<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
FAY'S INCORPORATED
- --------------------------------------------------------------------------------
(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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
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(4) Date Filed:
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Notes:
<PAGE>
Notice of
Annual Meeting
of Shareholders
To Be Held
On May 24, 1996
-------------------------------------
Proxy Statement
[LOGO OF FAY'S(R)]
<PAGE>
FAY'S INCORPORATED
7245 HENRY CLAY BOULEVARD
LIVERPOOL, NEW YORK 13088
- -------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 24, 1996
- -------------------------------------------------------------------------------
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 24, 1996, for the following purposes:
1. To elect three Class II directors for a term of three years.
2. To ratify the appointment by the Board of Directors of Deloitte & Touche
LLP to audit the financial statements of the Company and its
subsidiaries for the fiscal year ending February 1, 1997.
3. To act upon three shareholder proposals described in the attached Proxy
Statement, if presented by their proponents.
4. 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 5, 1996 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 26, 1996
<PAGE>
FAY'S INCORPORATED/7245 HENRY CLAY BOULEVARD
LIVERPOOL, NEW YORK 13088
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
MAY 24, 1996
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 24, 1996 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 26 , 1996 to shareholders of record on
April 5, 1996.
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, FOR the ratification of the appointment by the Board of Directors of
Deloitte & Touche LLP to audit the financial statements of the Company and its
subsidiaries for the fiscal year ending February 1, 1997 and AGAINST The three
shareholder proposals described in this Proxy Statement. 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 27, 1996
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 5, 1996 are entitled to notice
of and to vote at the Annual Meeting. On that date there were 20,906,783
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. A broker non-vote
occurs when a broker or other nominee does not have discretionary authority
and has not received instructions with respect to a particular proposal. 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 29, 1996, 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. 5,648,477(a)(c) 27.0%
7245 Henry Clay Boulevard
Liverpool, New York 13088
David H. Panasci 1,506,800(b) 7.2%
7245 Henry Clay Boulevard
Liverpool, New York 13088
Estate of Henry Panasci 1,117,175(c) 5.3%
3000 Howlett Hill Road
Camillus, New York 13031
</TABLE>
(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 and by David H. Panasci as co-executor under the Will of
Henry Panasci. Also includes 1,646,175 shares held as trustee in trust for
the benefit of Mr. Panasci's children and sister, 38,000 shares held as
trustee in trust for the benefit of an unrelated party and currently
exercisable options to purchase 37,625 shares.
(b) Includes 1,117,175 shares held as co-executor under the Will of Henry
Panasci being the same shares shown as benefically owned by the Estate of
Henry Panasci and by Henry A. Panasci, Jr. as co-executor under the will
of Henry Panasci. Also includes currently exercisable options to purchase
51,438 shares and 3,375 shares owned by Mr. Panasci's wife.
(c) 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 38,000 shares held in trust as
trustee for the benefit of an unrelated party over which Mr. Panasci
shares voting and investment power.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning Common Shares
beneficially owned as of March 29, 1996 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
OF BENEFICIAL PERCENT
NAME OWNERSHIP (a) OF CLASS
---- ----------------- --------
<S> <C> <C>
Robert H. Altman 16,387 .1%
Robert J. Bennett 5,000 *
Lee H. Flanagan 2,500 *
Tarky Lombardi, Jr. 27,637 .1%
Hyman M. Miller 102,681 .5%
Gale T. Mitchell 47,421 .2%
Gary L. Moreau 5,500 *
David H. Panasci 1,506,800 7.2%
Henry A. Panasci, Jr. 5,648,477 27.0%
James F. Poole, Jr. 158,235 .8%
Alair A. Townsend 2,012 *
Warren D. Wolfson 159,950 .8%
Directors and executive officers as a group 6,641,102 31.3%
</TABLE>
* Less than .1% of the Common Shares outstanding
2
<PAGE>
(a) The number of Common Shares shown in the table includes currently
exercisable options to purchase: 44,623 shares held by Mr. Mitchell;
51,438 shares held by Mr. D. Panasci; 37,625 shares held by Mr. H.
Panasci; 148,413 shares held by Mr. Poole; 140,689 shares held by Mr.
Wolfson; 9,750 shares held by each of Messrs. Altman, Lombardi and Miller;
4,500 shares held by each of Messrs. Bennett and Moreau and 1,500 shares
held by each of Ms. Flanagan and Ms. Townsend.
(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 6,171 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 under his father's Will. Mr. Lombardi disclaims any
beneficial interest in the shares owned by his wife.
(d) Includes 60,159 shares owned by Mr. Miller's wife. Mr. Miller disclaims
any beneficial interest in such shares.
(e) Includes 1,117,175 shares held as co-executor under the Will of Henry
Panasci. Also includes 3,375 shares owned by Mr. Panasci's wife. Mr.
Panasci disclaims any beneficial interest in the shares owned by his wife.
(f) Includes 1,117,175 shares held as co-executor under the Will of Henry
Panasci. Also includes 1,646,175 shares held in trust for the benefit of
Mr. Panasci's children and sister, and 38,000 shares held in trust for the
benefit of an unrelated party.
(g) Includes currently exercisable options to purchase 518,301 shares and
1,117,175 shares beneficially owned by the Estate of Henry Panasci.
ELECTION OF DIRECTORS
(PROXY ITEM NO. 1)
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 12, three
members whose terms expire at the forthcoming Annual Meeting; three members
whose terms expire in 1997; four members whose terms expire in 1998; 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 II directors will be elected to serve until the
1999 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 28,
1993.
3
<PAGE>
The persons named in the proxy card as proxies intend to nominate and vote
for the election of Robert H. Altman, Gary L. Moreau and David H. Panasci 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.
<TABLE>
<CAPTION>
POSITIONS WITH COMPANY,
BUSINESS EXPERIENCE, AND DIRECTOR
NAME OTHER DIRECTORSHIPS AGE SINCE
- -------------------------------------------------------------------------------
<C> <S> <C> <C>
CLASS II--TO BE ELECTED FOR A TERM OF THREE YEARS
UNTIL THE 1999 ANNUAL MEETING
Robert H. Altman (a)(b)(e) Partner in the law firm of Bryan 51 1984
Cave LLP; former partner in the
law firm of Holtzmann, Wise &
Shepard.
Gary L. Moreau (a) Chief Executive Officer of Lionel 41 1992
LLC (manufacturer and marketer of
toy trains); former President and
Chief Operating Officer of Oneida
Ltd.; former President of the
Oneida Silversmiths Division of
Oneida Ltd.
David H. Panasci (d) President and Chief Operating 37 1984
Officer of the Company; former
Executive Vice President of the
Company; former President of The
Paper Cutter Division of the
Company.
CLASS III--TERM EXPIRES AT THE 1997 ANNUAL MEETING
Tarky Lombardi, Jr. (b)(c)(e) Of counsel to the law firm of 66 1971
Devorsetz, Stinziano, Gilberti,
Heintz & Smith; Of counsel to the
law firm of Davidoff & Malito
LLP; former Treasurer of Syracuse
Tank and Manufacturing Co., Inc.;
former NewYork State Senator.
Hyman M. Miller (b)(c) Private investor; Trustee of 73 1967
State of New 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 47 1987
Counsel and Secretary of the
Company.
CLASS I--TERM EXPIRES AT THE 1998 ANNUAL MEETING
Robert J. Bennett (a)(c) Chairman of the Board, President 54 1992
and Chief Executive Officer of
ONBANCorp, Inc., OnBank & Trust
Co. and OnBank; Director of
ONBANCorp, Inc., OnBank & Trust
Co. and OnBank; Director of
Farmers & Traders Life Bank of
New York. Insurance Co.; Director
of The Federal Home Loan Bank of
New York.
Lee H. Flanagan President of B.G. Sulzle, Inc. 28 1994
(manufacturer of surgical
needles)
Henry A. Panasci, Jr. (d) Chairman of the Board and Chief 67 1966
Executive Officer of the Company;
Director of Niagara Mohawk Power
Corporation.
Alair A. Townsend (a)(c) Vice President of Crain 54 1994
Communications, Inc.; Publisher
of Crain's New York Business;
Director of American Stock
Exchange, Inc.
</TABLE>
4
<PAGE>
(a) Member of the Audit Committee.
(b) Member of the Compensation 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.
CORPORATE GOVERNANCE INFORMATION
The Board of Directors of the Company held six regularly scheduled meetings
and two special meetings during the fiscal year ended January 27, 1996. The
Board of Directors has standing Executive, Audit, Compensation Nominating,
Retirement Plan and Stock Option/Stock Purchase Plan Committees. Members of
Audit, Compensation and Nominating Committees are identified in the table
listing nominees for election of directors and directors whose terms continue.
The Audit Committee held four meetings during the fiscal year ended January
27, 1996. The Audit Committee reviews the work and procedures of the Company's
independent certified public accountants, Deloitte & Touche LLP; 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 LLP. The Audit Committee also reviews the work, policies
and procedures of the Company's Internal Audit Department.
The Compensation Committee held two meetings during the fiscal year ended
January 27, 1996. 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 Nominating Committee held one meeting during the fiscal year ended
January 27, 1996. 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 27, 1996, 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 29, 1994, January 28, 1995 and January 27, 1996, 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
ANNUAL COMPENSATION COMPENSATION(4)
--------------------------------- ---------------
SECURITIES
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. 1/27/96 389,400 0 0 10,000 471
Chairman of the Board
and 1/28/95 370,420 83,835 0 10,000 1,075
Chief Executive Officer 1/29/94 357,578 80,000 0 10,000 1,669
David H. Panasci 1/27/96 262,500 0 2,413 10,000 471
President and Chief 1/28/95 208,270 47,250 42,250 10,000 1,075
Operating Officer(1) 1/29/94 189,344 30,000 2,317 10,000 1,561
Warren D. Wolfson 1/27/96 167,350 0 0 110,000 1,763
Senior Vice President, 1/28/95 158,466 35,865 0 10,000 2,417
General Counsel 1/29/94 152,963 35,000 6,955 10,000 2,834
and Secretary
James F. Poole, Jr. 1/27/96 167,112 0 2,413 110,000 471
Senior Vice President-- 1/28/95 133,805 30,285 0 10,000 1.075
Finance and Chief 1/29/94 128,097 25,000 0 10,000 1,094
Financial Officer
Gale T. Mitchell 1/27/96 142,500 191,760(2) 1,954 10,000 471
President-Wheels 1/28/95 118,616 36,360 0 10,000 1,065
Discount Auto Supply 1/29/94 109,406 30,000 0 10,000 956
Division and Sr. Vice
President-Store
Operations(1)
</TABLE>
(1) 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. Between
July 26, 1991 and November 26, 1995 Gale T. Mitchell served as the
President of the Company's Wheels Discount Auto Supply Division. On
November 27, 1995, Mr. Mitchell was elected Senior Vice President-Store
Operations of the Company.
(2) Includes a bonus of $186,360 paid to Mr. Mitchell as a transaction bonus
in connection with the disposition of the Wheels Discount Auto Supply
Division.
(3) Amounts reported represent the dollar value of the difference between the
price paid for the Company's Common Shares upon exercise of stock options
under the Company's 1982 Stock Option Plan and the fair market value of
such Common Stock 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.
(5) For the year ended January 27, 1996, includes (i) Company contributions to
the Company's Profit Sharing Plan (Mr. H. Panasci $471; Mr. D. Panasci
$471; Mr. Wolfson $471; Mr. Poole $471 and Mr. Mitchell $471) and (ii) the
dollar value of split dollar life insurance premiums (Mr. Wolfson $1,292).
6
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during the fiscal year ended January 27, 1996 under the Company's 1982
Stock Option Plan to the five highest compensated executive officers of the
Company.
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF RATES OF STOCK PRICE
SECURITIES APPRECIATION FOR
UNDERLYING PERCENT OF TOTAL OPTIONS EXERCISE OPTION TERM (4)
OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED (1) FISCAL YEAR ($/SH.) DATE 5% ($) 10% ($)
---- ----------- ------------------------ -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Henry A. Panasci, Jr. 10,000 1.5% 6.56 3/23/05(3) 41,255 104,550
David H. Hanasci 10,000 1.5% 6.56 3/23/05(3) 41,255 104,550
Warren D. Wolfson 10,000 1.5% 6.56 3/23/05(3) 41,255 104,550
100,000(2) 15.1% 7.25 1/25/06 455,949 1,155,463
James F. Poole, Jr. 10,000 1.5% 6.56 3/23/05(3) 41,255 104,550
100,000(2) 15.1% 7.25 1/25/06 455,949 1,155,463
Gale T. Mitchell 10,000 1.5% 6.56 3/23/05(3) 41,255 104,550
</TABLE>
(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,
consideration 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) Options granted to Messrs. Wolfson and Poole that expire on 1/25/06 relate
to transaction bonuses in connection with the disposition of the Wheels
Discount Auto Supply Division and are currently exercisable.
(3) The options become exercisable as follows: 20% on July 1, 1995; 20% on
January 1, 1996; 20% on July 1, 1996; 20% on January 1, 1997; and 20% on
July 1, 1997.
(4) 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.
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 27, 1996 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>
VALUE OF
UNEXERCISED
IN-THE-
NUMBER OF SECURITIES MONEY OPTIONS
UNDERLYING AT FISCAL
UNEXERCISED OPTIONS AT YEAR-
FISCAL YEAR-END(#)(1) END($)(2)
---------------------- -------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Henry A. Panasci, Jr. 0 0 37,625/8,000 13,033/5,380
David H. Panasci 1,513 2,413 51,438/8,000 36,950/5,380
Warren D. Wolfson 0 0 140,689/8,000 15,637/5,380
James F. Poole, Jr. 1,513 2,413 148,413/8,000 29,508,5,380
Gale T. Mitchell 1,059 1,954 44,623/8,000 20,185/5,380
</TABLE>
(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 27, 1996 ($7.25 per share) less the exercise price times
(ii) the number of Common Shares subject to options.
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. Prior to January 1, 1996, benefits
under the Plan were based on the sum of a one-time past-service benefit and
annual benefit accruals. Such past-service benefit was calculated by
multiplying 1 percent of a participant's 1980 compensation by the number of
years the participant has been continuously employed by the Company prior to
January 1, 1981, less the participants' initial year of service and any
service prior to the participant attaining age 25. Prior to January 1, 1996,
annual benefit accruals were calculated by multiplying .75 percent of a
participant's annual compensation, up to an amount equal to that year's
"integration level," plus 1.25 percent of the participant's annual
compensation in excess of the integration level. Prior to January 1, 1996, the
integration level was equal to the average of the Social Security wage base
over the preceding 35 years.
Effective January 1, 1996, the Pension Plan was amended to substitute for
the past service benefit and previous annual benefit accruals, a past service
benefit update equal to .75 percent of a participant's compensation averaged
over the five year period from January 1, 1991 to December 31, 1995,
multiplied by the years of service prior to January 1, 1996, plus .5 percent
of such average compensation in excess of $31,350 times the years of service
prior to January 1, 1996. Pursuant to the same amendment, from and after
January 1, 1996, annual benefit accruals will be calculated by multiplying .75
percent of a participant's annual compensation up to one half of the Social
Security taxable wage base for the current plan year plus 1.25 percent of the
participant's annual compensation in excess of one half of such taxable wage
base.
The maximum amount of compensation taken into account under the Plan for the
year 1995 was limited by law to $150,000. In accordance with the amendment
herein described, the estimated annual benefits payable under the Plan upon
retirement at the normal retirement age of 65 for Messrs. H. Panasci, D.
Panasci, Wolfson, Poole and Mitchell are $78,193, $66,647, $56,535, $64,358
and $64,123, respectively. Amounts shown are straight life annuity amounts,
notwithstanding the availability of joint survivorship payment options.
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EMPLOYMENT AGREEMENTS
Since 1993, the Company has had employment agreements with Messrs. D.
Panasci, Wolfson, Poole and Mitchell. On January 29, 1996, the Board of
Directors approved entering into an employment agreement with Henry A.
Panasci, Jr. Each of the agreements provide that, in the event the employment
of the 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. Under the terms of the
employment agreements with Messrs. D. Panasci, Wolfson, Poole and Mitchell, in
the event such termination occurs prior to a Change in Control (as defined in
the agreements), the executive officer is entitled to receive severance
compensation in an amount equal to the executive officer's base annual salary
at the time of termination of employment, plus an amount equal to the highest
bonus paid the executive officer in respect of the three most recent fiscal
years. In the event such termination occurs following a Change in Control, the
executive officer is entitled to receive severence compensation 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 two times the highest bonus
paid the executive officer in respect of the three most recent fiscal years.
Under the terms of the employment agreement with Henry A. Panasci, Jr., in
the event termination of employment occurs prior to Change in Control, Mr.
Panasci is entitled to receive severance compensation in an amount equal to
two times his base annual salary at the time of termination of employment plus
an amount equal to two times the highest bonus paid Mr. Panasci in respect of
the three most recent fiscal years. In the event Mr. Panasci's termination of
employment occurs following a Change in Control, Mr. Panasci is entitled to
receive severance compensation in an amount equal to three times his annual
salary at the time of termination of employment, plus an amount equal to three
times the highest bonus paid to Mr. Panasci in respect of the three most
recent fiscal years.
The employment agreements with Messrs. D. Panasci, Wolfson, Poole and
Mitchell 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. Mr. H.
Panasci's employment agreement provides for the extension of employee welfare
benefits for his lifetime and the lifetime of his surviving spouse as well as
coverage for extended care services.
Under the terms of all of the employment agreements, following a Change in
Control, in the event employment of the executive officer is terminated by the
Company without Cause or by the executive officer for Good Reason, he is
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 the 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 employment agreements also provide that if payments under the
agreements are subject to tax under Section 4999 of the Internal Revenue Code
(which deals with certain payments contingent on a change in control), the
Company will make an additional payment to the effected executive officer in
respect of such tax.
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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 27, 1996, each
non-employee director was automatically granted an option to purchase 1,500
Common Shares at an exercise price of $7.56 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 ten or
more years, is 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 with input from senior management. In addition, pursuant to the
Company's 1982 Stock Option Plan, the Committee is 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 Committee's
compensation policies for executive officers and the Committee's 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.
10
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The Committee has adopted a policy that, in general, 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 also
granted 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
responsibilities. The criteria used to measure corporate and individual
performance for base salary increases include 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. Personal performance criteria considered by
the Committee include each executive officer's: contribution to overall
corporate performance; effectiveness in budget management; performance in
assigned special projects; managerial ability; the quality of management
development programs; and participation in industry, public and civic affairs.
The performance criteria are evaluated by the Committee with no fixed or
specific mathematical weighting applied to each element of performance.
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. 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 establishes, 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. The criteria used in the award
of discretionary bonuses is the same criteria used when measuring corporate
and individual performance for purposes of granting annual base salary
increases. The Incentive Plan 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
11
<PAGE>
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 when granting annual base
salary increases. 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.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
On March 28, 1996, the Compensation Committee met to consider the granting
of bonuses to officers in respect of the fiscal year ended January 27, 1996,
setting annual base salaries of officers effective March 30, 1996 and the
granting of stock options to such officers. Pursuant to the terms of the
Company's Key Management Incentive Plan, for the year ended January 27, 1996
the Company's actual sales were less than 95% of targeted sales and actual
earnings were less than 90% of targeting earnings. Accordingly, no sales or
earnings bonus was awarded to Henry A Panasci, Jr. in respect of the year
ended January 27, 1996. Furthermore, the Committee decided not to grant
discretionary bonuses to Mr. Panasci or any of the executive officers named in
the Summary Compensation Table in respect of the year ended January 27, 1996.
In light of the reduction in administrative positions and the Company's
efforts to reduce administrative costs as a percentage of sales, the Committee
also decided not to grant Mr. Panasci or any of the executive officers named
in the Summary Compensation Table an increase in their annual base salary for
the year beginning March 30, 1996. Based on an overall assessment of corporate
performance in fiscal 1996, the Committee did not grant any stock options to
Mr. Panasci or any of the executive officers named in the Summary Compensation
Table in respect of the fiscal year ended January 27, 1996. The stock options
that expire on March 23, 2005 reflected on page 7 of this Proxy Statement were
granted on March 24, 1995 in respect of the fiscal year ended January 28,
1995.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162 (M)
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 1996 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
Tarky Lombardi, Jr.
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PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE FIVE YEARS ENDED JANUARY 27, 1996
[PASTE UP GRAPH]
<TABLE>
<CAPTION>
1/91 1/92 1/93 1/94 1/95 1/96
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fay's Incorporated 100 107 100 99 95 107
Media General Index 100 123 129 154 146 198
Composite Peer Group 100 126 131 131 164 232
</TABLE>
The graph above assumes a $100 investment on January 31, 1991, 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. Eckerd Corp.,
Genovese Drug Stores, Inc., Longs Drug Stores, Inc., Medicine Shoppe
International, Inc., Phar Mor, Inc., Revco D.C., Inc., Rite Aid Corp.,
Vitalink Pharmacy Services, 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 27, 1996, the law firm of which Robert
H. Altman is a member rendered legal services to the Company. During the
fiscal year ended January 27, 1996, the law firms for which Tarky Lombardi,
Jr. serves of counsel 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 27, 1996, the law firm of which
Mr. Altman is a member rendered legal services to the Company. During the
fiscal year ended January 27, 1996, the law firms for which Mr. Lombardi
serves of counsel rendered legal services to the Company.
13
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RATIFICATION OF INDEPENDENT AUDITORS
(PROXY ITEM NO. 2)
The Board of Directors has engaged the firm of Deloitte & Touche LLP,
independent certified public accountants, to audit the financial statements of
the Company and its subsidiaries for the fiscal year ending February 1, 1997.
Deloitte & Touche LLP 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 LLP be ratified by the shareholders.
The Company has been informed that a representative of Deloitte & Touche LLP
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.
SHAREHOLDER PROPOSAL RECOMMENDING ELIMINATION OF PENSION BENEFITS FOR NON-
EMPLOYEE DIRECTORS
(PROXY ITEM NO. 3)
William Steiner of 4 Radcliff Drive, Great Neck, New York 11024, who is the
owner 2,163 Common Shares, has notified the Company that he intends to present
at the Annual Meeting the following Proposal:
"RESOLVED, that the shareholders assembled in person and by proxy
recommend (i) that all future non-employee directors not be granted pension
benefits, and (ii) current non-employee directors voluntarily relinquish
their pension benefits."
This shareholder has submitted the following statement in support of the
resolution:
Aside from the usual reasons, presented in the past, regarding "double
dipping" that is, outside (non-employee) directors who are in almost all cases
amply rewarded with their pension at their primary place of employment, and in
many instances serving as outside pensioned directors with other companies,
there are other more cogent reasons that render this policy as unacceptable.
Traditionally, pensions have been granted in both the private and public
sectors for long term service. The service component usually represents a
significant number of hours per week. The practice of offering pensions for
consultants is a rarity. Outside directors' service could logically fit the
definition of consultants and pensions for this type of service is an abuse of
the term.
But more importantly, outside directors, although retained by corporate
management, namely the CEO, are in reality representatives of the
shareholders. Their purpose is to serve as an impartial group to which
management is accountable. Although outside directors are certainly entitled
to compensation for their time and expertise, pensions have the pernicious
effect of compromising their impartiality. In essence, pensions are
management's grants to outside directors to insure their unquestioning loyalty
and acquiescence to whatever policy management initiates, and at times,
serving their own self interests. Thus, pensions become another device to
enhance and entrench management's controls over corporate policies while being
accountable only to themselves. As a founding member of the Investors Rights
Association of America I feel this practice perpetuates a culture of corporate
management "cronyism" that can easily be at odds with shareholder and company
interest.
14
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A final note in rebuttal to management's contention that many companies
offer their outside directors pensions, so they can attract and retain persons
of the highest quality. Since there are also companies that do not offer their
outside directors pensions, can management demonstrate that those companies
that offer pensions have a better performance record then their non-pensioned
peers? In addition, do we have any evidence of a significant improvement in
corporate profitability with the advent of pensions for outside directors? I
urge your support, vote for this resolution.
THE COMPANY'S STATEMENT IN OPPOSITION TO THE PROPOSAL
As outlined on page 10 of this Proxy Statement, compensation paid to non-
employee members of the Board of Directors is quite modest. Payment of
retirement benefits to non-employee directors recognizes the ever-increasing
time commitment, responsibilities, diligence and risks associated with Board
service and are a common component of compensation packages for non-employee
directors.
The Company's Retirement Plan for Non-Employee Directors gives capable
persons incentive to remain on the Board for a sufficient time to gain more
experience and knowledge of the Company's business. Under the Plan, a non-
employee director who has served on the Board for at least ten years, at age
65 is entitled to receive an $8,000 per year pension benefit. Said amount is
not financially burdensome to the Company, is quite modest compared to other
comparable companies and provides an equitable benefit to such directors in
return for their extended service. The proponent's assertion that a pension of
such magnitude compromises the impartiality of the non-employee directors or
entrenches management's control over corporate policies is untrue.
Futhermore, the Board believes that it would be unfair and not in the best
interests of the Company and its shareholders to request voluntary forfeiture
by the current non-employee directors of their retirement benefits. Such a
forfeiture by a director would be at the director's sole discretion,
notwithstanding the vote of the shareholders with respect to the proposal or a
request made by the Board. Moreover, it should be noted that non-employee
directors are not, as the proponent asserts, "retained by corporate managment,
namely the C.E.O." Directors are nominated by the Board and elected by
shareholders. Also, directors' retirement benefits are not "management's
grants to non-employee directors," but rather were approved by disinterested
members of the Board as a uniform means of providing such benefits upon
adoption of the Company's Retirement Plan for Non-Employee Directors in 1992.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF COMMON SHARES VOTE
AGAINST APPROVAL OF THE FOREGOING PROPOSAL.
SHAREHOLDER PROPOSAL REQUESTING ELIMINATION OF ELECTION OF
DIRECTORS BY CLASSES
(PROXY ITEM NO. 4)
Dr. Charles Miller of 23 Park Circle, Great Neck, New York 11023, who is the
owner 900 Common Shares, has notified the Company that he intends to present
at the Annual Meeting the following Proposal:
"RESOLVED, that the stockholders of the Company request that the Board of
Directors take the necessary steps, in accordance with state law, to
declassify the Board of Directors so that all directors are elected
annually, such declassification to be effected in a manner that does not
affect the unexpired terms of directors previously elected."
This shareholder has submitted the following statement in support of the
resolution:
The election of directors is the primary avenue for shareholders to
influence corporate governance policies and to hold management accountable for
it's implementation of those policies. I believe that the classification of
the Board of Directors, which results in only a portion of the Board being
elected annually, is not in the best interests of the Company and it's
stockholders.
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<PAGE>
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. I believe that the Company's classified Board of
Directors maintains the incumbency of the current Board and therefore of
current management, which in turn limits management's accountability to
stockholders.
The elimination of the Company's classified Board would require each new
director to stand for election annually and allow stockholders an opportunity
to register their views on the performance of the Board collectively and each
director individually. I believe this is one of the best methods available to
stockholders to insure that the Company will be managed in a manner that is in
the best interest of the stockholders.
I am a founding member of the Investors Rights Association of America and I
believe that concerns expressed by companies with classified board that the
annual election of all directors could leave companies without experienced
directors in the event that all incumbents are voted out by stockholders, are
unfounded. In my view, in the unlikely event that stockholders vote to replace
all directors, this decision would express stockholder dissatisfaction with
the incumbent directors and reflect the need for change. I urge your support,
vote for this resolution.
THE COMPANY'S STATEMENT IN OPPOSITION TO THE PROPOSAL
On May 18, 1979, the shareholders of the Company voted to approve an
amendment to the Company's Certificate of Incorporation to divide the Board of
Directors into three classes, with the number of directors in each class being
as nearly equal as possible. Pursuant to such amendment, each director is
elected to a three-year term, with the directors of one of the three classes
standing for election each year.
The Board of Directors continues to believe that the staggered system of
electing directors provides important benefits to the Company and its
shareholders. Electing directors to a three year term rather than a one year
term is intended to increase the continuity and stability in the composition
of the Board of Directors and the policies formulated by the Board. This, in
turn, enables management to plan for a reasonable period of time into the
future based on the continuity of corporate policy.
In addition, a classified Board of Directors precludes the immediate removal
of all incumbent directors by a person seeking a change in control of the
Company. Thus, the classified Board of Directors is designed to impede
disruptive and inequitable takeover tactics and allow the incumbent Board of
Directors to negotiate in the best interests of all shareholders with a person
seeking to gain control of the Company.
Under New York law, an amendment to the Company's Certificate of
Incorporation as contemplated by this proposal must first be approved by the
Board of Directors and then submitted to the shareholders for a vote.
Therefore, a vote in favor of the proposal is only advisory recommendation to
the Board. Further, since Article EIGHTH of the Company's Certificate of
Incorporation provides that without the approval of incumbent directors, the
Article may not be altered or repealed except by an affirmative vote of 80% of
the shares entitled to vote, such a vote would be required to eliminate the
classified Board. The proposal itself, however, requires for adoption only an
affirmative vote of a majority of the votes cast at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF COMMON SHARES VOTE
AGAINST APPROVAL OF THE FOREGOING PROPOSAL.
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SHAREHOLDER PROPOSAL RECOMMENDING NON-EMPLOYEE DIRECTORS RECEIVE 50% OF
COMPENSATION IN THE FORM OF THE COMPANY'S STOCK
(PROXY ITEM NO. 5)
Kenneth Steiner of 14 Stoner Avenue, Suite 2-M, Great Neck, New York 11021,
who is the owner of 1,000 Common Shares, has notified the Company that he
intends to present at the Annual Meeting the following Proposal:
"Resolved, that the shareholders recommend that the board of directors take
the necessary steps to ensure that from here forward, all non-employee
directors should receive a minimum of fifty percent of their total
compensation in the form of company stock which cannot be sold for three
years."
This shareholder has submitted the following statement in support of the
resolution:
A significant equity ownership by outside directors is probably the best
motivator for facilitating identification with shareholders.
Traditionally, outside directors, usually selected by management, were
routinely compensated with a fixed fee, regardless of corporate performance.
In today's competitive global economy, outside directors must exercise a
critical oversight of management's performance in furthering corporate
profitability. All too often, outside directors oversight has been marked by
complacency, cronyism, and inertia.
Corporate America has too many examples of management squandering company
assets on an extended series of strategic errors. Meanwhile, Boards of
Directors stood by and passively allowed the ineptitude to continue, well
after disaster struck. They fiddled while Rome was burning.
When compensation is in company stock, there is a greater likelihood that
outside directors will be more vigilant in protecting their own, as well as
corporate, and shareholder interests.
What is being recommended in this proposal is neither novel nor untried. A
number of corporations have already established versions of such practices,
namely, Scott Paper, The Travelers, and Hartford Steam Boiler.
Robert B. Stobough, Professor of Business Administration at the Harvard
Business School, did a series of studies comparing highly successful to poorly
performing companies. He found that outside directors in the better performing
companies had significantly larger holdings of company stock than outside
directors in the mediocre performing companies.
It can be argued that awarding stock options to outside directors
accomplishes the same purpose of insuring director's allegiance to company's
profitablility, as paying them exclusively in stock. However, it is our
contention that stock options are rewarding on the upside, but offer no
penalties on the downside, where shareholders bear the full downside risks.
There are few stratagies that are more likely to cement outside directors with
shareholder interests and company profitability than one which results in
their sharing the same bottom line.
THE COMPANY'S STATEMENT IN OPPOSITION TO THE PROPOSAL
The Company's non-employee directors own a substantial number of the
Company's Common Shares. As shown on page 2 of this Proxy Statement, the
Company's non-employee directors beneficially own 120,467 Common Shares and
hold currently exercisable options to purchase 41,250 additional Common
Shares. Four of the non-employee directors participate in the Company's
dividend reinvestment plan and reinvest all dividends paid on their Common
Shares in additional Common Shares. The meaningful equity holdings of the
Company's non-employee directors in the Company closely align the interest of
such directors with those of the other shareholders of the Company, and the
problem that this proposal seeks to address does not exist.
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As is quite typical among publicly traded corporations, the Company provides
both cash and equity based compensation to its non-employee directors. Under
the Company's Stock Option Plan for Non-Employee Directors, approved by the
shareholders in 1990, each non-employee director 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. The Company believes that its compensation program for non-employee
directors is both modest and appropriate. The adoption of the proposal would
impose an inflexible policy regarding compensation of non-employee directors
that could restrict the Company's ability to compete with other companies in
attracting and retaining qualified non-employee directors.
THE BOARD OF DIRECTORS RECOMMEND THAT HOLDERS OF COMMON SHARES VOTE AGAINST
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 27, 1996, 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 1997 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 27, 1996 for inclusion in the Company's
1997 Proxy Statement and form of proxy relating to the Meeting. To be eligible
for inclusion in the Company's 1997 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 1997 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 27, 1996. 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 the 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 26, 1996
18
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FAY'S INCORPORATED PROXY
7245 Henry Clay Boulevard, Liverpool, New York 13088
The undersigned hereby appoints Tarky Lombardi, Jr. and Hyman M. Miller
as Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and vote, as designated below, all the Common Shares of Fay's
Incorporated held of record by the undersigned on April 5, 1996 at the Annual
Meeting of Shareholders to be held on May 24, 1996 or any adjournment(s)
thereof.
1. ELECTION OF DIRECTORS
[_] FOR All nominees listed below for the term set forth in the Proxy
Statement (except as marked to the contrary below)
[_] WITHHOLD AUTHORITY to vote for all nominees listed below
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name listed below.
ROBERT H. ALTMAN GARY L. MOREAU DAVID H. PANASCI
2. PROPOSAL to approve the appointment of Deloitte & Touche LLP to audit the
financial statements of the Company and its subsidiaries for the fiscal year
ending February 1, 1997.
[_] FOR [_] AGAINST [_] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3,4, AND 5.
3. SHAREHOLDER PROPOSAL recommending elimination of pension benefits for
non-employee directors.
[_] FOR [_] AGAINST [_] ABSTAIN
4. SHAREHOLDER PROPOSAL requesting elimination of election of directors by
classes.
[_] FOR [_] AGAINST [_] ABSTAIN
5. SHAREHOLDER PROPOSAL recommending non-employee directors receive 50% of
compensation in the form of the Company's stock.
[_] FOR [_] AGAINST [_] ABSTAIN
(continued and to be signed on other side)
<PAGE>
(continued from other side)
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
This Proxy, when properly executed, will be voted in the manner directed
by the undersigned shareholder. If no direction is made, this Proxy will be
voted for the election of directors, for Proposal 2 and against Proposal 3, 4,
and 5.
Dated: _______________________, 1996
____________________________________
Signature
____________________________________
Signature if Held Jointly
Please sign exactly as name appears
herein. When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please sign in full corporate name by
duly authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
