Best products Co., Inc. P. O. Box 26303, Richmond, VA 23260-6303 804/261-2000
July 12, 1996
Dear Shareholder:
It is our pleasure to invite you to the Annual Meeting of Shareholders
of Best Products Co., Inc. to be held at 11:00 a.m. on August 22, 1996, at the
Company's corporate headquarters in Richmond, Virginia. A Notice of this Annual
Meeting and a Proxy Statement covering the formal business of the meeting are
enclosed, along with the Company's Annual Report on Form 10-K for the fiscal
year ended February 3, 1996. During the meeting, time will be provided for a
review of results for the past year and items of general interest about the
Company.
It is important that your shares be represented at the meeting whether
or not you expect to attend; therefore, please promptly mark, sign, date and
return the proxy card in the accompanying postage-paid envelope. Even though you
execute this proxy, you may revoke it at any time before it is voted. If you
attend the meeting, you will be able to vote in person if you wish to do so,
even if you have previously returned your proxy card.
We look forward to seeing you at the Annual Meeting.
Sincerely,
Daniel H. Levy
Chairman and
Chief Executive Officer
BEST Logo
BEST PRODUCTS CO., INC.
Notice of Annual Meeting of Shareholders
to be held on August 22, 1996
To Our Shareholders:
The Annual Meeting of Shareholders of Best Products Co., Inc. (the
"Company") will be held at the Company's corporate headquarters, 1400 Best
Plaza, Richmond, Virginia on August 22, 1996 at 11:00 a.m., for the purpose of
considering and acting upon the following matters:
1. To elect a Board of Directors consisting of seven persons; and
2. To transact such other business as may properly come before the meeting.
The above matters are described in the Proxy Statement. You are urged,
after reading the Proxy Statement, to mark, sign, date and return the proxy to
assure that your shares are represented at the meeting.
Only shareholders of record at the close of business on July 5, 1996
will be entitled to vote at the meeting, either in person or by proxy.
By Order of the Board of Directors
W. Edward Clingman, Jr.
Senior Vice President, General Counsel
and Secretary
July 12, 1996
BEST PRODUCTS CO., INC.
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement, which is being mailed to shareholders on or about
July 12, 1996, is furnished in connection with the solicitation by the Board of
Directors of Best Products Co., Inc. ("Best Products" or the "Company") of
proxies in the form accompanying this Proxy Statement to be voted at the Annual
Meeting of Shareholders to be held at 11:00 a.m. on August 22, 1996, at the
Company's corporate headquarters, 1400 Best Plaza, Richmond, Virginia 23227, and
any adjournment thereof.
On July 5, 1996 there were 31,019,969 shares of common stock, par value
$1.00 per share ("Common Stock"), outstanding and entitled to vote. Only
shareholders of record of Common Stock at the close of business on July 5, 1996
will be entitled to receive notice of, and to vote at, the Annual Meeting and
any adjournment thereof. Each share of Common Stock is entitled to one vote on
each matter presented to the shareholders. The Common Stock represented by each
properly executed proxy will be voted in the manner specified by the
shareholder. If no specific instruction is received, a proxy, when executed and
not revoked, will be voted FOR election as directors of the nominees named
herein. Execution of the accompanying proxy will not affect a shareholder's
right to attend the Annual Meeting and vote in person. Any shareholder giving a
proxy has the right to revoke it at any time before it is voted by submitting
written notice of revocation or a new proxy.
PROPOSAL
ELECTION OF DIRECTORS
Seven directors are to be elected to hold office until the next Annual
Meeting of Shareholders is held and their successors are elected. The persons
named on the enclosed proxy will vote FOR the election of the nominees named
below unless the proxy specifies otherwise. If, at the time of the meeting, any
nominee should be unable to serve as a director, such proxies will be voted for
the remaining nominees and such other person(s) as the Board of Directors may
designate. A shareholder who desires to nominate a director for election at any
future meeting must comply with the procedures set forth in the Company's
Bylaws. See "ADDITIONAL INFORMATION -- Other Shareholder Proposals and
Nominations."
All of the nominees named below except for Messrs. Northam and
O'Connell are currently serving as directors and each of the nominees has agreed
to serve if elected. As of the date of this Proxy Statement, the Board of
Directors has no reason to believe any of the nominees named below will be
unable to serve. There are no family relationships among any of these nominees
or among any of these nominees and any officer.
Certain information regarding each nominee is set forth below.
1
Daniel H. Levy, 53, was named Chairman and Chief Executive Officer of the
Company in April 1996. Mr. Levy was Chairman and Chief Executive Officer of
KidSource, a former retailer of products for children, from April 1995 to
December 1995. Mr. Levy is a principal in LBK Consulting, a retail consulting
firm. In that capacity he has provided consulting services to various retail
companies, including Dots Apparel Co. and Chernin Shoes, since January 1994. Mr.
Levy served as Chairman and Chief Executive Officer of Conran Stores, Inc., a
retail furniture chain, from June 1993 to January 1994. Conran Stores, Inc.
filed a petition under chapter 11 of the Bankruptcy Code in January 1994. Prior
to June 1993, Mr. Levy served as Vice Chairman and Chief Operating Officer of
Montgomery Ward & Co., Inc., a specialty retail store chain.
Donald D. Bennett, 59, is Chairman and Chief Executive Officer of Richfood
Holdings, Inc., a wholesale grocery distributor based in Richmond, Virginia. Mr.
Bennett is a director of Richfood Holdings, Inc. Mr. Bennett has been a director
of the Company since June 1994 and is a member of the Board's Compensation
Committee and Nominating Committee.
Margaret A. McKenna, 50, has served as President of Lesley College in Cambridge,
Massachusetts since August 1985. Prior to becoming President of Lesley College,
Ms. McKenna served as Vice President of Radcliffe College from 1981 to 1985, as
Deputy Undersecretary of the United States Department of Education and Deputy
Counsel to the President of the United States from 1977 to 1981 and as a trial
attorney for the United States Department of Justice from 1970 to 1977. Ms.
McKenna is a director of Stride Rite Corp. and Consolidated Natural Gas Co. Ms.
McKenna has been a director of the Company since June 1994 and is a member of
the Board's Compensation Committee and Nominating Committee.
Robert E. Northam, 66, served as Executive Vice President and Chief Financial
Officer of J.C. Penney Company, Inc., a department store, catalog and mail-order
retailing chain based in Plano, Texas, until his retirement in February 1996.
Prior to joining J.C. Penney Company, Inc. in 1975, Mr. Northam was a partner of
KPMG Peat Marwick LLP. He is a director of AK Steel Holding Corporation.
Robert A. O'Connell, 55, has since January 1995 been President, Chief Executive
Officer and a part owner of Take Good Care Stores Inc., a healthcare specialty
company located in Clarke, New Jersey. From 1991 to October 1994 he served as
Chairman and Chief Executive Officer of Hess's Department Stores, Inc., a retail
department store chain based in Allentown, Pennsylvania, and then a division of
Crown American Corporation.
Denis J. Taura, 56, has been the Chairman of D. Taura & Associates, a consulting
firm, in Princeton, New Jersey since October 1991 and a principal in Zolfo
Cooper LLC, a management consulting firm in New York, New York since January
1995. Mr. Taura was a partner of KPMG Peat Marwick LLP from 1972 to 1991. Mr.
Taura is a director of Darling International Inc. and Geonex Corporation. Mr.
Taura has been a director of the Company since June 1994 and is a member of the
Board's Compensation Committee and Nominating Committee.
Marshall B. Wishnack, 49, has been Chairman since April 1996 and Chief Executive
Officer since July 1992 of Wheat First Butcher Singer Inc., an investment
banking and brokerage company based in Richmond, Virginia. Mr. Wishnack was also
President of Wheat First Butcher Singer Inc. prior to April 1996. Mr. Wishnack
is a director of Lawyer's Title Insurance Corporation and S&K Famous Brands,
Inc. Mr. Wishnack has been a director of the Company since June 1994 and is a
member of the Board's Audit Committee.
2
CERTAIN INFORMATION CONCERNING THE
BOARD OF DIRECTORS AND ITS COMMITTEES
Committees of the Board
The Board of Directors has established the standing committees
described below.
The Audit Committee consists of three directors, none of whom are
officers of the Company. The Committee's principal functions are to review the
adequacy of internal financial controls, review with independent auditors the
scope and results of the annual audit and recommend to the Board of Directors
the selection of the independent auditors.
The Compensation Committee consists of three directors, none of whom
are officers of the Company. The Compensation Committee's principal functions
are to establish compensation philosophy, review and approve management
compensation and benefits and administer the stock option plans and Stock
Purchase Loan Plan.
The Nominating Committee consists of three directors, none of whom are
officers of the Company. The Nominating Committee recommends to the Board of
Directors the names of persons to be nominated for election as directors. The
Committee will consider recommendations by shareholders as to nominees for
directors. Such recommendations should be submitted in writing addressed to the
Corporate Secretary at the Company's principal office (1400 Best Plaza,
Richmond, Virginia 23227).
Attendance at Meetings
During the fiscal year ended February 3, 1996, the Board of Directors
held 12 meetings, the Audit Committee held two meetings and the Compensation
Committee held 13 meetings. During his or her term of office, each current
director of the Company attended at least 75 percent of the meetings of the
Board of Directors and the committees on which he or she served.
Directors' Compensation
Compensation for members of the Board of Directors who are not
associates of the Company consists of (i) a $24,000 annual retainer, (ii) a
$1,500 per meeting fee for attendance in person or a $750 per meeting fee for
telephonic attendance, (iii) a $500 committee meeting fee for committee meetings
occurring the day before, the day of or the day after a Board of Directors
meeting, and (iv) a $1,000 meeting fee for all other committee meetings ($500
for telephonic attendance). The Company reimburses such outside directors for
any reasonable travel expenses incurred in attending Board of Directors and
committee meetings. Any director who is an associate of the Company receives no
compensation for service on the Board of Directors or its committees.
Pursuant to the Company's 1995 Management Stock Option Plan, each
present non-employee member of the Board of Directors received an initial grant
of options covering 5,000 shares of Common Stock effective upon approval of the
plan at the 1995 Annual Meeting of Shareholders. Each future non-employee member
of the Board of Directors will receive a similar initial grant upon first being
elected as a director. Thereafter, each such outside director will receive an
additional grant of options covering 1,000 shares upon being re-elected to the
Board of Directors. The options will become exercisable in 25% increments on the
day before each of the four annual meetings of shareholders held after the date
of the award. Upon a change of control, all outstanding options immediately vest
and become exercisable. Options may not be exercised after the first to occur of
(i) ten years from the date of grant, (ii) three months after the director
ceases to be a member of the Board of Directors (other than by death or
disability or after attaining age 65), or (iii) two years after the director
ceases to be a member of the Board of Directors due to death or disability or
after attaining age 65 or if the director dies after ceasing to be a member of
the Board of Directors but while the options are still exercisable.
3
Notwithstanding the foregoing, upon the occurrence of a change of control, all
outstanding options held by persons who at the time are outside directors (or
who ceased to be members of the Board of Directors within three months prior to
the change of control other than due to death or disability) will be exercisable
for the longer of (x) the period determined in accordance with the preceding
sentence or (y) five years after the outside director ceases to be a member of
the Board of Directors, provided that no option may be exercised more than ten
years from the date of grant. For purposes of the 1995 Management Stock Option
Plan, "change of control" has the same meaning as in the Stock Purchase Loan
Plan. See "EXECUTIVE COMPENSATION -- Stock Purchase Loan Plan."
BENEFICIAL OWNERSHIP OF COMMON STOCK
To the best knowledge of the Company, the following table sets forth
certain information concerning the beneficial ownership as of June 24, 1996 of
Common Stock by (a) each executive officer named in the Summary Compensation
Table, each member of the Board of Directors and each nominee for election to
the Board of Directors, (b) all current executive officers, members of the Board
of Directors and nominees as a group and (c) each shareholder known by the
Company to own beneficially in excess of five percent of the Common Stock.
Except as otherwise indicated, to the best knowledge of the Company all persons
listed below have sole voting and investment power with respect to the shares
shown as being beneficially owned by them, except to the extent that authority
is shared by spouses under applicable law. As indicated below, information with
respect to five percent shareholders is based on the most recent filings made by
such persons pursuant to Sections 13(d) or (g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Number of Shares Percentage
Name Beneficially Owned of Class (1)
---- ------------------ ------------
Named Executive Officers
Stewart M. Kasen(2) 0 --
C. John Kistel, Jr. 27,268(3)(4) *
Frederick G. Kraegel 63,661(3) *
Joe Bernstein 36,470(3) *
Mark E. James 13,465(3) *
Directors and Nominees
Daniel H. Levy 383,000(3)(5) 1.2%
Donald D. Bennett 2,250(6) *
William C. DeRusha 2,250(6) *
John C. Jamison 6,250(6) *
Margaret A. McKenna 3,250(6) *
Robert E. Northam 0 --
Robert A. O'Connell 0 --
Denis J. Taura 10,250(6)(7) *
Marshall B. Wishnack 6,250(6)(8) *
All current executive officers, directors
and nominees as a group (16 persons) 694,020(3)(9) 2.2%
4
Number of Shares Percentage
Name Beneficially Owned of Class (1)
---- ------------------ ------------
Beneficial Owners of More than 5%
Chemical Bank 10,553,273(10) 32.7%
270 Park Avenue
New York, New York 10017
Pioneering Management Corporation 3,075,100(11) 9.8%
60 State Street
Boston, Massachusetts 02109
Metropolitan Life Insurance Company 2,650,359(12) 8.3%
1 Madison Avenue
New York, New York 10017
The Prudential Insurance Company 2,226,169(13) 7.1%
of America
Prudential Plaza
Newark, New Jersey 07102
* Less than one percent of the Common Stock.
(1) Based on the minimum total number of shares of Common Stock required to
be issued pursuant to the Company's Joint Plan of Reorganization (the
"Plan of Reorganization"), less the number of shares which have
reverted to or been reacquired by the Company, and including, in the
case of Chemical Bank and Metropolitan Life Insurance Company, the
number of shares issuable upon exercise of their respective warrants.
The Plan of Reorganization (pursuant to which the Company emerged on
June 14, 1994 (the "Plan Effective Date") under chapter 11 of title 11
the United States Code (the "Bankruptcy Code")) requires the Company to
issue an aggregate of 31,660,711 shares of Common Stock (excluding
2,333,395 shares issuable pursuant to outstanding warrants), assuming
the allowed amount of all claims filed against the Company by its
general unsecured creditors (excluding bank debt, industrial
development bond claims, priority tax claims and subordinated debt,
which were treated as separate classes under the Plan of
Reorganization) will not exceed $341.5 million, the Company's current
estimate of the total amount needed to settle such claims. As of July
5, 1996, the Company had issued a total of 31,338,351 shares of Common
Stock pursuant to the Plan of Reorganization, including 318,382 shares
which have reverted to or been reacquired by the Company, leaving
31,019,969 shares outstanding. Additional shares are to be issued
pursuant to the Plan of Reorganization over time.
(2) Mr. Kasen left the Company effective April 23, 1996.
(3) Does not include shares subject to options which have been granted
members of management but which are not exercisable within 60 days,
including Messrs. Levy (375,000), Kistel (96,000), Kraegel (96,000),
Bernstein (96,000) and James (64,000), as well as 160,000 shares
subject to options held by the other executive officers, in each case
pursuant to the Company's 1994 Management Stock Option Plan and/or the
1995 Management Stock Option Plan.
5
(4) Includes 21,471 shares held by Mr. Kistel's wife as to which Mr. Kistel
may be deemed to share voting and investment power.
(5) Includes 375,000 shares that may be acquired within 60 days through the
exercise of stock options.
(6) Includes 1,250 shares that may be acquired through the exercise of
stock options which vest on the day prior to the 1996 Annual Meeting of
Shareholders.
(7) Includes 2,000 shares held by Mr. Taura's wife as to which Mr. Taura
may be deemed to share voting and investment power. Mr. Taura disclaims
beneficial ownership of such shares.
(8) Includes 5,000 shares held in trust for Mr. Wishnack's children. Mr.
Wishnack and his wife are co-trustees of the trust and share voting and
investment power with respect to such shares.
(9) Includes beneficial ownership of 80,430 shares held in trust or by or
in the name of a family member as to which voting and investment power
may be deemed to be shared by the executive officer or director. Such
beneficial ownership may be disclaimed by certain of such persons. Also
includes 382,500 shares that may be acquired within 60 days through the
exercise of stock options.
(10) Based on information provided in a Schedule 13G dated January 6, 1995.
Includes 910,225 shares which may be acquired upon the exercise of
warrants on or before December 12, 1998. Chemical Bank is a subsidiary
of The Chase Manhattan Corporation.
(11) Based on information provided in a Schedule 13G dated January 3, 1996.
Investment power is shared with others with respect to all shares.
(12) Based on information provided in a Schedule 13G dated February 9, 1995.
Includes 750,359 shares which may be acquired upon the exercise of
warrants on or before December 12, 1998.
(13) Based on information provided as of December 31, 1995 in a Schedule 13G
dated February 14, 1996. Includes 1,235,969 shares with respect to
which voting and investment power is shared with others.
Significant Shareholder. As of the date of the above information,
Chemical Bank held 9,643,048 shares of Common Stock representing approximately
31.1% of the 31,019,969 shares of Common Stock outstanding. As of such date,
Chemical Bank also held warrants, exercisable for an additional 910,225 shares
of Common Stock, exercise of which would increase Chemical Bank's ownership
percentage to 33.1% of 31,930,194 shares. Several other institutions hold more
than 5% of the Common Stock, based on the most recent information available to
the Company, as shown above. If several holders of significant numbers of shares
of Common Stock were to act together for purposes of voting their shares, such
holders might be in a position to control the outcome of actions requiring
shareholder approval, including the election of directors. This concentration of
ownership could also facilitate or hinder any change of control of the Company.
In addition, Chemical Bank has certain rights not available to other
holders of the Common Stock under the registration rights agreements and
shareholder agreement negotiated by the Company with Chemical Bank in connection
with the resolution and consummation of the Chapter 11 Case. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
6
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and non-cash compensation
earned by the former Chairman, President and Chief Executive Officer and the
four other most highly compensated executive officers of the Company for the
fiscal years ended February 3, 1996 ("fiscal 1995"), January 28, 1995 ("fiscal
1994") and January 29, 1994 ("fiscal 1993"):
Summary Compensation Table
Long-Term
Compensation
Annual -------------
Compensation Securities All Other
Fiscal -------------------- Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) Options (#) ($)(2)
--------------------------- ---- ---------- --------- ----------- ------------
Stewart M. Kasen(1) formerly 1995 581,740 0 0 1,427,447
Chairman, President and Chief 1994 555,242 150,000 0 3,195
Executive Officer 1993 530,142 140,445 317,000(3) 840
C. John Kistel, Jr. 1995 273,611 0 0 5,915
Senior Vice President - 1994 254,477 52,200 0 977
Home Furnishings 1993 242,742 52,433 96,000 731
Frederick G. Kraegel 1995 252,442 0 0 15,276
Senior Vice President 1994 230,281 46,800 0 1,711
and Chief Financial Officer 1993 217,793 46,191 96,000 655
Joe Bernstein 1995 228,052 0 0 7,206
Senior Vice President - 1994 215,737 44,400 0 855
Jewelry 1993 210,287 43,694 96,000 622
Mark E. James 1995 223,005 0 0 3,780
Senior Vice President - 1994 210,360 43,200 0 838
Marketing and Advertising 1993 202,176 43,694 64,000 591
- ------------------------------
(1) Mr. Kasen served as Chairman, President and Chief Executive Officer of
the Company until April 23, 1996. The Company and Mr. Kasen entered
into a Severance Agreement, Waiver and Release, dated as of February 2,
1996 (the "Severance Agreement"), setting forth the terms under which
Mr. Kasen's employment with the Company would terminate. Following the
end of fiscal 1995 and pursuant to the terms of the Severance
Agreement, Mr. Kasen became entitled to certain additional payments
from the Company not shown in the above table. See "-- Employment and
Other Agreements."
(2) Amounts shown for fiscal 1995 include the amount of additional interest
that would have accrued on loans made pursuant to the Stock Purchase
7
Loan Plan had the interest rates on such loans been equal to 120% of
the applicable federal long-term rate, with compounding, at the time
the loans were made (a rate presumed for certain purposes under
Securities and Exchange Commission regulations to be a maximum market
rate), as follows: Mr. Kasen, $46,030; Mr. Kistel, $5,075; Mr. Kraegel,
$14,436; Mr. Bernstein, $6,438; and Mr. James, $3,029. The remainder of
the amounts shown for fiscal 1995 reflects (i) the dollar value of
premiums paid by the Company with respect to term life insurance for
the benefit of each named executive officer and (ii) in the case of Mr.
Kasen, and pursuant to the terms of the Severance Agreement, a
reduction of $774,520 in the amount of principal and accrued interest
outstanding under his loans under the Stock Purchase Loan Plan and a
payment of $606,057 representing the estimated tax liability to Mr.
Kasen arising from the reduction in his loans (see "-- Employment and
Other Agreements").
(3) All of Mr. Kasen's options were forfeited as of February 2, 1996
pursuant to the terms of the Severance Agreement.
Stock Option Holdings
The following table provides certain information concerning stock
options previously granted to the persons named in the Summary Compensation
Table.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Value Options at FY-End at FY-End
Acquired on Realized ------------------------- -------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
Stewart M. Kasen 0 -- 0 0 -- --
C. John Kistel, Jr. 0 -- 0 96,000 -- --
Frederick G. Kraegel 0 -- 0 96,000 -- --
Joe Bernstein 0 -- 0 96,000 -- --
Mark E. James 0 -- 0 64,000 -- --
Stock Purchase Loan Plan
In January 1995, the Board of Directors adopted the Stock Purchase Loan
Plan under which the Compensation Committee may approve loans to officers and
other key associates of the Company for the purpose of acquiring or continuing
to hold shares of the Company's Common Stock. The plan is intended to attract
and retain key associates. As of June 24, 1996, loans with an aggregate
principal amount of approximately $3,180,000, plus accrued interest, were
outstanding.
Each outstanding loan has a term of 10 years but generally becomes due
and payable up to one year following a termination of the participant's
employment. The Company has granted extensions for up to two years on the due
dates of loans for four associates, including one former executive officer,
whose employment has terminated. A loan may be prepaid without penalty at any
time and is subject to mandatory repayments beginning in 1999 in amounts equal
to a specified percentage of the participant's annual cash bonuses, if any. The
loans bear simple interest, due upon maturity, at a rate initially determined by
a formula based on the rate of return on the Company's invested funds. In the
event the participant transfers or pledges any of the shares originally acquired
or held with loan proceeds (the "Original Shares"), the interest rate on the
8
participant's loan immediately increases to a rate determined by a formula based
on the applicable federal long-term rate. No interest rate increase will result
from certain types of transfers, such as those to family members for tax or
estate planning purposes.
Upon the occurrence of a change of control (i) no further interest on a
participant's loan will accrue, (ii) all or a portion of the interest accrued or
paid prior to the change of control will be forgiven or repaid to the
participant based on the percentage of Original Shares still held by the
participant at the time of the change of control or, if earlier, the termination
of the participant's employment (the "Retained Shares") and (iii) if the fair
market value of the Retained Shares is less than the original purchase price of
those shares, the difference will be applied to reduce the loan principal or, if
already paid, repaid to the participant. These change of control provisions
apply only if the participant is still employed by the Company at the time the
change of control occurs or the participant's employment was terminated within
two years prior to the change of control due to death, disability, normal
retirement or a termination by the Company without cause. The plan provides that
any income, excise or employment tax liability arising from payments to
participants or the forgiveness of loan principal or interest as a result of a
change of control will be paid by the Company. The Company will also pay any tax
liability associated with the Company's payments of the participants' taxes. For
purposes of the plan, a "change of control" occurs when (i) there is a change in
the composition of a majority of the Board of Directors when compared with those
who are currently serving and any new members whose election or nomination is
approved by a majority of the current directors (including directors previously
so approved), (ii) the shareholders approve a reorganization, merger or
consolidation which results in the shareholders of the Company immediately prior
to such transaction owning less than a majority of the outstanding stock or
voting power of the corporation resulting from such transaction, (iii) the
shareholders approve the liquidation or dissolution of the Company, (iv) the
shareholders approve the sale or other disposition of 50% or more of the
Company's consolidated assets or earning power, or (v) any person or entity
(other than Chemical Bank) becomes the beneficial owner of 20% or more of the
outstanding shares of Common Stock (except that a transfer by Chemical Bank of
shares representing 20% or more of such outstanding shares will not constitute a
"change of control" unless the transferee is a competitor of the Company).
The following table shows, for each executive officer, the number of
shares of Common Stock acquired or held with the proceeds of loans under the
plan, the interest rate charged and the aggregate amount of all loan principal
and accrued interest outstanding as of June 24, 1996:
Number of Current Loan Principal and
Name Purchased Shares Interest Rate (%) Accrued Interest ($)
---- ---------------- ----------------- --------------------
Stewart M. Kasen (1) 233,530 -- --
C. John Kistel, Jr. 27,268 6.26 205,433
Frederick G. Kraegel 63,661 6.26 515,370
Joe Bernstein 36,470 6.26 270,120
Mark E. James 13,465 6.26 108,401
W. Edward Clingman, Jr. 51,959 6.26 392,754
Sharyn P. Hunt 15,494 6.26 110,145
Wayne T. Tennent 49,475 6.26 375,288
J. Stuart Newton (2) 22,728 -- --
- ------------------------------
(1) Pursuant to the terms of Mr. Kasen's Severance Agreement with the
Company, the Company purchased all 233,530 shares held by Mr. Kasen
under the plan effective February 2, 1996 with the purchase price being
9
paid through the cancellation of outstanding principal and accrued
interest under the loans. The remaining amount of outstanding principal
and accrued interest was also eliminated pursuant to the terms of the
Severance Agreement. The largest aggregate amount of principal and
accrued interest outstanding under Mr. Kasen's loans was $1,752,427.
See "-Employment and Other Agreements."
(2) Mr. Newton left the Company in November 1995, and was granted an
extension for repayment of the loans. The largest aggregate amount of
principal and accrued interest outstanding under Mr. Newton's loans was
$175,463. Mr. Newton has repaid the loans in full.
Pension and Retirement Plans
The Company maintains a tax-qualified pension plan (the "Pension Plan")
which covers substantially all full-time employees who meet certain minimum
service requirements. In February 1995, the Company adopted the Best Products
Co., Inc. Executive Retirement Plan (the "Executive Retirement Plan"), a
nontax-qualified, supplemental retirement plan which provides retirement
benefits for eligible management associates, including all but one of the
executive officers, who meet certain minimum service requirements.
Under the Pension Plan, covered compensation is limited to basic annual
earnings and specifically excludes bonuses, overtime pay, benefit allowances and
Company contributions under the Pension Plan and any other plan of deferred
compensation. Annual benefits under the Pension Plan are currently equal to the
sum of the following: (i) the product of the participant's final average
earnings (the average of the participant's highest five consecutive years of
covered compensation within the latest ten-year period) multiplied by the sum of
(A) 0.75% times the number of years of service (up to ten years) and (B) one
percent times the number of years of service in excess of 10, plus (ii) the
product of 0.25% multiplied by the number of years of service and multiplied
again by the participant's Final Average Earnings in excess of the Career
Average Social Security Wage Base (the average of the taxable Social Security
wage bases during a participant's work lifetime, up to 35 years). Generally, no
benefits vest under the Pension Plan until the participant has at least five
years of credited service.
Approximate Annual Pension Benefit at Age 65(1)
Years of Service
-----------------------------------------------------------------------------------
Final Average
Earnings
10 15 20 25 30
---------- ----------- --------- --------- ----------
$150,000 $13,650 $22,350 $ 31,050 $ 39,750 $ 48,450
200,000 18,650 30,475 42,300 54,125 65,950
300,000 28,650 46,726 64,800 82,875 100,950
400,000 38,650 62,975 87,300 111,625 120,000
500,000 48,650 79,225 109,800 120,000 120,000
600,000 58,650 95,475 120,000 120,000 120,000
700,000 68,650 111,726 120,000 120,000 120,000
800,000 78,650 120,000 120,000 120,000 120,000
- ---------------------------
(1) Under Internal Revenue Service regulations, the maximum amount of
annual compensation which can be taken into account is $150,000 and the
maximum annual benefit which may be paid to any retiree from the
10
Pension Plan is $120,000. These limitations are subject to cost of
living adjustments by the Internal Revenue Service. The pension
benefits shown in the table have been calculated without regard to the
annual compensation limitation but subject to the limit on annual
benefits.
Under the Executive Retirement Plan, covered compensation consists of
all cash compensation, including salary, bonuses and benefit allowances, but
excludes Company contributions under the Pension Plan and any other plan of
deferred compensation. The maximum annual retirement benefit under the Executive
Retirement Plan, generally earned at age 65 with 20 years of service, is 45% of
the final average earnings (the average of the participant's highest five
consecutive years of covered compensation within the latest ten-year period)
reduced by the sum of Social Security benefits, benefits under the Pension Plan,
and the actuarial equivalent of the participant's share of Company contributions
under the Employee Savings/Stock Ownership Plan. The maximum annual benefit
percentage is reduced by one percentage point for each year of service less than
20 years and by one percentage point for each year of age less than 65.
Generally, no benefits vest under the Executive Retirement Plan until the
participant has at least ten years of credited service. If a participant
completes 10 years of service and terminates before age 55, or if the
participant dies or becomes disabled before completing 10 years of service, an
actuarially reduced benefit is paid. With respect to the Company's chief
executive officer, the full retirement benefit is earned at age 65 with 12 years
of service, rather than 20 years, and the CEO will be credited with an
additional eight years of service upon the first to occur of (i) April 23, 1999,
(ii) the CEO's death or disability and (iii) a change of control of the Company.
In the event of a change of control, (i) benefits will be payable immediately
and will be determined based on the greater of the participant's actual age or
age 55 and the greater of the participant's actual years of service or 10 years
of service, and (ii) the Company will pay the participant an amount equal to the
participant's excise tax liability on the benefits as well as any additional
excise, income or health insurance taxes for which the participant is liable by
reason of the Company's payment of such taxes. For purposes of calculating a
participant's benefits in the event of a change of control, "final average
earnings" will be equal to the greater of (i) the participant's annualized
salary at the highest rate in effect during the six months preceding the change
of control plus the participant's target bonus percentage of such amount and
(ii) the five year average described above. For purposes of the Executive
Retirement Plan, "change of control" has the same meaning as in the Stock
Purchase Loan Plan except that the term also includes a termination or
modification of the plan in contemplation of a change of control. See "-Stock
Purchase Loan Plan."
The following table shows estimated annual benefits payable upon
retirement at age 65 to executive officers participating in the Executive
Retirement Plan at the specified levels of earnings and years of service. The
amounts shown are before reduction for amounts payable under the Pension Plan
(shown in the previous table) and other deductions described below.
Approximate Annual Retirement Benefit at Age 65
Years of Service
Final Average -----------------------------------------------
Earnings 10 15 20
------------- ------------- ---------- -----------
$ 200,000 $ 70,000 $ 80,000 $ 90,000
300,000 105,000 120,000 135,000
400,000 140,000 160,000 180,000
500,000 175,000 200,000 225,000
600,000 210,000 240,000 270,000
700,000 245,000 280,000 315,000
800,000 280,000 320,000 360,000
900,000 315,000 360,000 405,000
1,000,000 350,000 400,000 450,000
Under the Executive Retirement Plan, the amount of covered compensation
for fiscal 1995 for each of the participating executive officers named in the
11
Summary Compensation Table is not materially different from the amounts
disclosed in the salary and bonus columns of such table. The number of years of
credited service for each such executive officer is as follows: Mr. Kistel, four
years; Mr. Kraegel, five years; and Mr. James, four years. Messrs. Kasen and
Bernstein are not covered by the Executive Retirement Plan but are eligible to
receive benefits under the Pension Plan. For purposes of the Pension Plan the
covered compensation for fiscal 1995 for Messrs. Kasen and Bernstein is capped
at $150,000 pursuant to the Internal Revenue Service regulations mentioned
above, and their number of years of credited service are six and four,
respectively. The amounts shown in the above tables are computed as if paid on
the basis of a straight life annuity. Benefits under the Executive Retirement
Plan are subject to reduction for Social Security benefits, benefits under the
Pension Plan and the actuarial equivalent of the participant's share of Company
contributions under the Employee Savings/Stock Ownership Plan. Benefits under
the Pension Plan are not subject to reduction for Social Security benefits or
other offset amounts.
Report of the Compensation Committee
The Compensation Committee of the Board of Directors establishes the
Company's philosophy and objectives for management compensation. Its
responsibilities include setting compensation for all officers other than the
Chief Executive Officer and making recommendations for final action to the Board
of Directors with respect to the Chief Executive Officer's compensation and the
design, implementation and modification of incentive and other compensation
programs. The Compensation Committee administers certain of these programs,
including the 1994 Management Stock Option Plan, the 1995 Management Stock
Option Plan and the Stock Purchase Loan Plan.
The Company's overall objective is to offer a management compensation
package that enables the Company to attract and retain high quality associates,
provides appropriate incentives and rewards for achieving Company and individual
performance objectives, and creates a strong focus on long-term performance to
enhance shareholder value. To this end, the Compensation Committee pursues
strategies which will support the Company's success by tying rewards to the
achievement of annual profit objectives and result in above average total cash
compensation if the Company's profit objectives are exceeded, make a significant
portion of total compensation dependent directly on appreciation in the Common
Stock and facilitate management's accumulation of ownership in the Company.
The current members of the Board of Directors (including the members of
the Compensation Committee) other than Daniel H. Levy assumed office on June 14,
1994. Shortly after assuming office, the Compensation Committee authorized the
engagement of independent consultants to conduct a study of the Company's
management compensation levels and programs and to make recommendations as to
existing or new programs that would further the Company's compensation
philosophy and objectives.
As a result of the consultants' study, the Compensation Committee
recommended to the Board of Directors the adoption of the Stock Purchase Loan
Plan and the 1995 Management Stock Option Plan. The Compensation Committee
believes these plans promote stock ownership by management and permit an
appropriate portion of management's future compensation to be tied to stock
price performance, thus more closely aligning the interests of management and
the shareholders. Based on the consultants' advice, the Compensation Committee
also recommended to the Board of Directors the adoption of a more competitive
retirement plan, the Executive Retirement Plan, which the Compensation Committee
believes will better serve to attract and retain highly qualified executives.
Upon the recommendation of the Compensation Committee, the Board of Directors
recently changed the Executive Retirement Plan to reduce the amount of benefits
payable under certain circumstances.
For fiscal 1995, the executive compensation package consisted
principally of base salary, an annual incentive bonus and an opportunity to
participate in the Stock Purchase Loan Plan. In making base salary decisions for
fiscal 1995, the Compensation Committee's goal was to compensate the executive
officers at competitive levels, subject to adjustments to reflect individual
responsibilities and performance. To a lesser extent, the Compensation Committee
also took into consideration the Company's favorable performance in fiscal 1994,
measured principally by the Company's earnings before interest, income taxes,
depreciation and amortization ("EBITDA"). The consultants' study included a
12
broad-based market analysis of salary levels at other retail companies of
similar size to the Company. The Compensation Committee compared the fiscal 1994
salaries of the Company's executive officers (which in most cases were
established prior to the Compensation Committee members' assuming office) to the
median salaries reflected in the market analysis for comparable positions. The
fiscal 1994 salary levels for the Company's executive officers averaged
approximately 5% above the median salaries. Based on the foregoing, the
Compensation Committee approved in the early part of fiscal 1995 average salary
increases of 3% for all executive officers, except two officers whose salaries
were below the median levels for their positions and who received salary
increases of between 5% and 8%.
In view of the Company's poor performance in fiscal 1995, the
Compensation Committee has not approved any increases in the base salaries for
executive officers for fiscal 1996, except for one officer who became an
executive officer by promotion and had an increase in the level of his
responsibilities.
All officers participate in the annual incentive bonus program in
accordance with the terms of their respective employment agreements. See "--
Employment and Other Agreements." The bonus program is designed to motivate
officers and other key associates to achieve the Company's short-term financial
goals. The amount of bonus payable for fiscal 1995 was dependent upon the degree
to which the Company's EBITDA met the performance targeted in the annual
business plan approved by the Board of Directors for such year. Because the
Company's performance for fiscal 1995 fell below the threshold level, no bonuses
were paid for fiscal 1995.
Pursuant to the Stock Purchase Loan Plan, the Compensation Committee
authorized an aggregate of $5 million in loans to be made by the Company in 1995
to the executive officers and other key management associates for the purpose of
acquiring or holding shares of the Company's Common Stock. Management borrowed
the full amount authorized under the 1995 loan program resulting in an aggregate
holding of 716,983 shares pursuant to the plan. The Stock Purchase Loan Plan
provides for limits on the aggregate principal amount of loans outstanding to an
individual participant, ranging from 300% of salary for the CEO to 50% of salary
for associates below the officer level. See "-- Stock Purchase Loan Plan."
Based on the factors previously discussed, the Compensation Committee
recommended to the Board of Directors a 4% increase in base salary for Stewart
M. Kasen, the Company's CEO at that time, with the understanding that Mr.
Kasen's base salary would next be reviewed in fiscal 1997. Because the Company's
minimum performance goals were not met during fiscal 1995, Mr. Kasen did not
receive a bonus for such year under the annual incentive bonus program. Mr.
Kasen borrowed the full amount permitted under the Stock Purchase Loan Plan for
the purpose of acquiring and holding shares of the Company's Common Stock. Mr.
Kasen left the Company on April 23, 1996. On February 2, 1996, the Board of
Directors and Mr. Kasen agreed to initiate a search for Mr. Kasen's successor
and also agreed on the terms of his severance, as reflected in the Severance
Agreement. Pursuant to the terms of the Severance Agreement, the Company
purchased all 233,530 shares of Common Stock which Mr. Kasen held under the
Stock Purchase Loan Plan, with the purchase price being paid through the
reduction of principal and interest under the loans, and the balance of the
loans was eliminated. See "-- Employment and Other Agreements."
Section 162(m) of the Internal Revenue Code imposes a $1 million limit
on the amount of annual compensation that will be deductible by the Company with
respect to each of the Chief Executive Officer and the four other most highly
compensated executive officers. Performance-based compensation that meets
certain requirements will not be subject to this deductibility limit. The
Company designed the 1995 Management Stock Option Plan with the intention of
making this plan meet the requirements for performance-based compensation. It is
currently the Company's intention to seek to qualify future performance-based
compensation programs for this exclusion from the Section 162(m) limitation to
the extent doing so is not inconsistent with the Company's objectives for
management compensation.
Compensation Committee
Donald D. Bennett, Chairman
Margaret A. McKenna
Denis J. Taura
13
Performance Graph
The Company is subject to Securities and Exchange Commission rules
which require all public companies to present a graph in their annual proxy
statement comparing the public company's cumulative total shareholder return
with a broad equity market index and either a published industry index or an
index of peer companies. The following graph compares the cumulative total
shareholder return on the Company's Common Stock with the S&P 500 Composite
Stock Price Index and the S&P Retail Stores Composite Index, for the period from
July 22, 1994 (the date on which the Common Stock became registered under the
Exchange Act) through February 3, 1996, assuming an initial investment of $100
and the reinvestment of all dividends.
Comparison of Cumulative Total Returns
7/22/94 10/31/94 1/27/95 4/28/95 7/31/95 10/31/95 2/2/96
Best Products $100 $ 92 $ 76 $ 87 $101 $ 64 $ 55
S&P 500 $100 $105 $105 $115 $126 $131 $144
S&P Retail Stores $100 $101 $ 96 $99 $111 $ 98 $105
Employment and Other Agreements
Stewart M. Kasen. The Company and Mr. Kasen entered into the Severance
Agreement setting forth the terms, which are summarized below, under which Mr.
Kasen's employment with the Company would terminate. The Severance Agreement
superseded most of the provisions of Mr. Kasen's employment agreement with the
Company dated August 13, 1992, as amended. Pursuant to the Severance Agreement,
Mr. Kasen continued to serve as Chairman, President and Chief Executive Officer
of the Company until April 23, 1996 and is entitled to receive a base salary at
his annual rate of $575,000 through July 31, 1996. Mr. Kasen is also entitled to
(i) a severance payment previously provided under the employment agreement equal
to $287,500, representing six months of his base salary, (ii) a pro rata portion
of the target bonus previously provided for under the employment agreement
(i.e., 50% of his base salary prorated for that portion of the current fiscal
period ending on July 31, 1996) and (iii) the sum of $1,000,000, which sum was
14
in lieu of any entitlement he might otherwise have had under the terms of his
employment agreement to a percentage of the increase in the equity value of the
Company's Common Stock (including any entitlement to the alternative minimum
payment of $1,000,000 otherwise required under certain circumstances pursuant to
the employment agreement). The Company deposited into a trust the payments
described in the preceding sentence. The payments were discounted by the
expected earnings on the trust amounts through July 31, 1996. Under the terms of
the Severance Agreement, Mr. Kasen was entitled to receive the amounts held in
trust upon the earlier of July 31, 1996 or the termination of his employment,
unless Mr. Kasen's employment was terminated for cause prior to July 31, 1996,
in which case his entitlement to the trust amounts would have been forfeited as
would his right to receive the unpaid portion of his base salary. The trust
amounts were distributed to Mr. Kasen following his termination on April 23,
1996.
Pursuant to the Severance Agreement, the Company has purchased all
233,530 shares of Common Stock which Mr. Kasen held under the Stock Purchase
Loan Plan. The purchase price was $4.1875 per share (the closing price on the
effective date of the Severance Agreement) and was paid through the cancellation
of outstanding principal of and accrued interest on the loans incurred by Mr.
Kasen to purchase such shares. The remaining $774,520 of outstanding principal
and accrued interest was eliminated through reduction of the original purchase
price of certain of the shares and cancellation of the remaining indebtedness.
The Company has also paid Mr. Kasen $606,057 representing the estimated amount
of Mr. Kasen's income and employment tax liability incurred as a result of the
elimination of the remaining loan principal and interest. The Severance
Agreement provides for adjustment of this amount upon determination of his
actual tax liability.
Under the terms of the Severance Agreement, all of Mr. Kasen's options
were forfeited as of February 2, 1996 and Mr. Kasen waived any claim he may have
to benefits under the Executive Retirement Plan. Mr. Kasen is entitled to
continued or comparable coverage under the Company's medical, dental and
disability plans for a period of twelve months following the termination of his
employment. Mr. Kasen has agreed not to compete in the catalog showroom and
jewelry retail industry for a period of twelve months following the termination
of his employment.
Daniel H. Levy. The Company has entered into an employment agreement
dated April 23, 1996 with Daniel H. Levy. The term of the employment agreement
is for a rolling two-year period. The agreement provides that Mr. Levy will
receive a base salary at an annual rate of not less than $650,000 and will be
entitled to an incentive bonus in respect of each fiscal year in an amount not
to exceed 75% of his base salary earned in such fiscal year. The amount of
incentive bonus payable, if any, for any fiscal year will depend upon the
Company's financial performance during such year in relation to the performance
targeted in the annual business plan (the "Target") approved by the Board of
Directors for such year, as follows: (i) if the Company's performance equals 90%
of the Target, 25% of his base salary, (ii) if the Company's performance equals
the Target, 50% of his base salary and (iii) if the Company's performance equals
or exceeds 125% of Target, 75% of his base salary. If the Company's performance
falls between any of the aforementioned levels, the amount of incentive bonus
will be prorated. Pursuant to the employment agreement, Mr. Levy received a
signing bonus of $650,000, a grant of options to purchase 330,000 shares of
Common Stock under the Company's 1994 Management Stock Option Plan and a grant
of options to purchase 420,000 shares of Common Stock under the Company's 1995
Management Stock Option Plan. One half of the foregoing options were vested upon
grant; the other half will vest upon the first to occur of April 23, 1997, the
termination of Mr. Levy's employment by the Company without cause or a change of
control of the Company. All such options have an exercise price equal to the
fair market value of the Common Stock on the date of grant. Except as provided
below, in the event Mr. Levy's employment is terminated without cause or Mr.
Levy resigns after either a change of control of the Company or the institution
of certain bankruptcy or similar proceedings by or against the Company, Mr. Levy
will be entitled to either (i) 12 months unmitigated compensation if such
termination becomes effective on or before April 23, 1998 or (ii) 24 months
unmitigated compensation if such termination becomes effective after such date.
The Company has agreed to provide an irrevocable letter of credit or other
mutually satisfactory security to secure payment of the foregoing severance
benefits through April 23, 1998, and thereafter if Mr. Levy shall deem it
warranted by the financial condition of the Company. With respect to any of the
severance events described above, Mr. Levy will also be entitled to (i)
continued coverage under the Company's medical, dental, life insurance and total
disability benefit plans or arrangements for a period of 24 months, subject to
mitigation to the extent substantially similar benefits are provided by any
15
successor employer and (ii) a pro rata portion of his target bonus amount. Mr.
Levy has agreed, for a period of 12 months following termination of his
employment, not to compete in the catalog showroom and jewelry retail industry
or any other business of a type that constitutes a substantial portion of the
Company's business at the time his employment terminates, provided the Company
is not in default of its obligations under the agreement and provided that Mr.
Levy will be relieved of his obligation not to compete following a termination
of his employment by the Company without cause if he agrees that certain of his
severance benefits will be subject to mitigation by amounts received by Mr. Levy
from a successor employer. For purposes of Mr. Levy's employment agreement,
"change of control" has the same meaning as in the Stock Purchase Loan Plan. See
"-- Stock Purchase Loan Plan."
Certain Other Employment Agreements. The Company has employment
agreements, which are summarized below, with each of its executive officers
named in the Summary Compensation Table, other than Mr. Kasen (whose Severance
Agreement is described above). The purpose of such agreements is to provide the
Company with continuity of management by providing these officers with
appropriate assurances of employment security sufficient to allow them to
concentrate on their duties for the Company without distraction. The agreements
currently expire June 14, 1997, with automatic extensions for 12-month periods
unless the Company gives 90 days prior written notice of termination. The levels
of salary, other compensation and the formula upon which bonuses are calculated
for such officers will be no less favorable to the officers than those in effect
on June 14, 1994. In the event that (i) the officer's employment is terminated
without cause, (ii) the Company gives notice that the officer's employment
agreement will not be renewed or (iii) the officer resigns for good reason
(including a material adverse change in the terms or conditions of the officer's
employment) within specified periods following a "change of control," such
officer will be entitled to 18 months' lump sum unmitigated compensation, plus a
pro rata portion of such officer's target bonus amount and six months' mitigated
compensation (i.e., compensation reduced by the amount of any compensation
received from new employment) commencing upon the end of the applicable
unmitigated compensation period. With respect to all such severance events,
medical insurance will be continued and paid by the Company until the earlier of
the officer's coverage through other employment or the end of the severance pay
period. In the event of a change of control, the Company will increase any
payments or benefits to the officer under the employment agreement, the stock
option plans, the Stock Purchase Loan Plan, the Executive Retirement Plan or any
other Company program, as necessary to cover any excise taxes for which the
officer may become liable by reason of such payments or benefits plus any excise
and income taxes for which the officer becomes liable by reason of such
increase. Each such officer has agreed not to compete in the catalog showroom
retail industry following termination of his employment for a period equal to
the lesser of 12 months or the number of months during which the officer
receives severance pay. For purposes of these agreements, "change of control"
has the same meaning as in the Stock Purchase Loan Plan. See "-- Stock Purchase
Loan Plan."
Each such executive officer will also be entitled to an officer
incentive bonus in respect of each fiscal year in an amount not to exceed a
percentage of his or her base salary earned in such fiscal year. The amount of
officer incentive bonus payable, if any, for any fiscal year will depend upon
the Company's financial performance during such year in relation to the Target,
as follows: (i) if the Company's performance equals 90% of the Target, 20% of
the officer's base salary, (ii) if the Company's performance equals the Target,
40% of the officer's base salary and (iii) if the Company's performance equals
or exceeds 125% of the Target, 60% of the officer's base salary. If the
Company's performance falls between any of the aforesaid levels, the amount of
officer incentive bonus will be prorated.
16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions Related to the Chapter 11 Case
The Company has been a party to various transactions related to the
Company's case commenced in January 1991, under Chapter 11 of the Bankruptcy
Code (the "Chapter 11 Case"). Pursuant to the Plan of Reorganization, the
Company emerged from the Chapter 11 Case on the Plan Effective Date. Certain of
these transactions have involved persons who on the Plan Effective Date held
five percent or more of the outstanding Common Stock, as described below.
Each such transaction and settlement was negotiated at arms' length.
In respect of claims by Chemical Bank and Metropolitan Life Insurance
Company ("MetLife") against the Company in the Chapter 11 Case, and pursuant to
the Plan of Reorganization, Chemical Bank and MetLife were issued on the Plan
Effective Date 9,643,048 and 1,900,000 shares of Common Stock, respectively,
plus warrants exercisable until December 12, 1998 to purchase an additional
910,225 and 750,359 shares, respectively, at a price per share of $8.27.
Under certain circumstances, the Company may be required by the Plan
of Reorganization to issue contingent warrants for the purchase of Common Stock
to certain persons, including Chemical Bank and MetLife. The Company currently
believes no such contingent warrants will be required to be issued. Assuming it
were necessary to issue contingent warrants, the contingent warrants would (i)
be exercisable until June 14, 1998, (ii) have exercise price(s) set at a 20%
premium over the then current market price(s) of the Common Stock and (iii)
entitle the holders thereof, in the aggregate, to purchase a number of shares
determined pursuant to a formula which under the Black-Scholes model for value
calculation would provide the holders with contingent warrants having a
formulated value of $276 for each $1,000 of the relevant allowed amounts of the
holders' claims in the Chapter 11 Case in excess of $344.6 million.
On the Plan Effective Date, the Company entered into a Shelf
Registration Rights Agreement with each of Chemical Bank and MetLife. Under the
terms of this agreement, the Company is obligated to use reasonable commercial
efforts to file and cause to be declared effective a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), for the
offering on a continuous or delayed basis of their shares of Common Stock,
subject to customary terms. The Company is obligated to use reasonable
commercial efforts to keep such registration continuously effective for at least
two years. On November 2, 1994, MetLife waived its rights as a party under such
agreement. Pursuant to the Shelf Registration Rights Agreement, the Company has
filed a registration statement which, as of the date hereof, has not yet been
declared effective by the Securities and Exchange Commission. On the Plan
Effective Date, the Company also entered into a second registration rights
agreement with Chemical Bank under which Chemical Bank may, at any time
following the expiration of the Shelf Registration Rights Agreement and on or
before June 14, 1999, subject to customary conditions, request up to two
registrations under the Securities Act for the offer and sale of any Common
Stock which was issued to Chemical Bank on the Plan Effective Date or pursuant
to the warrants described above.
Pursuant to the Plan of Reorganization, on the Plan Effective Date the
Company entered into an agreement (the "Shareholder Agreement") with Chemical
Bank under which the Company may not, without Chemical Bank's prior written
consent, (i) issue shares of preferred stock having voting rights other than
those required by law, (ii) adopt a shareholder rights plan, (iii) amend the
Company's Restated Articles of Incorporation (the "Articles") so as to elect to
be governed by the "affiliated transactions" or "control share acquisitions"
provisions of the Virginia Stock Corporation Act, or (iv) amend the Articles to
change the percentage of outstanding Common Stock required to amend the Bylaws,
remove directors or call a special meeting of shareholders. The Shareholder
Agreement also provides, among other things, that (i) Chemical Bank has the
right to designate an observer to attend meetings of the Company's Board of
Directors and (ii) in the event of certain vacancies on the Board of Directors,
the Company will retain a nationally recognized executive search firm to
identify individuals from among whom the Board of Directors will select a
replacement nominee. The Shareholder Agreement will terminate upon the earlier
17
to occur of June 14, 1999 (the fifth anniversary of the Plan Effective Date) and
the first date on which Chemical Bank beneficially owns less than 10% of the
then outstanding Common Stock. Chemical Bank's rights under the Shareholder
Agreement are not assignable except to Chemical Bank's parent or certain
wholly-owned subsidiaries of such parent. Chemical Bank has agreed to preserve
the confidentiality of all materials and information received by it pursuant to
the Shareholder Agreement.
Other
The CIT Group/Business Credit, Inc. ("CIT"), a subsidiary of The CIT Group
Holdings, Inc. ("CIT Holdings"), is a lender, and serves as agent for the
lenders, under the Company's $300 million revolving credit facility dated as of
February 7, 1996 (the "Credit Facility"). Approximately 20% of the equity
interest in CIT Holdings is held by a subsidiary of The Chase Manhattan
Corporation, the parent company of Chemical Bank. As the letter of credit issuer
under the Credit Facility, Chemical Bank issues import and standby letters of
credit and creates acceptances to facilitate the Company's importing of
merchandise. Under the terms of the Credit Facility and related agreements, the
Company has agreed to pay to CIT, as agent for the lenders, (i) a commitment fee
equal to .5% per annum of the unused portion of the line and (ii) 1.5% per annum
on the average daily exposure on outstanding letters of credit and acceptances.
As of June 24, 1996, the Company has paid to CIT, for its own account and the
account of the other lenders, aggregate fees (including commitment fees, agency
fees, closing and syndication fees and letter of credit and acceptance fees) of
less than 250 basis points on the total facility commitment. The largest amount
of outstanding borrowings by the Company under the Credit Facility was $51.9
million through June 24, 1996. Interest rates on such borrowings ranged from
8.44% to 9.50%. The Credit Facility is secured by a lien on all otherwise
unencumbered assets of the Company, including inventory and general intangibles.
The Credit Facility and related agreements were negotiated in the ordinary
course of business on terms which the Company believes are no more or less
favorable to the Company than if entered into with unaffiliated parties.
Pursuant to the Plan of Reorganization, the Company and MetLife entered
into an Amended and Restated Loan Agreement dated June 14, 1994 (the "MetLife
Agreement") evidencing the Company's obligations in respect of MetLife's secured
claims in the Chapter 11 Case. On February 7, 1996, the Company paid MetLife a
fee of $500,000 and made a $6.5 million principal prepayment in connection with
an amendment to the MetLife Agreement. As of June 24, 1996, the outstanding
principal under the MetLife Agreement was $117.8 million. The terms of the
MetLife Agreement provide for interest on the loans at 8% per annum, mandatory
annual principal payments beginning in 1997 and final maturity of the loans on
February 10, 2004. The loans are secured by liens on the Company's leasehold and
fee interests in certain stores, the Company's headquarters and two distribution
centers. The terms of the MetLife Agreement were negotiated during the Chapter
11 Case and approved as part of the Plan of Reorganization.
Wheat First Butcher Singer Inc. performs services for the Company from time
to time in the ordinary course of business, including investment banking
services. Mr. Wishnack is a director of the Company and Chairman and Chief
Executive Officer of Wheat First Butcher Singer Inc.
Most of the Company's executive officers participate in the Stock Purchase
Loan Plan and have received loans from the Company under such plan for the
purpose of acquiring or holding shares of Common Stock. See "EXECUTIVE
COMPENSATION -- Stock Purchase Loan Plan."
18
OTHER EXECUTIVE OFFICERS
In addition to Daniel H. Levy, the following persons are executive officers
of the Company:
Joe Bernstein, 64, has been Senior Vice President-Jewelry of the Company since
February 1992. Mr. Bernstein served as Senior Vice President of Kay Jewelers,
Inc. from 1983 to 1990.
W. Edward Clingman, Jr., 43, has been Senior Vice President, General Counsel and
Secretary since June 1996. From March 1993 to June 1996, Mr. Clingman served as
Vice President-General Counsel and Secretary. Prior to his employment with the
Company, he was a partner of the law firm of McGuire, Woods, Battle & Boothe,
L.L.P.
C. Grant Cottingham, 57, has been Senior Vice President-Stores since June 1996.
Prior to June 1996, Mr. Cottingham served as a Vice President of Sales.
Sharyn P. Hunt, 37, has served as Vice President and Controller since October
1994 and as Assistant Secretary since January 1994. Prior to October 1994, Ms.
Hunt served as Director of Property Administration (from January 1994 to October
1994) and in various director positions in the finance and accounting areas
(from June 1990 to January 1994).
Mark E. James, 47, has been Senior Vice President-Marketing and Advertising
since March 1992. From 1988 to 1992, Mr. James served as Vice President of
Marketing and Advertising of Builders Square, a building supply and home
improvement chain which is a division of Kmart Corp.
C. John Kistel, Jr., 46, has been Senior Vice President-Home Furnishings since
July 1991. Mr. Kistel served as Senior Vice President and General Merchandise
Manager of Weinstock's, a Sacramento-based department store chain, from 1990 to
1991.
Frederick G. Kraegel, 48, has been Senior Vice President and Chief Financial
Officer since March 1991, and also served as Treasurer from March 1994 until May
1994.
Wayne T. Tennent, 50, has been Senior Vice President-Human Resources since June
1996. From June 1992 to June 1996, Mr. Tennent served as Vice President-Human
Resources. Prior to June 1992, Mr. Tennent served as Vice
President-Administration. At various times he has also served as Assistant
Secretary.
OTHER BUSINESS
The Board of Directors knows of no other matters which are to be presented
for action at the meeting; however, if any other matters are properly brought
before the meeting, or any adjournment thereof, the persons named in the
accompanying proxy or their substitutes will vote such proxy in accordance with
their best judgment.
19
ADDITIONAL INFORMATION
Voting Requirements
Presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting will
constitute a quorum. Action on a matter submitted to the shareholders will be
approved if the votes cast in favor of the action exceed the votes cast opposing
the action, except that the seven nominees receiving the greatest number of
votes cast for the election of directors will be selected. Shares for which the
holder has elected to abstain or the proxies' authority to vote has been
withheld (including broker non-votes) on a matter will count toward a quorum but
will have no effect on the action taken with respect to a matter. A "broker
non-vote" is a vote withheld by a broker on a particular matter in accordance
with stock exchange regulations because the broker has not received instructions
from the customer for whose account the shares are held.
Shareholder Proposals for Inclusion in the Proxy Statement
Shareholder proposals must be received at the Company's principal executive
offices (1400 Best Plaza, Richmond, Virginia 23227) on or before January 3, 1997
in order to be considered for inclusion in the Proxy Statement for the 1997
Annual Meeting of Shareholders. Any such proposal must meet the applicable
requirements of the Exchange Act and the rules and regulations thereunder.
Other Shareholder Proposals and Nominations
The Company's Bylaws prescribe the procedures that a shareholder must
follow to nominate directors for election at an annual or special meeting or to
bring other business before an annual meeting (other than business which the
shareholder has sought to have included in the Company's proxy statement for
such meeting). The Chairman of the meeting may refuse to recognize the
nomination of any person as a director or any other proposal by a shareholder
not made in compliance with these procedures. The following summary of these
procedures is qualified by reference to the Company's Bylaws, a copy of which
may be obtained, without charge, upon written request to the Secretary of the
Company at the address shown below.
A shareholder who desires to nominate a director for election at a meeting
of shareholders must give timely written notice thereof to the Company and be a
shareholder of record both at the time such notice is given and on the record
date for the meeting. To be timely, a shareholder's notice must be received (i)
in the case of an annual meeting, in March of the year in which the meeting will
be held if the meeting date is in June, otherwise not less than 60 days before
the annual meeting; or (ii) in the case of a special meeting called for the
purpose of electing directors, not later than the close of business on the tenth
day following the day on which notice of the special meeting is first given to
shareholders. The notice must contain the information specified in the Bylaws
regarding the shareholder giving the notice and each person whom the shareholder
wishes to nominate for election as a director. The notice must be accompanied by
the written consent of each proposed nominee to serve as a director if elected
and a statement by such nominee that the information about him contained in the
notice is correct.
A shareholder who desires to bring any other business before an annual
meeting (other than business which the shareholder has sought to have included
in the Company's proxy statement for such meeting) must give timely written
notice thereof to the Company and be a shareholder of record both at the time
such notice is given and on the record date for the meeting. To be timely, a
shareholder's notice must be received in March of the year in which the meeting
will be held if the meeting date is in June; otherwise, such notice must be
received not less than 60 days before the meeting. The notice must set forth a
brief description of the business desired to be brought before the meeting
20
(including the complete text of any resolutions to be presented) and the reasons
for wanting to conduct such business as well as certain information concerning
the shareholder proposing such business.
The notices described above must be given at the Company's principal
executive offices (1400 Best Plaza, Richmond, Virginia 23227), either by
personal delivery to the Secretary or an Assistant Secretary of the Company or
by first class United States mail, postage prepaid, addressed to the Secretary
of the Company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. Such
officers, directors and greater than 10% shareholders are required by regulation
to furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for fiscal 1995, the Company believes that all
of its executive officers, directors and greater than 10% beneficial owners
complied with all filing requirements applicable to them with respect to
transactions during fiscal 1995 except that Donald D. Bennett filed late two
required monthly reports covering two transactions and Marshall B. Wishnack
filed late an end of year report showing a change in the form of his beneficial
ownership resulting from a transfer of shares into a family trust and an initial
statement of ownership for such trust. Independent Auditors
The Board of Directors, upon the recommendation of its Audit Committee, has
selected KPMG Peat Marwick LLP as independent auditors to audit and report upon
the financial statements of the Company for the fiscal year ending February 1,
1997. KPMG Peat Marwick LLP has served as independent auditors for the Company
since 1984. A representative of KPMG Peat Marwick LLP is expected to be present
at the Annual Meeting for the purpose of making a statement if he or she desires
to do so and to be available to respond to appropriate questions from
shareholders.
Solicitation of Proxies
The cost of soliciting proxies is being paid by the Company. In addition to
solicitation by mail, officers and other associates of the Company, at no
additional compensation, may request the return of proxies by personal
conversations or by telephone, telecopy or telegraph. It is also expected that,
for a fee of $10,000 plus reimbursement of certain expenses, additional
solicitation will be made by personal interview, telephone, telecopy and
telegraph under the direction of the proxy solicitation firm of Georgeson & Co.,
Inc.
By Order of the Board of Directors
W. Edward Clingman, Jr.
Senior Vice President, General Counsel
and Secretary
July 12, 1996
21
BEST PRODUCTS CO., INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby appoints Daniel
H. Levy, Frederick G. Kraegel and W. Edward Clingman, Jr., and each of them,
proxies with full power of substitution to represent the undersigned at the
Annual Meeting of Shareholders of Best Products Co., Inc. (the "Company") to be
held on August 22, 1996, and to vote, as directed on the reverse side, all
shares of Common Stock of the Company which the undersigned would be entitled to
vote if personally present.
The undersigned acknowledges receipt of the Notice of the Annual
Meeting and of the Proxy Statement attached thereto.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
(X)Please mark votes as in this example.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted "FOR" the election of the nominees named in Proposal 1.
1. ELECTION OF DIRECTORS.
Nominees: Daniel H. Levy, Donald D. Bennett, Margaret A. McKenna,
Robert E. Northam, Robert A. O'Connell, Denis J. Taura,
Marshall B. Wishnack.
( ) FOR ( ) WITHHELD
( ) FOR all nominees except as noted.
(Instruction: To withhold authority to vote for any of the individual
nominees write the nominee's name above.)
2. In their Discretion, the proxies are authorized to vote upon such
other business as they properly come before the meeting.
( ) MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
Please sign exactly as name at left, if
shares are held by two or more persons
as joint tenants, any of such persons
may sign. When signing as attorney,
exectutor, administrator, trustee
guardian, etc., give full title as such.
If a coporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Please mark, sign, date and Signature: _______________ Date: ________
return the proxy using the
enclosed envelope. Signature: _______________ Date: ________