<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
WABAN 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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(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>
[LOGO OF WABAN INC. APPEARS HERE]
One Mercer Road
Natick, Massachusetts 01760
April 27, 1995
Dear Stockholder:
We invite you to attend our 1995 Annual Meeting of Stockholders on Tuesday,
June 13, 1995, at 11:00 a.m. at Fleet Bank, 75 State Street, Boston,
Massachusetts.
At this meeting, in addition to being asked to elect three directors in
Proposal 1, you are being asked to approve Proposal 2, which would amend the
Company's 1989 Stock Incentive Plan to increase the number of shares that may
be issued under the Plan and to make certain other amendments to the plan, and
Proposal 3, which would approve the adoption of a stock option plan for non-
employee directors.
Your vote is important regardless of the number of shares you own.
Accordingly, we urge you to read the proxy statement and to complete, sign and
return your proxy promptly in the enclosed envelope.
We hope that you will join us on June 13th.
Sincerely,
/s/ Herbert J. Zarkin /s/ Sumner L. Feldberg
Herbert J. Zarkin Sumner L. Feldberg
President and Chief Executive Officer Chairman of the Board
<PAGE>
[LOGO OF WABAN INC. APPEARS HERE]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 13, 1995
----------------
The Annual Meeting of Stockholders of Waban Inc. will be held at Fleet Bank,
75 State Street, Boston, Massachusetts, on Tuesday, June 13, 1995, at 11:00
a.m. for the following purposes:
1. To elect three directors to serve until the 1998 Annual Meeting of
Stockholders;
2. To consider and act upon amendments to the Company's 1989 Stock
Incentive Plan to: (i) increase the number of shares that may be
issued under the Plan; and (ii) make certain other amendments to the
Plan as described in the accompanying proxy statement;
3. To consider and act upon the adoption of a stock option plan for non-
employee directors; and
4. To transact any other business which may properly be brought before
the meeting.
Stockholders of record at the close of business on April 17, 1995 are
entitled to notice of and to vote at the meeting and any adjournments thereof.
A list of stockholders entitled to vote at the meeting will be open to
examination by stockholders during normal business hours for the ten-day
period preceding the meeting at the offices of Hale and Dorr, 60 State Street,
Boston, Massachusetts.
By Order of the Board of Directors
Sarah M. Gallivan
Secretary
Natick, Massachusetts
April 27, 1995
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
[LOGO OF WABAN INC. APPEARS HERE]
ANNUAL MEETING OF STOCKHOLDERS
JUNE 13, 1995
PROXY STATEMENT
----------------
The enclosed proxy is solicited on behalf of the Board of Directors of Waban
Inc. (the "Company"). Unless instructions to the contrary are given, shares
represented by duly executed proxies will be voted for the election of the
three nominees set forth below and in favor of the other two proposals. Any
proxy may be revoked prior to the voting thereof by a written revocation
received by the Secretary of the Company at its address set forth below, the
receipt of a later dated proxy or by a request at the meeting that the proxy
be revoked.
Stockholders of record at the close of business on April 17, 1995 are
entitled to receive notice of and to vote at the meeting. Each share of Common
Stock, par value $.01, of the Company (the "Common Stock") outstanding on the
record date is entitled to one vote. As of the close of business on April 17,
1995, there were outstanding and entitled to vote 33,292,105 shares of Common
Stock.
This Proxy Statement, the enclosed proxy and the Annual Report for the
Company's fiscal year ended January 28, 1995 ("fiscal 1994") were first mailed
to stockholders on or about the date of the Notice of Meeting. The Company's
address is One Mercer Road, Natick, Massachusetts 01760.
VOTE REQUIRED
Under the Company's by-laws, so long as a quorum is present at the meeting,
the election of directors will require the affirmative vote of the holders of
shares representing a plurality of the votes cast at the meeting and adoption
of the proposals concerning the stock plans will require the affirmative vote
of the holders of a majority of the votes cast at the meeting. Although shares
which withhold authority for any nominee or abstain from voting as to a
particular matter and broker non-votes (i.e., shares held by brokers or
nominees as to which (i) instructions have not been received from the
beneficial owners and (ii) the broker or nominee does not have the
discretionary authority to vote on a particular matter) will be counted as
present at the meeting for quorum purposes, such shares will not be considered
to be votes cast with respect to the election of directors or the proposals
concerning the stock plans. Accordingly, shares which withhold authority,
abstentions and broker non-votes will have no effect on the voting on the
matters being presented for stockholder action at the meeting. In addition,
the New York Stock Exchange requires that the total votes cast (for or
against) on the proposals concerning the stock plans represent at least a
majority of the outstanding shares of Common Stock.
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The Board of Directors has voted to fix the number of directors at nine. The
Company's Restated Certificate of Incorporation and by-laws provide for the
classification of the Board of Directors into three classes, as nearly equal
in number as possible, with the term of office of one class expiring each
year. The enclosed proxy will be voted to elect the three nominees named
below, unless otherwise instructed, as directors for a term of three years
expiring at the 1998 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified. If any nominee should become
unavailable, such proxy will be voted either for a substitute nominee
designated by the Board of Directors or such lesser number of directors as may
be designated by the Board of Directors, unless instructions are given to the
contrary. Management does not anticipate that any of the nominees will become
unavailable. The nominees as directors and incumbent directors are as follows:
NOMINEES AS DIRECTORS--TERMS EXPIRING 1998
S. James Coppersmith, 62, has been a director of the Company since December
1993. He was President and General Manager of WCVB-TV, a Boston television
station, from 1990 to 1994. From 1982 to 1990 he was Vice President and
General Manager of WCVB-TV. Mr. Coppersmith is a director of Sun America Asset
Management Corporation and Uno Restaurant Corporation, Chairman of the Board
of Trustees of Emerson College and a member of the Board of Governors of the
Boston Stock Exchange. Mr. Coppersmith is a member of the Executive
Compensation Committee.
Thomas J. Shields, 48, has been a director of the Company since June 1992.
He is President of Shields & Company, Inc., an investment banking firm. From
1989 to 1991 he was a Managing Director of Bear, Stearns & Co., Inc. Mr.
Shields is also a director of Seaboard Corporation. Mr. Shields is Chairman of
the Audit Committee.
Herbert J. Zarkin, 56, has been a director, President and Chief Executive
Officer of the Company since May 1993 and was President of the Company's BJ's
Wholesale Club Division from May 1990 to May 1993. From April 1989 to May 1993
he was Executive Vice President of the Company. He was previously with Zayre
Corp., now known as The TJX Companies, Inc. ("TJX"), as Senior Vice
President--Warehouse Club Divisions from December 1988 to June 1989. He was
Chairman of the Zayre Stores Division of TJX from May 1988 and continued in
that capacity through December 1988 following TJX's sale of that division in
October 1988; he was President of TJX's HomeBase Division during 1986-1988.
Mr. Zarkin is a member of the Executive Committee and the Finance Committee.
INCUMBENT DIRECTORS--TERMS EXPIRING 1997
Stanley H. Feldberg, 70, has been a director of the Company since February
1989. He is a director of TJX and was President of Zayre Corp. from 1956 to
1978. He is also an independent general partner of ML-Lee Acquisition Funds I
and II. Mr. Feldberg is a member of the Audit Committee and the Executive
Compensation Committee.
Arthur F. Loewy, 66, has been a director of the Company since February 1989.
He is a director of TJX and was Chief Financial Officer and Executive Vice
President--Finance of Zayre Corp. from 1982 to 1989. Mr. Loewy is Chairman of
the Finance Committee.
2
<PAGE>
Kerry L. Hamilton, 44, has been a director since September 1994. Ms.
Hamilton is Vice Chairman of Pamet River Partners, a consulting firm
specializing in communications and marketing strategies. Prior to joining
Pamet River Partners in January 1994, Ms. Hamilton spent 17 years at Ingalls,
Quinn & Johnson in various capacities, during which time she was a member of
the Board of Directors, a member of the Agency Executive Committee and most
recently Senior Vice President, Director of Media Services. Ms. Hamilton is a
member of the Audit Committee.
INCUMBENT DIRECTORS--TERMS EXPIRING 1996
Sumner L. Feldberg, 70, has been Chairman of the Board of the Company since
February 1989. Mr. Feldberg has been Chairman of the Board of TJX from 1989 to
the present and was Chairman of the Board of Zayre Corp. from 1973 to 1987.
Mr. Feldberg is a trustee of Mass. Mutual Corporate Investors, Inc. and Mass.
Mutual Participation Investors. Mr. Feldberg is also a past Chairman of the
National Retail Merchants Association. Mr. Feldberg is Chairman of the
Executive Committee and a member of the Finance Committee.
Allyn L. Levy, 67, has been a director of the Company since October 1993. He
has been a private investor since 1988. From 1974 until 1986, he was founder,
Chairman of the Board and Chief Executive Officer of Patriot Bank Corporation,
a commercial bank holding company. He is a director of CV Reit, Inc. Mr. Levy
is a member of the Audit Committee.
Lorne R. Waxlax, 61, has been a director of the Company since January 1990.
He was an Executive Vice President of The Gillette Company from 1985 to 1993.
Mr. Waxlax is also a director of The Iams Company, Hon Industries, Inc., Clean
Harbors, Inc. and AMTROL Inc. Mr. Waxlax is Chairman of the Executive
Compensation Committee and a member of the Executive Committee.
Stanley H. Feldberg and Sumner L. Feldberg are first cousins. There are no
other family relationships among any of the Company's directors and executive
officers.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Audit Committee, which held three meetings during fiscal 1994, reviews
with management, the internal audit group and the independent public
accountants the Company's financial statements, the accounting principles
applied in their preparation, the scope of the audit, any comments made by the
public accountants upon the financial condition of the Company and its
accounting controls and procedures, and such other matters as the Committee
deems appropriate, and the Committee reviews with management such matters
relating to compliance with corporate policies as the Committee deems
appropriate.
The Executive Compensation Committee, which held five meetings during fiscal
1994, reviews salary policies and compensation of officers and other members
of management and approves compensation plans and compensation of certain
officers and other members of management. The Committee administers certain of
the Company's incentive plans, including its stock incentive plan. The
Committee also has responsibility for consideration of the qualifications of,
and recommendation to the Board of Directors of, nominees to fill Board
vacancies and will consider nominees recommended by stockholders if such
recommendations are in writing and timely filed with the Secretary of the
Company.
The Board of Directors also has an Executive Committee, which has authority
to act for the Board on most matters during the intervals between meetings of
the Board. This Committee acted by written consent once during fiscal 1994.
3
<PAGE>
In addition, the Board of Directors has a Finance Committee, which held
three meetings during fiscal 1994. This Committee reviews with management and
advises the Board with respect to the Company's finances, including exploring
methods of meeting the Company's financing requirements and planning the
Company's capital structure.
During fiscal 1994 the Board of Directors held seven meetings. Each director
attended at least 75% of all meetings of the Board and Committees of which he
or she is a member.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid an annual retainer
of $20,000 and a fee of $1,250 for each Board meeting and $750 for each
Committee meeting attended. In addition, the Chairman of the Audit Committee
and the Chairman of the Executive Compensation Committee are each paid $2,500
per annum for their services as such. All directors are reimbursed for out-of-
pocket expenses incurred in attending such meetings. Directors may participate
in the Company's General Deferred Compensation Plan.
The Company reimbursed $62,058 to TJX for one-half of TJX's costs of
employing Sumner L. Feldberg during fiscal 1994 while he also served as
Chairman of the Board of the Company. Mr. Feldberg, who continues to serve as
Chairman of the Board of the Company, became an employee of the Company
effective June 1, 1994, and received $150,903 in salary from the Company
during fiscal 1994.
The Company agreed to reimburse TJX for one-half of TJX's payments under an
employment agreement pursuant to which Mr. Loewy performed financial
consulting and other services for TJX and the Company during fiscal 1994. This
arrangement was terminated at the end of February 1995. During fiscal 1994,
Mr. Loewy was paid $183,000 by TJX under his employment agreement, of which
50% was reimbursed to TJX by the Company.
The Company has a retirement plan for its directors, (other than directors
who are or have been employees of the Company and its subsidiaries or, prior
to June 14, 1989, were employees of TJX). An eligible director who attains age
65 with at least 10 years of service is entitled to an after-tax retirement
benefit equal to the after-tax equivalent of the average of the three highest
annual basic retainer fees, payable in the form of a single-life annuity or in
certain optional forms of actuarially equivalent value. The Company funds the
plan through the periodic purchase and transfer to eligible directors of
annuity contracts providing for payment in satisfaction of benefits described
in the plan. Directors receive cash payments in compensation for the expected
federal and state income taxes payable in respect of the periodic purchase and
transfer of the annuity contracts and such cash payments. Because of the cash
payments in respect of taxes, and the fact that a portion of the payments
under the annuity will constitute a return of investment rather than taxable
income, the amount of the annuity payments will be less than the average of
the pre-tax retainer fees. Reduced or deferred benefits are payable to
directors with at least five years of service who leave prior to eligibility
for a full retirement benefit. The plan also provides for certain death
benefits.
The retirement plan for directors will be terminated if the stockholders
approve Proposal 3 (approval of stock option plan for non-employee directors),
and lump sum payouts of accrued pension benefits as of July 1, 1995 will be
made, conditioned upon such approval, to the following directors in the
indicated amounts: Mr. Waxlax, $81,492; Mr. Levy, $28,132; Mr. Coppersmith,
$24,544; and Mr. Shields, $20,031.
4
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 28, 1995 (unless otherwise
indicated) by (i) each person known to the Company to beneficially own more
than 5% of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) each executive officer of the Company named in the Summary
Compensation Table set forth on page 11, and (iv) all the Company's current
directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME SHARES(1) COMMON STOCK(1)
- - ---- --------- ---------------
<S> <C> <C>
FMR Corp. ........................................ 2,590,200(2) 7.8%
82 Devonshire Street
Boston, Massachusetts 02109
The Prudential Insurance Company of America....... 2,525,369(3) 7.6%
Prudential Plaza
Newark, New Jersey 01702
Mellon Bank Corporation and subsidiaries.......... 2,117,000(4) 6.4%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
David J. Greene and Company....................... 1,981,100(5) 6.0%
599 Lexington Avenue
New York, New York 10022
Sumner L. Feldberg................................ 171,000(6) *
S. James Coppersmith.............................. 2,000 *
Stanley H. Feldberg............................... 130,334(6) *
Kerry L. Hamilton................................. -- *
Allyn L. Levy..................................... 5,000 *
Arthur F. Loewy................................... 8,632(6) *
Thomas J. Shields................................. 500 *
Lorne R. Waxlax................................... 7,000 *
Herbert J. Zarkin................................. 201,432 *
John J. Nugent.................................... 85,561 *
Allan P. Sherman.................................. 73,750 *
Edward J. Weisberger.............................. 38,676 *
Dale N. Garth(7).................................. -- *
All current directors and executive officers as a
group
(13 persons)..................................... 705,044 2.1%
</TABLE>
- - --------
* Less than 1%.
(1) Includes the following shares of Common Stock issuable in respect of
shares of Common Stock that may be acquired upon exercise of outstanding
stock options which are exercisable on January 28, 1995 or within 60 days
thereafter: Mr. Zarkin, 103,922 shares; Mr. Nugent, 52,875 shares; Mr.
Sherman, 43,750 shares; Mr. Weisberger, 18,686 shares; all directors and
executive officers as a group, 227,608 shares.
(2) Information is as of December 31, 1994 and is based on a Schedule 13G
filed with the Securities and Exchange Commission ("SEC") by FMR Corp. and
Edward C. Johnson 3d. FMR Corp. reported that it has sole power to vote or
to direct the voting of 31,200 shares, and sole dispositive power as to
all such shares. Includes 2,531,800 shares beneficially owned by Fidelity
Management & Research Company, a registered investment adviser.
(Footnotes continued on next page)
5
<PAGE>
(Footnotes continued from previous page)
(3) Information is as of December 31, 1994 and is based on a Schedule 13G
filed with the SEC by The Prudential Insurance Company of America
("Prudential"). Prudential reported that it has sole power to vote 6,800
shares and shared power to vote 2,518,165 shares and has sole dispositive
power with respect to 6,800 and shared dispositive power with respect to
2,518,165 shares. Includes 404 shares issuable upon conversion of the
Company's 6.5% Convertible Subordinated Debentures.
(4) Information is as of December 31, 1994 and is based on a Schedule 13G
filed with the SEC by Mellon Bank Corporation ("Mellon") on its own behalf
and on behalf of several of its subsidiaries. Mellon reported that it and
its subsidiaries have sole power to vote 1,544,000 shares and have sole
dispositive power with respect to 1,907,000 shares and shared dispositive
power with respect to 210,000 shares.
(5) Information is as of December 31, 1994 and is based on a Schedule 13G
filed with the SEC by David J. Greene and Company, a registered broker-
dealer and investment adviser. David J. Greene and Company reported that
it has sole power to vote 121,800 shares and shared power to vote
1,174,200 shares and has sole dispositive power with respect to 121,800
shares and shared dispositive power with respect to 1,859,300 shares.
(6) Includes the following shares beneficially owned by the following persons
as trustees or custodians of which beneficial interest is disclaimed
unless otherwise indicated: Stanley H. Feldberg (33,366 shares); and
Sumner L. Feldberg (73,433 shares, of which 33,366 are shares also
beneficially owned by Stanley H. Feldberg). Excludes the following shares
beneficially owned by or held in trust by or for the benefit of the
respective spouses of the following persons and any shares held in a trust
for which the following persons are income beneficiaries, as to which the
following persons disclaim beneficial ownership: Stanley H. Feldberg
(60,868 shares); Sumner L. Feldberg (13,168 shares) and Arthur F. Loewy
(413 shares).
(7) Mr. Garth was formerly Senior Vice President, Treasurer and Chief
Financial Officer of the Company.
6
<PAGE>
EXECUTIVE COMPENSATION
The following report has been submitted to the Board of Directors by its
Executive Compensation Committee, in compliance with requirements of the SEC:
EXECUTIVE COMPENSATION COMMITTEE REPORT
As members of the Executive Compensation Committee ("ECC"), it is our
responsibility to review the Company's compensation policies and programs,
approve, or, with respect to the Chief Executive Officer, recommend to the
Board of Directors for approval, incentive plan awards and all elements of
compensation for the Company's executive officers, and administer the
Company's stock incentive plans. All of the members of the ECC are
independent, non-employee directors.
Executive Compensation Principles
The Company's executive compensation program is designed to provide
competitive levels of compensation that:
. Integrate compensation with the achievement of the Company's annual and
long-term performance goals and business strategies
. Recognize management initiatives and achievements
. Reward outstanding corporate performance
. Attract and retain key executives critical to the long-term success of the
Company
. Link management's long-term interests with stockholders' interests through
stock-based awards
With respect to Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), which limits the ability of publicly-held corporations
to deduct non-performance-based compensation for certain executive officers,
the ECC believes that the Company's compensation plans should be structured to
satisfy the requirements for tax deductibility, unless doing so is determined
by the ECC to be not in the best interests of the Company.
Compensation Policies for Executive Officers
The total compensation program for all executive officers, including current
executive officers named in the Summary Compensation Table, consists of both
cash and equity-based compensation and takes into account applicable
provisions of employment agreements of such officers. Through stock options
and stock grants available under the Company's incentive stock plan, the ECC
seeks to align executive officers' long-range interests with those of
stockholders by providing executive officers with the opportunity to
participate in the growth of the Company's stock value. The ECC is advised by
compensation consultants concerning salary competitiveness and the design of
the Company's compensation programs.
Base Salary. Base salaries for the Company's executive officers, including
Mr. Zarkin, are set within ranges that are determined based upon a review of
publicly available information concerning compensation paid to executives with
similar responsibilities at certain peer companies. The ECC utilizes a
compensation consulting firm to assist in the compilation and interpretation
of this data. The companies selected for these purposes are retail companies,
including major competitors of the Company, as to which compensation
information is available. While some of these peer companies are included in
the Dow Jones Industry Group Index OTS-Other Specialty Retailers appearing in
the Performance Graph on page 16, these peer companies are not all the same as
the companies comprising that index. While the ECC's overall objective is to
set base salaries at approximately the midpoint of competitive ranges, an
individual executive's placement within a range and salary adjustments are
based upon the ECC's subjective evaluation of the executive's performance and
7
<PAGE>
value to the Company. To further encourage long term equity incentives, in
April 1995 the ECC approved the issuance, as of June 13, 1995, to Messrs.
Zarkin, Sherman, Nugent and Weisberger of non-statutory stock options in lieu
of salary increases for the period June 4, 1995 through June 2, 1996, in the
following amounts: Mr. Zarkin, 100,000 shares; Mr. Sherman, 50,000 shares; Mr.
Nugent, 50,000 shares; and Mr. Weisberger, 40,000 shares. Issuance of such
options is contingent upon stockholder approval of Proposal 2 relating to
amendments to the Company's 1989 Stock Incentive Plan.
Annual Incentive Program. Under the Company's Management Incentive Plan
("MIP"), executive officers and other members of management are eligible to
receive incentive awards based upon the attainment of annual corporate or
divisional performance goals, primarily specified levels of earnings per
share, net income, or divisional income. Sumner Feldberg does not participate
in the MIP award program. The ECC approves the MIP goals and participation
opportunities at the beginning of each fiscal year and reviews the payout
calculations after the year's financial results have been audited. Target
awards for executive officers, other than Mr. Zarkin, range from 20% to 30% of
salary, but if targets are not met, there would be either no MIP award or a
reduced award based on a percentage of the target realized. If results exceed
goal(s), an executive officer, other than Mr. Zarkin, could earn up to an
additional 20% to 30% of salary, depending upon the extent to which goals are
exceeded. For 1994, MIP awards for Messrs. Zarkin and Weisberger were based on
three equally weighted criteria: BJ's Wholesale Club Division's pre-tax
income, HomeBase Division's pre-tax income, and fully diluted earnings per
share of the Company; Mr. Sherman's MIP award was based on HomeBase Division's
pre-tax income; and Mr. Nugent's MIP award was based on BJ's Wholesale Club
Division's pre-tax income. For 1994, pre-tax income of each of BJ's Wholesale
Club and HomeBase exceeded its MIP goal, resulting in payouts to Messrs.
Sherman and Nugent equal to 149% and 188% of targeted bonus, respectively. For
1994, fully diluted earnings per share of the Company exceeded its MIP goal.
Accordingly, payouts to Messrs. Zarkin and Weisberger were equal to 160% and
163% of targeted bonus, respectively. For 1995, Mr. Sherman's MIP award goal
is based on HomeBase's pre-tax income; Mr. Nugent's MIP award goal is based on
BJ's Wholesale Club's pre-tax income; and MIP award goals for Messrs. Zarkin
and Weisberger are based equally on BJ's Wholesale Club's pre-tax income,
HomeBase's pre-tax income and fully diluted earnings per share of the Company.
Long-Term Incentive Program. The Company has made it a practice to provide
incentives to its executive officers and other senior executives to achieve
long-range goals that are typically expressed as either a compounded rate of
earnings growth or three-year cumulative earnings. In determining the level of
long-term incentive awards, the ECC also takes into account a survey of the
same peer companies referred to above, but does not target a specific
percentile. During 1991, 1992, and 1993, the Company issued performance
accelerated restricted stock ("PARS") for its long-term incentive awards. No
PARS were issued to Mr. Feldberg. The value of PARS granted to senior
executives was based upon the compensation level and responsibility of the
particular executive, the executive's past performance and the executive's
expected ability to impact the Company's future performance. For BJ's
Wholesale Club executives, if performance goals for the three-year period
ending January 27, 1996 are met or exceeded, 100% of the shares awarded in
1993 will become unrestricted as of that date; for lower levels of
performance, fewer or no shares will become unrestricted as of that date.
Shares that remain restricted after January 27, 1996 will vest at the rate of
25% annually in January 1997 through January 2000. The BJ's performance goal
is based on three-year cumulative pre-tax income and on pre-tax income as a
percent of sales for the three-year period.
Because of Mr. Zarkin's promotion to Chief Executive Officer of the Company
in May 1993 and Mr. Sherman's reassignment from BJ's to HomeBase in September
1993, certain PARS awards that had been issued to them in 1992 and 1993 with
vesting based on BJ's performance were restated to incorporate goals based on
fully diluted earnings per share of the Company and HomeBase
8
<PAGE>
divisional pre-tax income, respectively. Additionally, because of the
significance of the restructuring of HomeBase's organization and business
goals, substantially all PARS awards that were issued to Corporate and
HomeBase executives in 1993 were restructured so that accelerated vesting at
January 27, 1996 depends upon the Company's and HomeBase's performance for the
two-year period ending on that date. Shares that remain restricted after
January 27, 1996 will vest at the rate of 25% annually in January 1997 through
January 2000. The HomeBase performance goal is stated in terms of cumulative
divisional pre-tax income, and was adjusted to reflect the restructuring of
HomeBase's organization, while Corporate executives' performance is measured
by cumulative earnings per share of the Company.
The Waban Inc. Growth Incentive Plan ("WGIP"), initiated in 1994, is
intended to provide high-level executives of the Company, as selected by the
ECC, with cash awards, based upon the growth and performance of the Company.
All of the executive officers (except Mr. Feldberg) participate in the WGIP,
as well as 35 non-executive officer employees of the Company. Depending on
responsibilities within the Company, awards are earned, based on one or more
of the following objective measures of performance or growth, as selected by
the ECC at the beginning of the award period: operating income, pre-tax
income, net income, gross profit dollars, costs, any of the preceding measures
as a percent of sales, earnings per share, sales, return on equity, and return
on investment. All relevant factors upon which the cash award is based (e.g.,
performance measurement, length of award period, relation between performance
and cash award) are determined at the beginning of the award period by the
ECC. Awards issued to Messrs. Zarkin and Weisberger in 1994 are based on
cumulative net income for the Company for the three-year period ending January
25, 1997. The award issued to Mr. Nugent in 1994 is based on cumulative pre-
tax income for BJ's Wholesale Club for the three-year period ending January
25, 1997. The award issued to Mr. Sherman in 1994 is based on cumulative pre-
tax income for HomeBase for the three-year period ending January 25, 1997. All
awards issued under the WGIP in 1994 are payable in cash, 50% in April 1997,
contingent on employment continuing through January 25, 1997, and 50% in April
1998, contingent on employment continuing through March 31, 1998. There is no
target amount for each award. However, there is a threshold amount based on
the Company's growth and the value of each award increases as achievement of
the performance measurement increases. No award can exceed 300% of the
recipient's base salary at the beginning of the performance period.
Stock-Based Incentives. Stock options are awarded to the Company's key
employees, including executive officers, by the ECC, based upon such factors
as the compensation level and responsibility of the particular employee, the
employee's contribution towards Company performance, and a review of
competitive compensation data of executives at the same group of peer
companies referred to previously in this report, with the ECC generally
targeting awards to the median of such survey. The options are designed to
reward recipients to the extent the Company's stock value is enhanced. Because
of the vesting provisions of such grants, the options also provide an
incentive for the employee to remain with the Company. Since the ECC does not
grant options and PARS on a cumulative basis, the size of previous grants is
not a factor in making current grants.
Chief Executive Officer Compensation
Mr. Zarkin became the Company's President and Chief Executive Officer in May
1993, when his base salary was set at $520,000. Pursuant to the terms of his
employment contract which provided that his salary would be reviewed annually
by the ECC, his salary was increased to $570,000 on June 1, 1994, setting his
salary at approximately the 50th percentile of the compensation range of the
survey of peer companies referred to previously in this report. As discussed
above, in April 1995, the ECC approved the issuance, as of June 13, 1995, to
Mr. Zarkin of 100,000 non-statutory options in lieu of a salary increase for
the 52-week period beginning June 4, 1995.
9
<PAGE>
Mr. Zarkin's MIP award provides a target opportunity equal to 50% of base
salary if performance goals are met; the actual payout can vary between 0% and
80% of base salary. The MIP payout to Mr. Zarkin for 1994 was equal to 80% of
his salary. Mr. Zarkin received a grant of options for 100,000 shares during
1994. The number of options granted to Mr. Zarkin was subjectively determined
based on Mr. Zarkin's success in providing leadership to the Company and after
a review of competitive compensation data of executives at the same group of
peer companies referred to previously in this report without targeting a
specific percentile range. The option grant encourages long-term performance
and promotes management retention while further aligning shareholders' and
management's interests in enhancing the value of the Company's Common Stock.
Executive Compensation Committee
Lorne R. Waxlax, Chairman
S. James Coppersmith
Stanley H. Feldberg
10
<PAGE>
COMPENSATION OF EXECUTIVES
The following table sets forth certain information concerning the annual and
long-term compensation paid for fiscal 1992, 1993 and 1994 to (i) the
Company's Chief Executive Officer, (ii) the Company's four other most highly
compensated executive officers during 1994 who were serving as executive
officers of the Company on January 28, 1995 and (iii) a former executive
officer of the Company who would have been one of the four other most highly
compensated executive officers but for the fact that he was not serving as an
executive officer on January 28, 1995 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ---------------------
AWARDS
---------------------
OTHER ALL
ANNUAL RESTRICTED SECURITIES OTHER
NAME AND COMPEN- STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR(1) SALARY BONUS SATION(2) AWARDS(3) OPTIONS(4) SATION(5)
------------------ ------- -------- -------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 1994 $552,692 $442,154 $ -- $ -- 100,000 $ 31,969
President and 1993 494,038 193,861 -- 640,625 100,000 5,396
Chief Executive Officer 1992 441,135 237,479 -- 320,313 25,000 3,491
Allan P. Sherman........ 1994 422,885 189,420 219,829 -- 65,000 101,114
Executive Vice 1993 332,692 123,756 -- 224,688 35,000 172,277
President,
President--HomeBase
John J. Nugent.......... 1994 332,692 188,038 -- -- 65,000 21,135
Executive Vice 1993 237,923 84,592 -- 229,375 35,000 5,439
President,
President--BJ's
Wholesale Club
Edward J. Weisberger.... 1994 197,847 86,777 -- -- 40,000 14,392
Senior Vice President 1993 175,630 19,144 -- 46,813 6,000 5,396
and Chief Financial 1992 169,135 40,127 -- 65,625 5,000 3,910
Officer
Sumner L. Feldberg...... 1994 212,961 -- -- -- 50,000 --
Chairman of the Board 1993 139,500 -- -- -- -- --
1992 142,183 -- -- -- -- --
Dale N. Garth(6)........ 1994 156,346 76,594 -- -- 40,000 300,000
1993 219,807 23,959 -- 83,594 12,500 1,817
1992 92,883 22,037 -- 117,188 12,500 0
</TABLE>
- - --------
(1) Refers to fiscal year ended in January of the following year. 1992
contained 53 weeks. 1993 and 1994 were 52-week years.
(2) The aggregate value of cash and non-cash perquisites, including automobile
allowances and reimbursement for tax liabilities related to Company
contributions under WERP (see "Retirement Benefits"), is not included in
the table where it does not exceed the lesser of $50,000 or 10% of salary
plus bonus for the named individual. Includes for Mr. Sherman $137,240 for
loan forgiveness and the value of the interest-free component of a housing
loan from the Company pursuant to the terms of his employment contract,
and $60,374 for reimbursement of tax liabilities related to that loan and
certain items included under "All Other Compensation."
(3) Restricted Stock Awards represent grants of PARS issued under the
Company's 1989 Stock Incentive Plan. The dollar value of the PARS is based
on the closing market price of the Company's Common Stock on the date of
grant. The following table presents the number of shares of PARS issued to
Named Executive Officers in each of the last three fiscal years, their
(Footnotes continued on next page)
11
<PAGE>
(Footnotes continued from previous page)
aggregate restricted stock holdings (which consist entirely of PARS) as of
January 28, 1995 and the value of such holdings based on the closing market
price of the Company's Common Stock on January 27, 1995 ($17.00). All
shares shown below for Mr. Garth were cancelled and returned to the Company
in 1994 as a result of termination of his employment.
<TABLE>
<CAPTION>
RESTRICTED
NUMBER OF SHARES OF STOCK HOLDINGS
RESTRICTED STOCK ISSUED AT 1/28/95
------------------------ ---------------
1994 1993 1992 SHARES VALUE
--------------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin................. 0 50,000 12,500 53,412 $908,004
Allan P. Sherman.................. 0 17,500 5,000 22,500 382,500
John J. Nugent.................... 0 17,500 5,000 20,380 346,460
Edward J. Weisberger.............. 0 3,500 3,500 9,065 154,105
Sumner L. Feldberg................ 0 0 0 0 0
Dale N. Garth..................... 0 6,250 6,250 0 0
</TABLE>
No vesting of PARS issued during fiscal 1993 can occur until the conclusion
of fiscal 1995. At that time, 0% to 100% of the award will vest depending
upon the achievement of certain Company or divisional performance criteria
for either the three-year or two-year period that ends on that date. Any
shares which do not vest on that date will vest in equal 25% increments
annually at the end of the following four fiscal years. Of the PARS issued
in fiscal 1992, the following shares vested at the end of fiscal 1994: Mr.
Zarkin, 9,088; Mr. Sherman, 0; Mr. Nugent, 2,120; and Mr. Weisberger,
2,545. The remaining PARS will vest in equal 25% increments annually at the
end of the following four fiscal years. Performance criteria include
cumulative earnings per share and cumulative divisional income goals. In
the event of a change of control (as defined), each Named Executive
Officer's PARS would become unrestricted.
Holders of restricted shares are entitled to the same dividends as those
paid to holders of unrestricted shares.
(4) Reflects the grant of options to purchase Common Stock. The Company has
never granted stock appreciation rights.
(5) For fiscal 1994 represents the Company's contributions under its 401(k)
Savings Plan and WERP (see "Retirement Benefits") as presented below. With
respect to Mr. Sherman, also includes $75,470 relating to relocation. With
respect to Mr. Garth, the amount for fiscal 1994 represents severance
payments. See "Employment Agreements."
<TABLE>
<CAPTION>
1994 COMPANY
CONTRIBUTIONS
---------------
401(K)
SAVINGS
PLAN WERP
------- -------
<S> <C> <C>
Herbert J. Zarkin............................................ $4,334 $27,635
Allan P. Sherman............................................. 4,500 21,144
John J. Nugent............................................... 4,500 16,635
Edward J. Weisberger......................................... 4,500 9,892
Sumner L. Feldberg........................................... 0 0
Dale N. Garth................................................ 0 0
</TABLE>
(6) Mr. Garth served as Senior Vice President and Chief Financial Officer of
the Company until September 28, 1994.
12
<PAGE>
STOCK OPTION GRANTS
The following table sets forth the stock option grants made by the Company
to each of the Named Executive Officers during fiscal 1994.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
PERCENT OF
NUMBER TOTAL POTENTIAL REALIZABLE VALUE
OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM(1)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ---------------------------
NAME GRANTED YEAR PER SHARE(2) DATE 0%(3) 5% 10%
---- ---------- ---------- ------------ ---------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 100,000 7.0% $17.75 3/4/04 $ 0 $1,116,289 $2,828,892
Allan P. Sherman........ 65,000 4.6% 17.75 3/4/04 0 725,588 1,838,780
John J. Nugent.......... 65,000 4.6% 17.75 3/4/04 0 725,588 1,838,780
Edward J. Weisberger.... 20,000 1.4% 17.75 3/4/04 0 223,258 565,778
20,000 1.4% 18.50 10/11/04 0 232,691 589,685
Sumner L. Feldberg...... 50,000 3.5% 18.50 10/11/04 0 581,728 1,474,211
Dale N. Garth(4)........ 40,000 2.8% 17.75 3/4/04 0 0 0
</TABLE>
- - --------
(1) The dollar amounts in these columns are the result of calculations at 0%
and the arbitrary appreciation rates of 5% and 10% set by the SEC and are
not intended to forecast possible future appreciation, if any, of the
Company's stock price.
(2) All options granted in fiscal 1994 were granted with an exercise price
equal to the closing price of the Common Stock on the New York Stock
Exchange on the date of grant. These options expire ten years from the
date of grant. Options granted in fiscal 1994 vest in equal installments
over five years, except for Mr. Feldberg's options, which vest in two
equal installments on 6/1/95 and 6/1/96. All options vest upon a change of
control (as defined).
(3) No gain to the optionees is possible without an increase in stock price
appreciation, which will benefit all shareholders commensurately. A zero
percent stock price appreciation will result in zero gain for the
optionee.
(4) Options were cancelled during fiscal 1994 as a result of the executive's
termination of employment.
13
<PAGE>
AGGREGATED OPTION EXERCISES AND VALUATION
The following table sets forth, on an aggregated basis, the exercise of
stock options during fiscal 1994 by each of the Named Executive Officers and
the fiscal year-end value of unexercised options held by such officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NUMBER OF AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... -- $ -- 77,672 187,500 $267,464 $314,063
Allan P. Sherman........ -- -- 28,750 96,250 53,281 109,219
John J. Nugent.......... -- -- 37,875 95,250 164,047 102,188
Edward J. Weisberger.... 2,000 17,750 13,436 47,000 34,932 16,313
Sumner L. Feldberg...... -- -- 0 50,000 0 0
Dale N. Garth........... 3,125 8,984 0 0 0 0
</TABLE>
- - --------
(1) Based on the fair market value of the Common Stock on January 27, 1995
($17.00 per share), less the option exercise price.
LONG-TERM INCENTIVE AWARDS
The following table sets forth information related to long-term incentive
awards granted to the Named Executive Officers during fiscal 1994, pursuant to
the WGIP:
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER PERFORMANCE OR UNDER
OF SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR MATURATION -----------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------ ------------------ --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 20 Units FYE 1/95-1/97 $305,000 $524,700 $1,560,000
Allan P. Sherman........ 15 Units FYE 1/95-1/97 146,400 316,962 1,200,000
John J. Nugent.......... 15 Units FYE 1/95-1/97 152,400 305,676 900,000
Edward J. Weisberger.... 10 Units FYE 1/95-1/97 152,500 262,350 537,420
Sumner L. Feldberg...... -- -- -- -- --
Dale N. Garth(1)........ 10 Units FYE 1/95-1/97 -- -- --
</TABLE>
- - --------
(1) Units were cancelled during fiscal 1994 as a result of executive's
termination of employment.
Employees in high-level management positions in the Company, as selected by
the ECC, were awarded units under WGIP during fiscal 1994. Each unit has a
value in dollars equal to a designated percentage of improvement in net income
(for corporate executives) or divisional pre-tax income (for divisional
executives) during the three-year fiscal period ending January 25, 1997 over
base
14
<PAGE>
period income, as defined, for fiscal 1993. No payment will be made unless
cumulative net or pre-tax income, as applicable, is at least equal to 10%
compounded growth over the base period amount. The "threshold" amounts in the
table above would be earned upon achievement of 10% compounded growth in
earnings. No participant may receive a cash award in excess of 300% of the
participant's annualized base salary as of the beginning of the award period.
This limit is reflected in the "maximum" amount column of the table above. The
WGIP does not specify a target payout amount. Accordingly, pursuant to SEC
rules, the target payout level in the table above assumes in each case that
fiscal 1994's income level will be achieved in each of the three fiscal years
during the award period. The dollar amounts in the table are not intended to
forecast future payments, if any, under WGIP.
One-half of the cash award earned under WGIP for the three-year award period
ending January 25, 1997 will be paid in April 1997 to participants employed
through January 25, 1997. The remaining one-half of the award will be paid in
April 1998, contingent upon employment continuing through March 31, 1998.
15
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock, based on the market price of the Common
Stock, with the cumulative total return of companies on the Standard and
Poor's 500 Stock Index and the Dow Jones Industry Group Index OTS--Other
Specialty Retailers from January 31, 1990 to January 28, 1995. The Dow Jones
Industry Group Index OTS--Other Specialty Retailers is comprised of 118
specialty retail companies, including the Company and all other publicly-
traded membership warehouse clubs and home improvement chains (other than
those operated as divisions of other companies). This index does not include
department stores, discount stores, drug stores or supermarkets. The graph
assumes that the value of the investment at January 31, 1990 was $100 and that
all dividends were reinvested.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Dow Jones
Industry Group
Index OTS-Other
Measurement period Waban Specialty Standard & Poor's
(Fiscal Year Covered) Inc. Retailers 500 Stock Index
- - --------------------- -------- --------------- -----------------
<S> <C> <C> <C>
Measurement PT -
01/31/90 $ 100 $ 100 $ 100
FYE 01/31/91 $ 129.73 $ 106.47 $ 108.38
FYE 01/31/92 $ 216.22 $ 147.27 $ 132.99
FYE 01/31/93 $ 182.43 $ 181.63 $ 147.09
FYE 01/29/94 $ 154.04 $ 189.62 $ 166.03
FYE 01/28/95 $ 183.78 $ 183.15 $ 166.91
</TABLE>
16
<PAGE>
RETIREMENT BENEFITS
Retirement Plans
The Company's Retirement Plan (the "Retirement Plan"), in which Messrs.
Zarkin, Nugent and Weisberger participate, was frozen on July 4, 1992, when
the Company's 401(k) Savings Plan was enhanced. Benefits under the Retirement
Plan ceased to accrue after that date.
The following table shows, for each of such participating officers, the
estimated annual benefits payable under the Retirement Plan upon normal
retirement (age 65) on the basis of a straight life annuity.
<TABLE>
<CAPTION>
ANNUAL
NAME BENEFITS
---- --------
<S> <C>
Herbert J. Zarkin................................................... $65,667
John J. Nugent...................................................... $ 5,121
Edward J. Weisberger................................................ $27,553
</TABLE>
Participants accrue no benefits for service after July 4, 1992 under the
Retirement Plan. Messrs. Zarkin, Nugent and Weisberger are fully vested in
their accrued benefits.
Executive Retirement Plan
Effective as of January 30, 1994, the Waban Inc. Executive Retirement Plan
("WERP"), a defined contribution plan, was adopted. Under the WERP, those
employees in high-level management positions in the Company, as selected by
the ECC, including all executive officers, are eligible to receive cash annual
retirement contributions in an amount determined by the ECC; provided that the
smallest annual retirement contribution shall equal, on an after-tax basis, at
least three percent of the participant's base salary. All amounts paid under
the WERP are to be used exclusively to fund an investment vehicle selected by
the ECC which is appropriate to provide retirement income, such as an
insurance policy.
The Company made retirement contributions after the end of 1994 equal to 5%
of each participant's base salary during 1994. If the participant terminates
employment prior to the end of the fiscal year in which the participant is
credited with four years of service, the participant forfeits the right to any
benefit under the WERP. As of January 28, 1995, Messrs. Zarkin, Nugent and
Weisberger were credited with at least four years of service and Mr. Sherman
was credited with three years of service.
EMPLOYMENT AGREEMENTS
Under the Company's employment agreement with Herbert J. Zarkin, Mr. Zarkin
receives a minimum annual base salary of $570,000 and participates in
specified incentive and other benefit plans. The Company is entitled to
terminate Mr. Zarkin's employment at any time with or without cause (as
defined). If his employment terminates by reason of death, disability,
incapacity or termination by the Company other than for cause, or if a change
of control occurs, Mr. Zarkin is
17
<PAGE>
entitled to payment of certain cash compensation amounts and continuation of
base salary and certain benefits for a period of 24 months after termination
at the rate in effect upon termination. The continuing base salary payments
are subject to reduction after twelve months for compensation earned by Mr.
Zarkin from other employment, and the continuing benefits are subject to
reduction at any time for comparable benefits received by Mr. Zarkin from
other employment.
Under the Company's employment agreement with Allan P. Sherman, Mr. Sherman
receives a minimum annual base salary of $435,000 and participates in
specified incentive and other benefit plans. In addition, in connection with
his election as President of HomeBase, the Company agreed to extend to him an
interest-free loan of $700,000 for the purchase of a residence in California
and to forgive the loan over seven years in equal installments, $100,000 of
which was forgiven in fiscal 1994. The Company also agreed to make certain tax
"gross-up" payments to Mr. Sherman. The Company is entitled to terminate Mr.
Sherman's employment at any time with or without cause (as defined). If Mr.
Sherman's employment terminates by reason of death, disability or termination
by the Company other than for cause, the Company is required to pay certain
cash compensation amounts, to continue payment of Mr. Sherman's base salary
and certain benefits for 52 weeks after termination at the rate in effect upon
termination, and to extend the term of Mr. Sherman's relocation loan,
including the provisions for debt forgiveness. The continuing base salary
payments are subject to reduction after three months for compensation earned
by Mr. Sherman from other employment, and the continuing benefits are subject
to reduction at any time for comparable benefits received by Mr. Sherman from
other employment.
The Company has an employment agreement with each of Messrs. Nugent and
Weisberger under which they receive minimum annual base salaries of $350,000
and $225,000, respectively, and participate in specified incentive and other
benefit plans. If employment terminates by reason of death, disability,
incapacity or termination by the Company other than for cause, each such
executive is entitled to payment of certain cash compensation amounts and to
certain benefits and continuation of base salary for twelve months at the rate
in effect upon termination. The continuing base salary payments are subject to
reduction after three months for compensation earned by the executive from
other employment, and the continuing benefits are subject to reduction at any
time for comparable benefits received by the executive from other employment.
In the event of a change of control followed by termination of employment as
described below under "Change of Control Severance Benefits", each of Messrs.
Zarkin, Sherman, Nugent and Weisberger would be entitled to the termination
benefits described thereunder, to the extent such benefits would exceed the
benefits otherwise described above.
During 1994 the Company entered into a termination agreement with Dale N.
Garth, a former executive officer of the Company. Under this agreement, Mr.
Garth received MIP payments totalling $76,594 and will receive his base salary
(which was $240,000 per year at the time of termination), and certain benefits
to which he was entitled during his employment, until September 29, 1995.
Under certain conditions, payment of Mr. Garth's base salary may continue for
an additional 13 weeks.
CHANGE OF CONTROL SEVERANCE BENEFITS
The Company provides change of control severance benefits to Messrs. Zarkin,
Sherman, Nugent and Weisberger under individual agreements. Under the
agreements, in general, upon a change of control (as defined) of the Company,
the employee would be entitled to accelerated lump-sum payments of the MIP
target award for the year in which the change of control occurs. If, during
the 24-month period following a change of control, the Company were to
terminate the
18
<PAGE>
executive's employment other than for cause (as defined) or the executive were
to terminate his employment for reasons specified in the agreement, or if
employment were to terminate by reason of death, disability or incapacity, the
employee would be entitled to receive an amount equal to two times the
employee's annual base salary. For up to two years following termination, the
Company would also be obligated to provide specified benefits, including
continued health, medical and life insurance and disability benefits. The
foregoing benefits would be payable whether or not they gave rise to a federal
excise tax on so-called "excess parachute payments" or were non-deductible,
except to the extent a reduction in amounts paid would maximize the employee's
after-tax benefits. The Company would also be obligated to pay all legal fees
and expenses reasonably incurred by the employee in seeking enforcement of
contractual rights following a change of control. In addition, upon a change
of control, any agreement by the employee not to compete with the Company
following termination of his employment would cease to be effective.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of its
directors and executive officers indemnifying them against expenses,
settlements, judgments and fines incurred in connection with any threatened,
pending or completed action, suit, arbitration or proceeding, where the
individual's involvement is by reason of the fact that he or she is or was a
director or officer of the Company or served at the Company's request as a
director of another organization (except that indemnification is not provided
against judgments and fines in a derivative suit unless permitted by Delaware
law). An individual may not be indemnified if he or she is found not to have
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company, except to the extent
Delaware law permits broader contractual indemnification. The indemnification
agreements provide procedures, presumptions and remedies designed to
substantially strengthen the indemnity rights beyond those provided by the
Company's Certificate of Incorporation and by Delaware law.
DIRECTORS' PROPOSAL TO AMEND STOCK INCENTIVE PLAN
(ITEM 2 ON PROXY CARD)
On April 13, 1995, the Board of Directors adopted, subject to approval by
the stockholders, an amendment to the Company's 1989 Stock Incentive Plan
("Stock Incentive Plan") (i) increasing the maximum number of shares of Common
Stock issuable under the Stock Incentive Plan from 3,750,000 to 5,750,000,
(ii) providing that all options granted under the Stock Incentive Plan shall
have an exercise price not less than the fair market value of the Common Stock
as of the date of grant and (iii) limiting to 250,000 the maximum number of
shares of Common Stock with respect to which options may be granted to any one
employee in a calendar year.
As of March 31, 1995, 341,112 shares remained available for future grants
under the Stock Incentive Plan. Stockholder approval of the addition of
2,000,000 shares should provide a sufficient number of shares to enable option
and other grants to be made through the life of the Stock Incentive Plan,
which currently expires on June 14, 1999.
As of March 31, 1995, options and stock-based awards have been granted under
the Stock Incentive Plan with respect to an aggregate of 3,408,888 shares (net
of cancellations and forfeitures). The Board of Directors believes that the
proposed increase in the number of shares issuable under the Stock Incentive
Plan will enhance the purposes of the Stock Incentive Plan which are to
further the growth and development of the Company by granting to eligible
officers and key employees an incentive to stock ownership and a more direct
stake in the Company's welfare.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL STOCKHOLDERS VOTE "FOR" THE
PROPOSED AMENDMENTS TO THE STOCK INCENTIVE PLAN.
19
<PAGE>
DESCRIPTION OF THE STOCK INCENTIVE PLAN
The Stock Incentive Plan permits the granting of a variety of stock and
stock-based awards to officers and key employees of the Company and its
subsidiaries, including: stock options; restricted and unrestricted shares;
rights to receive cash or shares on a deferred basis or based on performance;
rights to receive cash or shares in respect of increases in the value of
Common Stock; cash payments sufficient to offset the federal ordinary income
taxes of participants resulting from transactions under the Stock Incentive
Plan; loans to participants in connection with awards; and other Common Stock-
based awards, including the sale or award of convertible securities, that meet
the requirements of the Stock Incentive Plan. The Stock Incentive Plan also
provides that option holders may, unless otherwise provided at the time of
grant, surrender outstanding options in exchange for a cash payment during the
60-day period following a Change of Control of the Company (as defined in the
Stock Incentive Plan).
The Stock Incentive Plan is administered by the ECC. The ECC has full power
to select, from among the employees eligible for awards, the individuals to
whom awards will be granted, to make any combination of awards to any
participants and to determine the specific terms of each grant, subject to the
provisions of the Stock Incentive Plan.
Subject to adjustment for stock splits and similar events, currently a total
of 3,750,000 shares of Common Stock may be issued under the Stock Incentive
Plan. The Stock Incentive Plan also permits the issuance of securities
convertible into Common Stock, including a maximum of 500,000 shares of
preferred stock of the Company. Awards and shares which are forfeited,
reacquired by the Company or satisfied by a cash payment or otherwise without
the issuance of Common Stock are not counted toward this limitation. Shares
delivered under awards in substitution for awards held by employees of
companies or businesses acquired by the Company or its subsidiaries are in
addition to the maximum number of shares authorized under the Stock Incentive
Plan to the extent that the substitute awards (i) are granted to persons whose
relationship to the Company does not make (and is not expected to make) them
subject to Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange
Act") and (ii) are granted in substitution for awards issued under a plan
approved, to the extent then required under Rule 16b-3 under the Exchange Act,
by the stockholders of the predecessor entity.
The ECC is required to make appropriate adjustments in connection with
outstanding awards to reflect stock dividends, stock splits and similar
events. In the event of a merger, liquidation or similar event, the Committee
may provide for substitution or adjustments or may accelerate or, upon payment
or other consideration for the vested portion of any awards as the ECC deems
equitable, terminate such awards (subject to the provisions described under
"Change of Control" below). The Board of Directors may at any time amend or
discontinue the Stock Incentive Plan and the ECC may at any time amend or
cancel awards (or provide substitute awards or reduced exercise or purchase
prices, including lower-priced awards upon the termination of any then
outstanding awards), and may accelerate awards and waive conditions and
restrictions on any awards to the extent it may determine to be appropriate.
However, no such action may adversely affect any rights under outstanding
awards without the holder's consent. Moreover, any amendment that would cause
the Stock Incentive Plan to fail to satisfy any then applicable incentive
stock option rules under the Code or any stockholder approval requirements of
Rule 16b-3 under the Exchange Act, as such Rule is in effect at the time of
such amendment, shall be ineffective unless approved by the stockholders.
Persons eligible to participate in the Stock Incentive Plan are those full-
or part-time officers and other key employees of the Company or its
subsidiaries who are responsible for or contribute to the management, growth
or profitability of the business of the Company, as selected from time to time
by the ECC. Persons who are not employees of the Company or a parent or
subsidiary (as those terms are used in Section 422 of the Code) are not
eligible to receive grants of incentive
20
<PAGE>
options, as defined below. The Stock Incentive Plan limits the terms of awards
to 10 years (10 years and one day in the case of non-statutory options, as
defined below) and currently prohibits the granting of awards more than 10
years after the effective date of the Stock Incentive Plan.
Stock Options. The Stock Incentive Plan permits the granting of non-
transferable stock options to acquire Common Stock that qualify as incentive
stock options ("incentive options") under Section 422 of the Code and non-
transferable stock options that do not so qualify ("non-statutory options").
The ECC may provide that, upon exercise of an option, the participant will
receive shares of Restricted Stock or Deferred Stock awards (see below). The
exercise price of each option is determined by the ECC, but, if this proposal
is approved by the stockholders, may not be less than 100% of the fair market
value of the shares on the date of grant.
The ECC determines the term of each option and at what time or times each
option may be exercised, and the exercisability of options may be accelerated
by the ECC. In the event of termination of employment by reason of normal
retirement, disability or death, an option may thereafter be exercised (to the
extent it was then exercisable) for a period of three years, or such shorter
period as may be specified by the ECC at the time of grant, subject to the
stated term of the option. In the event of termination of employment for any
reason other than normal retirement, disability or death, an option may
thereafter be exercised, to the extent then exercisable, for three months (or
such longer period of up to three years as the ECC determines at or after the
grant date) following termination, subject to the stated term of the option.
However, options cease to be exercisable upon termination for Cause (as
defined in the Stock Incentive Plan).
Stock Appreciation Rights. The ECC may grant non-transferable stock
appreciation rights entitling the holder upon exercise to receive an amount,
in any combination of cash or shares of unrestricted Common Stock, Restricted
Stock or Deferred Stock awards, not greater in value than the increase since
the date of grant in the value of the shares covered by such right. Stock
appreciation rights may be granted separately from or in tandem with the grant
of an option. In addition, the ECC may determine, if so requested by an option
holder, that the Company will pay the optionee, in cancellation of an option
not accompanied by a related stock appreciation right, any combination of
cash, unrestricted Common Stock, Restricted Stock or Deferred Stock awards not
greater in value than the increase since the date of grant in the value of the
shares covered by the option.
The exercise value of a stock appreciation right is generally determined by
reference to the closing sale price of Common Stock on the date of exercise.
However, the ECC may establish, by rule of general application, a uniform
method of determining an exercise value of any rights exercised or requests
honored with respect to officers of the Company subject to Section 16(b) of
the Exchange Act who are able to exercise such rights only during certain
limited periods, not in excess of the highest closing sale price of Common
Stock reported on the New York Stock Exchange Composite Transactions Index
during such period.
Restricted Stock and Unrestricted Stock. The ECC may award shares of Common
Stock subject to such conditions and restrictions (including vesting) as the
Committee may determine ("Restricted Stock"). The purchase price, if any, of
shares of Restricted Stock may not exceed the par value of those shares.
The ECC may at any time waive such restrictions, including through
accelerated vesting. Shares of Restricted Stock are non-transferable and if a
participant who holds shares of Restricted Stock terminates employment for any
reason (including death) prior to the lapse or waiver of the restrictions, the
Company may require the forfeiture of or repurchase the shares. A holder of
Restricted Stock has all rights of a stockholder with respect to such stock,
subject only to conditions and restrictions generally applicable to Restricted
Stock or specifically set forth in the Restricted Stock award agreement.
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<PAGE>
The ECC may grant shares (at no cost or for a purchase price equal to par
value or less) which are free from any restrictions under the Stock Incentive
Plan ("Unrestricted Stock").
Deferred Stock. The ECC may make Deferred Stock awards under the Stock
Incentive Plan. These are non-transferable awards entitling the recipient to
receive shares of Common Stock without any payment in one or more installments
at a future date or dates. Receipt of Deferred Stock may be conditioned on
such matters as the ECC shall determine, including continued employment or
attainment of performance goals. Except as otherwise determined by the ECC
prior thereto, all such rights terminate upon the participant's termination of
employment.
Performance Units. The ECC may award non-transferable Performance Units
entitling the recipient to receive shares of Common Stock or cash in such
combinations as the ECC may determine. Payment of the award may be conditioned
on achievement of specified performance goals over a fixed or determinable
period and such other conditions as the ECC may determine. Except as otherwise
determined by the ECC prior thereto, rights under a Performance Unit award
terminate upon a participant's termination of employment.
Other Stock-based Awards. The ECC may grant other types of awards of, or
based on, Common Stock ("Other Stock-based Awards"). Such awards may include
securities convertible into or exchangeable for shares of Common Stock upon
such conditions, including attainment of performance goals, as the ECC may
determine. Convertible securities offered under Other Stock-based Awards may
be convertible debt or shares, not exceeding in the aggregate 500,000 shares,
of convertible preferred stock.
The ECC may determine the amount and form of consideration, if any, payable
upon the issuance or exercise of Other Stock-based Awards. However, Common
Stock must be issued (including upon conversion, exchange or otherwise) either
as bonus stock or for a price equal to at least 50% of its fair market value
on the grant or the effective date (or conversion or exchange date), and
securities convertible into Common Stock must be issued as a bonus or for a
price equal to at least 50% of their fair market value on the grant or
issuance date. The ECC may prescribe limitations or conditions requiring
forfeiture by the participant, or permitting repurchase by the Company, of
Other Stock-based Awards or related Common Stock or securities, and may at any
time accelerate or waive any such limitations or conditions. The recipient of
an Other Stock-based Award will have rights of a stockholder to the extent, if
any, specified by the ECC in the Other Stock-based Award agreement.
Supplemental Grants. The ECC may authorize loans from the Company in
connection with awards granted or exercised under the Stock Incentive Plan.
Loans may be for up to 10 years, may be secured or unsecured and may be with
or without recourse against the participant. Each loan shall be subject to
such additional terms and conditions and shall bear such rate of interest, if
any, as the ECC shall determine. However, the amount of any loan may not
exceed the total exercise or purchase price plus an amount equal to the cash
payment which could have been paid to the borrower in respect of taxes as
described in the next paragraph.
The ECC may at any time grant to a participant the right to receive a cash
payment in connection with taxable events (including the lapse of
restrictions) under grants or awards. The amount of such payment is determined
in relation to the taxable amount recognized in respect of such other grant or
award, based on the maximum marginal federal tax rate (or such lower rate as
the ECC may determine) in effect at the time such taxable income is
recognized. The amount of any such payment may be up to but may not exceed the
amount estimated to be necessary to cover the federal income tax so calculated
as due with respect to such other grant or award and with respect to the cash
payment itself.
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<PAGE>
Dividends and Deferrals. The ECC may require or permit the immediate payment
or the waiver, deferral or investment of dividends paid on awards under the
Stock Incentive Plan and amounts equal to dividends which would have been paid
if shares subject to an award had been outstanding, and may permit
participants to make elections to defer receipt of benefits under the Stock
Incentive Plan. The ECC may also provide for the accrual of interest or
dividends on amounts deferred under the Plan on such terms as the ECC may
determine.
Change of Control. The Stock Incentive Plan provides that, in the event of a
Change of Control of the Company, unless otherwise expressly provided at the
time of grant, all stock options and stock appreciation rights will become
immediately exercisable. Restrictions and conditions on other awards will
automatically be deemed satisfied to the extent that the ECC may determine
(whether at or after the time of grant). The definition of Change of Control,
however, provides that, unless otherwise determined by the ECC, a transaction
shall not be deemed to be a Change of Control with respect to a participant if
the participant takes part in the transaction (within the meaning of the
definition).
Also in the event of a Change of Control, during the 60-day period following
such Change of Control each optionholder (other than the holder of an option
as to whom the ECC determined at the time of grant that the rights described
below would not apply, and other than any optionholder who initiates the
Change of Control or who participates in the transaction in the manner
specified in the definition of Change of Control) may, upon notice to the
Company, surrender outstanding options to the Company in exchange for a cash
payment equal to the excess of the fair market value (subject to the special
rule for non-statutory options described below) on the date of surrender of
the shares subject to the option over the aggregate exercise price. Persons
subject to Section 16(b) of the Exchange Act must have held such options for
at least six months prior to surrender. In addition, except as otherwise
provided by the ECC, the availability to persons subject to Section 16(b) of
the Exchange Act of this right to surrender options for cash upon a Change of
Control is conditioned on the receipt of a favorable interpretive letter of
the staff of the Securities and Exchange Commission with respect to this
right. For purposes of the surrender of non-statutory options, "fair market
value" means the highest reported sales price, regular way, of a share of
Common Stock on the NYSE Composite Transactions Index during the 60-day period
prior to the Change of Control or, if higher (in the case of a Change of
Control occurring by reason of certain acquisitions), the highest per share
price paid or reported in connection with such acquisition.
As of January 28, 1995, the Company had approximately 18,000 employees. On
April 21, 1995, the closing sale price of the Common Stock on the New York
Stock Exchange was $16.
The granting of awards under the Stock Incentive Plan is discretionary, and
the Company cannot now determine the number or type of awards to be granted in
the future to any particular person or group. However, on April 13, 1995, the
ECC approved the issuance, as of June 13, 1995, subject to and contingent upon
stockholder approval of this proposal, of 240,000 non-statutory stock options
in lieu of salary increases for the period June 4, 1995 through June 2, 1996
to certain current executive officers. The following table sets forth the
benefits received by the indicated persons and groups under the Stock
Incentive Plan during fiscal 1995 prior to the date of this proxy statement
(including the 240,000 options whose issuance is conditioned on stockholder
approval of this proposal):
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<PAGE>
NEW PLAN BENEFITS(1)
1989 STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
DOLLAR NUMBER
NAME AND POSITION VALUES(2) OF SHARES
- - ----------------- --------- ---------
<S> <C> <C>
Herbert J. Zarkin, President and Chief Executive Officer... $0 100,000
Allan P. Sherman, Executive Vice President, President-
HomeBase.................................................. 0 50,000
John J. Nugent, Executive Vice President, President-BJ's
Wholesale Club............................................ 0 50,000
Edward J. Weisberger, Senior Vice President and Chief
Financial Officer......................................... 0 40,000
Sumner L. Feldberg, Chairman of the Board.................. 0 0
Dale N. Garth.............................................. 0 0
Executive Group............................................ 0 240,000
Non-Executive Director Group............................... 0 0
Non-Executive Officer Employee Group....................... 0 1,000
</TABLE>
- - --------
(1) The amounts in this table reflect benefits under the Stock Incentive Plan
granted during fiscal 1995 prior to the date of this proxy statement or to
be granted on June 13, 1995 if this proposal is approved by the
stockholders. Since the granting of awards is discretionary, the Company
cannot now determine the number or type of awards to be granted during the
remainder of fiscal 1995.
(2) Represents the difference between the exercise price per share payable by
the indicated person and the fair market value of the Common Stock on the
date of grant.
CERTAIN FEDERAL INCOME TAX ASPECTS OF THE STOCK INCENTIVE PLAN
The following discussion is for general information only and does not
purport to be a complete description of federal tax aspects of the Stock
Incentive Plan. In particular, as discussed below, special rules may apply to
participants subject to Section 16(b) of the Exchange Act.
Incentive Options. The grant of an incentive option does not produce taxable
income to the optionee or a deduction to the Company. If an incentive option
is exercised while the optionee is employed or within three months following
the termination of employment (twelve months in the case of termination of
employment because of permanent disability), or after the optionee's death if
death occurs during the foregoing periods, exercise of the option will in
general also not produce taxable ordinary income to the optionee or a
deduction to the Company. For alternative minimum tax purposes, however, such
exercise will increase the optionee's "alternative minimum taxable income" and
may result in a liability to pay the alternative minimum tax.
If an incentive option is exercised other than as described above, the tax
consequences will be the same as those described below for non-statutory
options. Also, to the extent that the aggregate fair market value of the stock
(determined at time of grant) with respect to which incentive options granted
under all options plans of the Company and its subsidiary corporations are
exercisable for the first time by an individual during any calendar year
exceeds $100,000, such options will be treated as non-statutory stock options.
If stock acquired upon the exercise of an incentive option is not disposed
of within two years from the date the option is granted or within one year
after the date the option is exercised, gain or loss recognized upon
disposition of the stock will be capital gain or loss. If these one-year and
two-year holding period requirements are not satisfied, the participant will
realize ordinary income at the time of disposition of the stock. (A
disposition giving rise to such ordinary income is referred to as
"disqualifying disposition".) Upon a disqualifying disposition, a participant
will generally realize ordinary income equal to the difference between fair
market value of the stock on the date
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<PAGE>
of exercise and the exercise price, and the Company will be entitled to a
deduction equal to such amount. Any additional gain recognized in the
disposition will be a capital gain for which no deduction will be available.
If the disqualifying disposition is a sale or exchange with respect to which
loss (if sustained) would be recognized, then the amount of ordinary income
realized upon the disqualifying disposition (and the amount of the Company's
deduction) will not exceed the excess of the amount realized on such sale or
exchange over the adjusted basis of the stock.
If a participant exercises an incentive option in whole or in part by
surrendering previously-acquired stock, no gain or loss is recognized on the
exchange of the previously-acquired shares unless the exchange results in a
disqualifying disposition of the shares surrendered. Such a disqualifying
disposition may result in the realization of ordinary income.
Non-statutory Options. The grant of a non-statutory option does not produce
taxable income to the optionee or a deduction to the Company. A participant
exercising a non-statutory option realizes ordinary income in the amount of
the difference between the exercise price and the then market value of the
shares, and the Company is entitled to a corresponding deduction (subject to
any withholding or reporting requirements). If a participant exercises a non-
statutory option by surrendering previously-acquired stock, no gain or loss is
recognized on the exchange for an equivalent number of new shares. The
participant will realize ordinary income, and the Company will be entitled to
a corresponding deduction (subject to any withholding or reporting
requirements), in general equal to the fair market value of any new shares
received in excess of the number of previously-acquired shares surrendered in
the exchange.
Surrender of Options. If an individual surrenders all or any portion of an
option in exchange for cash or stock, the individual realizes ordinary income
subject to withholding (and the Company is in general entitled to a deduction)
equal to the amount of cash and the fair market value of the stock received.
Stock Appreciation Rights. No income is realized by an individual in
connection with the grant of a stock appreciation right. A participant
exercising a stock appreciation right realizes ordinary income subject to
withholding (and the Company is entitled to a corresponding deduction) equal
to the amount of cash and the fair market value of any shares received.
Restricted Stock. In general, an award of Restricted Stock under the Stock
Incentive Plan will result in ordinary income to the employee only if, and
when, the shares of Restricted Stock become transferable or are no longer
subject to a substantial risk of forfeiture. Notwithstanding these general
rules, an employee may elect under Section 83(b) of the Code to recognize
immediately the ordinary income associated with an award of Restricted Stock.
In any case, the ordinary income will equal the excess of the fair market
value of the shares of Restricted Stock, determined as of the date the income
with respect to such shares is recognized, over the price (if any) paid. The
Company will in general be entitled to a deduction equal to the amount of the
ordinary income, if any, subject to the limitations of Section 162(m) of the
Code, recognized by the employee in respect of the transfer of shares of
Restricted Stock. If any employee who has elected immediate recognition under
Section 83(b) of the Code subsequently forfeits such shares, he or she will be
entitled to a capital loss equal to the excess, if any, of the amount of the
adjusted basis of the stock over any refund of the purchase price paid to the
employee upon the forfeiture. An employee selling shares after forfeiture
restrictions have lapsed or been removed will recognize capital gain or loss
equal to the difference between the ordinary income previously recognized
(plus any amount paid for the shares) and the amount received upon sale. If
Restricted Stock is received in connection with another award under the Stock
Incentive Plan, the ordinary income and the deduction, if any, associated with
such award may be deferred in accordance with the rules described above for
Restricted Stock.
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<PAGE>
Deferred Stock. An employee granted an award of Deferred Stock will not
realize income upon grant, nor will the Company be entitled to any deduction
at that time. The employee will generally recognize ordinary income (and the
Company will be entitled to a deduction, subject to the limitations of Section
162(m) of the Code) equal to the fair market value of the shares upon the
transfer of shares to the employee at the expiration of the last applicable
deferral period. Amounts paid to an employee in respect of Deferred Stock
prior to such transfer, and dividends paid on shares of Deferred Stock after
such transfer, will be taxable as ordinary income to the employee. The Company
will in general be entitled to a deduction for any amounts paid in respect of
awarded shares prior to such transfer. Upon a sale of such shares, the
employee will recognize capital gain or loss equal to the difference between
the ordinary income previously recognized in respect of the transfer of the
shares to the employee and the amount received upon sale. If a right to
Deferred Stock is received under another award under the Stock Incentive Plan
(for example, upon exercise of an option), the ordinary income and the
deduction, if any, associated with such award may be deferred as described
above for Deferred Stock.
Other Stock-based Awards. The tax consequences associated with Stock-based
Awards under the Stock Incentive Plan other than those specifically described
above, will, in general, be as follows:
Prior to the receipt of shares by an employee, the employee will recognize
no income and the Company will not be entitled to a deduction. Upon such
receipt, or if later, when the shares become transferable or are no longer
subject to a substantial risk of forfeiture, the employee will realize
ordinary income (and the Company will in general be entitled to a deduction,
subject to the limitations of Section 162(m) of the Code) equal to the excess
of the fair market value of the shares at such time over any amount paid for
the shares. If shares at the time of receipt are subject to a substantial risk
of forfeiture and are non-transferable, the employee may elect, at the time of
receipt, under Section 83(b) of the Code, to have the ordinary income in
respect of the receipt recognized and measured at the time of receipt. (If
such shares are subsequently forfeited, the employee will be entitled to a
capital loss equal to the excess, if any, of the amount of the adjusted basis
of the stock over the amount received upon forfeiture.)
Upon a sale of shares received under an Other Stock-based Award, the
difference between the amount of ordinary income previously realized in
respect of such shares (plus any amount paid for the shares) and the amount
received in the sale will be a capital gain or loss. If cash is transferred to
the employee under an Other Stock-based Award, the employee will include as
ordinary income at the time of receipt the full amount of cash received.
It is unclear how the receipt of convertible securities under the Stock
Incentive Plan will be treated for federal tax purposes. The tax consequences
will depend in part on whether, under the law at the time of the receipt, the
receipt is deemed to involve an option and, if so, whether the option element
has a readily ascertainable fair market value. If the convertible security is
analyzed for tax purposes as a single unit of property, rather than property
having a separate option feature, or if the option feature is deemed to have a
readily ascertainable fair market value, then the employee will realize
ordinary income (and the Company will in general be entitled to a deduction),
at the time of receipt of the security equal to the fair market value at that
time (except that if the security is not transferable and is subject to a
substantial risk of forfeiture, income will be recognized and a deduction will
generally be available to the Company at such later time as the security
becomes transferable or the relevant restrictions lapse unless immediate
recognition is elected under Section 83(b) of the Code). If the convertible
security is analyzed for tax purposes as a single unit of property, the
subsequent exercise of the conversion feature will not result in the
recognition of income. On the other hand, if the security is viewed under
applicable tax principles as consisting in part of property and in part of an
option without a readily ascertainable fair market value, no income will be
recognized by the employee in respect of the option element until conversion
of the security at which time the employee will be treated for tax purposes as
if he or she had exercised a non-statutory option.
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<PAGE>
Supplemental Grants. In general, bona fide loans made under the Stock
Incentive Plan will not result in taxable income to the recipient or in a
deduction to the Company. However, any such loan made at a rate of interest
lower than certain rates specified under the Code may result in the difference
being included in the borrower's income. Forgiveness of all or a portion of a
loan will also result in income to the borrower and a deduction for the
Company, subject to the limitations of Section 162(m) of the Code. In general,
interest paid on loans under the Stock Incentive Plan will be deductible only
if it constitutes "investment interest", and the deductibility of investment
interest will in general be limited by the borrower's investment income. If
outright cash grants are given in order to facilitate the payment of award-
related taxes, the grants will be included as ordinary income by the recipient
at the time of receipt and will in general be deductible by the Company.
Payments in Respect of Change of Control. The Stock Incentive Plan provides
for acceleration or payment of awards and related stock in the event of a
Change of Control, as defined in the Stock Incentive Plan. Under the Code's
so-called "parachute payment" rules, if a "disqualified individual" receives
or is deemed to have received compensation, contingent on a Change of Control,
in an amount equal to or greater than three times his or her average
compensation for the five years preceding the year in which the Change of
Control occurs, the excess received (or deemed to have been received) over the
five-year average base amount is treated as an "excess parachute payment".
Except to the extent it can be shown that such an "excess parachute payment"
involved reasonable compensation, such excess will be nondeductible to the
Company and its recipient will be subject to a 20 percent excise tax (in
addition to any other taxes).
Participants Subject to Section 16(b). Special tax rules may apply in the
case of awards under the Stock Incentive Plan to employees subject to the
provisions of Section 16(b) of the Exchange Act. In general, Section 16(b)
will cause stock acquired pursuant to such an award to be treated for tax
purposes as nontransferable and subject to a substantial risk of forfeiture
until six months after the date of grant. Accordingly, any income that would
otherwise be recognized in respect of such award (under the rules described
above) prior to the expiration of such six-month period will be deferred until
such expiration unless the employee makes a timely election under Section
83(b) of the Code.
DIRECTORS' PROPOSAL TO APPROVE 1995 DIRECTOR STOCK OPTION PLAN
(ITEM 3 ON PROXY CARD)
The Company's 1995 Director Stock Option Plan (the "Director Plan") was
adopted by the Board of Directors of the Company on December 6, 1994, subject
to stockholder approval. The Director Plan is designed to advance the
interests of the Company and its stockholders. The Director Plan is intended
to increase the proprietary interest in the Company of non-employee directors
by providing a portion of their compensation in options to acquire shares of
Common Stock and thereby align the interests of those directors more closely
with the interests of the stockholders.
The Board of Directors believes that stock options are important to attract
and retain well-qualified persons for service as directors of the Company. The
Director Plan will provide directors, through the grant of stock options, with
the opportunity to increase their proprietary interest in the Company and
thereby increase their personal interest in the Company's continued success.
The Board of Directors believes that adoption of the Director Plan is
appropriate in order to assure that stock options will be available for
granting to directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE DIRECTOR PLAN.
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<PAGE>
DESCRIPTION OF THE DIRECTOR PLAN
The principal provisions of the Director Plan are summarized below. Such
summary does not, however, purport to be complete and is qualified in its
entirety by the terms of the Director Plan, the entire text of which is
attached hereto as Exhibit A and incorporated herein by reference.
Under the terms of the Director Plan, a maximum of 150,000 shares (subject
to adjustment as provided in the plan) of authorized but unissued Common Stock
will be reserved for issuance.
On the date of approval of the Director Plan by the stockholders, each non-
employee director of the Company continuing in office after, or elected at,
such meeting will be granted an option to purchase 3,000 shares of Common
Stock. On the date of each subsequent annual meeting, each continuing non-
employee director will be granted an option to acquire an additional 1,500
shares of Common Stock and each director newly elected or elected subsequent
to the then most recent annual meeting will receive an option to purchase
3,000 shares of Common Stock. The option exercise price for each of these
options shall equal the fair market value of a share of Common Stock on the
date of grant as determined in accordance with the Director Plan. Each option
will be non-transferable except upon death, will expire 10 years after the
date of grant and will become exercisable on a cumulative basis as to one-
third of the shares subject to the option on each of the first three
anniversaries of the date of grant. If the director dies or otherwise ceases
to be a director prior to the date the option becomes exercisable, that option
will immediately expire. Any vested options will remain exercisable for a
period of one year following cessation of service as a director of the
Company. All unexercised options will become exercisable in full beginning 20
days prior to the consummation of a merger or consolidation (as described in
the Director Plan), acquisition, reorganization or liquidation and, to the
extent not exercised, shall terminate immediately after the consummation of
such merger, consolidation, acquisition, reorganization or liquidation.
Options may be exercised by payment in cash or cash equivalents or by delivery
of outstanding shares of Common Stock having a fair market value on the last
business day preceding the date of exercise equal to the option exercise
price.
CERTAIN FEDERAL INCOME TAX ASPECTS OF THE DIRECTOR PLAN
For federal income tax purposes, options under the Director Plan are treated
as non-statutory options. In general, in the case of a non-statutory option,
the optionee has no federal taxable income at the time of grant but realizes
income in connection with exercise of the option in an amount equal to the
excess (at time of exercise) of the fair market value of the shares acquired
upon exercise over the exercise price; a corresponding deduction is available
to the Company; and upon a subsequent sale or exchange of the shares,
appreciation or depreciation arising after the date of exercise is treated by
the director as capital gain or loss for which the Company is not entitled to
a deduction.
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RELATIONSHIP WITH THE TJX COMPANIES, INC.
In connection with the Company's 1989 spin-off from TJX (the "Spin-off"),
the Company and TJX entered into a Distribution Agreement and a Services
Agreement.
The Distribution Agreement provides for, among other things, (i) the
division between the Company and TJX of certain liabilities and (ii) certain
other agreements governing the relationship between the Company and TJX
following the Spin-off. Under the Distribution Agreement, TJX assumed certain
liabilities relating to the Company's business for the period prior to the
Spin-off. In general, the Company assumed responsibility for all post-Spin-off
liabilities relating to its business. TJX retained liability for insured
claims arising before the Spin-off and in 1999 will receive from (or pay to)
the Company the amount by which TJX's costs at the end of this 10-year period
exceed (or are less than) the reserve amount agreed to.
Pursuant to the Services Agreement, TJX provided certain services, primarily
data processing, to the Company during 1994, for which the Company paid TJX
approximately $7.6 million. The Company has entered into an agreement with TJX
pursuant to which TJX will provide data processing services to the Company
through January 31, 1998.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC and the New
York Stock Exchange initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater-than-ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during fiscal 1994 all Section 16(a) filing
requirements applicable to its officers, directors and greater-than-ten-
percent beneficial owners were complied with, except that Mr. Nugent filed one
month late a Form 4 relating to the sale of 6,000 shares of Common Stock of
the Company.
INDEPENDENT AUDITORS
The directors have appointed Coopers & Lybrand as independent auditors to
examine the financial statements of the Company for the fiscal year ending
January 27, 1996. The Company expects that representatives of Coopers &
Lybrand will be present at the meeting, will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders must be received by the Company no later than 5 p.m.
EST on December 29, 1995 in order to be considered for inclusion in the
Company's proxy materials for that meeting. Proposals must be in writing and
sent via registered or certified mail addressed to Sarah M. Gallivan,
Secretary, Waban Inc., One Mercer Road, Natick, Massachusetts 01760. In
addition, the Company's by-laws specify requirements relating to the timing
and content of the notice which stockholders must provide to the Secretary of
the Company for any matter, including a stockholder nomination for director,
to be properly presented at a stockholder meeting.
29
<PAGE>
OTHER MATTERS
The management has no knowledge of any other matter which may come before
the meeting and does not intend to present any such other matter. However, if
any such other matters shall properly come before the meeting or any
adjournment thereof, the persons named as proxies will have discretionary
authority to vote the shares represented by the accompanying proxy in
accordance with their own judgment.
Neither the Executive Compensation Committee Report appearing above at pages
7 through 10, nor the Performance Graph appearing above on page 16 shall be
deemed incorporated by reference by any general statement incorporating this
proxy statement into any filing under the Securities Act of 1933 or under the
Exchange Act, except to the extent that the Company specifically incorporates
such information by reference, and shall not otherwise be deemed filed under
such Acts.
The cost of solicitation of proxies will be borne by the Company. The
Company has retained Shareholder Communications Corporation to assist in
soliciting proxies by mail, telephone and personal interview for a fee of
$5,000 plus expenses. Officers and employees of the Company may also assist in
soliciting proxies in the same manner.
30
<PAGE>
EXHIBIT A
[LOGO OF WABAN INC. APPEARS HERE]
1995 DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1995 Director Stock Option Plan (the "Plan") of Waban
Inc. (the "Company") is to encourage ownership in the Company by non-employee
directors of the Company whose continued services are considered essential to
the Company's future progress and to provide them with a further incentive to
remain as directors of the Company.
2. ADMINISTRATION
(a) The Board of Directors shall supervise and administer the Plan. Grants
of stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all
questions of interpretation of the Plan or of any options issued under it
shall be determined by the Board of Directors and such determination shall be
final and binding upon all persons having an interest in the Plan. The Board
of Directors may, to the full extent permitted by or consistent with
applicable laws or regulations, delegate any or all of its powers under the
Plan to a committee appointed by the Board of Directors, and if the committee
is so appointed, all references to the Board of Directors in the Plan shall
mean and relate to such committee.
(b) The Plan is intended to comply with all applicable conditions of Rule
16b-3 or its successors under Section 16 of the Securities Exchange Act of
1934, as amended. To the extent any provision of the Plan or action by the
Board of Directors fails to so comply, it shall be deemed null and void to the
extent permitted by law and deemed advisable by the Board of Directors.
3. PARTICIPATION IN THE PLAN
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
(a) The maximum number of shares which may be issued under the Plan shall be
150,000 shares of the Company's Common Stock, par value $0.01 per share
("Common Stock"), subject to adjustment as provided in Section 8 of the Plan.
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended to date and as it may be amended from time to time
(the "Code").
(d) Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
A-1
<PAGE>
5. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under the Plan shall be evidenced by a written agreement
in such form as the Board of Directors shall from time to time approve, which
agreements shall comply with and be subject to the following terms and
conditions:
(a) OPTION GRANT DATES AND NUMBER OF OPTIONS. Upon the date of the annual
meeting of the stockholders of the Company at which the Plan is approved and
adopted, the Company shall grant to each eligible director continuing in
office after, or elected at, such meeting an option for 3,000 shares of Common
Stock. Upon the date of each subsequent annual meeting of the stockholders of
the Company, (i) the Company shall grant to each eligible director elected as
a director for the first time at such meeting an option for 3,000 shares of
Common Stock and (ii) the Company shall grant to each other eligible director
continuing in office after, or elected at, such meeting an option for 1,500
shares of Common Stock. For purposes of this paragraph, each eligible director
initially elected other than at an annual meeting of stockholders, shall be
deemed to have been elected as a director for the first time at the next
annual meeting of stockholders following his or her election as a director
(provided such person is serving as a director on the date of such annual
meeting).
(b) OPTION EXERCISE PRICE. The option exercise price per share for each
option granted under the Plan shall equal the closing sale price per share of
the Common Stock on the New York Stock Exchange on the date of grant (or if no
such price is reported on such date such price as reported on the nearest
preceding day) as reported in The Wall Street Journal (Eastern Edition).
If the Common Stock is instead listed on another nationally recognized
securities exchange on the date of grant, the option exercise price per share
for each option granted under the Plan shall equal the reported closing sale
price per share of the Common Stock by such exchange on the date of grant or
if the Common Stock is traded on the Nasdaq National Market or another
automated quotation system, the last reported sale price per share of the
Company's Common Stock on such system on the date of grant (or if no such
price is reported on such date, such price as reported on the nearest
preceding day) as reported in The Wall Street Journal (Eastern Edition). If
the Common Stock is not listed on an exchange or reported in an automated
quotation system, the fair market value per share on the date of grant shall
be determined by the Board of Directors.
(c) OPTIONS NON-TRANSFERABLE. Options granted under the Plan and the rights
and benefits of participants under the Plan shall not be assignable or
transferable by the optionee, whether voluntarily or by operation of law,
otherwise than by will, or by the laws of descent and distribution, and shall
be exercised during the lifetime of the optionee only by the optionee. No
option or interest therein may be transferred, assigned, pledged or
hypothecated by the optionee during the optionee's lifetime, whether by
operation of law or otherwise, or be made subject to execution, attachment or
similar process.
(d) EXERCISE PERIOD. Each option shall become exercisable on a cumulative
basis as to one-third of the shares subject to the option on each of the first
three anniversaries of the date of grant of such option. In the event an
optionee ceases to serve as a director, each such option may be exercised by
the optionee (or, in the event of the optionee's death, by the optionee's
administrator, executor or heirs), at any time within 12 months after the
optionee ceases to serve as a director, to the extent such option was
exercisable at the time of such cessation of service. Notwithstanding the
foregoing, no option shall be exercisable after the expiration of ten years
from the date of grant.
(e) EXERCISE PROCEDURE. Options may be exercised only by written notice to
the Company at its principal office accompanied by (i) payment in cash or by
certified or bank check of the full consideration for the shares as to which
they are exercised, (ii) delivery of outstanding shares of the Company's
Common Stock (which, in the case of shares acquired from the Company, have
been
A-2
<PAGE>
outstanding for at least six months) having a fair market value on the last
business day preceding the date of exercise equal to the option exercise
price, or (iii) an irrevocable undertaking by a broker (who is a member of the
New York Stock Exchange) to deliver promptly to the Company sufficient funds
to pay the exercise price or delivery of irrevocable instructions to a broker
(who is a member of the New York Stock Exchange) to deliver promptly to the
Company cash or a check sufficient to pay the exercise price.
6. EFFECTIVE DATE AND TERMINATION
(a) The Plan shall become effective on the date the Plan is approved and
adopted by the stockholders of the Company.
(b) Unless sooner terminated in accordance with its terms, the Plan shall
terminate on the day following the date of the Company's annual meeting of
stockholders for the year 2000. Options outstanding on such date shall
continue to have force and effect in accordance with the provisions of the
instruments evidencing such options.
7. LIMITATION OF RIGHTS
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the granting
of an option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company will retain a director for any period of time.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall have no rights as
a stockholder with respect to the shares covered by such optionee's options
until the date of the issuance to such optionee of a stock certificate
therefor, and no adjustment will be made for dividends or other rights (except
as provided in Section 8) for which the record date is prior to the date such
certificate is issued.
(c) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or the disclosure
of non-public information or the satisfaction of any other condition is
necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification, or to satisfy such condition.
8. CHANGES IN COMMON STOCK
(a) If the outstanding shares of Common Stock are increased, decreased or
exchanged for a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are
distributed with respect to such shares of Common Stock or other securities,
through merger, consolidation, sale of all or substantially all of the assets
of the Company, reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other distribution with respect
to such shares of Common Stock, or other securities, an appropriate and
proportionate adjustment will be made in (i) the maximum number and kind of
shares reserved for issuance under the Plan, (ii) the number and kind of
shares or other securities subject to then outstanding options under the Plan
and (iii) the price for each share subject to any then outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable. No fractional shares will be issued under the Plan
on account of any such adjustments.
A-3
<PAGE>
(b) In the event that the Company is merged or consolidated into or with
another corporation (in which consolidation or merger the stockholders of the
Company receive distributions of cash or securities of another issuer as a
result thereof), or in the event that all or substantially all of the assets
of the Company are acquired by any other person or entity, or in the event of
a reorganization or liquidation of the Company, all unexercised options will
become exercisable in full beginning 20 days prior to the consummation of such
merger, consolidation, acquisition, reorganization or liquidation and, to the
extent not exercised, shall terminate effective immediately after the
consummation of such merger, consolidation, acquisition, reorganization or
liquidation.
9. AMENDMENT OF THE PLAN
The Board of Directors may suspend or discontinue the Plan or review or
amend it in any respect whatsoever; provided, however, that without approval
of the stockholders of the Company no revision or amendment shall change the
number of shares subject to the Plan (except as provided in Section 8), change
the designation of the class of directors eligible to receive options, or
materially increase the benefits accruing to participants under the Plan. The
provisions of the Plan which state the amount and price of securities to be
awarded under the Plan, specify the timing of awards under the Plan or set
forth a formula that determines the amount, price and timing may not be
amended more than once in any six-month period, except to comport with changes
in the Code, the Employee Retirement Income Security Act, or the rules
thereunder.
10. NOTICE
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
11. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto shall
be governed by the laws of the Commonwealth of Massachusetts.
A-4
<PAGE>
P R O X Y
WABAN INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS, JUNE 13, 1995
The undersigned hereby appoints Sumner L. Feldberg, Edward J. Weisberger
and Sarah M. Gallivan, and each of them, as proxies, with full power of
substitution, to represent and to vote, as designated herein, all shares
of Common Stock of WABAN INC. at the Annual Meeting of Stockholders of
WABAN INC. to be held at Fleet Bank, 75 State Street, Boston,
Massachusetts, on Tuesday, June 13, 1995 at 11:00 A.M., and at all
adjournments thereof, which the undersigned could vote, if present, in
such manner as they may determine on any matters which may properly come
before the meeting and to vote on the following as specified below.
The Board of Directors recommends a vote FOR the following:
ELECTION OF DIRECTORS for a term to expire in 1998.
Nominees: S. James Coppersmith, Thomas J. Shields and Herbert J. Zarkin.
and FOR Proposals 2 and 3.
You are encouraged to specify your choices by marking the appropriate
boxes on the reverse side but you need not mark any boxes if you wish to
vote in accordance with the Board of Directors' recommendations. Please
sign and return this card.
----------------
SEE REVERSE SIDE
----------------
<PAGE>
+
[X] PLEASE MARK YOUR ++ + 2741
VOTES AS IN THIS + ++++
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES AND FOR PROPOSALS 2 AND 3. THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
1. Election of Directors (see reverse)
FOR WITHHELD
[_] [_]
For, except vote withheld from the following nominee(s):
------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of Management [_] [_] [_]
Incentive Plan
3. Approval of Growth Incentive [_] [_] [_]
Plan
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. Only authorized officers should sign for corpo-
rations.
- - -----------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
SIGNATURE(S) DATE
PLEASE SIGN AND DATE HERE AND RETURN PROMPTLY
===============================================================================
Detach here
<PAGE>
WABAN INC.
1989 STOCK INCENTIVE PLAN
Page
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS................ 1
SECTION 2. COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND
DETERMINE AWARDS, ETC................................... 2
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION... 3
SECTION 4. ELIGIBILITY............................................. 4
SECTION 5. LIMITATIONS ON TERM AND DATES OF AWARDS................. 4
SECTION 6. STOCK OPTIONS........................................... 4
SECTION 7. STOCK APPRECIATION RIGHTS; DISCRETIONARY PAYMENTS....... 7
SECTION 8. RESTRICTED STOCK; UNRESTRICTED STOCK.................... 8
SECTION 9. DEFERRED STOCK AWARDS................................... 10
SECTION 10. PERFORMANCE UNIT AWARDS................................. 11
SECTION 11. OTHER STOCK-BASED AWARDS; SUPPLEMENTAL GRANTS........... 12
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC......................... 13
SECTION 13. AMENDMENTS AND TERMINATION.............................. 14
SECTION 14. STATUS OF PLAN.......................................... 14
SECTION 15. CHANGE OF CONTROL PROVISIONS............................ 14
SECTION 16. GENERAL PROVISIONS...................................... 15
SECTION 17. EFFECTIVE DATE OF PLAN.................................. 15
<PAGE>
WABAN INC.
1989 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS.
The name of the plan is the Waban Inc. 1989 Stock Incentive Plan (the
"Plan"). The purpose of the Plan is to secure for Waban Inc. (the "Company") and
its stockholders the benefit of the incentives inherent in Common Stock
ownership and the receipt of incentive awards by selected key employees of the
Company and its Subsidiaries who contribute to and will be responsible for its
continued long term growth. The Plan is intended to stimulate the efforts of
such key employees by providing an opportunity for capital appreciation and
giving suitable recognition for services which contribute materially to the
success of the Company.
The following terms shall be defined as set forth below:
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Award" or "Awards" except where referring to a particular category
of grant under the Plan shall include Incentive Stock Options, Non-
Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Unrestricted Stock Awards, Deferred Stock Awards, Performance
Unit Awards and Other Stock-based Awards.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means a felony conviction of a participant or the failure
of a participant to contest prosecution for a felony, or a participant's
willful misconduct or dishonesty, any of which is directly harmful to
the business or reputation of the Company or any Subsidiary.
(e) "Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
(f) "Committee" means the Committee referred to in Section 2. If at any
time no Committee shall be in office, the functions of the Committee
shall be exercised by the Board.
(g) "Deferred Stock Award" is defined in Section 9(a).
(h) "Disability" means disability as determined in accordance with
standards and procedures similar to those under the Company's long term
disability program.
(i) "Disinterested Person" shall have the meaning set forth in
Rule 16b-3(d)(3) promulgated under the Act, or any successor definition
under the Act.
(j) "Fair Market Value" on any given date means the last sale price
regular way at which Stock is traded on such date as reflected in the
New York Stock Exchange Composite Transactions Index or, where
applicable, the value of a share of Stock as determined by the Committee
in accordance with the applicable provisions of the Code.
(k) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" as defined in the Code.
(l) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
<PAGE>
(m) "Normal Retirement" means retirement from active employment with
the Company and its Subsidiaries on or after the normal retirement date
specified in the Waban Inc. Retirement Plan.
(n) "Other Stock-based Awards" is defined in Section 11(a).
(o) "Performance Unit Award" is defined in Section 10(a).
(p) "Restricted Stock Award" is defined in Section 8(a).
(q) "Stock" means the Common Stock, $.01 par value, of the Company,
subject to adjustments pursuant to Section 3.
(r) "Stock Appreciation Right" means a right described in Section 7(a)
and granted, either independently of other Awards or in tandem with the
grant of a Stock Option.
(s) "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 6.
(t) "Subsidiary" means any corporation or other entity (other than the
Company) 50% or more of the total combined voting power of all classes
of stock or other interests of which is owned, directly or indirectly,
by the Company.
(u) "Unrestricted Stock Award" is defined in Section 8(b).
SECTION 2. COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND
DETERMINE AWARDS, ETC.
The Plan shall be administered by a Committee of not less than three
Disinterested Persons, who shall be appointed by the Board and who shall serve
at the pleasure of the Board.
The Committee shall have the power and authority to grant Awards
consistent with the terms of the Plan, including the power and authority:
(i) to select the officers and other key employees of the Company and
its Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Unrestricted Stock,
Deferred Stock, Performance Units and any Other Stock-based
Awards, or any combination of the foregoing, granted to any one
or more participants;
(iii) to determine the number of shares to be covered by any Award;
(iv) to determine the terms and conditions, including restrictions,
not inconsistent with the terms of the Plan, of any Award, which
terms and conditions may differ among individual Awards and
participants;
(v) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an
Award shall be deferred either automatically or at the election
of the participant and whether and to what extent the Company
shall pay or credit amounts equal to interest (at rates
determined by the Committee) or dividends or deemed dividends on
such deferrals; and
<PAGE>
(vi) to adopt, alter and repeal such rules, guidelines and practices
for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related Award
Agreements); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the
administration of the Plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION.
(a) Shares Issuable.
The maximum number of shares of Stock reserved and available for
issuance under the Plan shall be 5,750,000, including shares issued in lieu of
or upon reinvestment of dividends arising from Awards. For purposes of this
limitation, Awards and Stock which are forfeited, reacquired by the Company or
satisfied without the issuance of Stock shall not be counted and such limitation
shall apply only to shares which have become free of any restrictions under the
Plan. Subject to such overall limitation, shares may be issued up to such
maximum pursuant to any type or types of Award, including Incentive Stock
Options. Shares issued under the Plan may be authorized by unissued shares or
shares reacquired by the Company. Subject to adjustment as provided in Section
3(b) below, the maximum number of shares of Stock with respect to which Stock
Options and Stock Appreciation Rights may be granted to any employee under the
Plan shall not exceed 250,000 shares of Stock during any one calendar year. For
the purpose of calculating such maximum number, (a) each Stock Option and Stock
Appreciation Right shall continue to be treated as outstanding notwithstanding
its repricing, cancellation or expiration, (b) the repricing of an outstanding
Stock Option or Stock Appreciation Right or the issuance of a new Stock Option
or Stock Appreciation Right in substitution for a cancelled Stock Option or
Stock Appreciation Right shall be deemed to constitute the grant of a new
additional Stock Option or Stock Appreciation Right separate from the original
grant of the Stock Option or Stock Appreciation Right that is repriced or
cancelled and (c) a Stock Appreciation Right that is granted in tandem with a
Stock Option shall not be included.
(b) Stock Dividends, Mergers, etc.
In the event of a stock dividend, stock split or similar change in
capitalization affecting the Stock, the Committee shall make appropriate
adjustments in (i) the number and kind of shares of stock or securities on which
Awards may thereafter be granted, (ii) the number and kind of shares remaining
subject to outstanding Awards, and (iii) the option or purchase price in respect
of such shares. In the event of any merger, consolidation, dissolution or
liquidation of the Company, the Committee in its sole discretion may, as to any
outstanding Awards, make such substitution or adjustment in the aggregate number
of shares reserved for issuance under the Plan and in the number and purchase
price (if any) of shares subject to such Awards as it may determine, or
accelerate, amend or terminate such Awards upon such terms and conditions as it
shall provide (which, in the case of the termination of the vested portion of
any Award, shall require payment or other consideration which the Committee
deems equitable in the circumstances), subject, however, to the provisions of
Section 15.
(c) Substitute Awards.
The Company may grant Awards under the Plan in substitution for
stock and stock based awards held by employees of another corporation who
concurrently become employees of the Company or a Subsidiary as the result of a
merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Committee may direct that the substitute
Awards be granted on such terms and conditions as the Committee considers
appropriate in the circumstances. The shares which may be delivered under such
substitute Awards shall be in addition to the maximum number of shares provided
for in Section 3(a) only to the extent that the substitute Awards are (i)
granted to persons whose relationship to the Company does not make (and is not
expected to make) them subject to Section 16(b) of the Act, (ii) granted in
substitution for awards issued under a plan approved, to the extent then
required under Rule 16b-3 (or any successor rule under the Act) by the
stockholders of the entity which issued such predecessor awards, and (iii)
granted other than in connection with the spin-off of the Company by Zayre Corp.
<PAGE>
SECTION 4. ELIGIBILITY.
Participants in the Plan will be such full or part time officers and
other key employees of the Company and its Subsidiaries (excluding any director
who is not an employee) who are responsible for or contribute to the management,
growth or profitability of the Company and its Subsidiaries and who are selected
from time to time by the Committee, in its sole discretion. Persons who are not
employees of the Company or a subsidiary (within the meaning of Section 422A of
the Code) shall not be eligible to receive grants of Incentive Stock Options.
SECTION 5. LIMITATIONS ON TERM AND DATES OF AWARDS.
(a) Duration of Awards.
Subject to Sections 16(a) and 16(c) below, no restrictions or
limitations on Awards shall extend beyond 10 years (or 10 years and one day in
the case of Non-Qualified Stock Options) from the grant date, except that
deferrals elected by participants of the receipt of Stock or other benefits
under the Plan may extend beyond such date.
(b) Latest Grant Date.
No Award shall be granted more then 10 years after the effective date of
the Plan, but then outstanding Awards may extend beyond such date.
SECTION 6. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. To the extent that any option does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted to the Committee under
the Plan be so exercised, so as to disqualify the Plan or, without the consent
of the optionee, any Incentive Stock Option under Section 422A of the Code.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price.
The option price per share of Stock purchasable under a Stock Option
shall be determined by the Committee at the time of grant but shall be not less
than 100% of Fair Market Value on the date of grant. If an employee owns or is
deemed to own (by reason of the attribution rules applicable under Section
425(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation and an Incentive
Stock Option is granted to such employee, the option price shall be not less
than 110% of Fair Market Value on the grant date.
<PAGE>
(b) Option Term.
The term of each Stock Option shall be fixed by the Committee, but no
Incentive Stock Option shall be exercisable more than ten years after the date
the option is granted and no Non-Qualified Stock Option shall be exercisable
more than ten years and one day after the date the option is granted. If an
employee owns or is deemed to own (by reason of the attribution rules of Section
425(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation and an Incentive
Stock Option is granted to such employee, the term of such option shall be no
more than five years from the date of grant.
(c) Exercisability.
Stock Options shall be exercisable at such future time or times, whether or
not in installments, as shall be determined by the Committee at or after the
grant date. The Committee may at any time accelerate the exercisability of all
or any portion of any Stock Option.
(d) Method of Exercise.
Stock Options may be exercised in whole or in part, by giving written
notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price, either by certified or bank check or other instrument acceptable to the
Committee. As determined by the Committee, in its discretion, at (or, in the
case of Non-Qualified Stock Options, after) grant, payment in full or in part
may also be made either (i) through the surrender by the optionee of shares of
Stock not then subject to restrictions under any Company plan or (ii) through
the withholding by the Company of shares of Stock which would otherwise be
delivered to the optionee upon exercise of the option. Such surrendered or
withheld shares shall be valued at Fair Market Value on the exercise date. An
optionee shall have the rights of a shareholder only as to shares acquired upon
the exercise of a Stock Option and not as to unexercised Stock Options. In the
case of a participant subject to the restrictions of Section 16(b) of the Act no
exercise involving payment through withholding of shares as described in (ii)
above shall be effective unless made in compliance with any applicable
requirements of Rule 16b-3(e) or any successor Rule under the Act.
Notwithstanding the foregoing paragraph, during the 60-day period following
a Change of Control as defined in Exhibit A, any optionee shall have the right
(by giving written notice to the Company in form satisfactory to the Committee)
to surrender all or part of the Stock Option to the Company and to receive a
cash payment equal to the excess of the fair market value per share of Stock on
the date of exercise over the option exercise price per share times the number
of shares subject to the surrendered Stock Option. The foregoing right shall not
apply to (i) any Stock Option as to which the Committee shall expressly exclude
such right at the date of grant, (ii) any Stock Option which has been held for
less than six months by a participant subject to the restrictions of Section
16(b) of the Act, (iii) any Stock Option held by an optionee who initiates the
Change of Control or (iv) any Stock Option held by an optionee described in any
of the following provisions of the definition of Change of Control set forth in
Exhibit A: the proviso to paragraph (a) of such definition; the proviso to
paragraph (b) of such definition; or the first proviso to paragraph (d) of such
definition. For purposes of clause (iv) of the immediately preceding sentence,
whether an optionee is described in any of the provisos specified in such clause
shall be determined without regard to any discretionary determination by the
Committee pursuant to the terms of Exhibit A hereto. As used in this paragraph
with respect to an election by an optionee to receive cash in respect of a Non-
Qualified Stock Option the term "fair market value" shall mean the higher of (x)
the highest reported sales price, regular way, of a share of the Stock on the
New York Stock Exchange Composite Transactions Index during the 60-day period
prior to the Change of Control and (y) if the Change of Control is the result of
a transaction or series of transactions described in paragraphs (a), (b) or (d)
of the definition of Change of Control set forth in Exhibit A, the highest price
per share of the Stock paid in such transaction or series of transactions (which
in the case of paragraph (b) shall be the highest price per share of the Stock
as reflected in a Schedule 13D filed by the person having made the acquisition),
and as used in this paragraph with respect to an election by an
<PAGE>
optionee to receive cash in respect of an Incentive Stock Option the term "fair
market value" shall mean Fair Market Value.
(e) Non-transferability of Options.
No Stock Option shall be transferable by the optionee otherwise than by
will or by the laws of descent and distribution, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee.
(f) Termination by Death.
If an optionee's employment by the Company and its Subsidiaries terminates
by reason of death, the Stock Option may thereafter be exercised, to the extent
then exercisable (or on such accelerated basis as the Committee shall at any
time determine prior to death), by the legal representative or legatee of the
optionee, for a period of three years (or such shorter period as the Committee
shall specify at time of grant) from the date of death or until the expiration
of the stated term of the option, if earlier.
(g) Termination by Reason of Disability.
Any Stock Option held by an optionee whose employment by the Company and
its Subsidiaries has terminated, or who has been designated an inactive
employee, by reason of Disability may thereafter be exercised to the extent it
was exercisable at the time of the earlier of such termination or such
designation (or on such accelerated basis as the Committee shall at any time
determine prior to such termination or designation) for a period of three years
(or such shorter period as the Committee shall specify at time of grant) from
the date of such termination of employment or designation or until the
expiration of the stated term of the option, if earlier. Except as otherwise
provided by the Committee at the time of grant, the death of an optionee during
the final year of such exercise period shall extend such period for one year
following death, subject to termination on the expiration of the stated term of
the option, if earlier. The Committee shall have the authority to determine
whether a participant has been terminated or designated an inactive employee by
reason of Disability.
(h) Termination by Reason of Normal Retirement.
If an optionee's employment by the Company and its Subsidiaries terminates
by reason of Normal Retirement, any Stock Option held by such optionee may
thereafter be exercised to the extent that it was then exercisable (or on such
accelerated basis as the Committee shall at any time determine) for a period of
three years (or such shorter period as the Committee shall specify at time of
grant) from the date of Normal Retirement or until the expiration of the stated
term of the option, if earlier. Except as otherwise provided by the Committee
at the time of the grant, the death of an optionee during the final year of such
exercise period shall extend such period for one year following death, subject
to earlier termination on the expiration of the stated term of the option, if
earlier.
(i) Other Termination.
Unless otherwise determined by the Committee, if an optionee's employment
by the Company and its Subsidiaries terminates for any reason other than death,
Disability, Normal Retirement, or for Cause, any Stock Option held by such
optionee may thereafter be exercised to the extent it was exercisable on the
date of termination of employment (or on such accelerated basis as the Committee
shall determine at or after grant) for a period of three months (or such longer
period up to three years as the Committee shall specify at or after grant) from
the date of termination of employment or until the expiration of the stated term
of the option, if earlier. If an optionee's employment terminates for Cause, the
unexercised portion of any Stock Option then held by the optionee shall
immediately terminate.
<PAGE>
(j) Form of Settlement.
Subject to Section 16(a) and Section 16(b) below, shares of Stock issued
upon exercise of a Stock Option shall be free of all restrictions under the
Plan, except as provided in the following sentence. The Committee may provide at
time of grant that the shares to be issued upon the exercise of a Stock Option
shall be in the form of Restricted Stock or Deferred Stock, or may reserve the
right to so provide after time of grant.
SECTION 7. STOCK APPRECIATION RIGHTS; DISCRETIONARY PAYMENTS.
(a) Nature of Stock Appreciation Right.
A Stock Appreciation Right is an Award entitling the recipient to receive
an amount in cash or shares of Stock (or in a form of payment permitted under
paragraph (e) below) or a combination thereof having a value equal to (or if the
Committee shall so determine at time of grant, less than) the excess of the Fair
Market Value of a share of Stock on the date of exercise over the Fair Market
Value of a share of Stock on the date of grant (or over the option exercise
price, if the Stock Appreciation Right was granted in tandem with a Stock
Option) multiplied by the number of shares with respect to which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(b) Grant and Exercise of Stock Appreciation Rights.
Stock Appreciation Rights may be granted in tandem with, or independently
of, any Stock Option granted under the Plan. In the case of a Stock Appreciation
Right granted in tandem with a Non-Qualified Stock Option, such Right may be
granted either at or after the time of the grant of such option. In the case of
a Stock Appreciation Right granted in tandem with an Incentive Stock Option,
such Right may be granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted in tandem
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall not be reduced until the exercise or
termination of the related Stock Option exceeds the number of shares not covered
by the Stock Appreciation Right.
(c) Terms and Conditions of Stock Appreciation Rights.
Stock Appreciation Rights shall be subject to such terms and conditions as
shall be determined from time to time by the Committee, subject to the
following:
(i) Stock Appreciation Rights granted in tandem with Stock Options shall
be exercisable only at such time or times and to the extent that the
related Stock Options shall be exercisable.
(ii) Upon the exercise of a Stock Appreciation Right, the applicable
portion of any related Stock Option shall be surrendered.
(iii) Stock Appreciation Rights granted in tandem with a Stock Option shall
be transferable only with such Stock Option. Other Stock
Appreciation Rights shall not be transferable otherwise than by will
or the laws of descent and distribution. All Stock Appreciation
Rights shall be exercisable during the participant's lifetime only by
the participant or the participant's legal representative.
<PAGE>
(iv) A Stock Appreciation Right granted in tandem with an Incentive Stock
Option may be exercised only when the market price of the Stock
subject to the Incentive Stock Option exceeds the exercise price of
such option.
(d) Discretionary Payments.
Notwithstanding that a Stock Option at the time of exercise shall not be
accompanied by a related Stock Appreciation Right, if the market price of the
shares subject to such Stock Option exceeds the exercise price of such Stock
Option at the time of its exercise, the Committee may, in its discretion, cancel
such Stock Option, in which event the Company shall pay to the person exercising
such Stock Option an amount equal to the difference between the Fair Market
Value of the Stock to have been purchased pursuant to such exercise of such
Stock Option (determined on the date the Stock Option is cancelled) and the
aggregate consideration to have been paid by such person upon such exercise.
Such payment shall be by check, bank draft or in Stock (or in a form of payment
permitted under paragraph (e) below) having a Fair Market Value (determined on
the date the payment is to be made) equal to the amount of such payments or any
combination thereof, as determined by the Committee. The Committee may exercise
its discretion under the first sentence of this paragraph (d) only in the event
of a written request of the person exercising the option, which request shall
not be binding on the Committee.
(e) Settlement in the Form of Restricted Shares or Rights to Receive
Deferred Stock.
Subject to Sections 16(a) and 16(c) below, shares of Stock issued upon
exercise of a Stock Appreciation Right or as a Discretionary Payment shall be
free of all restrictions under the Plan, except as provided in the following
sentence. The Committee may provide at the time of grant in the case of a Stock
Appreciation Right (and at the time of payment in the case of a Discretionary
Payment) that such shares shall be in the form of shares of Restricted Stock or
rights to acquire Deferred Stock, or in the case of a Stock Appreciation Right
may reserve the right to so provide at any time after the time of grant. Any
such shares and any shares subject to rights to acquire Deferred Stock shall be
valued at Fair Market Value on the date of exercise of the Stock Appreciation
Right or the date the Stock Option is cancelled in the case of Discretionary
Payments.
(f) Rules Relating to Exercise.
In the case of a participant subject to the restrictions of Section 16(b)
of the Act no stock appreciation right (as referred to in Rule 16b-3(e) or any
successor Rule under the Act) shall be exercised (and no request or payment
under paragraph (d) above shall be honored or made) except in compliance with
any applicable requirements of Rule 16b-3(e) or any successor rule.
Notwithstanding paragraph (a) above, in the event of such exercise (or request
and payment) during the exercise period ("window period") currently prescribed
by such rule, the Committee may prescribe, by rule of general application, such
other measure of value as it may determine but not in excess of the highest per
share closing sale price of the Common Stock reported on the New York Stock
Exchange Composite Transactions Index during such window period and, where a
Stock Appreciation Right relates to an Incentive Stock Option, not in excess of
an amount consistent with the qualification of such Stock Option as an
"incentive stock option" under Section 422A of the Code.
SECTION 8. RESTRICTED STOCK; UNRESTRICTED STOCK.
(a) Nature of Restricted Stock Award.
A Restricted Stock Award is an Award entitling the recipient to acquire
shares of Stock for a purchase price (which may be zero) equal to or less than
their par value, subject to such conditions, including a Company right during a
specified period or periods to repurchase such shares at their original purchase
price (or to require forfeiture of such shares, if the purchase price was zero)
upon participant's termination of employment, as the Committee may determine at
the time of grant.
<PAGE>
(b) Award Agreement.
A participant who is granted a Restricted Stock Award shall have no rights
with respect to such Award unless the participant shall have accepted the Award
within 60 days (or such shorter date as the Committee may specify) following the
award date by making payment to the Company by certified or bank check or other
instrument acceptable to the Committee in an amount equal to the specified
purchase price, if any, of the shares covered by the Award and by executing and
delivering to the Company a Restricted Stock Award Agreement in such form as the
Committee shall determine.
(c) Rights as a Shareholder.
Upon complying with paragraph (b) above, a participant shall have all the
rights of a shareholder with respect to the Restricted Stock including voting
and dividend rights, subject to nontransferability restrictions and Company
repurchase or forfeiture rights described in this Section and subject to any
other conditions contained in the Award Agreement. Unless the Committee shall
otherwise determine, certificates evidencing shares of Restricted Stock shall
remain in the possession of the Company until such shares are free of any
restrictions under the Plan.
(d) Restrictions.
Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered or disposed of except as specifically provided herein.
In the event of termination of employment with the Company and its subsidiaries
for any reason such shares shall be resold to the Company at their purchase
price, or forfeited to the Company if the purchase price was zero, except as set
forth below.
(i) The Committee at the time of grant shall specify the date or dates
(which may depend upon or be related to the attainment of performance
goals and other conditions) on which the nontransferability of the
Restricted Stock and the obligation to resell such shares to the
Company shall lapse. The Committee at any time may accelerate such
date or dates and otherwise waive or, subject to Section 13, amend any
conditions of the Award.
(ii) Except as may otherwise be provided in the Award Agreement, in the
event of termination of employment by the Company and its Subsidiaries
for any reason (including death), a participant or the participant's
legal representative shall offer to resell to the Company, at the
price paid therefor, all Restricted Stock, and the Company shall have
the right to purchase the same at such price, or if the price was zero
to require forfeiture of the same, provided that except as otherwise
specified in the Award Agreement, the Company must exercise such right
of repurchase or forfeiture not later than the 60th day following such
termination of employment.
(e) Waiver, Deferral and Reinvestment of Dividends,
The Restricted Stock Award Agreement may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock. Unless otherwise specified in the Award Agreement, dividends will be paid
at the same time as dividends are paid with respect to shares of Stock not
subject to restrictions under the Plan.
<PAGE>
(f) Unrestricted Stock.
The Committee may, in its sole discretion, grant (or sell at a purchase
price not to exceed par value per share) to any participant shares of Stock free
of restrictions under the Plan ("Unrestricted Stock"). Shares of Unrestricted
Stock may be granted or sold as described in the preceding sentence in respect
of past services or other valid consideration.
SECTION 9. DEFERRED STOCK AWARDS.
(a) Nature of Deferred Stock Award.
A Deferred Stock Award is an award entitling the recipient to acquire
shares of Stock without payment in one or more installments at a future date or
dates, all as determined by the Committee. The Committee may condition such
acquisition on the attainment of specified performance goals.
(b) Award Agreement.
A participant who is granted a Deferred Stock Award shall have no rights
with respect to such Award unless within 60 days of the grant of such Award or
such shorter period as the Committee may specify, the participant shall have
accepted the Award by executing and delivering to the Company a Deferred Stock
Award Agreement.
(c) Restrictions on Transfer.
Deferred Stock Awards and all rights with respect to such Awards may not be
sold, assigned, transferred, pledged or otherwise encumbered. Rights with
respect to such Awards shall be exercisable during the participant's lifetime
only by the participant or the participant's legal representative.
(d) Rights as a Shareholder.
A participant receiving a Deferred Stock Award will have rights of a
shareholder only as to shares actually received by the participant under the
Plan and not with respect to shares subject to the Award but not actually
received by the participant. A participant shall be entitled to receive a stock
certificate for shares of Deferred Stock only upon satisfaction of all
conditions therefor specified in the Deferred Stock Award Agreement.
(e) Termination.
Except as may otherwise be provided by the Committee at any time prior to
termination of employment, a participant's rights in all Deferred Stock Awards
shall automatically terminate upon the participant's termination of employment
by the Company and its Subsidiaries for any reason (including death).
(f) Acceleration, Waiver, etc.
At any time prior to the participant's termination of employment the
Committee may in its discretion accelerate, waive, or, subject to Section 13,
amend any or all of the restrictions or conditions imposed under any Deferred
Stock Award.
(g) Payments in Respect of Deferred Stock.
Without limiting the right of the Committee to specify different terms, the
Deferred Stock Award Agreement may either make no provisions for, or may require
or permit the immediate payment, deferral or investment of amounts equal to, or
less than, any cash dividends which would have been
<PAGE>
payable on the Deferred Stock had such Stock been outstanding, all as determined
by the Committee in its sole discretion.
SECTION 10. PERFORMANCE UNIT AWARDS.
(a) Nature of Performance Units.
A Performance Unit Award is an award entitling the recipient to acquire
cash or shares of Stock, or a combination of cash and Stock, upon the attainment
of specified performance goals. The Committee in its sole discretion shall
determine whether and to whom Performance Unit Awards shall be made, the
performance goals applicable under each such Award, the periods during which
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Unit. Performance Units may be awarded
independently of or in connection with the granting of any other Award under the
Plan.
(b) Award Agreement.
A participant shall have no rights with respect to a Performance Unit Award
unless within 60 days of the grant of such Award or such shorter period as the
Committee may specify, the participant shall have accepted the Award by
executing and delivering to the Company a Performance Unit Award Agreement.
(c) Restrictions on Transfer.
Performance Unit Awards and all rights with respect to such Awards may not
be sold, assigned, transferred, pledged or otherwise encumbered, and if
exercisable over a specified period, shall be exercisable during the
participant's lifetime only by the participant or the participant's legal
representative.
(d) Rights as a Shareholder.
A participant receiving a Performance Unit Award will have rights of a
shareholder only as to shares actually received by the participant under the
Plan and not with respect to shares subject to the Award but not actually
received by the participant. A participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Stock under a Performance
Unit Award only upon satisfaction of all conditions therefor specified in the
Performance Unit Award Agreement.
(e) Termination.
Except as may otherwise be provided by the Committee at any time prior to
termination of employment, a participant's rights in all Performance Unit Awards
shall automatically terminate upon the participant's termination of employment
by the Company and its Subsidiaries for any reason (including death).
(f) Acceleration, Waiver, etc.
At any time prior to the participant's termination of employment by the
Company and its Subsidiaries, the Committee may in its sole discretion
accelerate, waive or, subject to Section 13, amend any or all of the goals,
restrictions or conditions imposed under any Performance Unit Award.
(g) Exercise.
The Committee in its sole discretion shall establish procedures to be
followed in exercising any Performance Unit, which procedures shall be set forth
in the Performance Unit Award Agreement. The Committee may at any time provide
that payment under a Performance Unit shall be made, upon satisfaction of the
applicable performance goals, without exercise by the participant. Except as
otherwise
<PAGE>
specified by the Committee, (i) a Performance Unit granted in tandem with a
Stock Option may be exercised only while the Stock Option is exercisable, and
(ii) the exercise of a Performance Unit granted in tandem with any Award shall
reduce the number of shares subject to the related Award on such basis as is
specified in the Performance Unit Award Agreement.
SECTION 11. OTHER STOCK-BASED AWARDS; SUPPLEMENTAL GRANTS.
(a) Nature of Awards.
The Committee may grant other Awards under which Stock is or may in the
future be acquired ("Other Stock-based Awards"). Such awards may include,
without limitation, securities (including shares of Preferred Stock not
exceeding in the aggregate 500,000 shares) convertible into or exchangeable for
shares of Stock upon such conditions, including attainment of performance goals,
as the Committee shall determine. Subject to the purchase price limitations in
paragraph (b) below, such convertible or exchangeable securities may have such
terms and conditions as the Committee may determine at the time of grant.
However, no convertible or exchangeable debt or preferred stock shall be issued
unless the Committee shall have provided (by Company right of repurchase, right
to require conversion or exchange or other means deemed appropriate by the
Committee) a means of avoiding any right of the holders of such debt or
Preferred Stock to prevent a Company transaction by reason of covenants in such
debt or voting rights in such Preferred Stock.
(b) Purchase Price; Form of Payment.
The Committee may determine the consideration, if any, payable upon the
issuance or exercise of an Other Stock-based Award, subject to the following
conditions. No equity security other than Stock may be issued pursuant to an
Other Stock-based Award unless (i) issued at no cost to the recipient (or for a
purchase price not in excess of the par value of any preferred stock so issued)
or (ii) sold by the Company and the Company shall have received payment for such
equity security equal to at least 50% of its par value on the grant or issuance
date, as determined in good faith by the Committee. In addition, no shares of
Stock (whether acquired by purchase, conversion or exchange or otherwise) shall
be issued unless (i) issued at no cost to the recipient (or for a purchase price
not in excess of the par value of the Stock) or (ii) sold, converted or
exchanged by the Company, and the Company shall have received payment for such
Stock or securities so exchanged or converted equal to at least 50% of Fair
Market Value of the Stock on the grant or effective date, or the exchange or
conversion date, under the Award, as specified by the Committee. The Committee
may permit payment by certified check or bank check or other instrument
acceptable to the Committee or by surrender of other shares of Stock (excluding
shares then subject to restrictions under the Plan).
(c) Forfeiture of Awards; Repurchase of Stock; Acceleration or Waiver of
Restrictions.
The Committee may determine the conditions under which an Other Stock-based
Award shall be forfeited or, in the case of an Award involving a payment by the
recipient, the conditions under which the Company may or must repurchase such
Award or related Stock. At any time the Committee may in its sole discretion
accelerate, waive or, subject to Section 13, amend any or all of the limitations
or conditions imposed under any Other Stock-based Award.
(d) Award Agreements.
A participant shall have no rights with respect to any Other Stock-based
Award unless within 60 days after the grant of such Award (or such shorter
period as the Committee may specify) the participant shall have accepted the
Award by executing and delivering to the Company an Other Stock-based Award
Agreement.
<PAGE>
(e) Nontransferability.
Other Stock-based Awards may not be sold, assigned, transferred, pledged or
encumbered except as may be provided in the Other Stock-based Award Agreement.
However, in no event shall any Other Stock-based Award be transferred other than
by will or by the laws of descent and distribution or be exercisable during the
participant's lifetime by other than the participant or the participant's legal
representative.
(f) Rights as a Shareholder.
A recipient of any Other Stock-based Award will have rights of a
shareholder only at the time and to the extent, if any, specified by the
Committee in the Other Stock-based Award Agreement.
(g) Deemed Dividend Payments; Deferrals.
Without limiting the right of the Committee to specify different terms at
or after grant, an Other Stock-based Award Agreement may require or permit the
immediate payment, waiver, deferral or investment of dividends or deemed
dividends payable on Stock subject to the Award.
(h) Supplemental Grants.
The Company may in its sole discretion make a loan to the recipient of an
Award hereunder, either on or after the date of grant of such Award. Such loans
may be made either in connection with the exercise of a Stock Option, a Stock
Appreciation Right, or an Other Stock-based Award, in connection with the
purchase of shares under any Award, or in connection with the payment of any
federal income tax in respect of income recognized under an Award. The Committee
shall have full authority to decide whether to make a loan hereunder and to
determine the amount, term and provisions of any such loan, including the
interest rate (which may be zero) charged in respect of any such loan, whether
the loan is to be secured or unsecured or without recourse against the borrower,
the terms on which the loan is to be repaid and the conditions, if any, under
which it may be forgiven. However, no loan hereunder shall have a term
(including extensions) exceeding ten years in duration or be in an amount
exceeding the total exercise or purchase price paid by the borrower under an
Award under the Plan plus an amount equal to the cash payment permitted in the
following paragraph.
The Committee may at any time authorize a cash payment, in respect of the
grant or exercise of an Award under the Plan or the lapse or waiver of
restrictions under an Award, which shall not exceed the amount which would be
required in order to pay in full the federal income tax due as a result of
ordinary income recognized by the recipient under both the Award and such cash
payment, in each case assuming that such income is taxed at the regular maximum
marginal rate applicable to individuals under the Code as in effect at the time
such income is includable in the recipient's income. Subject to the foregoing,
the Committee shall have complete authority to decide whether to make such cash
payments in any case, to make provision for such payments either simultaneously
with or after the grant of the associated Award, and to determine the amount of
each such payment.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another;
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
reemployment is guaranteed either by a state or by contract or under
the policy pursuant to which the leave of absence was granted or if
the Committee otherwise so provides in writing.
<PAGE>
For purposes of the Plan, the employees of a Subsidiary of the Company shall be
deemed to have terminated their employment on the date on which such Subsidiary
ceases to be a Subsidiary of the Company.
SECTION 13. AMENDMENTS AND TERMINATION.
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent. However, no such amendment,
unless approved by stockholders, shall be effective if it would cause the Plan
to fail to satisfy the incentive stock option requirements of the Code or the
requirements of Rule 16b-3 or any successor rule under the Act as in effect on
the date of such amendment.
SECTION 14. STATUS OF PLAN.
With respect to the portion of any Award which has not been exercised and
any payments in cash, stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.
SECTION 15. CHANGE OF CONTROL PROVISIONS.
As used herein, a Change of Control and related definitions shall have the
meanings set forth in Exhibit A to this Plan.
Upon the occurrence of a Change of Control:
(a) Each Stock Option and Stock Appreciation Right shall automatically
become fully exercisable unless the Committee shall otherwise
expressly provide at the time of grant.
(b) Restrictions and conditions on Restricted Stock, Deferred Stock,
Performance Units and Other Stock-based Awards shall automatically be
deemed waived only if and to the extent, if any, specified (whether at
or after time of grant) by the Committee.
The Committee may at any time prior to or after a Change of Control accelerate
the exercisability of any Stock Options and Stock Appreciation Rights and may
waive restrictions, limitations and conditions on Restricted Stock, Deferred
Stock, Performance Units and Other Stock-based Awards to the extent it shall in
its sole discretion determine.
<PAGE>
SECTION 16. GENERAL PROVISIONS.
(a) No Distribution; Compliance with Legal Requirements, etc.
The Committee may require each person acquiring shares pursuant to an Award
to represent to and agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange requirements have
been satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
(b) Other Compensation Arrangements; No Employment Rights.
Nothing contained in this Plan shall prevent the Board of Directors from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan does not confer upon any employee any right to continued employment with
the Company or a Subsidiary, nor does it interfere in any way with the right of
the Company or a Subsidiary to terminate the employment of any of its employees
at any time.
(c) Tax Withholding, etc.
Each participant shall, no later than the date as of which the value of an
Award or of any Stock or other amounts received thereunder first becomes
includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of, any Federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company and its
Subsidiaries shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the participant.
The Committee may provide, in respect of any transfer of Stock or Preferred
Stock under an Award, that if and to the extent withholding of any Federal,
state or local tax is required in respect of such transfer, the participant may
elect, at such time and in such manner as the Committee shall prescribe, to have
the Company hold back from the transfer Stock (or Preferred Stock) having a
value calculated to satisfy such withholding obligation. Notwithstanding the
foregoing, in the case of a participant subject to the restrictions of Section
16(b) of the Act no such election shall be effective unless made in compliance
with any applicable requirements of Rule 16b-3(e) or any successor Rule under
the Act.
SECTION 17. EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board and approved by Zayre Corp. as sole
stockholder of the Company on April 6, 1989. The effective date of the Plan is
the date of the spin-off by Zayre Corp. of the stock of the Company to the
stockholders of Zayre Corp.
<PAGE>
EXHIBIT A
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Definition of "Change of Control"
--------------------------------
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) there occurs a change of control of the Company of a nature that would
be required to be reported in response to Item 1(a) of the Current Report on
Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act") or in any other filing under the Exchange Act; provided,
--------
however, that no transaction shall be deemed to be a Change of Control as to a
- - -------
Participant (i) if the person or each member of a group of persons acquiring
control is excluded from the definition of the term "Person" hereunder or (ii)
unless the Committee shall otherwise determine prior to such occurrence, if the
Participant or a Participant Related Party is the Person or a member of a group
constituting the Person acquiring control; or
(b) any Person other than the Company, any wholly-owned subsidiary of the
Company, or any employee benefit plan of the Company or such a subsidiary
becomes the owner of 20% or more of the Company's Common Stock and thereafter
individuals who were not directors of the Company prior to the date such Person
became a 20% owner are elected as directors pursuant to an arrangement or
understanding with, or upon the request of or nomination by, such Person and
constitute at least 1/4 of the Company's Board of Directors; provided, however,
-------- -------
that unless the Committee shall otherwise determine prior to the acquisition
of such 20% ownership, such acquisition of ownership shall not constitute a
Change of Control as to a Participant if the Participant or a Participant
Related Party is the Person or a member of a group constituting the Person
acquiring such ownership; or
(c) there occurs any solicitation or series of solicitations of proxies by
or on behalf of any Person other than the Company's Board of Directors and
thereafter individuals who were not directors of the Company prior to the
commencement of such solicitation or series of solicitations are elected as
directors pursuant to an arrangement or understanding with, or upon the
request of or nomination by, such Person and constitute at least 1/4 of the
Company's Board of Directors; or
(d) the Company executes an agreement of acquisition, merger or
consolidation which contemplates that (i) after the effective date provided for
in such agreement, all or substantially all of the business and/or assets of the
Company shall be owned, leased or otherwise controlled by another Person and
(ii) individuals who are directors of the Company when such agreement is
executed shall not constitute a majority of the board of directors of the
survivor or successor entity immediately after the effective date provided for
in such agreement; provided, however, that unless otherwise determined by the
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Committee, no transaction shall constitute a Change of Control as to a
Participant if, immediately after such transaction, the Participant or any
Participant Related Party shall own equity securities of any surviving
corporation ("Surviving Entity") having a fair value as a percentage of the fair
value of the equity securities of such Surviving Entity greater than 125% of the
fair value of the equity securities of the Company owned by the Participant and
any Participant Related Party immediately prior to such transaction, expressed
as a percentage of the fair value of all equity securities of the Company
immediately prior to such transaction (for purposes of this paragraph ownership
of equity securities shall be determined in the same manner as ownership of
Common Stock); and provided, further, that, for purposes of this paragraph (d),
-------- -------
if such agreement requires as a condition precedent approval by the Company's
shareholders of the agreement or transaction, a Change of Control shall not be
deemed to have taken place unless and until such approval is secured (but upon
any such approval, a Change of Control shall be deemed to have occurred on the
date of execution of such agreement).
<PAGE>
In addition, for purposes of this Exhibit A the following terms have the
meanings set forth below:
"Common Stock" shall mean the then outstanding Common Stock of the Company
plus, for purposes of determining the stock ownership of any Person, the number
of unissued shares of Common Stock which such Person has the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) upon the exercise of conversion rights, exchange rights, warrants or
options or otherwise. Notwithstanding the foregoing, the term Common Stock shall
not include shares of Preferred Stock or convertible debt or options or warrants
to acquire shares of Common Stock (including any shares of Common Stock issued
or issuable upon the conversion or exercise thereof) to the extent that the
Board of Directors of the Company shall expressly so determine in any future
transaction or transactions.
A Person shall be deemed to be the "owner" of any Common Stock:
(i) of which such Person would be the "beneficial owner," as such term
is defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission (the "Commission") under the Exchange Act, as in effect on March
1, 1989; or
(ii) of which such Person would be the "beneficial owner" for purposes
of Section 16 of the Exchange Act and the rules of the Commission
promulgated thereunder, as in effect on March 1, 1989; or
(iii) which such Person or any of its affiliates or associates (as such
terms are defined in Rule 12b-2 promulgated by the Commission under the
Exchange Act as in effect on March 1, 1989) has the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options or
otherwise.
"Person" shall have the meaning used in Section 13(d) of the Exchange Act,
as in effect on March 1, 1989; provided, however, that the term "Person" shall
-------- -------
not include (a) any individuals who are descendants of Max Feldberg or Morris
Feldberg, (b) any relatives of the fourth degree of consanguinity or closer of
such descendants or (c) custodians, trustees or legal representatives of such
persons.
A "Participant Related Party" shall mean, with respect to a Participant,
any affiliate or associate of the Participant other than the Company or a
Subsidiary of the Company. The terms "affiliate" and "associate" shall have the
meanings ascribed thereto in Rule 12b-2 under the Exchange Act (the term
"registrant" in the definition of "associate" meaning, in this case, the
Company).
"Participant" means a participant in the Plan.
