<PAGE> 1
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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 Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
FEDERATED DEPARTMENT STORES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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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 21, 1999
To the Stockholders:
You are cordially invited to attend the 1999 annual meeting of the
stockholders of Federated Department Stores, Inc. The annual meeting will be
held on Friday, May 21, 1999, 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. Accordingly, we would
appreciate it if you would cast your vote promptly by following the instructions
on the enclosed proxy card.
We hope to see you at the annual meeting.
Sincerely,
JAMES M. ZIMMERMAN
Chairman of the Board
and Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE CAST YOUR
VOTE PROMPTLY BY FOLLOWING THE INSTRUCTIONS ON THE
ENCLOSED PROXY CARD.
<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:
Federated hereby gives notice that the annual meeting of its stockholders
will be held at 11:00 a.m., Eastern Daylight Time, on Friday, May 21, 1999, at
Federated's offices located at 7 West Seventh Street, Cincinnati, Ohio 45202.
The items on the agenda for the annual meeting are:
1. To elect four Class II members of Federated's board of directors;
2. To ratify the appointment of KPMG LLP as Federated's independent
accountants for the fiscal year ending January 29, 2000;
3. To act upon a proposal to amend Federated's 1995 Executive Equity
Incentive Plan to increase the number of shares of Federated's common
stock available for issuance under the plan; and
4. To act upon such other business as may properly come before the annual
meeting or any postponements or adjournments thereof.
Each of these matters is more fully described in the attached proxy
statement. Stockholders of record at the close of business on April 2, 1999 are
entitled to vote at the annual meeting or any postponements or adjournments
thereof.
DENNIS J. BRODERICK
Secretary
April 21, 1999
PLEASE CAST YOUR VOTE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED
PROXY CARD. IF YOU CHOOSE TO CAST YOUR VOTE BY COMPLETING THE PROXY
CARD, PLEASE RETURN IT PROMPTLY IN THE ENCLOSED 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
The board of directors of Federated (the "Board") is furnishing this proxy
statement in connection with its solicitation of proxies for use at the annual
meeting of Federated's stockholders. The annual meeting will be held at 11:00
a.m., Eastern Daylight Time, on Friday, May 21, 1999, at Federated's offices
located at 7 West Seventh Street, Cincinnati, Ohio 45202. The proxies received
will be used at the annual meeting and at any postponements or adjournments of
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 21, 1999.
Except where the context requires otherwise, the term "Federated" includes
Federated and its subsidiaries.
GENERAL
The record date for the annual meeting is April 2, 1999. The holders of
record of shares of common stock of Federated at the close of business on the
record date are entitled to vote such shares at the annual meeting. As of the
record date, 208,576,562 shares of common stock were outstanding. This number
excludes shares held in the treasury of Federated or by subsidiaries of
Federated. Each share of common stock, other than treasury shares and shares
held by Federated'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. For purposes of determining whether a quorum exists, abstentions
and broker non-votes will be included in determining the number of shares
present or represented at the annual meeting. However, with respect to any
matter brought to a vote at the annual meeting, abstentions and broker non-votes
will be treated as shares not voted for purposes of determining whether the
requisite vote has been obtained. In order to obtain approval of any matter
brought to a vote at the annual meeting, 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. Consequently, abstentions and broker non-votes will
have no effect on the outcome of the vote on any such matter. 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 all voting materials that
identify the votes of specific stockholders will be kept confidential and will
not be disclosed to officers, directors or employees of Federated or third
parties except as described below. Voting materials may be disclosed in any of
the following circumstances:
- if required by applicable law;
- to persons engaged in the receipt, counting, tabulation or solicitation
of proxies who have agreed to maintain stockholder confidentiality as
provided in the policy;
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<PAGE> 5
- in those instances in which stockholders write comments on their proxy
cards or otherwise consent to the disclosure of their vote to Federated's
management;
- in the event of a proxy contest or a solicitation of proxies in
opposition to the voting recommendations of the Board;
- in respect of a stockholder proposal that Federated'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 Federated and its
stockholders; and
- in the event that representatives of Federated determine in good faith
that a bona fide dispute exists as to the authenticity or tabulation of
voting materials.
The policy described above will apply to the annual meeting.
All shares of common stock represented at the annual meeting by proxies
properly submitted prior to or at the annual meeting will be voted at the annual
meeting in accordance with the instructions on the proxies, unless such proxies
previously have been revoked. If no instructions are indicated, such shares will
be voted FOR the nominees for director identified below, FOR the ratification of
the appointment of Federated's independent accountants and FOR the proposal to
amend the 1995 Equity Plan.
A stockholder may revoke a proxy by submitting to the Secretary of
Federated evidence of such revocation or a subsequent proxy authorized by such
stockholder 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 Federated to own more than
5% of Federated'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............ 27,872,916 13.29%
Sanford C. Bernstein & Company, Inc., 767 Fifth Avenue, New
York, New York 10153...................................... 15,147,224 7.20%
Ark Asset Management Company, Inc., 125 Broad Street, 29th
Floor, New York, New York 10004........................... 11,030,960 5.26%
</TABLE>
According to information set forth in a Schedule 13G, dated February 1,
1999 (the "FMR Schedule 13G"), filed with the Securities and Exchange Commission
(the "SEC") by FMR Corp. ("FMR"), as of December 31, 1998, FMR was the
beneficial owner of 27,872,916 shares of common stock (approximately 13.29% of
the total number of shares of common stock outstanding). According to the FMR
Schedule 13G, (a) 25,998,202 of such shares (approximately 12.40% of the total
number of shares of common stock outstanding) were beneficially owned by
Fidelity Management & Research Company, a wholly-owned subsidiary of FMR, as a
result of acting as investment advisor to various investment companies, (b)
1,873,414 of such shares (approximately 0.89% of the total number of shares of
common stock outstanding) 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
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<PAGE> 6
account(s), and (c) 1,300 of such shares were beneficially owned by Fidelity
International Limited. According to the FMR Schedule 13G:
- Each of FMR and Edward C. Johnson 3d, Chairman of FMR, has sole
dispositive power over the shares owned by the investment companies
described in clause (a) above. Neither FMR nor Edward C. Johnson has sole
voting power over the shares owned directly by the Fidelity Funds. The
Fidelity Funds' Boards of Trustees have the power to vote such shares.
- Edward C. Johnson 3d and FMR, through its control of Fidelity Management
Trust Company, each has sole dispositive power over all of the shares
owned by the institutional account(s) described in clause (b) above. In
addition, they have sole voting power over 1,262,018 of such shares, but
have no voting power over the other 611,396 of such shares.
According to the FMR Schedule 13G, 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 the Class B shares of common stock of FMR, representing approximately
49% of the voting power of FMR. According to the FMR Schedule 13G, 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.
According to information set forth in a Schedule 13G, dated February 5,
1999 (the "Bernstein Schedule 13G"), filed with the SEC by Sanford C. Bernstein
& Co., Inc. ("Bernstein"), as of December 31, 1998, Bernstein was the beneficial
owner of 15,147,224 shares of common stock (approximately 7.2% of the total
number of shares of common stock outstanding). According to the Bernstein
Schedule 13G, of the number of shares of common stock beneficially owned by
Bernstein, Bernstein had (a) sole power to vote 8,059,028 shares, (b) shared
power to vote 1,822,270 shares, and (c) sole power to dispose of or to direct
the disposition of 15,147,224 shares.
According to information set forth in a Schedule 13G, dated February 4,
1999 (the "Ark Schedule 13G"), filed with the Securities and Exchange Commission
by Ark Asset Management Co., Inc. ("Ark"), as of December 31, 1998, Ark was the
beneficial owner of 11,030,960 shares of common stock (approximately 5.26% of
the total number of shares of common stock outstanding). According to the Ark
Schedule 13G, of the number of shares of common stock beneficially owned by Ark,
Ark had (a) sole power to vote 8,043,760 shares and (b) sole power to dispose of
or to direct the disposition of 11,030,960 shares.
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, 1999 by each
director of Federated, by each of the Named Executives (as defined below) and by
directors and executive officers of Federated as a group. None of Federated's
directors or executive officers, either individually
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<PAGE> 7
or as a group, owns 1% or more 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 NUMBER OF SHARES(1)
---- -------------------
<S> <C>
Meyer Feldberg..................................... 13,031
Earl G. Graves, Sr................................. 9,631
George V. Grune.................................... 18,633
Sara Levinson...................................... 3,625
Terry J. Lundgren.................................. 316,151
Joseph Neubauer.................................... 17,931
Joseph A. Pichler.................................. 2,075
Ronald W. Tysoe.................................... 273,604
Karl M. von der Heyden............................. 19,731
Craig E. Weatherup................................. 5,911
Marna C. Whittington............................... 8,801
James M. Zimmerman................................. 723,671
Thomas G. Cody..................................... 225,264
Karen M. Hoguet.................................... 100,053
All directors and executive officers as a group.... 1,824,841
</TABLE>
- ---------------
(1) Includes shares of common stock which may be acquired within 60 days through
the exercise of options granted under the 1992 Executive Equity Incentive
Plan, as amended, and the 1995 Executive Equity Incentive Plan, as amended
(the "1995 Equity Plan", and together with the 1992 Executive Equity
Incentive Plan, as amended, the "Equity Plans") as follows: Professor
Feldberg, 11,031 shares; Mr. Graves, 9,031 shares; Mr. Grune, 14,631 shares;
Ms. Levinson, 2,625 shares; Mr. Lundgren, 298,334 shares; Mr. Neubauer,
11,931 shares; Mr. Pichler, 875 shares; Mr. Tysoe, 195,500 shares; Mr. von
der Heyden, 13,731 shares; Mr. Weatherup, 2,911 shares; Dr. Whittington,
4,895 shares; Mr. Zimmerman, 682,000 shares; Mr. Cody, 222,000 shares; Mrs.
Hoguet, 90,500 shares; and all directors and executive officers as a group,
1,637,745 shares.
ITEM 1 -- ELECTION OF DIRECTORS
Federated's Certificate of Incorporation (the "Certificate of
Incorporation") and By-Laws (the "By-Laws") provide that the directors of
Federated are to be classified into three classes, with the directors in each
class serving for three-year terms and until their successors are elected.
In accordance with the recommendation of its BOCG Committee, the Board has
nominated Meyer Feldberg, Terry J. Lundgren, Ronald W. Tysoe and Marna C.
Whittington, each of whom is currently a member of the Board, for election as
Class II Directors. If elected, such nominees will serve for a three-year term
to expire at Federated's annual meeting of stockholders in 2002 or until their
successors are duly elected and qualified. 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. However, 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.
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<PAGE> 8
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 II DIRECTORS -- TERM EXPIRES AT THE 2002 ANNUAL
MEETING
MEYER FELDBERG
Professor Feldberg, age 57, 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 Primedia, Inc. Professor
Feldberg is a member of the BOCG, Compensation, Executive and Public Policy
Committees and the Section 162(m) Subcommittee of the Board. Professor Feldberg
has been a director since 1992.
TERRY J. LUNDGREN
Mr. Lundgren, age 46, has been President and Chief Merchandising Officer of
Federated since May 1997. From February 1994 until February 19, 1998, he was the
Chairman of the Federated Merchandising Group, a division of Federated. Mr.
Lundgren is a member of the Public Policy Committee of the Board. Mr. Lundgren
has been a director since May 1997.
RONALD W. TYSOE
Mr. Tysoe, age 46, has been Vice Chairman, Finance and Real Estate of
Federated since April 1990. From April 1990 until October 1997, Mr. Tysoe also
served as the Chief Financial Officer of Federated. Mr. Tysoe is also a member
of the boards of directors of E.W. Scripps Company and American Annuity Group,
Inc. Mr. Tysoe is a member of the Finance Committee of the Board. Mr. Tysoe has
been a director since 1988.
MARNA C. WHITTINGTON
Dr. Whittington, age 51, is Chief Operating Officer of Morgan Stanley Dean
Witter Investment 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. 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.
CLASS III DIRECTORS -- TERM EXPIRES AT THE 2000 ANNUAL MEETING
EARL G. GRAVES, SR.
Mr. Graves, age 64, 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 1996, Mr. Graves has served as Chairman Emeritus of
Pepsi-Cola of Washington, D.C., L.P., a Pepsi-Cola bottling franchise. Mr.
Graves is also a member of the boards of directors of Aetna Inc., AMR
Corporation, Daimler Chrysler Corporation and Rohm & Haas Corporation. He is a
member of the Audit Review, BOCG, Executive and Public Policy Committees of the
Board. Mr. Graves has been a director since 1994.
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<PAGE> 9
GEORGE V. GRUNE
Mr. Grune, age 69, has been Chairman of the DeWitt Wallace Reader's Digest
Fund, Inc. and the Lila Wallace Reader's Digest Fund, Inc. since August 1995.
Mr. Grune was the Chairman and Chief Executive Officer of The Reader's Digest
Association, Inc. on an interim basis from August 1997 until May 1998, and for
10 years prior to his initial retirement from such positions in 1995 and 1994,
respectively. Mr. Grune is also a member of the boards of directors of Avon
Products, Inc., Bestfoods and The Chase Manhattan Corporation. 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 53, has been Chairman and Chief Executive Officer of The
Pepsi Bottling Group, Inc. since November 1998. From July 1996 until October
1998, he was the Chairman and Chief Executive Officer of Pepsi-Cola Company.
From April 1996 until July 1996, he was President of PepsiCo, Inc. 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 board of
directors of Starbucks Corporation. He is a member of the BOCG, Compensation and
Public Policy Committees of the Board. Mr. Weatherup has been a director since
August 1996.
JAMES M. ZIMMERMAN
Mr. Zimmerman, age 55, has been Chairman of the Board and Chief Executive
Officer of Federated since May 1997. From May 1988 until May 1997, he was the
President and Chief Operating Officer of Federated. He is also a member of the
boards of directors of The Chubb Corporation and H.J. Heinz Company. Mr.
Zimmerman is a member of the Executive and Finance Committees of the Board. Mr.
Zimmerman has been a director since 1988.
CLASS I DIRECTORS -- TERM EXPIRES AT THE 2001 ANNUAL MEETING
SARA LEVINSON
Ms. Levinson, age 48, has been President of NFL Properties, Inc. since
September 1994. From 1993 until September 1994, she was President -- Business
Director of MTV: Music Television, a division of Viacom International, Inc. Ms.
Levinson is also a member of the board of directors of Harley Davidson, Inc. Ms.
Levinson is a member of the Audit Review and Public Policy Committees of the
Board. Ms. Levinson has been a director since May 1997.
JOSEPH NEUBAUER
Mr. Neubauer, age 57, has been Chairman of ARAMARK Corporation since 1984
and Chief Executive Officer of ARAMARK Corporation since 1983, and was President
of ARAMARK Corporation from 1983 until 1997. He is also a member of the boards
of directors of ARAMARK Corporation, Bell Atlantic Corporation, First Union
Corporation and CIGNA 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.
JOSEPH A. PICHLER
Mr. Pichler, age 59, has been Chairman and Chief Executive Officer of The
Kroger Co. since June 1990. He is also a member of the boards of directors of
The Kroger Co. and Milacron, Inc. Mr. Pichler is a member of the
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<PAGE> 10
BOCG and Compensation Committees and the Section 162(m) Subcommittee of the
Board. Mr. Pichler has been a director since December 1997.
KARL M. VON DER HEYDEN
Mr. von der Heyden, age 62, has been Vice Chairman of the Board of
Directors of PepsiCo, Inc. since September 1996 and was Chief Financial Officer
of PepsiCo, Inc. from September 1996 until March 1998. Mr. von der Heyden 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, Inc. from 1989 to 1993. He is also a
member of the board of directors of Zeneca Group PLC. Mr. von der Heyden is a
member of the Audit Review, Public Policy and Finance Committees of the Board.
Mr. von der Heyden has been a director since 1992.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
ATTENDANCE AT MEETINGS
The Board held nine meetings during the fiscal year ended January 30, 1999.
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: 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. Each of these standing committees is reconstituted following each
annual meeting of Federated's stockholders. 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 Federated who is not a full-time
employee of Federated 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. However, the By-Laws permit a majority
of the independent directors then serving as Board members to determine in a
specific instance that it would be in the best interests of Federated 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 Federated who:
- is not (and has not been within the preceding 60 months) an employee of
Federated or any of its subsidiaries;
- is not (and has not been within the preceding 60 months) an executive
officer, 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, Federated or any of its
subsidiaries;
- is not a party to any contract pursuant to which such director provides
personal services (other than as a director) to Federated or any of its
subsidiaries;
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<PAGE> 11
- is not employed by an organization that received, within the preceding 60
months, grants or endowments from Federated or any of its subsidiaries in
excess of $250,000 in any fiscal year of Federated;
- is not a relative of any other director or executive officer of
Federated;
- is not a party to any agreement binding him or her to vote, as a
stockholder of Federated, in accordance with the recommendations of the
Board; and
- is not a director of any corporation or other entity (other than
Federated) of which Federated'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 Federated, 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. Feldberg, Graves, Grune, Neubauer and Zimmerman. This
Committee has all authority, consistent with the Delaware General Corporation
Law, granted to it by the Board. Accordingly, the Executive Committee may
generally exercise all of the power and authority of the Board in the oversight
of the management of the business and affairs of Federated. However, 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 Federated), adopt an agreement of merger and consolidation,
authorize the issuance of stock, declare a dividend or recommend to the
stockholders of Federated the sale, lease or exchange of all or substantially
all of Federated's assets, a dissolution of Federated or a revocation of a
dissolution. The Executive Committee met once during fiscal 1998.
Finance Committee. The Finance Committee is presently composed of Dr.
Whittington and Messrs. Neubauer, Tysoe, von der Heyden and Zimmerman. This
Committee reviews with the appropriate officers of Federated and reports to the
Board (or to the Executive Committee) on:
- the financial considerations relating to acquisitions and dispositions of
businesses and operations involving projected costs or income in excess
of $15 million;
- potential transactions affecting Federated's capital structure, such as
financings, refinancings and the issuance, redemption or repurchase of
Federated's debt or equity securities;
- potential changes in the financial policy or structure of Federated which
could have a material financial impact on Federated;
- capital projects and other financial commitments in excess of $15
million; and
- potential consolidations of Federated's operations involving projected
costs and/or expense savings in excess of $25 million.
The Finance Committee met five times during fiscal 1998.
Public Policy Committee. The Public Policy Committee is presently composed
of Ms. Levinson and Messrs. Feldberg, Graves, Grune, Lundgren, von der Heyden
and Weatherup. This Committee establishes, when necessary or appropriate,
policies involving Federated'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 twice during fiscal 1998.
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<PAGE> 12
Audit Review Committee. The Audit Review Committee is presently composed
of Ms. Levinson, Dr. Whittington and Messrs. Graves, Grune and von der Heyden.
This Committee reviews the professional services provided by Federated's
independent accountants and the independence of such firm from the management of
Federated. This Committee also reviews the scope of the audit by Federated's
independent accountants, the annual financial statements of Federated,
Federated's systems of internal accounting controls, material legal developments
relating to, and legal compliance policies and procedures of, Federated and such
other matters with respect to the legal, accounting, auditing and financial
reporting practices and procedures of Federated as it may find appropriate or as
may be brought to its attention, and meets from time to time with members of
Federated's internal audit staff. The Audit Review Committee met four times
during fiscal 1998.
Board Organization and Corporate Governance Committee. The BOCG Committee
is presently composed of Dr. Whittington and Messrs. Feldberg, Graves, Neubauer,
Pichler and Weatherup. This Committee considers and recommends criteria for the
selection of nominees for election as directors of Federated and from time to
time may select candidates for director for recommendation to the full Board.
This Committee also 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 Federated,
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 Federated (other than, as to stockholder rights, in respect of the
conduct of Federated's ordinary business operations or in the context of an
extraordinary transaction involving Federated 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 (x) the filling of
any vacancies on the Board, (y) the recommendation of candidates for nomination
for election by the stockholders of Federated, and (z) the composition of all
Board committees. The BOCG Committee met six times during fiscal 1998.
The BOCG Committee will consider nominees for directors recommended by
stockholders of Federated. 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. Feldberg, Grune, Neubauer, Pichler and Weatherup. This Committee
reviews executive salaries, administers the bonus, incentive and stock option
plans of Federated and approves the salaries and other benefits of the executive
officers of Federated. In addition, this Committee advises and consults with
Federated's management regarding pension and other benefit plans and
compensation policies and practices of Federated. The Compensation Committee met
four times during fiscal 1998.
Section 162(m) Subcommittee. The Board has established a subcommittee of
the Compensation Committee, presently composed of Messrs. Feldberg, Grune and
Pichler (the "Section 162(m) Subcommittee"). 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 Equity Plans
and Federated's 1992 Incentive Bonus Plan (as amended, the "1992 Bonus Plan"),
and such other
9
<PAGE> 13
compensation plans, agreements or arrangements of Federated as may be specified
by the Board from time to time, in each case 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 twice during fiscal 1998.
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 Federated not less than 60 days prior to the
meeting of stockholders. However, in the event that the date of the meeting is
not publicly announced by Federated 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 Federated 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, among other things,
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 Federated'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 Federated 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. See "Stockholders
Proposals -- Proposals for the 2000 Annual Meeting."
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. Effective January 1, 1999, the annual base retainer fee
(including the fee payable to a committee chair) and the meeting fee payable to
non-employee directors will be paid 50% (or such greater percentage, in ten
percent increments, any individual director may have elected) in credits
representing the right to receive shares of common stock, with the balance being
payable in cash. Such stock credits will be settled in shares of common stock
three years following the issuance of such stock credits (or at such later time
as any individual director's service on the Board ends, if such individual
director has elected to defer compensation under the directors' deferred
compensation program).
Subject to the holding period described above for stock credits covering a
portion of retainer and meeting fees, any non-employee director may defer all or
a portion of those fees either as stock credits or cash credits under the
directors' deferred compensation program until such director's service on the
Board ends.
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. Each non-employee director was granted an
option to
10
<PAGE> 14
purchase 3,500 shares of common stock in respect of his or her service as such
during fiscal 1998. Directors who are also full-time employees of Federated
receive no additional compensation for service as directors.
Federated'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
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 also receive executive discounts on merchandise
purchased.
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 Federated'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 Federated with
copies of all Section 16(a) reports they file. See "Stock Ownership -- Certain
Beneficial Owners."
To Federated's knowledge, based solely on a review of the copies of reports
furnished to Federated 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 1998, 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 1998.
ITEM 2 -- APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board, upon the recommendation of the Audit Review Committee, has
appointed the firm of KPMG LLP independent public accountants, to audit the
books, records and accounts of Federated for the fiscal year ending January 29,
2000. The Board's appointment is subject to ratification by Federated's
stockholders. KPMG LLP and its predecessors have served as independent
accountants for Federated since 1988, and are considered well qualified.
Representatives of KPMG LLP are expected to be present at the annual meeting and
will have the opportunity to make a statement if they desire to do so. It is
also expected that they will be available to respond to appropriate questions.
11
<PAGE> 15
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 Federated's strategic plan is the practice of
linking the compensation of key employees to the achievement of specific
performance levels. The 1995 Equity Plan is intended to provide an equity
interest in Federated to key management personnel and thereby provide additional
incentives for such persons to devote themselves to the maximum extent
practicable to the business of Federated 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 Federated and its subsidiaries.
To further the objectives of the 1995 Equity Plan, the Compensation
Committee has recommended that the Board amend the 1995 Equity Plan, subject to
approval by Federated's stockholders, to increase by 7.5 million shares the
total number of shares of common stock available for issuance thereunder
(without increasing the number of shares available for issuance thereunder as
restricted stock). 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 immediately
become effective. If such approval by Federated'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 Federated 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
Federated and its subsidiaries (approximately 2,600 persons in the aggregate at
the date of this Proxy Statement). The 1995 Equity Plan also provides for annual
grants of Options to purchase up to 3,500 shares of common stock to each
non-employee director (nine persons in the aggregate at the date of this Proxy
Statement). The 1995 Equity Plan provides that Awards generally 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).
Particular Awards may be subject to additional restrictions on transfer.
As of April 2, 1999, 3,238,897 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 562,269 shares were 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 (a) 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 (b) 7.5 million. Of
such total number of shares, the number of shares that will be available for
issuance under the 1995 Equity Plan as Restricted Stock will be 562,269 (subject
to reduction on a share-for-share basis on account of any shares of Restricted
Stock issued after April 2, 1999).
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<PAGE> 16
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 (a) 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
Federated 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; (b) 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 (c) 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 Federated 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 Federated 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 Federated to a
participant of ownership of a specified 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 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
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<PAGE> 17
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.
To the extent that a recipient of an Award recognizes ordinary income in
the circumstances described above, Federated would be entitled to a
corresponding deduction, provided in general that (a) the amount is an ordinary
and necessary business expense and such income meets the test of reasonableness;
(b) the deduction is not disallowed pursuant to Section 162(m), as described
below; and (c) 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 Federated 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 Federated under the "excess parachute payments" provisions of the
Internal Revenue Code.
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<PAGE> 18
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 so that no participant may be granted Options to purchase more
then 1,000,000 shares in any period of three fiscal years of Federated, 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 has been
satisfied with respect to the 1995 Equity Plan as presently in effect 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 shares of common stock or shares of Restricted
Stock issuable pursuant to the 1995 Equity Plan or the maximum number of shares
of common stock that may be subject to Option Rights or Appreciation Rights
granted to any participant in any period of three fiscal years of Federated
could be effected without the further approval of the holders of a majority of
the shares of common stock actually voting thereon at a meeting of Federated's
stockholders.
The following table sets forth certain information regarding the Awards
granted under the 1995 Equity Plan in fiscal 1998 and fiscal 1999 (through April
2, 1999). No determination has been made with respect to any specific Award that
may be granted under the 1995 Equity Plan after April 2, 1999.
15
<PAGE> 19
1995 EXECUTIVE EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE OF
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
STOCK TERM
NAME AND OPTIONS ------------------------------
PRINCIPAL POSITION SHARES(#) 5%($) 10%($)
------------------ --------- ------------- -------------
<S> <C> <C> <C> <C>
J. Zimmerman 1998 0 0 0
Chairman and 1999 0 0 0
Chief Executive Officer
T. Lundgren 1998 150,000(1) 4,834,627 12,251,895
President and 1999 0 0 0
Chief Merchandising Officer
R. Tysoe 1998 360,000(2) 4,223,106 22,024,548
Vice Chairman, Finance and 1999 0 0 0
Real Estate
T. Cody 1998 120,000(1) 3,867,702 9,801,516
Executive Vice President, 1999 0 0 0
Law and Human Resources
K. Hoguet 1998 42,000(1) 1,353,696 3,430,531
Senior Vice President, 1999 0 0 0
Chief Financial Officer and Treasurer
Executive Group 1998 715,000(1) 15,665,057 51,020,700
1999 7,000(5) 167,561 424,633
Non-Executive Director Group 1998 31,500(3) 1,065,986 2,701,417
(9 persons)
Non-Executive Officer Employee Group 1998 3,842,875(4) 122,791,739 311,178,376
(2,091 persons) 1999 3,566,225(5)(6) 82,679,703 214,357,975
</TABLE>
- ---------------
(1) Represents options granted on March 27, 1998 having an exercise price of
$51.25 per share. Such options have 10-year terms and will vest as to
one-fourth of the shares covered thereby on each of the first four
anniversaries of the date of the grant thereof.
(2) Represents options granted on March 27, 1998. 120,000 of such options have
an exercise price of $64.06. 120,000 of such options have an exercise price
of $71.75. 120,000 of such options have an exercise price of $79.44. Such
options have 10-year terms and will vest, in the case of options within each
of the three exercise price categories described above, as to one-fourth of
the shares covered thereby on each of the first four anniversaries of the
date of grant thereof.
(3) Represents options granted May 15, 1998 having an exercise price of $53.81
per share. It is anticipated that on May 21, 1999, 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 20, 1999.
(4) Represents options granted between March 27, 1998 and January 18, 1999
having exercise prices ranging from $39.88 to $53.38 per share. Such options
have 10-year terms, with the majority vesting as to one-fourth of the shares
covered thereby on each of the first four anniversaries of the date of the
grant thereof, with the remainder vesting either in their entirety on the
fourth anniversary of the date of the grant or as to one half of the shares
covered thereby on each of the first two anniversaries of the date of the
grant thereof.
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<PAGE> 20
(5) Represents options granted on March 22, 1999 and March 26, 1999 having
exercise prices ranging from $38.06 to $51.25, with a majority of such
options vesting as to one-fourth of the shares covered thereby on each of
the first four anniversaries of the date of the grant thereof and the
remainder vesting either as to one-third of the shares covered thereby on
each of the third, fourth and fifth anniversaries of the date of the grant
thereof or in their entirety on the fourth anniversary of the date of the
grant thereof.
(6) A total of 112,631 Restricted Shares were also awarded to five persons in
this group.
The Board recommends that stockholders vote FOR the amendment to the 1995
Equity Plan. Proxies solicited by the Board will be so voted except where
authority has been withheld.
EXECUTIVE COMPENSATION
THREE-YEAR COMPENSATION SUMMARY
The following table summarizes the compensation of the five most highly
compensated executive officers of Federated as of January 30, 1999 (the "Named
Executives") for Federated's last three fiscal years for services rendered in
all capacities to Federated and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ------------------------------------
AWARDS PAYOUTS
----------------------- ---------- ALL
OTHER RESTRICTED SECURITIES OTHER
ANNUAL STOCK UNDERLYING LTIP COMPEN-
NAME AND COMPEN- AWARD(S) OPTIONS/ PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY BONUS SATION ($)(1) SARS(#) ($)(2) (3)
------------------ ---- ------ ----- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Zimmerman 1998 1,250,000 922,000 192,267(4) 0 0 849,800 5,506
Chairman & Chief 1997 1,177,083 700,000 107,776 0 450,000 721,900 5,755
Executive Officer 1996 1,000,000 443,200 104,671 0 0 270,500 1,500
from May 16, 1997
T. Lundgren 1998 1,000,000 567,200 58,465(5) 0 150,000 560,500 4,877
President & Chief 1997 970,833 472,000 82,464 0 250,000 500,100 5,755
Merchandising
Officer from May
16, 1997
R. Tysoe 1998 750,000 265,900 135,767(6) 0 360,000 302,900 3,871
Vice Chairman, 1997 741,667 221,300 120,320 0 50,000 281,200 3,837
Finance & Real 1996 700,000 212,800 89,798 0 50,000 216,000 1,500
Estate
T. Cody 1998 690,000 244,600 113,113(7) 0 120,000 281,300 5,506
Executive Vice 1997 683,333 203,600 116,048 0 50,000 256,300 3,837
President, Law 1996 643,667 197,600 81,123 0 40,000 216,000 1,500
and Human
Resources
K. Hoguet 1998 400,000 141,800 -- 0 42,000 133,200 5,506
Senior Vice 1997 359,500 121,200 -- 0 22,000 109,700 3,837
President, Chief 1996 343,333 106,200 -- 0 9,000 97,500 1,500
Financial Officer
& Treasurer
</TABLE>
- ---------------
(1) At January 30, 1999, 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 29, 1999) were as
follows:
17
<PAGE> 21
Mr. Zimmerman: 0; Mr. Lundgren: 12,000 shares, $501,750; Mr. Tysoe: 0; Mr.
Cody: 0; and Mrs. Hoguet: 0. The restrictions on Mr. Lundgren's shares of
restricted stock lapsed on March 18, 1999.
(2) The payments to the Named Executives for fiscal years 1996, 1997 and fiscal
1998 were made pursuant to Federated's long-term incentive plans in respect
of the period encompassing Federated's fiscal years 1994 through 1998. See
"Compensation Committee Report on Executive Compensation -- Specific
Compensation Practices -- Long-Term Incentive."
(3) Consists of contributions under Federated's Profit Sharing 401(k) Investment
Plan. See "Retirement Programs."
(4) For fiscal 1998, the amount shown includes $97,074 for executive discount on
merchandise purchases.
(5) For fiscal 1998, the amount shown includes $20,675 for financial counseling.
(6) For fiscal 1998, the amount shown includes $50,055 for executive discount on
merchandise purchases.
(7) For fiscal 1998, the amount shown includes $29,596 for executive discount on
merchandise purchases.
FISCAL 1998 STOCK OPTION GRANTS
The following table sets forth certain information regarding grants of
stock options made during fiscal 1998 to the Named Executives pursuant to the
1995 Equity Plan. No grants of stock appreciation rights were made during fiscal
1998 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>
J. Zimmerman 0 0% N/A N/A N/A N/A N/A N/A
T. Lundgren 150,000(2) 3.29% 51.25 51.25 3/27/08 0 4,834,627 12,251,895
R. Tysoe 120,000(2) 2.63% 64.06 51.25 3/27/08 0 2,330,202 8,264,016
120,000(2) 2.63% 71.75 51.25 3/27/08 0 1,407,702 7,341,516
120,000(2) 2.63% 79.44 51.25 3/27/08 0 485,202 6,419,016
T. Cody 120,000(2) 2.63% 51.25 51.25 3/27/08 0 3,867,702 9,801,516
K. Hoguet 42,000(2) 0.92% 51.25 51.25 3/27/08 0 1,353,696 3,430,531
</TABLE>
- ---------------
(1) The "market price" shown is the closing price for shares of common stock on
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 27, 1999.
See "Compensation Committee Report on Executive Compensation -- Specific
Compensation Practices -- Equity-Based Plan" for further information regarding
grants of stock options made during fiscal 1998.
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding the total
number and aggregate value of options exercised by each of the Named Executives
during fiscal 1998 and the total number and aggregate value of options held by
each of the Named Executives at January 30, 1999.
18
<PAGE> 22
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- ----------- ------------------ --------------------
<S> <C> <C> <C> <C>
J. Zimmerman 0 0 586,666/363,334 11,140,113/2,845,637
T. Lundgren 0 0 146,667/376,667 1,661,256/2,016,256
R. Tysoe 0 0 162,166/480,384 2,838,519/647,668
T. Cody 33,000 1,059,501 103,000/244,000 1,595,813/1,740,250
K. Hoguet 0 0 48,750/90,250 849,313/607,813
</TABLE>
- ---------------
(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 29, 1999 (the
last trading day in fiscal 1998). 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.
FISCAL 1998 LONG-TERM INCENTIVE PLAN AWARD OPPORTUNITIES
The following table sets forth certain information with respect to award
opportunities of the Named Executives under Federated's long-term incentive plan
for the fiscal 1998-2000 measurement period. The cash payment under this program
is scheduled to occur in 2001.
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK PRICE-BASED PLANS(1)
OTHER -------------------------------------
PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME MATURATION OR PAYOUT ($) ($) ($)
---- -------------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
J. Zimmerman 2000 330,000 687,500 1,540,000
T. Lundgren 2000 176,000 440,000 880,000
R. Tysoe 2000 99,000 247,500 495,000
T. Cody 2000 91,100 227,700 455,400
K. Hoguet 2000 52,800 132,000 264,000
</TABLE>
- ---------------
(1) See "Compensation Committee Report on Executive Compensation -- Specific
Compensation Practices -- Long-Term Incentive" for further information
regarding Federated's long-term incentive plan.
CHANGE-IN-CONTROL AGREEMENTS
Federated has entered into a change-in-control agreement
("Change-in-Control Agreement") with each of its executive officers. Under the
Change-in-Control Agreements, if, prior to November 1, 2002, a change in
19
<PAGE> 23
control (as defined in the Change-in-Control Agreements) occurs and within three
years thereafter Federated or, in certain circumstances, the executive
terminates the executive's employment and, in the case of a termination by
Federated, 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
three 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 Federated's
long-term incentive plan at target (if applicable, and prorated to the
executive's participation during each performance period), the continuation of
welfare benefits for three 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 three years of retirement plan credits
(but not pursuant to Federated'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 Federated
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
Federated's retirement program (the "Retirement Program") consists of a
defined benefit plan and a defined contribution plan. As of January 1, 1999,
approximately 87,000 employees, including the executive officers of Federated,
participated in the Retirement Program.
To allow the Retirement Program to provide benefits based on a
participant's total compensation, Federated 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
Federated'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, 1999, approximately 800 employees were
eligible to receive benefits under the terms of the SERP. Federated 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
Retirement Program, in accordance with applicable law.
Under the Retirement 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 or her 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.
20
<PAGE> 24
Prior to the adoption of the Retirement Program, Federated'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, Federated 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 Federated's Profit Sharing 401(k) Investment Plan because the
amount, if any, that will be contributed by Federated and credited to a
participant in any year is determined by such variable factors, among others, as
the amount of net income of Federated, participants' annual contributions to the
plan, the amount of matching contributions of Federated, 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 1999 in specified eligible compensation and years
of service classifications, assuming that a retiring participant under the
Retirement 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 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 $ 50,072 $ 66,762 $ 83,453 $100,143 $100,143
300,000 61,322 81,762 102,203 122,643 122,643
350,000 72,572 96,762 120,953 145,143 145,143
400,000 83,822 111,762 139,703 167,643 167,643
450,000 95,072 126,762 158,453 190,143 190,143
500,000 106,322 141,762 177,203 212,643 212,643
750,000 162,572 216,762 270,953 325,143 325,143
1,000,000 218,822 291,762 364,703 437,643 437,643
1,250,000 275,072 366,762 458,453 550,143 550,143
1,500,000 331,322 441,762 552,203 662,643 662,643
</TABLE>
Messrs. Zimmerman, Lundgren, Tysoe and Cody and Mrs. Hoguet have completed
32, 17, 11, 16 and 16 years of vesting service, respectively. Pursuant to the
terms of Mr. Tysoe's former employment agreement with Federated, Mr. Tysoe,
whose actual employment commenced on March 1, 1987, is deemed to have
21
<PAGE> 25
commenced employment on February 19, 1981 for the purpose of calculating years
of vesting service for benefit accrual (with the resulting additional benefits
being payable by Federated separately and not pursuant to any of Federated's
qualified or non-qualified retirement plans).
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW OF FEDERATED'S EXECUTIVE COMPENSATION POLICIES AND PRACTICES
Federated's executive compensation program, which was developed with the
assistance of independent compensation and other advisors, is principally
intended to: (a) provide appropriate incentives designed to aid in assuring the
accomplishment of Federated's performance and financial objectives; (b) help
ensure that Federated is able to attract and retain top-quality management
personnel; and (c) 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.
The key guiding principle of the program is that total compensation
opportunities, which include annual cash compensation and the value of 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 1998 program
consists of the following components: (a) Base Salary -- targeted at competitive
levels for comparable-sized firms within the retail industry; (b)
Performance-Based Annual Cash Incentive -- based on attainment of specific
financial objectives for the total corporation, operating unit or individual;
(c) Performance-Based Long-Term Incentive -- based on company-wide performance
against three-year financial performance objectives, as well as performance
against peers; and (d) 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 Federated's performance against peers, the peer group includes Dayton
Hudson Corporation, Dillard Department Stores, Inc., J.C. Penney Company, Inc.,
The May Department Stores Company, Inc. and Nordstrom, Inc. Information relating
to each of the foregoing components is set forth below.
The Compensation Committee (the "Committee") has engaged William M. Mercer,
Inc. ("Mercer") as its independent executive compensation consultants. With the
assistance of Mercer and Federated management, the Committee periodically
reviews the compensation programs of Federated to determine whether the total
compensation provided by these programs is consistent with Federated's
performance-driven policies. During fiscal 1998, the Committee, with the
assistance of Mercer, reviewed the total compensation provided to Federated's
executives. Based upon this review, the Committee reaffirmed the current
programs, which are described below under "Annual Cash Incentive," "Long-Term
Incentive" and the "Equity-Based Plan." 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), the Committee has
taken what it believes to be appropriate steps to maximize the future
deductibility of cash payments under Federated's annual cash incentive plan and
the long-term incentive plan, and of stock options awarded under the 1995 Equity
Plan.
Federated'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
22
<PAGE> 26
members of the Committee are non-employee directors and all of the members of
the Section 162(m) Subcommittee 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 Federated serves on any other boards of
directors with any member of the Board.
SPECIFIC COMPENSATION PRACTICES
EMPLOYMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER. Federated and Mr.
Zimmerman have entered into an employment agreement, dated as of May 16, 1997,
which provides for Mr. Zimmerman to serve as Chairman of the Board and Chief
Executive Officer of Federated 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 Federated's
annual and long-term incentive plans described hereinafter. In addition, in
connection with his agreement to serve as Chairman of the Board and Chief
Executive Officer of Federated, Mr. Zimmerman was granted, on March 28, 1997, an
option to purchase 450,000 shares of common stock at an exercise price of
$34.375 per share. Such option vested or 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 bonus, as well as any gains from the stock option awarded) will
not be deductible by Federated for federal income tax purposes.
Termination of Mr. Zimmerman's employment by Federated other than for
"cause" or by Mr. Zimmerman for "good reason" would entitle Mr. Zimmerman 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 (a) willful and material breaches of duties, (b)
habitual neglect of duties, or (c) the final conviction of a felony, but
generally does not include bad judgment or negligence, any act or omission
believed by Mr. Zimmerman in good faith to have been in or not opposed to the
interests of Federated or any act or omission in respect of which a
determination could properly have been made by the Board that Mr. Zimmerman 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.
Zimmerman of any duties materially inconsistent with his position, authority,
duties or responsibilities as contemplated in the agreement, or any other action
by Federated which results in a material diminution in such position, authority,
duties or responsibilities, (b) any material failure by Federated to comply with
any of the provisions of the agreement, (c) failure of Mr. Zimmerman to be
reelected Chairman of the Board and Chief Executive Officer of Federated or to
be reelected to membership on the Board, or (d) any purported termination by
Federated of Mr. Zimmerman's employment otherwise than as expressly permitted by
the agreement.
EMPLOYMENT AGREEMENTS WITH OTHER EXECUTIVE OFFICERS. Each of Federated's
other executive officers, along with a number of other key employees, is a party
to an employment agreement with Federated. 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 and Cody and Mrs. Hoguet presently specify the following respective annual
base salary rates: $825,000, $730,000 and $450,000.
23
<PAGE> 27
Federated and Mr. Lundgren have entered into an employment agreement, dated
as of May 16, 1997, which provides for Mr. Lundgren to serve as President and
Chief Merchandising Officer of Federated 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 Federated, 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 vested or 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. Mr. Lundgren's employment agreement contains
provisions for compensation in the event of termination of Mr. Lundgren's
employment by Federated other than for "cause" or by Mr. Lundgren for "good
reason" substantially identical to the comparable provisions of Mr. Zimmerman's
employment agreement described above.
The Committee reviews the compensation levels and other terms of employment
of each of Federated'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 Federated 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, Federated's executives have
participated in an annual cash bonus plan that was tied directly to Federated's
performance. Beginning in fiscal 1998, the annual bonus opportunity for Messrs.
Zimmerman, Lundgren, Tysoe and Cody and Mrs. Hoguet was based 71.4% upon
Federated's performance against specific "EBIT" (Earnings Before Interest and
Taxes) targets, 14.3% against specific sales targets and 14.3% against specific
"ROGI" (Return on Gross Investment) targets. The Committee (or in certain cases
the Section 162(m) Subcommittee) established threshold, target and maximum
levels for EBIT, target and maximum levels for sales and ROGI, and a minimum
EBIT-to-sales ratio consistent with Federated's annual business plan. Failure to
attain the minimum EBIT-to-sales objective results in a reduction of the bonus
otherwise earned based upon EBIT performance. Furthermore, failure to achieve
the threshold EBIT target results in a loss of the bonus otherwise earned for
meeting sales or ROGI performance targets. Although Federated's actual sales for
fiscal 1998 did not meet the sales target for 1998, Federated's actual EBIT,
ROGI and EBIT-to-sales ratio for fiscal 1998 exceeded the EBIT and ROGI targets
and the minimum EBIT-to-sales ratio for 1998, respectively. Accordingly, Messrs.
Zimmerman, Lundgren, Tysoe and Cody and Mrs. Hoguet earned bonuses which
reflected amounts between the target and the maximum annual bonus opportunity
which the Committee assigned to their positions at the beginning of the year.
The Committee (or in certain cases, the Section 162(m) Subcommittee) has
reviewed and approved the 1999 annual cash incentive EBIT, sales, ROGI and
EBIT-to-sales performance targets for the executive group and the corresponding
annual bonus opportunities.
LONG-TERM INCENTIVE. The long-term incentive plan for Federated's
executive officers is based on Federated's three-year performance against
specified financial objectives established in connection with Federated's
long-term business plan. Federated'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 1996-1998 and the 1997-1999 programs. The
remaining 40% of the incentive opportunity is based upon an objective ranking of
Federated'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 1996-1998 and the 1997-1999 programs. For the
1998-2000 and 1999-2001 programs, however, 66.7% of the incentive opportunity
will be based on Federated's performance against a cumulative corporate EBIT
target and an EBIT rate target, with the remaining 33.3% being based on
Federated's performance against a specified three-year average corporate ROGI
target.
24
<PAGE> 28
Consistent with Federated'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 1996-1998 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, Federated
exceeded the overall performance objectives, resulting in a payout equal to the
maximum opportunity for the portion of the award based upon performance against
peers. The Committee (or, in certain cases, the Section 162(m) Subcommittee) has
reviewed and approved the 1999-2001 long-term incentive cumulative EBIT and EBIT
rate performance targets for the executive group, the three-year average
corporate ROGI performance target, and the corresponding long-term bonus
incentive opportunity for each participant. Unlike payouts for performance
periods prior to the 1998-2000 performance period, which have been and will be
paid entirely in cash, any payout for the 1998-2000 and 1999-2001 performance
periods will be paid 50% (or such greater percentage, in ten percent increments,
any particular individual participant may have elected) in credits representing
the right to receive shares of common stock (with a 20% premium being added to
the amount so paid in such credits), with the balance being payable in cash.
Such stock credits will be settled in shares of common stock three years
following the issuance of such stock credits.
EQUITY-BASED PLAN. Stock option awards were granted in fiscal 1998 by the
Committee to Messrs. Lundgren, Tysoe and Cody and Mrs. Hoguet pursuant to the
1995 Equity Plan.
Stock option awards granted in fiscal 1998 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
Federated 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 1998 review of executive total compensation conducted by the
Committee with the assistance of outside compensation experts from Mercer, the
Committee confirmed guidelines for stock option awards to all executives, except
for the current two most senior executives of Federated. The guidelines featured
the use of a range of annual stock option award opportunities for each eligible
position within Federated, 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 Federated. Options
will generally be granted every three years to Federated's executive officers
and senior division executives within a range of opportunity equal to three
times the annual range. 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 granted after February 15, 1995, are granted
under the 1995 Equity Plan.
25
<PAGE> 29
CONCLUSION
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 Federated, and
with the primary mission of the full Board of increasing long-term stockholder
value.
Respectfully submitted,
Joseph Neubauer, Chairperson
Meyer Feldberg
George V. Grune
Joseph A. Pichler
Craig E. Weatherup
26
<PAGE> 30
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 January 29, 1994
through January 30, 1999, assuming an initial investment of $100 and the
reinvestment of all dividends, if any.
FEDERATED DEPARTMENT STORES VS. S&P 500
VS. S&P RETAIL DEPARTMENT STORE INDEX
WEEKLY TOTAL RETURN HISTORY
<TABLE>
<CAPTION>
S&P RETAIL DEPT.
FEDERATED STORE INDEX S&P 500
--------- ---------------- -------
WEEKLY FROM 3/4/94 TO 1/30/99
INDEXED TOTAL RETURN
<S> <C> <C> <C>
3/4/94 100.000 100.000 100.000
3/11/94 99.492 101.199 100.428
3/18/94 96.954 102.091 101.446
3/25/94 95.431 101.156 99.248
4/1/94 89.340 96.529 96.073
4/8/94 97.970 101.227 96.415
4/15/94 92.386 97.804 96.236
4/22/94 91.878 97.027 96.564
4/29/94 86.802 99.021 97.305
5/6/94 85.279 95.756 96.742
5/13/94 86.294 96.338 96.046
5/20/94 88.325 93.650 98.480
5/27/94 89.340 94.502 99.079
6/3/94 89.340 91.169 99.724
6/10/94 87.817 92.572 99.482
6/17/94 86.802 94.643 99.456
6/24/94 79.188 91.064 96.107
7/1/94 82.234 94.047 96.918
7/8/94 82.234 92.974 97.675
7/15/94 79.695 92.309 98.700
7/22/94 83.756 94.099 98.486
7/29/94 82.741 93.773 99.645
8/5/94 77.157 91.328 99.485
8/12/94 82.234 91.702 100.631
8/19/94 80.203 91.070 101.069
8/26/94 83.756 96.043 103.333
9/2/94 92.386 95.732 102.796
9/9/94 94.416 98.313 102.239
9/16/94 93.909 97.775 102.915
9/23/94 90.355 92.626 100.444
9/30/94 93.401 93.085 101.194
10/7/94 88.830 93.512 99.605
10/14/94 90.863 93.293 102.683
10/21/94 84.264 92.820 101.775
10/28/94 83.249 94.738 103.757
11/4/94 81.218 96.179 101.362
11/11/94 83.756 91.633 101.448
11/18/94 81.218 89.476 101.326
11/25/94 78.173 90.063 99.366
12/2/94 79.188 85.337 99.647
12/9/94 74.619 81.908 98.322
12/16/94 76.650 84.772 100.954
12/23/94 77.157 84.961 101.267
12/30/94 78.173 84.368 101.178
1/6/95 76.650 83.995 101.533
1/13/95 73.604 83.350 102.731
1/20/95 76.142 82.939 102.474
1/27/95 75.635 83.623 103.747
2/3/95 79.695 86.177 105.647
2/10/95 87.817 86.385 106.384
2/17/95 87.310 87.384 106.575
2/24/95 87.563 87.189 107.979
3/3/95 90.863 84.094 107.468
3/10/95 84.772 83.017 108.471
3/17/95 89.340 84.153 109.816
3/24/95 91.371 86.543 111.027
3/31/95 89.848 88.299 111.029
4/7/95 87.817 89.199 112.379
4/14/95 86.294 87.119 113.017
4/21/95 86.294 85.275 112.871
4/28/95 85.787 85.953 114.299
5/5/98 87.817 85.564 115.596
5/12/95 90.355 90.533 116.920
5/19/95 87.817 89.294 115.615
5/26/95 89.340 89.764 116.687
6/2/95 96.954 93.470 118.699
6/9/95 98.477 94.379 117.715
6/16/95 106.599 96.214 120.432
6/23/95 105.584 95.866 122.657
6/30/95 104.569 95.980 121.629
7/7/95 108.629 96.821 124.302
7/14/95 112.690 98.172 125.105
7/21/95 113.198 99.921 123.734
7/28/95 113.198 99.295 125.846
8/4/95 116.244 95.977 125.035
8/11/95 120.305 96.526 124.278
8/18/95 115.736 97.683 125.277
8/25/95 110.152 96.863 125.510
9/1/95 111.168 96.838 126.422
9/8/95 114.721 97.548 128.462
9/15/95 117.259 101.804 130.930
9/22/95 112.183 100.234 130.626
9/29/95 115.228 100.391 131.296
10/6/95 115.228 98.705 130.952
10/13/95 112.183 98.745 131.428
10/20/95 107.107 93.848 132.120
10/27/95 103.046 89.873 130.405
11/3/95 111.168 92.160 132.931
11/10/95 116.751 97.817 133.515
11/17/95 117.259 98.257 135.258
11/24/95 116.244 99.423 135.279
12/1/95 116.244 98.566 136.942
12/8/95 113.198 99.585 139.372
12/15/95 111.675 98.554 139.191
12/22/95 107.107 94.875 138.227
12/29/95 110.660 96.957 139.207
1/5/96 112.690 100.008 139.411
1/12/96 112.690 97.284 136.116
1/19/96 104.569 93.485 138.405
1/26/96 105.076 94.937 140.628
2/2/96 107.614 98.430 143.940
2/9/96 112.690 101.218 146.668
2/16/96 112.690 101.261 146.880
2/23/96 122.843 106.126 149.434
3/1/96 126.904 109.017 146.177
3/8/96 130.457 108.622 143.803
3/15/96 133.503 113.715 145.688
3/22/96 134.518 114.439 147.796
3/29/96 130.964 111.186 146.681
4/5/96 126.904 109.084 149.081
4/12/96 137.056 112.978 144.801
4/19/96 129.442 111.014 146.727
4/26/96 136.041 115.148 148.663
5/3/96 136.548 117.540 146.038
5/10/96 139.086 118.206 148.531
5/17/96 140.609 119.615 152.518
5/24/96 146.193 121.225 154.751
5/31/96 140.609 119.929 152.682
6/7/96 143.655 120.300 153.720
6/14/96 140.609 117.589 152.103
6/21/96 136.548 115.464 152.348
6/28/96 138.579 114.153 153.265
7/5/96 141.624 113.116 150.309
7/12/96 134.518 109.916 147.817
7/19/96 125.381 107.015 146.138
7/26/96 121.827 106.633 145.496
8/2/96 129.949 111.661 151.694
8/9/96 132.487 113.550 151.685
8/16/96 141.117 113.535 152.497
8/23/96 139.594 113.784 152.962
8/30/96 140.609 113.496 149.584
9/6/96 133.503 115.016 150.517
9/13/96 141.117 118.323 156.326
9/20/96 137.056 118.231 157.876
9/27/96 134.010 114.707 157.746
10/4/96 136.548 116.695 161.289
10/11/96 134.518 115.732 161.188
10/18/96 141.117 116.954 163.554
10/25/96 140.609 114.575 161.283
11/1/96 131.980 113.011 162.037
11/8/96 142.132 116.789 168.364
11/15/96 135.025 112.823 170.021
11/22/96 137.056 115.166 172.637
11/29/96 138.579 117.499 174.634
12/6/96 142.132 115.236 170.700
12/13/96 132.995 111.657 168.249
12/20/96 137.056 110.958 172.947
12/27/96 137.056 110.813 174.856
1/3/97 135.533 109.326 172.872
1/10/97 127.411 107.177 175.587
1/17/97 123.858 108.322 179.469
1/24/97 125.888 107.013 178.179
1/31/97 133.503 106.987 181.868
2/7/97 137.564 108.078 182.776
2/14/97 142.132 110.806 187.241
2/21/97 138.579 108.698 185.756
2/28/97 141.117 111.086 183.293
3/7/97 144.163 112.319 186.688
2/14/97 150.254 114.768 184.039
3/21/97 150.762 115.126 181.960
3/28/97 139.594 111.614 179.653
4/4/97 136.041 108.431 175.982
4/11/97 134.010 105.475 171.357
4/18/97 137.056 108.745 178.041
4/25/97 131.980 106.879 177.826
5/2/97 140.102 112.882 188.985
5/9/97 143.655 112.981 191.843
5/16/97 152.792 116.987 193.163
5/23/97 151.269 118.284 197.234
5/30/97 150.254 118.809 197.596
6/6/97 147.716 118.931 199.951
6/13/97 149.239 121.892 208.262
6/20/97 151.777 122.120 209.552
6/27/97 143.909 119.857 206.953
7/4/97 144.163 123.091 213.924
7/11/97 148.477 127.756 213.963
7/18/97 150.254 128.233 213.663
7/25/97 165.229 134.329 219.154
8/1/97 177.919 136.194 221.214
8/8/97 176.142 136.023 218.077
8/15/97 172.589 138.458 210.563
8/22/97 172.589 137.430 215.947
8/29/97 170.558 137.115 210.391
9/5/97 175.381 141.377 217.388
9/12/97 175.635 142.765 216.282
9/19/97 183.249 146.170 222.583
9/26/97 176.142 140.461 221.426
10/3/97 171.320 139.945 226.106
10/10/97 179.442 139.349 226.655
10/17/97 175.888 134.853 221.316
10/24/97 177.665 135.753 220.745
10/31/97 176.934 138.168 214.503
11/7/97 183.756 141.371 217.631
11/14/97 185.787 143.149 217.927
11/21/97 192.132 147.442 226.155
11/28/97 185.025 143.299 224.432
12/5/97 194.416 146.524 231.179
12/12/97 183.756 139.348 224.128
12/19/97 170.305 135.176 222.607
12/26/97 163.452 130.667 220.196
1/2/98 171.828 137.312 229.380
1/9/98 169.797 134.412 218.318
1/16/98 174.873 133.065 226.303
1/23/98 177.157 136.813 225.400
1/30/98 171.828 140.338 230.812
2/6/98 185.533 146.717 238.506
2/13/98 187.056 149.168 240.405
2/20/98 190.609 757.000 243.814
2/27/98 190.355 152.862 247.460
3/6/98 201.777 160.389 249.077
3/13/98 205.076 159.743 252.222
3/20/98 208.376 159.620 259.459
3/27/98 206.345 160.086 258.637
4/3/98 210.914 164.968 265.111
4/10/98 206.599 161.560 262.361
4/17/98 203.300 162.558 265.232
4/24/98 195.178 157.185 261.752
5/1/98 200.000 158.026 264.937
5/8/98 206.345 160.249 261.974
5/15/98 216.751 163.933 262.323
5/22/98 214.975 167.742 262.802
5/29/98 210.406 165.879 258.233
6/5/98 211.675 169.114 263.767
6/12/98 217.259 168.815 260.318
6/19/98 216.244 170.618 260.773
6/26/98 213.706 169.036 268.544
7/3/98 217.767 171.064 271.712
7/10/98 221.827 166.508 276.075
7/17/98 221.320 168.637 281.413
7/24/98 212.183 154.979 270.543
7/31/98 214.975 153.850 265.860
8/7/98 198.985 150.254 258.529
8/14/98 200.254 150.343 252.323
8/21/98 198.731 152.774 256.782
8/28/98 188.325 141.846 244.014
9/4/98 174.873 131.117 231.449
9/11/98 175.635 130.477 239.909
9/18/98 186.294 135.783 242.614
9/25/98 164.467 126.106 248.494
10/2/98 140.609 117.545 238.580
10/9/98 149.239 117.648 234.335
10/16/98 166.751 131.199 251.504
10/23/98 168.528 133.913 254.923
10/30/98 156.091 130.780 261.676
11/6/98 161.929 133.251 271.855
11/13/98 163.959 137.044 268.342
11/20/98 172.335 143.045 277.421
11/27/98 175.888 143.116 284.376
12/4/98 161.421 137.421 280.743
12/11/98 162.994 137.827 278.397
12/18/98 153.553 137.422 283.580
12/25/98 159.899 138.150 292.726
1/1/99 176.904 140.934 293.527
1/8/99 179.188 141.719 304.586
1/15/99 172.843 137.386 297.009
1/22/99 165.229 133.181 292.715
1/29/99 169.797 138.619 305.801
2/5/99 177.665 140.907 296.265
2/12/99 153.046 133.140 294.189
2/19/99 151.269 134.381 296.423
2/26/99 154.822 134.090 296.298
3/5/99 162.183 136.962 305.312
</TABLE>
ON JANUARY 30, 1999
<TABLE>
<S> <C>
Federated: $169.80
S&P 500: $305.80
S&P Retail Dept. Store Index $138.62
</TABLE>
27
<PAGE> 31
STOCKHOLDER PROPOSALS
PROPOSALS FOR 2000 ANNUAL MEETING. Stockholders of Federated may submit
proposals on matters appropriate for stockholder action at meetings of
Federated's stockholders in accordance with Rule 14a-8 promulgated under the
Exchange Act ("Rule 14a-8"). For such proposals to be included in Federated's
proxy materials relating to its 2000 annual meeting of stockholders, all
applicable requirements of Rule 14a-8 must be satisfied and such proposals must
be received by Federated no later than December 22, 1999.
Except in the case of proposals made in accordance with Rule 14a-8, the
By-Laws require that stockholders intending to bring any business before an
annual meeting of stockholders deliver written notice thereof to the Secretary
of Federated not less than 60 days prior to the meeting. However, in the event
that the date of the meeting is not publicly announced by Federated 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 Federated 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, among other things, that the notice by the stockholder set
forth a description of the business to be brought before the meeting and certain
information concerning the stockholder proposing such business, including such
stockholder's name and address, the class and number of shares of Federated's
capital stock that are owned beneficially by such stockholder and any material
interest of such stockholder in the business proposed to be brought before the
meeting. The chairman of the meeting may refuse to permit to be brought before
the meeting any stockholder proposal (other than a proposal made in accordance
with Rule 14a-8) not made in compliance with these requirements. Similar
procedures prescribed by the By-Laws are applicable to stockholders desiring to
nominate candidates for election as directors. See "Further Information
Concerning the Board of Directors -- Director Nomination Procedures."
OTHER. In December 1998, Federated was notified by Mrs. Evelyn Y. Davis,
Editor, Highlights and Lowlights, Watergate Office Building, 2600 Virginia
Avenue, NW, Suite 215, Washington, DC 20037, that she intended to submit at the
annual meeting a proposal recommending that Federated rotate the location of the
annual meeting of its stockholders between Cincinnati and other cities in states
where Federated has a large concentration of owners and/or stores. Following
discussions with Mrs. Davis, Federated agreed to hold the 2000 annual meeting of
its stockholders in Atlanta, Georgia and Mrs. Davis agreed to withdraw her
proposal.
OTHER MATTERS
The Board knows of no business which will be presented for consideration at
the annual meeting other than that described in this proxy statement. 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 Federated. The Annual Report of Federated for fiscal 1998, which is
being mailed to the stockholders together herewith, is not to be regarded as
proxy soliciting material. Federated may solicit proxies otherwise than by the
use of the mails, in that certain officers and regular employees of Federated,
without additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies. Federated 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
28
<PAGE> 32
reasonable expenses in so doing. In addition, Federated 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. 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 Federated will not
substantially exceed $15,000.
By: /s/ DENNIS J. BRODERICK
------------------------------------
Dennis J. Broderick
Secretary
April 21, 1999
PLEASE CAST YOUR VOTE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED
PROXY CARD. IF YOU CHOOSE TO CAST YOUR VOTE BY COMPLETING THE
ENCLOSED PROXY CARD, PLEASE RETURN IT PROMPTLY IN THE
ENCLOSED ADDRESSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
29
<PAGE> 33
APPENDIX A
FEDERATED DEPARTMENT STORES, INC.
1995 EXECUTIVE EQUITY INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF MAY 21, 1999)
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 21, 1999
(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 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
A-1
<PAGE> 34
(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 authorization, or
A-2
<PAGE> 35
(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 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.
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
A-3
<PAGE> 36
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.
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
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<PAGE> 37
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 canceled, 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, to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code, for a period to be determined
by the Board at the Date of Grant; provided, however, that at least a
portion of the Restricted Shares covered by such issuance or transfer will
be subject to a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code for a period of (i) at least one (1) year following
the Date of Grant in the case of a performance-based grant of Restricted
Shares, and (ii) at least three (3) years following the Date of Grant in
the case of any grant of Restricted Shares that is not performance based.
(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
in the manner and to the extent prescribed in or pursuant to the agreement
referred to in Section 6(e) (which
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<PAGE> 38
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) or is a Non-Employee Director, 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 any of the
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<PAGE> 39
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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<PAGE> 40
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) 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.
(c) 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.
(d) 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.
(e) 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.
A-8
<PAGE> 41
INSTRUCTIONS FOR VOTING YOUR PROXY
Federated is now offering shareholders of record three alternative means of
voting proxies:
* BY TELEPHONE (using a touch-tone phone)
* THROUGH THE INTERNET (using a browser)
* BY MAIL (traditional method)
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you had returned your proxy card. We encourage you to
use these cost effective and convenient ways of voting, 24 hours a day, 7 days a
week.
TELEPHONE VOTING Available only for residents of the United States and Canada.
* On a touch tone telephone, call TOLL FREE 1-877-805-2665, 24 hours a day, 7
days a week.
* Enter ONLY the Control Number shown below.
* Have your proxy card ready, then follow the instructions.
* Your vote will be confirmed and cast as you directed.
* The deadline for casting your vote is 5:00 p.m., Eastern time on May 20,
1999.
INTERNET VOTING
* Visit our Internet voting website at http://cybervote.georgeson.com.
* Enter Federated's Number AND the Control Number shown below and follow the
instructions on your screen.
* You will incur only your usual Internet charges.
* The deadline for casting your vote is 5:00 p.m., Eastern time on May 20,
1999.
VOTING BY MAIL
* Simply mark, sign and date your proxy card and return it in the postage-paid
envelope.
* IF YOU ARE VOTING BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL
YOUR PROXY CARD.
FEDERATED NUMBER CONTROL NUMBER
---------------- --------------
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
THE DIRECTORS RECOMMEND A VOTE "FOR" ALL NOMINEES LISTED IN ITEM 1 AND "FOR"
ITEMS 2 AND 3.
<TABLE>
<CAPTION>
<S> <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: Meyer Feldberg, Terry J. Lundgren, Ronald W. Tysoe and Marna C. Whittington.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions" box and write that nominee's name
in the space below.)
*Exceptions
</TABLE>
2. To ratify the appointment of KPMG LLP as Federated's independent
accountants for the fiscal year ending January 29, 2000.
FOR ____ AGAINST ____ ABSTAIN ____
3. To amend Federated's 1995 Executive Equity Incentive Plan to increase the
number of shares of Federated's common stock available for issuance under the
plan.
FOR ____ AGAINST ____ ABSTAIN ____
For purposes of the 1999 Annual Meeting, proxies will be held in confidence
(subject to certain exceptions as set forth in the Proxy Statement) unless the
undersigned checks the following box: ___
<PAGE> 42
Change of Address Mark Here ____
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: , 1999
Signature of Shareholder
Signature of Shareholder
VOTES MUST BE INDICATED, AS IN EXAMPLE TO THE LEFT, IN BLACK OR BLUE INK.
PLEASE MARK, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENVELOPE
PROVIDED. IF YOU ARE VOTING BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL
YOUR PROXY CARD.
<PAGE> 43
FEDERATED DEPARTMENT STORES, INC.
PROXIES SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS ON MAY 21, 1999
The undersigned holder of shares of Common Stock of Federated 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 Federated 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 21, 1999, and at any and all postponements and
adjournments thereof, 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 AND "FOR" ITEMS 2
AND 3, AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES IN RESPECT OF SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
(Continued on the other side)
