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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:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of 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 MAY 7, 1998
TO OUR SHAREHOLDERS:
PLEASE TAKE NOTICE that the 1998 Annual Meeting of Shareholders (the
"Annual Meeting") of Hanover Direct, Inc., a Delaware corporation (the
"Company"), will be held at the American Stock Exchange at 86 Trinity Place, New
York, New York 10006 on Thursday, May 7, 1998 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 1999
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 Stock Option
Agreement dated August 23, 1996 with Rakesh K. Kaul forming a part of the
Long-Term Incentive Plan for Rakesh K. Kaul;
3. 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 26, 1998; and
4. 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 April 1,
1998 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 1997 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 ten days prior to the
Annual Meeting, at the offices of Brown Raysman Millstein Felder & Steiner LLP,
120 West 45th Street, New York, New York 10036, 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
April 13, 1998
<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 1998 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 7, 1998
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 1998 Annual Meeting of Shareholders of the Company (the
"Annual Meeting") to be held at 9:30 a.m., local time, on Thursday, May 7, 1998
at the American Stock Exchange, 86 Trinity Place, New York, New York 10006 and
any adjournments or postponements thereof. This Proxy Statement is first being
sent to Shareholders of the Company on or about April 13, 1998.
At the Annual Meeting, Shareholders will (1) elect 12 members of the Board
of Directors to serve until the 1999 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 Stock Option
Agreement dated August 23, 1996 with Rakesh K. Kaul forming a part of the
Long-Term Incentive Plan for Rakesh K. Kaul, and (3) ratify and approve the
appointment of Arthur Andersen LLP as the Company's independent auditors for the
fiscal year ending December 26, 1998.
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 April 1, 1998 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 203,800,569 shares of Common
Stock and 634,900 shares of Series B Preferred outstanding and entitled to vote.
As of April 1, 1998, 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"). See "PRINCIPAL HOLDERS OF VOTING SECURITIES OF
THE COMPANY." 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 Company's Stock
Option Agreement dated August 23, 1996 with Rakesh K. Kaul forming a part of the
Long-Term Incentive Plan for Rakesh K. Kaul. 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 Stock Option Agreement dated August 23, 1996 with
Rakesh K. Kaul forming a part of the Long-Term Incentive Plan for Rakesh K.
Kaul, 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 Stock Option
Agreement dated August 23, 1996 with Rakesh K. Kaul forming a part of the
Long-Term Incentive Plan for Rakesh K. Kaul, 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 Stock Option Agreement dated August 23, 1996 with Rakesh K. Kaul
forming a part of the Long-Term Incentive Plan for Rakesh K. Kaul, 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 26, 1998, 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.
COST OF SOLICITATION
The Company will bear the cost of soliciting proxies in connection with the
Annual Meeting estimated at $21,000 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 1999
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.
AGREEMENT WITH RESPECT TO NOMINATION OF DIRECTORS
As a result of the commencement of a proxy contest in 1989 by Theodore H.
Kruttschnitt, J. David Hakman and Edmund R. Manwell, the Company's predecessor,
The Horn & Hardart Company (references to the Company hereinafter include its
predecessor), entered into an agreement on May 5, 1989 with Messrs.
Kruttschnitt, Hakman and Manwell (the "Nomination and Standstill Agreement").
Pursuant to the Nomination and Standstill Agreement, the Board was expanded to
11 members and Messrs. Kruttschnitt, Hakman and Manwell were appointed as
Directors. The Company also agreed to nominate each of Messrs. Kruttschnitt,
Hakman and Manwell for election upon the expiration of their respective terms
provided Mr. Kruttschnitt continues to own certain specified levels of the
Company's Common Stock. See "EXECUTIVE COMPENSATION AND OTHER
INFORMATION -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
NOMINEES FOR DIRECTOR
Last year, the Board 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 currently
serve as directors of the Company.
RALPH DESTINO, 61, has been the Chairman of Cartier, Inc., a luxury goods
business, since 1985. From 1974 to 1985, Mr. Destino served as President of
Cartier (Far East) Ltd. and Cartier, Inc. Cartier, Inc. is a subsidiary of
Compagnie Financiere Richemont, A.G. ("Richemont, A.G."), a Swiss public company
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engaged in the tobacco, luxury goods and other businesses and an affiliate of
Richemont and NAR. Mr. Destino was elected a Director of the Company in October
1991.
J. DAVID HAKMAN, 56, 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, 46, 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, 69, has been Chairman of the Board of Kling Rechter & Co., a
merchant banking company since 1991. 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, 55, has been the President of Limar Realty Group,
a real estate investment company, since November 1992. In addition, he has been
the owner 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 1995, 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.
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 Chief Executive Officer and a director of
Providian Financial Corporation (formerly known as Providian Bancorp, Inc.), a
consumer lending financial services company,
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since 1988 and Chairman of the Board of Directors and President since 1997. He
joined Providian in 1986 as Executive Vice President and Chief Operating
Officer. Mr. Mehta was Chairman and Chief Executive Officer of Providian Direct
Insurance, a direct marketer of life and health insurance, from 1993 to 1994 and
President, Chief Operating Officer and a director of Providian Corporation, a
shareholder-owned diversified financial services company and the former parent
company of Providian Financial Corporation, from 1994 to 1997. Mr. Mehta serves
on the U.S. Board of Directors of MasterCard International, Incorporated. Mr.
Mehta was elected a Director of the Company in July 1997.
JAN P. DU PLESSIS, 44, has been Finance Director of Richemont, A.G. 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, 48, 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
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, 53, 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, 72, 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 board of Deotexis Inc., a company commercializing
control release patents. 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.
Throughout 1997, Messrs. Quasha (Chairman), Kaul and Wright were members of
the Executive Committee and Messrs. du Plessis and Tanner joined such committee
in mid-year. Messrs. Tanner (Chairman), Kaul, du Plessis, Quasha and Wright
currently serve as its members. The Executive Committee held four meetings in
person or by conference call and took action by written consent on one occasion
in 1997. The duties of the Executive Committee include recommending actions to
the Board of Directors and acting on behalf of the Board on certain operating
matters requiring Board approval when the Board is not in session.
Throughout 1997, Messrs. Wright (Chairman), Hakman and Manwell were members
of the Audit Committee and Messrs. du Plessis and Tanner joined such committee
in mid-year. Messrs. Wright (Chairman), Hakman, Manwell, du Plessis, and Tanner
currently serve as its members. The Audit Committee held four meetings in 1997
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
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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.
Throughout 1997, Messrs. Laikind (Chairman), Destino and Quasha and Ms.
Long were members of the Stock Option and Executive Compensation Committee (the
"Compensation Committee") and Messrs. du Plessis and Tanner joined such
committee in mid-year. Ms. Long (Chairman) and Messrs. Destino, du Plessis,
Quasha and Tanner currently serve as its members. The Compensation Committee
held four meetings in 1997 in person or by conference call. 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.
Throughout 1997, Mr. Destino was a member of the Special Committee while
Mr. Laikind served on that committee until his resignation from the Board in
March 1997 and Ms. Long joined the committee thereafter. Ms. Long and Mr.
Destino currently serve as its members. The Special Committee held two meetings
in 1997 in person or by conference call. 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.
During 1997, Messrs. Kaul (Chairman), Destino, Hakman, Kruttschnitt and
Laikind were members of the Nominating Committee and all except Mr. Laikind who
resigned from the Board in March 1997 currently serve as its members. The
Nominating Committee held one meeting in 1997. 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 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 1997, Messrs. Kling (Chairman), Hakman, Kruttschnitt and Manwell
were members of the Transactions Committee and Messrs. Kling (Chairman), Hakman
and Manwell currently serve as its members. The Transactions Committee held two
meetings in 1997 in person or by conference call. The duties of the Transactions
Committee are to review all transactions not in the ordinary course of business
between
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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 1997, the Board of Directors held six meetings in person or by
conference telephone and took action by written consent on two occasions. 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.
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
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.
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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 1997 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)..... 1997 $542,769 $577,037(2) $ 68,094(4) -- $ 8,773(9)
President and Chief 1996 $417,981 $599,188(2) $199,313(4) 7,530,000(6) $ 314(10)
Executive Officer
Larry J. Svoboda(1)... 1997 $265,385 $ 53,400(3) $147,811(5) 75,000(7) $ 1,848(11)
Senior Vice President 1996 $106,842 $110,288(3) $ 48,425(5) 200,000(7) --
and Chief Financial 250,000(8)
Officer
Edward J. O'Brien..... 1997 $164,016 -- -- -- $227,027(12)
Senior Vice President, 1996 $156,383 $ 1,455 -- 100,000(7) $ 10,484(13)
Treasurer and
Secretary 1995 $148,705 -- -- -- $ 9,967(14)
Michael Lutz(1)....... 1997 $238,077 $147,013 -- 50,000(7) $ 1,428(15)
Executive Vice 1996 $226,539 $ 1,821 -- 150,000(7) $ 3,109(16)
President and Chief 1995 $215,000 $ 27,095 -- 40,000(8) $ 1,490(17)
Operating Officer
Ralph Bulle........... 1997 $188,541 $ 36,750 -- 75,000(7) $ 29,786(18)
Senior Vice President 1996 $163,385 -- -- 125,000(7) $ 5,329(19)
Human Resources 1995 $143,000 -- -- -- $ 5,584(20)
</TABLE>
- ---------------
(1) Rakesh K. Kaul was named President and Chief Executive Officer and elected
to the Board of Directors on March 7, 1996. Larry J. Svoboda joined the
Company on September 25, 1996. Michael Lutz joined the Company in September
1994.
(2) Includes the following payments made by the Company on behalf of Mr. Kaul:
for fiscal 1997, a $445,787 bonus to make a partial payment to the Company
on a note receivable under the Tandem Option Agreement agreed to be paid to
Mr. Kaul in connection with his hiring by the Company and a $131,250 1997
performance bonus paid in 1998; and for fiscal 1996, a $349,188 bonus
representing a
8
<PAGE> 12
20% down payment for the purchase of stock under the Tandem Option
Agreement agreed to be paid to Mr. Kaul in connection with his hiring by
the Company and a $250,000 1996 performance bonus paid in 1997. See
"EXECUTIVE COMPENSATION AND OTHER INFORMATION -- CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
(3) Includes the following payments made by the Company on behalf of Mr.
Svoboda: for fiscal 1997, a 1997 performance bonus paid in 1998; and for
fiscal 1996, a $50,000 sign-on bonus, a $30,288 1996 bonus paid in 1997 and
a $30,000 bonus representing a 20% down payment for the purchase of stock
under the 1993 Executive Equity Incentive Plan. See "EXECUTIVE COMPENSATION
AND OTHER INFORMATION -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(4) Includes the following payments made by the Company on behalf of Mr. Kaul:
$10,345 in relocation expenses and $57,749 in car allowance and related
benefits in 1997; and $151,192 in relocation expenses and $48,121 in car
allowance and related benefits in 1996.
(5) Includes the following payments made by the Company on behalf of Mr.
Svoboda: $133,411 in relocation expenses and $14,400 in car allowance and
related benefits in 1997; and $44,825 in relocation expenses and $3,600 in
car allowance in 1996.
(6) 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 "EXECUTIVE COMPENSATION AND OTHER
INFORMATION -- EMPLOYMENT AGREEMENT."
(7) Issued pursuant to the Company's 1996 Stock Option Plan.
(8) Issued pursuant to the Company's 1993 Executive Equity Incentive Plan.
(9) Includes the following payments made by the Company on behalf of Mr. Kaul
in 1997: $8,241 in long-term disability premiums, $492 in term life
insurance premiums and $40 of accidental death insurance premiums.
(10) Includes the following payments made by the Company on behalf of Mr. Kaul
in 1996: $281 in term life insurance premiums and $33 of accidental death
insurance premiums.
(11) Includes the following payments made by the Company on behalf of Mr.
Svoboda in 1997: $1,206 in matching contributions under the Company's
401(k) Savings Plan, $110 in long-term disability premiums, $492 in term
life insurance premiums and $40 of accidental death insurance premiums.
(12) Includes the following payments made by the Company on behalf of Mr.
O'Brien in 1997: $2,640 in matching contributions under the Company's
401(k) Savings Plan, $69,708 in distributions due to the discontinuance of
the Company's Supplemental Retirement Plan, $110 in long-term disability
premiums, $4,529 in term life insurance premiums, $40 of accidental death
insurance premiums and $150,000 in severance pay.
(13) Includes the following payments made by the Company on behalf of Mr.
O'Brien in 1996: $2,475 in matching contributions under the Company's
401(k) Savings Plan, $3,334 in matching contributions under the Company's
Supplemental Retirement Plan, $110 in long-term disability premiums, $4,525
in term life insurance premiums and $40 of accidental death insurance
premiums.
(14) Includes the following payments made by the Company on behalf of Mr.
O'Brien in 1995: $2,228 in matching contributions under the Company's
401(k) Savings Plan, $3,124 in matching contributions under the Company's
Supplemental Retirement Plan, $110 in long-term disability premiums, $4,465
in term life insurance premiums and $40 of accidental death insurance
premiums.
9
<PAGE> 13
(15) Includes the following payments made by the Company on behalf of Mr. Lutz
in 1997: $234 in matching contributions under the Company's 401(k) Savings
Plan, $110 in long-term disability premiums, $1,044 in term life insurance
premiums and $40 of accidental death insurance premiums.
(16) Includes the following payments made by the Company on behalf of Mr. Lutz
in 1996: $2,500 in matching contributions under the Company's 401(k)
Savings Plan, $576 in term life insurance premiums and $33 of accidental
death insurance premiums.
(17) Includes the following payments made by the Company on behalf of Mr. Lutz
in 1995: $662 in matching contributions under the Company's 401(k) Savings
Plan, $767 in term life insurance premiums and $61 of accidental death
insurance premiums.
(18) Includes the following payments made by the Company on behalf of Mr. Bulle
in 1997: $26,490 in distributions due to the discontinuance of the
Company's Supplemental Retirement Plan, $2,654 in matching contributions
under the Company's 401(k) Savings Plan, $110 in long-term disability
premiums, $492 in term life insurance premiums and $40 of accidental death
insurance premiums.
(19) Includes the following payments made by the Company on behalf of Mr. Bulle
in 1996: $2,500 in matching contributions under the Company's 401(k)
Savings Plan, $2,454 in matching contributions under the Company's
Supplemental Retirement Plan, $342 in term life insurance premiums and $33
of accidental death insurance premiums.
(20) Includes the following payments made by the Company on behalf of Mr. Bulle
in 1995: $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 $61
of accidental death insurance premiums.
STOCK OPTIONS
The following table contains information concerning options granted to each
of the Named Executives during fiscal 1997.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SHARES GRANTED TO
UNDERLYING EMPLOYEES IN GRANT DATE
OPTIONS FISCAL EXERCISE EXPIRATION PRESENT
NAME GRANTED($) YEAR(%) PRICE($) DATE VALUE($)
---- ---------- ------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Rakesh K. Kaul.................... -- -- -- -- --
Larry J. Svoboda.................. 75,000 2.7% $1.438 7/9/03 $69,100(a)
Edward J. O'Brien................. -- -- -- -- --
Michael Lutz...................... 50,000 1.8% $1.438 7/9/03 $46,000(a)
Ralph Bulle....................... 75,000 2.7% $1.438 7/9/03 $69,100(a)
</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 1997: risk free interest rate of
6.06 - 6.37%, expected lives of 6 years, expected volatility of
39.07 - 40.81%, and no expected dividends.
10
<PAGE> 14
No options were exercised by any of the Named Executives during fiscal
1997. The following table contains information concerning options held by each
of the Named Executives at the end of fiscal 1997:
FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END(#)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Rakesh K. Kaul........................ 1,382,500 6,147,500 $1,004,000 $3,151,250
Larry J. Svoboda...................... 40,000 485,000 $ 26,700 $ 342,500
Edward J. O'Brien..................... 69,166 70,834 $ 46,127 $ 47,235
Michael Lutz.......................... 48,750 191,250 $ 32,500 $ 140,250
Ralph Bulle........................... 40,417 159,583 $ 27,000 $ 125,500
</TABLE>
- ---------------
(1) 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 -- EMPLOYMENT AGREEMENT."
250,000 options for Mr. Svoboda, 40,000 options for Mr. O'Brien and 40,000
options for Mr. Lutz represent tandem options granted pursuant to the 1993
Executive Equity Incentive Plan. Under this plan, these options become
exercisable after three years and expire after six years from the date of
grant. See "EXECUTIVE COMPENSATION AND OTHER INFORMATION -- CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS." 275,000 options for Mr. Svoboda,
100,000 options for Mr. O'Brien, 200,000 options for Mr. Lutz and 200,000
options for Mr. Bulle represent options granted pursuant to the 1996 Stock
Option Plan. Under this plan, up to one-third of these options become
exercisable one year after the date of grant and expire seven years from the
date of grant.
EMPLOYMENT AGREEMENT
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 standards 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 $4.50 per share
during any period of 91 consecutive calendar days commencing after August 23,
1996 and ending on or before March 7, 2002 (the "Closing Price Option") (see
"APPROVAL OF AN AMENDMENT TO THE COMPANY'S STOCK OPTION AGREEMENT WITH RAKESH K.
KAUL -- OPTION AGREEMENT AMENDMENT"); an
11
<PAGE> 15
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
$4,812 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 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.
COMPENSATION OF DIRECTORS
During 1997, 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 1998, 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 1997, 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."
STOCK OPTION AND EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
During the fiscal year ended December 27, 1997, the Stock Option and
Executive Compensation Committee of the Board of Directors of the Company
consisted of Jeffrey Laikind (Chairman), Ralph Destino, Elizabeth Valk Long and
Alan G. Quasha until Mr. Laikind's resignation from the Board in March 1997 at
which time Ms. Long was appointed Chairperson and Jan P. du Plessis and Howard
M.S. Tanner joined the Board and the committee. 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. During the 1997 fiscal year, no executive officer of
the Company
12
<PAGE> 16
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 1997 fiscal year and will be
waived for the 1998 fiscal year.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Stock Option and Executive Compensation Committee (the "Compensation
Committee"), currently consisting of five 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 1997 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.
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. 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.
13
<PAGE> 17
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 240 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 thresholds and targets are fully met unless
achievement of the thresholds and targets is waived by the Compensation
Committee which was the case with respect to 1997. 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 100% 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. Svoboda, Lutz and Bulle are
50% of salary while maximum bonuses are 100% of salary. The target bonus
opportunity for Mr. O'Brien is 25% of salary while his maximum bonus is 50% 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 1997 were based on Earnings Before Interest and Taxes (EBIT), cash flow 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. 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 1997 although achievement of certain 1997 thresholds and targets
were waived by the Compensation Committee. Award payouts for 1997 ranged from 0%
to 62% of salary for the Named Executives, which generally represents less than
half of the target bonus levels for such individuals. 100% of awards made under
the bonus plan are currently paid in cash.
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
Common Stock an employee purchased, he/she received an option to acquire two
additional shares of Common Stock, to a maximum of 250,000 shares in the
aggregate, 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 twelve executives who are currently employed by the
Company are participating in the 1993 Executive Equity Incentive Plan.
14
<PAGE> 18
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 266 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.
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 10
years.
All employees are eligible to participate in the 1996 Stock Option Plan.
During 1997, approximately 1,765,000 options to purchase shares of Common Stock
were granted to approximately 59 employees in accordance with the plan including
options to purchase an aggregate of 200,000 shares granted to the Named
Executives.
Chief Executive Officer Compensation
The incentive elements of the compensation paid to Mr. Kaul during 1997
were determined on the same basis as those discussed above for all Named
Executives. Mr. Kaul's 1997 base salary was $542,769 pursuant to an employment
agreement entered into by him and the Company in March 1996 while his bonus was
$577,036. In August 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 1998 to the Named Executives which are subject to the $1 million
deduction limit under Section 162(m) of the
15
<PAGE> 19
Internal Revenue Code of 1986, as amended (the "$1 Million Limit"), will exceed
$1 million in 1998. 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 (Chairperson)
Mr. Jan P. du Plessis
Mr. Alan G. Quasha
Mr. Howard M.S. Tanner
16
<PAGE> 20
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>
<CAPTION>
MEASUREMENT PERIOD 'HANOVER DIRECT,
(FISCAL YEAR COVERED) INC.' PEER GROUP S&P 500
<S> <C> <C> <C>
DEC-92 100 100 100
DEC-93 258 167 110
DEC-94 153 124 112
DEC-95 66 101 153
DEC-96 44 136 189
DEC-97 175 176 252
</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, Lands' End, Lillian Vernon, Spiegel and Williams Sonoma. Gander
Mountain was deleted from the group in 1997 due to the discontinuance of its
catalog operations and subsequent acquisition by Holiday Company.
NOTE: Assumes $100 invested on December 31, 1992 in the Company's Common Stock,
the S&P 500 Stock Index and the Direct Marketing Peer Group and that
dividends of each are reinvested quarterly; December 1997 figures assume
September 1997 shares outstanding for the Direct Marketing Peer Group
given data availability.
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
17
<PAGE> 21
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. As at the record date, Mr.
Kruttschnitt's percentage share ownership had fallen below the 5% minimum
specified. As a result, the Company believes its obligations under the
Nomination and Standstill Agreement have terminated. See "ELECTION OF
DIRECTORS -- AGREEMENT WITH RESPECT TO NOMINATION OF DIRECTORS" and "SECURITY
OWNERSHIP OF MANAGEMENT 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 1997 fiscal year was waived by Quadrant and will
be waived for the 1998 fiscal year.
In September 1996, Intercontinental Mining & Resources Incorporated
("IMR"), an affiliate of NAR, 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 was not repaid before May 15, 1997 and if the 1997
Rights Offering (discussed below) was 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 Company's
indebtedness under the $75 million secured credit facility (the "Credit
Facility") with Congress Financial Corporation ("Congress") 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 (defined below) that
number of 1997 Rights (defined below) 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 April 29, 1997, the Company commenced a $50 million rights offering (the
"1997 Rights Offering"). Holders of record of the Company's Common Stock and
Series B Convertible Additional Preferred Stock as of April 28, 1997, the record
date, were eligible to participate in the 1997 Rights Offering. The rights
offered pursuant to the 1997 Rights Offering (the "1997 Rights") were
exercisable at a price of $.90 per share (the "Subscription Price").
Shareholders received .38 1997 Rights for each share of Common Stock held and
.57 1997 Rights for each share of Series B Convertible Additional Preferred
Stock held as of the record date. The 1997 Rights Offering expired on May 30,
1997, with 1997 Rights to purchase 55,654,623 shares exercised, and closed on
June 6, 1997.
In March 1997, Richemont entered into a standby purchase agreement (the
"Richemont Standby Purchase Agreement") to purchase all shares not subscribed to
by shareholders of record at the Subscription Price. Richemont purchased
40,687,970 shares in the 1997 Rights Offering and, as a result, then owned
approximately 20.3% of the Company. The Company paid in cash, from the proceeds
of the 1997 Rights Offering, to Richemont on the closing date approximately $1.8
million which represented an amount equal to 1% of the aggregate offering price
of the aggregate number of shares issuable upon closing of the 1997 Rights
Offering other than with respect to the shares of Common Stock held by NAR or
its affiliates plus an amount equal to one-half of one percent of the aggregate
number of shares acquired by NAR upon exercise of their 1997 Rights (Standby
Fee) plus an amount equal to 4% of the aggregate offering price in respect to
all
18
<PAGE> 22
unsubscribed shares (Take-Up Fee). In connection with the entering of the
Richemont Standby Purchase Agreement, the Company named two Richemont
representatives, Messrs. Jan P. du Plessis and Howard M.S. Tanner, to its Board
of Directors (the "Board") and Executive Committee, and nominated a third
Richemont representative to become a member of the Board, Mr. Mehta, at the 1997
Annual Meeting of Shareholders. Messrs. du Plessis and Tanner filled positions
vacated by the resignations of Geraldine Stutz and Jeffrey R. Laikind. Mr. Mehta
was nominated and elected to the Board in 1997 to fill a newly created Board
position. In addition, Messrs. du Plessis and Tanner were named to the Audit,
Executive and Stock Option & Executive Compensation Committees of the Board.
Upon the consummation of the 1997 Rights Offering, NAR exercised certain of
the 1997 Rights distributed to it for the purchase of 11,111,111 shares of
Common Stock that had an aggregate purchase price of approximately $10 million.
NAR agreed to pay for and the Company agreed to accept as payment for the
exercise of such 1997 Rights the surrender by NAR of the principal amount due
under the $10 million IMR Promissory Note.
In order to facilitate vendor shipments and to permit the commencement of
the Company's plan to consolidate certain of its warehousing facilities,
Richemont advanced $30 million as of April 23, 1997 against its commitment to
purchase all of the unsubscribed shares pursuant to the Richemont Standby
Purchase Agreement. The Company then executed and delivered to Richemont a
subordinated promissory note in the amount of $30 million (the "Richemont
Promissory Note") which was repaid out of the proceeds of the 1997 Rights
Offering.
The Company issued 55,654,623 shares as a result of the 1997 Rights
Offering which generated gross cash proceeds of approximately $40 million (after
giving effect to the acquisition and exercise by NAR of 1997 Rights having an
aggregate purchase price of $10 million which were paid for by the surrender and
cancellation of the IMR Promissory Note) which were used to repay the $30
million principal amount outstanding under the Richemont Promissory Note and the
balance of the proceeds were used for working capital and general corporate
purposes, including repayment of amounts outstanding under the Company's
Revolving Credit Facility with Congress.
In December 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 through Swiss Bank Corporation, New York
Branch. The Company also paid a facility fee equal to 5% of the principal amount
of the letters of credit as well as all other fees incurred in connection with
providing the facility. The three letters of credit, which were to expire on
February 18, 1998, carry an interest rate of 3.5% above the prime rate
(currently 12.0%), payable to Richemont quarterly on amounts drawn under the
letters of credit. In the event that the Company had 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. In November 1997, Richemont
definitively agreed to extend its guarantee under the Reimbursement Agreement to
March 30, 1999. As consideration for this transaction, the Company paid to
Richemont a fee of 4% of the principal amount of each letter of credit
aggregating $1,113,483.28. The extension required the approval of Congress and
Swiss Bank which approvals were obtained in February 1998
19
<PAGE> 23
and was subject to certain other conditions. On February 18, 1998, the extension
of the Richemont guarantee and the closing of this transaction were consummated.
Accordingly, the expiration dates of two of the letters of credit were extended
through March 30, 1999, and the letters of credit were amended to reflect the
assignment of all obligations thereon from Swiss Bank, New York Branch to Swiss
Bank, Stamford Branch. A substitute letter of credit having an expiration date
of March 30, 1999 was issued to replace the third letter of credit.
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 Named Executive financed 80% of the
purchase price of the shares he purchased with a full recourse Company loan due
in 1999. These loans were outstanding at the end of fiscal 1997 and, as of March
31, 1998, were outstanding in the following amounts and with the following
interest rates: Larry J. Svoboda, Senior Vice President and Chief Financial
Officer, $120,000/6.64%; Edward J. O'Brien, Senior Vice President, Treasurer and
Secretary, $50,000/5.54%; and Michael Lutz, Executive Vice President and Chief
Operating Officer, $44,000/6.83%. In addition, the Company agreed to pay Mr.
Svoboda, on the due date of his loans due to the Company under the 1993
Executive Equity Incentive Plan, bonuses equal to the amount of the principal
and interest, if any, due on such loans. On January 26, 1997, the due date of
Mr. Svoboda's initial 20% loan under the 1993 Executive Equity Incentive Plan,
the Company paid Mr. Svoboda his first such bonus in the amount of $30,000. On
this same date, the Company loaned Mr. Svoboda $12,705.78 pursuant to a note,
which bears interest at the rate of 7% per annum, due on September 26, 1999 to
assist Mr. Svoboda with his tax liability resulting from the payment of such
bonus. The Company has also agreed to reimburse Mr. Svoboda for the tax
liability associated with the interest portion of the reimbursement bonus to be
paid to Mr. Svoboda at the time his 80% loan under the 1993 Executive Equity
Incentive Plan is due.
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 (the "Tandem Loan") originally due in four equal
consecutive annual installments of $349,187.50, together with interest thereon.
The Tandem Loan is secured by a pledge of such shares. In March 1998, the terms
of the Tandem Loan were amended and restated to provide for payment due in two
installments. The first installment of $349,187.50 was made by Mr. Kaul to the
Company on August 23, 1997 and the balance of principal is due on August 23,
2000. The Tandem Loan, which bears interest at 6.84%, was outstanding at the end
of fiscal 1997 and, as of March 31, 1998, in the principal amount of $1,047,562.
The Company has agreed to pay Mr. Kaul, on or before the due dates, a bonus
equal to the amount of the principal and/or interest due on the Tandem 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 ($349,188). In addition, in
connection with the amendment and restatement of the terms of the Tandem Loan in
March 1998, a second note (the "Tax Note") was issued by Mr. Kaul to the Company
in the amount of $211,729 to cover the tax consequences of the payment of the
first installment on the Tandem Loan. The Tax Note bears interest at 6.84% and
is due in full on August 23, 2000.
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.
20
<PAGE> 24
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 March 20, 1998. The information
given is based on information furnished to the Company by such persons or groups
and statements filed with the Commission.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK CLASS(1)
------------------------------------ ------------ ----------
<S> <C> <C>
Alan G. Quasha(2)........................................... 94,762,555(3,4,6) 45.2%
c/o Quadrant Management, Inc.
127 East 73rd Street
New York, New York 10021
NAR Group Limited........................................... 94,762,555(3,4,6) 45.2%
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(3,4,6) 66.5%
35 Boulevard Prince Henri
L 1724 Luxembourg
Regan Partners, L.P. and Basil P. Regan..................... 21,230,600(5) 10.4%
6 East 43rd Street
New York, New York 10017
</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 203,800,569 shares of Common
Stock outstanding as of March 20, 1998.
(2) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 19 to the Statement on Schedule 13D filed by NAR on
July 11, 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, IMR, 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) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 1 to the Statement on Schedule 13D filed by
Richemont on July 11, 1997 with the Commission. The amended 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.
(5) Information concerning the number of shares beneficially owned has been
taken from the Statement on Schedule 13G filed by Regan Partners L.P. and
Basil P. Regan on February 27, 1998 with the Commission. The Schedule 13G
indicates that Mr. Regan and Regan Partners L.P. have shared voting and
dispositive power with respect to 13,277,100 shares of Common Stock and Mr.
Regan has sole voting and dispositive power with respect to 7,953,500 shares
of Common Stock.
(6) Pursuant to Amendment No. 1 to the Joint Venture Agreement of NAR Group
Limited among Richemont, Evansville Limited ("Evansville") and Mr. Quasha,
dated June 13, 1997, Evansville and Mr. Quasha notified Richemont on or
about April 7, 1998 that they are exercising their right to cause
21
<PAGE> 25
NAR to sell and transfer to Richemont and Richemont to purchase on or
before May 7, 1998 approximately 25 million shares of Common Stock of the
Company. After giving effect to this transaction, Mr. Quasha and NAR will
beneficially own approximately 33.3% of the Common Stock and Richemont will
beneficially own approximately 66.5% of the Common Stock. Following the
closing of this transaction, NAR intends to distribute the Common Stock
then owned by it to its shareholders pro rata.
In February 1995, the Company issued an aggregate of 634,900 shares of
Series B Preferred to the shareholders of Aegis Safety Holdings, Inc. in
connection with the acquisition by the Company from such shareholders of all the
outstanding capital stock of Aegis. The outstanding shares of Series B Preferred
were convertible as of March 20, 1998 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 March 20, 1998, the Aegis shareholders would have owned
less than 1% of the Company's outstanding Common Stock on a fully diluted basis
at such date.
22
<PAGE> 26
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 March 20, 1998. 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............................................... 5,000(4) *
J. David Hakman(2).......................................... 1,003,875 *
Rakesh K. Kaul.............................................. 3,897,500(5) 1.9%
S. Lee Kling................................................ 37,750 *
Theodore H. Kruttschnitt(2)................................. 10,074,000 4.9%
Elizabeth Valk Long......................................... 50,300(4) *
Edmund R. Manwell(2)........................................ 20,579 *
Shailesh J. Mehta........................................... -- --
Jan P. du Plessis........................................... -- --
Alan G. Quasha(3)........................................... 94,762,555 45.2%
Howard M.S. Tanner.......................................... 150,000(6) *
Robert F. Wright............................................ 88,050(4) *
Larry J. Svoboda............................................ 192,000(7) *
Edward J. O'Brien........................................... 153,248(8) *
Michael Lutz................................................ 96,384(9) *
Ralph Bulle................................................. 40,417(10) *
Michael Contino............................................. 35,732(11) *
Richard Hoffman............................................. -- --
William C. Kingsford........................................ -- --
Directors and executives officers as a group (19 persons)... 15,844,835(12) 7.8%
</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 203,800,569 shares of Common
Stock outstanding as of March 20, 1998.
(2) 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 indicated 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.
(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 5,000 shares exercisable within 60 days.
(5) Includes options to purchase 2,387,500 shares exercisable within 60 days.
(6) Mr. Tanner is the 51% owner of a family holding company which owns 150,000
shares of Common Stock.
23
<PAGE> 27
(7) Includes options to purchase 40,000 shares exercisable within 60 days.
(8) Includes options to purchase 69,166 shares exercisable within 60 days.
(9) Includes options to purchase 48,750 shares exercisable within 60 days.
(10) Includes options to purchase 40,417 shares exercisable within 60 days.
(11) Includes options to purchase 33,332 shares exercisable within 60 days.
(12) 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 shares exercisable within
60 days as set forth above.
None of the Company's Directors or executive officers owns any shares of
Series B Preferred.
APPROVAL OF AN AMENDMENT TO THE COMPANY'S STOCK OPTION AGREEMENT
DATED AUGUST 23, 1996 WITH RAKESH K. KAUL
GENERAL
The Board of Directors is submitting an amendment (the "Amendment") to the
Company's Stock Option Agreement (the "Stock Option Agreement") dated August 23,
1996 with Rakesh K. Kaul ("Kaul") described herein to the Shareholders for their
approval. The purpose of the Stock Option Agreement, entered into pursuant to
the Company's Long-Term Incentive Plan for Kaul (the "Plan"), is to promote an
alignment of the interests of Kaul, who will have a significant impact on the
long-term success of the Company, with the interests of the Company and its
Shareholders by affording Kaul a proprietary interest in the Company's growth
while providing Kaul with an incentive to make a personal financial investment
in the Company and to remain in the Company's employ. The Board of Directors
believes that the Amendment will benefit the Company and its Shareholders and,
thus, recommends approval of the Amendment.
GENERAL INFORMATION
Effective Date and Duration of the Stock Option Plan. The Plan became
effective on the date of its adoption by the Compensation Committee of the
Company's Board of Directors (the "Committee"), subject to approval by the
affirmative vote or consent of holders of a majority of the issued and
outstanding shares of Common Stock which was received at the 1996 Annual Meeting
of Shareholders, and terminated on December 31, 1996.
Administration. The Plan is administered by the Committee which consists
of at least two directors and that satisfies the provisions of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor rule, and Section 162(m)(4)(C)(i) of the Internal Revenue Code of
1986, as amended (the "Code"). The Committee has full power and authority to
grant awards under the Plan and administer and interpret the Plan and to adopt
such rules, regulations, agreements, guidelines and instruments for the
administration of the Plan as it deems necessary or advisable.
Underlying Shares Awarded Under the Stock Option Plan. The maximum number
of shares of Common Stock that may be delivered or purchased under the 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 7,530,000 shares of Common Stock were
granted under the Plan in 1996 together with 1,510,000 Tandem Shares. See
24
<PAGE> 28
"EXECUTIVE COMPENSATION AND OTHER INFORMATION -- EMPLOYMENT AGREEMENT" and
"-- AWARDS GRANTED UNDER THE PLAN" as well as Annex A hereto.
Except in the case of NAR Options (as hereinafter defined), the shares of
Common Stock issued under the Plan have been set aside out of 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. The shares of
Common Stock subject to the NAR Options are shares owned by NAR Group Limited.
Amendment of the Plan. The 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 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.
AWARDS GRANTED UNDER THE PLAN
Pursuant to the Plan and the Stock Option Plan, options to purchase Common
Stock of the Company may be granted only to Kaul.
Under the Plan, Kaul had a right to: (1) purchase 1,510,000 shares of
Common Stock (after giving effect to certain anti-dilution adjustments resulting
from the 1996 Rights Offering) at a price equal to their fair market value on
the date of purchase, 20% of such purchase price to be paid in cash and 80% of
the purchase price to be financed over four years (the "Tandem Stock Purchase
Right"); (2) receive options, which shall vest at the rate of 25% per year
beginning on March 7, 1997, to purchase 3,020,000 shares of Common Stock (after
giving effect to certain anti-dilution adjustments resulting from the 1996
Rights Offering) at the fair market value on the date of grant provided Kaul
exercised the Tandem Stock Purchase Right (the "Tandem Option"); (3) receive an
option to purchase 1,000,000 shares of Common Stock at the fair market value on
the date of grant, subject to the achievement of certain performance goals
established by the Committee (the "Performance Year Option"); (4) receive an
option to purchase 2,000,000 shares of Common Stock at the fair market value on
the date of grant, which option expires on March 7, 2006 and shall become
exercisable only upon satisfaction of the condition that the average closing
price of the Common Stock has been at least $7.00 per share on each trading day
during any period of 91 consecutive calendar days commencing March 7, 1996 and
ending on or before March 7, 2002 (the "Closing Price Option")(see "-- OPTION
AGREEMENT AMENDMENT"); and (5) receive four options for the purchase of 377,500
shares of Common Stock (after giving effect to certain anti-dilution adjustments
resulting from the 1996 Rights Offering) each, at the fair market value thereof
on the date of grant, to be granted by NAR Group Limited (the "NAR Options").
All rights and options under the Plan had to have been exercised or granted
on or before September 1, 1996; they were, in fact, exercised or granted on or
about August 23, 1996, the date of closing of the 1996 Rights Offering. Each of
the options under the Plan is nontransferable other than by will or the laws of
descent and distribution and is exercisable, during Kaul's lifetime, only by
him; provided, however, that if the current transferability restrictions imposed
by the Commission under the insider-trading provisions of Rule 16b-3 promulgated
under the Exchange Act are eliminated or modified then, if and to extent that
such transferability will not adversely affect the option's status under such
rule, transfers to certain immediate family members or to trusts for the benefit
of Kaul or his immediate family members will be permitted. The purchase price
for each option may be paid in cash or in shares of Common Stock, or in a
combination of cash and shares. Alternatively, the options may be exercised by
delivering an exercise notice together with irrevocable
25
<PAGE> 29
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds necessary to pay the purchase price.
Each of the options under the Plan immediately vests in the event of Kaul's
termination of employment by reason of death or permanent disability or upon the
occurrence of a change in control during the term of his employment agreement or
within six months following the end of such term. Each option provides that if
Mr. Kaul's employment is involuntarily terminated (or is deemed under his
Employment Agreement to be involuntarily terminated) other than for cause, he
may exercise the option only until the later of (i) 12 months following the date
of such termination or (ii) in certain circumstances, March 10 of the year
following the year in which the termination occurs. If Mr. Kaul's employment
terminates by reason of permanent disability or death, his option may be
exercised during the three-month period (one-year period in the case of death)
following such termination of employment. If Mr. Kaul's employment terminates in
other circumstances, the option may be exercised only within 30 days after such
termination. In the event of a change in the Common Stock by reason of a stock
split, stock dividend, recapitalization or other similar change in the capital
stock of the Company, or in the event of a merger or other reorganization of the
Company, the terms of the options shall be adjusted to preserve the value of the
award.
The foregoing summary is qualified in its entirety by reference to the full
text of the Plan, which is set forth as Annex A to this Proxy Statement.
FEDERAL INCOME TAX CONSEQUENCES
The Federal income tax consequences under current law of options granted
under the Plan are as follows. The grant of an option to Kaul will have no
immediate income tax consequences. The exercise of an option will require him 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, he 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 believes that income recognized by Kaul upon the exercise of an
option granted under the Plan should constitute qualified performance-based
compensation that is exempt from the $1 Million Limit. Accordingly, the Company
should be entitled to deduct the amount of any compensation income that Kaul
recognizes upon the exercise of an option.
OPTION AGREEMENT AMENDMENT
The Stock Option Agreement, which reflects the grant of the Closing Price
Option, originally provided that such option to purchase 2,000,000 shares of
Common Stock at the fair market value on the date of grant ($1.15625 per share)
shall become exercisable only upon satisfaction of the condition that the
average closing price of the Common Stock has been at least $7.00 per share on
each trading day during any period of 91 consecutive calendar days commencing
March 7, 1996 and ending on or before March 7, 2002. Pursuant to the Amendment,
the average closing price per share of the Common Stock required to trigger the
exercisability of the option will be reduced from $7.00 to $4.50 and the words
"on each trading day" will be eliminated so that under the Amendment the average
closing price will be measured over a period of 91 consecutive calendar days
only. The Closing Price Option expires on March 7, 2006.
The foregoing summary is qualified in its entirety by reference to the full
text of the Stock Option Agreement, which is set forth as Annex B to this Proxy
Statement, and the form of the Amendment, which is set forth as Annex C to this
Proxy Statement.
26
<PAGE> 30
VOTE REQUIRED
The foregoing amendment to the Stock Option Agreement dated August 23, 1996
with Rakesh K. Kaul 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 COMPANY'S STOCK OPTION AGREEMENT DATED AUGUST 23, 1996
WITH RAKESH K. KAUL FORMING A PART OF THE LONG-TERM INCENTIVE PLAN FOR RAKESH K.
KAUL 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 26, 1998. 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 26, 1998.
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1999 Annual Meeting
of Shareholders of the Company must be received by the Company no later than
December 9, 1998 for inclusion in the Company's proxy material for that meeting.
27
<PAGE> 31
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: April 13, 1998
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 27, 1997 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: PUBLIC
RELATIONS, HANOVER DIRECT, INC., 1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY
07087.
28
<PAGE> 32
ANNEX A
LONG-TERM INCENTIVE PLAN FOR RAKESH K. KAUL
1. PURPOSE. The purpose of this Long-Term Incentive Plan for Rakesh K.
Kaul (the "Plan") is to promote an alignment of the interests of Rakesh K. Kaul
("Kaul"), who will have a significant impact on the long-term success of Hanover
Direct, Inc. (the "Company"), with the interests of the Company and its
shareholders by affording Kaul a proprietary interest in the Company's growth
while providing Kaul with an incentive to make a personal financial investment
in the Company and to remain in the Company's employ.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Company's Board of Directors (the "Committee"). The Committee
shall consist of two or more members and 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 or any successor rule, and the
provisions of Section 162(m)(4)(C)(i) of the Internal Revenue Code of 1986, as
amended. The Committee shall have full power and authority to grant awards
hereunder and to administer and interpret the Plan and to adopt such rules,
regulations, agreements, guidelines, and instruments for the administration of
the Plan as it deems necessary or advisable.
3. ELIGIBILITY. Kaul shall be the only person eligible to participate in
the Plan.
4. THE SHARES. The shares that may be purchased by Kaul under the Plan
shall not exceed an aggregate of 7,000,000 shares (subject to adjustment
pursuant to Section 6) of common stock of the Company, par value $.66 2/3 per
share ("Common Stock"). Except in the case of the NAR Options (as hereinafter
defined), such shares of Common Stock shall be set aside out of the authorized
but 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. The
shares of Common Stock subject to the NAR Options are shares owned by NAR Group
Limited.
5. AWARDS. The following awards shall be granted under the Plan:
A. TANDEM STOCK PURCHASE RIGHT. The right to purchase 1,000,000
shares of Common Stock at a price equal to their fair market value. For
purposes of the Plan, fair market value shall mean the average of the high
and low per-share sale prices of the Common Stock on the American Stock
Exchange, as determined by the Committee, on the date of purchase. Twenty
percent of the purchase price for such shares shall be paid in cash, and
80% shall be financed with a nonrecourse Note in substantially the form set
forth in APPENDIX A hereto, secured by a pledge of the shares of Common
Stock acquired in such purchase pursuant to a Pledge Agreement in
substantially the form set forth in APPENDIX B hereto. The Company shall
pay the Executive on before the date of such purchase a sign-on bonus equal
to the portion of the purchase price required to be paid in cash, and shall
pay the Executive, on or before each due date during the Term of any
payment of principal and/or interest on the Note, a bonus equal to the
amount of such principal and/or interest then due.
B. TANDEM OPTION. An option (the "Tandem Option") to purchase
2,000,000 shares of Common Stock, the terms of which option shall be as set
forth in APPENDIX C. The granting of this option shall be conditioned upon
Kaul's purchase of 1,000,000 shares of Common Stock pursuant to his
exercise of the tandem stock purchase right described in the preceding
paragraph.
C. PERFORMANCE YEAR OPTION. An option (the "Performance Year Option")
to purchase 1,000,000 shares of Common Stock, the terms of which option
shall be as set forth in APPENDIX D.
A-1
<PAGE> 33
D. CLOSING PRICE OPTION. An option (the "Closing Price Option") to
purchase 2,000,000 shares of Common Stock, the terms of which option shall
be as set forth in APPENDIX E.
E. NAR OPTIONS. Four options (the "NAR Options") for the purchase of
250,000 shares of Common Stock each, to be granted by NAR Group Limited.
The terms of such options shall be as set forth in APPENDICES F-1 through
F-4, respectively.
All awards under the Plan shall be granted on or before September 1, 1996.
6. ADJUSTMENT OF AND CHANGES IN SHARES. 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 number of shares covered by each outstanding award granted under the Plan,
the number of shares as to which an option is vested under the Plan, the option
price per share of each option granted under the Plan, the total number of
shares for which awards may be granted under the Plan, and the maximum number of
shares for which options may be granted to Kaul, shall be appropriately adjusted
by the Committee to preserve the value of the award. If, before the granting of
the Tandem Stock Purchase Right, the Tandem Option, or the NAR Options,
respectively, a distribution is made on the shares of Common Stock of rights or
warrants to purchase securities of the Company, there shall be added to the
shares subject to such stock purchase right or option ("Award Shares") the
number and kind of securities of the Company which would have been issued on the
exercise of the rights or warrants that would have been distributed with respect
to such number of Award Shares.
7. EFFECTIVENESS OF PLAN. The Plan shall be effective as of the date of
its adoption by the Committee, subject to approval thereof at a meeting of
shareholders by the holders of a majority of the shares of Common Stock present
and entitled to vote at the meeting. In the event the shareholders fail to
approve the Plan, any awards shall be rescinded and all actions taken hereunder
shall be null and void.
The Plan shall terminate on December 31, 1996. Any option outstanding at
the time of such termination, whether or not vested, shall remain in effect in
accordance with its terms and those of the Plan.
Note: Appendices other than APPENDIX E have been omitted herefrom.
A-2
<PAGE> 34
ANNEX B
APPENDIX E
CLOSING PRICE OPTION
This STOCK OPTION AGREEMENT (this "Agreement") is made as of August 23,
1996 between Hanover Direct, Inc., a Delaware corporation (the "Company"), and
Rakesh K. Kaul (the "Executive").
WHEREAS, the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee") has heretofore adopted and the Company's
shareholders have heretofore approved and ratified the Long-Term Incentive Plan
for Rakesh K. Kaul (the "Plan");
WHEREAS, the Plan provides for the granting of a closing price option
subject to the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
1. The Company hereby evidences and confirms the grant to the Executive on
the date hereof (the "Date of Grant") by the Compensation Committee of an option
(the "Option") to purchase 2,000,000 shares of Common Stock (the "Shares") at an
option price of $1.15625 per share, representing the fair market value of the
Common Stock on the date hereof. The Option shall expire on March 7, 2006 (the
"Expiration Date"), subject to earlier cancellation or termination as provided
herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall become exercisable only as
provided in this Section 2.
(a) Except as otherwise provided in paragraph (b), this Option shall
become exercisable only upon satisfaction of the condition, as certified by
the Compensation Committee (such certification not to be improperly
withheld), that the average closing price of the Common Stock on the
American Stock Exchange composite tape or other recognized market source,
as determined by the Compensation Committee, on each trading day during any
period of 91 consecutive calendar days commencing after August 23, 1996 and
ending on or before March 7, 2002 has equaled or exceeded $7.00 per share.
(b) Notwithstanding the foregoing, the Option shall immediately vest
and become exercisable in full upon the Executive's termination of
employment by reason of death or permanent disability (as determined by the
Compensation Committee), or upon the occurrence of a change in control (as
defined in the Employment Agreement) during the term of the Employment
Agreement or within six months following the end of such term. For purposes
hereof, a permanent disability means the Executive's inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than 12 months.
3. In the event of a termination of the Executive's employment with the
Company while any portion of the Option remains unexercised, the Executive's
rights to exercise the Option shall be exercisable only as follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by the Company other than for cause, the Executive
may, until 12 months following the date of such termination, exercise the
Option with respect to such number of Shares as to which the Option is
B-1
<PAGE> 35
exercisable (or would be exercisable if his employment had not terminated)
on the date of exercise, as determined pursuant to Section 2. For purposes
hereof, the provisions of the Employment Agreement shall apply in
determining whether the Executive's employment has been involuntarily
terminated by the Company other than for cause.
(ii) Death. If the Executive's employment terminates by reason of
death, his Option may be exercised during the 12-month period following
such termination.
(iii) Disability. If the Executive's employment terminates by reason
of permanent disability (as determined by the Compensation Committee), the
Option may be exercised during the three-month period following such
termination.
(iv) Termination in Other Circumstances. If the Executive's
employment terminates in circumstances not described in clauses (i) through
(iii), the Executive may, within 30 days following such termination,
exercise the Option with respect to such number of Shares as to which the
Option is exercisable (or would be exercisable if his employment had not
terminated) on the date of exercise, as determined pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable in
whole or in part after the Expiration Date.
4. (a) Except as provided in paragraph (b), the Option is not transferable
by the Executive other than by will or the laws of descent and distribution and
is exercisable, during the Executive's lifetime, only by the Executive.
(b) Notwithstanding the provisions of paragraph (a), if the current
transferability restrictions imposed by the Securities and Exchange Commission
under Rule 16b-3 are eliminated or modified, the following provisions shall
apply if and to the extent that they will not adversely affect the Option's
status under such rule:
(i) In the event of the Executive's incapacity, the Option may be
exercised by a conservator, guardian, or the agent under a Durable Power of
Attorney;
(ii) Upon the Executive's death, the Option is transferable by will,
by a revocable or irrevocable trust established by the Executive, or by a
written beneficiary designation executed by the Executive and delivered to
the Company prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's spouse
and/or issue or trusts for the benefit of the Executive, the Executive's
spouse, and/or the Executive's issue.
5. In order to exercise the Option, in whole or in part, the Executive
shall give written notice to the Company, specifying the number of Shares to be
purchased and the purchase price to be paid, and accompanied by the payment of
the purchase price. Such purchase price may be paid in cash, a certified check,
or a bank check payable to the Company, or in whole shares of Common Stock
evidenced by negotiable certificates, valued at their fair market value on the
date of exercise, or in a combination of the foregoing. Alternatively, the
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 such other documents as the Compensation Committee may
require. Upon receipt of payment, the Company shall deliver to the Executive (or
to any other person entitled to exercise the Option) a certificate or
certificates for such Shares. If certificates representing shares of Common
Stock are used to pay all or part of the purchase price of the
B-2
<PAGE> 36
Option, separate certificates shall be delivered by the Company representing the
same number of shares as each certificate so used and an additional certificate
shall be delivered representing the additional shares to which the Executive is
entitled as a result of exercise of the Option.
6. The Option shall be exercised only with respect to full Shares; no
fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to the Company at the time of exercise any taxes
required to be withheld by the Company under the applicable laws or other
regulations of any governmental authority, whether federal, state or local, and
whether domestic or foreign. The Company shall promptly remit such taxes to the
applicable governmental authority.
8. If the Executive so requests in writing, shares purchased upon exercise
of the Option may be issued in the name of the Executive and another person
jointly with the right of survivorship, or in the name of a revocable trust of
which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under Section
422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of any
successor or assignee of the Company and to any executor, administrator, legal
representative, legatee, or distributee or transferee entitled by law or the
provisions of the Plan to the Executive's rights hereunder.
11. The Option is subject in all respects to the terms of the Plan, the
provisions of which are incorporated in this Agreement by reference.
12. This Agreement is entered into, and shall be construed and enforced,
under the laws of the State of New York, and shall not be modified except by
written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
HANOVER DIRECT, INC.
By: /s/ EDWARD J. O'BRIEN
------------------------------------
Name: Edward J. O'Brien
Title: Senior Vice President
/s/ RAKESH K. KAUL
------------------------------------
Rakesh K. Kaul
B-3
<PAGE> 37
ANNEX C
FORM OF
AMENDMENT TO CLOSING PRICE OPTION
This AMENDMENT (this "Amendment") is made as of January , 1998 to STOCK
OPTION AGREEMENT made as of August 23, 1996 (the "Agreement") between Hanover
Direct, Inc., a Delaware corporation (the "Company"), and Rakesh K. Kaul (the
"Executive").
WHEREAS, the parties hereto desire to amend the Agreement to change certain
provisions of the Agreement relating to the exercisability of the Option.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
1. Amendment. Section 2(a) of the Agreement is amended to delete such
section in its entirety and substitute therefor the following:
"(a) Except as otherwise provided in paragraph (b), this Option shall
become exercisable only upon satisfaction of the condition, as certified by
the Compensation Committee (such certification not to be improperly
withheld), that the average closing price of the Common Stock on the
American Stock Exchange composite tape or other recognized market source,
as determined by the Compensation Committee, 'during any period of 91
consecutive calendar days commencing after August 23, 1996 and ending on or
before March 7, 2002 has equaled or exceeded $4.50 per share."
2. Approval of this Amendment. All authorizations, approvals and consents
(including consents of the Board of Directors) necessary for the execution and
delivery by the Company of this Amendment have been given or made except for the
approval of the shareholders of the Company which will be sought at the next
Annual Meeting of Shareholders to be held in May 1998.
3. Governing Law. This Amendment shall be construed and enforced in
accordance with the internal, substantive laws of the State of New York, without
giving effect to the conflict of law rules thereof.
4. Status of Agreement. All other terms and conditions of the Agreement
shall remain in full force and effect, as amended hereby.
5. Descriptive Headings. The headings in this Amendment are for
convenience of reference only and shall not limit or otherwise effect the
meaning of terms contained herein.
6. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but both of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Amendment to produce or account for more than one such
counterpart.
7. Capitalized Terms. All capitalized terms used but not defined herein
shall have the same meanings as ascribed thereto in the Agreement.
C-1
<PAGE> 38
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
HANOVER DIRECT, INC.
By:
------------------------------------
Name:
Title:
--------------------------------------
Rakesh K. Kaul
C-2
<PAGE> 39
HANOVER DIRECT, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 7, 1998
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Larry J. Svoboda and Edward J. O'Brien,
and each of them, proxies of the undersigned, with full power of substitution,
to vote all shares of Common Stock and/or Series B Convertible Additional
Preferred Stock of Hanover Direct, Inc., a Delaware corporation ("Hanover"),
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
of Hanover to be held at the American Stock Exchange, 86 Trinity Place, New
York, New York 10006, on Thursday, May 7, 1998, at 9:30 a.m. (local time), or
at any adjournment thereof, with all the powers the undersigned would have if
personally present, on the following matters:
IMPORTANT: SIGNATURE AND DATE REQUIRED ON REVERSE SIDE
<PAGE> 40
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
A /X/ Please mark your
votes as in this
example.
<C> <S> <S> <S>
WITHHOLD
FOR all nominees AUTHORITY
listed at the right to vote for NOMINEES: Ralph Destino
(except as marked all nominees J. David Hakman
to the contrary) listed at right Rakesh K. Kaul
S. Lee Kling
1. ELECTION / / / / Theodore H. Kruttschnitt
OF Elizabeth Valk Long
DIRECTORS Edmund R. Manwell
Shailesh J. Mehta
(INSTRUCTION: To withhold authority to vote Jan P. du Plessis
for any individual nominee, write that Alan G. Quasha
nominee's name in the space provided below.) Howard M.S. Tanner
Robert F. Wright
- ---------------------------------------------
</TABLE>
FOR AGAINST ABSTAIN
2. Ratification and approval of an amendment / / / / / /
to the Company's Stock Option Agreement
dated August 23, 1996 with Rakesh K. Kaul
forming a part of the Long Term Incentive
Plan for Rakesh K. Kaul.
3. Ratification and approval of the appointment / / / / / /
by the Board of Directors of the Company of
Arthur Andersen LLP as the Company's
independent auditors for the fiscal year
ending December 26, 1998.
4. In their discretion, the above named proxies are authorized to vote in
accordance with their own judgment upon such other business as may properly
come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL
BE VOTED "FOR" ITEMS 1, 2 AND 3 AND THE PROXIES WILL USE THEIR DISCRETION WITH
RESPECT TO ANY MATTERS REFERRED TO IN ITEM 4.
The undersigned hereby acknowledges receipt of a copy of the accompanying
Notice of Annual Meeting of Shareholders and Proxy Statement and hereby revokes
any Proxy or Proxies heretofore given. You may strike out the persons named as
proxies and designate a person of your choice, and may send this Proxy directly
to such person.
SIGNATURE(S): DATED: , 1998
---------------------------------------------- -------
----------------------------------------------
(Signature if held jointly)
NOTE: Please complete, date and sign exactly as name appears hereon. When
signing as attorney, administrator, executor, guardian, trustee or corporate
official, please add your title. If shares are held jointly, each holder should
sign.
