SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[ ] Preliminary information statement [ ] Confidential, for use of the
Commission only (as permitted
by Rule 14c-5(d)(2))
[X] Definitive information statement
GRISTEDE'S SLOAN'S, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) 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:
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GRISTEDE'S SLOAN'S, INC.
823 ELEVENTH AVENUE
NEW YORK, NEW YORK 10019-3535
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 18, 1998
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To the Stockholders:
The Annual Meeting of Stockholders of Gristede's Sloan's, Inc. (hereinafter
called the "Company") will be held at The New York Hilton and Towers Hotel, 1335
Avenue of the Americas, New York, New York 10019, on the 18th day of August,
1998 at 10:00 A.M., to consider and vote on the following matters described in
this Notice and Information Statement:
1. To elect two Class 2 directors to serve for a term expiring at the 2000
Annual Meeting of Stockholders.
2. To elect two Class 3 directors to serve for a term expiring at the 2001
Annual Meeting of Stockholders.
3. To approve the 1998 Stock Option Plan.
4. To transact such other business as may properly come before the meeting
or adjournments thereof.
The Board of Directors has fixed the close of business on July 20, 1998 as
the record date for determining stockholders entitled to notice of, and to vote
at, the meeting.
By Order of the Board of Directors
Michael Seltzer
Vice President and Secretary
New York, New York
July 27, 1998
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GRISTEDE'S SLOAN'S, INC.
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INFORMATION STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
AUGUST 18, 1998
This information statement is being furnished to stockholders beginning on
or about July 27, 1998 in connection with the Annual Meeting of Stockholders of
Gristede's Sloans, Inc. (the "Company") to be held on August 18, 1998 or any
adjournments thereof, for the purposes set forth in the foregoing Notice of
Annual Meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. However, you may vote your shares of Common Stock at the Annual Meeting.
OUTSTANDING SHARES AND
VOTING RIGHTS
The Board of Directors has set the close of business on July 20, 1998 as
the record date for determining the stockholders entitled to notice of, and to
vote at, the Annual Meeting of Stockholders (the "Annual Meeting"). On that date
the Company had outstanding 19,636,574 shares of Common Stock, par value $.02
per share ("Common Stock"), each of which is entitled to one vote on each
matter. No other class of securities other than Common Stock will be entitled to
vote at the meeting. There are no cumulative voting rights.
As of July 20, 1998, John A. Catsimatidis, the Chairman of the Board and
Chief Executive Officer of the Company, owned of record directly or indirectly
through a wholly owned corporation or retirement plans or accounts an aggregate
of 17,749,750 shares of Common Stock, constituting approximately 90.4% of the
shares entitled to vote at the Annual Meeting.
Mr. Catsimatidis has informed the Company that he intends to vote all of
the shares owned directly or indirectly by him in favor of each of the Board of
Directors' nominees for directors listed below and for approval of the 1998
Stock Option Plan. Consequently, such elections and approval are expected to
occur.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
Common Stock on July 20, 1998 by: (i) each stockholder known to the Company to
own beneficially more
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than 5% of the outstanding shares of Common Stock; (ii) each of the Company's
directors and nominees for director; and (iii) all officers and directors of the
Company as a group. The address of each person is c/o Gristede's Sloan's, Inc.,
823 Eleventh Avenue, New York, N.Y. 10019- 3535. The Company believes that
ownership of the shares by the persons named below is both of record and
beneficial and such persons have sole voting and investment power with respect
to the shares indicated.
Name and Address of Number of
Beneficial Owner Shares Percent of Class
---------------- ------ ----------------
John Catsimatidis 18,274,750 (1) 90.6%
Martin Steinberg 112,642 *
Dennis Berberich 20,000 (2) *
Kishore Lall 13,100 *
Frederick Selby 10,910 (3) *
Martin Bring 8,800 (3) *
All officers and directors as a
group (8 persons) 18,436,202 (4) 91.3%
- --------------------
* Less than 1%.
(1) Includes an aggregate of 12,411,174 shares held by corporations
controlled by Mr. Catsimatidis, 13,000 shares held by Mr. Catsimatidis as
a custodian, 2,057 shares held by a profit sharing plan of which Mr.
Catsimatidis is a trustee, 605 shares held by Mr. Catsimatidis as a
trustee of individual retirement accounts and currently exercisable
options to purchase an aggregate of 525,000 shares of Common Stock.
(2) Includes 14,000 shares of Common Stock owned by Mr. Berberich's wife, as
to which shares Mr. Berberich disclaims beneficial ownership.
(3) Includes for each of Messrs. Selby and Bring an aggregate of 8,800 shares
of Common Stock which may be purchased upon the exercise of currently
exercisable stock options.
(4) Includes an aggregate of 558,600 shares of Common Stock which may be
purchased upon the exercise of currently exercisable stock options.
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ELECTION OF DIRECTORS
Two Class 2 directors to serve for a term expiring at the 2000 Annual
Meeting and two Class 3 directors to serve for a term expiring at the 2001
Annual Meeting shall be elected. The terms of the two Class 1 directors expire
at the 1999 Annual Meeting.
The Class 2 directors and Class 3 directors shall each be elected by the
affirmative vote of a plurality of the votes cast at the Annual Meeting.
Directors are elected by a plurality of the votes cast by the shares entitled to
vote in the election at a meeting at which a quorum is present. "Plurality"
means that the individuals who receive the largest number of votes are elected
as directors. Therefore, any shares not voted, whether by withheld authority,
broker non-vote or otherwise, have no effect in the election of directors. The
Board of Directors does not expect that any of the nominees will become
unavailable to serve for any reason. If that should occur before the meeting,
another nominee or nominees may be selected by the Board of Directors.
In accordance with the Company's By-Laws, any stockholder entitled to vote
for the election of directors at a meeting may nominate persons for election as
directors only if written notice of such stockholder's intent to make such
nomination is given, either by personal delivery or by U.S. mail, to the
Secretary of the Company at the main office of the Company not later than (i)
with respect to an election to be held at any annual meeting of stockholders, 20
days in advance of such meeting, and (ii) with respect to an election to be held
at a special meeting of stockholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to the stockholders. Each notice shall set forth: (a) the name
and address of the stockholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that such stockholder is
a holder of record of stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person(s)) pursuant to which the nomination(s) are to be
made by such stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules promulgated by the Commission
had each nominee been nominated or intended to be nominated by the Board of
Directors; and (e) the consent of each nominee to serve as a director of the
Company if so elected. The Chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing provisions.
The names of, and certain information with respect to, each of the persons
nominated for election as the Class 2 directors and the Class 3 directors are as
follows:
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Director Principal Occupation
Name and Age Since for the Past Five Years
- -------------------------- -------- ----------------------------------------
Class 2
Martin Bring, 55 1988 Member of the law firm of Wolf, Block,
Schorr and Solis-Cohen LLP, New York,
New York and predecessor firm for more
than five years.
Frederick Selby, 60 1978 Chairman of Selby Capital Partners
(acquisition and sale of privately owned
firms and divisions of public companies)
for more than five years.
Class 3
John A. Catsimatidis, 49 1988(1) Chairman of the Board, President and
Chief Executive Officer of the Company
since July 29, 1988; Treasurer of the
Company from July 28, 1988 to March 17,
1998; President and Chief Executive
Officer of Red Apple Group, Inc. (a pri-
vate diversified holding company) and
Chairman of the Board and Chief
Executive Officer and Director of United
Refining Company (a refiner and retailer
of petroleum products) for more than
five years; Director of News
Communications Inc., a public company
whose stock is traded over-the-counter,
since December 4, 1991.
Dennis E. Berberich, 59 ---- President of Canada Dry Bottling Company
of New York, a privately held soft drink
distributor, for more than five years.
- ----------
(1) Mr. Catsimatidis also served as a director of the Company from November 4,
1986 to November 27, 1987.
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OTHER DIRECTORS AND EXECUTIVE OFFICERS
The name of, and certain information with respect to, the two Class 1
directors (whose terms expire at the 1999 Annual Meeting) are as follows:
Director Principal Occupation
Name and Age Since for the Past Five Years
- --------------------- -------- ----------------------------------------
Martin Steinberg, 65 1998(1) Independent consultant. Mr. Steinberg
also served as a director of the Company
from May 1974 to January 1991.
Kishore Lall, 50 1997 Director of the Company since October
1997; consultant to Red Apple Group,
Inc. from January 1997 to October 1997;
private investor from June 1994 to
December 1996; Senior Vice President and
Head of Commercial Banking of ABN AMRO
Bank, New York branch from January 1991
until May 1994.
(1) Elected by the directors in July 1998 to fill the vacancy created by the
resignation of Leroy Hemingway II.
The other executive officers of the Company are Stuart Spivak, Michael
Seltzer and Franklin Georges. Mr. Spivak, age 61, has been Executive Vice
President and Chief Financial Officer of the Company since March 1998 and was
Chief Financial Officer of various corporations which were acquired by the
Company by merger in November 1998 (the "Food Group") for more than ten years
prior thereto. Mr. Seltzer, age 48, has been Vice President and Secretary of the
Company since March 1998 and was Vice President and Controller of the Food Group
for more than ten years prior thereto. Mr. Georges has been Treasurer of the
Company since March 1998. He was a financial consultant to the Food Group from
May 1996 to March 1998. From February 1994 to May 1996 he was Controller of
Telecom Satellite Systems, Inc., a privately-held cable television company, and
from February 1991 to February 1994 he was a division accounting manager for K.
Hovnanian Companies, a public real estate development company.
MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors met two times during the nine month transition
period from March 3, 1997 to November 30, 1997 (the "Transition Period") and
acted two times by unanimous written consent of the directors during such
Transition Period. All incumbent directors, other than Mr. Steinberg, attended
all meetings.
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The Board of Directors has a Compensation Committee, a Stock Option
Committee and an Audit Committee. Frederick Selby is currently the sole member
of each committee. The Compensation Committee and the Stock Option Committee did
not meet during the Transition Period. The Audit Committee met one time during
the Transition Period.
The function of the Audit Committee is to periodically review the conduct
and scope of the audit of the Company's financial statements by its independent
certified public accountants, to review the conduct of management of the Company
in connection with such audit, and at such time as in the opinion of the Audit
Committee, the scope of the business of the Company shall require it, to
establish an internal audit committee for the Company. The Company does not have
a nominating committee of the Board of Directors or committee performing similar
functions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires directors and officers of the Company and persons who
own more than 10 percent of the Company's common stock to file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of changes in ownership of the common stock. Directors,
officers and more than 10 percent stockholders are required by the Exchange Act
to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the Transition Period ended November 30, 1997, all
Section 16(a) filings applicable to its directors, officers and more than 10
percent beneficial owners were timely filed.
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EXECUTIVE COMPENSATION
The following table sets forth for the two fiscal years ended March 2, 1997
and the Transition Period from March 3, 1997 to November 30, 1997 certain
information concerning the compensation paid or accrued to the Chief Executive
Officer of the Company. As of November 30, 1997 there were no persons serving as
executive officers of the Company whose total salary and bonus exceeded $100,000
for the Transition Period or who were being paid salary during such period at a
rate that would have exceeded $100,000 had the period been for a full year.
<TABLE>
<CAPTION>
Long-term Compensation
---------------------------------------
Annual Compensation Awards Payouts
-------------------------------- ---------------------- --------
Other All
annual Restricted other
compen- stock Options LTIP compen-
Name and Salary Bonus sation award(s) /Sar's payouts sation
principal
position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------ -------------- ------ ----- ------ -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
John Catsimatidis, Transition $- $- $- $- - $- $-
Chairman of the Period from
Board, President March 3, 1997
and Chief to November
Executive 30, 1997
Officer
1997 - - - - - - -
1996 - - - - 250,000 - -
================== ============== ====== ===== ====== ======== ======== ======= =======
</TABLE>
STOCK OPTIONS
No stock options were granted to or exercised by Mr. Catsimatidis during
the Transition Period from March 3, 1997 to November 30, 1997. The following
table sets forth certain information with respect to options to purchase Common
Stock held by John Catsimatidis on November 30, 1997.
Number of Unexercised Value of Unexercised
Options Held on in-the-Money Options on
November 30, 1997 November 30, 1997
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------- ------------------------- -------------------------
John Catsimatidis 525,000/0 0/0
================= ========================= =========================
The closing sales price of the Common Stock on the American Stock Exchange
on November 28, 1997 (the last trading day before November 30, 1997) was $2.25.
On November 30, 1997
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Mr. Catsimatidis held options to purchase 275,000 shares of Common Stock at
$3.75 per share and options to purchase 250,000 shares at $2.875 per share.
COMPENSATION OF DIRECTORS
Non-officer directors receive a quarterly stipend of $1,500 and $500 for
each meeting attended. Directors who serve on committees receive $250 for each
meeting attended.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
PHILOSOPHY. The Company's executive compensation philosophy is to provide
competitive levels of compensation, integrate management's pay with the
achievement of the Company's annual and long-term performance goals, reward
above average corporate performance, recognize individual initiative and
achievement, and assist the Company in attracting and retaining qualified
management. Executive compensation consists of base salary and long term
incentive compensation in the form of stock options. The compensation of the
Company's executive officers is reviewed and approved by the Compensation
Committee, which is composed entirely of non-employee directors. Management
compensation is intended to be set at levels that the Compensation Committee
believes is consistent with others in the Company's industry.
In reviewing compensation levels of the Company's key executives, the
Compensation Committee considers, among other items, corporate profitability on
an absolute basis as well as relative to budget; previous years' and
competitors' profitability; revenues; and the quality of the Company's services.
No specific weight is accorded to any single factor. Relative weights differ
from executive to executive and change from time to time as circumstances
warrant.
BASE SALARIES. Base salaries for new management employees are determined
initially by evaluating the responsibilities of the position held and the
experience of the individual, and by reference to the competitive marketplace
for managerial talent. Salary adjustments are determined by evaluating the
performance of the executive and any increased responsibility assumed by the
executive, the competitive marketplace and the performance of the Company.
EQUITY OWNERSHIP. The Company established a stock option plan for its key
employees in October 1994 and in March 1998 the Board of Directors approved an
additional stock option plan for key employees, directors and consultants, which
plan is subject to stockholder approval at this Annual Meeting. The Compensation
Committee believes that equity ownership by management is a means of aligning
management's and stockholders' interests in the enhancement of stockholder
value. A Stock Option Committee consisting solely of non-employee directors
serves as the stock option committee under the 1994 Stock Option Plan and the
1998 Stock Option Plan. The purpose of the Stock Option Committee is to
administer the plans.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. Mr. Catsimatidis is the principal
stockholder of the Company and from August 1991 to November 10, 1997 served the
Company without receiving a salary. During the two years ended March 2, 1997 and
the Transition Period from March 3,
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1997 to November 30, 1997 Mr. Catsimatidis received no compensation from the
Company. Effective November 10, 1997 the Company began paying Mr. Catsimatidis a
salary at the rate of $100,000 per year.
COMPENSATION COMMITTEE
Frederick Selby
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COMPARATIVE PERFORMANCE BY THE COMPANY
The Securities and Exchange Commission requires the Company to present a
chart comparing the cumulative total stockholder return on its Common Stock with
the cumulative total stockholder return of (i) a broad equity market index and
(ii) a published industry index or "peer group." This chart compares for the
period from March 1, 1993 to November 30, 1997, the cumulative total stockholder
return on the Common Stock with (i) the American Stock Exchange Market Value
Index and (ii) the Media General Industry Group 511 Index - Retail Trade - Food
Stores (the "MG Industry Index"), and assumes an investment of $100 on March 1,
1993 in each of the Common Stock, the stocks comprising the American Stock
Exchange Market Value Index and the stocks comprising the MG Industry Index. The
total return for each of the Company's Common Stock, the American Stock Exchange
Market Value Index and the MG Industry Index assumes the reinvestment of all
dividends (although no dividends were declared on the Company's Common Stock
during such period). Each index is adjusted for additions and deletions of
securities from the index. The Company entered the supermarket business on March
17, 1993.
Gristede's Sloan's Inc. AMEX Market Index MG Group Index
- -------------- ----------------------- ----------------- --------------
March 1993 100.00 100.00 100.00
March 1994 190.91 116.49 120.14
March 1995 124.24 106.86 117.14
March 1996 96.68 129.39 145.08
March 1997 81.68 137.85 187.51
November 1997 60.01 154.51 213.33
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 10, 1997 the Company acquired by merger from corporations
directly or indirectly owned by John A. Catsimatidis, 29 operating supermarkets,
ownership of the tradenames "Gristede's" and "Sloan's" and a warehouse and
distribution business (the "Merger"). Pursuant to the Merger John Catsimatidis
and Red Apple Group, Inc. ("Group") as the sole stockholders of the four
corporations acquired in the Merger became entitled to receive an aggregate of
$40,000,000 in market value of the Company's Common Stock. The aggregate market
value of the shares issued in the Merger was reduced by an amount equal to the
amount of certain liabilities of the acquired companies to John Catsimatidis and
entities controlled by him which were assumed by the surviving corporations in
the Merger ("Intercompany Liabilities"). The aggregate amount of such
Intercompany Liabilities was $4,000,000. Based on a market value of $2.18125 per
share (the average closing sales price for the Common Stock as reported on the
American Stock Exchange for the sixty consecutive trading days ended on October
29, 1997, the day prior to the date of a Special and Annual Meeting of
Stockholders of the Company at which the Merger was approved) the aggregate
number of shares issued to Mr. Catsimatidis and Group was 4,173,754 and
12,330,544, respectively.
From March 19, 1993 to November 10, 1997 the Company was a party to a
Management Agreement with Group, a corporation wholly owned by John
Catsimatidis, pursuant to which Group supervised all operations of the
supermarkets then owned by the Company subject to the policy goals and decisions
prescribed by a committee of the independent directors. Such agreement required
the Company to pay to Group a quarterly fee equal to 1-1/4% of all sales made in
or from the supermarkets and to reimburse Group for all expenses incurred by
Group in the performance of its services under the agreement. For the Transition
Period Group earned a fee of $398,206 under the agreement.
Under a Management Agreement, dated November 10, 1997 (the "Management
Agreement"), Namdor Inc., a subsidiary of the Company, performs consulting and
managerial services for two supermarkets owned by corporations controlled by
John Catsimatidis. In consideration of such services, Namdor Inc. is entitled to
receive on a quarterly basis a cash payment of one and one-quarter (1.25%)
percent of all sales of inventory and merchandise made at or from the managed
supermarkets.
On February 6, 1998 the Company purchased substantially all of the assets
and assumed certain of the liabilities of a supermarket located at 1644 York
Avenue, New York, New York owned by a corporation controlled by John
Catsimatidis. The purchase price is to be the value of the supermarket based
upon an appraisal to be conducted by a firm selected by a committee of
independent directors of the Company less the amount of certain liabilities
assumed by the Company. The appraisal will be based on, among other things, a
review of the operating statement of the supermarket for the period from
February 6, 1998 to a date no earlier than January 31, 1999. The purchase price
will be subject to adjustment to the extent that the acquired inventory is
greater or less than the sum of trade payables and liabilities for employee
vacation and sick pay that have been assumed by the Company. The purchase price
will be paid at such time and by such method as shall be recommended by a
committee of the independent directors of the Company and approved by the Board
of Directors of the Company, John Catsimatidis abstaining.
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Group provides maintenance services to the Company, including supermarket
refrigeration, electrical and equipment maintenance. During the Transition
Period, the Company did not incur expenses for such services.
Prior to its acquisition by the Company in November 1997, City Produce
Distributors, Inc., a corporation indirectly wholly owned and controlled by John
Catsimatidis, sold produce and certain grocery items to the Company at prices
consistent with those obtainable from non-affiliated third parties. During the
Transition Period, such sales aggregated approximately $2,705,135.
Prior to the acquisition by the Company in November 1997 of 29 supermarkets
from corporations controlled by Mr. Catsimatidis, newspaper advertising for the
supermarkets was frequently pooled with advertising for such acquired
supermarkets. In such cases, the Company paid a portion of such advertising
expenses based upon the number of supermarkets and supermarkets of other
companies covered in the advertisements. Such amounts allocated to the Company
approximated $130,321 during the Transition Period.
In consideration of accommodations extended to the Company by H.S. Realty
Corp. ("H.S. Realty"), a corporation wholly owned by John Catsimatidis, which
enabled the Company to consummate the sale of assets of the Company's Howard H.
Sweet & Son Inc. subsidiary ("Sweet") to Tiffco Jewelry and Chain Crafts, Inc.
("Tiffco"), on January 23, 1990, the Company, among other things, advanced to
H.S. Realty approximately $204,000.
The $204,000 advance was originally to be repayable on the earlier of
January 23, 1991 or five days after the sale by H.S. Realty to Tiffco of certain
real property leased to Tiffco by H.S. Realty after the sale of assets. Since
January 23, 1991, the Board of Directors has extended the repayment date of the
advance on an annual basis, the most recent extension being until January 23,
1999 or five days after the sale by H.S. Realty to Tiffco of the Sweet Property.
As of November 30, 1997, H.S. Realty was indebted to the Company on account of
the advance in the amount of $351,776 and such indebtedness was accruing
interest at the rate of 9.75% per annum (1-1/4% per annum over the prime rate of
interest charged by Chase Manhattan Bank as of November 30, 1997).
Effective as of January 1, 1994, the Company entered into Indemnification
Agreements with each of its directors and officers other than Kishore Lall and
Martin Steinberg. The Company entered into Indemnification Agreements with
Kishore Lall and Martin Steinberg effective as of October 30, 1997 and July 21,
1998, respectively, and also entered into Indemnification Agreements with each
of Stuart Spivak, Michael Seltzer and Franklin Georges effective March 17, 1998.
Said agreements supplement the indemnification provisions of the Company's
By-laws and the Delaware General Corporation Law. The stockholders of the
Company authorized the Company to enter into such agreements with each of its
directors at the Annual Meeting of Stockholders held on August 21, 1987. The
Board of Directors has authorized the Company to enter into such agreements with
each of its officers.
C & S Acquisition Corporation, a corporation wholly owned by John
Catsimatidis, leases store operating equipment to the Company.
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On May 15, 1998, John Catsimatidis issued a limited $1,000,000 guarantee of
the collection of accounts receivable assigned to the Company as a result of the
Merger on November 10, 1997. In order to cover his contingent liability, Mr.
Catsimatidis agreed not to permit the liabilities to Mr. Catsimatidis and
certain of his affiliates which were assumed by the Company in the Merger to
fall below $1,000,000 prior to the issuance of the Company's audited financial
statements for the fiscal year ending November 29, 1998.
By virtue of his ownership of Common Stock and his position as Chairman of
the Board of the Company, John Catsimatidis may be deemed to be a "parent" of
the Company under rules promulgated by the Commission.
Lowenthal, Landau, Fischer & Bring, P.C., a law firm of which Martin Bring,
a director of the Company, was a member (until the firm merged with Wolf, Block,
Schorr and Solis-Cohen LLP in February 1998), received fees of approximately
$341,279 for rendering legal services to the Company during the Transition
Period.
PROPOSAL TO APPROVE THE
1998 STOCK OPTION PLAN
SUMMARY DESCRIPTION OF 1998 PLAN
On March 17, 1998, the Board of Directors adopted, subject to stockholder
approval, the 1998 Stock Option Plan (the "1998 Plan"). The 1998 Plan is
designed to provide long-term incentive benefits by the grant of stock options
to key employees, officers, directors and other persons who perform services for
or on behalf of the Company. An aggregate of 500,000 shares are reserved for
issuance upon exercise of options which may be granted under the 1998 Plan.
Currently there are approximately 44 persons that are eligible to receive
options under the 1998 Plan, 35 of which are Company employees, four of which
are executive officers, five of which are directors and none of which are
consultants.
The 1998 Plan authorizes the issuance of incentive stock options ("ISOs"),
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and stock options that do not qualify under that Code section ("NSOs").
The 1998 Plan shall be administered by the Board of Directors or by one or
more committees composed solely of two or more non-employee directors within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Committee"). The Board of Directors or the Committee has authority
to administer and interpret the provisions of the 1998 Plan; to determine when
and to whom options will be granted; whether such options will be ISOs or NSOs,
and to prescribe the terms and conditions of the options (including the number
of shares of Common Stock subject to each option, the exercise price of the
option, the number of installments, if any, in which the option may be exercised
and the duration of the option), subject to the provisions of the 1998 Plan.
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Options granted under the 1998 Plan are not transferable other than by will
or the laws of descent and distribution. In the case of an ISO, the exercise
price of each option shall not be less than 100% of the fair market value of the
underlying Common Stock on the date the ISO is granted.
If the holder of an ISO ceases to be employed by the Company for any reason
other than such person's death or permanent disability, the ISO will immediately
become void upon such termination; provided, however, that the option may be
exercised within three months after the date the holder ceases to be employed,
but only to the extent the option was exercisable on the date of such cessation
of employment. Special provisions relating to the termination of the option
apply in the case of death or permanent disability of the holder of an ISO.
Termination of employment with the Company by the holder of an NSO (including as
a result of death or permanent disability) will have the effect specified in the
individual option agreement as determined by the Board of Directors or the
Committee.
The purchase price for options granted under the 1998 Plan must be paid in
full by any one or a combination of the following methods: (i) in cash or by
certified or cashier's check payable to the order of the Company, (ii) by
cancellation of indebtedness, (iii) through the delivery of other shares of
Common Stock having an aggregate fair market value equal to the total exercise
price of the option being exercised, (iv) with the approval of the Board of
Directors or the Committee, by a promissory note made by the optionee in favor
of the Company upon the terms and conditions to be determined by the Board of
Directors or the Committee and secured by the shares issuable upon exercise of
such option, (v) through any combination of the foregoing, or (vi) in such other
manner as the Board of Directors or the Committee may specify in order to
facilitate the exercise of options by the holders thereof.
The Board of Directors is authorized to suspend, terminate or amend the
1998 Plan at any time, provided that, without the consent of the optionee, no
amendment, suspension or termination shall be made that would impair any rights
or obligations of the optionee under any option theretofore granted under the
1998 Plan. If stockholder approval is required pursuant to Rule 16b-3 or any
other rule or regulation under the Exchange Act, no amendment shall be effective
unless approved by the stockholders of the Company if such amendment shall (i)
increase the maximum number of shares which may be acquired pursuant to options
under the 1998 Plan, (ii) change the minimum exercise price of any option which
may be granted, (iii) increase the maximum term of any option which may be
granted or (iv) change the designation of persons eligible to receive options
under the 1998 Plan.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the 1998 Plan that qualify as ISOs under Section 422
of the Code will be treated as follows:
No tax consequences will result to the optionee or the Company from the
grant of an ISO to, or the exercise of an ISO by, the optionee. Instead, the
optionee will recognize gain or loss when he sells or disposes of the shares
transferred to him upon exercise of the option. For the purposes of determining
such gain or loss, the optionee's basis in such shares will be his option price.
If the date of sale or disposition of such shares is at least two years after
the date of the grant of the ISO and at
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least one year after the transfer of the shares to him upon exercise of the
option, the optionee will be entitled to long-term capital gain treatment upon
the sale or disposition.
The Company generally will not be allowed a deduction with respect to an
ISO. However, if an optionee fails to meet the foregoing holding period
requirements, any gain recognized by the optionee upon sale or disposition of
the shares transferred to him upon exercise of an ISO will be treated in the
year of such sale or disposition as ordinary income, rather than capital gain,
to the extent of the excess, if any, of the fair market value of the shares at
the time of exercise (or, if less, in certain cases the amount realized on such
sale or disposition) over their option price, and in that case the Company will
be allowed a corresponding deduction.
The amount, if any, by which the fair market value of the shares
transferred to the optionee upon the exercise of an ISO exceeds the option price
will constitute an "item of tax preference" subject in certain circumstances to
the "alternative minimum tax." Such item of tax preference will increase the
optionee's basis in his stock for purposes of the alternative minimum tax.
Options granted under the 1998 Plan which are NSOs will be treated as
follows:
There are no federal income tax consequences to an optionee or to the
Company upon the grant of an NSO under the 1998 Plan. Except as described below,
upon exercise of an NSO, the optionee will be treated as having received
ordinary income in an amount equal to the excess of the fair market value of the
Common Stock over the exercise price.
The ordinary income recognized by an optionee with respect to the exercise
of an option is subject to both wage withholding and employment taxes. The
Company will generally be entitled to a deduction for federal income tax
purposes of an amount equal to the ordinary income taxable to the optionee upon
exercise, provided that applicable income tax withholding requirements are
satisfied.
An optionee's tax basis in the Common Stock received on exercise of such
option is equal to the amount of any cash paid on exercise plus the amount of
ordinary income recognized as a result of the receipt of such shares. The
holding period for such Common Stock generally begins on the date of exercise
or, in the case of an officer, director or beneficial owner of more than 10% of
any class of equity securities of the Company, on the earlier of (i) six months
after acquisition, or (ii) the earliest date on which such person may sell such
shares of Common Stock at a profit without being subject to suit under Section
16(b) of the Exchange Act (unless the optionee elects to be taxed as of the date
of exercise).
If an optionee exercises an option by delivering Common Stock held by the
optionee, the optionee will recognize ordinary income (and the Company will be
entitled to an equivalent tax deduction) to the extent that the value of Common
Stock received exceeds the exercise price under the option; however, based upon
rulings issued by the Internal Revenue Service, in general, no gain or loss
should be recognized upon the transfer of such previously acquired Common Stock
to the Company upon exercise of the option. Provided the optionee receives a
separate identifiable stock certificate therefor, the optionee's tax basis in
that number of shares of Common Stock received on such exercise which is equal
to the number of shares exchanged therefor will be equal to his tax basis
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in the shares of Common Stock surrendered. Common Stock received by the optionee
in excess of the number of previously acquired shares of Common Stock
surrendered upon exercise of the option will have a tax basis equal to the
amount of ordinary income recognized in connection with such exercise. The
holding period for such additional shares will commence on the date ordinary
income is recognized.
On the disposition of Common Stock received upon exercise of an option, the
difference between the amount realized and the tax basis of the Common Stock
will be a long-term or short-term capital gain or loss, depending on whether the
optionee held the Common Stock for the requisite holding period.
NEW PLAN BENEFITS
The following table sets forth the benefits or amounts that have been
received or allocated to each of the following under the 1998 Plan. Additional
benefits or amounts that may be received by or allocated to potential
participants in the 1998 Plan are not determinable.
Shares of
Name and Position Dollar Value(1) Common Stock
- ------------------------------------ ------------ ------------
John Catsimatidis 0 0
Chairman of the Board
and Chief Executive Officer
Executive Group $28,688 27,000
Non-Executive Director Group $42,500 40,000
Non-Executive Officer Employee Group $460,063 433,000
- --------
(1) Based on a comparison of the closing sales price of the Common Stock on
the American Stock Exchange on July 17, 1998 ($3.8125) and the exercise
price for the options granted to the person or group. All options
granted under the 1998 Plan were granted at an exercise price of $2.75
per share.
REQUISITE VOTE
The affirmative vote of the holders of a majority of shares of Common Stock
present, in person or by proxy, and entitled to vote at the Annual Meeting is
required to approve the adoption of the 1998 Plan.
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OTHER MATTERS
Any stockholder intending to submit a proposal for presentation at the
Company's 1999 Annual Meeting of Stockholders must submit such proposal to the
Company at its executive offices by March 29, 1999.
A representative of BDO Seidman, LLP is expected to be present at the
meeting and will have the opportunity to make any desired statement and respond
to appropriate questions.
The Board of Directors knows of no other matters to be brought before this
meeting. The expense of preparing, assembling and mailing this information
statement will be borne by the Company. The Company will reimburse brokerage
houses, banks and custodians for their out-of-pocket expenses in forwarding the
Notice of Annual Meeting and Information Statement and the Company's Annual
Report to Stockholders to the beneficial owners of stock held of record.
The Company will provide to any stockholder of record at the close of
business on July 20, 1998, without charge, upon written request to its
Secretary, Michael Seltzer, a copy of the Company's Annual Report on Form 10-K
for the Transition Period from March 3, 1997 to November 30, 1997.
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