<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)
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 02481
May 18, 1999
Dear Stockholder:
We cordially invite you to attend our 1999 Annual Meeting of Stockholders,
which will be held at 2:30 p.m. on Tuesday, June 22, 1999 at The Westin Hotel,
70 Third Avenue, Waltham, Massachusetts.
We hope that you will join us on June 22, 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 /s/ W. Jay Carothers
- -------------------------------------- --------------------------------------
SAMUEL J. GERSON W. JAY CAROTHERS
Chairman and President and
Chief Executive Officer Chief Operating Officer
<PAGE> 3
FILENE'S BASEMENT CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 22, 1999
Notice is hereby given that the Annual Meeting of Stockholders of Filene's
Basement Corp. will be held at The Westin Hotel, 70 Third Avenue, Waltham,
Massachusetts, on Tuesday, June 22, 1999 at 2:30 p.m. for the following
purposes:
1. To elect one Class II director to serve until the year 2002 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 3, 1999 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 30, 1999, 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 18, 1999
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 22, 1999
------------------------
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 The Westin Hotel, 70 Third
Avenue, Waltham, Massachusetts, on June 22, 1999 at 2:30 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 18, 1999. 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 3, 1999 are entitled to receive
notice of and to vote at the Annual Meeting. As of May 3, 1999, the Company had
issued an outstanding 20,986,552 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 30, 1999, 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 30, 1999, 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 02481.
<PAGE> 5
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Board of Directors has fixed the number of directors at seven. 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. Mone Anathan, III, currently a Class II
director, will not stand for reelection at the 1999 Annual Meeting of
Stockholders. Unless otherwise instructed, the enclosed proxy will be voted to
elect the nominee named below as the Class II director for a term of three years
expiring at the 2002 Annual Meeting of Stockholders or until his successor is
duly elected and qualified. If the 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 six. Management does not anticipate that the nominee will become
unavailable. The nominee as the Class II director, and the incumbent Class I and
Class III directors, are as follows:
NOMINEE CLASS II DIRECTOR
TERM EXPIRES 2002
HAROLD LEPPO, 62
Director
Harold Leppo became a director of the Company in 1992. From 1988 to 1999,
Mr. Leppo served as the Chief Executive Officer of Harold Leppo and Company, a
retail-consulting firm in Stamford, Connecticut. 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 is also a director of Salant,
Inc., J. Baker, Inc., and Home Base, Inc.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE FOR THE ELECTION OF THE NOMINEE NAMED ABOVE AS THE CLASS II
DIRECTOR OF THE COMPANY.
CLASS I DIRECTORS
TERMS EXPIRE 2001
SAMUEL J. GERSON, 57
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., Bon Ton Stores, Inc., and Allmerica
Financial Corporation as well as a trustee associate of Boston College.
ROBERT P. HENDERSON, 68
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, 68
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
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<PAGE> 6
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).
CLASS III DIRECTORS
TERMS EXPIRE 2000
W. JAY CAROTHERS, 47
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 and the National Retail
Federation.
JOHN EYLER, 51
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, 56
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 and
Security First Technologies Corporation.
3
<PAGE> 7
BENEFICIAL OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, as of February 28, 1999, 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 Filene's Basement Corp., 40 Walnut Street, Wellesley,
Massachusetts 02481.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
----------------------------
NUMBER OF PERCENTAGE
SHARES(1) OUTSTANDING(2)
--------- ---------------
<S> <C> <C>
Heartland Advisors, Inc.(3).............................. 2,050,000 9.7%
790 North Milwaukee Street
Milwaukee, WI 53202
FMR Corp.(4)............................................. 1,927,310 9.2%
82 Devonshire Street
Boston, MA 02109
Dimensional Fund Advisors Inc.(5)........................ 1,261,600 6.0%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Merrill Lynch Asset Management L.P.(6)................... 1,160,000 5.5%
800 Scudders Mill Road
Plainsboro, NJ 08536
Samuel J. Gerson(7)...................................... 1,245,996 5.7%
Mone Anathan, III(8)..................................... 973,460 4.5%
W. Jay Carothers(9)...................................... 85,000 **
John Eyler(10)........................................... 17,000 **
Dorsey R. Gardner(11).................................... 7,000 **
Robert P. Henderson(12).................................. 128,732 **
Harold Leppo(13)......................................... 15,500 **
Paul D. Paganucci(14).................................... 16,484 **
Steven R. Siegel(15)..................................... 71,730 **
All executive officers and directors as a group (9
persons)(16)........................................... 2,560,902 11.4%
</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 dwelling, 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, 1999, pursuant to
stock options previously granted.
(2) Percentages are calculated on the basis of 20,971,822 shares of Common
Stock outstanding as of February 28, 1999, plus any shares of Common Stock
subject to stock options held by the individual that were exercisable
within 60 days of February 28, 1999.
(3) The information contained in the table and in this footnote is based solely
upon information contained in a Schedule 13G/A dated January 19, 1999 filed
by Heartland Advisors, Inc. ("Heartland"). Heartland,
4
<PAGE> 8
an investment adviser registered under the Investment Company Act of 1940
(the "1940 Act") is deemed to have beneficial ownership of 2,050,000 shares
of the Company's Common Stock. Heartland has sole dispositive power with
respect to 2,050,000 shares and sole voting power with respect to 50,000
shares of Common Stock.
(4) The information in the table and in this footnote is based solely upon
information contained in a Schedule 13G/A, dated February 12, 1999 filed by
FMR Corp. as a parent holding company. Fidelity Management & Research
Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp. and an
investment adviser under 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.
(5) The information contained in the table and in this footnote is based solely
upon information contained in a Schedule 13G dated February 11, 1999 filed
by Dimensional Fund Advisors Inc. ("Dimensional"). Dimensional, a
registered investment adviser, is deemed to have beneficial ownership of
1,261,600 shares of the Company's Common Stock, all of which shares are
held by four investment companies registered under the 1940 Act and certain
other investment vehicles, including commingled group trusts, to all of
which Dimensional serves as investment manager. Dimensional has sole voting
and dispositive power with respect to 1,261,600 shares. Dimensional
disclaims beneficial ownership of all such shares.
(6) The information contained in the table and in this footnote is based solely
upon information contained in a Schedule 13G/A, dated February 9, 1999,
filed by Merrill Lynch & Co., Inc. ("MLC"), on behalf of Merrill Lynch
Asset Management Group ("MLAMG") and Merrill Lynch Global Allocation Fund,
Inc. ("MLGAF"). MLC is the parent holding company of MLAMG, a group of
investment advisers each of which is registered under the 1940 Act or the
laws of a jurisdiction other than the United States including Merrill Lynch
Asset Management L.P. d/b/a Merrill Lynch Asset Management ("MLAM"). MLAM
acts as investment adviser to various investment companies registered under
Section 8 of the 1940 Act, including MLGAF and private accounts. MLC and
MLAMG have shared voting and dispositive power over 1,160,000 shares. MLC
disclaims beneficial ownership of all such shares. MLGAF has shared voting
and dispositive power over 1,110,000 shares.
(7) Includes 650,200 shares issuable upon the exercise of stock options.
(8) Includes 650,200 shares issuable upon the exercise of stock options.
(9) Includes 75,000 shares issuable upon the exercise of stock options.
(10) Includes 12,000 shares issuable upon the exercise of stock options.
(11) Consists of 7,000 shares issuable upon the exercise of stock options.
(12) Includes 14,500 shares issuable upon the exercise of stock options.
(13) Includes 14,500 shares issuable upon the exercise of stock options.
(14) Includes 14,500 shares issuable upon the exercise of stock options.
(15) Includes 66,250 shares issuable upon the exercise of stock options.
(16) Includes 1,504,150 shares issuable upon the exercise of stock options.
BOARD OF DIRECTORS, DIRECTOR COMPENSATION AND COMMITTEES
During the Company's fiscal year ended January 30, 1999, the Board of
Directors of the Company held six meetings. Each director attended at least 75%
of the meetings of the Board and the Committees of which
5
<PAGE> 9
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.
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 continues 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
are 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 three meetings during fiscal 1998, 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 1998.
The Compensation Committee, which held two meetings during fiscal 1998,
reviews the operation of the Company's 1998 Stock Incentive 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 1998.
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 1998, 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
6
<PAGE> 10
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.
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 1998,
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
1998, 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
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<PAGE> 11
1998, Messrs. Gerson, Anathan, Carothers and Siegel did not receive increases in
their base salaries for fiscal 1999.
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 1998 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 1998.
Based upon the pre-determined objectives and applicable matrices for fiscal
1998, 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 1998, the Company granted stock options to Mr. Siegel to purchase
25,000 shares. 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 1998. 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. The Compensation Committee reviewed
Mr. Gerson's compensation in November of 1998. At that time, the Compensation
Committee elected not to make an increase to Mr. Gerson's compensation, which is
$632,500 annually. The established performance goals for Mr. Gerson for fiscal
1998, and their relative weights, were 30% for total sales, 40% for earnings per
share and 30% for strategic repositioning. The Compensation Committee also
elected not to award Mr. Gerson a bonus for fiscal 1998.
Paul D. Paganucci
Chairman of the Committee
Robert P. Henderson
Harold Leppo
8
<PAGE> 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Paganucci, Henderson and
Leppo, directors who are not present or former officers or employees of the
Company. During fiscal 1998, no executive officer of the Company served as a
director or member of the Compensation Committee (or other committee serving an
equivalent function) of any other entity any of whose executive officers has
served as a director or member of the Compensation Committee of the Company.
SUMMARY COMPENSATION TABLE
The following table sets forth, for each of the last three fiscal years,
certain information concerning the compensation of the Company's Chief Executive
Officer and the Company's three other most highly compensated executive officers
(the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION OTHER SECURITIES
---------------------------- ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(A) (#) ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Samuel J. Gerson................... 1998 $632,500 $ 0 $71,882(b) $ 0 $18,614(e)
Chairman, Chief 1997 603,750 0 82,358(b) 0 13,692(e)
Executive Officer 1996 575,000 575,000 61,345(b) 93,400 11,313
and Director
W. Jay Carothers................... 1998 560,000 0 76,718(c) 0 14,480(f)
President, Chief 1997 341,744 0 0 300,000 11,256(f)
Operating Officer
Steven R. Siegel................... 1998 290,000 50,000 0 25,000 5,083(g)
Executive Vice President, 1997 257,500 25,000 0 10,000 1,905(g)
CFO, Treasurer and 1996 243,700 100,000 0 40,000 1,910
General Counsel
Mone Anathan, III.................. 1998 392,344 0 44,983(d) 0 14,883(h)
Vice Chairman, 1997 510,677 0 56,432(d) 0 13,702(h)
and Director 1996 550,000 575,000 0 93,400 11,074
</TABLE>
- ---------------
(a) In accordance with the rules of the Securities and 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 $23,114 and $18,086 for
financial consulting services provided by an outside party in 1998 and 1996,
respectively, and $19,556 and $23,510 for supplemental medical insurance in
1998 and 1996, respectively, and $15,015 and $36,279 for the executive
discount for 1998 and 1997, respectively.
(c) Other annual compensation for Mr. Carothers includes $50,000 for membership
fees in 1998 paid pursuant to his acceptance of employment and a relocation
agreement.
(d) Other annual compensation for Mr. Anathan includes $23,114, and $16,200 for
financial consulting services provided by an outside party in 1998 and 1997
respectively, and $12,184 for supplemental medical insurance in 1998.
(e) For 1997, 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, and for 1998, consists of $2,000 to the Filene's
Basement, Inc. 401(k) Plan, $2,960 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 $13,654
for the value of the term insurance
9
<PAGE> 13
component as defined below on a split-dollar life insurance policy on Mr.
Gerson. See "Split-Dollar Insurance Policies" below.
(f) For 1997, 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, and for 1998, consists of contributions of $1,756
to the Filene's Basement, Inc. 401(k) Plan, $8,613 for the dollar value of
the insurance premiums paid by the Company on behalf of Mr. Carothers with
respect to term life insurance and accidental death and dismemberment
insurance, and $4,112 for the value of the term life component as defined
below on a split-dollar life insurance policy on Mr. Carothers. See
"Split-Dollar Insurance Policies" below.
(g) For 1997, 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, and for 1998, consists of contributions of $2,000
to the Filene's Basement, Inc. 401(k) Plan, $261 for the dollar value of the
insurance premiums paid by the Company on behalf of Mr. Siegel with respect
to term life insurance and accidental death and dismemberment insurance and
$2,822 for the value of the term life component as defined below on a
split-dollar life insurance policy on Mr. Siegel. See "Split-Dollar
Insurance Policies" below.
(h) For 1997, 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, and for 1998, consists of contributions of $2,000 to the Filene's
Basement, Inc. 401(k) Plan, $3,095 for the dollar value of the insurance
premiums paid by the Company on behalf of Mr. Anathan with respect to term
life insurance and accidental death and dismemberment insurance and $9,788
for the value of the term life component as defined below on a split-dollar
life insurance policy on Mr. Anathan. See "Split-Dollar Insurance Policies"
below.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1998 AND
FISCAL YEAR-END OPTION/SAR VALUES FOR FISCAL 1998
The following table sets forth information concerning the value of
unexercised stock options held by each of the Named Executive Officers at fiscal
year end. None of the Named Executive Officers exercised any stock options in
fiscal 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END(a)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (#) ($) ($)
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Samuel G. Gerson........................ 641,450 55,450 $29,227.50 $ 0
W. Jay Carothers........................ 75,000 225,000 $ 0 $ 0
Steven R. Siegel........................ 60,000 90,000 $ 0 $ 0
Mone Anathan, III....................... 641,450 55,450 $19,485.00 $ 0
</TABLE>
- ---------------
(a) Value of unexercised in-the-money options represents the difference between
the closing price of the Company's Common Stock on January 29, 1999 ($2.375
per share) and the exercise price per share of the option, multiplied by the
number of shares subject to the option.
10
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock options granted
during fiscal 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS GRANT
UNDERLYING GRANTED TO EXERCISE OR DATE PRESENT
OPTIONS/ EMPLOYEES IN BASE PRICE EXPIRATION VALUE(b)
NAME SARS GRANTED(a) FISCAL YEAR ($/SH) DATE ($)
- ---- --------------- ---------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Steven R. Siegel............. 25,000 3% $5.3125 3/18/08 $5.18
</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 136% has been assigned
to the volatility of the Common Stock based on stock market quotations
during fiscal 1998, the annual dividend rate has been set at $0 per share,
the risk free rates of return have been fixed at 5.57% for the 1998 grant
date based on ten year U.S. Treasury Note rates, and the actual term of ten
years for the options has been used.
11
<PAGE> 15
STOCK PERFORMANCE GRAPH: JANUARY 1994 -- JANUARY 1999
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 29, 1994 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
28, 1995, February 3, 1996, February 1, 1997, January 31, 1998 and January 30,
1999.
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 STOCK MARKET
FILENE'S BASEMENT CORP. S&P RETAIL (APPAREL) (U.S.)
----------------------- -------------------- -------------------
<S> <C> <C> <C>
1/29/94 100 100 100
1/28/95 40 95 80
2/3/96 25 135 95
2/1/97 55 177 121
1/31/98 43 209 219
1/30/99 23 326 372
</TABLE>
* $100 INVESTED ON 1/29/94 IN STOCK OR ON 1/31/94 IN INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS.
12
<PAGE> 16
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").
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 1998 at age 65 under the Pension Plan, as supplemented
by the SERP for services performed and compensation earned through December 31,
1998 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............ $ 7,446 $ 14,891 $ 22,337 $ 29,783 $ 37,229 $ 44,674 $ 44,674
150,000............ 9,133 18,266 27,400 36,533 45,666 54,799 54,799
175,000............ 10,821 21,641 32,462 43,283 54,104 64,924 64,924
200,000............ 12,508 25,016 37,525 50,033 62,541 75,049 75,049
250,000............ 15,883 31,766 47,650 63,533 79,416 95,299 95,299
300,000............ 19,258 38,516 57,775 77,033 96,291 115,549 115,549
400,000............ 26,008 52,016 78,025 104,033 130,041 156,049 156,049
500,000............ 32,758 65,516 98,275 131,033 163,791 196,549 196,549
600,000............ 39,508 79,016 118,525 158,033 197,541 237,049 237,049
700,000............ 46,258 92,516 138,775 185,033 231,291 277,549 277,549
800,000............ 53,008 106,016 159,025 212,033 265,041 318,049 318,049
900,000............ 59,758 119,516 179,275 239,033 298,791 358,549 358,549
1,000,000............ 66,508 133,016 199,525 266,033 332,541 399,049 399,049
1,100,000............ 73,258 146,516 219,775 293,033 366,291 439,549 439,549
1,200,000............ 80,008 160,016 240,025 320,033 400,041 480,049 480,049
1,300,000............ 86,758 173,516 260,275 347,033 433,791 520,549 520,549
1,400,000............ 93,508 187,016 280,525 374,033 467,541 561,049 561,049
1,500,000............ 100,258 200,516 300,775 401,033 501,291 601,549 601,549
1,600,000............ 107,008 214,016 321,025 428,033 535,041 642,049 642,049
</TABLE>
The amounts shown above are applicable to employees retiring in 1998 (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 or her employment. For 1998,
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, 1998 Messrs. Gerson,
Anathan and Siegel had 24, 23 and 7 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
13
<PAGE> 17
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
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 1998, Mr. Gerson had
55,450 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. At the end of fiscal 1998, Mr. Carothers had 225,000
non-vested stock options. 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. In addition, in connection with his acceptance of employment and
relocation, FBI made a secured demand loan to Mr. Carothers of $328,500 at 7.73%
interest per annum.
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
14
<PAGE> 18
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. At the end of fiscal 1998, Mr. Siegel had 90,000
non-vested stock options. 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 Gerson Agreement. Under
his 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 up to 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 1998, Mr. Anathan had 55,450 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.
SEVERANCE ARRANGEMENTS
An Executive Severance Plan between the Company and each of Messrs. Gerson,
Anathan and Siegel (the "Executive Severance Plan") provides those individuals
with a benefit equal to two times their current compensation at the time of
termination of employment, unless termination results from "voluntary
resignation," which excludes resignation for "good reason" (as defined), death
or termination for cause. The payment of this severance benefit reduces the
Company's obligation to pay SERP benefits.
CHANGE IN CONTROL AND RETENTION AGREEMENTS
Each of Messrs. Gerson, Carothers, Siegel and Anathan (the "Executives")
has entered into a Retention Agreement or Change in Control Agreement (each
individually, an "Agreement") with the Company. Each Agreement provides for
benefits in the event of a "qualified termination" of employment (as defined) or
a termination for any reason (whether by the Company or the Executive) during
the one-month period beginning on the first day of the twelfth month following a
"change in control" (as defined). In such event, any terminated Executive 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 his rights to benefits under the Agreement.
The Company also would be obligated to pay the terminated Executive an amount
sufficient to pay any excise tax owed by the Executive under the rules of the
IRC governing changes in control. Payments under each Agreement are due only to
the extent they exceed payments to be made to the Executive under other
agreements with the Company,
15
<PAGE> 19
including payment under such Executive's employment agreement but, in the case
of each of Messrs. Gerson, and Siegel, excluding payment to be made to each of
them under the Executive Severance Plan.
SPLIT-DOLLAR INSURANCE POLICIES
The Company has, since 1994, paid premiums on split-dollar life insurance
policies (the "Policies") for Messrs. Gerson and Anathan (for purposes of this
paragraph, the "Executives"), and, since 1997, for 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 Executive's taxable income for 1998) is reflected in the Summary
Compensation Table in the column "All Other Compensation" for 1998. 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 29, 2000. 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 2000 annual
meeting of stockholders must be received by the Company not later than January
18, 2000 in order to be considered for inclusion in the Company's proxy material
for that meeting.
In accordance with recent amendments to Rules 14a-4, 14a-5 and 14a-8 under
the Exchange Act made in 1998, written notice of stockholder proposals submitted
outside the processes of Rule 14a-8 for consideration at the 2000 Annual Meeting
of stockholders must be received by the Company not later than March 29, 2000 in
order to be considered timely for purposes of Rule 14a-4 and considered for
inclusion in the Company's proxy material for that meeting.
The Company's 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 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 publicly announced the date of the 1999 Annual
Meeting on April 16, 1999. Nominations for Director to be acted upon at the 1999
Annual Meeting must comply with the timing and informational requirements
described above.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act 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
16
<PAGE> 20
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 30, 1999, all filings requirements were complied with.
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 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 18, 1999
17
<PAGE> 21
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
1. Election of Director, Nominee:
- ---------------------------------------------------------------- For The With-
FILENE'S BASEMENT CORP. Nominee hold
- ----------------------------------------------------------------
Harold Leppo [ ] [ ]
CONTROL NUMBER:
RECORD DATE SHARES:
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.
----------------
Please be sure to sign and date this Proxy. Date Mark box at right if an address change or [ ]
- ---------------------------------------------------------------- comment has been noted on the reverse side
of this card.
- ----- Stockholder sign here ------------- Co-owner sign here ---
DETACH CARD DETACH CARD
</TABLE>
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 2:30 p.m. on Tuesday, June 22, 1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Filene's Basement Corp.
<PAGE> 22
FILENE'S BASEMENT CORP.
40 WALNUT STREET
WELLESLEY, MASSACHUSETTS 02481
ANNUAL MEETING OF STOCKHOLDERS - JUNE 22, 1999
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 1999 Annual Meeting of
Stockholders of FILENE'S BASEMENT CORP. (the "Company") to be held at The Westin
Hotel, 70 Third Avenue, Waltham, Massachusetts at 2:30 p.m. on Tuesday, June 22,
1999, 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 DIRECTOR NOMINEE.
- --------------------------------------------------------------------------------
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 a corporation, this signature should be that of an
authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
