SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
-------------------
[X] Filed by the Registrant
[ ] 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
14-a6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Ames Department Stores, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined.):
4) Proposed maximum aggregate value of transaction: 5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067-2598
Notice of Annual Meeting of Stockholders To Be Held on May 27, 1998
The Annual Meeting of Stockholders of Ames Department Stores, Inc., a
Delaware corporation (the "Company"), will be held at the Ames Corporate
Headquarters, 2418 Main Street, Rocky Hill, Connecticut on Wednesday, May 27,
1998 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 30,
1999;
3. the approval of the Ames Department Stores, Inc. 1998 Management
Stock Incentive Plan, as described in the Proxy Statement dated
April 8, 1998 accompanying this Notice of Annual Meeting;
4. the approval of an amendment to the Ames Department Stores,
Inc. 1994 Non-Employee Directors Stock Option Plan to increase
the number of shares included in each option grant; 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 1, 1998. 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
/s/ David H. Lissy
Rocky Hill, Connecticut David H. Lissy
April 8, 1998 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 27, 1998
--------------------------------------------------
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 27, 1998 at 10:00 a.m. (the "Annual Meeting"),
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 860/257-2000).
The enclosed proxy and this proxy statement are first being mailed to
stockholders of the Company, together with the Annual Report on Form 10-K for
the fiscal year ended January 31, 1998 ("fiscal year 1997"), on or about April
13, 1998.
Holders of outstanding shares of Common Stock of record at the close of business
on April 1, 1998 (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 22,675,964 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 certified public
accountants and auditors for the Company for the fiscal year ending January 30,
1999; (3) the approval of the Ames Department Stores, Inc. 1998 Management Stock
Incentive Plan; and (4) the approval of an amendment to the Ames Department
Stores, Inc. 1994 Non-Employee Directors Stock Option Plan to increase the
number of shares included in each option grant.
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.
<PAGE>
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)
---------------------
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 March 1, 1998:
<TABLE>
<CAPTION>
Shares of
First Common Stock
Name, Age, Principal Occupation, Became Beneficially
Business Experience and Directorships Director Owned (1)
------------------------------------- -------- ------------
<S> <C> <C>
Joseph R. Ettore, age 58 ....................................................... 1994 225,000
President, Chief Executive Officer and Director since June,
1994. Prior to joining Ames, he was President, Chief Executive 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 and re-filed for protection under Chapter 11 in
October, 1995. Stuarts filed under Chapter 11 in December, 1990 and
emerged from the Chapter 11 case in October, 1992 and re-filed for
protection under Chapter 11 in May, 1995.
Francis X. Basile, age 66 ...................................................... 1992 16,000
Currently retired. Until January, 1992, he was Chairman and Chief Executive
Officer of the CIT Group/Factoring, Inc. Prior to his retirement, he was
also a Director and Chairman of the National Commercial Finance
Association and a member of its Executive Committee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares of
First Common Stock
Name, Age, Principal Occupation, Became Beneficially
Business Experience and Directorships Director Owned (1)
------------------------------------- -------- ------------
<S> <C> <C>
Paul Buxbaum, age 43 ........................................................... 1992* 16,000
President of Buxbaum, Ginsberg & Associates, a nationwide retail consulting
company. He is also a Director of Richmond Gordman 1/2 Price Stores,
Lamonts Apparel, Inc. and formerly a Director of Herbalife International,
Inc.
Alan Cohen, age 61 ............................................................. 1992 15,000
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 Alco Cadillac-Pontiac Sales Corp., and formerly served as
court-appointed trustee of Tower Financial Corporation and as Chief
Executive Officer of Health-Tex, Inc.
Richard M. Felner, age 62 ...................................................... 1994 18,500
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 66 ..................................................... 1992 18,000
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 46 ....................................................... 1995 8,500
Since January, 1994, President of Wilton Capital Group which makes principal
investments in later-stage venture capital companies and medium-sized
management buyouts. She was previously Managing Director of '21'
International Holdings, Inc., a private holding company, from April, 1988
to December, 1993. She is also a Director of Arbor Drugs, Inc., One Price
Clothing Stores, Inc. and Homeland Holding Corporation.
<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 has sole voting and investment power in the shares listed.
* Chairman of the Board of Directors since July, 1993.
</FN>
</TABLE>
The Board of Directors unanimously recommends a vote FOR each of these nominees.
Your proxy will be so voted unless you specify otherwise.
<PAGE>
Board Meetings and Committees
-----------------------------
During fiscal year 1997, the Board of Directors held six (6) meetings.
With the exception of Mr. Cohen, 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 1997.
During fiscal year 1997, the Board of Directors had an Audit Committee
comprised of Messrs. Cohen (Chairman), Basile and Buxbaum, a Compensation
Committee comprised of Ms. Shahon (Chairman) and Messrs. Buxbaum and Pearlman,
and a Corporate Governance Committee comprised of Messrs. Felner (Chairman),
Pearlman and Ms. Shahon. 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. The Corporate Governance Committee is
responsible for reviewing board structure and process in order to facilitate
board oversight of management, representation of stockholder interests, and the
performance of other self-determined board functions and duties under applicable
law. During fiscal year 1997, there were three (3) formal meetings and numerous
other conversations held by the Compensation Committee. The Audit Committee met
two (2) times during fiscal year 1997; at each of these meetings, the Audit
Committee was joined by other outside directors. The Corporate Governance
Committee met formally two (2) times and had numerous other conversations during
fiscal year 1997.
Compensation of Directors
-------------------------
Ames directors who are not full-time Ames employees (the "Outside
Directors") receive $40,000 in director's fees ($80,000 per year for the
Chairman) 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.
Pursuant to the Company's 1994 Non-Employee Directors Stock Option Plan
(the "Non-Employee Plan") which was approved by the Company's stockholders on
May 24, 1995, Ames directors who are not full-time Ames employees may be granted
options to purchase Common Stock of the Company. The exercise prices of the
options are equal to the fair market value of the Common Stock on the date of
grant. The options become exercisable in full six months after date of grant. As
of January 31, 1998, Messrs. Basile, Buxbaum, Cohen and Pearlman had been
granted 15,000 options each and Mr. Felner and Ms. Shahon had been granted 7,500
options each. Effective on the date of each annual meeting of stockholders of
the Company commencing with the 1996 Annual Meeting, each non-employee director
of the Company then in office will be granted options to purchase 2,500 shares
with the date of grant to be the date of such meeting. All options terminate ten
years after date of grant. See "APPROVAL OF AMENDMENTS TO 1994 NON-EMPLOYEE
DIRECTORS STOCK OPTION PLAN (Proposal No. 4)" for information concerning
proposed amendments to the Non-Employee Plan to increase the amount of each
grant thereunder to 7,500 options to purchase shares.
<PAGE>
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 31,
1998, and to John F. Burtelow, who would qualify for such disclosure if he had
not resigned his position effective January 3, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Annual Compensation Awards
---------------------------- --------------------- Payouts
Other Restricted (#) ------- All
Fiscal Annual Stocks Options/ LTIP Other
Name & Principal Position Year Salary Bonus(a) Comp. Awards(b) SARs(c) Payouts Comp.(d)
- -------------------------- ------ -------- -------- ------ ---------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph R. Ettore 1997 $866,346 $425,000 (f) $ -0- -0- -0- $39,589
President & Chief 1996 815,385 575,000 (f) -0- 300,000(g) -0- 39,938
Executive Officer 1995 750,000 -0- (f) 206,250 -0- -0- 36,530
Denis T. Lemire 1997 369,712 150,000 (f) -0- -0- -0- 7,860
Executive Vice President, 1996 324,038 140,000 (f) -0- 59,000 -0- 6,017
Merchandising 1995 300,000 -0- 33,200 96,250 -0- -0- 1,507
John F. Burtelow 1997(h) 276,673 -0- (f) -0- -0- -0- 295,896
Executive Vice President, 1996 278,597 112,200 (f) -0- 9,000 -0- 4,456
Chief Financial Officer 1995 263,462 -0- (f) 96,250(e) -0- -0- 1,219
Eugene E. Bankers 1997 240,161 96,000 (f) -0- -0- -0- 6,833
Senior Vice President, 1996 224,473 90,853 (f) -0- 6,300 -0- 8,016
Marketing 1995 216,361 -0- (f) 68,750 -0- -0- 7,677
David H. Lissy 1997 231,183 91,783 (f) -0- -0- -0- 6,559
Senior Vice President, 1996 220,193 88,679 (f) -0- 6,300 -0- 6,881
General Counsel and 1995 214,947 -0- (f) 68,750 -0- -0- 6,445
Corporate Secretary
Richard L. Carter 1997 223,853 88,729 (f) -0- -0- -0- 7,806
Senior Vice President, 1996 205,634 71,788 (f) -0- 6,300 -0- 5,746
Human Resources 1995 206,746 -0- (f) 68,750 -0- -0- 5,667
<FN>
- ---------------
(a) Represents certain signing bonuses and bonuses earned under the Annual
Incentive Compensation Plan (see below).
(b) Pursuant to the 1995 Long Term Incentive Plan (the "Long Term Plan"; see
below), a total of 345,000 shares of Restricted Stock in the aggregate
has been awarded to the Chief Executive Officer and to each Executive
Vice President and each Senior Vice President. The dollar value of the
Restricted Stock award shown in the table was calculated by multiplying
the share price of the Company's Common Stock on the date of the award by
the number of shares awarded. As of January 31, 1998, a total of 310,000
shares of the Restricted Stock that had been awarded under the Long Term
Plan remained outstanding and unvested. The total aggregate value of
these shares was $4,456,250, based on a market price of the Company's
Common Stock of $14.375 as of January 31, 1998.
(c) Stock Options were granted to certain members of management pursuant to
the 1994 Management Stock Option Plan (see below).
(d) Represents the Company's matching contributions under the Retirement and
Savings Plan (see below), excess paid life insurance; and for J. Ettore,
$31,629, $31,943 and $28,761 of paid disability and life insurance
coverage in fiscal years 1997, 1996 and 1995, respectively; and for J.
Burtelow, includes the Cash Payment (see "Long Term Incentive Plan
Awards" below) of 50% of the Fair Market Value of the Restricted Stock as
of the accelerated vesting date.
(e) Represents the value of 35,000 shares as of the date of grant. Upon Mr.
Burtelow's resignation, the Compensation Committee of the Board of
Directors accelerated the March 22, 1998 vesting date to January 2, 1998.
As of January 2, 1998, the value of these shares was $586,250 based on a
market price of the Company's Common Stock of $16.75.
<PAGE>
(f) Represents a car allowance and, for J. Ettore and D. Lemire, a living
allowance that for each executive except D. Lemire in fiscal year 1995
aggregated to less than the lesser of $50,000 or 10% of the individual
executive's total salary and bonus.
(g) Represents 300,000 options granted to J. Ettore pursuant to an employment
contract which is more fully described below. The grant is subject to
stockholder approval of the 1998 Management Stock Incentive Plan. In the
event such approval is not obtained, the employment contract provides,
with certain restrictions, that Mr. Ettore will be entitled to a cash
payment based on the increase in the price of the Company's Common Stock
over and above $2.00 per share through the end of the Term of Employment
as described below.
(h) Resigned effective January 3, 1998.
</FN>
</TABLE>
Option Grants in Last Fiscal Year
- ---------------------------------
There were no stock options or Stock Appreciation Rights (SARs) granted
to the named executive officers during fiscal year 1997.
Pursuant to the 1994 Management Stock Option Plan (the "1994 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 1994 Option Plan. During fiscal year 1997, options with respect to a total
of 61,100 shares of Common Stock were issued to certain members of management.
After certain terminations and exercises, options with respect to a total of
839,180 shares of Common Stock were outstanding as of January 31, 1998. The
exercise prices of the options are equal to the fair market value of the Common
Stock on the date the options were granted. Except as noted below, one-third of
the shares underlying the options may be purchased annually for each of three
years, beginning one year from the grant date. For options granted to J. Ettore
in June, 1994, one-fifth of the shares underlying the options may be purchased
annually for each of five years, beginning one year after the grant date. For
options granted to J. Ettore in July, 1996, once stockholder approval has been
obtained, the shares underlying the options may be purchased immediately. For
all options granted on May 21, 1996 and all options granted after May 1, 1997,
100% of the shares underlying the options may be purchased one year after the
grant date. The unexercised portion of the options granted under the 1994 Option
Plan will terminate upon the expiration of five years from the grant date,
except as follows: the options granted to J. Ettore in June, 1994 terminate six
years from grant date; and the options granted to D. Lemire in August, 1996
terminate ten years from 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")
1997 and stock options and SARs held by the named executive officers as of
January 31, 1998. There were no stock options or SARs repriced during FY 1997.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End SAR/Option Values
<TABLE>
<CAPTION>
# of Shares Value of
Underlying Unexercised
Unexercised In-the-Money
SARs/Options SARs/Options
at 1/31/98 at 1/31/98($)
(#)Shares ($) Value Exercisable / Exercisable /
Name Exercised Realized(b) Unexercisable Unexercisable
- ------------------ --------- ----------- ------------------ ------------------------
<S> <C> <C> <C> <C>
Joseph R. Ettore -0- $ -0- 120,000/380,000(a) $1,275,000/$4,523,500(a)
Denis T. Lemire 10,000 38,125 45,667/ 33,333 522,506/ 401,829
John F. Burtelow 39,000 434,320 -0- / -0- -0- / -0-
Eugene E. Bankers -0- -0- 27,300/ -0- 268,412/ -0-
David H. Lissy 75,000 443,236 27,300/ -0- 268,412/ -0-
Richard L. Carter 10,000 47,939 17,300/ -0- 161,098/ -0-
<FN>
- ---------------
(a) Includes 300,000 options granted to J. Ettore pursuant to an
employment contract which is more fully described below. The grant is
subject to stockholder approval of the 1998 Management Stock Incentive
Plan. In the event such approval is not obtained, the employment contract
provides, with certain restrictions, that Mr. Ettore will be entitled to
a cash payment based on the increase in the price of the Company's Common
Stock over and above $2.00 per share through the end of the Term of
Employment as described below.
<PAGE>
(b) Dollar value realized represents the number of options exercised
multiplied by the difference between the market price of the Company's
Common Stock at date of exercise and the strike price of the options for
all individuals except for Mr. Lissy who exercised SARs. The value
realized on Mr. Lissy's SARS was calculated using the method described
in the following paragraph.
</FN>
</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. All
such SARs expired as of December 30, 1997. Each SAR entitled the recipient upon
exercise to receive in cash the excess of (a) the average closing price of a
share of Common Stock during the ten trading days prior to the exercise date
over (b) $2.96. During fiscal year 1997, a total of 166,683 SARs were exercised.
Long Term Incentive Plan Awards
- -------------------------------
There were no awards of Restricted Stock (as defined below) to the named
executive officers during fiscal year 1997.
The Company's 1995 Long Term Incentive Plan (the "Long Term Plan") was
approved by the stockholders on May 24, 1995. 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 third anniversary of the date of grant (the "Vesting Date"). The
Cash Payment is intended to defray a substantial portion of an Award recipient's
Federal and State income tax liabilities on the Award (including the Cash
Payment) in order to allow the recipient to receive the Restricted Stock
substantially free and clear on the Vesting Date.
The Company officers eligible for Awards under the Long Term Plan are
the Chief Executive Officer, each Executive Vice President and each Senior Vice
President. The Compensation Committee administers the Long Term Plan. To date,
345,000 shares have been awarded, and as of March 22, 1998, 245,000 shares in
the aggregate had vested, and 100,000 shares remain unvested.
Annual Incentive Compensation Plan
- ----------------------------------
The Company has an Annual Incentive Compensation Plan (the "Annual Bonus
Plan") that is subject to annual review by the Compensation Committee and 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 (as well
as customer service goals for store and field management). Pursuant to the
Annual Bonus Plan, bonuses for fiscal year 1997 will be paid in May, 1998.
Participants must be active Ames employees at the time the bonus payments are
made to earn a bonus.
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 1997:
Aggregate Matching
Contributions
------------------
Joseph R. Ettore............................... $ 4,750
Denis T. Lemire................................ 5,940
John F. Burtelow............................... 1,483
Eugene E. Bankers.............................. 3,624
David H. Lissy................................. 4,500
Richard L. Carter.............................. 6,563
All other employees and officers............... $2,826,839
Retirement Plan
- ---------------
Ames has an unfunded Retirement Plan for Officers/Directors (the
"Retirement Plan"). It provides that every person who is employed by Ames when
he or she retires, dies or becomes disabled and who serves 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, is eligible for benefits
under the Retirement Plan.
Benefits under the Retirement Plan 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 would be paid to the participant's estate. Joseph Ettore,
current President, Chief Executive Officer and Director, potentially qualifies
for benefits under this plan. As of January 31, 1998, Mr. Ettore had completed
approximately forty-four months of credited service as a full-time officer and
director of Ames. No payments were made under this plan in fiscal year 1997.
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 1, 1996 and expiring May 31, 1999 (the "Ettore Agreement"), pursuant
to which Mr. Ettore serves as President and Chief Executive Officer of the
Company. Under the Ettore Agreement, Mr. Ettore is entitled to a base salary of
$850,000 per year; an annual bonus if earned under the Company's Annual Bonus
Plan; a signing bonus of $150,000 (paid in June 1996); an option to acquire
300,000 shares of Common Stock (with an option date grant of July 11, 1996),
such grant of options is subject to approval by the Stockholders of the Company
no later than its annual meeting to be held in May 1998; in the event such
approval is not obtained, Mr. Ettore will receive a cash payment based on the
increase in the price of the Company's Common Stock over and above $2.00 per
share through the end of the Term of Employment (as such term is defined in
the Ettore Agreement); a bonus of $450,000 payable at the end of the Term of
Employment; a living allowance of $48,000 per year; and other compensation and
benefits in effect from time to time for the Company's senior executive
officers.
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 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.
<PAGE>
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 (or, if applicable, receipt of the cash payment in lieu
of options); 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 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 entitlement as listed above for
termination without cause.
The Company is party to an employment agreement with Denis Lemire dated
August 1, 1996 expiring July 31, 1999 (the "Lemire Agreement"), pursuant to
which Mr. Lemire serves as Executive Vice President, Merchandising of the
Company. Under the Lemire Agreement, Mr. Lemire is entitled to an initial base
salary of $350,000 per year increasing to $400,000 per year over the term of the
contract; an annual bonus under the Company's Annual Bonus Plan; a sign-on bonus
of $75,000 payable at the end of the Term of Employment (as such term is defined
in the Lemire Agreement); an option to acquire 50,000 shares of Common Stock
under the 1994 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.
John F. Burtelow, who had served as Executive Vice President-Chief
Financial Officer, resigned as of January 3, 1998. The Compensation Committee of
the Board of Directors accelerated the vesting of Mr. Burtelow's 35,000 shares
of Restricted Common Stock such that they vested as of January 2, 1998.
Income Continuation Plan
- ------------------------
The named executive officers of Ames (those listed in the Summary
Compensation Table), except for Mr. Ettore and Mr. Lemire who have separate
contracts (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.
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.
<PAGE>
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 1997
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"), 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 and the persons to whom shares of
Restricted Stock should be awarded by the Company under the Long Term 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 1997, as they related to the Company's
principal executive officers, including the CEO.
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 ensure 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.
<PAGE>
Fiscal Year 1997 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
31, 1998 be adopted.
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 in Fiscal 1996 the Company had increased income before store
closing charges and property gains by $26.4 million and, in addition, continued
to take measures to enhance profitability in future years.
The Committee approved the grants of stock options to certain members of
management in fiscal year 1997 pursuant to the 1994 Option Plan that was
approved by stockholders in June, 1994. The purpose of the 1994 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 1997 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.
Early in fiscal year 1998, the Committee also recommended to the Board
of Directors the establishment of a 1998 Management Stock Incentive Plan (the
"1998 Incentive Plan").
The Compensation Committee
Laurie M. Shahon, Chairman
Paul M. Buxbaum
Sidney S. Pearlman
<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 during the preceding five fiscal years ended January
31, 1998. The comparison assumes $100 was invested on January 29, 1993 in the
Company's Common Stock and in each of the foregoing indices.
<TABLE>
<CAPTION>
1/29/93 1/28/94 1/27/95 1/26/96 1/25/97 1/31/98
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ames Department Stores, Inc. $100 $65 $67 $36 $165 $371
CRSP Index for NASDAQ Stock Market
(U.S. Companies) $100 $114 $110 $152 $201 $240
CRSP Index for NASDAQ Retail Companies $100 $108 $96 $105 $134 $154
</TABLE>
Security Ownership of Certain Beneficial Owners
-----------------------------------------------
Through March 31, 1998, Ames is aware of two public filings reflecting
beneficial ownership of more than 5% of the total outstanding shares of the
Common Stock on the Record Date. Nicholas-Applegate Capital Management, LP
("NACM") of 600 West Broadway, 29th Floor, San Diego, CA 92101, has filed a
Schedule 13G with the Securities and Exchange Commission indicating that NACM
had beneficial ownership of 1,285,900 shares of the Company's Common Stock, or
5.7% of the total shares of Common Stock. Kennedy Capital Management, Inc.
("KCM") of 10829 Olive Blvd., St. Louis, MO 63141, has filed a Schedule 13G with
the Securities and Exchange Commission indicating that KCM had beneficial
ownership of 1,145,750 shares of the Company's Common Stock, or 5.1% of the
total shares of Common Stock.
Security Ownership of Management
--------------------------------
As of March 2, 1998, the Company's directors and officers as a group
were beneficial owners of 1,001,099 shares of the Common Stock. 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.
<PAGE>
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 2, 1998:
Total
Shares of
Shares of Exercisable Common Stock Percent
Name of Common Stock Stock Beneficially of
Beneficial Owner Owned (a) Options (b) Owned Class
- ---------------- ------------ ----------- ------------ -------
J. Ettore............ 105,000 120,000 225,000 (c) 1.0%
D. Lemire............ 40,000 45,667 85,667 0.4%
E. Bankers........... 25,500 27,300 52,800 0.2%
D. Lissy............. 25,200 27,300 52,500 0.2%
R. Carter............ 35,000 17,300 52,300 0.2%
Executive Group as
a whole, including
the above............ 389,800 315,267 705,067 3.1%
- ---------------
(a) Each named executive, except for Mr. Lissy who holds 200 of
his shares jointly with his wife, has sole voting and
investment power in the shares listed. Includes Restricted
Stock awarded under the Long Term Plan.
(b) 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.
(c) Excludes 300,000 options granted to J. Ettore pursuant to an
employment contract which is more fully described herein. The
grant is subject to stockholder approval of the 1998
Management Stock Incentive Plan. In the event such approval is
not obtained, the employment contract provides, with certain
restrictions, that Mr. Ettore will be entitled to a cash
payment based on the increase in the price of the Company's
Common Stock over and above $2.00 per share through the end of
the Term of Employment.
Transactions with Management and Others
---------------------------------------
Mr. Ettore's brother-in-law is principal and partner of Tri-Star Apparel
(f/k/a/ 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
1997, in the normal course of business, the Company purchased approximately $1.5
million of merchandise from Tri-Star Apparel.
Since 1996, Mr. Buxbaum has owned a 50% equity interest in Dealco,
Inc., an entity that assists the Company in identifying opportunities for
close-out and other off price purchases in exchange for commissions equal to
3.0% (subject to reduction based on volume) of the purchase price of such
merchandise. In fiscal year 1997, the Company paid approximately $55,423 in
commissions to Dealco, Inc.
To the knowledge of Ames, there were no other related transactions or
business relationships, with directors or executive officers of Ames during
fiscal year 1997, or any currently proposed, that would require disclosure.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 (the "Act")
requires the Company's officers and directors and persons who own more than ten
percent (10%) of the Company's Common Stock, to file initial reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC") and the NASDAQ Exchange. Additionally, Item 405 of regulation S-K under
the Act requires the Company to identify in its proxy statement those
individuals for whom one of the above referenced reports was not filed on a
timely basis during the most recent fiscal year or prior fiscal years.
To the knowledge of Ames, there was no director or officer reporting
delinquencies, with the exception of an inadvertent untimely reporting on Form 4
by Richard L. Carter regarding an exercise of options.
<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 30, 1999, 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 1998 MANAGEMENT STOCK INCENTIVE PLAN
(Proposal No. 3)
------------------------------------------------
The Board of Directors of the Company has approved the 1998 Management
Stock Incentive Plan (the "1998 Incentive Plan"), subject to the approval by the
Company's shareholders at this Annual Meeting. A description of the material
features of the 1998 Plan are set forth below.
The Board of Directors unanimously recommends a vote FOR the adoption of
the 1998 Incentive Plan. Your proxy will be so voted unless you specify
otherwise.
BACKGROUND
- ----------
The 1998 Incentive Plan is intended to provide incentives which will
attract, retain and motivate highly competent persons as key employees of the
Company and any of its subsidiary corporations now existing or hereafter formed
or acquired, by providing them opportunities to acquire shares of stock or to
receive monetary payments based on the value of such shares pursuant to the
Awards described herein. Furthermore, the 1998 Incentive Plan is intended to
assist in aligning the interests of the Company's key employees with those of
its stockholders.
The Company has employed the 1994 Option Plan for the purposes of
attracting, retaining and motivating key employees. As of March 1, 1998, there
were only 80,000 shares of Common Stock remaining available for the grant of
options under the 1994 Option Plan. Prior to proposing the 1998 Incentive Plan,
the Company retained an outside corporate compensation consultant to reevaluate
the Company's executive compensation policies. After a thorough process
involving competitive analyses, review of proprietary and proxy information, and
deliberations by the Compensation Committee of the Board of Directors (the
"Committee"), the Committee adopted and the Board of Directors ratified, subject
to stockholder approval, the 1998 Incentive Plan.
In structuring the 1998 Incentive Plan, the Committee sought to provide
for a variety of awards that could be flexibly administered to carry out the
purposes of the 1998 Incentive Plan. This authority will permit the Company to
keep pace with changing developments in management compensation and make the
Company competitive with those companies that offer creative incentives to
attract and keep key employees. The flexibility of the 1998 Incentive Plan will
allow the Company to respond to changing circumstances such as changes in tax
laws, accounting rules, securities regulations and other rules regarding benefit
plans. Many other companies have addressed these same issues in recent years and
have adopted this type of flexible plan. The 1998 Incentive Plan grants the
Committee discretion in establishing the terms and restrictions deemed
appropriate for particular awards as circumstances warrant.
The following summary of the 1998 Incentive Plan is not intended to be
complete and is qualified in its entirety by reference to the 1998 Incentive
Plan, a copy of which is attached as Exhibit A to this Proxy Statement.
<PAGE>
SHARES AVAILABLE
- ----------------
The 1998 Incentive Plan provides for the grant of any or all of the
following types of benefits: 1) stock options including incentive stock options
and non-qualified stock options; 2) stock awards, including restricted stock; 3)
performance awards; and 4) stock units (collectively, "Awards"), and makes
available for Awards an aggregate amount of 1,800,000 shares of Common Stock,
subject to certain adjustments. During the term of the 1998 Incentive Plan, the
maximum number of shares of Common Stock with respect to which Awards may be
granted (or measured) to any individual participant may not exceed 300,000. Any
shares of Common Stock subject to a stock option which for any reason is
cancelled or terminated without having been exercised, and subject to limited
exceptions, any shares subject to stock awards, performance awards or stock
units which are forfeited, any shares subject to performance awards settled in
cash or any shares delivered to the Company as part of full payment for the
exercise of a stock option shall again be available for Awards under the 1998
Incentive Plan.
ADMINISTRATION
- --------------
The 1998 Incentive Plan provides for administration by a committee (the
"Administration Committee") appointed by the Board of Directors from among its
members (which will be the Committee), which shall be, unless otherwise
determined by the Board of Directors, comprised solely of not less than two
members who shall be (i) "Non-Employee Directors" within the meaning of Rule
16b-3(b)(3) (or any successor rule) promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and (ii) "outside directors" within
the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations thereunder. The Administration Committee is
authorized, subject to the provisions of the 1998 Incentive Plan, to establish
such rules and regulations as it deems necessary for the proper administration
of the 1998 Incentive Plan and to make such determinations and interpretations
and to take such action in connection with the 1998 Incentive Plan and any
Awards granted thereunder as it deems necessary or advisable. Thus, among the
Administration Committee's powers are the authority to select officers and other
key employees of the Company and its subsidiaries to receive Awards, and
determine the form, amount and other terms and conditions of Awards. The
Administration Committee also has the power to modify or waive restrictions on
Awards, to amend Awards and to grant extensions and accelerations of Awards.
ELIGIBILITY FOR PARTICIPATION
- -----------------------------
Key employees of the Company or any of its subsidiaries are eligible to
participate in the 1998 Incentive Plan. The selection of participants from
eligible key employees is within the discretion of the Administration Committee.
All employees are currently eligible to participate in the 1998 Incentive Plan.
TYPES OF AWARDS
- ---------------
The 1998 Incentive Plan provides for the grant of any or all types of
Awards. Awards may be granted singly, in combination, or in tandem as determined
by the Administration Committee. Stock awards, performance awards and stock
units may, as determined by the Administration Committee in its discretion,
constitute Performance-Based Awards, as described below.
STOCK OPTIONS
- -------------
Under the 1998 Incentive Plan, the Administration Committee may grant
awards in the form of options to purchase shares of Common Stock. Options may be
either incentive stock options, qualifying for special tax treatment, or
non-qualified options. The Administration Committee will, with regard to each
stock option, determine the number of shares subject to the option, the manner
and time of the option's exercise and vesting, and the exercise price per share
of stock subject to the option; provided, however, that the exercise price shall
not be less than 100% of the fair market value of the Common Stock on the date
the stock option is granted. In the case of incentive stock options granted to
any holder of capital stock of the Company (or any subsidiary or parent
corporation) representing 10% or more of the voting power of the Company (or any
subsidiary or parent corporation), the exercise price shall not be less than
110% of the fair market value of the Common Stock on the date the stock option
is granted and the exercise of such option will be prohibited after the
expiration of five years from the date of grant. The exercise price may be paid
in cash or, in the discretion of the Administration Committee, by the delivery
of shares of Common Stock of the Company then owned by the participant, by the
withholding of shares of Common Stock for which a stock option is exercisable,
or by a combination of these methods. In the discretion of the Administration
Committee, payment may also be made by delivering a properly executed exercise
notice to the Company together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds to
pay the exercise price. The Administration Committee may prescribe any other
method of paying the exercise price that it determines to be consistent with
applicable law and the purpose of the 1998 Incentive Plan. In determining which
methods a participant may utilize to pay the exercise price, the Administration
Committee may consider such factors as it determines are appropriate.
<PAGE>
STOCK AWARDS
- ------------
The 1998 Incentive Plan authorizes the Administration Committee to
grant awards in the form of restricted or unrestricted shares of Common Stock
("Stock Awards"). Such awards will be subject to such terms, conditions,
restrictions, and/or limitations, if any, as the Administration Committee deems
appropriate including, but not by way of limitation, restrictions on
transferability, continued employment and performance goals established by the
Administration Committee over a designated period of time.
PERFORMANCE AWARDS
- ------------------
The 1998 Incentive Plan allows for the grant of performance awards
which may take the form of shares of Common Stock or stock units, or any
combination thereof and which may constitute Performance-Based Awards. Such
awards will be contingent upon the attainment over a period to be determined by
the Administration Committee of certain performance goals. The length of the
performance period, the performance goals to be achieved and the measure of
whether and to what degree such goals have been achieved will be determined by
the Administration Committee. Payment of earned performance awards will be made
in accordance with terms and conditions prescribed or authorized by the
Administration Committee. The participant may elect to defer, or the
Administration Committee may require the deferral of, the receipt of performance
awards upon such terms as the Administration Committee deems appropriate.
STOCK UNITS
- -----------
The Administration Committee may, in its discretion, grant Stock Units
to participants. A "Stock Unit" means a notional account representing one share
of Common Stock. The Administration Committee determines the criteria for the
vesting of Stock Units and whether a participant granted a Stock Unit shall be
entitled to Dividend Equivalent Rights (as defined in the 1998 Incentive Plan).
Upon vesting of a Stock Unit, unless the Administration Committee has determined
to defer payment with respect to such unit or a participant has elected to defer
payment, shares of Common Stock representing the Stock Units will be distributed
to the participant unless the Administration Committee, with the consent of the
participant, provides for the payment of the Stock Units in cash, or partly in
cash and partly in shares of Common Stock, equal to the value of the shares of
Common Stock which would otherwise be distributed to the participant.
PERFORMANCE-BASED AWARDS
- ------------------------
Certain Awards granted under the 1998 Incentive Plan may be granted in
a manner such that the compensation attributable to such Award qualifies for the
performance-based compensation exemption to Section 162(m) of the Code
("Performance-Based Awards"). As determined by the Administration Committee in
its sole discretion, either the granting or vesting of such Performance-Based
Awards will be based upon one of more of the following factors: net sales,
pretax income before allocation of corporate overhead and bonus, budget,
earnings per share, net income, division, group or corporate financial goals,
return on stockholders' equity, return on assets, attainment of strategic and
operational initiatives, appreciation in and/or maintenance of the price of the
Common Stock or any other publicly-traded securities of the Company, market
share, gross profits, earnings before interest and taxes, earnings before
interest, taxes, depreciation and amortization, economic value-added models and
comparisons with various stock market indices, reductions in costs, or any
combination of the foregoing.
<PAGE>
With respect to Performance-Based Awards, the Administration Committee
shall establish in writing, (x) the objective performance-based goals applicable
to a given period and (y) the individual employees or class of employees to
which such performance-based goals apply no later than 90 days after the
commencement of such period (but in no event after 25% of such period has
elapsed). No Performance-Based Award shall be payable to, or vest with respect
to, as the case may be, any participant for a given period until the
Administration Committee certifies in writing that the objective performance
goals (and any other material terms) applicable to such period have been
satisfied.
OTHER TERMS OF AWARDS
- ---------------------
The 1998 Incentive Plan provides that Awards shall not be transferable
other than by will or the laws of descent and distribution. The Administration
Committee shall determine the treatment to be afforded to a participant in the
event of termination of employment for any reason including death, disability or
retirement. Notwithstanding the foregoing, other than with respect to incentive
stock options, the Administration Committee may permit the transferability of an
award by a participant to members of the participant's immediate family or
trusts for the benefit of such person or family partnerships. Upon the grant of
any Award under the 1998 Incentive Plan, the Administration Committee may, by
way of an agreement with the participant, establish such other terms,
conditions, restrictions and/or limitations covering the grant of the Award as
are not inconsistent with the 1998 Incentive Plan. No Award shall be granted
under the 1998 Incentive Plan after February 20, 2008. The Board of Directors
reserves the right to amend, suspend or terminate the 1998 Incentive Plan at any
time, subject to the rights of participants with respect to any outstanding
Awards.
The 1998 Incentive Plan contains provisions for equitable adjustment of
Awards in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, reverse stock split, split up,
spinoff, combination of shares, exchange of shares, dividend in kind or other
like change in capital structure or distribution (other than normal cash
dividends) to stockholders of the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
- ---------------------------------------
The statements in the following paragraphs regarding the principal
federal income tax consequences of Awards under the 1998 Incentive Plan or
regarding stock options under the Non-Employee Plan, as specified, are based on
statutory authority and judicial and administrative interpretations, 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 discussion
below represents only a general summary.
Incentive Stock Options. Incentive stock options ("ISOs") granted under
the 1998 Incentive Plan are intended to meet the definitional requirements of
Section 422(b) of the Code for "incentive stock options."
An employee who receives an ISO does not recognize any taxable income
upon the grant of such ISO. Similarly, the exercise of an ISO generally does not
give rise to federal income tax to the employee, provided that (i) the federal
"alternative minimum tax," which depends on the employee's particular tax
situation, does not apply and (ii) the employee is employed by the Company from
the date of grant of the option until three months prior to the exercise
thereof, except where such employment terminates by reason of disability (where
the three month period is extended to one year) or death (where this requirement
does not apply). If an employee exercises an ISO after these requisite periods,
the ISO will be treated as an NSO (as defined below) and will be subject to the
rules set forth below under the caption "Non-Qualified Stock Options."
Further, if after exercising an ISO, an employee disposes of the Common
Stock so acquired more than two years from the date of grant and more than one
year from the date of transfer of the Common Stock pursuant to the exercise of
such ISO (the "applicable holding period"), the employee will normally recognize
a long-term capital gain or loss equal to the difference, if any, between the
amount received for the shares and the exercise price. If, however, an employee
does not hold the shares so acquired for the applicable holding period-thereby
making a "disqualifying disposition"-the employee would realize ordinary income
on the excess of the fair market value of the shares at the time the ISO was
exercised over the exercise price and the balance, if any, would be long-
term capital gain (provided the holding period for the shares exceeded one year
and the employee held such shares as a capital asset at such time).
An employee who exercises an ISO by delivering Common Stock previously
acquired pursuant to the exercise of another ISO is treated as making a
"disqualifying disposition" of such Common Stock if such shares are delivered
before the expiration of their applicable holding period. Upon the exercise of
an ISO with previously acquired shares as to which no disqualifying disposition
occurs, despite some uncertainty, it appears that the employee would not
recognize gain or loss with respect to such previously acquired shares.
<PAGE>
The Company will not be allowed a federal income tax deduction upon the
grant or exercise of an ISO or the disposition, after the applicable holding
period, of the Common Stock acquired upon exercise of an ISO. In the event of a
disqualifying disposition, the Company generally will be entitled to a deduction
in an amount equal to the ordinary income included by the employee, provided
that such amount constitutes an ordinary and necessary business expense to the
Company and is reasonable and the limitations of Sections 280G and 162(m) of the
Code (discussed below) do not apply.
Non-Qualified Stock Options. Non-qualified stock options ("NSOs")
granted under the 1998 Incentive Plan or under the Non-Employee Plan are options
that do not qualify as ISOs. An employee or Outside Director who receives an NSO
will not recognize any taxable income upon the grant of such NSO. However, the
employee or Outside Director generally will recognize ordinary income upon
exercise of an NSO in an amount equal to the excess of (i) the fair market value
of the shares of Common Stock at the time of exercise over (ii) the exercise
price.
As a result of Section 16(b) of the Exchange Act, under certain
circumstances, the timing of income recognition may be deferred (generally for
up to six months following the exercise of an NSO (i.e., the "Deferral Period"))
for any individual 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. Absent a Section 83(b) election (as described below under "Other
Awards"), recognition of income by the individual will be deferred until the
expiration of the Deferral Period, if any.
The ordinary income recognized with respect to the receipt of shares or
cash upon exercise of a NSO will be subject to both wage withholding and other
employment taxes. In addition to the customary methods of satisfying the
withholding tax liabilities that arise upon the exercise of an NSO, the Company
may satisfy the liability in whole or in part by withholding shares of Common
Stock from those that otherwise would be issuable to the individual or by the
employee tendering other shares owned by him or her, valued at their fair market
value as of the date that the tax withholding obligation arises.
A federal income tax deduction generally will be allowed to the Company
in an amount equal to the ordinary income included by the individual with
respect to his or her NSO, provided that such amount constitutes an ordinary and
necessary business expense to the Company and is reasonable and the limitations
of Sections 280G and 162(m) of the Code do not apply.
If an individual exercises an NSO by delivering shares of Common Stock
to the Company, other than shares previously acquired pursuant to the exercise
of an ISO which is treated as a "disqualifying disposition" as described above,
the individual 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
individual's tax basis. The individual, however, will be taxed as described
above with respect to the exercise of the NSO 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.
Other Awards. With respect to other Awards under the 1998 Incentive
Plan that are settled either in cash or in shares of Common Stock that are
either transferable or not subject to a substantial risk of forfeiture (as
defined in the Code and the regulations thereunder), employees generally will
recognize ordinary income equal to the amount of cash or the fair market value
of the Common Stock received.
With respect to Awards under the 1998 Incentive Plan that are settled
in shares of Common Stock that are restricted to transferability or subject to a
substantial risk of forfeiture-absent a written election pursuant to Section
83(b) of the Code filed with the Internal Revenue Service within 30 days after
the date of transfer of such shares pursuant to the award (a "Section 83(b)
election")-an individual will recognize ordinary income at the earlier of the
time at which (i) the shares become transferable or (ii) the restrictions that
impose a substantial risk of forfeiture of such shares (the "Restrictions")
lapse, in an amount equal to the excess of the fair market value (on such date)
of such shares over the price paid for the award, if any. If a Section 83(b)
election is made, the individual will recognize ordinary income, as of the
transfer date, in an amount equal to the excess of the fair market value of the
Common Stock as of that date over the price paid for such award, if any.
The ordinary income recognized with respect to the receipt of cash,
shares of Common Stock or other property under the 1998 Incentive Plan will be
subject to both wage withholding and other employment taxes.
The Company generally will be allowed a deduction for federal income
tax purposes in an amount equal to the ordinary income recognized by the
employee, provided that such amount constitutes an ordinary and necessary
business expense and is reasonable and the limitations of Sections 280G and
162(m) of the Code do not apply.
Dividends and Dividend Equivalents. To the extent Awards under the 1998
Incentive Plan earn dividend or dividend equivalents, whether paid currently or
credited to an account established under the 1998 Incentive Plan, an individual
generally will recognize ordinary income with respect to such dividend or
dividend equivalents.
Change in Control. In general, if the total amount of payments to an
individual that are contingent upon a "change of control" of the Company (as
defined in Section 280G of the Code), including payments under the 1998
Incentive Plan that vest upon a "change in control," equals or exceeds three
times the individual's "base amount" (generally, such individual's average
annual compensation for the five calendar years preceding the change in
control), then, subject to certain exceptions, the payments may be treated as
"parachute payments" under the Code, in which case a portion of such payments
would be non-deductible to the Company and the individual would be subject to a
20% excise tax on such portion of the payments.
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 the exercise of an NSO or the disqualifying disposition of stock
purchased pursuant to an ISO). One such exception applies to certain
performance-based compensation provided that such compensation has been approved
by stockholders in a separate vote and certain other requirements are met. The
Company believes that Stock Options and Performance-Based Awards granted under
the 1998 Incentive Plan should qualify for the performance-based compensation
exception to Section 162(m).
APPROVAL OF AMENDMENTS TO 1994 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
(Proposal No. 4)
-----------------------------------------------------
On April 1, 1998, the Board of Directors adopted, subject to
stockholder approval, amendments to the Company's 1994 Non-Employee Directors
Stock Option Plan (the "Non-Employee Plan") which would increase from 2,500 to
7,500 the number of options to purchase shares a non-employee director would
receive on the date of each annual meeting, commencing with the annual meeting
to be held May 27, 1998. In assessing the recommendation of the Board of
Directors, stockholders should consider that all current directors other than
Mr. Ettore, who is not eligible to participate in the Non-Employee Plan, will
benefit from the adoption of the amendments to the Non-Employee Plan and thus
may be viewed to have a conflict of interest. The primary features of the
Non-Employee Plan are summarized under "ELECTION OF DIRECTORS - Compensation of
Directors." The full text of the Non-Employee Plan and the proposed amendments
thereto are set forth as Exhibit B to this Proxy Statement and the summary of
the Non-Employee Plan is qualified by reference thereto.
Options granted under the Non-Employee Plan are intended to be treated
as options which do not qualify as incentive stock options within the meaning of
Section 422 of the Code. See "Certain Federal Income Tax Guidelines -
Non-Qualified Stock Options," under "APPROVAL OF 1998 MANAGEMENT STOCK INCENTIVE
PLAN (Proposal No. 3)" above, for a brief description of the tax consequences of
the grant of options under the Non-Employee Plan.
The Board of Directors believes that the continued growth and success
of the Company will depend, in large part, upon the ability of the Company to
retain on its Board of Directors knowledgeable persons who, through their
efforts and expertise, can make a significant contribution to the success of the
Company's business and to provide incentive for such directors to work for the
best interests of the Company and its stockholders through ownership of its
Common Stock.
<PAGE>
If the amendments to the Non-Employee Plan had been in effect in 1997,
each non-employee director would have received an option to purchase 7,500
shares of Common Stock.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
---------------------------------------------
Stockholder proposals which are intended to be presented at the 1999
Annual Meeting of Stockholders must be received at the principal executive
offices of the Company on or before December 15, 1998. 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.
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 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
/s/ David H. Lissy
April 8, 1998 David H. Lissy,
Secretary
<PAGE>
Exhibit A
AMES DEPARTMENT STORES, INC.
1998 STOCK INCENTIVE PLAN
1. Purpose.
The Ames Department Stores, Inc. 1998 Stock Incentive Plan (the "Plan")
is intended to provide incentives which will attract, retain and motivate highly
competent persons as key employees of Ames Department Stores, Inc. (the
"Company") and of any of its subsidiary corporations now existing or hereafter
formed or acquired, by providing them opportunities to acquire shares of the
common stock, par value $.01 per share, of the Company ("Common Stock") or to
receive monetary payments based on the value of such shares pursuant to the
Awards (as defined in Section 4 below) described herein. Furthermore, the Plan
is intended to assist in aligning the interests of the Company's key employees
with those of its stockholders.
2. Administration.
(a) The Plan shall be administered by a committee (the "Committee"),
which shall be the Board of Directors of the Company (the "Board"), or, once
established, a committee or subcommittee of the Board of Directors appointed by
the Board from among its members. The Committee may be the Board's Compensation
Committee. Unless the Board determines otherwise, the Committee shall be
comprised solely of not less than two members who each shall qualify as a (i)
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) (or any successor
rule) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and (ii) an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
thereunder. The Committee is authorized, subject to the provisions of the Plan,
to establish such rules and regulations as it deems necessary for the proper
administration of the Plan and to make such determinations and interpretations
and to take such action in connection with the Plan and any Awards granted
hereunder as it deems necessary or advisable. All determinations and
interpretations made by the Committee shall be binding and conclusive on all
participants and their legal representatives. No member of the Board, no member
of the Committee and no employee of the Company shall be liable for any act or
failure to act hereunder, except in circumstances involving his or her bad
faith, gross negligence or willful misconduct, or for any act or failure to act
hereunder by any other member or employee or by any agent to whom duties in
connection with the administration of this Plan have been delegated. The Company
shall indemnify members of the Committee and any agent of the Committee who is
an employee of the Company, against any and all liabilities or expenses to which
they may be subjected by reason of any act or failure to act with respect to
their duties on behalf of the Plan, except in circumstances involving such
person's bad faith, gross negligence or willful misconduct.
(b) The Committee may delegate to one or more of its members, or to one
or more agents, such administrative duties as it may deem advisable, and the
Committee, or any person to whom it has delegated duties as aforesaid, may
employ one or more persons to render advice with respect to any responsibility
the Committee or such person may have under the Plan. The Committee may employ
such legal or other counsel, consultants and agents as it may deem desirable for
the administration of the Plan and may rely upon any opinion or computation
received from any such counsel, consultant or agent. Expenses incurred by the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company, or the subsidiary or affiliate whose employees have benefitted
from the Plan, as determined by the Committee.
3. Participants.
Participants shall consist of such key employees of the Company and any
of its subsidiaries as the Committee in its sole discretion determines to be
significantly responsible for the success and future growth and profitability of
the Company and whom the Committee may designate from time to time to receive
Awards under the Plan. Designation of a participant in any year shall not
require the Committee to designate such person to receive an Award in any other
year or, once designated, to receive the same type or amount of Award as granted
to the participant in any other year. The Committee shall consider such factors
as it deems pertinent in selecting participants and in determining the type and
amount of their respective Awards.
<PAGE>
4. Type of Awards.
Awards under the Plan may be granted in any one or a combination of (1)
Stock Options, (2) Stock Awards, (3) Performance Awards and (4) Stock Units
(each as described below, and collectively, the "Awards"). Stock Awards,
Performance Awards and Stock Units may, as determined by the Committee in its
discretion, constitute Performance-Based Awards, as described in Section 11
below. Awards shall be evidenced by agreements (which need not be identical) in
such forms as the Committee may from time to time approve; provided, however,
that in the event of any conflict between the provisions of the Plan and any
such agreements, the provisions of the Plan shall prevail.
5. Common Stock Available Under the Plan.
(a) Shares Available. The aggregate number of shares of Common Stock
that may be subject to Awards, including Stock Options, granted under this Plan
shall be 1,800,000 shares of Common Stock, which may be authorized and unissued
or treasury shares, subject to any adjustments made in accordance with Section
12 below.
(b) Maximum Individual Limit. The maximum number of shares of Common
Stock with respect to which Awards may be granted or measured to any individual
participant under the Plan during the term of the Plan shall not exceed 300,000
shares.
(c) Shares Underlying Awards That Again Become Available. Any shares of
Common Stock subject to a Stock Option, Stock Award, Performance Award, or Stock
Unit which for any reason are cancelled, terminated without having been
exercised, forfeited, settled in cash or delivered to the Company as part or
full payment for the exercise of a Stock Option, shall again be available for
Awards under the Plan. The preceding sentence shall apply only for purposes of
determining the aggregate number of shares of Common Stock subject to Awards but
shall not apply for purposes of determining the maximum number of shares of
Common Stock subject to Awards (including the maximum number of shares of Common
Stock subject to Stock Options) that any individual participant may receive.
6. Stock Options.
(a) In General. The Committee is authorized to grant Stock Options to
key employees of the Company and any of its subsidiaries and shall, in its sole
discretion, determine the key employees who will receive Stock Options and the
number of shares of Common Stock underlying each Stock Option. Stock Options may
be (i) "incentive stock options" ("Incentive Stock Options"), within the meaning
of Section 422 of the Code, or (ii) Stock Options which do not qualify as
Incentive Stock Options ("Nonqualified Stock Options"). The Committee may grant
to any participant one or more Incentive Stock Options, Nonqualified Stock
Options, or both types of Stock Options. Each Stock Option shall be subject to
such terms and conditions consistent with the Plan as the Committee may impose
from time to time. In addition, each Stock Option shall be subject to the
following limitations set forth in this Section 6.
(b) Exercise Price. Each Stock Option granted hereunder shall have such
per-share exercise price as the Committee may determine on the date of grant;
provided, however, subject to Section 6(e) below, that the per-share exercise
price shall not be less than 100 percent of the Fair Market Value (as defined in
Section 17 below) of the Common Stock on the date the option is granted.
<PAGE>
(c) Payment of Exercise Price. The Stock Option exercise price may be
paid in cash or, in the discretion of the Committee, by the delivery of shares
of Common Stock then owned by the participant, by the withholding of shares of
Common Stock for which a Stock Option is exercisable, or by a combination of
these methods. In the discretion of the Committee, payment may also be made by
delivering a properly executed exercise notice to the Company together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the exercise price. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms. The Committee may prescribe any other method of
paying the exercise price that it determines to be consistent with applicable
law and the purpose of the Plan, including, without limitation, in lieu of the
exercise of a Stock Option by delivery of shares of Common Stock then owned by a
participant, providing the Company with a notarized statement attesting to the
number of shares owned, where upon verification by the Company, the Company
would issue to the participant only the number of incremental shares to which
the participant is entitled upon exercise of the Stock Option. In determining
which methods a participant may utilize to pay the exercise price, the Committee
may consider such factors as it determines are appropriate; provided, however,
that with respect to Incentive Stock Options, all such discretionary
determinations by the Committee shall be made at the time of grant and specified
in the Stock Option agreement.
(d) Exercise Period. Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee; provided, however, that no Stock Option
shall be exercisable later than ten years after the date it is granted. All
Stock Options shall terminate at such earlier times and upon such conditions or
circumstances as the Committee shall in its discretion set forth in such option
agreement on the date of grant.
(e) Limitations on Incentive Stock Options. Incentive Stock Options may
be granted only to participants who are key employees of the Company or any of
its subsidiaries on the date of grant. The aggregate market value (determined as
of the time the Stock Option is granted) of the Common Stock with respect to
which Incentive Stock Options (under all option plans of the Company) are
exercisable for the first time by a participant during any calendar year shall
not exceed the maximum permitted by law. For purposes of the preceding sentence,
(i) Incentive Stock Options shall be taken into account in the order in which
they are granted and (ii) Incentive Stock Options granted before 1987 shall not
be taken into account. Incentive Stock Options may not be granted to any
participant who, at the time of grant, owns stock possessing (after the
application of the attribution rules of Section 424(d) of the Code) more than 10
percent of the total combined voting power of all outstanding classes of stock
of the Company or any of its subsidiaries, unless the option price is fixed at
not less than 110 percent of the Fair Market Value of the Common Stock on the
date of grant and the exercise of such option is prohibited by its terms after
the expiration of 5 years from the date of grant of such option. In addition, no
Incentive Stock Option shall be issued to a participant in tandem with a
Nonqualified Stock Option.
7. Stock Awards.
The Committee is authorized to grant Stock Awards to key employees of
the Company and any of its subsidiaries and shall, in its sole discretion,
determine the key employees who will receive Stock Awards and the number of
shares of Common Stock underlying each Stock Award. Stock Awards may be subject
to such terms and conditions as the Committee determines appropriate, including,
without limitation, restrictions on the sale or other disposition of such
shares, and the right of the Company to reacquire such shares for no
consideration upon termination of the participant's employment within specified
periods. The Committee may require the participant to deliver a duly signed
stock power, endorsed in blank, relating to the Common Stock covered by such
Stock Award and/or that the stock certificates evidencing such shares be held in
custody or bear restrictive legends until the restrictions thereon shall have
lapsed. The Stock Award agreement shall specify whether the participant shall
have, with respect to the shares of Common Stock subject to a Stock Award, all
of the rights of a holder of shares of Common Stock, including the right to
receive dividends and to vote the shares.
8. Performance Awards.
(a) In General. The Committee is authorized to grant Performance Awards
to key employees of the Company and any of its subsidiaries and shall, in its
sole discretion, determine the key employees who will receive Performance Awards
and the number of shares of Common Stock or Stock Units (as described in Section
10 below) that may be subject to each Performance Award. Each Performance Award
shall be subject to such terms and conditions consistent with the Plan as the
Committee may impose from time to time. The Committee shall set performance
targets at its discretion which, depending on the extent to which they are met,
will determine the number and/or value of Performance Awards that will be paid
out to the participants, and may attach to such Performance Awards one or more
restrictions. Performance targets may be based upon, without limitation,
Company-wide, divisional and/or individual performance.
<PAGE>
(b) Adjustment of Performance Targets. With respect to those
Performance Awards that are not intended to qualify as Performance-Based Awards
(as described in Section 11 below), the Committee shall have the authority at
any time to make adjustments to performance targets for any outstanding
Performance Awards which the Committee deems necessary or desirable unless at
the time of establishment of goals the Committee shall have precluded its
authority to make such adjustments.
(c) Payout. Payment of earned Performance Awards may be made in shares
of Common Stock or in cash and shall be made in accordance with the terms and
conditions prescribed or authorized by the Committee. The participant may elect
to defer, or the Committee may require or permit the deferral of, the receipt of
Performance Awards upon such terms as the Committee deems appropriate.
9. Stock Units.
(a) In General. The Committee is authorized to grant Stock Units to key
employees of the Company and any of its subsidiaries and shall, in its sole
discretion, determine the key employees who will receive Stock Units and the
number of shares of Common Stock with respect to each Stock Unit. The Committee
shall determine the criteria for the vesting of Stock Units. A Stock Unit
granted by the Committee shall provide payment in shares of Common Stock at such
time as the award agreement shall specify. Shares of Common Stock issued
pursuant to this Section 10 may be issued with or without other payments
therefor as may be required by applicable law or such other consideration as may
be determined by the Committee. The Committee shall determine whether a
participant granted a Stock Unit shall be entitled to a Dividend Equivalent
Right (as defined below).
(b) Payout. Upon vesting of a Stock Unit, unless the Committee has
determined to defer payment with respect to such unit or a Participant has
elected to defer payment under Section 10(c) below, shares of Common Stock
representing the Stock Units shall be distributed to the participant unless the
Committee, with the consent of the participant, provides for the payment of the
Stock Units in cash or partly in cash and partly in shares of Common Stock equal
to the value of the shares of Common Stock which would otherwise be distributed
to the participant.
(c) Deferral. Prior to the year with respect to which a Stock Unit may
vest, the participant may elect not to receive Common Stock upon the vesting of
such Stock Unit and for the Company to continue to maintain the Stock Unit on
its books of account. In such event, the value of a Stock Unit shall be payable
in shares of Common Stock pursuant to the agreement of deferral.
(d) Definitions. A "Stock Unit" shall mean a notional account
representing one share of Common Stock. A "Dividend Equivalent Right" shall mean
the right to receive the amount of any dividend paid on the share of Common
Stock underlying a Stock Unit, which shall be payable in cash or in the form of
additional Stock Units.
10. Performance-Based Awards.
(a) In General. All Stock Options granted under the Plan, and certain
Stock Awards, Performance Awards, and Stock Units granted under the Plan, and
the compensation attributable to such Awards, are intended to (i) qualify as
Performance-Based Awards (as described in the next sentence) or (ii) be
otherwise exempt from the deduction limitation imposed by Section 162(m) of the
Code. Certain Awards granted under the Plan may be granted in a manner such that
the Awards qualify as "performance-based compensation" (as such term is used in
Section 162(m) of the Code and the regulations thereunder) and thus be exempt
from the deduction limitation imposed by Section 162(m) of the Code
("Performance-Based Awards"). Awards shall only qualify as Performance-Based
Awards if at the time of grant the Committee is comprised solely of two or more
"outside directors" (as such term is used in Section 162(m) of the Code and the
regulations thereunder).
<PAGE>
(b) Stock Options. Stock Options granted under the Plan with an
exercise price at or above the Fair Market Value of the Common Stock on the date
of grant should qualify as Performance-Based Awards.
(c) Other Awards. Stock Awards, Performance Awards, and Stock Units
granted under the Plan should qualify as Performance-Based Awards if, as
determined by the Committee in its sole discretion, either the granting or
vesting of such Award is subject to the achievement of a performance target or
targets based on one or more of the performance measures specified in Section
11(d) below. With respect to such Awards intended to qualify as
Performance-Based Awards:
(1) the Committee shall establish in writing (x) the
objective performance-based goals applicable to a
given period and (y) the individual employees or
class of employees to which such performance-based
goals apply no later than 90 days after the
commencement of such period (but in no event after 25
percent of such period has elapsed);
(2) no Performance-Based Awards shall be payable to or
vest with respect to, as the case may be, any
participant for a given period until the Committee
certifies in writing that the objective performance
goals (and any other material terms) applicable to
such period have been satisfied; and
(3) after the establishment of a performance goal, the
Committee shall not revise such performance goal or
increase the amount of compensation payable
thereunder (as determined in accordance with Section
162(m) of the Code) upon the attainment of such
performance goal.
(d) Performance Measures. The Committee may use the following
performance measures (either individually or in any combination) to set
performance targets with respect to Awards intended to qualify as
Performance-Based Awards: net sales; pretax income before allocation of
corporate overhead and bonus; budget; earnings per share; net income; division,
group or corporate financial goals; return on stockholders' equity; return on
assets; attainment of strategic and operational initiatives; appreciation in
and/or maintenance of the price of the Common Stock or any other publicly-traded
securities of the Company; market share; gross profits; earnings before interest
and taxes; earnings before interest, taxes, depreciation and amortization;
economic value-added models; comparisons with various stock market indices;
and/or reductions in costs.
11. Adjustment Provisions.
If there shall be any change in the Common Stock of the Company,
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, reverse stock split, split up, spinoff, combination of shares,
exchange of shares, dividend in kind or other like change in capital structure
or distribution (other than normal cash dividends) to stockholders of the
Company, an adjustment shall be made to each outstanding Stock Option such that
each such Stock Option shall thereafter be exercisable for such securities, cash
and/or other property as would have been received in respect of the Common Stock
subject to such Stock Option had such Stock Option been exercised in full
immediately prior to such change or distribution, and such an adjustment shall
be made successively each time any such change shall occur. In addition, in the
event of any such change or distribution, in order to prevent dilution or
enlargement of participants' rights under the Plan, the Committee shall have the
authority to adjust, in an equitable manner, the number and kind of shares that
may be issued under the Plan, the number and kind of shares subject to
outstanding Awards, the exercise price applicable to outstanding Awards, and the
Fair Market Value of the Common Stock and other value determinations applicable
to outstanding Awards. Appropriate adjustments may also be made by the Committee
in the terms of any Awards under the Plan to reflect such changes or
distributions and to modify any other terms of outstanding Awards on an
equitable basis, including modifications of performance targets and changes in
the length of performance periods. In addition, other than with respect to Stock
Options and other awards intended to constitute Performance-Based Awards, the
Committee is authorized to make adjustments to the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Company or the financial statements of the Company, or in
response to changes in applicable laws, regulations, or accounting principles.
Notwithstanding the foregoing, (i) any adjustment with respect to an Incentive
Stock Option shall comply with the rules of Section 424(a) of the Code, and (ii)
in no event shall any adjustment be made which would render any Incentive Stock
Option granted hereunder other than an incentive stock option for purposes of
Section 422 of the Code.
<PAGE>
12. Change in Control.
(a) Accelerated Vesting. Notwithstanding any other provision of this
Plan, if there is a Change in Control of the Company (as defined in Section
13(b) below), the Committee, in its discretion, may take such actions as it
deems appropriate with respect to outstanding Awards, including, without
limitation, accelerating the exercisability, vesting and/or payout of such
Awards.
(b) Definition. For purposes of this Section 13, (i) if there is an
employment agreement or a change-in-control agreement between the participant
and the Company or any of its subsidiaries in effect, "Change in Control" shall
have the same definition as the definition of "change in control" contained in
such employment agreement or change-in-control agreement, or (ii) if "Change in
Control" is not defined in such employment agreement or change-in-control
agreement, or if there is no employment agreement or change-in-control agreement
between the participant and the Company or any of its subsidiaries in effect, a
"Change in Control" of the Company shall be deemed to have occurred upon any of
the following events:
(1) any person or other entity (other than any of the
Company's subsidiaries or any employee benefit plan
sponsored by the Company or any of its subsidiaries)
including any person as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), becomes the beneficial owner,
as defined in Rule 13d-3 under the Exchange Act,
directly or indirectly, of more than 35 percent of
the total combined voting power of all classes of
capital stock of the Company normally entitled to
vote for the election of directors of the Company
(the "Voting Stock");
(2) the stockholders of the Company approve the sale of
all or substantially all of the property or assets of
the Company and such sale occurs;
(3) the Company's Common Stock shall cease to be publicly
traded (other than a suspension of trading that lasts
for a short period of time);
(4) the stockholders of the Company approve a
consolidation or merger of the Company with another
corporation (other than with any of the Company's
subsidiaries), the consummation of which would result
in the shareholders of the Company immediately before
the occurrence of the consolidation or merger owning,
in the aggregate, less than 60 percent of the Voting
Stock of the surviving entity, and such consolidation
or merger occurs; or
(5) a change in the Company's Board occurs with the
result that the members of the Board on the Effective
Date (as defined in Section 24(a) below) of the Plan
(the "Incumbent Directors") no longer constitute a
majority of such Board, provided that any person
becoming a director (other than a director whose
initial assumption of office is in connection with an
actual or threatened election contest or the
settlement thereof, including but not limited to a
consent solicitation, relating to the election of
directors of the Company) whose election or
nomination for election was supported by two-thirds
(2/3) of the then Incumbent Directors shall be
considered an Incumbent Director for purposes hereof.
Notwithstanding anything contained in the Plan to the contrary, a
Change in Control of the Company shall not include an initial public offering of
the Company.
(c) Cashout. The Committee, in its discretion, may determine that, upon
the occurrence of a Change in Control of the Company, each Stock Option
outstanding hereunder shall terminate within a specified number of days after
notice to the holder, and such holder shall receive, with respect to each share
of Common Stock subject to such Stock Option, an amount equal to the excess of
the Fair Market Value of such shares of Common Stock immediately prior to the
occurrence of such Change in Control over the exercise price per share of such
Stock Option; such amount to be payable in cash, in one or more kinds of
property (including the property, if any, payable in the transaction) or in a
combination thereof, as the Committee, in its discretion, shall determine.
<PAGE>
13. Termination of Employment.
(a) Subject to any written agreement between the participant and the
Company or any of its subsidiaries, if a participant's employment is terminated
due to death or disability:
(1) all unvested Stock Awards and all unvested Stock
Units held by the participant on the date of the
participant's death or the date of the termination of
his or her employment, as the case may be, shall
immediately become vested as of such date;
(2) all unexercisable Stock Options held by the
participant on the date of the participant's death or
the date of the termination of his or her employment,
as the case may be, shall immediately become
exercisable as of such date and shall remain
exercisable until the earlier of (i) the end of the
one-year period following the date of the
participant's death or the date of the termination of
his or her employment, as the case may be, or (ii)
the date the Stock Option would otherwise expire;
(3) all exercisable Stock Options held by the participant
on the date of the participant's death or the date of
the termination of his or her employment, as the case
may be, shall remain exercisable until the earlier of
(i) the end of the one-year period following the date
of the participant's death or the date of the
termination of his or her employment, as the case may
be, or (ii) the date the Stock Option would otherwise
expire; and
(4) all unearned and/or unvested Performance Awards held
by the participant on the date of the participant's
death or the date of the termination of his or her
employment, as the case may be, shall immediately be
forfeited by such participant as of such date.
(b) Subject to any written agreement between the participant and the
Company or any of its subsidiaries, if a participant's employment is terminated
by the Company for Cause (as defined in Section 14(f) below), all exercisable
and all unexercisable Stock Options, all unvested Stock Awards, all unearned
and/or unvested Performance Units, and all unvested Stock Units held by the
participant on the date of the termination of his or her employment for Cause
shall immediately be forfeited by such participant as of such date.
(c) Subject to any written agreement between the participant and the
Company or any of its subsidiaries, if a participant's employment is terminated
for any reason other than for Cause or other than due to death or disability:
(1) all unexercisable Stock Options, all unvested Stock
Awards, all unearned and/or unvested Performance
Units, and all unvested Stock Units held by the
participant on the date of the termination of his or
her employment shall immediately be forfeited by such
participant as of such date; and
(2) all exercisable Stock Options held by the participant
on the date of the termination of his or her
employment shall remain exercisable until the earlier
of (i) the end of the 90-day period following the
date of the termination of the participant's
employment or (ii) the date the Stock Option would
otherwise expire.
(d) Notwithstanding anything contained in the Plan to the contrary, the
Committee may, in its sole discretion, provide that:
(1) any or all unvested Stock Awards and/or any or all
unvested Stock Units held by the participant on the
date of the participant's death and/or the date of
the termination of the participant's employment shall
immediately become vested as of such date;
(2) any or all unexercisable Stock Options held by the
participant on the date of the participant's death
and/or the date of the termination of his or her
employment shall immediately become exercisable as of
such date and shall remain exercisable until a date
that occurs on or prior to the date the Stock Option
is scheduled to expire, provided, however, that
Incentive Stock Options shall remain exercisable not
longer than the end of the 90-day period following
the date of the termination of the participant's
employment;
(3) any or all exercisable Stock Options held by the
participant on the date of the participant's death
and/or the date of the termination of his or her
employment shall remain exercisable until a date that
occurs on or prior to the date the Stock Option is
scheduled to expire, provided, however, that
Incentive Stock Options shall remain exercisable not
longer than the end of the 90-day period following
the date of the termination of the participant's
employment; and/or
(4) a participant shall immediately become vested in all
or a portion of any earned Performance Unit held by
such participant on the date of the termination of
the participant's employment, and such vested
Performance Unit (or portion thereof) and/or any
unearned Performance Unit (or portion thereof) held
by such participant on the date of the termination of
his or her employment shall immediately become
payable to such participant as if all performance
goals had been met as of the date of the termination
of his or her employment.
(e) Notwithstanding anything contained in the Plan to the contrary, (i)
the provisions contained in this Section 14 shall be applied to an Incentive
Stock Option only if the application of such provision maintains the treatment
of such Incentive Stock Option as an Incentive Stock Option and (ii) the
exercise period of an Incentive Stock Option in the event of a termination due
to disability provided in Section 14(a)(3) above shall only apply if the
participant's disability satisfies the requirement of "permanent and total
disability" as defined in Section 22(e)(3) of the Code.
(f) For purposes of this Section 14, (i) if there is an employment
agreement between the participant and the Company or any of its subsidiaries in
effect, "Cause" shall have the same definition as the definition of "cause"
contained in such employment agreement, or (ii) if "Cause" is not defined in
such employment agreement or if there is no employment agreement between the
participant and the Company or any of its subsidiaries in effect, "Cause" shall
include, but is not limited to:
(1) any willful and continuous neglect of or refusal to
perform the employee's duties or responsibilities
with respect to the Company or any of its
subsidiaries, insubordination, dishonesty, gross
neglect or willful malfeasance by the participant in
the performance of such duties and responsibilities,
or the willful taking of actions which materially
impair the participant's ability to perform such
duties and responsibilities, or any serious violation
of the rules or regulations of the Company;
(2) the violation of any local, state or federal criminal
statute, including, without limitation, an act of
dishonesty such as embezzlement, theft or larceny;
(3) intentional provision of services in competition with
the Company or any of its subsidiaries, or
intentional disclosure to a competitor of the Company
or any of its subsidiaries of any confidential or
proprietary information of the Company or any of its
subsidiaries; or
(4) any similar conduct by the participant with respect
to which the Company determines in its discretion
that the participant has terminated employment under
circumstances such that the payment of any
compensation attributable to any Award granted under
the Plan would not be in the best interest of the
Company or any of its subsidiaries.
14. Transferability.
Each Award granted under the Plan to a participant which is subject to
restrictions on transferability and/or exercisability shall not be transferable
otherwise than by will or the laws of descent and distribution, and/or shall be
exercisable, during the participant's lifetime, only by the participant. In the
event of the death of a participant, each Stock Option theretofore granted to
him or her shall be exercisable during such period after his or her death as the
Committee shall in its discretion set forth in such option or right on the date
of grant and then only by the executor or administrator of the estate of the
deceased participant or the person or persons to whom the deceased participant's
rights under the Stock Option shall pass by will or the laws of descent and
distribution. Notwithstanding the foregoing, at the discretion of the Committee,
an Award (other than an Incentive Stock Option) may permit the transferability
of such Award by a participant solely to members of the participant's immediate
family or trusts or family partnerships for the benefit of such persons, subject
to any restriction included in the Award agreement.
<PAGE>
15. Other Provisions.
Awards granted under the Plan may also be subject to such other
provisions (whether or not applicable to the Award granted to any other
participant) as the Committee determines on the date of grant to be appropriate,
including, without limitation, for the installment purchase of Common Stock
under Stock Options, to assist the participant in financing the acquisition of
Common Stock, for the forfeiture of, or restrictions on resale or other
disposition of, Common Stock acquired under any form of Award, for the
acceleration of exercisability or vesting of Awards in the event of a change in
control of the Company, for the payment of the value of Awards to participants
in the event of a change in control of the Company, or to comply with federal
and state securities laws, or understandings or conditions as to the
participant's employment in addition to those specifically provided for under
the Plan.
16. Fair Market Value.
For purposes of this Plan and any Awards granted hereunder, Fair Market
Value shall be (i) the closing price of the Common Stock on the date of
calculation (or on the last preceding trading date if Common Stock was not
traded on such date) if the Common Stock is readily tradeable on a national
securities exchange or other market system or (ii) if the Common Stock is not
readily tradeable, the amount determined in good faith by the Committee as the
fair market value of the Common Stock.
17. Withholding.
All payments or distributions of Awards made pursuant to the Plan shall
be net of any amounts required to be withheld pursuant to applicable federal,
state and local tax withholding requirements. If the Company proposes or is
required to distribute Common Stock pursuant to the Plan, it may require the
recipient to remit to it or to the corporation that employs such recipient an
amount sufficient to satisfy such tax withholding requirements prior to the
delivery of any certificates for such Common Stock. In lieu thereof, the Company
or the employing corporation shall have the right to withhold the amount of such
taxes from any other sums due or to become due from such corporation to the
recipient as the Committee shall prescribe. The Committee may, in its discretion
and subject to such rules as it may adopt (including any as may be required to
satisfy applicable tax and/or non-tax regulatory requirements), permit an
optionee or award or right holder to pay all or a portion of the federal, state
and local withholding taxes arising in connection with any Award consisting of
shares of Common Stock by electing to have the Company withhold shares of Common
Stock having a Fair Market Value equal to the amount of tax to be withheld, such
tax calculated at rates required by statute or regulation.
18. Tenure.
A participant's right, if any, to continue to serve the Company as a
director, officer, employee, or otherwise, shall not be enlarged or otherwise
affected by his or her designation as a participant under the Plan.
19. Unfunded Plan.
Participants shall have no right, title, or interest whatsoever in or
to any investments which the Company may make to aid it in meeting its
obligations under the Plan. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Company and any participant,
beneficiary, legal representative or any other person. To the extent that any
person acquires a right to receive payments from the Company under the Plan,
such right shall be no greater than the right of an unsecured general creditor
of the Company. All payments to be made hereunder shall be paid from the general
funds of the Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such amounts except as
expressly set forth in the Plan. The Plan is not intended to be subject to the
Employee Retirement Income Security Act of 1974, as amended.
<PAGE>
20. No Fractional Shares.
No fractional shares of Common Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether cash,
or Awards, or other property shall be issued or paid in lieu of fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
21. Duration, Amendment and Termination.
No Award shall be granted more than ten years after the Effective Date;
provided, however, that the terms and conditions applicable to any Award granted
prior to such date may thereafter be amended or modified by mutual agreement
between the Company and the participant or such other persons as may then have
an interest therein. Also, by mutual agreement between the Company and a
participant hereunder, under this Plan or under any other present or future plan
of the Company, Awards may be granted to such participant in substitution and
exchange for, and in cancellation of, any Awards previously granted such
participant under this Plan, or any other present or future plan of the Company.
The Board may amend the Plan from time to time or suspend or terminate the Plan
at any time. However, no action authorized by this Section 22 shall reduce the
amount of any existing Award or change the terms and conditions thereof without
the participant's consent. No amendment of the Plan shall, without approval of
the stockholders of the Company, (i) increase the total number of shares which
may be issued under the Plan or the maximum number of shares with respect to
Stock Options and other Awards that may be granted to any individual under the
Plan or (ii) modify the requirements as to eligibility for Awards under the
Plan; provided, however, that no amendment may be made without approval of the
stockholders of the Company if the amendment will disqualify any Incentive Stock
Options granted hereunder.
22. Governing Law.
This Plan, Awards granted hereunder and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
State of New York (regardless of the law that might otherwise govern under
applicable New York principles of conflict of laws).
23. Effective Date.
(a) The Plan shall be effective as of the date on which the Plan is
adopted by the Board (the "Effective Date"); provided, however, that the Plan
shall be approved by the stockholders of the Company at an annual meeting or any
special meeting of stockholders of the Company within 12 months before or after
the Effective Date, and such approval of stockholders shall be a condition to
the right of each participant to receive Awards hereunder. Any Award granted
under the Plan prior to such approval of stockholders shall be effective as of
the date of grant (unless, with respect to any Award, the Committee specifies
otherwise at the time of grant), but no such Award may be exercised or settled
and no restrictions relating to any Award may lapse prior to such stockholder
approval, and if stockholders fail to approve the Plan as specified hereunder,
any such Award shall be cancelled.
(b) This Plan shall terminate on the 10th anniversary of the Effective
Date (unless sooner terminated by the Board).
<PAGE>
Exhibit B
Below is the text of the Ames Department Stores, Inc. 1994 Non-Employee
Directors Stock Option Plan as proposed to be amended pursuant to Proposal
No. 4. Proposed language is underlined and the language to be deleted is set
forth in brackets.
AMES DEPARTMENT STORES, INC.
1994 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. Purposes.
Ames Department Stores, Inc. (the "Company") desires to attract and
retain the services of outstanding non-employee directors by affording them an
opportunity to acquire a proprietary interest in the Company through automatic,
non-discretionary awards of stock options ("Options") exercisable to purchase
shares of Common Stock (as defined below), and thus to create in such directors
an increased interest in and a greater concern for the welfare of the Company
and its subsidiaries.
The Options offered pursuant to this 1994 Non-Employee Directors Stock
Option Plan (the "Plan") are a matter of separate inducement and are not in lieu
of any other compensation for the services of any director.
The Options granted under the Plan are intended to be options that do
not meet the requirements for incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
As used in the Plan, the term "parent corporation" and "subsidiary
corporation" shall mean a corporation coming within the definition of such terms
contained in Sections 424(e) and 424(f) of the code, respectively.
2. Amount of Stock Subject to the Plan.
Options granted under the Plan shall be exercisable for shares of
common stock of the Company ("Common Stock"). Initially, and for so long as the
Company continues to have authorized Priority Common Stock, par value $.01 per
share, and Common Stock, par value $.01 per share ("Ordinary Common Stock"),
Options granted under the Plan shall be exercisable for shares of Ordinary
Common Stock. If at any time there is more than one class of Common Stock, the
Shares (as defined below) shall be the class designated by the Board of
Directors pursuant to its authority under Section 4.
The total number of shares of Common Stock authorized for issuance
under the Plan upon the exercise of Options (the "Shares"), shall not exceed, in
the aggregate, 200,000 of the currently authorized shares of Common Stock of the
Company, such number to be subject to adjustment in accordance with Section 13
of the Plan.
Shares which may be acquired under the Plan may be either authorized
but unissued Shares, Shares of issued stock held in the Company's treasury, or
both. If and to the extent that Options granted under the Plan expire or
terminate without having been exercised, the Shares covered by such expired or
terminated Options may again be subject to a later-granted Option under the
Plan.
3. Effective Date and Term of the Plan.
The Plan shall become effective at 5:00 p.m., New York City time, on
July 22, 1994 (the "Effective Date"); provided, however, that if the Plan is not
approved by a vote of the stockholders of the Company at an annual meeting or
any special meeting of stockholders within twelve months after the Effective
Date, the Plan and any Options granted hereunder shall terminate. The Plan shall
terminate at the close of business on July 21, 2004 (the "Termination Date"),
unless sooner terminated in accordance with its terms.
<PAGE>
4. Administration.
The Plan shall be administered by the Board of Directors of the Company
(the "Board of Directors"), which may designate from among its members a
committee to exercise all power and authority of the Board of Directors at any
time and from time to time to administer the Plan. (References herein to the
Board of Directors shall be deemed to include references to any such committee,
except as the context otherwise requires.) Subject to the express provisions of
the Plan, the Board of Directors shall have authority to construe the Plan and
the Options granted thereunder, to prescribe, amend and rescind rules and
regulations relating to the Plan and to make all other ministerial
determinations necessary or advisable for administering the Plan.
The determination of the Board of Directors on matters referred to in
this Section 4 shall be conclusive.
5. Eligibility.
All non-employee directors of the Company (including former officers or
former key employees), each of whom (a) has not been an officer or employee of
the Company or any subsidiary corporation or parent corporation of the Company
for one year prior to the time a grant of Options is made to such person
hereunder and (b) is a "disinterested person" as such term is defined in Rule
16b-3 (or any successor rule) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), shall be eligible to be granted Options
under the Plan ("Eligible Directors").
The Plan does not create a right in any person to participate in, or be
granted Options under, the Plan.
6. Option Grants.
On the Effective Date, each Eligible Director then in office shall
automatically be granted an Option to purchase 10,000 Shares (subject to
adjustment as provided in Section 13), subject to the approval of the Plan by
the stockholders of the Company at the 1995 Annual Meeting. Directors elected to
the Board subsequent to the Effective Date but prior to the date of the 1995
Annual Meeting may, upon the vote of the Board and subject to the approval of
the Plan by the Stockholders of the Company at the 1995 Annual Meeting, be
eligible to be granted an Option to purchase up to 2,500 Shares (subject to
adjustment as provided in Section 13). Thereafter, effective on the date of each
annual meeting of stockholders of the Company during the term of the Plan
commencing with the 1996 Annual Meeting of Stockholders, each Eligible Director
then in office shall automatically be granted, immediately following each such
annual meeting of stockholders of the Company, an Option to purchase 7,500
-----
[2,500] Shares (subject to adjustment as provided in Section 13), with the date
of the grant to be the date of such annual meeting.
7. Option Price and Payment.
The price for each Share purchasable upon exercise of any Option
granted hereunder on the Effective Date shall be an amount equal to the fair
market value per Share on such date. The price for each Share purchasable upon
exercise of any Option granted hereunder on the date of any annual meeting of
stockholders during the term of the Plan commencing with the 1996 Annual Meeting
of Stockholders shall be an amount equal to the fair market value per Share on
the date of grant. For purposes of the Plan, fair market value per Share shall
be determined as follows:
(a) If the Shares are listed on a national securities exchange in
the United States or reported on the National Association of
Securities Dealers Automated Quotation System-National Market
System ("NASDAQ-NMS") on any date on which the fair market
value per Share is to be determined, the fair market value per
Share shall be deemed to be the closing quotation at which
such Shares are sold on the principal national securities
exchange or reported on NASDAQ-NMS on the date such Option is
granted. If the Shares are listed on a national securities
exchange in the United States on such date or reported on
NASDAQ-NMS but the Shares are not traded on such date, or such
national securities exchange or NASDAQ-NMS is not open for
business on such date, the fair market value per Share shall
be determined as of the closest date preceding on which the
Shares were traded.
<PAGE>
(b) If on the date any Option is granted, a regular, active public
market exists (as determined in the sole discretion of the
Board of Directors, whose decision shall be conclusive and
binding) for the Shares but such Shares are not listed on a
national securities exchange in the United States or reported
on NASDAQ-NMS, the fair market value per Share shall be deemed
to be the average of the closing bid and ask quotations in the
over-the-counter market for such Shares in the United States
on the date such Option is granted. In the event that there
are no bid and ask quotations in the over-the-counter market
in the United States for such Shares on the date such Option
is granted, the fair market value per Share shall be
determined as of the closest preceding date on which such
quotations are available. For purposes of the foregoing, a
market in which trading is sporadic and the ask quotations
generally exceed the bid quotations by more than 15% shall not
be deemed to be a "regular, active public market." If the
Board of Directors determines that a regular, active public
market does not exist for the Shares, the Board of Directors
shall determine the fair market value per Share in its good
faith judgment.
Upon the exercise of an Option granted hereunder, the Company shall
cause the purchased Shares to be issued only when it shall have received the
full purchase price for the Shares in cash; provided, however, that in lieu of
cash, an optionee may, to the extent permitted by applicable law, exercise an
Option in whole or in part, by delivering to the Company shares of Common Stock
of the Company (in proper form for transfer and accompanied by all requisite
stock transfer tax stamps or cash in lieu thereof) owned by such optionee having
a fair market value equal to the cash exercise price applicable to that portion
of the Option being exercised by the delivery of such shares, the fair market
value per Share of Common Stock so delivered to be determined as of the date
immediately preceding the date on which the Option is exercised in accordance
with this Section 7, or as may be required in order to comply with or to conform
to the requirements of any applicable laws or regulations.
8. Terms of Options and Limitations on the Right of Exercise.
To the extent that an Option is not exercised within the period of
exercisability specified therein, it shall expire as to the then unexercised
part.
In no event shall an Option granted hereunder be exercised for a
fraction of a Share or for less than one hundred Shares (unless the number
purchased is the total balance for which the Option is then exercisable).
A person entitled to receive Shares upon the exercise of an Option
shall not have the rights of a stockholder with respect to such Shares until the
date of issuance of a stock certificate to him or her for such Shares; provided,
however, that until such stock certificate is issued, any holder of an Option
using previously acquired shares of Common Stock in payment of an option
exercise price shall continue to have the rights of a stockholder with respect
to such previously acquired shares of Common Stock.
9. Option Period and Exercise of Options.
An Option granted to any Eligible Director shall not be exercisable for
six (6) months following the date of grant of such Option; provided that for
purposes of this sentence only, any Option granted to an Eligible Director prior
to stockholder approval of the Plan shall be deemed to have been granted on the
date such approval is obtained. Thereafter, the Option shall be exercisable for
the period ending ten (10) years from the date of grant of such Option, except
to the extent such exercise is further limited or restricted pursuant to the
provisions hereof.
Subject to the express provisions of the Plan, Options granted under
the Plan shall be exercised by the optionee as to all or part of the Shares
covered thereby by the giving of written notice of the exercise thereof to the
Corporate Secretary of the Company at the principal business office of the
Company, specifying the number of Shares to be purchased, the proposed form of
payment and specifying a business day not more than ten (10) days from the date
such notice is given for the payment of the purchase price against delivery of
the Shares being purchased. Subject to the terms of Sections 15, 16 and 17
hereof, the Company shall cause certificates for the Shares so purchased to be
delivered at the principal business office of the Company, against payment of
the full purchase price, on the date specified in the notice of exercise.
<PAGE>
10. Termination of Directorship.
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.
In no event, however, shall an Eligible Director be entitled to
exercise any Option after the expiration of the period of exercisability of such
Option, as specified therein.
11. Use of Proceeds.
The cash proceeds of the sale of Shares subject to the Options granted
hereunder are to be added to the general funds of the Company and used for its
general corporate purposes as the Board of Directors shall determine.
12. Non-Transferability of Options.
An Option granted hereunder shall not be transferable, whether by
operation of law or otherwise, other than by will or the laws of descent and
distribution. Except to the extent provided above, Options also may not be
assigned, transferred, pledged, hypothecated or disposed of in any way (whether
by operation of law or otherwise) and shall not be subject to execution,
attachment or similar process.
13. Adjustment of Shares.
Notwithstanding any other provision contained herein, in the event of
any change in the Shares subject to the Plan or to any Option granted under the
Plan (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 the capital structure of the
Company), an adjustment shall be made to each outstanding Option such that each
such Option shall thereafter be exercisable for such securities, cash and/or
other property as would have been received in respect of the Shares subject to
such Option had such Option been exercised in full immediately prior to such
change, and such an adjustment shall be made successively each time any such
change shall occur. The term "Shares" after any such change shall refer to the
securities, cash and/or property then receivable upon exercise of an Option. In
addition, in the event of any such change, the Board of Directors shall make any
further adjustment to the maximum number of Shares which may be acquired under
the Plan pursuant to the exercise of Options, the maximum number of shares for
which Options may be granted to any one Eligible Director and the number of
Shares and price per Share subject to outstanding Options as shall be equitable
to prevent dilution or enlargement of rights under such Options, and the
determination of the Board of Directors as to these matters shall be conclusive
and binding on the optionee.
<PAGE>
14. Right to Terminate Service.
The Plan shall not impose any obligation on the Company or on any
subsidiary corporation or parent corporation thereof to continue the service of
any director holding Options and shall not impose any obligation on the part of
any director holding Options to remain in the service of the Company or of any
subsidiary corporation or parent corporation thereof.
15. Purchase for Investment.
Except as hereinafter provided, the Board of Directors may require the
holder of an Option granted hereunder, as a condition to exercise of such Option
in the event the Shares subject to such Option are not registered pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), and applicable state securities laws, to execute and
deliver to the Company a written statement, in form satisfactory to the Board of
Directors, in which such holder (a) represents and warrants that such holder is
purchasing or acquiring the Shares acquired thereunder for such holder's own
account for investment only and not with a view to the resale or distribution
thereof in violation of any federal or state securities laws and (b) agrees that
any subsequent resale or distribution of any of such Shares shall be made only
pursuant to either (i) an effective registration statement covering such Shares
under the Securities Act and applicable state securities laws or (ii) specific
exemptions from the registration requirements of the Securities Act and any
applicable state securities laws, based on a written opinion of counsel, in form
and substance satisfactory to counsel for the Company, as to the application
thereto of any such exemptions.
Nothing herein shall be construed as requiring the Company to register
Shares subject to any Option under the Securities Act or any state securities
law and, to the extent deemed necessary by the Company, Shares issued upon
exercise of an Option may contain a legend to the effect that registration
rights have not been granted with respect to such Shares.
16. Issuance of Stock Certificates; Legends; Payment of Expenses.
The Company may endorse such legend or legends upon the certificates
for Shares issued upon exercise of Options granted pursuant to the Plan and may
issue such "stop transfer" instructions to its transfer agent in respect of such
Shares as the Board of Directors, in its discretion, determines to be necessary
or appropriate to (a) prevent a violation of, or to perfect an exemption from,
the registration requirements of the Securities Act or (b) implement the
provisions of the Plan and any agreement between the Company and the optionee or
grantee with respect to such Shares.
The Company shall pay all issue or transfer taxes with respect to the
issuance or transfer of Shares, as well as all fees and expenses necessarily
incurred by the Company in connection with such issuance or transfer, except
fees and expenses that may be necessitated by the filing or amending of a
registration statement under the Securities Act, which fees and expenses shall
be borne by the recipient of the Shares unless such registration statement has
been filed by the Company for its own corporate purpose (and the Company so
states) in which event the recipient of the Shares shall bear only such fees and
expenses as are attributable solely to the inclusion of the Shares an optionee
receives in the registration statement.
All Shares issued as provided herein shall be fully paid and
nonassessable to the extent permitted by law.
17. Listing of Shares and Related Matters.
If at any time the listing, registration or qualification of the Shares
subject to such Option on any securities exchange or under any applicable law,
or the consent or approval of any governmental regulatory body, is necessary as
a condition of, or in connection with, the granting of an Option, or the
issuance of Shares thereunder, such Option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained.
<PAGE>
18. Amendment of the Plan.
The Board of Directors may, from time to time, amend the Plan, provided
that no amendment shall be made without the approval of the stockholders of the
Company that will (a) increase the total number of Shares reserved for Options
under the Plan (other than an increase resulting from an adjustment provided for
in Section 13 hereof), (b) modify the provisions of the Plan relating to
eligibility, or (c) materially increase the benefits accruing to participants
under the Plan. Notwithstanding any other provision hereof, in no event shall
the provisions of the Plan be amended more than one time in any six-month
period, other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or the rules promulgated thereunder.
19. Termination or Suspension of the Plan.
The Board of Directors may at any time suspend or terminate the Plan.
Options may not be granted while the Plan is suspended or after it is
terminated. Rights and obligations under any Option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except upon the consent of the person to whom the Option was granted. The
ministerial power of the Board of Directors to construe and administer any
Options under Section 4 that are granted prior to the termination or the
suspension of the Plan shall continue after such termination or during such
suspension.
20. Savings Provision.
With respect to all participants in the Plan, transactions under the
Plan are intended to comply with all applicable conditions of Rule 16b-3 (or any
successor provision) under the Exchange Act. To the extent any provision of the
Plan or action by the Board of Directors fails to so comply, it shall be deemed
null and void to the extent permitted by law and deemed advisable by the Board
of Directors.
21. Governing Law.
The Plan, such Options as may be granted hereunder and all related
matters shall be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware from time to time in effect.
22. Partial Invalidity.
The invalidity or illegality of any provision herein shall not be
deemed to affect the validity of any other provision.
<PAGE>
AMES DEPARTMENT STORES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Francis X. Basile, Paul M. Buxbaum, Alan Cohen,
Joseph R. Ettore, Richard M. Felner, Sidney S. Pearlman, Laurie M. Shahon, or
any of them, attorneys and proxies with full power of substitution, to represent
and to vote all of the shares of Common Stock of Ames Department Stores, Inc.
standing on the books of the Company in the name of the undersigned at the
Annual Meeting of Shareholders of the Company to be held at the Ames Corporate
Headquarters, Rocky Hill, Connecticut, on Wednesday, May 27, 1998, at 10:00
a.m., local time, and at any and all adjournments thereof, upon the matters set
forth on the reverse. A majority of said attorneys and proxies shall be present
and voting (or if only one shall be present and voting, then that one) in person
or by substitute or substitutes at said meeting, or at any adjournments thereof,
and shall have and may exercise all of the powers of said attorneys and proxies
hereunder. The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting and Proxy Statement dated April 8, 1998, and instructs said attorneys
and proxies to vote as set forth on the reverse side of this Proxy.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
(Continued, and to be signed and dated on the reverse side)
The Board of Directors recommends a vote FOR the items 1, 2, 3, and 4.
- --------------------- Please mark
Common Shares X your votes
this way
Item 1 - The election of directors duly nominated: WITHHELD
Francis X. Basile; Paul M. Buxbaum; Alan Cohen; FOR FOR ALL
Joseph R. Ettore; Richard M. Felner; Sidney S. [ ] [ ]
Pearlman; Laurie M. Shahon.
WITHHELD FOR: (Write that nominee's name in the space provided below.)
Item 2 - The ratification and approval of Arthur
Andersen LLP as independent certified public FOR AGAINST ABSTAIN
accountants and auditors for the fiscal year [ ] [ ] [ ]
ending January 30, 1999.
Item 3 - The approval of the Ames Department
Stores, Inc. 1998 Management Stock Incentive Plan, FOR AGAINST ABSTAIN
as described in the Proxy Statement dated [ ] [ ] [ ]
April 8, 1998.
<PAGE>
Item 4 - The approval of an amendment to the
Company's 1994 Non-Employee Directors Stock
Option Plan to increase the number of
shares included in each option grant. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Item 5 - In their discretion, upon such other
matters as may properly come before the meeting.
The shares represented by this Proxy will be voted as specified. If no choice is
specified, the proxies will be voted in favor of proposals 1, 2, 3 and 4, and
pursuant to Item 5.
Please check this box if you
plan to attend the Annual
Meeting of Stockholders. [ ]
Signatures(s) Date
--------------------------------------- ---------------------
(Where shares are held jointly, each holder must sign. When signing as attorney,
executor, administrator, trustee or guardian, please add your title as such. If
signing as a corporation, please sign the full corporate name by an authorized
officer.) PLEASE SIGN, DATE AND RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
