SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File Number 1-1011
MELVILLE CORPORATION
(Exact name of registrant as specified in its charter)
New York 04-1611460
(State of incorporation) (IRS Employer Identification No.)
One Theall Road, Rye, NY 10580
(Address of principal executive offices)
Registrant's telephone number, including area code: (914) 925-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common stock (par value New York Stock Exchange
$1 per share)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.
Yes (No disclosures are contained herein) X No ___
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As of March 1, 1996, the aggregate market value of the voting stock* held by
non-affiliates** which was computed by reference to the price at which the stock
was last traded was $3,433,331,349.
Number of shares outstanding of the issuer's Common Stock (par value $1 per
share) at March 1, 1996: 105,218,990.
Documents Incorporated by Reference
l. Annual Report to Shareholders for the year ended December 31, 1995: Part I,
Item 1; Part II, Items 5, 6, 7 and 8; and Part IV, Item 14.
2. Proxy Statement dated March 7, 1996 issued in connection with the annual
meeting of shareholders: Part III, Items 10, 11, 12 and 13.
* Does not include 6,160,405 outstanding shares of Series One ESOP
Convertible Preference Stock ("ESOP Preference Stock"). As of March 1,
1996, each share of ESOP Preference Stock is entitled to one vote per share
on all matters submitted to a vote of the holders of Common Stock.
** Only stock held by directors and officers is excluded.
<PAGE>
Item 1. Business
Melville Corporation, a New York corporation (in this Item 1 called the
"Company" and together with its subsidiaries, collectively called the
"Companies"), is one of the largest diversified specialty retailers in the
United States. On October 24, 1995, the Company announced a comprehensive
strategic restructuring program which would result in the creation of three
independent publicly traded retailing companies in the chain drug, footwear and
toy industries. As part of its restructuring, the Company also completed the
sale of its Marshalls business on November 17, 1995, and announced its intention
to try and sell its Wilsons and This End Up businesses. The chain drug holding
company will include the Company's CVS and, initially, its Linens 'n Things and
Bob's Stores businesses. The footwear company will be comprised of the Company's
Meldisco, Footaction and Thom McAn businesses. Because the footwear company
constitutes an entire segment, it has been classified as discontinued operations
in this report and in the Company's financial statements. The Kay-Bee Toy
business was to be the separate toy company. As discussed in more detail below,
the Company subsequently announced that it had reached an agreement to sell its
Kay-Bee Toy business. All of these actions are expected to be completed by the
summer of 1996.
In general, the retailing business is seasonal in nature with each
particular business of the Company affected, to varying degrees, by certain peak
selling periods. The peak selling periods are characterized by inventory
build-ups prior to such periods. The build-ups are financed, in part, with the
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issuance of commercial paper and bank loan participation notes. To maintain
financial flexibility, the Company also has on file with the Securities and
Exchange Commission a shelf registration statement for the issuance of up to
$300 million in debt securities, including medium-term notes. No debt securities
have been issued to date.
The Christmas holiday is the most significant seasonal selling period for
the Company overall and the peak selling period for its toy and leather apparel
businesses. The peak selling periods, other than the Christmas holiday, for the
Company's non-leather apparel and footwear businesses coincide with the Easter
holiday and the opening of school in the fall. Competition is based upon such
factors as price, style, quality and design of product and the layout and
location of stores.
The Company's principal office is located in Rye, New York. As of December
31, 1995, the Companies had approximately 97,000 full and part-time associates.
BUSINESS SEGMENT INFORMATION
The Company is principally a specialty retailer conducting business in the
three major segments listed below:
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- Prescription drugs, health and beauty care retailing.
- Apparel retailing, which includes men's and women's specialty and
leather apparel and brand name and private label apparel for men,
women and children.
- Toys and home furnishings retailing, which includes retailing of toys,
domestics and furniture (as well as furniture manufacturing).
Because the Company announced its intention to spin-off its footwear
segment to shareholders in 1996 as part of its restructuring plan, the results
of operations for these footwear businesses have been classified as discontinued
operations for all periods presented in the consolidated statements of
operations in the Company's Annual Report to Shareholders incorporated herein by
reference. The financial information concerning industry segments required by
Item 101(b) of Regulation S-K is set forth on page 36 of the Company's Annual
Report to Shareholders for the year ended December 31, 1995, and is incorporated
herein by reference.
PRESCRIPTION DRUGS, HEALTH AND BEAUTY CARE RETAILING
On December 31, 1995, the Companies operated 1,366 prescription drugs,
health and beauty care stores in 14 states and the District of Columbia under
the name "CVS", substantially all of which have pharmacies. Net sales for these
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stores for 1995 represented approximately 50.2% of the net sales of the
Companies' continuing operations.
These stores are considered "destination" stores and are located primarily
in "strip" shopping centers and freestanding units. In the prescription drugs,
health and beauty care retailing business, the Company counts itself among the
largest retailers in terms of number of stores in its primary marketing
territories, which is the mid-Atlantic and Northeast United States. The monthly
business periodical entitled "Chain Drug Review" has ranked CVS fourth in number
of stores and sixth in dollar volume among the top ten drug store chains in the
United States based upon dollar volume and store count. These stores also
compete with general merchandise stores, supermarkets and mail order pharmacies.
PharmaCare started in 1994 as a full service prescription benefits
management company that markets and administers prescription benefit programs
directly to managed care organizations, employers, and other health insurance
companies. PharmaCare was formed to serve as the strategic marketing arm of CVS.
It has developed a range of service offerings to distinguish CVS and PharmaCare
in the prescription management market.
APPAREL RETAILING
On December 31, 1995, the Companies operated 548 men's and women's leather
and suede apparel and accessory stores, which are located primarily in regional
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shopping malls in 46 states, the District of Columbia and the United Kingdom
under the names "Wilsons Suede & Leather", "Wilsons The Leather Experts",
"Tannery West", "Bermans The Leather Experts", "Bermans", "Snyder Leather
Outlets", "Pelle Cuir" and "Georgetown Leather Design". Net sales for 1995 in
these stores represented approximately 4.7% of the net sales of the Companies'
continuing operations.
On December 31, 1995, the Companies operated 34 stores selling casual
clothing and footwear for the entire family under the name "Bob's Stores",
principally in "strip" shopping centers located in Connecticut, Massachusetts,
New York, New Jersey, Rhode Island, Pennsylvania, New Hampshire, Virginia and
Maryland. Net sales at Bob's stores for 1995 represented approximately 3.6% of
the net sales of the Companies' continuing operations.
TOYS AND HOME FURNISHINGS
On December 31, 1995, the Companies operated 1,004 toy and hobby stores in
all 50 states and Puerto Rico under the names "Kay-Bee Toys" and "Toy Works". As
discussed in more detail below, the Company announced on March 25, 1996, that it
expects to complete the sale of this toy business to Consolidated Stores
Corporation in May 1996. The Kay-Bee Toys stores are located primarily in
regional shopping malls. The Toy Works stores are located primarily in "strip"
shopping centers
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and freestanding units. Net sales in toy and hobby stores for 1995 represented
approximately 11.1% of the net sales of the Companies' continuing operations.
On December 31, 1995, the Companies operated 155 quality brand name linens,
towels, bath and other household items stores, which are located primarily in
"strip" shopping centers in 29 states under the name "Linens 'n Things". Linens
'n Things' net sales for 1995 represented approximately 5.7% of the net sales of
the Companies' continuing operations.
On December 31, 1995, the Companies operated 228 stores carrying a
distinctive line of casual furniture and coordinated accessories for residential
and commercial use, located primarily in regional shopping malls in 33 states,
under the names "This End Up" and "Wood's End". Net sales of furniture for 1995
represented approximately 1.4% of the net sales of the Companies' continuing
operations.
In the toy retailing business, the Company is among the largest toy and
hobby chain store operators in the United States in terms of sales, as well as
number of retail outlets. Based upon sales volume, the business periodical
"Discount Store News" has ranked Kay-Bee among the top toy specialty chains in
the United States.
In the home furnishings retailing business, the Company believes itself to
be a significant factor in the markets for the products which it carries. Based
on total revenues, This End Up has been ranked by "Furniture Today", a weekly
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business periodical, as the 17th largest home furnishing retailer in the United
States.
Manufacturing
During 1995, the Company, through This End Up Furniture Company,
manufactured a distinctive line of casual furniture in seven factories located
in the Southeast United States. Approximately 99% of the furniture manufactured
is sold through the Company's This End Up division. The Company believes that
these factories have the capacity to supply all of the sales volume requirements
of its "This End Up" and "Wood's End" retail stores and currently these
factories supply substantially all of such requirements.
This End Up Furniture Company manufactures a large portion of its furniture
from southern yellow pine, which is in plentiful supply in the Southeastern
United States. Southern yellow pine is a renewable resource and most producers
have reforestation programs in effect.
FOOTWEAR - DISCONTINUED OPERATIONS
As part of the Company's restructuring plan, it plans to spin-off its
footwear operations to shareholders during 1996. As of December 31, 1995, these
included 2,568 leased footwear departments, 439 retail stores under the names
"FOOTACTION USA" and "FOOTACTION For Kids" and 315 retail stores under the names
"Thom McAn" and "B.O.Q.". Collectively, these leased departments and retail
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stores are located in all 50 states, Puerto Rico, the U.S. Virgin Islands, the
Czech Republic, Slovakia, Mexico, Guam and Singapore.
Each of the leased departments is operated by the Company's Meldisco
division which sells footwear for the entire family. All but 390 of the leased
departments operated during the fiscal year ended December 31, 1995 were located
in Kmart discount department stores in the United States, Puerto Rico, the Czech
Republic, Slovakia, Mexico, Guam and Singapore. The 390 leased departments are
located in Pay Less or Thrifty Drug Stores, and are owned by Thrifty Pay Less,
Inc.
Pursuant to an agreement between the Company and Kmart Corporation
("Kmart") entered into effective July 1, 1995, and an agreement between the
Company and Pay Less Drug Stores Northwest, Inc. dated October 10, 1988, the
Company has the exclusive right to operate the footwear departments in Kmart and
Pay Less Drug stores. All license agreements relating to the Kmart leased
departments expire July 1, 2012 and all agreements relating to Pay Less and
Thrifty Drug stores have terms of 25 years and are subject to certain
performance standards. Rental payments under all such license agreements are
based on a percentage of sales, with additional payments to be made under
certain of the license agreements with Kmart based on profits. The Company has a
51% equity interest, and Kmart has a 49% equity interest, in all the
subsidiaries which operate leased departments in Kmart stores, with the
exception of 35 such subsidiaries in which the Company
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has a 100% equity interest. The Company has a 100% equity interest in all the
subsidiaries which operate leased departments in Pay Less or Thrifty Drug
Stores. Aggregate net sales for 1995 of Meldisco leased departments represented
approximately 10.3% of the Companies' net sales, including the businesses
classified as discontinued operations.
Footaction stores are located primarily in regional shopping malls. These
stores specialize in brand name casual and athletic footwear and related apparel
for the entire family. Footaction's net sales for 1995 represented approximately
3.7% of the Companies' net sales, including the businesses classified as
discontinued operations.
A majority of the Thom McAn stores are also located in regional shopping
malls and sell footwear and related items for men and women. Thom McAn's net
sales for 1995 represented approximately 1.8% of the Companies' net sales,
including the businesses classified as discontinued operations.
In the footwear retailing business the Companies, through their retail
stores and leased departments, compete with footwear chain store operators and
many other types of footwear retailers, e.g., general merchandise stores,
traditional department stores, mail order businesses and apparel stores.
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DISPOSITIONS
During 1995, the Company sold its Marshalls division to The TJX Companies,
Inc. for a total purchase price of approximately $600 million, consisting of
$375 million in cash and $175 million in TJX convertible preferred stock, with
the balance representing an adjustment to the purchase price based on the final
accounting for working capital. Net sales for the Marshalls division in 1995
through its date of disposition represented approximately 23.3% of the net sales
of the Companies' continuing operations.
RECENT DEVELOPMENTS
On March 25, 1996, the Company announced that it reached a definitive
agreement for the sale of its Kay-Bee Toys division to Consolidated Stores
Corporation for approximately $315 million, including $215 million in cash and
$100 million in a four-year subordinated note. This transaction, which is
subject to regulatory approval and certain closing conditions, is expected to
close in May, 1996.
Item 2. Properties
The registrant and its subsidiaries lease various retail stores and
warehouse, plant and office facilities. Most of these leases contain initial
terms ranging from 5 to 25 years and many have options for extension beyond the
initial term ranging from 5 to 15 years. Retail stores and office facilities are
leased in nearly all cases.
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The Company operated twenty-nine distribution centers located in thirteen
states containing an aggregate of approximately 4,375,000 square feet that are
used in the health and beauty aids, linens, furniture and apparel business. All
such distribution centers are leased with the exception of 10 distribution
centers containing an aggregate of approximately 3,324,000 square feet, which
are owned by the registrant or one of its subsidiaries. During 1995, the Company
operated 9 distribution centers located in 7 states containing an aggregate of
approximately 2,189,000 square feet for use in connection with its footwear
operating units. All such distribution centers are leased with the exception of
3 distribution centers containing an aggregate of approximately 909,000 square
feet, which are owned by the registrant or one of its subsidiaries. By the end
of 1996, four of the distribution centers used by these footwear operating will
be closed. Six distribution centers, located in 5 states comprising
approximately 1,238,000 square feet are used in the toy business. All such
distribution centers are leased with the exception of (2) distribution centers
containing an aggregate of approximately, 610,000 square feet, which are owned
by the registrant or one of its subsidiaries.
During the fiscal year ended December 31, 1995, the registrant and its
subsidiaries operated seven factories, all of which were located in North
Carolina and are furniture factories with the total capacity to produce
approximately 1,092,000 pieces of furniture annually. The registrant or one of
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its subsidiaries own all such factories remaining in operation at the end of the
year.
Item 3. Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the registrant or any of
its subsidiaries is a party or of which any of its or their property is the
subject.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1995.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following is included as an unnumbered item in Part I of this report
since the registrant did not furnish such information in its definitive proxy
statement dated March 7, 1996.
Date Date First
Appointed Appointed an
to Present Officer of
Name/Office Age Office the Registrant
- ----------- --- ------ --------------
Carlos E. Alberini 40 1/10/96 7/12/95
Vice President and
Acting Chief Financial
Officer
James E. Alward 52 3/17/92 3/17/92
Vice President
Norman Axelrod 43 3/07/88 3/07/88
Vice President
(President and
Chief Executive
Officer of
Linens 'n Things)
Nancy R. Christal 37 10/11/95 10/11/95
Vice President
Michael A. Friedheim 52 1/01/94 7/14/82
Vice President
(Chairman and Chief
Executive Officer of
Bob's Stores)
Philip C. Galbo 45 7/13/94 8/01/89
Vice President and
Treasurer
Stanley P. Goldstein 61 1/01/87 4/13/71
Chairman of the
Board and Chief
Executive Officer
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Date Date First
Appointed Appointed an
to Present Officer of
Name/Office Age Office the Registrant
- ----------- --- ------ --------------
Peggy Kelston 46 12/7/94 12/7/94
Vice President
Robert A. Kemeny 40 7/13/94 7/13/94
Vice President
(President and Chief
Executive Officer of
This End Up)
William C. Kingsford 49 3/12/86 7/13/79
Vice President
Jerald L. Maurer 53 1/01/94 1/01/94
Senior Vice
President
Larry A. McVey 54 3/14/84 3/14/84
Vice President
(President and Chief
Executive Officer of
Thom McAn)
Ralph T. Parks 50 3/10/94 3/10/94
Vice President
(President and Chief
Executive Officer of
Footaction)
Jerald S. Politzer 50 10/09/91 6/21/89
Executive Vice
President
Arthur V. Richards 57 9/13/89 4/12/77
Vice President
and Corporate Secretary
Maureen Richards 39 10/11/95 10/9/91
Vice President and
Assistant Corporate
Secretary
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Date Date First
Appointed Appointed an
to Present Officer of
Name/Office Age Office the Registrant
- ----------- --- ------ --------------
J. M. Robinson 49 7/13/88 7/13/88
Vice President
(President and Chief
Executive Officer of
Meldisco)
Harvey Rosenthal 53 1/01/94 10/17/84
President and
Chief Operating
Officer
Thomas M. Ryan 43 1/01/94 1/01/94
Vice President
(President and Chief
Executive Officer of CVS)
Joel N. Waller 55 3/11/87 3/11/87
Vice President
(Chairman and Chief
Executive Officer of
Wilsons)
Jeffery A. Warzel 39 1/11/95 1/11/95
Vice President
In each case the term of office extends to the date of the board of
directors meeting following the next annual meeting of shareholders of the
registrant. In addition to the office(s) which they hold in the registrant as
shown above, each of the individuals listed (with the exception of Messrs.
Kingsford, Maurer, Warzel, Ms. Christal and Ms. Kelston) hold various offices in
certain subsidiaries of the registrant. Previous positions and responsibilities
held by each of the above officers with the registrant and for each of the above
officers who have not held the same office(s) with the same responsibilities for
more than the past five years, are indicated below:
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Carlos A. Alberini - Senior Vice President and Chief Financial Officer
(1990 to May, 1995) of the Bon Ton Stores Inc.
James E. Alward - Director of Taxation (January, 1979 to Present) of
the registrant.
Nancy R. Christal - Vice President of Investor Relations (January,
1992 to September, 1995) and Director of Investor Relations
(January 1991 to December, 1991) of Ogden Corporation.
MichaelA. Friedheim - Executive Vice President (February, 1986 to
January, 1994) of the registrant.
Philip C. Galbo - Treasurer (July, 1989 to Present) of the registrant.
Robert A. Kemeny - Independent Salesman (January, 1991 to July, 1994)
Peggy Kelston - Vice President Human Resources (July, 1989 to
September, 1994) of Calbro Corp.
Jerald L. Maurer - Corporate Vice President of Strategic Human
Resource Management (January, 1992 to January, 1994); of Aetna
Life and Casualty Company; Vice President of Human Resources
(January, 1991 to January, 1992) of Medstat Systems, Inc.
Ralph T. Parks - President of the Footaction division of the
registrant (November, 1991 to Present); Executive Vice
President and Chief Operating Officer (March, 1987 to November,
1991) of Footaction, Inc.
Jerald S. Politzer - Group Vice President (June, 1989 to October,
1991) of the registrant.
Arthur V. Richards - Secretary (April, 1977 to Present) of the
Registrant
Maureen Richards - Corporate and Trademark Counsel and Assistant
Corporate Secretary (October, 1991 to October, 1995) of the
registrant.
Harvey Rosenthal - President and Chief Executive Officer (October,
1984 to January, 1994) of the CVS division of the registrant.
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Thomas M. Ryan - Executive Vice President (January, 1990 to January,
1994) of the CVS division of the registrant.
Jeffery A. Warzel - Director of Process Improvement (September, 1992 to
January, 1995) of the registrant; Senior Manager (April, 1988
to August, 1992) of Deloitte & Touche LLP.
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Part II
Item 5. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters
The number of holders of the registrant's Common Stock, based upon the
number of record holders, was approximately 6,500 as of December 31, 1995. All
other information required by this item is included in the registrant's Annual
Report to Shareholders for the year ended December 31, 1995 on page 35 and is
incorporated herein by reference.
Item 6. Selected Financial Data
The information required by this item is included in the registrant's
Annual Report to Shareholders for the year ended December 31, 1995 on page 37
and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The information required by this item is included in the registrant's
Annual Report to Shareholders for the year ended December 31, 1995 on pages 18
through 22 and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included in the registrant's
Annual Report to Shareholders for the year ended December 31, 1995 on pages 24
through 36, and is incorporated herein by reference.
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Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
During the registrant's two most recent fiscal years or any subsequent
interim period, no event occurred which would require disclosure under this
item.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the executive officers is furnished under the heading
"EXECUTIVE OFFICERS OF THE REGISTRANT" in Part I of this report since the
registrant did not furnish such information in its definitive proxy statement
dated March 7, 1996.
The other information required by this item is included in the registrant's
definitive proxy statement dated March 7, 1996 on pages 1 through 4 and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is included in the registrant's
definitive proxy statement dated March 7, 1996 on pages 5 through 11 and page 14
and is incorporated herein by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management
The information required by this item is included in the registrant's
definitive proxy statement dated March 7, 1996 on pages 1 through 5 and is
incorporated herein by reference.
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Item 13. Certain Relationships and Related Transactions
No information is required to be reported by this item.
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) Documents filed as part of this report:
l. and 2. Financial Statements and Financial Statement Schedules.
The consolidated financial statements of Melville Corporation and its
subsidiary companies incorporated herein by reference to the Annual Report to
Shareholders for the fiscal year ended December 31, 1995 and the related
consolidated financial statement schedule are set forth in the Index to
Consolidated Financial Statements and Schedule on page 28 hereof.
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3. Exhibits
Exhibit
Table
Number:
(a) The Exhibits filed as part of this report are listed below:
3(a) Restated Certificate of Incorporation, as amended as of April 18, 1990
(incorporated by reference to Exhibit 3 filed with the registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1990).
3(b) By-Laws, as amended through March 8, 1995 (incorporated by reference to
Exhibit 3 (b) filed with the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994).
4 No instrument which defines the rights of holders of long and
intermediate debt of the registrant and its subsidiaries is filed
herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A) other
than the June 23, 1989 amendment to the Restated Certificate of
Incorporation defining the rights of the holders of the Series One
ESOP Convertible Preference Stock (see above exhibit table number
3(a)). The registrant hereby agrees to furnish a copy of any such
instrument to the Securities and Exchange Commission upon request.
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Exhibit
Table
Number:
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10(iii)(A) (i) 1973 Stock Option Plan (incorporated by reference to Exhibit (10)
(iii) (A) (i) to the registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987). (ii) 1987 Stock Option
Plan (incorporated by reference to Exhibit (10) (iii) (A) (iii)
to the registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987).
(iii) 1989 Directors Stock Option Plan (incorporated by reference to
Exhibit B to the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
(iv) Melville Corporation Omnibus Stock Incentive Plan (incorporated
by reference to Exhibit B to the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989 and Exhibit
A to the registrant's definitive Proxy Statement dated March 7,
1995).
(v) Directors Retirement Plan (incorporated by reference to Exhibit
10(iii)(A)(vi) to the registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992).
(vi) Profit Incentive Plan of Melville Corporation (incorporated by
reference to Exhibit A to the registrant's definitive Proxy
Statement dated March 14, 1994).
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Exhibit
Table
Number:
(vii) Supplemental Retirement Plan for Select Senior Management of
Melville Corporation I as amended through July, 1995.
(viii) Supplemental Retirement Plan for Select Senior Management of
Melville Corporation II as amended through July, 1995.
(ix) Income Continuation Policy for Select Senior Executives of
Melville Corporation as amended through May 12, 1988
(incorporated by reference to Exhibit 10 (viii) to the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
(x) Employment Agreement between Jerald L. Maurer and the registrant.
(xi) Employment Agreement between Harvey Rosenthal and the registrant.
(xii) Employment Agreement between Jerald S. Politzer and the
registrant.
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratios.
13 Annual Report to Shareholders for the fiscal year ended December 31, 1995.
(Except for the portions incorporated herein by reference, such report is
furnished for the information of the Securities and Exchange Commission
(SEC) and is not deemed "filed" as part of this Form 10-K report.)
18 Letter re: Change in Accounting Principle.
22 Subsidiaries of the registrant.
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Exhibit
Table
Number:
- -------
27 Financial Data Schedule.
27A Restated Financial Data Schedule - September 30, 1995
27B Restated Financial Data Schedule - July 1, 1995
27C Restated Financial Data Schedule - April 1, 1995
27D Restated Financial Data Schedule - December 31, 1994
27E Restated Financial Data Schedule - October 1, 1994
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MELVILLE CORPORATION
By /S/ ARTHUR V. RICHARDS
---------------------------
Arthur V. Richards
Vice President and Secretary
March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has also been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ STANLEY P. GOLDSTEIN Chairman of the Board and
- ----------------------------- Director (Chief Executive
(Stanley P. Goldstein) Officer) March 29, 1996
/S/ CARLOS E. ALBERINI Vice President and
- ----------------------------- Acting Chief Financial
(Carlos E. Alberini) Officer March 29, 1996
/S/ ALLAN J. BLOOSTEIN Director March 25, 1996
- -----------------------------
Allan J. Bloostein)
/S/ W. DON CORNWELL Director March 25, 1996
- -----------------------------
(W. Don Cornwell)
/S/ THOMAS P. GERRITY Director March 23, 1996
- -----------------------------
(Thomas P. Gerrity)
/S/ MICHAEL H. JORDAN Director March 25, 1996
- -----------------------------
(Michael H. Jordan)
26
<PAGE>
Signature Title Date
--------- ----- ----
/S/ WILLIAM H. JOYCE Director March 23, 1996
- -----------------------------
(William H. Joyce)
/S/ TERRY R. LAUTENBACH Director March 23, 1996
- -----------------------------
(Terry R. Lautenbach)
/S/ DONALD F. MCCULLOUGH Director March 25, 1996
- -----------------------------
(Donald F. McCullough)
/S/ HARVEY ROSENTHAL President, Chief
- ----------------------------- Operating Officer
(Harvey Rosenthal) and Director March 29, 1996
/S/ IVAN G. SEIDENBERG Director March 23, 1996
- -----------------------------
(Ivan G. Seidenberg)
/S/ PATRICIA CARRY STEWART Director March 23, 1996
- -----------------------------
(Patricia Carry Stewart)
/S/ M. CABELL WOODWARD, JR. Director March 24, 1996
- -----------------------------
(M. Cabell Woodward, Jr.)
27
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Index to Consolidated Financial Statements and Schedule
The consolidated financial statements of Melville Corporation and
Subsidiary Companies together with the report on such consolidated financial
statements of KPMG Peat Marwick LLP dated February 15, 1996, which appear on the
pages listed below of the 1995 Annual Report to shareholders, are incorporated
by reference in this Annual Report on Form 10-K.
Page Number
in 1995
Annual Report
to Shareholders
---------------
Independent Auditors' Report .............................. 23
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993 ............... 24
Consolidated Balance Sheets as of December 31,
1995 and 1994 ........................................ 25
Consolidated Statements of Shareholders'
Equity for the years ended December 31, 1995,
1994 and 1993 26
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 ......... 27
Notes to Consolidated Financial Statements ................ 28-36
Included in Part IV of this report: Page
----
Consent of Independent Auditors
for Melville Corporation
and Subsidiary Companies ............................. F-1
Independent Auditors' Report on Consolidated
Financial Statement Schedule of Melville Corporation
and Subsidiary Companies ............................. F-2
Consolidated Financial Statement Schedule of Melville Corporation and Subsidiary
Companies for the years ended December 31, 1995, 1994 and 1993:
II - Valuation and Qualifying Accounts ................. S-1
Schedules not included above have been omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or related notes.
28
<PAGE>
INDEX TO EXHIBITS
Exhibit
Table
Number:
- -------
3 (a) Restated Certificate of Incorporation, as amended as of April 18,
1990 (incorporated by reference to Exhibit 3 filed with the
registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1990).
3 (b) By-Laws, as amended through March 8, 1995 (incorporated by
reference to Exhibit 3(b) filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994).
4 No instrument which defines the rights of holders of long and
intermediate debt of the registrant and its subsidiaries is filed
herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A) other
than the June 23, 1989 amendment to the Restated Certificate of
Incorporation defining the rights of the holders of the Series
One ESOP Convertible Preference Stock (see above exhibit table
number 3(a)). The registrant hereby agrees to furnish a copy of
any such instrument to the Securities and Exchange Commission
upon request.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10(iii)(A)(i) 1973 Stock Option Plan (incorporated by reference to Exhibit (10)
(iii) (A) (i) to the registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987).
1
<PAGE>
Exhibit
Table
Number:
- -------
(ii) 1987 Stock Option Plan (incorporated by reference to Exhibit (10)
(iii) (A) (iii) to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987).
(iii)1989 Directors Stock Option Plan (incorporated by reference to
Exhibit B to the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988).
(iv) Melville Corporation Omnibus Stock Incentive Plan (incorporated
by reference to Exhibit B to the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989 and Exhibit
A to the registrant's definitive Proxy Statement dated March 7,
1995).
(v) Directors Retirement Plan (incorporated by reference to Exhibit
10(iii)(A)(vi) to the registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992).
(vi) Profit Incentive Plan of Melville Corporation (incorporated by
reference to Exhibit A to the registrant's definitive Proxy
Statement dated March 14, 1994).
(vii)Supplemental Retirement Plan for Select Senior Management of
Melville Corporation I as amended through July, 1995.
(viii) Supplemental Retirement Plan for Select Senior Management of
Melville Corporation II as amended through July, 1995.
2
<PAGE>
Exhibit
Table
Number:
- -------
(ix) Income Continuation Policy for Select Senior Executives of
Melville Corporation as amended through May 12, 1988
(incorporated by reference to Exhibit 10 (viii) to the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
(x) Employment Agreement between Jerald L. Maurer and the registrant.
(xi) Employment Agreement between Harvey Rosenthal and the registrant.
(xii)Employment Agreement between Jerald S. Politzer and the
registrant.
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratios.
13 Annual Report to Shareholders for the fiscal year ended December
31, 1995. (Except for the portions incorporated herein by
reference, such report is furnished for the information of the
Securities and Exchange Commission (SEC) and is not deemed
"filed" as part of this Form 10-K report.)
18 Letter re: Change in Accounting Principle.
22 Subsidiaries of the registrant.
27 Financial Data Schedule.
27A Restated Financial Data Schedule - September 30, 1995
27B Restated Financial Data Schedule - July 1, 1995
27C Restated Financial Data Schedule - April 1, 1995
27D Restated Financial Data Schedule - December 31, 1994
27E Restated Financial Data Schedule - October 1, 1994
3
<PAGE>
Consent of Independent Auditors
The Board of Directors and Shareholders
Melville Corporation:
We consent to incorporation by reference in the Registration Statements Numbers
33-40251, 33-17181 and 2-97913 on Form S-8 and Number 33-34946 on Form S-3 of
Melville Corporation of our report dated February 15, 1996, relating to the
consolidated balance sheets of Melville Corporation and subsidiary companies as
of December 31, 1995 and 1994, and the related consolidated statement of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995, which report is incorporated by
reference in the December 31, 1995 annual report on Form 10-K of Melville
Corporation and to our report dated February 15, 1996 on the related financial
statement schedule, which report appears in the December 31, 1995 annual report
on Form 10-K of Melville Corporation.
Our reports refer to the adoption of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in
1995, a change in the method of accounting for internally developed software
costs in 1995, and a change in the method of determining retail price indices
used in the valuation of LIFO inventories in 1993.
KPMG Peat Marwick LLP
New York, New York
March 29, 1996
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Melville Corporation:
Under date of February 15, 1996, we reported on the consolidated balance sheets
of Melville Corporation and subsidiary companies as of December 31, 1995 and
1994, and related consolidated statements of operations, shareholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1995, as contained in the 1995 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1995. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed on page 28 of the Annual Report to Shareholders, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," in 1995, and as
discussed on page 28, the Company changed its policy for accounting for
internally developed software costs in 1995. Also, as discussed on page 30, the
Company changed its method of determining retail prices indices used in the
valuation of LIFO inventories in 1993.
New York, New York
February 15, 1996
F-2
<PAGE>
SCHEDULE II
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
($ in Thousands)
<TABLE>
<CAPTION>
Balance at Additions Charged Balance at
Description Beginning of Year to Costs and Expenses Deductions (1) End of Year
----------- ----------------- --------------------- -------------- -----------
<S> <C> <C> <C> <C>
Accounts Receivable:
Allowance for Doubtful Accounts:
Year Ended December 31, 1995 $18,858 $33,836 $19,256 $33,438
======================== ======================= =================== =================
Year Ended December 31, 1994 $32,534 $14,484 $28,160 $18,858
======================== ======================= =================== =================
Year Ended December 31, 1993 $25,131 $23,173 $15,770 $32,534
======================== ======================= =================== =================
</TABLE>
(1) Write-offs, net of recoveries
S-1
SUPPLEMENTAL RETIREMENT PLAN I FOR
SELECT SENIOR MANAGEMENT OF
MELVILLE CORPORATION
As Amended Through
July 1, 1995
<PAGE>
SUPPLEMENTAL RETIREMENT PLAN I FOR
SELECT SENIOR MANAGEMENT OF
MELVILLE CORPORATION
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1. Definition............................................. 1
ARTICLE 2. Membership............................................ 11
ARTICLE 3. Amount and Payment of Supplemental Benefits........... 12
ARTICLE 4. Special Contributions................................. 16
ARTICLE 5. Administration........................................ 19
ARTICLE 6. General Provisions.................................... 20
ARTICLE 7. Amendment or Termination.............................. 22
<PAGE>
SUPPLEMENTAL RETIREMENT PLAN I FOR
SELECT SENIOR MANAGEMENT OF
MELVILLE CORPORATION
ARTICLE 1. DEFINITIONS
1.01 "Accumulated Contribution Account" shall mean the bookkeeping account
maintained for a Contribution Account Member to record the amount of
company contribution credited on behalf of such Member during the period
he is designated as a Contribution Account Member in accordance with
Section 4.01, as adjusted pursuant to Section 4.02.
1.02 Annual Benefit
(a) "Annual Benefit" shall mean, with respect to a Member who became or
becomes a Retiree after June 30, 1995, the amount by which 50%, or such
lesser percentage specified in clause (b) below, of such Member's
Compensation exceeds the sum of (i), (ii), and (iii) where:
(i) equals the aggregate annualized value of any retirement and/or
deferred profit sharing benefits in respect of such Member
(excluding the value of any benefits attributable to pre-tax or
after-tax contributions made by or on behalf of the Member) which
have previously been received or which such Member or any other
person has a vested right to receive at the time of the commencement
of payment of such Member's benefit under Section 3.04 of the Plan,
under (A) any arrangement maintained by the Corporation other than
the Plan (including any annuity contracts purchased with respect to
benefits accrued under the Melville Corporation Retirement Plan), or
(B) any arrangement which constitutes a qualified plan under Section
401(a) of the Internal Revenue Code of 1986, as amended, maintained
<PAGE>
Page 2
by any entity other than the Corporation, computed pursuant to
clause (c) below,
(ii) equals the Annual Benefit used in computing any lump sum payment
previously made pursuant to Section 3.04 to such a Member becoming
entitled to a recomputation of the Annual Benefit pursuant to
Section 3.05, and
(iii) equals the annual benefit (as defined in Section 1.01 of the
Supplemental Retirement Plan II for Select Senior Management of
Melville Corporation (SERP II)), if any, payable to the Member
pursuant to the provisions of SERP II.
(b) In the case of any Member whose retirement allowance under Section 3.04 of
the Plan commences to be paid on or after his reaching age 55 years but
prior to his reaching age 60 years, there shall be substituted for "50%"
in clause (a) above that lower percentage which results from subtracting
that percentage which is the product of 5 times the number of whole and
partial years (treating a partial year as a whole year) until such
Member's 60th birthday so that, for example, the applicable percentage for
a Member age 58-1/2 years would be 40% (50% - (5 x 2)% = 40%).
(c) Notwithstanding the foregoing, the Annual Benefit computed under this
Section 1.02 shall not be less than annualized value of a Member's
Accumulated Contribution Account, as computed at the time such Member
becomes a Retiree on the basis of the actuarial assumptions set forth in
clause (d) below.
(d) The annualized value of a Member's retirement and deferred profit sharing
benefits shall be computed as follows:
<PAGE>
Page 3
(i) with respect to any benefit which such Member is thereupon
commencing to receive at the time of such computation in the form of
an annuity, the annual payment to which such Member would be
entitled under the terms of the plan under which such benefit is to
be paid were such benefit to be paid in the form of a single life
annuity for the Member's life, or
(ii) with respect to any other benefit, the annual amount of the
actuarial equivalent of such benefit computed as if such benefit
were to be paid in the form of a single life annuity to such Member
commencing at the time of such computation. In computing such
actuarial equivalents, the actuarial assumptions to be used shall be
(A) the 1983 Group Annuity Mortality Table and (B) an interest rate
assumption equal to the applicable interest rate (expressed as a
percentage) used by the Pension Benefit Guaranty Corporation for
valuing lump sum benefits for single employer plans that terminate
on the date of such calculation, minus .5%.
1.03 "Beneficiary" shall mean the person named by the Member (i) at the time
payments to the Member commence under the Plan or (ii) in the case of
benefits payable under Section 3.03, at the time of the Member's death, by
written designation filed with the Retirement Administration Committee, to
receive payments after the Member's death. In the absence of a beneficiary
designation, the Participant's Beneficiary for purposes of Section 3.03
shall be his spouse, if any, or his estate.
1.04 "Board of Directors" shall mean the Board of Directors of Melville
Corporation.
1.05 "Change in Control" shall mean any of the following occurrences:
<PAGE>
Page 4
(a) any "person" or "group of persons" as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") purchases or otherwise becomes "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) directly or indirectly, of securities
representing 25% or more of the combined voting power of Melville
Corporation (including, without limitation, securities which may be
acquired upon the exercise of any option or options owned by such person
or group of persons to purchase any such voting securities, or conversion
of securities convertible into such voting securities, whether or not such
option or options or convertible securities were outstanding on the date
hereof and whether or not such options are exercisable or such securities
are convertible at the time of the Change in Control);
(b) during any period of two consecutive years, the individuals who at the
beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless
(i) there are four or more directors then still in office who were
directors at the beginning of the period and
(ii) the election, or the nomination for election, by Melville
Corporation's shareholders of each new director was approved by a
vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period;
(c) the shareholders of Melville Corporation shall have voted to approve an
agreement to merge or consolidate Melville Corporation with or into
another corporation as a result of which less than 50% of the outstanding
voting securities of the surviving or resulting entity are or are to be
owned by the former shareholders of Melville Corporation (excluding from
<PAGE>
Page 5
former shareholders a shareholder who is an "affiliate," as defined in
Rule 12b-2 under the Exchange Act, of any party to such consolidation or
merger); or
(d) the shareholders of Melville Corporation approve the sale of all or
substantially all of Melville Corporation's business and/or assets to a
person or entity which is not a wholly-owned subsidiary of Melville
Corporation; provided, however, that none of the foregoing shall be deemed
to constitute a Change in Control if in connection therewith it shall be
necessary to file a Schedule 13E-3 pursuant to Rule 13e-3 under the
Securities Exchange Act of 1934, unless immediately prior to such event
the Board of Directors shall determine such event to constitute a Change
in Control.
1.06 "Company Contributions" shall mean the amount credited to a Member's
Accumulated Contribution Account pursuant to Section 4.01.
1.07 "Compensation" shall mean a Member's annual base pay rate as in effect on
such Member's Compensation Measurement Date plus the Member's Serp
Incentive Target. A Member's Compensation Measurement Date shall be the
date on which such Member terminates employment with the Corporation for
any reason, including retirement, death or disability, unless using the
date of a Change in Control as of which such Member was a Member would
result in a higher amount in which case the date of such Change in Control
shall be such Member's Compensation Measurement Date.
<PAGE>
Page 6
1.08 "Contribution Account Member" shall mean an Executive Employee listed on
Appendix B who has been selected by the Compensation Committee of the
Board of Directors to be a Contribution Account Member.
1.09 "Corporation" shall mean Melville Corporation and any subsidiary or other
entity at any time at which 50% or more of the voting power or beneficial
interest of such subsidiary or other entity, is owned directly or
indirectly by Melville Corporation. References in the Plan to Melville
Corporation shall be deemed to include successors to Melville Corporation.
1.10 "Executive Employee" shall mean an employee of the Corporation who is a
senior officer of the Corporation and who has been listed on Appendix A as
amended from time to time by the Compensation Committee of the Board of
Directors.
1.11 "Lump Sum Benefit" shall mean
(a) with respect to a Member to whom payment of benefits under Section 3.04
has not commenced or, if previously commenced, has been discontinued
pursuant to Section 3.05, and who has made no election under Section 3.04
or has elected a form of benefit under Section 3.04 making no provision
for the Beneficiary, the lump sum actuarial equivalent of a single life
annuity for the Member commencing at the date as of which such Member
would have had 10 years of Service assuming no termination of employment
with the Corporation following a Change in Control, but not prior to such
Member's attaining age 60, (the "Presumed Starting Date"), under which
annuity the annual payment is equal to the Projected Annual Benefit times
a fraction, the numerator of which is such Member's actual years of
<PAGE>
Page 7
Service as of such Member's Termination of Employment (but not more than
10) and the denominator of which is 10,
(b) with respect to (i) a Member to whom payment of benefits under Section
3.04 has not commenced or, if previously commenced, has been discontinued
pursuant to Section 3.05 and who has elected an optional form of benefit
under Section 3.04 making provision for the Beneficiary and (ii) the
Beneficiary of such Member, the lump sum actuarial equivalent of that part
of the benefit described in clause (a) to be paid to such Member, or to
such Beneficiary, respectively, pursuant to the optional form of benefit
elected by such Member under Section 3.04, or
(c) with respect to (i) a Beneficiary to whom payment of benefits under
Section 3.03 has commenced, (ii) a Member to whom payment of benefits
under Section 3.04 has commenced and has not been discontinued pursuant to
Section 3.05 and (iii) the Beneficiary of such a Member, the lump sum
actuarial equivalent of all future benefits, if any, payable to such
Member or to such Beneficiary, as the case may be, under the Plan.
(d) Notwithstanding the foregoing, the Lump Sum Benefit determined under this
Section 1.11 shall not be less than the vested portion of the Member's
Accumulated Contribution Account determined pursuant to Section 4.03.
<PAGE>
Page 8
The amount of such actuarial equivalents computed under this Section 1.11
shall be determined by the Compensation Committee of the Board of
Directors with sole discretion using the actuarial assumptions described
in Section 1.02(d).
1.12 "Member" shall mean any person included in the membership of the Plan as
provided in Article 2.
1.13 "Plan" shall mean the Supplemental Retirement Plan I for Select Senior
Management of Melville Corporation, as described herein or as hereafter
amended.
1.14 "Projected Annual Benefit" shall mean
(a) with respect to a Member of the Plan at the time of a Change in Control to
whom payment of benefits under Section 3.04 has not commenced, the amount
by which 50% of such Member's Compensation exceeds the sum of
(i) the aggregate annualized value of any retirement and deferred profit
sharing benefits in respect of such Member (excluding the value of
any benefits attributable to pre-tax or after-tax contributions made
by or on behalf of a Member) which have previously been received or
which such Member or any other person has a vested right to receive
at the time of such Member's termination of employment under (A) any
arrangement maintained by the Corporation, other than the Plan
(including any annuity contracts purchased with respect to benefits
accrued under the Melville Corporation Retirement Plan), or (B) any
arrangement which constitutes a qualified plan under Section 401(a)
of the Internal Revenue Code of 1986, as amended, maintained by any
entity other than the Corporation, computed in the manner described
<PAGE>
Page 9
in Section 1.02(d), assuming payment of such benefits will commence
at such Member's Presumed Starting Date, as defined in Section 1.11,
and,
(ii) the Annual Benefit used in computing any lump sum payment previously
made to such Member pursuant to Section 3.04; or
(b) with respect to a Member of the Plan at the time of a Change in Control to
whom payment of benefits under Section 3.04 has previously commenced but
who has been restored to employment with the Corporation, the amount
computed pursuant to (a) above, but in no event less than such Member's
Annual Benefit computed pursuant to Section 3.05 as if such Member had
then terminated employment with the Corporation.
1.15 "Retiree" shall mean a Member who has 10 or more years of Service and
terminates employment with the Corporation at or after age 55 for any
reason, including disability but excluding death, provided, however, that
if such Member shall be eligible upon such termination of employment to
commence to receive payments under the Retirement Plan in which he is a
participant, if any, he shall not be a Retiree unless he commences to
receive such payments upon such termination of employment.
1.16 "Retirement Administration Committee" shall mean the Committee of the
401(k) Profit Sharing Plan of Melville Corporation and Affiliated
Companies.
<PAGE>
Page 10
1.17 "Retirement Plan" shall mean, any defined benefit plan maintained by the
Corporation, meeting the requirements of Section 401 of the Internal
Revenue Code of 1986, as amended, in which such Member shall be or was a
participant.
1.18 "Serp Incentive Target" shall mean the Member's full annual target
incentive compensation award as last in effect under the Profit Incentive
Plan of Melville Corporation or the Profit Incentive Plan for the
divisions immediately prior to such Member's Compensation Measurement Date
(as defined in Section 1.07).
1.19 "Service" shall mean with respect to a Member the sum of (a) in the case
of an Executive Employee who became a Member prior to July 1, 1995, the
period of such Member's active employment with the Corporation, whether or
not as an Executive Employee, or in the case of an Executive Employee who
became a Member on or after July 1, 1995, the period of such Member's
active employment with the Corporation as an Executive Employee,
excluding, in each case, unless otherwise provided by the Retirement
Administration Committee, any period during which the Member
was engaged as a consultant or
received salary continuance or severance payments and (b) any Service credited
to such Member by the Compensation Committee of the Board of Directors pursuant
to Article 5.
<PAGE>
Page 11
1.20 "Termination of Employment" shall have the meaning assigned to such term
in the Income Continuation Policy for Select Senior Executives of Melville
Corporation.
<PAGE>
Page 12
ARTICLE 2. MEMBERSHIP
2.01 Every Member of the Plan on June 30, 1995 who is designated as an
Executive Employee on July 1, 1995 and every Executive Employee in the
employ of the Corporation on July 1, 1995 shall continue to be or shall
become a Member of the Plan on July 1, 1995, as the case may be.
2.02 Any other employee of the Corporation who becomes an Executive Employee
shall thereupon become a Member of the Plan.
2.03 Any former employee of the Corporation who is a Retiree under the Plan on
June 30, 1995 and any Member who thereafter becomes a Retiree shall
continue to be a Member of the Plan until the later of (a) the termination
of his employment and (b) the payment of all benefits in respect of such
Retiree under the Plan.
2.04 The membership under the Plan of an Executive Employee who is not a
Retiree shall terminate if his employment with the Corporation as an
Executive Employee terminates unless at the time of such termination, or
within 60 days thereafter, he becomes a Retiree, or unless upon such
termination he continues to be entitled to a benefit hereunder pursuant to
Section 3.06.
2.05 A Member whose membership in the Plan terminates pursuant to Section 2.03
or Section 2.04 shall be restored to membership in the Plan at such time
as he is restored to employment as an Executive Employee of the
Corporation.
<PAGE>
Page 13
ARTICLE 3. AMOUNT AND PAYMENT OF SUPPLEMENTAL BENEFITS
3.01 Except as provided in Section 3.06 and Article 4, benefits under the Plan
shall be payable by the Corporation only with respect to Members who are
Retirees or become Retirees or, as provided in Section 3.03, to
Beneficiaries.
3.02 Except as provided in Section 3.06, a Retiree shall be entitled to
commencement of payment of benefits hereunder pursuant to Section 3.04
upon the first of the month following his termination of employment with
the Corporation.
3.03 In the event that a Member dies, after attaining age 55 with 10 years of
Service, prior to becoming a Retiree, or dies after becoming a Retiree but
prior to commencing to receive payments hereunder pursuant to Section
3.04, his Beneficiary shall be entitled to the immediate commencement of a
single life annuity, with an annual payment equal to one-half of the
Annual Benefit, if any, computed under Section 1.02, including any
reduction under subsection (b) thereof, if applicable, for such Member as
if the Member was a Retiree and had commenced to receive payment of
benefits under Section 3.04 immediately prior to his death. In the event
the age difference between the Member and his Beneficiary is greater than
5 years, the benefit payable pursuant to this Section 3.03 shall be
actuarially adjusted to reflect the differences in the life expectancy of
the Participant and the Beneficiary.
Notwithstanding any Plan provisions to the contrary, in the event the
Participant's Beneficiary is his estate, the benefit otherwise payable
under this Section 3.03 shall be commuted into a single lump sum amount of
<PAGE>
Page 14
actuarial equivalent value, which amount shall be determined by assuming
the Beneficiary had been a person of the same age as the Member at the
Member's date of death.
The amount of such actuarial equivalents computed under this Section 3.03
shall be determined by the Compensation Committee of the Board of
Directors with sole discretion using the actuarial assumptions described
in Section 1.02(d).
3.04 Except as provided in Section 3.06 and subject to the next succeeding
sentence, the benefit payable under the Plan to a Retiree shall be a
single life annuity for the life of the Retiree, with annual payments
equal to the Annual Benefit computed under Section 1.02 for such Member at
the time of the commencement of payment of benefits under this Section
3.04, adjusted annually to reflect the excess, if any, of the annual
retirement allowance for such year actually received by such Retiree under
any Retirement Plan over the amount deducted with respect to the vested
benefit under such Retirement Plan in the calculation of such Member's
Annual Benefit under Section 1.02(a)(i). A Member may make an irrevocable
election in writing filed with the Retirement Administration Committee at
least 12 months prior to the date of the commencement of benefits
hereunder to receive such benefits (a) in a joint and survivor annuity
form which provides a reduced benefit payable to the Member during his
life, and after his death providing that 100% or 50% of the reduced
benefit will continue to be paid during the life of and to his Beneficiary
or (b) in a lump sum; provided, however, a Member may not elect an
optional form of benefit providing for a deferred commencement date. Any
<PAGE>
Page 15
such optional form of benefit or lump sum shall be the actuarial
equivalent of such single life annuity using the actuarial assumptions
described in Section 1.02(d).
3.05 If a Retiree who has terminated employment with the Corporation is
restored to employment after commencing to receive payments under Section
3.04 of the Plan, the payment of benefits under the Plan shall be
discontinued (unless all such benefits have been previously paid in a lump
sum) and, upon such Member's subsequent termination of employment with the
Corporation for any reason, including retirement, death or disability, the
Member's Annual Benefit under the Plan shall thereafter be recomputed in
accordance with Section 1.02, Section 3.03, Section 3.04 or Section 3.06,
as applicable, and shall be payable in accordance with the provisions of
the Plan, provided, however, that such recomputation shall be based upon
the higher of (i) such Member's Compensation at the time of such previous
termination of employment and (ii) such Member's Compensation at the time
of such subsequent termination of employment.
3.06 Notwithstanding the provisions of Section 3.01 and Section 3.02, if a
Change in Control occurs
(a) each Member who is then a Retiree and each Beneficiary entitled to
benefits under Section 3.03 or Section 3.04 shall be entitled to
receive an immediate payment in cash of such Retiree's or such
Beneficiary's Lump Sum Benefit,
(b) Each Member at the time of such Change in Control who experiences a
Termination of Employment, each Beneficiary of such a Member who has
elected an optional form of benefit under Section 3.04 making a
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provision for such Beneficiary, and each Beneficiary of a Member at
the time of such Change in Control who dies within 2 years following
such Change in Control without having received a Lump Sum Benefit,
shall, upon such Termination of Employment or death, as the case may
be, be entitled to receive an immediate payment in cash of such
Member's or such Beneficiary's Lump Sum Benefit.
(c) Each Member at the time of such Change in Control who neither dies
within 2 years following such Change in Control nor experiences a
Termination of Employment shall, upon such Member's later
termination of employment with the Corporation for any reason other
than death, without becoming a Retiree and, with respect to each
such Member who later dies, the Beneficiary of such Member if such
Beneficiary is not otherwise entitled to a benefit under Section
3.03, shall nevertheless be entitled to a Benefit commencing at the
Presumed Starting Date in the form specified in Section 3.04 or
Section 3.03, as the case may be, provided that in computing such
benefit there shall be substituted for the term Annual Benefit in
Section 3.04 or Section 3.03, as the case may be, the following: the
Projected Annual Benefit times a fraction, the numerator of which is
such Member's years of Service as of such Change in Control (but not
more than 10) and the denominator of which is 10.
(d) The benefits to be paid pursuant to paragraph (c) of this Section
3.06 shall not be payable from the assets of the trust to be
established in connection with the Income Continuation Policy for
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Select Senior Executives of Melville Corporation pursuant to a
resolution of the Board of Directors on May 12, 1988.
<PAGE>
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ARTICLE 4. SPECIAL CONTRIBUTIONS
4.01
(a) A special contribution shall be deemed made to a Member's Accumulated
Contribution Account by the Corporation with respect to each calendar year
and during which the Member is designated as a Contribution Account
Member.
(b) The special contribution with respect to each calendar year shall be equal
to either the applicable percentage as specified in Appendix B of the
eligible Member's Eligible Compensation for the calendar year or the
designated dollar amount as specified in Appendix B. For purposes of this
Article 4, Eligible Compensation shall mean the sum of the Contribution
Account Member's annual base rate as in effect for such calendar year,
plus the full annual target incentive compensation award under the Profit
Incentive Plan of Melville Corporation or the Profit Incentive Plan for
the divisions as last in effect immediately prior to the last day of such
calendar year.
(c) The special contribution shall be credited to an eligible Member's
Accumulated Contribution Account no later than the March 31st following
the calendar year for which the contribution is deemed made.
4.02
(a) As of the end of each month, a Member's Accumulated Contribution Account
shall be credited or debited with the amount of earnings or losses which
the account would have been credited or debited assuming it had been
invested in the Moderate Lifestyle Fund as
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provided under the 401(k) Profit Sharing Plan of Melville Corporation and
Affiliated Companies.
(b) The Retirement Administration Committee shall maintain, or cause to be
maintained on the books of the Corporation, records showing the individual
balance of each eligible Member's Accumulated Contribution Account. At
least once a year, each eligible Member shall be furnished with a
statement setting forth the value of his Accumulated Contribution Account.
4.03 Unless otherwise provided in Appendix B, an eligible Member shall be
vested in and have a nonforfeitable right to the special contribution
credited to his Accumulated Contribution Account (adjusted in accordance
with Section 4.02) in accordance with the following schedule:
Completed Years of Vesting Service Percentage Vested
---------------------------------- -----------------
1 10%
2 20
3 30
4 40
5 50
6 60
7 70
8 80
9 90
10 100
A Member shall be credited with one year of Vesting Service for each
complete calendar year during which the Member is in the employ of the
Corporation following the calendar year for which the initial contribution
<PAGE>
Page 20
was deemed allocated to his Accumulated Contribution Account pursuant to
Section 4.01(b).
4.04
(a) If a Member terminates employment with the Corporation prior to the
attainment of age 55 for any reason, he (or in the event of his death, his
Beneficiary) shall be entitled to receive a distribution of the vested
portion of his Accumulated Contribution Account determined pursuant to
Section 4.03. The distribution of such vested portion of a Member's
Accumulated Contribution Account shall be made in a single cash lump sum
as soon as practicable following the end of the month coincident with or
next following the Member's termination of employment with the
Corporation.
(b) Notwithstanding any Plan provision to the contrary, if a Member terminates
employment with the Corporation as a Retiree, or dies after attaining age
55 with 10 years of Service but prior to becoming a Retiree or in the
event of a Change in Control, the provisions of this Section 4.04 shall be
inapplicable and Plan benefits payable to or on behalf of the Member's
termination shall be determined pursuant to the provisions of Article 3.
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ARTICLE 5. ADMINISTRATION
5.01 The Compensation Committee of the Board of Directors shall select which
senior officers of the Corporation shall be designated as an Executive
Employee and which Executive Employee, if any, shall be designated as a
Contribution Account Member.
5.02 The Compensation Committee of the Board of Directors shall have discretion
to grant credit for service to any Executive Employee.
5.03 Except as provided in Section 5.01 or 5.02 the administration of the Plan,
the exclusive power to interpret it, and the responsibility for carrying
out its provisions are vested in the Retirement Administration Committee,
except that the determinations of whether any Member or Beneficiary is
entitled to payment of a Lump Sum Benefit pursuant to Section 3.06 and the
amount thereof shall be within the exclusive authority of the Investment
Committee under the Trust Agreement to be established in connection with
the Plan pursuant to a resolution of the Board of Directors on May 12,
1988.
5.04 The provisions of Article 9 of the 401(k) Profit Sharing Plan of Melville
Corporation and Affiliated Companies concerning Retirement Administration
Committee membership, meetings, maintenance of records and Retirement
Administration Committee powers shall apply under the Plan. The expenses
of the Retirement Administration Committee incurred in connection with the
Plan shall be paid directly by the Corporation.
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ARTICLE 6. GENERAL PROVISIONS
6.01 The establishment of the Plan shall not be construed as conferring any
legal rights upon any Executive Employee or other person for a
continuation of employment, nor shall such actions interfere with the
rights of the Corporation to discharge or demote any Executive Employee
and to treat him without regard to the effect which such treatment might
have upon him as a Member of the Plan.
6.02 In the event that the Retirement Administration Committee shall find that
a Member is unable to care for his affairs because of illness or accident,
the Retirement Administration Committee may direct that any benefit
payment due him, unless claim shall have been made therefor by a duly
appointed legal representative, be paid to his spouse, a child, a parent
or other blood relative, or to a person with whom he resides, and any such
payment so made shall be a complete discharge of the liabilities of the
Plan therefor.
6.03 Melville Corporation shall have the right to deduct from each payment to
be made under the Plan any required withholding taxes.
6.04 Subject to any applicable law, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt so to do shall be void, nor
shall any such benefit be in any manner liable for or subject to the
debts, contracts, liabilities, engagements or torts of the Retiree.
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6.05 Notwithstanding any other provision of the Plan to the contrary, in the
event that a Member or Retiree shall at any time be convicted of a crime
involving dishonesty or fraud on the part of such Member in his
relationship with the Corporation, all benefits which would otherwise be
payable to him under the Plan shall be forfeited.
6.06 The rights of any Member or Retiree to benefits under the Plan prior to
the actual receipt of such benefits shall be limited to those of a general
unsecured creditor of Melville Corporation.
6.07 The Plan shall be construed, regulated and administered under the laws of
the State of New York to the extent such laws are not superseded by
applicable federal law.
6.08 The masculine pronoun shall mean the feminine wherever appropriate.
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ARTICLE 7. AMENDMENT OR TERMINATION
The Compensation Committee of the Board of Directors reserves the right to
modify or to amend, in whole or in part, or to terminate, this Supplemental
Retirement Plan I for Select Senior Management of Melville Corporation at any
time; provided, however, that no such modification, amendment or termination
shall adversely affect the right of any Member (or the Beneficiary of such
Member) to receive the benefits such Member (or the Beneficiary of such Member)
should have received under the Plan upon termination of employment with the
Corporation for any reason, including retirement, death or disability had the
Plan not been so modified, amended or terminated, taking into account such
Member's Service and age at the time of such Member's actual termination of
employment with the Corporation for any reason.
SUPPLEMENTAL RETIREMENT PLAN II FOR
SELECT SENIOR MANAGEMENT OF
MELVILLE CORPORATION
Effective July 1, 1995
<PAGE>
SUPPLEMENTAL RETIREMENT PLAN II FOR
SELECT SENIOR MANAGEMENT OF
MELVILLE CORPORATION
TABLE OF CONTENTS
Page
ARTICLE 1. Definitions............................................... 1
ARTICLE 2. Membership................................................ 11
ARTICLE 3. Amount and Payment of Supplemental Benefits............... 12
ARTICLE 4. Special Contributions..................................... 16
ARTICLE 5. Administration............................................ 19
ARTICLE 6. General Provisions........................................ 20
ARTICLE 7. Amendment or Termination.................................. 22
<PAGE>
SUPPLEMENTAL RETIREMENT PLAN II FOR
SELECT SENIOR MANAGEMENT OF
MELVILLE CORPORATION
ARTICLE 1. DEFINITIONS
1.01 "Accumulated Contribution Account" shall mean the bookkeeping account
maintained for a Contribution Account Member to record the amount of
company contribution credited on behalf of such Member during the period he
is designated as a Contribution Account Member in accordance with Section
4.01, as adjusted pursuant to Section 4.02.
1.02 "Annual Benefit"
(a) "Annual Benefit" shall mean, with respect to a Member who became or becomes
a Retiree after June 30, 1995, the amount by which 35%, or such lesser
percentage specified in clause (b) below, of such Member's Compensation
exceeds the sum of (i) and (ii) where
(i) equals the aggregate annualized value of any retirement and deferred
profit sharing benefits in respect of such Member (excluding the value
of any benefits attributable to pre-tax or after-tax contributions
made by or on behalf of the Member) which have previously been
received or which such Member or any other person has a vested right
to receive at the time of the commencement of payment of such Member's
benefit under Section 3.04 of the Plan, under (A) any arrangement
maintained by the Corporation other than the Plan (including any
annuity contracts purchased with respect to benefits accrued under the
Melville Corporation Retirement Plan), or (B) any arrangement which
constitutes a qualified plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended, maintained by any entity other than
the Corporation, computed pursuant to clause (d) below, and
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Page 2
(ii) equals the Annual Benefit used in computing any lump sum payment
previously made pursuant to Section 3.04 to such a Member becoming
entitled to a recomputation of the Annual Benefit pursuant to Section
3.05.
(b) In the case of any Member whose retirement allowance under Section 3.04 of
the Plan commences to be paid on or after his reaching age 55 years but
prior to his reaching age 60 years, there shall be substituted for "35%" in
clause (a) above that lower percentage which results from subtracting that
percentage which is the product of 4 times the number of whole and partial
years (treating a partial year as a whole year) until such Member's 60th
birthday so that, for example, the applicable percentage for a Member age
58-1/2 years would be 27% (35% - (4 x 2)% = 27%).
(c) Notwithstanding the foregoing, the Annual Benefit computed under this
Section 1.02 shall not be less than annualized value of a Member's
Accumulated Contribution Account, as computed at the time such Member
becomes a Retiree on the basis of the actuarial assumptions set forth in
clause (d) below.
(d) The annualized value of a Member's retirement and deferred profit sharing
benefits shall be computed as follows:
(i) with respect to any benefit which such Member is thereupon commencing
to receive at the time of such computation in the form of an annuity,
the annual payment to which such Member would be entitled under the
terms of the plan under which such benefit is to be paid were such
benefit to be paid in the form of a single life annuity for the
Member's life, or
<PAGE>
Page 3
(ii) with respect to any other benefit, the annual amount of the actuarial
equivalent of such benefit computed as if such benefit were to be paid
in the form of a single life annuity to such Member commencing at the
time of such computation. In computing such actuarial equivalents, the
actuarial assumptions to be used shall be (A) the 1983 Group Annuity
Mortality Table and (B) an interest rate assumption equal to the
applicable interest rate (expressed as a percentage) used by the
Pension Benefit Guaranty Corporation for valuing benefits for single
employer plans that terminate on the date of such calculation, minus
.5%.
1.03 "Beneficiary" shall mean the person named by the Member (i) at the time
payments to the Member commence under the Plan or (ii) in the case of
benefits payable under Section 3.03, at the time of the Member's death, by
written designation filed with the Retirement Administration Committee, to
receive payments after the Member's death. In the absence of a beneficiary
designation, the Participant's Beneficiary for purposes of Section 3.03
shall be his spouse, if any, or his estate.
1.04 "Board of Directors" shall mean the Board of Directors of Melville
Corporation.
1.05 "Change in Control" shall mean any of the following occurrences:
(a) any "person" or "group of persons" as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
purchases or otherwise becomes "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) directly or indirectly, of securities representing
25% or more of the combined voting power of Melville Corporation
(including, without limitation, securities which may be acquired upon the
<PAGE>
Page 4
exercise of any option or options owned by such person or group of persons
to purchase any such voting securities, or conversion of securities
convertible into such voting securities, whether or not such option or
options or convertible securities were outstanding on the date hereof and
whether or not such options are exercisable or such securities are
convertible at the time of the Change in Control);
(b) during any period of two consecutive years, the individuals who at the
beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless
(i) there are four or more directors then still in office who were
directors at the beginning of the period and
(ii) the election, or the nomination for election, by Melville
Corporation's shareholders of each new director was approved by a vote
of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(c) the shareholders of Melville Corporation shall have voted to approve an
agreement to merge or consolidate Melville Corporation with or into another
corporation as a result of which less than 50% of the outstanding voting
securities of the surviving or resulting entity are or are to be owned by
the former shareholders of Melville Corporation (excluding from former
shareholders a shareholder who is an "affiliate," as defined in Rule 12b-2
under the Exchange Act, of any party to such consolidation or merger); or
(d) the shareholders of Melville Corporation approve the sale of all or
substantially all of Melville Corporation's business and/or assets to a
person or entity which is not a wholly- owned subsidiary of Melville
<PAGE>
Page 5
Corporation; provided, however, that none of the foregoing shall be deemed
to constitute a Change in Control if in connection therewith it shall be
necessary to file a Schedule 13E-3 pursuant to Rule 13e-3 under the
Securities Exchange Act of 1934, unless immediately prior to such event the
Board of Directors shall determine such event to constitute a Change in
Control.
1.06 "Company Contributions" shall mean the amount credited to a Member's
Accumulated Contribution Account pursuant to Section 4.01.
1.07 "Compensation" shall mean a Member's annual base pay rate as in effect on
such Member's Compensation Measurement Date plus the Member's Serp
Incentive Target. A Member's Compensation Measurement Date shall be the
date on which such Member terminates employment with the Corporation for
any reason, including retirement, death or disability, unless using the
date of a Change in Control as of which such Member was a Member would
result in a higher amount in which case the date of such Change in Control
shall be such Member's Compensation Measurement Date.
1.08 "Contribution Account Member" shall mean an Eligible Executive listed on
Appendix B who has been selected by the Compensation Committee of the Board
of Directors to be a Contribution Account Member.
<PAGE>
Page 6
1.09 "Corporation" shall mean Melville Corporation and any subsidiary or other
entity at any time at which 50% or more of the voting power or beneficial
interest of such subsidiary or other entity, is owned directly or
indirectly by Melville Corporation. References in the Plan to Melville
Corporation shall be deemed to include successors to Melville Corporation.
1.10 "Eligible Executive" shall mean an employee of the Corporation who occupies
a position of senior management with the Corporation and who has been
listed on Appendix A as amended from time to time by the Compensation
Committee of the Board of Directors.
1.11 "Lump Sum Benefit" shall mean
(a) with respect to a Member to whom payment of benefits under Section 3.04 has
not commenced or, if previously commenced, has been discontinued pursuant
to Section 3.05, and who has made no election under Section 3.04 or has
elected a form of benefit under Section 3.04 making no provision for a
Beneficiary, the lump sum actuarial equivalent of a single life annuity for
the Member commencing at the date as of which such Member would have had 10
years of Service assuming no termination of employment with the Corporation
following a Change in Control, but not prior to such Member's attaining age
60, (the "Presumed Starting Date"), under which annuity the annual payment
is equal to the Projected Annual Benefit times a fraction, the numerator of
which is such Member's actual years of Service as of such Member's
Termination of Employment (but not more than 10) and the denominator of
which is 10,
<PAGE>
Page 7
(b) with respect to (i) a Member to whom payment of benefits under Section 3.04
has not commenced or, if previously commenced, has been discontinued
pursuant to Section 3.05 and who has elected an optional form of benefit
under Section 3.04 making provision for a Beneficiary and (ii) the
Beneficiary of such Member, the lump sum actuarial equivalent of that part
of the benefit described in clause (a) to be paid to such Member, or to
such Beneficiary, respectively, pursuant to the optional form of benefit
elected by such Member under Section 3.04, or
(c) with respect to (i) a Beneficiary to whom payment of benefits under Section
3.03 has commenced, (ii) a Member to whom payment of benefits under Section
3.04 has commenced and has not been discontinued pursuant to Section 3.05
and (iii) the Beneficiary of such a Member, the lump sum actuarial
equivalent of all future benefits, if any, payable to such Member or to
such Beneficiary, as the case may be, under the Plan.
(d) Notwithstanding the foregoing, the Lump Sum Benefit determined under this
Section 1.11 shall not be less than the vested portion of the Member's
Accumulated Contribution Account determined pursuant to Section 4.03.
The amount of such actuarial equivalents computed under this Section 1.11
shall be determined by the Compensation Committee of the Board of Directors
with sole discretion using the actuarial assumptions described in Section
1.02(d).
<PAGE>
Page 8
1.12 "Member" shall mean any person included in the membership of the Plan as
provided in Article 2.
1.13 "Plan" shall mean the Supplemental Retirement Plan II for Select Senior
Management of Melville Corporation, as described herein or as hereafter
amended.
1.14 "Projected Annual Benefit" shall mean
(a) with respect to a Member of the Plan at the time of a Change in Control to
whom payment of benefits under Section 3.04 has not commenced, the amount
by which 35% of such Member's Compensation exceeds the sum of
(i) the aggregate annualized value of any retirement and deferred profit
sharing benefits in respect of such Member (excluding the value of any
benefits attributable to pre-tax or after-tax contributions made by or
on behalf of a Member) which have previously been received or which
such Member or any other person has a vested right to receive at the
time of such Member's termination of employment under (A) any
arrangement maintained by the Corporation, other than the Plan
(including any annuity contracts purchased with respect to benefits
accrued under the Melville Corporation Retirement Plan), or (B) any
arrangement which constitutes a qualified plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended, maintained by any
entity other than the Corporation, computed in the manner described in
Section 1.02(c), assuming payment of such benefits will commence at
such Member's Presumed Starting Date, as defined in Section 1.11,
(ii) the Projected Annual Benefit used in computing any Lump Sum Benefit
payment previously made to such Member pursuant to Section 3.06, and
<PAGE>
Page 9
(iii)the Annual Benefit used in computing any lump sum payment previously
made to such Member pursuant to Section 3.05; or
(b) with respect to a Member of the Plan at the time of a Change in Control to
whom payment of benefits under Section 3.04 has previously commenced but
who has been restored to employment with the Corporation, the amount
computed pursuant to (a) above, but in no event less than such Member's
Annual Benefit computed pursuant to Section 3.05 as if such Member had then
terminated employment with the Corporation.
1.15 "Retiree" shall mean a Member who has 10 or more years of Service and
terminates employment with the Corporation at or after age 55 for any
reason, including disability but excluding death, provided, however, that
if such Member shall be eligible upon such termination of employment to
commence to receive payments under the Retirement Plan in which he is a
participant, if any, he shall not be a Retiree unless he commences to
receive such payments upon such termination of employment.
1.16 "Retirement Administration Committee" shall mean Committee of the 401(k)
Profit Sharing Plan of Melville Corporation and Affiliated Companies.
1.17 "Retirement Plan" shall mean, any defined benefit plan, meeting the
requirements of Section 401 of the Internal Revenue Code of 1986, as
amended, in which such Member shall be or was a participant.
<PAGE>
Page 10
1.18 "Serp Incentive Target" shall mean the Member's full annual target
incentive compensation award as last in effect under the Profit Incentive
Plan of Melville Corporation or the Profit Incentive Plan for the divisions
immediately prior to such Member's Compensation Measurement Date (as
defined in Section 1.07).
1.19 "Service" shall mean with respect to a Member the sum of (a) the period of
such Member's active employment with the Corporation, as an Executive
Employee, excluding, unless otherwise provided by the Retirement
Administration Committee, any period during which the Member (i) was
engaged as a consultant or (ii) received salary continuance or severance
payments and (b) any Service credited to such Member by the Compensation
Committee of the Board of Directors pursuant to Article 5.
1.20 "Termination of Employment" shall have the meaning assigned to such term in
the Income Continuation Policy for Select Senior Executives of Melville
Corporation.
<PAGE>
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ARTICLE 2. MEMBERSHIP
2.01 Every Eligible Executive in the employ of the Corporation on July 1, 1995
shall become a Member of the Plan on July 1, 1995.
2.02 Any other employee of the Corporation who becomes an Eligible Executive
shall thereupon become a Member of the Plan.
2.03 Any Member who becomes a Retiree shall continue to be a Member of the Plan
until the later of (a) the termination of his employment and (b) the
payment of all benefits in respect of such Retiree under the Plan.
2.04 The membership under the Plan of an Eligible Executive who is not a Retiree
shall terminate if his employment with the Corporation as an Eligible
Executive terminates unless at the time of such termination, or within 60
days thereafter, he becomes a Retiree or he is entitled to a benefit
pursuant to Section 4.04, in which event his membership shall cease upon
the payment of all Plan benefits, unless at the time of such termination,
or within 60 days thereafter, he becomes a Retiree, or unless upon such
termination he continues to be entitled to a benefit hereunder pursuant to
Section 3.06.
2.05 A Member whose membership in the Plan terminates pursuant to Section 2.03
or Section 2.04 shall be restored to membership in the Plan at such time as
he is restored to employment as an Eligible Executive of the Corporation.
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ARTICLE 3. AMOUNT AND PAYMENT OF SUPPLEMENTAL BENEFITS
3.01 Except as provided in Section 3.06 and Article 4, benefits under this
Article 3 shall be payable by the Corporation only with respect to Members
who are Retirees or become Retirees or, as provided in Section 3.03, to
Beneficiaries.
3.02 Except as provided in Section 3.06, a Retiree shall be entitled to
commencement of payment of benefits hereunder pursuant to Section 3.04 upon
the first of the month following his termination of employment with the
Corporation.
3.03 In the event that a Member dies, after attaining age 55 with 10 years of
Service, prior to becoming a Retiree, or dies after becoming a Retiree but
prior to commencing to receive payments hereunder pursuant to Section 3.04,
his Beneficiary shall be entitled to the immediate commencement of a single
life annuity, with an annual payment equal to one-half of the Annual
Benefit, if any, computed under Section 1.02, including any reduction under
subsection (b) thereof, if applicable, for such Member as if the Member was
a Retiree and had commenced to receive payment of benefits under Section
3.04 immediately prior to his death. In the event the age difference
between the Member and his Beneficiary is greater than 5 years, the benefit
payable pursuant to this Section 3.03 shall be actuarially adjusted to
reflect the differences in the life expectancy of the Participant and the
Beneficiary.
Notwithstanding any Plan provisions to the contrary, in the event the
Participant's Beneficiary is his estate, the benefit otherwise payable
under this Section 3.03 shall be commuted into a single lump sum amount of
<PAGE>
Page 13
actuarial equivalent value, which amount shall be determined by assuming
the Beneficiary had been a person of the same age as the Member at the
Member's date of death.
The amount of such actuarial equivalents computed under this Section 3.03
shall be determined by the Compensation Committee of the Board of Directors
with sole discretion using the actuarial assumptions described in Section
1.02(d).
3.04 Except as provided in Section 3.06 and subject to the next succeeding
sentence, the benefit payable under the Plan to a Retiree shall be a single
life annuity for the life of the Retiree, with annual payments equal to the
Annual Benefit computed under Section 1.02 for such Member at the time of
the commencement of payment of benefits under this Section 3.04, adjusted
annually to reflect the excess, if any, of the annual retirement allowance
for such year actually received by such Retiree under any Retirement Plan
over the amount deducted with respect to the vested benefit under such
Retirement Plan in the calculation of such Member's Annual Benefit under
Section 1.02(a)(i). A Member may make an irrevocable election in writing
filed with the Retirement Administration Committee at least 12 months prior
to the date of the commencement of benefits hereunder to receive such
benefits (a) in a joint and survivor annuity form which provides a reduced
benefit payable to the Member during his life, and after his death
providing that 100% or 50% of the reduced benefit will continue to be paid
during the life of and to his Beneficiary or (b) in a lump sum; provided,
however, that a Member may not elect an optional form of benefit providing
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for a deferred commencement date. Any such optional form of benefit or lump
sum shall be the actuarial equivalent of such single life annuity using the
actuarial assumptions described in Section 1.02(c).
3.05 If a Retiree who has terminated employment with the Corporation is restored
to employment after commencing to receive payments under Section 3.04 of
the Plan, the payment of benefits under the Plan shall be discontinued
(unless all such benefits have been previously paid in a lump sum) and,
upon such Member's subsequent termination of employment with the
Corporation for any reason, including retirement, death or disability, the
Member's Annual Benefit under the Plan shall thereafter be recomputed in
accordance with Section 1.02, Section 3.03 or Section 3.04, as applicable,
and shall be payable in accordance with the provisions of the Plan,
provided, however, that such recomputation shall be based upon the higher
of (i) such Member's Compensation at the time of such previous termination
of employment and (ii) such Member's Compensation at the time of such
subsequent termination of employment.
3.06 Notwithstanding the provisions of Section 3.01 and Section 3.02, if a
Change in Control occurs
(a) each Member who is then a Retiree and each Beneficiary entitled to benefits
under Section 3.03 or Section 3.04 shall be entitled to receive an
immediate payment in cash of such Retiree's or such Beneficiary's Lump Sum
Benefit,
(b) Each Member at the time of such Change in Control who experiences a
Termination of Employment, each Beneficiary of such a Member who has
elected an optional form of benefit under Section 3.04 making a provision
for such Beneficiary, and each Beneficiary of a Member at the time of such
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Page 15
Change in Control who dies within 2 years following such Change in Control
without having received a Lump Sum Benefit, shall, upon such Termination of
Employment or death, as the case may be, be entitled to receive an
immediate payment in cash of such Member's, or such Beneficiary's Lump Sum
Benefit.
(c) Each Member at the time of such Change in Control who neither dies within 2
years following such Change in Control nor experiences a Termination of
Employment shall, upon such Member's later termination of employment with
the Corporation for any reason other than death, without becoming a Retiree
and, with respect to each such Member who later dies, the Beneficiary of
such Member if such Beneficiary is not otherwise entitled to a benefit
under Section 3.03, shall nevertheless be entitled to a Benefit commencing
at the Presumed Starting Date in the form specified in Section 3.04 or
Section 3.03, as the case may be, provided that in computing such benefit
there shall be substituted for the term Annual Benefit in Section 3.04 or
Section 3.03, as the case may be, the following: the Projected Annual
Benefit times a fraction, the numerator of which is such Member's years of
Service as of such Change in Control (but not more than 10) and the
denominator of which is 10.
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ARTICLE 4. SPECIAL CONTRIBUTIONS
4.01
(a) A special contribution shall be deemed made to a Member's Accumulated
Contribution Account by the Corporation with respect to each calendar year
prior to the calendar year in which the Member attains age 46 and during
which the Member is designated as a Contribution Account Member.
(b) The special contribution with respect to each calendar year shall be equal
to either the applicable percentage as specified in Appendix B of the
eligible Member's Eligible Compensation for the calendar year or the
designated dollar amount as specified in Appendix B. For purposes of this
Article 4, Eligible Compensation shall mean the sum of the Contribution
Account Member's annual base rate as in effect for such calendar year, plus
the full annual target incentive compensation award under the Profit
Incentive Plan of Melville Corporation or the Profit Incentive Plan for the
divisions as last in effect immediately prior to the last day of such
calendar year.
(c) The special contribution shall be credited to an eligible Member's
Accumulated Contribution Account no later than the March 31st following the
calendar year for which the contribution is deemed made.
4.02
(a) As of the end of each month, a Member's Accumulated Contribution Account
shall be credited or debited with the amount of earnings or losses which
the account would have been credited or debited assuming it had been
invested in the Moderate Lifestyle Fund as provided under the 401(k) Profit
Sharing Plan of Melville Corporation and Affiliated Companies.
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Page 17
(b) The Retirement Administration Committee shall maintain, or cause to be
maintained on the books of the Corporation, records showing the individual
balance of each eligible Member's Accumulated Contribution Account. At
least once a year, each eligible Member shall be furnished with a statement
setting forth the value of his Accumulated Contribution Account.
4.03 Unless otherwise provided in Appendix B, an eligible Member shall be vested
in and have a nonforfeitable right to the special contributions credited to
his Accumulated Contribution Account (adjusted in accordance with Section
4.02) in accordance with the following schedule:
Completed Years of Vesting Service Percentage Vested
1 10%
2 20
3 30
4 40
5 50
6 60
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7 70
8 80
9 90
10 100
A Member shall be credited with one year of Vesting Service for each
complete calendar year during which the Member is in the employ of the
Corporation following the calendar year for which the initial contribution
was deemed allocated to his Accumulated Contribution Account pursuant to
Section 4.01(b).
4.04
(a) If a Member terminates employment with the Corporation prior to the
attainment of age 55 for any reason, he (or in the event of his death, his
Beneficiary) shall be entitled to receive a distribution of the vested
portion of his Accumulated Contribution Account determined pursuant to
Section 4.03. The distribution of such vested portion of a Member's
Accumulated Contribution Account shall be made in a single cash lump sum as
soon as practicable following the end of the month coincident with or next
following the Member's termination of employment with the Corporation.
(b) Notwithstanding any Plan provision to the contrary, if a Member terminates
employment with the Corporation as a Retiree, or dies after attaining age
55 with 10 years of Service but prior to becoming a Retiree or in the event
of a Change in Control, the provisions of this Section 4.04 shall be
inapplicable and Plan benefits payable to or on behalf of the Member's
termination shall be determined pursuant to the provisions of Article 3.
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ARTICLE 5. ADMINISTRATION
5.01 The Compensation Committee of the Board of Directors shall select which
employees who occupy a position of senior management with the Corporation
shall be designated as an Eligible Executive and which Eligible Executive,
if any, shall be designated as a Contribution Account Member.
5.02 The Compensation Committee of the Board of Directors shall have discretion
to grant credit for Service to any Eligible Executive.
5.03 Except as provided in Section 5.01 and 5.02, the administration of the
Plan, the exclusive power to interpret it, and the responsibility for
carrying out its provisions are vested in the Retirement Administration
Committee.
5.04 The provisions of Article 9 of the 401(k) Profit Sharing Plan of Melville
Corporation and Affiliated Companies concerning Retirement Administration
Committee membership, meetings, maintenance of records and Retirement
Administration Committee powers shall apply under the Plan. The expenses of
the Retirement Administration Committee incurred in connection with the
Plan shall be paid directly by the Corporation.
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ARTICLE 6. GENERAL PROVISIONS
6.01 The establishment of the Plan shall not be construed as conferring any
legal rights upon any Eligible Executive or other person for a continuation
of employment, nor shall such actions interfere with the rights of the
Corporation to discharge or demote any Eligible Executive and to treat him
without regard to the effect which such treatment might have upon him as a
Member of the Plan.
6.02 In the event that the Retirement Administration Committee shall find that a
Member is unable to care for his affairs because of illness or accident,
the Retirement Administration Committee may direct that any benefit payment
due him, unless claim shall have been made therefor by a duly appointed
legal representative, be paid to his spouse, a child, a parent or other
blood relative, or to a person with whom he resides, and any such payment
so made shall be a complete discharge of the liabilities of the Plan
therefor.
6.03 Melville Corporation shall have the right to deduct from each payment to be
made under the Plan any required withholding taxes.
6.04 Subject to any applicable law, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt so to do shall be void, nor
shall any such benefit be in any manner liable for or subject to the debts,
contracts, liabilities, engagements or torts of the Retiree or the Member.
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6.05 Notwithstanding any other provision of the Plan to the contrary, in the
event that a Member or Retiree shall at any time be convicted of a crime
involving dishonesty or fraud on the part of such Member in his
relationship with the Corporation, all benefits which would otherwise be
payable to him under the Plan shall be forfeited.
6.06 The rights of any Member or Retiree to benefits under the Plan prior to the
actual receipt of such benefits shall be limited to those of a general
unsecured creditor of Melville Corporation.
6.07 The Plan shall be construed, regulated and administered under the laws of
the State of New York to the extent such laws are not superseded by
applicable federal law.
6.08 The masculine pronoun shall mean the feminine wherever appropriate.
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ARTICLE 7. AMENDMENT OR TERMINATION
The Compensation Committee of the Board of Directors reserves the right to
modify or to amend, in whole or in part, or to terminate, this Supplemental
Retirement Plan II for Select Senior Management of Melville Corporation at
any time; provided, however, that no such modification, amendment or
termination shall adversely affect the right of any Member (or the
Beneficiary of such Member) to receive the benefits such Member (or the
Beneficiary of such Member) should have received under the Plan upon
termination of employment with the Corporation for any reason, including
retirement, death or disability had the Plan not been so modified, amended
or terminated, taking into account such Member's Service and age at the
time of such Member's actual termination of employment with the Corporation
for any reason, including retirement, death or disability.
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the [21] day of December, 1995 by
and between Melville Corporation, a New York corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Mr.
Jerald L. Maurer (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive in connection with its
business pursuant to an agreement embodying the terms of such employment (this
"Agreement") and the Executive desires to enter into this Agreement and to
accept such employment, subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall have the meaning set forth in Section 4 below.
(b) "Board" shall have the meaning set forth in Section 4 below.
(c) "Cause" shall have the meaning set forth in Section 10(b) below.
(d) "Confidential Information" shall have the meaning set forth in Section
11 below.
(e) "Constructive Termination Without Cause" shall have the meaning set
forth in Section 10(c) below.
(f) "Effective Date" shall have the meaning set forth in Section 2 below.
(g) "ICP" shall have the meaning set forth in Section 7 below.
(h) "Non-renewal Severance Period" shall have the meaning set forth in
Section 10 (d) below.
(i) "Original Term of Employment" shall have the meaning set forth in
Section 2 below.
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(j) "MIP" shall have the meaning set forth in Section 5 below.
(k) "Renewal Term" shall have the meaning set forth in Section 2 below.
(l) "Restriction Period" shall have the meaning set forth in Section 12
below.
(m) "SERP I" shall have the meaning set forth in Section 7 below.
(n) "Severance Period" shall have the meaning set forth in Section
10(c)(ii) below.
(o) "Subsidiary" shall have the meaning set forth in Section 11 below.
(p) "Term of Employment" shall have the meaning set forth in Section 2
below.
(q) "Termination Without Cause" shall have the meaning set forth in Section
10 (c).
2. Term of Employment.
(a) The term of the Executive's employment under this Agreement shall
commence immediately upon the execution of this Agreement (the "Effective Date")
and end on the fifth anniversary of such date (the "Original Term of
Employment"). The Original Term of Employment shall be automatically renewed for
successive one-year terms (the "Renewal Terms") unless at least 180 days prior
to the expiration of the Original Term of Employment or any Renewal Term, either
Party notifies the other Party in writing that he or it is electing to terminate
this Agreement at the expiration of the then current Term of Employment. "Term
of Employment" shall mean the Original Term of Employment and all Renewal Terms.
(b) In the event that this Agreement is not renewed because the Company has
given the 180-day notice prescribed in the preceding paragraph on or before the
expiration of the Original Term of Employment or any Renewal Term, such
non-renewal shall be treated as a termination following non-renewal pursuant to
Section 10 (d) below.
(c) Notwithstanding anything in this Agreement to the contrary, at least
one year prior to the expiration of the Original Term of Employment, the Parties
shall meet to discuss this Agreement and may agree in writing to modify any of
the terms of this Agreement.
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3. Position, Duties and Responsibilities.
(a) Commencing on the Effective Date, and continuing for the remainder of
the Term of Employment, the Executive shall be employed as Senior Vice President
Human Resources of the Company and shall report to the Chairman of the Board.
(b) Anything herein to the contrary notwithstanding, nothing in this
Agreement shall preclude the Executive from (i) serving on the boards of
directors of a reasonable number of other corporations or the boards of a
reasonable number of trade associations and/or charitable organizations, (ii)
engaging in charitable activities and community affairs, and (iii) managing his
personal investments and affairs, provided that such activities do not
materially interfere with the proper performance of his duties and
responsibilities under this Agreement.
4. Base Salary.
The Executive shall be paid an annualized salary, payable in accordance
with the regular payroll practices of the Company, of not less than $390,000,
subject to annual review for increase at the discretion of the Compensation
Committee of the Board.
5. Annual Incentive Awards.
The Executive shall participate in the Company's Profit Incentive Plan
("MIP") with a target bonus opportunity of no less than 40% of Base Salary or in
a successor plan to MIP with an equivalent opportunity. Payment of annual
incentive awards shall be made at the same time that other senior-level
executives receive their incentive awards.
6. Long-Term Stock Incentive Programs.
(a) General. The Executive shall be eligible to participate in and to
receive stock incentive awards under the long-term stock incentive programs of
the Company referred to in Section 6(b) below and any successor programs.
(b) Stock Option Award. As part of the award approved by the Compensation
Committee of the Board on April 11, 1995, the Company has granted the Executive
an option pursuant to the terms and conditions set forth in the attached Exhibit
A to purchase 125,000 shares of common stock of the Company at an exercise price
equal to the fair market value of the shares on the date of grant, contingent on
the execution of this Agreement.
(c) Loan Agreement. Executive will be given a $400,000 loan within 30 days
of his request, to be used for relocation purposes either in connection with his
commencement of employment for the Company, or any subsequent relocation which
occurs during the Term of
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Employment. Such loan shall be payable in accordance with terms set forth in the
form of loan agreement and promissory note attached as Exhibit B.
(d) Retirement Benefit. Executive will be provided with a retirement
benefit commencing at the age of 62 payable in the form of a joint and 100%
survivor annuity. Such benefits shall be payable in all events, regardless of
his years of service upon termination of his employment from the Company,
without reduction by reason of any other retirement benefit for which the
Executive may qualify; provided, however, that if the Executive is still
employed by the Company when he reaches age 62, and if he is then entitled to an
unreduced retirement benefit payable in the form of a joint and survivor annuity
under SERP I of at lease $48,000, then the benefit payable under SERP I shall be
in lieu of and in full satisfaction of the Company's obligation under this
Section 6(d).
7. Employee Benefit Programs.
(a) General Benefits. During the Term of Employment, the Executive shall be
entitled to participate in such employee pension and welfare benefit plans and
programs of the Company as are made available to senior-level executives or to
its employees generally, as such plans or programs may be in effect from time to
time, including, without limitation, Future Fund, health, medical, dental,
salary continuation program, long-term disability, travel accident and life
insurance plans. In addition, the Executive shall be entitled to 4 weeks of paid
vacation per year.
(b) Designated Benefits. During the Term of Employment, the Executive shall
be entitled to participate in the Income Continuation Policy for Select Senior
Executives of the Company ("ICP") (which provides benefits to the Executive in
the event of a change in control of the Company), the Deferred Compensation Plan
and the Supplemental Retirement Plan I for Select Senior Management of the
Company ("SERP I"). For the purposes of SERP I, the Executive's SERP Incentive
Target shall be 40% of Base Salary. In addition, during the Term of Employment,
the Company shall, effective 1996, provide the Executive, in accordance with the
terms adopted by the Company, with personal financial and tax planning.
8. Disability.
(a) During the Term of Employment, as well as during the Severance Period,
the Executive shall be entitled to disability coverage as described in this
Section 8(a). In the event the Executive becomes disabled, as that term is
defined under the Company's Long-Term Disability Plan, the Executive shall be
entitled to receive, in place of his Base Salary, an amount equal to 60% of his
Base Salary, at the annual rate in effect at the commencement date of his
Company long-term disability benefit ("Commencement Date") for a period
beginning on the Commencement Date and ending with the earlier to occur of (A)
the Executive's attainment of age 65 or (B) the Executive's commencement of
benefits under SERP I upon his election to receive such benefits. If when the
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Executive ceases to be disabled his position is then vacant and the Company
requests in writing that he resume such position, he may elect to resume such
position by written notice to the Company within 15 days after the Company
delivers its request. If he resumes such position, he shall thereafter be
entitled to his Base Salary at the annual rate in effect at the Commencement
Date and, for the year he resumes his position, a pro rata annual incentive
award. If he ceases to be disabled and does not resume his position in
accordance with the preceding sentence, he shall be treated as if he voluntarily
terminated his employment pursuant to Section 10(e) as of the date the Executive
ceases to be disabled. If the Executive is not offered a position after he
ceases to be disabled, he shall be treated as if his employment was terminated
Without Cause pursuant to Section 10(c) as of the date the Executive ceases to
be disabled.
(b) The Executive shall be entitled to a pro rata annual incentive award
for the year in which the Commencement Date occurs equal to 40% of annualized
Base Salary for such year prior to the Commencement Date, payable in a lump sum
promptly after the Commencement Date. The Executive shall not be entitled to any
annual incentive awards with respect to the period following the Commencement
Date.
(c) During the period the Executive is receiving disability benefits
pursuant to Section 8(a) above, he shall continue to be treated as an employee
for purposes of all employee benefits and entitlements in which he was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6, 7(a) and 7(b) above, except
that the Executive shall not be entitled to receive any annual salary increases
or any new stock incentive awards following the Commencement Date.
9. Reimbursement of Business and Other Expenses; Perquisites.
(a) The Executive is authorized to incur reasonable expenses in carrying
out his duties and responsibilities under this Agreement and the Company shall
promptly reimburse him for all business expenses incurred in connection
therewith, subject to documentation in accordance with the Company's policy.
(b) The Company shall pay all reasonable legal expenses up to $10,000
incurred by the Executive in connection with the negotiation of this Agreement.
10. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's employment is
terminated due to his death, his estate or his beneficiaries, as the case may
be, shall be entitled to:
(i) Base Salary through the date of death and thereafter at the
annualized rate in effect on the date of death for a period of one year;
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(ii) pro rata annual incentive award for the year in which the
Executive's death occurs equal to 40% of annualized Base Salary for such year,
payable in a lump sum promptly after his death;
(iii) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time of
his death;
(iv) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of death;
(v) the right to exercise any stock option vested at the time of his
death for a period of one year following death or for the remainder of the
exercise period if less;
(vi) the balance of any incentive awards earned (but not yet paid);
(vii) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 6, 7, 8 or 9 above;
(viii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company; and
(b) Termination by the Company for Cause.
(i) "Cause" shall mean:
(A) the Executive is convicted of a felony involving moral
turpitude; or
(B) the Executive engages in conduct that constitutes willful
gross neglect or willful gross misconduct in carrying out his duties under this
Agreement, resulting, in either case, in material harm to the financial
condition of the Company.
(ii) A termination for Cause shall not take effect unless the
provisions of this paragraph (ii) are complied with. The Executive shall be
given written notice by the Company of its intention to terminate him for Cause,
such notice (A) to state in detail the particular act or acts or failure or
failures to act that constitute the grounds on which the proposed termination
for Cause is based and (B) to be given within six months of the Company's
learning of such act or acts or failure or failures to act. The Executive shall
have 30 days after the date that such written notice has been given to him in
which to cure such conduct, to the extent such cure is possible. If he fails to
cure such conduct, the Executive shall then be entitled to a hearing before the
Compensation Committee of the Board. Such hearing shall be held within 45 days
of such notice to the Executive, provided he requests such hearing within 35
days of the written notice from the Company of the intention to terminate him
for Cause. If, within five days following such hearing, the Executive is
furnished written notice by the Board confirming that, in its judgment, grounds
for Cause on the basis of the original notice exist, he shall thereupon be
terminated for Cause.
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(iii) In the event the Company terminates the Executive's employment
for Cause, he shall be entitled to:
(A) Base Salary through the date of the termination of his
employment for Cause;
(B) any incentive awards earned (but not yet paid);
(C) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 6, 7, 8 or 9 above; and
(D) other or additional benefits then due or earned in accordance
with applicable plans or programs of the Company.
(c) Termination Without Cause or Constructive Termination Without Cause. In
the event the Executive's employment is terminated without Cause (which
termination shall be effective as of the date specified by the Company in a
written notice to the Executive), other than due to death, or in the event there
is a Constructive Termination Without Cause (as defined below), the Executive
shall be entitled to and his sole remedies under this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in Base
Salary is the basis for a Constructive Termination Without Cause, then the Base
Salary in effect immediately prior to such reduction), for a period of 36 months
following such termination (the "Severance Period"); provided that except as set
forth in the last paragraph of this Section 10(c) the salary continuation
payment under this Section 10(c)(ii) shall be in lieu of any salary continuation
arrangements under any other severance program of the Company or any other
agreement between the Executive and the Company;
(iii) pro rata annual incentive award for the year in which
termination occurs equal to 40% of annualize Base Salary, payable in a lump sum
promptly following termination;
(iv) an amount equal to 40% of Base Salary at the annualized rate in
effect on the date of termination of the Executive's employment (or in the event
of a reduction in Base Salary is the basis for a Constructive Termination
Without Cause, then the Base Salary in effect immediately prior to such
reduction) multiplied by three, payable in equal monthly payments over the
Severance Period;
(v) during the Severance Period, continued lapse of all restrictions
on any restricted stock award (including any performance-based restricted stock)
outstanding at the time of such termination of employment in accordance with the
schedule of such lapses of restrictions set forth in the award;
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(vi) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of termination;
(vii) the right to exercise any stock option held by the Executive at
the date of his termination (with continued vesting of any options not yet
exercisable during the Severance Period in accordance with its original
schedule), such option to be exercisable during the Severance Period and for 90
days thereafter or for the remainder of the exercise period if less, provided,
however, that options granted pursuant to the Company's 1987 Stock Option Plan
shall in no event be exercisable after three years following termination and
provided further that the Executive shall not be entitled to receive any
additional stock incentive awards during the Severance Period;
(viii) the balance of any incentive awards earned (but not yet paid);
(ix) any amounts earned, accrued or owing to the Executive but not yet
paid under Section 6, 7, 8 or 9 above;
(x) continued participation in all medical, dental, health and life
insurance plans and in other employee benefit plans or programs (but excluding
SERP I and Future Fund) at the same benefit level at which he was participating
on the date of the termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such coverage
and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit,
basis);
provided that (x) if the Executive is precluded from continuing his
participation in any employee benefit plan or program as provided in this clause
(x) of this Section 10(c), he shall receive cash payments equal on an after-tax
basis to the cost to him of obtaining the benefits provided under the plan or
program in which he is unable to participate for the period specified in this
clause (x) of this Section 10(c), (y) such cost shall be deemed to be the lowest
cost that would be incurred by the Executive in obtaining such benefit himself
on an individual basis, and (z) payment of such amounts shall be made quarterly
in advance; and
(xi) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
"Termination Without Cause" shall mean the Executive's employment is
terminated by the Company for any reason other than Cause (as defined in Section
10 (b)) or due to death.
"Constructive Termination Without Cause" shall mean a termination of the
Executive's employment at his initiative as provided in this Section 10(c)
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following the occurrence, without the Executive's written consent, of one or
more of the following events (except as a result of a prior termination):
(A) a reduction in the Executive's then current Base Salary or
his target bonus opportunity under MIP or any successor plan;
(B) the loss of any of the Executive's titles or positions;
(C) a material diminution in the Executive's duties or the
assignment to the Executive of duties which are materially inconsistent with his
duties; or
(D) a "Benefit Event" as defined in paragraph 4 or 5 of Section
4.02(a) of the ICP, unless within 15 days of such event the Company obtains the
written agreement of any person or entity to which the assets or business
involved in such Benefit Event are transferred to perform all the obligations of
this Agreement, or such person or entity is otherwise bound by operation of law
to perform all the obligations of this Agreement.
Notwithstanding the provisions of this Section 10(c), in the event that the
Executive receives a payment under Section 4.01(b) of the ICP, the amounts due
under Sections 10(c)(ii) and (iv) above shall be reduced by the amount of such
payment, such reduction to be effected by eliminating installments due under
Sections 10(c)(ii) and (iv) above in reverse order. Notwithstanding the
elimination of such installments, the Severance Period shall continue to be 36
months.
(d) Termination following Non-renewal. In the event that the Company
notifies the Executive in writing at least 180 days prior to the expiration of
the Original Term of Employment or any Renewal Term that it is electing to
terminate this Agreement at the expiration of the then current Term of
Employment and the executive's employment terminates upon such expiration, at
the Company's initiative, the Executive shall be entitled to:
(i) Base Salary through the date of termination of the Executive's
employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment, for a period of 18 months following
such termination (the "Non-renewal Severance Period"); provided that the salary
continuation payment under this Section 10 (d) (ii) shall be in lieu of any
salary continuation arrangements under any other severance program of the
Company or any other agreement between the Executive and the Company other than
benefits to which the Executive is entitled under Section 4.01 (b) of the ICP,
provided that any such ICP benefits shall reduce the payments due under this
Section 10(d) (ii) in the same manner as is provided in the last paragraph of
Section 10(c);
(iii) pro rata annual incentive award for the year in which
termination occurs equal to 40% of annualized Base Salary, payable in a lump sum
promptly following termination;
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(iv) the right to exercise any stock option held by the Executive at
the date of his termination to the extent vested at such date during the
Non-renewal Severance Period and for 90 days thereafter or for the remainder of
the exercise period if less, provided, however, that the Executive shall not be
entitled to receive any additional stock incentive awards during the Non-renewal
Severance Period;
(v) the balance of any incentive awards earned (but not yet paid);
(vi) any amount earned, accrued or owing to the Executive but not yet
paid under Section 6,7,8 or 9 above;
(vii) continued participation in all medical and dental plans at the
same benefit level at which he was participating on the date of the termination
of his employment until the earlier of:
(A) the end of the Non-renewal Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefit sunder the plans and programs of a subsequent employer (such coverage
and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit,
basis);
provided that (x) if the Executive is precluded from continuing his
participation in any employee benefit plan or program as provided in this clause
(vii) of this Section 10 (d), he shall receive cash payments equal on an
after-tax basis to the cost to him of obtaining the benefits provided under the
plan or program in which he is unable to participate for the period specified in
this clause (vii) of this Section 10 (d), (y) such cost shall be deemed to be
the lowest cost that would be incurred by the Executive in obtaining such
benefit himself on an individual basis, and (z) payment of such amounts shall be
made quarterly in advance; and
(viii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
(e) Voluntary Termination. In the event of a termination of employment by
the Executive on his own initiative, other than a termination due to death or a
Constructive Termination Without Cause, the Executive shall have the same
entitlements as provided in Section 10(b)(iii) above for a termination for
Cause. A voluntary termination under this Section 10(e) shall be effective upon
30 days prior written notice to the Company or such shorter period as may be
determined by the Company and shall not be deemed a breach of this Agreement.
(f) No Mitigation; No Offset. In the event of any termination of employment
under this Section 10, the Executive shall be under no obligation to seek other
employment; amounts due the Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that he may
obtain.
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(g) Nature of Payments. Any amounts due under this Section 10 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
(h) Exclusivity of Severance Payments. Upon termination of the Executive's
employment during the Term of Employment, he shall not be entitled to any
severance payments or severance benefits from the Company or any payments by the
Company on account of any claim by him of wrongful termination, including claims
under any federal, state or local human and civil rights or labor laws, other
than the payments and benefits provided in this Section 10.
11. Confidentiality.
(a) During the Term of Employment and thereafter, the Executive shall not,
without the prior written consent of the Company, disclose to anyone other than
in the normal course of carrying out his responsibilities under this Agreement
or make use of any Confidential Information, except when required to do so by a
court of law, by any governmental agency having supervisory authority over the
business of the Company or any Subsidiary or by any administrative or
legislative body (including a committee thereof) that orders him to divulge,
disclose or make accessible such information. In the event that the Executive is
so ordered, he shall give prompt written notice to the Company in order to allow
the Company the opportunity to object to or otherwise resist such order.
(b) During the Term of Employment and thereafter, Executive shall not
disclose the existence or contents of this Agreement unless and to the extent
such disclosure is required by law, by a governmental agency, or in a document
required by law to be filed with a governmental agency. In the event that
disclosure is so required, the Executive shall give prompt written notice to the
Company in order to allow the Company the opportunity to object to or otherwise
resist such requirement. This restriction shall not apply to such disclosure by
him to members of his immediate family, his tax, legal or financial advisors,
any lender, or tax authorities, each of whom shall be advised not to disclose
such information.
(c) "Confidential Information" shall mean all information that is not known
or available to the public concerning the business of the Company or any
Subsidiary relating to any of their products, product development, trade
secrets, customers, suppliers, finances, and business plans and strategies. For
this purpose, information known or available generally within the trade or
industry of the Company or any Subsidiary shall be deemed to be known or
available to the public. Confidential Information shall include information that
is, or becomes, known to the public as a result of a breach by the Executive of
the provisions of Section 11(a) above.
(d) "Subsidiary" shall mean any corporation controlled directly or
indirectly by the Company and any affiliate of the Company.
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12. Non-solicitation of Employees.
(a) During the portion of the Restriction Period as defined below following
the termination of the Executive's employment, the Executive shall not induce
employees of the Company or any Subsidiary, to terminate their employment.
During the portion of the Restriction Period following the termination of the
Executive's employment, the Executive shall not directly or indirectly hire any
employee of the Company or any Subsidiary or any person who was employed by the
Company or any Subsidiary within 180 days of such hiring.
(b) For the purposes of Section 12, "Restriction Period" shall mean the
period beginning with the Effective Date and ending with
(i) in the case of a termination of the Executive's employment without
Cause or a Constructive Termination Without Cause, the end of the Severance
Period;
(ii) in the case of a termination of the Executive's employment for
Cause, the first anniversary of such termination;
(iii) in the case of a termination of the Executive's employment upon
the expiration of the Original Term of Employment or any Renewal Term that
results in the commencement of the Non-renewal Severance Period pursuant to
Section 10 (d) above, the end of the Non-renewal Severance Period;
(iv) in the case of a voluntary termination of the Executive's
employment, the date of such termination.
13. Remedies.
In addition to whatever other rights and remedies the Company may have at
equity or in law, if the Executive breaches any of the provisions contained in
Section 11 or 12 above, the Company (a) shall have the right to immediately
terminate all payments and benefits due under this Agreement contingent upon a
judicial determination that a violation has occurred and (b) shall have the
right to seek injunctive relief. The Executive acknowledges that such a breach
would cause irreparable injury and that money damages would not provide an
adequate remedy for the Company.
14. Resolution of Disputes.
Any disputes arising under or in connection with this Agreement shall be
resolved by binding arbitration, to be held at the location of the Company's
principal offices in accordance with the rules and procedures of the American
Arbitration Association, except that disputes arising under or in connection
with Section 11 and 12 above shall be submitted to the federal or state courts
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in the State of New York. Judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. Each party shall bear
his or its own costs of the arbitration or litigation, including, without
limitation, attorneys' fees. Pending the resolution of any arbitration or court
proceeding, the Company shall continue payment of all amounts and benefits due
the Executive under this Agreement.
15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or any
Subsidiary or is or was serving at the request of the Company or any Subsidiary
as a director, officer, member, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is the Executive's alleged action in an official capacity while serving as a
director, officer, member, employee or agent, the Executive shall be indemnified
and held harmless by the Company to the fullest extent legally permitted or
authorized by the Company's certificate of incorporation or bylaws or
resolutions of the Company's Board of Directors or, if greater, by the laws of
the State of New York, against all cost, expense, liability and loss (including,
without limitation , attorney's fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement)reasonably incurred or
suffered by the Executive in connection therewith, and such indemnification
shall continue as to the Executive even if he has ceased to be a director,
member, officer, employee or agent of the Company or other entity and shall
inure to the benefit of the Executive's heirs, executors and administrators. The
Company shall advance to the Executive all reasonable costs and expenses
incurred by him in connection with a Proceeding within 20 days after receipt by
the Company of a written request for such advance. Such request shall include an
undertaking by the Executive to repay the amount of such advance if it shall
ultimately be determined that he is not entitled to be indemnified against such
costs and expenses.
(b) Neither the failure of the Company (including its board of directors,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any proceeding concerning payment of amounts claimed by the
Executive under Section 16(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including its board of directors, independent
legal counsel or stockholders) that the Executive has not met such applicable
standard of conduct, shall create a presumption that the Executive has not met
the applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and officers'
liability insurance policy covering the Executive to the extent the Company
provides such coverage for its other executive officers.
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16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of this
Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which he currently participates.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and permitted assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred in connection with the sale or
transfer of all or substantially all of the assets of the Company, provided that
the assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale or transfer of assets as described in the preceding sentence, it
shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder. No rights or obligations of the Executive under this
Agreement may be assigned or transferred by the Executive other than his rights
to compensation and benefits, which may be transferred only by will or operation
of law, except as provided in Section 24 below.
18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
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21. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
24. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws.
25. Notices.
Any notice given to a Party shall be in writing and shall be deemed to have
been given when delivered personally or sent by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the Party concerned
at the address indicated below or to such changed address as such Party may
subsequently give such notice of:
If to the Company: Melville Corporation
One Theall Road
Rye, New York 10580
If to the Executive: Mr. Jerald L. Maurer
115 Pomeroy Road
Madison, New Jersey 07940
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26. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
27. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
Melville Corporation
By: /s/ Stanley P. Goldstein
------------------------------
Stanley P. Goldstein
/s/ Jerald L. Maurer
------------------------------
Mr. Jerald L. Maurer
16
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 2nd day of November, 1995 by and
between Melville Corporation, a New York corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Mr.
Harvey Rosenthal (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive pursuant to an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall have the meaning set forth in Section 4 below.
(b) "Board" shall have the meaning set forth in Section 4 below.
(c) "Cause" shall have the meaning set forth in Section 10(b) below.
(d) "Confidential Information" shall have the meaning set forth in Section
11 below.
(e) "Constructive Termination Without Cause" shall have the meaning set
forth in Section 10(c) below.
(f) "Effective Date" shall have the meaning set forth in Section 2 below.
(g) "ICP" shall have the meaning set forth in Section 7 below.
<PAGE>
(h) "Non-renewal Severance Period" shall have the meaning set forth in
Section 10(d) below.
(i) "Original Term of Employment" shall have the meaning set forth in
Section 2 below.
(j) "MIP" shall have the meaning set forth in Section 5 below.
(k) "Renewal Term" shall have the meaning set forth in Section 2 below.
(l) "Restriction Period" shall have the meaning set forth in Section 12
below.
(m) "SERP I" shall have the meaning set forth in Section 7 below.
(n) "Severance Period" shall have the meaning set forth in Section
10(c)(ii) below.
(o) "Subsidiary" shall have the meaning set forth in Section 11 below.
(p) "Term of Employment" shall have the meaning set forth in Section 2
below.
(q) "Termination Without Cause" shall have the meaning set forth in Section
10 (c) below.
2. Term of Employment.
(a) The term of the Executive's employment under this Agreement shall
commence immediately upon the execution of this Agreement (the "Effective Date")
and end on the third anniversary of such date (the "Original Term of
Employment"). The Original Term of Employment shall be automatically renewed for
successive one-year terms (the "Renewal Terms") unless at least 180 days prior
to the expiration of the Original Term of Employment or any Renewal Term, either
Party notifies the other Party in writing that he or it is electing to terminate
this Agreement at the expiration of the then current Term of Employment. "Term
of Employment" shall mean the Original Term of Employment and all Renewal Terms.
(b) In the event that this Agreement is not renewed because the Company has
given the 180-day notice prescribed in the preceding paragraph on or before the
expiration of the Original Term of Employment or any Renewal Term, such
non-renewal shall be treated as a termination following non-renewal pursuant to
Section 10 (d) below.
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(c) Notwithstanding anything in this Agreement to the contrary, at least
one year prior to the expiration of the Original Term of Employment, the Parties
shall meet to discuss this Agreement and may agree in writing to modify any of
the terms of this Agreement.
3. Position, Duties and Responsibilities.
(a) Commencing on the Effective Date, the Executive is currently employed
as the President and Chief Operating Officer of the Company and shall report to
the Chairman of the Board, and will continue to be employed as a senior
executive of the Company, reporting to the Chairman of the Board for the
remainder of the Term of Employment, unless the Parties otherwise agree.
(b) Anything herein to the contrary notwithstanding, nothing in this
Agreement shall preclude the Executive from (i) serving on the boards of
directors of a reasonable number of other corporations or the boards of a
reasonable number of trade associations and/or charitable organizations, (ii)
engaging in charitable activities and community affairs, and (iii) managing his
personal investments and affairs, provided that such activities do not
materially interfere with the proper performance of his duties and
responsibilities under this Agreement.
4. Base Salary.
The Executive shall be paid an annualized salary, payable in accordance
with the regular payroll practices of the Company, of not less than $800,000,
subject to annual review for increase at the discretion of the Compensation
Committee of the Board.
5. Annual Incentive Awards.
The Executive shall participate in the Company's Profit Incentive Plan
("MIP") with a target bonus opportunity of no less than 50% of Base Salary or in
a successor plan to MIP with an equivalent opportunity. Payment of annual
incentive awards shall be made at the same time that other senior-level
executives receive their incentive awards.
6. Long-Term Stock Incentive Programs.
(a) General. The Executive shall be eligible to participate in and to
receive stock incentive awards under the current long-term stock incentive
programs of the Company and any successor programs.
(b) Stock Option Award. As part of the award approved by the Compensation
Committee of the Board on April 11, 1995, the Company has granted the Executive
an option pursuant to the terms and conditions set forth in the attached Exhibit
A to purchase
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350,000 shares of common stock of the Company at an exercise price equal to the
fair market value of the shares on the date of grant, contingent on the
execution of this Agreement.
7. Employee Benefit Programs.
(a) General Benefits. During the Term of Employment, the Executive shall be
entitled to participate in such employee pension and welfare benefit plans and
programs of the Company as are made available to the Company's senior-level
executives or to its employees generally, as such plans or programs may be in
effect from time to time, including, without limitation, Future Fund, health,
medical, dental, salary continuation program, long-term disability, travel
accident and life insurance plans. In addition, the Executive shall be entitled
to 4 weeks of paid vacation per year.
(b) Designated Benefits. During the Term of Employment, the Executive shall
be entitled to participate in the Income Continuation Policy for Select Senior
Executives of the Company ("ICP") (which provides benefits to the Executive in
the event of a change in control of the Company), the Deferred Compensation Plan
and the Supplemental Retirement Plan I for Select Senior Management of the
Company ("SERP I"). For the purposes of SERP I, the Executive's SERP Incentive
Target shall be 50% of Base Salary. In addition, during the Term of Employment,
the Company shall, effective 1996, provide the Executive, in accordance with the
terms adopted by the Company, with personal financial and tax planning.
8. Disability.
(a) During the Term of Employment, as well as during the Severance Period,
the Executive shall be entitled to disability coverage as described in this
Section 8(a). In the event the Executive becomes disabled, as that term is
defined under the Company's Long-Term Disability Plan, the Executive shall be
entitled to receive, in place of his Base Salary, an amount equal to 60% of his
Base Salary, at the annual rate in effect at the commencement date of his
Company long-term disability benefit ("Commencement Date") for a period
beginning on the Commencement Date and ending with the earlier to occur of (A)
the Executive's attainment of age 65 or (B) the Executive's commencement of
benefits under SERP I upon his election to receive such benefits. If, when the
Executive ceases to be disabled, his position is then vacant and the Company
requests in writing that he resume such position, he may elect to resume such
position by written notice to the Company within 15 days after the Company
delivers its request. If he resumes such position, he shall thereafter be
entitled to his Base Salary at the annual rate in effect at the Commencement
Date and, for the year he resumes his position, a pro rata annual incentive
award. If he ceases to be disabled and does not resume his position in
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accordance with the preceding sentence, he shall be treated as if he voluntarily
terminated his employment pursuant to Section 10 (e) as of the date the
Executive ceases to be disabled. If the Executive is not offered a position
after he ceases to be disabled, he shall be treated as if his employment was
terminated Without Cause pursuant to Section 10(c) as of the date the Executive
ceases to be disabled.
(b) The Executive shall be entitled to a pro rata annual incentive award
for the year in which the Commencement Date occurs based on 50% of Base Salary
paid to him during such year prior to the Commencement Date, payable in a lump
sum promptly after the Commencement Date. The Executive shall not be entitled to
any annual incentive award with respect to the period following the Commencement
Date.
(c) During the period the Executive is receiving disability benefits
pursuant to Section 8(a) above, he shall continue to be treated as an employee
for purposes of all employee benefits and entitlements in which he was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6, 7(a) and 7(b) above, except
that the Executive shall not be entitled to receive any annual salary increases
or any new stock incentive awards following the Commencement Date.
9. Reimbursement of Business and Other Expenses; Perquisites.
(a) The Executive is authorized to incur reasonable expenses in carrying
out his duties and responsibilities under this Agreement and the Company shall
promptly reimburse him for all business expenses incurred in connection
therewith, subject to documentation in accordance with the Company's policy.
(b) The Company shall pay all reasonable legal expenses up to $10,000
incurred by the Executive in connection with the negotiation of this Agreement.
(c) The Executive will be provided with a leased automobile and driver.
10. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's employment is
terminated due to his death, his estate or his beneficiaries, as the case may
be, shall be entitled to:
(i) Base Salary through the date of death;
(ii) pro rata annual incentive award for the year in which the
Executive's death occurs based on 50% of Base Salary for such year, payable in a
lump sum promptly after his death;
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(iii) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time of
his death;
(iv) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of death;
(v) the right to exercise any stock option vested at the time of his
death for a period of one year following death or for the remainder of the
exercise period, if less;
(vi) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid);
(vii) in the event that the Executive's death occurs before he has met
the age and service requirements of SERP I, the Company will provide his spouse
with an annuity pursuant to Section 3.03 of SERP I as if he had met such age and
service requirements at the time of his death;
(viii) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 7, 8 or 9 above; and
(ix) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company including but not limited to
SERP I.
(b) Termination by the Company for Cause.
(i) "Cause" shall mean:
(A) the Executive is convicted of a felony involving moral
turpitude; or
(B) the Executive engages in conduct that constitutes willful
gross neglect or willful gross misconduct in carrying out his duties under this
Agreement, resulting, in either case, in material harm to the financial
condition or reputation of the Company.
(ii) A termination for Cause shall not take effect unless the
provisions of this paragraph (ii) are complied with. The Executive shall be
given written notice by the Company of its intention to terminate him for Cause,
such notice (A) to state in detail the particular act or acts or failure or
failures to act that constitute the grounds on which the proposed termination
for Cause is based and (B) to be given within three months of the Company's
learning of such act or acts or failure or failures to act. The Executive shall
have 10 days after the date that such
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written notice has been given to him in which to cure such conduct, to the
extent such cure is possible. If he fails to cure such conduct, the Executive
shall then be entitled to a hearing before the Compensation Committee of the
Board at which the Executive is entitled to appear. Such hearing shall be held
within 15 days of such notice to the Executive, provided he requests such
hearing within 10 days of the written notice from the Company of the intention
to terminate him for Cause. If, within five days following such hearing, the
Executive is furnished written notice by the Board confirming that, in its
judgment, grounds for Cause on the basis of the original notice exist, he shall
thereupon be terminated for Cause. Such hearing shall not limit any other review
as set forth in this Agreement on a de novo basis.
(iii) In the event the Company terminates the Executive's employment
for Cause, he shall be entitled to:
(A) Base Salary through the date of the termination of his
employment for Cause;
(B) any incentive awards earned as of December 31 of the prior
year (but not yet paid);
(C) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 7, 8 or 9 above; and
(D) other or additional benefits then due or earned in accordance
with applicable plans or programs of the Company including but not limited to
SERP I.
(c) Termination Without Cause or Constructive Termination Without Cause. In
the event the Executive's employment is terminated without Cause (which
termination shall be effective as of the date specified by the Company in a
written notice to the Executive), other than due to death, or in the event there
is a Constructive Termination Without Cause (as defined below), the Executive
shall be entitled to and his sole remedies under this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in Base
Salary is the basis for a Constructive Termination Without Cause, then the Base
Salary in effect immediately prior to such reduction), for a period of 24 months
following such termination (the "Severance Period"); provided that the salary
continuation payment under this Section 10(c)(ii) shall be in lieu of any salary
continuation arrangements under any other severance program of the Company or
any other agreement between the Executive and the Company other than the ICP;
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(iii) pro rata annual incentive award for the year in which
termination occurs based on 50% of Base Salary, payable in a lump sum promptly
following termination;
(iv) an amount equal to 50% of Base Salary multiplied by two, payable
in equal monthly payments over the Severance Period;
(v) lapse of all restrictions on any restricted stock award (including
any performance-based restricted stock) outstanding at the time of such
termination of employment;
(vi) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of termination;
(vii) the right to exercise any stock option held by the Executive at
the date of his termination (with any option not yet exercisable becoming vested
during the Severance Period in accordance with its original schedule, provided
that any option held by the Executive on the date of this Agreement shall become
fully vested on the last day of the Severance Period), such option to remain
exercisable during the Severance Period and for 90 days thereafter or for the
remainder of the exercise period if less, provided, however, that options
granted pursuant to the Company's 1987 Stock Option Plan shall in no event be
exercisable after three years following termination and provided further that
the Executive shall not be entitled to receive any additional stock incentive
awards during the Severance Period;
(viii) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid);
(ix) any amounts earned, accrued or owing to the Executive but not yet
paid under Section 7, 8 or 9 above;
(x) in the event that his Termination Without Cause or Constructive
Termination Without Cause occurs before the Executive has met the age and
service requirements of SERP I, the Company will provide the Executive at age 55
with an Annual Benefit under SERP I equal to 25% of Compensation (as such terms
are defined in SERP I);
(xi) continued participation in all medical, dental, health and life
insurance plans and in other employee benefit plans or programs (but excluding
SERP I and Future Fund) at the same benefit level at which he was participating
on the date of the termination of his employment until the earlier of:
(A) the end of the Severance Period; or
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(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such coverage
and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit,
basis);
provided that (x) if the Executive is precluded from continuing his
participation in any employee benefit plan or program as provided in this clause
(xi) of this Section 10(c), he shall receive cash payments equal on an after-tax
basis to the cost to him of obtaining the benefits provided under the plan or
program in which he is unable to participate for the period specified in this
clause (xi) of this Section 10(c), (y) such cost shall be deemed to be the
lowest reasonable cost that would be incurred by the Executive in obtaining such
benefit himself on an individual basis, and (z) payment of such amounts shall be
made quarterly in advance; and
(xii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company, including but not limited to
SERP I.
"Termination Without Cause" shall mean the Executive's employment is
terminated by the Company for any reason other than cause (as defined in Section
10 (b)) or due to death.
"Constructive Termination Without Cause" shall mean a termination of
the Executive's employment at his initiative as provided in this Section 10(c)
following the occurrence, without the Executive's written consent, of one or
more of the following events (except as a result of a prior termination):
(A) a reduction in the Executive's then current Base Salary or
his target bonus opportunity under MIP or any successor plan;
(B) the Executive is employed at a location other than the
Company's principal place of business;
(C) a "Benefit Event" as defined in paragraph 4 or 5 of Section
4.02(a) of the ICP, unless within 15 days of such event the Company obtains the
written agreement of any person or entity to which the assets or business
involved in such Benefit Event are transferred to perform all the obligations of
this Agreement, or such person or entity is otherwise bound by operation of law
to perform all the obligations of this Agreement.
(D) reporting to other than the Chairman of the Board,
(E) any other material breach by the Company that it does not
cure within 30 days
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Nothing in this Agreement is intended to terminate any right of the
Executive under the ICP or to provide the Executive with the same benefit or
payment twice--both under the ICP and under this Agreement. The intent is that
the Executive receive the better of the amounts, benefits and rights on a
type-of-payment and type-of-benefit basis and that payments will be made upon
the earlier of the respective payment dates under the ICP and this Agreement.
Accordingly, without limiting the forgoing, notwithstanding the provisions of
this Section 10(c), in the event that the Executive receives a payment under
Section 4.01(b) of the ICP, the amounts due under Sections 10(c)(ii) and (iv)
above shall be reduced by the amount of such payment, such reduction to be
effected by eliminating installments due under Sections 10(c)(ii) and (iv) above
in reverse order. Notwithstanding the elimination of such installments, the
Severance Period shall continue to be 24 months. In the event Executive's title
is changed during the Term of this Agreement, Executive will not receive under
the ICP in the event the ICP becomes applicable, less than a single sum payment
equal to three (3) times his annual Base Salary plus annual incentive award as
set forth in Section 4.01(b) of the ICP. Such payment will be subject to
reduction as set forth above.
(d) Termination following Non-renewal. In the event that the Company
notifies the Executive in writing at least 180 days prior to the expiration of
the Original Term of Employment or any Renewal Term that it is electing to
terminate this Agreement at the expiration of the then current Term of
Employment and the Executive's employment terminates upon such expiration, at
the Company's initiative, the Executive shall be entitled to:
(i) Base Salary through the date of termination of the Executive's
employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment, for a period of 24 months following
such termination (the "Non-renewal Severance Period"); provided that the salary
continuation payment under this Section 10(d) (ii) shall be in lieu of any
salary continuation arrangements under any other severance program of the
Company or any other agreement between the Executive and the Company;
(iii) pro rata annual incentive award for the year in which
termination occurs based on 50% of Base Salary, payable in a lump sum promptly
following termination;
(iv) the right to exercise any stock option held by the Executive at
the date of his termination to the extent vested at such date during the
Non-renewal Severance Period and for 90 days
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thereafter or for the remainder of the exercise period if less, provided,
however, that the Executive shall not be entitled to receive any additional
stock incentive awards during the Non-renewal Severance Period;
(v) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid);
(vi) any amounts earned, accrued or owing to the Executive but not yet
paid under Section 7, 8 or 9 above;
(vii) continued participation in all medical and dental plans at the
same benefit level at which he was participating on the date of the termination
of his employment until the earlier of:
(A) the end of the Non-renewal Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such coverage
and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit,
basis);
provided that (x) if the Executive is precluded from continuing his
participation in any employee benefit plan or program as provided in this clause
(vii) of this Section 10(d), he shall receive cash payments equal on an
after-tax basis to the cost to him of obtaining the benefits provided under the
plan or program in which he is unable to participate for the period specified in
this clause (vii) of this Section 10 (d), (y) such cost shall be deemed to be
the lowest reasonable cost that would be incurred by the Executive in obtaining
such benefit himself on an individual basis, and (z) payment of such amounts
shall be made quarterly in advance; and
(viii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company, including but not limited to
SERP I.
(e) Voluntary Termination. In the event of a termination of employment by
the Executive on his own initiative, other than a termination due to death, a
Constructive Termination Without Cause, or agreed upon retirement pursuant to
Section 10 (f) or 10 (g) below, or a non-renewal by the Executive pursuant to
Section 2(a), the Executive shall have the same entitlements as provided in
Section 10(b)(iii) above for a Termination for Cause, provided that at the
Company's election, furnished in writing to the Executive within 30 days
following such notice of termination, the Company shall in addition pay the
Executive 50% of his Base Salary for a period of 18 months following such
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termination in exchange for the Executive not to engage in competition with the
Company or any Subsidiary as set forth in Section 12(a) below. A voluntary
termination under this Section 10(e) shall be effective upon 30 days prior
written notice to the Company or such shorter period as may be determined by the
Company and shall not be deemed a breach of this Agreement.
(f) Agreed Upon Retirement In First Two Years. In the event the Executive
decides to retire within the first two years of the Term of Employment and the
Company approves such decision in writing, which approval after the first year
shall not be unreasonably withheld, the Executive shall be entitled to:
(i) Base Salary through the date of termination of the Executive's
employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment, for a period of 12 months following
such termination (the "Agreed Upon Retirement Severance Period"); provided that
the salary continuation payment under this Section 10(f) (ii) shall be in lieu
of any salary continuation arrangements under any other severance program of the
Company or any other agreement between the Executive and the Company;
(iii) pro rata annual incentive award for the year in which
termination occurs based on 50% of Base Salary, payable in a lump sum promptly
following termination;
(iv) continued vesting and exercisability of stock options as provided
in Section 10 (h) below;
(v) the balance of any incentive awards earned as of December 31 of
the prior year (but not yet paid);
(vi) any amounts earned, accrued or owing to the Executive but not yet
paid under Section 7, 8 or 9 above;
(vii) in the event that his agreed upon retirement occurs before the
Executive has met the age and service requirements of SERP I, the Company will
provide the Executive at age 55, with an Annual Benefit equal to 25% of
Compensation (as such terms are defined in SERP I);
(viii) continued participation in all medical and dental plans at the
same benefit level at which he was participating on the date of the termination
of his employment until the earlier of:
(A) the end of the Agreed Upon Retirement Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a
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subsequent employer (such coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit, basis);
provided that (x) if the Executive is precluded from continuing his
participation in any employee benefit plan or program as provided in this clause
(viii) of this Section 10(f), he shall receive cash payments equal on an
after-tax basis to the cost to him of obtaining the benefits provided under the
plan or program in which he is unable to participate for the period specified in
this clause (viii) of this Section 10 (f), (y) such cost shall be deemed to be
the lowest reasonable cost that would be incurred by the Executive in obtaining
such benefit himself on an individual basis, and (z) payment of such amounts
shall be made quarterly in advance; and
(ix) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company, including but not limited to
SERP I.
(g) Agreed Upon Retirement In Third Year. In the event the Executive
decides to retire in the third year of the Term of Employment and the Company
approves such decision in writing, which approval shall not be unreasonably
withheld, the Executive shall have the same entitlements as provided in Section
10(b) (iii) above for Termination For Cause and in addition, shall be entitled
to the following which shall be in lieu of any salary continuation arrangements
under any other severance program of the Company or any other agreement between
the Executive and the Company:
(i) continued vesting and exercisability of stock options as provided
in Section 10 (h) below; and
(ii) the Company will provide the Executive with an Annual Benefit
under SERP I at age 55 or at his retirement, whichever is later, equal to at
least 30% of Compensation (as such terms are defined in SERP I) whether or not
he has met the age and service requirements of SERP I at the time of his
retirement.
(h) Retirement. Notwithstanding anything to the contrary in this Section
10, in the event of any termination of employment under this Section 10, other
than a termination for Cause, after the Executive becomes eligible to be
classified as a Retiree under SERP I, or his termination constitutes an agreed
upon retirement pursuant to Section 10 (f) or 10 (g), subject to approval of the
Compensation Committee of the Board, any stock option held by the Executive at
the time of such termination shall continue to vest in accordance with its
original schedule for a period of four years following such termination and, to
the extent so vested, shall remain exercisable during such four-year period or
for the remainder of the exercise period, if less, provided, however, that
options granted pursuant to the Company's 1987 Stock Option Plan shall in no
event be exercisable after three years following termination.
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(i) No Mitigation; No Offset. In the event of any termination of employment
under this Section 10, the Executive shall be under no obligation to seek other
employment; amounts due the Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that he may
obtain.
(j) Nature of Payments. Any amounts due under this Section 10 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
(k) Exclusivity of Severance Payments. Upon termination of the Executive's
employment during the Term of Employment, he shall not be entitled to any
severance payments or severance benefits from the Company or any payments by the
Company on account of any claim by him of wrongful termination, including claims
under any federal, state or local human and civil rights or labor laws, other
than the payments and benefits provided in this Section 10.
11. Confidentiality.
(a) During the Term of Employment and thereafter, the Executive shall not,
without the prior written consent of the Company, disclose to anyone except in
good faith in the ordinary course of business to a person who will be advised by
the Executive to keep such information confidential or make use of any
Confidential Information, except when required to do so by legal process, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) that requires him to divulge, disclose or make accessible such
information. In the event that the Executive is so ordered, he shall give prompt
written notice to the Company in order to allow the Company the opportunity to
object to or otherwise resist such order.
(b) During the Term of Employment and thereafter, Executive shall not
disclose the existence or contents of this Agreement beyond what is disclosed in
the proxy statement or documents filed with the government unless and to the
extent such disclosure is required by law, by a governmental agency, or in a
document required by law to be filed with a governmental agency or in connection
with enforcement of his rights under this Agreement. In the event that
disclosure is so required, the Executive shall give prompt written notice to the
Company in order to allow the Company the opportunity to object to or otherwise
resist such requirement. This restriction shall not apply to such disclosure by
him to members of his immediate family, his tax, legal or financial advisors,
any lender, or tax authorities, or to potential future employers to the extent
necessary, each of whom shall be advised not to disclose such information.
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(c) "Confidential Information" shall mean all information that is not known
or available to the public concerning the business of the Company or any
Subsidiary relating to any of their products, product development, trade
secrets, customers, suppliers, finances, and business plans and strategies. For
this purpose, information known or available generally within the trade or
industry of the Company or any Subsidiary shall be deemed to be known or
available to the public. Confidential Information shall include information that
is, or becomes, known to the public as a result of a breach by the Executive of
the provisions of Section 11(a) above.
(d) "Subsidiary" shall mean any corporation controlled directly or
indirectly by the Company and any affiliate of the Company.
12. Non-competition.
(a) During the Restriction Period (as defined in Section 12(b) below), the
Executive shall not engage in Competition with the Company or any Subsidiary.
"Competition" shall mean engaging in any activity, except as provided below, for
a Competitor of the Company or any Subsidiary, whether as an employee,
consultant, principal, agent, officer, director, partner, shareholder (except as
a less than one percent shareholder of a publicly traded company or except in
connection with the Executive's permitted employment, compensatory stock options
or grants in any entity) or otherwise. A "Competitor" shall mean (i) Walgreens,
Thrifty, PayLess, Eckerd, American Drug Stores, Rite Aid, Revco, Longs Drug
Stores, Shoppers Drug Mart, Phar-Mor, Thrift Drug and (ii) the portion of any
other corporation or other entity or start-up corporation or entity that is
engaged in the Chain Drug Business within fifty (50) miles of any Chain Drug
Business outlet in the United States of the Company or any Subsidiary, provided
that a corporation or entity described in clause (ii) above shall not be deemed
to be a Competitor if the Executive shall not either directly or indirectly
oversee or manage the activities of such corporation or entity's division or
unit engaged in the Chain Drug Business. All determinations shall be made at the
time of the activity by the Executive provided, if the Executive commences
employment or becomes a consultant, principal, agent, officer, director,
partner, shareholder or acquires stock in any entity that is not a Competitor at
the time the Executive initially becomes employed or becomes a consultant,
principal, agent, officer, director, partner, shareholder by the entity or
acquires the stock of such entity, future activities of such entity shall not
result in a violation of this provision unless (x) such activities were
contemplated at the time the Executive initially became employed or becomes a
consultant, principal, agent, officer, director, partner, shareholder or
acquired stock (and the contemplation of such activities was known to the
Executive) or (y) the Executive commences directly or indirectly overseeing or
managing the activities which are competitive with the activities of the Company
or Subsidiary. The Executive shall not be deemed indirectly overseeing or
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managing the activities which are competitive with the activities of the Company
or Subsidiary so long as he does not participate in discussions with regard to
the competing business.
For purposes of the foregoing, "Chain Drug Business" shall mean a group of
four or more stores which either (x) fills prescriptions or (y) primarily sells
health and beauty aids.
(b) For the purposes of this Section 12 and Section 13 below, "Restriction
Period" shall mean the period beginning with the Effective Date and ending with
(i) in the case of a termination of the Executive's employment without
Cause or a Constructive Termination Without Cause, the end of the Severance
Period;
(ii) in the case of a termination of the Executive's employment for
Cause, the first anniversary of such termination;
(iii) in the case of a termination of the Executive's employment upon
the expiration of the Original Term of Employment or any Renewal Term that
results in the commencement of the Non-renewal Severance Period pursuant to
Section 10(d) above, the end of the Non-renewal Severance Period;
(iv) in the case of a voluntary termination of the Executive's
employment pursuant to Section 10(e) above followed by the Company's election to
pay the Executive such 50% of Base Salary, as provided in Section 10 (e) above,
the end of the 18-month period following such termination; or
(v) in the case of a voluntary termination of the Executive's
employment pursuant to Section 10 (e) above which is not followed by the
Company's election to pay the Executive such 50% of Base Salary, the date of
such termination.
(vi) in the case of agreed upon retirement of the Executive's
employment during the Term of Employment pursuant to Section 10(f) and (g)
above, the remainder of the Term of Employment.
13. Non-solicitation of Employees.
During the portion of the Restriction Period following the termination of
the Executive's employment, the Executive shall not induce employees of the
Company with the exception of Executive's Administrative Assistant, or any
Subsidiary to terminate their employment. During the portion of the Restriction
Period following the termination of the Executive's employment, the Executive
shall not directly or indirectly hire any employee of the Company with the
exception of Executive's Administrative Assistant, or any Subsidiary or any
person who was employed by the Company within 180 days of such hiring.
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14. Remedies.
In addition to whatever other rights and remedies the Company may have at
equity or in law, if the Executive breaches any of the provisions contained in
Section 11, 12 or 13 above, the Company (a) shall have the right to immediately
terminate all payments and benefits due under this Agreement and (b) shall have
the right to seek injunctive relief. The Executive acknowledges that such a
breach would cause irreparable injury and that money damages would not provide
an adequate remedy for the Company.
15. Resolution of Disputes.
Any disputes arising under or in connection with this Agreement, other than
seeking injunctive relief under Section 14, shall be resolved by binding
arbitration, to be held at an office closest to the Company's principal offices
in accordance with the rules and procedures of the American Arbitration
Association, except that disputes arising under or in connection with Section
11, 12 and 13 above shall be submitted to the federal or state courts in the
State of New York. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Each Party shall bear his or
its own costs of the arbitration or litigation, including, without limitation,
attorneys' fees. Pending the resolution of any arbitration or court proceeding,
the Company shall continue payment of all amounts and benefits due the Executive
under this Agreement.
16. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or any
Subsidiary or is or was serving at the request of the Company or any Subsidiary
as a director, officer, member, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is the Executive's alleged action in an official capacity while serving as a
director, officer, member, employee or agent, the Executive shall be indemnified
and held harmless by the Company to the fullest extent legally permitted or
authorized by the Company's certificate of incorporation or bylaws or
resolutions of the Company's Board of Directors or, if greater, by the laws of
the State of New York, against all cost, expense, liability and loss (including,
without limitation, attorney's fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Executive in connection therewith, and such indemnification
shall continue as to the Executive even if he has ceased to be a director,
member, officer, employee or agent of the Company or other entity and shall
inure to the benefit of the Executive's heirs, executors and administrators. The
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Company shall advance to the Executive all reasonable costs and expenses
incurred by him in connection with a Proceeding within 20 days after receipt by
the Company of a written request for such advance. Such request shall include an
undertaking by the Executive to repay the amount of such advance if it shall
ultimately be determined that he is not entitled to be indemnified against such
costs and expenses.
(b) Neither the failure of the Company (including its board of directors,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any proceeding concerning payment of amounts claimed by the
Executive under Section 16(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including its board of directors, independent
legal counsel or stockholders) that the Executive has not met such applicable
standard of conduct, shall create a presumption that the Executive has not met
the applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and officers'
liability insurance policy covering the Executive to the extent the Company
provides such coverage for its other executive officers.
17. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of this
Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which he currently participates.
18. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and permitted assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred in connection with the sale or
transfer of all or substantially all of the assets of the Company, provided that
the assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale or transfer of assets as described in the preceding sentence, it
shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder. No rights or obligations of the Executive under this
Agreement may be assigned or transferred by the Executive other than his rights
to compensation and benefits, which may be transferred only by will or operation
of law, except as provided in Section 24 below.
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19. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
20. Entire Agreement.
This Agreement contains the entire understanding and agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto. This Agreement is not
intended to supersede the letter dated February 4, 1994, (providing for 24
months of severance in the event the Executive is terminated other than for
cause as defined in this letter), in the event the Agreement has expired and the
Executive has not retired pursuant to Section 10(f), 10(g) or 10(h) or his
employment has otherwise terminated prior to such expiration.
21. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
22. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
23. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
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24. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
25. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed to have
been given when delivered personally or sent by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the Party concerned
at the address indicated below or to such changed address as such Party may
subsequently give such notice of:
If to the Company: Melville Corporation
One Theall Road
Rye, New York 10580
Attention: Chairman
If to the Executive: Mr. Harvey Rosenthal
26 Round Hill Road
Greenwich, Connecticut 06831
and
Michael Sirkin, Esq.
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036-8299
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
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28. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
Melville Corporation
By: /s/ Stanley P. Goldstein
----------------------------------
Stanley P. Goldstein
/s/ Harvey Rosenthal
----------------------------------
Mr. Harvey Rosenthal
21
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 6th day of October, 1995 by and
between Melville Corporation, a New York corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Mr.
Jerry Politzer (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive pursuant to an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall have the meaning set forth in Section 4 below.
(b) "Board" shall have the meaning set forth in Section 4 below.
(c) "Cause" shall have the meaning set forth in Section 10(b) below.
(d) "Confidential Information" shall have the meaning set forth in Section
11 below.
(e) "Constructive Termination Without Cause" shall have the meaning set
forth in Section 10(c) below.
(f) "Effective Date" shall have the meaning set forth in Section 2 below.
(g) "ICP" shall have the meaning set forth in Section 7 below.
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(h) "Non-renewal Severance Period" shall have the meaning set forth in
Section 10 (d) below.
(i) "Original Term of Employment" shall have the meaning set forth in
Section 2 below.
(j) "MIP" shall have the meaning set forth in Section 5 below.
(k) "Renewal Term" shall have the meaning set forth in Section 2 below.
(l) "Restriction Period" shall have the meaning set forth in Section 12
below.
(m) "SERP I" shall have the meaning set forth in Section 7 below.
(n) "Severance Period" shall have the meaning set forth in Section
10(c)(ii) below.
(o) "Subsidiary" shall have the meaning set forth in Section 11 below.
(p) "Term of Employment" shall have the meaning set forth in Section 2
below.
(q) Termination Without Cause" shall have the meaning set forth in Section
10 (c) below.
2. Term of Employment.
(a) The term of the Executive's employment under this Agreement shall
commence immediately upon the execution of this Agreement (the "Effective Date")
and end on the fifth anniversary of such date (the "Original Term of
Employment"). The Original Term of Employment shall be automatically renewed for
successive one-year terms (the "Renewal Terms") unless at least 180 days prior
to the expiration of the Original Term of Employment or any Renewal Term, either
Party notifies the other Party in writing that he or it is electing to terminate
this Agreement at the expiration of the then current Term of Employment. "Term
of Employment" shall mean the Original Term of Employment and all Renewal Terms.
(b) In the event that this Agreement is not renewed because the Company has
given the 180-day notice prescribed in the preceding paragraph on or before the
expiration of the Original Term of Employment or any Renewal Term, such
non-renewal shall be treated as a termination following non-renewal pursuant to
Section 10 (d) below.
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(c) Notwithstanding anything in this Agreement to the contrary, at least
one year prior to the expiration of the Original Term of Employment, the Parties
shall meet to discuss this Agreement and may agree in writing to modify any of
the terms of this Agreement.
3. Position, Duties and Responsibilities.
(a) Commencing on the Effective Date and continuing for the remainder of
the Term of Employment, unless the Parties otherwise agree, the Executive shall
be employed as the Executive Vice President of the Company and shall report to
the President of the Company.
(b) Anything herein to the contrary notwithstanding, nothing in this
Agreement shall preclude the Executive from (i) serving on the boards of
directors of a reasonable number of other corporations or the boards of a
reasonable number of trade associations and/or charitable organizations, (ii)
engaging in charitable activities and community affairs, and (iii) managing his
personal investment and affairs, provided that such activities do not materially
interfere with the proper performance of his duties and responsibilities under
this Agreement.
4. Base Salary.
The Executive shall be paid an annualized salary, payable in accordance
with the regular payroll practices of the Company, of not less than $660,000,
subject to annual review for increase at the discretion of the Compensation
Committee of the Board.
5. Annual Incentive Awards.
The Executive shall participate in the Company's Profit Incentive Plan
("MIP") with a target bonus opportunity of no less than 42% of Base Salary or in
a successor plan to MIP with an equivalent opportunity. Payment of annual
incentive awards shall be made at the same time that other senior-level
executives receive their incentive awards.
6. Long-Term Stock Incentive Programs.
(a) General. The Executive shall be eligible to participate in and to
receive stock incentive awards under the current long-term stock incentive
programs of the Company and any successor programs.
(b) Stock Option Award. As part of the award approved by the Compensation
Committee of the Board on April 11, 1995, the Company has granted the Executive
an option pursuant to the terms
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and conditions set forth in the attached Exhibit A to purchase 200,000 shares of
common stock of the Company at an exercise price equal to the fair market value
of the shares on the date of grant, contingent on the execution of this
Agreement.
7. Employee Benefit Programs.
(a) General Benefits. During the Term of Employment, the Executive shall be
entitled to participate in such employee pension and welfare benefit plans and
programs of the Company as are made available to the Company's senior-level
executives or to its employees generally, as such plans or programs may be in
effect from time to time, including, without limitation, Future Fund, health,
medical, dental, salary continuation program, long-term disability, travel
accident and life insurance plans. In addition, the Executive shall be entitled
to 4 weeks of paid vacation per year.
(b) Designated Benefits. During the Term of Employment, the Executive shall
be entitled to participate in the Income Continuation Policy for Select Senior
Executives of the Company ("ICP") (which provides benefits to the Executive in
the event of a change in control of the Company), the Deferred Compensation Plan
and the Supplemental Retirement Plan I for Select Senior Management of the
Company ("SERP I"). For the purposes of SERP I, the Executive's SERP Incentive
Target shall be 42% of Base Salary. In addition, during the Term of Employment,
the Company shall, effective 1996, provide the Executive, in accordance with the
terms adopted by the Company, with personal financial and tax planning.
8. Disability.
(a) During the Term of Employment, as well as during the Severance Period,
the Executive shall be entitled to disability coverage as described in this
Section 8(a). In the event the Executive becomes disabled, as that term is
defined under the Company's Long-Term Disability Plan, the Executive shall be
entitled to receive, in place of his Base Salary, an amount equal to 60% of his
Base Salary, at the annual rate in effect at the commencement date of his
Company long-term disability benefit ("Commencement Date") for a period
beginning on the Commencement Date and ending with the earlier to occur of (A)
the Executive's attainment of age 65 or (B) the Executive's commencement of
benefits under SERP I upon his election to receive such benefits.
(b) The Executive shall be entitled to a pro rata annual incentive award
for the year in which the Commencement Date occurs based on 42% of Base Salary
paid to him during such year prior to the Commencement Date, payable in a lump
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<PAGE>
sum promptly after the Commencement Date. The Executive shall not be entitled to
any annual incentive award with respect to the period following the Commencement
Date.
(c) During the period the Executive is receiving disability benefits
pursuant to Section 8(a) above, he shall continue to be treated as an employee
for purposes of all employee benefits and entitlements in which he was
participating on the Commencement Date, including without limitation, the
benefits and entitlements referred to in Sections 6, 7(a) and 7(b) above, except
that the Executive shall not be entitled to receive annual salary increases or
any new stock incentive awards following the Commencement Date.
9. Reimbursement of Business and Other Expenses; Perquisites.
(a) The Executive is authorized to incur reasonable expenses in carrying
out his duties and responsibilities under this Agreement and the Company shall
promptly reimburse him for all business expenses incurred in connection
therewith, subject to documentation in accordance with the Company's policy.
(b) The Company shall pay all reasonable legal expenses up to $10,000
incurred by the Executive in connection with the negotiation of this Agreement.
(c) The Executive will be provided with a leased automobile and driver.
10. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's employment is
terminated due to his death, his estate or his beneficiaries, as the case may
be, shall be entitled to:
(i) Base Salary through the date of death;
(ii) pro rata annual incentive award for the year in which the
Executive's death occurs based on 42% of Base Salary for such year, payable in a
lump sum promptly after his death;
(iii) lapse of all restrictions on any restricted stock award
(including any performance-based restricted stock) outstanding at the time of
his death;
(iv) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of death;
(v) the right to exercise any stock option vested at the time of his
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<PAGE>
death for a period of one year following death or for the remainder of the
exercise period, if less;
(vi) the balance of any incentive awards earned (but not yet paid);
(vii) in the event that the Executive's death occurs before he has met
the age and service requirements of SERP I, the Company will provide his spouse
with an annuity pursuant to Section 3.03 of SERP I as if he had met such age and
service requirements at the time of his death;
(viii) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 7, 8 or 9 above; and
(ix) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
(b) Termination by the Company for Cause.
(i) "Cause" shall mean:
(A) the Executive is convicted of a felony involving moral
turpitude; or
(B) the Executive engages in conduct that constitutes willful
gross neglect or willful gross misconduct in carrying out his duties under this
Agreement, resulting, in either case, in material harm to the financial
condition or reputation of the Company.
(ii) A termination for Cause shall not take effect unless the
provisions of this paragraph (ii) are complied with. The Executive shall be
given written notice by the Company of its intention to terminate him for Cause,
such notice (A) to state in detail the particular act or acts or failure or
failures to act that constitute the grounds on which the proposed termination
for Cause is based and (B) to be given within six months of the Company's
learning of such act or acts or failure or failures to act. The Executive shall
have 10 days after the date that such written notice has been given to him in
which to cure such conduct, to the extent such cure is possible. If he fails to
cure such conduct, the Executive shall then be entitled to a hearing before the
Compensation Committee of the Board. Such hearing shall be held within 15 days
of such notice to the Executive, provided he requests such hearing within 10
days of the written notice from the Company of the intention to terminate him
for Cause. If, within five days following such hearing, the Executive is
furnished written notice by the Board confirming that, in its judgment, grounds
for Cause on the basis of the original notice exist, he shall thereupon be
terminated for Cause.
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(iii) In the event the Company terminates the Executive's employment
for Cause, he shall be entitled to:
(A) Base Salary through the date of the termination of his
employment for Cause;
(B) any incentive awards earned (but not yet paid);
(C) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 7, 8 or 9 above; and
(D) other or additional benefits then due or earned in accordance
with applicable plans or programs of the Company.
(c) Termination Without Cause or Constructive Termination Without Cause. In
the event the Executive's employment is terminated without Cause (which
termination shall be effective as of the date specified by the Company in a
written notice to the Executive), other than due to death, or in the event there
is a Constructive Termination Without Cause (as defined below), the Executive
shall be entitled to and his sole remedies under this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in Base
Salary is the basis for a Constructive Termination Without Cause, then the Base
Salary in effect immediately prior to such reduction), for a period of 24 months
following such termination (the "Severance Period"); provided that the salary
continuation payment under this Section 10(c)(ii) shall be in lieu of any salary
continuation arrangements under any other severance program of the Company or
any other agreement between the Executive and the Company;
(iii) pro rata annual incentive award for the year in which
termination occurs based on 42% of Base Salary, payable in a lump sum promptly
following termination;
(iv) an amount equal to 42% of Base Salary multiplied by two, payable
in equal monthly payments over the Severance Period;
(v) lapse of all restrictions on any restricted stock award (including
any performance-based restricted stock) outstanding at the time of such
termination of employment;
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<PAGE>
(vi) Company common stock, issued without restrictions, equal to any
outstanding award of contingent shares as of the date of termination;
(vii) the right to exercise any stock option held by the Executive at
the date of his termination (with any option not yet exercisable becoming vested
during the Severance Period in accordance with its original schedule), such
option to remain exercisable during the Severance Period and for 90 days
thereafter or for the remainder of the exercise period if less, provided,
however, that options granted pursuant to the Company's 1987 Stock Option Plan
shall in no event be exercisable after three years following termination and
provided further that the Executive shall not be entitled to receive any
additional stock incentive awards during the Severance Period;
(viii) the balance of any incentive awards earned (but not yet paid);
(ix) any amounts earned, accrued or owing to the Executive but not yet
paid under Section 7, 8 or 9 above;
(x) in the event that his Termination without Cause or Constructive
Termination Without Cause occurs before the Executive has met the age and
service requirements of SERP I, the Company will provide the Executive at age 55
with an Annual Benefit equal to 25% of Compensation (as such terms are defined
in SERP I);
(xi) continued participation in all medical, dental, health and life
insurance plans and in other employee benefit plans or programs (but excluding
SERP I and Future Fund) at the same benefit level at which he was participating
on the date of the termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such coverage
and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit,
basis); provided that (x) if the Executive is precluded from continuing his
participation in any employee benefit plan or program as provided in this clause
(xi) of this Section 10(c), he shall receive cash payments equal on an after-tax
basis to the cost to him of obtaining the benefits provided under the plan or
program in which he is unable to participate for the period specified in this
clause (xi) of this Section 10(c), (y) such cost shall be deemed to be the
lowest cost that would be incurred by the Executive in obtaining such benefit
himself on an individual basis, and (z) payment of such amounts shall be made
quarterly in advance; and
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(xii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
"Termination Without Cause" shall mean the Executive's employment is
terminated by the Company for any reason other than cause (as defined in Section
10 (b)) or due to death.
"Constructive Termination Without Cause" shall mean a termination of
the Executive's employment at his initiative as provided in this Section 10(c)
following the occurrence, without the Executive's written consent, of one or
more of the following events (except as a result of a prior termination):
(A) a reduction in the Executive's then current Base Salary or
his target bonus opportunity under MIP or any successor plan;
(B) the loss of any of the Executive's titles or positions;
(C) a material diminution in the Executive's duties or the
assignment to the Executive of duties which are materially inconsistent with his
duties; or
(D) a "Benefit Event" as defined in paragraph 4 or 5 of Section
4.02(a) of the ICP, unless within 15 days of such event the Company obtains the
written agreement of any person or entity to which the assets or business
involved in such Benefit Event are transferred to perform all the obligations of
this Agreement, or such person or entity is otherwise bound by operation of law
to perform all the obligations of this Agreement.
Notwithstanding the provisions of this Section 10(c), in the
event that the Executive receives a payment under Section 4.02(b) of the ICP,
the amounts due under Sections 10(c)(ii) and (iv) above shall be reduced by the
amount of such payment, such reduction to be effected by eliminating
installments due under Sections 10(c)(ii) and (iv) above in reverse order.
Notwithstanding the elimination of such installments, the Severance Period shall
continue to be 24 months.
(d) Termination following Non-renewal. In the event that the Company
notifies the Executive in writing at least 180 days prior to the expiration of
the Original Term of Employment or any Renewal Term that it is electing to
terminate this Agreement at the expiration of the then current Term of
Employment and the Executive's employment terminates upon such expiration at the
Company's initiative, the Executive shall be entitled to:
(i) Base salary through the date of termination of the Executive's
employment;
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<PAGE>
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment, for a period of 18 months following
such termination (the "Non-renewal Severance Period"); provided that the salary
continuation payment under this Section 10 (d) (ii) shall be in lieu of any
salary continuation arrangements under any other severance program of the
Company or any other agreement between the Executive and the Company;
(iii) pro rata annual incentive award for the year in which
termination occurs based on 42% of Base Salary, payable in a lump sum promptly
following termination;
(iv) the right to exercise any stock option held by the Executive at
the date of his termination to the extent vested at such date during the
Non-renewal Severance Period and for 90 days thereafter or for the remainder of
the exercise period if less, provided, however, that the Executive shall not be
entitled to receive any additional stock incentive awards during the Non-renewal
Severance Period;
(v) the balance of any incentive awards earned (but not yet paid);
(vi) any amounts earned, accrued or owing to the Executive but not yet
paid under Section 7, 8 or 9 above;
(vii) continued participation in all medical and dental plans at the
same benefit level at which he was participating on the date of the termination
of his employment until the earlier of:
(A) the end of the Non-renewal Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent employer (such coverage
and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit,
basis);
provided that (x) if the Executive is precluded from continuing his
participation in any employee benefit plan or program as provided in this clause
(vii) of this Section 10 (d), he shall receive cash payment equal on an
after-tax basis to the cost to him of obtaining the benefits provided under the
plan or program in which he is unable to participate for the period specified in
this clause (vii) of this Section 10 (d), (y) such cost shall be deemed to be
the lowest cost that would be incurred by the Executive in obtaining such
benefit himself on an individual basis, and (z) payment of such amounts shall be
made quarterly in advance; and
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(viii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
(e) Voluntary Termination. In the event of a termination of employment by
the Executive on his own initiative, other than a termination due to death or a
Constructive Termination Without Cause, the Executive shall have the same
entitlements as provided in Section 10(b)(iii) above for a termination for
Cause, provided that at the Company's election, furnished in writing to the
Executive within 30 days following such termination, the Company shall in
addition pay the Executive 50% of his Base Salary for a period of 18 months
following such termination. A voluntary termination under this Section 10(d)
shall be effective upon 30 days prior written notice to the Company or such
shorter period as may be determined by the Company and shall not be deemed a
breach of this Agreement.
(f) No Mitigation; No Offset. In the event of any termination of employment
under this Section 10, the Executive shall be under no obligation to seek other
employment; amounts due the Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that he may
obtain.
(g) Nature of Payments. Any amounts due under this Section 10 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
(h) Exclusivity of Severance Payments. Upon termination of the Executive's
employment during the Term of Employment, he shall not be entitled to any
severance payments or severance benefits from the Company or any payments by the
Company on account of any claim by him of wrongful termination, including claims
under any federal, state or local human and civil rights or labor laws, other
than the payments and benefits provided in this Section 10.
11. Confidentiality.
(a) During the Term of Employment and thereafter, the Executive shall not,
without the prior written consent of the Company, disclose to anyone other than
employees of the Company or any Subsidiary (as defined below) who agree to keep
such information confidential or make use of any Confidential Information,
except when required to do so by a court of law, by any governmental agency
having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) that orders
him to divulge, disclose or make accessible such information. In the event that
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<PAGE>
the Executive is so ordered, he shall give prompt written notice to the Company
in order to allow the Company the opportunity to object to or otherwise resist
such order.
(b) During the Term of Employment and thereafter, Executive shall not
disclose the existence or contents of this Agreement unless and to the extent
such disclosure is required by law, by a governmental agency, or in a document
required by law to be filed with a governmental agency. In the event that
disclosure is so required, the Executive shall give prompt written notice to the
Company in order to allow the Company the opportunity to object to or otherwise
resist such requirement. This restriction shall not apply to such disclosure by
him to members of his immediate family, his tax, legal or financial advisors,
any lender, or tax authorities, each of whom shall be advised and agree not to
disclose such information.
(c) "Confidential Information" shall mean all information that is not known
or available to the public concerning the business of the Company or any
Subsidiary relating to any of their products, product development, trade
secrets, customers, suppliers, finances, and business plans and strategies. For
this purpose, information known or available generally within the trade or
industry of the Company or any Subsidiary shall be deemed to be known or
available to the public. Confidential Information shall include information that
is, or becomes, known to the public as a result of a breach by the Executive of
the provisions of Section 11(a) above.
(d) "Subsidiary" shall mean any corporation controlled directly or
indirectly by the Company and any affiliate of the Company.
12. Non-competition.
(a) During the Restriction Period (as defined in Section 12(b) below), the
Executive shall not engage in competition with the Company or any Subsidiary.
"Competition" shall mean engaging in any activity for a "Competitor" of the
Company or any Subsidiary, whether as an employee, consultant, partner,
principal, agent, officer, director, partner, shareholder (except as a less than
one percent shareholder of a publicly traded company) or otherwise. A
"Competitor" shall mean (i) Bed, Bath & Beyond, Stroud's, Home Express, Pacific
Linens, Lee Jay Bed & Bath, Linens too Wares, 3D Linens, Home Place, Home Goods,
Sears, and JC Penney and (ii) any other corporation or other entity or start-up
corporation or entity that is engaged in any business in the United States in
which the Company or any Subsidiary was engaged during the Term of Employment
and is engaged at the time in question.
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(b) For the purposes of this Section 12 and Section 13 below, "Restriction
Period" shall mean the period beginning with the Effective Date and ending with
(i) in the case of a termination of the Executive's employment without
Cause or a Constructive Termination Without Cause, the end of the Severance
Period;
(ii) in the case of a termination of the Executive's employment for
Cause, the first anniversary of such termination;
(iii) in the case of a termination of the Executive's employment upon
the expiration of the Original Term of Employment or any Renewal Term that
results in the commencement of the Non-renewal Severance Period pursuant to
Section 10 (d) above, the end of the Non-renewal Severance Period:
(iv) in the case of a voluntary termination of the Executive's
employment pursuant to Section 10(e) above followed by the Company's election to
pay the Executive 50% of Base Salary as provided in Section 10(e) above, the end
of the 18-month period following such termination; or
(v) in the case of a voluntary termination of the Executive's
employment pursuant to Section 10(e) above which is not followed by the
Company's election to pay the Executive such 50% of Base Salary, the date of
such termination.
13. Non-solicitation of Employees.
During the portion of the Restriction Period following the termination of
the Executive's employment, the Executive shall not induce employees of the
Company or any Subsidiary to terminate their employment. During the portion of
the Restriction Period following the termination of the Executive's employment,
the Executive shall not directly or indirectly hire any employee of the Company
or any Subsidiary or any person who was employed by the Company within 180 days
of such hiring.
14. Remedies.
In addition to whatever other rights and remedies the Company may have at
equity or in law, if the Executive breaches any of the provisions contained in
Section 11, 12 or 13 above, the Company (a) shall have the right to immediately
terminate all payments and benefits due under this Agreement and (b) shall have
the right to seek injunctive relief. The Executive acknowledges that such a
breach would cause irreparable injury and that money damages would not provide
an adequate remedy for the Company.
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15. Resolution of Disputes.
Any disputes arising under or in connection with this Agreement shall be
resolved by binding arbitration, to be held at the location of the Company's
principal offices in accordance with the rules and procedures of the American
Arbitration Association, except that disputes arising under or in connection
with Section 11, 12 and 13 above shall be submitted to the federal or state
courts in the State of New York. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Each
Party shall bear his or its own costs of the arbitration or litigation,
including, without limitation, attorneys' fees. Pending the resolution of any
arbitration or court proceeding, the Company shall continue payment of all
amounts and benefits due the Executive under this Agreement.
16. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or any
Subsidiary or is or was serving at the request of the Company or any Subsidiary
as a director, officer, member, employee or agent of another corporation,
partner ship, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is the Executive's alleged action in an official capacity while serving as a
director, officer, member, employee or agent, the Executive shall be indemnified
and held harmless by the Company to the fullest extent legally permitted or
authorized by the Company's certificate of incorporation or bylaws or
resolutions of the Company's Board of Directors or, if greater, by the laws of
the State of New York, against all cost, expense, liability and loss (including,
without limitation, attorney's fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Executive in connection therewith, and such indemnification
shall continue as to the Executive even if he has ceased to be a director,
member, officer, employee or agent of the Company or other entity and shall
inure to the benefit of the Executive's heirs, executors and administrators. The
Company shall advance to the Executive all reasonable costs and expenses
incurred by him in connection with a Proceeding within 20 days after receipt by
the Company of a written request for such advance. Such request shall include an
undertaking by the Executive to repay the amount of such advance if it shall
ultimately be determined that he is not entitled to be indemnified against such
costs and expenses.
(b) Neither the failure of the Company (including its board of directors,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any
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proceeding concerning payment of amounts claimed by the Executive under Section
16(a) above that indemnification of the Executive is proper because he has met
the applicable standard of conduct, nor a determination by the Company
(including its board of directors, independent legal counsel or stockholders)
that the Executive has not met such applicable standard of conduct, shall create
a presumption that the Executive has not met the applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and officers'
liability insurance policy covering the Executive to the extent the Company
provides such coverage for its other executive officers.
17. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of this
Agreement shall not be interpreted to preclude, prohibit or restrict the
Executive's participation in any other employee benefit or other plans or
programs in which he currently participates.
18. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and permitted assigns. No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred in connection with the sale or
transfer of all or substantially all of the assets of the Company, provided that
the assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale or transfer of assets as described in the preceding sentence, it
shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder. No rights or obligations of the Executive under this
Agreement may be assigned or transferred by the Executive other than his rights
to compensation and benefits, which may be transferred only by will or operation
of law, except as provided in Section 24 below.
19. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
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20. Entire Agreement.
This Agreement contains the entire understanding and agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto.
21. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
22. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
re main in full force and effect to the fullest extent permitted by law.
23. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
24. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
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25. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed to have
been given when delivered person ally or sent by certified or registered mail,
postage pre paid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Melville Corporation
One Theall Road
Rye, New York 10580
Attention: Chairman
If to the Executive: Mr. Jerry Politzer
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
Melville Corporation
By: /s/ Stanley P. Goldstein
------------------------------
Stanley P. Goldstein
/s/ Jerry Politzer
--------------------------------
Mr. Jerry Politzer
18
Exhibit 11
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
($ and shares in thousands, except per share data)
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, December 31, December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
- --------------------------------------------------------
PRIMARY (LOSS) EARNINGS PER COMMON SHARE:
- --------------------------------------------------------
Net (loss) earnings ($657,106) $307,470 $331,790
Less: Preferred dividends, net 16,964 17,027 16,807
----------------- ---------------- ----------------
Net (loss) earnings used to calculate
primary (loss) earnings per share ($674,070) $290,443 $314,983
================= ================ ================
Weighted average number of shares outstanding 105,081 105,481 105,069
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 18 47 281
----------------- ---------------- ----------------
Weighted average number of shares used to
compute primary (loss) earnings per share 105,099 105,528 105,350
================= ================ ================
Primary (loss) earnings per share ($6.41) $2.75 $2.99
================= ================ ================
- --------------------------------------------------------
FULLY DILUTED (LOSS) EARNINGS PER COMMON SHARE:
- --------------------------------------------------------
Net (loss) earnings ($657,106) $307,470 $331,790
Less: Preferred dividends 53 53 53
----------------- ---------------- ----------------
Net (loss) earnings used to calculate fully diluted
(loss) earnings per share, before adjustments (657,159) 307,417 331,737
Less: Adjustments resulting principally from the
assumed conversion of the Series One ESOP
Convertible Preference Stock, net of tax benefit (1,213) 557 510
----------------- ---------------- ----------------
Net (loss) earnings used to calculate fully diluted
(loss) earnings per share ($655,946) $306,860 $331,227
================= ================ ================
Weighted average number of shares used to
compute primary (loss) earnings per share 105,081 105,481 105,069
Add: Weighted average shares of Series One
Convertible Preference Stock assuming
conversion 7,344 7,339 6,830
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 19 47 293
Add: Weighted average number of shares which
could have been issued upon conversion of
4 7/8% debentures 3 3 6
----------------- ---------------- ----------------
Weighted average number of shares used to compute
fully diluted (loss) earnings per share 112,447 112,870 112,198
================= ================ ================
Fully diluted (loss) earnings per share ($5.83) $2.72 $2.95
================= ================ ================
</TABLE>
Exhibit 12
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Computation of Ratio of Earnings to Fixed Charges
($ in thousands)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed Charges: (1)
Interest Expense $55,334 $33,453 $25,586 $25,605 $31,055
Interest Capitalized 155 305 583 124 748
Interest Portion of Operating Leases 162,000 147,000 139,000 131,000 124,000
Interest Portion of Capital Leases 2,192 2,775 3,118 3,725 4,154
Amortization of Debt Expense 128 128 128 127 127
--------------- -------------- -------------- ------------- --------------
Total Fixed Charges $219,809 $183,661 $168,415 $160,581 $160,084
=============== ============== ============== ============= ==============
Adjusted Fixed Charges:
Total Fixed Charges $219,809 $183,661 $168,415 $160,581 $160,084
Interest Capitalized 155 305 583 124 748
--------------- -------------- -------------- ------------- --------------
Adjusted Fixed Charges $219,654 $183,356 $167,832 $160,457 $159,336
=============== ============== ============== ============= ==============
(Loss) Earnings:
(Loss) Earnings before Income Taxes,
Minority Interests and Cumulative
Effect of Change in Accounting
Principle (2) (3) ($797,768) $417,879 $432,247 $242,764 $475,832
Adjusted Fixed Charges 219,654 183,356 167,832 160,457 159,336
--------------- -------------- -------------- ------------- --------------
($578,114) $601,235 $600,079 $403,221 $635,168
=============== ============== ============== ============= ==============
Ratio of (Loss) Earnings to
Fixed Charges (2.63) 3.27 3.56 2.51 3.97
=============== ============== ============== ============= ==============
</TABLE>
Note: All periods presented exclude the results of the footwear segment, which
has been treated as discontinued operations due to its spin-off to shareholders
in 1996.
(1) The Company formed an Employee Stock Ownership Plan effective January 1,
1989. On June 23, 1989, the ESOP Trust borrowed $357.5 million from
qualified lenders, the proceeds of which were used to purchase a new series
of preference stock issued by the Company. The loan to the ESOP Trust has
been guaranteed by the Company. Annualized dividends on preference stock
totaled $24.3 million in 1995, $24.9 million in 1994, $25.3 million in
1993, $25.8 million in 1992 and $26.0 million in 1991. These amounts are
not reflected in the calculation above.
(2) 1992 reflects the impact of the strategic realignment charge of $346,979.
(3) 1995 reflects the impact of the restructuring and asset impairment charges
of $936,829.
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
RESULTS OF THE STRATEGIC REVIEW
In last year's Annual Report the Company announced the initiation of a strategic
review, the objective of which was to increase the Company's sales and profits
by examining its mix of businesses. This review resulted in the development of a
comprehensive strategic program (the "Program") which was announced on October
24, 1995. The primary components of the Program, which management expects to be
completed by the summer of 1996, are:
o the creation of three independent, publicly-traded retailing companies in
the chain drug, footwear and toy industries;
o a revision of the Company's dividend to align payout ratios with each of
the newly created entities' growth and capital needs as well as the prevailing
practice in its industry;
o the recording in the fourth quarter of an after-tax charge of $753.1
million ($235.8 million of which related to goodwill) which was comprised of the
following components:
o $434.3 million for the estimated loss on sale of Marshalls, This End Up
and Wilsons;
o $166.8 million for asset write-offs and severance costs associated with
the strategic decisions to reposition and integrate certain divisions; to close
the corporate headquarters; and to outsource data processing and
telecommunications functions;
o $90.6 million for the early adoption of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Fixed Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS No. 121"); and
o $61.4 million for estimated tenancy and severance costs associated with
the closure of 330 stores as well as several warehouses.
The Company also changed its accounting policy to expense internally
developed software costs that were previously capitalized. After taxes, a charge
of $45.9 million was recorded in the first quarter of 1995 in connection with
this change.
CREATION OF THREE INDEPENDENT COMPANIES
Upon completion of the Program, the following three companies will exist, each
of which will be adequately capitalized to ensure that they will have the
resources to finance their ongoing growth and to excel as free-standing units:
The Chain Drug Holding Company: This company will consist of CVS and,
initially, Linens 'n Things and Bob's (as well as various corporate entities).
Approximately 85% of this company's revenue will be derived from CVS.
The Footwear Company: This company will be comprised of Meldisco,
Footaction and Thom McAn. Pending receipt of a favorable determination that a
distribution to shareholders would be tax free, this new company will be
spun-off during the summer of 1996. The back office operations of Thom McAn will
be integrated into those of Meldisco prior to the spin-off. Meldisco, whose
revenues will comprise 65% of the total company, primarily operates leased
footwear departments in Kmart discount stores. The Company has sought, and
expects to obtain, consent from Kmart to execute this transaction.
The Toy Store Company: Comprised of the Kay-Bee division, it is expected
that this entity will be independent by the summer of 1996.
REVISED DIVIDEND
On January 10, 1996, the Board of Directors approved a reduction in the
quarterly dividend from $0.38 per share to $0.11 per share. Management believes
that this rate is consistent with both anticipated capital requirements and
industry practice of the Chain Drug Holding Company. No decisions have been made
regarding the future dividend policies of the Footwear and Toy Store companies.
SALES OF BUSINESSES
The sale of Marshalls was completed on November 17, 1995. The Company is
currently negotiating the sales of Wilsons and This End Up. These transactions
are anticipated to be completed by the summer of 1996.
STORE CLOSURE PROGRAM
As of January 31, 1996 the Company has closed approximately 270 stores and
expects to close the balance of the designated stores as leases expire
throughout 1996.
IMPACT OF THE PROGRAM ON PROFITABILITY
As a result of these collective actions, the Company expects that the net cash
flow impact of the Program will be positive. Furthermore, among the three
independent companies, pre-tax profit improvement of approximately $100 million
is expected over the next two years. These savings will be derived principally
from reductions in corporate overhead, interest expense and depreciation and
amortization expenses due to the write-off of goodwill, impaired assets and
internally developed software costs.
18
<PAGE>
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
($ in millions, except
per share amounts) 1995 1994 1993
- --------------------------------------------------------------------------------
Net sales $ 9,689.1 $ 9,445.7 $ 8,722.3
Same store sales increase 2.2% 3.5% 0.7%
- --------------------------------------------------------------------------------
Operating profit before
special charges $ 194.0 $ 450.3 $ 456.0
Restructuring and asset
impairment charges 936.8 -- --
Operating (loss) profit (742.8) 450.3 456.0
Net earnings from
continuing operations
before special charges
and accounting change 48.1 243.6 262.6
Net earnings before
special charges and
accounting change 100.1 307.5 331.8
- --------------------------------------------------------------------------------
Net (loss) earnings $ (657.1) $ 307.5 $ 331.8
- --------------------------------------------------------------------------------
Earnings per share from
continuing operations
before special charges
and accounting change 0.30 2.15 2.33
Net earnings per share
before special charges
and accounting
change 0.79 2.75 3.00
- --------------------------------------------------------------------------------
Net (loss) earnings per share $ (6.41) $ 2.75 $ 3.00
- --------------------------------------------------------------------------------
Percentage of net sales
- --------------------------------------------------------------------------------
Cost of goods sold,
buying and
warehousing costs 67.9 66.0 65.6
Selling, general and
administrative expenses 28.1 27.3 27.2
- --------------------------------------------------------------------------------
Net sales including
discontinued
operations $11,516.4 $11,285.6 $10,435.4
Same store sales increase
including discontinued
operations 1.4% 3.3% 0.1%
- --------------------------------------------------------------------------------
NET SALES
Consolidated net sales reported were adjusted to exclude the footwear segment
due to the Company's plan to spin it off in 1996. Sales in 1995 also exclude
Marshalls after its disposition on November 17, 1995. Adjusting for Marshalls to
exclude non-comparable periods, net sales from continuing operations increased
8.2% over 1994, while total company sales, including the footwear segment,
increased 6.7%.
CVS, Linens 'n Things, Footaction and Kay-Bee generated positive sales
growth throughout 1995, while disappointing performances at Marshalls and
Wilsons offset these improvements.
Net sales for the fourth quarter of 1995, which had one more selling day
than the fourth quarter of 1994, increased 8.5%, after adjusting for the
disposition of Marshalls and the exclusion of the footwear segment.
Net sales for 1994 exclude the results of Chess King, Accessory Lady and
Prints Plus, which were sold in 1993. Adjusting for these dispositions, the
increase in net sales over 1993 was 9.4% for the year and 4.4% for the fourth
quarter. Net sales in 1994 benefitted from strong performances at CVS, Kay-Bee
and Linens 'n Things, while lower sales at Wilsons and Thom McAn partially
offset these positive results.
Net sales in 1993 were impacted by the three dispositions and the exclusion
of stores closed as part of the 1992 strategic realignment program. Adjusting
for these factors, sales increased 4.8% over 1992 levels.
Increases in net sales differ from those of same store sales due to store
openings, store closings, dispositions and acquisitions. The 1995 same store
sales increase was due primarily to very strong performances at CVS and
Footaction offset by poor results at Marshalls and Wilsons.
Net Earnings
Net earnings in 1995 were significantly impacted by the restructuring and asset
impairment charges ("special charges"), the change in accounting for internally
developed software costs and other asset write-offs related to the repositioning
of the Company and certain one-time charges. The one-time charges primarily
relate to lease settlement costs, severance related costs, markdowns related to
discontinued product lines and costs to outsource telecommunications and data
processing functions. The lease settlement costs result principally from
guarantees of Chess King stores sold to Merry-Go-Round Enterprises, which filed
for a Chapter 7 liquidation in January, 1996. Adjusting net earnings to exclude
the impact of all of these charges, earnings per share would have been $1.26 as
compared to $2.75 in 1994.
Net earnings per share excluding special charges, the effect of the
accounting change, one-time costs and asset write-offs declined in 1995, despite
an exceptionally strong performance at CVS and significant increases at Linens
'n Things and Kay-Bee, principally due to operating losses at Marshalls and Thom
McAn. Excluding Marshalls, as well as the charges noted above, net earnings per
share in 1995 would have been $1.74.
In 1994, net earnings were negatively impacted by disappointing
performances in the apparel and footwear segments and by a reserve recorded for
anticipated lease settlement costs related to guarantees of stores sold to
companies which subsequently filed for bankruptcy protection.
Net earnings in 1993 were favorably impacted by $10.0 million due to a
change in accounting for LIFO inventories. This was offset by a decline in gross
margin at CVS, unfavorable performances in the apparel segment and the recording
of a reserve for the loss on sale of a note received for the sale of Chess King.
19
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
COSTS AND EXPENSES
Cost of goods sold, buying and warehousing costs continue to increase as a
percentage of sales, reflecting the increased proportion of the prescription
drugs, health and beauty care segment to total operations, compounded by
continued pressure on third party providers to offer prescriptions at lower
prices. In addition, lower initial markon and increased markdowns in our other
segments, particularly in connection with the store closing program and the poor
performance of Marshalls, have contributed to the erosion of gross margin.
Selling, general and administrative expenses increased as a percentage of
consolidated net sales in 1995 as a result of asset write-offs and one-time
costs, as well as from fixed costs which were not adequately leveraged due to
sales shortfalls at several divisions and the lost sales volume due to the
divestiture of Marshalls before the Christmas selling season. The increase in
1994 resulted from the impact of sales shortfalls while also including lease
settlement costs related to guarantees of Chess King and Freddy's stores.
ACCOUNTING CHANGES
The Company early adopted SFAS No. 121 effective October 1, 1995. This statement
applies to long-lived assets, identifiable intangibles and goodwill, and
specifies that their carrying values must be reviewed for impairment whenever
events or changes in circumstances indicate that they may not be recoverable. In
such an event, the future cash flows expected from the utilization of the asset
must be estimated and, if less than the carrying value of the asset, an
impairment loss must be recognized. In connection with the adoption of this
statement, the Company recorded a pre-tax charge of $110.4 million (of which
$99.6 million related to continuing operations) related to the write-down of
fixed and intangible assets.
The Company has changed its policy regarding internally developed software
costs, electing to expense all such costs as incurred. The Company believes that
this change results in a better matching of revenues and expenses. Accordingly,
an after-tax charge of $45.9 million was recorded ($42.0 million of which
pertained to continuing operations) to reflect the cumulative effect of this
change. The impact on 1995 as a result of this change, exclusive of the
cumulative effect, was to reduce net earnings by $4.8 million.
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Cash and cash
equivalents $ 129.6 $ 117.0 $ 81.0
Cash flows provided
by operating activities 345.5 498.4 435.9
Daily average of short-
term borrowings 756.1 567.4 464.8
Maximum short-term
borrowings 1,196.2 948.5 875.0
Short-term borrowings
outstanding at year end 52.0 200.0 90.0
Net interest expense 55.0 32.4 23.8
- --------------------------------------------------------------------------------
Ratios
- --------------------------------------------------------------------------------
Long-term obligations
to total capitalization 17.8% 12.8% 14.0%
Long-term obligations
to shareholders' equity 21.6% 14.7% 16.2%
Current ratio 1.4 1.6 1.8
- --------------------------------------------------------------------------------
The Company's primary source of liquidity is cash provided from its operations.
The earnings stream of the Company's businesses is skewed heavily to the fourth
quarter, when 70% of earnings are normally generated. Consequently, the Company
must finance its seasonal inventory needs and capital expenditures through
short-term borrowings, primarily commercial paper issuances, at substantially
higher levels throughout the year than are reflected on the year-end balance
sheets. Year-end borrowing levels were lower in 1995 as compared to 1994 due to
the receipt of $375.0 million in cash in connection with the sale of Marshalls
on November 17, 1995. Average borrowings were higher in 1995 than in 1994 due to
operating losses sustained by Marshalls and Thom McAn and the disappointing
performances of several other businesses which generated lower than expected
cash flows.
Net interest expense is a function of interest rates and short-term
borrowing levels. The increase in net interest expense in 1995 relative to 1994
reflects higher short-term borrowings and higher interest rates, offset by the
cash received for Marshalls and lower capital expenditures. Prior to the
spin-off of the Footwear Company in 1996, the Company expects to pay to Kmart
its undistributed minority interests in net earnings of Meldisco. Such
distribution will have no impact on net earnings, but will require a cash outlay
of approximately $50.0 million.
Current assets decreased by $90.6 million, due primarily to the sale of
Marshalls, offset by the current and deferred tax impact of the special charges
and other asset write-offs recorded in 1995, and receivable and investment
balances recorded in connection with the disposition. The increase in
inventories, excluding the impact of Marshalls, is due to new store openings,
opportunistic purchases and increased stock levels required for our larger store
formats.
20
<PAGE>
Current liabilities increased due predominantly to restructuring accruals
recorded in 1995, offset by lower short term borrowings and the recording of tax
refunds receivable as compared to a liability in 1994. Accounts payable
increased as a percentage of inventories due to improvements in inventory aging.
CAPITAL EXPENDITURES
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Capital expenditures $395.0 $421.4 $386.7
- --------------------------------------------------------------------------------
Expenditures in all years were principally for improvements to new and existing
store locations, store equipment and information systems. Capital expenditures
for the continuing companies in 1996 are estimated at $290.0 million, of which
$195.0 million pertains to the Chain Drug Holding Company, and are primarily for
new store openings, continuing improvements to stores and continued investments
in information systems and distribution centers.
PRESCRIPTION DRUGS, HEALTH AND BEAUTY CARE
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Net sales $ 4,865.0 $ 4,330.1 $ 3,948.2
Operating profit before
special charges 273.5 227.7 195.7
Operating profit 252.7 227.7 195.7
- --------------------------------------------------------------------------------
Percent change from prior year
- --------------------------------------------------------------------------------
Net sales 12.4 9.7 8.7
Same store sales 8.8 6.0 5.7
Operating profit before
special charges 20.1 16.3 (6.2)
Operating profit 11.0 16.3 31.2
- --------------------------------------------------------------------------------
Percent of total continuing operations*
- --------------------------------------------------------------------------------
Net sales 50.2 45.8 45.3
Operating profit* 104.2 46.6 41.9
- --------------------------------------------------------------------------------
* Before corporate expenses and special charges.
CVS achieved very favorable increases in both net sales and same store sales in
1995 and 1994. Lower margined pharmacy sales increased 16.9% in 1995 and 14.7%
in 1994 due to an expansion of the company's managed care business and its
ability to capitalize on its dominant market share. Various micro-marketing
initiatives, and an expansion of private label merchandise lines, also helped to
increase front store sales.
Net sales in 1993 reflect the success of the "Peoples Celebration Event"
launched in late May, 1993 to reintroduce these stores to the Washington, D.C.
market.
Operating profit before special charges improved in 1995 despite the
further growth in pharmacy sales as operating efficiencies and strong same store
sales growth facilitated its leveraging of fixed costs.
Operating profit in 1994 increased as 1993 investments in technology
yielded lower operating costs and better inventory control, resulting in fewer
markdowns.
Special charges in 1995 related principally to the costs of closing stores
and several unproductive warehouses as well as asset impairment charges.
APPAREL
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Net sales $ 3,055.7 $ 3,538.9 $ 3,395.9
Operating (loss) profit before
special charges (72.6) 161.1 181.9
Operating (loss) profit (672.8) 161.1 181.9
- --------------------------------------------------------------------------------
Percent change from prior year
- --------------------------------------------------------------------------------
Net sales (13.7) 4.2 (2.6)
Same store sales (7.3) (1.5) (3.6)
Operating (loss) profit before
special charges (145.1) (11.5) (21.0)
Operating (loss) profit (517.6) (11.5) 44.5
- --------------------------------------------------------------------------------
Percent of total continuing operations*
- --------------------------------------------------------------------------------
Net sales 31.5 37.5 38.9
Operating profit* (27.7) 33.0 39.0
- --------------------------------------------------------------------------------
*Before corporate expenses and special charges.
The decline in same store sales for this segment was primarily due to the
weakness of off-price apparel sales which severely impacted Marshalls as
consumer spending continued to shift toward hard lines. Total sales for the
segment decreased due to the sale of Marshalls and store closings at Wilsons.
Adjusting for the disposition of Marshalls, net sales increased 0.2% over 1994.
Same store sales in 1994 were also impacted by changes in consumer
spending, whereby apparel sales slowed at Marshalls while gifts and domestics
departments experienced strong increases. The expansion of Bob's contributed to
the segment's growth while sales decreased at Wilsons due to unexpectedly warm
temperatures in fall and early winter.
The 1993 decrease in net sales was due primarily to the sale of Chess King
and Accessory Lady. Adjusting for the divisions sold, net sales in the segment
would have increased 2.3% in 1993.
The operating loss in 1995 resulted from the sale of Marshalls prior to the
profitable Christmas selling season, as well as higher markdowns throughout the
segment during the year and declining same store sales.
Operating profit decreased in 1994 because of lower same store sales and
gross margins resulting from the heightened promotional activity throughout the
apparel industry. This was partially offset by the exclusion of the unprofitable
Chess King division and strong control of variable expenses at both Marshalls
and Wilsons.
The special charges recorded in 1995 relate to the estimated loss on sale
for Marshalls and Wilsons (including $191.4 million of goodwill), the cost of
store closings and asset impairment charges.
21
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
TOYS AND HOME FURNISHINGS
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Net sales $ 1,768.4 $ 1,576.7 $ 1,378.2
Operating profit before
special charges 61.7 99.4 89.1
Operating (loss) profit (115.7) 99.4 89.1
- --------------------------------------------------------------------------------
Percent change from prior year
- --------------------------------------------------------------------------------
Net sales 12.2 14.4 (6.5)
Same store sales 1.7 8.3 (2.5)
Operating profit before
special charges (37.9) 11.5 (9.1)
Operating (loss) profit (216.4) 11.5 2,946.4
- --------------------------------------------------------------------------------
Percent of total continuing operations*
- --------------------------------------------------------------------------------
Net sales 18.3 16.7 15.8
Operating profit* 23.5 20.4 19.1
- --------------------------------------------------------------------------------
* Before corporate expenses and special charges.
The 1995 increase in net sales for this segment reflects the continued expansion
of Linens 'n Things superstores and its product offerings, and a solid
performance by Kay-Bee.
Significant increases in net sales were reported at Kay-Bee in 1994 as it
enjoyed a strong year in most merchandise categories, and at Linens 'n Things,
due to the rollout of its superstore format and increased consumer spending in
home furnishings and related products.
Sales in 1993 benefitted from strong performances at Linens 'n Things and
This End Up, offset by the disposition of Prints Plus and a decrease at Kay-Bee
due to the exclusion from operations of stores designated to be closed under the
1992 strategic realignment program and the lack of a "blockbuster" toy.
Adjusting for the stores excluded and sold, net sales in 1993 would have
increased 2.6% over 1992.
Operating profit before special charges declined due to startup costs of a
new distribution center for Linens 'n Things, higher markdowns to spur sales
growth and asset write-offs related to the repositioning of the companies in
connection with the Program.
Operating profit improved in 1994 because of very strong sales growth and
strict control of variable expenses. In addition, a favorable LIFO adjustment
offset the decrease in gross margin caused by the implementation of sharper
pricing strategies at Kay-Bee early in the year.
The 1995 special charges provided primarily for costs of store closings,
asset impairment charges and outsourcing of data processing functions.
FOOTWEAR (DISCONTINUED OPERATIONS)
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Net sales $ 1,827.3 $ 1,839.9 $ 1,713.1
Operating profit before
special charges 102.0 160.5 167.3
Operating profit 53.5 160.5 167.3
- --------------------------------------------------------------------------------
Percent change from prior year
- --------------------------------------------------------------------------------
Net sales (0.7) 7.4 (6.9)
Same store sales (2.4) 2.4 (2.5)
Operating profit before
special charges (36.5) (4.1) (8.0)
Operating profit (66.7) (4.1) 78.4
- --------------------------------------------------------------------------------
Despite the very strong growth experienced by Footaction, which posted a 13.1%
increase in same store sales, net sales declined in this segment during 1995.
This was due to the impact of store closures by Kmart which resulted in a sales
shortfall at Meldisco, and a disappointing performance at Thom McAn.
Net sales increases in 1994 at Meldisco and Footaction were offset by a
decline at Thom McAn, resulting from the discontinuation of its men's athletic
and children's departments in late 1993 as well as a reduction in its store base
due to its store closing program.
Net sales decreased in 1993 due to the exclusion from operations of stores
designated to be closed under the 1992 strategic realignment program and the
discontinuation of product lines. Adjusting for stores excluded at Thom McAn,
net sales for the segment would have increased 2.2% in 1993.
Operating profit before special charges declined in 1995 due mostly to an
operating loss sustained by Thom McAn as contraction of the chain, coupled with
increased markdowns, eroded store contribution levels. Additionally, the decline
in contribution from Meldisco, due to the Kmart closings, offset very positive
profit growth at Footaction.
Operating profit in 1994 decreased due to weak same store sales at Thom
McAn, increased markdowns throughout the segment and higher operating costs
incurred from the rapid rollout of Footaction superstores. In addition, about
$5.0 million of one-time costs, principally at Meldisco related to Kmart store
closings and other contingencies, negatively impacted profits.
The special charges recorded in 1995 provided for the costs of store
closings, the consolidation of back office operations of Thom McAn, the
outsourcing of data processing functions and asset impairment charges.
22
<PAGE>
- --------------------------------------------------------------------------------
Management's Responsibility
For Financial Reporting
- --------------------------------------------------------------------------------
The integrity and objectivity of the financial statements and related financial
information in this report are the responsibility of the management of the
Company. The financial statements have been prepared in conformity with
generally accepted accounting principles and include, when necessary, the best
estimates and judgments of management.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance, at appropriate cost, that assets are safeguarded,
transactions are executed in accordance with management's authorization, and the
accounting records provide a reliable basis for the preparation of the financial
statements. The system of internal accounting controls is continually reviewed
by management and improved and modified as necessary in response to changing
business conditions and recommendations of the Company's internal auditors and
independent auditors.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, meets periodically with management, internal auditors and the
independent auditors to review matters relating to the Company's financial
reporting, the adequacy of internal accounting controls and the scope and
results of audit work. The internal auditors and independent auditors have free
access to the Audit Committee.
KPMG Peat Marwick LLP, certified public accountants, are engaged to audit
the consolidated financial statements of the Company. Their Independent
Auditors' Report, which is based on an audit made in accordance with generally
accepted auditing standards, expresses an opinion as to the fair presentation of
these financial statements.
/s/ Stanley P. Goldstein /s/ Carlos E. Alberini
Stanley P. Goldstein Carlos E. Alberini
Chairman of the Board and Vice President and Acting
Chief Executive Officer Chief Financial Officer
February 15, 1996
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Melville Corporation:
We have audited the accompanying consolidated balance sheets of Melville
Corporation and subsidiary companies as of December 31, 1995 and 1994 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Melville
Corporation and subsidiary companies at December 31, 1995 and 1994 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in notes to consolidated financial statements, the Company has
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long - Lived Assets and for Long - Lived Assets to Be Disposed Of"
effective October 1, 1995, changed its policy for accounting for internally
developed software costs effective January 1, 1995 and changed its method of
determining retail price indices used in the valuation of LIFO inventories in
1993.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
February 15, 1996
23
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
(in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 9,689,062 $ 9,445,678 $ 8,722,308
Cost of goods sold, buying and warehousing costs 6,574,658 6,238,378 5,723,279
- ------------------------------------------------------------------------------------------------------------------------------------
3,114,404 3,207,300 2,999,029
- ------------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 2,722,621 2,576,680 2,372,362
Depreciation and amortization 197,745 180,356 170,651
Restructuring and asset impairment charges 936,829 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
3,857,195 2,757,036 2,543,013
- ------------------------------------------------------------------------------------------------------------------------------------
Operating (loss) profit (742,791) 450,264 456,016
Interest expense, net 54,977 32,385 23,769
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) earnings from continuing operations before income taxes and
cumulative effect of change in accounting principle (797,768) 417,879 432,247
Income tax (benefit) provision (182,070) 174,293 169,638
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) earnings from continuing operations before cumulative effect
of change in accounting principle (615,698) 243,586 262,609
Earnings from discontinued operations, net of income taxes of $10,952,
$44,448 and $50,803, and minority interests in net earnings of $38,351,
$51,895 and $47,296 547 63,884 69,181
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) earnings before cumulative effect of change in accounting principle (615,151) 307,470 331,790
Cumulative effect of change in accounting principle, net 41,955 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings $ (657,106) $ 307,470 $ 331,790
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share of Common Stock
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) earnings from continuing operations before cumulative
effect of change in accounting principle $ (6.02) $ 2.15 $ 2.33
Discontinued operations, net 0.01 0.60 0.67
(Loss) earnings before cumulative effect of change in
accounting principle (6.01) 2.75 3.00
Cumulative effect of change in accounting principle, net (0.40) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings per share of common stock $ (6.41) $ 2.75 $ 3.00
- ------------------------------------------------------------------------------------------------------------------------------------
Pro forma net earnings assuming retroactive application
of accounting change $ 291,552 $ 317,232
Per share of common stock $ 2.60 $ 2.86
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
(in thousands except for share amounts and per share data)
- --------------------------------------------------------------------------------
As of December 31 1995 1994
- --------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 129,583 $ 117,035
Investments 175,000 --
Accounts receivable, net 296,393 229,833
Inventories 1,672,957 2,138,243
Prepaid expenses 285,995 165,388
- --------------------------------------------------------------------------------
Total Current Assets 2,559,928 2,650,499
- --------------------------------------------------------------------------------
Property and equipment, net 1,114,404 1,526,922
Deferred charges and other assets 91,612 109,641
Goodwill, net of accumulated amortization
of $28,152 in 1995 and $94,987 in 1994 195,618 448,427
- --------------------------------------------------------------------------------
Total Assets $3,961,562 $4,735,489
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 690,651 $ 660,691
Accrued expenses 1,039,825 659,502
Notes payable 52,000 200,000
Federal income taxes -- 102,008
Other current liabilities 15,212 20,541
- --------------------------------------------------------------------------------
Total Current Liabilities 1,797,688 1,642,742
- --------------------------------------------------------------------------------
Long-term debt 327,698 331,340
Deferred income taxes 9,103 81,702
Other long-term liabilities 184,150 188,126
Minority interests in subsidiaries 93,830 108,644
- --------------------------------------------------------------------------------
Redeemable Preferred Stock
- --------------------------------------------------------------------------------
Cumulative preferred stock, Series B, $4.00
dividend, par value $100, redeemable at par
plus accrued dividends; authorized and issued
17,269 shares in 1995 and 1994; 3,971 shares
held in treasury in 1995 and 1994 1,330 1,330
- --------------------------------------------------------------------------------
Total Shareholders' Equity 1,547,763 2,381,605
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Liabilities and Equity $3,961,562 $4,735,489
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
25
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Preference Stock (par value $1.00, authorized 50,000 shares;
Series One ESOP Convertible, liquidation value $53.45)
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 6,379 $ 340,948 6,499 $ 347,346 6,597 $ 352,583
Conversion to common stock (112) (6,001) (120) (6,398) (98) (5,237)
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 6,267 334,947 6,379 340,948 6,499 347,346
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock (par value $1.00,
authorized 300,000 shares)
- ------------------------------------------------------------------------------------------------------------------------------------
Issued at beginning of year 111,454 111,454 111,278 111,278 111,150 111,150
Exercise of stock options and awards under
stock plans 193 193 173 173 128 128
Conversion of Subordinated Debentures 2 2 3 3 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Issued at end of year 111,649 111,649 111,454 111,454 111,278 111,278
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year (5,812) (283,785) (5,932) (289,653) (6,417) (313,432)
Reissuance of common stock for business acquired -- -- -- -- 387 18,976
Repurchase of common stock (843) (26,310) -- -- -- --
Conversion of Preference Stock 112 5,504 120 5,868 98 4,803
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (6,543) (304,591) (5,812) (283,785) (5,932) (289,653)
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock outstanding at end of year 105,106 105,642 105,346
- ------------------------------------------------------------------------------------------------------------------------------------
Guaranteed ESOP Obligation
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year (328,096) (328,570) (335,877)
Reduction of Guaranteed ESOP Obligation 18,421 474 7,307
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (309,675) (328,096) (328,570)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Surplus
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year 48,122 42,123 53,302
Reissuance of common stock for business acquired -- -- (16,459)
Purchase of Series B preferred shares for treasury -- -- 3
Conversion of Preference Stock 497 530 434
Exercise of stock options and awards under
stock plans 6,242 5,447 4,843
Conversion of Subordinated Debentures 17 22 --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 54,878 48,122 42,123
- ------------------------------------------------------------------------------------------------------------------------------------
Retained Earnings
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year 2,494,383 2,364,322 2,208,875
Net earnings (657,106) 307,470 331,790
Retained earnings of business acquired -- -- 149
Dividends:
Preference Stock ($3.90 per share), net (16,872) (16,934) (16,753)
Series B preferred ($4.00 per share) (53) (53) (53)
Common ($1.52 per share) (159,943) (160,422) (159,686)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,660,409 2,494,383 2,364,322
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustment
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year (1,421) -- --
Effect of rate fluctuation 1,567 (1,421) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 146 (1,421) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 1,547,763 $ 2,381,605 $ 2,246,846
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) earnings $(657,106) $ 307,470 $ 331,790
Adjustments to reconcile net (loss) earnings to net cash provided
by operating activities:
Restructuring and asset impairment charges 982,447 -- --
Cumulative effect of change in accounting principle 74,489 -- --
Depreciation and amortization 228,352 206,266 191,588
Minority interests in net earnings 38,351 51,895 47,296
Deferred income taxes and other noncash items (204,841) 1,993 15,595
Change in assets and liabilities, excluding acquisitions and dispositions:
(Increase) decrease in accounts receivable, net (29,996) (15,013) 33,484
Increase in inventories (214,343) (266,069) (86,344)
Increase in prepaid expenses, deferred charges and other assets (21,454) (14,123) (14,392)
Increase (decrease) in accounts payable and accrued expenses 225,462 125,849 (125,150)
(Decrease) increase in Federal income taxes payable and other liabilities (75,899) 100,093 42,016
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 345,462 498,361 435,883
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to property and equipment (394,951) (421,375) (386,724)
Proceeds from the sale or disposal of property and equipment
and operations or assets sold 423,598 86,899 97,940
Acquisitions, net of cash (4,809) (36,556) (41,534)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities 23,838 (371,032) (330,318)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Dividends paid or payable (239,985) (225,500) (245,635)
(Reductions of) additions to notes payable (148,000) 110,000 90,000
Increase (decrease) in book overdrafts 65,775 26,931 (6,701)
Repurchase of common stock (26,310) -- --
Reductions of long-term debt and obligations under capital leases (10,518) (4,423) (13,190)
Other 2,286 1,727 5,794
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (356,752) (91,265) (169,732)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 12,548 36,064 (64,167)
Cash and cash equivalents at beginning of year 117,035 80,971 145,138
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 129,583 $ 117,035 $ 80,971
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of all subsidiary companies. The minority interests principally
represent the 49% participation of Kmart Corporation in the ownership of all
retail subsidiaries formed or to be formed from July, 1967 until July 1, 2012
for the purpose of operating leased shoe departments in Kmart stores. All
intercompany balances and transactions have been eliminated.
Basis of Presentation: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash equivalents consist of highly liquid
instruments with maturities of three months or less and are stated at cost which
approximates market. The Company's cash management program utilizes zero balance
accounts. Accordingly, all book overdraft balances have been reclassified to
current liabilities.
Investments: Investments consist of available-for-sale securities whose
carrying values approximate fair market value.
Inventories: Inventories are stated at the lower of cost or market.
Inventories of the retail operations are determined primarily by the retail
method with 12.8% valued on a last-in, first-out ("LIFO") basis. Inventories of
the manufacturing operations are determined on a first-in, first-out ("FIFO")
basis.
Fixed Assets: Depreciation and amortization of property and equipment is
computed on a straight-line basis, generally over the estimated useful lives of
the assets or, when applicable, the life of the lease, whichever is shorter.
Amortization of leased property under capital leases is computed on a
straight-line basis over the life of the lease. Capitalized software costs are
amortized on a straight-line basis over their estimated useful lives.
Impairment of Long - Lived Assets: When changes in circumstances warrant
measurement, impairment losses for store fixed assets are calculated by
comparing projected store cash flows over the lease term to the asset carrying
values.
Deferred Charges: Deferred charges, principally beneficial leasehold costs,
are amortized on a straight-line basis, generally over the remaining life of the
leasehold acquired.
Goodwill: The excess of acquisition cost over the fair value of net assets
acquired is amortized on a straight-line basis over periods not to exceed forty
years. Impairment is assessed based on profitability of the related business
relative to planned levels.
Maintenance and Repairs: Maintenance and repairs are charged directly to
expense as incurred. Major renewals or replacements are capitalized after making
necessary adjustments in the asset and accumulated depreciation accounts for the
items renewed or replaced.
Store Opening and Closing Costs: New store opening costs are charged to
expense as incurred. In the event a store is closed before its lease has
expired, the total lease obligation, less sublease rental income, is provided
for in the year of closing.
Advertising Costs: The Company charges production costs of advertising to
expense the first time the advertising takes place.
Interest Expense: Interest costs charged to discontinued operations
includes only third party interest and excludes interest related to intercompany
balances.
Federal Income Taxes: The Company and its wholly-owned subsidiaries file a
consolidated Federal income tax return. The tax benefit for dividends on
unallocated shares of Series One Convertible ESOP Preference Stock ("ESOP
Preference Stock") is recorded as a credit to retained earnings.
Accounting Changes: Effective January 1, 1995, the Company changed its
policy from capitalizing internally developed software costs to expensing them
as incurred.
Effective October 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits", the cumulative effect of which was not
material to the consolidated financial statements and is therefore not presented
separately.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"), the cumulative effect of which was also
immaterial to the consolidated financial statements and is therefore not
presented separately.
In 1993, the Company changed its method of determining retail price indices
used in the valuation of LIFO inventories.
Postretirement Benefits: The annual cost of postretirement benefits is
funded as they arise and the cost is recognized over an employee's term of
service with the Company.
Earnings Per Share: Primary earnings per share is computed by dividing net
earnings, after deducting net preferred dividends on redeemable preferred stock
and the ESOP Preference Stock, by the weighted average number of common shares
outstanding during the year.
Fully diluted earnings per share is computed based upon the assumed
conversion of the ESOP Preference Stock into common stock. Net earnings are
reduced by the difference between the current dividend on the ESOP Preference
Stock and the common stock, adjusted for certain nondiscretionary expenses based
on net earnings.
Foreign Currency Translation: The Company translates foreign currency
financial statements by translating balance sheet accounts at the year-end
exchange rate and income statement accounts at the average rate for the year.
Translation gains and losses are recorded in shareholders' equity, and realized
28
<PAGE>
gains and losses are reflected in income. The balance in the cumulative
translation adjustment account relates principally to the Company's operations
in Mexico. Transaction gains and losses were immaterial.
Reclassifications: Certain reclassifications have been made to the
consolidated financial statements of prior years to conform to the 1995
presentation.
RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
On October 24, 1995, the Company announced a comprehensive restructuring plan
comprising the spin-off of the Company's footwear and toy retailing businesses,
the sale of the Marshalls, Wilsons and This End Up subsidiaries, the outsourcing
of certain information processing and telecommunications functions, the closure
of approximately 330 stores and the streamlining of the corporate overhead
structure. In connection with the initiation of the plan, a pre-tax charge of
$872.0 million was recorded (of which $837.2 related to continuing operations).
Asset writeoffs included in the charge totaled $659.7 million, while the balance
will require cash outlays, primarily in 1996. In connection with the various
components of the plan, positions for approximately 1,200 store employees and
400 administrative employees have been or will be eliminated.
The significant components of the restructuring charge, and the reserves
remaining as of December 31, 1995, were as follows:
- --------------------------------------------------------------------------------
($ in thousands) Recorded Remaining
- --------------------------------------------------------------------------------
Loss on sale of subsidiaries $587.1 $204.9
Lease obligations and asset
writeoffs for store closings,office
closings and abandonment
of warehouse facilities 146.7 80.3
Contract termination costs and asset
writeoffs related to outsourcing 64.3 24.0
Severance and employee benefit
vesting 48.0 47.8
Exit costs associated with the
consolidation of footwear operations 20.0 19.6
Other 5.9 -
- --------------------------------------------------------------------------------
$872.0 $376.6
- --------------------------------------------------------------------------------
Operations impacted by the plan accounted for 50.6% of 1995 sales and 15.5%
of 1995 operating profit from all operations before special charges. These
operations (including those classified as discontinued operations) accounted for
33.3% of total assets and 26.8% of total liabilities as of December 31, 1995.
Effective October 1, 1995, the Company adopted SFAS No. 121 and recorded a
pre-tax asset impairment charge of $110.4 million (of which $99.6 million
related to continuing operations) related to the write-down of fixed and
intangible assets .
Total goodwill written off within the special charges was $239.7 million.
On November 17, 1995, the Company completed the sale of its Marshalls
subsidiary to The TJX Companies, Inc. ("TJX") for approximately $600.0 million,
consisting of $375.0 million in cash, and $175.0 million of TJX preferred stock,
with the balance to be paid in cash during the first quarter of 1996. This
transaction resulted in a pre-tax loss of $245.0 million, which is included in
the total restructuring charge recorded by the Company.
DISCONTINUED OPERATIONS
As part of its comprehensive restructuring program, the Company intends to
spin-off its footwear segment to shareholders during 1996. Accordingly, the
results of operations for these businesses have been classified as discontinued
operations for all periods presented in the consolidated statements of
operations.
Discontinued operations accounted for 16.4% of total assets and 14.4% of
total liabilities as of December 31, 1995. The following table summarizes the
financial results of the discontinued operations for the years ended December
31:
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Net sales $1,827.3 $1,839.9 $1,713.1
Operating profit 53.5 160.5 167.3
- --------------------------------------------------------------------------------
Operating profit for 1995 reflects $34.8 million of restructuring charges
related to the consolidation of operations and the closure of stores, as well as
an asset impairment charge of $10.8 million related to the adoption of SFAS No.
121.
INVESTMENTS
In connection with the sale of Marshalls to TJX, the Company received 250,000
shares of TJX Series D Convertible Preferred Stock ("Series D Stock"), valued at
$25.0 million and 1,500,000 shares of TJX Series E Convertible Preferred Stock
("Series E Stock"), valued at $150.0 million. The Series D stock earns cash
dividends at an annual rate of 1.814% and is automatically convertible in one
year to between 1,343,988 and 2,024,291 shares of TJX common stock, depending
upon the price of TJX common stock. The Series E stock earns cash dividends at
an annual rate of 7.0% and is automatically convertible in three years to
between 8,093,927 and 9,716,599 shares of TJX common stock, depending upon the
price of TJX common stock on the conversion date.
Upon request of the Company, TJX must register the Series E stock unless
such registration would interfere with any material transaction or securities
underwriting. On December 8, 1995, the Company requested registration of these
shares. Due to the automatic conversion of the Series D stock during 1996, and
the Company's intention to sell the Series E stock during 1996, the securities
have been classified as current assets in the accompanying consolidated balance
sheet.
29
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
Accounts receivable at December 31 consisted of the following:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994
- --------------------------------------------------------------------------------
Trade accounts $159,504 $170,296
Federal income tax refund 22,432 -
Other 147,895 78,395
- --------------------------------------------------------------------------------
329,831 248,691
Less allowance for doubtful
accounts 33,438 18,858
- --------------------------------------------------------------------------------
$296,393 $229,833
- --------------------------------------------------------------------------------
INVENTORIES
Inventories at December 31 consisted of the following:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994
- --------------------------------------------------------------------------------
Finished goods $1,661,677 $2,131,041
Work-in-process 767 645
Raw materials and supplies 10,513 6,557
- --------------------------------------------------------------------------------
$1,672,957 $2,138,243
- --------------------------------------------------------------------------------
Prior to 1993, the Company used the U.S. Bureau of Labor Statistics indices to
measure inflation or deflation in the valuation of its LIFO inventories. In
1993, internally developed indices were used to more accurately measure price
fluctuations. The net earnings impact of this change on prior years,
individually and cumulatively, is not determinable. The change increased 1993
net earnings by $10.0 million.
Had the FIFO method been used, the carrying value of inventories valued on
a LIFO basis would have increased by $4.6 million and $8.1 million at December
31, 1995 and 1994, respectively.
PREPAID EXPENSES
Prepaid expenses at December 31 consisted of the following:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994
- --------------------------------------------------------------------------------
Deferred income taxes $228,072 $ 97,668
Other 57,923 67,720
- --------------------------------------------------------------------------------
$285,995 $165,388
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment at December 31 consisted of the following:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994
- --------------------------------------------------------------------------------
Land $ 56,683 $ 32,917
Buildings and improvements 244,273 222,939
Fixtures and equipment 910,101 1,246,682
Leasehold improvements 483,289 687,095
Capitalized leases 13,581 42,208
- --------------------------------------------------------------------------------
1,707,927 2,231,841
- --------------------------------------------------------------------------------
Accumulated depreciation
and amortization 593,523 704,919
- --------------------------------------------------------------------------------
$1,114,404 $1,526,922
- --------------------------------------------------------------------------------
Effective January 1, 1995 the Company changed its policy to expense internally
developed software costs as incurred. The accounting change resulted in an
after-tax charge of $45.9 million in 1995, including discontinued operations.
The effect on earnings, had the new policy been in effect, would have been to
reduce net earnings by $15.9 million and $14.6 million in 1994 and 1993,
respectively.
ACCRUED EXPENSES
Accrued expenses at December 31 consisted of the following:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994
- --------------------------------------------------------------------------------
Restructuring accrual $ 296,874 $ -
Taxes other than Federal
income taxes 120,959 143,801
Salaries and wages 100,649 63,910
Rent 78,064 87,811
Other 443,279 363,980
- --------------------------------------------------------------------------------
$1,039,825 $659,502
- --------------------------------------------------------------------------------
SHORT-TERM BORROWING ARRANGEMENTS
Information regarding short-term borrowings outstanding at December 31 was as
follows:
- --------------------------------------------------------------------------------
($ in millions) 1995 1994
- --------------------------------------------------------------------------------
Commercial paper $ 52.0 $ 200.0
Weighted average interest rate 5.9% 6.0%
- --------------------------------------------------------------------------------
Lines of credit available $1,148.0 $ 693.5
Letters of credit outstanding 331.4 433.9
- --------------------------------------------------------------------------------
The Company has available lines of credit with various banks which permit
borrowings at prime or other negotiated interest rates. There were no short-term
borrowings outstanding under these lines of credit at December 31, 1995 and
1994.
The Company can also obtain short-term financing through the issuance of
commercial paper and bank loan participation notes, and is not obligated under
any formal or informal compensating balance agreements.
LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994
- --------------------------------------------------------------------------------
Guaranteed ESOP note, 8.52%,
payable in various installments
through 2008* $323,000 $340,100
Other notes and mortgages payable 19,047 8,637
- --------------------------------------------------------------------------------
342,047 348,737
Less current installments 14,349 17,397
- --------------------------------------------------------------------------------
$327,698 $331,340
- --------------------------------------------------------------------------------
*See Employee Stock Ownership Plan footnote.
30
<PAGE>
The aggregate long-term debt maturing during each of the next five years is as
follows: $14.3 million in 1996, $18.1 million in 1997, $21.8 million in 1998,
$13.9 million in 1999 and $16.6 million in 2000.
Net interest expense for the years ended December 31 included the
following:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Interest expense* $55,334 $33,453 $25,586
Interest income and
capitalized interest 357 1,068 1,817
- --------------------------------------------------------------------------------
Net interest expense $54,977 $32,385 $23,769
- --------------------------------------------------------------------------------
* Excludes interest related to the guaranteed ESOP note but includes interest
costs recognized in connection with the Company's contribution to the ESOP.
LEASES
The Company and its subsidiaries lease retail stores and warehouse and office
facilities over periods generally ranging from 5 to 25 years with options to
renew such terms ranging from 5 to 15 years.
At December 31, 1995, the future minimum lease payments under capital
leases, rental payments required under operating leases, and future minimum
sublease rentals excluding lease obligations for closed facilities were as
follows:
- --------------------------------------------------------------------------------
Capital Operating
($ in thousands) Leases Leases
- --------------------------------------------------------------------------------
1996 $ 1,700 $ 398,442
1997 1,354 373,913
1998 1,374 344,348
1999 1,336 312,899
2000 843 280,352
Thereafter 7,158 1,479,356
- --------------------------------------------------------------------------------
Total $13,765 $3,189,310
Less amount representing
interest 5,945
- --------------------------------------------------------------------------------
Present value of minimum
lease payments $ 7,820
- --------------------------------------------------------------------------------
Total future minimum sublease
rentals $ 454 $ 29,030
- --------------------------------------------------------------------------------
Net rental expense for all operating leases for the years ended December 31
was as follows:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Minimum rentals $485,988 $442,179 $417,201
Contingent rentals
based on sales 30,640 30,229 28,897
- --------------------------------------------------------------------------------
516,628 472,408 446,098
Less sublease rentals 12,423 9,529 6,068
- --------------------------------------------------------------------------------
$504,205 $462,879 $440,030
- --------------------------------------------------------------------------------
CONTINGENCIES
In connection with certain dispositions completed between 1991 and 1995,
Melville Realty Company, Inc. ("MRC"), a wholly owned subsidiary of the Company,
continued to guarantee rental and other lease-related charges for 474 retail
stores. The present value of these minimum rental payments at December 31, 1995
was approximately $590.6 million. This amount does not include leases related to
the sale of Chess King to Merry-Go-Round Enterprises ("MGRE"), which plans to
liquidate in accordance with Chapter 7 of the United States Bankruptcy Code.
Pursuant to the terms of sale to a third party of a note receivable from MGRE,
the Company will be indemnified for 52.5% of costs incurred under any guarantees
for Chess King stores. As of December 31, 1995, there are 250 leases guaranteed
by MRC which have been rejected as part of the liquidation and have not yet been
settled. The Company has accrued its unindemnified portion of the lease
liability.
The Company is also a defendant in various lawsuits arising in the ordinary
course of business. In the opinion of management and its outside counsel, the
ultimate disposition of all lawsuits will not have a material adverse effect on
the Company's consolidated financial position.
STOCK INCENTIVE PLANS
The Company's 1990 Omnibus Stock Incentive Plan (the "Plan"), as amended,
provides for the granting of options, restricted stock and other stock-based
awards for a maximum of 8,000,000 shares of common stock to key employees. The
Plan replaced the Company's 1973 and 1987 Stock Option Plans and the 1980
Restricted Stock Plan ("Previous Plans").
Stock options under the Plan are awarded at the fair market value on the
date of grant. The right to exercise these options generally commences between
one and three years from the date of grant and expires ten years after the grant
date, provided the optionee continues to be employed by the Company.
The 1989 Directors' Stock Option Plan ("Directors' Plan") for non-employee
directors ("eligible directors") provides for the granting of options to
purchase a maximum of 150,000 shares of common stock. Any person who becomes an
eligible director receives an initial option grant to purchase 2,000 shares of
common stock, and, on each January 11 after such initial grant through January
11, 1998, is automatically granted an additional option to purchase 1,000
shares. All options are awarded at the fair value on the date of grant.
The right to exercise options granted under the Directors' Plan generally
commences six months from the date of grant and expires ten years after the
grant date, provided the director has served continuously during the exercise
period.
31
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
Information with respect to stock option activity under the Plan, the
Previous Plans and the Directors' Plan is as follows:
- --------------------------------------------------------------------------------
Number Option Price
of Shares Range Per Share
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1992 3,027,225 $ 18.19 / $ 54.75
Granted 709,650 41.13 / 53.50
Exercised 126,400 18.19 / 52.00
Cancelled 139,875 39.38 / 52.00
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1993 3,470,600 $ 18.19 / $ 54.75
Granted 201,000 30.25 / 41.00
Exercised 76,428 18.19 / 39.38
Cancelled 7,000 45.00
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1994 3,588,172 $ 26.72 / $ 54.75
Granted 3,047,725 31.25 / 37.38
Exercised 17,400 28.69 / 36.00
Cancelled 23,800 37.38
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1995 6,594,697 $ 26.72 / $ 54.75
- --------------------------------------------------------------------------------
Exercisable at
December 31, 1995 3,557,305 $ 26.72 / $ 54.75
- --------------------------------------------------------------------------------
Of the options outstanding at December 31,1995, approximately 4.3 million
are held by employees of operations to be sold or spun-off, or by employees to
be terminated under the Company's restructuring plan. Such employees will be
entitled to exercise their options for a 90 day period following termination.
The Plan also permits the granting of performance shares, representing
rights to receive cash and/or common stock of the Company based upon certain
performance criteria over a three-year performance period, and performance based
restricted shares, representing rights to receive common stock of the Company
based upon certain performance criteria over a one-year performance period.
Compensation expense related to grants under these provisions is based on
current market price of the Company's common stock and the extent to which
performance criteria are being met.
Information regarding performance shares and performance based restricted
shares is as follows:
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Units awarded 32,297 77,376 54,301
Fair market value of units
awarded $ 1.2 $ 2.9 $ 2.6
Shares granted related to
units previously awarded 60,807 42,051 -
Fair market value of shares
granted $ 2.2 $ 1.6 $ -
- --------------------------------------------------------------------------------
Restricted stock awards are currently granted under the Plan only in
connection with the hiring or retention of key executives and are subject to
certain conditions. Restrictions are lifted generally three or four years after
the grant date, provided the executive continues to be employed by the Company.
Information with respect to the restricted shares is as follows:
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Shares granted 112,773 55,050 2,225
Fair market value of
shares granted $ 4.1 $ 1.9 $ 0.1
Shares cancelled 11,452 1,535 420
- --------------------------------------------------------------------------------
At December 31, 1995 shares available for grant under the Plan totaled
1,901,254 and 57,000 shares of stock were available for grant under the
Directors' Plan.
TREASURY STOCK
In connection with the management of the Company's stock incentive plans, the
Company reacquired 842,900 shares of common stock during 1995 at a cost of $26.3
million. No shares were reacquired during 1994 or 1993.
REDEEMABLE PREFERRED STOCK
The Company is required to provide $279,000 annually, on December 1, as a
sinking fund to repurchase shares of Series B preferred stock at prices not to
exceed $100 per share. Any balance not so applied within one year is returned to
the general funds of the Company. The difference between the cost of shares
repurchased and par value is reflected in capital surplus.
POSTRETIREMENT BENEFITS
The Company provides postretirement health benefits at several divisions for
retirees who meet certain eligibility requirements.
The weighted average discount rate used to determine the accumulated
postretirement benefit obligation ("APBO") was 6.89% and 8.67% at December 31,
1995 and 1994, respectively. The following table reflects the accrued
postretirement benefit cost as of December 31:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994
- --------------------------------------------------------------------------------
Retirees $16,625 $14,335
Fully eligible active plan
participants 1,439 1,987
Other active plan participants 10,709 8,078
- --------------------------------------------------------------------------------
APBO 28,773 24,400
- --------------------------------------------------------------------------------
Unrecognized prior service gain 13,130 14,163
Unrecognized net gain 7,955 6,817
- --------------------------------------------------------------------------------
Accrued Postretirement
Benefit Cost $49,858 $45,380
- --------------------------------------------------------------------------------
32
<PAGE>
Effective December, 1992, the Company amended these plans to terminate
certain benefits, resulting in a prior service gain of $16.7 million to be
amortized over 13 years. The net periodic cost recorded for the years ended
December 31 was as follows:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Interest expense $2,000 $2,000 $2,200
Service cost (900)* (500)* (1,000)*
- --------------------------------------------------------------------------------
$1,100 $1,500 $1,200
- --------------------------------------------------------------------------------
* Net of prior service gain amortization.
For measurement purposes, a 10.0% increase in the cost of covered
health-care benefits was assumed for 1995; the rate was assumed to decline
gradually to 5.0% in 2005, and remain at that level thereafter. A 1.0% increase
in the health-care cost trend rate would increase the APBO at December 31, 1995
by $3.5 million, and the 1995 annual expense by $0.4 million.
401(K) PROFIT SHARING PLAN
The Company has a qualified 401(k) Profit Sharing Plan available to full-time
employees who meet the plan's eligibility requirements. This plan, which is also
a defined contribution plan, contains a profit sharing component, with
tax-deferred contributions to each employee based on certain performance
criteria, and also permits employees to make contributions up to the maximum
limits allowed by Internal Revenue Code Section 401(k). Under the 401(k)
component, the Company matches a portion of the employee's contribution under a
predetermined formula based on the level of contribution and years of vesting
service. Company contributions to the plan for both profit sharing and matching
of employee contributions, including discontinued operations, were $21.7
million, $18.0 million and $20.3 million in 1995, 1994 and 1993 respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a defined contribution plan for all full-time employees
through its Employee Stock Ownership Plan ("ESOP").
The ESOP Trust (the "Trust") borrowed $357.5 million through a 20-year loan
guaranteed by the Company and used the proceeds to purchase 6,688,494 shares of
ESOP Preference Stock from the Company. The original liquidation value of the
ESOP Preference Stock is guaranteed by the Company. Dividends are cumulative at
the stated rate or the common stock rate if higher.
Information regarding the ESOP is as follows:
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Dividends paid $49.2 $ - $29.6
Dividends accrued - 24.9 -
Annualized dividends 24.3 24.9 25.3
Tax benefit of annualized
dividends 9.8 10.0 10.1
Cash contributions (1) 14.2 11.1 7.9
Interest costs incurred by
the Trust 28.4 29.0 29.5
Compensation expense
recognized (2) 6.2 5.9 5.7
Interest expense recognized (2) 6.4 5.3 5.9
- --------------------------------------------------------------------------------
(1) 1994 amount accrued; paid January, 1995.
(2) Including discontinued operations.
Contributions to the ESOP, plus the dividends paid on the ESOP Preference
Stock held by the Trust, are used to repay the loan principal and interest. The
difference between the cash contribution and the aggregate expense recognized is
credited to the Guaranteed ESOP Obligation. In connection with the Company's
restructuring plan, approximately one million shares of ESOP Preference Stock
will be converted to common shares in 1996. Based on the market price of the
Company's common stock on December 31,1995, such conversions will result in an
expense of $23.0 million, which was provided as part of the 1995 restructuring
charge.
INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109. The cumulative
effect of this accounting change was not material.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 were as
follows:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Property and equipment $112,479 $ -
Employee benefits 75,944 66,233
Inventories 22,715 33,956
Other assets 7,831 7,895
- --------------------------------------------------------------------------------
Total deferred tax assets 218,969 108,084
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment - 92,118
- --------------------------------------------------------------------------------
Net deferred tax assets $218,969 $ 15,966
- --------------------------------------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
Based on historical pre-tax earnings, the Company believes it is more
likely than not that the net deferred tax assets will be realized.
The income tax (benefit) provision for the years ended December 31
consisted of the following:
- --------------------------------------------------------------------------------
($ in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Federal $(187.3) $130.0 $129.9
State 5.2 44.3 39.7
- --------------------------------------------------------------------------------
$(182.1) $174.3 $169.6
- --------------------------------------------------------------------------------
The income tax (benefit) provision includes a net deferred tax benefit of
$189.6 million in 1995 and net deferred tax charges of $28.5 million and $82.3
million in 1994 and 1993.
Reconciliations of the effective tax rates to the U.S. statutory income tax
rates are as follows:
- --------------------------------------------------------------------------------
Percent of pre-tax income 1995 1994 1993
- --------------------------------------------------------------------------------
Effective tax rate 22.8 41.7 39.2
State income taxes, net of
Federal tax benefit 0.4 (6.9) (6.0)
Goodwill 11.8 (1.0) (0.9)
Other - 1.2 2.7
- --------------------------------------------------------------------------------
Statutory income tax rates 35.0 35.0 35.0
- --------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
During the years ended December 31, the Company had the following non-cash
financing and investing activities:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Fair value of
assets acquired $ 4,809 $ 41,832 $61,144
Cash paid 4,809 36,578 38,814
- --------------------------------------------------------------------------------
Liabilities assumed $ - $ 5,254 $22,330
- --------------------------------------------------------------------------------
Stock or note received for
operations sold $175,000 $ - $29,413
Book value of common
stock issued in
pooling of interests - - 18,976
- --------------------------------------------------------------------------------
Cash payments for income taxes and interest for the years ended December 31
were as follows:
- --------------------------------------------------------------------------------
($ in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Income taxes $162,888 $140,789 $157,240
Interest (net of
amounts capitalized) 55,500 34,113 25,747
- --------------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
On October 23, 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The provisions
of this statement are effective for fiscal years beginning after December 15,
1995.
As permitted under SFAS No. 123, the Company has elected not to adopt the
fair value based method of accounting for its stock-based compensation plans,
but will continue to account for such compensation under the provisions of APB
Opinion No. 25. The Company will comply with the disclosure requirements of SFAS
No. 123 in 1996.
34
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF QUARTERLY RESULTS (1)
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited; $ in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Net Sales
- ------------------------------------------------------------------------------------------------------------------------------------
1995 $ 2,124,714 $ 2,292,165 $ 2,351,216 $ 2,920,967
1994 1,999,682 2,063,974 2,246,312 3,135,710
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Margin
- ------------------------------------------------------------------------------------------------------------------------------------
1995 $ 655,057 $ 738,436 $ 741,775 $ 979,136
1994 647,415 695,049 749,790 1,115,046
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) Earnings from Continuing Operations before Cumulative Effect of Change in Accounting Principle
- ------------------------------------------------------------------------------------------------------------------------------------
1995 $ (23,330) $ 13,792 $ (18,990) $ (587,170)
1994 (1,665) 29,526 35,278 180,447
- ------------------------------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings before Cumulative Effect of Change in Accounting Principle
- ------------------------------------------------------------------------------------------------------------------------------------
1995 $ (30,354) $ 30,665 $ (5,104) $ (610,358)
1994 (2,505) 45,602 51,718 212,655
- ------------------------------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings
- ------------------------------------------------------------------------------------------------------------------------------------
1995 $ (72,309) $ 30,665 $ (5,104) $ (610,358)
1994 (2,505) 45,602 51,718 212,655
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) Earnings Per Share from Continuing Operations before Cumulative Effect of Change in Accounting Principle
- ------------------------------------------------------------------------------------------------------------------------------------
1995 Primary $ (0.26) $ 0.09 $ (0.22) $ (5.63)
1994 Primary (0.06) 0.24 0.29 1.67
1994 Fully Diluted (2) (0.06) 0.24 0.29 1.62
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) Earnings Per Share before Cumulative Effect of Change in Accounting Principle
- ------------------------------------------------------------------------------------------------------------------------------------
1995 Primary $ (0.33) $ 0.25 $ (0.09) $ (5.85)
1994 Primary (0.06) 0.39 0.45 1.97
1994 Fully Diluted (2) (0.06) 0.39 0.45 1.90
- ------------------------------------------------------------------------------------------------------------------------------------
Net (Loss) Earnings Per Share
- ------------------------------------------------------------------------------------------------------------------------------------
1995 Primary $ (0.73) $ 0.25 $ (0.09) $ (5.85)
1994 Primary (0.06) 0.39 0.45 1.97
1994 Fully Diluted (2) (0.06) 0.39 0.45 1.90
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Results of all quarters prior to fourth quarter 1995 have been restated to
segregate the results of discontinued operations. 1995 quarters have also
been restated to reflect the retroactive effect of the change in accounting
principle.
(2) Dilutive effect in the fourth quarter due to the assumed conversion of the
ESOP Preference Stock and the seasonality of earnings.
MARKET INFORMATION
Melville Corporation's common stock is listed on the New York Stock Exchange.
Its trading symbol is MES. Information with respect to quarterly trading ranges
(based on low/high stock prices), dividends paid per share and number of
shareholders is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
Market Price Per Share
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
1995 $ 30 5/8 - 37 1/2 $ 33 5/8 -39 7/8 $ 32 3/4-37 1/4 $ 28 5/8-37 1/8 $ 28 5/8-39 7/8
1994 35 3/4-41 3/4 37 1/8-41 5/8 34 1/2-39 7/8 29 1/2-36 5/8 29 1/2-41 3/4
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Paid Per Share
- ------------------------------------------------------------------------------------------------------------------------------------
1995 $ 0.38 $ 0.38 $ 0.38 $ 0.38 $ 1.52
1994 0.38 0.38 0.38 0.38 1.52
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Common Shareholders
- ------------------------------------------------------------------------------------------------------------------------------------
1995 6,500
1994 7,200
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
SEGMENT INFORMATION
The Company is a specialty retailer conducting business through retail stores in
four business segments: prescription drugs, health and beauty care; apparel;
toys and home furnishings and footwear. In accordance with APB Opinion No. 30,
the footwear segment has been segregated as discontinued operations. Information
about each of the continuing operation segments is summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Prescription Drugs, Health and Beauty Care
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 4,865,025 $ 4,330,099 $ 3,948,197
Operating profit (a)(b) 252,748 227,655 195,670
Identifiable assets at December 31 (c) 1,673,682 1,662,127 1,592,964
Depreciation and amortization 66,458 60,828 56,883
Additions to property and equipment (d) 78,019 102,047 104,592
- ------------------------------------------------------------------------------------------------------------------------------------
Apparel (e)
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales 3,055,651 3,538,928 3,395,926
Operating (loss) profit (a)(b) (672,776) 161,087 181,922
Identifiable assets at December 31 (c) 318,991 1,528,693 1,334,026
Depreciation and amortization 85,571 79,210 75,963
Additions to property and equipment (d) 83,853 145,032 154,247
- ------------------------------------------------------------------------------------------------------------------------------------
Toys and Home Furnishings
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales 1,768,386 1,576,651 1,378,185
Operating (loss) profit (a)(b) (115,688) 99,403 89,138
Identifiable assets at December 31 (c) 836,885 789,859 655,290
Depreciation and amortization 41,111 37,424 34,797
Additions to property and equipment (d) 93,183 92,332 70,948
- ------------------------------------------------------------------------------------------------------------------------------------
Total continuing operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 9,689,062 $ 9,445,678 $ 8,722,308
Operating (loss) profit before corporate expenses (a)(b) (535,716) 488,145 466,730
Corporate expenses excluding depreciation and amortization (b)(f) 202,470 34,987 7,706
Corporate depreciation and amortization 4,605 2,894 3,008
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense, net 54,977 32,385 23,769
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) earnings from continuing operations before income taxes $ (797,768) $ 417,879 $ 432,247
- ------------------------------------------------------------------------------------------------------------------------------------
Total identifiable assets of continuing operations at December 31 (c) 2,829,558 3,980,679 3,582,280
Corporate assets at December 31 481,479 94,613 107,746
Assets of discontinued operations 650,525 660,197 568,015
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets at December 31 $ 3,961,562 $ 4,735,489 $ 4,258,041
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization - continuing operations $ 197,745 $ 180,356 $ 170,651
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate additions to property and equipment 46,966 25,461 11,013
Additions of discontinued operations to property and equipment (d) 92,930 56,503 45,924
Total additions to property and equipment (d) $ 394,951 $ 421,375 $ 386,724
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Operating (loss) profit is defined as total revenues less operating
expenses.
(b) In 1995, includes the effect of restructuring, asset impairment and other
charges.
(c) Identifiable assets include those assets directly related to each segment's
operations.
(d) Excludes acquisitions.
(e) Includes Marshalls through November 17, 1995.
(f) Includes general corporate expenses as well as net expenses related to
other corporate managed subsidiaries.
36
<PAGE>
- --------------------------------------------------------------------------------
Five-Year Financial Summary
- --------------------------------------------------------------------------------
Melville Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
($ in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Results for the Year 1995(a) 1994 1993 1992(a) 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 9,689,062 $ 9,445,678 $ 8,722,308 $ 8,592,822 $ 8,138,767
Wages and Compensation 1,204,285 1,176,629 1,127,056 1,083,184 1,033,393
Taxes (36,258) 366,665 348,394 278,451 354,094
(Loss) Earnings from Continuing Operations before
Income Taxes, and Cumulative Effect of
Change in Accounting Principle (797,768) 417,879 432,247 242,764 475,832
(Loss) Earnings from Continuing Operations before
Cumulative Effect of Change in Accounting Principle (615,698) 243,586 262,609 134,963 280,993
(Loss) Earnings before Cumulative Effect of Change in
Accounting Principle (615,151) 307,470 331,790 133,890 346,681
Net (Loss) Earnings (657,106) 307,470 331,790 133,429 346,681
Dividends Declared 184,294 185,351 184,934 180,324 174,517
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share of Common Stock
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) Earnings from Continuing Operations before
Cumulative Effect of Change in Accounting Principle $ (6.02) $ 2.15 $ 2.33 $ 1.14 $ 2.55
(Loss) Earnings before Cumulative Effect of
Change in Accounting Principle (6.01) 2.75 3.00 1.13 3.20
Net (Loss) Earnings (6.41) 2.75 3.00 1.13 3.20
Dividends 1.52 1.52 1.52 1.48 1.44
Book Value 14.73 22.54 21.33 19.83 20.06
- ------------------------------------------------------------------------------------------------------------------------------------
End of Year Position
- ------------------------------------------------------------------------------------------------------------------------------------
Current Assets $ 2,559,928 $ 2,650,499 $ 2,384,031 $ 2,429,772 $ 2,359,017
Current Liabilities 1,797,688 1,642,742 1,292,708 1,350,498 1,302,770
Total Assets $ 3,961,562 $ 4,735,489 $ 4,258,041 $ 4,202,162 $ 4,074,259
Total Long-Term Obligations and
Redeemable Preferred Stock 335,985 351,762 365,936 376,417 385,483
- ------------------------------------------------------------------------------------------------------------------------------------
Property and Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
Net of Accumulated Depreciation and Amortization $ 1,114,404 $ 1,526,922 $ 1,316,877 $ 1,225,039 $ 1,126,122
Capital Additions (b) 394,951 421,375 386,724 304,345 253,072
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of Net Sales
- ------------------------------------------------------------------------------------------------------------------------------------
(Loss) Earnings from Continuing Operations before
Income Taxes, and Cumulative Effect of
Change in Accounting Principle (8.2) 4.4 5.0 2.8 5.8
(Loss) Earnings before Cumulative Effect of Change in
Accounting Principle (6.3) 3.3 3.8 1.6 4.3
Net (Loss) Earnings (6.8) 3.3 3.8 1.6 4.3
- ------------------------------------------------------------------------------------------------------------------------------------
Return on Beginning Shareholders' Equity (27.6)% 13.7% 16.0% 6.4% 18.7%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes impact of special charges.
(b) Excludes acquisitions.
37
Exhibit 18
March 29, 1996
Melville Corporation
One Theall Road
Rye, New York 10580
Ladies and Gentlemen:
We have audited the consolidated balance sheets of Melville Corporation and
subsidiary companies, as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1995, and have
reported thereon under date of February 15, 1996. The aforementioned
consolidated financial statements and our audit report thereon are incorporated
by reference in the Company's annual report on Form 10-K for the year ended
December 31, 1995. As stated on page 28 of the Company's Annual Report to
Shareholders, which is incorporated by reference on Form 10-K for the year ended
December 31, 1995, the Company changed its method of accounting for internally
developed software costs, electing to expense such costs as incurred. On page 20
of the Company's 1995 annual report, the Company states that the newly adopted
accounting principle is preferable in the circumstances because it believes that
this change results in a better matching of revenues and expenses. In accordance
with your request, we have reviewed and discussed with Company officials the
circumstance and business judgment and planning upon which the decision to make
this change in the method of accounting was based.
With regard to the aforementioned accounting change, authoritative criteria have
not been established for evaluating the preferability of one acceptable method
of accounting over another acceptable method. However, for purposes of Melville
Corporation and subsidiary companies' compliance with the requirements of the
Securities and Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
/s/ KPMG Peat Marwick LLP
EXHIBIT 22
PARENTS AND SUBSIDIARIES AS OF DECEMBER 31, 1995
The registrant is the direct parent corporation of the following Minnesota
corporations, the majority of which also operate specialty retail chain stores;
Smart Step H.C., Inc.; Meldisco H.C., Inc.; CVS H.C., Inc.; Bob's H.C., Inc.,
Rosedale Wilsons, Inc.; Rosedale This End Up, Inc.; Rosedale Open Country, Inc.;
Bloomington, MN., L.T., Inc.; Apache-Minnesota Thom McAn, Inc.; Southdale
Kay-Bee Toy, Inc., Melville Foreign, Inc., Melville Mexico H.C., Inc. and
Melville Altmex H.C., Inc.
Southdale Kay-Bee Toy, Inc. is the parent corporation of Mall of America
Kay-Bee Toy, Inc., which is the parent corporation of 698 subsidiaries, all of
which were formed to operate specialty retail stores, all located in the United
States or Puerto Rico, selling primarily toys, games and hobby products.
Rosedale Wilsons, Inc. is the parent corporation of River Hills Wilsons,
Inc., which is the parent corporation of 445 subsidiaries, all of which were
formed to operate specialty retail stores, all located in the United States,
selling primarily leather and suede apparel and accessories.
Melville Foreign, Inc. is the parent corporation of Melville (UK) Holdings,
a United Kingdom company which is the parent corporation of 2 United Kingdom
subsidiaries which were formed to operate speciality retail stores in the United
Kingdom, selling primarily leather and suede apparel and accessories.
Bloomington, MN., L.T., Inc. is the parent corporation of Rockford L.T.,
Inc., which is the parent corporation of 273 subsidiaries, all of which were
formed to operate specialty retail stores, all located in the United States,
selling quality brand name linens, towels, bath and other household items.
1
<PAGE>
Rosedale This End Up, Inc., is the parent corporation of Jefferson Yorktown
This End Up, Inc., which is the parent corporation of 190 subsidiaries, the
majority of which were formed to operate specialty retail stores, located in the
United States selling a line of casual furniture.
CVS H.C., Inc., is the parent corporation of Nashua Hollis CVS, Inc., which
is the parent corporation of 1,165 subsidiaries, all of which were formed to
operate specialty retail stores located in the United States, selling
prescription drugs, health and beauty care products.
Rosedale Open Country, Inc., is the parent corporation of Mall of America
Fan Club, Inc., which is the parent corporation of 323 subsidiaries all of which
were formed to operate specialty retail stores located in the United States
selling brand name athletic footwear and related apparel for men, women and
children.
Apache-Minnesota Thom McAn, Inc., is the parent corporation of Pheasant
Thom McAn, Inc., which is the parent corporation of 558 subsidiaries all of
which were formed to operate specialty retail stores located in the United
States, Puerto Rico or the U.S. Virgin Islands selling men's and women's
footwear.
Meldisco H.C., Inc. is the parent corporation of Miles Shoes Meldisco
Lakewood, Colorado, Inc., which is the parent corporation (owning 51% of the
capital stock, except for 1,014 subsidiaries in which it owns 100% of all of the
capital stock) of 3,448 subsidiaries all of which were formed to operate leased
footwear departments in Kmart or Pay Less or Thrifty Drug Stores all located in
the United States, Puerto Rico, Guam or the Czech Republic or Slovakia.
Melville Mexico H.C., Inc. and Melville Altmex H.C., Inc., are the direct
or indirect parent corporations of four Mexican subsidiaries formed in
connection with the operation of leased footwear departments in Kmart Stores
located in Mexico.
2
<PAGE>
Melville Corporation Singapore Pte. Ltd., a Singapore corporation, is the
parent corporation of Singapore subsidiaries formed to operate 2 leased footwear
departments in Kmart Stores located in Singapore.
Bob's H.C., Inc., is the parent corporation of Amherst NY Bob's, Inc.,
which is the parent corporation of 45 subsidiaries which were formed to operate
specialty retail stores located in the United States, selling casual clothing
and footwear for the entire family.
The registrant is also the direct parent corporation of Footaction, Inc., a
Texas corporation, and the indirect parent corporation of Kay-Bee Toy & Hobby
Shops, Inc., a Massachusetts corporation, Wilsons House of Suede, Inc., a
California corporation, Linens 'n Things, Inc., a New Jersey corporation,
T.E.U., Incorporated, a Virginia corporation, This End Up, Inc., a Virginia
corporation, This End Up Furniture Company, a North Carolina corporation, T.E.U.
Transportation, Inc., a Virginia corporation, Bob's Inc., a Connecticut
corporation, CVS of DC & VA, Inc., a Maryland corporation, CW Kay-Bee, Inc., a
New York corporation and K & K Kay-Bee, Inc., a Virginia corporation, all of
which are included in the consolidated financial statements of the registrant.
Several of the subsidiaries referred to in this Exhibit have not yet opened
their stores for business, and several no longer operate any stores. All of the
subsidiaries referred to herein are included in the consolidated financial
statements of the registrant.
The names of other subsidiaries are omitted as, considered in the aggregate
as a single subsidiary, they would not constitute a significant subsidiary.
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, AND THE CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 129,583
<SECURITIES> 175,000
<RECEIVABLES> 329,831
<ALLOWANCES> 33,438
<INVENTORY> 1,672,957
<CURRENT-ASSETS> 2,559,928
<PP&E> 1,707,927
<DEPRECIATION> 593,523
<TOTAL-ASSETS> 3,961,562
<CURRENT-LIABILITIES> 1,797,688
<BONDS> 327,698
1,330
0
<COMMON> 111,649
<OTHER-SE> 1,436,114
<TOTAL-LIABILITY-AND-EQUITY> 3,961,562
<SALES> 9,689,062
<TOTAL-REVENUES> 9,689,062
<CGS> 6,574,658
<TOTAL-COSTS> 6,574,658
<OTHER-EXPENSES> 3,857,195
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,977
<INCOME-PRETAX> (797,768)
<INCOME-TAX> (182,070)
<INCOME-CONTINUING> (615,698)
<DISCONTINUED> 547
<EXTRAORDINARY> 0
<CHANGES> 41,955
<NET-INCOME> (657,106)
<EPS-PRIMARY> (6.41)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, AND THE CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 80,062
<SECURITIES> 0
<RECEIVABLES> 278,539
<ALLOWANCES> 14,301
<INVENTORY> 2,584,228
<CURRENT-ASSETS> 3,098,947
<PP&E> 2,360,548
<DEPRECIATION> 809,122
<TOTAL-ASSETS> 5,207,053
<CURRENT-LIABILITIES> 2,368,738
<BONDS> 332,056
1,330
0
<COMMON> 111,646
<OTHER-SE> 2,089,375
<TOTAL-LIABILITY-AND-EQUITY> 5,207,053
<SALES> 6,768,095
<TOTAL-REVENUES> 6,768,095
<CGS> 4,632,827
<TOTAL-COSTS> 4,632,827
<OTHER-EXPENSES> 2,145,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,328
<INCOME-PRETAX> (48,712)
<INCOME-TAX> (20,184)
<INCOME-CONTINUING> (28,528)
<DISCONTINUED> 23,735
<EXTRAORDINARY> 0
<CHANGES> 41,955
<NET-INCOME> (46,748)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, AND THE CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUL-01-1995
<CASH> 82,664
<SECURITIES> 0
<RECEIVABLES> 233,488
<ALLOWANCES> 13,914
<INVENTORY> 2,284,788
<CURRENT-ASSETS> 2,757,242
<PP&E> 2,255,326
<DEPRECIATION> 760,171
<TOTAL-ASSETS> 4,810,936
<CURRENT-LIABILITIES> 1,935,916
<BONDS> 331,229
1,330
0
<COMMON> 111,545
<OTHER-SE> 2,132,053
<TOTAL-LIABILITY-AND-EQUITY> 4,810,936
<SALES> 4,416,879
<TOTAL-REVENUES> 4,416,879
<CGS> 3,023,386
<TOTAL-COSTS> 3,023,386
<OTHER-EXPENSES> 1,388,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,395
<INCOME-PRETAX> (16,146)
<INCOME-TAX> (6,608)
<INCOME-CONTINUING> (9,538)
<DISCONTINUED> 9,849
<EXTRAORDINARY> 0
<CHANGES> 41,955
<NET-INCOME> (41,644)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, AND THE CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> APR-01-1995
<CASH> 88,255
<SECURITIES> 0
<RECEIVABLES> 260,650
<ALLOWANCES> 15,852
<INVENTORY> 2,341,560
<CURRENT-ASSETS> 2,846,641
<PP&E> 2,203,035
<DEPRECIATION> 738,028
<TOTAL-ASSETS> 4,872,250
<CURRENT-LIABILITIES> 1,948,454
<BONDS> 331,280
1,330
0
<COMMON> 111,460
<OTHER-SE> 2,136,183
<TOTAL-LIABILITY-AND-EQUITY> 4,872,250
<SALES> 2,124,714
<TOTAL-REVENUES> 2,124,714
<CGS> 1,469,657
<TOTAL-COSTS> 1,469,657
<OTHER-EXPENSES> 686,582
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,519
<INCOME-PRETAX> (40,044)
<INCOME-TAX> (16,714)
<INCOME-CONTINUING> (23,330)
<DISCONTINUED> (7,024)
<EXTRAORDINARY> 0
<CHANGES> 41,955
<NET-INCOME> (72,309)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, AND THE CONSOLIDATED CONDENSED STATEMENTS
OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 117,035
<SECURITIES> 0
<RECEIVABLES> 248,691
<ALLOWANCES> 18,858
<INVENTORY> 2,138,243
<CURRENT-ASSETS> 2,650,499
<PP&E> 2,231,841
<DEPRECIATION> 704,919
<TOTAL-ASSETS> 4,735,489
<CURRENT-LIABILITIES> 1,642,742
<BONDS> 331,340
1,330
0
<COMMON> 111,454
<OTHER-SE> 2,270,151
<TOTAL-LIABILITY-AND-EQUITY> 4,735,489
<SALES> 9,445,678
<TOTAL-REVENUES> 9,445,678
<CGS> 6,238,378
<TOTAL-COSTS> 6,238,378
<OTHER-EXPENSES> 2,757,036
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,385
<INCOME-PRETAX> 417,879
<INCOME-TAX> 174,293
<INCOME-CONTINUING> 243,586
<DISCONTINUED> 63,884
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307,470
<EPS-PRIMARY> 2.75
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, AND THE CONSOLIDATED CONDENSED STATEMENTS
OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> OCT-01-1994
<CASH> 82,886
<SECURITIES> 0
<RECEIVABLES> 274,208
<ALLOWANCES> 20,631
<INVENTORY> 2,414,482
<CURRENT-ASSETS> 2,944,494
<PP&E> 2,135,423
<DEPRECIATION> 705,445
<TOTAL-ASSETS> 4,931,186
<CURRENT-LIABILITIES> 2,022,149
<BONDS> 341,589
1,330
0
<COMMON> 111,402
<OTHER-SE> 2,113,761
<TOTAL-LIABILITY-AND-EQUITY> 4,931,186
<SALES> 6,309,968
<TOTAL-REVENUES> 6,309,968
<CGS> 4,217,714
<TOTAL-COSTS> 4,217,714
<OTHER-EXPENSES> 1,980,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,245
<INCOME-PRETAX> 92,098
<INCOME-TAX> 28,959
<INCOME-CONTINUING> 63,139
<DISCONTINUED> 31,676
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,815
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0
</TABLE>
