<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
Hanover Direct, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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 its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
HANOVER DIRECT, INC.
1500 HARBOR BOULEVARD
WEEHAWKEN, NEW JERSEY 07087
(201) 863-7300
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 10, 1997
TO OUR SHAREHOLDERS:
PLEASE TAKE NOTICE that the 1997 Annual Meeting of Shareholders (the
"Annual Meeting") of Hanover Direct, Inc., a Delaware corporation (the
"Company"), will be held at the Radisson Suite Hotel Meadowlands, 350 Route 3
West, Secaucus, New Jersey 07094 on Thursday, July 10, 1997 at 9:30 a.m., local
time, for the following purposes:
1. To elect 12 members of the Board of Directors to serve until the 1998
Annual Meeting of Shareholders and in each case until their respective
successors are elected and qualified;
2. To ratify and approve an amendment to the Company's 1996 Stock Option
Plan;
3. To ratify the adoption of the amendment to the Company's Certificate of
Incorporation increasing the number of shares of Common Stock, par value
$.66-2/3, which the Company shall have the authority to issue from 150,000,000
to 225,000,000 shares;
4. To ratify and approve the appointment by the Board of Directors of
Arthur Andersen LLP as the Company's independent auditors for the fiscal year
ending December 27, 1997; and
5. To consider and act upon such other matters as may properly come before
the Annual Meeting or any adjournments or postponements thereof.
All shareholders are cordially invited to attend. Only holders of record of
issued and outstanding shares of Common Stock and Series B Convertible
Additional Preferred Stock of the Company at the close of business on June 11,
1997 will be entitled to notice of and to vote at the Annual Meeting or any
adjournments or postponements thereof. A copy of the Company's Proxy Statement
and 1996 Annual Report to Shareholders is enclosed. In accordance with Section
219 of the Delaware General Corporation Law, the Company will make available for
examination by any shareholder, for any purpose germane to the Annual Meeting,
during ordinary business hours, for a period of at least 10 days prior to the
Annual Meeting, at the Radisson Suite Hotel Meadowlands, 350 Route 3 West,
Secaucus, New Jersey 07094, a complete list of the shareholders entitled to vote
at the Annual Meeting, arranged in alphabetical order.
By Order of the Board of Directors,
/s/ Edward J. O'Brien
Edward J. O'Brien
Secretary
June 24, 1997
<PAGE> 3
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE READ THE
ACCOMPANYING PROXY STATEMENT AND PROMPTLY COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED WITHIN THE UNITED STATES OF AMERICA. THE PROXY IS REVOCABLE BY YOU AT ANY
TIME PRIOR TO ITS USE AT THE ANNUAL MEETING. IF YOU RECEIVE MORE THAN ONE PROXY
CARD BECAUSE YOUR SHARES ARE REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH
PROXY CARD SHOULD BE SIGNED AND RETURNED TO ASSURE THAT ALL YOUR SHARES WILL BE
VOTED AT THE ANNUAL MEETING.
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HANOVER DIRECT, INC.
1500 HARBOR BOULEVARD
WEEHAWKEN, NEW JERSEY 07087
(201) 863-7300
PROXY STATEMENT FOR THE 1997 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON JULY 10, 1997
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to the holders of voting stock (the
"Shareholders") of Hanover Direct, Inc., a Delaware corporation (the "Company"),
in connection with the solicitation of proxies by the Board of Directors of the
Company for use at the 1997 Annual Meeting of Shareholders of the Company (the
"Annual Meeting") to be held at 9:30 a.m., local time, on Thursday, July 10,
1997 at the Radisson Suite Hotel Meadowlands, 350 Route 3 West, Secaucus, New
Jersey 07094 and any adjournments or postponements thereof. This Proxy Statement
is first being sent to Shareholders of the Company on or about June 24, 1997.
At the Annual Meeting, Shareholders will (1) elect 12 members of the Board
of Directors to serve until the 1998 Annual Meeting of Shareholders and in each
case until their respective successors are elected and qualified, (2) ratify and
approve the adoption of certain amendments to the Company's 1996 Stock Option
Plan, (3) ratify the adoption of the amendment to the Company's Certificate of
Incorporation and (4) ratify and approve the appointment of Arthur Andersen LLP
as the Company's independent auditors for the fiscal year ending December 27,
1997.
Shareholders may also consider and act upon such other matters as may
properly come before the Annual Meeting or any adjournments or postponements
thereof.
RECORD DATE; SHARES ENTITLED TO VOTE
The Board of Directors has fixed the close of business on June 11, 1997 as
the record date (the "Record Date") for determining holders of outstanding
shares of the Company's Common Stock, par value $.66- 2/3 per share (the "Common
Stock"), and Series B Convertible Additional Preferred Stock, par value $.01 and
stated value $10.00 per share (the "Series B Preferred" and, together with the
Common Stock, the "Voting Stock"), entitled to notice of and to vote at the
Annual Meeting and at any adjournments or postponements thereof. Only holders of
record of Voting Stock at the close of business on such date will be entitled to
notice of and to vote at the Annual Meeting or at any adjournments or
postponements thereof. On that date, there were 200,031,580 shares of Common
Stock and 634,900 shares of Series B Preferred outstanding and entitled to vote.
As of June 11, 1997, 94,762,555 shares of Common Stock (and currently
exercisable warrants) were owned by subsidiaries of NAR Group Limited, a British
Virgin Islands corporation ("NAR"), while 40,687,970 shares of Common Stock were
owned by Richemont Finance S.A., a Luxembourg public company which is an
affiliate of NAR ("Richemont"). Each outstanding share of Common Stock entitles
the holder thereof to one vote on all matters submitted for a vote at the Annual
Meeting, while each outstanding share of Series B Preferred entitles the holder
thereof to 1.5 votes on all such matters. All shares of Common Stock and Series
B Preferred will vote together as one class on all questions that come before
the Annual Meeting.
<PAGE> 5
VOTE REQUIRED
Pursuant to the Company's Bylaws, the affirmative vote of the holders of a
plurality of the combined voting power of all shares of Voting Stock present in
person or by proxy at the Annual Meeting and voting together as a single class
is required to elect Directors. The affirmative vote of the holders of a
majority of the combined voting power of all shares of Voting Stock present in
person or by proxy and entitled to vote at the Annual Meeting as a single class
is required to approve the adoption of the amendments to the 1996 Stock Option
Plan. The affirmative vote of the holders of a majority of the combined voting
power of all shares of Voting Stock present in person or by proxy and entitled
to vote at the Annual Meeting as a single class is required to ratify the
adoption of the amendment to the Certificate of Incorporation. The affirmative
vote of the holders of a majority of the combined voting power of all shares of
Voting Stock present in person or by proxy at the Annual Meeting and voting
together as a single class is required to approve the appointment of auditors.
Abstentions will have the same effect as a vote against the ratification of the
adoption of the amendments to the Company's 1996 Stock Option Plan, the adoption
of the amendment to the Certificate of Incorporation and the proposal to approve
the appointment of auditors and, with respect to election of a nominee for
Director, will have the same effect as a withheld vote. Broker non-votes will
have no effect on the votes with respect to the proposal to ratify the adoption
of the amendments to the Company's 1996 Stock Option Plan, the adoption of the
amendment to the Certificate of Incorporation and the appointment of auditors,
nor will they have any effect on the election of Directors.
SOLICITATION OF PROXIES
Each Shareholder of the Company is requested to complete, sign, date and
return the enclosed proxy without delay in order to ensure that shares owned
thereby are voted at the Annual Meeting. All shares of Voting Stock represented
at the Annual Meeting by properly executed proxies received prior to or at the
Annual Meeting will be voted at the Annual Meeting in accordance with the
instructions on the proxies. If no instructions are given or indicated, properly
executed proxies will be voted IN FAVOR OF the adoption of the amendments to the
Company's 1996 Stock Option Plan, IN FAVOR OF the ratification of the adoption
of the amendment to the Certificate of Incorporation, IN FAVOR OF the
ratification and approval of the appointment of Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending December 27, 1997, and
FOR the election of the nominees for Director described herein. In the event
that any nominee at the time of election shall be unable or unwilling to serve
or is otherwise unavailable for election (which contingency is not now
contemplated or foreseen), and in consequence other nominees shall be nominated,
the persons named in the proxy shall have the discretion and authority to vote
or refrain from voting in accordance with their judgment on such other
nominations. The Company does not know of any other matters to be presented at
the Annual Meeting. If any additional matters are properly presented to the
Annual Meeting for action, the persons named in the enclosed proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
own judgment.
REVOCATION OF PROXIES
Any Shareholder may revoke a proxy at any time before such proxy is voted.
Proxies may be revoked (i) by delivering to the Secretary of the Company a
written notice of revocation bearing a date later than the date of the proxy,
(ii) by duly executing a subsequent proxy relating to the same shares of Voting
Stock and delivering it to the Secretary of the Company, or (iii) by attending
the Annual Meeting and stating to the Secretary of the Company an intention to
vote in person and so voting. Attendance at the Annual Meeting will not in and
of itself constitute revocation of a proxy. Any subsequent proxy or written
notice of revocation of a
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proxy should be delivered to Hanover Direct, Inc., 1500 Harbor Boulevard,
Weehawken, New Jersey 07087, Attention: Edward J. O'Brien, Secretary.
DISSENTERS' RIGHTS OF APPRAISAL
Under Delaware law, shareholders who do not consent to the ratification of
the adoption of the amendment to the Company's Certificate of Incorporation do
not have appraisal rights with respect to the shares held by them.
COST OF SOLICITATION
The Company will bear the cost of soliciting proxies in connection with the
Annual Meeting estimated at $18,000 in the aggregate. Proxies will be solicited
by telephone, telegram, mail or personal contact. American Stock Transfer &
Trust Company, the Company's transfer agent, will aid in the solicitation of
proxies in connection with the Annual Meeting for no additional fee. Directors,
officers and employees of the Company may solicit proxies by telephone,
telegram, mail or personal contact. Such persons will receive no additional
compensation for such services, but the Company may reimburse them for
reasonable out-of-pocket expenses incurred in connection therewith. Copies of
solicitation material will be furnished to fiduciaries, custodians, nominees and
brokerage houses for forwarding to beneficial owners of shares of Voting Stock
held in their names and the Company will reimburse them for reasonable
out-of-pocket expenses incurred in connection therewith.
ELECTION OF DIRECTORS
GENERAL
At the Annual Meeting, Shareholders will elect 12 members of the Board of
Directors to serve until the Annual Meeting of Shareholders to be held in 1998
and in each case until their respective successors are elected and qualified or
until their death, resignation, retirement, disqualification or removal as
provided in the Certificate of Incorporation and Bylaws of the Company.
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 June 10, 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 "EXECUTIVE COMPENSATION AND OTHER
INFORMATION -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
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NOMINEES FOR DIRECTOR
The Board recently voted to expand the number of directors from 11 to 12.
The nominees for Director, together with certain information furnished to the
Company by each nominee, are set forth below. All of such nominees except Mr.
Mehta currently serve as directors of the Company.
RALPH DESTINO, 60, 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 Richemont and 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 was elected a Director of the
Company in October 1991.
J. DAVID HAKMAN, 55, 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, 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.
RAKESH K. KAUL, 45, 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 elected a Director of the Company in March 1996.
S. LEE KLING, 68, 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 ElectroRent Corp., an electronics leasing 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, 54, 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 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.
ELIZABETH VALK LONG, 47, 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 as
the publisher of TIME 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 was elected a Director of the Company in October
1991.
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EDMUND R. MANWELL, 55, 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.
SHAILESH J. MEHTA, 48, has been President and Chief Executive Officer and a
director of Providian Bancorp, Inc., a consumer lending financial services
company, since 1988. He joined Providian Bancorp in 1986 as Executive Vice
President and Chief Operating Officer. Mr. Mehta is also Chairman and Chief
Executive Officer of Providian Direct Insurance, a direct marketer of life and
health insurance, and President, Chief Operating Officer and a director of
Providian Corporation, a shareholder-owned diversified financial services
company, serving as a member of the Office of the Chairman, comprised of both
the Chief Executive Officer and the Chief Operating Officer. Mr. Mehta serves on
the U.S. Board of Directors of MasterCard International, Incorporated.
JAN P. DU PLESSIS, 43, has been Finance Director of Richemont for the last
five years. He also served as Finance Director of The Rothmans International
Group until August 1996. Mr. du Plessis was elected a Director of the Company in
March 1997.
ALAN G. QUASHA, 47, has been President of Quadrant Management Inc., an
indirect wholly-owned subsidiary of NAR which manages NAR's U.S. assets
("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 S.A., a Luxembourg public company and an affiliate of NAR
and Richemont. Mr. Quasha was elected a Director of the Company and Chairman of
the Board in October 1991.
HOWARD M. S. TANNER, 52, has been Executive Director of Richemont S.A., a
Luxembourg public company and an affiliate of NAR and Richemont, for the last
five years. Mr. Tanner was elected a Director of the Company in March 1997.
ROBERT F. WRIGHT, 71, 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, Rose Technology Group Limited, an
energy service company, Timberlands Management Group LLC, a manager of Western
Timberlands, and Norweb North America Corporation, an investment company. Mr.
Wright also serves on the advisory board of Quadrant. Mr. Wright was elected a
Director of the Company in October 1991.
OTHER INFORMATION
The Board of Directors has standing Executive, Audit, Stock Option and
Executive Compensation, Special, Nominating and Transactions Committees.
During 1996, Messrs. Quasha (Chairman), Kaul and Wright were members of the
Executive Committee. Messrs. Quasha, Kaul, du Plessis, Tanner (Chairman) and
Wright currently serve as its members. The Executive Committee held three
meetings in person or by conference call and took action by written consent
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on four occasions in 1996. The duties of the Executive Committee include
recommending actions to the Board of Directors and acting on behalf of the Board
on certain matters when the Board is not in session.
During 1996, Messrs. Wright (Chairman), Hakman and Manwell were members of
the Audit Committee. Messrs. Wright (Chairman), Hakman, Manwell and du Plessis
currently serve as its members. The Audit Committee held five meetings in 1996
in person or by conference call. The duties performed by the Audit Committee
include (1) review with the independent public accountants of the scope of their
audit, the audited consolidated financial statements, and any accounting
procedures or internal control comments contained in the independent public
accountants' management letter, including corrective action taken by management;
(2) annual review and approval of the adequacy and scope of the internal audit
department's planned audit program and review of the internal audit department's
interim audit reports, including the evaluation of replies and corrective action
being taken; (3) review of the adequacy of the internal accounting control
systems of the Company and its subsidiaries; and (4) review and approval of
management's recommendation for the appointment of outside independent public
accountants prior to the submission of their nomination to the Board of
Directors for approval and to the Shareholders for ratification. The Audit
Committee is concerned with the accuracy and completeness of the Company's
consolidated financial statements and matters which relate to them. However, the
Audit Committee's role does not involve the professional evaluation of the
quality of the audit conducted by the independent public accountants. While it
is believed that the Audit Committee's activities are beneficial because they
provide ongoing oversight on behalf of the full Board, they do not alter the
traditional roles and responsibilities of the Company's management and
independent public accountants with respect to the accounting and control
functions and financial statement presentation.
During 1996, Messrs. Laikind (Chairman), Destino and Quasha and Ms. Long
and Ms. Stutz were members of the Stock Option and Executive Compensation
Committee (the "Compensation Committee") and Messrs. Destino, du Plessis and
Quasha and Ms. Long (Chairman) currently serve as its members following the
resignations of Mr. Laikind and Ms. Stutz from the Company's Board of Directors.
The Compensation Committee held four meetings in 1996 in person or by conference
call and took action by written consent on three occasions. The duties of the
Compensation Committee are to review and make recommendations for approval by
the Board of Directors of remuneration arrangements for Directors and members of
management.
During 1996, Messrs. Laikind and Destino were members of the Special
Committee. The Special Committee held three meetings in 1996 in person or by
conference call and took action by written consent on one occasion. The Special
Committee is a sub-committee of the Compensation Committee and its duties are to
review and make recommendations for approval by the Board of Directors
concerning grants of stock options pursuant to the Company's stock option plans
for the Company's employees. It is expected that the Special Committee will be
disbanded in 1997.
During 1996, Messrs. Kaul (Chairman), Destino, Hakman, Kruttschnitt and
Laikind were members of the Nominating Committee and all except Mr. Laikind, who
resigned as a director, currently serve as its members. The Nominating Committee
held one meeting in 1996. The duties of the Nominating Committee include
evaluating and recommending candidates for election to the Board of Directors.
The Bylaws of the Company require advance notice of nominations for election to
the Board of Directors, other than those made by the Board of Directors. Unless
waived by the Board of Directors, a notice of nomination must be received by the
Company at least 75 days before initiation of solicitation to the Shareholders
for election in the event of an election other than at an annual meeting of
Shareholders, and at least 75 days before the date that corresponds to the
record date of the prior year's annual meeting of Shareholders in the event of
an election at
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an annual meeting of Shareholders, and in all events must include certain
required information. The Nominating Committee will consider nominees
recommended by Shareholders in accordance with the Company's Bylaws.
During 1996, Messrs. Kling (Chairman), Hakman and Manwell were members of
the Transactions Committee and currently serve as its members. In addition, in
1997, Mr. Kruttschnitt also served as a member of the Transactions Committee.
The Transactions Committee held seven meetings in 1996 in person or by
conference call and took action by written consent on one occasion. The duties
of the Transactions Committee are to review all transactions not in the ordinary
course of business between the Company and Directors, members of management or
persons owning 10% or more of the Company's securities and to report its
findings to the Board of Directors as to the fairness, merits and potential
conflicts of interest. The Transactions Committee is empowered to retain
independent experts to review a transaction if it deems that it is desirable to
do so.
During 1996, the Board of Directors held seven meetings in person or by
conference telephone. Each incumbent Director attended at least 75% of the Board
meetings held during the period in which such Director was a member of the Board
and at least 75% of the meetings of the committees on which he or she served
during such period.
The Company indemnifies its executive officers and Directors to the extent
permitted by applicable law against liabilities incurred as a result of their
service to the Company. Directors are also indemnified to the extent permitted
by applicable law against liabilities incurred as a result of their service as
directors of other corporations when serving at the request of the Company. In
addition, the Shareholders' Agreement, dated October 25, 1991, between the
Company and NAR provides for indemnification, to the fullest extent permitted by
law, of NAR's designees to the Board of Directors against, among other things,
all liabilities and claims arising out of their service in any capacity for or
on behalf of the Company. The Company has a directors and officers liability
insurance policy underwritten by Executive Re Indemnity Company, Tamarack
American and Zurich American Insurance Company in the aggregate amount of
$25,000,000. The policy term is from June 1, 1997 to June 1, 1998. As to
reimbursements by the insurer of the Company's indemnification expenses, the
policy has a $250,000 deductible; there is no deductible for covered liabilities
of individual Directors and officers.
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 except for Rakesh K. Kaul who
filed the required report with respect to his being elected President and Chief
Executive Officer but not on a timely basis and Ralph Destino, Jeffrey Laikind,
Robert F. Wright and Elizabeth Valk Long who each filed one required report with
respect to one transaction but not on a timely basis.
VOTE REQUIRED
The affirmative vote of the holders of a plurality of the combined voting
power of all shares of Common Stock and Series B Preferred present in person or
by proxy at the Annual Meeting and voting together as a single class, with each
share of Common Stock having one vote and each share of Series B Preferred
having 1.5 votes, is required to elect Directors. The enclosed proxy provides a
means for Shareholders to vote for the election of all of the nominees for
Director listed above, to withhold authority to vote for one or more of such
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nominees or to withhold authority to vote for all of such nominees. Abstentions
with respect to the election of a nominee for Director will have the same effect
as a withheld vote and broker non-votes will have no effect on the election of
Directors.
It is the intention of the persons named in the enclosed proxy to vote FOR
the election of all of the persons named above to serve as Directors of the
Company. The nominees, each of whom currently serves as a Director, have
consented to be named in this Proxy Statement and to continue to serve as
Directors if elected. Management does not contemplate or foresee that any of the
nominees will be unable or unwilling to serve or otherwise unavailable for
election, but if such a situation should arise and other nominees are nominated,
the persons named in the proxy will vote for the election of the other nominees
recommended by the Board of Directors. In all cases, the Board of Directors has
the authority to elect persons to fill vacancies on the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION
OF THE NOMINEES FOR DIRECTOR SET FORTH ABOVE.
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 1996 fiscal year end (other than the Chief Executive
Officer) whose total annual salary and bonus exceeded $100,000, in each case for
the preceding three fiscal years (collectively, the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
NAME AND FISCAL -------------------- OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDED(#) COMPENSATION($)
- ------------------------- ------ --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Rakesh K. Kaul(1)........ 1996 $ 417,981 $349,188 $ 199,313(2) 7,530,000(3) $ 314(4)
President and Chief
Executive Officer
Wayne P. Garten(1)....... 1996 $ 240,000 $ 2,972 $ 612,709(5) -- $ 8,322(6)
Executive Vice 1995 $ 260,000 -- -- -- $12,870(8)
President and Chief 1994 $ 254,231 $ 15,000 -- -- $12,908(7)
Financial Officer
Michael P. Sherman(1).... 1996 $ 132,000 $ 3,120 $ 262,533(9) -- $ 4,813(10)
Executive Vice 1995 $ 246,000 -- -- -- $12,237(11)
President -- Corporate 1994 $ 244,156 -- -- -- $12,370(12)
Affairs, General
Counsel and Secretary
Ralph Bulle.............. 1996 $ 163,385 -- -- 125,000(13) $ 5,329(14)
Senior Vice President 1995 $ 143,000 -- -- -- $ 5,584(15)
Human Resources 1994 $ 142,423 -- -- -- $ 309(16)
Michael Lutz(1).......... 1996 $ 226,539 $ 27,095 -- 150,000(17) $ 3,109(18)
Executive Vice 1995 $ 215,000 $ 75,000 -- 40,000(19) $ 1,490(20)
President -- Operations 1994 $ 57,885 -- -- -- --
</TABLE>
8
<PAGE> 12
- ---------------
(1) Rakesh K. Kaul was named President and Chief Executive Officer and elected
to the Board of Directors on March 7, 1996. Michael P. Sherman resigned
effective April 23, 1996. Wayne P. Garten resigned effective September 30,
1996. Michael Lutz joined the Company in September 1994.
(2) Includes the following payments made by the Company on behalf of Mr. Kaul:
$151,192 in relocation expenses and $48,121 in car allowance and related
benefits.
(3) Issued by the Company pursuant to the Tandem Option, the Closing Price
Option and the Performance Year Option and by NAR under the Six, Seven,
Eight and Nine Year Stock Options. See "SEVERANCE AND EMPLOYMENT
AGREEMENTS."
(4) Includes the following payments made by the Company on behalf of Mr. Kaul:
$281 in term life insurance premiums and $33 of accidental death insurance
premiums.
(5) Includes the following payments made by the Company on behalf of Mr.
Garten: $346,667 in severance pay, $63,000 of accrued vacation pay, $8,921
in car allowance, $66,574 representing a supplemental retirement
distribution and $127,547 in forgiveness of indebtedness.
(6) Includes the following payments made by the Company on behalf of Mr.
Garten: $2,500 in matching contributions under the 401(k) Savings Plan,
$5,660 in matching contributions under the Supplemental Retirement Plan,
$129 of term life insurance premiums and $33 of accidental death insurance
premiums.
(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 Company's 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.
Sherman: $2,120 in car allowance, $119,415 representing a supplemental
retirement distribution and $140,998 in forgiveness of indebtedness.
(10) Includes the following payments made by the Company on behalf of Mr.
Sherman: $2,261 in matching contributions under the 401(k) Savings Plan,
$2,451 in matching contributions under the Company's Supplemental
Retirement Plan, $71 in term life insurance premiums and $30 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,
$240 in term life insurance premiums and $61 of accidental death insurance
premiums.
(12) 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.
(13) Issued pursuant to the Company's 1996 Stock Option Plan.
9
<PAGE> 13
(14) Includes the following payments made by the Company on behalf of Mr. Bulle:
$2,500 in matching contributions under the 401(k) Savings Plan, $2,454 in
matching contributions under the Supplemental Retirement Plan, $342 in term
life insurance premiums and $33 of accidental death insurance premiums.
(15) Includes the following payments made by the Company on behalf of Mr. Bulle:
$2,145 in matching contributions under the Company's 401(k) Savings Plan,
$2,860 in matching contributions under the Company's Supplemental
Retirement Plan, $518 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. Bulle:
$248 in term life insurance premiums and $61 of accidental death insurance
premiums.
(17) Issued pursuant to the Company's 1996 Stock Option Plan.
(18) Includes the following payments made by the Company on behalf of Mr. Lutz:
$2,500 in matching contributions under the 401(k) Savings Plan, $576 in
term life insurance premiums and $33 of accidental death insurance
premiums.
(19) Issued pursuant to the Company's 1993 Executive Equity Incentive Plan.
(20) Includes the following payments made by the Company on behalf of Mr. Lutz:
$662 in matching contributions under the 401(k) Savings Plan, $767 in term
life insurance premiums and $61 of accidental death insurance premiums.
STOCK OPTIONS
The following table contains information concerning options granted to each
of the Named Executives during fiscal 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR(%) PRICE($) DATE VALUE($)
------------------------ ---------- -------------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Rakesh K. Kaul(i) ...... 3,020,000 26.7% $1.15625 03/07/06 $2,325,400(a)
1,000,000 8.8% $1.15625 03/07/06 $ 770,000(b)
2,000,000 17.7% $1.15625 03/07/06 $ 340,000(c)
377,500 3.3% $1.15625 03/07/02 $ 226,500(d)
377,500 3.3% $1.15625 03/07/03 $ 245,375(e)
377,500 3.3% $1.15625 03/07/04 $ 260,475(f)
377,500 3.3% $1.15625 03/07/05 $ 279,350(g)
Wayne P. Garten......... -- -- -- -- --
Michael P. Sherman...... -- -- -- -- --
Ralph Bulle............. 125,000 1.3% $ 1.00 10/13/03 $ 83,750(h)
Michael Lutz............ 150,000 1.3% $ 1.00 10/13/03 $ 100,500(h)
</TABLE>
- ---------------
(a) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.79%,
expected lives of 9.85 years, expected volatility of 45.02% and expected
dividends of $0.
10
<PAGE> 14
(b) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.79%,
expected lives of 9.85 years, expected volatility of 45.02% and expected
dividends of $0.
(c) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model utilizing a Monte Carlo
simulation with the following weighted average assumptions for grants in
1996: risk free interest rate of 6.79%, expected lives of 9.85 years,
expected volatility of 45.02% and expected dividends of $0.
(d) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.42%,
expected lives of 5.85 years, expected volatility of 45.02% and expected
dividends of $0.
(e) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.53%,
expected lives of 6.85 years, expected volatility of 45.02% and expected
dividends of $0.
(f) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.62%,
expected lives of 7.85 years, expected volatility of 45.02% and expected
dividends of $0.
(g) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.73%,
expected lives of 8.85 years, expected volatility of 45.02% and expected
dividends of $0.
(h) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.80%,
expected lives of 7 years, expected volatility of 45.35% and expected
dividends of $0.
(i) Options granted to Mr. Kaul during 1996 represent approximately 66.5% of all
options granted to all employees.
No options were exercised by any of the Named Executives during fiscal
1996. The following table contains information concerning options held by each
of the Named Executives at the end of fiscal 1996:
FISCAL YEAR-END OPTION VALUES
<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 UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE(1)
------------------------------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Rakesh K. Kaul................. -- 7,530,000 -- $5,647,500
Wayne P. Garten................ -- -- -- --
Michael P. Sherman............. -- -- -- --
Ralph Bulle.................... -- 125,000 -- $ 93,750
Michael Lutz................... -- 190,000 -- $ 142,500
</TABLE>
- ---------------
(1) Unexercisable options for Mr. Kaul represent options granted in 1996 by the
Company under the Tandem Option, the Closing Price Option and the
Performance Year Option, and by NAR under the Six, Seven, Eight and Nine
Year Stock Options. See "EXECUTIVE COMPENSATION AND OTHER
INFORMATION -- SEVERANCE AND EMPLOYMENT AGREEMENTS." All the unexercisable
options for Mr. Bulle and
11
<PAGE> 15
150,000 of the unexercisable options for Mr. Lutz represent options granted in
1996 under the 1996 Stock Option Plan and 40,000 unexercised options for Mr.
Lutz represent tandem options granted in 1995 pursuant to the 1993 Executive
Equity Incentive Plan. Under the 1996 Stock Option Plan, these options become
exercisable three years after the date of grant and expire seven years from the
date of grant.
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 entered into a Termination of
Employment Agreement, 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 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
called for Mr. Rosenfeld to serve as a Director Emeritus of the Company, and
allowed Mr. Rosenfeld to attend meetings of the Board of Directors and
participate in board discussions for a one-year period but Mr. Rosenfeld had no
voting rights on any matters that came before the Board of Directors. The
Termination Agreement precluded 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 provides for an annual
bonus of between 0% and 125% of Mr. Kaul's 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 provides for the purchase by Mr. Kaul of 1,510,000 shares of
Common Stock of the Company at their fair market value; an option expiring March
7, 2006 for the purchase of 3,020,000 shares of Common Stock (the "Tandem
Option"); 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 has attained an average of $7.00 per share
during a 91-day period ending on or before March 7, 2002 (the "Closing Price
Option"); an option expiring March 7, 2006 to purchase an aggregate of 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 (the
"Performance Year Option"); 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, granted by NAR (the "Six", "Seven," "Eight" and
"Nine Year Stock Options"). 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 agreed to make Mr. Kaul whole, on an after-tax
basis, for any loss realized on the sale of his residence at the time he joined
the Company. The Company also provides Mr. Kaul with an automobile allowance of
$2,500 per month and related benefits. In the event that Mr. Kaul's employment
is actually or constructively terminated by the Company other than for cause, he
will be entitled
12
<PAGE> 16
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 monthly
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 were
renewable annually for one year renewable terms, provided 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 also resigned as Executive
Vice President and Chief Financial Officer effective as of August 22, 1996. See
"EXECUTIVE COMPENSATION AND OTHER INFORMATION -- CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
COMPENSATION OF DIRECTORS
During 1996, Directors who were not employees of the Company or its
subsidiaries were 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 were entitled to share equally 1% of the pre-tax profits of the
Company. Officers and employees of the Company or its subsidiaries receive no
remuneration for their services as Directors. During 1997, 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 1996, the Company provided $50,000 of term life
insurance for each Director of the Company. The Company indemnifies its
Directors to the extent permitted by applicable law. See "ELECTION OF
DIRECTORS -- OTHER INFORMATION" and "EXECUTIVE COMPENSATION AND OTHER
INFORMATION -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Messrs. Destino, Laikind, Quasha and Wright and Ms. Long, who served as
members of an ore ad hoc Search Committee of the Directors to find a replacement
for Jack E. Rosenfeld as President and Chief Executive Officer of the Company,
each (with the exception of Mr. Quasha) 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. See
"EXECUTIVE COMPENSATION AND OTHER INFORMATION -- CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
13
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 28, 1996, 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. Ms. Stutz and Mr. Laikind have
resigned as directors of the Company. During the 1996 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
and will be waived for the 1997 fiscal year.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Stock Option and Executive Compensation Committee (the "Compensation
Committee"), currently consisting of four outside directors, has the
responsibility, under delegated authority from the Company's Board of Directors,
for developing, administering and monitoring the executive compensation policies
of the Company and making recommendations to the Board with respect to these
policies. The Board of Directors has accepted the Compensation Committee's
recommendations for 1996 compensation.
Executive Compensation Philosophy
The Compensation Committee's executive compensation philosophy supports the
Company's overall business strategy and has at its core a strong link between
pay, performance and retention. The philosophy emphasizes recognition of
achievement at both the Company and individual level. A significant portion of
compensation delivered to executives to reflect such achievement is intended to
be in the form of long-term incentives. This long-term focus emphasizes
sustained performance and encourages retention of executive talent. In addition,
executives are encouraged to hold a significant ownership stake in the Company
so that their interests are closely aligned with those of the shareholders in
terms of both risk and reward.
The specific executive compensation plans are designed to support the
executive compensation philosophy. Compensation of the Company's executives
consists of three components which are discussed below: salary, annual incentive
awards and long-term incentive awards. Base salary levels have been established
in order to attract and retain key executives commensurate with their level of
responsibility within the organization. Annual incentives closely link executive
pay with performance in areas that are critical to the Company's short-term
operating success. Long-term incentives motivate executives to make decisions
that are in the best interests of the Company's owners and reward them for the
creation of shareholder value. It is the intent of both the Company and the
Compensation Committee that the components of the executive compensation program
will support the Company's compensation philosophy, reinforce the Company's
overall business strategy, and ultimately drive shareholder value creation.
14
<PAGE> 18
Base Salaries
Individual salaries for executives of the Company are generally influenced
by several equally weighted factors: the qualifications and experience of the
executive, the executive's level of responsibility within the organization, pay
levels at firms which compete with the Company for executive talent, individual
performance, and the Company performance-related factors used to determine
annual incentive awards. Salaries for Messrs. Sherman and Garten were set
pursuant to employment agreements entered into by them with the Company in
October 1991 and renewed in 1995. Messrs. Sherman and Garten resigned effective
April 23, 1996 and August 22, 1996, respectively. Mr. Kaul joined the Company
effective March 7, 1996. Salary for Mr. Kaul was set pursuant to an employment
agreement entered into by him with the Company in March 1996.
The base salaries of the Company's executives are subject to periodic
review and adjustment. Annual salary adjustments are made based on the factors
described above.
Annual Incentive Awards
In addition to base salaries, each of the Company's executives and selected
key managers participate in the Company's Incentive Compensation Plan.
Currently, approximately 270 executives and key managers are eligible to
participate in the annual incentive plan. Under this plan, each participant is
assigned a target bonus, expressed as a percentage of his/her base salary, which
is paid if all performance targets are fully met. It is the policy of the
Compensation Committee to position target bonuses at competitive levels.
Individual target bonuses are based on the person's responsibility level in the
organization and the bonus award opportunity at the other organizations included
in the performance chart. Target bonus levels range from 5% to 45% of salary.
The target bonus for Mr. Kaul is 100% of salary while his maximum bonus is 125%
of salary. Target bonus opportunities for Messrs. Bulle and Lutz are 50% of
salary while maximum bonuses are 100% of salary.
Participants are eligible to receive an annual bonus depending upon the
extent to which certain goals are achieved. As in past years, performance goals
for 1996 were based on Earnings Before Interest and Taxes (EBIT), Operating
Profit, and other customer satisfaction and performance-related goals including
Inventory Fill, Inventory Turns, Returns and Order Cancellations. Goals are set
at both the corporate and business unit levels depending on the participant's
scope of responsibility thus encouraging teamwork amongst the Company's
employees. The importance of each goal in determining a participant's bonus
award also depends on his/her scope of responsibility. In order for the Named
Executives to receive a bonus, the Company must achieve a threshold EBIT level.
Once the threshold EBIT level is achieved, bonus awards for the Named Executives
depend 75% on Company or business unit EBIT performance and 25% on the customer
satisfaction goals explained above. Actual bonus levels vary depending upon the
degree of achievement in relationship to the performance goals.
Payouts of awards have been determined based on the Company's performance
during fiscal 1996. 100% of awards made under the bonus plan are currently paid
in cash. Since the Company did not meet its aggressive EBIT goals in 1995 and
1994 there were no bonus payouts based on corporate performance in any of those
years. Award payouts for other participants during 1996 ranged from 0% to 58% of
salary depending on the performance of each individual's area of responsibility.
15
<PAGE> 19
Long-Term Incentive Awards
1993 Executive Equity Plan
The 1993 Executive Equity Incentive Plan terminated in accordance with its
terms on December 31, 1996. Such plan provided executives and other key
employees with incentives to maximize the long-term creation of shareholder
value. The long-term incentive plan encouraged executives to acquire and retain
a significant ownership stake in the Company. Under the plan, executives were
given an opportunity to purchase shares of Common Stock with up to 80% of the
purchase price financed with a full recourse Company loan. For each share of
stock an employee purchased, he/she received an option to acquire two additional
shares of Common Stock, which vest after three years and expire after six years.
By creating this opportunity, the Company encouraged executives to own Common
Stock thereby aligning executives' interests with those of the Shareholders. The
number of shares offered for purchase to each executive and the corresponding
number of tandem options increased with the executive's level of responsibility
within the organization.
Approximately 12 executives who are currently employed by the Company are
participating in the 1993 Executive Equity Incentive Plan. During 1996, the
Compensation and Special Committees made awards to selected participants under
the plan based primarily on the executives' levels of responsibility within the
organization and desired levels of equity ownership relative to other executives
in the Company. In aggregate, executives of the Company elected to purchase a
total of 247,000 shares of Common Stock during 1996 and were awarded a total of
444,000 tandem options to purchase shares of Common Stock.
1993 All-Employee Equity Investment Plan
The 1993 All-Employee Equity Investment Plan terminated in accordance with
its terms in February 1996. The 1993 All Employee Equity Investment Plan was
offered to all employees to provide them an opportunity to own stock and share
in the upside potential of the Company. The plan gave employees an opportunity
to purchase shares of Common Stock at a 40% discount to the market price.
Employees could finance their purchase through a short-term, full recourse
Company loan which could be repaid through payroll deductions over the course of
a year.
Approximately 240 employees who are currently employed by the Company are
participating in the 1993 All-Employee Equity Investment Plan, constituting
those employees of the Company who had been employed by the Company for at least
one year and were not eligible to participate in the 1993 Executive Equity
Incentive Plan. Thus, the Named Executives were not eligible to participate in
the All-Employee Equity Investment Plan. During 1996, approximately 189
employees elected to purchase 80,500 shares of Common Stock in accordance with
the plan.
1996 Stock Option Plan
The purpose of the 1996 Stock Option Plan is to provide employees of the
Company and its subsidiaries with a larger personal and financial interest in
the success of the Company through the grant of stock-based incentive
compensation. Under the plan, employees may be granted options to purchase
shares of Common Stock at the fair market value on the date of grant. The total
options granted to an employee is one-half performance-based. The 1996 Stock
Option Plan provides that options may be granted for terms of not more than
after 10 years.
16
<PAGE> 20
All employees are eligible to participate in the 1996 Stock Option Plan.
During 1996, approximately 3,445,000 options to purchase shares of Common Stock
were granted to 75 employees in accordance with the plan.
Stock Options
The Company occasionally grants stock options to selected employees
pursuant to its Stock Option Plan. During 1996, no such options were granted.
Chief Executive Officer Compensation
The incentive elements of the compensation paid to Mr. Kaul during 1996
were determined on the same basis as that discussed above for all Named
Executives. Mr. Kaul's 1996 base salary (pro rated for the portion of the year
during which he worked for the Company) was $417,981 pursuant to an employment
agreement entered into by him and the Company in March 1996 while his bonus was
$349,188. In 1996, Mr. Kaul purchased 1,510,000 shares of Common Stock pursuant
to the Long-Term Incentive Plan for Rakesh K. Kaul and received two tandem
options for each share purchased for a total of 3,020,000 options. In
determining the terms of Mr. Kaul's compensation, the Compensation Committee
noted the option agreements between NAR and Mr. Kaul.
Nondeductible Compensation
The Compensation Committee currently does not anticipate that payments of
compensation in 1997 to the Named Executives which are subject to the $1 million
deduction limit under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "$1 Million Limit"), will exceed $1 million in 1997. Consequently,
the Company expects its executive compensation program to be fully deductible.
Respectfully Submitted,
The Stock Option and Executive
Compensation Committee
Mr. Ralph Destino
Ms. Elizabeth Valk Long (Chairman)
Mr. Jan P. du Plessis
Mr. Alan Quasha
17
<PAGE> 21
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Company's Common Stock for each of the Company's
last five fiscal years with the cumulative total return (assuming reinvestment
of dividends) of (i) the Standard & Poor's 500 Stock Index (which includes the
Company) and (ii) peer issuers from the Company's line of business selected by
the Company in good faith.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG HANOVER DIRECT, INC., THE S&P 500 STOCK INDEX
AND A PEER GROUP
<TABLE>
<S> <C> <C> <C>
Hanover Direct Marketing S&P
Direct Peer Group 500
----------- ------------------ --------
1991 100 100 100
1992 112 105 108
1993 288 192 118
1994 171 142 120
1995 74 115 165
1996 49 153 203
</TABLE>
* Direct Marketing Peer Group consists of direct merchandising companies that
market their products through alternative distribution channels, such as mail
or television media; peer companies include Blair, Damark International,
Fingerhut, Gander Mountain, Lands' End, Lillian Vernon, Spiegel and Williams
Sonoma.
NOTE: Assumes $100 invested on December 31, 1991 in the Company's Common Stock,
S&P 500 Stock Index and the Direct Marketing Peer Group and that dividends
of each are reinvested quarterly; December 1996 figures assume September
1996 shares outstanding for the Direct Marketing Peer Group given data
availability.
18
<PAGE> 22
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 "ELECTION OF DIRECTORS -- 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 and will
be waived for the 1997 fiscal year.
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 (the "Credit Facility") with Congress Financial Corporation
("Congress"). 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 repaid the 9.25% Notes from the proceeds from the
distribution to the Shareholders of the Company, the holders of the Company's 6%
Series A Convertible Additional Preferred Stock and the holders of the Company's
Series B Convertible Additional Preferred Stock, of transferable subscription
rights (the "Rights") to subscribe for and purchase additional shares of Common
Stock in 1996 (the "1996 Rights Offering"). Due to the Company's continued
operating losses, the Company requested that NAR advance up to $25 million
against all the Rights distributed to it and/or its commitment to purchase all
of the unsubscribed shares. In May 1996, NAR advanced the Company $25 million
under a promissory note. Under the provisions of such promissory note, the
Company repaid NAR the $25 million advance plus accrued interest upon the
closing of the 1996 Rights Offering. In addition, in connection with the 1996
Rights Offering, NAR agreed pursuant to a standby purchase agreement between it
and the Company to exercise all rights distributed to it and to purchase all
unsubscribed shares in the 1996 Rights Offering. NAR received Rights entitling
it to purchase 24,015,964 shares in the 1996 Rights Offering and exercised such
Rights. In addition, NAR purchased 6,898,866 shares not subscribed by
shareholders in the 1996 Rights Offering pursuant to the standby purchase
agreement and received approximately $.5 million as a fee. NAR acquired an
aggregate of 30,914,830 shares of the Company's Common Stock at an aggregate
cost to it of approximately $31,842,275 in the 1996 Rights Offering. The
proceeds of the 1996 Rights Offering were used by the Company: (i) to repay the
$14 million principal amount of 9.25% Notes held by IMR plus accrued interest,
(ii) to repay the $25 million principal
19
<PAGE> 23
amount advanced under the promissory note by NAR plus accrued interest and (iii)
to repay approximately $9 million under the Credit Facility with Congress.
In September 1996, IMR loaned the Company $10 million as evidenced by a
subordinated promissory note in the amount of $10 million (the "IMR Promissory
Note"). Such loan bore interest at 1.5% above the prime rate, and was due on
November 14, 1996. If it were not repaid before May 15, 1997 and if the Rights
Offering were not consummated, the IMR Promissory Note was convertible at the
option of NAR into shares of Common Stock at the lower of the fair market value
thereof on the date of execution or the then current fair market value thereof.
The IMR Promissory Note was subordinate to the Credit Facility and excluded from
the working capital covenant calculation. By agreement dated March 26, 1997, NAR
irrevocably agreed with the Company, subject to and upon the consummation of the
1997 Rights Offering, to exercise at the Subscription Price that number of
rights distributed to it for the purchase of shares of Common Stock having an
aggregate purchase price of at least $10 million. NAR agreed to pay for and the
Company agreed to accept as payment for the aggregate purchase price of such
shares at the closing of the 1997 Rights Offering the surrender by NAR of the
IMR Promissory Note and the cancellation of the principal amount thereof. Such
surrender and cancellation took place at the closing of the 1997 Rights Offering
on June 6, 1997.
On December 19, 1996, the Company finalized its agreement (the
"Reimbursement Agreement") with Richemont that provided the Company with up to
approximately $28 million of letters of credit which were previously issued
under the Credit Facility. The Company paid a facility fee equal to 5% of the
principle amount of the letters of credit as well as all other fees incurred in
connection with providing the facility. The letters of credit will expire on
February 18, 1998 and carry an interest rate (currently 11.75%), which is 3.5%
above the prime rate, payable only on amounts drawn under the letters of credit.
In the event that the Company has not paid in full, by the expiration date, any
outstanding balances under the letters of credit, Richemont shall have the
option, exercisable at any time prior to payment in full of all amounts
outstanding under the letters of credit, to convert such amount into Common
Stock of the Company at the mean of the bid and ask prices of the Company's
Common Stock on November 8, 1996, or the mean of the bid and ask prices of the
Company's Common Stock on each of the thirty days immediately prior to the date
of exercise of the conversion privilege. The Reimbursement Agreement is
subordinate to the Credit Facility. On December 5, 1996, Richemont advanced the
Company $10 million against the anticipated $28 million line of credit. The
Company repaid the $10 million loan after the letter of credit agreement was
completed on December 19, 1996.
Geraldine Stutz, a director of the Company until December 31, 1996,
assisted the Company during fiscal 1996 in the redesign and relocation of the
Gump's retail store. As compensation for such services during fiscal 1996, the
Company paid Ms. Stutz $125,000 plus out-of-pocket expenses.
Each of the Named Executives other than Rakesh K. Kaul and Ralph Bulle
purchased shares of Common Stock pursuant to the 1993 Executive Equity Incentive
Plan. Pursuant to such plan, each such 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
1996 and, as of June 9, 1997, were outstanding in the following amounts: Wayne
P. Garten, former Executive Vice President -- Chief Financial Officer, $100,000;
Michael P. Sherman, former Executive Vice President -- Corporate Affairs,
$100,000; and Michael Lutz, Executive Vice President -- Operations, $44,000.
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
20
<PAGE> 24
were also outstanding at the end of fiscal 1995. Such loans bore interest at
rates ranging from 6.00% to 8.00% per annum, were due on demand and were 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 30, 1996 and June 29,
1996, Mr. Sherman and Mr. Garten had accumulated indebtedness represented by
notes made by them in the aggregate principal amount of $140,998 and $127,547,
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, dated as of April 18,
1996 (the "Letter Agreement"). The Letter Agreement provided for the
satisfaction of their indebtedness to the Company by transferring the Pledged
Shares on such date on or before July 1, 1996 as the Company shall have
selected. The shares (valued at the closing price thereof on the American Stock
Exchange on the date of transfer) were to be applied first to the payment of any
accrued interest owed on the respective Notes, and the remainder was to 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 was to be
canceled. The Company was also to 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. Such loans were forgiven in connection with
the resignations of such officers in exchange for the transfer of the Pledged
Shares to the Company.
On August 23, 1996, Mr. Kaul purchased 1,510,000 shares of Common Stock
pursuant to the Long-Term Incentive Plan for Rakesh K. Kaul. Pursuant to such
plan, Mr. Kaul financed 80% of the purchase price of such shares ($1,396,750)
with a nonrecourse Company loan due in four equal consecutive annual
installments of $349,187.50, together with interest thereon. The loan is secured
by a pledge of such shares. The loan, which bears interest at 6.84%, was
outstanding at the end of fiscal 1996 and, as of June 9, 1997, was outstanding
in the amount of $1,396,750. The Company has agreed to pay Mr. Kaul, on or
before each annual due date, a bonus equal to the amount of the principal and/or
interest due on the loan. The Company also paid Mr. Kaul a sign-on bonus equal
to the amount of the purchase price of the shares required to be paid in cash.
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.
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 June 9, 1997. The information
given is based on information furnished to the Company by such persons or groups
and statements filed with the Commission.
21
<PAGE> 25
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK CLASS(1)
- ----------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Alan G. Quasha(2)................................................ 94,782,555 (3,4,5) 46.1%
c/o Quadrant Management, Inc.
127 East 73rd Street
New York, New York 10021
NAR Group Limited................................................ 94,762,555 (3,5) 46.1%
c/o P.M.M. Services (B.V.I.) Limited
P.O. Box 438 Road Town, Tortola,
British Virgin Islands
Richemont Finance S.A. .......................................... 135,450,525 (5) 67.7%
35 Boulevard Prince Henri
L 1724 Luxembourg
Theodore H. Kruttschnitt......................................... 10,074,000 (6) 5.0%
1730 South El Camino Real
Suite 400
San Mateo, California 94402
</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 200,031,580 shares of Common
Stock outstanding as of June 9, 1997.
(2) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 18 to the Statement on Schedule 13D filed by NAR on
June 13, 1997 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. 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 5,646,490 shares exercisable within 60 days
granted to NAR or its affiliates.
(4) Includes options to purchase 20,000 shares exercisable within 60 days by Mr.
Quasha.
(5) Information concerning the number of shares beneficially owned has been
taken from the Statement on Schedule 13D filed by Richemont on June 16, 1997
with the Commission. The Schedule 13D indicates that Richemont may be deemed
to control NAR and has shared power to vote and dispose of the 94,762,555
shares of Common Stock owned by NAR although Richemont disclaims beneficial
ownership of such shares.
(6) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 13 to the Statement on Schedule 13D filed by Mr.
Kruttschnitt on June 16, 1997 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 1,003,875 shares, and Mr.
Manwell, who beneficially owns 20,579 shares.
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
22
<PAGE> 26
convertible as of June 9, 1997 into an aggregate of 953,303 shares of the
Company's Common Stock. Assuming that all the shares of Series B Preferred had
been so converted as of June 9, 1997, the Aegis shareholders would have owned
less than 1% of the Company's outstanding Common Stock on a fully diluted basis
at such date.
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 June 9, 1997. The information given is based on information furnished to the
Company by such persons and statements filed with the Commission.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
COMMON STOCK CLASS(1)
------------ ----------
<S> <C> <C>
Ralph Destino....................................................... 25,000 (4) *
J. David Hakman(2).................................................. 1,003,875 *
Rakesh K. Kaul...................................................... 1,887,500 (5) *
S. Lee Kling........................................................ 37,750 *
Theodore H. Kruttschnitt(2)......................................... 10,074,000 5.0%
Elizabeth Valk Long................................................. 70,300 (4) *
Edmund R. Manwell(2)................................................ 20,579 *
Shailesh J. Mehta................................................... -- --
Jan P. du Plessis................................................... -- --
Alan G. Quasha(3)................................................... 94,782,555 (6) 46.1%
Howard M. S. Tanner................................................. 150,000 (7) *
Robert F. Wright.................................................... 108,050 (4) *
Larry J. Svoboda.................................................... 152,000 *
Michael Lutz........................................................ 27,284 *
Ralph Bulle......................................................... -- --
Directors and executive officers as a group (16 persons)............ 13,707,818 (8) 6.9%
</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 200,031,580 shares of Common
Stock outstanding as of June 9, 1997.
(2) See Note (6) under "PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY."
(3) 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.
(4) Includes options to purchase 25,000 shares exercisable within 60 days.
(5) Includes options to purchase 377,500 shares exercisable within 60 days.
(6) Includes options to purchase 20,000 shares exercisable within 60 days.
(7) Mr. Tanner is the 51% owner of a family holding company which owns 150,000
shares of Common Stock.
(8) Excludes 94,762,555 shares and warrants to purchase 5,646,490 shares
beneficially owned by NAR which could also be deemed to be beneficially
owned by Mr. Quasha. Includes options to purchase 20,000 shares exercisable
within 60 days by Mr. Quasha. None of the Company's Directors or executive
officers owns any shares of Series B Preferred.
23
<PAGE> 27
APPROVAL OF AN AMENDMENT TO THE 1996 STOCK OPTION PLAN
GENERAL
The Board of Directors is submitting an amendment to the 1996 Stock Option
Plan (the "Stock Option Plan") described herein to the Shareholders for their
approval. The purpose of the Stock Option Plan is to advance the interests of
the Company and its Shareholders by providing employees of the Company and its
subsidiaries with a larger personal and financial interest in the success of the
Company through the grant of stock options. The Board of Directors believes that
the Stock Option Plan will benefit the Company and its Shareholders and, thus,
recommends approval of the amendment to the Stock Option Plan.
GENERAL INFORMATION
Effective Date and Duration of the Stock Option Plan. The Stock Option
Plan became effective on the date of its adoption by the Board of Directors,
subject to approval by the affirmative vote or consent of holders of a majority
of the issued and outstanding shares of Common Stock, and will terminate 10
years from the date of its adoption, or such earlier date as the Board of
Directors may determine.
Administration. The Stock Option Plan is administered by a committee of
the Board of Directors (the "Committee") that consists of at least two directors
and that satisfies the provisions of Rule 16b-3 of the Securities and Exchange
Act of 1934 or any successor rule, and Section 162(m) (4) (C) (i) of the
Internal Revenue Code of 1986, as amended (the "Code"). Such Committee will
select persons to receive awards under the Stock Option Plan, determine the
amount of each award and the terms and conditions governing such award,
interpret the Stock Option Plan and any awards granted thereunder, establish
rules and regulations for the administration of the Stock Option Plan and take
any other action necessary or desirable for the administration of the Stock
Option Plan.
Underlying Shares Awarded Under the Stock Option Plan. The maximum number
of shares of Common Stock that may be delivered or purchased under the Stock
Option Plan is 7,000,000, subject to adjustment to preserve the value of an
award in the event of any change in the outstanding Common Stock by reason of
any stock dividend, stock split, combination of shares, recapitalization or
other similar change in the capital stock of the Company, or in the event of the
merger or consolidation of the Company into or with any other corporation or the
reorganization of the Company. Options to purchase approximately 2,855,000
shares of Common Stock were granted under the Stock Option Plan in 1996 while
approximately 520,000 shares have been granted to date in 1997.
The shares of Common Stock may be authorized but unissued shares that are
not reserved for any other purpose, or previously issued shares acquired by the
Company and held in its treasury. If, as a result of the termination, expiration
or forfeiture of an award or otherwise, certain shares were no longer subject to
an award under the Stock Option Plan, such shares would again be available for
future award under the Stock Option Plan.
Amendment of the Stock Option Plan. The Stock Option Plan may be amended
by the Board of Directors as the Board deems advisable; provided, however, that
no amendment will become effective unless approved by affirmative vote of the
Shareholders if such approval is necessary for the continued validity of the
Stock Option Plan or if the failure to obtain such approval would adversely
affect the compliance of the Stock Option Plan with Rule 16b-3 under the
Securities Exchange Act of 1934 or any other rule or regulation. No amendment
may, without the consent of a participant, impair such participant's rights
under any Option previously granted under the Stock Option Plan.
24
<PAGE> 28
AWARDS AVAILABLE UNDER THE PLAN
Pursuant to the Stock Option Plan, options to purchase Common Stock of the
Company ("Options") may be granted to any employee.
Any Options awarded under the Stock Option Plan, which will be evidenced by
option agreements, will be either Options intended to qualify as incentive stock
options under Section 422 of the Code ("Incentive Stock Options") or Options not
intended to so qualify ("Nonstatutory Stock Options").
The aggregate fair market value of Common Stock for which a participant is
granted Incentive Stock Options that first become exercisable during any given
calendar year will be limited to $100,000. To the extent such limitation is
exceeded, an Option will be treated as a Nonstatutory Stock Option.
As originally provided, no employee may be granted Options during any
consecutive 12-month period on more than 250,000 shares of Common Stock, subject
to adjustment in the event of any change in the outstanding Common Stock by
reason of any stock dividend, stock split, combination of shares,
recapitalization or other similar change in the capital stock of the Company or
in the event of the merger or consolidation of the Company into or with any
other corporation or the reorganization of the Company. The Company has approved
an amendment to the Stock Option Plan which provides that Options may not be
granted to any employee covering more than 500,000 shares of Common Stock during
any 12-month period. Such amendment is subject to Shareholder approval. See
"PLAN AMENDMENT."
An Option may be granted for a term not to exceed 10 years from the date
such Option is granted. An Incentive Stock Option awarded to an employee who
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company may not, in any event, be exercisable after the
expiration of five years from the date such Incentive Stock Option is granted.
All Options will be exercisable in accordance with the terms and conditions set
forth in the option agreements evidencing the grant of such Options. Except
under limited circumstances involving termination of employment due to
retirement or death or disability, a participant may not exercise any Option
granted under the Stock Option Plan within the first year after the date of
grant of such Option.
The price for which shares of Common Stock may be purchased upon the
exercise of an Option will be the fair market value of such shares on the date
of grant of such Option; provided, however, that an Incentive Stock Option
granted to an employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company shall have a
purchase price for the underlying shares equal to 110% of the fair market value
of the Common Stock on the date of grant. For purposes of the Stock Option Plan,
the fair market value of a share of Common Stock on a specified date will be the
closing price of the Common Stock on such date on the American Stock Exchange
or, if no such sale of Common Stock occurs on such date, the fair market value
of the Common Stock as determined by the Committee in good faith.
Full payment of the purchase price for shares of Common Stock purchased
upon exercise, in whole or in part, of an Option granted under the Stock Option
Plan must be made at the time of such exercise. The Stock Option Plan provides
that the purchase price may be paid in cash or in shares of Common Stock valued
at their fair market value on the date of purchase. Alternatively, an Option may
be exercised in whole or in part by delivering a properly executed exercise
notice, together with irrevocable instructions to a broker to deliver promptly
to the Company the amount of sale or loan proceeds necessary to pay the purchase
price and applicable withholding taxes, and any other documents that the
Committee deems necessary.
During a participant's lifetime, Options granted under the Stock Option
Plan will be exercisable only by such participant. Furthermore, any Options
granted under the Stock Option Plan may not be transferred, other
25
<PAGE> 29
than by will or by the laws of descent and distribution. Notwithstanding the
foregoing, a participant may transfer a Nonstatutory Stock Option granted under
the Stock Option Plan to his or her spouse, children and/or grandchildren, or to
one or more trusts for the benefit of such family members, if the agreement
evidencing such Option so provides and the participant does not receive any
consideration for the transfer. Any Option so transferred will be subject to the
same terms and conditions that applied to such Option immediately prior to its
transfer, except that it will not be further transferable by the transferee
during the transferee's lifetime.
If a participant's employment terminates by reason of death, permanent
disability, or retirement at or after age 65, the participant (or the
participant's estate in the event of the participant's death) may, within 90
days following such termination, exercise the Option with respect to all or any
part of the shares of Common Stock subject thereto regardless of whether the
Option was otherwise exercisable at the time of termination of employment. If a
participant's employment terminates for any other reason, the participant may,
within 30 days following such termination, exercise the Option with respect to
all or any part of the shares of Common Stock subject thereto, but only to the
extent that such Option was exercisable at the time of termination of
employment.
The foregoing summary is qualified in its entirety by reference to the full
text of the Stock Option Plan, which is set forth as Annex A to this Proxy
Statement.
FEDERAL INCOME TAX CONSEQUENCES
The Federal income tax consequences of Options granted under the Stock
Option Plan are as described below.
The grant of an Incentive Stock Option will have no immediate tax
consequences to a participant. If a participant exercises an Incentive Stock
Option and does not dispose of the acquired shares within two years after the
grant of the Option or within one year after the date of the transfer of such
shares to the participant (a "disqualifying disposition"), the participant will
realize no compensation income and any gain or loss realized on a subsequent
disposition of such will be treated as long-term capital gain or loss. For
purposes of computing the participant's alternative minimum taxable income,
however, the Option generally will be treated as if it were a Nonstatutory Stock
Option.
If a participant makes a disqualifying disposition, the participant will be
required to include in income, as compensation, the lesser of (i) the difference
between the option price and the fair market value of the acquired shares on the
exercise date, or (ii) the amount of gain realized on such disposition. In
addition, depending on the amount received as a result of such disposition, such
participant may realize long or short-term capital gain or loss.
The grant of a Nonstatutory Stock Option will have no immediate tax
consequences to a participant. The exercise of a Nonstatutory Stock Option will
require such participant to include in income, as compensation, the amount by
which the fair market value of the acquired shares on the exercise date exceeds
the option price. Upon a subsequent sale or taxable exchange of such shares,
such participant will recognize long or short-term capital gain or loss equal to
the difference between the amount realized on the sale and the tax basis of such
shares.
The Company will be entitled to a deduction in the amount of any
compensation income that a participant recognizes in connection with an Option.
26
<PAGE> 30
PLAN AMENDMENT
The Company has amended the Stock Option Plan to provide that Options may
not be granted to any employee covering more than 500,000 shares of Common Stock
(rather than 250,000 shares) during any 12-month period. Such amendment is shown
in bold-faced type in the full text of the Stock Option Plan attached hereto as
Annex A.
VOTE REQUIRED
The foregoing amendment to the Stock Option Plan is subject to approval by
the affirmative vote of the holders of a majority of the combined voting power
of all shares of Common Stock and Series B Preferred present in person or by
proxy and entitled to vote at the Annual Meeting voting together as a single
class, with each share of Common Stock having one vote and each share of Series
B Preferred having 1.5 votes.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "IN FAVOR OF" THE ADOPTION
OF THE AMENDMENT TO THE 1996 STOCK OPTION PLAN AS SET FORTH ABOVE.
RATIFICATION OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
The Board of Directors of the Company and NAR, the holder of a majority of
the Company's Common Stock, approved on September 26, 1996, pursuant to Sections
242 and 228 of the Delaware Business Corporation Law, an amendment to the
Company's Certificate of Incorporation increasing the number of shares of Common
Stock which the Company shall have authority to issue from 150,000,000 to
225,000,000 shares. This action became effective upon the filing of a
Certificate of Amendment to the Certificate of Incorporation on October 31,
1996. The increase in authorized shares was necessary to provide enough shares
of Common Stock for issuance pursuant to options and warrants previously granted
by the Company to directors and officers, including options to purchase an
aggregate of 7,530,000 shares granted by the Company on August 23, 1996 to the
Company's President and Chief Executive Officer, Rakesh K. Kaul. See "EXECUTIVE
COMPENSATION AND OTHER INFORMATION -- STOCK OPTIONS." The additional shares of
Common Stock not used for such purpose, together with the shares of Common Stock
held in treasury, are available for general corporate purposes, as determined by
the Board of Directors, without (except as otherwise required by law or the
rules of any stock exchange on which the Common Stock may be listed) further
authority from shareholders. The issuance of additional shares could dilute the
voting power and equity of the holders of outstanding Common Stock and may have
the effect of discouraging attempts by a person or group to take control of the
Company.
As of September 26, 1996, the record date for the action, there were
143,044,492 shares of Common Stock and 634,900 shares of Series B Preferred
outstanding. The approval of the holders of a majority of the outstanding shares
of Common Stock and Series B Preferred, voting together as a single class, was
necessary to adopt the amendment to the Certificate of Incorporation. Each
outstanding share of Common Stock was entitled to one vote on the proposal to
adopt the amendment and each outstanding share of Series B Preferred was
entitled to 1.5 votes on the amendment. NAR, as the holder of 78,004,954 shares
of Common Stock, or a majority of the voting power of the Common Stock and the
Series B Preferred voting together as a class, on such date, therefore, had the
requisite power to approve the amendment by written consent. Such consent was
executed and delivered on September 26, 1996. Ratification of such action is now
being sought in accordance with the AMEX's requirements for the holding of a
meeting and the solicitation of proxies with respect
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thereto. Under Delaware law, shareholders who do not consent to the amendment do
not have appraisal rights with respect to the shares held by them.
VOTE REQUIRED
The foregoing amendment to the Certificate of Incorporation is subject to
ratification by the affirmative vote of the holders of a majority of the
combined voting power of all shares of Common Stock and Series B Preferred
present in person or by proxy and entitled to vote at the Annual Meeting voting
together as a single class, with each share of Common Stock having one vote and
each share of Series B Preferred having 1.5 votes.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "IN FAVOR OF" THE
RATIFICATION OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION AS
SET FORTH ABOVE.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Arthur Andersen LLP as independent certified public accountants of the
Company for the fiscal year ending December 27, 1997. Although the selection of
auditors does not require ratification, the Board has directed that the
appointment of Arthur Andersen LLP be submitted to Shareholders for ratification
because management believes this matter is of such significance as to warrant
Shareholder participation. If Shareholders do not ratify the appointment, the
Board of Directors, after review by the Audit Committee, will consider the
appointment of other independent certified public accountants.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting and will be afforded the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the combined voting
power of all shares of Common Stock and Series B Preferred present in person or
by proxy at the Annual Meeting and voting together as a single class, with each
share of Common Stock having one vote and each share of Series B Preferred
having 1.5 votes, is required to ratify and approve the appointment of auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION
AND APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 27, 1997.
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1998 Annual Meeting
of Shareholders of the Company must be received by the Company no later than
March 12, 1998 for inclusion in the Company's proxy material for that meeting.
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OTHER MATTERS
The Board of Directors does not know of any other matters to be presented
at the Annual Meeting. If any additional matters are properly presented to the
Annual Meeting for action, the persons named in the enclosed proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
own judgment.
By Order of the Board of Directors
/s/ EDWARD J. O'BRIEN
EDWARD J. O'BRIEN
Secretary
Dated: June 24, 1997
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 28, 1996, AS AMENDED, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION MAY BE OBTAINED WITHOUT CHARGE (EXCEPT FOR EXHIBITS TO SUCH ANNUAL
REPORT, WHICH WILL BE FURNISHED UPON PAYMENT OF THE COMPANY'S REASONABLE
EXPENSES IN FURNISHING SUCH EXHIBITS) BY ANY SUCH PERSON SOLICITED HEREUNDER BY
WRITING TO: JEANNE MITCHELL, PUBLIC RELATIONS ASSISTANT, HANOVER DIRECT, INC.,
1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087.
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<PAGE> 33
ANNEX A
HANOVER DIRECT, INC.
1996 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE. The purpose of this Hanover Direct, Inc. 1996 Stock Option
Plan (the "Plan") is to advance the interests of Hanover Direct, Inc. (the
"Company") and its shareholders by providing employees of the Company and its
subsidiaries with a larger personal and financial interest in the success of the
Company through the grant of stock options.
2. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") consisting of at least two members of the Board of Directors of the
Company (the "Board"). The Committee shall be constituted in such a manner as to
satisfy the requirements of applicable law, the provisions of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor rule, and the provisions of Section 162(m)(4)(C)(I) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Committee shall be appointed,
and vacancies shall be filled, by the Board. The Committee shall have full power
and authority to (i) select the individuals to whom Options may be granted under
the Plan; (ii) determine the number of shares of Common Stock covered by each
Option and the terms and conditions, not inconsistent with the provisions of the
Plan, governing such Option; (iii) interpret the Plan and any Option granted
thereunder; (iv) establish such rules and regulations as it deems appropriate
for the administration of the Plan; and (v) take such other action as it deems
necessary or desirable for the administration of the Plan. Any action of the
Committee with respect to the administration of the Plan shall be taken by
majority vote. The Committee's interpretation and construction of any provision
of the Plan or the terms of any Option shall be conclusive and binding on all
parties.
3. PARTICIPANTS. Options may be granted under the Plan to any employee of
the Company, whether or not a director.
4. THE SHARES. The shares that may be delivered or purchased under the
Plan shall not exceed an aggregate of 7,000,000 shares (subject to adjustment
pursuant to Section 7) of common stock, par value $.66- 2/3 per share, of the
Company (the "Common Stock"). Such shares of Common Stock shall be set aside out
of the authorized by unissued shares of Common Stock not reserved for any other
purpose or out of previously issued shares acquired by the Company and held in
its treasury. Any shares of Common Stock which, by reason of the termination of
expiration of an Option or otherwise, are no longer subject to an Option may
again be subjected to an Option under the Plan.
5. OPTIONS. Options to purchase Common Stock ("Options") shall be
evidenced by option agreements which shall be subject to the terms and
conditions set forth in the Plan and such other terms and conditions not
inconsistent herewith as the Committee may approve.
(A) TYPES OF OPTIONS. Options granted under the Plan shall, as
determined by the Committee at the time of grant, be either Options
intended to qualify as incentive stock options under Section 422 of the
Code ("Incentive Stock Options") or Options not intended to so qualify
("Nonstatutory Stock Options"). Each option agreement shall identify the
Option as an Incentive Stock Option or as a Nonstatutory Stock Option.
(B) PRICE. The price at which shares of Common Stock may be purchased
upon the exercise of an Option granted under the Plan shall be the fair
market value of such shares on the date of grant of such Option; provided,
however, that an Incentive Stock Option granted to an employee who owns
stock
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possessing more than 10% of the total combined voting power of all classes
of stock of the Company shall have a purchase price for the underlying
shares equal to 110% of the fair market value of the Common Stock on the
date of grant.
For purposes of the Plan, the fair market value of a share of Common Stock
on a specified date shall be the closing price on such date of the Common Stock
on the American Stock Exchange or, if no such sale of Common Stock occurs of
such date, the fair market value of the Common Stock as determined by the
Committee in good faith
(C) PER-PARTICIPANT LIMIT. No participant may be granted Options
during any consecutive 12-month period on more than 500,000 SHARES of
Common Stock (subject to adjustment pursuant to Section 7).
(D) LIMITATION ON INCENTIVE STOCK OPTIONS. The aggregate fair market
value (determined on the date of grant) of Common Stock for which a
participant is granted Incentive Stock Options that first become
exercisable during any given calendar year shall be limited to $100,000. To
the extent such limitation is exceeded, an Option shall be treated as a
Nonstatutory Stock Option.
(E) NONTRANSFERABILITY. Options granted under the Plan shall not be
transferable other than by will or by the laws of descent and distribution,
and, during a participant's lifetime, shall be exercisable only by the
participant. Notwithstanding the foregoing, a participant may transfer any
Nonstatutory Option granted under the Plan to the participant's spouse,
children and/or grandchildren, or to one or more trusts for the benefit of
such family members, if the agreement evidencing such Option so provides
and the participant does not receive any consideration for the transfer.
Any Option so transferred shall continue to be subject to the same terms
and conditions that applied to such Option immediately prior to its
transfer (except that such transferred Option shall not be further
transferable by the transferee during the transferee's lifetime).
(F) TERM AND EXERCISABILITY OF OPTIONS. Options may be granted for
terms of not more than 10 years and shall be exercisable in accordance with
such terms and conditions as are set forth in the option agreements
evidencing the grant of such Options. In no event shall an Incentive Stock
Option granted to an employee who owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company be
exercisable after the expiration of five years from the date such Incentive
Stock Option is granted.
Except as otherwise provided in Section 5(g), no Option granted under the
Plan shall be exercisable by a participant during the first year after the date
of grant of such Option.
(G) TERMINATION OF EMPLOYMENT. An Option may not be exercised
following a participant's termination of employment except as set forth in
this Section 5(g).
(I) DEATH, DISABILITY, OR RETIREMENT. If a participant's
employment terminates by reason of death, permanent disability (within
the meaning of Section 22(e)(3) of the Code), or retirement at or after
age 65, the participant (or the participant's estate in the event of the
participant's death) may, within 90 days following such termination,
exercise the Option with respect to all or any part of the shares of
Common Stock subject thereto regardless of whether the Option was
otherwise exercisable at the time of termination of employment.
(II) OTHER REASONS. If a participant's employment terminates for
any reason other than death, permanent disability, or retirement at or
after age 65, the participant may, within 30 days
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following such termination, exercise the Option with respect to all or
any part of the shares of Common Stock subject thereto, but only to the
extent that such Option was exercisable at the time of termination of
employment.
In no event may an Option be exercised after the expiration of the term of
such Option.
(H) PAYMENT. Full payment of the purchase price for shares of Common
Stock purchased upon the exercise, in whole or in part, of an Option
granted under the Plan shall be made at the time of such exercise. The
purchase price may be paid in cash or in shares of Common Stock valued at
their fair market value on the date of purchase. Alternatively, an Option
may be exercised in whole or in part by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds
necessary to pay the purchase price and applicable withholding taxes, and
such other documents as the Committee may determine.
6. WITHHOLDING. No later than the date as of which an amount first becomes
includible in the gross income of a participant for Federal income tax purposes
with respect to any option under the Plan, the participant shall pay to the
Company, or make arrangement satisfactory to the Committee regarding the payment
of, any Federal, state, or local taxes required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Common Stock, including Common Stock
that is part of the Option that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind due to the
participant. Any election made by a participant subject to Section 16(b) of the
Exchange Act to have shares of Common Stock withheld in satisfaction of the
withholding requirement with respect to such participant's option shall be
subject to the approval of the Committee and shall be in accordance with the
requirements of Rule 16b-3 under such Act.
7. CHANGES IN CAPITAL STRUCTURE, ETC. In the event that the shares of
Common Stock, as presently constituted, shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or another corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or if the number of such shares shall be increased through the
payment of a stock dividend or a dividend on shares of Common Stock or rights or
warrants to purchase securities of the Company shall be made, then there shall
be substituted for or added to each share of Common Stock theretofore
appropriated or thereafter subject or which may become subject to an Option the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be so changed, or for which each such
share shall be exchanged, or to which each such share shall be entitled, as the
case may be, and references herein to shares of Common Stock shall be deemed to
be references to any such stock or other securities as appropriate. Outstanding
Options shall also be appropriately amended as to price and other terms as may
be necessary to reflect the foregoing events. In the event there shall be any
other change in the number or kind of the outstanding shares of Common Stock or
of any stock or other securities into which such shares shall have been changed
or for which it shall have been exchanged, then if the Committee shall, in its
sole discretion, determine that such change equitably requires an adjustment in
any Option theretofore granted or which may be granted under this Plan, such
adjustments shall be made in accordance with such determination. Fractional
shares resulting from any adjustment in Options pursuant to this Section 7 may
be settled in cash or otherwise as the Committee shall determine. Notice of any
adjustment shall be given by the Company to each holder of an Option which shall
have been so adjusted and such adjustment (whether or not such notice is given)
shall be effective and binding for all purposes of this Plan.
A-3
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8. EFFECTIVE DATE AND TERMINATION OF PLAN. The Plan shall become effective
on the date of its adoption by the Board, subject to the ratification of the
plan by the affirmative vote or consent of holders of a majority of the issued
and outstanding shares of Common Stock. The Plan shall terminate 10 years from
the date of its adoption or such earlier date as the Board may determine. Any
option outstanding under the Plan at the time of its termination shall remain in
effect in accordance with its terms and conditions and those of the Plan.
9. AMENDMENT. The Board may amend the Plan in any respect from time to
time; provided, however, that no amendment shall become effective unless
approved by affirmative vote of the Company's shareholders if such approval is
necessary for the continued validity of the Plan or if the failure to obtain
such approval would adversely affect the compliance of the Plan with Rule 16b-3
under the Exchange Act or any other rule or regulation. No amendment may,
without the consent of a participant, impair such participant's rights under any
Option previously granted under the Plan.
10. LEGAL AND REGULATORY REQUIREMENTS. No Option shall be exercisable and
no shares will be delivered under the Plan except in compliance with all
applicable Federal and state laws and regulations including, without limitation,
compliance with withholding tax requirements and with the rules of all domestic
stock exchanges on which the Common Stock may be listed. Any share certificate
issued to evidence shares for which an Option is exercised may bear such legends
and statements as the Committee shall deem advisable to assure compliance with
Federal and state laws and regulations. No Option shall be exercisable, and no
shares shall be delivered under the Plan, until the Company has obtained consent
or approval from regulatory bodies, Federal or state, having jurisdiction over
such matters as the Committee may deem advisable.
11. GENERAL PROVISIONS.
(a) Nothing contained in the Plan, or in any option granted pursuant
to the Plan, shall confer upon any employee any right to the continuation
of the employee's employment or services.
(b) The Plan and all options made and actions taken thereunder shall
be governed by and construed in accordance with the laws of the State of
New York.
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<PAGE> 37
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
HANOVER DIRECT, INC.
The undersigned hereby appoints Larry J. Svoboda and Edward J. O'Brien
proxies, each with power to act without the other and with power of
substitution, and hereby authorizes them to represent and vote, as designated
on the other side , all the shares of stock of Hanover Direct, Inc. standing in
the name of the undersigned with all powers which the undersigned would possess
if present at the Annual Meeting of Shareholders of the Company to be held July
10, 1997, at 9:30 a.m. or at any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
(Continued, and to be marked, dated and signed, on reverse side)
<PAGE> 38
| Please Detach and Mail in the Envelope Provided |
V V
________________________________________________________________________________
A [ X ] Please mark your votes as in this example.
FOR all nominees listed WITHOUT AUTHORITY
at the right (except as marked to vote for all nominees
to the contrary) listed at right
1. ELECTION OF [ ] [ ]
DIRECTORS
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in space provided below.)
________________________________________________________________________________
NOMINEES: Ralph Destino
J. David Hakman
Rakesh K. Kaul
S. Lee Kling
Theodore H. Kruttschnitt
Elizabeth Valk Long
Edmund R. Manwell
Shailesh J. Mehta
Jan P. du Plessis
Alan G. Quasha
Howard M.S. Tanner
Robert F. Wright
FOR AGAINST ABSTAIN
2. Ratification and approval of certain amendments to [ ] [ ] [ ]
the Company's 1996 Stock Option Plan.
3. Ratification of the adoption of the amendment to the [ ] [ ] [ ]
Company's Certificate of Incorporation.
4. Ratification and approval of the appointment of Arthur [ ] [ ] [ ]
Andersen LLP as the Company's independent auditors
for the fiscal year ending December 27, 1997.
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
PLEASE SIGN, DATE, AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE(S)_________________________________ DATED:_____________________, 1997
NOTE: Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer.
________________________________________________________________________________
