<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
FILED BY REGISTRANT [X] FILED BY A PARTY OTHER THAN
REGISTRANT [_]
----------------
Check the appropriate box:
[_]Preliminary Proxy Statement
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
[_]Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
----------------
SPECIALTY CATALOG CORP.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[X]No Fee required
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1)Title of each class of securities to which transaction applies:
(2)Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4)Proposed maximum aggregate value of transaction:
(5)Total fee paid:
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of the filing.
(1)Amount Previously Paid:
(2)Form, Schedule or Registration Statement No.:
(3)Filing Party:
(4)Date Filed:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SPECIALTY CATALOG CORP.
21 BRISTOL DRIVE, SOUTH EASTON, MASSACHUSETTS 02375
(508) 238-0199
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of the Shareholders of Specialty Catalog Corp. (the
"Company"), a Delaware corporation, will be held at Patricof & Co. Capital
Corp., 445 Park Avenue, New York, New York, at 11:00 a.m. on Tuesday, May 19,
1998 for the following purposes:
1. To elect directors of the Company;
2. To consider and vote upon a proposal to amend the Company's 1996 Stock
Incentive Plan to increase the number of shares authorized for
issuance thereunder from 500,000 shares to 750,000 shares; and
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed March 20, 1998 as the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting of Shareholders. Accordingly, only shareholders of record at the close
of business on March 20, 1998 will be entitled to notice of and to vote at
such meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. THEREFORE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE YOUR PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOUR
PROXY WILL NOT BE USED.
By order of the Board of Directors,
/s/ Stephen M. O'Hara
Stephen M. O'Hara
Secretary
Dated: April 10, 1998
<PAGE>
SPECIALTY CATALOG CORP.
21 BRISTOL DRIVE, SOUTH EASTON, MASSACHUSETTS 02375
(508) 238-0199
----------------
PROXY STATEMENT
----------------
GENERAL INFORMATION
The enclosed proxy is solicited on behalf of the Board of Directors of
Specialty Catalog Corp. (the "Company") for use at the Annual Meeting of
Shareholders to be held on Tuesday, May 19, 1998, and at any adjournments
thereof (the "Meeting").
The Company's principal executive office is located at 21 Bristol Drive,
South Easton, Massachusetts 02375.
The cost of soliciting proxies by mail, telephone, telegraph or in person
will be borne by the Company. The Company has retained the services of
Continental Stock Transfer And Trust Company, the Company's transfer agent
based in New York, to whom the Company will pay a fee plus reimbursement for
mailing and out-of-pocket expenses. In addition to solicitation by mail, the
Company will reimburse brokerage houses and other nominees for their expenses
incurred in sending proxies and proxy material to the beneficial owners of
shares held by them.
The Company's Annual Report on Form 10-K is included in the Company's Annual
Report to Shareholders, and is being furnished to shareholders of record
together with this Proxy Statement, on or about April 10, 1998. Requests for
additional copies should be directed to: Specialty Catalog Corp., 21 Bristol
Drive, South Easton, Massachusetts 02375.
You may revoke your proxy at any time prior to its use by giving written
notice to the Secretary of the Company, by executing a revised proxy at a
later date or by attending the Meeting and voting in person. Proxies in the
form enclosed, unless previously revoked, will be voted at the Meeting in
accordance with the specifications made by you thereon or, in the absence of
such specifications, in favor of the election of the nominees for directors
listed herein, in favor of the proposal to amend the Company's 1996 Stock
Incentive Plan to increase the number of shares authorized for issuance
thereunder from 500,000 shares to 750,000 shares and with respect to any other
business which may properly come before the Meeting, in the discretion of the
named proxies. If, in a proxy submitted on your behalf by a person acting
solely in a representative capacity, the proxy is marked clearly to indicate
that the shares represented thereby are not being voted with respect to one or
more proposals, then your proxy will not be counted as present at the Meeting
with respect to such proposals. Proxies submitted with abstentions as to one
or more proposals will be counted as present for purposes of establishing a
quorum for such proposals.
Only shareholders of record at the close of business on March 20, 1998, are
entitled to notice of, and to vote at, the Meeting or any adjournment or
postponement thereof. The Company had outstanding on March 20, 1998, 5,057,001
shares of Common Stock, each of which is entitled to one vote upon the matters
to be presented at the Meeting. The presence, in person or by proxy, of a
majority of the issued and outstanding shares of Common Stock will constitute
a quorum for the transaction of business at the Meeting. Votes withheld from
any nominee, abstentions and broker "non-votes" are counted as present or
represented for the purposes of determining the presence or absence of a
quorum for the Meeting. A broker "non-vote" occurs when a nominee holding
shares for a beneficial owner votes on one proposal, but does not vote on
another proposal because the nominee does not have discretionary voting power
and has not received instructions from the beneficial owner. Abstentions are
included in the number of shares present or represented and voting on each
matter. Broker "non-votes" are not so included.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table and footnotes sets forth certain information regarding
the beneficial ownership of the Company's Common Stock as of March 20, 1998 by
(i) each person known by the Company to own beneficially five percent or more
of the Common Stock, (ii) each of the Company's directors, (iii) each of the
executive officers named in the Summary Compensation Table and (iv) all
directors and executive officers as a group. The Company believes that each of
the beneficial owners of the Common Stock listed in the table, based on
information furnished by such owner, has sole investment and voting power with
respect to such shares:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED PERCENTAGE (1)
- ---- ------------------ --------------
<S> <C> <C>
Steven L. Bock............................. 440,160(2) 8.16%
Stephen M. O'Hara.......................... 278,773(3) 5.32%
J. William Heise........................... 6,000(4) *
Jerral R. Pulley........................... --(5) --
Alan S. Cooper............................. 2,500(6) *
Dickstein Partners
660 Madison Avenue
New York, New York 10021
Guy Naggar................................. 404,167(7) 7.99%
Dawnay, Day & Co., Ltd
15 Grosvenor Gardens
London, England SW1W0BD
Samuel L. Katz............................. 93,075(6) 1.84%
Cendant Corporation
6 Sylvan Way
Parsippany, New Jersey 07054
Andrea Pomerantz Lustig.................... 2,500(8) *
Cosmopolitan Magazine
224 West 57th Street, 8th Floor
New York, New York 10019
Martin E. Franklin......................... 230,688(9) 4.56%
Lumen Technologies, Inc.
555 Theodore Fremd Avenue
Rye, New York 10580
Dickstein Partners L.P..................... 1,347,689(10) 26.65%
Dickstein & Co., L.P.................... 853,153(10) 16.87%
660 Madison Avenue
New York, New York 10021
Dickstein International Limited......... 358,655(10) 7.09%
129 Front Street
Hamilton, Bermuda
Dickstein Focus Fund L.P................ 135,881(10) 2.69%
660 Madison Avenue
New York, New York 10021
Wellington Management Company L.L.P........ 470,000(11) 9.29%
75 State Street
Boston, MA 02109
Wellington Trust Company, N.A........... 300,000(11) 5.93%
75 State Street
Boston, MA 02109
All executive officers and directors as a
group (8 persons)......................... 1,457,863(12) 26.02%
</TABLE>
- --------
* Indicates less than 1%
2
<PAGE>
(1) Applicable percentage of ownership is based upon 5,057,001 shares
outstanding. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission ("Commission") and
generally includes voting and investment power with respect to securities.
Shares of Common Stock issued upon the exercise of options and warrants
currently exercisable or exercisable within 60 days are deemed outstanding
for computing the percentage ownership of the person holding such options
or warrants, but are not deemed outstanding for computing the percentage
ownership of any other person.
(2) Includes 310,226 shares of Common Stock underlying stock options which
became exercisable upon the consummation of the Company's initial public
offering at a price of $0.31 per share; 15,000 shares of Common Stock
underlying stock options which became exercisable one year following the
Company's initial public offering at a price of $5.33 per share; and
15,000 shares of Common Stock underlying stock options under the 1996
Stock Incentive Plan (the "Plan") which became exercisable one year
following the Company's initial public offering at a price of $6.50 per
share.
(3) Includes 182,773 shares of Common Stock underlying stock options which
became exercisable upon the consummation of the Company's initial public
offering at a price of $0.31 per share, and 5,000 shares of Common Stock
underlying options issued under the Plan which became exercisable one year
following the Company's initial public offering at a price of $6.50 per
share.
(4) Includes 6,000 shares of Common Stock underlying stock options issued
under the Plan which became exercisable one year following the Company's
initial public offering at a price of $6.50 per share.
(5) Mr. Pulley forfeited all options granted to him when he left the Company
in October, 1997.
(6) Includes 2,500 shares of Common Stock underlying stock options issued
under the Plan which became exercisable upon consummation of the Company's
initial public offering at a price of $6.50 per share.
(7) Includes 401,667 shares of Common Stock which was the amount attributed to
the shareholder and received by him upon dissolution of Viking Holdings
Limited; includes 2,500 shares of Common Stock underlying stock options
issued under the Plan which became exercisable upon consummation of the
Company's initial public offering at a price of $6.50 per share.
(8) Includes 2,500 shares of Common Stock underlying stock options issued
under the Plan which are exercisable at an exercise price of $6.88 per
share.
(9) Includes 2,500 shares of Common Stock underlying stock options issued
under the Plan which became exercisable upon consummation of the Company's
initial public offering at an exercise price of $6.50 per share.
(10) Of the 1,347,689 total shares reported, Dickstein & Co., L.P. owns
beneficially 853,153 of such shares, Dickstein Focus Fund L.P. owns
beneficially 135,881 of such shares and Dickstein International Limited
owns beneficially 358,655 of such shares. Dickstein & Co., L.P. disclaims
beneficial ownership of 135,881 shares owned by Dickstein Focus Fund L.P.
and 358,655 shares owned by Dickstein International Limited. Dickstein
Focus Fund L.P. disclaims beneficial ownership of 853,153 shares owned by
Dickstein & Co., L.P. and 358,655 shares owned by Dickstein International
Limited. Dickstein International Limited disclaims beneficial ownership
of 853,153 shares owned by Dickstein & Co., L.P. and 135,881 shares owned
by Dickstein Focus Fund L.P. Dickstein & Co., L.P., Dickstein
International Limited and Dickstein Focus Fund L.P. are private
investment funds. Dickstein Partners, L.P. is the general partner of
Dickstein & Co., L.P. and Dickstein Focus Fund L.P. Dickstein Partners
Inc. is the general partner of Dickstein Partners, L.P. and is the
advisor to Dickstein International Limited. Mark B. Dickstein is the
President and sole director of Dickstein Partners Inc.
(11) Of the 470,000 total shares reported, Wellington Management Company
L.L.P. owns beneficially 170,000 of such shares and Wellington Trust
Company, N.A. owns beneficially 300,000 of such shares. Wellington
Management Company L.L.P. disclaims beneficial ownership of 300,000
shares owned by Wellington Trust Company, N.A. Wellington Trust Company,
N.A. disclaims beneficial ownership of 170,000 shares owned by Wellington
Management Company L.L.P.
(12) Includes 546,499 shares of Common Stock underlying stock options which
are currently exercisable.
3
<PAGE>
ELECTION OF DIRECTORS
PROPOSAL 1
The Board of Directors has set the number of Board members at six for the
upcoming year. Each director is elected to hold office until the next annual
meeting of shareholders, or special meeting in lieu thereof, and until their
respective successors are duly elected and qualified. The Board has nominated
all of the current members of the Board for reelection. The affirmative vote
of a plurality of the shares of Common Stock present at the Meeting, in person
or by proxy, is required for the reelection of the members of the Board.
Unless authority to do so is withheld, the persons named in each proxy
(and/or their substitutes) will vote the shares represented thereby "FOR" the
election of the director nominees named below. If for any reason any nominee
is not a candidate (which is not now expected), a new nominee will be
designated by the Board to fill such vacancy, unless the Board of Directors
shall reduce the number of directors in accordance with the By-Laws of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES NAMED
BELOW.
INFORMATION AS TO DIRECTORS AND NOMINEES FOR DIRECTOR
There is shown below for each director and nominee for director, as reported
to the Company, the name, age and family relationship, if any, with any other
director or officer, the principal occupation and employment over at least the
last five years, the position, if any, with the Company, the period of service
as a director of the Company, and certain other directorships held.
<TABLE>
<CAPTION>
NAME AGE OFFICE HELD DIRECTOR SINCE
- ---- --- ----------- --------------
<S> <C> <C> <C>
Steven L. Bock..................... 44 Chairman of the Board and December 1990
Chief Executive Officer
Alan S. Cooper..................... 39 Director February 1996
Martin E. Franklin................. 33 Director November 1994
Samuel L. Katz..................... 32 Director November 1994
Andrea Pomerantz Lustig............ 33 Director March 1997
Guy Naggar......................... 57 Director November 1994
</TABLE>
Steven L. Bock has been Chairman of the Board and Chief Executive Officer of
the Company (or its predecessor company) since December 1990. He has been a
director of SC Direct and SC Publishing since March 1989 (including the years
when the companies were under bankruptcy protection). SC Direct was formed by
RSG Partners, a private investment and management firm founded by Mr. Bock and
two partners in 1988. Mr. Bock was a partner in RSG Partners from 1988 to
1990. From October 1986 to October 1988, Mr. Bock was a Vice President of TSG
Holdings, Inc., the investment advisor to Transcontinental Services Group, a
U.K. listed investment holding company, where he was responsible for
initiating, financing and managing business investments. Mr. Bock has been a
director of the Juvenile Diabetes Foundation, Bay State Chapter, since January
1998. Mr. Bock is also a member of the Young Presidents Organization. He
graduated (summa cum laude) with a B.A. degree from SUNY at Albany and
received his J.D. degree (cum laude) from Harvard Law School.
Alan S. Cooper has been Vice President and General Counsel of Dickstein
Partners Inc., a private investment firm, since March 1992. Prior to joining
Dickstein Partners Inc., he was an attorney with Rosenman & Colin in New York
City from August 1983 to February 1992. Mr. Cooper is a director of Hills
Stores Company. Mr. Cooper received his B.S. and J.D. degrees from the
University of Pennsylvania.
Martin E. Franklin is currently Chairman of Lumen Technologies, Inc., a NYSE
Company, Chairman of Bolle Inc., a NASDAQ Company, and non-executive Chairman
of Eyecare Products plc, a London Stock
4
<PAGE>
Exchange Company. Mr. Franklin was Chairman and Chief Executive Officer of BEC
Group, Inc. from May 1996 to March 1998. Mr. Franklin was Chairman and Chief
Executive Officer of Benson Eyecare Corporation, the predecessor company to
BEC Group, Inc., from October 1992 through May 1996. Mr. Franklin has been the
Chairman of the Board and Chief Executive Officer of Pembridge Holdings, Inc.
since 1990 and sits on various other private company boards. From 1988 to
1990, Mr. Franklin was Managing Director of Pembridge Associates, Inc. Both
Pembridge Associates, Inc. and Pembridge Holdings, Inc. specialize in merchant
banking and related services. Mr. Franklin received a B.A. in Political
Science from the University of Pennsylvania.
Samuel L. Katz has been the Senior Vice President--Acquisitions of Cendant
Corporation (and its predecessor corporation HFS Incorporated), a public
corporation engaged primarily in the membership services, lodging and real
estate businesses, since January 1996. From June 1993 to December 1995, Mr.
Katz was a Vice President of Dickstein Partners Inc. From February 1992 to
June 1993, Mr. Katz was the Co-Chairman of Saber Capital Inc., a private
investment firm. Mr. Katz is a director of Hills Stores Company. Mr. Katz
received his B.A. in Economics from Columbia University in 1986.
Andrea Pomerantz Lustig has been the Beauty and Fitness Director of
Cosmopolitan Magazine since 1991. Prior to that she was Cosmopolitan's beauty
editor since March 1990. Ms. Pomerantz Lustig also acts as a spokesperson for
Cosmopolitan Magazine, representing the magazine's philosophy on beauty,
fitness and relationship issues. Prior to Cosmopolitan Magazine, she was with
Conde Nast where she was a beauty writer for Glamour Magazine, since 1989. Ms.
Pomerantz Lustig began her career in beauty journalism in 1988 at Mademoiselle
where she was a beauty researcher. Ms. Pomerantz Lustig is a foundation board
member of Cosmetic Executive Women and a board member of the Fragrance
Foundation Long-Range Planning Committee. Ms. Pomerantz Lustig received her
B.A. in History from the University of Pennsylvania.
Guy Naggar has been Chairman of Dawnay, Day & Co. Limited, a U.K. investment
bank founded in 1928, which is a member of the London Investment Banking
Association, since 1981. Immediately prior to becoming Chairman of Dawnay, Day
& Co. Limited, Mr. Naggar was a Director of the Charterhouse Group Limited and
of its subsidiary, Charterhouse Japhet Limited. Mr. Naggar sits on various
other private company boards.
As compensation for service as director, each non-employee director receives
cash compensation and discretionary stock option grants. The Company pays to
each non-employee director annual cash compensation of $7,500, payable
quarterly. In addition, pursuant to the Company's 1996 Stock Incentive Plan
(the "Plan"), discretionary stock option grants can be made by the
Compensation Committee. During fiscal 1996, each of the non-employee
directors, with the exception of Ms. Pomerantz Lustig, received a grant of
options under the Plan to purchase 2,500 shares of the Common Stock at the
initial public offering price ($6.50 per share), and such options were
immediately exercisable. During fiscal year 1997, Ms. Andrea Pomerantz Lustig
received a grant of options under the Plan to purchase 2,500 shares of the
Common Stock at a price of $6.88 per share, and such options were immediately
exercisable. Also in fiscal year 1997, each of the non-employee directors
received stock options pursuant to the Plan to purchase 2,667 shares of Common
Stock at a price of $6.50 per share, and such options become exercisable over
a five year period. The Board of Directors held four meetings during 1997, and
each director attended at least 75% of the aggregate of such meetings of the
Board and all committees of the Board on which he/she served.
COMMITTEES
The Board of Directors has established an Audit Committee consisting of
Samuel L. Katz, Alan S. Cooper and Martin E. Franklin. Mr. Katz serves as the
chairman of the committee. The Audit Committee is responsible for recommending
to the Board of Directors the appointment of the Company's outside auditors,
examining the results of audits, reviewing internal accounting controls and
reviewing related party transactions. The Board of Directors has also
established a Compensation Committee consisting of Ms. Pomerantz Lustig and
Messrs. Cooper and Franklin. Mr. Cooper serves as chairman of the committee.
The Audit Committee held two meetings during 1997 and one meeting in early
1998. The Compensation Committee held one meeting in 1997.
The Company does not have a nominating committee or a committee serving a
similar purpose.
5
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No person serving on the Compensation Committee at any time during fiscal
year 1997 was a present or former officer or employee of the Company or any of
its subsidiaries. During fiscal year 1997, no executive officer of the Company
served as a member of the board of directors or compensation committee (or
other board committee performing equivalent functions) of another entity, one
of whose executive officers served on the Company's Board of Directors or
Compensation Committee.
EXECUTIVE COMPENSATION
The table below sets forth certain compensation information for the fiscal
years ended January 3, 1998, December 28, 1996 and December 30, 1995, with
respect to the Company's Chief Executive Officer and those three other
executive officers of the Company who were the most highly paid (in excess of
$100,000 in total annual compensation) for fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
FISCAL -------------------- NUMBER OF
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS
- ---------------------------- ------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Steven L. Bock................. 1997 $290,490 --(1) 10,000(3)
Chairman and Chief Executive
Officer 1996 285,662 -- 150,000(4)
1995 270,294 $ 65,960 --
Stephen M. O'Hara.............. 1997 $215,337 --(2) 10,000(3)
President 1996 208,862 -- 25,000(5)
1995 194,718 $ 35,000 --
J. William Heise .............. 1997 $140,313 $ 5,000(6) 6,500(3)
Senior Vice President/ 1996(7) 99,948 -- 30,000(5)
Chief Financial Officer
Jerral R. Pulley............... 1997(8) $100,962 -- --
Senior Vice President 1996 128,457 -- 12,500(5)
1995(9) 25,962 $5,000 --
</TABLE>
- --------
(1) At the beginning of 1997, Mr. Bock was owed deferred bonus compensation of
$187,500, accrued under his prior employment agreement with the Company,
of which $125,000 was paid in 1997 and the remainder was paid in January
1998.
(2) At the beginning of 1997, Mr. O'Hara was owed deferred bonus compensation
of $35,000, accrued under his prior employment agreement with the Company,
of which $23,333 was paid in 1997 and the remainder was paid in January
1998.
(3) Represents options granted in 1997 at an exercise price of $6.50 per
share, which become exercisable over a five year period.
(4) Represents options granted in 1996, consisting of 75,000 options at an
exercise price of $5.33 per share and 75,000 options at an exercise price
of $6.50 per share, which become exercisable over a five year period. Of
these options, 15,000 of the 75,000 options at an exercise price of $5.33
per share and 15,000 of the 75,000 options at an exercise price of $6.50
per share are currently exercisable.
(5) Represents options granted in 1996 at an exercise price of $6.50 per share
which become exercisable over a five year period. Of these options, 5,000
of the 25,000 options granted to Mr. O'Hara and 6,000 of the 30,000
options granted to Mr. Heise are currently exercisable. Upon leaving the
Company in October 1997, Mr. Pulley forfeited the 12,500 options granted
to him.
(6) Mr. Heise received a discretionary bonus amounting to $5,000 earned in
1997 and paid in January 1998.
(7) Mr. Heise became acting chief financial officer in March 1996 and on
August 1, 1996, he was hired permanently at an annual salary of $130,000.
(8) Mr. Pulley left the Company in October, 1997.
(9) Mr. Pulley was hired in October 1995 at an annual salary of $125,000.
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table discloses information regarding stock options granted
during the fiscal year ended January 3, 1998. In accordance with Securities
and Exchange Commission rules, also shown are the hypothetical gains or
"option spreads," on a pre-tax basis, that would exist for the respective
options. These gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over the
full option term of ten (10) years.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------ VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL
SHARES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION --------------------
NAME (#) 1997 ($/SHARE) DATE 5%($) 10%($)
- ---- ---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven L. Bock.......... 10,000 6.29% $6.50 1/2/08 $40,878 $103,593
Stephen M. O'Hara....... 10,000 6.29% $6.50 1/2/08 $40,878 $103,593
J. William Heise........ 6,500 4.09% $6.50 1/2/08 $26,571 $ 67,336
Jerral R. Pulley (1).... -- -- -- -- -- --
</TABLE>
- --------
(1) Mr. Pulley forfeited all options granted to him when he left the Company
in October, 1997.
AGGREGATED OPTION EXERCISES AND YEAR END OPTION VALUES
The following table sets forth information as to options exercised during
the fiscal year ended January 3, 1998, and unexercised options held at the end
of such fiscal year, by the individuals listed in the Summary Compensation
Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT JANUARY 3, 1998 AT JANUARY 3, 1998 ($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven L. Bock.......... -- -- 340,226 130,000 $1,938,718 $70,200
Stephen M. O'Hara....... 55,000 $313,104 222,773 30,000 $1,348,625 $ 0
J. William Heise........ -- -- 6,000 30,500 $ 0 $ 0
Jerral R. Pulley (2).... -- -- -- -- -- --
</TABLE>
- --------
(1) Value is based on the closing sale price of $6.50 per share of the Common
Stock as of January 2, 1998 (the last trading date during fiscal year
1997) minus the exercise price.
(2) Mr. Pulley forfeited all options granted to him when he left the Company
in October, 1997.
INFORMATION AS TO EXECUTIVE OFFICERS
Steven L. Bock has been Chief Executive officer of the Company since
December 1990. He has been a director of SC Direct and SC Publishing since
March 1989 (including the years when the companies were under bankruptcy
protection of the courts). For more information about Mr. Bock, see the
discussion of the members of the Board of Directors above.
Stephen M. O'Hara has been President of the Company since 1994 and was
President of Wigs by Paula, Inc., a predecessor company, from November 1991 to
November 1994 (including the years when the company
7
<PAGE>
was under bankruptcy protection of the courts). From May 1990 to November
1991, Mr. O'Hara was Vice President, Marketing and Vice President, Strategy of
the All American Gourmet division of Kraft General Foods. From May 1988 to May
1990, Mr. O'Hara was President of Quantum Investments, a venture capital firm
targeting small consumer businesses, as well as a principal in Quantum
Associates, a management consulting firm. From November 1984 to May 1988, he
served in a variety of positions with CML Group ("CML"), most recently as
President of CML's former subsidiary Carroll Reed, Inc., a women's apparel
retailer and direct marketer. Prior to CML, Mr. O'Hara served in Procter &
Gamble's marketing department from 1979 to 1984. Mr. O'Hara holds A.B. and
M.B.A. degrees from Harvard University.
J. William Heise has been Senior Vice President and Chief Financial Officer
of the Company since August, 1996, and was acting Chief Financial Officer from
March 1996 to August 1996. From November 1994 to November 1995, Mr. Heise was
Vice President/Chief Financial Officer at Sun Television and Appliances, Inc.,
a retailer of consumer electronics and appliances. From October 1983 to March
1994, Mr. Heise served in a variety of positions with Victoria's Secret
Catalogue, Inc., including Executive Vice President/Chief Financial Officer
from 1989 to 1992 and Executive Vice President/Operations from 1992 to 1994.
Mr. Heise holds a B.A. degree from Ohio University.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered the second year of an employment agreement with
Steven L. Bock, pursuant to which Mr. Bock will serve as the Chairman of the
Board and Chief Executive Officer of the Company for a term expiring on
December 31, 1999. Under that employment agreement, Mr. Bock received a salary
of $290,000 for 1997. The employment agreement is subject to annual increases
which will bring Mr. Bock's salary to $300,000 in 1998, and to $310,000 in
1999, the last year of the term. Mr. Bock will be eligible for a performance
bonus ranging between 0% to 100% of his base salary, based upon the Company's
performance against its annual plan approved by the Board. Upon executing the
employment agreement in 1996, Mr. Bock was granted options under the Plan to
purchase 75,000 shares of Common Stock at the initial public offering price of
$6.50 per share and options granted outside of the Plan to purchase 75,000
shares of Common Stock at a price of $5.33 per share. Options to purchase
15,000 shares of Common Stock under each of these grants will vest and become
exercisable each year for five years, subject to accelerated vesting under
certain circumstances. Mr. Bock received an additional grant of 10,000 options
on January 2, 1998 at a price of $6.50 per share. At the beginning of 1997,
Mr. Bock was owed deferred bonus compensation of $187,500 accrued under his
prior employment agreement with the Company, of which $125,000 was paid in
1997 and the remainder was paid in January 1998. The Company currently
maintains a $4 million key-person life insurance policy on Mr. Bock.
The Company has entered the second year of an employment agreement with
Stephen M. O'Hara, pursuant to which Mr. O'Hara will serve as President of the
Company for a term expiring on December 31, 1999. Under that employment
agreement, Mr. O'Hara received a salary of $215,000 for 1997. The employment
agreement is subject to annual increases which will bring Mr. O'Hara's salary
to $225,000 in 1998, and to $235,000 in 1999, the last year of the term. Mr.
O'Hara will be eligible for a performance bonus ranging between 0% to 100% of
his base salary, based upon the Company's performance against its annual plan
approved by the Board. Upon executing the employment agreement, Mr. O'Hara was
granted options under the Plan to purchase 25,000 shares of Common Stock at
the initial public offering price of $6.50 per share. Options to purchase
5,000 shares of Common Stock will vest and be exercisable each year for five
years, subject to accelerated vesting under certain circumstances. Mr. O'Hara
received an additional grant of 10,000 options on January 2, 1998 at a price
of $6.50 per share. At the beginning of 1997, Mr. O'Hara was owed deferred
bonus compensation of $35,000 accrued under his prior employment agreement
with the Company, of which $23,333 was paid in 1997 and the remainder was paid
in January 1998. The Company currently maintains a $3 million key-person life
insurance policy on Mr. O'Hara.
The Company may terminate Mr. Bock's employment: (i) upon his death or
permanent disability; (ii) if he engages in conduct that constitutes "cause";
(iii) if the Company fails to meet certain financial targets; or
8
<PAGE>
(iv) upon a change of control. Mr. Bock may terminate his agreement if there
is a material reduction of his responsibilities or a material breach of the
agreement by the Company. Mr. O'Hara or the Company may terminate Mr. O'Hara's
employment agreement at any time, with notice. In the event Mr. Bock's
employment is terminated for any reason other than "cause" or death, Mr. Bock
will receive a severance payment of from one year to two years of base salary.
In the event Mr. O'Hara's employment is terminated for any reason other than
"cause" or death, Mr. O'Hara will receive a severance payment of from six
months to one year of base salary. Both employment agreements contain non-
competition restrictions effective during the term of employment and for a
period of two years thereafter. For the term of the employment agreements, and
for any period thereafter during which the Company is obligated to pay
severance, the Company must provide $1 million of life insurance for the
benefit of each of Messrs. Bock and O'Hara. In the event the Company fails to
maintain such insurance, upon the death of Mr. Bock or Mr. O'Hara, the Company
must pay such officer's estate a death benefit of $1 million.
9
<PAGE>
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE OFFICER COMPENSATION
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Company's executive officer compensation consists of three primary
components: base salary, annual bonuses and grants of stock options. Each
component is intended to further the Company's overall compensation
philosophy, and to achieve the compensation objectives of the Company. The
Company's compensation philosophy is that executive compensation should
reflect the value created and protected for shareholders, while furthering the
Company's short and long-term strategic goals and values by aligning
compensation with business objectives and individual performance. Short and
long-term compensation should motivate and reward high levels of performance
and is geared to attract and retain qualified executive officers.
The Company's executive officer compensation program is based on the
following principles and objectives:
. Competitive, Fair and Balanced Compensation
The Company is committed to providing an executive officer compensation
program that helps attract and retain highly qualified executive officers. The
Company seeks to achieve a balance of compensation paid to a particular
individual and compensation paid to other executive officers inside the
Company, and strives to achieve a balance between the fixed and variable
components, and between the short and long-term components, of each executive
officer's compensation.
. Performance
Other than the Bonus Plan (as defined below), the Company has no specific
performance criteria. Generally, however, executive officers are rewarded
based upon both corporate and individual performance. Corporate performance is
evaluated by reviewing the extent to which strategic and business plan goals
are met. Individual performance is evaluated by reviewing the achievement of
specified individual objectives and the degree to which the executive officer
contributed to the overall success of the Company and management team.
COMPENSATION FOR FISCAL 1997
Salary
As described above, the Compensation Committee sets the base salary for
executive officers after reviewing the Chief Executive Officer's
recommendations and evaluations of performance, compensation for competitive
positions in the market and the historical compensation levels of the
executive officers. Under their current Employment Agreements, Steven Bock's
and Stephen O'Hara's annual increases in base salary are set by their
agreements.
Bonus
For fiscal 1997, the Company's executive officers were eligible to receive
bonuses pursuant to the terms of the Specialty Catalog Corp. Bonus Plan (the
"Plan") which was approved by the Compensation Committee late in fiscal year
1996. Under the terms of the Plan, executive officer bonuses are paid from a
bonus pool which is funded based upon a formula tied to the Company's
consolidated earnings before interest, tax, depreciation and amortization
("EBITDA") for the year. The executive officers did not earn a bonus in 1997
under the Plan. At the beginning of 1997, Mr. Bock and Mr. O'Hara were owed
deferred bonus compensation of $187,500 and $35,000, respectively, accrued
under their prior employment agreements with the Company, of which $125,000
and $23,333, respectively, was paid in 1997 and the remainder was paid in
January 1998. Mr. Heise received a discretionary bonus amounting to $5,000
earned in 1997 and paid in January 1998.
10
<PAGE>
Stock Option Grants
The Compensation Committee believes that stock options, granted from time to
time throughout the year, are an excellent vehicle for compensating employees.
Because the option exercise price for the employee is generally the fair
market value of the stock on the date of grant, but in no event less than
$6.50 per share, employees recognize a gain only if the value of the stock
increases. Thus, employees with stock options are rewarded for their efforts
to improve the long-term performance of the Company's stock. The size of stock
option grants is generally intended by the Compensation Committee to reflect
the executive officer's position with the Company and his other contributions
to the Company, while at the same time considering his other prior equity
holdings in the Company and the stock option awards made to other executive
officers of the Company. The Company, however, has no specific target for
percentage ownership for directors or executive officers. Grants to executive
officers under the stock option program typically involve a five-year vesting
period (subject to accelerated vesting upon a change in control of the
Company) to encourage key employees to continue in the employ of the Company.
In December 1997, the Compensation Committee granted stock options, which
became effective on January 2, 1998, to the named officers as follows: Mr.
Bock, 10,000 shares; Mr. O'Hara, 10,000 shares and Mr. Heise, 6,500 shares.
Compensation of Chief Executive Officer
Consistent with the executive compensation policies described above, Mr.
Bock received a base salary of $290,000 and a payment of deferred bonus
compensation of $125,000 for the fiscal year 1997. As mentioned above, the
Compensation Committee granted Mr. Bock stock options for 10,000 shares in
fiscal year 1997.
Under the terms of Mr. Bock's employment agreement, the Company provides Mr.
Bock with $1 million of life insurance for the benefit of Mr. Bock.
Compliance with Internal Revenue Code Section 162(m)
The Committee has reviewed the potential consequences for the Company of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
which imposes a limit on tax deductions for annual compensation in excess of
$1 million for certain executives of public companies. The Company believes
that options granted under the Plan are exempt from the limitation, and other
compensation expected to be paid during fiscal year 1998 is below this
compensation limitation.
Conclusion
The Compensation Committee believes that the total fiscal year 1997
compensation of the Chief Executive Officer and each of the other named
officers, as described above, including the stock option grants made on
January 2, 1998, is fair, and is within the range of compensation for
executive officers in similar positions.
Compensation Committee
Alan S. Cooper
Martin E. Franklin
Andrea Pomerantz Lustig
11
<PAGE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following Graph compares the performance of the Company's Common Stock
to the Nasdaq National Market (U.S.) Index and the Small Cap Catalog Index
since October 17, 1996, the first day on which the Company's Common Stock was
publicly traded. The graph assumes that the value of an investment in the
Company's Common Stock and each index was $100 at October 17, 1996.
COMPARISON OF CUMULATIVE TOTAL RETURN
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG SPECIALTY CATALOG CORP., S&P 500 INDEX AND SMALL CAP CATALOG INDEX
<CAPTION>
Specialty Small Cap
Measurement period Catalog S&P 500 Catalog
(Fiscal Year Covered) Corp. Index Index
- --------------------- -------- -------- --------
<S> <C> <C> <C>
Measurement PT -
10/17/96 $100.00 $100.00 $100.00
FYE 12/28/96 $106.00 $100.00 $ 94.00
FYE 01/03/98 $100.00 $138.00 $184.00
</TABLE>
(1) The Small Cap Catalog Index consists of five catalog companies similar to
Specialty Catalog Corp. in market capitalization and sales. Each of the
market capitalization and net revenues of these five catalog companies was
less than $100 million at the inception of this index. The companies
included in this index are: Concepts Direct, DM Management, Initio, Inc.,
Real Goods Trading Corp., and The Right Start, Inc.
12
<PAGE>
APPROVAL OF AMENDMENT TO THE COMPANY'S
1996 STOCK INCENTIVE PLAN
PROPOSAL 2
On August 3, 1996, the 1996 Stock Incentive Plan (the "Plan") was adopted
and 500,000 shares of Common Stock were reserved for issuance thereunder to
employees, directors and consultants of the Company. In March 1998, the Board
adopted, subject to shareholder approval, an amendment to the Plan that
increases the number of shares of Common Stock available for issuance under
the Plan from 500,000 shares to 750,000 shares.
The purpose of the Plan is to attract able persons to enter and remain in
the employ of the Company, its Subsidiaries and Affiliates. The Plan is
intended to provide incentive compensation to employees, directors and
consultants of the Company, its Subsidiaries and Affiliates measured by
reference to the value of the Common Stock, thereby strengthening the
commitment of the employees, directors and consultants to the welfare of the
Company, its Subsidiaries and Affiliates.
Additional shares are needed for use in the Plan so that grants may continue
to be made to attract and retain key personnel.
The amended Plan further provides that any employee, director or consultant,
whose employment or association is voluntarily terminated by such employee,
director or consultant, will have thirty (30) days from the date of such
termination to exercise any of his or her otherwise exercisable options.
Previously, such an employee, director or consultant forfeited his or her
unexercised options upon terminating his or her employment or association with
the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE INCREASE OF
SHARES AUTHORIZED UNDER THE PLAN FROM 500,000 TO 750,000
SUMMARY OF THE PLAN
The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee may grant Incentive Stock Options,
Nonqualified Stock Options and Restricted Stock (collectively, "Awards") under
the Plan.
DESCRIPTION OF AWARDS
Incentive Stock Option and Nonqualified Stock Options. The Committee may
grant one or more Incentive Stock Options ("ISOs") or Nonqualified Stock
Option ("NSOs") to any person who is regularly employed by the Company, a
Subsidiary or Affiliate; the Committee may grant NSOs to any non-employee
director or consultant of the Company, a Subsidiary or Affiliate (an "Eligible
Person"). Such grant shall be evidenced by a Stock Option Agreement. The
exercise price of such options shall be set by the Committee but shall not be
less than the fair market value of a share of Common Stock on the date of the
grant or the initial price per share to the public in the initial offering
($6.50), whichever is greater. Exercisable options may be exercised by
delivery of a written notice of exercise to the Committee accompanied by
payment of the option price. Options shall vest and become exercisable on the
date determined by the Committee but no later than ten years after the Award
(except when the Committee grants ISOs to an Eligible Person who owns more
than 10% of the Common Stock of the Company, in that case the option period
may not exceed five years and the option price shall be at least 110% of the
fair market value of the stock subject to the option on the date of the
grant). The Committee may accelerate the exercisability of any option or grant
options exercisable in installments. Options may expire before the end of the
option period set by the Committee in the event of termination of the option
holder's employment with the Company or the option holder's death or
disability. Options are not transferable, except by will or the laws of
descent and distribution.
13
<PAGE>
To the extent that the aggregate fair market value of the stock for which
ISOs are exercisable for the first time by any Eligible Person who receives an
Award (a "Participant") during any calendar year exceeds $100,000, such ISOs
shall be treated as NSOs. The Committee may permit voluntary surrender of NSOs
conditioned on the granting of new options subject to the terms and conditions
set by the Committee at the time of the grant of the new option. The Committee
may require surrender as a condition precedent to a grant of a new option.
Restricted Stock. The Committee may grant Restricted Stock Awards to
Eligible Persons and issue or transfer Restricted Stock to Participants under
the terms and restrictions established by the Committee and evidenced by a
Restricted Stock Award Agreement executed and delivered by the holder of the
Restricted Stock. The holder shall have the rights and privileges of a stock
holder but the stock award shall be subject to the transferability
restrictions set by the Agreement. The restricted shares may also be subject
to forfeiture in the event that the holder terminates employment with the
Company, its Subsidiaries or Affiliates. Each certificate representing
Restricted Stock will contain a legend providing notice that the shares are
subject to the terms of a Restricted Stock Agreement and stop orders shall be
entered with the Company's transfer agent against the transfer of legended
shares. The Committee may require that the Restricted Stock be held in escrow
rather than delivered to the holder.
Changes in Capital Structure or Control. Awards shall be subject to any
adjustments or substitutions deemed equitable by the Committee in the event of
changes in the (i) capital structure of the Company, (ii) outstanding stock of
the Company, or (iii) the law or other circumstances which would result in any
substantial dilution or enlargement of rights granted or available under the
Plan or which interferes with the intended operation of the Plan. Awards are
subject to cancellation and pay out in cash or stock upon ten days advance
notice in the event of (i) a merger or consolidation of the company with
consideration to the Company's shareholders in a form other than an equity
interest in the surviving entity, (ii) the Company or substantially all its
assets being acquired by another person, (iii) a reorganization or liquidation
of the Company, or (iv) a written agreement to undergo such an event being
entered into by the Company.
If the Company experiences a change in control, options awarded under the
Plan shall become immediately exercisable (unless the Company determines in
good faith prior to the change of control that the options will be honored or
that appropriate alternative options or rights will be granted) and the
restricted period for Restricted Stock shall immediately expire. In addition,
the Committee has the discretion to cancel any outstanding Awards upon ten
days notice and pay holders of such Awards the value of the Awards based on
the price per share of Stock received or to be received by other shareholders
of the Company as a result of the change in control. Furthermore, the Company
will make appropriate provisions for the preservation of Participant's rights
under the Plan in any agreement for a change in control that the Company
enters into.
Changes in the Internal Revenue Code. The Committee may, without stockholder
approval (unless otherwise required to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, as amended), amend the Plan retroactively
and/or prospectively to the extent it determines necessary in order to comply
with any subsequent clarification of Section 162(m) of the Internal Revenue
Code required to preserve the Company's Federal income tax deduction for
compensation paid to named executives pursuant to the Plan. To the extent that
the Committee determines as of the Date of Grant of an Award that (i) the
Award is intended to comply with Section 162(m) of the Code and (ii) the
exemption described above is no longer available with respect to such Award,
such Award shall not be effective until any stockholder approval required
under Section 162(m) of the Code has been obtained.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. In general, a Participant will not recognize
taxable income upon the grant or exercise of an ISO. Instead, a Participant
will recognize taxable income with respect to an ISO only upon the sale of
Common Stock acquired through the exercise of the option ("ISO Stock"). The
exercise of an ISO, however, may subject the Participant to the alternative
minimum tax.
14
<PAGE>
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the Participant has owned the ISO Stock at the time it is
sold. If the Participant sells ISO Stock after having owned it for at least
two years from the date the option was granted (the "Grant Date") and one year
from the date the option was exercised (the "Exercise Date"), then the
Participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the Participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then any gain will be
treated as ordinary compensation income to the extent that it does not exceed
the gain that the Participant would have realized had he sold the shares
immediately upon exercise of the option and the remaining gain, if any, will
be a capital gain. This capital gain will be a long-term capital gain if the
Participant has held the ISO Stock for more than one year prior to the date of
sale.
If a Participant sells ISO Stock for less than the exercise price, then the
Participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a long-
term capital loss if the Participant has held the ISO Stock for more than one
year prior to the date of sale.
Nonqualified Stock Options. A Participant will not recognize taxable income
upon the grant of a NSO. A Participant who exercises a NSO, generally, will
recognize ordinary compensation income in an amount equal to the excess of the
fair market value of the Common Stock acquired through the exercise of the
option ("NSO Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a Participant will have taxable income
recognized upon the exercise of the option. Upon selling NSO Stock, a
Participant generally will recognize capital gain or loss in an amount equal
to the excess of the sale price of the NSO Stock over the Participant's tax
basis in the NSO Stock. This capital gain or loss will be a long-term gain or
loss if the Participant has held the NSO Stock for more than one year prior to
the date of the sale.
Restricted Stock. A Participant will not recognize taxable income upon the
grant of a Restricted Stock Award, unless the Participant makes an election
under Section 83(b) of the Code (a "Section 83(b) Election"). If the
Participant makes a Section 83(b) Election within 30 days of the date of the
grant, then the Participant will recognize ordinary compensation income, for
the year in which the Award is granted, in an amount equal to the difference
between the fair market value of the Common Stock at the time the Award is
granted and the purchase price paid for the Common Stock. If a Section 83(b)
Election is not made, then the Participant will recognize ordinary
compensation income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between
the fair market value of the Common Stock at the time of such lapse and the
original purchase price paid for the Common Stock. The Participant will have a
tax basis in the Common Stock acquired equal to the sum of the price paid and
the amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the Participant will recognize a capital gain or loss equal to
the difference between the sale price of the Common Stock and the
Participant's tax basis in the Common Stock. The gain or loss will be a long-
term gain or loss if the shares are held for more than one year. For this
purpose, the holding period shall begin just after the date on which the
forfeiture provisions or restrictions lapse if a Section 83(b) Election is not
made, or just after the Award is granted if a Section 83(b) Election is made.
Tax Consequences to the Company. The Company will be entitled to a deduction
in connection with an Award only in the event and to the extent ordinary
income is recognized by the Participant. Any such deduction will be allowed to
the Company for its taxable year within which ends the taxable year in which
the Participant's recognition of ordinary income occurs. Any such deduction
will be subject to the limitations of Section 162(m) of the Internal Revenue
Code.
15
<PAGE>
Once income associated with an Award is recognizable to a Participant for
Federal income tax purposes, the Participant must either pay to the Company an
amount sufficient to satisfy any federal, state and local taxes required to be
withheld or make alternative arrangements acceptable to the Company.
The foregoing summary is not a complete description of all tax aspects of
the Plan. The foregoing relates only to Federal income taxes; there may be
other Federal tax consequences associated with the Plan, as well as foreign,
state and local tax consequences.
CERTAIN TRANSACTIONS
Due to its working capital constraints, on June 1, 1996, the Company entered
into an agreement with Martin E. Franklin, a director of the Company, and two
associates of Mr. Franklin, pursuant to which Mr. Franklin and such associates
loaned the company $495,000. In connection with such loan, Mr. Franklin and
his associates purchased for $5,000 a warrant to acquire an aggregate of
265,335 shares of the Company's Common Stock at an aggregate exercise price of
$500,000. In April 1997, the holders of these warrants elected to apply
amounts owed to them under the junior subordinated note as consideration to be
paid for 265,335 shares of the Company's Common Stock. In conjunction with
this transaction, the Company recorded a $57,132 extraordinary loss on the
early retirement of debt (net of an income tax benefit of $41,372).
In October 1997, the Company acquired The Daxbourne Group, a leading
retailer and wholesaler of wigs, hairpieces and related accessories in the
United Kingdom. Prior to the acquisition, The Daxbourne Group retained the
services of Livingstone Guarantee to search for a buyer for Daxbourne. Dawnay,
Day Corporate Finance Limited ("Dawnay Day") received a copy of the offering
memorandum prepared by Livingstone Guarantee, and referred the potential
acquisition to Specialty Catalog Corp. Mr. Guy Naggar, Chairman of Dawnay, Day
and Co. Limited, the parent of Dawnay Day, owns a significant portion of the
Company's Common Stock and is also a member of the Company's Board of
Directors.
The Company entered into an agreement whereby Dawnay Day agreed to act as
the investment advisor for the Company in connection with The Daxbourne Group
acquisition. Dawnay Day's fee for initiating the transaction and acting as the
Company's advisor, which was negotiated on an arms-length basis, was based on
the Lehman formula and would be paid only on completion of the transaction.
Based on the purchase price paid by the Company for The Daxbourne Group, the
fee amounted to approximately $182,000 and was paid by the Company upon
completion of the transaction. Dawnay Day was also reimbursed for its out-of-
pocket expenses, which amounted to approximately $1,000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Company's directors and certain of its officers and persons holding more than
ten percent of the Company's Common Stock are required to report their
ownership of the Common Stock and any changes in such ownership to the
Securities and Exchange Commission and the Company. Based on the Company's
review of copies of such reports, no untimely reports were made during the
fiscal year ended January 3, 1998.
INFORMATION CONCERNING AUDITORS
Based upon the recommendation of its Audit Committee, the Board of Directors
has selected the firm of Deloitte & Touch LLP as the independent auditors of
the Company for the fiscal year ending January 2, 1999. Deloitte & Touche LLP
has acted in such capacity for the Company since the 1989 fiscal year.
Representatives of Deloitte & Touche LLP are expected to be present at the
Meeting and will be afforded the opportunity to make a statement if they so
desire and to respond to appropriate questions.
16
<PAGE>
MISCELLANEOUS
DEADLINE FOR STOCKHOLDER PROPOSALS
In order for shareholder proposals to be presented at the Company's 1999
annual meeting of shareholders, such proposals must be received by the
Secretary of the Company at the Corporation's principal office in South
Easton, Massachusetts not later than December 10, 1998 for inclusion in the
proxy statement for that meeting, subject to the applicable rules of the
Securities and Exchange Commission. Delivery of such proposals should be by
Certified Mail, Return Receipt Requested.
OTHER MATTERS
The Board of Directors does not know of any other matters that may be
presented at the Meeting, except for routine matters. If other business does
properly come before the Meeting, however, the persons named on the
accompanying proxy intend to vote on such matters in accordance with their
best judgment.
By order of the Board of Directors,
Dated: April 10, 1998
/s/ Stephen M. O'Hara
Stephen M. O'Hara
Secretary
17
<PAGE>
LOGO
PROXY SPECIALTY CATALOG CORP. PROXY
ANNUAL MEETING OF SHAREHOLDERS, MAY 19, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Steven L. Bock and Stephen M. O'Hara, as
proxies, each with full power of substitution, and hereby authorizes them to
appear and vote as designated below, all shares of Common Stock of Specialty
Catalog Corp. held on record by the undersigned on March 20, 1998, at the
Annual Meeting of Shareholders to be held May 19, 1998 at 11:00 a.m. at the
offices of Patricof & Co. Capital Corp., 445 Park Avenue, New York, New York,
and any adjournments thereof and upon any and all matters which may properly be
brought before the meeting or any adjournments thereof, thereby revoking all
former proxies.
The undersigned hereby directs this Proxy to be voted:
1. Election of directors:
[_FOR]the election as directors of all nominees listed below (except as
market to the contrary below)
or
[_WITHHOLD]AUTHORITY to vote for all
nominees listed below
STEVEN L. BOCK ALAN S. COOPERMARTIN E. FRANKLIN
SAMUEL L. KATZ GUY NAGGAR ANDREA POMERANTZ LUSTIG
(Instructions: To withhold authority to vote for any of the above listed
nominees, please strike a line through that individual's name)
2. Proposal to amend the Company's 1996 Stock Incentive Plan to increase the
number of shares authorized for issuance thereunder from 500,000 to
750,000.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the named proxies may vote on such other business as
may properly come before the Annual Meeting, or any adjournments or
postponements thereof.
<PAGE>
LOGO
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE
WITH THE SHAREHOLDER'S SPECIFICATIONS ABOVE. THE PROXY CONFERS DISCRETIONARY
AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE TIME OF THE
MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE UNDERSIGNED.
Date: ____________________ , 1998
---------------------------------
Signature of Stockholder
---------------------------------
Signature if held jointly
NOTE: PLEASE MARK, DATE, SIGN
AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. IF
SIGNING AUTHORITY, EXECUTOR AD-
MINISTRATOR, TRUSTEE OR GUARD-
IAN, PLEASE GIVE FULL TITLE. IF
A CORPORATION OR PARTNERSHIP,
PLEASE SIGN IN CORPORATE OR
PARTNERSHIP NAME BY AN AUTHO-
RIZED PERSON.
