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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c)Section 240.14a-11(c) or Rule 14a-12Section 240.14a-2.
[ ] Confidential for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
HANOVER DIRECT, INC.Hanover Direct Inc.
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(Name of Registrant as Specified inIn Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.0-12.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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HANOVER DIRECT, INC.
1500 HARBOR BOULEVARD
WEEHAWKEN, NEW JERSEY 07087
(201) 863-7300
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 6, 1999
DEAR SHAREHOLDERS:4, 2000
Dear Shareholders:
We will hold the 19992000 Annual Meeting of Shareholders of Hanover Direct,
Inc., a Delaware corporation (the "Company"), at the Hotel Intercontinental, at
111
East 48th Street, New York, New York 10017 on Thursday, May 6, 19994, 2000 at 9:30
a.m., local time. The meeting's purpose is to:
1. Elect 1112 directors;
2. ApproveRatify the 1999 Stock Option Plan for Directors;
3. Ratify the 2000 Management Stock Option Plan;
4. Ratify the 2000 Short-Term Incentive Plan for Rakesh K. Kaul;
5. Ratify the 2000 Long-Term Incentive Plan for Rakesh K. Kaul;
6. Ratify an amendment to and restatement of the Company's CertificateStock Option Agreement
dated August 23, 1996, as amended, with Rakesh K. Kaul forming a part of
Incorporation that
would increase the number of shares of all classes of stock which the Company
would have authority to issue from 243,172,403 to 318,172,403 shares and the
number of shares of Common Stock within such shares of capital stock which the
Company would have authority to issue from 225,000,000 to 300,000,000 shares;
3.1996 Long-Term Incentive Plan for Rakesh K. Kaul;
7. Ratify the selection of Arthur Andersen LLP as the Company's independent
auditors for the fiscal year ending December 25, 1999;30, 2000; and
4.8. Consider any other matters that are properly presented at the Annual
Meeting and any adjournment.
You may vote at the Annual Meeting if you were a Company shareholder of
Common Stock or Series B Convertible Additional Preferred Stock at the close of business on April 7, 1999.6, 2000.
Along with the attached Proxy Statement, we are also enclosing a copy of
the Company's 19981999 Annual Report to Shareholders, which includes our financial
statements.
All shareholders are cordially invited to attend. Whether or not you expect
to attend the Annual Meeting, please vote. You may vote signyour shares by
completing and mailreturning the enclosed proxy as
soon as possible. We havecard or you may vote via the
Internet or by telephone. Instructions for voting via the Internet or by
telephone are on the enclosed a return envelope, which requires no postage
if mailed in the United States, for that purpose.proxy card. Your proxy is being solicited by the
Board of Directors.
In accordance with Delaware corporate law, the Company will make available
for examination by any shareholder entitled to vote at the Annual Meeting, for
any purpose germane to the Annual Meeting, during ordinary business hours, for
at least 10 days prior to the Annual Meeting, at the offices of Brown Raysman
Millstein Felder & Steiner LLP, 120 West 45th Street, New York, New York 10036,
a complete list of the shareholders entitled to vote at the Annual Meeting,
arranged in alphabetical order.
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
Monte E. WetzlerCurt Johnson
Secretary
April 16, 199917, 2000
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HANOVER DIRECT, INC.
1500 HARBOR BOULEVARD
WEEHAWKEN, NEW JERSEY 07087
(201) 863-7300
PROXY STATEMENT FOR THE 19992000 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 6, 19994, 2000
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
ANNUAL MEETING: May 6, 19994, 2000 Hotel Intercontinental
9:30 a.m., local time 111 East 48th Street
New York, New York 10017
RECORD DATE: Close of business on Wednesday,Thursday, April 7, 1999.6, 2000. If you were a
shareholder at that time of the Company's Common Stock, or
Series B Convertible Additional Preferred Stock ("Series B
Stock"), you
may vote at the Annual Meeting. Each share of Common Stock
is entitled to 1 vote and each share of Series
B Stock is entitled to 1.5 votes.vote. All shares of Common Stock
and Series B Stock will vote
together on all issues at the meeting. On the record date,
we had 210,827,854214,021,998 shares of our Common Stock and 634,900 shares of our Series B Stock
outstanding.
As of April 7, 1999,6, 2000, Richemont Finance S.A., a Luxembourg
company ("Richemont"), beneficially owned 102,790,657 shares
of Common Stock.Stock (approximately 48.2% of the outstanding
Common Stock). Additionally, on June 1, 1998, Richemont entered intoholds an agreement withirrevocable
proxy from a third party whereby
Richemont was granted an irrevocable proxy to vote approximately 9.3 millionan additional 4,289,000
shares of Common Stock (approximately 2% of the outstanding
Common Stock) currently held by the third party.
MAILING DATE: On or about April 16, 1999.17, 2000.
AGENDA: 1. Elect 1112 directors.
2. ApproveRatify the 1999 Stock Option Plan for Directors.
3. Ratify the 2000 Management Stock Option Plan.
4. Ratify the 2000 Short-Term Incentive Plan for Rakesh K.
Kaul.
5. Ratify the 2000 Long-Term Incentive Plan for Rakesh K.
Kaul.
6. Ratify an amendment to and restatement of the Company's CertificateStock
Option Agreement dated August 23, 1996, as amended, with
Rakesh K. Kaul forming a part of Incorporation that would increase the number of shares
of all classes of stock which the Company would have
authority to issue from 243,172,403 to 318,172,403
shares and the number of shares of Common Stock within
such shares of capital stock which the Company would
have authority to issue from 225,000,000 to 300,000,000
shares.
3.1996 Long-Term
Incentive Plan for Rakesh K. Kaul.
7. Ratify the selection of Arthur Andersen LLP as our
independent auditors for the fiscal year ending December
25, 1999.
4.30, 2000.
8. Any other proper business.
VOTE REQUIRED: Proposal 1: The 1112 nominees for director who receive the
Elect 1112 directors most votes will be elected. So, if you do not
vote for a nominee, your vote will not count
either for or against the nominee.
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Proposal 2: The affirmative vote of a majority of all
Approve Amendment to outstanding Commonthe
Ratify the 1999 Stock and Series B Stock
Certificate of IncorporationOption votes cast at the Annual Meeting, whether in
Plan for Directors person or by proxy whether by mail, Internet
or telephone, is required to approveratify the amendment to the
Certificate of Incorporation.plan.
So, if you abstain from voting, it has the same effect
as if you votedyour vote
will not count either for or against the
proposal.
Proposal 3: The affirmative vote of a majority of the
Ratify the 2000 Management votes cast at the Annual Meeting, whether in
Stock Option Plan person or by proxy whether by mail, Internet
or telephone, is required to ratify the plan.
So, if you abstain from voting, your vote
will not count either for or against the
proposal.
Proposal 4: The affirmative vote of a majority of the
Ratify the 2000 Short-Term votes cast at the Annual Meeting, whether in
Incentive Plan for Rakesh K. person or by proxy whether by mail, Internet
Kaul or telephone, is required to ratify the plan.
So, if you abstain from voting, your vote
will not count either for or against the
proposal.
Proposal 5: The affirmative vote of a majority of the
Ratify the 2000 Long-Term votes cast at the Annual Meeting, whether in
Incentive Plan for Rakesh K. person or by proxy whether by mail, Internet
Kaul or telephone, is required to ratify the plan.
So, if you abstain from voting, your vote
will not count either for or against the
proposal.
Proposal 6: The affirmative vote of a majority of the
Ratify the amendment to the votes cast at the Annual Meeting, whether in
Stock Option Agreement with person or by proxy whether by mail, Internet
Rakesh K. Kaul or telephone, is required to ratify the
amendment. So, if you abstain from voting,
your vote will not count either for or
against the proposal.
Proposal 7: The affirmative vote of a majority of the
Ratify Selection of Auditors votes cast at the Annual Meeting, whether in
person or by proxy whether by mail, Internet
or telephone, is required to ratify the
selection of the auditors. So, if you abstain
from voting, it has the same effect as if you
votedyour vote will not count either
for or against the proposal.
BROKER NON-VOTES: If your broker does not vote on any of the 37 proposals, it
will have no effect on the votes with respect to any of the
3 proposals except Proposal 2.7 proposals.
PROXIES: Please vote; your vote is important. Prompt return of your
proxy will help reduce the costs of resolicitation. In
addition, as of this year, stockholders of record can
simplify their voting and reduce the Company's costs by
voting their shares via the Internet or by telephone. The
Internet and telephone voting procedures are designed to
authenticate stockholders' identities, to allow stockholders
to vote their shares, and to confirm that their instructions
have been properly recorded. If your shares are held in the
name of a bank or broker, the availability of Internet and
telephone voting will depend on the policies of the bank or
broker. Therefore, it is recommended that you follow the
voting instructions on the form that you receive. If you do
not choose to vote via the Internet or by telephone, please
date, sign, and return the proxy card by mail.
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Unless you tell us on the proxy card to vote differently, we
will vote signed returned proxies "FOR" the approvalBoard's nominees
for directors, "FOR" the ratification of the 1999 Stock
Option Plan for Directors, "FOR" the ratification of the
2000 Management Stock Option Plan, "FOR" the ratification of
the 2000 Short-Term Incentive Plan for Rakesh K. Kaul, "FOR"
the ratification of the 2000 Long-Term Incentive Plan for
Rakesh K. Kaul, "FOR" the ratification of the amendment to
the CertificateStock Option Agreement with Rakesh K. Kaul forming part
of Incorporation,the 1996 Long-Term Incentive Plan for Rakesh K. Kaul, and
"FOR" the ratification of the appointmentselection of the auditors, and "FOR"
the Board's nominees for directors.auditors.
If any nominee cannot or will not serve as a director, your
proxy will vote in accordance with his or her best judgment.
At the time we began printing this proxy statement, we did
not know of any matters that needed to be acted upon at the
Annual Meeting other than those discussed in this proxy
statement. However, if any additional matters are presented
to the Annual Meeting for action, your proxy will vote in
accordance with his or her best judgment.
PROXIES SOLICITED BY:
The Board of Directors.
REVOKING YOUR PROXY:You may revoke your proxy or your vote via the Internet or
by telephone before it is voted at the meeting. You may
revoke itany of the above if you either:
- deliver a signed, written revocation letter, dated later
than this proxy, to: Monte E. Wetzler,Curt Johnson, Secretary, at Hanover
Direct, Inc., 1500 Harbor Boulevard, Weehawken, New Jersey
07087;
- deliver another signed proxy, dated later than this proxy,
to Mr. Wetzler,Johnson, Secretary, at the address above;above, or vote
again at a later date via the Internet or vote again at a
later date by telephone; or
- attend the Annual Meeting, inform Mr. Wetzler,Johnson, Secretary,
of your desire to vote in person or by another proxy, and
then vote in person or by another proxy at the Annual
Meeting. Please note that attending the Annual Meeting
alone will not revoke your proxy.proxy or your vote via the
Internet or by telephone.
COST OF SOLICITATION:
The Company will pay all costs, estimated at $25,000 in the
aggregate, of soliciting these proxies. Although we are
mailing these proxy materials, our directors, officers and
employees may also solicit proxies by telephone, telegram,
facsimile, mail, e-mail or personal contact. Such persons
will receive no additional compensation for such services,
but the Company may reimburse them for reasonable
out-of-pocket
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5 expenses. We will also furnish copies of
solicitation materials to fiduciaries, custodians, nominees
and brokerage houses for forwarding to beneficial owners of
shares of Common Stock and Series B Stock held in their names, and the Company
will reimburse them for reasonable out-of-pocket expenses.
American Stock Transfer & Trust Company, the Company's
transfer agent, is assisting us in the solicitation of
proxies in connection with the Annual Meeting for no
additional fee.
YOUR COMMENTS: Your comments about any aspects of our business are welcome.
You may use the space provided on the proxy card for this
purpose, if desired. Although we may not respond on an
individual basis, your comments help us to measure your
satisfaction and we may benefit from your suggestions.
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATIONCOMPENSATION:
The following table shows salaries, bonuses, and long-term compensation
paid during the last three years for the Chief Executive Officer, and our four next
highly compensated executive officers whose total annual salary and bonus
exceeded $100,000.$100,000 during fiscal 1999 and one additional individual who served as
an executive officer for part of fiscal 1999 and the prior two fiscal years.
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
NAME AND FISCAL ----------------------------------------- OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDED(#) COMPENSATION($)
------------------ ------ --------- -------- --------------- ------------ ---------------
Rakesh K. Kaul(1)........ 1998 $547,382 $123,106(2)Kaul.............. 1999 $595,679 $887,577(2) $ 57,749(7)57,749(8) -- $ 17,324(12)11,365(15)
President and Chief 1998 $547,382 $174,541(2) $ 57,749(8) -- $ 11,446(16)
Executive Officer 1997 $542,769 $577,037(2)$751,578(2) $ 68,094(7)68,094(8) -- $ 8,773(13)
Executive8,773(17)
Richard B. Hoffmann(1)...... 1999 $315,385 $316,731(3) $ 12,000(9) 300,000(14) $ 3,386(18)
President and Chief 1998 $226,437 $25,000(3) $ 10,000(9) 250,000(14) 590(19)
Operating Officer,
1996 $417,981 $599,188(2) $199,313(7) 7,530,000(9)Hanover Brands
Michael G. Lutz............. 1999 $304,904 $224,489(4) $ 314(14)
Larry J. Svoboda(1)...... 1998 $316,560 $12,000(10) -- $ 14,400(8)7,280(20)
Executive Vice President 1998 $293,014 $31,849(4) $ 16,555(10) 100,000(14) $ 4,823(21)
and Chief Operating Officer 1997 $238,077 $166,900(4) $ 6,000(10) 50,000(14) $ 1,428(22)
Ralph J. Bulle.............. 1999 $201,308 $186,210(5) $ 12,000(11) -- $ 3,569(15)2,960(23)
Senior Vice President, 1998 $183,695 -- $ 12,000(11) -- $ 3,315(24)
Human Resources 1997 $265,385$188,542 $36,750(5) $ 53,400(3) $147,811(8) 75,000(10)6,000(11) 75,000(14) $ 1,848(16)
and Chief Financial 1996 $106,842 $110,288(3)29,786(25)
Michael D. Contino.......... 1999 $197,533 $182,718(6) $ 48,425(8) 450,000(11)12,000(12) -- Officer
Michael Lutz............. 1998 $293,014 $ 19,887(4) -- 100,000(10) $ 4,823(17)
Executive Vice President 1997 $238,077 $147,013(4) -- 50,000(10) $ 1,428(18)
and Chief Operating 1996 $226,539 $ 1,821(4) -- 150,000(10) $ 3,109(19)
Officer
Richard B. Hoffmann(1)... 1998 $226,437 $ 25,000(5) -- 250,000(10) $ 590(20)3,080(26)
Senior Vice President and Chief Marketing
Officer
Edward J. O'Brien(1)..... 1998 $165,867 $ 60,000(6) --$177,152 -- $ 7,686(21)48,864(12) -- $ 3,093(27)
Chief Information Officer 1997 $156,846 $40,000(6) $ 6,000(12) 100,000(14) $ 3,011(28)
Larry J. Svoboda(1)......... 1999 $243,750 -- $123,300(13) -- $654,303(29)
Senior Vice President and 1998 $316,560 -- $ 14,400(13) -- $ 3,569(30)
Chief Financial Officer 1997 $164,016 -- -- -- $227,027(22)
Treasurer and Secretary 1996 $156,383$265,385 $53,400(7) $147,811(13) 75,000(14) $ 1,455(6) -- 100,000(10) $ 10,484(23)1,848(31)
- ---------------
(1) Rakesh K. Kaul was named President and Chief Executive Officer and elected
to the Board of Directors on March 7, 1996. Larry J. Svoboda joined the
Company on September 25, 1996. Richard B. Hoffmann joined the Company in March 1998. Edward1998 as Senior Vice
President and Chief Marketing Officer and became President and Chief
Operating Officer of Hanover Brands in August 1999. Larry J. O'Brien retired in December 1998.Svoboda
resigned as Chief Financial Officer on June 28, 1999 and as Senior Vice
President on October 8, 1999.
(2) Includes the following payments made by the Company on behalf of Mr. Kaul:
for fiscal 1998,1999, a $123,106$744,599 1999 performance bonus paid in 2000 and a
$142,978 bonus representing the excess of the lesser of the option price of
certain vested options over $1.03; for fiscal 1998, a $174,541 bonus
representing the excess of the lesser of the option price of certain vested
options over $1.03; and for fiscal 1997, a $131,250 1997 performance bonus
paid in 1998, a $445,787 bonus to make a partial payment to the Company on
a note receivable
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under his Tandem Option Agreement agreed to be paid to Mr. Kaul in
connection with his hiring by the Company and a $131,250 1997 performance
bonus paid in 1998; and for fiscal 1996, a $349,188 bonus representing a
20% down payment for the purchase of stock under the Tandem Option Agreement agreed to be paid to
Mr. Kaul in connection with his hiring by the Company, and a $250,000 1996$174,541 bonus
representing the excess of the lesser of the option price of certain vested
options over $1.03.
(3) Includes the following payments made by the Company on behalf of Mr.
Hoffmann: for fiscal 1999, a $291,731 1999 performance bonus paid in 1997.
(3)2000
and $25,000 representing the second installment of a $50,000 sign-on bonus
from 1998; and for fiscal 1998, $25,000 representing the first installment
of a $50,000 sign-on bonus.
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(4) Includes the following payments made by the Company on behalf of Mr. Lutz:
for fiscal 1999, a $224,489 1999 performance bonus paid in 2000; for fiscal
1998, a $31,849 1998 performance bonus paid in 1999; and for fiscal 1997, a
$166,900 1997 performance bonus paid in 1998.
(5) Includes the following payments made by the Company on behalf of Mr. Bulle:
for fiscal 1999, a $186,210 1999 performance bonus paid in 2000; and for
fiscal 1997, a $36,750 1997 performance bonus paid in 1998.
(6) Includes the following payments made by the Company on behalf of Mr.
Contino: for fiscal 1999, a $182,718 1999 performance bonus paid in 2000;
for fiscal 1997, a $40,000 1997 performance bonus paid in 1998.
(7) Includes the following payments made by the Company on behalf of Mr.
Svoboda: for fiscal 1997, a $53,400 1997 performance bonus paid in 1998; and for
fiscal 1996, a $50,000 sign-on bonus, a $30,288 1996 bonus paid in 1997 and
a $30,000 bonus representing a 20% down payment for the purchase of stock
under the 1993 Executive Equity Incentive Plan.
(4) Includes the following payments made by the Company on behalf of Mr. Lutz:
for fiscal 1998, a $19,887 bonus representing prior year's performance
bonuses for which payment was deferred until 1998; for fiscal 1997, a 1997
performance bonus paid in 1998 of $147,013; and for fiscal 1996, a $1,821
performance bonus.
(5) Includes the following payments made by the Company on behalf of Mr.
Hoffmann: for fiscal 1998, $25,000 representing a sign-on bonus.
(6) Includes the following payments made by the Company on behalf of Mr.
O'Brien: for fiscal 1998, $60,000 representing project completion bonuses;
and for fiscal 1996, a $1,445 performance bonus.
(7)1998.
(8) Includes the following payments made by the Company on behalf of Mr. Kaul:
$57,749 in car allowance and related benefits in 1999; $57,749 in car
allowance and related benefits in 1998; and $10,345 in relocation expenses
and $57,749 in car allowance and related benefits in 1997; and $151,192 in relocation expenses and $48,1211997.
(9) Includes the following payments made by the Company of behalf of Mr.
Hoffmann: $12,000 in car allowance and related benefits in 1996.
(8)1999; and
$10,000 in car allowance and related benefits in 1998.
(10) Includes the following payments made by the Company on behalf of Mr. Lutz:
$12,000 in car allowance and related benefits in 1999; $4,555 in relocation
expenses and $12,000 in car allowance and related benefits in 1998; and
$6,000 in car allowance and related benefits in 1997.
(11) Includes the following payments made by the Company on behalf of Mr. Bulle:
$12,000 in car allowance and related benefits in 1999; $12,000 in car
allowance and related benefits in 1998; and $6,000 in car allowance and
related benefits in 1997.
(12) Includes the following payments made by the Company on behalf of Mr.
Contino: $12,000 in car allowance and related benefits in 1999; $36,864 in
relocation expenses and $12,000 in car allowance and related benefits in
1998; and $6,000 in car allowance and related benefits in 1997.
(13) Includes the following payments made by the Company on behalf of Mr.
Svoboda: $10,800 in car allowance and related benefits and $112,500 in
compensation related to the exercise of stock options in 1999; $14,400 in
car allowance and related benefits in 1998; and $133,411 in relocation
expenses and $14,400 in car allowance and related benefits in 1997; and $44,825 in relocation expenses and $3,600 in car allowance in
1996.
(9) Issued by the Company pursuant to the Tandem Option, the Closing Price
Option and the Performance Year Option and by NAR Group Limited ("NAR"), an
affiliate of Richemont, under the Six, Seven, Eight and Nine Year Stock
Options, which options are described in the Severance and Employment
Agreements section below.
(10)1997.
(14) Issued by the Company pursuant to the Company's 1996 Stock Option Plan.
(11)(15) Includes options to purchase 250,000 shares issuedthe following payments made by the Company pursuant
toon behalf of Mr. Kaul
in 1999: $2,666 in matching contributions under the Company's 1993 Executive Equity Incentive Plan401(k)
Savings Plan; $8,241 in long-term disability premiums; $418 in term life
insurance premiums and options to
purchase 200,000 shares issued by the Company pursuant to the Company's
1996 Stock Option Plan.
(12)$40 of accidental death insurance premiums.
(16) Includes the following payments made by the Company on behalf of Mr. Kaul
in 1998: $2,666 in matching contributions under the Company's 401(k)
Savings Plan; $8,242$8,241 in long-term disability premiums; $6,376$499 in term life
insurance premiums and $40 of accidental death insurance premiums.
(13)(17) Includes the following payments made by the Company on behalf of Mr. Kaul
in 1997: $8,241 in long-term disability premiums,premiums; $492 in term life
insurance premiums and $40 of accidental death insurance premiums.
(14)(18) Includes the following payments made by the Company on behalf of Mr.
KaulHoffmann in 1996: $2811999: $2,666 in matching contributions under the Company's
401(k) Savings Plan; $110 in long-term disability premiums; $570 in term
life insurance premiums and $33$40 of accidental death insurance premiums.
(15)5
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(19) Includes the following payments made by the Company on behalf of Mr.
Hoffmann in 1998: $55 in long-term disability premiums; $515 in term life
insurance premiums and $20 of accidental death insurance premiums.
(20) Includes the following payments made by the Company on behalf of Mr. Lutz
in 1999: $2,666 in matching contributions under the Company's 401(k)
Savings Plan; $3,722 in long-term disability premiums; $852 in term life
insurance premiums and $40 of accidental death insurance premiums.
(21) Includes the following payments made by the Company on behalf of Mr. Lutz
in 1998: $3,722 in long-term disability premiums; $1,061 in term life
insurance premiums and $40 of accidental death insurance premiums.
(22) Includes the following payments made by the Company on behalf of Mr. Lutz
in 1997: $234 in matching contributions under the Company's 401(k) Savings
Plan; $110 in long-term disability premiums; $1,044 in term life insurance
premiums and $40 of accidental death insurance premiums.
(23) Includes the following payments made by the Company on behalf of Mr. Bulle
in 1999: $2,666 in matching contributions under the Company's 401(k)
Savings Plan; $110 in long-term disability premiums; $144 in term life
insurance premiums and $40 of accidental death insurance premiums.
(24) Includes the following payments made by the Company on behalf of Mr. Bulle
in 1998: $2,666 in matching contributions under the Company's 401(k)
Savings Plan; $110 in long-term disability premiums; $499 in term life
insurance premiums and $40 of accidental death insurance premiums.
(25) Includes the following payments made by the Company on behalf of Mr. Bulle
in 1997: $2,654 in matching contributions under the Company's 401(k)
Savings Plan; $26,490 in supplemental 401(k) contributions; $110 in
long-term disability premiums; $492 in term life insurance premiums and $40
of accidental death insurance premiums.
(26) Includes the following payments made by the Company on behalf of Mr.
Contino in 1999: $2,666 in matching contributions under the Company's
401(k) Savings Plan; $110 in long-term disability premiums; $264 in term
life insurance premiums and $40 of accidental death insurance premiums.
(27) Includes the following payments made by the Company on behalf of Mr.
Contino in 1998: $2,666 in matching contributions under the Company's
401(k) Savings Plan; $110 in long-term disability premiums; $277 in term
life insurance premiums and $40 of accidental death insurance premiums.
(28) Includes the following payments made by the Company on behalf of Mr.
Contino in 1997: $2,588 in matching contributions under the Company's
401(k) Savings Plan; $110 in long-term disability premiums; $273 in term
life insurance premiums and $40 of accidental death insurance premiums.
(29) Includes the following payments made by the Company on behalf of Mr.
Svoboda in 1999: $491,682 in severance under the Separation Agreement
discussed below under "Employment Contracts, Termination of Employment and
Change-in-Control Arrangements"; $159,256 related to the issuance of Common
Stock associated with the waiver of principal and interest balances owed by
Mr. Svoboda under the 1993 Executive Equity Incentive Plan; $2,666 in
matching contributions under the Company's 401(k) Savings Plan; $110 in
long-term disability premiums; $549 in term life insurance premiums and $40
of accidental death insurance premiums.
(30) Includes the following payments made by the Company on behalf of Mr.
Svoboda in 1998: $2,666 in matching contributions under the Company's
401(k) Savings Plan; $110 in long-term disability premiums; $753 in term
life insurance premiums and $40 of accidental death insurance premiums.
46
7
(16)9
(31) Includes the following payments made by the Company on behalf of Mr.
Svoboda in 1997: $1,206 in matching contributions under the Company's
401(k) Savings Plan,Plan; $110 in long-term disability premiums,premiums; $492 in term
life insurance premiums and $40 of accidental death insurance premiums.
(17) Includes the following payments made by the Company on behalf of Mr. Lutz
in 1998: $3,722 in long-term disability premiums; $1,061 in term life
insurance premiums and $40 of accidental death insurance premiums.
(18) Includes the following payments made by the Company on behalf of Mr. Lutz
in 1997: $234 in matching contributions under the Company's 401(k) Savings
Plan, $110 in long-term disability premiums, $1,044 in term life insurance
premiums and $40 of accidental death insurance premiums.
(19) Includes the following payments made by the Company on behalf of Mr. Lutz
in 1996: $2,500 in matching contributions under the Company's 401(k)
Savings Plan, $576 in term life insurance premiums and $33 of accidental
death insurance premiums.
(20) Includes the following payments made by the Company on behalf of Mr.
Hoffman in 1998: $55 in long-term disability premiums; $515 in term life
insurance premiums and $20 of accidental death insurance premiums.
(21) Includes the following payments made by the Company on behalf of Mr.
O'Brien in 1998: $2,666 in matching contributions under the Company's
401(k) Savings Plan, $3,919 in LTD premiums, $1,061 in term life insurance
premiums and $40 of accidental death insurance premiums.
(22) Includes the following payments made by the Company on behalf of Mr.
O'Brien in 1997: $2,640 in matching contributions under the Company's
401(k) Savings Plan, $69,708 in distributions due to the discontinuance of
the Company's Supplemental Retirement Plan, $110 in long-term disability
premiums, $4,529 in term life insurance premiums, $40 of accidental death
insurance premiums and $150,000 in severance pay.
(23) Includes the following payments made by the Company on behalf of Mr.
O'Brien in 1996: $2,475 in matching contributions under the Company's
401(k) Savings Plan, $3,334 in matching contributions under the Company's
Supplemental Retirement Plan, $110 in long-term disability premiums, $4,525
in term life insurance premiums and $40 in accidental death insurance
premiums.
STOCK OPTIONSOPTIONS:
The following table contains information concerning options granted to the
Chief Executive Officer, and our four next highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 during fiscal 1998.
5
81999 and one
additional individual who served as an executive officer for part of fiscal
1999.
OPTION GRANTS IN FISCAL 19981999
NUMBER OF PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME GRANTED($)GRANTED FISCAL YEAR (%) PRICE($PRICE ($) DATE VALUE($VALUE ($)(A)
---- ---------- --------------- ----------------- ---------- ----------------------
Rakesh K. Kaul.................Kaul.................. -- -- -- -- --
Richard B. Hoffmann
March 1999.................... 100,000 4.98% $3.00 3/3/06 $143,300
August 1999................... 200,000 9.95% $2.38 8/4/06 $225,580
Michael G. Lutz................. -- -- -- -- --
Ralph J. Bulle.................. -- -- -- -- --
Michael D. Contino.............. -- -- -- -- --
Larry J. Svoboda............... -- -- -- -- --
Michael Lutz................... 100,000 6.5% $3.188 3/4/05 $155,700(a)
Richard B. Hoffmann............ 250,000 16.1% $3.188 3/4/05 $389,300(a)
Edward J. O'Brien..............Svoboda................ -- -- -- -- --
- ---------------
(a) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions
for grants in 1998:March 1999 and August 1999: risk free interest rate of 5.75%5.33%
and 5.96%, respectively, expected lives of 4 years, expected volatility of
55.77%54.76% and 53.10%, respectively, and no expected dividends.
NoDuring 1999, Larry J. Svoboda purchased 50,000 shares of Common Stock
through the exercise of 50,000 options were exercised by anyunder the Company's 1996 Stock Option
Plan, realizing a value of the named executives during fiscal
1998.$112,500. The following table contains information
concerning the fiscal 19981999 year-end values of all options granted to the Chief
Executive Officer, and our four next highly compensated executive officers whose
total annual salary and bonus exceeded $100,000:$100,000 and one additional individual
who served as an executive officer for part of fiscal 1999:
FISCAL YEAR-END OPTION VALUES(1)
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT IN-THE-MONEY OPTIONS FISCAL YEAR-END (#) AT FISCAL YEAR-END
(#)
---------------------------- ----------------------------------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------------------- -------------- ----------- -------------
Rakesh K. Kaul........................ 2,765,000 4,765,000 $1,923,225 $2,232,025Kaul.......................... 4,147,500 3,382,500 $8,668,275 $7,069,425
Richard B. Hoffmann..................... 83,332 466,668 $ 5,208 $ 210,417
Michael G. Lutz......................... 244,583 95,417 $ 403,187 $ 51,163
7
10
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END (#) AT FISCAL YEAR-END
------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- -------------
Ralph J. Bulle.......................... 173,125 26,875 $ 367,631 $ 49,519
Michael D. Contino...................... 166,664 33,336 $ 345,795 $ 60,405
Larry J. Svoboda...................... 96,250 428,750 $ 65,569 $ 303,631
Michael Lutz.......................... 108,333 231,667 $ 73,381 $ 255,079
Richard B. Hoffmann .................. -- 250,000Svoboda........................ 446,250 -- $ 389,275
Edward J. O'Brien..................... 102,498 37,502 $ 68,356 $ 25,006973,950 --
- ---------------
(1) Options for Mr. Kaul represent options granted in 1996 by the Company under
the Tandem Option, the Closing Price Option and the Performance Year Option
Plans, and by NAR under the Six, Seven, Eight and Nine Year Stock Options.Option
Plans. 250,000 options for Mr. Svoboda 40,000 options for Mr. Lutz and 40,000 options for Mr. O'BrienLutz
represent tandem options granted pursuant to the 1993 Executive Equity
Incentive Plan. Under this plan, options generally become exercisable after
three years and expire after six years from the date of grant. Mr. Svoboda's
vested tandem options, in accordance with his Separation Agreement with the
Company (see Severance and Employment Agreements below), are due to expire
on May 31, 2000. 196,250 options for Mr. Svoboda, 300,000 options for Mr.
Lutz, 550,000 options for Mr. Hoffmann, 200,000 options for Mr. Bulle and
200,000 options for Mr. Contino represent options granted pursuant to the
1996 Stock Option Plan. Under this plan, these options become exercisable
after three years and expire after six years from the date of the grant. 275,000Mr.
Svoboda's vested options for Mr. Svoboda, 300,000 options for Mr. Lutz, 250,000 options for
Mr. Hoffmann and 100,000 options for Mr. O'Brien represent options granted
pursuant tounder the 1996 Stock Option Plan. Under this plan, upPlan, in accordance
with his Separation Agreement, are due to one-third of
these options become exercisable one year after the date of grant and expire seven years from the date of grant.
SEVERANCEon May 31, 2000.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND EMPLOYMENT AGREEMENTSCHANGE-IN-CONTROL
ARRANGEMENTS:
The Company entered into an Executive Employment Agreement, dated as of
March 7, 1996, with Rakesh K. Kaul, the President and Chief Executive Officer of
the Company (the "Employment Agree-
6
9
ment""Old Employment Agreement"). The Old Employment Agreement
providesprovided for an "at will" term commencing on March 7, 1996, at a base salary of
$525,000 per year. The Old Employment Agreement also providesprovided for Mr. Kaul's
participation in the Short-Term Incentive Plan for Rakesh K. Kaul. That plan which was approved by the shareholders at the June
20, 1996 shareholders meeting,
provides for an annual bonus of between 0% and 125% of Mr. Kaul's base salary,
depending on the attainment of various performance objectives as determined in
accordance with the objective formula or standards to be adopted by the Compensation
Committee as part of the performance goals for each such year. The Old
Employment Agreement also providesprovided for Mr. Kaul's participation in the Long-Term
Incentive Plan for Rakesh K. Kaul. That plan provides for the purchase by Mr.
Kaul of 1,510,000 shares of Common Stock of the which was approved by the shareholders at the June 20, 1996 shareholders
meeting, Company at their fair market
value; an option expiring March 7, 2006 for the purchase of 3,020,000 shares of
Common Stock (the "Tandem Option"); an option expiring March 7, 2006 to purchase
2,000,000 shares of Common Stock exercisable only upon satisfaction of the
condition that the closing price of the Common Stock has attained an average of
$4.50 per share during any period of 91 consecutive calendar days commencing
after August 23, 1996 and ending on or before March 7, 2002 (the "Closing Price
Option"); an option expiring March 7, 2006 to purchase an aggregate of 1,000,000
shares of Common Stock at their fair market value, subject to the attainment of
certain objective performance goals to be set by the Compensation Committee (the
"Performance Year Option"); and four options expiring March 7, 2002, and the
first three anniversaries thereof, respectively, for the purchase of 250,000377,500
shares of Common Stock each, granted by NAR (the "Six," "Seven," "Eight" and
"Nine Year Stock Options"). The Old Employment Agreement also providesprovided for the
grant of registration rights under the Securities Act of 1933, as amended (the
"Securities Act"), for shares of Common Stock owned by Mr. Kaul. Pursuant to the
Employment Agreement, the Company agreed to make Mr. Kaul whole, on an after-tax
basis, for any loss realized on the sale of his residence at the time he joined
the Company. The Company also providesprovided Mr. Kaul with an automobile allowance of
$4,812 per month and related benefits. In
8
11
the event that Mr. Kaul's employment iswas actually or constructively terminated
by the Company other than for cause, he willwould be entitled for a 12-month period
commencing on the date of his termination to (i) a continuation of his base
salary, (ii) continued participation in the Company's medical, dental, life
insurance and retirement plans offered to senior executives of the Company, and
(iii) a bonus, payable in 12 equal monthly installments, equal to 100% of his
base salary (at the rate in effect immediately prior to such termination). In
addition, Mr. Kaul willwould be entitled to receive (i) to the extent not previously
paid, the short-term bonus payable to Mr. Kaul for the year preceding the year
of termination, and (ii) for the year in which Mr. Kaul's employment iswas
terminated, an additional bonus equal to his annual base salary for such year,
pro-rated to reflect the portion of such year during which Mr. Kaul iswas
employed. Mr. Kaul's employment willwould be deemed to be constructively terminated
by the Company in the event of a change in control (as defined in the Old
Employment Agreement), the Company's bankruptcy, a material diminution of his
responsibilities, or a relocation of the Company's headquarters outside the New
York metropolitan area without his prior written consent. In the event that Mr.
Kaul's employment terminatesterminated other than as a result of a termination by the
Company, Mr. Kaul willwould not be entitled to any payment or bonus, other than any
short-term bonus he iswas entitled to receive from the year prior to termination.
The Company entered into a new Executive Employment Agreement, dated as of
March 6, 2000 with Rakesh K. Kaul, the President and Chief Executive Officer of
the Company (the "Employment Agreement"). The Employment Agreement provides for
a three-year evergreen term commencing on March 6, 2000, at a base salary of
$597,300 per year. The base salary is subject to review on an annual basis. On
each anniversary, the Employment Agreement will automatically be extended for an
additional year unless either party has given at least 90 days prior notice of
nonrenewal. The Employment Agreement also provides that the Company, in its
discretion may assign Mr. Kaul to be Chief Executive Officer of erizon, Inc.
under certain circumstances. The Employment Agreement provides for Mr. Kaul's
participation in the 2000 Short-Term Incentive Plan for Rakesh K. Kaul. That
plan, as described below at pages 38 and 39, provides for an annual bonus of
between 0% and 150% of Mr. Kaul's base salary, depending on the attainment of
various performance objectives as determined in accordance with the objective
formula or standards adopted by the Compensation Committee as part of the
performance goals for each such year. The Employment Agreement also provides for
Mr. Kaul's participation in the 2000 Long-Term Incentive Plan for Rakesh K.
Kaul. That plan, as described more fully at pages 40 through 42, provides Mr.
Kaul with an option to purchase 6% of the Common Stock of erizon, Inc. (with
protection against dilution through erizon, Inc.'s next round of financing) at
the fair market value on the date of grant, which option vests in equal parts
over four years and expires ten years following the date of grant (the "erizon
Option"). The plan also provides for the modification to an option granted to
Mr. Kaul on March 7, 1996 and expiring on March 7, 2006, to purchase 2,000,000
shares of Common Stock of the Company (the "Closing Price Option"). The option
is now subject to a three-year vesting schedule, provided that it shall vest and
become immediately exercisable upon satisfaction of the condition that the
closing price of the Common Stock of the Company has attained an average of
$4.50 per share during any period of 91 consecutive calendar days commencing
after August 23, 1996 and ending on or before March 7, 2002. The Closing Price
Option also provides that within thirty days after the Closing Price Option
vests with respect to all or a portion of the shares of Common Stock underlying
such option, the Company shall pay Mr. Kaul an additional cash amount equal to
the number of shares of Common Stock with respect to which such option has
vested on such vesting date, multiplied by the excess of (i) the lesser of the
per share option price of such shares or the fair market value on such vesting
date of a share of Common Stock, over (ii) $1.03. The Employment Agreement also
provides for the grant of registration rights under the Securities Act of 1933,
as amended (the "Securities Act"), for shares of Common Stock owned by Mr. Kaul
and for (i) the registration of shares underlying the erizon Option within 90
days of erizon, Inc. becoming eligible to use an
9
12
S-8 or other similar form, and (ii) the registration of shares underlying the
Closing Price Option and of shares underlying options previously granted to Mr.
Kaul by the Company, within 90 days of the execution of the Employment
Agreement. In the event Mr. Kaul's employment is terminated by the Company other
than for cause (as defined in the Employment Agreement) or he resigns without
good reason (as defined in the Employment Agreement), he will be entitled to (i)
continuation of his base salary for a period of 24-months; (ii) continued
participation in the benefit plans of the Company for a period of 24-months;
(iii) a bonus payable over 24 months equal to two times the greater of (x) his
base salary or (y) the average of the short-term bonus amounts paid or payable
to Executive for the two years preceding the year of termination; (iv) to the
extent not previously paid, any short-term bonus for the year preceding the year
of termination; and (v) for the year of termination, an additional bonus equal
to his base salary, pro-rated to reflect the portion of such year during which
Mr. Kaul is employed. In the event Mr. Kaul's employment terminates as a result
of death or disability (as defined in the Employment Agreement), he will be
eligible to receive (i) to the extent not previously paid, the short-term bonus
for the year preceding the year of termination; and (ii) for the year of
termination an additional bonus equal to his base salary, pro-rated to reflect
the portion of such year during which Mr. Kaul is employed. The Employment
Agreement and attachments thereto also provide that in the event Mr. Kaul's
employment is terminated by Company without cause, by Mr. Kaul with good reason
or due to death or disability, the erizon Option and the Closing Price Option
shall vest and become exercisable in full. In the event that Mr. Kaul's
employment terminates other than as a result of termination by the Company
without cause, by Mr. Kaul with good reason or due to death or disability, he
will not be entitled to any payment or bonus, other than, to the extent not
previously paid, short-term bonus for the year preceding the year of
termination. Mr. Kaul is also a participant in a change of control plan that is
substantially similar to the change of control plan described below for other
executives of the Company (the "Thirty-Six Month Compensation Continuation
Plan"), provided that in the event of his termination without cause (as such
term is defined in the plan) or his resignation with good reason (as such term
is defined in the plan) within 24-months of a change of control (as such term is
defined in the plan) he shall be entitled to receive, in a lump sum payment, an
amount equal to: (i) three times his base salary; (ii) three times the greater
of (x) his base salary or (y) the average of the short-term bonus amounts paid
or payable to Executive for the two years preceding the year of termination;
(iii) to the extent not previously paid, any short-term bonus for the year
preceding the year of termination; and (iv) for the year of termination, an
additional bonus equal to his base salary, pro-rated to reflect the portion of
such year during which Mr. Kaul is employed. In addition, in the event of a
termination following a change of control, Mr. Kaul will continue to participate
in the Company's benefit plans for a period of 36-months and unvested options
shall vest and become exercisable immediately. In the event Mr. Kaul's payments
pursuant to the change of control plan exceed 110% of his "safe harbor," as
provided for in Internal Revenue Code Section 280(G), Mr. Kaul's payments will
be grossed-up for any excise taxes resulting therefrom. If the payments do not
exceed 110% of his safe harbor, his payments will be reduced to the safe harbor
limits of Internal Revenue Code Section 280(G). The Employment Agreement also
provides that Mr. Kaul is subject to confidentiality and non-competition
obligations set forth in an agreement annexed to the Employment Agreement (the
"Non-Competition Agreement"). The Non-Competition Agreement provides in
pertinent part that, for a period of 24-months following the termination of his
employment for any reason, Mr. Kaul may not (i) be employed by or otherwise
provide services to a person, business, enterprise or legal entity that is
engaged in the same Business (as defined in the Employment Agreement) as the
Company, including its subsidiaries, affiliates and successors (collectively,
the "Company"); (ii) solicit the customers of the Company; or (iii) solicit
employees of the Company.
On June 28, 1999, Larry J. Svoboda resigned as Chief Financial Officer of
the Company and on October 8, 1999, he resigned as Senior Vice President of the
Company. The Company entered into a
10
13
Separation Agreement with Mr. Svoboda dated November 22, 1999 ("Separation
Agreement"), to formalize these resignations. Pursuant to this Separation
Agreement, the Company agreed to: (1) pay Mr. Svoboda a lump-sum amount of
$325,000 (one year's salary) less (a) all applicable withholdings and taxes; (b)
$57,131.22 pursuant to the Company's waiving the principal and interest owed by
Mr. Svoboda under notes he issued to purchase Company Common Stock under the
1993 Executive Equity Incentive Plan (see 6 below); (c) $93,408.58 for all
monies owed by Mr. Svoboda to the Company for relocation reimbursements,
interest and taxes related thereto; and (d) $1,400 pursuant to the Company's
waiving the interest owed by Mr. Svoboda under his promissory note to the
Company dated January 26, 1997 (see 7 below); (2) pay for the continuance of Mr.
Svoboda's car allowance at the rate of $1,200 per month for one year; (3)
continue Mr. Svoboda's group health plan benefits for himself and his family for
one year; (4) provide for the benefit of Mr. Svoboda six months of senior-level
executive outplacement services at the firm of Drake Beam Morin and thereafter
to provide the same services itself on a month-to-month basis for up to an
additional six months; (5) pay Mr. Svoboda a lump-sum amount of $37,540 (equal
to six-weeks accrued and unused vacation); (6) extend the exercise period of all
vested options through May 31, 2000; and (7) pay Mr. Svoboda a lump-sum bonus of
$15,000 less all applicable withholdings and taxes for his contributions to
closing the sale of the Austad's catalog business.
Effective December 26, 1999, the Company established the Hanover Direct,
Inc. Key Executive Twenty-Four Month Compensation Continuation Plan for
corporate executive vice presidents, corporate senior vice presidents, strategic
unit presidents, or other employees selected by the Chief Executive Officer of
the Company, all of whom are approved by the Plan Administrator (except Mr.
Kaul, who has a separate agreement which is discussed below). The purpose of
this plan is to attract and retain key management personnel by reducing
uncertainty and providing greater personal security in the event of a Change of
Control. For purposes of the plan, a "Change of Control" will occur: (i) when
any person becomes, through an acquisition, the beneficial owner of shares of
the Company having at least fifty percent (50%) of the total number of votes
that may be cast for the election of directors of the Company (the "Voting
Shares"); provided, however, that the following acquisitions shall not
constitute a Change of Control: (a) if a person owns less than fifty percent
(50%) of the voting power of the Company and that person's ownership increases
above fifty percent (50%) solely by virtue of an acquisition of stock by the
Company, then no Change of Control has occurred unless and until that person
subsequently acquires one or more additional shares representing voting power of
the Company; or (b) any acquisition by a person who as of the date of the
establishment of the plan owned at least thirty-three percent (33%) of the
Voting Shares; (ii) (a) notwithstanding the foregoing, when the shareholders of
the Company approve any of the following (each, a "Transaction"): (I) any
reorganization, merger, consolidation or other business combination of the
Company; (II) any sale of fifty percent (50%) or more of the Company's assets;
or (III) a complete liquidation or dissolution of the Company; (b)
notwithstanding (ii)(a) above, shareholder approval of either of the following
types of Transactions will not give rise to a Change of Control: (I) a
Transaction involving only the Company and one or more of its subsidiaries; or
(II) a Transaction immediately following which the shareholders of the Company
immediately prior to the Transaction continue to have a majority of the voting
power in the resulting entity; (iii) when, within any twenty-four (24) month
period, persons who were directors of the Company immediately before the
beginning of such period (the "Incumbent Directors") shall cease (for any reason
other than death) to constitute at least a majority of the Board of Directors or
the board of directors of any successor to the Company; or (iv) when the Company
sells, assigns or transfers more than fifty percent (50%) of its interest in, or
the assets of, one or more subsidiaries (each, a "Sold Subsidiary" and,
collectively, "Sold Subsidiaries"); provided, however, that such a sale,
assignment or transfer will constitute a Change of Control only for: (a) the
participants who are employees of that Sold Subsidiary; and (b) the
11
14
participants who are employees of a direct or indirect parent company of one or
more Sold Subsidiaries of the Company, and then only if: (I) the gross assets of
its Sold Subsidiaries constitute more than fifty percent (50%) of the gross
assets of such parent company (calculated on a consolidated basis with the
direct and indirect subsidiaries of such parent company with reference to the
most recent balance sheets of the Sold Subsidiaries and the parent company);
(II) the property, plant and equipment of its Sold Subsidiaries constitute more
than fifty percent (50%) of the property, plant and equipment of such parent
company (calculated on a consolidated basis with the direct and indirect
subsidiaries of such parent company with reference to the most recent balance
sheets of the Sold Subsidiaries and the parent company); or (III) in the case of
a publicly-traded parent company, the ratio (as of the date a binding agreement
for the sale is entered) of (x) the capitalization (based on the sale price) of
its Sold Subsidiaries to (y) the market capitalization of the parent company, is
greater than 0.50. For purposes of this subsection (iii), any director who was
not a director as of the effective date of this plan shall be deemed to be an
Incumbent Director if such director was elected to the Board of Directors by, or
on the recommendation of, or with the approval of, at least a majority of the
members of the Board of Directors or the nominating committee who, at the time
of the vote, qualified as Incumbent Directors either actually or by prior
operation of this clause. In addition, persons (and their successors from time
to time) who are designated by a holder of thirty-three percent (33%) or more of
the Voting Shares to stand for election and serve as a director in lieu of other
such designees serving as directors, shall be deemed to be Incumbent Directors
for the purposes of this subsection (iii). Notwithstanding the foregoing, any
director elected to the Board of Directors to avoid or settle a threatened or
actual proxy contest shall not, under any circumstances, be deemed to be an
Incumbent Director. For purposes of subsection (iv), a Transaction shall be
deemed to involve the sale of more than fifty percent (50%) of a company's
assets if: (a) the gross assets being sold constitute more than fifty percent
(50%) of the gross assets of the company as stated on the most recent balance
sheet of the company; (b) the property, plant and equipment being sold
constitute more than fifty percent (50%) of the property, plant and equipment of
the company as stated on the most recent balance sheet of the company; or (c) in
the case of a publicly-traded company, the ratio (as of the date a binding
agreement for the sale is entered) of (x) the capitalization (based on the sale
price) of the division, subsidiary or business unit being sold to (y) the market
capitalization of the company, is greater than 0.50. For purposes of subsection
(iv), no Change of Control shall be deemed to have occurred if, immediately
following a sale, assignment or transfer by the Company of more than fifty
percent (50%) of its interest in, or the assets of, a Sold Subsidiary, any
shareholder of the Company owning thirty-three percent (33%) or more of the
voting power of the Company immediately prior to such transactions owns no less
than the equivalent percentage of the voting power of the Sold Subsidiary.
A participant in this plan shall be entitled to severance pay and benefits
under the plan only if there occurs a Change of Control and thereafter the
Company terminates the participant's employment without cause or the participant
terminates his/her employment for good reason during the two (2) year period
following the Change of Control. A participant shall not be entitled to
severance pay and benefits under the plan if he/she (i) resigns other than for
good reason, (ii) is terminated for cause, (iii) dies prior to a Change of
Control or prior to a termination qualifying for severance pay and benefits
under the plan, or (iv) voluntarily or involuntarily terminates employment as a
result of disability.
The amount of severance pay and benefits to which a participant will be
entitled shall include (i) an amount equal to twenty-four (24) months of the
participant's base annualized salary; (ii) an amount equal to the lesser of (a)
two (2) times the target bonus for the participant as defined in the Company's
Management Incentive Plan, or (b) two (2) times the largest bonus calculated as
a percentage of base salary earned by the participant during any of the three
(3) years prior to the Change of Control, except that those participants with
less than one (1) full year of service as of the date of the Change of Control
will be paid at two (2) times
12
15
their target bonus amount as defined in the Company's Management Incentive Plan;
(iii) an amount equal to twenty-four (24) times the monthly applicable premium
that would be charged to the Company for COBRA continuation coverage for the
participant, the participant's spouse and the dependents of the participant
under the Company's group health plan at the time of the participant's
termination of employment; (iv) an amount equal to twenty-four (24) months of
the participant's car allowance then in effect as of the date of the termination
of the participant; and (v) an amount equal to the cost of twelve (12) months of
executive-level outplacement services at a major outplacement services firm.
STOCK OPTION AND EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATIONPARTICIPATION:
During the fiscal year ended December 26, 1998,25, 1999, the Stock Option and
Executive Compensation Committee of the Board of Directors of the Company
consisted of Elizabeth Valk LongShailesh J. Mehta (Chairman), Ralph Destino, Jan P. du Plessis,
Alan G. Quasha and Howard M.S. Tanner. None of such persons was, during such
fiscal year or formerly, an officer or employee of the Company or any of its
subsidiaries or had any relationship with the Company other than serving as a
Director of the Company. During the 19981999 fiscal year, no executive
7
10 officer of
the Company served as a director or a member of the compensation committee of
another entity, one of whose executive officers served as a Director or on the
Compensation Committee of the Company.
However, Mr. Quasha
has an indirect material interest in Quadrant Management Inc. ("Quadrant") which
renders management consulting, business advisory and investment banking services
to the Company for an annual fee of $750,000 per year. Such fee was waived for
the 1998 fiscal year and will be waived for the 1999 fiscal year. In addition,
Mr. Quasha's wife serves as a consultant to the Company.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATIONCOMPENSATION:
The Stock Option and Executive Compensation Committee (the "Compensation
Committee"), currently consisting of five outside directors, has the
responsibility, under delegated authority from the Company's Board of Directors,
for developing, administering and monitoring the executive compensation policies
of the Company and making recommendations to the Board with respect to these
policies. The Board of Directors has accepted the Compensation Committee's
recommendations for 19981999 compensation.
Executive Compensation Philosophy
The Compensation Committee's executive compensation philosophy supports the
Company's overall business strategy and has at its core a strong link between
pay, performance and retention. The philosophy emphasizes recognition of
achievement at both the Company and individual level. A significant portion of
compensation delivered to executives to reflect such achievement is intended to
be in the form of long-term incentives. This long-term focus emphasizes
sustained performance and encourages retention of executive talent. In addition,
executives are encouraged to hold a significant ownership stake in the Company
so that their interests are closely aligned with those of the shareholders in
terms of both risk and reward.
The specific executive compensation plans are designed to support the
executive compensation philosophy. Compensation of the Company's executives
consists of three components which are discussed below: salary, annual incentive
awards and long-term incentive awards. Base salary levels have been established
in order to attract and retain key executives commensurate with their level of
responsibility within the organization. Annual incentives closely link executive
pay with performance in areas that are critical to the Company's short-term
operating success. Long-term incentives motivate executives to make decisions
that are in the best interests of the Company's owners and reward them for the
creation of shareholder value. It is the intent of both the Company and the
Compensation Committee that the components of the executive compensation program
will support the Company's compensation philosophy, reinforce the Company's
overall business strategy, and ultimately drive shareholder value creation.
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Base Salaries
Individual salaries for executives of the Company are generally influenced
by several equally weighted factors: the qualifications and experience of the
executive, the executive's level of responsibility within the organization, pay
levels at firms which compete with the Company for executive talent, individual
performance, and the Company performance-related factors used by the Company to determine
annual incentive awards. Mr. Kaul joined the Company effective March 7, 1996.
Salary for Mr. Kaul was set pursuant to an employment agreement entered into by
him with the Company in March 1996.
The base salaries of the Company's executives are subject to periodic
review and adjustment. Annual salary adjustments are made based on the factors
described above.
8
11
Annual Incentive Awards
In addition to base salaries, each of the Company's executives and selected
key managers participate in the Company's Incentive Compensation Plan.
Currently, approximately 240250 executives and key managers are eligible to
participate in the annual incentive plan. Under this plan, each participant is
assigned a target bonus, expressed as a percentage of his/her base salary, which
is paid if all performance targets are fully met. It is the policy of the
Compensation Committee to position target bonuses at competitive levels.
Individual target bonuses are based on the person's responsibility level in the
organization and the bonus award opportunity at the other organizations included
in the performance chart. Target bonus levels range from 5% to 100% of salary.
The target bonus for Mr. Kaul is 100% of salary while his maximum bonus is 125%
of salary. Target bonus opportunities for Messrs. Svoboda,Hoffmann, Lutz, Bulle and
HoffmannContino are 50% of salary while maximum bonuses are 100% of salary.
Participants are eligible to receive an annual bonus depending upon the
extent to which certain goals are achieved. As in past years, performance goals
for 19981999 were based on Earnings Before Interest and Taxes (EBIT), cash flow and
other customer satisfaction and performance-related goals including Inventory
Fill, Inventory Turns, Returns and Order Cancellations. Goals are set at both
the corporate and business unit levels depending on the participant's scope of
responsibility thus encouraging teamwork amongst the Company's employees. The
importance of each goal in determining a participant's bonus award also depends
on his/her scope of responsibility. Actual bonus levels vary depending upon the
degree of achievement in relationship to the performance goals.
Payouts of awards have been determined based on the Company's performance
during fiscal 1998.1999. 100% of awards made under the bonus plan are currently paid
in cash.
Long-Term Incentive Awards
1993 Executive Equity Plan
The 1993 Executive Equity Incentive Plan terminated in accordance with its
terms on December 31, 1996. Such plan provided executives and other key
employees with incentives to maximize the long-term creation of shareholder
value. The long-term incentive plan encouraged executives to acquire and retain
a significant ownership stake in the Company. Under the plan, executives were
given an opportunity to purchase shares of Common Stock with up to 80% of the
purchase price financed with a full recourse Company loan. For each share of
stock an employee purchased, he/she received an option to acquire two additional
shares of Common Stock, to a maximum of 250,000 shares in the aggregate, which
vest after three years and expire after six years. By creating this opportunity,
the Company encouraged executives to own Common Stock
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thereby aligning executives' interests with those of the Shareholders. The
number of shares offered for purchase to each executive and the corresponding
number of tandem options increased with the executive's level of responsibility
within the organization. Approximately eight executives who are currently employedIn December 1999, the rights of certain participants in
this plan expired. These participants had cumulative promissory notes of
approximately $1.0 million payable to the Company, comprised of $0.8 million of
principal and $0.2 million of interest, on the expiration date. Accordingly,
collateral encompassing 294,249 shares of Common Stock, held in escrow on behalf
of each participant, was transferred to and retained by the Company are participating in
satisfaction of the 1993 Executive Equity Incentive Plan.aforementioned promissory notes, which were no longer
required to be settled. The Company recorded these shares as treasury stock.
Furthermore, these participants forfeited their initial 20% cash down payment,
which was required for entry into the plan.
1996 Stock Option Plan
The purpose of the 1996 Stock Option Plan is to provide employees of the
Company and its subsidiaries with a larger personal and financial interest in
the success of the Company through the grant of stock-based incentive
compensation. Under the plan, employees may be granted options to purchase
shares of Common Stock at the fair market value on the date of grant. The total
options granted to an employee is one-half 9
12
performance-based. The 1996 Stock
Option Plan provides that options may be granted for terms of not more than after 10
years.
All employees are eligible to participate in the 1996 Stock Option Plan.
During 1998, approximately 1,550,0001999, 2,010,000 options to purchase shares of Common Stock were granted
to approximately 4536 employees in accordance with the plan including options to
purchase an aggregate of 350,000300,000 shares granted to the executives named in the
executive compensation table above.
1999 Stock Option Plan for Directors
The purpose of the 1999 Stock Option Plan for Directors is to advance the
interests of the Company by providing non-employee directors of the Company,
through the grant of options to purchase shares of Common Stock, with a larger
personal and financial interest in the success of the Company. Under the terms
of the plan, directors who are neither employees of the Company nor nonresident
aliens shall be granted an option to purchase 50,000 shares of Common Stock as
of the effective date of his or her initial appointment or election to the Board
or, if later, the effective date of the plan, and shall be granted an option to
purchase 10,000 shares of Common Stock on August 4, 2000 and August 3, 2001,
provided that such directors continue to serve as directors on such dates. The
price at which shares of Common Stock may be purchased upon the exercise of the
options granted under the plan shall be the fair market value of such shares on
the date of grant of the options. The plan provides that options shall be
granted for terms of 10 years and shall vest one-third, one-third and one-third
on the first, second and third anniversaries of the date of grant. In addition,
options may not be exercised more than 3 months after a participant ceases to be
a director of the Company, except in the case of death or disability, in which
cases options may be exercised within 12 months after the date of such death or
disability.
This plan is being submitted to the shareholders of the Company for
ratification at the 2000 Annual Meeting. (See page 32 below).
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2000 Management Stock Option Plan
The purpose of the 2000 Management Stock Option Plan is to advance the
interests of the Company and its shareholders by providing employees of the
Company, through the grant of options to purchase shares of Common Stock, with a
larger personal and financial interest in the success of the Company. Under the
terms of the plan, employees and officers of and consultants to the Company or
any affiliate of the Company may be granted options to purchase shares of Common
Stock at their fair market value on the date of grant. The plan provides that
options may be granted for terms of not more than 10 years and shall vest
according to the terms of the grant of the options. In addition, options may not
be exercised more than three (3) months after a participant ceases to be an
employee, officer or consultant, except in the case of death, disability or
retirement at or after age 65, in which cases options may be exercised within
one (1) year after the date of death, disability or retirement.
To date in 2000, subject to ratification of the plan by the Company's
shareholders, 4,041,000 options to purchase shares of Common Stock were granted
to approximately 104 employees in accordance with the plan including options to
purchase an aggregate of 750,000 shares granted to the executives named in the
executive compensation table.
This plan is being submitted to the shareholders of the Company for
ratification at the 2000 Annual Meeting. (See page 35 below).
Chief Executive Officer Compensation
The incentive elements of the compensation paid to Mr. Kaul during 19981999
were determined on the same basis as that discussed above for all executives
named in the executive compensation table above.Named
Executives. Mr. Kaul's 19981999 base salary was $571,600$595,679 pursuant to an employment
agreement entered into by him and the Company in March 1996; Mr. Kaul did not earnwas
awarded a bonus of $744,599 for his 1998 performance. However,1999 performance to be paid in 2000. In
addition, Mr. Kaul received a bonus of $123,106$142,978 during 19981999 with respect to
certain stock options previously granted. In August 1996, Mr. Kaul purchased
1,510,000 shares of Common Stock pursuant to the Long-Term Incentive Plan for
Rakesh K. Kaul and received two tandem options for each share purchased for a
total of 3,020,000 options. In determining the terms of Mr. Kaul's compensation,
the Compensation Committee noted the option agreements between NAR and Mr. Kaul.
As of March 6, 2000, the Company entered into a new employment agreement
with Mr. Kaul, which is described at pages 9 and 10 above. In connection
therewith, the 2000 Short-Term Incentive Plan for Rakesh K. Kaul, the 2000
Long-Term Incentive Plan for Rakesh K. Kaul and an amendment and restatement of
the Stock Option Agreement dated August 23, 1996, as amended, with Rakesh K.
Kaul forming a part of the 1996 Long-Term Incentive Plan for Rakesh K. Kaul, are
being submitted to the shareholders of the Company for ratification at the
Annual Meeting. See pages 38 through 46 below.
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Nondeductible Compensation
The Compensation Committee currently does not anticipate that payments of
compensation in 19992000 to the executives named in the executive compensation table
aboveNamed Executives which are subject to the $1 million
deduction limit under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "$1 Million Limit"), will exceed $1 million in 1999.2000. Consequently,
the Company expects its executive compensation program to be fully deductible.
Respectfully Submitted,
The Stock Option and Executive
Compensation Committee
Mr. Ralph Destino
Ms. Elizabeth Valk Long (Chairperson)Shailesh J. Mehta (Chairman)
Mr. Jan P. du Plessis
Mr. Alan G. Quasha
Mr. Howard M.S. Tanner
1017
1320
PERFORMANCE GRAPHGRAPH:
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Company's Common Stock for each of the Company's
last five fiscal years with the cumulative total return (assuming reinvestment
of dividends) of (i) the Standard & Poor's 500 Stock Index (which includes the
Company) and (ii) peer issuers from the Company's line of business selected by
the Company in good faith.
COMPARISON OF FIVE5 YEAR CUMULATIVE TOTAL RETURN*
AMONG HANOVER DIRECT, INC., THE S&P 500 STOCK INDEX AND A PEER GROUP
[PERFORMANCE CHART][COMPARISON GRAPH]
HANOVER DIRECT, INC. PEER GROUP S&P 500
-------------------- ---------- -------
12/9394 100 100 100
12/94 59 64 101
12/95 26 50 13943 79 138
12/96 17 63 17121 120 169
12/97 68 75 22983 142 226
12/98 78 87 29495 185 290
12/99 100 212 351
* Direct Marketing Peer Group consists of direct merchandising companies that
market their products through alternative distribution channels, such as mail
or television media; peer companies include Blair, Damark International,
Fingerhut (a subsidiary of Federated Department Stores, Inc.), Lands' End,
Lillian Vernon, Spiegel and Williams Sonoma. Gander Mountain was deleted from
the group in 1997 due to the discontinuance of its catalog operations and
subsequent acquisition by Holiday Company.
NOTE: Assumes $100 invested on December 31, 19931994 in the Company's Common Stock,
S&P 500 Stock Index and the Direct Marketing Peer Group and that dividends
of each are reinvested quarterly; December 19981999 figures assume September
19981999 shares outstanding for the Direct Marketing Peer Group given data
availability.
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21
DIRECTOR COMPENSATIONCOMPENSATION:
Non-employee directors of the Company or its subsidiaries receive an annual
cash fee of $15,000 plus $500 for each Board meeting and $250 for each committee
meeting they attended. In addition, such directors wereare entitled to share equally
1% of any pre-tax profits of the Company. Messrs. du Plessis and Tanner, who are
affiliates of Richemont, have waived all feestheir rights to which they were entitled.receive director
compensation from the Company. We do not compensate our employees or employees
of our subsidiaries who serve as directors. During fiscal 1998, the
Company provided $50,000 of term life insurance for each
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14
director. In addition, Robert Wright's company
was paid an additional $25,000 for work regarding the Board's Audit Committee.
During 1999, a total of 400,000 options to purchase shares of Common Stock
were granted to the 8 eligible directors and, in 2000, 50,000 options to
purchase shares of Common Stock were granted to the 1 eligible director, all in
accordance with the 1999 Stock Option Plan for Directors, which plan is subject
to ratification by the Company's shareholders. (See page 32 below). Messrs. du
Plessis and Tanner do not receive options under such plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a 1989 Nomination and Standstill Agreement, Theodore H.
Kruttschnitt, J. David Hakman and Edmund R. Manwell agreed that if at any time
Mr. Kruttschnitt ceases to own at least 2,262,000 shares of Common Stock
(representing 83% of the shares owned by Mr. Kruttschnitt on the date of the
Nomination and Standstill Agreement), at least one of them will resign as a
Director; if at any time Mr. Kruttschnitt ceases to own at least 1,907,710
shares of Common Stock (representing 70% of the shares owned by Mr. Kruttschnitt
on the date of the Nomination and Standstill Agreement), at least two of them
will resign as Directors; and if at any time Mr. Kruttschnitt owns less than 5%
of the outstanding shares of Common Stock, all of them will resign as Directors;
except no Director shall be obligated to resign if such resignation would
constitute a breach of the Director's fiduciary duties as a Director.
Accordingly, since Mr. Kruttschnitt owns less than 5% of the outstanding Common
Stock, none of such persons are standing for re-election pursuant to the terms
of the Nomination and Standstill Agreement. However, Mr. Kruttschnitt and Hakman
were nominated to stand for re-election by the Board of Directors.
Since January 1993, pursuant to a consulting arrangement, Quadrant renders
management consulting, business advisory and investment banking services to the
Company for an annual fee of $750,000 per year. Such $750,000 fee for the 1998
fiscal year was waived by Quadrant and will be waived for the 1999 fiscal year.TRANSACTIONS:
In December 1996, the Company finalized its agreement (the "Reimbursement
Agreement") with Richemont that provided the Company with up to approximately
$28 million of letters of credit through Swiss Bank Corporation, New York
Branch. The three letters of credit, which were to expire on February 18, 1998,
carry an interest rate of 3.5% above the prime rate, payable to Swiss Bank
Corporation quarterly on amounts drawn under the letters of credit. The Company also paid a facility fee equal to 5% of the principal amount
of the letters of credit as well as all other fees incurred in connection with
providing the facility. The three letters of credit, which were to expire on
February 18, 1998, carried an interest rate of 3.5% above the prime rate and
were payable to Swiss Bank Corporation quarterly on amounts drawn under the
letters of credit. In the event that the Company hashad not paid in full, by the
expiration date, any outstanding balances under the letters of credit, Richemont
shall havehad the option, exercisable at any time prior to payment in full of all amounts
outstanding under the letters of credit, to convert such amount into Common
Stock of the Company at the mean of the bid and ask prices of the Company's
Common Stock on November 8, 1996, or the mean of the bid and ask prices of the
Company's Common Stock on each of the thirty days immediately prior to the date
of exercise of the conversion privilege. The Reimbursement Agreement iswas
subordinate to the Company's Credit Facility with Congress Financial
Corp.Corporation. On December 5, 1996, Richemont advanced the Company $10 million
against the anticipated $28 million line of credit. The Company repaid the $10
million loan after the letter of credit agreement was completed on December 19,
1996. In November 1997, Richemont definitively agreed to extend its guarantee
under the Reimbursement Agreement to March 30, 1999. As consideration for this
transaction, the Company paid to Richemont a fee of 4% of the principal amount
of each letter of credit which fee aggregated $1,073,483.28.aggregating $1,113,483.28. The extension required the
approval of Congress Financial Corporation ("Congress") and Swiss Bank, which
approvals were obtained in February 1998 and was subject to certain other
conditions. On February 18, 1998, the extension of the Richemont guarantee and
the closing of this transaction were consummated. Accordingly, the expiration
dates of two of the letters of credit were extended through March 30, 1999, and
the letters of credit were amended to reflect the assignment of all obligations
thereon from Swiss Bank, New York Branch to Swiss Bank, Stamford Branch. A
substitute letter of credit having an expiration date of March 30, 1999 was
issued to replace the third letter of credit. On each of October 1, 1997 and October 1, 1998 the
Company paid down approximately $1 million of the underlying debt thus reducing
the principal amount of the letters of credit to $25.8 million.
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15
In the first quarter ofFebruary 1999, Richemont
definitively agreed to extend its guarantee under the Reimbursement Agreement to
March 31, 2000. As consideration for this transaction, the Company agreed to pay topaid
Richemont a facility fee ofequal to 9.5% of the principal amount of each letter of credit.credit
aggregating $2,486,000. The extension required the approval of Congress and UBS
AG, (successorthe successor to Swiss Bank)Bank, which approvals were obtained in March 1999,
and was subject to certain other conditions. InOn March 30, 1999, the extension of the Richemont guarantee and the closing of
thisthe transaction werewas consummated. Accordingly, the expiration dates of theall three
letters of credit were extended
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22
through March 31,30, 2000. On July 31, 1998, Richemont acquired 5,646,490 additional sharesMarch 24, 2000, the securities which were supported
by the three UBS letters of Common
Stockcredit were redeemed by the Trustees for such
securities drawing on the letters of credit for the outstanding principal
balance of the securities and accrued and unpaid interest. No further draws may
be made under the letters of credit. The Company pursuanthas reimbursed UBS for the
drawings under the letters of credit, and no amounts are owing by the Company to
Richemont under the Reimbursement Agreement.
On March 1, 2000, the Company entered into a new $25,000,000 unsecured line
of credit (the "Richemont $25,000,000 Line of Credit") with Richemont.
Borrowings under the Richemont $25,000,000 Line of Credit bear interest at a
rate of 0.583% per month (an annualized rate of 7.0%) on the average monthly
balance outstanding. In addition, the Company will pay Richemont a monthly fee
of $62,500 each month from March 1, 2000 up to the exerciseMaturity Date. The Richemont
$25,000,000 Line of certain common stock purchase
warrants with exercise prices ranging from $1.95 to $2.59 per shareCredit will mature on the earlier of December 30, 2000 and
the date on which Richemont makes an aggregate total exercise price of approximately $13.6 million. Theequity infusion in the Company used
the proceedsor any of
the warrant exerciseCompany's subsidiaries (such earlier date, the "Maturity Date"). The
Richemont $25,000,000 Line of Credit will be reduced on a dollar-for-dollar
basis for each dollar of net equity proceeds contributed to the Company or
certain of its subsidiaries after March 24, 2000 (including through the
conversion of outstanding principal amounts under such Line of Credit, to the
extent that such net equity proceeds do not reduce the Richemont $10,000,000
Line of Credit (as defined below)). As of March 24, 2000, there were $5,000,000
of borrowings outstanding under the Richemont $25,000,000 Line of Credit.
In addition, on March 24, 2000 the Company negotiated a new $10,000,000
unsecured line of credit (the "Richemont $10,000,000 Line of Credit") with
Richemont. Borrowings under the Richemont $10,000,000 Line of Credit bear
interest at a rate of 0.125% per month (an annualized rate of 1.5%) on the
average monthly balance outstanding. In addition, the Company will pay Richemont
a monthly facility fee of $79,200 each month during the term of the Richemont
$10,000,000 Line of Credit. The maximum amount available to be drawn under the
Richemont $10,000,000 Line of Credit (the "Maximum Amount") was initially
$10,000,000 and will be reduced on a dollar-for-dollar basis for each dollar of
net equity proceeds contributed to the Company or certain of its subsidiaries
after March 24, 2000 (including through the conversion of outstanding principal
amounts outstandingunder such Line of Credit). If the excess availability under the
Congress Credit Facility.
EachFacility is less than $3,000,000, the Company will be required
to borrow under the Richemont $10,000,000 Line of Credit, and pay to Congress,
an amount such that the executives namedexcess availability under the Congress revolving credit
facility after such payment will be at least $3,000,000. The Company may also
borrow up to $5,000,000 under the Richemont $10,000,000 Line of Credit to pay
trade creditors in the executive compensation table above
other than Rakesh K. Kaulordinary course of business. The Richemont $10,000,000
Line of Credit will remain in place until the Congress Credit Facility is
terminated or the Maximum Credit is reduced to zero. As of March 24, 2000, there
were no borrowings outstanding under the Richemont $10,000,000 Line of Credit.
The Richemont $25,000,000 Line of Credit and Richard D. Hoffmannthe Richemont $10,000,000 Line
of Credit were conditions to a March 24, 2000 amendment to the Company's credit
facility with Congress Financial Corporation, which amendment provided for a
maximum credit of up to $82,500,000. Such Richemont Lines of Credit are
subordinated to the amended Congress credit facility.
Of the Named Executives, only Michael G. Lutz purchased shares of Common
Stock pursuant to the 1993 Executive Equity Incentive Plan. Pursuant to such
plan, each such executiveMr. Lutz financed 80% of the purchase price of the shares he purchased
with a full recourse Company loan due in 1999. These loans were2001. This loan was outstanding at the
end of fiscal 1997, 1998 and 1999 and, as of March 31, 1999, were2000, was outstanding in
the following amountsamount and with the following interest rates:
Larry J. Svoboda, Senior Vice President and Chief Financial Officer,
$120,000/6.64%; Edward J. O'Brien, former Senior Vice President, Treasurer and
Secretary, $50,000/5.54%; and Michael Lutz, Executive Vice President and Chief
Operating Officer,rate: $44,000/6.83%.
In addition, the Company agreed to pay Mr.
Svoboda, on the due date of his loans due to the Company under the 1993
Executive Equity Incentive Plan, bonuses equal to the amount of the principal
and interest, if any, due on such loans. On January 26, 1997, the due date of
Mr. Svoboda's initial 20% loan under the 1993 Executive Equity Incentive Plan,
the Company paid Mr. Svoboda his first such bonus in the amount of $30,000. On
this same date, the Company loaned Mr. Svoboda $12,705.78 pursuant to a note,
which bears interest at the rate of 7% per annum, due on September 26, 1999 to
assist Mr. Svoboda with his tax liability resulting from the payment of such
bonus. The Company has also agreed to reimburse Mr. Svoboda for the tax
liability associated with the interest portion of the reimbursement bonus to be
paid to Mr. Svoboda at the time his 80% loan under the 1993 Executive Equity
Incentive Plan is due.20
23
On August 23, 1996, Mr. Kaul purchased 1,510,000 shares of Common Stock
pursuant to the Long-Term Incentive Plan for Rakesh K. Kaul. Pursuant to such
plan, Mr. Kaul financed 80% of the purchase price of such shares ($1,396,750)
with a nonrecourse Company loan (the "Tandem Loan") originally due in four equal
consecutive annual installments of $349,187.50, together with interest thereon.
The Tandem Loan is secured by a pledge of such shares. In March 1998, the terms
of the Tandem Loan were amended and restated to provide for payment due in two
installments. The first installment of $349,187.50 was made by Mr. Kaul to the
Company on August 23, 1997 and the balance of principal is due on August 23,
2000. The Tandem Loan, which bears interest at 6.84%, was outstanding at the end
of fiscal 1997, 1998 and 19981999 and, as of March 31, 1999,2000, in the principal amount
of $1,047,562. The Company has agreed to pay Mr. Kaul, on or before the due
dates, a bonus equal to the amount of the principal and/or interest due on the
Tandem Loan. The Company also paid Mr. Kaul a sign-on bonus equal to the amount
of the purchase price of the shares required to be paid in cash. In addition, in
connection with the amendment and restatement of the terms of the Tandem Loan in
March 1998, a second note (the "Tax Note") was issued by Mr. Kaul to the Company
in the amount of $211,729 to cover the tax consequences of the payment of the
first installment on the Tandem Loan. The Tax Note bears interest at 6.84% and
is due in full on August 23, 2000.2001.
Pursuant to the Old Employment Agreement between the Company and Mr. Kaul,
the Company and NAR were obligated to pay Mr. Kaul, within 30 days after each
date as of which any stock option granted under the
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16 Long-Term Plan for Rakesh K.
Kaul vests with respect to all or a portion of the shares of Common Stock
covered by such option, an additional cash amount equal to the number of shares
of Common Stock with respect to which such option became vested on such vesting
date multiplied by the excess of (i) the lesser of the option price of such
option or the fair market value on such vesting date (equal to the closing price
of the Common Stock on the American Stock Exchange) of a share of Common Stock,
over (ii) $1.03. Pursuant to such provision, the Company paid Mr. Kaul $123,106.25 in 1998$349,083
and NAR became obligated to paypaid Mr. Kaul an additional $47,659.38.
During$142,977 from 1997 through 1999.
In January 1998, the Company advanced $72,412made a $75,000 non-interest bearing loan to
Rakesh K. KaulMr. Contino for various
relocation and temporary living expenses relatedthe purchase by Mr. Contino of a new principal residence in the
State of New Jersey. The terms of the loan agreement include a provision for the
Company to hisforgive twenty percent (20%) of the original amount of the principal
balance annually over five (5) years provided Mr. Contino remains in the
employment of the Company. Should Mr. Contino voluntarily cease employment with
the Company, pursuantthe outstanding principal balance of the loan is payable in full
thirty (30) days from the date on which Mr. Contino ceases to his Employment Agreement withbe employed by the
Company. Mr. Kaul intendsThe loan is secured by the residence which the proceeds were used to
repay such amount in 1999.
During 1998,purchase.
In May 1999, the Company agreed with Michael Lutzmade a $100,000 non-interest bearing loan to loan him $100,000 for
relocation and temporary living expenses related to his promotion to Chief
Operating Officer and move to corporate headquarters. Such loan will be
forgivable if Mr.
Lutz staysfor the purchase by Mr. Lutz of a new principal residence in the State of
New Jersey. The terms of the loan agreement include a provision for the Company
to forgive twenty percent (20%) of the original amount of the principal balance
annually over five (5) years provided Mr. Lutz remains in the employment of the
Company. Should Mr. Lutz voluntarily cease employment with the Company, for five yearsthe
outstanding principal balance of the loan is payable in full thirty (30) days
from the date of
such loan. The Company paidon which Mr. Lutz $4,555 in relocation costs in 1998 outside
of this agreement.
During 1998,ceases to be employed by the Company loaned Larry J. Svoboda $55,360 repayable with Mr.
Svoboda'sCompany. The loan
underis secured by the 1993 Executive Equity Incentive Plan.residence which the proceeds were used to purchase.
Diana Quasha, the wife of Alan Quasha, entered into an employment agreement
with Henre, Inc. ("Henre"), a subsidiary of the Company and party to a
distribution arrangement with Compagnie de la Chine, on June 25, 1999. Pursuant
to the employment agreement, Ms. Quasha serves as President of Henre retroactive
to May 10, 1999 at the base salary of $115,000 per year. She is eligible for an
annual cash bonus of up to fifty percent (50%) of her base salary, with a consultanttarget
of twenty-five percent (25%) of her base salary, based on the business's
achieving planned performance levels. She also will receive a five percent (5%)
non-
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24
voting equity stake in any joint venture between Henre and Compagnie de la Chine
upon the formation of the joint venture company: one-half of this stake will
vest over five (5) years in ten percent (10%) increments upon each anniversary
date of her employment provided she remains employed and the other half will
vest in the sole discretion of the Chief Executive Officer of the Company based
on her performance. If the joint venture becomes a publicly traded company, Ms.
Quasha's equity stake will be converted to non-voting shares of such company's
stock; if the joint venture does not become a publicly-traded company within the
five (5) year vesting schedule or should her employment be involuntarily
terminated without cause prior to a public offering, her vested equity stake
will be cashed out within sixty (60) days pursuant to the Company with respectemployment agreement.
In addition, Ms. Quasha is eligible to participate in the Gump's catalogCompany's various
employee benefit plans and San Francisco store for a fee of
$87,500is entitled to three (3) weeks paid vacation per
annum.year.
Either the Board, a committee of the Board, or the Shareholders have
approved these relationships and transactions and, to the extent that such
arrangements are available from non-affiliated parties, all relationships and
transactions are on terms no less favorable to the Company than those available
from non-affiliated parties.
1422
1725
PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY
CERTAIN BENEFICIAL OWNERSOWNERS:
The following table lists the beneficial owners known by management of at
least 5% of the Company's Common Stock as of April 7, 1999.March 31, 2000. Information in the
table is based on information furnished to us by such persons or groups and
statements filed with the Securities and Exchange Commission.
COMMON STOCK
SHARES OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK CLASS(1)
------------------------------------ ------------ ----------
Richemont Finance S.A....................................... 102,790,657(2) 48.76%48.2%
35 Boulevard Prince Henri
L 1724 Luxembourg
Regan Partners, L.P. and Basil P. Regan..................... 38,421,850(3) 18.22%43,469,850(3) 20.4%
6 East 43rd Street
New York, New York 10017
- ---------------
(1) Percentages computed on the basis of 210,827,854213,369,446 shares of Common Stock
outstanding as of April 7, 1999.March 31, 2000.
(2) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 3 to the Statement on Schedule 13D filed by
Richemont on August 6, 1998 with the Securities and Exchange Commission.
Such figure does not include 1,510,000 shares of Common Stock owned by NAR
Group Limited, of which Richemont is a shareholder, which could also be
deemed to be beneficially owned by Richemont (which has shared power to vote
and dispose of such shares). On June 1, 1998, Richemont entered into an agreement with a
third party whereby Richemont was grantedalso holds an irrevocable proxy to
vote approximately 9.3 millionan additional 4,289,000 shares of Common Stock currently held by thea
third party, representing an additional 4.4%2.0% of the Common Stock outstanding
as of April 7, 1999.March 31, 2000. Richemont disclaims beneficial ownership of the shares
owned by NAR and the shares subject to the proxy.
(3) Information concerning the number of shares beneficially owned has been
taken from the Statement on Schedule 13G13D filed by Regan Partners L.P. and
Basil P. Regan on January 21, 199920, 2000 with the Commission.Securities and Exchange
Commission and information supplied by Mr. Regan to the Company regarding
stock purchases subsequent to December 31, 1999. The Schedule 13G13D indicates
that Mr. Regan and Regan Partners L.P. have shared voting and dispositive
power with respect to 33,928,90042,649,350 shares of Common Stock and Mr. Regan has
sole voting and dispositive power with respect to 4,492,950626,000 shares of Common
Stock. 15In addition, the Company has been advised that The Wellcome
Trust -- Regan Fund Management Ltd. purchased, subsequent to December 31,
1999, 194,500 additional shares of Common Stock.
23
1826
SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANY
MANAGEMENT OWNERSHIPOWNERSHIP:
The following table lists share ownership of the Common Stock as of April
7, 1999.March
31, 2000. The information includes beneficial ownership by each of our directors
nominees for director and executive officers and by all directors and executive officers as a group.
Except as noted below, to our knowledge, each person named in the table has sole
voting and investment power with respect to all shares of common
stockCommon Stock shown as
beneficially owned by them.
SHARES OF PERCENT OF
COMMON STOCK CLASS(1)
------------ ----------
Ralph Destino............................................... 5,000(3) *
J. David Hakman(2).......................................... 274,392 *
Rakesh K. Kaul.............................................. 3,897,500(4) 1.8%
S. Lee Kling................................................ 37,750 *7,040,000(4) 3.3%
June R. Klein............................................... 10015,100 *
Kenneth Krushel............................................. -- *--
Theodore H. Kruttschnitt(2)................................. 10,074,000 4.8%
Elizabeth Valk Long......................................... 50,300(3) *
Edmund R. Manwell(2)........................................ 20,580 *4.7%
Shailesh J. Mehta........................................... 5,000 *
Jan P. du Plessis........................................... -- --
Alan G. Quasha.............................................. 1,946,098(5) *
Basil P. Regan.............................................. 43,469,850(6) 20.4%
Howard M.S. Tanner.......................................... 150,000(6)150,000(7) *
Robert F. Wright............................................ 88,050(7)83,050 *
Michael G. Lutz............................................. 350,406(8) *
Brian C. Harriss............................................ 53,600 *
Curt Johnson................................................ -- --
Ralph J. Bulle.............................................. 205,183(9) *
Michael D. Contino.......................................... 169,064(10) *
Richard B. Hoffmann......................................... 250,000(11) *
William C. Kingsford........................................ 79,165(12) *
Larry J. Svoboda............................................ 248,250(8)588,250(13) *
Michael Lutz................................................ 347,634(9) *
Ralph Bulle................................................. 202,400(10) *
Michael D. Contino.......................................... 99,998(11) *
Richard B. Hoffmann......................................... 83,333(12) *
William C. Kingsford........................................ 64,999(13) *
Robert J. Vill.............................................. -- --
Directors and executiveexecutives officers as a group (19(20 persons).... 17,590,284(14) 8.2%... 64,758,158 30.4%
- ---------------
* Less than 1%
(1) Includes in each case shares of Common Stock issuable upon exercise of
options or warrants exercisable within 60 days for the subject individual
only. Percentages computed on the basis of 210,827,854214,021,998 shares of Common
Stock outstanding as of April 7, 1999.6, 2000.
(2) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 13 to the Statement on Schedule 13D filed by Mr.
Kruttschnitt on June 16, 1997 with the Securities and Exchange Commission.
Such statement sets forth the number of shares beneficially owned by Mr.
Kruttschnitt and, of such shares, the number as to which he holds sole
voting power, shared voting power, sole dispositive power or shared
dispositive power. The amended Schedule 13D also indicated that Mr.
Kruttschnitt is a member of a group which includes Mr. Hakman, who
beneficially owns 274,392 shares, and
Mr. Manwell, who beneficially owns 20,580 shares.
24
27
(3) IncludesRepresents options to purchase 5,000 shares exercisable within 60 days.
(4) Includes options to purchase 3,897,5005,530,000 shares exercisable within 60 days.
16
19
(5) Includes 1,510,000 shares owned by NAR Group Limited. All of the shares
beneficially owned by NAR Group Limited could also be deemed to be beneficially owned by
Mr. Quasha, due to his shared investment and voting power in NAR.NAR Group
Limited.
(6) Includes 23,903,700 shares owned by Regan Partners, L.P., 12,348,500 owned
by Regan Fund International, L.P., 3,675,150 owned by The Wellcome
Trust -- Regan Fund Management Ltd., 2,029,800 owned by Super Hedge Fund,
L.P., 866,700 owned by Athena Partners, L.P., and 20,000 owned by Lenore
Robins (co-general partner of Athena Partners, L.P.).
(7) Mr. Tanner is the 51% owner of a family holding company which owns 150,000
shares of Common Stock.
(7) Includes options to purchase 5,000 shares exercisable within 60 days.
(8) Includes options to purchase 96,250277,916 shares exercisable within 60 days.
(9) Includes options to purchase 181,666173,125 shares exercisable within 60 days.
(10) Includes options to purchase 111,667166,664 shares exercisable within 60 days.
(11) Includes options to purchase 99,998200,000 shares exercisable within 60 days.
(12) Includes optionRepresents options to purchase 83,33379,165 shares exercisable within 60 days.
(13) Includes options to purchase 49,166 shares exercisable within 60 days.
(14) Includes options to purchase446,250 shares exercisable within 60 days as set forth
above.
None of the Company's Directors orheld
by this former executive officers owns any shares of
Series B Stock.
17officer.
25
2028
PROPOSAL 1I
ELECTION OF DIRECTORS
GENERALLY
The Board of Directors has voted to decrease its size from 12 to 11 members
effective as of the date of the Annual Meeting.GENERALLY:
The Board has nominated 1112 directors for election at the Annual Meeting.
All of them but Mr. Krushel and
Ms. Klein isare currently serving as one of our directors. If you electre-elect them, they will
hold office until the next annual meeting or until their successors have been
elected or until their earlier death, resignation, retirement, disqualification
or removal as provided in the Company's Certificate of Incorporation and Bylaws.
NOMINEES:
RALPH DESTINO............. Ralph Destino has been the Chairman of Cartier, Inc., a
AGE 62 luxury goods business, since 1985. From 1974 to 1985, Mr.
Destino served as President of Cartier (Far East) Ltd. and
Cartier, Inc. Cartier, Inc. is a subsidiary of Compagnie
Financiere Richemont, A.G. ("Richemont -- Switzerland"), a
Swiss public company engaged in the tobacco, luxury goods
and other businesses and an affiliate of Richemont Mr.
Destino was elected a DirectorRALPH DESTINO.............
AGE 63 Ralph Destino has been the Chairman Emeritus of
Cartier, Inc, a luxury goods business, since
January 2000. From 1985 to 1999, Mr. Destino served
as Chairman of Cartier, Inc., and from 1974 to 1985
he served as President of Cartier (Far East) Ltd.
and Cartier, Inc. Cartier, Inc. is a subsidiary of
Compagnie Financiere Richemont, A.G., a Swiss
public company engaged in the luxury goods and
other businesses and an affiliate of Richemont. Mr.
Destino was elected a director of the Company in
October 1991.
J. DAVID HAKMAN...........
AGE 58 J. David Hakman has been the Chief Executive Officer
of
AGE 57 Hakman Capital Corporation, Burlingame,
California, an investment and merchant banking
firm, since 1980. Mr. Hakman also serves as a
director of Concord Camera Corp., a firm which
manufactures and distributes cameras. Mr. Hakman
was originally appointed a director of the Company
in May 1989 pursuant to a nomination and standstill
agreement among the Company and Theodore H.
Kruttschnitt, Edmund Manwell, and himself
("Nomination and Standstill Agreement") and was
elected a director of the Company in October 1991.
RAKESH K. KAUL............
AGE 48 Rakesh K. Kaul has served as the Company's President
and Chief Executive Officer since March 7, 1996.
Mr. Kaul served as Vice Chairman and Chief
Operating Officer of Fingerhut Companies, Inc., a
multi-media direct marketing company, from March
1995 to February 1996 and Executive Vice President
and Chief Administrative Officer of Fingerhut from
January 1992 until March 1995. Prior to 1992, Mr.
Kaul was the Senior Vice President of Strategy and
Finance and a director of Shaklee Corporation, a
direct marketing company. Mr. Kaul was elected a
director of the Company in March 1996.
JUNE R. KLEIN.............
AGE 51 June R. Klein has been the Chief Executive Officer of
Technology & Marketing Ventures, Inc., a New
York-based consultancy to management-funding and
distributor businesses, since 1992. From 1989
through 1991, Ms. Klein served as a Senior
Executive for vertical markets, venture management
and subsidiaries at Wang Labs. She was also
Managing Director of Global Electronic and
Government Products for Chase Bank from 1986 to
1989 and Vice President of the Information
26
29
Business and Global Delivery Services for Citicorp
Group from 1983 to 1986. Ms. Klein also served as
Manager of Sales, Systems Integration and
Development for IBM from 1975 to 1982 and in
telecommunications positions for Merrill Lynch from
1970 to 1975. Ms. Klein was elected a director of
the Company in May 1999.
KENNETH KRUSHEL...........
AGE 48 Kenneth Krushel has been the Chairman and Chief
Executive Officer of College Enterprises, Inc., an
outsourcing partner to colleges and universities in
the areas of campus "stored-value" systems and
software, reprographics and custom publishing and
copyright clearance, since October 1999. From July
1996 to October 1999, Mr. Krushel was the Senior
Vice President of Strategic Development for NBC
Corp., a major television network, and from January
1994 to July 1996 was Senior Vice President,
Business Development, for King World Productions,
the largest syndication production and distribution
business in the world. Mr. Krushel has also worked
as a business development and strategic planning
consultant for MGM, Lifetime Television, Sega
Corporation, Paramount Communications, USA
Networks, Time-Warner, New Line, the CBC,
Television New Zealand, and Lancit Productions.
From 1987 to 1989, Mr. Krushel was President and
Chief Operating Officer of Think Entertainment, a
cable and broadcast television production company
founded by Telecommunications, Inc. Mr. Krushel was
also Vice President of Programming and Marketing
for American Cablesystems from 1981 until the sale
of the company in 1987 to Continental Cable. Mr.
Krushel was elected a director of the Company in
May 1999.
THEODORE H.
KRUTTSCHNITT..............
AGE 57 Theodore Kruttschnitt has been the President of Limar
Realty Group, a real estate investment company,
since November 1992. Mr. Kruttschnitt serves on the
Board of Directors of Cooper Development Company, a
firm which invests in personal care products
businesses. Mr. Kruttschnitt was appointed a
director of the Company in May 1989 pursuant to the
Nomination and Standstill Agreement and was elected
a director of the Company in October 1991.
SHAILESH J. MEHTA.........
AGE 50 Shailesh J. Mehta has been the Chief Executive
Officer and a director of Providian Financial
Corporation (formerly known as Providian Bancorp,
Inc.), a consumer lending financial services
company, since 1988 and Chairman and President
since 1997. He joined Providian in 1986 as
Executive Vice President and Chief Operating
Officer. Mr. Mehta was Chairman and Chief Executive
Officer of Providian Direct Insurance, a direct
marketer of life and health insurance, from 1993 to
1994 and President, Chief Operating Officer and a
director of Providian Corporation, a
shareholder-owned diversified financial services
company and the former parent company of Providian
Financial Corporation, from 1994 to 1997. Mr. Mehta
was elected a director of the Company in July 1997.
JAN P. DU PLESSIS.........
AGE 46 Jan P. du Plessis has been Finance Director of
Compagnie Financiere Richemont, A.G. and Richemont
S.A., both of which are affiliates of
27
30
Richemont, since 1988. He also serves as a director
of British American Tobacco plc ("BAT"). Mr. du
Plessis also served as Finance Director of Rothmans
International BV and its predecessor companies from
1990 to October 1996 and remained on its board
until such company was merged with BAT in 1999. Mr.
du Plessis was elected a director of Concord Camera Corp.,
a firm which manufactures and distributes cameras. Mr.
Hakman, was originally appointed a Director of the Company
in May 1989 pursuant to the Nomination and Standstill
Agreement and was elected a Director of the Company in
October 1991.
RAKESH K. KAUL............ Rakesh K. Kaul has served as the Company's President and
AGE 47 Chief Executive Officer since March 7, 1996. Mr. Kaul served
as Vice Chairman and Chief Operating Officer of Fingerhut
Companies, Inc., a multi-media direct marketing company,
from March 1995 to February 1996 and Executive Vice
President and Chief Administrative Officer of Fingerhut
from January 1992 until March 1995. Prior to 1992, Mr.
Kaul was the Senior Vice President of Strategy and Finance
and a director of Shaklee Corporation, a direct marketing
company. Mr. Kaul was elected a Director of the Company in
March 1996.
JUNE R. KLEIN............. June R. Klein has been the Chief Executive Officer of
AGE 50 Technology & Marketing Ventures, Inc., a New York-based
consultancy to management-funding and distributor
businesses, since 1991. From 1989 to 1991, Ms. Klein
served as a senior executive for vertical markets, venture
managements, and subsidiaries at Wang Labs. She was also
managing director of Global Electronic and Government
Products for Chase Bank from 1986 to 1989 and Vice
President of the Information Business and Global Delivery
Services for Citicorp from 1983 to 1986. Ms. Klein also
served as a Manager of Sales, Systems Integrations and
Development for IBM from 1975 to 1982 after spending the
first five years of her career with Merrill Lynch as a
project leader. Ms. Klein was nominated to run for
election as a Director of the Company in 1999.
18
21
KENNETH KRUSHEL........... Kenneth Krushel has been the Senior Vice President of
AGE 46 Strategic Development for NBC Corp. since July 1996. From
1994 to July 1996, Mr. Krushel was Senior Vice President,
Business Development for King World Productions, the
largest syndication production and distribution company in
the world. Mr. Krushel has also worked as a business
development and strategic planning consultant for MGM,
Lifetime Television, Sega Corporation, Paramount
Communications, USA Networks, Time-Warner, New Line, the
CBC, Television New Zealand, and Lancit Productions. From
1987 to 1989, Mr. Krushel was President and Chief
Operating Officer of Think Entertainment, a cable and
broadcast television production company founded by
Telecommunications, Inc. Mr. Krushel was Vice President of
Programming and Marketing for American Cablesystems from
1981 until the sale of the company in 1987 to Continental
Cable. Mr. Krushel was nominated to run for election as a
Director of the Company in 1999.
THEODORE H. Theodore H. Kruttschnitt has been the President of Limar
KRUTTSCHNITT............ Realty Group, a real estate investment company, since
AGE 56 November 1992. In addition, he has been the owner of
California Innkeepers, Burlingame, California, an
owner/operator of hotels and motor hotels, since May 1970.
Mr. Kruttschnitt serves on the Board of Directors of
Cooper Development Company, a firm which invests in
personal care products businesses. Mr. Kruttschnitt was
appointed a Director of the Company in May 1989 pursuant
to the Nomination and Standstill Agreement and was elected
a Director of the Company in October 1991.
SHAILESH J. MEHTA......... Shailesh J. Mehta has been Chief Executive Officer and a
AGE 49 director of Providian Financial Corporation (formerly known
as Providian Bancorp, Inc.), a consumer lending financial
services company, since 1988 and Chairman of the Board of
Directors and President since 1997. He joined Providian in
1986 as Executive Vice President and Chief Operating
Officer. Mr. Mehta was Chairman and Chief Executive
Officer of Providian Direct Insurance, a direct marketer
of life and health insurance, from 1993 to 1994 and
President, Chief Operating Officer and a director of
Providian Corporation, a shareholder-owned diversified
financial services company and the former parent company
of Providian Financial Corporation, from 1994 to 1997. Mr.
Mehta serves on the U.S. Board of Directors of MasterCard
International, Incorporated. Mr. Mehta was elected a
Director of the Company in July 1997.
JAN P. DU PLESSIS......... Jan P. du Plessis has been Finance Director of
AGE 45 Richemont-Switzerland and of Richemont S.A. for the last
five years, both of which are affiliates of Richemont. He
is also a director of Vendome Luxury Group, S.A. Mr. du
Plessis also served as Finance Director of The Rothmans
International Group until October 1996. Mr. du Plessis was
elected a Director of the Company in
March 1997.
19
22
ALAN G. QUASHA................... Alan G. Quasha has been President of Quadrant which has managed NAR's U.S.
AGE 49 assetsALAN G. QUASHA............
AGE 50 Alan G. Quasha has been President of Quadrant
Management, Inc., an investment management company,
since early 1988. From 1980 to September 1991, he was a
partner in the New York City law firm of Quasha
Wessely & Schneider. In addition to his
directorship at the Company, Mr. Quasha also serves as a
director of NAR Group Limited. In addition, Mr.
Quasha served as a director of Richemont S.A., an
affiliate of Richemont, until 1999, when he
resigned upon being nominated for election to the
board of Compagnie Financiere Richemont, A.G., also
an affiliate of Richemont. Mr. Quasha was elected a
director of the Company and Chairman of the Board
in October 1991.
BASIL P. REGAN............
AGE 59 Basil P. Regan has been the General Partner of Regan
Partners, L.P., a limited partnership which invests
primarily in turnaround companies and special
situations, since 1989. From 1986 to 1989, Mr.
Regan was Vice President and Director of Equity
Research of Reliance Group Holdings. Mr. Regan
serves a director of NewsEdge Corporation, a
provider of global news and current awareness
solutions for business. Mr. Regan was elected a
director of the Company in March 2000.
HOWARD M.S. TANNER........
AGE 55 Howard M.S. Tanner has been Executive Director of
Richemont S.A., an affiliate of Richemont, since
1988. Mr. Tanner was elected a director of the
Company in March 1997.
ROBERT F. WRIGHT..........
AGE 74 Robert F. Wright has been the President of Robert F.
Wright Associates, Inc., business consultants,
since 1988. Prior thereto, he was a senior partner
of the accounting firm Arthur Andersen & Co. Mr.
Wright is a director of Reliance Standard Life
Insurance Co., a life insurance company, and
affiliates, Williams Real Estate Co., Inc., a real
estate company, The Navigator Group, Inc., a
property insurance company, U.S. Timberlands
Company, L.P., a manager of Western Timberlands,
and Quadlogic Controls Corp., a company engaged in
the production of electrical metering equipment.
Mr. Wright also serves on the board of Deotexis
Inc., a company commercializing control release
patents, and Universal American Financial Corp., a
life insurance holding company. Mr. Wright was
elected a director of NAR. Mr.
Quasha is also a director of Richemont S.A., an affiliate of
Richemont-Switzerland. Mr. Quasha was elected a Director of the Company and
Chairman of the Board in October 1991.
HOWARD M. S. TANNER.............. Howard M. S. Tanner has been Executive Director of Richemont S.A., an affiliate
AGE 54 of Richemont, for the last five years. Mr. Tanner was elected a Director of
the Company in March 1997.
ROBERT F. WRIGHT................. Robert F. Wright has been the President of Robert F. Wright Associates, Inc.,
AGE 73 business consultants, since 1988. Prior thereto, he was a senior partner of
the accounting firm Arthur Andersen & Co. Mr. Wright is a director of
Reliance Standard Life Insurance Co., a life insurance company, and
affiliates, GVA Williams, a real estate company, The Navigator Group, Inc., a
property insurance company, Rose Technology Group Limited, an energy service
company, U.S. Timberlands Company, L.P., an owner and operator of Western
Timberlands, and Quadlogic Controls Corp., a company engaged in the
production of electrical metering equipment. Mr. Wright also serves on the
board of Deotexis Inc., a company commercializing control release patents,
and Universal American Financial Corp., a life insurance holding company. Mr.
Wright was elected a Director of the Company in October 1991.
BOARD MEETINGSMEETINGS:
In 1998,1999, the Board held 5 meetings in person or by conference telephone.
Each incumbent director attended at least 75% of the aggregate of his or her
Board Meetings and 75% of his or her committee meetings with the exception of Edmund R. Manwell and
Jan P. du Plessis who attended 60% of all Board Meetings and Edward R. Manwell
who attended 50% of all committee meetings of committees of which he was a
member.meetings.
28
31
BOARD COMMITTEESCOMMITTEES:
The Board has standing Executive, Audit, Stock Option and Executive
Compensation, Special, Nominating, and Transactions Committees.
The Executive CommitteeCommittee.
- During 19981999 and currently, Messrs. Tanner (Chairman), Kaul, du Plessis,
Quasha and Wright were members.
- The duties of the Executive Committee include:
- recommending actions to the Board; and
- acting on behalf of the Board on certain operating matters requiring
Board approval when the Board is not in session.
- The Executive Committee held 56 meetings in person or by conference call
and took action by written consent on two4 occasions in 1998.
20
231999.
The Audit CommitteeCommittee.
- During 19981999 and currently, Messrs. Wright (Chairman), Hakman, Manwell, du Plessis
and Tanner were members.
- The duties of the Audit Committee include:
- reviewing with the Company's independent public accountants the scope of
their audit, the audited consolidated financial statements, and any
accounting procedures or internal control comments contained in the
independent public accountants' management letter, including corrective
action taken by management;
- annually reviewing and approving the adequacy and scope of the internal
audit department's planned audit program;
- reviewing the internal audit department's interim audit reports,
including the evaluation of replies and corrective action being taken;
- reviewing the adequacy of the internal accounting control systems of the
Company and its subsidiaries; and
- reviewing and approving management's recommendation for the appointment
of outside independent public accountants prior to the submission of
their nomination to the Board for approval and to the Shareholders for
ratification.
- The Audit Committee held 54 meetings in 19981999 in person or by conference
call.
The Audit Committee is concerned with the accuracy and completeness of the
Company's consolidated financial statements and matters which relate to them.
However, the Audit Committee's role does not involve the professional evaluation
of the quality of the audit conducted by the independent public accountants.
While it is believed that the Audit Committee's activities are beneficial
because they provide ongoing oversight on behalf of the full Board, they do not
alter the traditional roles and responsibilities of the Company's
29
32
management and independent public accountants with respect to the accounting and
control functions and financial statement presentation.
The Stock Option and Executive Compensation CommitteeCommittee.
- During 19981999 and currently, Ms. LongMessrs. Mehta (Chairman) and Messrs., Destino, du Plessis,
Quasha and Tanner were members.
- The duties of the Stock Option and Executive Compensation Committee
include:
- reviewing and making recommendations for approval by the Board of
remuneration arrangements for directors and members of management.
- The Stock Option and Executive Compensation Committee held 54 meetings in
19981999 in person or by conference call and took action by written consent
on 1 occasion in 1998.
Special Committee1999.
The Nominating Committee.
- During 1998 and currently, Ms. Long and Mr. Destino were members.
21
24
- The Special Committee is a sub-committee of the Stock Option and
Executive Compensation Committee and its duties include:
- reviewing and making recommendations for approval by the Board
concerning grants of stock options pursuant to the Company's stock
option plans for the Company's employees.
- The Special Committee held no meetings in 1998 in person or by conference
call.
Nominating Committee
- During 19981999 and currently, Messrs. Kaul (Chairman), Destino and Hakman
and KruttschnittMs. Klein were members.
- The duties of the Nominating Committee include:
- evaluating and recommending candidates for election to the Board.
- The Nominating Committee held one1 meeting in 1998.1999.
- The Bylaws of the Company require advance notice of nominations for
election to the Board, other than those made by the Board. Unless waived
by the Board, a notice of nomination must be received by the Company at
least 75 days before initiation of solicitation to the Shareholders for
election in the event of an election other than at an annual meeting of
Shareholders,shareholders, and at least 75 days before the date that corresponds to
the record date of the prior year's annual meeting of Shareholdersshareholders in the
event of an election at an annual meeting of Shareholders,shareholders, and in all
events must include certain required information. The Nominating
Committee will consider nominees recommended by Shareholders in
accordance with the Company's Bylaws.
The Transactions CommitteeCommittee.
- During 19981999 and currently, Messrs. KlingHakman (Chairman), Hakman, MehtaKrushel and
ManwellKruttschnitt and Ms. Klein were members.
- The duties of the Transactions Committee include:
- reviewing and, if necessary, retaining independent experts to review any
and all transactions not in the ordinary course of business between the
Company and directors, members of management or persons owning 10% or
more of the Company's securities; and
- reporting its findings to the Board as to the fairness, merits and
potential conflicts of interest.
- The Transactions Committee held one meeting10 meetings in 19981999 in person or by
conference call.
30
33
INDEMNIFICATION OF OFFICERS AND DIRECTORSDIRECTORS:
We indemnify our executive officers and directors to the fullest extent
permitted by applicable law against liabilities incurred as a result of their
service to the Company and directors, in particular, against liabilities
incurred as a result of their service as directors of other corporations when
serving at the request of the Company. In addition, the Shareholders' Agreement,
dated October 25, 1991, between the Company and NAR provides for
indemnification, to the fullest extent permitted by law, of NAR's designees to
the Board against, among other things, all liabilities and claims arising out of
their service in any capacity for or on behalf of the Company. We have a
directors and officers liability insurance policy, underwritten by Executive
Risk Indemnity Company andNational
Union Zurich Insurance, Zurich American Insurance Company and Tamarack in the
aggregate amount of $30,000,000. As to reimbursements by the insurer of the
Company's indemnification expenses, the policy has a $250,000
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25 deductible for
securities claims against the Company and a $150,000 deductible for all other
indemnifiable losses. The policy term is from June 1, 19981999 to June 1, 1999.2000.
SECTION 16(a) COMPLIANCECOMPLIANCE:
Section 16(a) of the Securities Exchange Act of 1934 requires officers,
directors and beneficial owners of more than 10% of the Company's shares to file
reports with the Securities and Exchange Commission ("Commission") and the
American Stock Exchange. Based solely on a review of the reports and
representations furnished to the Company during the last fiscal year by such
persons, the Company believes that each of these persons is in compliance with
all applicable filing requirements.
VOTE REQUIREDREQUIRED:
The 1112 nominees for director who receive the most votes will be elected.
The enclosed proxy allows you to vote for the election of all of the nominees
listed, to withhold authority to vote for one or more of such nominees or to
withhold authority to vote for all of such nominees.
If you do not vote for a nominee, your vote will not count either for or
against the nominee. Also, if your broker does not vote on any of the nominees,
it will have no effect on the election.
The persons named in the enclosed proxy intend to vote FOR the election of
all of the nominees. Each of the nominees currently serves as a director and has
consented to be nominated. We do not foresee that any of the nominees will be
unable or unwilling to serve, but if such a situation should arise your proxy
will vote in accordance with his or her best judgment.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION
OF THE NOMINEES FOR DIRECTOR.
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PROPOSAL 2
AMENDING CERTIFICATERATIFICATION OF INCORPORATION
GENERALLYTHE 1999 STOCK OPTION PLAN FOR DIRECTORS
GENERALLY:
We are asking you to ratify the Board's adoption of the 1999 Stock Option
Plan for Directors. The purpose of the 1999 Stock Option Plan for Directors is
to advance the interests of the Company, through the grant of options to
purchase shares of Common Stock, by providing non-employee directors of the
Company (other than directors who are nonresident United States aliens) with a
larger personal and financial interest in the success of the Company. The
following is a brief summary of the 1999 Stock Option Plan for Directors. The
complete text of the plan is attached as Annex A and reference is made to such
Annex for a complete statement of the provisions of the plan.
GENERAL INFORMATION:
Effective date and duration of the plan. The plan became effective on the
date of its adoption by the Board, subject to the ratification of the plan by
the affirmative vote or consent of holders of a majority of the issued and
outstanding shares of Common Stock, and will terminate 10 years from the date of
its adoption or such earlier date as the Board may determine.
Administration. The plan is administered by a committee consisting of at
least two members of the Board. Such committee shall have full power and
authority to interpret the plan, to establish such rules and regulations as it
deems appropriate for the administration of the plan, and to take such other
action as it deems necessary or desirable for the administration of the plan.
Underlying shares awarded under the plan. The maximum number of shares of
Common Stock that may be delivered or purchased under the plan is 700,000,
subject to adjustment to preserve the value of an award in the event of any
change in the outstanding Common Stock by reason of any stock dividend, stock
split, combination of shares, recapitalization or other similar change in the
capital stock of the Company, or in the event of the merger or consolidation of
the Company with or into any other corporation or the reorganization of the
Company. Options to purchase 400,000 shares of Common Stock were granted under
the plan in 1999 and options to purchase 50,000 shares of Common Stock were
granted under the plan in 2000, all subject to ratification of the plan by the
Company's shareholders.
The shares of Common Stock may be authorized but unissued shares that are
not reserved for any other purpose or previously issued shares acquired by the
Company and held in its treasury. If, as a result of the termination or
expiration of an award or otherwise, certain shares are no longer subject to an
award under the plan, such shares would again be available for future awards
under the plan.
Amendment of the plan. The plan may be amended by the Board or a duly
authorized committee as the Board or such committee deems advisable; provided,
however, that no amendment shall become effective unless approved by affirmative
vote of the Company's shareholders if such approval is necessary or desirable
for the continued validity of the plan or if the failure to obtain such approval
would adversely affect the compliance of the plan with Rule 16b-3 or any
successor rule under the Securities Exchange Act of 1934 or any other rule or
regulation. No amendment may, without the consent of a participant, impair his
or her rights under any option previously granted under the plan. The Board is submittingor a
duly authorized committee thereof shall have the power, in the event of any
disposition of substantially all of the assets of the Company, its dissolution,
any merger or consolidation of the Company with or into any other corporation,
or the merger or consolidation
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of any other corporation into the Company, to you an amendmentamend all outstanding option
grants to terminate such options as of such effectiveness. If the Board or such
committee shall exercise such power, all options then outstanding shall be
deemed to terminate upon such effectiveness.
AWARDS AVAILABLE UNDER THE PLAN:
Pursuant to the plan, each director who is neither an employee of the
Company nor a non-resident United States alien ("Eligible Director") shall be
granted an option to purchase 50,000 shares of Common Stock as of the effective
date of his or her initial appointment or election to the Board (or, if later,
the effective date of the plan) (the "Initial Appointment Date"). On August 4,
2000 and August 3, 2001, provided that each such date occurs after the Initial
Appointment Date, each Eligible Director shall be granted an option to purchase
10,000 shares of Common Stock provided he or she continues to serve as a
director on such date. In the event of any change in the outstanding Common
Stock by reason of any merger, share exchange, reorganization, consolidation,
recapitalization, stock dividend, stock split, combination of shares, split-up,
spin-off, or other similar transaction or event affecting the Common Stock, the
Committee may in its discretion make substitutions or adjustments in the
aggregate number and kind of shares of Common Stock reserved for issuance under
the Plan, in the number, kind and price of shares of Common Stock subject to
outstanding options, and in the award limits under the Plan (or make provision
for cash payment to the holders of options).
All options granted under the plan will be evidenced by option agreements.
Each option shall be granted for a term of 10 years. Each option will be
exercisable in accordance with the terms and conditions set forth in the option
agreements evidencing the grant of such options. Notwithstanding the foregoing,
however, and subject to the other provisions of the plan relating to
exercisability, each participant shall have the cumulative right as of the
first, second, and third anniversaries of the date of grant, to purchase up to
one-third, two-thirds, and 100%, respectively, of the shares underlying the
options granted; provided, however, that options shall become fully exercisable
in the event of a Change of Control (as defined in the Hanover Direct, Inc. Key
Executive Twenty-Four Month Compensation Continuation Plan). Options may not be
exercised more than 3 months after a participant ceases to be a director of the
Company, except in the case of death or disability, in which case options may be
exercised within 12 months after the date of such death or disability.
The price at which shares of Common Stock may be purchased upon the
exercise of an option granted under the plan will be the fair market value of
such shares on the date of grant of such option. For purposes of determining the
price under the plan, the fair market value of a share of Common Stock shall be
deemed to be the average of the closing price of the Common Stock on the date of
grant, the ten trading days immediately preceding such date, and the ten trading
days immediately following such date.
Full payment of the purchase price for shares of Common Stock purchased
upon the exercise, in whole or part, of an option granted under the plan must be
made at the time of such purchase. The plan provides that the payment price may
be paid in cash or in shares of Common Stock valued at their fair market value
on the date of exercise. Alternatively, an option may be exercised in whole or
in part by delivering a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds necessary to pay the payment price, and such
other documents as the Committee deems necessary.
During a participant's lifetime, options granted under the plan may be
exercised only by such participant. Furthermore, any options granted under the
plan may not be transferred, other than by will or by the laws of
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36
descent and distribution. Notwithstanding the foregoing, a participant may
transfer any option granted under the plan to his or her spouse, children,
grandchildren, parents, and/or siblings or to one or more trusts for the benefit
of such family members, if the agreement evidencing such option so provides and
the participant does not receive any consideration for the transfer. Any option
so transferred will be subject to the same terms and conditions that applied to
such option immediately prior to its transfer, except that it will not be
further transferable by the transferee during such transferee's lifetime.
FEDERAL INCOME TAX CONSEQUENCES:
The grant of an option will have no immediate tax consequences to a
participant. The exercise of an option will require such participant to include
in income, as compensation, the amount by which the fair market value of the
acquired shares on the exercise date exceeds the option price. Upon a subsequent
sale or taxable exchange of such shares, such participant will recognize long or
short-term capital gain or loss equal to the difference between the amount
realized on the sale and the tax basis of such shares. The Company will be
entitled to a deduction in the amount of any compensation income that a
participant recognizes in connection with an option.
VOTE REQUIRED:
The affirmative vote of a majority of votes cast at the Annual Meeting,
whether in person or by proxy whether by mail, Internet or telephone, is
required to ratify the 1999 Stock Option Plan for Directors.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION
OF THE 1999 STOCK OPTION PLAN FOR DIRECTORS.
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PROPOSAL 3
RATIFICATION OF THE 2000 MANAGEMENT STOCK OPTION PLAN
GENERALLY:
We are asking you to ratify the Compensation Committee's adoption of the
2000 Management Stock Option Plan. The purpose of the 2000 Management Stock
Option Plan is to advance the interests of the Company and its shareholders by
providing employees and officers of and consultants to the Company and its
affiliates, through the grant of options to purchase shares of Common Stock,
with a larger personal and financial interest in the success of the Company. The
following is a brief summary of the proposed 2000 Management Stock Option Plan.
The complete text of the plan is attached as Annex B and reference is made to
that Annex for a complete statement of the provisions of the plan.
GENERAL INFORMATION:
Effective date and duration of the plan. The plan became effective on the
date of its adoption by the Board, subject to ratification of the plan by the
affirmative vote or consent of a majority of the issued and outstanding shares
of Common Stock, and will terminate 10 years from the date of its adoption or
such earlier date as the Board may determine.
Administration. The plan is administered by a committee consisting of at
least two members of the Board and that satisfies the requirements of applicable
law, the provisions of Rule 16b-3 under the Securities Exchange Act of 1934, or
any successor rule. The committee will select persons to receive awards under
the plan, determine the amount of each award and the terms and conditions
governing such award, interpret the plan and any option granted thereunder,
establish such rules and regulations as it deems appropriate for the
administration of the plan, and take any other action necessary or desirable for
the administration of the plan.
Underlying shares awarded under the plan. The maximum number of shares of
Common Stock that may be delivered or purchased under the plan is 20,000,000,
subject to adjustment in the event of any stock dividend, stock split,
combination of shares, recapitalization, split-up, spin-off or other similar
change in the capital structure or shares of the Company, or in the event of the
merger or consolidation of the Company with or into any other corporation or the
reorganization of the Company. Options to purchase 4,041,000 shares of Common
Stock have been granted to date in 2000, subject to ratification of the plan by
the Company's Certificateshareholders.
The shares of IncorporationCommon Stock may be authorized but unissued shares or
treasury shares.
Amendment of the plan. The plan may be amended by the Board as the Board
deems advisable; provided, however, that no amendment shall become effective
unless approved by affirmative vote of the Company's shareholders if such
approval is necessary or desirable for the continued validity of the plan or if
the failure to obtain such approval would adversely affect the compliance of the
plan with Rule 16b-3 or any successor rule under the Securities Exchange Act of
1934 or any other rule or regulation. The Board shall have the power, in the
event of any disposition of substantially all of the assets of the Company, its
dissolution, any merger or consolidation of the Company with or into any other
corporation, or the merger or consolidation of any other corporation into the
Company, to amend all outstanding option grants to terminate such options as of
such effectiveness. The Board may in its discretion accelerate the vesting of
outstanding options prior to the effectiveness of such termination.
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AWARDS AVAILABLE UNDER THE PLAN:
Pursuant to the plan, options to purchase Common Stock of the Company may
be granted to any employee or officer of or consultant to the Company or any
affiliate of the Company.
Any options awarded under the plan, which will be evidenced by option
agreements, will be either options intended to qualify as incentive stock
options ("Incentive Stock Options") under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or options not so intended to qualify
("Nonstatutory Stock Options"); provided, however, that Incentive Stock Options
may be granted only to employees of the Company or a subsidiary.
No employee may be granted options under the plan during any consecutive
12-month period on more than 1,000,000 shares of Common Stock.
Generally, an option may be granted for a term not to exceed 10 years from
the date such option is granted. All options will be exercisable in accordance
with the terms and conditions set forth in the option agreements evidencing the
grant of such options. Except under limited circumstances involving termination
of employment due to retirement or death or disability, a participant may not
exercise any option granted under the plan within the first year after the date
of grant of such option. Except as otherwise provided in the related option
agreement, options may not be exercised more than ninety (90) days after a
participant ceases to be an employee or officer of or consultant to the Company,
except in the case of death or disability or an employee's retirement at or
after age 65, in which case options may be exercised within one (1) year after
the date of death, disability or retirement. Except in the case of the
participant's death or permanent disability, the exercise of an Incentive Stock
Option more than three (3) months after a participant ceases to be an employee
will cause such Option to be treated as a Nonstatutory Stock Option.
The exercise price per share for each option will be the fair market value
of such share on the date of grant. For purposes of determining the price under
the plan, the fair market value of a share of Common Stock shall be deemed to be
the average of the closing price of the Common Stock on the ten trading days
immediately preceding the date of grant and the ten trading days immediately
following such date.
The aggregate fair market value (determined as of the time such option is
granted) of the Common Stock for which any employee may have Incentive Stock
Options vesting in any calendar year may not exceed $100,000.
Payment for the portion exercised must be made at the time of exercise. The
purchase price may be paid in cash or, if so provided in the option agreement
evidencing the grant of the option, in shares of Common Stock valued at their
fair market value on the date of purchase. Alternatively, if the option
agreement evidencing the grant of such option so provides, the option may be
exercised in whole or in part by delivering a properly executed exercise notice
together with irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds necessary to pay the purchase price
and applicable withholding taxes, and such other documents as the committee
administering the plan may determine.
During a participant's lifetime, options granted under the plan will be
exercised only by such participant. Furthermore, any options granted under the
plan may not be transferred, other than by will or by the laws of descent and
distribution. If so permitted by the option agreement, however, a participant
may transfer, without payment of consideration, a Nonstatutory Stock Option to
his or her spouse, children, grandchildren, parents, and/or siblings or to one
or more trusts or partnerships for the benefit of such family members.
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39
FEDERAL INCOME TAX CONSEQUENCES:
Under currently applicable provisions of the Code, an optionee will not be
deemed to receive any income for federal tax purposes upon the grant of an
option under the plan, nor will the Company be entitled to a tax deduction at
that time. However, upon the exercise of an option the tax consequences are as
follows:
Incentive Stock Options. Upon the exercise of an Incentive Stock Option,
there is no income recognized by the optionee at the time of exercise, although
for alternative minimum tax purposes, the excess of the fair market value of the
acquired stock on the exercise date over the option price may constitute an
adjustment in computing alternative minimum taxable income. If the stock is held
at least one year following the exercise date and at least two years from the
date of grant of the option, upon a subsequent taxable disposition of the
acquired stock the optionee will realize a long-term capital gain or loss upon
sale, measured as the difference between the option exercise price and the sale
price. If either of these holding periods has not been satisfied, when a
participant disposes of his or her stock, the participant will be required to
include in income, as compensation, the lesser of (i) the difference between the
option price and the fair market value of the acquired stock on the exercise
date, or (ii) the amount of gain realized on such disposition. In addition,
depending on the amount received as a result of such disposition, such
participant may realize long or short-term capital gain or loss.
Nonstatutory Stock Options. Upon the exercise of a Nonstatutory Stock
Option, the optionee will be deemed to have received ordinary income in an
amount equal to the difference between the fair market value of the acquired
stock on the exercise date and the option price. Upon a subsequent taxable
disposition of the acquired stock, such participant will realize long or
short-term capital gain or loss equal to the amount realized on the sale and the
tax basis of the stock.
Consequences to the Company. The Company will be entitled to a deduction
in the amount of any ordinary income that a participant recognizes in connection
with the exercise of a Nonstatutory Stock Option or the early disposition of
stock acquired upon the exercise of an Incentive Stock Option.
VOTE REQUIRED:
The affirmative vote of a majority of votes cast at the Annual Meeting,
whether in person or by proxy whether by mail, Internet or telephone, is
required to ratify the 2000 Management Stock Option Plan.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION
OF THE 2000 MANAGEMENT STOCK OPTION PLAN.
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40
PROPOSAL 4
RATIFICATION OF THE 2000 SHORT-TERM
INCENTIVE PLAN FOR RAKESH K. KAUL
GENERALLY:
We are asking you to ratify the Compensation Committee's adoption of the
2000 Short-Term Incentive Plan for Rakesh K. Kaul (the "2000 Short-Term Plan").
The purpose of the 2000 Short-Term Plan is to promote incentives and rewards to
Mr. Kaul, who will have a significant impact on the long-term success of the
Company. The following is a brief summary of the 2000 Short-Term Plan. The
complete text of the 2000 Short-Term Plan is attached as Annex C and reference
is made to that Annex for a complete statement of the provisions of the plan.
SUMMARY OF THE PLAN:
The 2000 Short-Term Plan is administered by the Compensation Committee,
which is composed of directors who are "disinterested persons" as such term is
defined under Rule 16b-3 promulgated under the Securities Exchange Act of 1934.
Mr. Kaul, serving as President and Chief Executive Officer of the Company, is
the sole person eligible to participate in the 2000 Short-Term Plan.
The 2000 Short-Term Plan provides that on or before March 31 of each
calendar year commencing during the term of Mr. Kaul's employment agreement,
effective March 6, 2000, with the Company, the Compensation Committee shall
establish written performance goals with respect to such year ("performance
year"). The performance goals shall be expressed in terms of objective financial
criteria with respect to the Company consisting of one or more of the following:
earnings per share; earnings before interest and taxes; earnings before
interest, taxes, depreciation and amortization; or quantifiable improvements in
inventory levels. The performance goals shall incorporate a performance target
for such performance year and shall state, in terms of an objective formula or
standard (the terms of which shall preclude discretion to increase the bonus
amount that would otherwise be payable upon attainment of the goal), the bonus
payable to Mr. Kaul pursuant to the 2000 Short-Term Plan as a function of the
actual performance level attained; provided, however, that (i) the bonus for any
fiscal year shall be between 0 and 150 percent of Mr. Kaul's base salary during
such year, (ii) the bonus payable in the event of the attainment of 100% of the
performance target shall be 100% of such base salary, and (iii) such bonus shall
in no event exceed $1,500,000. The Compensation Committee shall obtain Mr.
Kaul's input and advice before establishing the performance goals for any fiscal
year.
Except as otherwise provided in Mr. Kaul's employment agreement (relating
to termination of employment or as provided for under the terms of the Company's
Thirty-Six Month Compensation Continuation Plan), upon the Compensation
Committee's certification following the end of each performance year as to the
actual performance level attained, the Company shall pay Mr. Kaul, in cash, the
bonus (if any) for such year, as determined in accordance with the objective
formula or standard adopted as part of the performance goals for such year. Such
payment shall be made at the same time as short-term bonuses are paid to other
Company executives. The Compensation Committee shall not have discretion to
increase the bonus above the amount determined under the objective formula or
standard adopted for such performance year.
The Company believes that amounts received by Mr. Kaul under the 2000
Short-Term Plan should constitute qualified performance-based compensation that
is exempt from the $1 million limit under Section 162(m) of the Code on a
publicly-held corporation's deductions for certain remuneration paid to
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"covered employees" (the "$1 Million Cap"). Accordingly, the Company should be
entitled to deduct amounts payable to Mr. Kaul under the 2000 Short-Term Plan.
VOTE REQUIRED:
The affirmative vote of a majority of the votes cast at the Annual Meeting,
whether in person or by proxy whether by mail, Internet or telephone, is
required to ratify the 2000 Short-Term Plan.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR"
THE RATIFICATION OF THE 2000 SHORT-TERM PLAN.
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PROPOSAL 5
RATIFICATION OF THE 2000 LONG-TERM
INCENTIVE PLAN FOR RAKESH K. KAUL
GENERALLY:
We are asking you to ratify the Compensation Committee's adoption of the
2000 Long-Term Incentive Plan for Rakesh K. Kaul (the "2000 Long-Term Plan").
The purpose of the 2000 Long-Term Plan is to promote an alignment of the
interests of Mr. Kaul, who will have a significant impact on the long-term
success of the Company and its subsidiary erizon, Inc. (collectively herein, the
"Company"), with the interest of the Company and its shareholders by affording
Mr. Kaul a proprietary interest in the Company's growth while providing Mr. Kaul
with an incentive to make a personal financial investment in the Company and to
remain in the Company's employ. The following is a brief summary of the 2000
Long-Term Plan. The complete text of the 2000 Long-Term Plan is attached as
Annex D and reference is made to that Annex for a complete statement of the
provisions of the plan.
SUMMARY OF THE PLAN:
The 2000 Long-Term Plan is administered by the Compensation Committee,
which is composed of directors who are "disinterested persons" as such term is
defined under Rule 16b-3 promulgated under the Securities Exchange Act of 1934.
Mr. Kaul, serving as President and Chief Executive Officer of the Company, is
the sole person eligible to participate in the 2000 Long-Term Plan. The 2000
Long-Term Plan will terminate on December 31, 2004. Any option outstanding at
the time of such termination, whether or not vested, shall remain in effect in
accordance with its terms and those of the 2000 Long-Term Plan.
Erizon Option. Mr. Kaul was granted an option on April 14, 2000 under the
2000 Long-Term Plan to purchase that number of shares of common stock of erizon,
Inc. representing 6% of the fully-diluted common stock of erizon, Inc. as of
such date (the "Initial Option"), with protection against further dilution until
such time as erizon, Inc. shall complete its first round of Board-approved
equity or convertible debt financing after which time there shall be not
protection from further dilution. The exercise price for the Initial Option is
equal to the fair market value of the common stock of erizon, Inc. on the date
of grant as determined in good faith by the Board of Directors of the Company,
provided that the fair market value of the common stock of erizon, Inc. for
purposes of establishing the exercise price for the Initial Option shall not
exceed $200,000,000.
Upon completion of its first round of financing, the Company has agreed to
grant to Mr. Kaul an additional option to purchase shares of common stock of
erizon, Inc. that, together with the Initial Option, shall represent 6% of the
fully diluted common stock of erizon, Inc. (the "Additional Option" and together
with the Initial Option, the "Option"). The exercise price of the Additional
Option shall be equal to the fair market value of the common stock of erizon,
Inc. on the date the Additional Option is granted to Mr. Kaul, as determined in
good faith by the Board of Directors of the Company. The Additional Option will
be treated in other respects as if granted on April 14, 2000. The Option shall
expire on March 6, 2010, subject to earlier cancellation or termination. The
Option is considered a Nonstatutory Stock Option rather than an Incentive Stock
Option.
The Option is nontransferable other than by will or the laws of descent and
distribution and is exercisable, during Mr. Kaul's lifetime, only by him. The
purchase price for the Option may be paid in cash or in shares of common stock,
or in a combination of cash and shares. Alternatively, the Option may be
exercised by
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delivering an exercise notice together with irrevocable instructions to a broker
to deliver promptly to the Company the amount of sale or loan proceeds necessary
to pay the purchase price.
The Option will vest and become exercisable in equal parts on each
successive anniversary of March 6, 2000 over the four-year period commencing on
March 6, 2000 provided that Mr. Kaul remains employed by the Company. However,
the Option shall immediately vest and become exercisable in full (i) upon the
termination of Mr. Kaul's employment by reason of death, Disability (as
defined), by the Company without Cause (as defined), by Mr. Kaul within ninety
days of an occurrence constituting Good Reason (as defined) or (ii) upon the
occurrence of a Change of Control (as defined). (See "Executive Compensation and
Other Information -- Employment Contracts, Termination of Employment and
Change-in-Control Arrangements" on p. 9 above). The Option provides that if Mr.
Kaul's employment is involuntarily terminated other than for Cause or Mr. Kaul
resigns for Good Reason, he may exercise the Option during the six-month period
following the later of (x) such termination or (y) the registration of the
shares underlying the Option. If Mr. Kaul's employment terminates by reason of
death or Disability, his Option may be exercised during the twelve-month period
following such termination of employment. If Mr. Kaul's employment terminates
other than for Cause or if Mr. Kaul resigns with Good Reason within twenty-four
months of a Change of Control, the Option may be exercised during the
twelve-month period following such termination. If Mr. Kaul's employment
terminates in other circumstances, the Option may be exercised only within 30
days after such termination. In all of the foregoing circumstances, the Option
may be exercisable only with respect to the number of shares of all classescommon stock of
stockerizon, Inc. as to which the CompanyOption is otherwise exercisable (or would have been
exercisable had his employment not terminated) on the date of exercise. In no
event may an Option be exercised after its expiration. In the event of a change
in the common stock of erizon, Inc. by reason of a stock split, stock merger or
other reorganization of the Company, the terms of the Option shall be adjusted
to preserve the value of the award.
If at the time of Mr. Kaul's termination for any reason the common stock of
erizon, Inc. is not publicly-traded, at Mr. Kaul's request, the Company shall
purchase from Mr. Kaul the shares as to which the Option is exercisable or any
portion thereof at the then current fair market value as determined by the Board
of Directors of the Company in good faith. Any dispute concerning the valuation
of the fair market value of the Company will be determined using a "baseball
arbitration model" by a mutually agreed upon investment banking company. The
computation of fair market value will assume (i) underwriter fees and discounts
as if an initial public offering had taken place, and (ii) public market
security.
If any award under the 2000 Long-Term Plan is exercised or cashed out or
terminates or expires or its forfeited without a payment being made to the
participant in the form of common stock of erizon, Inc., the shares subject to
such award, if any, shall be available for distribution in connection with
awards under the 2000 Long-Term Plan. Any shares of common stock of erizon, Inc.
that are used by Mr. Kaul as full or partial payment of withholding or other
taxes or as payment for the exercise or conversion price of an award under the
2000 Long-Term Plan shall be available for distribution in connection with
awards under the 2000 Long-Term Plan.
Closing Price Option. The 2000 Long-Term Plan provides that the Closing
Price Option granted to Mr. Kaul pursuant to the Stock Option Agreement dated
August 23, 1996, as amended, shall be further amended and restated. The terms of
such amendment and restatement are described in Proposal 6. (See pages 43
through 46 below).
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FEDERAL INCOME TAX CONSEQUENCES:
Erizon Option. Under currently applicable provisions of the Code, Mr. Kaul
will not be deemed to receive any income for federal tax purposes upon the grant
of the Option under the 2000 Long-Term Plan, nor will the Company be entitled to
a tax deduction at that time. However, upon the exercise of the Option, Mr. Kaul
will be deemed to have received ordinary income in an amount equal to the
difference between the fair market value of the acquired stock on the exercise
date and the option price. Upon a subsequent taxable disposition of the acquired
stock, Mr. Kaul will realize long or short-term capital gain or loss equal to
the amount realized on the sale and the tax basis of the stock.
Consequences to the Company. The Company will be entitled to a deduction
in the amount of any ordinary income that Mr. Kaul recognizes in connection with
the exercise of a Nonstatutory Stock Option.
Closing Price Option. The Federal income tax consequences of the Closing
Price Option are discussed in Proposal 6 (see pages 45 and 46 below).
VOTE REQUIRED:
The affirmative vote of a majority of the votes cast at the Annual Meeting,
whether in person or by proxy whether by mail, Internet or telephone, is
required to ratify the 2000 Long-Term Plan.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR"
THE RATIFICATION OF THE 2000 LONG-TERM PLAN.
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PROPOSAL 6
APPROVAL OF AN AMENDMENT TO THE STOCK OPTION AGREEMENT
DATED AUGUST 23, 1996, AS AMENDED, WITH RAKESH K. KAUL
GENERALLY:
The Board of Directors is submitting an amendment (the "Amendment") to the
Company's Stock Option Agreement (the "Stock Option Agreement") dated August 23,
1996, as amended in January 1998, with Rakesh Kaul ("Mr. Kaul") described herein
to the shareholders for their approval. The purpose of the Stock Option
Agreement, entered into pursuant to the Company's Long-Term Incentive Plan for
Mr. Kaul (the "Plan"), is to promote an alignment of the interests of Mr. Kaul,
who will have a significant impact on the long-term success of the Company, with
the interests of the Company and its shareholders by affording Mr. Kaul a
proprietary interest in the Company's growth while providing Mr. Kaul with an
incentive to make a personal financial investment in the Company and to remain
in the Company's employ. The Board of Directors believes that the Amendment will
benefit the Company and its shareholders and, thus, recommends approval of the
Amendment.
GENERAL INFORMATION:
Effective Date and Duration of the Stock Option Plan. The Plan became
effective on the date of its adoption by the Compensation Committee of the
Company's Board of Directors (the "Committee"), subject to approval by the
affirmative vote or consent of holders of a majority of the issued and
outstanding shares of Common Stock which was received at the 1996 Annual Meeting
of Shareholders, and terminated on December 31, 1996.
Administration. The Plan is administered by the Compensation Committee
which consists of at least two directors and that satisfies the provisions of
Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor rule. The Compensation Committee has full power and
authority to issue from 243,172,403grant awards under the Plan and administer and interpret the Plan
and to 318,172,403
shares. Alladopt such rules, regulations, agreements, guidelines and instruments for
the administration of the additional 75,000,000Plan as it deems necessary or advisable.
Underlying Shares Awarded Under the Stock Option Plan. The maximum number
of shares of Common Stock that may be delivered or purchased under the Plan is
7,000,000, subject to adjustment to preserve the value of an award in the event
of any change in the outstanding Common Stock by reason of any stock dividend,
stock split, combination of shares, recapitalization or other similar change in
the capital stock of the Company, or in the event of the merger or consolidation
of the Company into or with any other corporation or the reorganization of the
Company. Options to purchase approximately 7,530,000 shares of Common Stock were
granted under the Plan in 1996 together with 1,510,000 Tandem Shares. See
"EXECUTIVE COMPENSATION AND OTHER INFORMATION -- Employment Contracts,
Termination of Employment and Change-in-Control Arrangements" and "-- Awards
Granted Under the Plan."
Except in the case of NAR Options (as hereinafter defined), the shares of
Common Stock issued under the Plan have been set aside out of authorized but
unissued shares that are not reserved for any other purpose, or previously
issued shares acquired by the Company and held in its treasury. The shares of
Common Stock subject to the NAR Options are shares owned by NAR Group Limited.
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46
Amendment of the Plan. The Plan may be amended by the Board of Directors
as the Board deems advisable; provided, however, that no amendment will become
effective unless approved by affirmative vote of the Shareholders if such
approval is necessary for the continued validity of the Plan or if the failure
to obtain such approval would adversely affect the compliance of the Plan with
Rule 16b-3 under the Exchange Act or any other rule or regulation. No amendment
may, without the consent of a participant, impair such participant's rights
under any option previously granted under the Plan.
AWARDS GRANTED UNDER THE PLAN:
Pursuant to the Plan and the Stock Option Agreement, options to purchase
Common Stock of the Company may be allocatedgranted only to Mr. Kaul.
Under the Plan, Mr. Kaul had a right to: (1) purchase 1,510,000 shares of
Common Stock (after giving effect to certain anti-dilution adjustments resulting
from the 1996 Rights Offering) at a price equal to their fair market value on
the date of purchase, 20% of such purchase price to be paid in cash and 80% of
the purchase price to be financed over four years (the "Tandem Stock Purchase
Right"); (2) receive options, which shall vest at the rate of 25% per year
beginning on March 7, 1997, to purchase 3,020,000 shares of Common Stock (after
giving effect to certain anti-dilution adjustments resulting from the 1996
Rights Offering) at the fair market value on the date of grant provided Mr. Kaul
exercised the Tandem Stock Purchase Right (the "Tandem Option"); (3) receive an
option to purchase 1,000,000 shares of Common Stock at the fair market value on
the date of grant, subject to the achievement of certain performance goals
established by the Compensation Committee (the "Performance Year Option"); (4)
receive an option to purchase 2,000,000 shares of Common Stock at the fair
market value on the date of grant, which option expires on March 7, 2006 and
shall become exercisable only upon satisfaction of the condition that the
average closing price of the Common Stock has been at least $4.50 per share
during any period of 91 consecutive calendar days commending March 7, 1996 and
ending on or before March 7, 2002 (the "Closing Price Option") (see "-- Option
Agreement Amendment"); and (5) receive four options for the purchase of 377,500
shares of Common Stock (after giving effect to certain anti-dilution adjustments
resulting form the 1996 Rights Offering) each, at the fair market value thereof
on the date of grant, to be granted by NAR Group Limited (the "NAR Options").
All rights and options under the Plan had to have been exercised or granted
on or before September 1, 1996; they were, in fact, exercised or granted on or
about August 23, 1996, the date of closing of the 1996 Rights Offering. Each of
the options under the Plan is nontransferable other than by will or the laws of
descent and distribution and is exercisable, during Mr. Kaul's lifetime, only by
him; provided, however, that transfers to certain immediate family members or to
trusts for the benefit of Mr. Kaul or his immediate family members will be
permitted. The purchase price for each option may be paid in cash or in shares
of Common Stock, or in a combination of cash and shares. Alternatively, the
options may be exercised by delivering an exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds necessary to pay the purchase price.
Each of the options under the Plan immediately vests in the event of Mr.
Kaul's termination of employment by reason of death or permanent disability or
upon the occurrence of a change in control during the term of his employment
agreement or within six months following the end of such term. Each option
provides that if Mr. Kaul's employment is involuntarily terminated (or is deemed
under his Employment Agreement to be involuntarily terminated) other than for
cause, he may exercise the option only until the later of (i) 12 months
following the date of such termination or (ii) in certain circumstances, March
10 of the year following the year in which the termination occurs. If Mr. Kaul's
employment terminates by reason of
44
47
permanent disability or death, his option may be exercised during the
three-month period (one-year period in the case of death) following such
termination of employment. If Mr. Kaul's employment terminates in other
circumstances, the option may be exercised only within 30 days after such
termination. In the event of a change in the Common Stock by reason of a stock
split, stock dividend, recapitalization or other similar change in the capital
stock of the Company, or in the event of a merger or other reorganization of the
Company, the terms of the options shall be adjusted to preserve the value of the
award.
OPTION AGREEMENT AMENDMENT:
The Stock Option Agreement, which reflects the grant of the Closing Price
Option, currently provides that such option to purchase 2,000,000 shares of
Common Stock at the fair market value on the date of grant ($1.15625 per share)
shall become exercisable only upon satisfaction of the condition that the
average closing price of the Common Stock has been at least $4.50 per share
during any period of 91 consecutive calendar days commending March 7, 1996 and
ending on or before March 7, 2002. Pursuant to the Amendment, the Closing Price
Option will vest and become exercisable in equal parts on each successive
anniversary date of the Amendment over the three-year period commencing on March
6, 2000 provided Mr. Kaul remains employed by the Company. However, the Option
shall immediately vest and become exercisable in full (i) upon the termination
of Mr. Kaul's employment by reason of death, Disability (as defined), by the
Company without Cause (as defined), by Mr. Kaul within ninety days of an
occurrence constituting Good Reason (as defined), (ii) upon the occurrence of a
Change of Control (as defined) or (iii) upon satisfaction of the condition, as
certified by the Compensation Committee (such certification not to be improperly
withheld), that the average closing price of the Common Stock on the American
Stock Exchange composite tape or other recognized market source, as determined
by the Compensation Committee, has obtained an average of $4.50 per share during
any period of 91 consecutive calendar days commencing after August 23, 1996 and
ending on or before March 7, 2002. (See "Executive Compensation and Other
Information -- Employment Contracts, Termination of Employment and
Change-in-Control Arrangements" on p. 8 above). The Option provides that if Mr.
Kaul's employment is involuntarily terminated other than for Cause or Mr. Kaul
resigns for Good Reason, he may exercise the Option during the six-month period
following the later of (x) such termination or (y) the registration of the
shares underlying the Option. If Mr. Kaul's employment terminates by reason of
death or Disability, his Option may be exercised during the twelve-month period
following such termination of employment. If Mr. Kaul's employment terminates
other than for Cause or if Mr. Kaul resigns with Good Reason within twenty-four
months of a Change of Control, the Option may be exercised during the
twelve-month period following such termination. If Mr. Kaul's employment
terminates in other circumstances, the Option may be exercised only within 30
days after such termination. In all of the foregoing circumstances, the Option
may be exercisable only with respect to the number of shares of Common Stock thatas
to which the CompanyOption is otherwise exercisable (or would have authoritybeen exercisable had
his employment not terminated) on the date of exercise. The Closing Price Option
expires on March 7, 2006.
The foregoing is a brief summary of the Amended and Restated Stock Option
Agreement. The complete text of the Amended and Restated Stock Option Agreement
is attached as Annex E and reference is made to issue. Asthat Annex for a complete
statement of April 7, 1999, there were authorized 225,000,000the provisions of the amended and restated agreement.
FEDERAL INCOME TAX CONSEQUENCES:
The Federal income tax consequences under current law of the Closing Price
Option are as follows. The grant of the Closing Price Option to Mr. Kaul will
have no immediate income tax consequences. The exercise of the Closing Price
Option will require him to include in income, as compensation, the amount by
which the
45
48
fair market value of the acquired shares on the exercise date exceeds the option
price. Upon a subsequent sale or taxable exchange of Common Stock:such shares, he will
recognize long or short-term capital gain or loss equal to the difference
between the amount realized on the sale and the tax basis of such shares.
The Company had 210,785,688 shares of Common Stock outstanding and 358,303 shares of
Common Stock held in its treasury. The increase in authorized shares, and more
particularly shares of Common Stock, is necessary to cover the issuance of
sharesbelieves that income recognized by Mr. Kaul upon the exercise
of outstanding options and conversionthe Closing Price Option may not constitute qualified performance-based
compensation that is exempt from the $1 Million Cap. Accordingly, all or a
portion of Series B Stock
(referred to as Series B Preferred inany compensation income that Mr. Kaul recognizes upon the Restated Certificate of Incorporation
and forming a partexercise of
the Additional Preferred Stock therein). Options to
purchase 1,550,000 shares have previously been granted and options to purchase
5,450,000 shares are currently available for grant. Approximately 634,900 shares
of Series B Stock are outstanding which are currently convertible into
approximately 952,352 shares of Common Stock. The additional shares of Common
StockClosing Price Option may not used for such purpose, together with the shares of Common Stock held
in the Company's treasury, will be available for general corporate purposes, as
determineddeductible by the Board, without (except as otherwise provided by law) further
authority from you. The additional shares of Common Stock will have the same
voting and other rights as the currently authorized Common Stock. Holders of
shares of Common Stock presently have no preemptive rights and will have none in
respect to the additional shares of Common Stock. If the amendment is approved
by you, it will become effective as soon as it is filed with the Secretary of
State of the State of Delaware, which would be sometime soon after the approval
of the amendment. The Board believes that the amendment will benefit the Company
and you and, thus, recommends approval of the amendment. As required by Delaware
law to submit this amendment to you, the Board has already adopted a resolution
declaring the advisability of the amendment.
TEXT OF THE AMENDMENT
The amendment would amend the first paragraph of Article Fourth of the
Company's Certificate of Incorporation. No other parts of the Certificate of
Incorporation would be amended. After the amendment, the first paragraph of
Article Fourth would read as follows (amended language is bolded for your
convenience; such bolding, however, is not part of the amendment):
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 318,172,403 shares, of which 40,000
shares shall be class B 8% cumulative preferred stock, par value $.01 per share
and stated value of $1,000 per share (the "Class B Preferred"), 861,900 shares
shall be shares of 7.5% cumulative convertible preferred stock, par value $.01
per share and stated value of $20.00 per share (the "7.5% Preferred"), 5,000,000
shares shall be shares of additional preferred stock, par value $.01 per share
(the "Additional Preferred Stock"), 300,000,000 shares shall be common stock,
par value $.66 2/3 per share (the "Common Stock"), and 12,270,503 shares shall
be shares of class B common stock, par value $.01 per share (the "Class B Common
Stock").Company.
VOTE REQUIREDREQUIRED:
The affirmative vote of a majority of all outstanding Common Stock and
Series B Stockthe votes cast at the Annual Meeting,
whether in person or by proxy whether by mail, Internet or telephone, is
required to approveratify the amendment to and restatement of the Certificate of
Incorporation.Stock Option
Agreement dated August 23, 1996, as amended, with Rakesh K. Kaul.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVALAMENDMENT
TO AND RESTATEMENT OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
24STOCK OPTION AGREEMENT DATED
AUGUST 23, 1996, AS AMENDED, WITH RAKESH K. KAUL.
46
2749
PROPOSAL 37
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
GENERALLYGENERALLY:
We are asking you to ratify the Board's selection of Arthur Andersen LLP as
the independent certified public accountants of the Company for the fiscal year
ending December 25, 1999.30, 2000. Although the selection of auditors does not require
ratification, we are submitting this proposal to you because the Board believes
that this matter is of such significance as to warrant your participation. If
you do not ratify the appointment, the Board, after review by the Audit
Committee, will consider the appointment of other independent certified public
accountants.
Representatives of Arthur Andersen LLP will attend the Annual Meeting to
answer your questions and to make a statement if they desire to do so.questions.
VOTE REQUIREDREQUIRED:
The affirmative vote of a majority of the votes cast at the Annual Meeting,
whether in person or by proxy whether by mail, Internet or telephone, is
required to ratify the selection of auditors.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION AND
APPROVAL
OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 25, 1999.30, 2000.
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SHAREHOLDER PROPOSALS FOR THE 20002001 ANNUAL MEETING
If you wish to submit proposals to be presented at the 20002001 Annual Meeting
of Shareholders of the Company, they must be received by the Company no later
than December 18, 199915, 2000 for them to be included in the Company's proxy material
for that meeting. If the Company does not receive notice of any matter that is
to come before the shareholders at the 20002001 Annual Meeting of Shareholders on or
before March 2, 2000,February 27, 2001, which corresponds to forty-five days before the date
on which the Company first mailed this proxy statement, the proxy for the 20002001
Annual Meeting of Shareholders may, pursuant to Rule 14a-4(c) of the Proxy Rules
under the Securities Exchange Act of 1934, as amended, confer discretionary
authority to vote on the matters presented.
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OTHER MATTERS
The Board of Directors does not know of any other matters to be presented
at the Annual Meeting. If any additional matters are properly presented to the
Annual Meeting for action, the persons named in the enclosed proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
own judgment.
YOU MAY OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED DECEMBER 26, 199825, 1999 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WITHOUT CHARGE (EXCEPT FOR EXHIBITS TO SUCH ANNUAL REPORT, WHICH WILL
BE FURNISHED UPON PAYMENT OF THE COMPANY'S REASONABLE EXPENSES IN FURNISHING
SUCH EXHIBITS) BY WRITING TO: PUBLICINVESTOR RELATIONS, HANOVER DIRECT, INC., 1500
HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087.
By Order of the Board of Directors
MONTE E. WETZLERCURT JOHNSON
Secretary
Dated: April 16, 199917, 2000
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.ENVELOPE OR
VOTE BY THE INTERNET OR BY TELEPHONE.
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
2648
2951
ANNEX A
HANOVER DIRECT, INC.
1999 STOCK OPTION PLAN FOR DIRECTORS
1. PURPOSE. The purpose of the 1999 Stock Option Plan for Directors (the
"Plan") is to advance the interests of Hanover Direct, Inc. (the "Company") by
providing non-employee directors of the Company, through the grant of options to
purchase shares of Common Stock (as hereinafter defined), with a larger personal
and financial interest in the Company's success.
2. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") consisting of at least two members of the Board of Directors of the
Company (the "Board"). The Committee shall have full power and authority to
interpret the Plan, to establish such rules and regulations as it deems
appropriate for the administration of the Plan, and to take such other action as
it deems necessary or desirable for the administration of the Plan. The
Committee's interpretation and construction of any provision of the Plan or the
terms of any Option (as hereinafter defined) shall be conclusive and binding on
all parties.
3. PARTICIPANTS. Each director of the Company who is neither an employee
of the Company nor an Ineligible Director (as hereinafter defined) (a
"Non-Employee Director") shall be eligible to be granted options to purchase
shares of Common Stock ("Options") under the Plan. An "Ineligible Director"
means any director who is a nonresident alien.
Nothing contained in the Plan, or in any Option granted pursuant to the
Plan, shall confer upon any director any right to the continuation of his or her
directorship or limit in any way the right of the Company to terminate his or
her directorship at any time.
4. THE SHARES. Options may be granted from time to time under the Plan
for the purchase, in the aggregate, of not more than 700,000 shares of common
stock, par value $0.66 2/3 per share, of the Company ("Common Stock") (subject
to adjustment pursuant to Section 13). Such shares of Common Stock may be set
aside out of the authorized but unissued shares of Common Stock not reserved for
any other purpose or out of previously issued shares acquired by the Company and
held in its treasury. Any shares of Common Stock which, by reason of the
termination or expiration of an Option or otherwise, are no longer subject to
purchase pursuant to an Option granted under the Plan, may again be subjected to
an Option under the Plan.
5. OPTION GRANTS. Options shall be evidenced by option agreements which
shall be subject to the terms and conditions set forth in the Plan and such
other terms and conditions not inconsistent herewith as the Committee may
approve.
(a) INITIAL APPOINTMENT AWARDS. As of the effective date of his or
her initial appointment or election to the Board (or, if later, the
effective date of the Plan) (the "Initial Appointment Date"), a
Non-Employee Director shall receive a grant of an Option to purchase 50,000
shares of Common Stock (subject to adjustment pursuant to Section 13).
(b) ANNUAL SERVICE AWARDS. On each Award Date (as hereinafter
defined) occurring after a Non-Employee Director's Initial Appointment
Date, such Non-Employee Director shall be granted, provided he or she
continues to serve as a member of the Board on such date, an Option to
purchase of 10,000 shares of Common Stock (subject to adjustment pursuant
to Section 13). An "Award Date" means August 4, 2000 or August 3, 2001.
A-1
52
6. OPTION PRICE. The price (the "Option Price") at which shares of Common
Stock may be purchased upon the exercise of an Option granted under the Plan
shall be the fair market value of such shares on the date of grant of such
Option. Solely for purposes of this Section 6, the fair market value of a share
of Common Stock shall be deemed to be the average of the closing prices of the
Common Stock on the Initial Appointment Date or Award Date, as the case may be,
the 10 trading days immediately preceding such date, and the 10 trading days
immediately following such date.
7. TERM AND EXERCISABILITY OF OPTIONS. Options shall be granted for terms
of 10 years. Subject to the other provisions of the Plan relating to
exercisability of Options, the participant shall have the cumulative right as of
the first, second, and third anniversaries of the date of grant, to purchase up
to one-third, two-thirds, and 100%, respectively, of the Option Shares;
provided, however, that in the event of a Change of Control (as such term is
defined in the Hanover Direct, Inc. Key Executive Twenty-Four Month Compensation
Continuation Plan) the participant shall have the cumulative right to purchase
up to 100% of the Option Shares.
8. TERMINATION OF DIRECTORSHIP. Except as otherwise provided in this
Section 8, no person may exercise an Option more than three months after the
first date on which he or she ceases to be a director of the Company. If a
participant ceases to be a director of the Company by reason of death or
disability, any Options held by him or her may be exercised within 12 months
after the date he or she ceases to be a director of the Company. In no event may
an Option be exercised after the expiration of the term of such Option.
9. PAYMENT. Full payment of the purchase price for shares of Common Stock
purchased upon the exercise, in whole or in part, of an Option granted under the
Plan shall be made at the time of such exercise. The Option Price may be paid in
cash or in shares of Common Stock valued at their fair market value on the date
of exercise. Alternatively, an Option may be exercised in whole or in part by
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds necessary to pay the Option Price, and such other documents as
the Committee may determine.
No shares of Common Stock shall be issued or transferred to a participant
until full payment therefor has been made, and a participant shall have none of
the rights of a stockholder until shares are issued or transferred to him or
her.
10. NONTRANSFERABILITY. Options granted under the Plan shall not be
transferable other than by will or by the laws of descent and distribution, and,
during a participant's lifetime, shall be exercisable only by him or her.
Notwithstanding the foregoing, a participant may transfer any Nonqualified Stock
Option granted under the Plan to the participant's spouse, children,
grandchildren, parents, and/or siblings or to one or more trusts for the benefit
of such family members, if the agreement evidencing such Option so provides and
the participant does not receive any consideration for the transfer. Any Option
so transferred shall continue to be subject to the same terms and conditions
that applied to such Option immediately prior to its transfer (except that such
transferred Option shall not be further transferable by the transferee during
the transferee's lifetime).
11. ISSUANCE OF SHARES. If a participant so requests, shares purchased
upon the exercise of an Option may be issued or transferred in the name of the
participant and another person jointly with the right of survivorship.
12. STATUS OF OPTIONS. Options granted under the Plan are nonstatutory
options not qualifying as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended.
A-2
53
13. CHANGES IN CAPITAL STRUCTURE, ETC. In the event of any merger, share
exchange, reorganization, consolidation, recapitalization, reclassification,
distribution, stock dividend, stock split, reverse stock split, split-up,
spin-off, or other similar transaction or event affecting the Common Stock, the
Committee is authorized, to the extent it deems appropriate, to make
substitutions or adjustments in the aggregate number and kind of shares of
Common Stock reserved for issuance under the Plan, in the number, kind and price
of shares of Common Stock subject to outstanding awards, and in the award limits
under the Plan (or to make provision for cash payment to the holders of an
Option). Outstanding Options shall be appropriately amended as to price and
other terms in a manner consistent with the aforementioned adjustment to the
shares of Common Stock subject to the Plan. Fractional shares resulting from any
adjustment in Options pursuant to this Section 13 may be settled in cash or
otherwise as the Committee shall determine. Notice of any adjustment shall be
given by the Company to each holder of an Option which shall have been adjusted
and such adjustment (whether or not such notice is given) shall be effective and
binding for all purposes of this Plan.
14. EFFECTIVE DATE AND TERMINATION OF PLAN. The Plan shall become
effective on the date of its adoption by the Board or a duly authorized
committee thereof, subject to the ratification of the Plan by the affirmative
vote or consent of holders of a majority of the issued and outstanding shares of
Common Stock. The Plan shall terminate 10 years from the date of its adoption or
such earlier date as the Board or such committee may determine. Any Option
outstanding under the Plan at the time of its termination shall remain in effect
in accordance with its terms and conditions and those of the Plan.
15. AMENDMENT. The Board or a duly authorized committee thereof may amend
the Plan in any respect from time to time; provided, however, that no amendment
shall become effective unless approved by affirmative vote of the Company's
shareholders if such approval is necessary or desirable for the continued
validity of the Plan or if the failure to obtain such approval would adversely
affect the compliance of the Plan with Rule 16b-3 or any successor rule under
the Securities Exchange Act of 1934 or any other rule or regulation. No
amendment may, without the consent of a participant, impair his or her rights
under any Option previously granted under the Plan.
The Board or a duly authorized committee thereof shall have the power, in
the event of any disposition of substantially all of the assets of the Company,
its dissolution, any merger or consolidation of the Company with or into any
other corporation, or the merger or consolidation of any other corporation into
the Company, to amend all outstanding Options to terminate such Options as of
such effectiveness. If the Board shall exercise such power, all Options then
outstanding shall be deemed to terminate upon such effectiveness.
16. LEGAL AND REGULATORY REQUIREMENTS. No Option shall be exercisable and
no shares will be delivered under the Plan except in compliance with all
applicable federal and state laws and regulations including, without limitation,
compliance with the rules of all domestic stock exchanges on which the Common
Stock may be listed. Any share certificate issued to evidence shares for which
an Option is exercised may bear such legends and statements as the Committee
shall deem advisable to assure compliance with federal and state laws and
regulations. No Option shall be exercisable, and no shares will be delivered
under the Plan, until the Company has obtained consent or approval from
regulatory bodies, federal or state, having jurisdiction over such matters as
the Committee may deem advisable.
In the case of the exercise of an Option by a person or estate acquiring
the right to exercise the Option by bequest or inheritance, the Committee may
require reasonable evidence as to the ownership of the Option and may require
consents and releases of taxing authorities that it may deem advisable.
August 5, 1999
A-3
54
ANNEX B
HANOVER DIRECT, INC.
2000 MANAGEMENT STOCK OPTION PLAN
1. PURPOSE. The purpose of this Hanover Direct, Inc. 2000 Management
Stock Option Plan (the "Plan") is to advance the interests of Hanover Direct,
Inc. (the "Company") and its shareholders by providing employees and officers
of, and consultants to, the Company and its affiliates, through the grant of
options to purchase shares of Common Stock (as hereinafter defined), with a
larger personal and financial interest in the success of the Company.
2. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") consisting of at least two members of the Board of Directors of the
Company (the "Board"). The Committee shall be constituted in such a manner as to
satisfy the requirements of applicable law, the provisions of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor rule. The Committee shall be appointed, and vacancies shall be filled,
by the Board. The Committee shall have full power and authority to (i) select
the individuals to whom Options may be granted under the Plan; (ii) determine
the number of shares of Common Stock covered by each Option and the terms and
conditions, not inconsistent with the provisions of the Plan, governing such
Option; (iii) interpret the Plan and any Option granted thereunder; (iv)
establish such rules and regulations as it deems appropriate for the
administration of the Plan; and (v) take such other action as it deems necessary
or desirable for the administration of the Plan. Any action of the Committee
with respect to the administration of the Plan shall be taken by majority vote.
The Committee's interpretation and construction of any provision of the Plan or
the terms of any Option shall be conclusive and binding on all parties.
3. PARTICIPANTS. Options may be granted under the Plan to any employee or
officer of, or consultant to, the Company or of any affiliate of the Company.
Nothing contained in the Plan, or in any Option granted pursuant to the
Plan, shall confer upon any employee any right to the continuation of his or her
employment, or limit in any way the Company's right to terminate his or her
employment.
4. THE SHARES. The shares that may be delivered or purchased under the
Plan shall not exceed an aggregate of 20,000,000 shares (subject to adjustment
pursuant to Section 7) of common stock, par value $.66 2/3 per share, of the
Company (the "Common Stock") (subject to adjustment pursuant to Section 7). Such
shares of Common Stock may be set aside out of the authorized but unissued
shares of Common Stock not reserved for any other purpose or out of previously
issued shares acquired by the Company and held in its treasury. Any shares of
Common Stock which, by reason of the termination or expiration of an Option or
otherwise, are no longer subject to an Option may again be subjected to an
Option under the Plan.
5. OPTIONS. Options to purchase Common Stock ("Options") shall be
evidenced by option agreements which shall be subject to the terms and
conditions set forth in the Plan and such other terms and conditions not
inconsistent herewith as the Committee may approve.
(a) TYPES OF OPTIONS. Options granted under the Plan shall, as
determined by the Committee at the time of grant, be either Options
intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("Incentive Stock
Options") or Options not intended to so qualify ("Nonstatutory Stock
Options"); provided, however, that Incentive Stock Options may be granted
only to employees of the Company or a subsidiary (within the meaning of
Section 424(f) of the Code) of the Company (a "Subsidiary"). Each option
agreement shall identify the
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Option as an Incentive Stock Option or as a Nonstatutory Stock Option.
Notwithstanding such designation, however, to the extent that the aggregate
fair market value (determined on the date of grant) of Common Stock for
which a participant is granted Incentive Stock Options that first become
exercisable during any given calendar year exceeds $100,000, the Option
shall be treated as a Nonqualified Stock Option. For this purpose,
Incentive Stock Options shall be taken into account in the order in which
they were granted.
(b) PRICE. The price at which shares of Common Stock may be purchased
upon the exercise of an Option granted under the Plan shall be the fair
market value of such shares on the date of grant of such Option; provided,
however, that an Incentive Stock Option granted to an employee who owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any parent (within the meaning of
Section 424(e) of the Code) or Subsidiary shall have a purchase price for
the underlying shares equal to 110% of the fair market value of the Common
Stock on the date of grant.
Solely for purposes of this Section 5(b) and Section 5(a), the fair
market value of a share of Common Stock shall be deemed to be the average
of the closing prices of the Common Stock on the 10 trading days
immediately preceding the date of grant and the 10 trading days immediately
following such date.
(c) PER-PARTICIPANT LIMIT. No participant may be granted Options
during any consecutive 12-month period on more than 1,000,000 shares of
Common Stock (subject to adjustment pursuant to Section 7).
(d) NONTRANSFERABILITY. Options granted under the Plan shall not be
transferable other than by will or by the laws of descent and distribution,
and, during a participant's lifetime, shall be exercisable only by the
participant. Notwithstanding the foregoing, the Committee may, in the
manner established by the Committee, allow a participant to transfer,
without payment of consideration, any Nonstatutory Stock Option granted
under the Plan to the participant's spouse, children, grandchildren,
parents, and/or siblings, or to one or more trusts or partnerships for the
benefit of such family members. Any Option so transferred shall continue to
be subject to the same terms and conditions that applied to such Option
immediately prior to its transfer (except that such transferred Option
shall not be further transferable by the transferee during the transferee's
lifetime).
(e) TERM AND EXERCISABILITY OF OPTIONS. Options may be granted for
terms of not more than 10 years and shall be exercisable in accordance with
such terms and conditions as are set forth in the option agreement
evidencing the grant of such Options. In no event shall an Incentive Stock
Option granted to an employee who owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or
any parent (within the meaning of Section 424(e) of the Code) or Subsidiary
be exercisable after the expiration of five years from the date such
Incentive Stock Option is granted.
Except as otherwise provided in Section 5(f), no Option granted under
the Plan shall be exercisable by a participant during the first year after
the date of grant of such Option.
(f) TERMINATION OF EMPLOYMENT. Except to the extent otherwise
provided in the option agreement evidencing such Option, an Option may not
be exercised after a participant ceases to be an employee, officer or
consultant except as set forth in this Section 5(f).
(i) Death, Disability, or Retirement. If a participant ceases to
be an employee, officer or consultant by reason of death, permanent
disability (within the meaning of Section 22(e)(3) of the
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Code), or, in the case of an employee, retirement at or after age 65,
the participant (or the participant's estate in the event of the
participant's death) may, within one (1) year following such cessation,
exercise the Option with respect to all or any part of the shares of
Common Stock subject thereto regardless of whether the Option was
otherwise exercisable at the time of such cessation. Except in the case
of the participant's death or permanent disability, the exercise of an
Incentive Stock Option more than three (3) months after a participant
ceases to be an employee of the Company or a Subsidiary will cause such
Option to be treated as a Nonstatutory Stock Option.
(ii) Other Reasons. If a participant ceases to be an employee,
officer or consultant for any reason other than death, permanent
disability, or retirement at or after age 65, the participant may,
within three (3) months following such cessation, exercise the Option
with respect to all or any part of the shares of Common Stock subject
thereto, but only to the extent that such Option was exercisable at the
time of such cessation.
In no event may an Option be exercised after the expiration of the term of
such Option.
(g) PAYMENT. Full payment of the purchase price for shares of Common
Stock purchased upon the exercise, in whole or in part, of an Option
granted under the Plan shall be made at the time of such exercise. The
purchase price may be paid in cash or, if so provided in the option
agreement evidencing the grant of such Option, in shares of Common Stock
valued at their fair market value on the date of purchase. Alternatively,
if the option agreement evidencing the grant of such Option so provides,
the Option may be exercised in whole or in part by delivering a properly
executed exercise notice together with irrevocable instructions to a broker
to deliver promptly to the Company the amount of sale or loan proceeds
necessary to pay the purchase price and applicable withholding taxes, and
such other documents as the Committee may determine.
6. WITHHOLDING. No later than the date as of which an amount first
becomes includible in the gross income of a participant for Federal income tax
purposes with respect to any Option under the Plan, the participant shall pay to
the Company, or make arrangement satisfactory to the Committee regarding the
payment of, any Federal, state, or local taxes required by law to be withheld
with respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Common Stock, including Common Stock
that is part of the Option that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind due to the
participant.
7. CHANGES IN CAPITAL STRUCTURE, ETC. In the event of any merger, share
exchange, reorganization, consolidation, recapitalization, reclassification,
distribution, stock dividend, stock split, reverse stock split, split-up,
spin-off, or other similar transaction or event affecting the Common Stock, the
Committee is authorized, to the extent it deems appropriate, to make
substitutions or adjustments in the aggregate number and kind of shares of
Common Stock reserved for issuance under the Plan, in the number, kind and price
of shares of Common Stock subject to outstanding awards, and in the award limits
under the Plan (or to make provision for cash payment to the holders of an
Option). Outstanding Options shall be appropriately amended as to price and
other terms in a manner consistent with the aforementioned adjustment to the
shares of Common Stock subject to the Plan. Fractional shares resulting from any
adjustment in Options pursuant to this Section 7 may be settled in cash or
otherwise as the Committee shall determine. Notice of any adjustment shall be
given by the Company to each holder of an Option which shall have been adjusted
and such adjustment (whether or not such notice is given) shall be effective and
binding for all purposes of this Plan.
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8. EFFECTIVE DATE AND TERMINATION OF PLAN. The Plan shall become
effective on the date of its adoption by the Board, subject to the ratification
of the Plan by the affirmative vote or consent of holders of a majority of the
issued and outstanding shares of Common Stock. The Plan shall terminate 10 years
from the date of its adoption or such earlier date as the Board may determine.
Any Option outstanding under the Plan at the time of its termination shall
remain in effect in accordance with its terms and conditions and those of the
Plan.
9. AMENDMENT. The Board may amend the Plan in any respect from time to
time; provided, however, that no amendment shall become effective unless
approved by affirmative vote of the Company's shareholders if such approval is
necessary for the continued validity of the Plan or if the failure to obtain
such approval would adversely affect the compliance of the Plan with Rule 16b-3
under the Exchange Act or any other rule or regulation. No amendment may,
without the consent of a participant, impair such participant's rights under any
Option previously granted under the Plan.
The Board shall have the power, in the event of any disposition of
substantially all of the assets of the Company, its dissolution, any merger or
consolidation of the Company with or into any other corporation, or the merger
or consolidation of any other corporation into the Company, to amend all
outstanding Options to terminate such Options as of the effectiveness of such
transaction. If the Board shall exercise such power, all Options then
outstanding shall be deemed to terminate upon such effectiveness. The Board may,
in its sole discretion, amend all outstanding Options to cause them to be
immediately exercisable prior to the effectiveness of such termination.
10. LEGAL AND REGULATORY REQUIREMENTS. No Option shall be exercisable and
no shares shall be delivered under the Plan except in compliance with all
applicable Federal and state laws and regulations including, without limitation,
compliance with withholding tax requirements and with the rules of all domestic
stock exchanges on which the Common Stock may be listed. Any share certificate
issued to evidence shares for which an Option is exercised may bear such legends
and statements as the Committee shall deem advisable to assure compliance with
Federal and state laws and regulations. No Option shall be exercisable and no
shares shall be delivered under the Plan, until the Company has obtained consent
or approval from regulatory bodies, Federal or state, having jurisdiction over
such matters as the Committee may deem advisable.
In the case of the exercise of an Option by a person or estate acquiring
the right to exercise the Option by bequest or inheritance, the Committee may
require reasonable evidence as to the ownership of the Option and may require
consents and releases of taxing authorities that it may deem advisable.
11. GENERAL PROVISIONS.
(a) Nothing contained in the Plan, or in any Option granted pursuant
to the Plan, shall confer upon any employee any right to the continuation
of the employee's employment.
(b) Nothing contained in the Plan, or in any Option granted under the
Plan, shall be construed to prevent the Company from taking any corporate
action which is deemed by the Company to be appropriate or in its best
interest, whether or not such action would have an adverse effect on the
Plan or any Option granted under the Plan. No participant, beneficiary, or
other person shall have any claim against the Company as a result of any
such action.
(c) The Plan and all Options made and actions taken thereunder shall
be governed by and construed in accordance with the laws of the State of
New York.
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ANNEX C
2000 SHORT-TERM INCENTIVE PLAN FOR RAKESH K. KAUL
1. PURPOSE. The purpose of this 2000 Short-Term Incentive Plan for Rakesh
K. Kaul (the "Plan") is to promote incentives and rewards to Rakesh K. Kaul
("Kaul"), who will have a significant impact on the long-term success of Hanover
Direct, Inc. (the "Company").
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Company's Board of Directors (the "Committee"). The Committee
shall consist of two or more members and shall be constituted in such a manner
as to satisfy the requirements of applicable law. The Committee shall have full
power and authority to grant awards hereunder and to administer and interpret
the Plan and to adopt such rules, regulations, agreements, guidelines, and
instruments for the administration of the Plan as it deems necessary or
advisable.
3. ELIGIBILITY. Kaul shall be the only person eligible to participate in
the Plan.
4. PERFORMANCE GOALS. On or before March 31 of each calendar year
commencing during the term of the Employment Agreement dated March 6, 2000
between Kaul and the Company (the "Employment Agreement"), the Committee shall
establish written performance goals with respect to such year ("performance
year"). The performance goals shall be expressed in terms of one or more of the
following objective financial criteria with respect to the Company: earnings per
share, earnings before interest and taxes, earnings before interest, taxes,
depreciation and amortization, or quantifiable improvements in inventory levels.
The performance goals shall incorporate a performance target for such
performance year and shall state, in terms of an objective formula or standard
(the terms of which shall preclude discretion to increase the bonus amount that
would otherwise be payable upon attainment of the goal), the bonus payable to
the Executive pursuant to this Section 4 as a function of the actual performance
level attained; provided, however, that (i) the bonus for any fiscal year shall
be between 0% and 150% of the Executive's Base Salary during such year, (ii) the
bonus payable in the event of the attainment of 100% of the performance target
shall be 100% of such Base Salary, and (iii) such bonus shall in no event exceed
$1,500,000. The Committee shall obtain Kaul's input and advice before
establishing the performance goals for any fiscal year.
5. BONUS PAYMENTS. Except as otherwise provided in Section 7 of the
Employment Agreement (relating to termination of employment or as provided for
under the terms of the Hanover Direct, Inc. Thirty-Six Month Compensation
Continuation Plan), upon the Compensation Committee's certification following
the end of each performance year as to the actual performance level attained,
the Company shall pay the Executive, in cash, the bonus for such year, as
determined in accordance with the objective formula or standard adopted as part
of the performance goals for such year. Such payment shall be made at the time
as short-term bonuses are paid to other Company executives. The Committee shall
not have discretion to increase the bonus above the amount determined under the
objective formula or standard adopted for such performance year.
6. EFFECTIVENESS OF PLAN. The Plan shall be effective as of the date of
its adoption by the Committee, subject to approval thereof at a meeting of
shareholders by the holders of a majority of the shares of Common Stock present
and entitled to vote at the meeting. Following the initial approval of the Plan
by the Company's shareholders, shareholder approval of the Plan shall be
required thereafter only to the extent required in order for compensation paid
under the Plan to qualify as performance-based compensation for purposes of
Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended.
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ANNEX D
2000 LONG-TERM INCENTIVE PLAN FOR RAKESH K. KAUL
1. PURPOSE. The purpose of this 2000 Long-Term Incentive Plan for Rakesh
K. Kaul (the "Plan") is to promote an alignment of the interests of Rakesh K.
Kaul ("Kaul"), who will have a significant impact on the long-term success of
Hanover Direct, Inc. and its subsidiary erizon, Inc. (collectively the
"Company"), with the interests of the Company and its shareholders by affording
Kaul a proprietary interest in the Company's growth while providing Kaul with an
incentive to make a personal financial investment in the Company and to remain
in the Company's employ.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Company's Board of Directors (the "Committee"). The Committee
shall consist of two or more members and shall be constituted in such a manner
as to satisfy the requirements of applicable law, the provisions of Rule 16b-3
under the Securities Exchange Act of 1934 or any successor rule. The Committee
shall have full power and authority to grant awards hereunder and to administer
and interpret the Plan and to adopt such rules, regulations, agreements,
guidelines, and instruments for the administration of the Plan as it deems
necessary or advisable.
3. ELIGIBILITY. Kaul shall be the only person eligible to participate in
the Plan.
4. AWARD. Kaul shall be granted an option (the "erizon Option") to
purchase 60 shares of Common Stock of erizon, Inc., which amount represents 6%
of the fully-diluted Common Stock of erizon, Inc. as of the date hereof, with
protection against further dilution until such time as erizon, Inc. shall
complete its next round of financing. The terms of the erizon Option shall be as
set forth in APPENDIX A. The total number of shares of Common Stock of erizon,
Inc. reserved and available for distribution pursuant to the Plan shall be 150,
all of which may be granted in a single year. If any award under the Plan is
exercised or cashed out or terminates or expires or is forfeited without a
payment being made to the participant in the form of Common Stock of erizon,
Inc., the shares subject to such award, if any, shall be available for
distribution in connection with awards under the Plan. Any shares of Common
Stock of erizon, Inc. that are used by the participant as full or partial
payment of withholding or other taxes or as payment for the exercise or
conversion price of an award under the Plan shall be available for distribution
in connection with awards under the Plan.
In the event of any merger, share exchange, reorganization, consolidation,
recapitalization, reclassification, distribution, stock dividend, stock split,
reverse stock split, split-up, spin-off, issuance of rights or warrants or other
similar transaction or event affecting the Common Stock of erizon, Inc. after
adoption of the Plan by the Committee, the Committee is authorized, to the
extent it deems appropriate, to make substitutions or adjustments in the
aggregate number and kind of shares of Common Stock of erizon, Inc. reserved for
issuance under the Plan, in the number, kind and price of shares of Common Stock
of erizon, Inc. subject to outstanding award and in the award limits set forth
in this Section (or to make provision for cash payment to the holders of the
award).
5. CLOSING PRICE OPTION. The Closing Price Option granted to Executive
pursuant to a Stock Option Agreement dated August 23, 1996, shall be amended and
restated in accordance with the terms set forth in APPENDIX B.
In the event of any merger, share, exchange, reorganization, consolidation,
recapitalization, reclassification, distribution, stock dividend, stock split,
reverse stock split, split-up, spin-off, issuance of rights or warrants or other
similar transaction or event affecting the Common Stock of the Company after
adoption of
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the Plan by the Committee, the Committee is authorized, to the extent it deems
appropriate, to make substitutions or adjustments in the aggregate number and
kind of shares of Common Stock of the Company reserved for issuance under the
Plan, in the number, kind and price of shares of Common Stock of the Company
subject to outstanding award and in the award limits set forth in this Section
(or to make provision for cash payment to the holders of the award).
6. EFFECTIVENESS OF PLAN. The Plan shall be effective as of the date of
its adoption by the Committee, subject to approval thereof at a meeting of
shareholders by the holders of a majority of the shares of Common Stock present
and entitled to vote at the meeting. In the event the shareholders fail to
approve the Plan, any awards shall be rescinded and all actions taken hereunder
shall be null and void.
The Plan shall terminate on December 31, 2004. Any option outstanding at
the time of such termination, whether or not vested, shall remain in effect in
accordance with its terms and those of the Plan.
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APPENDIX A
ERIZON OPTION
This STOCK OPTION AGREEMENT (this "Agreement") is made as of April 14, 2000
between Hanover Direct, Inc., a Delaware corporation (the "Company"), and Rakesh
K. Kaul (the "Executive").
WHEREAS, the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee") has heretofore adopted and the Company's
shareholders have heretofore approved and ratified the Long-Term Incentive Plan
for Rakesh K. Kaul (the "Plan"); and
WHEREAS, the Plan provides for the granting of stock options in erizon,
Inc. subject to the terms set forth herein
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereto agree as follows:
1. The Company hereby evidences and confirms the grant to the
Executive on the date hereof (the "Date of Grant") by the Compensation
Committee of an option (the "Initial Option") to purchase 60 shares of the
Common Stock of erizon, Inc. (the "Shares"), which amount represents 6% of
the fully diluted Common Stock (including all outstanding warrants and
options, vested and unvested) of erizon, Inc. as of the date hereof. The
exercise price for the Initial Option shall be equal to the fair market
value of the Common Stock of erizon, Inc. on the Date of Grant as
determined in good faith by the Board of Directors of the Company, provided
that the fair market value of the Common Stock of erizon, Inc. for purposes
of establishing the exercise price for the Initial Option shall not exceed
$200,000,000. Executive shall receive protection from further dilution of
the Shares until such time as erizon, Inc. completes its first round of
Board-approved equity or convertible debt financing after which time there
shall be no protection from further dilution of the Shares. Upon completion
of its first round of Board-approved equity or convertible debt financing,
the Company shall grant Executive an additional option (the "Additional
Option") to purchase Shares that, together with the Initial Option, shall
represent 6% of the fully diluted Common Stock of erizon, Inc. (including
all outstanding warrants and options, vested and unvested). The exercise
price for the Additional Option shall be equal to the fair market value of
the Common Stock on the date the Additional Option is granted to Executive,
as determined in good faith by the Board of Directors of the Company. Other
than as expressly provided for in this Section 1, the Initial Option and
the Additional Option (collectively the "Option") shall be treated as if
granted on the Date of Grant. The Option shall expire on March 6, 2010 (the
"Expiration Date"), subject to earlier cancellation or termination as
provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, the Option shall become exercisable only as
provided in this Section 2:
(a) Except as otherwise provided in paragraph (b), the Option shall
vest and become exercisable in equal parts on each successive
anniversary of March 6, 2000 over the four-year period commencing on
March 6, 2000 provided that Executive remains employed by the Company
and/or its affiliates or subsidiaries (collectively the "Company").
(b) Notwithstanding the foregoing, the Option shall immediately
vest and become exercisable in full (i) upon the termination of
Executive's employment by reason of death, Disability, by the Company
without Cause or by Executive within ninety days of an occurrence
constituting Good
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Reason (as such terms are defined in the Employment Agreement dated as
of March 6, 2000 between Executive and the Company (hereinafter the
"Employment Agreement")) or (ii) upon the occurrence of a Change of
Control (as such term is defined in the Hanover Direct, Inc. Thirty-Six
Month Compensation Continuation Plan (hereinafter the "Change of Control
Plan")).
3. In the event of a termination of the Executive's employment with
the Company while any portion of the Option remains unexercised, the
Executive's rights to exercise the Option shall be exercisable only as
follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by the Company other than for Cause or
Executive resigns for Good Reason (as such terms are defined in the
Employment Agreement), his Option may be exercised during the six-month
period following the later of (x) such termination or (y) the
registration of the Shares underlying the Option. For purposes hereof,
the provisions of the Employment Agreement shall apply in determining
whether the Executive's employment has been involuntarily terminated by
the Company other than for Cause or if Executive has resigned with Good
Reason.
(ii) Death. If the Executive's employment terminates by reason of
death, the Option may be exercised during the twelve-month period
following such termination.
(iii) Disability. If the Executive's employment terminates by
reason of Disability (as such term is defined in the Employment
Agreement), the Option may be exercised during the twelve-month period
following such termination. For purposes hereof, the provisions of the
Employment Agreement shall apply in determining whether the Executive's
employment has been terminated due to a Disability.
(iv) Change of Control. If Executive's employment terminates other
than for Cause or if Executive resigns with Good Reason (as such terms
are defined in the Employment Agreement) within twenty-four months of a
Change of Control (as such term is defined in the Employment Agreement),
the Option may be exercised during the twelve-month period following
such termination. For purposes hereof, the provisions of the Change of
Control Plan shall apply in determining whether a Change of Control has
occurred.
(v) Termination in Other Circumstances. If the Executive's
employment terminates in circumstances not described in clauses (i)
through (iv), the Executive may, within 30 days following such
termination, exercise the Option with respect to such number of Shares
as to which the Option is exercisable on the date of termination, as
determined pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable
in whole or in part after the Expiration Date.
4. If at the time of Executive's termination for any reason the Common
Stock of erizon, Inc. is not publicly-traded, at the Executive's request,
the Company shall purchase from the Executive the Shares as to which the
Option is exercisable, as determined pursuant to Section 2, or any portion
thereof at the then current fair market value as determined by the Board of
Directors of the Company in good faith. Any dispute concerning the
valuation of the fair market value of the Company will be determined using
a "baseball arbitration model" by a mutually agreed upon investment banking
company. The computation of fair market value will assume (i) underwriter
fees and discounts as if the Initial Public Offering had taken place, and
(ii) public market security.
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5. (a) Except as provided in paragraph (b), the Option is not
transferable by the Executive other than by will or the laws of descent and
distribution and is exercisable, during the Executive's lifetime, only by
the Executive.
(b) Notwithstanding the provisions of paragraph (a):
(i) In the event of the Executive's incapacity, the Option may be
exercised by a conservator, guardian, or the agent under a Durable Power
of Attorney;
(ii) Upon the Executive's death, the Option is transferable by
will, by a revocable or irrevocable trust established by the Executive,
or by a written beneficiary designation executed by the Executive and
delivered to the Company prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's
spouse and/or issue or trusts for the benefit of the Executive. the
Executive's spouse, and/or the Executive's issue.
6. In order to exercise the Option, in whole or in part, the Executive
shall give written notice to the Company, specifying the number of Shares
to be purchased and the purchase price to be paid, and accompanied by the
payment of the purchase price. Such purchase price may be paid in cash, a
certified check, or a bank check payable to the Company, or in whole shares
of Common Stock held by the Executive for at least six months evidenced by
negotiable certificates, valued at their fair market value on the date of
exercise, or in a combination of the foregoing. Alternatively, the Option
may be exercised, in whole or in part, by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds
necessary to pay the purchase price, and such other documents as the
Compensation Committee may require. Upon receipt of payment, the Company
shall deliver to the Executive (or to any other person entitled to exercise
the Option) a certificate or certificates for such Shares. If certificates
representing shares of Common Stock are used to pay all or part of the
purchase price of the Option, separate certificates shall be delivered by
the Company representing the same number of shares as each certificate so
used and an additional certificate shall be delivered representing the
additional shares to which the Executive is entitled as a result of
exercise of the Option.
7. The Option shall be exercised only with respect to full Shares or
fractional shares having a value of not less than $100,000; no fractional
Shares having lesser value shall be issued.
8. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to the Company at the time of exercise any taxes
required to be withheld by the Company under the applicable laws or other
regulations of any governmental authority, whether federal, state of local,
and whether domestic or foreign. The Company shall promptly remit such
taxes to the applicable governmental authority.
9. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and
another person jointly with the right of survivorship, or in the name of a
revocable trust of which the Executive is the grantor.
10. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
11. This Option shall be binding upon and inure to the benefit of any
successor or assignee of the Company and to any executor, administrator,
legal representative, legatee, or distributee or transferee entitled by law
or the provisions of the Plan to the Executive's rights hereunder.
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12. The Option is subject in all respects to the terms of the Plan,
the provisions of which are incorporated in this Agreement by reference.
13. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be
modified except by written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
HANOVER DIRECT, INC.
By:
------------------------------------
Its:
--------------------------------------
/s/
--------------------------------------
Rakesh K. Kaul
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APPENDIX B
AMENDED AND RESTATED
CLOSING PRICE OPTION
This AMENDED AND RESTATED STOCK OPTION AGREEMENT (this "Agreement") is made
as of April 14, 2000 between Hanover Direct, Inc., a Delaware corporation (the
"Company"), and Rakesh K. Kaul (the "Executive").
WHEREAS, the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee") has heretofore adopted and the Company's
shareholders have heretofore approved and ratified the 2000 Long-Term Incentive
Plan for Rakesh K. Kaul (the "Plan"); and
WHEREAS, the Plan provides for certain modifications to the terms of the
Closing Price Option granted to Executive as part of the Long-Term Incentive
Plan for Rakesh K. Kaul dated August 23, 1996 (the "Old Plan") subject to the
terms set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereto agree as follows:
1. The Company hereby evidences and confirms the grant to the
Executive on August 23, 1996 (the "Date of Grant") by the Compensation
Committee of an option (the "Option") to purchase 2,000,000 shares of
Common Stock (the "Shares") at an option price of $1.15625 per share,
representing the fair market value of the Common Stock on the date thereof.
The Option shall expire on March 7, 2006 (the "Expiration Date"), subject
to earlier cancellation or termination as provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall become exercisable only as
provided in this Section 2.
(a) Except as otherwise provided in paragraph (b), this Option
shall vest and become exercisable in equal parts on each successive
anniversary of March 6, 2000 over the three year period commencing on
March 6, 2000, provided that Executive remains employed by the Company
and/or its affiliates or subsidiaries (collectively the "Company").
(b) Notwithstanding the foregoing, the Option shall immediately
vest and become exercisable in full (i) upon the termination of
Executive's employment by reason of death, Disability, by Company
without Cause or by Executive within ninety days of an occurrence
constituting Good Reason (as such terms are defined in the Employment
Agreement dated as of March 6, 2000 between Executive and the Company
(the "Employment Agreement")), (ii) upon a Change of Control (as such
term is defined in the Hanover Direct, Inc. Thirty-Six Month
Compensation Continuation Plan (the "Change of Control Plan")), or (iii)
upon satisfaction of the condition, as certified by the Compensation
Committee (such certification not to be improperly withheld), that the
average closing price of the Common Stock on the American Stock Exchange
composite tape or other recognized market source, as determined by the
Compensation Committee, has obtained an average of $4.50 per share
during any period of 91 consecutive calendar days commencing after
August 23, 1996 and ending on or before March 7, 2002.
D-7
66
3. In the event of a termination of the Executive's employment with
the Company while any portion of the Option remains unexercised, the
Executive's rights to exercise the Option shall be exercisable only as
follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by the Company other than for Cause or
Executive resigns for Good Reason (as such terms are defined in the
Employment Agreement), his Option may be exercised during the six-month
period following the later of (x) such termination or (y) the
registration of the Shares underlying the Option. For purposes hereof,
the provisions of the Employment Agreement shall apply in determining
whether the Executive's employment has been involuntarily terminated by
the Company other than for Cause or if Executive has resigned with Good
Reason.
(ii) Death. If the Executive's employment terminates by reason of
death, the Option may be exercised during the twelve-month period
following such termination.
(iii) Disability. If the Executive's employment terminates by
reason of Disability (as such term is defined in the Employment
Agreement), the Option may be exercised during the twelve-month period
following such termination. For purposes hereof, the provisions of the
Employment Agreement shall apply in determining whether the Executive's
employment has been terminated due to a Disability.
(iv) Change of Control. If Executive's employment terminates other
than for Cause or if Executive resigns with Good Reason (as such terms
are defined in the Change of Control Plan) within twenty-four months of
a Change of Control (as such term is defined in the Change of Control
Plan), the Option may be exercised during the twelve-month period
following such termination. For purposes hereof, the provisions of the
Change of Control Plan shall apply in determining whether a Change of
Control has occurred.
(v) Termination in Other Circumstances. If the Executive's
employment terminates in circumstances not described in clauses (i)
through (iv), the Executive may, within 30 days following such
termination, exercise the Option with respect to such number of Shares
as to which the Option is exercisable on the date of termination, as
determined pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable
in whole or in part after the Expiration Date.
4. (a) Except as provided in paragraph (b), the Option is not
transferable by the Executive other than by will or the laws of descent and
distribution and is exercisable, during the Executive's lifetime, only by
the Executive.
(b) Notwithstanding the provisions of paragraph (a):
(i) In the event of the Executive's incapacity, the Option may be
exercised by a conservator, guardian, or the agent under a Durable Power
of Attorney;
(ii) Upon the Executive's death, the Option is transferable by
will, by a revocable or irrevocable trust established by the Executive,
or by a written beneficiary designation executed by the Executive and
delivered to the Company prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's
spouse and/or issue or trusts for the benefit of the Executive. the
Executive's spouse, and/or the Executive's issue.
D-8
67
5. In order to exercise the Option, in whole or in part, the Executive
shall give written notice to the Company, specifying the number of Shares
to be purchased and the purchase price to be paid, and accompanied by the
payment of the purchase price. Such purchase price may be paid in cash, a
certified check, or a bank check payable to the Company, or in whole shares
of Common Stock evidenced by negotiable certificates, valued at their fair
market value on the date of exercise, or in a combination of the foregoing.
Alternatively, the Option may be exercised, in whole or in part, by
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of
sale or loan proceeds necessary to pay the purchase price, and such other
documents as the Compensation Committee may require. Upon receipt of
payment, the Company shall deliver to the Executive (or to any other person
entitled to exercise the Option) a certificate or certificates for such
Shares. If certificates representing shares of Common Stock are used to pay
all or part of the purchase price of the Option, separate certificates
shall be delivered by the Company representing the same number of shares as
each certificate so used and an additional certificate shall be delivered
representing the additional shares to which the Executive is entitled as a
result of exercise of the Option.
6. The Option shall be exercised only with respect to full Shares; no
fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to the Company at the time of exercise any taxes
required to be withheld by the Company under the applicable laws or other
regulations of any governmental authority, whether federal, state of local,
and whether domestic or foreign. The Company shall promptly remit such
taxes to the applicable governmental authority.
8. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and
another person jointly with the right of survivorship, or in the name of a
revocable trust of which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of any
successor or assignee of the Company and to any executor, administrator,
legal representative, legatee, or distributee or transferee entitled by law
or the provisions of the Plan to the Executive's rights hereunder.
11. The Option is subject in all respects to the terms of the Plan,
the provisions of which are incorporated in this Agreement by reference.
12. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be
modified except by written agreement signed by the parties hereto.
13. This Agreement supercedes any prior agreements regarding the
Closing Price Option, including the Stock Option Agreement between Hanover
Direct, Inc. and Kaul dated August 23, 1996 concerning the subject matter
hereof.
D-9
68
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
HANOVER DIRECT, INC.
By:
--------------------------------------
Its:
--------------------------------------
--------------------------------------
Rakesh K. Kaul
D-10
69
ANNEX E
AMENDED AND RESTATED
CLOSING PRICE OPTION
This AMENDED AND RESTATED STOCK OPTION AGREEMENT (this "Agreement") is made
as of April 14, 2000 between Hanover Direct, Inc., a Delaware corporation (the
"Company"), and Rakesh K. Kaul (the "Executive").
WHEREAS, the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee") has heretofore adopted and the Company's
shareholders have heretofore approved and ratified the 2000 Long-Term Incentive
Plan for Rakesh K. Kaul (the "Plan"); and
WHEREAS, the Plan provides for certain modifications to the terms of the
Closing Price Option granted to Executive as part of the Long-Term Incentive
Plan for Rakesh K. Kaul dated August 23, 1996 (the "Old Plan") subject to the
terms set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereto agree as follows:
1. The Company hereby evidences and confirms the grant to the
Executive on August 23, 1996 (the "Date of Grant") by the Compensation
Committee of an option (the "Option") to purchase 2,000,000 shares of
Common Stock (the "Shares") at an option price of $1.15625 per share,
representing the fair market value of the Common Stock on the date thereof.
The Option shall expire on March 7, 2006 (the "Expiration Date"), subject
to earlier cancellation or termination as provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall become exercisable only as
provided in this Section 2.
(a) Except as otherwise provided in paragraph (b), this Option
shall vest and become exercisable in equal parts on each successive
anniversary of March 6, 2000 over the three year period commencing on
March 6, 2000, provided that Executive remains employed by the Company
and/or its affiliates or subsidiaries (collectively the "Company").
(b) Notwithstanding the foregoing, the Option shall immediately
vest and become exercisable in full (i) upon the termination of
Executive's employment by reason of death, Disability, by Company
without Cause or by Executive within ninety days of an occurrence
constituting Good Reason (as such terms are defined in the Employment
Agreement dated as of March 6, 2000 between Executive and the Company
(the "Employment Agreement")), (ii) upon a Change of Control (as such
term is defined in the Hanover Direct, Inc. Thirty-Six Month
Compensation Continuation Plan (the "Change of Control Plan")), or (iii)
upon satisfaction of the condition, as certified by the Compensation
Committee (such certification not to be improperly withheld), that the
average closing price of the Common Stock on the American Stock Exchange
composite tape or other recognized market source, as determined by the
Compensation Committee, has obtained an average of $4.50 per share
during any period of 91 consecutive calendar days commencing after
August 23, 1996 and ending on or before March 7, 2002.
E-1
70
3. In the event of a termination of the Executive's employment with
the Company while any portion of the Option remains unexercised, the
Executive's rights to exercise the Option shall be exercisable only as
follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by the Company other than for Cause or
Executive resigns for Good Reason (as such terms are defined in the
Employment Agreement), his Option may be exercised during the six-month
period following the later of (x) such termination or (y) the
registration of the Shares underlying the Option. For purposes hereof,
the provisions of the Employment Agreement shall apply in determining
whether the Executive's employment has been involuntarily terminated by
the Company other than for Cause or if Executive has resigned with Good
Reason.
(ii) Death. If the Executive's employment terminates by reason of
death, the Option may be exercised during the twelve-month period
following such termination.
(iii) Disability. If the Executive's employment terminates by
reason of Disability (as such term is defined in the Employment
Agreement), the Option may be exercised during the twelve-month period
following such termination. For purposes hereof, the provisions of the
Employment Agreement shall apply in determining whether the Executive's
employment has been terminated due to a Disability.
(iv) Change of Control. If Executive's employment terminates other
than for Cause or if Executive resigns with Good Reason (as such terms
are defined in the Change of Control Plan) within twenty-four months of
a Change of Control (as such term is defined in the Change of Control
Plan), the Option may be exercised during the twelve-month period
following such termination. For purposes hereof, the provisions of the
Change of Control Plan shall apply in determining whether a Change of
Control has occurred.
(v) Termination in Other Circumstances. If the Executive's
employment terminates in circumstances not described in clauses (i)
through (iv), the Executive may, within 30 days following such
termination, exercise the Option with respect to such number of Shares
as to which the Option is exercisable on the date of termination, as
determined pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable
in whole or in part after the Expiration Date.
4. (a) Except as provided in paragraph (b), the Option is not
transferable by the Executive other than by will or the laws of descent and
distribution and is exercisable, during the Executive's lifetime, only by
the Executive.
(b) Notwithstanding the provisions of paragraph (a):
(i) In the event of the Executive's incapacity, the Option may be
exercised by a conservator, guardian, or the agent under a Durable Power
of Attorney;
(ii) Upon the Executive's death, the Option is transferable by
will, by a revocable or irrevocable trust established by the Executive,
or by a written beneficiary designation executed by the Executive and
delivered to the Company prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's
spouse and/or issue or trusts for the benefit of the Executive. the
Executive's spouse, and/or the Executive's issue.
E-2
71
5. In order to exercise the Option, in whole or in part, the Executive
shall give written notice to the Company, specifying the number of Shares
to be purchased and the purchase price to be paid, and accompanied by the
payment of the purchase price. Such purchase price may be paid in cash, a
certified check, or a bank check payable to the Company, or in whole shares
of Common Stock evidenced by negotiable certificates, valued at their fair
market value on the date of exercise, or in a combination of the foregoing.
Alternatively, the Option may be exercised, in whole or in part, by
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of
sale or loan proceeds necessary to pay the purchase price, and such other
documents as the Compensation Committee may require. Upon receipt of
payment, the Company shall deliver to the Executive (or to any other person
entitled to exercise the Option) a certificate or certificates for such
Shares. If certificates representing shares of Common Stock are used to pay
all or part of the purchase price of the Option, separate certificates
shall be delivered by the Company representing the same number of shares as
each certificate so used and an additional certificate shall be delivered
representing the additional shares to which the Executive is entitled as a
result of exercise of the Option.
6. The Option shall be exercised only with respect to full Shares; no
fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to the Company at the time of exercise any taxes
required to be withheld by the Company under the applicable laws or other
regulations of any governmental authority, whether federal, state of local,
and whether domestic or foreign. The Company shall promptly remit such
taxes to the applicable governmental authority.
8. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and
another person jointly with the right of survivorship, or in the name of a
revocable trust of which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of any
successor or assignee of the Company and to any executor, administrator,
legal representative, legatee, or distributee or transferee entitled by law
or the provisions of the Plan to the Executive's rights hereunder.
11. The Option is subject in all respects to the terms of the Plan,
the provisions of which are incorporated in this Agreement by reference.
12. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be
modified except by written agreement signed by the parties hereto.
13. This Agreement supercedes any prior agreements regarding the
Closing Price Option, including the Stock Option Agreement between Hanover
Direct, Inc. and Kaul dated August 23, 1996 concerning the subject matter
hereof.
E-3
72
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
HANOVER DIRECT, INC.
By: /s/ Brian C. Harriss
------------------------------------
Its: Senior Vice President
------------------------------------
/s/ RAKESH K. KAUL
--------------------------------------
Rakesh K. Kaul
E-4
73
HANOVER DIRECT, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, MAY 6, 19994, 2000
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Larry J. SvobodaBrian C. Harriss and Robert J. Vill,Curt B. Johnson, and
each of them, proxies of the undersigned, with full power of substitution, to
vote all shares of Common Stock and/or Series B Convertible Additional Preferred Stock of Hanover Direct, Inc., a Delaware corporation
("Hanover"), which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of Hanover to be held at the Hotel Intercontinental, located at
111 East 48th Street, New York, New York 10017, on Thursday, May 6, 1999,4, 2000, at
9:30 a.m. (local time), or at any adjournment thereof, with all the powers the
undersigned would have if personally present, on the following matters:
IMPORTANT: SIGNATURE AND DATE REQUIRED ON REVERSE SIDE
30
- Please Detach and Mail in the Envelope Provided -
[X] Please mark your
votes as in this
example.
FOR all nominees as WITHHOLD Nominees: Ralph Destino
listed at the right AUTHORITY J. David Hakman
(except as marked is vote for all nominees Rakesh K. Kaul
to the contrary) listed at right S. Lee Kling
[ ] [ ] Theodore H. Kruttschnitt
Shailesh J. Mehta
ELECTION Jan P. du Plessis
OF Alan G. Quasha
DIRECTORS Howard M.S. Tanner
Robert F. Wright
(INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in
space provided below.)
________________________________
FOR AGAINST ABSTAIN
2. Approval of an amendment to the Company's certificate [ ] [ ] [ ]
of incorporation to increase the authorized stock to
318,172,403 shares and the authorized common stock to
300,000,000 shares.
3. Ratification and approval of the appointment by the [ ] [ ] [ ]
Board of Directors of the Company of Arthur Andersen
LLP as the Company's independent auditors for the
fiscal year ending December 25, 1999.
4. In their discretion, the above named proxies are authorized to vote in
accordance with their own judgment upon such other business as may properly
come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER.SHAREHOLDER, IF NO DIRECTION IS INDICATED, THIS PROXY WILL
BE VOTED "FOR" ITEMS 1, 2, 3, 4, 5, 6 AND 37 AND THE PROXIES WILL USE THEIR
DISCRETION WITH RESPECT TO ANY MATTERS REFERRED TO IN ITEM 4.
The undersigned hereby acknowledges receipt of a copy of the accompanying Notice
of8.
IMPORTANT: SIGNATURE AND DATE REQUIRED ON REVERSE SIDE
74
--------------------------------
WHEN PROXY IS OKAYED PLEASE SIGN
& DATE IT ABOVE
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
HANOVER DIRECT, INC.
May 4, 2000
Please Detach and Mail in the Envelope Provided
- ------------------------------------------------------------------------------------------------------------------------------------
A [X] Please mark your
votes as in this
example.
For all WITHHOLD
nominees AUTHORITY
listed at to vote
the right for all
(except as nominees Nominees: Ralph Destino
marked listed at J. David Hakman
to the right Rakesh K. Kaul FOR AGAINST ABSTAIN
contrary) June R. Klein 2. Ratification of the 1999
1. ELECTION Kenneth Krushel Stock Option Plan for [ ] [ ] [ ]
OF [ ] [ ] Theodore H. Kruttschnitt Directors.
DIRECTORS Shalesh J. Mehta
Jan P. du Plessis 3. Ratification of the 2000 [ ] [ ] [ ]
(INSTRUCTION: To withhold authority Alan G. Quasha Management Stock Option
to vote for any individual nominee, Basil P. Regan Plan.
write that nominee's name in the Howard M.S. Tanner
space provided below.) Robert F. Wright 4. Ratification of the 2000
Short-Term Incentive Plan [ ] [ ] [ ]
- ------------------------------------------ for Rakesh K. Kaul.
5. Ratification of the 2000
Long-Term Incentive Plan
for Rakesh K. Kaul. [ ] [ ] [ ]
6. Ratification of an amendment
to and restatement of the Stock
Option Agreement, dated
August 23, 1998, as amended,
with Rakesh K. Kaul. [ ] [ ] [ ]
7. Ratification of the appointment
by the Board of Directors of
Hanover, of Arthur Andersen
LLP as Hanover's Independent
auditors for the fiscal year
ending December 30, 2000. [ ] [ ] [ ]
8. In their discretion, the above named proxies
are authorized to vote in accordance with
their own judgment upon such other business as
may properly come before the meeting.
Signature(s): Dated: , 2000 The undersigned hereby acknowledges receipt of a
---------------------------------- ----------- copy of the accompanying Notice of Annual Meeting
Signature if held jointly Dated: , 2000 of Shareholders and Proxy Statement and hereby
---------------------- ----------- revokes any Proxy or Proxies heretofore given. You
Note: Please complete, date and sign exactly as name appears may strike out the persons named as proxies and
hereon. When signing as attorney, administrator, designate a person of your choice, and may send
executor, guardian, trustee or corporate official, this Proxy directly to such person.
please add your title. If shares are held jointly,
each holder should sign.
75
ANNUAL MEETING OF SHAREHOLDERS OF
HANOVER DIRECT, INC.
MAY 4, 2000
---------------------------
PROXY VOTING INSTRUCTIONS
---------------------------
TO VOTE BY MAIL
Please date, sign and Proxy Statementmail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call toll-free 1-800-PROXIES and hereby revokes any
Proxy or Proxies heretofore given. You may strike outfollow the persons name as
proxiesinstructions. Have your
control number and designate a person ofthe proxy card available when you call.
TO VOTE BY INTERNET
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
---------------------------
YOUR CONTROL NUMBER IS
---------------------------
Please Detach and Mail in the Envelope Provided
- ------------------------------------------------------------------------------------------------------------------------------------
A [X] Please mark your
votes as in this
example.
For all WITHHOLD
nominees AUTHORITY
listed at to vote
the right for all
(except as nominees Nominees: Ralph Destino
marked listed at J. David Hakman FOR AGAINST ABSTAIN
to the right Rakesh K. Kaul
contrary) June R. Klein 2. Ratification of the 1999
1. ELECTION Kenneth Krushel Stock Option Plan for [ ] [ ] [ ]
OF [ ] [ ] Theodore H. Kruttschnitt Directors.
DIRECTORS Shallesh J. Mehta
Jan P. du Plessis 3. Ratification of the 2000 [ ] [ ] [ ]
(INSTRUCTION: To withhold authority Alan G. Quasha Management Stock Option
to vote for any individual nominee, Basil P. Regan Plan.
write that nominee's name in the Howard M.S. Tanner
space provided below.) Robert F. Wright 4. Ratification of the 2000
Short-Term Incentive Plan [ ] [ ] [ ]
- ------------------------------------------ for Rakesh K. Kaul.
5. Ratification of the 2000
Long-Term Incentive Plan
for Rakesh K. Kaul. [ ] [ ] [ ]
6. Ratification of an amendment
to and restatement of the Stock
Option Agreement, dated
August 23, 1998, as amended,
with Rakesh K. Kaul. [ ] [ ] [ ]
7. Ratification of the appointment
by the Board of Directors of
Hanover, of Arthur Andersen
LLP as Hanover's Independent
auditors for the fiscal year
ending December 30, 2000. [ ] [ ] [ ]
8. In their discretion, the above named proxies
are authorized to vote in accordance with
their own judgment upon such other business as
may properly come before the meeting.
Signature(s): Dated: , 2000 The undersigned hereby acknowledges receipt of a
---------------------------------- ----------- copy of the accompanying Notice of Annual Meeting
Signature if held jointly Dated: , 2000 of Shareholders and Proxy Statement and hereby
---------------------- ----------- revokes any Proxy or Proxies heretofore given. You
Note: Please complete, date and sign exactly as name appears may strike out the persons named as proxies and
hereon. When signing as attorney, administrator, designate a person of your choice, and may send
executor, guardian, trustee or corporate official, this Proxy directly to such person.
SIGNATURE(S): __________________ ___________________________ DATED _______, 1999
(Signature of held jointly)
Note: Please complete, date and sign exactly as name appears hereon. When
signing as attorney, administrator, executor, guardian, trustee or corporate
official,
please add your title. If shares are held jointly,
each holder should sign.