CATHERINES STORES CORPORATION
3742 Lamar Avenue
Memphis, Tennessee 38118
(901) 363-3900
NOTICE OF MEETING OF STOCKHOLDERS TO BE HELD ON
June 2, 1999
TO THE STOCKHOLDERS OF
CATHERINES STORES CORPORATION
Notice is hereby given that the Annual Meeting of Stockholders of
Catherines Stores Corporation will be held at the executive offices of the
Company, 3742 Lamar Avenue, Memphis, Tennessee, on Wednesday, June 2, 1999 at
10:00 A.M. local time, for the following purposes:
1. To elect three members of the Board of Directors to serve a term of
three years;
2. To amend the 1994 Omnibus Incentive Plan;
3. To ratify the appointment of independent public accountants for the
fiscal year ending January 29, 2000; and
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The accompanying Proxy Statement contains further information with respect
to these matters.
Stockholders of record at the close of business on April 8, 1999 are
entitled to notice of and to vote at the Annual Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES.
By Order of the Board of Directors
David C. Forell
Secretary
April 23, 1999
<PAGE>
CATHERINES STORES CORPORATION
3742 Lamar Avenue
Memphis, Tennessee 38118
(901) 363-3900
PROXY STATEMENT
For Annual Meeting of Stockholders, June 2, 1999
The enclosed proxy is solicited by the Board of Directors (the "Board" or
"Board of Directors") of Catherines Stores Corporation (the "Company"), 3742
Lamar Avenue, Memphis, Tennessee 38118, to be voted at the Annual Meeting of
Stockholders to be held on June 2, 1999, at 10:00 A.M. local time at the
executive offices of the Company, 3742 Lamar Avenue, Memphis, Tennessee, or any
adjournments thereof (the "Annual Meeting"). At the Annual Meeting, the presence
in person or by proxy of the holders of a majority of the total number of shares
of outstanding Common Stock will be necessary to constitute a quorum.
Each nominee for Director shall be elected by a majority of the votes cast
by the holders of Common Stock, all such stockholders being present in person or
by proxy and being entitled to vote in the election.
All shares represented by properly executed proxies will be voted in
accordance with the instructions indicated thereon unless such proxies
previously have been revoked. If any proxies of holders of Common Stock do not
contain voting instructions, the shares represented by such proxies will be
voted FOR Proposals 1, 2 and 3. The Board of Directors does not know of any
business to be brought before the Annual Meeting other than as indicated in the
notice, but it is intended that, as to any other such business, votes may be
cast pursuant to the proxies in accordance with the judgment of the persons
acting thereunder.
Any stockholder who executes and delivers a proxy may revoke it at any time
prior to its use upon (a) receipt by the Secretary of the Company of written
notice of such revocation, (b) receipt by the Secretary of the Company of a duly
executed proxy bearing a later date, or (c) appearance by the stockholder at the
meeting and his request for the return of his proxy.
Only stockholders of record at the close of business on April 8, 1999 are
entitled to notice of and to vote at the Annual Meeting. As of March 30, 1999,
there were 6,974,349 shares of Common Stock outstanding, each of which is
entitled to one vote. This Proxy Statement and the attached form of proxy card
are first being sent or given to stockholders on or about April 23, 1999.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Certain employees, officers and directors of the Company may be granted
stock options pursuant to the 1994 Omnibus Incentive Plan, as amended (the
"Incentive Plan"). The approval of the amendment to the Incentive Plan is being
presented as Proposal 2.
<PAGE>
OWNERSHIP OF COMMON STOCK
BY DIRECTORS,
OFFICERS AND CERTAIN BENEFICIAL OWNERS
To the best knowledge of the Company, based on information filed with the
Securities and Exchange Commission as of December 31, 1998 and the Company's
stock records, the following table sets forth the beneficial ownership of the
Company's Common Stock as of March 30, 1999, by (i) beneficial owners of more
than five percent of the Company's Common Stock, (ii) each director, (iii) each
nominee for director, (iv) each named officer as defined herein and (v) all
directors and officers of the Company as a group.
Beneficial Owner Shares Percent
- ---------------- ------ -------
Heartland Advisors, Inc. (2) 853,400 12.2
John Weil (3) 760,000 10.9
Royce & Associates (4) 600,000 8.6
The TCW Group, Inc. (5) 573,800 8.2
Dimensional Fund Advisors Inc. (6) 510,500 7.3
James H. Lindy (7) 11,750 *
Allen B. Morgan, Jr. (7) 46,750 *
Wellford L. Sanders, Jr. (7) 8,750 *
Elliot J. Stone (7) 10,750 *
Bernard J. Wein (8) 274,315 3.8
Stanley H. Grossman (8) 149,610 2.1
David C. Forell (8)(9) 113,894 1.6
E. Glenn Irelan (8) 50,000 *
All directors and officers as a group (8 persons)(10) 667,819 9
* Less than one percent of the number of outstanding shares.
(1) As used in this table, beneficial ownership means the sole or shared
power to vote, or direct the voting of, a security, or the sole or shared
power to dispose, or direct the disposition of a security. Except as
otherwise indicated, all persons listed above 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.
(2) The address of this shareholder is 790 North Milwaukee Street,
Milwaukee WI 53202
(3) The address of this shareholder is 200 North Broadway, St. Louis, MO
63102
(4) The address of this shareholder is 1414 Avenue of the Americas, New
York, NY 10019
(5) The address of this shareholder is 865 South Figueroa Street, Los
Angeles, CA 90017
<PAGE>
(6) The address of this shareholder is 1299 Ocean Avenue, 11th Floor, Santa
Monica, CA 90401.
(7) Includes 8,750 shares of Common Stock issuable upon exercise of options
granted under the 1992 Nonqualified Stock Option Plan and the 1994 Omnibus
Incentive Plan.
(8) Includes shares of Common Stock issuable upon exercise of Management
Performance Units and options granted under the 1990 Performance Units
Plan, the 1992 Nonqualified Stock Option Plan and the 1994 Omnibus
Incentive Plan for Messrs. Wein (210,000), Grossman (130,100), Forell
(99,000) and Irelan (20,000), all of which are currently exercisable. See
"Proposal 1-Election of Directors."
(9) Includes 1,000 shares owned by Mr. Forell's children.
(10) Includes 494,100 shares of Common Stock issuable upon exercise of
Management Performance Units and options granted under the 1992
Nonqualified Stock Option Plan and the 1994 Omnibus Incentive Plan, all of
which are currently exercisable.
PROPOSAL 1. ELECTION OF DIRECTORS
The Board currently consists of seven directors, classified in three
classes. The terms of David C. Forell, Allen B. Morgan, Jr. and Elliot J. Stone
expire at this Annual Meeting, and they are standing for re-election. The three
directors to be elected at the Annual Meeting will serve until the 2002 Annual
Meeting of Stockholders and until their successors are elected. The names of,
and certain information furnished to the Company by the nominees with respect
to, the nominees for election as directors, are set forth below. If, for any
reason, any of the nominees shall become unavailable for election, the
individuals named in the enclosed proxy may exercise their discretion to vote
for any substitutes chosen by the Board of Directors, unless the Board of
Directors should decide to reduce the number of directors to be elected at the
Annual Meeting. The Company has no reason to believe that any nominee will be
unable to serve as a director.
For information concerning the number of shares of the Company's Common
Stock owned by each director, each nominee for director, and all directors and
officers as a group as of March 30, 1999, see "Ownership of Common Stock by
Directors, Officers and Certain Beneficial Owners."
Name Age Director Since Position with Company
- ----- ----- -------------- ---------------------
Bernard J. Wein 58 1987 Chairman of the Board,
President, Chief
Executive Officer and
Director
Stanley H. Grossman 66 1992 Executive Vice President
and Director
David C. Forell* 51 1992 Executive Vice
President, Chief
Financial Officer,
Secretary and Director
James H. Lindy 61 1992 Director
Allen B. Morgan, Jr.* 56 1992 Director
Wellford L. Sanders, Jr. 53 1991 Director
Elliot J. Stone* 78 1991 Director
- ------------------------------
* Nominee for Director.
Bernard J. Wein was named Chairman of the Board, President and Chief
Executive Officer of the Company in December 1987.
Stanley H. Grossman has been Executive Vice President of the Company since
December 1987.
David C. Forell has been Executive Vice President and Chief Financial
Officer of the Company since January 1988. He was elected Secretary in 1998.
James H. Lindy is Principal of Lindy & Associates, an architectural and
planning firm in Memphis, Tennessee. Mr. Lindy and his firm have provided
extensive retail architectural design services for numerous major corporations.
His firm has performed architectural services for the Company for over five
years and has accumulated significant knowledge concerning the location, design
and operation of the Company's stores.
Allen B. Morgan, Jr. is the Chairman of the Board and Chief Executive
Officer of Morgan Keegan, Inc., the holding company for Morgan Keegan & Company,
Inc., its stock brokerage and underwriting subsidiary, positions he has held
since 1983. He has also been Chairman of the Board, Chief Executive Officer,
employee and director of the subsidiary since 1969.
Wellford L. Sanders, Jr. is a Managing Director of Bowles Hollowell Conner,
a division of First Union Capital Markets Corp., a securities firm. Mr. Sanders
was a member of the law firm of McGuire, Woods, Battle & Boothe LLP from 1986 to
1997.
Elliot J. Stone served as the President and Chief Executive Officer of
Jordan Marsh from 1979 to 1986, and as Chairman and Chief Executive Officer of
Jordan Marsh from 1986 until his retirement in 1989. Mr. Stone is a management
consultant.
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. Pursuant to this Proposal 1, you are being asked to
vote for the election of Messrs. Forell, Morgan and Stone for three-year terms
expiring at the Annual Meeting of the Shareholders of the Company in 2002 or
upon the later election of their successors. The terms of Messrs. Lindy and Wein
expire in 2000. The terms of Messrs. Grossman and Sanders expire in 2001.
Directors of the Company who are not employees of the Company or of any of
its wholly owned subsidiaries are paid an annual retainer of $15,000 plus $2,000
for each Board of Directors meeting attended, whether in person or by
teleconference. In addition, the Company's 1994 Omnibus Incentive Plan
automatically grants each nonemployee Director options to purchase 2,500 shares
of Common Stock annually, at fair market value on the date of grant,exercisable
twenty-five percent (25%) per year. All nonemployee directors surrendered the
options automatically granted to them on June 3, 1998. No separate compensation
is payable for participation in committee meetings, although Directors are
entitled to reimbursement for expenses incurred in attending Board and committee
meetings, including expenses for travel, food and lodging. The Board of
Directors met five times during the fiscal year ended January 30, 1999. During
that fiscal year, each director attended all of the meetings of the Company's
Board of Directors.
Audit Committee
The Audit Committee is responsible for recommending the independent public
accountants for the Company and reviewing the scope of the audit. It also
reviews the report of the Company's independent public accountants. The Audit
Committee held two meetings during the fiscal year ended January 30, 1999. Its
members for that fiscal year were Messrs. Sanders, Lindy, Morgan and Stone.
<PAGE>
Compensation Committee
The Compensation Committee reviews and approves the salaries of officers
and (except for Mr. Lindy as to stock incentive plans) approves the grant of
stock options and other rights under the Company's stock option and other
executive compensation plans, subject to approval by the Board. The Compensation
Committee held two meetings during the fiscal year ended January 30, 1999. Its
members for that fiscal year were Messrs. Morgan, Lindy, Sanders and Stone.
Nominating Committee
This committee was formed by the Board of Directors on March 24, 1999. This
committee is responsible for reviewing the size and composition of the Board of
Directors and the qualifications of possible candidates for the Board of
Directors and making recommendations respecting nominees to be proposed to
stockholders for election at each Annual Meeting. In accordance with the
Company's Bylaws, nominations for election to the Board of Directors may be made
by the Board or by any shareholder entitled to vote in the election of
directors. Nominations made by shareholders must be made by written notice
(setting forth the information required by the Company's Bylaws) received by the
Secretary of the Company not later than 60 nor more than 90 days in advance of
the anniversary of the previous year's Annual Meeting or, if later, the seventh
day following the first public announcement of the date of the meeting at which
the shareholder wishes to bring business. Members of the Nominating Committee
are Messrs. Morgan, Sanders, Stone and Wein.
Executive Compensation
Cash Compensation
The following table sets forth the cash compensation paid, as well as
certain other compensation paid or accrued, to the Company's chief executive
officer and to each other executive officer whose aggregate cash compensation
exceeded $100,000 during the indicated fiscal years (the "Named Officers").
<PAGE>
1998 Summary Compensation Table
<TABLE>
<CAPTION>
Year Salary($) Bonus($) Stock All Other
Options Compensation
(#) ($)(1)
<S> <C> <C> <C> <C> <C>
Bernard J. Wein
Chairman of the Board and
Chief Executive Officer
1998 500,000 550,000 - 183,378
1997 500,000 150,000 45,000 183,052
1996 500,000 - 50,000 187,123
Stanley H. Grossman
Executive Vice President -
Merchandising
1998 325,000 260,000 - 119,899
1997 325,000 78,000 18,000 120,417
1996 325,000 - 20,000 125,460
David C. Forell
Executive Vice President -
Chief Financial Officer
1998 290,000 232,000 - 45,975
1997 290,000 69,600 18,000 43,188
1996 290,000 - 20,000 47,702
E. Glenn Irelan
Executive Vice President -
Stores/Marketing/Real Estate
1998 210,000 168,000 - 54,953
1997 190,000 45,600 9,000 95,065
1996 190,000 - 10,000 57,162
</TABLE>
(1) The amounts shown for each individual include amounts contributed by the
Company under the Company's Retirement Savings and Profit Sharing Plan,
supplemental retirement benefits in the form of executive annuities or life
insurance and automobile allowances.
Employment Agreements
The Company's wholly-owned subsidiary, Catherines, Inc., has entered into
Executive Employment Agreements with each of Messrs. Wein, Grossman, Forell and
Irelan (the "Executive Employment Agreements"). The Executive Employment
Agreements for Messrs. Wein and Forell prescribe a minimum base salary, have an
initial term of three years and are automatically extended for additional one
year periods unless either party gives notice of termination at least one year
prior to the then expiration date. Mr. Irelan's Executive Employment Agreement
prescribes a minimum base salary, has an initial term expiring on June 30, 2000,
and is automatically extended for additional one year periods unless either
party gives notice of termination at least one year prior to the then expiration
date. Mr. Grossman's Executive Employment Agreement also prescribes a minimum
<PAGE>
base salary, but was amended in 1998 to expire on January 31, 2000, with no
automatic extensions. No notice of termination was given on or before June 1,
1998 to, or received from, Messrs. Wein and Forell; therefore, their contracts
were automatically extended until June 1, 2000. In the event that Catherines,
Inc. gives Messrs. Wein, Forell or Irelan notice of its election to discontinue
the Executive Employment Agreement, then the executive will be entitled to a
lump-sum severance payment which is equal to 200% of base salary in the case of
Mr. Wein and 150% of base salary in the case of Messrs. Forell and Irelan. In
the event Catherines, Inc. terminates the employment of an executive other than
for cause or if the executive terminates his employment as a result of a
material breach by Catherines, Inc. of any of its obligations under the
Executive Employment Agreement, then the executive shall be entitled to receive
a lump-sum payment equal to 2 times (in the case of Mr. Wein) or 1.5 times (in
the case of Messrs. Grossman, Forell and Irelan) the sum of his annual base
salary and his target bonus opportunity for the fiscal year in which such
termination occurs. In the event the employment of Messrs. Wein, Grossman or
Forell is terminated by Catherines, Inc. within two years following a "change of
control" of the Company or Catherines, Inc., by either Catherines, Inc. other
than for cause or by the executive as a result of material adverse changes in
his duties and responsibilities, then the executive shall be entitled to receive
a lump-sum payment equal to 3 times (in the case of Mr. Wein) or 2 times (in the
case Messrs. Grossman and Forell) the sum of his annual base salary and his
target bonus opportunity for the fiscal year in which such termination occurs.
Excepting severance payments made to Mr. Irelan, all severance payments are to
be increased for any federal excise taxes imposed with respect to such payments
and any federal and state income taxes payable as a result of the payment of the
initial excise taxes by Catherines, Inc. on behalf of the executives. In the
event that an executive is entitled to severance payments as described in this
paragraph, he is also entitled to the continuation of health and insurance
benefits and, excepting Mr. Grossman, certain additional retirement benefits
pursuant to executive annuity and life insurance agreements for twelve months
(in the case where Catherines, Inc. elects not to continue the executive's
employment beyond the expiration date of his contract) or the time period on
which the severance payment is based following the termination of employment (in
the case where Catherines, Inc. terminates the executive's employment other than
for cause or, in the cases of Messrs. Wein, Forell and Grossman, where such
employment terminates within two years following a change of control of the
Company or Catherines, Inc., other than for cause or because of material changes
in the executive's duties and responsibilities).
Stock Options
The following table sets forth information on stock option grants pursuant
to the 1994 Omnibus Incentive Plan during the last fiscal year for each of the
Named Officers:
<PAGE>
Stock Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
% of Total
Number of Options Potential Realizable
Securities Granted Exercise Value at Assumed
Underlying to or Annual Rates of
Options Employees Base Stock Appreciation
Granted in Fiscal Price Expire for Option Terms
(#) Year ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Bernard J. Wein
- - - - - -
Stanley H. Grossman
- - - - - -
David C. Forell
- - - - - -
E. Glenn Irelan
- - - - - -
</TABLE>
The following table sets forth information concerning the exercise of stock
options during the last fiscal year and unexercised options held as of January
30, 1999 for each of the Named Officers:
<TABLE>
<CAPTION>
Value of
Unexercised
Number of In-the-Money
Number Unexercised Options at Fiscal
of Shares Options Held at Year End
Acquired Fiscal Year End ($)(1)
on Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Bernard J. Wein
48,600 443,413 173,750/71,250 129,844/103,281
Stanley H. Grossman
52,500 460,018 110,600/28,500 79,163/41,312
David C. Forell
- - 84,500/28,500 20,438/41,312
E. Glenn Irelan
- - 13,250/13,750 9,469/20,406
</TABLE>
- ------------------
(1) Represents the difference between the price of the Company's Common Stock
at January 30, 1999 less the exercise price of the options.
Report of Compensation Committee
The Compensation Committee of the Board reviews and approves officers'
salaries, stock option grants, and other executive and Company employee benefit
plans and establishes policies relating to employee compensation. Decisions made
by the Compensation Committee concerning executive officers' compensation are
reviewed by the full Board. Members of the Compensation Committee are Messrs.
Morgan, Lindy, Sanders and Stone (except for Mr. Lindy as to stock incentive
plans).
<PAGE>
The objectives of the Company's executive compensation policy are to align
the interests of the stockholders and management while motivating and retaining
key employees. In order to achieve its overall objective, the Company's
executive compensation policies combine annual base compensation, incentive
bonuses based on operating performance and long term equity-based incentives.
Taken together, the Company believes its programs will attract and retain
qualified executives who have a significant stake in the long-term success of
the Company. When appropriate, the Committee intends to take the necessary steps
to conform its compensation to the compensation deduction cap created by
Internal Revenue Code Section 162(m), which disallows a public company's
deduction for top executives' compensation in excess of $1 million, in order to
preserve full deductibility of executive compensation, consistent with its
responsibility to provide motivating and competitive compensation which is
performance-based.
The Compensation Committee attempts to set total compensation at no less
than the median level of comparable companies. Base salaries for the Chief
Executive Officer and the Company's other senior management are determined
annually by the Committee and may be increased based on a) the contribution of
the individual to the Company, b) increases in the scope and complexity of the
individual's primary responsibilities, c) increases in the cost of living and d)
increases in competitive salaries, which factors are subjectively weighted by
the Compensation Committee.
Based on the Company's 1997 fiscal year results, the Committee concluded
that Messrs. Wein, Grossman and Forell should not receive salary increases in
fiscal 1998. The Committee increased Mr. Irelan's base compensation based on his
individual performance, an increase in his responsibilities and comparison to
similar executives at other companies.
The Committee believes that a significant portion of the key executives'
total compensation should be performance-based. The Committee has focused on
earnings before interest, taxes, depreciation and amortization ("EBITDA") as the
performance measurement upon which incentive compensation should be based. The
Committee believes growth in this measurement is ultimately the key determinant
of shareholder value and allows management to make investment decisions that
will provide long-term benefits to the stockholders. Target levels for EBITDA
are set each year by the Committee based on the prior year's performance.
Incentive compensation earned can be up to 110% of base salary for the Chief
Executive Officer and 80% for the other senior executives. In fiscal 1998,
EBITDA increased approximately 50% from the prior year, which earned bonuses of
110% and 80% of salary for the Chief Executive Officer and the other senior
executives, respectively. The Committee reserves the right to make discretionary
bonuses in unusual circumstances. No discretionary bonuses were made in 1998.
Incentive compensation earned in 1998 is set forth in the 1998 Summary
Compensation Table on page 5, under the "Bonus" column.
Long-term incentives are provided by the grant of stock options and the
ability to purchase stock in the Employee Stock Purchase Plan. The purposes
<PAGE>
of these equity-based incentives are to retain these employees and to align the
long-term interests of management and the stockholders. Stock options are
granted at market prices. Options vest over a period of time, as determined by
the Compensation Committee, which is currently four years. Factors determining
stock option grants are similar to the factors determining increases in base
pay, and the overall stock option plan provisions were determined by comparison
to other specialty retail companies. The Compensation Committee believes that
the amendments to the 1994 Omnibus Incentive Plan increasing the number of
shares available for grant and limiting the discretion of this Committee are
appropriate and should be adopted by the Company's stockholders.
The Company's stock incentive plans permit the grant of options without
restrictions on the transferability of the options from optionees to their
immediate family members, to trusts for the benefit of family members and to
charitable organizations.
The Company has provided all employees with the opportunity to purchase
Common Stock through the Employee Stock Purchase Plan. Employees may contribute
1% to 10% of their gross salary to the Plan. Quarterly, accumulated funds are
used to purchase stock from the Company at the lesser of 85% of the closing
market price of the Company's Common Stock at the first or last day of the
calendar quarters. Messrs. Wein, Grossman and Forell participate in the Plan.
The Committee believes that the Company's overall compensation policies are
appropriate to align the interests of management and the stockholders and to
motivate and retain key executives.
Allen B. Morgan, Jr. Wellford L. Sanders, Jr.
James H. Lindy Elliot J. Stone
<PAGE>
Company Performance
The following graph compares the cumulative total returns for the Company,
the NASDAQ Stock Market (US) Index and an index of seven (7) peer companies.
The table assumes $100 invested in each on January 31, 1994 and the
reinvestment of all dividends.
The peer group includes The Cato Corporation, United Retail Group, Inc.,
Charming Shoppes, Inc., Deb Shops, Inc., The Dress Barn, Inc. and Stein Mart.
This peer group index is subject to occasional changes as the Company or its
competitors change their focus, merge or are acquired, undergo significant
changes, or as new competitors emerge.
Comparison of Cumulative Total Return
Catherines Stores NASDAQ
Fiscal Year Ending Corporation Peer Group Stock Market
January 1994 100 100 100
January 1995 56 64 95
January 1996 41 40 135
January 1997 35 63 177
January 1998 42 84 209
January 1999 50 65 326
Compensation Committee Interlocks and Insider Participation
Lindy & Associates, of which Mr. Lindy is the sole proprietor, in the
twelve-month period ended January 30, 1999 was paid approximately $98,000 in
architectural fees for services provided to the Company. Management of the
Company believes that amounts paid for the services rendered were fair in
relation to the cost of similar services available from others.
Certain Transactions
The Board of Directors of the Company approved a loan of $200,000 to Mr.
Forell for margin calls related to indebtedness incurred in connection with the
exercise of options to acquire stock of the Company. The loan is pursuant to a
promissory note and is secured by a lien upon the supplemental retirement
<PAGE>
benefits which Mr. Forell's beneficiaries are entitled to receive upon his
demise, by a right of offset against any severance payments to which Mr. Forell
might otherwise be entitled upon any termination of his employment with the
Company and a lien on stock in the Company owned by him and/or his wife
subordinated to the margin indebtedness. The promissory note bears interest at
the Company's incremental borrowing rate, and the principal amount and interest
is due and payable not later than the earlier of Mr. Forell's termination of
employment with the Company for any reason or ten years from the date of such
borrowing. As of March 30, 1999, Mr. Forell owed the Company approximately
$36,000 in principal and accrued interest on this loan.
Mr. Wein's wife is the sole proprietor of a company which was paid
approximately $55,000 for video production services provided to the Company in
the twelve-month period ended January 30, 1999. Management of the Company
believes that amounts paid for the services rendered were fair in relation to
the cost of similar services available from others.
See "Proposal 1. Election of Directors - Compensation Committee Interlocks
and Insider Participation" with regard to architectural fees paid to Lindy &
Associates.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on review of the copies of reporting forms furnished to the
Company, or written representations that no forms are required, the Company
believes that during 1998, all filing requirements of its officers, directors
and 10% shareholders for reporting to the Securities and Exchange Commission
their ownership and changes in ownership of shares (as required pursuant to
Section 16(a) of the Securities and Exchange Act of 1934) were fulfilled.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE SLATE OF DIRECTORS AS SET FORTH
IN THIS PROPOSAL 1.
PROPOSAL 2. AUTHORIZATION OF AN ADDITIONAL 500,000 SHARES UNDER
THE 1994 OMNIBUS INCENTIVE PLAN, AMENDMENT OF PLAN TO LIMIT DISCRETION
THEREUNDER, AND APPROVAL OF GRANTS THEREUNDER
The Company has heretofore maintained the 1994 Omnibus Incentive Plan (the
"Incentive Plan") pursuant to which stock options have been awarded to key
employees (approximately 35 persons, including four current executive officers)
and directors (four persons). Of the 650,000 shares of Common Stock currently
authorized under the Incentive Plan, only 28,437 remain available for grant. The
Company granted options in 1997 for 153,750 shares and in 1998 for 52,750
shares, and proposes to grant options in 1999 (subject to stockholder approval
of this Proposal 2) for 172,000 shares, representing 2.1%, 0.7% and 2.5%,
respectively, of the Company's outstanding shares. The Compensation Committee's
current expectation is for annual grants of stock options at substantially the
same levels.
The Compensation Committee believes the lack of stock options available for
grant under the Incentive Plan will adversely affect the Company's ability to
attract and retain key executives. Of the 31 executives granted options under
the Incentive Plan in 1998, 27 have been employed by the Company for more than 5
years. The Company recently hired a new merchandising executive
<PAGE>
after a 21-month search. This search took longer than anticipated partly because
of the lack of stock options available for grant. To aid the Company in
developing this Proposal 2 for shareholder approval, a third party consultant
was hired to analyze the proposal. The third party (i) determined that the
number of shares for which approval is sought under this Proposal 2 was within
certain institutional investor guidelines as to shareholder value transfer and
voting power dilution as compared to the retail industry and (ii) identified
certain provisions of the Incentive Plan that may be perceived negatively by
institutional holders.
As a result of the above analysis, on March 24, 1999 the Compensation
Committee recommended the following amendments to the Incentive Plan:
(i) Increase the authorized number of shares available under the Incentive
Plan by 500,000 shares. The total shares available under the Incentive Plan
will be 1,150,000 shares, of which only 528,437 will be eligible for grant;
(ii) Prohibit repricing of options or stock appreciation rights ("SARs")
granted under the Incentive Plan unless such action is approved by the
stockholders of the Company;
(iii) Prohibit granting of Nonqualified Stock Options at less than the fair
market value of the Company's stock as of the date of grant (such grants of
Incentive Stock Options already being prohibited under the Incentive Plan);
(iv) Fix the vesting schedule for Incentive Stock Options, Nonqualified
Stock Options, SARs and restricted shares at no faster than 25% per year
beginning at the first anniversary of grant (except in the event of death,
disability or Retirement [as defined in the Incentive Plan]).
The table below indicates grants of stock options under the Incentive Plan,
all of which options are exercisable at the fair market value of a share of
Common Stock on the date of grant.
Incentive Plan Benefits Granted To Date
Name Position Value ($)(2) Shares (#)
- ---- -------- ------------ ----------
Bernard J. Wein Chairman of the Board
and Chief Executive
Officer, Director 166,250 170,000
Stanley H. Grossman Executive Vice
President-
Merchandising,
Director 66,500 78,000
David C. Forell Executive Vice President
and Chief Financial
Officer, Secretary and
Director 66,500 78,000
E. Glenn Irelan Executive Vice President-
Stores, Real Estate,
Marketing 32,000 27,000
All Current Executives Group (4 persons) 331,250 353,000
Non-Executive Directors Group (4 persons) 36,252 40,000
Non-Executive Officer Employees
Group (31 persons) 144,500 187,250
- ------------------
(1) All employees as a group were granted 540,250 options.
(2) Represents the difference between the price of the Company's Common Stock
at March 30, 1999 less the exercise price of the options.
<PAGE>
The table below indicates grants of Nonqualified Stock Options under the
Incentive Plan which the Compensation Committee proposes to approve on the date
of the Annual Meeting of Stockholders if the stockholders approve the increase
in number of authorized shares under the Incentive Plan and the other amendments
to the Plan, all of which options would be exercisable at the fair market value
of a share of Common Stock on the date of stockholder approval and would vest
ratably over a four-year period.
New Incentive Plan Benefits
Name Position Shares (#)
- ---- -------- ----------
Bernard J. Wein Chairman of the Board 50,000
and Chief Executive Officer,
Director
Stanley H. Grossman Executive Vice President- 20,000
Merchandising, Director
David C. Forell Executive Vice President 20,000
and Chief Financial Officer,
Secretary and Director
E. Glenn Irelan Executive Vice President- 10,000
Stores, Real Estate, Marketing
All Current Executives Group (4 persons)(1)(2) 100,000
Non-Executive Directors Group (4 persons)(3) 10,000
Non-Executive Officer Employees Group (31 persons) 62,000
- --------------------
(1) All employees as a group will be granted 162,000 options.
(2) The dollar value of such options is indeterminate because the exercise
price will not be determined unless and until the stockholders ratify the
increase in the number of shares available under the Incentive Plan.
(3) Non-Executive Directors as a group will receive an automatic grant of 2,500
options on the date of the Annual meeting of Stockholders.
The following summary of the Incentive Plan describes the Incentive Plan
before giving effect to the amendments thereto recommended by the Board of
Directors on March 24, 1999, and is qualified in its entirety by the full text
of the Incentive Plan and the amendments, copies of which may be obtained by
stockholders of the Company upon request directed to the Secretary of the
Company at 3742 Lamar Avenue, Memphis, Tennessee 38118.
The Incentive Plan is administered by the Compensation Committee (other
than Mr. Lindy) (the "Committee"). Key employees and directors of the Company
who are in positions in which their decisions, actions and counsel can make
substantial contributions to the Company's profitability and success are
eligible to participate in the Incentive Plan.
Stock options may be granted under the Incentive Plan at the discretion of
the Committee. No cash consideration will be received by the Company for the
granting of any option. Stock options may be options which are intended to
qualify as incentive stock options ("Incentive Stock Options") within the
meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), or options which are not intended to so qualify ("Nonqualified Stock
Options"). The Committee has the discretion to fix the exercise price of the
options; however, the exercise price for Incentive Stock Options cannot be less
than 100% of the fair market value as of the date of grant. The option exercise
price may be satisfied in cash or by exchanging shares of Common Stock owned by
the optionee, or a combination of cash and shares. The Company may facilitate
the cashless exercise of options through customary brokerage arrangements. If
<PAGE>
the exercise price is paid by tendering shares, the Committee in its discretion
may grant the optionee a new stock option for the number of shares used to pay
the exercise price. The Committee has broad discretion as to the terms and
conditions upon which options granted shall be exercised. Options have a maximum
term of ten years from date of grant. Options granted to date have a ten-year
term and become exercisable on a cumulative basis in annual installments over a
four-year period.
Stock appreciation rights ("SARs") are rights to receive cash or shares, or
a combination thereof, as the Committee may determine, in an amount equal to the
excess of the fair market value of the shares with respect to which the SAR is
exercised, over a specified price which must not be less than 100% of the fair
market value of the shares at the time the SAR is granted, or, if the SAR is
granted in connection with a previously issued stock option, not less than 100%
of the fair market value of shares at the time such option is granted. SARs may
be granted in connection with a previously or contemporaneously granted stock
option or independently. No cash consideration will be received by the Company
for the granting of any SAR. If a SAR is granted in relation to a stock option,
(i) the SAR will be exercisable only at such times and by such persons as the
related option is exercisable, and (ii) the grantee's right to exercise either
the related option or the SAR will be canceled to the extent that the other is
exercised. No SAR may be exercised earlier than six months or later than ten
years after the date of grant. The Committee may provide in the SAR agreement
circumstances under which SARs will become immediately exercisable and may,
notwithstanding the foregoing restriction on time of exercise, accelerate the
exercisability of any SAR at any time.
Awards of restricted shares under the Incentive Plan may be made at the
discretion of the Committee and consist of shares of stock granted to a
participant and subject to a stock restriction agreement. At the time of an
award, a participant has the benefits of ownership in respect of such shares,
including the right to vote such shares and receive dividends thereon and other
distributions subject to the restrictions set forth in the Incentive Plan and in
the stock restriction agreement. The share certificates bear a restrictive
legend and the shares may not be sold, transferred or disposed of until such
restrictions have elapsed. Upon the expiration, lapse or removal of
restrictions, share certificates free of a restrictive legend will be issued to
the grantee. The Committee has broad discretion as to the specific terms and
conditions of each award, including applicable rights upon certain terminations
of employment.
Performance unit awards entitle grantees to future payments based upon the
achievement of pre-established long-term performance objectives. A performance
unit agreement will establish with respect to each unit award (i) a performance
period of not fewer than two years, (ii) a value for each unit which will not
thereafter change, or which may vary thereafter pursuant to criteria specified
by the Committee and (iii) maximum and minimum performance targets to be
achieved during the applicable performance period. Under each agreement, the
grantee will be entitled to full value of a unit award for achievement of
maximum targets and a portion of a unit award for performance exceeding minimum
targets but less than maximum targets. The Committee has discretion to determine
the participants to whom performance unit awards are to be made, the times in
<PAGE>
which such awards are to be made, the size of such awards and all other
conditions and awards, including any restrictions, deferral periods or
performance requirements.
The Committee has the discretion to provide financing to a participant in a
principal amount sufficient for the purchase of shares pursuant to an award. The
participant, prior to the issuance or transfer of Shares under the Incentive
Plan, shall satisfy any tax withholding obligations, in whole or in part, and
may elect to have the Company withhold shares for the value equal to the amount
of taxes required by law to be withheld.
If a Change in Control of the Company, as defined in the Incentive Plan,
occurs, any SAR outstanding for at least six months and any stock options
awarded and not previously exercisable and vested will become fully exercisable
and vested and all restrictions applicable to any restricted stock, performance
units or other stock-based awards will lapse.
In the event of any change in the outstanding common stock of the Company
by reason of a stock dividend or distribution, recapitalization, merger,
consolidation, reorganization, split-up, combination, exchange of shares or the
like, the Board of Directors, in its discretion, may adjust proportionately the
number of shares which may be issued under the Incentive Plan, the number of
shares subject to outstanding awards, and the option exercise price of each
outstanding option. The Board of Directors may also make other such changes in
outstanding options, SARs, performance units and restricted stock awards as it
deems equitable in its absolute discretion to prevent dilution or enlargement of
the rights of grantees, provided that any fractional shares resulting from such
adjustments will be eliminated.
The Board of Directors may terminate, amend, modify or suspend the
Incentive Plan at any time, except that the Board of Directors may not, without
the authorization of the holders of a majority of the Company's outstanding
shares, increase the maximum number of shares which may be issued under the
Incentive Plan (other than adjustments pursuant to the Incentive Plan), extend
the last date on which awards may be granted under the Incentive Plan, extend
the date on which the Incentive Plan expires, change the class of persons
eligible to receive awards, or change the minimum option price.
The Incentive Plan provides that each non-employee director will receive a
Nonqualified Stock Option for 2,500 shares after each annual shareholders'
meeting, which option becomes exercisable twenty-five percent (25%) per year
beginning one year after the date of grant.
Federal Income Tax Consequences
(1) Options: No income will be realized by an optionee upon the optionee's
purchase of shares pursuant to the exercise of an Incentive Stock Option after
the date of grant. Assuming compliance with this and other applicable tax
provisions, an optionee will recognize long-term capital gain or loss when the
optionee disposes of the shares, measured by the difference between the option
price and the amount realized for the shares at the time of disposition. If the
optionee disposes of shares purchased upon the exercise of the option before the
expiration of the above-noted periods, any amount realized from such
disqualifying disposition will be taxable as ordinary income in the year of
<PAGE>
disposition to the extent of the lesser of the amount realized by the optionee
in excess of the option price, or the spread between the option price and the
fair market value of the shares at the time the option is exercised. Any amount
realized in excess of the fair market value of the shares on the date of
exercise will be treated as long- or short-term capital gain, depending upon the
holding period of the shares. No deduction will be allowed to the Company for
federal income tax purposes at the time of the grant or exercise of an Incentive
Stock Option. At the time of a disqualifying disposition by an optionee, the
Company will be entitled to a deduction for the amount taxable to the optionee
as ordinary income.
The exercise of a Nonqualified Stock Option will result in the recognition
of ordinary income by the optionee for federal income tax purposes in an amount
equal to the difference between the option price and the fair market value of
the shares acquired upon the exercise of the option. The Company will be
entitled to a deduction equal to the amount of income recognized by the
optionee. Upon the later sale of any shares acquired upon the exercise of a
Nonqualified Stock Option, any amount realized by the optionee in excess of the
amount recognized by the optionee as ordinary income will be treated as long- or
short-term capital gain to the optionee, depending upon the holding period of
the shares.
(2) SARs: A grantee of a SAR will realize ordinary income upon the exercise
of a SAR equaling the amount of cash received or the current fair market value
of stock acquired, and the Company will receive a corresponding deduction. Upon
subsequent disposition of any shares received, any gain or loss will be a long-
or short-term capital gain or loss depending upon the applicable holding period.
(3) Restricted Stock: The federal income tax consequences of restricted
stock awards will depend on the facts and circumstances of each restricted stock
award, and in particular, the nature of the restrictions imposed with respect to
the stock which is the subject of the award. In general, if the stock is subject
to a "substantial risk of forfeiture", i.e., if rights to full enjoyment of the
benefit of ownership of the stock are conditioned upon the future performance of
substantial services by the grantee, a taxable event occurs only when the risk
of forfeiture ceases. At such time, the grantee will realize ordinary income to
the extent of the excess of the fair market value of the stock on the date the
risk ceases over the grantee's cost for such stock, and the Company will be
entitled to a deduction in the same amount. Under certain circumstances, the
grantee can accelerate the taxable event with respect to the stock, in which
event, the ordinary income amount and the Company's deduction will be measured
as of the date the stock is deemed to have been transferred to the grantee. If
the restrictions with respect to stock which is the subject of a restricted
stock award do not subject the grantee to a "substantial risk of forfeiture" of
the stock, then the grantee will realize ordinary income with respect to the
stock to the extent of the difference at the time of the transfer of the stock
to the grantee between the fair market value of the stock and the grantee's cost
therefor, and the Company will be entitled to a deduction in the same amount.
Subsequent to the determination and satisfaction of the ordinary income tax
consequences, any further gain or loss realized on the subsequent disposition of
such stock will be a long- or short-term capital gain depending upon the
applicable holding period.
<PAGE>
(4) Performance Unit Awards: A grantee of a performance unit award will
realize ordinary income upon receipt equaling the amount of cash or the current
market value of the stock received, and the Company will receive a corresponding
deduction. Upon subsequent disposition of any shares received, any gain or loss
will be a long- or short-term gain or loss depending upon the applicable holding
period.
The foregoing description of tax consequences is based on present federal
income tax laws and is subject to change as the law changes. The summary does
not cover any State or local tax consequences of participation in the Incentive
Plan.
The affirmative vote of a majority of the votes cast by the holders of the
Company's Common Stock is required for adoption of Proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2 TO INCREASE THE NUMBER
OF AUTHORIZED SHARES UNDER THE INCENTIVE PLAN; TO AMEND THE PLAN TO LIMIT
DISCRETION THEREUNDER, AND TO RATIFY ALL GRANTS OF OPTIONS UNDER THIS PLAN TO
DATE.
PROPOSAL 3. RATIFICATION OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
Subject to ratification by the stockholders at the Annual Meeting, the
Board of Directors has appointed Arthur Andersen LLP to serve as the independent
public accountants for the Company for its current fiscal year ending January
29, 2000. Representatives of Arthur Andersen LLP are expected to be present at
the Annual Meeting, will have the opportunity to make a statement, if they
desire to do so, and will be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast by the holders of the
Company's Common Stock on this proposal shall constitute ratification of the
appointment of Arthur Andersen LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE CURRENT FISCAL
YEAR.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
matters which will be presented for consideration at the Annual Meeting other
than the proposals set forth in this Proxy Statement. If any other matters
properly come before the Annual Meeting, it is intended that the persons named
in the proxy will act in respect thereof in accordance with their best judgment.
<PAGE>
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 2000 Annual Meeting
of Stockholders must be received by the Company no later than December 27, 1999
and the proposals must meet certain eligibility requirements of the Securities
and Exchange Commission. Proposals may be mailed to Catherines Stores
Corporation, the attention of the Secretary, 3742 Lamar Avenue, Memphis,
Tennessee 38118. In addition, the Company's Bylaws establish an advance notice
procedure with regard to shareholder proposals not included in the Company's
proxy statement which a shareholder wishes to be brought before an annual
meeting of stockholders. Notice of such a proposal must be received by the
Secretary of the Company by April 3, 2000, but not before March 4, 2000;
provided, however, if later, notice may be received by the Secretary of the
Company not later than the seventh day following the first public announcement
of the date of the meeting.
SOLICITATION OF PROXIES AND COST THEREOF
The cost of solicitation of the proxies will be borne by the Company. In
addition to solicitation of the proxies by use of the mails, employees of the
Company, without extra remuneration, may solicit proxies personally or by
telephone or other written or electronic media. The Company will reimburse
brokerage firms, nominees, custodians and fiduciaries for their out-of-pocket
expenses for forwarding proxy materials to beneficial owners and seeking
instruction with respect thereto.
STOCKHOLDERS MAY OBTAIN A COPY OF THE COMPANY'S FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WITHOUT CHARGE (EXCEPT FOR EXHIBITS) BY
WRITING TO: SECRETARY, CATHERINES STORES CORPORATION, 3742 LAMAR AVENUE,
MEMPHIS, TENNESSEE 38118.
FINANCIAL STATEMENTS MEETING THE REQUIREMENTS OF REGULATION S-X ARE INCORPORATED
BY REFERENCE AND CAN BE FOUND IN THE ANNUAL REPORT ACCOMPANYING THIS PROXY
STATEMENT AND IN THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K.
By Order of the Board of Directors
David C. Forell
Secretary
April 23, 1999
<PAGE>
CATHERINES STORES CORPORATION
3742 LAMAR AVENUE
MEMPHIS, TENNESSEE 38118
This proxy is solicited on behalf of the Board of Directors. The undersigned
hereby appoints Stanley H. Grossman and E. Glenn Irelan as Proxies, each with
the power to appoint his substitute, and hereby authorizes them to represent and
vote as designated on the reverse side, all the shares of Common Stock of
Catherines Stores Corporation, held of record by the undersigned on April 8,
1999 at the annual meeting of the shareholders to be held on June 2, 1999 or any
adjournment thereof.
(Continued on reverse side)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
This proxy, when properly executed will be voted in the manner directed herein
by undersigned stockholder. IF NO ELECTION IS MADE, THE PROXY WILL BE VOTED FOR
PROPOSALS 1, 2 AND 3. All proposals have been made by the Company.
1. FOR all nominees listed below WITHHOLD ALL AUTHORITY
(except as marked to the contrary below) to vote for all nominees
listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike through the nominee's name below).
David C. Forell Allen B. Morgan, Jr. Elliot J. Stone
2. PROPOSAL TO INCREASE THE NUMBER OF SHARES UNDER THE 1994 OMNIBUS
INCENTIVE PLAN, TO LIMIT DISCRETION THEREUNDER AND TO RATIFY THE GRANT
OF OPTIONS THEREUNDER.
FOR AGAINST ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP as the
independent public accountants of the corporation.
FOR AGAINST ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please indicate by checkmark if you will attend the meeting in person ___
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign full corporate name by President or other authorized officer. If a
<PAGE>
partnership, please sign in partnership name by authorized person.
Dated , 1999
-------
- ----------------------------------------
Signature
- ---------------------------------------------
Signature if held jointly
<PAGE>
