<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] 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 Rule 14a-11(c) or Rule 14a-12
BORDERS GROUP, INC.
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(Name of Registrant as Specified in Its Charter)
BORDERS GROUP, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
BORDERS LOGO
500 East Washington Street
Ann Arbor, Michigan 48104
---------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 14, 1998
---------------------------------------------------------------
To the Stockholders of
BORDERS GROUP, INC.
Notice is hereby given that the Annual Meeting of Stockholders of Borders
Group, Inc., a Michigan corporation (the "Company"), will be held at 11:00 A.M.
on May 14, 1998, at the Ritz-Carlton, Buckhead Hotel, 3434 Peachtree Road,
Atlanta, Georgia, for the following purposes:
1. To elect seven Directors of the Company, each to serve until the 1999
Annual Meeting of Stockholders or until a successor is elected and
qualified, and
2. To transact such other business as may properly come before the meeting
and any adjournments or postponements thereof.
Only stockholders of record at the close of business on March 25, 1998, are
entitled to notice of and to vote at the Annual Meeting and at any and all
adjournments or postponements thereof.
By Order of the Board of Directors,
THOMAS D. CARNEY
Secretary
Ann Arbor, Michigan
April 8, 1998
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YOUR VOTE IS IMPORTANT
EACH STOCKHOLDER IS URGED TO COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH DOES NOT REQUIRE POSTAGE IF
MAILED IN THE UNITED STATES. RETURNING A SIGNED PROXY WILL NOT PREVENT YOU
FROM ATTENDING THE MEETING AND VOTING IN PERSON, IF YOU SO DESIRE.
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<PAGE> 3
BORDERS GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1998
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished to the stockholders of Borders Group,
Inc., a Michigan corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Stockholders of the Company to be held at 11:00 A.M. on
Thursday, May 14, 1998, at the Ritz-Carlton, Buckhead Hotel, 3434 Peachtree
Road, Atlanta, Georgia, and at any and all adjournments or postponements
thereof. At the Annual Meeting, the stockholders of the Company are being asked
to consider and vote upon the election of seven Directors, each to serve until
the 1999 Annual Meeting of Stockholders or until a successor is elected and
qualified.
This proxy statement and the enclosed form of proxy are first being mailed
to stockholders of the Company on or about April 8, 1998.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Only holders of record of the Company's common stock ("Common Stock") at
the close of business on March 25, 1998 (the "Record Date") are entitled to
notice of and to vote at the Annual Meeting. At the close of business on the
Record Date, there were 75,738,024 shares of Common Stock outstanding. The
presence, either in person or by proxy, of the holders of a majority of the
shares of Common Stock outstanding on the Record Date is necessary to constitute
a quorum at the Annual Meeting. All abstentions and broker non-votes will be
included as shares that are present and entitled to vote for purposes of
determining the presence of a quorum at the meeting.
Each stockholder will be entitled to one vote, in person or by proxy, for
each share of Common Stock held in such stockholder's name as the Record Date on
any matter submitted to a vote of stockholders at the Annual Meeting. The
election of the seven Directors will require the affirmative vote of a plurality
of the shares of Common Stock represented and voting in person or by proxy and
entitled to vote at the Annual Meeting. Abstentions and broker non-votes will
not be counted as votes cast in connection with determining the plurality
required to elect a director and will have no effect on the outcome of that
vote.
Shares of Common Stock represented by properly executed proxies received in
time for voting at the Annual Meeting will, unless such proxy has previously
been revoked, be voted in accordance with the instructions indicated thereon. In
the absence of specific instructions to the contrary, the persons named in the
accompanying form of proxy intend to vote all properly executed proxies received
by them FOR the election of the Board of Director's nominees as Directors. No
business other than as set forth in the accompanying Notice of Annual Meeting is
expected to come before the Annual Meeting, but should any other matter
requiring a vote of stockholders be properly brought before the Annual Meeting,
it is the intention of the persons named in the enclosed form of proxy to vote
such proxy in accordance with their best judgment on such matters. For
information with respect to advance notice requirements applicable to
stockholders who wish to propose any matter for consideration or nominate any
person for election as a director at an annual meeting, see "Proposals of
Stockholders".
Under applicable Michigan law, none of the holders of Common Stock is
entitled to appraisal rights in connection with any matter to be acted on at the
Annual Meeting.
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Execution of the enclosed proxy will not prevent a stockholder from
attending the Annual Meeting and voting in person. Any proxy may be revoked at
any time prior to the exercise thereof by delivering in a timely manner a
written revocation or a new proxy bearing a later date to the Secretary of the
Company, 500 East Washington Street, Ann Arbor, Michigan 48104, or by attending
the Annual Meeting and voting in person. Attendance at the Annual Meeting will
not, however, in and of itself constitute a revocation of a proxy.
This solicitation is being made by the Company. The cost of this
solicitation will be borne by the Company. Solicitation will be made by mail,
and may be made personally or by telephone by officers and other employees of
the Company who will not receive additional compensation for solicitation.
The principal executive offices of the Company are located at 500 East
Washington Street, Ann Arbor, Michigan, 48104, and its telephone number is (313)
913-1100.
PROPOSAL 1
ELECTION OF DIRECTORS
Seven Directors will be elected at the Annual Meeting to serve until the
1999 Annual Meeting of Stockholders or until a successor is elected and
qualified. Each of the nominees has committed to serve as a Director if elected
at the Annual Meeting and, to the best knowledge of the Board of Directors, is
and will be able to serve if so elected. In the event that any of the nominees
listed below should be unavailable to stand for election before the Annual
Meeting, the persons named in the accompanying proxy intend to vote for such
other person, if any, as may be designated by the Board of Directors, in the
place of any nominee unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
COMPANY'S NOMINEES AS DIRECTORS.
Set forth below is a brief biography of each nominee for election as a
Director.
ROBERT F. DIROMUALDO, AGE 53. Mr. DiRomualdo has been the Chairman and
Chief Executive Officer and a director of the Company since its formation in
August 1994. Prior to the formation of the Company, Mr. DiRomualdo was President
and Chief Executive Officer of Borders, Inc. from January 1989 to February 1994.
From February 1994 to August 1994, Mr. DiRomualdo was responsible for overall
operations at Borders, Inc. and Walden Book Company, Inc.
PETER R. FORMANEK, AGE 54. Mr. Formanek was co-founder of Autozone, a
retailer of aftermarket automotive parts, and served as President and Chief
Operating Officer of Auto Zone, Inc. from 1986 until his retirement in May,
1994. He currently is a director of The Perrigo Company, a manufacturer of store
brand over-the-counter drug and personal care products and vitamins. Mr.
Formanek has served as a director of the Company since August, 1995.
AMY B. LANE, AGE 45. In January 1997, Ms. Lane became Managing Director,
Investment Banking Group, of Merrill Lynch. From 1989 through 1996, she served
as a Managing Director, Corporate Finance, of Salomon Brothers Inc., including
service as Co-Head of Salomon Brothers Investment Banking Group covering the
retail industry. She has served as a director of the Company since August, 1995.
VICTOR L. LUND, AGE 50. Mr. Lund has served as Chairman of the Board of
American Stores Company, a food and drug retailer, since June 1995 and as its
Chief Executive Officer since August 1992. He was President of American Stores
Company from August 1992 until June 1995. Mr. Lund has served as a director of
the Company since July 1997 and also serves as a director of American Stores
Company.
GEORGE R. MRKONIC, AGE 45. Mr. Mrkonic has served as the Vice Chairman of
the Company since December 1994, and a Director since its formation in August
1994. He also served as President of the Company from December 1994 until
January 1997. Prior to joining the Company,
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<PAGE> 5
Mr. Mrkonic served as Executive Vice President, Specialty Retailing Group of
Kmart Corporation, where he had overall responsibility for the specialty
retailing operations of Kmart including, among others, Borders, Inc. and Walden
Book Company, Inc., from November 1990 to November 1994. Mr. Mrkonic is also a
director of Champion Enterprises, Inc., a manufacturer and seller of
manufactured homes and mid-sized buses and Syntel, Inc., a computer software and
development company.
LARRY POLLOCK, AGE 50. Mr. Pollock became Executive Vice President and
Chief Operating Officer of HomePlace, Inc., a chain of home furnishings and
housewares superstores, in January of 1997 and was elected President of
HomePlace, Inc. in October of 1997. From 1994 until 1996, he served as the
President, Chief Operating Officer and a director of Zale Corporation, a jewelry
retailer. From 1990 through 1993, Mr. Pollock served as President and Chief
Operating Officer of Karten's Jewelers, Inc., a New England jewelry chain. Mr.
Pollock is a partner of Independent Group L.P., a privately-held radio
broadcasting company based in Cleveland, Ohio, and a director of New West
Eyeworks, Inc., a retail optical company. He has served as a director of the
Company since August, 1995.
In January of 1998, HomePlace, Inc. filed a voluntary petition in the
United States Bankruptcy Court for the District of Delaware for reorganization
under Chapter 11 of the Bankruptcy Code.
LEONARD A. SCHLESINGER, AGE 45. Mr. Schlesinger is currently the George
Fisher Baker, Jr. Professor of Business Administration at the Harvard Business
School. He has served as a faculty member at the Harvard Business School for
more than five years. Mr. Schlesinger has served as a director of the Company
since August, 1995 and also serves as a director of The Limited, Inc., a
specialty retailer, Pegasystems, Inc., a customer service software company, and
GC Companies, Inc., a motion picture exhibition company.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended January 25, 1998, the Board of Directors held
ten meetings. The Board of Directors has also established standing Audit and
Compensation Committees. The membership and functions of the committees of the
Board of Directors are as follows:
The Audit Committee was established for the purpose of reviewing and making
recommendations regarding the Company's employment of independent accountants,
the annual audit of the Company's financial statements and the Company's
internal controls, accounting practices and policies. Four meetings of the Audit
Committee were held during the fiscal year ended January 25, 1998. The current
members of the Audit Committee are Ms. Lane and Mr. Lund.
The Compensation Committee was established for the purpose of making
recommendations to the Board of Directors regarding the nature and amount of
compensation for executive officers of the Company. The Compensation Committee
also administers certain of the Company's employee benefit plans. Seven meetings
of the Compensation Committee were held during the fiscal year ended January 25,
1998. The current members of the Compensation Committee are Mr. Formanek, Mr.
Pollock, and Mr. Schlesinger.
Each director attended at least 75% of the Board and Committee meetings
held during the period in which he or she was a director.
COMPENSATION OF DIRECTORS
For service as a director during 1997, each director who is not an employee
of the Company received $25,000 in restricted shares of Common Stock (the
"Restricted Shares") paid at the beginning of the relevant calendar year, or, in
the case of Mr. Lund, a percentage of such amount based upon the period during
1997 in which he served as a director. The restrictions on such Restricted
Shares will generally lapse one year from the date of grant. Each director who
is not an employee of the Company also received $1,000 in Common Stock for each
board meeting attended,
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<PAGE> 6
and $500 in Common Stock for each committee meeting attended, paid at the end of
the calendar quarter in which the meetings occurred. Such Common Stock cannot be
sold until at least six months after the date of grant.
Commencing in 1998, in lieu of the annual retainer and meeting fees
described above, each director who is not an employee of the Company will
receive 2,000 Restricted Shares at the beginning of each year, subject to a
maximum value of $75,000.
On the date of each of the Company's Annual Meetings, each eligible
director receives an option to purchase 5,000 shares of common stock of the
Company. The exercise price of options granted under the Plan is the fair market
value on the date of grant. To be eligible to receive option grants at the
Annual Meetings to be held in 1998 and 1999 and thereafter, a director generally
must have held at least 15,000 and 20,000 shares, respectively, for the one-year
period prior to the date of the meeting.
Each option vests and becomes exercisable on the third anniversary of the
date of grant except that (i) an option is forfeited in its entirety if the
director ceases, at any time prior to his or her exercise of the option, to hold
the minimum number of shares that he or she was required to hold for the one
year period prior to the grant to be eligible therefor; (ii) all outstanding
options vest and become immediately exercisable in the event of a change in
control of the Company, and (iii) all options held by a director who has served
as a director for six years or more vest and become immediately exercisable as
of the date upon which he or she ceases to serve as a director.
An option may be exercised only during the period that the optionee serves
as a director of the Company or within three months after termination of such
service and only if it is vested and has not expired at the time of termination.
However, if the director ceases to serve as such as a result of death or if the
individual has served as a director of the Company for more than 10 years, such
three month period is extended to three years.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers to file with the Securities and Exchange
Commission initial reports of beneficial ownership and reports of changes in
beneficial ownership of Common Stock of the Company. Such officers and directors
are required by SEC regulations to furnish to the Company copies of all Section
16(a) reports that they file. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, all officers and directors
of the Company complied with the Section 16(a) filing requirements for the
fiscal year ended January 25, 1998.
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<PAGE> 7
EXECUTIVE COMPENSATION
GENERAL
The following summary compensation table sets forth information regarding
the annual and long-term compensation awarded to, earned by or paid for the
fiscal year ended January 25, 1998 to the named executive officers of the
Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-----------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) COMPENSATION(2) STOCK(1) OPTIONS COMPENSATION(3)
--------------------------- ---- --------- -------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert F. DiRomualdo......... 1997 -- -- -- -- 329,041 $ 2,678
Chairman and Chief 1996 $343,333 -- $131,325 $696,967 233,418 $ 2,687
Executive Officer 1995 $171,667 $ 68,750 $208,332 $618,333 577,610 $ 4,620
George R. Mrkonic............ 1997 -- -- -- -- 289,844 $ 6,995
Vice Chairman 1996 $343,333 -- $131,325 $696,967 233,418 $ 2,914
1995 $171,667 $ 68,750 $208,332 $618,333 583,068 $ 4,620
Bruce A. Quinnell............ 1997 -- -- -- -- 300,048 $ 1,026
President 1996 $230,000 $172,500 $ 96,600 $501,400 187,418 --
1995 $115,000 $ 54,900 $208,332 $413,000 370,878 $ 4,620
Richard L. Flanagan.......... 1997 -- -- -- -- 217,898 $ 529
President -- Borders 1996 $173,333 $ 31,050 $ 18,113 $159,117 148,418 $ 807
1995 $ 86,667 -- $208,332 $323,333 369,886 $ 4,620
Katherine L. Winkelhaus...... 1997 $220,000 $176,000 $ 25,300 $101,200 170,358 $ 775
President -- Waldenbooks 1996 $200,000 $120,000 $ 30,750 $123,000 -- $21,304
1995 $199,167 $ 14,664 $ 63,543 $ 48,880 155,798 $95,364
</TABLE>
- -------------------------
(1) The salary and bonus to which the named officers were entitled for fiscal
1997 is as follows: Mr. DiRomualdo, $515,000 salary, $515,000 bonus; Mr.
Mrkonic, $515,000 salary, $515,000 bonus; Mr. Quinnell, $400,000 salary,
$400,000 bonus; Mr. Flanagan, $260,000 salary, $345,000 bonus; Ms.
Winkelhaus, $220,000 salary, $277,200 bonus (37% of bonus used for the
purchase of restricted shares). Messrs. DiRomualdo, Mrkonic, Quinnell and
Flanagan were granted options in lieu of cash payment for 100% of their
salary and bonus. The salary and bonus to which the named officers were
entitled for fiscal 1996 is as follows: Mr. DiRomualdo, $515,000 salary,
$525,300 bonus (100% of bonus used for the purchase of restricted shares);
Mr. Mrkonic, $515,000 salary, $525,300 bonus (100% of bonus used for the
purchase of restricted shares); Mr. Quinnell, $345,000 salary, $558,900
bonus (69% of bonus used for the purchase of restricted shares); Mr.
Flanagan, $260,000 salary, $103,500 bonus (70% of bonus used for the
purchase of restricted shares); Ms. Winkelhaus, $200,000 salary, $243,000
bonus (51% of bonus used for the purchase of restricted shares). Messrs.
DiRomualdo, Mrkonic, Quinnell and Flanagan deferred, pursuant to the
Company's Deferred Compensation Plan, all of their salary that was not used
to purchase restricted shares. The salary and bonus to which the named
officers were entitled for fiscal 1995 is as follows: Mr. DiRomualdo,
$515,000 salary, $343,750 bonus; Mr. Mrkonic, $515,000 salary, $343,750
bonus; Mr. Quinnell, $345,000 salary, $237,900 bonus; Mr. Flanagan, $260,000
salary, $150,000 bonus; Ms. Winkelhaus, $199,167 salary, $63,544 bonus. Mr.
DiRomualdo, Mr. Mrkonic, Mr. Quinnell and Mr. Flanagan elected to forego the
payment in cash of all of their 1995 salary earned subsequent to the
Company's initial public offering and a portion of their 1996 salary and all
of their "on plan" bonus for fiscal 1995 (the maximum portion of the bonus
as to which an election was available) and to apply such amounts toward the
purchase of restricted shares. The portion of the named executive officer's
salary and bonus used to purchase restricted shares is reported under the
Restricted
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<PAGE> 8
Stock column of the table and the portion of the salary and bonus paid in
cash is reported under the Salary and Bonus columns. The amounts shown above
for 1995 as salary and bonus represent salary received prior to the
Company's initial public offering and the portion of the executive's bonus
in excess of his "on plan" bonus.
(2) The amount shown for 1997 reflects the difference between $33.625, the
closing price for the Common Stock on March 5, 1998, and the purchase price
of $26.90 paid by the named executive officer for the purchase of restricted
Common Stock under the Company's Management Stock Purchase Plan. The amounts
shown for 1996 reflect the difference between $21.00, the closing price for
the Common Stock on March 11, 1997, and the purchase price of $16.80 paid by
each of the named executive officers for the purchase of restricted Common
Stock under the Company's Management Stock Purchase Plan. The amounts shown
for 1995 reflect the difference between $7.25, the closing price for the
Common Stock on May 25, 1995, the date of the IPO, and the purchase price of
$6.00 paid by each of the named executive officers for the purchase of
restricted Common Stock under the management stock purchase option
provisions of the Company's Stock Option Plan.
(3) "All Other Compensation" consists of employer contributions credited under
the Borders Group Savings Plan, the taxable portion of Company provided life
insurance and, with respect to Ms. Winkelhaus, the amount of reimbursed
relocation costs.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM(2)
OPTIONS IN FISCAL EXERCISE EXPIRATION ------------------------
NAME GRANTED YEAR PRICE DATE 5% 10%
---- ---------- ---------- -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Robert F. DiRomualdo..... 25,094 .32% $18.63 6/8/98 $ 23,368 $ 46,737
123,947(1) 1.58% $29.81 4/14/00 $ 378,754 $ 775,985
180,000 2.29% $29.81 1/15/08 $3,374,786 $8,552,407
George R. Mrkonic........ 25,094 .32% $18.63 6/8/98 $ 23,368 $ 46,737
84,750(1) 1.08% $29.81 4/14/00 $ 258,977 $ 530,587
180,000 2.29% $29.81 1/15/08 $3,374,786 $8,552,407
Bruce A. Quinnell........ 25,094 .32% $18.63 6/8/98 $ 23,368 $ 46,737
28,684 .36% $18.63 1/28/07 $ 335,978 $ 851,438
96,270(1) 1.22% $29.81 4/14/00 $ 294,180 $ 602,710
150,000 1.91% $29.81 1/15/08 $2,812,321 $7,127,005
Richard L. Flanagan...... 25,094 .32% $18.63 6/8/98 $ 23,368 $ 46,737
72,804(1) .93% $29.81 4/14/00 $ 222,473 $ 455,798
120,000 1.53% $29.81 1/15/08 $2,249,857 $5,701,604
Kathryn L. Winkelhaus.... 15,888 .20% $18.63 6/8/98 $ 14,795 $ 29,591
49,470 .63% $18.63 1/28/07 $ 579,446 $1,468,438
105,000 1.33% $29.81 1/15/08 $1,968,625 $4,988,904
</TABLE>
- -------------------------
(1) These options were granted in lieu of any salary or bonus for fiscal 1998.
Mr. Mrkonic has elected to reduce his service level to approximately 70% of
full time employment and has been granted a proportionately reduced number
of options.
(2) Represents hypothetical realizable value of the options granted at 5% and
10% annual appreciation over the option term from the share price at the
date of grant.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
SHARES OR # OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARE UNITS UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED FISCAL YEAR END FISCAL YEAR END(1)
ON VALUE -------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert F. DiRomualdo...... -- -- 511,866/ 934,069 $10,807,156/$14,285,889
George R. Mrkonic......... -- -- 318,852/1,054,660 $5,491,575/$18,001,897
Bruce A. Quinnell......... -- -- 232,100/ 731,856 $3,898,856/$10,619,710
Richard L. Flanagan....... -- -- 278,958/ 615,202 $5,759,870/$ 9,383,121
Kathryn L. Winkelhaus..... -- -- 29,900/ 326,156 $704,518/$ 4,505,952
</TABLE>
- -------------------------
(1) Calculated using the closing market price of the Common Stock of $31.375 on
January 23, 1998, the last trading day in fiscal 1997, less the exercise
price of the related options.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has entered into employment agreements with Messrs. DiRomualdo
and Mrkonic, each of which provides for a minimum annual salary of $515,000 and
a minimum annual "on plan" bonus of $275,000. Under the agreements, base salary,
bonus, stock options and other long-term incentive compensation are to be
reviewed annually, provided that the salary, potential bonus option awards and
long term compensation of Messrs. DiRomualdo and Mrkonic are determined on the
same basis. These agreements provide that, in the event of the officer's
termination of employment other than for Cause or Disability (each as defined in
the respective agreement) or at the officer's election for Good Reason (as
defined in the respective agreement), such officer would be entitled to a
severance payment equal to two times the sum of (i) such officer's annual base
salary in effect at the time of termination and (ii) the "on plan" bonus amount
targeted for the fiscal year in which termination occurred. Such severance
payment will be made in equal installments during the 24-month period following
the month of termination. The officers are under no obligation to seek
employment during the first 12 months following such termination and the
severance payments will not be affected by any compensation such officers
receive during such period. Following such 12-month period, each officer has an
obligation to use reasonable efforts to seek other employment and, to the extent
such officer earns cash compensation from such other employment, the Company's
obligation to make severance payments will be correspondingly reduced.
The Company has entered into certain severance and change in control
agreements with the remaining executive officers. These agreements, which are
substantially similar, generally provide that, in the event of the officer's
termination of employment other than for Cause or Disability (as defined in the
agreements) or at such officer's election for Good Reason (as defined in the
agreements), the officer would be entitled to severance benefits. These
severance benefits include: (i) cash payment of the officer's salary in effect
through the month during which termination occurred, plus any other amount due
to such officer under any bonus plan of the Company and (ii) monthly severance
payments equal to (a) the officer's monthly base salary at the time of
termination, plus (b) 1/12th of a targeted bonus amount for such officer for the
fiscal year in which termination occurred. Such monthly severance payments
commence in the month following termination and continue for 12 months, unless
termination occurs within a two-year period following a Change in Control (as
defined in the agreement) of the Company, in which case severance payments
continue for 24 months and are equal to (x) the officer's monthly base salary at
the time of termination or immediately prior to the Change in Control, whichever
is greater, plus (y) 1/12th of the targeted bonus amount for such officer for
the fiscal year in which termination occurred or the fiscal year immediately
prior to the Change in Control, whichever bonus amount is greater.
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<PAGE> 10
The Company estimates that if the employment of all eleven executive
officers were terminated in 1997 following a Change in Control of the Company,
the total severance payments to those persons under the agreements, as described
above, would be approximately $9 million.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") is comprised of three
independent, non-employee directors who have no "interlocking" relationships as
defined by the Securities and Exchange Commission. The Committee's goal is to
ensure the establishment of executive compensation policies and practices that
will enable the Company to attract, retain, and motivate outstanding management
that will drive superior operating performance.
The Committee has established an executive compensation philosophy that is
designed to foster a performance oriented, entrepreneurially-led ownership
culture. Key considerations within that philosophy are as follows:
- Compensation that is heavily performance-based, with a risk-reward
profile designed to attract and retain performance-oriented executives.
- A corresponding mix of cash, bonus, and equity incentives that will
generate below-market compensation in the event of poor operating
performance and above-market compensation in the event of superior
performance.
- An orientation toward equity incentives that includes a combination of
stock and options which requires at least some annual out-of-pocket
investment in the business on the part of management.
- Restrictions on the equity incentives that promote a long-term focus on
the part of management and maximize retention of personnel.
- An increasing proportion of performance-based compensation relative to
base salary as a person's level of responsibility increases.
- The elimination of executive perquisites, such as first class domestic
and international air travel, automobiles, country club memberships and
supplemental retirement and medical plans, that are intended solely for
the benefit of executives.
The primary components of the Company's executive compensation program are:
(a) base salary; (b) annual cash bonus incentive opportunities provided through
the Annual Incentive Bonus Program; (c) long-term incentive opportunities
provided through the Stock Option Plan; and (d) Common Stock purchase
opportunities under the Management Stock Purchase Plan. Each of these components
are discussed separately in this report.
The Committee relates total compensation levels for executive officers to
compensation paid to executives at other companies. The companies chosen as the
basis of comparison are other retailers that the Company believes most closely
resemble itself in terms of compensation philosophy and performance objectives.
BASE SALARY
Base salaries for Company executives are subject to annual review, but
generally have been fixed at 1995 levels through 1998 except in cases of obvious
inequity relative to other Company officers in terms of base compensation
compared to level of responsibility and contribution. The objective of the
Company is to drive base salary levels that are competitive but at the low end
of base salaries provided by comparable retailers. The "market" rate for
salaries provided by comparable retailers is determined from information
gathered from published surveys. With respect
8
<PAGE> 11
to the $515,000 base salary established for Messrs. DiRomualdo and Mrkonic in
November, 1994 prior to the Company's initial public offering, the Committee
believes that such base salary was viewed as an appropriate "market" wage.
Neither Mr. DiRomualdo nor Mr. Mrkonic will have any increase in their base
compensation through 1998. As a result, the Committee believes that their base
compensation will be below market in the future, consistent with the
compensation philosophy described above. Mr. DiRomualdo, Mr. Flanagan, Mr.
Mrkonic and Mr. Quinnell will not receive any base salary or cash bonus for
fiscal 1998 and instead have been granted options for 123,947, 72,804, 84,750
and 96,270 shares, respectively, of the Company's Common Stock. The number of
options granted was intended by the Committee to be of approximately the same
value as the compensation forgone.
ANNUAL CASH INCENTIVES
Under the Company's Annual Incentive Bonus Plan (the "Bonus Plan"),
executive officers are eligible to receive cash awards based on the Company's
attainment of specific performance goals. The performance goals may be different
from year to year, expressed in either quantitative and/or qualitative terms,
and to the extent applicable, performance against these goals must be determined
in accordance with generally accepted accounting principles and reported upon by
the Company's independent public accountants.
Generally, target incentive bonus opportunities are expressed as a dollar
amount based upon a percentage of the executives' actual base salary. The Bonus
Plan requires that a threshold level of performance be met, below which no bonus
award would be paid and levels of performance at which specified percentages of
the target bonus would be paid. The performance criteria are based upon the
Company's attainment of specified levels of earnings and the executive's
satisfaction of individual objectives.
For any bonus earned, the Bonus Plan requires each executive officer to
take a minimum of 20% and a maximum of 100% of their actual bonus award in the
form of restricted Common Stock subject to the terms and conditions of the
Management Stock Purchase Plan.
As stated above, Mr. DiRomualdo, Mr. Flanagan, Mr. Mrkonic and Mr. Quinnell
have been granted options in lieu of any award under the Bonus Plan for fiscal
1998.
LONG TERM INCENTIVES
The Company attempts to foster an ownership culture that encourages deep
personal commitment and superior performance by its executive officers. To
promote that culture, the Company has adopted a Stock Option Plan and a
Management Stock Purchase Plan. Both Plans are intended to align the executive
officers' interests with the long-term interests of the Company's stockholders
by providing incentives that focus attention on managing the Company from the
perspective of an owner.
The Stock Option Plan provides for the grant at fair market value of stock
options with such vesting and exercise periods as the Committee may determine.
In determining the number of shares in a stock option grant, the Committee takes
into consideration the individual's performance, the level of the position, and
the individual's present and potential contribution to the success of the
Company.
Under the Management Stock Purchase Plan, the executive officers of the
Company are required to designate a minimum of 20%, and may designate up to
100%, of their annual bonus for the purchase of restricted shares of common
stock at a 20% discount from the fair market value of the stock. If the employee
ceases to be an employee during the restricted period, he or she generally will
receive unrestricted shares or cash equal in value to the lesser of cost or
market value of the restricted shares. However, in the event of termination by
the Company without cause, a participant will receive unrestricted shares or
cash equal in value to (i) the market value of a
9
<PAGE> 12
percentage of restricted shares, such percentage being based upon the number of
months of employment during the restricted period, and (ii) with respect to the
balance of the shares, the lesser of cost or market value of such shares.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to executive officers named in the proxy to $1
million, unless certain requirements are met.
The Committee intends to consider carefully any plan or compensation
arrangement that would result in the disallowance of compensation deductions. It
will use its best judgment in such cases, however, taking all factors into
account, including the materiality of any deductions that may be lost.
CONCLUSION
As described above, the Company's executive compensation program will
provide a mix of base compensation and incentives that will provide superior
compensation levels only in the event of superior operating and share price
performance. As such, there will be a direct alignment of the long-term
interests between the executives and the stockholders of the Company.
Peter Formanek
Larry Pollock
Leonard Schlesinger
STOCK PERFORMANCE GRAPH
The following line graph compares the cumulative total stockholder return
on the Company's Common Stock from May 24, 1995, the date of the Company's
Initial Public Offering of the Company's Common Stock, through January 25, 1998,
with the cumulative total return on the Standard & Poor's 500 Stock Index ("S&P
500") and a specialty retail index supplied by Worden Brothers, Inc., which
includes the collective performance of 22 specialty retailers for the same
period. In accordance with the rules of the Securities and Exchange Commission,
the returns are indexed to a value of $100 at May 24, 1995.
COMPARISON OF CUMULATIVE RETURN
BORDERS GROUP, INC., SPECIALTY RETAIL INDEX, S&P 500
<TABLE>
<CAPTION>
MEASUREMENT PERIOD BORDERS SPECIALTY
(FISCAL YEAR COVERED) GROUP, INC. RETAIL INDEX S&P 500
<S> <C> <C> <C>
5/24/95 100.00 100.00 100.00
7/21/95 118.14 108.23 104.73
10/20/95 115.52 97.95 111.13
1/26/96 137.10 94.55 117.60
4/26/96 230.21 128.41 123.62
7/26/96 232.76 120.08 120.30
10/25/96 220.69 133.22 132.60
1/24/97 257.79 124.47 145.76
4/27/97 289.66 137.69 144.79
7/27/97 360.41 158.06 177.60
10/26/97 358.62 171.48 178.14
1/25/98 432.83 169.94 181.15
</TABLE>
10
<PAGE> 13
BENEFICIAL OWNERSHIP OF COMMON STOCK
As of the March 25, 1998 Record Date, the Common Stock was held of record
by 3,744 stockholders. The following table sets forth certain information
concerning the beneficial ownership of Common Stock and Share Units by each
stockholder who is known by the Company to own beneficially in excess of 5% of
the outstanding Common Stock, by each director, by the executive officers named
in the Summary Compensation table above, and by all directors and executive
officers as a group, as of the Record Date. Except as otherwise indicated, all
persons below have (i) sole voting power and dispositive power with respect to
their shares of Common Stock, except to the extent that authority is shared by
spouses under applicable law, and (ii) beneficial ownership with respect to
their shares of Common Stock or Share Units.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENT OF
COMMON STOCK COMMON STOCK
NAME AND ADDRESS OR SHARE UNITS(1) OUTSTANDING
---------------- ----------------- ------------
<S> <C> <C>
Putnam Investments, Inc. (2)................................ 5,203,400 6.9%
One Post Office Square
Boston, Massachusetts 02109
Robert F. DiRomualdo........................................ 1,916,653(3) 2.5%
George R. Mrkonic........................................... 1,054,980(4) 1.4%
Bruce A. Quinnell........................................... 693,078(5) *
Richard L. Flanagan......................................... 577,188(6) *
*
Kathy Winkelhaus............................................ 162,750(7)
Peter R. Formanek........................................... 17,810 *
Amy B. Lane................................................. 14,589 *
Victor L. Lund.............................................. 2,580 *
Larry Pollock............................................... 18,804 *
Leonard A. Schlesinger...................................... 17,810 *
Directors and Executive Officers as a Group................. 5,638,248 7.4%
</TABLE>
- -------------------------
*Represents less than one percent.
(1) All figures set forth below represent shares of or the right to acquire
Common Stock, except that, of the figures shown for Mr. DiRomualdo, 995,692
represent Share Units. Share Units represent a general, unfunded and
unsecured promise by the Company to deliver shares to Mr. DiRomualdo at a
later date in accordance with the Deferral Agreement between Mr. DiRomualdo
and the Company. Share Units do not have voting rights.
(2) Based on a Schedule 13G dated January 16, 1998 by Putnam Investments, Inc.
and affiliated companies which indicates in the aggregate, shared
dispositive power with respect to all of these shares, shared voting power
with respect to 357,100 of the shares, and sole voting power with respect to
none of the shares.
(3) Includes 995,692 Share Units, and 736,814 options that are exercisable
within 60 days.
(4) Includes 703,588 options that are exercisable within 60 days, 5,565 shares
held under the Borders Group, Inc. 401(k) Savings Plan, 49,600 shares of
Common Stock indirectly held in spouse's IRA, and 4,050 shares of Common
Stock held in custodial accounts for Mr. Mrkonic's children.
(5) Includes 393,856 options that are exercisable within 60 days, 20,000 shares
held by spouse and 4,556 shares held under the Borders Group, Inc. 401(k)
Savings Plan.
(6) Includes 406,210 options that are exercisable within 60 days.
(7) Includes 90,446 options that are exercisable within 60 days.
11
<PAGE> 14
SELECTION OF INDEPENDENT AUDITORS
Price Waterhouse, LLP has been selected by the Board of Directors of the
Company to serve as the Company's independent auditors for the 1998 fiscal year.
Representatives of Price Waterhouse are expected to be present at the Annual
Meeting with the opportunity to make a statement about the Company's financial
condition, if they desire to do so, and to respond to appropriate questions.
ANNUAL REPORT
Copies of the Company's 1997 Annual Report to Stockholders, which includes
audited financial statements, are being mailed to stockholders with this Proxy
Statement. Additional copies are available without charge on request. Requests
should be addressed to Marilyn Horn, Investor Relations, Borders Group, Inc.,
100 Phoenix Drive, Ann Arbor, Michigan 48108-2202.
PROPOSALS OF STOCKHOLDERS
In accordance with Rule 14a-8 under the Securities Exchange Act of 1934,
any stockholder proposals intended to be presented at the 1999 Annual Meeting of
Stockholders must be received by the Company no later than December 9, 1998 in
order to be considered for inclusion in the Proxy Statement and form of proxy
relating to that meeting.
Section 8 of Article II of the Company's By-Laws provides that, in order
for a stockholder to nominate a person for election to the Board of Directors at
an annual meeting of the Company, such stockholder must be a stockholder of
record on the date the notice described below is given and on the record date
for the annual meeting, and must have given timely prior written notice to the
Secretary of the Company of such stockholder's intention to make such nomination
before the meeting. To be timely, notice must be received by the Company not
less than 60 days nor more than 90 days prior to the date of the annual meeting;
provided, however, that in the event less than 70 days notice or prior public
disclosure of the date of the meeting is given to stockholders, notice by the
stockholder to be timely must be so received no later than the close of business
on the tenth day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure of the date of the annual
meeting was made, whichever first occurs. Such notice must contain certain
information about the person whom the stockholder proposes to nominate and the
stockholder giving the notice, including the name, age, residence and business
addresses, occupation, and class and number of shares of capital stock owned
beneficially or of record by the proposed nominee and the name, record address
and class and number of shares of capital stock owned beneficially or of record
by such stockholder as well as a description of any arrangements or
understandings between such stockholder and the proposed nominee pursuant to
which the nominations are to be made. In addition, such notice must contain any
other information related to the proposed nominee or such stockholder that would
be required to be disclosed in a proxy statement. The notice must also contain a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in such notice. Such notice must be
accompanied by a written consent of each proposed nominee to being named as a
nominee and to serve as a director if elected.
In addition, Section 9 of Article II of the Company's By-Laws provides
that, in order for a stockholder to propose any matter for consideration at an
annual meeting of the Company, such stockholder must be a stockholder of record
on the date the notice described below is given and on the record date for the
annual meeting, and must have given timely prior written notice to the Secretary
of the Company of such stockholder's intention to bring such business before the
meeting. To be timely, notice must be received by the Company not less than 60
days nor more than 90 days prior to the date of the annual meeting; provided
however, that in the event less than 70 days notice or prior public disclosure
of the date of the meeting is given to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth
12
<PAGE> 15
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever occurs first. Such notice must contain certain information about such
business and the stockholder who proposes to bring the business before the
meeting, including the name and record addresses of such stockholder, a brief
description of the business that the stockholder proposes to bring before the
meeting, the reasons for conducting such business at the annual meeting, the
class and number of shares of capital stock owned beneficially or of record by
such stockholder, any material interest of such stockholder in the business so
proposed, a description of all arrangements or understandings between such
stockholder and any other person or persons (including their names) in
connection with the proposal of such business by such stockholder and a
representation that such stockholder intends to appear in person or by proxy at
the annual meeting to bring such business before the meeting.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE COMPANY'S FISCAL
YEAR ENDED JANUARY 25, 1998 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE PROVIDED TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO MARILYN
HORN, INVESTOR RELATIONS, BORDERS GROUP, INC., 100 PHOENIX DRIVE, ANN ARBOR,
MICHIGAN 48108-2202.
13
<PAGE> 16
PROXY
BORDERS GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE MAY 14, 1998, ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Robert F. DiRomualdo, George R. Mrkonic and
Thomas D. Carney, or any of them, with full power of substitution, as Proxies,
and hereby authorizes them to represent the undersigned and to vote all shares
of common stock of Borders Group, Inc. that the undersigned is entitled to vote
at the Annual Meeting of Stockholders of Borders Group, Inc., to be held on May
14, 1998, or any adjournment or postponement thereof, upon all matters that may
properly come before the Meeting. This card also constitutes voting
instructions for all shares beneficially owned and votable, if any, by the
undersigned as a participant in the Borders Group, Inc. Employee Stock Purchase
Plan.
Your vote with respect to the election of directors may be indicated on the
reverse side. The nominees are Robert F. DiRomualdo, Peter R. Formanek, Amy B.
Lane, Victor L. Lund, George R. Mrkonic, Larry Pollock and Leonard A.
Schlesinger.
PLEASE DATE AND SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
IF YOU DO NOT SIGN AND RETURN A PROXY, OR ATTEND THE MEETING AND VOTE BY
BALLOT, YOUR SHARES CANNOT BE VOTED.
SEE REVERSE SIDE
- FOLD AND DETACH HERE -
<PAGE> 17
| 5941
|_____
<TABLE>
<S><C>
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BELOW. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF THE NOMINEES TO SERVE AS DIRECTORS. As to any other business that may come before the Annual Meeting or any
adjournment thereof, this Proxy will be voted in the discretion of the proxies.
- ------------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" the election of the nominees to serve as Directors.
- ------------------------------------------------------------------------------------------------------------------------------------
FOR WITHHELD
1. Election of [ ] [ ]
Directors. (See
reverse side)
For, except vote withheld from the following nominee(s):
- ---------------------------------------------------------
The undersigned hereby revokes all proxies
previously given by the undersigned to vote at
the Annual Meeting or any adjournments thereof.
(Please sign exactly as name appears above.
Joint owners should all sign. Executors,
administrators, trustees, etc. should so
indicate when signing. If signer is a
corporation, sign full corporate name by duly
authorized officer who adds his or her name
and title.)
-----------------------------------------------
-----------------------------------------------
SIGNATURE(S) DATE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- FOLD AND DETACH HERE -
PLEASE SIGN AND DATE THE PROXY, DETACH IT, AND RETURN IT IN THE ENCLOSED
ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. THE ENCLOSED
RETURN ENVELOPE DOES NOT REQUIRE ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES OR CANADA.
