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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A2
(AMENDMENT NO. 2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 30, 1995
Commission file number 1-12082
HANOVER DIRECT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-0853260
(State of incorporation) (I.R.S. Employer
Identification No.)
1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 863-7300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ---------------------------------- -----------------------------
Common Stock, $.66 2/3 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
As of March 21, 1996 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $52 million (based on the closing price of
the Common Stock on the American Stock Exchange on March 21, 1996).
As of March 21, 1996, the registrant had 93,516,651 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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EXPLANATORY NOTE
This Amendment No. 2 to Annual Report on Form 10-K is being filed to (1) include
the information required by Part III of Form 10-K which had previously been
omitted due to its proposed incorporation by reference into the Company's Proxy
Statement for the 1996 Annual Meeting of Shareholders and (2) add a new Exhibit
23.1 (Consent of Independent Public Accountants) with a more recent date and
(3) correct certain typographical errors contained in Amendment No. 1.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are:
Name Age Position
- ---- --- --------
Alan G. Quasha 46 Chairman of the Board and Director
Rakesh K. Kaul 44 President, Chief Executive Officer
and Director
Wayne P. Garten 43 Executive Vice President and
Chief Financial Officer
Michael Lutz 53 Executive Vice President, Operations
Charles Hudson 50 Executive Vice President, Men's Apparel
Edward J. O'Brien 52 Senior Vice President, Treasurer
and Secretary
Robert G. Kramer 52 Senior Vice President, Chief
Information Officer
Ralph Destino 59 Director
J. David Hakman 54 Director
S. Lee Kling 67 Director
Theodore H. Kruttschnitt 53 Director
Jeffrey Laikind 60 Director
Elizabeth Valk Long 46 Director
Edmund R. Manwell 53 Director
Geraldine Stutz 67 Director
Robert F. Wright 70 Director
ALAN G. QUASHA, 46, has been President of Quadrant since its formation in
early 1988. From 1980 to September 1991, he was a partner in the New York City
law firm of Quasha, Wessely & Schneider. In addition to his directorship at the
Company, Mr. Quasha serves as a director of Tejas Power Corporation, a natural
gas company, and NAR. Mr. Quasha is also a director of Richemont, an affiliate
of NAR. Mr. Quasha, a designee of NAR, was elected a Director of the Company and
Chairman of the Board in October 1991.
RAKESH K. KAUL, 44, has served as the Company's President and Chief
Executive Officer since March 7, 1996. Mr. Kaul served as Vice Chairman and
Chief Operating Officer of Fingerhut Companies, Inc., a multi-media direct
marketing company, from March 1995 to February 1996 and Executive Vice President
and Chief Administrative Officer of Fingerhut from January 1992 until March
1995. Prior to 1992, Mr. Kaul was the Senior Vice President of Strategy and
Finance and a director of Shaklee Corporation, a direct marketing company. Mr.
Kaul was appointed a Director of the Company in March 1996.
WAYNE P. GARTEN, 43, has served as Executive Vice President of the
Company since October 1990 and as Chief Financial Officer of the Company
since 1989. Mr. Garten also served as Senior Vice President of the Company
from 1989 through 1990. Mr. Garten joined the Company in 1983 and was elected
Vice President of the Company in 1984. Mr. Garten was elected Vice
President-Finance of the Company in 1989.
MICHAEL LUTZ, 53, has served as Executive Vice President, Operations since
September 1994. Prior to September 1994, Mr. Lutz held various positions with
New Hampton, Inc./Avon Direct Response.
CHARLES HUDSON, 50, has served as Executive Vice President, Men's Apparel
since September 1993. Mr. Hudson joined the Company in 1986 as Vice
President, Marketing.
EDWARD J. O'BRIEN, 52, has served as Senior Vice President and Treasurer
of the Company since 1991 and Secretary of the Company since April 1996. Mr.
O'Brien joined the Company in 1986 and was elected Vice President of the
Company in 1988.
ROBERT G. KRAMER, 52, has served as Senior Vice President and Chief
Information Officer since October 1994. Prior to October 1994, Mr. Kramer held
various positions with New Hampton, Inc./Avon Direct Response.
RALPH DESTINO, 59, has been the Chairman of Cartier, Inc., a luxury goods
store, since 1985. Cartier, Inc. is a subsidiary of Compagnie Financiere
Richemont, A.G. ("Richemont"), a Swiss public company engaged in the tobacco,
luxury goods and other businesses and an affiliate of NAR. Mr. Destino also
serves as a director of The Leslie Fay Companies, a manufacturer of dresses,
suits, coats and sportswear which filed for protection under Chapter 11 of the
U.S. Code in March 1993. Mr. Destino, a designee of NAR, was elected a Director
of the Company in October 1991.
J. DAVID HAKMAN, 54, has been the Chief Executive Officer of Hakman Capital
Corporation, Burlingame, California, an investment and merchant banking firm,
since 1980. Mr. Hakman also serves as a director of Concord Camera Corp., a firm
which manufactures and distributes cameras. Mr. Hakman was the Chairman and a
director of AFD Acquisition Corp. ("AFD"), a food distribution company, which
filed for protection under Chapter 11 of the U.S. Code in June 1991 and emerged
from Chapter 11 in September 1993. AFD has ceased operations and its assets have
been distributed to creditors. Mr. Hakman, a designee of Mr. Kruttschnitt, was
appointed a Director of the Company in May 1989 pursuant to the Nomination and
Standstill Agreement and was elected a Director of the Company in October 1991.
S. LEE KLING, 67, is Chairman of the Board of Kling Rechter & Co., a
merchant banking company. He served as Chairman and a director of Landmark
Bancshares Corporation, a bank holding company in St. Louis, Missouri, from 1974
through 1991, when it merged with Magna Group Inc. He served as Landmark's Chief
Executive Officer from 1974 through 1990. Mr. Kling serves on the Boards of
Directors of E-Systems, Inc., a diversified electronics company, Falcon
Products, Inc., a manufacturer of commercial furniture, Bernard Chaus Inc., a
sportswear manufacturer and distributor, Top Air Manufacturing Co., a
manufacturer of agricultural equipment, Lewis Galoob Toys, Inc., a toy company,
Magna Group, Inc., a multi-bank holding company, and National Beverage Corp., a
specialized beverage company. In February 1995, Mr. Kling was appointed by
President Clinton to serve as a Commissioner on the Defense Base Closure and
Realignment Commission. Mr. Kling was elected a Director of the Company in 1983.
THEODORE H. KRUTTSCHNITT, 53, has been the owner and sole proprietor of
California Innkeepers, Burlingame, California, an owner/operator of hotels and
motor hotels, since May 1970. Mr. Kruttschnitt is also Chairman of the Board of
Burlingame Bancorp, a commercial bank holding company, and serves on the Board
of Directors of Cooper Development Company, a firm which invests in personal
care products businesses. Mr. Kruttschnitt was appointed a Director of the
Company in May 1989 pursuant to the Nomination and Standstill Agreement and was
elected a Director of the Company in October 1991.
JEFFREY LAIKIND, 60, has been a Senior Managing Director with H N Howard &
Son Inc., an investment advisory firm, since June 1995. He served as Managing
Director of Prudential Securities Investment Management (formerly Prudential
Bache Securities Inc.), a money management firm, from 1985 until June 1995. Mr.
Laikind is also a director of NAR and a member of the advisory board of Quadrant
Management, Inc., an indirect wholly-owned subsidiary of NAR which manages NAR's
U.S. assets ("Quadrant"). Mr. Laikind, a designee of NAR, was elected a Director
of the Company in October 1991.
ELIZABETH VALK LONG, 46, has been the Executive Vice President of Time,
Inc., periodical and book publishers, since September 1995. From September 1993
to September 1995, she was the President of TIME Magazine and, from April 1989
to September 1993, she was a Senior Vice President of Time Inc. She served
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as the publisher of TIME Magazine from July 1991 until September 1993, of PEOPLE
Magazine from November 1988 until July 1991, and of LIFE Magazine from December
1986 until November 1988. Ms. Long, a designee of NAR, was elected a Director of
the Company in October 1991.
EDMUND R. MANWELL, 53, is senior partner at the law firm of Manwell &
Milton, San Francisco, California. Mr. Manwell has been associated with this
firm since 1982. Mr. Manwell also serves as a director of Dreyer's Grand Ice
Cream Inc., an ice cream company. Mr. Manwell, a designee of Mr. Kruttschnitt,
was appointed a Director of the Company in May 1989 pursuant to the Nomination
and Standstill Agreement and was elected a Director of the Company in October
1991.
GERALDINE STUTZ, 67, has been the principal partner of Panache Productions
since 1993. From 1986 to 1993, she was the Publisher of Panache Press at Random
House Inc., a publishing company. Prior to 1986, she was the Chief Executive
Officer and Managing Partner of Henri Bendel, a New York specialty store. Ms.
Stutz also serves as a director of Tiffany & Co., a retail luxury jewelry
company, and the Jones Apparel Group, a clothing manufacturer. Ms. Stutz, a
designee of NAR, was elected a Director of the Company in October 1991.
ROBERT F. WRIGHT, 70, has been the President of Robert F. Wright
Associates, Inc., business consultants, since 1988. Prior thereto, he was a
senior partner of the accounting firm Arthur Andersen & Co. Mr. Wright is a
director of Reliance Standard Life Insurance Co., a life insurance company, and
affiliates, Williams Real Estate Co., Inc., a real estate company, The Navigator
Group, Inc., a property insurance company, and Norweb North America Corporation,
an investment company. Mr. Wright also serves on the advisory board of Quadrant.
Mr. Wright, a designee of NAR, was elected a Director of the Company in October
1991.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
officers, Directors and beneficial owners of more than 10% of the Company's
Common Stock to file reports of ownership and changes in their ownership of the
equity securities of the Company with the Securities and Exchange Commission
("Commission") and the American Stock Exchange. Based solely on a review of the
reports and representations furnished to the Company during the last fiscal year
by such persons, the Company believes that each of these persons is in
compliance with all applicable filing requirements.
AGREEMENTS WITH RESPECT TO NOMINATION OF DIRECTORS
As a result of the commencement of a proxy contest in 1989 by Theodore H.
Kruttschnitt, J. David Hakman and Edmund R. Manwell, the Company's predecessor,
The Horn & Hardart Company (references to the Company hereinafter include its
predecessor), entered into an agreement on May 5, 1989 with Messrs.
Kruttschnitt, Hakman and Manwell (the "Nomination and Standstill Agreement").
Pursuant to the Nomination and Standstill Agreement, the Board was expanded to
11 members and Messrs. Kruttschnitt, Hakman and Manwell were appointed as
Directors. The Company also agreed to nominate each of Messrs. Kruttschnitt,
Hakman and Manwell for election upon the expiration of their respective terms
provided Mr. Kruttschnitt continues to own certain specified levels of the
Company's Common Stock. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Pursuant to the Stock Purchase Agreement, dated October 25, 1991, between
the Company and NAR (the "Stock Purchase Agreement"), the Company agreed to
recommend in its proxy statement for each annual or special meeting of
Shareholders at which Directors are to be elected during the five year period
from October 25, 1991, and at each such Shareholders' meeting, as part of the
management slate for election to the
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Board of Directors, such number of persons designated by NAR as will result in
the Board's including six persons designated by NAR. In addition, NAR agreed
that for a period of five years from October 25, 1991, so long as the Board of
Directors of the Company consists of 11 persons of whom six are designees of
NAR, it will not nominate or propose for nomination or elect persons to the
Board if as a result more than six persons designated by it would be on the
Board at any one time except following an acquisition by a third party of 20% or
more of the voting stock or total assets of the Company. Ralph Destino, Jeffrey
Laikind, Elizabeth Valk Long, Alan G. Quasha, Geraldine Stutz and Robert F.
Wright were designated pursuant to such agreement and were nominated and elected
to serve as Directors of the Company at the Company's 1991 Special Meeting of
Shareholders. SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION OF THE COMPANY
The following table sets forth certain information with respect to
compensation awarded to, earned by or paid to (a) the Company's Chief Executive
Officer and (b) each of the four most highly compensated executive officers of
the Company as of the 1995 fiscal year end (other than the Chief Executive
Officer) whose total annual salary and bonus exceeded $100,000, in each case for
the preceding three fiscal years (collectively, the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION OPTIONS ALL OTHER
NAME AND FISCAL ------------------------ AWARDED COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (#) ($)
- ----------------------------------- ------ ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jack E. Rosenfeld(1)............... 1995 $ 500,000 -- -- $ 22,551(2)
President and Chief 1994 $ 500,000 -- -- $ 23,138(3)
Executive Officer 1993 $ 500,000 -- 150,000(4) $ 35,524(6)
Wayne P. Garten.................... 1995 $ 260,000 -- -- $ 12,908(7)
Executive Vice President 1994 $ 254,231 $15,000 -- $ 12,870(8)
and Chief Financial Officer 1993 $ 225,144 -- 80,000(4) $ 10,160(9)
Michael P. Sherman(1).............. 1995 $ 246,000 -- -- $ 12,237(10)
Executive Vice President -- 1994 $ 244,156 -- -- $ 12,370(11)
Corporate Affairs, 1993 $ 223,942 -- 80,000(4) $ 19,314(12)
General Counsel and Secretary
Coy Clement(1)..................... 1995 $ 239,999 $22,932 66,666(4) $ 4,785(13)
Executive Vice President -- 1994 $ 37,846 -- 75,000(5) $ 60,380(14)
Non-Apparel
Chuck Hudson....................... 1995 $ 221,088 $66,192 -- $ 13,791(15)
Executive Vice President 1994 $ 212,432 $63,000 -- $ 11,115(16)
Men's Apparel 1993 $ 198,981 $ 7,722 50,000(4) $ 9,874(17)
</TABLE>
- ---------------
(1) Jack E. Rosenfeld resigned as President and Chief Executive Officer and as
a Director effective December 30, 1995 while Michael P. Sherman resigned
effective April 23, 1996. Coy Clement joined the Company in October 1994
and resigned effective January 11, 1996.
(2) Includes the following payments made by the Company on behalf of Mr.
Rosenfeld: $2,250 in matching contributions under the 401(k) Savings Plan,
$20,000 in matching contributions under the Supplemental Retirement Plan,
$240 in term life insurance premiums, and $61 of accidental death insurance
premiums.
(3) Includes the following payments made by the Company on behalf of Mr.
Rosenfeld: $2,250 in matching contributions under the 401(k) Savings Plan,
$20,000 in matching contributions under the Supplemental Retirement Plan,
$720 in term life insurance premiums, and $168 of accidental death
insurance premiums.
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(4) Issued pursuant to the Company's 1993 Executive Equity Incentive Plan.
(5) Issued pursuant to the Company's Stock Option Plan.
(6) Includes the following payments made by the Company on behalf of Mr.
Rosenfeld: $2,998 in matching contributions under the 401(k) Savings Plan,
$26,216 in matching contributions under the Supplemental Retirement Plan,
and $1,388 in term life insurance premiums. Also includes the distribution
of 2,316 shares of the Company's Common Stock, resulting from the Company's
termination of its Employee Stock Ownership Plan, valued at $2.125 per
share on the date of such plan's termination.
(7) Includes the following payments made by the Company on behalf of Mr.
Garten: $2,207 in matching contributions under the 401(k) Savings Plan,
$10,400 in matching contributions under the Supplemental Retirement Plan,
$240 in term life insurance premiums, and $61 of accidental death insurance
premiums.
(8) Includes the following payments made by the Company on behalf of Mr.
Garten: $2,250 in matching contributions under the 401(k) Savings Plan,
$10,169 in matching contributions under the Supplemental Retirement Plan,
$366 in term life insurance premiums, and $85 of accidental death insurance
premiums.
(9) Includes the following payments made by the Company on behalf of Mr.
Garten: $2,998 in matching contributions under the 401(k) Savings Plan,
$2,724 in matching contributions under the Supplemental Retirement Plan,
and $252 in term life insurance premiums. Also includes the distribution of
1,970 shares of the Company's Common Stock, resulting from the Company's
termination of its Employee Stock Ownership Plan, valued at $2.125 per
share on the date of such plan's termination.
(10) Includes the following payments made by the Company on behalf of Mr.
Sherman: $2,250 in matching contributions under the 401(k) Savings Plan,
$9,686 in matching contributions under the Supplemental Retirement Plan,
$240 in term life insurance premiums, and $61 of accidental death insurance
premiums.
(11) Includes the following payments made by the Company on behalf of Mr.
Sherman: $2,250 in matching contributions under the 401(k) Savings Plan,
$9,686 in matching contributions under the Supplemental Retirement Plan,
$352 in term life insurance premiums, and $82 of accidental death insurance
premiums.
(12) Includes the following payments made by the Company on behalf of Mr.
Sherman: $2,998 in matching contributions under the 401(k) Savings Plan,
$11,492 in matching contributions under the Supplemental Retirement Plan,
and $344 in term life insurance premiums. Also includes the distribution of
2,108 shares of the Company's Common Stock, resulting from the Company's
termination of its Employee Stock Ownership Plan, valued at $2.125 per
share on the date of such plan's termination.
(13) Includes the following payments made by the Company on behalf of Mr.
Clement: $4,484 in relocation expenses, $240 in term life insurance
premiums, and $61 of accidental death insurance premiums.
(14) Includes the following payments made by the Company on behalf of Mr.
Clement: $60,232 in relocation expenses, $120 in term life insurance
premiums, and $28 of accidental death insurance premiums.
(15) Includes the following payments made by the Company on behalf of Mr.
Hudson: $2,229 in matching contributions under the 401(k) Savings Plan,
$11,261 in matching contributions under the Supplemental Retirement Plan,
$240 in term life insurance premiums, and $61 of accidental death insurance
premiums.
(16) Includes the following payments made by the Company on behalf of Mr.
Hudson: $2,227 in matching contributions under the 401(k) Savings Plan,
$8,000 in matching contributions under the Supplemental Retirement Plan,
$720 in term life insurance premiums, and $168 of accidental death
insurance premiums.
(17) Includes the following payments made by the Company on behalf of Mr.
Hudson: $3,264 in matching contributions under the 401(k) Savings Plan,
$1,846 in matching contributions under the Supplemental Retirement Plan,
and $720 in term life insurance premiums. Also includes the distribution of
1,903
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shares of the Company's Common Stock, resulting from the Company's
termination of its Employee Stock Ownership Plan, valued at $2.125 per
share on the date of such plan's termination.
STOCK OPTIONS
During fiscal 1995, Coy Clement was granted options to purchase 66,666
shares of Common Stock at an exercise price of $2.75 per share until March 10,
2001 pursuant to the 1993 Executive Equity Incentive Plan. Such options
represented 19% of the total number of options granted to all employees during
fiscal 1995. No other stock options were granted to, nor were any exercised by,
any of the other Named Executives pursuant to the Stock Option Plan or the 1993
Executive Equity Incentive Plan.
The following table contains information concerning options held by each of
the Named Executives at the end of fiscal 1995:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
(#) ($)
----------------------------------- -----------------------------------
NAME EXERCISABLE(1) UNEXERCISABLE(2) EXERCISABLE(1) UNEXERCISABLE(2)
--------------------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Jack E. Rosenfeld.......... 2,627,210 150,000 $3,536,686 $168,750
Wayne P. Garten............ -- 80,000 -- $ 90,000
Michael P. Sherman......... -- 80,000 -- $ 90,000
Coy Clement................ -- 66,666 -- $ 73,588
Chuck Hudson............... -- 50,000 -- $ 56,250
</TABLE>
- ---------------
(1) Exercisable options represent options to purchase shares of Common Stock
from NAR.
(2) Unexercisable options generally represent options granted in 1993 under the
1993 Executive Equity Incentive Plan. Under such plan, these options become
exercisable three years after the date of grant and expire six years from
the date of grant. Mr. Clement's options were granted in 1995 pursuant to
the 1993 Executive Equity Incentive Plan as described above and terminated
upon his resignation in January 1996.
SEVERANCE AND EMPLOYMENT AGREEMENTS
Jack E. Rosenfeld resigned as President and Chief Executive Officer and as
a Director of the Company effective December 30, 1995. In connection with such
resignation, the Company and Mr. Rosenfeld have agreed in principal to enter
into a Termination of Employment Agreement, to be dated as of December 30, 1995
(the "Termination Agreement"), providing for the termination of the Employment
Agreement, dated as of October 25, 1991, between the Company and Mr. Rosenfeld,
and all benefits, salary and perquisites provided for therein except for (a)
benefits, salary and perquisites earned and accrued up to December 30, 1995, (b)
salary of $500,000 through December 31, 1996, and (c) benefits including (i)
continued disability and term life insurance in amounts not less than the
amounts in force on the date of the Termination Agreement for a one-year period
and (ii) the right to continue to participate in the Company's medical plans to
the extent he is eligible for up to three years from the date of the Termination
Agreement. The Termination Agreement will call for Mr. Rosenfeld to serve as a
Director Emeritus of the Company and will allow Mr. Rosenfeld to attend meetings
of the Board of Directors and participate in Board discussions for a one-year
period but Mr. Rosenfeld will have no right to vote on any matters that come
before the Board of Directors. The Termination Agreement will preclude Mr.
Rosenfeld for a one-year period from competing with the Company under certain
circumstances.
In connection with the resignation of Jack E. Rosenfeld, the Company
entered into an Executive Employment Agreement, dated as of March 7, 1996, with
Rakesh K. Kaul, the President and Chief Executive Officer of the Company (the
"Employment Agreement"). The Employment Agreement provides for an "at will" term
commencing on March 7, 1996 at a base salary of $525,000 per year. The
Employment Agreement also provides for Mr. Kaul's participation in the
Short-Term Incentive Plan for Rakesh K. Kaul. That plan, which is subject to
Shareholder approval, provides for an annual bonus of between 0% and 125% of Mr.
Kaul's
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base salary, depending on the attainment of various performance objectives as
determined in accordance with the objective formula or standard adopted by the
Compensation Committee as part of the performance goals for each such year. The
Employment Agreement also provides for Mr. Kaul's participation in the Long-Term
Incentive Plan for Rakesh K. Kaul. That plan, which is subject to Shareholder
approval, provides for the purchase by Mr. Kaul of 1,000,000 shares of Common
Stock at their fair market value; an option expiring March 7, 2006 for the
purchase of 2,000,000 shares of Common Stock; an option expiring March 7, 2006
to purchase 2,000,000 shares of Common Stock exercisable only upon satisfaction
of the condition that the closing price of the Common Stock have attained an
average of $7.00 per share during a 91-day period ending on or before March 7,
2002; an option expiring March 7, 2006 to purchase 1,000,000 shares of Common
Stock at their fair market value, subject to the attainment of certain objective
performance goals set by the Compensation Committee; and four options expiring
March 7, 2002, and the first three anniversaries thereof, respectively, for the
purchase of 250,000 shares of Common Stock each, to be granted by NAR. The
Employment Agreement also provides for the grant of registration rights under
the Securities Act of 1933, as amended (the "Securities Act"), for shares of
Common Stock owned by Mr. Kaul. Pursuant to the Employment Agreement, the
Company will make Mr. Kaul whole, on an after-tax basis, for any loss realized
on the sale of his current residence. The Company will also provide Mr. Kaul
with an automobile allowance of $2,500 per month and will pay for up to $15,000
in annual financial and tax planning services. In the event that Mr. Kaul's
employment is actually or constructively terminated by the Company other than
for cause, he will be entitled for a 12-month period commencing on the date of
his termination to (i) a continuation of his base salary, (ii) continued
participation in the Company's medical, dental, life insurance and retirement
plans offered to senior executives of the Company, and (iii) a bonus, payable in
12 equal annual installments, equal to 100% of his base salary (at the rate in
effect immediately prior to such termination). In addition, Mr. Kaul will be
entitled to receive (i) to the extent not previously paid, the short-term bonus
payable to Mr. Kaul for the year preceding the year of termination, and (ii) for
the year in which Mr. Kaul's employment is terminated, an additional bonus equal
to his annual base salary for such year, pro-rated to reflect the portion of
such year during which Mr. Kaul is employed. Mr. Kaul's employment will be
deemed to be constructively terminated by the Company in the event of a change
in control (as defined in the Employment Agreement), the Company's bankruptcy, a
material diminution of his responsibilities, or a relocation of the Company's
headquarters outside the New York metropolitan area without his prior written
consent. In the event that Mr. Kaul's employment terminates other than as a
result of a termination by the Company, Mr. Kaul will not be entitled to any
payment or bonus, other than any short-term bonus he is entitled to receive from
the year prior to termination.
In connection with the Stock Purchase Agreement, dated October 14, 1991,
between the Company and NAR, the Company entered into Executive Employment
Agreements with Messrs. Sherman and Garten. These agreements, which are
renewable annually for one year renewable terms, currently provide for base
salaries of $246,500 and $260,000, respectively. In 1991, Messrs. Sherman and
Garten were also granted certain registration rights under the Securities Act
with respect to shares of Common Stock granted to each of them in that year. Mr.
Sherman resigned as Executive Vice President -- Corporate Affairs, General
Counsel and Secretary effective April 23, 1996 and Mr. Garten has also indicated
his intention to resign as Executive Vice President and Chief Financial Officer
in order to pursue other interests but has agreed to stay with the Company until
his replacement can be found. In connection therewith, the Company and Mr.
Garten entered into a settlement of his employment agreement. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
COMPENSATION OF DIRECTORS
During 1995, Directors who were not employees of the Company or its
subsidiaries were paid a retainer at an annual rate of $30,000, plus an
additional $1,000 for each Board meeting and $500 for each committee meeting
attended. Officers and employees of the Company or its subsidiaries receive no
remuneration for their services as Directors. During 1996, Directors who are not
employees of the Company or its subsidiaries will be paid a retainer at an
annual rate of $15,000, plus an additional $500 for each Board meeting and $250
for each committee meeting attended and all Directors who are not employees of
the Company or its subsidiaries will share equally 1% of the pre-tax profits of
the Company. During fiscal 1995, the Company provided $50,000 of term life
insurance for each Director of the Company. The Company indemnifies its
Directors to the extent
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permitted by applicable law. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
Messrs. Destino, Laikind, Quasha and Wright and Ms. Long, who served in
early 1996 as members of an ad hoc Search Committee of Directors to find a
replacement for Jack E. Rosenfeld as President and Chief Executive Officer of
the Company, each received options to purchase 5,000 shares of Common Stock for
a period of five years at an exercise price of $1.4375 per share, the market
price of the Common Stock on February 9, 1996, the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 30, 1995, the Compensation Committee
of the Board of Directors of the Company consisted of Jeffrey Laikind
(Chairman), Ralph Destino, Elizabeth Valk Long, Alan G. Quasha and Geraldine
Stutz. None of such persons was, during such fiscal year or formerly, an officer
or employee of the Company or any of its subsidiaries or had any relationship
with the Company other than serving as a Director of the Company, except that
after Mr. Rosenfeld's resignation effective December 30, 1995, Mr. Quasha served
as interim Chief Executive Officer between January 1, 1996 and March 6, 1996 but
received no compensation for such services. During the 1995 fiscal year, no
executive officer of the Company served as a director or a member of the
compensation committee of another entity, one of whose executive officers served
as a Director or on the Compensation Committee of the Company. However, Mr.
Quasha has an indirect material interest in Quadrant which renders management
consulting, business advisory and investment banking services to the Company for
an annual fee of $750,000 per year. Such fee was waived for the 1996 fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY
The following table sets forth information concerning each person or group
of affiliated persons known by management to own beneficially more than five
percent (5%) of the Company's Common Stock as of May 6, 1996. The information
given is based on information furnished to the Company by such persons or groups
and statements filed with the Securities and Exchange Commission (the
"Commission").
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK CLASS(1)
- ----------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Alan G. Quasha(2)................................................ 52,148,859(3,4) 52.8%
c/o Quadrant Management, Inc.
127 East 73rd Street
New York, New York 10021
NAR Group Limited................................................ 52,123,859(3) 52.8%
c/o P.M.M. Services (B.V.I.) Limited
P.O. Box 438 Road Town, Tortola,
British Virgin Islands
Theodore H. Kruttschnitt......................................... 5,305,887(5,6) 5.4%
1350 Bayshore Boulevard
Suite 850
Burlingame, California 94010
</TABLE>
- ---------------
(1) Includes in each case shares of Common Stock issuable upon exercise of
options or warrants exercisable within 60 days for the subject individual
only. Percentages computed on the basis of 93,590,646 shares of Common Stock
outstanding as of May 6, 1996.
(2) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 15 to the Statement on Schedule 13D filed by NAR on
March 23, 1994 with the Commission, as supplemented by additional
information provided to the Company by NAR. All of the shares beneficially
owned by NAR could also be deemed to be owned beneficially by certain other
persons including Alan G.
8
<PAGE> 10
Quasha, Intercontinental Mining & Resources Incorporated, Quadrant Capital
Corp. and Richemont, each of which disclaims beneficial ownership of
securities of the Company owned of record by any of the others.
(3) Includes warrants to purchase 5,033,735 shares exercisable within 60 days
granted to NAR or its affiliates.
(4) Includes options to purchase 25,000 shares exercisable within 60 days by Mr.
Quasha.
(5) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 10 to the Statement on Schedule 13D filed by Mr.
Kruttschnitt on April 19, 1994 with the Commission. Such statement sets
forth the number of shares beneficially owned by Mr. Kruttschnitt and, of
such shares, the number as to which he holds sole voting power, shared
voting power, sole dispositive power or shared dispositive power. The
amended Schedule 13D also indicates that Mr. Kruttschnitt is a member of a
group which includes Mr. Hakman, who beneficially owns 13,434 shares, and
Mr. Manwell, who beneficially owns 13,628 shares. In addition, Mr. Hakman
has been granted options to purchase 5,000 shares of Common Stock, which
options are exercisable within 60 days by him.
(6) Includes options to purchase 15,000 shares exercisable within 60 days by Mr.
Kruttschnitt.
In February 1995, the Company issued an aggregate of 634,900 shares of
Series B Preferred to the shareholders of Aegis Safety Holdings, Inc. in
connection with the acquisition by the Company from such shareholders of all the
outstanding capital stock of Aegis. The outstanding shares of Series B Preferred
were convertible as of May 6, 1996 into an aggregate of 952,350 shares of the
Company's Common Stock. Assuming that all the shares of Series B Preferred had
been so converted as of May 6, 1996, the Aegis shareholders would have owned
approximately 1% of the Company's outstanding Common Stock on a fully diluted
basis at such date.
9
<PAGE> 11
SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANY
The following table sets forth information concerning the beneficial
ownership of the Company's Common Stock by each Director, nominee for Director
and executive officer and by all executive officers and Directors as a group as
of May 6, 1996. The information given is based on information furnished to the
Company by such persons and statements filed with the Commission.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENT OF CLASS(1)
---------------------- -------------------
<S> <C> <C>
Ralph Destino......................................... 20,000(5) *
J. David Hakman(2).................................... 13,434 *
Rakesh K. Kaul(3)..................................... 0 *
S. Lee Kling.......................................... 21,011 *
Theodore H. Kruttschnitt(2)........................... 5,305,887 5.4%
Jeffrey Laikind....................................... 82,000(5) *
Elizabeth Valk Long................................... 40,000(5) *
Edmund R. Manwell(2).................................. 18,628(6) *
Alan G. Quasha(4)..................................... 52,148,859(5) 52.8%
Jack E. Rosenfeld(7).................................. 3,849,598(8) 3.9%
Geraldine Stutz....................................... 114,649(9) *
Robert F. Wright...................................... 75,000(5) *
Wayne P. Garten....................................... 227,976(10) *
Michael P. Sherman(7)................................. 236,798(11) *
Coy Clement(7)........................................ 33,333 *
Chuck Hudson.......................................... 105,734(12) *
Robert G. Kramer...................................... 20,000 *
Michael Lutz.......................................... 27,284 *
Edward J. O'Brien..................................... 104,060 *
Directors and executive officers as a group (19
persons)............................................ 10,205,392(13) 10.3%
</TABLE>
- ---------------
* Less than 1%
(1) Includes in each case shares of Common Stock issuable upon exercise of
options or warrants exercisable within 60 days for the subject individual
only. Percentages computed on the basis of 93,590,646 shares of Common
Stock outstanding as of May 6, 1996.
(2) See Note (4) under "PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY."
(3) Rakesh K. Kaul has served as President and Chief Executive Officer of the
Company since March 7, 1996. See "EXECUTIVE COMPENSATION AND OTHER
INFORMATION -- Severance and Employment Agreements."
(4) See Note (2) under "PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY."
All of the shares beneficially owned by NAR could also be deemed to be
beneficially owned by Alan G. Quasha, due to his shared investment and
voting power with NAR.
(5) Includes options to purchase 25,000 shares exercisable within 60 days.
(6) Includes options to purchase 5,000 shares exercisable within 60 days.
(7) Jack E. Rosenfeld resigned as President and Chief Executive Officer of the
Company effective December 30, 1995, while Michael P. Sherman resigned as
Executive Vice President -- Corporate Affairs, General Counsel and
Secretary effective April 23, 1996 and Coy Clement resigned as Executive
Vice President -- Non Apparel effective January 11, 1996.
(8) Includes options to purchase 2,627,210 shares exercisable within 60 days.
(9) Includes options to purchase 75,000 shares exercisable within 60 days.
(10) Includes options to purchase 32,150 shares exercisable within 60 days.
10
<PAGE> 12
(11) Includes options to purchase 31,500 shares exercisable within 60 days.
(12) Includes options to purchase 50,000 shares exercisable within 60 days.
(13) Excludes 47,090,124 shares and warrants to purchase 5,033,735 shares
beneficially owned by NAR which could also be deemed to be beneficially
owned by Mr. Quasha. Includes options to purchase 25,000 shares exercisable
within 60 days by Mr. Quasha.
None of the Company's Directors or executive officers owns any shares of
Series B Preferred.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Nomination and Standstill Agreement, Messrs. Kruttschnitt,
Hakman and Manwell agreed that if at any time Mr. Kruttschnitt ceases to own at
least 2,262,000 shares of Common Stock (representing 83% of the shares owned by
Mr. Kruttschnitt on the date of the Nomination and Standstill Agreement), at
least one of them will resign as a Director; if at any time Mr. Kruttschnitt
ceases to own at least 1,907,710 shares of Common Stock (representing 70% of the
shares owned by Mr. Kruttschnitt on the date of the Nomination and Standstill
Agreement), at least two of them will resign as Directors; and if at any time
Mr. Kruttschnitt owns less than 5% of the outstanding shares of Common Stock,
all of them will resign as Directors; except no Director shall be obligated to
resign if such resignation would constitute a breach of the Director's fiduciary
duties as a Director. See "AGREEMENTS WITH RESPECT TO NOMINATION OF DIRECTORS"
and "PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY."
Since January 1993, pursuant to a consulting arrangement, Quadrant, an
affiliate of NAR, renders management consulting, business advisory and
investment banking services to the Company for an annual fee of $750,000 per
year. Such $750,000 fee for the 1996 fiscal year was waived by Quadrant.
In November 1995, Intercontinental Mining & Resources Incorporated ("IMR"),
an affiliate of NAR, purchased the Company's 9.25% Senior Subordinated Notes due
August 1, 1998 (the "9.25% Notes") from a third party in connection with the
refinancing of the Company's indebtedness under the $75 million secured credit
facility with Congress Financial Corporation. The Company paid NAR a commitment
fee of $105,000 upon the signing of a repurchase and option agreement and a fee
of $210,000 (1.5% of the outstanding principal amount of the 9.25% Notes
acquired by IMR) upon the funding, as well as all expenses incurred by NAR in
performing its obligation. The Company extended by two years the terms of the
warrants to purchase 5,033,735 shares held by NAR and IMR to August 1, 1998. The
Company also agreed to indemnify NAR against any and all claims or losses
asserted against it or incurred by it relating to the transactions contemplated
by the repurchase and option agreement. The Company has agreed to repay a
portion of the 9.25% Notes with the proceeds from the distribution to the
Company's securityholders of transferable subscription rights to subscribe for
and purchase additional shares of Common Stock. Such rights offering is expected
to be consummated in the summer of 1996.
Approximately $85,000 was paid by the Company during fiscal 1995 for the
rental of property pursuant to an operating lease to a partnership in which Mr.
Rosenfeld, the former President and Chief Executive Officer of the Company, and
his wife are partners. Mr. Rosenfeld is also a former Director of the Company.
Geraldine Stutz, a Director of the Company, assisted the Company during
fiscal 1995 in the redesign and relocation of the Gump's retail store. As
compensation for such services during fiscal 1995, the Company paid Ms. Stutz
$250,000 plus out-of-pocket expenses. The Company intends to pay Ms. Stutz
$12,500 per month through June 1996 for such services plus out-of-pocket
expenses.
In 1993, each of the Named Executives purchased shares of Common Stock
pursuant to the 1993 Executive Equity Incentive Plan. Pursuant to such plan,
each executive financed 80% of the purchase price of the shares he purchased
with a full recourse Company loan due in 1999. These loans, which bear interest
at 5.54%, were outstanding at the end of fiscal 1995 and, as of April 29, 1996,
were outstanding in the following amounts: Jack E. Rosenfeld, former President
and Chief Executive Officer, $187,500; Wayne P. Garten, Executive Vice President
and Chief Financial Officer, $100,000; Michael P. Sherman, former Executive Vice
11
<PAGE> 13
President -- Corporate Affairs, General Counsel and Secretary, $100,000; Coy
Clement, former Executive Vice President -- Non-Apparel, $0; and Chuck Hudson,
Executive Vice President -- Men's Apparel, $62,500.
In addition, the Company loaned $50,000 to each of Mr. Sherman and Mr.
Garten during the fourth quarter of fiscal 1994, which sums were outstanding at
the end of fiscal 1995, and an additional $100,000 and $125,000 to Mr. Sherman
and Mr. Garten, respectively, during the first six months of fiscal 1995, which
sums were also outstanding at the end of fiscal 1995. Such loans bear interest
at rates ranging from 6.00% to 8.00% per annum, are due on demand and are
secured by a pledge of 150,000 and 151,623 shares of Common Stock (the "Pledged
Shares") by Mr. Sherman and Mr. Garten, respectively. As of April 29, 1996, Mr.
Sherman and Mr. Garten had accumulated indebtedness represented by notes made by
them in the aggregate principal amount of $238,223.39 and $262,494.78,
respectively (the "Notes"). The loans were made to permit such executive
officers to satisfy liabilities incurred by them in connection with the payment
of tax obligations associated with the distribution to them of the Pledged
Shares from a trust in fiscal 1993. In connection with such indebtedness, the
Company entered into a letter agreement with each of them in April 1996,
providing for the satisfaction of their indebtedness to the Company by
transferring the Pledged Shares on such date on or before December 31, 1996 as
the Company shall select. The Pledged Shares (valued at the closing price
thereof on the American Stock Exchange on the date of transfer) shall be applied
first to the payment of any accrued interest owed on the respective Notes, and
the remainder shall be applied toward the payment of the outstanding principal
amount under the Notes. Any remaining balance owed on the Notes by Mr. Sherman
and Mr. Garten shall be canceled. The Company will also pay each of them a
"gross-up" payment in the amount necessary to make each of them whole for any
increase in Federal and state income taxes resulting from the inclusion in gross
income of the canceled indebtedness and gross-up payment.
The foregoing relationships and transactions have been approved by the
Board or a committee of the Board or by the Shareholders and, to the extent that
such arrangements are available from non-affiliated parties, are on terms no
less favorable to the Company than those available from non-affiliated parties.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HANOVER DIRECT, INC.
(registrant)
Date: April 29, 1996 By: /s/Rakesh K. Kaul
-------------------------
Rakesh K. Kaul, Director,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Principal Financial Officer:
/s/ Wayne P. Garten
- -------------------------------
Wayne P. Garten
Executive Vice President and
Chief Financial Officer
Board of Directors:
/s/ Ralph Destino
- -------------------------------- ------------------------------
Ralph Destino Edmund R. Manwell
/s/ Alan G. Quasha
- -------------------------------- ------------------------------
J. David Hakman Alan G. Quasha
/s/ Geraldine Stutz
- -------------------------------- ------------------------------
S. Lee Kling Geraldine Stutz
/s/ Jeffrey Laikind
- -------------------------------- ------------------------------
Theodore H. Kruttschnitt Jeffrey Laikind
/s/ Elizabeth Valk Long /s/ Robert F. Wright
- -------------------------------- ------------------------------
Elizabeth Valk Long Robert F. Wright
/s/ Rakesh K. Kaul
------------------------------
Rakesh K. Kaul
Date: April 29, 1996
13
<PAGE> 15
EXHIBIT INDEX
23.1 Consent of Independent Public Accountants
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to incorporation of our
reports included in this Form 10-K, into The Horn & Hardart Company's
(predecessor to Hanover Direct, Inc.) previously filed Registration Statement
File Nos. 33-66394, 33-58760, 33- 58756, 33-58758, 33-52687, 33-52059,
33-52061, 2-94286 and 2-92383.
/s/ Arthur Andersen LLP
New York, New York
March 29, 1996
