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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/Registrant [X]
Filed by a partyParty other than the registrant / /Registrant [ ]
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
HANOVER DIRECT, INC.
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
Hanover Direct, Inc.
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(Name of Registrant as Specified inIn Its Charter)
HANOVER DIRECT, INC.
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(Name of Person(s) Filing Proxy Statement)Statement, if other than Registrant)
Payment of filing feeFiling Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(o)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ /[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:
- - --------------------------------------------------------------------------------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- - --------------------------------------------------------------------------------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:
- - --------------------------------------------------------------------------------
/ /------------------------------------------------------------------------
(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 formForm or scheduleSchedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------Previously Paid:
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(2) Form, Schedule or registration statement no.Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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(1)Set forth the amount on which the filing fee is calculated and state how
it was determined.Filed:
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Preliminary Copy
HANOVER DIRECT, INC.
1500 HARBOR BOULEVARD
WEEHAWKEN, NEW JERSEY 07087
(201) 863-7300
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 22, 1994
To our Shareholders:JULY 10, 1997
TO OUR SHAREHOLDERS:
PLEASE TAKE NOTICE that the 19941997 Annual Meeting of Shareholders (the
"Annual Meeting") of Hanover Direct, Inc., a Delaware corporation (the
"Company"), will be held at the St. RegisRadisson Suite Hotel Two East 55th Street at Fifth
Avenue,Meadowlands, 350 Route 3
West, Secaucus, New York, New York 10022Jersey 07094 on Wednesday, June 22, 1994Thursday, July 10, 1997 at 9:30 a.m., local
time, for the following purposes:
1. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to eliminate Article SIXTH and the present
classified Board of Directors as set forth in the attached Proxy Statement;
2. In the event of the approval of the foregoing amendment to the
Company's Certificate of Incorporation, to elect 1112 members of the Board of Directors for a termto serve until the 1998
Annual Meeting of one yearShareholders and in each case until their respective
successors have been dulyare elected and qualified atqualified;
2. To ratify and approve an amendment to the 1995 Annual Meeting
of Shareholders, or, inCompany's 1996 Stock Option
Plan;
3. To ratify the eventadoption of the disapproval of such amendment to elect four Class II Directors for a termthe Company's Certificate of
three years and in each case
until their respective successorsIncorporation increasing the number of shares of Common Stock, par value
$.66-2/3, which the Company shall have been duly elected and qualified at
the 1997 Annual Meeting of Shareholders;
3.authority to issue from 150,000,000
to 225,000,000 shares;
4. To ratify and approve the appointment by the Board of Directors of
Arthur Andersen & Co.LLP as the Company's independent auditors for the fiscal year
ending December 31, 1994;27, 1997; and
4.5. To consider and act upon such other matters as may properly come before
the Annual Meeting or any adjournments or postponements thereof.
All shareholders are cordially invited to attend. Only shareholdersholders of record of
issued and outstanding shares of Common Stock and Series B Convertible
Additional Preferred Stock of the Company at the close of business on May 10, 1994June 11,
1997 will be entitled to notice of and to vote at the Annual Meeting or any
adjournments or postponements thereof. A copy of the Company's Proxy Statement
and 19931996 Annual Report to Shareholders is enclosed. In accordance with Section
219 of the Delaware General Corporation Law, the Company will make available for
examination by any shareholder, for any purpose germane to the Annual Meeting,
during ordinary business hours, for a period of at least 10 days prior to the
Annual Meeting, at the Radisson Suite Hotel Meadowlands, 350 Route 3 West,
Secaucus, New Jersey 07094, a complete list of the shareholders entitled to vote
at the Annual Meeting, arranged in alphabetical order.
By Order of the Board of Directors,
MICHAEL P. SHERMAN/s/ Edward J. O'Brien
Edward J. O'Brien
Secretary
May 16, 1994June 23, 1997
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WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE READ THE
ACCOMPANYING PROXY STATEMENT AND PROMPTLY COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED WITHIN THE UNITED STATES OF AMERICA. THE PROXY IS REVOCABLE BY YOU AT ANY
TIME PRIOR TO ITS USE AT THE ANNUAL MEETING. IF YOU RECEIVE MORE THAN ONE PROXY
CARD BECAUSE YOUR SHARES ARE REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH
PROXY CARD SHOULD BE SIGNED AND RETURNED TO ASSURE THAT ALL YOUR SHARES WILL BE
VOTED AT THE ANNUAL MEETING.
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HANOVER DIRECT, INC.
1500 HARBOR BOULEVARD
WEEHAWKEN, NEW JERSEY 07087
(201) 863-7300
PROXY STATEMENT FOR THE 19941997 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON JUNE 22, 1994JULY 10, 1997
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to the holders of voting stock (the
"Shareholders")
of shares of common stock, par value $.66 2/3 per share (the "Common Stock"), of Hanover Direct, Inc., a Delaware corporation (the "Company"),
in connection with the solicitation of proxies by the Board of Directors of the
Company for use at the 19941997 Annual Meeting of Shareholders of the Company (the
"Annual Meeting") to be held at 9:30 a.m., local time, on Wednesday, June 22, 1994Thursday, July 10,
1997 at the St. RegisRadisson Suite Hotel Two East 55th Street at Fifth Avenue,Meadowlands, 350 Route 3 West, Secaucus, New
York, New York 10022Jersey 07094 and any adjournments or postponements thereof. This Proxy Statement
is first being sent to Shareholders of the Company on or about May 16, 1994.June 23, 1997.
At the Annual Meeting, Shareholders will (i) consider and act upon a
proposal to amend the Company's Certificate of Incorporation to eliminate
Article SIXTH and the present classified Board of Directors, (ii) in the event
of the approval of such proposal,(1) elect 1112 members of the Board
of Directors for
a one year term, or in the event of the disapproval of such proposal, elect four
(4) Class II Directors to serve until the 19971998 Annual Meeting of Shareholders and (iii)in each
case until their respective successors are elected and qualified, (2) ratify and
approve the adoption of certain amendments to the Company's 1996 Stock Option
Plan, (3) ratify the adoption of the amendment to the Company's Certificate of
Incorporation and (4) ratify and approve the appointment of Arthur Andersen & Co.LLP
as the Company's independent auditors for the fiscal year ending December 31, 1994.27,
1997.
Shareholders may also consider and act upon such other matters as may
properly come before the Annual Meeting or any adjournments or postponements
thereof.
RECORD DATE; SHARES ENTITLED TO VOTE
The Board of Directors has fixed the close of business on May 10, 1994June 11, 1997 as
the record date ("Record(the "Record Date") for determining holders of outstanding
shares of the Company's Common Stock, par value $.66- 2/3 per share (the "Common
Stock"), and Series B Convertible Additional Preferred Stock, par value $.01 and
stated value $10.00 per share (the "Series B Preferred" and, together with the
Common Stock, the "Voting Stock"), entitled to notice of and to vote at the
Annual Meeting and at any adjournments or postponements thereof. Only holders of
record of CommonVoting Stock at the close of business on such date will be entitled to
notice of and to vote at the Annual Meeting or at any adjournments or
postponements thereof. On that date, there were 92,437,720200,031,580 shares of Common
Stock and 634,900 shares of Series B Preferred outstanding and entitled to vote.
On such
date, 51,875,263As of June 11, 1997, 100,409,045 shares of Common Stock (and currently
exercisable warrants or
options)warrants) were owned by subsidiaries of NAR Group Limited, a British
Virgin Islands corporation ("NAR"), while 40,687,970 shares of Common Stock were
owned by Richemont Finance S.A., a Luxembourg public company which is an
affiliate of NAR ("Richemont"). Each outstanding share of Common Stock entitles
the holder thereof to one vote on all matters submitted for a vote at the Annual
Meeting, while each outstanding share of Series B Preferred entitles the holder
thereof to 1.5 votes on all such matters. All shares of Common Stock and Series
B Preferred will vote together as one class on all questions that come before
the Annual Meeting. 5
VOTE REQUIRED
Pursuant to the Company's Certificate of Incorporation,Bylaws, the affirmative
vote of the holders of at least 75% of the Common Stock issued and outstanding
on the Record Date is required to amend the Company's Certificate of
Incorporation to eliminate Article SIXTH and the present classified Board of
Directors. The affirmative vote of the holders of a
plurality of the Commoncombined voting power of all shares of Voting Stock present in
person or by proxy at the Annual Meeting and voting together as a single class
is required to elect Directors. The affirmative vote of the holders of a
majority of the Commoncombined voting power of all shares of Voting Stock present in
person or by proxy and entitled to vote at the Annual Meeting as a single class
is required to approve the adoption of the amendments to the 1996 Stock Option
Plan. The affirmative vote of the holders of a majority of the combined voting
power of all shares of Voting Stock present in person or by proxy and entitled
to vote at the Annual Meeting as a single class is required to ratify the
adoption of the amendment to the Certificate of Incorporation. The affirmative
vote of the holders of a majority of the combined voting power of all shares of
Voting Stock present in person or by proxy at the Annual Meeting and voting
together as a single class is required to ratify and approve the appointment of auditors.
Abstentions will have the same effect as a vote against the proposalratification of the
adoption of the amendments to amend
the Company's 1996 Stock Option Plan, the adoption
of the amendment to the Certificate of Incorporation to eliminate Article SIXTH and the present classified Board of Directors and ratifying and approvingproposal to approve
the appointment of auditors and, with respect to election of a nominee for
Director, will have the same effect as a withheld vote. Broker non-votes will
have no effect on the votes with respect to the proposal to amendratify the adoption
of the amendments to the Company's 1996 Stock Option Plan, the adoption of the
amendment to the Certificate of Incorporation to eliminate Article SIXTH and the present classified Board of
Directors and ratifying and approving the adoption of the appointment of auditors,
nor will they have any effect on the election of Directors. 4
SOLICITATION OF PROXIES
Each Shareholder of the Company is requested to complete, sign, date and
return the enclosed proxy without delay in order to ensure that shares owned
thereby are voted at the Annual Meeting. All shares of CommonVoting Stock represented
at the Annual Meeting by properly executed proxies received prior to or at the
Annual Meeting will be voted at the Annual Meeting in accordance with the
instructions on the proxies. If no instructions are given or indicated, properly
executed proxies will be voted IN FAVOR OF the proposaladoption of the amendments to amend the
Company's 1996 Stock Option Plan, IN FAVOR OF the ratification of the adoption
of the amendment to the Certificate of Incorporation, to eliminate Article SIXTH and the present
classified Board of Directors andIN FAVOR OF the
ratification and approval of the appointment of Arthur Andersen & Co.LLP as the
Company's independent auditors for the fiscal year ending December 31, 199427, 1997, and
FOR the election of the nominees for Director described herein. In the event
that any nominee at the time of election shall be unable or unwilling to serve
or is otherwise unavailable for election (which contingency is not now
contemplated or foreseen), and in consequence other nominees shall be nominated,
the persons named in the proxy shall have the discretion and authority to vote
or refrain from voting in accordance with their judgment on such other
nominations. The Company 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.
REVOCATION OF PROXIES
Any Shareholder may revoke a proxy at any time before such proxy is voted.
Proxies may be revoked (i) by delivering to the Secretary of the Company a
written notice of revocation bearing a date later than the date of the proxy,
(ii) by duly executing a subsequent proxy relating to the same shares of CommonVoting
Stock and delivering it to the Secretary of the Company, or (iii) by attending
the Annual Meeting and stating to the Secretary of the Company an intention to
vote in person and so voting. Attendance at the Annual Meeting will not in and
of itself constitute revocation of a proxy. Any subsequent proxy or written
notice of revocation of a
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proxy should be delivered to Hanover Direct, Inc., 1500 Harbor Boulevard,
Weehawken, New Jersey 07087, Attention: Michael P.
Sherman,Edward J. O'Brien, Secretary.
DISSENTERS' RIGHTS OF APPRAISAL
Under Delaware law, shareholders who do not consent to the ratification of
the adoption of the amendment to the Company's Certificate of Incorporation do
not have appraisal rights with respect to the shares held by them.
COST OF SOLICITATION
The Company will bear the cost of soliciting proxies in connection with the
Annual Meeting estimated at $10,000$18,000 in the aggregate. Proxies will be solicited
by telephone, telegram, mail or personal contact. TheAmerican Stock Transfer &
Trust Company, has retained
Morrow & Co., Inc., a professional proxy solicitation firm, tothe Company's transfer agent, will aid in the solicitation of
proxies in connection with the Annual Meeting at a fee estimated
at $3,000, plus out-of-pocket expenses.for no additional fee. Directors,
officers and employees of the Company may solicit proxies by telephone,
telegram, 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 expenses incurred in connection therewith. Copies of
solicitation material will be furnished to fiduciaries, custodians, nominees and
brokerage houses for forwarding to beneficial owners of shares of CommonVoting Stock
held in their names and the Company will reimburse them for reasonable
out-of-pocket expenses incurred in connection therewith.
PROPOSAL TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION
Under the present Article SIXTH of the Company's Certificate of
Incorporation approved by Shareholders in 1983, the Board of Directors is
divided into three classes of Directors serving staggered three-year terms, with
one class of Directors consisting of four Directors to be elected at the Annual
Meeting, one class of Directors consisting of four Directors to be elected at
the 1995 Annual Meeting of Shareholders and one class of Directors consisting of
three Directors to be elected at the1996 Annual Meeting of Shareholders.
Provisions in the Company's Certificate of Incorporation consistent with
maintaining a classified board permit the size of the Board to be increased or
decreased and vacancies to be filled initially by the remaining Directors.
Directors of each class are elected for a term of three years and until their
respective successors have been duly elected
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and qualified so that the regular term of only one class of Directors expires
annually and any particular Director stands for election only once in each
three-year period. The Board of Directors is submitting for Shareholder approval
a proposal to amend the Company's Certificate of Incorporation to eliminate
Article SIXTH. A copy of Article SIXTH which is proposed to be eliminated is
annexed hereto as Attachment A and the foregoing description is qualified in its
entirety by reference thereto.
The division of directors into classes gives shareholders of a company the
right to elect approximately one-third of the company's directors annually. A
classified board was a popular device in the 1980's to impede a person or group
which obtained a substantial amount of a company's stock from assuming control
of the management of the company. Because the board of directors was classified,
a change in the majority of the board of directors in order to change management
policies would require two successive annual meetings. Classification of
directors was also considered desirable by some companies to permit their boards
of directors to plan for a reasonable period into the future in order to provide
for continuity in the policies of the company. Under classified board structures
similar to the Company's, approximately two-thirds of the directors at any one
time will have had prior experience on the board.
The Board of Directors recommends to the Shareholders that the present
classification of the Board of Directors into three classes be eliminated and
the entire Board of Directors be elected at the Annual Meeting as a single class
to serve for a one-year term. This result is accomplished by the proposed
amendment to the Company's Certificate of Incorporation to eliminate Article
SIXTH. In the event of the approval of the foregoing amendment to the Company's
Certificate of Incorporation, the Board of Directors will amend the By-laws to
the extent necessary to make them consistent with the Certificate of
Incorporation.
A declassified Board will give the Shareholders of the Company the right to
elect all of the Directors annually. As a result, a change in the majority of
the Board of Directors in order to change management policies could be effected
at any annual meeting of Shareholders. On the other hand, since all or a
majority of the Board of Directors could be reelected at successive annual
meetings, a declassified Board is not inherently inconsistent with either the
maintenance of continuity in management policies or the retention of Directors
who have had prior experience on the Board. A declassified Board may also
facilitate the assumption of the management of the Company by any person or
group which obtains a substantial amount of the Company's stock (if NAR ceases
to own in excess of 50% of the Common Stock outstanding).
Pursuant to the Company's Certificate of Incorporation, the affirmative
vote of the holders of at least 75% of the Common Stock issued and outstanding
on the Record Date is required to amend the Company's Certificate of
Incorporation to eliminate the provision providing for the classification of
directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
ELECTION OF DIRECTORS
GENERAL
The Company's Board of Directors is currently divided into three classes of
Directors serving three-year terms. One class of Directors is elected by the
Shareholders at each annual meeting to serve until the third annual meeting or
until their successors are elected and qualified. In the case of a vacancy,
Directors are appointed by the Directors then in office to serve the remainder
of the term. However, the Board of Directors is submitting for Shareholder
approval a proposal to amend the Company's Certificate of Incorporation to
eliminate Article SIXTH and the present classified Board of Directors. See
"PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION".
At the Annual Meeting, Shareholders will either elect 1112 members of the Board of
Directors to serve until the Annual Meeting of Shareholders to be held in 19951998
and in the event of the approval of the proposal to amend the Company's
Certificate of Incorporation to eliminate Article SIXTH or, in the event of the
disapproval of such proposal, elect four (4) Class II Directors to serve until
the Annual Meeting of Shareholders to be held in 1997 andeach case until their respective successors are elected and qualified or
until their
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6 death, resignation, retirement, disqualification or removal as
provided in the Certificate of Incorporation and By-lawsBylaws of the Company.
AGREEMENTS WITH RESPECT TO NOMINATION OF DIRECTORS
As a result of the commencement of a proxy contest in 1989 by Theodore H.
Kruttschnitt, J. David Hakman and Edmund R. Manwell, the Company's predecessor,
The Horn & Hardart Company (references to the Company hereinafter include its
predecessor), entered into an agreement on May 5,June 10, 1989 with Messrs.
Kruttschnitt, Hakman and Manwell (the "Nomination and Standstill Agreement").
Pursuant to the Nomination and Standstill Agreement, the Board was expanded to
11 members and Mr.Messrs. Kruttschnitt, wasHakman and Manwell were appointed as
a Class III Director, Mr. Hakman as a Class I Director and Mr.
Manwell as a Class II Director.Directors. The Company also agreed to nominate each of Messrs. Kruttschnitt,
Hakman and Manwell for election upon the expiration of their respective terms
provided Mr. Kruttschnitt continues to own certain specified levels of the
Company's Common Stock. See "EXECUTIVE COMPENSATION AND OTHER
INFORMATION -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
PursuantTRANSACTIONS."
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NOMINEES FOR DIRECTOR
The Board recently voted to expand the Stock Purchase Agreement, dated October 25, 1991, between
the Company and NAR (the "Stock Purchase Agreement"), the Company agreed to
recommend in its proxy statement for each annual or special meeting of
Shareholders at which Directors are to be elected during the five year period
from October 25, 1991, and at each such Shareholders' meeting, as part of the
management slate for election to the Board of Directors, such number of persons
designated by NAR as will result in the Board's including six persons designated
by NAR. In addition, NAR agreed that for a period of five yearsdirectors from October 25,
1991, so long as the Board of Directors of the Company consists of 11 persons of
whom six are designees of NAR, it will not nominate or propose for nomination or
elect persons to the Board if as a result more than six persons designated by it
would be on the Board at any one time except following an acquisition by a third
party of 20% or more of the voting stock or total assets of the Company. Messrs.
Destino, Laikind, Quasha and Wright and Ms. Long and Ms. Stutz were designated
pursuant to such agreement and were nominated and elected to serve as Directors
of the Company at the Company's 1991 Special Meeting of Shareholders. See
"EXECUTIVE COMPENSATION -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
NOMINEES FOR DIRECTOR12.
The nominees for Director, together with certain information furnished to the
Company by each nominee, are set forth below. In the eventAll of such nominees except Mr.
Mehta currently serve as directors of the disapproval of the proposal to amend the Company's Certificate of Incorporation
to eliminate Article SIXTH and the present classified Board of Directors, the
nominees for Class II Director are Messrs. Edmund R. Manwell, Alan G. Quasha and
Robert F. Wright and Ms. Geraldine Stutz.
Ralph Destino, 57,Company.
RALPH DESTINO, 60, has been the Chairman of Cartier, Inc., a luxury goods
store, since 1985. Cartier, Inc. is a subsidiary of Compagnie Financiere
Richemont, A.G. ("Richemont"), a Swiss public company engaged in the tobacco,
luxury goods and other businesses and an affiliate of Richemont and NAR. Mr.
Destino also serves as a director of The Leslie Fay Companies, a manufacturer of
dresses, suits, coats and sportswear which filed for protection under Chapter 11
of the U.S. Code in March 1993. Mr. Destino a designee of NAR,
was elected a Director of the
Company in October 1991.
Mr. Destino is a Class
III Director whose term expires in 1995.
J. David Hakman, 52,DAVID HAKMAN, 55, has been the Chief Executive Officer of 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, is also the Chairman and
a director of AFD Acquisition Corp., a food distribution company, which filed
for protection under Chapter 11 of the U.S. Code in June 1991 and emerged from
Chapter 11 in September 1993. Mr. Hakman, a designee of 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.
RAKESH K. KAUL, 45, has served as the Company's President and Chief
Executive Officer since March 7, 1996. Mr. Hakman isKaul served as Vice Chairman and
Chief Operating Officer of Fingerhut Companies, Inc., a Class Imulti-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 whose term expiresof the Company in March 1996.
S. Lee Kling, 65,LEE KLING, 68, is Chairman of the Board of Kling Rechter & Co., a
merchant banking company. He served as Chairman and a director of Landmark
Bancshares Corporation, a bank holding company in St. Louis, Missouri, from 1974
through 1991, when it merged with Magna Group Inc. He served as Landmark's Chief
Executive Officer from 1974 through 1990. Mr. Kling serves on the Boards of
Directors of 4
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E-Systems, Inc.ElectroRent Corp., a diversifiedan electronics leasing company, Falcon Products,
Inc., a manufacturer of commercial furniture, Bernard Chaus Inc., a sportswear
manufacturer and distributor, Top Air Manufacturing Co., a manufacturer of
agricultural equipment, Lewis Galoob Toys, Inc., a toy company, Magna Group,
Inc., a multi-bank holding company, and National Beverage Corp., a specialized
beverage company,company. In February 1995, Mr. Kling was appointed by President Clinton
to serve as a Commissioner on the Defense Base Closure and NationsMart Corp., a dry cleaning, laundry and shoe repair
company,Realignment
Commission. Mr. Kling was elected a Director of the Company in 1983.
Mr. Kling is a
Class I Director whose term expires in 1996.
TheodoreTHEODORE H. Kruttschnitt, 51,KRUTTSCHNITT, 54, has been the owner and sole proprietor of
California Innkeepers, Burlingame, California, an owner/operator of hotels and
motor hotels, since May 1970. Mr. Kruttschnitt is also Chairman of the Board of
Burlingame Bancorp, a commercial bank holding company, and 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.
Mr. Kruttschnitt is a Class III Director whose term expires in 1995.
Jeffrey Laikind, 58, has been a Managing Director of Prudential Securities
Investment Management (formerly Prudential Bache Securities Inc.), a money
management firm, since 1985. Mr. Laikind is also a director of NAR and a member
of the advisory board of Quadrant Management, Inc., an indirect wholly-owned
subsidiary of NAR which manages NAR's U.S. assets ("Quadrant"). Mr. Laikind, a
designee of NAR, was elected a Director of the Company in October 1991. Mr.
Laikind is a Class III Director whose term expires in 1995.
Elizabeth Valk Long, 43,ELIZABETH VALK LONG, 47, has been the President of TIME Magazine since July
1991 and a SeniorExecutive Vice President of Time,
Inc., periodical and book publishers, since September 1995. From September 1993
to September 1995, she was the President of TIME Magazine and, from April 1989.1989
to September 1993, she was a Senior Vice President of Time Inc. She served as
the publisher of TIME from July 1991 until September 1993; the publisher1993, of PEOPLE Magazine
from November 1988 until July 1991;1991, and
the publisher of LIFE Magazine from December 1986
until November 1988. Ms. Long a designee of NAR, was elected a Director of the Company in October
1991.
Ms.
Long is a Class I Director whose term expires in 1996.
Edmund4
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EDMUND R. Manwell, 51,MANWELL, 54, is senior partner at the law firm of Manwell &
Milton, San Francisco, California. Mr. Manwell has been associated with this
firm since 1982. Mr. Manwell also serves as a director of Dreyer's Grand Ice
Cream Inc., an ice cream company. Mr. Manwell, a designee of 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, 48, has been President and Chief Executive Officer and a
director of Providian Bancorp, Inc., a consumer lending financial services
company, since 1988. He joined Providian Bancorp in 1986 as Executive Vice
President and Chief Operating Officer. Mr. ManwellMehta is also Chairman and Chief
Executive Officer of Providian Direct Insurance, a Class IIdirect marketer of life and
health insurance, and President, Chief Operating Officer and a director of
Providian Corporation, a shareholder-owned diversified financial services
company, serving as a member of the Office of the Chairman, comprised of both
the Chief Executive Officer and the Chief Operating Officer. Mr. Mehta serves on
the U.S. Board of Directors of MasterCard International, Incorporated.
JAN P. DU PLESSIS, 43, has been Finance Director whose term
expiresof Richemont for the last
five years. He also served as Finance Director of The Rothmans International
Group until August 1996. Mr. du Plessis was elected a Director of the Company in
1994.
AlanMarch 1997.
ALAN G. Quasha, 44,QUASHA, 47, has been President of Quadrant Management Inc., an
indirect wholly-owned subsidiary of NAR which manages NAR's U.S. assets
("Quadrant"), since its formation in early 1988. From 1980 to September 1991, he
was a partner in the New York City law firm of Quasha, WessleyWessely & Schneider. In
addition to his directorship at the Company, Mr. Quasha serves as a director of
Harken Energy Corporation, an oil
and gas exploration and production company, E-Z Serve Corporation, a convenience
store company, Tejas Power Corporation, a natural gas company, and NAR. Mr. Quasha is also a
director of Compagnie Financiere Richemont A.G. ("Richemont")S.A., a SwissLuxembourg public company engaged in the tobacco, luxury goods and other businesses and an affiliate of NAR.NAR
and Richemont. Mr. Quasha a designee of NAR, was elected a Director of the Company and Chairman of
the Board in October 1991.
Mr. Quasha is a Class
IIHOWARD M. S. TANNER, 52, has been Executive Director whose term expires in 1994.
Jack E. Rosenfeld, 55, has served as President and Chief Executive Officer
of the Company since October 1990. Mr. Rosenfeld previously served as Executive
Vice President of the Company from May 1988 until October 1990. From 1987
through April 1988, Mr. Rosenfeld was President of Rosenfeld & Co.Richemont S.A., a
consulting
firm that provided consulting services toLuxembourg public company and an affiliate of NAR and Richemont, for the Company.last
five years. Mr. Rosenfeld is also a
director of PSC, Inc., a manufacturer of bar code equipment, and Electric Fuel,
Ltd., a developer and manufacturer of electronic batteries and fueling systems
for motor vehicles. Mr. RosenfeldTanner was elected a Director of the Company in 1974.
Mr. Rosenfeld is a Class III Director whose term expires in 1995.
Geraldine Stutz, 65, has been the President and Publisher of Panache Press
at Random House Inc., a publishing company, since 1986. She was previously the
Chief Executive Officer and Managing Partner of Henri Bendel, a New York
specialty store. Ms. Stutz also serves as a director of Tiffany & Co., a retail
luxury
5
8
jewelry store, and the Jones Apparel Group, a clothing manufacturer. Ms. Stutz,
a designee of NAR, was elected a Director of the Company in October 1991. Ms.
Stutz is a Class II Director whose term expires in 1994.
RobertMarch 1997.
ROBERT F. Wright, 68,WRIGHT, 71, 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 Company,Co., a life insurance company, and
affiliates, Williams Real Estate Co., Inc., a real estate company, and The Navigator
Group, Inc., a property insurance company, Rose Technology Group Limited, an
energy service company, Timberlands Management Group LLC, a manager of Western
Timberlands, and Norweb North America Corporation, an investment company. Mr.
Wright also serves on the advisory board of Quadrant. Mr. Wright a designee of NAR, was elected a
Director of the Company in October 1991. Mr. Wright is a Class II Director whose
term expires in 1994.
OTHER INFORMATION
The Board of Directors has standing Executive, Audit, Stock Option and
Executive Compensation, Special, Nominating and NominatingTransactions Committees.
During 1993,1996, Messrs. Quasha (Chairman), RosenfeldKaul and Wright were members of the
Executive CommitteeCommittee. Messrs. Quasha, Kaul, du Plessis, Tanner (Chairman) and
Wright currently serve as its members. Pursuant to the
Stock Purchase Agreement, at least one Director not designated by NAR shall
serve on the Executive Committee. The Executive Committee held eightthree
meetings (orin person or by conference call and took action by written consent)consent
5
9
on four occasions in 1993.1996. The duties of the Executive Committee include
recommending actions to the Board of Directors and acting on behalf of the Board
on certain matters when the Board is not in session.
During 1993,1996, Messrs. Wright (Chairman), Hakman and Manwell were members of
the Audit CommitteeCommittee. Messrs. Wright (Chairman), Hakman, Manwell and du Plessis
currently serve as its members. The Audit Committee held fourfive meetings (or took actionin 1996
in person or by written consent) in 1993.conference call. The duties performed by the Audit Committee
include (1) review with the independent public accountants of 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;
(2) annual review and approval of the adequacy and scope of the internal audit
department's planned audit program and review of the internal audit department's
interim audit reports, including the evaluation of replies and corrective action
being taken; (3) review of the adequacy of the internal accounting control
systems of the Company and its subsidiaries; and (4) review and approval of
management's recommendation for the appointment of outside independent public
accountants prior to the submission of their nomination to the Board of
Directors for approval and to the Shareholders for ratification. 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 management and
independent public accountants with respect to the accounting and control
functions and financial statement presentation.
During 1993,1996, Messrs. Laikind (Chairman), Destino and Quasha and Ms. Long
and Ms. Stutz were members of the Stock Option and Executive Compensation
Committee (the "Compensation Committee") and Messrs. Destino, du Plessis and
Quasha and Ms. Long (Chairman) currently serve as its members.members following the
resignations of Mr. Laikind and Ms. Stutz from the Company's Board of Directors.
The Compensation Committee held twofour meetings (orin 1996 in person or by conference
call and took action by written consent) in
1993.consent on three occasions. The duties of the
Compensation Committee are to review and make recommendations for approval by
the Board of Directors of remuneration arrangements for Directors and members of
management.
During 1993,1996, Messrs. RosenfeldLaikind and Destino were members of the Special
Committee. The Special Committee held three meetings in 1996 in person or by
conference call and took action by written consent on one occasion. The Special
Committee is a sub-committee of the Compensation Committee and its duties are to
review and make recommendations for approval by the Board of Directors
concerning grants of stock options pursuant to the Company's stock option plans
for the Company's employees. It is expected that the Special Committee will be
disbanded in 1997.
During 1996, Messrs. Kaul (Chairman), Destino, Hakman, Kruttschnitt and
Laikind were members of the Nominating Committee and all except Mr. Laikind, who
resigned as a director, currently serve as its members. The Nominating Committee
did not hold any meetingsheld one meeting in 1993.1996. The duties of the Nominating Committee include
evaluating and recommending candidates for election to the Board of Directors.
The By-lawsBylaws of the Company require advance notice of nominations for election to
the Board of Directors, other than those made by the Board of Directors. Unless
waived by the Board of Directors, 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 6
9
annual meeting of
Shareholders, and at least 75 days before the date that corresponds to the
record date of the prior year's annual meeting of Shareholders in the event of
an election at
6
10
an annual meeting of 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.
During 1996, Messrs. Kling (Chairman), Hakman and Manwell were members of
the Transactions Committee and currently serve as its By-laws.members. The Transactions
Committee held seven meetings in 1996 in person or by conference call and took
action by written consent on one occasion. The duties of the Transactions
Committee are to review 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 to report its findings to the Board of
Directors as to the fairness, merits and potential conflicts of interest. The
Transactions Committee is empowered to retain independent experts to review a
transaction if it deems that it is desirable to do so.
During 1993,1996, the Board of Directors held fourseven meetings in person or by
conference telephone. Each incumbent Director attended at least 75% of the Board
meetings held during the period in which such Director was a member of the Board
and at least 75% of the meetings of the committees on which he or she served
during such period.
The Company indemnifies its executive officers and Directors to the extent
permitted by applicable law against liabilities incurred as a result of their
service to the Company. The Company hasDirectors are also indemnified to the extent permitted
by applicable law against liabilities incurred as a result of their service as
directors and officers liability
insurance policy underwritten by National Union Fire Insurance Company of Pittsburgh, Pennsylvania inother corporations when serving at the aggregate amountrequest of $10,000,000. Such policy,
whose term is from March 5, 1993 to June 1, 1994, has a $350,000 corporate
deductible. The Company also has indemnification agreements with each Director.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 of Directors against, among other things,
all liabilities and claims arising out of their service in any capacity for or
on behalf of the Company. The Company has a directors and officers liability
insurance policy underwritten by Executive Re Indemnity Company, Tamarack
American and Zurich American Insurance Company in the aggregate amount of
$25,000,000. The policy term is from June 1, 1997 to June 1, 1998. As to
reimbursements by the insurer of the Company's indemnification expenses, the
policy has a $250,000 deductible; there is no deductible for covered liabilities
of individual Directors and officers.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
officers, Directors and beneficial owners of more than 10% of the Company's
Common Stock to file reports of ownership and changes in their ownership of the
equity securities of the Company 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.requirements except for Rakesh K. Kaul who
filed the required report with respect to his being elected President and Chief
Executive Officer but not on a timely basis and Ralph Destino, Jeffrey Laikind,
Robert F. Wright and Elizabeth Valk Long who each filed one required report with
respect to one transaction but not on a timely basis.
VOTE REQUIRED
The affirmative vote of the holders of a plurality of the combined voting
power of all shares of Common Stock and Series B Preferred present in person or
by proxy at the Annual Meeting and voting together as a single class, with each
share of Common Stock having one vote and each share of Series B Preferred
having 1.5 votes, is required to elect Directors. The enclosed proxy provides a
means for Shareholders to vote for the election of all of the nominees for
Director listed above, in the event of the approval of the proposal to amend the Company's
Certificate of Incorporation to eliminate Articles SIXTH and the present
classified Board of Directors, or Edmund R. Manwell, Alan G. Quasha, Geraldine
Stutz and Robert F. Wright to serve as Class II Directors of the Company in the
event of the disapproval of such proposal, to withhold authority to vote for one or more of such
7
11
nominees or to withhold authority to vote for all of such nominees. Abstentions
with respect to the election of a nominee for Director will have the same effect
as a withheld vote and broker non-votes will have no effect on the election of
Directors.
It is the intention of the persons named in the enclosed proxy to vote FOR
the election of all of the persons named above to serve as Directors of the
Company in the event of the approval of the proposal to amend the Company's
Certificate of Incorporation to eliminate Article SIXTH and the present
classified Board of Directors or Edmund R. Manwell, Alan G. Quasha, Geraldine
Stutz and Robert F. Wright to serve as Class II Directors of the Company in the
event of the disapproval of such proposal.Company. The nominees, each of whom currently serves as a Director, have
consented to be named in this Proxy Statement and to continue to serve as
Directors if elected. Management does not contemplate or foresee that any of the
nominees will be unable or unwilling to serve or otherwise unavailable for
election, but if such a situation should arise and other nominees are nominated,
the persons named in the proxy will vote for the election of the other nominees
recommended by the Board of Directors. In all cases, the Board of Directors has
the authority to elect persons to fill vacancies on the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION
OF THE NOMINEES FOR DIRECTOR SET FORTH ABOVE.
7
10
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION OF THE COMPANY
The following table sets forth certain information with respect to
compensation awarded to, earned by or paid to (a) the Company's Chief Executive
Officer and (b) each of the four most highly compensated executive officers of
the Company otheras of the 1996 fiscal year end (other than the Chief Executive
OfficerOfficer) whose total annual salary and bonus exceeded $100,000, in each case for
each of the Company's lastpreceding three fiscal years (collectively, the "Named Executives").:
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
(a) (b) (c) (d) (e) (f) (g) (h)------------
NAME AND FISCAL -------------------- OTHER ANNUAL NAME AND COMPEN- RESTRICTED STOCK OPTIONS/ LTIPOPTIONS ALL OTHER
PRINCIPAL FISCAL BONUS SATION AWARD(S) SARS PAYOUTS POSITION YEAR SALARY ($SALARY($) ($)(1) ($)(2) ($BONUS($) (#) ($COMPENSATION($) AWARDED(#) COMPENSATION($)
- - ------------------------- ------ ------------------- -------- -------- ---------------- --------- ---------------------- ------------ ---------------
Jack E. Rosenfeld 1993 $500,000Rakesh K. Kaul(1)........ 1996 $ 417,981 $349,188 $ 199,313(2) 7,530,000(3) $ 314(4)
President and Chief
Executive Officer
Wayne P. Garten(1)....... 1996 $ 240,000 $ 2,972 $ 612,709(5) -- $ 8,322(6)
Executive Vice 1995 $ 260,000 -- -- -- 150,000(4) --$12,870(8)
President and Chief 1992 $499,770 $150,4691994 $ 254,231 $ 15,000 -- -- 2,427,210(5)$12,908(7)
Financial Officer
Michael P. Sherman(1).... 1996 $ 132,000 $ 3,120 $ 262,533(9) -- $ 4,813(10)
Executive Officer 1991 $519,326Vice 1995 $ 246,000 -- -- -- 2,921,884(6)$12,237(11)
President -- Michael P. Sherman 1993 $223,942Corporate 1994 $ 244,156 -- -- -- 80,000(4) --
Executive Vice President 1992 $215,019 $ 75,618 -- -- -- --
- - --Corporate$12,370(12)
Affairs, 1991 $207,827 -- -- -- -- -- General
Counsel and Secretary
Wayne P. Garten 1993 $225,144Ralph Bulle.............. 1996 $ 163,385 -- -- 125,000(13) $ 5,329(14)
Senior Vice President 1995 $ 143,000 -- -- -- 80,000(4) --
Executive Vice President 1992 $212,496 $ 72,0165,584(15)
Human Resources 1994 $ 142,423 -- -- -- $ 309(16)
Michael Lutz(1).......... 1996 $ 226,539 $ 27,095 -- and Chief Financial 1991 $189,538150,000(17) $ 3,109(18)
Executive Vice 1995 $ 215,000 $ 75,000 -- 40,000(19) $ 1,490(20)
President -- Operations 1994 $ 57,885 -- -- -- Officer
Edward J. O'Brien 1993 $138,027 -- -- -- 40,000(4) --
Senior Vice President 1992 $126,998 $ 34,707 -- -- -- --
and Treasurer 1991 $120,082 $ 12,500 -- -- -- --
David E. Ullman 1993 $110,962 -- -- -- 10,000(4) --
Vice President- 1992 $ 84,135 $ 9,577 -- -- -- --
Controller 1991 $ 32,923(7) -- -- -- -- --
(a) (i)
ALL
OTHER
NAME AND COMPEN-
PRINCIPAL SATION
POSITION ($)(3)
- - ------------------------- --------
Jack E. Rosenfeld $ 35,523(8)
President and Chief $ 31,598(9)
Executive Officer --
Michael P. Sherman $ 19,314(10)
Executive Vice President $ 13,470(11)
- - --Corporate Affairs, --
General Counsel and
Secretary
Wayne P. Garten $ 10,160(12)
Executive Vice President $ 3,162(13)
and Chief Financial --
Officer
Edward J. O'Brien $ 11,849(14)
Senior Vice President $ 7,131(15)
and Treasurer --
David E. Ullman $ 647(16)
Vice President- --
Controller --
8
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- - ---------------------------------
(1) In fiscal 1992,Rakesh K. Kaul was named President and Chief Executive Officer and elected
to the Named Executives, except forBoard of Directors on March 7, 1996. Michael P. Sherman resigned
effective April 23, 1996. Wayne P. Garten resigned effective September 30,
1996. Michael Lutz joined the Company in September 1994.
(2) Includes the following payments made by the Company on behalf of Mr. Rosenfeld, deferred
25%Kaul:
$151,192 in relocation expenses and $48,121 in car allowance and related
benefits.
(3) Issued by the Company pursuant to the Tandem Option, the Closing Price
Option and the Performance Year Option and by NAR under the Six, Seven,
Eight and Nine Year Stock Options. See "SEVERANCE AND EMPLOYMENT
AGREEMENTS."
(4) Includes the following payments made by the Company on behalf of their bonusesMr. Kaul:
$281 in term life insurance premiums and are entitled to receive such deferred amounts$33 of accidental death insurance
premiums.
(5) Includes the following payments made by the Company on behalf of Mr.
Garten: $346,667 in stock overseverance pay, $63,000 of accrued vacation pay, $8,921
in car allowance, $66,574 representing a three year periodsupplemental retirement
distribution and $127,547 in forgiveness of indebtedness.
(6) Includes the following payments made by the Company on behalf of Mr.
Garten: $2,500 in matching contributions under the 401(k) Savings Plan,
$5,660 in matching contributions under the Supplemental Retirement Plan,
$129 of term life insurance premiums and $33 of accidental death insurance
premiums.
(7) Includes the following payments made by the Company on behalf of Mr.
Garten: $2,207 in matching contributions under the 401(k) Savings Plan,
$10,400 in matching contributions under the Company's Supplemental
Retirement Plan, $240 in term life insurance premiums and $61 of accidental
death insurance premiums.
(8) Includes the following payments made by the Company on behalf of Mr.
Garten: $2,250 in matching contributions under the 401(k) Savings Plan,
$10,169 in matching contributions under the Supplemental Retirement Plan,
$366 in term life insurance premiums and $85 of accidental death insurance
premiums.
(9) Includes the following payments made by the Company on behalf of Mr.
Sherman: $2,120 in car allowance, $119,415 representing a supplemental
retirement distribution and $140,998 in forgiveness of indebtedness.
(10) Includes the following payments made by the Company on behalf of Mr.
Sherman: $2,261 in matching contributions under the 401(k) Savings Plan,
$2,451 in matching contributions under the Company's Supplemental
Retirement Plan, $71 in term life insurance premiums and $30 of accidental
death insurance premiums.
(11) Includes the following payments made by the Company on behalf of Mr.
Sherman: $2,250 in matching contributions under the 401(k) Savings Plan,
$9,686 in matching contributions under the Supplemental Retirement Plan,
$240 in term life insurance premiums and $61 of accidental death insurance
premiums.
(12) Includes the following payments made by the Company on behalf of Mr.
Sherman: $2,250 in matching contributions under the 401(k) Savings Plan,
$9,686 in matching contributions under the Supplemental Retirement Plan,
$352 in term life insurance premiums and $82 of accidental death insurance
premiums.
(13) Issued pursuant to the Company's Incentive
Compensation1996 Stock Option Plan.
(2) The aggregate amount9
13
(14) Includes the following payments made by the Company on behalf of all perquisitesMr. Bulle:
$2,500 in matching contributions under the 401(k) Savings Plan, $2,454 in
matching contributions under the Supplemental Retirement Plan, $342 in term
life insurance premiums and other personal benefits paid$33 of accidental death insurance premiums.
(15) Includes the following payments made by the Company on behalf of Mr. Bulle:
$2,145 in matching contributions under the Company's 401(k) Savings Plan,
$2,860 in matching contributions under the Company's Supplemental
Retirement Plan, $518 in term life insurance premiums and $61 of accidental
death insurance premiums.
(16) Includes the following payments made by the Company on behalf of Mr. Bulle:
$248 in term life insurance premiums and $61 of accidental death insurance
premiums.
(17) Issued pursuant to any Named Executive is not greater than either $50,000 or 10%the Company's 1996 Stock Option Plan.
(18) Includes the following payments made by the Company on behalf of Mr. Lutz:
$2,500 in matching contributions under the total
annual salary401(k) Savings Plan, $576 in
term life insurance premiums and bonus reported for such Named Executive.
(3) Commission rules do not require disclosure regarding items in this column
for fiscal 1991.
(4)$33 of accidental death insurance
premiums.
(19) Issued pursuant to the Company's 1993 Executive Equity Incentive Plan.
(5)(20) Includes the right to purchase 1,213,605 shares of Common Stock granted to
Mr. Rosenfeld by NAR on May 28, 1993 pursuant to a letter agreement dated
September 23, 1992 at a price per share of $2.00 (subject to adjustment)
plus 10% per year (including fractions of a year) from October 25, 1991
through the exercise period and up to 1,213,605 shares of Common Stock at a
price per share of $1.50 (subject to adjustment) plus 10% per year
(including fractions of a year) from September 16, 1992 through the
exercise period.
(6) Includes the right to purchase, which was conditioned on the occurrence of
certain events, 1,213,605 shares of Common Stock granted to Mr. Rosenfeld
on October 25, 1991 at a price per share of $3.00 (subject to adjustment)
plus 10% per year (including fractions of a year) from October 25, 1991
through the exercise period and the right to purchase, pursuant to a rights
offering which was conditioned on the occurrence of certain events, a
maximum of 1,508,279 shares of Common Stock at a price per share to be
determined at a later date (but not less than $2.00). Mr. Rosenfeld was not
able to
8
11
acquire any of these shares because the events upon which the exercise of
such rights were conditioned never occurred. The right to acquire these
shares expired on September 23, 1992.
(7) Mr. Ullman was hired by the Company in August 1991.
(8) Includes $2,998 of matching contributionsfollowing payments made by the Company on behalf of Mr. RosenfeldLutz:
$662 in matching contributions under the Company's 401(k) Savings Plan, $26,216 of matching
contributions made by the Company on behalf of Mr. Rosenfeld under the
Company's Supplemental Retirement Plan, $1,388 of$767 in term
life insurance premiums paid on term lifeand $61 of accidental death insurance policies by the Company on behalf of Mr.
Rosenfeld, and the distribution of 2,316 shares of the Company's Common
Stock, resulting from the Company's termination of its Employee Stock
Ownership Plan, valued at $2.125 per share on the date of such plan's
termination.
(9) Includes $2,910 of matching contributions made by the Company on behalf of
Mr. Rosenfeld under the Company's 401(k) Savings Plan, $27,300 of matching
contributions made by the Company on behalf of Mr. Rosenfeld under the
Company's Supplemental Retirement Plan, and $1,388 of life insurance
premiums paid on term life insurance policies by the Company on behalf of
Mr. Rosenfeld.
(10) Includes $2,998 of matching contributions made by the Company on behalf of
Mr. Sherman under the Company's 401(k) Savings Plan, $11,492 of matching
contributions made by the Company on behalf of Mr. Sherman under the
Company's Supplemental Retirement Plan, $344 of life insurance premiums
paid on term life insurance policies by the Company on behalf of Mr.
Sherman, and the distribution of 2,108 shares of the Company's Common
Stock, resulting from the Company's termination of its Employee Stock
Ownership Plan, valued at $2.125 per share on the date of such plan's
termination.
(11) Includes $2,910 of matching contributions made by the Company on behalf of
Mr. Sherman under the Company's 401(k) Savings Plan, $10,215 of matching
contributions made by the Company on behalf of Mr. Sherman under the
Company's Supplemental Retirement Plan, and $344 of life insurance premiums
paid on term life insurance policies by the Company on behalf of Mr.
Sherman.
(12) Includes $2,998 of matching contributions made by the Company on behalf of
Mr. Garten under the Company's 401(k) Savings Plan, $2,724 of matching
contributions made by the Company on behalf of Mr. Garten under the
Company's Supplemental Retirement Plan, $252 of life insurance premiums
paid on term life insurance policies by the Company on behalf of Mr.
Garten, and the distribution of 1,970 shares of the Company's Common Stock,
resulting from the Company's termination of its Employee Stock Ownership
Plan, valued at $2.125 per share on the date of such plan's termination.
(13) Includes $2,910 of matching contributions made by the Company on behalf of
Mr. Garten under the Company's 401(k) Savings Plan, and $252 of life
insurance premiums paid on term life insurance policies by the Company on
behalf of Mr. Garten.
(14) Includes $2,998 of matching contributions made by the Company on behalf of
Mr. O'Brien under the Company's 401(k) Savings Plan, $5,864 of matching
contributions made by the Company on behalf of Mr. O'Brien under the
Company's Supplemental Retirement Plan, $300 of life insurance premiums
paid on term life insurance policies by the Company on behalf of Mr.
O'Brien, and the distribution of 1,265 shares of the Company's Common
Stock, resulting from the Company's termination of its Employee Stock
Ownership Plan, valued at $2.125 per share on the date of such plan's
termination.
(15) Includes $1,907 of matching contributions made by the Company on behalf of
Mr. O'Brien under the Company's 401(k) Savings Plan, $4,924 of matching
contributions made by the Company on behalf of Mr. O'Brien under the
Company's Supplemental Retirement Plan, and $300 of life insurance premiums
paid on term life insurance policies by the Company on behalf of Mr.
O'Brien.
(16) Includes $93 of matching contributions made by the Company on behalf of Mr.
Ullman under the Company's 401(k) Savings Plan, and $554 of matching
contributions made by the Company on behalf of Mr. Ullman under the
Company's Supplemental Retirement Plan.premiums.
STOCK OPTIONS
During fiscal 1993, no stock options were granted to, nor were any
exercised by, any of the Named Executives pursuant to the Stock Option Plan.
9
12
The following table contains information concerning options granted to each
of the Named Executives during fiscal 19931996.
OPTION GRANTS IN FISCAL 1996
PERCENT OF
NUMBER OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR(%) PRICE($) DATE VALUE($)
------------------------ ---------- -------------- -------- ---------- ------------
Rakesh K. Kaul(i) ...... 3,020,000 26.7% $1.15625 03/07/06 $2,325,400(a)
1,000,000 8.8% $1.15625 03/07/06 $ 770,000(b)
2,000,000 17.7% $1.15625 03/07/06 $ 340,000(c)
377,500 3.3% $1.15625 03/07/02 $ 226,500(d)
377,500 3.3% $1.15625 03/07/03 $ 245,375(e)
377,500 3.3% $1.15625 03/07/04 $ 260,475(f)
377,500 3.3% $1.15625 03/07/05 $ 279,350(g)
Wayne P. Garten......... -- -- -- -- --
Michael P. Sherman...... -- -- -- -- --
Ralph Bulle............. 125,000 1.3% $ 1.00 10/13/03 $ 83,750(h)
Michael Lutz............ 150,000 1.3% $ 1.00 10/13/03 $ 100,500(h)
- - ---------------
(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 weighted
average assumptions for grants in 1996: risk free interest rate of 6.79%,
expected lives of 9.85 years, expected volatility of 45.02% and expected
dividends of $0.
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14
(b) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.79%,
expected lives of 9.85 years, expected volatility of 45.02% and expected
dividends of $0.
(c) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model utilizing a Monte Carlo
simulation with the following weighted average assumptions for grants in
1996: risk free interest rate of 6.79%, expected lives of 9.85 years,
expected volatility of 45.02% and expected dividends of $0.
(d) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.42%,
expected lives of 5.85 years, expected volatility of 45.02% and expected
dividends of $0.
(e) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.53%,
expected lives of 6.85 years, expected volatility of 45.02% and expected
dividends of $0.
(f) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.62%,
expected lives of 7.85 years, expected volatility of 45.02% and expected
dividends of $0.
(g) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.73%,
expected lives of 8.85 years, expected volatility of 45.02% and expected
dividends of $0.
(h) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.80%,
expected lives of 7 years, expected volatility of 45.35% and expected
dividends of $0.
(i) Options granted to Mr. Kaul during 1996 represent approximately 66.5% of all
options granted to all employees.
No options were exercised by any of the Named Executives during fiscal
1996. The following table contains information concerning options held by each
of the Named Executives at the end of fiscal 1996:
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
(#) (#)
-------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE(1)
------------------------------- ----------- ---------------- ----------- ----------------
Rakesh K. Kaul................. -- 7,530,000 -- $5,647,500
Wayne P. Garten................ -- -- -- --
Michael P. Sherman............. -- -- -- --
Ralph Bulle.................... -- 125,000 -- $ 93,750
Michael Lutz................... -- 190,000 -- $ 142,500
- - ---------------
(1) Unexercisable 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, and by NAR under the Six, Seven, Eight and Nine
Year Stock Options. See "EXECUTIVE COMPENSATION AND OTHER
INFORMATION -- SEVERANCE AND EMPLOYMENT AGREEMENTS." All the unexercisable
options for Mr. Bulle and
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15
150,000 of the unexercisable options for Mr. Lutz represent options granted in
1996 under the 1996 Stock Option Plan and 40,000 unexercised options for Mr.
Lutz represent tandem options granted in 1995 pursuant to the 1993 Executive
Equity Incentive Plan. OPTION GRANTS IN FISCAL 1993
PERCENT OF
TOTAL OPTIONS
OPTIONS GRANTED TO
GRANTED EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME (#) FISCAL YEAR PRICE DATE(1) PRESENT VALUE(2)
(a) (b) (c) (d) (e) (h)
- - ------------------------------------- ---------- ------------- -------- ---------- ----------------
Jack E. Rosenfeld.................... 150,000 10.7% $ 2.50 3/2/99 $325,293
Michael P. Sherman................... 80,000 5.7% $ 2.50 3/2/99 $173,489
Wayne P. Garten...................... 80,000 5.7% $ 2.50 3/2/99 $173,489
Edward J. O'Brien.................... 40,000 2.8% $ 2.50 3/2/99 $ 86,745
David E. Ullman...................... 10,000 .7% $ 2.50 3/2/99 $ 21,686
- - ------------------
(1) Options granted underUnder the 1993 Executive Equity Incentive1996 Stock Option Plan, these options
become exercisable three years after the date of grant and expire sixseven
years from the date of grant.
(2) Grant date option values are determined using the Black-Scholes Model. The
Black-Scholes Model isSEVERANCE AND EMPLOYMENT AGREEMENTS
Jack E. Rosenfeld resigned as President and Chief Executive Officer and as
a formula widely used to value exchange traded
options. However, stock options granted byDirector of the Company to its executives
differ from exchange traded options in three key respects: options granted
byeffective December 30, 1995. In connection with such
resignation, the Company to its executives are long-term, non-transferable and subject
to vesting restrictions, while exchange traded options are short-term and
can be exercised or sold immediately inMr. Rosenfeld entered into a liquid market. The Black-Scholes
Model relies on several key assumptions to estimateTermination of
Employment Agreement, dated as of December 30, 1995 (the "Termination
Agreement"), providing for the present value of
options, including the volatilitytermination of the security underlyingEmployment Agreement, dated as
of October 25, 1991, between the option,Company and Mr. Rosenfeld, and all benefits,
salary and perquisites provided for therein except for (a) benefits, salary and
perquisites earned and accrued up to December 30, 1995, (b) salary of $500,000
through December 31, 1996, and (c) benefits including (i) continued disability
and term life insurance in amounts not less than the risk-free rate of returnamounts in force on the
date of grantthe Termination Agreement and (ii) the term of the option. In
calculating the grant date option values set forthright to continue to participate
in the table, a factor of
61.96% has been assignedCompany's medical plans to the volatility of the Common Stock, based on
monthly stock market quotationsextent he is eligible for theup to three
years precedingfrom the date of grant; the risk-free rate of return has been fixed at 7.54% based upon the
averageTermination Agreement. The Termination Agreement
called for Mr. Rosenfeld to serve as a Director Emeritus of the Intermediate Term Government Bond Yields (Iobottson
Associates SBBI 1994 Yearbook Exhibit A-13) for the six years preceding the
date of grant;Company, and
the actual option term of six years has been used.
Consequently, the grant date option values set forth in the table are only
theoretical values and may not accurately determine present value. The
actual value, if any, an optionee will realize will depend on the excessallowed Mr. Rosenfeld to attend meetings of the market valueBoard of Directors and
participate in board discussions for a one-year period but Mr. Rosenfeld had no
voting rights on any matters that came before the Common Stock overBoard of Directors. The
Termination Agreement precluded Mr. Rosenfeld for a one-year period from
competing with the exercise price on the date the
option is exercised.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS RELATING TO CHANGE IN CONTROLCompany under certain circumstances.
In connection with the consummationresignation of the transactions contemplated by the
Stock Purchase Agreement between the Company and NAR and as a condition thereto,Jack E. Rosenfeld, the Company
entered into an Executive Employment Agreement, dated as of October
25, 1991,March 7, 1996, with
Jack E. Rosenfeld,Rakesh K. Kaul, the President and Chief Executive Officer of the Company (the
"Employment Agreement"). The Employment Agreement provides for a five-yearan "at will" term
commencing on October 25, 1991,March 7, 1996, at a base salary of $500,000$525,000 per year;year. The
Employment Agreement also provides for Mr. Kaul's participation in the
Short-Term Incentive Plan for Rakesh K. Kaul. That plan provides for an annual
bonus of between 25%0% and 100%125% of Mr. Rosenfeld'sKaul's base salary, depending on the
attainment of various performance objectives and
payable only ifas determined in accordance with
the Company achieves at least 101%objective formula or standard adopted by the Compensation Committee as part
of the results forecastperformance goals for each such year. The Employment Agreement also
provides for Mr. Kaul's participation in its approved budget; a payment to a trust on behalfthe Long-Term Incentive Plan for Rakesh
K. Kaul. That plan provides for the purchase by Mr. Kaul of Mr. Rosenfeld of 916,6671,510,000 shares of
Common Stock in lieu of a cash payment of $1,564,000 to which he was
previously entitled in connection with a change in control of the Company 666,667at their fair market value; an option expiring March
7, 2006 for the purchase of such3,020,000 shares being fully vestedof 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 $7.00 per share
during a 91-day period 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 set by the Compensation Committee (the
"Performance Year Option"); and four options expiring March 7, 2002, and the
remainingfirst three anniversaries thereof, respectively, for the purchase of 250,000
shares of such
shares to vest in equal annual installments over three years (such unvested
shares to be forfeitable if Mr. Rosenfeld's employment is terminatedCommon Stock each, granted by the
Company with cause or by him without good reason)NAR (the "Six", with the vested shares
distributable to Mr. Rosenfeld at the end of the employment term or the earlier
termination of his employment;"Seven," "Eight" and
"Nine Year Stock Options"). The Employment Agreement also provides for the grant
of registration rights under the Securities Act of 1933, as amended ("Securities(the
"Securities Act"), for shares of Common Stock owned by Mr. Rosenfeld. On October 25, 1991, NAR entered intoKaul. Pursuant to the
Employment Agreement, the Company agreed to make Mr. Kaul whole, on an agreementafter-tax
basis, for any loss realized on the sale of his residence at the time he joined
the Company. The Company also provides Mr. Kaul with an automobile allowance of
$2,500 per month and related benefits. In the event that Mr. Rosenfeld pursuantKaul's employment
is actually or constructively terminated by the Company other than for cause, he
will be entitled
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16
for a 12-month period commencing on the date of his termination to which he may purchase from NAR(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 October
25, 1996,
10
13
1,213,605 sharessuch termination). In addition, Mr. Kaul will 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 Common Stock at a price per share of $2.00 (subject to
adjustment) plus 10% of $2.00 pertermination and (ii) for the year
through the date onin which Mr. Rosenfeld
effects such purchase. This agreement was amended on September 23, 1992 to
provide that NAR would grant to Mr. Rosenfeld in March 1993 (which it did) the
right to purchaseKaul's employment is terminated, an additional 1,213,605 sharesbonus equal to his
annual base salary for such year, pro-rated to reflect the portion of Common Stock atsuch year
during which Mr. Kaul is employed. Mr. Kaul's employment will be deemed to be
constructively terminated by the Company in the event of a price
sharechange in control (as
defined in the Employment Agreement), the Company's bankruptcy, a material
diminution of $1.50 (subjecthis 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 terminates other than as a
result of a termination by the Company, Mr. Kaul will not be entitled to adjustment) plus 10% perany
payment or bonus, other than any short-term bonus he is entitled to receive from
the year from September 1992
through the exercise period.prior to termination.
In connection with the Stock Purchase Agreement, ondated October 14, 1991,
between the Company and NAR, the Company entered into Executive Employment
Agreements with each of Messrs.
Michael P. Sherman, Wayne P. Garten and Edward J. O'Brien. These Executive
Employment Agreements were essentially the same as such officers' existing
employment agreements except that they provide for cash payments on October 25,
1991 to Messrs. Sherman Garten and O'BrienGarten. These agreements, which were
renewable annually for one year renewable terms, provided for base salaries of
$281,714, $221,621$246,500 and $90,000,
respectively, and contributions to a trust on behalf of such officers of 156,979
shares, 147,812 shares and 60,000 shares of the Company's Common Stock,
respectively, in connection with the change in control effected by NAR pursuant
to the Stock Purchase Agreement and in lieu of their right to receive a cash
change in control payment. Pursuant to the terms of the trust, such Common Stock
was distributed to each such officer during fiscal 1993.$260,000, respectively. In 1991, Messrs. Sherman Garten
and O'BrienGarten were
also granted certain registration rights under the Securities Act with respect
to the shares of Common Stock granted to each of them. In 1993,
Messrs.them in that year. Mr. Sherman
resigned as Executive Vice President-Corporate Affairs, General Counsel and
Garten's employment agreements were renewed for one year
renewable terms.Secretary effective April 23, 1996 and Mr. Garten also resigned as Executive
Vice President and Chief Financial Officer effective as of August 22, 1996. See
"EXECUTIVE COMPENSATION AND OTHER INFORMATION -- CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
COMPENSATION OF DIRECTORS
During 1993,1996, Directors who were not employees of the Company or its
subsidiaries were paid a retainer at an annual rate of $30,000,$15,000, plus an
additional $1,000$500 for each Board meeting and $500$250 for each committee meeting
attended.attended and were entitled to share equally 1% of the pre-tax profits of the
Company. Officers and employees of the Company or its subsidiaries receive no
remuneration for their services as Directors. During 1997, Directors who are not
employees of the Company or its subsidiaries will be paid a retainer at an
annual rate of $15,000, plus an additional $500 for each Board meeting and $250
for each committee meeting attended and all Directors who are not employees of
the Company or its subsidiaries will share equally 1% of the pre-tax profits of
the Company. During fiscal 1993,1996, the Company provided $50,000 of term life
insurance for each Director of the Company. In
addition, theThe Company issues stock options for 20,000 shares to new Directors of
the Company pursuant to the 1993 Directors Option Plan, and indemnifies its
Directors to the extent permitted by applicable law. See "ELECTION OF
DIRECTORS -- Other Information".OTHER INFORMATION" AND "EXECUTIVE COMPENSATION AND OTHER
INFORMATION -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Messrs. Destino, Laikind, Quasha and Wright and Ms. Long, who served as
members of an ore ad hoc Search Committee of the Directors to find a replacement
for Jack E. Rosenfeld as President and Chief Executive Officer of the Company,
each (with the exception of Mr. Quasha) received options to purchase 5,000
shares of Common Stock for a period of five years at an exercise price of
$1.4375 per share, the market price of the Common Stock on February 9, 1996. See
"EXECUTIVE COMPENSATION AND OTHER INFORMATION -- CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
13
17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended January 1, 1994,December 28, 1996, the Compensation Committee
of the Board of Directors of the Company consisted of Jeffrey Laikind
(Chairman), Ralph Destino, Elizabeth Valk Long, Alan G. Quasha and Geraldine
Stutz. 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, except that
after Mr. Rosenfeld's resignation effective December 30, 1995, Mr. Quasha served
as interim Chief Executive Officer between January 1, 1996 and March 6, 1996 but
received no compensation for such services. Ms. Stutz and Mr. Laikind have
resigned as directors of the Company. In addition, duringDuring the 1996 fiscal year, ended January 1, 1994, no executive
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. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is empowered to make recommendationsHowever, Mr. Quasha
has an indirect material interest in Quadrant which renders management
consulting, business advisory and investment banking services to the BoardCompany for
an annual fee of Directors with respect to remuneration arrangements$750,000 per year. Such fee was waived for members of
management.the 1996 fiscal year
and will be waived for the 1997 fiscal year.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Stock Option and Executive Compensation Committee ("the Compensation(the "Compensation
Committee"), currently consisting of four 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 Compensation Committee is currently composedBoard of five outside directors. During 1991 and 1992,Directors has accepted the Compensation Committee
conducted a complete reassessment of the executive compensation philosophy and
program. New compensation plans resulted from this review and were introduced in
1993. TheCommittee's
recommendations for 1996 compensation.
Executive Compensation Committee is pleased with the results of the new plans
and feels that they are having the desired effect on the Company.
11
14
EXECUTIVE COMPENSATION PHILOSOPHYPhilosophy
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 performance.retention. The philosophy emphasizes recognition of
achievement at both the Company and individual level. A significant portion of
incomecompensation 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.
BASE SALARIES
In accordance14
18
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 Compensation Committee's policy,Company for executive talent, individual
performance, and the Company's
intention isCompany performance-related factors used to position executive salaries at median compensation levels for
comparable positions and responsibilities at the companies included in the
performance chart as of 1992, as well as medians reported in published
compensation surveys of the retail industry dating from 1992. Base salaries for
Messrs. Sherman, Garten, O'Brien and Ullman were $223,942, $225,144, $138,027
and $110,962, respectively and are generally competitive with salaries for
comparable individuals at the companies included in the performance chart.determine
annual incentive awards. Salaries for Messrs. Sherman and Garten were set
pursuant to employment agreements entered into by them with the Company in
October 1991 and renewed in June 1993. Individual salaries1995. Messrs. Sherman and Garten resigned effective
April 23, 1996 and August 22, 1996, respectively. Mr. Kaul joined the Company
effective March 7, 1996. Salary for other executives may be higher or lower than
the median based on several equally weighted factors: the qualifications and
experience of the executive, the executive's level of responsibility within the
organization, pay levels at companies who competeMr. Kaul was set pursuant to an employment
agreement entered into by him with the Company for executive
talent, individual performance, and the Company performance-related factors used
in determining annual incentive awards.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.
Base salaries for the Named Executives have been adjusted for
each of the past three years.
Salaries are budgeted to be increased by 5% on average for Hanover
employees in 1994. This rate of increase is in line with competitive standards
in the retail sector over the past three years, and consistent with anticipated
salary increases in the industry for 1994.
ANNUAL INCENTIVE AWARDSAnnual 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 220270 executives and key managers are eligible to
participate in the annual bonusincentive 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 30%45% of salary.
The target bonus for Mr. Kaul is 100% of salary while his maximum bonus is 125%
of salary. Target bonus awards as a percentopportunities for Messrs. Bulle and Lutz are 50% of
salary for Messrs. Sherman, Garten, O'Brien
and Ullman were 30%, 30%, 25% and 25%, respectively, in 1993.
12
15while maximum bonuses are 100% of salary.
Participants are eligible to receive an annual bonus depending upon the
extent to which certain goals are achieved. PerformanceAs in past years, performance goals
for 19931996 were based on Earnings Before Interest and Taxes (EBIT), Operating
Profit, 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. In order for the Named
Executives to receive a bonus, the Company must achieve a threshold EBIT level.
Once the threshold EBIT level is achieved, bonus awards for the Named Executives
depend 60%75% on Company or business unit EBIT performance and 40%25% on the achievement of the customer
satisfaction and performance-related goals set forthexplained above. Actual bonus levels vary depending upon the
degree of achievement in relationship to the performance goals.
Although the Compensation Committee reserves the right to pay
discretionary bonuses, they did not do so in 1993 and have announced their
intention not to do so in 1994.
Payouts of awards have been determined based on the Company's performance
during fiscal 1993. 75%1996. 100% of awards made under the bonus plan are currently paid
in cash
while the remaining 25% is paid in stock which vests over three years.cash. Since the Company did not meet its aggressive EBIT goal,goals in 1995 and
1994 there were no bonus payouts based on corporate performance.performance in any of those
years. Award payouts for other participants during 1996 ranged from 0% to 23%58% of
salary depending on the performance of individuals' areaseach individual's area of responsibility.
LONG-TERM INCENTIVE AWARDS15
19
Long-Term Incentive Awards
1993 Executive Equity Plan
The Company has adopted the 1993 Executive Equity Incentive Plan to provideterminated 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 encouragesencouraged executives to acquire and retain
a significant ownership stake in the Company. Under the plan, executives arewere
given an opportunity to purchase shares of
Company Common Stock with up to 80% of the
purchase price financed with a full recourse Company loan. For each share of
stock an employee purchases,purchased, he/she receivesreceived an option to acquire two additional
shares of Company Common Stock, which vestsvest after three years and expiresexpire after six years.
By creating this opportunity, the Company encouragesencouraged executives to own Company Common
Stock thereby aligning executives' interests with those of the shareholders.Shareholders. The
number of shares offered for purchase to each executive and the corresponding
number of tandem options increasesincreased with the executive's level of responsibility
within the organization.
Approximately 4112 executives who are currently eligible to participateemployed by the Company are
participating in the 1993 Executive Equity Incentive Plan. During 1993,1996, the
Compensation Committeeand Special Committees made awards to selected participants under
the plan based primarily on the executives' levels of responsibility within the
organization and desired levels of equity ownership amongrelative to other executives
in the Company. The Named Executives elected to purchase
180,000 shares of Common Stock during 1993 and, in accordance with the terms and
conditions of the plan, were awarded 360,000 tandem options to purchase shares
of Common Stock. AllIn aggregate, executives of the Company elected to purchase a
total of 704,830247,000 shares of Common Stock during 19931996 and were awarded a total of
1,409,660444,000 tandem options to purchase shares of Common Stock.
1993 ALL-EMPLOYEE EQUITY INVESTMENT PLANAll-Employee Equity Investment Plan
The Company considers every one of its employees critical to the long-term
success of the Company. Thus, the Company has adopted the 1993 All-Employee Equity Investment Plan terminated in accordance with
its terms in February 1996. The 1993 All Employee Equity Investment Plan was
offered to all employees to provide all employeesthem an opportunity to own stock and share
in the upside potential of the Company. The plan givesgave employees an opportunity
to purchase shares of Company Common Stock at a 40% discount to the market price.
Employees maycould finance their purchase through a short-term, full recourse
Company loan which is paid withcould be repaid through payroll deductions over the course of
a year.
By giving the opportunity to buy Company shares to allApproximately 240 employees who are currently employed by the Company believes that it is creating an atmosphere that promotes teamwork among
its employees who will identify with the interests of the shareholders.
Approximately 2,600 employees are
eligible to participateparticipating in the 1993 All-Employee Equity Investment Plan, including allconstituting
those employees of the Company who havehad been employed by the Company for at least
one year and arewere not eligible to participate in the 1993 Executive Equity
Incentive Plan. Thus, the Named Executives 13
16
arewere not eligible to participate in
the All-Employee Equity Investment Plan. During 1993, 4401996, approximately 189
employees elected to purchase 211,88380,500 shares of Common Stock in accordance with
the plan.
1996 Stock Option Plan
The Compensation Committee has approved share purchase
opportunity guidelines for 1994 which are based primarily on employee's levels
of responsibility within the organization. It is the intentpurpose of the Compensation
Committee1996 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 performance-based. The 1996 Stock
Option Plan provides that newoptions may be granted for terms of not more than
after 10 years.
16
20
All employees are eligible to participate in the 1996 Stock Option Plan.
During 1996, approximately 3,445,000 options to purchase opportunities will be made annually for the next two
years. At the endshares of two years, the Compensation Committee will determine the
appropriateness of continuingCommon Stock
were granted to 75 employees in accordance with the plan.
CHIEF EXECUTIVE OFFICER COMPENSATIONStock Options
The Company occasionally grants stock options to selected employees
pursuant to its Stock Option Plan. During 1996, no such options were granted.
Chief Executive Officer Compensation
The incentive elements of the compensation paid to Mr. RosenfeldKaul during 19931996
were determined on the same basis as that discussed above for all Named
Executives. Mr. Rosenfeld'sKaul's 1996 base salary (pro rated for the portion of the year
during which he worked for the Company) was $500,000$417,981 pursuant to an employment
agreement entered into by him and the Company in October 1991. Mr. Rosenfeld
participated in the annual incentive plan in whichMarch 1996 while his target bonus was
25% of
salary and had the ability to earn a bonus equal to 100% of salary. Since the
Company did not meet its aggressive EBIT goal in 1993, there were no bonus
payouts based on corporate performance.$349,188. In addition,1996, Mr. Rosenfeld elected to
purchase 75,000Kaul purchased 1,510,000 shares of Common Stock underpursuant
to the Company's 1993 Executive EquityLong-Term Incentive Plan which was Mr. Rosenfeld's maximum allowable purchase under the
plan. Under the termsfor Rakesh K. Kaul and conditions of the plan, Mr. Rosenfeld received two tandem
options for each share purchased for a total of 150,0003,020,000 options. In
determining the terms of Mr. Rosenfeld'sKaul's compensation, the Compensation Committee
noted the agreementoption agreements between NAR and Mr. Rosenfeld which is discussed
under the caption Certain Agreements and Related Transactions elsewhere in this
proxy statement.
NONDEDUCTIBLE COMPENSATIONKaul.
Nondeductible Compensation
The Compensation Committee currently does not anticipate that non-performance basedpayments of
compensation as defined in 1997 to the Named Executives which are subject to the $1 million
deduction limit under Section 162(m) of the Omnibus
Budget Reconciliation ActInternal Revenue Code of 1993, paid to the named executives in this proxy
statement1986, as
amended (the "$1 Million Limit"), will exceed $1 million in 1994, and consequently1997. Consequently,
the Company expects to enjoy full deductibility of its executive compensation program. However,
because the Omnibus Budget Reconciliation Act of 1993 is newly enacted and only
proposed regulations are available, no assurance canprogram to be given that the Company
will preserve the full deductibility of all executive compensation.fully deductible.
Respectfully Submitted,
The Stock Option and Executive
Compensation Committee
Mr. Jeffrey Laikind, Chairman
Mr. Ralph Destino
Ms. Elizabeth Valk Long (Chairman)
Mr. Jan P. du Plessis
Mr. Alan Quasha
Ms. Geraldine Stutz
The Compensation Committee's recommendations for compensation for 1993 were
accepted by the Board of Directors.
1417
1721
PERFORMANCE GRAPH
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.
INDEXEDCOMPARISON OF FIVE YEAR CUMULATIVE TOTAL SHAREHOLDER RETURNRETURN*
AMONG HANOVER DIRECT, INC., THE COMPANY,S&P 500 STOCK INDEX
AND A PEER GROUP
AND S&P 500
DECEMBER 31, 1988 -- DECEMBER 31, 1993
DIRECT
MEASUREMENT PERIOD HANOVER MARKETING
(FISCAL YEAR COVERED) DIRECT PEER GROUP S&P 500
--------------------- -------- ---------- -------
1988Hanover Direct Marketing S&P
Direct Peer Group 500
----------- ------------------ --------
1991 100 100 100
1989 85 148 132
1990 28 104 127
1991 52 154 166
1992 145 218 179112 105 108
1993 328 375 197288 192 118
1994 171 142 120
1995 74 115 165
1996 49 153 203
-* 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, Gander Home Shopping Network, Land'sMountain, Lands' End, Lillian Vernon, QVC
Network, Spiegel and Williams
Sonoma.
NOTE: Assumes $100 invested on December 31, 19881991 in the Company's Common Stock,
S&P 500 FundsStock Index and the Direct Marketing Peer Group and that dividends
of each are reinvested quarterly; December 19931996 figures assume September
19931996 shares outstanding for the Direct Marketing Peer Group given data
availablity.availability.
18
22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Nomination and Standstill Agreement, Messrs. Kruttschnitt,
Hakman and 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 15
18
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. See "ELECTION OF FOUR DIRECTORS -- AGREEMENTS WITH RESPECT TO
NOMINATION OF DIRECTORS".
On October 25, 1991, the Company and NAR consummated the transactions
contemplated by the Stock Purchase Agreement and NAR acquired 49.8% of the
voting securities of the Company. Pursuant to the Stock Purchase Agreement, NAR
and its affiliates also agreed not to increase their beneficial ownership to
more than 50.1% of the voting stock outstanding of the Company for a period of
three years following October 25, 1991 without the approval of at least a
majority of the Directors of the Company unaffiliated and unassociated with and
not designated by NAR. However, NAR may exceed such percentage limitation under
certain circumstances, including as a result of acquisitions (i) in certain
circumstances, through the conversion or exercise of warrants or other
securities; (ii) directly from the Company or any subsidiary of the Company or
from any holder of at least five percent of the Common Stock; and (iii) after
certain Third Party Acquisitions (as defined in the Stock Purchase Agreement).
See "ELECTION"PRINCIPAL HOLDERS OF FOUR DIRECTORS -- AGREEMENTS WITH RESPECT TO NOMINATIONVOTING SECURITIES OF DIRECTORS".THE
COMPANY."
Since January 1993, pursuant to a consulting arrangement, Quadrant, an
affiliate of NAR, renders management consulting, business advisory and
investment banking services to the Company for an annual fee of $750,000 per
year. Approximately $85,000Such $750,000 fee for the 1996 fiscal year was waived by Quadrant and will
be waived for the 1997 fiscal year.
In November 1995, Intercontinental Mining & Resources Incorporated ("IMR"),
an affiliate of NAR, purchased the Company's 9.25% Senior Subordinated Notes due
August 1, 1998 (the "9.25% Notes") from a third party in connection with the
refinancing of the Company's indebtedness under the $75 million secured credit
facility (the "Credit Facility") with Congress Financial Corporation
("Congress"). The Company paid NAR a commitment fee of $105,000 upon the signing
of a repurchase and option agreement and a fee of $210,000 (1.5% of the
outstanding principal amount of the 9.25% Notes acquired by IMR) upon the
funding, as well as all expenses incurred by NAR in performing its obligation.
The Company extended by two years the terms of the warrants to purchase
5,033,735 shares held by NAR and IMR to August 1, 1998. The Company also agreed
to indemnify NAR against any and all claims or losses asserted against it or
incurred by it relating to the transactions contemplated by the repurchase and
option agreement. The Company repaid the 9.25% Notes from the proceeds from the
distribution to the Shareholders of the Company, the holders of the Company's 6%
Series A Convertible Additional Preferred Stock and the holders of the Company's
Series B Convertible Additional Preferred Stock, of transferable subscription
rights (the "Rights") to subscribe for and purchase additional shares of Common
Stock in 1996 (the "1996 Rights Offering"). Due to the Company's continued
operating losses, the Company requested that NAR advance up to $25 million
against all the Rights distributed to it and/or its commitment to purchase all
of the unsubscribed shares. In May 1996, NAR advanced the Company $25 million
under a promissory note. Under the provisions of such promissory note, the
Company repaid NAR the $25 million advance plus accrued interest upon the
closing of the 1996 Rights Offering. In addition, in connection with the 1996
Rights Offering, NAR agreed pursuant to a standby purchase agreement between it
and the Company to exercise all rights distributed to it and to purchase all
unsubscribed shares in the 1996 Rights Offering. NAR received Rights entitling
it to purchase 24,015,964 shares in the 1996 Rights Offering and exercised such
Rights. In addition, NAR purchased 6,898,866 shares not subscribed by
shareholders in the 1996 Rights Offering pursuant to the standby purchase
agreement and received approximately $.5 million as a fee. NAR acquired an
aggregate of 30,914,830 shares of the Company's Common Stock at an aggregate
cost to it of approximately $31,842,275 in the 1996 Rights Offering. The
proceeds of the 1996 Rights Offering were used by the Company: (i) to repay the
$14 million principal amount of 9.25% Notes held by IMR plus accrued interest,
(ii) to repay the $25 million principal
19
23
amount advanced under the promissory note by NAR plus accrued interest and (iii)
to repay approximately $9 million under the Credit Facility with Congress.
In September 1996, IMR loaned the Company $10 million as evidenced by a
subordinated promissory note in the amount of $10 million (the "IMR Promissory
Note"). Such loan bore interest at 1.5% above the prime rate, and was due on
November 14, 1996. If it were not repaid before May 15, 1997 and if the Rights
Offering were not consummated, the IMR Promissory Note was convertible at the
option of NAR into shares of Common Stock at the lower of the fair market value
thereof on the date of execution or the then current fair market value thereof.
The IMR Promissory Note was subordinate to the Credit Facility and excluded from
the working capital covenant calculation. By agreement dated March 26, 1997, NAR
irrevocably agreed with the Company, subject to and upon the consummation of the
1997 Rights Offering, to exercise at the Subscription Price that number of
rights distributed to it for the purchase of shares of Common Stock having an
aggregate purchase price of at least $10 million. NAR agreed to pay for and the
Company agreed to accept as payment for the aggregate purchase price of such
shares at the closing of the 1997 Rights Offering the surrender by NAR of the
IMR Promissory Note and the cancellation of the principal amount thereof. Such
surrender and cancellation took place at the closing of the 1997 Rights Offering
on June 6, 1997.
On December 19, 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 which were previously issued
under the Credit Facility. The Company paid a facility fee equal to 5% of the
principle amount of the letters of credit as well as all other fees incurred in
connection with providing the facility. The letters of credit will expire on
February 18, 1998 and carry an interest rate (currently 11.75%), which is 3.5%
above the prime rate, payable only on amounts drawn under the letters of credit.
In the event that the Company has not paid in full, by the expiration date, any
outstanding balances under the letters of credit, Richemont shall have 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 is
subordinate to the Credit Facility. 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.
Geraldine Stutz, a director of the Company until December 31, 1996,
assisted the Company during fiscal 19931996 in the redesign and relocation of the
Gump's retail store. As compensation for such services during fiscal 1996, the
rentalCompany paid Ms. Stutz $125,000 plus out-of-pocket expenses.
Each of propertythe Named Executives other than Rakesh K. Kaul and Ralph Bulle
purchased shares of Common Stock pursuant to an operating leasethe 1993 Executive Equity Incentive
Plan. Pursuant to a partnership in which the
wifesuch plan, each such executive financed 80% of the President and Chief Executive Officerpurchase
price of the shares he purchased with a full recourse Company Jack E.
Rosenfeld, is a partner. Mr. Rosenfeld is also a Directorloan due in 1999.
These loans, which bear interest at 5.54%, were outstanding at the end of fiscal
1996 and, as of June 9, 1997, were outstanding in the Company.following amounts: Wayne
P. Garten, former Executive Vice President -- Chief Financial Officer, $100,000;
Michael P. Sherman, former Executive Vice President -- Corporate Affairs,
$100,000; and Michael Lutz, Executive Vice President -- Operations, $44,000.
In May 1993,addition, the Company refinanced its revolving credit facility that had
been previously provided by a subsidiaryloaned $50,000 to each of NAR with a new three-year $40
million facility with an independent financial institution. In October 1993, the
Company increased the maximum credit available to $52.5 million. A subsidiary of
NAR provided a secured limited guarantee of $10 million which allowed the
Company to borrow in excess of its availability based on a formula, up to the
facility's limit. This limited guarantee was reduced by approximately $5.1
millionMr. Sherman and Mr.
Garten during the fourth quarter of 1993. The guarantee was eliminatedfiscal 1994, which sums were outstanding at
the end of fiscal 1995, and an additional $100,000 and $125,000 to Mr. Sherman
and Mr. Garten, respectively, during the first six months of fiscal 1995, which
sums
20
24
were also outstanding at the end of fiscal 1995. Such loans bore interest at
rates ranging from 6.00% to 8.00% per annum, were due on demand and were secured
by a pledge of 150,000 and 151,623 shares of Common Stock (the "Pledged Shares")
by Mr. Sherman and Mr. Garten, respectively. As of April 30, 1996 and June 29,
1996, Mr. Sherman and Mr. Garten had accumulated indebtedness represented by
notes made by them in the first quarteraggregate principal amount of 1994 based$140,998 and $127,547,
respectively (the "Notes"). The loans were made to permit such executive
officers to satisfy liabilities incurred by them in connection with the payment
of tax obligations associated with the distribution to them of the Pledged
Shares from a trust in fiscal 1993. In connection with such indebtedness, the
Company entered into a letter agreement with each of them, dated as of April 18,
1996 (the "Letter Agreement"). The Letter Agreement provided for the
satisfaction of their indebtedness to the Company by transferring the Pledged
Shares on such date on or before July 1, 1996 as the Company shall have
selected. The shares (valued at the closing price thereof on the Company's 1993 operating results.American Stock
Exchange on the date of transfer) were to be applied first to the payment of any
accrued interest owed on the respective Notes, and the remainder was to be
applied toward the payment of the outstanding principal amount under the Notes.
Any remaining balance owed on the Notes by Mr. Sherman and Mr. Garten was to be
canceled. The Company was also to pay each of them a "gross-up" payment in the
amount necessary to make each of them whole for any increase in Federal and
state income taxes resulting from the inclusion in gross income of the canceled
indebtedness and gross-up payment. Such loans were forgiven in connection with
the resignations of such officers in exchange for the transfer of the Pledged
Shares to the Company.
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 due in four equal consecutive annual
installments of $349,187.50, together with interest thereon. The loan is secured
by a pledge of such shares. The loan, which bears interest at 6.84%, was
outstanding at the end of fiscal 1996 and, as of June 9, 1997, was outstanding
in the amount of $1,396,750. The Company has agreed to pay Mr. Kaul, on or
before each annual due date, a bonus equal to the amount of the principal and/or
interest due on the 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.
The foregoing relationships and transactions have been approved by the
Board or a committee of the Board or by the Shareholders and, to the extent that
such arrangements are available from non-affiliated parties, are on terms no
less favorable to the Company than those available from non-affiliated parties.
16
19
PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY
The following table sets forth information concerning each person or group
of affiliated persons known by management to own beneficially more than five
percent (5%) of the Company's Common Stock as of April 25, 1994.June 9, 1997. The information
given is based on information furnished to the Company by such persons or groups
and statements filed with the Commission.
21
25
SHARES OF
COMMON PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK CLASS(1)
- - ------------------------------------------------------------------ --------------------------------------------------------------------------- ------------ ----------
Alan G. Quasha(2)................................................. 51,895,263(3)(7) 53.2%................................................ 94,782,555 (3,4) 46.1%
c/o Quadrant Management, Inc.
127 East 73rd Street
New York, NYNew York 10021
NAR Group Limited(2).............................................. 51,875,263(3) 53.2%Limited................................................ 94,762,555 (3) 46.1%
c/o P.M.M. Services (B.V.I.) Limited
P.O. Box 438 Road Town, Tortola,
British Virgin Islands
Richemont Finance S.A. .......................................... 40,687,970 (5) 20.3%
35 Boulevard Prince Henri
L 1724 Luxembourg
Theodore H. Kruttschnitt(4)....................................... 5,320,887(5) 5.8%Kruttschnitt......................................... 10,074,000 (6) 5.0%
1350 Bayshore Boulevard
Suite 850
Burlingame, CACalifornia 94010
Jack E. Rosenfeld................................................. 3,849,598(6) 4.2%
c/o Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, NJ 07087
- - ---------------------------------
(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 92,437,720200,031,580 shares of Common
Stock outstanding as of April 25, 1994.June 9, 1997.
(2) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 1518 to the Statement on Schedule 13D filed by NAR on
March 8, 1994June , 1997 with the Commission.Commission, as supplemented by additional information
provided to the Company by NAR. All of the shares beneficially owned by NAR
could also be deemed to be owned beneficially by certain other persons
including Alan G. Quasha, Intercontinental Mining & Resources Incorporated,
QCCQuadrant Capital Corp. and Richemont, each of which disclaims beneficial
ownership of securities of the Company owned of record by any of the others.
(3) Includes warrants to purchase 5,033,7355,646,490 shares exercisable within 60 days
granted to NAR or its affiliates.
(4) Includes options to purchase 20,000 shares exercisable within 60 days by Mr.
Quasha.
(5) Information concerning the number of shares beneficially owned has been
taken from the Statement on Schedule 13D filed by Richemont on June , 1997
with the Commission.
(6) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 1013 to the Statement on Schedule 13D filed by Mr.
Kruttschnitt on April 19, 1994June , 1997 with the 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 indicates that Mr. Kruttschnitt is a member of a group
which includes Mr. J. David Hakman, who beneficially owns 13,4341,003,875 shares, and Mr. Edmund R.
Manwell, who beneficially owns 13,62820,579 shares.
In addition, Messrs. Hakman and ManwellFebruary 1995, the Company issued an aggregate of 634,900 shares of
Series B Preferred to the shareholders of Aegis Safety Holdings, Inc. in
connection with the acquisition by the Company from such shareholders of all the
outstanding capital stock of Aegis. The outstanding shares of Series B Preferred
were convertible as of June 9, 1997 into an aggregate of 953,303 shares of the
Company's Common Stock. Assuming that all the shares of Series B Preferred had
been so converted as of June 9, 1997, the Aegis
22
26
shareholders would have been granted options to purchase
15,000 and 20,000 shares, respectively,owned less than 1% of the Company's outstanding Common
Stock which options are
exercisable within 60 days.
(5) Includes options to purchase 15,000 shares exercisable within 60 days.
(6) Includes options to purchase 2,627,210 shares exercisable within 60 days.
(7) Includes options to purchase 20,000 shares exercisable within 60 days by Mr.
Quasha.
17
20on a fully diluted basis at such date.
SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANY
The following table sets forth information concerning the beneficial
ownership of the Company's Common Stock by each Director, nominee for Director
and executive officer and by all executive officers and Directors as a group as
of April 25, 1994.June 9, 1997. The information given is based on information furnished to the
Company by such persons and statements filed with the Commission.
SHARES OF COMMON PERCENT OF
COMMON STOCK CLASS(1)
---------------------- ----------
Ralph Destino..................................................... 20,000(4)Destino....................................................... 25,000 (4) *
J. David Hakman(2)................................................ 28,434(5).................................................. 1,003,875 *
Rakesh K. Kaul...................................................... 1,887,500 (5) *
S. Lee Kling...................................................... 18,511Kling........................................................ 37,750 *
Theodore H. Kruttschnitt(2)....................................... 5,320,887(5) 5.8%
Jeffrey Laikind................................................... 82,000(4) *......................................... 10,074,000 5.0%
Elizabeth Valk Long............................................... 30,000(4)Long................................................. 70,300 (4) *
Edmund R. Manwell (2)............................................. 33,628(4)Manwell(2)................................................ 20,579 *
Shailesh J. Mehta................................................... -- --
Jan P. du Plessis................................................... -- --
Alan G. Quasha (3)................................................ 51,895,263(4) 53.2%
Jack E. Rosenfeld................................................. 3,849,598(6) 4.2%
Geraldine Stutz................................................... 59,649(4) *Quasha(3)................................................... 94,782,555 (6) 46.1%
Howard M. S. Tanner................................................. -- --
Robert F. Wright.................................................. 70,000(4)Wright.................................................... 108,050 (4) *
Larry J. Svoboda.................................................... 152,000 *
Michael P. Sherman................................................ 236,798(7)Lutz........................................................ 27,284 *
Wayne P. Garten................................................... 227,976(8) *
Edward J. O'Brien................................................. 84,060 *
David E. Ullman................................................... 5,253 *Ralph Bulle......................................................... -- --
Directors and executive officers as a group (15(16 persons)............ 10,086,794(9) 11.4%13,552,818 (7) 6.7%
- - ---------------------------------
* 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 92,437,720200,031,580 shares of Common
Stock outstanding as of April 25, 1994.June 9, 1997.
(2) See Note (4)(5) under "PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY."
(3) See Note (2) under "PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY."
All of the shares beneficially owned by NAR could also be deemed to be
beneficially owned by Alan G. Quasha, due to his shared investment and
voting power with NAR.
(4) Includes options to purchase 20,00025,000 shares exercisable within 60 days.
(5) Includes options to purchase 15,000377,500 shares exercisable within 60 days.
(6) Includes options to purchase 2,627,21020,000 shares exercisable within 60 days.
(7) Includes options to purchase 31,500 shares exercisable within 60 days.
(8) Includes options to purchase 32,150 shares exercisable within 60 days.
(9) Excludes 46,841,52894,762,555 shares and warrants and options for 5,053,735to purchase 5,646,490 shares
beneficially owned by NAR which could also be deemed to be beneficially
owned by Alan G.Mr. Quasha. Includes options to purchase 20,000 shares exercisable
within 60 days by Alan G.Mr. Quasha. None of the Company's Directors or executive
officers owns any shares of Series B Preferred.
23
27
APPROVAL OF AN AMENDMENT TO THE 1996 STOCK OPTION PLAN
GENERAL
The Board of Directors is submitting an amendment to the 1996 Stock Option
Plan (the "Stock Option Plan") described herein to the Shareholders for their
approval. The purpose of the Stock Option Plan is to advance the interests of
the Company and its Shareholders by providing 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 options. The Board of Directors believes that
the Stock Option Plan will benefit the Company and its Shareholders and, thus,
recommends approval of the amendment to the Stock Option Plan.
GENERAL INFORMATION
Effective Date and Duration of the Stock Option Plan. The Stock Option
Plan became effective on the date of its adoption by the Board of Directors,
subject to approval 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 of
Directors may determine.
Administration. The Stock Option Plan is administered by a committee of
the Board of Directors (the "Committee") that consists of at least two directors
and that satisfies the provisions of Rule 16b-3 of the Securities and Exchange
Act of 1934 or any successor rule, and Section 162(m) (4) (C) (i) of the
Internal Revenue Code of 1986, as amended (the "Code"). Such Committee will
select persons to receive awards under the Stock Option Plan, determine the
amount of each award and the terms and conditions governing such award,
interpret the Stock Option Plan and any awards granted thereunder, establish
rules and regulations for the administration of the Stock Option Plan and take
any other action necessary or desirable for the administration of the Stock
Option Plan.
Underlying Shares Awarded Under the Stock Option Plan. The maximum number
of shares of Common Stock that may be delivered or purchased under the Stock
Option 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 2,855,000
shares of Common Stock were granted under the Stock Option Plan in 1996 while
approximately 520,000 shares have been granted to date in 1997.
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, expiration
or forfeiture of an award or otherwise, certain shares were no longer subject to
an award under the Stock Option Plan, such shares would again be available for
future award under the Stock Option Plan.
Amendment of the Stock Option Plan. The Stock Option 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
Stock Option Plan or if the failure to obtain such approval would adversely
affect the compliance of the Stock Option Plan with Rule 16b-3 under the
Securities Exchange Act of 1934 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 Stock Option Plan.
24
28
AWARDS AVAILABLE UNDER THE PLAN
Pursuant to the Stock Option Plan, options to purchase Common Stock of the
Company ("Options") may be granted to any employee.
Any Options awarded under the Stock Option Plan, which will be evidenced by
option agreements, will be either Options intended to qualify as incentive stock
options under Section 422 of the Code ("Incentive Stock Options") or Options not
intended to so qualify ("Nonstatutory Stock Options").
The aggregate fair market value of Common Stock for which a participant is
granted Incentive Stock Options that first become exercisable during any given
calendar year will be limited to $100,000. To the extent such limitation is
exceeded, an Option will be treated as a Nonstatutory Stock Option.
As originally provided, no employee may be granted Options during any
consecutive 12-month period on more than 250,000 shares of Common Stock, subject
to adjustment 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. The Company has approved
an amendment to the Stock Option Plan which provides that Options may not be
granted to any employee covering more than 500,000 shares of Common Stock during
any 12-month period. Such amendment is subject to Shareholder approval. See
"PLAN AMENDMENT."
An Option may be granted for a term not to exceed 10 years from the date
such Option is granted. An Incentive Stock Option awarded to an employee who
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company may not, in any event, be exercisable after the
expiration of five years from the date such Incentive Stock 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 Stock Option Plan within the first year after the date of
grant of such Option.
The price for which shares of Common Stock may be purchased upon the
exercise of an Option will 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 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. For purposes of the Stock Option Plan,
the fair market value of a share of Common Stock on a specified date will be the
closing price of the Common Stock on such date on the American Stock Exchange
or, if no such sale of Common Stock occurs on such date, the fair market value
of the Common Stock as determined by the Committee in good faith.
Full payment of the purchase price for shares of Common Stock purchased
upon exercise, in whole or in part, of an Option granted under the Stock Option
Plan must be made at the time of such exercise. The Stock Option Plan provides
that the purchase price may be paid in cash or in shares of Common Stock valued
at their fair market value on the date of purchase. 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 purchase
price and applicable withholding taxes, and any other documents that the
Committee deems necessary.
During a participant's lifetime, Options granted under the Stock Option
Plan will be exercisable only by such participant. Furthermore, any Options
granted under the Stock Option Plan may not be transferred, other
25
29
than by will or by the laws of descent and distribution. Notwithstanding the
foregoing, a participant may transfer a Nonstatutory Stock Option granted under
the Stock Option Plan to his or her spouse, children and/or grandchildren, 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 the transferee's lifetime.
If a participant's employment terminates by reason of death, permanent
disability, or retirement at or after age 65, the participant (or the
participant's estate in the event of the participant's death) may, within 90
days following such termination, 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 termination of employment. If a
participant's employment terminates for any other reason, the participant may,
within 30 days following such termination, 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 termination of
employment.
The foregoing summary is qualified in its entirety by reference to the full
text of the Stock Option Plan, which is set forth as Annex A to this Proxy
Statement.
FEDERAL INCOME TAX CONSEQUENCES
The Federal income tax consequences of Options granted under the Stock
Option Plan are as described below.
The grant of an Incentive Stock Option will have no immediate tax
consequences to a participant. If a participant exercises an Incentive Stock
Option and does not dispose of the acquired shares within two years after the
grant of the Option nor within one year after the date of the transfer of such
shares to the participant (a "disqualifying disposition"), the participant will
realize no compensation income and any gain or loss realized on a subsequent
disposition of such will be treated as long-term capital gain or loss. For
purposes of computing the participant's alternative minimum taxable income,
however, the Option generally will be treated as if it were a Nonstatutory Stock
Option.
If a participant makes a disqualifying disposition, 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 shares 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.
The grant of a Nonstatutory Stock Option will have no immediate tax
consequences to a participant. The exercise of a Nonstatutory Stock 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.
26
30
PLAN AMENDMENT
The Company has amended the Stock Option Plan to provide that Options may
not be granted to any employee covering more than 500,000 shares of Common Stock
(rather than 250,000 shares) during any 12-month period. Such amendment is shown
in bold-faced type in the full text of the Stock Option Plan attached hereto as
Annex A.
VOTE REQUIRED
The foregoing amendment to the Stock Option Plan is subject to approval by
the affirmative vote of the holders of a majority of the combined voting power
of all shares of Common Stock and Series B Preferred present in person or by
proxy and entitled to vote at the Annual Meeting voting together as a single
class, with each share of Common Stock having one vote and each share of Series
B Preferred having 1.5 votes.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "IN FAVOR OF" THE ADOPTION
OF THE AMENDMENT TO THE 1996 STOCK OPTION PLAN AS SET FORTH ABOVE.
RATIFICATION OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
The Board of Directors of the Company and NAR, the holder of a majority of
the Company's Common Stock, approved on September 26, 1996, pursuant to Sections
242 and 228 of the Delaware Business Corporation Law, an amendment to the
Company's Certificate of Incorporation increasing the number of shares of Common
Stock which the Company shall have authority to issue from 150,000,000 to
225,000,000 shares. This action became effective upon the filing of a
Certificate of Amendment to the Certificate of Incorporation on October 31,
1996. The increase in authorized shares was necessary to provide enough shares
of Common Stock for issuance pursuant to options and warrants previously granted
by the Company to directors and officers, including options to purchase an
aggregate of 7,530,000 shares granted by the Company on August 23, 1996 to the
Company's President and Chief Executive Officer, Rakesh K. Kaul. See "EXECUTIVE
COMPENSATION AND OTHER INFORMATION -- STOCK OPTIONS." The additional shares of
Common Stock not used for such purpose, together with the shares of Common Stock
held in treasury, are available for general corporate purposes, as determined by
the Board of Directors, without (except as otherwise required by law) further
authority from shareholders.
As of September 26, 1996, the record date for the action, there were
143,044,492 shares of Common Stock and 634,900 shares of Series B Preferred
outstanding. The approval of the holders of a majority of the outstanding shares
of Common Stock and Series B Preferred, voting together as a single class, was
necessary to adopt the amendment to the Certificate of Incorporation. Each
outstanding share of Common Stock was entitled to one vote on the proposal to
adopt the amendment and each outstanding share of Series B Preferred was
entitled to 1.5 votes on the amendment. NAR, as the holder of 78,004,954 shares
of Common Stock, or a majority of the voting power of the Common Stock and the
Series B Preferred voting together as a class, on such date, therefore, had the
requisite power to approve the amendment by written consent. Such consent was
executed and delivered on September 26, 1996. Ratification of such action is now
being sought in accordance with the AMEX's requirements for the holding of a
meeting and the solicitation of proxies with respect thereto. Under Delaware
law, shareholders who do not consent to the amendment do not have appraisal
rights with respect to the shares held by them.
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31
VOTE REQUIRED
The foregoing amendment to the Certificate of Incorporation is subject to
ratification by the affirmative vote of the holders of a majority of the
combined voting power of all shares of Common Stock and Series B Preferred
present in person or by proxy and entitled to vote at the Annual Meeting voting
together as a single class, with each share of Common Stock having one vote and
each share of Series B Preferred having 1.5 votes.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "IN FAVOR OF" THE
RATIFICATION OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION AS
SET FORTH ABOVE.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Arthur Andersen & Co.LLP as independent certified public accountants of the
Company for the fiscal year ending December 31, 1994.27, 1997. Although the selection of
auditors does not require ratification, the Board has directed that the
appointment of Arthur Andersen & Co.LLP be submitted to Shareholders for ratification
because management believes this matter is of such significance as to warrant
Shareholder participation. If Shareholders do not 18
21
ratify the appointment, the
Board of Directors, after review by the Audit Committee, will consider the
appointment of other independent certified public accountants.
Representatives of Arthur Andersen & Co.LLP will be present at the Annual
Meeting and will be afforded the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the combined voting
power of all shares of Common Stock and Series B Preferred present in person or
by proxy at the Annual Meeting and voting together as a single class, with each
share of Common Stock having one vote and each share of Series B Preferred
having 1.5 votes, is required to ratify and approve the selectionappointment of auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION
AND APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN & CO.LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTSAUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1994.27, 1997.
SHAREHOLDER PROPOSALS FOR THE 19951998 ANNUAL MEETING
Shareholder Proposalsproposals intended to be presented at the 19951998 Annual Meeting
of Shareholders of the Company must be received by the Company no later than
March 31, 1995January , 1998 for inclusion in the Company's proxy material for that meeting.
28
32
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 proxiesproxy and acting
thereunder will have discretion to vote on such matters in accordance with their
own judgment.
By Order of the Board of Directors
MICHAEL P. SHERMAN/s/ EDWARD J. O'BRIEN
EDWARD J. O'BRIEN
Secretary
Dated: May 16, 1994June 23, 1997
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED JANUARY 1, 1994,DECEMBER 28, 1996, AS AMENDED, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION MAY BE OBTAINED 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 ANY SUCH PERSON SOLICITED HEREUNDER BY
WRITING TO: MICHAEL P. SHERMAN, SECRETARY,JEANNE MITCHELL, PUBLIC RELATIONS ASSISTANT, HANOVER DIRECT, INC.,
1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087.
1929
22
ATTACHMENT33
ANNEX A
ARTICLE SIXTH OF THE COMPANY'S
CERTIFICATE OF INCORPORATION
SIXTH:HANOVER DIRECT, INC.
1996 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE. The businesspurpose of this Hanover Direct, Inc. 1996 Stock Option
Plan (the "Plan") is to advance the interests of Hanover Direct, Inc. (the
"Company") and affairsits shareholders by providing employees of the CorporationCompany and its
subsidiaries with a larger personal and financial interest in the success of the
Company through the grant of stock options.
2. ADMINISTRATION. The Plan shall be managedadministered by or
undera committee (the
"Committee") consisting of at least two members of the direction of a Board of Directors consistingof 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, and the provisions of Section 162(m)(4)(C)(I) of the Internal
Revenue Code of 1986, as amended (the "Code"). 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 of
the Company, whether or not a director.
4. THE SHARES. The shares that may be delivered or purchased under the
Plan shall not exceed an aggregate of 7,000,000 shares (subject to adjustment
pursuant to Section 7) of common stock, par value $.66- 2/3 per share, of the
Company (the "Common Stock"). Such shares of Common Stock shall be set aside out
of the authorized by 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 of
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
Code ("Incentive Stock Options") or Options not intended to so qualify
("Nonstatutory Stock Options"). Each option agreement shall identify the
Option as an Incentive Stock Option or as a Nonstatutory Stock Option.
(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
A-1
34
possessing more than 10% of the total combined voting power of all classes
of stock of the Company 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.
For purposes of the Plan, the fair market value of a share of Common Stock
on a specified date shall be the closing price on such date of the Common Stock
on the American Stock Exchange or, if no such sale of Common Stock occurs of
such date, the fair market value of the Common Stock as determined by the
Committee in good faith
(c) PER-PARTICIPANT LIMIT. No participant may be granted Options
during any consecutive 12-month period on more than 500,000 shares of
Common Stock (subject to adjustment pursuant to Section 7).
(d) LIMITATION ON INCENTIVE STOCK OPTIONS. 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 shall be limited to $100,000. To
the extent such limitation is exceeded, an Option shall be treated as a
Nonstatutory Stock Option.
(e) 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, a participant may transfer any
Nonstatutory Option granted under the Plan to the participant's spouse,
children and/or grandchildren, 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).
(f) TERM AND EXERCISABILITY OF OPTIONS. Options may be granted for
terms of not less than three
nor more than twelve directors,10 years and shall be exercisable in accordance with
such terms and conditions as are set forth in the exactoption agreements
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 be
exercisable after the expiration of five years from the date such Incentive
Stock Option is granted.
Except as otherwise provided in Section 5(g), no Option granted under the
Plan shall be exercisable by a participant during the first year after the date
of grant of such Option.
(g) TERMINATION OF EMPLOYMENT. An Option may not be exercised
following a participant's termination of employment except as set forth in
this Section 5(g).
(i) DEATH, DISABILITY, OR RETIREMENT. If a participant's
employment terminates by reason of death, permanent disability (within
the meaning of Section 22(e)(3) of the Code), or retirement at or after
age 65, the participant (or the participant's estate in the event of the
participant's death) may, within 90 days following such termination,
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 termination of employment.
(ii) OTHER REASONS. If a participant's employment terminates for
any reason other than death, permanent disability, or retirement at or
after age 65, the participant may, within 30 days
A-2
35
following such termination, 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 termination of
employment.
In no event may an Option be exercised after the expiration of the term of
such Option.
(H) 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 in shares of Common Stock valued at
their fair market value on the date of purchase. 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 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. Any election made by a participant subject to Section 16(b) of the
Exchange Act to have shares of Common Stock withheld in satisfaction of the
withholding requirement with respect to such participant's option shall be
subject to the approval of the Committee and shall be in accordance with the
requirements of Rule 16b-3 under such Act.
7. CHANGES IN CAPITAL STRUCTURE, ETC. In the event that the shares of
Common Stock, as presently constituted, shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or another corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or if the number of directorssuch shares shall be increased through the
payment of a stock dividend or a dividend on shares of Common Stock or rights or
warrants to purchase securities of the Company shall be made, then there shall
be substituted for or added to each share of Common Stock theretofore
appropriated or thereafter subject or which may become subject to an Option the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be so changed, or for which each such
share shall be exchanged, or to which each such share shall be entitled, as the
case may be, and references herein to shares of Common Stock shall be deemed to
be determinedreferences to any such stock or other securities as appropriate. Outstanding
Options shall also be appropriately amended as to price and other terms as may
be necessary to reflect the foregoing events. In the event there shall be any
other change in the number or kind of the outstanding shares of Common Stock or
of any stock or other securities into which such shares shall have been changed
or for which it shall have been exchanged, then if the Committee shall, in its
sole discretion, determine that such change equitably requires an adjustment in
any Option theretofore granted or which may be granted under this Plan, such
adjustments shall be made in accordance with such determination. Fractional
shares resulting from timeany adjustment in Options pursuant to timethis Section 7 may
be settled in cash or otherwise as the Committee shall determine. Notice of any
adjustment shall be given by resolution adoptedthe Company to each holder of an Option which shall
have been so adjusted and such adjustment (whether or not such notice is given)
shall be effective and binding for all purposes of this Plan.
A-3
36
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 entire Boardissued
and outstanding shares of Directors.Common Stock. The directorsPlan shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. Fromterminate 10 years from
the date of incorporation, Class III
directorsits adoption or such earlier date as the Board may determine. Any
option outstanding under the Plan at the time of its termination shall serveremain 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 one-year term, Class II directorsparticipant, impair such participant's rights under any
Option previously granted under the Plan.
10. LEGAL AND REGULATORY REQUIREMENTS. No Option shall servebe 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 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 a
two-year termwhich an Option is exercised may bear such legends
and Class I directors for a three-year term. At each annual
meeting of stockholders beginningstatements 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.
11. GENERAL PROVISIONS.
(a) Nothing contained in 1994, successorsthe Plan, or in any option granted pursuant
to the class of directors
whose term expires at that annual meetingPlan, shall be elected for a three-year
term. Ifconfer upon any employee any right to the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in each class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting for
the year in which his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, registration, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of directors may be filled by a
majoritycontinuation
of the Board of Directors then in office,employee's employment or services.
(b) The Plan and any other vacancy
occurring in the Board of Directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Any director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessors.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacanciesall options made and other features of such directorshipsactions taken thereunder shall
be governed by and construed in accordance with the termslaws of this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
Sixth unless expressly provided by such terms.
The election of directors of the Corporation need not be by ballot unless
the Bylaws so require. The Board of Directors and stockholders may hold their
meetings and have an office or offices outside the State of
Delaware, ifNew York.
A-4
37
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
HANOVER DIRECT, INC.
The undersigned hereby appoints Larry J. Svoboda and Edward J. O'Brien
proxies, each with power to act without the Bylaws so provide.
Notwithstanding any other provisionand with power of
this Certificate of Incorporation,
no amendment of this Certificate of Incorporation shall amend, alter or repeal
any provision of this Article Sixth unless such amendment shall be approved bysubstitution, and hereby authorizes them to represent and vote, as designated
on the holders ofother side , all the shares of stock of Hanover Direct, Inc. standing in
the Corporation representing at least 75% of
the votes entitled to be cast thereon at a meeting of the stockholders duly
called for the consideration of such amendment.
A-1
23
HANOVER DIRECT, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 22, 1994
The undersigned hereby appoints Jack E. Rosenfeld and S. Lee Kling proxiesname of the undersigned with full power of substitution, to vote all shares of Common
Stock of Hanover Direct, Inc., a Delaware corporation (the "Company"),powers which the undersigned is entitled to votewould possess
if present at the Annual Meeting of Shareholders of the Company to be held at the St. Regis Hotel, Two East 55th Street at Fifth
Avenue, New York, New York on Wednesday, June 22, 1994July
10, 1997, at 9:30 a.m. local time,
or at any adjournments or postponements thereof, with all the powers the
undersigned would have if personally present on the following matters:adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
(Continued, and to be marked, dated and signed, on reverse side)
24
This proxy, when properly executed, will be voted38
| Please Detach and Mail in the manner directed herein
by the undersigned shareholder. If no direction is indicated,Envelope Provided |
V V
________________________________________________________________________________
A [ X ] Please mark your votes as in this proxy will
be voted "FOR" the proposal to amend Article SIXTH of the Company's Certificate
of Incorporation, "FOR" the election of all nominees for directors, "FOR" the
appointment of Arthur Andersen & Co., and the proxies will use their discretion
with respect to any matters referred to in Item 4.
1. Proposal to amend Article SIXTH of the Company's Certificate of
Incorporation.
_____ FOR _____ AGAINST _____ ABSTAIN
2A. If proposal 1 above is approved: Election of the following nominees
as Directors to serve until the next Annual Meeting of Shareholders:
_____example.
FOR all nominees _____ AGAINSTlisted WITHOUT AUTHORITY
at the right (except as marked to vote for all nominees
_____ ABSTAIN
NOMINEES: Ralph Destino, J. David Hakman, S. Lee Kling, Theodore H.
Kruttschnitt, Jeffrey Laikind, Elizabeth Valk Long, Edmund R.
Manwell, Alan G. Quasha, Jack E. Rosenfeld, Geraldine Stutz
and Robert F. Wright.
2B. If proposal 1 above is not approved: Election ofto the following
nominees as Directors to serve until the 1997 Annual Meeting of
Shareholders:
_____ FOR all nominees _____ AGAINST all nominees _____ ABSTAIN
NOMINEES: Edmund R. Manwell, Alan G. Quasha, Geraldine Stutz and
Robert F. Wright.
INSTRUCTIONS:contrary) listed at right
1. ELECTION OF [ ] [ ]
DIRECTORS
(INSTRUCTION: To withhold authority to vote for any individual nominee, noted in 2A or 2B above, write
that nominee's name in space provided below.)
________________________________________________________________________________
NOMINEES: Ralph Destino
J. David Hakman
Rakesh K. Kaul
S. Lee Kling
Theodore H. Kruttschnitt
Elizabeth Valk Long
Edmund R. Manwell
Shailesh J. Mehta
Jan P. du Plessis
Alan G. Quasha
Howard M.S. Tanner
Robert F. Wright
FOR AGAINST ABSTAIN
2. Ratification and approval of certain amendments to [ ] [ ] [ ]
the space provided.
________________________________________Company's 1996 Stock Option Plan.
3. ProposalRatification of the adoption of the amendment to ratifythe [ ] [ ] [ ]
Company's Certificate of Incorporation.
4. Ratification and approveapproval of the appointment by the Board of Directors of Arthur [ ] [ ] [ ]
Andersen & Co.LLP as the Company's independent auditors
for the fiscal year ending December 31, 1994.
_____ FOR _____ AGAINST _____ ABSTAIN
4.27, 1997.
5. In their discretion, the above-named proxiesProxies are authorized to vote in
accordance with their own judgment upon such other
mattersbusiness as may properly come before the Annual Meeting or adjournments or postponements thereof.
The undersigned hereby acknowledges receipt of the accompanying Notice of
Annual Meeting of Shareholders and Proxy Statement and hereby revokes any Proxy
or Proxies heretofore given.
You may strike out the persons named as Proxies and designate a person of your
choice, and may send this Proxy directly to such person.meeting.
PLEASE SIGN, DATE, AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE(S) __________________________________________ DATE __________
__________________________________________ DATE ___________________________________________ DATED:_____________________, 1997
NOTE: Please complete, date and sign exactly as your name appears hereon.above. When shares are held by joint
tenants, both should sign. When signing as attorney, administrator, executor,
guardian,administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate official,
please add your title. If shares are held
jointly, each holder should sign.name by president or other
authorized officer.
________________________________________________________________________________