SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
THE LIMITED, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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Notes:
THE LIMITED, INC.
-----------------
Three Limited Parkway
Columbus, Ohio 43216
(614) 479-7000
April 14, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to be
held at 9:00 a.m., Eastern Daylight Time, on May 19, 1997, at our offices
located at Three Limited Parkway, Columbus, Ohio. Our Investor Relations
telephone number is (614) 479-7070 should you require assistance in finding
the location of the meeting. The formal Notice of Annual Meeting of
Stockholders and Proxy Statement are attached. I hope that you will be able to
attend and participate in the meeting, at which time I will have the
opportunity to review the business and operations of The Limited.
The matters to be acted upon by our stockholders are set forth in the Notice
of Annual Meeting of Stockholders. It is important that your shares be
represented and voted at the meeting. Accordingly, after reading the attached
Proxy Statement, would you kindly sign, date and return the enclosed proxy
card. Your vote is important regardless of the number of shares you own.
Sincerely yours,
/s/ Leslie H. Wexner
Leslie H. Wexner
Chairman of the Board
THE LIMITED, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1997
April 14, 1997
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The
Limited, Inc., a Delaware corporation (the "Company"), will be held at our
offices located at Three Limited Parkway, Columbus, Ohio on May 19, 1997, at
9:00 a.m., Eastern Daylight Time, for the following purposes:
1.To elect four directors to serve for terms of three years.
2. To consider and vote upon a proposal to approve The Limited, Inc.
Incentive Compensation Performance Plan.
3. To consider and vote upon a proposal to approve the 1997 Restatement
of The Limited, Inc. 1993 Stock Option and Performance Incentive
Plan.
4. To consider and vote upon a shareholder proposal concerning the
composition of the Board of Directors.
5. To consider and vote upon a shareholder proposal which requests that
the Board of Directors adopt executive compensation policies linked
to various aspects of the Company's selection of its foreign
suppliers.
6. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record, as shown by the transfer books of the Company,
at the close of business on March 28, 1997 are entitled to notice of and to
vote at the Annual Meeting.
By Order of the Board of Directors
/s/ Leslie H. Wexner
Leslie H. Wexner
Chairman of the Board
PLEASE FILL IN, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE
ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE ANNUAL MEETING. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR
ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ATTACHED PROXY
STATEMENT.
THE LIMITED, INC.
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Three Limited Parkway
Columbus, Ohio 43216
(614) 479-7000
PROXY STATEMENT
DATED APRIL 14, 1997
ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1997
The accompanying proxy is solicited by the Board of Directors of The
Limited, Inc. (the "Company") to be voted at the Annual Meeting of
Stockholders to be held May 19, 1997 (the "Annual Meeting"), and any
adjournments thereof. When such proxy is properly executed and returned, the
shares it represents will be voted at the meeting as directed. If no
specification is indicated, the shares will be voted in accordance with the
recommendation of the Company's Board of Directors with respect to each matter
submitted to the Company's stockholders for approval. Abstentions will not be
voted, but will be counted for determining the presence of a quorum. Broker
non-votes will not be counted for any purpose. Any stockholder giving a proxy
has the power to revoke it prior to its exercise by notice of revocation to
the Company in writing, by voting in person at the Annual Meeting or by
execution of a subsequent proxy; provided, however, that such action must be
taken in sufficient time to permit the necessary examination and tabulation of
the subsequent proxy or revocation before the vote is taken.
The shares entitled to vote at the meeting consist of shares of Common Stock
of the Company ("Common Stock"), with each share entitling the holder of
record to one vote. At the close of business on March 28, 1997, the record
date for the Annual Meeting, there were outstanding 271,290,511 shares of
Common Stock. This Proxy Statement and the accompanying form of proxy are
first being sent to stockholders on or about April 14, 1997.
ELECTION OF DIRECTORS
NOMINEES AND DIRECTORS
Four members of the Board of Directors of the Company will be elected at the
Annual Meeting. Directors elected at the Annual Meeting will hold office for a
three-year term expiring at the Annual Meeting of Stockholders in 2000 or
until their successors are elected and qualified. The nominees of the Board of
Directors for such positions are identified below. In the event any of such
nominees shall be unable or unwilling to serve as a director, it is intended
that the proxies will be voted for the election of such person nominated by
the Board of Directors in substitution. The Company has no reason to believe
that any nominee of the Board of Directors will be unable to serve as a
director if elected.
Stockholders wishing to nominate directors for election may do so by
delivering to the Secretary of the Company, no later than 14 days before the
Annual Meeting, a notice setting forth (a) the name, age, business address
and, if known, residence address of each nominee proposed in such notice, (b)
the principal occupation or employment of each such nominee and (c) the number
of shares of stock of the Company beneficially owned
by each such nominee. No person may be elected as a director unless he or she
has been nominated by a stockholder in the manner just described or by the
Board of Directors. The four nominees receiving the highest number of votes
will be elected directors. Proxies may not be voted for more than four
nominees.
A stockholder of the Company has nominated Patrick McGowan for election as a
director of the Company, and stockholders will be able to vote in person at
the Annual Meeting for his election. The Board of Directors is not nominating
Mr. McGowan for election to the Board of Directors.
Bella Wexner is retiring from the Board of Directors after 34 years of
service as a director of the Company. In recognition of her unique
relationship with the Company since its formation, effective at the Annual
Meeting, Mrs. Bella Wexner will hold the honorary position of Director
Emeritus. In addition, as previously announced, Michael Weiss has assumed the
position of President and Chief Executive Officer of the Company's Express
division. In order to devote his full attention to Express, Mr. Weiss has
resigned from the Company's Board of Directors. Abigail S. Wexner has been
nominated to fill the vacancy created by Mrs. Bella Wexner's retirement. The
vacancy created by Mr. Weiss' resignation has not been filled, and the size of
the Board has been reduced to twelve members (subject to increase in
accordance with the terms of the Company's bylaws).
BUSINESS EXPERIENCE
Nominees of the Board of Directors for Election at the 1997 Annual Meeting
E. GORDON GEE Dr. Gee has been President of The Ohio State University
since September 1990. Dr. Gee is also a director of
Intimate Brands, Inc. ("Intimate Brands") and Abercrombie &
Fitch Co. ("Abercrombie & Fitch"), both of which are
subsidiaries of the Company, ASARCO, Inc., Banc One
Corporation, Columbia Gas of Ohio and Glimcher Realty
Trust.
CLAUDINE B. MALONE Ms. Malone has been President and Chief Executive Officer
of Financial & Management Consulting, Inc. since 1982. She
is also Chairman of the Federal Reserve Bank of Richmond
and a director of Dell Computer Corporation, Hannaford
Brothers, Inc., Hasbro, Inc., Houghton Mifflin Co., Lafarge
Corporation, Lowe's Companies, Mallinckrodt Group, Inc.,
Science Applications International Corporation and Union
Pacific Resources Corp.
ALLAN R. TESSLER Mr. Tessler has been Chairman of the Board and Chief
Executive Officer of International Financial Group, Inc., a
merchant banking concern, for more than five years and Co-
Chairman and Chief Executive Officer of Data Broadcasting
Corporation ("Data Broadcasting"), a data broadcasting
network, since 1992. Mr. Tessler was Chairman of the Board
and Chief Executive Officer of Ameriscribe Corporation, a
provider of reprographic and related facilities management
services, from 1988 through 1993 and Counsel to the law
firm of Shea & Gould from 1988 through January 1993. Mr.
Tessler is also the Chairman of the Boards of Directors of
Enhance Financial Services Group, Inc. and Jackpot
Enterprises, Inc. Mr. Tessler is a director of Allis-
Chalmers Corporation.
ABIGAIL S. WEXNER Mrs. Wexner was an attorney with the law firm of Davis Polk
& Wardwell from 1987 until 1992, where she specialized in
mergers and acquisitions. She is a director of the
Children's Defense Fund and is a member of the Board of
Governors of the American Red Cross, the Governing
Committee of The Columbus Foundation and the Board of
Trustees of the Children's Hospital, Inc. in Columbus, Ohio
and was appointed by the President of the United States as
a member of the United States Holocaust Memorial Council.
Mrs. Wexner is the wife of Leslie H. Wexner.
2
Directors Whose Terms Continue until the 1998 Annual Meeting
LESLIE H. WEXNER Mr. Wexner has been President and Chief Executive
Officer since he founded the Company in 1963, and
Chairman of the Board for more than five years. Mr.
Wexner has also been the Chairman of the Board and
Chief Executive Officer of Intimate Brands since 1995
and Chairman of the Board of Abercrombie & Fitch since
1996. Mr. Wexner is also a director of Hollinger
International and Hollinger International Publishing,
Inc.
EUGENE M. FREEDMAN Mr. Freedman has been Senior Advisor to and a director
of Monitor Company, Inc., an international business
strategy and consulting firm, since January 1995. Until
October 1994 and for more than five years prior
thereto, Mr. Freedman was a partner of Coopers &
Lybrand, where he served as Chairman and Chief
Executive Officer of Coopers & Lybrand LLP, U.S. ("C &
L, U.S.") since October 1991 and as Chairman of Coopers
& Lybrand, International since 1992. During the
Company's 1996 fiscal year, C & L, U.S. served as the
Company's independent public accountants. The amount of
compensation paid by the Company to C & L, U.S. for
such services was less than 1% of the Company's and C &
L, U.S.'s consolidated gross revenues for their 1996
fiscal years. Mr. Freedman is also a director of
Computervision Corporation and Questor Partners Fund
L.P.
KENNETH B. GILMAN Mr. Gilman has been Vice Chairman and Chief Financial
Officer of the Company since June 1993. For more than
five years prior thereto, Mr. Gilman was Executive Vice
President and Chief Financial Officer of the Company.
Mr. Gilman has also been the Vice Chairman of the Board
of Intimate Brands since 1995 and Vice Chairman of the
Board of Abercrombie & Fitch since 1996. Mr. Gilman is
also a director of We Do, Inc.
DAVID T. KOLLAT Mr. Kollat has been Chairman of 22, Inc., a management
consulting firm, for more than five years. He is also a
director of Audio Environments, Inc., Cheryl & Co.,
Inc., Christy Partners, Consolidated Stores
Corporation, Cooker Restaurant Corporation, Pipeliner
Systems, Inc., SBC Advertising, Select Comfort, Inc.,
Wolverine World Wide, Inc. and Resource Marketing, Inc.
Directors Whose Terms Continue until the 1999 Annual Meeting
LEONARD A. SCHLESINGER Dr. Schlesinger has been a member of the faculty of
Harvard Business School ("Harvard") since 1988 and
currently is the George F. Baker Jr. Professor of
Business Administration. He also served as the Senior
Associate Dean and Director of External Relations at
Harvard from July 1994 until October 1995. Dr.
Schlesinger currently is a director of Borders Group,
Inc. and Pegasystems, Inc.
DONALD B. SHACKELFORD Mr. Shackelford has been Chairman of the Board and
Chief Executive Officer of State Savings Bank, a
banking business, for more than five years and has been
the Chief Executive Officer of State Savings Co. since
1995. Mr. Shackelford is also a director of Intimate
Brands, Abercrombie & Fitch, Progressive Corporation
and Worthington Foods, Inc.
MARTIN TRUST Mr. Trust has been President and Chief Executive
Officer of Mast Industries, Inc., a wholly-owned
subsidiary of the Company, for more than five years. He
is also a director of Staples, Inc.
3
RAYMOND ZIMMERMAN Mr. Zimmerman has been Chairman of the Board and Chief
Executive Officer of Service Merchandise Company, Inc.
("Service"), a retail catalogue merchandising business, for
more than five years. He was also President of Service from
1973 until November 1994.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Company's Board of Directors held six meetings in fiscal year 1996.
During fiscal year 1996, all of the directors attended 75% or more of the
total number of meetings of the Board and of committees of the Board on which
they served, except for Mrs. Bella Wexner.
The Audit Committee of the Board recommends the firm to be employed as the
Company's independent public accountants and reviews the scope of the audit
and audit fees. In addition, the Audit Committee consults with the independent
auditors with regard to the plan of audit, the resulting audit report and the
accompanying management letter, and confers with the independent auditors with
regard to the adequacy of internal accounting controls, as appropriate, out of
the presence of management. The members of the Audit Committee are Ms. Malone
(Chair) and Messrs. Shackelford, Tessler and Zimmerman. The Audit Committee
held six meetings in fiscal year 1996.
The Compensation Committee of the Board is charged with reviewing executive
compensation and administering the Company's stock option and performance
incentive plans. Its members are Mr. Shackelford (Chair) and Dr. Gee. Members
of the Compensation Committee held four meetings in fiscal year 1996 and took
action in writing without a meeting on ten occasions.
The Nominating Committee of the Board is responsible for nominating, on
behalf of the Board, suitable persons for election as directors of the
Company. Its members are Messrs. Tessler (Chair) and Wexner. Stockholders are
permitted to nominate directly directors for election (see "ELECTION OF
DIRECTORS--Nominees and Directors" above); therefore, no formal procedures
exist for stockholders to make nominee recommendations to the Nominating
Committee. The Nominating Committee took no action in fiscal year 1996.
The Finance Committee of the Board is charged with periodically reviewing
the financial position of the Company and the financial arrangements of the
Company with banks and other financial institutions. The Finance Committee
also makes recommendations on financial matters that it believes are
necessary, advisable or appropriate. Its members are Ms. Malone and Messrs.
Tessler (Chair), Freedman, Shackelford and Zimmerman. The Finance Committee
held five meetings in fiscal year 1996.
The Executive Committee of the Board may exercise, to the fullest extent
permitted by law, all of the powers and authority granted to the Board. The
Executive Committee may also declare dividends, authorize the issuance of
stock and authorize the seal of the Company to be affixed to papers that
require it. Its members are Messrs. Wexner (Chair) and Shackelford. The
Executive Committee took action in writing without a meeting on three
occasions in fiscal year 1996.
4
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
Set forth below is certain information about the securities ownership of all
directors of the Company, the executive officers of the Company named in the
Summary Compensation Table below and all directors and executive officers of
the Company as a group.
NUMBER OF NUMBER OF
SHARES OF SHARES OF
INTIMATE ABERCROMBIE
NUMBER OF BRANDS, INC. PERCENT OF & FITCH CO.
SHARES OF CLASS A INTIMATE CLASS A
COMMON COMMON BRANDS, INC. COMMON
NAE, POSITION WITH THEM DIRECTOR STOCK STOCK CLASS A STOCK
CMPANY OR PRINCIPALO CONTINUOUSLY TERM BENEFICIALLY PERCENT OF BENEFICIALLY COMMON BENEFICIALLY
CCUPATION, AND AGEO SINCE EXPIRES OWNED(A)(B) CLASS OWNED (A)(B) STOCK OWNED(A)(B)
------------------ ------------ ------- ------------ ---------- ------------ ------------ ------------
Eugene M.
Freedman.......... 1995 1998 5,825 * 0 ** 1,000
Senior Advisor to
and Director of
Monitor Company,
Inc., 65
E. Gordon Gee..... 1991 1997 1,386 * 1,590(c) * 577
President of The
Ohio State
University, 53
Kenneth B. Gilman. 1990 1998 427,109(d)(e)(f) * 15,244(c)(g) * 10,000
Vice Chairman and
Chief Financial
Officer, 50
David T. Kollat... 1976 1998 200,386 * 17,647 * 1,000
Chairman of 22
Inc., 58
Claudine B.
Malone............ 1982 1997 2,786 * 592 500
President and
Chief Executive
Officer of
Financial &
Management
Consulting, Inc.,
60
Leonard A.
Schlesinger....... 1996 1999 1,386 * 500 * 1,000
Professor of
Business
Administration,
Harvard Business
School, 44
Donald B.
Shackelford....... 1975 1999 67,837(d) * 4,628(c) * 1,077
Chairman of the
Board and Chief
Executive Officer
of State Savings
Bank, 64
Allan R. Tessler.. 1987 1997 20,588(d) * 0 ** 1,000
Chairman of the
Board and Chief
Executive Officer
of International
Financial
Group, Inc., 60
Martin Trust...... 1978 1999 2,384,932(d)(e)(f) * 8,823(h) * 18,750(i)
President and
Chief Executive
Officer of Mast
Industries, Inc.,
62
Michael A. Weiss.. 1993 ** 473,576(e)(f) * 5,038 * 1,562
President and
Chief Executive
Officer of
Express, 55
Abigail S. Wexner. ** ** 200,000 * 0 ** 0
Nominee for
Director, 35
Bella Wexner...... 1963 1997 10,883,366(j) 4.0% 0 ** 0
Director
Emeritus, over 65
Leslie H. Wexner.. 1963 1998 67,384,748(e)(f)(k) 24.9% 60,776 * 10,000
Chairman of the
Board,
Chief Executive
Officer and
President, 59
PERCENT OF
ABERCROMBIE
& FITCH CO.
NAE, POSITION WITH THEM CLASS A
CMPANY OR PRINCIPALO COMMON
CCUPATION, AND AGEO STOCK
------------------------ -----------
Eugene M.
Freedman.......... *
Senior Advisor to
and Director of
Monitor Company,
Inc., 65
E. Gordon Gee..... *
President of The
Ohio State
University, 53
Kenneth B. Gilman. *
Vice Chairman and
Chief Financial
Officer, 50
David T. Kollat... *
Chairman of 22
Inc., 58
Claudine B.
Malone............ *
President and
Chief Executive
Officer of
Financial &
Management
Consulting, Inc.,
60
Leonard A.
Schlesinger....... *
Professor of
Business
Administration,
Harvard Business
School, 44
Donald B.
Shackelford....... *
Chairman of the
Board and Chief
Executive Officer
of State Savings
Bank, 64
Allan R. Tessler.. *
Chairman of the
Board and Chief
Executive Officer
of International
Financial
Group, Inc., 60
Martin Trust...... *
President and
Chief Executive
Officer of Mast
Industries, Inc.,
62
Michael A. Weiss.. *
President and
Chief Executive
Officer of
Express, 55
Abigail S. Wexner. **
Nominee for
Director, 35
Bella Wexner...... **
Director
Emeritus, over 65
Leslie H. Wexner.. *
Chairman of the
Board,
Chief Executive
Officer and
President, 59
5
NUMBER OF NUMBER OF
SHARES OF SHARES OF
INTIMATE ABERCROMBIE
NUMBER OF BRANDS, INC. PERCENT OF & FITCH CO.
SHARES OF CLASS A INTIMATE CLASS A
COMMON COMMON BRANDS, INC. COMMON
NAM, POSITION WITH THEE DIRECTOR STOCK STOCK CLASS A STOCK
CMPANY OR PRINCIPALO CONTINUOUSLY TERM BENEFICIALLY PERCENT OF BENEFICIALLY COMMON BENEFICIALLY
OCUPATION, AND AGEC SINCE EXPIRES OWNED(A)(B) CLASS OWNED (A)(B) STOCK OWNED(A)(B)
----------------- ------------ ------- ------------ ---------- ------------ ------------ ------------
Raymond
Zimmerman........ 1984 1999 6,586(l) * 1,519 * 0
Chairman of the
Board and Chief
Executive
Officer of
Service
Merchandise
Company, Inc.,
63
Charles W.
Hinson........... ** ** 563,698(e)(f) * 1,667(c) * 0
President-Store
Planning, 60
All directors and
executive
officers as a
group........... ** ** 87,324,887(e)(f)(m) 32.2% 154,445(c)(n) * 61,007(i)
PERCENT OF
ABERCROMBIE
& FITCH CO.
NAM, POSITION WITH THEE CLASS A
CMPANY OR PRINCIPALO COMMON
OCUPATION, AND AGEC STOCK
------------------------ -----------
Raymond
Zimmerman........ **
Chairman of the
Board and Chief
Executive
Officer of
Service
Merchandise
Company, Inc.,
63
Charles W.
Hinson........... **
President-Store
Planning, 60
All directors and
executive
officers as a
group........... *
- ---------
* Less than 1%.
** Not applicable.
(a) Unless otherwise indicated, each named person has voting and investment
power over the listed shares and such voting and investment power is
exercised solely by the named person or shared with a spouse.
(b) Reflects ownership as of February 24, 1997.
(c) Includes the following number of shares issuable within 60 days upon the
exercise of outstanding stock options: Mr. Hinson, 1,667; Mr. Gilman,
4,167; Dr. Gee, 500; Mr. Shackelford, 500; and all directors and executive
officers as a group, 20,085.
(d) Includes the following number of shares owned by family members, as to
which beneficial ownership is disclaimed: Mr. Gilman, 1,117; Mr.
Shackelford, 18,381; Mr. Tessler, 202; and Mr. Trust, 208,307.
(e) Includes the following number of shares held as of December 31, 1996 in an
employee benefit plan, over which the participant has the power to dispose
or withdraw shares: Mr. Gilman, 33,075; Mr. Trust, 28,063; Mr. Weiss,
51,693; Mr. Wexner, 520,631; Mr. Hinson, 228,636; and all directors and
executive officers as a group, 954,253.
(f) Includes the following number of shares issuable within 60 days upon the
exercise of outstanding stock options: Mr. Gilman, 254,167; Mr. Trust,
83,500; Mr. Weiss, 224,500; Mr. Wexner, 87,500; Mr. Hinson, 166,250; and
all directors and executive officers as a group, 1,329,583.
(g) Includes 1,000 shares owned by family members, as to which Mr. Gilman
disclaims beneficial ownership.
(h) Includes 2,941 shares as to which Mr. Trust disclaims beneficial
ownership.
(i) Includes 9,375 shares as to which Mr. Trust disclaims beneficial
ownership.
(j) Includes 5,740,852 shares held by the Bella Wexner 1996 Charitable
Remainder Unitrust, as to which Mrs. Bella Wexner shares investment and
voting power, and 4,525,736 shares as to which Mrs. Bella Wexner has sole
voting power, but shares investment power.
(k) Includes 2,000,000 shares held by Health and Science Interests, 350,000
shares held by Health and Science Interests II, 2,104,717 shares held by
the Wexner Foundation, 6,010,600 shares held by the Harry & Hannah Wexner
Trust, 3,989,400 shares held by the Harry, Hannah & David Wexner Trust,
and 18,750,000 shares held by The Wexner Children's Trust. Mr. Wexner
disclaims beneficial ownership of the shares held by Health and Science
Interests, Health and Science Interests II and the Wexner Foundation. Mr.
Wexner shares investment and voting power with others with respect to
shares held by the Wexner Foundation. The 18,750,000 shares held by The
Wexner Children's Trust are held subject to the terms of the Contingent
Stock Redemption Agreement described under "Certain Relationships and
Related Transactions" below.
(l) Includes 1,200 shares which are Mr. Zimmerman's pro rata share of 3,600
shares owned by a corporation of which Mr. Zimmerman is president and a
33% shareholder plus 2,000 shares held by a partnership which is 50% owned
by Mr. Zimmerman and 50% owned by his wife.
(m) Includes 4,676,563 shares as to which beneficial ownership is disclaimed.
Does not include 200,000 shares held by Mrs. Abigail Wexner.
(n) Includes 3,941 shares, as to which beneficial ownership is disclaimed.
6
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 26, 1996, the Company, Leslie H. Wexner, the Company's Chairman,
Chief Executive Officer and President, and The Wexner Children's Trust (the
"Trust") entered into a Contingent Stock Redemption Agreement, which Agreement
was amended as of July 19, 1996 (as so amended, the "Agreement"). The
following summary of the material terms of the Agreement does not purport to
be complete and is qualified in its entirety by reference to the Agreement, a
copy of which (prior to the amendment referred to above) was filed with the
Securities and Exchange Commission (the "Commission") as an exhibit to the
Company's Schedule 13E-4 filed in connection with the Company's issuer tender
offer which expired on March 6, 1996, and a copy of which (together with the
amendment referred to above) will be filed with the Commission as an exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended February
1, 1997. Such exhibits are available for inspection at the Commission.
A new, wholly-owned subsidiary (the "Subsidiary") of the Company has
guaranteed the Company's obligations under the Agreement, has been capitalized
by the Company with $351.6 million (representing the amount required to pay
the Redemption Price in the event of an exercise in full of the Redemption
Right (each, as defined below)) and will not engage in any actions or
undertake any operations other than as contemplated by the Agreement. Pursuant
to the terms of the Agreement, the Trust deposited 18,750,000 shares (the
"Subject Shares") in a custody account established with Morgan Guaranty Trust
Company of New York. For the purposes of the Agreement, a "Subject Share" will
include, in the event of any spinoff or other distribution by the Company to
its stockholders of any business controlled by the Company, in addition to a
share of Common Stock of the Company, such security (or portion thereof) as
the Trust may receive in the spinoff or other distribution in respect of each
share of Common Stock.
Pursuant to the terms of the Agreement, the Trust will have the opportunity
(the "Redemption Right"), commencing on January 31, 1998 and ending on January
30, 2006 (the "Exercise Period"), to require the Company to redeem the Subject
Shares, from time to time, in whole or in part (subject to specified minimum
amounts), at a price per share equal to $18.75, subject to certain adjustments
(the "Redemption Price"). The Trust will have the right to transfer the
Redemption Right, from time to time, in whole or in part, to (i) Mr. Wexner,
(ii) any member of Mr. Wexner's immediate family, (iii) any corporation,
partnership, trust or other entity of which all of the owners or beneficiaries
are Mr. Wexner or any member of Mr. Wexner's immediate family or any
charitable trust, (iv) any estate or personal representative of Mr. Wexner or
any member of Mr. Wexner's immediate family and (v) subject to certain
conditions, third parties, in each case, provided that such transferee agrees
to be bound by the terms of the Agreement. The Trust will have the right to
pledge the Redemption Right to a financial institution reasonably satisfactory
to the Company to secure the Trust's obligations in respect of borrowed money
under any credit or similar agreement. The Trust will be permitted to withdraw
Subject Shares from the custody account provided such withdrawn shares are
replaced by an amount in cash equal to 120% of the market value of the
withdrawn shares. The Trust will be permitted to sell all the withdrawn
shares.
The Company will have the opportunity (the "Company Redemption Right"),
beginning on July 31, 2006 and ending on January 30, 2007, to redeem the
Subject Shares, from time to time, in whole or in part (subject to specified
minimum amounts), at a price per share equal to $25.07, subject to certain
adjustments (also referred to as the "Redemption Price"). The Company will
have the right to transfer the Company Redemption Right, from time to time, in
whole or in part, to any affiliate. The Company Redemption Right will be
reduced on a share-for-share basis for any Subject Shares redeemed by the
Company pursuant to the Redemption Right.
Subject to the terms of the Agreement, certain adjustments will be made to
the number of shares of Common Stock subject to the Redemption Right and the
Company Redemption Right or to the Redemption Price, as the
7
case may be, upon the following events: (i) the payment of a dividend in
shares, or any subdivision, split or reclassification of shares of Common
Stock; (ii) the issuance of shares of Common Stock (or rights, warrants or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock) to all holders of shares of Common Stock at a price less than
its market price; (iii) the repurchase of shares of Common Stock at a price in
excess of its market price; or (iv) any change, reclassification, conversion
or other similar transaction involving shares of Common Stock.
During fiscal year 1996, Leonard A. Schlesinger, a member of the Board of
Directors, provided consulting services to the Company and Mast Industries,
Inc., a wholly-owned subsidiary of the Company. The fees for such services
were approximately $83,750 and $25,000, respectively.
8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information concerning compensation paid by the
Company to each of the named executive officers of the Company for each of the
Company's last three fiscal years.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------------------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
STOCK OPTIONS COMPEN-
FISCAL SALARY BONUS(1) AWARDS(2) AWARDED SATION(3)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------- ------ --------- --------- ---------- ---------- ---------
Leslie H. Wexner........ 1996 1,011,538 915,000 -- 200,000(4) 151,629
Chairman of the Board,
Chief 100,000(5)
Executive Officer and
President 1995 1,150,000 768,315 -- 100,000(4) 148,436
1994 1,150,000 832,370 556,562 50,000(4) 149,066
Kenneth B. Gilman....... 1996 903,846 603,900 -- 50,000(4) 187,192
Vice Chairman and Chief
Financial 50,000(5)
Officer 1995 941,935 449,820 -- 25,000(4) 190,772
1994 896,144 473,760 278,281 25,000(4) 185,736
Michael A. Weiss........ 1996 903,846 281,655 -- 25,000(4) 174,308
Vice Chairman(6) 1995 941,935 449,820 -- 25,000(4) 190,772
1994 896,144 473,760 278,281 25,000(4) 185,736
Martin Trust............ 1996 703,846 1,155,700 371,818 60,000(4) 203,807
President and Chief
Executive Officer 146,991
of Mast Industries,
Inc. 1995 741,650 679,455 197,985 20,000(4) 154,278
1994 693,013 171,255 -- 25,000(4) 123,775
Charles W. Hinson....... 1996 698,077 256,200 -- 30,000(4) 117,132
President--Store
Planning 20,000(5)
1995 666,852 189,188 -- 10,000(4) 111,265
1994 620,352 205,626 89,050 10,000(4) 107,690
- ----------
(1) Represents for each fiscal year, the aggregate of the performance-based
incentive compensation for the Spring and Fall selling seasons.
(2) Represents for each executive officer, the restricted stock awards for the
specified fiscal year under the Company's 1993 Stock Option and
Performance Incentive Plan. Information set forth above is based on the
closing price of the Common Stock on the date on which the awards were
made: February 1, 1995 for 1994 awards; February 1, 1996 for 1995 awards;
and August 1, 1996 and February 1, 1997 for the 1996 awards earned by Mr.
Trust. As of February 1, 1997, the aggregate restricted stock holdings and
the value of such holdings for each of the named executive officers were:
Mr. Wexner, 13,000 shares, $222,625; Mr. Gilman, 6,500 shares, $111,313;
Mr. Weiss, 6,500 shares, $111,313; Mr. Trust, 34,600 shares, $592,525; and
Mr. Hinson, 2,080 shares, $35,620 (based on the $17.125 fair market value
of a share of Common Stock as of Friday, January 31, 1997).
The 1996 award to Mr. Trust is comprised of two separate awards, a February
1, 1997 award of 21,712 shares and an August 1, 1996 award of 7,538 shares.
All awards held by Mr. Trust, and all restricted stock
9
performance awards made in 1994, vest as follows: 10% on the award date; an
additional 20% on the first anniversary of the award date; an additional
30% on the second anniversary of the award date; and the remaining 40% on
the third anniversary of the award date, subject, in each case, to the
holder's continued employment with the Company.
Dividends will not be paid or accrue with respect to shares of restricted
stock until such shares vest.
(3) Represents for each executive officer, the amount of employer matching and
supplemental contributions allocated to his account under certain of the
Company's qualified and non-qualified defined contribution plans during
1996.
(4) Denominated in shares of the Company's Common Stock.
(5) Denominated in shares of Intimate Brands' Class A Common Stock.
(6) Mr. Weiss was appointed President and Chief Executive Officer of Express
effective January 13, 1997.
LONG-TERM INCENTIVE PLAN AWARDS
No awards were granted in respect of the 1996 fiscal year to the named
executive officers other than the restricted stock performance awards granted
to Mr. Trust as disclosed in the Summary Compensation Table.
STOCK OPTIONS
The following table sets forth certain information regarding stock options
granted to the executive officers named in the Summary Compensation Table
during the Company's 1996 fiscal year.
OPTION GRANTS IN FISCAL YEAR 1996
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
-------------------- VALUE AT ASSUMED
APPROXIMATE ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS OPTION TERM(4)
SECURITIES GRANTED TO EXERCISE -----------------------
UNDERLYING ASSOCIATES PRICE
OPTIONS IN FISCAL PER EXPIRATION
NAME GRANTED(1) YEAR SHARE DATE 5% 10%
- ------------------------ ---------- ----------- -------- ---------- ----------- -----------
Leslie H. Wexner........ 19,656(2) 1.08% $20.35 (5) 7/19/01 $ 110,513 $ 244,204
180,344(2) 9.91% 20.35 (5) 7/19/06 2,308,044 5,849,035
100,000(3) 10.93% 21.5875(5) 7/19/06 1,357,626 3,440,492
Kenneth B. Gilman....... 16,197(2) 0.89% $16.625 2/10/06 $ 169,346 $ 429,155
33,803(2) 1.86% 16.625 2/10/06 353,423 895,643
2,176(3) 0.24% 14.125 2/10/06 19,330 48,985
47,824(3) 5.23% 14.125 2/10/06 424,827 1,076,595
Michael A. Weiss........ 6,015(2) 0.33% $16.625 2/10/06 $ 62,889 $ 159,373
18,985(2) 1.04% 16.625 2/10/06 198,495 503,026
Martin Trust............ 17,781(2) 0.98% $16.625 2/10/06 $ 185,907 $ 471,125
42,219(2) 2.32% 16.625 2/10/06 441,415 1,118,633
Charles W. Hinson....... 17,725(2) 0.97% $16.625 2/10/06 $ 185,321 $ 469,641
12,275(2) 0.67% 16.625 2/10/06 128,340 325,238
2,860(3) 0.31% 14.125 2/10/06 25,406 64,383
17,140(3) 1.87% 14.125 2/10/06 152,257 385,849
(footnotes on following page)
10
- ----------
(1) On July 18, 1996, options were granted to Mr. Wexner and, on February 9,
1996, to Mr. Weiss pursuant to the Company's 1993 Stock Option and
Performance Incentive Plan, and, on July 18, 1996, options were granted to
Mr. Wexner pursuant to the Intimate Brands, Inc. 1995 Stock Option and
Performance Incentive Plan. All such options become exercisable in four
equal annual installments commencing on the first anniversary of the grant
date, subject to continued employment. Each of executive officers Wexner
and Weiss received two grants of Company options during 1996. One grant
represents options intended to qualify as "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the other represents non-qualified stock
options. All Intimate Brands options granted to Mr. Wexner represent non-
qualified stock options.
On February 9, 1996, options were granted to executive officers Gilman,
Trust and Hinson pursuant to the Company's 1993 Stock Option and
Performance Incentive Plan and options were granted to executive officers
Gilman and Hinson pursuant to the Intimate Brands, Inc. 1995 Stock Option
and Performance Incentive Plan. Each option is comprised of three
approximately equal tranches, each of which will vest in four equal annual
installments commencing on the first, second and third anniversaries of the
grant date, respectively, subject to continued employment. Each of
executive officers Gilman, Trust and Hinson received two grants of options
during 1996. One grant represents options intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Code and the other
represents non-qualified stock options.
(2) Denominated in shares of the Company's Common Stock.
(3) Denominated in shares of Intimate Brands' Class A Common Stock.
(4) The assumed rates of growth were selected by the Commission for
illustrative purposes only and are not intended to predict or forecast
future stock prices.
(5) The per share exercise price of all such options granted to Mr. Wexner is
set at 110% of the fair market value of the underlying common stock on the
date of grant.
The following table sets forth certain information regarding stock options
exercised by the executive officers named in the Summary Compensation Table
during the Company's 1996 fiscal year and the year-end values of unexercised
options held by such executive officers.
AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
SHARES END FISCAL YEAR-END
ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ------------ ----------- ------------- ----------- -------------
Leslie H. Wexner........ -- -- 50,000(2) 300,000(2) $ 3,125(2) $ 3,125(2)
-- (3) 100,000(3) -- (3) -- (3)
Kenneth B. Gilman....... -- -- 237,500(2) 81,250(2) $422,656(2) $ 26,563(2)
-- (3) 50,000(3) -- (3) 181,250(3)
Michael A. Weiss........ -- -- 205,750(2) 56,250(2) $235,563(2) $ 14,063(2)
Martin Trust............ 20,000 $151,250 67,250(2) 95,750(2) $ 1,563(2) $ 31,563(2)
Charles W. Hinson....... -- -- 158,750(2) 46,250(2) $301,875(2) $ 15,625(2)
-- (3) 20,000(3) -- (3) 72,500(3)
- --------
(1) Calculated on the basis of the number of shares exercised, multiplied by
the excess of the fair market value of a share of Common Stock on the date
of exercise over the exercise price of such option.
11
(2) Denominated in shares of the Company's Common Stock. Value is calculated
on the basis of the number of shares subject to each such option,
multiplied by the excess of the fair market value of a share of Common
Stock at fiscal year-end ($17.125) over the exercise price of such option.
(3) Denominated in shares of Intimate Brands' Class A Common Stock. Value is
calculated on the basis of the number of shares subject to each such
option, multiplied by the excess of the fair market value of a share of
Common Stock at fiscal year-end ($17.75) over the exercise price of such
option.
COMPENSATION OF DIRECTORS
Directors who are not associates of the Company receive an annual retainer
of $20,000 per year (increased by $4,000 for each committee chair held), plus
a fee of $3,500 for each Board meeting attended ($1,000 for a telephonic
meeting) and, as committee members, receive $1,500 per committee meeting
attended ($500 for a telephonic meeting). Each action in writing taken by the
Board or any committee entitles each such director to be paid $500. Associates
and officers who are directors receive no additional compensation for services
rendered as directors. Under the Company's 1996 Stock Plan for Non-Associate
Directors, each director who is not an associate of the Company receives (i)
annual grants of options to purchase 1,000 shares of the Company's Common
Stock at a price equal to the fair market value of such shares at the date of
grant and (ii) 50% of the annual retainer in shares of the Company's Common
Stock.
During fiscal 1995, Allan R. Tessler, Chairman of the Finance Committee of
the Board of Directors, served as the Board's principal negotiator of the
Agreement among the Company, Mr. Wexner and The Wexner Children's Trust
referred to in "ELECTION OF DIRECTORS--Certain Relationships and Related
Transactions" above. Mr. Tessler has received compensation of $120,000 for
such services.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, are required
to file reports of ownership and changes in ownership of the Company's equity
securities with the Commission and the New York Stock Exchange. Copies of
those reports must also be furnished to the Company.
Based solely on a review of the copies of reports furnished to the Company
and written representations that no other reports were required, the Company
believes that during fiscal 1996 its officers, directors and greater than ten-
percent beneficial owners complied with such filing requirements other than
Mr. George Sappenfield, who inadvertantly filed two reports relating to four
transactions in Common Stock after the due date therefor, and the Bella Wexner
1996 Charitable Remainder Unitrust, which inadvertantly filed one report
relating to one transaction in Common Stock after the due date therefor.
12
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") reviews and approves the
Company's executive compensation philosophy and policies and the application
of such policies to the compensation of Mr. Wexner and other executive
officers. The Company and the Committee have also retained independent
compensation consultants to assist in developing, and periodically assessing
the reasonableness of, the Company's executive officer compensation program.
COMPENSATION PHILOSOPHY
The Company seeks to apply a consistent philosophy to compensation for all
leadership associates, including senior executives. The primary goal of the
compensation program is to link total compensation to executive performance to
enhance stockholder value. Accordingly, total compensation for leadership
individuals is structured to provide a lower proportion as fixed compensation
and a much higher variable proportion keyed to performance.
Our philosophy is built on the following basic principles:
To Pay for Outstanding Performance
The Company believes in paying for results. Individuals in leadership roles
are compensated based on a combination of total Company, business unit and
individual performance factors. Total Company and business unit performance
are evaluated primarily on the degree by which financial targets are met.
Individual performance is evaluated based upon several factors, including
attainment of specific merchandise and financial objectives, building and
developing a strong leadership team, developing an infrastructure to support
future business growth, and controlling expenses. In addition, a significant
portion of total compensation is in the form of equity-based award
opportunities to directly tie any increased compensation to increased
stockholder value.
To Pay Competitively
The Company is committed to providing a total compensation program designed
to attract the best senior leaders to the business and to retain the best,
most consistent performers. To achieve this goal, the Company annually
compares its pay practices and overall pay levels with other leading retail,
and where appropriate, non-retail companies, and sets pay guidelines based on
this review.
To Pay Equitably
The Company believes that it is important to apply generally consistent
guidelines for all leadership compensation programs across business units,
considering the size, complexity, stage of development and performance of the
business.
PRINCIPAL COMPENSATION ELEMENTS
The principal elements of executive compensation at the Company are base
salary, short-term performance-based cash incentive compensation, and equity-
based incentive programs. In determining guidelines for each compensation
element, the Company participates in compensation surveys which include
approximately 75 national and regional specialty and department store retail
businesses, chosen because of their general similarity to the Company in
business and merchandise focus. In addition, the Company participates in
special surveys
13
focusing on special segments of the business, such as merchandise design and
the personal care products business. The Company, along with its compensation
consultants, analyzes executive compensation levels and practices relative to
the performance of these competitor companies, and from this information,
develops pay guidelines that generally target, and place the Company in, the
75th to 90th percentile of pay for those with exceptional performance. The
competitor group that is surveyed is subject to periodic review and is
modified from time to time to reflect new businesses, mergers, acquisitions
and changes in business focus. The competitor group contains approximately 50%
of the companies in the S&P Retail Stores Composite Index represented in the
Stockholder Return Graph below. Subject to the needs of the Company, its
policy is to attempt to design all incentive and equity-based compensation
programs to meet the requirements for deductibility under the Code.
Base Salary
The Committee annually reviews and approves the base salary of each
executive officer and business president. In determining salary adjustments,
the Committee considers the size and responsibility of the individual's
position, the business unit's overall performance, the individual's overall
performance and future potential, and the base salaries paid by competitors to
employees in comparable positions. Individual performance is measured against
the following factors: seasonal and annual business goals, business growth and
brand execution goals, and the recruitment and development of future
leadership talent. These factors are considered subjectively in the aggregate,
and none of these factors is accorded a formula weight.
In 1996, the base salaries of Messrs. Wexner, Gilman, Weiss, and Trust were
reduced, with increased emphasis placed on performance based incentive
compensation.
Performance-Based Cash Incentive Compensation
The Company has employed a short-term performance-based cash incentive
compensation program for specified key leadership positions that provides for
incentive payments based on the extent to which preestablished objective goals
for each six-month operating season are attained. This year, stockholders are
being asked to approve a successor plan, the Incentive Compensation
Performance Plan, which is substantially similar to and will replace the
current plan, pursuant to which the named executive officers may earn
performance-based cash incentive payments (see "Proposal to Approve Adoption
of the Incentive Compensation Performance Plan", below).
For most businesses, the goals under this plan are based on operating
income. However, goals also may be based on other objectives and/or criteria,
depending on the business unit and its strategy. These goals are generally set
at the beginning of each season, and are based on an analysis of historical
performance and growth expectations for that business, financial results of
other comparable businesses both inside and outside the Company, and progress
toward achieving the strategic plan for that business. Target cash incentive
compensation opportunities are established annually for eligible executives
stated as a specific percent of base salary. The amount of performance-based
incentive compensation earned by participating executives can range from zero
to double their incentive target, based upon the extent to which
preestablished financial goals are achieved.
Equity-Based Incentive Programs
The Committee believes that continued emphasis on equity-based compensation
opportunities encourage performance that enhances stockholder value, thereby
further linking leadership and shareholder objectives. In 1996, continuing a
program that commenced in 1993, the Committee awarded equity-based incentive
compensation under two programs: a stock option program, and a restricted
stock program under which shares of restricted stock are granted and earned
based on seasonal and annual financial performance. The Committee also
believes that restricted stock awards, which are earned based on financial
performance and the ultimate vesting of which is subject to continued
employment, assist the Company in retaining key high performing executives.
14
The award opportunity level for each eligible participant is based on
guidelines which include size of the executive's business unit, the
individual's responsibility level within that business, competitive practices,
and the market price of the Company's Common Stock. In determining the
potential award opportunities for an executive officer, the Committee begins
with these guidelines and then makes adjustments based on an evaluation of the
individual's performance and potential in the business.
Stock Options. In 1996, stock options were awarded to executives in the
amounts set forth in the Option Grants in Fiscal Year 1996 table above, and
selected key executive officers were granted options in stock of the Company
and Intimate Brands. The Intimate Brands grants were in recognition of the
efforts of these individuals in the successful initial public offering of
Intimate Brands in October 1995. The option program utilizes vesting periods
to encourage retention of key executives. The exercise price for each option
granted, with the exception of the options granted to Mr. Wexner (who was
granted above-market value options), is equal to the fair market value of the
underlying common stock on the date of grant.
Performance-Based Restricted Stock. In 1996, the Committee continued a
program commenced in 1994 under which executives, including the named
executive officers, are eligible to receive restricted stock based on the
achievement of preestablished financial goals. Executives can earn from zero
to double their targeted number of restricted shares based upon the extent to
which financial goals are achieved.
CEO COMPENSATION
Mr. Wexner has been Chief Executive Officer and President since founding the
Company in 1963. The Company conducts the same type of competitive review and
analysis to determine base salary and incentive guidelines for Mr. Wexner's
position as it does for the other executive positions.
In 1996, as in prior years, in establishing Mr. Wexner's compensation
package the Committee considered competitive practices, the extent to which
the Company achieved operating income and sales growth objectives, and the
continued recruitment and development of leadership talent for the business.
These factors are considered subjectively in the aggregate and none of these
factors is accorded specific weight.
As described earlier, the Committee and the Company continue to emphasize
variable, performance-based compensation components for all executives,
including Mr. Wexner. Accordingly, Mr. Wexner's base salary was reduced in
1996 to $1 million, while his performance-based cash incentive compensation
target was raised from 120% to 150% of base salary. In addition, Mr. Wexner
was granted options covering 200,000 shares of the Company's Common Stock with
an exercise price set at a 10% premium over the fair market value of such
stock on the date of grant. In addition, Mr. Wexner was granted options
covering 100,000 shares of Intimate Brands' Class A Common Stock with an
exercise price set at a 10% premium over the fair market value of such stock
on the date of grant. In establishing these compensation elements, the
Committee favorably viewed Mr. Wexner's significant achievements in recruiting
and developing senior leadership, improving financial results, and developing
the brand strategies of the business.
Although the Company posted record net sales of $8.65 billion, an 11%
increase over fiscal 1995, and earned net income of $316 million (exclusive of
gain from sale of subsidiary stock) which was 27% above pro forma earnings for
fiscal 1995, these results were below targeted performance objectives
established by the Committee. As a result, annual cash incentive payments were
below targeted levels and no performance-based restricted stock award was
earned by Mr. Wexner for 1996.
Compensation Committee
Donald B. Shackelford, Chair
E. Gordon Gee
15
STOCKHOLDER RETURN GRAPH
The following graph shows the changes, over the past five-year period, in
the value of $100 invested in Common Stock of the Company, the Standard &
Poor's 500 Composite Stock Price Index and the Standard & Poor's Retail Stores
Composite Index. The plotted points represent the closing price on the last
day of the fiscal year indicated.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE LIMITED, INC., THE S & P 500 INDEX
AND THE S & P RETAIL STORES COMPOSITE INDEX
[GRAPH APPEARS HERE]
The S & P Retail Stores
Date Limited,Inc. S & P 500 Composite
1/92 $ 100 $ 100 $ 100
1/93 $ 90 $ 111 $ 119
1/94 $ 59 $ 125 $ 115
1/95 $ 57 $ 125 $ 107
1/96 $ 58 $ 174 $ 115
1/97 $ 60 $ 220 $ 137
* $100 INVESTED ON 1/31/92 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JANUARY 31.
16
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth the names of all persons who, on February 24,
1997, were known by the Company to be the beneficial owners (as defined in the
rules of the Commission) of more than 5% of the shares of any class of voting
common stock of the Company:
AMOUNT
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
- ------------------- ------------ --------
Leslie H. Wexner.......................................... 67,384,748 24.9%
Three Limited Parkway
P.O. Box 16000
Columbus, Ohio 43216
FMR Corp.(1).............................................. 20,945,891 7.7%
82 Devonshire Street
Boston, Massachusetts 02109-3614
- --------
(1) FMR Corp., Edward C. Johnson 3d, Abigail P. Johnson and certain
subsidiaries of FMR Corp. may be deemed to be members of a "group" as such
term is defined in the rules promulgated by the Commission. The FMR Group
is the beneficial holder of the Company's Common Stock as a result of the
investment-related activities of certain subsidiaries of FMR Corp. Members
of the Edward C. Johnson 3d family and trusts for their benefit are the
predominant owners of Class B shares of common stock of FMR Corp.
representing approximately 49% of its voting power. Mr. Johnson 3d, the
chairman of FMR Corp., owns 12% of the aggregate outstanding voting stock
of FMR Corp. and Ms. Johnson, a director of FMR Corp., owns 24.5% of the
aggregate outstanding voting stock of FMR Corp.
17
PROPOSAL TO APPROVE ADOPTION OF
THE INCENTIVE COMPENSATION PERFORMANCE PLAN
On March 21, 1997, the Company's Board of Directors adopted, subject to
approval of the Company's stockholders, The Limited, Inc. Incentive
Compensation Performance Plan (the "Incentive Plan"). The Incentive Plan is
intended to satisfy the applicable provisions of, and is being submitted to
stockholders pursuant to, Section 162(m) of the Code. If approved by
stockholders, the Incentive Plan will replace and supersede the Company's
Incentive Compensation Plan ("ICP"), approved by stockholders at the Company's
1994 Annual Meeting. The following summary of the material terms of the
Incentive Plan, a copy of which is attached hereto as Exhibit A, does not
purport to be complete and is qualified in its entirety by the terms of the
Incentive Plan. Under the Incentive Plan, those key executives of the Company
with significant operating and financial responsibility who, as determined by
the Compensation Committee, are likely to be "covered employees" (within the
meaning of Section 162(m) of the Code) in respect of the relevant performance
year, will be eligible to earn seasonal or annual cash incentive compensation
payments.
Under the Incentive Plan, performance goals will be established by the
Compensation Committee in respect of each Spring and/or Fall selling season or
fiscal year. The performance goals selected by the Compensation Committee
shall be based on any one or more of the following: price of the Company's
Common Stock or the stock of any affiliate, shareholder return, return on
equity, return on investment, return on capital, economic profit, economic
value added, net income, operating income, gross margin, sales, sales
productivity, comparable store sales growth, free cash flow, earnings per
share, operating company contribution or market share. These factors shall
have a minimum performance standard below which, and a maximum performance
standard above which, no payments will be made. Any performance goals
established may be based on an analysis of historical performance and growth
expectations, financial results of other comparable businesses both inside and
outside the Company, and progress toward achieving the Company's long-range
strategic plan. These performance goals and determination of results shall be
based entirely on financial measures. After performance goals are established,
discretion may not be used to modify award results except as permitted under
Section 162(m) of the Code.
Annual incentive compensation targets established for eligible executives
will range from 50% to 200% of base salary. Executives will earn their target
incentive compensation if their businesses achieve the pre-established
performance goals. The target incentive compensation percentage for each
executive will be based on the level and functional responsibility of his or
her position, size of the business for which the executive is responsible, and
competitive practices. The amount of incentive compensation paid to executives
can range from zero to double their targets, based upon the extent to which
performance goals are achieved. The minimum level at which an executive would
earn any incentive payment, and the level at which an executive would earn the
maximum incentive payment of double the target, will generally be established
by the Compensation Committee of the Company prior to the commencement of each
bonus period, and actual payouts will be based on either a straight-line or
preestablished graded interpolation based on these minimum and maximum levels
and actual performance.
The maximum dollar amount to be paid in any year under the Incentive Plan to
any participant may not exceed $5,000,000.
Approval of the Incentive Plan by the Company's stockholders is required
under applicable law in order for compensation paid pursuant to the Incentive
Plan to qualify as performance-based for purposes of Section 162(m) of the
Code. Unless the Incentive Plan is approved at the Annual Meeting, no annual
incentive compensation
18
opportunities will be awarded under the Incentive Plan after the Annual
Meeting, and any awards made under the Incentive Plan prior to the Annual
Meeting (which were made subject to stockholder approval of the Incentive
Plan) will lapse. If the Incentive Plan is approved, no further compensation
will be paid under the ICP.
The Board of Directors of the Company may amend the Plan at any time.
The following table sets forth amounts that would have been paid under the
Incentive Plan for the Company's last completed fiscal year to the named
executive officers and certain other groups based on Company performance and
the performance goals established under the ICP by the Committee for such
fiscal year.
INCENTIVE COMPENSATION PLAN BENEFITS TABLE
DOLLAR
VALUE ($)
NAME AND POSITION (1)
- ----------------- ---------
Leslie H. Wexner, Chairman of the Board and Chief Executive Officer.. 915,000
Kenneth B. Gilman, Vice Chairman and Chief Financial Officer......... 603,900
Michael A. Weiss, Vice Chairman(2)................................... 281,655
Martin Trust, President and Chief Executive Officer of Mast Indus-
tries, Inc.......................................................... 1,155,700
Charles W. Hinson, President--Store Planning......................... 256,200
All Executive Officers as a Group.................................... 3,212,455
All Current Directors Who are Not Executive Officers as a Group...... --
All Associates Other than Executive Officers as a Group.............. --
- --------
(1) Executive officers Wexner, Gilman, Weiss, Trust and Hinson have been
granted incentive compensation opportunities for the current fiscal year
under the Incentive Plan, subject to its approval by stockholders.
(2) Mr. Weiss was appointed President and Chief Executive Officer of Express
effective January 13, 1997.
REQUIRED VOTE
Approval of the Incentive Plan requires the affirmative vote of a majority
of the total voting power represented by the outstanding shares of the
Company's Common Stock present or represented at the Annual Meeting and
entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE INCENTIVE
PLAN.
19
PROPOSAL TO APPROVE ADOPTION OF THE 1997 RESTATEMENT
OF THE 1993 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
In 1996, the Company's Board of Directors adopted, and the Company's
stockholders approved, the 1996 Restatement of The Limited, Inc. 1993 Stock
Option and Performance Incentive Plan (the "1996 Plan"). Subject to
stockholder approval, the Company's Board of Directors has adopted the 1997
Restatement of the 1996 Plan (the "Stock Plan"). The only changes made to the
1996 Plan are to increase the maximum number of shares of Common Stock that
may be subject to awards granted under the Stock Plan to any associate in any
calendar year, expand the list of possible objective performance goals for
restricted stock performance awards, conform to changes in applicable law,
provide the Plan Committee (as defined below) with greater discretion in
establishing vesting and forfeiture provisions for awards under the Stock Plan
and require that stockholder approval is required only for amendments
materially increasing the aggregate number of shares of Common Stock issuable
under the Stock Plan other than pursuant to the Stock Plan's antil-dilution
provisions. The following summary of the material terms of the Stock Plan, a
copy of which is attached hereto as Exhibit B, does not purport to be complete
and is qualified in its entirety by the terms of the Stock Plan.
PURPOSE OF PLAN
The purpose of the Stock Plan is to attract and retain the best available
executive and key management associates for the Company and its subsidiaries
and to encourage the highest level of performance by such associates, thereby
enhancing the value of the Company for the benefit of its stockholders. The
Stock Plan is also intended to motivate executive and key management
associates to contribute to the Company's future growth and profitability and
to reward their performance in a manner that provides them with a means to
increase their holdings of the Common Stock of the Company and aligns their
interests with the interests of the stockholders of the Company.
ADMINISTRATION OF THE STOCK PLAN
The Stock Plan will be administered by a committee of two or more members of
the Company's Board of Directors (the "Plan Committee"). The Plan Committee
will be composed of directors who qualify as "non-employee directors" within
the meaning of the Securities and Exchange Act of 1934, as amended (the
"Act"), and as "outside directors" within the meaning of Section 162(m) of the
Code. The Plan Committee has the power in its discretion to grant awards under
the Stock Plan, to determine the terms thereof, to interpret the provisions of
the Stock Plan and to take action as it deems necessary or advisable for the
administration of the Stock Plan.
NUMBER OF AUTHORIZED SHARES
The Stock Plan provides for awards with respect to a maximum of 17,298,255
shares of Common Stock to associates of the Company and its subsidiaries.
Corresponding Tax Offset Payments (as hereinafter defined) also may be awarded
at the discretion of the Plan Committee. The number and class of shares
available under the Stock Plan and/or subject to outstanding awards may be
adjusted by the Plan Committee to prevent dilution or enlargement of rights in
the event of various changes in the capitalization of the Company. Shares of
Common Stock attributable to: (i) unexercised Options (as hereinafter defined)
which expire or are terminated, surrendered or canceled (other than in
connection with the exercise of stock appreciation rights ("SARs")); (ii)
shares of Common Stock of the Company subject to certain restrictions
("Restricted Shares") which are forfeited to the Company; (iii) units
representing shares of Common Stock ("Performance Shares") and units which do
not represent shares of Common Stock but which may be paid in Common Stock
("Performance Units") which are not earned and paid; and (iv) awards settled
in cash in lieu of shares of Common Stock, may be available for subsequent
award under the Stock Plan at the Plan Committee's discretion to the extent
permissible under Rule 16b-3 of the Act.
20
ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the Stock Plan is limited to the named
executive officers and full-time executive and key management associates of
the Company and its subsidiaries who are selected by the Plan Committee.
Currently, approximately 8,000 associates of the Company and its subsidiaries
are within the classes eligible to participate in the Stock Plan. The Company
anticipates that approximately 10% of those eligible will participate in the
Stock Plan. Participation in the Stock Plan is at the discretion of the Plan
Committee and will be based upon the associate's present and potential
contributions to the success of the Company and its subsidiaries and such
other factors as the Plan Committee deems relevant. No associate may be
granted in any calendar year awards covering more than 2,000,000 shares of
Common Stock.
TYPE OF AWARDS UNDER THE STOCK PLAN
The Stock Plan provides that the Plan Committee may grant awards to eligible
associates in any of the following forms, subject to such terms, conditions
and provisions as the Plan Committee may determine to be necessary or
desirable: (i) incentive stock options ("ISOs"); (ii) nonstatutory stock
options ("NSOs"); (iii) SARs; (iv) Restricted Shares; (v) Performance Shares;
(vi) Performance Units; (vii) shares of unrestricted Common Stock
("Unrestricted Shares"); and (viii) tax offset payments ("Tax Offset
Payments").
GRANT OF OPTIONS AND SARS
The Plan Committee may award ISOs and/or NSOs (collectively, "Options") to
eligible associates. SARs may be awarded either in tandem with Options
("Tandem SARs") or on a stand-alone basis ("Nontandem SARs"). Tandem SARs may
be awarded by the Plan Committee either at the time the related Option is
granted or thereafter at any time prior to the exercise, termination or
expiration of the related Option.
EXERCISE PRICE
The exercise price with respect to an Option is determined by the Plan
Committee at the time of grant. The exercise price determined with respect to
an Option shall also be applicable in connection with the exercise of any
Tandem SAR granted with respect to such Option. At the time of grant of a
Nontandem SAR, the Plan Committee will specify the base price of the shares of
Common Stock to be issued for determining the amount of cash or number of
shares of Common Stock to be distributed upon the exercise of such Nontandem
SAR. Neither the exercise price per share of Common Stock nor the base price
of Nontandem SARs will be less than 100% of the fair market value per share of
the Common Stock underlying the award on the date of grant. Information as to
awards granted under the 1996 Plan to named executives, officers and other
participants is set forth in the table below.
VESTING
The Plan Committee may determine at the time of grant and any time
thereafter the terms under which Options and SARs shall vest and become
exercisable.
SPECIAL LIMITATIONS ON ISOS
No ISO may be granted to an associate who owns, at the time of the grant,
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company, its parent or its subsidiaries (a "10%
Shareholder"), unless the exercise price per share of Common Stock for the
shares subject to such ISO is at least 110% of the fair market value per share
of Common Stock on the date of grant and such ISO award is not exercisable
more than five years after its date of grant. In addition, the total fair
market value of shares of Common Stock subject to ISOs which are exercisable
for the first time by an eligible associate in a given calendar year shall not
exceed $100,000, valued as of the date of the ISOs' grant. ISOs may not be
granted more than ten years after the date of adoption of the Stock Plan by
the Company's Board of Directors.
21
EXERCISE OF OPTIONS AND SARS
An Option may be exercised by written notice to the Plan Committee stating
the number of shares of Common Stock with respect to which the Option is being
exercised, and tendering payment therefor. The Plan Committee may, at its
discretion, accept shares of Common Stock as payment (valued at their fair
market value on the date of exercise).
Tandem SARs are exercisable only to the extent that the related Option is
exercisable and only for the period determined by the Plan Committee (which
period may expire prior to the expiration date of the related Option). Upon
the exercise of all or a portion of Tandem SARs, the related Option shall be
canceled with respect to an equal number of shares of Common Stock. Similarly,
upon exercise of all or a portion of an Option, the related Tandem SARs shall
be canceled with respect to an equal number of shares of Common Stock.
Nontandem SARs shall be exercisable for the period determined by the Plan
Committee.
SURRENDER OR EXCHANGE OF SARS
Upon the surrender of a Tandem SAR and cancellation of the related
unexercised Option, the associate will be entitled to receive shares of Common
Stock having an aggregate fair market value equal to (A) the excess of (i) the
fair market value of one share of Common Stock as of the date the Tandem SAR
is exercised over (ii) the exercise price per share specified in such Option,
multiplied by (B) the number of shares of Common Stock subject to the Option,
or portion thereof, which is surrendered. Upon surrender of a Nontandem SAR,
the associate will be entitled to receive shares of Common Stock having an
aggregate fair market value equal to (A) the excess of (i) the fair market
value of one share of Common Stock as of the date on which the Nontandem SAR
is exercised over (ii) the base price of the shares covered by the Nontandem
SAR multiplied by (B) the number of shares of Common Stock covered by the
Nontandem SAR, or the portion thereof being exercised. The Plan Committee, in
its discretion, may cause all or any portion of the Company's obligation to an
associate in respect of the exercise of an SAR to be satisfied in cash in lieu
of Common Stock. Any fractional shares resulting from the exercise of an SAR
will be paid in cash.
NONTRANSFERABILITY OF OPTIONS AND SARS
Options and SARs are not transferable except by will or applicable laws of
descent and distribution.
EXPIRATION OF OPTIONS
Options will expire at such time as the Plan Committee determines; provided,
however, that no Option may be exercised more than ten years from the date of
grant, unless an ISO is held by a 10% Shareholder, in which case such ISO may
not be exercised more than five years from the date of grant.
TERMINATION OF OPTIONS AND SARS
Except as the Plan Committee may at any time provide, Options and SARs may
be exercised within three months after the termination of an associate's
employment (other than by death or total disability), to the extent then
exercisable, but in no case later than the term specified in the grant. Except
as the Plan Committee may at any time provide, upon the death or total
disability of an associate while employed by the Company or its subsidiaries
(or upon the death of an associate within three months after termination of
employment), Options and SARs, to the extent then exercisable, shall remain
exercisable for (i) one year following such associate's death or (ii) during
the first nine months that the associate receives benefits under the Company's
Long-Term Disability Plan.
22
RESTRICTED SHARES
Restricted Shares granted to associates under the Stock Plan may not be
sold, transferred, pledged or otherwise encumbered or disposed of during the
restricted period established by the Plan Committee. The Plan Committee may
also impose additional restrictions on the associate's right to dispose of or
to encumber Restricted Shares, which may include satisfaction of performance
objectives. Performance objectives under the Stock Plan will be determined by
the Plan Committee and will be based on any one or more of the following:
price of the Company's Common Stock or the stock of any affiliate, shareholder
return, return on equity, return on investment, return on capital, sales
productivity, comparable store sales growth, economic profit, economic value
added, net income, operating income, gross margin, sales, free cash flow,
earnings per share, operating company contribution or market share. These
factors shall have a minimum performance standard below which, and a maximum
performance standard above which, no payments will be made. These performance
goals may be based on an analysis of historical performance and growth
expectations for the business, financial results of other comparable
businesses, and progress towards achieving the long-range strategic plan for
the business. These performance goals and determination of results shall be
based entirely on financial measures. The Committee may not use any discretion
to modify award results except as permitted under Section 162(m) of the Code.
Except as the Plan Committee may at any time provide, holders of Restricted
Shares may not exercise the rights of a shareholder, such as the right to vote
the shares or receive dividends and other distributions, prior to the vesting
of the shares.
Except as the Plan Committee may at any time provide, upon termination of
the associate's employment with the Company, Restricted Shares granted to such
associate shall be forfeited.
PERFORMANCE SHARES AND PERFORMANCE UNITS
The Plan Committee may award to associates Performance Shares, each
equivalent to one share of Common Stock, and Performance Units which will have
a specified value or formula-based value at the end of a performance period.
Performance Shares and Performance Units so awarded will be credited to an
account established and maintained for the associate. The Plan Committee shall
determine performance periods and performance objectives in connection with
each grant of Performance Shares or Performance Units.
Vesting of awards of Performance Shares and Performance Units will occur
upon achievement of the applicable objectives within the applicable
performance period. The Plan Committee may, at its discretion, permit vesting
in the event performance objectives are partially met, or grant additional
vested Performance Shares or Performance Units in the event performance
objectives are surpassed. Payment of vested Performance Shares and Performance
Units may be made in cash, Common Stock or any combination thereof, as
determined by the Plan Committee.
No voting or dividend rights attach to the Performance Shares; however, the
Plan Committee may credit an associate's Performance Share account with
additional Performance Shares equivalent to the fair market value of any
dividends on an equivalent number of shares of Common Stock.
UNRESTRICTED SHARES
Unrestricted Shares may also be granted at the discretion of the Plan
Committee. Except as required by applicable law, no payment will be required
for Unrestricted Shares.
TAX WITHHOLDING AND TAX OFFSET PAYMENTS
The Plan Committee may require payment, or withhold from payments made under
the Stock Plan, in order to satisfy applicable withholding tax requirements.
The Plan Committee may make Tax Offset Payments to assist associates in paying
income taxes incurred as a result of their participation in the Stock Plan.
The amount of the
23
Tax Offset Payments shall be determined by multiplying a percentage
(established by the Plan Committee) by all or a portion of the taxable income
recognized by an associate upon: (i) the exercise of an NSO or an SAR; (ii)
the disposition of shares received upon exercise of an ISO; (iii) the lapse of
restrictions on Restricted Shares; (iv) the award of Unrestricted Shares; or
(v) payments for Performance Shares or Performance Units.
TERM OF STOCK PLAN
Unless earlier terminated by the Company's Board of Directors, the Stock
Plan will terminate on May 19, 2006.
AMENDMENT AND TERMINATION
The Company's Board of Directors may suspend, amend, modify or terminate the
Stock Plan; provided, however, that the Company's stockholders shall be
required to approve any amendment that would materially increase the aggregate
number of shares issuable under the Stock Plan.
Awards granted prior to a termination of the Stock Plan shall continue in
accordance with their terms following such termination. No amendment,
suspension or termination of the Stock Plan shall adversely affect the rights
of an associate in awards previously granted without such associate's consent.
Set forth below is a summary of the awards that were made in respect of
fiscal 1996 pursuant to the 1996 Plan.
1996 PLAN TABLE
NUMBER OF
NAME AND POSITION UNITS
- ----------------- ------------
Leslie H. Wexner, Chairman of the Board, Chief Executive Officer
and President.................................................... 200,000(1)
-- (2)
Kenneth B. Gilman, Vice Chairman and Chief Financial Officer...... 50,000(1)
-- (2)
Michael A. Weiss, Vice Chairman(3)................................ 25,000(1)
-- (2)
Martin Trust, President and Chief Executive Officer of Mast
Industries, Inc................................................... 60,000(1)
29,250(2)
Charles W. Hinson, President--Store Planning...................... 30,000(1)
-- (2)
All Executive Officers as a Group................................. 570,000(1)
92,432(2)
All Current Directors Who are Not Executive Officers as a Group... -- (1)
-- (2)
All Associates Other than Executive Officers as a Group........... 1,242,600(1)
307,571(2)
- --------
(1) Consists of options granted to purchase shares of the Company's Common
Stock. As of April 4, 1997, the fair market value of a share of the
Company's Common Stock was $18.
(2) Consists of restricted shares of the Company's Common Stock which will
generally vest under the schedule described in footnote 2 to the Summary
Compensation Table, in each case subject to the holder's continued
employment with the Company.
(3) Mr. Weiss was appointed President and Chief Executive Officer of Express
effective January 13, 1997.
24
FEDERAL INCOME TAX CONSEQUENCES
Stock Options
There will be no federal income tax consequences to the associate or the
Company upon the grant of either an ISO or an NSO under the Stock Plan. Upon
exercise of an NSO, an associate generally will recognize ordinary income in
an amount equal to (i) the fair market value, on the date of exercise, of the
acquired shares of Common Stock less (ii) the exercise price of the NSO.
Subject to Section 162(m) of the Code and the associate including such
compensation in income or the Company satisfying applicable reporting
requirements, the Company will be entitled to a tax deduction in the same
amount.
Upon the exercise of an ISO, an associate recognizes no immediate taxable
income. Income recognition is deferred until the associate sells the shares of
Common Stock. If the ISO is exercised no later than three months after the
termination of the associate's employment, and the associate does not dispose
of the shares acquired pursuant to the exercise of the ISO within two years
from the date the ISO was granted and within one year after the exercise of
the ISO, the gain on the sale will be treated as long-term capital gain.
Certain of these holding periods and employment requirements are liberalized
in the event of an associate's death or disability while employed by the
Company. The Company is not entitled to any tax deduction with respect to the
grant or exercise of ISOs, except that if the Common Stock is not held for the
full term of the holding period outlined above, the gain on the sale of such
Common Stock, being the lesser of: (i) the fair market value of the Common
Stock on the date of exercise minus the option price or (ii) the amount
realized on disposition minus the exercise price, will be taxed to the
associate as ordinary income and, subject to Section 162(m) of the Code and
the associate including such compensation in income and the Company satisfying
applicable reporting requirements, the Company will be entitled to a deduction
in the same amount. The excess of the fair market value of the Common Stock
acquired upon exercise of an ISO over the exercise price therefor constitutes
a tax preference item for purposes of computing the "alternative minimum tax"
under the Code.
Special rules, summarized below, may apply to associates who are subject to
Section 16 of the Act.
Stock Appreciation Rights
There will be no federal income tax consequences to either the associate or
the Company upon the grant of an SAR. However, the associate generally will
recognize ordinary income upon the exercise of an SAR in an amount equal to
the aggregate amount of cash and the fair market value of the shares of Common
Stock received upon exercise. Subject to Section 162(m) of the Code and the
associate including such compensation in income and the Company satisfying
applicable reporting requirements, the Company will be entitled to a deduction
equal to the amount includable in the associate's income.
Special rules, summarized below, may apply to associates who are subject to
Section 16 of the Act.
Restricted Shares
There will be no federal income tax consequences to either the associate or
the Company upon the grant of Restricted Shares until expiration of the
restricted period and the satisfaction of any other conditions applicable to
the Restricted Shares. At that time, the associate generally will recognize
taxable income equal to the then fair market value for the Common Stock and,
subject to Section 162(m) of the Code and the associate including such
compensation in income and the Company satisfying applicable reporting
requirements, the Company will be entitled to a corresponding deduction.
However, the associate may elect, within thirty days after the date of the
grant, to recognize ordinary income as of the date of grant and the Company
will be entitled to a corresponding deduction at that time.
25
Special rules, summarized below, may apply to associates who are subject to
Section 16 of the Act.
Performance Shares and Units
There will be no federal income tax consequences to the associate or the
Company upon the grant of Performance Shares or Performance Units. Associates
generally will recognize taxable income at the time when payment for the
Performance Shares or Performance Units is received in an amount equal to the
aggregate amount of cash and the fair market value of shares of Common Stock
acquired. Subject to Section 162(m) of the Code, and the associate including
such compensation in income and the Company satisfying applicable reporting
requirements, the Company will be entitled to a deduction equal to the amount
includable in the associate's income.
Special rules, summarized below, may apply to associates who are subject to
Section 16 of the Act.
Unrestricted Shares
Associates generally will recognize taxable income at the time Unrestricted
Shares are received. Subject to Section 162(m) of the Code and the associate
including such compensation in income and the Company satisfying applicable
reporting requirements, the Company will be entitled to a deduction equal to
the amount includable in the associate's income.
Special rules, summarized below, may apply to associates who are subject to
Section 16 of the Act.
Section 16 of the Exchange Act
Associates who are subject to Section 16 of the Act and receive shares of
Common Stock under the Stock Plan will not recognize ordinary income at that
time unless (i) an election is made by such associate under Section 83(b) of
the Code or (ii) the sale of such shares by such associate at a profit is no
longer subject to Section 16(b) of the Act (generally (1) in the case of
options, six months following the date of grant of the option to which the
shares relate and (2) otherwise, six months after the receipt of shares). Such
associate will instead recognize ordinary income equal to the fair market
value of such shares received (less the price paid for the shares, if any) on
the first day that such a sale is no longer subject to Section 16(b) of the
Act and, subject to Section 162(m) of the Code, the Company or an affiliate
generally will be entitled to a deduction of an equal amount for federal
income tax purposes at that time provided that applicable tax withholding
requirements are satisfied. An associate subject to Section 16 of the Act may
elect under Section 83(b) of the Code, within 30 days of the transfer of such
shares, to recognize income at the time of transfer equal to the difference
between the price paid for such shares, if any, and the fair market value of
such shares. Such amount will be taxed as ordinary income to the associate
and, subject to Section 162(m) of the Code and satisfaction of applicable
withholding requirements, generally will be allowed as a deduction for federal
income tax purposes to the Company.
REQUIRED VOTE
Approval of the Stock Plan requires the affirmative vote of a majority of
the total voting power represented by outstanding shares of Common Stock
present or represented at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE STOCK PLAN.
26
STOCKHOLDER PROPOSALS
STOCKHOLDER PROPOSAL NO. 1: COMPOSITION OF THE BOARD OF DIRECTORS
The following proposal and supporting statement have been submitted by the
Kentucky State District Council of Carpenters Pension Fund, 632 Comanche
Trail, Frankfort, KY, 40601, which, as of December 13, 1996, owned 4,675
shares of the Company's Common Stock:
BE IT RESOLVED: That the shareholders of Limited, Inc. [sic] ("Company")
hereby request that the Company's Board of Directors take the steps necessary
to provide that the Board of Directors shall consist of a majority of
independent directors. For these purposes, the definition of independent
director shall mean a director who:
. has not been employed by the Company or an affiliate in an executive
capacity within the last five years;
. was not, and is not a member of a corporation or firm that is one of the
Company's paid advisers or consultants;
. is not employed by a significant customer, supplier or provider of
professional services;
. has no personal services contract with the Company;
. is not employed by a foundation or university that receives significant
grants or endowments from the Company;
. is not a relative of the management of the Company;
. is not a shareholder who has signed shareholder agreements legally
binding him to vote with management; and
. is not the Chairman of a company on which the Company's Chairman or Chief
Executive Officer is also a board member.
Stockholder Supporting Statement
The purpose of this proposal is to incorporate within the Board of Directors
a basic standard of independence that we believe will permit clear and
objective decision making in the best long term interests of shareholders. A
Board of Directors must formulate corporate policies and monitor the
activities of management in implementing those policies. Given those
functions, we believe that it is in the best interests of all stockholders if
at least a majority of our Board representatives are independent as defined
above.
We think the benefits of such independence we think [sic] are well accepted.
The New York Stock Exchange, for instance, requires each of its listed
companies to have at least two members of the board of directors and all
members of the audit committee who meet New York Stock Exchange standards of
independence. The movement to independent boards of directors is supported by
The Business Roundtable in its publication Corporate Governance and American
Competitiveness, which states, in part:
Board [sic] of directors of large publicly-held public corporations
should be composed predominately [sic] of independent directors who
do not hold management responsibilities within the corporation. . . .
In order to underscore their independence, non-management directors
should not be dependent financially on the companies on whose boards
they serve.
27
At present, the Company's Board of Directors includes a majority of
individuals who are Company or affiliate officers or who maintain consulting
or business relationships with the Company. Further, the critically important
Board Nominating Committee includes no independent directors. Given the
relatively weak financial performance of the Company over the past several
years, we believe it is critically important that a Company have in place a
Board that can perform its critical oversight role in an objective fashion.
We urge you to VOTE FOR THIS PROPOSAL. It will be a constructive and
supportive statement by shareholders in favor of improved corporate
governance.
Recommendation of the Board of Directors Against Stockholder Proposal No. 1
The Board of Directors believes that Stockholder Proposal No. 1 is not in
the best interests of stockholders and therefore recommends a vote AGAINST the
Proposal.
The Board of Directors agrees with the principle underlying Shareholder
Proposal No. 1 that the Board should include a majority of members who are
neither employed by, nor have any material personal relationship with any
employees of, the Company. In fact, since 1984 a majority of the Company's
Board of Directors has been comprised of such independent directors. In
addition, key committees of the Board, including the Compensation and Audit
Committees, are made up entirely of independent directors. Moreover, a
majority of the current Board of Directors qualifies as both "non-employee"
directors for purposes of Rule 16b-3 under the Securities Exchange Act of
1934, as amended and as "outside directors" for purposes of Section 162(m) of
the Internal Revenue Code of 1986, as amended. For these reasons, the Board
believes that its long-standing corporate governance practices and policies
with respect to director independence already achieve the important objectives
of the Proposal.
The Board of Directors is of the view, however, that the definition of
"independence" included in Stockholder Proposal No. 1 is unreasonably
restrictive and, as such, would impair the ability of the Company to retain
the most qualified and experienced individuals to serve as directors. The
Company has operations throughout the United States and in numerous countries
around the world, and the Board believes it critical to retain the flexibility
to recruit those directors who it believes will provide the judgment and
expertise necessary to foster the Company's future growth and success.
Adopting a policy that precludes certain otherwise qualified individuals from
serving as directors simply because they do not meet one or more arbitrary
criteria could impair the ability of the Board to discharge its duties to
stockholders and, accordingly, is not in the best interests of the Company and
its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" STOCKHOLDER PROPOSAL NO.
1.
STOCKHOLDER PROPOSAL NO. 2: EXECUTIVE COMPENSATION
The following proposal and supporting statement have been submitted by the
Amalgamated Bank of New York LongView Collective Investment Fund, 11-15 Union
Square, New York, NY, 10003, which, as of December 12, 1996, owned 67,871
shares of the Company's Common Stock:
RESOLVED: That the shareholders of The Limited, Inc. (the "Company") request
the Board of Directors to adopt executive compensation policies that emphasize
and reward executives for enforcing standards seeking to ensure that The
Limited does not do business with foreign suppliers who manufacture items for
sale in the United States using forced labor, convict labor, or illegal child
labor, or who fail to satisfy all applicable laws and standards protecting
their employees' wages, benefits, working conditions, freedom of association,
and other rights.
28
Stockholder Supporting Statement
As U.S. companies import more goods, concern is growing about working
conditions in many nations that fall far below basic standards of fair and
humane treatment. Several years ago, a controversy arose after reports that
goods made by convicts in Chinese prisons were being imported into the United
States for sale to consumers. The Tariff Act of 1930 makes it illegal to
import any goods made by forced labor, including convict labor. China's use of
prison labor and its record on human rights generally were issues in the
debate about whether China should enjoy "most favored nation" trading status
with the United States.
Public concern has also been voiced in the wake of reports that retail items
were manufactured using illegal child labor, unsafe and unhealthy working
conditions, and similar conditions. In 1996, the White House issued a set of
sourcing principles that it is urging American business to follow when dealing
with overseas suppliers. Many retailers, including The Limited, have adopted
their own standards in this area.
The Limited imports many goods into this country, and we believe that an
important measure of executive compensation should be the extent to which
Company executives ensure that strict standards are enforced in this area.
Lack of vigilance on this issue can be damaging to a company, in our judgment.
For example, there are subterfuges that suppliers can use to import goods made
by forced labor into the United States. Also, reports that an overseas
supplier exploits its workers can generate a consumer backlash and damage the
reputation of companies selling retail goods made by that supplier. Finally,
when the federal government enforces applicable laws in this area, it may hold
companies liable for actions of their suppliers.
Thus, in our view, it is not adequate for a company such as The Limited
simply to have standards forbidding its overseas suppliers to use forced
labor, illegal child labor or similar practices. An executive compensation
policy that places a sufficient premium on enforcement of those standards is,
we believe, an essential element too.
WE URGE YOU TO VOTE FOR THIS RESOLUTION!
Recommendation of the Board of Directors Against Stockholder Proposal No. 2
The Board of Directors believes that Stockholder Proposal No. 2 is
unnecessary and inappropriate as a matter of compensation policy and therefore
recommends a vote AGAINST the Proposal.
The Limited takes very seriously its responsibility to conduct business in
accordance with high ethical standards and is a recognized leader within the
retail industry in developing and implementing practices intended to ensure
that its vendors and suppliers -- both foreign and domestic -- comply with
applicable laws and conduct their operations in a manner that respects the
basic human rights of their employees. The Limited (and its affiliated
companies) were identified by the United States Department of Labor (the
"DOL") as one of only 31 companies included on the DOL's 1996 "Trendsetter
List" of companies that, according to a DOL News Release, ". . . demonstrate a
commitment to labor laws; cooperate with law enforcement agencies when
violations of the law are found; educate suppliers regarding the Fair Labor
Standards Act; and regularly monitor their cutting and sewing contractors and
subcontractors." The Limited and its affiliates represented 14 of 31 companies
to be named to the DOL's 1995 "Trendsetter List". In addition, The Limited
regularly participates in the activities of various governmental and non-
governmental groups addressing employee issues relating to domestic and
international sourcing.
29
In 1994, The Limited adopted a formal Vendor Compliance Policy (the "Vendor
Compliance Policy") setting forth a code of conduct for The Limited's vendors
and suppliers with respect to workplace conditions, employee rights and
related matters. The Limited requires all of its vendors and suppliers to
agree in writing to adhere to the Vendor Compliance Policy and has adopted
various monitoring and certification procedures intended to ensure, to the
extent practicable, that suppliers adhere to the Policy.
As is the case with all of the Company's policies, executive officers and
employees are required to adhere to the Vendor Compliance Policy. Furthermore,
compliance with the Company's policies, including the Vendor Compliance
Policy, is considered in connection with executive officer compensation
decisions.
In addition to being unnecessary, the Board of Directors believes that the
Proposal -- which could serve to elevate one set of issues above others in
connection with compensation decisions -- is not in the best interests of
stockholders. Compensation policies for The Limited's executive officers
generally are established and administered by the Compensation Committee of
the Board of Directors. The Compensation Committee, which is comprised of
independent, non-employee Directors, is charged with establishing executive
compensation policies intended to promote the interests of the Company and its
stockholders and, in particular, to develop compensation packages intended to
enhance stockholder value. While recognizing the importance of the issues
addressed by the Proposal, the Board of Directors believes that The Limited's
stockholders are best served if directors, including the members of the
Compensation Committee, are free to exercise their own business judgment as to
compensation matters without the imposition of specific criteria -- binding or
otherwise -- from one or more of The Limited's various constituencies with
particular political, social or other agendas.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" STOCKHOLDER PROPOSAL NO.
2.
INDEPENDENT PUBLIC ACCOUNTANTS
During the Company's 1996 fiscal year, Coopers & Lybrand L.L.P. served as
the Company's independent public accountants and in that capacity will render
an opinion on the Company's consolidated financial statements as of and for
the fiscal year ended February 1, 1997. The Company annually reviews the
selection of its independent public accountants; no selection has yet been
made for the current fiscal year.
Representatives of Coopers & Lybrand are expected to be present at the
Annual Meeting. They will be available to respond to appropriate questions and
may make a statement if they so desire.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. However, if other matters should come before the meeting, it
is the intention of each of the persons named in the proxy to vote in
accordance with his judgment on such matters.
STOCKHOLDER PROPOSALS
Any proposals of stockholders which are intended to be presented at the next
Annual Meeting of Stockholders, but which are not received by the Secretary of
the Company at the principal executive offices of the Company on or before
December 15, 1997, may be omitted by the Company from the Proxy Statement and
form of proxy relating to that meeting.
30
EXPENSES OF SOLICITATION
The expense of preparing, assembling, printing and mailing the proxy form
and the form of material used in solicitation of proxies will be paid by the
Company. In addition to the use of the mails, solicitation may be made by
employees of the Company by telephone, mailgram, facsimile, telegraph, cable
and personal interview. The Company has retained Shareholder Communications
Corporation, New York, New York, to aid in the solicitation of proxies with
respect to shares held by brokerage houses, custodians, fiduciaries and other
nominees for a fee of approximately $30,000, plus expenses. The Company does
not expect to pay any other compensation for the solicitation of proxies.
By Order of the Board of Directors
/s/ Leslie H. Wexner
Leslie H. Wexner
Chairman of the Board
31
EXHIBIT A
THE LIMITED, INC.
INCENTIVE COMPENSATION PERFORMANCE PLAN
The Limited, Inc. Incentive Compensation Performance Plan (the "Incentive
Plan") is intended to satisfy the applicable provisions of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"). The Incentive Plan
shall be administered by the Compensation Committee (the "Committee") of the
Board of Directors of The Limited, Inc. (the "Company"). The Committee shall
select those key executives of the Company with significant operating and
financial responsibility and who are likely to be "covered employees" (within
the meaning of Section 162(m) of the Code) for the relevant fiscal year, to be
eligible to earn seasonal or annual cash incentive compensation payments to be
paid under the Incentive Plan.
In respect of each Spring and/or Fall selling season or fiscal year, the
Committee may establish performance goals for the Company. The performance
goals selected by the Committee shall be based on any one or more of the
following: price of the Company's Common Stock or the stock of any affiliate,
shareholder return, return on equity, return on investment, return on capital,
sales productivity, comparable store sales growth, economic profit, economic
value added, net income, operating income, gross margin, sales, free cash
flow, earnings per share, operating company contribution or market share.
These factors shall have a minimum performance standard below which, and a
maximum performance standard above which, no payments will be made. These
performance goals may be based on an analysis of historical performance and
growth expectations for the business, financial results of other comparable
businesses, and progress towards achieving the long-range strategic plan for
the business. These performance goals and determination of results shall be
based entirely on financial measures. The Committee may not use any discretion
to modify award results except as permitted under Section 162(m) of the Code.
Annual incentive compensation targets may be established for eligible
executives ranging from 50% to 200% of base salary. Executives may earn their
target incentive compensation if the business achieves the pre-established
performance goals. The target incentive compensation percentage for each
executive will be based on the level and functional responsibility of his or
her position, size of the business for which the executive is responsible, and
competitive practices. The amount of incentive compensation paid to
participating executives may range from zero to double their targets, based
upon the extent to which performance goals are achieved or exceeded. Except as
otherwise permitted by Section 162(m) of the Code, the minimum level at which
a participating executive will earn any incentive payment, and the level at
which an executive will bear the maximum incentive payment of double the
target, must be established by the Committee prior to the commencement of each
bonus period. Actual payouts must be based on either a straight-line or
preestablished graded interpolation based on these minimum and maximum levels
and the performance goals.
The maximum dollar amount to be paid for any year under the Incentive Plan
to any participant may not exceed $5,000,000.
A-1
EXHIBIT B
THE LIMITED, INC.
1993 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1997 RESTATEMENT)
THE LIMITED, INC.
1993 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1997 RESTATEMENT)
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
ESTABLISHMENT AND PURPOSE
1.1 Establishment and Effective Date..................................... B-1
1.2 Purpose.............................................................. B-1
ARTICLE 2
AWARDS
2.1 Form of Awards....................................................... B-1
2.2 Maximum Shares Available............................................. B-1
2.3 Return of Prior Awards............................................... B-2
ARTICLE 3
ADMINISTRATION
3.1 Committee............................................................ B-2
3.2 Powers of Committee.................................................. B-2
3.3 Delegation........................................................... B-2
3.4 Interpretations...................................................... B-2
3.5 Liability; Indemnification........................................... B-3
ARTICLE 4
ELIGIBILITY B-3
ARTICLE 5
STOCK OPTIONS
5.1 Grant of Options..................................................... B-3
5.2 Option Price......................................................... B-3
5.3 Term of Options...................................................... B-3
5.4 Exercise of Options.................................................. B-3
5.5 Cancellation of Stock Appreciation Rights............................ B-4
ARTICLE 6
SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS
6.1 Ten Percent Stockholder.............................................. B-4
6.2 Limitation on Grants................................................. B-4
6.3 Limitations on Time of Grant......................................... B-4
B-i
PAGE
----
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grants of Stock Appreciation Rights................................. B-4
7.2 Limitations on Exercise............................................. B-5
7.3 Surrender or Exchange of Tandem Stock Appreciation Rights........... B-5
7.4 Exercise of Nontandem Stock Appreciation Rights..................... B-5
7.5 Settlement of Stock Appreciation Rights............................. B-5
7.6 Cash Settlement..................................................... B-5
ARTICLE 8
NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS B-5
ARTICLE 9
TERMINATION OF EMPLOYMENT
9.1 Exercise after Termination of Employment............................ B-6
9.2 Total Disability.................................................... B-6
ARTICLE 10
DEATH OF ASSOCIATE B-6
ARTICLE 11
RESTRICTED SHARES
11.1 Grant of Restricted Shares.......................................... B-6
11.2 Restrictions........................................................ B-6
11.3 Restricted Stock Certificates....................................... B-7
11.4 Rights of Holders of Restricted Shares.............................. B-7
11.5 Forfeiture.......................................................... B-7
11.6 Delivery of Restricted Shares....................................... B-7
11.7 Performance-Based Objectives........................................ B-7
ARTICLE 12
PERFORMANCE SHARES
12.1 Award of Performance Shares......................................... B-8
12.2 Performance Period.................................................. B-8
12.3 Right to Payment of Performance Shares.............................. B-8
12.4 Payment for Performance Shares...................................... B-8
12.5 Voting and Dividend Rights.......................................... B-8
ARTICLE 13
PERFORMANCE UNITS
13.1 Award of Performance Units.......................................... B-9
13.2 Right to Payment of Performance Units............................... B-9
13.3 Payment for Performance Units....................................... B-9
B-ii
PAGE
----
ARTICLE 14
UNRESTRICTED SHARES
14.1 Award of Unrestricted Shares....................................... B-9
14.2 Delivery of Unrestricted Shares.................................... B-9
ARTICLE 15
TAX OFFSET PAYMENTS B-10
ARTICLE 16
ADJUSTMENT UPON CHANGES IN CAPITALIZATION B-10
ARTICLE 17
AMENDMENT AND TERMINATION B-10
ARTICLE 18
WRITTEN AGREEMENT B-11
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.1 Fair Market Value.................................................. B-11
19.2 Tax Withholding.................................................... B-11
19.3 Compliance With Section 16(b) and Section 162(m)................... B-11
19.4 Successors......................................................... B-11
19.5 General Creditor Status............................................ B-12
19.6 No Right to Employment............................................. B-12
19.7 Notices............................................................ B-12
19.8 Severability....................................................... B-12
19.9 Governing Law...................................................... B-12
19.10 Term of Plan....................................................... B-12
B-iii
THE LIMITED, INC.
1993 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1997 RESTATEMENT)
ARTICLE 1
ESTABLISHMENT AND PURPOSE
1.1 Establishment and Effective Date. In 1996, the Limited, Inc., a Delaware
corporation (the "Company"), established a stock incentive plan known as "The
Limited, Inc. 1993 Stock Option and Performance Incentive Plan (1996
Restatement)" (the "1996 Plan"). The 1996 Plan became effective on May 20,
1996. The 1996 Plan was amended and restated by the Company's Board of
Directors (the "Board") on March 21, 1997 (the "Plan"), subject to approval of
the Company's stockholders.
1.2 Purpose. The Company desires to attract and retain the best available
executive and key management associates for itself and its subsidiaries and to
encourage the highest level of performance by such associates in order to
serve the best interests of the Company and its stockholders. The Plan is
expected to contribute to the attainment of these objectives by offering
eligible associates the opportunity to acquire stock ownership interests in
the Company, and other rights with respect to stock of the Company, and to
thereby provide them with incentives to put forth maximum efforts for the
success of the Company and its subsidiaries.
ARTICLE 2
AWARDS
2.1 Form of Awards. Awards under the Plan may be granted in any one or all
of the following forms: (i) incentive stock options ("Incentive Stock
Options") meeting the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"); (ii) nonstatutory stock options
("Nonstatutory Stock Options") (unless otherwise indicated, references in the
Plan to Options shall include both Incentive Stock Options and Nonstatutory
Stock Options); (iii) stock appreciation rights ("Stock Appreciation Rights"),
as described in Article 7, which may be awarded either in tandem with Options
("Tandem Stock Appreciation Rights") or on a stand-alone basis ("Nontandem
Stock Appreciation Rights"); (iv) shares of common stock of the Company
("Common Stock") which are restricted as provided in Article 11 ("Restricted
Shares"); (v) units representing shares of Common Stock, as described in
Article 12 ("Performance Shares"); (vi) units which do not represent shares of
Common Stock but which may be paid in the form of Common Stock, as described
in Article 13 ("Performance Units"); (vii) shares of unrestricted Common Stock
("Unrestricted Shares"); and (viii) tax offset payments ("Tax Offset
Payments"), as described in Article 15.
2.2 Maximum Shares Available. The maximum aggregate number of shares of
Common Stock available for award under the Plan is 17,298,225, subject to
adjustment pursuant to Article 16. In addition, Tax Offset Payments which may
be awarded under the Plan will not exceed the number of shares available for
issuance under the Plan. Shares of Common Stock issued pursuant to the Plan
may be either authorized but unissued shares or issued shares reacquired by
the Company. In the event that prior to the end of the period during which
B-1
Options may be granted under the Plan, any Option or any Nontandem Stock
Appreciation Right under the Plan expires unexercised or is terminated,
surrendered or canceled (other than in connection with the exercise of a Stock
Appreciation Right) without being exercised in whole or in part for any
reason, or any Restricted Shares, Performance Shares or Performance Units are
forfeited, or if such awards are settled in cash in lieu of shares of Common
Stock, then such shares or units may, at the discretion of the Committee (as
defined below) to the extent permissible under Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Act"), be made available for subsequent awards
under the Plan, upon such terms as the Committee may determine.
2.3 Return of Prior Awards. As a condition to any subsequent award, the
Committee shall have the right, at its discretion, to require associates to
return to the Company awards previously granted under this Plan. Subject to
the provisions of this Plan, such new award shall be upon such terms and
conditions as are specified by the Committee at the time the new award is
granted to the extent permitted by Rule 16b-3 under the Act.
ARTICLE 3
ADMINISTRATION
3.1 Committee. The Plan shall be administered by a Committee (the
"Committee") appointed by the Board and consisting of not less than two (2)
members of the Board. Each member of the Committee shall be an "outside
director" (within the meaning of Section 162(m) of the Code) and a "non-
employee director" (within the meaning of Rule 16b-3(b)(3)(i) under the Act).
3.2 Powers of Committee. Subject to the express provisions of the Plan, the
Committee shall have the power and authority (i) to grant Options and to
determine the purchase price of the Common Stock covered by each Option, the
term of each Option, the number of shares of Common Stock to be covered by
each Option and any performance objectives or vesting standards applicable to
each Option; (ii) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options and to determine which Options, if any, shall be
accompanied by Tandem Stock Appreciation Rights; (iii) to grant Tandem Stock
Appreciation Rights and Nontandem Stock Appreciation Rights and to determine
the terms and conditions of such rights; (iv) to grant Restricted Shares and
to determine the term of the restricted period and other conditions and
restrictions applicable to such shares; (v) to grant Performance Shares and
Performance Units and to determine the performance objectives, performance
periods and other conditions applicable to such shares or units; (vi) to grant
Unrestricted Shares; (vii) to determine the amount of, and to make, Tax Offset
Payments; and (viii) to determine the associates to whom, and the time or
times at which, Options, Stock Appreciation Rights, Restricted Shares,
Performance Shares, Performance Units and Unrestricted Shares shall be
granted.
3.3 Delegation. The Committee may delegate to one or more of its members or
to any other person or persons such duties as it may deem advisable; provided,
however, that the Committee may not delegate any of its responsibilities
hereunder if such delegation will cause (i) transactions under the Plan to
fail to comply with Section 16 of the Act or (ii) the Committee to fail to
qualify as "outside directors" under Section 162(m) of the Code. The Committee
may also employ attorneys, consultants, accountants or other professional
advisors and shall be entitled to rely upon the advice, opinions or valuations
of any such advisors.
3.4 Interpretations. The Committee shall have sole discretionary authority
to interpret the terms of the Plan, to adopt and revise rules, regulations and
policies to administer the Plan and to make any other factual determinations
which it believes to be necessary or advisable for the administration of the
Plan. All actions taken
B-2
and interpretations and determinations made by the Committee in good faith
shall be final and binding upon the Company, all associates who have received
awards under the Plan and all other interested persons.
3.5 Liability; Indemnification. No member of the Committee, nor any person
to whom duties have been delegated, shall be personally liable for any action,
interpretation or determination made with respect to the Plan or awards made
thereunder, and each member of the Committee shall be fully indemnified and
protected by the Company with respect to any liability he or she may incur
with respect to any such action, interpretation or determination, to the
extent permitted by applicable law and to the extent provided in the Company's
Certificate of Incorporation and Bylaws, as amended from time to time.
ARTICLE 4
ELIGIBILITY
Awards shall be limited to executive and key management associates who are
regular, full-time associates of the Company and its present and future
subsidiaries. In determining the associates to whom awards shall be granted
and the number of shares to be covered by each award, the Committee shall take
into account the nature of the services rendered by such associates, their
present and potential contributions to the success of the Company and its
subsidiaries and such other factors as the Committee in its sole discretion
shall deem relevant. As used in this Plan, the term "subsidiary" shall mean
any corporation which at the time qualifies as a subsidiary of the Company
under the definition of "subsidiary corporation" set forth in Section 424(f)
of the Code, or any successor provision hereafter enacted. No associate may be
granted in any calendar year awards covering more than 2,000,000 shares of
Common Stock.
ARTICLE 5
STOCK OPTIONS
5.1 Grant of Options. Options may be granted under this Plan for the
purchase of shares of Common Stock. Options shall be granted in such form and
upon such terms and conditions, including the satisfaction of corporate or
individual performance objectives and other vesting standards, as the
Committee shall from time to time determine.
5.2 Option Price. The option price of each Option to purchase Common Stock
shall be determined by the Committee at the time of the grant, but shall not
be less than 100 percent of the fair market value of the Common Stock subject
to such Option on the date of grant. The option price so determined shall also
be applicable in connection with the exercise of any Tandem Stock Appreciation
Right granted with respect to such Option.
5.3 Term of Options. The term of each Option granted under the Plan shall
not exceed ten (10) years from the date of grant, subject to earlier
termination as provided in Articles 9 and 10, except as otherwise provided in
Section 6.1 with respect to ten (10) percent stockholders of the Company.
5.4 Exercise of Options. An Option may be exercised, in whole or in part, at
such time or times as the Committee shall determine. The Committee may, in its
discretion, accelerate the exercisability of any Option at any time. Options
may be exercised by an associate by giving written notice to the Committee
stating the number
B-3
of shares of Common Stock with respect to which the Option is being exercised
and tendering payment therefor. Payment for the Common Stock issuable upon
exercise of the Option shall be made in full in cash or by certified check or,
if the Committee, in its sole discretion, permits, in shares of Common Stock
(valued at fair market value on the date of exercise). As soon as reasonably
practicable following such exercise, a certificate representing the shares of
Common Stock purchased, registered in the name of the associate, shall be
delivered to the associate.
5.5 Cancellation of Stock Appreciation Rights. Upon exercise of all or a
portion of an Option, the related Tandem Stock Appreciation Rights shall be
canceled with respect to an equal number of shares of Common Stock.
ARTICLE 6
SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS
6.1 Ten Percent Stockholder. Notwithstanding any other provision of this
Plan to the contrary, no associate may receive an Incentive Stock Option under
the Plan if such associate, at the time the award is granted, owns (after
application of the rules contained in Section 424(d) of the Code) stock
possessing more than ten (10) percent of the total combined voting power of
all classes of stock of the Company, its parent or its subsidiaries, unless
(i) the option price for such Incentive Stock Option is at least 110 percent
of the fair market value of the Common Stock subject to such Incentive Stock
Option on the date of grant and (ii) such Option is not exercisable after the
date five (5) years from the date such Incentive Stock Option is granted.
6.2 Limitation on Grants. The aggregate fair market value (determined with
respect to each Incentive Stock Option at the time such Incentive Stock Option
is granted) of the shares of Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by an associate during any
calendar year (under this Plan or any other plan of the Company or a
subsidiary) shall not exceed $100,000.
6.3 Limitations on Time of Grant. No grant of an Incentive Stock Option
shall be made under this Plan more than ten (10) years after the earlier of
the date of adoption of the Plan by the Board or the date the Plan is approved
by stockholders.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grants of Stock Appreciation Rights. Tandem Stock Appreciation Rights
may be awarded by the Committee in connection with any Option granted under
the Plan, either at the time the Option is granted or thereafter at any time
prior to the exercise, termination or expiration of the Option. Nontandem
Stock Appreciation Rights may also be granted by the Committee at any time. At
the time of grant of a Nontandem Stock Appreciation Right, the Committee shall
specify the number of shares of Common Stock covered by such right and the
base price of shares of Common Stock to be used in connection with the
calculation described in Section 7.4 below. The base price of a Nontandem
Stock Appreciation Right shall be not less than 100 percent of the fair market
value of a share of Common Stock on the date of grant. Stock Appreciation
Rights shall be subject to such terms and conditions not inconsistent with the
other provisions of this Plan as the Committee shall determine.
B-4
7.2 Limitations on Exercise. A Tandem Stock Appreciation Right shall be
exercisable only to the extent that the related Option is exercisable and
shall be exercisable only for such period as the Committee may determine
(which period may expire prior to the expiration date of the related Option).
Upon the exercise of all or a portion of Tandem Stock Appreciation Rights, the
related Option shall be canceled with respect to an equal number of shares of
Common Stock. Shares of Common Stock subject to Options, or portions thereof,
surrendered upon exercise of a Tandem Stock Appreciation Right, shall not be
available for subsequent awards under the Plan. A Nontandem Stock Appreciation
Right shall be exercisable during such period as the Committee shall
determine.
7.3 Surrender or Exchange of Tandem Stock Appreciation Rights. A Tandem
Stock Appreciation Right shall entitle the associate to surrender to the
Company unexercised the related option, or any portion thereof, and to receive
from the Company in exchange therefor that number of shares of Common Stock
having an aggregate fair market value equal to (A) the excess of (i) the fair
market value of one (1) share of Common Stock as of the date the Tandem Stock
Appreciation Right is exercised over (ii) the option price per share specified
in such Option, multiplied by (B) the number of shares of Common Stock subject
to the Option, or portion thereof, which is surrendered. Cash shall be
delivered in lieu of any fractional shares.
7.4 Exercise of Nontandem Stock Appreciation Rights. The exercise of a
Nontandem Stock Appreciation Right shall entitle the associate to receive from
the Company that number of shares of Common Stock having an aggregate fair
market value equal to (A) the excess of (i) the fair market value of one (1)
share of Common Stock as of the date on which the Nontandem Stock Appreciation
Right is exercised over (ii) the base price of the shares covered by the
Nontandem Stock Appreciation Right, multiplied by (B) the number of shares of
Common Stock covered by the Nontandem Stock Appreciation Right, or the portion
thereof being exercised. Cash shall be delivered in lieu of any fractional
shares.
7.5 Settlement of Stock Appreciation Rights. As soon as is reasonably
practicable after the exercise of a Stock Appreciation Right, the Company
shall (i) issue, in the name of the associate, stock certificates representing
the total number of full shares of Common Stock to which the associate is
entitled pursuant to Section 7.3 or 7.4 hereof, and cash in an amount equal to
the fair market value, as of the date of exercise, of any resulting fractional
shares, and (ii) if the Committee causes the Company to elect to settle all or
part of its obligations arising out of the exercise of the Stock Appreciation
Right in cash pursuant to Section 7.6, deliver to the associate an amount in
cash equal to the fair market value, as of the date of exercise, of the shares
of Common Stock it would otherwise be obligated to deliver.
7.6 Cash Settlement. The Committee, in its discretion, may cause the Company
to settle all or any part of its obligation arising out of the exercise of a
Stock Appreciation Right by the payment of cash in lieu of all or part of the
shares of Common Stock it would otherwise be obligated to deliver in an amount
equal to the fair market value of such shares on the date of exercise.
ARTICLE 8
NONTRANSFERABILITY OF OPTIONS AND
STOCK APPRECIATION RIGHTS
No Option or Stock Appreciation Right may be transferred, assigned, pledged
or hypothecated (whether by operation of law or otherwise), except as provided
by will or the applicable laws of descent and distribution, and no Option or
Stock Appreciation Right shall be subject to execution, attachment or similar
process. Any attempted assignment transfer, pledge, hypothecation or other
disposition of an Option or a Stock Appreciation
B-5
Right not specifically permitted herein shall be null and void and without
effect. An Option or Stock Appreciation Right may be exercised by an associate
only during his or her lifetime, or following his or her death pursuant to
Article 10.
ARTICLE 9
TERMINATION OF EMPLOYMENT
9.1 Exercise after Termination of Employment. Except as the Committee may at
any time provide, in the event that the employment of an associate to whom an
Option or Stock Appreciation Right has been granted under the Plan shall be
terminated (for reasons other than death or total disability), such Option or
Stock Appreciation Right may be exercised (to the extent that the associate
was entitled to do so at the termination of his employment) at any time within
three (3) months after such termination of employment.
9.2 Total Disability. In the event that an associate to whom an Option or
Stock Appreciation Right has been granted under the Plan shall become totally
disabled, except as the Committee may at anytime provide such Option or Stock
Appreciation Right may be exercised at any time during the first nine (9)
months that the associate receives benefits under The Limited, Inc. Long-Term
Disability Plan (the "Disability Plan"). For purposes hereof, "total
disability" shall have the definition set forth in the Disability Plan, which
definition is hereby incorporated by reference.
ARTICLE 10
DEATH OF ASSOCIATE
If an associate to whom an Option or Stock Appreciation Right has been
granted under the Plan shall die while employed by the Company or one of its
subsidiaries or within three (3) months after the termination of such
employment, except as the Committee may at any time provide, such Option or
Stock Appreciation Right may be exercised to the extent that the associate was
entitled to do so at the time of his or her death, by the associate's estate
or by the person who acquires the right to exercise such Option or Stock
Appreciation Right upon his or her death by bequest or inheritance. Such
exercise may occur at any time within one (1) year after the date of the
associate's death, but in no case later than the date on which the Option or
Stock Appreciation Right terminates or such other period as the Committee may
at any time provide.
ARTICLE 11
RESTRICTED SHARES
11.1 Grant of Restricted Shares. The Committee may from time to time cause
the Company to grant Restricted Shares under the Plan to associates, subject
to such restrictions, conditions and other terms as the Committee may
determine.
11.2 Restrictions. At the time a grant of Restricted Shares is made, the
Committee shall establish a period of time (the "Restricted Period")
applicable to such Restricted Shares. Each grant of Restricted Shares may be
subject to a different Restricted Period. The Committee may, in its sole
discretion, at the time a grant is
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made, prescribe restrictions in addition to or other than the expiration of
the Restricted Period, including the satisfaction of corporate or individual
performance objectives, which shall be applicable to all or any portion of the
Restricted Shares. Except with respect to grants of Restricted Shares intended
to qualify as performance-based compensation for purposes of Section 162(m) of
the Code, the Committee may also, in its sole discretion, shorten or terminate
the Restricted Period or waive any other restrictions applicable to all or a
portion of such Restricted Shares. None of the Restricted Shares may be sold,
transferred, assigned, pledged or otherwise encumbered or disposed of during
the Restricted Period or prior to the satisfaction of any other restrictions
prescribed by the Committee with respect to such Restricted Shares.
11.3 Restricted Stock Certificates. If the Committee deems it necessary or
appropriate, the Company may issue, in the name of each associate to whom
Restricted Shares have been granted, stock certificates representing the total
number of Restricted Shares granted to the associate, provided that such
certificates bear an appropriate legend or other restriction on transfer. The
Secretary of the Company shall hold such certificates, properly endorsed for
transfer, for the associate's benefit until such time as the Restricted Shares
are forfeited to the Company, or the restrictions lapse.
11.4 Rights of Holders of Restricted Shares. Except as determined by the
Committee either at the time Restricted Shares are awarded or any time
thereafter prior to the lapse of the restrictions, holders of Restricted
Shares shall not have the right to vote such shares or the right to receive
any dividends with respect to such shares. All distributions, if any, received
by an associate with respect to Restricted Shares as a result of any stock
split-up, stock distribution, a combination of shares, or other similar
transaction shall be subject to the restrictions of this Article 11.
11.5 Forfeiture. Except as the Committee may at any time provide, any
Restricted Shares granted to an associate pursuant to the Plan shall be
forfeited if the associate terminates employment with the Company or its
subsidiaries prior to the expiration or termination of the Restricted Period
and the satisfaction of any other conditions applicable to such Restricted
Shares. Upon such forfeiture, the Secretary of the Company shall either cancel
or retain in its treasury the Restricted Shares that are forfeited to the
Company.
11.6 Delivery of Restricted Shares. Upon the expiration or termination of
the Restricted Period and the satisfaction of any other conditions prescribed
by the Committee, the restrictions applicable to the Restricted Shares shall
lapse and a stock certificate for the number of Restricted Shares with respect
to which the restrictions have lapsed shall be delivered, free of all such
restrictions, to the associate or the associate's beneficiary or estate, as
the case may be.
11.7 Performance-Based Objectives. At the time of the grant of Restricted
Shares to an associate, and prior to the beginning of the performance period
to which performance objectives relate, the Committee may establish
performance objectives based on any one or more of the following: price of the
Company's Common Stock or the stock of any affiliate, shareholder return,
return on equity, return on investment, return on capital, sales productivity,
comparable store sales growth, economic profit, economic value added, net
income, operating income, gross margin, sales, free cash flow, earnings per
share, operating company contribution or market share. These factors shall
have a minimum performance standard below which, and a maximum performance
standard above which, no payments will be made. These performance goals may be
based on an analysis of historical performance and growth expectations for the
business, financial results of other comparable businesses, and progress
towards achieving the long-range strategic plan for the business. These
performance goals and determination of results shall be based entirely on
financial measures. The Committee may not use any discretion to modify award
results except as permitted under Section 162(m) of the Code.
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ARTICLE 12
PERFORMANCE SHARES
12.1 Award of Performance Shares. For each Performance Period (as defined in
Section 12.2), Performance Shares may be granted under the Plan to such
associates of the Company and its subsidiaries as the Committee shall
determine. Each Performance Share shall be deemed to be equivalent to one (1)
share of Common Stock. Performance Shares granted to an associate shall be
credited to an account (a "Performance Share Account") established and
maintained for such associate.
12.2 Performance Period. "Performance Period" shall mean such period of time
as shall be determined by the Committee in its sole discretion. Different
Performance Periods may be established for different associates receiving
Performance Shares. Performance Periods may run consecutively or concurrently.
12.3 Right to Payment of Performance Shares. With respect to each award of
Performance Shares under this Plan, the Committee shall specify performance
objectives (the "Performance Objectives") which must be satisfied in order for
the associate to vest in the Performance Shares which have been awarded to him
or her for the Performance Period. If the Performance Objectives established
for an associate for the Performance Period are partially but not fully met,
the Committee may, nonetheless, in its sole discretion, determine that all or
a portion of the Performance Shares have vested. If the Performance Objectives
for a Performance Period are exceeded, the Committee may, in its sole
discretion, grant additional, full vested Performance Shares to the associate.
The Committee may also determine, in its sole discretion, that Performance
Shares awarded to an associate shall become partially or fully vested upon the
associate's death, total disability (as defined in Article 9) or retirement,
or upon the termination of the associate's employment prior to the end of the
Performance Period.
12.4 Payment for Performance Shares. As soon as practicable following the
end of a Performance Period, the Committee shall determine whether the
Performance Objectives for the Performance Period have been achieved (or
partially achieved to the extent necessary to permit partial vesting at the
discretion of the Committee pursuant to Section 12.3). If the Performance
Objectives for the Performance Period have been exceeded, the Committee shall
determine whether additional Performance Shares shall be granted to the
associate pursuant to Section 12.3. As soon as reasonably practicable after
such determinations, or at such later date as the Committee shall determine at
the time of grant, the Company shall pay to the associate an amount with
respect to each vested Performance Share equal to the fair market value of a
share of Common Stock on such payment date or, if the Committee shall so
specify at the time of grant, an amount equal to (i) the fair market value of
a share of Common Stock on the payment date less (ii) the fair market value of
a share of Common Stock on the date of grant of the Performance Share. Payment
shall be made entirely in cash, entirely in Common Stock (including Restricted
Shares) or in such combination of cash and Common Stock as the Committee shall
determine.
12.5 Voting and Dividend Rights. Except as the Committee may at any time
provide, no associate shall be entitled to any voting rights, to receive any
dividends, or to have his or her Performance Share Account credited or
increased as a result of any dividends or other distribution with respect to
Common Stock. Notwithstanding the foregoing, within sixty (60) days from the
date of payment of a dividend by the Company on its shares of Common Stock,
the Committee, in its discretion, may credit an associate's Performance Share
Account with additional Performance Shares having an aggregate fair market
value equal to the dividend per share paid on the Common Stock multiplied by
the number of Performance Shares credited to his or her account at the time
the dividend was declared.
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ARTICLE 13
PERFORMANCE UNITS
13.1 Award of Performance Units. For each Performance Period (as defined in
Section 12.2), Performance Units may be granted under the Plan to such
associates of the Company and its subsidiaries as the Committee shall
determine. The award agreement covering such Performance Units shall specify a
value for each Performance Unit or shall set forth a formula for determining
the value of each Performance Unit at the time of payment (the "Ending
Value"). If necessary to make the calculation of the amount to be paid to the
associate pursuant to Section 13.3, the Committee shall also state in the
award agreement the initial value of each Performance Unit (the "Initial
Value"). Performance Units granted to an associate shall be credited to an
account (a "Performance Unit Account") established and maintained for such
associate.
13.2 Right to Payment of Performance Units. With respect to each award of
Performance Units under this Plan, the Committee shall specify Performance
Objectives which must be satisfied in order for the associate to vest in the
Performance Units which have been awarded to him or her for the Performance
Period. If the Performance Objectives established for an associate for the
Performance Period are partially but not fully met, the Committee may,
nonetheless, in its sole discretion, determine that all or a portion of the
Performance Units have vested. If the Performance Objectives for a Performance
Period are exceeded, the Committee may, in its sole discretion, grant
additional, fully vested Performance Units to the associate. The Committee may
also determine, in its sole discretion, that Performance Units awarded to an
associate shall become partially or fully vested upon the associate's death,
total disability (as defined in Article 9) or retirement, or upon the
termination of employment of the associate by the Company.
13.3 Payment for Performance Units. As soon as practicable following the end
of a Performance Period, the Committee shall determine whether the Performance
Objectives for the Performance Period have been achieved (or partially
achieved to the extent necessary to permit partial vesting at the discretion
of the Committee pursuant to Section 13.2). If the Performance Objectives for
the Performance Period have been exceeded, the Committee shall determine
whether additional Performance Units shall be granted to the associate
pursuant to Section 13.2. As soon as reasonably practicable after such
determinations, or at such later date as the Committee shall determine, the
Company shall pay to the associate an amount with respect to each vested
Performance Unit equal to the Ending Value of the Performance Unit or, if the
Committee shall so specify at the time of grant, an amount equal to (i) the
Ending Value of the Performance Unit less (ii) the Initial Value of the
Performance Unit. Payment shall be made entirely in cash, entirely in Common
Stock (including Restricted Shares) or in such combination of cash and Common
Stock as the Committee shall determine.
ARTICLE 14
UNRESTRICTED SHARES
14.1 Award of Unrestricted Shares. The Committee may cause the Company to
grant Unrestricted Shares to associates at such time or times, in such amounts
and for such reasons as the Committee, in its sole discretion, shall
determine. No payment shall be required for Unrestricted Shares.
14.2 Delivery of Unrestricted Shares. The Company shall issue, in the name
of each associate to whom Unrestricted Shares have been granted, stock
certificates representing the total number of Unrestricted Shares
B-9
granted to the associate, and shall deliver such certificates to the associate
as soon as reasonably practicable after the date of grant or on such later
date as the Committee shall determine at the time of grant.
ARTICLE 15
TAX OFFSET PAYMENTS
The Committee shall have the authority at the time of any award under this
Plan or anytime thereafter to make Tax Offset Payments to assist associates in
paying income taxes incurred as a result of their participation in this Plan.
The Tax Offset Payments shall be determined by multiplying a percentage
established by the Committee by all or a portion (as the Committee shall
determine) of the taxable income recognized by an associate upon (i) the
exercise of a Nonstatutory Stock Option or a Stock Appreciation Right, (ii)
the disposition of shares received upon exercise of an Incentive Stock Option,
(iii) the lapse of restrictions on Restricted Shares, (iv) the award of
Unrestricted Shares, or (v) payments for Performance Shares or Performance
Units. The percentage shall be established, from time to time, by the
Committee at that rate which the Committee, in its sole discretion, determines
to be appropriate and in the best interests of the Company to assist
associates in paying income taxes incurred as a result of the events described
in the preceding sentence. Tax Offset Payments shall be subject to the
restrictions on transferability applicable to Options and Stock Appreciation
Rights under Article 8.
ARTICLE 16
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Notwithstanding any other provision of the Plan, the Committee may at any
time make or provide for such adjustments to the Plan, to the number and class
of shares available thereunder or to any outstanding Options, Stock
Appreciation Rights, Restricted Shares or Performance Shares as it shall deem
appropriate to prevent dilution or enlargement of rights, including
adjustments in the event of changes in the number of shares of outstanding
Common Stock by reason of stock dividends, extraordinary cash dividends,
split-ups, recapitalizations, mergers, consolidations, combinations or
exchanges of shares, separations, reorganizations, liquidations and the like.
ARTICLE 17
AMENDMENT AND TERMINATION
The Board may suspend, terminate, modify or amend the Plan, provided that
any amendment that would materially increase the aggregate number of shares
which may be issued under the Plan shall be subject to the approval of the
Company's stockholders, except that any such increase that may result from
adjustments authorized by Article 16 does not require such approval. If the
Plan is terminated, the terms of the Plan shall, notwithstanding such
termination, continue to apply to awards granted prior to such termination. No
suspension, termination, modification or amendment of the Plan may, without
the consent of the associate to whom an award shall theretofore have been
granted, adversely affect the rights of such associate under such award.
B-10
ARTICLE 18
WRITTEN AGREEMENT
Each award of Options, Stock Appreciation Rights, Restricted Shares,
Performance Shares, Performance Units, Unrestricted Shares and Tax Offset
Payments shall be evidenced by a written agreement, executed by the associate
and the Company, and containing such restrictions, terms and conditions, if
any, as the Committee may require. In the event of any conflict between a
written agreement and the Plan, the terms of the Plan shall govern.
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.1 Fair Market Value. "Fair market value" for purposes of this Plan shall
be the closing price of the Common Stock as reported on the principal exchange
on which the shares are listed for the date on which the grant, exercise or
other transaction occurs, or if there were no sales on such date, the most
recent prior date on which there were sales.
19.2 Tax Withholding. The Company shall have the right to require associates
or their beneficiaries or legal representatives to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax
requirements, or to deduct from all payments under this Plan, including Tax
Offset Payments, amounts sufficient to satisfy all withholding tax
requirements. Whenever payments under the Plan are to be made to an associate
in cash, such payments shall be net of any amounts sufficient to satisfy all
federal, state and local withholding tax requirements. The Committee may, in
its discretion, permit an associate to satisfy his or her tax withholding
obligation either by (i) surrendering shares owned by the associate or (ii)
having the Company withhold from shares otherwise deliverable to the
associate. Shares surrendered or withheld shall be valued at their fair market
value as of the date on which income is required to be recognized for income
tax purposes. In the case of an award of Incentive Stock Options, the
foregoing right shall be deemed to be provided to the associate at the time of
such award.
19.3 Compliance With Section 16(b) and Section 162(m). In the case of
associates who are or may be subject to Section 16 of the Act, it is the
intent of the corporation that the Plan and any award granted hereunder
satisfy and be interpreted in a manner that satisfies the applicable
requirements of Rule 16b-3, so that such persons will be entitled to the
benefits of Rule 16b-3 or other exemptive rules under Section 16 of the Act
and will not be subjected to liability thereunder. If any provision of the
Plan or any award would otherwise conflict with the intent expressed herein,
that provision, to the extent possible, shall be interpreted and deemed
amended so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, such provision shall be deemed void
as applicable to associates who are or may be subject to Section 16 of the
Act. If any award hereunder is intended to qualify as performance-based for
purposes of Section 162(m) of the Code, the Committee shall not exercise any
discretion to increase the payment under such award except to the extent
permitted by Section 162(m) and the regulations thereunder.
19.4 Successors. The obligations of the Company under the Plan shall be
binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Company, or upon any
successor corporation or organization succeeding to substantially all of the
assets and businesses of the Company. In the event of any of the foregoing,
the Committee may, at its discretion prior to the consummation
B-11
of the transaction, cancel, offer to purchase, exchange, adjust or modify any
outstanding awards, at such time and in such manner as the Committee deems
appropriate and in accordance with applicable law.
19.5 General Creditor Status. Associates shall have no right, title, or
interest whatsoever in or to any investments which the Company may make to aid
it in meeting its obligations under the Plan. Nothing contained in the Plan,
and no action taken pursuant to its provisions, shall create or be construed
to create a trust of any kind, or a fiduciary relationship between the Company
and any associate or beneficiary or legal representative of such associate. To
the extent that any person acquires a right to receive payments from the
Company under the Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company. All payments to be made hereunder
shall be paid from the general funds of the Company and no special or separate
fund shall be established and no segregation of assets shall be made to assure
payment of such amounts except as expressly set forth in the Plan.
19.6 No Right to Employment. Nothing in the Plan or in any written agreement
entered into pursuant to Article 18, nor the grant of any award, shall confer
upon any associate any right to continue in the employ of the Company or a
subsidiary or to be entitled to any remuneration or benefits not set forth in
the Plan or such written agreement or interfere with or limit the right of the
Company or a subsidiary to modify the terms of or terminate such associate's
employment at any time.
19.7 Notices. Notices required or permitted to be made under the Plan shall
be sufficiently made if sent by registered or certified mail addressed (a) to
the associate at the associate's address set forth in the books and records of
the Company or its subsidiaries, or (b) to the Company or the Committee at the
principal office of the Company.
19.8 Severability. In the event that any provision of the Plan shall be held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
19.9 Governing Law. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
19.10 Term of Plan. Unless earlier terminated pursuant to Article 17
hereof, the Plan shall terminate on May 19, 2006.
B-12
P R O X Y
THE LIMITED, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1997
The undersigned hereby appoints Leslie H. Wexner and Kenneth B. Gilman, and
each of them, proxies, with full power of substitution, to vote for the
undersigned all shares of Common Stock of The Limited, Inc. which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders to be held on May 19, 1997 at 9:00 a.m., Eastern
Daylight Time, and at any adjournments thereof, upon the matters described in
the accompanying Proxy Statement and upon any other business that may properly
come before the meeting or any adjournments thereof.
Election of Directors, Nominees:
E. Gordon Gee, Claudine B. Malone, Allan R. Tessler, Abigail S. Wexner
SAID PROXIES ARE DIRECTED TO VOTE AS MARKED ON THE REVERSE SIDE AND IN THEIR
DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENTS THEREOF.
(Continued and to be signed on the reverse side)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE. 9788
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NAMED NOMINEES
AND "FOR" APPROVAL OF THE PLANS REFERRED TO BELOW, AND RECOMMENDS A VOTE
"AGAINST" APPROVAL OF EACH OF STOCKHOLDER PROPOSAL NO. 1 AND STOCKHOLDER
PROPOSAL NO. 2. IF NO SPECIFICATION IS INDICATED, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD.
1. Election of FOR WITHHELD
Directors (see reverse) [_] [_]
For, except vote withheld from following nominee(s):
- --------------------------------------------------------------------------------
2. Approval of The Limited, Inc. Incentive Compensation Performance Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Approval of Stockholder Proposal No. 1
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Approval of the 1997 Restatement of The Limited, Inc. 1993 Stock Option and
Performance Incentive Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
5. Approval of Stockholder Proposal No. 2
FOR AGAINST ABSTAIN
[_] [_] [_]
THE UNDERSIGNED ACKNOWLEDGES RECEIPT WITH THIS PROXY OF A COPY OF THE NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT DATED APRIL 14, 1997.
IMPORTANT: PLEASE DATE THIS PROXY AND SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR
HEREON. IF STOCK IS HELD JOINTLY, SIGNATURE SHOULD INCLUDE BOTH NAMES. EXECU-
TORS, ADMINISTRATORS, TRUSTEES, GUARDIANS AND OTHERS SIGNING IN A REPRESENTA-
TIVE CAPACITY SHOULD INDICATE FULL TITLES.
SIGNATURE(S)_________________________DATE____________
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
LOGO
PROXY
THE LIMITED, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1997
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NAMED NOMINEES AND
"FOR" APPROVAL OF THE PLANS REFERRED TO BELOW, AND RECOMMENDS A VOTE "AGAINST"
EACH OF STOCKHOLDER PROPOSAL NO.1 AND STOCKHOLDER PROPOSAL NO.2. IF NO
SPECIFICATION IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
AS RECOMMENDED BY THE BOARD.
Election of Directors, Nominees:
E. Gordon Gee, Claudine B. Malone, Allan R. Tessler, Abigail S. Wexner
1. Election of Directors
FOR WITHHELD
[_] [_]
For, except vote withheld from following nominee(s):
- -------------------------------------------------------------------------------
2. Approval of The Limited, Inc. Incentive Compensation Performance Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Approval of the 1997 Restatement of The Limited, Inc. 1993 Stock Option and
Performance Incentive Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Approval of Stockholder Proposal No. 1
FOR AGAINST ABSTAIN
[_] [_] [_]
(Continued and to be signed on the reverse side)
LOGO
5. Approval of Stockholder Proposal No. 2
FOR AGAINST ABSTAIN
[_] [_] [_]
The undersigned hereby appoints Leslie H. Wexner and Kenneth B. Gilman, and
each of them, proxies, with full power of substitution, to vote for the
undersigned all shares of Class A Common Stock of The Limited, Inc. which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders to be held on May 19, 1997 at 9:00 a.m., Eastern
Daylight Time, and at any adjournments thereof, upon the matters described in
the accompanying Proxy Statement and upon any other business that may properly
come before the meeting or any adjournments thereof.
The undersigned acknowledges receipt with this Proxy of a copy of the Notice
of Annual Meeting of Stockholders and Proxy Statement dated April 14, 1997.
SIGNATURE(S) ________________ DATE
IMPORTANT: PLEASE DATE THIS PROXY AND
SIGN EXACTLY AS YOUR NAME OR NAMES
APPEAR HEREON. IF STOCK IS HELD
JOINTLY, SIGNATURE SHOULD INCLUDE BOTH
NAMES. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND OTHERS SIGNING
IN A REPRESENTATIVE CAPACITY SHOULD
INDICATE FULL TITLES.
