HAMPSHIRE GROUP, LIMITED
215 Commerce Boulevard
Anderson, SC 29625
October 17, 2002
Dear Fellow Stockholders:
We cordially invite you to attend a Special Meeting of Stockholders of
Hampshire Group, Limited on Thursday, November 21, 2002. The meeting will begin
at 10:00 a. m., at JPMorgan, 1411 Broadway, Floor 5 - Boardroom, New York, New
York.
The official Notice of Special Meeting, proxy statement and the
accompanying proxy are enclosed with this letter. The Notice of Special Meeting
and Proxy Statement describe the formal business to be transacted at the Special
Meeting.
This Special Meeting of Stockholders is being held in order to vote upon
the Hampshire Group, Limited Management Incentive Bonus Plan.
The vote of every Stockholder is important. To ensure proper representation
of your shares at the meeting, please complete, sign and date the enclosed Proxy
Card and return it as soon as possible, even if you currently plan to attend the
Special Meeting. This will not prevent you from voting in person but will ensure
that your vote will be counted if you are unable to attend.
This Proxy Statement and the accompanying proxy are first being mailed to
stockholders on or about October 17, 2002. Your prompt submission of a proxy
card will be greatly appreciated.
Sincerely,
/s/ Ludwig Kuttner
---------------------------------
Ludwig Kuttner
Chairman of the Board, President
and Chief Executive Officer
HAMPSHIRE GROUP, LIMITED
215 Commerce Boulevard
Anderson, SC 29625
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 21, 2002
Notice is hereby given that a Special Meeting of Stockholders of Hampshire
Group, Limited, a Delaware corporation (the "Company"), will be held at 10:00
A.M. on Thursday, November 21, 2002, at JPMorgan, 1411 Broadway, Floor 5 -
Boardroom, New York, New York for the following purpose:
To vote on the proposal to approve the
Hampshire Group, Limited Management Incentive Bonus Plan.
Stockholders of record at the close of business on September 30, 2002, will
be entitled to receive notice of, and to vote at, the Special Meeting, or any
postponements or adjournments thereof.
By Order of the Board of Directors,
/s/ Charles W. Clayton
-------------------------
Charles W. Clayton
Secretary
Anderson, South Carolina
October 17, 2002
A PROXY CARD IS ENCLOSED. TO ENSURE THAT YOUR SHARES WILL BE VOTED AT THE
SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT AS SOON AS POSSIBLE. IF YOU RETURN YOUR SIGNED PROXY CARD, YOU RETAIN
YOUR RIGHT TO VOTE IF YOU ATTEND THE MEETING.
HAMPSHIRE GROUP, LIMITED
215 Commerce Boulevard
Anderson, SC 29625
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
The accompanying Proxy is solicited on behalf of the Board of Directors of
Hampshire Group, Limited (the "Company") for use at Special Meeting of
Stockholders (the "Special Meeting") to be held on November 21, 2002, at 10:00
A.M., JPMorgan, 1411 Broadway, Floor 5 - Boardroom, New York, New York, or at
any and all adjournments or postponements thereof, for the purposes set forth
herein and in the accompanying Notice of Special Meeting. This Proxy Statement
and the accompanying Proxy are being mailed on or about October 17, 2002 to
Stockholders of record as of September 30, 2002 (the "Record Date"). All
expenses incident to the preparation and mailing of, or otherwise making
available to the Stockholders the Notice, Proxy Statement and Proxy, are to be
paid by the Company. In addition to solicitation by mail, arrangements will be
made with brokerage houses and other custodians, nominees and fiduciaries to
send material to their principals and the Company may reimburse them for their
expenses in so doing.
PURPOSE OF SPECIAL MEETING
At the Special Meeting, action will be taken on the following proposal:
To vote on the proposal to approve the
Hampshire Group, Limited Management Incentive Bonus Plan.
PROXY INFORMATION
Please complete, date and sign the enclosed Proxy and return it to the
principal executive office of Hampshire Group, Limited, at 215 Commerce
Boulevard, Anderson, South Carolina 29625, Attention: Secretary.
Properly signed and dated Proxies received by the Company's Secretary prior
to or at the Special Meeting will be voted as instructed thereon, or in the
absence of such instructions will be voted as follows:
FOR the proposal to approve the
Hampshire Group, Limited Management Incentive Bonus Plan.
1
Any Stockholder giving the Proxy enclosed with this statement may cast a
vote in person by revoking the Proxy at the Special Meeting. Any Proxy may be
revoked by notice in writing to the Secretary at any time prior to the Special
Meeting.
The Company may only send one copy of the Proxy Statement to multiple
shareholders that share the same address. Upon written or oral request, the
Company will promptly supply such stockholders with additional copies of the
Proxy Statement. Such requests should be made by contacting the Company's
offices at 215 Commerce Boulevard, Anderson, SC 29625, Attention: Secretary. If
stockholders sharing the same address are receiving multiple copies of annual
reports or proxy statements, such stockholders can request delivery in the
future of only a single copy of the annual reports or proxy statements by
contacting the Company at the above address.
SHAREHOLDERS ENTITLED TO VOTE; QUORUM
Holders on record of the Common Stock, par value $.10 (the "Common Stock")
at the close of business on the Record Date are entitled to notice of and to
vote at the Special Meeting.
The presence in person or by proxy of holders of record of a majority of
the outstanding shares of Common Stock is required for a quorum to transact
business at a Special Meeting; but if a quorum should not be present, the
Special Meeting may be adjourned from time to time until a quorum is obtained.
Under applicable Delaware law, abstentions will be counted for purposes of
determining the existence of a quorum, but broker non-votes will not.
OUTSTANDING VOTING STOCK
As of the Record Date, there were 4,717,219 shares of Common Stock,
eligible to vote at the Special Meeting of Stockholders. Holders of Common Stock
are entitled to one vote for each share of stock held on the Record Date.
2
PROPOSAL
PROPOSAL TO ADOPT THE HAMPSHIRE GROUP, LIMITED
MANAGEMENT INCENTIVE BONUS PLAN
Effective as of January 1, 2002, the Board of Directors adopted the
Hampshire Group, Limited Management Incentive Bonus Plan (the "Bonus Plan") and
directed that the Bonus Plan be submitted to a vote of the shareholders. If the
Bonus Plan is approved by the shareholders, then, in accordance with Section
162(m) of the Internal Revenue Code the Company would receive a federal income
tax deduction with respect to that portion of the award ("Bonus Award") under
the Bonus Plan paid to the Chief Executive Officer and any of the four other
most highly compensated executive officers which does not exceed $2,000,000
individually for any fiscal year of the Company ("Performance Period"). The
primary purpose of the Bonus Plan is to provide incentives to senior executives
of the Company and its subsidiaries to meet or exceed certain corporate
performance goals, including levels of profitability, and thereby increase
shareholders values. In addition, the Bonus Plan is intended to encourage the
executives to remain in the employ of the Company and its subsidiaries. In
adopting the Bonus Plan, it is the objective of the Board of Directors to enable
the Company to obtain federal tax deductions in connection with Bonus Award
payments to the Company's most highly compensated executive officers. The Bonus
Plan will be administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee will select Bonus Plan participants
who will be eligible to earn Bonus Awards under the Bonus Plan. The full text of
the Bonus Plan is set forth in Appendix A to this proxy statement and the
following description of the Bonus Plan is qualified in its entirety by the text
of the Bonus Plan.
The Bonus Plan provides that prior to or within 90 days following the
commencement of each "Performance Period" (fiscal year of the Company), the
Committee may select such key employees as it deems appropriate for
participation in the Bonus Plan and set the performance goals for such
individuals. Bonus Plan participants will be entitled to earn a Bonus Award of
incentive compensation based on the attainment of certain performance goals,
selected by the Committee, during the Performance Period. Performance goals will
consist of one or more of the following: earnings or earnings per share;
earnings before income taxes; EBITDA or EBITDA per share; net earnings or net
earnings per share (profit after taxes); inventory levels or inventory turnover;
total net sales; total gross profit or total gross profit percentage; operating
cash flow or free cash flow; accounts receivable (measured in terms of days
sales outstanding); operating expenses; operating income; return on equity;
pre-tax and pre-interest expense return on average invested capital, which may
be expressed on a current value basis; profit before taxes or profit after taxes
less the Company's cost of capital; or sales growth (gross sales or net sales).
Any such goals may be new goals for every Performance Period or may consist of
ongoing incentive arrangements approved for an indefinite number of Performance
Periods until changed and may relate to one or any combination of two or more of
corporate, group, unit, division, affiliate or individua1 performance criteria.
3
No participant may receive a Bonus Award of more than $2,000,000 for any
Performance Period. The Committee is authorized at any time during or after a
Performance Period, in its sole and absolute discretion, to reduce or eliminate
a Bonus Award payable to any participant for any reason, including changes in
the position or duties of the participant, whether due to termination of
employment (including death, disability or termination with or without cause) or
otherwise. No reduction in a Bonus Award made to any participant shall increase
the amount of the Bonus Award to any other participant.
Following the completion of each Performance Period, the Committee will
certify in writing the degree to which performance goals were achieved and the
Bonus Awards were earned and are payable to participants. Each participant will
receive payment of his or her Bonus Award as soon as practicable following the
determination of such award by the Committee.
If the employment of a participant terminates by reason of death or
disability, then the Committee may, in its sole discretion, determine to pay all
or a prorated portion of any Bonus Award relating to the Performance Period in
which the participant's employment terminates. Unless such a determination is
made, upon a participant's termination of employment an account of death or
disability, the participant shall immediately cease participation in the Bonus
Plan and shall not be entitled to earn a Bonus Award for such Performance
Period. If a participant's employment with the Company terminates for any reason
other than death or disability during any Performance Period, then the
participant will immediately cease participation in the Bonus Plan and will not
earn a Bonus Award for such Performance Period.
The Board of Directors may at any time terminate, suspend or modify the
Bonus Plan. Amendments to the Bonus Plan will require approval of the
shareholders of the Company only if such approval is necessary to maintain the
Bonus Plan in compliance with the requirements of Section 162(m) of the Internal
Revenue Code, its successor provisions or any other applicable law or
regulation.
No Bonus Award may be earned during any suspension of the Bonus Plan or
after its termination.
The Bonus Plan became effective as of January 1, 2002, subject to approval
of the shareholders. If approval of the shareholders is not obtained, then the
Bonus Plan shall terminate and have no effect.
Although any employee that the Committee determines to be a key employee is
eligible to participate in the Bonus Plan, it is currently anticipated that
payments under the Bonus Plan will be made only to certain senior management.
There are approximately 4 members of senior management that will be eligible for
participation in the Bonus Plan.
4
NEW PLAN BENEFITS
Because the payment of annual Bonus Awards is contingent upon the
achievement of certain performance goals as of the end of the Company's fiscal
year, the Company cannot determine the amounts that will become payable for the
fiscal year 2002 or in the future. The table below sets forth the amounts which
would have been earned under the Bonus Plan for the Company's 2001 fiscal year,
based on the performance goals and award levels set for the Company's 2002
fiscal year if the Bonus Plan had been in effect for the Company's 2001 fiscal
year.
Name and Position Dollar Value Number of Units
- ----------------- ------------ ---------------
Ludwig Kuttner $ 828,240 N/A
Chairman, President and Chief Executive Officer
Eugene Warsaw $1,100,026 N/A
President and CEO, Hampshire Designers, Inc.
Corey Greenberg $ 667,872 N/A
President, Designers Original and Segue Limited,
Divisions of Hampshire Designers, Inc.
Michael Culang $ 757,190 N/A
President, Hampshire Brands, Division of
Hampshire Designers, Inc.
Note: Only the described employees have been selected by the Compensation
Committee to participate in the Bonus Plan for 2002.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF
THE HAMPSHIRE GROUP, LIMITED MANAGEMENT INCENTIVE BONUS PLAN.
5
Beneficial Ownership
The table on the following page sets forth certain information regarding
the ownership of Common Stock of the Company as of the Record Date by: (a) each
person known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock; (b) each director and named executive
officer of the Company designated in the section of the Proxy Statement
captioned "Executive Officers of the Registrant"; and (c) all directors and
executive officers of the Company as a group. Except as otherwise indicated, all
persons listed therein have: sole voting power and investment power with respect
to their shares of Common Stock, except to the extent that authority is shared
by spouses under applicable law; and record and beneficial ownership with
respect to their shares of Common Stock of the Company.
BENEFICIAL OWNERSHIP TABLE
- --------------------------------------------------------------------------------
Stockholder Shares Percent
- --------------------------------------------------------------------------------
Ludwig Kuttner - Estouteville, Keene VA 22946 1,664,298(1) 35.21%
Hans W. Schmidig - Bleicherweg 39, CH-8027,
Zurich, Switzerland 481,386 10.20%
Fidelity Low-Price Stock Fund - 82 Devonshire St.,
Boston MA 02109 466,700 9.89%
Peter W. Woodworth - 702 Main Street, Winona MN 55987 327,203(2) 6.94%
Heartland Advisors, Inc. - 789 N. Water St.,
Milwaukee, WI 53202 286,500 6.07%
Charles W. Clayton 118,499(3) 2.50%
Eugene Warsaw 91,941(4) 1.95%
H. Edward Hurley 25,617(5) *
Harvey L. Sperry 24,239(5) *
William W. Hodge 7,770(5) *
Joel Goldberg 5,143(5) *
All directors and executive officers as a group
(nine persons) 2,265,030 47.43%
- --------------------------------------------------------------------------------
(1) (Ludwig Kuttner) Includes 170,018 shares purchased for the account of Mr.
Kuttner under the Company's Common Stock Purchase Plan for Directors and
Executives (the "Common Stock Purchase Plan"), 9,701 shares issuable under
presently exercisable options and 845,298 shares owned by a company
controlled by Mr. Kuttner; but does not include 188,864 shares held by his
spouse nor 90,000 shares held by their sons, as to which Mr. Kuttner
disclaims beneficial ownership.
6
(2) (Peter W. Woodworth) Does not include 71,652 shares held by his spouse and
1,000 shares held by his children, as to which Mr. Woodworth disclaims
beneficial ownership.
(3) (Charles W. Clayton) Includes 64,374 shares of Common Stock purchased for
the account of Mr. Clayton under the Common Stock Purchase Plan, 30,125
shares of Common Stock issuable under presently exercisable options.
(4) (Eugene Warsaw) Includes 53,511 shares of Common Stock purchased for the
account of Mr. Warsaw under the Common Stock Purchase Plan, 7,500 shares of
Common Stock issuable under presently exercisable options and 250 shares of
Common Stock held by his children.
(5) Includes shares of Common Stock purchased under the Common Stock Purchase
Plan for the account of Mr. Hurley-13,887, Mr. Sperry-19,876, Mr.
Hodge-4,470 and Dr. Goldberg-5,143; and shares of Common Stock issuable
under presently exercisable options by Mr. Hurley-7,500 and Mr. Hodge
3,000.
(*) Less than 1%.
NAMED EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Hampshire Group, Limited, who are elected by and
serve at the discretion of the named Board of Directors of the Company, are as
follows:
- --------------------------------------------------------------------------------
Name Age Office
- --------------------------------------------------------------------------------
Ludwig Kuttner 56 Chairman of the Board, President and Chief
Executive Officer
- --------------------------------------------------------------------------------
Eugene Warsaw 74 President and Chief Executive Officer,
Hampshire Designers, Inc.
- --------------------------------------------------------------------------------
Charles W. Clayton 64 Secretary and Treasurer
- --------------------------------------------------------------------------------
H. Edward Hurley 54 Executive Vice President, Hampshire Designers, Inc.
- --------------------------------------------------------------------------------
William W. Hodge 50 Vice President and Chief Financial Officer
- --------------------------------------------------------------------------------
Ludwig Kuttner has been Chairman of the Board of Directors of the Company
since 1979 and has served as President and Chief Executive Officer of the
Company from 1979 to 1992 and 1994 through the present. Previously, he served in
various capacities in the textile industry and as an owner and developer of real
property.
7
Eugene Warsaw has been President and Chief Executive Officer of Hampshire
Designers, Inc., a subsidiary of Hampshire Group, Limited, since 1987. Prior to
joining the Company, Mr. Warsaw served as President and Chief Executive Officer
of the Private Label Sportswear Division of Phillips-Van Heusen and President of
Sommerset Knitting Mills from 1982 to 1986.
Charles W. Clayton has been Secretary and Treasurer of the Company since
1984. He served as Vice President of Finance and Controller from 1978 to 1983
and Chief Financial Officer from 1984 to 2000. Mr. Clayton was employed
previously as an audit manager with PricewaterhouseCoopers, an international
accounting firm.
H. Edward Hurley has been Executive Vice President of Hampshire Designers,
Inc. since 1993. He served as Vice President of Operations and Controller from
1986 to 1993. Formerly, he served as Controller of the Finishing Division of
Springs Industries, Inc.
William W. Hodge has been the Vice President and Chief Financial Officer of
the Company since January 1, 2001. Prior to joining the Company, he served as
Vice President and Chief Financial Officer of American Fast Print, Limited from
1986 to 2000 and previously as an audit manager with Ernst & Young, an
international accounting firm.
8
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information regarding the compensation of
the Company's Chief Executive Officer and its four next most highly compensated
executive officers (the "Named Executive Officers") for the years 2001, 2000 and
1999.
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------
Long-Term
Compensation
------------
Annual Compensation Awards
--------------------------------- ----------
Other Annual Securities
Compensation Underlying All Other
Name and Principal Office Year Salary Bonus (1) Options Compensation
- ----------------------------------------------------------------------------------------------
Ludwig Kuttner 2001 $400,000 $ 828,240 - - $106,800(2)
Chairman, President and 2000 400,000 666,260 $26,652 - 106,800
Chief Executive Officer 1999 400,000 416,418 18,325 50,000 106,400
- ----------------------------------------------------------------------------------------------
Eugene Warsaw 2001 350,000 1,100,026 - - 474,214(2)(3)
President and CEO, 2000 350,000 199,590 2,217 - 243,400
Hampshire Designers, Inc. 1999 350,000 171,891 1,910 - 3,200
- ----------------------------------------------------------------------------------------------
Charles W. Clayton 2001 72,000 107,000 5,556 - 9,300(2)
Secretary and Treasurer 2000 144,000 180,860 9,439 5,000 16,800
(VP and CFO through 2000) 1999 149,500 98,877 6,057 15,000 16,400
- ----------------------------------------------------------------------------------------------
H. Edward Hurley 2001 147,000 275,293 - - 3,400(2)
Executive Vice President, 2000 132,500 57,100 634 5,000 3,400
Hampshire Designers, Inc. 1999 117,500 41,254 458 - 3,200
---------------------------------------------------------------------------------------------
William W. Hodge 2001 120,000 78,400 4,177 24,000 -
Vice President and
Chief Financial Officer
- ----------------------------------------------------------------------------------------------
<FN>
(1) The amounts reported represent discounts on stock purchased under the
Common Stock Purchase Plan.
(2) Pursuant to the terms of a deferred compensation plan, Messrs. Kuttner and
Clayton were awarded contributions of $100,000 and $2,500, respectively. In
addition, the Company made contributions to the Company's 401(k) Retirement
Savings Plan on behalf of Messers. Kuttner, Warsaw, Clayton and Hurley in
the amounts of $6,800, $3,400, $6,800 and $3,400, respectively.
(3) Mr. Warsaw's employment agreement provides for the payment of deferred
compensation, after retirement, in the amount of $1,350,000. In accordance
with this unfunded deferred compensation arrangement, the Company has
accrued $470,814 during 2001 and $240,000 in 2000.
</FN>
9
The following table sets forth information regarding grants of stock options
made during 2001 to each of the Named Executive Officers.
OPTIONS GRANTS IN LAST FISCAL YEAR
- ---------------------------------------------------------------------------------------
Number of Percent of Total
Securities (1) Options Granted Exercise or Grant Date
Underlying to Employees in Base Price Expiration Present
Name Options Granted Fiscal Year (Per Share) Date Value (2)
- ---------------------------------------------------------------------------------------
William W. Hodge 3,000 $8.00 12/31/06 $ 7,825
4,500 8.00 12/31/07 12,847
5,000 8.00 12/31/08 16,152
5,500 8.00 12/31/09 21,926
6,000 8.00 12/31/10 25,234
- ---------------------------------------------------------------------------------------
Total 24,000 39% $8.00 $83,984
- ---------------------------------------------------------------------------------------
<FN>
(1) The options were granted on March 1, 2001, under the Company's 1992 Stock
Option Plan at the fair market value on the date of grant. The options vest
and become exercisable as follows: 3,000, 4,500, 5,000, 5,500 and 6,000 on
December 31, 2001, 2002, 2003, 2004 and 2005.
(2) A variant of the Black-Scholes option-pricing model was used to determine
the grant date present value. In applying the model, the Company assumed a
5.12% risk-free rate of return, a 0% dividend yield, an average annualized
volatility of 21.65% and an expected term from vest of 8.32 years.
</FN>
The following table sets forth information regarding the exercise of
options during 2001 and the number and value of unexercised options held at
year-end by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 2001 OPTION VALUES
- ------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options
Shares Options at 12/31/01 at 12/31/01
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable(1)
- ------------------------------------------------------------------------------------
Ludwig Kuttner 476 $ 2,285 9,701 / 50,000 $ 6,703 / 172,233
Eugene Warsaw 14,771 85,891 7,500 / 2,500 - / -
Charles W. Clayton 4,513 25,036 30,125 / 2,500 88,409 / -
H. Edward Hurley 3,500 18,095 7,500 / 2,500 - / -
William W. Hodge - - 3,000 / 21,000 14,010 / 98,070
- ------------------------------------------------------------------------------------
<FN>
(1) The average of the closing bid and ask price of the Company's Common Stock
as reported by the NASDAQ National Market at December 31, 2001 was $12.67.
</FN>
10
EMPLOYMENT AGREEMENTS
Mr. Kuttner has an employment agreement with the Company effective January
1, 1998, which provides for an annual salary of $400,000; annual incentive
compensation equal to 7% of the net after tax earnings of the Company; and an
annual deferred compensation payment of $100,000. The employment agreement may
be terminated by the Company or Mr. Kuttner at any time. If the Company
terminates the employment agreement without cause, Mr. Kuttner would receive an
amount ("severance payment") equal to: (i) his average compensation for the five
calendar years preceding the year in which the termination occurs; (ii)
multiplied by two; and (iii) paid in 24 equal monthly installments. Mr. Kuttner
would receive an amount equal to the severance payment if he terminates his
employment within 180 days after a change of control, which would include a
merger where the Company did not survive, a sale by the Company of substantially
all of its assets, or the election of a majority of the directors who had not
been nominated by the existing board of directors. Mr. Kuttner's spouse would
receive an amount equal to the severance payment if he were to die while
employed by the Company. The Company carries insurance on the life of Mr.
Kuttner to cover such contingency.
Mr. Warsaw has an employment agreement with Hampshire Designers, Inc.
through December 31, 2002, pursuant to which he receives a salary of $350,000
per year, plus an incentive bonus of 7% of the adjusted pre-tax income of
Hampshire Designers, Inc,. The employment agreement provides for the payment of
deferred compensation after Mr. Warsaw retires in the amount of $300,000 per
year for the first two years and $250,000 per year for the next three years.
COMPENSATION OF DIRECTORS
During 2001, the outside Directors received annual director's fees of
$15,000 each. During 2001, outside Directors serving on the Audit Committee or
the Investment Committee also received $15,000 and $10,000, respectively, as
compensation for serving on each respective Committee. The executive officers
who also serve as Directors do not receive director's fees. The Company
reimburses the directors for expenses associated with attendance at the meetings
of the Board of Directors and Committees.
COMPENSATION COMMITTEE INTERLOCKS
Dr. Goldberg has served as a member of the Compensation Committee since
1998 and Mr. Sperry has served as a member of the Committee since March 2000.
Neither member of the Committee is or has been an officer or an employee of the
Company. Both Mr. Sperry and Dr. Goldberg provided consulting services to the
Company during 2001.
11
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for determining executive compensation.
COMPENSATION OF ALL EXECUTIVES. The Committee believes that, in order to
maximize the Company's profitability, the Company must attract, motivate and
retain high quality executives. To this end, the Company provides its executives
with competitive salaries and incentives, including equity-based compensation,
intended to align the interests of executives with that of the Stockholders.
ANNUAL COMPENSATION. Annual compensation for executives consists of a
salary and an incentive bonus with emphasis on lower base salary and higher
incentive bonuses. Incentive bonuses for executives of Hampshire Designers are
provided by a profit incentive plan, whereby approximately 15% of pre-tax
profits are allocated to the executives of Hampshire Designers, Inc., either in
accordance with employment agreements, or by management with the approval of the
Committee.
Incentive bonuses for Company officers, including Mr. Kuttner, are based on
annual goals established by the Committee. A major portion of the incentive
bonus is based on the Company achieving profit goals established by the
Committee. The incentive bonus paid to Mr. Kuttner for 2001 reflected the
achievement of the established goals.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Kuttner's compensation is based
on his employment agreement with the Company, which provides for an annual
salary of $400,000, annual incentive bonus compensation equal to 7% of net
after-tax earnings of the Company and an annual deferred compensation payment of
$100,000.
LONG-TERM INCENTIVE COMPENSATION. Long-term incentive compensation consists
of grants of stock options and the opportunity for key executives to use a
portion of their incentive bonuses to purchase Common Stock of the Company, at a
discount, pursuant to the Company's Common Stock Purchase Plan for Directors and
Executives. Long-term incentive compensation awards are based on the individual
responsibilities of the executive, Company financial results and financial
performance of particular profit centers. Awards of stock options by the
Committee are made on a subjective basis after the Committee's evaluation of an
executive's performance.
12
DEDUCTIBILITY OF COMPENSATION EXPENSES. Section 162(m) of the Internal
Revenue Code generally disallows a federal income tax deduction to publicly held
corporations for compensation over $1 million for its Chief Executive Officer or
any of its four other highest paid executive officers. Certain
"performance-based" compensation is not subject to the deduction limit if
certain requirements are met. The Committee intends to administer executive
compensation programs in such a way that anticipated compensation will be fully
deductible under the Internal Revenue Code, including submitting plans for
stockholder approval when necessary. However, the Committee believes that the
benefits of having flexibility in awarding cash compensation can sometimes
outweigh the lack of deductibility.
COMPENSATION COMMITTEE
DR. JOEL GOLDBERG, CHAIRMAN
HARVEY L. SPERRY
13
PERFORMANCE GRAPH
The following graph sets forth a comparison of the Company's stock
performance, the S&P 500 Composite Index and the S&P Textiles and Apparel Index,
in each case assuming an investment of $100 on December 31, 1996 and the
accumulation and the reinvestment of dividends paid thereafter through December
31, 2001. The Company chose the S&P 500 Composite Index as a measure of the
broad equity market and the S&P Textiles Index as a measure of its relative
industry performance.
[OBJECT OMITTED]
- ------------------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
----- ----- ----- ----- ----- -----
HAMP 100 138 98 65 58 95
S&P 500 100 131 166 198 178 155
Textile & Apparel 100 81 75 74 88 91
- ------------------------------------------------------------
14
OTHER MATTERS
The Company knows of no other business to be acted upon at the Special
Meeting. However, if any business is properly presented at the Special Meeting,
it is intended that the person named in such proxy in Proxy, or their
substitutes, will vote such proxy in accordance with their judgment on such
matters.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the 2003 Annual
Meeting must be received by the Company no later than December 18, 2002 to be
considered for inclusion in the Company's Proxy Statement and Form of Proxy
relating to that meeting. Such proposals should be addressed to: Hampshire
Group, Limited, Attn.: Secretary, 215 Commerce Boulevard, Anderson, SC 29625.
By order of the Board of Directors,
/s/ Ludwig Kuttner
--------------------------------
Anderson, South Carolina Ludwig Kuttner
October 17, 2002 Chairman of the Board of Directors,
President and Chief Executive Officer
===============================================================================
STOCKHOLDERS ARE URGED TO PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY. YOUR COOPERATION IS GREATLY APPRECIATED.
15
APPENDIX A
HAMPSHIRE GROUP, LIMITED
MANAGEMENT INCENTIVE BONUS PLAN
1. PURPOSE. The purpose of the Hampshire Group, Limited Management
Incentive Bonus Plan (the "Plan") is to provide incentives to the senior
executives of Hampshire Group, Limited (the "Company") and its subsidiaries to
meet or exceed certain corporate performance goals and thereby increase
shareholder value and to encourage the executives to remain in the employ of the
Company and its subsidiaries. Amounts paid pursuant to the Plan are intended to
qualify as performance-based compensation within the meaning of Section 162(m)
("Section 162 (m)") of the Internal Revenue Code, as amended (the "Code").
2. DEFINITIONS.
2.1 The capitalized terms set forth in this section and used elsewhere in
the Plan shall have the meanings attributable hereto.
a. "Award" means an award payable to a Participant pursuant to
Section 4 hereof.
b. "Board" means the Board of Directors of the Company.
c. "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan.
The members of the Committee, at the time they take any action hereunder, must
be "outside directors" within the meaning of Section 162(m).
d. "Company" means Hampshire Group, Limited, a Delaware corporation.
For purposes of the provisions of this Plan relating to employment of a
Participant with the Company, the term "Company" shall include any subsidiary of
the Company, 50% or more of the voting stock of which is directly or indirectly
owned by the Company.
e. "Disability" means a medical condition that the Committee has
determined renders a Participant unable to perform the normal duties of the
Participant's position with the Company. The Committee may, in its sole
discretion, obtain a medical opinion from a physician selected by the Committee
before any determination of Disability is made.
f. "Effective Date" means the date specified in Section 5.
g. "Eligible Employee" means any key employee of the Company or a
subsidiary thereof.
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h. "Participant" means an Eligible Employee designated by the
Committee to participate in the Plan for a designated Performance Period.
i. "Performance Period" means the Company's fiscal year.
2.2 GENDER AND NUMBER. Except when otherwise indicated by context,
reference to the masculine gender shall include, when used, the feminine gender
and any term used in the singular shall also include the plural.
3. ADMINISTRATION.
3.1 AUTHORITY OF COMMITTEE. The Committee shall administer the Plan. The
Committee's interpretation of the Plan and of any Awards made under the Plan
shall be final and binding on all persons with an interest therein. The
Committee shall have the power to establish rules to administer the Plan and to
change such rules.
3.2 INDEMNIFICATION. To the full extent permitted by law, (i) no member of
the Committee shall be liable for any action or determination taken or made in
good faith with respect to the Plan or any Award made under the Plan, and (ii)
the members of the Committee shall be entitled to indemnification by the Company
with regard to such actions.
4. AWARDS.
4.1 ALLOCATION OF AWARDS. Eligible Employees selected for participation
will be entitled to earn an award of bonus compensation based on the attainment
of certain performance goals, selected by the Committee, during Performance
Periods. Prior to or within 90 days following the commencement of each
Performance Period, the Committee shall select such Eligible Employees as it
deems appropriate for participation in the Plan and set forth in writing the
level of bonus compensation to be earned by such Participants and the
performance goals to be attained during such Performance Period. The performance
goals may consist of one or any combination of two or more of the following
performance measures: earnings or earnings per share; earnings before income
taxes; EBITDA or EBITDA per share; net earnings or net earnings per share
(profit after taxes); inventory levels or inventory turnover; total net sales;
total gross profit or total gross profit percentage; operating cash flow or free
cash flow; accounts receivable (measured in terms of days sales outstanding);
operating expenses; operating income; return on equity; pre-tax and pre-interest
expense return on average invested capital, which may be expressed on a current
value basis; profit before taxes or profit after taxes less the Company's cost
of capital; or sales growth (gross sales or net sales). Any such goals may be
new goals for every Performance Period or may consist of ongoing arrangements
approved for an indefinite number of Performance Periods until changed and may
relate to one or any combination of two or more of corporate, group, unit,
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division, affiliate or individual performance criteria. The performance goals
and Award attainment levels must be objective, such that a third party having
knowledge of the relevant facts could determine whether the performance goals
have been achieved and the level of Award earned.
4.2 ADJUSTMENTS. No Participant shall be entitled to receive an Award for
performance during any Performance Period in excess of $2,000,000. The Committee
is authorized at any time during or after a Performance Period, in its sole and
absolute discretion, to reduce or eliminate an Award payable to any Participant
for any reason, including changes in the position or duties of any Participant
with the Company or any subsidiary of the Company during the Performance Period,
whether due to any termination of employment (including death, Disability, or
termination with or without cause) or otherwise. No reduction in an Award made
to any Participant shall increase the amount of the Award to any other
Participant.
4.3 PAYMENT OF AWARDS. Following the completion of each Performance Period,
the Committee shall certify in writing the degree to which the performance goals
were attained and the Awards that have been earned by and are payable to
Participants. Each Participant shall receive payment of the Participant's earned
Award as soon as practicable following the determination in respect thereof made
pursuant to this Section 4.3. If a Participant's employment with the Company
terminates by reason of death or Disability during any Performance Period, then
the Committee, in its sole discretion, may determine to pay all or a prorated
portion of any Award relating to the Performance Period in which the
Participant's employment terminates. Unless such a determination is made, upon a
Participant's termination of employment on account of death or Disability, the
Participant shall immediately cease participation in the Plan and shall not be
entitled to earn an Award for such Performance Period. If a Participant's
employment with the Company terminates for any reason other than death or
Disability during any Performance Period, then such Participant shall
immediately cease participation in the Plan and shall not be entitled to earn an
Award for such Performance Period.
5. EFFECTIVE DATE OF THE PLAN; SHAREHOLDER APPROVAL. The Plan shall become
effective as of January 1, 2002; provided that the Plan is approved and ratified
by the shareholders of the Company at a meeting thereof held no later than
November 29, 2002. The Plan shall remain in effect until it has been terminated
pursuant to Section 8. The Plan must be reapproved by the shareholders of the
Company every five years in compliance with Treasury Regulation
1.162-27(e)(4)(vi).
6. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan shall confer upon any
Participant the right to continue in the employment of the Company or any
subsidiary or affect any right which the Company or any subsidiary may have to
terminate the employment of a Participant with or without cause.
7. TAX WITHHOLDING. The Company shall have the right to withhold from
payments under the Plan to a Participant or other person an amount sufficient to
cover any required withholding taxes.
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8. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board may at
any time terminate, suspend or modify the Plan. Amendments are subject to
approval of the shareholders of the Company only if such approval is necessary
to maintain the Plan in compliance with the requirements of Section 162(m) of
the Code, its successor provisions or any other applicable law or regulation. No
Award may be granted during any suspension of the Plan or after its termination.
9. UNFUNDED PLAN. The Plan shall be unfunded, and the Company shall not be
required to segregate any assets for payment of any Awards under the Plan.
10. OTHER BENEFIT AND COMPENSATION PROGRAMS. Neither the adoption of the
Plan by the Board nor its submission to the shareholders of the Company shall be
construed as creating any limitation on the power of the Board to adopt such
other incentive arrangements as it may deem necessary. Payments received by a
participant under an Award made pursuant to the Plan shall not be deemed a part
of a Participant's regular recurring compensation for purposes of the
termination, indemnity or severance pay law of any country and shall not be
included in, nor have any effect on, the determination of benefits under any
other employee benefit plan, contract or similar arrangement provided by the
Company or any Subsidiary unless expressly so provided by such other plan,
contract or arrangement, or unless the Committee expressly determines.
11. GOVERNING LAW. To the extent that Federal laws do not otherwise
control, the Plan and all determinations made and actions taken pursuant to the
Plan shall be governed by the laws of Delaware and construed accordingly.
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PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
HAMPSHIRE GROUP, LIMITED FOR SPECIAL MEETING OF STOCKHOLDERS
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The undersigned Stockholder(s) of Hampshire Group, Limited (the "Company"),
having received Notice of a Special Meeting of Stockholders to be held on
November 21, 2002 and the Proxy Statement accompanying such Notice, hereby
constitutes and appoints Ludwig Kuttner and Harvey L. Sperry and each of them,
with several powers of substitution, for and in the name, place and stead of the
undersigned, to attend and vote all shares of common stock of the Company, which
the undersigned would be entitled to vote at the Special Meeting, to be held at
10:00 A.M on Thursday, November 21, 2002, at JPMorgan, 1411 Broadway, Floor 5 -
Boardroom, New York, New York, or at any and all adjournments or postponements
thereof, with all power the undersigned would possess if personally present.
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Proposal: To approve the Hampshire Group, Limited, Management Incentive
Bonus Plan
|_| For |_| Against |_| Abstain
IS PROXY CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
Number of shares: __________
Dated: _______________, 2002
Signature(s)
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Please sign exactly as name(s) appear(s)
on the stock certificate. For joint
accounts, all co-owners must sign and
Executor, Administrators, Trustees, etc.
should so indicate when signing.
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