<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Value City Department Stores, Inc.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
VALUE CITY DEPARTMENT STORES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
DECEMBER 9, 1998
AND
PROXY STATEMENT
================================================================================
IMPORTANT
Please mark, sign and date your proxy and promptly return it in the enclosed
envelope. No postage is necessary if mailed in the United States.
================================================================================
<PAGE> 3
VALUE CITY DEPARTMENT STORES, INC.
3241 Westerville Road
Columbus, Ohio 43224
614-471-4722
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 9, 1998
---------------------
November 9, 1998
To the Shareholders of
Value City Department Stores, Inc.:
NOTICE IS HEREBY GIVEN that the Eighth Annual Meeting of Shareholders
of Value City Department Stores, Inc., an Ohio corporation (the "Company"), will
be held at the Hyatt on Capitol Square, 75 East State Street, Columbus, Ohio, on
Wednesday, the ninth day of December 1998, at 10:00 a.m., local time, for the
following purposes:
1. To elect ten directors, each for a term of one year and until
their successors are duly elected and qualified.
2. To approve the Value City Incentive Compensation Plan.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Whether or not you plan to attend the meeting, please date, sign and
mail the enclosed proxy in the envelope provided. If you attend the meeting, you
may vote in person, and your proxy will not be used.
By Order of the Board of Directors
Robert M. Wysinski
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
<PAGE> 4
VALUE CITY DEPARTMENT STORES, INC.
November 9, 1998
------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 9, 1998
------------
INTRODUCTION
This Proxy Statement is furnished to the shareholders of Value City
Department Stores, Inc., an Ohio corporation (the "Company"), in connection with
the solicitation by the Board of Directors of the Company of proxies to be used
at the Eighth Annual Meeting of Shareholders to be held on December 9, 1998, at
10:00 a.m., local time, at the Hyatt on Capitol Square, 75 East State Street,
Columbus, Ohio, and at any adjournment thereof. It is being mailed to the
shareholders on or about November 9, 1998.
All shares represented by properly executed proxies received by the
Company prior to the meeting will be voted in accordance with the shareholder's
directions or, in the absence of instructions to the contrary, will be voted FOR
each of the proposals herein. A proxy may be revoked, without affecting any vote
previously taken, by written notice mailed to the Company (attention Robert M.
Wysinski, Secretary) or delivered in person at the meeting, by filing a duly
executed, later dated proxy, or by attending the meeting and voting in person.
Shareholders of record at the close of business on November 4, 1998,
are entitled to notice of and to vote at the Annual Meeting and any adjournment
or adjournments thereof. At November 4, 1998, the Company had outstanding
32,283,067 Common Shares, net of Treasury shares, without par value, entitled to
vote at the Annual Meeting. Each Common Share entitles the holder thereof to one
vote upon each matter to be voted upon by shareholders at the Annual Meeting.
The presence, in person or by proxy, of a majority of the outstanding
Common Shares of the Company is necessary to constitute a quorum for the
transaction of business at the Annual Meeting. Abstentions and broker non-votes
are counted for purposes of determining the presence or absence of a quorum.
Broker non-votes occur when brokers, who hold their customers' shares in street
name, sign and submit proxies for such shares and vote such shares on some
matters, but not others. Typically, this would occur when brokers have not
received any instructions from their customers, in which case the brokers, as
the holders of record, are permitted to vote on "routine" matters, which
typically include the election of directors, but not on non-routine matters.
The election of each director nominee requires the favorable vote of a
plurality of all votes cast by the holders of Common Shares at a meeting at
which a quorum is present. Proxies that are marked "Withhold Authority" and
broker non-votes will not be counted toward such nominee's achievement of a
plurality and thus will have no effect. Each other matter to be submitted to the
shareholders for approval or ratification at the Annual Meeting requires the
affirmative vote of the holders of a majority of the Common Shares voting on the
matter. For purposes of determining the number of Common Shares
3
<PAGE> 5
voting on the matter, abstentions will be counted and will have the effect of a
negative vote; broker non-votes will not be counted and thus will have no
effect.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF COMMON SHARES
The following table sets forth, as of November 4, 1998, certain
information with regard to the beneficial ownership of the Company's Common
Shares by each holder of 5% of such shares, each director individually and all
executive officers and directors as a group.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Outstanding Shares (2)
- ---------------- ------------------------ ----------------------
<S> <C> <C>
Ari Deshe (5)(6)(8) 27,000 *
Jon P. Diamond (3)(5)(6) 27,000 *
Martin Doolan 190,000 *
Richard Gurian 17,300 *
Dr. Norman Lamm 18,400 *
Geraldine Schottenstein (5)(6)(7) 47,000 *
Jay L. Schottenstein (5)(6)(7) 182,000 *
Saul Schottenstein (5)(6) 65,000 *
Robert L. Shook(8) 29,500 *
Robert M. Wysinski (4) 64,521 *
All directors and executive officers as a group
(15 persons)(4)(5)(6) 856,109 2.7%
Schottenstein Stores Corporation (6) 18,189,166 56.3%
</TABLE>
- --------------
* Represents less than 1% of outstanding Common Shares, net of Treasury Shares.
(1) Except as otherwise noted, the persons named in this table have sole
power to vote and dispose of the shares listed and includes the
following number of Common Shares as to which the named person has the
right to acquire beneficial ownership upon the exercise of stock
options within 60 days of October 26, 1998: Mr. Deshe, 14,000; Mr.
Diamond, 24,000; Mr. Doolan, 65,000; Mr. Gurian, 17,000; Dr. Lamm,
16,000; Mrs. Schottenstein, 17,000; Mr. J. Schottenstein, 152,000; Mr.
S. Schottenstein, 45,000; Mr. Shook, 17,000; Mr. Wysinski, 35,600 and
all directors and officers as a group, 468,200.
(2) The percent is based upon the 32,283,067 Common Shares outstanding, net
of Treasury Shares at November 4, 1998.
(3) Includes 2,000 shares held by Mr. Diamond's wife.
(4) Includes 75,000 shares for Mr. Doolan, 20,587 shares for Mr. Wysinski
and 152,666 shares for all directors and executive officers as a group,
which are owned subject to a risk of forfeiture on termination of
employment with vesting over a period of years pursuant to the terms of
Restricted Stock Agreements with the Company.
(5) Does not include the 18,189,166 Common Shares owned by Schottenstein
Stores Corporation ("SSC") of 1800 Moler Road, Columbus, Ohio 43207.
Jay L. Schottenstein is the Chairman and Chief Executive Officer of
SSC. Jay L. Schottenstein, Saul Schottenstein, Geraldine Schottenstein,
Ari Deshe and Jon P. Diamond are members of the Board of Directors of
SSC. See "Ownership of SSC," below.
(6) Does not include 123,372 shares owned by the Jay and Jean Schottenstein
Foundation, 67,944 shares held by the Ann and Ari Deshe Foundation,
67,944 shares held by the Jon and Susan Diamond Family Foundation and
40,740 shares held by the Lori Schottenstein Foundation, all being
private charitable foundations, and 1,312,500 Common Shares owned by GB
Stores, a Pennsylvania limited partnership. Combined, the shares owned
by the foundations and GB Stores represent 5.0% of the Company's
outstanding Common Shares. SSC owns a 96% limited partnership interest
in GB Stores and its corporate general partner is an affiliate of SSC.
The sole trustees and officers of the Jay and Jean Schottenstein
foundation are Saul, Geraldine and Jay Schottenstein. The remaining
foundations' trustees and officers consist of at least one of the
following persons: Geraldine Schottenstein, Jay Schottenstein, Jon
Diamond and/or Ari Deshe; in conjunction with other Schottenstein
family members.
(7) Includes 30,000 shares as to which Geraldine Schottenstein and Jay L.
Schottenstein share voting and investment power as trustees of a trust
which owns the shares. Geraldine Schottenstein is also a beneficiary of
the trust.
(8) Includes 10,000 shares held by Mr. Deshe's minor children. Includes
3,000 shares held by Mr. Shook's spouse.
4
<PAGE> 6
OWNERSHIP OF SSC
The following table indicates the shares of SSC common stock beneficially
owned by each nominee for election to the Board of Directors of the Company and
by all directors and officers of the Company as a group, as of November 4, 1998:
<TABLE>
<CAPTION>
SHARES OF SSC PERCENT
COMMON STOCK OF CLASS
------------ --------
<S> <C> <C>
Jay L. Schottenstein (1) 299.38139 78.4%
Geraldine Schottenstein (2) 27.41707 7.2%
Jon P. Diamond (3) 27.41707 7.2%
Ari Deshe (4) 27.41707 7.2%
Directors and officers as a group 381.6326 100.0%
</TABLE>
- --------------
(1) Represents sole voting and investment power over 299.38139 shares held
in irrevocable trusts for family members as to which Jay L.
Schottenstein is trustee and as to which shares Mr. Schottenstein may
be deemed to be the beneficial owner.
(2) Represents sole voting and investment power over 27.41707 shares held
by Geraldine Schottenstein as trustee of an irrevocable trust for
family members as to which shares Geraldine Schottenstein may be deemed
to be the beneficial owner.
(3) Represents sole voting and investment power over 27.41707 shares held
by Susan Schottenstein Diamond, the wife of Jon Diamond, as trustee of
an irrevocable trust for family members, as to which shares Mr. Diamond
may be deemed to be the beneficial owner.
(4) Represents sole voting and investment power over 27.41707 shares held
by Ann Schottenstein Deshe, the wife of Ari Deshe, as trustee of an
irrevocable trust for family members, as to which shares Mr. Deshe may
be deemed to be the beneficial owner.
5
<PAGE> 7
PROPOSAL ONE: ELECTION OF DIRECTORS
The members of the Board of Directors (the "Board") of the Company are
elected at the Annual Meeting. The number of members of the Board has been fixed
at ten by action of the Board pursuant to the Code of Regulations (By-laws) of
the Company. Board members serve until the annual meeting following their
election or until their successors are duly elected and qualified.
NOMINEES FOR ELECTION AS DIRECTORS
The enclosed proxy, if returned duly executed and not revoked, will be
voted as specified thereon, or if no instructions are given, will be voted FOR
the nominees listed below. In the event that any nominee should become
unavailable, the Board of Directors may decrease the number of directors,
pursuant to the Code of Regulations, or may designate a substitute nominee, in
which event the proxy will be voted for such substitute nominee. The Board has
no reason to believe that any nominee will be unavailable or, if re-elected,
unable to serve. Each of the nominees became a director of the Company at the
time it was organized in April 1991, except for Geraldine Schottenstein, who
became a director in April 1992, Robert M. Wysinski, who was elected in December
1993 and Martin P. Doolan and Ari Deshe who were appointed in 1997.
The following table sets forth certain information with respect to each
nominee.
NAME AGE PRINCIPAL OCCUPATION
- ---- --- --------------------
Jay L. Schottenstein 44 Chairman of the Company, American Eagle
Outfitters, Inc. and SSC since March 1992
and Chief Executive Officer of the Company
from April 1991 to July 1997. Mr.
Schottenstein served as Vice Chairman of SSC
from 1986 until March 1992, and a director
of SSC since 1982. He served SSC as
President of the Furniture Division from
1985 through June 1993 and in various other
executive capacities since 1976.(1)
Saul Schottenstein 76 Vice Chairman of the Company since April
1991. Mr. Schottenstein has served as
President of SSC since 1984, a director of
SSC since 1982 and served SSC and its
predecessors in various executive capacities
since 1946.(1)
Geraldine Schottenstein 65 Director of the Company and SSC since April
1992. She has served as a volunteer and
board member for a variety of charitable and
community organizations for more than the
past five years.
Ari Deshe 48 Chairman and Chief Executive Officer since
1996 and President and Chief Executive
Officer from 1993 to 1996 of Safe Auto
Insurance Company, a property and casualty
insurance company. Prior to that, Mr. Deshe
served as President of Safe Auto Insurance
Agency from 1992 to 1993 and President of
Employee Benefit Systems, Inc. from 1982 to
1992.(1)
Jon P. Diamond 41 President and Chief Operating Officer since
1996 and Executive Vice President and Chief
Operating Officer from 1993 to 1996 of Safe
Auto Insurance Company. Mr. Diamond served
as Vice President of SSC from March 1987 to
March 1993 and served SSC in various
management positions since 1983.(1)
Martin P. Doolan 58 President and Chief Executive Officer of the
Company since July 1997. Mr. Doolan founded
Multitech Enterprises in 1982, a firm which
specializes in providing CEO management for
companies with under performing earnings,
and served as its Chairman and Chief
Executive Officer. Mr. Doolan has over
6
<PAGE> 8
25 years experience as a corporate
turnaround executive and has provided
extensive CEO management and advisory
services to several venture invested firms
including those owned by First Chicago
Venture Capital, Madison Dearborn Partners,
Clayton Dubilier & Rice, Weston Presidio
Capital, RFE Investment Partners, Security
Pacific Venture Capital, Bank One Venture
Partners and others.
Robert M. Wysinski 50 Senior Vice President, Chief Financial
Officer, Treasurer and Secretary of the
Company since April 1991 and served as Vice
President of SSC from June 1987 until June
1991, and as Treasurer of SSC from June 1986
until June 1991. Prior to that time, he
served as Assistant Secretary and Assistant
Treasurer and in a variety of positions in
the finance area since joining SSC in 1973.
Richard Gurian 79 Managing Director of Natural Forms Limited
since 1995 and President of Richard Gurian
Consultants, Inc., formerly Venture
Horizons, Inc., since 1980. Prior to 1980,
Mr. Gurian served as Board member and Senior
Vice President - General Merchandise Manager
at Lazarus Department Stores.
Dr. Norman Lamm 70 President of Yeshiva University, New York,
New York, since 1976.
Robert L. Shook 60 Author of business-related books since 1978.
(1) SSC is a controlling shareholder of the Company. For information with
respect to the beneficial ownership of the voting stock of SSC by
nominees for election to the Board of the Company and beneficial
ownership of Common Shares of the Company by such persons and officers
of the Company, see "Security Ownership of Certain Beneficial Owners
and Management." Geraldine Schottenstein is the mother of Jay L.
Schottenstein, the sister-in-law of Saul Schottenstein and the
mother-in-law of Ari Deshe and Jon P. Diamond.
Jay L. Schottenstein and Saul Schottenstein are directors of American
Eagle Outfitters, Inc., which is a company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
INFORMATION CONCERNING BOARD OF DIRECTORS
During the fiscal year ended August 1, 1998, the Board met four times
and acted by unanimous written consent five times.
The Board has standing Audit and Stock Option Committees.
The members of the Audit Committee are Richard Gurian, Dr. Norman Lamm
and Robert L. Shook. Its function is to recommend to the Board a firm of
accountants to serve as the Company's auditors and to review with the
independent auditors and the appropriate corporate officers matters relating to
corporate financial reporting and accounting procedures and policies, adequacy
of financial, accounting and operating controls, and the scope of the audit. The
Audit Committee met twice in fiscal 1998. All three members participated in all
the meetings.
The members of the Stock Option Committee are Richard Gurian, Dr.
Norman Lamm and Robert L. Shook. Its function is to recommend to the Board the
number and terms of any stock options to be granted under the Company's stock
option plan. The Committee also administers the Company's Incentive Compensation
Plan. The committee met twice in fiscal 1998. Dr. Lamm participated in one of
the meetings.
7
<PAGE> 9
Directors who are not employees are paid $2,000 for each Board and
Committee meeting attended, with a minimum annual compensation of $8,000, and
are automatically granted options each quarter to purchase 1,000 Common Shares
of the Company pursuant to the Non-employee Director Stock Option Plan.
Directors who are also employees of the Company do not receive additional
compensation for serving as directors.
EXECUTIVE OFFICERS
The following persons are executive officers of the Company. For
information regarding executive officers who are also directors, see "Election
of Directors." The officers of the Company are elected annually by the Board and
serve at the pleasure of the Board.
Michael J. Tanner, age 51, joined the Company in July 1997 as Chief
Operating Officer. Mr. Tanner formerly served as President and Chief Operating
Officer at C.R. Anthony Company, a specialty name-brand apparel retailer from
1994 to 1997 and as their General Merchandise Manager from 1990 to 1994. He
began his career with Gold Circle Discount Stores, a division of Federated
Department Stores, Inc., where he held a number of executive positions including
Vice President of Marketing.
James E. Feldt, age 44, joined the Company in July 1997 as Executive
Vice President and General Merchandise Manager. Mr. Feldt is a 24-year retailing
veteran with Hills Stores Company who served as Executive Vice President and
General Merchandise Manager from 1995 to 1997. He also served as Vice President
of Hardlines from 1993 to 1995, Vice President of Men's and Children's apparel
from 1990 to 1993 as well as holding various other positions throughout his
tenure with Hills.
Richard L. Walters, age 46, serves as Vice President - Controller,
Chief Accounting Officer, Assistant Treasurer and Assistant Secretary. Mr.
Walters became Vice President of the Company in April 1992, Assistant Secretary
of the Company in June 1991, Assistant Treasurer of Value City Department Stores
Division of SSC (the "Division") in August 1990 and Controller of the Division
in June 1986. Prior to that time, Mr. Walters served as Accounting Manager for
the Division since September 1985 and in a variety of other accounting positions
since joining SSC in 1979.
Lynn E. Lambrecht, age 40, joined the Company in August 1997 as Vice
President - Human Resources. Prior to that Ms. Lambrecht served as Vice
President of Human Resources at Kohl's Corporation from 1992 to 1997 and
previously was with the May Company in a senior Human Resource position.
Lawrence J. Murray, age 57, joined the Company in February 1998 as
Senior Vice President- Chief Information Officer. Prior to that time, Mr. Murray
served as Chief Information Officer at C. R. Anthony Company from 1996 to 1998,
CEO and President of Leading Software Technologies, a software development and
executive information technology consulting company, from 1989 to 1996; and
served as CEO and President of a wholly owned subsidiary of Revco D.S. Inc. for
five years from 1984 to 1989.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who are beneficial owners of
more than ten percent of the Company's Common Stock ("reporting persons") to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Reporting persons are required by Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
forms filed by them. Based on its review of the copies of Section 16(a) forms
received by it, the Company believes that, during fiscal year 1998, all filing
requirements applicable to reporting persons were complied with, except that Dr.
Norman Lamm and James E. Feldt each filed one late report.
8
<PAGE> 10
EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information regarding
compensation paid during each of the Company's last three fiscal years to the
Company's Chief Executive Officer and to each of the Company's four most highly
compensated executive officers serving at the end of the current fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION RESTRICTED
-------------------- STOCK ALL OTHER
NAME AND FISCAL SALARY(1) BONUS AWARDS(2) OPTIONS/ COMPENSATION(3)
PRINCIPAL POSITION YEAR $ $ $ SARS(#) $
- ------------------ ---- --------- ----- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Martin P. Doolan(4) 1998 $600,000 $350,000 None None $80,572
President and 1997 $ 50,000 None $618,750 325,000 $ 2,230
Chief Executive Officer 1996 N/A N/A N/A N/A N/A
James E. Feldt(5) 1998 $420,833 $ 90,000 $207,188 None $71,487
Executive Vice President 1997 $ 42,222 None $ 82,500 75,000 2,610
and General Merchandise 1996 N/A N/A N/A N/A N/A
Manager
Michael J. Tanner(6) 1998 $383,333 $ 35,000 $117,188 50,000 $72,278
Chief Operating Officer 1997 $ 19,167 None $ 82,500 25,000 $ 1,609
1996 N/A N/A N/A N/A N/A
Robert M. Wysinski 1998 $275,000 $ 95,000 None None $ 8,177
Senior Vice President, 1997 $240,000 $ 95,000 None 37,500 $ 7,996
Chief Financial Officer, 1996 $226,667 $ 85,000 None None $ 7,996
Treasurer and Secretary
Richard L. Walters 1998 $216,250 $ 58,000 None None $ 6,318
Vice President-Controller, 1997 $182,833 $ 63,833 None 25,000 $ 7,003
Chief Accounting Officer, 1996 $160,333 $ 50,000 None None $ 7,003
Assistant Treasurer and
Assistant Secretary
</TABLE>
(1) Includes amounts deferred by the executive officer pursuant to the
Deferred Compensation Plan established in 1998 and SSC's Associates
Profit Sharing/401(k) Plan (the "401(k) Plan"), which was adopted
effective as of August 1, 1989, and in which associates of the Company
are eligible to participate. The 401(k) Plan is a prototype defined
contribution plan that qualifies for favorable tax treatment under
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended. The 401(k) Plan permits eligible associates of the Company to
contribute a percentage of their pre-tax wages to the plan and the
Company will match the contributions up to a maximum of 3% of covered
wages. The Company also may contribute up to an additional 1.5% of
covered wages as a profit sharing contribution.
(2) The amounts reflected in the table represent the value of such shares
on the date of grant. The number and value (in thousands of dollars) of
aggregate restricted stock holdings of each of the named executives on
August 1, 1998 was: Mr. Doolan, 75,000 shares ($1,350); Mr Feldt,
25,000 shares ($450); and Mr. Tanner, 25,000 shares ($450). The value
of the restricted stock is determined by multiplying the total shares
held by each named executive by the closing price on the New York Stock
Exchange on July 31, 1998 ($18.00). Restricted stock awards are granted
pursuant to restricted stock agreements conditioning the vesting of the
shares upon continued employment with the Company and vesting at 20%
per year.
(3) Represents personal living expenses, tax reimbursements for income
taxes on benefits, amounts contributed by the Company to the 401(k)
Plan, including both matching contributions and any profit-sharing
contributions, auto reimbursements and the value of Company paid life
insurance. The 401(k) Plan contributions for fiscal 1998 were: Mr.
Doolan, none; Mr. Feldt, $437; M. Tanner, $531; Mr. Wysinski, $3,900;
and Mr. Walters, $3,900. Personal living expenses were: Mr. Doolan,
$27,954; Mr. Feldt, $24,068; Mr. Tanner, none; Mr. Wysinski, none; and
Mr. Walters, none. Tax reimbursements were: Mr. Doolan, $37,618; Mr.
Feldt, $32,582; Mr. Tanner, $32,560; Mr. Wysinski, none; and Mr.
Walters, none. Mr. Tanner had $24,187 of relocation reimbursement. The
remainder for Mr. Doolan, Mr. Feldt, and Mr. Tanner is auto
reimbursements. The balance for Mr. Wysinski and Mr. Walters represents
the value of Company paid life insurance.
(4) Mr. Doolan has entered into an employment agreement with the Company
effective July 1, 1997, for a term ending June 30, 1999. The agreement
provides for an annual salary of $600,000, a signing bonus of $350,000
and a bonus of up to 100% of salary based upon Board approved,
predetermined, performance measures set annually.
(5) Mr. Feldt has entered into an employment agreement with the Company
effective June 23, 1997 for a term ending June 22, 2000. The agreement
provides for an annual salary of $400,000, a signing bonus of $90,000,
a guaranteed bonus of $175,000 after one year of employment and a bonus
of up to 50% of his base salary based upon Board approved,
predetermined, performance measures set annually. Mr. Feldt's base
salary was increased to $450,000 in March 1998.
(6) Mr. Tanner has entered into an employment agreement with the Company
effective July 8, 1997 for a term ending July 7, 1999. The agreement
provides for an annual salary of $300,000, a signing bonus of $35,000,
and a bonus of up to 50% of his base salary based upon Board approved,
predetermined, performance measures set annually. Mr. Tanner's base
salary was increased to $400,000 in October 1997.
9
<PAGE> 11
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR TABLE
The following table provides certain information on option grants
during fiscal year 1998 by the Company to the Chief Executive Officer and each
of the Company's other executive officers included in the above compensation
table. No options were exercised by any of such individuals during the 1998
fiscal year.
<TABLE>
<CAPTION>
Potential Realized Value
at Assumed Annual
% of Total Rates of Stock Price
Options/SARs Exercise Appreciation
Options Granted to or Base for Option Term (2)
SARs Employees in Price Expiration --------------------
Name Granted (#) Fiscal Year ($/Sh) Date (1) 5% 10%
--------- -------------- ---------------- ----------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Martin P. Doolan None N/A N/A N/A N/A N/a
James E. Feldt None N/A N/A N/A N/A N/A
Michael J. Tanner 50,000 14.8% $7.72 12/02/07 $242,753 $615,185
Robert M. Wysinski None N/A N/A N/A N/A N/A
Richard L. Walters None N/A N/A N/A N/A N/A
</TABLE>
--------------------
(1) All options are exercisable 20% per year, beginning on the first
anniversary of the original grant date, on a cumulative basis and
expire ten years from the original grant date.
(2) Represents the potential realizable value of each grant of options
assuming that the market price of the Common Shares appreciates in
value from the date of grant to the end of the option term at either a
5% or 10% annualized rate, based on the difference between the assumed
per share value and the per share option exercise price, multiplied by
the total number of option shares.
10
<PAGE> 12
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
None of the executive officers named in the Summary Compensation Table exercised
options during the 1998 fiscal year. The following table provides certain
information on the number and value of stock options held by the executive
officers named in the Summary Compensation Table at August 1, 1998.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES VALUE AT FISCAL YEAR END (#) FISCAL YEAR END ($) (1)
ACQUIRED ON REALIZED ---------------------------- -----------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin P. Doolan --- --- 65,000 260,000 $596,700 $2,386,800
James E. Feldt --- --- 15,000 60,000 $137,700 $ 550,800
Michael J. Tanner --- --- 5,000 70,000 $ 45,900 $ 697,600
Robert M. Wysinski --- --- 32,700 36,800 $311,478 $ 311,552
Richard L. Walters --- --- 30,200 26,800 $291,148 $ 230,232
</TABLE>
- ------------------------
(1) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the
per share option exercise price and the per share fair market value at
year end of $18.00. An option is in-the-money if the fair market value
of the underlying shares exceeds the exercise price of the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Martin P. Doolan and Robert M. Wysinski each of whom is an executive
officer of the Company, are also members of the Company's Board of Directors. As
stated, the Company's Chairman, Jay L. Schottenstein, with the input of its
President, Martin P. Doolan, determined the annual salary of the executive
officers of the Company and such determination was not formally considered and
ratified by the Board of Directors. Jay L. Schottenstein is also Chairman and
Chief Executive Officer of SSC. For information regarding the relationships
between the Company and SSC, see "Relationship with SSC and Its Affiliates"
below.
The Stock Option Committee administers and grants options under the
Company's 1991 Stock Option Plan and administers the Company's Incentive
Compensation Plan. The Stock Option Committee consists of Messrs. Gurian, Lamm
and Shook. None of the members of the Committee are present or former officers
of the Company or are themselves or have affiliates that are parties to
agreements with the Company.
11
<PAGE> 13
The following Board of Directors' Compensation Report and
Performance Graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into
any of the Company's filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, except to
the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.
COMPENSATION REPORT OF THE BOARD OF DIRECTORS
General. The Board of Directors has delegated to the Chairman
of the Board the authority to establish the annual compensation of the
officers of the Company, other than the Chairman's compensation, as
permitted under Ohio law. The Company does not have a Compensation
Committee. The individuals listed below were members of the Board of
Directors at the time of the delegation of authority to the Chairman.
The key components of the Company's executive officer compensation
include both short-term compensation consisting of an annual base
salary and annual bonuses under the Company's Incentive Compensation
Plan and long-term equity based compensation consisting of grants of
restricted stock and stock option awards. The full Board of Directors
has made the only grants of restricted stock by the Company. The Stock
Option Committee of the Board of Directors grants options under the
Company's 1991 Stock Option Plan, as amended and administers the
Company's Incentive Compensation Plan.
Chief Executive Officer's Compensation. Mr. Doolan's
compensation as Chief Executive Officer is fixed pursuant to the terms
of his employment agreement, which was negotiated by the Chairman, with
input from a number of the directors. Pursuant to this agreement,
Mr. Doolan is eligible to receive a bonus under the terms of the
Incentive Compensation Plan.
Executive Officers' Compensation. The remaining executive
officers' base salaries and bonuses for fiscal 1998 were determined by
the Chairman after consultation with the President and discussion with
each individual officer. The determination of salaries was based in
part on negotiated employment agreements for two of the executives and
on subjective factors, such as the perception of individual
performance, the individual's contribution to the overall performance
of the Company and the anticipated value of the individual's
contribution to the Company's future performance. The determination was
not based on specific objective criteria. No specific weight was given
to any of the factors considered. Bonuses for fiscal 1998 were paid
pursuant to the Company's Incentive Compensation Plan, which combines
individual and company-wide objectives and performance goals to provide
a clear vehicle linking the interests of the executive officers with
the financial performance of the Company.
Stock Awards. The Company's 1991 Stock Option Plan was adopted
at the time the Company went public in 1991 for the purpose of
providing long-term incentives to key employees and motivating key
employees to improve performance of the Company's stock. Stock options
granted under the Company's 1991 Stock Option Plan, as amended are
determined, and the 1991 Stock Option Plan is administered, by the
Stock Option Committee, none of whose members are officers or employees
of the Company and none of whom are eligible to receive stock options
under the 1991 Stock Option Plan. In determining the size of a stock
option award, the Stock Option Committee considers the total number of
shares subject to previously granted stock options held by the
individual and, based principally on the recommendation of the senior
executive officers, the anticipated value of an individual's
contribution to the Company's future performance. The options granted
during fiscal year 1998 were granted to employees as a long-term
incentive designed to encourage them to remain with the Company.
Jay L. Schottenstein Saul Schottenstein Geraldine Schottenstein
Ari Deshe Jon P. Diamond Robert M. Wysinski
Martin P. Doolan Dr. Norman Lamm* Richard Gurian*
Robert L. Shook*
- ----------------
*Members of the Stock Option Committee.
12
<PAGE> 14
PERFORMANCE GRAPH
The following graph shows the percentage change in the cumulative total
return performance to holders of the Company's Common Shares with that of
the Standard & Poor's General Merchandise Chains Index and the Russell 2000
Index, both of which are published indexes. This comparison includes the
period beginning July 31, 1993 through August 1, 1998. The Standard &
Poor's General Merchandise Chains Index is published weekly in the Standard
& Poor's Statistical Service and the index value preceding each fiscal year
end has been selected for purposes of this comparison. The Russell 2000
Index is a capitalization weighted index of domestic equity securities
traded on the New York and American Stock Exchanges and the NASDAQ which
excludes the 1,000 largest capitalization equity securities of the 3,000
such equity securities. The Company's Common Shares are traded on the New
York Stock Exchange. The comparison of the cumulative total returns for
each investment assumes that $100 was invested on July 31, 1993 and that
all dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG VALUE CITY DEPARTMENT STORES, INC., THE RUSSELL 2000 INDEX
AND THE S&P RETAIL (GENERAL MERCHANDISE) INDEX
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
----------------------------------------------------------------------------------
7/31/93 7/30/94 7/29/95 8/3/96 8/2/97 8/1/98
<S> <C> <C> <C> <C> <C> <C>
VALUE CITY DEPARTMENT STORES, INC. 100.00 83.85 51.54 61.54 50.38 110.77
RUSSELL 2000 100.00 104.45 130.66 139.68 186.40 194.40
S&P RETAIL (GENERAL MERCHANDISE) 100.00 98.55 110.47 106.46 171.72 232.21
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* $100 INVESTED ON 7/31/93 IN STOCK OR INDEX
INCLUDING REINVESTMENT OF DIVIDENDS.
13
<PAGE> 15
RELATIONSHIP WITH SSC AND ITS AFFILIATES
Prior to the completion of its initial public offering on June
18, 1991, the Company was operated as the Department Store Division of
SSC. On that date, SSC transferred substantially all of the net assets
of the Division to the Company in exchange for 22,500,000 Common Shares
of the Company. At November 4, 1998, SSC owned 56.3% of the Company's
outstanding Common Shares. So long as SSC owns more than 50% of the
Company's voting shares, it will continue to have the power acting
alone to approve any action requiring a vote of the majority of the
voting shares of the Company and to elect all of the Company's
directors. For information with respect to the beneficial ownership of
the voting stock of SSC by nominees for election to the Board of the
Company and beneficial ownership of Common Shares of the Company by
such persons and officers of the Company, see "Security Ownership of
Certain Beneficial Owners and Management."
REAL ESTATE LEASES AND SUBLEASES
The Company leases or subleases from SSC or affiliates of SSC
nineteen store locations, four warehouses and a parcel of land.
Generally, the agreements require the Company to pay for insurance,
taxes, common area maintenance and other costs associated with the
properties on a "triple net" basis for freestanding locations, and on a
pro rata share basis for locations that are part of a larger parcel.
SSC leases to the Company five store locations under the terms
of a Master Store Lease Agreement. The Master Store Lease, as amended,
provides for certain base rentals which approximate $2.96 per square
foot. Beginning in fiscal 1997, the Master Store Lease also provides
for the payment of percentage rent equal to 2% of gross total sales in
excess of the base rent. For fiscal 1998, the Company recorded expense
to SSC, including contingent rent, of $2,107,916 pursuant to the Master
Store Lease.
SSC subleases to the Company two store locations that are
owned by affiliates of SSC under a Master Sublease. The Master Sublease
provides for an annual base rent of the greater of 2% of gross sales or
minimum rent of $2.39 per square foot. For fiscal 1998 the Company
recorded expense to SSC, including contingent rent, of $836,621
pursuant to the Master Sublease.
Both the Master Lease and the Master Sublease have a term of
five years which began in June 1996, and are renewable thereafter, by
individual location, at the option of the Company, for four additional
renewal terms of five years each. Each renewal term in the
aforementioned leases and subleases will be on the same terms as the
initial term, except for rent. The Master store lease and Master
Sublease provide for an increase in minimum percentage rent of $0.50
per square foot in each succeeding five-year renewal term. In no event,
commencing fiscal 1997, shall total rent be less than 2% of total
sales.
The Company also leases or subleases four warehouse facilities
and a trailer yard from SSC or affiliates of SSC. The warehouse
facilities consist of approximately 848,000 square feet for base
rentals of $1.50 to $3.35 per square foot with lease control ranging
from 2004 through 2037. Generally, the lease renewal terms are at the
same terms and conditions as the original term except rent which
increases by $0.25 to $0.50 per square foot for the renewal terms. One
of these facilities aggregating 123,000 square feet was 100% subleased
to VCM and a second facility aggregating 140,000 square feet was
partially subleased to VCM at amounts equal to the Company's cost of
the related facilities. The Company also leases, from an affiliate of
SSC, a trailer yard of approximately 19 acres with lease control
through April 2009 having rents that range from $25,000 to $30,000 per
year during the period of lease control. During fiscal 1998, the
Company recorded net expenses to SSC and affiliates of SSC of
$2,294,900 pursuant to these leases and assignments.
Additionally, the Company leases ten store locations from SSC
or affiliates of SSC. Generally, the leases provide for percentage rent
equal to 2% of total sales in excess of a specified sales level or
14
<PAGE> 16
base rent with base rents ranging from $2.37 to $7.00 per square foot
for the initial term and provide lease control ranging from 2007
through 2037. Generally, the renewal terms are at the same terms and
conditions as the original term except rent which may increase for the
renewal terms. In September 1997, one related party lease was
terminated pursuant to its terms at no cost. During fiscal 1998, the
Company recorded expenses in the aggregate to SSC and affiliates of SSC
of $5,290,067 pursuant to these leases.
In addition to the foregoing, SSC subleases one store location
to the Company under an agreement that provides for the payment of
additional rent to SSC in order for SSC to recover the costs of the
initial acquisition of the leasehold interest. The sublease has an
initial term expiring in fiscal 1999 and provides for rent in the
amount of 2% of total sales, with a minimum rent equal to $2.00 per
square foot and provides five additional five-year renewal terms.
During fiscal 1998, the Company recorded expenses in the aggregate to
SSC of $237,326 pursuant to this sublease.
The Company also subleases from SSC a store location. The
sublease expires December 31, 2007 and provides for percentage rent
equal to 2% of total sales in excess of a minimum base rent of $4.69
per square foot with three additional renewal terms of five years each.
During fiscal 1998, the Company recorded expenses to SSC of $491,161
for this sublease.
SSC operates a chain of furniture stores, five of which
operate in separate space subleased from the Company at five of its
store locations. Three of these furniture store subleases (the
"Furniture Subleases") are for a term concurrent with the respective
lease between the Company and a third party landlord. These Furniture
Subleases provide for the payment by SSC of base rent and other charges
in amounts at least equal to its pro rata share based on square footage
and its pro rata share of any percentage rent based on its gross sales.
Two additional furniture store subleases are for periods shorter than
the Company's lease. For fiscal 1998, SSC paid to the Company an
aggregate of $1,282,783 pursuant to these subleases.
LICENSE AGREEMENTS WITH AFFILIATES
The Company operated as licensee the apparel, housewares and
domestic departments in two department stores operated by The Valley
Fair Corporation ("Valley Fair") in New Jersey through the period May
2, 1998. SSC controlled Valley Fair by virtue of certain common
officers and directors and its combined ownership with affiliates of
substantially all of the outstanding stock of Valley Fair. Effective
May 3, 1998, the Company purchased the operating assets of Valley Fair.
The Company paid Valley Fair a license fee of 7.3% of the net sales of
the departments for occupancy and 3.7% of net sales for advertising,
against an annual aggregate minimum of $733,000 for both stores. The
Company used employees of Valley Fair to operate the departments and
reimbursed Valley Fair for all costs associated with such employees.
Through May 2, 1998, the aggregate license fees, including advertising,
paid by the Company to Valley Fair during fiscal 1998 were $1,713,649.
SSC owned 49.9% of the stock of Shonac Corporation ("Shonac"),
and the remaining 50.1% was owned by certain members of the management
of Shonac and their families. Effective May 3, 1998, the Company
purchased 99.9% of the common stock of Shonac. Through May 2, 1998, the
Company had license agreements with Shonac for the operation of the
shoe departments in all of the Company's stores. Under the terms of the
agreements as amended, Shonac paid a license fee to the Company in an
amount approximating 11% of its net sales in the Company's stores.
Shonac was required to reimburse the Company 0.9% of its sales for
administrative expenses. Shonac was also required to reimburse the
Company 10% of the Company's aggregate costs for advertising expenses.
For fiscal 1998 prior to the acquisition the aggregate license fees
paid by Shonac to the Company were $13,133,577.
In July 1997, the Company entered into agreements to form a
50/50 joint venture with Mazel Stores, Inc. to create VCM, Ltd. ("VCM")
to operate the Company's health and beauty care and toys and sporting
goods departments as licensed departments. Pursuant to operating
agreements between VCM and the Company, VCM will pay annual license
fees to the Company based on 5% and 11% of net sales
15
<PAGE> 17
and will reimburse the Company 2% and 4% of its sales for advertising
and 2.9% and 1% of its sales for administrative expenses for the health
and beauty care and the toys and sporting goods departments,
respectively. The Company will also provide certain personnel,
administrative and service functions for which it will receive a
monthly fee from VCM to cover the related costs. The license and
operating agreements are for a term of ten years ending in July 2007
and contain certain provisions whereby either business partner can
initiate renegotiations of terms if certain minimum requirements are
not met. The aggregate license fees paid by VCM to the Company for
fiscal 1998 were $7,539,985.
MERCHANDISE TRANSACTIONS WITH AFFILIATES
The Company from time to time purchases merchandise from
affiliates of SSC. Some of such affiliates manufacture, import and
wholesale apparel as their principal business. The members of the
Company's merchandising staff use these sources and make their
purchasing decisions in the same manner as with unaffiliated sources.
Any merchandise purchased from such sources is on terms at least as
favorable to the Company as could be obtained in an arm's-length
transaction with an unaffiliated third party, and in certain instances,
the Company is given terms preferential to those available to
unaffiliated customers. Total purchases by the Company from SSC and
affiliates for fiscal 1998 were $4,897,775, representing 0.71% of the
Company's total purchases during the fiscal year.
VCM and certain affiliates of SSC from time to time purchase
merchandise from the Company, in some instances on a regular basis.
Such purchases are generally made from merchandise in the Company's
warehouse inventory at prices equal to the Company's cost plus a
handling fee of up to 15.0%.
The Company will from time to time purchase merchandise on
behalf of and ship it directly to affiliates, at cost plus delivery
charges. Most transactions of this nature are done with VCM. Total cost
for such transactions for fiscal 1998 were $3,934,987.
SERVICES AGREEMENTS
The Company shares with SSC and its affiliates certain
incidental support personnel and services for the purpose of achieving
economies of scale and cost savings. These shared services include
certain architectural, legal, advertising and administrative services.
The Company and SSC have entered into a Corporate Services Agreement
that sets forth the terms for payment of the costs of these shared
services. The Company believes that it is able to obtain such services
at a cost which is equal to or below the cost of providing such
services by itself or obtaining such services from unaffiliated third
parties. For fiscal 1998, the Company paid SSC or its affiliates
$1,302,189 for such services and the Company was reimbursed $155,804 by
SSC and its affiliates for such services. The Corporate Services
Agreement also provides for participation by the Company in the
self-insurance program maintained by SSC on the same basis as previous
participation by the Division. Under that program, the Company is
self-insured for purposes of personal injury and property damage, motor
vehicle and Ohio workers' compensation claims up to various specified
amounts, and for casualty losses up to $100,000. Claims and losses in
excess of the specified amounts are covered by stop-loss or excess
liability policies maintained by SSC, which include the Company as a
named insured. SSC maintains reserves and pays claims for self-insured
amounts under the program and will continue to do so with respect to
the Company's participation in the program. SSC charges its affiliates,
divisions and the Company premiums based, among other factors, on loss
experience and its actual payroll and related costs for administering
the program. For fiscal 1998, the Company paid SSC $7,435,885 for
participation in the program.
The Company also provides certain administrative and service
functions for VCM. These functions include accounting, MIS and
merchandise delivery. For fiscal 1998, the Company charged VCM
$1,409,988 for these services.
16
<PAGE> 18
PROPOSAL TWO: APPROVAL OF THE VALUE CITY
INCENTIVE COMPENSATION PLAN
The Value City Incentive Compensation Plan (the "Incentive
Plan") has been adopted by the Company, subject to shareholder
approval. The Incentive Plan is designed to (i) optimize the growth and
profitability of the Company by providing to certain key executive
officers incentives that encourage, recognize, and reward exceptional
levels of corporate, business unit, or individual performance, (ii) use
award dollars as a clear communication vehicle linking the interests of
eligible key executive officers with the interests of the Company by
establishing a direct link between performance and incentive payments,
and (iii) qualify compensation paid to "Covered Officers" as defined in
the Incentive Plan as "other performance-based compensation" within the
meaning of section 162 (m) of the Internal Revenue Code of 1986 as
amended (the "Code"), or any similar successor provision. The Incentive
Plan is in addition to other incentive compensation plans that apply to
associates of the Company that are not Covered Officers. The following
is a summary of the Incentive Plan, which is qualified in its entirety
by reference to the Incentive Plan, a copy of which is attached as
Appendix A to this Proxy Statement.
All Executive Officers are eligible to be chosen to
participate in the Incentive Plan. The Stock Option Committee
designates those executive officers of the Company as Covered Officers
whose compensation for the year is anticipated to be affected by the
Code Section 162 (m) limitation on the deductibility of compensation.
Each executive officer of the Company who is approved for participation
in the Incentive Plan by the Stock Option Committee shall be a Covered
Officer as of the date designated. Three Covered Officers participated
in the Incentive Plan in Fiscal 1998. The Stock Option Committee may
withdraw its approval for participation for a Covered Officer at any
time. In the event of such withdrawal, the covered officer concerned
shall cease to be an active Participant as of the date selected by the
Stock Option Committee.
Each Award to a Covered Officer must contain one or more
performance goals, the material terms of which must conform to one or
any combination of the goals enumerated in Section 5.1 of the Incentive
Plan, attached hereto. For each Covered Officer, the Stock Option
Committee must establish written performance goals and potential Awards
expressed as a percentage of base salary within than 90 days after the
commencement of the fiscal year to which the goal relates.
For Fiscal 1998, the Awards payable to Messrs. Doolan, Tanner
and Feldt were determined under a payout table based on earnings per
share criteria established by the Stock Option Committee. The payout
table is based upon objective and specific criteria reflected in the
Company's financial statements as reported in the Company's Annual
Report. Since the Company's earnings per share exceeded the minimum
threshold established in the payout table, the achieved earnings per
share was applied to the payout table resulting in a bonus percentage
which, in turn, is multiplied by a Participant's base salary to compute
the bonus amount. Application of this formula resulted in the bonuses
described in the table below for the last completed fiscal year based
on actual EPS compared to the targeted EPS.
VALUE CITY DEPARTMENT STORES, INC. INCENTIVE COMPENSATION PLAN BENEFITS
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE
<S> <C>
Martin P. Doolan ................................................... $ 780,000
President and Chief Executive Officer
Michael J. Tanner .................................................. 249,167
Chief Operating Officer
James E. Feldt ..................................................... 273,541
----------
Executive Vice President and General Merchandise Manager
All executive officers who are Covered Officers as a group ......... $1,302,708
==========
</TABLE>
After the end of each Performance Period or such earlier date
if the respective performance goals are achieved, the Stock Option
Committee shall certify to that effect in writing, prior to the
unconditional payment of any Award. The Stock Option Committee shall
then determine the actual Award for each Participant relative to the
level of achievement of the respective performance goals. The Stock
Option Committee, in its discretion, may cancel or decrease an Award,
but may not under any circumstances increase such Award with respect to
any "Covered Officer". Any other provision of the Incentive Plan
notwithstanding, the maximum aggregate Award a Participant may earn for
a particular Fiscal Year is $2,000,000.
17
<PAGE> 19
The Board of Directors may modify, amend, or terminate in
whole or in part, any or all of the provisions of the Incentive Plan,
except as to those terms or provisions that are required by Section
162(m) of the Code to be approved by the Company's shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE VALUE CITY MANAGEMENT INCENTIVE PLAN.
REPORT TO BE PRESENTED AT THE MEETING
There will be presented at the meeting the Company's Annual
Report to Shareholders for the fiscal year ended August 1, 1998,
containing financial statements for such year and the signed opinion of
Deloitte & Touche LLP, independent public accountants, with respect to
such financial statements. It is anticipated that representatives of
Deloitte & Touche LLP, will be present at the Annual Meeting to respond
to appropriate questions and to make a statement if such
representatives so desire. The Annual Report is not to be regarded as
proxy soliciting material and Management does not intend to ask,
suggest or solicit any action from the shareholders with respect to
such report.
COST OF SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of proxies,
including the charges and expenses of brokerage firms and others for
forwarding solicitation material to beneficial owners of stock.
Representatives of the Company may solicit proxies by mail, telegram,
telephone, or personal interview.
SHAREHOLDER PROPOSALS
Each year the Board of Directors submits its nominations for
election of directors at the Annual Meeting of Shareholders. Other
proposals may be submitted by the Board of Directors or the
shareholders for inclusion in the Proxy Statement for action at the
Annual Meeting. Any proposal submitted by a shareholder for inclusion
in the Proxy Statement for the Annual Meeting of Shareholders to be
held in 1999 must be received by the Company (addressed to the
attention of the Secretary) on or before July 5, 1999. To be submitted
at the meeting, any such proposal must be a proper subject for
shareholder action under the laws of the State of Ohio, and must
otherwise conform to applicable requirements of the Proxy Rules of the
Securities and Exchange Commission.
OTHER MATTERS
The only business which management intends to present at the
meeting consists of the matters set forth in this statement. Management
knows of no other matters to be brought before the meeting by any other
person or group. If any other matter should properly come before the
meeting, the proxy enclosed confers upon the persons designated herein
authority to vote thereon in their discretion.
THE COMPANY'S 1998 ANNUAL REPORT, INCLUDING FINANCIAL
STATEMENTS, WAS FURNISHED TO SHAREHOLDERS PRIOR TO OR CONCURRENTLY WITH
THE MAILING OF THIS PROXY STATEMENT. EXTRA COPIES OF THE ANNUAL REPORT,
AND COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K TO THE
SECURITIES AND EXCHANGE COMMISSION, ARE AVAILABLE UPON REQUEST,
DIRECTED TO ROBERT M. WYSINSKI, SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, TREASURER AND SECRETARY OF THE COMPANY, AT 3241 WESTERVILLE
ROAD, COLUMBUS, OHIO 43224.
18
<PAGE> 20
APPENDIX A
VALUE CITY DEPARTMENT STORES, INC.
INCENTIVE COMPENSATION PLAN
ESTABLISHMENT OF PLAN
---------------------
1.1 Plan Adoption. Value City Department Stores, Inc., an Ohio
Corporation ("Corporation"), hereby adopts the Value City Incentive Compensation
Plan ("Plan"), subject to the approval of the Corporation's shareholders. The
Plan shall become effective upon the approval of the shareholders of the
Corporation (the "Effective Date") and shall remain in effect through fiscal
2002, subject to the right of the Board of Directors to amend or terminate the
Plan.
1.2 Purpose. The purpose of the Plan is to optimize the growth and
profitability of the Corporation by providing to key executive officers
incentives that encourage, recognize, and reward exceptional levels of
corporate, business unit, or individual performance. The Plan's intent is to use
award dollars as a clear communication vehicle linking the interests of eligible
key executive officers with the interests of the Corporation by establishing a
direct link between performance and incentive payments. The Plan is designed to
qualify compensation paid under the Plan as performance based compensation that
is fully deductible by the Corporation.
DEFINITIONS
-----------
The following terms used in the Plan shall have the meanings set forth
below.
2.1 "Associate" means any full-time, active employee of the
Corporation.
2.2 "Award" means, individually or collectively, a grant under this
Plan of an opportunity to earn a cash bonus payment upon the terms and
conditions set forth in the action of the Committee granting the Award.
2.3 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.4 "Committee" has the meaning set forth in Section 3.1 herein.
2.5 "Corporation" means Value City Department Stores, Inc., an Ohio
corporation, together with any parent, subsidiary or successor thereto.
2.6 "Covered Officer" means an Officer designated as a "covered
officer" pursuant to Section 4.1.
2.7 "Director" means any individual who is a member of the Board of
Directors of the Corporation.
2.8 "Disability" means any injury of the body or any disorder of the
body or mind which renders the Participant unable to perform the material and
substantial duties of his regular employment by the Corporation at the time of
his termination of employment with the Corporation. The Corporation's
determination that a termination of employment was not due to Disability may be
disputed by a Participant for purposes of determining any Award payable under
Section 5.4 of this Plan upon written notice to the Corporation's Chief
Financial Officer within 30 days after the Participant's termination of
employment. If so disputed, the Corporation will promptly select a physician,
the Participant will promptly select a physician, and the physicians so selected
will select a third physician ("Independent Physician") who will make a binding
determination of Disability. The Participant will make himself available for and
submit to examinations by such physicians as may be directed by the Corporation.
Failure of the Participant to
A-1
<PAGE> 21
submit to any examination or failure of the Independent Physician to render his
determination within 90 days of the date of the notice that the Participant
disputed the Corporation's determination shall constitute acceptance of the
Corporation's determination as to Disability.
2.9 "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.10 "Officer" means any Associate elected as an executive officer of
the Corporation by the Board of Directors.
2.11 "Participant" means any Covered Officer who has outstanding an
Award granted under the Plan.
2.12 "Performance-based Exception" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.13 "Parent" means any corporation, partnership, joint venture or
other entity which has a majority voting interest in the Corporation.
2.14 "Subsidiary" means any corporation, partnership, joint venture or
other entity in which the Corporation has a majority voting interest.
ADMINISTRATION
--------------
3.1 The Committee. The Plan will be administered by the Stock Option
Committee ("Committee") of the Board of Directors of the Corporation composed of
two or more "outside directors" within the meaning of Code Section 162(m).
3.2 Authority. The Committee shall have the full power to select
Covered Officers who shall participate in the Plan; determine the size, terms
and conditions of Awards in a manner consistent with the Plan; interpret and
construe the Plan; and adopt such rules, regulations, and procedures for the
administration of the Plan as the Committee deems necessary or advisable. The
Plan may be in addition to one or more other incentive compensation plans of the
Corporation that cover Associates that are not Covered Officers and which are
not administered by the Committee. The Plan may be designed to be consistent
with such other plan or plans, but must comply with the requirements set forth
in this Plan.
3.3 Decisions Binding. The Committee's interpretations of the Plan, and
all decisions and determinations made by the Committee, shall be conclusive and
binding on all parties, including the Corporation and any Participant or other
person claiming a right to payment with respect to an Award under the Plan.
ELIGIBILITY
-----------
4.1 Covered Officers. All Executive Officers are eligible to be chosen
to participate in the Plan. Not later than 90 days after the beginning of each
fiscal year of the Corporation, the Committee will identify those Officers,
referred to herein as "Covered Officers," whose compensation for that year is
anticipated to be affected by the Code Section 162(m) limitation on the
deductibility of compensation and assign each such Covered Officer to a
Participant group for the purposes of defining their Awards under the Plan. The
Committee may withdraw its approval for participation for a Participant at any
time. In the event of such withdrawal, the Covered Officer concerned shall cease
to be an active Participant as of the date selected by the Committee.
4.2 Partial Year Participation. Persons who become Covered Officers
after the date of the Committee's initial grant of Awards but prior to the end
of the fiscal year, whether due to promotion, transfer or initial commencement
of employment with the Corporation, may be granted Awards by the Committee on a
partial year basis. In each such case, the Committee shall specify the terms and
A-2
<PAGE> 22
conditions of such Award, including any pro rata allocations of the performance
measures to such partial year Participants.
AWARDS
------
5.1 Performance Measures. For each fiscal year, the Committee shall
first establish written annual performance goals based on any one or more of the
following objective performance measures:
(a) sales;
(b) operating profit (loss);
(c) income (loss) before provision for income taxes;
(d) net income (loss);
(e) net income (loss) per common share;
(d) earnings before interest, taxes, amortization and depreciation;
(e) price of the Corporation's common stock;
(f) return on shareholders' equity;
(g) gross margin;
(h) inventory levels or inventory turnover;
(i) controllable selling, general and administrative expenses or
separate categories thereof;
(j) merchandise inventory shrinkage;
(k) new store openings and/or related start-up and capital
expenditures; or
(l) any one or more of the foregoing (a) through (k) may be adjusted by
the Committee to include or exclude (A) extraordinary charges, and/or (B) any
accruals for restructuring programs, merger integration costs, or merger
transaction costs, and/or (C) other unusual or infrequent items (whether gains
or losses) as defined by generally accepted accounting principles (GAAP) which
are disclosed as a separate component of income or loss on the face of the
income statement or as may be disclosed in the notes to the financial
statements.
Subject to the terms of the Plan, each of the performance goals may be defined
by the Committee on a corporate, affiliate, business unit or individual basis.
Each performance goal shall have a minimum performance standard below which no
payments will be made. The performance goals and determination of results shall
be based entirely on objective measures for all Covered Officers.
5.2 Grant of Performance Awards. Performance goals based on the
preestablished performance measures and the potential Awards that will be
payable upon attainment of those performance goals, expressed as a percentage of
base salary as of the end of each fiscal year, will be established in writing by
the Committee within 90 days after the commencement of the fiscal year to which
the goals relate. The target incentive compensation percentage for each selected
Participant will be based on the level and functional responsibility of his or
her position, size of the business for which the Participant is responsible, and
competitive practices. Performance goals may differ for Awards granted to any
one Participant or to different Participants. The Committee may determine that
any Award shall be based on more than one performance measure.
5.3 Award Agreements. The Committee may require that any Award be
evidenced by a written agreement which may contain such terms and conditions as
the Committee may require. In the event of any conflict between such Award
agreements and the Plan, however, the terms of the Plan shall control.
5.4 Payment of Awards. Unless payment is deferred as provided in
Section 5.6, Awards will be payable in cash annually after the date the
Corporation's audited financial statements have been certified by the
Corporation's auditor for the relevant fiscal year of computation; provided that
awards will be paid to Covered Officers only after the Committee has certified
in writing in the minutes of a committee meeting or otherwise that the
performance goals applicable to Covered Officers have been satisfied. No Award
will be paid to any Participant who is not employed by the Corporation on the
last day of the fiscal year to which the Award relates; provided, however, in
the event of a Participant's death or a termination of a Participant's
employment by the Corporation prior to the last day of the fiscal year by reason
of Disability, the Participant or his estate shall be paid, at the same time
that other Awards are paid, an amount based upon the actual achievement of the
relevant performance objectives for that fiscal year, pro rated for the number
of days that elapsed within the fiscal year prior to such termination of
employment. Awards are subject to income and other payroll tax withholding by
the Corporation.
A-3
<PAGE> 23
5.5 Maximum Award. The annual Award payable to any Participant under
the Plan will not exceed $2 million.
5.6 Deferrals. The Committee may permit a Participant to defer such
Participant's receipt of payment of an Award that would otherwise be due to the
Participant. In any such case, the Committee shall, in its sole discretion,
determine the rules and procedures for such deferral.
5.7 Adjustment of Awards Upon the Occurrence of Certain Unusual or
Non-Recurring Events. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
non-recurring events (including, without limitation, acquisitions or
dispositions of assets or businesses) affecting the Corporation or the financial
statements of the Corporation or of changes in applicable laws, regulations, or
accounting principles, whenever the Committee determines that such adjustments
are appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; provided,
however, the Committee may not use any discretion to modify award results if
such modification would affect the deductibility of the Award under Code Section
162(m).
MISCELLANEOUS
-------------
6.1 Guidelines. From time to time the Committee may adopt written
guidelines for implementation and administration of the Plan.
6.2 No Right to Awards. No Officer or other person shall have the right
to be selected to receive an Award under the Plan or, if so selected, to be
selected to receive a future Award.
6.3 Non-Funded Plan. The Corporation will not be required to establish
any special or separate fund or make any other segregation of assets to assure
the payment of any award under the Plan, and all Participants shall be general
creditors with respect to any Awards payable to them.
6.4 Non-Transferability of Awards. No Award granted under the Plan may
be sold, transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution.
6.5 Expenses of Plan. The costs and expenses of administering the Plan
will be borne by the Corporation.
6.6 No Contract of Employment. Nothing in the Plan, in any Award, or in
any action taken under the Plan shall confer on the Participant any right to
continue in the service of the Corporation or interfere with the right of the
Corporation to terminate at will such Participant's employment or other services
at any time. This Agreement shall in no way, now or hereafter, reduce, enlarge
or modify the employment relationship between the Corporation and the
Participant.
6.7 Governing Law. The validity, construction and effect of the Plan,
any rules and regulations under the Plan, and any awards made under the Plan
shall be determined in accordance with the laws of the state of Ohio without
giving effect to principles of conflicts of laws, and any applicable federal
law.
6.8 Successors. All obligations under the Plan shall be binding upon
and inure to the benefit of any successor of the Corporation, whether such
successor is the result of a direct or indirect purchase of all or substantially
all of the business and assets of the Corporation or a merger, consolidation, or
reorganization, or otherwise.
6.9 Severability. In the event that any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
A-4
<PAGE> 24
EFFECTIVE DATE; AMENDMENT; TERMINATION
--------------------------------------
7.1 Effective Date. The Plan will become effective upon approval by a
majority of the votes cast by the stockholders of the Corporation, and will
relate to performance beginning with the fiscal year of the Corporation
commencing August 3, 1997.
7.2 Amendment; Termination. The Corporation may at any time terminate
or, from time to time, amend the Plan by action of the Board of Directors or by
action of the Committee without stockholder approval unless such approval is
required to satisfy the applicable provisions of Code Section 162(m) or other
relevant laws. The Corporation and the Committee may amend the Plan and take
such other action as they may deem necessary or appropriate to comply with Code
Section 162(m) and regulations issued thereunder.
7.3 Code Section 162(m) Compliance. In the event that changes are made
to Code Section 162(m) to permit greater flexibility with respect to any Award
available under the Plan, the Committee may, subject to Section 7.2, make any
adjustments it deems appropriate. If the applicable tax or securities laws
change to permit the Committee discretion to alter the governing performance
goal measures set forth in Section 5.1 without obtaining stockholder approval of
such change, the Committee shall have sole discretion to make such changes
without obtaining stockholder approval.
VALUE CITY DEPARTMENT STORES, INC.
By:/s/ JAY L. SCHOTTENSTEIN
----------------------------------
Jay L. Schottenstein, Chairman
Adopted: August 3, 1997
A-5
<PAGE> 25
DETACH CARD
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
VALUE CITY DEPARTMENT STORES, INC. PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
3241 Westerville Road -- Columbus, Ohio 43224 DECEMBER 9, 1998
</TABLE>
The undersigned hereby appoints Michael J. Tanner and Richard L. Walters, or
either of them, my attorneys and proxies, with full power of substitution, to
vote at the annual meeting of shareholders of Value City Department Stores, Inc.
to be held on December 9, 1998, and at any adjournment thereof, with all of the
powers I would have if personally present, for the following purposes:
1. ELECTION OF DIRECTORS.
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary). to vote for all nominees listed below.
</TABLE>
(INSTRUCTIONS: Do not check "WITHHOLD AUTHORITY" to vote for only certain
individual nominees. To withhold authority to vote for any
individual nominee, strike a line through the nominee's name
below and check "FOR").
Ari Deshe Jon P. Diamond Martin P. Doolan Richard Gurian Dr. Norman
Lamm
Geraldine H. Schottenstein Jay L. Schottenstein Saul
Schottenstein Robert L. Shook Robert M. Wysinski
2. To approve the Company's Incentive Compensation Plan described in the
accompanying Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENT THEREOF.
(Continued on Other Side)
<PAGE> 26
DETACH CARD
- --------------------------------------------------------------------------------
(Continued from Other Side)
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS AND, WHEN
EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE
ABOVE PROPOSALS.
The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting
of Shareholders, dated November 9, 1998, the Proxy Statement, and the Annual
Report to Shareholders of the Company for the fiscal year ended August 1, 1998.
Any proxy heretofore given to vote said shares is hereby revoked.
Dated: , 1998
----------------------------------
Signature
----------------------------------
Signature
Signature(s) shall agree with the
name(s) printed on this proxy.
If signing as attorney, executor,
administrator, trustee or
guardian, please give your full
title as such.
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
