SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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[ ] 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
Retail Ventures, Inc.
----------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------------
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RETAIL VENTURES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
JUNE 9, 2004
AND
PROXY STATEMENT
IMPORTANT
PLEASE COMPLETE, SIGN AND DATE YOUR PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
RETAIL VENTURES, INC.
3241 Westerville Road
Columbus, Ohio 43224
(614) 471-4722
May 10, 2004
To the Shareholders of Retail Ventures, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of
Retail Ventures, Inc. (the "Company") will be held at the Hilton
Columbus, 3900 Chagrin Drive, Columbus, Ohio 43219, on Wednesday, June
9, 2004, at 10:00 a.m., local time, for the following purposes, all of
which are more completely set forth in the accompanying proxy
statement:
1. To elect seven directors, each for a term of one year
and until their successors are duly elected and
qualified.
2. To transact such other business as may properly come
before the meeting.
Only shareholders of record at the close of business on May 3, 2004 are
entitled to notice of and to vote at the Annual Meeting of
Shareholders.
By Order of the Board of Directors,
James A. McGrady
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
YOUR VOTE IS IMPORTANT
You are urged to date, sign and promptly return the enclosed
form of proxy in the enclosed envelope to which no postage
need be affixed if mailed in the United States. Voting your
shares by the enclosed proxy does not affect your right to
vote in person in the event you attend the meeting. You are
cordially invited to attend the meeting. If you attend, you
may revoke your proxy and vote in person if you wish, even if
you have previously returned your proxy.
CONTENTS
PAGE
----
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT................................................................................................... 1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................... 2
ELECTION OF DIRECTORS............................................................................................. 5
OTHER DIRECTOR INFORMATION, COMMITTEES OF DIRECTORS AND CORPORATE GOVERNANCE INFORMATION.......................... 6
AUDIT AND OTHER SERVICE FEES...................................................................................... 10
AUDIT COMMITTEE REPORT............................................................................................ 11
COMPENSATION OF MANAGEMENT........................................................................................ 12
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION.................................................... 17
PERFORMANCE GRAPH................................................................................................. 18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................................... 19
INDEPENDENT PUBLIC ACCOUNTANTS.................................................................................... 21
OTHER MATTERS..................................................................................................... 22
ANNEX A - AUDIT COMMITTEE CHARTER
ANNEX B - AUDIT COMMITTEE PRE-APPROVAL POLICY
i
RETAIL VENTURES, INC.
3241 Westerville Road
Columbus, Ohio 43224
(614) 471-4722
PROXY STATEMENT
The enclosed proxy is being solicited on behalf of the Board
of Directors of the Company for use at the Annual Meeting of
Shareholders to be held on Wednesday, June 9, 2004, and any
adjournments thereof. This proxy statement, including the
Notice of Meeting and the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 2004, was first mailed
to shareholders on May 10, 2004.
Only shareholders of record at the close of business on May 3,
2004, are entitled to notice of and to vote at the meeting or
any adjournments thereof. The total number of outstanding
shares entitled to vote at the meeting is 33,804,713. Each
shareholder is entitled to one vote for each share held.
Without affecting any vote previously taken, the proxy may be
revoked by the shareholder by giving a written notice of
revocation to the Company in writing (attention: James A.
McGrady, Secretary). A shareholder may also change his or her
vote by executing and returning to the Company a later-dated
proxy or by giving notice of revocation in open meeting.
All properly executed proxies received by the Board of
Directors will be voted as directed by the shareholder. All
properly executed proxies received by the Board of Directors
which do not specify how shares should be voted will be voted
"FOR" the election as directors of the nominees listed below
under "Election of Directors."
The presence, in person or by proxy, of a majority of the
outstanding common shares is necessary to constitute a quorum
for the transaction of business at the Annual Meeting.
Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum. Broker
non-votes occur when brokers who hold their customers' shares
in street name sign and submit proxies for such shares and
vote such shares on some matters, but not others. This would
occur when brokers have not received any instructions from
their customers, in which case the brokers, as the holders of
record, are permitted to vote on "routine" matters, which
includes the election of directors.
Solicitation of proxies may be made by mail, personal
interview and telephone by officers, directors and regular
employees of the Company, and by the employees of the
Company's transfer agent, National City Bank. In addition, the
Company has retained a firm specializing in proxy
solicitations, Georgeson Shareholder Communications, Inc., at
a cost of approximately $1,500 to assist the Company with its
proxy solicitation process. The Company will bear the cost of
the solicitation of proxies, including the charges and
expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of shares.
1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the
only persons known to the Company to own beneficially more
than five percent of the outstanding common shares of the
Company as of May 3, 2004:
AMOUNT AND
TITLE OF NAME AND NATURE OF BENEFICIAL
CLASS ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
-------- --------------------------- -------------------- ----------------
(All of these are Schottenstein Stores 28,928,851(2) 39.9%
common shares) Corporation (1)
1800 Moler Road
Columbus, Ohio 43207
Cerberus Partner, L.P. 9,722,085(3) 18.3%
450 Park Avenue
28th Floor
New York, New York 10022.
Dimensional Fund Advisors Inc. 1,943,500(4) 5.4%
1299 Ocean Avenue,
11th Floor,
Santa Monica, CA 90401
---------------
(1) Prior to the completion of our initial public offering on June 18, 1991,
the Company was operated as the Department Store Division of Schottenstein
Stores Corporation ("SSC"). On that date, SSC transferred substantially all
of the net assets of the Division to the Company in exchange for common
shares. SSC is a closely-held Ohio corporation. SSC common stock is
beneficially owned by certain of our directors and other Schottenstein
family members, as follows, as of May 3, 2004:
SHARES OF
NAME OF BENEFICIAL OWNER SSC COMMON STOCK PERCENT OF CLASS
------------------------ ----------------- ----------------
Jay L. Schottenstein 299.38139 (a) 78.4%
Geraldine Schottenstein 27.41707 (b) 7.2%
Ari Deshe 27.41707 (c) 7.2%
Jon P. Diamond 27.41707 (d) 7.2%
Total 381.63260 100.0%
---------------
(a) Represents sole voting and investment power over 299.38139 shares held in
irrevocable trusts for family members as to which Jay L. Schottenstein is
trustee and as to which shares Mr. Schottenstein may be deemed to be the
beneficial owner.
(b) Represents sole voting and investment power over 27.41707 shares held by
Geraldine Schottenstein as trustee of an irrevocable trust for family
members as to which shares Geraldine Schottenstein may be deemed to be the
beneficial owner.
(c) Represents sole voting and investment power over 27.41707 shares held by Ari
Deshe, as trustee of irrevocable trusts for family members, as to which
shares Mr. Deshe may be deemed to be the beneficial owner.
(d) Represents sole voting and investment power over 27.41707 shares held by Jon
Diamond and his wife, Susan Schottenstein Diamond, as trustees of
irrevocable trusts for family members, as to which shares Mr. Diamond may be
deemed to be the beneficial owner.
2
(2) Includes:
(a) 19,206,766 common shares owned of record and
beneficially by SSC.
(b) 8,333,333 common shares issuable upon conversion
of Senior Subordinated Convertible Loans in the
principal amount of $37,500,000 (the "Convertible
Loan"). The Convertible Loan is convertible at
any time to the extent any portion of the loan
remains outstanding at the option of the holder
thereof into common shares. The conversion price
of the Convertible Loan is $4.50 per share,
subject to conversion price adjustments.
(c) 1,388,752 common shares (subject to certain
conversion price adjustments) issuable pursuant
to a warrant received by SSC in connection with
an additional loan made to the Company. Based on
information contained in a Schedule 13D filed by
SSC on October 15, 2003.
Does not include 67,944 shares held by the Ann and
Ari Deshe Foundation and 67,944 shares held by the
Jon and Susan Diamond Family Foundation, all being
private charitable foundations. The foundations'
trustees and officers consist of at least one of the
following persons: Geraldine Schottenstein, Jay
Schottenstein, Jon Diamond and/or Ari Deshe, in
conjunction with other Schottenstein family members.
(3) Cerberus Partners, L.P., a Delaware limited
partnership ("Cerberus"), is the holder of Senior
Subordinated Convertible Loans in the principal
amount of $37,500,000 (the "Convertible Loan"). The
Convertible Loan is convertible at any time to the
extent any portion of the loan remains outstanding at
the option of the holder thereof into common shares
of the Company. The conversion price of the
Convertible Loan is $4.50 per share, subject to
conversion price adjustments. Further, Cerberus is
the holder of a warrant to purchase 1,388,752 Shares
(subject to certain conversion price adjustments) in
connection with an additional loan made to the
Company. Stephen Feinberg possesses sole power to
vote and direct the disposition of all of the Company
securities held by Cerberus. Based on information
contained in a Schedule 13D/A filed by Stephen
Feinberg on October 9, 2002 and a Form 4 filed by
Stephen Feinberg October 10, 2002.
(4) Dimensional Fund Advisors Inc. ("Dimensional"), an
investment advisor registered under Section 203 of
the Investment Advisors Act of 1940, furnishes
investment advice to four investment companies
registered under the Investment Company Act of 1940,
and serves as investment manager to certain other
commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the
"funds." In its role as investment adviser or
manager, Dimensional possesses voting and/or
investment power over the Company securities
described in this schedule that are owned by the
funds and may be deemed to be the beneficial owner of
the shares of the issuer held by the Funds.
Dimensional disclaims beneficial ownership of such
securities. Based on information contained in a
Schedule 13G/A filed by Dimensional on February 6,
2004.
3
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of May 3, 2004, information
with respect to the Company's common shares owned beneficially
by each director individually, by the executive officers named
in the Summary Compensation Table set forth on page 12 of this
proxy statement and by all directors and executive officers as
a group:
AMOUNT AND
NATURE OF
TITLE OF BENEFICIAL
CLASS NAME OF BENEFICIAL OWNER OWNERSHIP (1) PERCENT OF CLASS (2)
-------- ------------------------ ------------- --------------------
(All of these are Henry L. Aaron 16,000 *
common shares) Julia A. Davis 8,000 *
Ari Deshe (4)(6)(8) 24,972 *
Jon P. Diamond (4)(6) 11,700 *
Elizabeth M. Eveillard 10,000 *
Edwin J. Kozlowski (3) 316,000 *
James A. McGrady 245,000 *
John C. Rossler (3) 466,000 *
Jay L. Schottenstein (4)(5)(6)(7) 282,500 *
Harvey L. Sonnenberg (8) 30,000 *
James L. Weisman (8) 11,300 *
All directors and executive officers as a
group (12 persons) (3)(4)(5)(6)(7)(8) 1,435,472 3.8%
----------------
* Represents less than 1% of outstanding common shares, net of
treasury shares.
(1) Except as otherwise noted, the persons named in this table have sole power
to vote and dispose of the shares listed.
Includes the following number common shares as to which the named person
has the right to acquire beneficial ownership upon the exercise of stock
options within 60 days of May 3, 2004: Mr. Aaron, 10,000; Ms. Davis, 8,000;
Mr. Deshe, 10,000; Mr. Diamond, 10,000; Ms. Eveillard, 10,000 shares; Mr.
Kozlowski, 236,000; Mr. McGrady, 239,000; Mr. Rossler, 351,000; Mr. J.
Schottenstein, 56,000; Mr. Sonnenberg, 10,000; Mr. Weisman, 10,000 and all
directors and executive officers as a group, 950,000.
(2) The percent is based upon the 33,804,713 common shares outstanding, net of
treasury shares, as of May 3, 2004.
(3) Includes 110,000 shares for Mr. Rossler and 80,000 shares for Mr. Kozlowski
and 190,000 shares for all directors and executive officers as a group,
which are owned subject to a risk of forfeiture on termination of
employment with vesting over a period of years pursuant to the terms of
Restricted Stock Agreements.
(4) Does not include 19,206,766 common shares owned of record and beneficially
by SSC; 8,333,333 common shares issuable upon conversion of Senior
Subordinated Convertible Loans in the principal amount of $37,500,000,
which is convertible at any time to the extent any portion of the loan
remains outstanding at the option of SSC into common shares of the Company;
and a warrant to purchase 1,388,752 common shares (subject to certain
conversion price adjustments) held by SSC in connection with an additional
loan made to the Company. Jay L. Schottenstein is the Chairman and Chief
Executive Officer of SSC. Jay L. Schottenstein, Ari Deshe and Jon P.
Diamond are members of the Board of Directors of SSC. See Note 2 to
preceding table.
(5) Includes 52,500 common shares owned by Glosser Brothers Acquisition, Inc.
Mr. Schottenstein is Chairman of the Board, President and a director of
Glosser Brothers Acquisition, Inc. and a trustee or co-trustee of family
trusts that own 100% of the stock of Glosser Brothers Acquisition, Inc. Mr.
Schottenstein disclaims beneficial ownership of the common shares owned by
Glosser Brothers Acquisition, Inc.
(6) Does not include 67,944 shares held by the Ann and Ari Deshe Foundation and
67,944 shares held by the Jon and Susan Diamond Family Foundation, all
being private charitable foundations. The foundations' trustees and
officers consist of at least one of the following persons: Geraldine
Schottenstein, Jay Schottenstein, Jon Diamond and/or Ari Deshe; in
conjunction with other Schottenstein family members.
4
(7) Includes 30,000 shares as to which Jay L. Schottenstein shares voting and
investment power as trustee of a trust which owns the shares.
(8) Includes 10,000 shares held for the benefit of Mr. Deshe's minor children;
15,000 shares held by Mr. Sonnenberg's spouse and 500 shares held by Mr.
Weisman's spouse.
ELECTION OF DIRECTORS
The number of members of our Board of Directors has been fixed
at fourteen by action of the Board pursuant to the Amended and
Restated Code of Regulations. Board members serve until the
Annual Meeting following their election or until their
successors are duly elected and qualified. The Nominating and
Board Governance Committee has nominated seven persons for
election as directors of the Company with their terms to
expire in 2005. If each of the nominees is elected, seven
vacancies will exist on the Board.
Set forth below is certain information relating to the
nominees for election as directors:
NAME AGE DIRECTORS AND THEIR PRINCIPAL OCCUPATIONS / BUSINESS EXPERIENCE DIRECTOR SINCE
---- --- --------------------------------------------------------------- --------------
Jay L. 49 Chairman of the Company, American Eagle Outfitters, Inc. and 1991
Schottenstein SSC since March 1992 and Chief Executive Officer from April
1991 to July 1997 and from July 1999 to December 2000. Mr.
Schottenstein served as Vice Chairman of SSC from 1986 until
March 1992 and as a director of SSC since 1982. He served SSC
as President of the Furniture Division from 1985 through June
1993 and in various other executive capacities since 1976. Mr.
Schottenstein is also a director of American Eagle Outfitters,
Inc., which is a company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
Henry L. Aaron 70 Mr. Aaron presently serves as Senior Vice President of the 2000
Atlanta National League Baseball Club, Inc. and as President of
Hank Aaron BMW, an Atlanta automobile dealership, along with a
number of other private business interests.
Ari Deshe 53 Chairman and Chief Executive Officer since 1996 and President 1997
and Chief Executive Officer from 1993 to 1996 of Safe Auto
Insurance Company, a property and casualty insurance company.
Prior to that, Mr. Deshe served as President of Safe Auto
Insurance Agency from 1992 to 1993 and President of Employee
Benefit Systems, Inc. from 1982 to 1992. Mr. Deshe is also a
director of American Eagle Outfitters, Inc., which is a company
with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934.
Jon P. Diamond 46 President and Chief Operating Officer since 1996 and Executive 1991
Vice President and Chief Operating Officer from 1993 to 1996 of
Safe Auto Insurance Company. Mr. Diamond served as Vice
President of SSC from March 1987 to March 1993 and served SSC
in various management positions since 1983. Mr. Diamond is
also a director of American Eagle Outfitters, Inc., which is a
company with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934.
5
NAME AGE DIRECTORS AND THEIR PRINCIPAL OCCUPATIONS / BUSINESS EXPERIENCE DIRECTOR SINCE
---- --- --------------------------------------------------------------- --------------
Elizabeth M. 57 Ms. Eveillard is an independent consultant. Ms. Eveillard 2001
Eveillard served as Senior Managing Director and a Consultant, Retailing
and Apparel Group, Bear, Stearns & Co., Inc. from 2000 until
2003. Prior to that time, Ms. Eveillard served as the Managing
Director, Head of Retailing Industry Group, Paine Webber
Corporation from 1988 to 2000. From 1972 to 1988, Ms.
Eveillard held various executive positions including Managing
Director in the Merchandising Group with Lehman Brothers. Ms.
Eveillard is also a director of Too, Inc. and Mayor's Jewelers,
Inc., which are companies with securities registered pursuant
to Section 12 of the Securities Exchange Act of 1934.
Harvey L. 62 Partner in the CPA and consulting firm, Weiser & Co., LLP, 2001
Sonnenberg since November 1994. Mr. Sonnenberg is active in a number of
professional organizations including the American Institute of
CPA's and the New York State Society of CPA's and has long been
involved in rendering professional services to the retail and
apparel industry.
James L. Weisman 65 President and a member of Weisman Goldman Bowen & Gross, LLP, a 2001
Pittsburgh, Pennsylvania law firm. He has extensive legal
experience in working with retail clients. His primary areas of
practice have been in banking transactions and overseeing and
directing litigation.
Unless otherwise directed, the persons named in the proxy will
vote the proxies for the election of the above-named nominees
as directors of the Company, each to serve for a term of one
year and until his or her successor is elected and qualified,
or until his or her earlier death, resignation or removal.
While it is contemplated that all nominees will stand for
election, in the event any person nominated fails to stand for
election, the proxies will be voted for such other person or
persons as may be designated by the directors. Management has
no reason to believe that any of the above-mentioned persons
will not stand for election or serve as a director.
Under Ohio law and the Company's Regulations, the nominees
receiving the greatest number of votes will be elected as
directors. Shares as to which the authority to vote is withheld
and broker non-votes are not counted toward the election of
directors or toward the election of the individual nominees
specified on the proxy.
OTHER DIRECTOR INFORMATION, COMMITTEES OF DIRECTORS AND CORPORATE GOVERNANCE
INFORMATION
GENERAL
A total of four meetings of the Board of Directors of the
Company were held during fiscal 2003. No director attended
less than 75 percent of the aggregate of (i) the total number
of meetings of the Board of Directors and (ii) the total
number of meetings held by all committees of the Board of
Directors on which that director served during the period each
served as a director.
There are no family relationships among our directors and
executive officers except that Messrs. Deshe and Diamond are
each married to a sister of Mr. Schottenstein.
Each of Messrs. Aaron, Sonnenberg and Weisman and Ms.
Eveillard are paid an annual retainer of $30,000 and receive
$20,000 annually for each committee on which they serve. Each
of Messrs. Diamond and Weisman do not receive any compensation
for serving as members of the Community Affairs Committee. In
addition, Messrs. Aaron, Deshe and Diamond, Sonnenberg and
Weisman and Ms. Eveillard receive a quarterly board meeting
fee of $5,000 so long as they attend at least one board
meeting during that quarter.
6
The Company's Corporate Governance Principles provides that
all incumbent directors and director nominees are encouraged
to attend the annual meeting of shareholders. A total of seven
directors attended the annual meeting of shareholders in 2003.
Each of Messrs. Aaron, Sonnenberg and Weisman and Ms.
Eveillard are automatically granted options each quarter to
purchase 2,500 of our common shares under our 2000 Stock
Incentive Plan. Options are granted on the first day of each
fiscal quarter. Each option is granted for a period of ten
years. Options become exercisable on the first anniversary of
the date of grant.
CORPORATE GOVERNANCE PRINCIPLES
On March 18, 2004, the Board of Directors adopted Corporate
Governance Principles that address Board structure, membership
(including nominee qualifications), performance, operations
and management oversight. The Company's corporate and investor
website at www.valuecity.com contains the Corporate Governance
Principles.
The Corporate Governance Principles provide that the Board's
goal is that a majority of the directors should be independent
directors. A director will be designated as independent if he
or she (i) has no material relationship with the Company or
its subsidiaries; (ii) satisfies the other criteria specified
by New York Stock Exchange listing standards; (iii) has no
business conflict with the Company or its subsidiaries; and
(iv) otherwise meets applicable independence criteria
specified by law, regulation, exchange requirement or the
Board of Directors. The Board of Directors has affirmatively
determined that the following directors are independent under
that definition:
Henry L. Aaron
Elizabeth M. Eveillard
Harvey L. Sonnenberg
James L. Weisman
As of the date of this Proxy Statement, Schottenstein Stores
Corporation owns approximately 57% of the common shares of the
Company. As a result, the Company is a "controlled company"
and is exempt from the New York Stock Exchange requirements
requiring a majority of independent directors, a fully
independent nominating committee and a fully independent
compensation committee. Notwithstanding the availability of
such an exemption, the Company has voluntarily chosen to
comply with all such independence requirements. The Board of
Directors has a Nominating and Corporate Governance Committee,
a Compensation Committee and an Audit Committee, all of which
are comprised solely of independent directors.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Until December 10, 2003, the members of the Nominating and
Corporate Governance Committee were Messrs. Schottenstein,
Deshe and Weisman. On that date, the Board elected Messrs.
Weisman (Chair), Aaron and Sonnenberg, and Ms. Eveillard, each
of whom is independent as discussed above, as the members of
the Nominating and Corporate Governance Committee. On March
18, 2004, the Committee recommended, and the Board of
Directors approved, a Nominating and Corporate Governance
Committee Charter, which can be found on the Company's
corporate and investor website at www.valuecity.com.
The Committee met one time during fiscal 2003. Its functions
include assisting the Board in determining the desired
qualifications of directors, identifying potential individuals
meeting those qualification criteria, proposing to the Board a
slate of nominees for election by the shareholders and
reviewing candidates nominated by shareholders. In addition,
the Committee also reviews the Corporate Governance
Principles, makes recommendations to the Board with respect to
other corporate governance principles applicable to the
Company, oversees the annual evaluation of the Board and
management, and reviews management and Board succession plans.
The Nominating and Corporate Governance Committee meets to
discuss, among other things, identification and evaluation of
potential candidates for nomination as a director. Potential
candidates are identified and evaluated according to the
qualification criteria set forth in the Board's Corporate
Governance Principles, including independence, character,
diversity, age, skills and experience of such individuals.
7
The Nominating and Corporate Governance Committee will
consider nominees recommended by shareholders for the 2005
Annual Meeting of Shareholders, provided that the names of
such nominees are submitted in writing, not later than January
9, 2005, to the Company (Attn: James L. Weisman). Each such
submission must include: (a) as to the nominee, (i) name, age,
business address and residence address; (ii) principal
occupation or employment; (iii) the class and number of shares
of the Company beneficially owned; and (iv) any other
information relating to the nominee that is required to be
disclosed in solicitations for proxies for election of
directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended; and (b) as to the
shareholder giving the notice, (i) name and record address and
(ii) the class and number of shares of the Company
beneficially. Such notice shall be accompanied by a consent
signed by the nominee evidencing a willingness to serve as a
director, if nominated and elected, and a commitment by the
nominee to meet personally with the Nominating and Corporate
Governance Committee members.
Other than the submission requirements set forth above, there
are no differences in the manner in which the Nominating and
Corporate Governance Committee evaluates a nominee for
director recommended by a shareholder.
COMPENSATION COMMITTEE
The members of the Compensation Committee are Ms. Eveillard
(Chair) and Messrs. Aaron, Sonnenberg and Weisman. Each member
of the Compensation Committee is independent as discussed
above. None of the members of the Compensation Committee are
present or former officers of our Company or are themselves or
any of their affiliates, if any, parties to agreements with
the Company.
Mr. Weisman became a member of the Compensation Committee on
December 10, 2003 and, as a result, did not participate in the
deliberations on compensation discussed in the Report of the
Compensation Committee prior to December 10, 2003, which
begins on page 17. Therefore, his name does not appear on that
Report. Mr. Weisman did not receive any compensation for
serving as a member of the Compensation Committee in fiscal
2003.
On March 18, 2004, the Committee recommended, and the Board of
Directors approved, a Compensation Committee Charter, which
can be found on the Company's corporate and investor website
at www.valuecity.com.
The Compensation Committee met three times during fiscal 2003.
The Compensation Committee's functions include evaluating the
Chief Executive Officer's performance and, based upon these
evaluations, setting the Chief Executive Officer's annual
compensation; reviewing and approving the compensation
packages of the Company's other executive officers; making
recommendations to the Board with respect to the Company's
incentive compensation, retirement and other benefit plans;
making administrative and compensations decisions under such
plans; and recommending to the Board the compensation for
non-employee Board members.
AUDIT COMMITTEE
The members of the Audit Committee are Messrs. Sonnenberg
(Chair) and Weisman and Ms. Eveillard. Each member of the
Audit Committee is independent. The Board of Directors has
affirmatively determined that each of them is independent in
accordance with the listing standards of the New York Stock
Exchange and that Harvey L. Sonnenberg is an audit committee
financial expert as such term is defined by the Securities and
Exchange Commission under Item 401(h) of Regulation S-K.
On March 18, 2004, the Committee recommended, and the Board of
Directors approved, a revised Audit Committee Charter, which
is attached as Annex A to this proxy statement.
The Audit Committee met nine times during fiscal 2003. Its
functions include providing assistance to the Board of
Directors in fulfilling its oversight responsibility relating
to the Company's financial statements and the financial
reporting process, compliance with legal and regulatory
requirements, the qualifications and independence of the
Company's independent public accountants, the Company's system
of internal controls, the Internal Audit function, the
Company's code of ethical conduct, retaining and, if
appropriate, terminating the independent public accountants,
and approving audit and non-audit services to be performed by
the independent public accountants.
8
No member of the Audit Committee is currently serving on the
audit committees of more than three public companies.
COMMUNITY AFFAIRS COMMITTEE
The Board of Directors formed the Community Affairs Committee
in December 2003 to advise management on community affairs and
public relations matters. The members of the Community Affairs
Committee are Messrs. Aaron (Chair), Diamond and Weisman. The
Community Affairs Committee did not meet during fiscal 2003.
Mr. Aaron did not receive any compensation for serving on the
Community Affairs Committee in fiscal 2003.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
our directors and executive officers and persons who are
beneficial owners of more than ten percent of our common shares
("reporting persons") to file reports of ownership and changes
of ownership with the Securities and Exchange Commission and
the New York Stock Exchange. The Company assists its directors
and executive officers in completing and filing those reports.
The Company believes that all filing requirements applicable to
our directors and executive officers were complied with during
the last completed fiscal year; however, an amended Form 5 for
fiscal 2002 was filed to disclose stock options granted by the
Company on February 4, 2002 to John C. Rossler.
CODE OF ETHICS AND CORPORATE GOVERNANCE INFORMATION
The Company has adopted a code of ethics that applies to all
of its directors, officers and employees, including its
principal executive officer, principal financial officer,
principal accounting officer or controller, or persons
performing similar functions, and an additional code of ethics
that applies to senior financial officers. These codes of
ethics, designated as the "Code of Conduct" and the "Code of
Ethics for Senior Financial Officers," respectively, by the
Company can be found on the Company's investor website at
www.valuecity.com. The Company intends to satisfy the
disclosure requirement under Item 10 of Form 8-K regarding any
amendment to, or waiver from, any applicable provision
(related to elements listed under Item 406(b) of Regulation
S-K) of the "Code of Conduct" or the "Code of Ethics for
Senior Financial Officers" that applies to the Company's
directors, principal executive officer, principal financial
officer, principal accounting officer or controller, or
persons performing similar functions by posting such
information on the Company's website at www.valuecity.com.
9
AUDIT AND OTHER SERVICE FEES
The Audit Committee has adopted a policy under which audit and
non-audit services to be rendered by the Company's independent
public accountants are pre-approved. The Committee's
Pre-Approval Policy is attached as Annex B to this proxy
statement. No services were provided by the independent public
accountants in fiscal 2003 that were approved by the Committee
under Securities and Exchange Commission Regulation S-X
Section 2-01(c)(7)(i)(C) (which addresses certain services
considered de minimis approved by the Committee after such
services have been performed).
The following table sets forth the aggregate fees for
professional services rendered by Deloitte & Touche LLP for
each of the last two fiscal years of the Company.
2003 2002
---- ----
Audit fees (1) $616,050 $390,450
Audit-related fees (2) $ 16,135 $173,250
Tax fees (3) $ 700 $ 2,704
All other fees (4) - $ 72,082
Total $632,885 $638,486
(1) Includes services rendered for the audit of the Company's annual financial
statements, review of financial statements included in the Company's
quarterly reports on Form 10-Q and other audit services normally provided by
Deloitte & Touche LLP in connection with statutory and regulatory filings or
engagements.
(2) Includes assurance and related services reasonably related to the
performance of the audit or review of the Company financial statements not
reported as "audit fees". Audit-related fees for fiscal 2003 include benefit
plan audits. Audit-related fees for 2002 primarily include services rendered
in connection with acquisitions and investments made by the Company during
the year, accounting services rendered in connection with the Company's
Senior Notes offering and benefit plan audits.
(3) Includes services rendered for tax compliance, tax advice and tax planning.
Tax fees for both years primarily include services related to the
organization of the Company's subsidiaries and other tax and tax planning
advice. Tax fees for fiscal 2003 also include services rendered in
connection with federal and international tax audits.
(4) For fiscal 2003, no products or services were provided to the Company other
than those reported as audit, audit-related or tax fees. For fiscal 2002,
all other fees are principally related to the refinancing in June 2002.
10
AUDIT COMMITTEE REPORT
In performing its responsibilities, the Audit Committee, in
addition to other activities, (i) reviewed and discussed the
Company's audited financial statements with management; (ii)
discussed with Deloitte & Touche LLP the matters required to
be discussed by Statement on Auditing Standards 61
(Communication with Audit Committees), as modified or
supplemented; and (iii) received the letter from Deloitte &
Touche LLP required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees), as
modified or supplemented, and discussed with Deloitte & Touche
LLP the firm's independence. Based on these reviews,
discussions and activities, the Committee recommended to the
Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for
fiscal 2003 for filing with the Securities and Exchange
Commission.
The Audit Committee considered whether the provision of
non-audit services by Deloitte & Touche LLP were compatible
with maintaining such firm's independence.
Respectfully submitted,
AUDIT COMMITTEE
Harvey L. Sonnenberg, Chair
Elizabeth M. Eveillard
James L. Weisman
11
COMPENSATION OF MANAGEMENT
The following table summarizes compensation awarded or paid
to, or earned by, each of the named executive officers during
each of the Company's last three fiscal years.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
AWARDS PAYOUTS
ANNUAL COMPENSATION RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY (1) BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS (2) COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) (3) ($)
2003 $250,000 None None None None None None
Jay L. Schottenstein 2002 $250,000 None None None None None None
Chairman 2001 $250,000 None None None None None None
John C. Rossler 2003 $717,500 None (4) None None $805,000 $30,473
President and 2002 $694,344 $985,000 (4) $466,400(5) 2,430,000 None $31,602
Chief 2001 $404,181 $497,058 (4) $ 21,600(6) 5,000 None $34,008
Executive Officer
Edwin J. Kozlowski 2003 $512,100 None $51,745(7) None None $200,000 None
Executive Vice 2002 $496,154 $525,000 $92,025(8) $339,200(5) 1,720,000 None $ 3,609
President and 2001 $223,846 $225,000 (4) None None None $77,823
Chief Operating
Officer
James A. McGrady 2003 $408,077 None (4) None None None $ 6,577
Chief Financial 2002 $397,436 $210,000 (4) None 540,000 None $ 6,324
Officer, 2001 $325,000 $140,000 (4) $ 21,600(6) 5,000 None $ 1,801
Treasurer and
Secretary
Julia A. Davis 2003 $250,000 $ 50,000 (4) None 40,000 None None
Executive Vice 2002 $ 14,423 $ 85,417(9) (4) None None None None
President and 2001 None None None None None None None
General Counsel
---------------
(1) Includes amounts deferred by the executive officer pursuant to the
Deferred Compensation Plan established in 1998. The plan was terminated
January 31, 2003.
(2) In July 2002, the Compensation Committee of the Board of Directors
recommended and the Board of Directors approved the establishment of a
"value creation" program, pursuant to which cash payments are made to
certain participants including Messrs. Rossler and Kozlowski. Mr. Rossler
was awarded an aggregate of $1,610,000 pursuant to the program, subject to
a risk of forfeiture on termination of employment, $805,000 of which was
paid during fiscal 2003. Mr. Kozlowski was awarded an aggregate of $400,000
pursuant to the program, subject to a risk of forfeiture on termination of
employment, $200,000 of which was paid during fiscal 2003.
(3) The amounts shown in this column for each named executive officer
consist of contributions or other allocations to the Company's 401(k) Plan
and Associate Stock Purchase Plan for the named executive officer, as
follows:
401(K) PLAN AND
ASSOCIATE STOCK PURCHASE PLAN
-----------------------------
NAME 2003 2002 2001
---- ---- ---- ----
Jay L. Schottenstein None None None
John C. Rossler $9,433 $8,458 $8,760
Edwin J. Kozlowski None None None
James A. McGrady $6,577 $6,324 $1,801
Julia A. Davis None None None
12
The Company paid the premiums for a life insurance policy for Mr. Rossler
pursuant to which Mr. Rossler will receive the benefit of any cash
surrender value. The cost of the remainder of the premiums under such
policy was $21,040 for fiscal 2003, $23,144 for fiscal 2002 and $25,248 for
fiscal 2001.
The Company paid Mr. Kozlowski $3,609 and $77,823 for relocation expenses
in fiscal 2002 and fiscal 2001, respectively.
(4) The aggregate amount of perquisites and other benefits paid the named
officers in these fiscal years did not exceed the lesser of $50,000 or 10%
of the total of annual salary and bonus reported for the named executive
officer.
(5) The value (determined based on the closing price of the common shares on
the NYSE on the date of grant) of 110,000 shares of restricted stock
awarded to Mr. Rossler and 80,000 shares of restricted stock awarded to Mr.
Kozlowski, all of which shares will vest on February 4, 2006. As of
February 2, 2002, the value of Mr. Rossler's 110,000 shares of restricted
stock and Mr. Kozlowski's 80,000 shares of restricted stock was $466,400
and $339,200, respectively (determined based on the closing price of the
common shares on the NYSE on the last trading day before February 2, 2002).
(6) The value (determined based on the closing price of the common shares on
the NYSE on the date of grant) of 5,000 shares of restricted stock awarded
to Mr. Rossler and 5,000 shares of restricted stock awarded to Mr. McGrady,
all of which vested on August 29, 2002.
(7) Includes $17,290 relating to country club dues and membership fees paid
by the Company and $13,014 relating to automobile tax gross up.
(8) In fiscal 2002, the Company forgave a loan in the amount of $60,000 owed
by Mr. Kozlowski to the Company.
(9) Includes $75,000 received by Ms. Davis as a sign-on bonus pursuant to
the terms of her employment agreement with the Company.
The following table sets forth information concerning individual grants of
stock options made during the last fiscal year to each of the named
executive officers.
OPTIONS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------
POTENTIAL REALIZED VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- -------------- ------------ --------- ---------- -- ---
Jay L. Schottenstein None -- -- -- -- --
John C. Rossler None -- -- -- -- --
Edwin J. Kozlowski None -- -- -- -- --
James A. McGrady None -- -- -- -- --
Julia A. Davis 40,000 2.8% $1.63 3/14/2013 $18,014 $39,805
--------------
(1) All options are exercisable 20% per year, beginning on the first
anniversary of the original grant date, on a cumulative basis and expire
ten years from the original grant date.
(2) Represents the potential realizable value of each grant of options
assuming that the market price of the common shares appreciates in value
from the date of grant to the end of the option term at either a 5% or 10%
annualized rate, based on the difference between the assumed per share
value and the per share option exercise price, multiplied by the total
number of option shares.
13
The following table sets forth information regarding each
individual exercise of stock options made during the last
fiscal year by each of the named executive officers.
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF POTENTIAL REALIZED VALUE AT
SECURITIES UNDERLYING ASSUMED ANNUAL RATES OF
SHARES UNEXERCISED OPTIONS STOCK PRICE APPRECIATION FOR
ACQUIRED AT FISCAL YEAR-END (#) OPTION TERM ($) (1)
ON VALUE ----------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
Jay L. Schottenstein -- -- 56,000 -- -- --
John C. Rossler -- -- 183,000 2,262,000 $257,870 $3,370,380
Edwin J. Kozlowski -- -- 118,000 1,602,000 $175,820 $2,386,980
James A. McGrady -- -- 131,000 444,000 $168,470 $ 643,680
Julia A. Davis -- -- -- 40,000 -- $ 174,400
---------------
(1) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per
share option exercise price and the per share fair market value at year
end of $5.99. An option is in-the-money if the fair market value of the
underlying shares exceeds the exercise price of the option.
EQUITY COMPENSATION PLAN TABLE
The following table sets forth additional information as of
January 31, 2004, about our common shares that may be issued
upon the exercise of options and other rights under our
existing equity compensation plans and arrangements, divided
between plans approved by our shareholders and plans or
arrangements not submitted to our shareholders for approval.
The information includes the number of shares covered by, and
the weighted average exercise price of, outstanding options
and other rights and the number of shares remaining available
for future grants excluding the shares to be issued upon
exercise of outstanding options, warrants, and other rights.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE EXERCISE PRICE OF COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (1)
------------------- ------------------- -----------------------
Equity compensation plans
approved by security holders 9,294,197 $6.50 3,574,183
(1)
Equity compensation plans
not approved by security N/A N/A N/A
holders
Total 9,294,197 $6.50 3,574,183
-----------------
(1) Equity compensation plans approved by shareholders include the 1991 Stock
Option Plan, as amended, and the 2000 Stock Incentive Plan.
14
AGREEMENTS WITH KEY EXECUTIVES
On July 24, 2002, Mr. Rossler entered into a new employment
agreement with the Company with an effective date of February
3, 2002. The new employment agreement provides for an annual
salary of $700,000 with annual increases of 2.5%. In
connection with the execution of the new employment agreement,
Mr. Rossler received a signing bonus of $250,000. Beginning
for the fiscal year ending February 1, 2003, and in accordance
with the Company's Incentive Compensation Plan, Mr. Rossler
will receive an annual cash incentive bonus based upon a
predetermined formula of the Company's earnings before
interest and taxes.
Pursuant to his employment agreement, if the Company
terminates Mr. Rossler's employment "without cause" or Mr.
Rossler terminates his employment for "good reason" (as such
terms are defined therein), Mr. Rossler will be entitled to:
(i) his base salary for 12 months following the effective date
of termination; (ii) reimbursement for health care coverage
for a period of no more than 18 months following the effective
date of termination, subject to certain provisos; (iii) pro
rata share of any incentive compensation that he would have
otherwise received on the date of his termination, subject to
certain provisos; and (iv) subject to applicable terms and
conditions, all outstanding standard stock options will become
fully exercisable, all restrictions imposed on any outstanding
shares of restricted stock will lapse, and all outstanding
performance options will be fully exercisable.
In addition, if the Company terminates Mr. Rossler's
employment "without cause" or Mr. Rossler terminates his
employment for "good reason" within six consecutive calendar
months ending immediately before the month in which a "change
in control" occurs or 24 consecutive calendar months beginning
after a "change in control" (as such terms are defined
therein), Mr. Rossler is entitled to receive the following:
(i) a lump sum amount equal to the sum of (1) 300% of his base
salary plus (2) 300% of his targeted bonus under the Company's
incentive bonus plan for the year in which his employment
terminates; (ii) subject to applicable terms and conditions,
all outstanding standard stock options will become fully
exercisable; (iii) subject to applicable terms and conditions,
all restrictions imposed on any outstanding shares of
restricted stock will lapse; and (iv) subject to applicable
terms and conditions, all outstanding performance options will
be fully exercisable.
Mr. Kozlowski entered into an employment agreement with the
Company, effective May 1, 2001, for a term ending April 30,
2004, pursuant to which the Company loaned Mr. Kozlowski funds
to close on his Columbus housing. This loan was repaid with
interest at the prime rate of National City Bank, Columbus, in
April 2003. The Company also loaned Mr. Kozlowski the
initiation fee for a country club membership. This loan is
being forgiven at a rate of 10 percent for each 12 consecutive
month period Mr. Kozlowski remains employed after the date the
loan was made and will be fully forgiven if Mr. Kozlowski dies
or becomes disabled before the end of the ten-year period. If
Mr. Kozlowski leaves employment with the Company for any
reason other than death or disability before the ten-year
period has elapsed, he will be responsible for the balance of
the payment. The largest amount of the loan outstanding in
fiscal 2003 was $72,662 and the amount of the loan outstanding
was $63,996 at May 5, 2004.
On February 14, 2003, Mr. Kozlowski entered into a new
employment agreement with the Company with an effective date
of February 3, 2002. The new employment agreement provides for
an annual salary of $500,000 with annual increases of 2.5%.
Beginning for the fiscal year ending February 1, 2003, and in
accordance with the Company's Incentive Compensation Plan, Mr.
Kozlowski will receive an annual cash incentive bonus based
upon a predetermined formula of the Company's earnings before
interest and taxes. The new employment agreement also provides
for the continuation of the loan for the initiation fee for
the country club membership provided in Mr. Kozlowski's
previous employment agreement.
Pursuant to his employment agreement, if the Company
terminates Mr. Kozlowski's employment "without cause" or Mr.
Kozlowski terminates his employment for "good reason" (as such
terms are defined therein), Mr. Kozlowski will be entitled to:
(i) his base salary for 12 months following the effective date
of termination; (ii) reimbursement for health care coverage
for a period of no more than 18 months following the effective
date of termination, subject to certain provisos; (iii) pro
rata share of any incentive compensation that he would have
otherwise received on the date of his termination, subject to
certain provisos; and (iv) subject to applicable terms and
conditions, all outstanding standard stock options will become
fully exercisable, all restrictions imposed on any outstanding
shares of restricted stock will lapse, and all outstanding
performance options will be fully exercisable.
In addition, if the Company terminates Mr. Kozlowski's
employment "without cause" or Mr. Kozlowski terminates his
employment for "good reason" within six consecutive calendar
months ending immediately
15
before the month in which a "change in control" occurs or 24
consecutive calendar months beginning after a "change in
control" (as such terms are defined therein), Mr. Kozlowski is
entitled to receive the following: (i) a lump sum amount equal
to the sum of (1) 300% of his base salary plus (2) 300% of his
targeted bonus under the Company's incentive bonus plan for
the year in which his employment terminates; (ii) subject to
applicable terms and conditions, all outstanding standard
stock options will become fully exercisable; (iii) subject to
applicable terms and conditions, all restrictions imposed on
any outstanding shares of restricted stock will lapse; (iv)
subject to applicable terms and conditions, all outstanding
performance options will be fully exercisable and (v) the
balance remaining, if any, of the Company's loan to Mr.
Kozlowski in connection with his country club membership will
be forgiven.
Mr. McGrady entered into an employment agreement with the
Company effective June 21, 2000, for a term ending June 21,
2003. The agreement provides for an annual salary of $300,000
and a bonus of at least 40% of his base salary if Board
approved, predetermined, performance measures set annually are
met.
Ms. Davis entered into an employment agreement with the
Company effective as of April 29, 2004, which terminates upon
her death, disability (as such term is defined in Ms. Davis'
employment agreement), voluntary termination by Ms. Davis or
involuntary termination by the Company. The agreement provides
for an annual salary of $260,000 and a cash bonus of 50% of
her base salary if Board approved, predetermined performance
measures set annually are met. In addition, for each year Ms.
Davis' annual salary is less than $300,000, she will receive a
minimum guaranteed bonus to raise her salary to $300,000.
16
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
GENERAL
The Board has delegated to the Compensation Committee the
authority to review and approve on an annual basis the
corporate goals and objectives with respect to compensation
for the executive officers of the Company, other than the
Chairman's compensation, and to evaluate the executive
officers' performance in light of these established goals and
objectives. The committee has the sole authority to set the
chief executive officer's annual compensation, including
salary, bonus, incentive and equity compensation, and to
approve the annual compensation, including salary, bonus,
incentive and equity compensation, for the other executive
officers.
COMPENSATION PHILOSOPHY
The Company's executive compensation program is based on two
objectives:
- To provide market-competitive compensation
opportunities, and
- To create a strong link among the interests of the
shareholders, the Company's financial performance, and the
total compensation of the Company's Executive Officers.
The key components of the Company's executive officer
compensation program are short-term compensation, consisting
of an annual base salary and annual bonuses under the
Company's Incentive Compensation Plan, and long-term equity
based compensation consisting of grants of restricted stock
and stock option awards.
Base Salaries. Our policy is to pay executive officers at or
somewhat above competitive compensation averages for
comparable positions. Compensation levels for individual
executive officers, however, may be more or less than
competitive averages, depending upon a subjective assessment
of individual factors such as the executive's position,
experience, skills, achievements, tenure with Retail Ventures,
Inc. and historical compensation levels. Generally, previously
granted stock options and other equity awards are not
considered in setting cash compensation levels.
Incentive Compensation. The Compensation Committee believes
incentive compensation should be calculated to achieve a
combination of individual and company-wide objectives and
performance goals that clearly link the interests of the
executive officers with the financial performance of the
Company.
The key component of the incentive compensation program is the
Incentive Compensation Plan pursuant to which bonuses are paid
based upon a predetermined formula of the Company's earnings
before interest and taxes. The Compensation Committee
administers this Plan. For fiscal year 2003, the predetermined
earnings were not achieved and no bonuses were paid under the
Plan.
The Committee believes that, from time-to-time, achieving
objectives and goals other than earnings targets may also be
in the best interests of the Company and its shareholders.
During fiscal year 2004, management is undertaking a
significant number of time-consuming projects that are not
related to operations (such as implementing the Sarbanes-Oxley
Section 404 controls, refinancing its revolving credit
facility and pursing other liquidity options) or are
extraordinary in nature (such as the relocation and
consolidation of the Company's offices and proposed technology
upgrades). The Compensation Committee believes it is important
that these endeavors be given substantial attention.
Consequently, the Committee has authorized additional
incentive payments to the Chief Executive Officer in an amount
of up to $400,000 and the other executive officers as a group
of up to $500,000, in the aggregate, during 2004.
Respectfully submitted,
COMPENSATION COMMITTEE
Elizabeth M. Eveillard, Chair
Henry L. Aaron
Harvey L. Sonnenberg
17
PERFORMANCE GRAPH
The following graph compares the performance of the Company
with that of the Standard & Poor's General Merchandise Stores
Index and the Russell 2000 Index, both of which are published
indexes. This comparison includes the period beginning January
30, 1999 through January 31, 2004.
The Standard & Poor's General Merchandise Stores Index is
published weekly in the Standard & Poor's Statistical Service
and the index value preceding each fiscal year end has been
selected for purposes of this comparison. The Russell 2000
Index is a capitalization-weighted index of domestic equity
securities traded on the New York and American Stock Exchanges
and the NASDAQ that measures the performance of the 2,000
smallest companies in the Russell 3000 Index. The common
shares are traded on the NYSE.
The comparison of the cumulative total returns for each
investment assumes $100 was invested on January 30, 1999, and
that all dividends were reinvested.
[PERFORMANCE GRAPH]
Company / Index 30Jan99 29Jan00 3Feb01 2Feb02 1Feb03 31Jan04
---------------------------------- ------- ------- ------ ------ ------ -------
RETAIL VENTURES INC 100 137.63 59.35 37.25 16.77 51.53
RUSSELL 2000 100 119.72 120.35 116.96 91.96 91.96
S&P 500 GENERAL MERCHANDISE STORES 100 127.51 130.50 140.70 110.16 152.20
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REAL ESTATE LEASES AND SUBLEASES
The Company leases stores and warehouses under various
arrangements with our majority shareholder, SSC, and its
affiliates. Such leases expire through 2024 and in most cases
provide for renewal options. Generally, the Company is
required to pay real estate taxes, maintenance, insurance and
contingent rentals based on sales in excess of specified
levels.
Under a Master Lease Agreement, as amended, the Company leases
five store locations owned by SSC. Additionally, the Company
leases or subleases from SSC, or affiliates of SSC, 31 store
locations, 6 warehouse facilities and a parcel of land. The
minimum rent for these leaseholds is set forth below with
additional contingent rents based on aggregate sales in excess
of specified sales for the store locations. Leases and
subleases with related parties are for initial periods
generally ranging from five to twenty years, provide for
renewal options and require the Company to pay real estate
taxes, maintenance and insurance.
Each lease entered into with SSC or its affiliates is on terms
at least as favorable to the Company as could be obtained in
an arm's-length transaction with an unaffiliated third party,
and in certain instances, the Company is given preferential
terms. The Company has a policy that requires our audit
committee to review and approve all affiliated leases prior to
consummation.
During the last fiscal year, the Company paid approximately
$22.0 million in related party lease expense.
Future minimum lease payments required under the
aforementioned leases, exclusive of real estate taxes,
insurance and maintenance costs, at January 31, 2004 are as
follows (in thousands):
FISCAL YEAR MINIMUM PAYMENTS
----------- ----------------
2004 $ 22,021
2005 22,247
2006 21,839
2007 21,054
2008 19,959
Future Years 131,433
Total $238,553
SSC operates a chain of furniture stores, five of which
operate in separate space subleased from the Company. Three of
these furniture store subleases (the "Furniture Subleases")
are for a term concurrent with the respective lease between
the Company and a third party landlord. These Furniture
Subleases provide for the payment by SSC of base rent and
other charges in amounts at least equal to its pro rata share
based on square footage and its pro rata share of any
percentage rent based on its gross sales. Two additional
furniture store subleases are for periods shorter than our
lease. For fiscal 2003, SSC paid to the Company an aggregate
of $1.4 million pursuant to these subleases.
LICENSE AGREEMENTS WITH AFFILIATES
In July 1997, the Company entered into agreements to form a
50/50 joint venture with Mazel Stores, Inc. to create VCM,
Ltd. to operate the health and beauty care and toys and
sporting goods departments in our Value City stores as
licensed departments. Effective with the close of business on
February 2, 2002, the Company acquired Mazel's 50% interest in
VCM for $8.4 million, and the Company now owns 100% of VCM.
MERCHANDISE TRANSACTIONS WITH AFFILIATES
The Company, from time to time, purchases merchandise from and
sells merchandise to affiliates of SSC. Some of such
affiliates of SSC manufacture, import and wholesale apparel as
their principal business. The members of the Company's
merchandising staff use these sources and make their
purchasing decisions in the same manner as with unaffiliated
sources. Any merchandise purchased from such sources is on
terms at least as favorable to us as could be obtained in an
arm's-length transaction with an unaffiliated third party, and
in certain instances, the Company is given terms preferential
to those available to unaffiliated customers. Total
19
purchases by us from SSC and affiliates for fiscal 2003 were
approximately $18.5 million of which approximately $13.5
million were purchases from American Eagle Outfitters, Inc.,
an affiliate of SSC, representing 1.1% of our total purchases
during the fiscal year, while in fiscal 2002 purchases were
$13.2 million of which approximately $7.6 million were
purchases from American Eagle Outfitters, Inc., representing
0.9% of our total purchases during the fiscal year.
SERVICES AGREEMENTS
The Company shares with SSC and its affiliates certain
incidental support personnel and services for the purpose of
achieving economies of scale and cost savings. These shared
services include certain architectural, legal, advertising,
import and administrative services. The Company has entered
into a Corporate Services Agreement with SSC that sets forth
the terms for payment of the costs of these shared services.
The Company believes that it is able to obtain such services
at a cost, which is equal to or below the cost of providing
such services internally or obtaining such services from
unaffiliated third parties. For fiscal 2003, the Company paid
SSC or its affiliates $2.0 million for such services. The
Corporate Services Agreement also provides for participation
by the Company in the self-insurance program maintained by
SSC. Under that program, the Company is self-insured for
purposes of personal injury and property damage, motor vehicle
and Ohio workers' compensation claims up to various specified
amounts, and for casualty losses up to $100,000. Claims and
losses in excess of the specified amounts are covered by
stop-loss or excess liability policies maintained by SSC,
which include us as a named insured. SSC maintains reserves
and pays claims for self-insured amounts under the program and
will continue to do so with respect to our participation in
the program. SSC charges its affiliates, divisions and our
Company premiums based, among other factors, on loss
experience and its actual payroll and related costs for
administering the program. For fiscal 2003, the Company paid
SSC $1.1 million for participation in the program. Most of the
services described above were terminated during fiscal 2003.
DEBT AGREEMENTS
On June 11, 2002, the Company entered into two separate credit
facilities equally held by Cerberus Partners, L.P. and SSC,
and amended and restated its $75.0 million senior subordinated
convertible loan, initially entered into on March 15, 2000,
which is held equally by Cerberus Partners, L.P. and SSC. The
Company recorded $24.8 million in interest expense in cash to
Cerberus relating to the two credit facilities in fiscal 2003
of which $22.2 million was paid to Cerberus.
$100 Million Term Loans
The Term Loans are comprised of a $50.0 million Term Loan B
and a $50.0 million Term Loan C. All obligations under the
Term Loans are senior debt and, subject to an Intercreditor
Agreement by and among the parties, have the same rights and
privileges as the Revolving Credit Facility and the Senior
Subordinated Convertible Loan. The Company and its principal
subsidiaries are obligated on the Term Loans. The maturity
date is June 11, 2005.
The Term Loans' stated rate of interest per annum through June
11, 2004 is 14% if paid in cash and 15% if the Company elects
a paid-in-kind ("PIK") option. During the first two years of
the Term Loans, the Company may elect to pay all interest in
PIK. During the final year of the Term Loans, the stated rate
of interest is 15.0% if paid in cash or 15.5% by PIK, and the
PIK option is limited to 50% of the interest due. For the
fiscal years ended January 31, 2004 and February 1, 2003, the
Company elected to pay interest in cash.
The Company issued 2,954,792 Warrants to purchase common
shares at an initial exercise price of $4.50 per share to the
Term Loan C Lenders. The Warrants are exercisable at any time
prior to June 11, 2012. The Company has granted the Term Loan
C Lenders registration rights with respect to the shares
issuable upon exercise of the Warrants. The $6.1 million value
ascribed to the Warrants was estimated as of the date of
issuance using the Black-Scholes pricing model with the
following assumptions: risk-free interest rate of 5.6%;
expected life of 10 years; expected volatility of 47%;
illiquidity discount of 10%; and an expected dividend yield of
0%. The related debt discount is amortized into interest
expense over the life of the debt.
The number of shares issuable varies upon the occurrence of
the following: (i) the issuance of additional common shares
without consideration or for a consideration per share less
than the Warrant exercise price; (ii) the declaration of any
dividend; (iii) the combination or consolidation of the
outstanding common shares into a lesser number of shares; (iv)
the issuance or sale of additional shares at a price per share
less than the current
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market price but greater than the Warrant exercise price; (v)
the issuance of convertible securities which are convertible
into common shares; and/or (vi) the exchange of shares in a
merger or other business combination.
$75 Million Senior Convertible Loan
The Company has amended and restated its $75.0 million Senior
Subordinated Convertible Loan on June 11, 2002 ("Convertible
Loan"). As amended, borrowings under the Convertible Loan bear
interest at 10% per annum. At the Company's option, interest
may be PIK for the first two years, and thereafter, at the
Company's option, up to 50% of the interest due may be PIK
until maturity. PIK interest accrued with respect to the
Convertible Loan is added to the outstanding principal
balance, on a quarterly basis and is payable in cash upon the
maturity of the debt. The Convertible Loan is guaranteed by
all of our principal subsidiaries and is secured by a lien on
assets junior to liens granted in favor of the lenders on the
Revolving Credit Agreement and Term Loans. The Convertible
Loan is not subject to prepayment until June 11, 2007. The
agent has the right to designate two observers to the
Company's Board for so long as the agent is the beneficial
owner of at least 50% of the advances initially made by it and
has the right to designate two individuals to our Board for so
long as the agent is the beneficial owner of at least 50% of
the conversion shares issued upon conversion of the advances
initially made by it.
The Convertible Loan is convertible at the option of the
holders into the Company's common shares at an initial
conversion price of $4.50. The maturity date is June 10, 2009.
CERTAIN EMPLOYMENT ARRANGEMENTS
Mr. Jay Schottenstein is the Chairman of the Company. His son,
Joseph Schottenstein, was employed by the Company to assist
the Company in developing a management training program and
performing services as a buyer for Value City. During fiscal
2003, Mr. Joseph Schottenstein received an amount totaling
approximately $78,000 for his services as an employee of the
Company and as payment for certain finder's fees in connection
with purchases by the Company and other employment benefits
for his services as an employee of the Company.
Mr. John Rossler is the Chief Executive Officer and the
President of the Company. His son, Ryan Rossler, is employed
by the Company as a buyer for DSW. During fiscal 2003, Mr.
Ryan Rossler received salary and bonus totaling approximately
$95,000 and other employment benefits, including 401(k) plan
and associate stock purchase plan contributions by the Company
and cafeteria health care plan consistent with those provided
to other associates of the Company holding comparable
positions.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's Audit Committee has selected Deloitte & Touche
LLP as the independent public accountants of the Company for
the current fiscal year. Management expects that
representatives of Deloitte & Touche LLP will be present at
the Annual Meeting with the opportunity to make a statement if
they desire to do so and will be available to respond to
appropriate questions.
21
OTHER MATTERS
SHAREHOLDER PROPOSALS PURSUANT TO RULE 14a-8
In order to be considered for inclusion in the proxy statement
distributed to shareholders prior to the Annual Meeting of
Shareholders in 2005, a shareholder proposal pursuant to
Securities and Exchange Commission Rule 14a-8 must be received
by the Company no later than January 9, 2005. Written requests
for inclusion should be addressed to: Corporate Secretary,
3241 Westerville Road, Columbus, Ohio 43224. It is suggested
that you mail your proposal by certified mail, return receipt
requested.
SHAREHOLDER PROPOSALS OTHER THAN PURSUANT TO RULE 14a-8
With respect to any shareholder proposal not submitted
pursuant to Securities and Exchange Commission Rule 14a-8 in
connection with the Annual Meeting of Shareholders in 2005,
the proxy for such meeting will confer discretionary authority
to vote on such proposal unless (i) the Company is notified of
such proposal not later than March 26, 2005 and (ii) the
proponent complies with the other requirements set forth in
Securities and Exchange Commission Rule 14a-4.
SHAREHOLDER COMMUNICATIONS TO THE BOARD OF DIRECTORS
Shareholders may communicate with the Board of Directors or
individual directors directly by writing to the directors in
care of the Secretary of the Company, 3241 Westerville Road,
Columbus, Ohio 43224, in an envelope clearly marked
"shareholder communication." Such communications will be
provided promptly and, if requested, confidentially to the
respective directors.
GENERAL INFORMATION
A COPY OF FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WILL BE SENT TO ANY SHAREHOLDER WITHOUT CHARGE UPON
WRITTEN REQUEST ADDRESSED TO INVESTOR RELATIONS DEPARTMENT,
3241 WESTERVILLE ROAD, COLUMBUS, OHIO 43224.
Management knows of no other business which may be properly
brought before the Annual Meeting of Shareholders. However, if
any other matters shall properly come before such meeting, it
is the intention of the persons named in the enclosed form of
proxy to vote such proxy in accordance with their best
judgment on such matters.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE,
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU
ARE URGED TO FILL IN, SIGN AND RETURN THE PROXY IN THE
ENCLOSED STAMPED, SELF-ADDRESSED ENVELOPE.
By Order of the Board of Directors,
James A. McGrady
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
22
ANNEX A
RETAIL VENTURES, INC.
SECOND AMENDED AND RESTATED CHARTER OF THE
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
AS ADOPTED BY RESOLUTION OF THE BOARD OF DIRECTORS
MARCH 18, 2004
This Charter governs the operations of the Audit Committee (the "Audit
Committee") of the Board of Directors of Retail Ventures, Inc. (the "Company").
The Audit Committee shall review and reassess the adequacy of this Charter no
less frequently than annually and obtain the approval of the Board for any
amendments to this Charter. This Charter and any amendments hereto shall be
publicly disclosed at the times and in the manner required by the applicable
rules or criteria established by the New York Stock Exchange ("NYSE") and the
Securities and Exchange Commission (the "Commission") and, in any event, shall
be posted on the Company's website.
I. AUDIT COMMITTEE PURPOSE
The purpose of the Audit Committee of the Board of Directors of Retail
Ventures, Inc. (the "Company") is to assist the Board of Directors in fulfilling
its oversight responsibilities of:
- the integrity of the Company's financial statements;
- the Company's compliance with legal and regulatory
requirements;
- the independent auditor's qualifications and independence; and
- the performance of the Company's internal audit function and
independent auditor.
The Audit Committee shall prepare the report required by the rules of the
Commission to be included in the Company's annual proxy statement. The Audit
Committee shall also review and approve all related party transactions in excess
of certain guidelines approved by the Audit Committee.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
AUDIT COMMITTEE COMPOSITION. The Audit Committee shall serve at the
pleasure of the Board. The Audit Committee shall be comprised of three or more
directors of the Board, each of whom shall be recommended annually by the
Nominating and Corporate Governance Committee and appointed by the Board. Audit
Committee members shall meet the independence, experience and other requirements
of the NYSE as well as in Section 10A(m)(3) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and shall satisfy any other standards of
independence as may be prescribed by then applicable laws, rules and
regulations. The Company shall disclose Board determinations in respect of the
independence of the Company's proxy statement for the Company's annual meeting.
All members of the Audit Committee shall be financially literate, as
determined by the Board, or shall become financially literate within a
reasonable period of time after appointment to the Audit Committee. At least one
member of the Audit Committee shall be an "audit committee financial expert" and
shall have accounting or related financial management expertise, each as defined
in the applicable rules or criteria established by the Commission and NYSE, as
determined by the Board.
If an Audit Committee member serves on the audit committee of more than
two other public companies, such member shall promptly notify the other members
of the Audit Committee and the Nominating and Corporate Governance Committee,
and the Nominating and Corporate Governance Committee shall recommend to the
Board, and the Board shall determine, whether such simultaneous service would
impair the ability of such member to effectively serve on the Audit Committee.
The Board, upon recommendation of the Nominating and Corporate
Governance Committee, may fill any vacancies in the Audit Committee and may
remove an Audit Committee member from membership on the Audit Committee at any
time, with or without cause.
MEETINGS. The Audit Committee shall be chaired by one of its members
nominated by the Nominating and Corporate Governance Committee and appointed by
the Board. If the Board does not appoint a Chair of the Audit Committee, the
Audit
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Committee may designate a Chair by majority vote of the full Audit Committee.
The Audit Committee shall meet at least quarterly, or convene more
frequently as circumstances dictate. The Audit Committee shall meet periodically
with management, the internal auditors, and the independent auditor in separate
executive sessions. The Audit Committee Chair shall prepare and/or approve an
agenda in advance of each meeting. The Audit Committee may request any officer
or employee of the Company, its outside counsel or independent auditor to attend
a meeting of the Audit Committee or to meet with any member of, or consultants
to, the Audit Committee.
A majority of the whole Audit Committee shall constitute a quorum for
the transaction of any business by the Audit Committee at a meeting. Unless
otherwise required by this Charter or the Company's Code of Regulations, action
may be taken by a majority of the members of the Audit Committee at a meeting.
III. AUDIT COMMITTEE AUTHORITY, RESPONSIBILITIES AND DUTIES
The primary responsibility of the Audit Committee is to oversee the
Company's accounting and financial reporting processes on behalf of the Board
and report the results of its activities to the Board. In discharging its
oversight role, the Audit Committee is empowered to investigate any matter
brought to its attention with full access to all books, records, facilities and
personnel of the Company and its subsidiaries.
The Audit Committee shall be directly responsible for the appointment,
compensation, retention, termination and oversight of the work of the
independent auditor, including resolution of disagreements between management
and the independent auditor regarding financial reporting. The Audit Committee
shall have the sole responsibility to retain and replace the independent
auditor. The independent auditor shall not be permitted to render any services
to the Company or its subsidiaries unless the terms of, and the fees to be paid
for, such services, whether audit services or permitted non-audit services, have
been approved by the Audit Committee. The independent auditor shall report
directly to the Audit Committee.
The Audit Committee shall establish guidelines for and have the sole
responsibility to review and approve all related party transactions in excess of
such guidelines approved by the Audit Committee.
The Audit Committee may form and delegate authority to subcommittees
consisting of one or more members of the Audit Committee, when appropriate,
including the authority to grant pre-approvals of audit and permitted non-audit
services, provided that decisions of such subcommittee to grant pre-approvals
shall be presented to the full Audit Committee at its next scheduled meeting.
The Audit Committee is authorized by the Board to investigate any
matter within its terms of reference. The Audit Committee shall have the
authority, to the extent it deems necessary or appropriate to carry out its
duties, to obtain advice and assistance from outside legal, accounting, or other
advisors as the Audit Committee deems necessary to carry out its duties. The
Audit Committee is authorized to seek information from any of the Company's
directors, officers or employees, and from any outside advisors of the Company,
for the purpose of fulfilling its duties and the Board shall, if so requested,
direct such persons to cooperate with the Audit Committee. The Company shall
provide for appropriate funding, as determined by the Audit Committee in its
capacity as a committee of the Board, for payment of compensation to the
independent auditor engaged for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the Company;
payment of compensation to any other advisors employed by the Audit Committee;
and payment of ordinary administrative expenses of the Audit Committee that the
Audit Committee determines are necessary or appropriate in carrying out its
duties.
The Audit Committee shall make regular reports to the Board. The Audit
Committee shall review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval. The Audit Committee
shall have the Charter published at least every three years in accordance with
the Commission's regulations. The Audit Committee shall annually review the
Audit Committee's own performance.
Consistent with the duties and obligations above, the Audit Committee,
shall also perform the following functions:
Financial Statement and Disclosure Matters
1. Review and discuss the Company's annual audited financial
statements with management and the independent auditor,
including disclosures made in Management's Discussion and
Analysis of Financial Condition and Results of Operations, and
recommend to the Board whether the audited financial
statements should be included in the Company's Annual Report
on Form 10-K.
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2. Review and discuss with management and the independent auditor
the Company's quarterly financial statements, including
disclosures made in Management's Discussion and Analysis of
Financial Condition and Results of Operations, prior to the
filing of its Form 10-Q, including the results of the
independent auditor's review of the quarterly financial
statements.
3. Discuss and review major issues regarding accounting and
financial statement presentation, including:
(a) any significant changes in the Company's selection or
application of accounting principles, and major
issues as to the adequacy of the Company's internal
controls and any special audit steps adopted in light
of material control deficiencies; and
(b) analyses prepared by management and/or the
independent auditor setting forth significant
financial reporting issues and judgments made in
connection with the preparation of the Company's
financial statements
4. Review and discuss reports from the independent auditor
submitted to the Audit Committee under Section 10A(k) of the
Exchange Act, which reports shall include:
(a) all critical accounting policies and practices to be
used;
(b) all alternative treatments of financial information
within generally accepted accounting principles that
have been discussed with management officials of the
issuer, ramifications of the use of such alternative
disclosures and treatments, and the treatment
preferred by the registered public accounting firm;
and
(c) other material written communications between the
independent auditor and management, such as any
management letter or schedule of unadjusted
differences.
5. Discuss with management the Company's earnings press releases,
including the use of "pro forma" or "adjusted" non-GAAP
information, as well as financial information and earnings
guidance provided to analysts and rating agencies. Such
discussion may be done generally (consisting of discussing the
types of information to be disclosed and the types of
presentations to be made). The Audit Committee need not
discuss in advance each earnings release or each instance in
which the Company may provide earnings guidance.
6. Discuss with management and the independent auditor the effect
of regulatory and accounting initiatives, as well as
off-balance sheet structures on the Company's financial
statements.
7. Discuss with management the Company's major financial risk
exposures and the steps management has taken to monitor and
control such exposures, including the Company's risk
assessment and risk management policies and guidelines. The
Audit Committee is not required to be the sole body
responsible for risk assessment and management, but it must
discuss guidelines and policies to govern the process by which
risk assessment and management is undertaken.
8. Discuss with the independent auditor the matters required to
be discussed by Statement on Accounting Standards No. 61
relating to the conduct of the audit, including any problems
or difficulties encountered in the course of the audit work,
any restrictions on the scope of activities or access to
requested information, and any significant disagreements with
management.
9. Review disclosures made to the Audit Committee by the
Company's Chief Executive Officer and Chief Financial Officer
during their certification process for the Form 10-K and Form
10-Q about any significant deficiencies in the design or
operation of the internal controls or material weaknesses
therein and any fraud involving management or other employees
who have a significant role in the Company's internal
controls.
Oversight of the Company's Relationship with the Independent Auditor
10. Obtain and review a report from the independent auditor, at
least annually, describing:
(a) the independent auditor's internal quality-control
procedures;
(b) any material issues raised by the most recent
internal quality-control review, or peer review, of
the
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firm, or by any inquiry or investigation by
governmental or professional authorities within the
preceding five years, respecting one or more
independent audits carried out by the firm, and any
steps taken to deal with any such issues; and
(c) all relationships between the independent auditor and
the Company.
After review, the Audit Committee shall evaluate the
qualifications, performance, and independence of the
independent auditor, including considering whether the
auditor's quality controls are adequate and the provision of
permitted non-audit services is compatible with maintaining
the auditor's independence, and taking into account the
opinions of management and internal auditors. This evaluation
shall include the review and evaluation of the lead or
coordinating partner of the independent auditor, and should
ensure the rotation of such lead or coordinating partner of
the independent auditor as required by law. The Audit
Committee should further consider whether, in order to assure
continuing auditor independence, there should be regular
rotation of the audit firm itself. The Audit Committee shall
present its conclusions with respect to the independence,
qualifications and performance of the independent auditor to
the Board.
11. Ensure that the independent auditor submits on a periodic
basis to the Audit Committee a formal written statement
delineating all relationships with, and professional services
provided to, the Company, consistent with Independence
Standards Board Standard No. 1, Independence Discussions with
Audit Committees, as modified or supplemented. The Audit
Committee shall also be responsible for actively engaging in a
dialogue with the independent auditor with respect to any
disclosed relationship or services that may impact the
objectivity and independence of the independent auditor and
recommending that the full Board take appropriate action in
response to the independent auditor's report to satisfy itself
of the independent auditor's independence.
12. Establish policies for the Company's hiring of employees or
former employees of the independent auditor who participated
in any capacity in the audit of the Company.
13. Meet with the independent auditor prior to the audit to
discuss the planning and staffing of the audit.
14. Review with the independent auditor any audit problems or
difficulties, and management's response, including without
limitation, whether there were any restrictions on the scope
of the independent auditor's activities or on access to
requested information and any significant disagreements with
management.
15. Pre-approve (a) all audit services, which may entail providing
comfort letters in connection with securities underwritings
and (b) non-audit services, which means any professional
services provided to the Company and its subsidiaries by the
independent auditor other than those provided to the Company
and its subsidiaries in connection with an audit or review of
the Company's financial statements. In no event shall the
independent auditor perform any non-audit services for the
Company or any of its subsidiaries which are prohibited by
applicable law or the rules or regulations implemented by the
Commission or the Public Company Accounting Oversight Board.
16. Satisfy its pre-approval duties under Paragraph 15 by
delegating pre-approval authority to one or more members of
the Audit Committee. A pre-approval granted pursuant to the
preceding sentence shall be reported to the Audit Committee at
the next Audit Committee meeting following such pre-approval;
provided, however, that the pre-approval requirements of
Paragraphs 14 and 15 are waived with respect to the provisions
of services by the independent auditor, other than audit,
review or attest services, if:
(a) the aggregate amount of all such services provided
constitutes no more than five percent of the total
amount of revenues paid by the Company to the
independent auditor during the fiscal year in which
the services are provided;
(b) such services were not recognized by the Company at
the time of engagement to be non-audit services; and
(c) such services are promptly brought to the attention
of the Audit Committee and approved prior to the
completion of the audit by the Audit Committee or the
member(s) of the Audit Committee to whom pre-approval
authority has been delegated under Paragraph 15
above.
17. May establish pre-approval policies and procedures, in
compliance with the rules and criteria established by the
Commission. Such pre-approval policies and procedures must be
detailed as to the particular services to be
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provided, ensure that the Audit Committee knows precisely what
services it is being asked to pre-approve and not include any
delegation to management of the Audit Committee's
responsibilities under applicable laws, rules and regulations
to pre-approve all services provided by the independent
auditor.
18. Be responsible for overseeing compliance by the Company and
the independent auditor with the requirements imposed by the
Public Company Accounting Oversight Board. The Audit Committee
shall obtain assurances from the independent auditor that the
independent auditor has complied with Section 10A of the
Securities Exchange Act of 1934, as amended and the rules
promulgated by the SEC thereunder, the rules and policies of
the Public Company Accounting Oversight Board and all other
applicable laws, rules and regulations.
Oversight of Internal Controls
19. Review on at least an annual basis the adequacy of the
Company's internal controls, steps adopted in light of
material control deficiencies and significant internal control
recommendations identified through the internal or external
audit process and ensure that appropriate corrective actions
are instituted. The Audit Committee shall discuss with the
independent auditor, the personnel responsible for the
internal audit function, management, and such other financial
and accounting personnel of the Company as the Audit Committee
deems appropriate, their respective assessments of the
adequacy and effectiveness of the Company's internal control
over financial reporting and related accounting and financial
controls.
20. Review and discuss with management and the independent auditor
the assessment of internal control over financial reporting
and report on internal control over financial reporting made
by management and the attestation report related to such
assessment by the independent auditor, in each case as
required by applicable laws, rules and regulations.
21. Establish procedures for (i) the receipt, retention, and
treatment of complaints received by the Company regarding
accounting, internal accounting controls, auditing matters or
other compliance matters; and (ii) the confidential, anonymous
submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
Oversight of the Company's Internal Audit Function
22. Review the appointment and replacement of the senior internal
auditing executive or the entity performing the internal audit
function.
23. Review the significant reports to management prepared by the
internal auditing department (or the entity performing the
internal audit function) and management's responses.
24. Discuss with the independent auditor and management the
internal audit department (or the entity performing the
internal audit function) responsibilities, budget, and
staffing and any recommended changes in the planned scope of
the internal audit.
Compliance Oversight Responsibilities
25. Meet separately, periodically, with management, with the
internal auditors (or other personnel responsible for the
internal audit function) and with the independent auditor.
26. Obtain from the independent auditor assurance that Section
10A(b) of the Exchange Act has not been implicated.
27. Review reports and disclosures of insider and related party
transactions.
28. Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and
regulations and with the Company's Code of Business Conduct.
29. Establish procedures for the receipt, retention, and treatment
of complaints received by the Company regarding accounting,
internal accounting controls, or auditing matters, and the
confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
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30. Discuss with management and the independent auditor any
correspondence with regulators or governmental agencies and
any published reports which raise material issues regarding
the Company's financial statements or accounting policies.
31. On at least an annual basis, review with the Company's
counsel, any legal matters that could have a significant
impact on the organization's financial statements, the
Company's compliance with applicable laws and regulations, and
inquiries received from regulators or governmental agencies.
Other Audit Committee Responsibilities
32. Maintain minutes of meetings and periodically report to the
Board of Directors on significant results of the foregoing
activities.
33. Review, no less frequently than quarterly, with the Chief
Executive Officer and the Chief Financial Officer, the
Company's disclosure controls and procedures and management's
conclusions about the adequacy and effectiveness of such
disclosure controls and procedures.
34. Perform any other activities consistent with this Charter, the
Company's code of regulations, and governing law, as the Audit
Committee or the Board deems necessary or appropriate.
IV. LIMITATION OF AUDIT COMMITTEE'S ROLE
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements and disclosures
are complete and accurate and are in accordance with generally accepted
accounting principles and applicable rules and regulations. These are the
responsibilities of management and the independent auditor.
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ANNEX B
RETAIL VENTURES, INC.
AUDIT COMMITTEE PRE-APPROVAL POLICY
This Policy identifies the Audit Committee's procedures and conditions
for pre-approving audit, audit-related and non-audit services performed by a
public accounting firm that acts as the independent auditor (the "Auditor")
responsible for auditing the consolidated financial statements of Retail
Ventures, Inc., an Ohio corporation (the "Company"), and its subsidiaries and
affiliates.
I. STATEMENT OF PRINCIPLES
The purpose of this Policy is to set forth the procedures by which the
Audit Committee intends to fulfill its responsibilities of ensuring the
independence of the Auditor.
The Audit Committee will engage the Auditor for the audit of the
Company's consolidated financial statements. Prior to the engagement of the
Auditor for any audit or permissible non-audit service, the engagement must be
(a) pre-approved pursuant to the pre-approval policies and procedures set forth
herein or (b) specifically approved by the Audit Committee. The Audit Committee
will not grant broad, categorical approvals for services to be provided; rather,
to ensure that the Audit Committee knows precisely what services it is
pre-approving, such services must be described in sufficient detail when
presented to the Audit Committee for pre-approval.
The appendices to this Policy describe the services that have been
pre-approved by the Audit Committee. The Audit Committee intends, as part of its
pre-approval procedures, to include cost and time limitations for each audit or
non-audit service to be provided by the Auditor. Any proposed services exceeding
the pre-approved cost or time limits established for such services in the
appendices hereto will require specific approval by the Audit Committee.
The Audit Committee will periodically revise the list of pre-approved
services reflected on the appendices hereto from time to time, based on
subsequent determinations made by the Audit Committee. Additionally, the Audit
Committee may amend this Policy from time to time in accordance with the Audit
Committee's charter or the Company's Regulations.
The Auditor has reviewed this Policy and believes that implementation
of the Policy will not adversely affect the Auditor's independence.
II. DELEGATION OF AUTHORITY
The Audit Committee may delegate pre-approval authority to one or more
if its independent members and approval of such member or members within the
parameters of this Policy shall constitute approval of the Audit Committee
hereunder. The member or members to whom such authority is delegated shall
report any pre-approval decisions to the Audit Committee at its next scheduled
meeting. The Audit Committee will not delegate to management the Committee's
responsibilities for pre-approving audit and non-audit services performed by the
Auditor.
B-1
III. AUDIT SERVICES
The annual audit, review or attestation engagement terms and fees are
subject to the specific pre-approval of the Audit Committee. The Audit
Committee's approval is required for any necessary changes in terms, conditions
and fees resulting from changes in audit scope, Company structure or other
matters.
The known or anticipated audit services pre-approved, or that will be
pre-approved, by the Audit Committee are listed and will be listed in Appendix
A, as amended from time to time. In addition to the annual audit, review or
attestation services specifically approved by the Audit Committee, the Audit
Committee may grant pre-approval for other known or anticipated audit services.
All other audit services not listed in Appendix A must be separately
pre-approved by the Audit Committee in accordance with this Policy.
IV. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
consolidated financial statements and that are traditionally performed by the
Auditor in connection therewith. The Audit Committee believes that the provision
of the audit-related services does not impair the independence of the Auditor.
The known or anticipated audit-related services pre-approved, or that will be
pre-approved, by the Audit Committee are listed and will be listed in Appendix
B, as amended from time to time. All other audit-related services not listed in
Appendix B must be separately pre-approved by the Audit Committee in accordance
with this Policy.
V. TAX SERVICES
The Audit Committee believes that the Auditor can provide tax services
to the Company such as tax compliance, tax planning and tax advice without
impairing the Auditor's independence. However, the Audit Committee will not
permit the retention of the Auditor in connection with a transaction initially
recommended by the Auditor, the purpose of which may be tax avoidance and the
tax treatment of which may not be supported in the Internal Revenue Code and
related regulations or similar regulations of other applicable jurisdictions.
The known or anticipated tax services pre-approved, or that will be
pre-approved, by the Audit Committee are listed and will be listed in Appendix
C, as amended from time to time. All other tax services not listed in Appendix C
or tax services involving large and complex transactions must be separately
pre-approved by the Audit Committee in accordance with this Policy.
VI. ALL OTHER SERVICES
The Audit Committee may pre-approve those permissible non-audit
services classified as "All Other Services" that it believes would not impair
the independence of the Auditor. The known or anticipated other non-audit
services pre-approved, or that will be pre-approved, by the Audit Committee are
listed and will be listed in Appendix D, as amended from time to time. All other
permissible non-audit services not listed in Appendix D must be separately
pre-approved by the Audit Committee in accordance with this Policy.
A list of the non-audit services prohibited by the Securities and
Exchange Commission is attached to this Policy as Exhibit 1. Such exhibit may be
amended from time to time to add any other service prohibited by applicable law,
regulation, rule or accounting or auditing standard.
VII. WAIVER OF PRE-APPROVAL FOR NON-AUDIT SERVICES
Specific pre-approval is not required for services not listed in
Appendix D, provided that such non-audit services (a) do not aggregate to more
than 5 percent of total revenues paid by the Company to the Auditor in the
fiscal year in which the services are provided, (b) were not recognized as
non-audit services at the time of the engagement and (c) are promptly brought to
the attention of the Audit Committee and approved prior to the completion of the
audit by the Audit Committee (or its designated representative, if any, as
authorized pursuant to Section II of this Policy).
VIII. PRE-APPROVED FEE LEVELS
Pre-approved fee levels for all services to be provided by the Auditor
will be established periodically by the Audit Committee. Any proposed services
exceeding these levels will require specific pre-approval by the Audit
Committee. Each year the Auditor will provide the Audit Committee with a report
of the known or anticipated audit, audit-related, tax and other non-audit
services together with an estimate of the fees for such services. The Audit
Committee will review the fees and scope of such services so as to avoid any
question as to the compatibility of such services with the Auditor's
independence. Each quarter the Auditor will provide the Audit Committee with a
report of the audit, audit-related, tax and other non-audit services provided
B-2
together with the actual fees incurred. Any changes to the estimate of services
to be provided and fees attributable to such services will be discussed
quarterly, and if necessary, revised.
IX. SUPPORTING DOCUMENTATION
With respect to each proposed pre-approved service, the Auditor will
provide the Audit Committee with detailed backup documentation regarding the
specific services to be provided.
X. PROCEDURES
Requests or applications to provide services that require specific
approval of the Audit Committee will be submitted to the Audit Committee by both
the Auditor and the Chief Financial Officer or other designated representative
of the Company. The Audit Committee (or its designated representative, if any,
as authorized pursuant to Section II of this Policy) will approve or disapprove
the request or may request additional information from the Auditor and
management prior to rendering its decision. In deliberating a request, the Audit
Committee may meet in person, by telephone conference call or by any other means
permitted by the Audit Committee's charter or the Company's Regulations. Without
a meeting, the Audit Committee may act by unanimous written consent of all
committee members or by any other means permitted by the Audit Committee's
charter or the Company's Regulations.
B-3
Appendix A
Pre-Approved Audit Services
- Services associated with SEC periodic reports and other documents filed
with the SEC or other documents issued in connection with securities
offerings (e.g. comfort letters, consents), and assistance in
responding to SEC comment letters
- Consultations by the Company's management as to accounting or
disclosure treatment of transactions or events and/or the actual or
potential impact of final or proposed rules, standards or
interpretations by the SEC, FASB or other regulatory or standard
setting bodies
Appendix B
Pre-Approved Audit-Related Services
- Due diligence services pertaining to potential business
acquisitions/dispositions and securities offerings
- Financial statement audits of employee benefit plans
- Agreed-upon or expanded audit procedures relating to accounting and/or
billing records required to respond to or comply with financial,
accounting or regulatory reporting matters
- Internal control reviews and assistance with internal control reporting
requirements
- Consultations by the Company's management as to the accounting or
disclosure treatment of transactions or events and/or the actual or
potential impact of final or proposed rules, standards or
interpretations by the SEC, FASB or other regulatory or
standard-setting bodies
Appendix C
Pre-Approved Tax Services
- U.S. federal, state and local tax planning and advice
- U.S. federal, state and local tax compliance
- International tax planning and advice
Appendix D
Other Non-Audit Services Pre-Approved
Not applicable.
DETACH CARD
--------------------------------------------------------------------------------
RETAIL VENTURES, INC.
3241 Westerville Road, Columbus, Ohio 43224
------------------------------------------------------------------
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- JUNE 9, 2004
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Retail Ventures, Inc. (the "Company") hereby
appoints John C. Rossler, James A. McGrady and Julia A. Davis, or any one of
them, as attorneys and proxies with full power of substitution to each, to vote
all of the common shares of the Company which the undersigned is entitled to
vote at the Annual Meeting of Shareholders of the Company to be held at the
Hilton Columbus, 3900 Chagrin Drive, Columbus, Ohio, on Wednesday, June 9, 2004,
at 10:00 a.m. local time, and at any adjournment or adjournments thereof, with
all of the powers such undersigned shareholder would have if personally present,
for the following purposes:
1. Election of the following Directors:
Henry L. Aaron
Ari Deshe
Jon P. Diamond
Elizabeth M. Eveillard
Jay L. Schottenstein
Harvey L. Sonnenberg
James L. Weisman
[ ] FOR [ ] WITHHOLD AUTHORITY FOR EACH NOMINEE
(Instruction: To Withhold Authority For A Specific Nominee, Write That Nominee's
Name Here: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _.)
2. To transact any other business which may properly come before the annual
meeting or any adjournment thereof.
(Continued and to be signed on the other side)
DETACH CARD
--------------------------------------------------------------------------------
(Continued from other side)
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders, dated June 9, 2004, and the proxy statement of the Company
furnished therewith. Any proxy heretofore given to vote said shares is hereby
revoked.
PLEASE SIGN AND DATE THIS PROXY BELOW AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Dated: -------------------, 2004
---------------------------------
Signature
---------------------------------
Signature
Signature(s) shall agree with the
name(s) printed on this Proxy. If
shares are registered in two
names, both shareholders should
sign this Proxy. If signing as
attorney, executor,
administrator, trustee or
guardian, please give your full
title as such. If the shareholder
is a corporation, please sign in
full corporate name by an
authorized officer. If the
shareholder is a partnership or
other entity, please sign that
entity's name by authorized
person. (Please note any change
of address on this Proxy.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS