<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (Sections) 240.14a-11(c) or
(Sections) 240.14a-12
ANN TAYLOR STORES CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):(1)
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
---------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[ANN TAYLOR LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 2000
----------------
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 Thursday, May 18, 2000, at The Plaza Hotel, Fifth Avenue at 59th Street,
New York, New York, for the following purposes:
1. To elect three Class III Directors of the Company, each to serve for
a term of three years;
2. To ratify the appointment by the Company of Deloitte & Touche LLP as
the Company's independent auditors for fiscal 2000; and
3. 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 April 18, 2000 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 18, 2000
- --------------------------------------------------------------------------------
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, 2000
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
Thursday, May 18, 2000, at The Plaza Hotel, Fifth Avenue at 59th Street, 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 III Directors, each to serve for a
term of three years; and (2) a proposal to ratify the appointment of the
Company's independent auditors for fiscal year 2000.
This Proxy Statement and the enclosed form of proxy are first being mailed
to stockholders of the Company on or about April 19, 2000.
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 April 18, 2000 (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 28,681,952 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 III 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.
Ratification of the appointment of the Company's independent auditors for
the Company's 2000 fiscal year requires the affirmative vote of holders of a
majority of the Company's Common Stock represented 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 vote, and (ii) abstentions will be counted and will have the same effect as
a vote against the 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 such proposal.
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
<PAGE>
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 for Class III
Directors; and
(2) FOR the ratification of Deloitte & Touche LLP as the Company's
independent auditors for the Company's 2000 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 2001 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
Company has also engaged the proxy solicitation firm of Innisfree M&A
Incorporated to assist in soliciting proxies, for a fee of $7,500 plus
reimbursement of reasonable out-of-pocket expenses.
The principal executive offices of the Company are located at 142 West 57th
Street, New York, New York 10019.
PROPOSAL 1
ELECTION OF CLASS III 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 these classes be as
nearly equal in number of directors as possible.
At the Annual Meeting, three Class III Directors are to be elected to
serve three-year terms ending in the year 2003, or until their respective
successors are elected and qualified, or their earlier death, resignation or
removal. The Board of Directors has nominated Gerald S. Armstrong, Wesley E.
Cantrell and Hanne M. Merriman for re-election as Class III 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 III DIRECTORS.
Set forth below is a brief biography of each nominee for election as a
Class III Director and of all other members of the Board of Directors who will
continue in office.
2
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NOMINEES FOR ELECTION AS CLASS III DIRECTORS
TERM EXPIRING 2003
GERALD S. ARMSTRONG, AGE 56. Mr. Armstrong has been a Director of the
Company and its wholly owned operating subsidiary, AnnTaylor, Inc. ("Ann
Taylor"), since February 1989. He has been a managing director of Arena Capital
Partners, LLC ("Arena"), a private investment firm, since January 1998. Mr.
Armstrong was a partner of Stonington Partners, Inc. ("Stonington Partners"), a
private investment firm, from November 1993 to December 1997, and a director of
Stonington Partners from August 1993 to December 1997. Since June 1994, Mr.
Armstrong has also served as a consultant to Merrill Lynch Capital Partners,
Inc., a private investment firm associated with Merrill Lynch & Co., Inc.
("Merrill Lynch"). Until April 1999, Mr. Armstrong served on the Board of
Directors of the Company as a representative of certain affiliates of Merrill
Lynch that were stockholders of the Company.
WESLEY E. CANTRELL, AGE 65. Mr. Cantrell has been a Director of the Company
and Ann Taylor since November 1998. He has been chief executive officer of
Lanier WorldWide, Inc. ("Lanier"), a supplier of automated office imaging
equipment and systems, since March 1987. Mr. Cantrell is the chairman of the
board of directors of Lanier. He is also a director of Environmental Design
International, Ltd., a private company, and of Impact Ministries, a
not-for-profit organization, and is a member of the advisory board of First
Union National Bank of Atlanta.
HANNE M. MERRIMAN, AGE 58. 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 55. 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 52. 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 50. 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.
INCUMBENT CLASS II DIRECTORS
TERM EXPIRING 2002
JAMES J. BURKE, JR., AGE 48. Mr. Burke has been a Director of the Company
and Ann Taylor since February 1989. He has been a partner of Stonington Partners
since November 1993, and a director of
3
<PAGE>
Stonington Partners since August 1993. Mr. Burke has also served as a
consultant to Merrill Lynch Capital Partners, Inc. since June 1994, and as its
vice chairman since January 1999. Until April 1999, Mr. Burke served on the
Board of Directors of the Company as a representative of certain affiliates of
Merrill Lynch that were stockholders of the Company. Mr. Burke is also a
director of Burns International Services 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 47. 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 38. 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. Mr. Hovsepian serves on the advisory board of Internet Capital Group.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Company's Board of Directors held eight meetings in fiscal 1999. Each
Director attended at least 75% of the total number of Board meetings and
meetings of Board committees on which such Director served, except for Gerald
Armstrong who attended 10 of 14 meetings, and Hanne Merriman who attended 8 of
13 meetings.
During the spring of 1999, the Board of Directors conducted a reevaluation
of the structure, objectives and duties of the Board and its Committees. In
August 1999, a Governance Committee was created and the memberships of the
various committees were reconstituted. The Board of Directors now has standing
Audit, Compensation and Governance Committees. The functions of the former
Nominating Committee have been assumed by the Governance Committee. 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 for the Company and reviewing the terms of
their engagement; conferring with the Company's independent auditors 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 also reviews the Company's annual reports on Form 10-K, and
quarterly reports on Form 10-Q, prior to publication.
Deloitte & Touche has advised the Audit Committee in writing that, in its
professional judgement, there exists no relationship between Deloitte & Touche
and the Company and its subsidiaries that may reasonably be thought to bear on
its independence, and that it is independent of the Company within the meaning
of the securities laws, as required by Independence Standards Board Standard
No. 1.
All of the Audit Committee members are independent of the Company, as
independence is defined by the New York Stock Exchange's listing standards. No
member of the Committee is an officer of the Company, nor has any member of the
Committee been an officer of the Company within the past three years. No member
of the Committee has a business relationship with the Company that would be
prohibited by this standard.
The Audit Committee held two meetings in fiscal 1999. The current members
of the Audit Committee are Mr. Armstrong, Mr. Burke, Mr. Hovsepian 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 1999. The current
members of the Compensation Committee are Mr. Armstrong, Mr. Cantrell, Mr.
Grayson and Ms. Lazarus.
GOVERNANCE COMMITTEE: The Governance Committee was formed in August 1999.
The principal functions of the Governance Committee are to make recommendations
to the Board of Directors on all matters concerning corporate governance and
directorship practices, including advising the Board on the size and composition
of the Board and its Committees and qualification of directors; supervision of
an annual self-evaluation by the Board; recommendation of schedules for Board
meetings; and recommendation to the Company of matters for Board review. The
Governance Committee did not hold any meetings in fiscal 1999. The current
members of the Governance Committee are Mr. Burke, Mr. Cantrell, Mr. Grayson and
Ms. Merriman.
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. 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, each non-employee Director
receives an annual grant of an option to purchase 2,000 shares of Common Stock.
Any new non-employee Director joining the Board also receives, at the time of
election, an initial grant of an option to purchase 7,500 shares of Common
Stock.
All stock option grants to Directors are made under the AnnTaylor Stores
Corporation 1992 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.
PROPOSAL 2
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 2000. 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 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 2000.
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 stockholders' questions.
5
<PAGE>
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 29, 2000, 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 28, 1995, 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
[GRAPHIC OMITTED]
6
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BENEFICIAL OWNERSHIP OF COMMON STOCK
PRINCIPAL STOCKHOLDERS
As of the April 18, 2000 Record Date, the outstanding Common Stock was held
of record by 684 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 named
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>
<S> <C> <C>
NO. OF
SHARES OF
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENT
- ------------------------ ------------ -------
Putnam Investments, Inc. and related companies (a) ....................... 2,648,274 9.2%
FMR Corp. and affiliates (b) ............................................. 2,280,359 8.0%
AMVESCAP PLC (c) ......................................................... 1,788,989 6.2%
American Express Company and affiliates (d) .............................. 1,787,899 6.2%
Morgan Stanley Dean Witter & Co. and Van Kampen Asset
Management Inc. (e) ..................................................... 1,560,694 5.4%
J. Patrick Spainhour (f)(g) .............................................. 247,500 *
Patricia DeRosa (f) ...................................................... 157,250 *
Barry Erdos (f) .......................................................... 27,250 *
Jocelyn F.L. Barandiaran (f) ............................................. 6,551 *
James M. Smith (f) ....................................................... 8,073 *
Gerald S. Armstrong (f)(h) ............................................... 12,964 *
James J. Burke, Jr. (f) .................................................. 54,920 *
Wesley E. Cantrell (f) ................................................... 9,500 *
Robert C. Grayson (f) .................................................... 36,500 *
Ronald W. Hovsepian (f) .................................................. 11,500 *
Rochelle B. Lazarus (f)(i) ............................................... 12,100 *
Hanne M. Merriman (f) .................................................... 11,700 *
All executive officers and directors as a group (12 persons) (j) ......... 595,808 2.1%
</TABLE>
- ----------
* Less than 1%
(a) Pursuant to an amended Schedule 13G dated February 8, 2000 and filed with
the Commission by Putnam Investments, Inc., Putnam Investment Management,
Inc. ("PIM"), and The Putnam Advisory Company, Inc. ("PAC") (together
"Putnam"), and Marsh & McLennan Companies, Inc., as of December 31, 1999,
Putnam Investments, Inc., the parent of PIM and PAC, had beneficial
ownership of 2,648,274 shares, shared voting power with respect to 217,228
shares, shared dispositive power with respect to 2,648,274 shares, and sole
voting and dispositive power with respect to no shares; PAC had beneficial
ownership of 767,405 shares, shared voting power with respect to 217,228
shares, shared dispositive power with respect to 767,405 shares, and sole
voting and dispositive power with respect to no shares; and PIM had
beneficial ownership of 1,880,868 shares, shared dispositive power with
respect to 1,880,868 shares, and sole voting and dispositive power and
shared voting power with respect to no shares. The address for Putnam
Investments, Inc., PIM and PAC is One Post Office Square, Boston,
Massachusetts 02109. The address for Marsh & McLennan Companies, Inc. is
1166 Avenue of the Americas, New York, NY 10036.
(footnotes continued on next page)
7
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(footnotes continued from previous page)
(b) Pursuant to Schedules 13G dated March 30, 2000 and filed with the
Commission by FMR Corp., Fidelity International Limited, Edward C. Johnson
3d and Abigail P. Johnson (the "FMR Group"), each of the members of the FMR
Group indicated beneficial ownership of 2,280,359 shares; FMR Corp.
indicated that it had sole voting power with respect to 229,580 shares,
sole dispositive power with respect to 1,956,389 shares, and shared voting
and dispositive power with respect to no shares; Fidelity International
Limited indicated that it had sole voting and dispositive power with
respect to 323,970 shares, and shared voting and dispositive power with
respect to no shares; Edward C. Johnson 3d had sole voting power with
respect to 229,580 shares; and each of Edward C. Johnson 3d and Abigail P.
Johnson indicated that they had sole dispositive power with respect to
2,280,359 shares, and shared voting and dispositive power with respect to
no shares. The address for each of FMR Corp., Edward C. Johnson 3d and
Abigail P. Johnson is 82 Devonshire Street, Boston, MA 02109. The address
for Fidelity International Limited is Pembroke Hall, 42 Crowlane, Hamilton,
Bermuda.
(c) Pursuant to a Schedule 13G dated February 3, 2000 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"), as of December 31, 1999, AMVESCAP beneficially
owned 1,788,989 shares and had shared voting and dispositive power with
respect to all such shares, and sole voting and dispositive power with
respect to no shares. The address for AMVESCAP is 11 Devonshire Square,
London EC2M 4YR England, and 1315 Peachtree Street, N.E., Atlanta, Georgia
30309.
(d) Pursuant to a Schedule 13G dated December 31, 1999 and filed with the
Commission by American Express Company and American Express Financial
Corporation (together "Amex"), as of December 31, 1999, Amex is deemed to
beneficially own 1,787,899 shares, but American Express Company disclaims
beneficial ownership of these shares. Amex had shared voting power with
respect to 23,162 shares, shared dispositive power with respect to
1,787,899 shares, and sole voting and dispositive power with respect to no
shares. The address for American Express Company is American Express Tower,
200 Vesey Street, New York NY 10285; the address for American Express
Financial Corporation is IDS Tower 10, Minneapolis, Minnesota 55440.
(e) Pursuant to an amended Schedule 13G dated February 9, 2000 and filed with
the Commission by Morgan Stanley Dean Witter & Co. ("MSDW"), and Van Kampen
Asset Management Inc. ("Van Kampen"), MSDW beneficially owned 1,237,598
shares, and had shared voting power with respect to 1,248,148 shares,
shared dispositive power with respect to 1,237,598 shares, and sole voting
and dispositive power with respect to no shares; and Van Kampen
beneficially owned 323,096 shares, had shared voting power with respect to
322,446 shares, shared dispositive power with respect to 323,096 shares and
sole voting and dispositive power with respect to no shares. The address
for Morgan Stanley Dean Witter & Co. is 1585 Broadway, New York, NY 10036;
and for Van Kampen Asset Management Inc. is One Parkview Plaza, Oakbrook
Terrace, IL 60181.
(f) The shares listed include shares subject to options exercisable within 60
days of April 18, 2000 as follows: Mr. Armstrong, 2,000 shares; Mr. Burke,
2,000 shares; Mr. Cantrell, 9,500 shares; Mr. Grayson, 11,500 shares; Mr.
Hovsepian, 11,500 shares; Ms. Lazarus, 11,500 shares; Ms. Merriman, 11,500
shares; Mr. Spainhour, 172,500 shares; Ms. DeRosa, 97,250 shares; Mr.
Erdos, 6,250 shares; Ms. Barandiaran, 6,551 shares; and Mr. Smith, 4,873
shares. The shares listed also include restricted shares which as of the
Record Date had not yet vested and were subject to forfeiture, as follows:
Mr. Spainhour, 50,000 shares; Ms. DeRosa, 50,000 shares; Mr. Erdos, 13,334
shares; and Mr. Smith, 3,000 shares.
(g) 10,000 of these shares are held by Par 4 Holdings, LLC, a limited liability
company of which Mr. Spainhour and his spouse are the sole members.
(h) Includes 1,000 shares held by Jeffrey S. Armstrong and 1,000 shares held by
Andrew B. Armstrong, Mr. Armstrong's sons, and 1,000 shares held by Mr.
Armstrong's spouse, as custodian for another of their children. Mr.
Armstrong disclaims beneficial ownership of these 3,000 shares.
(i) 600 of these 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 346,924 shares subject to options exercisable
within 60 days of April 18, 2000, and 116,334 restricted shares that have
not yet vested and are subject to forfeiture.
8
<PAGE>
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 1999, all
transactions were reported on a timely basis, except that, on one occasion, Mr.
Armstrong belatedly reported that certain affiliates of Merrill Lynch had sold
87,485 shares of Common Stock, with respect to which Mr. Armstrong disclaimed
any beneficial ownership, and Mr. Spainhour's Form 5 filing with respect to the
fiscal year ended January 29, 2000 was made in April 2000.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company as of April 18, 2000:
<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
Barry Erdos ....................... Executive 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>
Information regarding Mr. Spainhour and Ms. DeRosa is set forth above under
"Incumbent Class I Directors" and "Incumbent Class II Directors", respectively.
BARRY ERDOS, AGE 55. Mr. Erdos has been Executive Vice President--Chief
Financial Officer and Treasurer of the Company and Ann Taylor since March 1999.
Prior to that, he was chief operating officer of J. Crew Group, Inc., a mail
order and store retailer of apparel, shoes and accessories, from February 1998
to January 1999. From 1987 to January 1998, he held various positions with The
Limited Inc., a specialty retailer of apparel and other products, including,
from 1997 to 1998, executive vice president and chief financial officer for the
Limited Express division, and from 1995 to 1997, as executive vice president and
chief financial officer for the Lane Bryant division.
JOCELYN F.L. BARANDIARAN, AGE 39. 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 38. 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.
9
<PAGE>
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.
The Compensation Committee reviews the Company's compensation practices and
programs annually, in consultation with a nationally recognized compensation
consultant, in order to ensure that the Company's compensation programs are
achieving their desired effects and to obtain information regarding industry
compensation practices and developments, generally, and comparative data
necessary to evaluate executive compensation.
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.
ANNUAL 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 net income 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.
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.
10
<PAGE>
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 Company's 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
as participants under the Long Term Cash Plan for the current 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. The first three-year performance cycle
that was established under the Long Term Cash Plan was the period from fiscal
1998 through 2000. The 1999-2001 period and the 2000-2002 period also have been
designated as performance cycles under this plan. These cycles are running
concurrently, and are in varying stages of completion. No performance cycle has
yet been completed under this plan, nor any payment made with respect thereto.
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 1999 COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee reviews the compensation arrangements for the
Company's Chairman and Chief Executive Officer annually. In 1999, in addition to
addressing Mr. Spainhour's annual compensation, the Committee negotiated a
three-year extension of Mr. Spainhour's employment agreement with the Company.
In determining Mr. Spainhour's total compensation for fiscal 1999 and the
terms of his employment agreement, the Committee considered the strategic plan
developed by management under Mr. Spainhour's leadership, the Company's
financial performance during Mr. Spainhour's tenure as Chairman and Chief
Executive Officer, 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 determining Mr. Spainhour's compensation,
the Committee exercised its judgement and discretion based on the above factors,
and no specific formula was applied to determine the weight of each factor.
In addition, the Committee believes that a significant portion of the Chief
Executive's compensation should be represented by incentive, performance-based
compensation -- payable only if the Company achieves its financial objectives.
As a result, a significant portion of Mr. Spainhour's annual compensation is
performance-based, and a significant portion of the restricted shares and stock
options awarded to him in connection with the extension of his employment
agreement are also performance-based, vesting only if the Company achieves
specified financial targets over the three-year term of the employment
agreement.
11
<PAGE>
The Company achieved record earnings in fiscal 1998 of $39.3 million, or
$1.44 per share on a diluted basis, more than three times the prior year's
earnings. The Company also made substantial progress during the year in
enhancing its infrastructure and business processes under its strategic plan.
The Committee believes that the significant improvement in the Company's
financial performance, and management's consistent focus on execution of the
Company's strategic plan, are directly attributable to Mr. Spainhour's
leadership.
In recognition of this performance, the Committee increased Mr. Spainhour's
annual base salary, effective June 1, 1999, to $850,000, a 17% increase over the
prior year. The Committee also assigned to Mr. Spainhour a performance
percentage under the Company's Annual Performance Plan of 80%, and a performance
percentage for the 1999-2001 performance cycle under the Company's Long Term
Cash Plan of 50%, and awarded to Mr. Spainhour options to purchase 50,000 shares
of Common Stock, vesting 25% per year on the first four anniversaries of the
grant. The Committee also believed it important to secure continuation of Mr.
Spainhour's leadership of the Company, through extension of his employment
agreement for an additional three-year term.
For fiscal 1999, the Company again achieved record earnings of $64.5
million, or $2.05 per share on a diluted basis, a 42% increase over the prior
year's earnings. These results were well above the target net income established
by the Company under the Annual Performance Plan for 1999 and, as a result, Mr.
Spainhour received a bonus under the plan for fiscal 1999 representing 156% of
his base salary, or nearly twice his performance percentage. Consistent with the
Company's compensation philosophy, incentive compensation represented in excess
of 60% of Mr. Spainhour's total cash compensation for fiscal 1999. Mr. Spainhour
did not receive any compensation under the Long Term Cash Plan, as the Company
has not yet completed any three-year performance cycle under that plan.
In connection the extension of his employment agreement, the Committee
awarded to Mr. Spainhour certain long term equity awards, intended to provide
Mr. Spainhour with incentive to remain with the Company and to continue to
achieve outstanding financial results for the Company. As described under
"Employment Agreements" below, Mr. Spainhour was awarded a total of 75,000
restricted shares, of which 25,000 vested on March 8, 2000, and the remainder
generally vest only upon the achievement of specified net income goals for
fiscal 2000 and 2001. Mr. Spainhour was also awarded "super-incentive" options
to purchase an aggregate of 200,000 shares of Common Stock that generally vest
only upon the achievement of specified earnings results during the three fiscal
years covered by Mr. Spainhour's employment agreement, and options to purchase
an additional 250,000 shares of Common Stock that vest in March 2002, provided
Mr. Spainhour has remained continuously employed by the Company. A description
of these stock options also is included under "Employment Agreements" below. The
exercise price of each of the stock option awards is equal to the fair market
value of a share of Common Stock at the time of grant and, consistent with the
Committee's long term incentive compensation philosophy, represent value to the
executive only as the market price of the Company's Common Stock increases.
Current Compensation Committee members:
Robert C. Grayson, Chairman
Gerald S. Armstrong
Wesley E. Cantrell
Rochelle B. Lazarus
Compensation Committee members until August 1999:
Gerald S. Armstrong
James J. Burke, Jr.
Rochelle B. Lazarus, Chairman
Hanne M. Merriman
12
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
As of the Record Date, there were no Compensation Committee interlocks.
As of the beginning of Fiscal 1999, Merrill Lynch and certain of its
affiliates beneficially owned in excess of 5% of the outstanding Common Stock of
the Company, and Messrs. Armstrong and Burke served on the Boards of Directors
of the Company and Ann Taylor as representatives of Merrill Lynch and its
affiliates. In March 1999, Merrill Lynch and its affiliates sold these shares.
Effective April 1, 1999, Messrs. Armstrong and Burke were no longer serving as
directors of the Company or Ann Taylor at the request of Merrill Lynch. However,
prior to April 1, 1999, Merrill Lynch and its affiliates were in a position to
influence the management of the Company.
Mr. Armstrong served as a member of the Compensation Committee at all times
during 1999. Mr. Burke served as a member of the Compensation Committee through
August 1999.
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 29, 2000 (collectively, the "named
executives").
TABLE I
SUMMARY OF EXECUTIVE OFFICER COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------------------- ---------------------------
RESTRICTED SECURITIES ALL OTHER
FISCAL OTHER ANNUAL STOCK AWARDS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(A) COMPENSATION ($) ($) OPTIONS (#) ($)(B)
- --------------------------- -------- ------------ -------------- ------------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Patrick Spainhour ....... 1999 $808,333 $1,332,800 -- $829,688(c) 400,000 $2,556
Chairman and Chief 1998 725,000 942,500 -- -- 20,000 2,400
Executive Officer 1997 656,250 81,250 -- -- -- 3,306
Patricia DeRosa ............ 1999 662,500 793,800 -- -- 35,000 --
President and Chief 1998 600,000 660,000 -- -- 10,000 --
Operating Officer 1997 600,000 150,000 367,234(d) -- -- --
Barry Erdos (e) ............ 1999 360,820 369,500 -- 842,500(f) 25,000 --
Executive Vice President-- 1998 -- -- -- -- -- --
Chief Financial Officer and 1997 -- -- -- -- -- --
Treasurer
Jocelyn F.L. Barandiaran ... 1999 243,000 116,678 -- -- 15,000 --
Senior Vice President-- 1998 233,004 121,450 -- -- 4,200 --
General Counsel and 1997 225,000 14,063 -- -- 16,000 --
Secretary
James M. Smith ............. 1999 153,433 62,740 -- -- 3,000 2,412
Vice President--Controller, 1998 145,600 65,520 -- -- 2,000 2,184
Assistant Treasurer and 1997 140,000 7,000 -- -- 7,500 2,374
Assistant Secretary
</TABLE>
- ----------
(a) Bonus awards were earned pursuant to the Company's Annual Performance Plan,
except that a portion of the bonus amount indicated for Ms. DeRosa for 1997
was a guaranteed bonus paid to her in accordance with the terms of her
employment agreement with the Company. Under the Annual Performance Plan,
participants are entitled to receive, within 30 business days following a
change in
(footnotes continued on next page)
13
<PAGE>
(footnotes continued from previous page)
control of the Company (as defined in the plan), a pro rata cash payment
equal to the amount such participant would have received for the year in
which the change in control occurs had the performance targets under the
plan been met, prorated through the end of the month in which the change in
control occurs.
(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 25,000 restricted
shares of Common Stock granted to Mr. Spainhour on August 12, 1999. The
value of these shares as of January 29, 2000 was $556,250. Mr. Spainhour's
rights to these shares vested, and all restrictions lapsed, on March 8,
2000. Mr. Spainhour would be entitled to receive dividends on these shares
if any dividends were paid by the Company on its Common Stock.
(d) Represents reimbursement of relocation expenses.
(e) Mr. Erdos joined the Company as Executive Vice President--Chief Financial
Officer and Treasurer effective March 29, 1999.
(f) Represents the market value, on the date of the grant, of 20,000 restricted
shares of Common Stock granted to Mr. Erdos on March 29, 1999 in connection
with his commencement of employment. The value of these shares as of
January 29, 2000 was $445,000. Mr. Erdos' rights to 6,667 of these shares
vested on March 29, 2000 and his right to the remaining 13,333 of these
shares vest 50% on each of March 29, 2001 and March 29, 2002, subject to
the Company meeting specified earnings per share requirements for fiscal
years 2000 and 2001, respectively, and subject to Mr. Erdos' continued
employment by the Company. In accordance with the terms of the Company's
Stock Option Plan, the shares would vest in full upon the occurrence of an
"Acceleration Event" (as defined in the Stock Option Plan). Mr. Erdos would
be entitled to receive dividends on these restricted shares if any
dividends were paid by the Company on its Common Stock.
The following table sets forth certain information with respect to stock
options awarded during fiscal year 1999 to the named executives listed in Table
I above. These option grants also are reflected in Table I. In accordance with
Securities and Exchange Commission ("Commission") rules, the hypothetical
realizable values for each option grant are shown based on compound annual rates
of stock price appreciation of 5% and 10% from the grant date to the expiration
date. The assumed rates of appreciation are prescribed by the Commission and are
for illustrative purposes only; they are not intended to predict future stock
prices, which will depend upon market conditions and the Company's future
performance and prospects.
TABLE II
STOCK OPTIONS GRANTED IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
% OF TOTAL # OF STOCK PRICE
# OF SECURITIES OF OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (B)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME GRANTED (A) FISCAL 1999 ($/SHARE) DATE 5%($) 10%($)
- ---- ----------------- -------------- ------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
J. Patrick Spainhour ............. 50,000 5.9% $44.250 3/8/09 $1,391,500 $ 3,526,000
250,000(c) 29.3% 44.250 3/8/09 6,957,500 17,630,000
100,000(d) 11.7% 44.250 3/8/09 2,783,000 7,052,000
Patricia DeRosa .................. 35,000 4.1% 44.250 3/8/09 974,050 2,468,200
Barry Erdos ...................... 25,000 2.9% 42.125 3/29/09 662,375 1,678,375
Jocelyn F.L. Barandiaran ......... 15,000 1.8% 44.250 3/8/09 417,450 1,057,800
James M. Smith ................... 3,000 0.4% 44.250 3/8/09 83,490 211,560
</TABLE>
- ----------
(a) Except as provided below in footnotes (c) and (d), 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 an "Acceleration
Event" (as defined in the Company's Stock Option Plan).
(footnotes continued on next page)
14
<PAGE>
(footnotes continued from previous page)
(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.
(c) These options will become exercisable on March 8, 2002, provided Mr.
Spainhour remains continuously employed by the Company through that date.
(d) The vesting of these options is performance-based, as described under
"Employment Agreements -- Spainhour Employment Agreement".
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 1999, 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 1999, 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 1999.
TABLE III
AGGREGATE OPTION EXERCISES IN FISCAL 1999
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 1999 FISCAL 1999
NAME STOCK OPTIONS OPTIONS (A) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (B)
- ------------------------------ --------------- --------------- --------------------------- ------------------------------
<S> <C> <C> <C> <C>
J. Patrick Spainhour ......... -- -- 155,000/415,000 $886,875/$101,250
Patricia DeRosa .............. 16,500 $ 393,938 86,000/42,500 110,813/50,625
Barry Erdos .................. -- -- --/25,000 --/--
Jocelyn F.L. Barandiaran ..... 51,465 1,060,259 --/36,235 --/26,735
James M. Smith ............... 3,960 107,963 2,581/12,836 5,507/13,825
</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 $22.25
on January 28, 2000, the last trading day in fiscal year 1999, less the
amount required to be paid upon exercise of the option.
As described in the Compensation Committee report above, under the
Company's Long Term Cash Incentive Compensation 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 following table indicates
the incentive compensation payments that the named executives would be entitled
to receive under the Long Term Cash Plan, if the Company achieves the
performance objectives established by the Compensation Committee for the
three-year performance cycles indicated below. Target awards are expressed as a
percentage of the officer's annual base salary in effect at the time of payment
of the award. Payments under the plan may exceed these target amounts, up to
twice the targeted amount, if the Company exceeds the performance objectives,
and may be less than the target amounts if the Company does not achieve the
performance objectives. Payments have not yet been made to any executive officer
under the Company's Long Term Cash Plan, since the first three-year performance
cycle under such plan does not end until the end of the fiscal year 2000.
15
<PAGE>
TABLE IV
LONG TERM CASH INCENTIVE COMPENSATION PLAN
<TABLE>
<CAPTION>
TARGET AWARD% TARGET AWARD% TARGET AWARD%
FOR 1998-2000 FOR 1999-2001 FOR 2000-2002
NAME PERFORMANCE CYCLE * PERFORMANCE CYCLE * PERFORMANCE CYCLE *
---------- --------------------- --------------------- --------------------
<S> <C> <C> <C>
J. Patrick Spainhour ......... 50% 50% 50%
Patricia DeRosa .............. 40% 40% 40%
Barry Erdos .................. -- 30% 30%
Jocelyn F.L. Barandiaran ..... 20% 20% 20%
James M. Smith ............... -- -- --
</TABLE>
- ----------
* Under the terms of the plan, in the event of a change in control of the
Company (as defined in the plan), plan participants are entitled to
receive, within 30 business days following such change in control, a cash
payment in respect of any incomplete three-year performance cycle equal to
the amount such participant would have received for such cycle, prorated
through the end of the month in which the change in control occurs, and
based upon the cumulative earnings per share of the Company ("EPS") for
such performance cycle computed as follows: (1) actual EPS for any
completed year in such performance cycle, (2) EPS derived from the
Board-approved operating budget, for the year in which the change in
control occurs, and (3) projected EPS as presented to the Compensation
Committee at the time the three-year performance cycle was established, for
any years in such performance cycle following the year in which the change
in control occurs.
PENSION PLAN. Since 1989, Ann Taylor has maintained a defined benefit
retirement plan (as amended from time to time, the "Pension 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 Internal Revenue Code of 1986,
as amended (the "Code"). 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.
Under the Code, the annual compensation that may be taken into account for
purposes of calculating benefits under the Pension Plan is limited to $170,000
(indexed for inflation). For fiscal 1999, all 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, 1999, 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 1999,
assuming (i) no increases in income and (ii) retirement and the commencement of
benefit payments at age 65, is as follows: Mr. Spainhour, $4,166; Ms. DeRosa,
$4,632; Ms. Barandiaran, $7,690; and Mr. Smith, $7,592. Mr. Erdos was not
employed for a full year as of that date, and thus was not yet eligible to
participate in the Pension Plan. Had he participated in the Pension Plan, Mr.
Erdos' estimated monthly retirement benefit would be $1,831. These benefits
would not be subject to any reduction for social security or other offset
amounts.
EMPLOYMENT AGREEMENTS. Spainhour Employment Agreement. The Company has an
employment agreement with Mr. Spainhour (as amended, the "Spainhour Agreement"),
which expires on May 31, 2002, with automatic one-year renewal terms unless
either party advises the other that it does not wish to extend the term by
delivery of a "Nonrenewal Notice" to the other party.
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The Spainhour Agreement provides that Mr. Spainhour is currently entitled
to an annual base salary of $850,000. Mr. Spainhour also is entitled to
participate in the Company's annual bonus, long term incentive compensation and
stock option plans, as well as other Company benefit programs.
The Spainhour Agreement provides for the grant of an aggregate of 75,000
restricted shares of Company Common Stock under the Company's Stock Option Plan,
of which 25,000 shares were awarded in August 1999 and became vested on March 8,
2000. The remaining 50,000 restricted shares, which are performance-vesting,
were awarded in March 2000; 25,000 of such shares will vest on March 8, 2001,
provided the Company achieves specified net income goals for fiscal 2000, and
25,000 of such shares will vest on March 8, 2002, provided the Company achieves
specified net income goals for fiscal 2001. In accordance with the terms of the
Company's Stock Option Plan, all of such restricted shares will vest upon the
occurrence of an "Acceleration Event" (as defined in the Stock Option Plan).
Under the Spainhour Agreement, Mr. Spainhour was also granted (i) an option
to purchase 250,000 shares of Common Stock, at an exercise price of $44.25,
which will become exercisable on March 8, 2002, provided Mr. Spainhour remains
continuously employed by the Company through that date, (ii) a "super-incentive"
non-qualified performance-vesting stock option to purchase 100,000 shares of
Common Stock under the Stock Option Plan at an exercise price of $44.25, which
vests 50% on each of March 8, 2000 and 2001, provided that the Company shall
have achieved certain earnings goals and Mr. Spainhour remains continuously
employed by the Company. The grant also provides for alternative means of
vesting if the Company meets other earnings performance goals by March 8, 2002;
and (iii) effective January 31, 2000, an additional "super-incentive"
non-qualified performance-vesting stock option to purchase 100,000 shares at an
exercise price of $22.25, the fair market value of the stock on the date of the
grant. This option vests on March 8, 2002, provided that the Company shall have
achieved certain earnings goals and provided that Mr. Spainhour remains
continuously employed by the Company. Any super-incentive options that do not
vest by March 8, 2002 shall be canceled on that date. In accordance with the
terms of the Stock Option Plan, all options granted to Mr. Spainhour will vest
and become fully exercisable upon occurrence of an "Acceleration Event".
In the event of termination of Mr. Spainhour's employment by the Company
without Cause, or by Mr. Spainhour for Good Reason (as such terms are defined in
the Spainhour Agreement), or if such agreement expires at the end of the term
provided for as a result of Nonrenewal Notice provided by the Company, Mr.
Spainhour shall be entitled to receive, among other things, 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 such termination occurs following a
Change in Control of the Company or during the pendency of a Potential Change in
Control (as such terms are defined in the Spainhour Agreement), the Company
shall instead pay Mr. Spainhour a lump-sum cash payment, in an amount equal to
the sum of Mr. Spainhour's base salary plus the average of his last three annual
bonuses, multiplied by three. Following a termination by the Company without
Cause or by Mr. Spainhour for Good Reason, all options that are exercisable as
of the date of termination remain exercisable until the 90th day following the
end of the period with respect to which severance is paid. 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 providing for her
employment as President and Chief Operating Officer of the Company for a term of
three years. This agreement was amended and extended, effective February 16,
2000, for an additional three-year term ending February 28, 2003 (as amended,
the "DeRosa Agreement"). Under the terms of the DeRosa Agreement, effective
April 1, 2000, Ms. DeRosa is entitled to an annual base salary of not less than
$750,000 and is entitled to participate in the Company's annual bonus, long term
incentive compensation and stock option plans, as well as other Company benefit
programs.
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In February 2000, in connection with the extension and amendment of the
DeRosa Agreement, Ms. DeRosa was granted a "super-incentive" non-qualified
performance-vesting stock option to acquire 100,000 shares of Common Stock under
the Company's Stock Option Plan, at an exercise price equal to the fair market
value of the Common Stock on February 16, 2000. The option vests with respect to
one-third of the shares subject thereto on each of the first, second and third
anniversaries of February 28, 2000, provided that the Company meets certain
earnings per share requirements for fiscal years 2000, 2001 and 2002,
respectively. The DeRosa Agreement also provides for alternative means of
vesting if the Company meets other performance requirements by February 28,
2003. Any super-incentive options that do not vest by February 28, 2002 shall be
canceled on that date. In accordance with the terms of the Company's Stock
Option Plan, all options granted to Ms. DeRosa will vest and become fully
exercisable upon occurrence of an "Acceleration Event".
In addition, in February 2000, the Company further awarded Ms. DeRosa
50,000 restricted shares of Common Stock under the Company's Stock Option Plan.
Ms. DeRosa's rights to such shares vest with respect to one-third of the grant
on each of the first, second and third anniversaries of February 28, 2000,
provided that the Company meets certain net income requirements for fiscal years
2000, 2001 and 2002, respectively. In accordance with the terms of the Company's
Stock Option Plan, the restricted shares will vest in full upon the occurrence
of an "Acceleration Event". Ms. DeRosa would be entitled to receive dividends on
these restricted shares if any dividends were paid by the Company on its Common
Stock.
In the event of termination of Ms. DeRosa's employment by the Company
without Cause or by Ms. DeRosa for Good Reason (as each such term is defined in
the DeRosa Agreement), 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 (not to exceed 24 months) (the "Severance Period"), an amount
representing her base salary in effect as of the date of termination, payable in
monthly installments, and (ii) the bonus for the fiscal year in which the date
of termination occurs, pro rated to reflect the number of days in such fiscal
year through the date of termination, payable at the same time bonuses are paid
to the Company's other executives, subject to Ms. DeRosa's compliance with the
noncompete and nonsolicitation provisions of the DeRosa Agreement. If such
termination occurs following a Change in Control of the Company or during the
pendency of a Potential Change in Control (as such terms are defined in the
DeRosa Agreement), the Company shall instead pay Ms. DeRosa a lump-sum cash
payment in an amount equal to the sum of Ms. DeRosa's base salary plus the
average of her last three annual bonuses, multiplied by the number of full and
partial years left in the term of the DeRosa Agreement (but not less than one).
Following a termination by the Company without Cause or by Ms. DeRosa for Good
Reason, all options that are exercisable as of the date of termination remain
exercisable until the 90th day following the expiration of the Severance Period.
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.
SEVERANCE/RETENTION PLAN. Messrs. Erdos and Smith and Ms. Barandiaran, as
well as certain other officers and key employees of the Company and its
subsidiaries, are eligible to receive benefits under the Company's severance
plan in the event of a qualifying termination of their employment within two
years following a "change in control" of the Company (as defined in the
severance plan).
A qualifying termination of employment under the severance plan means (1) a
termination by the Company other than for "Cause" or (2) a termination by the
employee for "Good Reason" (as each such term is defined in the severance plan).
In the event of a qualifying termination of employment, the Company will
pay the executive a cash lump-sum payment equal to (i) the sum of his or her
base salary in effect immediately prior to such qualifying termination, plus the
average of the annual bonuses earned in the three years immediately preceding
the year in which the change in control occurs (or, if higher, the year in which
the qualifying termination occurs), multiplied by (ii) 2 1/2, 2, and 1 1/2 for
Mr. Erdos, Ms. Barandiaran and Mr. Smith, respectively. Following a qualifying
termination of employment, the Company will also provide welfare and fringe
benefits for 2 1/2, 2 and 1 1/2 years for Mr. Erdos, Ms. Barandiaran and Mr.
Smith, respectively, as if they had continued to be employed by the Company.
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If any payments or benefits made under the severance plan to Mr. Erdos or
Ms. Barandiaran would be subject to any "golden parachute" excise tax imposed
pursuant to the Code, the Company is required to pay such additional amounts as
may be necessary to place the executive in the same after-tax position as if the
benefits or payments had not been subject to the excise tax.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
In accordance with Rule 14a-8 under the Securities Exchange Act, any
stockholder proposals intended to be presented at the 2001 Annual Meeting of
Stockholders must be received by the Company no later than December 18, 2000 in
order to be considered for inclusion in the Company's Proxy Statement and form
of proxy relating to that meeting.
The Board's Governance Committee will consider nominees for the Board of
Directors 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, 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 2001 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, 2001, which will be the anniversary
date of the prior year's meeting (or if the meeting date for the 2001 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 is 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 2001 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, 2001, which is the
anniversary date of the prior year's meeting (or if the meeting date for the
2001 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 is 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.
ADDITIONAL INFORMATION
Copies of the Company's 1999 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.
ANN TAYLOR STORES CORPORATION
NEW YORK, NEW YORK
April 18, 2000
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