<PAGE>
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 [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ORCHARD SUPPLY HARDWARE STORES CORPORATION
- --------------------------------------------------------------------------------
(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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] 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:
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(4) Date Filed:
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Notes:
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION
6450 Via Del Oro
San Jose, California 95119
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 1996
TO THE STOCKHOLDERS OF ORCHARD SUPPLY HARDWARE STORES CORPORATION
The 1996 Annual Meeting of Stockholders (the "1996 Annual Meeting") of
Orchard Supply Hardware Stores Corporation (the "Company") will be held at 2:00
p.m., Pacific Time, on Thursday, May 23, 1996 at The Westin Hotel, 5101 Great
America Parkway, Santa Clara, California 95054, for the following purposes:
1. To elect eight Directors of the Company to serve during the ensuing
year and until their successors are elected and qualified.
2. To approve an amendment to the 1993 Stock Option Plan to increase the
number of shares reserved for issuance thereunder.
3. To approve the adoption of the 1996 Non-Employee Directors Stock Option
Plan.
4. To ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending January 26, 1997.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only the stockholders of record at the close
of business on April 4, 1996 will be entitled to notice of and to vote at the
1996 Annual Meeting or any adjournment or postponement thereof.
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended January 28, 1996 is being mailed with this Notice but is not to be
considered part of the proxy soliciting material.
By Order of the Board of Directors
MICHAEL SEDA
Secretary
April 10, 1996
San Jose, California
YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED AND TO SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IT IS IMPORTANT FOR
YOU TO BE REPRESENTED AT THE MEETING. PROXIES ARE REVOCABLE AT ANY TIME AND THE
EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE
PRESENT AT THE MEETING.
---------------
REQUESTS FOR ADDITIONAL COPIES OF PROXY MATERIALS SHOULD BE ADDRESSED TO
MICHAEL SEDA, CORPORATE SECRETARY, AT THE OFFICES OF THE COMPANY, 6450 VIA DEL
ORO, SAN JOSE, CALIFORNIA 95119.
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION
6450 VIA DEL ORO
SAN JOSE, CALIFORNIA 95119
---------------
PROXY STATEMENT
1996 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 1996
---------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Orchard Supply Hardware
Stores Corporation, a Delaware corporation (the "Company"), for use at the 1996
Annual Meeting of Stockholders (the "1996 Annual Meeting") to be held on
Thursday, May 23, 1996 at 2:00 p.m., Pacific Time, at The Westin Hotel, 5101
Great America Parkway, Santa Clara, California 95054, and any adjournment or
postponement thereof. This Proxy Statement and the form of proxy to be utilized
at the 1996 Annual Meeting were mailed or delivered to the stockholders of the
Company on or about April 10, 1996.
MATTERS TO BE CONSIDERED
The 1996 Annual Meeting has been called to (1) elect eight Directors of the
Company to serve during the ensuing year and until their successors are elected
and qualified, (2) approve an amendment to the 1993 Stock Option Plan to
increase the number of shares reserved for issuance upon exercise of options
granted thereunder, (3) approve the adoption of the 1996 Non-Employee Directors
Stock Option Plan, (4) ratify the appointment of Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending January 26, 1997
("fiscal 1996") and (5) transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
RECORD DATE AND VOTING
The Board has fixed the close of business on April 4, 1996 as the record
date (the "Record Date") for the determination of stockholders entitled to vote
at the 1996 Annual Meeting and any adjournment or postponement thereof. As of
the Record Date, there were outstanding 7,528,448 shares of the Company's Common
Stock.
QUORUM AND VOTING REQUIREMENTS
The holders of record of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at the 1996
Annual Meeting. As to all matters, each stockholder is entitled to one vote for
each share of Common Stock held. Abstentions and broker non-votes are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business. The Director nominees who receive the greatest number
of votes at the 1996 Annual Meeting will be elected to the Board of the Company.
Stockholders are not entitled to cumulate votes. Votes against a candidate and
votes withheld have no legal effect. In matters other than the election of
Directors, abstentions are counted as votes against in tabulations of the votes
cast on proposals presented to stockholders, whereas broker non-votes are not
counted for purposes of determining whether a proposal has been approved.
1
<PAGE>
All proxies which are properly completed, signed and returned prior to the
1996 Annual Meeting will be voted. Any proxy given by a stockholder may be
revoked at any time before it is exercised, by filing with the Secretary of the
Company an instrument revoking it, by delivering a duly executed proxy bearing a
later date or by the stockholder attending the 1996 Annual Meeting and
expressing a desire to vote his or her shares in person.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's capital stock as of March 19, 1996 by (i) each person
who is known by the Company to be the beneficial owner of more than 5% of any
class of the Company's capital stock, (ii) each Director, nominee for Director
and certain executive officers of the Company, individually, and (iii) all
Directors and executive officers as a group:
<TABLE>
<CAPTION>
NAME OF AMOUNT
TITLE OF CLASS BENEFICIAL OWNER(1) BENEFICIALLY OWNED PERCENT OF CLASS
- -------------- --------------------------------------- ------------------ ----------------
<S> <C> <C> <C>
Common Stock Freeman Spogli & Co.(2)(3)............. 1,604,043 18.2%
Ronald P. Spogli
William M. Wardlaw
J. Frederick Simmons
Matt L. Figel(4)
RCM General Corporation(5)............. 490,000 6.5%
FMR Corp.(6)........................... 384,000 5.1%
Dimensional Fund Advisors Inc.(7)...... 370,000 4.9%
Maynard Jenkins(8)..................... 62,067 *
Stephen M. Hilberg(9).................. 22,597 *
Morton Godlas.......................... 2,500 *
William A. Hall........................ 1,200 *
Mac Allen Culver....................... -- --
Joseph A. DiRocco(9)................... 11,802 *
Robert A. Lewis(9)..................... 37,972 *
Robert J. Wittman...................... -- --
Directors and Executive Officers as a.. 177,493 2.3%
Group (15 persons)(2)(3)(9)...........
6% Cumulative Freeman Spogli & Co.(3)................ 800,000 100%
Convertible
Preferred Stock
</TABLE>
- --------------
* Less than 1%
(1) Except as otherwise indicated below, the persons named have sole voting
power and investment power with respect to all shares of capital stock shown
as beneficially owned by them, subject to community property laws where
applicable.
(2) 324,043 shares of Common Stock are owned by FS Equity Partners II, L.P.
("FSEP II"). As general partner of FSEP II, Freeman Spogli & Co. ("FS&Co.")
has the sole power to vote and dispose of such shares. Messrs. Simmons,
Spogli and Wardlaw and Bradford M. Freeman and John M. Roth are general
partners of FS&Co., and as such may be deemed to be the beneficial owners of
the shares of the Company's capital stock indicated as beneficially owned by
FS&Co. The business address of FS&Co., its general partners and FSEP II is
11100 Santa Monica Boulevard, Suite 1900, Los Angeles, California 90025.
(3) 772,135 shares and 27,865 shares of 6% Cumulative Convertible Preferred
Stock, $.01 par value per share ("Convertible Preferred Stock"), are owned
by FS Equity Partners III, L.P. ("FSEP III") and FS Equity Partners
International, L.P. ("FSEP International"), respectively, and are
convertible into 1,235,416 shares and 44,584 shares of Common Stock,
respectively. As general partner of FS Capital Partners, L.P. ("FS
Capital"), which is general partner of FSEP III, FS Holdings, Inc. ("FSHI")
has the sole power to vote and
2
<PAGE>
dispose of the shares owned by FSEP III. As general partner of FS&Co.
International, L.P. ("FS&Co. International"), which is the general partner
of FSEP International, FS International Holdings Limited ("FS International
Holdings") has the sole power to vote and dispose of the shares owned by
FSEP International. Messrs. Freeman, Simmons, Spogli, Wardlaw and Roth and
Charles P. Rullman are the sole Directors, officers and shareholders of FSHI
and FS International Holdings, and as such may be deemed to be the
beneficial owners of the shares of the Company's capital stock owned by FSEP
III and FSEP International. The business address of FSEP III, FS Capital,
FSHI and its sole Directors, officers and shareholders is 11100 Santa Monica
Boulevard, Suite 1900, Los Angeles, California 90025 and the business
address of FSEP International, FS&Co. International and FS International
Holdings is c/o Paget-Brown & Company, Ltd., West Winds Building, Third
Floor, Grand Cayman, Cayman Islands, B.W.I.
(4) Mr. Figel is an employee of an affiliate of FS&Co.
(5) As reported in a Schedule 13G dated February 7, 1996 filed jointly with the
Securities and Exchange Commission (the "Commission") by RCM Capital
Management ("RCM Capital"), RCM Limited L.P. ("RCM Limited") and RCM General
Corporation ("RCM General"), each has claimed sole voting power with respect
to 436,000 shares of Common Stock and sole dispositive power with respect to
491,000 shares. As the general partner of RCM Limited, which is the general
partner of RCM Capital, RCM General may be deemed to be the beneficial owner
of such shares. RCM Capital is an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940.
(6) As reported in a Schedule 13G dated February 14, 1996 filed jointly with the
Commission by FMR Corp. ("FMR"), Edward C. Johnson 3d and Abigail P.
Johnson, FMR has claimed sole voting power with respect to 35,000 shares and
each has claimed sole dispositive power with respect to 384,000 shares.
(7) As reported in a Schedule 13G dated February 7, 1996 filed with the
Commission by Dimensional Fund Advisors Inc. ("Dimensional"). Dimensional
has claimed sole voting power with respect to 258,000 shares of Common Stock
and sole dispositive power with respect to 370,000 shares. Dimensional is
an investment advisor registered under Section 203 of the Investment
Advisors Act of 1940.
(8) 35,920 shares of Common Stock are held by Maynard L. Jenkins, Jr. and Susan
M. Jenkins, Co-Trustees under the Living Trust dated November 10, 1988. The
amount stated includes 26,147 shares of Common Stock covered by options
which are exercisable within 60 days following March 19, 1996.
(9) The amounts stated include 12,637, 10,012, 5,802 and 79,314 shares of Common
Stock covered by options which are exercisable within 60 days following
March 19, 1996 with respect to Messrs. Hilberg, Lewis and DiRocco and all
Directors and executive officers as a group, respectively.
PROPOSAL 1--ELECTION OF DIRECTORS
Eight Directors are to be elected at the 1995 Annual Meeting to serve until
the next Annual Meeting of stockholders and until their respective successors
have been elected and qualified. In the absence of instructions to the
contrary, proxies covering shares of Common Stock will be voted in favor of the
election of the persons listed below. In the event that any nominee for
election as Director should become unavailable to serve, it is intended that
votes will be cast, pursuant to the enclosed proxy, for such substitute nominee
as may be nominated by the Company. Management has no present knowledge that
any of the persons named will be unavailable to serve.
No arrangement or understanding exists between any nominee and any other
person or persons pursuant to which any nominee was or is to be selected as a
Director or nominee. None of the nominees has any family relationship to any
other nominee or to any executive officer of the Company.
INFORMATION CONCERNING INCUMBENT DIRECTORS AND NOMINEES TO BOARD OF DIRECTORS.
Information is set forth below concerning the incumbent Directors, all of
whom are also nominees for election as Directors, except Mr. Wardlaw, who is not
standing for re-election, and the year in which each incumbent Director was
first elected as a Director of the Company. Information is also set forth
concerning Mr. Culver, the nominee to fill the position being vacated by Mr.
Wardlaw. Each nominee has furnished the information as to his beneficial
ownership of Common Stock and Convertible Preferred Stock as of March 19, 1996
and, if not employed by the Company, the nominee's principal occupation. Each
nominee has consented to being named in this Proxy Statement as a nominee for
Director and has agreed to serve as a Director if elected.
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
- ---- --- ------------------------- -----
<S> <C> <C> <C>
Maynard Jenkins 53 President, Chief Executive 1989
Officer and
Director
Stephen M. Hilberg 52 Vice President-Finance, 1989
Chief Financial
Officer and Director
Matt L. Figel 36 Director 1995
Morton Godlas*+ 72 Director 1993
William A. Hall+ 64 Director 1995
J. Frederick Simmons* 41 Director 1989
Ronald P. Spogli* 48 Director 1989
Mac Allen Culver 54 Nominee for Director --
</TABLE>
- ----------------
* Member of the Compensation Committee.
+ Member of the Audit Committee.
Mr. Jenkins has served as President of the Company and a Director since May
1989 and as Chief Executive Officer since 1986. Before joining the Company, Mr.
Jenkins served as the President and Chief Operating Officer of Pay 'n Save,
Inc., a retail drug store chain. Mr. Jenkins is also a member of the Board of
Directors of Ross Stores, Inc., an off-price retail apparel chain.
Mr. Hilberg has served as Chief Financial Officer and Vice President-
Finance of the Company since 1981. From 1978 to 1981, Mr. Hilberg served as the
Corporate Controller of Franklin Stores, a retail chain of discount department
and ladies' apparel stores.
Mr. Figel has been employed by an affiliate of FS&Co., a private investment
company, since 1986. Mr. Figel is also a member of the Board of Directors of
Buttrey Food and Drug Stores Company.
Mr. Godlas is a management consultant with more than 45 years of retail
experience. Since 1982, Mr. Godlas has been President and Chief Executive
Officer of M. Godlas, Inc., a retail consulting firm. From 1978 to 1982, Mr.
Godlas was Corporate Senior Vice President-General Merchandise at Lucky Stores,
Inc., a retail supermarket chain.
Mr. Hall founded Sight & Sound Distributing Company, a media and software
distribution company, in 1984 and has served as President and Chief Executive
Officer since that time.
Mr. Simmons joined FS&Co. in 1986 and became a general partner in January
1991. Mr. Simmons is also a member of the Board of Directors of Buttrey Food
and Drug Stores Company and EnviroSource, Inc.
Mr. Spogli is a founding partner of FS&Co., which was founded in 1983. Mr.
Spogli is the Chairman of the Board and a Director of EnviroSource, Inc. Mr.
Spogli also serves on the Board of Directors of Mac Frugal's Bargains . Close-
Outs Inc. and Buttrey Food and Drug Stores Company and on the Board of
Representatives of Brylane, L.P.
Mr. Culver has served as President and Chief Operating Officer of St. Ives
Laboratories, Inc., a hair and skin care company, since 1987. Mr. Culver has 20
years of retail industry experience. He served as Chairman and Chief Executive
Officer of Pay 'n Save, Inc., a retail drug store chain, from 1985 to 1986 and
President and Chief Executive Officer of Gray DrugFair, another retail drug
store chain, from 1984 to 1985. Mr. Culver is also a member of the Board of
Directors of St. Ives Laboratories, Inc. and IVC Industries, Inc.
The Company, FSEP II, FSEP III and FSEP International have entered into a
Management Rights Agreement, effective as of January 1, 1995, pursuant to which
FSEP III can substantially participate in, or substantially influence the
conduct of, the management of the Company and its business.
4
<PAGE>
THE BOARD OF DIRECTORS
COMMITTEES
The standing committees of the Board are the Audit Committee (the "Audit
Committee") and the Compensation Committee (the "Compensation Committee"). The
Audit Committee, which presently consists of Messrs. Godlas and Hall, met once
during the fiscal year ended January 28, 1996 ("fiscal 1995"). The Compensation
Committee, which presently consists of Messrs. Godlas, Simmons and Spogli, met
twice during fiscal 1995.
The Audit Committee recommends to the Board the engagement or discharge of
the Company's independent auditors; reviews with the independent auditors the
scope, timing and plan for the annual audit, any non-audit services and the fees
for audit and other services; reviews outstanding accounting and auditing issues
with the independent auditors; and supervises or conducts such additional
projects as may be relevant to its duties. The Audit Committee is also
responsible for reviewing and making recommendations with respect to the
Company's financial condition, its financial controls and accounting practices
and procedures.
The Compensation Committee recommends to the Board compensation policies
and guidelines for the Company's executives and oversees the granting of
incentive compensation, if any, to such persons. The Compensation Committee
also administers the Company's bonus and stock option plans. See "Report of the
Compensation Committee of the Board of Directors."
MEETINGS AND REMUNERATION
During fiscal 1995, the Board held four meetings and took various actions
by written consent. Each incumbent Director attended at least 75% of the
aggregate of (i) the total number of meetings held by the Board during fiscal
1995 and (ii) the total number of meetings held by all committees of the Board
during that period within which he was a Director or member of such committee of
the Board.
Each Director is elected to hold office until the next annual meeting of
stockholders and until his respective successor is elected and qualified.
Except for non-employee Directors of the Company who are not affiliated with
FS&Co. ("Outside Directors"), Directors do not receive compensation for service
on the Board or any committee of the Board. All Directors are reimbursed for
their out-of-pocket expenses in serving on the Board and any committee of the
Board. Outside Directors receive an annual retainer of $10,000 plus $1,500 for
each regular Board meeting attended. The Company has adopted a stock option
plan for Outside Directors and proposes to adopt a new stock option plan for
Outside Directors. See "1993 Non-Employee Directors Stock Option Plan" and
"Proposal 3."
1993 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Outside Directors of the Company are eligible to participate in the 1993
Non-Employee Directors Stock Option Plan (the "1993 Directors Plan").
Participants in the 1993 Directors Plan may be granted options to purchase
shares of the Company's Common Stock at a purchase price determined by the
Compensation Committee. Options granted under the 1993 Directors Plan are not
intended to qualify for treatment as incentive stock options under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). In no event
shall such purchase price be less than 85% of the fair market value of the
underlying shares at the time the option is granted, or less than 110% of the
fair market value in the case of any participant who owns capital stock
possessing more than 10% of the total combined voting power or value of all
classes of capital stock of the Company or its subsidiaries. Up to 10,000
shares of the Company's Common Stock may be issued under the 1993 Directors Plan
upon the exercise
5
<PAGE>
of options granted thereunder, which options vest and become exercisable in
annual installments of 20% per year over five years. As of March 19, 1996,
options covering 10,000 shares of Common Stock had been granted under the 1993
Directors Plan, 2,000 of which had been exercised.
EXECUTIVE OFFICERS, COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and current offices held
by all executive officers of the Company.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION WITH THE COMPANY SINCE
- ---- --- ------------------------- -----
<S> <C> <C> <C>
Maynard Jenkins 53 President, Chief Executive Officer and Director 1986
Dale D. Ward 46 Executive Vice President and Chief Operating 1996
Officer
Stephen M. Hilberg 52 Vice President-Finance, Chief Financial 1981
Officer and Director
William G. Collard 58 Vice President-Distribution 1986
Joseph A. DiRocco 46 Vice President-Marketing 1986
Robert A. Lewis 50 Vice President-Purchasing and General 1986
Merchandise Manager
Carolyn J. McInnes 51 Vice President-Human Resources 1986
Lee Nemechek 62 Vice President-Stores 1990
Ronald R. Stahl 36 Vice President-Store Planning/Real Estate 1996
</TABLE>
Executive officers of the Company are elected by and serve at the
discretion of the Board. Other than Mr. Jenkins, no arrangement exists between
any executive officer and any other person or persons pursuant to which any
executive officer was or is to be selected as an executive officer. See
"Employment Agreement." None of the executive officers has any family
relationship to any nominee for Director or to any other executive officer of
the Company. Set forth below is a brief description of the business experience
for the previous five years of all executive officers except Messrs. Jenkins and
Hilberg. See "Information Concerning Incumbent Directors and Nominees to Board
of Directors."
Mr. Ward has served as Executive Vice President and Chief Operating Officer
since April 1996. He has over 25 years of retail management experience. Mr.
Ward served as President and Chief Executive Officer of F&M Super Drug Stores,
Inc., a super drug store chain, from 1994 to 1995 and as Chairman and Chief
Executive Officer of Ben Franklin Stores Inc., a variety and craft store chain,
from 1988 to 1993.
Mr. Collard has served as Vice President-Distribution of the Company since
1986. Mr. Collard joined the Company in 1979 and has over 30 years of
warehousing and distribution experience. Prior to joining the Company, Mr.
Collard served for seven years as the Operations Supervisor for Fleming Foods, a
wholesale grocery distribution company, and for nine years as the Warehouse
Foreman for Louis Stores, a retail grocery chain. Mr. Collard is currently
responsible for the Company's warehouse and distribution activities.
Mr. DiRocco has served as Vice President-Marketing of the Company since
1986. From 1983 to May 1986, Mr. DiRocco worked in the marketing and
advertising departments of the Company. Mr. DiRocco joined the Company in 1983
and has over 15 years of marketing experience in the retail industry.
6
<PAGE>
Mr. Lewis has served as Vice President-Purchasing and General Merchandise
Manager of the Company since 1986. Mr. Lewis began his career at the Company in
1961 and is responsible for all aspects of the Company's merchandising and
buying program.
Ms. McInnes has served as Vice President-Human Resources of the Company
since 1986. Ms. McInnes joined the Company in 1979 as Director of Training.
She is responsible for all of the Company's training, personnel, wage and
benefits related matters.
Mr. Nemechek joined the Company in March 1987 as a Regional Manager and was
promoted to Vice President-Stores in July 1990. Prior to joining the Company,
Mr. Nemechek had over 30 years of experience in grocery and general merchandise
retailing. Mr. Nemechek is responsible for all aspects of store operations.
Mr. Stahl joined the Company in February 1987 and has served as the
Director of Store Planning since January 1992. Mr. Stahl was promoted to Vice
President Store Planning and Real Estate in February 1996. Mr. Stahl has over
17 years of retail construction experience and is responsible for all aspects of
construction, real estate and store facilities.
COMPENSATION
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to the Company paid or accrued
by the Company for each of the fiscal years in the three year period ended
January 28, 1996 to (i) the President and Chief Executive Officer and (ii) each
of the four other most highly compensated executive officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------------- ----------------------- -------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ LTIP
NAME AND PRINCIPAL YEAR SALARY(1) BONUS(1)(2) COMPENSATION AWARDS SARS(4) PAYOUTS ALL OTHER
POSITIONS ($) (3)(5) ($) ($) (#) ($) COMPENSATION(5)
- ------------------------------ ---- --------- ----------- ------------ ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maynard Jenkins .............. 1995 337,692 487,794 -- 0 20,000 0 18,730
President and Chief 1994 325,000 240,351 -- 0 -- 0 9,956
Executive Officer 1993 318,000 330,701 -- 0 7,500 0 18,795
Stephen M. Hilberg ........... 1995 125,338 70,088 -- 0 8,000 0 18,766
Vice President-Finance and 1994 123,031 21,752 -- 0 -- 0 10,028
Chief Financial Officer 1993 119,054 43,504 -- 0 4,500 0 13,353
Robert A. Lewis .............. 1995 107,654 59,858 -- 0 5,000 0 17,281
Vice President-Purchasing 1994 106,116 18,735 -- 0 -- 0 9,166
and General Merchandise 1993 102,319 37,470 -- 0 3,000 0 10,577
Manager
Joseph A. DiRocco ............ 1995 96,804 52,567 -- 0 5,000 0 16,718
Vice President-Marketing 1994 96,804 17,146 -- 0 -- 0 13,135
1993 93,692 34,292 -- 0 3,000 0 14,989
Robert J. Wittman(6) ......... 1995 240,000 155,269 -- 0 15,000 0 11,124
Executive Vice President 1994 -- -- -- 0 -- 0 --
and Chief Operating Officer 1993 -- -- -- 0 -- 0 --
</TABLE>
7
<PAGE>
- --------------
(1) Amounts shown include compensation earned and received by executive officers
as well as amounts earned but deferred at the election of those officers.
(2) Represents payments made to executive officers pursuant to the Company's
Performance Bonus Plan (defined below) and bonuses paid to Maynard Jenkins
of $100,000 for fiscal 1993 and $125,000 for each of fiscal 1994 and 1995
pursuant to his employment agreement. See "Employment Agreement."
(3) The Company has instituted a bonus plan (the "Performance Bonus Plan")
covering senior management (the President and eight Vice Presidents) which
provides for annual bonus payments based upon the Company's performance
against annually established target levels. For fiscal 1993 and fiscal
1995, annual bonus payments were based on the targets in effect for that
year. For fiscal 1994, although no bonus was payable under the annually
established targets, the Compensation Committee concluded that senior
management merited bonuses based on its performance in managing the
significant expansion undertaken during the year. See "Report of the
Compensation Committee of the Board of Directors."
(4) Represents options granted under the Company's 1993 Stock Option Plan (the
"1993 Plan"). The options granted under the 1993 Plan were granted at fair
market value on the date of the grant, were for a term of ten years and vest
in four equal annual installments, commencing on the date of grant. The
exercise price was $17.10 for fiscal 1993 grants and $7.75 for fiscal 1995
grants.
(5) For Mr. Jenkins, amount includes: (i) $2,250 matching contributions to the
Company's 401(k) plan, (ii) $5,358 profit-sharing payments, (iii) $10,000
matching savings bonus, (iv) $669 automobile allowance and (v) $453 in
payments toward group life insurance plan. For Mr. Hilberg, amount
includes: (i) $2,250 matching contributions to the Company's 401(k) plan,
(ii) $5,358 profit-sharing payments, (iii) $10,000 matching savings bonus,
(iv) $705 automobile allowance and (v) $453 in payments toward group life
insurance plan. For Mr. Lewis, amount includes: (i) $2,055 matching
contributions to the Company's 401(k) plan, (ii) $4,774 profit-sharing
payments, (iii) $10,000 matching savings bonus and (iv) $453 in payments
toward group life insurance plan. For Mr. DiRocco, amount includes: (i)
$1,870 matching contributions to the Company's 401(k) plan, (ii) $4,221
profit-sharing payments, (iii) $10,000 matching savings bonus, (iv) $183
automobile allowance and (v) $444 in payments toward group life insurance
plan. For Mr. Wittman, amount includes: (i) $10,000 matching savings bonus,
(ii) $702 automobile allowance and (iii) $422 in payments toward group life
insurance plan. Itemized disclosure of amounts of other compensation in
fiscal 1994 and fiscal 1993 is not required.
(6) Mr. Wittman resigned from the Company in March 1996.
EMPLOYMENT AGREEMENT
Mr. Jenkins is party to an employment agreement which was amended in February
1996 to provide for a base annual salary of not less than $525,000 per year and
bonuses and fringe benefits determined from time to time by the Company. The
amendment eliminated an additional $125,000 guaranteed bonus paid to Mr. Jenkins
annually. Except in the event of termination of employment for cause, death or
disability, the current term of Mr. Jenkins' employment agreement will expire on
December 31, 1999. The employment agreement shall automatically renew for a two
year term on each expiration date until notice of termination is given by the
Company. Upon termination of employment for death or disability, Mr. Jenkins is
entitled to a severance payment equal to six months of his salary. Upon
termination of employment other than for cause, death or disability, Mr. Jenkins
is entitled to a severance payment consisting of three years' base salary plus
the target bonus applicable to the earning year in progress at the date of
termination, provided, however, that such severance payment shall not exceed the
limits imposed by Section 280G of the Code.
STOCK OPTIONS
Options covering 111,200 shares were granted by the Company during fiscal
1995.
The following table sets forth information concerning options granted to the
President and Chief Executive Officer and to each of the four other most highly
compensated executive officers of the Company during fiscal 1995.
8
<PAGE>
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES % OF TOTAL AT ASSUMED ANNUAL RATES
UNDERLYING OPTIONS/SARS OF STOCK PRICE APPRECIATION
OPTIONS/SARS GRANTED TO EXERCISE OF FOR OPTION TERM
GRANTED (1) EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
(#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
------------ ------------ ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Maynard Jenkins..... 20,000 18.0 7.75 03/03/05 97,479 247,030
Stephen M. Hilberg.. 8,000 7.2 7.75 03/03/05 38,991 98,812
Robert A. Lewis..... 5,000 4.5 7.75 03/03/05 24,370 61,758
Joseph A. DiRocco... 5,000 4.5 7.75 03/03/05 24,370 61,758
Robert J. Wittman... 15,000 13.5 7.75 03/03/05 73,109 185,273
</TABLE>
______________
(1) All of the options set forth in the table above were granted pursuant to the
1993 Plan. For a discussion of the material terms of these options, see
"Proposal 2."
The following table sets forth information concerning the aggregate number of
options exercised by each of the executive officers named in the "Summary
Compensation Table" during fiscal 1995 and outstanding options held by each such
officer as of January 28, 1996.
OPTION EXERCISES AND YEAR END VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED OPTIONS/ VALUE OF UNEXERCISED
SARS AT IN-THE-MONEY
JANUARY 28, 1996(1)(#) OPTIONS/SARS AT
---------------------- JANUARY 28, 1996($)(2)
SHARES ACQUIRED VALUE EXERCISABLE/ ---------------------------
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE EXERCISABLE / UNEXERCISABLE
- -------------------- --------------- ----------- ---------------------- ---------------------------
<S> <C> <C> <C> <C>
Maynard Jenkins..... -- -- 21,147 / 16,875 314,018 / 279,890
Stephen M. Hilberg.. -- -- 10,637 / 7,125 152,868 / 115,059
Robert A. Lewis..... -- -- 8,762 / 4,500 130,339 / 72,299
Joseph A. DiRocco... -- -- 4,552 / 4,500 58,580 / 72,299
Robert J. Wittman... 3,750 37,500 -- / 11,250 -- / 198,281
</TABLE>
- --------------
(1) Represents options granted under the 1993 Plan, under the Company's Amended
1989 Nonqualified Stock Option Plan (the "1989 Plan") and to Maynard Jenkins
pursuant to a Nonqualified Stock Option Agreement. See "Summary
Compensation Table."
(2) Value is determined by subtracting the exercise price from the fair market
value (the closing price for the Company's Common Stock as reported on the
Nasdaq National Market as of January 26, 1996, ($25.375 per share)) and
multiplying the resulting number by the number of underlying shares of
Common Stock.
9
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board is comprised of Messrs.
Godlas, Simmons and Spogli. The Compensation Committee establishes the general
compensation policies of the Company, establishes the compensation plans and
specific compensation levels for executive officers and administers the 1989
Plan, the Non-Employee Directors Plan and the 1993 Plan.
The following is the Compensation Committee's report submitted to the
Board addressing the compensation of the Company's executive officers for fiscal
1995.
COMPENSATION POLICY
The Company's executive compensation policy is designed to establish
an appropriate relationship between executive pay and the Company's annual
performance, its long term growth objectives and its ability to attract and
retain qualified executive officers. The Compensation Committee attempts to
achieve these goals by integrating competitive annual base salaries with (i)
bonuses based on corporate performance and on the achievement of specified
performance objectives through the Performance Bonus Plan and (ii) stock options
through the 1989 Plan and the 1993 Plan. The Compensation Committee believes
that cash compensation in the form of salary and performance-based bonuses
provides company executives with short term rewards for success in operations,
and that long term compensation through the award of stock options encourages
growth in management stock ownership which leads to expansion of management's
stake in the long term performance and success of the Company.
Base Salary. For fiscal 1995, the Compensation Committee approved the
base salaries of the executive officers based on (i) salaries paid to executive
officers with comparable responsibilities employed by companies with comparable
businesses, (ii) performance and profitability of the Company in fiscal 1994 and
(iii) individual performance reviews for fiscal 1994, which was the most
important factor. In its survey of comparable executive officer salaries, the
Compensation Committee relied on information regarding salaries paid to
executive officers in the Company's Peer Group Index, where such information was
available, and to a lesser extent, salaries paid to executive officers in the
retail industry in general. The Compensation Committee was able to obtain
salary information for five of the seven companies in the Peer Group Index. See
"Company Performance." The Compensation Committee adjusted the salary
information it collected to take into account varying sales volume and
geographic regions of the companies involved. For fiscal 1995, executive
officers generally received raises in their annual base salary, which raises
ranged from approximately 4% to 7% of annual base salary. The President and
Chief Executive Officer received the largest raise of $30,000, representing an
increase of approximately 6.7% in his annual guaranteed compensation.
Bonuses. Annual incentives under the Performance Bonus Plan for the
President and Chief Executive Officer and the other named executive officers are
intended to reflect the Company's belief that management's contribution to
stockholder returns (via increasing stock price) comes from maximizing earnings
and the quality of those earnings. Awards under the Performance Bonus Plan are
based largely on the Company's attainment of annually established performance
targets and each participant's target bonus is fixed as a percentage of his or
her base salary. For fiscal 1993 the Company's performance targets were based
on "EBDIT" (earnings before depreciation, amortization of deferred charges, LIFO
adjustment, interest and income taxes) and "Free Cash Flow" (EBDIT minus capital
expenditures and plus or minus the change in working capital). For fiscal 1994
and fiscal 1995, the Compensation Committee based the Company's targets on
operating income (earnings before interest, income taxes and extraordinary
items), reflecting the Compensation Committee's belief that an earnings-based
approach more appropriately reflects contributions to stockholder value for a
public company than a cashflow-based approach. Under the Performance Bonus
Plan, if the Company's performance targets are attained, participants will
receive their full target bonus. Bonus levels are reduced proportionately if
the Company's actual performance does
10
<PAGE>
not meet the targeted performance levels down to a floor of target performance
minus 25% of pre-tax income, below which point no bonus will be earned. If the
Company's performance targets are exceeded, additional bonuses equal to 10% of
the amount of the excess will also be payable under the Performance Bonus Plan,
allocated among participants proportionately based on their target bonus
amounts. For fiscal 1995, participants in the Performance Bonus Plan were
assigned target bonus amounts ranging from 20% to 30% of their base salaries.
The varying percentages reflect the Compensation Committee's belief that, as an
executive's duties and responsibilities increase, he or she will be increasingly
responsible for the performance of the Company. For fiscal 1995, the Company's
performance targets established by the Compensation Committee at the beginning
of the year were exceeded by 14.5%. See "Summary Compensation Table."
Stock Options. Options under the Company's 1993 Plan were granted to
the executive officers of the Company, including the President and Chief
Executive Officer, as well as 114 other employees of the Company, in March 1995.
The number of options that each executive officer or employee was granted was
based primarily on the executive's or employee's ability to influence the
Company's long term growth and profitability. The Compensation Committee
believes that option grants afford a desirable long term compensation method
because they closely ally the interests of management with stockholder value and
that grants of options are the best way to directly link the financial interests
of management with those of stockholders. The vesting provisions of options
granted under the 1993 Plan are designed to encourage longevity of employment
with the Company.
COMPENSATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that Maynard Jenkins, the
Company's President and Chief Executive Officer, provides valuable services to
the Company and that his compensation should therefore be competitive with that
paid to executives at comparable companies. In addition, the Compensation
Committee believes that an important portion of his compensation should be based
on Company performance. Mr. Jenkins received an increase in his annual base
salary of $30,000 in September 1995, representing an increase of approximately
6.7% of his annual guaranteed compensation. The increase was determined to be
appropriate by the Compensation Committee based on (i) comparable chief
executive compensation within the Company's Peer Group Index, where such
information was available, and to a lesser extent, within the retail industry in
general, each as adjusted for varying sales volumes and geographic region, (ii)
improvements in the Company's performance and profitability in the first seven
months of fiscal 1995 and (iii) a review of his individual performance during
the first seven months of fiscal 1995. See "Company Performance." However, the
baseline target bonus payable to Mr. Jenkins under the Performance Bonus Plan
(30%) was not raised as a percentage of his base salary for fiscal 1995. In
addition, for fiscal 1995, Mr. Jenkins was eligible to receive an additional
performance bonus based upon the same Company performance targets applicable
under the Performance Bonus Plan. If the performance targets are achieved,
pursuant to this additional bonus program, Mr. Jenkins receives an additional
bonus equal to 25% of his base salary and if the targets are exceeded, he
receives a percentage of the excess amount up to a limit of an additional 12.5%
(37.5% total) of his base salary. As the Company's performance targets were
exceeded by 14.5% in fiscal 1995, Mr. Jenkins was paid a bonus of $487,794,
which included the $125,000 guaranteed bonus under his employment agreement, his
bonus under the Performance Bonus Plan and the maximum additional performance
bonus of 37.5% of his base salary.
INTERNAL REVENUE CODE SECTION 162(M)
Under Section 162 of the Code, the amount of compensation paid to
certain executives that is deductible with respect to the Company's corporate
taxes is limited to $1,000,000 annually. It is the current policy of the
Compensation Committee to maximize, to the extent reasonably possible, the
Company's ability to obtain a corporate tax deduction for compensation paid to
executive officers of the Company to the extent consistent with the best
interests of the Company and its stockholders.
The foregoing report has been furnished by Messrs. Godlas, Simmons and
Spogli.
11
<PAGE>
COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns for
the Company, the S&P 500 Stock Index and a Company-constructed Peer Group Index
(as defined below) for the period during which the Company's Common Stock has
been registered under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company-constructed Peer Group Index includes
the following companies: Eagle Hardware & Garden, Inc., Grossman's Inc.,
Hechinger Company, Home Depot, Inc., Lowe's Companies, Payless Cashways, Inc.,
and Wolohan Lumber Company. Primary Standard Industrial Classification ("SIC")
code was not a principal factor used in selecting the companies for the Peer
Group Index. The Company competes directly with the companies in its Peer Group
Index in substantially all product categories with the exception of lumber and
building materials. Because the other companies in the Peer Group Index sell
lumber and building materials, they are placed in a different primary SIC code
even though lumber and building materials comprise only approximately one-third
of those companies' businesses. Consequently, the Company believes that the
companies selected, although not from the Company's SIC code, operate businesses
comparable to the Company and provide the most accurate comparison to the
Company's performance. None of the other companies in the Company's primary SIC
code are substantial companies in the Company's market, with the exception of
Ernst Home Center, Inc., which operates a business comparable to the Company but
which has been excluded from the Peer Group Index because it has not been
publicly traded for the full period covered by the performance graph. The Peer
Group Index has been weighted for market capitalization at each data point.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG ORCHARD SUPPLY HARDWARE, PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
ORCHARD
Measurement Period SUPPLY
(Fiscal Year Covered) HARDWARE PEER GROUP BROAD MARKET
- ------------------- -------- ---------- ------------
<S> <C> <C> <C>
Measurement Pt- 1993 $100.00 $100.00 $100.00
FYE 1994 $100.00 $ 93.94 $120.70
FYE 1995 $ 54.39 $110.46 $114.06
FYE 1996 $178.07 $102.08 $159.71
</TABLE>
ASSUMES $100 INVESTED ON MARCH 31, 1993.
*TOTAL RETURNS ASSUMES REINVESTMENT OF DIVIDENDS.
12
<PAGE>
PROPOSAL 2--AMENDMENT OF 1993 STOCK OPTION PLAN
At the 1996 Annual Meeting, the stockholders will be asked to approve
an amendment (the "Amendment") to the Company's 1993 Stock Option Plan (the
"1993 Plan"). On February 26, 1996, the Board adopted the Amendment, subject to
stockholder approval as described herein, increasing the number of shares of
Common Stock available for issuance upon the exercise of options granted under
the 1993 Plan to 850,000. The 1993 Plan and information regarding options
granted thereunder is summarized below, but these descriptions are subject to
and are qualified in their entirety by the full text of the 1993 Plan, as
amended by the proposed Amendment, which is attached as Exhibit A to this Proxy
Statement.
The purpose of the Amendment is to increase the number of shares of
Common Stock available for option grants which can serve as an incentive and to
encourage stock ownership by officers and key employees of the Company. On
February 26, 1996, options to purchase 153,400 shares of Common Stock were
granted under the 1993 Plan, leaving a balance of 15,025 additional shares of
Common Stock which could be subject to options granted under the 1993 Plan. The
Board believes that increasing the number of stock options available for grant
under the 1993 Plan is advisable because such awards promote interest in the
welfare of the Company by allowing such persons to share in the success of the
Company and encouraging them to remain in the service of the Company. It also
gives the Company a means to attract qualified new employees.
SUMMARY OF THE 1993 PLAN
The 1993 Plan was adopted by the Board on November 19, 1993, amended
by the Board on March 29, 1994 to comply with the then-recently adopted Section
162 of the Code and approved by the stockholders on May 20, 1994. Under the 1993
Plan, officers and key employees of the Company or its Subsidiaries may be
granted options to purchase shares of Common Stock of the Company. The 1993 Plan
permits the granting of both options that qualify for treatment as incentive
stock options ("Incentive Stock Options") under Section 422 of the Code, and
options that do not qualify as Incentive Stock Options ("Nonqualified Stock
Options").
The purpose of the 1993 Plan and of granting options to specified
persons is to further the growth, development and financial success of the
Company and its directly or indirectly owned subsidiaries (individually, a
"Subsidiary," and collectively, the "Subsidiaries"), by providing stock-based
incentives to certain officers and key employees. By offering officers and key
employees the opportunity to acquire shares of the Company's Common Stock, the
Company can expand management's stake in the long term development, performance
and financial success of the Company. In this way, the Company can directly link
the interests of management to maximizing stockholder value. In the opinion of
the Compensation Committee and of the Board, it is in the best interests of the
Company and its stockholders to provide equity incentive programs designed to
enable the Company to attract, retain and reward key employees.
The persons who are eligible to receive grants of options under the
1993 Plan are, at the time of the grant, the officers and key employees of the
Company and its Subsidiaries, including those Directors of the Company and the
Subsidiaries who are also officers and key employees. Notwithstanding the
foregoing, only officers and key employees who do not own capital stock
possessing more than 10% of the total combined voting power or value of all
classes of capital stock of the Company or any Subsidiary shall be eligible to
receive grants of options. Any individual optionee may receive grants of options
up to the maximum number of shares of Common Stock in respect of which options
may be granted under the 1993 Plan.
The 1993 Plan is administered by the Compensation Committee
established by the Board, which has the power to construe and interpret the
provisions of the 1993 Plan and any option granted thereunder. The Compensation
Committee shall be constituted so as to permit the 1993 Plan to comply with the
provisions of Rule 16b-3 ("Rule 16b-3") under the Exchange Act. No member of the
Compensation Committee shall be liable for any action or determination made in
good faith with respect to the 1993 Plan or any option granted under it.
13
<PAGE>
The number of shares of Common Stock in respect of which options may
be granted under the 1993 Plan shall not exceed 850,000 shares. In the event of
certain changes in the Company's capitalization or structure, an appropriate
adjustment shall be made by the Compensation Committee in the number, kind or
Option Price of shares as to which options may thereafter be granted and as to
shares covered by unexercised outstanding options.
Each option granted under the 1993 Plan shall be evidenced by a
written stock option agreement ("Option Agreement") executed by the Company and
the optionee which (a) shall contain each of the provisions and agreements
herein specifically required to be contained therein; and (b) may contain such
other terms and conditions as the Compensation Committee deems desirable and
which are not inconsistent with the 1993 Plan. The purchase price per share (the
"Option Price") of the shares of Common Stock underlying each option and vesting
schedule for each option shall be determined by the Compensation Committee.
In no event may the Option Price of the shares underlying each
Incentive Stock Option be less than the fair market value of such shares at the
time the Incentive Stock Option is granted. The fair market value of such shares
shall be determined in good faith by the Compensation Committee. To the extent
that the aggregate fair market value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an optionee during
any calendar year under all incentive stock option plans of the Company and its
Subsidiaries exceeds $100,000, or such other limit as may be required by the
Code, such excess Incentive Stock Options shall be treated as Nonqualified Stock
Options.
Options granted under the 1993 Plan may be exercised, to the extent
vested, by the optionee by payment of the full purchase price therefor in cash,
by check or in such other form of lawful consideration as the Compensation
Committee may approve from time to time. Options may only be exercised by the
optionee, except in the event of death or disability (within the meaning of
Section 22(e)(3) of the Code). No option granted to a person subject to Section
16 of the Exchange Act shall be exercisable during the first six months after
the date such option is granted. Options may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution and, except in instances involving death or
disability, options may be exercised during the lifetime of the optionee only by
such optionee.
Each option granted under the 1993 Plan shall set forth a termination
date thereof, which shall be not later than 10 years from the date such option
is granted subject to earlier termination or forfeiture as set forth below, or
as otherwise set forth in each particular Option Agreement. Upon the
dissolution, liquidation or sale of all or substantially all of the business,
properties and assets of the Company, or upon any reorganization merger or
consolidation in which the Company does not survive, or upon any reorganization,
merger or consolidation in which the Company does survive and the Company's
stockholders have the opportunity to receive cash, securities of another
corporation or other property in exchange for their capital stock of the
Company, the 1993 Plan and each outstanding option granted under the 1993 Plan
shall terminate; provided that in such event each optionee shall, subject to
certain limitations, have the right until one day before the effective date of
such dissolution, liquidation, reorganization, merger or consolidation to
exercise, in whole or in part, any unexpired option or options issued to the
optionee to the extent that said option is then vested and exercisable pursuant
to the provisions of said option or options and of the exercise provisions of
the 1993 Plan.
Unless earlier terminated by the Board, the 1993 Plan shall terminate
on November 19, 2003. The Compensation Committee may make such amendments to the
1993 Plan as it shall deem advisable. However, to the extent restricted by Rule
16b-3, the Compensation Committee may not, without approval of the stockholders,
make any amendment that would (a) increase the aggregate number of shares of
Common Stock that may be issued under the 1993 Plan, (b) materially modify the
requirements as to eligibility for participation in the 1993 Plan or (c)
materially increase the benefits accruing to optionees under the 1993 Plan.
Future participants in the 1993 Plan and the amounts of their
allotments are to be determined by the Compensation Committee subject to any
restrictions outlined above. Since no such determinations have yet been
14
<PAGE>
made, it is not possible to state the terms of any individual awards which may
be issued under the 1993 Plan or the names or positions of or respective amounts
of the allotment to any individual who may participate.
At the 1996 Annual Meeting, stockholders will be asked to approve the
Amendment to the 1993 Plan. Such approval will require the affirmative vote of a
majority of the voting power of all outstanding shares of the Company's Common
Stock present or represented and entitled to vote at the 1996 Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE AMENDMENT TO THE 1993 STOCK OPTION PLAN.
PROPOSAL 3--ADOPTION OF THE 1996 NON-EMPLOYEE
DIRECTORS STOCK OPTION PLAN
At the 1996 Annual Meeting, the stockholders will be asked to approve
the adoption of the Company's 1996 Non-Employee Directors Stock Option Plan (the
"1996 Directors Plan"). On February 26, 1996, the Board adopted, subject to
stockholder approval as described herein, the 1996 Directors Plan. As options
have been granted on all of the shares of Common Stock available for issuance
under the 1993 Directors Plan, the Board has decided to adopt the 1996 Directors
Plan, which has a number of new features, rather than amend the 1993 Directors
Plan. The 1996 Directors Plan and information regarding options to be granted
thereunder is summarized below, but these descriptions are subject to and
qualified in their entirety by the full text of the 1996 Directors Plan, which
is attached as Exhibit B to this Proxy Statement.
The purpose of the 1996 Directors Plan is to provide present and
prospective Outside Directors with the opportunity to obtain equity ownership
interests in the Company through the exercise of stock options. The 1996
Directors Plan is designed to link the Outside Directors' compensation more
closely with the Company's performance. The options are not immediately
exercisable and therefore only yield a benefit to the Outside Directors if the
price of the Company's stock rises in the long term.
Only Directors of the Company who are not employees of the Company or
any of its Subsidiaries or affiliated with FS&Co. are eligible to participate in
the 1996 Directors Plan. The 1996 Directors Plan shall be administered by the
Board although, as discussed below, the grant of options is automatic. The
expenses of administering the 1996 Directors Plan will be borne by the Company.
The options granted under the 1996 Directors Plan do not qualify for treatment
as incentive stock options under the provisions of Section 422 of the Code.
The 1996 Directors Plan provides for options to be awarded under two
different circumstances. First, each Outside Director will automatically be
granted on the date of the annual meeting at which the Outside Director is
initially elected (not including at each annual stockholder meeting at which the
Outside Director is re-elected), an option to purchase 5,000 shares of the
Company's Common Stock at an exercise price equal to the average closing price
for the Company's Common Stock for the five trading days preceding the date of
grant. These options vest and are exercisable in five equal annual installments
commencing on the first anniversary of the date of grant.
The second feature of the 1996 Directors Plan permits each Outside
Director to elect, on the date of each annual meeting at which he or she is
elected or re-elected, to receive an option to purchase shares of the Company's
Common Stock in lieu of being paid that part of the Director's fee that is not
dependent upon attendance at meetings or services as a chairperson for the
ensuing year (the "Retainer Fee"). If the Outside Director makes such an
election, on the six-month anniversary of the date of the election (the "Date of
Grant") such Outside Director will be granted an option exercisable for a number
of shares of the Company's Common Stock equal to the amount of the Outside
Director's Retainer Fee divided by 20% of the fair market value of a share of
Common Stock at the close of business on the Date of Grant. The exercise price
for any such option will be 80% of the fair market value
15
<PAGE>
of the Company's Common Stock on the Date of Grant. These options vest and are
exercisable on the date of the annual meeting of stockholders following the Date
of Grant.
Based on the slate of nominees for Directors, Messrs. Godlas, Hall and
Culver will participate in the 1996 Directors Plan. Each of them may receive
options in lieu of Retainer Fees, if such an election is made. Since the
exercise price is not determinable at this time, it is not possible to state the
terms of these grants, other than as provided herein.
Upon exercise of the options granted under the 1996 Directors Plan, the
exercise price must be paid to the Company in cash or by check. The options
expire on the earlier of the tenth anniversary of the date of grant or six
months after the recipient of the option ceases to be a Director. The maximum
number of shares of Common Stock that may be issued pursuant to awards granted
under the 1996 Directors Plan is 75,000 (subject to adjustments to prevent
dilution).
The 1996 Directors Plan became effective, subject to stockholder approval,
upon its adoption by the Company's Board of Directors on April 8, 1996. Awards
may not be granted under the 1996 Directors Plan after April 8, 2006. The 1996
Directors Plan is designed to comply with Rule 16b-3.
Subject to limitations imposed by law, the Board may amend or terminate the
1996 Directors Plan at any time and in any manner. However, no such amendment or
termination may deprive the recipient of an award previously granted under the
1996 Directors Plan of any rights thereunder without his or her consent; no such
amendment will be effective without stockholder approval if stockholder approval
is then required pursuant to Rule 16b-3 under the Exchange Act, or the
applicable rules of any securities exchange; and to the extent prohibited by
Rule 16b-3, the Plan may not be amended more than once every six months.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE ADOPTION OF THE 1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO THE 1993 PLAN AND 1996 DIRECTORS
PLAN
Based on current provisions of the Code, and the existing regulations
thereunder, the anticipated federal income tax consequences with respect to
options granted under the 1993 Plan and 1996 Directors Plan are as described
below.
Incentive Stock Options. No taxable income will be recognized by an
optionee upon the grant or exercise of any Incentive Stock Option. Additionally,
the Company will not be entitled to any income tax deduction as the result of
the grant or exercise of an Incentive Stock Option.
Any gain or loss resulting from the subsequent sale of Common Stock
acquired upon exercise of an Incentive Stock Option will be long term capital
gain or loss if such sale is made after two years from the date of the grant of
the option and after one year from the transfer of such stock to the optionee
upon exercise, so long as the optionee is an employee of the Company from the
date of grant until three months before the date of exercise. In the event of
the optionee's death or disability prior to exercise of an Incentive Stock
Option, special rules apply in determining whether gain or loss upon sale of the
stock acquired upon exercise of such option will be taxable as long term capital
gain or loss.
If the subsequent sale of stock is made prior to the expiration of such
two-year and one-year periods, the optionee will recognize ordinary income in
the year of sale in an amount equal to the difference between the aggregate
Option Price (the "Aggregate Option Price") of the Common Stock and the fair
market value of the Common Stock on the date of exercise, provided that if such
sale is a transaction in which a loss (if sustained) would
16
<PAGE>
have been recognized by the optionee, the amount of ordinary income recognized
by the optionee will not exceed the excess (if any) of the amount realized on
the sale over the Aggregate Option Price. The Company will then be entitled to
an income tax deduction of like amount. Any excess gain recognized by the
optionee upon such sale would then be taxable as capital gain, either long term
or short term depending upon whether the Common Stock had been held for more
than one year prior to sale.
If the sale of Common Stock received upon exercise of an option qualifies
for long term capital gain treatment, any gain from such a sale would be taxed
at the current maximum federal income tax rate of 28% and ordinary income is
currently taxed at a maximum federal income tax rate of 39.6%. The amount by
which the fair market value of Common Stock purchased upon exercise of an
Incentive Stock Option exceeds the Aggregate Option Price of such stock
constitutes an item of tax preference that could then be subject to the
alternative minimum tax in the year that the option is exercised.
Nonqualified Stock Options. Generally, at the time of the grant of a
Nonqualified Stock Option, no taxable income will be recognized by the optionee
and the Company will not be entitled to a deduction. Upon the exercise of such
an option, the optionee generally will recognize taxable income, and the Company
will then be entitled to a deduction, in the amount by which the then fair
market value of the shares of Common Stock issued to such optionee exceeds the
Aggregate Option Price. However, if a sale of Common Stock received upon
exercise of such option would subject the optionee to suit under Section 16(b)
of the Exchange Act, the optionee will not recognize income (and the Company
will not be entitled to a deduction) at the time such option is exercised unless
the optionee makes an election to recognize income at that time. If such
election is not made, the optionee will recognize income and the Company will be
entitled to a deduction at the time when Section 16(b) of the Exchange Act would
no longer apply to such sale.
Income recognized by the optionee upon exercise of a Nonqualified Stock
Option will be taxed as ordinary income. Such income constitutes "wages" with
respect to which the Company is required to deduct and withhold federal and
state income tax. Pursuant to the 1993 Plan and 1996 Directors Plan, the
exercise of each Nonqualified Stock Option shall be subject to the Company's
determination that all withholding taxes and liabilities relating to the option
have been satisfied.
Upon the subsequent disposition of shares of Common Stock acquired upon the
exercise of a Nonqualified Stock Option, the optionee will recognize capital
gain or loss in an amount equal to the difference between the proceeds received
upon disposition and the fair market value of such shares at the time of
exercise. If such shares have been held for more than one year at the time of
such disposition the capital gain or loss will be long term.
Exercising Options with Shares of Common Stock. To the extent an optionee
pays all or part of the Option Price by tendering shares of Common Stock owned
by the optionee, the tax consequences described above generally would apply.
However, the number of shares received (upon exercise) equal to the number of
shares surrendered in payment of the Aggregate Option Price will have the same
basis and tax holding period as the shares surrendered. The additional shares
received upon such exercise will have a tax basis equal to the amount of
ordinary income recognized and any cash paid on such exercise and a holding
period which commences on the date of exercise.
Under proposed Treasury regulations, if an optionee exercises an option by
tendering shares previously acquired on the exercise of an Incentive Stock
Option, a disqualifying disposition will occur if the applicable holding period
requirements have not been satisfied with respect to the surrendered stock. The
consequence of such a disqualifying disposition is that the optionee may
recognize ordinary income at that time.
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Acceleration of Stock Options Upon Transfer of Control. Pursuant to the
1993 Plan, the exercisability of Nonqualified Stock Options and Incentive Stock
Options may be accelerated. Such acceleration will likely be determined to be,
in whole or in part, a "parachute payment" for federal income tax purposes if it
arises from any events connected with a change of control of the Company. If the
present value of all of the optionee's parachute payments exceeds three times
the optionee's average annual compensation for the past five years, the optionee
will be subject to a special excise tax of 20% on the "excess parachute
payment." Such tax will be applied to the amount of such parachute payment which
is in excess of the greater of such average annual compensation of the optionee
or an amount which the optionee establishes as reasonable compensation. In
addition, the Company will not be allowed a deduction for such "excess parachute
payment."
Compensation Deduction Limitation. Upon exercise, options granted to a
"covered employee" with an Option Price equal to or greater than the fair market
value of the Common Stock at the time of grant should not be subject to the
$1,000,000 deduction cap for compensation paid to certain executives of publicly
held corporations such as the Company. The 1993 Plan should satisfy the rules
governing exemption from the deduction cap for "performance based" compensation
as (1) stockholders should have received adequate disclosure of the terms of the
1993 Plan in this Proxy Statement and (2) the 1993 Plan has been approved by a
compensation committee consisting solely of two or more Independent Directors
(defined below) of the Company. There is no acceleration of exercisability of
options granted under the 1996 Directors Plan.
Upon exercise, options granted to a covered employee with an Option Price
less than the fair market value of the Common Stock at the time of grant would
be subject to the $1,000,000 deduction cap for the Company. A "covered employee"
is an optionee who, on the last day of the taxable year of the Company, is the
Chief Executive Officer or one of the four other most highly compensated
executive officers for proxy disclosure purposes. An "Independent Director" is a
Director who is not (1) a current employee of the Company or related entity, (2)
a former employee who is receiving compensation for prior services, (3) a former
officer or (4) receiving compensation from the Company for personal services
other than regular Directors' compensation.
The foregoing summary of the effects of federal income taxation upon
optionees and the Company with respect to shares of Common Stock issued under
the 1993 Plan or the 1996 Directors Plan does not purport to be complete and
reference is made to the applicable provisions of the Code.
PROPOSAL 4--RATIFICATION OF THE APPOINTMENT OF
ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board has selected Arthur Andersen LLP as
independent public accountants to audit the consolidated financial statements of
the Company and its consolidated subsidiaries for the year ending January 26,
1997. Arthur Andersen LLP has audited the Company's financial statements
annually since 1986. A member of that firm is expected to be present at the 1996
Annual Meeting, will have an opportunity to make a statement if so desired, and
will be available to respond to appropriate questions. If the stockholders do
not ratify the selection of Arthur Andersen LLP, if it should decline to act or
otherwise become incapable of acting, or if its employment is discontinued, the
Audit Committee will appoint independent public accountants for fiscal 1996.
Proxies solicited by the Board will be voted in favor of ratification unless
stockholders specify otherwise.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR 1996.
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COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
Directors and certain of its officers, and persons who own more than 10% of a
registered class of the Company's equity securities (collectively, "Insiders"),
to file reports of ownership and changes in ownership with the Commission.
Insiders are required by Commission 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 Forms 5s were
required for those persons, the Company believes that its Insiders complied with
all applicable Section 16(a) filing requirements for fiscal 1995, with the
exception of Messrs. Figel and Hall, each of whom filed a late Form 3 to report
his becoming a Director of the Company. Messrs. Figel and Hall own no securities
of the Company and have had no other transactions to report.
OTHER BUSINESS
The Company is not aware of any other business to be presented at the 1996
Annual Meeting. All shares represented by Company proxies will be voted in favor
of the proposals of the Company described herein unless otherwise indicated on
the form of proxy. If any other matters properly come before the meeting,
Company proxy holders will vote thereon according to their best judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal for action at the 1997
Annual Meeting and who wishes to have it set forth in the corresponding proxy
statement and identified in the corresponding form of proxy prepared by
management must notify the Company no later than December 11, 1996 in such form
as required under the rules and regulations promulgated by the Commission.
ANNUAL REPORTS
A copy of the 1996 Annual Report to Stockholders (which includes the
Company's Annual Report on Form 10-K) is being mailed to each stockholder of
record together with this Proxy Statement. The Company has also filed with the
Commission its Annual Report on Form 10-K for the fiscal year ended January 28,
1996. This Report contains information concerning the Company and its
operations. A COPY OF THIS REPORT WILL BE FURNISHED TO STOCKHOLDERS WITHOUT
CHARGE UPON REQUEST IN WRITING TO Kris McMullen at 6450 Via Del Oro, San Jose,
California 95119. Such reports are not a part of the Company's soliciting
material.
PROXIES AND SOLICITATION
Proxies for the 1996 Annual Meeting are being solicited by mail directly
and through brokerage and banking institutions. The Company will pay all
expenses in connection with the solicitation of proxies. In addition to the use
of mails, proxies may be solicited by Directors, officers and regular employees
of the Company personally or by telephone. The Company may reimburse brokers and
other persons holding stock in their names, or in the names of nominees, for
their expenses in sending proxy materials to principals and obtaining their
proxies (plus paying fees of up to $5,000 to Chemical Mellon Shareholder
Services, L.L.C. for soliciting such proxies from brokers and other persons
holding stock in their names or in the names of nominees).
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All stockholders are urged to complete, sign and promptly return the
enclosed proxy card.
By Order of the Board of Directors
MICHAEL SEDA
Secretary
San Jose, California
April 10, 1996
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EXHIBIT A
ORCHARD SUPPLY HARDWARE STORES CORPORATION
1993 STOCK OPTION PLAN
SECTION 1. DESCRIPTION OF PLAN. This is the 1993 Stock Option Plan, dated
November 19, 1993 (the "Plan"), of Orchard Supply Hardware Stores Corporation, a
Delaware corporation (the "Company"). Under the Plan, officers and key
employees of the Company or any of the directly or indirectly owned subsidiaries
of the Company (individually, a "Subsidiary," and collectively, the
"Subsidiaries"), to be selected as set forth below, may be granted options
("Options") to purchase shares of the common stock of the Company ("Common
Stock"). The Plan permits the granting of both Options that qualify for
treatment as incentive stock options ("Incentive Stock Options") under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") and Options
that do not qualify as Incentive Stock Options ("Nonqualified Stock Options").
SECTION 2. PURPOSE OF PLAN. The purpose of the Plan and of granting Options
to specified persons is to further the growth, development and financial success
of the Company and its Subsidiaries by providing additional incentives to
certain officers and key employees. By assisting such persons in acquiring
shares of the Company's Common Stock, the Company can ensure that such persons
will themselves benefit directly from the Company's and the Subsidiaries'
growth, development and financial success.
SECTION 3. ELIGIBILITY. The persons who shall be eligible to receive grants
of Options under the Plan shall be, at the time of the grant, the officers and
key employees of the Company and the Subsidiaries, including those Directors of
the Company and the Subsidiaries who are also officers and key employees.
Notwithstanding the foregoing in this Section 3, only officers and key employees
who do not own capital stock possessing more than ten percent (10%) of the total
combined voting power or value of all classes of capital stock of the Company or
any Subsidiary shall be eligible to receive grants of Options. A person who
holds an Option is herein referred to as a "Participant." More than one Option
may be granted to any Participant, grants of Options may be made on more than
one occasion to any Participant and any individual Participant may receive
grants of Options to purchase up to a maximum of 850,000 shares of Common Stock.
Such grants of Options under the Plan may include an Incentive Stock Option,
Nonqualified Stock Option, or any combination thereof. Notwithstanding the
foregoing, the Board of Directors of the Company (the "Board") may at any time
or from time to time designate one or more Directors as ineligible for selection
as a Participant under the Plan for any period or periods of time. The
designation by the Board of a Director as ineligible for selection
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as a Participant under the Plan shall not affect Options previously granted to
such Director under the Plan.
SECTION 4. ADMINISTRATION. The Plan shall be administered by the
Compensation Committee (the "Committee") established by the Board and composed
of not less than two (2) members of the Board, none of whom shall be eligible
for selection as Participants under the Plan and each of whom is an "outside
director" (as such term is defined or interpreted for purposes of Section 162(m)
of the Code. The Committee shall be constituted so as to permit the Plan to
comply with the provisions of Rule 16b-3 ("Rule 16b-3") under the Securities
Exchange Act of 1934 (the "Exchange Act") and with and so as to ensure that all
members of the Committee constitute "outside" directors under the provisions of
Section 162(m) of the Code. The Committee shall meet at such times and places
as it determines and may meet through a telephone conference call. A majority
of its members shall constitute a quorum, and the decision of a majority of
those present at any meeting at which a quorum is present shall constitute the
decision of the Committee. A memorandum signed by all the members of the
Committee shall constitute the decision of the Committee without necessity, in
such event, for holding an actual meeting. The Committee is authorized and
empowered to administer the Plan and, subject to the Plan (a) to select the
Participants, to specify the number of shares of Common Stock with respect to
which Options are granted to each Participant, to specify the terms of the
Options and whether such Options shall be Incentive Stock Options or
Nonqualified Stock Options, and in general to grant Options; (b) to determine
the dates upon which Options shall be granted and the terms and conditions
thereof in a manner consistent with the Plan, which terms and conditions need
not be identical as to the various Options granted; (c) to interpret the Plan;
(d) to prescribe, amend and rescind rules relating to the Plan; (e) to authorize
any person to execute on behalf of the Company any instrument required to
effectuate the grant of an Option previously granted by the Committee; (f) to
determine the rights and obligations of Participants under the Plan; (g) to
specify the Option Price (as hereinafter defined); (h) to accelerate the time
during which an Option may be exercised, including, but not limited to, upon a
change of control of the Company, and to otherwise accelerate the time during
which an Option may be exercised, in each case notwithstanding the provisions in
the Option Agreement (as defined in Section 13) stating the time during which it
may be exercised; and (i) to make all other determinations deemed necessary or
advisable for the administration of the Plan. The interpretation and
construction by the Committee of any provision of the Plan or of any Option
granted under it shall be final, conclusive and binding. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it.
SECTION 5. SHARES SUBJECT TO THE PLAN. The number of shares of Common Stock
in respect of which Options may be granted under the Plan shall not exceed
850,000 shares. All of the amounts stated in this Section 5 are subject to
adjustment as provided in Section 12 hereof. Upon the expiration or
termination, in whole or in part, for any reason of an outstanding Option or any
portion thereof which shall not have vested or shall not have been exercised
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in full, any shares of Common Stock then remaining unissued which shall have
been reserved for issuance upon such exercise shall again become available for
the granting of additional Options under the Plan.
SECTION 6. OPTION PRICE. The purchase price per share (the "Option Price")
of the shares of Common Stock underlying each Option shall be determined by the
Committee, and shall be subject to adjustment as provided in Section 12 hereof.
SECTION 7. RESTRICTIONS ON GRANTS; VESTING OF OPTIONS. Notwithstanding any
other provisions set forth herein or in any Option Agreement, no Options may be
granted under the Plan after November 19, 2003. All Options granted pursuant to
the Plan shall be granted pursuant to Option Agreements, as described in Section
13 hereof. Vesting shall be determined by the Committee.
SECTION 8. SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. To the extent
that the aggregate fair market value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by a Participant
during any calendar year under all incentive stock option plans of the Company
and its Subsidiaries exceeds $100,000, or such other limit as may be required by
the Code, such excess Incentive Stock Options shall be treated as Nonqualified
Stock Options. The Committee shall determine, in accordance with applicable
provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of a Participant's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the Participant of such determination as soon as practicable after such
determination. In no event shall the Option Price of the shares underlying each
Incentive Stock Option be less than the fair market value of such shares at the
time the Incentive Stock Option is granted. The fair market value of such
shares shall be determined in good faith by the Committee.
SECTION 9. EXERCISE OF OPTIONS. Once vested, an Option may be exercised by
the Participant by giving written notice to the Company specifying the number of
full shares to be purchased and accompanied by payment of the full purchase
price therefor in cash, by check or in such other form of lawful consideration
as the Committee may approve from time to time, including, without limitation
and in the sole discretion of the Committee, the assignment and transfer by the
Participant to the Company of outstanding shares of Common Stock theretofore
held by the Participant in a manner intended to comply with the provisions of
Rule 16b-3. In connection with such assignment and transfer, the Company shall
have the right to deduct any fractional shares to be paid to the Participant.
Once vested, an Option may only be exercised by the Participant or in the event
of death of the Participant, by the person or persons (including the deceased
Participant's estate) to whom the deceased Participant's rights under such
Option shall have passed by will or the laws of descent and distribution.
Notwithstanding the foregoing in the immediately preceding sentence, in the
event of disability (within the meaning of Section 22(e)(3) of the Code) of a
Participant, a designee, or if the Participant has no designee,
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the legal representative, of such Participant may exercise the Option on behalf
of such Participant (provided such Option would have been exercisable by such
Participant) until the right to exercise such Option expires, as set forth in
each particular Option Agreement. No Option granted to a person subject to
Section 16 of the Exchange Act shall be exercisable during the first six (6)
months after the date such Option is granted.
SECTION 10. ISSUANCE OF COMMON STOCK. The Company's obligation to issue
shares of its Common Stock upon exercise of an Option is expressly conditioned
upon the compliance by the Company with any registration or other qualification
obligations with respect to such shares under any state or federal law or
rulings and regulations of any government regulatory body and the making of such
investment representations or other representations and undertakings by the
Participant (or the Participant's legal representative, heir or legatee, as the
case may be) in order to comply with the requirements of any exemption from any
such registration or other qualification obligations with respect to such shares
which the Company in its sole discretion shall deem necessary or advisable.
Such required representations and undertakings may include representations and
agreements that such Participant (or the Participant's legal representative,
heir or legatee): (a) is purchasing such shares for investment and not with any
present intention of selling or otherwise disposing of such shares; and (b)
agrees to have a legend placed upon the face and reverse of any certificates
evidencing such shares (or, if applicable, an appropriate data entry made in the
ownership records of the Company) setting forth (i) any representations and
undertakings which such Participant has given to the Company or a reference
thereto, and (ii) that, prior to effecting any sale or other disposition of any
such shares, the Participant must furnish to the Company an opinion of counsel,
satisfactory to the Company and its counsel, to the effect that such sale or
disposition will not violate the applicable requirements of state and federal
laws and regulatory agencies; provided, however, that any such legend or data
entry shall be removed when no longer applicable. The Company, during the term
of the Plan, will at all times reserve and keep available, and will use its
reasonable efforts to obtain from any regulatory body having jurisdiction any
requisite authority in order to issue and sell such number of shares of Common
Stock as shall be sufficient to satisfy the requirements of the Plan. Inability
of the Company to obtain, from any regulatory body having jurisdiction,
authority reasonably deemed by the Company's counsel to be necessary for the
lawful issuance and sale of any shares hereunder shall relieve the Company of
any liability in respect of the nonissuance or sale of such shares as to which
such requisite authority shall not have been obtained.
SECTION 11. NONTRANSFERABILITY. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of the Participant only by such Participant, subject to the provisions
of Section 9 hereof.
SECTION 12. ADJUSTMENTS UPON CAPITALIZATION AND CORPORATE CHANGES. Subject
to Section 15(b) hereof, if the outstanding shares of the Common Stock of the
Company are
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changed into, or exchanged for, a different number or kind of shares or
securities of the Company through reorganization, merger, recapitalization or
reclassification, or if the number of outstanding shares is changed through a
stock split, stock dividend, stock consolidation or like capital adjustment, or
if the Company makes a distribution in partial liquidation or any other
comparable extraordinary distribution with respect to its Common Stock, an
appropriate adjustment shall be made by the Committee in the number, kind or
Option Price of shares as to which Options may be granted. A corresponding
adjustment shall likewise be made in the number, kind or Option Price of shares
with respect to which unexercised Options have theretofore been granted. Any
such adjustment in an outstanding Option, however, shall be made without change
in the total price applicable to the unexercised portion of the Option but with
a corresponding adjustment in the price for each share covered by the Option.
In making such adjustments, or in determining that no such adjustments are
necessary, the Committee may rely upon the advice of counsel and accountants to
the Company, and the good faith determination of the Committee shall be final,
conclusive and binding. No fractional shares of stock shall be issued under the
Plan on account of any such adjustment.
SECTION 13. OPTION AGREEMENT. Each Option granted under the Plan shall be
evidenced by a written stock option agreement ("Option Agreement") executed by
the Company and the Participant which (a) shall contain each of the provisions
and agreements herein specifically required to be contained therein; and (b) may
contain such other terms and conditions as the Committee deems desirable and
which are not inconsistent with the Plan.
SECTION 14. RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as
a stockholder with respect to any shares covered by an Option until the date of
the issuance of a stock certificate to the Participant for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 12 hereof.
SECTION 15. TERMINATION OF OPTIONS.
(a) Each Option granted under the Plan shall set forth a termination date
thereof, which shall be not later than ten (10) years from the date such Option
is granted subject to earlier termination or forfeiture as set forth in Section
27 below, Section 15(b) hereof, or as otherwise set forth in each particular
Option Agreement.
(b) Upon the dissolution, liquidation or sale of all or substantially all of
the business, properties and assets of the Company, or upon any reorganization,
merger or consolidation in which the Company does not survive, or upon any
reorganization, merger or consolidation in which the Company does survive and
the Company's stockholders have the opportunity to receive cash, securities of
another corporation or other property in exchange for their capital stock of the
Company, the Plan and each outstanding Option shall terminate; provided that in
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such event (i) each Participant who is not tendered an option by the surviving
corporation in accordance with all of the terms of clause (ii) immediately below
or who does not accept any such substituted option which is so tendered, shall
have the right until one (1) day before the effective date of such dissolution,
liquidation, reorganization, merger or consolidation to exercise, in whole or in
part, any unexpired Option or Options issued to the Participant to the extent
that said Option is then vested and exercisable pursuant to the provisions of
said Option or Options and of Section 9 of the Plan; or (ii) in its sole and
absolute discretion, the surviving corporation in any reorganization, merger or
consolidation may, but shall not be so obligated to, tender to any Participant
an option or options to purchase shares of the surviving corporation, and such
new option or options shall contain such terms and provisions as shall be
required to substantially preserve the rights and benefits of any Option then
outstanding under the Plan and, if accepted by such Participant, such new option
shall replace the Option under the Plan.
SECTION 16. WITHHOLDING OF TAXES. The Company, or a Subsidiary, as the case
may be, may deduct and withhold from the wages, salary, bonus and other income
paid by the Company or such Subsidiary to the Participant the requisite tax upon
the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
Common Stock issued to the Participant upon the exercise of an Option, as may be
required from time to time under any federal or state tax laws and regulations.
This withholding of tax shall be made from the Company's (or such Subsidiary's)
concurrent or next payment of wages, salary, bonus or other income to the
Participant or by payment to the Company (or such Subsidiary) by the Participant
of the required withholding tax, as the Committee may determine. The Company
may permit the Participant to elect to surrender, or authorize the Company to
withhold, shares of Common Stock (valued at their fair market value on the date
of surrender or withholding of such shares) in satisfaction of the Company's
withholding obligation, subject to such restrictions as the Committee deems
necessary to satisfy the requirements of Rule 16b-3. However, no fractional
shares of Common Stock shall be delivered, nor shall any cash in lieu of
fractional shares be paid, by the Company. The Company shall have the right to
deduct fractional shares to be paid to the Participant as a result of such
surrender or withholding of shares.
SECTION 17. EFFECTIVENESS AND TERMINATION OF PLAN. The Plan shall be
effective on the date on which it is adopted by the Board, provided the Plan is
approved by the stockholders of the Company within twelve (12) months of April
8, 1996 and on or prior to the date of the first annual meeting of stockholders
of the Company held subsequent to the acquisition of an equity security by a
Participant hereunder for which exemption is claimed under Rule 16b-3.
Notwithstanding any provision of the Plan or in any Option Agreement, no Option
shall be exercisable prior to such stockholder approval. The Plan shall
terminate at the earliest of the time when all shares of Common Stock which may
be issued hereunder have been so issued, or at such time as set forth in Section
15(b) hereof; provided, however, that the Board may in its sole discretion
terminate the Plan at any other time. Unless earlier terminated by the Board,
the
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Plan shall terminate on November 19, 2003. Subject to Section 15(b) hereof, no
such termination shall in any way affect any Option then outstanding.
SECTION 18. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
for all purposes, be the date on which the Committee makes the determination
granting such Option. Notice of the determination shall be given to each
Participant to whom an Option is so granted within a reasonable time after the
date of such grant.
SECTION 19. AMENDMENT OF PLAN. The Committee may make such amendments to
the Plan as it shall deem advisable. However, to the extent restricted by Rule
16b-3, the Committee may not, without approval of the stockholders, make any
amendment that would (a) increase the aggregate number of shares of Common Stock
that may be issued under the Plan (except for adjustments pursuant to Section 12
hereof), (b) materially modify the requirements as to eligibility for
participation in the Plan, or (c) materially increase the benefits accruing to
Participants under the Plan.
SECTION 20. TRANSFERS AND LEAVES OF ABSENCE. For purposes of the Plan, (a)
a transfer of a Participant's employment, without an intervening period, between
the Company and a Subsidiary shall not be deemed a termination of employment and
(b) a Participant who is granted in writing a leave of absence shall be deemed
to have remained in the employ of the Company (or a Subsidiary, whichever is
applicable) during such leave of absence.
SECTION 21. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option
shall impose no obligation on the Participant to exercise such Option.
SECTION 22. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as Directors, the members of the Board or
Committee shall be indemnified by the Company to the fullest extent permitted by
law against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Board or Committee member is liable
for negligence or misconduct in the performance of his or her duties; provided
that within sixty (60) days after institution of any such action, suit or
proceeding such Board or Committee member shall in writing offer the Company the
opportunity, at the Company's expense, to handle and defend the same.
SECTION 23. GOVERNING LAW. The Plan and any Option granted pursuant to the
Plan shall be construed under and governed by the laws of the State of
California without regard to conflict of law provisions thereof except to the
extent that it implicates matters which are the
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subject of the General Corporation Law of the State of Delaware which matters
shall be governed by the latter law.
SECTION 24. FINANCIAL INFORMATION. The Company shall provide Participants
whose duties in connection with the Company would not assure access to financial
information of the Company with annual financial information pertaining to the
Company subject to the ability of the Company to exclude line items, such as
research and development expenses, that the Committee determines the disclosure
of which to third parties may have material adverse consequences to the Company.
SECTION 25. NOT AN EMPLOYMENT AGREEMENT. Nothing contained in the Plan or
in any Option Agreement shall confer, intend to confer or imply any rights of
employment or rights to continued employment by the Company or any Subsidiary in
favor of any Participant or limit the ability of the Company or any Subsidiary
to terminate, with or without cause, in its sole and absolute discretion, the
employment of any Participant, subject to the terms of any written employment
agreement to which a Participant is a party.
SECTION 26. RULE 16B-3. It is intended that the Plan and any grant of an
Option made to a person subject to Section 16 of the Exchange Act meet all of
the requirements of Rule 16b-3. If any provision of the Plan or any such grant
would disqualify the Plan or such grant under, or would not otherwise comply
with, Rule 16b-3, such provision or grant shall be construed or deemed amended
to conform to Rule 16b-3.
SECTION 27. TERMINATION OF EMPLOYMENT. The terms and conditions under which
an Option may be exercised after a Participant's termination of employment shall
be determined by the Committee and shall be specified in the Option Agreement,
except that in the event a Participant's employment with the Company or a
Subsidiary terminates for any reason within six (6) months of the date of grant
of any Option held by the Participant, the Option shall expire as of the date of
such termination of employment and the Participant and the Participant's
designee, legal representative or beneficiary shall forfeit any and all rights
pertaining to such Option. The conditions under which such post-termination
exercises shall be permitted with respect to Incentive Stock Options shall be
determined in accordance with the provisions of Section 422 of the Code.
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<PAGE>
EXHIBIT B
ORCHARD SUPPLY HARDWARE STORES CORPORATION
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Section 1. Purpose of Plan.
The purpose of this 1996 Non-Employee Directors Stock Option Plan (the
"Plan") of Orchard Supply Hardware Stores Corporation, a Delaware corporation
(the "Company"), is to provide present and prospective directors of the Company
who are not employed by the Company or affiliated with Freeman Spogli & Co.
Incorporated ("FS&Co.") with the opportunity to obtain equity ownership
interests in the Company through the exercise of stock options.
Section 2. Persons Eligible Under Plan.
Participation in this Plan is limited to non-employee directors who
are not affiliated with FS&Co. A non-employee director (referred to herein as a
"Director") is a director of the Company who, at the time stock options are
granted to him or her under the Plan, is not an employee of the Company or of
any subsidiary of the Company and who is not affiliated with FS&Co.
Section 3. Administration.
This Plan shall be administered by the Board of Directors (the
"Board") of the Company. The grant of options (the "Options") to purchase shares
of Common Stock, par value $.01 per share, of the Company (the "Common Stock")
under this Plan and the amount, price and nature of the awards shall be
automatic as described in Section 4. However, subject to the provisions of this
Plan, the Board, in its sole and absolute discretion, is authorized to do all
things necessary or desirable in connection with the administration of this
Plan, including, without limitation, the following:
(i) subject to Section 8, adopt, amend and rescind rules and
regulations relating to this Plan;
(ii) determine whether, and the extent to which, adjustments
are required pursuant to Section 7 hereof; and
(iii) interpret and construe this Plan and the terms and
conditions of any Option granted hereunder.
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Section 4. Terms and Conditions of Options.
(a) Amount, Exercise Price and Exercisability of Automatic Grants.
Each Director shall automatically be granted, on the date of the Director's
initial appointment or election to the Board of Directors and not on the date of
any subsequent election or re-election of such Director, an Option to purchase
5,000 shares of Common Stock (subject to adjustment as provided in Section 7).
The exercise price for each Option granted pursuant to this Section 4(a) shall
be the Fair Market Value (as defined below) of the shares of Common Stock at the
close of business on the date preceding the date of grant. The "Fair Market
Value" of a share of Common Stock on any day shall be equal to the average
closing price of the Company's Common Stock for the five trading days preceding
such day reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New York Stock
Exchange, or, if the Common Stock is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotations System
or such other system then in use or, if on any such date the Common Stock is not
quoted by any such organization, the average if the closing bid and asked prices
as furnished by a professional market maker making a market in the Common Stock
who is selected by the Board of Directors of the Company.
(b) Amount, Exercise Price and Exercisability of Grants in Lieu of
Annual Retainer Fees. In addition to the grants made pursuant to Section 4(a),
each Director shall have the right, exercisable on the date of which such
Director is appointed or elected, and on the date on which such Director is re-
elected (the "Annual Meeting Date"), to make an irrevocable election to receive
an Option in lieu of 100%, but not less than 100%, of the Director's Retainer
(as defined hereafter) for the succeeding year. Such election must be in writing
and signed by the Director making the election. The number of shares of Common
Stock for which an Option granted pursuant to this Section 4(b) is exercisable
shall be equal to the amount of the Retainer divided by 20% of the Fair Market
Value of the Common Stock on the date of grant of such Option, which shall be
the six-month anniversary of the Annual Meeting Date. The exercise price for an
Option granted pursuant to this Section 4(b) shall be 80% of the Fair Market
Value of the shares of Common Stock at the close of business on the date of
grant. A Director's "Retainer" is the cash retainer that is not dependent upon
attendance at meetings or service as a chairperson and which is fixed by the
Board from time to time.
(c) Vesting. An Option granted pursuant to Section 4(a) shall vest and
become exercisable in five equal annual installments of 20% of the total number
of shares of Common Stock subject to the Option beginning on the first
anniversary of the date of grant. An Option granted pursuant to Section 4(b)
shall vest and become exercisable on, and only if the
B-2
<PAGE>
recipient of the Option (the "Optionee") continues to serve as a Director until,
the date of the Annual Meeting of Stockholders following the date of grant of
such Option.
(d) Manner of Exercise. Any vested and exercisable Option shall be
exercised by the holder thereof by giving written notice, signed by such holder,
to the Company stating the number of shares of Common Stock with respect to
which the Option is being exercised, accompanied by payment in full of the
aggregate exercise price in cash or by check payable to the Company. No Option
may be exercised with respect to any fractional share; cash shall be paid in
lieu of fractional shares. As promptly as practicable following the receipt of a
notice hereunder and subject to Section 4(b), the Company shall issue a stock
certificate registered in the name of the Optionee exercising such Option,
representing the number of shares of Common Stock issued to such Optionee upon
exercise of the Option.
(e) Termination or Expiration. Each Option shall expire on the earlier
of the tenth anniversary of the date of grant or six months after the date the
Optionee ceases to be a director of the Company.
(f) Transferability. Neither the Option nor any interest therein may
be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner other than by will or the laws of descent and
distribution. During the recipient's lifetime, an Option may only be exercised
by the Optionee or the Optionee's guardian or legal representative.
(g) Payment of Withholding Taxes. If the Company is obligated by law
to withhold an amount on account of any federal, state or local tax imposed as a
result of the exercise of the Option (such amount shall be referred to herein as
the "Withholding Liability"), the Optionee shall, on the first date upon which
the Company becomes obligated to pay the Withholding Liability to the
appropriate taxing authority, pay the Withholding Liability to the Company in
full in cash or by check.
(h) Stock Exchange Requirements; Applicable Laws. Notwithstanding
anything to the contrary in this Plan, no shares of Common Stock purchased upon
exercise of an Option, and no certificate representing all or any part of such
shares shall be issued or delivered if (a) such shares have not been admitted to
listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative of regulatory
body having jurisdiction over the Company. It is the Company's intent that this
Plan comply in all respects with Rule 16b-3 of the Securities Exchange Act of
1934, as amended (the "Act"), and any regulations promulgated thereunder. If any
provision of this Plan is later found not to be in compliance with Rule 16b-3,
such provision shall be deemed null and void. All grants and exercises of
Options under this Plan
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<PAGE>
shall be executed in accordance with the requirements of Section 16 of the Act,
as amended, and any regulations promulgated thereunder.
(i) Stock Option Agreement. Each grant of an Option under this Plan
shall be evidenced by an agreement duly executed on behalf of the Company and
the Optionee, dated as of the applicable date of grant. Each such agreement
shall set forth the number of Common Shares subject to the Option, the exercise
price and the date upon which the Option becomes exercisable and shall
incorporate by reference the terms and conditions of this Plan.
Section 5. Stock Subject to Plan.
(a) The maximum number of shares of Common Stock that may be issued
pursuant to all Options granted under this Plan is 75,000 subject to adjustment
as provided in Section 7 hereof (such maximum number, as so adjusted, shall be
referred to herein as the "Share Limitation").
(b) Notwithstanding Sections 4(a) and (b) of this Plan, no Option
shall be granted under this Plan unless, on the date of grant, the sum of (i)
the maximum number of shares of Common Stock issuable at any time pursuant to
such Option, plus (ii) the number of shares of Common Stock that have previously
been issued pursuant to the exercise of Options granted under this Plan, plus
(iii) the maximum number of shares of Common Stock that may be issued at any
time thereafter pursuant to the exercise of Options granted under this Plan that
are outstanding on such date, does not exceed the Share Limitation.
Section 6. Duration of Plan.
(a) No Options shall be granted under this Plan after April 8, 2006.
Although shares of Common Stock may be issued after April 8, 2006 pursuant to
Options granted prior to such date, no Common Shares shall be issued under this
Plan after April 8, 2016.
Section 7. Adjustments for Changes in Capitalization.
If the outstanding securities of the class then subject to this Plan
are increased, decreased, changed into or exchanged for a different number or
kind of shares of the Company thorough reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split, upon
proper authorization of the Board of Directors, an appropriate and proportionate
adjustment shall be made in (a) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Options
theretofore granted under this Plan and (b) the maximum number and type of
shares or other securities that may be issued pursuant to Options thereafter
granted under this Plan.
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<PAGE>
Section 8. Amendment and Termination of Plan.
The Board may amend or terminate this Plan at any time and in any
manner. However, (a) no such amendment or termination shall deprive the
recipient of any Option theretofore granted under this Plan, without the consent
of such recipient, of any of his or her rights thereunder or with respect
thereto, (b) no such amendment shall be effective without the approval of the
stockholders of the Company, if stockholder approval of the amendment is then
required pursuant to Rule 16b-3 under the Act, or the applicable rules of any
securities exchange, and (c) to the extent prohibited by Rule 16b-3(c)(2)(ii)(B)
under the Act, this Plan may not be amended more than once every six months.
Section 9. Effective Date of Plan.
This Plan shall be effective as of April 8, 1996, the date upon which
it was approved by the Board; provided, however, that no shares of Common Stock
shall be issued under this Plan until it has been approved, directly or
indirectly, by the affirmative votes of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting duly held in accordance with the laws of the State of Delaware.
Section 10. No Rights as Stockholder and Rights of Directors.
Neither the recipient of an Option under this Plan nor an Optionee's
successor or successors in interest shall have rights as a stockholder of the
Company with respect to any shares of Common Stock subject to an Option granted
to such person until the date of issuance of a stock certificate for such shares
of Common Stock. Neither this Plan, nor the granting of an Option hereunder, nor
any other action taken pursuant to this Plan shall constitute or be evidence of
any agreement or understanding, express or implied, that a director has a right
to continue as a director for any period of time or at any particular rate of
compensation.
Section 11. Governing Law.
This Plan and all rights and obligations under this Plan shall be
construed in accordance with and covered by the laws of the State of Delaware.
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<PAGE>
COMMON STOCK PROXY BOARD OF DIRECTORS
ORCHARD SUPPLY HARDWARE STORES CORPORATION
The undersigned hereby appoints Maynard Jenkins or Stephen M. Hilberg, or
either of them, the true and lawful attorneys and proxies of the undersigned,
with full power of substitution to vote all shares of the Common Stock, $.01
par value per share ("Common Stock"), of ORCHARD SUPPLY HARDWARE STORES
CORPORATION, which the undersigned is entitled to vote at the Annual Meeting
of the Stockholders of ORCHARD SUPPLY HARDWARE STORES CORPORATION, to be held
at 2:00 P.M., Pacific Time, on May 23, 1996 at The Westin Hotel, 5101 Great
America Parkway, Santa Clara, California and any and all adjournments thereof,
on the proposals set forth below and any other matters properly brought before
the Meeting.
SEE
REVERSE
SIDE
<PAGE>
PLEASE MARK YOUR CHOICES LIKE THIS [X]
THE DIRECTORS RECOMMEND A VOTE FOR ALL NOMINEES LISTED IN PROPOSAL 1 AND
APPROVAL OF PROPOSALS 2, 3 AND 4.
1. ELECTION OF DIRECTORS
FOR ALL NOMINEES LISTED BELOW WITHOUT AUTHORITY
(EXCEPT AS MARKED TO THE TO VOTE FOR
CONTRARY BELOW) ALL NOMINEES
[_] [_]
(Instruction: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name below):
Mac Allen Culver Matt L. Figel Morton Godlas
William A. Hall Stephen M. Hilberg Maynard Jenkins
J. Frederick Simmons Ronald P. Spogli
2. Proposal to approve the amendment to the 1993 Stock Option Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Proposal to approve the 1996 Non-Employee Directors Stock Option Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
4. Proposal to ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending January 26, 1997.
FOR [_] AGAINST [_] ABSTAIN [_]
5. Such other matters as may properly come before the meeting.
Unless a contrary direction is indicated, this Proxy will be voted FOR all
nominees listed in Proposal 1 and FOR approval of Proposals 2, 3 and 4; if
specific instructions are indicated, this Proxy will be voted in accordance
therewith.
All Proxies to vote at said Meeting or any adjournment heretofore given by
the undersigned are hereby revoked. Receipt of Notice of Annual Meeting and
Proxy Statement dated April 10, 1996, is hereby acknowledged.
Please mark, sign, date and return this Proxy in the accompanying prepaid
envelope. This Proxy is solicited on behalf of the Board of Directors of
ORCHARD SUPPLY HARDWARE STORES CORPORATION.
Signature(s) ____________________________ Date _______________________ , 1996
Please sign exactly as your name appears herein. When signing as attorney,
executor, administrator, trustee, guardian, or corporate officer, please
include full title.
