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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
Service Merchandise Company, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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SERVICE MERCHANDISE LOGO
March 11, 1997
DEAR FELLOW SHAREHOLDER:
You are cordially invited to attend the Annual Meeting of Shareholders of
Service Merchandise Company, Inc. scheduled to be held on Wednesday, April 16,
1997 at 10:00 a.m., local time, at the offices of the Company, 7100 Service
Merchandise Drive, Brentwood, Tennessee. Your Board of Directors and management
look forward to greeting personally those shareholders able to attend.
At the meeting, shareholders will be asked to elect two Class II directors,
to consider and act upon a proposal to amend the 1991 Directors' Equity Plan for
nonemployee directors of the Company, as well as a proposal to approve the
Company's 1997 Executive Incentive Compensation Program, and to approve the
selection of Deloitte & Touche LLP as the Company's independent public
accountants for fiscal year 1997. Information regarding these matters is set
forth in the accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement to which you are urged to give your prompt attention.
It is important that your shares be represented and voted at the meeting.
Whether or not you plan to attend, please take a moment to sign, date and
promptly mail your proxy in the enclosed prepaid envelope. This will not limit
your right to vote in person should you attend the meeting.
On behalf of your Board of Directors, thank you for your continued support
and interest in Service Merchandise.
Sincerely,
/s/ Raymond Zimmerman
---------------------------
Raymond Zimmerman
Chairman of the Board
and Chief Executive Officer
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SERVICE MERCHANDISE LOGO
7100 SERVICE MERCHANDISE DRIVE
BRENTWOOD, TN 37027
MAILING ADDRESS:
P. O. BOX 24600
NASHVILLE, TENNESSEE 37202-4600
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, APRIL 16, 1997
---------------
Notice is hereby given that the Annual Meeting of Shareholders of SERVICE
MERCHANDISE COMPANY, INC. (hereinafter called the "Company"), will be held at
the offices of the Company located at 7100 Service Merchandise Drive, Brentwood,
Tennessee on Wednesday, April 16, 1997 at 10:00 a.m., local time, for the
following purposes:
(1) To elect two Class II directors to serve for a term of three years
or until their successors are duly elected and qualified;
(2) To consider and act upon a proposal to amend the 1991 Directors'
Equity Plan for nonemployee directors of the Company to permit the
conversion of their cash retainer payments into options to purchase stock
of the Company;
(3) To consider and act upon a proposal to approve for purposes of
federal tax laws the Company's 1997 Executive Incentive Compensation
Program;
(4) To consider and act upon a proposal to approve the selection of
Deloitte & Touche LLP as the Company's independent public accountants for
fiscal year 1997; and
(5) To transact such other business as may properly be brought before
the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on February 28, 1997
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting.
Your attention is directed to the Proxy Statement accompanying this notice
for a more complete statement regarding matters to be acted upon at the Annual
Meeting.
By Order of the Board of Directors
/s/ C. Steven Moore
----------------------------------
C. Steven Moore
Secretary
Brentwood, Tennessee
March 11, 1997
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AND VOTED AT THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE AND
PROMPTLY MAIL YOUR PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOUR COOPERATION
IS APPRECIATED.
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SERVICE MERCHANDISE COMPANY, INC.
7100 SERVICE MERCHANDISE DRIVE
BRENTWOOD, TENNESSEE 37027
MAILING ADDRESS:
P.O. BOX 24600
NASHVILLE, TENNESSEE 37202-4600
---------------
PROXY STATEMENT
---------------
The accompanying proxy is solicited by the Board of Directors of Service
Merchandise Company, Inc. (the "Company") for use at the Annual Meeting of
Shareholders to be held on April 16, 1997, and any adjournments thereof, notice
of which meeting is attached hereto.
This Proxy Statement and the Company's Annual Report to Shareholders have
been mailed on or about March 11, 1997 to all shareholders of record on February
28, 1997.
The purposes of the Annual Meeting are: (i) to elect two Class II
directors; (ii) to approve an amendment to the Company's 1991 Directors' Equity
Plan (the "Directors' Equity Plan") for nonemployee directors of the Company;
(iii) to approve the Company's 1997 Executive Incentive Compensation Program
(the "1997 Program"); (iv) to approve the selection of Deloitte & Touche LLP as
the Company's independent public accountants for fiscal 1997; and (v) to
transact such other business as may properly be brought before the Annual
Meeting or any adjournment thereof.
A shareholder who signs and returns a proxy in the accompanying form may
revoke the same at any time before the authority granted thereby is exercised by
attending the Annual Meeting and electing to vote in person, by filing with the
Secretary of the Company a written revocation or by duly executing a proxy
bearing a later date. Unless the proxy is so revoked, the shares of the
Company's common stock (the "Common Stock") represented by the proxy will be
voted at the Annual Meeting. Where a choice is specified on the proxy, the
shares represented thereby will be voted in accordance with such specifications.
If no specification is made, such shares will be voted FOR the election of the
two Class II director nominees, FOR the approval of the amendment to the
Directors' Equity Plan, FOR the approval of the 1997 Program, and FOR the
approval of the selection of Deloitte & Touche LLP as the Company's independent
public accountants for fiscal 1997.
The Board of Directors knows of no other matters which are to be brought to
a vote at the Annual Meeting. However, if any other matter does come before the
Annual Meeting, the persons appointed in the proxy or their substitutes will
vote in accordance with their best judgment on such matters.
The Board of Directors has fixed the close of business on February 28, 1997
as the record date for the Annual Meeting. On that date, the Company had
outstanding 99,757,757 shares of Common Stock. Only record holders of the Common
Stock at the close of business on that date will be entitled to notice of and to
vote at the Annual Meeting. Holders of the Common Stock will be entitled to one
vote for each share of Common Stock so held, which may be given in person or by
proxy duly authorized in writing.
The election of directors shall be approved by a plurality of the votes
cast by the holders of the shares of Common Stock present, or represented, and
entitled to vote at the Annual Meeting. The amendment to the Directors' Equity
Plan, the adoption of the 1997 Program and the selection of Deloitte & Touche
LLP as
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independent public accountants for fiscal 1997 shall each be approved by a
majority of the votes cast by the holders of the shares of Common Stock present,
or represented, and entitled to vote at the Annual Meeting.
Pursuant to rules promulgated by the Securities and Exchange Commission
(the "SEC"), boxes and a designated blank space are provided on the proxy card
for shareholders to mark if they wish to vote "for," "against" or "withhold
authority" (or abstain) to vote for one or more of the director nominees, and to
vote "for," "against" or "abstain" from voting on any other matters submitted to
the shareholders. Under applicable law, and the Company's charter and bylaws, an
abstention or withholding of authority to vote will have no effect on the
aforementioned matters since each of these matters is determined by the number
of votes cast. With regard to such matters, however, shares represented at the
meeting by proxies containing instructions to abstain, or withholding authority
to vote, will nonetheless be counted as present for purposes of determining
whether a quorum exists at the Annual Meeting. If the amendment to the
Directors' Equity Plan is approved by a majority of the voting power of the
Common Stock present, or represented, and entitled to vote at the Annual Meeting
(counting each abstention or withholding of authority to vote as a vote against
the amendment), the amendment to the Directors' Equity Plan will also constitute
approval for purposes of Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
A broker non-vote occurs when a broker holding shares registered in a
street name is permitted to vote, in the broker's discretion, on routine matters
without receiving instructions from the client, but is not permitted to vote
without instructions on non-routine matters, and the broker returns a proxy card
with no vote (the "non-vote") on the non-routine matter. Under Tennessee law and
the Company's charter and bylaws, broker non-votes will have no impact on any of
the matters submitted to the shareholders, but shares represented by a proxy
card marked with a non-vote would be counted as present for purposes of
determining the existence of a quorum. Under New York Stock Exchange rules, each
of the matters subject to vote by shareholders at the Annual Meeting involve
matters on which a broker has the discretion to vote if instructions are not
received from the client at least 10 days prior to the Annual Meeting.
The cost of solicitation of proxies will be borne by the Company, including
expenses incurred in connection with preparing, assembling and mailing this
Proxy Statement. Such solicitation will be made by mail, and may also be made by
the Company's officers, directors and regular employees personally or by
telephone or telegram. No officers, directors or regular employees will receive
additional compensation for soliciting proxies. The Company may reimburse
brokers, custodians and nominees for their expenses in sending proxies and proxy
material to beneficial owners. The Company has retained Kissel-Blake, Inc. to
assist in the solicitation at a fee of $7,000 plus reimbursement of reasonable
expenses.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
The Company's charter provides for a classified Board of Directors. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. The directors
are classified with respect to the terms for which they shall hold office by
dividing them into three classes. At each annual meeting, directors of the class
whose term of office expires in that year are elected for a three-year term. The
total number of current directors is seven, two of which were elected as Class I
directors in 1996. There are two nominees for reelection as Class II directors.
The three-year terms of R. Maynard Holt and James E. Poole expire upon the
election and qualification of new directors at the Annual Meeting.
The Board of Directors has designated R. Maynard Holt and James E. Poole as
the two nominees for reelection as Class II directors for a term expiring at the
annual meeting in 2000 or until their successors shall
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have been elected and qualified. Both Mr. Holt and Mr. Poole are currently Class
II directors of the Company previously elected by the shareholders.
Unless contrary instructions are received, it is intended that the shares
represented by proxies solicited by the Board of Directors will be voted in
favor of the election as directors of both of the Class II nominees named
herein. If for any reason any nominee is not available for election, the persons
named in the form of proxy have advised the Company that they will vote for such
substitute nominee or nominees as the Board of Directors of the Company may
propose. The Board of Directors has no reason to expect that any of these
nominees will not be available for election at the Annual Meeting, and therefore
does not at this time have any substitute nominee under consideration. The
information relating to the two nominees and the five directors continuing in
office set forth herein has been furnished to the Company by such nominees and
directors.
CLASS II NOMINEES STANDING FOR REELECTION:
YEAR FIRST YEAR TERM
NAME, AGE, POSITION(S) BECAME A BUSINESS EXPERIENCE DURING TO
WITH THE COMPANY DIRECTOR PAST FIVE YEARS EXPIRE IN
---------------------- ---------- -------------------------- ---------
R. Maynard Holt, 57 1971 R. Maynard Holt, Business Consultant, 2000
Director Nashville, Tennessee.
James E. Poole, 72 1983 President of Poole Enterprises, Inc., 2000
Director Nashville, Tennessee.
CURRENT DIRECTORS WHOSE TERMS HAVE NOT EXPIRED AND WHO ARE THEREFORE NOT UP FOR
REELECTION:
YEAR FIRST YEAR TERM
NAME, AGE, POSITION(S) BECAME A BUSINESS EXPERIENCE DURING TO
WITH THE COMPANY DIRECTOR PAST FIVE YEARS EXPIRE IN
---------------------- ---------- -------------------------- ---------
Raymond Zimmerman, 64 1960 Chairman of the Board and Chief 1998
Chairman of the Board and Executive Officer of the Company;
Chief Executive Officer Board member of The Limited Stores,
Columbus, Ohio.
Harold Roitenberg, 70 1990 President of Roitenberg Investments, 1998
Director Inc., Minneapolis, Minnesota; Board
member of Syratech Corporation and
Damark International, Inc.
Gary M. Witkin, 48 1994 President and Chief Operating Officer 1998
President, Chief Operating of the Company; Vice Chairman and
Officer and Director Board member, Saks Fifth Avenue
1992-1994; Executive Vice President
of Dayton Hudson Corp. 1991-1992;
Board member of Genesco, Inc.
Richard P. Crane, Jr., 57 1975 Practicing Attorney; Partner, Crane & 1999
Director McCann, Santa Monica, California;
Board member of North American
Gaming, Inc.
Charles V. Moore, 57 1972 President and Board member of Trainer, 1999
Director Wortham & Company, Inc., Investment
Counselors, New York, New York.
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A plurality of the votes cast is necessary for election of each nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR BOTH NOMINEES.
BOARD OF DIRECTORS AND COMMITTEES
To permit the Board of Directors to discharge its duties more efficiently,
the Board has established three standing committees: the Compensation Committee;
the Audit Committee; and the Nominating Committee.
The Company has a Compensation Committee for the purposes of setting
executive officers' salaries, annual incentive (bonus) compensation goals for
the Company's management under the Executive Management Incentive Program and
similar incentive compensation programs, reviewing and approving compensation
policies and plans for officers and other key employees, reviewing and approving
salary and other compensation of the officers and other key employees, making
recommendations to the Board of Directors with respect to the compensation of
directors and administering the Company's stock-based incentive plans. The
members of the Compensation Committee, all nonemployee directors, are Charles V.
Moore, Chairman, R. Maynard Holt and Harold Roitenberg. The Compensation
Committee held four meetings during the fiscal year ended December 29, 1996.
The Company has an Audit Committee for the purposes of recommending the
Company's independent public accountants, reviewing the scope of their
engagement, consulting with such auditors, reviewing the results of the audit
examination prior to finalization thereof, acting as a liaison between the Board
of Directors and internal auditors and reviewing various Company policies,
including those relating to accounting and internal control matters. The members
of the Audit Committee, all nonemployee directors, are R. Maynard Holt,
Chairman, Richard P. Crane, Jr., Charles V. Moore, James E. Poole, and Harold
Roitenberg. The Audit Committee held four meetings during the fiscal year ended
December 29, 1996.
The Company has a Nominating Committee for the purpose of recommending
nominees for election as directors of the Board of Directors. The Nominating
Committee makes recommendations to the Board with regard to qualified nominees
for election as directors of the Company, considers other matters pertaining to
the size and composition of the Board and designates members of its committees.
The Nominating Committee gives appropriate consideration to qualified persons
recommended by shareholders for nomination as directors, provided such
recommendations are accompanied by sufficient information to permit the
Nominating Committee to evaluate the qualifications and experience of the
nominees. The members of the Nominating Committee are Raymond Zimmerman,
Chairman, Harold Roitenberg and James E. Poole. The Nominating Committee held
three meetings during the fiscal year ended December 29, 1996.
During the fiscal year ended December 29, 1996, the Board of Directors held
four regular meetings and no special meetings. All directors attended at least
75% of the aggregate number of meetings of the Board and Committees of the Board
on which they serve.
DIRECTORS' COMPENSATION
In fiscal 1996, directors not otherwise employed as officers of the Company
initially received fees of $5,000 per quarter. On July 23, 1996, at the
recommendation of the Compensation Committee, the Board of Directors voted to
increase to $5,750 the quarterly fee payable to directors not otherwise employed
as officers of the Company effective for the fourth quarter of 1996. Mr. Holt,
Chairman of the Audit Committee, received an additional $3,000 for the year.
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Under the Directors' Deferred Compensation Plan, implemented in 1991,
directors have the option of deferring receipt of their fees until a period
following their service as a director or until retirement age.
As described in greater detail in Proposal No. 2 below, the Board of
Directors has approved, subject to shareholder approval, a proposal to amend the
Directors' Equity Plan for nonemployee directors to permit the conversion of
their cash retainer payments into options to purchase shares of Common Stock of
the Company.
Under the Directors' Equity Plan, each director who is not an employee of
the Company is entitled to receive 188 restricted shares of Common Stock
annually, on the date of the Annual Meeting. Each director is immediately
entitled to vote the granted shares and receive any dividends or other
distributions declared on the shares. Vesting of the shares occurs one year from
the date of the grant. The restricted shares will also vest immediately upon a
director's death or disability or on the date a "change in control" is deemed to
occur under the Company's Amended and Restated 1989 Employee Stock Incentive
Plan (the "Stock Incentive Plan"). Each nonemployee director also receives, on
the date of the Annual Meeting of Shareholders, options to purchase 750 shares
of Common Stock at an exercise price equal to the fair market value of such
shares on the date of grant. The options expire 10 years from the date of grant
and are exercisable in installments of twenty percent each year beginning one
year from the date of grant. The options become immediately exercisable on a
director's death or disability or on the date a "change in control" is deemed to
occur under the Stock Incentive Plan. See "Change in Control Provisions Under
the Company's Stock Incentive Plans." The Board of Directors has amended the
Directors' Equity Plan, subject to shareholder approval. See "Proposal No. 2:
Amendment to 1991 Directors' Equity Plan."
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SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of January 31, 1997, certain information
regarding the beneficial ownership of Common Stock by all directors of the
Company, the Company's Chief Executive Officer and the four most highly
compensated executive officers of the Company other than the Chief Executive
Officer, and by all directors and executive officers as a group. Except as
otherwise indicated, each director or officer has sole voting and investment
power over the shares of Common Stock listed as beneficially owned by him.
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED CLASS(1)
---- ------------------ ----------
Raymond Zimmerman..................................... 5,186,705(2)
1,502,663(3)
566,280(4)
---------
7,255,648(5) 7.2%
Gary M. Witkin........................................ 507,662(6)
Richard P. Crane, Jr.................................. 11,299(7)
Charles V. Moore...................................... 97,272(7)(8)
James E. Poole........................................ 11,753(7)
R. Maynard Holt....................................... 8,563(7)(9)
Harold Roitenberg..................................... 31,942(7)(10)
Harold Mulet.......................................... 25,000(11)
Charles Septer........................................ 120,065(12)
S. Cusano............................................. 68,933(13)
All directors and executive officers as a group (15
persons)............................................ 8,215,680 8.2%
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(1) Percentages representing less than 1% of the outstanding shares of Common
Stock are not shown.
(2) Includes currently exercisable options to acquire 691,875 shares and 16,261
shares held by the trustee under the Service Merchandise Company, Inc.
Savings and Investment Plan.
(3) Represents 1,045,696 shares owned of record by Mr. Zimmerman as trustee for
five nieces and 456,967 shares as to which Mr. Zimmerman is trustee under
the will of Mary K. Zimmerman.
(4) Represents 405,000 shares owned of record by the Raymond Zimmerman Family
Foundation and 161,280 shares owned of record by the Zimmerman Foundation.
(5) The address for Mr. Zimmerman is 7100 Service Merchandise Drive, Brentwood,
Tennessee 37027.
(6) Includes 453,685 restricted shares of Common Stock held by the Company
until restrictions lapse, currently exercisable options to acquire 25,000
shares, and 3,977 shares held by the trustee under the Service Merchandise
Company, Inc. Savings and Incentive Plan.
(7) Includes 188 restricted shares of Common Stock granted under the Directors'
Equity Plan, held by the Company until restrictions lapse on April 17,
1997, and currently exercisable options to acquire 2,250 shares granted
under the Directors' Equity Plan.
(8) Includes 9,280 shares owned by Mr. Moore as custodian for two minor
children.
(9) Includes 1,937 shares owned of record by Mr. Holt as trustee for the R.
Maynard Holt Profit Sharing Plan, a qualified profit sharing plan under the
Internal Revenue Code, 2,000 shares owned by Mr. Holt's wife and 2,000
shares owned by Mr. Holt's mother.
(10) Includes 28,564 shares owned by Roitenberg Investments, Inc., which is 100%
owned by Mr. Roitenberg.
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(11) Consists of currently exercisable options to purchase 25,000 shares.
(12) Includes currently exercisable options to acquire 58,553 shares, 9,542
shares held by Mr. Septer's wife (who is an employee of the Company) and
6,943 shares under currently exercisable options held by Mr. Septer's wife.
(13) Represents currently exercisable options to acquire 43,933 shares, 25,000
restricted shares of Common Stock held by the Company until restrictions
lapse.
SECURITY OWNERSHIP OF CERTAIN PERSONS
The following table sets forth, to the best knowledge of the Company, the
name and security ownership information of the person (other than Raymond
Zimmerman whose security ownership is listed in the preceding table) who, as of
December 31, 1996, owned more than five percent of the outstanding shares of
Common Stock:
NUMBER PERCENT
NAME OF SHARES OF CLASS(1)
---- ---------- -----------
FPA Paramount Fund, Inc.(1) 7,000,000 7.0%
11400 West Olympic Boulevard
Suite 1200
Los Angeles, CA 90064
- ---------------
(1) According to its most recent Schedule 13G, FPA Paramount Fund, Inc. is a
Maryland corporation registered as an investment company under the
Investment Company Act of 1940. First Pacific Advisors, Inc., a
Massachusetts corporation registered as an investment adviser under the
Investment Advisers Act of 1940, exercises shared dispositive power over
such shares of Common Stock.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information as to annual, long-term and other
compensation during fiscal years 1996, 1995 and 1994 for the Company's Chief
Executive Officer and the persons who, in fiscal 1996, were the other four most
highly compensated executive officers of the Company (such five officers are
referred to collectively as the "Named Officers"):
LONG-TERM ALL OTHER
COMPENSATION COMPEN-
ANNUAL COMPENSATION AWARDS SATION
--------------------------------------- ----------------------------- ---------
OTHER
ANNUAL RESTRICTED SECURITIES
COMPEN- STOCK UNDERLYING
SALARY BONUS SATION AWARDS OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR ($)(2) ($) ($) ($)(7) (#) ($)(10)
- --------------------------- ---- ------ ----- ------- ---------- ------------ -------
Raymond Zimmerman.............. 1996 $781,604 -- -- -- -- $39,538
Chairman and CEO 1995 781,575 -- -- -- -- 38,062
1994 751,677 -- -- -- -- 32,243
Gary M. Witkin................. 1996 752,605 $108,150 $ 189,415(3) -- 200,000 5,908
President and COO 1995 730,000 105,000 429,357(4) -- -- 4,899
1994 80,769 105,000 1,502,167(5) $2,812,274(8) 125,000 --
Harold Mulet(1)................ 1996 309,226 50,000 -- -- 50,000 3,068
Senior Vice President, 1995 98,077 75,000 80,157(6) -- 75,000 94
Stores 1994 N/A N/A N/A N/A N/A N/A
Charles Septer................. 1996 340,607 -- -- -- 50,000 2,769
Senior Vice President, 1995 330,373 -- -- -- 45,000 1,821
Jewelry Merchandising 1994 287,491 -- -- -- 25,000 2,568
S. Cusano...................... 1996 326,105 -- -- 123,438(9) 50,000 2,315
Corporate Vice President 1995 316,575 -- -- -- 55,000 2,308
and CFO 1994 301,680 -- -- -- 25,000 3,782
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(1) Mr. Mulet's employment with the Company began on August 28, 1995.
(2) Includes for fiscal 1996 estimated amounts of $1,604, $1,605, $226, $2,107
and $1,605 for Messrs. Zimmerman, Witkin, Mulet, Septer and Cusano
respectively, in contributions to the defined contribution plan that are to
be returned to the Named Officers as a result of the application of the
rules of such plan applicable to highly compensated individuals. Also
includes for each of Mr. Zimmerman and Mr. Witkin in fiscal 1996 and fiscal
1995 a non-accountable expense allowance of $30,000.
(3) Includes $174,088 in relocation expense.
(4) Consists of $250,000 for the loss in value incurred on the sale of Mr.
Witkin's home in Connecticut, as well as tax reimbursements, relocation
expenses, reimbursement of COBRA expenses, the use of a company car and
executive medical benefits, as required by Mr. Witkin's employment
agreement.
(5) Consists of reimbursement of $1,484,450 in taxes paid by Mr. Witkin with
respect to the grant of restricted stock (see Note 8) and reimbursement of
personal legal expenses and relocation expenses as required by Mr. Witkin's
employment agreement.
(6) Includes $74,881 in relocation expense.
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(7) The value of outstanding restricted stock awards as of December 29, 1996
are as follows:
NUMBER OF
NAME SHARES VALUE
---- ------------- ----------
Gary M. Witkin.............................................. 453,685 $2,155,004
S. Cusano................................................... 25,000 118,750
Dividends are payable on restricted stock when and if paid on unrestricted
stock. No dividends were paid in fiscal 1996.
(8) Represents the value of 478,685 shares of restricted stock granted on
November 21, 1994, at the then current market price of $5.875, pursuant to
Mr. Witkin's employment contract. 12,500 of these shares vested on each of
November 21, 1995 and November 21, 1996. The remainder will vest between
November 21, 1997 and November 21, 2000.
(9) Represents the value of 25,000 shares of restricted stock granted on
February 7, 1996, at the then current market price of $4.9375. Eight
thousand three hundred thirty-three of these shares vested on February 7,
1997. The remainder will vest on February 7, 1998 and February 7, 1999.
(10) Represents estimated Company contributions to the defined contribution
plan, benefits derived from payments by the Company for group term life
insurance and, in the case of Mr. Zimmerman, benefits derived from split
dollar life insurance. The amount of such benefits for 1996 is set forth in
the following table:
DEFINED CONTRIBUTION PLAN GROUP TERM LIFE INSURANCE SPLIT DOLLAR LIFE INSURANCE
------------------------- ------------------------- ---------------------------
Raymond Zimmerman........ $1,096 $20,428 $18,014
Gary M. Witkin........... 1,095 4,813 N/A
Harold Mulet............. 1,095 1,973 N/A
Charles Septer........... 593 2,176 N/A
S. Cusano................ 1,095 1,220 N/A
The Company is the owner of the split dollar life insurance policies with
respect to Mr. Zimmerman. The Company paid premiums of approximately
$114,166 in 1996 and, upon the payment of the policy proceeds, will
receive, net of any tax liability, an amount equal to the aggregate
premiums paid by the Company. The remaining policy proceeds will be paid to
Mr. Zimmerman's designated beneficiaries. Mr. Zimmerman does not have any
interest in the cash surrender value of the policies for which there are
split dollar agreements. Either party may terminate the split dollar
agreements at any time on thirty days written notice.
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OPTION/SAR GRANTS TABLE
The following table provides information as to options granted to the five
Named Officers during fiscal 1996. No stock appreciation rights ("SARs") were
granted during fiscal 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS/SARS PRICE APPRECIATION OF
OPTIONS/SARS GRANTED TO EXERCISE OR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5%($)(2) 10%($)(2)
---- ------------- ---------------- ----------- ---------- -------- ----------
Raymond Zimmerman..................... -- -- -- -- -- --
Gary M. Witkin........................ 200,000 10.41 $4.6875 10/9/06 $589,589 $1,494,134
Harold Mulet.......................... 50,000 2.60 4.9375 2/7/06 155,258 393,455
Charles Septer........................ 50,000 2.60 4.9375 2/7/06 155,258 393,455
S. Cusano............................. 50,000 2.60 4.9375 2/7/06 155,258 393,455
- ---------------
(1) Mr. Witkin's options were granted effective as of October 9, 1996. The
remaining options were granted on February 7, 1996. All such options were
granted at the fair market value on the date of grant and will vest 33.33%
annually over the three years following the date of grant. There are no
criteria for vesting other than continued employment through the vesting
dates and no other material terms of the options except as disclosed under
"Change in Control Provisions Under the Company's Stock Incentive Plans."
(2) The 5% and 10% assumed annual rates of stock price appreciation are a
disclosure alternative required by the rules of the SEC and are not intended
to forecast possible future appreciation, if any, in the price of the Common
Stock. Comparable gain in shareholder value for the 99,690,604 shares
outstanding as of February 7, 1996 would be $309,555,995 assuming 5% annual
price appreciation and $784,475,669 assuming 10% annual price appreciation.
OPTIONS/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table provides information as to options exercised or held by
the five Named Officers during fiscal 1996. None of the Named Officers has been
granted SARs.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
FY-END(#) AT FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE(1) UNEXERCISABLE(1)
---- --------------- ----------- ---------------------- --------------------
Raymond Zimmerman................ -- -- 691,875/30,000 $901,688/$0
Gary M. Witkin................... -- -- 25,000/300,000 $0/$12,500
Harold Mulet..................... -- -- 25,000/100,000 $0/$0
Charles Septer................... -- -- 58,553/103,600 $22,523/$1,875
S. Cusano........................ -- -- 43,933/110,567 $1,146/$2,292
- ---------------
(1) The number of unexercised options and/or SARs available at fiscal year-end,
whether exercisable or unexercisable, includes out-of-the-money options, and
the value of unexercised options and/or SARs available at fiscal year-end
does not include out-of-the-money options.
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SEVERANCE AND INDEMNIFICATION AGREEMENTS; EMPLOYMENT AGREEMENTS; CHANGE IN
CONTROL PROVISIONS
The Company has severance agreements with each of the Named Officers other
than Mr. Witkin, whose employment agreement contains the severance provisions
described below. The severance agreements with Messrs. Zimmerman and Septer were
executed in the fall of 1994 and were intended to replace employment agreements
executed by each of them in 1988. Mr. Cusano executed a severance agreement in
the fall of 1994, and Mr. Mulet executed a severance agreement in the summer of
1995.
The severance agreements with Messrs. Zimmerman, Mulet, Septer and Cusano
provide for the payment of compensation in the form of salary continuation to
the Named Officer in the amount of two times the officer's maximum annual base
salary in effect from the date of execution of the agreement through the date of
termination, if the employment of the Named Officer is terminated for any reason
other than the officer's death, disability, voluntary resignation or cause.
These agreements also provide for reimbursement for continued health care
coverage for up to two years for any Named Officer whose employment is
terminated for any reason other than for death, disability, or cause. Under the
terms of these agreements, the employment of a Named Officer is deemed
terminated for cause if he engages in (i) willful misconduct materially
injurious to the Company; (ii) acts of dishonesty or fraud; or (iii) willful
violations of obligations not to compete with the Company or disclose
confidential information. If the employment of a Named Officer is terminated for
death or for cause, he will be entitled only to his base salary through the date
of termination. If employment is terminated by reason of disability, the officer
will be entitled only to his base salary through the date of termination and
such amounts as he is entitled to receive under the Company's disability
insurance policies. The agreements provide that these Named Officers will not
engage in various activities competitive with the business of the Company for a
period of one year from the date of any termination giving rise to salary
continuation payments.
The Company also has indemnification agreements with each of its directors
and Named Officers providing for contractual rights of indemnification to the
fullest extent permitted by Tennessee law.
On November 2, 1994 the Company entered into an employment agreement with
Gary M. Witkin to serve as President and Chief Operating Officer and as a
director of the Company (the "Employment Agreement"). The Employment Agreement
provides for a minimum annual base salary of $700,000 and a minimum cash bonus
of 15% of his base salary for 1994, 1995 and 1996. In years following 1996, Mr.
Witkin is not guaranteed a minimum cash bonus, but will be awarded an annual
bonus that is contingent upon the Company's performance. Mr. Witkin was also
granted, pursuant to the terms of the Employment Agreement, 478,685 shares of
restricted stock and non-qualified options to purchase 125,000 shares of Common
Stock under the Stock Incentive Plan. The Employment Agreement also entitles Mr.
Witkin to a non-accountable expense allowance of $30,000 annually.
Upon the occurrence of certain triggering events, the Employment Agreement
entitles Mr. Witkin to (i) salary continuation in the amount of two times his
annual base salary; (ii) reimbursement for up to two years for continued health
care coverage; and (iii) the immediate vesting and lapse of any remaining
restrictions on shares of restricted stock held by Mr. Witkin. The triggering
events include termination of the Employment Agreement by Mr. Witkin in response
to (i) a diminution of his responsibilities by the Company; (ii) an acquisition
of the Company or substantially all of the Company's assets if the Company fails
to obtain the agreement of the successor to assume the Company's obligations
under the Employment Agreement; (iii) a material breach by the Company of the
terms of the Employment Agreement; or (iv) the failure of the Board of Directors
to elect Mr. Witkin as its CEO within ninety (90) days following the earlier of
(a) the resignation, retirement or termination of employment of Raymond
Zimmerman as CEO, or (b) April 30,
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1998. Additional triggering events include termination of the Employment
Agreement by the Company for any reason other than Mr. Witkin's death or
disability or cause. Under the Employment Agreement, Mr. Witkin's employment can
be terminated for cause if (i) he is convicted or fails to contest prosecution
of a felony; (ii) he engages in willful misconduct or dishonesty harmful to the
reputation of the Company; (iii) he violates his obligation not to compete with
the Company; or (iv) he breaches the Employment Agreement and fails subsequently
to cure the breach. If Mr. Witkin's employment is terminated for cause or on
account of his death or disability, or if he resigns other than in response to a
triggering event, he will be entitled only to his earned base salary.
The Employment Agreement further provides that Mr. Witkin will not engage
in various activities competitive with the business of the Company during the
period of his employment under the Employment Agreement and for a period of
thirteen months following termination thereof. Mr. Witkin is also restricted,
during the term of his employment, from disclosing confidential information or
making false or damaging statements with respect to the Company.
CHANGE IN CONTROL PROVISIONS UNDER THE COMPANY'S STOCK INCENTIVE PLANS
Under the Stock Incentive Plan, any stock options and SARs which are not
then exercisable will become fully exercisable and vested upon a change in
control or a potential change in control. Similarly, a change in control or a
potential change in control will result in the lapsing of restrictions
applicable to restricted stock and other stock-based awards and such shares and
awards being deemed fully vested. Stock options, SARs, limited SARs, restricted
stock and other stock-based awards will, in such instances, unless otherwise
determined by the Compensation Committee in its sole discretion, be cashed out
on the basis of the change in control price as defined in the plan. A change in
control occurs if (i) any person becomes a beneficial owner directly or
indirectly of 20% or more of the total voting stock of the Company (subject to
certain exceptions); (ii) as a result of, or in connection with, any cash tender
or exchange offer, merger or other business combination or similar transaction
less than a majority of the combined voting power of the then outstanding
securities of the Company is held in the aggregate by the holders of Company
securities entitled to vote generally in the election of directors immediately
prior to such transaction; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors cease for any reason to constitute at least a majority thereof. A
potential change in control means (a) approval by the shareholders of an
aggregate which, if completed, would constitute a change in control, or (b) the
acquisition by a person of 5% or more of the total voting stock of the Company
and the adoption by the Board of a resolution that a potential change in
control, as defined in the plan, has occurred.
Options and shares of restricted stock granted under the Directors' Equity
Plan become immediately vested on the date a "change in control" is deemed to
occur under the Stock Incentive Plan. Under the proposed amendment to the
Directors' Equity Plan, options and shares of restricted stock granted following
the amendment will also vest when a potential change in control is deemed to
occur under the Stock Incentive Plan and will be cashed out at the change in
control price if awards under the Stock Incentive Plan are cashed out upon a
change in control or potential change in control under the Stock Incentive Plan.
See "Proposal No. 2: Amendment to 1991 Directors' Equity Plan."
PENSION PLAN
The Company's pension plan (the "Pension Plan") which is qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code")
includes all full-time employees who are at least age twenty-one with one year
of qualified service as defined by the Pension Plan. Directors who are not
officers
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or employees of the Company do not participate. In 1996, the Pension Plan was
changed to a traditional final average compensation plan, with monthly benefits
based on years of service. Participants in the Pension Plan as of January 1,
1989 are provided certain minimum benefits reflecting the provisions of the
prior Pension Plan based on compensation received during 1988.
The following table shows the estimated annual pension benefits payable to
a covered participant at normal retirement age, based on selected compensation
and years of service combinations:
YEARS OF SERVICE
---------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ ------- ------- ------- ------- -------
$ 125,000....................... $21,071 $28,095 $35,119 $42,143 $49,166
150,000....................... 26,696 35,595 44,494 53,393 62,291
200,000....................... 26,696 35,595 44,494 53,393 62,291
750,000....................... 26,696 35,595 44,494 53,393 62,291
1,000,000....................... 26,696 35,595 44,494 53,393 62,291
Compensation covered by the plan generally includes all compensation earned
by a participant, including elective deferrals to qualified plans, but excluding
severance payments, expense reimbursements and allowances, and other nonwage
items. However, for purposes of determining benefits, compensation covered by
the plan is limited to $150,000. As a result, covered compensation for each of
the Named Officers is limited to $150,000 by Section 401(a)(17) of the Code. In
addition, annual benefits payable from the plan are limited to $120,000 by
Section 415 of the Code. These limitations are indexed periodically for
inflation, with the next increase effective January 1, 1997.
The estimated credited years of service covered by the plan for each of the
persons named in the compensation table are:
AS OF 12/31/96 AS OF AGE 65
-------------- ------------
Raymond Zimmerman................................. 41 42
Gary M. Witkin.................................... 2 19
Harold Mulet...................................... 1 21
Charles Septer.................................... 15 35
S. Cusano......................................... 5 27
Retirement benefits are computed on the basis of a straight life annuity,
unless the participant elects another method of payment. If the participant is
married, the benefit is converted into an actuarially equivalent joint and 50%
survivor benefit. The benefits shown in the table above are not subject to
deduction for Social Security or other offset amounts.
EXECUTIVE SECURITY PROGRAM
The Company maintains a non-qualified supplemental retirement plan (the
"ESP") which covers certain management employees hired or promoted to their job
level prior to February 28, 1989. The plan provides salary continuation and/or
death benefits equal to two times the participant's annual salary at retirement
or at age 65 if the former employee participating in the ESP completed 20 years
of vesting service prior to termination. Salary continuation benefits are paid
from the general assets of the Company. There are approximately 192 active
employees covered. Twenty-four retirees currently receive benefits and 22
terminated vested participants are entitled to a future benefit. The Company
maintains Corporate Owned Life Insurance (COLI) policies purchased on
participants covered by the plan prior to the Tax Reform Act of
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1986. The Company continues to maintain COLI policies following termination or
retirement of covered employees. Of the Named Officers, Raymond Zimmerman is the
only vested participant in the ESP.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") sets executive officers'
salaries, formulates bonuses for the Company's management awarded under the
Company's annual incentive compensation programs, reviews and approves
compensation policies and plans for officers and other key employees, reviews
and approves salary and other compensation of officers and other key employees,
makes recommendations to the Board of Directors with respect to the compensation
of directors and administers the Company's stock-based incentive plans. The
members of the Committee are all nonemployee directors of the Company. The
Committee reviews the Company's executive compensation policies when the
financial results of the prior fiscal year become available. The policies are
reviewed in light of their overall consistency, in the subjective view of the
Committee, with the Company's financial performance, its business plan and its
position within the retail industry, as well as the compensation policies of
similar companies in the retail business as discussed further below. The
compensation of individual executives is then evaluated by the Committee in
accordance with its established executive compensation policies. The Committee
has adopted a statement of policy concerning compensation of the Company's
executive officers. This statement of policy sets forth the following primary
objectives:
- to attract and retain talented executives by providing a compensation
program that is competitive with the compensation provided to executives
at companies of comparable size and position in the retail business, while
maintaining compensation within levels consistent with the Company's
business plan, financial objectives and operating performance;
- to provide appropriate incentives for executives to work toward the
achievement of the Company's annual performance targets established in the
Company's business plan; and
- to align more closely the interests of executives with those of
shareholders and the long-term interests of the Company by providing
long-term incentive compensation in the form of stock options, restricted
stock or other equity-based long-term incentive compensation.
In reviewing the comparability of the Company's overall levels of base
executive compensation, the Committee looks to a variety of sources. The Company
participates in externally prepared compensation surveys, the most comprehensive
of which is the Retail Management Compensation Study prepared by Management
Compensation Services ("MCS"), a subsidiary of Hewitt Associates, a nationally
recognized management consulting firm. The Retail Management Compensation Study
provides data on compensation practices of other retailers with annual revenues
of at least $3 billion, by job classification category. The Company also reviews
compensation information disclosed in current proxy statements for all companies
included in the Composite Index Average used in the Company's performance graph.
The survey and proxy data is used to obtain an overall perspective on base
retail executive compensation. However, the Committee also takes into account
other factors which in its subjective judgment, affect the comparability of this
data to the Company. These factors include differences in: the Company's mix of
product offerings and levels of sales, the Company's catalog store format versus
other selling concepts and markets served, the number of stores and employees,
organizational structure levels and comparability of executive responsibility
among companies. Analysis of the MCS survey data and the current proxy
statements of the companies included in the Composite Index Average indicated
that the Company's levels of executive base
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compensation fell within the mid-range of companies included in the survey data
or in the Composite Index Average.
COMPENSATION OF EXECUTIVE OFFICERS OTHER THAN THE CHIEF EXECUTIVE
OFFICER. The Company offers its executive officers base salary, annual
incentive compensation and long-term incentive compensation, determined in
accordance with the general principles set forth below.
Base Compensation. In determining annual base compensation adjustments for
each executive officer, the Committee predicates its decision on a subjective
assessment of the individual executive's performance in light of that
executive's job responsibilities. During fiscal 1996, executive officers each
received base compensation increases of 3% of their base salaries. During 1996,
the Company hired two new senior executive officers, whose base salary and other
compensation for fiscal 1996 were determined in large part in negotiations with
the individuals prior to their hire and generally reflect market conditions at
the time of their hire as well as the Company's commitment to assembling a new
management team.
Annual Incentive Compensation. The Company's Executive Management
Incentive Program (the "1995 Program"), approved by shareholders in 1995,
provides for the payment of annual incentive (bonus) compensation for executive
officers, 100% of which is determined by achievement of a pre-determined,
Company-wide financial target for net income (exclusive of extraordinary items,
cumulative effect of changes in accounting principles and other like items),
established in the first quarter of each fiscal year in conjunction with the
Company's annual business plan. Executive officers receive a bonus based on
whether, and to what extent, the Company, as a whole, achieves or exceeds the
target. Bonuses are paid to the President and Chief Operating Officer and other
officers above the group vice president level (which includes all Named Officers
for 1996 other than the Chairman and Chief Executive Officer), based on
predetermined percentages of their base salary during the performance
measurement period.
The targeted net income, exclusive of extraordinary items, cumulative
effect of changes in accounting principles and other like items, was established
by the Committee in its subjective judgment in the first quarter of 1996, taking
into consideration the Company's net income for the previous year, the Company's
economic and financial forecasts of its prospects for producing net income in
the current fiscal year, and the goal of challenging and providing incentives
for executive officers to increase net income. Although no single consideration
is determinative in establishing the target, the Company's annual budget and
economic and financial forecasts constituted the primary foundation upon which
the Committee subjectively established targets designed to maximize the benefits
derived by shareholders. The target was not intended to predict future financial
performance; rather, the target was set high enough to provide a challenge to
greater achievement on the part of executive officers. The fiscal 1996 target of
$60 million in net income, exclusive of extraordinary items, cumulative effect
of changes in accounting principles and other like items, was not met;
accordingly, no bonus compensation was awarded under the 1995 Program.
On February 5, 1997 the Board of Directors and the Committee determined
that the bonus opportunities for achievement of financial targets and the
maximum percentage of the financial targets under the 1995 Program were not
competitive with the compensation provided to executives of companies of
comparable size and position in the retail business. Accordingly, the Board of
Directors and the Committee, subject to shareholder approval, adopted the 1997
Program to replace the 1995 Program. Under the 1997 Program, awards to any
participant may not exceed the greater of (i) 0.75% of the Company's earnings
before interest, income taxes, extraordinary items and cumulative effects of
changes in accounting principles; or (ii) 150% of the Participant's base salary
as of the beginning of the applicable fiscal year. Participants are chosen by
the Committee prior to April 1 in each year from among eligible executive
officers. Executive officers who are not
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selected for participation may receive other incentive compensation from the
Company. Awards under the 1997 Program are calculated based upon a dollar amount
or a formula for determining a dollar amount and the achievement by the Company
of a profit objective, determined in writing by the Committee prior to April 1
in each year. The Committee has the discretion to pay a lower amount of bonus to
any officer under certain circumstances. The text of the 1997 Program is set
forth at Exhibit B hereto and the 1997 Program is described under Proposal
Number 3 below. Shareholder approval is required in order to qualify
compensation paid under the 1997 Program as performance-based compensation that
is exempt from the $1,000,000 limit on the deductibility of executive
compensation under Section 162(m) of the Code.
Long-Term Incentive Compensation. The Company uses stock options and
restricted stock awards as the primary vehicles for long-term incentive
compensation. Options to purchase an aggregate of 590,000 shares were granted
during 1996 to nine executive officers and 1,331,000 shares to other key
management-level employees of the Company. The size of the option grant to each
executive officer was determined by the Committee based upon a subjective
assessment of such executive officer's performance and his or her respective
level in the organization. The Committee does not consider the number of shares
beneficially owned by executive officers when making such grants. The exercise
price of each option equaled the fair market value of the Common Stock as of the
date of grant. The options granted in 1996 vest 33.33% annually for the next
three years. The vesting of such options is not contingent upon any performance
or other criteria other than continued employment through the vesting dates. All
options expire ten years from the date of grant.
Although the Stock Incentive Plan permits the Committee to grant
non-qualified stock options exercisable at less than their fair market value on
the date of grant, but not below 50% of such fair market value, the Committee
has not done so in recent years and has no current intention of doing so.
In October 1996, the Board of Directors amended the Stock Incentive Plan to
permit the Benefits Committee (which is composed of certain officers of the
Company) to make, on behalf of the Committee, certain grants of stock options
having an exercise price no less than 100% of the fair market value on the date
of grant. The purpose of the amendment is to provide greater flexibility to the
Benefits Committee to respond to competitive conditions in the attraction and
retention of new and current employees.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The Committee believes
compensation of the Chairman and Chief Executive Officer (the "CEO") should be
more closely linked to the performance of the Company's stock than compensation
of other executive officers. In accordance with this philosophy, the CEO and the
Committee agreed in 1992 that, for a period of five years, (i) the CEO's annual
base salary would be frozen at its then current level of $750,000; (ii) he would
receive no annual incentive compensation; and (iii) he would be eligible to
receive long-term incentive compensation in the form of stock options,
restricted stock awards and other equity-based rights to provide value that is
largely contingent upon increases in the market value of the Company's Common
Stock. Grants of such long-term incentive compensation would be made in amounts
which reflect the fact that his base salary has been frozen and he has agreed to
forego any annual incentive compensation. The Committee anticipates that such
awards of long-term incentive compensation will be considered annually,
concurrent with awards to other executive officers, and will generally consist
of the same types of rights as awards to other executive officers. Awards will
be based in part upon the Committee's judgment that such awards are merited in
light of performance in the market price of the Company's stock. During 1996,
the CEO did not receive any grants of stock options or other long-term incentive
compensation. For 1996, Mr. Zimmerman received a non-accountable expense
allowance of $30,000.
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FEDERAL INCOME TAX DEDUCTIBILITY LIMITATIONS. Section 162(m) of the Code
imposes a $1,000,000 limit on the deductibility of certain compensation paid to
the CEO and other Named Officers. Compensation paid to these officers in excess
of $1,000,000 that is not performance-based cannot be claimed by the Company as
a tax deduction.
The Committee believes it is appropriate to take into account the
$1,000,000 limit on the deductibility of executive compensation and to seek, to
the greatest extent possible, to qualify executive compensation awards as
performance-based compensation excluded from the $1,000,000 limit. Annual cash
awards under the Company's 1995 Program (other than the minimum cash bonuses
payable to the President and Chief Operating Officer in years 1995 and 1996)
were structured so as to qualify for the exemption for performance-based
compensation. Awards under the 1997 Program are also expected to qualify for
such exemption. Substantially all stock options awarded under the Stock
Incentive Plan through the present date also qualify as performance-based
compensation under Section 162(m) of the Code. Stock options granted by the
Benefits Committee will not qualify as performance-based compensation.
None of the Named Officers received compensation in 1996 that would exceed
the $1,000,000 limit on deductibility under Section 162(m) of the Code. It is
anticipated that any compensation paid to Named Officers in future years that
may exceed the $1,000,000 limitation will qualify for the performance-based
exemption.
It is the Committee's intention to continue to utilize performance-based
compensation, which should minimize the effect of Section 162(m) of the Code on
the Company. However, the Committee believes that its primary responsibility is
to provide a compensation program that will attract, retain and reward the
executive talent necessary to maximize the return to shareholders, and that the
loss of a tax deduction may be necessary in some instances to achieve this
purpose.
Charles V. Moore, Chairman R. Maynard Holt Harold Roitenberg
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PERFORMANCE GRAPH
TOTAL RETURN TO SHAREHOLDERS
MEASUREMENT PERIOD SERVICE S&P MIDCAP COMPOSITE
(FISCAL YEAR COVERED) MERCHANDISE 400 INDEX INDEX
COMPANY, AVERAGE
INC.
1991 100 100 100
1992 202.32 111.91 120.87
1993 139.53 127.53 117.22
1994 66.28 122.96 104.81
1995 68.02 161.00 115.16
1996 57.56 191.91 133.75
The above graph compares the performance of the Common Stock of Service
Merchandise Company, Inc. with that of the S & P Midcap 400 Index and a
composite index comprised of three published S & P retail group indices:
Department Stores, General Merchandise Chains and Specialty (the "Composite
Index Average"). The three groups include Dayton Hudson Corp., Dillard
Department Stores, Federated Department Stores, Harcourt General Inc., May
Department Stores, Mercantile Stores, Nordstrom, K Mart, J.C. Penney, Sears,
Roebuck & Company, Wal-Mart Stores, Woolworth Company, Pep Boys -- Manny, Moe
and Jack, Price/Costco Inc. and Toys R Us. In 1996 Standard and Poor's added
Harcourt General Inc. and removed Circuit City Stores, Home Depot, Lowe's, CVS
Corp. (formerly Melville Corp.) and Tandy Corp. from the retail group indices
referred to above. In November 1994, Blockbuster was acquired by Viacom, Inc.
and deleted from the Composite Index Average.
The comparison of total return on investment (change in year-end stock
price plus reinvested dividends) for each of the periods assumes that $100 was
invested on December 29, 1991 in each of Service Merchandise Company, Inc.
Common Stock, the S & P Midcap 400 Index and the Composite Index Average with
investment weighted on the basis of market capitalization.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases one store property from Raymond Zimmerman. For the
fiscal year ended December 29, 1996, Mr. Zimmerman received $81,000 under this
lease. The rent that has been or may be paid under this lease is and will be
comparable to rent paid by lessees of similar properties in the same general
location, and the terms of such lease are at least as favorable to the Company
as the terms that could be obtained from unaffiliated persons.
PROPOSAL NO. 2: AMENDMENT TO THE 1991 DIRECTORS' EQUITY PLAN
The Directors' Equity Plan was originally adopted by the Company's
shareholders in 1992 for the purpose of strengthening the commonality of
interest between nonemployee directors ("Participating Directors") and
shareholders and improving the Company's ability to attract and retain talented
individuals to serve as Company directors. An aggregate of 46,875 shares of
Common Stock is currently authorized to be issued under the Directors' Equity
Plan. Under the proposed amendment an additional 250,000 shares of Common Stock
(0.3% of the shares of Common Stock outstanding on February 28, 1997) would be
authorized. Awards under the Directors' Equity Plan have been made for a total
of 28,140 shares of Common Stock to date.
In order to provide the Company with greater flexibility to adopt to
changing economic and competitive conditions, and to implement long-range goals
through stock based compensation strategies which will attract and retain
talented individuals to serve as directors, the Board at its February 5, 1997
meeting proposed the adoption subject to shareholder approval of amendments to
the Directors' Equity Plan to (i) increase the number of authorized shares of
Common Stock issuable under the Directors' Equity Plan; (ii) permit directors to
defer payment of their quarterly retainer fees by receiving stock options
covering shares of Common Stock; and (iii) to take advantage of additional
flexibility provided by recent amendments to Rule 16b-3 under the Exchange Act.
If approved by shareholders, the amendment to the Directors' Equity Plan
will become effective as of January 1, 1997. A summary of the Plan follows, but
is qualified in its entirety by reference to the full text of the Directors'
Equity Plan, which is attached as Exhibit A to this Proxy Statement.
SUMMARY OF MATERIAL PROVISIONS OF THE DIRECTORS' EQUITY PLAN
The following is a summary of the material provisions of the Directors'
Equity Plan, as proposed to be amended.
Shares. The Directors' Equity Plan will be amended to authorize an
additional 250,000 shares of Common Stock. If any shares of Common Stock that
have been optioned cease to be subject to a stock option due to forfeiture or if
any shares of restricted stock are forfeited prior to the payment of dividends
thereon, such shares will again be available for issuance in connection with
future awards under the Directors' Equity Plan. An appropriate adjustment in the
number of shares will be made in the event of a stock dividend, merger or
similar transaction.
Participation. Awards under the Directors' Equity Plan may be made to
nonemployee directors of the Company. The current number of directors currently
eligible for awards pursuant to the Directors' Equity Plan is five.
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Administration. The Directors' Equity Plan is administered by the Board of
Directors of the Company. Determinations of the Board of Directors of the
Company are final and binding on Participating Directors and the Company.
Awards Under the Directors' Equity Plan. On the date of each annual
meeting of shareholders of the Company, each Participating Director will
automatically receive (i) an award of 188 shares of restricted stock; and (ii) a
non-qualified option to purchase 750 shares of Common Stock at an exercise price
per share equal to the Fair Market Value (as defined in the Stock Incentive
Plan) of the Common Stock on the date of the annual meeting (an "Annual Stock
Option"). In addition, a Participating Director may elect to receive all or any
portion of his or her quarterly retainer in the form of an option to purchase
shares of Common Stock (a "Retainer Stock Option") to be granted as of the date
such payment would otherwise be due (the "Quarterly Payment Date"). The number
of shares covered by a Retainer Stock Option shall be determined as of the
Quarterly Payment Date pursuant to the following formula:
Number of Shares = Amount of quarterly retainer deferred
----------------------------------------
75% of the Fair Market Value of one share of Common Stock
The aggregate exercise price per share for such Retainer Stock Option shall
be the Fair Market Value per share of Common Stock as of the Quarterly Payment
Date. The amount of the quarterly retainer deferred will be applied by the
Company on the date of exercise to the payment of 75% of the aggregate exercise
price of such Retainer Stock Option, with the remaining 25% of the exercise
price to be paid by the grantee at the time of exercise. If no exercise is made,
no payment will be made by the Company on account of the deferred quarterly
retainer. The election to receive Retainer Stock Options in lieu of all or any
portion of the quarterly retainer payments to be received in any calendar year
may be made for such calendar year by giving written notice to the Secretary of
the Company of such election and the portion of the retainer with respect to
which such election is made at any time prior to the commencement of such
calendar year; provided, however, that for 1997 an election may be made at any
time prior to the 1997 Annual Meeting with respect to any Quarterly Payment Date
occurring after the 1997 Annual Meeting. Any election to receive Retainer Stock
Options shall be made on a form provided by the Company for such purpose and
shall be effective only to the extent that there are sufficient shares of Common
Stock reserved under the Plan. An election may be revoked for the remainder of
any calendar year by giving written notice to the Secretary of the Company at
least ten business days prior to the Quarterly Payment Date. No Retainer Stock
Option shall be granted for fractional shares.
1. Restricted Stock. A Participating Director will have the right to vote
the shares of restricted stock and receive dividends and other distributions
declared on the shares prior to vesting, but may not transfer, assign or pledge
the shares, other than by will or the laws of descent and distribution, until
they vest, provided, however, that following the Company's 1997 Annual Meeting,
shares of restricted stock may be transferred or assigned (i) by will or the
laws of descent and distribution; (ii) pursuant to a qualified domestic
relations order; or (iii) by gift or other transfer to either (a) any trust or
estate in which the original award recipient or such person's spouse or other
family member, has a substantial beneficial interest, or (b) a spouse or other
family member provided that such a transfer would continue to require such
awards to be disclosed pursuant to Item 403 of Regulation S-K promulgated by the
SEC. The certificate evidencing the restricted stock will remain in the
possession of the Company until the restrictions have lapsed.
Vesting of the shares of restricted stock occurs one year from the date of
grant. If a Participating Director's service as a member of the Board of
Directors of the Company terminates for any reason other than death, disability
or a Change in Control (as defined in the Stock Incentive Plan), the shares will
be forfeited and the Participating Director will have no further rights with
respect to such shares. Any shares of Common
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Stock received as a dividend on shares of restricted stock will also be deemed
to be restricted stock subject to the same restrictions and vesting schedule as
the shares of restricted stock with respect to which such dividend was received.
2. Stock Options. Each Annual Stock Option will vest in annual increments
of 20% beginning on the first anniversary of the date of grant. Each Retainer
Stock Option will vest on the date of grant. Annual Stock Options and Retainer
Stock Options (each such stock option, a "Stock Option") may be exercised by
delivering payments of the aggregate exercise price for such stock options or a
portion thereof in cash, by personal check, or in shares of Common Stock already
owned by such Participating Director, or a combination of such payment methods.
Each Annual Stock Option will expire, if unexercised, on the tenth anniversary
of the date of grant. Each Retainer Stock Option will expire, if unexercised, on
the later of the tenth anniversary of the date of grant or the December 31 next
following the respective Participating Director's seventy-fifth birthday (a
"Standard Expiration Date").
A Participating Director may not transfer, assign or pledge a Stock Option
other than by will or the laws of descent and distribution, at any time prior to
the date of the Company's 1997 Annual Meeting. Thereafter, Stock Options may be
transferrable or assignable (i) by will or the laws of descent and distribution;
(ii) pursuant to a qualified domestic relations order; or (iii) by gift or other
transfer to either (a) any trust or estate in which the original award recipient
or such person's spouse or other family member has a substantial beneficial
interest, or (b) a spouse or other family member provided that such a transfer
would continue to require such awards to be disclosed pursuant to Item 403 of
Regulation S-K promulgated by the SEC.
If a Participating Director's service as a member of the Board of Directors
of the Company terminates for any reason other than death, disability or a
Change in Control, the unvested portion (if any) of each Annual Stock Option
will be forfeited, and the Participating Director will have no further rights
with respect to such unvested portion of the Annual Stock Option. If a
Participating Director's service as a director terminates because of death or
permanent disability, all Annual Stock Options granted to such Participating
Director through the time of termination of service will immediately vest and
remain exercisable for a one year period from the date of termination of
service. If a Participating Director should die during such one-year post-
termination exercise period, the Annual Stock Options may be exercised until the
later of (i) the remainder of the one-year post-termination exercise period; or
(ii) one year from the date of death. Upon a Participating Director's retirement
from the Board of Directors, the then exercisable portion of any Annual Stock
Option will remain exercisable for two years from such termination date.
Retainer Stock Options may be exercised by the Participating Director, the
beneficiary, or the estate until the earlier of the Standard Expiration Date or
five years from the date of termination of service as a member of the Board of
Directors of the Company. Should the Participating Director die during such
exercise period applicable to the Retainer Stock Option, such Retainer Stock
Option will remain exercisable until the later of (i) the expiration of such
exercise period; or (ii) one year from the date of death.
Change in Control Provisions. Upon the occurrence of a Change in Control,
the shares of restricted stock held by each Participating Director will vest on
the date such Change in Control is deemed to occur, and each Stock Option, if
not already exercisable, will become immediately exercisable. Each Retainer
Stock Option may be exercised until such Retainer Stock Option expires upon the
earlier of the Standard Expiration Date or five years from the date such Change
in Control is deemed to occur. Following a Change in Control each Annual Stock
Option will remain exercisable for a two-year period. If there has been a
Potential Change in Control (as defined in the Stock Incentive Plan), then all
shares of Restricted Stock granted in 1997 and thereafter ("Post-Amendment
Restricted Stock") will vest and all Stock Options granted in 1997 and
thereafter ("Post-Amendment Stock Options") will become immediately exercisable.
If any awards to
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executive officers under the 1989 Plan are cashed out upon a Change in Control
or Potential Change in Control, the shares of Post-Amendment Restricted Stock
and Post-Amendment Stock Options will also be cashed out in the same manner.
Amendment. The Board of Directors of the Company may amend, alter or
discontinue the Directors' Equity Plan; provided, however, that, without the
approval of the Company's shareholders, no amendment may be made that would (a)
increase the number of shares that may be issued under the Directors' Equity
Plan, or (b) make any change for which applicable law or regulatory authority
would require shareholder approval. No amendment, alteration or discontinuation
of the Directors' Equity Plan shall be made which would impair the rights of a
Participating Director under a Stock Option or award of restricted stock
previously granted, without the Participating Director's consent.
Federal Income Tax Aspects. The following is a brief summary of the
federal income tax aspects of awards made under the Plan based upon the federal
income tax laws in effect on the date hereof. This summary is not intended to be
exhaustive and does not describe state or local tax consequences.
1. Stock Options. With respect to Stock Options received under the
Directors' Equity Plan: (i) generally no income will generally be realized by
the Participating Director at the time the option is granted; (ii) generally
upon exercise of the option, the Participating Director will realize ordinary
income in an amount equal to the difference between the option price paid for
the shares and the fair market value of the shares on the date of exercise, and
the Company will be entitled to a tax deduction in the same amount; and (iii) at
disposition, any appreciation (or depreciation) after date of exercise will be
treated either as short-term or long-term capital gain or loss, depending upon
the length of time that the Participating Director has held the shares.
2. Restricted Stock. A Participating Director receiving restricted stock
under the Directors' Equity Plan generally will recognize ordinary income in the
amount of the fair market value of the restricted stock at the time the stock is
no longer subject to forfeiture, less any consideration paid for the stock.
However, a Participating Director may elect, under Section 83(b) of the Code
within 30 days of the grant of the stock, to recognize taxable ordinary income
on the date of grant equal to the excess of the fair market value of the shares
of restricted stock (determined without regard to the restrictions) over the
purchase price of the restricted stock. Thereafter, if the shares are forfeited,
the Participating Director will be entitled to a deduction, refund, or loss, for
tax purposes only, in an amount equal to the purchase price (if any) of the
forfeited shares, regardless of whether he or she made a Section 83(b) election.
With respect to the sale of shares after the forfeiture period has expired, the
holding period to determine whether the Participating Director has long-term or
short-term capital gain or loss generally begins when the restriction period
expires, and the tax basis for such shares will generally be based on the fair
market value of such shares on such date. However, if the Participating Director
makes an election under Section 83(b), the holding period will commence on the
date of grant, the tax basis will be equal to the fair market value of shares on
such date (determined without regard to restrictions), and the Company generally
will be entitled to a deduction equal to the amount that is taxable as ordinary
income to the Participating Director in the year that such income is taxable.
3. Dividends and Dividend Equivalents. Dividends paid on restricted stock
generally will be treated as compensation that is taxable as ordinary income to
the Participating Director and will be deductible by the Company. If, however,
the participant makes a Section 83(b) election, the dividends will be taxable as
ordinary income to the Participating Director but will not be deductible by the
Company.
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Pro Forma Plan Benefits. The table below presents certain information on a
pro forma basis as if the amendment to the Directors' Equity Plan had been in
effect during fiscal 1996, assuming that each director listed below had elected
to receive Retainer Stock Options in lieu of the entire cash retainer to which
he was entitled and that each director held all Stock Options without exercise
throughout fiscal 1996. The aggregate fair value of awards represents the dollar
value, as of December 29, 1996, of all awards of restricted stock and grants of
Stock Options that would have been made in 1996 if the Directors' Equity Plan,
as amended, had been in effect in 1996, determined by valuing the shares of
restricted stock at the closing market price of the Common Stock on such date,
and by valuing the Stock Options based on the excess of the closing market price
of the Common Stock on such date over the exercise price of such options.
AWARD OF AWARD OF
ANNUAL STOCK AWARD OF RETAINER STOCK
OPTIONS RESTRICTED STOCK OPTIONS
---------------- ------------------ ----------------- AGGREGATE FAIR VALUE
NONEMPLOYEE DIRECTOR # SHARES VALUE # SHARES VALUE # SHARES VALUE OF ALL AWARDS
-------------------- -------- ----- -------- ------- -------- ------ --------------------
R. Maynard Holt............. 750 $0 188 $893.00 6,323 $92.38 $985.38
James E. Poole.............. 750 0 188 893.00 5,526 80.31 973.31
Harold Roitenberg........... 750 0 188 893.00 5,526 80.31 973.31
Richard P. Crane, Jr........ 750 0 188 893.00 5,526 80.31 973.31
Charles V. Moore............ 750 0 188 893.00 5,526 80.31 973.31
CONCLUSION AND RECOMMENDATION
The Board of Directors believes it is in the best interests of the Company
and its shareholders to amend the Directors' Equity Plan to strengthen the
commonality of interest between Participating Directors and shareholders and
enhance the Company's ability to attract and retain talented individuals to
serve as Company directors.
A majority of the votes cast is necessary for approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE
DIRECTORS' EQUITY PLAN.
PROPOSAL NO. 3: APPROVAL OF THE 1997 EXECUTIVE
INCENTIVE COMPENSATION PROGRAM
The 1997 Program was adopted by the Committee and the Board of Directors on
February 5, 1997, subject to shareholder approval. Shareholder approval of the
1997 Program is being sought in order to qualify compensation receivable under
the 1997 Program as performance-based compensation exempt from the $1,000,000
limitation under Section 162(m) of the Code on the deductibility of compensation
payable to Named Officers. In order for remuneration paid to top executives to
qualify as performance-based compensation under Section 162(m) of the Code, it
must be payable to the executive solely on account of the attainment of one or
more objective performance goals, but only if, among other things, (i) these
goals are established by the Committee, which must be composed of a minimum of
two independent directors; (ii) the material terms of the 1997 Program are
disclosed to shareholders and approved by a majority of those voting before the
payment of such remuneration; and (iii) before the payment of any such
remuneration, the Committee certifies that the performance goals were, in fact,
satisfied. The material terms of the 1997 Program that must be approved by
shareholders include the employees eligible to participate in the 1997 Program,
the performance criterion used by the Committee to determine the amount of the
awards and the maximum amount payable to any employee under the 1997 Program.
The performance goals must be established by the Committee prior to April 1 in
the year during which the compensation is earned, and at a
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time when the outcome of the goal is substantially uncertain. If the particular
performance goals are left to the discretion of the Committee, the general
nature of performance goals must be reapproved by shareholders every five (5)
years.
SUMMARY OF THE 1997 PROGRAM
Purpose. The purpose of the 1997 Program is to qualify incentive
compensation as performance based under Section 162(m) of the Code.
Eligible Employees. Executive officers, as defined by Rule 16a-1(f) of the
Exchange Act at or above the level of Senior Vice President are eligible for
selection to participate in the 1997 Program ("Eligible Employees"). There are
currently eight persons who qualify as Eligible Employees. Prior to April 1 of
each year, the Committee will designate in writing which, if any, Eligible
Employees may participate in the 1997 Program for such fiscal year (the
"Participants").
Performance Criterion. The performance criterion shall be the Company's
net earnings after taxes, computed in accordance with generally accepted
accounting principles applied on a consistent basis, exclusive of the after tax
effects of extraordinary items and cumulative effects of changes in accounting
principles for the applicable fiscal year (the "NAT").
Performance Goals. Subject to the limitations described below under
"Maximum Amount Payable", each Participant's award will be calculated based upon
a dollar amount or a formula for determining a dollar amount (the "Award
Schedule") for the fiscal year (the "performance measurement period") based upon
the achievement by the Company of a predetermined performance goal, or the
profit objective ("Profit Objective") for such performance measurement period.
The Profit Objective will be based on the Company's NAT. Prior to April 1 in
each performance measurement period, the Committee will establish the Award
Schedule and the specific Profit Objective for such performance measurement
period in writing. Prior to the payment of any award, the Committee will certify
in writing the extent to which the Profit Objective has been met. No payments
will be made if the Company does not achieve the prescribed minimum Profit
Objective. Notwithstanding the foregoing, the Committee has retained the
authority to award final payments that are less than the amounts earned by a
Participant pursuant to the Award Schedule. In determining the final payment to
a Participant, the Committee may reduce the final payment based on the extent to
which each Participant completed his or her individual performance goals for the
year, the general business conditions of the Company and the world economy, and
other factors relevant to the Committee's decision.
Maximum Amount Payable. The maximum payment to any Participant for any
performance measurement period shall not exceed the greater of (i) 0.75% of the
Company's earnings before interest, income taxes, extraordinary items and
cumulative effects of changes in accounting principles; or (ii) 150% of the
Participant's base salary as of the beginning of the applicable fiscal year. On
a pro forma basis, the foregoing limitation, calculated according to item (ii)
above, would have limited the maximum award payable to a Participant under the
1997 Program for fiscal 1996 to $1,125,000. In addition, the aggregate cost of
all incentive award payments made in any year shall be limited to 10% of the
Company's average annual income before taxes for the preceding five fiscal
years.
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1997 Program Benefits. On February 5, 1997 the Committee designated
Raymond Zimmerman and Gary M. Witkin as Participants in the 1997 Program for
fiscal 1997. The following table shows the maximum amounts which could be
payable under the 1997 Program to such Participants assuming the Company attains
or exceeds the 1997 Profit Objective based on the Award Schedule established by
the Committee for fiscal 1997:
MAXIMUM PAYMENTS FOR 1997
AWARD SCHEDULE
-------------------------------------------------------------------
BELOW 100% OF
PROFIT 100% OF PROFIT 110% OF PROFIT 120% OF PROFIT
PARTICIPANT OBJECTIVE OBJECTIVE OBJECTIVE OBJECTIVE
----------- ---------------- -------------- -------------- --------------
Raymond Zimmerman.................. $0 $320,000 $448,000 $640,000
Gary M. Witkin..................... 0 225,000 315,000 450,000
Other Features of the 1997 Program. If a Participant's employment is
terminated by reason of his or her death, retirement, approved leave of absence
or disability, prior to the end of any performance measurement period, the
Participant will be eligible to receive a pro-rata share of any incentive award
earned during the performance measurement period. If a Participant in the 1997
Program is terminated for any other reason, he or she will not be eligible for
any annual incentive award which has not actually been paid. The Committee will
retain the right not to pay any award to the extent that it would be
inconsistent with its fiduciary duties to approve the payment of such award.
The 1997 Program may be terminated by the Committee at any time. No right
of a Participant under the 1997 Program may be alienated by sale, transfer,
assignment, pledge or otherwise. The terms of the 1997 Program will not be
altered or replaced without ratification by the Company's shareholders if
failure to obtain shareholder approval would result in jeopardizing the tax
deductibility of future annual incentive payments to eligible employees. In
order to comply with Section 162(m) of the Code, the Committee members
administering the 1997 Program will meet the qualifications for being
disinterested "outside directors" as defined in the Code.
CONCLUSION AND RECOMMENDATION
The Board of Directors believes it is in the best interests of the Company
and its shareholders to adopt the 1997 Executive Incentive Compensation Program
to help attract and retain key persons of outstanding competence and abilities
and to further the identity of their interests with those of the Company's
shareholders generally and to qualify incentive compensation under the 1997
Program as performance-based compensation under Section 162(m) of the Code.
A majority of the votes cast is necessary for approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1997 PROGRAM.
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PROPOSAL NO. 4: APPROVAL OF DELOITTE & TOUCHE LLP
AS INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Deloitte & Touche LLP as independent
public accountants of the Company for the 1997 fiscal year, subject to approval
by the shareholders. Deloitte & Touche LLP served as the Company's independent
public accountants for the fiscal year ended December 29, 1996. A representative
of Deloitte & Touche LLP is expected to be present at the Annual Meeting with
the opportunity to make a statement if such representative so desires and will
be available to respond to appropriate questions.
A majority of the votes cast is necessary for approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF DELOITTE & TOUCHE LLP
AS INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE 1997 FISCAL YEAR.
PROPOSALS OF SHAREHOLDERS
Shareholders intending to submit proposals for presentation at the next
Annual Meeting of Shareholders of the Company and inclusion in the proxy
statement and form of proxy for such Meeting should forward such proposals to C.
Steven Moore, Secretary, Service Merchandise Company, Inc., P.O. Box 24600,
Nashville, Tennessee 37202-4600. Proposals must be in writing and must be
received by the Company prior to November 11, 1997. Proposals should be sent to
the Company by certified mail, return receipt requested.
By Order of the Board of Directors
C. STEVEN MOORE
Secretary
March 11, 1997
YOUR VOTE IS IMPORTANT! SHAREHOLDERS ARE URGED TO PROMPTLY SIGN, DATE AND
MAIL THEIR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. PLEASE ACT TODAY.
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EXHIBIT A
FIRST AMENDED AND RESTATED
1991 DIRECTORS' EQUITY PLAN OF
SERVICE MERCHANDISE COMPANY, INC.
Service Merchandise Company, Inc., a Tennessee corporation (the "Company")
hereby amends and restates its 1991 Directors' Equity Plan (the "Plan"), subject
to shareholder approval, as provided below.
1. PURPOSE. The purpose of the Plan is to establish the Company's shares
of Common Stock, par value $.50 per share (the "Common Stock") as a component of
the annual compensation package for nonemployee directors of the Company (the
"Participating Directors") in order to:
i. Strengthen the commonality of interest between Participating
Directors and shareholders; and
ii. Improve the Company's ability to attract and retain talented
individuals to serve as Company directors.
2. ANNUAL STOCK AWARDS TO EACH PARTICIPATING DIRECTOR. On the date of each
Annual Meeting of Shareholders of the Company, each Participating Director will
receive (a) an award of one hundred eighty-eight (188) shares of Common Stock,
which will be restricted as provided in Section 4 of this Plan (the "Restricted
Stock"), and (b) an option to purchase seven hundred fifty (750) shares of
Common Stock at an exercise price per share equal to the Fair Market Value (as
defined in the Company's Amended and Restated 1989 Stock Incentive Plan, as
amended (the "1989 Plan")) per share of Common Stock on the date of the Annual
Meeting (the "Annual Stock Option").
3. ELECTION TO RECEIVE OPTIONS IN LIEU OF CASH RETAINER. A Participating
Director may elect, for any calendar year, to receive all or any portion of such
Participating Director's quarterly retainer in the form of an option to purchase
shares of Common Stock (a "Retainer Stock Option") to be granted as of the date
such payment would otherwise be due (the "Quarterly Payment Date"). The number
of shares covered by a Retainer Stock Option shall be determined as of the
Quarterly Payment Date pursuant to the following formula:
Number of Shares = Amount of quarterly retainer deferred
----------------------------------------
75% of the Fair Market Value of one share of Common Stock
The aggregate exercise price per share for such Retainer Stock Option shall
be the Fair Market Value per share of Common Stock as of the Quarterly Payment
Date. The amount of the quarterly retainer deferred will be applied by the
Company on the date of exercise to the payment of seventy-five percent of the
aggregate exercise price of such Retainer Stock Option, with the remaining
twenty-five percent of the exercise price to be paid by the grantee at the time
of exercise. If no exercise is made, no payment will be made by the Company with
respect to the deferred quarterly retainer. The election to receive Retainer
Stock Options in lieu of all or any portion of the quarterly retainer payments
to be received in any calendar year may be made for such calendar year by giving
written notice to the Secretary of the Company of such election and the portion
of the retainer with respect to which such election is made at any time prior to
the commencement of such calendar year; provided, however, that for 1997 an
election may be made at any time prior to the 1997 Annual Meeting with respect
to any Quarterly Payment Date occurring after the 1997 Annual Meeting. Any
election to receive Retainer Stock Options shall be made on a form provided by
the Company for such purpose and shall be effective only to the extent that
there are sufficient shares of Common Stock reserved under the
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Plan. An election may be revoked for the remainder of any calendar year by
giving written notice to the Secretary of the Company at least ten business days
prior to the Quarterly Payment Date. No Retainer Stock Option shall be granted
for fractional shares. The amount of any retainer that would otherwise be paid
in the form of an option to purchase fractional shares will be paid in cash
promptly following the Quarterly Payment Date. For purposes of this Plan, the
date of grant of any Retainer Stock Option shall be deemed to be the Quarterly
Payment Date.
4. RESTRICTED STOCK AWARD TERMS. The shares of Restricted Stock will be
evidenced by a stock certificate issued to the Participating Director, who will
be the record owner of the shares. The Participating Director will have the
right to vote the shares and to receive dividends or other distributions
declared on the shares prior to vesting, but the shares may not be transferred,
assigned or pledged, except as permitted in Section 11(a) below, until they
vest. The Company will retain custody of the stock certificate representing the
shares of Restricted Stock until such shares vest. Upon the vesting of the
shares, the Company will deliver the stock certificate to the Participating
Director, all restrictions on the shares imposed by this Plan (other than
pursuant to Section 11(f) below) will be lifted and such shares will no longer
be deemed to be "Restricted Stock" hereunder.
Vesting of the shares will occur one year from the date of grant, except as
otherwise provided in this Plan. If a Participating Director's service as a
member of the Board of Directors of the Company terminates for any reason other
than death, disability or a Change in Control (as defined in the 1989 Plan), the
shares will be forfeited and the Participating Director will have no further
rights with respect to such shares.
Any shares of Common Stock received as a dividend on shares of Restricted
Stock will also be deemed to be Restricted Stock subject to the same
restrictions and vesting schedule as the shares of Restricted Stock with respect
to which such dividend was received.
5. STOCK OPTION TERMS.
a. Vesting, Forfeiture and Expiration. Each Annual Stock Option will
vest in annual increments of 20% commencing on the first anniversary of the
date of grant, except as otherwise provided in this Plan. If a
Participating Director's service as a member of the Board of Directors of
the Company terminates for any reason other than death, disability or a
Change in Control, the unvested portion of the Annual Stock Option will be
forfeited and the Participating Director will have no further rights with
respect to such unvested portion of the Annual Stock Option. Each Annual
Stock Option will expire, if unexercised, on the tenth anniversary of the
date of grant. Each Retainer Stock Option will vest on the date of grant.
Each Retainer Stock Option will expire, if unexercised, on the later of the
tenth anniversary of the date of grant or the December 31 next following
the respective Participating Director's seventy-fifth birthday (a "Standard
Expiration Date"). However, in the event the respective Participating
Director ceases to serve as a member of the Board of Directors of the
Company, each Retainer Stock Option will expire, if unexercised, upon the
earlier of the Standard Expiration Date or five years from the date of
termination of service as a member of the Board of Directors of the
Company.
b. Exercise. Any Annual Stock Option or Retainer Stock Option (each
such stock option, a "Stock Option") or portion thereof, if vested, may be
exercised by delivering written notice of exercise to the Secretary of the
Company, accompanied by payment of the aggregate exercise for the Stock
Option or portion thereof to be exercised. Such payment may be made in
cash, by personal check, in shares of Common Stock already owned by the
individual valued at their Fair Market Value on the date of exercise, or a
combination of such payment methods. The Board, however, may deny the
exercise of Stock Options during a period of time that it deems necessary
to prevent any possible violation of federal
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securities laws or other laws. As soon as practicable after notice of
exercise and receipt of full payment for shares of Common Stock being
acquired, the Company will deliver to the individual a certificate
representing the shares of Common Stock so purchased on the exercise of the
Stock Option.
6. TERMINATION OF SERVICE. On termination of a Participating Director's
service as a member of the Board of Directors of the Company due to death,
disability or retirement, the following terms and conditions shall apply, if
applicable:
a. Participant's Death or Disability. If a Participating Director's
service as a director terminates because of death or permanent disability,
all shares of Restricted Stock and all Annual Stock Options granted to such
Participating Director will immediately vest and all such Annual Stock
Options will remain exercisable for a one-year period from the date of
termination of service. Should the Participating Director die during such
one-year post-termination exercise period applicable to Annual Stock
Options, the Annual Stock Options may be exercised until the later of (i)
the expiration of the one-year post-termination exercise period; or (ii)
one year from the date of death. Retainer Stock Options may be exercised
until the earlier of the Standard Expiration Date or five years from the
date of termination of service as a member of the Board of Directors of the
Company. Should the Participating Director die during such exercise period
applicable to the Retainer Stock Option, the Retainer Stock Option will
remain exercisable until the later of (a) the expiration of such exercise
period, or (b) one year from the date of death.
The determination of permanent disability will be made in the
judgment, with medical advice, of the Company's Senior Vice President of
Human Resources. Participating Directors should complete the Beneficiary
Designation Form on or prior to the date of the first award received by
them under the Plan. Participating Directors may change the
beneficiary(ies) named at any time by filing another Beneficiary
Designation Form with the Senior Vice President of Human Resources or the
Secretary of the Company.
b. Retirement. Upon a Participating Director's retirement from the
Board of Directors, the then exercisable portion of any Annual Stock Option
granted to such Participating Director will remain exercisable for two
years from such termination date. Each Retainer Stock Option will expire,
if unexercised, upon the earlier of the Standard Expiration Date or five
years from the date of termination of service as a member of the Board of
Directors of the Company.
7. CHANGE OF CONTROL. Upon the occurrence of a Change in Control, the
shares of Restricted Stock held by each Participating Director will vest on the
date such Change in Control is deemed to occur, and each Stock Option, if not
already exercisable, will become immediately exercisable and, except as
otherwise provided below, each Annual Stock Option will remain exercisable for a
two year period. Each Retainer Stock Option may be exercised until such Retainer
Stock Option expires upon the earlier of the Standard Expiration Date or five
years from the date such Change in Control is deemed to occur. If the vesting of
awards to executive officers of the Company under the 1989 Plan is accelerated
following a Potential Change in Control (as defined in the 1989 Plan), then all
shares of Restricted Stock granted in 1997 and thereafter ("Post-Amendment
Restricted Stock") will vest and all Stock Options granted in 1997 and
thereafter ("Post-Amendment Stock Options") will become immediately exercisable.
If any awards to executive officers under the 1989 Plan are cashed out upon a
Change in Control or Potential Change in Control, the Post-Amendment Restricted
Stock and Post-Amendment Stock Options will also be cashed out in the same
manner.
8. CHANGES IN CAPITALIZATION. In the event of any changes in the
capitalization of the Company which requires an adjustment in the stock options
or restricted stock awards under the 1989 Plan, a corresponding adjustment will
be made to the Stock Options and awards of Restricted Stock hereunder.
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9. EFFECT ON OTHER COMPANY PROVIDED BENEFITS. The value of a Participating
Director's Stock Option or shares of Restricted Stock, including any dividends
received thereunder, will not be included in determining the amount of coverage
or level of benefit a Participating Director is entitled to receive under any
other Company-sponsored program or plan.
10. AUTHORIZED SHARES. The maximum number of authorized shares which may
be issued under this Program shall be 296,875, subject to adjustment as
described Section 8 above. If any shares of Common Stock that have been optioned
cease to be subject to a Stock Option due to forfeiture or if any shares of
Restricted Stock are forfeited prior to the payment of dividends thereon, such
shares will again be available for issuance in connection with future awards
under the Plan.
11. GENERAL PROVISIONS.
a. Transferability of Awards. Stock Options and shares of Restricted
Stock shall not be transferable or assignable, other than by will or the
laws of descent and distribution, at any time prior the date of the
Company's 1997 Annual Meeting. From and after the date of the Company's
1997 Annual Meeting, Stock Options and shares of Restricted Stock shall not
be transferable or assignable other than (i) by will or the laws of descent
and distribution; (ii) pursuant to a qualified domestic relations order; or
(iii) by gift or other transfer to either (a) any trust or estate in which
the original award recipient or such person's spouse or other family member
has a substantial beneficial interest, or (b) a spouse or other family
member, provided that such a transfer would continue to require such awards
to be disclosed pursuant to Item 403 of Regulation S-K promulgated by the
Securities and Exchange Commission, as such Regulation may be amended from
time to time.
b. Award Documentation. Each award granted under the Plan shall be
evidenced by written documentation which shall contain the terms and
conditions governing such award. Participating Directors need not execute
any instrument or acknowledgment of notice of an award under the Plan, in
which case acceptance of such an award by the respective participating
Director will constitute agreement to the terms of the award.
c. No Right to Service. Neither participation in the Plan nor any
action under the Plan shall be construed to give any Participating Director
a right to be retained in the service of the Company.
d. Administration. This Plan shall be administered by the Board of
Directors of the Company. Determinations of the Board of Directors of the
Company shall be final and binding on Participating Directors and the
Company.
e. Amendment and Termination. The Board of Directors of the Company
may at any time amend, alter or discontinue the Plan; provided, however,
that, without the approval of the Company's shareholders no amendment may
be made that would (i) increase the number of shares that may be issued
under the Plan, or (ii) make any change for which applicable law or
regulatory authority (including the regulatory authority of the New York
Stock Exchange or any other market or exchange on which the Common Stock is
traded) would require shareholder approval. No amendment, alteration or
discontinuation of a Plan shall be made which would impair the rights of a
Participating Director under a Stock Option or award of Restricted Stock
theretofore granted, without the Participating Director's consent.
f. Legends and Restrictions on Transfer. The certificates for shares
issued under the Plan may include any legend which the Board deems
appropriate to reflect any restrictions on transfer. All certificates for
shares of Common Stock or other securities delivered under the Plan shall
be subject to such stock-transfer orders and other restrictions as the
Board may deem advisable under the rules,
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regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Common Stock is then listed,
and any applicable federal or state securities law, and the Board may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
g. Other Compensation Arrangements. Nothing contained in this Plan
shall prevent the Board from adopting other or additional compensation
arrangements, subject to shareholder approval if such approval is required;
and such arrangements may be either generally applicable or applicable only
in specific cases.
h. Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Tennessee.
i. Indemnification. The members of the Board of Directors shall not
be liable to any employee or other person with respect to any determination
made hereunder in a manner that is not inconsistent with their legal
obligations as members of the Board of Directors. In addition to such other
rights of indemnification as they may have as directors or as members of
the Board, the members of the Board shall be indemnified by the Company
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 settlement thereof (provided such
settlement is approved by independent legal counsel selected by the
Company) or 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 member is
liable for negligence or misconduct in the performance of his duties;
provided that within 60 days after institution of any such action, suit or
proceeding, the Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
12. SHAREHOLDER APPROVAL. This First Amended and Restated 1991 Directors'
Equity Plan is subject to approval by the Company's shareholders at the 1997
Annual Meeting.
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EXHIBIT B
SERVICE MERCHANDISE COMPANY, INC.
1997 EXECUTIVE INCENTIVE COMPENSATION PROGRAM
1. PURPOSE
The purpose of the 1997 Executive Incentive Compensation Program (the
"Program") is to qualify incentive compensation as performance based under
Section 162(m) of the Internal Revenue Code of 1986, as amended.
2. PROGRAM OVERVIEW
2.1 Effective Date. The program will become effective for fiscal 1997.
2.2 Measurement Period. The performance measurement period is the
Company's fiscal year. Earned incentive awards will be paid in the spring
following each performance measurement period.
2.3 Eligibility. Executive officers of the Company, as defined by Rule
16a-1(f) of the Securities Exchange Act of 1934, as amended, at or above the
level of Senior Vice President are eligible for selection to participate in the
Program and are referred to herein as "Eligible Employees."
2.4 Participation. The Compensation Committee of the Board of Directors
(the "Committee") shall designate in writing prior to April 1 of each year which
Eligible Employee(s), if any, may participate in the Program for such year (the
"Participants"). When the Company employs or promotes an individual to a
position included in the Program, the date of participation will be the date of
employment or promotion. Any individual who participates in the Program will be
ineligible to participate in any other annual incentive plan for which the
individual would have otherwise been eligible.
3. INCENTIVE AWARDS
3.1 Maximum Amounts. In any performance measurement period, the maximum
payment to any Participant shall not exceed the greater of (i) 0.75% of the
Company's earnings before interest, income taxes, extraordinary items and
cumulative effects of changes in accounting principles for the applicable fiscal
year, as stated in the Company's audited Consolidated Statement of Income, or
(ii) 150% of the Participant's base salary as of the beginning of the applicable
fiscal year. In addition, the aggregate cost of all incentive award payments
made in any year shall be limited to 10% of the Company's average annual income
before taxes for the preceding five fiscal years. Such limitations may be
collectively referred to as the "Maximum Amounts."
3.2 Performance Criterion. The performance criterion shall be the
Company's net earnings after taxes, computed in accordance with generally
accepted accounting principles applied on a consistent basis, exclusive of the
after tax effects of extraordinary items and the cumulative effects of changes
in accounting principles for the applicable fiscal year (the "NAT").
3.3 Incentive Awards. Subject to the Maximum Amounts, such other
limitations as the Committee may prescribe and the provisions of Section 3.4
below, each Participant's award pursuant to the Plan will be calculated based
upon a dollar amount or a formula for determining a dollar amount (the "Award
Schedule") for each performance measurement period. The Award Schedule shall be
based upon the achievement by the Company of the profit objective (the "Profit
Objective") for such performance measurement period. The Profit Objective will
be based on the Company's NAT. The Award Schedule for each Participant and the
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Profit Objective will be established for each performance measurement period in
writing by the Committee prior to April 1 in each year in which incentive award
payments may be earned. Prior to payment of any award, the Committee shall
certify, in writing, the extent to which the prescribed Profit Objective has
been met in accordance with Section 3.4 below. No payment will be made if the
prescribed minimum Profit Objective has not been achieved.
3.4 Final Payments. Notwithstanding anything to the contrary, the
Committee has retained the authority to award final payments that are less than
the amounts earned by Participant pursuant to the Award Schedule and Profit
Objective referenced in Section 3.3 above. In determining the final payment to a
Participant, the Committee may consider the extent to which each Participant
completed his or her individual performance goals for the year, the general
business conditions of the Company and the world economy, the Committee's
fiduciary duties and other factors relevant to the Committee's decision.
4. GENERAL PROVISIONS.
4.1 Administration of the Program. The Program will be administered by the
Committee. The Program may be terminated by the Committee at any time. The terms
of the Program will not be altered or replaced by any other criteria without
ratification by the Company's shareholders, if failure to obtain such approval
would otherwise result in jeopardizing the tax deductibility of annual incentive
payment to employees eligible to participate in the Program.
4.2 No Rights to Continued Employment or Award. Nothing contained in the
Program shall give any Participant the right to be retained in employment of the
Company or affect the right of the Company to dismiss any Participant. The
adoption of the Program shall not constitute a contract between the Company and
any Participant. No eligible Participant shall receive any right to be granted
an award hereunder nor shall any such award be considered as compensation under
any benefit plan of the Company, except as otherwise determined by the
Committee.
4.3 Payments to Persons Other Than the Participant. If the Committee shall
find that any person to whom any amount is payable under the Program is unable
to care for personal matters because of illness or accident, or is a minor, or
has died, then any payment due (unless a prior claim therefor has been made by a
duly appointed legal representative), may be paid to the spouse, child,
relative, an institution maintaining or having custody of such person, or any
other person deemed to be a proper recipient on behalf of such person otherwise
entitled to payment. Any such payment shall be a complete discharge of the
liability of the Company therefor.
4.4 No Alienation of Benefits. Except as may otherwise be required by law,
no amount payable at any time under the Program shall be subject in any manner
to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge,
attachment, charge, or encumbrance of any kind nor in any manner be subject to
the debts or liabilities of any person and any attempt to so alienate or subject
any such amount, whether presently or thereafter payable, shall be void. If any
person shall attempt to, or shall, alienate, sell, transfer, assign, pledge,
attach, charge, or otherwise encumber any amount payable under the Program, or
any part thereof, or if by reason of personal bankruptcy or other event
happening at any such time such amount would be made subject to debts or
liabilities or would otherwise not be enjoyed by the Participant then the
Committee, if it so elects, may direct that such amount be withheld and that the
same or any part thereof be paid or applied to or for the benefit of such
person, spouse, children or other dependents or any of them, in such manner and
proportion as the Committee may deem proper.
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4.5 No Right, Title or Interest in Company's Assets. No Participant shall
have any right, title, or interest whatsoever in or to any investments which the
Company may make to aid it in meeting its obligations under the Program. Nothing
contained in the Program, and no action taken pursuant to its provisions, shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and any eligible Participant or other person.
To the extent that any person acquires a right to receive payments from the
Company under the Program, such right shall be no greater than the right of an
unsecured general creditor of the Company. All payments to be made hereunder
shall be paid from the general funds of the Company and no special or separate
fund shall be established and no segregation of assets shall be made to assure
payment of such amounts.
4.6 Termination of Employment. Unless otherwise agreed in writing by the
Participant and the Company, in the event a Participant's employment is
terminated prior to the end of the performance measurement period as a result of
death, retirement, approved leave of absence or disability, the Participant (or
his or her estate) will receive a pro-rata share of the incentive award based on
the actual period of participation. In the event the Participant's employment is
terminated for any reasons other than those above, no annual incentive award
will be paid. If the Participant's employment is terminated between the end of
the measurement period and the date awards are paid for reasons other than those
above, no annual incentive award will be paid.
5. SHAREHOLDER APPROVAL.
This 1997 Executive Incentive Compensation Program is subject to approval
by the Company's shareholders at the 1997 Annual Meeting.
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APPENDIX A
PROXY SERVICE MECHANDISE COMPANY, INC. PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON WEDNESDAY, APRIL 16, 1997.
The undersigned hereby appoints Raymond Zimmerman and C. Steven Moore, and
each of them, as proxies, with full power of substitution, to vote all shares
of the undersigned as shown below on this proxy at the Annual Meeting of
Shareholders of Service Merchandise Company, Inc. to be held at the Company's
offices located at 7100 Service Merchandise Drive, Brentwood, Tennessee, on
Wednesday, April 16, 1997, at 10:00 a.m., local time, and any adjournments
thereof.
YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS. IF NO CHOICE
IS SPECIFIED, SHARES WILL BE VOTED FOR THE CLASS II DIRECTOR NOMINEES IN THE
ELECTION OF DIRECTORS; FOR THE APPROVAL OF AMENDMENT TO THE 1991 DIRECTORS'
EQUITY PLAN; FOR THE APPROVAL OF THE 1997 EXECUTIVE INCENTIVE COMPENSATION
PROGRAM; AND FOR THE APPROVAL OF DELOITTE & TOUCHE LLP.
(continue on reverse side)
Withhold
1. PROPOSAL 1: ELECTION OF TWO Authority 5. In their discretion, on such other matters as
CLASS II DIRECTORS: For Against (Abstain) may properly come before the meeting.
Election of R. Maynard Holt [ ] [ ] [ ]
Withhold
Authority
For Against (Abstain)
Election of James E. Poole [ ] [ ] [ ]
PLEASE SIGN HERE AND RETURN PROMPTLY
For Against Abstain
2. PROPOSAL 2: APPROVAL OF THE [ ] [ ] [ ]
AMENDMENT TO THE 1991 DIRECTORS' --------------------------------------------
EQUITY PLAN SIGNATURE
For Against Abstain
3. PROPOSAL 3: APPROVAL OF THE 1997 [ ] [ ] [ ] --------------------------------------------
EXECUTIVE INCENTIVE COMPENSATION SIGNATURE (If held jointly)
PROGRAM
Date: 1997
4. PROPOSAL 4: APPROVAL OF DELOITTE & For Against Abstain ---------------------------
TOUCHE LLP AS INDEPENDENT PUBLIC [ ] [ ] [ ] Please sign exactly as your name appears at
ACCOUNTANTS left. If registered in the names of two or
more persons, each should sign. Executors,
administrators, trustees, guardians,
attorneys, and corporate officers should
print their full names and titles.
- --------------------------------------------------------------------------------
If you have changed your address please PRINT you new address on this line.