Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067-2598
Notice of Annual Meeting of Stockholders To Be Held on May 24, 1995
The Annual Meeting of Stockholders of Ames Department Stores, Inc., a
Delaware corporation (the "Company"), will be held at the Radisson Hotel
and Conference Center, Cromwell, Connecticut on Wednesday, May 24, 1995 at
10:00 a.m., to consider and act upon the following matters:
1. the election of seven (7) directors for a term of one year or
until their successor(s) have been elected and qualified;
2. the ratification and approval of the appointment of Arthur
Andersen LLP as independent certified public accountants and
auditors for the Company for the fiscal year ending January 27,
1996;
3. the approval of the Ames Department Stores, Inc. 1995 Long Term
Incentive Plan, as described in the Proxy Statement dated April
10, 1995 accompanying this Notice of Annual Meeting;
4. the approval of the Ames Department Stores, Inc. 1994 Non-
Employee Directors Stock Option Plan, as described in the Proxy
Statement dated April 10, 1995 accompanying this Notice of
Annual Meeting; and
5. the transaction of such other business as may properly come
before the meeting or any adjournment(s) thereof.
Pursuant to the By-Laws of the Company, the Board of Directors has
fixed the time and date for the determination of stockholders entitled to
notice of and to vote at the meeting as of the close of business on April
7, 1995. The stock transfer books of the Company will not be closed.
Accordingly, only holders of record of issued and outstanding shares of
Common Stock of the Company at such time and on such date will be entitled
to notice of and to vote at the Annual Meeting notwithstanding any transfer
of any stock on the books of the Company thereafter. A complete list of
the stockholders entitled to vote will be available for inspection by any
stockholder during the meeting. In addition, the list will be open for
examination by any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to
the meeting at the Ames store located at 30 Waterchase Drive, Rocky Hill,
Connecticut 06067.
By Order of the Board of Directors
Rocky Hill, Connecticut David H. Lissy
April 10, 1995 Secretary
EVEN IF YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS SOON AS POSSIBLE. A RETURN ENVELOPE WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES IS ENCLOSED FOR YOUR CONVENIENCE.
IF FOR ANY REASON YOU DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO IN THE
MANNER SET FORTH IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME PRIOR TO
THE CLOSE OF BALLOTING.
<PAGE>
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067-2598
===========================================================================
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 24, 1995
General Information
This proxy statement is furnished to holders of record of the Common
Stock of Ames Department Stores, Inc. ("Ames" or the "Company") in
connection with the solicitation of proxies by the Board of Directors for
use at the Annual Meeting of Stockholders to be held on May 24, 1995 at
10:00 a.m., and at all adjournments or postponements thereof, for the
purposes set forth in the accompanying notice of meeting.
The mailing address of the principal executive offices of the Company
is 2418 Main Street, Rocky Hill, Connecticut 06067-2598 (telephone number
203/257-2000). The enclosed proxy and this proxy statement are first being
transmitted to stockholders of the Company, together with the Annual Report
on Form 10-K for the fiscal year ended January 28, 1995 ("fiscal year
1994"), on or about April 12, 1995.
Holders of outstanding shares of Common Stock of record at the close
of business on April 7, 1995 (the "Record Date") are entitled to notice of
and to vote at the meeting. Stockholders representing a majority of the
outstanding shares must be present in person or represented by proxy at the
meeting for there to be a quorum for the conduct of business. For this
purpose, shares which are present or represented by a proxy will be counted
for quorum purposes, regardless of whether the holder of the shares or
proxy fails to vote on, or whether a broker with discretionary authority
fails to exercise its discretionary voting authority with respect to, any
particular matter. Once a quorum of the stockholders is established, a
plurality of the votes represented by shares of Common Stock present in
person or represented by proxy at the meeting is necessary for the election
of directors; the remaining proposals require approval by a majority of the
outstanding shares. For voting purposes on a particular matter (as opposed
to establishing a quorum), abstentions and broker non-votes will not be
counted. Broker non-votes occur when a broker nominee (which has voted on
one or more matters at the meeting) does not vote on one or more other
matters because it has not received instructions to so vote from the
beneficial owner and does not have discretionary authority to so vote. At
the close of business on the Record Date, there were 20,127,269 shares of
Common Stock, par value $.01 per share, of the Company issued and
outstanding, each of which is entitled to one vote on each matter to be
acted upon at the meeting.
PROXIES
Solicitation: Proxies in the form enclosed are solicited by and on behalf
of the Board of Directors of the Company. The persons named in the proxy
have been designated as proxies by the Board of Directors.
Actions to be Taken under Proxy: Shares represented by properly executed
proxies received by the Company will be voted at the meeting in the manner
specified therein or, if no specification is made, will be voted FOR: (1)
election of the seven (7) directors listed herein; (2) ratification and
approval of the appointment of Arthur Andersen LLP as the independent
<PAGE>
certified public accountants and auditors for the Company for the fiscal
year ending January 27, 1996; (3) approval of the 1995 Long Term Incentive
Plan; and (4) approval of the 1994 Non-Employee Directors Stock Option
Plan. Proxies will also be voted FOR or AGAINST such other matters as may
properly come before the meeting in the discretion of the persons named in
the proxy. The management of the Company is not aware of any other matters
to be presented for action at the meeting.
Execution: If stock is registered in the names of two or more persons, the
proxy must be signed by each of them. If stock is registered in the name
of a decedent, the proxy must be signed by an executor or administrator
whose title must follow his or her signature. If a stockholder is a
corporation, the proxy must be signed by an executive officer whose title
must be indicated.
Revocation: Any proxy given by a stockholder pursuant to this solicitation
may be revoked by the stockholder at any time before it is exercised by
written notification delivered to the Company, addressed to David H. Lissy,
Secretary, Ames Department Stores, Inc., 2418 Main Street, Rocky Hill, CT
06067-2598, or by executing another proxy bearing a later date or by voting
in person at the meeting.
ELECTION OF DIRECTORS
(Proposal No. 1)
The Board of Directors of the Company is currently comprised of seven
(7) members. The Company's bylaws were amended during fiscal year 1994 to
change the number of directors constituting the entire board from five to
six members and during February, 1995 to change from six to seven members.
The seven directors are to be elected at the Annual Meeting of Stockholders
to hold office until the next annual meeting of stockholders or until the
election and qualification of their respective successors. The Board of
Directors has nominated the persons named in the table below, all of whom
are currently directors of the Company.
Unless otherwise specified in a duly executed and returned proxy, the
shares voted pursuant thereto will be cast for the nominees. If, for any
reason, any of the nominees should be unable to accept the nomination or
election, such proxy will be voted for the election of a substitute nominee
recommended by the Board of Directors. The Board of Directors, however,
has no reason to believe that any nominee will be unable to serve as a
director.
Set forth below is certain relevant information with respect to each
nominee as of April 1, 1995:
<TABLE>
<CAPTION> Shares of
Name, Age, Principal Occupation, First Common Stock
Business Experience and Directorships Became Beneficially
Director Owned (1)
-------- ------------
<S> <S> <S>
Joseph R. Ettore, age 55 ............................. 1994 6,000
President, Chief Executive Officer and Director since June,
1994. Prior to joining Ames, he was President, Chief Execu-
tive Officer and Director of Jamesway Corporation ("Jamesway")
from July, 1993 to June, 1994; President, Chief Operating
Officer and Director of Jamesway in June, 1993; Chairman of
the Board and Chief Executive Officer of Stuarts Department
Stores, Inc. ("Stuarts") from October, 1992 to June, 1993;
and President, Chief Operating Officer and Director of Stuarts
from October, 1989 to October, 1992. He remained a Director of
Stuarts until May, 1994. Jamesway filed for protection under
Chapter 11 of the Bankruptcy Code ("Chapter 11") in July, 1993
and emerged from the Chapter 11 case in January, 1995. Stuarts
filed under Chapter 11 in December, 1990 and emerged from the
Chapter 11 case in October, 1992.<PAGE>
Francis X. Basile, age 63.............................. 1992 1,000
Chairman and Chief Executive Officer of the CIT Group/
Factoring, Inc. until his retirement in January, 1992. He
was appointed President and Chief Executive Officer of the
CIT Group/Factoring, Inc. in January, 1986. Prior to his
retirement, he was also a Director and the Chairman of the
National Commercial Finance Association and a member of its
Executive Committee.
Paul Buxbaum, age 40 .................................. 1992* 1,000
Executive Vice President of Buxbaum, Ginsberg & Associates,
a nationwide retail consulting company, since 1984. He is
also a Director of Richmond Gordman 1/2 Price Stores and
Herbalife International, Inc., and serves on the Audit,
Stock Option, Finance and Compensation Committees of
Herbalife International, Inc.
Alan Cohen, age 58 .................................... 1992 1,000
Chairman of Alco Capital Group, Inc., et al., a diversified
financial service and investment company, since 1975,
and Chief Executive Officer of Russ Toggs, Inc., since
November, 1993. He is also Chairman of the Board of
Marion Oil Corp. and Alco Cadillac-Pontiac Sales Corp.,
and the current court-appointed trustee of Tower Financial
Corporation. He formerly served as Chief Executive Officer
of Health-Tex, Inc.
Richard M. Felner, age 59 ............................ 1994 1,000
Head of Richard M. Felner Associates, a consulting firm
specializing in retail and commercial real estate, since
1991. From 1985 to 1991, he was Vice President of Real
Estate and Corporate Development, and Director, of Worths
Stores Corporation, a subsidiary of Reitmans Ltd., Canada's
largest women's apparel retailer.
Sidney S. Pearlman, age 63 ........................... 1992 1,000
Currently retired. He was formerly Senior Vice President/
General Merchandise Manager of Younkers, Inc. from 1987 to
March, 1991. He has extensive retail experience, having
served as president of three different department store
chains.
Laurie M. Shahon, age 43 .............................. 1995 1,000
President of Wilton Capital Group since January, 1994 which
makes principal investments in later-staged venture capital
companies and medium-sized management buyouts. She was
previously Managing Director of '21' International Holdings,
Inc., a private holding company, from 1988 to December, 1993.
She is also a Director of Arbor Drugs, Inc. and One Price
Clothing Stores, Inc.
<FN>
(1) As used herein, "beneficial ownership" means the sole or shared power to vote or
invest either Common Stock or Warrants, or the right to acquire Common Stock or
Warrants within sixty (60) days (e.g. through the exercise of stock options). Each
director, except for Mr. Basile who holds his shares jointly with his wife, has sole
voting and investment power in the shares listed. The shares listed do not include
any shares which may be acquired under the Non-Employee Directors Stock Option Plan
to be voted on at the Annual Meeting.
* Chairman of the Board of Directors since July, 1993.
The Board of Directors unanimously recommends a vote FOR each of these nominees.
Your proxy will be so voted unless you specify otherwise.
/TABLE
<PAGE>
Board Meetings and Committees
During fiscal year 1994, the Board of Directors held twelve (12)
meetings. None of the directors attended fewer than 75% of the total
number of meetings of the Board of Directors and committees of which they
were members during fiscal year 1994. (Mr. Felner's attendance is measured
only for those meetings subsequent to his election to the Board of
Directors in August, 1994). Ms. Shahon was elected to the Board of
Directors in February, 1995.
During the prior year, and through February, 1994, there were no
committees of the Board of Directors. The Board of Directors chose to act
as a whole on all matters. On March 1, 1994, an Audit Committee was
created comprised of Messrs. Basile (Chairman), Buxbaum, and Cohen, and a
Compensation Committee was created comprised of Messrs. Pearlman
(Chairman), Basile, and Buxbaum. The Audit Committee is responsible for
recommending the appointment of independent accountants and for reviewing
the audit reports and fees of the Company's independent public accountants.
The Compensation Committee is responsible for recommending the compensation
to be paid to the Company's executive officers, and the amount of and the
persons to whom stock options should be granted by the Company. During
fiscal year 1994, there were four formal meetings and numerous other
conversations held by the Compensation Committee. The Audit Committee met
two times during fiscal year 1994; at each of these meetings, the Audit
Committee was joined by other outside directors.
Compensation of Directors
Ames' directors who are not full-time Ames employees receive $40,000
in director's fees ($80,000 per year for the Chairman) for six regular
meetings and $3,000 for each additional Board meeting and are reimbursed
for their expenses. Directors are also compensated at the rate of $10,000
per year for up to four meetings for each committee on which they serve and
$2,500 for each additional committee meeting. For fiscal year 1994, Board
activity and meetings exceeded the anticipated number of regular meetings.
The directors have unanimously determined to reduce by one-half the
compensation to which they would otherwise be entitled for meetings in
excess of the planned regular schedule. An additional payment of $8,750
was made during the first quarter of fiscal year 1994 to each non-employee
director who served during fiscal year 1993. In addition, Sidney S.
Pearlman was paid $2,250 in fiscal year 1994 for consulting services.
Executive Compensation
The following table sets forth each item of compensation paid, earned
or awarded over each of the preceding three years to the Chief Executive
Officer and the four other most highly paid executive officers serving at
January 28, 1995, and to any terminated executive officers who would
qualify for such disclosure if they had not been terminated. Peter
Thorner, former President and Chief Operating Officer, left the Company on
June 8, 1994 and Donald Norman, former Senior Vice President, Logistics,
left the Company on May 20, 1994.
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
--------------------------------
Annual Compensation Awards Payouts
------------------------ ------------------- ---------
Name & Other Restricted (#) LTIP All
Principal Fiscal Annual Stocks Options/ Payouts Other
Position Year Salary Bonus(a) Comp. Awards SARs(b) (c) Comp.(d)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph R. Ettore 1994(e) $481,731 $450,000 (f) $-0- 200,000 $-0- $ 26,514
President & Chief 1993
Executive Officer 1992
Peter Thorner 1994(g) 164,423 -0- (f) -0- 75,000 -0- 389,189(g)
Former President 1993 457,362 80,595 (f) -0- -0- -0- 6,479
& Chief Operating 1992 365,365 -0- (f) -0- 200,000 -0- 7,894
Officer
John W. Hermsen 1994 243,033 -0- (f) -0- 30,000 -0- 5,022
Executive Vice 1993(h) 138,461 70,528 (f) -0- -0- -0- 586
President, Stores 1992
and Distribution
Donald E. Norman 1994(i) 81,208 -0- (f) -0- 21,000 -0- 160,232(i)
Former Senior 1993 245,654 39,332 (f) -0- -0- -0- 9,548
Vice President, 1992 231,731 -0- (f) -0- 100,000 -0- 8,156
Logistics
David H. Lissy 1994 210,000 -0- (f) -0- 21,000 -0- 6,241
Senior Vice 1993 210,000 24,331 (f) -0- -0- -0- 3,412
President,General 1992 190,575 18,000 (f) -0- 125,000 -0- 2,880
Counsel and Corp-
orate Secretary
Richard L. Carter 1994 201,598 -0- (f) -0- 21,000 -0- 4,135
Senior Vice Pres.,1993(j) 175,385 28,323 (f) -0- -0- -0- 448
Human Resources 1992
Eugene E. Bankers 1994 202,500 -0- (f) -0- 21,000 -0- 2,398
Senior Vice Pres.,1993(k) 15,385 50,000 (f) -0- -0- -0- -0-
Marketing 1992
<FN>
(a) Represents certain signing bonuses and bonuses earned under the Annual Incentive Compensation Plan (see
below).
(b) Stock Options were granted to certain members of management in fiscal year 1994 under the 1994
Management Stock Option Plan (see below). The options granted to Messrs. Thorner and Norman were
terminated when they left the Company. Stock Appreciation Rights (SARs) were granted to certain
members of management in fiscal year 1992 in connection with the plan of reorganization (see below).
(c) Other than the stock options and SARs discussed in (b) above, Ames did not have a long-term incentive
plan (LTIP) or pension plan during the covered periods.
(d) Represents the Company's matching contributions under the Retirement and Savings Plan (see below),
excess paid life insurance, and for J. Ettore, $24,576 of paid disability and life insurance coverage
in fiscal year 1994.
(e) Joined the Company on June 9, 1994 (see summary description of employment contract in this proxy
statement).
(f) Represents a car allowance and/or living allowance (for J. Ettore) that aggregated to the lesser of
$50,000 or 10% of the individual executive's total salary and bonus.
(g) Left the Company on June 8, 1994 and was paid $384,665 in severance and vacation pay during fiscal year
1994 (included in "All Other Compensation").
(h) Joined the Company on June 21, 1993.
(i) Left the Company on May 20, 1994 and was paid $156,023 in severance and vacation pay during fiscal year
1994 (included in "All Other Compensation").
(j) Joined the Company on February 22, 1993.
(k) Joined the Company on December 31, 1993.
</TABLE>
<PAGE>
Option Grants in Last Fiscal Year
The table below discloses information regarding grants of stock
options to the named executive officers during fiscal year 1994. There
were no Stock Appreciation Rights (SARs) granted during the year.
<TABLE>
Option Grants in Last Fiscal Year
- ----------------------------------
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rate of Stock Price
Appreciation
Individual Grants for Option Term
- ---------------------------------------------------------------------- -------------------
% of
Number of Total Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal Price Expiration
Name Granted(#) Year 1994 ($/Sh) Date 5% 10%
- --------- ----------- ----------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
J. Ettore 200,000 12.4% $3.75 6/30/2000 $256,000 $578,000
P. Thorner 75,000 (a) 4.7%
J. Hermsen 21,000 1.3% 5.06 3/17/1999 29,400 64,890
J. Hermsen 9,000 0.6% 3.81 8/01/1999 9,450 20,970
D. Norman 21,000 (a) 1.3%
D. Lissy 21,000 1.3% 5.06 3/17/1999 29,400 64,890
R. Carter 21,000 1.3% 5.06 3/17/1999 29,400 64,890
E. Bankers 21,000 1.3% 5.06 3/17/1999 29,400 64,890
<FN>
(a) Options were terminated when the named executive officer left the Company.
</TABLE>
Pursuant to the 1994 Management Stock Option Plan (the "Option
Plan"), the Company may grant options with respect to an aggregate of up to
1,700,000 shares of Common Stock, with no individual optionee to receive in
excess of 200,000 shares of Common Stock upon exercise of options granted
under the Option Plan. During fiscal year 1994, options with respect to a
total of 1,608,500 shares of Common Stock were issued to certain members of
management. After certain terminations, options with respect to a total of
1,299,500 shares of Common Stock were outstanding as of January 28, 1995.
The exercise prices of the options are equal to the fair market value of
the Common Stock on the date the options were granted. One-third (one-
fifth for J. Ettore) of the shares underlying the options may be purchased
at the exercise price after one year from the grant date, with an
additional one-third (one-fifth for J. Ettore) of the shares allowed to be
purchased after two and three years, respectively (after two, three, four
and five years, respectively, for J. Ettore). The unexercised portion of
the options granted under the Option Plan will terminate upon the
expiration of five years (six years for J. Ettore) from the grant date.
Aggregated SAR Exercises in Last Fiscal Year and FY-End SAR/Option Values
The table below discloses information regarding aggregated exercises
of stock options and SARs by the named executive officers during fiscal
year ("FY") 1994 and stock options and SARs held by the named executive
officers as of January 28, 1995. Pursuant to the terms of the Option Plan,
the stock options could not be exercised by the named executive officers,
and there were no stock options or SARs repriced, during FY 1994.
<PAGE>
<TABLE>
Aggregated SAR Exercises in Last Fiscal Year and FY-End SAR/Option Values
- --------------------------------------------------------------------------
<CAPTION>
# of Shares Value of
Underlying Unexercised
Unexercised In-the-Money
SARs/Options SARs/Options
at 1/28/95 at 1/28/95($)
(#)Shares ($) Value Exercisable / Exercisable /
Name Exercised Received Unexercisable Unexercisable
------------------- --------- -------- -------------- --------------
<S> <C> <C> <C> <C>
Joseph R. Ettore -0- $-0- -0- /200,000 $ -0- / -0-
Peter Thorner 133,333 130,667 -0- / -0- -0- / -0-
John W. Hermsen -0- -0- -0- / 30,000 -0- / -0-
Donald E. Norman 66,665 168,662 -0- / -0- -0- / -0-
David H. Lissy 50,000 127,500 75,000/ 21,000 -0- / -0-
Richard L. Carter -0- -0- -0- / 21,000 -0- / -0-
Eugene E. Bankers -0- -0- -0- / 21,000 -0- / -0-
</TABLE>
In connection with the plan of reorganization, SARs exercisable only
for cash, equivalent to 1.2 million shares of the new Common Stock were
granted to certain members of management and key employees as compensation
for their efforts in restructuring Ames and enabling it to emerge from
Chapter 11. After exercises and terminations, SARs equivalent to 228,367
shares (including 75,000 for D. Lissy) were outstanding as of January 28,
1995. One-third of the SARs vested on December 30, 1992 (the "Consummation
Date" of the Company's plan of reorganization); one-third vested on
December 30, 1993; and the remaining one-third vested on December 30, 1994.
Each SAR entitles the recipient upon exercise (which may not be later than
five years after the Consummation Date), to receive in cash the excess of
the average closing price of a share of Common Stock during the ten trading
days prior to the exercise date, over the average closing price of a share
of Common Stock during the 60 trading days after the Consummation Date.
The average closing price for the 60 trading days after the Consummation
Date was $2.96 per share and the average closing price for the last 10
trading days of fiscal year 1994 was $2.70 per share. During fiscal year
1994, a total of 594,965 SARs were exercised.
Annual Incentive Compensation Plan
The Company has an Annual Incentive Compensation Plan (the "Annual
Bonus Plan") that is subject to annual review by the Board of Directors.
The Annual Bonus Plan provides annual incentive cash bonuses based on the
achievement of the Company's financial goals for the year (and customer
service goals for store and field management). Pursuant to the Annual
Bonus Plan, bonuses for fiscal year 1994 will not be paid until May, 1995.
Participants must be active Ames' employees at the time the bonus payments
are made to earn a bonus. Except for J. Ettore (see Employment Contracts),
none of the named executive officers (those listed in the Summary
Compensation Table) earned bonuses under the Annual Bonus Plan for fiscal
year 1994.
Retirement and Savings Plan
The Company has a defined contribution retirement and savings plan
(the "Retirement and Savings Plan") that is qualified under Sections 401(a)
and 401(k) of the Internal Revenue Code of 1986, as amended. Employees who
have reached the age of 21 are eligible to participate after one year of
service provided they have completed at least 1,000 hours of service in a
12-month period. For each participant's contribution (up to a maximum of
5% of such participant's total compensation), the Company contributes to
the Retirement and Savings Plan an amount equal to 50% of such
contribution. A participant may contribute to the plan from 1% to 18% of
annual compensation on a pre-tax or after-tax basis, or a combination of
both. Participants who terminate their employment with the Company are
entitled to receive the full amount of their contributions and, depending
on the length of the participant's service to Ames, a portion of the
Company's matching contributions.<PAGE>
The following table sets forth as to the named executive officers
(those listed in the Summary Compensation Table), and all other officers
and employees of Ames as a group, the aggregate matching contributions by
Ames under the Retirement and Savings Plan during fiscal year 1994:
Aggregate Matching
Contributions
------------------
Joseph R. Ettore $ -0-
Peter Thorner 3,755
John W. Hermsen 3,803
Donald E. Norman 3,133
David H. Lissy 4,221
Richard L. Carter 3,040
Eugene E. Bankers 303
All other employees and officers $2,832,998
Retirement Plan
Ames has an unfunded Retirement Plan for Officers/Directors (the
"Retirement Plan"). Every person who is employed by Ames when he or she
retires, dies or becomes disabled and who (i) served as both a full-time
officer and a director of Ames and has completed five years of service, not
necessarily consecutive, in both of these capacities, or (ii) served as a
director of Ames and has completed 10 years, not necessarily consecutive,
of service to Ames, is eligible for benefits under the Retirement Plan.
Benefits are payable upon termination of employment due to
retirement, death or disability. The annual benefit is equal to two-thirds
of the participant's average annual base salary during the five-year period
of highest compensation preceding such termination of employment. The
maximum annual benefit under the Retirement Plan is $100,000, reduced by an
amount equal to certain of such participant's annual Social Security
benefits. Each participant in the Retirement Plan is entitled to benefits
for a period of 10 years. Upon the earlier death of the participant, at
the Company's option, the future payments as scheduled or the then present
value of all unpaid benefits will be paid to the participant's estate.
Joseph Ettore, current President, Chief Executive Officer and director, and
the other current directors may qualify for benefits under this plan. As
of January 28, 1995, Mr. Ettore had completed approximately eight months of
credited service as a full-time officer and director of Ames. No payments
were made under this plan in fiscal year 1994.
Employment Contracts, Termination, Severance
and Change-in-Control Arrangements
Employment Contracts
Set forth below are descriptions of the material features of the
employment contracts between the Company and Joseph R. Ettore, President
and Chief Executive Officer, and Denis T. Lemire, Executive Vice President-
Merchandising.
The Company is party to an employment agreement with Joseph Ettore
dated June 6, 1994 (the "Ettore Agreement"), pursuant to which Mr. Ettore
currently serves as President and Chief Executive Officer of the Company.
The Ettore Agreement has a current term due to expire June 30, 1997. Under
the Ettore Agreement, Mr. Ettore is entitled to a base salary of $750,000
per year; an annual bonus under the Company's Annual Bonus Plan, with a
minimum guaranteed payment of $75,000 for fiscal year 1994; a signing bonus
of $350,000 (paid in June, 1994); an option to acquire 200,000 shares of
Common Stock under the 1994 Management Stock Option Plan; a living
allowance of $30,000 per year; and other compensation and benefits in
effect from time to time for the Company's senior executive officers. For
fiscal year 1994, Mr Ettore's bonus has been determined to be $100,000.
This will be paid in May, 1995.<PAGE>
During the term of the Ettore Agreement, the Company is required to
reimburse Mr. Ettore $12,000 per year for the cost of maintaining a policy
insuring the life of Mr. Ettore with a face amount of $500,000, and to
provide additional life insurance for Mr. Ettore in the face amount of
$500,000. During the term of the Ettore Agreement, the Company shall also
maintain a disability insurance policy which shall pay Mr. Ettore 60% of
his base salary during any period of disability up to age 65. In addition,
the Company shall maintain customary directors' and officers' liability
insurance for Mr. Ettore if such insurance is available to the Company at
reasonable costs.
In the event that Ames terminates the employment of Mr. Ettore
without cause (as such term is defined in the Ettore Agreement) Mr. Ettore
will be entitled to (a) his base salary for the remaining term of the
Ettore Agreement when it would otherwise be payable; (b) any annual bonus
prorated to the effective date of termination; (c) immediate vesting of his
stock options as of the date of termination; and (d) coverage under the
Company's medical plan for one year after the date of termination. In the
event that the employment of Mr. Ettore is terminated by the Company for
cause, or if he terminates his agreement other than as specifically
contemplated in the Ettore Agreement in connection with a change in control
(as such term is defined in the Ettore Agreement) of the Company, he shall
receive no further compensation or other benefits under the Ettore
Agreement except for any amounts to which he was entitled prorated to the
effective date of termination. In the event that there is a change of
control and Mr. Ettore terminates his employment by providing three months'
prior written notice thereof to the Company (given within 30 days of the
change in control), he shall be entitled to the same termination
entitlements as listed above for termination without cause.
The Company is party to an employment agreement with Denis Lemire
dated August 9, 1994 (the "Lemire Agreement"), pursuant to which Mr. Lemire
currently serves as Executive Vice President, Merchandising of the Company.
The Lemire Agreement has a current term due to expire August 21, 1997.
Under the Lemire Agreement, Mr. Lemire is entitled to a base salary of
$300,000 per year; an annual bonus under the Company's Annual Bonus Plan; a
sign-on bonus of $50,000 (paid in August, 1994); an option to acquire
30,000 shares of Common Stock under the 1994 Management Stock Option Plan;
a living allowance of $18,000 per year; and other compensation and benefits
in effect from time to time for the Company's senior executive officers.
In the event that Ames terminates the employment of Mr. Lemire
without cause (as such term is defined in the Lemire Agreement) Mr. Lemire
shall be entitled to (a) his base salary for the remaining term of the
Lemire Agreement when it would otherwise be payable; (b) any annual bonus
prorated to the effective date of termination; (c) immediate vesting of his
stock options as of the date of termination; and (d) coverage under the
Company's medical plan for one year after the date of termination. In the
event that the employment of Mr. Lemire is terminated by the Company for
cause, or if he terminates his agreement, he shall receive no further
compensation or other benefits under the Lemire Agreement except for any
amounts to which he was entitled prorated to the effective date of
termination.
Income Continuation Plan
The named executive officers of Ames (those listed in the Summary
Compensation Table), except for Mr. Ettore who has a separate contract (see
above), participate in an Income Continuation Plan ("ICP"), which
guarantees up to one year's salary in the event of termination other than
for cause. Certain other officers of Ames also participate in the ICP.
<PAGE>
Key Employee Continuity Benefit Plan
Ames has a Key Employee Continuity Benefit Plan (the "Continuity
Plan") that covers all officers (Vice President and above) and certain
other employees of Ames. If the employment of any participant in the
Continuity Plan is terminated by the Company other than for death,
disability, cause (as defined in the Continuity Plan) or by the participant
for good reason (as defined in the Continuity Plan) within 18 months after
a change of control of Ames, the participant will receive a lump sum cash
severance payment. The severance payment is 2.99 times Base Compensation
for the President and Executive Vice Presidents, 2 times Base Compensation
for Senior Vice Presidents and selected Vice Presidents, and 1 times Base
Compensation for other Vice Presidents. Base Compensation is defined
generally as the sum of the participant's annual base compensation in
effect immediately prior to the participant's termination plus one-third of
the value of the cash and stock bonuses paid to the participant during the
36 months ending on the date of termination. For purposes of the
Continuity Plan, a change of control includes, but is not limited to, the
acquisition by any person of beneficial ownership of 20% or more of the
Company's outstanding voting securities or the failure of the individuals
who constituted the Board of Directors at the beginning of any period of 12
consecutive months to continue to constitute a majority of the Board during
such period.
Additional Information with respect to Board of Directors Interlocks
and Insider Participation in Compensation Decisions
Joseph Ettore has been a member of the Board of Directors and an
executive officer of the Company since June, 1994. However, he did not
participate as a Board member in Board deliberations in fiscal year 1994
relating to his own executive compensation.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, that would otherwise
incorporate future filings, including this Proxy Statement, in whole or in
part, the Compensation Committee's Report on Executive Compensation and the
Performance Graph that follow below shall not be incorporated by reference
into any such filings.
The Compensation Committee's Report on Executive Compensation
The Compensation Committee of the Company's Board of Directors (the
"Committee") is responsible for recommending to the full Board of Directors
(the "Board") the compensation to be paid to the Company's principal
executive officers, including the Chief Executive Officer ("CEO"), and the
persons to whom and the amount in which stock options should be granted by
the Company under the Company's 1994 Management Stock Option Plan. As
previously described, the Company currently has employment contracts with
Joseph R. Ettore, CEO, and Denis T. Lemire, Executive Vice President,
Merchandising. Set forth below is a report submitted by the Committee
regarding the compensation policies for fiscal year 1994, as they related
to the Company's principal executive officers, including the CEO.
<PAGE>
Compensation Policies
In April of each year, the Committee reviews management's proposed
annual salaries for principal executive officers for the remainder of the
new fiscal year and the beginning of the next fiscal year. In determining
whether to accept management's proposed salaries, or recommend different
salaries, the Committee considers a number of factors, including but not
limited to the following: (1) the Company's financial performance for the
prior fiscal year, including whether the Company had a net profit or loss,
the amount thereof, the reasons for such performance, and whether such
performance was primarily as a result of the executive officers'
performance, or whether the performance might have related to unforeseen
events or events not in the executives' control; and (2) the extent to
which an executive officer achieved certain objectives in his or her area
of primary responsibility that might have been set in the prior fiscal
year, or otherwise made a significant contribution to the Company. The
Committee believes that an important factor in attracting and motivating
Ames' executive officers is to insure that the compensation paid to such
individuals is competitive with that paid by comparable companies. In its
review of management's proposed goals under the Annual Bonus Plan for a
fiscal year, the Committee utilizes criteria similar to that which it uses
in reviewing annual salaries.
In considering the grant of stock options to employees, including the
Company's principal executive officers, the Committee considers the
responsibility level of the position, job performance and salary level, and
reviews the long-term objectives of management and the Board.
Fiscal Year 1994 Executive Compensation
Employing its compensation review factors described above, the
Committee recommended to the Board that management's salary recommendations
for its senior executives and the recommendations for eligible participants
in, and the Company's goals for, the Annual Bonus Plan for the fiscal year
ending January 28, 1995 be adopted. The Committee also reviewed the
Company's employment contracts with Messrs. Ettore (see CEO Compensation
section below) and Lemire, and the compensation levels for John F.
Burtelow, Executive Vice President, Chief Financial Officer and John W.
Hermsen, Executive Vice President, Stores and Distribution upon his
promotion in July, 1994.
In accepting the salary recommendations for those executive officers
who had served in the prior year, the Committee noted that management's
recommended salaries were, for the principal executive officers, slightly
higher in the aggregate than the previous year's salaries. The Committee
specifically considered that the Company had achieved net earnings of $10.8
million, or $.51 per share, in the previous fiscal year (the first full
fiscal year after the Company's emergence from its Chapter 11 case) and
that management had identified certain long-term objectives and had
initiated procedures to meet such objectives.
In approving Mr. Lemire's contract, the Committee acknowledged the
Company's need for an experienced Executive Vice President, Merchandising.
Mr. Lemire has had extensive buying and merchandising experience with
department, off-price, specialty and discount store formats and is expected
to contribute significantly to the Company's efforts to improve sales and
operating results. In approving Mr. Burtelow's compensation level, the
Committee acknowledged the Company's need for an experienced Executive Vice
President, Chief Financial Officer. Mr. Burtelow has had extensive
financial leadership experience in the retail field and is expected to
contribute significantly to the Company's efforts to control expenses and
improve operating results. In approving Mr. Hermsen's compensation level,
the Committee acknowledged the Company's need for an experienced Executive
Vice President, Stores and Distribution, and considered Mr. Hermsen's
accomplishments since his hiring as Senior Vice President, Store Operations
in June, 1993. Mr. Hermsen has had extensive operations experience in the
retail field and is expected to contribute significantly to the Company's
effort to improve sales and operating results.<PAGE>
The Committee approved the grants of stock options to certain members
of management in fiscal year 1994 pursuant to the 1994 Management Stock
Option Plan (the "Option Plan") that was approved by stockholders in June,
1994. The purpose of the Option Plan is to provide certain key employees
of the Company an opportunity to acquire an ownership interest in the
Company and thereby create in such employees an increased interest in and
greater concern for the welfare of the Company, to retain their continued
employment, and to secure and retain the services of persons capable of
filling key positions with the Company. Such options were granted during
fiscal year 1994 with an exercise price equal to the market price of the
Common Stock on the date of grant, so that individuals receiving such
grants benefit only if stockholders benefit through appreciation in the
post-grant value of Ames shares.
Fiscal Year 1994 CEO Compensation
In approving Mr. Ettore's contract to be President and CEO, the
Committee and the Board believed that the Company required a CEO with
extensive merchandising experience to enable the Company to be even more
competitive and achieve its full potential. Mr. Ettore has had CEO
experience with other regional discount department store chains and has a
strong background in softlines, an area that is expected to become a more
important part of the Company's future merchandise mix. Mr. Ettore is
expected to lead the Company to improved levels of sales and operating
results.
Pursuant to the ICP, Peter Thorner, the Company's previous President,
would be entitled to severance pay of up to one year's salary. Mr. Thorner
has notified the Company that he has obtained other employment and his ICP
payments ended as of March 27, 1995.
The Compensation Committee
Sidney S. Pearlman, Chairman
Francis X. Basile
Paul Buxbaum
<PAGE>
Performance Graph
The following graph compares the changes in the cumulative total
return on the Company's Common Stock with the cumulative total return of
the NASDAQ Stock Market Index (U.S. Companies) and the cumulative total
return of the NASDAQ Retail Stock Index for the period commencing on
December 30, 1992 (the first day of trading in the Company's Common Stock)
and ending on January 30, 1993, and for the two subsequent fiscal years
ended January 29, 1994 and January 28, 1995. The graph assumes that the
value of the investment in Ames Department Stores, Inc. and each index was
$100 on December 30, 1992 and that any dividends were reinvested.
<TABLE>
Performance Graph
<CAPTION>
12/30/92 1/29/93 1/28/94 1/27/95
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Ames Department Stores, Inc. $100 $238 $154 $159
CRSP Index for NASDAQ Stock Market (U.S. Companies) 100 104 118 114
CRSP Index for NASDAQ Retail Companies 100 99 106 95
</TABLE>
Transactions with Management and Others
Mr. Ettore's brother-in-law is Principal and Partner of Four Star
Apparel, a supplier to the Company. The Company did business with Four
Star Apparel prior to Mr. Ettore joining the Company. In fiscal year 1994,
in the normal course of business, the Company purchased approximately $1.2
million of merchandise from Four Star Apparel. To the knowledge of Ames,
there were no other related transactions or business relationships, with
directors or executive officers of Ames during fiscal year 1994, or any
currently proposed, that would require disclosure.
<PAGE>
Security Ownership of Management
As of March 1, 1995, the Company's directors and officers as a group
were beneficial owners of 113,051 shares of the Common Stock, excluding any
shares which may be acquired by the non-employee directors under the Non-
Employee Directors Stock Option Plan to be voted on at the Annual Meeting.
As used herein, "beneficial ownership" means the sole or shared power to
vote or invest either Common Stock or Warrants, or the right to acquire
Common Stock or Warrants within sixty (60) days. To the knowledge of Ames,
there were no director or officer reporting delinquencies during fiscal
year 1994.
The Company is not aware of any arrangements, including any pledge by
any person of securities of the Company, which may at a subsequent date
result in a change of control of the Company.
Listed below are the number of shares of Common Stock beneficially
owned by the named executive officers (those listed in the Summary
Compensation Table) and all executive officers as a group as of March 1,
1995:
<TABLE>
<CAPTION>
Total
Shares of
Shares of Exercisable Common Stock Percent
Common Stock Stock Beneficially of
Name Owned (1) Options (2) Owned Class (3)
---- ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
J. Ettore 6,000 -0- 6,000
P. Thorner -0- -0- -0-
J. Hermsen 350 7,000 7,350
D. Norman -0- -0- -0-
D. Lissy 200 7,000 7,200
R. Carter -0- 7,000 7,000
E. Bankers -0- 7,000 7,000
Executive Group as
a whole, including
the above 6,650 52,500 59,150 0.3%
<FN>
(1) Each named executive, except for Mr. Lissy who holds his shares jointly
with his wife, has sole voting and investment power in the shares listed.
(2) Represents shares of Common Stock that may be acquired within 60 days
through the exercise of stock options under the 1994 Management Stock
Option Plan.
(3) Each named executive's individual holdings represent less than 0.1% of the
total shares of Common Stock outstanding.
</TABLE>
Security Ownership of Certain Beneficial Owners
Through April 7, 1995, Ames is aware of one public filing reflecting
beneficial ownership of more than 5% of the total outstanding shares of the
Common Stock on the Record Date. Dickstein & Co., Dickstein International,
Dickstein Partners, Dickstein Inc. and Mark Dickstein (together "the
Dickstein Group") have each filed a Schedule 13D with the Securities and
Exchange Commission indicating that the Dickstein Group had combined
beneficial ownership of 1,436,398 shares of the Company's Common Stock, or
7.1% of the total shares of Common Stock.
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Proposal No. 2)
Upon recommendation of the Audit Committee, the Board of Directors
has selected Arthur Andersen LLP, independent public accountants, as
auditors of the Company for the fiscal year ending January 27, 1996,
subject to ratification by stockholders at the Annual Meeting. It is
intended that, unless otherwise directed by the stockholders, proxies will
be voted for the ratification and approval of this appointment. A member
of the firm of Arthur Andersen LLP will be present at the meeting to make
such statements as that firm may desire and to answer questions by
stockholders.
The Board of Directors unanimously recommends a vote FOR the
appointment of the named auditors. Your proxy will be so voted unless you
specify otherwise.
APPROVAL OF 1995 LONG TERM INCENTIVE PLAN
(Proposal No. 3)
The Board of Directors of the Company and its Compensation Committee
have approved the Company's 1995 Long Term Incentive Plan (the "Long Term
Plan"), subject to stockholder approval. A description of the material
features of the Long Term Plan are set forth below.
The Board of Directors recommends a vote FOR the approval of the
adoption of the Long Term Plan. Your proxy will be so voted unless you
specify otherwise.
General
The purpose of the Long Term Plan is to promote the long term success
of the Company by affording certain officers with an opportunity to acquire
an ownership interest in the Company, in order to incentivize such persons
and to align their financial interests with the stockholders of the
Company. Pursuant to the Long Term Plan, the Company may make awards
("Awards") of an aggregate of up to 500,000 shares of Common Stock that are
subject to restrictions on transfer thereof ("Restricted Stock") and a cash
payment (a "Cash Payment") in an amount up to 50% of the Fair Market Value
(as defined in the Long Term Plan) of the Restricted Stock determined as
of, and paid on, the Vesting Date (as described below). The Cash Payment
is intended as an estimate of an Award recipient's Federal income tax
liability on the Award (including the Cash Payment) in order to allow the
recipient to receive the Restricted Stock free and clear on the Vesting
Date.
<PAGE>
Shares of Common Stock subject to Awards may be either authorized but
unissued shares, or previously issued shares acquired or to be acquired by
the Company and held in its treasury, or both, at the discretion of the
Company. Listed below are Awards covering an aggregate of 380,000 shares
that have been made pursuant to the Long Term Plan, subject to stockholder
approval of the Long Term Plan:
New Plan Benefits
1995 Long Term Incentive Plan
Name & Position Number of Shares
------------------------------------- ----------------
Joseph R. Ettore 75,000
President, Chief Executive Officer
and Director
John W. Hermsen 35,000
Executive Vice President,
Store and Distribution
David H. Lissy 25,000
Senior Vice President, General Counsel
and Corporate Secretary
Richard L. Carter 25,000
Senior Vice President, Human Resources
Eugene E. Bankers 25,000
Senior Vice President, Marketing
Executive Group as a whole, including the above 380,000
Non-Executive Director Group -0-
Non-Executive Officer Group -0-
Each of the Awards listed above included the right to receive a Cash
Payment of 50% of the Fair Market Value of the Restricted Stock portion of
such Award.
Summary of the Plan
Administration: The Long Term Plan is administered by the
Compensation Committee of the Board of Directors of the Company, which is
comprised of no fewer than three "disinterested persons" within the meaning
of Rule 16b-3 under Section 16(b) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), each of whom shall also be an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations promulgated
thereunder (the "Compensation Committee"). The members of the Compensation
Committee are: Sidney S. Pearlman (Chairman), Francis X. Basile and Paul
Buxbaum. Any or all powers and functions of the Compensation Committee may
be exercised at any time and from time to time by the Board of Directors or
an executive committee of the Board of Directors (the "Executive
Committee"), provided all of the participating members of the Board or the
Executive Committee are "disinterested persons" within the meaning of Rule
16b-3. (References in this discussion to the "Committee" include the
Compensation Committee, the Board of Directors and the Executive Committee
to the extent any of the foregoing administers the Long Term Plan.) The
authority of the Committee includes, among other things, determining the
persons to whom Awards are made, the timing of any Awards, the number of
shares subject to each Award, the amount of the Cash Payment, if any, to be
made as part of the Award and the other terms and provisions thereof.
<PAGE>
Officers subject to Section 16(a) of the Exchange Act may not, and
the Committee also has the authority to require, as a condition to any
Award, that any other participant also may not, sell or otherwise dispose
of shares acquired pursuant to an Award within six months of the date of
such Award.
Eligibility: Awards may be made to the following executive employees
of the Company: the Chief Executive Officer, any Executive Vice President
and any Senior Vice President.
Shares Available: A maximum of 500,000 shares of Common Stock of the
Company may be granted for all purposes under the Long Term Plan.
Vesting: Each Award under the Long Term Plan vests in full on the
third anniversary of the date of grant of such Award (the "Vesting Date").
In the event of the death or disability of an Award recipient prior to the
applicable Vesting Date, the subject Award would vest pro rata based on the
number of full months which elapsed between the date of grant and the date
of death or disability.
Effect of Change in Common Stock: In the event of any change in the
Common Stock through consolidation, combination, liquidation,
reorganization, recapitalization, stock dividend, stock split, split-up,
split-off, spin-off, combination of shares, exchanges of shares, or other
like change in capital structure of the Company, the number or kind of
shares or interests subject to an Award and the per share value thereof
shall be appropriately adjusted. An adjustment will be made successively
each time any such change occurs.
Amendment or Termination: The Board of Directors of the Company may
at any time amend or terminate the Long Term Plan, provided that no such
action shall increase the maximum number of shares of Common Stock of the
Company which may be granted in the aggregate under the Long Term Plan. In
addition, with respect to Awards to Executive Officers of the Company (as
defined in the Long Term Plan), no amendment shall be made that materially
(i) increases the benefits accruing to Executive Officers, or (ii) modifies
the requirements as to eligibility for participation of Executive Officers,
unless such amendment is made with the approval of the stockholders of the
Company.
Certain Limitations on Deductibility of Executive Compensation
With certain exceptions, Section 162(m) of the Code denies a
deduction to publicly held corporations for compensation paid to certain
executive officers in excess of $1 million per executive per taxable year
(including any deduction with respect to awards under long-term incentive
plans. Any awards granted under the Long Term Plan will not qualify for
any exceptions to Section 162(m) of the Code. Accordingly, the deduction
otherwise allowable to the Company with respect to awards under the Long
Term Plan may be limited by the application of Section 162(m) of the Code.
APPROVAL OF 1994 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
(Proposal No. 4)
The Board of Directors has approved the 1994 Non-Employee Directors
Stock Option Plan (the "Non-Employee Plan"), subject to stockholder
approval. A description of the material features of the Non-Employee Plan
are set forth below.
The Board of Directors unanimously recommends a vote FOR the approval
of the adoption of the Non-Employee Plan. Your proxy will be so voted
unless you specify otherwise.
<PAGE>
General
The Board of Directors of the Company and its Compensation Committee
have approved the Non-Employee Plan, subject to stockholder approval. The
purpose of the Non-Employee Plan is to provide non-employee directors of
the Company an opportunity to acquire a proprietary interest in the Company
through automatic, non-discretionary awards of Common Stock and thus to
create in such directors an increased interest in and a greater concern for
the welfare of the Company and its subsidiaries. Pursuant to the Non-
Employee Plan, the Company may grant options to purchase up to an aggregate
of 200,000 shares of Common Stock of the Company (subject to adjustment as
described below). Options granted pursuant to the Non-Employee Plan will
be options that do not qualify as incentive stock options ("NQSOs") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
As of the Effective Date of the Non-Employee Plan (July 22, 1994), each
non-employee director of the Company then serving will be granted an option
to purchase 10,000 shares of Common Stock. Each grantee's options will be
exercisable in full six months after the date of grant or the date of
stockholder approval of the Long Term Plan, whichever is later, and will
remain exercisable until July 21, 2004. As of March 22, 1995, options to
purchase 2,500 shares each were be granted to non-employee directors
elected to the Board subsequent to the Effective Date but prior to March
22, 1995. These options will be exercisable in full six months after the
date of grant or the date of stockholder approval of the Long Term Plan,
whichever is later, and will remain exercisable until July 21, 2004.
Persons who become non-employee directors of the Company after March 22,
1995 will be granted options to purchase 2,500 shares of Common Stock at
the next succeeding annual meeting of stockholders of the Company,
commencing with the 1996 annual meeting.
Listed below are the number of shares underlying the options to be
granted to non-executive directors (executive and non-executive officers
are not eligible), subject to stockholder approval of the Non-Employee
Plan:
New Plan Benefits
1994 Non-Employee Directors Stock Option Plan
Name & Position Number of Shares
---------------------------- ----------------
Non-Executive Director Group 45,000
Summary of the Plan
Administration: The Non-Employee Plan will be administered by the
Board of Directors, which may designate a committee from its members to
administer the Non-Employee Plan. (References under this caption to the
Board of Directors include the Board of Directors and any committee it may
designate to administer the Non-Employee Plan.) Subject to the express
provisions of the Non-Employee Plan, the Board of Directors will have the
authority to construe the Non-Employee Plan and the options granted
thereunder, to prescribe, amend and rescind rules and regulations relating
thereto and to make all other ministerial determinations necessary or
advisable for administering the Non-Employee Plan.
Eligibility: Options may be granted only to non-employee directors
of the Company, each of whom (i) has not been an officer or employee of the
Company or any subsidiary or parent corporation of the Company for one year
prior to the time a grant of options is made to such person and (ii) is a
"disinterested person" within the meaning of Rule 16b-3 (or any successor
rule) of the Securities Exchange Act of 1934 ("Eligible Directors").
<PAGE>
Grant, Terms and Conditions of Options: The Company will not receive
any monetary consideration for granting options. Effective on the date of
each annual meeting of stockholders of the Company commencing with the 1996
Annual Meeting of Stockholders, each non-employee director of the Company
then in office will be granted an option to purchase 2,500 shares (subject
to adjustment), with the date of the grant to be the date of such meeting.
The exercise price for each share purchasable under any option granted as
of any annual meeting will be an amount equal to the fair-market value (as
defined) per share of the Common Stock on the date of grant. Payment for
shares purchased upon the exercise of options may be in cash or with other
shares of Common Stock. Options granted under the Non-Employee Plan will
be exercisable six months after the date of grant or the date of
stockholder approval of the Long Term Plan, whichever is later, and will
remain exercisable until July 21, 2004.
If an Eligible Director's service as a director of the Company is
terminated, any Option previously granted to such Eligible Director shall,
to the extent not theretofore exercised, terminate and become null and
void; provided, however, that:
(a) if an Eligible Director holding an outstanding Option dies,
including during either the three (3) month or one (1) year period,
whichever is applicable, specified in clause (b) immediately below,
such Option shall, to the extent not theretofore exercised, remain
exercisable for one (1) year after such Eligible Director's death, by
such Eligible Director's legatee, distributee, guardian or legal or
personal representative; and
(b) if the service of an Eligible Director holding an outstanding
Option is terminated by reason of (i) such Eligible Director's
disability (as described in Section 22(e)(3) of the Code), (ii)
voluntary retirement from service as a director of the Company or
(iii) failure of the Company to nominate for re-election such
Eligible Director who is otherwise eligible, except if such failure
to nominate for re-election is due to any act of (A) fraud or
intentional misrepresentation or (B) embezzlement, misappropriation
or conversion of assets or opportunities of the Company or any
subsidiary corporation or parent corporation of the Company (in which
case, such Option shall terminate and no longer be exercisable), such
Option shall, to the extent not therefore exercised, remain
exercisable at any time up to and including (X) three (3) months
after the date of such termination of service in the case of
termination by reason of voluntary retirement or failure of the
Company to nominate for re-election such Eligible Director who is
otherwise eligible, subject to the above exceptions thereto stated in
this clause (b), and (Y) one (1) year after the date of termination
of service in the case of termination by reason of disability.
Options may not be transferred except by will or the laws of descent
and distribution.
Effect of Change in Common Stock: In the event of any change in the
Common Stock through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, split-up, split-off, spin-
off, combination of shares, exchange of shares or other like change in
capital structure of the Company, an adjustment will be made to each
outstanding option so that such option thereafter is exercisable for such
securities, cash and/or property as would have been received had such
option been exercised in full immediately prior to such transaction and
been exchanged in such transaction. An adjustment will be made
successively each time any such change occurs.
<PAGE>
Amendment or Termination: The Board of Directors may at any time
amend or terminate the Non-Employee Plan, provided that no such action
affects or impairs the rights of an optionee under any previously granted
option. Notwithstanding the foregoing, without the approval of the
Company's stockholders, no amendment may be made (i) increasing the total
number of shares of Common Stock reserved for options under the Non-
Employee Plan (other than an increase resulting from an adjustment of the
type described above under "-- Effect of Change in Common Stock"), (ii)
modifying the provisions of the Non-Employee Plan relating to eligibility
or (iii) materially increasing the benefits accruing to participants under
the Non-Employee Plan.
Federal Income Tax Consequences
The statements in the following paragraphs are based on federal
income tax law and interpretational authorities as of the date of this
Proxy Statement, which are subject to change at any time (possibly with
retroactive effect). The law is technical and complex and the statements
represent only a general summary of some of the applicable provisions.
The options granted pursuant to the Non-Employee Plan are non-
qualified stock options ("NQSO") and will not qualify as incentive stock
options under Section 422(b) of the Code. A participant who receives an
NQSO will not recognize any taxable income upon the grant of such NQSO. In
general, upon exercise of an NQSO a participant will be treated as having
received ordinary income in an amount equal to the excess of (i) the fair
market value of the shares (or other property) received at the time of
exercise over (ii) the exercise price.
As a result of Section 16(b) of the Securities and Exchange Act of
1934, the timing of income recognition may be deferred for any period
following the exercise of an NQSO (i.e., the "Deferral Period") for any
participant who is an officer or director of the Company or a beneficial
owner of more than ten percent (10%) of any class of equity securities of
the Company.
If a participant exercising an option granted pursuant to the Non-
Employee Plan makes an election with respect to the shares underlying the
option under Section 83(b) of the Code not later than 30 days after the
date such shares are transferred to such participant pursuant to such
exercise, he or she will be taxed as indicated above whether or not a
Deferral Period exists. Absent a Section 83(b) election, recognition of
income by a participant will be deferred until the expiration of the
Deferral Period, if any; until such expiration, the shares received upon
exercise will be deemed to be subject to restrictions which impose a
substantial risk of forfeiture of such shares ("the Restrictions"). Upon
the expiration of the Deferral Period, the participant will be treated as
having received ordinary income in an amount equal to the excess of (i) the
fair market value of the shares (or other property) at such time over (ii)
the exercise price.
If a Section 83(b) election is made and, before the Restrictions on
the shares lapse, the shares which are subject to such election are sold or
otherwise exchanged, the participant would realize a loss in an amount
equal to the excess, if any, of the amount paid for such shares over the
amount received by the participant upon such sale (which loss would be a
capital loss if the shares are held as a capital asset at such time). A
participant would realize gain in an amount equal to the excess, if any, of
the amount received by the participant upon such sale over the
participant's tax basis in such shares (which gain would be capital gain if
the shares are held as a capital asset at such time).
<PAGE>
If a Section 83(b) election is made, dividends received on shares
which are subject to Restrictions will be treated as dividend income. If a
participant does not make an election under Section 83(b), dividends
received on the shares prior to the time the Restrictions on such shares
lapse will be treated as additional compensation, and not dividend income,
for federal income tax purposes.
A participant's tax basis in the shares received on exercise of an
NQSO will be equal to the amount of any cash paid on exercise, plus the
amount of ordinary income recognized by such participant as a result of the
receipt of such shares. The holding period for such shares would begin
just after the transfer of the shares or, in the case of an officer,
director or beneficial owner of more than 10% of any class of equity
securities of the Company who does not make a Section 83(b) election, just
after the expiration of the Deferral Period, if any. A federal income tax
deduction will be allowed to the Company in an amount equal to the ordinary
income includible by the participant, provided that such amount constitutes
an ordinary and necessary business expense to the Company, is reasonable,
and provided further that the recipient does not become an executive
officer subject to Section 162(m) of the Code and, with respect to the
shares (or other property), the Company satisfies either its reporting or
withholding obligation with respect to such income.
In general, if a participant exercises an NQSO by delivering shares
to the Company, the participant will not recognize gain or loss with
respect to the exchange of such shares, even if their then fair market
value is different from the participant's tax basis. The participant,
however, will be taxed as described above with respect to the exercise of
the NQSO as if he or she had paid the exercise price in cash, and the
Company likewise generally will be entitled to an equivalent tax deduction.
As long as the participant receives a separate identifiable stock
certificate therefor, the tax basis and the holding period for that number
of shares received on such exercise that is equal to the number of shares
surrendered on such exercise will be equal to the tax basis and include the
holding period of those shares surrendered. The participant's tax basis
and holding period for the additional shares received on exercise of an
NQSO paid for, in whole or in part, with shares will be the same as if the
participant had exercised the NQSO solely for cash.
Absent any Deferral Period, if, subsequent to the exercise of an
NQSO, a participant sells the shares received pursuant to such exercise,
the difference, if any, between the amount realized from such sale and the
tax basis of such shares to the participant will be taxed as long-term or
short-term capital gain or loss, depending on whether the participant's
holding period for such shares exceeds the requisite holding period at the
time of sale and provided that the participant holds such shares as a
capital asset at such time.
The Non-Employee Plan is not qualified under the provisions of
Section 401(a) of the Code, and is not subject to any of the provisions of
ERISA.
STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Stockholder proposals which are intended to be presented at the 1996
Annual Meeting of Stockholders must be received at the principal executive
offices of the Company on or before December 14, 1995. To be eligible for
inclusion in the Company's proxy statement and form of proxy relating to
such meeting, a proposal must conform to the requirements of the Securities
Exchange Act of 1934, as amended, and the applicable rules and regulations
promulgated thereunder. Any such proposal should be submitted to the
attention of David H. Lissy, Secretary, Ames Department Stores, Inc., 2418
Main Street, Rocky Hill, CT 06067-2598.
<PAGE>
FORM 10-K OR QUARTERLY REPORTS
To receive additional financial information about Ames, please write
to Margaret E. Wyrwas, Vice President, Corporate Communications & Investor
Relations, MS # 1030, 2418 Main Street, Rocky Hill, CT 06067-2598.
EXPENSES OF SOLICITATION
The expenses of solicitation of proxies hereunder will be paid by the
Company. Proxies will be solicited by mail. They may also be solicited by
directors, officers and employees of the Company (personally, by mail,
telegraph or telephone), but such persons will not be specifically
compensated for such services. The Company will reimburse banks, brokers,
nominees and other custodians and fiduciaries for their reasonable
out-of-pocket expenses in forwarding the proxy soliciting materials to
their principals.
OTHER MATTERS
The Board of Directors does not intend to present any other business
at the meeting and knows of no other matter which will be properly
presented. If, however, any other matter calling for a vote of
stockholders is properly presented at the meeting, it is the intention of
the persons named in the accompanying proxy to vote in accordance with
their judgement on such matters.
By order of the Board of Directors
April 10, 1995 David H. Lissy,
Secretary
