HAMPSHIRE GROUP, LIMITED
Notice of 2006
Annual Meeting
And
Proxy Statement
HAMPSHIRE GROUP, LIMITED
1924 Pearman Dairy Road - Anderson, SC 29625-1303
Phone: 864-231-1200 - Fax: 864-231-1201
April 20, 2006
Dear Fellow Stockholder:
We cordially invite you to attend the Annual Meeting of Stockholders of
Hampshire Group, Limited on Thursday, May 18, 2006. The meeting will be held at
10:00 A.M., at The Princeton Club of New York, 15 West 43rd Street, New York,
New York.
The official Notice of the Annual Meeting, Proxy Statement and the
accompanying Proxy are enclosed with this letter. The Notice of the Annual
Meeting and Proxy Statement describe the formal business to be transacted at the
meeting.
After the formal part of the meeting, members of management will be making
a presentation regarding the Company's performance for the past year and there
will be an opportunity for Stockholders to ask questions of management or to
comment on matters pertaining to the Company's operations.
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
Annual Meeting. The advance signing of your proxy card will not prevent you from
voting in person if you attend, but will ensure that your vote will be counted
if for any reason you are unable to attend.
Please, the prompt submission of your proxy card will be greatly
appreciated.
Sincerely,
/s/ Ludwig Kuttner
Ludwig Kuttner
Chairman of the Board, President
and Chief Executive Officer
HAMPSHIRE GROUP, LIMITED
1924 Pearman Dairy Road
Anderson, SC 29625-1303
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 2006
Notice is hereby given that the Annual Meeting of Stockholders of Hampshire
Group, Limited, a Delaware corporation (the "Company"), will be held at 10:00
A.M. on Thursday, May 18, 2006, at The Princeton Club of New York, 15 West 43rd
Street, New York, New York, to consider and act on the following proposals:
1. To elect five Directors to serve until the next Annual Meeting of
Stockholders; and
2. To consider and act upon any other matters that may properly come before
the meeting, or any and all postponements or adjournments thereof.
Information regarding the matters to be considered and voted upon at the Annual
Meeting is set forth in the Proxy Statement accompanying this Notice of Annual
Meeting.
Stockholders of record at the close of business on April 7, 2006, will be
entitled to receive notice of, and to vote at, the Annual 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
April 20, 2006
TO ENSURE THAT YOUR SHARES WILL BE VOTED AT THE ANNUAL
MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT AS SOON AS POSSIBLE. IF YOU RETURN YOUR
PROXY CARD, YOU RETAIN YOUR RIGHT TO VOTE AT THE MEETING.
HAMPSHIRE GROUP, LIMITED
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited on behalf of the Board of Directors of
Hampshire Group, Limited (the "Company") for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on May 18, 2006, at 10:00 A.M.,
at The Princeton Club of New York, 15 West 43rd Street, New York, New York, or
at any and all postponements or adjournments thereof, for the purposes set forth
herein. This proxy statement and the accompanying proxy are first being mailed
on or before April 21, 2006 to Stockholders of record as of April 7, 2006 (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, arrangements will be made
with brokerage houses and other custodians, nominees and fiduciaries to send
materials to their principals and the Company may reimburse them for their
expenses in so doing.
PROXY INFORMATION
Properly signed and dated proxies received prior to or at the Annual Meeting
will be voted as instructed thereon, or in the absence of such instructions will
be voted as follows:
FOR the election as Directors of the Company those five persons designated as
nominees.
Any Stockholder giving the proxy enclosed with this statement may cast a vote in
person by revoking the proxy at the Annual Meeting. However, if your shares are
held in the name of your broker, bank or other nominees, you must bring an
account statement or letter from the nominee indicating that you were the
beneficial owner of the shares on the Record Date. Any proxy may be revoked by
notice in writing to the Secretary at any time prior to the Annual Meeting.
The Company may only send one copy of the proxy statement to multiple
Stockholders 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 Hampshire Group,
Limited, Attention: Secretary, 1924 Pearman Dairy Road, Anderson, SC 29625-1303,
or by calling the Company at 864-231-1200. If Stockholders sharing the same
address are receiving multiple copies of the annual report and proxy statement,
such Stockholders can request delivery in the future of only a single copy of
the annual report and proxy statement by contacting the Company at the above
address.
SHAREHOLDERS ENTITLED TO VOTE AND QUORUM
Holders of record of the Common Stock, par value $0.10 (the "Common Stock") at
the close of business on the Record Date, April 7, 2007, are entitled to notice
of and to vote at the Annual 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 the Annual Meeting; but if a quorum should not be present, the Annual Meeting
may be adjourned from time to time until a quorum is obtained. Under applicable
Delaware law, abstentions and broker non-votes will be counted for purposes of
determining the existence of a quorum, but will not have an affect on the vote.
-1-
OUTSTANDING VOTING STOCK
As of the Record Date, there were 7,862,505 shares of Common Stock outstanding
and entitled to vote at the Annual Meeting of Stockholders. Holders of Common
Stock are entitled to one vote for each share of stock held on the Record Date.
BENEFICAL OWNERSHIP
The following table sets forth certain information regarding the beneficial
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 herein 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 such shares.
- ---------------------------------------------------------------------------------------------------
STOCKHOLDER Shares Percent (1)
- ---------------------------------------------------------------------------------------------------
Ludwig Kuttner - 627/712 Plank Road, Keene VA 22946 2,627,556 (2) 33.25%
- ---------------------------------------------------------------------------------------------------
FMR Corp. - 82 Devonshire Street, Boston MA 02109 939,557 (3) 11.95%
- ---------------------------------------------------------------------------------------------------
Royce & Associates, LLC-1414 Avenue of the Americas, New York, NY 10019 801,100 (4) 10.19%
- ---------------------------------------------------------------------------------------------------
AMVESCAP PLC - 11 Devonshire Square, London EC2M 4YR, England 533,800 (5) 6.79%
- ---------------------------------------------------------------------------------------------------
Heartland Advisors, Inc. - 789 North Water Street, Milwaukee, WI 53202 500,000 (6) 6.36%
- ---------------------------------------------------------------------------------------------------
Peter W. Woodworth - 702 Main Street, Winona, MN 55987 485,306 (7) 6.17%
- ---------------------------------------------------------------------------------------------------
Joel Goldberg 5,000 *
- ---------------------------------------------------------------------------------------------------
Michael C. Jackson - *
- ---------------------------------------------------------------------------------------------------
Harvey L. Sperry 10,000 *
- ---------------------------------------------------------------------------------------------------
Irwin W. Winter 200 *
- ---------------------------------------------------------------------------------------------------
Marc Abramson 17,704 *
- ---------------------------------------------------------------------------------------------------
Michael S. Culang - *
- ---------------------------------------------------------------------------------------------------
Jeffrey Meier - *
- ---------------------------------------------------------------------------------------------------
Eugene Warsaw 7,000 *
- ---------------------------------------------------------------------------------------------------
All directors and executive officers as a group (13 persons) 2,874,345 36.37%
- ---------------------------------------------------------------------------------------------------
<FN>
*Represents beneficial ownership of less than 1% of the outstanding shares of the Company's Common Stock.
(1) On April 7, 2006, the Record Date, there were 7,862,505 shares of Common
Stock issued and outstanding. The calculation of percentage ownership for
each listed beneficial owner is based on the number of shares issued and
outstanding on the Record Date, plus shares of Common Stock subject to
options held by such person on the Record Date and exercisable within 60
days thereafter.
(2) Ludwig Kuttner Includes 224,431 shares purchased for the account of Mr.
Kuttner under the Company's Common Stock Purchase Plan for Directors and
Executives, 40,000 shares issuable under presently exercisable options and
1,190,000 shares owned by a company controlled by Mr. Kuttner. Also
includes 377,728 shares held by his spouse and 160,000 shares held by their
sons as to which Mr. Kuttner disclaims beneficial ownership.
-2-
(3) FMR Corp. Based on information contained in the Schedule 13G/A filed with
the SEC on February 14, 2006 jointly by FMR Corp., Fidelity Management &
Research Company ("Fidelity"), Fidelity Low Priced Stock Fund, Edward C.
Johnson III, and Abigail P. Johnson, FMR Corp. is the parent company of
Fidelity and members of the Johnson family and trusts for their benefit are
the predominant owners of the voting stock of FMR Corp. According to the
Schedule 13G/A, Fidelity is the beneficial owner of 939,557 shares of
Common Stock through the Fidelity Low Priced Stock Fund. According to the
Schedule 13G/A, Edward C. Johnson III and FMR Corp., through their control
of Fidelity, each have sole power to dispose of the 939,557 shares owned by
the investment funds, but do not have or share voting power with respect to
the shares.
(4) Royce & Associates LLC Based on information contained in the Schedule 13G/A
filed with the Securities and Exchange Commission on January 26, 2006,
Royce & Associates, LLC possessed sole voting and disposition power with
respect to 801,100 shares of Common Stock.
(5) AMVESCAP PLC Based on information contained in the Schedule 13G filed with
the Securities and Exchange Commission on March 1, 2006 by AMVESCAP PLC on
its behalf and on behalf of its subsidiary, AIM Funds Management, Inc.
According to the Schedule 13G, each of AMVESCAP PLC and AIM Funds
Management, Inc. possessed sole voting and disposition power with respect
to 533,800 shares of Common Stock.
(6) Heartland Advisors, Inc. Based on information contained in the Schedule
13G/A filed with the SEC on February 3, 2006 by Heartland Advisors, Inc.
and William J. Nasgovitz. According to the Schedule 13G/A, each of
Heartland Advisors, Inc. and William J. Nasgovitz possessed sole voting and
disposition power with respect to 500,000 shares of Common Stock.
(7) Peter W. Woodworth Include 112,504 shares held by his spouse and 6,000
shares held by his children, as to which Mr. Woodworth disclaims beneficial
ownership.
</FN>
-3-
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Company's directors are elected annually and serve until the next annual
meeting and until their successors have been duly elected and qualified. The
Company's Amended and Restated By-Laws provide that the number of directors
shall be fixed from time to time by resolution of the Board of Directors. By
resolution of the Board of Directors, the number of directors has been
established as five. Therefore, at the Annual Meeting, five directors for the
Company will be elected to serve for the ensuing year and until their successors
shall be duly elected and qualified.
The Nominating Committee of the Board of Directors of the Company has nominated
Ludwig Kuttner, Joel Goldberg, Michael C. Jackson, Harvey L. Sperry and Irwin W.
Winter for election as directors at the Annual Meeting, each of whom currently
serves as a director. Should any of these nominees not remain a candidate at the
time of the Annual Meeting, proxies solicited hereunder will be voted in favor
of those nominees who do remain as candidates and may be voted for substituted
nominees.
Ludwig Kuttner Age 59 Director since 1977
Mr. Kuttner was elected Chairman of the Board in 1979 and has served as
President and Chief Executive Officer of the Company from 1979 to 1992 and from
1994 through the present. He continues to serve as Managing Member of Hampshire
Investments, Inc. and K Holdings, LLC, two investment companies. Previously, he
served in various capacities in the textile industry and as an owner and
developer of real property.
Joel Goldberg Age 62 Director since 1998
Member of the Audit, Compensation and Nominating Committees
Dr. Goldberg is a licensed organizational consultant and has been a human
resources consultant for thirty years. He is the founder and President of Career
Consultants, Inc., a human resources consulting firm. Dr. Goldberg serves on the
Board of Directors of Phillips-Van Heusen Corporation, Merrimac Industries,
Inc., Marcal Paper Company and Modell's Inc.
Michael C. Jackson Age 66 Director 1986-1996 and since 2001
Mr. Jackson is a founding member of Ironwood Partners, LLC and Housatonic Equity
Funds, two private equity investment firms. Mr. Jackson retired from Lehman
Brothers in 2004. Prior to his retirement, he was a Partner and Managing
Director of Lehman Brothers for more than 35 years.
Harvey L. Sperry Age 76 Director since 1977
Member of the Audit, Compensation and Nominating Committees
Mr. Sperry is a retired Partner of the law firm of Willkie Farr & Gallagher LLP,
which provides legal services to the Company.
Irwin W. Winter Age 72 Director since 2003
Member of the Audit, Compensation and Nominating Committees
Mr. Winter retired in 1999 from Phillips-Van Heusen Corporation, a wholesaler
and retailer of branded apparel. From 1987 until retirement, he served as a
member of the Board of Directors of Phillips-Van Heusen and Executive Vice
President and Chief Financial Officer.
The Board of Directors has determined that Messrs. Goldberg, Jackson, Sperry and
Winter qualify as independent members of the Board of Directors under the
definition promulgated by the NASDAQ Stock Market.
-4-
Voting and Recommendation
- -------------------------
Each nominee for director must be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Under applicable Delaware law, abstentions
and broker non-votes will be counted for purposes of determining the existence
of a quorum, but will not have an effect on the vote.
The Board of Directors unanimously recommends a vote `FOR' each of the persons
nominated for election to the Board.
OTHER MATTERS
The Company knows of no other business to be acted upon at the Annual Meeting.
However, if any business is properly presented at the Annual Meeting, the
persons named as proxies will vote on such matters in accordance with their best
judgment.
COMPENSATION OF DIRECTORS
During 2005, each non-employee director received annual director fees of
$47,500; Messrs. Sperry and Winter each received annual committee fees of
$26,250 and Dr. Goldberg received annual committee fees of $36,250. Mr. Kuttner,
an executive officer of the Company who also serves as a director, did not
receive director fees. The Company reimburses the directors for expenses
associated with attendance at the meetings of the Board and Committees.
INFORMATION ABOUT COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has three standing committees:
Audit Committee
---------------
The Audit Committee currently has three members, Irwin Winter (Chairman), Joel
Goldberg and Harvey Sperry. The Audit Committee has the authority to retain and
terminate the services of the Company's independent accountants, reviews annual
financial statements and managements assessment of internal control over
financial reporting, considers matters relating to accounting policy and reviews
the scope of annual audits. All members of the Audit Committee satisfy the
current independence standards promulgated by the Securities and Exchange
Commission and by the NASDAQ Stock Market, as such standards apply specifically
to members of audit committees. The Board of Directors has determined that Mr.
Winter is a "financial expert," as the Securities and Exchange Commission has
defined that term in Item 401 of Regulation S-K and has appointed him Committee
Chairman. Please also see the report of the Audit Committee set forth on Page 12
hereof. A copy of the Audit Committee Charter was filed as an exhibit to the
Company's definitive proxy statement in connection with the Company's 2005
Annual Meeting of Stockholders.
Compensation Committee
----------------------
The Compensation Committee currently has three members, Joel Goldberg
(Chairman), Harvey Sperry and Irwin Winter. The Compensation Committee, as a
Committee of the Board of Directors, has oversight responsibility relating to
officer and senior management compensation, succession planning for senior
management, and such other duties as directed by the Board of Directors. All
members of the Compensation Committee qualify as independent under the
definition promulgated by the NASDAQ Stock Market. Please also see the report of
the Compensation Committee set forth on Page 7 hereof.
-5-
Nominating Committee
--------------------
The Nominating Committee currently has three members, Harvey Sperry (Chairman),
Joel Goldberg and Irwin Winter. All members of the Nominating Committee qualify
as independent under the definition promulgated by the NASDAQ Stock Market.
The Nominating Committee, as a Committee of the Board of Directors, is
responsible to search for candidates to serve as directors of the Company and
determines the qualification of the candidates. The Nominating Committee may
consider candidates recommended by Stockholders as well as from other sources
such as other directors or officers, third party search firms or other
appropriate sources. For all potential candidates, the Nominating Committee may
consider all factors it deems relevant, such as a candidate's personal integrity
and sound judgment, business and professional skills and experience,
independence, knowledge of the industry in which the Company operates, possible
conflicts of interest, diversity, the extent to which the candidate would fill
present needs on the Board of Directors, and concern for the long-term interest
of the Stockholders.
In general, persons recommended by Stockholders will be considered on the same
basis as candidates from other sources. If a Stockholder wishes to nominate a
candidate to be considered for election as a director at the 2006 Annual Meeting
of Stockholders, it must follow the procedures described in "Stockholder
Proposals and Nominations For Directors." If a Stockholder wishes simply to
propose a candidate for consideration as a nominee by the Nominating Committee,
it should submit by mail any pertinent information regarding the candidate to
the Chairman of the Nominating Committee c/o Hampshire Group, Limited, 1924
Pearman Dairy Road, Anderson, South Carolina 29625-1303.
The Nominating Committee also recommends candidates for committee membership.
A copy of the Nominating Committee's Charter was filed as an exhibit to the
Company's definitive proxy statement in connection with the Company's 2005
Annual Meeting of Stockholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Goldberg and Mr. Sperry have served as members of the Compensation Committee
since 1998 and 2000, respectively, and Mr. Winter was appointed to the Committee
in 2004. No member of the Committee is, or has been, an officer or an employee
of the Company. None of our executive officers serve as a member of the board of
directors or compensation committee of an entity that has one or more executive
officers who serve on our board of directors or compensation committee.
NUMBER OF MEETINGS AND MEETING ATTENDANCE
During the fiscal year ended December 31, 2005, the Board of Directors held six
meetings, the Audit Committee held eight meetings, the Compensation Committee
held five meetings and the Nominating Committee held one meeting. Each Director
attended all of the meetings of the Board and Committees on which he served. The
Board of Directors has adopted a policy under which each director is strongly
encouraged to attend each Annual Meeting of our Stockholders. All of the
Company's directors attended the Company's 2005 Annual Meeting.
-6-
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for determining executive
compensation. The Committee reviews and recommends to the Board of Directors
cash and other compensation, including stock options, to be paid to management.
COMPENSATION OF ALL EXECUTIVES. The Committee believes that, in order to
maximize the Company's profitability, the Company must attract, motivate and
retain highly qualified executives. To this end, the Company attempts to provide
its executives with competitive salaries and incentives, including equity-based
compensation, intended to align the interests of executives with that of
Stockholders.
DEDUCTIBILITY OF COMPENSATION EXPENSE. 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 would be fully deductible under the Internal
Revenue Code, including submitting plans for Stockholder approval when
necessary.
ANNUAL COMPENSATION. Annual compensation for executives consists of a salary and
an incentive bonus with more emphasis on incentive bonuses.
BONUSES. Incentive bonuses for Company officers are based on annual goals
established by the Committee. The incentive bonus is based on the Company
achieving after-tax income goals established by the Committee. The Hampshire
Group, Limited Management Incentive Bonus Plan (the "Bonus Plan") was approved
by the Stockholders of the Company at a Special Meeting on November 21, 2002.
The Bonus Plan is designed to allow the Company to pay "performance-based"
compensation that should be exempt from the deduction limitation of Section
162(m). As a result of the adoption of the Bonus Plan, the Company will be
entitled to a tax deduction for all compensation paid to the Named Executive
Officers for 2005. Incentive bonuses for executives of the Company are
determined by a profit incentive plan which includes criteria based on pre-tax
income, sales and margin of the respective company.
CHIEF EXECUTIVE OFFICER COMPENSATION. Mr. Kuttner's compensation is based on his
employment agreement with the Company, which provides for an annual salary of
$600,000, annual incentive compensation based on a bonus plan approved for
senior management of the Company and annual deferred compensation of $550,000.
The incentive bonus paid to Mr. Kuttner for 2005 reflected the achievement of
the established goals.
LONG-TERM INCENTIVE COMPENSATION. There was no long-term incentive compensation
granted during 2005.
The Compensation Committee has provided this report.
COMPENSATION COMMITTEE
DR. JOEL GOLDBERG, CHAIRMAN
HARVEY L. SPERRY
IRWIN W. WINTER
-7-
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of Hampshire Group, Limited, who are elected by and serve
at the discretion of the Board of Directors of the Company, are as follows:
- ------------------------------------------------------------------------------
Name Age Office
- ------------------------------------------------------------------------------
Ludwig Kuttner 59 Chairman of the Board, President and
Chief Executive Officer, Hampshire Group, Limited
- ------------------------------------------------------------------------------
Marc Abramson 52 President and Chief Executive Officer,
Item-Eyes, Inc.
- ------------------------------------------------------------------------------
Michael Culang 56 President and Chief Executive Officer,
Hampshire Designers, Inc.
- ------------------------------------------------------------------------------
Charles Clayton 68 Executive Vice President, Secretary and Treasurer,
Hampshire Group, Limited
- ------------------------------------------------------------------------------
Jonathan Norwood 37 Vice President and Chief Financial Officer,
Hampshire Group, Limited
- ------------------------------------------------------------------------------
Jeffrey Meier 58 Vice President Global Sourcing,
Hampshire Group, Limited
- ------------------------------------------------------------------------------
Roger Clark 53 Vice President Finance and Principal Accounting
Officer, Hampshire Group, Limited
- ------------------------------------------------------------------------------
Edward Hurley 57 Executive Vice President and Chief Operating Officer,
Hampshire Designers, Inc.
- -------------------------------------------------------------------------------
LUDWIG KUTTNER has served as Chairman of the Board of Directors of the Company
since 1979 and was President and Chief Executive Officer of the Company from
1979 to 1992 and from 1994 through the present. He continues to serve as
Managing Member of Hampshire Investments, Inc. and K Holdings, LLC, two
investment companies. Previously, he was engaged in various capacities in the
textile industry and as an owner and developer of real property.
MARC ABRAMSON has served as President of Item-Eyes, Inc. since its acquisition
in August 2000 and assumed the responsibilities of Chief Executive Officer in
August 2005. He had served as Vice President of Sales of the predecessor company
from 1983 to 2000 and previously served as the national sales manager of Soko
Separates.
MICHAEL CULANG, prior to assuming the responsibilities of President and Chief
Executive Officer of Hampshire Designers, Inc., served as President and Chief
Executive Officer of Hampshire Brands, the men's division of Hampshire
Designers, from 2004 and previously served as President of the division from
1997. Prior to joining Hampshire, Mr. Culang served as President of Somerset
Knitting Mills, a Division of Phillips-Van Heusen from 1986 through 1997.
CHARLES CLAYTON served as Chief Financial Officer of the Company from 1984
through 2000 and from October 2003 through the present and has served as
Secretary and Treasurer since 1984. He served as Vice President Finance and
Controller from 1978 to 1983. Prior to joining the Company, Mr. Clayton was
employed with Price Waterhouse & Co., an international accounting firm.
JONATHAN NORWOOD joined the Company as Vice President and Chief Financial
Officer in April 2006. Mr. Norwood was formerly with the Liberty Corporation as
the Controller and served as a member of the management team from 2001 until the
March 2006 sale of the company. Prior to working for the Liberty Corporation, he
served as Chief Financial Officer of Team Vest, LLC. Mr. Norwood began his
career with Ernst & Young, LLP in 1991 and became a certified public accountant
in 1994.
-8-
JEFFREY MEIER joined Hampshire Group in April 2004 as Vice President of Global
Sourcing. Prior to joining the Company, he was employed as Chief Executive
Officer of Ophir Holdings, Limited from 2002 and served as Executive Vice
President International Sourcing for Tommy Hilfiger from 1995 through 2001.
Previously, Mr. Meier was employed with Liz Claiborne and Fruit of the Loom in
positions of responsibility for international sourcing.
ROGER CLARK, Vice President Finance and Principal Accounting Officer, joined the
Company in 1999 as Vice President Finance. Prior to joining the Company, he
served as Executive Vice President and Chief Financial Officer of a privately
owned apparel manufacturing company.
EDWARD HURLEY has served as Executive Vice President and Chief Operations
Officer of Hampshire Designers, Inc. since 1993. He served as Vice President of
Operations and Controller from 1986 to 1993. Previously, he was Controller of
the Finishing Division of Springs Industries.
COMPENSATION OF NAMED 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 2005, 2004 and
2003.
Annual Compensation
-------------------------- Long-Term All Other
Name and Principal Position Year Salary Bonus Other Compensation Compensation
- ---------------------------------------------------------------------------------------------
Ludwig Kuttner 2005 $ 600,000 $ 845,740 - - $582,342(1)
Chairman, President and 2004 600,000 848,333 - - 348,459
Chief Executive Officer 2003 400,000 850,850 - - 232,910
- --------------------------------------------------------------------------------------------
Eugene Warsaw (2) 2005 1,000,000 250,860 - - 4,200(3)
Senior Executive Vice President 2004 1,000,000 398,685 - - 4,000
and Chief Marketing Officer 2003 350,000 1,547,899 - - 93,186
- --------------------------------------------------------------------------------------------
Michael S. Culang 2005 525,000 764,500 - - 4,200(3)
President and 2004 300,000 834,719 - - 4,000
Chief Executive Officer, 2003 300,000 1,257,394 - - 4,000
- --------------------------------------------------------------------------------------------
Marc Abramson 2005 580,000 100,000 - -
President and 2004 580,000 100,000 - - -
Chief Executive Officer, 2003 580,000 - - - -
Item-Eyes, Inc.
- --------------------------------------------------------------------------------------------
Jeffrey Meier 2005 250,000 562,135 - - 4,200(3)
Vice President 2004 187,500 187,500 - - -
Global Sourcing 2003 - - - - -
- --------------------------------------------------------------------------------------------
<FN>
(1) Pursuant to the terms of a deferred compensation plan, Mr. Kuttner was
awarded a contribution of $550,000 for the year ended 2005 and interest of
$23,942 has been accrued on the aggregate balance pursuant to the Plan.
Further, $8,400 was contributed on behalf of Mr. Kuttner to the Hampshire
Group, Limited 401(k) Retirement Saving Plan.
(2) Mr. Warsaw retired effective December 31, 2005; but pursuant to the terms
of his employment agreement, he shall be paid the amount of $1,450,000 over
a three-year period commencing January 2006.
(3) Represents contribution on behalf of the executive to the Company's 401(k)
Retirement Saving Plan.
</FN>
-9-
EMPLOYMENT AGREEMENTS
LUDWIG KUTTNER has an employment agreement with the Company as of January 1,
2005, which provides for an annual salary of $600,000, annual incentive
compensation based on a bonus plan approved for senior management of the Company
and an annual deferred compensation payment of $550,000, as amended. The
employment agreement may be terminated by the Company at any time. If the
Company terminates the employment agreement without cause, Mr. Kuttner would
receive a termination payment equal to three times his average annual
compensation for the five calendar years proceeding the year in which the
termination occurs, paid in 36 equal monthly installments. Mr. Kuttner may
terminate the employment agreement upon six month's written notice.
Mr. Kuttner would receive the termination payment defined above, payable in a
lump sum, 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,
and fifty percent of the termination payment if he terminates his employment
with six months notice. Mr. Kuttner's spouse, or his designated beneficiary
would receive an amount equal to the termination payment if he were to die while
employed by the Company, plus the proceeds of a $3 million life insurance
policy. The Company carries insurance on the life of Mr. Kuttner to cover such
contingency.
EUGENE WARSAW retired December 31, 2005. His employment agreement provided for
the payment of post retirement benefits in the amount of $1,450,000, plus
accrued interest thereon, payable over three years commencing 2006.
MICHAEL S. CULANG has an employment agreement with Hampshire Designers, Inc. as
of January 1, 2006, which provides for an annual salary of $600,000 and an
incentive bonus based on the adjusted pre-tax income of Hampshire Designers,
Inc. The employment agreement may be terminated by the Company at any time upon
six month's written notice or by the executive upon three month's written
notice.
MARC ABRAMSON has an employment agreement with Item-Eyes, Inc. through December
31, 2008, which provides for an annual salary of $680,000 and an incentive bonus
based on the adjusted pre-tax income of Item-Eyes, Inc. The employment agreement
may be terminated by the Company at any time upon payment of twelve month's
salary of the executive.
-10-
the following table sets forth information regarding the exercise of options
during 2005 and the number and value of unexercised options held at year-end by
each of the Named Executive Officers.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR
AND DECEMBER 31, 2005 OPTION VALUES
- -------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options
Shares Options at 12/31/05 at 12/31/05
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable (1)
- -------------------------------------------------------------------------------
Ludwig Kuttner - - 40,000/13,912 $956,000/$332,497
- -------------------------------------------------------------------------------
Marc Abramson 20,000 $409,600 - / - - / -
- -------------------------------------------------------------------------------
(1) The averages of the closing bid and ask price of the Company's Common Stock
as reported by the NASDAQ National Market on December 31, 2005 was $23.90.
No stock option awards were granted during 2005 to any of the Named Executive
Officers.
The following table provides information as of December 31, 2005, with respect
to shares of the Company's Common Stock that may be issued under equity
compensation plans.
EQUITY COMPENSATION PLAN INFORMATION
- ----------------------------------------------------------------------------------------
Number of securities
Number of securities Weighted-average remaining available for
to be issued upon exercise price of future issuance under
exercise of outstanding equity compensation plans
Plan category outstanding options, options, warrants (excluding securities in
warrants and rights and rights column (a))
- ---------------------- --------------------- ----------------- ------------------------
(a) (b) (c)
- ----------------------------------------------------------------------------------------
Equity compensation
plans approved by 58,312 $4.44 921,950
security holders
- ----------------------------------------------------------------------------------------
Equity compensation
plans not approved by None N/A None
security holders
- ----------------------------------------------------------------------------------------
Total 58,312 $4.44 921,950
- ----------------------------------------------------------------------------------------
-11-
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is comprised solely of independent
Directors complying with the Company's Amended Audit Committee Charter, which
takes into account the need to satisfy the independent criteria as defined by
Rule 4200(a)(15) of the National Association of Securities Dealers Marketplace
Rules. In addition, the Board of Directors has determined that Irwin Winter
meets the Securities and Exchange Commission requirements for, and has
designated him as the Audit Committee Financial Expert, as well as Committee
Chairman.
The Board of Directors has adopted a charter for the Audit Committee that
specifies the Audit Committee's duties and responsibilities.
With respect to the audited consolidated financial statements for the year ended
December 31, 2005, the Audit Committee has reviewed and discussed the statements
with management and the engagement partner of Deloitte & Touche LLP
("Deloitte"). Further, the Audit Committee has discussed with the Deloitte
engagement partner the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees).
The Audit Committee has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1 -
Independence Discussions with Audit Committees, as in effect as of the date
hereof, and the Committee has discussed with the engagement partner of Deloitte
that firm's independence.
In the opinion of the Audit Committee, the non-audit services performed by
Deloitte do not affect their independence.
Based upon the reviews and the discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements for the year ended December 31, 2005, be included in the Company's
Annual Report on Form 10-K for filing with the Securities and Exchange
Commission.
The Audit Committee has provided this report.
AUDIT COMMITTEE
IRWIN W. WINTER, CHAIRMAN
DR. JOEL GOLDBERG
HARVEY L. SPERRY
-12-
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP ("Deloitte") has served as independent registered public
accounting firm for the Company since 1999. A Deloitte representative will be
present at the Annual Meeting and will have the opportunity to make a statement
if he desires to do so and will be available to respond to questions from
Stockholders.
Audit Fees
- ----------
The aggregate fees of Deloitte for professional services for the audit of the
Company's annual consolidated financial statements as of and for the year ended
December 31, 2005 and for the limited reviews of the Company's unaudited
consolidated financial statements for the first three quarters of 2005 were
$256,700 and expenses related thereto were $14,670. During 2005, Deloitte
provided audit services relating to Sarbanes-Oxley compliance for which they
were paid fees of $262,000 and expenses of $16,617 related thereto. The
aggregate fees for the audit and quarterly reviews for the Company for the year
2004 were $228,000 and expenses related thereto were $17,373.
Audit Related Fees
- ------------------
During 2004, Deloitte provided audit services relating to Sarbanes-Oxley
readiness for which they were paid fees of $20,866 and expenses of $3,821
related thereto.
Tax Related Fees
- ----------------
There were no tax related services rendered by Deloitte for 2005. The aggregate
fees billed to the Company during 2004 for tax related services rendered by
Deloitte were $44,300, plus related expenses of $1,074.
All Other Fees
- --------------
Other fees billed to the Company by Deloitte during 2005 and 2004 were $27,334
and $1,939, respectively.
POLICY OF AUDIT COMMITTEE ON
PRE-APPROVAL OF AUDIT AND
PERMISSIBLE NON-AUDIT SERVICES OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consistent with Securities and Exchange Commission policies regarding auditor
independence, the Audit Committee has responsibility for appointing, setting
compensation and overseeing the work of the independent registered public
accounting firm. In recognition of this responsibility, the Audit Committee has
established a policy to pre-approve all audit and permissible non-audit services
provided by the independent auditor.
Prior to engagement of the independent registered accounting firm for the next
year's audit, management will submit a listing of services expected to be
rendered during that year for each of four categories of services to the Audit
Committee for approval.
1. AUDIT SERVICES include audit work performed in the preparation of financial
statements, as well as work that generally only the independent auditor can
-13-
reasonably be expected to provide, including comfort letters, statutory
audits, and attest services and consultation regarding financial accounting
and/or reporting standards.
2. AUDIT-RELATED SERVICES are for assurance and related services that are
traditionally performed by the independent auditor, including due diligence
related to mergers and acquisitions, sales and disposals, employee benefit
plan audits, and special procedures required to meet certain regulatory
requirements.
3. TAX RELATED SERVICES include all services performed by the independent
auditor's tax personnel except those services specifically related to the
audit of the financial statements, and include fees in the areas of tax
compliance, tax planning, and tax advice.
4. OTHER FEES are those associated with services not captured in the above
categories. The Company generally does not request such services from the
independent registered accounting firm.
Prior to engagement, the Audit Committee obtains detailed information as to the
particular services to be provided, and then completes its pre-approval process.
The fees are budgeted and the Audit Committee requires the independent
registered accounting firm and management to report actual fees versus the
budget periodically throughout the year by category of service. During the year,
circumstances may arise when it may become necessary to engage the independent
registered public accounting firm for additional services not contemplated in
the original pre-approval. In those instances, the Audit Committee requires
specific pre-approval before engaging the independent registered accounting
firm.
The Audit Committee may delegate pre-approval authority to one or more of its
members. The member to whom such authority is delegated must report any
pre-approval decisions to the Audit Committee at its next scheduled meeting.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
The Company assists the directors and executive officers in filing reports
pursuant to Section 16 of the Securities Exchange Act of 1934, including Form 4
transaction reports, for those reporting persons who so requested and who agreed
to advise the Company of changes in the ownership of the Company's equity
securities. To the best of the Company's knowledge and belief, based solely on
the review of reports filed with the Securities and Exchange Commission and upon
written representations by directors and certain executive officers, there were
no delinquent Section 16 reports during the fiscal year ended December 31, 2005.
-14-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Audit Committee reviews and approves in advance all related-party
transactions.
The Company leased two buildings from a company in which Ludwig Kuttner,
Chairman and Chief Executive Officer of the Company, and Charles W. Clayton,
Executive Vice President of the Company, are the beneficial owners. Rent expense
under such leases for the years ended December 31, 2005, 2004 and 2003 was
approximately $88,000, $153,000 and $251,000, respectively. The Company's lease
for a distribution center in Anderson, South Carolina, expired April 30, 2004,
and was not renewed. The lease for the administrative offices was cancelled by
mutual consent in March 2006. The terms of the leases with the related company
were approved by the Board of Directors of the Company based on independent
confirmation that the leases are fair and reasonable and at market rates.
The Company has entered into a twelve-year lease with a company in which Ludwig
Kuttner, Chairman and Chief Executive Officer of the Company, and Charles W.
Clayton, Executive Vice President of the Company, are the beneficial owners. The
24,000 square foot building, located in Anderson, South Carolina, serves as
administrative offices for the Company commencing February 2006. The terms of
the lease were approved by the Board of Directors of the Company based on
independent confirmation that the terms are fair and reasonable and are at
market rates.
The Company entered into a $41,000 purchase agreement for data and communication
lines and hardware for the new administrative offices with a company in which
Ludwig Kuttner, Chairman and Chief Executive Officer of the Company, is a 75%
beneficial owner. The terms of the purchase agreement with Mr. Kuttner were
approved by the Board of Directors of the Company as fair and at market rates
based on independent bidding.
As part of the Company's announced common stock repurchase plan, the Company
purchased 80,000 shares of its common stock from Mr. Kuttner on December 13,
2005, at $24.49 per share which represented the five-day average market closing
price prior to the transaction, as reported by NASDAQ.
Mr. Kuttner and Roger B. Clark, Vice President Finance and Principal Accounting
Officer, participate in the management of the real estate investment company
formally owned by the Company. Such participation does not, in the judgment of
the Company, interfere with the performance by Messrs. Kuttner and Clark of
their duties for the Company.
The Company entered into a service agreement with an affiliated company, owned
by certain officers of Item-Eyes, Inc., to warehouse and distributed a portion
of its women's related separates products. The service agreement provides that a
fee be paid on a per unit shipped basis. The service agreement expired August
31, 2005 and the warehouse function of Item-Eyes was transferred to an unrelated
third-party. Fees paid for the years ended December 31, 2005, 2004, and 2003
were $792,410, $2,288,000 and $2,496,000, respectively, and are included in
selling, general and administrative expenses in the consolidated statements of
income.
-15-
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 & Apparel Index, in each case
assuming an investment of $100 on December 31, 2000 and the accumulation and the
reinvestment of dividends, where applicable, paid thereafter through December
30, 2005. The Company chose the S&P 500 Composite Index as a measure of the
broad equity market and the S&P Textiles & Apparel Index as a measure of its
relative industry performance.
[OBJECT OMITTED]
- ----------------------------------------------------------------------------------------
12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/30/2005
---------- ---------- ---------- ---------- ---------- ----------
HAMP 100 164 279 402 414 610
S&P Textile & Apparel 100 103 95 125 160 161
S&P 500 Index 100 87 67 84 92 95
- ----------------------------------------------------------------------------------------
-16-
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR DIRECTORS
Proposals of Stockholders intended to be presented at the Annual Meeting for
2007 must be received by the Company no later than December 22, 2006, 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, 1924 Pearman Dairy Road, Anderson, SC
29625-1303.
If the Company does not receive notice of any matter to be considered for
presentation at the Annual Meeting by March 7, 2007, management proxies may
confer discretionary authority to vote on matters presented at the Annual
Meeting by a Stockholder in accordance with Rule 14a-4 under the Securities
Exchange Act of 1934.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD
Generally, Stockholders who have questions or concerns should contact the
Company's Investor Relations Department at 864-231-1200. However, any
Stockholder who wishes to address questions regarding the Company's business
directly with the Board of Directors, or any individual director, should direct
his or her questions in writing to the Chairman or individual member of the
Board of Directors, c/o Hampshire Group, Limited, 1924 Pearman Dairy Road,
Anderson, South Carolina 29625.
By order of the Board of Directors,
/s/ Ludwig Kuttner
Ludwig Kuttner
Chairman of the Board of Directors
Anderson, South Carolina
April 20, 2006
The Company's Annual Report on Form 10-K for the year ended December 31, 2005
(other than exhibits which provides additional information about the Company)
filed with the Securities and Exchange Commission, is available on the internet
at www.hamp.com and is available in paper form, free of charge to the beneficial
owners of the Company's Common Stock upon written request to:
Hampshire Group, Limited, Attn: Secretary, 1924 Pearman Diary Road, Anderson, SC
29625-1303 or email to: cclayton@hamp.com.
===============================================================================
STOCKHOLDERS ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD. YOUR COOPERATION IS GREATLY APPRECIATED.
-17-
Hampshire Group, Limited
Focusing on Quality, Value, Style and Service
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
HAMPSHIRE GROUP, LIMITED FOR ANNUAL MEETING OF STOCKHOLDERS
- -------------------------------------------------------------------------------
The undersigned Stockholder(s) of Hampshire Group, Limited (the "Company"),
having received Notice of the Annual Meeting of Stockholders to be held on May
18, 2006 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 the meeting and vote all shares of common stock of the Company, which
the undersigned would be entitled to vote at the Annual Meeting, to be held at
The Princeton Club of New York, 15 West 43rd Street, New York, NY, on May 18,
2006 at 10:00 A.M. and at any adjournments thereof, with all power the
undersigned would possess if personally present.
In their discretion, the proxies are authorized to vote upon such other matters
as may properly come before the meeting or any and all postponements or
adjournments thereof.
Proposal No. 1: Election of five directors.
Nominees: 01 - Ludwig Kuttner; 02 - Joel Goldberg; 03 - Michael C. Jackson;
04 - Harvey L. Sperry; and 05 - Irwin W. Winter.
__For all nominees listed above ___Withhold authority to vote for all nominees
__Withhold authority to vote for any individual nominee ____, ____, ____, ____.
(write numbers of nominee(s) above).
- -------------------------------------------------------------------------------
- - - - - - - - - - - - - - - - - - - - FOLD - - - - - - - - - - - - - - - - - -
- -------------------------------------------------------------------------------
This proxy will be voted as directed; but if no direction is indicated it will
be voted FOR the election of the five nominees for directors listed above.
Number of shares: ___________
Dated: _______________, 2006
Signature(s)____________________________________________
____________________________________________
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.
- ------------------------------------------------------------------------------