<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 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 registrant [X]
Filed by a party other than registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
LECHTERS, 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
LECHTERS, INC.
1 CAPE MAY STREET
HARRISON, NEW JERSEY 07029-2404
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Lechters, Inc. (the "Company") will
be held at the offices of Parker Chapin LLP, The Chrysler Building, 405
Lexington Avenue, New York, 9th Floor, on June 20, 2000, at 9:00 a.m., New York
City time, for the following purposes:
(1) to elect four directors;
(2) to consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as the independent auditors of the Company for the
fiscal year ending February 3, 2001;
(3) to consider and act upon a proposal to ratify an amendment to the
1998 Long-Term Incentive Plan to increase the number of shares available
thereunder from 1,000,000 to 2,500,000; and
(4) to transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on April 28, 2000 as
the record date for determining shareholders entitled to notice of and to vote
at the meeting. The transfer books of the Company will not be closed.
By Order of the Board of Directors,
SHEON KAROL,
Secretary
Harrison, New Jersey
May 30, 2000
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE.
<PAGE> 3
LECHTERS, INC.
1 CAPE MAY STREET
HARRISON, NEW JERSEY 07029-2404
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of Lechters, Inc., a
New Jersey corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors for use at the 2000 Annual Meeting of
Shareholders of the Company to be held on Tuesday, June 20, 2000 and any
adjournments or postponements thereof. A copy of the notice of meeting
accompanies this Proxy Statement. This Proxy Statement and related form of proxy
were first sent to shareholders on or about May 30, 2000.
Only shareholders of record at the close of business on April 28, 2000, the
record date for the meeting (the "Record Date"), will be entitled to notice of
and to vote at the meeting. On the Record Date the Company had outstanding
15,956,586 shares of common stock, no par value (the "Common Stock"), 149,999
shares of Series A Convertible Preferred Stock, $100 par value ("Series A
Preferred Stock"), and 50,001 shares of Series B Convertible Preferred Stock,
$100 par value ("Series B Preferred Stock" and, together with the Series A
Preferred Stock, the "Preferred Stock").
On all matters submitted to the shareholders for a vote, holders of the
Common Stock as of the Record Date are entitled to one vote per share, holders
of the Series A Preferred Stock are entitled to one vote for each share of
Common Stock issuable upon conversion of the Series A Preferred Stock as of the
Record Date, and holders of the Series B Preferred Stock have no voting rights.
The holders of the Series A Preferred Stock are entitled to 16 votes per share
(or an aggregate of 2,399,984 votes) at the 2000 Annual Meeting of Shareholders.
The holders of Series A Preferred Stock, voting separately as a single
series to the exclusion of all other series of the Company's capital stock, with
each share of Series A Preferred Stock entitled to one vote, are entitled to
elect one Director to serve on the Company's Board of Directors until he is
removed from office or his successor is duly elected by the holders of the
Series A Preferred Stock. The sole holder of the Series A Preferred Stock has
designated Robert Knox, who has been serving as a Director of the Company since
1986, as its nominee to serve on the Company's Board of Directors.
Any proxy given pursuant to such solicitation may be revoked by the
shareholder at any time prior to the voting of the proxy by a subsequently dated
proxy or by written notification to the Secretary of the Company. Attendance at
the meeting will not have the effect of revoking a proxy unless the shareholder
so attending so notifies the Secretary of the meeting, in writing, prior to the
voting of the proxy.
The Board of Directors does not know of any matter that is expected to be
presented for consideration at the meeting, other than (i) the election of
directors, (ii) the proposal to ratify the appointment of the independent
auditors of the Company for the current fiscal year and (iii) the proposal to
ratify an amendment to the 1998 Long-Term Incentive Plan to increase the number
of shares available thereunder from 1,000,000 to 2,500,000. However, if other
matters properly come before the meeting, the persons named in the accompanying
proxy intend to vote thereon in accordance with their judgment.
The Company will bear the cost of the meeting and the cost of soliciting
proxies, including the cost of mailing the proxy material. In addition to
solicitation by mail, directors, officers and regular employees of the Company
(who will not be specifically compensated for such services) may solicit proxies
by telephone or otherwise. The Company has retained W.F. Doring & Co., Inc., 150
Bay Street, Jersey City, New Jersey 07302 to aid in the solicitation of proxies.
For its services, W.F. Doring & Co., Inc. will receive a fee of $3,000 plus
reimbursement for certain out-of-pocket expenses. Arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to forward
proxies and proxy material to their principals and the Company will reimburse
them for their expenses.
Directors will be elected by a plurality of the votes cast. Ratification of
the appointment of the independent auditors of the Company for the current
fiscal year and ratification of the amendment to the 1998
<PAGE> 4
Long-Term Incentive Plan require the affirmative vote of a majority of all of
the votes cast by the holders of shares of Common Stock and Preferred Stock
voting together as one class present in person or represented by proxy at the
Annual Meeting of Shareholders. Proxies submitted which contain abstentions or
"broker non-votes" (i.e., proxies from a broker or nominee indicating that such
person has not received instructions from the beneficial owner or other persons
entitled to vote shares as to a matter with respect to which the broker or
nominee does not have discretionary power to vote) will be treated as present
for purposes of determining the presence of a quorum. Abstentions and broker
non-votes will not have the effect of votes in favor of or in opposition to the
election of a director, the ratification of the appointment of the independent
auditors of the Company for the current fiscal year or the ratification of the
amendment to the 1998 Long-Term Incentive Plan.
The enclosed proxy will be voted in accordance with the instructions
thereon. If no instructions are given, all proxies will be voted for the
election of all nominees named herein to serve as directors and in favor of each
of the proposals set forth in the Notice of Annual Meeting accompanying this
Proxy Statement. Proxies may be revoked as noted above.
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of Common Stock by each person known by the Company to be the
beneficial owner of more than five percent of the outstanding Common Stock,
based upon total shares outstanding as of April 14, 2000:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS
---------------- ------------------ --------
<S> <C> <C>
Donald Jonas................................................ 4,136,316(1) 25.8%
c/o Lechters, Inc.
1 Cape May Street
Harrison, NJ 07029
Prudential Private Equity Investors III, L.P................ 2,399,984(2) 13.0%
717 Fifth Avenue
Suite 1100
New York, NY 10022
David and Sherry Gold....................................... 1,433,000(3) 8.9%
4000 Union Pacific Avenue
City of Commerce, CA 90023
Grace & White, Inc.......................................... 1,212,300(4) 7.5%
515 Madison Avenue, Suite 1700
New York, NY 10022
Dimensional Fund Advisors................................... 1,202,300(5) 7.5%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
ICM Asset Management, Inc................................... 1,164,550(6) 7.3%
601 W. Main Ave., Suite 600
Spokane, WA 99201
Franklin Resources, Inc..................................... 1,144,600(7) 7.1%
777 Mariners Island Boulevard
San Mateo, CA 94404
</TABLE>
---------------
(1) Includes 111,384 shares held by Mr. Jonas' wife, as to which shares Mr.
Jonas disclaims beneficial ownership, and 2,000,000 shares owned by a
partnership of which Mr. Jonas is the sole managing general partner with
sole voting and dispositive power.
(2) Represents shares into which Series A Preferred Stock owned by Prudential
Private Equity Investors III, L.P. is convertible.
(3) Based solely on information contained in a Schedule 13D filed with the
Securities and Exchange Commission (the "SEC") dated January 19, 2000. David
and Sherry Gold have shared voting power and shared dispositive power with
respect to all the shares.
2
<PAGE> 5
(4) Based solely on information contained in a Schedule 13G filed with the SEC
dated February 7, 2000. Grace & White, Inc., a registered investment
adviser, has sole voting power with respect to 71,000 shares (and no voting
power with respect to the remaining shares) and sole dispositive power with
respect to all the shares.
(5) Based solely on information contained in a Schedule 13G filed with the SEC
dated February 3, 2000. Dimensional Fund Advisors Inc. ("Dimensional"), a
registered investment adviser, furnishes investment advice to four
registered investment companies and serves as investment manager to certain
other commingled group trusts and separate accounts. All of the shares are
owned by the funds. In its role as investment adviser or manager,
Dimensional possesses sole voting and investment power over the shares that
are owned by the funds. Dimensional disclaims beneficial ownership of all
such shares.
(6) Based solely on information contained in a Schedule 13G filed with the SEC
dated February 8, 2000. ICM Asset Management, Inc., a registered investment
adviser, has sole voting power with respect to 788,200 shares (and no voting
power with respect to the remaining shares) and sole dispositive power with
respect to all the shares.
(7) Based solely on information contained in a Schedule 13G filed with the SEC
dated January 28, 2000. Franklin Resources, Inc. ("FRI") is the parent of
Franklin Advisory Services, Inc. Charles B. Johnson and Rupert H. Johnson,
Jr. are principal shareholders of FRI. FRI and its principal shareholders
may be deemed to be the beneficial owners of the stock held by persons and
entities advised by Franklin Advisory Services, Inc., which has sole voting
and dispositive power over the securities.
The following table sets forth information regarding the beneficial
ownership of Series A Preferred Stock by each person known by the Company to be
the beneficial owner of more than five percent of the outstanding Series A
Preferred Stock, based upon total shares outstanding as of April 14, 2000:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS
---------------- ------------------ --------
<S> <C> <C>
Prudential Private Equity Investors III, L.P. .............. 149,999 100%
717 Fifth Avenue
Suite 1100
New York, New York 10022
</TABLE>
Except as noted in the footnotes in the two tables above, the Company
believes the beneficial holders listed above have sole voting and investment
power regarding the shares shown as being beneficially owned by such beneficial
holders.
PROPOSAL 1
ELECTION OF CLASS B DIRECTORS
The Board of Directors is divided into three classes with each class
holding office for a staggered three-year term. The terms of Ms. Maneker and
Messrs. Begun, Knox and Wolff, the Class B Directors, will expire at the Annual
Meeting of Shareholders; the terms of Messrs. Cully, Jonas and Westerfield, the
Class A Directors, will expire in 2001; and terms of Messrs. Davis, Fischman,
Malkin and Matthews, the Class C Directors, will expire in 2002.
The Board of Directors proposes to nominate Ms. Maneker and Messrs. Begun,
Knox and Wolff to be elected directors to hold office until the annual meeting
in 2003 and until each of their successors has been elected and qualified. If
Ms. Maneker, or Messrs. Begun or Wolff should become unavailable for any reason,
which management does not now anticipate, the persons named in the proxy
solicited by the Board of Directors reserve the right to substitute another
person of their choice in his or her place. However, if Mr. Knox becomes
unavailable for any reason, which management does not now anticipate, Prudential
Private Equity Investors III, LP reserves the right to substitute another person
of its choice in his place. All nominees named in the table below are now
directors of the Company.
The following information is furnished with respect to each nominee for
director of the Company and each other member of the Board of Directors whose
term of office will continue after the Annual Meeting. All such information has
been furnished to the Company by such directors.
3
<PAGE> 6
NOMINEES
CLASS B -- TERM EXPIRING 2003
<TABLE>
<CAPTION>
CURRENT POSITIONS
NAME AND AGE WITH THE COMPANY
------------ -----------------
<S> <C>
Martin S. Begun (67)........................................ Director
Robert Knox (47)............................................ Director
Roberta S. Maneker (62)..................................... Director
John Wolff (47)............................................. Director
</TABLE>
DIRECTORS CONTINUING IN OFFICE
CLASS A -- TERM EXPIRING 2001
<TABLE>
<CAPTION>
CURRENT POSITIONS
NAME AND AGE WITH THE COMPANY
------------ -------------------
<S> <C>
David K. Cully (47)......................................... President and Chief
Operating Officer
Donald Jonas (70)........................................... Chairman of the
Board and Chief
Executive Officer
Stephen T. Westerfield (57)................................. Director
</TABLE>
CLASS C -- TERM EXPIRING 2002
<TABLE>
<CAPTION>
CURRENT POSITIONS
NAME AND AGE WITH THE COMPANY
------------ -------------------
<S> <C>
Charles A. Davis (51)....................................... Director
Bernard D. Fischman (85).................................... Director
Anthony E. Malkin (37)...................................... Director
Norman Matthews (67)........................................ Director
</TABLE>
Martin S. Begun is the President of MSB Strategies, Inc., a consulting firm
in Public Policy Planning. From 1963 to 1997, he was associated with New York
University and was Vice President for External Relations of the New York
University Medical Center and Associate Dean of its School of Medicine. He has
been a director of the Company since 1986.
Robert Knox became Senior Managing Director of Cornerstone Equity
Investors, LLC, a private equity investment firm, in 1996. He was Chairman and
Chief Executive Officer of Prudential Equity Investors, Inc. from 1994 to 1996,
and was President of that firm from 1984 to 1994. He is also a director of
Health Management Associates, Inc. and several private companies. He is a
trustee of Boston University. He has been a director of the Company since 1986
and is the designated director of the holder of the Series A Preferred Stock.
Roberta S. Maneker became a trustee of Oberlin College in 1996 and has been
a marketing and communications consultant and freelance writer since November
1994. Prior to that time she was Senior Vice President of Marketing and
Corporate Communications at Christie's, an auction house, from 1987. She has
been a director of the Company since 1992. She is also Chairman of the Board of
the Jewish Home and Hospital's Manhattan Division.
John Wolff has been a partner of CEW Partners, a New York-based investment
firm, since 1984. He has been a director of the Company since 1986. He is a
trustee of Beth Israel Hospital.
David K. Cully has been the President and Chief Operating Officer of the
Company since January 2000. From 1993 to 2000, he served in various senior
management capacities including Vice President, GMM of Barnes & Noble Retail
Stores and President, Barnes & Noble Distribution. His other retail experience
includes senior management roles at both Egghead Discount Software and
Waldenbooks.
4
<PAGE> 7
Donald Jonas has been Chairman of the Board and a director of the Company
or its former parent since 1979. Mr. Jonas also served as President and Chief
Executive Officer from January 16, 1996 until February 11, 1999 and as Chief
Executive Officer thereafter. Mr. Jonas previously served as Chief Executive
Officer of the Company from January 1984 to January 1994. He is also a director
of Dress Barn, Inc.
Stephen T. Westerfield has been a director of the Company since 1997. He is
the President and Chief Executive Officer of STW International, an international
consulting firm in retail and manufacturing. He serves as a director of Bealls,
Inc., a specialty retailer operating in the southern United States. He has been
involved in retailing and development in Panama as an investor and executive
analyst since 1999.
Charles A. Davis has been the President and Chief Executive Officer of
Marsh & McLennan Capital, Inc., a global private equity firm, since April 1998.
Prior to that time, he was a limited partner of Goldman, Sachs & Co., an
investment banking firm, and was a general partner of Goldman, Sachs & Co. from
1990 to December 1994. He is also a director of Media General, Inc., US Life
Corporation, Merchants Bancshares, Inc., Heilig Meyers Company, the Progressive
Corp. and Sen-Tech. He has been a director of the Company since 1989.
Bernard D. Fischman has been Of Counsel to the law firm of LeBoeuf, Lamb,
Greene & MacRae, L.L.P., which has provided legal services to the Company, since
March 1994. Prior to that time he was a partner in the law firm of Shea & Gould
for more than the previous five years. He has been a director of the Company
since 1989.
Anthony E. Malkin has been a director of the Company since December 1994.
He has been President of W&M Properties, Inc. for more than the last five years.
Norman Matthews has been a retail consultant to the Company since 1989. He
is a director of Progressive Corp., Toys "R' Us, Inc., Finlay Fine Jewelry Corp.
and Sunoco Inc. He previously served as a director of Hills Stores Company and
Eye Care Centers of America, Inc. He has been a director of the Company since
1989.
BENEFICIAL OWNERSHIP OF DIRECTORS AND MANAGEMENT
The table below sets forth the beneficial ownership of the Common Stock as
of April 14, 2000 by (i) each director and nominee for director, (ii) each of
the executive officers named in the "Summary Compensation Table," and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
OF COMMON STOCK AS PERCENT
NAME POSITION OF APRIL 14, 2000 OF CLASS
---- ------------------------------ ----------------------- --------
<S> <C> <C> <C>
Donald Jonas......................... Chairman of the Board and
Chief Executive Officer 4,136,316(1) 25.8%
Norman Matthews...................... Director 147,102(2) (12)
John Wolff........................... Director 64,800(3)(4) (12)
Bernard D. Fischman.................. Director 59,000(5) (12)
Stephen T. Westerfield............... Director 37,000(6) (12)
Robert Knox.......................... Director 24,688(3) (12)
Martin S. Begun...................... Director 7,300(3) (12)
Roberta S. Maneker................... Director 6,800(3) (12)
Charles A. Davis..................... Director 5,200(3) (12)
Anthony E. Malkin.................... Director 0
David K. Cully....................... President, Chief Operating
Officer and Director 0
James J. Sheppard.................... Former Senior Vice President
and Chief Financial Officer 25,586(7) (12)
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
OF COMMON STOCK AS PERCENT
NAME POSITION OF APRIL 14, 2000 OF CLASS
---- ------------------------------ ----------------------- --------
<S> <C> <C> <C>
William R. Sullivan.................. Senior Vice President -- Real
Estate 18,000(8) (12)
Robert A. Roche...................... Senior Vice
President -- General
Merchandise Manager Off-Price
Home Business 20,000(9) (12)
Dennis Hickey........................ Senior Vice
President -- Stores 87,857(10) (12)
James A. Shea........................ Former President 5,281 (12)
All directors and executive officers
of the Company as a group (18
persons)........................... 4,709,020(11) 29.3%
</TABLE>
---------------
(1) Information concerning Mr. Jonas' ownership of Common Stock is set forth
under "Principal Shareholders."
(2) Includes 137,102 shares of Common Stock issuable pursuant to options
exercisable currently or within 60 days after April 14, 2000.
(3) Includes 4,800 shares of Common Stock issuable pursuant to options
exercisable currently or within 60 days after April 14, 2000.
(4) Includes 60,000 shares of Common Stock held of record by CEW Partners, the
general partner of which is Basil Venture Partners, of which Mr. Wolff is a
partner. Mr. Wolff disclaims beneficial ownership of such shares.
(5) Includes 800 shares of Common Stock issuable pursuant to options
exercisable currently or within 60 days after April 14, 2000.
(6) Includes 17,000 shares of Common Stock issuable pursuant to options
exercisable currently or within 60 days after April 14, 2000.
(7) Includes 21,600 shares of Common Stock issuable pursuant to options
exercisable currently or within 60 days after April 14, 2000.
(8) Includes 8,000 shares of Common Stock issuable pursuant to options
exercisable currently or within 60 days after April 14, 2000.
(9) Consists of 20,000 shares of Common Stock issuable pursuant to options
exercisable currently or within 60 days after April 14, 2000.
(10) Includes 81,000 shares of Common Stock issuable pursuant to options
exercisable currently or within 60 days after April 14, 2000.
(11) Includes 372,502 shares of Common Stock issuable pursuant to options
exercisable currently or within 60 days after April 14, 2000.
(12) The percentage of shares beneficially owned does not exceed one percent of
the outstanding shares on April 14, 2000.
Except as noted in the footnotes above, the Company believes the beneficial
holders listed above have sole voting and investment power regarding the shares
shown as being beneficially owned by them.
DIRECTOR COMPENSATION AND ATTENDANCE
Directors who are not officers of, consultants to or attorneys for the
Company receive directors' fees of $1,000 per meeting, plus an annual fee of
$10,000.
Pursuant to consulting arrangements between the Company and Norman Matthews
and Stephen Westerfield, Messrs. Matthews and Westerfield, received $41,667 and
$17,000, respectively, in the fiscal year ended January 29, 2000.
6
<PAGE> 9
The Board of Directors held five meetings during the fiscal year ended
January 29, 2000. During such fiscal year, none of the directors attended fewer
than 75% of the aggregate of (i) the total number of meetings of the Board of
Directors and (ii) the total number of meetings held by all committees of the
Board on which such director served.
BOARD COMMITTEES AND MEMBERSHIP
The Company has an Executive Committee consisting of Charles A. Davis,
Donald Jonas, Robert Knox and John Wolff, which is empowered to exercise all
powers of the Board of Directors in the management of the affairs of the Company
with certain exceptions. The Executive Committee held two meetings during the
fiscal year ended January 29, 2000.
The Company has an Audit Committee, consisting of Martin S. Begun, Robert
Knox and John Wolff, which reviews the scope and results of the independent
accountants' examination and related fees, the internal audit activity of the
Company and other pertinent auditing and internal control matters. The Audit
Committee held three meetings during the fiscal year ended January 29, 2000.
The Company has a Compensation Committee, consisting of Martin S. Begun,
Bernard D. Fischman and Roberta S. Maneker, which reviews all matters relating
to the compensation of executive officers of the Company. The Compensation
Committee held no formal meetings during the fiscal year ended January 29, 2000
and acted by written consent on all occasions.
The Company does not have a Nominating Committee.
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following table contains information about the compensation paid by the
Company for services rendered in all capacities during the last three fiscal
years to the Chief Executive Officer of the Company and each of the four most
highly paid executive officers of the Company who were such at fiscal year end
and one former executive officer of the Company (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- -----------------------
AWARDS PAYOUTS
---------- ----------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND YEAR SALARY BONUS COMPENSATION OPTIONS LTIP COMPENSATION
PRINCIPAL POSITION ENDED ($) ($) ($) (#) PAYOUTS($) ($)
------------------ ------- ------- ------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald Jonas.................. 1/29/00 60,000 -- 3,448(1) -- -- 164,625(2)(3)(4)
Chairman of the Board 1/30/99 60,000 -- 14,015(1) -- -- 162,383(2)(3)(4)
and Chief Executive Officer 1/31/98 60,000 -- 21,250(1) -- -- 163,159(2)(3)(4)
James A. Shea(5).............. 1/29/00 300,352 10,000 10,999(6) -- -- 1,414(2)(3)
Former President 1/30/99 318,251 -- 10,999(6) -- -- 56,206(2)(3)(7)
1/31/98 308,954 12,500 10,999(6) 100,000 -- 2,541(2)(3)
William R. Sullivan(8)........ 1/29/00 259,807 10,000 10,999(6) -- -- 944(2)
Senior Vice President 1/30/99 225,961 -- 9,166(6) 20,000 -- 1,656(2)
Real Estate 1/31/98 -- -- -- -- -- --
Dennis Hickey................. 1/29/00 237,351 10,000 10,999(6) -- -- 3,146(2)(3)
Senior Vice President -- 1/30/99 228,262 -- 10,999(6) -- -- 2,566(2)(3)
Stores 1/31/98 221,594 12,500 10,999(6) 50,000 -- 1,371(2)(3)
James Sheppard(9)............. 1/29/00 224,231 10,000 10,082(6) -- -- 1,431(2)(3)
Former Senior Vice President 1/30/99 172,835 3,500 6,416(6) 20,000 -- 1,396(2)(3)
and Chief Financial 1/31/98 140,808 10,625 -- 5,000 -- --
Officer
Robert Roche(10).............. 1/29/00 200,400 20,000 -- 50,000 -- 615(2)
Senior Vice President -- 1/30/99 186,451 20,000 -- 20,000 -- 49,338(2)(11)
General Merchandise 1/31/98 103,846 -- -- 30,000 -- 48,858(11)
Manager Off Price Home
Business
</TABLE>
---------------
(1) Represents the cost to the Company of providing Mr. Jonas with
transportation services.
(2) Includes insurance premiums paid by the Company with respect to term life
insurance and long term liability insurance for each of the named executive
officers.
(3) Includes matching contributions under the Company's 401(k) plan of $793 for
Mr. Jonas, $726 for Mr. Shea, $2,509 for Mr. Hickey and $1,064 for Mr.
Sheppard for the year ended January 29, 2000. Includes matching
contributions under the Company's 401(k) plan of $317 for Mr. Jonas, $471
for Mr. Shea, $910 for Mr. Hickey and $864 for Mr. Sheppard for the year
ended January 30, 1999. Includes matching contributions under the Company's
401(k) plan of $1,103 for Mr. Jonas, $2,307 for Mr. Shea and $867 for Mr.
Hickey for the year ended January 31, 1998.
(4) Includes insurance premiums in the amount of $161,552 paid by the Company
with respect to split-dollar life insurance policies for the benefit of Mr.
Jonas on the lives of Mr. Jonas and his wife. Mr. Jonas' designee is the
owner of the policies and the owner has the right to designate the
beneficiary thereunder. In the event of the death of Mr. Jonas or his wife,
the beneficiary receives the death benefit and in the event of the policy
cancellation, the owner receives the cash surrender value. However, both
the death benefit and the cash surrender value are subject to the right of
the Company to receive a sum equal to the aggregate premium cost incurred
by the Company for the maintenance of the policies.
(5) Mr. Shea resigned as President of the Company in December 1999.
(6) Represents automobile allowances paid by the Company to each of the named
executive officers.
(7) Includes $54,079 in forgiveness of a loan as provided in Mr. Shea's
employment agreement.
8
<PAGE> 11
(8) Mr. Sullivan joined the Company in March 1998.
(9) Mr. Sheppard resigned as Senior Vice President and Chief Financial Officer
and left the Company in March 2000.
(10) Mr. Roche joined the Company in May 1997 as Vice President and General
Merchandise Manager of Famous Brands Housewares Outlet (R) and was elected
Senior Vice President and General Merchandise Manager-Off-Price Home
Business in January 2000.
(11) Includes living expenses paid to Mr. Roche.
STOCK OPTIONS
The following table sets forth information with respect to stock options
granted to the Named Executive Officers during fiscal year 1999:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------
% OF TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS/ VALUE AT ASSUMED
SECURITIES SARS ANNUAL RATES OF
UNDERLYING GRANTED STOCK PRICE
OPTIONS/ TO EXERCISE APPRECIATION FOR
SARS EMPLOYEES OR BASE OPTION TERM(1)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Donald Jonas............... -- -- -- -- -- --
James Shea................. -- -- -- -- -- --
William R. Sullivan........ -- -- -- -- -- --
Dennis Hickey.............. -- -- -- -- -- --
James J. Sheppard.......... -- -- -- -- -- --
Robert A. Roche............ 50,000 8.6% $1.64 11/16/2009 51,575 130,680
</TABLE>
---------------
(1) The values are hypothetical values using assumed compound growth rates
prescribed by the Securities and Exchange Commission and are not intended to
forecast possible future appreciation, if any, in the market price of the
Company's Common Stock.
Options granted under the Company's 1998 Long-Term Incentive Plan are
granted at market value on the date of grant and are exercisable at a rate of
20% per year over a five-year period commencing with the date of grant.
9
<PAGE> 12
No options were exercised during the Company's last fiscal year by any
named executive officer. The following table sets forth information as to the
number of unexercised shares of common stock underlying stock options and the
value of the unexercised in-the-money stock options at fiscal year end:
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald Jonas............ -- -- -- -- -- --
James Shea.............. -- -- 47,000(1) -- -- --
William R. Sullivan..... -- -- 4,000 16,000 -- --
Dennis Hickey........... -- -- 81,000 44,000 -- --
James J. Sheppard....... -- -- 21,600 22,900(1) -- --
Robert A. Roche......... -- -- 16,000 84,000 -- --
</TABLE>
---------------
(1) Expired in March 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Fischman is Of Counsel to the law firm of LeBoeuf, Lamb, Greene &
MacRae, L.L.P., which has provided legal services to the Company.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company's consulting agreement with Mr. Jonas is discussed under
"Report of the Compensation Committee on Executive Compensation."
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The principal objectives of the Company's compensation program are to
attract and retain qualified executives and to provide incentives for such
executives to enhance the profitability and growth of the Company and thus
enhance shareholder value.
During the fiscal year ended January 29, 2000, the Company's executive
compensation program was administered by the Compensation Committee. The
executive compensation program consists principally of base salaries and
long-term incentives.
The following describes components of the Company's executive compensation
program and the related factors considered by the Compensation Committee in
determining compensation:
Base Salaries. Base salaries are determined after evaluating a number
of factors, including local market conditions, job performance and amounts paid
to executives with comparable experience, qualifications and responsibilities at
other retailers. No formal weighting is given to these factors and determination
of the increase is entirely within the discretion of each member of the
Compensation Committee. Compensation payable to certain employees is deferred
(as described below), lowering the base salaries currently payable to such
employees.
Bonuses. Based upon recommendations of the Compensation Committee, the
Company provides to certain executive officers bonuses based on their
performance and the performance of the Company.
Other Compensation. In order to lower the base salaries currently
payable to certain employees, thereby conserving the Company's working capital,
the Company entered into deferred compensation agreements with certain employees
whereby compensation is deferred until termination of employment with
10
<PAGE> 13
the Company. The deferred compensation agreements provide, in part, that if the
employee has attained the age of 56 or older on the date of his termination of
employment, the Company will pay to the employee certain compensation for a
period of 10 years. The annual amount payable by the Company increases 10% for
each year of service after age 56 with the maximum amount payable if the
employee retires at age 65 or older. Certain of the deferred compensation
agreements require that the individual provide advisory services to the Company
and refrain from substantial competition with the Company during this 10 year
period after retirement. The Company believes that deferred compensation
agreements such as these encourage employees of the Company to remain employed
by or associated with the Company. The Company maintains life insurance coverage
for each eligible executive so that upon the death of such executive, the
Company will recover from the insurance proceeds a portion of the aggregate
benefits payable under each agreement.
Long-Term Incentive Compensation. The Company's long-term incentive
compensation program consists principally of stock options which generally vest
over a number of years. Options were granted during 1999 to Mr. Roche in
connection with his promotion to Senior Vice President and General Merchandise
Manager- Off-Price Home Business in January 2000 and to Mr. Cully upon his
joining the Company as President. The number of shares of Common Stock subject
to an executive's stock option grant is determined with reference to the
responsibility and experience of the executive and competitive conditions. By
aligning the financial interests of the Company's executives with those of the
Company's shareholders, these equity awards are intended to be directly related
to the creation of value for shareholders of the Company. The deferred vesting
provisions are designed to create an incentive for the individual executive to
remain with the Company.
Benefits. The Company offers basic benefits, such as medical, life and
disability insurance comparable to those provided by other similar companies.
Chief Executive Officer. The relatively low compensation paid to Donald
Jonas, the Chief Executive Officer of the Company, during the fiscal year ended
January 29, 2000, in comparison to compensation paid to chief executive officers
of other comparable retailers, results from such officer's request that he not
receive higher compensation. Mr. Jonas and the Compensation Committee believe
that, since Mr. Jonas is the largest single shareholder of the Company, his
interests and those of the other shareholders are aligned, and therefore Mr.
Jonas has sufficient incentive to want to maximize shareholder value. In
addition, Mr. Jonas is a party to a consulting agreement with the Company which
provides that, upon retirement at age 65 or older, Mr. Jonas will, for a period
of 10 years, be annually paid $100,000 and be provided with (or be paid the cash
equivalent of) certain services including a secretary, office, driver and car,
in return for his providing certain advisory services to the Company and
refraining from direct or indirect employment in substantial competition with
the Company. During the fiscal year ended January 29, 2000, no payment was made
under such consulting agreement. The Company maintains life insurance coverage
for Mr. Jonas to fund a portion of the aggregate benefits payable under such
consulting agreement and maintains split-dollar life insurance policies for the
lives of Mr. Jonas and his wife.
SUBMITTED BY THE COMPENSATION COMMITTEE:
Martin S. Begun Bernard D. Fischman Roberta S. Maneker
11
<PAGE> 14
PERFORMANCE GRAPH
The following graph illustrates, for the period from January 29, 1995
through January 29, 2000, the cumulative total shareholder return (including
reinvestment of dividends) of $100 invested in (i) the Common Stock, (ii) the
Total Return Index for the NASDAQ Stock Market (U.S. companies) and (iii) the
Total Return Industry Index for NASDAQ Retail Trade Stocks.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FOR THE FIVE YEARS ENDED JANUARY 29, 2000
<TABLE>
<CAPTION>
THE NASDAQ STOCK NASDAQ RETAIL TRADE
LECHTERS, INC. MARKET (US) STOCKS
-------------- ---------------- -------------------
<S> <C> <C> <C>
1995 100.00 100.00 100.00
1996 31.27 141.30 112.99
1997 22.91 185.26 138.98
1998 29.45 218.67 162.16
1999 15.27 342.05 198.28
2000 9.09 524.67 165.42
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A subsidiary of the Company operates four stores in buildings which are
managed by a company with which Mr. Malkin is affiliated and in which Mr.
Malkin's father has an interest. The Company paid an aggregate of $1,491,512
under these leases during the fiscal year ended January 29, 2000. The Company
believes these leases are on similar terms to those contained in leases it has
entered into for similar facilities leased from unaffiliated third parties.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
executive officers and directors, and persons who beneficially own more than 10%
of the Company's Common Stock, to file initial reports of ownership, and reports
of changes of ownership, of the Company's equity securities with the Securities
and Exchange Commission and furnish copies of those reports to the Company.
Based solely on a review of the copies of the reports furnished to the Company
to date and written representations that no reports were required, the Company
believes that, except for one late filing by Mr. William Sullivan covering his
purchase of 10,000 shares of the Company's Common Stock, all reports required to
be filed by such persons with respect to the Company's fiscal year ended January
29, 2000 were timely filed.
12
<PAGE> 15
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF AUDITORS
The firm of Deloitte & Touche LLP, independent auditors, has audited the
financial statements of the Company since 1975 and the Board of Directors
desires to continue the services of this firm for the current fiscal year.
Accordingly, the Board of Directors recommends that the shareholders ratify the
appointment by the Board of Directors of the firm of Deloitte & Touche LLP to
audit the financial statements of the Company for the current fiscal year.
Representatives of Deloitte & Touche LLP are expected to be available at
the Annual Meeting of Shareholders to respond to appropriate questions and will
be given the opportunity to make a statement if they desire to do so.
PROPOSAL 3
RATIFICATION OF AN AMENDMENT TO THE 1998 LONG-TERM INCENTIVE PLAN
On April 18, 2000, the Board of Directors adopted, subject to shareholder
approval at the Annual Meeting of Shareholders, an amendment to the 1998
Long-Term Incentive Plan (the "Plan") which increased the number of shares
available for issuance under the Plan from 1,000,000 to 2,500,000. The Plan, as
originally adopted, authorized the grant of awards covering a maximum of
1,000,000 shares of the Company's Common Stock. As of May 10, 2000, no options
had been exercised under the Plan, while options to purchase an aggregate of
979,400 shares were outstanding under the Plan (leaving only 40,600 shares
available for the grant of future awards, together with any shares that may
become available in the event of the expiration, cancellation or termination of
outstanding options). The purpose of the amendment is to provide for additional
available shares for grants of awards under the Plan so as to afford additional
incentives to key employees.
The following is a summary of the material features of the Plan and is
qualified in its entirety by reference to the Plan, a copy of which is attached
to this Proxy Statement as Exhibit A.
PURPOSE OF THE PLAN
The purpose of the Plan is to promote the success and enhance the value of
the Company by linking the personal interests of participants to those of the
Company's shareholders and customers. The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract and retain the
services of the participants upon whose judgment, interest and special effort
the successful conduct of its operations is largely dependent.
DURATION
The Plan shall remain in effect, subject to the right of the Board of
Directors to terminate the Plan at any time, until all shares subject to the
Plan shall have been purchased or acquired.
AMENDMENTS
The Board may, at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part.
ADMINISTRATION OF THE PLAN
The Plan is administered by a committee of the Board consisting of Martin
S. Begun, Bernard D. Fischman and Roberta S. Maneker (the "Committee").
SHARES SUBJECT TO THE PLAN
The Plan, as amended subject to shareholder approval, authorizes the grant
of up to 2,500,000 shares of Common Stock of the Company. Shares underlying
awards that lapse or are forfeited or awards that are not
13
<PAGE> 16
paid in shares may be reused for subsequent awards. Only the number of shares
issued net of shares tendered for exercise shall be deemed issued under the
Plan. Shares may be authorized but unissued shares of common stock, treasury
shares or shares purchased on the open market. The market value of the Company's
common stock as of May 10, 2000 was $1.625 per share.
If any corporate transaction occurs that causes a change in the
capitalization of the Company, the Committee shall make such adjustments to the
outstanding awards and the shares of stock that may be delivered under the Plan
as it deems appropriate and equitable to prevent dilution or enlargement of
rights.
ELIGIBILITY AND PARTICIPATION
Persons eligible to participate in the Plan include all officers, key
employees and directors of the Company and its subsidiaries, consultants and
advisors to the Company and its subsidiaries and other persons or entities
providing goods or services to the Company and its subsidiaries, in each case as
determined by the Committee. It is estimated that approximately 1,000 persons
are eligible to participate under the Plan.
The grant of options is within the discretion of the Committee.
Accordingly, the Company is unable to determine future options, if any, that may
be granted to the persons or groups to which the following table pertains. Set
forth in the table below is information as to the number of shares as to which
options have been granted under the Plan to the Named Executive Officers, to all
current executive officers as a group, to all current directors, who are not
executive officers, as a group and to all current employees, including all
current officers who are not executive officers, as a group.
<TABLE>
<CAPTION>
NUMBER OF
NAME(1) OPTIONS
------- ---------
<S> <C>
Robert A. Roche............................................. 50,000
Dennis Hickey............................................... 20,000
William R. Sullivan......................................... 20,000
James J. Sheppard........................................... 20,000
All current executive officers as a group (including the
foregoing)................................................ 480,000(2)
All current directors who are not executive officers as a
group..................................................... 0
All current employees, including all current officers who
are not executive officers, as a group.................... 479,400
</TABLE>
---------------
(1) See "Executive Compensation -- Summary Compensation Table" for information
as to the positions held by the named persons.
(2) Includes an option to purchase 350,000 shares granted to David K. Cully upon
his joining the Company as President.
GRANTS UNDER THE PLAN
The Plan permits the grant of Nonqualified Stock Options ("NQSOs"),
Incentive Stock Options ("ISOs"), Stock Appreciation Rights ("SARs"), Restricted
Stock, Restricted Stock Units, Performance Units, Performance Shares and other
awards.
CHANGE IN CONTROL
Upon a change in control, as defined under the Plan,
(a) Any and all options and SARs granted under the Plan shall become
immediately exercisable;
(b) Restricted Stock shall become immediately vested in full, and
Restricted Stock Units shall be paid out in cash; and
(c) The target payout opportunity attainable under all outstanding awards
of Performance Units and Performance Shares shall be deemed to have been fully
earned for the entire performance period (s); Performance Shares shall be paid
out in shares and Performance Units in cash.
14
<PAGE> 17
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain material federal income tax
consequences of the grant and exercise of the options under the Plan and the
sale of any underlying security. This description is based on current law which
is subject to change, possibly with retroactive effect. This discussion does not
purport to address all tax considerations relating to the grant and exercise of
the options or resulting from the application of special rules to a particular
optionee (including an optionee subject to the reporting and short-swing profit
provisions under Section 16 of the Securities Exchange Act of 1934, as amended),
and state, local, foreign and other tax consequences inherent in the ownership
and exercise of stock options and the ownership and disposition of any
underlying security. An optionee should consult with the optionee's own tax
advisors with respect to the tax consequences inherent in the ownership and
exercise of stock options and the ownership and disposition of any underlying
security.
ISOs Exercised With Cash
No taxable income will be recognized by an optionee upon the grant or
exercise of an ISO. The optionee's tax basis in the shares acquired upon the
exercise of an ISO with cash will be equal to the exercise price paid by the
optionee for such shares.
If the shares received upon exercise of an ISO are disposed of more than
one year after the date of transfer of such shares to the optionee and more than
two years from the date of grant of the option, the optionee will recognize
long-term capital gain or loss on such disposition equal to the difference
between the selling price and the optionee's basis in the shares, and the
Company will not be entitled to a deduction. Long-term capital gain is generally
subject to more favorable tax treatment than short-term capital gain or ordinary
income.
If the shares received upon the exercise of an ISO are disposed of prior to
the end of the two-years-from-grant/one-year-after-transfer holding period (a
"disqualifying disposition"), the excess (if any) of the fair market value of
the shares on the date of transfer of such shares to the optionee over the
exercise price (but not in excess of the gain realized on the sale of the
shares) will be taxed as ordinary income in the year of such disposition, and
the Company generally will be entitled to a deduction in the year of disposition
equal to such amount. Any additional gain or any loss recognized by the optionee
on such disposition will be short-term or long-term capital gain or loss, as the
case may be, depending upon the period for which the shares were held.
NQSOs Exercised With Cash
No taxable income will be recognized by an optionee upon the grant of an
NQSO. Upon the exercise of an NQSO, the excess of the fair market value of the
shares received at the time of exercise over the exercise price therefor will be
taxed as ordinary income, and the Company will generally be entitled to a
corresponding deduction. The optionee's tax basis in the shares acquired upon
the exercise of such NQSO will be equal to the exercise price paid by the
optionee for such shares plus the amount of ordinary income so recognized.
Any gain or loss recognized by the optionee on a subsequent disposition of
shares purchased pursuant to an NQSO will be short-term or long-term capital
gain or loss, depending upon the period during which such shares were held, in
an amount equal to the difference between the selling price and the optionee's
tax basis in the shares.
Exercises of Options Using Previously Acquired Shares or by the Company's
Withholding Shares
If previously acquired shares are surrendered in full or partial payment of
the exercise price of an option (whether an ISO or a NQSO), gain or loss
generally will not be recognized by the optionee upon the exercise of such
option to the extent the optionee receives shares which on the date of exercise
have a fair market value equal to the fair market value of the shares
surrendered in exchange therefor ("Replacement Shares"). If the option exercised
is an ISO or if the shares used were acquired pursuant to the exercise of an
ISO, the Replacement Shares are treated as having been acquired pursuant to the
exercise of an ISO.
15
<PAGE> 18
However, if an ISO is exercised with shares which were previously acquired
pursuant to the exercise of an ISO but which were not held for the required
two-years-from-grant/one-year-after-transfer holding period, there is a
disqualifying disposition of such previously acquired shares. In such case, the
optionee would recognize ordinary income on such disqualifying disposition equal
to the difference between the fair market value of such shares on the date of
exercise of the prior ISO and the amount paid for such shares (but not in excess
of the gain realized). Special rules apply in determining which shares are
considered to have been disposed of and in allocating the basis among the
shares. No capital gain is recognized.
The optionee will have an aggregate basis in the Replacement Shares equal
to the basis of the shares surrendered, increased by any ordinary income
required to be recognized on the disposition of the previously acquired shares.
The optionee's holding period for the Replacement Shares generally includes the
period during which the surrendered shares were held.
Any shares received by the optionee on such exercise in addition to the
Replacement Shares will be treated in the same manner as a cash exercise of an
option for no consideration.
To the extent that an ISO is exercised by the Company's withholding shares,
such exercise will result in a disqualifying disposition of the underlying
shares and the excess (if any) of the fair market value of the shares on the
date of transfer of such shares to the optionee over the exercise price (but not
in excess of the gain realized on the sale of the shares) will be taxed as
ordinary income in the year of such disposition, and the Company generally will
be entitled to a deduction in the year of exercise equal to such amount. The
exercise of a NQSO by the Company's withholding of shares will have the same
federal tax consequences as the exercise of a NQSO with cash.
Alternative Minimum Tax
In addition to the federal income tax consequences described above, an
optionee who exercises an ISO may be subject to the alternative minimum tax,
which is payable only to the extent it exceeds the optionee's regular tax
liability. For this purpose, upon the exercise of an ISO, the excess of the fair
market value of the shares over the exercise price is an adjustment which
increases the optionee's alternative minimum taxable income. In addition, the
optionee's basis in such shares is increased by such amount for purposes of
computing the gain or loss on disposition of the shares for alternative minimum
tax purposes. If the optionee is required to pay an alternative minimum tax, the
amount of such tax which is attributable to deferral preferences (including the
ISO adjustment) is allowable as a tax credit against the optionee's regular tax
liability (net of other non-refundable credits) in subsequent years. To the
extent the credit is not used, it is carried forward. An optionee holding an ISO
should consult with the optionee's tax advisors concerning the applicability and
effect of the alternative minimum tax.
OTHER TAX CONSEQUENCES
The foregoing discussion is not a complete description of the federal
income tax aspects of ISOs and NQSOs under the Plan. In addition, administrative
and judicial interpretations of the application of the federal income tax laws
are subject to change. Furthermore, the foregoing discussion does not address
state or local tax consequences.
REQUIRED VOTE
Approval of the amendment requires the affirmative vote of the holders of a
majority of the shares of Common Stock present, in person or by proxy, at the
Annual Meeting of Shareholders and entitled to vote on this proposal. If the
amendment to the Plan is not approved by the shareholders, the amendment will
not be made. The Board of Directors recommends a vote "FOR" the amendment to the
Plan.
16
<PAGE> 19
SUBMISSION OF SHAREHOLDER PROPOSALS
Rule 14a-4 of the Securities and Exchange Commission's proxy rules allows
the Company to use discretionary voting authority to vote on matters coming
before an annual meeting of shareholders if the Company does not have notice of
the matter at least 45 days before the date corresponding to the date on which
the Company first mailed its proxy materials for the prior year's annual meeting
of shareholders or the date specified by an overriding advance notice provision
in the Company's Bylaws. The Company's Bylaws do not contain such an advance
notice provision. For the Company's 2001 Annual Meeting of Shareholders,
shareholders must submit such written notice to the Secretary of the Company on
or before April 15, 2001.
Shareholders of the Company wishing to include proposals in the proxy
material for the 2001 Annual Meeting of Shareholders must submit the same in
writing so as to be received by the Secretary of the Company on or before
January 31, 2001. Such proposals must also meet the other requirements of the
rules of the Securities and Exchange Commission relating to shareholder
proposals.
THE COMPANY WILL PROVIDE ANY SHAREHOLDER OF RECORD AT THE CLOSE OF BUSINESS
ON APRIL 28, 2000, WITHOUT CHARGE, UPON WRITTEN REQUEST TO ITS SECRETARY AT 1
CAPE MAY STREET, HARRISON, NEW JERSEY 07029, A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 29, 2000.
By Order of the Board of Directors,
SHEON KAROL,
Secretary
May 30, 2000
17
<PAGE> 20
EXHIBIT A
LECHTERS, INC.
1998 LONG-TERM INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 Establishment of the Plan. Lechters, Inc., a New Jersey corporation
(hereinafter referred to as the "Company"), hereby establishes an incentive
compensation plan to be known as the "Lechters, Inc. 1998 Long-Term Incentive
Plan" (hereinafter referred to as the "Plan"), as set forth in this document.
The Plan permits the grant of Nonqualified Stock Options (NQSO), Incentive Stock
Options (ISO), Stock Appreciation Rights (SAR), Restricted Stock, Restricted
Stock Units, Performance Units, Performance Shares and other awards.
The Plan shall become effective when approved by the shareholders at the
Annual Meeting on June 18, 1998 (the "Effective Date"), and shall remain in
effect as provided in Section 1.3 herein.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the
success and enhance the value of the Company by linking the personal interests
of Participants to those of Company shareholders and customers.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract and retain the services of Participants upon whose
judgment, interest and special effort the successful conduct of its operations
is largely dependent.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date,
as described in Section 1.1 herein, and shall remain in effect, subject to the
right of the Board of Directors to terminate the Plan at any time pursuant to
Article 15 herein, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when such meaning is intended, the initial letter of the word
is capitalized:
2.1 "Award" means, individually or collectively, a grant under the Plan of
NQSOs, ISOs, SARs, Restricted Stock, Restricted Stock Units, Performance Units,
Performance Shares or any other type of award permitted under Article 10 of the
Plan.
2.2 "Award Agreement" means an agreement entered into by each Participant
and the Company, setting forth the terms and provisions applicable to an Award
granted to a Participant under the Plan.
2.3 "Base Value" of an SAR shall have the meaning set forth in Section 7.1
herein.
2.4 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.5 "Change in Control" means the earliest of the following to occur: (a)
the acquisition by any Person of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined
voting power of the then outstanding securities of the Company entitled to vote
generally in the election of directors ("Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company or any subsidiary thereof, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or
(iv) any acquisition by any corporation pursuant to a transaction described in
clauses (i), (ii) and (iii) of paragraph (c) below; or (b) individuals who, as
of January 1, 1998, constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however that
any individual becoming a director subsequent to January 1, 1998, whose election
or nomination for election by the Company's shareholders was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board; or (c) the effective date of a reorganization, merger or consolidation of
the Company (a
A-1
<PAGE> 21
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 80% of the combined voting power of the then outstanding
securities entitled to vote generally in the election of directors of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Company
through one or more subsidiaries) in substantially the same proportion as their
ownership, immediately prior to such Business Combination, of the Outstanding
Company Voting Securities, (ii) no Person (excluding any employee benefit plan
(or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or (d) the effective date of (i) a complete liquidation or
dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition (A) 80% of the
combined voting power of the then outstanding securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Voting Securities immediately prior to such sale or other disposition,
in substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Voting Securities,
(B) less than 20% of the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by any Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation), except to the extent that such Person owned 20% or more of the
Outstanding Company Voting Securities prior to the sale or disposition and (C)
at least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such sale or other
disposition of assets of the Company or were elected, appointed or nominated by
the Board.
2.6 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.7 "Committee" means the committee, as specified in Article 3, appointed
by the Board to administer the Plan with respect to Awards.
2.8 "Company" means Lechters, Inc., a New Jersey corporation, or any
successor thereto as provided in Article 17 herein.
2.9 "Director" means any individual who is a member of the Board of
Directors of the Company.
2.10 "Dividend Equivalent" means, with respect to Shares subject to an
Award, a right to be paid an amount equal to dividends declared on an equal
number of outstanding Shares.
2.11 "Eligible Person" means a Person who is eligible to participate in
the Plan, as set forth in Section 5.1 herein.
2.12 "Employee" means any full-time or regularly-scheduled part-time
employee of the Company or of the Company's Subsidiaries, who is not covered by
any collective bargaining agreement to which the Company or any of its
Subsidiaries is a party. For purposes of the Plan, transfer of employment of a
Participant between the Company and any one of its Subsidiaries (or between
Subsidiaries) shall not be deemed a termination of employment.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.14 "Exercise Period" means the period during which an SAR or Option is
exercisable, as set forth in the related Award Agreement.
A-2
<PAGE> 22
2.15 "Fair Market Value" of the Company's common stock on a Trading Day
shall mean the last reported sale price for common stock or, in case no such
reported sale takes place on such Trading Day, the average of the closing bid
and asked prices for the common stock for such Trading Day, in either case on
the principal national securities exchange on which the common stock is listed
or admitted to trading, or if the common stock is not listed or admitted to
trading on any national securities exchange, but is traded in the
over-the-counter market, the closing sale price of the common stock or, if no
sale is publicly reported, the average of the closing bid and asked quotations
for the common stock, as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or any comparable system or, if
the common stock is not listed on NASDAQ or a comparable system, the closing
sale price of the common stock or, if no sale is publicly reported, the average
of the closing bid and asked prices, as furnished by two members of the National
Association of Securities Dealers, Inc. who make a market in the common stock
selected from time to time by the Company for that purpose. In addition, for
purposes of this definition, a "Trading Day" shall mean, if the common stock is
listed on any national securities exchange, a business day during which such
exchange was open for trading and at least one trade of common stock was
effected on such exchange on such business day, or, if the common stock is not
listed on any national securities exchange but is traded in the over-the-counter
market, a business day during which the over-the-counter market was open for
trading and at least one "eligible dealer" quoted both a bid and asked price for
the common stock. An "eligible dealer" for any day shall include any
broker-dealer who quoted both a bid and asked price for such day, but shall not
include any broker-dealer who quoted only a bid or only an asked price for such
day. In the event the Company's common stock is not publicly traded, the Fair
Market Value of such common stock shall be determined by the Committee in good
faith.
2.16 "Freestanding SAR" means an SAR that is granted independently of any
Option.
2.17 "Incentive Stock Option" or "ISO" means an option to purchase Shares,
granted under Article 6 herein, which is designated as an Incentive Stock Option
and satisfies the requirements of Section 422 of the Code.
2.18 "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares, granted under Article 6 herein, which is not intended to be an Incentive
Stock Option under Section 422 of the Code.
2.19 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.20 "Option Exercise Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as determined by the Committee
and set forth in the Option Award Agreement.
2.21 "Participant" means an Eligible Person who has outstanding an Award
granted under the Plan.
2.22 "Performance Period" means the time period during which Performance
Unit/Performance Shares performance goals must be met.
2.23 "Performance Share" means an Award described in Article 9 herein.
2.24 "Performance Unit" means an Award described in Article 9 herein.
2.25 "Period of Restriction" means the period during which the transfer of
Restricted Stock is limited in some way, as provided in Article 8 herein.
2.26 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act, as used in Sections 13(d) and 14(d) thereof,
including usage in the definition of a "group" in Section 13(d) thereof.
2.27 "Plan" means the Lechters, Inc. 1998 Long-Term Incentive Plan.
2.28 "Restricted Stock" means an Award described in Article 8 herein.
2.29 "Restricted Stock Unit" means an Award described in Article 8 herein.
2.30 "Shares" means the shares of common stock, no par value, of the
Company.
A-3
<PAGE> 23
2.31 "Stock Appreciation Right" or "SAR" means a right, granted alone or
in connection with a related Option, designated as an SAR, to receive a payment
on the day the right is exercised, pursuant to the terms of Article 7 herein.
Each SAR shall be denominated in terms of one Share.
2.32 "Subsidiary" means any corporation that is a "subsidiary corporation"
of the Company as that term is defined in Section 424(f) of the Code.
2.33 "Tandem SAR" means an SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of the right to
purchase a Share under the related Option (and when a Share is purchased under
the Option, the Tandem SAR shall be similarly canceled).
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by a committee (the
"Committee") consisting solely of two or more members of the Board. The members
of the Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board of Directors.
3.2 Authority of the Committee. The Committee shall have full power
except as limited by law, the Articles of Incorporation and the Bylaws of the
Company, subject to such other restricting limitations or directions as may be
imposed by the Board and subject to the provisions herein, to determine the
Eligible Persons to receive Awards; to determine the size and types of Awards;
to determine the terms and conditions of such Awards; to construe and interpret
the Plan and any agreement or instrument entered into under the Plan; to
establish, amend or waive rules and regulations for the Plan's administration;
and (subject to the provisions of Article 15 herein) to amend the terms and
conditions of any outstanding Award. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan. As permitted by law, the Committee may delegate its authorities as
identified hereunder.
3.3 Restrictions on Distribution of Shares and Share
Transferability. Notwithstanding any other provision of the Plan, the Company
shall have no liability to deliver any Shares or benefits under the Plan unless
such delivery would comply with all applicable laws (including, without
limitation, the Securities Act of 1933) and applicable requirements of any
securities exchange or similar entity and unless the Participant's tax
obligations have been satisfied as set forth in Article 16. The Committee may
impose such restrictions on any Shares acquired pursuant to Awards under the
Plan as it may deem advisable, including, without limitation, restrictions to
comply with applicable Federal securities laws, with the requirements of any
stock exchange or market upon which such Shares are then listed and/or traded
and with any blue sky or state securities laws applicable to such Shares.
3.4 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its shareholders, Eligible Persons, Employees,
Participants and their estates and beneficiaries.
3.5 Costs. The Company shall pay all costs of administration of the Plan.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to Section 4.2 herein, the maximum number
of Shares available for grant under the Plan shall be two million, five hundred
thousand (2,500,000). Shares underlying lapsed or forfeited Awards, or Awards
that are not paid in Shares, may be reused for other Awards; if the Option
Exercise Price is satisfied by tendering Shares, only the number of Shares
issued net of the Shares tendered shall be deemed issued under the Plan. The
maximum number of shares that may be issued for Options shall be two million,
five hundred thousand (2,500,000) Shares. Shares granted pursuant to the Plan
may be (i) authorized but unissued Shares of Common Stock, (ii) Treasury Shares
or (iii) Shares purchased on the open market.
4.2 Adjustments in Authorized Shares and Awards. In the event of any
merger, reorganization, consolidation, recapitalization, liquidation, stock
dividend, split-up, spin-off, share combination, share ex-
A-4
<PAGE> 24
change or other change in the corporate structure of the Company affecting the
Awards of the Shares, such adjustment shall be made in the outstanding Awards,
the number and class of Shares which may be delivered under the Plan, and in the
number and class of and/or price of Shares subject to outstanding Awards granted
under the Plan, as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of rights.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Stock Option shall comply with the rules of Section 424(a) of the Code
and (ii) in no event shall any adjustment be made which would render any
Incentive Stock Option granted hereunder to be other than an incentive stock
option for purposes of Section 422 of the Code.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Persons eligible to participate in the Plan ("Eligible
Persons") include all officers, key employees and directors of the Company and
its Subsidiaries, consultants and advisors to the Company and its Subsidiaries
and other persons or entities providing goods or services to the Company and its
Subsidiaries, in each case as determined by the Committee.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all Eligible Persons those to whom
Awards shall be granted.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and conditions of the Plan,
Options may be granted to an Eligible Person at any time and from time to time,
as shall be determined by the Committee.
The Committee shall have complete discretion in determining the number of
Shares subject to Options granted to each Eligible Person (subject to Article 4
herein) and, consistent with the provisions of the Plan, in determining the
terms and conditions pertaining to such Options. The Committee may grant ISOs,
NQSOs or a combination thereof.
6.2 Option Award Agreement. Each Option grant shall be evidenced by an
Option Award Agreement that shall specify the Option Exercise Price, the term of
the Option, the number of Shares to which the Option pertains, the Exercise
Period and such other provisions as the Committee shall determine, including but
not limited to any rights to Dividend Equivalents. The Option Award Agreement
shall also specify whether the Option is intended to be an ISO or a NQSO.
The Option Exercise Price for each Share purchasable under any ISO granted
hereunder shall be such amount as the Committee shall, in its best judgment,
determine to be not less than one hundred percent (100%) of the Fair Market
Value per Share at the date the Option is granted; and provided, further, that
in the case of an ISO granted to a person who, at the time such ISO is granted,
owns shares of stock of the Company or of any Subsidiary which possess more than
ten percent (10%) of the total combined voting power of all classes of shares of
stock of the Company or of any Subsidiary, the Option Exercise Price for each
Share shall be such amount as the Committee, in its best judgment, shall
determine to be not less than one hundred ten percent (110%) of the Fair Market
Value per Share at the date the Option is granted. The Option Exercise Price
will be subject to adjustment in accordance with the provisions of Section 4.2
of the Plan.
No ISO by its terms shall be exercisable after the expiration of ten (10)
years from the date of grant of the Option; provided, however, in the case of an
ISO granted to a person who, at the time such Option is granted, owns shares of
stock of the Company or of any Subsidiary possessing more than ten percent (10%)
of the total combined voting power of all classes of shares of stock of the
Company or of any Subsidiary, such Option shall not be exercisable after the
expiration of five (5) years from the date such Option is granted.
No ISO may be granted after the expiration of ten (10) years from the date
the Plan is adopted, or the date the Plan is approved by the shareholders of the
Company, whichever is earlier.
6.3 Exercise of and Payment for Options. Options granted under the Plan
shall be exercisable at such times and shall be subject to such restrictions and
conditions as the Committee shall in each instance approve.
A-5
<PAGE> 25
A Participant may exercise an Option at any time during the Exercise
Period. Options shall be exercised by the delivery of a written notice of
exercise to the Company, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by provision for full payment
for the Shares.
The Option Exercise Price shall be payable: (a) in cash or its equivalent,
(b) by tendering previously acquired Shares having an aggregate Fair Market
Value at the time of exercise equal to the total Option Exercise Price (provided
that the Shares which are tendered must have been held by the Participant for at
least six (6) months prior to their tender to satisfy the Option Exercise
Price), (c) by broker-assisted cashless exercise or (d) by a combination of (a),
(b) and/or (c).
As soon as practicable after receipt of a written notification of exercise
of an Option and provision for full payment therefor, there shall be delivered
to the Participant, in the Participant's name, Share certificates in an
appropriate amount based upon the number of Shares purchased under the
Option(s).
6.4 Termination. Each Option Award Agreement shall set forth the extent
to which the Participant shall have the right to exercise the Option following
termination of the Participant's employment with, service on the Board of, or
other relationship with the Company and its Subsidiaries. Such provisions shall
be determined in the sole discretion of the Committee (subject to applicable
law), shall be included in the Option Award Agreement entered into with
Participants, need not be uniform among all Options granted pursuant to the Plan
or among Participants and may reflect distinctions based on the reasons for
termination.
6.5 Transferability of Options. Except as otherwise determined by the
Committee, all Options granted to a Participant under the Plan shall be
exercisable during his or her lifetime only by such Participant and no Option
granted under the Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. ISOs are not transferable.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 Grant of SARs. Subject to the terms and conditions of the Plan, an
SAR may be granted to an Eligible Person at any time and from time to time as
shall be determined by the Committee. The Committee may grant Freestanding SARs,
Tandem SARs or any combination of these forms of SARs.
The Committee shall have complete discretion in determining the number of
SARs granted to each Eligible Person (subject to Article 4 herein) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs.
The Base Value of a Freestanding SAR shall equal the Fair Market Value of a
Share on the date of grant of the SAR. The Base Value of Tandem SARs shall equal
the Option Exercise Price of the related Option.
7.2 SAR Award Agreement. Each SAR grant shall be evidenced by an SAR
Award Agreement that shall specify the number of SARs granted, the Base Value,
the term of the SAR, the Exercise Period and such other provisions as the
Committee shall determine.
7.3 Exercise and Payment of SARs. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the right
to exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of the Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Exercise Price of the
underlying ISO and the Fair Market Value of the Shares subject to the underlying
ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be
exercised only when the Fair Market Value of the Shares subject to the ISO
exceeds the Option Exercise Price of the ISO.
Freestanding SARs may be exercised upon whatever terms and conditions the
Committee, in its sole discretion, imposes upon them.
A-6
<PAGE> 26
A Participant may exercise an SAR at any time during the Exercise Period.
SARs shall be exercised by the delivery of a written notice of exercise to the
Company, setting forth the number of SARs being exercised. Upon exercise of an
SAR, a Participant shall be entitled to receive payment from the Company in an
amount equal to the product of:
(a) the excess of (i) the Fair Market Value of a Share on the date of
exercise over (ii) the Base Value multiplied by
(b) the number of Shares with respect to which the SAR is exercised.
At the sole discretion of the Committee, the payment to the Participant
upon SAR exercise may be in cash, in Shares of equivalent value or in some
combination thereof.
7.4 Termination. Each SAR Award Agreement shall set forth the extent to
which the Participant shall have the right to exercise the SAR following
termination of the Participant's employment with, service on the Board of, or
other relationship with the Company and its Subsidiaries. Such provisions shall
be determined in the sole discretion of the Committee, shall be included in the
SAR Award Agreement entered into with Participants, need not be uniform among
all SARs granted pursuant to the Plan or among Participants and may reflect
distinctions based on the reasons for termination.
7.5 Transferability of SARs. Except as otherwise determined by the
Committee, all SARs granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant or his or her legal
representative and no SAR granted under the Plan may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution.
ARTICLE 8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
8.1 Grant of Restricted Stock and Restricted Stock Units. Subject to the
terms and conditions of the Plan, Restricted Stock and/or Restricted Stock Units
may be granted to an Eligible Person at any time and from time to time, as shall
be determined by the Committee.
The Committee shall have complete discretion in determining the number of
shares of Restricted Stock and/or Restricted Stock Units granted to each
Eligible Person (subject to Article 4 herein) and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Awards.
8.2 Restricted Stock/Restricted Stock Unit Award Agreement. Each grant of
Restricted Stock and/or Restricted Stock Units grant shall be evidenced by a
Restricted Stock and/or Restricted Stock Unit Award Agreement that shall specify
the number of shares of Restricted Stock and/or Restricted Stock Units granted,
the initial value (if applicable), the Period or Periods of Restriction, and
such other provisions as the Committee shall determine.
8.3 Transferability. Restricted Stock and Restricted Stock Units granted
hereunder may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the end of the applicable Period of Restriction
established by the Committee and specified in the Award Agreement. All rights
with respect to the Restricted Stock and Restricted Stock Units granted to a
Participant under the Plan shall be available during his or her lifetime only to
such Participant or his or her legal representative.
8.4 Certificate Legend. Each certificate representing Restricted Stock
granted pursuant to the Plan may bear a legend substantially as follows:
"The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary or by operation of law, is
subject to certain restrictions on transfer as set forth in Lechters, Inc.
1998 Incentive Plan and in a Restricted Stock Award Agreement. A copy of
such Plan and such Agreement may be obtained from Lechters, Inc."
The Company shall have the right to retain the certificates representing
Restricted Stock in the Company's possession until such time as all restrictions
applicable to such Shares have been satisfied.
A-7
<PAGE> 27
8.5 Removal of Restrictions. Restricted Stock shall become freely
transferable by the Participant after the last day of the Period of Restriction
applicable thereto. Once Restricted Stock is released from the restrictions, the
Participant shall be entitled to have any legend referred to in Section 8.4
removed from the Participant's stock certificate. Payment of Restricted Stock
Units shall be made after the last date of the period of Restriction applicable
thereto. The Committee, in its sole discretion, may pay Restricted Stock Units
in cash or in shares (or in a combination thereof), which have an aggregate Fair
Market Value equal to the value of the Restricted Stock Units.
8.6 Voting Rights. During the Period of Restriction, Participants holding
Restricted Stock may exercise full voting rights with respect to those Shares.
8.7 Dividends and Other Distributions. Subject to the Committee's right
to determine otherwise at the time of grant, during the Period of Restriction,
Participants holding Restricted Stock shall receive all regular cash dividends
paid with respect to all Shares while they are so held. All other distributions
paid with respect to such Restricted Stock shall be credited to Participants
subject to the same restrictions on transferability and forfeitability as the
Restricted Stock with respect to which they were paid and shall be paid to the
Participant promptly after the full vesting of the Restricted Stock with respect
to which such distributions were made.
Rights, if any, to Dividend Equivalents on Restricted Stock Units shall be
established by the Committee at the time of grant and set forth in the Award
Agreement.
8.8 Termination. Each Restricted Stock/Restricted Stock Unit Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive Restricted Stock and/or a Restricted Stock Unit payment
following termination of the Participant's employment with, service on the Board
of, or other relationship with the Company and its Subsidiaries. Such provisions
shall be determined in the sole discretion of the Committee, shall be included
in the Award Agreement entered into with Participants, need not be uniform among
all grants of Restricted Stock/Restricted Stock Units or among Participants and
may reflect distinctions based on the reasons for termination.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 Grant of Performance Units and Performance Shares. Subject to the
terms and conditions of the Plan, Performance Units and/or Performance Shares
may be granted to an Eligible Person at any time and from time to time, as shall
be determined by the Committee.
The Committee shall have complete discretion in determining the number of
Performance Units and/or Performance Shares granted to each Eligible Person
(subject to Article 4 herein) and, consistent with the provisions of the Plan,
in determining the terms and conditions pertaining to such Awards.
9.2 Performance Unit/Performance Share Award Agreement. Each grant of
Performance Units and/or Performance Shares shall be evidenced by a Performance
Unit and/or Performance Share Award Agreement that shall specify the number of
Performance Units and/or Performance Shares granted, the initial value (if
applicable), the Performance Period, the performance goals and such other
provisions as the Committee shall determine, including but not limited to any
rights to Dividend Equivalents.
9.3 Value of Performance Units/Performance Shares. Each Performance Unit
shall have an initial value that is established by the Committee at the time of
grant. The value of a Performance Share shall be equal to the Fair Market Value
of a Share. The Committee shall set performance goals in its discretion which,
depending on the extent to which they are met, will determine the number and/or
value of Performance Units/Performance Shares that will be paid out to the
Participants.
9.4 Earning of Performance Units/Performance Shares. After the applicable
Performance Period has ended, the Participant shall be entitled to receive a
payout with respect to the Performance Units/ Performance Shares earned by the
Participant over the Performance Period, to be determined as a function of the
extent to which the corresponding performance goals have been achieved.
9.5 Form and Timing of Payment of Performance Units/Performance
Shares. Payment of earned Performance Units/Performance Shares shall be made
following the close of the applicable Performance
A-8
<PAGE> 28
Period. The Committee, in its sole discretion, may pay earned Performance
Units/Shares in cash or in Shares (or in a combination thereof), which have an
aggregate Fair Market Value equal to the value of the earned Performance
Units/Shares at the close of the applicable Performance Period. Such Shares may
be granted subject to any restrictions deemed appropriate by the Committee.
9.6 Termination. Each Performance Unit/Performance Share Award Agreement
shall set forth the extent to which the Participant shall have the right to
receive a Performance Unit/Performance Share payment following termination of
the Participant's employment with, service on the Board of, or other
relationship with the Company and its Subsidiaries during a Performance Period.
Such provisions shall be determined in the sole discretion of the Committee,
shall be included in the Award Agreement entered into with Participants, need
not be uniform among all grants of Performance Units/Performance Shares or among
Participants and may reflect distinctions based on reasons for termination.
9.7 Transferability. Except as otherwise determined by the Committee, a
Participant's rights with respect to Performance Units/Performance Shares
granted under the Plan shall be available during the Participant's lifetime only
to such Participant or the Participant's legal representative and Performance
Units/ Performance Shares may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution.
ARTICLE 10. OTHER AWARDS
The Committee shall have the right to grant other Awards which may include,
without limitation, the grant of Shares based on certain conditions, the payment
of Shares in lieu of cash or cash based on performance criteria established by
the Committee, and the payment of Shares in lieu of cash under other Company
incentive bonus programs. Payment under or settlement of any such Awards shall
be made in such manner and at such times as the Committee may determine.
ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of the Participant's death
before the Participant receives any or all of such benefit. Each such
designation shall revoke all prior designations by the same Participant, shall
be in a form prescribed by the Company and will be effective only when filed by
the Participant in writing with the Company during the Participant's lifetime.
In the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
The spouse of a married Participant domiciled in a community property
jurisdiction shall join in any designation of beneficiary or beneficiaries other
than the spouse.
ARTICLE 12. DEFERRALS
The Committee may permit a Participant to defer the Participant's receipt
of the payment of cash or the delivery of Shares that would otherwise be due to
such Participant under the Plan. If any such deferral election is permitted, the
Committee shall, in its sole discretion, establish rules and procedures for such
payment deferrals.
ARTICLE 13. RIGHTS OF PARTICIPANTS
13.1 Termination. Nothing in the Plan shall interfere with or limit in
any way the right of the Company or any Subsidiary to terminate any
Participant's employment or other relationship with the Company or any
Subsidiary at any time, for any reason or no reason in the Company's or the
Subsidiary's sole discretion, nor confer upon any Participant any right to
continue in the employ of, or otherwise in any relationship with, the Company or
any Subsidiary.
13.2 Participation. No Eligible Person shall have the right to be
selected to receive an Award under the Plan, or, having been so selected, to be
selected to receive a future Award.
A-9
<PAGE> 29
13.3 Limitation of Implied Rights. Neither a Participant nor any other
Person shall, by reason of the Plan, acquire any right in or title to any
assets, funds or property of the Company or any Subsidiary whatsoever,
including, without limitation, any specific funds, assets or other property
which the Company or any Subsidiary, in their sole discretion, may set aside in
anticipation of a liability under the Plan. A Participant shall have only a
contractual right to the Shares or amounts, if any, payable under the Plan,
unsecured by any assets of the Company or any Subsidiary. Nothing contained in
the Plan shall constitute a guarantee that the assets of such companies shall be
sufficient to pay any benefits to any Person.
Except as otherwise provided in the Plan, no Award under the Plan shall
confer upon the holder thereof any right as a shareholder of the Company prior
to the date on which the individual fulfills all conditions for receipt of such
rights.
ARTICLE 14. CHANGE IN CONTROL
The terms of this Article 14 shall immediately become operative, without
further action or consent by any person or entity, upon a Change in Control, and
once operative shall supersede and take control over any other provisions of
this Plan.
Upon a Change in Control
(a) Any and all Options and SARs granted hereunder shall become
immediately vested and exercisable;
(b) Any restriction periods and restrictions imposed on Restricted
Stock and Restricted Stock Units shall be deemed to have expired; such
Restricted Stock shall become immediately vested in full, and such
Restricted Stock Units shall be paid out in cash on the effective date of
the Change in Control; and
(c) The target payout opportunity attainable under all outstanding
Awards of Performance Units and Performance Shares shall be deemed to have
been fully earned for the entire Performance Period(s) as of the effective
date of the Change in Control. On the effective date of the Change in
Control, all Performance Shares shall be paid out in Shares, and all
Performance Units shall be paid out in cash.
ARTICLE 15. AMENDMENT, MODIFICATION AND TERMINATION
15.1 Amendment, Modification and Termination. The Board may, at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part.
15.2 Awards Previously Granted. No termination, amendment or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan without the written consent of the Participant holding
such Award, unless such termination, modification or amendment is required by
applicable law and except as otherwise provided herein.
ARTICLE 16. WITHHOLDING
16.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
(including any Shares withheld as provided below) sufficient to satisfy Federal,
state and local taxes (including the Participant's FICA obligation) required by
law to be withheld with respect to an Award made under the Plan.
16.2 Share Withholding. With respect to tax withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising out of or as a result of Awards granted
hereunder, Participants may elect to satisfy the withholding requirement, in
whole or in part, by tendering Shares held by the Participant at least six (6)
months prior to their tender or by having the Company withhold Shares having a
Fair Market Value on the effective date [of exercise] equal to the minimum
statutory total tax which could be imposed on the transaction. All elections
shall be irrevocable, made in writing and signed by the Participant.
A-10
<PAGE> 30
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise of all or substantially all of the business
and/or assets of the Company.
ARTICLE 18. LEGAL CONSTRUCTION
18.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular and the singular shall include the plural.
18.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
18.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.4 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with, and
governed by, the laws of the State of New Jersey.
A-11
<PAGE> 31
PROXY PROXY
LECHTERS, INC.
1 CAPE MAY STREET
HARRISON, NEW JERSEY 07029-2404
ANNUAL MEETING OF SHAREHOLDERS - June 20, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Donald Jonas and David K. Cully and either of
them proxies of the undersigned with full power of substitution, to vote all the
shares of Common Stock, without par value, and the Series A Preferred Stock,
$100 par value, of Lechters, Inc. (the "Company") held of record by the
undersigned on April 28, 2000, at the Annual Meeting of Shareholders to be held
June 20, 2000, and at any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED BY THE
UNDERSIGNED SHAREHOLDER. IF NO CHOICE IS SPECIFIED BY THE SHAREHOLDER, THIS
PROXY WILL BE VOTED "FOR" ITEMS (1), (2) and (3) AND IN THE PROXIES' DISCRETION
ON ANY OTHER MATTERS COMING BEFORE THE MEETING.
PLEASE DATE, SIGN AND RETURN THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
(Continued and to be signed on reverse side.)
-------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 32
LECHTERS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
THE DIRECTORS RECOMMEND A VOTE "FOR" ON ALL MATTERS
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS: For Withheld For All
Nominees: Martin S. Begun, Robert Knox, All All Except
Roberta S. Maneker and John Wolff [ ] [ ] [ ]
</TABLE>
(Except nominee(s) written below)
<TABLE>
<S> <C> <C> <C>
2. Ratification of selection of Deloitte & Touche LLP as independent auditors of For Against Abstain
the Company for the fiscal year ending February 3, 2001. [ ] [ ] [ ]
</TABLE>
<TABLE>
<S> <C> <C> <C>
3. Ratification of the amendment to the 1998 Long-Term Incentive Plan to For Against Abstain
increase the number of shares available thereunder from
1,000,000 to 2,500,000. [ ] [ ] [ ]
</TABLE>
In their discretion, the proxies are authorized to vote upon such other matters
as may come before the meeting or any adjournment thereof.
Please date this Proxy and sign your name exactly as it appears hereon. Where
there is more than one owner, each should sign. When signing as an attorney,
administrator, executor, guardian, or trustee, please add your title as such. If
executed by a corporation, this Proxy should be signed by a duly authorized
officer. If a partnership, please sign in partnership name by an authorized
person.
The undersigned hereby revokes any proxy or
proxies heretofore given to vote upon or act
with respect to such stock and hereby
ratifies and confirms all that said
attorneys, agents, proxies, their
substitutes or any of them may lawfully do
by virtue hereof.
__________________________________________
Signature
__________________________________________
Signature (if held jointly)
Dated: ____________________________, 2000
--------------------------------------------------------------------------------
- FOLD AND DETACH HER -
