<PAGE> 1
HUFFMAN KOOS INC.
ROUTE 4 AND MAIN STREET
RIVER EDGE, NEW JERSEY 07661
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about September 25, 1995
as part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9"). You are receiving this Information Statement in
connection with the possible election of persons designated by the Purchaser to
a majority of the seats on the Board of Directors of the Company (the "Board").
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
September 25, 1995. The Offer is scheduled to expire at 12:00 midnight on
October 23, 1995, New York City time, at which time, upon the expiration of the
Offer, if all conditions of the Offer have been satisfied or waived, the
Purchaser has agreed with the Company that, subject to permitted extensions of
the Offer of no more than five business days in the aggregate for the purpose of
obtaining the tender of 90 percent of the outstanding Shares, it will purchase
all Shares validly tendered pursuant to the Offer and not withdrawn. The
consummation of the Offer and the Merger pursuant to the terms of the Merger
Agreement would result in a change of control of the Company.
The information contained in this Information Statement concerning the
Parent and the Purchaser has been furnished to the Company by the Parent and the
Purchaser, and the Company assumes no responsibility for the accuracy or
completeness of such information.
BOARD OF DIRECTORS
GENERAL
The common stock, $0.01 par value per share (the "Company Common Stock"),
is the only class of voting stock of the Company outstanding. As of September
18, 1995, there were outstanding and entitled to vote 3,938,400 shares of the
Company Common Stock, each of which is entitled to one vote. An additional
140,200 shares of the Company Common Stock are issuable pursuant to outstanding
employee options, 60,100 of which are immediately exercisable. No cumulative
voting rights exist under the Company's Certificate of Incorporation. For
information regarding the ownership of the Company Common Stock by holders of
more than five percent of the outstanding shares and by the management of the
Company, see "Security Ownership of Certain Beneficial Owners and Management."
The Board is comprised of a single class. Generally, the directors are
elected at the Annual Meeting of the Stockholders of the Company and each
director elected holds office until his successor is elected and qualified. The
Board currently consists of eight members. There are no family relationships
among any directors or executive officers of the Company.
RIGHT TO DESIGNATE DIRECTORS
The Company has agreed in the Merger Agreement that, promptly upon the
purchase by the Purchaser of Shares pursuant to the Offer or the Majority Shares
pursuant to the Stockholders Agreement (unless as a result of such purchase the
Purchaser owns at least 90% of the Shares then outstanding) and from time to
time thereafter, the Purchaser shall be entitled to designate up to such number
of directors, rounded up to the next whole number, on the Board as will give the
Purchaser representation on the Board equal to the product
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of the number of directors on the Board and the ratio that the combined voting
power of the Shares so purchased bears to the total combined voting power of all
outstanding Shares on a fully-diluted basis, and, upon request by the Purchaser,
the Company shall use its best efforts either, at the Company's election, to
increase promptly the size of the Board or to secure promptly the resignation of
such number of directors as is necessary to enable the Purchaser's designees to
be elected to the Board and to cause the Purchaser's designees to be so elected.
At such times, the Company will use its best efforts to cause persons designated
by the Purchaser to constitute the same percentage as is on the board of each
committee of the Board. Notwithstanding the foregoing, the Merger Agreement
provides that the Company shall use its best efforts to ensure that two of the
members of the Board as of the date of the Merger Agreement shall remain members
of the Board until the Effective Time.
The Company's obligations to appoint the Purchaser's designees to the Board
pursuant to the Merger Agreement are subject to Section 14(f) of the Exchange
Act and Rule 14f-1 thereunder, if applicable. The Company has agreed to promptly
take all actions required pursuant to such Section and Rule in order to fulfill
its obligations under the Merger Agreement to cause a majority of the directors
of the Company to consist of the Purchaser's designees and to include in the
Schedule 14D-9 such information with respect to the Company and its officers and
directors as is required under such Section and Rule in order to fulfill such
obligations.
PURCHASER'S DESIGNEES
Pursuant to the terms of the Merger Agreement, it is expected that the
Purchaser's designees will take office as directors of the Company upon the
purchase by the Purchaser of Shares pursuant to the Offer or the Majority Shares
pursuant to the Stockholders Agreement.
The Purchaser has advised the Company that its designees will be the
persons described in the following table and has provided the information below
regarding such individuals.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- ------------------------ --- ------------------------------------------------------------
<S> <C> <C>
Michael H. Solomon...... 47 Chairman of the Board and Chief Executive Officer of
Arnold's and the Parent
Terry M. Theodore....... 32 Vice President of Kidd, Kamm Investments, Inc.
Kurt L. Kamm............ 52 President and Secretary of Kidd, Kamm Investments, Inc.
</TABLE>
Michael H. Solomon has been the Chairman of the Board and Chief Executive
Officer of Arnold's since 1994 and was named the Chairman of the Board and Chief
Executive Officer of the Parent and the Chairman of the Board of the Purchaser
in 1995. Mr. Solomon served as the President and Chief Executive Officer of
Stylus, Inc. from 1990 to 1994.
Terry M. Theodore has been a partner of KKC since 1989. Mr. Theodore serves
as a Vice President of Kidd, Kamm Investments, Inc. Mr. Theodore was named the
Secretary and a Director of the Parent and the Vice President, Secretary and a
Director of the Purchaser in 1995.
Kurt L. Kamm is the Co-Founder, Officer and Controlling Stockholder of KKC.
Mr. Kamm has served as the President, Secretary and a Director of Kidd, Kamm
Investments, Inc. since 1990. Mr. Kamm was named the Vice Chairman and a
Director of the Parent and the Treasurer and a Director of the Purchaser in
1995.
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BOARD OF DIRECTORS OF THE COMPANY
Listed below are the names, ages and principal occupations of all directors
of the Company.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ------------------------ --- ------------------------------------------------ --------------
<S> <C> <C> <C>
William Hellman......... 74 Chairman of the Board of the Company 1986
Fred Berk............... 52 President and Chief Executive Officer of the 1989
Company
Peter C.B. Bynoe........ 44 Attorney at Law, Rudnick & Wolfe 1991
Charles H. Jamison...... 55 President and Chief Operating Officer of Jupiter 1986
Michael Kurzman......... 56 Executive Vice President and Treasurer of The 1993
Lurie Company and its subsidiaries and LaSalle
Security Systems, Inc.
Philip Rootberg......... 77 Vice President and Treasurer of the Company; 1986
Senior Partner of Philip Rootberg & Company,
L.L.P., a public accounting firm
Edward W. Ross.......... 74 Chief Executive Officer of Jupiter 1986
Wallace W. Schroeder.... 70 Director of JG Industries, Inc. 1988
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation described above during the past five years.
William Hellman has been the Chairman of the Board of the Company since
1988. Mr. Hellman has served as the President of Goldblatt's Department Stores,
Inc., a wholly-owned subsidiary of JG Industries, Inc. ("JG"), since May 1993
and from February 1986 to October 1990. Mr. Hellman has also served as a
Director of Sussex since September 1984 and as the Chairman of the Board, Chief
Executive Officer and President since February 1988.
Fred Berk has been the President and Chief Executive Officer of the Company
since August 1990. Mr. Berk served as the President and Chief Operating Officer
of the Company from March 1989 to August 1990. Mr. Berk also served as the
President of the Barker Bros. division of Sussex from March 1986 to March 1989.
Peter C.B. Bynoe is an attorney with the law firm, Rudnick & Wolfe. Mr.
Bynoe serves as the Chairman of the Board and Chief Executive Officer of Telemat
Ltd. Mr. Bynoe also serves as a Director of Uniroyal Technology Corporation. Mr.
Bynoe has served as a Director of JG since 1991.
Charles H. Jamison serves as the President, Chief Operating Officer and a
Director of Jupiter. Mr. Jamison also serves as a Director of Integon
Corporation. Mr. Jamison has served as a Director of JG since 1986.
Michael Kurzman serves as the Executive Vice President and Treasurer of the
Lurie Company and its subsidiaries and LaSalle Security Systems, Inc. Mr.
Kurzman also serves as the President and a Director of Lurie Century Associates,
Lurie Columbia Associates, Inc., Randolph Jefferson, Inc. and TLC Real Estate,
Inc. Mr. Kurzman has served as a Director of JG since 1983.
Philip Rootberg has served as the Vice President and Treasurer of the
Company since 1989. Mr. Rootberg serves as the Vice President and a Director of
JG and as the Senior Executive Vice President and a Director of Jupiter. Mr.
Rootberg also serves as the Senior Partner of the public accounting firm, Philip
Rootberg & Company, L.L.P. Mr. Rootberg has served as a Director of Sussex since
1984.
Edward W. Ross serves as the Chairman of the Board, Chief Executive Officer
and a Director of Jupiter. Mr. Ross also serves as a Director of Sussex. Mr.
Ross has served as the Vice Chairman and a Director of JG since 1983.
Wallace W. Schroeder has served as a Director of JG since 1982. Mr.
Schroeder served as an outside consultant to the Company from September 1987 to
May 1988. Mr. Schroeder also served as the Vice President -- Chief Financial
Offer of the Company from July 1986 to September 1987.
The Company, the Parent and the Purchaser have agreed pursuant to the
Merger Agreement that, following the election or appointment of the Purchaser's
designees and prior to the Effective Time, (i) any amendment or termination of
the Merger Agreement by the Company or the Board, (ii) any extension by the
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Company or the Board of the time for the performance of any of the obligations
or other acts of the Parent or the Purchaser or (iii) any waiver of any of the
Company's rights under the Merger Agreement will require the concurrence of, and
will be effective if and only if approved by, a majority of the directors of the
Company then in office who were also directors of the Company as of the date of
the Merger Agreement.
It is contemplated that, except for Fred Berk, President and Chief
Executive Officer of the Company, the current directors of the Company will
resign upon the closing of the Offer.
BOARD MEETINGS -- COMMITTEES OF THE BOARD
The Board met four times during the fiscal year ended January 31, 1995. The
Board presently maintains an Audit Committee, an Executive Committee and a Stock
Option and Compensation Committee, but not a Nominating Committee.
The Executive Committee consists of Messrs. Hellman, Rootberg and Ross and
exercises the powers of the Board in certain business transactions and affairs
of the Company during the intervals between meetings of the Board. The Executive
Committee met once during the fiscal year ended January 31, 1995.
The Stock Option and Compensation Committee consists of Messrs. Hellman,
Rootberg and Ross and determines salary and bonus arrangements for all executive
officers of the Company, including the Chief Executive Officer. In addition,
stock options for officers, managers and other key employees are awarded at the
discretion of the Stock Option and Compensation Committee. The Stock Option and
Compensation Committee met once during the fiscal year ended January 31, 1995.
The Audit Committee consists of Messrs. Bynoe, Jamison and Schroeder. Its
functions include reviewing the independent auditors, recommending to the Board
the engagement and discharge of independent auditors, reviewing with the
independent auditors the plan and results of auditing engagements, approving or
ratifying each professional service provided by independent auditors and
estimated by management to cost more than 10% of the previous year's audit fee,
considering the range of audit and non-audit fees, reviewing the scope and
results of the Company's procedures for internal auditing and adequacy of
internal accounting controls and directing and supervising special
investigations. The Audit Committee met once during the fiscal year ended
January 31, 1995.
During the fiscal year ended January 31, 1995, no director attended fewer
than 75% of the aggregate of (i) the total number of meetings of the Board (held
during the period for which he has been a director) and (ii) the total number of
meetings held by all committees of the Board on which he served (during the
periods that he served).
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HOLDERS OF MORE THAN FIVE PERCENT BENEFICIAL OWNERSHIP
The following table sets forth certain information concerning the
beneficial ownership of the Company Common Stock as of September 20, 1995 by
each stockholder who is known by the Company to own beneficially in excess of 5%
of the outstanding Company Common Stock. Except as otherwise indicated, all
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persons listed below have sole voting and investment power with respect to their
shares of the Company Common Stock. The Company Common Stock constitutes the
only class of equity securities outstanding.
<TABLE>
<CAPTION>
SHARES OF COMPANY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING SHARES
- ------------------------------------------------------------ ----------------- ------------------
<S> <C> <C>
Sussex Group, Ltd........................................... 1,250,000 31.8%
1615 West Chicago Avenue
Chicago, IL 60622
Jupiter Industries, Inc..................................... 950,000 24.1%
919 North Michigan Avenue
Chicago, IL 60611
</TABLE>
BENEFICIAL OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company Common Stock as of August 31, 1995 by each
director of the Company, by each of the executive officers listed in the Summary
Compensation Table, and by all directors and executive officers of the Company
as a group. Unless otherwise noted in the footnotes following the table, the
persons as to whom the information is given have sole voting and investment
power with respect to the shares of the Company Common Stock shown as
beneficially owned.
<TABLE>
<CAPTION>
SHARES OF COMPANY PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING SHARES
- ------------------------------------------------------------ ----------------- ------------------
<S> <C> <C>
Fred Berk+*................................................. 29,000(1) **
Peter C.B. Bynoe+........................................... 0 0
William Hellman+............................................ 32,500 **
Charles Jamison+............................................ 0 0
Michael Kurzman+............................................ 0 0
Philip Rootberg+*........................................... 10,000 **
Edward W. Ross+............................................. 0 0
Wallace W. Schroeder+....................................... 1,500 **
Joseph Albanese*............................................ 7,100(2) **
John Alecci*................................................ 7,100(3) **
Timothy Costello*........................................... 4,200(4) **
Al Melchiano*............................................... 6,000(5) **
All directors and officers (8 persons)...................... 97,400(6) 2.4%
</TABLE>
- -------------------------
(1) This number includes 28,000 shares issuable upon exercise of currently
exercisable employee stock options.
(2) This number includes 6,600 shares issuable upon exercise of currently
exercisable employee stock options.
(3) This number includes 6,400 shares issuable upon exercise of currently
exercisable employee stock options.
(4) This number includes 4,200 shares issuable upon exercise of currently
exercisable employee stock options.
(5) This number includes 6,000 shares issuable upon exercise of currently
exercisable employee stock options.
(6) This number includes 51,200 shares issuable upon exercise of currently
exercisable employee stock options.
+ Director
* Executive Officer
** Less than 1%
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EXECUTIVE OFFICERS
The following provides certain information regarding the executive officers
of the Company who are appointed by and serve at the pleasure of the Board:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------ --- ------------------------------------------------------------
<S> <C> <C>
William Hellman......... 74 Chairman of the Board(1)
Fred Berk............... 52 President and Chief Executive Officer(1)
Philip Rootberg......... 77 Vice President and Treasurer(1)
Joseph Albanese......... 37 Vice President and Chief Financial Officer(2)
John Alecci............. 45 Vice President -- MIS(3)
Timothy Costello........ 47 Vice President -- Warehouse Distribution(4)
Jack Disanza............ 42 Vice President -- Store Operations(5)
Al Melchiano............ 50 Vice President -- Advertising and Marketing(6)
</TABLE>
- -------------------------
(1) See information under "Board of Directors of the Company."
(2) Joseph Albanese has been a Vice President and the Chief Financial Officer
since April 1989. Mr. Albanese served as the Controller from May 1988 to
April 1989. Mr. Albanese also served as the Controller at Belco Pollution
Control Corporation, an engineering subsidiary of Foster Wheeler
Corporation, from March 1982 to April 1988.
(3) John Alecci has been the Vice President -- MIS since April 1990. Mr. Alecci
served as a Director of MIS from November 1988 to April 1990. Mr. Alecci
also served as a Consultant for the Company from April 1988 to October 1988.
Mr. Alecci was a partner of XDS, Inc., a data processing consultant firm,
from August 1978 to December 1986. From January 1987 to November 1988, Mr.
Alecci was an independent data processing consultant.
(4) Timothy Costello has been the Vice President -- Warehouse Distribution since
April 1989. Mr. Costello served as Director of Warehouse Distribution from
April 1988 to April 1989. Mr. Costello also served as the Regional
Distribution Manager for Midas International, an automobile aftermart
manufacturer, from April 1984 to April 1988.
(5) Jack Disanza has been the Vice President -- Store Operations since December
1994. Mr. Disanza served as the Vice President -- Store Operations for
General Vision Services Corp. from September 1993 to November 1994. Mr.
Disanza also served as the Vice President -- Store Operations for Duty Free
Shoppers, Ltd. from December 1990 to September 1994. From April 1985 to
December 1990, Mr. Disanza was the Vice President of Stores for The Fur
Vault Inc.
(6) Al Melchiano has been the Vice President -- Advertising and Marketing since
July 1991. Mr. Melchiano served as the President of Showcase Interiors from
April 1990 to June 1991. Mr. Melchiano also served as the General Manager of
Cabot House from January 1989 to March 1990. From January 1986 to December
1988, Mr. Melchiano was the President of Rapids Furniture Company.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid or accrued by the Company to or on behalf of the Company's Chief Executive
Officer and each of the four other highest compensated executive officers of the
Company (determined as of the end of the last fiscal year) for the fiscal years
ended January 31, 1995, 1994 and 1993 (the "Named Executive Officers").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS
SECURITIES ALL OTHER
SALARY BONUS UNDERLYING COMPENSATION(3)
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS(#) ($)
- ----------------------------------------- ---- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Fred Berk(1)............................. 1995 $241,667 $109,667 20,000 $ 7,965
President and Chief 1994 198,333 87,570 10,000 5,396
Executive Officer 1993 185,000 66,258 -- 4,020
Al Melchiano(2).......................... 1995 110,833 44,639 5,000 10,325
Vice President -- 1994 101,750 38,920 5,000 5,761
Marketing and Advertising 1993 97,084 29,448 5,000 6,338
Joseph Albanese(2)....................... 1995 100,833 44,639 5,000 9,777
Vice President -- 1994 91,750 38,920 5,000 2,632
Chief Financial Officer 1993 87,333 29,448 2,000 508
Timothy Costello(2)...................... 1995 100,833 44,639 5,000 10,002
Vice President -- 1994 91,750 38,920 5,000 2,825
Warehouse Distribution 1993 87,333 29,448 1,000 567
John Alecci(2)........................... 1995 93,333 44,639 5,000 9,962
Vice President -- MIS 1994 84,167 38,920 5,000 2,673
1993 78,667 29,448 3,000 543
</TABLE>
- -------------------------
(1) Fred Berk entered into an employment agreement with the Company as of August
5, 1990 providing for his employment as the President and Chief Executive
Officer. On March 31, 1994, Mr. Berk's contract was extended for a
three-year term effective April 1, 1994 at a base salary of $250,000, plus a
share of the Company's bonus pool. The contract was amended on April 30,
1995 to provide certain benefits in the event there is a change in ownership
or control of the Company and to increase Mr. Berk's base salary to
$275,000, plus a share of the Company's bonus pool. In the event of a change
in ownership or control of the Company, if either the Company or Mr. Berk
chooses to terminate the existing employment contract, Mr. Berk is entitled
to a sum equal to twenty-four months salary as severance pay. In the event
the Company and Mr. Berk cannot mutually agree on an extension prior to the
end of the agreement, he will receive as severance pay a sum equal to six
months salary.
(2) The Company and this employee have entered into a severance agreement
providing certain benefits to the employee if ownership or control of the
Company changes and the employee's employment terminates within a specified
time period. In such case, each employee's employment terminates within a
specified time period. In such case, the employee is entitled to a sum equal
to twelve months salary as severance pay.
(3) The amounts shown represent Company contributions to the account of the
Named Executive Officer pursuant to the Company's 401(k) plan, car
allowances and the cost of group term life insurance in excess of $50,000.
OPTIONS
The following table provides certain information concerning individual
grants of stock options under the Option Plan (as hereinafter defined) made
during the fiscal year ended January 31, 1995 to each of the Named Executive
Officers.
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OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
NUMBER OF % OF TOTAL EXERCISE RATES OF STOCK
SECURITIES OPTIONS OR BASE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN ($ PER EXPIRATION -------------------
NAME GRANTED FISCAL YEAR SHARE) DATE 5%($) 10%($)
- ---------------------------------- --------- ------------ -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Fred Berk......................... 20,000 38.5% $ 7.94 3/31/04 $99,800 $253,000
Al Melchiano...................... 5,000 9.6% 7.94 3/31/04 24,950 63,250
Joseph Albanese................... 5,000 9.6% 7.94 3/31/04 24,950 63,250
Timothy Costello.................. 5,000 9.6% 7.94 3/31/04 24,950 63,250
John Alecci....................... 5,000 9.6% 7.94 3/31/04 24,950 63,250
</TABLE>
- -------------------------
(1) The Option Plan provides that the optionee may purchase 20% of the shares of
stock on and after the first anniversary of the date of issuance and after
each of the four succeeding anniversaries of that date.
(2) Based upon the per share market price on the date and an annual appreciation
at the rate stated of such market through the expiration date of such stock
options. Gains, if any, are dependent upon the actual performance of the
Company Common Stock, as well as the continued employment of the executive
officers through the vesting period. There is no assurance that the stock
price will appreciate at the rates shown in the table. The potential
realizable values indicated have not taken into account amounts required to
be paid as income tax under the Internal Revenue Code and any applicable
state laws.
The following table provides certain information concerning each exercise
of stock options under the Option Plan during the fiscal year ended January 31,
1995 by each of the Named Executive Officers and the fiscal year end value of
unexercised stock options held by such persons under the Option Plan:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS
ACQUIRED VALUE (#) AT FISCAL YEAR END ($)(1)
ON EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fred Berk.................... -- -- 22,000 33,000 $ 133,000 $44,500
Al Melchiano................. -- -- 3,000 12,000 11,500 21,000
Joseph Albanese.............. -- -- 4,200 10,800 21,100 15,900
Timothy Costello............. -- -- 2,000 10,400 7,700 14,200
John Alecci.................. -- -- 3,800 11,200 17,900 17,600
</TABLE>
- -------------------------
(1) Dollar values were calculated by determining the difference between the fair
market value of the underlying securities at fiscal year end and the
exercise price of the stock options.
The Company has agreed in the Merger Agreement that, except as otherwise
requested by the Parent and for rights outstanding under the Option Plan, the
Company shall use its reasonable efforts to purchase all outstanding stock
options with respect to the Company Common Stock prior to the expiration of the
Offer, at a price, with respect to each such stock option, equal to the positive
difference, if any, of (x) the product of (i) the aggregate number of shares of
the Company Common Stock subject to such stock option (without regard to any
vesting schedule that might otherwise apply) times (ii) the Offer Price, minus
(y) the aggregate exercise price for all of the shares of the Company Common
Stock subject to such stock option (without regard to any vesting schedule that
might otherwise apply). The Stock Option and Compensation Committee of the Board
has approved the termination of the Option Plan and the purchase or termination
of outstanding stock options issued thereunder as contemplated by the Merger
Agreement.
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<PAGE> 9
1986 STOCK OPTION PLAN
On August 29, 1986, the Company's Board adopted the Company's 1986 Stock
Option Plan which was approved by the Company's sole shareholder, Sussex, on
August 19, 1986, and amended and restated in November 1990 (the "Option Plan").
The Option Plan, as amended by the stockholders at the June 21, 1994 annual
meeting, permits the granting of options to officers and key employees of the
Company to purchase up to an aggregate of 400,000 shares of the Company Common
Stock, subject to adjustment under certain circumstances. One or all such stock
options may be "incentive stock options" within the meaning of the Internal
Revenue Code, as amended. All stock options granted under the Option Plan have
an exercise price of not less than the fair market value of the shares on the
date of grant. As of August 31, 1995, 140,200 shares of the Company Common Stock
were subject to outstanding options, and there were 33 participants.
The Option Plan is administered by the Stock Option and Compensation
Committee of the Board which has sole authority to determine, among other
things, the persons to whom options will be granted and the time or times when
options become exercisable.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
See "Executive Compensation."
In a memorandum of understanding addressed to Fred Berk (the "Berk
Understanding"), the Parent has, through its affiliate Arnold's, indicated its
desire that the Surviving Corporation continue to employ Mr. Berk after
consummation of the Merger. The Berk Understanding provides that Mr. Berk will
be elected to the Board of the Parent and appointed the President and Chief
Operating Officer of the Parent and will continue to serve as the President and
Chief Executive Officer of the Company as the Surviving Corporation after the
Merger. The Berk Understanding also provides that Mr. Berk's base salary shall
be $325,000 per annum (the "Berk Base Salary"). In addition, Mr. Berk will be
eligible to earn an annual bonus of up to 75% of the Berk Base Salary for
achieving the Surviving Corporation's annual earnings before interest, taxes,
depreciation and amortization ("EBITDA") target. Further, Mr. Berk will be
eligible to earn an additional 1% of the Berk Base Salary for each 1% by which
the Surviving Corporation's actual annual EBITDA exceeds its annual EBITDA
target. Mr. Berk will also be eligible to participate in the Parent's
management stock option plan (the "Parent Management Stock Option Plan"). The
Parent Management Stock Option Plan will be effected shortly after consummation
of the Merger, and the Board of Directors of the Parent has authorized up to 5%
of the stock of the Parent for inclusion in the Parent Management Stock Option
Plan. A copy of the Berk Understanding has been filed as Exhibit 6A to this
Schedule 14D-9.
In letters of understanding addressed to Joseph Albanese, John Alecci,
Timothy Costello, Jack Disanza and Al Melchiano, the Parent has, through its
affiliate Arnold's, indicated its desire that the Surviving Corporation
continue to employ Messrs. Albanese, Alecci, Costello, Disanza and Melchiano
after consummation of the Merger, in each case upon the terms suggested
therein.
The letter of understanding with Joseph Albanese (the "Albanese
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Albanese Understanding at least 60
days prior to the end of the applicable year (the "Albanese Employment
Period"). During the Albanese Employment Period, Mr. Albanese's base salary
shall be $115,000 per annum (the "Albanese Base Salary"). In addition, Mr.
Albanese will be eligible to earn an annual bonus of up to 50% of the Albanese
Base Salary for achieving the Surviving Corporation's annual EBITDA target.
Further, Mr. Albanese will be eligible to earn an additional 1% of the Albanese
Base Salary for each 1% by which the Surviving Corporation's actual annual
EBITDA exceeds its annual EBITDA target. Mr. Albanese will also be eligible to
participate in the Parent Management Stock Option Plan. The Parent Management
Stock Option Plan will be effected shortly after consummation of the Merger,
and the Board of Directors of the Parent has authorized up to 5% of the stock
of the Parent for inclusion in the Parent Management Stock Option Plan. A copy
of the Albanese Understanding has been filed as Exhibit 6B to this Schedule
14D-9.
The letter of understanding with John Alecci (the "Alecci
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice
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<PAGE> 10
of its intention not to renew the Alecci Understanding at least 60 days
prior to the end of the applicable year (the "Alecci Employment Period").
During the Alecci Employment Period, Mr. Alecci's base salary shall be $107,000
per annum (the "Alecci Base Salary"). In addition, Mr. Alecci will be eligible
to earn an annual bonus of up to 50% of the Alecci Base Salary for achieving
the Surviving Corporation's annual EBITDA target. Further, Mr. Alecci will be
eligible to earn an additional 1% of the Alecci Base Salary for each 1% by
which the Surviving Corporation's actual annual EBITDA exceeds its annual
EBITDA target. Mr. Alecci will also be eligible to participate in the Parent
Management Stock Option Plan. The Parent Management Stock Option Plan will be
effected shortly after consummation of the Merger, and the Board of Directors
of the Parent has authorized up to 5% of the stock of the Parent for inclusion
in the Parent Management Stock Option Plan. A copy of the Alecci Understanding
has been filed as Exhibit 6C to this Schedule 14D-9.
The letter of understanding with Timothy Costello (the "Costello
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Costello Understanding at least 60
days prior to the end of the applicable year (the "Costello Employment
Period"). During the Costello Employment Period, Mr. Costello's base salary
shall be $115,000 per annum (the "Costello Base Salary"). In addition, Mr.
Costello will be eligible to earn an annual bonus of up to 50% of the Costello
Base Salary for achieving the Surviving Corporation's annual EBITDA target.
Further, Mr. Costello will be eligible to earn an additional 1% of the Costello
Base Salary for each 1% by which the Surviving Corporation's actual annual
EBITDA exceeds its annual EBITDA target. Mr. Costello will also be eligible to
participate in the Parent Management Stock Option Plan. The Parent Management
Stock Option Plan will be effected shortly after consummation of the Merger,
and the Board of Directors of the Parent has authorized up to 5% of the stock
of the Parent for inclusion in the Parent Management Stock Option Plan. A copy
of the Costello Understanding has been filed as Exhibit 6D to this Schedule
14D-9.
The letter of understanding with Jack Disanza (the "Disanza
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Disanza Understanding at least 60 days
prior to the end of the applicable year (the "Disanza Employment Period").
During the Disanza Employment Period, Mr. Disanza's base salary shall be
$115,000 per annum (the "Disanza Base Salary"). In addition, Mr. Disanza will
be eligible to earn an annual bonus of up to 50% of the Disanza Base Salary for
achieving the Surviving Corporation's annual EBITDA target. Further, Mr.
Disanza will be eligible to earn an additional 1% of the Disanza Base Salary
for each 1% by which the Surviving Corporation's actual annual EBITDA exceeds
its annual EBITDA target. Mr. Disanza will also be eligible to participate in
the Parent Management Stock Option Plan. The Parent Management Stock Option
Plan will be effected shortly after consummation of the Merger, and the Board
of Directors of the Parent has authorized up to 5% of the stock of the Parent
for inclusion in the Parent Management Stock Option Plan. A copy of the Disanza
Understanding has been filed as Exhibit 6E to this Schedule 14D-9.
The letter of understanding with Al Melchiano (the "Melchiano
Understanding") dated September 7, 1995 provides for a term of one year with
automatic one year extensions unless the Surviving Corporation provides written
notice of its intention not to renew the Melchiano Understanding at least 60
days prior to the end of the applicable year (the "Melchiano Employment
Period"). During the Melchiano Employment Period, Mr. Melchiano's base salary
shall be $122,000 per annum (the "Melchiano Base Salary"). In addition, Mr.
Melchiano will be eligible to earn an annual bonus of up to 50% of the
Melchiano Base Salary for achieving the Surviving Corporation's annual EBITDA
target. Further, Mr. Melchiano will be eligible to earn an additional 1% of the
Melchiano Base Salary for each 1% by which the Surviving Corporation's actual
annual EBITDA exceeds its annual EBITDA target. Mr. Melchiano will also be
eligible to participate in the Parent Management Stock Option Plan. The Parent
Management Stock Option Plan will be effected shortly after consummation of the
Merger, and the Board of Directors of the Parent has authorized up to 5% of the
stock of the Parent for inclusion in the Parent Management Stock Option Plan. A
copy of the Melchiano Understanding has been filed as Exhibit 6F to this
Schedule 14D-9.
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<PAGE> 11
COMPENSATION OF COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Stock Option and Compensation Committee has performed the function of
determining executive officer compensation. During the fiscal year ended January
31, 1995, the Stock Option and Compensation Committee was comprised of three
members, two of whom are also officers and one who is a non-employee of the
Company. William Hellman, Chairman of the Board, and Philip Rootberg, Vice
President and Treasurer, each serve on the Stock Option and Compensation
Committee. Edward Ross also serves as Chairman of the Stock Option and
Compensation Committee. This Committee met once in fiscal 1995.
COMPENSATION OF DIRECTORS
Each Director who is not an officer of the Company receives an annual fee
of $5,000 plus $500 for each Board meeting attended, and is also compensated for
all committee meetings at a rate equal to one-half of that set from time to time
for Board meetings. Outside directors may also be compensated for attendance at
meetings with the executives of the Company and for related services on behalf
of the Company, in the discretion of the Executive Committee.
The Board established a Special Committee of the Board of Directors
(the "Special Committee") to help the Board review the Company's strategic
alternatives, and subsequent to the Company's public announcement that it had
retained The Chicago Corporation to advise it in considering the possible sale
of the Company, the Special Committee assisted the Board in conducting the sale
process. In connection with their services as members of the Special Committee,
the Company will pay directors Peter C.B. Bynoe and Michael Kurzman each a fee
of $10,000.
BOARD STOCK OPTION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board's Stock Option and Compensation Committee determines salary and
bonus arrangements for all executive officers of the Company, including the
Chief Executive Officer.
Compensation of store managers and buyers consists of a base salary, which
is related to the size of the profit center managed, plus a bonus based on a
pre-set formula related to sales and gross margins produced by such profit
center. Compensation of other department managers consists of a base salary
which is related to the duties and responsibilities of the position consistent
with industry and regional pay guides.
The Chief Executive Officer's compensation, as well as that of the next
four most highly compensated officers, is comprised of a base salary which is
directly related to the responsibilities of the position and a bonus based on a
pre-set formula related to annual pre-tax profits. The Chief Executive Officer
and the four most highly compensated officers which comprise the executive staff
work together as a corporate team and bear the principal burden of corporate
management decisions -- the Chief Executive Officer, of course, bearing final
responsibility. Thus, the executive staff participates in a separate and more
heavily weighted bonus award. Determination of executive staff bonuses is made
only after all store managers and buyers bonuses have been computed and deducted
from pre-tax earnings. From the remaining profit before taxes, a bonus pool is
created for payment to the executive staff. Total bonuses accrued in fiscal 1995
for the executive staff, store managers and buyers amounted to $412,000.
The compensation of the Chief Executive Officer is directly related to the
performance and profitability of the Company. A significant portion of the Chief
Executive Officer's compensation is based on his bonus which is directly related
to the pre-tax profits of the Company. For fiscal 1995, the bonus of the Chief
Executive Officer increased 25% while the pre-tax profits of the Company
increased 21%.
Based upon a review of publicly available information on regional companies
reporting comparable amounts of annual gross revenues, the Stock Option and
Compensation Committee believes that the cash compensation (salary and bonus)
paid to the Chief Executive Officer of the Company is comparable to the
compensation of the chief executive officers of such regional companies.
The Company has maintained employee compensation programs designed to
compensate its officers, managers and other key employees in relationship to the
profitability of the Company through its bonus
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<PAGE> 12
programs. In addition, stock options for officers, managers and other key
employees are awarded at the discretion of the Board's Stock Option and
Compensation Committee. The stock option program is designed to give additional
incentive to the officers, managers and other key employees to enhance the value
of the Company to all shareholders.
William Hellman
Philip Rootberg
Edward Ross
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STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company Common Stock against the
cumulative total return of the NASDAQ Stock Market Index and the NASDAQ Retail
Trade Index for the period of five years commencing January 31, 1990 and ending
January 31, 1995. The graph assumes that the value of the investments in the
Company Common Stock and each index was $100 on January 31, 1990.
COMPARISON OF FIVE YEAR TOTAL RETURN AMONG
HUFFMAN KOOS INC.
NASDAQ STOCK MARKET AND
NASDAQ RETAIL TRADE INDICES
<TABLE>
<CAPTION>
NASDAQ
MEASUREMENT PERIOD NASDAQ STOCK RETAIL TRADE
(FISCAL YEAR COVERED) HUFFMAN KOOS MARKET INDEX STOCKS
<S> <C> <C> <C>
1990 100 100 100
1991 58 102 120
1992 125 156 210
1993 358 176 189
1994 433 203 203
1995 483 180 192
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities to file with
the Securities Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of the Company Common Stock and other equity
securities of the Company. Executive officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms which they file.
To the Company's knowledge, based solely on review of information furnished
to the Company, reports filed through the Company and representations that no
other reports were required, all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than ten percent beneficial owners
were complied with during the fiscal year ended January 31, 1995.
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<PAGE> 14
CERTAIN TRANSACTIONS
The Company participates in the Sussex and JG medical, casualty, property
and liability insurance programs. The Company's annual cost of insurance during
the year ended January 31, 1995 (fiscal 1995) was approximately $2,621,000.
JG charges the Company for administration services performed on behalf of
the Company. Charges for such services for fiscal 1995 were $768,000.
Effective October 28, 1993, JG, Sussex and Jupiter entered into a Stock
Purchase and Loan Agreement. Under the terms of the agreement, JG, through
Sussex, borrowed $5,075,000 from Jupiter on October 29, 1993. The note was
repaid per the terms of the agreement on February 4, 1994 by the transfer of
700,000 shares of the Company Common Stock from Sussex to Jupiter, along with
interest at the prime rate. Effective November 30, 1994, Sussex and Jupiter
entered into a Stock Purchase Agreement whereby Sussex sold an additional
100,000 shares of the Company Common Stock to Jupiter for $800,000. As a result
of the transactions described above, Sussex and Jupiter now own approximately
35.6% and 20.3% of the Company Common Stock, respectively.
The Stock Purchase and Loan Agreement and Stock Purchase Agreement (the
"Agreements") contain an option which allows Sussex to repurchase any or all of
the 800,000 shares on or prior to February 4, 1996 at a purchase price ranging
from $7.25 to $8.00 per share, plus interest. The Agreements also contain a
provision which requires Jupiter to vote the 800,000 shares of the Company
Common Stock for the election of a majority of the Board as Sussex shall direct.
As a result of this voting provision, JG, through Sussex, retained effective
control of the Company.
14
