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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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>
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
HANOVER DIRECT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
Preliminary Copy
HANOVER DIRECT, INC.
1500 HARBOR BOULEVARD
WEEHAWKEN, NEW JERSEY 07087
(201) 863-7300
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 6, 1999
DEAR SHAREHOLDERS:
We will hold the 1999 Annual Meeting of Shareholders of Hanover Direct,
Inc., a Delaware corporation (the "Company"), at the Hotel Intercontinental at
111 East 48th Street, New York, New York 10017 on Thursday, May 6, 1999 at 9:30
a.m., local time. The meeting's purpose is to:
1. Elect 11 directors;
2. Approve an amendment to the Company's Certificate of Incorporation that
would increase the number of shares of all classes of stock which the Company
would have authority to issue from 243,172,403 to 318,172,403 shares and the
number of shares of Common Stock which the Company would have authority to issue
from 225,000,000 to 300,000,000 shares;
3. Ratify the selection of Arthur Andersen LLP as the Company's independent
auditors for the fiscal year ending December 25, 1999; and
4. Consider any other matters that are properly presented at the Annual
Meeting and any adjournment.
You may vote at the Annual Meeting if you were a Company shareholder of
Common Stock or Series B Convertible Additional Preferred Stock at the close of
business on April 7, 1999.
Along with the attached Proxy Statement, we are also enclosing a copy of
the Company's 1998 Annual Report to Shareholders, which includes our financial
statements.
All shareholders are cordially invited to attend. Whether or not you expect
to attend the Annual Meeting, please vote, sign and mail the enclosed proxy as
soon as possible. We have enclosed a return envelope, which requires no postage
if mailed in the United States, for that purpose. Your proxy is being solicited
by the Board of Directors.
In accordance with Delaware corporate law, the Company will make available
for examination by any shareholder entitled to vote at the Annual Meeting, for
any purpose germane to the Annual Meeting, during ordinary business hours, for
at least 10 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.
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
Monte E. Wetzler
Secretary
April , 1999
<PAGE> 3
HANOVER DIRECT, INC.
1500 HARBOR BOULEVARD
WEEHAWKEN, NEW JERSEY 07087
(201) 863-7300
PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 6, 1999
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
<TABLE>
<S> <C> <C>
ANNUAL MEETING: May 6, 1999 Hotel Intercontinental
9:30 a.m., local time 111 East 48th Street
New York, New York 10017
</TABLE>
RECORD DATE: Close of business on Wednesday, April 7, 1999. If you were a
shareholder at that time of the Company's Common Stock or
Series B Convertible Additional Preferred Stock ("Series B
Stock"), you may vote at the Annual Meeting. Each share of
Common Stock is entitled to 1 vote and each share of Series
B Stock is entitled to 1.5 votes. All shares of Common Stock
and Series B Stock will vote together on all issues at the
meeting. On the record date, we had 210,827,854 shares of
our Common Stock and 634,900 shares of our Series B Stock
outstanding. As of April 7, 1999, Richemont Finance S.A., a
Luxembourg company ("Richemont"), owned 102,790,657 shares
of Common Stock. Additionally, on June 1, 1998, Richemont
entered into an agreement with a third party, whereby
Richemont was granted an irrevocable proxy to vote
approximately 9.3 million shares of Common Stock currently
held by the third party.
MAILING DATE: On or about April , 1999.
AGENDA: 1. Elect 11 directors.
2. Approve an amendment to the Company's Certificate of
Incorporation that would increase the number of shares
of all classes of stock which the Company would have
authority to issue from 243,172,403 to 318,172,403
shares and the number of shares of Common Stock which
the Company would have authority to issue from
225,000,000 to 300,000,000 shares.
3. Ratify the selection of Arthur Andersen LLP as our
independent auditors for the fiscal year ending December
25, 1999.
4. Any other proper business.
<TABLE>
<S> <C> <C>
VOTE REQUIRED: Proposal 1: The 11 nominees for director who receive the
Elect 11 directors most votes will be elected. So, if you do not
vote for a nominee, your vote will not count
either for or against the nominee.
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Proposal 2: The affirmative vote of a majority of all outstanding
Approve Amendment to Common Stock and Series B Stock is required to approve
Certificate of Incorporation the amendment to the Certificate of Incorporation. So,
if you abstain from voting, it has the same effect as if
you voted against the proposal.
Proposal 3: The affirmative vote of a majority of the votes cast at
Ratify Selection of Auditors the Annual Meeting, whether in person or by proxy, is
required to ratify the selection of the auditors. So, if
you abstain from voting, it has the same effect as if
you voted against the proposal.
</TABLE>
BROKER NON-VOTES: If your broker does not vote on any of the 3 proposals, it
will have no effect on the votes with respect to any of the
3 proposals except Proposal 2.
PROXIES: Please vote; your vote is important. Prompt return of your
proxy will help reduce the costs of resolicitation. Unless
you tell us on the proxy card to vote differently, we will
vote signed returned proxies "FOR" the approval of the
amendment to the Certificate of Incorporation, "FOR" the
ratification of the appointment of the auditors, and "FOR"
the Board's nominees for directors.
If any nominee cannot or will not serve as a director, your
proxy will vote in accordance with his or her best judgment.
At the time we began printing this proxy statement, we did
not know of any matters that needed to be acted upon at the
Annual Meeting other than those discussed in this proxy
statement. However, if any additional matters are presented
to the Annual Meeting for action, your proxy will vote in
accordance with his or her best judgment.
PROXIES SOLICITED BY:
The Board of Directors.
REVOKING YOUR PROXY:You may revoke your proxy before it is voted at the meeting.
You may revoke it if you either:
- deliver a signed, written revocation letter, dated later
than this proxy, to: Monte E. Wetzler, Secretary, at
Hanover Direct, Inc., 1500 Harbor Boulevard, Weehawken,
New Jersey 07087;
- deliver another signed proxy, dated later than this proxy,
to Mr. Wetzler, Secretary, at the address above; or
- attend the Annual Meeting, inform Mr. Wetzler, Secretary,
of your desire to vote in person or by another proxy, and
then vote in person or by another proxy at the Annual
Meeting. Please note that attending the Annual Meeting
alone will not revoke your proxy.
COST OF SOLICITATION:
The Company will pay all costs, estimated at $25,000 in the
aggregate, of soliciting these proxies. Although we are
mailing these proxy materials, our directors, officers and
employees may also solicit proxies by telephone, telegram,
facsimile, 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
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<PAGE> 5
expenses. We will also furnish copies of solicitation
materials to fiduciaries, custodians, nominees and brokerage
houses for forwarding to beneficial owners of shares of
Common Stock and Series B Stock held in their names, and the
Company will reimburse them for reasonable out-of-pocket
expenses. American Stock Transfer & Trust Company, the
Company's transfer agent, is assisting us in the
solicitation of proxies in connection with the Annual
Meeting for no additional fee.
YOUR COMMENTS: Your comments about any aspects of our business are welcome.
You may use the space provided on the proxy card for this
purpose, if desired. Although we may not respond on an
individual basis, your comments help us to measure your
satisfaction and we may benefit from your suggestions.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table shows salaries, bonuses, and long-term compensation
paid during the last three years for the Chief Executive Officer and our four
next highly compensated executive officers whose total annual salary and bonus
exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
NAME AND FISCAL -------------------- OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDED(#) COMPENSATION($)
------------------ ------ --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Rakesh K. Kaul(1)........ 1998 $547,382 $123,106(2) $ 57,749(7) -- $ 17,324(12)
President and Chief 1997 $542,769 $577,037(2) $ 68,094(7) -- $ 8,773(13)
Executive Officer 1996 $417,981 $599,188(2) $199,313(7) 7,530,000(9) $ 314(14)
Larry J. Svoboda(1)...... 1998 $316,560 $ -- $ 14,400(8) -- $ 3,569(15)
Senior Vice President 1997 $265,385 $ 53,400(3) $147,811(8) 75,000(10) $ 1,848(16)
and Chief Financial 1996 $106,842 $110,288(3) $ 48,425(8) 250,000(11) --
Officer 200,000(10)
Edward J. O'Brien(1)..... 1998 $165,867 $ 60,000(4) -- -- $ 7,686(17)
Senior Vice President, 1997 $164,016 -- -- -- $227,027(18)
Treasurer and Secretary 1996 $156,383 $ 1,455(4) -- 100,000(10) $ 10,484(19)
Michael Lutz............. 1998 $293,014 $ 19,887(5) -- 100,000(10) $ 4,823(20)
Executive Vice President 1997 $238,077 $147,013(5) -- 50,000(10) $ 1,428(21)
and Chief Operating 1996 $226,539 $ 1,821(5) -- 150,000(10) $ 3,109(22)
Officer
Richard B. Hoffmann(1)... 1998 $226,437 $ 25,000(6) -- 250,000(10) $ 590(23)
Senior Vice President
and Chief Marketing
Officer
</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. Richard B. Hoffmann joined the Company in
March 1998. Edward J. O'Brien retired in December 1998.
(2) Includes the following payments made by the Company on behalf of Mr. Kaul:
for fiscal 1998, a $123,106 bonus representing the excess of the lesser of
the option price of certain vested options over $1.03; for fiscal 1997, a
$445,787 bonus to make a partial payment to the Company on a note
receivable
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<PAGE> 6
under his 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
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.
(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.
(4) Includes the following payments made by the Company on behalf of Mr.
O'Brien: for fiscal 1998, $60,000 representing project completion bonuses;
and for fiscal 1996, a $1,445 performance bonus.
(5) Includes the following payments made by the Company on behalf of Mr. Lutz:
for fiscal 1998, a $19,887 bonus representing prior year's performance
bonuses for which payment was deferred until 1998; for fiscal 1997, a 1997
performance bonus paid in 1998 of $147,013; and for fiscal 1996, a $1,821
performance bonus.
(6) Includes the following payments made by the Company on behalf of Mr.
Hoffmann: for fiscal 1998, $25,000 representing a sign-on bonus.
(7) Includes the following payments made by the Company on behalf of Mr. Kaul:
$57,749 in car allowance and related benefits in 1998; $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.
(8) Includes the following payments made by the Company on behalf of Mr.
Svoboda: $14,400 in car allowance and related benefits in 1998; $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.
(9) Issued by the Company pursuant to the Tandem Option, the Closing Price
Option and the Performance Year Option and by NAR Group Limited ("NAR"), an
affiliate of Richemont, under the Six, Seven, Eight and Nine Year Stock
Options, which options are described in the Severance and Employment
Agreements section below.
(10) Issued by the Company pursuant to the Company's 1996 Stock Option Plan.
(11) Issued pursuant to the Company's 1993 Executive Equity Incentive Plan.
(12) Includes the following payments made by the Company on behalf of Mr. Kaul
in 1998: $2,666 in matching contributions under the Company's 401(k)
Savings Plan; $8,242 in long-term disability premiums; $6,376 in term life
insurance premiums and $40 of accidental death insurance premiums.
(13) 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.
(14) 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.
(15) Includes the following payments made by the Company on behalf of Mr.
Svoboda in 1998: $2,666 in matching contributions under the Company's
401(k) Savings Plan; $110 in long-term disability premiums; $753 in term
life insurance premiums and $40 of accidental death insurance premiums.
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(16) 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.
(17) Includes the following payments made by the Company on behalf of Mr.
O'Brien in 1998: $2,666 in matching contributions under the Company's
401(k) Savings Plan, $3,919 in LTD premiums, $1,061 in term life insurance
premiums and $40 of accidental death insurance premiums.
(18) 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.
(19) 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 in accidental death insurance
premiums.
(20) Includes the following payments made by the Company on behalf of Mr. Lutz
in 1998: $3,722 in long-term disability premiums; $1,061 in term life
insurance premiums and $40 of accidental death insurance premiums.
(21) 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.
(22) 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.
(23) Includes the following payments made by the Company on behalf of Mr.
Hoffman in 1998: $55 in long-term disability premiums; $515 in term life
insurance premiums and $20 of accidental death insurance premiums.
STOCK OPTIONS
The following table contains information concerning options granted to the
Chief Executive Officer and our four next highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 during fiscal 1998.
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OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME GRANTED($) FISCAL YEAR (%) PRICE($) DATE VALUE($)
---- ---------- --------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Rakesh K. Kaul................. -- -- -- -- --
Larry J. Svoboda............... -- -- -- -- --
Edward J. O'Brien.............. -- -- -- -- --
Michael Lutz................... 100,000 6.5% $3.188 3/4/05 $155,700(a)
Richard B. Hoffmann............ 250,000 16.1% $3.188 3/4/05 $389,300(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 assumptions
for grants in 1998: risk free interest rate of 5.75%, expected lives of 4
years, expected volatility of 55.77% and no expected dividends.
No options were exercised by any of the named executives during fiscal
1998. The following table contains information concerning the fiscal 1998
year-end values of all options granted to the Chief Executive Officer and our
four next highly compensated executive officers whose total annual salary and
bonus exceeded $100,000:
FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END (#) AT FISCAL YEAR-END (#)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Rakesh K. Kaul........................ 2,765,000 4,765,000 $1,923,225 $2,232,025
Larry J. Svoboda...................... 96,250 428,750 $ 65,569 $ 303,631
Edward J. O'Brien..................... 102,498 37,502 $ 68,356 $ 25,006
Michael Lutz.......................... 108,333 231,667 $ 73,381 $ 255,079
Richard B. Hoffmann .................. -- 250,000 -- $ 389,275
</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. 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. 275,000
options for Mr. Svoboda, 100,000 options for Mr. O'Brien, 300,000 options
for Mr. Lutz and 250,000 options for Mr. Hoffmann 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.
SEVERANCE AND EMPLOYMENT AGREEMENTS
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 Agree-
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ment"). The Employment Agreement provides for an "at will" term commencing on
March 7, 1996 at a base salary of $525,000 per year. The Employment Agreement
also provides for Mr. Kaul's participation in the Short-Term Incentive Plan for
Rakesh K. Kaul. That plan, which was approved by the shareholders at the June
20, 1996 shareholders meeting, 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 to be 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, which was approved by the shareholders at the June 20, 1996 shareholders
meeting, 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"); an option expiring March 7,
2006 to purchase an aggregate of 1,000,000 shares of Common Stock at their fair
market value, subject to the attainment of certain objective performance goals
to be 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.
STOCK OPTION AND EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
During the fiscal year ended December 26, 1998, the Stock Option and
Executive Compensation Committee of the Board of Directors of the Company
consisted of Elizabeth Valk Long (Chairman), Ralph Destino, Jan P. du Plessis,
Alan G. Quasha and Howard M.S. Tanner. 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 1998 fiscal year, no executive
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officer of the Company served as a director or a member of the compensation
committee of another entity, one of whose executive officers served as a
Director or on the Compensation Committee of the Company. However, Mr. Quasha
has an indirect material interest in Quadrant Management Inc. ("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 1998 fiscal year and will be waived for the 1999 fiscal year. In addition,
Mr. Quasha's wife serves as a consultant to the Company.
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 1998 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.
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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 targets are fully met. It is the policy of the
Compensation Committee to position target bonuses at competitive levels.
Individual target bonuses are based on the person's responsibility level in the
organization and the bonus award opportunity at the other organizations included
in the performance chart. Target bonus levels range from 5% to 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 Hoffmann are
50% of salary while maximum bonuses are 100% of salary.
Participants are eligible to receive an annual bonus depending upon the
extent to which certain goals are achieved. As in past years, performance goals
for 1998 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 1998. 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
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 eight executives who are currently employed by the
Company are participating in the 1993 Executive Equity Incentive 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
9
<PAGE> 12
performance-based. The 1996 Stock Option Plan provides that options may be
granted for terms of not more than after 10 years.
All employees are eligible to participate in the 1996 Stock Option Plan.
During 1998, approximately 1,550,000 options to purchase shares of Common Stock
were granted to approximately 45 employees in accordance with the plan including
options to purchase an aggregate of 350,000 shares granted to the executives
named in the executive compensation table above.
Chief Executive Officer Compensation
The incentive elements of the compensation paid to Mr. Kaul during 1998
were determined on the same basis as that discussed above for all Named
Executives. Mr. Kaul's 1998 base salary was $571,600 pursuant to an employment
agreement entered into by him and the Company in March 1996; Mr. Kaul did not
earn a bonus for his 1998 performance. However, Mr. Kaul received a bonus of
$123,106 during 1998 with respect to certain stock options previously granted.
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 1999 to the Named Executives which are subject to the $1 million
deduction limit under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "$1 Million Limit"), will exceed $1 million in 1999. 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
10
<PAGE> 13
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
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
HANOVER DIRECT, INC. PEER GROUP S&P 500
-------------------- ---------- -------
<S> <C> <C> <C>
12/93 100 100 100
12/94 59 64 101
12/95 26 50 139
12/96 17 63 171
12/97 68 75 229
12/98 78 87 294
</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, 1993 in the Company's Common Stock,
S&P 500 Stock Index and the Direct Marketing Peer Group and that dividends
of each are reinvested quarterly; December 1998 figures assume September
1998 shares outstanding for the Direct Marketing Peer Group given data
availability.
DIRECTOR COMPENSATION
Non-employee directors of the Company or its subsidiaries receive an annual
cash fee of $15,000 plus $500 for each Board meeting and $250 for each committee
meeting they attended. In addition, such directors were entitled to share
equally 1% of any pre-tax profits of the Company. Messrs. du Plessis and Tanner
waived all fees to which they were entitled. We do not compensate our employees
or employees of our subsidiaries who serve as directors. During fiscal 1998, the
Company provided $50,000 of term life insurance for each
11
<PAGE> 14
director. In addition, Robert Wright's company was paid an additional $25,000
for work regarding the Board's Audit Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a 1989 Nomination and Standstill Agreement, Theodore H.
Kruttschnitt, J. David Hakman and Edmund R. Manwell agreed that if at any time
Mr. Kruttschnitt ceases to own at least 2,262,000 shares of Common Stock
(representing 83% of the shares owned by Mr. Kruttschnitt on the date of the
Nomination and Standstill Agreement), at least one of them will resign as a
Director; if at any time Mr. Kruttschnitt ceases to own at least 1,907,710
shares of Common Stock (representing 70% of the shares owned by Mr. Kruttschnitt
on the date of the Nomination and Standstill Agreement), at least two of them
will resign as Directors; and if at any time Mr. Kruttschnitt owns less than 5%
of the outstanding shares of Common Stock, all of them will resign as Directors;
except no Director shall be obligated to resign if such resignation would
constitute a breach of the Director's fiduciary duties as a Director.
Accordingly, since Mr. Kruttschnitt owns less than 5% of the outstanding Common
Stock, none of such persons are standing for re-election pursuant to the terms
of the Nomination and Standstill Agreement. However, Mr. Kruttschnitt and Hakman
were nominated to stand for re-election by the Board of Directors.
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 1998 fiscal year was waived by Quadrant and will
be waived for the 1999 fiscal year.
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 three letters of credit, which were to expire on February 18, 1998,
carry an interest rate of 3.5% above the prime rate, payable to Swiss Bank
Corporation quarterly on amounts drawn under the letters of credit. 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. In the event that the Company has not paid in full, by the expiration
date, any outstanding balances under the letters of credit, Richemont shall have
the option, exercisable at any time prior to payment in full of all amounts
outstanding under the letters of credit to convert such amount into Common Stock
of the Company at the mean of the bid and ask prices of the Company's Common
Stock on November 8, 1996, or the mean of the bid and ask prices of the
Company's Common Stock on each of the thirty days immediately prior to the date
of exercise of the conversion privilege. The Reimbursement Agreement is
subordinate to the Company's Credit Facility with Congress Financial Corp.
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, which fee aggregated $1,073,483.28. The extension
required the approval of Congress and Swiss Bank which approvals were obtained
in February 1998 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. On each
12
<PAGE> 15
of October 1, 1997 and October 1, 1998 the Company paid down approximately $1
million of the underlying debt thus reducing the principal amount of the letters
of credit to $25.8 million.
In the first quarter of 1999, Richemont agreed to extend its guarantee
under the Reimbursement Agreement to March 31, 2000. As consideration for this
transaction, the Company agreed to pay to Richemont a facility fee of 9.5% of
the principal amount of each letter of credit. The extension required the
approval of Congress and UBS AG (successor to Swiss Bank) which approvals were
obtained in March 1999, and was subject to certain other conditions. In March
1999, the extension of the Richemont guarantee and the closing of this
transaction were consummated. Accordingly, the expiration dates of the letters
of credit were extended through March 31, 2000.
On July 31, 1998, Richemont acquired 5,646,490 additional shares of Common
Stock of the Company pursuant to the exercise of certain common stock purchase
warrants with exercise prices ranging from $1.95 to $2.59 per share and an
aggregate total exercise price of approximately $13.6 million. The Company used
the proceeds of the warrant exercise to reduce the amounts outstanding under the
Congress Credit Facility.
Each of the Named Executives other than Rakesh K. Kaul and Richard D.
Hoffmann purchased shares of Common Stock pursuant to the 1993 Executive Equity
Incentive Plan. Pursuant to such plan, each such executive financed 80% of the
purchase price of the shares he purchased with a full recourse Company loan due
in 1999. These loans were outstanding at the end of fiscal 1998 and, as of March
31, 1999, 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, former 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 1998 and, as of March 31, 1999, 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. 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.
13
<PAGE> 16
Pursuant to the Employment Agreement between the Company and Mr. Kaul, the
Company and NAR were obligated to pay Mr. Kaul, within 30 days after each date
as of which any stock option granted under the Long-Term Plan for Rakesh K. Kaul
vests with respect to all or a portion of the shares of Common Stock covered by
such option, an additional cash amount equal to the number of shares of Common
Stock with respect to which such option became vested on such vesting date
multiplied by the excess of (i) the lesser of the option price of such option or
the fair market value on such vesting date (equal to the closing price of the
Common Stock on the American Stock Exchange) of a share of Common Stock, over
(ii) $1.03. Pursuant to such provision, the Company paid Mr. Kaul $123,106.25 in
1998 and NAR became obligated to pay an additional $47,659.38.
During 1998, the Company advanced $72,412 to Rakesh K. Kaul for various
relocation and temporary living expenses related to his employment with the
Company pursuant to his Employment Agreement with the Company. Mr. Kaul intends
to repay such amount in 1999.
During 1998, the Company agreed with Michael Lutz to loan him $100,000 for
relocation and temporary living expenses related to his promotion to Chief
Operating Officer and move to corporate headquarters. Such loan will be
forgivable if Mr. Lutz stays with the Company for five years from the date of
such loan. The Company paid Mr. Lutz $4,555 in relocation costs in 1998 outside
of this agreement.
During 1998, the Company loaned Larry J. Svoboda $55,360 repayable with Mr.
Svoboda's loan under the 1993 Executive Equity Incentive Plan.
Diana Quasha, the wife of Alan Quasha, serves as a consultant to the
Company with respect to the Gump's catalog and San Francisco store for a fee of
$87,500 per annum.
Either the Board, a committee of the Board, or the Shareholders have
approved these relationships and transactions and, to the extent that such
arrangements are available from non-affiliated parties, all relationships and
transactions are on terms no less favorable to the Company than those available
from non-affiliated parties.
14
<PAGE> 17
PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY
CERTAIN BENEFICIAL OWNERS
The following table lists the beneficial owners known by management of at
least 5% of the Company's Common Stock as of April 7, 1999. Information in the
table is based on information furnished to us by such persons or groups and
statements filed with the SEC.
COMMON STOCK
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK CLASS(1)
------------------------------------ ------------ ----------
<S> <C> <C>
Richemont Finance S.A....................................... 102,790,657(2) 48.76%
35 Boulevard Prince Henri
L 1724 Luxembourg
Regan Partners, L.P. and Basil P. Regan..................... 38,421,850(3) 18.22%
6 East 43rd Street
New York, New York 10017
</TABLE>
- ---------------
(1) Percentages computed on the basis of 210,827,854 shares of Common Stock
outstanding as of April 7, 1999.
(2) Information concerning the number of shares beneficially owned has been
taken from Amendment No. 3 to the Statement on Schedule 13D filed by
Richemont on August 6, 1998 with the Commission. Such figure does not
include 1,510,000 shares of Common Stock owned by NAR Group Limited, of
which Richmont is a shareholder,which could also be deemed to be
beneficially owned by Richemont (which has shared power to vote and dispose
of such shares). On June 1, 1998, Richemont entered into an agreement with a
third party whereby Richemont was granted an irrevocable proxy to vote
approximately 9.3 million shares of Common Stock currently held by the third
party, representing an additional 4.4% of the Common Stock outstanding as of
April 7, 1999. Richemont disclaims beneficial ownership of the shares owned
by NAR and the shares subject to the proxy.
(3) 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 January 21, 1999 with the Commission. The Schedule 13G
indicates that Mr. Regan and Regan Partners L.P. have shared voting and
dispositive power with respect to 33,928,900 shares of Common Stock and Mr.
Regan has sole voting and dispositive power with respect to 4,492,950 shares
of Common Stock.
15
<PAGE> 18
SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANY
MANAGEMENT OWNERSHIP
The following table lists share ownership of the Common Stock as of April
7, 1999. The information includes beneficial ownership by each of our directors,
nominees for director and executive officers and by all directors and officers
as a group. Except as noted below, to our knowledge, each person named in the
table has sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
COMMON STOCK CLASS(1)
------------ ----------
<S> <C> <C>
Ralph Destino............................................... 5,000(3) *
J. David Hakman(2).......................................... 274,392 *
Rakesh K. Kaul.............................................. 3,897,500(4) 1.8%
S. Lee Kling................................................ 37,750 *
Theodore H. Kruttschnitt(2)................................. 10,074,000 4.8%
Elizabeth Valk Long......................................... 50,300(3) *
Edmund R. Manwell(2)........................................ 20,580 *
Shailesh J. Mehta........................................... 5,000 *
Jan P. du Plessis........................................... -- --
Alan G. Quasha.............................................. 1,946,098(5) *
Howard M.S. Tanner.......................................... 150,000(6) *
Robert F. Wright............................................ 98,050(7) *
Larry J. Svoboda............................................ 248,250(8) *
Michael Lutz................................................ 347,634(9) *
Ralph Bulle................................................. 202,400(10) *
Michael D. Contino.......................................... 99,998(11) *
Richard B. Hoffmann......................................... 83,333(12) *
William C. Kingsford........................................ 64,999(13) *
Robert J. Vill.............................................. -- --
Directors and executive officers as a group (19 persons).... 17,605,284(14) 8.2%
</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 210,827,854 shares of Common
Stock outstanding as of April 7, 1999.
(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 274,392 shares, and
Mr. Manwell, who beneficially owns 20,580 shares.
(3) Includes options to purchase 5,000 shares exercisable within 60 days.
(4) Includes options to purchase 3,897,500 shares exercisable within 60 days.
16
<PAGE> 19
(5) Includes 1,510,000 shares owned by NAR Group Limited. All of the shares
beneficially owned by NAR could also be deemed to be beneficially owned by
Mr. Quasha, due to his shared investment and voting power in NAR.
(6) Mr. Tanner is the 51% owner of a family holding company which owns 150,000
shares of Common Stock.
(7) Includes options to purchase 20,000 shares exercisable within 60 days.
(8) Includes options to purchase 96,250 shares exercisable within 60 days.
(9) Includes options to purchase 181,666 shares exercisable within 60 days.
(10) Includes options to purchase 111,667 shares exercisable within 60 days.
(11) Includes options to purchase 99,998 shares exercisable within 60 days.
(12) Includes option to purchase 83,333 shares exercisable within 60 days.
(13) Includes options to purchase 49,166 shares exercisable within 60 days.
(14) 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 Stock.
17
<PAGE> 20
PROPOSAL 1
ELECTION OF DIRECTORS
GENERALLY
The Board of Directors has voted to decrease its size from 12 to 11 members
effective as of the date of the Annual Meeting. The Board has nominated 11
directors for election at the Annual Meeting. All of them but Mr.
is currently serving as one of our directors. If
you elect them, they will hold office until the next annual meeting or until
their successors have been elected or until their earlier death, resignation,
retirement, disqualification or removal as provided in the Company's Certificate
of Incorporation and Bylaws.
NOMINEES:
<TABLE>
<S> <C>
RALPH DESTINO............. Ralph Destino has been the Chairman of Cartier, Inc., a
AGE 62 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 -- Switzerland"), a Swiss public company
engaged in the tobacco, luxury goods and other businesses
and an affiliate of Richemont Mr. Destino was elected a
Director of the Company in October 1991.
J. DAVID HAKMAN........... J. David Hakman has been the Chief Executive Officer of
AGE 57 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............ Rakesh K. Kaul has served as the Company's President and
AGE 47 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.
THEODORE H. Theodore H. Kruttschnitt has been the President of Limar
KRUTTSCHNITT............ Realty Group, a real estate investment company, since
AGE 56 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.
</TABLE>
18
<PAGE> 21
<TABLE>
<S> <C>
SHAILESH J. MEHTA................ Shailesh J. Mehta has been Chief Executive Officer and a director of Providian
AGE 49 Financial Corporation (formerly known as Providian Bancorp, Inc.), a consumer
lending financial services company, 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................ Jan P. du Plessis has been Finance Director of Richemont-Switzerland and of
AGE 45 Richemont S.A. for the last five years, both of which are affiliates of
Richemont. He is also a director of Vendome Luxury Group, S.A. Mr. du Plessis
also served as Finance Director of The Rothmans International Group until
October 1996. Mr. du Plessis was elected a Director of the Company in March
1997.
ALAN G. QUASHA................... Alan G. Quasha has been President of Quadrant, an indirect wholly-owned
AGE 49 subsidiary of NAR Group Limited which manages NAR's U.S. assets, 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., an affiliate of
Richemont-Switzerland. Mr. Quasha was elected a Director of the Company and
Chairman of the Board in October 1991.
HOWARD M. S. TANNER.............. Howard M. S. Tanner has been Executive Director of Richemont S.A., an affiliate
AGE 54 of Richemont, for the last five years. Mr. Tanner was elected a Director of
the Company in March 1997.
ROBERT F. WRIGHT................. Robert F. Wright has been the President of Robert F. Wright Associates, Inc.,
AGE 73 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 Quadlogic Controls Corp., a company
engaged in the production of electrical metering equipment. 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.
</TABLE>
Two additional nominees will be added before the filing
and mailing of the definitive proxy statement
19
<PAGE> 22
BOARD MEETINGS
In 1998, the Board held 5 meetings in person or by conference telephone.
Each incumbent director attended at least 75% of his or her Board Meetings and
75% of his or her committee meetings with the exception of Edmund R. Manwell and
Jan P. du Plessis who attended 60% of all Board Meetings and Edward R. Manwell
who attended 50% of all committee meetings of committees of which he was a
member.
BOARD COMMITTEES
The Board has standing Executive, Audit, Stock Option and Executive
Compensation, Special, Nominating, and Transactions Committees.
The Executive Committee
- During 1998 and currently, Messrs. Tanner (Chairman), Kaul, du Plessis,
Quasha and Wright were members.
- The duties of the Executive Committee include:
- recommending actions to the Board; and
- acting on behalf of the Board on certain operating matters requiring
Board approval when the Board is not in session.
- The Executive Committee held 5 meetings in person or by conference call
and took action by written consent on 1 occasion in 1998.
The Audit Committee
- During 1998 and currently, Messrs. Wright (Chairman), Hakman, Manwell, du
Plessis and Tanner were members.
- The duties of the Audit Committee include:
- reviewing with the Company's independent public accountants the scope of
their audit, the audited consolidated financial statements, and any
accounting procedures or internal control comments contained in the
independent public accountants' management letter, including corrective
action taken by management;
- annually reviewing and approving the adequacy and scope of the internal
audit department's planned audit program;
- reviewing the internal audit department's interim audit reports,
including the evaluation of replies and corrective action being taken;
- reviewing the adequacy of the internal accounting control systems of the
Company and its subsidiaries; and
- reviewing and approving management's recommendation for the appointment
of outside independent public accountants prior to the submission of
their nomination to the Board for approval and to the Shareholders for
ratification.
- The Audit Committee held 5 meetings in 1998 in person or by conference
call.
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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.
Stock Option and Executive Compensation Committee
- During 1998 and currently, Ms. Long (Chairman) and Messrs. Destino, du
Plessis, Quasha and Tanner were members.
- The duties of the Stock Option and Executive Compensation Committee
include:
- reviewing and making recommendations for approval by the Board of
remuneration arrangements for directors and members of management.
- The Stock Option and Executive Compensation Committee held 5 meetings in
1998 in person or by conference call and took action by written consent
on 1 occasion in 1998.
Special Committee
- During 1998 and currently, Ms. Long and Mr. Destino were members.
- The Special Committee is a sub-committee of the Stock Option and
Executive Compensation Committee and its duties include:
- reviewing and making recommendations for approval by the Board
concerning grants of stock options pursuant to the Company's stock
option plans for the Company's employees.
- The Special Committee held no meetings in 1998 in person or by conference
call.
Nominating Committee
- During 1998 and currently, Messrs. Kaul (Chairman), Destino, Hakman, and
Kruttschnitt were members.
- The duties of the Nominating Committee include:
- evaluating and recommending candidates for election to the Board.
- The Nominating Committee held one meeting in 1998.
- The Bylaws of the Company require advance notice of nominations for
election to the Board, other than those made by the Board. Unless waived
by the Board, 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.
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<PAGE> 24
Transactions Committee
- During 1998 and currently, Messrs. Kling (Chairman), Hakman, Mehta and
Manwell were members.
- The duties of the Transactions Committee include:
- reviewing and, if necessary, retaining independent experts to review any
and all transactions not in the ordinary course of business between the
Company and directors, members of management or persons owning 10% or
more of the Company's securities; and
- reporting its findings to the Board as to the fairness, merits and
potential conflicts of interest.
- The Transactions Committee held one meeting in 1998 by conference call.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
We indemnify our executive officers and directors to the fullest extent
permitted by applicable law against liabilities incurred as a result of their
service to the Company and directors, in particular, 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 against, among other things, all liabilities and claims arising out of
their service in any capacity for or on behalf of the Company. We have a
directors and officers liability insurance policy, underwritten by Executive
Risk Indemnity Company and Zurich American Insurance Company, in the aggregate
amount of $30,000,000. As to reimbursements by the insurer of the Company's
indemnification expenses, the policy has a $250,000 deductible for securities
claims against the Company and a $150,000 deductible for all other indemnifiable
losses. The policy term is from June 1, 1998 to June 1, 1999.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires officers,
directors and beneficial owners of more than 10% of the Company's shares to file
reports 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 11 nominees for director who receive the most votes will be elected.
The enclosed proxy allows you to vote for the election of all of the nominees
listed, to withhold authority to vote for one or more of such nominees or to
withhold authority to vote for all of such nominees.
If you do not vote for a nominee, your vote will not count either for or
against the nominee. Also, if your broker does not vote on any of the nominees,
it will have no effect on the election.
The persons named in the enclosed proxy intend to vote FOR the election of
all of the nominees. Each of the nominees currently serves as a director and has
consented to be nominated. We do not foresee that any of the nominees will be
unable or unwilling to serve, but if such a situation should arise your proxy
will vote in accordance with his or her best judgment.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION
OF THE NOMINEES FOR DIRECTOR.
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<PAGE> 25
PROPOSAL 2
AMENDING CERTIFICATE OF INCORPORATION
GENERALLY
The Board is submitting to you an amendment to the Company's Certificate of
Incorporation that would increase the number of shares of all classes of stock
which the Company would have authority to issue from 243,172,403 to 318,172,403
shares. All of the additional 75,000,000 shares would be allocated to the number
of shares of Common Stock that the Company would have authority to issue. As of
April 7, 1999, there were authorized 225,000,000 shares of Common Stock: the
Company had 210,785,688 shares of Common Stock outstanding and 358,303 shares of
Common Stock held in its treasury. The increase in authorized shares, and more
particularly shares of Common Stock, is necessary to cover the issuance of
shares upon the exercise of outstanding options and conversion of Series B Stock
(referred to as Series B Preferred in the Restated Certificate of
Incorporation). Options to purchase 1,550,000 shares have previously been
granted and options to purchase 5,450,000 shares are currently available for
grant. Approximately 634,900 shares of Series B Stock are outstanding which are
currently convertible into approximately 952,352 shares of Common Stock. The
additional shares of Common Stock not used for such purpose, together with the
shares of Common Stock held in the Company's treasury, will be available for
general corporate purposes, as determined by the Board, without (except as
otherwise provided by law) further authority from you. The additional shares of
Common Stock will have the same voting and other rights as the currently
authorized Common Stock. Holders of shares of Common Stock presently have no
preemptive rights and will have none in respect to the additional shares of
Common Stock. If the amendment is approved by you, it will become effective as
soon as it is filed with the Secretary of State of the State of Delaware, which
would be sometime soon after the approval of the amendment. The Board believes
that the amendment will benefit the Company and you and, thus, recommends
approval of the amendment. As required by Delaware law to submit this amendment
to you, the Board has already adopted a resolution declaring the advisability of
the amendment.
TEXT OF THE AMENDMENT
The amendment would amend the first paragraph of Article Fourth of the
Company's Certificate of Incorporation. No other parts of the Certificate of
Incorporation would be amended. After the amendment, the first paragraph of
Article Fourth would read as follows (amended language is bolded for your
convenience; such bolding, however, is not part of the amendment):
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 318,172,403 shares, of which 40,000
shares shall be class B 8% cumulative preferred stock, par value $.01 per share
and stated value of $1,000 per share (the "Class B Preferred"), 861,900 shares
shall be shares of 7.5% cumulative convertible preferred stock, par value $.01
per share and stated value of $20.00 per share (the "7.5% Preferred"), 5,000,000
shares shall be shares of additional preferred stock, par value $.01 per share
(the "Additional Preferred Stock"), 300,000,000 shares shall be common stock,
par value $.66 2/3 per share (the "Common Stock"), and 12,270,503 shares shall
be shares of class B common stock, par value $.01 per share (the "Class B Common
Stock").
VOTE REQUIRED
The affirmative vote of a majority of all outstanding Common Stock and
Series B Stock is required to approve the amendment to the Certificate of
Incorporation.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
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<PAGE> 26
PROPOSAL 3
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
GENERALLY
We are asking you to ratify the Board's selection of Arthur Andersen LLP as
the independent certified public accountants of the Company for the fiscal year
ending December 25, 1999. Although the selection of auditors does not require
ratification, we are submitting this proposal to you because the Board believes
that this matter is of such significance as to warrant your participation. If
you do not ratify the appointment, the Board, after review by the Audit
Committee, will consider the appointment of other independent certified public
accountants.
Representatives of Arthur Andersen LLP will attend the Annual Meeting to
answer your questions and to make a statement if they desire to do so.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast at the Annual Meeting,
whether in person or by proxy, is required to ratify the selection of auditors.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION AND
APPROVAL OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE
COMPANY'S AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 25, 1999.
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
If you wish to submit proposals to be presented at the 2000 Annual Meeting
of Shareholders of the Company, they must be received by the Company no later
than December , 1999 for them to be included in the Company's proxy material
for that meeting. If the Company does not receive notice of any matter that is
to come before the shareholders at the 2000 Annual Meeting of Shareholders on or
before February , 1999, which corresponds to forty-five days before the date
on which the Company first mailed this proxy statement, the proxy for the 2000
Annual Meeting of Shareholders may, pursuant to Rule 14a-4[c] of the Proxy Rules
under the Securities Exchange Act of 1934, confer discretionary authority to
vote on the matters presented.
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<PAGE> 27
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.
YOU MAY OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED DECEMBER 26, 1998 FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION 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 WRITING TO: PUBLIC RELATIONS, HANOVER DIRECT, INC., 1500
HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087.
By Order of the Board of Directors
MONTE E. WETZLER
Secretary
Dated: April , 1999
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
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<PAGE> 28
HANOVER DIRECT, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 6, 1999
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Larry J. Svoboda and Robert J. Vill, 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 Hotel Intercontinental, 111 East 48th Street, New York, New
York 10017, on Thursday, May 6, 1999, 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> 29
- Please Detach and Mail in the Envelope Provided -
[X] Please mark your
votes as in this
example.
FOR all nominees as WITHHOLD Nominees: Ralph Destino
listed at the right AUTHORITY J. David Hakman
(except as marked is vote for all nominees Rakesh K. Kaul
to the contrary) listed at right S. Lee Kling
[ ] [ ] Theodore H. Kruttschnitt
Shailesh J. Mehta
ELECTION Jan P. du Plessis
OF Alan G. Quasha
DIRECTORS Howard M.S. Tanner
Robert F. Wright
(INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in
space provided below.)
________________________________
FOR AGAINST ABSTAIN
2. Approval of an amendment to the Company's certificate [ ] [ ] [ ]
of incorporation to increase the authorized stock to
318,172,403 shares and the authorized common stock to
300,000,000 shares.
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 25, 1999.
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 name as
proxies and designate a person of your choice, and may send this Proxy directly
to such person.
SIGNATURE(S): __________________ ___________________________ DATED _______, 1999
(Signature of 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.
