<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
FEDERATED DEPARTMENT STORES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FEDERATED DEPARTMENT STORES, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
FEDERATED DEPARTMENT STORES, INC.
151 West 34th Street
New York, New York 10001
and
7 West Seventh Street
Cincinnati, Ohio 45202
April 17, 1997
To the Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of the
stockholders of Federated Department Stores, Inc., to be held on Friday, May 16,
1997, at 11:00 a.m., Eastern Daylight Time, at Federated's offices located at 7
West Seventh Street, Cincinnati, Ohio 45202. The official Notice of Meeting,
Proxy Statement and form of proxy are enclosed with this letter. The matters
listed in the Notice of Meeting are described in the attached Proxy Statement.
The vote of every stockholder is important and your cooperation in
completing, signing and returning your proxy promptly will be appreciated.
We hope to see you at the Annual Meeting.
Sincerely,
ALLEN QUESTROM
Chairman of the Board
and Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
RETURN YOUR PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3
FEDERATED DEPARTMENT STORES, INC.
151 West 34th Street, New York, New York 10001
and
7 West Seventh Street, Cincinnati, Ohio 45202
---------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------------------------------------------------------------
To the Stockholders:
Notice is hereby given that the Annual Meeting of stockholders of Federated
Department Stores, Inc. will be held at 11:00 a.m., Eastern Daylight Time, on
Friday, May 16, 1997, at Federated's offices located at 7 West Seventh Street,
Cincinnati, Ohio 45202, for the following purposes, all as more fully described
in the attached Proxy Statement:
1. To elect four Class III members of the Board of Directors;
2. To ratify the appointment of KPMG Peat Marwick LLP as the independent
accountants of Federated Department Stores, Inc. for the fiscal year
ending January 31, 1998;
3. To act upon a proposal to amend the 1995 Executive Equity Incentive Plan
to increase the number of shares of common stock of Federated Department
Stores, Inc. available for issuance thereunder and modify certain other
terms thereof;
4. To approve the 1992 Incentive Bonus Plan;
5. To act upon a stockholder proposal, if properly presented at the Annual
Meeting, to publish periodically in various newspapers a detailed
statement disclosing political and related contributions made by the
Company; and
6. To act upon such other business as may properly come before the Annual
Meeting or any postponements or adjournments thereof.
Stockholders of record at the close of business on April 4, 1997 are
entitled to vote at the Annual Meeting or any postponements or adjournments
thereof.
DENNIS J. BRODERICK
Secretary
April 17, 1997
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 4
FEDERATED DEPARTMENT STORES, INC.
151 West 34th Street, New York, New York 10001
and
7 West Seventh Street, Cincinnati, Ohio 45202
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation, by
and on behalf of the Board of Directors (the "Board") of Federated Department
Stores, Inc. (the "Company"), of proxies for use at the Annual Meeting of the
stockholders of the Company to be held at 11:00 a.m., Eastern Daylight Time, on
Friday, May 16, 1997, at the Company's offices located at 7 West Seventh Street,
Cincinnati, Ohio 45202 and at any postponements or adjournments thereof (the
"Annual Meeting"), for the purposes set forth in the accompanying Notice of
Meeting. This Proxy Statement, the Notice of Meeting and accompanying proxy are
being mailed to stockholders on or about April 17, 1997.
Unless the context otherwise requires, references herein to the "Company"
are to Federated Department Stores, Inc. ("Federated") and its subsidiaries, the
predecessors thereof, and the surviving corporation following the merger (the
"Merger") of Federated and R.H. Macy & Co., Inc. ("Macy's") on December 19,
1994.
GENERAL
The holders of record of shares of common stock of the Company ("Common
Stock") at the close of business on April 4, 1997 (the "Record Date") are
entitled to vote such shares at the Annual Meeting. As of the Record Date, there
were outstanding 208,379,561 shares of Common Stock, excluding shares held in
the treasury of the Company or by subsidiaries of the Company. Each such share
of Common Stock, exclusive of treasury shares and shares held by the Company's
subsidiaries, is entitled to one vote on each of the matters listed in the
Notice of Meeting.
The holders of a majority of the outstanding shares of Common Stock as of
the Record Date will constitute a quorum for the transaction of business at the
Annual Meeting. Abstentions and broker non-votes will be included in determining
the number of shares present or represented at the Annual Meeting for purposes
of determining whether a quorum exists. However, abstentions and broker
non-votes with respect to any matter brought to a vote at the Annual Meeting
will be treated as shares not voted for purposes of determining whether the
requisite vote has been obtained. Except as described below, the affirmative
vote of the holders of a majority (or, in the case of the election of any
nominee as a director, a plurality) of the shares of Common Stock represented at
the Annual Meeting and actually voted is required for the approval of any matter
brought to a vote at the Annual Meeting, and abstentions and broker non-votes
will have no effect on the outcome of the vote on any such matter. The
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the Annual Meeting is required for the approval of the proposal
to amend the 1995 Executive Equity Incentive Plan described in Item 3, and
abstentions and broker non-votes will have the effect of votes against such
proposal. If the persons present or represented by proxy at the Annual Meeting
constitute the holders of less than a majority of the outstanding shares of
Common Stock as of the Record Date, the Annual Meeting may be adjourned to a
subsequent date for the purpose of obtaining a quorum.
The Board has adopted a policy under which, subject to the following
provisions, all stockholder proxies, ballots and other voting materials
(collectively, "Voting Materials") that identify the votes of specific
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<PAGE> 5
stockholders will be kept confidential and will not be disclosed to officers,
directors or employees of the Company or third parties except where disclosure
is required by applicable law or as otherwise permitted by the policy. However,
(i) employees and others serving as voting tabulators, inspectors of election or
proxy solicitors or otherwise engaged in the receipt, counting, tabulation or
solicitation of proxies who have agreed to maintain stockholder confidentiality
as provided in this policy will be permitted such access to Voting Materials as
may be necessary to facilitate their participation in the foregoing activities
and (ii) access to Voting Materials will not be restricted (a) in those
instances in which stockholders write comments on their proxy cards or otherwise
consent to the disclosure of their vote to the Company's management, (b) in the
event of a proxy contest or a solicitation of proxies in opposition to the
voting recommendations of the Board, (c) in respect of a stockholder proposal
that the Company's Board Organization and Corporate Governance Committee (the
"BOCG Committee"), after having allowed the proponent of the proposal an
opportunity to present its views, determines is not in the best interests of the
Company and its stockholders, or (d) in the event that representatives of the
Company determine in good faith that a bona fide dispute exists as to the
authenticity or tabulation of Voting Materials. The foregoing policy will apply
to the Annual Meeting and each subsequent stockholders' meeting in respect of
which the Board determines, after considering the matters to be acted upon
thereat, that such policy (as the same may from time to time be modified by the
Board) would be in the best interests of the Company and its stockholders.
All shares of Common Stock represented at the Annual Meeting by properly
executed proxies received prior to or at the Annual Meeting, unless such proxies
previously have been revoked, will be voted at the Annual Meeting in accordance
with the instructions on the proxies. If no instructions are indicated, such
shares will be voted FOR the nominees for director identified below, FOR the
ratification of the appointment of the Company's independent accountants, FOR
the proposal to amend the 1995 Executive Equity Incentive Plan, FOR the proposal
to approve the 1992 Incentive Bonus Plan and AGAINST the stockholder proposal
listed in the Notice of Meeting.
A proxy may be revoked by filing with the Secretary of the Company, prior
to the exercise of the proxy, either a written instrument revoking the proxy or
an executed subsequent proxy or by voting in person at the Annual Meeting.
Attendance at the Annual Meeting will not, in itself, constitute revocation of a
proxy.
STOCK OWNERSHIP
Certain Beneficial Owners. The following table sets forth information as
to the beneficial ownership of each person known to the Company to own more than
5% of the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS
- -------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
FMR Corp. 82 Devonshire Street Boston, MA 02109............... 21,123,327 10.07%
</TABLE>
According to information set forth in a Schedule 13G, dated February 14,
1997 (the "FMR Schedule 13G"), filed with the Securities and Exchange Commission
(the "SEC") by FMR Corp. ("FMR"), FMR was the beneficial owner of 21,123,327
shares of Common Stock (approximately 10.07% of the total number of shares of
Common Stock outstanding). According to the FMR Schedule 13G, as of December 31
1996, (a) 19,572,664 of such shares (approximately 9.33% of the total number of
shares of Common Stock outstanding), including 1,630,381 shares issuable upon
the conversion of certain debentures, were beneficially owned by Fidelity
Management & Research Company, a wholly-owned subsidiary of FMR, as a result of
acting as investment advisor to several investment companies, (b) 1,363,863 of
such shares (approximately 0.65% of the total number of shares of Common Stock
outstanding), including 194,546 shares issuable upon
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<PAGE> 6
the conversion of certain debentures, were beneficially owned by Fidelity
Management Trust Company, a wholly-owned subsidiary of FMR, as a result of its
serving as investment manager of institutional account(s), and (c) 186,800 of
such shares (approximately 0.09% of the total number of shares of Common Stock
outstanding) were beneficially owned by Fidelity International Limited.
According to the FMR Schedule 13G, (i) each of FMR and Edward C. Johnson 3d,
Chairman of FMR, has dispositive power over the shares owned by the investment
companies and institutional account(s) described in clauses (a) and (b) of the
preceding sentence and (ii) Edward C. Johnson, 3d and Abigail P. Johnson, a
director of FMR, own 12.0% and 24.5%, respectively, of the outstanding voting
common stock of FMR and various Johnson family members and various trusts for
the benefit of Johnson family members are the predominant owners of Class B
shares of common stock of FMR, representing approximately 49% of the voting
power of FMR, and through their ownership of FMR's voting common stock and
related agreements, members of the Johnson family may be deemed to form a
controlling group with respect to FMR.
Stock Ownership of Directors and Executive Officers. The following table
sets forth the shares of Common Stock beneficially owned (or deemed to be
beneficially owned pursuant to the rules of the SEC) as of April 1, 1997 by each
director of the Company, by each of the Named Executives (as defined below) and
by directors and executive officers of the Company as a group. Each such person
(and all directors and executive officers as a group) beneficially owns less
than one percent (1%) of the outstanding shares of Common Stock. The business
address of each of the individuals named in the table is 7 West Seventh Street,
Cincinnati, Ohio 45202.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES
----------------------------------------------------- ----------------
<S> <C>
Lyle Everingham...................................... 5,000
Meyer Feldberg....................................... 2,000
Earl G. Graves, Sr................................... 600
George V. Grune...................................... 4,000
Joseph Neubauer...................................... 6,000
Allen I. Questrom.................................... 5,000
Ronald W. Tysoe...................................... 133,104
Paul W. Van Orden.................................... 1,033
Karl M. von der Heyden............................... 6,000
Craig E. Weatherup................................... -0-
Marna C. Whittington................................. 1,000
James M. Zimmerman................................... 77,691
Thomas G. Cody....................................... 2,844
Dennis J. Broderick.................................. 8,069
All Directors and Executive Officers as a Group...... 261,667
</TABLE>
ITEM 1 -- ELECTION OF DIRECTORS
The Company's Certificate of Incorporation (the "Certificate of
Incorporation") and By-Laws (the "By-Laws") provide that the directors of the
Company are to be classified into three classes, with the directors in each
class serving for three-year terms and until their successors are elected,
except that the initial post-Merger term of the directors in Class III will
expire at the Annual Meeting.
In accordance with the recommendation of its BOCG Committee, the Board has
nominated Earl G. Graves, Sr., George V. Grune, Craig E. Weatherup and James M.
Zimmerman, each of whom is currently a
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<PAGE> 7
member of the Board, for election as Class III Directors. If elected, such
nominees will serve for a three-year term to expire at the Company's annual
meeting of stockholders in 2000 or until their successors are duly elected and
qualified. Mr. Allen I. Questrom and Mr. Paul W. Van Orden, each a Class I
Director, and Mr. Lyle Everingham, a Class II Director, will resign at the
Annual Meeting. Pursuant to the By-Laws, any vacancies on the Board may be
filled only by the remaining directors then in office. It is anticipated that,
following the Annual Meeting, such remaining directors will elect Ms. Sara
Levinson as a Class I Director and Mr. Terry Lundgren as a Class II Director to
fill vacancies that will then exist in such classes. Information regarding the
foregoing nominees, as well as the other persons who are expected to serve on
the Board following the Annual Meeting, is set forth below.
The Board has no reason to believe that any of the nominees will not serve
if elected, but if any nominee should subsequently become unavailable to serve
as a director, the persons named as proxies may, in their discretion, vote for a
substitute nominee designated by the Board or, alternatively, the Board may
reduce the number of directors to be elected at the Annual Meeting.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEES. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED EXCEPT WHERE AUTHORITY
HAS BEEN WITHHELD.
NOMINEES FOR ELECTION AS CLASS III DIRECTORS -- TERM EXPIRES AT THE 2000 ANNUAL
MEETING
EARL G. GRAVES, SR.
Mr. Graves, age 62, has been Chairman and Chief Executive Officer of Earl
G. Graves, Ltd., a multi-faceted communications company, since 1970, and is the
Publisher and Chief Executive Officer of "Black Enterprise" magazine, which he
founded. Additionally, since 1990, Mr. Graves has served as Chairman and Chief
Executive Officer of Pepsi-Cola of Washington, D.C., L.P., a Pepsi-Cola bottling
franchise and is a general partner of Egoli Partners, L.P., which is the general
partner of New Age Beverages, a Pepsi-Cola franchise in the Republic of South
Africa. Mr. Graves is also a member of the boards of directors of Aetna Inc.,
AMR Corporation, Chrysler Corporation and Rohm & Haas Corporation. He is a
member of the Audit Review, BOCG and Public Policy Committees of the Board. Mr.
Graves has been a director since 1994.
GEORGE V. GRUNE
Mr. Grune, age 67, has been Chairman of the DeWitt Wallace Reader's Digest
Fund and the Lila Wallace Reader's Digest Fund since August 1, 1995. From 1984
until August 1, 1994, he was Chairman of the Board and Chief Executive Officer
of The Reader's Digest Association, Inc. and continued as Chairman of the Board
until August 1, 1995. Mr. Grune is also a member of the boards of directors of
Avon Products, Inc. and CPC International, Inc. He is a member of the Audit
Review, Compensation, Executive and Public Policy Committees and the Section
162(m) Subcommittee of the Board. Mr. Grune has been a director since 1992.
CRAIG E. WEATHERUP
Mr. Weatherup, age 51, has been Chairman and Chief Executive Officer of
Pepsi-Cola Company since July 1996. Prior thereto, he was President of PepsiCo,
Inc. since April 1996. From 1990 until April 1996, he served as President and
Chief Executive Officer of Pepsi-Cola North America. Mr. Weatherup is also a
member of the boards of directors of PepsiCo, Inc., Pepsi-Cola General Bottlers,
Inc. and Tuskegee University. He is a member of the BOCG and Compensation
Committees of the Board. Mr. Weatherup has been a director since August 1996.
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JAMES M. ZIMMERMAN
Mr. Zimmerman, age 53, has been President and Chief Operating Officer of
the Company since May 1988. Mr. Zimmerman has been elected by the Board as
Chairman and Chief Executive Officer of the Company, effective as of the close
of business on the day of the Annual Meeting. Mr. Zimmerman is a member of the
Public Policy Committee of the Board. Mr. Zimmerman has been a director since
1988.
CLASS I DIRECTORS -- TERM EXPIRES AT THE 1998 ANNUAL MEETING
SARA LEVINSON
Ms. Levinson, age 46, has been President of NFL Properties, Inc. since
September 1994. Prior thereto, she was President -- Business Operations of MTV
Networks, a division of Viacom International, Inc., since 1993. From 1991 until
1993, she served as Executive Vice President, Business Operations, of MTV
Channel. Ms. Levinson is also a member of the board of directors of Harley
Davidson, Inc. Ms. Levinson is expected to be elected as a director following
the Annual Meeting.
JOSEPH NEUBAUER
Mr. Neubauer, age 55, has been Chairman and Chief Executive Officer of
ARAMARK Corporation (formerly known as The ARA Group) since 1984. He is also a
member of the boards of directors of ARAMARK Corporation, Bell Atlantic
Corporation and First Union Corporation. Mr. Neubauer is a member of the BOCG,
Compensation, Executive and Finance Committees of the Board. Mr. Neubauer has
been a director since 1992.
KARL M. VON DER HEYDEN
Mr. von der Heyden, age 60, has been Vice Chairman of the Board of
Directors and Chief Financial Officer of PepsiCo, Inc. since September 1996.
Since August 1994, Mr. Von der Heyden has been, and continues to be, affiliated
with The Clipper Group, a merchant banking firm. Prior to joining The Clipper
Group, he was President and Chief Executive Officer of Metallgesellschaft Corp.
from December 1993 until July 1994. He was previously Co-Chairman and Chief
Executive Officer of RJR Nabisco, Inc. from March to May 1993 and was Executive
Vice President and Chief Financial Officer of RJR Nabisco from 1989 to 1993. Mr.
von der Heyden is a member of the Audit Review, Public Policy, Executive and
Finance Committees of the Board. Mr. von der Heyden has been a director since
1992.
CLASS II DIRECTORS -- TERM EXPIRES AT THE 1999 ANNUAL MEETING
MEYER FELDBERG
Professor Feldberg, age 55, has been Dean of the Columbia Business School
at Columbia University since 1989. He is also a member of the boards of
directors of PaineWebber Mutual Funds, Revlon, Inc. and K-III Communications
Corporation. Professor Feldberg is a member of the Audit Review, BOCG and
Compensation Committees and the Section 162(m) Subcommittee of the Board.
Professor Feldberg has been a director since 1992.
TERRY J. LUNDGREN
Mr. Lundgren, age 44, has been Chairman of the Company's Federated
Merchandising Group division since February 1994. Prior thereto, he was Chairman
and Chief Executive Officer of The Neiman Marcus
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Group, Inc. since February 1990. Mr. Lundgren has been elected as President and
Chief Merchandising Officer of the Company, effective as of the close of
business on the day of the Annual Meeting. Mr. Lundgren is expected to be
elected as a director following the Annual Meeting.
RONALD W. TYSOE
Mr. Tysoe, age 44, has been Vice Chairman and Chief Financial Officer of
the Company since April 1990. Mr. Tysoe is also a member of the board of
directors of E.W. Scripps Company. Mr. Tysoe has been a director since 1988.
MARNA C. WHITTINGTON
Dr. Whittington, age 49, is Chief Operating Officer of Morgan Stanley Asset
Management ("Morgan Stanley"), where she has been employed since 1996. From 1992
until 1996, she was a partner with the private investment firm of Miller,
Anderson & Sherrerd, LLP, which was acquired by Morgan Stanley in 1996. Prior
thereto, she was executive vice president of the University of Pennsylvania
since 1988. Dr. Whittington is also a member of the board of directors of Rohm &
Haas Company. Dr. Whittington is a member of the Audit Review, BOCG, Executive
and Finance Committees of the Board. Dr. Whittington has been a director since
1993.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
ATTENDANCE AT MEETINGS
The Board held 7 meetings during the fiscal year ended February 1, 1997
("Fiscal 1996"). No director attended fewer than 75% of the total number of
meetings of the Board and Board Committees on which such director served.
COMMITTEES OF THE BOARD
The Board has established the following standing committees (each of which
is reconstituted following each annual meeting of the Company's stockholders):
the Executive Committee, the Finance Committee, the Public Policy Committee, the
Audit Review Committee, the BOCG Committee, the Compensation Committee and the
Section 162(m) Subcommittee. The By-Laws require that the Audit Review, BOCG and
Compensation Committees be composed solely of non-employee directors and that a
majority of the members of the Executive and Finance Committees be non-employee
directors. The By-Laws define "non-employee director," in general, to mean a
director of the Company who is not a full-time employee of the Company or any of
its subsidiaries. The By-Laws further require that all of the members of the
Audit Review, BOCG and Compensation Committees, and a majority of the members of
the Executive, Finance and Public Policy Committees and each other directorate
committee that the Board may from time to time establish, be independent
directors, except to the extent that a majority of the independent directors
then serving as members of the Board determines in a specific instance that it
would be in the best interests of the Company and its stockholders that the
By-Laws not operate to preclude the service of one or more individuals on one or
more of such committees. The By-Laws define "independent director," in general,
to mean a director of the Company who (i) is not (and has not been within the
preceding 60 months) an employee of the Company or any of its subsidiaries, (ii)
is not (and has not been within the preceding 60 months) an executive officer,
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partner or principal in or of any corporation or other entity that is or was a
paid advisor, consultant or provider of professional services to, or a
substantial supplier of, the Company or any of its subsidiaries, (iii) is not a
party to any contract pursuant to which such director provides personal services
(other than as a director) to the Company or any of its subsidiaries, (iv) is
not employed by an organization that received, within the preceding 60 months,
grants or endowments from the Company or any of its subsidiaries in excess of
$250,000 in any fiscal year of the Company, (v) is not a relative of any other
director or executive officer of the Company, (vi) is not a party to any
agreement binding him or her to vote, as a stockholder of the Company, in
accordance with the recommendations of the Board, and (vii) is not a director of
any corporation or other entity (other than the Company) of which the Company's
Chairman or Chief Executive Officer is also a director. The Board believes that,
except for the three members of the Board who are also senior executives of the
Company, the remaining members of the Board are "independent directors" within
the meaning of the foregoing definition.
Executive Committee. The Executive Committee is presently composed of Dr.
Whittington and Messrs. Everingham, Grune, Neubauer, Questrom and von der
Heyden. This Committee has all authority, consistent with the Delaware General
Corporation Law, granted to it by the Board. Accordingly, the Executive
Committee may exercise all the powers and authority of the Board in the
oversight of the management of the business and affairs of the Company, except
that the Executive Committee does not have the power to amend the By-Laws or the
Certificate of Incorporation (except, to the extent authorized by a resolution
of the Board, to fix the designations, preferences and other terms of any
preferred stock of the Company), adopt an agreement of merger and consolidation,
authorize the issuance of stock, declare a dividend or recommend to the
stockholders of the Company the sale, lease or exchange of all or substantially
all of the Company's assets, a dissolution of the Company or a revocation of a
dissolution. The Executive Committee met once during Fiscal 1996.
Finance Committee. The Finance Committee is presently composed of Dr.
Whittington and Messrs. Neubauer, Questrom and von der Heyden. This Committee
reviews with the appropriate officers of the Company and reports to the Board
(or to the Executive Committee) on: (i) the financial considerations relating to
acquisitions and dispositions of businesses and operations involving projected
costs or income in excess of $10 million; (ii) potential transactions affecting
the Company's capital structure, such as financings, refinancings and the
issuance, redemption or repurchase of the Company's debt or equity securities;
(iii) potential changes in the financial policy or structure of the Company
which could have a material financial impact on the Company; (iv) capital
projects and other financial commitments in excess of $10 million; and (v)
potential consolidations of the Company's operations involving projected costs
and/or expense savings in excess of $25 million. The Finance Committee met 5
times during Fiscal 1996.
Public Policy Committee. The Public Policy Committee is presently composed
of Messrs. Everingham, Feldberg, Graves, Grune, Van Orden, von der Heyden and
Zimmerman. This Committee establishes, when necessary or appropriate, policies
involving the Company's role as a corporate citizen, reviews, evaluates and
monitors the policies, programs and practices in public policy areas, maintains
an awareness of public affairs developments and trends, and reviews and makes
recommendations to the Board on stockholder proposals relating to various
matters. The Public Policy Committee met 2 times during Fiscal 1996.
Audit Review Committee. The Audit Review Committee is presently composed
of Dr. Whittington and Messrs. Feldberg, Graves, Grune and von der Heyden. This
Committee reviews the professional services provided by the Company's
independent accountants and the independence of such firm from the management of
the Company. This Committee also reviews the scope of the audit by the Company's
independent
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accountants, the annual financial statements of the Company, the Company's
systems of internal accounting controls and such other matters with respect to
the accounting, auditing and financial reporting practices and procedures of the
Company as it may find appropriate or as may be brought to its attention, and
meets from time to time with members of the Company's internal audit staff. The
Audit Review Committee met 4 times during Fiscal 1996.
Board Organization and Corporate Governance Committee. The BOCG Committee
is presently composed of Dr. Whittington and Messrs. Everingham, Feldberg,
Graves, Neubauer, Van Orden and Weatherup. This Committee (i) considers and
recommends criteria for the selection of nominees for election as directors of
the Company and from time to time may select candidates for director for
recommendation to the full Board and (ii) considers and makes recommendations
with respect to (a) such proposals as may from time to time be made in
accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, by stockholders of the Company and (b) such other matters as may from
time to time be presented for consideration of the Board relating to the rights
of stockholders and the role of the Board in respect of the direction of the
management of the business and affairs of the Company (other than, as to
stockholder rights, in respect of the conduct of the Company's ordinary business
operations or in the context of an extraordinary transaction involving the
Company or any of its subsidiaries or any securities thereof). The full Board
may also from time to time select such director candidates and in all events
will act in respect of (i) the filling of any vacancies on the Board, (ii) the
recommendation of candidates for nomination for election by the stockholders of
the Company, and (iii) the composition of all Board committees. The BOCG
Committee met 5 times during Fiscal 1996.
The BOCG Committee will consider nominees for director recommended by
stockholders of the Company. Stockholders wishing to make such recommendations
should write to the Board Organization and Corporate Governance Committee, c/o
Dennis J. Broderick, Secretary, Federated Department Stores, Inc., 7 West
Seventh Street, Cincinnati, Ohio 45202. Persons making submissions should
include the full name and address of the recommended nominee, a description of
the proposed nominee's qualifications and other relevant biographical
information. See "Director Nomination Procedures" for a discussion of nomination
procedures under the By-Laws.
Compensation Committee. The Compensation Committee is presently composed
of Messrs. Everingham, Feldberg, Grune, Neubauer, Van Orden and Weatherup. This
Committee reviews executive salaries, administers the bonus, incentive and stock
option plans of the Company and approves the salaries and other benefits of the
executive officers of the Company. In addition, this Committee advises and
consults with the Company's management regarding pension and other benefit plans
and compensation policies and practices of the Company. The Compensation
Committee met 5 times during Fiscal 1996.
Section 162(m) Subcommittee. In May 1996, a subcommittee of the
Compensation Committee, presently composed of Messrs. Everingham, Feldberg,
Grune and Van Orden (the "Section 162(m) Subcommittee"), was formed. The Section
162(m) Subcommittee is required to be composed solely of three or more members
of the Compensation Committee who are "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
regulations of the Internal Revenue Service relating thereto (collectively,
"Section 162(m)"). The Section 162(m) Subcommittee takes all required actions
under the Company's 1992 Incentive Bonus Plan (as amended, the "1992 Bonus
Plan"), the Company's 1992 Executive Equity Incentive Plan, (as amended, the
"1992 Equity Plan") and the 1995 Executive Equity Incentive Plan (as amended,
the "1995 Equity Plan"), and such other compensation plans, agreements or
arrangements of the Company as may be specified by the Board from time to time,
in each case
8
<PAGE> 12
with respect to such action as may be necessary under Section 162(m) in order to
cause any compensation that is paid thereunder to a person who is, or is
specified by the Compensation Committee as being reasonably likely to become, a
"covered employee" within the meaning of Section 162(m) to qualify as
"performance based" within the meaning of Section 162(m). The Section 162(m)
Subcommittee met once during Fiscal 1996.
DIRECTOR NOMINATION PROCEDURES
The By-Laws provide that nominations for election of directors by the
stockholders will be made by the Board or by any stockholder entitled to vote in
the election of directors generally. The By-Laws require that stockholders
intending to nominate candidates for election as directors deliver written
notice thereof to the Secretary of the Company not later than 60 calendar days
in advance of the meeting of stockholders; provided, however, that in the event
that the date of the meeting is not publicly announced by the Company by
inclusion in a report filed with the SEC or furnished to stockholders, or by
mail, press release or otherwise more than 75 days prior to the meeting, notice
by the stockholder to be timely must be delivered to the Secretary of the
Company not later than the close of business on the tenth day following the day
on which such announcement of the date of the meeting was so communicated. The
By-Laws further require that the notice by the stockholder set forth certain
information concerning such stockholder and the stockholder's nominees,
including their names and addresses, a representation that the stockholder is
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice, the class
and number of shares of the Company's stock owned or beneficially owned by such
stockholder, a description of all arrangements or understandings between the
stockholder and each nominee, such other information as would be required to be
included in a proxy statement soliciting proxies for the election of the
nominees of such stockholder, and the consent of each nominee to serve as a
director of the Company if so elected. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with these
requirements. Similar procedures prescribed by the By-Laws are applicable to
stockholders desiring to bring any other business before an annual meeting of
the stockholders.
DIRECTOR COMPENSATION
Non-employee directors receive an annual base retainer fee in the amount of
$30,000, and a fee of $1,250 for each Board or Board Committee meeting attended.
In addition, each non-employee director who chairs a committee receives an
annual fee of $5,000. In connection with the termination of the retirement plan
for non-employee directors described below, the 1995 Equity Plan was amended to
make each non-employee director eligible to receive annual grants of options to
purchase up to 3,500 shares of Common Stock. (See the table at page 15 of this
Proxy Statement for information regarding options granted to non-employee
directors in Fiscal 1996). Directors who are also full-time employees of the
Company receive no additional compensation for services as directors.
The Company's retirement plan for non-employee directors was terminated on
a prospective basis effective May 16, 1997 (the "Plan Termination Date"). As a
result of such termination, persons who first become non-employee directors
after the Plan Termination Date will not be entitled to receive any payment
thereunder. Persons who were non-employee directors as of the Plan Termination
Date will be entitled to receive retirement benefits accrued as of the Plan
Termination Date. Subject to an overall limit in an amount equal to the
aggregate retirement benefit accrued as of the Plan Termination Date (i.e., the
product of $30,000 and the years of Board service prior to the Plan Termination
Date), and the vesting requirements described below, persons who retire from
service as non-employee directors after the Plan Termination Date will be
9
<PAGE> 13
entitled to receive an annual payment equal to $30,000, payable in monthly
installments, commencing at age 60 (if such person's termination of Board
service occurred prior to reaching age 60) and continuing for the lesser of such
person's remaining life or a number of years equal to such person's years of
Board service prior to the Plan Termination Date. Full vesting will occur for
non-employee directors who reach age 60 while serving on the Board, irrespective
of such person's years of Board service. Vesting will occur for non-employee
directors whose termination of Board service occurs before reaching age 60 as
follows: 50% vesting after five years of Board service and an additional 10%
vesting for each year of Board service after five years. Board service following
the Plan Termination Date will be given effect for purposes of the foregoing
vesting requirements. There are no survivor benefits under the terms of the
retirement plan.
Non-employee directors may defer all or a portion of their retainer and
meeting fees either as stock credits or cash credits. Non-employee directors
also receive executive discounts on merchandise purchased.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Compensation Committee Interlocks And Insider Participation" for
information regarding a commercial relationship with ARAMARK Corporation, of
which Mr. Neubauer is Chairman and Chief Executive Officer.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and certain persons who
own more than 10% of the Common Stock outstanding, to file with the SEC and the
New York Stock Exchange (the "NYSE") initial reports of ownership and reports of
changes in ownership of Common Stock. Executive officers, directors and greater
than 10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) reports they file. See "Stock Ownership -- Certain
Beneficial Owners."
To the Company's knowledge, based solely on a review of the copies of
reports furnished to the Company and written representations signed by all
directors and executive officers that no other reports were required with
respect to their beneficial ownership of Common Stock during Fiscal 1996, the
directors and executive officers and all beneficial owners of more than 10% of
the Common Stock outstanding complied with all applicable filing requirements
under Section 16(a) of the Exchange Act with respect to their beneficial
ownership of Common Stock during Fiscal 1996, except that (i) a Form 3 report of
initial ownership following the appointment of Mr. Joel A. Belsky as Vice
President and Controller of the Company was filed late, and (ii) Form 5 reports
of the holdings of Dennis J. Broderick, John E. Brown, Thomas G. Cody, Karen M.
Hoguet, Allen I. Questrom, Ronald W. Tysoe and James M. Zimmerman in the
investment fund that invests in Common Stock under the Company's savings plan
that resulted from matching contributions made by the Company were filed late.
ITEM 2 -- APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board, upon the recommendation of the Audit Review Committee, has
appointed the firm of KPMG Peat Marwick LLP independent public accountants, to
audit the books, records and accounts of the Company and its subsidiaries for
the fiscal year ending January 31, 1998, subject to ratification of such
appointment by the Company's stockholders. KPMG Peat Marwick LLP and its
predecessors have served as independent accountants for the Company since 1988,
and are considered well qualified. Representatives of KPMG Peat Marwick LLP are
expected to be present at the Annual Meeting and will have the opportunity to
make a
10
<PAGE> 14
statement if they desire to do so. It is also expected that they will be
available to respond to appropriate questions.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR SUCH RATIFICATION.
PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY IN
THEIR PROXIES A CONTRARY CHOICE.
ITEM 3 -- AMENDMENT TO 1995 EQUITY PLAN
One of the key elements of the Company's strategic plan is the practice of
linking the compensation of key employees to the achievement of specific
performance levels. The 1995 Equity Plan, which was adopted in connection with
the Company's acquisition of Macy's in December 1994, is intended to provide an
equity interest in the Company to key management personnel and thereby provide
additional incentives for such persons to devote themselves to the maximum
extent practicable to the business of the Company and its subsidiaries. The 1995
Equity Plan is also intended to aid in attracting persons of outstanding ability
to enter and remain in the employ of the Company and its subsidiaries.
To further the objectives of the 1995 Equity Plan, the Compensation
Committee recommended that the Board amend the 1995 Equity Plan, subject to
approval by the Company's stockholders, to increase by 7.5 million shares the
total number of shares of Common Stock available for issuance thereunder, to
increase the maximum number of shares available for issuance thereunder in the
form of restricted stock by 500,000, and in certain other respects as described
herein. If the holders of a majority of the shares of Common Stock present in
person or by proxy at the Annual Meeting vote for the approval of the proposed
amendment to the 1995 Equity Plan, such amendment will thereupon become
effective. If such approval by the Company's stockholders is not obtained at the
Annual Meeting, the proposed amendment to the 1995 Equity Plan will not become
effective, and the 1995 Equity Plan as it presently exists will continue in
effect. Neither the effectiveness of the proposed amendment to the 1995 Equity
Plan nor the failure of such amendment to become effective will have any effect
on the awards outstanding under the 1995 Equity Plan at the time of the Annual
Meeting.
The 1995 Equity Plan is administered by the Compensation Committee, no
voting member of which may be an employee of the Company or its subsidiaries
and, to the extent described in "Further Information Concerning the Board of
Directors -- Committees of the Board -- Section 162(m) Subcommittee", by the
Section 162(m) Subcommittee. Pursuant to the 1995 Equity Plan, the Compensation
Committee is authorized to grant stock options ("Options"), stock appreciation
rights ("SARs"), and shares of restricted stock ("Restricted Stock" and,
collectively with Options and SARs, "Awards") to officers and key employees of
the Company and its subsidiaries (approximately 2200 persons in the aggregate at
the date of this Proxy Statement). The 1995 Equity Plan also provides for annual
grants to each non-employee director (9 persons in the aggregate at the date of
this Proxy Statement) of Options to purchase up to 3,500 shares of Common Stock.
In general, Awards may be transferred only upon death or pursuant to qualified
domestic relations orders, except that certain participants may transfer Awards
to members of their immediate family (as defined in the Rule 16a-1(e) under the
Exchange Act).
As of April 4, 1997, 2,864,858 shares which were not the subject of
outstanding Awards remained available for issuance as or pursuant to Awards
under the 1995 Equity Plan, of which approximately 174,900 remained available
for issuance as Restricted Stock. Upon the effectiveness of the proposed
amendment, the total number of shares available for issuance as or pursuant to
Awards under the 1995 Equity Plan will be equal to the sum of (i) the number of
shares remaining available for issuance as or pursuant to Awards under the 1995
Equity Plan immediately prior to the effectiveness of such amendment and (ii)
7.5 million. Upon the
11
<PAGE> 15
effectiveness of the proposed amendment, the total number of shares available
for issuance under the 1995 Equity Plan as Restricted Stock will be equal to the
sum of (i) the number of shares remaining available for issuance under the 1995
Equity Plan as Restricted Stock immediately prior to the effectiveness of such
amendment and (ii) 500,000.
Options granted under the 1995 Equity Plan may be incentive stock options
("ISOs"), nonqualified stock options, or combinations of the foregoing. The 1995
Equity Plan does not specify a maximum term for Options granted thereunder. A
grant of Options may provide for the deferred payment of the exercise price from
the proceeds of sales through a bank or broker on the exercise date of some or
all of the shares of Common Stock to which such exercise relates. The exercise
price (the "Exercise Price") of Options may not be less than (i) the closing
sale price per share of the Common Stock as reported in the NYSE Composite Tape
(or any other consolidated transactions reporting system which subsequently may
replace such Composite Tape) for the trading day immediately preceding the date
determined as the grant date in accordance with the authorization of the Board
(and, in the case of nonqualified Options awarded to non employee directors of
the Company as described below, the trading day immediately preceding the date
of the Award), or if there are no reported sales on such date, on the next
preceding day on which there were sales; (ii) the average (whether weighted or
not) or mean price, determined by reference to the closing sales prices, average
between the high and low sales prices, or any other standard for determining
price adopted by the Board, per share of the Common Stock as reported in the
NYSE Composite Transactions Report as of the date or for the period determined
in accordance with the authorization of the Board; or (iii) in the event that
the Common Stock is not listed for trading on the NYSE as of a relevant date of
grant, an amount determined in accordance with standards adopted by the Board.
In general, among other requirements, in order to permit the Company to exclude
any amount reportable as taxable income for federal income tax purposes as a
result of the exercise of such Options and SARs in computing compensation that
is subject to the $1.0 million deductibility limit imposed by Section 162(m)
(discussed below), Options and SARs granted to executives who are or who could
be subject to the $1.0 million limitation will be granted with an Exercise Price
of not less than the market value per share on the date of grant.
Each grant of Options will specify whether the Exercise Price is payable in
cash, by the actual or constructive transfer to the Company of nonforfeitable,
unrestricted shares of Common Stock already owned by the participant having an
actual or constructive value as of the time of exercise equal to the total
Exercise Price, by any other legal consideration authorized by the Compensation
Committee, or by a combination of such methods of payment. The 1995 Equity Plan
does not require that a participant hold shares received upon the exercise of an
Option for a specified period and permits immediate sequential exercises of
Options with the Exercise Price therefor being paid in shares of Common Stock,
including shares acquired as a result of prior exercises of Options.
SARs may be granted under the 1995 Equity Plan in tandem with the Options.
Upon exercise, a holder of an SAR would receive, in the discretion of the
Compensation Committee, cash, shares of the Common Stock, or a combination
thereof having an aggregate value equal to all or some portion of the excess of
the market value of the shares of Common Stock in respect of which the SAR is
exercised, determined in the manner specified in the 1995 Equity Plan as of the
date of such exercise, over the aggregate Exercise Price of the related Option.
The Option to which the SAR is related would be canceled to the extent of the
exercise of the SAR.
Restricted Stock involves the immediate transfer by the Company to a
participant of ownership of a specific number of shares of Common Stock in
consideration of the performance of services. The participant is entitled
immediately to voting, dividend, and other ownership rights in such shares.
Restricted Stock is
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<PAGE> 16
subject, for a period determined by the Compensation Committee at the date of
grant, to a "substantial risk of forfeiture" within the meaning of section 83 of
the Internal Revenue Code.
Options granted under the 1995 Equity Plan may be Options that are intended
to qualify as ISOs, or nonqualified stock options that are not intended to so
qualify. Nonqualified stock options generally will not result in any taxable
income to the optionee at the time of the grant, but the holder thereof will
realize ordinary income at the time of exercise of the Options if the shares are
not subject to any substantial risk of forfeiture (as defined in section 83 of
the Internal Revenue Code). Under such circumstances, the amount of ordinary
income is measured by the excess of the fair market value of the optioned shares
at the time of exercise over the Exercise Price. If the Exercise Price of a
nonqualified stock option is paid for, in whole or in part, by the delivery of
shares of Common Stock previously owned by the optionee, no gain or loss will be
recognized to the extent that the shares of Common Stock received are equal in
fair market value to the shares of Common Stock surrendered. An optionee's tax
basis in shares acquired upon the exercise of nonqualified stock options is
equal to the exercise price plus any amount treated as ordinary income.
ISOs normally will not result in any taxable income to the optionee at the
time of grant. If certain requirements are met, the excess of the net selling
price over the adjusted basis of the shares of Common Stock received upon
exercise (the "ISO Shares") will be characterized as a capital gain rather than
as ordinary income, and will not be taxed at the time of exercise but only upon
the sale of such shares. However, the excess of the fair market value of ISO
Shares over the amount paid upon the exercise of the related ISO is a tax
preference item that is potentially subject to the alternative minimum tax. To
the extent that the aggregate fair market value of Common Stock with respect to
which ISOs are exercisable for the first time by an employee during any calendar
year exceeds $100,000, such excess ISOs will be treated as Options which are not
ISOs. No deduction is available to the employer of an optionee upon the
optionee's exercise of an ISO nor upon the sale or exchange of ISO Shares if the
holding period requirements for ISO Shares and the statutory employment
requirement are satisfied by the holder of the ISO Shares.
In general, the grant of an SAR will not produce taxable income to the
recipient. However, upon exercise of an SAR, the amount of any cash received and
the fair market value on the exercise date of any shares of Common Stock
received will be taxable as ordinary income to the recipient.
For federal income tax purposes, no taxable income will be recognized by a
participant who receives a Restricted Stock Award pursuant to the 1995 Equity
Plan in the year such Award is made to the participant. If the participant makes
an election under section 83(b) of the Internal Revenue Code to have such stock
taxed to him as ordinary income (a "Section 83(b) Election"), however, he will
recognize as ordinary income for such year an amount equal to the excess of the
fair market value of the shares of Common Stock (determined without regard to
any lapse restrictions imposed thereon) at the time of transfer over any amount
paid by the participant therefor. If a participant makes a Section 83(b)
Election, no tax deduction will subsequently be allowed to the participant for
any amount previously included in income by reason of such election with respect
to any Common Stock later forfeited under the terms of the 1995 Equity Plan.
Absent a Section 83(b) Election, a participant will recognize ordinary income
for federal income tax purposes in the year or years in which restrictions
terminate, in an amount equal to the excess, if any, of the fair market value of
such shares of Common Stock on the date the restrictions expire or are removed
over any amount paid by the participant therefor. Assuming no Section 83(b)
Election has been made, any dividends received with respect to Common Stock
subject to restrictions will be treated as additional compensation income and
not as dividend income.
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<PAGE> 17
To the extent that a recipient of an Award recognizes ordinary income in
the circumstances described above, the Company or a subsidiary, as the case may
be, would be entitled to a corresponding deduction, provided in general that (i)
the amount is an ordinary and necessary business expense and such income meets
the test of reasonableness; (ii) the deduction is not disallowed pursuant to
Section 162(m), as described below; and (iii) certain statutory provisions
relating to so-called "excess parachute payments" do not apply. Awards granted
under the 1995 Equity Plan are subject to acceleration in the event of a
change-in-control of the Company and, therefore, it is possible that these
change-in-control features may affect whether amounts realized upon the receipt
or exercise of Awards will be deductible by the Company under the "excess
parachute payments" provisions of the Internal Revenue Code.
Section 162(m) generally disallows a tax deduction to public companies for
compensation over $1.0 million accrued with respect to the chief executive
officer and the four most highly compensated executive officers in addition to
the chief executive officer employed by the company at the end of the applicable
year. Qualifying performance-based compensation will not be subject to the
deduction limit if certain requirements are met. In the case of options, one
requirement is that the plan under which the options are granted state a maximum
number of shares with respect to which options may be granted to any one
participant during a specified period. Accordingly, the 1995 Equity Plan
restricts Awards under the 1995 Equity Plan so that no participant may be
granted Options to purchase more than 500,000 shares (which amount would be
increased to 1,000,000 shares upon the effectiveness of the proposed amendment
to the 1995 Equity Plan) in any period of three fiscal years of the Company,
subject to adjustment by the Compensation Committee in certain circumstances to
prevent dilution or enlargement of the participant's rights. A second
requirement is that the 1995 Equity Plan be approved by stockholders. This
requirement was satisfied in connection with the original adoption of the 1995
Equity Plan and, if the proposed amendment becomes effective as described
herein, will be satisfied with respect to the 1995 Equity Plan as amended
thereby.
The foregoing discussion of the material provisions of the 1995 Equity
Plan, as proposed to be amended, does not purport to be complete and is
qualified in its entirety by reference to the full text thereof, which is
attached as Appendix A to this Proxy Statement and incorporated herein by
reference. As proposed to be amended, the 1995 Equity Plan would be subject to
further amendment from time to time by the Board, except that no amendment to
increase the maximum numbers of Common Shares or Restricted Shares issuable
pursuant to the 1995 Equity Plan or the maximum number of Common Shares that
maybe subject to Option Rights or Appreciation Rights granted to any participant
in any period of three fiscal years of the Company could be effected without the
further approval of the holders of a majority of the Common Shares actually
voting thereon at a meeting of the Company's stockholders.
The following table sets forth certain information regarding the Awards
granted under the 1995 Equity Plan in Fiscal 1996 and Fiscal 1997 (through April
17, 1997). No determination has been made with respect to any specific Award
that may be granted under the 1995 Equity Plan after the date of this Proxy
Statement.
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<PAGE> 18
1995 EXECUTIVE EQUITY INCENTIVE PROGRAM
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT
ASSUMED ANNUAL RATES OF
STOCK
PRICE APPRECIATION FOR
STOCK OPTION TERM
NAME AND OPTIONS --------------------------
PRINCIPAL POSITION SHARES (#) 5% ($) 10% ($)
- --------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
A. Questrom 1996 0 0 0
Chairman/CEO 1997 0 0 0
J. Zimmerman 1996 0 0 0
President/COO 1997 450,000(1) 9,728,214 24,653,204
R. Tysoe 1996 50,000(2) 1,041,607 2,639,636
Vice Chairman/CFO 1997 50,000(1) 1,080,913 2,739,245
T. Cody 1996 40,000(2) 833,285 2,111,709
Executive Vice President 1997 50,000(1) 1,080,913 2,739,245
Law and Human Resources
D. Broderick 1996 9,000(2) 187,489 475,134
Senior Vice President/ 1997 9,000(1) 194,564 483,064
General Counsel/Secretary
Executive Group 1996 112,000(2) 2,333,199 5,912,785
1997 571,000(1) 12,344,022 31,282,176
Non-Executive Director Group 1996 14,437(3) 314,463 769,910
(nine persons)
Non-Executive Officer 1996 2,931,100(4) 61,073,647 154,772,613
Employee Group 1997 3,463,600(5)(6) 74,876,980 189,752,969
(approximately 1,930 persons)
<FN>
- ---------------
(1) Represents options granted on March 28, 1997 having an exercise price of
$34.375 per share. In the case of Mr. Zimmerman, such options will vest as
to 100,000 shares on each of March 28, 1998 and March 28, 1999, and as to
the remaining 250,000 on March 28, 2000. In the case of other members of the
Executive Group, such options will vest as to one-fourth thereof on each of
the first four anniversaries of the date of the grant thereof.
(2) Represents options granted on March 22, 1996 having an exercise price of
$33.125 per share, vesting as to one-fourth thereof on each of the first
four anniversaries of such date.
(3) Represents options granted between May 17, 1996 and August 23, 1996 having
exercise prices ranging from $34.625 to $34.875 per share. It is anticipated
that, on May 16, 1997, each non-employee director will be granted an option
to purchase 3,500 shares of Common Stock during a 10-year term at a price
equal to the closing price per share of Common Stock on the NYSE on May 15,
1997.
(4) Represents options granted between March 22, 1996 and July 1, 1996 having
exercise prices ranging from $33.125 to $34.125 per share, with a majority
of such options vesting as to one-fourth thereof on each of the first four
anniversaries of the date of the grant thereof and the remainder vesting in
their entirety on the fourth anniversary of the date of the grant thereof.
(5) Represents options granted on March 28, 1997 having an exercise price of
$34.375, with a majority of such options vesting as to one-fourth thereof on
each of the first four anniversaries of the date of the grant
15
<PAGE> 19
thereof and substantially all of the remainder vesting in their entirety on
the fourth anniversary of the date of the grant thereof.
(6) In addition to the foregoing, a total of 30,000 Restricted Shares were
awarded to two persons in this Group.
</TABLE>
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSED AMENDMENT TO THE 1995 EQUITY PLAN. PROXIES SOLICITED BY THE BOARD WILL
BE SO VOTED UNLESS STOCKHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
ITEM 4 -- APPROVAL OF 1992 INCENTIVE BONUS PLAN
The 1992 Bonus Plan was originally adopted by the Company in connection
with the Federated Plan of Reorganization (as hereinafter defined). The purpose
of the 1992 Bonus Plan is to promote the attainment of the Company's performance
goals by providing incentive compensation for certain key executives of the
Company and its subsidiaries.
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation over $1.0 million accrued with
respect to the chief executive officer and the four most highly compensated
executive officers in addition to the chief executive officer employed by the
company at the end of the applicable year. Qualifying performance-based
compensation will not be subject to the deduction limit if certain requirements
are met. In the case of the 1992 Bonus Plan, one such requirement is that it be
approved by the Company's stockholders. Compliance with this requirement (which
had been held in abeyance under related transition rules) is sought to be
achieved by obtaining such approval at the Annual Meeting.
The 1992 Bonus Plan is administered by the Compensation Committee, no
voting member of which may be an employee of the Company or its subsidiaries,
and, to the extent described in "Further Information Concerning the Board of
Directors -- Committees of the Board -- Section 162(m) Subcommittee", by the
Section 162(m) Subcommittee. Participants in the 1992 Bonus Plan
("Participants") are officers, executives and other employees of the Company or
its subsidiaries (or persons who have agreed to commence serving in any of such
capacities) who are designated by the Chief Executive Officer, the Chief
Operating Officer or the Chief Merchandising Officer of the Company with the
approval of the Compensation Committee or the Board.
The 1992 Bonus Plan provides for both annual incentive awards and long-term
incentive awards. Participants who are executives of the Company or its
subsidiaries or other business units (including store principals, general
merchandise managers, store managers, vice presidents and other elected
officers) are eligible for annual incentive awards based upon the achievement of
specified performance goals for the applicable fiscal year. Participants who
have overall responsibility for day-to-day and long-term achievement of results
of the Company or are in key broad-based strategy formulation and
decision-making positions of the Company or its subsidiaries or other business
units are eligible for long-term incentive awards based on the achievement of
specified performance goals over a specified period, not to exceed five
consecutive fiscal years. As of the date of this Proxy Statement, approximately
1,200 Participants were eligible for annual incentive awards and approximately
28 Participants were eligible for long-term incentive awards.
Prior to the beginning of each performance period, the Compensation
Committee approves for such performance period the applicable performance goals
for the Company and each other covered business unit and, in certain cases, for
individual Participants. Such performance goals are based upon the Company's
16
<PAGE> 20
business plan. In the case of a Participant who is, or is determined by the
Compensation Committee to be likely to become, a "covered employee" within the
meaning of Section 162(m) of the Internal Revenue Code, such performance goals
will be based solely upon one or more of the following measures of performance:
(1) total sales; (2) comparable store sales; (3) gross margin; (4) operating or
other expenses; (5) earnings before interest and taxes ("EBIT"); (6) earnings
before interest, taxes, depreciation and amortization; (7) net income; (8)
earnings per share; (9) cash flow; (10) return on investment (determined with
reference to one or more categories of income or cash flow and one or more
categories of assets, capital or equity); and (11) stock price appreciation.
Such performance goals may be expressed with respect to the Company or one or
more other operating units and may be expressed in terms of absolute levels or
percentages or ratios expressing relationships between two or more of the
foregoing measures of performance (e.g., EBIT as a percentage of total sales),
period-to-period changes, relative to business plans or budgets, or relative to
one or more other companies or one or more indices.
Each covered business unit's actual performance during a particular
performance period is measured against the applicable performance goals. If the
covered business unit's performance for the performance period (i) is below the
threshold performance goal established therefor, no annual or long-term
incentive awards are paid to Participants in respect thereof, (ii) is equal to
the threshold performance goal established therefor, the threshold levels of
annual and long-term incentive awards, as applicable, are paid to Participants
in respect thereof, (iii) is equal to the target performance goal established
therefor, the target levels of annual and long-term incentive awards, as
applicable, are paid to Participants in respect thereof, (iv) is equal to or
greater than the maximum performance goal established therefor, the maximum
level of annual and long-term incentive awards, as applicable, are paid to
Participants in respect thereof, and (v) is in between any two of the
performance goal levels described in the immediately preceding clauses (ii),
(iii) and (iv), the levels of the annual and long-term incentive awards, as
applicable, paid to Participants in respect thereof are determined through
interpolation. Notwithstanding the foregoing, no annual incentive award paid to
any Participant may exceed $2.0 million, and no long-term incentive award paid
to any Participant may exceed $3.0 million. All annual and long-term incentive
awards granted under the 1992 Bonus Plan are paid to Participants in single
lump-sum cash payments following the conclusion of the applicable performance
period.
The foregoing discussion of the material provisions of the 1992 Bonus Plan
does not purport to be complete and is qualified in its entirety by reference to
the full text thereof, which is attached as Appendix B to this Proxy Statement
and incorporated herein by reference. The 1992 Bonus Plan is subject to
amendment from time to time by the Board.
The following tables set forth certain information regarding the award
opportunities granted under the 1992 Bonus Plan with respect to performance
periods consisting of or commencing with Fiscal 1996 or Fiscal 1997. No
determination has been made with respect to any specific awards that may be
granted under the 1992 Bonus Plan after the date of this Proxy Statement.
17
<PAGE> 21
ANNUAL INCENTIVE AWARDS
<TABLE>
<CAPTION>
AWARD POTENTIAL (1)
--------------------------------------------
NAME AND PRINCIPAL POSITION FISCAL YEAR THRESHOLD ($) TARGET ($) MAXIMUM ($)
- ------------------------------ ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
A. Questrom 1996 300,000 625,000 1,125,000
Chairman/CEO 1997(2) 300,000 625,000 1,125,000
J. Zimmerman 1996 160,000 400,000 640,000
President/COO 1997 300,000 625,000 1,125,000
R. Tysoe 1996 70,000 175,000 280,000
Vice Chairman/CFO 1997 75,000 187,500 300,000
T. Cody 1996 65,000 162,500 260,000
Executive Vice President 1997 69,000 172,500 276,000
Law and Human Resources
D. Broderick 1996 35,000 87,500 140,000
Senior Vice President/ 1997 35,000 87,500 140,000
General Counsel
Executive Group 1996 681,400 1,578,500 2,650,600
1997 830,800 1,827,000 3,173,200
Non-Executive Director Group 1996 N/A N/A N/A
(nine persons) 1997 N/A N/A N/A
Non-Executive Officer 1996 10,411,300 26,038,900 41,635,200
Employee Group 1997 10,877,600 27,261,000 43,588,900
(approximately 1,200
persons)
<FN>
- ---------------
(1) Based upon actual performance relative to the applicable performance goals,
the actual cash incentive payments in respect of Fiscal 1996 as a percentage
of the target amount shown were approximately 116.8% for the Executive Group
and 89.4% for the Non-Executive Officer Employee Group.
(2) Mr. Questrom will be eligible to receive a target level incentive payment
based on service deemed to continue through the end of Fiscal 1997.
</TABLE>
18
<PAGE> 22
LONG-TERM INCENTIVE AWARDS
<TABLE>
<CAPTION>
AWARD POTENTIAL
--------------------------------------------
NAME AND PRINCIPAL POSITION FISCAL YEAR THRESHOLD ($) TARGET ($) MAXIMUM ($)
- ---------------------------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
A. Questrom 1996-1998(1) 300,000 625,000 1,125,000
Chairman/CEO 1997-1999(2) 300,000 625,000 1,125,000
J. Zimmerman 1996-1998 280,000 583,300 1,050,000
President/COO 1997-1999 300,000 625,000 1,125,000
R. Tysoe 1996-1998 84,000 210,000 336,000
Vice Chairman/CFO 1997-1999 90,000 225,000 360,000
T. Cody 1996-1998 78,000 195,000 312,000
Executive Vice President 1997-1999 82,800 207,000 331,200
Law and Human Resources
D. Broderick 1996-1998 35,000 87,500 140,000
Senior Vice President/ 1997-1999 35,000 87,500 140,000
General Counsel
Executive Group 1996-1998 811,600 1,787,300 3,101,400
1997-1999 842,400 1,856,000 3,219,600
Non-Executive Director Group 1996-1998 N/A N/A N/A
(nine persons) 1997-1999 N/A N/A N/A
Non-Executive Officer 1996-1998 1,580,500 3,951,200 6,467,200
Employee Group 1997-1999 1,608,700 4,021,800 6,434,900
(approximately 22 persons)
<FN>
- ---------------
(1) Mr Questrom will be eligible to receive a prorated amount in 1999, based on
service deemed to continue through the end of Fiscal 1997. The prorated
amounts at Threshold, Target and Maximum are $200,000, 416,700, and
$750,000, respectively.
(2) Mr. Questrom will be eligible to receive a prorated amount in 2000, based on
service deemed to continue through the end of Fiscal 1997. The prorated
amounts at Threshold, Target and Maximum are $100,000, $208,300 and
$375,000, respectively.
</TABLE>
If the holders of a majority of the shares of Common Stock actually voted
on the matter at the Annual Meeting vote for the approval of the 1992 Bonus
Plan, the 1992 Bonus Plan will be deemed to have been approved by the Company's
stockholders and will continue to be in effect. If such approval by the
Company's stockholders is not obtained at the Annual Meeting, no annual or
long-term incentive awards for any performance period commencing after February
1, 1997 will be paid under the 1992 Bonus Plan. Except as described in the
immediately preceding sentence, neither the approval of the Company's
stockholders of the 1992 Bonus Plan nor the failure of such approval to be
obtained will have any effect on the awards outstanding under the 1992 Bonus
Plan at the time of the Annual Meeting.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE 1992
BONUS PLAN. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS
SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
19
<PAGE> 23
ITEM 5 -- STOCKHOLDER PROPOSAL REGARDING POLITICAL CONTRIBUTIONS
The Company has been notified by Mrs. Evelyn Y. Davis, Editor, Highlights
and Lowlights, Watergate Office Building, 2600 Virginia Avenue, N.W., Suite 215,
Washington, D.C. 20037, who is the beneficial owner of 200 shares of Common
Stock, that she intends to submit the following proposal at the Annual Meeting:
RESOLVED: That the shareholders recommend that the Board direct
management that within five days after approval by the shareholders of this
proposal, the management shall publish in newspapers of general circulation
in the cities of New York, Cincinnati, Washington, D.C., Detroit, Chicago,
San Francisco, Los Angeles, Dallas, Houston and Miami, and in the Wall
Street Journal and U.S.A. Today, a detailed statement of each contribution
made by the Company, either directly or indirectly, within the immediately
preceding fiscal year, in respect of a political campaign, political party,
referendum or citizens' initiative, or attempts to influence legislation,
specifying the date and amount of each such contribution, and the person or
organization to whom the contribution was made. Subsequent to this initial
disclosure, the management shall cause like data to be included in each
succeeding report to shareholders. And if no such disbursements were made,
to have that fact publicized in the same manner.
The proponent has submitted the following statement in support of the
proposal, for which the Company and the Board accept no responsibility:
This proposal, if adopted, would require the management to advise the
shareholders how many corporate dollars are being spent for political
purposes and to specify what political causes the management seeks to
promote with those funds. It is therefore no more than a requirement that
the shareholders be given a more detailed accounting of these special
purpose expenditures than they now receive. These political contributions
are made with dollars that belong to the shareholders as a group and they
are entitled to know how they are being spent.
Last year the owners of 5,205,645 shares, representing approximately
3.6% of shares voting, voted FOR this proposal.
If you AGREE, please mark your proxy FOR this resolution.
The Board recommends, as it did last year, that the stockholders vote
AGAINST the proposal for the reasons reiterated below:
The Company (including its divisions and subsidiaries) does not make
contributions to political candidates or political parties at the federal level.
Where permitted by law, the Company, from time to time, typically through its
divisions or subsidiaries, may make such contributions at the state and local
level, and may make contributions with respect to local issues or referenda in
instances in which such contributions are determined to be consistent with the
Company's legitimate business interests. The amounts of such contributions have
been insignificant.
In addition, in Fiscal 1996 contributions aggregating $17,000 were made by
a political action committee from funds that had previously been contributed by
employees of certain divisions and subsidiaries of the Company.
Information with respect to all such contributions is publicly available.
Therefore, this proposal would, in the Board's opinion, result in duplicative
disclosure and require unnecessary expenditures by the Company.
FOR THE REASONS SET FORTH ABOVE, THE BOARD RECOMMENDS A VOTE AGAINST THIS
PROPOSAL. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS
SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
20
<PAGE> 24
EXECUTIVE COMPENSATION
THREE-YEAR COMPENSATION SUMMARY
The following table summarizes the compensation of the five most highly
compensated executive officers of the Company (the "Named Executives") for the
Company's last three fiscal years for services rendered in all capacities to the
Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ------------------------- ---------- ALL
OTHER RESTRICTED SECURITIES OTHER
ANNUAL STOCK UNDERLYING LTIP COMPEN-
NAME AND COMPEN- AWARD(S) OPTIONS/ PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SATION($) ($)(1) SARS(#) ($)(2) (3)($)
- ----------------------- ----- ---------- --------- ------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. Questrom 1996 1,250,000 715,000 -- 0 0 0 1,500
Chairman & Chief 1995 1,250,000 750,000 117,169 0 450,000 11,049,334 1,524
Executive Officer 1994 1,200,000 0 130,916 0 0 800,000 2,072
J. Zimmerman 1996 1,000,000 443,200 104,671(4) 0 0 270,500 1,500
President & Chief 1995 1,000,000 325,000 83,370 0 0 276,000 1,524
Operating Officer 1994 1,000,000 319,600 72,008 1,396,875 382,000 310,400 2,072
R. Tysoe 1996 700,000 212,800 89,798(5) 0 50,000 216,000 1,500
Vice Chairman & 1995 700,000 227,500 81,167 0 0 220,200 1,524
Chief Financial 1994 687,500 255,200 48,888 4,620,000 61,000 247,600 2,072
Officer
T. Cody 1996 643,667 197,600 81,123(6) 0 40,000 216,000 1,500
Executive Vice 1995 591,667 207,400 80,536 0 100,000 220,200 1,524
President 1994 543,750 255,200 106,736 0 37,000 247,600 2,072
D. Broderick 1996 346,667 110,200 -- 0 9,000 97,500 1,500
Senior Vice 1995 321,333 110,300 47,733 0 34,000 99,600 1,524
President, General 1994 273,500 113,300 41,870 0 6,000 89,200 2,072
Counsel & Secretary
<FN>
- ---------------
(1) At February 1, 1997, the aggregate number of shares of restricted stock held
by each of the Named Executives and the aggregate value thereof (based on
the closing market price of the Common Stock on January 31, 1997) were as
follows: Mr. Questrom: 0 shares, $0; Mr. Zimmerman: 68,000 shares,
$2,235,500; Mr. Tysoe: 135,000 shares, $4,438,125; Mr. Cody: 12,000 shares,
$394,500; and Mr. Broderick: 3,600 shares, $118,350. Shares of restricted
stock were awarded to Messrs. Zimmerman, Tysoe, Cody and Broderick on
February 7, 1992. Restrictions on these awards lapsed as to 20% of such
shares as of each of the first two anniversaries of the award, 15% of such
shares as of each of the next two anniversaries of the award, and 30% of
such shares as of the fifth anniversary of the award. In addition, shares of
restricted stock were awarded to Mr. Zimmerman (75,000 shares) on December
9, 1994, and to Mr. Tysoe (240,000 shares) on January 2, 1995. For Mr.
Zimmerman's December 9, 1994 award, the restrictions lapsed as to one-third
of such shares immediately following the grant of the award and will lapse
as to the remaining two-thirds of such shares on the fourth anniversary of
the award. For Mr. Tysoe's January 2, 1995 award, the restrictions lapsed,
or will lapse, as to 25% of such shares on each of the first four
anniversaries of the award. Holders of restricted stock are entitled to all
rights and benefits of share ownership, except the right to dispose of or
pledge such shares.
(2) Consists of value-added payments to Mr. Questrom under his prior employment
agreement, and payments to other executive officers pursuant to the
Company's long-term cash incentive plan. The prior employment agreement with
Mr. Questrom provided for him to serve as Chairman of the Board and Chief
Executive Officer for a term beginning on February 2, 1990 and expiring on
February 2, 1995 (the "Contract Period"). The agreement also provided that
Mr. Questrom would be entitled to receive a value-added payment upon
completion of the Contract Period based on
21
<PAGE> 25
appreciation in the aggregate market value of the common stock of the
Company and Allied Stores Corporation ("Allied") (which was merged into the
Company in 1992) during the Contract Period, adjusted to reflect the
restructuring of the debt of the Company and Allied and their respective
subsidiaries pursuant to their joint plan of reorganization (the "Federated
Plan of Reorganization") and the sale of equity. The value-added payment
provided for in the agreement was equal to the amount determined by the
following formula: 0.75% of the first $500.0 million of equity appreciation,
1.5% of any equity appreciation between $500.0 and $1,000.0 million and 2.0%
of any equity appreciation in excess of $1,000.0 million (less amounts
previously paid as described below). An initial, nonrefundable value-added
payment of $2.0 million was made upon commencement of the Contract Period
and subsequent nonrefundable value-added payments of $800,000 were made on
each of January 31, 1991, 1992, 1993, 1994 and 1995. The final value-added
payment in the amount of $10,249,334.31 (including interest of $313,200.31),
was paid to Mr. Questrom in October 1995.
The payments to the Named Executive officers other than Mr. Questrom were
made pursuant to the Company's long-term cash incentive plans in respect of
the period encompassing the Company's fiscal years 1994 through 1997. See
"Compensation Committee Report on Executive Compensation -- Specific
Compensation Practices -- Long-Term Cash Incentive."
(3) Consists of contributions under the Company's Retirement Income and Thrift
Incentive Plan (the "RITI"). See "Retirement Programs."
(4) For 1996, the amount shown includes $54,884 for use of corporate aircraft.
(5) For 1996, the amount shown includes $48,390 for use of corporate aircraft
(6) For 1996, the amount shown includes $22,272 for executive discount on
merchandise purchases and $21,063 for group term life insurance.
</TABLE>
FISCAL 1996 STOCK OPTION GRANTS
The following table sets forth certain information regarding grants of
stock options made during Fiscal 1996 to the Named Executives pursuant to the
1995 Equity Plan. No grants of stock appreciation rights were made during Fiscal
1996 to any of the Named Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------
% OF TOTAL
OPTIONS MARKET POTENTIAL REALIZABLE VALUE OF ASSUMED
SECURITIES GRANTED TO PRICE ON ANNUAL RATES OF STOCK PRICE
UNDERLYING EMPLOYEES GRANT EXPIRA- APPRECIATION FOR OPTION TERM
OPTIONS IN FISCAL PRICE DATE TION -------------------------------------
NAME GRANTED(#) YEAR $/SH. $/SH.(1) DATE 0%($) 5%($) 10%($)
- ------------- ---------- ---------- ------ -------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. Questrom 0 0.00% N/A N/A N/A 0 0 0
J. Zimmerman 0 0.00% N/A N/A N/A 0 0 0
R. Tysoe 50,000(2) 1.64% 33.125 33.125 3/22/06 0 1,041,607 2,639,636
T. Cody 40,000(2) 1.31% 33.125 33.125 3/22/06 0 833,285 2,111,709
D. Broderick 9,000(2) 0.30% 33.125 33.125 3/22/06 0 187,489 475,134
<FN>
- ---------------
(1) The "market price" shown is the closing price for shares of Common Stock on
the New York Stock Exchange (the "NYSE") on the business day immediately
preceding the grant date.
(2) Twenty-five percent of the option award vests on each of the first four
anniversaries of the award, beginning March 22, 1997.
</TABLE>
22
<PAGE> 26
See "Compensation Committee Report on Executive Compensation -- Specific
Compensation Practices -- Equity-Based Plans" for further information regarding
grants of stock options made during Fiscal 1996.
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the total
number of stock options held by each of the Named Executives and the aggregate
value of such options at February 1, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
FISCAL YEAR- OPTIONS AT
SHARES END(#) FISCAL YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------- ----------- ----------- ----------------- -------------------
<S> <C> <C> <C> <C>
A. Questrom 0 0 0/450,000 0/6,243,750
J. Zimmerman 0 0 268,666/283,334 3,645,991/3,805,009
R. Tysoe 60,000 1,012,500 80,000/103,000 882,000/609,250
T. Cody 25,000 409,375 87,500/139,500 1,062,500/1,029,750
D. Broderick 5,000 79,375 18,250/40,750 219,125/333,375
<FN>
- ---------------
(1) In-the-money options are options having a per share exercise price below the
closing price of shares of Common Stock on the NYSE on January 31, 1997 (the
last trading day in Fiscal 1996). The dollar amounts shown represent the
amount by which the product of such closing price and the number of shares
purchasable upon the exercise of such in-the-money options exceeds the
aggregate exercise price payable upon such exercise.
</TABLE>
FISCAL 1996 LONG-TERM INCENTIVE PLAN AWARD OPPORTUNITIES
The following table sets forth certain information with respect to award
opportunities of the Named Executives under the Company's long-term cash
incentive plan for the 1996-1998 measurement period. The cash payment under this
program is scheduled to occur in 1999.
23
<PAGE> 27
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED
PLANS(1)
PERFORMANCE OR OTHER -----------------------------------
PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME MATURATION OR PAYOUT ($) ($) ($)
- --------------- -------------------- --------- ------- ---------
<S> <C> <C> <C> <C>
A. Questrom(2) 1998 300,000 625,000 1,125,000
J. Zimmerman 1998 280,000 583,300 1,050,000
R. Tysoe 1998 84,000 210,000 336,000
T. Cody 1998 78,000 195,000 312,000
D. Broderick 1998 35,000 87,500 140,000
<FN>
- ---------------
(1) See "Compensation Committee Report on Executive Compensation -- Specific
Compensation Practices -- Long-Term Cash Incentive" for further information
regarding the Company's long-term cash incentive plan.
(2) Mr. Questrom will be eligible for a prorated payout in 1999, based upon
service deemed to continue through the end of Fiscal 1997. The prorated
amounts at Threshold, Target and Maximum are 200,000, $416,700 and $750,000
respectively.
</TABLE>
CHANGE-IN-CONTROL AGREEMENTS
The Company has entered into a change-in-control agreement
("Change-in-Control Agreement") with each of its executive officers and certain
other officers and key employees. Under the Change-in-Control Agreements, if,
prior to November 1, 1998 (February 2, 1999 in the instance of Mr. Questrom), a
change in control (as defined in the Change-in-Control Agreements) occurs and
within three years thereafter the Company or, in certain circumstances, the
executive terminates the executive's employment and, in the case of a
termination by the Company, cause (as defined in the Change-in-Control
Agreements) therefor does not exist, the executive would be entitled to a cash
severance benefit equal to two times the sum of his or her current base salary
(or, if higher, the executive's highest salary received for any year in the
three full calendar years preceding the Change in Control) and target annual
bonus (or, if higher, the executive's highest bonus received for any year in the
three full calendar years preceding the Change in Control), payment of any
awards under the Company's long-term cash incentive plan at target (if
applicable, and prorated to the executive's participation during each
performance period), the continuation of welfare benefits for two years
(subject, but only as to welfare benefits, to a requirement in any applicable
welfare benefits plan that the executive maintain "actively at work status" and
to early termination on the date the executive secures other full-time
employment) and two years of retirement plan credits (but not pursuant to the
Company's qualified or non-qualified plans). The cash severance benefit payable
under the Change-in-Control Agreements would be reduced by all amounts actually
paid to the executive pursuant to any other employment or severance agreement or
plan to which the executive and the Company are parties or in which the
executive is a participant. In addition, the severance benefits under the
Change-in-Control Agreements are subject to reduction in certain circumstances
if the excise tax imposed under 280G of the Internal Revenue Code would reduce
the net after-tax amount received by the executive.
RETIREMENT PROGRAM
Prior to January 1, 1997, the retirement program established by the Company
before the Merger and the retirement program established by Macy's before the
Merger were the primary programs for providing
24
<PAGE> 28
retirement benefits to the Company's employees. These and other sundry
retirement programs established by the Company have been merged in two steps, on
January 1, 1997 and April 1, 1997, and the combined program consists of a
defined benefit plan and a defined contribution plan (the "Combined Program").
As of January 1, 1997, approximately 86,000 employees, including the executive
officers of the Company, participated in the Combined Program, which is
described below.
To allow the Combined Program to provide benefits based on a participant's
total compensation, the Company adopted a Supplementary Executive Retirement
Plan (the "SERP"). The SERP, which is a nonqualified unfunded plan, provides to
eligible executives retirement benefits based on compensation in excess of
Internal Revenue Code maximums, as well as on amounts deferred under the
Company's Executive Deferred Compensation Plan ("EDCP"), in each case employing
a formula that is based on the participant's years of credited service and final
average compensation, taking into consideration the participant's balance in the
Cash Account Pension Plan and Retirement Profit Sharing Credits (as defined
below). As of January 1, 1997, approximately 750 employees were eligible to
receive benefits under the terms of the SERP. The Company has reserved the right
to suspend or terminate supplemental payments as to any category of employee or
former employee, or to modify or terminate any other element of the Combined
Program, in accordance with applicable law.
Under the Combined Program's Cash Account Pension Plan, a participant
retiring at normal retirement age is eligible to receive the amount credited to
his or her pension account or the monthly benefit payments determined
actuarially based on the amount credited to his pension account. Amounts
credited to participants' accounts consist of an opening cash balance equal to
the single sum present value, using stated actuarial assumptions, of the
participant's accrued normal retirement benefit earned at December 31, 1996,
under the applicable predecessor pension plan, Pay Credits (generally, a
percentage of eligible compensation credited annually based on length of
service) and Interest Credits (credited quarterly, based on the 30 Year Treasury
Bond rate for the November prior to each calendar year). In addition, if a
participant retires before January 1, 2002 at or after age 55 with at least 10
years of credited service, the pension benefit payable in an annuity form, other
than a single life annuity, will not be less than that which would have been
payable from the predecessor pension plan under which such participant was
covered on December 31, 1996.
Prior to the adoption of the defined benefit plans which were merged into
the Combined Program, the Company's primary means of providing retirement
benefits to employees was through defined contribution profit sharing plans. An
employee's accumulated retirement profit sharing interests in the profit sharing
plans (the "Retirement Profit Sharing Credits") which accrued prior to the
adoption of the pension plans, continue to be maintained and invested until
retirement, at which time they are distributed. With defined benefit plans in
place, the Company continued, and presently expects to continue, to make
contributions to the Profit Sharing 401(k) Investment Plan. It is impractical to
estimate the accrued benefits upon retirement under the Company's Profit Sharing
401(k) Investment Plan because the amount, if any, that will be contributed by
the Company and credited to a participant in any year is determined by such
variable factors, among others, as the amount of net income of the Company,
participants' annual contributions to the plan, the amount of matching
contributions of the Company, and the earnings on participants' accounts.
The following table shows the estimated hypothetical total annual benefits
payable under the SERP benefit formula pursuant to the Cash Account Pension
Plan, Retirement Profit Sharing Credits and the SERP to persons retiring at
their normal retirement age in 1997 in specified eligible compensation and years
of service classifications, assuming that a retiring participant under the
Combined Program elects a single life annuity distribution of his or her balance
in the Cash Account Pension Plan and Retirement Profit Sharing Credits. If the
total annual benefits payable to a person pursuant to the Cash Account Pension
Plan and the
25
<PAGE> 29
Retirement Profit Sharing Credits under the foregoing assumptions would exceed
the amount set forth below, no benefit would be payable to such person under the
SERP. Eligible compensation for this purpose includes amounts reflected in the
Annual Compensation portion of the Summary Compensation Table under the headings
"Salary" and "Bonus," but excludes amounts reflected in such portion of such
table under the heading "Other Annual Compensation." With respect to the Annual
Compensation portion of the Summary Compensation Table, the eligible
compensation of each of the Named Executives did not vary by more than 10% from
the total amount of such executive's annual compensation.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL YEARS OF SERVICE
AVERAGE ------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 250,000 $ 50,283 $ 67,044 $ 83,805 $100,566 $100,566
300,000 61,533 82,044 102,555 123,066 123,066
350,000 72,783 97,044 121,305 145,566 145,566
400,000 84,033 112,044 140,055 168,066 168,066
450,000 95,283 127,044 158,805 190,566 190,566
500,000 106,533 142,044 177,555 213,066 213,066
750,000 162,783 217,044 271,305 325,566 325,566
1,000,000 219,033 292,044 365,055 438,066 438,066
1,250,000 275,283 367,044 458,805 550,566 550,566
1,500,000 331,533 442,044 552,555 663,066 663,066
</TABLE>
Messrs. Questrom, Zimmerman, Tysoe, Cody and Broderick have completed 29,
28, 9, 14 and 9 years of credited service, respectively. Mr. Tysoe's current
employment agreement with the Company, which expires on January 2, 1999,
provides that if Mr. Tysoe remains in the employ of the Company for the entire
term of the agreement, he will be deemed to have commenced employment on
February 19, 1981 for the purpose of calculating years of credited service for
benefit accrual (with such additional benefits payable by the Company separately
and not pursuant to any of the Company's qualified or non-qualified retirement
plans).
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW OF THE COMPANY'S EXECUTIVE COMPENSATION POLICIES AND PRACTICES
The Company's basic compensation policies and practices were established in
connection with the Federated Plan of Reorganization, including the
implementation of a comprehensive executive compensation program principally
intended to: (i) provide appropriate incentives designed to aid in assuring the
accomplishment of the Company's performance and financial objectives; (ii) help
ensure that the Company is able to attract and retain top-quality management
personnel; and (iii) ensure that an appropriate portion of executive
compensation is variable and dependent upon the accomplishment of specific short
and long-term performance and financial objectives, as well as increases in
stockholder value.
This program was developed with the assistance of independent compensation
and other advisors, reviewed in detail with representatives of creditor
constituencies during the course of the development of the Federated Plan of
Reorganization and approved in connection therewith. The key guiding principle
of the program is that total compensation opportunities, which include annual
cash compensation and the value of
26
<PAGE> 30
long-term stock and cash incentives, should be positioned at competitive levels,
should lead the industry when annual and long-term performance exceeds
expectations and should lag behind the industry when performance falls short.
The program consists of the following components: (i) Base Salary -- targeted at
competitive levels for comparable-sized firms within the retail industry; (ii)
Performance-Based Annual Cash Incentive -- based on attainment of specific
financial objectives for the total corporation, operating unit or individual;
(iii) Performance-Based Long-Term Cash Incentive -- based on Company-wide
performance against three-year financial performance objectives, as well as
performance against peers; and (iv) Equity -- in the form of stock options,
which tie any executive gain directly to value creation and stock price
appreciation, and limited use of restricted stock, the ultimate value of which
is also directly tied to creation of stockholder value. The companies to which
comparisons are made for purposes of determining competitive positioning are
primarily department store retailers, many of which are included in the graph
set forth under the caption "Comparison of Total Stockholder Return." For
purposes of measuring the Company's performance against peers, the peer group
contains all of the companies set forth under the caption "Total Stockholder
Return," as well as a few additional companies. Information relating to each of
the foregoing components is set forth below.
The Compensation Committee (the "Committee") has engaged KPMG Peat Marwick
LLP ("Peat Marwick") as its independent executive compensation consultants. With
the assistance of Peat Marwick and Company management, the Committee
periodically reviews the compensation programs of the Company to determine
whether the total compensation provided by these programs is consistent with the
Company's performance-driven policies. During 1994, the Committee, with the
assistance of Peat Marwick, reviewed the total compensation provided to the
Company's executives. Based upon this review, the Committee reaffirmed the
program's key guiding principles and continued, with some minor changes, the
programs established and approved in connection with the Federated Plan of
Reorganization. It is also the Committee's general policy to consider whether
particular payments and awards are deductible for federal income tax purposes,
along with such other factors as may be relevant in the circumstances, in
reviewing executive compensation programs. Consistent with this policy, and in
response to the final Treasury regulations regarding the deductibility of
executive compensation under Section 162(m) of the Internal Revenue Code, the
Committee has taken what it believes to be appropriate steps to maximize the
future deductibility of cash payments under the Company's annual cash incentive
plan and the long-term cash incentive plan, and of stock options awarded under
the 1995 Equity Plan.
The Company's overall executive compensation program and each of its
components are administered by the Committee and the Section 162(m)
Subcommittee, based on authority delegated by the Board. All of the members of
the Committee are non-employee directors and all of the members of the Section
162(m) Subcommittees are "outside directors" within the meaning of Section
162(m). See "Further Information Concerning The Board of Directors -- Committees
of the Board -- Compensation Committee" for further information regarding the
Section 162(m) Subcommittee. In the opinion of the Board each of the
Compensation Committee and the Section 162(m) Subcommittee is composed of
directors who are independent of any relationships with any officer or other
person that would prevent such committee or subcommittee from making independent
judgments with respect to matters pertaining to executive compensation generally
within its authority or as applied to any specific officer. No executive officer
of the Company serves on any other boards of directors with any member of the
Board or the Committee.
SPECIFIC COMPENSATION PRACTICES
EMPLOYMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER. Effective February 2,
1995, the Company and Mr. Questrom entered into an employment agreement which
provides for Mr. Questrom to serve as Chairman
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<PAGE> 31
of the Board and Chief Executive Officer of the Company for a term expiring on
February 2, 1998. However, Mr. Questrom has announced his resignation effective
as of the close of business on the day of the Annual Meeting.
Mr Questrom's employment agreement provides for a base salary of $1.25
million per year, and specifically includes Mr. Questrom as a participant in the
Company's annual and long-term cash incentive plans described hereinafter. In
addition, pursuant to the agreement, on February 2, 1995, Mr. Questrom was
granted an option to purchase 450,000 shares of Common Stock at an exercise
price of $19.00 per share. Such option originally was scheduled to vest in its
entirety on February 2, 1998. Pursuant to Section 162(m), annual compensation
accrued to Mr. Questrom that is in excess of $1.0 million (excluding Mr.
Questrom's annual and long-term cash bonus, as well as any gains from the stock
options awarded) will not be deductible by the Company for federal income tax
purposes.
Termination of Mr. Questrom's employment by the Company other than for
"cause" or by Mr. Questrom for "good reason" would entitle Mr. Questrom to
receive a lump-sum payment of all salary and targeted annual bonuses for each
year until the expiration of the stated term thereof. The term "cause" is
defined generally to include (i) willful and material breaches of duties, (ii)
habitual neglect of duties, or (iii) the final conviction of a felony, but
generally does not include bad judgment or negligence, any act or omission
believed by Mr. Questrom in good faith to have been in or not opposed to the
interests of the Company or any act or omission in respect of which a
determination could properly have been made by the Board that Mr. Questrom met
the applicable standard of conduct prescribed for indemnification or
reimbursement under the By-Laws or the laws of the state of Delaware. The term
"good reason" is defined generally to include (a) the assignment to Mr. Questrom
of any duties materially inconsistent with his position, authority, duties or
responsibilities as contemplated in the agreement, or any other action by the
Company which results in a material diminution in such position, authority,
duties or responsibilities, (b) any material failure by the Company to comply
with any of the provisions of the agreement, (c) failure of Mr. Questrom to be
reelected Chairman of the Board and Chief Executive Officer of the Company or to
be reelected to membership on the Board, or (d) any purported termination by the
Company of Mr. Questrom's employment otherwise than as expressly permitted by
the agreement.
In connection with his resignation, Mr. Questrom will be entitled to
receive (i) salary and a target-level annual cash incentive payment based upon
service deemed to continue through the end of Fiscal 1997 and (ii) and a
prorated amount, based upon service deemed to continue through the end of Fiscal
1997, of the long-term cash incentive payments payable on account of award
opportunities for the 1995-1997, 1996-1998, and 1997-1999 performance periods.
In addition, the option to purchase shares of Common Stock described in the
second preceding paragraph will vest in its entirety upon Mr. Questrom's
resignation and Mr. Questrom will be credited with service through the end of
Fiscal 1997 for purposes of computing retirement benefits payable under the
Combined Program and the SERP (with such additional benefits payable by the
Company separately and not pursuant to any of the Company's qualified or
non-qualified retirement plans).
EMPLOYMENT AGREEMENT WITH PROSPECTIVE CHIEF EXECUTIVE OFFICER. The Company
and Mr. Zimmerman have entered into a new employment agreement, effective May
16, 1997, which provides for Mr. Zimmerman to serve as Chairman of the Board and
Chief Executive Officer of the Company for a term expiring on May 16, 2001. Mr.
Zimmerman's employment agreement provides for a base salary of $1.25 million per
year, and specifically includes Mr. Zimmerman as a participant in the Company's
annual and long-term cash incentive plans described hereinafter. In addition, in
connection with his agreement to serve as Chairman of the Board and Chief
Executive Officer of the Company, Mr Zimmerman was granted, on March 28, 1997,
an
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<PAGE> 32
option to purchase 450,000 shares of Common Stock at an exercise price of
$34.375 per share. Such option will vest as to 100,000 shares on each of March
28, 1998 and March 28, 1999, and as to the remaining 250,000 shares on March 28,
2000. Pursuant to Section 162(m), annual compensation accrued to Mr. Zimmerman
that is in excess of $1.0 million (excluding Mr. Zimmerman's annual and
long-term cash bonus, as well as any gains from the stock option awarded) will
not be deductible by the Company for federal income tax purposes.
Mr. Zimmerman's new employment agreement contains provisions for
compensation in the event of termination of Mr. Zimmerman's employment by the
Company other than for "cause" or by Mr. Zimmerman for "good reason"
substantially identical to the comparable provisions of Mr. Questrom's
employment agreement described above.
EMPLOYMENT AGREEMENTS WITH OTHER EXECUTIVE OFFICERS. Each of the Company's
other executive officers, along with a number of other key employees, is a party
to an employment agreement with the Company. Most of these agreements have a
three-year term, although several are for two years or four years, and all
incorporate non-compete and mitigation clauses. The agreements with Messrs.
Tysoe, Cody and Broderick presently specify the following respective annual base
salary rates and expiration dates: $750,000, January 2, 1999; $690,000, June 30,
1999; and $350,000, June 30, 1999.
The Company and Mr. Lundgren have entered into a new employment agreement,
effective May 16, 1997, which provides for Mr. Lundgren to serve as President
and Chief Merchandising Officer of the Company for a term expiring on May 16,
2000. Mr. Lundgren's employment agreement provides for a base salary of $1.0
million per year. In addition, in connection with his agreement to serve as
President and Chief Merchandising Officer of the Company, Mr. Lundgren was
granted, on March 28, 1997, an option to purchase 250,000 shares of Common Stock
at an exercise price of $34.375 per share. Such option will vest as to 75,000
shares on each of March 28, 1998 and March 28, 1999, and as to the remaining
100,000 shares on March 28, 2000.
The Committee reviews the compensation levels and other terms of employment
of each of the Company's executive officers against the performance of such
officers and other factors determined to be appropriate by the Committee on a
continuing basis. While the Committee expects the Company will continue its
historical practice of entering into employment agreements with its executive
officers and other key employees, it reserves the right to modify or terminate
that practice generally or in a specific instance upon the expiration of any
such agreements.
ANNUAL CASH INCENTIVE. Since Fiscal 1992, the Company's executive officers
(other than Mr. Questrom until Fiscal 1995) have participated in an annual cash
bonus plan that was tied directly to Company performance. The annual cash bonus
opportunity for Messrs. Zimmerman, Tysoe and Cody (and Questrom, beginning in
Fiscal 1995) is based 100% upon the Company's performance against specific
"EBIT" (Earnings Before Interest and Taxes) targets established by the Committee
consistent with the Company's annual business plan, while 75% of Mr. Broderick's
incentive opportunity is based upon the Company's EBIT performance, with the
remaining 25% based upon his performance compared to specific individual
objectives. The Committee (or, in certain cases, the Section 162(m)
Subcommittee) establishes threshold, target and maximum EBIT levels, and a
minimum targeted ratio of EBIT-to-sales based upon Board approval of the
Company's annual business plan. Failure to attain the minimum EBIT-to-sales
objective results in reduction of the bonus otherwise earned based upon earnings
performance. The Company's actual earnings and earnings rate for Fiscal 1996
exceeded the target earnings and earnings rate performance levels approved by
the Board. Accordingly, Messrs. Questrom, Zimmerman, Tysoe, Cody and Broderick
earned bonuses which reflected amounts between the target and the maximum annual
bonus opportunity which the Committee assigned to
29
<PAGE> 33
their positions at the beginning of the year. The Committee (or, in certain
cases, the Section 162(m) Subcommittee) has reviewed and approved the 1996
annual cash incentive EBIT and EBIT-to-sales performance targets for the
executive group and the corresponding annual cash bonus opportunities.
LONG-TERM CASH INCENTIVE. The long-term cash incentive plan for the
Company's executive officers is based on the Company's three-year performance
against specified financial objectives established in connection with the
Company's long-term business plan. The Company's performance against a
cumulative EBIT target and an EBIT rate target provides the basis for 60% of the
incentive opportunity under each of the 1994-1996, the 1995-1997 and the
1996-1998 programs. The remaining 40% of the incentive opportunity is based upon
an objective ranking of the Company's performance compared to a designated group
of peer companies with respect to both cumulative comparable store sales and
cumulative earnings per share growth under each of the 1994-1996, 1995-1997 and
the 1996-1998 programs.
Consistent with the Company's long-term business plan approved by the full
Board, the Committee (or, in certain cases, the Section 162(m) Subcommittee)
annually establishes new three-year threshold, target and maximum EBIT
objectives and a minimum EBIT rate objective, which generally remain unchanged
for each three-year measurement period. Failure to attain the minimum earnings
rate objective results in reduction of the bonus otherwise earned based upon
earnings performance. For the 1994-1996 performance period, EBIT performance
exceeded target objectives, resulting in a payout between the target and the
maximum opportunity for the portion of the incentive based upon EBIT
performance. With respect to Company performance against peers, the Company
exceeded the overall performance objectives, also resulting in a payout between
the target and the maximum opportunity for the portion of the incentive based
upon performance against peers. The Committee (or, in certain cases, the Section
162(m) Subcommittee) has reviewed and approved the 1997-1999 long-term cash
incentive cumulative EBIT and EBIT rate performance targets for the executive
group, the specific factors and the peer group to which Company performance will
be compared, and the corresponding long-term cash bonus incentive opportunity
for each participant.
EQUITY-BASED PLANS. Stock option awards were granted in Fiscal 1996 by the
Committee to Messrs. Tysoe, Cody and Broderick pursuant to the 1995 Equity Plan.
Stock option awards granted in Fiscal 1996 were based on the organizational
level of the executive, and provided recognition of the contributions made by
the executive in the current year, as well as the future contributions to the
Company each is anticipated to make. In granting these performance-based awards,
the Named Executives and other key employees were provided with an immediate
financial interest in increasing stockholder value.
As part of the 1994 review of executive total compensation conducted by the
Committee with the assistance of outside compensation experts from Peat Marwick,
the Committee approved guidelines for stock option awards to executives. The
guidelines featured the use of a range of annual stock option award
opportunities for each eligible position within the Company, with the range of
opportunity reflecting competitive levels of awards as compared to other
department store retailers and with individual awards reflecting individual
performance within the Company. The awards are typically granted with an
exercise price equal to 100% of fair market value at the time of grant, with a
10-year term and vesting over four years. Options awarded after February 15,
1995, are granted under the 1995 Equity Plan approved by the Company's
stockholders at the November 29, 1994 special shareholders meeting.
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<PAGE> 34
CONCLUSION
The Committee believes that the compensation policies and arrangements made
or adopted in connection with the Federated Plan of Reorganization, such as the
Company's prior employment agreement with Mr. Questrom, were critical to the
Company's ability to successfully reorganize itself. The Committee intends to
seek to continue to operate under, and to adjust where necessary, these
performance-driven compensation policies and practices to assure that they are
consistent with the goals and objectives of the Company, and with the primary
mission of the full Board of increasing long-term stockholder value.
Respectfully submitted,
Joseph Neubauer, Chairperson
Lyle Everingham
Meyer Feldberg
George V. Grune
Paul W. Van Orden
Craig E. Weatherup
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<PAGE> 35
COMPARISON OF TOTAL STOCKHOLDER RETURN
The following graph compares the cumulative total stockholder return on the
Common Stock with the Standard & Poor's 500 Composite Index and the Standard &
Poor's Retail Department Store Index for the period from February 5, 1992 (the
date on which trading in the Common Stock on the NYSE commenced) through March
19, 1997, assuming an initial investment of $100 and the reinvestment of all
dividends.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
11/24/95 197,414 118,977 145,872 129,403 161,862
12/01/95 197,414 117,652 147,576 128,287 153,750
12/08/95 192,241 118,869 150,129 129,613 166,656
12/15/95 189,655 117,638 149,852 128,272 166,440
12/22/95 181,896 113,247 148,787 123,483 165,287
12/29/95 187,931 115,721 149,752 126,193 166,459
1/05/96 191,379 119,363 149,942 130,164 166,703
1/12/96 191,379 115,763 146,319 126,619 162,759
1/19/96 177,586 111,242 148,755 121,674 165,500
1/26/96 178,448 112,970 151,136 123,564 168,158
2/02/96 182,759 117,127 154,593 128,110 172,119
2/09/96 191,379 120,444 159,584 131,739 177,772
2/16/96 191,379 120,495 157,544 131,794 175,635
2/23/96 208,621 126,284 160,243 138,127 178,689
3/01/96 215,517 129,413 156,667 141,890 174,793
3/08/96 221,552 128,944 154,024 141,375 171,955
3/15/96 226,724 134,990 155,952 148,004 174,209
3/22/96 228,448 135,849 158,186 148,946 176,730
3/29/96 222,414 131,977 156,941 144,713 175,396
4/05/96 215,517 129,482 159,460 141,977 178,266
4/12/96 232,758 133,898 154,804 147,045 173,148
4/19/96 219,827 131,374 156,837 144,489 175,451
4/26/96 231,034 136,287 158,877 149,869 177,767
5/03/96 231,896 139,097 156,001 152,983 174,628
5/10/96 236,207 139,885 158,544 153,849 177,609
5/17/96 238,793 141,552 162,633 155,683 182,376
5/24/96 248,276 143,457 164,967 157,776 185,046
5/31/96 238,793 141,606 162,684 156,091 182,573
6/07/96 243,865 142,045 163,703 156,575 183,813
6/14/96 238,793 138,843 161,889 153,046 181,879
6/21/96 231,896 136,334 162,130 150,280 182,173
6/28/96 235,345 134,774 163,051 148,574 183,269
7/05/96 240,517 133,550 159,844 147,224 179,735
7/12/96 228,448 129,378 157,109 143,059 176,754
7/19/96 212,931 125,963 155,295 139,284 174,746
7/26/96 206,896 125,513 154,607 136,786 173,980
8/02/96 220,690 131,431 161,072 145,330 181,391
8/09/96 225,000 133,655 160,877 147,789 181,380
8/16/96 239,655 133,638 161,734 147,770 182,351
8/23/96 237,069 133,931 162,176 148,094 182,907
8/30/96 238,793 133,305 158,519 147,719 178,868
9/6/96 226,724 135,090 159,417 149,698 179,983
9/13/96 239,655 138,974 165,461 154,001 186,929
9/20/96 232,759 138,867 167,039 153,882 188,783
9/27/96 227,586 134,713 166,834 149,295 188,627
10/04/96 231,896 135,873 170,547 150,581 192,864
10/11/96 228,448 135,508 170,353 150,629 192,743
10/18/96 239,655 136,939 172,823 152,220 195,572
10/25/96 238,793 134,153 170,416 149,123 192,857
11/01/96 224,138 132,321 171,109 147,087 193,758
11/08/96 241,379 136,746 177,685 152,006 201,324
11/15/96 229,310 132,101 179,339 146,843 203,306
11/22/96 232,759 134,846 182,040 149,893 206,433
11/29/96 235,345 137,286 184,056 152,929 208,821
12/06/96 241,379 134,642 179,820 149,984 204,118
12/13/96 225,862 130,461 177,155 145,326 201,186
12/20/96 232,759 129,644 182,074 144,416 206,804
12/27/96 232,759 129,460 184,000 144,227 209,087
1/03/97 230,172 127,723 181,870 142,292 206,714
1/10/97 216,379 124,842 184,658 139,494 209,961
1/17/97 210,345 126,136 188,711 140,985 214,603
1/24/97 213,793 124,612 187,338 139,282 213,060
1/31/97 226,724 124,582 191,140 139,248 217,472
2/07/97 233,621 125,852 191,967 140,667 218,558
2/14/97 241,379 129,028 196,567 144,218 223,897
2/21/97 235,345 126,573 194,936 141,474 222,121
2/28/97 239,655 129,059 192,273 144,583 219,176
3/07/97 244,828 130,491 195,714 146,187 223,236
3/14/97 255,172 133,337 192,845 149,375 220,067
3/19/97 261,207 134,066 191,045 150,192 218,031
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Neubauer, a director of the Company and a member of the Committee, is
Chairman and CEO of ARAMARK Corporation ("ARAMARK"), which has entered into an
agreement with The Bon, Inc., a wholly-owned subsidiary of the Company ("The
Bon"), to operate food and beverage services on a limited profit and loss basis
for nine Bon Marche' stores. In Fiscal 1996, the sales revenues of The Bon
attributable to ARAMARK's operations were approximately $83,054.52.
32
<PAGE> 36
SHAREHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING
Any proposal of a shareholder intended to be presented at the Company's
1998 annual meeting of shareholders must be received in writing by the Secretary
of the Company by December 17, 1997, for inclusion in the Company's proxy,
notice of meeting and proxy statement relating to the 1998 annual meeting.
STATEMENT ON DIVERSITY
The Board believes that the Company's policy on diversity is a matter of
interest to its stockholders. Diversity is an integral element of the Company's
strategy to create and maintain a "workplace of difference" in which (i) its
workforce (including management), Board of Directors and supplier base present a
diverse profile reflecting national demographics, (ii) a general awareness of
the Company's firm commitment to diversity and an acceptance of the inherent
advantages of a diverse workforce exist, and (iii) racial, gender, age and
ethnic differences co-exist productively and harmoniously, presenting a model to
the industry.
Since the Company already has achieved a workforce profile that mirrors the
national workforce, the Company's present goal is to deliberately and
incrementally create the desired profile in its boardroom and executive suites
as well. Accordingly, the Company has adopted a two-pronged strategy involving
focused and proactive efforts in the areas of (i) employment/retention and (ii)
communication and ongoing education. The Company aggressively pursues
recruitment strategies that are designed to produce the best mix of people for
the Company and attract candidates with a wide array of talents, experiences and
perspectives. Toward this end, the Company has taken numerous steps to continue
to enhance meaningful relationships with national minority organizations and
educational institutions. Developing and promoting talented associates with
diverse backgrounds already employed by the Company (so-called "incruitment")
and communicating effectively with each such associate has been identified as an
effective strategy for the successful creation and promotion of long-term
commitments to the Company among its minority and women associates. In order to
identify the effect of policies and procedures on the representation of women
and minorities in exempt positions, the Company tracks the continuous movement
of people from one level to the next, and the relative composition of the group
being promoted. The Company monitors policies, procedures and benefits to ensure
that no adverse impact on women and minorities result therefrom. In order to
enhance sensitivity to and acceptance of diversity as a positive element of the
Company's workplace environment and thereby maximize the results of its
diversity efforts, the Company has developed and implemented a communications
strategy, both within and outside the Company, that articulates and communicates
effectively the Company's mission on the establishment and retention of a
diverse workforce. Additionally, the Company's business rationale for diversity
and its expectations of each associate in that regard are communicated using a
variety of mediums, including print, video, classroom and computer.
The Company also seeks diversity among its vendors through its Minority
Vendor Development Program, the primary objective of which is to identify
certified minority owned businesses and provide them with opportunities to
conduct business with the Company in an environment that is mutually beneficial.
This formal program is administered by a manager in the Company's corporate
offices in Cincinnati, with support from a wide network of senior divisional
executives who serve as the liaison to the program manager for minority vendor
referrals. As a result of the implementation of its Minority Vendor Development
Program, the Company has (i) successfully recruited qualified minority owned
businesses, with a special focus on minority vendors of retail merchandise, (ii)
caused major vendors to the Company to become educated with respect to the
Company's perspective on diversity and to promote diversity among their
suppliers, and (iii) developed
33
<PAGE> 37
and implemented a database to increase minority sourcing opportunities, and
track and monitor the volume of purchasing from suppliers involved in the
Minority Vendor Development Program.
Stockholders may call Investor Relations at 1-800-261-5385 and request
further information on the Company's diversity programs as well as a report
containing selected information from the annual EEO-1 Report filed by the
Company with regulatory authorities.
OTHER MATTERS
The Board knows of no business which will be presented for consideration at
the Annual Meeting other than that shown above. However, if any business shall
properly come before the Annual Meeting, the persons named in the enclosed form
of proxy or their substitutes will vote said proxy in respect of any such
business in accordance with their best judgment pursuant to the discretionary
authority conferred thereby.
The cost of preparing, assembling and mailing the proxy material will be
borne by the Company. The Annual Report of the Company for Fiscal 1996, which is
being mailed to the stockholders together herewith, is not to be regarded as
proxy soliciting material. The Company may solicit proxies otherwise than by the
use of the mails, in that certain officers and regular employees of the Company,
without additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies. The Company will also request persons, firms and
corporations holding shares in their names, or in the name of their nominees,
which are beneficially owned by others, to send proxy material to and obtain
proxies from such beneficial owners and will reimburse such holders for their
reasonable expenses in so doing. In addition, the Company has engaged the firm
of Georgeson & Company, Inc. ("Georgeson"), of New York City, to assist in the
solicitation of proxies on behalf of the Board of Directors. Georgeson will
solicit proxies with respect to Common Stock held by brokers, bank nominees,
other institutional holders and certain individuals, and will perform related
services. It is anticipated that the cost of the solicitation service to the
Company will not substantially exceed $15,000.
DENNIS J. BRODERICK
Secretary
April 17, 1997
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT IN
THE ENCLOSED ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
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<PAGE> 38
APPENDIX A
FEDERATED DEPARTMENT STORES, INC.
1995 EXECUTIVE EQUITY INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF MAY 16, 1997)
Federated Department Stores, Inc., a Delaware corporation (the "Company"),
hereby amends and restates this 1995 Executive Equity Incentive Plan (this
"Plan") effective, subject to the provisions of Section 13, as of May 16, 1997
(the "Effective Date").
1. PURPOSE. The purpose of this Plan is to attract and retain directors,
officers, and other key executives and employees of the Company and its
subsidiaries and to provide to such persons incentives and rewards relating to
the Company's business plans.
2. DEFINITIONS. In addition to the terms defined elsewhere herein, the
following terms have the following meanings when used herein with initial
capital letters:
(a) "Appreciation Right" means a right granted pursuant to Section 5.
(b) "Board" means the Board of Directors of the Company or, pursuant
to any delegation by the Board to the Compensation Committee pursuant to
Section 11, the Compensation Committee.
(c) "Change in Control" means the occurrence of any of the following
events:
(i) The Company is merged, consolidated, or reorganized into or
with another corporation or other legal entity, and as a result of such
merger, consolidation, or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or entity immediately after such transaction are held in the
aggregate by the holders of the then-outstanding securities entitled to
vote generally in the election of directors of the Company (the "Voting
Stock") immediately prior to such transaction;
(ii) The Company sells or otherwise transfers all or substantially
all of its assets to another corporation or other legal entity and, as a
result of such sale or transfer, less than a majority of the combined
voting power of the then-outstanding securities of such other
corporation or entity immediately after such sale or transfer is held in
the aggregate by the holders of Voting Stock of the Company immediately
prior to such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form, or report or item therein), each as
promulgated pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), disclosing that any person (as the term "person"
is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of securities representing 30% or more of the combined
voting power of the Voting Stock of the Company;
(iv) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Form 8-K or Schedule 14A (or
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any successor schedule, form, or report or item therein) that a change
in control of the Company has occurred or will occur in the future
pursuant to any then-existing contract or transaction; or
(v) If, during any period of two consecutive years, individuals who
at the beginning of any such period constitute the directors of the
Company cease for any reason to constitute at least a majority thereof;
provided, however, that for purposes of this clause (v) each director
who is first elected, or first nominated for election by the Company's
stockholders, by a vote of at least two-thirds of the directors of the
Company (or a committee thereof) then still in office who were directors
of the Company at the beginning of any such period will be deemed to
have been a director of the Company at the beginning of such period.
Notwithstanding the foregoing provisions of Section 2(d)(iii) or 2(d)(iv),
unless otherwise determined in a specific case by majority vote of the
Board, a "Change in Control" will not be deemed to have occurred for
purposes of Section 2(d)(iii) or 2(d)(iv) solely because (1) the Company,
(2) a Subsidiary, or (3) any employee stock ownership plan or any other
employee benefit plan of the Company or any Subsidiary either files or
becomes obligated to file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K, or Schedule 14A (or any
successor schedule, form, or report or item therein) under the Exchange Act
disclosing beneficial ownership by it of shares of Voting Stock, whether in
excess of 30% or otherwise, or because the Company reports that a change in
control of the Company has occurred or will occur in the future by reason
of such beneficial ownership.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Common Shares" means shares of Common Stock of the Company or any
security into which such Common Shares may be changed by reason of any
transaction or event of the type referred to in Section 8.
(f) "Compensation Committee" means a committee appointed by the Board
in accordance with the By-Laws of the Company consisting of at least three
Non-Employee Directors.
(g) "Date of Grant" means the date determined in accordance with the
Board's authorization on which a grant of Option Rights or Appreciation
Rights, or a grant of Restricted Shares, becomes effective.
(h) "Immediate Family" has the meaning ascribed thereto in Rule
16a-1(e) under the Exchange Act.
(i) "Incentive Stock Options" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
(j) "Market Value per Share" means any of the following, as determined
in accordance with the Board's authorization: (i) the closing sale price
per share of the Common Shares as reported in the New York Stock Exchange
Composite Transactions Report (or any other consolidated transactions
reporting system which subsequently may replace such Composite Transactions
Report) for the New York Stock Exchange (the "NYSE") trading day
immediately preceding the date determined in accordance with the Board's
authorization, or if there are no sales on such date, on the next preceding
day on which there were sales, (ii) the average (whether weighted or not)
or mean price, determined by reference to the closing sales prices, average
between the high and low sales prices, or any other standard for
determining price adopted by the Board, per share of the Common Shares as
reported in the NYSE Composite Transactions Report as of the date or for
the period determined in accordance with the Board's
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authorization, or (iii) in the event that the Common Shares are not listed
for trading on the NYSE as of a relevant Date of Grant, an amount
determined in accordance with standards adopted by the Board.
(k) "Non-Employee Director" means a Director of the Company who is not
a full-time employee of the Company or any Subsidiary.
(l) "Nonqualified Stock Option" means Option Rights other than
Incentive Stock Options.
(m) "Optionee" means the optionee named in an agreement with the
Company evidencing an outstanding Option Right.
(n) "Option Price" means the purchase price payable on exercise of an
Option Right.
(o) "Option Right" means the right to purchase Common Shares upon
exercise of an option granted pursuant to Section 4.
(p) "Participant" means a person who is approved by the Board to
receive benefits under this Plan and who is at the time an officer,
executive, or other employee of the Company or any one or more of its
Subsidiaries, or who has agreed to commence serving in any of such
capacities, and also includes each Non-Employee Director.
(q) "Restricted Shares" means Common Shares issued pursuant to Section
6 as to which neither the substantial risk of forfeiture nor the
prohibition on transfers referred to in Section 6 has expired.
(r) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act
(or any successor rule substantially to the same effect), as in effect from
time to time.
(s) "Spread" means the excess of the Market Value per Share of the
Common Shares on the date when an Appreciation Right is exercised, or on
the date when Option Rights are surrendered in payment of the Option Price
of other Option Rights, over the Option Price provided for in the related
Option Right.
(t) "Subsidiary" has the meaning specified in Rule 405 promulgated
under the Securities Act of 1933, as amended (or in any successor rule
substantially to the same effect).
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided in
Section 8, the number of Common Shares that may be issued or transferred under
this Plan upon the exercise of Option Rights or Appreciation Rights or as
Restricted Shares and released from substantial risks of forfeiture thereof, may
not exceed the sum of (i) 7.5 million and (ii) the number of Common Shares which
remain available for issuance under this Plan immediately prior to the Effective
Date. The aggregate number of Common Shares issued under this Plan upon the
grant of Restricted Shares may not exceed the sum of (i) 1.0 million and (ii)
the number of Common Shares which remain available for issuance under this Plan
upon the grant of Restricted Shares immediately prior to the Effective Date.
Shares issued under this Plan may be shares of original issuance or treasury
shares or a combination of the foregoing. No Participant will be granted Option
Rights or Appreciation Rights, in the aggregate, for more than 1.0 million
Common Shares in any period of three fiscal years of the Company, subject to
adjustment as provided in Section 8.
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4. OPTION RIGHTS. The Board may from time to time authorize the grant to
Participants of options to purchase Common Shares upon such terms and conditions
as it may determine in accordance with the following provisions:
(a) Each grant will specify the number of Common Shares to which it
pertains and the term during which the rights granted thereunder will
exist. The aggregate number of Common Shares to which the grants to any
Non-Employee Director in any fiscal year of the Company pertain shall not
exceed 3,500 (subject to adjustment as provided in Section 8).
(b) Each grant will specify an Option Price per share, which may not
be less than the Market Value per Share as of the Date of Grant.
(c) Each grant will specify whether the Option Price is payable (i) in
cash, (ii) by the actual or constructive transfer to the Company of
nonforfeitable, unrestricted Common Shares already owned by the Optionees
(or other consideration authorized pursuant to Section 4(d)) having an
actual or constructive value as of the time of exercise as determined by
the Board or in accordance with the applicable agreement referred to in
Section 4(i), equal to the total Option Price, or (iii) by a combination of
such methods of payment.
(d) The Board may determine, at or after the Date of Grant, that
payment of the Option Price of any option (other than an Incentive Stock
Option) may also be made in whole or in part in the form of Restricted
Shares or other Common Shares that are forfeitable or subject to
restrictions on transfer, or other Option Rights (based on the Spread on
the date of exercise). Unless otherwise determined by the Board at or after
the Date of Grant, whenever any Option Price is paid in whole or in part by
means of any of the forms of consideration specified in this paragraph, the
Common Shares received upon the exercise of the Option Rights will be
subject to such risks of forfeiture or restrictions on transfer as may
correspond to any that apply to the consideration surrendered, but only to
the extent of (i) the number of shares surrendered in payment of the Option
Price or (ii) the Spread of any unexercisable portion of Option Rights
surrendered in payment of the Option Price.
(e) Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a bank or broker on the exercise date of
some or all of the shares to which such exercise relates.
(f) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain
unexercised.
(g) Each grant will specify the period or periods of continuous
service by the Optionee with the Company or any Subsidiary which is
necessary before the Option Rights or installments thereof will become
exercisable and may provide for the earlier exercise of such Option Rights
in the event of a Change in Control or other event.
(h) Option Rights granted under this Plan may be (i) Incentive Stock
Options, (ii) Nonqualified Stock Options, or (iii) combinations of the
foregoing.
(i) Each grant of Option Rights will be evidenced by an agreement
executed on behalf of the Company by any officer, director, or, if
authorized by the Board, employee of the Company and delivered to the
Optionee and containing such terms and provisions as the Board may approve,
except that in no event will any such agreement include any provision
prohibited by the express terms of this Plan.
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5. APPRECIATION RIGHTS. The Board may also authorize the grant to any
Optionee (other than a Non-Employee Director) of Appreciation Rights in respect
of Option Rights granted hereunder. An Appreciation Right will be a right of the
Optionee, exercisable by surrender of the related Option Right or in accordance
with the applicable agreement referred to in Section 5(f), to receive from the
Company an amount, as determined by the Board, which will be expressed as a
percentage of the Spread at the time of exercise. Each such grant will be in
accordance with the following provisions:
(a) Any grant may provide that the amount payable on exercise of an
Appreciation Right may be paid by the Company in cash, in Common Shares, or
in any combination thereof and may either grant to the Optionee or retain
in the Board the right to elect among those alternatives.
(b) Any grant may specify that the amount payable on exercise of an
Appreciation Right may not exceed a maximum specified by the Board as of
the Date of Grant.
(c) Any grant may specify waiting periods before exercise and
permissible exercise dates or periods and will provide that no Appreciation
Right may be exercised except at a time when the related Option Right is
also exercisable and at a time when the Spread is positive.
(d) Any grant may specify that such Appreciation Right may be
exercised only in the event of a Change in Control or other event.
(e) Any grant may provide that, in the event of a Change in Control,
then any such Appreciation Right will automatically be deemed to have been
exercised by the Optionee, the related Option Right will be deemed to have
been surrendered by the Optionee and will be cancelled, and the Company
forthwith upon the consummation thereof will pay to the Optionee in cash an
amount equal to the Spread at the time of such consummation.
(f) Each grant of Appreciation Rights will be evidenced by an
agreement executed on behalf of the Company by any officer, director, or,
if authorized by the Board, employee of the Company and delivered to and
accepted by the Optionee, which agreement will describe such Appreciation
Rights, identify the related Option Rights, state that such Appreciation
Rights are subject to all the terms and conditions of this Plan, and
contain such other terms and provisions as the Board may approve, except
that in no event will any such agreement include any provision prohibited
by the express terms of this Plan.
6. RESTRICTED SHARES. The Board may also authorize the issuance or
transfer of Restricted Shares to Participants (other than Non-Employee
Directors) in accordance with the following provisions:
(a) Each such issuance or transfer will constitute an immediate
transfer of the ownership of Common Shares to the Participant in
consideration of the performance of services, entitling such Participant to
voting, dividend, and other ownership rights, but subject to the
substantial risk of forfeiture provided below.
(b) Each such issuance or transfer may be made without additional
consideration.
(c) Each such issuance or transfer will provide that the Restricted
Shares covered thereby will be subject, except (if the Board so determines)
in the event of a Change in Control or other event specified in the
agreement referred to in Section 6(e), for a period to be determined by the
Board at the Date of Grant, to a "substantial risk of forfeiture" within
the meaning of Section 83 of the Code.
(d) Each such issuance or transfer will provide that during the period
for which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares will be prohibited or restricted
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in the manner and to the extent prescribed in or pursuant to the agreement
referred to in Section 6(e) (which restrictions may include, without
limitation, rights of repurchase or first refusal or provisions subjecting
the Restricted Shares to a continuing substantial risk of forfeiture in the
hands of any transferee).
(e) Each issuance or transfer of Restricted Shares will be evidenced
by an agreement executed on behalf of the Company by any officer, director,
or, if authorized by the Board, employee of the Company and delivered to
and accepted by the Participant and containing such terms and provisions as
the Board may approve except that in no event will any such agreement
include any provision prohibited by the express terms of the Plan. All
certificates representing Restricted Shares will be held in custody by the
Company until all restrictions thereon have lapsed, together with a stock
power executed by the Participant in whose name such certificates are
registered, endorsed in blank and covering such Restricted Shares, which
may be executed by any officer of the Company upon a determination by the
Board that an event causing the forfeiture of the Restricted Shares has
occurred.
7. TRANSFERABILITY. (a) Except as provided in Section 7(b), no Option
Right, Appreciation Right, or Restricted Share granted, issued, or transferred
under this Plan will be transferable otherwise than (i) upon death, by will or
the laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order, as that term is defined in the Code or the rules thereunder
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules thereunder, or (iii) to a fully revocable trust of which
the Optionee is treated as the owner for federal income tax purposes.
(b) Notwithstanding the provisions of Section 7(a), Option Rights,
Appreciation Rights, and Restricted Shares (including Option Rights,
Appreciation Rights, and Restricted Shares granted, issued, or transferred
under this Plan prior to the Effective Date) will be transferable by a
Participant who at the time of such transfer is eligible to earn "Long-Term
Incentive Awards" under the Company's 1992 Incentive Bonus Plan, as amended
(or any successor plan thereto), without payment of consideration therefor
by the transferee, to any one or more members of the Participant's
Immediate Family (or to one or more trusts established solely for the
benefit of one or more members of the Participant's Immediate Family or to
one or more partnerships in which the only partners are members of the
Participant's Immediate Family); provided, however, that (i) no such
transfer will be effective unless reasonable prior notice thereof is
delivered to the Company and such transfer is thereafter effected in
accordance with any terms and conditions that shall have been made
applicable thereto by the Company or the Board and (ii) any such transferee
will be subject to the same terms and conditions hereunder as the
Participant.
(c) The Board may specify at the Date of Grant that part or all of the
Common Shares that are (i) to be issued or transferred by the Company upon
the exercise of Option Rights or Appreciation Rights or (ii) no longer
subject to the substantial risk of forfeiture and restrictions on transfer
referred to in Section 6, will be subject to further restrictions on
transfer.
8. ADJUSTMENTS. The Board may make or provide for such adjustments in the
numbers of Common Shares covered by outstanding Option Rights or Appreciation
Rights granted hereunder, in the prices per share applicable to such Option
Rights and Appreciation Rights, and in the kind of shares covered thereby, as
the Board may determine is equitably required to prevent dilution or enlargement
of the rights of Participants that otherwise would result from (a) any stock
dividend, stock split, combination of shares, recapitalization, or other change
in the capital structure of the Company, (b) any merger, consolidation,
spin-off, split-off, spin-out, split-up, reorganization, partial or complete
liquidation, or other distribution of assets or issuance of rights or warrants
to purchase securities, or (c) any other corporate transaction or event having
an effect similar to
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any of the foregoing; provided, however, that no such adjustment in the numbers
of Common Shares covered by outstanding Option Rights or Appreciation Rights
will be made unless such adjustment would change by more than 5% the number of
Common Shares issuable upon exercise of Option Rights or Appreciation Rights;
provided, further, however, that any adjustment which by reason of this Section
8 is not required to be made currently will be carried forward and taken into
account in any subsequent adjustment. In the event of any such transaction or
event, the Board may provide in substitution for any or all outstanding awards
under this Plan such alternative consideration as it may determine to be
equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or provide for such
adjustments in the numbers of shares specified in Section 3 as the Board may
determine is appropriate to reflect any transaction or event described in this
Section 8.
9. FRACTIONAL SHARES. The Company will not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions and for the settlement of fractions in cash.
10. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local, or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
will be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements may include relinquishment of a portion of such benefit.
11. ADMINISTRATION OF THE PLAN. (a) This Plan will be administered by the
Board, which may from time to time delegate all or any part of its authority
under this Plan to the Compensation Committee or any subcommittee thereof.
(b) The Board will take such actions as are required to be taken by it
hereunder, may take the actions permitted to be taken by it hereunder, and
will have the authority from time to time to interpret this Plan and to
adopt, amend, and rescind rules and regulations for implementing and
administering this Plan. All such actions will be in the sole discretion of
the Board, and when taken, will be final, conclusive, and binding. Without
limiting the generality or effect of the foregoing, the interpretation and
construction by the Board of any provision of this Plan or of any
agreement, notification, or document evidencing the grant of Option Rights,
Appreciation Rights, or Restricted Shares, and any determination by the
Board in its sole discretion pursuant to any provision of this Plan or of
any such agreement, notification, or document will be final and conclusive.
Without limiting the generality or effect of any provision of the
Certificate of Incorporation of the Company, no member of the Board will be
liable for any such action or determination made in good faith.
(c) The provisions of Sections 4, 5, and 6 will be interpreted as
authorizing the Board, in taking any action under or pursuant to this Plan,
to take any action it determines in its sole discretion to be appropriate
subject only to the express limitations therein contained and no
authorization in any such Section or other provision of this Plan is
intended or may be deemed to constitute a limitation on the authority of
the Board.
(d) The existence of this Plan or any right granted or other action
taken pursuant hereto will not affect the authority of the Board or the
Company to take any other action, including in respect of the grant or
award of any option, security, or other right or benefit, whether or not
authorized by this Plan, subject only to limitations imposed by applicable
law as from time to time applicable thereto.
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12. AMENDMENTS, ETC. (a) This Plan may be amended from time to time by the
Board, but without further approval by the holders of a majority of the Common
Shares actually voting on the matter at a meeting of the Company's stockholders
or such other approval as may be required by Rule 16b-3, no such amendment will
(i) increase the maximum numbers of Common Shares or Restricted Shares issuable
pursuant to Section 3 or the maximum number of Common Shares that may be subject
to Option Rights or Appreciation Rights granted to any Participant in any period
of three fiscal years of the Company (except that adjustments and additions
authorized by this Plan will not be limited by this provision) or (ii) cause
Rule 16b-3 to become inapplicable to this Plan or Option Rights, Appreciation
Rights, or Restricted Shares granted, issued, or transferred hereunder during
any period in which the Company has any class of equity securities registered
pursuant to Section 13 or 15 of the Exchange Act.
(b) The Board may, with the concurrence of the affected Optionee,
cancel any agreement evidencing Option Rights or any other award granted
under this Plan. In the event of such cancellation, the Board may authorize
the granting of new Option Rights or other awards hereunder (which may or
may not cover the same number of Common Shares which had been the subject
of the prior award) in such manner, at such option price, and subject to
such other terms, conditions, and discretions as would have been applicable
under this Plan had the canceled Option Rights or other award not been
granted.
(c) In case of termination of employment by reason of death,
disability, or normal or early retirement, or in the case of hardship or
other special circumstances, of a Participant who holds an Option Right or
Appreciation Right not immediately exercisable in full, or any Restricted
Shares as to which the substantial risk of forfeiture or the prohibition or
restriction on transfer has not lapsed, or who holds Common Shares subject
to any transfer restriction imposed pursuant to Section 7(b), the Board may
take such action as it deems equitable in the circumstances or in the best
interests of the Company, including without limitation waiving or modifying
any other limitation or requirement under any such award.
(d) This Plan will not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or
any Subsidiary, nor will it interfere in any way with any right the Company
or any Subsidiary would otherwise have to terminate or modify the terms of
such Participant's employment or other service at any time.
(e) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision will be null and void with respect to
such Option Right, but will remain in effect for other Option Rights and
there will be no further effect on any provision of this Plan.
(f) This Plan will be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to the principles of
conflict of laws thereof. If any provision of this Plan is held to be
invalid or unenforceable, no other provision of this Plan will be affected
thereby.
13. EFFECTIVENESS. The amendment and restatement of this Plan set forth
herein will not become effective unless the holders of a majority of the Common
Shares present in person or by proxy at a meeting of the stockholders of the
Company and entitled to vote generally in the election of directors approve the
amendments to be effected hereby.
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APPENDIX B
FEDERATED DEPARTMENT STORES, INC.
1992 INCENTIVE BONUS PLAN
(AS AMENDED AND RESTATED AS OF MARCH 28, 1997)
Federated Department Stores, Inc., a Delaware corporation (the "Company"),
hereby amends and restates this 1992 Incentive Bonus Plan (this "Bonus Plan")
effective, subject to the provisions of Section 14, as of March 28, 1997.
1. PURPOSE. The purpose of this Bonus Plan is to promote the attainment of
the Company's performance goals by providing incentive compensation for certain
designated key executives and employees of the Company and its Subsidiaries.
2. DEFINITIONS. As used in this Bonus Plan, the following terms have the
following meanings when used herein with initial capital letters:
(a) "Annual Incentive Award" means the incentive bonus earned by a
Participant pursuant to Section 5.
(b) "Board" means the Board of Directors of the Company or, pursuant to
any delegation by the Board to the Compensation Committee pursuant to Section
12, the Compensation Committee.
(c) "Chief Executive Officer" means the Chief Executive Officer of the
Company.
(d) "Chief Operating Officer" means the Chief Operating Officer of the
Company.
(e) "Chief Merchandising Officer" means the Chief Merchandising Officer
of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(g) "Compensation Committee" means a committee appointed by the Board in
accordance with the By-Laws of the Company consisting of at least three
Non-Employee Directors.
(h) "Covered Employee" means a Participant who is, or is determined by
the Board to be likely to become, a "covered employee" within the meaning of
Section 162(m) of the Code (or any successor provision).
(i) "Long-Term Incentive Award" means the incentive bonus, if any,
earned by a Participant pursuant to Section 6.
(j) "Non-Employee Director" means a Director of the Company who is not a
full-time employee of the Company or any Subsidiary.
(k) "Operating Unit" means the Company as a whole and each other
individual subsidiary, division, store, or other business unit of the Company in
which individuals employed thereby or therein have been approved to participate
in this Bonus Plan by the Board.
(l) "Participant" means a person who is designated by the Chief
Executive Officer, the Chief Operating Officer, or the Chief Merchandising
Officer, with the approval of the Board, to receive benefits
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under this Bonus Plan and who is at the time an officer, executive, or
other employee of the Company or any one or more of its Subsidiaries, or who has
agreed to commence serving in any of such capacities.
(m) "Performance Goal" means the target level of performance for each
Performance Period for the Company as a whole and for each Operating Unit of the
Company and, where applicable, for an individual Participant, in each case as
established by the Board pursuant to Section 4. The Performance Goals applicable
to any Annual Incentive Award or Long-Term Incentive Award made to a Covered
Employee will be based solely upon one or more of the following measures of
performance:
(1) total sales;
(2) comparable store sales;
(3) gross margin;
(4) operating or other expenses;
(5) earnings before interest and taxes ("EBIT");
(6) earnings before interest, taxes, depreciation and
amortization;
(7) net income;
(8) earnings per share;
(9) cash flow;
(10) return on investment (determined with reference to one or more
categories of income or cash flow and one or more categories
of assets, capital or equity); and
(11) stock price appreciation.
Such Performance Goals may be expressed with respect to the Company or one
or more other Operating Units and may be expressed in terms of absolute levels
or percentages or ratios expressing relationships between two or more of the
foregoing measures of performance (e.g., EBIT as a percentage of total sales),
period-to-period changes, relative to business plans or budgets, or relative to
one or more other companies or one or more indices. The two immediately
preceding sentences are intended to comply with the exception from Section
162(m) of the Code for qualified performance-based compensation, and will be
construed, applied, and administered accordingly.
(n) "Performance Period" means, in the case of determining Annual
Incentive Awards pursuant to Section 5, one fiscal year of the Company, and in
the case of determining Long-Term Incentive Awards pursuant to Section 6, a
period determined by the Board not longer than five consecutive fiscal years of
the Company. The initial Performance Period under this Bonus Plan in either case
will commence on February 2, 1992 and terminate, in the case of Annual Incentive
Awards and Long-Term Incentive Awards, on such date or dates as the Board may
determine. Any new Performance Period in each case would commence on the first
day of each fiscal year of the Company.
(o) "Retirement" means a Participant's voluntary termination of
employment with the Company on or after attainment of age 65, or such other age
as may from time to time be established as the normal retirement date under the
Company's principal retirement benefit plan in which the Participant is a
participant, and before being informed by the Company that his or her employment
will be terminated.
(p) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (or any successor rule substantially to the
same effect), as in effect from time to time.
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(q) "Subsidiary" has the meaning specified in Rule 405 promulgated under
the Securities Act of 1933, as amended (or under any successor rule
substantially to the same effect).
3. ELIGIBILITY. (a) Except as otherwise provided in this Section 3, an
employee of the Company or one of its Subsidiaries will become a Participant for
a particular Performance Period (i) in respect of Annual Incentive Awards if
such employee (x) is an executive of the Company (including without limitation a
store principal, general merchandise manager, divisional merchandise manager,
store manager, senior vice president, or other vice president or elected officer
of the Company or another Operating Unit) on or as of the first day of the
Performance Period, (y) is recommended for participation by the Chief Executive
Officer, the Chief Operating Officer, or the Chief Merchandising Officer or any
designee thereof, and (z) is approved as a Participant by the Board, and (ii) in
respect of Long-Term Incentive Awards if such employee has overall
responsibility for day-to-day and long-term achievement of results of the
Company or is in a key broad-based strategy formulation and decision-making
position of the Company or another Operating Unit selected by the Board to
participate in this Bonus Plan, in each case as specifically determined by the
Chief Executive Officer, the Chief Operating Officer, or the Chief Merchandising
Officer and approved by the Board on or as of the first day of the Performance
Period.
(b) An executive employee who first becomes eligible to participate after
the beginning of a particular Performance Period will become a Participant for
such Performance Period only in accordance with this Section 3(b). The Chief
Executive Officer, the Chief Operating Officer, or the Chief Merchandising
Officer may, with the approval of the Board, allow participation for a portion
of such Performance Period for such employee on such terms and conditions as the
Chief Executive Officer, the Chief Operating Officer, or the Chief Merchandising
Officer (with such approval) may determine. In the event that at any time during
any Performance Period with respect to Annual Incentive Awards an executive
employee is first hired by the Company or a Subsidiary, or is promoted by the
Company or any such Subsidiary to a position in a different Operating Unit and
as a result thereof becomes eligible to participate in this Bonus Plan, then,
except as otherwise determined by the Board or as otherwise provided in Section
10, such employee will be entitled to be a Participant for purposes of Annual
Incentive Awards, which will be prorated on the basis of the number of months of
such employee's participation during such Performance Period to the aggregate
number of months in such Performance Period. In the event that within the first
one-half of any Performance Period with respect to Long-Term Incentive Awards an
executive employee is first hired by the Company or a Subsidiary, or is promoted
by the Company or any such Subsidiary to a position in a different Operating
Unit and as a result thereof becomes eligible to participate in this Bonus Plan,
then, except as otherwise determined by the Board or as otherwise provided in
Section 10, such employee will be entitled to be a Participant for purposes of
Long-Term Incentive Awards, which will be prorated on the basis of the ratio of
the number of months of such employee's participation during such Performance
Period to the aggregate number of months in such Performance Period.
(c) The Board may, in its discretion, allow an executive employee who is
not otherwise eligible to participate in this Bonus Plan to be treated as a
Participant for all or a portion of any Performance Period on such basis as the
Board may determine.
4. PERFORMANCE GOALS. (a) The Board will approve for each Performance
Period the applicable Performance Goals for the Company and each other Operating
Unit, as well as for individual Participants in this Bonus Plan, where
appropriate, based upon the consolidated business plan of the Company. Such
Performance Goals will not be adjusted during a Performance Period, except that
such Performance Goals may be so adjusted to prevent dilution or enlargement of
any Annual Incentive Award or Long-Term
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Incentive Award as a result of extraordinary events or circumstances as
determined by the Board or to exclude the effects of extraordinary, unusual or
nonrecurring events, changes in accounting principles, discontinued operations,
acquisitions, divestitures and material restructuring charges; provided,
however, in the case of a Covered Employee, that no such adjustment will be made
if the effect of such adjustment would be to cause the related compensation to
fail to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code.
(b) Prior to the beginning of each Performance Period, the Chief Executive
Officer, the Chief Operating Officer, or the Chief Merchandising Officer or any
designee thereof will (i) notify each eligible employee who has been selected to
participate in this Bonus Plan that he or she is a Participant under this Bonus
Plan for such Performance Period and (ii) communicate in writing to each
Participant the minimum, maximum, and target Performance Goals applicable to
such Participant for the Company and each other Operating Unit for such
Performance Period, and the corresponding minimum, maximum, and target levels of
Annual Incentive Awards and Long-Term Incentive Awards for performance by the
Participant with respect to such Performance Goals.
5. ANNUAL INCENTIVE AWARDS. (a) Subject to Section 4, unless changed by
the Board, each eligible Participant may earn Annual Incentive Awards as
hereinafter provided. Each Operating Unit's actual performance during a
particular Performance Period will be measured against the Performance Goals
established therefor by the Board in accordance with Section 4. In the event
such Operating Unit's performance for the Performance Period (A) is below the
minimum Performance Goal established therefor, no Annual Incentive Awards will
be paid to Participants in respect thereof, (B) is equal to the minimum
Performance Goal established therefor, the minimum level of Annual Incentive
Awards will be paid to Participants in respect thereof, (C) is equal to the
target Performance Goal established therefor, the target level of Annual
Incentive Awards will be paid to Participants in respect thereof, (D) is equal
to or greater than the maximum Performance Goal established therefor, the
maximum level of Annual Incentive Awards will be paid to Participants in respect
thereof, and (E) is between any two of the Performance Goal levels described in
the immediately preceding clauses (B), (C), and (D), the level of Annual
Incentive Awards to be paid to Participants in respect thereof will be a level
interpolated by the Board between the corresponding levels of Annual Incentive
Awards paid in respect of such Performance Goal levels.
(b) Except in the case of a Covered Employee, the Annual Incentive Award
determined pursuant to Section 5(a) may be modified by the Board to recognize a
Participant's individual performance or in other circumstances deemed
appropriate by the Board.
(c) Notwithstanding any other provision of this Bonus Plan to the contrary,
in no event will an Annual Incentive Award paid to any Participant for a fiscal
year exceed $2.0 million.
6. LONG-TERM INCENTIVE AWARDS. (a) Unless changed by the Board, each
eligible Participant may earn Long-Term Incentive Awards as hereinafter
provided. Each Operating Unit's actual performance during a particular
Performance Period will be measured against the Performance Goals established
therefor by the Board in accordance with Section 4. In the event such Operating
Unit's performance for such Performance Period (A) is below the minimum
Performance Goal established therefor, no Long-Term Incentive Awards will be
paid to Participants in respect thereof, (B) is equal to the minimum Performance
Goal established therefor, the minimum level of Long-Term Incentive Awards will
be paid to Participants in respect thereof, (C) is equal to the target
Performance Goal established therefor, the target level of Long-Term Incentive
Awards will be paid to Participants in respect thereof, (D) is equal to or
greater than the maximum
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<PAGE> 50
Performance Goal established therefor, the maximum level of Long-Term Incentive
Awards will be paid to Participants in respect thereof, and (E) is between any
two of the Performance Goal levels described in the immediately preceding
clauses (B), (C), and (D), the level of Long-Term Incentive Awards to be paid to
Participants in respect thereof will be a level interpolated by the Board
between the corresponding levels of Long-Term Incentive Awards paid in respect
of such Performance Goal levels.
(b) Except in the case of a Covered Employee, the Long-Term Incentive Award
determined pursuant to Section 6(a) may be modified by the Board to recognize a
Participant's individual performance or in other circumstances deemed
appropriate by the Board.
(c) Notwithstanding any other provision of this Bonus Plan to the contrary,
in no event will a Long-Term Incentive Award paid to any Participant for a
Performance Period exceed $3.0 million.
7. PAYMENT OF AWARDS. Annual Incentive Awards and Long-Term Incentive
Awards will be paid to Participants in a single lump-sum cash payment in respect
of any particular Performance Period by April 30 of the fiscal year of the
Company immediately following such Performance Period or by such other date that
may be fixed by the Board at the time that Performance Goals are established for
a particular Performance Period. All Annual Incentive Awards and Long-Term
Incentive Awards will be paid in U.S. dollars. The Company may deduct from any
payment such amounts as may be required to be withheld under any federal, state,
or local tax laws.
8. TERMINATION OF EMPLOYMENT. If a Participant terminates employment with
the Company and its Subsidiaries before the last day of a Performance Period due
to death, disability, or Retirement with the consent of the Company, the
Participant's Annual Incentive Awards and Long-Term Incentive Awards will be
prorated on the basis of the ratio of the number of months of participation
during the Performance Period to which the Annual Incentive Awards and Long-Term
Incentive Awards relate to the aggregate number of months in such Performance
Period. If a Participant's employment with the Company and its Subsidiaries is
terminated by the Company or any such Subsidiary before the last day of a
Performance Period for any reason other than for Cause (as hereinafter defined),
the Participant's Annual Incentive Awards and Long-Term Incentive Awards will be
prorated on the basis of the ratio of the number of months of participation
during the Performance Period to which the Annual Incentive Awards and the
Long-Term Incentive Awards relate to the aggregate number of months in such
Performance Period, unless otherwise determined by the Board. Except as
otherwise provided in this Section 8, if a Participant's employment with the
Company and its Subsidiaries is terminated before the last day of a Performance
Period for any reason, the Participant will not be entitled to any Annual
Incentive Award or Long-Term Incentive Award for such Performance Period unless
otherwise determined by the Board. For purposes of this Agreement, "Cause" means
any act of dishonesty, fraud, or willful misconduct by a Participant in the
performance of the Participant's duties as an employee of the Company, or any
conviction of a Participant for any felony involving moral turpitude.
9. CHANGE IN CONTROL. In connection with any actual or potential change in
control of the Company, whether as a result of any stock acquisition, merger, or
other business combination transaction, or any restructuring or recapitalization
of the Company, then the Board will take all such actions hereunder as it may
determine to be necessary or appropriate to treat Participants equitably
hereunder, including without limitation the modification or waiver of applicable
Performance Goals, Performance Periods, Annual Incentive Awards, or Long-Term
Incentive Awards, notwithstanding the terms of any initial award, and whether to
establish or fund a trust or other arrangement intended to secure the payment of
such awards.
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<PAGE> 51
10. TRANSFERS AND CHANGES IN RESPONSIBILITIES. (a) If a Participant's
responsibilities materially change or the Participant is transferred during a
Performance Period to another Operating Unit or to a position that is not
designated or eligible to participate in this Bonus Plan, the Company may, as
determined by the Board, either (i) continue the Participant's participation in
this Bonus Plan and, except in the case of a Covered Employee, as of the date of
such change or transfer, establish new performance awards (as determined
pursuant to Section 10(b)) in respect of Annual Incentive Awards and/or
Long-Term Incentive Awards, as the case may be, for the Participant with respect
to his or her new position, or (ii) terminate the Participant's participation in
this Bonus Plan in respect of Annual Incentive Awards and/or Long-Term Incentive
Awards, as the case may be, and, as of the date of such change or transfer, the
Participant's Annual Incentive Awards and/or Long-Term Incentive Awards, as the
case may be, would be prorated on the basis of the ratio of the number of months
of the Participant's participation during the Performance Period to which such
Annual Incentive Awards and/or Long-Term Incentive Awards, as the case may be,
relate to the aggregate number of months in such Performance Period.
(b) If in the event of such a change or transfer the Participant's
participation in this Bonus Plan in respect of Annual Incentive Awards and/or
Long-Term Incentive Awards, as the case may be, is not terminated pursuant to
Section 10(a)(ii), then the Participant's Annual Incentive Awards and/or
Long-Term Incentive Awards, as the case may be, will be prorated on the basis of
the number of months of service by the Participant at each Operating Unit during
the Performance Period.
11. SECURITY OF PAYMENT OF BENEFITS. Unless otherwise determined by the
Board, all Annual Incentive Awards and Long-Term Incentive Awards will be paid
from the Company's general assets, and nothing contained in this Bonus Plan will
require the Company to set aside or hold in trust any funds for the benefit of
any Participant, who will have the status of a general unsecured creditor of the
Company.
12. ADMINISTRATION OF THE PLAN. (a) This Bonus Plan will be administered
by the Board, which may from time to time delegate all or any part of its
authority under this Bonus Plan to the Compensation Committee.
(b) The Board will take such actions as are required to be taken by it
hereunder, may take the actions permitted to be taken by it hereunder, and will
have the authority from time to time to interpret this Bonus Plan and to adopt,
amend, and rescind rules and regulations for implementing and administering this
Bonus Plan. All such actions will be in the sole discretion of the Board and,
when taken, will be final, conclusive, and binding. Without limiting the
generality or effect of the foregoing, the interpretation and construction by
the Board of any provision of this Bonus Plan or of any agreement, notification,
or document evidencing the grant of benefits payable to Participants and any
determination by the Board in its sole discretion pursuant to any provision of
this Bonus Plan or any provision of such agreement, notification, or document
will be final and conclusive. Without limiting the generality or effect of any
provision of the Certificate of Incorporation of the Company, neither the Chief
Executive Officer, the Chief Operating Officer, or the Chief Merchandising
Officer nor any member of the Board will be liable for any action or
determination made in good faith.
(c) The provisions of Sections 5 and 6 will be interpreted as authorizing
the Board, in taking any action under or pursuant to this Bonus Plan, to take
any action it determines in its sole discretion to be appropriate, subject only
to the express limitations therein contained, and no authorization in either
such Section or any other provision of this Bonus Plan is intended or may be
deemed to constitute a limitation on the authority of the Board.
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(d) The existence of this Bonus Plan or any right granted or other action
taken pursuant hereto will not affect the authority of the Board or the Company
to take any other action, including in respect of the grant or award of any
annual or long-term bonus or other right or benefit, whether or not authorized
by this Bonus Plan, subject only to limitations imposed by applicable law as
from time to time applicable thereto.
13. MISCELLANEOUS. (a) This Bonus Plan will not confer upon any
Participant any right with respect to continuance of employment or other service
with the Company or any Subsidiary, nor will it interfere in any way with any
right the Company or any Subsidiary would otherwise have to terminate or modify
the terms of such Participant's employment or other service at any time.
(b) Except as otherwise provided in this Bonus Plan, no right or benefit
under this Bonus Plan will be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance, or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber, or charge such right or benefit will
be void. No such right or benefit will in any manner be liable for or subject to
the debts, liabilities, or torts of a Participant.
(c) This Bonus Plan may be amended or terminated from time to time by the
Board. In the event this Bonus Plan is terminated before the last day of a
Performance Period, Annual Incentive Awards and Long-Term Incentive Awards
payable for such Performance Period will be prorated on the basis of the ratio
of the number of months in such Performance Period prior to such termination to
the aggregate number of months in such Performance Period and will be paid only
after the end of such Performance Period, which will be deemed to continue until
the expiration thereof as if this Bonus Plan had not been terminated.
(d) If any provision in this Bonus Plan is held to be invalid or
unenforceable, no other provision of this Bonus Plan will be affected thereby.
(e) This Bonus Plan will be governed by and construed in accordance with
applicable United States federal law and, to the extent not preempted by such
federal law, in accordance with the laws of the State of Delaware, without
giving effect to the principles of conflict of laws thereof.
14. EFFECTIVENESS. The amendment and restatement of this Bonus Plan set
forth herein will become effective as of March 28, 1997; provided, however, that
no Annual Incentive Award or Long-Term Incentive Award for any Performance
Period commencing after February 1, 1997 will be paid under this Bonus Plan
unless, prior to such payment, the holders of a majority of the shares of Common
Stock of the Company actually voting on the matter approve this Bonus Plan, as
amended and restated hereby, at a meeting of the stockholders of the Company.
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<PAGE> 53
FEDERATED DEPARTMENT STORES, INC.
PROXIES SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS ON MAY 16, 1997
The undersigned holder of shares of Common Stock of Federated Department
Stores, Inc. (the "Company") hereby appoints Marna C. Whittington, Karl M. von
der Heyden and Ronald W. Tysoe, and each of them, as proxies of the undersigned,
with full power of substitution, to act and to vote for and in the name, place
and stead of the undersigned at the Annual Meeting of Stockholders of the
Company to be held at its corporate offices located at 7 West Seventh Street,
Cincinnati, Ohio 45202, at 11:00 a.m., Eastern Daylight Time, on Friday, May 16,
1997, and at any and all postponements and adjournments thereof (the "Annual
Meeting"), according to the number of votes and as fully as the undersigned
would be entitled to vote if personally present at such meeting, and
particularly with respect to the proposals listed on the reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED "FOR" ALL NOMINEES LISTED IN ITEM 1, "FOR" ITEMS 2, 3 AND 4,
"AGAINST" ITEM 5, AND IN THE DISCRETION OF THE PROXIES IN RESPECT OF SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
(Continued, and to be dated and signed, on the other side)
FEDERATED DEPARTMENT STORES, INC.
P.O. BOX 11107
NEW YORK, N.Y. 10203-0107
<PAGE> 54
[ ]
THE DIRECTORS RECOMMEND A VOTE "FOR" ALL NOMINEES LISTED IN ITEM 1,
"FOR" ITEMS 2, 3 AND 4 AND "AGAINST" ITEM 5.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Election of Directors FOR all nominees WITHHOLD AUTHORITY to vote * EXCEPTIONS
listed below [ ] for all nominees listed below. [ ] [ ]
Nominees for a three-year term: Earl G. Graves, Sr., George V. Grune, Craig E. Weatherup and James M. Zimmerman.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "EXCEPTIONS" BOX AND WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
* Exceptions
----------------------------------------------------------------------------------------------------
2. To ratify the Selection of KPMG Peat Marwick, LLP as the Company's 5. Stockholders proposal to cause the publication
independent accountants for the fiscal year ending January 31, 1998. of political contributions made by the Company.
FOR [ ] AGAINST [ ] ABSTAIN [ ] FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To amend the 1995 Executive Equity Incentive Plan to increase the For purposes of the 1997 Annual Meeting, proxies
number of shares of common stock of the Company available for will be held in confidence (subject to certain
issuance thereunder and modify certain other terms thereof. exceptions as set forth in the Proxy Statement)
unless the undersigned checks the following box:
FOR [ ] AGAINST [ ] ABSTAIN [ ] [ ]
4. To approve the 1992 Incentive Bonus Plan. CHANGE OF ADDRESS
MARK HERE [ ]
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This proxy should be dated, signed by the shareholder as
his or her name appears hereon, and returned promptly in
the enclosed envelope. Joint owners should each sign
personally, and trustees and others signing in a
representative capacity should indicate the capacity
in which they sign.
Dated: , 1997
------------------------------------------
--------------------------------------------------------
Signature of Shareholder
--------------------------------------------------------
Signature of Shareholder
</TABLE>
PLEASE MARK, SIGN AND RETURN THIS PROXY CARD
PROMPTLY, USING THE ENVELOPE PROVIDED.
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [ X ]
