<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FEDERATED DEPARTMENT STORES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FEDERATED DEPARTMENT STORES, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $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:
Not Applicable
(2) Aggregate number of securities to which transaction applies:
Not Applicable
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
Not Applicable
(4) Proposed maximum aggregate value of transaction:
Not Applicable
/ / 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:
Not Applicable
(2) Form, schedule or registration statement no.:
Not Applicable
(3) Filing party:
Not Applicable
(4) Date filed:
Not Applicable
<PAGE> 2
FEDERATED DEPARTMENT STORES, INC.
7 West Seventh Street
Cincinnati, Ohio 45202
April 19, 1994
To the Shareholders:
You are cordially invited to attend the 1994 Annual Meeting of Federated
shareholders, to be held Friday, May 20, 1994, at 11:00 a.m., Eastern Daylight
Savings Time, at Federated's principal executive offices located at 7 West
Seventh Street, Cincinnati, Ohio 45202. The official Notice of Meeting, Proxy
Statement and form of proxy are enclosed with this letter. The matters listed in
the Notice of Meeting are described in the attached Proxy Statement.
The vote of every shareholder is important and your cooperation in
completing, signing and returning your proxy promptly will be appreciated.
Sincerely,
ALLEN I. QUESTROM
Chairman of the Board
and Chief Executive
Officer
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, SIGN AND RETURN
YOUR PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3
FEDERATED DEPARTMENT STORES, INC.
7 West Seventh Street, Cincinnati, Ohio 45202
---------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------------------------------------------------------------------
To the Shareholders:
Notice is hereby given that the Annual Meeting of shareholders of Federated
Department Stores, Inc. will be held at 11:00 a.m., Eastern Daylight Savings
Time, on Friday, May 20, 1994, at Federated's principal executive offices
located at 7 West Seventh Street, Cincinnati, Ohio 45202, for the following
purposes, all as more fully described in the attached Proxy Statement:
1. To elect four Class II members of the Board of Directors;
2. To ratify the appointment of KPMG Peat Marwick as Federated's
independent accountants for the fiscal year ending January 28, 1995;
3. To act upon a shareholder proposal, if properly presented at the Annual
Meeting, to change the date of the annual meeting to the second Friday
in June; and
4. To act upon such other business as may properly come before the Annual
Meeting or any postponements or adjournments thereof.
Shareholders of record at the close of business on April 1, 1994, are
entitled to vote at the Annual Meeting or any postponements or adjournments
thereof.
DENNIS J. BRODERICK
Secretary
April 19, 1994
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 4
FEDERATED DEPARTMENT STORES, INC.
7 West Seventh Street
Cincinnati, Ohio 45202
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation, by
and on behalf of the Board of Directors (the "Board") of Federated Department
Stores, Inc. (the "Company"), of proxies for use at the Annual Meeting of the
shareholders of the Company to be held at 11:00 a.m., Eastern Daylight Savings
Time, on Friday, May 20, 1994, at the Company's principal executive offices and
at any postponements or adjournments thereof (the "Annual Meeting"), for the
purposes set forth in the accompanying Notice of Meeting. This Proxy Statement,
the Notice of Meeting and accompanying proxy are being mailed to shareholders on
or about April 19, 1994.
GENERAL
The holders of record of shares of common stock of the Company ("Common
Stock") at the close of business on April 1, 1994, are entitled to vote such
shares at the Annual Meeting. On April 1, 1994, there were outstanding
126,527,235 shares of Common Stock, excluding shares held in the treasury of the
Company. Each share of Common Stock, exclusive of treasury shares, is entitled
to one vote on each of the matters listed in the Notice of Meeting. The holders
of a majority of outstanding shares constitute a quorum for the transaction of
business at the Annual Meeting.
This proxy solicitation is intended to afford shareholders the opportunity
to vote regarding the election of directors, the appointment of independent
accountants, a shareholder proposal to change the date of the annual meeting (if
such proposal is presented at the Annual Meeting), and such other matters, if
any, as may be properly brought before the Annual Meeting.
Where a shareholder's proxy specifies a choice with respect to a matter,
the shares will be voted accordingly. If no such specification is made, the
shares will be voted FOR the nominees for director identified below, FOR the
ratification of the appointment of the Company's independent accountants and
AGAINST the proposal to change the date of the annual meeting.
A proxy may be revoked by filing with the Secretary of the Company prior to
the exercise of the proxy either a written instrument revoking the proxy or an
executed subsequent proxy or by voting in person at the Annual Meeting.
Attendance at the Annual Meeting will not, in itself, constitute revocation of
the proxy. Abstentions and broker non-votes will be included in determining the
number of shares present or represented at the Annual Meeting for purposes of
determining whether a quorum exists. However, abstentions and broker non-votes
with respect to any matter brought to a vote at the Annual Meeting will be
treated as shares not voted for purposes of determining whether the requisite
vote has been obtained, and therefore will have no effect on the outcome of the
vote on any such matter.
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<PAGE> 5
STOCK OWNERSHIP
Certain Beneficial Owners. The following table sets forth information as
to the beneficial ownership of each person known to the Company to own more than
5% of the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS NUMBER OF SHARES CLASS
- --------------------------------- ---------------- ----------
<S> <C> <C>
Ark Asset Management Co., Inc. 6,774,000 5.40%
One New York Plaza
New York, NY 10004
FMR Corp. 7,376,424 5.83%
82 Devonshire Street
Boston, MA 02109
Mellon Bank Corporation and 11,037,000 8.73%
certain of its subsidiaries
One Mellon Bank Center
Pittsburgh, PA 15258
</TABLE>
According to information set forth in a Schedule 13G, dated February 7,
1994 (the "Ark Schedule 13G"), filed with the Securities and Exchange Commission
(the "SEC") by Ark Asset Management Co., Inc. ("Ark"), Ark was the beneficial
owner of 6,774,000 shares of Common Stock (approximately 5.40% of the total
number of shares of Common Stock outstanding) as of December 31, 1993.
According to information set forth in a Schedule 13G, dated February 11,
1994 (the "FMR Schedule 13G"), filed with the SEC by FMR Corp. ("FMR"), FMR was
the beneficial owner of 7,376,424 shares of Common Stock (approximately 5.83% of
the total number of shares of Common Stock outstanding) as of December 31, 1993.
According to the FMR Schedule 13G, of those 7,376,424 shares, 7,114,388 shares
(approximately 5.62% of the total number of shares outstanding) as of December
31, 1993 were beneficially owned by Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR, as a result of acting as investment advisor to
several investment companies. The FMR Schedule 13G also discloses that Edward C.
Johnson 3d, Chairman of FMR, beneficially owns 34% of the outstanding voting
common stock of FMR and that Mr. Johnson and various trusts for the benefit of
Johnson family members, through their ownership of FMR's voting common stock,
form a controlling group with respect to FMR.
According to information set forth in a Schedule 13G, dated February 11,
1994 (the "Mellon Schedule 13G"), filed with the SEC by Mellon Bank Corporation
and certain of its subsidiaries (collectively, "Mellon"), Mellon was the
beneficial owner of 11,037,000 shares of Common Stock (approximately 8.73% of
the total number of shares of Common Stock outstanding) as of December 31, 1993.
Stock Ownership of Directors and Executive Officers. The following table
sets forth the shares of Common Stock beneficially owned (or deemed to be
beneficially owned pursuant to the rules of the SEC) as of April 13, 1994 by
each director (including Mr. Earl G. Graves, a nominee for election) of the
Company and
2
<PAGE> 6
by directors and executive officers of the Company as a group. The business
address of each of the individuals named in the table is 7 West Seventh Street,
Cincinnati, Ohio 45202.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS NUMBER OF SHARES CLASS
- --------------------------------- ---------------- ----------
<S> <C> <C>
Robert A. Charpie................ 9,731 *
Lyle Everingham.................. 5,000 *
Meyer Feldberg................... 2,000 *
Earl G. Graves................... 600 *
George V. Grune.................. 4,000 *
Reginald H. Jones................ 1,000 *
John K. McKinley................. 5,000 *
G. William Miller................ 8,028 *
Joseph Neubauer.................. 6,000 *
Allen I. Questrom................ 5,000 *
Ronald W. Tysoe.................. 50,000 *
Karl M. von der Heyden........... 1,000 *
Marna C. Whittington............. 500 *
James M. Zimmerman............... 60,000 *
All Directors and Executive
Officers as a Group............ 225,261 *
<FN>
- ---------------
* Less than one percent (1%).
</TABLE>
ITEM 1 -- ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and By-Laws provide that the
directors of the Company are to be classified into three classes, with the
directors in each class serving for three-year terms and until their successors
are elected, except that the initial terms of the directors in Class II will
expire at the Annual Meeting, and the initial terms of the directors in Class
III will expire at the Company's 1995 annual meeting of shareholders.
In accordance with the recommendation of its Board Organization Committee,
the Board has nominated Robert A. Charpie, Earl G. Graves, George V. Grune and
James M. Zimmerman for election as Class II Directors for a three-year term to
expire at the annual meeting in 1997, or until their successors are duly elected
and qualified. In accordance with the retirement policy adopted by the Board of
Directors, Mr. Reginald H. Jones, also a Class II Director, will not stand for
reelection and Mr. John K. McKinley, a Class I Director, will submit his
resignation from the Board as of the Annual Meeting. Information regarding the
foregoing nominees, as well as the other persons who will continue to serve on
the Board, is set forth below.
A plurality of all votes cast at the Annual Meeting is required to elect
each nominee as a director. The Board has no reason to believe that any of the
nominees will not serve if elected, but if any nominee should subsequently
become unavailable to serve as a director, the persons named as proxies may, in
their discretion,
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<PAGE> 7
vote for a substitute nominee designated by the Board or, alternatively, the
Board may reduce the number of directors to be elected.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEES. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED EXCEPT WHERE AUTHORITY
HAS BEEN WITHHELD.
NOMINEES FOR ELECTION AS CLASS II DIRECTORS -- TERM EXPIRES AT THE 1997 ANNUAL
MEETING
ROBERT A. CHARPIE
Mr. Charpie, 68, has been Chairman of Ampersand Ventures, a specialty
venture capital firm, since 1988. Prior thereto he was Chairman of the Board of
Cabot Corporation from February 1986 until his retirement in September 1988. Mr.
Charpie is also a member of the boards of directors of Alliant Techsystems,
Inc., Ashland Coal, Inc., Cabot Corporation, Champion International Corporation,
Ceramic Process Systems Corporation and Daniel Products Co. Mr. Charpie is a
member of the Audit Review, Board Organization and Compensation Committees of
the Board.
Service as a director: 1984-1989; Since 1992
EARL G. GRAVES
Mr. Graves, 59, has been President and Chief Executive Officer of Earl G.
Graves, Ltd., a multi-faceted communications company, and is the Publisher of
"Black Enterprise" magazine, which he founded in 1970. Additionally, since 1990,
Mr. Graves has served as Chairman and Chief Executive Officer of Pepsi-Cola of
Washington, D.C., L.P., a Pepsi-Cola bottling franchise. Mr. Graves is also a
member of the boards of directors of Aetna Life & Casualty Company, Chrysler
Corporation and Rohm & Haas Corporation.
Service as a director: Nominated in 1994
GEORGE V. GRUNE
Mr. Grune, 64, has been Chairman and Chief Executive Officer of The
Reader's Digest Association, Inc. since 1984. Mr. Grune is also a member of the
boards of directors of Avon Products, Inc., CPC International, Inc. and Chemical
Banking Corporation. He is a member of the Audit Review, Compensation and Public
Policy Committees of the Board.
Service as a director: Since 1992
JAMES M. ZIMMERMAN
Mr. Zimmerman, 50, has been President and Chief Operating Officer of the
Company since May 1988. Mr. Zimmerman is a member of the Public Policy Committee
of the Board.
Service as a director: Since 1988
CLASS III DIRECTORS -- TERM EXPIRES AT THE 1995 ANNUAL MEETING
G. WILLIAM MILLER
Mr. Miller, 69, has been Chairman of the Board of G. William Miller & Co.,
Inc., a merchant banking firm, since 1982. In addition, he was Chairman of the
Board and Chief Executive Officer of Federated Stores, Inc., the former indirect
parent of the Company ("FSI") from January 1990 to February 1992. Mr. Miller is
also a member of the boards of directors of Georgetown Industries, Inc., Gulf
Canada Resources Limited,
4
<PAGE> 8
Kleinwort Benson Australian Income Fund, Inc., Ralphs Grocery Company and
Repligen Corporation. Mr. Miller is a member of the Executive and Finance and
Public Policy Committees of the Board.
Service as a director: 1976-1978; 1981-1989; Since 1992
JOSEPH NEUBAUER
Mr. Neubauer, 52, has been Chairman and Chief Executive Officer of The ARA
Group, Inc. since 1984. He is a member of the boards of directors of The ARA
Group, Inc., Bell of Pennsylvania, a subsidiary of Bell Atlantic, First Fidelity
Bankcorporation, Penn Mutual Life Insurance Company and VS Services, Ltd., a
Canadian company. He is a member of the Board Organization and Compensation
Committees of the Board.
Service as a director: Since 1992
ALLEN I. QUESTROM
Mr. Questrom, 54, has been Chairman of the Board and Chief Executive
Officer of the Company since February 1990; prior thereto he was President and
Chief Executive Officer of the Neiman-Marcus division of the Neiman-Marcus
Group, Inc. from September 1988 to February 1990. Mr. Questrom is a member of
the Executive and Finance Committee of the Board.
Service as a director: 1988; Since 1990
KARL M. VON DER HEYDEN
Mr. von der Heyden, 57, was appointed President and Chief Executive Officer
of Metallgesellschaft Corp. in December 1993. He was previously Co-Chairman and
Chief Executive Officer of RJR Nabisco, Inc. from March to June 1993. He was
Executive Vice President and Chief Financial Officer of RJR Nabisco from 1989 to
1993. Prior to joining RJR Nabisco, he was Senior Vice President, Chief
Financial Officer and a Director of H. J. Heinz Co. Mr. von der Heyden is a
member of the Audit Review, Board Organization and Public Policy Committees of
the Board.
Service as a director: Since 1992
CLASS I DIRECTORS -- TERM EXPIRES AT THE 1996 ANNUAL MEETING
LYLE EVERINGHAM
Mr. Everingham, 67, was Chief Executive Officer of The Kroger Co. from 1978
and Chairman of the Board thereof from 1979 until his retirement in 1991. Mr.
Everingham is also a member of the boards of directors of Cincinnati Milacron,
Inc., Capital Holding Corporation and The Kroger Co. Mr. Everingham is a member
of the Board Organization, Compensation, Executive and Finance and Public Policy
Committees of the Board.
Service as a director: Since 1992
MEYER FELDBERG
Professor Feldberg, 52, has been Dean of the Columbia Business School at
Columbia University since 1989. Professor Feldberg is also a member of the
boards of directors of AMSCO International, Inco Homes,
5
<PAGE> 9
PaineWebber Group Funds and SCI Television, Inc. He is a member of the Audit
Review and Public Policy Committees of the Board.
Service as a director: Since 1992
RONALD W. TYSOE
Mr. Tysoe, 41, has been Vice Chairman and Chief Financial Officer of the
Company since April 1990; prior thereto he was President and Treasurer of FSI
from 1987 to 1992 and Chief Financial Officer of FSI from April 1990 to February
1992, and President of Campeau Corp. from April 1989 to January 1990.
Service as a director: Since 1988
MARNA C. WHITTINGTON
Dr. Whittington, 46, is a partner with the private investment firm of
Miller, Anderson & Sherrerd, where she has been employed since 1992. Prior
thereto, she was executive vice president of the University of Pennsylvania from
1988. Dr. Whittington is also a member of the boards of directors of IM&D Group,
Ltd., Rohm & Haas Company and Royal Group, Inc. In addition, she is a member of
the board of trustees of MAS Pooled Trust Fund. Dr. Whittington is a member of
the Audit Review and Board Organization Committees of the Board.
Service as a Director: Since 1993
6
<PAGE> 10
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
ATTENDANCE AT MEETINGS
The Board held 12 meetings during the fiscal year ending January 29, 1994
("Fiscal 1993"). No director attended fewer than 75% of the total number of
meetings of the Board and Board Committees on which such director served.
COMMITTEES OF THE BOARD
The Board has established the following standing committees: the Executive
and Finance Committee, the Public Policy Committee, the Audit Review Committee,
the Board Organization Committee and the Compensation Committee. The latter
three committees are composed solely of nonemployee directors.
Executive and Finance Committee. The Executive and Finance Committee is
composed of Messrs. Everingham, Jones, McKinley, Miller and Questrom. This
Committee has all authority, consistent with the Delaware General Corporation
Law, granted to it by the Board. Accordingly, the Executive and Finance
Committee has and may exercise all the powers and authority of the Board in the
oversight of the management of the business and affairs of the Company, except
that the Executive and Finance Committee does not have the power to amend the
By-Laws or the Certificate of Incorporation (except, to the extent authorized by
a resolution of the Board, to fix the designations, preferences and other terms
of any preferred stock of the Company), adopt an agreement of merger and
consolidation, authorize the issuance of stock, declare a dividend, or recommend
to the shareholders of the Company the sale, lease or exchange of all or
substantially all of the Company's assets, a dissolution of the Company or a
revocation of a dissolution. The Executive and Finance Committee met one time
during Fiscal 1993.
Public Policy Committee. The Public Policy Committee is composed of Messrs.
Everingham, Feldberg, Grune, Miller, von der Heyden and Zimmerman. This
Committee establishes, when necessary or appropriate, policies involving the
Company's role as a corporate citizen, reviews, evaluates and monitors the
policies, programs and practices in public policy areas, maintains an awareness
of public affairs developments and trends, and reviews and makes recommendations
to the Board on shareholder proposals relating to social or public policy
matters. The Public Policy Committee met two times during Fiscal 1993.
Audit Review Committee. The Audit Review Committee is composed of Dr.
Whittington and Messrs. Charpie, Feldberg, Grune, Jones, McKinley and von der
Heyden. This Committee reviews the professional services provided by the
Company's independent accountants and the independence of such firm from the
management of the Company. This Committee also reviews the scope of the audit by
the Company's independent accountants, the annual financial statements of the
Company, the Company's systems of internal accounting controls, and such other
matters with respect to the accounting, auditing and financial reporting
practices and procedures of the Company as it may find appropriate or as may be
brought to its attention, and meets from time to time with members of the
Company's internal audit staff. The Audit Review Committee met seven times
during Fiscal 1993.
Board Organization Committee. The Board Organization Committee is composed
of Dr. Whittington and Messrs. Charpie, Everingham, Jones, Neubauer and von der
Heyden. This Committee considers and recommends criteria for the selection of
nominees for election as directors and from time to time may select candidates
for director for recommendation to the full Board. The full Board may also from
time to time select such director candidates and in all events will act in
respect of (i) the filling of any vacancies on the Board,
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<PAGE> 11
(ii) the recommendations of candidates for nomination for election by the
shareholders of the Company and (iii) the composition of all Board Committees.
The Board Organization Committee met two times during Fiscal 1993.
The Board Organization Committee will consider nominees for director
recommended by shareholders of the Company. Shareholders wishing to make such
recommendations should write to the Board Organization Committee, c/o Dennis J.
Broderick, Secretary, Federated Department Stores, Inc., 7 West Seventh Street,
Cincinnati, Ohio 45202. Persons making submissions should include the full name
and address of the recommended nominee, a description of the proposed nominee's
qualifications and other relevant biographical information.
Compensation Committee. The Compensation Committee is composed of Messrs.
Charpie, Everingham, Grune, Jones, McKinley and Neubauer. This Committee reviews
executive salaries, administers the bonus, incentive and stock option plans of
the Company, and approves the salaries and other benefits of the executive
officers of the Company. In addition, this Committee advises and consults with
the Company's management regarding pension and other benefit plans and
compensation policies and practices of the Company. The Compensation Committee
met eight times during Fiscal 1993.
DIRECTOR NOMINATION PROCEDURES
The By-Laws provide that nominations for election of directors by the
shareholders will be made by the Board or by any shareholder entitled to vote in
the election of directors generally. The By-Laws require that shareholders
intending to nominate candidates for election as directors deliver written
notice thereof to the Secretary of the Company not later than 60 days in advance
of the meeting of shareholders; provided, however, that in the event that the
date of the meeting is not publicly announced by the Company by inclusion in a
report filed with the SEC or furnished to shareholders, or by mail, press
release or otherwise more than 75 days prior to the meeting, notice by the
shareholder to be timely must be delivered to the Secretary of the Company not
later than the close of business on the tenth day following the day on which
such announcement of the date of the meeting was so communicated. The By-Laws
further require that the notice by the shareholder set forth certain information
concerning such shareholder and the shareholder's nominees, including their
names and addresses, a representation that the shareholder is entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, the class and number of
shares of the Company's stock owned or beneficially owned by such shareholder, a
description of all arrangements or understandings between the shareholder and
each nominee, such other information as would be required to be included in a
proxy statement soliciting proxies for the election of the nominees of such
shareholder, and the consent of each nominee to serve as a director of the
Company if so elected. The chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with these requirements. Similar
procedures prescribed by the By-Laws are applicable to shareholders desiring to
bring any other business before an annual meeting of the shareholders.
DIRECTOR COMPENSATION
Nonemployee directors receive an annual base retainer fee in the amount of
$25,000, and a fee of $1,250 for each Board or Board Committee meeting attended.
Each such director is also entitled to receive stock options under the 1992
Executive Equity Incentive Plan, as Amended (the "Equity Plan"). Directors who
are also fulltime employees of the Company receive no additional compensation
for services as directors.
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<PAGE> 12
On December 11, 1992, the Board approved a retirement plan for nonemployee
directors of the Company. Under the terms of the retirement plan, nonemployee
directors will receive an annual retainer at a rate in effect as of the date of
termination of service as a director, payable in monthly increments. Full
vesting will occur for nonemployee directors who have reached age 60 while
serving on the Board irrespective of years of service. Vesting will occur for
nonemployee directors whose termination of Board service occurs before reaching
age 60 as follows: 50% vesting after five years of Board service and an
additional 10% vesting for each year of Board service after five years. Payments
under the retirement plan will commence at age 60 and will continue for the
lesser of life or years of Board service. There are no survivor benefits under
the terms of the retirement plan.
Pursuant to their contracts with the Company, nonemployee directors may
defer all or a portion of their retainer and meeting fees either as stock or
cash credits. Six nonemployee directors have elected to have all their fees
deferred as stock credits. Nonemployee directors also receive executive
discounts on merchandise purchased.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and certain persons who
own more than 10% of the Common Stock outstanding, to file with the SEC and the
New York Stock Exchange, Inc. (the "NYSE"), initial reports of ownership and
reports of changes in ownership of the Common Stock. Executive officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. See "Stock
Ownership -- Certain Beneficial Owners."
To the Company's knowledge, based solely on a review of the copies of
reports furnished to the Company and written representations of all directors
and executive officers that no other reports were required with respect to their
beneficial ownership of Common Stock during Fiscal 1993, the directors and
executive officers and all beneficial owners of more than 10% of the Common
Stock outstanding complied with all applicable filing requirements under Section
16(a) of the Exchange Act with respect to their beneficial ownership of the
Common Stock during Fiscal 1993.
ITEM 2 -- APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Review
Committee, has appointed the firm of KPMG Peat Marwick, independent public
accountants, to audit the books, records and accounts of the Company and its
subsidiaries for the fiscal year ending January 28, 1995, subject to
ratification of such appointment by the Company's shareholders. KPMG Peat
Marwick and its predecessors have served as independent accountants for the
Company since 1988, and are considered well qualified. Representatives of KPMG
Peat Marwick are expected to be present at the Annual Meeting and will have the
opportunity to make a statement if they desire to do so. It is also expected
that they will be available to respond to appropriate questions.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR SUCH RATIFICATION.
PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS SPECIFY IN
THEIR PROXIES A CONTRARY CHOICE.
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<PAGE> 13
ITEM 3 -- SHAREHOLDER PROPOSAL TO CHANGE DATE OF ANNUAL MEETING
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue,
N.W., Suite 215, Washington, D.C. 20037, holder of record of 200 shares of
Common Stock, has informed the Company that she intends to introduce the
following proposal for action at the Annual Meeting:
"RESOLVED: That the stockholders recommend that the Board of Directors
take the necessary steps to change the Annual Meeting date to the second
Friday in June."
This shareholder has submitted the following statement in support of the
proposal:
"Recently the Annual Meetings were held on a date where other major
corporations met."
"It was one of the busiest days of the annual meeting season."
"The many problems the Company faces makes maximum attendance by
outside independent stockholders especially desirable."
"Campeau Corporation -- Federated's former parent company (now
Camdev) -- always met on a less crowded date. The old Federated BEFORE its
acquisition by Campeau also held its meetings at dates where more
shareholders could attend."
"If you AGREE, please mark your proxy FOR this resolution."
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE AGAINST SUCH PROPOSAL FOR
THE REASONS STATED BELOW. IF SUCH PROPOSAL IS PROPERLY PRESENTED AT THE ANNUAL
MEETING, PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS SHAREHOLDERS
SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
The Board selects a date for the annual meeting that it believes is timely
and convenient for the Company and its shareholders. In the Company's
experience, holding the annual meeting promptly after the date on which the
Company must file its annual report on Form 10-K results in the most efficient
use of the Company's resources and is least disruptive of its day-to-day
business. Efficiencies realized by the Company ultimately benefit its
shareholders.
In the past, "old Federated" held its annual meeting on various dates in
May and June, each such date having been chosen after consideration of the then
prevalent circumstances and the convenience afforded by such dates to all
relevant parties. While the Company understands the desirability of having
shareholders attend the annual meetings of all companies in which they hold
shares, due to the large number of corporations and shareholders, scheduling
conflicts are inevitable and unavoidable.
EXECUTIVE COMPENSATION
THREE-YEAR COMPENSATION SUMMARY
The following table summarizes the compensation of the five most highly
compensated executive officers of the Company (the "Named Executives") for the
Company's last three fiscal years for services rendered in all capacities to the
Company and its subsidiaries.
10
<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------------------- PAYOUTS
OTHER RESTRICTED SECURITIES ------- ALL OTHER
ANNUAL STOCK UNDERLYING LTIP COMPEN-
NAME AND COMPEN- AWARDS OPTIONS/ PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY BONUS SATION(1) ($)(2) SARS(#) (3) ($)(1)(4)
- ------------------------- ----- --------- ------- --------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. Questrom 1993.. 1,200,000 0 191,354(5) 0 0 800,000 2,631
Chairman & CEO 1992 1,200,000 0 191,162 0 0 800,000 2,410
1991 1,200,000 0 0 0 800,000
J. Zimmerman 1993 1,000,000 232,800 42,129(6) 0 100,000 0 2,631
President & COO 1992 1,000,000 310,400 1,960,224 1,012,500 70,000 0 2,410
1991 1,000,000 300,000 0 0 0
R. Tysoe 1993 650,000 185,700 50,910(8) 0 72,000 0 2,631
Vice Chairman & 1992 650,000(7) 247,600 609,683 843,750 60,000 0 2,410
CFO 1991 650,000(7) 195,000 0 0 0
T. Cody 1993 518,750 185,700 67,960(9) 0 25,000 0 2,631
Executive Vice 1992 500,000 247,600 68,297 675,000 50,000 0 2,410
President 1991 500,000 150,000 0 0 0
D. Broderick 1993 257,500 88,500 20,210(10) 0 5,000 0 2,631
Senior Vice 1992 250,000 83,300 15,641 202,500 10,000 0 2,410
President, General 1991 250,000 75,000 0 0 0
Counsel & Secretary
<FN>
- ---------------
(1) Pursuant to transition provisions published by the SEC, information
regarding "Other Annual Compensation" and "All Other Compensation" is not
presented for years prior to the fiscal year ended January 30, 1993
("Fiscal 1992").
(2) At January 29, 1994, the aggregate number of shares of Restricted Stock
held by each of the Named Executives and the aggregate value thereof (based
on the closing market price of the Common Stock on January 28, 1994) were
as follows: Mr. Questrom: 0 shares, $0; Mr. Zimmerman: 48,000 shares,
$1,008,000; Mr. Tysoe: 40,000 shares, $840,000; Mr. Cody: 32,000 shares,
$672,000; and Mr. Broderick: 9,600 shares, $201,600. Shares of Restricted
Stock reflected in the table were awarded on February 7, 1992. The risk of
forfeiture as to the number of shares originally held lapsed as to 20% of
such shares as of the first anniversary of the award, and lapse 20% of such
shares as of the second anniversary of the award, 15% of such shares as of
each of the next two anniversaries of the award, and 30% of such shares as
of the fifth anniversary of the award. Holders of Restricted Stock are
entitled to receive such dividends, if any, as may be declared on the
Common Stock on the same basis as other holders of Common Stock.
(3) Consists of value-added payments to Mr. Questrom under his employment
Agreement. The employment agreement with Mr. Questrom provides for him to
serve as Chairman of the Board and Chief Executive Officer for a term
beginning on February 2, 1990 and expiring on February 2, 1995 (the
"Contract Period"), with successive optional one-year renewals thereafter.
The agreement also provides that Mr. Questrom will be entitled to receive a
value-added payment upon completion of the Contract Period based on
appreciation in the aggregate market value of the Common Stock of the
Company and Allied Stores Corporation ("Allied") (which was merged into the
Company as part of the Plan of Reorganization) during the Contract Period
(adjusted to reflect the restructuring of the debt of the Company and
Allied and their respective subsidiaries pursuant to the Plan of
Reorganization and the sale of equity). The value-added payment will equal
the amount determined by the following formula: 0.75% of the first $500.0
million of equity appreciation, 1.5% of all equity appreciation between
$500.0
11
<PAGE> 15
and $1,000.0 million, and 2.0% of any equity appreciation in excess of
$1,000.0 million (less amounts previously paid as described below). An
initial, nonrefundable value-added payment of $2.0 million was made upon
commencement of the Contract Period and subsequent nonrefundable
value-added payments of $800,000 were made on each of January 31, 1991,
1992, 1993 and 1994 and will be made on January 31, 1995. These payments
will be credited against the contractual obligation to make any other
payments under the formula described above. See "Executive
Compensation -- Specific Compensation Practices -- Employment Agreement
with Chief Executive Officer" for further information regarding Mr.
Questrom's incentive arrangements.
(4) Consists of contributions under the Thrift Incentive portion of the RITI.
(5) For 1993, the amount shown includes $168,301 for executive discount on
merchandise purchases.
(6) For 1993, the amount shown includes $19,321 for executive discount on
merchandise purchases.
(7) In addition to the salary amounts shown, Mr. Tysoe was paid $176,346 by FSI
in 1992 and $350,000 by FSI in 1991.
(8) For 1993, the amount shown includes $22,963 for executive discount on
merchandise purchases and $16,116 for use of car.
(9) For 1993, the amount shown includes $42,168 for executive discount on
merchandise purchases.
(10) For 1993, the amount shown includes $9,300 for use of car and $6,487 for
executive discount on merchandise purchases.
</TABLE>
FISCAL 1993 STOCK OPTION GRANTS
The following table sets forth certain information regarding grants of
stock options made during Fiscal 1993 to the Named Executives pursuant to the
Equity Plan. No grants of SARs were made during Fiscal 1993 to any of the Named
Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------
% OF TOTAL
OPTIONS MARKET POTENTIAL REALIZABLE VALUE OF
SECURITIES GRANTED TO PRICE ON ASSUMED ANNUAL RATES OF STOCK PRICE
UNDERLYING EMPLOYEES GRANT EXPIRA- APPRECIATION FOR OPTION TERM
OPTIONS IN FISCAL PRICE DATE TION -----------------------------------
NAME GRANTED(#) YEAR(1) $/SH. $/SH.(2) DATE 0%($) 5%($) 10%($)
- ------------- ---------- ---------- ------ -------- -------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. Questrom 0 0.0% N/A N/A N/A 0 0 0
J. Zimmerman 35,000(3) 2.4% 20.875(4) 23.000 06/28/03 74,375 580,635 1,357,338
65,000(5) 4.5% 19.375 19.375 10/29/03 0 792,014 2,007,119
R. Tysoe 30,000(3) 2.1% 20.875(4) 23.000 06/28/03 63,750 497,687 1,163,432
42,000(5) 2.9% 19.375 19.375 10/29/03 0 511,763 1,296,908
T. Cody 25,000(3) 1.7% 20.875(4) 23.000 06/28/03 53,125 414,739 969,527
D. Broderick 5,000(3) 0.3% 20.875 20.875 03/19/03 0 65,641 166,347
<FN>
- ---------------
(1) Total of Options granted excludes Options rescinded on October 29, 1993. For
further information regarding the Options, see "Compensation Committee
Report on Executive Compensation -- Equity-Based Plans.
(2) The "market price" shown is the closing price on the business day
immediately preceding the grant date.
(3) One-half of the Options vested and became exercisable on March 19, 1994 and
the remainder of such Options will vest and become exercisable on March 19,
1995.
12
<PAGE> 16
(4) Represents the average daily closing price for shares of Common Stock on the
NYSE from the beginning of Fiscal 1993 through June 28, 1993 (the date of
the award). For further information regarding the Options, see "Compensation
Committee Report on Executive Compensation -- Equity-Based Plans."
(5) One-third of the Options will vest and become exercisable on October 29,
1996, one-third will vest and become exercisable on October 29, 1997 and the
remainder of such Options will vest and become exercisable on October 29,
1998. For further details on these grants, see "Compensation Committee
Report on Executive Compensation -- Equity-Based Plans."
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the total
number of Options held by each of the Named Executives and the aggregate value
of such Options, at January 29, 1994.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT FISCAL
SHARES FISCAL YEAR-END YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------- ------------ ------------ --------------- -----------------
<S> <C> <C> <C> <C>
A. Questrom 0 0 0 0
J. Zimmerman 0 0 35,000/135,000 144,375/254,375
R. Tysoe 0 0 30,000/102,000 123,750/195,750
T. Cody 0 0 25,000/ 50,000 103,125/106,250
D. Broderick 0 0 5,000/ 10,000 20,625/ 21,250
<FN>
- ---------------
(1) In-the-money Options are Options having a per share exercise price below the
closing price of shares of Common Stock on the NYSE on January 28, 1994. The
dollar amounts shown represent the amount by which the product of such
closing price and the number of shares purchasable upon the exercise of such
in-the-money Options exceeds the aggregate exercise price payable upon such
exercise.
</TABLE>
FISCAL 1993 LONG-TERM INCENTIVE PLAN AWARDS
The following table sets forth certain information with respect to award
opportunities of the Named Executives under the Company's long-term cash
incentive program for the 1993-1995 measurement period. The cash payment under
this program is scheduled to occur in 1996.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
OR OTHER UNDER NON-STOCK-PRICE-BASED
PERIOD PLANS(1)
UNTIL -----------------------------------
MATURATION THRESHOLD TARGET MAXIMUM
NAME OR PAYOUT ($) ($) ($)
- --------------- ----------- --------- --------- -------
<S> <C> <C> <C> <C>
A. Questrom(2) N/A N/A N/A N/A
J. Zimmerman 1995 77,600 194,000 310,400
R. Tysoe 1995 61,900 154,750 247,600
T. Cody 1995 61,900 154,750 247,600
D. Broderick 1995 28,000 70,000 112,000
13
<PAGE> 17
<FN>
- ---------------
(1) See "Executive Compensation -- Specific Compensation Practices -- Long-Term
Cash Incentive" for further information regarding the long-term cash
incentive program for the Company's Named Executives other than Mr.
Questrom.
(2) See "Executive Compensation -- Specific Compensation Practices -- Employment
Agreement with Chief Executive Officer" for further information regarding
Mr. Questrom's incentive arrangements.
</TABLE>
CHANGE-IN-CONTROL AGREEMENTS. Effective as of the Plan of Reorganization
effective date, the Company entered into a change-in-control agreement
("Change-in-Control Agreement") with each of its executive officers other than
Mr. Questrom (whose employment agreement contains certain severance provisions,
as described below) and certain other officers and key employees. Under the
Change-in-Control Agreements, if, prior to February 5, 1996, a change in control
occurs and thereafter the Company or, in certain circumstances, the executive
terminates the executive's employment and, in the case of a termination by the
Company, cause (as defined in the Change-in-Control Agreement) therefor does not
exist, the executive would be entitled to a cash severance benefit equal to 120%
of the base salary that the executive would have received during the three-year
period following such termination had such termination not occurred (based
generally upon the executive's then-current salary). However, in the case of any
termination after February 4, 1993, the cash severance benefit otherwise payable
under the agreement would be reduced by an amount equal to the product of (i)
the cash severance benefit otherwise payable and (ii) a fraction, the numerator
of which is the number of days between February 4, 1993, and the termination
date and the denominator of which is 1,095 (except that this reduction may not
exceed 240% of base salary). The cash severance benefit payable under the
Change-in-Control Agreements will also be reduced by all amounts actually paid
to the executive pursuant to any other employment or severance agreement or plan
to which the executive and the Company are parties or in which the executive is
a participant. After a termination of employment under circumstances in which
the executive is eligible for the cash severance benefit, the executive would be
entitled to certain welfare benefits for a minimum of one year, and to a
prorated portion of any long-term incentive awards under the Bonus Plan
described below, if applicable. The executive would also be paid an amount
pursuant to the Change-in-Control Agreement to reimburse the executive for any
excise tax imposed under sections 280G and 4999 of the Internal Revenue Code,
including any tax payable by reason of such reimbursements.
RETIREMENT PROGRAMS. The retirement program previously established by the
Company (the "Federated Program") and the retirement program previously
established by Allied (the "Allied Program") are the primary programs for
providing retirement benefits to the Company's employees. Both programs
consisted of a defined benefit plan and a defined contribution plan. Effective
July 1, 1993, the Allied defined contribution plan was merged into the Federated
defined contribution plan. As of January 1, 1994, approximately 52,500 employees
participated in the Federated Program, of whom approximately 12,300 participated
in the Allied defined benefit plan. The executive officers of the Company are
participants in the Federated Program. Accordingly, the Federated Program is
described below.
To allow the Federated Program to provide benefits based on a participant's
total compensation, the Company adopted a Supplementary Executive Retirement
Plan ("SERP") when it adopted its defined benefit plan. The Company's SERP,
which is a nonqualified unfunded plan, provides to eligible executives
retirement benefits on compensation and benefits in excess of Internal Revenue
Code maximums, as well as amounts deferred under the Company's Executive
Deferred Compensation Plan ("EDCP") effective November 1, 1993, in each case
based on the same formula contained in the Company's defined benefit plan. As of
January 1, 1994, approximately 407 employees were eligible under the terms of
the Company's SERP. The Company has reserved the right to suspend or terminate
supplemental payments as to any category of employee or
14
<PAGE> 18
former employee, or to modify or terminate any other element of the Federated
Program or the Allied Program, as the case may be, in accordance with applicable
law.
Under the Federated Program, a participant retiring at normal retirement
age is eligible to receive monthly benefit payments calculated using a plan
formula that is based on the participant's years of service and final average
compensation, taking into consideration the participant's Retirement Profit
Sharing Credits (as discussed below).
Prior to adoption of the defined benefit plan under the Federated Program,
the Company's primary means of providing retirement benefits to employees was
through the Retirement Income and Thrift Incentive Plan ("RITI"), a defined
contribution profit sharing plan. With the defined benefit plan in place, the
Company continued, and presently expects to continue, to make contributions to
the Thrift Incentive portion of RITI as described below. An employee's
accumulated retirement profit sharing interests ("Retirement Profit Sharing
Credits") in the Retirement Income portion of RITI, which accrued prior to
January 1, 1984, continue to be maintained and invested until retirement, at
which time they are distributed. It is impractical to estimate the accrued
benefits upon retirement of any participant or group of participants in the
Thrift Incentive portion of RITI under the Federated Program because the amount,
if any, that will be contributed by the Company and credited to a participant in
any year is determined by such variable factors, among others, as the amount of
the income of the Company, the number of participants in the plan, their annual
contributions to the plan, the amount of the matching contributions of the
Company, and the earnings on participants' accounts.
The following table shows the estimated hypothetical annual benefits
payable under the Company's define benefit plan and SERP to persons retiring at
their normal retirement age on January 1, 1994 in specified eligible
compensation and years of service classifications, assuming that a retiring
participant under the Federated Program elects a single life annuity
distribution of his or her Retirement Profit Sharing Credits and the annual
payments under such distribution would not exceed the level set forth below.
Eligible compensation for this purpose includes amounts reflected in the Annual
Compensation portion of the Summary Compensation Table under the headings
"Salary" and "Bonus" and amounts deferred as stock credits under EDCP that are
not so reflected, but excludes amounts reflected in such portion of such table
under the heading "Other Annual Compensation." Mr. Questrom's eligible
compensation for 1993 was $1,200,000; the eligible compensation for 1993 of each
of the other Named Executives did not vary by more than 10% from the total
amount of his compensation for 1993 reflected in the Annual Compensation portion
of the Summary Compensation Table.
<TABLE>
<CAPTION>
FINAL YEARS OF SERVICE
AVERAGE ----------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$250,000... 50,456 67,274 84,093 100,911 100,911
300,000... 60,956 81,274 101,593 121,911 121,911
350,000... 71,456 95,274 119,093 142,911 142,911
400,000... 81,956 109,274 136,593 163,911 163,911
450,000... 92,456 123,274 154,093 184,911 184,911
500,000... 102,956 137,274 171,593 205,911 205,911
750,000... 155,456 207,274 259,093 310,911 310,911
1,000,000.. 207,956 277,274 346,593 415,911 415,911
1,250,000.. 260,456 347,274 434,093 520,911 520,911
1,500,000.. 312,956 417,274 521,593 625,911 625,911
</TABLE>
15
<PAGE> 19
Messrs. Questrom, Zimmerman, Tysoe, Cody and Broderick have completed 26,
25, 5, 11 and 6 years of credited service, respectively, and their estimated
annual retirement benefits at normal retirement age from the Company's defined
benefit plan and SERP, assuming their present eligible compensation remain
unchanged, would be $435,243, $451,388, $346,982, $251,360 and $127,313,
respectively.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE EXCHANGE
ACT THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN
WHOLE OR IN PART, THE FOLLOWING INFORMATION SHALL NOT BE INCORPORATED BY
REFERENCE INTO ANY SUCH FILINGS.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW OF THE COMPANY'S EXECUTIVE COMPENSATION POLICIES AND PRACTICES
The Company's basic compensation policies and practices were established in
connection with its reorganization under chapter 11 ("Reorganization
Proceedings"), including implementation of a comprehensive executive
compensation program, principally intended to: (i) provide appropriate
incentives designed to aid in assuring the accomplishment of the Company's
performance and financial objectives; (ii) help ensure that the Company is able
to attract and retain top-quality management personnel; and (iii) ensure that an
appropriate portion of executive compensation is variable and dependent upon the
accomplishment of specific short and long-term performance and financial
objectives, as well as increases in the shareholder value.
This program was developed with the assistance of independent compensation
and other advisors, reviewed in detail with representatives of the Company's
creditor constituencies during the course of the development of the Plan of
Reorganization, and approved in connection with the Plan of Reorganization. The
program consists of the following components: (i) Base Salary -- targeted at a
competitive level within the retail industry for competitive performance; (ii)
Performance-Based Annual Cash Incentive -- based on attainment of specific
financial objectives for the total corporation, operating unit, or individual;
(iii) Performance-Based Long-term Cash Incentive -- based on Company-wide
performance against three-year financial performance objectives, as well as
performance against peers; and (iv) Equity -- in the form of stock options,
which tie any executive gain directly to value creation and stock price
appreciation, and restricted stock, the ultimate value of which is, also,
directly tied to creation of shareholder value. The companies to which
comparisons are made for purposes of determining competitive base salary levels
and assessing Company-wide performance against peers are included in indices in
the graph set forth under the caption "Total Stockholder Return." Information
relating to each of the foregoing components is set forth below.
During 1993 the Compensation Committee, with the assistance of executive
compensation consultants from KPMG Peat Marwick, reviewed the total compensation
provided to executives to ensure that it is consistent with the Company's
performance-driven policies. Based upon this review, the Committee has continued
substantially all the programs established and approved in connection with the
Plan of Reorganization. The Compensation Committee's present policy in making
decisions regarding executive compensation payments and awards is to consider
whether such payments and awards are deductible for federal income tax purposes
along with such other factors as may be relevant in the circumstances.
The Company's overall executive compensation program and each of its
components are administered by the Committee, based on authority delegated by
the Board. All of the members of the Committee are nonemployee directors and, in
the opinion of the Board, are independent of any relationships with any officer
or other person that would prevent such directors from making independent
judgments with respect to matters
16
<PAGE> 20
pertaining to executive compensation generally or as applied to any specific
officer. No executive officer of the Company serves on any other boards of
directors with any member of the Board or the Committee.
SPECIFIC COMPENSATION PRACTICES
EMPLOYMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER. Mr. Questrom became the
Chairman of the Board and Chief Executive Officer of the Company and Allied
Stores Corporation ("Allied") in February 1990 following the Company's
initiation of Reorganization Proceedings in January 1990. His compensation
arrangements are set forth in an employment agreement that was approved by the
Bankruptcy Court, effective February 2, 1990.
In general, the employment agreement with Mr. Questrom provides for him to
serve as Chairman of the Board and Chief Executive Officer for a term beginning
February 2, 1990 and expiring on February 2, 1995 (the "Contract Period"). The
agreement provides for combined annual base compensation of $1.2 million. The
agreement also provides that Mr. Questrom will be entitled to receive a
value-added payment upon completion of the Contract Period based on appreciation
in the aggregate market value of the Common Stock of the Company and Allied
(which was merged into the Company as part of the Plan of Reorganization) during
the Contract Period (adjusted to reflect the restructuring of the debt of the
Company and Allied and their respective subsidiaries pursuant to the Plan of
Reorganization and the sale of equity) over a base value to be determined by a
third-party investment banking firm in accordance with the terms of the
agreement. The value-added payment will equal the amount determined by the
following formula: 0.75% of the first $500.0 million of equity appreciation,
1.5% of all equity appreciation between $500.0 and $1,000.0 million, and 2.0% of
any equity appreciation in excess of $1,000.0 million (less amounts previously
paid as described below). An initial, non-refundable value-added payment of $2.0
million was made upon commencement of the Contract Period and subsequent
non-refundable value-added payments of $800,000 were made on each of January 31,
1991, 1992, 1993 and 1994, with a final value-added payment of $800,000 to be
made January 31, 1995.
It is not possible to determine at this time the aggregate amount of
value-added payments to which Mr. Questrom may ultimately become entitled
pursuant to his employment agreement. However, during 1993, the investment
banking firm (J. P. Morgan Securities Inc.) determined that the base value for
purposes of Mr. Questrom's employment agreement was $1,627.4 million, subject to
adjustment for changes in equity. Based upon this determination, and if, as
provided in Mr. Questrom's employment agreement, the investment banking firm
selected by the Board to determine the increase in the aggregate value of Common
Stock during the Contract Period determines that the public trading price of the
Common Stock as of the final valuation date (January 28, 1995) accurately
reflects the market value of the Company without minority discount, the
aggregate value-added payments (inclusive in each case of the $6.0 million of
non-refundable payments described above) would be as follows (assuming an
aggregate of 126.5 million shares of Common Stock are outstanding at January 28,
1995): assuming final aggregate market values of approximately $21.00 per share
($2,656.5 million), $24.00 per share ($3,036.0 million) and $27.00 per share
($3,415.5 million), aggregate value-added payments to Mr. Questrom would be
$11.8 million, $19.4 million and $27.0 million, respectively. Should the final
aggregate market value fall below $18.00 per share ($2,277.0 million), the
aggregate value-added payments would not exceed the $6.0 million of
non-refundable payments described above. If it is not determined that the public
trading price of the Common Stock accurately reflects the value of the Company,
then the Board will select an investment banking firm to determine such value
based on the market value of similar businesses taking into account net income,
cash flow, capital structure and such other factors as such investment banking
firm deems relevant in establishing such value.
17
<PAGE> 21
The limitations on deductibility of certain executive compensation payments
imposed under the 1993 federal income tax amendments will not apply to payments
made under Mr. Questrom's employment agreement, provided that such agreement is
not amended in any material respect (which the Compensation Committee has no
present intention to authorize).
Termination of Mr. Questrom's employment agreement other than for "cause"
or termination of the agreement by Mr. Questrom for "good reason" would entitle
Mr. Questrom to receive a lump-sum payment of all salary and annual value-added
payments that would have been paid during the remaining portion of the Contract
Period or any subsequent renewal period but for such termination. The term
"cause" is defined generally to include (a) willful and material breaches of
duties, (b) habitual neglect of duties, or (c) the final conviction of a felony,
but generally does not include bad judgment or negligence, any act or omission
believed by Mr. Questrom in good faith to have been in or not opposed to the
interests of the Company, or any act or omission in respect of which a
determination could properly have been made by the Board that Mr. Questrom met
the applicable standard of conduct prescribed for indemnification or
reimbursement under the By-Laws of the Company or the laws of the State of
Delaware. The term "good reason" is defined generally to include (a) the
assignment to Mr. Questrom of any duties materially inconsistent with his
position, authority, duties or responsibilities as contemplated in the
agreement, or any other action by the Company which results in a material
diminution in such position, authority, duties or responsibilities; (b) any
material failure by the Company to comply with any of the provisions of the
agreement; (c) failure of Mr. Questrom to be reelected Chairman of the Board and
Chief Executive Officer of the Company or to be reelected to membership on the
Board; or (d) any purported termination by the Company of Mr. Questrom's
employment otherwise than as expressly permitted by the agreement. In light of
the provisions of his employment agreement, which preceded the creation of the
Committee, Mr. Questrom does not participate in any other cash or stock-related
compensation programs of the Company. However, the Committee is taking an active
role in administering the execution of the provisions of Mr. Questrom's
contract, including the valuation of the payment to be made in 1995.
Mr. Questrom's employment agreement will expire on February 2, 1995. The
Committee is engaged in discussions with Mr. Questrom to establish terms for
continuation of his service.
EMPLOYMENT AGREEMENTS WITH OTHER EXECUTIVE OFFICERS. Each of the Company's
other executive officers, along with a number of other key employees, is a party
to an employment agreement with the Company. Most of these agreements have a
three-year term, although several are for two years, and all incorporate
non-compete and mitigation clauses. The agreements with Messrs. Zimmerman,
Tysoe, Cody and Broderick presently specify the following respective annual base
salary rates and expiration dates: $1.0 million, June 30, 1996; $700,000, June
30, 1995; $550,000, June 30, 1995; and $278,000, June 30, 1995, respectively.
The Committee reviews the compensation levels and other terms of employment
of each of the Company's executive officers against the performance of such
officers and other factors determined to be appropriate by the Committee on a
continuing basis. While the Committee presently expects the Company will
continue its historical practice of entering into employment agreements with its
executive officers and other key employees, it reserves the right to modify or
terminate that practice generally or in a specific instance upon the expiration
of any such agreements, and intends, over time, to reduce the extent to which
such agreements are used.
ANNUAL CASH INCENTIVE. For Fiscal 1992 and Fiscal 1993, the Company's
executive officers (other than Mr. Questrom) participated in an annual cash
bonus plan that was tied directly to Company performance. The annual cash bonus
opportunity for Messrs. Zimmerman, Tysoe and Cody is based 100% upon the
Company's
18
<PAGE> 22
performance against specific "EBIT" (Earnings Before Interest and Taxes) targets
established by the Compensation Committee consistent with the Company's annual
business plan, while 75% of Mr. Broderick's incentive opportunity is based upon
Company EBIT performance, with the remaining 25% based upon his performance
compared to specific individual objectives. Following full Board approval of the
Company's annual business plan, the Committee establishes minimum threshold,
target, and maximum EBIT levels, and a minimum targeted ratio of EBIT to sales.
Failure to attain the minimum earnings rate objective results in reduction of
the bonus otherwise earned based upon earnings performance. The Company's actual
earnings and earnings rate for Fiscal 1993 exceeded the earnings and earnings
rate targets approved by the Board. Accordingly, Messrs. Zimmerman, Tysoe, Cody
and Broderick earned bonuses which slightly exceeded the target annual bonus
opportunity which the Committee assigned to their positions at the beginning of
the year. The Committee has reviewed and approved the 1994 annual cash incentive
EBIT and EBIT rate performance targets for the executive group and the
corresponding annual cash bonus incentive opportunity.
LONG-TERM CASH INCENTIVE. The long-term cash incentive plan for the
Company's executive officers (other than Mr. Questrom) is based on the Company's
three-year performance against specified financial objectives established in
connection with the Company's long-term business plan. Both the 1992-1994
program and the 1993-1995 program are based upon the Company's performance
against a cumulative EBIT target and an EBIT rate target, which together account
for 60% of the incentive opportunity, as well as the Company's performance
compared to a designated group of peer companies, which comprises the remaining
40% of the incentive opportunity. Consistent with the Company's long-term
business plan approved by the full Board, the Committee annually establishes new
three-year minimum threshold, target and maximum EBIT objectives and a minimum
EBIT rate objective, which remain unchanged for each three-year measurement
period. Failure to attain the minimum earnings rate objective results in
reduction of the bonus otherwise earned based upon earnings performance. The
first potential cash payout is scheduled for 1995 for performance during the
1992-1994 measurement period; for both Fiscal 1992 and Fiscal 1993, the
Company's earnings exceeded target. The Committee has reviewed and approved the
1994-1996 long term cash incentive cumulative EBIT and EBIT rate performance
targets for the executive group and the corresponding long-term cash bonus
incentive opportunity for each participant.
EQUITY-BASED PLANS. Stock option awards were granted in Fiscal 1993 by the
Committee to each of the Named Executives (other than Mr. Questrom) pursuant to
the Executive Equity Incentive Plan approved as part of the Plan of
Reorganization, and amended in 1993 (as amended, the "Equity Plan"). No
restricted stock awards were made to any of the Named Executives in Fiscal 1993.
Stock option awards made in Fiscal 1993 were based on the organizational
level of the executive, and provided recognition of the contributions made by
the executive in the current year, as well as the future contributions to the
Company each is anticipated to make. In granting these performance-based awards,
the Named Executives and other key employees were provided with an immediate
financial interest in increasing shareholder value.
Options under the Equity Plan were generally granted at 100% of fair market
value, have a 10-year term, and typically vest over two years, although a
limited number of awards were made whereby one-third of the shares vest in each
of the third, fourth, and fifth years following the grant. The restrictions
lapse on all of the restricted stock awards over a five-year period. As of the
end of Fiscal 1993 and representing, net of forfeitures, awards made in 1992 and
1993, 768,900 restricted shares had been granted to 166 employees, and options
to purchase 3,097,275 shares of Common Stock, net of forfeitures, had been
awarded to more than 820 employees.
19
<PAGE> 23
At its March 19, 1993 meeting the Committee deferred action on equity
awards to certain Named Executives (Messrs. Zimmerman, Tysoe and Cody) to a
later meeting of the Committee at which time it would have received additional
information from its executive compensation consultants, KPMG Peat Marwick.
At its June 28, 1993 meeting the Committee reviewed a report prepared by
KPMG Peat Marwick. This report indicated that the compensation elements of the
Company's executive compensation program were fully competitive with the
compensation programs in place in the retailing industry. At this meeting, a
regular stock option award was made to Messrs. Zimmerman, Tysoe and Cody, and a
special stock option award was made to Messrs. Zimmerman and Tysoe. Mr.
Zimmerman received a regular award for 35,000 shares, Mr. Tysoe received a
regular award for 30,000 shares, and Mr. Cody received a regular award for
25,000 shares. Each of these awards vested or will vest 50% in March 1994 and
50% in March 1995 (the dates at which these awards would have become vested had
the awards been made in March). The exercise price for these options was 100% of
the average daily closing price on the NYSE from the beginning of the then
current fiscal year to the date of the grant, which price was $20.875.
The special award of 65,000 shares and 42,000 shares was considered by the
Committee for grant to Mr. Zimmerman and to Mr. Tysoe, respectively, in view of
their outstanding performance. The Committee had intended that these options
would vest one third on June 28, 1996, one third on June 28, 1997 and one third
on June 28, 1998, with the exercise price being the closing price of $23.00 on
June 25, 1993, and that such awards would be presented to the Board of Directors
for approval. However, as a result of a misunderstanding by the Company of the
action taken by the Committee, the Company believed that the Committee granted
the special awards at the same exercise price and with the same vesting
triggering date as the regular awards to Messrs. Zimmerman and Tysoe. The
Company communicated the special awards prior to approval by the Board of
Directors to Messrs. Zimmerman and Tysoe with such terms. A Form 4 reflecting
such terms was filed with the SEC on behalf of Messrs. Zimmerman and Tysoe. As
reflected in the table below, the Committee, at its regular meeting of October
29, 1993, rescinded the planned special awards of June 28, 1993, which had not
been presented to the Board of Directors for approval, and awarded Mr. Zimmerman
options to purchase 65,000 shares and Mr. Tysoe options to purchase 42,000
shares. An additional Form 4 was filed with the SEC reflecting such recission
and new stock option award. These options will vest one third each on October
29, 1996, October 29, 1997 and October 29, 1998, with the exercise price being
the closing price of $19.375 on October 28, 1993, and the recommendations were
presented to, and approved by, the Board of Directors at its meeting on October
29, 1993. The Committee concluded that the rescission and grant of new options
was equitable given the confusion that had occurred and the delay that had
ensued. Although the actions relating to these special stock option awards
technically resulted in a repricing as set forth in SEC Regulation S-K, it was
not the desire of the Committee to grant these executives options at a lower
price, but rather to correct the error that had been made and have the Board of
Directors approve the special awards made to these executives.
20
<PAGE> 24
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE ORIGINAL
UNDERLYING OF STOCK AT PRICE AT OPTION TERM
OPTIONS TIME OF TIME OF NEW REMAINING AT
REPRICED REPRICING OR REPRICING OR EXERCISE DATE OF
OR AMENDMENT AMENDMENT PRICE REPRICING OR
NAME DATE AMENDED ($) ($) ($) AMENDMENT
- ------------- --------- --------- ------------ ------------ -------- --------------
<S> <C> <C> <C> <C> <C> <C>
J. Zimmerman 10/29/93 65,000 19.375 23.000 19.375 9 yrs. 8 mos.
R. Tysoe 10/29/93 42,000 19.375 23.000 19.375 9 yrs. 8 mos.
</TABLE>
In 1992, the Committee authorized option awards for 1,948,700 shares to
over 750 individuals, in part concurrent with the Company's emergence from
chapter 11. In light of the Company's continued improvement in operating and
financial performance, awards in March of 1993 were made representing in the
aggregate approximately 50% of the initial option shares granted in February
1992. In recognition of the Company's sustained earnings performance throughout
Fiscal 1992 and Fiscal 1993, and to provide additional incentives to further
improve the Company's performance in 1994 and beyond, the Committee authorized
additional option awards in March 1994 which again, in the aggregate,
approximated 50% of the options awarded to individuals in Fiscal 1992.
Individual awards, including those made to executive officers, reflected
individual as well as Company performance. These awards were within the
9,600,000 shares authorized in the Equity Plan.
CONCLUSION
The Compensation Committee believes that the compensation policies and
arrangements made or adopted in connection with the Company's Reorganization
Proceedings, such as the Company's employment agreement with Mr. Questrom, were
critical to the Company's ability to successfully deleverage itself. The
Committee intends to seek to continue to operate under, and to adjust where
necessary, these performance-driven compensation policies and practices to
assure that they are consistent with the primary mission of the full Board of
increasing long-term stockholder value.
Respectfully submitted,
John K. McKinley, Chairman
Robert A. Charpie
Lyle Everingham
George V. Grune
Reginald H. Jones
Joseph Neubauer
COMPARISON OF TOTAL STOCKHOLDER RETURN
The following graph compares the cumulative total stockholder return on the
Common Stock with the Standard & Poor's 500 Composite Index and the Standard &
Poor's Retail Department Store Index for the period from February 5, 1992 (the
date on which trading in the Common Stock on the NYSE commenced) through January
29, 1994, assuming an initial investment of $100 and the reinvestment of all
dividends.
21
<PAGE> 25
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Joseph Neubauer, a director of the Company and a member of the
Compensation Committee, is Chairman and CEO of The ARA Group, Inc. ("ARA"),
which has entered into an agreement with The Bon, Inc., a wholly-owned
subsidiary of the Company ("The Bon"), to operate food and beverage services for
nine Bon Marche stores. ARA operates on a limited profit and loss basis pursuant
to which ARA returns to The Bon a portion of sales revenues in excess of
operating expenses and a service fee. In Fiscal 1993, the sales revenues
attributable to ARA's operations were approximately $2,337,700.
22
<PAGE> 26
SHAREHOLDER PROPOSALS FOR THE 1995 ANNUAL MEETING
Any proposal of a shareholder intended to be presented at the Company's
1995 annual meeting of shareholders must be received in writing by the Secretary
of the Company by December 16, 1994, for inclusion in the Company's proxy,
notice of meeting and proxy statement relating to the 1995 annual meeting.
OTHER MATTERS
The Board knows of no business which will be presented for consideration at
the Annual Meeting other than that shown above. However, if any business shall
properly come before the Annual Meeting, the persons named in the enclosed form
of proxy or their substitutes will vote said proxy in respect of any such
business in accordance with their best judgment pursuant to the discretionary
authority conferred thereby. The affirmative vote of the holders of a majority
of the shares of Common Stock represented at the Annual Meeting and actually
voted would be required with respect to any such matter brought to a shareholder
vote.
The cost of preparing, assembling and mailing the proxy material will be
borne by the Company. The Annual Report of the Company for Fiscal 1993, which is
being mailed to the shareholders together herewith, is not to be regarded as
proxy soliciting material. The Company may solicit proxies otherwise than by the
use of the mails, in that certain officers and regular employees of the Company,
without additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies. The Company will also request persons, firms and
corporations holding shares in their names, or in the name of their nominees,
which are beneficially owned by others, to send proxy material to and obtain
proxies from such beneficial owners and will reimburse such holders for their
reasonable expenses in so doing. In addition, the Company has engaged the firm
of Corporate Investor Communications, Inc. ("CIC"), of Carlstadt, New Jersey, to
assist in the solicitation of proxies on behalf of the Board of Directors. CIC
will solicit proxies with respect to the Common Stock of the Company held by
brokers, bank nominees, other institutional holders and certain individuals, and
will perform related services. It is anticipated that the cost of the
solicitation service to the Company will not substantially exceed $15,000.
DENNIS J. BRODERICK
Secretary
April 19, 1994
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN
IT IN THE ENCLOSED ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
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<PAGE> 27
APPENDIX
Pursuant to Items 304(a) and 304(d)(1) of Regulation S-T, the performance
chart required by Item 402(1) of Regulation S-K was filed with the Securities
and Exchange Commission on or about April 15, 1994 under Form SE.
A-1
<PAGE> 28
FEDERATED DEPARTMENT STORES, INC.
PROXIES SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF SHAREHOLDERS ON MAY 20, 1994
The undersigned holder of shares of Common Stock of Federated Department
Stores, Inc. (the "Company") hereby appoints Lyle Everingham, Ronald W. Tysoe
and Karl M. von der Heyden, and each of them, as proxies of the undersigned,
with full power of substitution, to act and to vote for and in the name, place
and stead of the undersigned at the Annual Meeting of Shareholders of the
Company to be held at the principal executive offices of the Company at 7 West
Seventh Street, Cincinnati, Ohio, at 11:00 a.m., Eastern Daylight Savings Time,
on Friday, May 20, 1994, and at any and all postponements and adjournments
thereof, according to the number of votes and as fully as the undersigned would
be entitled to vote if personally present at such meeting, and particularly with
respect to the proposals listed on the reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 4 AND AGAINST ITEM 3.
(Continued, and to be dated and signed, on other side)
<PAGE> 29
/ /
PLEASE MARK BOXES /X/ IN BLUE OR BLACK INK.
DIRECTORS RECOMMEND A VOTE FOR ELECTION OF DIRECTORS, A VOTE FOR PROPOSALS 2 AND
4, AND A VOTE AGAINST PROPOSAL 3.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1. Election of Directors / / FOR all / / To WITHHOLD AUTHORITY to vote for any individual nominee, / / Exceptions
nominees place an "X" in this box and strike a line through the nominee's
listed below name listed below.
</TABLE>
(Class II Directors) Nominees for a three-year term: Robert A. Charpie, Earl G.
Graves, George V. Grune, James M. Zimmerman
<TABLE>
<S> <C>
2. Ratify the Selection of KPMG Peat Marwick as the 3. Adoption of the shareholder proposal (if such proposal is
Company's independent accountants for the fiscal properly presented at the annual meeting) to change the date of
year ending January 28, 1995. the annual meeting to the second Friday in June.
FOR / / AGAINST / / ABSTAIN / / FOR / / AGAINST / / ABSTAIN / /
4. In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting.
FOR / / AGAINST / / ABSTAIN / /
</TABLE>
PROXY DEPARTMENT
NEW YORK, N.Y. 10203-0107
<TABLE>
<S> <C>
Address change mark here / /
THIS PROXY SHOULD BE DATED, SIGNED BY
THE SHAREHOLDER AS HIS OR HER NAME
APPEARS BELOW, AND RETURNED PROMPTLY IN
THE ENCLOSED ENVELOPE. JOINT OWNERS
SHOULD EACH SIGN PERSONALLY, AND
TRUSTEES AND OTHERS SIGNING IN A
REPRESENTATIVE CAPACITY SHOULD INDICATE
THE CAPACITY IN WHICH THEY SIGN.
Dated: , 1994
---------------------------------------
Signature of Shareholder
---------------------------------------
Please mark, sign and return this proxy card promptly, using the envelope provided. Signature of Shareholder
</TABLE>
