SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
Linens' N Things, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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previously. Identify the previous filing by registration statement number,
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LINENS 'N THINGS, INC.
6 BRIGHTON ROAD
CLIFTON, NEW JERSEY 07015
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 2005
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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 5, 2005, 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 7, 2005 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
April 8, 2005
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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 5, 2005
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 5,
2005, 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 April 8, 2005.
GENERAL
The holders of record of shares of the Company's Common Stock at the
close of business on March 7, 2005 are entitled to vote such shares at the
Annual Meeting. On March 7, 2005, there were outstanding 45,260,025 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 voting instructions from the
shareholder or discretionary 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 by the proxy committee (1) "FOR" the Board of
Directors' nominees for director and (2) in the discretion of the proxy
committee on any other matter properly submitted to shareholders at the Annual
Meeting which may include, among other things, a motion to adjourn the meeting
or part of the meeting relating to one or more items to be voted on at the
meeting.
If there is no quorum, a majority of the votes present at the meeting
may adjourn the meeting. If such an adjournment is proposed by the Company, the
proxy committee intends to vote all shares of Common Stock for which they have
voting authority in favor of the adjournment.
1
The Company may also adjourn the meeting if for any reason it believes
that additional time should be allowed for the solicitation of proxies. If
adjournment is proposed by the Company for this reason, the execution of your
proxy also authorizes the proxy committee to vote all shares for which they have
such voting authority "FOR" such an adjournment.
An adjournment will have no effect on the business that may be conducted
at the Annual Meeting. If the Annual Meeting is postponed or adjourned in whole
or in part, your proxy will remain valid and may be voted at the postponed or
adjourned meeting. You will remain able to revoke your proxy until it is voted.
Shareholders may vote by completing and mailing the proxy card. A proxy
may be revoked if, prior to the exercise of the proxy, the Corporate Secretary
receives either a written revocation of that proxy or a new proxy bearing a
later date. A proxy 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.
If a person is a participant in the Company's 401(k) savings plan and
has Common Stock in a plan account, the proxy also serves as voting instructions
for the plan trustee.
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
The Securities and Exchange Commission ("SEC") has adopted rules that
permit companies and intermediaries such as brokers to satisfy delivery
requirements for annual reports and proxy statements with respect to two or more
shareholders sharing the same address by delivering a single annual report and
proxy statement addressed to those shareholders. This process, which is called
"householding," potentially provides convenience for shareholders and cost
savings for the Company. The Company and certain brokers may deliver only one
copy of the annual report and proxy statement unless contrary instructions have
been received from the affected shareholders. Once you have received notice from
the Company or your broker that a single copy of the annual report and proxy
statement will be delivered, householding will continue until you are notified
otherwise or until you revoke your consent. If at any time you no longer wish to
participate in householding and would prefer to receive a separate copy of the
annual report and proxy statement, or if you are receiving multiple copies and
wish to receive only one copy, please notify your broker if your shares are held
in a brokerage account or the Company if you hold registered shares. To notify
the Company, 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 access a copy of the annual
report on the Investor Relations section of the Company's website, www.lnt.com.
2
The information contained on the website is not incorporated by reference in or
otherwise considered to be part of this document.
CORPORATE GOVERNANCE
GENERAL.
The Company is committed to good corporate governance practices, which
are reviewed and evaluated by the Board of Directors and the Corporate
Governance and Nominating Committee. This includes comparing the Board's current
governance policies and practices with those suggested by authorities active in
corporate governance as well as reviewing the practices of other public
companies. Based upon this evaluation, the Board has adopted those policies and
practices that it believes are the most appropriate corporate governance
policies and practices for the Company.
BOARD INDEPENDENCE AND COMPOSITION.
The Board has affirmatively reviewed and determined the independence of
its directors. In making each independence determination, the Board reviewed all
relationships between each director and the Company and considered and broadly
assessed, from the standpoint of materiality and independence, all of the
information provided by each director in response to detailed inquiries
concerning such director's independence and any direct or indirect business,
family, employment, transactional or other relationship or affiliation of such
director with the Company.
In assessing whether a director is independent, the Board also adopted
as its own standards the specific categorical standards established by the New
York Stock Exchange ("NYSE") in Section 303A.02 of the Listed Company Manual for
determining director independence. Based on the Board's review and in accordance
with the Company's independence criteria, the Board has affirmatively determined
that each of Philip E. Beekman, Harold F. Compton, Evelyn V. Follit, Stanley P.
Goldstein, Morton E. Handel and Robert Kamerschen has no material relationship
with the Company affecting the independence of each director and each is
independent.
The Board also determined that each member of the Audit Committee,
Compensation Committee and Corporate Governance and Nominating Committee is
independent under these same independence standards and, with respect to each
member of the Audit Committee, is also independent under the independence
criteria established by the SEC applicable to audit committee members.
3
PRESIDING DIRECTOR; EXECUTIVE SESSION OF INDEPENDENT DIRECTORS.
The independent directors meet in executive session regularly during the
course of each year and have established procedures for determining which
independent director will serve as the "presiding director" for these executive
sessions. In accordance with this procedure, each independent director will
serve as the presiding director on a rotating basis at least annually.
INFORMATION REGARDING BOARD COMMITTEES.
AUDIT COMMITTEE. The Audit Committee is currently comprised of Mr.
Beekman (Chairman), Mr. Handel and Ms. Follit. Ms. Follit became a member of the
Audit Committee upon her appointment to the Board in April 2005. She replaced
Mr. Kamerschen, who has been appointed to the Corporate Governance and
Nominating Committee and who was a member of the Audit Committee throughout
fiscal 2004 and up to April 2005. The Audit Committee met 11 times during fiscal
2004. The Audit Committee assists the Board in fulfilling its oversight of:
o the Company's financial reporting process and the integrity of
the Company's financial statements and financial reporting;
o the Company's internal control environment, systems and
performance;
o the performance of the independent auditors and the internal
audit function.
The Audit Committee meets regularly with the Company's independent
auditors, both with and without management present, to discuss the results of
its audit and interim quarterly reviews, its evaluation of the Company's
internal control environment and the overall quality of the Company's financial
reporting. The Audit Committee also reviews and evaluates the qualifications,
independence and performance of the independent auditors. The Audit Committee
meets regularly with management, without the Company's independent auditors
present, to discuss management's evaluations of the performance of the
independent auditors. The Audit Committee also meets regularly with the internal
audit personnel to discuss the Company's internal audit process and the results
of ongoing or recently completed internal audits.
The Board has determined that all Audit Committee members are
financially literate within the meaning of the NYSE rules and that Mr. Beekman
is an "audit committee financial expert" within the meaning of the SEC
regulations. No member of the Audit Committee received any compensation from the
Company during fiscal 2004 other than compensation for services as a director.
The Board also determined, based on the information provided by Mr. Beekman, who
serves on the audit committee of more than three public companies, that such
service does not in its view impair Mr. Beekman's ability to effectively serve
on the Company's Audit Committee.
COMPENSATION COMMITTEE. The Compensation Committee is comprised of Mr.
Goldstein (Chairman) and Mr. Compton. The Compensation Committee met 4 times
during fiscal 2004. The principal responsibilities of the Compensation Committee
are the determination and approval of CEO compensation, recommendation of the
compensation for the senior officers of the Company, including salary and
incentive based plans, determination of awards under and
4
administration of the Company's equity plans, and ongoing review of the
compensation of the Company's senior officers.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE. Mr. Kamerschen
(Chairperson), Mr. Compton and Mr. Handel are the members of the Corporate
Governance and Nominating Committee. Mr. Kamerschen was appointed to the
Corporate Governance and Nominating Committee effective April 2005. The
Corporate Governance and Nominating Committee met once in fiscal 2004. The
principal responsibilities of the Corporate Governance and Nominating Committee
are to assess and provide recommendations to the Board concerning corporate
governance practices, to assess and make recommendations to the Board concerning
the operation and performance of the Board, and to identify potential director
candidates.
The Corporate Governance and Nominating Committee, together with the
Chairman of the Board and other Board members, from time to time as appropriate,
identify the need for new Board members. In identifying director candidates, the
Committee will seek input from the Chairman of the Board, other Board members
and other appropriate sources to ensure that different points of view can be
considered and acceptable candidates are identified. The Committee may also
engage a search firm. The Committee will determine which candidates are to be
recommended to the Board.
Ms. Follit was appointed as director by the Board in April 2005 and will
stand for election by shareholders with the class of 2007. Ms. Follit was
recommended to the Corporate Governance and Nominating Committee and the Board
by Mr. Kamerschen, one of the Company's non-management directors, who believes
that, based on Ms. Follit's business and industry experience, she will make a
valuable addition to the Company's Board.
Shareholders wishing to submit a director candidate for consideration by
the Committee should submit the candidate recommendation to Linens 'n Things,
Inc. Corporate Governance and Nominating Committee, c/o Senior Vice President,
Human Resources, Administration and Corporate Secretary, 6 Brighton Road,
Clifton, New Jersey 07015, in writing, not less than 120 days nor more than 150
days prior to the Annual Meeting date (determined based on the same date as the
preceding year's meeting). In order to ensure that a shareholder wishing to
propose a candidate for consideration by the Committee has a significant stake
in the Company, the shareholder submitting the candidate must have been the
beneficial owner of at least 1% of the Company's outstanding shares for a
minimum of one year prior to the submission of the request to the Committee. The
request must also be accompanied by the same information concerning the director
candidate and the recommending shareholder as described in section 10 of the
Company's bylaws. The Committee may request additional background or other
information. Nothing above shall limit a shareholder's right to propose a
nominee for director at an annual meeting in accordance with the procedures set
forth in the bylaws.
The Company's directors play a critical role in guiding the Company's
long-term business strategy and in overseeing the management of the Company. All
Board candidates are considered based on various criteria which may change over
time and as the composition of the Board changes. At a minimum the Committee
considers:
5
o the appropriate mix of educational and professional background
and business experience to make a significant contribution to
the overall composition of the Board;
o global business and social perspective;
o if applicable, whether the candidate is financially literate as
described in the NYSE rules or an audit committee financial
expert or independent;
o demonstrated personal and professional character and reputation
consistent with the Company's image and reputation;
o willingness to apply sound and independent business judgment and
demonstrated ability to work productively with the other members
of the Board; and
o availability for the substantial duties and responsibilities as
a director of the Company.
COMMITTEE CHARTERS
The Audit Committee, Compensation Committee and Corporate Governance and
Nominating Committee each operate pursuant to a separate written charter adopted
by the Board. Each Committee reviews its charter at least annually. All of the
Committee charters are available at the Investor Relations section of the
Company's website located at www.lnt.com. Each charter is also available in
print to any shareholder who requests it. The information contained on the
website is not incorporated by reference or otherwise considered a part of this
document.
CORPORATE GOVERNANCE GUIDELINES
The Company is committed to the highest standards of corporate
governance and ethical behavior. On the recommendation of the Corporate
Governance and Nominating Committee, the Board of Directors has adopted
Corporate Governance Guidelines to assist the Board in providing experience,
strategic guidance and oversight to the Company and its shareholders.
The Corporate Governance Guidelines establish corporate governance
policies and principles with respect to the role of the Board of Directors,
meetings of the Board of Directors, Board composition and selection, director
responsibilities, agenda for Board meetings, executive sessions, director
orientation and continuing education, related party transactions, legal
compliance policies, strategic planning, types and composition of Board
committees, Board and committee authority to engage independent advisors,
director access to management, director compensation, management evaluation,
management succession planning, and Board and committee evaluations. The
Guidelines are available in the Investor Relations section of the Company's
website located at www.lnt.com. The Guidelines are also available in print to
any shareholder who requests them. The information contained on the website is
not incorporated by reference or otherwise considered a part of this document.
6
SHAREHOLDER COMMUNICATION WITH DIRECTORS
The Board of Directors maintains a process for shareholders to
communicate with the Board of Directors or with the presiding director of the
Board of Directors. Shareholders wishing to communicate with the Board of
Directors or with the presiding director should send any communication to Board
of Directors or Presiding Director, as applicable, Linens 'n Things, Inc., c/o
Senior Vice President, Human Resources, Administration and Corporate Secretary,
6 Brighton Road, Clifton, New Jersey 07015. Any such communication should state
the number of shares owned by the shareholder.
The Senior Vice President, Human Resources, Administration and Corporate
Secretary will forward such communication to the Board of Directors or the
presiding director, as applicable, unless the communication is a personal or
similar grievance, a shareholder proposal or related communication, an abusive
or inappropriate communication, or a communication not related to the duties or
responsibilities of the Board of Directors or the non-management directors, in
which case the Senior Vice President, Human Resources, Administration and
Corporate Secretary has the authority to separately handle the communication.
All other such communications will be kept confidential to the extent possible.
The Senior Vice President, Human Resources, Administration and Corporate
Secretary will maintain a log of, and copies of, all communications with the
Board of Directors or the presiding director, for inspection and review, and
shall regularly review all such communications with the presiding director, the
Board of Directors or the Committee Chairperson, as appropriate.
DIRECTOR ATTENDANCE; MEETINGS OF THE BOARD OF DIRECTORS
The Company's policy regarding director attendance at annual meetings
and directors who attended last year's annual meeting, is available in the
Investor Relations section of the Company's website located at www.lnt.com. The
information contained on the website is not incorporated by reference or
otherwise considered a part of this document. The Board of Directors met 5 times
in 2004. 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.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid an annual
retainer of $25,000 which may be paid either in cash or Common Stock of the
Company at the director's discretion. Upon initial election or appointment to
the Board, each non-employee director receives 1,400 stock units and a stock
option for 6,000 shares of Common Stock subject to continued service. In
addition, each non-employee director receives 1,400 stock units and a stock
option for 4,000 shares of Common Stock on the date of each annual meeting. The
directors are also reimbursed for travel expenses associated with their
attendance of all board meetings.
The members of the Audit Committee also receive an annual fee of $6,000,
except that the Audit Committee Chairperson receives an annual fee of $12,000.
7
The members of the Corporate Governance and Nominating Committee receive an
annual fee of $2,000, except that the Corporate Governance and Nominating
Committee Chairperson receives an annual fee of $4,000. The members of the
Compensation Committee receive an annual fee of $3,000, except that the
Compensation Committee Chairperson receives an annual fee of $6,000.
8
ITEM 1
ELECTION OF DIRECTORS
GENERAL
The Board of Directors currently consists of seven 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
on the date of the 2008 annual meeting. 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 and broker
non-votes 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.
9
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
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NORMAN AXELROD
AGE: 52
DIRECTOR SINCE: 1996
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: CEO of the Company since 1988. Chairman of the
Board of Directors since 1997. Between 1976 and
1988 Mr. Axelrod held various management
positions at Bloomingdale's, ending with Senior
Vice President, General Merchandise Manager.
OTHER DIRECTORSHIPS: Reebok International Ltd., Jaclyn, Inc.
ANNUAL MEETING AT WHICH
TERM AS DIRECTOR EXPIRES: 2005
================================================================================
MORTON E. HANDEL
AGE: 70
DIRECTOR SINCE: 2000
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: Chairman of the Board of Marvel Enterprises,
Inc. since 1998. 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: Marvel Enterprises, Inc. Mr. Handel is also a
Regent of the University of Hartford.
ANNUAL MEETING AT WHICH
TERM AS DIRECTOR EXPIRES: 2005
================================================================================
10
DIRECTORS WHOSE TERMS DO NOT EXPIRE THIS YEAR
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PHILIP E. BEEKMAN
AGE: 73
DIRECTOR SINCE: 1997
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: President of Owl Hollow Enterprises, Inc., a
consulting and investment company. 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: The General Chemical Group Inc., Kendle
International Inc. and M & F Worldwide Corp.
ANNUAL MEETING AT WHICH
TERM AS DIRECTOR EXPIRES: 2006
================================================================================
HAROLD F. COMPTON
AGE: 57
DIRECTOR SINCE: 1998
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: Retired President and Chief Executive Officer of
CompUSA Inc. Mr. Compton joined CompUSA Inc. in
1994 as Executive Vice President-Operations,
becoming Executive Vice President and Chief
Operating Officer in 1995, President of CompUSA
Stores in 1996 and Chief Executive Officer of
CompUSA Inc. in 2000.
ANNUAL MEETING AT WHICH
TERM AS DIRECTOR EXPIRES: 2006
================================================================================
11
================================================================================
EVELYN V. FOLLIT
AGE: 58
DIRECTOR SINCE: 2005
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: Ms. Follit was employed by the Radioshack
Corporation as Senior Vice President and Chief
Information Officer from October 1997, and
assumed the additional role of Chief
Organizational Enabling Services Officer (Human
Resources) of Radioshack from March 2003 until
her retirement in February 2005. From October
1996 to March 1997, Ms. Follit was the Vice
President of Operations/ Engineering for
ACNielsen, and from October 1984 to September
1996, she held various positions at Dun and
Bradstreet.
OTHER DIRECTORSHIPS: Catalina Marketing Corporation
ANNUAL MEETING AT WHICH
NEW TERM AS DIRECTOR EXPIRES: 2007
================================================================================
STANLEY P. GOLDSTEIN
AGE: 70
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. Prior to May 1998 he
was Chairman of the Board and CEO of CVS
Corporation. Mr. Goldstein co-founded Consumer
Value Stores, a retail drug chain, in 1963.
OTHER DIRECTORSHIPS: CVS Corporation and Footstar, Inc.
ANNUAL MEETING AT WHICH
NEW TERM AS DIRECTOR EXPIRES: 2007
================================================================================
12
================================================================================
ROBERT KAMERSCHEN
AGE: 69
DIRECTOR SINCE: February 2003
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE: Private investor, consultant and retired
Chairman and Chief Executive Officer of ADVO,
Inc. Mr. Kamerschen was Chairman and Chief
Executive Officer of DIMAC Corporation, a direct
marketing services company, from September 1999
until February 2002. DIMAC Corporation filed a
voluntary petition for reorganization under the
U.S. bankruptcy laws in April 2000 and emerged
from bankruptcy in February 2001. In July 1999,
he retired as Chairman of ADVO, Inc., a position
he had held since 1988. Mr. Kamerschen was Chief
Executive Officer of ADVO, Inc. from 1988 until
December 1999. Previously, Mr. Kamerschen held
senior leadership positions in Marketing
Corporation of America, Norton Simon Inc.,
RKO/Six Flags Entertainment, Inc., Chanel S.A.,
Dunkin' Donuts Incorporated and Revlon, Inc.
OTHER DIRECTORSHIPS: IMS Health Incorporated, MDC Partners Inc., R.H.
Donnelley Corporation, RadioShack Corporation
and Vertrue Inc. Mr. Kamerschen is also a
Trustee of the Wadsworth Atheneum Art Museum.
ANNUAL MEETING AT WHICH
NEW TERM AS DIRECTOR EXPIRES: 2007
================================================================================
13
EXECUTIVE COMPENSATION
The following table sets forth information on compensation for the
Company's CEO and the four other most highly compensated executive officers of
the Company.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
---------------------------------
Annual Compensation Awards Payouts
------------------------------------ ----------------------- ---------
Restricted Number of
Other Stock Securities LTIP All Other
Name and Principal Fiscal Annual Award(s) Underlying Payouts Compensation
Position Year Salary ($) Bonus ($) Compensation ($)(1) Options ($)(1) ($)(2)
($)
----------------------------------------------------------------------------------------------------------------------------
Norman Axelrod, Chairman 2004 893,269 126,000 -- 55,131 200,000 -- 35,382
and Chief Executive 2003 813,462 389,400 -- -- 200,000 -- 22,844
Officer 2002 785,000 581,685 -- -- 250,000 -- 276,563
Jack E. Moore, President 2004 309,615 560,000(3) 151,371(4) 720,500 400,000 -- --
and Chief Operating
Officer(3)
William T. Giles, 2004 351,462 33,858 -- 640,902 50,000 -- 4,312
Executive Vice President 2003 315,896 94,548 -- 312,750 40,000 -- 4,041
and Chief Financial 2002 290,000 128,934 -- -- 45,000 -- 2,667
Officer
Brian D. Silva, Senior 2004 287,692 22,680 -- 12,599 25,000 -- --
Vice President, Human 2003 267,115 71,685 -- -- 25,000 -- 3,712
Resources, Administration 2002 260,000 115,596 -- -- 30,000 -- 1,800
and Corporate Secretary
F. David Coder, Senior 2004 320,308 25,272 -- 8,431 50,000 -- 4,303
Vice President, Store 2003 278,654 100,000 -- -- 50,000 -- 4,028
Operations 2002 245,385 98,800 -- -- 40,000 -- 1,929
Audrey Schlaepfer, 2004 406,508 0 -- -- 0 -- 595,024(5)
Former Executive Vice 2003 400,000 94,400 -- 15,004 30,000 -- --
President, Chief 2002 400,000 100,000 69,525(6) -- 0 -- 50,000
Merchandising Officer(5)
(1) Mr. Moore was awarded 25,000 restricted stock units in connection with his
hiring, which vest in five equal annual increments beginning June 14, 2005. Mr.
Giles was awarded 25,000 restricted stock units in consideration of his
responsibilities and individual performance, which vest in one-quarter annual
increments beginning November 19, 2006. The restricted stock unit awards made in
2005 under the Company's annual incentive program for fiscal 2004 performance
for each of the named executives were: Mr. Axelrod, 2,341 units; Mr. Giles, 654
units; Mr. Silva, 535 units; and Mr. Coder, 358 units. The number and value of
all restricted stock unit holdings at January 1, 2005 were: Mr. Moore, 25,000
units, $622,750; Mr. Giles, 36,250 units, $902,988. Holders of restricted stock
units are entitled to be credited with any
14
dividends on such units. Ms. Schlaepfer's restricted stock units were unvested
at her departure date and have been forfeited. Awards under the Company's long
term incentive plan ("LTIP") had previously been made based on the executive
officers having achieved certain preestablished financial performance targets.
The LTIP was discontinued in fiscal 2004. For the 3-year cycles ending in fiscal
years 2002, 2003 and 2004 the financial targets were based on earnings and net
return on assets over the prior 3 years, but no awards were achieved.
(2) For fiscal year 2004 these values represent amounts contributed under the
Company's 401(k) profit sharing plan. In addition, for Mr. Axelrod, the fiscal
2004 amount represents: (i) $17,662 credited to his account maintained under the
defined contribution component of the supplemental executive retirement program
and (ii) imputed income of $13,124 associated with the term portion of the split
dollar insurance component of the supplemental executive retirement program. See
"Supplemental Executive Retirement Plan" below.
(3) Assumed an executive officer position in fiscal 2004. In connection with his
hiring Mr. Moore received (i) a $100,000 bonus which may be forfeited upon a
voluntary termination of his employment with the Company prior to June 7, 2006 ,
(ii) a guaranteed bonus of $460,000 for fiscal 2004, (iii) a grant of 100,000
options to purchase Common Stock exercisable in five equal annual increments,
(iv) a grant of 200,000 options to purchase Common Stock which vest in three
equal installments based on the Common Stock achieving certain pre-established
price targets but in any event no later than May 14, 2011 and (v) a grant of
25,000 restricted stock units.
(4) For fiscal 2004 represents reimbursement of Mr. Moore's relocation costs
including moving costs, temporary housing and purchase related costs of
$120,677, tax gross-up related to these costs of $27,299 and COBRA payments of
$3,395.
(5) Ms. Schlaepfer ceased employment in November 2004. Represents payments
pursuant to Ms. Schlaepfer's severance agreement, including twelve months base
salary of $414,000, twelve months target bonus of $165,600, certain
insurance-related costs of which $15,424 had been incurred as of March 1, 2005,
and continuation of medical, health and life insurance benefits for up to two
years.
(6) For fiscal 2002 the value represents relocation costs including moving
costs, temporary housing and purchase related costs of $34,787 and related tax
reimbursement of $34,738.
15
OPTION GRANTS IN LAST FISCAL YEAR. The table below sets forth certain
information concerning stock options granted during fiscal 2004 to the named
executive officers.
The grant date present values shown in the following table are required
by SEC regulations, and are not intended to forecast possible future
appreciation. The Company is not aware of any formula which will predict with
reasonable accuracy the future appreciation of equity securities. No benefit
from the grant of stock options can be realized unless there is an appreciation
in stock price, which benefits all shareholders.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE OR GRANT DATE
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) FISCAL YEAR (%) ($/SHARE) DATE ($)(3)
------------------------------------------------------------------------------------------------------------
Norman Axelrod 200,000(1) 13.13% 25.02 12/31/11 2,136,660
Jack E. Moore 100,000(1) 6.57% 25.02 12/31/11 1,068,330
100,000(2) 6.57% 27.01 06/14/11 1,006,790
200,000(2) 13.13% 27.01 06/14/11 2,013,580
William T. Giles 50,000(1) 3.28% 25.02 12/31/11 534,165
Brian D. Silva 25,000(1) 1.64% 25.02 12/31/11 267,083
F. David Coder 50,000(1) 3.28% 25.02 12/31/11 534,165
Audrey Schlaepfer 0 0 0 0 0
(1) The options vest and are exercisable on and after December 31, 2004,
provided that shares of Common Stock acquired on exercise of the option may not
be sold or otherwise disposed of except in one-third increments if, and at such
point, over ten days (which need not be consecutive) in a thirty day period the
fair market value of the Common Stock is at or above $30.02, $33.03, and $36.33,
respectively. 100% of these option shares may be sold or otherwise disposed of
beginning November 30, 2011, subject to continued employment. The options expire
on December 31, 2011 unless earlier terminated.
(2) These option grants were made in connection with the hiring of Mr. Moore as
President and Chief Operating Officer. The 100,000 option grant becomes
exercisable in five equal annual increments beginning June 14, 2005. The 200,000
option grant becomes exercisable in one-third increments if, and at such point,
over ten days (which need not be consecutive) in a thirty day period the fair
market value of the Common Stock is at or above $31.06, $35.11, and $37.00,
respectively, but in any event no later than May 14, 2011.
16
(3) The hypothetical present values on the grant date are calculated under the
modified Black-Scholes Model, which is a mathematical formula used to value
options traded on stock exchanges. This formula considers a number of factors
used in hypothesizing an option's present value. Factors used to value options
granted include the stock's expected volatility rate of 43.5%, risk free rate of
return of 3.6%, dividend yield of 0.0%, projected time of exercise of 5.0 years
and projected risk of forfeiture and non-marketability for the vesting period of
2.21% per annum.
OPTION EXERCISES AND YEAR-END OPTION HOLDINGS. The following table shows
information regarding option exercises during fiscal 2004 as well as fiscal 2004
year-end option holdings for each of the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---------------------------------------------------------------------------------------------------------------
Norman Axelrod 0 0 1,790,984/75,000 2,634,260/457,125
Jack E. Moore 0 0 100,000/300,000 0/0
William T. Giles 0 0 320,002/24,998 900,362/152,363
Brian D. Silva 18,750 271,125 169,585/16,665 265,783/101,573
F. David Coder 17,500 155,084 158,750/23,750 84,806/50,156
Audrey Schlaepfer 0 0 30,000/0 0/0
EMPLOYMENT AGREEMENTS AND OTHER EXECUTIVE AGREEMENTS
EMPLOYMENT AGREEMENTS. The Company has employment agreements with each
of the executive officers named in the Summary Compensation Table (the
"Employment Agreements"). The following summarizes the principal terms of these
Employment Agreements.
The Employment Agreements provide for payment of an annual base salary
that will be reviewed at the discretion of the Compensation Committee but limit
any reduction in base salary during the term. The current annual base salaries
are $915,000 for Mr. Axelrod, $590,000 for Mr. Moore, $354,000 for Mr. Giles,
$350,000 for Mr. Coder and $290,000 for Mr. Silva. The Employment Agreements
include provisions concerning annual incentive compensation with minimum target
annual incentive awards of not less than eighty percent of
17
base salary for Messrs. Axelrod and Moore, not less than fifty-five percent for
Mr. Giles, not less than fifty percent for Mr. Coder and not less than
forty-five percent for Mr. Silva.
The Employment Agreements generally provide for (i) participation during
the employment term in benefit plans and programs including retirement benefits,
life insurance, medical benefits and, in the case of Mr. Axelrod, a supplemental
executive retirement benefit, and (ii) restrictive covenants including
noncompetition, nondisclosure and nonsolicitation of employees. Upon a
termination for cause, the executives have agreed not to compete with the
Company for a period of two years. In the case of voluntary termination by the
executive from their executive officer position (as well as in the case of Mr.
Axelrod, retirement from his Chairman and CEO positions), the Company may elect
to pay, over a one year period, the executive's base salary and target annual
incentive compensation in exchange for the executive's agreement not to compete
with the Company for a period of one year.
In the event an executive's employment is terminated by the Company
other than for cause, the Employment Agreements provide for (i) continued
payment of salary and target annual incentive compensation for 24 months in the
case of Messrs. Axelrod and Moore and 18 months in the case of Messrs. Giles,
Silva and Coder, (ii) pro rata annual incentive award at the executive's target
rate payable in a lump sum, (iii) continuation at Company cost of medical,
health and life insurance benefits for 24 months (and thereafter in the case of
Mr. Axelrod, at his own cost to age 65), (iv) in the case of Mr. Axelrod,
vesting of outstanding options, restricted or deferred stock awards and
long-term incentive awards (and pro rata payment of such long-term incentive
awards based on actual and target performance) and the right in certain cases to
exercise vested options for the remainder of the term of the options, (v) in the
case of Mr. Axelrod, 24 months of additional age and service credit under the
supplemental executive retirement plan, and a lump sum actuarial amount to
account for the benefit he would have received under a split dollar insurance
arrangement (or its equivalent replacement arrangement) had the Company
continued to make the required premium payments for an additional 24 months.
In the event an executive's employment is terminated by the Company
within two years following a change in control and other than for cause, or in
the case of Mr. Axelrod if he elects to terminate within a sixty day period
beginning six months after a change in control, the Employment Agreements
generally provide for (i) lump sum severance benefits equal to 2 times (2.5
times for Mr. Moore and 2.99 for Mr. Axelrod) the annual base salary and target
annual incentive compensation, (ii) pro rata annual incentive award at the
executive's target annual incentive compensation payable in a lump sum, (iii)
continuation of medical, health and life insurance, at Company cost, until age
60 for Mr. Axelrod (and, at Mr. Axelrod's cost, from age 60 to age 65) and 24
months for the other executives, (iv) vesting of outstanding options, restricted
stock or stock unit awards, deferred stock awards and long-term incentive awards
(and pro rata payment of such long-term incentive awards based on actual and
target performance), and the right in certain cases to exercise outstanding
options for the remainder of their term, (v) in the case of Mr. Axelrod, 36
months of additional age and service credit for purposes of determining the
amount payable under the supplemental executive retirement plan, and a lump sum
actuarial amount to account for the benefit he would have received under his
split dollar insurance arrangement (or its equivalent replacement arrangement)
had the Company continued to make required insurance premium payments for an
additional 36 months.
18
Under his employment agreement, Mr. Axelrod has the option to relinquish
his executive officer positions and to remain with the Company in a non-officer
consulting capacity, including assisting in the transition to a successor CEO.
If he elects to go into such non-officer position, he is required to continue in
such position for a minimum of one year and for a maximum of up to age 60. In
such position, the Company would not have the right to terminate Mr. Axelrod or
fail to renew the Employment Agreement prior to his reaching age 60 other than
for cause. His compensation in such capacity would be reasonably established by
the Board consistent with his services to be provided to the Company but in no
event less than the amount being paid to the Company's non-employee directors.
While in such capacity he would be precluded from competing with the Company but
would be permitted to work full-time elsewhere. In the case of a voluntary
termination from this non-officer capacity while continuing to receive his
non-officer compensation, he would also be precluded from competing with the
Company through the one-year anniversary of the date he initially assumed such
position. In such non-officer capacity, Mr. Axelrod would be entitled to
continue to participate in the Company's welfare benefit plans and programs (so
long as he was not working full time elsewhere during this period), receive pro
rata payment of any annual and long-term incentive awards that were outstanding
at the time he assumed such non-officer position, and continue to accrue service
vesting in all awards, stock options and deferred or restricted stock or units.
Upon his retirement at or after age 55, Mr. Axelrod would be entitled
to, among other things, (i) continued service vesting of outstanding options,
restricted or deferred stock awards, and any then outstanding long-term
incentive awards (and pro rata payment of any such outstanding long-term
incentive awards based on valuation at the end of the applicable performance
period(s)) and the right in certain cases to exercise vested options for the
remainder of the term of the options and (ii) continuation of medical, health
and life insurance at Company cost until age 60 and at Mr. Axelrod's cost from
age 60 to age 65. Upon Mr. Axelrod's retirement or while in the above
non-officer position and ending at age 65, he will also be entitled to use of an
executive office at the Company and the services of a full time secretary.
The Employment Agreements obligate the Company to indemnify the
executives to the fullest extent permitted by law, including the advancement of
expenses, and reimbursement of expenses incurred in seeking enforcement of an
Employment Agreement unless in bad faith or frivolous.
Each executive officer receives certain perquisites which include
financial counseling benefits, as well as the benefits in which employees
generally are eligible to participate.
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.
Mr. Axelrod's Employment Agreement is for a term ending on July 31,
2007. The term of the other Employment Agreements end on December 31, 2008,
except for Mr. Coder whose Employment Agreement has a term ending of June 12,
2007. The Employment
19
Agreements contain automatic one-year extensions at the end of the term 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.
OTHER AGREEMENTS. The Company had an employment agreement with Ms.
Schlaepfer whose employment as an executive officer of the Company ended in
November 2004. The agreement entitled Ms. Schlaepfer to, among other things,
continuation of base salary and target bonus for twelve months, payment of
compensation earned through her date of departure including incentive awards and
pro rata target annual bonus. Ms. Schlaepfer is entitled to continuation of
medical, health and life insurance benefits for up to two years. Ms. Schlaepfer
forfeited all unvested stock options and all unvested restricted stock units.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company does not have a
defined benefit retirement program for its executives or employees. As a result,
in 1999 the Company established a supplemental executive retirement arrangement
for Mr. Axelrod which is intended to provide annual retirement benefits to Mr.
Axelrod following retirement from active service. This supplemental retirement
arrangement currently has three components: a defined benefit component; a split
dollar insurance arrangement, which is currently frozen; and a newly established
defined contribution component.
Under the defined benefit component, Mr. Axelrod will be entitled to a
net annual benefit determined as follows: 1.6% of final average compensation
times years of service, reduced by an "offset amount" which was determined based
on amounts projected to be provided (using a hypothetical 8% investment return
assumption) under the separate frozen split dollar arrangement and under the
defined contribution component. The annual benefit amount payable under the
defined benefit component may not exceed 50% of final average compensation.
Final average compensation means the average of the executive's base salary and
cash incentive compensation for the three years (which need not be consecutive)
with the Company that yield the highest average compensation. Mr. Axelrod has 16
years of credited service. The "offset amount," which reduces the gross benefit
amount determined under the benefit formula, will not be recalculated based on
actual investment performance versus assumed investment results. There is no
offset for social security benefits. Upon the occurrence of a change in control,
as defined in the plan, the executive would have a right to immediately receive
the benefit amount, even if still employed with the Company.
The Company also has had a split dollar insurance arrangement with Mr.
Axelrod under which the Company paid annual premiums under the policy. Due to
the limitations imposed by the Sarbanes-Oxley Act, the Company was required to
cease paying additional premiums into this policy beginning with the premium
payment due in 2003 and as a result the split dollar policy is frozen. The
arrangement was designed so that the Company would receive back from the policy
value upon the participant's death the sum of all premium payments made by the
Company, plus an interest factor of 3.4% annually. The executive's interest is
equal to the excess value.
Because of the restrictions on further premium payments under the split
dollar policy imposed by the Sarbanes-Oxley Act, the Company established in 2004
a defined
20
contribution supplemental plan for Mr. Axelrod under which he will have a vested
interest in his account balance, which will be credited with amounts equal to
the investment results on payments made by the Company on one or more life
insurance policies owned by and funded by the Company. The defined contribution
component was designed with the purpose of providing, together with the existing
defined benefit SERP and the frozen split dollar policy, total projected
benefits to the participant similar to what would have been provided under the
defined benefit SERP and split dollar policy if premium payments could have been
continued under the split dollar policy.
Set forth below are the currently expected benefits to be provided under
this program. The benefit amounts indicated in the Defined Contribution SERP
column and the Split Dollar Annual Benefit column have each been calculated and
are projected based on hypothetical investment return assumptions. These values
are not guaranteed and any investment results less than the assumed investment
return would reduce the benefit amounts set forth below under the Defined
Contribution SERP column and/or the number of years of payment under the Split
Dollar Annual Benefit column, and investment results greater than the assumed
investment return would increase the benefit amounts under the Defined
Contribution SERP column and/or the number of years for which the payment will
be made under the Split Dollar Annual Benefit column.
------------------ ----------------- ------------------- --------------------------------------------------
Defined Defined Split Number of Years Annual Split
Age at Benefit Contribution Dollar Annual Dollar Benefit Projected To Be
Retirement SERP Lump Sum (1) SERP Lump Sum (2) Benefit (3) Paid
------------------ ----------------- ------------------- --------------------------------------------------
55 $2,838,554 $2,759,262 $530,000 4
56 1,115,530 4,322,156 530,000 6
57 0 6,054,302 530,000 8
58 0 8,152,893 530,000 9
59 0 10,549,204 530,000 10
60 0 13,270,882 530,000 11
------------------ ----------------- ------------------- --------------------------------------------------
(1) Payable as a lump sum beginning at retirement, but no earlier than age
55.
(2) Represents amounts projected to be available under the defined
contribution SERP; payable as a lump sum beginning on July 1st following
retirement.
(3) To be paid as an annual payment beginning on the first of the month
following retirement; this benefit is projected to be paid for the
number of years indicated.
21
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee operates pursuant to a charter which gives
the Compensation Committee responsibility with respect to the compensation and
benefits of the Company's executive officers and other members of senior
management. The Compensation Committee's specific responsibilities include:
o reviewing the Company's general compensation and benefits
policies, plans and programs, including incentive compensation
programs and equity-based plans;
o reviewing and approving the Company's goals and objectives
relevant to the CEO's compensation and the compensation of the
other senior management;
o based on an evaluation of the CEO's performance, both in
relation to those goals and objectives and in leading the
Company, determining the CEO's compensation level; and
o upon the recommendation of the CEO, reviewing the base salary,
incentive compensation and equity-based compensation of the
other members of senior management;
The overall objective of the Company's executive compensation program is
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.
The Company's executive compensation program for fiscal 2004 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 CEO and each of the other members
of senior management. 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, the companies in the index are not
necessarily the most representative group for purposes of determining
competitive compensation pay practices for the senior executives.
The Company's executive compensation program currently consists of three
main components, base salary, an annual incentive award and stock based
compensation. Total compensation is targeted at approximately 65%-70% of the
survey group. However, actual total remuneration may range below or above target
in any one year and over a period of years, based on performance evaluations and
performance against the Company's annual and long-term goals as well as
appreciation in the Company's stock price. The Compensation Committee regularly
reviews the competitiveness of the Company's executive compensation practices.
22
ANNUAL BASE SALARY. Annual base salaries for the CEO and the other named
executive officers were initially established to be targeted at approximately
the median of the range of salaries considered in the survey group, with the
increases made for fiscal 2004 based on these targets and the Compensation
Committee's view of appropriate competitive base salary levels for such
executives. The Compensation Committee reviewed the individual executive's
performance and established appropriate increases in base salary compensation.
INCENTIVE AWARDS. Under the Company's annual incentive program, each
executive officer has an annual incentive award target based on the achievement
of quantitative corporate performance goals. For 2004, the performance goals
related to net earnings adjusted for non-recurring items. Annual incentive
awards are paid in a cash portion and a restricted stock units portion, each of
which has a target award rate. The portion of the annual incentive award which
is paid in restricted stock units replaces the Company's LTIP, which was
discontinued in fiscal 2004. For fiscal 2004, target rates for the named
executive officers for the cash award portion and the restricted stock unit
award portion, respectively, were eighty percent and thirty-five percent of base
salary for the CEO; fifty-five percent and twenty-five percent for the EVP/CFO;
forty-five percent and fifteen percent for the SVP of Store Operations; and
forty-five percent and twenty-five percent for the SVP Human Resources. Each
executive officer has a range of potential awards, both above and below target.
In January 2005, the Company's Compensation Committee reviewed the Company's
2004 performance against the performance criteria established by the
Compensation Committee and approved annual incentive awards based on performance
of 18% of target financial performance (see Summary Compensation Table above).
The fiscal 2004 bonus for the President/COO, who was hired in 2004, was an
agreed amount as set forth in his employment agreement. The Compensation
Committee also approved the performance criteria for annual incentive awards for
the 2005 fiscal year.
STOCK BASED COMPENSATION. The Compensation Committee administers stock
based compensation through the Company's 2004 Stock Award and Incentive Plan.
Stock options are granted at fair market value. Stock options granted during
fiscal 2004 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 2004 for the CEO 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 survey group of retail companies, past
levels of annual option grants to Company executives, the executive's position,
responsibilities, salary and performance, projected stock option grant values
and targeted total remuneration. The options granted in fiscal 2004 vested on
December 31, 2004, but the shares underlying the options may not be sold or
disposed of except upon the Common Stock achieving certain price targets, and in
all events in November 2011 subject to continued employment. In addition to the
performance based options, the President/COO was also granted an option for
100,000 shares which become exercisable in five annual installments and an
option for 200,000 shares which become exercisable based on the Common Stock
achieving certain price targets, but in all events in May 2011. During fiscal
2004, the Compensation Committee also awarded 25,000 restricted stock units to
the President/COO in
23
connection with this 2004 hiring and 25,000 restricted stock units to the
EVP/CFO in consideration of his responsibilities and individual performance.
CEO COMPENSATION. Mr. Axelrod's base salary increase for 2004 was
established by the Compensation Committee following and based on a performance
review for 2004 conducted by the Compensation Committee. His annual incentive
compensation award as set forth in the Summary Compensation Table was based on
the Compensation Committee's review of the net earnings performance of the
Company against target goals. Mr. Axelrod's stock option grant was based on the
Compensation Committee's consideration of the factors discussed above. The
Compensation Committee determined that each element and the aggregate of Mr.
Axelrod's compensation for 2004 were fair and reasonable and within the range of
compensation for chief executive officers of companies comparable to the
Company.
HIRING OF PRESIDENT AND CHIEF OPERATING OFFICER. In July 2004, Mr. Moore
was appointed to the position of President and Chief Operating Officer. External
compensation information was reviewed. Mr. Axelrod recommended to the
Compensation Committee a proposed base salary along with proposed incentive
compensation levels and equity incentives. This recommendation was based on a
number of factors including an evaluation of the appropriate compensation level
for Mr. Moore's position and anticipated duties and responsibilities, an
evaluation of an appropriate level of incentive to secure his services, and his
existing compensation level and entitlements as well as compensation which would
be lost upon his leaving his former employer. The Compensation Committee
considered the recommendation of Mr. Axelrod and recommended to the Board the
base salary, incentive and equity compensation as proposed. See note (3) to the
Summary Compensation Table and "Employment Agreements and Other Executive
Agreements" above.
TERMINATION OF EMPLOYMENT. In November 2004, the Company announced the
departure of Audrey Schlaepfer as Executive Vice President and Chief
Merchandising Officer. Pursuant to her employment agreement and as provided in
the Summary Compensation Table, Ms. Schlaepfer was entitled to, among other
things, continuation of base salary and target bonus for twelve months, payment
of compensation earned through her date of departure including incentive awards
and pro rata target annual bonus, and continuation of medical, health and life
insurance benefits for up to two years.
AMENDED EMPLOYMENT AGREEMENTS. The Compensation Committee was apprised
of the upcoming expiration of the existing employment agreements with the CEO,
the EVP/CFO, and the Senior Vice President, Human Resources, Administration and
Corporate Secretary. The Compensation Committee enlisted the support of an
independent compensation consultant to review the existing employment agreements
and to make recommendations regarding the terms and conditions of amended
employment agreements. The Compensation Committee reviewed the recommendations
of the independent compensation consultant, considered and discussed the details
of these recommendations, and discussed the proposed amended agreements with the
compensation consultant and outside counsel. A summary of the amended employment
agreements is set forth under "Employment Agreements and Other Executive
Agreements" above.
24
SERP. Since 1999 the Company has had in effect a supplemental executive
retirement program including a defined benefit supplemental executive retirement
plan ("DB-SERP") and a split dollar insurance arrangement. Currently the
Company's CEO is the sole participant, although one or more future participants
could be added to the supplemental retirement program by future action of the
Compensation Committee of the Board. The split dollar insurance program was
intended to provide benefits together with benefits to be provided under the
DB-SERP. However, as a result of limitations under the Sarbanes-Oxley Act the
Company was required to cease paying additional premiums under this split dollar
policy beginning with the premium payment due in 2003, and the split dollar
insurance policy has since been frozen.
The Compensation Committee reviewed the existing DB-SERP and split
dollar insurance arrangements, along with a number of alternative structures
providing for payouts intended to be similar to those that had been projected to
be provided under the original DB-SERP and split dollar insurance arrangement.
Following this review, and in conjunction with management's review and analysis,
the Compensation Committee and the Board of Directors approved the addition of a
defined contribution supplemental executive retirement plan ("DC-SERP") to the
existing supplemental retirement program, which together with the existing
frozen split dollar insurance program and the existing DB-SERP, was intended to
provide a similar total projected payout as the DB-SERP and the split dollar
insurance program would have provided if premium payments could have been
continued under the split dollar insurance program. The benefits payable under
the program, to the extent they are to be paid from the DC-SERP and DB-SERP,
include a lump sum distribution feature.
COMPLIANCE WITH IRS 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 2005 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 2005 compensation arrangements. To
maintain the Company's flexibility in compensating executive officers in a
manner consistent with corporate goals, the Committee has not adopted a policy
that all compensation must be deductible. The Company and the Compensation
Committee will continue to monitor this matter.
COMPENSATION COMMITTEE
Stanley P. Goldstein, Chairman
Harold F. Compton
25
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
December 31, 1999 through January 1, 2005, 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 SEC
rules, the returns are indexed to a value of $100 at December 31, 1999 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.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG LINENS 'N THINGS, INC., THE S & P 500 INDEX,
THE S & P SPECIALTY STORES INDEX AND A PEER GROUP
[PERFORMANCE GRAPH]
12/31/99 12/31/00 12/29/01 1/4/03 1/03/04 1/01/05
Linens 'n Things $100.00 $93.25 $86.21 $75.81 $94.99 $83.71
S&P 500 100.00 90.89 80.09 60.76 81.76 89.02
S&P Specialty Stores 100.00 83.43 134.67 112.86 153.88 169.57
Peer Group 100.00 95.42 167.15 181.94 229.50 245.39
26
REPORT OF THE AUDIT COMMITTEE
Management is responsible for the preparation, presentation and
integrity of the Company's financial statements, accounting and financial
reporting principles, internal controls, and procedures designed to ensure
compliance with accounting standards and applicable laws and regulations. The
Company's independent registered public accounting firm, KPMG LLP, performs an
annual independent audit of the financial statements and expresses an opinion on
the conformity of those financial statements with generally accepted accounting
principles in the United States of America.
The following is the report of the Audit Committee with respect to the
audited financial statements for fiscal 2004. With respect to fiscal 2004, the
Audit Committee:
o reviewed and discussed the Company's audited financial
statements with management and KPMG LLP;
o discussed with KPMG LLP the scope of its services, including its
audit plan;
o reviewed the Company's procedures and internal control processes
designed to ensure accurate and fair financial reporting,
including those relating to certifications by the Company's
Chief Executive Officer and Chief Financial Officer that are
required in periodic reports filed by the Company with the SEC;
o discussed with KPMG LLP the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended,
Communication with Audit Committees;
o reviewed the written disclosures and confirmation from KPMG LLP
required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and discussed
with KPMG LLP their independence from management and the
Company; and
o approved the audit and non-audit services provided during fiscal
2004 by KPMG LLP.
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 2004. The Audit
Committee also evaluated and reappointed KPMG LLP as the Company's independent
registered public accounting firm for fiscal 2005.
Audit Committee
Philip E. Beekman, Chairman
Morton E. Handel
Robert Kamerschen
March 22, 2005
27
INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors appointed KPMG LLP as the
Company's independent registered public accounting firm to examine the Company's
consolidated financial statements for fiscal 2004 and to render other
professional services as required. KPMG LLP has been appointed as the Company's
independent registered public accounting firm for fiscal 2005. The Company
expects that a representative of KPMG LLP will attend the annual meeting, and
the representative will have an opportunity to make a statement if he or she
desires. The representative will also be available to respond to appropriate
questions from shareholders.
Aggregate fees paid and payable to KPMG LLP for audit services related
to the most recent two fiscal years, and for other professional services billed
in the most recent two fiscal years, were as follows:
TYPE OF SERVICE 2004 2003
--------------- ---- ----
Audit Fees (1) $2,116,000 $323,000
Audit-Related Fees (2) $ -- $ 31,000
All Other Fees (3) $ 1,000 $ 3,800
Total $2,117,000 $357,800
---------------
(1) Audit fees consisted of the audit of the Company's annual
financial statements and reviews of the Company's quarterly financial
statements, as well as consents to SEC filings. In addition, for 2004, Audit
Fees include the fees associated with the assessment of the Company's internal
control over financial reporting as integrated with the audit of the Company's
annual financial statements.
(2) Audit-related fees consisted principally of fees for audit of
the financial statements of employee benefit plans.
(3) All Other Fees consisted of miscellaneous tariff database
services.
The Audit Committee has adopted a formal policy concerning the
pre-approval of audit and non-audit services to be provided by the independent
registered public accounting firm to the Company. The policy requires that all
services to be performed by KPMG LLP, the Company's independent registered
public accounting firm, including audit services, audit-related services and
permitted non-audit services, be pre-approved by the Audit Committee. The policy
permits the Audit Committee to delegate pre-approval authority to one or more
members, provided that any pre-approval decisions are reported to the Audit
Committee at its next meeting. Specific services being provided by the
independent registered public accounting firm are regularly reviewed in
accordance with the pre-approval policy. At subsequent Audit Committee
28
meetings, the Audit Committee receives updates on services being provided by the
independent registered public accounting firm, and management may present
additional services for approval. For 2004, all audit and non-audit services
provided by KPMG LLP were approved in advance by the Audit Committee.
29
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 18, 2005.
Beneficial Owner Number of Shares Percent of Class
---------------- ---------------- ----------------
PRIMECAP Management Company (1)........... 5,036,773 11.13%
Mellon Financial Corporation (2).......... 3,168,734 7.00%
Merrill Lynch & Co., Inc. (on behalf
of Merrill Lynch Investment Managers)(3).. 2,449,132 5.41%
Vanguard Horizon Funds - Vanguard
Capital Opportunity Fund (4).............. 2,300,000 5.08%
------------------------------
(1) Pursuant to an amended Schedule 13G filed on March 10, 2005, PRIMECAP
Management Company has sole voting power with respect to 2,247,773 shares, and
sole dispositive power with respect to 5,036,773 shares. The address for
PRIMECAP Management Company is 225 South Lake Avenue # 400, Pasadena, California
91101.
(2) Pursuant to an amended Schedule 13G filed on February 11, 2005, Mellon
Financial Corporation has sole voting power with respect to 2,895,659 shares and
sole dispositive power with respect to 3,150,234 shares. The address for Mellon
Financial Corporation is One Mellon Center, Pittsburgh, Pennsylvania 15258.
(3) Pursuant to a Schedule 13G filed on January 19, 2005, Merrill Lynch & Co.,
Inc. (on behalf of Merrill Lynch Investment Managers) has shared voting and
shared dispositive power with respect to 2,449,132 shares. The address for
Merrill Lynch & Co., Inc. is World Financial Center, North Tower, 250 Vesey
Street, New York, NY 10381.
(4) Pursuant to an amended Schedule 13G filed on February 11, 2005, Vanguard
Horizon Funds - Vanguard Capital Opportunity Fund ("Vanguard") has sole voting
power with respect to 2,300,000 shares. The address for Vanguard is 100 Vanguard
Blvd., Malvern, Pennsylvania 19355.
30
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 18, 2005, by each director of the
Company, each executive officer named 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 is deemed beneficially to own 4.35% and all directors and executive officers
which as a group is deemed beneficially to own 6.33% of the outstanding Common
Stock.
No. of Shares of No. of Shares of
Name of Beneficial Owner Common Stock(1) Name of Beneficial Owner Common Stock(1)
----------------------------------------------------------------------------------------------------------
N. Axelrod...................... 1,970,033(2) J. Moore.......................... 125,000
P. Beekman...................... 40,250 W. Giles.......................... 374,282(3)
H. Compton...................... 25,046 A. Schlaepfer(4).................. --
E. Follit*...................... -- B. Silva.......................... 180,780
S. Goldstein.................... 47,371 D. Coder.......................... 158,750
M. Handel....................... 17,304
R. Kamerschen................... 11,434
All executive officers and
directors as a group.............. 2,950,250
* Appointed to the Board in April 2005
(1) Includes restricted stock units as well as shares subject to stock options
that were exercisable as of February 18, 2005 or that will become exercisable
within 60 days thereafter, as follows: Mr. Axelrod, 1,790,984; Mr. Beekman,
27,901; Mr. Compton, 18,501; Mr. Goldstein, 27,901; Mr. Handel, 12,501; Mr.
Kamerschen, 5,834; Mr. Giles, 356,252; Mr. Moore, 125,000; Mr. Silva, 169,585;
Mr. Coder, 158,750; and all directors and executive officers as a group,
2,693,209.
(2) Includes 400 shares held by Mr. Axelrod's minor children, as to which shares
Mr. Axelrod disclaims beneficial ownership.
(3) Includes 7,437 shares held by Mr. Giles' wife, as to which shares Mr. Giles
disclaims beneficial ownership.
(4) No longer an executive officer.
31
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 SEC, and to furnish the Company
with copies of all filings. Based on a review of these filings, the Company
believes all filings were timely made.
32
SHAREHOLDER PROPOSALS FOR THE 2006 ANNUAL MEETING
Any proposal of a shareholder intended to be presented at the Company's
2006 Annual Meeting of Shareholders must be received by the Secretary of the
Company not later than December 9, 2005 to be included in the Company's Proxy
Statement, Notice of Meeting and proxy relating to the 2006 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 Corporate 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
AS FILED WITH THE SEC FOR THE 2004 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.
33
DETACH HERE ZLNT52
PROXY
LINENS 'N THINGS, INC.
MAY 5, 2005
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 5, 2005 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" PROPOSAL 1 AND IN THE DISCRETION OF THE PROXY COMMITTEE ON ANY OTHER MATTER THAT
MAY PROPERLY COME BEFORE THE MEETING, UNLESS OTHERWISE SPECIFIED. THE PROXY COMMITTEE HAS THE AUTHORITY TO VOTE "FOR" AN ADJOURNMENT
OF THE MEETING, AS DESCRIBED IN THE PROXY STATEMENT. PLEASE VOTE PROMPTLY.
------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
------------- -------------
LINENS 'N THINGS, INC.
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL. ZLNTC1
PLEASE MARK
[X] VOTE AS IN #LNT
THIS EXAMPLE.
1. ELECTION OF TWO DIRECTORS FOR A THREE-YEAR TERM.
(01) NORMAN AXELROD
(02) MORTON E. HANDEL
FOR WITHHELD
ALL [ ] [ ] FROM ALL
NOMINEES NOMINEES
FOR MARK HERE IF YOU DO NOT GIVE THE PROXY COMMITTEE [ ]
ALL [ ] AUTHORITY TO VOTE "FOR" AN ADJOURNMENT.
EXCEPT ___________________________________________________
NOTE: If you do not wish your shares voted "FOR" a particular
nominee, mark the "For All Except" box and write the name on
the line above. Your shares will be voted "FOR" the remaining
nominee.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as your name or names appear hereon. When
signing as attorney, executor, adminstrator, 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.
Signatures_____________________________________ Date:____________ Signatures_____________________________________ Date:____________