FN>
(1) During the last fiscal year, the Company did not grant any stock
appreciation rights and does not maintain a plan under which stock
appreciation rights may be granted. Options granted under the Company's
1982 Stock Option Plan (the "Plan") may be incentive stock options, meeting
the requirements of Section 422 of the Internal Revenue Code, or
non-qualified stock options. The Plan is administered by the Stock
Option-Stock Purchase Plan Committee of the Board of Directors. Option
grants to officers of the Company are made by the Compensation Committee of
the Board of Directors. All other option grants are made by the Stock
Option-Stock Purchase Plan Committee. Directors who are not employees of
the Company are not eligible to participate in the Plan. The exercise price
for Common Shares purchased pursuant to exercise of options granted under
the Plan is determined by the Committee granting the option, except that
the exercise price of incentive stock options must be at least equal to the
fair market value of a Common Share on the date such option is granted. The
exercise price may be paid in cash or in Common Shares valued at fair
market value on the date of exercise. Each option granted under the Plan
may be exercised only on the dates provided for under the terms of the
option, but not later than 10 years after the date of grant. Each option is
non-transferable during the lifetime of the optionee. In the event of any
split-up, combination of shares, stock dividend, merger, consolidation or
recapitalization, the number of Common Shares available for issuance and
the number and option price of Common Shares subject to outstanding options
are proportionately adjusted as determined by the Stock Option-Stock
Purchase Plan Committee.
(2) The options become exercisable as follows: 20% on July 1, 1993; 20% on
January 1, 1994; 20% on July 1, 1994; 20% on January 1, 1995; and 20% on
July 1, 1995.
(3) Potential realizable value is based on an assumption that the price of the
Company's Common Shares appreciate at 5% and 10% annually (compounded) from
the date of grant until the end of the 10 year option term. These
calculations are based on requirements promulgated by the Securities
Exchange Commission and are not intended to forecast possible future
appreciation of the stock price.
</TABLE>
7
<PAGE>
The following table contains information with respect to the five highest
compensated executive officers of the Company concerning the exercise of options
during the fiscal year ended January 29, 1994 and unexercised options held as of
the end of the fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT AT FISCAL
FISCAL YEAR-END(#)(1) YEAR-END($)(2)
---------------------- ---------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------- ----------------- ----------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Henry A. Panasci, Jr. 0 0 19,000/6,625 4,563/0
David H. Panasci 756 2,317 35,839/6,625 29,909/0
John A. Kogut 1,135 3,763 35,839/6,625 29,909/0
Warren D. Wolfson 2,269 6,955 22,064/6,625 6,799/0
James F. Poole, Jr. 0 0 32,814/6,625 22,830/0
<FN>
(1) During the last fiscal year, the Company did not grant any stock
appreciation rights and does not maintain a plan under which stock
appreciation rights may be granted.
(2) Value of unexercised options is (i) the fair market value of a Common Share
at January 29, 1994 ($7.13 per share) less the exercise price times (ii)
the number of Common Shares subject to options.
</TABLE>
PENSION PLAN
The Company maintains a defined benefit pension plan which covers
substantially all full-time employees who have attained age 21 and have
completed one year of service. Annual retirement benefits under the Plan are
computed on a career average pay basis. The career average pay formula is the
sum of a one-time past-service benefit and annual benefit accruals. The
past-service benefit is calculated by multiplying 1 percent of a participants
1980 earnings by the number of years the participant had been continuously
employed by the Company prior to January 1, 1981, less the participant's initial
year of service and any service prior to the participant attaining age 25.
Annual benefit accruals are calculated by multiplying .75 percent of a
participant's annual earnings, up to an amount equal to that year's "covered
compensation," plus 1.25 percent of the participant's annual earnings in excess
of covered compensation. Covered compensation is equal to the average of the
Social Security wage base over the preceding 35 years. For 1993 such amount was
$22,716. The maximum amount of compensation taken into account under the Plan
for the year 1993 was limited by law to $235,840. The estimated annual benefits
payable upon retirement at the normal retirement age of 65 for Messrs. H.
Panasci, D. Panasci, Kogut, Wolfson, and Poole are $74,694, $62,470, $57,466,
$55,609 and $55,630, respectively. Amounts shown are straight life annuity
amounts, notwithstanding the availability of joint survivorship payment options.
EMPLOYMENT AGREEMENTS
On October 1, 1993, the Board of Directors approved entering into employment
agreements with Messrs. D. Panasci, Kogut, Wolfson, Poole, and two other
executive officers of the Company not named in the Summary Compensation Table.
Subject to the rights of the Board of Directors to terminate the agreements at
any time, the present term of each agreement expires on September 30, 1995. The
agreements provide that, in the event the employment of an executive officer is
terminated by the Company without Cause or by the executive officer for Good
Reason (as such terms are defined in the agreements), he will be entitled to
severance compensation and the continuation of certain employee welfare
benefits. In the event such termination occurs prior to a Change in Control (as
defined in the agreements), the executive officer shall be entitled to receive
severance compensation (paid in installments over one year) in an amount equal
to the executive officers base annual salary at the time of termination of
employment, plus an amount equal to the greater of (i) the executive officer's
most recent annual bonus award, or (ii) the executive officer's average annual
bonus award for the two most recent
8
<PAGE>
years. In the event such termination occurs following a Change in Control, the
executive officer shall be entitled to receive severance compensation (paid in
installments over two years) in an amount equal to two times the executive
officer's annual salary at the time of termination of employment, plus an amount
equal to the greater of (i) two times the executive officer's most recent annual
bonus award, or (ii) two times the executive officer's average annual bonus
award for the three most recent years.
The employment agreements also provide for the extension of employee welfare
benefits for the period of one year in the event the executive officer's
termination of employment occurs prior to a Change in Control and for a period
of two years in the event such termination occurs following a Change in Control.
Also, following a Change in Control, in the event employment of an executive
officer is terminated by the Company without Cause or by the executive officer
for Good Reason, he will be entitled to receive, in a lump sum, an amount equal
to the aggregate difference between the exercise prices of any options held by
the executive officer to purchase shares of the Company's common stock and the
Fair Market Value (as defined in the agreements) of such shares. The employment
agreements further provide that termination of employment by an executive
officer for Good Reason following a Change in Control will become effective no
earlier than six months following a Change in Control. The employment agreements
also restrict the use of the Company's confidential information and the ability
of the executive officer to compete with the Company prior to a Change in
Control. The terms of the agreements prohibit payment or distribution of any
amount that would be non-deductible by the Company for Federal income tax
purposes pursuant to Section 280G of the Internal Revenue Code.
COMPENSATION OF DIRECTORS
Directors who are Company employees do not receive any additional
compensation for serving as directors. Directors who are not employees of the
Company are paid directors fees of $2,000 per quarter, $750 for each Board of
Directors meeting attended and $500 for each committee meeting attended. The
presiding chairperson of each committee receives $750 for each committee meeting
attended. Pursuant to the Company's 1990 Stock Option Plan for Non-Employee
Directors, each director who is not an employee of the Company is automatically
granted an option to purchase 1,500 Common Shares on July 1 of each year at an
exercise price equal to the fair market value of the Common Shares on the date
of grant. Such options become exercisable in full on December 1 of the year in
which the option is granted, and expire ten years from the date of grant. During
the fiscal year ended January 29, 1994, each non-employee director was
automatically granted an option to purchase 1,500 Common Shares at an exercise
price of $6.50 per share.
The Company's Retirement Plan for Non-Employee Directors provides retirement
benefits to any director who has not been an employee of the Company at any time
during the five year period immediately preceding the date of retirement. Under
the Plan, an eligible director who retires from the Board of Directors following
attainment of age 65, and who has served as a director for 10 or more years, its
entitled to receive, during such director's lifetime, an annual retirement
benefit equal to the annual retainer paid by the Company to non-employee members
of the Board in effect on the date that the director retires from the Board
(currently $8,000). Eligible directors who retire from the Board of Directors
following attainment of age 60, having served at least five years on the Board,
are entitled to receive a reduced retirement benefit until the earlier of (i)
the death of the director, or (ii) the number of years such director served on
the Board.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Decisions regarding compensation for executive officers of the Company are
the responsibility of the Compensation Committee of the Board of Directors (the
"Committee"). Each member of the Committee is a non-employee director of the
Company. The Committee sets annual salaries and bonuses for each executive
officer. In addition, pursuant to the Company's 1982 Stock Option Plan, the
Committee is
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empowered to grant stock options to executive officers and to set exercise
prices and dates of exercisability in respect thereof. The Committee is also
responsible for recommending to the Board of Directors incentive compensation
and benefit programs for executive officers that achieve the Company's long-term
objectives.
Set forth below is a report of the Committee addressing the Committees
compensation policies for executive officers and the Committees bases for the
compensation reported during the Company's last fiscal year for the Company's
Chief Executive Officer, Henry A. Panasci, Jr.
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS
PHILOSOPHY
The Committee's compensation policies for executive officers are designed to
provide competitive levels of compensation that are materially linked to the
operating performance of the Company while recognizing individual initiative and
achievement and providing incentives to encourage maximum short and long-term
financial results for the benefit of the Company's shareholders.
ANNUAL BASE SALARIES
When setting annual base salaries for executive officers, the Committee
gives recognition to the fact that the Company's ability to attract, retain and
motivate qualified individuals depends on the payment of salaries competitive
with those paid by comparable companies for similar positions. Accordingly, the
Committee retains the Hay Management Group, a compensation consulting firm, for
the purpose of evaluating the compensation levels of each of the executive
offices and providing the Committee with nationwide, industry and regional
compensation surveys for comparably rated positions. Adjustments to executive
officer base salaries are made by the Committee in the event that an executive
officer's salary falls both 20% below the median income levels reflected by
industry-wide survey data and 20% below the median income levels reflected by
regional survey data.
The Committee has adopted a policy that grants an annual cost of living
increase to the base salary of each executive officer. Increases in base salary
in excess of a cost-of-living increase (not associated with adjustments made in
connection with competitive pay practices) are granted only following years when
both corporate and individual performance have met or exceeded expected results,
in order to preserve internal pay equity or in connection with a significant
change in an executive officer's responsiblilities. The criteria used to measure
corporate and individual performance for base salary increases is the same
criteria that was used by the Committee prior to the adoption of the Fay's
Incorporated Key Management Incentive Plan when setting annual bonus payments
(see below).
BONUSES
The Committee regards payment of annual bonuses to executive officers as
instrumental to the achievement of the Committee's objective of linking
executive compensation to corporate and individual performance. For the years
covered by the Summary Compensation Table, the Committee considered certain
corporate performance criteria when granting annual bonuses and salary
increases. These criteria included: the growth in after-tax earnings per share;
the rate of return on shareholders' equity; targeted versus actual operating
profits; targeted versus actual revenue growth; the increase in the market value
of the Company's stock; and industry peer group comparisons involving
price/earnings ratios, price/ book value ratios, and operating profits as a
percentage of sales. In addition, the Committee took into account the financial
performance of the Company's four operating divisions when granting bonuses to
the heads of each of the divisions. For the years covered by the Summary
Compensation Table, the Committee also evaluated the personal performance of
each executive officer when granting annual bonuses. Personal performance
criteria considered by the Committee included each executive officer's:
contribution to overall corporate performance; effectiveness in budget
management; performance in
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assigned special projects; managerial ability; the quality of management
development programs; and participation in industry, public and civic affairs.
The performance criteria were evaluated by the Committee with no fixed or
specific mathematical weighting applied to each element of performance.
On March 25, 1994, at the recommendation of the Committee, the Company's
Board of Directors adopted the Fay's Incorporated Key Management Incentive Plan
(the "Incentive Plan"), effective as of January 30, 1994. The Incentive Plan
bases bonus awards to executive officers on achievement of targeted levels of
sales and earnings. The Committee believes that these factors, over time, are
the key contributors to the creation of shareholder value.
Under the terms of the Incentive Plan, the Committee will establish, by
March 30 of each fiscal year, targeted levels of sales and earnings for such
fiscal year. Targeted sales are established by the Committee taking into account
sales from comparable stores only. Targeted earnings are established by the
Committee on a pre-tax basis, exclusive of extraordinary items, unusual items,
deductions for retirement plan contributions and deductions for bonus
compensation. The executive officers named in the Summary Compensation Table can
earn a sales bonus amounting to 7.5% of their annual base salary should actual
sales equal 100% of targeted sales and an earnings bonus amounting to 17.5% of
their annual base salary should actual earnings equal 100% of targeted earnings.
However, both sales bonuses and earnings bonuses are reduced in the event either
actual sales fall short of targeted sales or actual earnings fall short of
targeted earnings. No sales or earnings bonus is paid in the event that either
actual sales are less than 95% of targeted sales or actual earnings are less
than 90% of targeted earnings. Executive officers can earn additional bonuses up
to a maximum of 75% of annual base salary should both actual sales and actual
earnings exceed targeted sales and targeted earnings by 10%. In addition to
sales and earnings bonuses, the Incentive Plan authorizes the Committee to grant
discretionary bonuses to executive officers named in the Summary Compensation
Table, not to exceed 5% of the executive officer's annual base salary. Sales and
earnings bonuses awarded to the presidents of the Company's divisions are
determined based 70% on the sales and earnings performance of their respective
divisions and 30% on the sales and earnings performance of the Company. The
Incentive Plan also limits the amount of bonuses payable under the Incentive
Plan when aggregated with bonuses payable under any other incentive bonus plans
maintained by the Company.
STOCK OPTIONS
Grants of stock options to executive officers under the Company's 1982 Stock
Option Plan are designed to promote the identity of the long-term interests
between the Company's executives and its shareholders and assist in the
retention of executive officers. The Company does not maintain plans under which
stock appreciation rights or restricted stock can be awarded.
It is the policy of the Committee not to grant stock options to executive
officers at exercise prices less than the market value of a share of Common
Stock on the date of grant. Generally, the stock options are exercisable in 20%
increments every six months following the date of grant and expire ten years
from the date of grant. The primary consideration of the Committee in
determining the number of shares subject to each option grant is corporate
performance. The criteria used to measure corporate performance is the same
criteria that was used by the Committee prior to the adoption of the Fay's
Incorporated Key Management Incentive Plan when setting annual bonus payments.
The Committee intends to continue the Company's policy of granting equal option
grants to executive officers based on an overall assessment of corporate
performance.
On March 25, 1994, the Compensation Committee granted to Henry A. Panasci,
Jr. and the other six executive officers serving on the Company's senior
management committee options to purchase 10,000 Common Shares at an exercise
price equal to the fair market value of such Common Shares on the date of grant
($6.63 per share).
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Based on the criteria outlined above, on March 25, 1994 the Compensation
Committee awarded to Henry A. Panasci, Jr. a 3 1/2% cost of living salary
increase effective March 28, 1994. Mr. Panasci was also
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granted a bonus of $80,000 in respect of the fiscal year ended January 29, 1994,
being the same bonus awarded in respect of the fiscal year ended January 30,
1993. The amount of Mr. Panasci's fiscal 1994 bonus primarily reflected the fact
that the Company's earnings, before taking into account unusual and
extraordinary items, had increased 7.3% over fiscal 1993 net earnings, but such
earnings had fallen short of budgeted levels. The Committee also considered the
fact that the price of the Company's Common Shares had underperformed the market
as a whole during fiscal 1994 and that industry peer group comparisons had been
unfavorable for the year. The Committee also took into account the role of the
Chief Executive Officer in the leadership transition that had taken place within
the Company, his initiative in establishing the PostScript Mail Order Pharmacy
Services Division and the disposition of underperforming retail locations.
RECENT TAX LAW CHANGES
The Omnibus Budget and Reconciliation Act of 1993 resulted in the addition
of Section 162(m) to the Internal Revenue Code. Beginning in 1994, Section
162(m) limits the federal income tax deduction to $1,000,000 per year for
compensation paid to a company's chief executive officer and to its four other
most highly compensated executive officers, unless such compensation meets the
technical definition of "performance based compensation," as set forth in the
Code. The Committee, when considering compensation levels and compensation
programs, considers all relevant factors, including tax deductions that may
result from such compensation or programs. Compensation paid to the Company's
chief executive officer and to each of its four other most highly compensated
executive officers has never exceeded $1,000,000 , and in 1994 is not expected
to exceed $1,000,000. Accordingly, at this time the Committee has not
recommended that any special action be taken or any of the Company's plans or
programs be revised to ensure the deductibility of compensation pursuant to the
provisions of Section 162(m).
Submitted by the Compensation
Committee of the Board of Directors
Hyman M. Miller, Chairman
Robert H. Altman
John D. Burke
Tarky Lombardi, Jr.
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PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE FIVE YEARS ENDED JANUARY 29, 1994
[GRAPHIC]
<TABLE>
<CAPTION>
1/89 1/90 1/91 1/92 1/93 1/94
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fay's Incorporated 100 83 98 105 98 97
Media General Index 100 112 115 141 148 176
Composite Peer Group 100 107 131 166 173 173
</TABLE>
The graph above assumes a $100 investment on January 31, 1989, and
reinvestment of all dividends in the Company's Common Shares, the Media General
Index and a composite peer group consisting of the following companies: Arbor
Drugs, Inc., Big B, Inc., Drug Emporium, Inc., F&M Distributors, Inc., Genovese
Drug Stores, Inc., Hook SupeRX, Inc., Longs Drug Stores, Inc., Perry Drug
Stores, Inc., Revco D.C., Inc., Rite Aid Corp. and Walgreen Company. The Media
General Index is comprised of historical financial data of approximately 7,000
companies traded on major stock exchanges throughout the five year period.
CERTAIN BUSINESS RELATIONSHIPS
During the fiscal year ended January 29, 1994, the law firm of which Robert
H. Altman is a member rendered legal services to the Company. During the fiscal
year ended January 29, 1994, the law firm of which Tarky Lombardi, Jr. is a
member rendered legal services to the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert H. Altman, a member of the Compensation Committee of the Board of
Directors, served as the Company's General Counsel and Secretary between 1976
and 1980. During the fiscal year ended January 29, 1994, the law firm of which
Mr. Altman is a member rendered legal services to the Company. During the fiscal
year ended January 29, 1994, the law firm of which Mr. Lombardi is a member
rendered legal services to the Company.
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PROPOSAL 2.
INDEPENDENT ACCOUNTANTS
The Board of Directors has engaged the firm of Deloitte & Touche,
independent certified public accountants, to audit the financial statements of
the Company and its subsidiaries for the fiscal year ending January 28, 1995.
Deloitte & Touche has served as independent auditors of the Company for many
years, and is considered by Management of the Company to be well-qualified. The
Board of Directors requests that the engagement of Deloitte & Touche be ratified
by the shareholders.
The Company has been informed that a representative of Deloitte & Touche
will be present at the Annual Meeting, will be available to respond to
appropriate questions from shareholders in attendance and will be able to make a
statement to the Meeting if such representative desires.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the Common Shares of the Company
voting in person or by proxy is required for approval of this Proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF COMMON SHARES VOTE FOR
APPROVAL OF THE FOREGOING PROPOSAL.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
The Company believes that for the fiscal year ended January 29, 1994, its
officers and directors complied with all filing requirements under Section 16(a)
of The Securities Exchange Act of 1934.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Any shareholder who desires to submit a proposal to be presented for vote of
shareholders at the Company's 1995 Annual Meeting must submit the proposal in
writing in time to be received by the Secretary of the Company at the Company's
principal office by December 26, 1994 for inclusion in the Company's 1995 Proxy
Statement and form of proxy relating to the Meeting. To be eligible for
inclusion in the Company's 1995 Proxy Statement, the proposal must conform to
the requirements of Regulation 14A promulgated under the Securities Exchange Act
of 1934. Any shareholder who desires to make a nomination for director to be
elected at the 1995 Annual Meeting must submit the nomination in writing to be
received by the Secretary of the Company at the Company's principal office by
December 26, 1994. Any nominations received by that date will be referred to and
considered by the Board of Directors.
OTHER MATTERS
The foregoing is the only business of which Management is aware will be
presented for action at the forthcoming Annual Meeting. If any other matters
properly come before the Meeting, the accompanying proxy confers discretionary
authority with respect to those matters, and the persons named in the
accompanying proxy intend to vote that proxy to that extent in accordance with
their best judgment.
By Order of the Board of Directors
WARREN D. WOLFSON
Senior Vice President and Secretary
Dated: April 27, 1994
14
