<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
- --------------------------------------------------------------------------------
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
J. Baker, Inc.
(Name of Registrant as Specified In Its Charter)
J. Baker, Inc.
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies: Not
Applicable
2) Aggregate number of securities to which transaction applies: Not
Applicable
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11: Not Applicable
4) Proposed maximum aggregate value of transaction: Not Applicable
Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE> 2
J. BAKER, INC.
555 TURNPIKE STREET
CANTON, MASSACHUSETTS 02021
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 6, 1995
To the Stockholders of
J. BAKER, INC.
Notice is hereby given that the Annual Meeting of Stockholders of J. Baker,
Inc. (the "Company") will be held at the offices of the Company, 555 Turnpike
Street, Canton, Massachusetts on Tuesday, June 6, 1995, at 9:30 a.m., for the
following purposes:
1. To elect three Class III Directors to serve for a three-year term until
the 1998 Annual Meeting and until their respective successors are
elected and qualified;
2. To consider and act upon a proposal to approve Performance Share Awards
for the Chief Executive Officer;
3. To consider and act upon a proposal to approve an Executive Incentive
Compensation Plan for the Chief Executive Officer;
4. To ratify the selection of KPMG Peat Marwick LLP as independent auditors
for the fiscal year ending February 3, 1996; and
5. To consider and act upon any matters incidental to the foregoing or any
other matters which may properly come before the meeting or any
adjournments thereof.
Only stockholders of record at the close of business on April 20, 1995 will
be entitled to notice of and to vote at the meeting and any adjournments or
postponements thereof.
By Order of the Board of Directors
ALAN I. WEINSTEIN
Clerk
Canton, Massachusetts
May 4, 1995
IMPORTANT
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING OF
STOCKHOLDERS. ACCORDINGLY, PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE. IF YOU SO CHOOSE, YOU
MAY VOTE YOUR SHARES IN PERSON AT THE MEETING.
<PAGE> 3
J. BAKER, INC.
555 TURNPIKE STREET
CANTON, MASSACHUSETTS 02021
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 6, 1995
GENERAL INFORMATION
This proxy statement and the accompanying proxy card are being mailed to
stockholders commencing on or about May 4, 1995. The accompanying proxy is
solicited by the Board of Directors of J. Baker, Inc. (the "Company") for use at
its Annual Meeting of Stockholders to be held at the offices of the Company, 555
Turnpike Street, Canton, Massachusetts on June 6, 1995, at 9:30 a.m., and any
adjournments or postponements thereof. The cost of solicitation of proxies will
be borne by the Company. Directors, officers and a limited number of employees
may assist in the solicitation of proxies by mail, telephone and personal
interview without additional compensation.
When a proxy is returned properly signed, the shares represented thereby
will be voted by the persons named as proxies in accordance with the
stockholder's directions. If a proxy is signed and no instructions are given,
the shares will be voted "FOR" the nominees named herein under proposal number 1
and "FOR" proposals number 2, 3 and 4 as set forth in the preceding Notice of
Annual Meeting, and in the proxies' discretion as to other matters that may
properly come before the meeting. The presence of a stockholder at the Annual
Meeting will not automatically revoke a stockholder's proxy. A stockholder may,
however, revoke a proxy at any time prior to the voting thereof on any matter by
filing with the Clerk of the Company a written notice of revocation, by
delivering a duly executed proxy bearing a later date or by attending the Annual
Meeting and voting in person.
The Board of Directors has fixed April 20, 1995 as the record date for the
meeting. Only stockholders of record on the record date are entitled to notice
of and to vote at the meeting and any adjournments or postponements thereof. As
of April 20, 1995, there were 13,946,637 shares of Common Stock, par value $.50
per share ("Common Stock"), of the Company issued and outstanding. Each share is
entitled to one vote. A majority of the outstanding shares will constitute a
quorum at the meeting. Abstentions and broker non-votes are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business. Abstentions and broker non-votes are not counted for purposes of
determining whether a proposal presented to stockholders has been approved.
1
<PAGE> 4
<TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1995,
with respect to the shares of Common Stock of the Company beneficially owned by
(i) any person who is known to the Company to be the beneficial owner of more
than 5% of the outstanding Common Stock of the Company, (ii) each director of
the Company and each of the nominees for election as director of the Company,
(iii) each of the executive officers named in the Summary Compensation Table
beginning on page 12 (the "Summary Compensation Table") and (iv) all directors
and executive officers as a group.
<CAPTION>
AMOUNT AND
NATURE OF
TITLE NAME, AND WITH RESPECT TO OWNERS BENEFICIAL PERCENT
OF CLASS OF 5% OR MORE, ADDRESS OWNERSHIP(1) OF CLASS
- --------------- ---------------------------------------------------- ------------- --------
<S> <C> <C> <C>
Common Stock T. Rowe Price Associates, Inc. 745,488(2) 5.3%
$.50 par value 100 East Pratt Street
Baltimore, MD 21202
Merrill Lynch & Co., Inc. 1,050,049(3) 7.6%
World Financial Center, North Tower
250 Vesey Street
New York, NY 10281
NBD Bancorp, Inc. 834,700(4) 6.0%
611 Woodward Avenue
Detroit, MI 48226
FMR Corp. 889,130(5) 6.4%
82 Devonshire Street
Boston, MA 02109
Goldman Sachs & Co. 947,500(6) 6.8%
The Goldman Sachs Group, L.P.
85 Broad Street
New York, NY 10004
Trustees of General Electric Pension Trust 755,776(7) 5.5%
General Electric Investment Corporation
GE Investment Management Incorporated
3003 Summer Street
Stamford, CT 06904
Sherman N. Baker 344,743(8) 2.5%
J. Christopher Clifford 29,500(9) *
Ervin D. Cruce 25,500(10) *
Nancy Ryan Greenberg 2,500(11) *
Douglas J. Kahn 2,500(11) *
Thomas H. Lee 79,767(12) *
David Pulver 34,693(13) *
Melvin M. Rosenblatt 24,000(14) *
Stanley Simon 30,000(10) *
Jerry M. Socol 156,781(15) 1.0%
Dennis B. Tishkoff 23,974(16) *
Larry I. Kelley 32,000(17) *
Alan I. Weinstein 109,988(18) *
All Directors and Executive Officers as a Group
(18 persons) 1,014,227(19) 7.0%
</TABLE>
2
<PAGE> 5
- ---------------
* Less than 1%
(1) Unless otherwise noted each person has sole voting and investment power
with respect to such shares.
(2) Information based solely on Schedule 13G of T. Rowe Price Associates, Inc.
("Price Associates") filed on behalf of itself and one of its mutual funds
dated February 14, 1995. The beneficial owners have reported that the
shares are owned by various individual and institutional investors for
which Price Associates serves as investment adviser with power to direct
investments and/or sole power to vote the securities. Price Associates has
reported that it has sole voting power with respect to 122,054 shares and
sole dispositive power with respect to 745,488 shares. For purposes of the
reporting requirements of the Securities Exchange Act of 1934, Price
Associates is deemed to be a beneficial owner of such securities; however,
Price Associates expressly disclaims that it is, in fact, the beneficial
owner of such securities.
(3) Information based solely on Schedule 13G of Merrill Lynch & Co., Inc. filed
on behalf of itself and certain of its subsidiaries dated February 10,
1995. The beneficial owners have reported that they share voting and
dispositive power with respect to 1,050,000 shares with each of Merrill
Lynch Group, Inc. and Princeton Services, Inc.
(4) Information based solely on Schedule 13G of NBD Bancorp, Inc., dated
February 9, 1995. The beneficial owner has reported that it has sole voting
power with respect to 815,950 shares, sole dispositive power with respect
to 805,700 shares and shared dispositive power with respect to 29,000
shares.
(5) Information based solely on Schedule 13G of FMR Corp. dated February 13,
1995. The beneficial owner has reported that it has sole voting power with
respect to 109,136 shares and sole dispositive power with respect to
889,130 shares.
(6) Information based solely on joint filing on Schedule 13G of Goldman Sachs &
Co. and the Goldman Sachs Group, L.P. dated February 10, 1995. The
beneficial owners have reported shared voting and dispositive power with
respect to all of the shares.
(7) Information based solely on joint filing on Schedule 13G of trustees of
General Electric Pension Trust ("GEPT"), General Electric Investment
Corporation ("GEIC") and GE Investment Management Incorporated ("GEMI")
dated February 9, 1995. Such information indicates that shares are held as
follows: (i) 509,278 held by GEPT (which has sole voting and sole
dispositive power over all such shares); (ii) 204,979 shares held by GEIC
on behalf of client discretionary investment advisory accounts (which has
sole voting and dispositive power over all of such shares); and (iii)
41,519 shares held by GEMI on behalf of client discretionary investment
advisory accounts (which has sole voting and dispositive powers over all of
such shares).
(8) Includes currently exercisable options with respect to 36,875 shares.
(9) Includes 2,000 shares held by a charitable trust of which Mr. Clifford is a
trustee and as to which Mr. Clifford disclaims beneficial ownership and
currently exercisable options with respect to 17,500 shares.
(10) Includes currently exercisable options with respect to 22,500 shares.
(11) Represents currently exercisable options.
(12) Includes currently exercisable options with respect to 17,500 shares.
(13) Includes currently exercisable options with respect to 7,500 shares.
(14) Includes 1,000 shares owned by Mr. Rosenblatt's wife as to which Mr.
Rosenblatt disclaims beneficial ownership and currently exercisable options
with respect to 20,000 shares.
3
<PAGE> 6
(15) Includes 7,000 shares owned by Mr. Socol's wife as to which Mr. Socol
disclaims beneficial ownership and currently exercisable options with
respect to 87,531 shares.
(16) Includes 289 shares owned by Mr. Tishkoff's wife as to which Mr. Tishkoff
disclaims beneficial ownership. Includes currently exercisable options with
respect to 3,750 shares.
(17) Represents currently exercisable options with respect to 25,750 shares and
options for 6,250 shares exercisable within sixty (60) days of the record
date.
(18) Includes currently exercisable options with respect to 33,500 shares.
(19) Includes currently exercisable options with respect to 362,337 shares and
options for 12,500 shares exercisable within sixty (60) days of the record
date. Includes 806 shares issuable upon the conversion of convertible
subordinated debentures.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission ("SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten percent beneficial
owners are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file. With the exception of one untimely report filed
by each of Mr. Tishkoff, Mr. Rosenberg and Mr. Weinstein, to the Company's
knowledge, based solely on its review of the copies of such reports furnished to
the Company and written representations that no other reports were required, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with during the fiscal
year ended January 28, 1995.
(PROPOSAL NUMBER 1)
ELECTION OF DIRECTORS
Pursuant to Massachusetts law, the Board of Directors of the Company has
voted to fix the number of directors at ten. The Board of Directors is divided
into three classes of approximately equal size. The members of each class are
elected for terms to continue until the annual meeting of stockholders held in
the third year following the year of their election and until their respective
successors are elected and qualified. Consequently, the term of office of the
nominees elected to the Board of Directors at the 1995 annual meeting will
continue until the annual meeting of stockholders to be held in 1998 and until
their respective successors are elected and qualified.
The nominees for the three Class III Directors to be voted upon at the
meeting are J. Christopher Clifford, Jerry M. Socol and David Pulver, the
current holders of the Class III directorships. PROXIES WILL BE VOTED FOR THESE
NOMINEES UNLESS OTHERWISE SPECIFIED IN THE PROXY. Management does not
contemplate that any of the nominees will be unable to serve, but in such an
event, proxies solicited hereby will be voted for the election of another person
or persons, if any, to be designated by the Board of Directors.
The affirmative vote of a plurality of the outstanding shares of the
Company's Common Stock present or represented at the Annual Meeting is required
for the election of Directors.
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<PAGE> 7
<TABLE>
The following table sets forth information regarding Messrs. Clifford, Socol and Pulver,
the Board of Directors' nominees for election as Directors, as well as information regarding each
Director whose term is not to expire until the 1996 or 1997 Annual Meeting of Stockholders.
<CAPTION>
PRESENT PRINCIPAL EMPLOYMENT AND DIRECTOR
NAME AGE PRIOR BUSINESS EXPERIENCE SINCE
---- --- -------------------------------- --------
<S> <C> <C> <C>
(NOMINEES FOR CLASS III TERM TO EXPIRE IN 1998)
J. Christopher Clifford.......... 49 Since 1986, General Partner of Berkshire 1985
Partners and affiliated partnerships.
Jerry M. Socol................... 53 President of the Company since September 1988
1988 and Chief Executive Officer of the
Company since March 1990. Chief Executive
Officer of Filene's Department Stores
("Filene's"), August 1987 to June 1988.
President of Filene's, January 1984 to
August 1987. Director of County Seat, Inc.
David Pulver..................... 53 President of Cornerstone Capital, Inc. 1993
Chairman of the Board of Directors of Morse
Shoe, Inc., 1992-January 1993. Chairman
of the Board and Co-Chief Executive
Officer of The Children's Place,
1968-1984. Director of Costco Wholesale
Corporation, County Seat, Inc. and Argyle
Television Holding II, Inc. Trustee of
Colby College in Waterville, Maine.
(CONTINUING DIRECTORS -- CLASS I TERM TO EXPIRE IN 1996)
Sherman N. Baker................. 75 Chairman of the Board of the Company. Chief 1985
Executive Officer of the Company and its
predecessor from 1970 until March 1990.
Ervin D. Cruce................... 63 Since January 1992, individual investor. 1986
During 1991, General Partner in the firm of
Cruce & O'Brien. Since April 1985,
Partner of BMA, the general partner of
Investment Limited Partnership. Former
Vice President of RER Texas, Inc.,
general partner of BMA. Prior to 1985,
partner in accounting firm of KPMG Peat
Marwick, where associated for 32 years.
Director of Texas Security Bancshares, Inc.
Melvin M. Rosenblatt............. 64 Certified public accountant and Chairman of 1993
the Board and Chief Executive Officer of
Greenberg, Rosenblatt, Kull & Bitsoli,
P.C., a public accounting firm which he
has been associated with since 1957.
Chairman Elect of the Board of Trustees
of Clark University in Worcester, Mas-
sachusetts. Director and Chairman of the
Asset Development Committee of the
Greater Worcester Community Foundation.
Formerly a Director of Ames Department
Stores, Inc., from 1979 through 1992.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRESENT PRINCIPAL EMPLOYMENT AND DIRECTOR
NAME AGE PRIOR BUSINESS EXPERIENCE SINCE
---- --- -------------------------------- --------
<S> <C> <C> <C>
(CONTINUING DIRECTORS -- CLASS II TERM TO EXPIRE IN 1997)
Thomas H. Lee.................... 51 Since 1974, owner of Thomas H. Lee Company. 1985
Chairman of the Board of Directors of
Hills Department Store Company. Director
of Autotote Corporation, General
Nutrition, Inc., Gillett Holdings, Inc.,
Health-o-meter, Inc., Snapple Beverage
Corporation, Finlay Fine Jewelry
Corporation and Playtex Family Products
Corporation. Individual General Partner
of ML Lee Acquisition Fund, L.P., ML Lee
Acquisition Fund II, L.P. and ML Lee
Acquisition Fund (Retirement Accounts)
II, L.P.
Stanley Simon.................... 77 Since 1958, Principal of Stanley Simon & 1985
Associates. Director of the Company's
predecessor, National Shoes, Inc., from
1965 to 1985. Director of Gerber
Scientific, Inc., Vornado, Inc., and
General Microwave Corp.
Nancy Ryan Greenberg............. 45 Since 1980 President of Pro Media, Inc., 1995
Prior to 1980, Vice President/Media
Director of S & N Advertising.
Douglas J. Kahn.................. 38 Since 1993 President and Chief Operating 1995
Officer of the Royal Home Fashions Division
of Croscill Home Fashions Inc., Prior to
1993, Senior Vice President -- Merchant
Banking Group, Donaldson, Lufkin and
Jenrette Securities Corporation.
</TABLE>
INFORMATION ABOUT BOARD OF DIRECTORS AND COMMITTEES
Directors who are not employees of the Company are eligible to participate
in the Company's 1992 Directors' Stock Option Plan (the "Directors' Plan") and,
if they are not otherwise compensated by the Company currently receive an annual
fee of $20,000 and an annual fee of $2,500 for each committee of the Board on
which they serve. Pursuant to the Directors' Plan, each eligible director is
automatically granted an option to purchase 2,500 shares of the Company's Common
Stock upon his or her initial election to the Board of Directors and at the
close of business on the fifth business day following the Company's annual
meeting of stockholders, at an exercise price equal to the closing price of the
Company's Common Stock on the date of grant. In fiscal 1995, pursuant to the
Directors' Plan, each of Messrs. Clifford, Cruce, Lee, Pulver, Rosenblatt and
Simon was granted an option to purchase 2,500 shares of the Company's Common
Stock at a per share exercise price of $22.38, the fair market value of the
Company's Common Stock on the date of grant. In January, 1995 upon their
election as new Directors, each of Mr. Kahn and Ms. Greenberg was also granted
an option to purchase 2,500 shares of Common Stock at a per share exercise price
of $14.38, the fair market value of the Company's Common Stock on the date of
grant.
The Company's Board of Directors held six meetings during fiscal 1995. All
of the Directors attended at least 75% of these meetings and any meetings of any
committees of which such Director was a member, except for Mr. Lee.
The Board of Directors has standing Audit, Compensation, Executive and
Nominating Committees. These committees are reconstituted at the first meeting
of the Board following the annual meeting of stockholders.
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<PAGE> 9
The Audit Committee, which met three times during fiscal 1995, meets with
the Company's independent auditors and the principal financial personnel of the
Company to review the results of the annual audit. The Audit Committee also
reviews the scope of, and approves fees for, audit and non-audit services
performed by the independent auditors, reviews the independence of the
independent auditors and reviews the adequacy and effectiveness of internal
accounting controls. The present members of the Audit Committee are Messrs.
Cruce (Chairman), Pulver, Rosenblatt and Simon.
The Compensation Committee, which held two meetings during fiscal 1995,
reviews and makes recommendations to the full Board regarding the compensation
of senior officers of the Company. The present members of this committee are
Messrs. Simon (Chairman), Clifford, Cruce, Pulver and Rosenblatt.
The Executive Committee, which met three times during fiscal 1995, monitors
and follows developments in the Company's business between meetings of the Board
of Directors. The Executive Committee has no authority to take or authorize any
official actions on behalf of the Company or to act in place of the Board of
Directors. The present members of this committee are Messrs. Baker, Clifford,
Rosenblatt and Socol.
The Nominating Committee, which met four times during fiscal 1995,
identifies, evaluates and nominates candidates for election to the Board. The
present members of this committee are Messrs. Pulver (Chairman), Cruce and
Rosenblatt.
On October 27, 1993, Sherman N. Baker entered into a consent decree
settling SEC allegations of certain Federal securities law violations with
respect to sales of Company stock which Mr. Baker had made in the fall of 1991
for estate planning purposes. The Company's Board of Directors is aware of the
SEC allegations and Mr. Baker's settlement thereof, in which he neither admitted
nor denied the allegations. The Board was aware that several factors came into
play in Mr. Baker's decision to settle the claim, including the stress and
significant costs of continuing legal proceedings. The Board notes further Mr.
Baker's long and distinguished record of service and dedication to the Company
and reaffirms its confidence in Mr. Baker's integrity and ability to serve the
Company as a Director.
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
comprised of five outside Directors. The Board of Directors delegates to the
Compensation Committee the responsibility for developing and administering the
policies which govern the total compensation program for executive officers of
the Company. The Committee also administers the Company's 1985 Amended and
Restated Stock Option Plan (the "1985 Plan"), the 1994 Equity Incentive Plan
(the "1994 Plan") and the Cash Incentive Compensation Plan (the "Incentive
Plan") for all plan participants, including awards made to the executive
officers of the Company. In making pay decisions for the named executives whose
compensation is detailed in this proxy statement (other than the Chief Executive
Officer and the Chairman of the Board), the Committee also takes into
consideration the views and recommendations of the Chief Executive Officer
concerning each executive's overall contribution to the Company's performance.
The Committee has prepared the following report to summarize the executive
compensation approach of the Company and describe specific decisions made by the
Committee with respect to the Chief Executive Officer's compensation and future
compensation guidelines.
The general philosophy of the Committee is to link overall executive
compensation with the performance of the Company and the individual executive,
with operating division performance also emphasized for division executives. The
focus of the performance is on the achievement of both annual and long-term
business objectives that contribute to the creation of long-term stockholder
value. This philosophy is reflected in the Company's executive compensation
approach that provides a major portion of total compensation in
7
<PAGE> 10
pay-for-performance programs that consist of long-term stock-based incentives,
an annual incentive plan and merit salary increases. The combination of these
compensation elements is intended to produce total pay at the median of the
marketplace among similar-size specialty store retailers when the Company's
performance also reflects median performance in the same group. Similarly, total
compensation is intended to vary above or below the competitive median when
Company performance varies from the comparative industry median.
In 1993, the Committee engaged the services of compensation consultants
from KPMG Peat Marwick for the purpose of assisting the Committee with a full
review of the competitiveness and effectiveness of the Company's executive pay
practices in light of the merger with Morse Shoe, Inc. This review covered base
salary levels and ranges for each executive position, annual incentive
practices, executive benefit arrangements and stock-based long-term incentives.
It also included a comparative analysis of key industry financial results in
order to evaluate the Company's relative achievement of the desired pay to
performance relationship. The market data employed in the review included proxy
data from specialty store retailers with similar annual sales and
nationally-known compensation surveys for the retailing industry.
In 1994, the Committee again engaged the services of KPMG Peat Marwick LLP
for the purpose of assisting the Committee in structuring a long-term
compensation arrangement for the Company's Chief Executive Officer, Mr. Socol.
As adopted by the Committee in 1994, this arrangement offers Mr. Socol an
opportunity to substantially increase his equity ownership in the Company over
several years if the Company meets important performance targets that link to
significant stockholder value. The four components of Mr. Socol's total
compensation program are base salary, grants of stock options, grants of
performance shares and an enhanced annual incentive stock bonus opportunity
which is linked to the Company's Incentive Plan. The equity incentive components
of Mr. Socol's total compensation are emphasized in this new arrangement to
reflect the Committee's philosophy that Mr. Socol's total compensation should
substantially depend on the Company's stock price. These components also serve
to reinforce a balanced focus on performance in three critical areas: stock
price appreciation, attainment of multi-year earnings per share growth goals and
strong annual earnings performance in relation to the Company's approved profit
plan. The specific elements of Mr. Socol's compensation are discussed in further
detail below.
Base Salary
Base salaries for the Company's executive officers are reviewed annually
and are determined through an assessment of individual performance against
assigned objectives and key qualitative factors that include personal
accomplishments, strategic impact and career contribution to the Company. As a
guide for setting salaries, the Committee relies on competitive salary ranges
developed by its compensation consultants. These ranges reflect median market
practice for positions of comparable responsibility and scope in the targeted
retailing marketplace.
On an annual basis, each executive of the Company engages in a formal
system of assessment known as the Annual Performance Management Program whereby
goals and objectives for each performance period are established by the
executive which are subject to periodic review and assessment during the
performance period. At the conclusion of the performance period, the executive
completes a self-appraisal and a formal review of his or her performance is
conducted by the evaluating manager. The assessment of Mr. Socol's performance
as Chief Executive Officer is the responsibility of the Committee. The base
salary determined for Mr. Socol for fiscal year 1996 remains at $450,000, the
same salary paid for fiscal year 1995. In setting Mr. Socol's base salary, the
Committee considered his performance in managing the Company's overall financial
and operating results and competitive salary ranges, as well as the new
opportunities Mr. Socol has been offered to enhance total compensation through
the equity incentive arrangements adopted by the Committee in 1994.
8
<PAGE> 11
Cash Incentive Compensation Plan
The Company's Incentive Plan represents an annual incentive opportunity
designed to reward certain key employees for the performance of the Company
relative to the achievement of pre-determined profit goals established for the
year. Such goals are based on the Company's budgeted corporate pre-tax operating
income as well as on each operating division's pre-tax operating income, prior
to allocation of corporate overhead. Payments under the Incentive Plan are based
on the achievement of such corporate and divisional profit goals, are
recommended by management, subject to review by the Committee, and are then
recommended to the full Board for approval.
The Incentive Plan is linked to relative achievement of goals that are
defined by a scale of threshold, target and superior profit results for the
fiscal year, with target performance linked to a target award size that
approximates median bonus opportunity in the marketplace. For the Incentive Plan
participants, the target award guidelines range by position level from 12% to
54% of base salary, with the Chief Executive Officer at the 54% level. The
threshold guideline for awards represents a percentage of each position's target
size, as determined by the Committee from year to year, and the maximum
guideline (which ties to superior profit results) represents 175% of the target
size. Each executive's award opportunity is also allocated on a weighted basis
across the operating units for which the executive has responsibility, including
a portion allocated to corporate profit results. For Mr. Socol, the entire award
opportunity is based on consolidated corporate results. In addition to these
award funding guidelines, the Incentive Plan provides for an individual
performance modifier that can adjust a participant's funded award by as much as
50% upward or downward to reflect all aspects of the participant's performance
for the fiscal year.
As indicated, one component of Mr. Socol's total compensation program is an
enhanced annual incentive stock bonus opportunity. Under this component of the
program, any amount awarded to Mr. Socol under the provisions of the Incentive
Plan which exceeds $100,000 will be awarded to him half in cash and half in
shares of equivalent value of Common Stock of the Company. In addition, as a
bonus enhancement, that portion of any Incentive Plan award which is made in
stock will be matched by the Company with an equal number of additional shares
of Common Stock of the Company. This component of Mr. Socol's compensation
program will operate for five fiscal years, beginning with fiscal year 1995 and
ending with fiscal year 1999. Further, the individual performance modifier
provided for in the Incentive Plan will apply to Mr. Socol only to the extent
that his incentive compensation is modified downward to reflect individual
performance factors. This change in the Incentive Plan provisions is necessary
to comply with certain deductibility rules under Section 162(m) of the Internal
Revenue Code.
During fiscal year 1995, Mr. Socol's award under the Incentive Plan was
approximately 20% of base salary, or $89,910. The award reflected corporate
pre-tax operating income that was between the threshold and target corporate
goals approved for the year. As a result of Mr. Socol receiving less than
$100,000 as an Incentive Plan award for fiscal year 1995, no stock bonus award
was made to Mr. Socol under the enhanced stock bonus component described above.
1985 Stock Option Plan and 1994 Equity Incentive Plan
The Company's 1985 Plan will terminate, according to its terms, in June,
1995. Accordingly, on June 7, 1994, the Stockholders of the Company voted to
adopt the 1994 Plan which allows for the issuance of stock options, restricted
stock grants, unrestricted stock grants and performance share awards to
executives and other key employees of the Company. The 1994 Plan provides
increased flexibility in the award of equity based compensation through a
combination of these incentive vehicles authorized under the Plan and furthers
the Committee's objective of aligning executive officer compensation closely
with long term stockholder interests. As with the 1985 Plan, the 1994 Plan is
administered by the Committee, which has full power to select, from among the
employees eligible for awards, the individuals to whom awards will be granted,
to make
9
<PAGE> 12
any combination of awards to participants, and to determine the specific terms
of each award, subject to the provisions of the 1994 Plan.
Grants of incentive or non-qualified stock options are made to executives
and other key employees of the Company under the Company's 1985 Plan and the
1994 Plan. As referenced, grants of stock options under the 1985 Plan and the
1994 Plan are made to such executives and other key employees to enable them to
participate in the creation of stockholder value in the Company as well as to
permit the accumulation of an equity interest in the Company, thereby aligning
the interests of executives with those of stockholders. Options granted under
the 1985 Plan and the 1994 Plan generally vest at the rate of 25% per year and
the term of each option is ten years. Individual grants under the 1985 Plan and
the 1994 Plan are determined based upon the level of position held, individual
contribution to the achievement of the Company's financial goals and such other
performance factors as management and the Committee may consider.
The Committee may also award shares of Common Stock to officers and other
eligible employees under the 1994 Plan subject to such conditions and
restrictions as the Committee may determine ("Restricted Stock"). Such
conditions and restrictions may include the achievement of certain performance
goals and/or continued employment with the Company through specified periods of
time. The purchase price, if any, of shares of Restricted Stock will be
determined by the Committee and failure to achieve performance goals or other
restrictions as determined by the Committee may result in employee forfeiture of
such awards.
Under the 1994 Plan, the Committee may also award shares of Common Stock
which are free from any restrictions ("Unrestricted Stock"). Unrestricted Stock
may be issued to eligible employees under the 1994 Plan in recognition of past
services or other valid consideration and may be issued in lieu of cash bonuses
paid to such employees. Unrestricted Stock may be issued at no cost or for a
purchase price determined by the Committee. Finally, the Committee may also
grant performance share awards ("Performance Share Awards") to eligible
employees under the 1994 Plan entitling the recipient to receive shares of
Common Stock upon the achievement of individual or Company performance goals or
such other criteria as the Committee shall determine. As of the date of this
report, no awards of Restricted Stock, Unrestricted Stock or Performance Share
Awards have been made to any eligible employees under the 1994 Plan.
With respect to Mr. Socol's compensation, stock option grants are made at
fair market value, with a ten year term for each option granted. Vesting of such
options are in accordance with the provisions of the 1985 Plan and the 1994
Plan, respectively, with 25% of any such options vesting on each grant
anniversary date beginning on the first anniversary date after the date of grant
and ending on the fourth anniversary date. In accordance with Mr. Socol's total
compensation program adopted by the Committee in 1994, Mr. Socol was granted a
non-qualified stock option pursuant to the 1985 Plan for 50,000 shares of Common
Stock of the Company on August 11, 1994, at an exercise price of $18.75. This
award was in addition to a non-qualified stock option for 10,125 shares of
Common Stock of the Company granted to Mr. Socol in March, 1994 at an exercise
price of $19.875. Under this component of the program, the Committee also
committed to future grants of non-qualified stock options for 50,000 shares each
to Mr. Socol in April, 1995, subject to the Company achieving earnings per share
goals of $1.70 or higher for the fiscal year ended January 28, 1995 ("Fiscal
1995") and again in April, 1996, subject to the Company achieving the approved
profit plan for the fiscal year ending February 3, 1996. The earnings per share
performance measurements set forth above for the stock option component of Mr.
Socol's equity incentive arrangement are structured as absolute performance
requirements. Therefore, as a result of the Company not achieving the stated
goal for Fiscal 1995, Mr. Socol will not receive the specified stock option
award for that year. The award of 50,000 shares made to Mr. Socol on August 11,
1994 was without any performance contingency.
The final component of Mr. Socol's equity incentive arrangement consists of
Performance Share Awards to be made to him based on the performance of the
Company during overlapping three year cycles. Three such performance cycles are
planned under this component of the program beginning May 1, 1994, February 1,
10
<PAGE> 13
1995 and February 1, 1996 and ending on January 31, 1997, January 31, 1998 and
January 31, 1999, respectively. Performance Share Awards for each cycle will be
determined by the compound annual rate of growth in the Company's earnings per
share over the cycle and the Committee establishes a required threshold rate of
earnings per share growth in order for any Performance Share Awards to be made.
The Committee will also establish target and maximum earnings per share goals
that correspond to increased Performance Share Awards. The base year for
calculating earnings per share growth is the fiscal year immediately prior to
the start of the applicable cycle and the maximum award of Performance Shares
that can be made in any given year (representing the last year of the applicable
three year cycle) will be 25,000 shares. Performance Share Awards under this
component of Mr. Socol's total compensation are intended to qualify as
"performance based compensation" as defined in Section 162 of the Internal
Revenue Code. With three overlapping grant cycles spanning a five year period, a
total of 75,000 shares of the Company's Common Stock are potentially available
as awards to Mr. Socol under this component of his equity incentive arrangement.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code (the "Code"), which became
effective on January 1, 1994, will generally limit the Company's liability to
deduct compensation expense in excess of $1 million paid to the Company's Chief
Executive Officer or other executive officers named in the Summary Compensation
Table contained in this proxy statement. Generally, the Committee expects to
attempt to structure compensation payments to executive officers so as to be
deductible under Section 162(m). In the event, however, that the Committee
determines that so structuring a compensation payment would not be in the best
interests of the Company, the Committee would adjust its compensation policies
and payments to provide incentives to the executive officers to achieve the
performance measures or goals that the Committee believes to be in the best
interests of the Company.
COMPENSATION COMMITTEE
Stanley Simon, Chairman
J. Christopher Clifford
Ervin D. Cruce
David Pulver
Melvin M. Rosenblatt
11
<PAGE> 14
<TABLE>
EXECUTIVE COMPENSATION
The following table discloses compensation received by the Company's Chief Executive Officer and the four next most
highly compensated executive officers for the fiscal years ended January 28, 1995, January 29, 1994, and January 30, 1993.
SUMMARY COMPENSATION TABLE
<CAPTION>
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS COMPENSATION ($)
------------------ ---- ---------- --------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jerry M. Socol................. 1995 446,154 89,910(1) -0- 60,125 2,250(5)
President, Chief Executive 1994 420,673 168,683(1) 93,110(4) 60,000 3,538(5)
Officer and Director 1993 391,348 233,817(1) 48,797(4) 15,000 5,149(5)
Sherman N. Baker............... 1995 350,000 69,930(1) -0- 7,500 -0-
Chairman of the Board 1994 350,000 92,610(1) -0- -0- -0-
1993 350,000 212,192(1) -0- -0- -0-
Alan I. Weinstein.............. 1995 305,231 45,584(1) -0- 7,500 2,250(5)
Senior Executive Vice 1994 280,000 56,840(1) -0- 30,000 3,538(5)
President, Chief Financial 1993 229,244 90,392(1) -0- 7,500 5,149(5)
Officer, Chief Administrative
Officer and Secretary
Larry I. Kelley................ 1995 268,539 75,663(2) -0- 5,000 22,788(5)(6)
Executive Vice President, 1994 252,404 74,868(2) -0- 10,000 25,327(5)(6)
President of The Casual Male, 1993 237,403 96,000(2) -0- 5,000 25,994(5)(6)
Inc.
Dennis B. Tishkoff............. 1995 255,000 114,648(1) -0- 15,000 2,250(5)
Executive Vice President, 1994 49,038(3) -- -- -- --
President of Shoe Corporation 1993 -- -- -- -- --
of America
<FN>
- ---------------
(1) Amounts shown reflect payments under the Company's Incentive Plan, and, with respect to Messrs. Baker and Socol, additional
compensation pursuant to the terms of their employment agreements with the Company for fiscal 1993 only.
(2) Includes payment under the Company's Incentive Plan and guaranteed bonus under employment agreement for fiscal 1994 and fiscal
1993, only.
(3) Amount shown reflects partial year salary for Mr. Tishkoff.
(4) Amount shown reflects reimbursement for income taxes payable in connection with the sale of shares acquired upon the exercise
of certain stock options.
(5) Amounts shown reflect contributions made by the Company under the 401(k) Profit Sharing Plan based upon the officer's
contributions.
(6) Amount shown reflects the reduction of $20,538, $21,789 and $23,052, including imputed interest, of the principal amount
outstanding under a Note dated June 3, 1991 in favor of The Casual Male, Inc., for fiscal 1995, fiscal 1994 and fiscal 1993,
respectively.
</TABLE>
12
<PAGE> 15
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in the fiscal year ended January 28, 1995 to the named executive
officers.
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATE OF
OPTIONS STOCK PRICE APPRECIATION FOR
GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(3) DATE 0% ($) 5% ($) 10% ($)
---- ---------- -------------- --------- ---------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Jerry M. Socol................... 10,125 3.2% $19.875 3/29/04 0 126,555 320,716
50,000 15.8% $ 18.75 8/11/04 0 589,589 1,494,134
Sherman N. Baker................. 7,500 2.4% $19.875 3/29/04 0 93,745 237,567
Dennis B. Tishkoff............... 15,000 4.7% $19.875 3/29/04 0 187,490 475,134
Larry I. Kelley.................. 5,000 1.6% $19.875 3/29/04 0 62,496 158,378
Alan I. Weinstein................ 7,500 2.4% $19.875 3/29/04 0 93,745 237,567
<FN>
- ---------------
(1) The options became exercisable as to 25% of the underlying shares on March 29, 1995 except for the 50,000 share grant to
Mr. Socol which becomes exercisable as to 25% of the underlying shares on August 11, 1995 and will become exercisable as to
25% of the underlying shares on each successive anniversary date thereof.
(2) The Company granted options representing 316,025 shares to employees in fiscal 1995.
(3) The exercise price may be paid in cash or in shares of Common Stock valued at fair market value on the date of exercise.
(4) The dollar amount under these columns are the result of calculations at 0% and at the 5% and 10% rates set by the SEC and
therefore are not intended to forecast possible appreciation, if any, of the Company's stock price. The Company did not use an
alternative formula for grant date valuation, as the Company is not aware of any formula which will determine with reasonable
accuracy a present value based on future unknown or volatile factors. The calculation of stock price appreciation hereunder is
based upon an Option Term of ten (10) years.
</TABLE>
<TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUE
The following table provides information on option exercises in fiscal 1995 by the named executive officers and the value of
such officers' unexercised options at January 28, 1995.
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END (#) AT FISCAL YEAR END ($)(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry M. Socol................. 0 0 66,250 112,625 210,000 13,125
Sherman N. Baker............... 0 0 35,000 7,500 266,875 0
Dennis B. Tishkoff............. 0 0 0 15,000 0 0
Larry I. Kelley................ 0 0 20,750 21,250 94,938 40,313
Alan I. Weinstein.............. 0 0 20,750 35,250 49,313 20,813
<FN>
- ---------------
(1) Fiscal year ended January 28, 1995. The average of the high and low prices of the Company's Common Stock on January 27, 1995,
the last trading day preceding the Company's fiscal year end, was $14.375.
</TABLE>
13
<PAGE> 16
<TABLE>
RETIREMENT PLANS
The following table shows the annual benefits payable under the Company's Retirement
Plan and Supplemental Plan to persons in specified compensation and years of service
classifications, based on a straight life annuity form of retirement income.
<CAPTION>
REPRESENTATIVE YEARS OF SERVICE
---------------------------------
AVERAGE OF HIGHEST FIVE
YEARS OF COMPENSATION 10 20 30 (MAXIMUM)
----------------------- -- -- ------------
<S> <C> <C> <C>
$ 50,000................................... $ 5,315 $10,630 $ 16,946
100,000................................... 12,315 24,630 37,946
150,000................................... 19,315 38,630 58,946
200,000................................... 26,315 52,630 79,946
247,540*.................................. 31,264 62,598 93,792
250,000*.................................. 33,315 66,630 100,946
300,000*.................................. 40,315 80,630 121,946
350,000*.................................. 47,315 94,630 142,946
400,000*.................................. 54,315 108,630 163,946
450,000*.................................. 61,315 122,630 184,946
500,000*.................................. 68,315 136,630 205,946
<FN>
- ---------------
(*) The maximum compensation that may be used as of February 1, 1995 to calculate benefits under the
Retirement Plan and the Supplemental Plan is $247,540.
</TABLE>
In December, 1993, the Board of Directors of the Company established a
Supplemental Retirement Plan (the "Supplemental Plan") to provide benefits
attributable to compensation in excess of $150,000, but less than $247,540. The
benefit provided by the Retirement Plan and the Supplemental Plan is equal to
(i) the sum of 0.75% of the executive's highest consecutive five-year average
annual compensation plus 0.65% of the excess of the executive's highest
consecutive five-year average annual compensation over the average of the Social
Security taxable wage bases, multiplied by (ii) the executive's years of
"benefit service" with the Company (not to exceed 30 years). Effective February
1, 1995, compensation for such purposes means all eligible compensation up to a
maximum of $247,540 for the calendar year ended December 31, 1995. Annual
benefits are payable under the Company's Retirement Plan for retirees at age 65,
prior to the offset, if any, for benefits accrued under the retirement plan of
the Company's predecessor and for Social Security benefits. As of January 31,
1995, the number of years of "benefit service" for each of the following
individuals was as follows: Sherman N. Baker -- 30 years; Jerry M. Socol -- 6
years; Dennis B. Tishkoff -- 1 year; Larry I. Kelley -- 4 years; and Alan I.
Weinstein -- 26 years.
EMPLOYMENT ARRANGEMENTS
Mr. Baker is employed pursuant to an employment agreement dated March 25,
1993 which, as amended on March 31, 1995, provides for an annual base salary of
not less than $315,000 plus incentive bonus compensation to which he may be
entitled pursuant to the Incentive Plan. The agreement contains certain
non-competition restrictions upon termination of employment and further provides
that in the event Mr. Baker's employment terminates due to his disability or
death, the Company will pay him or his estate an amount equal to his annual base
salary for a period of one year after termination of employment and any bonus
amount payable with respect to such fiscal year pro-rated through the date of
termination of employment. The agreement is effective through March 31, 1996.
Mr. Socol is employed pursuant to an employment agreement dated March 25,
1993 which, as amended on June 9, 1994, provides for an annual base salary of
not less than $450,000 plus incentive bonus
14
<PAGE> 17
compensation to which he may be entitled pursuant to the Incentive Plan. The
agreement contains certain non-competition restrictions upon termination of
employment and further provides that in the event Mr. Socol's employment
terminates due to his disability or death, the Company will pay him or his
estate an amount equal to his annual base salary for a period of one year after
termination of employment and any bonus amount payable with respect to such
fiscal year pro-rated through the date of termination of employment. The
agreement is effective through April 1, 1996.
Mr. Tishkoff is employed pursuant to an agreement dated November 19, 1993
which, as amended on April 25, 1995, provides for an annual base salary of not
less than $270,000 plus incentive bonus compensation to which he may be entitled
pursuant to the Incentive Plan. The agreement contains certain non-competition
restrictions upon termination of employment and further provides that in the
event Mr. Tishkoff's employment terminates due to his disability or death, the
Company will pay him or his estate an amount equal to his annual base salary for
a period of one year after termination of employment and any bonus amount
payable with respect to such fiscal year pro-rated through the date of
termination of employment. The agreement is effective through April 1, 1997.
Mr. Kelley is employed pursuant to an agreement dated March 25, 1993 which,
as amended on May 2, 1995, provides for an annual base salary of not less than
$283,000 plus incentive bonus compensation to which he may be entitled pursuant
to the Incentive Plan. The Agreement contains certain non-competition
restrictions upon termination of employment and further provides that in the
event Mr. Kelley's employment terminates due to disability or death, the Company
will pay him or his estate an amount equal to his annual base salary for a
period of one year after termination of employment and any bonus amount payable
with respect to such fiscal year pro-rated through the date of termination of
employment. The agreement is effective through April 1, 1997.
Mr. Weinstein is employed pursuant to an agreement dated March 25, 1993
which, as amended on April 25, 1995, provides for an annual salary of not less
than $308,000 plus incentive bonus compensation to which he may be entitled
pursuant to the Incentive Plan. The agreement contains certain non-competition
restrictions upon termination of employment and further provides that in the
event Mr. Weinstein's employment terminates due to disability or death, the
Company will pay him or his estate an amount equal to his annual base salary for
a period of one year after termination of employment and any bonus amount
payable with respect to such fiscal year pro-rated through the date of
termination of employment. The agreement is effective through April 1, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Stanley Simon (Chairman), J.
Christopher Clifford , Ervin D. Cruce, David Pulver and Melvin M. Rosenblatt.
None of these individuals is an executive officer and no "compensation committee
interlocks" existed during the last fiscal year. Mr. Clifford is a partner of
Berkshire Partners which receives one-half of the fees the Company pays Thomas
H. Lee Company ("THL"), under a Management Agreement dated as of July 10, 1985
(the "Management Agreement"), between the Company and THL for consulting and
management services in the areas of financial and strategic corporate planning.
For the fiscal year ended January 28, 1995, the Company paid THL $120,000 for
services under the Management Agreement. The Company believes that the terms of
the Management Agreement are as favorable as could be obtained from an
unaffiliated entity.
15
<PAGE> 18
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return (stock
price appreciation plus dividends) on the Company's Common Stock with the
cumulative total return of the NASDAQ Stock Market -- U.S. Index and a peer
group (1) for the five years ending January 28, 1995.
[PASTE UP CUSTOMER SUPPLIED CHART]
(1) The peer group is comprised of the following companies: Burlington Coat
Factory Warehouse, Charming Shoppes, Inc., Consolidated Stores, Edison
Brothers Stores, House of Fabrics, Jamesway Corp., Petrie Stores Corp.,
Pier 1 Imports, Rose's Stores, Inc., Ross Stores Inc. and Strawbridge &
Clothier.
16
<PAGE> 19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and THL are parties to the Management Agreement. Mr. Lee is a
principal of THL and Mr. Clifford was formerly associated with THL. Both Mr. Lee
and Mr. Clifford are Directors and stockholders of the Company. The Management
Agreement provides for an initial term of one year with automatic extensions
unless otherwise terminated by either party. Pursuant to the Management
Agreement, THL provides consulting and management services to the Company in the
areas of financial and strategic corporate planning. In exchange for such
services, the Company has agreed to pay THL a monthly fee of $10,000 plus
expenses, subject to change by mutual agreement for any extension of the
Management Agreement. For the fiscal year ended January 28, 1995, the Company
paid THL $120,000 for services under the Management Agreement. The Company
believes that the terms of the Management Agreement are as favorable as could be
obtained from an unaffiliated entity.
During the Company's fiscal year ended January 28, 1995, Morse Shoe, Inc.
("Morse"), a subsidiary of the Company acquired on January 30, 1993, paid Hills
Department Store Company ("Hills") license fees pursuant to an agreement between
Morse and Hills for operation of licensed footwear departments in Hills
department stores. Mr. Lee is Chairman of the Board of Directors of Hills and an
owner of approximately 7.25% of the outstanding capital stock of Hills. The
Company believes that the terms of its license agreement with Hills are as
favorable as the terms of its agreements with other licensors.
On February 4, 1991, Hills filed a petition in bankruptcy under Chapter 11
of the United States Bankruptcy Code. On September 10, 1993, the Hills plan of
reorganization was confirmed by the United States Bankruptcy Court for the
Southern District of New York. Mr. Lee was Chairman of the Board of Directors of
Hills at the time of the filing of the Hills bankruptcy and upon the
confirmation of the Hills plan.
The Company pays Greenberg, Rosenblatt, Kull & Bitsoli, P.C. $60,000
annually for consulting and management services provided to the Company in the
areas of financial and strategic corporate planning. Mr. Rosenblatt is a
principal of such firm and a director and stockholder of the Company. The
Company believes that the terms of this arrangement are as favorable as could be
obtained from an unaffiliated entity.
(PROPOSAL NUMBER 2)
PROPOSAL TO APPROVE PERFORMANCE SHARE AWARDS
On August 11, 1994, the Compensation Committee granted three Performance
Share Awards to the Company's Chief Executive Officer pursuant to the J. Baker,
Inc. 1994 Equity Incentive Plan (the "Equity Incentive Plan"). The Equity
Incentive Plan was approved by stockholders on June 7, 1994.
Under Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), the
federal income tax deductibility of compensation paid to the Company's Chief
Executive Officer or to any of its next four most highly compensated executive
officers may be limited to the extent that it exceeds $1 million in any one
fiscal year. However, the Company can continue to deduct compensation in excess
of that amount if the compensation qualifies as "performance-based compensation"
under Section 162(m) of the Code. The Company hereby submits for stockholder
approval the material terms of the Performance Share Awards granted to the
Company's Chief Executive Officer so that the compensation to be earned
thereunder can qualify as "performance-based compensation" under Section 162(m)
of the Code and therefore remain eligible as a deductible compensation expense
for the Company.
The Compensation Committee granted the Performance Share Awards to the
Chief Executive Officer pursuant to the Equity Incentive Plan. These awards are
linked to overlapping three-year performance cycles. The first cycle began on
May 1, 1994 and will end on January 31, 1997. The second performance cycle began
on February 1, 1995 and will end on January 31, 1998 and the third cycle will
begin on February 1, 1996 and end on January 31, 1999. In each case, the Chief
Executive Officer's ability to receive shares of the Company's
17
<PAGE> 20
common stock at the end of each performance cycle will depend on whether the
Company achieves certain pre-determined target levels of earnings per share
growth compounded over the performance cycle.
The Compensation Committee sets the target levels of earnings per share
growth at the beginning of each performance cycle. After the end of each
performance cycle, and prior to the issuance of any shares to the Chief
Executive Officer pursuant to the applicable Performance Share Award, the
Compensation Committee will certify to the Board of Directors the level of the
Company's earnings per share growth compounded over the performance cycle and
which (if any) of the performance targets have been satisfied.
The maximum number of shares that may be issued at the end of each
performance cycle is 25,000. The aggregate maximum number of shares that may be
issued over the three performance cycles is 75,000.
VOTE REQUIRED FOR APPROVAL
Approval of the Performance Share Awards requires the affirmative vote of
the holders of a majority of the shares represented and voting, in person or by
proxy, at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
PERFORMANCE SHARE AWARDS.
(PROPOSAL NUMBER 3)
PROPOSAL TO APPROVE EXECUTIVE INCENTIVE COMPENSATION PLAN
On August 11, 1994, the Board of Directors adopted and approved an
Executive Incentive Compensation Plan for the Chief Executive Officer. The
Executive Incentive Compensation Plan is intended to provide the Chief Executive
Officer with financial incentives for the Company to meet and exceed
pre-determined goals based on corporate pre-tax profits. This Executive
Incentive Compensation Plan is similar to the Company's existing Incentive Plan,
except that it contains certain administrative provisions called for by Section
162(m) of the Code, provides for payment of a portion of the annual cash
incentive compensation that exceeds a threshold value in the form of shares of
the Company's common stock and provides for a share-for-share match for the
portion of the annual cash incentive compensation paid in the form of shares.
As explained above, the federal income tax deductibility of compensation
paid to the Company's Chief Executive Officer may be limited to the extent that
it exceeds $1 million for any one fiscal year, unless such compensation
qualifies as "performance-based compensation" under Section 162(m) of the Code.
The Company hereby submits for stockholder approval the material terms of the
Executive Incentive Compensation Plan so that compensation to be earned
thereunder can qualify as "performance-based compensation" under Section 162(m)
of the Code and therefore remain eligible as a deductible compensation expense
for the Company. The following is a summary of the principal features of the
Executive Incentive Compensation Plan.
Under the Executive Incentive Compensation Plan, incentive compensation
and, under certain circumstances described below, stock bonuses will be paid to
the Chief Executive Officer if the Company achieves or exceeds pre-determined
profit goals established for the year. Such goals are based on the Company's
budgeted corporate pre-tax profits.
Within the first 90 days of each fiscal year, the Compensation Committee
will set the performance target for the year which is measured by budgeted
pre-tax profit (after accrual of all incentive plan expenses). The target
incentive compensation award for the Chief Executive Officer for each year is
54% of his base salary at the time the performance target is established. If the
Company's performance for any fiscal year equals the threshold guideline for
such year (as determined by the Compensation Committee on a year to year basis),
the Chief Executive Officer will be entitled to receive incentive compensation
representing a percentage of his target award (also as determined by the
Compensation Committee on a year to year basis). If the Company's
18
<PAGE> 21
performance for any fiscal year attains or exceeds the superior guideline for
such year (as determined by the Compensation Committee on a year to year basis),
the Chief Executive Officer will be entitled to receive incentive compensation
representing 175% of his target bonus, or 94.5% of base pay. Corporate
performance between the threshold and superior guidelines results in an
intermediate cash incentive payment determined on a straight-line basis. For
example, if the Company's performance for any fiscal year equals the target
guideline for such year (100% of performance target), the Chief Executive
Officer will be entitled to receive incentive compensation which represents 100%
of his target award or 54% of base pay. If the Company's performance does not
attain the threshold guideline for the year, the Chief Executive Officer will
receive no incentive compensation under the Executive Incentive Compensation
Plan for that year.
In any fiscal year in which the Chief Executive Officer's incentive
compensation exceeds a threshold value of $100,000, 50% of such excess will be
paid in the form of shares of the Company's common stock. In addition, the Chief
Executive Officer will receive a share-for-share match for the portion of the
incentive compensation paid in the form of shares. The shares will be issued to
the Chief Executive Officer from the Company's Equity Incentive Plan which was
previously approved by stockholders. Under no circumstances may the maximum
incentive compensation (cash and stock) payable to the Chief Executive Officer
under the Executive Incentive Compensation Plan for any fiscal year exceed
$800,000.
Under the Executive Incentive Compensation Plan, the Compensation Committee
retains the discretion to reduce the size of the incentive compensation award.
After the end of each fiscal year, and prior to any payment being made under the
Executive Incentive Compensation Plan, the Compensation Committee will certify
to the Board of Directors the levels of corporate pre-tax profits and which (if
any) of the performance guidelines have been satisfied.
The Compensation Committee may amend the Executive Incentive Compensation
Plan at any time; however, in doing so, the Committee intends for the
requirements of Section 162(m) of the Code to be met in order that payments made
to the Chief Executive Officer remain eligible as deductible compensation.
At this time, amounts to be received by the Chief Executive Officer under
the Executive Incentive Compensation Plan for fiscal year 1996 or subsequent
fiscal years is not determinable. Had the Executive Incentive Compensation Plan
been in place for fiscal year 1995, the Chief Executive Officer would have
earned and received the same bonus amount stated in the Summary Compensation
Table.
VOTE REQUIRED FOR APPROVAL
Approval of the Executive Incentive Compensation Plan requires the
affirmative vote of the holders of a majority of the shares represented and
voting, in person or by proxy, at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
EXECUTIVE INCENTIVE COMPENSATION PLAN.
(PROPOSAL NUMBER 4)
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected KPMG Peat Marwick LLP, independent
public accountants, to audit the books, records and accounts of the Company for
the fiscal year ending February 3, 1996. In accordance with a vote of the Board
of Directors, this selection is being presented to the stockholders for
ratification at this meeting.
The firm of KPMG Peat Marwick LLP has audited the books of the Company and
its predecessor for more than twenty years. KPMG Peat Marwick LLP has no direct
or indirect material financial interest in the Company. A representative of KPMG
Peat Marwick LLP is expected to be present at the meeting and will be
19
<PAGE> 22
given the opportunity to make a statement, if he so desires. The representative
also will be available to respond to questions raised by those in attendance at
the meeting.
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock present or represented at the Annual Meeting is required
to approve the proposal. Ratification by the stockholders is not required. If
the proposal is not approved by the stockholders, the Board of Directors does
not plan to change the appointment for fiscal 1996, but will consider the
stockholder vote in appointing auditors for fiscal 1997.
------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF THE INDEPENDENT PUBLIC ACCOUNTANTS.
------------------------
OTHER MATTERS
The management of the Company knows of no matter not specifically referred
to above as to which any action is expected to be taken at the meeting. It is
intended, however, that the persons named as proxies will vote the proxies in
regard to such other matters and the transaction of such other business as may
properly be brought before the meeting, as seems to them to be in the best
interest of the Company and its stockholders.
STOCKHOLDER PROPOSALS
In accordance with the rules established by the SEC for a proposal of a
stockholder to be included in the Board of Directors' proxy statement for the
Company's 1996 Annual Meeting, the proposal must be received at the principal
executive offices of the Company on or before January 5, 1996. Such a proposal
must also comply with the requirements as to form and substance established by
the SEC in order to be included in the proxy statement.
In addition, the Company's By-Laws provide that any stockholder of record
wishing to nominate a director or have a stockholder proposal considered at an
annual meeting must provide written notice of such nomination or proposal and
appropriate supporting documentation, as set forth in the By-Laws, to the
Company at its principal executive offices not less than 75 days nor more than
180 days prior to the anniversary date of the prior year's annual meeting or
special meeting in lieu thereof (the "Anniversary Date"); provided, however,
that in the event that the annual meeting is called for a date more than seven
calendar days prior to the Anniversary Date, stockholders may, under certain
circumstances set forth in the Company's By-Laws, have additional time to
deliver their stockholder notice.
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<PAGE> 23
PROXY J. BAKER, INC. PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Sherman N. Baker and Melvin M. Rosenblatt,
and each of them individually, attorneys with full power of substitution in
each for and in the name of the undersigned, with all powers the undersigned
would possess if personally present, to vote all shares of the Common Stock of
J. Baker, Inc. (the "Company") held of record by the undersigned on April 20,
1995 at the Annual Meeting of Stockholders to be held June 6, 1995 and any
adjournment or postponement thereof.
<TABLE>
<S> <C> <C>
1.PROPOSAL to elect / /FOR all nominees listed below / /WITHHOLD AUTHORITY to
three Class III Directors: (except as marked to the contrary below) vote below for any nominee listed below
</TABLE>
J. Christopher Clifford Jerry M. Socol David Pulver
(INSTRUCTION: To withhold authority to vote for one of the nominees,
strike a line through the nominee's name in the list above.)
2. PROPOSAL to consider and act upon a proposal to approve Performance
Share Awards for the Chief Executive Officer.
/ /FOR / /AGAINST / /ABSTAIN
3. PROPOSAL to consider and act upon a proposal to approve an Executive
Incentive Compensation Plan for the Chief Executive Officer.
/ /FOR / /AGAINST / /ABSTAIN
4. PROPOSAL to ratify the selection of KPMG Peat Marwick LLP as
independent auditors of the Company for the fiscal year ending February 3,
1996.
/ /FOR / /AGAINST / /ABSTAIN
(CONTINUED ON REVERSE SIDE)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4. IN THEIR DISCRETION, THE PROXIES
ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
PLEASE SIGN IN THE SAME FORM
AS NAME APPEARS ON THIS CARD. Date: ............................
FIDUCIARIES AND CORPORATE OFFICERS Signature: .......................
SHOULD INDICATE THEIR
TITLE. Signature: .......................
