<PAGE> 1
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:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
FILENE'S BASEMENT CORP.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ 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
FILENE'S BASEMENT CORP.
40 WALNUT STREET
WELLESLEY, MASSACHUSETTS 02181
May 20, 1998
Dear Stockholder:
We cordially invite you to attend our 1998 Annual Meeting of Stockholders,
which will be held at 2:00 p.m. on Thursday, June 25, 1998 at BankBoston, N.A.,
100 Federal Street, Boston, Massachusetts.
We hope that you will join us on June 25, but we know that every
stockholder will not be able to do so. Whether or not you plan to attend, please
return your signed proxy as soon as possible.
Sincerely,
/s/ Samuel J. Gerson
------------------------------------------------------
SAMUEL J. GERSON
Chairman and
Chief Executive Officer
/s/ W. Jay Carothers
------------------------------------------------------
W. JAY CAROTHERS
President and
Chief Operating Officer
<PAGE> 3
FILENE'S BASEMENT CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1998
Notice is hereby given that the Annual Meeting of Stockholders of Filene's
Basement Corp. will be held at BankBoston, N.A., 100 Federal Street, Boston,
Massachusetts, on Thursday, June 25, 1998 at 2:00 p.m. for the following
purposes:
1. To elect three Class I directors to serve until the year 2001
Annual Meeting of Stockholders.
2. To transact such other business as may properly come before the
meeting and any and all adjourned sessions thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
Only stockholders of record at the close of business on May 6, 1998 are
entitled to notice of and to vote at the Annual Meeting and any and all
adjourned sessions thereof.
A copy of the Company's Annual Report to Stockholders for the year ended
January 31, 1998, which contains consolidated financial statements and other
information of interest to stockholders, accompanies this Notice and the
enclosed Proxy Statement.
By order of the Board of Directors,
/s/ Steven R. Siegel
STEVEN R. SIEGEL, Clerk
Wellesley, Massachusetts
May 20, 1998
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING. PLEASE SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED
IN THE UNITED STATES.
<PAGE> 4
FILENE'S BASEMENT CORP.
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1998
------------------------
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of
Filene's Basement Corp. (the "Company") for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at BankBoston, N.A., 100 Federal
Street, Boston, Massachusetts, on June 25, 1998 at 2:00 p.m. and at any and all
adjourned sessions thereof. This Proxy Statement and the enclosed proxy are
first being mailed to stockholders on or about May 20, 1998. A proxy may be
revoked by a stockholder, at any time before it is voted, (i) by returning to
the Company another properly signed proxy representing such shares and bearing a
later date, (ii) by otherwise delivering a written revocation to the Clerk of
the Company, or (iii) by attending the Annual Meeting or any adjourned session
thereof and voting the shares covered by the proxy in person. Shares represented
by the enclosed proxy properly executed and returned, and not revoked, will be
voted at the Annual Meeting.
The expense of soliciting proxies will be borne by the Company. Officers
and regular employees of the Company may solicit proxies but receive no
compensation for solicitation in addition to their regular salaries. In addition
to the solicitation of proxies by use of the mails, the Company may use the
services of its officers and regular employees to solicit proxies personally and
by mail, telephone and telegram from brokerage houses and other stockholders.
The Company will reimburse brokers and other persons for their reasonable costs
and expenses in forwarding soliciting materials to their principals.
In the absence of contrary instructions, the persons named as proxies will
vote in accordance with the intentions stated below. The holders of record of
shares of the Company's Common Stock, par value $.01 per share (the "Common
Stock"), as of the close of business on May 6, 1998 are entitled to receive
notice of and to vote at the Annual Meeting. As of May 6, 1998, the Company had
issued and outstanding 20,894,114 shares of Common Stock. Each such share of
Common Stock is entitled to one vote on each matter to come before the Annual
Meeting.
Consistent with the laws of the Commonwealth of Massachusetts and under the
Company's By-laws, a majority of the shares entitled to be cast on a particular
matter, present in person or represented by proxy, constitutes a quorum as to
such matter. Votes cast by proxy or in person at the Annual Meeting will be
counted by persons appointed by the Company to act as election inspectors for
the meeting. The affirmative vote of the holders of a plurality of the votes
cast by the stockholders entitled to vote at the Annual Meeting is required for
the election of directors. The election inspectors will count shares represented
by proxies that withhold authority to vote for a nominee for election as a
director or that reflect abstentions or "broker non-votes" (i.e., shares
represented at the meeting held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) only as shares that are present and
entitled to vote on the matter for purposes of determining the presence of a
quorum, but neither abstentions nor broker non-votes have any effect on the
outcome of voting on the election of directors.
THE ANNUAL REPORT OF THE COMPANY, INCLUDING CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED JANUARY 31, 1998, IS BEING MAILED TO THE COMPANY'S
STOCKHOLDERS WITH THIS PROXY STATEMENT. THE COMPANY WILL, UPON WRITTEN REQUEST
OF ANY STOCKHOLDER, FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED JANUARY 31, 1998, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"), WITHOUT EXHIBITS. EXHIBITS WILL BE PROVIDED
UPON WRITTEN REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING FEE. PLEASE
ADDRESS ALL SUCH REQUESTS TO THE COMPANY, ATTENTION: INVESTOR RELATIONS, 40
WALNUT STREET, WELLESLEY, MASSACHUSETTS 02181.
<PAGE> 5
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Board of Directors has fixed the number of directors at eight. The
Company's Restated Articles of Organization and By-laws provide for the
classification of the Board of Directors into three classes with the term of
office of one class expiring each year. Unless otherwise instructed, the
enclosed proxy will be voted to elect the nominees named below as Class I
directors for a term of three years expiring at the 2001 Annual Meeting of
Stockholders or until their respective successors are duly elected and
qualified. If any nominee should become unavailable, such proxy will be voted
for a substitute nominee designated by management, unless instructions are given
to the contrary, or the directors will fix the number of directors at seven (or
less if more than one nominee becomes unavailable). Management does not
anticipate that any nominee will become unavailable. The nominees as Class I
directors, and the incumbent Class II and Class III directors, are as follows:
NOMINEES AS CLASS I DIRECTORS
TERMS EXPIRE 2001
SAMUEL J. GERSON, 56
Chairman, Chief Executive Officer and Director
Samuel J. Gerson became Chairman, Chief Executive Officer and a director of
the Company in 1988, having served as Chairman and Chief Executive Officer of
the Filene's Basement division of Federated Department Stores, Inc. from January
1984 until the acquisition of that division by the Company in 1988. Mr. Gerson
is a director of ASAHI America, Inc. and Bon Ton Stores, Inc., as well as a
trustee associate of Boston College.
ROBERT P. HENDERSON, 67
Director
Robert P. Henderson is a general partner of Greylock Capital Limited
Partnership and a managing partner of Greylock Limited Partnership, both venture
capital partnerships. He has been associated with Greylock since 1983. Mr.
Henderson has been a director of the Company since 1988. He is also a director
of Allmerica Financial Corporation and Cabot Corporation.
PAUL D. PAGANUCCI, 67
Director
Paul D. Paganucci has been the Chairman of the Board of Ledyard National
Bank in Hanover, New Hampshire since 1991. From 1986 to 1991, he held a number
of managerial positions at W.R. Grace & Co., including Executive Vice President,
Vice Chairman and, later, Chairman of the Executive Committee and a Director.
Mr. Paganucci became a director of the Company in 1992, and is also a director
of Allmerica Securities Trust and IGI, Inc., and a trustee of Urstadt Biddle
Properties (formerly HRE properties).
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE FOR THE ELECTION OF THE THREE NOMINEES NAMED ABOVE AS CLASS I
DIRECTORS OF THE COMPANY.
CLASS II DIRECTORS
TERMS EXPIRE 1999
MONE ANATHAN, III, 59
Vice Chairman, Chairman of the Executive Committee and Director
Mone Anathan, III became Vice Chairman of the Board of Directors and
Chairman of the Executive Committee in June 1997, after previously serving as
Chief Operating Officer, President and a director of the Company since 1988.
Previously, Mr. Anathan served as President of the Filene's Basement division of
Federated Department Stores, Inc. from February 1984 until the acquisition of
that division by the Company in 1988. Mr. Anathan is a director of Brookstone
Company, Inc., Harvard Pilgrim Health Care and Beth Israel Hospital.
2
<PAGE> 6
HAROLD LEPPO, 61
Director
Harold Leppo has been the Chief Executive Officer of Harold Leppo and
Company, a retail consulting firm in Stamford, Connecticut, since 1988. Prior to
that, he held a number of managerial positions at Lord & Taylor and Allied
Stores, Inc., including President and Chief Operating Officer of Lord & Taylor
in 1987 and Executive Vice President of Allied Stores in 1988. Mr. Leppo became
a director of the Company in 1992, and is also a director of Salant, Inc.
CLASS III DIRECTORS
TERMS EXPIRE 2000
W. JAY CAROTHERS, 46
President, Chief Operating Officer and Director
W. Jay Carothers became Chief Operating Officer, President and a director
of the Company in June, 1997. From 1994 until he joined the Company in 1997, Mr.
Carothers had served as President of Federated Merchandising Group. From 1992 to
1994, he was Vice Chairman of Macy's Corporate Product Development and World
Wide Sourcing. Prior to that he served as Vice President, Operations of the Izod
LaCoste Gant Eagle Division of Crystal Brands and as a director and Chief
Financial Officer -- International, of Mast Industries -- Far East Division. Mr.
Carothers is a member of the International Advisory Board of Auburn University
and is a director of the Metropolitan New York USO.
JOHN EYLER, 50
Director
John Eyler became a director of Filene's Basement Corp. in 1994. Mr. Eyler
has been Chairman and Chief Executive Officer of FAO Schwarz since June 1992.
From 1989 to 1992, he served as Chief Executive Officer of the retail subsidiary
of Chicago-based Hartmarx. From 1983 to 1989, he was the Chairman/CEO of
MainStreet, a division of Federated Department Stores, Inc.
DORSEY R. GARDNER, 55
Director
Dorsey R. Gardner became a director of Filene's Basement Corp. in 1996. Mr.
Gardner has been President of Kelso Management, a Boston-based investment
management firm, since 1980. Mr. Gardner is also a director of Crane Company,
Medusa Corporation and Medicus Systems Corp.
3
<PAGE> 7
BENEFICIAL OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, as of February 28, 1998, certain
information with respect to the beneficial ownership of shares of Common Stock
owned by (i) persons or groups which are known to be the beneficial owners of
more than 5% of the Company's Common Stock, (ii) each executive officer named in
the Summary Compensation Table below, (iii) each director and director nominee
of the Company and (iv) all executive officers and directors of the Company as a
group. Except as noted below, each of the persons listed has sole investment and
voting power with respect to the shares indicated and the address of each of the
persons listed is c/o the Company, 40 Walnut Street, Wellesley, Massachusetts
02181.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
--------------------------
NUMBER OF PERCENTAGE
SHARES(1) OUTSTANDING(2)
--------- --------------
<S> <C> <C>
FMR Corp.(3)................................................ 1,927,310 9.2%
82 Devonshire Street, Boston, MA 02109
Dimensional Fund Advisors Inc.(4)........................... 1,301,200 6.2%
1299 Ocean Avenue, 11th Floor,
Santa Monica, CA 90401
Heartland Advisors, Inc. (5)................................ 1,233,900 5.9%
790 North Milwaukee Street,
Milwaukee, WI 53202
Merrill Lynch Asset Management L.P.(6)...................... 1,160,000 5.6%
800 Scudders Mill Road,
Plainsboro, NJ 08536
Samuel J. Gerson(7)......................................... 1,213,896 5.6%
Mone Anathan, III(8)........................................ 941,360 4.4%
W. Jay Carothers............................................ 5,000 **
John Eyler(9)............................................... 12,500 **
Dorsey R. Gardner(10)....................................... 3,500 **
Robert P. Henderson(11)..................................... 127,732 **
Harold Leppo(12)............................................ 14,500 **
Paul D. Paganucci(13)....................................... 12,984 **
Steven R. Siegel(14)........................................ 34,230 **
All executive officers and directors as a group (9
persons)(15).............................................. 2,365,702 10.7%
</TABLE>
- ---------------
** Less than one percent.
(1) Beneficial ownership is determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934. Accordingly, a beneficial owner of a
security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or
shares the power to vote such security or the power to dispose of such
security. The amounts set forth above as beneficially owned include shares
owned, if any, by spouses and relatives living in the same home, as to
which beneficial ownership may be disclaimed. The amounts set forth as
beneficially owned also include shares of Common Stock which such persons
had the right to acquire within 60 days of February 28, 1998, pursuant to
stock options previously granted.
(2) Percentages are calculated on the basis of 20,894,114 shares of Common
Stock outstanding as of February 28, 1998, plus any shares of Common Stock
subject to stock options held by the individual that were exercisable
within 60 days of February 28, 1998.
(3) The information in the table and in this footnote is based solely upon
information contained in a Schedule 13G/A, dated February 14, 1998 filed by
FMR Corp. as a parent holding company. Fidelity Management & Research
Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp. and an
4
<PAGE> 8
investment adviser under the Investment Company Act of 1940 (the "1940
Act"), is the beneficial owner of 1,927,310 shares of the Company's Common
Stock as a result of acting as investment adviser to Fidelity Value Fund
(the "Fund"), an investment company registered under the 1940 Act, Edward
C. Johnson 3d, Chairman of FMR Corp., FMR Corp., through its control of
Fidelity, and the Fund each has sole power to dispose of the 1,927,310
shares owned by the Fund. Neither FMR Corp. nor Mr. Johnson has the sole
power to vote or direct the voting of the shares owned directly by the
Fund, which power resides with the Fund's Board of Trustees. Fidelity
carries out the voting of the shares under written guidelines established
by the Fund's Board of Trustees. Mr. Johnson and members of his family and
trusts for their benefit form a controlling group with respect to FMR Corp.
(4) The information contained in the table and in this footnote is based solely
upon information contained in a Schedule 13G dated February 6, 1998 filed
by Dimensional Fund Advisors Inc. ("Dimensional"). Dimensional, a
registered investment adviser, is deemed to have beneficial ownership of
1,301,200 shares of the Company's Common Stock, all of which shares are
held in portfolios of DFA Investment Dimensions Groups Inc., a registered
open-end investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, to all of which Dimensional serves as investment manager.
Dimensional has sole voting power with respect to 858,650 shares and sole
dispositive power with respect to 1,301,200 shares. Dimensional disclaims
beneficial ownership of all such shares.
(5) The information contained in the table and in this footnote is based solely
upon information contained in a Schedule 13G dated January 23, 1998 filed
by Heartland Advisors, Inc. ("Heartland"). Heartland, an investment adviser
registered under the 1940 Act, is deemed to have beneficial ownership of
1,233,900 shares of the Company's Common Stock. Heartland has sole
dispositive and voting power with respect to 1,233,900 shares of Common
Stock.
(6) The information contained in the table and in this footnote is based solely
upon information contained in a Schedule 13G/A, dated January 29, 1998,
filed by Princeton Services, Inc. ("PSI"), Merrill Lynch Asset Management
L.P. d/b/a Merrill Lynch Asset Management ("MLAM") and Merrill Lynch Global
Allocation Fund, Inc. ("MLGAF"). PSI is the parent holding company of MLAM,
an investment adviser registered under the 1940 Act. MLAM acts as
investment adviser to investment companies, including MLGAF, and private
accounts. PSI and MLAM have shared voting and dispositive power over
1,160,000 shares. PSI disclaims beneficial ownership of all such shares.
MLGAF has shared voting and dispositive power over 1,110,000 shares.
(7) Includes 618,100 shares issuable upon the exercise of stock options.
(8) Includes 618,100 shares issuable upon the exercise of stock options.
(9) Includes 7,500 shares issuable upon the exercise of stock options.
(10) Consists of 3,500 shares issuable upon the exercise of stock options.
(11) Includes 13,500 shares issuable upon the exercise of stock options.
(12) Includes 13,500 shares issuable upon the exercise of stock options.
(13) Includes 11,000 shares issuable upon the exercise of stock options.
(14) Includes 28,750 shares issuable upon the exercise of stock options.
(15) Includes 1,313,950 shares issuable upon the exercise of stock options .
BOARD OF DIRECTORS, DIRECTOR COMPENSATION, AND COMMITTEES
During the Company's fiscal year ended January 31, 1998, the Board of
Directors of the Company held five meetings. Each director attended at least 75%
of the meetings of the Board and the Committees of which he is a member. Each
director who was not a full-time employee of the Company received an annual
retainer of $15,000 for his services as a director.
5
<PAGE> 9
Pursuant to the Company's 1993 Stock Option Plan for Non-Employee Directors
(the "Director Option Plan"), each of the directors who is not an employee of
the Company and who served on the Board (an "Eligible Director") on June 30,
1993 received an option to purchase 12,500 shares of Common Stock at a per share
option price of $8.13, and each individual who thereafter becomes an Eligible
Director for the first time will be granted, on the date of his or her initial
appointment or election as a director, an option to acquire 12,500 shares of
Common Stock. Each Eligible Director who receives an initial grant as described
above will be granted, on the date of the annual meeting that follows by five
years the date of his or her initial grant, an option to acquire an additional
12,500 shares of Common Stock, provided the director is continuing in office and
the date of such later annual meeting occurs prior to April 6, 2003.
The exercise price of all options granted to non-employee directors under
the Director Option Plan is the fair market value of the Common Stock on the
date of the grant. The Company receives no consideration for the grants
themselves. The exercise price may be paid in cash, by tendering shares of
Common Stock, by delivering an undertaking by a broker to deliver promptly
sufficient funds to pay the exercise price or by any combination of the
foregoing. Each option will expire 10 years after the date of grant and will
become exercisable on a cumulative basis as to one fifth of the shares covered
by the option on each of the first, second, third, fourth and fifth
anniversaries of the date of grant. A total of 250,000 shares of Common Stock
has been reserved for issuance under the Director Option Plan, subject to
adjustment for stock splits and similar events. In addition to stock option
grants made under the Director Option Plan, each non-employee director serving
on the Board on December 6, 1996 was granted an option to purchase 5,000 shares
of Common Stock at a price of $4.81 per share.
The Audit Committee, which held two meetings during fiscal 1997, reviews
with management and the independent public accountants the Company's financial
statements, the accounting principles applied in their preparation, the scope of
the audit, any comments made by the independent public accountants upon the
financial condition of the Company and its accounting controls and procedures,
and such other matters as the Committee deems appropriate. In addition, the
Committee reviews with management such matters relating to compliance with
corporate policies as the Committee deems appropriate. Messrs. Eyler, Leppo and
Gardner served on the Audit Committee during fiscal 1997.
The Compensation Committee, which held two meetings during fiscal 1997,
reviews the operation of the Company's 1988 Stock Option Plan, 1990 Equity
Incentive Plan and 1990 Employee Stock Purchase Plan, retirement benefit
programs, and related programs of the Company, and reviews the cash compensation
and employment arrangements of the Company's executive officers. Messrs.
Henderson, Paganucci and Leppo served on the Compensation Committee during
fiscal 1997.
The Company does not have a Nominating Committee.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") has furnished the following report on executive compensation.
OVERVIEW
In fiscal 1997, the Compensation Committee consisted of Messrs. Henderson,
Paganucci and Leppo, all of whom are outside directors of the Company. The
Compensation Committee is generally responsible for developing the Company's
executive compensation policies, including awards of equity-based compensation.
The Compensation Committee also determines the extent to which the
performance-based criteria for salary increases, annual bonuses and long-term
incentives have been achieved, except that salary increases and bonus
compensation of executives other than Messrs. Gerson, Anathan and Carothers are
generally determined by Messrs. Gerson and Carothers and then reviewed with the
Compensation Committee.
6
<PAGE> 10
The Company's executive compensation program has been designed to
accomplish two principal goals. The first goal is to provide direct and
quantifiable links between executives' compensation and the performance of the
Company, thereby aligning the interests of the Company's executives with those
of its stockholders. The second goal is to provide a competitive compensation
package that will enable the Company to attract and retain the executives needed
to achieve desired performance. Because of the critical importance of the second
goal, the Compensation Committee (and Messrs. Gerson and Carothers, in the case
of compensation determined by them) retain the ultimate discretion to award any
element of compensation, even if specified criteria for such compensation are
not met. Where applicable, the Compensation Committee also takes into account
employment agreements between an executive officer and the Company. (See
"Employment Agreements" below.) The Compensation Committee expects to review the
executive compensation program from time to time and to make changes where
appropriate.
Section 162(m) of the Internal Revenue Code limits the tax deductibility of
compensation paid to certain executive officers to $1 million annually, unless
certain requirements are met. The Compensation Committee's policy is to consider
the net cost to the Company when making all compensation decisions; accordingly,
the deductibility of executive compensation for tax purposes is a significant,
but not controlling, consideration when structuring executive compensation. To
the extent desirable and feasible under the circumstances, executive
compensation will be structured to be deductible; other considerations, however,
including the need to attract and retain highly qualified executives and
competitive compensation practices, may make the payment of non-deductible
compensation appropriate.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's compensation program for executive officers named in the
Summary Compensation Table (in this report, the "Executives") consists primarily
of annual cash compensation (including increases to base salary and an annual
cash bonus) and equity incentives. The Compensation Committee and Messrs.
Gerson, Carothers and Siegel periodically review proxy statement compensation
disclosures in addition to proprietary and other publicly available compensation
data of other companies in order to ensure the Company's compensation program
remains effective in achieving the goals outlined above. (See "Overview" above.)
Base Salary. The minimum levels of base salaries for the Executives were
established in employment agreements entered into in 1992, in the case of
Messrs. Gerson and Anathan, in 1994, in the case of Mr. Siegel, and in 1997, in
the case of Mr. Carothers, and are subject to upward adjustment by the Company.
(See "Employment Agreements" below.)
Increases in Base Salary. The amount of any annual increase in an
Executive's base salary depends primarily on the extent of the achievement of
pre-determined, quantifiable objectives during the preceding fiscal year. A
secondary consideration for salary increases is to insure that the Company
provides competitive compensation packages in order to retain the quality of
executives needed. Any salary increases will be prospective only. At the
beginning of each fiscal year, these objectives, together with a pre-determined
matrix of salary increases payable at various levels of performance, are
determined by the Compensation Committee for each of Messrs. Gerson, Anathan,
and Carothers. Messrs. Gerson and Carothers determine the objectives and the
matrix for the balance of the organization. Generally, such objectives include
goals related to sales (including, in the case of some Executives, both total
sales and improvement in comparable store sales), profitability and success in
implementation of changes in the Company's business strategy. For fiscal 1997,
these objectives and their relative weights for Mr. Siegel varied based on the
judgment of Messrs. Gerson and Carothers as to the ability of Mr. Siegel, given
his position, to influence attainment of the particular objectives. For fiscal
1997, the Compensation Committee established the following predetermined
objectives and their relative weights for Messrs. Gerson, Anathan, and
Carothers: 30% for total sales, 40% for earnings per share and 30% for strategic
repositioning. Based upon the predetermined objectives and applicable matrices
for fiscal 1996, Messrs. Gerson, Anathan and Siegel received increases in their
base salaries for fiscal 1997. Based upon the predetermined objectives and
applicable matrices for fiscal 1997, Mr. Siegel received an increase in his base
salary for fiscal 1998.
7
<PAGE> 11
Annual Bonus. The amount of annual bonuses for Executives reflects the
extent of achievement, during the fiscal year to which the bonus relates, of
predetermined, quantifiable objectives. At the beginning of each fiscal year,
these objectives are determined, together with a matrix of bonus levels payable
at various levels of performance, by the Compensation Committee for each of
Messrs. Gerson, Anathan and Carothers. Messrs. Gerson and Carothers determine
the objectives for Mr. Siegel. The objectives initially established for
determination of bonuses for fiscal 1997 were generally similar in type to, and
developed for each Executive in a manner similar to that used to develop, the
objectives for determining whether to increase base salaries for fiscal 1997.
Based upon the pre-determined objectives and applicable matrices for fiscal
1997, no bonuses were awarded to Messrs. Gerson, Anathan or Carothers, and a
bonus was paid to Mr. Siegel.
Equity Incentive. Stock options are the principal equity incentive of the
Company and are designed to attract and retain executives who can make
significant contributions to the Company's success, reward executives for such
contributions and give executives a longer-term incentive to increase
stockholder value. The size and frequency of option grants are determined by the
Compensation Committee at its discretion, taking into account individual
performance and responsibilities (but without any specific performance
measures), retention considerations and general industry practice. The
Compensation Committee considers the size of the equity positions of grantees in
making awards, but there are no specific goals with respect to this factor. All
outstanding options have been granted with a ten-year term and an exercise price
equal to 100% of the fair market value of the Company's Common Stock on the
grant date. In 1997, the Company granted stock options to Messrs. Carothers and
Siegel to purchase 300,000 shares and 10,000 shares, respectively. These options
vest over four years, in equal annual installments.
As a general rule, the Compensation Committee reserves restricted stock for
special circumstances, including, but not limited to, executive retention
purposes and reward of high levels of executive performance. No restricted stock
was awarded to any executive in 1997. In addition, the Company's equity
incentive plans authorize other types of equity-related compensation, such as
unrestricted stock, stock appreciation rights, deferred stock grants and
performance awards. The Compensation Committee to date has not used any such
methods, but may do so in the future.
Any value received by an executive from an option grant and any increase in
the value of a stock award depend entirely on increases in the price of the
Company's Common Stock.
Other Compensation. The Company provides executive officers with medical,
pension, thrift incentive and other benefits under plans that are generally
available to the Company's employees, as well as a Supplementary Executive
Retirement Plan, described elsewhere in this proxy statement, and various
welfare and fringe benefits.
Chief Executive Officer Compensation. Both Mr. Gerson, the Chairman and
Chief Executive Officer of the Company, and Mr. Anathan, currently the Vice
Chairman of the Board of Directors and Chairman of the Executive Committee of
the Company, had the responsibilities typically associated with the position of
chief executive officer until June 1997. For the balance of the fiscal year,
only Mr. Gerson had such responsibilities. The Compensation Committee reviewed
Messrs. Gerson's and Anathan's compensation in April of 1997. At that time, the
Compensation Committee elected to make increases to Messrs. Gerson's and
Anathan's base compensation, from $575,000 to $632,500 for Mr. Gerson and from
$550,000 to $607,500 for Mr. Anathan, in recognition of their meeting the
established performance goals for the Company for fiscal 1996. These objectives,
and their relative weights, were 30% for total sales, 40% for earnings per share
and 30% for strategic repositioning. The Compensation Committee elected not to
award Messrs. Gerson and Anathan bonuses for fiscal 1997.
Paul D. Paganucci
Chairman of the Committee
Robert P. Henderson
Harold Leppo
8
<PAGE> 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Paganucci, Henderson and
Leppo, directors who are not present or former officers or employees of the
Company. During fiscal 1997, no executive officer of the Company served as a
director or member of the compensation committee (or other committee serving an
equivalent function) of any other entity any of whose executive officers has
served as a director or member of the Compensation Committee of the Company.
SUMMARY COMPENSATION TABLE
The following table sets forth, for each of the last three fiscal years,
certain information concerning the compensation of the Company's Chief Executive
Officer and the Company's three other most highly compensated executive officers
(the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------ ALL
ANNUAL COMPENSATION OTHER SECURITIES OTHER
-------------------------- ANNUAL UNDERLYING COMPEN-
NAME AND SALARY BONUS COMPENSATION OPTIONS SATION
PRINCIPAL POSITION YEAR ($) ($) ($)(A) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Samuel J. Gerson............................. 1997 $603,750 $ 0 $82,358(b) 0 $13,692(f)
Chairman, Chief 1996 575,000 575,000 61,345(b) 93,400 11,313
Executive Officer 1995 575,000 0 59,665(b) 252,500(d) 10,587
and Director
W. Jay Carothers............................. 1997 341,744 0 0 300,000 11,256(g)
President, Chief
Operating Officer
Steven R. Siegel............................. 1997 257,500 25,000 0 10,000 1,905(h)
Executive Vice 1996 243,700 100,000 0 40,000 1,910
President, CFO, 1995 235,000 50,000 0 75,000(e) 467
Treasurer and
General Counsel
Mone Anathan, III............................ 1997 510,677 0 56,432(c) 0 13,702(i)
Vice Chairman, 1996 550,000 575,000 0 93,400 11,074
and Director 1995 550,000 0 0 252,500(d) 10,338
</TABLE>
- ---------------
(a) In accordance with the rules of the Securities Exchange Commission, other
compensation in the form of perquisites and other personal benefits has been
omitted in those instances where the aggregate amount of such perquisites
and other personal benefits constituted less than the lesser of $50,000 or
10% of the total annual salary and bonus for the Named Executive Officer for
such year.
(b) Other annual compensation for Mr. Gerson includes $18,086 and $26,469 for
financial consulting services provided by an outside party in 1996 and 1995,
respectively, and $23,510 and $17,271 for supplemental medical insurance in
1996 and 1995, respectively, and $36,279 for executive discount for 1997.
(c) Other annual compensation for Mr. Anathan includes $16,200 for financial
consulting services provided by an outside party in 1997.
(d) On February 7, 1995, the Compensation Committee repriced 252,500 of Mr.
Gerson's and 252,500 of Mr. Anathan's outstanding stock options. In
connection with this repricing, both Mr. Gerson and Mr. Anathan forfeited
options for 60,000 shares.
(e) On February 7, 1995, the Compensation Committee repriced 75,000 of Mr.
Siegel's outstanding stock options.
(f) Consists of contributions of $1,696 to the Filene's Basement, Inc. 401(k)
Plan, $2,885 for the dollar value of the insurance premiums paid by the
Company on behalf of Mr. Gerson with respect to term life insurance and
accidental death and dismemberment insurance and $9,111 for the value of the
Term Insurance Component, as defined below, on a split-dollar life insurance
policy on Mr. Gerson. (See "Split-Dollar Insurance Policies" below.)
(g) Consists of the insurance premium paid by the company on behalf of Mr.
Carothers with respect to term life insurance and accidental death and
dismemberment insurance.
(h) Consists of contributions of $1,696 to the Filene's Basement, Inc. 401(k)
Plan and $209 for insurance premiums paid by the Company on behalf of Mr.
Siegel with respect to term life insurance and accidental death and
dismemberment insurance.
(i) Consists of contributions of $1,696 to the Filene's Basement, Inc. 401(k)
Plan, $3,020 for insurance premiums paid by the Company on behalf of Mr.
Anathan with respect to term life insurance and accidental death and
dismemberment insurance and $8,987 for the value of the Term Insurance
Component as defined below, on a split-dollar life insurance policy on Mr.
Anathan. (See "Split-Dollar Insurance Policies" below.)
9
<PAGE> 13
The following table sets forth information concerning the value of
unexercised stock options held by each of the Named Executive Officers at fiscal
year end. None of the Named Executive Officers exercised any stock options in
fiscal 1997.
AGGREGATED OPTION / SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/ SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END(A)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (#) ($) ($)
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Samuel J. Gerson........................... 609,350 87,550 $630,421 $13,081
W. Jay Carothers........................... 0 300,000 $ 0 $ 0
Steven R. Siegel........................... 28,750 96,250 $ 14,015 $42,046
Mone Anathan, III.......................... 609,350 87,550 $619,351 $13,081
</TABLE>
- ---------------
(a) Value of unexercised in-the-money options represents the difference between
the closing price of the Company's Common Stock on January 31, 1998
($4.32375) and the exercise price of the option, multiplied by the number of
shares subject to the option.
The following table sets forth information concerning stock options granted
during fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/ EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE(B)
NAME SARS GRANTED FISCAL YEAR ($/SH) DATE ($)
---- ------------ ---------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Samuel J. Gerson........ 0 0% N/A N/A N/A
W. Jay Carothers........ 300,000(a) 60% $5.8125 6/2/07 $1,377,000
Steven R. Siegel........ 10,000(a) 2% 6.50 6/26/07 51,200
Mone Anathan, III....... 0 0% N/A N/A N/A
</TABLE>
- ---------------
(a) Options vest in four equal annual installments on each of the first four
anniversaries of the date of grant.
(b) Calculated in accordance with the Black-Scholes option pricing model. This
model takes into account, in valuing an option, the volatility of the
Company's Common Stock as well as the current stock price, dividend rate,
current market interest rate, term of the option and exercise price. The
Black-Scholes model is generally used to value exchange traded options.
Stock options, which are long-term, non-transferable and subject to vesting
restrictions, differ from exchange traded options, which are short-term and
can be exercised or sold immediately in a liquid market. In calculating the
grant date present values in the table, a factor of 65.72% has been assigned
to the volatility of the Common Stock based on stock market quotations
during fiscal 1997, the annual dividend rate has been set at $0 per share,
the risk free rates of return have been fixed at 6.66% and 6.50% for the
June 2, 1997 and June 26, 1997 grant dates, respectively, based on ten year
U.S. Treasury Note rates, and the actual term of ten years for the options
has been used.
10
<PAGE> 14
PERFORMANCE GRAPH: JANUARY 1993 -- JANUARY 1998
The following graph shows a comparison of cumulative total return among
Filene's Basement Corp., Nasdaq Stock Market (US) Index and Standard & Poor's
Retail Specialty Apparel Index. The annual changes for the period shown in the
following graph are based on the assumption that $100 had been invested in
Filene's Basement Corp. Common Stock and each index on January 30, 1993 and that
all dividends were reinvested. The total cumulative dollar returns depicted on
the graph represent the value that such investments would have had on January
29, 1994, January 28, 1995, February 3, 1996, February 1, 1997 and January 31,
1998.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG FILENE'S BASEMENT CORP., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE STANDARD & POOR'S RETAIL SPECIALTY APPAREL INDEX
<TABLE>
<CAPTION>
NASDAQ
FILENE'S S&P STOCK
MEASUREMENT PERIOD BASEMENT RETAIL MARKET
(FISCAL YEAR COVERED) CORP. (APPAREL) (U.S.)
<S> <C> <C> <C>
1/30/93 100 100 100
1/29/94 57 85 115
1/28/95 23 68 110
2/3/96 15 81 155
2/1/97 32 103 203
1/31/98 25 187 240
</TABLE>
* $100 INVESTED ON 1/30/93 IN STOCK OR INDEX -- INCLUDING REINVESTMENT OF
DIVIDENDS
RETIREMENT BENEFITS
The Company has a non-contributory defined benefit pension plan (the
"Pension Plan"), which covers substantially all of its employees, and a
Supplementary Executive Retirement Plan (the "SERP") to preserve certain
benefits for employees whose retirement benefits under the Pension Plan are
affected by limitations imposed by the Internal Revenue Code of 1986, as amended
(the "IRC").
11
<PAGE> 15
The following table shows estimated annual benefits payable (before
deduction of any amounts payable from the Federated Department Stores, Inc.
Pension Plan because of the recognition of credited service prior to August 1,
1988) upon retirement in 1997 at age 65 under the Pension Plan, as supplemented
by the SERP for services performed and compensation earned through December 31,
1997 on a 100% straight-life annuity basis, to persons in specified remuneration
and years-of-service classifications.
<TABLE>
<CAPTION>
FINAL AVERAGE YEARS OF SERVICE
ANNUAL -------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35
------------- - -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
125,000............. $ 7,504 $ 15,007 $ 22,511 $ 30,015 $ 37,518 $ 45,022 $ 45,022
150,000............. 9,191 18,382 27,573 36,765 45,956 55,147 55,147
175,000............. 10,879 21,757 32,636 43,515 54,393 65,272 65,272
200,000............. 12,566 25,132 37,698 50,265 63,831 75,397 75,397
250,000............. 15,941 31,882 47,823 63,765 79,706 95,647 95,647
300,000............. 19,316 38,632 57,948 77,265 96,581 115.897 115,897
400,000............. 26,066 52,132 78,198 104,265 130,331 156,397 156,397
500,000............. 32,816 65,632 98,448 131,265 164,081 196,897 196,897
600,000............. 39,566 79,132 118,698 158,265 197,831 237,397 237,397
700,000............. 46,316 92,632 139,948 185,265 231,581 277,897 277,897
800,000............. 53,066 106,132 159,198 212,265 265,331 318,397 318,397
900,000............. 59,816 119,632 179,448 239,265 299,081 358,897 358,897
1,000,000............ 66,566 133,132 199,698 266,265 332,831 399,397 399,397
1,100,000............ 73,316 146,632 219,948 293,265 366,581 439,897 439,897
1,200,000............ 80,066 160,132 240,198 320,265 400,331 480,397 480,397
1,300,000............ 86,816 173,632 260,448 347,265 434,081 520,897 520,897
1,400,000............ 93,566 187,132 260,698 374,265 467,831 561,397 561,397
1,500,000............ 100,316 200,632 300,948 401,265 501,581 601,897 601,897
</TABLE>
The amounts shown above are applicable to employees retiring in 1997 (at
age 65) and are payable in single-life annuity form. Amounts shown as "Final
Average Annual Compensation" represent the average of a participant's highest
five years' compensation (total salary and bonus, including W-2 earnings and
deferred compensation) in the last ten years of his employment. For 1997, total
salary and bonus for Messrs. Gerson, Anathan and Siegel, all of whom participate
in both pension plans, is the same, for purposes of calculating their aggregate
benefits under those plans, as their respective salary and bonus shown in the
Summary Compensation Table. As of December 31, 1997, Messrs. Gerson, Anathan and
Siegel had 23, 22 and 6 years of credited service, respectively, under the
plans.
EMPLOYMENT AGREEMENTS
Mr. Gerson entered into an employment agreement (the "Gerson Agreement")
with the Company and its wholly-owned subsidiary, Filene's Basement, Inc.
("FBI," and together with the Company, the "Employers"), on June 5, 1992. The
Gerson Agreement provides for employment for a rolling three-year period (the
"Employment Period"). Upon notice by the Company that the Employment Period
shall cease, the Employment Period will be fixed and will end on the third
anniversary of the date of such notice. Although employment under the Gerson
Agreement can be terminated before the end of the Employment Period by the
Employers or by Mr. Gerson for Good Reason (as defined), such termination will
not shorten the Employment Period for purposes of calculating the severance
payments and fringe benefit continuation described below. The Gerson Agreement
provides for a minimum annual salary of $550,000 which amount is subject to
upward adjustment by the Board of Directors, but not to reduction below any such
increased amount. The Gerson Agreement also provides for annual and long-term
bonuses in accordance with the Employers' compensation programs, fringe benefits
generally available to executives, other benefits noted in the Summary
Compensation Table and payments by the Employers to compensate for any
diminution during the Employment Period in benefits under the pension and
retirement plans, 401(k) plans and health insurance coverage, including, except
in the case of health insurance coverage, compensation for additional taxes
resulting from such payments. The Gerson Agreement prohibits Mr. Gerson from (i)
competing with the
12
<PAGE> 16
Company for a period of six months from the date of termination of his
employment if for cause (as defined), and for three years from the date of
termination of his employment if due to incapacity (as defined), (ii) disclosing
the Employers' confidential information, and (iii) generally, until one year
after termination of employment, hiring non-clerical employees of the Employers.
Upon termination (i) for incapacity or death, (ii) by the Company other
than for cause or (iii) by Mr. Gerson for Good Reason (as defined)
(the"Termination Events"), the Gerson Agreement provides for lump sum payment of
accrued salary through the termination date and any accrued annual bonus or
long-term bonus for prior years and periods, plus an annualized bonus based on
the average bonus paid in the three preceding years and prorated according to
the number of months worked in the year of termination. In addition, in the case
of a Termination Event, the Gerson Agreement provides for a severance payment
equal to the sum of (i) the product of (A) the sum of annual salary at the
termination date and such average bonus and (B) a fraction equal to the number
of months from the termination date to the end of the Employment Period divided
by twelve and (ii) a long-term bonus (the discounted present value of dollar
amounts earned for fully elapsed years of any long-term bonus period unexpired
at the termination date). Finally, upon a Termination Event, the Gerson
Agreement also provides for fringe benefit continuation until the end of the
Employment Period on terms at least as favorable as those in effect at the date
of such termination, and that all stock options would fully vest as would all
other accrued benefits and awards. At the end of fiscal 1997, Mr. Gerson had
87,550 non-vested stock options. In the event of termination for cause, the
Gerson Agreement provides only for payment of unpaid salary and prorated
annualized bonus, each to the date of termination, and any accrued annual
bonuses for prior years. Compensation earned in subsequent employment does not
reduce compensation payable under the Gerson Agreement.
Mr. Carothers entered into an employment agreement with FBI on June 20,
1997, pursuant to which, as amended (the "Carothers Agreement"), Mr. Carothers
is employed as President and Chief Operating Officer of FBI for a rolling
three-year period which commences anew each day Mr. Carothers' employment by FBI
continues. Mr. Carothers receives an annual salary of at least $560,000 and is
eligible to receive bonuses. The Carothers Agreement may be terminated by FBI in
case of disability or death or for or without cause. If Mr. Carothers'
employment is terminated (i ) because of disability or death, he is entitled to
receive his base salary through the termination date, any unpaid annual bonus
outstanding on such date and a prorated annual bonus for the year in which
termination occurs, (ii) without cause, he shall continue to receive his base
salary and benefits for the remainder of the term of the Carothers Agreement,
and all then unvested stock options shall become immediately vested and
exercisable or (iii) for cause, he shall be entitled to receive only accrued but
unpaid salary or bonus. Mr. Carothers has agreed not to disclose confidential
information and not to compete with FBI during the term of the Carothers
Agreement and during any period in which he is being paid post-termination
compensation.
Mr. Siegel entered into an employment agreement with FBI on July 11, 1994,
which agreement has subsequently been amended (as amended, the "Siegel
Agreement"). Under the Siegel Agreement, Mr. Siegel is employed at an annual
salary of at least $200,000, subject to increase by Mr. Gerson. Mr. Siegel is
eligible to receive increases in such compensation, bonuses or other additional
compensation. The Siegel Agreement provides for employment for a rolling
three-year period which commences anew each day Mr. Siegel's employment by FBI
continues. The Siegel Agreement is subject to earlier termination upon the death
of Mr. Siegel or for disability or cause (each as defined). Upon termination for
cause, Mr. Siegel is entitled only to salary and benefits accrued through the
termination date. In the event that Mr, Siegel's employment is terminated
without cause, Mr. Siegel will receive any accrued but unpaid compensation,
including any bonus, and his base salary for the ensuing three years. Also, in
such an event, all of Mr. Siegel's then unvested stock options shall become
immediately vested and exercisable and his benefits shall continue for a period
of three years. Pursuant to the Siegel Agreement, Mr. Siegel has agreed not to
disclose FBI's confidential information, not to violate the conflict of interest
statement that he has signed, during the term of his employment not to have an
investment of $100,000 or more in a competing business (as defined) or render
personal service thereto and, until two years after termination of his
employment, not to hire FBI's employees.
On August 22, 1997, Mr. Anathan, FBI and the Company entered into an
amendment to his employment agreement, which agreement had been, and except as
described herein, remains substantially similar to the
13
<PAGE> 17
Gerson Agreement. Under the employment agreement, as amended (the "Anathan
Agreement"), Mr. Anathan is employed by the Company as Vice Chairman of the
Board of Directors and Chairman of the Executive Committee of the Company and
FBI for a three year term ending August 22, 2000. Mr. Anathan is required to
devote 75%, 50% and 50% of his working time to the Company during the three
years of the employment term, respectively. Mr. Anathan's annual base salary and
incentive bonus is set at 75%, 50% and 50% of the Chief Executive Officer's
salary and bonus for years one, two and three, respectively. Upon termination
for incapacity or death, by the Company other than for cause or by Mr. Anathan
for good reason (as defined), the Anathan Agreement provides for lump sum
payment of accrued salary through the termination date and any accrued annual
bonus or long-term bonus for prior years and periods, plus an annualized bonus
based on the bonus paid in respect of the last year for which an annual bonus
was paid and prorated according to the number of months worked in the year of
termination. In addition, the Anathan Agreement provides for a severance payment
equal to the sum of (i) the product of (A) the sum of annual salary at the
termination date and (B) a fraction equal to the number of months from the
termination date to the end of the Employment Period divided by twelve, (ii) the
annualized bonus and (iii) a long-term bonus (the discounted present value of
dollar amounts earned for fully elapsed years of any long-term bonus period
unexpired at the termination date). The Anathan Agreement also provides for
fringe benefits continuation. In addition, all stock options would fully vest as
would all other accrued benefits and awards. At the end of fiscal 1997, Mr.
Anathan had 87,550 non-vested stock options. Under the Anathan Agreement, on
September 22, 1999, all Mr. Anathan's then non-vested stock options will vest
and become immediately exercisable.
CHANGE-IN-CONTROL AGREEMENTS
Mr. Gerson has entered into a Change-in-Control Agreement (the "Agreement")
with the Company. The Agreement provides for benefits in the event of either a
"qualified termination" of employment (as defined) within 36 months following a
change in control (as defined), or a termination for any reason (whether by the
Company or Mr. Gerson) during the one-month period beginning on the first day of
the twelfth month following a change in control. In such event, Mr. Gerson would
receive any accrued and unpaid salary, a lump-sum cash payment equal to three
times the sum of his highest annual base salary in the calendar year during
which the change in control occurred plus his average annual earned bonus over
the three previous years, continued medical and life insurance benefits during
the 36-month period following termination and payment of reasonable legal fees
and expenses incurred in enforcing rights to benefits under the Agreement. The
Company also would be obligated to Mr. Gerson for an amount sufficient to pay
any excise tax under the rules of the IRC governing changes in control. Payments
under the Agreement are due only to the extent they exceed payments to be made
to Mr. Gerson under any other agreement with the Company, including his
employment agreement.
Mr. Carothers' employment agreement provides that, in the event of any
termination of employment without cause (as defined) by FBI, he will receive a
continuation of Base Salary and all fringe benefits for 36 months following such
termination.
Mr. Siegel's employment agreement provides that, in the event a terminating
event (as defined) occurs within twelve months following a change in control of
the Company (as defined), Mr. Siegel will receive an amount equal to 36 months'
compensation under the Siegel Agreement and continuation of benefits for 36
months following the terminating event.
Mr. Anathan and the Company have entered into a Change-in-Control Agreement
substantially similar to the Agreement with Mr. Gerson described above.
SPLIT-DOLLAR INSURANCE POLICIES
The Company has, since 1994, paid premiums on split-dollar life insurance
policies (the "Policies") on Messrs. Gerson and Anathan (for purposes of this
paragraph, the "Executives"), and since 1997 on Mr. Siegel. Each Policy has two
components: (1) the cash surrender value ("Cash Surrender Component") and (2)
the face value in excess of the Cash Surrender Component ("Term Insurance
Component"). The value of the Term Insurance Component (which is reflected in
each Executives' taxable income for 1997) is
14
<PAGE> 18
reflected in the Summary Compensation Table in the column "All Other
Compensation" for 1997. See "Summary Compensation Table." The remainder of the
premiums does not provide any incremental benefit to the Executives because the
Cash Surrender Component is used to fund the SERP and no Executive has any
residual equity interest in the Cash Surrender Component over and above the
amounts necessary to fund the SERP. See "Retirement Benefits."
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Arthur Andersen LLP,
independent auditors, as auditors for the Company for the fiscal year ending
January 30, 1999. A representative of Arthur Andersen LLP is expected to be
present at the Annual Meeting with the opportunity to make a statement, if he or
she desires, and to respond to appropriate questions.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Proposals of stockholders submitted for consideration at the 1998 annual
meeting of stockholders must be received by the Company not later than January
20, 1999 in order to be considered for inclusion in the Company's proxy material
for that meeting.
The Company's Restated By-Laws also establish an advance notice procedure
with respect to stockholder nomination of candidates for election as directors.
A notice regarding stockholder nominations for director must be accompanied by a
petition signed by at least 100 record holders representing in aggregate at
least 1% of the outstanding shares entitled to vote for directors. Such notice
must be received by the clerk of the Company not less than 60 days or more than
90 days prior to the applicable stockholder meeting, provided, however, that, in
the event the date of the meeting is not publicly announced by the Company more
than 70 days prior to the meeting, the notice must be received by the Company
not later than the close of business on the tenth day following the day on which
such announcement of the date of the meeting is made. Any such notice must be
written and contain certain specified information concerning the persons to be
nominated and the stockholder submitting the nomination, all as set forth in the
Company's Restated By-Laws. The presiding officer of the meeting may refuse to
acknowledge any director nomination not made in compliance with such advance
notice requirements. The Company has not publicly announced the date of the 1998
Annual Meeting prior to the mailing of the accompanying Notice of Annual Meeting
and this Proxy Statement. Nominations for Director to be acted upon at the 1998
Annual Meeting must comply with the timing and informational requirements
described above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than 10% of the Company's
outstanding shares of Common Stock to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it or
written representations from certain reporting persons that no section 16(a)
reports were required for those persons, the Company believes that, during the
fiscal year ended January 31, 1998, all filings requirements were complied with,
except, in May 1998, Mr. Siegel filed a Form 4 to report a stock option grant
made in June 1997.
OTHER BUSINESS
The Board of Directors knows of no other business to be brought before the
Annual Meeting which is not referred to in the accompanying Notice of Annual
Meeting. Should any such matters be presented, the
15
<PAGE> 19
persons named in the proxy intend to take such action in regard to such matters
as in their judgment seems advisable.
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
By Order of the Board of Directors,
/s/ Steven R. Siegel
STEVEN R. SIEGEL,
Clerk
May 20, 1998
16
<PAGE> 20
FILENE'S BASEMENT CORP.
40 Walnut Street
Wellesley, Massachusetts 02181
ANNUAL MEETING OF STOCKHOLDERS - JUNE 25, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Samuel J. Gerson
and Steven R. Siegel as Proxies, with full power of substitution to each, to
vote for and on behalf of the undersigned at the 1998 Annual Meeting of
Stockholders of FILENE'S BASEMENT CORP. (the "Company") to be held at
BankBoston, N.A., 100 Federal Street, Boston, Massachusetts at 2:00 p.m. on
Thursday, June 25, 1998, and at any adjournment(s) thereof. The undersigned
hereby directs the said Proxies to vote in accordance with their judgment on any
matters which may properly come before the Annual Meeting, all as indicated in
the Notice of Annual Meeting, receipt of which is hereby acknowledged, and to
act on the following matters set forth in such Notice as specified by the
undersigned.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF THE CLASS I DIRECTOR NOMINEES.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If the owner is a corporation, this signature should be
that of an authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED?
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DO YOU HAVE ANY COMMENTS?
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<PAGE> 21
/X/ PLEASE MARK VOTES
AS IN THE EXAMPLE
FILENE'S BASEMENT CORP.
RECORD DATE SHARES:
Please be sure to sign and date this Proxy. Date
Stockholder sign here Co-owner sign here
1. Election of Class I Directors. Nominees:
Samuel J. Gerson
Robert P. Henderson
Paul D. Paganucci
For All Nominees: ____ Withheld: ____ For All Except: ____
NOTE: If you do not wish you shares voted "For" a particular nominee, mark the
"For All Except" box and strike a line through the name(s) of the nominee(s).
Your shares will be voted for the remaining nominee(s).
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ANY OTHER BUSINESS
THAT MAY PROPERLY COME BEFORE THE MEETING OR AT ANY ADJOURNMENT(S) THEREOF.
Mark box at right if an address change or comment has been noted on the reverse
side of this card. _____
DETACH CARD DETACH CARD
FILENE'S BASEMENT CORP.
Dear Stockholder:
Please take note of the important information enclosed with this proxy card.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy card in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, to be
held at 2:00 p.m. on Thursday, June 25, 1998.
Thank you in advance for your prompt consideration of these matters.
<PAGE> 22
Sincerely,
Filene's Basement Corp.
