<PAGE>
[ANN TAYLOR LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 1999
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
AnnTaylor Stores Corporation, a Delaware corporation (the "Company"), will be
held at 9:00 a.m. on Tuesday, May 18, 1999, at The Rihga Royal Hotel, 151 West
54th Street, 54th floor, New York, New York, for the following purposes:
1. To elect three Class II Directors of the Company, each to serve for a
term of three years;
2. To amend the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock of
the Company from 40 million shares to 120 million shares;
3. To approve the Company's Associate Discount Stock Purchase Plan;
4. To ratify the appointment by the Company of Deloitte & Touche LLP as
the Company's independent auditors for fiscal 1999; and
5. To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
Only stockholders of record at the close of business on March 22, 1999 are
entitled to notice of and to vote at the Annual Meeting and at any and all
adjournments or postponements thereof. A list of stockholders entitled to vote
at the meeting will be available for inspection at the office of the Secretary
of the Company, 142 West 57th Street, New York, New York, for at least ten days
prior to the meeting, and will also be available for inspection at the meeting.
By Order of the Board of Directors,
Jocelyn F.L. Barandiaran
Secretary
New York, New York
April 5, 1999
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD, AND MAIL IT TO THE COMPANY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE. RETURNING A
SIGNED PROXY WILL NOT PREVENT YOU FROM ATTENDING THE MEETING AND VOTING IN
PERSON, IF YOU SO DESIRE.
- --------------------------------------------------------------------------------
<PAGE>
[ANN TAYLOR LOGO]
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 1999
PROXY STATEMENT
----------------
This Proxy Statement is being furnished to the stockholders of AnnTaylor
Stores Corporation, a Delaware corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the Company for use at
the Annual Meeting of Stockholders of the Company, to be held at 9:00 a.m. on
Tuesday, May 18, 1999, at The Rihga Royal Hotel, 151 West 54th Street, 54th
floor, New York, New York, and at any and all adjournments or postponements
thereof. At the Annual Meeting, the stockholders of the Company are being asked
to consider and vote upon (1) the election of three Class II Directors, each to
serve for a term of three years; (2) a proposal to amend the Company's Amended
and Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 40 million shares to 120 million shares; (3) the
approval of the Company's Associate Discount Stock Purchase Plan; and (4) a
proposal to ratify the appointment of the Company's independent auditors for
fiscal year 1999.
This Proxy Statement and the enclosed form of proxy are first being mailed
to stockholders of the Company on or about April 5, 1999.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Only holders of record of the Company's common stock, par value $.0068 per
share ("Common Stock"), at the close of business on March 22, 1999 (the "Record
Date") are entitled to notice of and to vote at the Annual Meeting. At the
close of business on the Record Date, there were 26,157,050 shares of Common
Stock outstanding. The presence, either in person or by proxy, of the holders
of a majority of the shares of Common Stock outstanding on the Record Date is
necessary to constitute a quorum at the Annual Meeting. All abstentions and
broker non-votes will be included as shares that are present and entitled to
vote for purposes of determining the presence of a quorum at the meeting. Each
stockholder will be entitled to one vote per share, in person or by proxy, for
each share of Common Stock held in such stockholder's name as of the Record
Date on any matter submitted to a vote of stockholders at the Annual Meeting.
The Class II Directors will be elected by the affirmative vote of holders
of a plurality of the shares of Common Stock represented and voting in person
or by proxy and entitled to vote at the Annual Meeting.
Approval of the amendment to the Company's Amended and Restated
Certificate of Incorporation ("Certificate of Incorporation") to increase the
number of authorized shares from 40 million shares to 120 million shares
requires the affirmative vote of holders of a majority of the Company's
outstanding Common Stock entitled to vote at the Annual Meeting.
Approval of the Associate Discount Stock Purchase Plan and ratification of
the appointment of the Company's independent auditors for the Company's 1999
fiscal year require the affirmative vote of holders of a majority of the shares
of Common Stock present in person or by proxy and entitled to vote at the
Annual Meeting.
In determining whether each of the proposals submitted to a vote of the
stockholders has received the requisite number of affirmative votes, (i)
abstentions will not be counted as votes cast in connection with determining
the plurality required to elect a director and will have no effect on the
outcome of that
<PAGE>
vote, and (ii) abstentions will be counted and will have the same effect as a
vote against the amendment of the Certificate of Incorporation, adoption of the
Associate Discount Stock Purchase Plan, and ratification of the appointment of
the Company's independent auditors.
If a broker indicates on a proxy that it does not have discretionary
authority and has not received voting instructions from the beneficial owners
as to certain shares to vote on a particular proposal ("broker non-votes"),
those shares will not be considered as present or voted with respect to that
matter and will have no effect on the outcome of the vote on any proposal,
except that broker non-votes will be counted and will have the same effect as a
vote against the amendment to the Certificate of Incorporation.
Shares of Common Stock that are represented by properly executed proxies
(that have not been revoked) and received in time for voting at the Annual
Meeting will be voted in accordance with the instructions indicated on the
proxy. In the absence of specific instructions to the contrary, the persons
named in the accompanying form of proxy intend to vote all properly executed
proxies received by them:
(1) FOR the election of the Board of Directors' nominees as Class II
Directors,
(2) FOR the amendment to the Certificate of Incorporation to increase the
number of authorized shares from 40 million shares to 120 million
shares,
(3) FOR the approval of the Associate Discount Stock Purchase Plan, and
(4) FOR the ratification of Deloitte & Touche LLP as the Company's
independent auditors for the Company's 1999 fiscal year.
No business other than as set forth in the accompanying Notice of Annual
Meeting is expected to come before the Annual Meeting, but should any other
matter requiring a vote of stockholders be properly brought before the Annual
Meeting, it is the intention of the persons named in the enclosed form of proxy
to vote such proxy in accordance with their best judgement on such matters.
For information with respect to advance notice requirements applicable to
stockholders who wish to propose any matter for consideration or nominate any
person for election as a director at an annual meeting, see "Stockholder
Proposals for 2000 Annual Meeting".
Under applicable Delaware law, none of the holders of Common Stock is
entitled to appraisal rights in connection with any proposal to be acted on at
the Annual Meeting.
Stockholders who execute the enclosed proxy may still attend the Annual
Meeting and vote in person. Any proxy may be revoked at any time prior to the
exercise thereof by delivering in a timely manner a written revocation or a new
proxy bearing a later date to the Secretary of the Company, 142 West 57th
Street, New York, New York 10019, or by attending the Annual Meeting and voting
in person. Attendance at the Annual Meeting will not, however, in and of itself
constitute a revocation of a proxy.
This solicitation is being made by the Company. The cost of this
solicitation will be borne by the Company. Solicitation will be made by mail,
and may be made personally or by telephone by officers and other employees of
the Company who will not receive additional compensation for solicitation.
The principal executive offices of the Company are located at 142 West
57th Street, New York, New York 10019.
PROPOSAL 1
ELECTION OF CLASS II DIRECTORS
The Board of Directors of the Company is divided into three classes,
designated Class I, Class II and Class III, serving staggered three-year terms.
The Company's Certificate of Incorporation requires that such classes be as
nearly equal in number of directors as possible.
The terms of the Company's three current Class II Directors, James J.
Burke, Jr., Patricia DeRosa and Ronald W. Hovsepian, expire at the Annual
Meeting. At the Annual Meeting, three Class II Directors are to be elected to
serve three-year terms ending in the year 2002 or until their respective
2
<PAGE>
successors are elected and qualified, or their earlier death, resignation or
removal. The Board of Directors has nominated Mr. Burke, Ms. DeRosa and Mr.
Hovsepian for re-election as Class II Directors. Each of the three nominees has
consented to serve as a Director if elected at the Annual Meeting and, to the
best knowledge of the Board of Directors, each of such nominees is and will be
able to serve if so elected. In the event that any of these nominees should be
unavailable to stand for election before the Annual Meeting, the persons named
in the accompanying proxy intend to vote for such other person, if any, as may
be designated by the Board of Directors, in the place of a nominee unable to
serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE COMPANY'S NOMINEES AS CLASS II DIRECTORS.
Set forth below is a brief biography of each nominee for election as a
Class II Director and of all other members of the Board of Directors who will
continue in office.
NOMINEES FOR ELECTION AS CLASS II DIRECTORS
TERM EXPIRING 2002
JAMES J. BURKE, JR., AGE 47. Mr. Burke has been a Director of the Company
and its wholly owned operating subsidiary, AnnTaylor, Inc. ("Ann Taylor"), since
February 1989. He has been a partner of Stonington Partners, Inc. ("Stonington
Partners"), a private investment firm, since November 1993, and a director of
Stonington Partners since August 1993. He was a partner of Merrill Lynch Capital
Partners, Inc. ("ML Capital Partners"), a private investment firm associated
with Merrill Lynch & Co., Inc. ("ML&Co."), from May 1993 through June 1994, and
was president and chief executive officer of ML Capital Partners from January
1987 through April 1993. Mr. Burke was a first vice president of Merrill Lynch,
Pierce, Fenner & Smith Incorporated from July 1988 through June 1994 and was a
managing director of the Investment Banking Division of ML&Co. from April 1985
through June 1994. Since June 1994, Mr. Burke has served as a consultant to ML
Capital Partners. Mr. Burke is also a director of Borg-Warner Security
Corporation, Education Management Corp., Pathmark Stores, Inc., Supermarkets
General Holdings Corporation and United Artists Theatre Circuit, Inc., and
several privately held companies.
PATRICIA DEROSA, AGE 46. Ms. DeRosa has been President, Chief Operating
Officer and a Director of the Company and Ann Taylor since December 1996. From
August 1995 to November 1996, she was executive vice president, business
development of Charming Shoppes, Inc., a women's specialty apparel retailer.
From 1975 to 1981 and from 1983 to August 1995, she served in various
capacities at The Gap, Inc., a specialty apparel retailer, including from 1993
to 1995 as president of the GapKids division.
RONALD W. HOVSEPIAN, AGE 37. Mr. Hovsepian has been a Director of the
Company and Ann Taylor since June 1998. He has been vice president of business
development of International Business Machines Corporation ("IBM"), a supplier
of advanced information processing products and services, since January 1999.
He was general manager of IBM's global retail and distribution industry
solutions organization in 1998; from 1996 to 1997 he was vice president, supply
chain solutions, and from 1994 to 1995 he was director, consumer driven
solutions, at IBM.
INCUMBENT CLASS III DIRECTORS
TERM EXPIRING 2000
GERALD S. ARMSTRONG, AGE 55. Mr. Armstrong has been a Director of the
Company and Ann Taylor since February 1989. He has been the managing partner of
Arena Capital Partners, LLC, a private investment firm, since January 1998. Mr.
Armstrong was a partner of Stonington Partners from November 1993 to December
1997, and a director of Stonington Partners from August 1993 to December 1997.
He was a partner of ML Capital Partners from May 1993 through June 1994, and
was an executive vice president of ML Capital Partners from November 1988
through April 1993. Mr. Armstrong was also a managing director of the
Investment Banking Division of ML&Co. from November 1988 through June 1994.
Since June 1994, Mr. Armstrong has served as a consultant to ML Capital
Partners. Mr. Armstrong is also a director of Blue Bird Corporation and World
Color Press, Inc.
3
<PAGE>
WESLEY E. CANTRELL, AGE 64. Mr. Cantrell has been a Director of the
Company and Ann Taylor since November 1998. He has been president and chief
executive officer of Lanier WorldWide, Inc. since March 1987. Lanier WorldWide
is engaged in the office systems and equipment business, and is an operating
unit of Harris Corporation, a company engaged in the communications,
semiconductors, office systems and equipment, and advanced electronic systems
industries.
HANNE M. MERRIMAN, AGE 57. Ms. Merriman has been a Director of the Company
and Ann Taylor since December 1993. She has been the Principal in Hanne
Merriman Associates, retail business consultants, since January 1992. Ms.
Merriman is also a director of USAirways Group, Inc., The Rouse Company, State
Farm Mutual Automobile Insurance Company, Ameren Corp., Central Illinois Public
Service Company, T. Rowe Price Mutual Funds, and Finlay Enterprises, Inc. She
also serves as a director of the Children's Hospital Foundation (part of the
Children's National Medical Center), and is a member of the National Women's
Forum.
INCUMBENT CLASS I DIRECTORS
TERM EXPIRING 2001
ROBERT C. GRAYSON, AGE 54. Mr. Grayson has been a Director of the Company
and Ann Taylor since April 1992. He has been president of Robert C. Grayson &
Associates, Inc., a retail marketing consulting firm, since February 1992. He
has also served as chairman of Berglass-Grayson, a management consulting firm,
since June 1995. He was a vice chairman of the board of Tommy Hilfiger Corp.,
an apparel manufacturer and retailer, and chairman of the board of Tommy
Hilfiger Retail, a subsidiary of such company, from June 1994 to March 1996.
Mr. Grayson is also a director of Sunglass Hut International, Inc., Kenneth
Cole Productions, Inc. and Frisby Technologies Inc.
ROCHELLE B. LAZARUS, AGE 51. Ms. Lazarus has been a Director of the
Company and Ann Taylor since April 1992. She has been chief executive officer
of Ogilvy & Mather Worldwide, an advertising agency, since September 1996, and
also chairman of Ogilvy & Mather Worldwide since March 1997. She was president
and chief operating officer of Ogilvy & Mather Worldwide from December 1995 to
September 1996, and was president of Ogilvy & Mather North America from April
1994 to December 1995.
J. PATRICK SPAINHOUR, AGE 49. Mr. Spainhour has been Chairman and Chief
Executive Officer of the Company and Ann Taylor since August 1996 and a
Director of the Company and Ann Taylor since February 1996. From February 1996
to August 1996, he was President and Chief Operating Officer of the Company and
Ann Taylor. From August 1994 to February 1996, Mr. Spainhour was executive vice
president and chief financial officer of The Donna Karan Company, a designer
apparel company. From February 1993 to July 1994, he was executive vice
president, finance and operations of Stride Rite Corp., a footwear company.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Company's Board of Directors held six meetings in fiscal 1998. Each
Director attended at least 75% of the total number of Board meetings and
meetings of Board committees on which such Director served. The Board of
Directors has established standing Audit, Compensation and Nominating
Committees. The membership and functions of the standing committees of the
Board of Directors are as follows:
AUDIT COMMITTEE: The principal functions of the Audit Committee include
recommending independent auditors and reviewing the terms of their engagement;
conferring with them regarding the scope and results of their audit of the
Company's financial statements, and regarding the Company's internal accounting
controls and other matters; conferring with the Company's director of internal
audit regarding planned activities of the Company's internal audit department
and reviewing the results of such audits; and reviewing the adequacy of
internal accounting controls and the results of fiscal policies and financial
management of the Company. The Audit Committee held two meetings in fiscal
1998. The current members of the Audit Committee are Mr. Grayson (Chairman),
Ms. Lazarus and Ms. Merriman.
4
<PAGE>
COMPENSATION COMMITTEE: The principal functions of the Compensation
Committee are to establish the Company's executive compensation practices;
review and approve or make recommendations regarding the compensation of the
executive officers of the Company; and to administer certain of the Company's
benefit plans, including its stock option plans and other incentive
compensation plans. The Compensation Committee held four meetings in fiscal
1998. The current members of the Compensation Committee are Ms. Lazarus
(Chairman), Mr. Armstrong, Mr. Burke and Ms. Merriman.
NOMINATING COMMITTEE: The principal function of the Nominating Committee
is to make recommendations to the Board of Directors with respect to qualified
candidates to serve as Directors of the Company. The Committee will consider
nominees recommended by stockholders. To be considered, such recommendations
should be submitted in writing to the Secretary of the Company and should
include a description of the proposed nominee's qualifications, other relevant
biographical data, and the written consent of the proposed nominee to serve, if
elected. In addition, the Company's By-Laws provide procedures under which
stockholders may directly nominate persons for election as directors. See
"Stockholder Proposals for 2000 Annual Meeting". The Nominating Committee held
two meetings in fiscal 1998. The current members of the Nominating Committee
are Ms. Merriman (Chairman), Mr. Armstrong and Mr. Grayson.
COMPENSATION OF DIRECTORS AND RELATED MATTERS
Directors who are employees of the Company do not receive any compensation
for serving on the Board of Directors of the Company or Ann Taylor. In
addition, Mr. Armstrong and Mr. Burke, who serve on the Boards of the Company
and Ann Taylor as representatives of ML&Co. and certain of its affiliates, have
declined to receive any compensation from the Company for Board service. All
other Directors (referred to below as "non-employee Directors") receive an
annual retainer of $20,000, plus $1,000 for each meeting of the Board or
committee of the Board that they attend. Committee chairs also receive an
annual stipend of $3,000 for their service as such. In addition, commencing
with fiscal 1998, each non-employee Director also receives an annual grant of
an option to purchase 2,000 shares of Common Stock. Any new non-employee
Director joining the Board will, at the time of election, also receive an
initial grant of an option to purchase 7,500 shares of Common Stock. On June
17, 1998, incumbent non-employee Directors were each granted a one-time option
to purchase 7,500 shares of Common Stock.
All stock option grants to Directors are made under the Company's 1992
Amended and Restated Stock Option and Restricted Stock and Unit Award Plan (the
"Stock Option Plan"), have an exercise price equal to the Fair Market Value (as
defined under the Stock Option Plan) of a share of Common Stock on the date of
grant, and have a term of ten years. Directors' rights to exercise stock
options vest on the first anniversary of the date of the grant.
Mr. Armstrong and Mr. Burke serve on the Boards of Directors of the
Company and Ann Taylor as representatives of ML&Co. and certain of its
affiliates, pursuant to consulting agreements between them and ML&Co. Such
consulting agreements provide, among other things, for their continued
availability to serve on the Boards of Directors of the Company, Ann Taylor and
certain other companies in which ML&Co. or certain of its affiliates have
equity investments, unless requested to resign by ML&Co., and for their
compensation by ML&Co. for serving in such capacities and for other consulting
services. As indicated above, Mr. Armstrong and Mr. Burke have declined to
receive any compensation from the Company or Ann Taylor (including stock
options) as long as they are receiving compensation from ML&Co. for their
service on the Company's Board. As of the Record Date, ML&Co. and certain of
its affiliates beneficially owned an aggregate of 6.6% of the Company's Common
Stock. The Company has been advised by ML Capital Partners that in March 1999,
ML&Co. and its affiliates sold all of such shares. The Company anticipates
that, as a result of the sale by ML&Co. and its affiliates of their shares,
Messrs. Armstrong and Burke's consulting agreements with ML&Co. will cease to
apply to their service on the Boards of the Company and Ann Taylor and they
will no longer be designees of ML&Co. and their affiliates. At such time,
Messrs. Armstrong and Burke will be compensated by the Company for their
service on the Board, commensurate with other non-employee directors.
5
<PAGE>
PROPOSAL 2
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 40 MILLION SHARES TO 120 MILLION SHARES
At the Annual Meeting, there will be submitted to stockholders a proposal
to amend the Company's Certificate of Incorporation to increase the total
number of shares of Common Stock that the Company is authorized to issue from
40 million shares to 120 million shares.
The Company presently is authorized to issue 40 million shares of Common
Stock having a par value of $.0068 per share. As of March 22, 1999, 26,176,531
shares of Common Stock were issued and 26,157,050 shares were outstanding (net
of 19,481 treasury shares). Of the remaining authorized but unissued shares,
approximately 2.6 million shares are reserved for issuance under the Company's
stock option plans, approximately 2,800 shares are reserved for issuance upon
the conversion of the Company's outstanding warrants, and approximately 5.1
million shares are reserved for issuance upon the conversion of the Company's
outstanding convertible debentures. In addition, if the Associate Discount
Stock Purchase Plan is approved by shareholders at the 1999 Annual Meeting,
250,000 shares of Common Stock will be reserved for issuance under that plan.
Based upon the foregoing, the Company will have only approximately 5.9 million
shares remaining available for other purposes.
On March 10, 1999, the Board of Directors approved the amendment to the
Certificate of Incorporation to increase the number of shares of Common Stock
authorized to be issued by the Company, from 40 million shares to 120 million
shares, subject to shareholder approval at the Annual Meeting. The pertinent
provisions of the amendment to the Certificate of Incorporation are set forth
in Exhibit A to this Proxy Statement (the "Amendment"). No change is proposed
to be made to the number of shares of preferred stock that the Company is
authorized to issue. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock is required to adopt the proposed Amendment.
If the proposal is accepted, it is anticipated that the Amendment will be filed
with the Delaware Secretary of State and become effective immediately following
the Annual Meeting.
The Board of Directors believes that it is in the Company's best interests
to increase the number of authorized shares of Common Stock, in order that the
Company may have shares available for future stock dividends or splits,
financing and acquisition transactions, employee benefit plans and other
general corporate purposes. If the amendment is approved, the Company will also
have greater flexibility in the future to issue shares in excess of those
presently authorized, without the expense and delay of a special stockholders'
meeting.
Except in connection with the Company's existing employee benefit plans,
the proposed Associate Discount Stock Purchase Plan, and shares reserved for
issuance upon conversion of the Company's outstanding convertible debentures
and warrants, the Board of Directors has no present intention or commitment to
issue additional shares of Common Stock.
If the Board of Directors deems it to be in the best interests of the
Company and the stockholders to issue additional shares of Common Stock in the
future, additional shares of Common Stock may be issued at such times and in
such amounts and upon such terms as the Board of Directors may determine,
without further approval of the stockholders. The Board of Directors generally
would not seek further authorization by vote of the stockholders, unless such
approval is expressly required by applicable law or stock exchange regulations.
Stockholders of the Company have no preemptive right to purchase
additional shares of Common Stock. Thus, should the Board of Directors elect to
issue additional shares of Common Stock, existing stockholders would not have
any preferential rights to purchase such shares.
The proposed Amendment to increase the authorized number of shares of
Common Stock could, under certain circumstances, have an anti-takeover effect,
although this is not the intention of the proposal. For example, in the event
of a hostile attempt by a third party to take over control of the Company, it
may be possible for the Company to endeavor to impede the attempt by issuing
shares of Common Stock. The issuance of additional shares of Common Stock would
dilute the voting power of the other outstanding shares and increase the
potential cost to acquire control of the Company. The Amendment therefore may
have the effect of discouraging unsolicited takeover attempts. By potentially
discouraging initiation of unsolicited takeover attempts, the proposed
amendment may limit the
6
<PAGE>
opportunity for the Company's stockholders to dispose of their shares at the
higher price generally available in takeover attempts. The proposed Amendment
may have the effect of permitting the Company's current management, including
the current Board of Directors, to retain its position, and place it in a
better position to resist changes that stockholders may wish to make if they
are dissatisfied with the conduct of the Company's business. However, the Board
of Directors is not aware of any attempt to take over control of the Company,
and the Board of Directors is not presenting this proposal with the intent that
it be utilized as a type of anti-takeover device.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 40 MILLION SHARES TO 120 MILLION SHARES.
PROPOSAL 3
APPROVAL OF THE COMPANY'S
ASSOCIATE DISCOUNT STOCK PURCHASE PLAN
At the Annual Meeting, there will be submitted to stockholders a proposal
to approve the adoption of the Company's Associate Discount Stock Purchase Plan
(the "Plan") for the benefit of the employees of the Company and participating
subsidiaries. The Board of Directors believes that the proposed Plan is in the
best interests of the Company and its stockholders and employees.
The Plan is designed to encourage and assist a broad spectrum of employees
of the Company and participating subsidiaries to acquire an equity interest in
the Company through the purchase of Common Stock through payroll deductions. It
is believed that employee participation in the ownership of the Company is to
the mutual benefit of both the employees and the Company. The Company also
believes that the Plan will assist it in recruiting and retaining employees.
The following description of the Associate Discount Stock Purchase Plan is
not intended to be complete and is qualified in its entirety by the complete
text of the Plan, attached to this Proxy Statement as Exhibit B. Capitalized
terms used in this summary and not defined herein, have the meanings assigned
to them in the Plan.
DESCRIPTION OF PRINCIPAL FEATURES OF THE PLAN
All employees of the Company and any Subsidiary that the Board designates
as a participating Subsidiary under the Plan (other than "seasonal" employees
and employees who are citizens of a foreign country the laws of which prohibit
the granting of options to its citizens), will be eligible to participate in
the Plan as of the first enrollment date following their employment. Subject to
stockholder approval, current employees will be eligible to participate in the
Plan effective August 1, 1999.
There will be two six-month Offering Periods under the Plan each year,
commencing each February 1 and August 1. Subject to stockholder approval, the
first Offering Period will commence August 1, 1999. The last Offering Period
will commence February 1, 2009. Participants in the Plan may elect to make
contributions of up to a maximum of 15% of their compensation. As soon as
practicable following the end of each Offering Period, the Company will apply
the funds then in each Participant's Account to the purchase of shares of
Common Stock. The price paid for each share purchased will be 85% of the lower
of the closing price for the Common Stock on the New York Stock Exchange on the
Trading Day immediately preceding (i) the first day of the Offering Period for
which the purchase is made and (ii) the last day of the Offering Period for
which the purchase is made. There is no limit on the number of shares that may
be purchased under the Plan; however, no Participant's right to acquire shares
may accrue at a rate exceeding $25,000 of Fair Market Value of Common Stock
(determined as of the first business day in an Offering Period) in any calendar
year, nor may a Participant acquire shares under the Plan if, after such
purchase, such Participant would own shares, or options to purchase shares,
representing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its subsidiaries.
7
<PAGE>
The Plan will be administered by a Committee appointed by the Board. The
Committee will have authority to delegate any or all of its authority under the
Plan to Company management. The Board of Directors may amend or terminate the
Plan at any time. The Board may also provide for an adjustment in the purchase
price and the number and kind of securities available under the Plan in the
event of reorganization, recapitalization, stock split or other similar events.
Amendments that would increase the number of shares of Common Stock reserved
for purchase, materially increase benefits to Participants, or materially
modify the requirements for participation under the Plan, also require
stockholder approval. An aggregate of 250,000 shares will be available for
issuance under the Plan (subject to equitable adjustment to reflect stock
splits, stock dividends and other capital adjustments). Shares available under
the Plan may be either outstanding treasury shares held by the Company or newly
issued shares.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the U.S. federal income tax
consequences of certain transactions under the Plan, based on federal income
tax laws currently in effect. This summary is not intended to provide, or to
supplement, tax advice to eligible employees.
Tax consequences associated with payroll deductions. The compensation paid
to a Participant from whom payroll deductions are taken for purposes of
purchasing Common Stock under the Plan is taxable to the Participant as
ordinary income in the year paid and deductible in such year by the Company.
Tax consequences to Participants with respect to the purchase and
disposition of shares. In general, Participants who are citizens of the United
States will not have taxable income or loss under the Plan until they sell or
otherwise dispose of shares acquired under the Plan (or die while holding such
shares in their accounts). If the shares are held, as of the date of sale or
disposition, for longer than both (i) two years after the beginning of the
enrollment period for which they were purchased, and (ii) one year following
purchase, the sale is considered a "qualifying disposition". For qualifying
dispositions, the Participant will be treated as having taxable ordinary income
equal to 15% of the fair market value of the shares on the first day of the
enrollment period (but not in excess of the gain on the sale), and any amount
realized in excess of such ordinary income will be taxed as long-term capital
gain. If the shares are sold at less than the purchase price, the Participant
will have a capital loss equal to the difference between the sale price and the
purchase price.
If a disposition does not meet the foregoing criteria, it is a
disqualifying disposition, and the Participant will have taxable ordinary
income equal to the excess of the fair market value of the shares on the
purchase date over the purchase price. In addition, the Participant will have
taxable capital gain (or loss) equal to the difference between the sale price
and the purchase price plus the amount of ordinary income recognized.
Tax consequences to the Company with respect to the purchase and
disposition of shares. The Company is not entitled to any federal tax deduction
when shares of Common Stock are purchased pursuant to the Plan. The Company
will be entitled to a deduction only if the Participant makes a disqualifying
disposition of shares purchased under the Plan. In such case, the Company can
generally deduct as compensation expense an amount equal to the amount of
ordinary income taxable to the Participant as a result of the disqualifying
disposition. The Company is not entitled to an income tax deduction with
respect to qualifying dispositions.
STOCKHOLDER APPROVAL
The approval of the Associate Discount Stock Purchase Plan requires the
affirmative vote of the holders of a majority of the shares of Common Stock
present in person or by proxy and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ADOPTION OF THE ASSOCIATE DISCOUNT STOCK PURCHASE PLAN.
8
<PAGE>
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has reappointed the firm of Deloitte & Touche LLP,
Certified Public Accountants, as independent auditors to make an examination of
the accounts of the Company for fiscal year 1999. Deloitte & Touche LLP has
served as the independent auditors of the Company since January 1989. Although
action by the stockholders is not required by law, the Board of Directors has
determined that it is desirable to request stockholder ratification of the
selection of the Company's independent auditors. If stockholders do not approve
ratification of the selection of such auditors, the Board of Directors will
reconsider the selection. Ratification will require the affirmative vote of the
holders of a majority of the Common Stock present in person or by proxy and
entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE -FOR-
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS
INDEPENDENT AUDITORS FOR THE COMPANY FOR FISCAL YEAR 1999.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting and will have an opportunity to make a statement if they desire
to do so and will be available to respond to questions.
STOCK PERFORMANCE GRAPH
The following graph compares the percentage changes in the Company's
cumulative total stockholder return on the Company's Common Stock for the
five-year period ended January 30, 1999, with the cumulative total return on
the Standard & Poor's 500 Stock Index ("S&P 500") and the Dow Jones Specialty
Apparel Retailers Index ("DJ Apparel") for the same period. In accordance with
the rules of the Commission, the returns are indexed to a value of $100 at
January 29, 1994 and assume that all dividends were reinvested.
COMPARISON OF FIVE-YEAR ANNUAL CUMULATIVE TOTAL RETURN
ANN TAYLOR, S&P 500 INDEX, AND DJ APPAREL INDEX
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
[LINE CHART]
34363 34727 35098 35462 35826 36190
Ann Taylor 100 155 52 79 53 177
S&P 500 100 101 139 176 224 296
DJ Apparel 100 90 105 124 204 378
9
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
PRINCIPAL STOCKHOLDERS
As of the March 22, 1999 Record Date, the outstanding Common Stock was
held of record by 613 stockholders. The following table sets forth certain
information as of the Record Date concerning the beneficial ownership of Common
Stock by each stockholder who is known by the Company to own beneficially in
excess of 5% of the outstanding Common Stock, by each director, by the
executives listed in Table I below under "Executive Compensation", and by all
directors and executive officers as a group. Except as otherwise indicated, all
persons listed below have (i) sole voting power and investment power with
respect to their shares of Common Stock, except to the extent that authority is
shared by spouses under applicable law, and (ii) record and beneficial
ownership with respect to their shares of Common Stock.
<TABLE>
<CAPTION>
NO. OF
SHARES OF
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENT
- ------------------------ -------------- ----------
<S> <C> <C>
Morgan Stanley Dean Witter & Co. and certain affiliates (a) .............. 4,191,741 16.0%
Fleet Financial Group, Inc. (b) .......................................... 1,824,484 7.0%
Merrill Lynch & Co., Inc. and certain affiliates (c) ..................... 1,733,628 6.6%
FMR Corp. (d) ............................................................ 1,649,450 6.3%
AMVESCAP PLC and certain affiliates (e) .................................. 1,325,800 5.1%
J. Patrick Spainhour (f) ................................................. 180,410 *
Patricia DeRosa (f) ...................................................... 99,333 *
Walter J. Parks (f) ...................................................... 625 *
Jocelyn F.L. Barandiaran (f) ............................................. 51,465 *
James M. Smith (f) ....................................................... 2,781 *
Gerald S. Armstrong (g)(h) ............................................... 10,964 *
James J. Burke, Jr. (g) .................................................. 52,920 *
Wesley E. Cantrell ....................................................... 0 *
Robert C. Grayson ........................................................ 25,000 *
Ronald W. Hovsepian ...................................................... 0 *
Rochelle B. Lazarus (i) .................................................. 600 *
Hanne M. Merriman ........................................................ 200 *
All executive officers and directors as a group (12 persons) (j) ......... 424,298 1.6%
</TABLE>
- ----------
* Less than 1%
(a) Pursuant to a Schedule 13G dated February 12, 1999 and filed with the
Securities and Exchange Commission (the "Commission") by Morgan Stanley
Dean Witter & Co., Morgan Stanley Dean Witter Advisors Inc., and Van
Kampen Asset Management Inc., Morgan Stanley Dean Witter & Co. had sole
voting power with respect to no shares, shared voting power with respect
to 3,708,741 shares, sole dispositive power with respect to no shares,
and shared dispositive power with respect to 4,191,741 shares; Morgan
Stanley Dean Witter Advisors Inc. had shared voting power with respect to
1,891,400 shares, sole voting power with respect to no shares, shared
dispositive power with respect to 1,891,400 shares, and sole dispositive
power with respect to no shares; and Van Kampen Asset Management Inc. had
shared voting power with respect to 1,164,082 shares, sole voting power
with respect to no shares, shared dispositive power with respect to
1,294,382 shares, and sole dispositive power with respect to no shares.
The address for Morgan Stanley Dean Witter & Co. is 1585 Broadway, New
York, NY 10036; for Morgan Stanley Dean Witter Advisors Inc. is Two World
Trade Center, New York, NY 10048; and for Van Kampen Asset Management
Inc. is One Parkview Plaza, Oakbrook Terrace, IL 60181.
(footnotes continued on next page)
10
<PAGE>
(footnotes continued from previous page)
(b) Pursuant to a Schedule 13G dated February 13, 1998 and filed with the
Commission by Fleet Financial Group, Inc. ("Fleet"), Fleet had sole
voting power with respect to 25,000 shares, shared voting power with
respect to 1,799,484 shares, sole dispositive power with respect to
25,000 shares, and shared dispositive power with respect to 1,686,400
shares. The address for Fleet Financial Group, Inc. is One Federal
Street, Boston, Massachusetts 02110.
(c) Pursuant to an amendment to a Schedule 13G dated February 12, 1999 and
filed with the Commission by ML&Co., its subsidiary Merrill Lynch Group,
Inc. ("ML Group") and certain of their affiliates (collectively, the
"Merrill Lynch Entities"), ML&Co. and ML Group are deemed to beneficially
own an aggregate of 1,733,628 shares of Common Stock. ML&Co. and ML Group
may be deemed to beneficially own these shares as a result of their
control of their wholly owned subsidiaries (i) Merrill Lynch Capital
Partners, Inc., which is the general partner of both (a) MLCP Associates
L.P. No. I, and (b) Merrill Lynch LBO Partners No. B-I, L.P., a limited
partnership that acts as general partner of Merrill Lynch Capital
Appreciation Partnership No. B-II, which, as reported in the Schedule
13G, is the owner of record of shares representing approximately 3.29% of
the outstanding Common Stock, and ML Offshore LBO Partners No. B-II
which, as reported in the Schedule 13G, is the owner of record of shares
representing approximately 1.92% of the shares; (ii) KECALP Inc. and
Merrill Lynch MBP Inc., each of which acts as general partners of limited
partnerships that are record owners of shares (no single limited
partnership is the record holder of more than 5% of the outstanding
Common Stock); and (iii) ML IBK Positions, Inc. that, as reported in the
Schedule 13G, owns of record less than 1% of such shares. The Merrill
Lynch Entities reported shared voting and dispositive power with respect
to the 1,733,628 shares deemed to be beneficially owned by them, and sole
voting and dispositive powers with respect to no shares. The address for
ML&Co., ML Group and ML IBK Positions, Inc. is 250 Vesey Street, World
Financial Center, North Tower, New York, New York 10281. The address for
each of the other Merrill Lynch Entities named above is 225 Liberty
Street, New York, New York 10080. The Company has been advised by ML
Capital Partners that the Merrill Lynch Entities sold all of these shares
in March 1999.
(d) Pursuant to an amendment to a Schedule 13G dated January 7, 1999 and
filed with the Commission by FMR Corp., Edward C. Johnson 3d and Abigail
P. Johnson, FMR Corp. indicated that it had sole voting power with
respect to 222,000 shares and shared voting power with respect to no
shares, and each of FMR Corp., Edward C. Johnson 3d and Abigail P.
Johnson indicated that they had sole dispositive power with respect to
1,649,450 shares. The address for each of FMR Corp., Edward C. Johnson 3d
and Abigail P. Johnson is 82 Devonshire Street, Boston, MA 02109.
(e) Pursuant to a Schedule 13G dated February 10, 1999 and filed with the
Commission by AMVESCAP PLC on behalf of itself and its subsidiaries AVZ,
Inc., AIM Management Group Inc., AMVESCAP Group Services, Inc., INVESCO,
Inc., INVESCO North American Holdings, Inc., INVESCO Capital Management,
Inc., INVESCO Funds Group, Inc., INVESCO Management & Research, Inc.,
INVESCO Realty Advisers, Inc., and INVESCO (NY) Asset Management, Inc.
(collectively, "AMVESCAP"), AMVESCAP beneficially owns 1,325,800 shares
and has shared voting power and shared dispositive power with respect to
all such shares. The address for AMVESCAP is 11 Devonshire Square, London
EC2M 4YR England, and 1315 Peachtree Street, N.E., Atlanta, Georgia
30309.
(f) The shares listed include shares subject to options exercisable within 60
days of March 22, 1999 as follows: Mr. Spainhour, 155,000 shares; Ms.
DeRosa, 69,333 shares; Mr. Parks, 625 shares; Ms. Barandiaran, 51,465
shares; and Mr. Smith, 2,581 shares. The shares listed also include
restricted shares which have not yet vested and which are subject to
forfeiture, as follows: Mr. Spainhour, 25,000 shares; and Ms. DeRosa,
10,000 shares.
(g) James J. Burke, Jr. and Gerald S. Armstrong serve on the Board of
Directors of the Company and Ann Taylor as designees of ML&Co. and
certain of its affiliates. Both Mr. Burke and Mr. Armstrong disclaim
beneficial ownership of the shares beneficially owned by the Merrill
Lynch Entities.
(footnotes continued on next page)
11
<PAGE>
(footnotes continued from previous page)
(h) 3,000 of these shares are held by Mr. Armstrong's spouse, as custodian
for their children. Mr. Armstrong disclaims beneficial ownership of these
shares.
(i) Shares are held in a pension fund of which Ms. Lazarus' spouse is the
sole beneficiary. Ms. Lazarus has no voting or investment power with
respect to these shares.
(j) The shares listed include 279,004 shares subject to options exercisable
within 60 days of March 22, 1999, and 35,000 restricted shares that have
not yet vested and are subject to forfeiture.
SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (as amended) (the
"Exchange Act"), requires the Company's directors and certain officers, and
holders of more than 10% of the Company's Common Stock, to file with the
Securities and Exchange Commission and the New York Stock Exchange reports of
their ownership and changes in ownership of Common Stock. Copies of Section
16(a) reports are required to be furnished to the Company. Based solely on a
review of the copies of such statements furnished to the Company, or written
representations from certain reporting persons that no Forms 5 were required
for such persons, the Company believes that during fiscal year 1998, all
transactions were reported on a timely basis, except that Mr. Hovsepian's
initial statement of ownership was filed by the Company's counsel one business
day late.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company as of March 22, 1999:
<TABLE>
<CAPTION>
NAME POSITION AND OFFICES
- ---- --------------------
<S> <C>
J. Patrick Spainhour .............. Chairman, Chief Executive Officer and Director of the Company and
Ann Taylor
Patricia DeRosa ................... President, Chief Operating Officer and Director of the Company and
Ann Taylor
Walter J. Parks* .................. Senior Vice President--Chief Financial Officer and Treasurer of the
Company and Ann Taylor
Jocelyn F.L. Barandiaran .......... Senior Vice President--General Counsel and Secretary of the
Company and Ann Taylor
James M. Smith .................... Vice President--Controller, Assistant Treasurer and Assistant
Secretary of the Company and Ann Taylor
</TABLE>
- ----------
* Mr. Parks resigned from his positions with the Company and Ann Taylor
effective March 31, 1999.
Information regarding Mr. Spainhour and Ms. DeRosa is set forth above
under "Incumbent Class I Directors" and "Nominees for Election as Class II
Directors", respectively.
WALTER J. PARKS, AGE 40. Mr. Parks has been Senior Vice President--Chief
Financial Officer and Treasurer of the Company and Ann Taylor since February
1997. He has been employed by Ann Taylor since 1988 and has held various
positions, including from 1992 to 1995, Vice President of Financial Reporting,
and from February 1995 to February 1997, Senior Vice President--Finance of the
Company and Ann Taylor. Mr. Parks resigned from his positions with the Company
and Ann Taylor effective March 31, 1999.
12
<PAGE>
JOCELYN F.L. BARANDIARAN, AGE 38. Ms. Barandiaran has been Senior Vice
President--General Counsel and Secretary of the Company and Ann Taylor since
October 1996. She served as Vice President--General Counsel and Secretary of
the Company and Ann Taylor from May 1992 to September 1996.
JAMES M. SMITH, AGE 37. Mr. Smith has been Vice President--Controller and
Assistant Treasurer of the Company since March 1997, and has been Vice
President--Controller and Assistant Treasurer of Ann Taylor since February
1995. He has also held the position of Assistant Secretary of both the Company
and Ann Taylor since June 1998. From February 1993 to January 1995, Mr. Smith
was Director of Financial Reporting for Ann Taylor.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Company's compensation practices are designed to attract, retain and
motivate highly talented, results-oriented executives of experience and
ability, and to provide these executives with appropriate incentives to achieve
the Company's financial and strategic objectives. The Company's compensation
programs are designed to "pay for performance", utilizing a combination of
annual base salary, a cash incentive compensation program that rewards
executives for achievement of short term objectives, and long term incentive
programs, including a long-term cash incentive compensation plan and a stock
option plan, that reward executives based on long term corporate performance.
An executive's annual base salary generally is intended to be positioned
within a range comparable to the competitive median salary, but the executive's
targeted total compensation, including long term incentives, is intended to be
positioned above median, up to approximately the 75th percentile of competitive
practice, provided that performance objectives are achieved. In determining an
individual executive's compensation, consideration is given to, among other
things, the executive's experience and anticipated contribution to the Company,
as well as to compensation paid to like executives at other companies. No
specific weight is given to any of these considerations. The other companies
used in evaluating the competitive position of the Company's compensation
programs, as well as for evaluating the compensation of individual executives,
consist of companies in the apparel and retail industries, including companies
among the Dow Jones Specialty Apparel Retailers Index, to the extent
information is available.
CASH COMPENSATION
As noted above, an executive's base salary typically is set at an amount
that is approximately at the median range of compensation for equivalent
positions. Thus, base compensation alone is less than the executive's targeted
total compensation level. In order to attain the targeted compensation level,
the executive is dependent, in part, upon earning the variable,
performance-based incentive component that is provided for under the Company's
Management Performance Compensation Plan (the "Annual Performance Plan"). This
cash compensation structure is intended to provide executives with a balance
between compensation security and appropriate incentives to use their best
efforts to cause the Company to achieve and exceed its strategic objectives.
Under the Annual Performance Plan, each year the Compensation Committee
establishes an annual threshold corporate earnings per diluted share target
that must be achieved before incentive compensation may be paid to any
participant under the plan for the year. For each participant, there may also
be established personalized divisional, work unit and/or individual performance
objectives. As a result, the individual's incentive compensation relates not
only to the achievement of the Company's profit objective, but also reflects
the individual participant's role in the Company, their scope of influence on
corporate or divisional results, and their personal job performance. An
incentive compensation matrix is also established for each incentive period
that provides for increased payments under the plan, for exceeding plan
targets.
13
<PAGE>
If the performance targets established under the Annual Performance Plan
are achieved, incentive compensation is paid such that, when added to the
executive's base compensation, the executive achieves his or her targeted cash
compensation level. If the performance targets are exceeded, the executive's
contribution to this performance is reflected by a greater incentive
compensation payment under the plan. Similarly, failure to reach the stated
performance objectives results in the executive's performance compensation, and
thus total cash compensation, being less than the targeted level.
LONG TERM COMPENSATION
The other principal component of executive compensation is the Company's
long term incentive programs, which are intended to focus executives' efforts
on the Company's long term financial performance and on enhancing the market
value of the Common Stock. These objectives are achieved through a Long Term
Cash Incentive Compensation Plan (the "Long Term Cash Plan") that, as described
below, provides for cash rewards for achievement of long-term earnings targets,
and through the Company's stock option plan, that gives executives a financial
interest as beneficial owners of Company Common Stock.
Under the Long Term Cash Plan, each year the Committee designates a
consecutive three-year period as a "performance cycle", and establishes a
three-year cumulative earnings per share target that must be achieved by the
end of the three-year cycle, in order for incentive compensation to be paid
under the plan at the end of the cycle. The Committee believes that there
should be a direct correlation between achievement of these cumulative earnings
per share targets and an increase in long term stockholder value. The Committee
designated the three-year period of 1998-2000 as the first performance cycle
under the Long Term Cash Plan, and established a three-year cumulative earnings
per share target for this cycle. The Committee designated as participants under
the Long Term Cash Plan for this cycle the Ann Taylor officers who are Senior
Vice Presidents or above, comprising the Ann Taylor Executive Committee. These
executives are expected to have the greatest effect on the Company's long term
profitability and to enable the Company to meet and exceed its multi-year
goals. As 1998 was the first year of the first three-year cycle under this
plan, no compensation was payable to any executive under this plan for fiscal
1998.
The Company also makes periodic grants of stock options, approximately
annually. The exercise price for stock options is set at a price equal to or
greater than the market price of the Common Stock at the time of the grant. As
a result, the options do not have any value to the executive unless the market
price of the Common Stock rises. The Company believes that stock options
further align executives' interests with those of stockholders and focuses
management on building long term stockholder value.
The Company may also make grants of shares of restricted stock when deemed
necessary in order to attract or retain executives. Restricted stock awards are
intended as special recognition for executives who make a superior contribution
to achievement of the Company's goals, or in acknowledgment of the executive's
potential for advancement beyond their current position.
ANALYSIS OF 1998 COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee reviews the compensation arrangements for the
Company's Chairman and Chief Executive Officer annually, typically in the first
quarter of the fiscal year.
In determining Mr. Spainhour's total compensation for fiscal 1998, the
Committee considered the terms of his employment agreement, his length of
service with the Company as Chairman and Chief Executive Officer, the strategic
plan developed by management under Mr. Spainhour's leadership during the
preceding year, the Company's financial performance during the preceding year,
future objectives and challenges for the Company, and Mr. Spainhour's
individual performance and contributions to the Company. The Committee also
considered competitive data regarding salaries and incentives awarded to other
chief executives in the Company's industry and at Company competitors, among
other things. In making its compensation decisions with respect to Mr.
Spainhour, the Committee exercised its discretion and judgement based on the
above factors, and no specific formula was applied to determine the weight of
each factor.
14
<PAGE>
Despite the Company's disappointing financial performance in 1997, the
Committee concluded that Mr. Spainhour had provided important leadership in the
development of the Company's five-year strategic plan, and recognized that the
execution and the success of the plan can only be measured over time, as the
plan's initiatives are implemented. The Committee also believes that Mr.
Spainhour provided important leadership in enhancing the Company's corporate
culture, and in supporting a corporate environment that values talent and
innovation.
In accordance with the terms of the Company's employment agreement with
Mr. Spainhour (described below under "Executive Compensation -- Employment
Agreements"), his base compensation was increased to $725,000 effective January
1, 1998, representing an 11.5% increase over the prior year. In addition to
this base salary, the Committee assigned to Mr. Spainhour a performance
percentage of 65% under the Annual Performance Plan for fiscal 1998, and a
performance percentage of 50% under the Long Term Cash Plan for the 1998-2000
performance cycle. The Committee also granted Mr. Spainhour options to purchase
20,000 shares of Common Stock, vesting 25% per year on each of the first four
anniversaries of the grant date and exercisable at a price equal to the market
price of the Common Stock on the grant date.
The Committee believes that a significant portion of the target
compensation for the Chief Executive Officer should be represented by
incentive, performance compensation -- payable only if the Company achieves its
financial objectives. In fiscal 1998, the Company achieved record earnings of
$39 million, or $1.44 per share on a diluted basis -- well above the target
range established by the Committee under the Annual Performance Plan for 1998.
As a result of this strong performance, under the Annual Performance Plan Mr.
Spainhour was entitled to receive twice his performance percentage of 65% for
1998, the maximum payable to him under that plan. As a result, consistent with
the Company's compensation philosophy, incentive compensation represented in
excess of 55% of Mr. Spainhour's cash compensation for fiscal 1998.
In recognition of the Company's 1998 financial performance under Mr.
Spainhour's leadership, when reviewing executive compensation and making stock
option grants to executives in March 1999, the Committee awarded to Mr.
Spainhour additional options to purchase 50,000 shares of Common Stock. These
options will become vested 25% per year on each of the first four anniversaries
of the grant, and are exercisable at a price equal to the market value of the
Common Stock at the date of grant.
Rochelle B. Lazarus (Chairman)
Gerald S. Armstrong
James J. Burke, Jr.
Hanne M. Merriman
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
As of the Record Date, ML&Co. and certain of its affiliates beneficially
owned an aggregate of approximately 6.6% of the outstanding Common Stock.
Messrs. Armstrong and Burke serve on the Boards of Directors of the Company and
Ann Taylor as representatives of ML&Co. and its affiliates. Accordingly, ML&Co.
and its affiliates are in a position to influence the management of the
Company. Messrs. Armstrong and Burke are also members of the Compensation
Committee of the Board of Directors of the Company.
15
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding the annual and
long-term compensation awarded or paid for each of the last three fiscal years
to the Chief Executive Officer and the four other most highly compensated
executive officers of the Company as of January 30, 1999 (collectively, the
"named executives").
TABLE I
SUMMARY OF EXECUTIVE OFFICER COMPENSATION
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(A) COMPENSATION ($)
- ---------------------------------- -------- ------------ -------------- ------------------
<S> <C> <C> <C> <C>
J. Patrick Spainhour ............. 1998 $725,000 $942,500 --
Chairman and Chief 1997 656,250 81,250 --
Executive Officer 1996 556,074 295,000 --
Patricia DeRosa .................. 1998 600,000 660,000 --
President and Chief 1997 600,000 150,000 367,234(d)
Operating Officer 1996 86,538 -- --
Walter J. Parks (f) .............. 1998 245,000 137,340 --
Senior Vice President-- 1997 245,000 15,313 --
Chief Financial Officer 1996 215,000 32,250 --
and Treasurer
Jocelyn F.L. Barandiaran ......... 1998 233,004 121,450 --
Senior Vice President-- 1997 225,000 14,063 --
General Counsel and 1996 215,000 32,250 --
Secretary
James M. Smith ................... 1998 145,600 65,520 --
Vice President-- 1997 140,000 7,000 --
Controller, Assistant Treasurer 1996 125,000 11,250 --
and Assistant Secretary
<CAPTION>
LONG-TERM
COMPENSATION
---------------------------------
RESTRICTED SECURITIES ALL OTHER
STOCK AWARDS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION ($) OPTIONS (#) ($)(B)
- ---------------------------------- ------------------- ------------- -------------
<S> <C> <C> <C>
J. Patrick Spainhour ............. -- 20,000 $2,400
Chairman and Chief -- -- 3,306
Executive Officer $1,378,125(c) 175,000 --
Patricia DeRosa .................. -- 10,000 --
President and Chief -- -- --
Operating Officer 987,500(e) 100,000 --
Walter J. Parks (f) .............. -- -- 2,400
Senior Vice President-- -- 16,000 2,438
Chief Financial Officer -- 7,500 2,312
and Treasurer
Jocelyn F.L. Barandiaran ......... -- 4,200 --
Senior Vice President-- -- 16,000 --
General Counsel and -- 5,000 --
Secretary
James M. Smith ................... -- 2,000 2,184
Vice President-- -- 7,500 2,374
Controller, Assistant Treasurer -- 5,000 1,875
and Assistant Secretary
</TABLE>
- ----------
(a) Bonus awards were earned pursuant to the Company's Management Performance
Compensation Plan, except that a portion of the bonus amounts indicated
for Mr. Spainhour for 1996 and for Ms. DeRosa for 1997 were guaranteed
bonuses paid to them in accordance with the terms of their respective
employment agreements with the Company.
(b) Represents contributions made by the Company on behalf of the named
executives to its 401(k) Savings Plan.
(c) Represents the market value, on the date of the grant, of 75,000
restricted shares of Common Stock granted to Mr. Spainhour on December
13, 1996 in connection with his promotion to Chairman and Chief Executive
Officer of the Company. The value of these shares as of January 30, 1999
was $2,906,250. Mr. Spainhour's rights to these shares vest with respect
to one-third of the grant per year on each of the first three
anniversaries of August 23, 1996, the effective date of his promotion,
subject to his continued employment by the Company. Mr. Spainhour would
be entitled to receive dividends on these restricted shares if any
dividends are paid by the Company on its Common Stock.
(d) Represents reimbursement of relocation expenses.
(footnotes continued on next page)
16
<PAGE>
(footnotes continued from previous page)
(e) Represents the market value, on the date of the grant, of 30,000
restricted shares of Common Stock and 20,000 restricted units granted to
Ms. DeRosa on December 9, 1996 in connection with her commencement of
employment, pursuant to her employment agreement with the Company. The
value of these shares and units as of January 30, 1999, was $1,937,500.
Ms. DeRosa's rights to these shares and units vest with respect to
one-third of the grant per year on each of the first three anniversaries
of December 9, 1996, the effective date of her employment agreement,
subject to her continued employment by the Company. Ms. DeRosa would be
entitled to receive dividends on the restricted shares if any dividends
are paid by the Company on its Common Stock.
(f) Mr. Parks resigned his employment effective March 31, 1999.
The following table sets forth certain information with respect to stock
options awarded during fiscal year 1998 to the named executives listed in Table
I above. These option grants also are reflected in Table I. In accordance with
Commission rules, the hypothetical realizable values for each option grant are
shown based on compound annual rates of stock price appreciation of 5% and 10%
from the grant date to the expiration date. The assumed rates of appreciation
are prescribed by the Commission and are for illustrative purposes only; they
are not intended to predict future stock prices, which will depend upon market
conditions and the Company's future performance and prospects.
TABLE II
STOCK OPTIONS GRANTED IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
% OF TOTAL # OF STOCK PRICE
# OF SECURITIES OF OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (B)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED (A) FISCAL 1998 ($/SHARE) DATE 5%($) 10%($)
- ---- ----------------- -------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
J. Patrick Spainhour ............. 20,000 8.5% $15.50 4/21/08 $195,000 $ 494,000
Patricia DeRosa .................. 10,000 4.2% 15.50 4/21/08 97,500 247,000
Walter J. Parks .................. -- -- -- -- -- --
Jocelyn F.L. Barandiaran ......... 4,200 1.8% 15.50 4/21/08 40,950 103,740
James M. Smith ................... 2,000 0.9% 15.50 4/21/08 19,500 49,400
</TABLE>
- ----------
(a) Options vest 25% per year on each of the first through fourth
anniversaries of the date of grant, subject to earlier vesting upon the
occurrence of one of the following "Acceleration Events": (i) any person
(excluding ML Capital Partners and its affiliates, and certain other
persons) becomes the owner of at least 20% of the outstanding Common
Stock, (ii) a majority of the Board of Directors changes, or (iii) a
merger or other specified event occurs.
(b) These columns show the hypothetical realizable value of the options at
the end of the ten-year term of the options, assuming that the market
price of the Common Stock subject to the options appreciates in value at
the annual rate indicated in the table, from the date of grant to the end
of the option term.
The following table shows the number of shares of Common Stock acquired by
each executive officer upon the exercise of Company stock options during fiscal
year 1998, and the aggregate dollar value realized by such executives upon such
exercise, based upon the fair market value of the Common Stock on the date of
exercise, as well as the number of all vested (exercisable) and unvested (not
yet exercisable) stock options held by each executive officer at the end of
fiscal year 1998, and the value of all such options that were "in the money"
(i.e., the market price of the Common Stock was greater than the exercise price
of the options) at the end of fiscal year 1998.
17
<PAGE>
TABLE III
AGGREGATE OPTION EXERCISES IN FISCAL 1998
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
$ VALUE
NUMBER OF OF UNEXERCISED
NO. OF SHARES $ VALUE SHARES UNDERLYING IN-THE-MONEY
ACQUIRED ON REALIZED UPON UNEXERCISED OPTIONS OPTIONS AT END OF
EXERCISE OF EXERCISE OF AT END OF FISCAL 1998 FISCAL 1998
NAME STOCK OPTIONS OPTIONS (A) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (B)
- ---- --------------- --------------- --------------------------- ------------------------------
<S> <C> <C> <C> <C>
J. Patrick Spainhour ......... 25,000 $412,500 150,000 / 20,000 $3,328,125 / $465,000
Patricia DeRosa .............. -- -- 83,000 / 27,000 1,462,875 / 532,125
Walter J. Parks .............. 21,218 240,705 7,499 / 17,753 122,494 / 154,073
Jocelyn F.L. Barandiaran ..... -- -- 48,040 / 24,660 851,982 / 352,794
James M. Smith ............... 10,623 104,678 4,584 / 11,793 79,301 / 163,955
</TABLE>
- ----------
(a) Calculated based on the closing market price of the Common Stock on the
date of exercise, less the amount required to be paid upon exercise of
the option.
(b) Calculated based on the closing market price of the Common Stock of
$38.75 on January 29, 1999, the last trading day in fiscal year 1998,
less the amount required to be paid upon exercise of the option.
PENSION PLAN. Since 1989, Ann Taylor has maintained a defined benefit
retirement plan for the benefit of its employees and those of its wholly owned
subsidiaries, which is intended to qualify under Section 401(a) of the Code (as
amended, the "Pension Plan"). Originally, the Pension Plan provided for
calculation of benefits based on a "cash balance" formula. Effective January 1,
1998, the Pension Plan provides for calculation of benefits based on a "career
average" formula instead of a cash balance formula.
Under the "career average" formula, each participant's service and annual
earnings are used to determine their annual pension accrual. During each
participant's first ten years with Ann Taylor, their pension will accrue, for
each year of participation in the Pension Plan, at the rate of 1.25% of their
current year's pay up to the Social Security Wage Base ("Wage Base") plus 1.6%
of any pay that exceeds the Wage Base, up to the maximum amount permitted by
the Code. Upon completion of more than 10 years of service, the participant's
annual pension accrual increases to 1.6% of the current year's pay, up to the
Wage Base, plus 1.95% of any pay over the Wage Base, up to the maximum amount
permitted by the Code.
Pension benefits are fully vested after five years of service.
Participants receive credit for service with Ann Taylor prior to July 1, 1989
for purposes of vesting, and for purposes of calculating benefits under the
Pension Plan. There is no interruption in participation for those employees who
were participants in the Pension Plan as of December 31, 1997; their cash
balance benefit was frozen as of that date. Pension benefits for such employees
who retire on or after January 1, 1998 are calculated using whichever of the
two -- the amount in their cash balance account as of December 31, 1997, or the
career average formula -- provides greater benefits.
Under the Code, the annual compensation that may be taken into account for
purposes of calculating benefits under the Pension Plan is limited to $160,000
(indexed for inflation). With the exception of Mr. Smith, all current
executives named in Table I have annual compensation which exceeds this figure,
and the calculation of benefits for these executives is based on the lower plan
limitation amount.
As of December 31, 1998, the credited years of service under the Pension
Plan for Mr. Spainhour was 1.8 years; Ms. DeRosa one year; Mr. Parks 9.3 years;
Ms. Barandiaran 5.7 years; and Mr. Smith 4.9 years. The estimated monthly
retirement benefit, payable as a single life annuity, that would be payable to
each of the executives named in Table I who were participants in the Pension
Plan during fiscal 1998, assuming (i) no increases in income and (ii)
retirement and the commencement of benefit payments at age 65, is as follows:
Mr. Spainhour, $3,949; Ms. DeRosa, $4,378; Mr. Parks, $7,295; Ms. Barandiaran,
$7,305; and Mr. Smith, $7,193. These benefits would not be subject to any
reduction for social security or other offset amounts.
18
<PAGE>
EMPLOYMENT AGREEMENTS. Spainhour Employment Agreement. Effective as of
February 19, 1996, the Company and Mr. Spainhour entered into an employment
agreement in connection with his commencement of service as an employee of the
Company. This agreement was amended as of August 23, 1996 (as amended, the
"Spainhour Agreement"), in connection with Mr. Spainhour's promotion to
Chairman and Chief Executive Officer of the Company. The Spainhour Agreement
provides for Mr. Spainhour's employment as Chairman and Chief Executive Officer
of the Company for a term of three years, which term is automatically extended
on an annual basis for one additional year unless either party provides notice
that it does not wish to extend the term (a "Nonrenewal Notice"). Under the
Spainhour Agreement, effective January 1, 1998, Mr. Spainhour is entitled to an
annual base salary of not less than $725,000. Mr. Spainhour also is entitled to
participate in the Company's annual bonus and stock option plans, as well as
other Company benefit programs.
Pursuant to the terms of the Spainhour Agreement, Mr. Spainhour was
granted, under the Stock Option Plan, an option to purchase 100,000 shares of
Common Stock at an exercise price equal to the fair market value of the Common
Stock on the date Mr. Spainhour commenced employment with the Company (February
19, 1996). These options vested 50% on each of the first two anniversaries of
the date of grant. In addition, in connection with his promotion to Chairman
and Chief Executive Officer of the Company, Mr. Spainhour received (i) a
"performance vesting" option to purchase 75,000 shares of Common Stock under
the Stock Option Plan, at an exercise price equal to the fair market value of
the Common Stock on the date of grant, which option vests on the ninth
anniversary of the date of grant, subject to earlier vesting upon the
occurrence of certain performance criteria and subject to accelerated vesting
and termination in accordance with the terms of the Stock Option Plan; and (ii)
75,000 restricted shares of Common Stock, one-third of which vest on each of
the first three anniversaries of August 23, 1996, subject to accelerated
vesting in accordance with the terms of the Stock Option Plan, or upon the
termination of Mr. Spainhour's employment other than for Cause or by Mr.
Spainhour for Good Reason (as such terms are defined in the Spainhour
Agreement).
In the event of termination of Mr. Spainhour's employment by the Company
without Cause, or by Mr. Spainhour for Good Reason, or in the event of the
expiration of the term of the Spainhour Agreement by reason of a Nonrenewal
Notice provided by the Company, Mr. Spainhour shall be entitled, among other
things, to receive, for the longer of one year or the remaining term of the
Spainhour Agreement, an amount representing his salary plus the average of his
last three annual bonuses, subject to Mr. Spainhour's compliance with the
noncompete and nonsolicitation provisions of the Spainhour Agreement. If any
payments or benefits received by Mr. Spainhour would be subject to the "golden
parachute" excise tax under the Code, the Company has agreed to pay Mr.
Spainhour such additional amounts as may be necessary to place him in the same
after-tax position as if the payments had not been subject to such excise tax.
DeRosa Employment Agreement. On November 25, 1996, the Company and Ms.
Patricia DeRosa entered into an employment agreement (the "DeRosa Agreement")
providing for her employment as President and Chief Operating Officer of the
Company for a term of three years. Under the terms of the DeRosa Agreement, Ms.
DeRosa is entitled to an annual base salary of not less than $600,000 and is
entitled to participate in the Company's annual bonus and stock option plans,
as well as other Company benefit programs.
Pursuant to the terms of the DeRosa Agreement, Ms. DeRosa was granted
under the Stock Option Plan an option to acquire 100,000 shares of Common Stock
at an exercise price equal to the fair market value of the Common Stock on
November 25, 1996. One half of these options are "time vesting" options,
one-third of which become exercisable on each of the first three anniversaries
of December 9, 1996 (the "Effective Date"). The other half of the options are
"performance vesting" options which vest on the ninth anniversary of Ms.
DeRosa's employment, subject to earlier vesting upon the occurrence of certain
performance criteria and subject to accelerated vesting and termination in
accordance with the terms of the Stock Option Plan. In addition, Ms. DeRosa
received 30,000 restricted shares of Common Stock and 20,000 restricted units,
which represent the right to receive a cash payment based on the closing price
of the Common Stock on the trading date immediately preceding the date the
restrictions lapse. One-third of each of the restricted shares and restricted
units vest on each of the first three anniversaries of the Effective Date.
19
<PAGE>
In the event of termination of Ms. DeRosa's employment by the Company
without Cause or by Ms. DeRosa for Good Reason, Ms. DeRosa shall be entitled,
among other things, to receive (i) for the longer of one year or the remaining
term of the DeRosa Agreement, an amount representing her base salary, and (ii)
the bonus for the season in which the date of termination occurs, pro rated to
reflect the number of days in such season through the date of termination,
subject to Ms. DeRosa's compliance with the noncompete and nonsolicitation
provisions of the DeRosa Agreement. Any unvested restricted shares and
restricted units would also vest at such time. If any payments or benefits
received by Ms. DeRosa would be subject to the "golden parachute" excise tax
under the Code, the Company has agreed to pay Ms. DeRosa such additional
amounts as may be necessary to place her in the same after-tax position as if
the payments had not been subject to such excise tax.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
In accordance with Rule 14a-8 under the Securities Exchange Act, any
stockholder proposals intended to be presented at the 2000 Annual Meeting of
Stockholders must be received by the Company no later than December 4, 1999 in
order to be considered for inclusion in the Company's Proxy Statement and form
of proxy relating to that meeting.
Section 9 of Article II of the Company's By-Laws provides that, in order
for a stockholder to nominate a person for election to the Board of Directors
at an annual meeting of the Company, such stockholder must be a stockholder of
record on the date the notice described below is given and on the record date
for the annual meeting, and must have given timely prior written notice to the
Secretary of the Company. To be timely for the 2000 Annual Meeting of
Stockholders, notice must be received by the Company not less than sixty days
nor more than ninety days prior to May 18, 2000, which will be the anniversary
date of the prior year's meeting (or if the meeting date for the 2000 Annual
Meeting is not within thirty days before or after the anniversary date of the
prior year's meeting, then not later than the tenth day following the day on
which the notice of the date of the meeting was mailed or public disclosure
thereof is made). Such notice must contain certain information about the person
whom the stockholder proposes to nominate and the stockholder giving the
notice, including the name, age, address, occupation, and class and number of
shares of Common Stock beneficially owned by the proposed nominee and the name,
address and class and number of shares of Common Stock beneficially owned by
such stockholder.
In addition, Section 10 of Article II of the Company's By-Laws provides
that, in order for a stockholder to propose any matter for consideration at an
annual meeting of the Company, such stockholder must have given timely prior
written notice to the Secretary of the Company of such stockholder's intention
to bring such business before the meeting. To be timely for the 2000 Annual
Meeting of Stockholders, notice must be received by the Company not less than
sixty days nor more than ninety days prior to May 18, 2000, which is the
anniversary date of the prior year's meeting (or if the meeting date for the
2000 Annual Meeting is not within thirty days before or after the anniversary
date of the prior year's meeting, then not later than the tenth day following
the day on which the notice of the date of the meeting was mailed or public
disclosure thereof is made). Such notice must contain certain information about
such business and the stockholder who proposes to bring the business before the
meeting, including a brief description of the business the stockholder proposes
to bring before the meeting, the reasons for conducting such business at the
annual meeting, the name and address of the stockholder, the class and number
of shares of Common Stock beneficially owned by such stockholder, and any
material interest of such stockholder in the business so proposed.
20
<PAGE>
ADDITIONAL INFORMATION
Copies of the Company's 1998 Annual Report to Stockholders, which includes
audited financial statements, are being mailed to stockholders of the Company
with this Proxy Statement. Additional copies of the Annual Report are available
without charge upon request. Requests should be addressed to the Secretary,
AnnTaylor Stores Corporation, 142 West 57th Street, New York, New York 10019.
ANNTAYLOR STORES CORPORATION
NEW YORK, NEW YORK
April 5, 1999
21
<PAGE>
EXHIBIT A
AMENDMENT TO AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ANNTAYLOR STORES CORPORATION
The first paragraph of Article FOURTH of the Company's Amended and
Restated Certificate of Incorporation shall be amended to read as follows:
Article FOURTH. The total number of shares of stock which the Corporation
shall have authority to issue is one hundred twenty million (120,000,000)
shares of Common Stock, each having a par value of sixty-eight
one-hundredths of one cent ($.0068), and two million (2,000,000) shares
of preferred stock, each having a par value of one cent ($.01).
A-1
<PAGE>
EXHIBIT B
ANNTAYLOR STORES CORPORATION
ASSOCIATE DISCOUNT STOCK PURCHASE PLAN
1. Purpose. AnnTaylor Stores Corporation hereby establishes the AnnTaylor
Stores Corporation Associate Discount Stock Purchase Plan, effective as of May
18, 1999. This Plan is designed to provide eligible employees of the Company
and its Designated Subsidiaries who wish to become shareholders in the Company
with a convenient method of purchasing Common Stock through payroll deductions.
It is believed that associate participation in the ownership of the Company
will be to the mutual benefit of both associates and the Company. The Plan is
intended to qualify as an employee stock purchase plan under Section 423(b) of
the Code.
2. Definitions. As used in this Plan, the following capitalized terms
shall have the meanings set forth below:
(a) "Account" means the funds accumulated under the Plan with respect to
an individual Participant as a result of deductions from the Participant's
paycheck for the purpose of purchasing stock under this Plan. The funds
allocated to a Participant's Account shall remain the property of the
Participant at all times but may be commingled with the funds of other
Participants or the Company.
(b) "Board" means the Board of Directors of the Company.
(c) "Brokerage Investment Account" shall mean the Plan account at a
brokerage firm selected by the Company, that is established for each
Participant and in which all shares purchased by the Participant pursuant to
the Plan are held until withdrawn, sold or delivered pursuant to Section 7
hereof.
(d) "Business Day" means Mondays through Fridays, but excluding days on
which banking institutions in the State of New York are required by law or
regulation to be closed.
(e) "Code" means the Internal Revenue Code of 1986, as amended. Reference
to a specific section of the Code shall include such section, any valid
regulation promulgated thereunder, and any comparable provision of any further
legislation or regulation amending, supplementing or superseding such section
or regulation.
(f) "Committee" means any committee appointed by the Board to administer
the Plan. The members of the Committee shall serve at the pleasure of the
Board. Any member of the Committee may resign at any time by notice in writing
mailed or delivered to the Secretary of the Company.
(g) "Common Stock" means the common stock, par value $.0068, of the
Company.
(h) "Company" means AnnTaylor Stores Corporation.
(i) "Compensation" means a Participant's salary, wages, commissions,
overtime pay, cash payments for incentive compensation and other special cash
payments, except to the extent that any such item is specifically excluded by
the Board of Directors. "Compensation" does not include sign-on bonuses,
severance payments, car allowances, relocation expenses, moving expenses, or
any other payment which could be considered as reimbursement for expenses, or
non-cash compensation.
(j) "Contribution" means amounts withheld by the Company, or a Subsidiary
of the Company, from the Compensation of a Participant through payroll
deductions under and in accordance with Section 6 of this Plan.
(k) "Custodian" means the party or parties acting as such under the
Servicing Agreement.
(l) "Eligible Employee" has the meaning given to it in Section 4 of this
Plan.
(m) "Employee" means any salaried or hourly employee (including officers)
of the Company or any of its Designated Subsidiaries, whether such employee is
so employed at the time the Plan is adopted or becomes so employed subsequent
to the adoption of the Plan. No Board member who is not also an
B-1
<PAGE>
employee of the Company or any of its Designated Subsidiaries shall be eligible
to become a Participant under this Plan. For the purposes of this Plan, the
employment relationship shall be treated as continuing intact while an Employee
is on any Company-approved leave of absence.
(n) "Fair Market Value" means, as of any given date, the closing price of
the Company's Common Stock on the New York Stock Exchange on the Trading Day
immediately preceding such date. In the event that such price is not available,
then the Fair Market Value of the Common Stock will be determined by the
Committee in good faith, taking into account the most recent trading price of
the Common Stock on the New York Stock Exchange, and such determination will be
conclusive.
(o) "Offering Commencement Date" means the first day of each Offering
Period in which there will be an offering, starting with August 1, 1999, and
then each subsequent February 1 and August 1, until the Plan terminates. A
different date may be set by resolution of the Board. This is the date on which
the offering commences. On each such date, the Company shall commence an
offering by granting each Participant an option to purchase shares on the
Purchase Date. Each option so granted shall be exercisable for the number of
shares described in Section 7(a) herein, and shall be exercisable only on the
Purchase Date.
(p) "Offering Period" means the six-month period commencing with the
Offering Commencement Date, during which Participants accrue funds in their
Accounts. Each such period shall commence on August 1 or February 1 of each
year that the Plan is in effect, starting with August 1, 1999. The Board shall
have the power to change the duration and/or the required frequency of the
Offering Periods under the Plan with respect to future offerings and shall use
its best efforts to notify Employees of any change at least 15 days prior to
the scheduled beginning of the first Offering Period to be affected. In no
event shall any option granted hereunder be exercisable more than twenty-seven
months after its date of grant.
(q) "Participant" means an Eligible Employee who has enrolled as a
Participant in accordance with Section 6 of this Plan and whose participation
has not terminated under Section 9 hereof.
(r) "Plan" means this AnnTaylor Stores Corporation Associate Discount
Stock Purchase Plan, as amended from time to time.
(s) "Purchase Date" means the last day of each Offering Period. On this
date, the funds in the Participant's Account shall be used to purchase shares
of Common Stock of the Company pursuant to this Plan.
(t) "Servicing Agreement" means an agreement entered into by and between
the Company and the Custodian governing certain terms and conditions of the
Plan and its operation. Such agreement may be modified from time to time.
(u) "Subsidiary" means any corporation of which the Company now owns, or
hereafter acquires, directly or indirectly, at least a majority of the
outstanding voting capital stock. A "Designated Subsidiary" means any
Subsidiary that has been designated by the Board from time to time in its sole
discretion as eligible to participate in this Plan.
(v) "Trading Day" means any Business Day on which the New York Stock
Exchange, other national stock exchanges and the Nasdaq system are open for
trading.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
3. Shares Subject to the Plan. (a) Number Available. The maximum number of
shares that will be offered under the Plan is 250,000 shares of Common Stock
(subject to adjustment pursuant to Section 3(d) hereof).
(b) Character of Shares to be Issued. Shares sold under the Plan may be
authorized and unissued shares or treasury shares.
(c) Insufficient Number of Shares Available. If the total number of shares
for which options are to be granted on any date in accordance with this Plan
exceeds the number of shares then available under
B-2
<PAGE>
the Plan (after deduction of all shares for which options have been exercised
or are then outstanding), the Company shall make a pro rata allocation of the
shares remaining available in as nearly a uniform manner as shall be
practicable and as it shall determine to be equitable. In such event, the
payroll deductions to be made pursuant to the authorizations therefor shall be
reduced accordingly and the Company shall give written notice of such reduction
to each Participant affected thereby.
(d) Adjustments. In the event of any reorganization, recapitalization,
stock split, reverse stock split, stock dividend, combination of shares,
merger, consolidation, offering of rights or other similar change in the
capital structure of the Company, the Committee may make such adjustment, if
any, as it deems appropriate in the number, kind and purchase price of the
shares available for purchase under the Plan and in the maximum number of
shares subject to any option under the Plan.
4. Eligibility. (a) Employees Eligible to Participate. Any Employee of the
Company or a Designated Subsidiary is eligible to participate in this Plan,
except (i) Employees who are classified as "seasonal employees" and (ii)
Employees who are citizens of a foreign country the laws of which prohibit the
granting of options hereunder to its citizens.
(b) Restrictions on Amount of Stock Which May be Purchased. Notwithstanding
any provision of the Plan to the contrary, no Employee shall be granted an
option under the Plan (i) if, immediately after the grant, such Employee would
own stock and/or hold outstanding options to purchase stock representing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any Subsidiary of the Company (including stock
attributed to such Employee pursuant to Section 424(d) of the Code); or (ii)
which permits such Employee's right to purchase stock under all employee stock
purchase plans (as described in section 423 of the Code) of the Company and any
Subsidiary to accrue at a rate which exceeds $25,000 of Fair Market Value of
such stock (determined at the time such option is granted) for any calendar
year in which such option would be outstanding at any time. Any amounts
received from an Employee which cannot be used to purchase stock as a result of
this limitation will be returned to the Employee as soon as practicable, without
interest.
5. Offerings. (a) There will be two annual consecutive offerings under the
Plan. The first offering shall commence on August 1, 1999. Thereafter,
offerings shall commence on each subsequent February 1 and August 1, and the
final offering under this Plan shall commence on February 1, 2009 and terminate
on July 31, 2009.
(b) Participation in one offering under the Plan shall neither limit, nor
require, participation in any other offering. Unless the Participant withdraws
from the Plan, or their participation in the Plan otherwise terminates as
provided in Section 9, participation shall carry over from one Offering Period
to the next, until the end of the final offering.
6. Election to Participate, Enrollment and Payroll Deductions. (a) An
Eligible Employee may become a Participant by completing an enrollment
agreement provided by the Company and filing it with the Company at least
fifteen days prior to the Offering Commencement Date of the offering to which
it relates. At that time, the Employee shall elect to have deductions made from
his or her Compensation on each payday during the time the Employee is a
Participant in an offering, at the rate of one percent to 15 percent (in
increments of 1% only) of the Employee's Compensation, as specified by the
Employee in their enrollment agreement.
(b) Payroll deductions for a Participant shall commence as of the Offering
Commencement Date and shall end on the last day of such Offering Period, unless
earlier terminated by the Participant as provided in Section 9.
(c) All payroll deductions made for a Participant shall be credited to the
Participant's Account under the Plan. No interest will be earned on such
payroll deductions. A Participant may not make any separate cash payment into
such Account nor may payment for shares be made other than by payroll
deduction.
(d) A Participant may discontinue participation in the Plan as provided in
Section 9, but no other change can be made during an Offering Period and,
specifically, a Participant may not alter the rate of the Participant's payroll
deductions for that Offering Period.
B-3
<PAGE>
(e) A Participant may modify the information set forth in their enrollment
agreement (including the rate of the Participant's payroll deductions for
Contributions) at any time and from time to time by submitting a new enrollment
agreement to the Company, which will become effective with the first Offering
Commencement Date after receipt thereof by the Company or, if such new
agreement is received less than fifteen days before the Offering Commencement
Date, then effective with the next following Offering Commencement Date.
7. Purchase of Shares. (a) Number of Options. On each Offering
Commencement Date, the Company shall be deemed to have granted to each Employee
who was a Participant on such day an option to buy as many shares of Common
Stock as the Participant will be able to buy with the Contributions credited to
the Participant's Account during the Offering Period in which such Offering
Commencement Date occurs.
(b) Exercise Of Option. On the Purchase Date, each Participant shall be
deemed to have exercised the options granted by Section 7(a), and shall be
deemed to have purchased, at the option purchase price determined in accordance
with Section 7(c) hereof, such number of shares of Common Stock reserved for
the purpose of the Plan as the Contributions credited to the Participant's
Account during the Offering Period in which the Purchase Date occurs will pay
for.
(c) Option Purchase Price. The option purchase price per share on any
Purchase Date shall be the lower of (i) 85% of the Fair Market Value of the
Common Stock on the Offering Commencement Date for the Offering Period in which
the Purchase Date occurs and (ii) 85% of the Fair Market Value of the Common
Stock on such Purchase Date.
(d) Evidence of Stock Ownership. Promptly following the end of each
Offering Period, the number of shares of Common Stock purchased by each
Participant on the Purchase Date shall be deposited into a Brokerage Investment
Account established in the Participant's name with the Custodian. The
Participant may, upon advance notice to the Company at the time of enrollment,
direct that the Brokerage Investment Account be established in the names of the
Participant and one other person designated by the Participant, as joint
tenants with the right of survivorship, tenants in common, or community
property, to the extent and in the manner permitted by applicable law.
(e) Risk. Participants assume all the risks associated with any decrease
in the value of their Brokerage Investment Accounts. Participants specifically
assume the risk that the balance in their Brokerage Investment Accounts may be
more or less than the amount of Common Stock that they may have purchased
pursuant to this Plan.
(f) Sale of Common Stock. A Participant shall have the right to withdraw
all or any number of shares in his or her Brokerage Investment Account and (i)
to receive certificates representing whole shares, or (ii) to direct the
Custodian to sell all or any portion of such shares and to receive the net
proceeds of such sale. Following receipt of a request to sell shares, the
Custodian shall, subject to the regulations of the Securities and Exchange
Commission and unless otherwise agreed to between the Custodian and the
Participant, make such sale for the Participant on the next Trading Day or as
soon thereafter as practicable.
8. Administration. (a) Commissions and Expenses. Except as set forth in
the next sentence, the Company shall be responsible for, and pay to the
Custodian, all fees, expenses and commissions relating to the establishment and
maintenance of Brokerage Investment Accounts, in accordance with the fee
schedule agreed to between the Company and the Custodian in the Service
Agreement. The foregoing notwithstanding, any fees, expenses and commissions
relating to the sale of Common Stock, the purchase of Common Stock with funds
other than payroll deductions, and the purchase and sale of anything other than
Common Stock, shall be the responsibility of, and paid for by, the Participant.
(b) Powers of the Committee. The Plan shall be administered by the
Committee. The Committee may delegate any or all of its authority hereunder to
such officer or officers of the Company as it may designate. The Committee
shall be vested with full authority to make, administer, and interpret such
rules and regulations as it deems necessary to administer the Plan and construe
its provisions. Any determination by the Committee in carrying out,
administering or construing this Plan shall be final and binding for all
purposes and upon all interested persons and their respective heirs,
successors, and legal representatives.
B-4
<PAGE>
(c) Employees' Rights as Shareholders. No Participant shall have any
rights as a shareholder with respect to any shares until the shares have been
purchased in accordance with Section 7 of this Plan and the stock has been
issued by the Company. The Custodian shall provide a Quarterly Statement to
each Participant showing all the transactions in the Participant's Brokerage
Investment Account, and the number of shares of Common Stock in such Brokerage
Investment Account.
(d) Voting Rights. The Custodian shall vote whole shares of Common Stock
held in a Participant's Brokerage Investment Account upon receipt of, and in
accordance with, written directions timely received from the Participant. If
the Custodian receives no such directions, the Custodian shall vote such shares
in its discretion, subject to applicable regulations.
(e) Limitations. No action of the Company or of the Board in establishing
this Plan, nor any action taken by the Company, any Designated Subsidiary, the
Board or the Committee or its delegates under this Plan, nor any provision of
this Plan, shall be construed as conferring upon any Employee any right to
continued employment for any period by the Company or any of its Subsidiaries,
or shall interfere in any way with the right of the Company or any Subsidiary
to terminate such employment.
9. Termination of Participation. (a) Termination of Participation. A
Participant's participation in the Plan shall continue until the earliest of:
(i) such time as the Participant notifies the Company in writing that the
Participant wishes to withdraw from the Plan and such withdrawal becomes
effective, in accordance with Section 9(b) hereof; (ii) the date of the
Participant's separation of employment of the Company or any of its
Subsidiaries; and (iii) the termination of the Plan.
(b) Withdrawal by Participant. A Participant may withdraw from an
offering, in whole but not in part, at any time prior to the last Business Day
of such offering, by delivering a new enrollment agreement to the Company. A
withdrawal will be effective only if it is received by the Company as least 15
calendar days before the proposed date of withdrawal, provided that the
Committee, in its discretion, may specify (on a uniform and nondiscriminatory
basis) an earlier or later deadline for the submission of enrollment forms.
When a withdrawal becomes effective, the Participant's payroll deductions shall
cease, and all amounts then credited to the Participant's Account shall be
distributed to the Participant, without interest.
(c) Loss of Eligibility. Participation in the Plan shall be automatically
terminated upon the cessation of the Participant's status as an Eligible
Employee for any reason, including separation of employment. As soon as
practicable after such separation, the Participant's payroll deduction
Contributions shall cease and all amounts then credited to the Participant's
Account shall be distributed to the Participant, without interest.
(d) Re-entry. To re-enter the Plan as a Participant, an Eligible Employee
must complete and deliver to the Company a new enrollment agreement, in
accordance with Section 6 hereof.
(e) Rights Not Transferable. No Employee shall be permitted to sell,
assign, transfer, pledge, or otherwise dispose of or encumber either the
payroll deductions credited to such Employee's Account or any rights with
regard to the exercise of an option to purchase shares under the Plan. If any
such action is taken by the Employee, or any claim is asserted by any other
person in respect of such right and interest, whether by garnishment, levy,
attachment or otherwise, such action or claim will be treated as an election to
withdraw from the Plan.
(f) Death. In the event of the death of the Participant, the amount of
payroll deductions not theretofore invested shall be refunded to the
Participant's estate, without interest, such payment to be made as soon as
practicable.
10. Amendment or Termination of this Plan. The Board at any time and from
time to time may modify, amend, suspend or terminate this Plan or any part
hereof, without notice, provided that no amendment that requires stockholder
approval in order to comply with Section 423 of the Code shall be effective
unless the same shall be approved by the requisite vote of stockholders of the
Company. Amendments will not adversely affect stock options that have already
been granted.
11. Compliance with Section 423. This Plan is designed and intended to
comply with Section 423 of the Code, and all provisions hereof shall be
construed in a manner to so comply.
B-5
<PAGE>
ANNTAYLOR STORES CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ANNTAYLOR STORES
CORPORATION FOR THE ANNUAL MEETING TO BE HELD ON MAY 18, 1999.
The undersigned hereby appoints J. Patrick Spainhour, Patricia DeRosa and
Jocelyn F.L. Barandiaran, and any of them, proxies of the undersigned with full
power of substitution to vote all shares of Common Stock, par value $.0068 per
share, of AnnTaylor Stores Corporation (the "Company") owned or held by the
undersigned at the Annual Meeting of Stockholders of the Company to be held at
The Rihga Royal Hotel, 151 West 54th Street, 54th floor, New York, New York, on
May 18, 1999 at 9:00 a.m. local time and at any adjournment or postponement
thereof. Such proxies are directed to vote as set forth below.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN (A) AND "FOR" THE
PROPOSALS IN (B), (C) AND (D).
(A) ELECTION OF THE FOLLOWING NOMINEES AS CLASS II DIRECTORS: James J. Burke,
Jr., Patricia DeRosa and Ronald W. Hovsepian (for terms to expire at the
2002 annual meeting).
[ ] FOR ALL NOMINEES [ ] AUTHORITY WITHHELD FOR ALL NOMINEES
AUTHORITY WITHHELD FOR THE FOLLOWING NOMINEES ONLY: (write the name of such
nominees in the space provided)
--------------------------------------------
(B) PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES FROM 40 MILLION TO 120 MILLION as described
in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(C) PROPOSAL TO ADOPT THE COMPANY'S ASSOCIATE DISCOUNT STOCK PURCHASE PLAN as
described in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(D) PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP as independent
auditors for the Company for fiscal year 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(E) IN THEIR JUDGMENT, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THIS
ANNUAL MEETING.
(Continued and to be signed on other side)
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER. IF NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS RETURNED,
SUCH SHARES WILL BE VOTED "FOR ALL NOMINEES" IN (A), "FOR" THE PROPOSALS IN (B),
(C) AND (C), AND IN ACCORDANCE WITH THE JUDGMENT OF SUCH PROXIES UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
Dated , 1999
-----------------------------------
----------------------------------------------
----------------------------------------------
(Signature)
Please mark, date, sign and return this proxy in
the enclosed envelope. Please sign as names appear
at left. When signing as agent, attorney, or
fiduciary, or for a corporation or partnership,
indicate the capacity in which you are signing.
Shares registered in joint names should be signed
by each joint tenant or trustee.
