SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. ___)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to <section>240.14a-11(c) or
<section>240.14a-12
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)(1) and 0-11.
1) Title of each class of securities to which
transaction applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11 (Set
forth the amount on which the filing fee is calculated and state
how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
PAUL HARRIS STORES, INC.
6003 GUION ROAD
INDIANAPOLIS, INDIANA 46254
________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1998
________________
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, May 21, 1998, 9:00
a.m., local time, at the Paul Harris store at Willow Lake
Shopping Center, 2670 Lake Circle Drive #C, Indianapolis,
Indiana, for the following purposes:
1. To elect two directors to the Board of Directors of the
Company;
2. To approve the proposed first amendment to the
Company's 1996 Stock Option and Incentive Plan;
3. To approve the Company's 1998 Cash Bonus Performance
Plan for Executive Officers;
4. To ratify the appointment of Price Waterhouse LLP as the
Company's independent auditors for the 1998 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
April 8, 1998 are entitled to notice of, and to vote at, the
meeting or any adjournments thereof.
By Order of the Board of Directors
Keith L. Himmel, Jr.
Secretary
Indianapolis, Indiana
April 17, 1998
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, May 21, 1998, at
9:00 a.m., local time, at the Paul Harris store at Willow Lake
Shopping Center, 2670 Lake Circle Drive #C, 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 TWO NOMINEES NAMED HEREIN AND FOR PROPOSALS
2, 3 AND 4. These proxy solicitation materials and the
accompanying Annual Report to Shareholders for the fiscal year
ended January 31, 1998 (the "1997 fiscal year") are first being
sent to shareholders on or about April 17, 1998.
As of April 8, 1998, 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 outstanding
11,262,131 shares of the Company's Common Stock (the "Common
Stock"). 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 Annual
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 are received 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 two 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 Beacon Hill Partners,
Inc., a proxy solicitation firm, for a fee of $2,000, plus
out-of-pocket expenses not to exceed $1,200. The telephone number
of Beacon Hill Partners, Inc. is (212) 843-8500. 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 April 8,
1998 of more than five percent of the outstanding shares of the
Company's Common Stock. 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.
NAME AND ADDRESS NUMBER OF PERCENT
OF BENEFICIAL OWNER SHARES OF CLASS
BENEFICIALLY
OWNED
Neumeier Investment Counsel LLC (1) 1,834,500 (2) 16.3%
26435 Carmel Rancho Boulevard
Carmel, CA 93923
Charlotte G. Fischer 827,800 (3) 6.9%
6003 Guion Road
Indianapolis, IN 46254
________________________
(1) The source of the information for this entity is a Schedule
13G filed with the Securities and Exchange Commission.
(2) Includes 911,500 shares with sole voting power and 1,834,500
shares with sole investment power.
(3) Includes 786,000 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.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
Based upon information provided by such individuals, the
following table shows, as of April 8, 1998, 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 named in the Summary
Compensation Table, and all directors and executive officers as a
group.
NAME NUMBER OF SHARES OF PERCENT
COMMON STOCK OF CLASS
BENEFICIALLY OWNED (1)
Richard A. Feinberg, Ph.D. 8,000 *
Charlotte G. Fischer 827,800 6.9%
Robert I. Logan 25,000 *
James T. Morris 14,000 *
Leslie Nathanson Juris, Ph.D. 0 *
John E. Peters 10,000 *
Sally M. Tassani 8,000 *
John H. Boyers 104,666 *
Ana P. Porter (2) 0 *
All directors and executive 997,466 8.2%
officers as a group
(8 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) the following shares subject to
outstanding options which are exercisable within 60 days:
Mr. Feinberg, 8,000 shares; Ms. Fischer, 786,000 shares;
Mr. Logan, 21,000 shares; Mr. Morris, 8,000 shares;
Ms. Tassani, 8,000 shares; Mr. Boyers, 56,666 shares; and
all directors and executive officers as a group, 887,666
shares.
(2) Ms. Porter was employed by the Company from February 13,
1997 to September 8, 1997.
-3-
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors currently consists of six members
divided into three classes. Pursuant to the Company's Amended
and Restated Articles of Incorporation, the Board of Directors is
to be divided into three classes, with each class serving a
three-year term.
Two directors are to be elected at the Annual Meeting for a
term expiring at the 2001 Annual Meeting. The Company's By-Laws
currently provide for a Board of Directors consisting of six
directors. The enclosed Proxy cannot be voted for a greater
number of persons than the two nominees for director listed
below.
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
NAME OF NOMINEE AGE DIRECTOR NOMINEE
SINCE FOR TERM
EXPIRING IN
Leslie Nathanson Juris, Ph.D. 51 1998 2001
John E. Peters 50 1998 2001
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:
NAME OF DIRECTOR AGE DIRECTOR TERM
SINCE EXPIRES
IN
Richard A. Feinberg, Ph.D. 47 1997 1999
Charlotte G. Fischer 48 1993 2000
James T. Morris 55 1996 2000
Sally M. Tassani 49 1995 2000
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
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<PAGE>
Development Center, and Director of the Graduate Program, Department
of Consumer Sciences and Retailing.
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. Ms. Fischer is a
director of Trans World Entertainment Corp., Inc. and NatCity
National Bank of Indiana.
LESLIE NATHANSON JURIS, PH.D. is a managing director of
Roberts, Nathanson & Wolfson, a consulting firm specializing in
implementing strategy and managing complex organizational change,
a position she has held for more than the past five years.
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. Mr. Morris is also a director of NIPSCO
Industries, Inc.
JOHN E. PETERS has been president of Dreman Value Management
LLC, an equity management company, since October 1997. From 1984
to 1996, he was employed by Zurich Kemper Investments, a mutual
fund and cash management services firm, serving as senior vice
president and managing director of the retail products business
unit from 1990 to 1996 and as president and chief executive
officer of Kemper Distributors, Inc. from 1994 to 1996.
SALLY M. TASSANI has been an independent consultant and
subsequently a managing director of Tassani Partners LLC, a
strategic marketing communications firm, since July 1997. She
was senior vice president-director of direct marketing and sales
promotion for Leo Burnett Company, Inc., an advertising agency,
from October 1995 until July 1997. From August 1995 to September
1995, she was senior vice president of Bender, Browning, Dolby &
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 Messrs.
Feinberg, Logan and Morris. 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 1997 fiscal year.
The Board of Directors also has a Compensation and Stock
Option Committee (the "Compensation Committee") which is
currently composed of Ms. Juris, Mr. Morris and Ms. Tassani. The
Compensation Committee considers and authorizes remuneration
arrangements for senior management, including the grant of
options under the Company's option plans. The Compensation
Committee met ten times during the Company's 1997 fiscal year.
The Board of Directors also has a Nominating Committee which
is currently composed of Ms. Fischer, Ms. Juris and Ms. Tassani.
The Nominating Committee nominates persons to serve as directors.
The Nominating Committee met two times during the Company's 1997
fiscal year. The Nominating
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<PAGE>
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.
During the Company's 1997 fiscal year, the Board of
Directors held seven 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. In addition, in December 1997, the Board approved paying
Ms. Tassani additional compensation for her services as Chair of
the Compensation Committee in connection with negotiations of Ms.
Fischer's new employment agreement. Mr. Logan received fees at
the rate of $2,500 a month for consulting services provided to
the Company and did not receive the $3,000 amount that he would
otherwise be entitled to receive as Chair of the Audit Committee.
Directors who are not employees of the Company participate
in the Company's Outside Directors Stock Option Plan (the
"Directors Plan"). Under the Directors Plan, each eligible
director is automatically granted an option to purchase 3,000
shares of Common Stock in the month following the annual meeting
of shareholders. In addition, newly elected eligible directors
receive an option to purchase 5,000 shares of Common Stock in the
month following election. Pursuant to the Directors Plan, the
option price per share is equal to the fair market value of one
share of Common Stock on the date of grant. The options become
exercisable six months following the date of grant and expire ten
years following the date of grant.
During 1997, eligible directors were granted options to
purchase an aggregate of 17,000 shares of Common Stock.
-6-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the annual and long-term
compensation of each individual who served as an executive
officer of the Company during the 1997 fiscal year for services
rendered during the Company's 1997, 1996 and 1995 fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compen-
sation
Awards
Annual Compensation Securities
Other Under- All
Annual lying Other
Name and Principal Fiscal Bonus Compen- Options Compen-
Position Year Salary($) ($)(1) sation($) (#) sation($)(2)
</CAPTION>
<C> <S> <S> <S> <S> <S> <S>
Charlotte G. Fischer 1997 $ 500,000 $ 550,000 $ 1,000,000(3) 50,000 $ 2,905(4)
Chairman of the Board, 1996 420,800 640,000(5) --- 200,000 2,758(4)
President and Chief 1995 367,692 0 --- 75,000 23,702(4)(6)
Executive Officer
Ana P. Porter(7) 1997 150,923 6,154 --- 15,189 8,782(8)
Executive Vice 1996 0 0 --- 0 0
President - 1995 0 0 --- 0 0
Merchandising and
Planning-Distribution
John H. Boyers(9) 1997 175,000 135,000 --- 0 2,895(10)
Senior Vice President - 1996 131,000 96,000 --- 50,000 2,187(10)
Finance and Treasurer 1995 110,769 15,000 --- 50,000 15,912(11)
</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) Represents a one-time payment made to Ms. Fischer in
connection with her new employment agreement in
recognition of past service and accomplishments. See
"-Employment Agreements."
(4) Of the amounts shown, $1,600 for 1997, $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.
(5) The amount shown includes deferred compensation of
$47,000.
(6) Of the amount shown, $20,839 represents reimbursement for
relocation expenses and income taxes on reimbursed
amounts.
(7) Ms. Porter was employed by the Company from February 13,
1997 to September 8, 1997.
(8) Represents reimbursement for relocation expenses.
(9) 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.
(10) Of the amounts shown, $1,455 for 1997 and $747 for 1996
represent Company-paid contributions to the 401(k)
retirement plan. Company paid contributions are fully
vested upon contribution.
(11) Of the amount shown, $15,000 represents reimbursement for
relocation expenses and income taxes on reimbursed
amounts.
-7-
<PAGE>
OPTION GRANTS
The following table sets forth certain information
concerning the number of shares and the terms and conditions of
the stock options granted by the Company under the 1996 Stock
Option and Incentive Plan (the "1996 Plan") during the Company's
1997 fiscal year to the individuals named in the Summary
Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total
Securities Options
Under- Granted to Potential Realizable Value
lying Employees at Assumed Annual Rates of
Options in Exercise Stock Price Appreciation
Granted Fiscal Price Expiration for Option Term($)(3)
Name (#) Year ($/Sh)(1) Date(2) 5%($) 10%($)
</CAPTION>
<C> <S> <S> <S> <S> <S> <S>
Charlotte G. Fischer 50,000 15.84% $ 8.630 01/30/08 $271,368 $687,700
Ana P. Porter(4) 15,189 4.81% 19.750 02/13/07 188,658 478,095
John H. Boyers 0 --- --- --- 0 0
</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 1997
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 under certain specified circumstances. The
options granted to Ms. Fischer were immediately
exercisable. The options granted to Ms. Porter became
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) Ms. Porter was employed by the Company from February 13,
1997 to September 8, 1997. Ms. Porter's options expired
unexercised on September 8, 1997.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information
concerning stock option exercises by the individuals named in the
Summary Compensation Table during the 1997 fiscal year and the
unexercised stock options held by such individuals as of January
31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Shares Unexercised Options In-The-Money Options
Acquired at Fiscal Year-End at Fiscal Year-End(1)
On Value Exer- Unexer- Exer- Unexer-
Name Exercise Realized(2) cisable cisable cisable cisable
</CAPTION>
<C> <S> <S> <S> <S> <S> <S>
Charlotte G. Fischer --- --- 669,333 16,667 $2,222,916 $49,084
Ana P. Porter(3) --- --- 0 0 0 0
John H. Boyers 10,000 $281,812 39,999 50,001 163,214 116,586
</TABLE>
_________________________________
(1) The closing sale price of the Common Stock as reported on
the Nasdaq National Market on January 30, 1998 was
$8.625. Value is calculated on the basis of the
difference between the exercise price and $8.625,
multiplied by the number of "in-the-money" shares of
Common Stock underlying the options.
(2) The value is calculated based on the difference between
the option exercise price and the closing market price of
the Common Stock on the date of exercise, multiplied by
the number of shares to which the exercise relates.
(3) Ms. Porter was employed by the Company from February 13,
1997 to September 8, 1997.
-8-
<PAGE>
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 were matched by the Company in an
amount equal to 25% until January 1, 1998, when the amount was
increased to 50%, 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 31, 2003. The agreement will terminate
earlier in the event of Ms. Fischer's death or disability, the
Company's termination for "cause" (as defined therein) or upon
180 days' prior written notice by Ms. Fischer. Upon the
occurrence of such events, Ms. Fischer would be entitled to
receive the amount of base salary accrued prior to the
termination of employment and to exercise any vested stock
options for a period of at least six months, and, in the event of
her death or disability, she would be entitled to a pro rata
bonus for the year of termination and an extended option exercise
period. In the event the Company terminates Ms. Fischer's
employment without cause (which includes a "constructive
termination" as defined therein), the Company shall pay to Ms.
Fischer the base salary she would have been entitled to through
January 31, 2003 had her employment not been terminated, but not
less than $1,750,000, and a bonus for the fiscal year in which
the termination occurs, assuming that she had worked to fiscal
year-end. In such event, Ms. Fischer shall also be entitled to
exercise any stock option granted to her by the Company, to the
extent vested and exercisable, at any time during the remaining
term of the stock option. The agreement does not provide for
severance benefits following the expiration of the term of the
agreement on January 31, 2003.
Under the agreement, Ms. Fischer is paid a base salary
which is $700,000 for the 1998 fiscal year, and which will
increase each fiscal year up to $1,000,000 during the last year
of the agreement, which is the 2002 fiscal year. In recognition
of past service and accomplishments, the Company also awarded Ms.
Fischer a one-time special bonus of $500,000 payable during 1997
and $500,000 payable during 1998. Similar to past practice, the
agreement provides for annual bonus compensation (as long as the
Company has pretax earnings in excess of $200,000) equal to the
greater of $200,000 or percentages of base salary contingent upon
the Company achieving pretax earnings targets in each fiscal
year, up to a maximum bonus equal to 200% of base salary for each
fiscal year. The pretax earnings dollar targets were generally
increased over the Company's past practice. In the event that
the Company's shareholders approve the adoption of the 1998 Cash
Bonus Performance Plan for Executive Officers (the "Bonus Plan")
and Ms. Fischer elects to participate in the Bonus Plan during a
particular fiscal year, then the provisions of the Bonus Plan
will supersede the provisions of the agreement with respect to
Ms. Fischer's cash bonus for such fiscal year.
The agreement provides for annual awards to Ms. Fischer of
non-qualified stock options to purchase a number of shares of
Common Stock based on the Company's "annual total return to
shareholders" for such fiscal year, as compared to the "women's
specialty peer group" (as such terms are defined in the
agreement). The exercise price of the options is the closing
price per share of the Common Stock on the date of grant and the
options expire on the tenth anniversary of the date of grant,
subject to earlier expiration in the event of termination of
employment under certain specified circumstances. The agreement
provides that the Company shall grant to Ms. Fischer restricted
stock awards of at least 50,000 shares of Common Stock each
fiscal year, contingent upon the attainment of specified
performance goals related to the Company's
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<PAGE>
strategic, business and financial objectives. Upon attainment of
the goals, Ms. Fischer will be awarded the restricted stock,
subject to a vesting schedule. In the event that Ms. Fischer
elects to participate under the portion of the 1996 Plan, as
amended, governing performance-based awards of restricted shares
of Common Stock during a particular fiscal year, then the terms
of the 1996 Plan shall supersede the provisions of the agreement
with respect to awards of restricted stock for such fiscal year.
Ms. Fischer's employment agreement also includes a
confidentiality agreement and a one-year covenant not to compete
and not to solicit employees 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 the event of termination of Ms. Fischer's employment
or constructive termination following a "change in control" (as
defined therein) of the Company prior to January 31, 2003, Ms.
Fischer would be entitled to receive her base salary through the
termination date, a lump sum payment of 2.9 times the greater of
her then current base salary or her base salary for the most
recent fiscal year ended prior to such termination (reduced by
the value of certain other benefits), a bonus for the fiscal year
in which termination occurs (which shall be equal to the greater
of her bonus for the most recent fiscal year ended prior to such
termination or her bonus for the fiscal year in which such
termination occurs based on her then current base salary and
assuming that she had been employed by the Company for the entire
fiscal year), the continuation of Company-paid health insurance
for 36 months, the continuation of other benefits for a period of
one year and the right to exercise any stock option to the extent
vested and exercisable, at any time during the remaining term of
the stock option. The intent of these provisions and the 2.9
limitation is to prevent the benefits from being characterized as
parachute payments. These benefits are not payable unless, prior
to January 31, 2003, Ms. Fischer is terminated from employment
(including constructive termination) after a change-in-control.
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal
year 1997 were current directors Ms. Tassani and Mr. Morris and
former directors Stig A. Kry and John Rau. 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.
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 the
1997 fiscal year, the Compensation Committee utilized the
services of a consulting firm to assist it in determining
competitive compensation packages for the Company's key
executives.
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
Company's compensation programs are designed to: (i) attract,
retain and demonstrate a commitment to key executives; (ii)
reinforce strategic initiatives; (iii) align management interests
with those of shareholders through grants of stock
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options; (iv) provide compensation levels that are in line with
market practice and performance; and (v) provide above average
competitive compensation when aggressive financial performance
targets are met. The competitive positioning of compensation
levels is periodically reviewed and adjusted as appropriate.
Effective February 1, 1998, the Company entered into a new
employment agreement with Ms. Fischer replacing a previous
employment agreement with her. The new agreement extended the
term of Ms. Fischer's employment to January 31, 2003. The new
agreement increased Ms. Fischer's base salary from $500,000 for
the 1997 fiscal year to $700,000 for the 1998 fiscal year, and
provides for annual increases in Ms. Fischer's base salary up to
$1,000,000 in the 2002 fiscal year. The agreement provides for
annual bonuses equal to specified percentages of base salary
contingent upon the Company achieving specified targets for
pretax earnings in a fiscal year, performance-based awards of
options to purchase shares of Common Stock and performance-based
awards of restricted stock. In recognition of past service and
accomplishments, the Company also awarded Ms. Fischer a one-time
special bonus of $500,000 payable during 1997 and $500,000
payable during 1998. See "EXECUTIVE COMPENSATION -- Employment
Agreements."
The Company entered into the new employment agreement with
Ms. Fischer and made awards of options to her during the 1997
fiscal year in order to retain her services and in recognition of
the substantial contribution that Ms. Fischer made to the
Company's financial results for the last and prior fiscal years.
In the 1997 fiscal year, average sales per store increased to
$875,000 from $854,000 in the prior year, the Company achieved
record net income for the year of $9.7 million, record earnings
per share, and shareholders equity increased by 79% to $66.0
million from $36.9 million the prior year.
As the Company exceeded specified targets for pretax
income for fiscal 1997, the Company paid an aggregate of
$1,068,000 in bonuses for fiscal 1997 to a total of 11 officers
of the Company. In addition, the Company awarded options to
purchase an aggregate of 160,500 shares of Common Stock to 10
officers of the Company under the 1996 Plan and the Company's
1992 Non-Qualified Stock Option Plan.
MEMBERS OF THE COMPENSATION AND STOCK OPTION COMMITTEE
Leslie Nathanson Juris, Ph.D.
James T. Morris
Sally M. Tassani
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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 January 30, 1993, 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.
Performance Graph reflecting
following information:
COMPARISON OF 5 YEAR CUMULATIVE RETURNS OF THE
COMPANY, S&P RETAIL (SPECIALTY APPAREL) INDEX, S&P 500 INDEX
FISCAL YEAR
1/30/93 1993 1994 1995 1996 1997
Paul Harris
Stores, Inc. 100.00 190.76 88.89 62.96 611.11 255.56
S&P Retail
(Specialty
Apparel) Index 100.00 85.06 68.15 81.15 102.76 186.54
S&P 500 Index 100.00 112.88 113.47 157.36 198.81 252.30
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APPROVAL OF AMENDMENT TO THE 1996 STOCK OPTION
AND INCENTIVE PLAN
On April 1, 1998, the Board of Directors of the Company
adopted an amendment (the "Amendment") to the 1996 Plan and
directed that the Amendment be submitted to the shareholders for
consideration at the Annual Meeting. The Amendment would add
performance shares as a type of award which may be granted by the
Compensation Committee under the 1996 Plan to officers and key
employees of the Company and its subsidiaries. The following is
a summary of the principal features of the Amendment, as set
forth as Exhibit A to this Proxy Statement. Shareholders are
urged to read the actual text of the Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF
THE PROPOSED AMENDMENT.
PURPOSE
The purpose of the 1996 Plan is to promote the long-term
interests of the Company and its shareholders 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.
Section 162(m) of the Code ("Section 162(m)") 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
Amendment is designed to permit the Compensation Committee to
grant awards which qualify for deductibility under Section
162(m).
PERFORMANCE SHARES
If the Amendment is approved, the Compensation Committee
would have the ability to grant awards of performance shares, in
which case the grantee could be granted shares of Common Stock,
subject to satisfaction of specified performance goals
established by the Compensation Committee. If the Amendment is
approved, performance goals may be established on one or more of
the following business criteria: earnings per share; return on
equity; return on assets; comparable store sales; sales volume;
total sales; operating income; market value per share; costs;
market shares; total annual return to shareholders; total sales
volume; net income; or earnings before interest, taxes,
depreciation and amortization. The applicable performance goals
and all other terms and conditions of the award would be
determined in the discretion of the Compensation Committee. The
specific performance goals must be established by the
Compensation Committee in advance of the deadlines applicable
under Section 162(m) and while the performance relating to the
performance goals remains substantially uncertain within the
meaning of Section 162(m).
Pursuant to the Amendment, after an award of performance
shares has vested (that is, after the applicable performance goal
or goals have been achieved), the grantee will be entitled to a
payment of shares of Common Stock, cash or a combination thereof.
However, no grantee shall receive any such payment unless the
Compensation Committee has certified, by resolution or other
appropriate action in writing, that the amount thereof has been
accurately determined in accordance with the terms, conditions
and limits of the 1996 Plan and that the performance goals and
any other material terms previously established by the
Compensation Committee or set forth in the 1996 Plan were in fact
satisfied. If a grantee terminates
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employment prior to the end of the period of time over which
the performance shares are being earned for any reason other
than death, disability or retirement, all of such grantee's
rights with respect to performance shares that have not yet
been earned shall be forfeited. However, a grantee shall
be entitled to receive any performance shares earned as of
the date of termination if the specified performance goals
have been attained.
APPROVAL OF 1998 CASH BONUS PERFORMANCE
PLAN FOR EXECUTIVE OFFICERS
On April 1, 1998, the Board of Directors of the Company
adopted the Bonus Plan, and directed that the Bonus Plan be
submitted to shareholders for consideration at the Annual
Meeting. The following is a summary of the principal features of
the Bonus Plan and is qualified in its entirety by reference to
the complete text of the Bonus Plan as set forth as Exhibit B to
this Proxy Statement. Shareholders are urged to read the actual
text of the Bonus Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF
THE BONUS PLAN.
The purpose of the Bonus Plan is to promote the success of
the Company by providing to participating executives bonus
incentives that qualify as performance-based compensation within
the meaning of Section 162(m). The Bonus Plan will be
administered by the Compensation Committee, which consists of two
or more "outside directors" within the meaning of Section 162(m).
The Compensation Committee has the authority to construe and
interpret the Bonus Plan, except as otherwise provided in the
Bonus Plan, and may adopt rules and regulations governing the
administration thereof.
The Compensation Committee in its sole discretion
determines the executive officers of the Company and its
subsidiaries (the "Participants") eligible for bonus awards and,
subject to the terms of the Bonus Plan, the amount of such
bonuses. Under the Bonus Plan, the Compensation Committee will
establish and administer performance targets for performance
periods pursuant to which eligible executives may receive
designated bonus compensation. Performance targets may be based
on one or more of the following business criteria: annual total
return to shareholders, comparable store sales, total sales
volume, total sales, net income, return on equity, return on
assets, earnings per share or earnings before interest, taxes,
depreciation and amortization (in each case as defined in the
Bonus Plan), or on any combination thereof. The specific
performance criteria must be established by the Compensation
Committee in advance of the deadlines applicable under Section
162(m) and while the performance relating to the performance
criteria remains substantially uncertain within the meaning of
Section 162(m). In addition to the specified performance
criteria, the Compensation Committee is also authorized to
establish other conditions and terms of payment of bonuses as it
deems appropriate.
Concurrently with the selection of performance criteria
and subject to the provisions of the Bonus Plan, the Compensation
Committee shall establish an objective formula or standard for
calculating the maximum bonus payable to each Participant. Each
Participant may receive a bonus if and only if the performance
criteria established by the Compensation Committee are attained.
Notwithstanding the fact that the performance criteria
established by the Compensation Committee have been met, the
Company may pay a bonus of less than the amount determined by the
Compensation Committee or may pay no bonus at all, unless the
Compensation Committee otherwise expressly provides by written
contract or other written commitment.
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<PAGE>
No Participant shall receive a bonus under the Bonus Plan
for any fiscal year in excess of $2,000,000 or, if less, two
times his or her Base Salary (as defined therein), and no
Participant shall receive aggregate bonuses under the Bonus Plan
in excess of $8.5 million. In addition, no Participant shall
receive any payment under the Bonus Plan unless the Compensation
Committee has certified, by resolution or other appropriate
action in writing, that the amount thereof has been accurately
determined in accordance with the terms, conditions and limits of
the Bonus Plan and that the performance criteria and any other
material terms previously established by the Compensation
Committee or set forth in the Bonus Plan were in fact satisfied.
Any bonuses granted by the Compensation Committee under
the Bonus Plan shall be paid as soon as practicable, unless the
Compensation Committee elects to defer such payment in its sole
discretion (subject to any prior written commitments), following
the Compensation Committee's written certification of its
determinations. Any such payment shall be in cash or cash
equivalents, subject to applicable withholding requirements.
The Bonus Plan may from time to time be amended, suspended
or terminated, in whole or in part, by the Board of Directors or
the Compensation Committee, but no amendment will be effective
without Board or shareholder approval if such approval is
necessary to comply with the applicable rules under Section
162(m). In addition, no amendment, suspension or termination of
the Bonus Plan shall in any manner affect any bonus previously
awarded pursuant to the Bonus Plan.
Because the exact Participants under the Bonus Plan are to
be determined from time to time by the Compensation Committee, in
its discretion, it is impossible at this time to indicate the
precise number, name or positions of persons who will receive
bonuses or the amounts of such bonuses.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The appointment of Price Waterhouse LLP as independent
auditors for the Company during its 1998 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 1998.
DEADLINE FOR RECEIPT OF SHAREHOLDERS'
PROPOSALS FOR THE 1999 ANNUAL MEETING
Proposals of shareholders that are intended to be
presented by such shareholders at the Company's 1999 Annual
Meeting must be received by the Company no later than December
18, 1998 in order to be included in the Company's Proxy Statement
and form of Proxy relating to that meeting.
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<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 Securities and Exchange Commission.
Such persons are required by Securities and Exchange Commission
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 1997 all Section 16(a) filing
requirements applicable to its executive officers, directors and
greater than 10% beneficial owners were timely satisfied.
ANNUAL REPORTS
The Annual Report to Shareholders for the fiscal year
ended January 31, 1998 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 1997 AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, 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.
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<PAGE>
EXHIBIT A
PAUL HARRIS STORES, INC.
1996 STOCK OPTION AND INCENTIVE PLAN
FIRST AMENDMENT
This Paul Harris Stores, Inc. 1996 Stock Option and
Incentive Plan (the "Plan") is hereby amended as follows:
1. The definition of "Award" in Section 2 of the Plan is
amended to read:
"Award" - means the grant by the Committee of Incentive
Stock Options, Non-Qualified Stock Options, SARs, Restricted
Stock, Performance Shares, or any combination thereof as provided
in the Plan.
2. The following new definitions are added to Section 2 of
the Plan:
"Performance Cycle" -- means the period of time, designated
by the Committee, over which Performance Shares may be earned.
"Performance Shares" -- means Shares awarded pursuant to
Section 9A of the Plan upon the attainment or other satisfaction
of performance goals within the Performance Cycle.
3. Section 5(a) of the Plan is amended to read as follows:
(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 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 or Performance Shares 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.
4. The following new Section 9A is added to the Plan:
9A. PERFORMANCE SHARES. The Committee, in its sole
discretion, may from time to time authorize the grant of
Performance Shares upon the achievement of performance goals
(which may be cumulative and/or alternative) as may be
established, in writing, by the Committee based on any one or any
combination of the following business criteria: (a) earnings per
Share; (b) return on equity; (c) return on assets; (d) comparable
store sales; (e) sales volume; (f) total sales; (g) operating
income; (h) Market Value per Share; (i) costs; (j) market shares;
(k) total annual return to shareholders; (l) total sales volume;
(m) net income; or (n) earnings before interest, taxes,
depreciation and amortization. At the time as it is certified, in
writing, by the Committee that the performance goals established
by the Committee have been attained or otherwise satisfied within
the Performance Cycle, the Committee shall authorize the payment
of cash in lieu of Performance Shares or the issuance of
Performance Shares registered in the name of the Participant, or
a combination of cash and Shares. The grant of an Award of
Performance Shares shall be evidenced by an award agreement
containing the terms and conditions
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of the Award as determined by the Committee. To the extent
required under Code Section 162(m), the business criteria under
which performance goals are determined by the Committee
shall be resubmitted to shareholders for reapproval no
later than the first shareholder meeting that occurs in the
fifth year following the year in which shareholders
previously approved this Section.
If the Participant ceases Continuous Service before the end
of a Performance Cycle for any reason other than retirement,
disability, or death, the Participant shall forfeit all rights
with respect to any Performance Shares that have not been earned
as of the date the Participant ceases Continuous Service. The
Committee, in its sole discretion, may establish guidelines
providing that if a Participant ceases Continuous Service before
the end of a Performance Cycle by reason of retirement,
disability, death, or Change in Control, the Participant shall be
entitled to a prorated payment with respect to any Performance
Shares that have not been earned as of the date the Participant
ceases Continuous Service. The Participant shall be entitled to
receive any Performance Shares earned as of the date the
Participant ceases Continuous Service if the performance goals,
as established by the Committee, have been attained or otherwise
satisfied within the Performance Cycle.
Performance Shares granted under this Section 9A of the
Plan shall be treated the same as Shares of Restricted Stock for
purposes of Section 12(b) of the Plan.
5. Except as expressly amended, the provisions of the Plan
shall remain in full force and effect.
6. This Amendment shall be effective immediately upon
approval by the Company's Board. However, any Award of
Performance Shares granted pursuant to Section 9A is expressly
conditioned upon the approval and adoption of this Amendment by
the shareholders at the 1998 annual meeting of shareholders or
thereafter.
Adopted by the Board
this 1st day of April, 1998
Approved by the Shareholders
this _____ day of ____________, 1998
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<PAGE>
EXHIBIT B
PAUL HARRIS STORES, INC.
1998 CASH BONUS PERFORMANCE PLAN
FOR EXECUTIVE OFFICERS
SECTION 1 PURPOSE OF PLAN
The purpose of the Plan is to promote the success of the
Company by providing to participating executives bonus incentives
that qualify as performance-based compensation within the meaning
of Section 162(m) of the Code.
SECTION 2 DEFINITIONS AND TERMS
2.1 ACCOUNTING TERMS. Except as otherwise expressly
provided or the context otherwise requires, financial and
accounting terms are used as defined for purposes of, and shall
be determined in accordance with, generally accepted accounting
principles, as from time to time in effect, as applied and
reflected in the consolidated financial statements of the
Company, prepared in the ordinary course of business.
2.2 SPECIFIC TERMS. The following words and phrases as
used herein shall have the following meanings unless a different
meaning is plainly required by the context:
"ANNUAL TOTAL RETURN TO SHAREHOLDERS" means the Company's
return to shareholders as represented by share price appreciation
plus dividends paid on one share of stock during any Year during
a Performance Period.
"BASE SALARY" in respect of any Performance Period means the
aggregate base annualized salary of a Participant from the
Company and all affiliates of the Company at the time the
Participant is selected to participate for that Performance
Period, exclusive of any commissions or other actual or imputed
income from any Company-provided benefits or perquisites, but
prior to any reductions for salary deferred pursuant to any
deferred compensation plan or for contributions to a plan
qualifying under Section 401(k) of the Code or contributions to a
cafeteria plan under Section 125 of the Code.
"BASE SALARY MULTIPLE" means an amount equal to two times
Base Salary.
"BONUS" means a cash payment or payment opportunity as the
context requires.
"BUSINESS CRITERIA" means any one or any combination of
Annual Total Return to Shareholders, Comparable Store Sales,
Total Sales Volume, Total Sales, Net Income, Return on Equity,
Return on Assets, EPS, or EBITDA.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
"COMMITTEE" means the committee of the Board of Directors or
any successor committee which will administer the Plan in
accordance with Section 3 and Section 162(m) of the Code.
"COMPANY" means Paul Harris Stores, Inc. and its wholly-owned
subsidiaries, and any successor, whether by merger, ownership of
all or substantially all of its assets or otherwise.
B-1
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"COMPARABLE STORE SALES" for any Year means the net sales
from the Company's stores that are open for more than one year.
"EBITDA" for any Year means earnings before interest, taxes,
depreciation and amortization.
"EPS" for any Year means earnings per share of the Company,
as reported in the Company's audited consolidated financial
statements for the Year.
"EXECUTIVE" means a key employee (including any officer) of
the Company who is (or in the opinion of the Committee may during
the applicable Performance Period become) an "executive officer"
as defined in Rule 3b-7 under the Securities Exchange Act of
1934.
"NET INCOME" for any Year means the consolidated net income
of the Company, as reported in the Company's audited consolidated
financial statements for the Year.
"PARTICIPANT" means an Executive selected to participate
in the Plan by the Committee.
"PERFORMANCE PERIOD" means the Year or Years with respect to
which the Performance Targets are set by the Committee.
"PERFORMANCE TARGET(S)" means the specific objective goal or
goals (which may be cumulative and/or alternative) that are
timely set in writing by the Committee for each Executive for the
Performance Period in respect of any one or more of the Business
Criteria.
"PLAN" means this 1998 Cash Bonus Performance Plan for
Executive Officers of the Company, as amended from time to time.
"RETURN ON ASSETS" means Net Income divided by the average of
the total assets of the Company at the end of the fiscal quarters
of the Year, as reported in the Company's audited consolidated
financial statements for the Year.
"RETURN ON EQUITY" means the Net Income divided by the
average of the shareholders equity of the Company at the end of
each of the fiscal quarters of the Year, as reported in the
Company audited consolidated financial statements.
"SECTION 162(M)" means Section 162(m) of the Code, and the
regulations promulgated thereunder, all as amended from time to
time.
"TOTAL SALES" means the Company net sales for a Performance
Period as reported in the Company's consolidated audited
financial statements for the Year.
"TOTAL SALES VOLUME" means the average total sales volume per
Company store for the Performance Period, as reported by the
Company in its periodic reports under the Securities Exchange Act
of 1934, as amended.
"YEAR" means any one or more fiscal years of the Company
commencing on or after February 1, 1998 that represent(s) the
applicable Performance Period and end(s) no later than February
1, 2003.
B-2
<PAGE>
SECTION 3 ADMINISTRATION OF THE PLAN
3.1 THE COMMITTEE. The Plan shall be administered by a
Committee consisting of at least two members of the Board of
Directors of the Company, duly authorized by the Board of
Directors of the Company to administer the Plan, who (i) are not
eligible to participate in the Plan and (ii) are "outside
directors" within the meaning of Section 162(m).
3.2 POWERS OF THE COMMITTEE. The Committee shall have the
sole authority to establish and administer the Performance
Target(s) and the responsibility of determining from among the
Executives those persons who will participate in and receive
Bonuses under the Plan and, subject to Sections 4 and 5 of the
Plan, the amount of such Bonuses and shall otherwise be
responsible for the administration of the Plan, in accordance
with its terms. The Committee shall have the authority to
construe and interpret the Plan (except as otherwise provided
herein) and any agreement or other document relating to any Bonus
under the Plan, may adopt rules and regulations governing the
administration of the Plan, and shall exercise all other duties
and powers conferred on it by the Plan, or which are incidental
or ancillary thereto. For each Performance Period, the Committee
shall determine, at the time the Business Criteria and the
Performance Target(s) are set, those Executives who are selected
as Participants in the Plan.
3.3 REQUISITE ACTION. A majority (but not fewer than
two) of the members of the Committee shall constitute a quorum.
The vote of a majority of those present at a meeting at which a
quorum is present or the unanimous written consent of the
Committee shall constitute action by the Committee.
3.4 EXPRESS AUTHORITY (AND LIMITATIONS ON AUTHORITY) TO
CHANGE TERMS AND CONDITIONS OF BONUS. Without limiting the
Committee's authority under other provisions of the Plan, but
subject to any express limitations of the Plan and Section 5.8,
the Committee shall have the authority to accelerate a Bonus
(after the attainment of the applicable Performance Target(s))
and to waive restrictive conditions for a Bonus (including any
forfeiture conditions, but not Performance Target(s)), in such
circumstances as the Committee deems appropriate. In the case of
any acceleration of a Bonus after the attainment of the
applicable Performance Target(s), the amount payable shall be
discounted to its present value using an interest rate equal to
Moody's Average Corporate Bond Yield for the month preceding the
month in which such acceleration occurs.
SECTION 4 BONUS PROVISIONS.
4.1 PROVISION FOR BONUS. Each Participant may receive a
Bonus if and only if the Performance Target(s) established by the
Committee, relative to the applicable Business Criteria, are
attained. The applicable Performance Period and Performance
Target(s) shall be determined by the Committee consistent with
the terms of the Plan and Section 162(m). Notwithstanding the
fact that the Performance Target(s) have been attained, the
Company may pay a Bonus of less than the amount determined by the
formula or standard established pursuant to Section 4.2 or may
pay no Bonus at all, unless the Committee otherwise expressly
provides by written contract or other written commitment.
4.2 SELECTION OF PERFORMANCE TARGET(S). The specific
Performance Target(s) with respect to the Business Criteria must
be established by the Committee in advance of the deadlines
applicable under Section 162(m) and while the performance
relating to the Performance Target(s) remains substantially
uncertain within the meaning of Section 162(m). At the time the
Performance Target(s) are selected, the Committee shall provide, in
terms of an objective formula or standard for each Participant,
and for any person who may become a Participant after the
Performance Target(s) are set, the method of computing the
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specific amount that will represent the maximum amount of
Bonus payable to the Participant if the Performance Target(s) are
attained, subject to Sections 4.1, 4.3, 4.7, 5.1 and 5.8.
4.3 MAXIMUM INDIVIDUAL BONUS. Notwithstanding any other
provision hereof, no Executive shall receive a Bonus under the
Plan for any Year in excess of $2 million or, if less, his or her
Base Salary Multiple. No Executive shall receive aggregate
bonuses under this Plan in excess of $8.5 million.
4.4 SELECTION OF PARTICIPANTS. For each Performance
Period, the Committee shall determine, at the time the Business
Criteria and the Performance Target(s) are set, those Executives
who will participate in the Plan.
4.5 EFFECT OF MID-YEAR COMMENCEMENT OF SERVICE. To the
extent compatible with Sections 4.2 and 5.8, if an Executive
commences employment with the Company after the adoption of the
Plan and the Performance Target(s) are established for a
Performance Period, the Committee may grant a Bonus for that
Performance Period that is proportionately adjusted based on the
period of actual service during such Performance Period.
4.6 CHANGES RESULTING FROM MATERIAL ACQUISITIONS,
DISPOSITIONS OR RECAPITALIZATIONS; EXTRAORDINARY ITEMS;
ACCOUNTING CHANGES. Subject to Section 5.8, if, after the
Performance Target(s) are established for a Performance Period, a
change occurs in the applicable accounting principles or
practices, the amount of the Bonuses paid under this Plan for
such Performance Period shall be determined without regard to
such change.
4.7 COMMITTEE DISCRETION TO DETERMINE BONUSES. The
Committee has the sole discretion to determine the standard or
formula pursuant to which each Participant's Bonus shall be
calculated (in accordance with Section 4.2), whether all or any
portion of the amount so calculated will be paid, and the
specific amount (if any) to be paid to each Participant, subject
in all cases to the terms, conditions and limits of the Plan and
of any other written commitment authorized by the Committee. In
addition to the establishment of Performance Targets as provided
in Section 4.2, the Committee may at any time establish
additional conditions and terms of payment of Bonuses (including
but not limited to the achievement of other financial, strategic
or individual goals, which may be objective or subjective) as it
may deem desirable in carrying out the purposes of the Plan and
may take into account such other factors as it deems appropriate
in administering any aspect of the Plan. The Committee may not,
however, increase the maximum amount permitted to be paid to any
individual under Section 4.2 or 4.3 of the Plan or award a Bonus
under this Plan if the applicable Performance Target(s) have not
been satisfied.
4.8 COMMITTEE CERTIFICATION. No Executive shall receive
any payment under the Plan unless the Committee has certified, by
resolution or other appropriate action in writing that the amount
thereof has been accurately determined in accordance with the
terms, conditions and limits of the Plan and that the Performance
Target(s) and any other material terms previously established by
the Committee or set forth in the Plan were in fact satisfied.
4.9 TIME OF PAYMENT. Any Bonuses granted by the
Committee under the Plan shall be paid as soon as practicable
following the Committee's determinations under this Section 4 and
the certification of the Committee's findings under Section 4.8.
Any such payment shall be in cash or cash equivalent, subject to
applicable withholding requirements. Notwithstanding the
foregoing, the Committee may, in its sole discretion (but subject
to any prior written commitments and to any conditions consistent
with Section 5.8 that it deems appropriate), defer the payout or
vesting of any Bonus. In the case of the delay of a Bonus
otherwise payable at or after the attainment and certification of
the applicable Performance Target(s), any
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<PAGE>
additional amount payable shall be based on Moody's Average
Corporate Bond Yield over the deferral period.
SECTION 5 GENERAL PROVISIONS
5.1 NO RIGHT TO BONUS OR CONTINUED EMPLOYMENT. Neither
the establishment of the Plan nor the provision for or payment of
any amounts hereunder nor any action of the Company (including,
for purposes of this Section 5.1, any predecessor or subsidiary),
the Board of Directors of the Company or the Committee in respect
of the Plan, shall be held or construed to confer upon any person
any legal right to receive, or any interest in, a Bonus or any
other benefit under the Plan, or any legal right to be continued
in the employ of the Company unless otherwise provided by the
Committee by contract or agreement. The Company expressly
reserves any and all rights to discharge an Executive in its sole
discretion, without liability of any person, entity or governing
body under the Plan or otherwise. Notwithstanding any other
provision hereof and notwithstanding the fact that the
Performance Target(s) have been attained and/or the individual
maximum amounts pursuant to Section 4.2 have been calculated, the
Company shall have no obligation to pay any Bonus hereunder nor
to pay the maximum amount so calculated, unless the Committee
otherwise expressly provides by written contract or other written
commitment.
5.2 DISCRETION OF COMPANY, BOARD OF DIRECTORS AND
COMMITTEE. Any decision made or action taken by the Company or
by the Board of Directors of the Company or by the Committee
arising out of or in connection with the creation, amendment,
construction, administration, interpretation and effect of the
Plan shall be within the absolute discretion of such entity and
shall be conclusive and binding upon all persons. No member of
the Committee shall have any personal liability for actions taken
or omitted under the Plan by the member or any other person.
5.3 ABSENCE OF LIABILITY. A member of the Board of
Directors of the Company or a member of the Committee of the
Company or any officer of the Company shall not be personally
liable for any act or inaction hereunder, whether of commission
or omission.
5.4 NO FUNDING OF PLAN. The Company shall not be
required to fund or otherwise segregate any cash or any other
assets which may at any time be paid to Participants under the
Plan. The Plan shall constitute an "unfunded" plan of the
Company. The Company shall not, by any provisions of the Plan,
be deemed to be a trustee of any property, and any obligations of
the Company to any Participant under the Plan shall be those of a
debtor and any rights of any Participant or former Participant
shall be limited to those of a general unsecured creditor.
5.5 NON-TRANSFERABILITY OF BENEFITS AND INTERESTS.
Except as expressly provided by the Committee, no benefit payable
under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or
charge, and any such attempted action shall be void and no such
benefit shall be in any manner liable for or subject to debts,
contracts, liabilities, engagements or torts of any Participant
or former Participant. This Section 5.5 shall not apply to an
assignment of a contingency or payment due after the death of the
Executive to the deceased Executive's legal representative or
beneficiary.
5.6 LAW TO GOVERN. All questions pertaining to the
construction, regulation, validity and effect of the provisions
of the Plan shall be determined in accordance with the internal
laws of the State of Indiana.
5.7 NON-EXCLUSIVITY. Subject to Section 5.8, the Plan
does not limit the authority of the Company, the Board of
Directors of the Company or the Committee, or any subsidiary of
the Company, to grant awards or authorize any other compensation
under any other plan or authority, including, without limitation,
awards
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<PAGE>
or other compensation based on the same Performance Target(s)
used under the Plan. In addition, Executives not selected
to participate in the Plan may participate in other plans
of the Company.
5.8 SECTION 162(M) CONDITIONS; BIFURCATION OF PLAN. It
is the intent of the Company that the Plan and Bonuses paid
hereunder satisfy and be interpreted in a manner, that, in the
case of Participants who are or may be persons whose compensation
is subject to Section 162(m), satisfies any applicable
requirements as performance-based compensation. Any provision,
application or interpretation of the Plan inconsistent with this
intent to satisfy the standards in Section 162(m) of the Code
shall be disregarded. Notwithstanding anything to the contrary
in the Plan, the provisions of the Plan may at any time be
bifurcated by the Board of Directors of the Company or the
Committee in any manner so that certain provisions of the Plan or
any Bonus intended (or required in order) to satisfy the
applicable requirements of Section 162(m) are only applicable to
persons whose compensation is subject to Section 162(m).
SECTION 6 AMENDMENTS, SUSPENSION OR TERMINATION OF PLAN
Except as otherwise expressly agreed to in writing by the
Committee, the Board of Directors of the Company or the Committee
may, from time to time amend, suspend or terminate, in whole or
in part, the Plan, and if suspended or terminated, may reinstate,
any or all of the provisions of the Plan; provided no amendment,
suspension or termination of the Plan shall in any manner affect
any Bonus theretofore granted pursuant to the Plan (whether or
not the applicable Performance Targets have been attained)
without the consent of the Participant to whom the Bonus was
granted. Notwithstanding the foregoing, no amendment may be
effective without Board of Directors of the Company and/or
shareholder approval if such approval is necessary to comply with
the applicable rules under Section 162(m) of the Code.
APPROVED BY THE BOARD OF DIRECTORS
ON APRIL 1, 1998.
APPROVED BY THE SHAREHOLDERS
ON _____________ __, 1998.
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<PAGE>
PAUL HARRIS STORES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY FOR ANNUAL MEETING MAY 21, 1998
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 to be held at the Paul Harris Willow Lake
Shopping Center, 2670 Lake Circle Drive #C, Indianapolis, Indiana
46268 on Thursday, May 21, 1998, 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]
<PAGE>
[ X ] Please mark your
votes as in this
example.
THIS PROXY WILL BE VOTED AS SPECIFIED AND, UNLESS OTHERWISE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION AS DIRECTORS
OF ALL NOMINEES AND FOR PROPOSALS 2, 3, AND 4.
FOR WITHHELD
1. ELECTION OF DIRECTORS [ ] [ ]
Nominees: John E. Peters
Leslie Nathanson Juris, Ph.D.
_____________________________________
To withhold authority to vote for any
nominee, write that nominee's name in
the space provided above.
FOR AGAINST ABSTAIN
2. Proposal to approve the proposed [ ] [ ] [ ]
amendment to the Company's 1996
Stock Option and Incentive Plan.
3. Proposal to approve the 1998 [ ] [ ] [ ]
Cash Bonus Performance Plan
for Executive Officers.
4. Proposal to ratify the selec- [ ] [ ] [ ]
tion of Price Waterhouse LLP
as independent auditors for
the fiscal year 1998.
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.
Signature: Date: Signature: Date:
NOTE: Please sign exactly as name appears above. 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.
