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 reg. 240.14a-11(c) or reg. 240.14a-12
PAUL HARRIS STORES, INC.
- ------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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.:
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3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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<PAGE>
PAUL HARRIS STORES, INC.
6003 GUION ROAD
INDIANAPOLIS, INDIANA 46254
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 19, 1997
-------------------
To the Shareholders of Paul Harris Stores, Inc.:
The annual meeting of shareholders of Paul Harris Stores, Inc. (the
"Company") will be held on Thursday, June 19, 1997, 9:00 a.m., local time, at
the offices of the Company, 6003 Guion Road, Indianapolis, Indiana, for the
following purposes:
1. To elect five directors to the Board of Directors of the
Company;
2. To approve the Company's 1996 Stock Option and Incentive
Plan;
3. To approve the Company's Outside Directors Stock Option Plan;
4. To ratify the appointment of Price Waterhouse LLP as the Company's
independent auditors for the 1997 fiscal year; and
5. To transact such other business as may properly come
before the meeting or any adjournments thereof.
Only shareholders of record at the close of business on May 8, 1997 are
entitled to notice of, and to vote at, the meeting or any adjournments thereof.
By Order of the Board of Directors
/s/ Keith L. Himmel, Jr.
Keith L. Himmel, Jr.
Secretary
Indianapolis, Indiana
May 19, 1997
SHAREHOLDERS UNABLE TO ATTEND THE MEETING IN PERSON ARE
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE IN THE SELF-ADDRESSED, STAMPED
RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF IT IS
MAILED IN THE UNITED STATES.
<PAGE>
PAUL HARRIS STORES, INC.
6003 GUION ROAD
INDIANAPOLIS, INDIANA 46254
(317) 293-3900
--------------
PROXY STATEMENT
--------------
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed Proxy is solicited by the Board of Directors of Paul Harris
Stores, Inc. (the "Company") for use at the Annual Meeting of Shareholders to be
held on Thursday, June 19, 1997, at 9:00 a.m., local time, at the offices of the
Company, 6003 Guion Road, Indianapolis, Indiana, or at any adjournment thereof
(the "Annual Meeting"), for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. Proxies will be voted in
accordance with the directions specified therein. ANY PROXY ON WHICH NO
DIRECTIONS ARE SPECIFIED WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF THE FIVE
NOMINEES NAMED HEREIN AND FOR PROPOSALS 2, 3 AND 4. These proxy solicitation
materials and the accompanying Annual Report for the fiscal year ended
February 1, 1997 are first being sent to shareholders on or about May 19, 1997.
As of May 8, 1997, the record date fixed for the determination of
shareholders of the Company entitled to notice of, and to vote at, the Annual
Meeting, there were 7,107,364 shares of the Company's Voting Common Stock (the
"Common Stock"), the only class of capital stock of the Company entitled to vote
at the Annual Meeting. On the record date, there were 3,013,039 shares of
Nonvoting Common Stock outstanding. Shares of Nonvoting Common Stock are
convertible into an equal number of shares of Common Stock on the occurrence of
certain events. Each share of Common Stock entitles the holder thereof on the
record date to one vote with respect to each matter to be acted upon at the
Annual Meeting.
A majority of the outstanding shares of Common Stock present in person or
by proxy at the Annual Meeting will constitute a quorum for the purpose of
conducting business at the Meeting. Shares registered in the names of brokers
or other "street name" nominees for which proxies containing voting instructions
(either for, against or abstain) on at least one matter will be considered to be
represented at the Annual Meeting for quorum purposes, but will be counted for
voting purposes only as to those matters on which they are actually voted. If a
quorum is present, the five nominees for election as directors receiving the
greatest number of votes will be elected. Each of Proposals 2, 3 and 4 will be
approved if the number of shares voted in favor of the proposal exceeds the
number of shares voted against it. Because none of the matters to be considered
at the Annual Meeting require the affirmative vote of a specific number of
shares, neither the non-voting of shares nor abstentions will affect the outcome
of the voting.
Any Proxy given pursuant to this solicitation may be revoked at any time
prior to its use by delivering to the principal office of the Company either a
written notice of revocation or a duly executed Proxy bearing a later date, or
by attending the Annual Meeting and voting in person.
<PAGE>
The Board of Directors knows of no matters, other than those described in
the attached Notice of Annual Meeting, which are to be brought before the Annual
Meeting. If other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed Proxy to vote such Proxy in
accordance with their judgment on such matters. To be considered at the Annual
Meeting, any matters proposed by shareholders must comply with the advance
notification requirements set forth in the Company's By-Laws. A copy of the
advance notification requirements may be obtained from Keith L. Himmel, Jr.,
Secretary, Paul Harris Stores, Inc., 6003 Guion Road, Indianapolis, Indiana
46254.
The cost of this Proxy solicitation will be borne by the Company. Proxies
will be solicited by mail, telegram or telephone, and may be personally
solicited by directors, officers and other employees of the Company and by
Corporate Investor Communications, Inc. for a fee not to exceed $4,000, plus
expenses. Arrangements will be made with brokerage houses and other nominees,
custodians and fiduciaries to forward soliciting material to beneficial owners
of the Common Stock. The Company will reimburse brokerage firms and other
persons representing beneficial owners for their expenses in forwarding
solicitation materials to such beneficial owners.
PRINCIPAL SHAREHOLDERS
The following table provides certain information as to each person known to
the Company to be a beneficial owner on May 8, 1997 of more than five percent of
the outstanding shares of the Company's Common Stock and Nonvoting Common Stock,
treated as a single class. Except as set forth below, the shareholders named
below have sole voting and investment power with respect to all shares shown as
beneficially owned by them.
Number of
Shares
Name and Address Beneficially Percent
of Beneficial Owner Owned of Class(1)
------------------- ------------ -----------
The Prudential Insurance Company 3,013,039 29.8%
of America (2)
Prudential Plaza
Newark, NJ 07102
Vinik Partners, L.P., et al. (3) 929,300 9.2%
260 Franklin Street
Boston, MA 02110
Charlotte G. Fischer (4) 661,133 6.2%
6003 Guion Road
Indianapolis, IN 46254
- ------------------------------
(1)The percentages reflect the conversion of the Nonvoting Common Stock into
Common Stock.
(2)Represents 3,013,039 shares of Nonvoting Common Stock which are convertible
into an equal number of shares of Common Stock at any time on or after the
occurrence of certain events, including a public offering of Common Stock by
the Company. The Company has filed a registration statement with the SEC
relating to a public offering of Common Stock.
(3)The source of the information for this group of persons is a Schedule 13D
filed with the Securities and Exchange Commission, as amended January 28,
1997. The other members of this group are: Vinik Asset Management, L.P.,
Jeffrey N. Vinik, Michael S. Gordon, Mark D. Hostetter, VGH Partners,
L.L.C., and Vinik Asset Management, L.L.C. According to such statement, the
members of the group share voting or dispositive power with respect to
certain of the shares.
(4)Includes 619,333 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 2,400 shares held by members of
Ms. Fischer's family, the beneficial ownership of which are disclaimed by
Ms. Fischer.
2
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
Based upon information provided by such individuals, the following table
shows, as of May 8, 1997, the shares of the Company's Common Stock beneficially
owned by each of the Company's directors and nominees for election to the Board,
each executive officer of the Company, and all directors and executive officers
as a group.
Number of Shares of
Common Stock Percent of
Name Beneficially Owned (1) Class (2)
---- ---------------------- ------------
Richard A. Feinberg, Ph.D. 0 *
Charlotte G. Fischer 661,133 6.2%
Rudy Greer 15,000 *
Robert I. Logan 22,000 *
James T. Morris 0 *
Gerald Paul 163,940 1.6%
John Rau 2,000 *
Sally M. Tassani 0 *
John H. Boyers 81,333 *
Ana P. Porter 0 *
All directors and executive officers 945,406 8.8%
as a group (10 individuals)
- -----------------------------
* Less than one percent
(1)Each person has sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by him or her except:
(i) 2,400 shares included as being owned by Ms. Fischer which are held by
members of her family (Ms. Fischer disclaims beneficial ownership of such
shares); (ii) 8,294 shares included as being owned by Mr. Paul which are
held by Mr. Paul as trustee (Mr. Paul disclaims beneficial ownership of such
shares); (iii) the following shares subject to options under the Company's
1992 Non-Qualified Stock Option Plan: Ms. Fischer, 286,000 shares; Mr.
Greer, 12,000 shares; Mr. Logan, 18,000 shares; and Mr. Boyers,
33,333 shares; and all directors and executive officers as a group,
349,333 shares; and (iv) 333,333 shares subject to options held by Ms.
Fischer. The foregoing amounts do not include the following shares subject
to options awarded under the Company's Outside Directors Stock Option Plan
(the "Directors Plan"): each of Mr. Morris, Mr. Rau and Ms. Tassani,
5,000 shares. Awards under the Directors Plan are contingent upon
shareholder approval of such plan at the Annual Meeting.
(2)The percentages assume conversion of the Nonvoting Common Stock into Common
Stock.
3
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors currently consists of eight members. Pursuant to
the Company's Amended and Restated Articles of Incorporation, the Board of
Directors is to be divided into three classes of two or three members each, with
each class serving a three-year term. Due to the addition of three new members
of the Board of Directors since the 1996 annual meeting of shareholders, five
directors are to be elected at the Annual Meeting, one for a term expiring at
the 1998 Annual Meeting, one for a term expiring at the 1999 Annual Meeting and
three for a term expiring at the 2000 Annual Meeting. The following table sets
forth certain information with respect to the nominees. In the event any
nominee unexpectedly becomes unavailable for election, the enclosed Proxy will
be voted for such person as may be designated by the present Board of Directors.
NOMINEES
Nominee
Director for Term
Name of Nominee Age Since Expiring In
--------------- --- -------- -----------
John Rau 48 1996 1998
Richard A. Feinberg, Ph.D. 46 1997 1999
Charlotte G. Fischer 47 1993 2000
James T. Morris 54 1996 2000
Sally M. Tassani 48 1993 2000
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE ABOVE NOMINEES.
CONTINUING DIRECTORS
The following table contains certain information with respect to each other
member of the Board of Directors whose term will continue after the Annual
Meeting:
Director Term Expires
Name of Director Age Since In
---------------- --- -------- ------------
Robert I. Logan 78 1992 1998
Rudy Greer 72 1992 1999
Gerald Paul 72 1952 1999
BIOGRAPHICAL INFORMATION
Richard A. Feinberg, Ph.D., is a Professor of Consumer Sciences and
Retailing at Purdue University, a position he has held since 1989. His other
current positions with Purdue University include Department Head, Department of
Consumer Sciences and Retailing, Director of the Purdue Retail Institute, Acting
Director of the Center for Customer Driven Quality, an Associate of the Business
and Industrial Development Center, and Director of the Graduate Program,
Department of Consumer Sciences and Retailing. Dr. Feinberg was elected a
director of the Company in April 1997.
4
<PAGE>
Charlotte G. Fischer became the Chairman of the Board, President and Chief
Executive Officer of the Company in January 1995. From April 1994 until January
1995, Ms. Fischer was Vice Chairman of the Board and Chief Executive Officer
Designate. She was a consultant to the Company from September 1993, when she
first joined the Board, until April 1994. From October 1991 to March 1994, Ms.
Fischer was an independent retail consultant. In addition, she was the
President of C.G.F., Inc., a specialty company, which she founded in November
1992. Ms. Fischer was employed by Claire's Boutiques, Inc., a specialty
retailer of accessories, from 1986 to 1991, serving as its president and chief
operating officer from October 1986 to September 1989 and its president and
chief executive officer thereafter. She was also a director of its parent
corporation, Claire's Stores, Inc. Ms. Fischer is a director of Trans World
Entertainment Corp., Inc.
Rudy Greer has been an independent consultant in the retail and marketing
fields for more than the past five years.
Robert I. Logan was a director and executive vice president of Cole Taylor
Bank and Cole Taylor Financial Group, a commercial bank and its parent bank
holding company, respectively, until 1989. Since that time, he has served on
the boards of directors of several private companies.
James T. Morris is the chairman of the board and president and chief
executive officer of IWC Resources Corporation, a water utility holding company,
positions he has held for more than the past five years.
Gerald Paul, a co-founder of the Company, is currently Chairman Emeritus of
the Company. Mr. Paul was Chairman of the Board of the Company from June 1985
until his retirement in January 1995, and President of the Company from 1954
until his retirement. Mr. Paul is the father of Eloise Paul, an officer of the
Company.
John Rau has been president and chief executive officer of Chicago Title &
Trust Company since January 1997. From July 1993 to December 1996 he was Dean
of the Indiana University School of Business. From April 1991 to June 1993, he
was a visiting scholar at the Kellogg Graduate School of Management. Mr. Rau is
also a director of the First Industrial Realty Trust Inc. and LaSalle National
Bank.
Sally M. Tassani has been senior vice president and director of operations
for Leo Burnett, Inc., an advertising agency since October 1995. From August
1995 to September 1995, she was senior vice president of Bender, Browning, Dolly
& Sanderson, an advertising agency. Prior to August 1995, she was the chief
executive officer of Tassani & Paglia, Inc., a Chicago-based marketing
consulting firm that she founded, for more than five years.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors has a Finance and Audit Committee (the "Audit
Committee") which is currently composed of Mr. Logan and Mr. Greer. The Audit
Committee meets periodically with management and the Company's independent
accountants to determine the adequacy of internal controls and other financial
reporting matters. The Audit Committee met four times during the Company's 1996
fiscal year.
The Board of Directors also has a Compensation and Stock Option Committee
(the "Compensation Committee") which is currently composed of Ms. Tassani and
Mr. Rau. The Compensation Committee considers and authorizes remuneration
arrangements for senior management, including the grant of options
5
<PAGE>
under the Company's option plan. The Compensation Committee met twice
during the Company's 1996 fiscal year.
The Board of Directors also has a Nominating Committee which is currently
composed of Ms. Fischer, Mr. Greer and Mr. Paul. The Nominating Committee
nominates persons to serve as directors. The Nominating Committee will consider
candidates recommended by shareholders. Shareholders who wish to nominate
persons for election as directors must comply with the advance notification
requirements contained in the Company's By-laws, a copy of which is available
upon request. Any such request or nominations should be addressed to Keith L.
Himmel, Jr., Secretary, Paul Harris Stores, Inc., 6003 Guion Road, Indianapolis,
IN 46254. The Nominating Committee met three times during the Company's 1996
fiscal year.
During the Company's 1996 fiscal year, the Board of Directors held five
meetings. Each director attended at least 75% of the aggregate of the total
meetings of the Board and all committees of the Board of which he or she was a
member.
Directors who are not employees of the Company receive fees of $20,000 per
annum for attending four regular meetings of the Board. Non-employee directors
also receive fees for additional meetings of $1,000 (if attended in person) or
$500 (if attended via telephone conference) per meeting. The Chairs of the
Audit Committee, the Compensation Committee and the Nominating Committee receive
additional fees of $3,000 per annum. Each member of such committees receives an
additional $1,000 per annum. Mr. Logan receives fees at the rate of $2,500 a
month for consulting services provided to the Company and does not receive the
$3,000 amount that he would otherwise be entitled to receive as Chair of the
Audit Committee.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the annual and long-term compensation of
each individual who served as an executive officer of the Company during the
fiscal year ended February 1, 1997 (the "1996 fiscal year") for services
rendered during the Company's 1996, 1995 and 1994 fiscal years.
<TABLE><CAPTION>
Summary Compensation Table
Long-Term
Compen-
sation
----------
Awards
----------
Securities All Other
Annual Compensation Underlying Compen-
Fiscal Bonus Options sation
Name and Principal Position Year Salary($) ($)(1) (#) ($)(2)
- -------------------------------- -------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Charlotte G. Fischer 1996 $ 420,800 $ 640,000 (3) 200,000 $ 2,758 (4)
Chairman of the Board, President 1995 367,692 -0- 75,000 23,702 (4)
and Chief Executive Officer 1994 243,519 -0- 350,000 870
John H. Boyers (5) 1996 131,000 96,000 50,000 2,187
Senior Vice President - Finance 1995 110,769 0 50,000 15,912 (6)
and Treasurer 1994 - - - -
Eloise Paul 1996 166,923 124,000 5,000 527
Senior Vice President - 1995 157,981 0 15,000 1,150 (7)
Merchandising 1994 155,000 0 10,000 168,580 (7)(8)
- ------------------
</TABLE>
(1)Represents bonuses earned in the fiscal year indicated and paid or payable
during the subsequent fiscal year.
(2)Unless otherwise indicated, all amounts are compensation related to group
term life insurance premiums.
(3)The amount shown for 1996 includes deferred compensation of $47,000.
(4)Of the amount shown, $1,453 for 1996 and $1,558 for 1995 represent
Company-paid contributions to the 401(k) retirement plan. Company-paid
contributions are fully vested upon contribution. In addition, $20,839 for
1995 represents reimbursement for relocation expenses and income taxes on
reimbursed amounts.
(5)Mr. Boyers became the Senior Vice President - Finance and Treasurer of the
Company in March, 1995. The amounts disclosed in the table do not include
consulting fees accrued with respect to Mr. Boyers prior to his being
employed by the Company of $10,000 in 1995.
(6)Of the amount shown, $15,000 represents reimbursement for relocation
expenses and income taxes on reimbursed amount.
(7)Of the amounts shown, $864 for 1995 and $477 for 1994 represent Company-paid
contributions to the 401(k) retirement plan.
(8)Includes value of stock options granted in the Company's Plan of
Reorganization.
7
<PAGE>
OPTION GRANTS
The following table sets forth certain information concerning the number of
shares and the terms and conditions of the stock options granted by the Company
under the Option Plan during the Company's 1996 fiscal year to the individuals
named in the Summary Compensation Table:
<TABLE><CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-------------------------------------------------------
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of
Underlying Granted to Exercise or Stock Price Appreciation for
Options Employees in Base Price Expiration Option Term($)(3)
Name Granted(#) Fiscal Year ($/Sh)(1) Date(2) 5%($) 10%($)
- ------------------- ----------- ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Charlotte G. Fischer 100,000 23.3% $ 2.125 03/08/06 $ 133,640 $ 338,670
100,000 23.3% 17.50 11/22/06 1,100,566 2,789,049
John H. Boyers 31,700 5.8% 17.00 11/21/06 338,911 858,868
18,300 (4) 5.8% 17.00 11/21/06 195,649 495,813
Eloise Paul 5,000 (4) 1.2% 17.00 11/21/06 53,456 135,468
</TABLE>
- -----------------------
(1)The exercise price is the closing price per share of the Common Stock on the
date of grant.
(2)All option grants to the named individuals in fiscal 1996 expire on the
tenth anniversary of the date of grant, subject to earlier expiration in the
event of the termination of such individual's employment with the Company.
The options granted to Ms. Fischer were immediately exercisable. The
options granted to Mr. Boyers and Ms. Paul become exercisable in three equal
installments on the first three anniversaries of the grant date.
(3)The dollar amounts under these columns are the result of calculations at the
5% and 10% rates required by applicable regulation and are not intended to
forecast the possible future appreciation, if any, of the Common Stock.
(4)Represent options awarded under the Company's 1996 Plan which are contingent
upon shareholder approval of such plan at the Annual Meeting.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information concerning the
unexercised stock options held by the individuals named in the Summary
Compensation Table as of February 1, 1997. None of the individuals exercised
any options during the Company's 1996 fiscal year.
<TABLE><CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-The-money
Options at Fiscal Year-End Options at Fiscal Year-End
-------------------------- --------------------------
Shares Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------ --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charlotte G. Fischer -- -- 502,666 133,334 $ 7,023,823 $ 1,992,677
John H. Boyers -- -- 16,666 83,334 316,517 814,429
Eloise Paul -- -- 36,666 8,334 637,038 76,487
</TABLE>
- -------------------------------
(1)The closing sale price of the Common Stock as reported on the Nasdaq
National Market on February 1, 1997 was $20.625. Value is calculated on the
basis of the difference between the exercise price and $20.625, multiplied
by the number of "in-the-money" shares of Common Stock underlying the
options.
(2)The unexercisable options include 18,300 shares issuable to Mr. Boyers and
5,000 shares issuable to Ms. Paul pursuant to options awarded under the 1996
Plan which are contingent upon shareholder approval of such plan at the
Annual Meeting.
8
<PAGE>
Pension Plan
The following table sets forth the estimated annual benefits payable upon
normal retirement under the Company's non-contributory defined benefit pension
plan (the "Pension Plan"), as straight annuity payments, to persons who were in
the applicable covered compensation and years of credited service
classifications specified as of December 31, 1994. Covered compensation for any
fiscal year consists of all compensation actually received in such fiscal year,
regardless of the fiscal year for which it was accrued, subject to a maximum
amount established pursuant to the Internal Revenue Code of 1986, as amended
(the "Code"). For 1994, such limit was $150,000. Effective December 31, 1994,
the Company ceased benefit accruals under the Pension Plan, which had provided
that each participant was entitled to a monthly retirement benefit equal to the
product of (i) .8% of the participant's average monthly covered compensation
(including bonuses) during the five consecutive calendar year periods in which
such compensation was highest and (ii) such participant's years of credited
service, with a minimum monthly retirement benefit equal to $4 multiplied by
years of credited service, without any reduction for the receipt of social
security benefits. As a result of the Company's actions, benefits under the
Pension Plan are limited to those accrued by plan participants as of December
31, 1994.
<TABLE><CAPTION>
PENSION PLAN TABLE
Years of Service
-------------------------------------------------------------------
Remuneration 15 20 25 30 35 40
------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 75,000 $ 9,000 $12,000 $15,000 $18,000 $21,000 $24,000
100,000 12,000 16,000 20,000 24,000 28,000 32,000
125,000 15,000 20,000 25,000 30,000 35,000 40,000
150,000 18,000 24,000 30,000 36,000 42,000 48,000
175,000 21,000 28,000 35,000 42,000 49,000 56,000
200,000 24,000 32,000 40,000 48,000 56,000 64,000
225,000 27,000 36,000 45,000 54,000 63,000 72,000
250,000 30,000 40,000 50,000 60,000 70,000 80,000
</TABLE>
Eloise Paul's annual pension benefit upon normal retirement is estimated to
be $10,775. Because the Company ceased benefit accruals as of December 31,
1994, neither Ms. Fisher nor Mr. Boyers is eligible to receive any benefits
under the Pension Plan.
OTHER RETIREMENT PLANS
The Company maintains a tax-qualified retirement savings plan for eligible
employees which contains a cash or deferred arrangement described in section
401(k) of the Code (the "401(k) Plan"). The 401(k) Plan permits participants to
defer up to a maximum of 15% of their compensation (as defined in the 40l(k)
Plan), subject to certain limits imposed by the Code. Participant salary
deferrals are matched by the Company in an amount equal to 25% up to a maximum
of 4% of the participant's compensation. All amounts in the plan are fully
vested when contributed.
EMPLOYMENT AGREEMENTS
Charlotte G. Fischer is employed as the Company's Chief Executive Officer
pursuant to an employment agreement which has a term ending January 28, 2000.
Either the Company or Ms. Fischer may terminate the agreement at an earlier date
upon at least six months' prior written notice. The agreement also
9
<PAGE>
terminates earlier in the event of Ms. Fischer's death or disability or the
Company's termination for "cause" (as defined therein). In the event the
Company terminates Ms. Fischer's employment without cause, Ms. Fischer would be
entitled to receive her base salary through the termination date, but not less
than one full year's base salary, a bonus for the fiscal year in which the
termination occurs and continuation of Company-paid insurance and other benefits
for a period of one year.
Under the agreement, Ms. Fischer is paid a base salary which is currently
$500,000 per annum. In addition, the agreement provides for annual bonus
compensation equal to specified percentages of base salary contingent upon the
Company achieving specified targets for net pretax income in each fiscal year up
to a maximum bonus equal to 100% of base salary plus 15% of base salary for each
$1.0 million of net pretax income in excess of the specified target. The
agreement also provided for awards to Ms. Fischer of options to purchase
100,000 shares of Common Stock as of March 8, 1996, options to purchase
100,000 shares of Common Stock as of November 22, 1996, and future awards of
options to purchase at least 100,000 shares of Common Stock in each award if the
Company achieves specified targets for budgeted pretax income in future fiscal
years.
Ms. Fischer's employment agreement also provides for a one-year covenant
not to compete if Ms. Fischer terminates her employment in violation of the
agreement prior to the expiration of the term or if the Company terminates her
employment for cause. In addition, in the event of termination of Ms. Fischer's
employment or "constructive termination" (as defined) following a "change in
control" (as defined) of the Company, Ms. Fischer would be entitled to receive
her base salary through the termination date, a lump sum payment of 2.9 times
her current base salary (reduced by the value of certain other benefits), a
bonus for the fiscal year in which the termination occurs and continuation of
Company-paid insurance and other benefits for a period of one year.
The Company has agreed to pay Mr. Boyers a minimum severance benefit in the
event his employment is terminated without cause equal to six months' salary,
continuation of medical and dental benefits for six months and relocation costs.
Gerald Paul was employed as a part-time consultant through the end of the
Company's 1996 fiscal year. Mr. Paul received a base salary of $132,500 per
annum. Under the agreement, Mr. Paul also participated in the Company's bonus
program for fiscal 1996 and received a bonus of $35,300.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal year 1996 were
current directors Mr. Rau, Ms. Tassani and former director Stig A. Kry. None of
the Compensation Committee members were involved in a relationship requiring
disclosure as an interlocking executive or director under Item 404 of
Regulation S-K or as a current or former officer or employee of the Company.
10
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee believes that the Company's compensation
arrangements should be designed to enable the Company to attract and retain
qualified executives, to reward individual performances, and to provide
incentives for the achievement of targeted Company performance goals. During
fiscal year 1996, the Committee utilized the services of a nationally-recognized
compensation consulting firm to assist it in determining competitive
compensation packages for the Company's key executives. The compensation
consulting firm generally recommended that the pay and benefits of the Company's
key executives should be increased. Certain increases were made in
November 1996.
The Company's compensation arrangements consist of base salary, cash
incentive bonuses and long-term incentive compensation consisting of stock
grants or stock options. The Committee believes that stock-based compensation
such as options can provide incentives to the recipients to maximize shareholder
value and to continue in the employ of the Company.
On June 17, 1996, the Company amended the employment agreement with
Ms. Fischer replacing an agreement that was scheduled to expire in April 1997.
The amended agreement increased Ms. Fisher's base salary from $350,000 to
$400,000 per annum, provided for annual bonuses equal to specified percentages
of base salary contingent upon the Company achieving specified targets for net
pretax income in a fiscal year and provided for awards of options to purchase
shares of Common Stock. Ms. Fischer's employment agreement was again amended on
November 22, 1996, increasing her annual base salary to $500,000, revising the
provisions for additional cash bonuses contingent upon the Company exceeding
specified targets of net pretax income and awarding Ms. Fischer with options to
purchase an additional 100,000 shares of Common Stock. See "EXECUTIVE
COMPENSATION -- Employment Agreements."
The amendments to Ms. Fischer's employment agreement and the awards of
options made to her during the 1996 fiscal year were made in recognition of the
substantial contribution that Ms. Fischer made to the Company's extraordinary
financial results for the last fiscal year. Average sales per store increased
to $854,000 from $683,000 in the prior year; gross income as a percentage of net
sales increased to 38.0% in fiscal 1996 from 33.0% in fiscal 1995; and operating
income increased to $15.7 million in fiscal 1996 from $4.7 million in fiscal
1995, an increase of 234.8%, on 7.2% less gross square footage.
For the 1996 fiscal year, the Board of Directors adopted, at the
recommendation of the Compensation Committee, a 1996 Corporate Incentive Program
for the Company's executive officers and other key managers. As the Company
exceeded the specified targets for pretax income for fiscal 1996, the Company
paid an aggregate of $1,280,000 in bonuses in fiscal 1997 to a total of
14 executive officers and other key managers. In addition, the Company awarded
options to purchase an aggregate of 355,000 shares of Common Stock to such
persons under the 1992 Plan and the 1996 Plan. Awards under the 1996 Plan are
contingent upon shareholder approval of such plan at the Annual Meeting.
MEMBERS OF THE COMPENSATION AND STOCK OPTION COMMITTEE
Sally M. Tassani, Chair
John Rau
11
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total returns to shareholders, assuming
reinvestment of dividends, if any, of the Company, the Standard & Poor's Retail
(Specialty Apparel) Index and the Standard & Poor's 500 Index. It assumes an
investment of $100 on February 1, 1992, the date immediately prior to the
commencement of the Company's last five complete fiscal years, in the Company,
the Standard & Poor's Retail (Specialty Apparel) Index and the Standard & Poor's
500 Index.
[Graph]
<TABLE><CAPTION>
COMPARISON OF 5 YEAR CUMULATIVE RETURNS OF
THE COMPANY, S&P-APPAREL INDEX, S&P 500 INDEX
FISCAL YEAR
------------------------------------------
2/1/92 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Paul Harris Stores, Inc. 100.00 231.67 441.64 206.05 145.91 1415.30
S&P Retail (Specialty Apparel) Index 100.00 88.00 74.85 59.97 71.42 90.43
S&P 500 Index 100.00 110.60 124.85 125.51 174.04 219.89
</TABLE>
12
<PAGE>
APPROVAL OF 1996 STOCK OPTION AND INCENTIVE PLAN
On November 21, 1996, the Board of Directors of the Company adopted the
1996 Stock Option and Incentive Plan (the "1996 Plan"), and directed that the
1996 Plan be submitted to the shareholders for consideration at the Annual
Meeting. The Board of Directors subsequently amended the 1996 Plan on February
28, 1997. The following is a summary of the principal features of the 1996 Plan
and is qualified in its entirety by reference to the complete text of the 1996
Plan as set forth as Exhibit A to this Proxy Statement. Shareholders are urged
to read the actual text of the 1996 Plan.
Since adoption of the 1996 Plan by the Board of Directors, awards have been
issued to a total of 11 employees in the form of incentive stock options to
purchase an aggregate of 76,100 shares of Common Stock. Such awards are
contingent upon the shareholders approving the 1996 Plan at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE 1996 PLAN.
PURPOSE
The purpose of the 1996 Plan is to promote the long-term interests of the
Company by providing a means of attracting and retaining officers and key
employees of the Company. The Company believes that employees who own shares of
the Company's Common Stock will have a closer identification with the Company
and greater motivation to work for the Company's success by reason of their
ability as shareholders to participate in the Company's growth and earnings.
Substantially all of the shares of Common Stock originally reserved for issuance
under the Company's 1992 Non-Qualified Stock Option Plan (the "1992 Plan") have
been issued or are the subject of outstanding stock options awarded under the
1992 Plan. The 1996 Plan will supplement the 1992 Plan and provides the Company
with forms of stock-based compensation awards that were not available under the
1992 Plan.
ADMINISTRATION OF THE 1996 PLAN
The 1996 Plan will be administered by the Compensation and Stock Option
Committee of the Company's Board of Directors (the "Committee"). The members of
the Committee must qualify as "non-employee directors" under Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, and as "outside directors"
under section 162(m) of the Code. Subject to the terms of the 1996 Plan, the
Committee has the sole discretion to determine the officers and key employees
who shall be granted awards; to designate the number of shares to be covered by
each award; to establish vesting schedules; subject to certain restrictions, to
specify all other terms of the awards, including the status of awards subsequent
to the termination of a grantee's employment with the Company; and to construe
and interpret the 1996 Plan.
ELIGIBLE PERSONS
Recipients of incentive awards under the 1996 Plan must be officers or key
employees of the Company or its subsidiaries as determined by the Committee.
Currently, the Company has approximately 30 such officers or key employees. No
awards may be granted under the 1996 Plan to directors who are not also
employees of the Company or its subsidiaries.
13
<PAGE>
SHARES SUBJECT TO THE 1996 PLAN
The 1996 Plan permits the granting of awards of stock options, stock
appreciation rights ("SARs") and restricted stock. The total number of shares
of Common Stock that may be issued under the Plan is 1,000,000, subject to
adjustment as provided in the 1996 Plan. Based on the closing price of the
Common Stock as reported by the Nasdaq National Market for May 5, 1997, the
aggregate market value of 1,000,000 shares was $15,250,000.
The number of shares covered by an award will reduce the number of shares
available for future awards under the 1996 Plan. However, if any award expires,
terminates, or is surrendered or canceled without having been exercised in full,
or in the case of restricted shares forfeited to the Company, the number of
shares then subject to awards is added back to the number of remaining available
shares. The total number of shares which may be granted to any individual
during the term of the 1996 Plan may not exceed 200,000 shares.
STOCK OPTIONS
With respect to the stock options under the 1996 Plan that are intended to
qualify as "incentive stock options" under section 422 of the Code, the option
price will be at least 100% (or, in the case of a holder of 10% or more of the
Company's voting stock, 110%) of the fair market value of a share of Common
Stock on the date of the grant of the stock option. The aggregate fair market
value (determined on the date of grant) of the shares subject to incentive stock
options that become exercisable for the first time by a grantee in any calendar
year may not exceed $100,000.
The Committee will establish the exercise price of options that do not
qualify as incentive stock options ("non-qualified stock options") at the time
the options are granted.
No incentive stock option granted under the 1996 Plan may be exercised more
than ten years (or, in the case of a holder of 10% of the Company's voting
stock, five years) or such shorter period as the Committee may determine from
the date it is granted. Non-qualified stock options may be exercised during
such period as the Committee determines at the time of grant.
Stock options granted under the 1996 Plan become exercisable in one or more
installments in the manner and at the time or times specified by the Committee
at the time of grant. Subject to the discretion of the Committee, generally if
a grantee's employment with the Company or a subsidiary is terminated for cause
or voluntarily by the grantee for any reason other than death, disability or
retirement, such grantee's options expire at the date of termination.
The exercise price of each option together with an amount sufficient to
satisfy any tax withholding requirement must be paid in full at the time of
exercise. The Committee may permit payment through the tender of shares of
Common Stock already owned by the participant, withholding of shares issuable
under the award or by any other means which the Committee determines to be
consistent with the purpose of the 1996 Plan.
14
<PAGE>
RESTRICTED STOCK
The Committee may grant awards of restricted stock, in which case the
grantee would be granted shares of Common Stock, subject to such forfeiture
provisions and transfer restrictions as the Committee determines. Pending the
lapse of such forfeiture provisions and transfer restrictions, certificates
representing shares of restricted stock would be held by the Company, but the
grantee generally would have all of the rights of a shareholder, including the
right to vote the shares and the right to receive all dividends thereon.
While restricted stock would be subject to forfeiture provisions and
transfer restrictions for a period or periods of time, the 1996 Plan does not
set forth any minimum or maximum duration for such provisions and restrictions.
It is expected that the terms of an award of restricted stock ordinarily will
provide that the restricted stock will be returned to the Company if the grantee
ceases to be employed by the Company prior to the lapse of the forfeiture
provisions and transfer restrictions. It is also expected that a specified
percentage of the shares of restricted stock will become free of the forfeiture
provisions and transfer restrictions on each anniversary of the date of grant of
the restricted stock award.
STOCK APPRECIATION RIGHTS
SARs may be granted as a separate award or together with an option. The
number of shares covered by such SAR will be determined by the Committee. Upon
exercise of an SAR, the participant will receive a payment from the company
equal to: (1) the excess of the fair market value of a share of Common Stock on
the date of exercise over the base price which, in the case of an SAR granted in
connection with a stock option, will equal the exercise price of the underlying
option, times (2) the number of shares with respect to which the SAR is
exercised. SARs may be paid in cash, shares of Common Stock or a combination
thereof, as determined by the Committee.
ADJUSTMENTS IN AWARDS
In the event of any reorganization, recapitalization, stock split, stock
dividend, combination or exchange of shares, merger, consolidation or any change
in the corporate structure of the Company affecting shares of Common Stock, the
Committee shall adjust the number and class of shares which may be delivered
under the Plan, and the number and class of shares subject to outstanding
awards, in such manner as the Committee (in its sole discretion) shall determine
to be appropriate to prevent the dilution or diminution of such awards.
CHANGE IN CONTROL
In general, if the employment of a recipient of restricted shares is
voluntarily terminated within 12 months following a "change in control" (as
defined) of the Company, the forfeiture provisions and transfer restrictions
applicable to such shares lapse. In addition, in the event of a tender offer or
exchange offer for Common Stock or upon the occurrence of certain other events,
all options and SARs granted under the 1996 Plan shall become exercisable in
full, unless otherwise provided by the Committee.
15
<PAGE>
NONTRANSFERABILTY OF AWARDS
Except as otherwise expressly provided by the Committee, awards granted
under the 1996 Plan may not be assigned, encumbered or transferred, other than
by will or by the applicable laws of descent and distribution.
AMENDMENT AND TERMINATION OF THE PLAN
Unless previously terminated by or with the approval of the Board of
Directors, the Plan will terminate November 21, 2006. The Board may at any time
terminate or amend the Plan; however, shareholder approval shall be obtained to
the extent necessary and desirable to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, Code section 422, or any other
applicable law or regulation, including requirements of any stock exchange or
quotation system on which the Company's Common Stock is listed or quoted.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of awards under the 1996 Plan. The summary is based on current
federal income tax laws and interpretations thereof, all of which are subject to
change at any time, possibly with retroactive effect. The summary is not
intended to be exhaustive.
LIMITATION ON AMOUNT OF DEDUCTION. The Company generally will be entitled
to a tax deduction for awards under the 1996 Plan only to the extent that the
participants recognize ordinary income from the award. Section 162(m) of the
Code contains special rules regarding the federal income tax deductibility of
compensation paid to the Company's chief executive officer and to each of the
other four most highly compensated executive officers of the Company. The
general rule is that annual compensation paid to any of these specified
executives will be deductible only to the extent that it does not exceed
$1,000,000 or it qualifies as "performance-based compensation" under section
162(m). The 1996 Plan has been designed to permit the Committee to grant awards
which qualify for deductibility under section 162(m).
NON-QUALIFIED STOCK OPTIONS. An employee who is granted a non-qualified
option does not recognize taxable income upon the grant of the option, and the
Company is not entitled to a tax deduction. The employee will recognize
ordinary income upon the exercise of the option in an amount equal to the excess
of the fair market value of the option shares on the exercise date over the
option price. Such income will be treated as compensation to the employee
subject to applicable withholding requirements. The Company is generally
entitled to a tax deduction in an amount equal to the amount taxable to the
employee as ordinary income in the year the income is taxable to the employee.
Any appreciation in value after the time of exercise will be taxable to the
employee as capital gain and will not result in a deduction by the Company.
INCENTIVE STOCK OPTIONS. An employee who receives an incentive stock
option does not recognize taxable income upon the grant or exercise of the
option, and the Company is not entitled to a tax deduction. The difference
between the option price and the fair market value of the option shares on the
date of exercise, however, will be treated as a tax preference item for purposes
of determining the alternative minimum tax liability, if any, of the employee in
the year of exercise. The Company will not be entitled to a deduction with
respect to any item of tax preference.
16
<PAGE>
An employee will recognize gain or loss upon the disposition of shares
acquired from the exercise of incentive stock options. The nature of the gain
or loss depends on how long the option shares were held. If the option shares
are not disposed of pursuant to a "disqualifying disposition" (i.e., no
disposition occurs within two years from the date the option was granted nor one
year from the date of exercise), the employee will recognize long-term capital
gain or capital loss depending on the selling price of the shares. If option
shares are sold or disposed of as part of a disqualifying disposition, the
employee must recognize ordinary income in an amount equal to the lesser of the
amount of gain recognized on the sale, or the difference between the fair market
value of the option shares on the date of exercise and the option price. Any
additional gain will be taxable to the employee as a long-term or short-term
capital gain, depending on how long the option shares were held. The Company is
generally entitled to a deduction in computing its federal income taxes for the
year of disposition in an amount equal to any amount taxable to the employee as
ordinary income.
STOCK APPRECIATION RIGHTS. An employee who receives SARs does not
recognize taxable income at the time of the award, nor will the Company be
entitled to a deduction at that time. Instead, the employee will recognize
additional compensation taxable as ordinary income and subject to withholding,
and the Company will be entitled to a tax deduction at the time the SARs are
exercised.
OTHER STOCK-BASED AWARDS. The income tax consequences of other stock-based
awards will depend on how such awards are structured. Generally, the Company
will be entitled to a tax deduction with respect to such awards only to the
extent that the employee recognizes ordinary income in connection with such
awards. It is anticipated that other stock-based awards will result in ordinary
income to the participant in some amount.
APPROVAL OF OUTSIDE DIRECTORS STOCK OPTION PLAN
On June 19, 1996, the Board of Directors of the Company adopted the Outside
Directors Stock Option Plan (the "Directors Plan"), and directed that the
Directors Plan be submitted to shareholders for consideration at the Annual
Meeting. The following is a summary of the principal features of the Directors
Plan and is qualified in its entirety by reference to the complete text of the
Directors Plan as set forth as Exhibit B to this Proxy Statement. Shareholders
are urged to read the actual text of the Directors Plan.
Since adoption of the Directors Plan, awards have been issued to a total of
four directors with respect to options to purchase an aggregate of 20,000 shares
of Common Stock. Such options are contingent upon the shareholders approving
the Directors Plan at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE DIRECTORS
PLAN.
PURPOSE
The purpose of the Directors Plan is to encourage increased ownership by
members of the Company's Board of Directors who are not employees. Under the
Company's 1992 Plan, options were granted to non-employee directors; however,
the last such grant occurred in 1994. Directors who are not employees of the
Company will not be eligible to receive awards under the Company's 1996 Plan.
Currently, the Company has seven eligible directors.
17
<PAGE>
OPERATION OF THE DIRECTORS PLAN
The Directors Plan provides for granting non-qualified stock options to
eligible directors upon certain events. The total number of shares of Common
Stock that may be issued under the Directors Plan is 100,000, subject to
adjustment as provided therein. Based on the closing price of the Common Stock
as reported by the Nasdaq National Market for May 5, 1997, the aggregate market
value of 100,000 shares was $1,525,000.
Each eligible director is automatically granted an option to purchase 3,000
shares of Common Stock in the month following each annual meeting of
shareholders held after June 19, 1996. In addition, an eligible director who
did not receive options under the Company's 1992 Plan is entitled to receive
options to purchase 5,000 shares of Common Stock in the month following the
month in which he or she is first elected as a director.
The Directors Plan is administered by the Committee. Unless previously
terminated by or with the approval of the Board of Directors, the Directors Plan
will terminate June 19, 2006.
FEDERAL INCOME TAX CONSEQUENCES
The principal federal income tax consequences of options granted under the
Directors Plan are the same as those discussed above in connection with
non-qualified stock options awarded under the 1996 Plan.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The appointment of Price Waterhouse LLP as independent auditors for the
Company during its 1997 fiscal year will be submitted to the meeting in order to
permit the shareholders to express their approval or disapproval. In the event
of a negative vote, a selection of other auditors will be made by the Board upon
recommendation of the Audit Committee. A representative of Price Waterhouse LLP
is expected to be present at the meeting, will be given an opportunity to make a
statement if he desires and will respond to appropriate questions.
Notwithstanding approval by the shareholders, the Board of Directors reserves
the right to replace the auditors at any time upon the recommendation of the
Audit Committee of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS DURING FISCAL 1997.
DEADLINE FOR RECEIPT OF SHAREHOLDERS'
PROPOSALS FOR THE 1998 ANNUAL MEETING
Proposals of shareholders that are intended to be presented by such
shareholders at the Company's 1998 Annual Meeting must be received by the
Company no later than January 19, 1998 in order to be included in the Company's
Proxy Statement and form of Proxy relating to that meeting.
18
<PAGE>
INCORPORATION BY REFERENCE
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 Securities
Exchange Act of 1934, as amended, that may incorporate future filings (including
this Proxy Statement, in whole or in part), the Stock Price Performance Graph
and Compensation Committee Report on Executive Compensation included herein
shall not be incorporated by reference in any such filings.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and persons who beneficially own more than 10%
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the SEC. Such persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during fiscal 1996 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
10% beneficial owners were timely satisfied, except that Ms. Fischer did not
file Form 4s on a timely basis reporting grants of options made to her during
the months of March and November 1996. In addition, Dr. Feinberg did not file
his initial Form 3 within 10 days of being elected a director.
ANNUAL REPORTS
The Annual Report to Shareholders for the fiscal year ended February 1,
1997 accompanies this Proxy Statement. The Annual Report is not used as part of
this solicitation material and no action will be taken with respect to it at the
Annual Meeting. In addition, a copy of the Company's Annual Report on Form 10-K
for fiscal 1996 as filed with the Securities and Exchange Commission, as
amended, including financial statements but excluding exhibits, may be obtained
without charge upon written request to John H. Boyers, Senior Vice President -
Finance and Treasurer, Paul Harris Stores, Inc., 6003 Guion Road, Indianapolis,
Indiana 46254.
19
<PAGE>
EXHIBIT A
PAUL HARRIS STORES, INC.
1996 STOCK OPTION AND INCENTIVE PLAN
1. PLAN PURPOSE. The purpose of the Plan is to promote the long-
term interests of the Company and its shareholders by providing a means for
attracting and retaining officers and key employees of the Company and its
Affiliates.
2. DEFINITIONS. The following definitions are applicable to the
Plan:
"Affiliate" -- means any "parent corporation" or "subsidiary
corporation" of the Company as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Award" -- means the grant by the Committee of Incentive Stock
Options, Non-Qualified Stock Options, SARs, or Restricted Stock, or any
combination thereof, as provided in the Plan.
"Affiliated SAR" -- means a SAR that is granted in connection with a
related Option, and which automatically will be deemed to be exercised at the
same time that the related Option is exercised. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option.
"Base Price" -- means the amount over which the appreciation in value
of a Share will be measured upon exercise of an SAR.
"Board" -- means the Board of Directors of the Company.
"Change in Control" -- means each of the events specified in the
following clauses (i) through (iii): (i) any third person, including a "group"
as defined in Section 13(d)(3) of the Exchange Act after the date of the
adoption of the Plan by the Board, first becomes the beneficial owner of shares
of the Company with respect to which 25% or more of the total number of votes
for the election of the Board of Directors of the Company may be cast, (ii) as a
result of, or in connection with, any cash tender offer, exchange offer, merger
or other business combination, sale of assets or contested election, or
combination of the foregoing, the persons who were directors of the Company
shall cease to constitute a majority of the Board of Directors of the Company or
(iii) the shareholders of the Company shall approve an agreement providing
either for a transaction in which the Company will cease to be an independent
publicly owned entity or for a sale or other disposition of all or substantially
all the assets of the Company; provided, however, that the occurrence of any of
such events shall not be deemed a Change in Control if, prior to such
occurrence, a resolution specifically approving such occurrence shall have been
adopted by at least a majority of the Board of Directors of the Company.
"Code" -- means the Internal Revenue Code of 1986, as amended.
"Committee" -- means the Committee appointed by the Board pursuant to
in Section 3 hereof.
"Company" -- means Paul Harris Stores, Inc., an Indiana corporation.
<PAGE>
"Continuous Service" - means the absence of any interruption or
termination of service as an Employee of the Company or an Affiliate. Service
shall not be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Company or in the case of any
transfer between the Company and an Affiliate or any successor to the Company.
"Director" - means any individual who is a member of the Board.
"Employee" - means any person, including an officer or Director, who
is employed by the Company or any Affiliate.
"Exchange Act" - means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" - means the price per Share at which the Shares
subject to an Option may be purchased upon exercise of such Option.
"Freestanding SAR" - means a SAR that is granted independently of any
Option.
"Incentive Stock Option" - means an option to purchase Shares granted
by the Committee pursuant to Section 6 hereof which is subject to the
limitations and restrictions of Section 8 hereof and is intended to qualify
under Section 422 of the Code.
"Market Value" - means the last reported sale price on the date in
question (or, if there is no reported sale on such date, on the last preceding
date on which any reported sale occurred) of one Share on the principal exchange
on which the Shares are listed for trading, or if the Shares are not listed for
trading on any exchange, on the Nasdaq National Market or any similar system
then in use, or, if the Shares are not listed on the Nasdaq National Market, the
mean between the closing high bid and low asked quotations of one Share on the
date in question as reported by Nasdaq or any similar system then in use, or, if
no such quotations are available, the fair market value on such date of one
Share as the Committee shall determine.
"Non-Qualified Stock Option" - means an option to purchase shares
granted by the Committee pursuant to Section 6 hereof, which option is not
intended to qualify under Section 422 of the Code.
"Option" - means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" - means any Employee of the Company or any Affiliate who
is selected by the Committee to receive an Award.
"Plan" - means the Paul Harris Stores, Inc., 1996 Stock Option and
Incentive Plan.
"Reorganization" - means the liquidation or dissolution of the Company
or any merger, consolidation or combination of the Company (other than a merger,
consolidation or combination in which the Company is the continuing entity and
which does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property or any combination
thereof).
A-2
<PAGE>
"Restricted Period" - means the period of time selected by the
Committee for the purpose of determining when restrictions are in effect under
Section 9 hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded
to a Participant by the Committee subject to the restrictions referred to in
Section 9 hereof, so long as such restrictions are in effect.
"Stock Appreciation Right" or "SAR" - means an Award, granted alone or
in connection with a related Option, pursuant to Section 10 hereof.
"Securities Act" - means the Securities Act of 1933, as amended.
"Shares" - means the Common Stock, without par value, of the Company.
"Tandem SAR" - means a SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of the right to
purchase an equal number of Shares under the related Option (and when a Share is
purchased under the Option, the SAR shall be canceled to the same extent).
3. ADMINISTRATION. The Plan shall be administered by the Committee,
which shall consist of two or more members of the Board, each of whom shall be a
"non-employee director" as provided under Rule 16b-3 of the Exchange Act, and an
"outside director" as provided under Code section 162(m). The members of the
Committee shall be appointed by the Board. Except as limited by the express
provisions of the Plan, the Committee shall have sole and complete authority and
discretion to (a) select Participants and grant Awards; (b) determine the number
of Shares to be subject to types of Awards generally, as well as to individual
Awards granted under the Plan; (c) determine the terms and conditions upon which
Awards shall be granted under the Plan; (d) prescribe the form and terms of
instruments evidencing such grants; and (e) establish from time to time
regulations for the administration of the Plan, interpret the Plan, and make all
determinations deemed necessary or advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by all members of the Committee without a meeting,
shall be acts of the Committee. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive, and
binding on all persons, and shall be given the maximum deference permitted by
law.
4. PARTICIPANTS. The Committee may select from time to time
Participants in the Plan from those officers and key Employees of the Company or
its Affiliates who, in the opinion of the Committee, have the capacity for
contributing in a substantial measure to the successful performance of the
Company or its Affiliates.
5. SHARES SUBJECT TO PLAN, LIMITATIONS ON GRANTS AND EXERCISE PRICE.
Subject to adjustment by the operation of Section 11 hereof:
(a) The maximum number of Shares with respect to which
Awards may be made under the Plan is 1,000,000 Shares. The
Shares with respect to which Awards may be made under the
Plan may either be authorized and
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unissued shares or unissued shares heretofore or hereafter
reacquired and held as treasury shares. Any Award which
terminates or is surrendered for cancellation or with
respect to Restricted Stock which is forfeited (so long as
any cash dividends paid on such Shares are also forfeited),
may be subject to new Awards under the Plan with respect to
the number of Shares as to which such termination or
forfeiture has occurred.
(b) The number of Shares which may be granted
hereunder to any Employee during any calendar year under all
forms of Awards shall not exceed 200,000 Shares.
(c) Notwithstanding any other provision under the
Plan, the Exercise Price for any Options and the Base Price
for any SARs awarded under the Plan may not be less than the
Market Value of the Shares on the date of grant.
6. GENERAL TERMS AND CONDITIONS OF OPTIONS. The Committee shall
have full and complete authority and discretion, except as expressly limited by
the Plan, to grant Options and to provide the terms and conditions (which need
not be identical among Participants) thereof. In particular, the Committee
shall prescribe the following terms and conditions: (a) the Exercise Price,
(b) the number of Shares subject to, and the expiration date of, any Option,
(c) the manner, time and rate (cumulative or otherwise) of exercise of such
Option, (d) the restrictions, if any, to be placed upon such Option or upon
Shares which may be issued upon exercise of such Option, and (e) the conditions,
if any, under which a Participant may transfer or assign Options. The Committee
may, as a condition of granting any Option, require that a Participant agree to
surrender for cancellation one or more Options previously granted to such
Participant.
7. EXERCISE OF OPTIONS.
(a) Except as provided in Section 14, an Option
granted under the Plan shall be exercisable during the
lifetime of the Participant to whom such Option was granted
only by such Participant, and except as provided in
paragraphs (c), (d) and (e) of this Section 7, no such
Option may be exercised unless at the time such Participant
exercises such Option, such Participant has maintained
Continuous Service since the date of the grant of such
Option.
(b) To exercise an Option under the Plan, the
Participant shall give written notice to the Company (which
shall specify the number of Shares with respect to which
such Participant elects to exercise such Option) together
with full payment of the Exercise Price. The date of
exercise shall be the date on which such notice is received
by the Company. Payment shall be made either (i) in cash
(including check, bank draft or money order), (ii) by
delivering Shares already owned by the Participant and
having a Market Value on the date of exercise equal to the
applicable Exercise Price, (iii) by requesting that the
Company withhold Shares
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issuable upon exercise of the Option having a Fair Market
Value equal to the Exercise Price, or (iv) a combination of
cash and such Shares.
(c) If the Continuous Service of a Participant is
terminated for cause, or voluntarily by the Participant for
any reason other than death, disability or retirement, all
rights under any Option of such Participant shall expire
immediately upon such cessation of Continuous Service. If
the Continuous Service of a Participant is terminated by
reason of death, disability or retirement, such Participant
may exercise such Option, but only to the extent such
Participant was entitled to exercise such Option at the date
of such cessation, at any time during the remaining term of
such Option, or, in the case of Incentive Stock Options,
during such shorter period as the Committee may determine
and so provide in the applicable instrument or instruments
evidencing the grant of such Option. If a Participant shall
cease to maintain Continuous Service for any reason other
than those set forth above in this paragraph (c) of this
Section 7, such Participant may exercise such Option to the
extent that such Participant was entitled to exercise such
Option at the date of such cessation but only within the
period of three (3) months immediately succeeding such
cessation of Continuous Service, and in no event after the
expiration date of the subject Option; provided, however,
that such right of exercise after cessation of Continuous
Service shall not be available to a Participant if the
Company otherwise determines and so provides in the
applicable instrument or instruments evidencing the grant of
such Option.
(d) In the event of the death of a Participant while
in the Continuous Service of the Company or an Affiliate,
the person to whom any Option held by the Participant at the
time of his death is transferred by will or by the laws of
descent and distribution may exercise such Option on the
same terms and conditions that such Participant was entitled
to exercise such Option. Following the death of any
Participant to whom an Option was granted under the Plan,
the Committee, as an alternative means of settlement of such
Option, may elect to pay to the person to whom such Option
is transferred the amount by which the Market Value per
Share on the date of exercise of such Option shall exceed
the Exercise Price of such Option, multiplied by the number
of Shares with respect to which such Option is properly
exercised. Any such settlement of an Option shall be
considered an exercise of such Option for all purposes of
the Plan.
(e) Notwithstanding the provisions of the foregoing
paragraphs of this Section 7, the Committee may, in its sole
discretion, establish different terms and conditions
pertaining to the effect of the cessation of Continuous
Service, to the extent permitted by applicable federal and
state law.
8. INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted
only to Participants who are Employees. Any provisions of the Plan to the
contrary notwithstanding, (a) no Incentive Stock Option shall be granted more
than ten years from the date the Plan is adopted by the Board
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of Directors of the Company and no Incentive Stock Option shall be exercisable
more than ten years from the date such Incentive Stock Option is granted,
(b) the Exercise Price of any Incentive Stock Option shall not be less than the
Market Value per Share on the date such Incentive Stock Option is granted, (c)
any Incentive Stock Option shall not be transferable by the Participant to whom
such Incentive Stock Option is granted other than by will or the laws of descent
and distribution and shall be exercisable during such Participant's lifetime
only by such Participant, and (d) no Incentive Stock Option shall be granted
which would permit a Participant to acquire, through the exercise of Incentive
Stock Options in any calendar year, Shares or shares of any capital stock of the
Company or any Affiliate thereof having an aggregate Market Value (determined as
of the time any Incentive Stock Option is granted) in excess of $100,000. The
foregoing limitation shall be determined by assuming that the Participant will
exercise each Incentive Stock Option on the date that such Option first becomes
exercisable. Notwithstanding the foregoing, in the case of any Participant who,
at the date of grant, owns stock possessing more than 10% of the total combined
voting power of all classes of capital stock of the Company or any Affiliate,
the Exercise Price of any Incentive Stock Option shall not be less than 110% of
the Market Value per Share on the date such Incentive Stock Option is granted
and such Incentive Stock Option shall not be exercisable more than five years
from the date such Incentive Stock Option is granted.
9. TERMS AND CONDITIONS OF RESTRICTED STOCK. The Committee shall
have full and complete authority, subject to the limitations of the Plan, to
grant awards of Restricted Stock and, in addition to the terms and conditions
contained in paragraphs (a) through (f) of this Section 9, to provide such other
terms and conditions (which need not be identical among Participants) in respect
of such Awards, and the vesting thereof, as the Committee shall determine and
provide in the agreement referred to in paragraph (d) of this Section 9.
(a) At the time of an award of Restricted Stock, the
Committee shall establish for each Participant a Restricted
Period during which or at the expiration of which, the
Shares of Restricted Stock shall vest. The Committee may
also restrict or prohibit the sale, assignment, transfer,
pledge or other encumbrance of the Shares of Restricted
Stock by the Participant during the Restricted Period.
Except for such restrictions, and subject to paragraphs (c),
(d) and (e) of this Section 9 and Section 11 hereof, the
Participant as owner of such Shares shall have all the
rights of a shareholder, including but not limited to, the
right to receive all dividends paid on such Shares and the
right to vote such Shares. The Committee shall have the
authority, in its discretion, to accelerate the time at
which any or all of the restrictions shall lapse with
respect to any Shares of Restricted Stock prior to the
expiration of the Restricted Period with respect thereto, or
to remove any or all of such restrictions, whenever it may
determine that such action is appropriate by reason of
changes in applicable tax or other laws or other changes in
circumstances occurring after the commencement of such
Restricted Period.
(b) Except as provided in Section 13 hereof, if a
Participant ceases to maintain Continuous Service for any
reason (other than death, disability or retirement) unless
the Committee shall otherwise determine, all Shares of
Restricted Stock theretofore awarded to such Participant and
which at the time of such termination of Continuous Service
are subject to the
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restrictions imposed by paragraph (a) of this Section 9
shall upon such termination of Continuous Service be
forfeited and returned to the Company. If a Participant
ceases to maintain Continuous Service by reason of death or
disability, then the restrictions with respect to the
ratable portion of the Shares of Restricted Stock shall
lapse and such Shares shall be free of restrictions and
shall not be forfeited. The ratable portion shall be
determined with respect to each separate Award of Restricted
Stock issued and shall be equal to (i) the number of Shares
of Restricted Stock awarded to the Participant multiplied by
the portion of the Restricted Period that expired at the
date of the Participant's death or disability reduced by
(ii) the number of Shares of Restricted Stock awarded with
respect to which the restrictions had lapsed as of the date
of the death or total or partial disability of the
Participant.
(c) Each certificate issued in respect of Shares of
Restricted Stock awarded under the Plan shall be registered
in the name of the Participant and deposited by the
Participant, together with a stock power endorsed in blank,
with the Company and shall bear the following (or a similar)
legend:
"The transferability of this certificate and the shares
of stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the 1996
Stock Option and Incentive Plan of Paul Harris Stores, Inc.,
and an Agreement entered into between the registered owner
and Paul Harris Stores, Inc. Copies of such Plan and
Agreement are on file in the office of the Secretary of the
Company."
(d) At the time of an Award of Shares of Restricted
Stock, the Participant shall enter into an agreement with
the Company, in a form specified by the Committee, agreeing
to the terms and conditions of the Award.
(e) At the time of an Award of Shares of Restricted
Stock, the Committee may, in its discretion, determine that
the payment to the Participant of dividends declared or paid
on such Shares by the Company or a specified portion
thereof, shall be deferred until the earlier to occur of (i)
the lapsing of the restrictions imposed under paragraph (a)
of this Section 9 or (ii) the forfeiture of such Shares
under paragraph (b) of this Section 9, and shall be held by
the Company for the account of the Participant until such
time. In the event of such deferral, there shall be
credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of
the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends,
together with interest accrued thereon as aforesaid, shall
be made upon the earlier to occur of the events specified in
(i) and (ii) of the immediately preceding sentence.
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(f) At the expiration of the restrictions imposed by
paragraph (a) of this Section 9, the Company shall redeliver
to the Participant (or where the relevant provision of
paragraph (b) of this Section 9 applies in the case of a
deceased Participant, to his legal representative,
beneficiary or heir) the certificate(s) and stock power
deposited with it pursuant to paragraph (c) of this Section
9 and the Shares represented by such certificate(s) shall be
free of the restrictions referred to in paragraph (a) of
this Section 9.
10. GRANT OF SARS. Subject to the terms and conditions of the Plan,
a SAR may be granted to Employees at any time and from time to time as shall be
determined by the Committee, in its sole discretion. The Committee may grant
Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof as
follows:
(a) The Committee, subject to the provisions of the
Plan, shall have complete discretion to determine the Base
Price and other terms and conditions of SARs granted under
the Plan. The Base Price of Tandem or Affiliated SARs shall
equal the Exercise Price of the related Option.
(b) Tandem SARs may be exercised for all or part of the
Shares subject to the related Option upon the surrender of
the right to exercise the equivalent portion of the related
Option. A Tandem SAR may be exercised only with respect to
the Shares for which its related Option is then exercisable.
With respect to a Tandem SAR granted in connection with an
Incentive Stock Option: (i) the Tandem SAR shall expire no
later than the expiration of the underlying Incentive Stock
Option; (ii) the value of the payout with respect to the
Tandem SAR shall be for no more than one hundred percent
(100%) of the difference between the Exercise Price of the
underlying Incentive Stock Option and the Market Value of
the Shares subject to the underlying Incentive Stock Option
at the time the Tandem SAR is exercised; and (iii) the
Tandem SAR shall be exercisable only when the Market Value
of the Shares subject to the Incentive Stock Option exceeds
the Exercise Price of the Incentive Stock Option.
(c) Freestanding SARs shall be exercisable on such
terms and conditions as the Committee, in its sole
discretion, shall determine.
(d) Each SAR grant shall be evidenced by an agreement
that shall specify the Base Price, the term of the SAR, the
conditions of exercise, and such other terms and conditions
as the Committee, in its sole discretion, shall determine.
(e) A SAR granted under the Plan shall expire upon the
date determined by the Committee, in its sole discretion,
and set forth in the agreement.
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(f) Upon exercise of a SAR, a Participant shall be
entitled to receive payment from the Company in an amount
determined by multiplying:
(i) The difference between the Market Value
of a Share on the date of exercise over the Base
Price; times
(ii) The number of Shares with respect to
which the SAR is exercised.
At the discretion of the Committee, payment for a SAR
may be in cash, Shares or a combination thereof.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Company, the maximum aggregate number and
class of shares as to which Awards may be granted under the Plan and the number
and class of shares with respect to which Awards theretofore have been granted
under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received, as a result of any of the foregoing, by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Company in the manner
provided in Section 9 hereof.
12. EFFECT OF REORGANIZATION. Awards will be affected by a
Reorganization as follows:
(a) If the Reorganization is a dissolution or
liquidation of the Company then (i) the restrictions of
Section 9(a) on Shares of Restricted Stock shall lapse and
(ii) each outstanding Option or SAR Award shall terminate,
but each Participant to whom the Option or SAR was granted
shall have the right, immediately prior to such dissolution
or liquidation to exercise his Option or SAR in full,
notwithstanding the provisions of Section 8, and the Company
shall notify each Participant of such right within a
reasonable period of time prior to any such dissolution or
liquidation.
(b) If the Reorganization is a merger or
consolidation, other than a Change in Control subject to
Section 13 of this Plan, upon the effective date of such
Reorganization (i) each Optionee shall be entitled, upon
exercise of his Option in accordance with all of the terms
and conditions of the Plan, to receive in lieu of Shares,
shares of such stock or other securities or consideration as
the holders of Shares shall be entitled to receive pursuant
to the terms of the Reorganization; and (ii) each holder of
Restricted Stock shall receive shares of such stock or other
securities as the holders of Shares received which shall be
subject to the restrictions set forth in Section 9(a) unless
the Committee accelerates the lapse of such restrictions and
the certificate(s) or other instruments representing or
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evidencing such shares or securities shall be legended and
deposited with the Company in the manner provided in Section
9 hereof.
The adjustments contained in this Section and the manner of
application of such provisions shall be determined solely by the Committee.
13. EFFECT OF CHANGE OF CONTROL. If the Continuous Service of any
Participant of the Company or any Affiliate is involuntarily terminated, for
whatever reason, at any time within eighteen months after a Change in Control,
unless the Committee shall have otherwise provided in the agreement referred to
in paragraph (d) of Section 9 hereof, any Restricted Period with respect to
Restricted Stock theretofore awarded to such Participant shall lapse upon such
termination and all Shares awarded as Restricted Stock shall become fully vested
in the Participant to whom such Shares were awarded. If a tender offer or
exchange offer for Shares (other than such an offer by the Company) is
commenced, or if the event specified in clause (iii) of the definition of a
Change in Control contained in Section 2 shall occur, unless the Committee shall
have otherwise provided in the Award Agreement, all Options and SAR Awards
theretofore granted and not fully exercisable shall (except as otherwise
provided in Section 8) become exercisable in full upon the happening of such
event and shall remain so exercisable in accordance with their terms; provided,
however, that no Option or SAR Award shall be exercisable by a director or
officer of the Company within six months of the date of grant of such Option or
SAR and no Option or SAR which has previously been exercised or otherwise
terminated shall become exercisable.
14. ASSIGNMENTS AND TRANSFERS. Except as expressly authorized by the
Committee during the lifetime of a Participant, no Award nor any right or
interest of a Participant under the Plan in any instrument evidencing any Award
under the Plan may be assigned, encumbered or transferred otherwise than by will
or the laws of descent and distribution.
15. EMPLOYEE RIGHTS UNDER THE PLAN. No officer, Employee or other
person shall have a right to be selected as a Participant nor, having been so
selected, to be selected again as a Participant and no officer, Employee or
other person shall have any claim or right to be granted an Award under the Plan
or under any other incentive or similar plan of the Company or any Affiliate.
Neither the Plan nor any action taken thereunder shall be construed as giving
any Employee any right to be retained in the employ of the Company or any
Affiliate.
16. DELIVERY AND REGISTRATION OF STOCK. The Company's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Company shall determine to be necessary or advisable to comply with the
provisions of the Securities Act or any other applicable federal or state
securities legislation. It may be provided that any representation requirement
shall become inoperative upon a registration of the Shares or other action
eliminating the necessity of such representation under the Securities Act or
other securities legislation. The Company shall not be required to deliver any
Shares under the Plan prior to (i) the admission of such shares to listing on
any stock exchange or system on which Shares may then be listed, and (ii) the
completion of such registration or other qualification of such Shares under any
state or federal law, rule or regulation, as the Company shall determine to be
necessary or advisable.
17. WITHHOLDING TAX. Upon the termination of the Restricted Period
with respect to any Shares of Restricted Stock, the Company may (as determined
by the Committee), in lieu of requiring
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the Participant or other person receiving such Shares to pay the Company the
amount of any taxes which the Company is required to withhold with respect to
such Shares, retain a sufficient number of Shares held by it to cover the amount
required to be withheld. The Company shall also have the right to deduct from
all dividends paid with respect to Shares of Restricted Stock the amount of any
taxes which the Company is required to withhold with respect to such dividend
payments.
Where a Participant or other person is entitled to receive Shares
pursuant to an Award, the Company may (as determined by the Committee), in lieu
of requiring the Participant or such other person to pay the Company the amount
of any taxes which the Company is required to withhold with respect to the
Award, retain a number of such Shares sufficient to cover the amount required to
be withheld.
18. LOANS.
(a) The Company may make loans to a Participant in
connection with Restricted Stock or the exercise of Options
subject to the following terms and conditions and such other
terms and conditions not inconsistent with the Plan,
including the rate of interest, if any, as the Company shall
impose from time to time.
(b) No loan made under the Plan shall exceed (i) with
respect to Options, the sum of (A) the aggregate option
price payable upon exercise of the Option in relation to
which the loan is made, plus (B) the amount of the
reasonably estimated income taxes payable by the grantee and
(ii) with respect to Restricted Stock, the amount of
reasonably estimated income taxes payable by the grantee.
In no event may any such loan exceed the Market Value of the
related Shares at the time of the loan.
(c) No loan shall have an initial term exceeding three
years; provided, that loans under the Plan shall be
renewable at the discretion of the Committee; and provided,
further, that the indebtedness under each loan shall become
due and payable on a date no later than (i) one year after
termination of the Participant's employment due to death,
retirement or disability, or (ii) the day of termination of
the Participant's employment for any reason other than
death, retirement or disability.
(d) Loans under the Plan may be satisfied by the
Participant, as determined by the Committee, in cash or,
with the consent of the Committee, in whole or in part in
Shares at Market Value on the date of such payment.
(e) When a loan shall have been made, Shares having an
aggregate Market Value equal to the amount of the loan may,
in the discretion of the Committee, be required to be
pledged by the Participant to the Company as security for
payment of the unpaid balance of the loan. Portions of such
Shares may, in the discretion of the Committee, be released
from time to time as it deems not to be needed as security.
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(f) Every loan shall meet all applicable laws,
regulations and rules of the Federal Reserve Board and any
other governmental agency having jurisdiction.
19. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN. The Board may
at any time terminate, and may at any time and from time to time and in any
respect amend or modify, the Plan; provided however, that to the extent
necessary and desirable to comply with Rule 16b-3 under the Exchange Act or
Section 422 of the Code (or any other applicable law or regulation, including
requirements of any stock exchange or quotation system on which the Common Stock
is listed or quoted) shareholder approval of any Plan amendment shall be
obtained in such a manner and to such a degree as is required by the applicable
law or regulation; and provided further, that no termination, amendment or
modification of the Plan shall in any manner affect any Award theretofore
granted pursuant to the Plan without the consent of the Participant to whom the
Award was granted or transferee of the Award.
20. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective
upon its adoption by the Board of Directors, subject to ratification by the
shareholders of the Company at the next annual meeting, and shall continue in
effect for a term of ten years from the date of adoption by the Board of
Directors unless sooner terminated under Section 19 hereof.
ADOPTED BY THE BOARD OF DIRECTORS OF
PAUL HARRIS STORES, INC.
AS OF NOVEMBER 21, 1996 AND AMENDED
FEBRUARY 28, 1997
ADOPTED BY THE SHAREHOLDERS OF
PAUL HARRIS STORES, INC.
AS OF , 1997
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Exhibit B
PAUL HARRIS STORES, INC.
OUTSIDE DIRECTORS STOCK OPTION PLAN
1. PURPOSE. The purpose of the Plan is to advance the interests of the
Company and its shareholders by encouraging increased Common Stock ownership by
members of the Board who are not employees of the Company or any of its
Subsidiaries, in order to promote long-term shareholder value through directors'
continuing ownership of the Common Stock.
2. DEFINITIONS. Unless the context clearly indicates otherwise, the
following terms, when used in the Plan, shall have the meanings set forth below.
"Board" shall mean the Board of Directors of the Company, as it may from time
to time be constituted.
"Committee" shall mean the Compensation and Stock Option Committee of the
Board, as it may from time to time be constituted, or any other committee of the
Board appointed by the Board to administer the Plan.
"Common Stock" shall mean the Common Stock, without par value, of the
Company, and shall include the Common Stock as it may be changed from time to
time as described in Paragraph 8 of the Plan.
"Company" shall mean Paul Harris Stores, Inc., and any successor by merger or
consolidation.
"Eligible Director" shall mean a member of the Board who is not at the time
of receipt of an Option an employee of the Company or any of its Subsidiaries.
"Fair Market Value" of the Common Stock of the Company means the last sale
price on the applicable date (or if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred) of one share of
Common Stock on the principal exchange on which such shares are listed, or if
not listed on any exchange, on the NASDAQ National Market System or any similar
system then in use, or if the shares of Common Stock are not listed on the
NASDAQ National Market System, the mean between the closing high bid and low
asked quotations of one such share on the date in question as reported by NASDAQ
or any similar system then in use, or, if no such quotations are available, the
fair market value on such date of one share of Common Stock as the Board shall
determine.
"Grantee" shall mean an Eligible Director who has been granted an Option.
"Option" shall mean a non-qualified option to purchase authorized but
unissued Common Stock or Common Stock held in the treasury granted by the
Company pursuant to the terms of the Plan.
"Plan" shall mean the Paul Harris Stores, Inc. Outside Directors Stock Option
Plan, as set forth herein and as amended from time to time.
"Subsidiary" shall mean any corporation at least 50% of whose outstanding
voting stock is owned, directly or indirectly, by the Company.
3. ADMINISTRATION. The Plan shall be administered by the Committee. The
Committee shall have all the powers vested in it by the terms of the Plan, such
powers to include authority (within the limitations described herein) to
prescribe the form of the agreements embodying Options. The Committee shall,
subject to the provisions of the Plan, grant Options pursuant to the Plan and
shall have the power to construe the Plan, to determine all questions arising
thereunder, and to adopt and amend such rules and
<PAGE>
regulations for the administration of the Plan as it may deem desirable. Any
decision of the Committee in the administration of the Plan, as described
herein, shall be final and conclusive. The Committee may act only by a majority
of its members in office, except that the members thereof may authorize any one
or more of their members or the Secretary or any other officer of the Company to
execute and deliver documents on behalf of the Committee. No member of the
Committee shall be liable for anything done or omitted to be done by him or by
any other member of the Committee in connection with the Plan, except for his
own willful misconduct or as expressly provided by statute.
4. PARTICIPATION. Each Eligible Director shall be eligible to receive Option
grants in accordance with Paragraphs 5, 6, 7, and 8 below.
5. GRANTS UNDER THE PLAN. (a) Options may be granted under the Plan, subject
to the terms, conditions and restrictions specified in Paragraphs 6, 7 and 8
below. There may be issued under the Plan pursuant to the exercise of Options
an aggregate of not more than 100,000 shares of Common Stock, subject to
adjustment as provided in Paragraph 8 below. Shares of Common Stock that are
the subject of an Option but not purchased prior to the expiration of the
Option, shall thereafter be considered unissued for purposes of the maximum
number of shares that may be issued under the Plan, and may again be the subject
of Option grants under the Plan. If at any time, the shares remaining available
for Option grants are not sufficient to make all Option grants then required to
be made under the Plan, no Option grants shall be made.
(b) An Eligible Director to whom an Option is provided to be granted or is
granted under the Plan (and any person succeeding to such an Eligible Director's
right pursuant to the Plan), shall have no rights as a shareholder with respect
to any shares of Common Stock issuable pursuant to any such Option until such
Option is exercised. Except as provided in Paragraph 8 below, no adjustment
shall be made for dividends, distributions, or other rights (whether ordinary or
extraordinary, and whether in cash, securities, or other property) for which the
record date is prior to the date an Option is exercised. Except as expressly
provided for in the Plan, no Eligible Director or other person shall have any
claim or right to be granted an Option. Neither the Plan nor any action taken
hereunder shall be construed as giving any Eligible Director any right to be
retained in the service of the Company.
6. INITIAL GRANTS AND ANNUAL GRANTS. (a) Each Eligible Director who was not
eligible to receive options under the Company's 1992 Non-Qualified Stock Option
Plan, shall, at the later of the adoption of this Plan by the Board or on the
first day of the first calendar month following the month in which such person
first becomes an Eligible Director, be automatically granted an Option to
purchase 5,000 shares of Common Stock (subject to adjustment as provided in
Paragraph 8).
(b) In addition, as of the first day of the first calendar month following
the month of each annual meeting of the Company's shareholders (the "Annual
Meeting") held after June 19, 1996, each Eligible Director will be automatically
granted an Option to purchase 3,000 shares of Common Stock (subject to
adjustment as provided in paragraph 8), provided, however, that no person who is
elected or appointed an Eligible Director within sixty (60) days prior to such
Annual Meeting shall be granted an Option pursuant to this Paragraph 6(b).
7. TERMS OF OPTIONS. Each Option granted pursuant to Paragraph 6 shall be
evidenced by an agreement in such form as the Committee shall prescribe from
time to time in accordance with the Plan and shall comply with the following
terms and conditions and such additional terms and conditions not inconsistent
with the Plan as may from time to time be prescribed by the Committee.
B-2
<PAGE>
(a) The Option exercise price per share shall be equal to the Fair Market
Value of a share of Common Stock on the date the Option is granted.
(b) The Option shall not be transferable by the Grantee otherwise than by
will or the laws of descent and distribution, and shall be exercisable during
his lifetime only by him.
(c) The Option shall not be exercisable before the expiration of six
months from the date it is granted and after the expiration of ten years from
the date it is granted.
(d) Payment of the Option price shall be made at the time the Option is
exercised, and shall be made in United States dollars by cash or check.
(e) An Option shall not be exercisable unless the person exercising the
Option has been, at all times during the period beginning with the date of
grant of the Option and ending on the date of such exercise, in continuous
service on the Board, except that
(i) if any Grantee of an Option shall die or become permanently disabled
or shall retire with the consent of the Board, holding an Option that has
not expired and has not been fully exercised, he or his executor,
administrators, heirs, or distributees, as the case may be, may, at any
time within one year after the date of such event (but in no event after
the Option has expired under the provisions of subparagraph 7(c) above),
exercise the Option with respect to any shares as to which the Grantee
could have exercised the Option at the time of his death, disability, or
retirement; or
(ii) if a Grantee shall cease to serve as a director of the Company for
any reason other than those set forth in 7(e)(i) above, while holding an
Option that has not expired and has not been fully exercised, the Grantee,
at any time within three months of the date he ceased to be such an
Eligible Director (but in no event after the Option has expired under the
provisions of subparagraph 7(c) above), may exercise the Option with
respect to any shares of Common Stock as to which he could have exercised
the Option on the date he ceased to be such an Eligible Director.
(f) Each Grantee of an Option shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment of, any
federal, state, or local taxes of any kind required by law to be withheld
with respect to the shares of Common Stock as to which an Option is being
exercised.
8. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the
outstanding Common Stock by reason of any stock split, stock dividend,
recapitalization, merger, consolidation, reorganization, combination or exchange
of shares or other similar event, the number or kind of shares issuable on
exercise of an Option granted under the Plan, the number or kind of shares
subject to any outstanding Option, and the Option price per share under any
outstanding Option, shall be automatically adjusted so that the proportionate
interest of the Eligible Directors or of the Grantee shall be maintained as
before the occurrence of such event. Any adjustment in outstanding Options
shall be made without change in the total Option exercise price applicable to
the unexercised portion of such Options and with a corresponding adjustment in
the Option exercise price per share. Any adjustment permitted by this Paragraph
shall be conclusive and binding for all purposes of the Plan.
9. MISCELLANEOUS PROVISIONS. (a) An Eligible Director's rights and interests
under the Plan may not be assigned or transferred in whole or in part either
directly or by operation of law or otherwise (except in the event of a
participant's death, by will or the laws of descent and distribution),
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy, or in any other manner, and no
B-3
<PAGE>
such right or interest of any Eligible Director in the Plan shall be subject to
any obligation or liability of such Eligible Director.
(b) If the shares of Common Stock that are the subject of an Option are not
registered under the Securities Act of 1933, as amended, pursuant to an
effective registration statement, the Grantee, if the Committee shall deem it
advisable, may be required to represent and agree in writing (i) that any shares
of Common Stock acquired by such Grantee pursuant to the Plan will not be sold
except pursuant to an exemption from registration under said Act and (ii) that
such Grantee is acquiring such shares of Common Stock for his own account and
not with a view to the distribution thereof. No shares of Common Stock shall be
issued hereunder unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal, state and other
securities laws.
(c) By accepting any Options under the Plan, each Grantee and each person
claiming under or through him shall be conclusively deemed to have indicated his
acceptance and ratification of and consent to, the terms and conditions of the
Plan and any action taken under the Plan by the Company or the Board.
10. AMENDMENT. The Board may at any time and from time to time and in any
respect amend or modify this Plan; provided, however, that, the Board may not
amend this Plan more than once during any six-month period, and any amendments
requiring shareholder approval in order to maintain the exemption of the Plan
under Rule 16b-3 (promulgated pursuant to the Securities Exchange Act of 1934,
as amended) as in effect from time to time, shall be subject to approval by the
shareholders of the Company in the manner required by such Rule.
11. TERMINATION. This Plan shall terminate upon the earlier of the following
dates or events to occur:
(a) Upon the adoption of a resolution of the Board terminating the Plan;
(b) Upon the award or the purchase upon exercise of Options of all the
shares of Common Stock provided to be awarded under the Plan or as adjusted
pursuant to Paragraph 8; or
(c) Ten (10) years from the date of adoption of this Plan by the Board.
No termination of the Plan shall materially and adversely affect any of the
rights or obligations of any Grantee, without his consent, under any Option
theretofore granted under the Plan.
11. EFFECTIVE DATE; STOCKHOLDER APPROVAL. The Plan shall be effective
immediately upon approval by the Company's Board. However, any Option granted
pursuant to the Plan is expressly conditioned upon the approval and adoption of
the Plan by the shareholders at or before the next Annual Meeting.
Notwithstanding Paragraph 7, no Option granted prior to such shareholder
approval may be exercised unless and until such approval is obtained.
Adopted by the Board this 19th day of June, 1996
Approved by the Shareholders this
___ day of _________________, 199_
B-4
<PAGE>
PAUL HARRIS STORES, INC.
Proxy Solicited on Behalf of the Board of Directors of
the Company for Annual Meeting June 19, 1997
The undersigned hereby constitutes and appoints Charlotte G. Fischer and
Keith L. Himmel, Jr. and each of them, his or her true and lawful agents and
proxies with full power of substitution in each, to represent the undersigned at
the Annual Meeting of Shareholders of Paul Harris Stores, Inc. to be held at the
Paul Harris Corporate Headquarters in Indianapolis, Indiana on Thursday,
June 19, 1997 and at any adjournment thereof, on all matters coming before said
meeting.
You are encouraged to specify your choice by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot
vote your shares unless you sign and return this card.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE) SEE REVERSE
SIDE
=========
Please mark votes
X as in this example.
- ---
This proxy will be voted as specified and, unless otherwise specified, this
proxy will be voted FOR the election of directors and FOR proposals 2,3 and 4.
<TABLE><CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1-ELECTION OF DIRECTORS 2. Proposal to approve ___ _______ _______
Nominees:Richard A. Feinberg, Charlotte G. the Stock Option and
Fischer, James t. Morris, John Rau, Incentive Plan.
Sally Tassani
3. Proposal to approve ___ _______ _______
FOR WITHHELD the Outside Directors
Stock Option Plan.
___ ________
4. Proposal to ratify the___ _______ _______
selection of Price
___ ____________________________________ Waterhouse LLP as
To withhold authority to vote for any nominee, independent auditors
write the nominee's name in the space provided for the fiscal year 1997.
Above.
5. Upon or in connection with the transaction of
such other business as may properly come
before the meeting or any adjournment thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE
AT LEFT ______
Please mark, sign, date and return the proxy card promptly
using the enclosed envelope.
Please sign exactly as name appears at left. When shares
are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by
authorized person.
Signature:__________________ Date__________ Signature:__________________ Date__________
</TABLE>
