LINENS 'N THINGS, INC.
6 BRIGHTON ROAD
CLIFTON, NEW JERSEY 07015
-------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2002
--------------------------------------
To Linens 'n Things, Inc. Shareholders:
The Annual Meeting of Shareholders of Linens 'n Things, Inc., a
Delaware corporation (the "Company"), will be held at the Company's headquarters
at 6 Brighton Road, Clifton, New Jersey, on Thursday, May 9, 2002, at 11:00
a.m., for the following purposes:
1. To elect two directors for a three-year term.
2. To act upon such other business as may properly come before
the Annual Meeting or any postponement or adjournment.
Shareholders of record at the close of business on March 11, 2002 are
entitled to notice of and to vote at the Annual Meeting or at any postponement
or adjournment.
By order of the Board of Directors,
/s/ Brian D. Silva
--------------------------------------
BRIAN D. SILVA
Senior Vice President,
Human Resources,
Administration and Corporate Secretary
March 28, 2002
--------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING,
PLEASE COMPLETE THE ENCLOSED PROXY AND RETURN IT PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING.
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LINENS 'N THINGS, INC.
6 BRIGHTON ROAD
CLIFTON, NEW JERSEY 07015
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2002
PROXY STATEMENT
This Proxy Statement is being furnished to the shareholders of Linens
'n Things, Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Shareholders of the Company to be held on Thursday, May 9,
2002, at 11:00 a.m., at 6 Brighton Road, Clifton, New Jersey and at any
postponement or adjournment (the "Annual Meeting"). At the Annual Meeting,
shareholders of the Company are being asked to consider and vote on the election
of two directors each for a three-year term.
This Proxy Statement, Notice of Meeting and accompanying proxy are
first being mailed to shareholders on or about March 28, 2002.
GENERAL
The holders of record of shares of the Company's Common Stock at the
close of business on March 11, 2002 are entitled to vote such shares at the
Annual Meeting. On March 11, 2002, there were outstanding 40,659,655 shares of
Common Stock.
The presence in person or by proxy of the holders of a majority of the
shares outstanding on the record date is necessary to constitute a quorum for
the transaction of business at the Annual Meeting. Each shareholder is entitled
to one vote, in person or by proxy, for each share of Common Stock held as of
the record date on each matter to be voted on. Abstentions and broker non-votes
are included in determining whether a quorum is present. Broker non-votes occur
when a broker returns a proxy but does not have authority to vote on a
particular proposal.
Shares of Common Stock represented by a properly executed proxy
received in time for the Annual Meeting will be voted as specified in the proxy,
unless the proxy has previously been revoked. Unless contrary instructions are
given in the proxy, it will be voted for the persons designated in the proxy as
the Board of Directors' nominees for director and, with respect to any other
matter properly submitted to shareholders at the Annual Meeting, as recommended
by the Board of Directors or, if no recommendation is given, in its discretion.
Shareholders may vote by completing and mailing the proxy card. A proxy
may be revoked prior to the exercise of the proxy either by submitting written
revocation of that proxy to the Corporate Secretary or by submitting a new proxy
bearing a later date via proxy card. A proxy
1
may also be revoked by voting in person at the Annual Meeting. Attendance at the
Annual Meeting will not in itself constitute revocation of a proxy.
This proxy solicitation is being made on behalf of the Company and the
expense of preparing, printing and mailing this Proxy Statement and proxy is
being paid by the Company. In addition to use of the mails, proxies may be
solicited personally or by telephone, facsimile or electronic mail by regular
employees or directors of the Company without additional compensation. The
Company will reimburse banks, brokers and other custodians, nominees and
fiduciaries for their costs in sending proxy materials to the beneficial owners
of Common Stock.
MULTIPLE COPIES OF ANNUAL REPORT AND PROXY STATEMENT
When more than one holder of Common Stock share the same address, the
Company may deliver only one annual report and one proxy statement to that
address unless the Company has received contrary instructions from one or more
of those shareholders. Similarly, brokers and other intermediaries holding
shares of Common Stock in "street name" for more than one beneficial owner with
the same address may deliver only one annual report and one proxy statement to
that address if they have received consent from the beneficial owners of the
stock.
The Company will deliver promptly upon written or oral request a
separate copy of the Annual Report and Proxy Statement to any shareholder,
including a beneficial owner of stock held in "street name," at a shared address
to which a single copy of either of those documents was delivered. To receive
additional copies of the Annual Report and Proxy Statement, you may call, write
or e-mail Investor Relations, Linens 'n Things, Inc., 6 Brighton Road, Clifton,
New Jersey 07015, telephone number (973) 815-2929, e-mail investor@lnt.com.
You may also contact Investor Relations at the Company at the address
or telephone number above if you are a shareholder of record of the Company and
you wish to receive a separate Annual Report and Proxy Statement in the future,
or if you are currently receiving multiple copies of the Annual Report and Proxy
Statement and want to request delivery of a single copy in the future. If your
shares are held in "street name" and you want to increase or decrease the number
of copies of the Annual Report and Proxy Statement delivered to your household
in the future, you should contact the broker or other intermediary who holds the
shares on your behalf.
2
ITEM 1
ELECTION OF DIRECTORS
GENERAL
The Board of Directors currently consists of five members and is
divided into three classes of approximately equal size. Directors are generally
elected for three year terms on a staggered term basis, so that each year the
term of office of one class will expire and the terms of office of the other
classes will extend for additional periods of one and two years respectively.
This year's nominees have been nominated to serve for a three-year term expiring
in 2005. The Company has inquired of the nominees and determined that they will
serve if elected. If for any reason any nominee is not available for election,
which is not expected, the proxy committee may vote for such substitute nominee
as may be recommended by the Board of Directors.
Directors are elected by the affirmative vote of a plurality of the
votes cast at the Annual Meeting and entitled to vote. Abstentions are not
counted as votes cast and have no effect on the outcome.
The nominees are current directors of the Company. Set forth below is a
description of the background of each nominee. Also set forth below is a
description of the background of the existing directors whose terms of office
extend beyond the Annual Meeting. The Board of Directors recommends that
shareholders vote "FOR" the Company's nominees for director.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
--------------------------------------------------------------------------------
NORMAN AXELROD
AGE: 49
DIRECTOR SINCE: 1996
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: Chairman and CEO of the Company since 1988.
Between 1976 and 1988 Mr. Axelrod held
various management positions at
Bloomingdale's, ending with Senior Vice
President, General Merchandise Manager.
OTHER DIRECTORSHIPS: Jaclyn, Inc., Reebok International
EXPIRATION OF NEW
TERM AS DIRECTOR: 2005
================================================================================
3
MORTON E. HANDEL
AGE: 67
DIRECTOR SINCE: 2000
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: Chairman of the Board of Marvel Enterprises
Inc. since 1999. From 1997 to 2001, Mr.
Handel was President, CEO and a director of
Ranger Industries, Inc., formerly Coleco
Industries, Inc. Between 1974 and 1990 Mr.
Handel held various executive management
positions at Coleco Industries, Inc.
including Chairman and CEO.
OTHER DIRECTORSHIPS: Concurrent Computer Corp. Mr. Handel is also
a regent of the University of Hartford.
EXPIRATION OF NEW
TERM AS DIRECTOR: 2005
DIRECTORS WHOSE TERMS DO NOT EXPIRE THIS YEAR
--------------------------------------------------------------------------------
STANLEY P. GOLDSTEIN
AGE: 67
DIRECTOR SINCE: 1996
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: Mr. Goldstein was Chairman of the Board of
CVS Corporation, formerly Melville
Corporation, until he retired in 1999, and
prior to May 1998 was Chairman of the Board
and CEO of CVS Corporation. Mr. Goldstein
co-founded Consumer Value Stores ("CVS"), a
retail drug chain, in 1963.
OTHER DIRECTORSHIPS: CVS Corporation and Footstar, Inc. Mr.
Goldstein is also on the Board of Overseers
of The Wharton School of the University of
Pennsylvania.
EXPIRATION OF CURRENT
TERM AS DIRECTOR: 2004
================================================================================
4
PHILIP E. BEEKMAN
AGE: 70
DIRECTOR SINCE: 1997
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: President of Owl Hollow Enterprises, Inc., a
consulting and investment company. Mr.
Beekman has served as a Director of the
Company since January 1997. From 1986 to
1994, Mr. Beekman was Chairman of the Board
and CEO of Hook SupeRx, Inc., a retail drug
store chain. Prior to that he was President
and Chief Operating Officer of Seagram
Company Limited.
OTHER DIRECTORSHIPS: General Chemical Group, Inc., Kendle
International Inc., Panavision, Inc. and
Sunbeam Corporation
EXPIRATION OF CURRENT
TERM AS DIRECTOR: 2003
================================================================================
HAROLD F. COMPTON
AGE: 54
DIRECTOR SINCE: 1998
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: President and Chief Executive Officer of
CompUSA Inc. Mr. Compton joined CompUSA in
1994 as Executive Vice President-Operations,
becoming Executive Vice President and Chief
Operating Officer in 1995 and President of
CompUSA Stores in 1996.
EXPIRATION OF CURRENT
TERM AS DIRECTOR: 2003
================================================================================
6
DIRECTOR COMPENSATION; ATTENDANCE
Directors who are not employees of the Company are paid an annual
retainer of $10,000, which may be taken either in cash or Common Stock of the
Company. Upon initial election or appointment to the Board, each non-employee
director receives 1,000 stock units and an option to purchase 6,000 shares of
Common Stock. Each stock unit represents the right to receive one share of
Common Stock. One-half of these stock units are paid six months and a day after
the grant date and the other half six months later, provided the non-employee
director has not ceased to serve as a director for any reason other than death,
disability, or retirement at or after age 65. In addition, each non-employee
director receives 1,000 stock units and an option to purchase 4,000 shares of
Common Stock on the date of each annual meeting. Each director participated in
at least 75% of the meetings of the Board of Directors and of the committees of
which he is a member.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
MEMBERS: Philip E. Beekman (Chairman)
Harold F. Compton
Morton E. Handel
NUMBER OF MEETINGS IN 2001: 3
FUNCTIONS: o Serves as a communication point among
non-Audit Committee directors, internal
auditors, the independent auditors and
Company management as their duties
relate to financial accounting,
reporting and internal controls.
o Assists the Board of Directors in
fulfilling its responsibility with
respect to accounting policies, internal
controls, financial and operating
controls, standards of corporate conduct
and performance, reporting practices of
the Company and sufficiency of auditing.
COMPENSATION COMMITTEE
MEMBERS: Stanley P. Goldstein (Chairman)
Harold F. Compton
NUMBER OF MEETINGS IN 2001: 3
FUNCTIONS: o Determines and administers compensation
for the senior officers of the Company
and other key members of the Company's
management, including salary and
incentive based plans.
6
NOMINATING COMMITTEE
MEMBERS: Harold F. Compton (Chairman)
Morton E. Handel
NUMBER OF MEETINGS IN 2001: 2
FUNCTIONS: o Considers and determines suitable
nominees to the Board of Directors.
7
EXECUTIVE COMPENSATION
The following table sets forth information on compensation for the
Company's Chairman and Chief Executive Officer and for the four other most
highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
------------------------- --------------------------- ----------- -------------
Number of
Restricted Securities All Other
Name and Principal Fiscal Stock Underlying LTIP Compensation
Position Year Salary ($) Bonus ($) Award(s) ($) Options Payouts ($) ($) (2)
------------------------------------------------------------------ --------------------------- ----------- -------------
Norman Axelrod, Chairman and 2001 770,577 0 318,585(1) 300,000 318,612(1) 385,570
Chief Executive Officer 2000 716,154 360,150 1,740,129 300,000 740,634 379,980
1999 638,076 665,665 1,254,026 300,000 0 505,468
Steven B. Silverstein, 2001 439,914 0 156,557(1) 100,000 156,529(1) 10,500
President 2000 366,346 131,250 323,877 75,000 323,877 10,500
1999 350,000 250,250 565,733 75,000 0 9,600
William T. Giles, Senior Vice 2001 284,231 0 84,080(1) 75,000 84,052(1) 10,200
President and Chief Financial 2000 259,231 75,600 194,343 40,000 194,343 10,500
Officer 1999 221,923 124,982 309,810 30,000 0 9,600
Brian D. Silva, Senior Vice 2001 254,808 0 75,364(1) 50,000 75,391(1) 10,500
President, Human Resources, 2000 237,962 67,760 174,157 25,000 174,157 10,500
Administration and Corporate 1999 222,962 129,844 305,743 25,000 0 9,600
Secretary
Hugh J. Scullin, 2001 232,115 0 68,133(1) 20,000 68,105(1) 10,500
Senior Vice President, Real 2000 222,308 63,000 161,939 20,000 161,939 10,500
Estate, Store Planning, 1999 215,000 122,980 289,603 20,000 0 9,600
Construction and
Legal*
* Due to a change in responsibilities this position is no longer deemed
an "executive officer" position.
(1) Awards under the Company's long term incentive plan ("LTIP") were made
for fiscal 2001 based on each executive officer having exceeded certain
preestablished performance objectives based on earnings and net return
on assets over a 3-year period. The LTIP awards for fiscal 2001 vest
two years from the award date. The LTIP awards for fiscal 2001 were
made 50% in restricted stock and 50% in deferred cash awards. The
deferred cash awards are invested in Common Stock by the plan trustee
under the Company's deferred compensation plan. The restricted stock
awards under the LTIP for fiscal 2001 for each of the named executives
were: Mr. Axelrod, 11,587 shares; Mr. Silverstein, 5,694 shares; Mr.
Giles, 3,058 shares; Mr. Silva, 2,741 shares; and Mr. Scullin, 2,478
shares. The number and value of all restricted stock holdings at fiscal
year end were: Mr. Axelrod, 61,397 shares, $1,568,079; Mr. Silverstein,
17,278 shares, $441,280; Mr. Giles, 10,009 shares, $255,630; Mr. Silva,
8,970 shares, $229,094; and Mr. Scullin, 8,270 shares, $211,216. The
number and value of invested shares held by the plan trustee at fiscal
year end with respect to all LTIP deferred cash awards for all fiscal
years for each of the named executives were: Mr. Axelrod, 38,078
shares, $972,512; Mr. Silverstein, 17,277 shares, $441,255; Mr. Giles,
10,007 shares, $55,579; Mr. Silva, 8,972 shares, $229,145; and Mr.
Scullin, 8,269 shares, $211,190. Holders of restricted stock and shares
8
held under the deferred compensation plan would be entitled to be
credited with any dividends on such shares.
(2) For fiscal year 2001 represents amounts contributed under the Company's
401(k) profit sharing plan. In addition, for Mr. Axelrod, the fiscal
2001 amount includes the present value cost of $344,024 of the
Company's portion of fiscal 2001 premiums for split dollar insurance
above the term coverage level, $12,284 of imputed income associated
with the term portion of the split dollar arrangement and $19,062 of
related tax reimbursement obligations.
9
OPTION GRANTS IN LAST FISCAL YEAR. The table below sets forth certain
information concerning stock options granted during fiscal 2001 by the Company
to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS GRANT DATE
UNDERLYING GRANTED TO EXERCISE OR PRESENT
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE) DATE ($)(2)
------------------------------ -------------------- ------------------- ----------------- --------------- -----------------
Norman Axelrod 300,000 24.8% 18.81 10/19/11 3,313,890
Steven B. Silverstein 100,000 8.3% 18.81 10/19/11 1,104,630
William T. Giles 75,000 6.2% 18.81 10/19/11 828,473
Brian D. Silva 50,000 4.1% 18.81 10/19/11 552,315
Hugh J. Scullin 20,000 1.7% 18.81 10/19/11 220,926
(1) Options were granted at fair market value and become exercisable as
follows: for Messrs. Axelrod and Scullin in 25% annual increments
beginning one year from the date of grant and for Messrs. Silverstein,
Giles and Silva in one-third annual increments beginning one year from
the date of grant.
(2) The hypothetical present values on the grant date are calculated under
the modified Black-Scholes Model, which is a mathematical formula used
to value options traded on stock exchanges. This formula considers a
number of factors in hypothesizing an option's present value. Factors
used to value options granted include the stock's expected volatility
rate (50%), risk free rate of return (3.54%), dividend yield (0%),
projected time of exercise (8 years) and projected risk of forfeiture
and non-marketability for the vesting period (6.52% per annum).
10
OPTION EXERCISES AND YEAR-END OPTION HOLDINGS. The following table
shows information regarding option exercises during fiscal 2001 as well as
fiscal 2001 year-end option holdings for each of the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED UNEXERCISED OPTIONS
ON VALUE OPTIONS AT FY-END AT FY-END ($)
EXERCISE REALIZED (#) EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
-------------------------------- ---------------- -------------- ---------------------------- ---------------------------
Norman Axelrod 175,000 4,625,636 432,674/1,058,310 2,431,328/2,941,500
Steven B. Silverstein 0 0 128,966/297,910 987,075/903,625
William T. Giles 25,000 663,441 61,680/151,665 461,975/627,750
Brian D. Silva 54,000 1,317,714 36,930/110,415 179,573/413,375
Hugh J. Scullin 55,500 1,484,625 45,844/71,665 263,575/196,100
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS; OTHER EXECUTIVE
AGREEMENTS.
The Company has employment agreements with each of the named executive
officers as well as certain other executive officers (the "Employment
Agreements"). The following briefly summarizes the principal terms of the
Employment Agreements, all of which became effective in fiscal 2001.
The period of employment under the Employment Agreements extends
initially for initial terms of approximately four years subject to automatic
one-year extensions at the end of the initial terms unless the executive fails
to seek renewal or the Company gives notice of non-renewal. A Company notice of
non-renewal prior to the executive reaching age 60 would constitute a
constructive termination of the executive without cause. During Mr. Axelrod's
employment term he may relinquish any or all of his executive officer positions,
and if he relinquishes all such executive officer positions he has agreed to
remain in the Company's employment in an appropriate capacity at reduced
compensation until age 60. The Employment Agreements generally provide for
payment of an annual base salary that will be reviewed at the discretion of the
Compensation Committee but may not be decreased from the amount in effect for
the previous year. The Employment Agreements also include provisions concerning
annual incentive compensation with minimum target annual incentive awards (not
less than seventy percent of base salary for Mr. Axelrod, fifty percent for Mr.
Silverstein and ranging from thirty-five percent up to forty-five percent for
the other executives) and long-term incentive compensation with a minimum target
award opportunity (not less than thirty-five percent of base
11
salary for Mr. Axelrod, thirty percent for Mr. Silverstein and from ten percent
up to twenty-five percent for the other executives).
The Employment Agreements generally provide for (i) in the event the
executive's employment is terminated other than for cause and other than by
voluntary termination, continued payment of salary and annual incentive
compensation at target levels for 30 months for Mr. Axelrod, 24 months for Mr.
Silverstein and not less than 18 months for the other executives, continuation
of certain benefits for (or service credit or a cash amount equivalent to) 30
months for Mr. Axelrod, 24 months for Mr. Silverstein and not more than 24
months for the other executives; (ii) certain restrictive covenants including
non-competition, non-disclosure, non-solicitation of employees and availability
for litigation support; (iii) participation in certain benefit plans and
programs including retirement benefits, life insurance, medical benefits and, in
the case of Mr. Axelrod and Mr. Silverstein, a supplemental executive retirement
benefit and split dollar life insurance benefit; and (iv) deferred compensation
arrangements. In addition, in the case of voluntary termination by the
executive, the Company may elect to pay the executive over a 12-month period an
amount equal to the executive's annual base salary and target annual bonus in
exchange for the executive's agreement not to compete with the Company for a
period of one year. Upon a termination for cause, the executives have agreed not
to compete with the Company for a period of one year.
In the event of a "change in control," the Employment Agreements
generally provide for lump sum severance benefits equal to 2 times (2.99 for Mr.
Axelrod and 2.5 times for Mr. Silverstein) the annual base salary and target
bonus, continued participation in certain benefit plans for (or service credit
or a cash amount equivalent to) 36 months for Mr. Axelrod, 30 months for Mr.
Silverstein and not less than 12 months for the other executives (and, in the
case of health benefits for Mr. Axelrod, until age 60 at Company cost), vesting
of outstanding options, restricted or deferred stock awards and long-term
incentive awards and the right in certain cases to exercise vested options for
the remainder of the term of the options.
A "change in control" is defined to include a variety of events,
including significant changes in the stock ownership of the Company or a
significant subsidiary, certain changes in the Company's Board of Directors,
certain mergers and consolidations of the Company or a significant subsidiary,
and the sale or disposition of all or substantially all the consolidated assets
of the Company. "Cause" is defined generally as a breach of the restrictive
covenants contained in the Employment Agreements, certain felony convictions, or
willful acts or gross negligence that are materially damaging to the Company.
If payments under the Employment Agreements following a change in
control are subject to the golden parachute excise tax, the Company will make an
additional gross-up payment sufficient to ensure that the net after-tax amount
retained by the executive (taking into account all taxes, including those on the
gross-up payment) is the same as it would have been had such excise tax not
applied. The Employment Agreements obligate the Company to indemnify the
executives to the fullest extent permitted by law, including the advancement of
expenses, and, in the case of Mr. Axelrod and Mr. Silverstein, generally provide
12
that the Company will reimburse Mr. Axelrod and Mr. Silverstein for expenses
incurred in seeking enforcement of their respective Employment Agreements,
unless the assertion of such rights is in bad faith or frivolous.
The Company has a supplemental executive retirement plan for Mr.
Axelrod and, beginning in fiscal 2002, for Mr. Silverstein which provides annual
retirement benefits, commencing at or after age 55, following retirement from
active service. The net annual benefit under the plan is determined based on
three primary components: (i) 1.6% of final average compensation, times (ii)
years of service, reduced by (iii) an "offset amount." The "offset amount" for
Mr. Axelrod ranges from $195,000 (assuming cessation of employment were to occur
at or before age 49) to $530,000 (assuming cessation of employment were to occur
at or following age 55) and for Mr. Silverstein from no offset (assuming
cessation of employment at or before age 46) to $500,000 (assuming cessation of
employment at or following age 55). In no event will the annual benefit amount
exceed 50% of final average compensation. "Final average compensation" means the
average of the participant's base salary and bonus compensation (excluding
equity compensation) for the three years (which need not be consecutive) with
the Company or its affiliates that yield the highest average compensation. Mr.
Axelrod currently has 13 years of credited service and Mr. Silverstein currently
has 10 years of credited service. Assuming a twenty percent increase in final
average compensation from the highest annual covered compensation in the Summary
Compensation Table above and assuming retirement from service at age 60, and
taking into account the "offset amount," the estimated annual retirement benefit
payable by the Company under the plan would be approximately $90,800 for Mr.
Axelrod and there would be no annual retirement benefit payable by the Company
under the plan for Mr. Silverstein. There is no offset for social security
benefits.
The Company also has a collateral assignment split dollar insurance
arrangement with Mr. Axelrod and, beginning in fiscal 2002, Mr. Silverstein. The
Company pays an annual premium under the policy until the earlier of retirement
or age 55. The arrangement is designed so that the Company ultimately receives
back from the policy value (the "Company Amount") the sum of all annual premium
payments made by the Company, plus an interest factor of 3.4% annually. The
executive's interest in the cash value and death benefit value under the policy
is equal to the total policy value minus the Company Amount as calculated above.
REPORT ON COMPENSATION OF EXECUTIVE OFFICERS
Compensation decisions for the Company's Chief Executive Officer and
the other named executive officers for fiscal 2001 were reviewed and determined
by the Compensation Committee.
The overall objectives of the Company's executive compensation program
are to attract and retain the highest quality executives to manage and lead the
Company, and to provide annual and long-term incentives to management, based on
both Company performance and individual performance, in order to build and
sustain value for shareholders.
The Company's executive compensation program for fiscal 2001 was
reviewed and approved by the Compensation Committee. A national compensation
consultant is regularly retained by the Compensation Committee to assist in
reviewing competitive compensation programs for the Company in connection with
the Company's senior officers, including the Chief
13
Executive Officer and each of the other named executive officers as well as
other members of the management group. This review includes compensation levels
reported for senior executives of a survey group of retailers. The survey group
is not the same group of companies included in the Peer Group Index set forth in
the Company's Performance Graph below because, in the view of the Compensation
Committee and its compensation consultant, such survey group is not necessarily
the most representative group for purposes of determining competitive
compensation pay practices for the senior executives. The Compensation Committee
reviews the competitiveness of the Company's executive compensation practices on
an annual basis.
ANNUAL BASE SALARY. Annual base salaries for the Chief Executive
Officer and the other named executives were initially established at
approximately the mean of the range of salaries considered in the survey group,
with increases through fiscal 2001 made by the Compensation Committee based on
its view of appropriate, competitive annual base salary levels for such
executives. Actual total remuneration levels may range below or above target in
any one year and over a period of years, based on performance against annual and
long-term goals and return to shareholders. Under employment agreements with
each of the named executive officers base salary may not be decreased from the
amount in effect for the previous year.
INCENTIVE AWARDS. The Company's incentive program provides for cash
bonuses based on performance relative to predetermined objectives established
for the year. For fiscal 2001, the target award rate was 75% for the Chief
Executive Officer, 60% for Mr. Silverstein, and 45% for each of the other
executive officers of the Company. Larger awards may be made if performance
exceeds predetermined objectives. Smaller or no awards may be made if
performance falls below such objectives. Eligible members of management,
including the Chief Executive Officer and the other executive officers, can
defer receipt of a portion of their incentive award. Due to the fact that the
Company did not meet pre-established financial targets, no annual incentive
bonuses were payable to the Chief Executive Officer and the other named
executives for fiscal 2001.
STOCK BASED COMPENSATION. The Board of Directors and the Compensation
Committee are of the view that stock ownership or its equivalent by management
aligns the interest of management with the Company's shareholders. Stock options
are granted at fair market value and are intended to align executive
compensation opportunities with shareholder returns. Stock options granted
during fiscal 2001 were part of the Compensation Committee's customary annual
review and these option grants were made at levels, which the Compensation
Committee determined to be appropriate long-term equity-based incentives to such
executives. In determining the specific levels of individual option grants for
fiscal 2001 for the Chief Executive Officer and each of the other executive
officers, the Compensation Committee considered and weighed a number of factors,
including annual stock option grant levels of the peer group of retail
companies; past levels of annual option grants to Company executives; the
executive's position, responsibilities, salary and performance levels; and
projected stock option grant values. These stock options vest either in
one-third annual increments beginning one year from the date of grant or in 25%
increments over four years from the date of grant. Stock options are intended to
provide long term compensation incentives, and future grants of options or other
awards will be reviewed and determined periodically by the Compensation
Committee.
14
Awards under the LTIP were made for fiscal 2001 by the Compensation
Committee to the named executive officers based on such executives having
exceeded certain preestablished performance objectives based on earnings and net
return on assets for the 3 year period ending June 30, 2001, with Mr. Axelrod
receiving an award equivalent to approximately 81% of base salary, Mr.
Silverstein receiving an award equivalent to approximately 70% of base salary
and Messrs. Giles, Silva and Scullin receiving awards equivalent to
approximately 58% of base salary. The LTIP awards for fiscal 2001 were comprised
of 50% restricted stock and 50% deferred cash awards (which cash awards were
invested in Company stock by the plan trustee under the Company's deferred
compensation plan).
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of
the Internal Revenue Code generally allows a deduction to publicly traded
companies for certain qualifying performance-based compensation. Section 162(m)
disallows a deduction to the extent of certain non-performance based
compensation over $1 million paid to the Chief Executive Officer or to any of
the four other most highly compensated executive officers. The Company believes
that Section 162(m) deduction limits for fiscal 2002 will not be applicable or,
if applicable, would not be material in terms of net financial effect. Therefore
the Company does not intend to seek to restructure any fiscal 2002 compensation
arrangements. The Company and the Compensation Committee will continue to
monitor this matter.
Compensation Committee
Stanley P. Goldstein, Chairman
Harold F. Compton
15
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is comprised entirely of
independent outside directors. Its primary function is to oversee the Company's
system of internal controls, financial reporting practices and audit functions
to ensure their quality, integrity and objectivity. The Board of Directors has
adopted and approved a written charter for the Audit Committee.
For fiscal 2001, the Audit Committee reviewed the overall audit scope,
plans and results of the audit engagement. The Committee also met separately
without management present with both the internal auditor and the independent
auditors to discuss the year's audit. In addition, the Committee reviewed and
discussed the Company's annual financial statements with management before
issuance.
The Audit Committee has discussed with the independent auditors the
matters required to be discussed by SAS 61, COMMUNICATION WITH AUDIT COMMITTEES,
of the Auditing Standards Board of the American Institute of Certified Public
Accountants, to the extent applicable. The Audit Committee has also received and
reviewed the written disclosures and confirmation from the independent auditors
required by Independence Standards Board Standard No. 1, INDEPENDENCE
DISCUSSIONS WITH AUDIT COMMITTEE, of the Independence Standards Board, and has
discussed with the auditors the auditors' independence.
Based on the foregoing review and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for fiscal 2001.
Audit Committee
Philip E. Beekman, Chairman
Harold F. Compton
Morton E. Handel
16
PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative
total shareholders' return on the Company's Common Stock on an annual basis from
January 1, 1997 through December 28, 2001, with the cumulative total return on
the Standard & Poor's Specialty Retail Index, the Peer Group Index and the
Standard & Poor's 500 Index for the same period. In accordance with the
Securities and Exchange Commission ("SEC") rules, the returns are indexed to a
value of $100 at January 1, 1997 and it is assumed that all dividends were
reinvested.
The Peer Group Index is comprised of the following companies in the
retail industry: Bed Bath & Beyond Inc.; The Bombay Company, Inc.; Borders
Group, Inc.; Haverty Furniture Companies, Inc.; Jo-Ann Stores, Inc.; Michaels
Stores, Inc.; Petsmart, Inc.; Pier 1 Imports, Inc.; Sharper Image Corporation;
The Sports Authority, Inc.; and Williams-Sonoma, Inc. The returns of each issuer
in the Peer Group Index have been weighted according to the issuer's stock
market capitalization at the beginning of each period for which a return is
indicated.
[PERFORMANCE GRAPH]
-----------------------------------------------------------------------------------------
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/28/01
-------- -------- -------- -------- -------- --------
Linens 'n Things $100 $222 $404 $302 $282 $260
S&P Specialty Retail 100 100 86 61 51 83
Peer Group 100 119 141 130 123 216
S&P 500 100 133 171 208 189 166
-----------------------------------------------------------------------------------------
17
Lechters, Inc. and Strouds, Inc. have been eliminated from the Peer
Group Index. Lechters, Inc. filed for Chapter 11 bankruptcy protection and is
currently undergoing reorganization. Strouds, Inc. also filed for Chapter 11
bankruptcy protection and was subsequently liquidated and sold.
18
BENEFICIAL OWNERSHIP OF COMMON STOCK
CERTAIN BENEFICIAL OWNERS. The following table sets forth certain
information as to beneficial ownership of each person known to the Company to
own beneficially more than 5% of the outstanding Common Stock of the Company as
of February 1, 2002.
Beneficial Owner Number of Shares Percent of Class
---------------- ---------------- ----------------
FMR Corp. (1)....................... 4,311,400 10.6%
PRIMECAP Management Company (2)..... 4,149,000 10.2%
Wachovia Corporation (3)............ 3,005,618 7.4%
Putnam Investments, Inc (4)......... 2,512,753 6.2%
Vanguard Horizon Funds - Vanguard... 2,300,000 5.7%
Capital Opportunity Fund (5)
Citigroup Inc. (6).................. 2,121,328 5.2%
American Express Company (7)........ 2,101,256 5.2%
-------------------------------
(1) Pursuant to an amended Schedule 13G dated February 14, 2002, FMR Corp. has
sole voting power with respect to 41,800 shares, and sole dispositive power
with respect to 4,311,400 shares. Edward C. Johnson 3d and Abigail P.
Johnson have sole dispositive power with respect to 4,311,400 shares. The
address for FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson is 82
Devonshire Street, Boston, Massachusetts 02109.
(2) Pursuant to an amended Schedule 13G dated November 30, 2001, PRIMECAP
Management Company has sole voting power with respect to 1,849,000 shares,
and sole dispositive power with respect to 4,149,000 shares. The address
for PRIMECAP Management Company is 225 South Lake Avenue # 400, Pasadena,
California 91101.
(3) Pursuant to a Schedule 13G dated February 13, 2002, Wachovia Corporation
has sole voting power with respect to 2,946,171 shares, sole dispositive
power with respect to 2,714,304 shares, shared voting power with respect to
12,885 shares, and shared dispositive power with respect to 277,228 shares.
The address for Wachovia Corporation is One Wachovia Center, Charlotte,
North Carolina 28288.
(4) Pursuant to an amended Schedule 13G dated October 9, 2000, Putnam
Investments, Inc. has shared voting power with respect to 173,800 shares,
and shared dispositive power with respect to 2,512,753 shares; Putnam
Investment Management, Inc. has shared dispositive power with respect to
1,808,800 shares; and The Putnam Advisory Company, Inc. has shared
19
voting power with respect to 173,800 shares and shared dispositive power
with respect to 703,953 shares. The address for Putnam Investments, Inc.,
Putnam Investment Management, Inc. and The Putnam Advisory Company, Inc. is
One Post Office Square, Boston, Massachusetts 02109.
(5) Pursuant to an amended Schedule 13G dated February 12, 2002, Vanguard
Horizon Funds - Vanguard Capital Opportunity Fund has sole voting power and
shared dispositive power with respect to 2,300,000 shares. The address for
Vanguard is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.
(6) Pursuant to an amended Schedule 13G dated January 23, 2002, Salomon
Brothers Holding Company Inc. has shared voting power and shared
dispositive power with respect to 2,060,228 shares; Salomon Smith Barney
Holdings Inc. has shared voting power and shared dispositive power with
respect to 2,062,218 shares; and Citigroup Inc. has shared voting power and
shared dispositive power with respect to 2,121,328 shares. The address for
Salomon Brothers Holding Company Inc. and Salomon Smith Barney Holdings
Inc. is 388 Greenwich Street, New York, New York 10013. The address for
Citigroup is 399 Park Avenue, New York, New York 10043.
(7) Pursuant to a Schedule 13G dated December 31, 1999, American Express
Company and the American Express Financial Corporation each has shared
voting power and shared dispositive power with respect to 2,101,256 shares.
The address for American Express Company is American Express Tower, 200
Vesey Street, New York, New York 10285 and the address for American Express
Financial Corporation is IDS Tower 10, Minneapolis, Minnesota 55440.
20
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS. The following
table sets forth certain information as to beneficial ownership of the
outstanding Common Stock of the Company as of February 1, 2002 by each director
and nominee of the Company, each of the named executive officers listed in the
Summary Compensation Table, and all executive officers and directors of the
Company as a group. Except as otherwise indicated, each person listed below has
sole voting and investment power with respect to such shares. No director or
executive officer beneficially owns more than one percent of the total
outstanding Common Stock other than Mr. Axelrod who would be deemed beneficially
to own 1.58% and all directors and executive officers which as a group would be
deemed beneficially to own 2.83% of the outstanding Common Stock.
No. of Shares No. of Shares
Name of Beneficial of Common Name of Beneficial of Common
Owner Stock(1) Owner Stock(1)
------------------------------------ --------------------- ----------------------------------------------------
N. Axelrod.......................... 648,301(2) S. Silverstein...................... 197,594(3)
P. Beekman.......................... 28,408 W. Giles ........................... 92,539
S. Goldstein........................ 35,208 B. Silva............................ 69,806
H. Compton.......................... 13,362 H. Scullin.......................... 86,738(4)
M. Handel........................... 3,462
All executive officers and
directors as a group................ 1,175,418
(1) Includes shares subject to stock options that were exercisable as of
February 1, 2002 or that will become exercisable within 60 days thereafter,
as follows: Mr. Axelrod, 432,674; Mr. Beekman, 19,400; Mr. Goldstein,
19,400; Mr. Compton, 10,000; Mr. Handel, 2,000; Mr. Silverstein, 128,966;
Mr. Giles, 61,680; Mr. Silva, 36,930; Mr. Scullin, 45,844; and all
directors and executive officers as a group, 756,894. Also includes shares
held in the Company's deferred compensation plan pursuant to LTIP deferred
cash awards, as follows: Mr. Axelrod, 38,078 shares; Mr. Silverstein,
17,277 shares; Mr. Giles, 10,007 shares; Mr. Silva, 8,972 shares; and Mr.
Scullin, 8,269 shares.
(2) Includes 400 shares held by Mr. Axelrod's minor children, as to which
shares Mr. Axelrod disclaims beneficial ownership.
(3) Includes 800 shares held by Mr. Silverstein's minor children, as to which
shares Mr. Silverstein disclaims beneficial ownership.
(4) Includes 1,000 shares held by Mr. Scullin's spouse, as to which shares Mr.
Scullin disclaims beneficial ownership.
21
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors to file reports regarding beneficial
ownership of the Company's Common Stock with the Commission, and to furnish the
Company with copies of all such filings. Based on a review of these filings, the
Company believes all such filings were timely made.
22
INDEPENDENT AUDITOR
The Board of Directors has selected KPMG LLP as the Company's
independent auditor to make an examination of the accounts of the Company for
fiscal year 2002. KPMG LLP has served as the independent auditor of the Company
since the Company's 1996 IPO. Representatives of KPMG LLP are expected to be
present at the Annual Meeting and will be available to respond to appropriate
questions and to make such statements as they may desire.
The fees billed for services rendered for the Company by KPMG LLP for
fiscal 2001 were as follows:
Audit Fees $234,900
Financial Information Systems Design and Implementation
Fees $ 0
All Other Fees $446,600
The Audit Committee has considered whether the provision of the
services covered under the captions "Financial Information Systems Design and
Implementation Fees" and "All Other Fees" above is compatible with maintaining
the auditor's independence.
23
SHAREHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
Any proposal of a shareholder intended to be presented at the Company's
2003 Annual Meeting of Shareholders must be received by the Secretary of the
Company not later than November 29, 2002 to be included in the Company's Proxy
Statement, Notice of Meeting and Proxy relating to the 2003 Annual Meeting.
The Company's Bylaws establish an advance written notice procedure for
shareholders seeking to nominate candidates for election as directors at any
Annual Meeting of Shareholders, or to bring business before an Annual Meeting of
Shareholders of the Company. The Bylaws provide that only persons who are
nominated by or at the direction of the Board, or by a shareholder who has given
timely written notice to the Secretary of the Company prior to the meeting at
which directors are to be elected, will be eligible for election as directors of
the Company. The Bylaws also provide that at any meeting of shareholders only
such business may be conducted as has been brought before the meeting by or at
the direction of the Board or, in the case of an Annual Meeting of Shareholders,
by a shareholder who has given timely written notice to the Secretary of the
Company of such shareholder's intention to bring such business before such
meeting. Under the Bylaws, for any such shareholder notice to be timely, such
notice must be received by the Company in writing not less than 60 days nor more
than 90 days prior to the meeting, or in the event that less than 70 days'
notice or prior public disclosure of the date of the Annual Meeting is given or
made to shareholders, to be timely, notice by the shareholder must be received
not later than the close of business on the 10th day following the day on which
such notice of the date of the meeting or such public disclosure was made. Under
the Bylaws, a shareholder's notice must also contain certain information
specified in the Bylaws.
ANNUAL REPORT
A COPY OF THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS HAS BEEN MAILED
TO ALL SHAREHOLDERS OF RECORD. SHAREHOLDERS, UPON WRITTEN REQUEST TO INVESTOR
RELATIONS, LINENS 'N THINGS, INC., 6 BRIGHTON ROAD, CLIFTON, NEW JERSEY 07015,
MAY RECEIVE, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K,
INCLUDING THE FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND LIST OF
EXHIBITS, REQUIRED TO BE FILED WITH THE SEC FOR THE 2001 FISCAL YEAR.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no
business that will be presented for consideration at the Annual Meeting other
than the matters referred to above. Proxies in the enclosed form will be voted
in respect of any other business that is properly brought before the Annual
Meeting as recommended by the Board of Directors or, if no such recommendation
is given, in the discretion of the proxy holders.
24
DETACH HERE
PROXY
LINENS 'N THINGS, INC.
MAY 9, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LINENS 'N THINGS, INC.
The undersigned hereby appoints Brian D. Silva, William T. Giles and
Denise Tolles, and each of them, with power of substitution, proxies for the
undersigned and authorizes each of them to represent and vote, as designated,
all of the shares of stock of Linens 'n Things, Inc. (the "Company") which the
undersigned may be entitled to vote at the Annual Meeting of Shareholders of the
Company to be held at the Company's headquarters at 6 Brighton Road, Clifton,
New Jersey on May 9, 2002 and at any adjournment or postponement of such
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO CONTRARY DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" PROPOSALS 1 AND 2. PLEASE VOTE PROMPTLY.
------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
------------- -------------
LINENS 'N THINGS, INC.
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
DETACH HERE
PLEASE MARK
/X/ VOTES AS IN
THIS EXAMPLE.
ELECTION OF TWO DIRECTORS
1. TO ELECT (01) NORMAN AXELROD AS DIRECTOR
FOR A THREE-YEAR TERM:
FOR WITHHELD
/ / / /
2. TO ELECT (02) MORTON E. HANDEL AS
DIRECTOR FOR A THREE-YEAR TERM:
FOR WITHHELD
/ / / /
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Please sign exactly as your name or names appear
hereon. When signing as attorney, executor,
administrator, trustee or guardian, please give your
full title as such. If a corporation, please print
the full corporate name and sign by president or
other authorized officer. If a partnership, please
print the full partnership name and sign by
authorized person.
Signature: Date: Signature: Date:
---------------- --------- --------------- --------