<PAGE>
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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
NATURAL WONDERS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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>
[logo]
NATURAL WONDERS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 25, 1999
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend
the Annual Meeting of Stockholders of Natural Wonders, Inc., a Delaware
corporation (the "Company"), to be held on May 25, 1999 at 9:00 a.m. at the
principal offices of the Company, located at 4209 Technology Drive, Fremont,
California 94538, for the following purposes:
1. To elect one (1) Class III director to hold office until the 2002
Annual Meeting of Stockholders and until his respective successor is
elected and qualified.
2. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of the Company for the fiscal year ending January 29, 2000.
3. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on April 13, 1999 are
entitled to notice of, and to vote at, this meeting and any continuation or
adjournments thereof.
By Order of the Board of Directors
/s/ Peter G. Hanelt
PETER G. HANELT
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHIEF FINANCIAL OFFICER
Fremont, California
April 22, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND
PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN ENVELOPE SO THAT YOUR SHARES
MAY BE REPRESENTED AT THE MEETING.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
VOTING RIGHTS......................................................................1
NOMINATION AND ELECTION OF DIRECTORS...............................................2
Meetings of the Board of Directors and Committees.............................3
Compensation of Directors.....................................................4
APPOINTMENT OF INDEPENDENT AUDITORS................................................5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....................6
EXECUTIVE OFFICERS OF THE COMPANY..................................................9
EXECUTIVE OFFICER COMPENSATION AND OTHER MATTERS..................................11
Compensation of Executive Officers...........................................11
Stock Options Granted in Fiscal 1998.........................................13
Option Exercises and Fiscal 1998 Year-End Values.............................14
Employment Contracts and Change of Control Arrangements......................15
Compliance with Section 16(a) of the Securities Exchange Act of 1934.........16
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION....................17
Overview and Policies for Fiscal Year 1998...................................17
Chief Executive Officer Compensation.........................................18
Deductibility of Executive Compensation......................................19
COMPARISON OF STOCKHOLDER RETURN..................................................20
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING......................21
TRANSACTION OF OTHER BUSINESS.....................................................21
</TABLE>
<PAGE>
PROXY STATEMENT
1999 ANNUAL MEETING OF STOCKHOLDERS
NATURAL WONDERS, INC.
4209 TECHNOLOGY DRIVE
FREMONT, CALIFORNIA 94538
(510) 252-9600
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of Natural Wonders, Inc., a Delaware
corporation (the "Company"), of Proxies for use at the Annual Meeting of
Stockholders to be held on May 25, 1999, or any adjournment thereof (the "Annual
Meeting"), for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders. This Proxy Statement and accompanying Proxy are first
being sent to stockholders on approximately April 22, 1999. The cost of the
solicitation of Proxies will be borne by the Company. The Board may use the
services of the Company's directors, officers and others to solicit Proxies,
personally or by telephone. The Board may also arrange with brokerage houses and
other custodians, nominees and fiduciaries to forward solicitation material to
the beneficial owners of the stock held of record by such persons and the
Company may reimburse them for their reasonable out-of-pocket expenses incurred
in so doing. The Annual Report for the fiscal year ended January 30, 1999
("Fiscal 1998"), including financial statements, is being mailed to stockholders
concurrently with the mailing of this Proxy Statement.
VOTING RIGHTS
The voting securities of the Company entitled to vote at the Annual
Meeting consist of shares of Common Stock. Only stockholders of record at the
close of business on April 13, 1999 are entitled to notice of and to vote at the
Annual Meeting. On that date, there were 7,951,392 shares of the Company's
Common Stock outstanding. Each share of Common Stock is entitled to one vote.
The Company's Bylaws provide that a majority of all of the shares of the stock
entitled to vote, whether present in person or by Proxy, shall constitute a
quorum for the transaction of business at the meeting. If an executed Proxy is
submitted without any instruction for the voting of such Proxy, the Proxy will
be voted in favor of the proposals described.
All shares represented by valid Proxies received prior to the Annual
Meeting will be voted and, where a stockholder specifies by means of the Proxy a
choice with respect to any matter to be acted upon, the shares will be voted in
accordance with the specifications so made. A stockholder who signs and returns
a Proxy will have the power to revoke it at any time before it is voted. A Proxy
may be revoked by filing with the President of the Company a written revocation
or duly executed Proxy bearing a later date, or by appearing at the Annual
Meeting and electing to vote in person.
Proposals of stockholders that are intended to be presented at the
Company's 2000 Annual Meeting of Stockholders must be received by the Company
not later than February 9, 2000.
1
<PAGE>
PROPOSAL ONE
NOMINATION AND ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three
classes, with the classes serving for staggered three year terms. Currently,
there is one director in Class III (and one vacancy), and two directors each in
Class I and Class II. One Class III director is to be elected at the Annual
Meeting, whose term will then expire at the Annual Meeting of Stockholders in
2002. The term of each Class I director will expire at the Annual Meeting of
Stockholders in 2000. The term of each Class II director will expire at the
Annual Meeting of Stockholders in 2001.
The Board's nominee for election as Class III director at the Annual
Meeting is Pearson C. Cummin III, the current Class III member of the Board of
Directors. If elected, the nominee will serve as director until the earlier to
occur of (i) the Company's Annual Meeting of Stockholders in 2002; or (ii) his
resignation or the vacancy of his office as a result of death, removal, or other
cause in accordance with the Bylaws of the Company. The Board knows of no reason
why the nominee should be unable or unwilling to serve. However, if the nominee
should for any reason be unable or unwilling to serve, the Proxies will be voted
for such substitute nominee as Management may designate. Proxies may not be
voted for more than one nominee.
THE BOARD RECOMMENDS A VOTE "FOR" THE NOMINEE LISTED HEREIN. If a
quorum is present and voting, the nominee for Class III director receiving the
highest number of votes will be elected as a Class III director. Abstentions and
broker non-votes will be counted as present for purposes of determining if a
quorum is present. Abstentions will have the same effect as a negative vote.
Broker non-votes will have no effect on the vote.
The name of the Class III nominee for director and certain information
about him is set forth below. The names of directors and certain information
about the Class I and Class II directors with unexpired terms are also set forth
below.
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE COMPANY AGE DIRECTOR SINCE
- ----------------------------------- ------------------------------------------------- ---------- -----------------
<S> <C> <C> <C>
NOMINEE FOR CLASS III DIRECTOR:
Pearson C. Cummin III Director and Chairman of the Board 56 1988
CONTINUING CLASS II DIRECTORS WHOSE TERMS WILL EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS IN 2001:
Peter G. Hanelt Chief Executive Officer, President, 53 1997
Chief Financial Officer and Director
Julius Jensen III Director 65 1996
CONTINUING CLASS I DIRECTORS WHOSE TERMS WILL EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS IN 2000:
Peter L. Harris Director 55 1997
David H. Folkman Director 64 1998
</TABLE>
2
<PAGE>
PEARSON C. CUMMIN III has served as Chairman of the Board since
March 1997 and a director of the Company since July 1988. Mr. Cummin has
served as a general partner of Consumer Venture Partners, a venture capital
investment firm since January 1986. Mr. Cummin is a director of Pacific
Sunwear of California, Inc. and of Boston Beer Company, Inc.
PETER G. HANELT has served as a director of the Company since March
1997 and was appointed Chief Executive Officer and Chief Financial Officer
effective October 19, 1998, and President effective April 6, 1999. Mr. Hanelt
was appointed Interim Chief Executive Officer and Interim President effective
May 1, 1998 through October 19, 1998. Additionally, Mr. Hanelt served as Acting
Chief Financial Officer and Acting Chief Operating Officer of the Company from
January 22, 1998 to October 19, 1998. In 1997, Mr. Hanelt served as a Retail and
Wholesale Consumer Products Consultant. Mr. Hanelt served as Chief Operating
Officer and Chief Financial Officer of Esprit De Corp, an apparel manufacturer,
wholesaler and retailer, from October 1993 to February 1997, and as President,
Retail Division of Esprit De Corp from August 1995 to April 1996. Also, Mr.
Hanelt served as Vice President, Finance and Operations of Saint Francis
Memorial Hospital, a private teaching hospital from September 1992 to October
1993, and Acting Chief Operating Officer and Chief Financial Officer of Post
Tool, Inc., a retailer of power and hand tools, from August 1990 to September
1992. Mr. Hanelt serves as a director on the board of directors of the Shoe
Pavilion, Inc., Iwerks Entertainment, Inc., Patelco Credit Union and InterHealth
Nutraceuticals, Incorporated.
DAVID H. FOLKMAN has served as a director of and a consultant to the
Company since February 1998. Mr. Folkman was appointed President October 19,
1998 and resigned April 6, 1999. He continues to serve as a director of the
Company. Mr. Folkman has served as Principal of Regent Pacific Management
Corp., a retail consulting firm, since January 1991. Additionally, Mr.
Folkman served as Chief Executive Officer and President of Esprit De Corp, an
apparel manufacturer, wholesaler and retailer, from March 1993 to July 1995.
Mr. Folkman served as General Partner of U.S. Venture Partners, a venture
capital investment firm, from April 1987 to December 1990 and as Chief
Executive Officer and President of The Emporium from March 1982 to March
1987. Mr. Folkman serves as a director on the board of directors of the Shoe
Pavilion, Inc.
PETER L. HARRIS has served as a director of the Company since January
1997. Mr. Harris has served as Chairman, Chief Executive Officer and President
of The Picture People, a family portrait studio chain, since August 1995.
Previously, Mr. Harris served as Chairman and Chief Executive Officer of
Accolade, Inc., a publisher of interactive entertainment software, from May 1994
to August 1995. He has also served as President of Phoenix Retailing since July
1992, as President and Chief Executive Officer of FAO Schwarz from August 1985
to July 1992 and as President of Gemco Department Stores from February 1980 to
September 1984. Mr. Harris is a director of On-Sale, Inc. and Pacific Sunwear of
California, Inc.
JULIUS JENSEN III has served as a director of the Company since
February 1996. Mr. Jensen has served as a general partner of Copley Venture
Partners, a venture capital investment firm since April 1982. Mr. Jensen is a
director of Pacific Sunwear of California, Inc.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During Fiscal 1998, the Board of Directors held seven meetings. The
Board of Directors has two standing committees: the Audit Committee and the
Compensation Committee. The Company does not have a nominating committee of the
Board. No director attended fewer than 75% of the Board meetings or meetings of
the Committee upon which such director served.
The members of the Audit Committee are Pearson C. Cummin III and Julius
Jensen III. The functions of the Audit Committee include (i) recommending the
independent auditors to the Board, (ii) reviewing and approving the planned
scope of the annual audit, proposed fee arrangements and the results of the
annual audit, (iii) reviewing the annual and quarterly financial reports with
the auditors and management, and (iv) setting the scope and
3
<PAGE>
reviewing the results of the internal audit function. Two face-to-face
meetings of the Audit Committee were held in Fiscal 1998. In addition, the
Audit Committee convened quarterly telephone meetings.
The members of the Compensation Committee are Pearson C. Cummin III,
Julius Jensen III and Peter L. Harris. The function of the Compensation
Committee is to make recommendations concerning salary and incentive
compensation for officers and employees of the Company. One telephone meeting of
the Compensation Committee was held in Fiscal 1998.
COMPENSATION OF DIRECTORS
Two of the Company's directors, Pearson C. Cummin III and Julius Jensen
III, did not receive any cash compensation for their services as members of the
Board of Directors during Fiscal 1998. Mr. Cummin was granted 7,500 shares of
common stock from repurchased treasury shares for his additional time spent
searching for a Chief Executive Officer. Three of the Company's directors, Peter
G. Hanelt, Peter L. Harris, and David H. Folkman, had compensation agreements
for their services as members of the Board of Directors whereby they are paid
$3,000 per fiscal quarter, plus $500 per in person committee meeting they
attend. Mr. Hanelt and Mr. Folkman did not receive compensation for their
services as directors, after they became executive officers on October 19, 1998.
As a result, total cash compensation for Mr. Hanelt was $9,571, Mr. Folkman was
$ 8,571 and Mr. Harris was $12,000. The Company also reimburses its Directors
for expenses incurred in attending each Board and Committee meeting. In Fiscal
1998, Mr. Hanelt also received consulting fees totaling $268,500, for services
performed prior to October 19, 1998 as Acting Chief Operating Officer and Acting
Chief Financial Officer. Mr. Folkman also received fees totaling $205,300,
including expenses, for services performed as a merchandising consultant, prior
to October 19, 1999.
The Company's 1993 Outside Directors Stock Option Plan (the "Directors
Plan") provides that upon initial election to the Board, each new non-employee
director will receive a one-time grant of an option to purchase 12,000 shares of
the Company's Common Stock. The Directors Plan also provides for subsequent
grants to each non-employee director, on each anniversary date of the initial
grant, of an option to purchase 4,000 shares of Common Stock. The exercise price
of all options granted to directors has been at fair market value at the date of
grant, and the options vest over three years. Mr. Hanelt and Mr. Folkman
received additional option grants, under the Directors Plan, while they worked
as consultants. Mr. Hanelt was granted options to purchase a total of 39,443
shares and Mr. Folkman 25,414 shares.
4
<PAGE>
PROPOSAL TWO
APPOINTMENT OF INDEPENDENT AUDITORS
The Board has selected Deloitte & Touche LLP to serve as independent
auditors to audit the financial statements of the Company for the fiscal year
ending January 29, 2000. Deloitte & Touche LLP has acted in such capacity since
its appointment for fiscal 1988. Representatives of Deloitte & Touche LLP will
be present at the Annual Meeting, will be given the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NUMBER TWO. In the event
that ratification by the stockholders of the appointment of Deloitte & Touche
LLP as the Company's independent auditors is not obtained, the Board will
reconsider such appointment.
The affirmative vote of a majority of the votes cast at the Annual
Meeting, at which a quorum representing a majority of all outstanding shares of
Common Stock of the Company is present and voting, either in person or by Proxy,
is required for approval of this proposal. Abstentions and broker non-votes will
be counted as present for purposes of determining if a quorum is present.
Abstentions will have the same effect as a negative vote. Broker non-votes will
have no effect on the vote.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1999, by (i) each person
(or group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the outstanding Common Stock of the Company, (ii) each of the
Company's directors, (iii) the Named Executive Officers (as defined below), and
(iv) all current directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Amount Percent of
Name of Beneficial Owner or Group of Beneficial Common Stock
and Nature of Beneficial Ownership(1) Ownership Outstanding
- ------------------------------------- ------------- ------------
<S> <C> <C>
Centennial Associates, L.P.(2) 1,173,274 14.8%
900 Third Avenue
New York, NY 10022
Consumer Venture Partners I, L.P. (3) 996,487 12.5%
Three Pickwick Plaza
Greenwich, CT 06830
Robert S. Rubenstein (4) 878,704 11.1%
2341 El Camino Real
Redwood City, CA 94063
Norwest Equity Partners IV (5) 678,900 8.5%
2800 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Grace & White (6) 653,900 8.2%
515 Madison Ave, Suite 1700
New York, NY 10022
Copley Partners 2, L.P. (7) 409,074 5.1%
Federal Reserve Plaza
600 Atlantic Plaza, 13th Floor
Boston, MA 02110
Pearson C. Cummin III (8) 1,020,488 13.1%
Julius Jensen III (9) 459,174 6.0%
Peter G. Hanelt (10) 32,984 *
David H. Folkman (11) 26,000 *
Peter L. Harris (12) 9,334 *
Kenneth G. Norton (13) 2,124 *
William J. Soncini (14) 6,667 *
6
<PAGE>
Ronald J. Rouse -- --
Denise A. Ellwood -- --
John P. de Benedictis (15) 7,900 *
Charles E. Reynolds (16) 5,500 *
Teresa L. Rutherford -- --
All directors and executive officers 1,566,171 20.6%
as a group (12 persons) (17)
</TABLE>
- -----------------------------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable. The table is based upon
information supplied by the directors, officers and principal
stockholders.
(2) According to a Schedule 13G filed with the Securities and Exchange
Commission, (the "SEC") dated March 4, 1999. Centennial Associates L.P.
has sole voting and dispositive power with respect to all of such
shares.
(3) According to a Schedule 13G filed with the SEC, dated December 31,
1998, Consumer Venture Partners I, L.P. has shared voting and
investment power for all of such shares with Consumer Venture
Associates, L.P., Consumer Venture Partners II, L.P., Consumer Venture
Associates II, L.P., Christopher P. Kirchen and Pearson C. Cummin, III.
Mr. Cummin, a director of the Company, is a general partner of Consumer
Venture Associates, L.P., the sole general partner of Consumer Venture
Partners I, L.P., and is a general partner of Consumer Venture
Associates II, L.P., the sole general partner of Consumer Venture
Partners II, L.P. See footnote 8.
(4) Includes 44,400 shares held in trust for the benefit of Mr.
Rubenstein's children and 3,000 shares held by Mr. Rubenstein's wife
for herself and as custodian for her children. Mr. Rubenstein disclaims
beneficial ownership of such shares.
(5) According to a Schedule 13G filed with the SEC dated February 3, 1998,
Norwest Equity Partners IV has shared voting and investment power with
respect to such shares with its affiliates Itasca Partners, Robert F.
Zicarelli and Daniel J. Haggerty.
(6) According to Schedule 13G filed with the SEC dated February 8, 1999,
Grace & White, Inc. holds sole voting power with respect to 25,000 of
the shares, but holds no voting power (whether sole, shared or
otherwise) with respect to the additional 678,900 shares of which it is
beneficial owner. Grace & White, Inc. is an Investment Advisor
registered under Section 203 of the Investment Advisors Act of 1940.
(7) According to a Schedule 13G filed with the SEC dated February 10, 1994,
Copley Partners 2, L.P. has shared voting and investment power with
respect to all of such shares. Mr. Jensen, a director of the Company,
is a general partner of Copley Partners 2, L.P. See footnote 9.
7
<PAGE>
(8) Includes 20,001 shares subject to stock options which are exercisable
within 60 days of March 31, 1999, and 996,487 shares beneficially owned
by Consumer Venture Partners I, L.P. and Consumer Venture Partners II,
L.P. In his capacity as a general partner of Consumer Venture
Associates, L.P., the sole general partner of Consumer Venture
Partners, I, L.P., and as a general partner of Consumer Venture
Associates II, L.P., the sole general partner of Consumer Venture
Partners II, L.P., Mr. Cummin has shared voting and investment power
with respect to all such 996,487 shares and may be deemed to
beneficially own such shares. Mr. Cummin disclaims beneficial ownership
of such shares. See footnote 3.
(9) Includes 16,001 shares subject to stock options, which are exercisable
within 60 days of March 31, 1999. Also includes 20,000 shares held by
Mr. Jensen's wife, and 409,074 shares beneficially owned by Copley
Partners 2, L.P., of which Mr. Jensen is a general partner. In his
capacity as a general partner of Copley Partners 2, L.P., Mr. Jensen
has shared voting and investment power with respect to all 409,074
shares and may be deemed to beneficially own such shares. Mr. Jensen
disclaims beneficial ownership of such shares. See footnote 7.
(10) Includes 21,834 shares subject to stock options exercisable within 60
days of March 31, 1999 and 900 shares held by Peter G. Hanelt, an
Accountancy Corporation.
(11) Includes 22,000 shares held by the Folkman Living Trust dated June 12,
1990, of which Mr. Folkman and his wife are co-trustees. Also includes
4,000 shares subject to stock options, which are exercisable within 60
days of March 31, 1999.
(12) All of such 9,334 shares are subject to stock options, which are
exercisable within 60 days of March 31, 1999.
(13) Includes 370 shares held by the Kenneth G. Norton and Angela H. Norton
Living Trust dated February 24, 1993, of which Mr. Norton and his wife
are co-trustees.
(14) Includes 5,667 shares subject to stock options, which are exercisable
within 60 days of March 31, 1999.
(15) Includes 3,900 shares subject to stock options, which are exercisable
within 60 days of March 31, 1999.
(16) All of such 5,500 shares are subject to stock options, which are
exercisable within 60 days of March 31, 1999.
(17) Includes 86,237 shares subject to stock options, which are exercisable
within 60 days of March 31, 1999.
8
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their ages as of March 31, 1999 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
<S> <C> <C>
Peter G. Hanelt 53 Chief Executive Officer, President,
Chief Financial Officer
Kenneth G. Norton 51 Executive Vice President, General Merchandising
Manager
William J. Soncini 44 Vice President, Operations
Ronald J. Rouse 51 Vice President, Merchandise Planning and
Allocation
Denise A. Ellwood 41 Divisional Merchandising Manager
John P. de Benedictis 46 Divisional Merchandising Manager
</TABLE>
PETER G. HANELT was appointed Chief Executive Officer and Chief
Financial Officer effective October 19, 1998, and President effective April 6,
1999. Mr. Hanelt was appointed Interim Chief Executive Officer and Interim
President effective May 1, 1998 through October 19, 1998. Additionally, Mr.
Hanelt served as Acting Chief Financial Officer and Acting Chief Operating
Officer of the Company from January 22, 1998 to October 19, 1998. In 1997, Mr.
Hanelt served as a Retail and Wholesale Consumer Products Consultant. Mr. Hanelt
served as Chief Operating Officer and Chief Financial Officer of Esprit De Corp,
an apparel manufacturer, wholesaler and retailer, from October 1993 to February
1997, and as President, Retail Division of Esprit De Corp from August 1995 to
April 1996. Also, Mr. Hanelt served as Vice President, Finance and Operations of
Saint Francis Memorial Hospital, a private teaching hospital from September 1992
to October 1993, and Acting Chief Operating Officer and Chief Financial Officer
of Post Tool, Inc., a retailer of power and hand tools, from August 1990 to
September 1992.
KENNETH G. NORTON has been Executive Vice President and General
Merchandise Manager since October 1998. Mr. Norton joined Natural Wonders from
Williams-Sonoma, Inc., where he served as Sr. Vice President, Merchandising,
Retail & Catalog for the Hold Everything division as well as the Chambers and
Gardeners Eden catalogs and the Williams-Sonoma outlet concepts. Prior to his
association with Williams-Sonoma, Mr. Norton was Vice President, General
Merchandise Manager, Natural Wonders, Inc., from 1989 through 1992. Prior to
this, he held executive merchandising positions with the Emporium, a division of
Carter Hawley Hale as well as Macy's West.
WILLIAM J. SONCINI has served as Vice President, Operations since
December 1997. Prior to joining the Company, he served as Vice President of
Stores for Lil' Things, a superstore chain of high quality children's products,
from January 1995 to April 1997, and as Territorial Vice President of Paul
Harris Stores, Inc., a specialty retailer of women's apparel, from October 1994
to January 1995. From January 1992 to October 1994, he was the Zone Vice
President of Kay-Bee Toy and Hobby, a national retailer of children's toys.
RONALD J. ROUSE has served as Vice President, Merchandise Planning
and Allocation since January 1999. Mr. Rouse had been with Williams-Sonoma,
Inc. from 1994 to 1998, where he was Vice President, Merchandise Planning,
Systems, and Domestic Logistics. At William-Sonoma, Inc. Mr. Rouse held
positions as Vice President-Catalog Inventory Management and Vice
President-Merchandise Operations. Before joining Williams-Sonoma, Inc., Mr.
Rouse was Director of Automated Replenishment at Grossman's Home
Improvements, Director of Merchandise Operations at Pay'N Save Drug Stores,
and held various positions at Montgomery Ward and Dayton Department Stores.
9
<PAGE>
DENISE A. ELLWOOD has served as Divisional Merchandise Manager since
December 1998 and Vice President, Merchandise Planning and Allocation from
July 1998 to December 1998. Prior to joining the Company, Ms. Ellwood was
with Federated Department Stores as a Director of Product Development from
March 1996 to March 1997 and was Vice President Merchandising/Production at
Esprit De Corp from July 1994 to December 1995. From October 1992 to June
1994, Ms. Ellwood was an Owner/Distributor of the Don Schiel Collection,
Australia.
JOHN P. DE BENEDICTIS has served as Divisional Merchandise Manager
since December of 1998 and was Director of Business Development from February
1997 to December 1998. Mr. de Benedictis was Director of Merchandising from
October 1995 to February 1997 and was a Product Manager for the Company from
September 1989 to October 1995.
10
<PAGE>
EXECUTIVE OFFICER COMPENSATION AND OTHER MATTERS
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes all compensation paid or accrued by the
Company during the last three years to (i) the Chief Executive Officers of the
Company during Fiscal 1998, (ii) four other executive officers of the Company as
of January 30, 1999 whose total salary and bonus for the fiscal year ended
January 30, 1999 exceeded $100,000, and (iii) one former executive who was no
longer serving as executive officer at January 30, 1999 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------------- -------------------------
Awards
-------------------------
Other Annual Restricted Securities
Name and Principal Position Compensation Stock Awards Underlying All Other (2)
During Fiscal 1998 Year Salary($) Bonus ($) ($) (1) ($) Options (#) Compensation
- ----------------------------- ------- ---------- ------------ --------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter G. Hanelt (3) 1998 96,431 -- -- -- 301,443 278,118 (4)
Chief Executive Officer,
Chief Financial Officer
David H. Folkman 1998 96,431 287,414 213,818 (6)
President (5)
Kathleen M. Chatfield (7) 1998 111,972 (8) -- -- -- -- 55
Former Chief Executive 1997 360,000 -- -- -- 65,000 368,577 (9)
Officer and President 1996 325,000 132,031 -- -- 100,000 147
William J. Soncini (10) 1998 159,057 -- -- -- 2,500 78,728 (11)
Vice President,
Operations
John P. de Benedictis (12) 1998 104,088 2,000 -- -- -- 51
Divisional Merchandising
Manager
Charles E. Reynolds 1998 102,078 -- -- -- -- 50
Director of Distribution
Teresa L. Rutherford (13) 1998 153,948 9,500 -- -- 1,500 84,075 (14)
Former Vice President, 1997 141,442 -- -- -- 10,000 69
Merchandising and
Product Development
</TABLE>
- -----------------------------
(1) Unless otherwise specified, the total amount of personal benefits paid
to any executive officer during the fiscal year was less than the
lesser of (i) $50,000, and (ii) 10% of such executive officer's total
reported salary and bonus.
(2) Except as separately noted, the amount included under "All Other
Compensation" represents the value of term life insurance and long-term
disability premiums paid by the Company for the benefit of each named
officer.
11
<PAGE>
(3) Mr. Hanelt was hired as a permanent, full-time executive officer effective
October 19, 1998.
(4) Includes, in addition to the amounts reflected in note 2 above,
$268,500 received as consulting fees, for services performed prior to
October 19, 1998 as Acting Chief Operating Officer and Acting Chief
Financial Officer and $9,571 for services performed as a director.
(5) Mr. Folkman was hired as a permanent, full-time executive officer
effective October 19, 1998, and resigned effective April 6, 1999.
(6) Includes, in addition to the amounts reflected in note 2 above,
$205,300 received as consulting fees, for services performed prior to
October 19, 1998 and $8,571 for services performed as a director.
(7) Ms. Chatfield resigned effective May 1, 1998.
(8) Represents compensation Ms. Chatfield received before she resigned
effective May 1, 1998.
(9) Includes, in addition to the amounts reflected in note 2 above,
severance in the amount of $368,430 (including the estimated value of
certain benefits of $8,430) which is being paid in sixty biweekly
payments commencing on May 1, 1998. See "Employment Contracts and Change
of Control Arrangements" on page 15.
(10) Mr. Soncini was hired as an executive officer in November 1997.
(11) Includes, in addition to the amounts reflected in note 2 above, relocation
expenses of $78,650 paid in connection with Mr. Soncini's hiring in 1997.
(12) Mr. de Benedictis was promoted to an executive officer in December 1998.
(13) Ms. Rutherford was promoted to an executive officer in March 1997 and was
separated from the Company in November 1998.
(14) Includes, in addition to the amounts reflected in note 2 above, severance
in the amount of $84,000 which is being paid in 13 biweekly payments
commencing on December 5, 1998. See "Employment Contracts and Change of
Control Arrangements" on page 15.
12
<PAGE>
STOCK OPTIONS GRANTED IN FISCAL 1998
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock made during Fiscal 1998
to the Named Executive Officers:
OPTION GRANTS IN 1998 FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------------------- -------------------------
Potential Realizable
Value at Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options Appreciation for Option
Underlying Granted to Exercise Term(1)
Options Employees or Base
Granted in Fiscal Price Expiration
Name (#)(2) Year ($/Sh) (3) Date 5% 10%
- --------------------------- -------------- ------------- ----------- ------------- -------------------------
<S> <C> <C> <C> <C> <C>
Peter G. Hanelt 250,000 25.6269% $3.6250 9/29/08 $569,936 $1,444,329
4,000 0.4100% $4.6875 3/11/08 $11,792 $29,883
12,500 1.2813% $4.0938 5/8/08 $32,182 $81,555
4,166 0.4270% $4.2500 6/9/08 $11,135 $28,218
4,166 0.4270% $4.0313 7/8/08 $10,562 $26,766
4,166 0.4270% $2.8750 9/8/08 $7,532 $19,089
1,000 0.1025% $4.2500 6/10/08 $2,673 $6,773
4,168 0.4273% $3.8750 8/10/08 $10,157 $25,741
4,166 0.4270% $3.5625 10/8/08 $9,334 $23,653
1,111 0.1139% $3.9688 10/16/08 $2,773 $7,027
David H. Folkman 250,000 25.6269% $3.6250 9/29/08 $569,936 $1,444,329
12,500 1.2813% $4.2188 7/15/08 $33,164 $84,045
4,166 0.4270% $3.7500 8/13/08 $9,825 $24,898
4,166 0.4270% $2.9063 9/15/08 $7,614 $19,296
4,168 0.4273% $3.8750 10/12/08 $10,157 $25,741
414 0.0424% $3.9688 10/16/08 $1,033 $2,619
Kathleen M. Chatfield - - - - - -
William J. Soncini 2,500 0.2563% $4.2500 6/10/08 $6,682 $16,934
John P. de Benedictis - - - - - -
Charles E. Reynolds - - - - - -
Teresa Rutherford 1,500 0.1538% $4.2500 6/10/08 $4,009 $10,160
</TABLE>
- -----------------------------
(1) The "Potential Realizable Value" is based on the term of the option at
the time of grant, and potential gains are net of exercise price, but
before taxes associated with exercise. These amounts represent certain
assumed rates of appreciation only, in accordance with the Securities
and Exchange Commission's rules. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock,
overall market conditions and the option holders' continued employment
throughout the vesting period. The amounts reflected in this table may
not necessarily be achieved.
(2) All options were granted under the Company's 1993 Amended and Restated
Omnibus Stock Plan (the "Stock Plan") and the Directors Plan. The
250,000 options granted to Mr. Hanelt and Mr. Folkman under the Stock
Plan vest based on the Company's stock price performance. The options
vest in different share amounts, upon achieving certain stock prices,
which range from $8 per share to $28 per share. Any remaining unvested
shares vest seven years after the date of the option grant. Mr. Folkman
has the right to vest in and exercise his options granted under the
Stock Plan through April 6, 2000. The remainder of the options for
13
<PAGE>
Mr. Hanelt and Mr. Folkman were granted under the Director's Plan and vest
over 3 years. The rest of the named executives' option grants vest over
a five year period at the rate of one-fifth on the first anniversary of
the date of grant and 1/60th per month thereafter for each full month
of the optionee's continuous employment with the Company.
(3) All options granted in Fiscal 1998 have an exercise price equal to the
fair market value of the Company's Common Stock on the date of grant.
OPTION EXERCISES AND FISCAL 1998 YEAR-END VALUES
The following table provides the specified information concerning
exercises of options to purchase the Company's Common Stock in Fiscal 1998, and
unexercised options held as of January 30, 1999, by the Named Executive
Officers:
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------- ---------------------------------
Value of Unexercised
Number of Unexercised Options In-the-Money Options at
at 1/30/99 1/30/99(1)
--------------------------------- ---------------------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable(2) Unexercisable Exercisable(2) Unexercisable
- ------------------------- ------------ ----------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Peter G. Hanelt -- -- 4,000 297,443 -- $240,943
David H. Folkman -- -- 4,000 283,414 -- $234,895
Kathleen M. Chatfield 73,333 $133,732 -- -- -- --
William J. Soncini -- -- 4,333 18,167 -- $625
John P. de Benedictis 2,250 $3,410 3,367 2,383 $1,629 $4,074
Charles E. Reynolds -- -- 5,067 1,433 $2,008 $679
Teresa Rutherford 2,750 $5,328 11,063 -- $576 --
</TABLE>
- -----------------------------
(1) Based on the value of $4.50 per share, which was the closing price of
the Company's Common Stock on January 30, 1999. The value shown is for
all outstanding in-the-money options regardless of vesting
restrictions.
(2) For Messrs. Soncini, de Benedictis and Reynolds, and Ms. Rutherford,
options vest over a five-year period at the rate of one-fifth on the
first anniversary of the date of grant and 1/60th per month thereafter
for each full month of the optionee's continuous employment with the
Company. For Mr. Hanelt and Mr. Folkman, the 250,000 options granted
under the Stock Plan vest based on the Company's stock price
performance. These options vest in different share amounts, upon
achieving certain stock prices, which range from $8 per share to $28
per share. Any remaining unvested shares vest seven years after the
date of the option grant. Mr. Folkman has the right to vest in and
exercise his options granted under the Stock Plan through April 6,
2000. The remainder of Mr. Hanelt's and Mr. Folkman's shares were
granted under the Directors Plan and vest over 3 years.
14
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company's Director Plan provides that in the event of a "Transfer
of Control" of the Company (as defined in the Plan), all outstanding options
granted under the Directors' Plan would immediately vest and be exercisable
prior to the Transfer of Control. Options which are not exercised as of the date
of the Transfer of Control would be terminated.
The Company entered into an oral consulting arrangement with Peter
Hanelt as of January 22, 1998, whereby Mr. Hanelt served as Acting Chief
Operating Officer and Acting Chief Financial Officer of the Company. In
accordance with this arrangement, Mr. Hanelt received $1,500 per day on days
which he worked, which generally ranged from four to five days a week. Mr.
Hanelt received no additional compensation as Interim Chief Executive Officer
and Interim President effective May 1, 1998. Mr. Hanelt's consulting agreement
ended when he was appointed Chief Executive Officer and Chief Financial Officer
effective October 19, 1998. Mr. Hanelt is employed at will, and either Mr.
Hanelt, or the Company, may terminate the relationship, at any time, with or
without cause, upon thirty days notice.
The Company entered into an oral consulting arrangement with David
Folkman as of May 1, 1998, whereby Mr. Folkman served as a merchandising
consultant for the Company. In accordance with this arrangement, Mr. Folkman
received $1,500 per day on days which he worked, which generally ranged from
four to five days a week. Mr. Folkman consulting agreement ended when he was
appointed President effective October 19, 1998. Mr. Folkman is employed at
will, and either Mr. Folkman, or the Company, may terminate the relationship,
at any time, with or without cause, upon thirty days notice. Mr. Folkman
voluntarily resigned his position effective April 6, 1999. Mr. Folkman has
the right to vest in and exercise his nonqualified stock options through
April 6, 2000. Mr. Folkman will continue in his role as a Director of the
Company.
The Company entered into a written employment agreement with Kenneth
Norton as of October 19, 1998, whereby Mr. Norton serves as Executive Vice
President, General Merchandise Manager of the Company. Pursuant to this
agreement, Mr. Norton's employment with the Company until October 18, 2002 is
terminable by him or by the Company at any time with or without cause,
subject to the payment of certain benefits, including up to one year's base
salary, upon termination. The Company also agreed to loan Mr. Norton
$450,000. The Company will forgive $150,000 of the balance after twelve
months, and the remainder of the loan will be equally forgiven each month in
the 24 months thereafter. Upon termination, the entire loan may be forgiven,
under certain circumstances.
The Company entered into a written employment agreement with William
Soncini as of July 20, 1998, whereby Mr. Soncini serves as Vice President,
Operations of the Company. Pursuant to this agreement, Mr. Soncini's
employment with the Company until January 31, 2000 is terminable by him or by
the Company at any time with or without cause, subject to the payment of
certain benefits, including up to four months salary, upon termination.
The Company entered into a written employment agreement with Teresa
Rutherford as of July 20, 1998, whereby Ms. Rutherford served as Vice
President, Merchandising and Product Development of the Company. Pursuant to
this agreement, Ms. Rutherford's employment with the Company until January
31, 2000 was terminable by her or by the Company at any time with or without
cause, subject to the payment of certain benefits upon termination. Ms.
Rutherford was terminated effective November 20, 1998, and, in accordance
with the terms of her employment agreement, she was entitled to, and
received, an amount equal to one-half of her final annual base salary, which
was paid in twelve bi-weekly payments commencing on December 1, 1998.
15
<PAGE>
The Company entered into a written employment agreement with Kathleen
Chatfield as of September 15, 1997, whereby Ms. Chatfield served as President
and Chief Executive Officer of the Company. Pursuant to this agreement, Ms.
Chatfield's employment with the Company was for no specified term and was
terminable by her or by the Company at any time with or without cause, subject
to the payment of certain benefits upon termination. The agreement further
provided that Ms. Chatfield would receive additional benefits if she remained
with the Company through May 1, 1998. Ms. Chatfield resigned effective May 1,
1998, and, in accordance with the terms of her employment agreement, she was
entitled to receive an amount equal to her final annual base salary, which is
being paid in sixty bi-weekly payments commencing on May 1, 1998, plus
reimbursement for employee benefits for a period of twelve months.
The Company entered into a written employment agreement with Karen
Daley as of September 15, 1997, whereby Ms. Daley served as Vice President,
Human Resources of the Company. Pursuant to this agreement, Ms. Daley's
employment with the Company was for a term of twelve months and was terminable
by her or by the Company at any time with or without cause, subject to the
payment of certain benefits upon termination. The agreement further provided
that Ms. Daley would receive additional benefits if she remained with the
Company through May 1, 1998. Ms. Daley resigned effective May 1, 1998, and, in
accordance with the terms of her employment agreement, she was entitled to, and
received, an amount equal to one-half of her final annual base salary, which was
paid in thirteen bi-weekly payments commencing on May 1, 1998.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the SEC. Such persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms filed
by such persons.
Based solely on the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors and more than 10% stockholders were satisfied.
16
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is responsible for establishing and administering the Company's policies and
practices and it approves all elements of compensation for executive officers
and certain other senior management. The Committee also is responsible for
evaluating the performance of executive officers and senior management. All
members of the Committee are outside directors who are not eligible to
participate in any of the compensation programs that the Committee oversees.
OVERALL OBJECTIVES AND PROGRAMS
The objective of the Company's executive compensation program is to
provide compensation that will attract and retain executives, to provide
incentives to enhance the profitability and growth of the Company, to motivate
each executive toward the achievement of the Company's short and long-term
financial and other goals, and to recognize the contributions of individuals as
well as overall business results.
In order to achieve this objective, the primary focus of the
Compensation Committee has been on the competitiveness of each of the key
elements of executive compensation -- base salary, annual bonus plan and stock
option grants -- and the compensation package as a whole. Overall executive
compensation is dependent not only upon quantitative factors directly related to
the Company's short-term financial performance, but also qualitative factors
that strengthen the Company's ability to enhance profitable growth over the long
term, such as demonstrated leadership ability, management development, and
anticipating and responding to changing market and economic conditions.
BASE SALARY
The Committee reviews and approves base salary levels of executive
officers annually, normally at the beginning of the fiscal year. Target levels
are based on the level of responsibility, scope and complexity of the
executive's position relative to other senior management positions internally,
and the need to provide, when combined with the annual bonus, overall direct
compensation at or above the average rates paid by comparably sized-companies.
Salary increases are based upon periodic reevaluations of these factors and the
performance of the executive in meeting individually assigned objectives.
During Fiscal 1998, the Committee reviewed the base salaries of the
executive officers and adjusted those salaries based on an informal assessment
of the competitive marketplace, the job performance of the respective individual
and any changes in the scope of the duties and responsibilities assigned to each
particular position. Although no specific formula was utilized in determining
base salary levels, continued turnover of executive officers in the retail
industry generally provides the Committee with a clear barometer of the
competitive marketplace. The salary levels of new executive officers generally
can be determined by the realities of this marketplace. As new senior management
is hired, the Committee believes that the salary levels of other executive
officers should be adjusted to reflect the scope and complexity of the existing
executive's position relative to that of new senior management.
ANNUAL BONUS
The Committee believes that a significant portion of the total annual
compensation of each executive officer should be contingent on the performance
of the Company. Accordingly, the Committee has implemented an annual
non-discretionary incentive bonus plan that provides executive officers and
other employees with the opportunity to earn annual bonuses. The objective of
this plan is to attract, retain, motivate and reward employees by directly
linking the amount of any cash bonus to purely objective short-
17
<PAGE>
term financial performance of the Company. To the end, each year the
Committee establishes a maximum bonus pool based on budgeted financial goals
relating to annual increases in comparable store sales and pre-tax net income
and establishes threshold and maximum pay-out levels that may be earned based
upon the achievement by the Company of those goals. These goals and the
amount of the bonus pool are reviewed and adjusted annually. In Fiscal 1998,
the Company did not achieve the threshold financial goals and, in accordance
with the bonus plan, no bonuses were paid out to executive officers.
In order to attract a new executive team to the Company, a separate
bonus program was established in September 1998, by the Committee, for
Messrs. Hanelt, Folkman and Norton (the "Executive Team"). This Executive
Team bonus replaces the bonus program described above, for the members of the
Executive Team. The Executive Team is eligible for a payment from the Bonus
Pool (the "Pool") based on the Company's "Net Income" in any given fiscal
year. Net Income is defined as the earnings used in calculating the Company's
Earnings per Share. No bonus is paid out for Net Income less than $2,000,000.
For Net Income between $2,000,000 and $3,000,000, the Pool is equal to 15% of
Net Income. The percentage of Net Income increases for each additional
$1,000,000 of Net Income up to $11,000,000. For any amount of Net Income
above $11,000,000, the pool is equal to 20% of Net Income. The Pool is
divided into three equal shares, one for each member of the Executive Team.
For Fiscal 1998, the Pool resulting from Net Income between $2,000,000 and
$3,000,000 would have been reduced by payment of the company-wide incentive
bonus plan described above (approximately $135,000). The same plan will be
used for Fiscal 1999, and the percentages may then be adjusted by the Board
to reflect reasonable revised earnings targets, for subsequent years. Each
Executive Team member's employment must continue through December 31 of the
fiscal year, for which a bonus may be payable, to be eligible for his
one-third share of the Pool.
EMPLOYEE EQUITY OWNERSHIP
The Committee believes that the third key element of executive
compensation -- employee equity ownership -- is highly motivating and provides a
major incentive to employees in building stockholder value. Accordingly, stock
options are granted to executive officers to provide long-term incentives for
the achievement of the Company's strategic business plan, mission and values and
to align the interests of executive officers with those of the stockholders. The
Committee determines the size of any stock option to be granted on a basis
consistent with the overall objectives and criteria outlined above, taking into
consideration the particular executive's performance and level of responsibility
within the Company, and the value to the Company of providing such executive
with additional motivation toward achieving the Company's short and long-term
financial and other goals. The Committee also considers previous grants of stock
options and restricted stock and compares the number of options previously
granted with those granted to other executive officers, taking into account each
individual's level of responsibility, the expected future value of such
individual to the organization, and the relationship between the additional
incentive and the likelihood of the attainment of individual objectives. Based
upon the criteria enumerated above, some of the continuing and all of the new
executive officers of the Company were granted options in Fiscal 1998.
In addition, in order to attract an executive team to the Company,
the Committee granted an option of to purchase 250,000 shares of common stock at
$3.625 per share, to each member of the Executive Team. These options vest based
on the Company's stock price performance. These options vest in different share
amounts, upon achieving certain stock prices, which range from $8 per share to
$28 per share. Any remaining unvested shares vest seven years after the date of
the option grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Hanelt was hired as the Company's Chief Executive Officer effective
October 19, 1998. Mr. Hanelt's total compensation package, including base
salary, stock options and bonus plan, was based on the current marketplace,
observed during the Committee's search for a Chief Executive Officer, since
January of
18
<PAGE>
1998. Like that of the other executive officers of the Company, Mr. Hanelt's
compensation was established based on the marketplace and total compensation
necessary in accordance with the foregoing guidelines applicable to all
executive officers.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Code denies a deduction to any publicly held
corporation for certain compensation paid to certain executive employees in a
taxable year to the extent that the compensation exceeds $1,000,000. However,
certain performance-based compensation is not included in calculating the
$1,000,000 threshold. Stock options may qualify for this exclusion if the plan
under which they are granted meets certain conditions. The Stock Plan currently
contains limitations on the number of shares underlying options that may be
granted to an optionee within any fiscal year, and, to the extent appropriate,
the Company intends to take the necessary steps to conform its compensation
practices to comply with the $1,000,000 compensation deduction limit under
Section 162(m) of the Code. The Committee does not believe that other components
of the Company's compensation are likely to exceed $1,000,000 annually for any
executive officer in the foreseeable future and, therefore, has concluded that
no further action with respect to qualifying such compensation for deductibility
is necessary at this time. In the future, the Committee will reconsider this
decision in the event that the individual compensation of any of the Company's
executive officers approaches the $1,000,000 level.
THE COMPENSATION COMMITTEE
PEARSON C. CUMMIN III
JULIUS JENSEN III
PETER L. HARRIS
19
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the cumulative total return
on the Company's Common Stock with the cumulative total return of the CRSP Total
Return Index for The Nasdaq National Market (U.S. Companies) ("Nasdaq Market
Index") and the CRSP Total Return Industry Index for Nasdaq Retail Trade Stocks
("Retail Index") for the five year period ending on January 30, 1999.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN OF THE COMPANY
Research Data Group Peer Group Total Return Worksheet
<TABLE>
<CAPTION>
Natural Wonders Inc (NATW)
CUMULATIVE TOTAL RETURN
------------------------------------------------------------------------
1/29/94 1/28/95 2/3/96 2/1/97 1/31/98 1/30/99
<S> <C> <C> <C> <C> <C> <C>
NATURAL WONDERS, INC. 100.00 56.90 39.66 72.41 60.34 62.07
NASDAQ NATIONAL MARKET (U.S.) 100.00 96.37 137.02 177.68 209.97 328.18
NASDAQ RETAIL TRADE 100.00 89.64 101.20 124.30 145.33 177.23
</TABLE>
(1) Assumes an initial investment of $100.00 on January 29, 1994. The total
return for the Company's stock and for each index assumes the
reinvestment of dividends, although no cash dividends have ever been
declared on the Company's Common Stock. Stockholder returns over the
indicated period should not be considered indicative of future
stockholder returns.
20
<PAGE>
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders of the Company (i) must be received by the Company at
its offices at 4209 Technology Drive, Fremont, California 94538 no later than
February 9, 2000, and (ii) must satisfy the conditions established by the SEC
for stockholder proposals to be included in the Company's Proxy Statement for
that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board
intends to present or knows that others will present at the Annual Meeting is as
set forth above. If any other matter or matters are properly brought before the
Annual Meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of Proxy to vote the Proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors
/s/ Peter G. Hanelt
PETER G. HANELT
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHIEF FINANCIAL OFFICER
Dated: April 22, 1999
21
<PAGE>
1126-PS-99
22
<PAGE>
NWI26B DETACH HERE
- --------------------------------------------------------------------------------
PROXY
NATURAL WONDERS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
The undersigned hereby appoints Peter G. Hanelt and Pearson C. Cummin III,
and each of them, with full power of subtitution, as the undersigned's true and
lawful agents and proxies, with full power to represent the undersigned and to
vote all shares of the stock of Natural Wonders, Inc. which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be held
at the principal offices of the Company located at 4209 Technology Drive,
Fremont, California 94538, on Tuesday, May 25, 1999 at 9:00 a.m. local time, and
at any adjournment thereof (1) as hereinafter specified upon the proposals
listed on the reverse side and as more particularly described in the Company's
Proxy Statement, and (2) in their discretion upon such other matters as may
properly come before the meeting.
The undersigned hereby acknowledges receipt of: (1) Notice of Annual Meeting
of Stockholders of the Company, (2) accompanying Proxy Statement, and (3) Annual
Report of the Company for the fiscal year ended January 30, 1999.
- --------------- ---------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- --------------- ---------------
<PAGE>
NWI26A DETACH HERE
- --------------------------------------------------------------------------------
PLEASE MARK
/X/ VOTES AS IN
THIS EXAMPLE.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, SUCH SHARES SHALL BE VOTED FOR 1 AND 2.
<TABLE>
<S> <C>
FOR AGAINST ABSTAIN
1. To elect one (1) Class III director to hold 2. To ratify the appointment of Deloitte & Touche
office until the 2002 Annual Meeting of LLP as the independent auditors of the Company / / / / / /
Stockholders and until his respective for the fiscal year ending January 29, 2000.
successor is elected and qualified.
NOMINEE: Pearson C. Cummin III
FOR / / / / WITHHELD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY BE
REPRESENTED AT THE MEETING.
MARK HERE
FOR ADDRESS / /
CHANGE AND Sign exactly as each name appears on your stock certificate. If shares of stock
NOTE BELOW stand of record in the names of two or more persons or in the name of husband
and wife, whether as joint tenants or otherwise, both or all of such persons
should sign this Proxy. If shares of stock are held of record by a corporation,
the Proxy should be executed by the President or Vice President and the
Secretary or Assistant Secretary, and the corporate seal should be affixed
thereto. If signing as an attorney, executor, administrator, trustee, guardian
or other fiduciary, please provide your full title. If shares of stock are held
of record by a partnership or limited liability company, please have an
authorized person sign in the partnership or liability company name. Please
date the Proxy.
THANK YOU FOR YOUR VOTE.
Signature: Date: Signature: Date:
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</TABLE>
