<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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-12
EAGLE FOOD CENTERS, 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>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 13, 2000
Dear Shareholder:
You are hereby invited to attend the 2000 Annual Meeting of Shareholders of
Eagle Food Centers, Inc. which will be held on Wednesday, September 13, 2000 at
8:00 a.m., Central Daylight Time, at the Milan Community Center, Route 67 and
92nd Avenue, Milan, Illinois. The matters to be considered and voted upon at the
Annual Meeting of Shareholders are:
1. The election of eight persons to serve as directors of the
Company until the 2001 Annual Meeting of Shareholders or until
their successors shall have been elected and shall have
qualified.
2. A proposal to ratify the 2000 Stock Incentive Plan.
3. A proposal to ratify the appointment of KPMG LLP as
independent public accountants for the current fiscal year.
4. Such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on July 28, 2000 as
the record date for determining the shareholders entitled to notice of and to
vote at the meeting or any adjournment or postponements thereof.
All shareholders of record at the close of business on July 28, 2000 are
invited to attend the meeting in person. However, to ensure your shares will be
voted in the event you are not able to attend, please fill in, sign, and date
the enclosed proxy, and return it in the enclosed envelope as soon as possible.
The attached Proxy Statement contains more detailed information with respect to
the business to be transacted at the meeting.
S. Patric Plumley
Secretary
August 14, 2000
Milan, Illinois
<PAGE>
August 14, 2000
EAGLE FOOD CENTERS, INC.
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Eagle Food Centers, Inc. (the
"Company"), to be voted at the Annual Meeting of Shareholders to be held on
September 13, 2000, at 8:00 a.m., Central Daylight Time at the Milan Community
Center, Route 67 and 92nd Avenue, Milan, Illinois, and at any adjournments or
postponements thereof. Proxies are solicited to give all shareholders of record
at the close of business on July 28, 2000, an opportunity to vote upon the items
listed on the accompanying proxy card. This Proxy Statement, the Notice of
Annual Meeting, and the proxy card are intended to be mailed to shareholders
commencing on August 14, 2000.
Only holders of record of the Common Stock of the Company, $.01 par value per
share, at the close of business on July 28, 2000, are entitled to notice of and
to vote at the annual meeting. As of July 28, 2000, the Company had outstanding
10,939,048 shares of Common Stock each of which is entitled to one vote on each
proposal presented. The holders of a majority of the outstanding shares of
Common Stock present in person or represented by proxy will constitute a quorum
for the transaction of business at the meeting. In the election of directors, a
plurality of votes cast in person or by proxy shall elect. Shareholders are not
entitled to cumulative voting in the election of directors. Each other proposal
requires a majority of the votes cast on the proposal to approve. Abstentions
and broker non-votes are counted for purposes of determining the presence or
absence of a quorum for the transaction of business. Abstentions are counted in
tabulations of the votes cast on proposals presented to the shareholders,
whereas broker non-votes are not counted for purposes of determining whether a
proposal has been approved.
All proxies delivered pursuant to this solicitation may be revoked at any
time at the option of the shareholder by giving written notice to the Secretary
of the Company, by submitting a later dated proxy, or by voting in person at the
meeting.
Upon timely receipt of each properly signed proxy card, the shares
represented thereby will be voted in accordance with the directions indicated on
the proxy card. If no instructions are indicated, the shares will be voted for
the election of the nominated directors, for the ratification of the 2000 Stock
Incentive Plan and for the ratification of the selection of auditors.
The cost of soliciting proxies will be borne by the Company. Officers,
directors, and regular employees of the Company may solicit proxies personally,
by mail, by telephone or otherwise for which they will not receive additional
compensation.
The Eagle Food Centers, Inc. 1999 Annual Report and financial statements for
the fiscal year ended January 29, 2000, with comparative figures for prior
periods, accompany this Proxy Statement. The Annual Report and the financial
statements included therein are incorporated in this Proxy Statement by
reference.
The mailing address of the principal executive offices of the Company is Rt.
67 and Knoxville Road, Milan, Illinois, 61264.
2
<PAGE>
PROPOSALS TO SHAREHOLDERS
ELECTION OF DIRECTORS
PROPOSAL 1
The Board of Directors currently consists of six members, all of whom have
been nominated to be elected at the 2000 Annual Meeting of Shareholders to serve
until the 2001 Annual Meeting of Shareholders or until their successors have
been elected and qualified. Two additional nominees, who will also serve until
the 2001 Annual Meeting of Shareholders or until their successors have been
elected and qualified, have been added to bring the board to eight members. The
table below sets forth certain information regarding the nominees. The
accompanying proxy, in the absence of instructions to the contrary, will be
voted for the election of the following eight persons unless the authority to
vote is withheld. If any nominee is unable to serve, or for good cause will not
serve, favorable and uninstructed proxies will be voted for a substitute nominee
designated by the Board of Directors.
The Board of Directors recommends a vote "FOR" each of the eight nominees listed
below.
Name Age Position(s) Held
---- --- ----------------
Robert J. Kelly 55 Chairman of the Board
Jeffrey L. Little 49 Chief Executive Officer and President
S. Patric Plumley 51 Senior Vice President, Chief Financial Officer,
Secretary
Peter B. Foreman 64 Director
Steven M. Friedman 45 Director
Alain M. Oberrotman 49 Director
Jerry I. Reitman 62 Director
William J. Snyder 57 Director
The business experience of each of the nominees during the past five years is as
follows:
Mr. Kelly joined the Company as President and Chief Executive Officer in May
1995 and became a director in June 1995. On March 30, 1998, Mr. Kelly was named
Chairman of the Board of Directors for the Company. Prior to May 1995, Mr. Kelly
was Executive Vice President, Retailing for The Vons Companies, Inc. and was
employed by that Company since 1963. Mr. Kelly has 37 years of experience in the
supermarket industry.
Mr. Little joined the Company as President and Chief Executive Officer in
January 2000. Prior to joining the Company, Mr. Little was Vice President,
Marketing for Fleming Retail Companies and President of ABCO Foods (a division
of Fleming), from January 1998 to January 2000. From August 1989 to December
1997, Mr. Little was with Haggen, Inc. serving in various capacities as Senior
Vice President Operations, Vice President Sales/Marketing and Vice President
Perishables. Mr. Little has 32 years of experience in the supermarket industry.
Mr. Plumley, who was named Senior Vice President - Chief Financial Officer
and Secretary on March 1, 1999, served the Company as Vice President - Chief
Financial Officer and Secretary from March 30, 1998 and Vice President and
Corporate Controller from September 15, 1997 until his promotions. Prior to
September 1997, Mr. Plumley served as Senior Vice President of American Stores'
Super Saver Division from 1994 to 1997, and Senior Vice President of Lucky
Stores, Inc. from 1990 to 1994. Mr. Plumley has 27 years of experience in the
supermarket industry.
Mr. Foreman is President of Sirius Corporation, a private investment
management firm. Prior to 1993, Mr. Foreman was a Principal at Harris Associate
L.P. since 1976. Mr. Foreman has been a director of the Company since June 1989.
Mr. Friedman is a General Partner of Eos Partners, L.P., a private investment
firm, a position he has held since January 1994. Mr. Friedman has served as a
director of the Company since November 1987 and was a General Partner of Odyssey
Partners from April 1988 until December 1993.
Mr. Oberrotman is currently employed in merchant banking and consulting and
previously was a Principal with Odyssey Partners L.P. from October 1992 to May
1997. Prior to that he was a Principal of Hambro International Equity Partners,
a venture capital firm, from September 1990 to October 1992. Mr. Oberrotman
became a director of the Company in June 1996.
3
<PAGE>
Mr. Reitman is Vice Chairman, Partner of the Callahan Group, a full service
management consulting company in Chicago, Illinois, a lecturer at Northwestern
University, author, and an advisor to Senior Management on direct marketing,
integrated communications, and strategic positioning. Previously, Mr. Reitman
was Executive Vice President, International for Ogilvy and Mather Direct and was
Executive Vice President of Worldwide Direct Marketing for the Leo Burnett
Agency. Mr. Reitman became a director of the Company in December 1998.
Mr. Snyder is a senior shareholder in the law firm of Snyder, Schwarz, Park &
Nelson P.C., Rock Island, Illinois where he has been employed since March 1983.
Mr. Snyder and the firm have performed legal services in the past for the
Company and the Company expects such services to continue in the future. Mr.
Snyder has been a director of the Company since June 1989.
The directors of the Company are elected annually to serve until the next
annual meeting of shareholders and until their successors have been elected and
qualified. None of the directors or executive officers listed herein is related
to any other director or executive officer.
COMPENSATION OF DIRECTORS
The non-employee directors of the Company receive an annual retainer of
$22,500 and fees of $750 for each board meeting and $500 for each committee
meeting attended plus reimbursement of travel expenses. Mr. Snyder does not
receive fees as director, but does receive legal fees for his services as a
board and committee member.
CERTAIN TRANSACTIONS
Snyder, Schwarz, Park & Nelson P.C., the law firm of which Mr. Snyder, a
director of the Company, is a member, serves as counsel to the Company. The
Company paid that law firm $279,055, $380,446, and $310,117 for services
rendered in fiscal 1999, 1998, and 1997, respectively. These amounts include
remuneration for the services of Mr. Snyder as a director of the Company. The
Board has determined that the fees paid for services rendered from Snyder,
Schwarz, Park & Nelson P.C., were fair and competitive.
Mr. Oberrotman was paid $121,619, including expenses, in fiscal 1999 for
services rendered as a consultant in merchant banking in connection with the
restructuring of the Senior Notes of the Company. The Board has determined that
the fees paid for services rendered by Mr. Oberrotman were fair and competitive.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Board of Directors is responsible for establishing broad corporate
policies and for overseeing the overall performance of the Company. The
directors are kept informed of the business of the Company through discussions
with the Chairman and Chief Executive Officer, and other directors and officers,
by reviewing reports and analyses, and by participating in board and committee
meetings.
The Board of Directors held six meetings during fiscal 1999. In addition,
from time to time, members of the Board of Directors and committees act by
unanimous written consent pursuant to Delaware law. All directors attended at
least 75% of all board and committee meetings on which they served except Mr.
Reitman. Mr. Reitman attended 57% of the board and committee meetings on which
he served.
The Board of Directors has an Audit Committee and a Compensation Committee.
The Board does not have a nominating committee. The Board of Directors acts as a
committee of the whole with respect to functions that would be performed by a
nominating committee.
The Audit Committee is composed of Mr. Foreman, Mr. Snyder and Mr.
Oberrotman, all of whom are non-employee directors. The Committee met three
times during fiscal 1999. The Committee recommends the engagement of an
independent auditor and reviews the scope and results of the audits of the
Company, the internal accounting controls of the Company and the professional
services rendered by the independent auditors of the Company.
4
<PAGE>
The Compensation Committee is composed of Mr. Reitman and Mr. Friedman, both
of whom are non-employee directors. The Committee met two times during fiscal
1999. The Committee reviews and approves all salary arrangements and other
remuneration for officers of the Company.
LIMITATION OF LIABILITY OF DIRECTORS
As permitted by the Delaware General Corporation Law, the Certificate of
Incorporation of the Company provides that a director of the Company will not be
personally liable to the Company or its shareholders for monetary damages for
breach of the fiduciary duty of care as a director, including breaches which
constitute gross negligence. By its terms and in accordance with the Delaware
General Corporation Law, this provision does not eliminate or limit the
liability of a director of the Company (i) for breach of the duty of loyalty to
the Company or its shareholders by the director, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law (relating
to unlawful payment of dividends or unlawful stock repurchase or redemption), or
(iv) for any transaction from which the director derived an improper personal
benefit.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The Summary Compensation Table below shows compensation information for the
Chief Executive Officer of the Company and the four other most highly
compensated executive officers who were serving at the end of the last fiscal
year whose total annual salary and bonus exceeded $100,000 for the fiscal years
indicated. Mr. Jeffrey Little became Chief Executive Officer and President after
the end of Fiscal Year 1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION
----------------------------------------- ------------ ------------
SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#)
------------------ ---- ------ ----- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Kelly, 1999 $369,513 $225,957 (1) 0 $278,132 (9)
Chairman of the Board, 1998 360,500 500,000 (6) (1) 0 354,146 (7)
Chief Executive Officer, 1997 350,000 214,317 (1) 0 33,642 (2)
President
S. Patric Plumley, 1999 $155,421 $95,999 (1) 15,000 $ 7,272 (10)
Senior Vice President, 1998 117,162 0 (1) 10,000 49,481 (8)
Chief Financial Officer, 1997 30,769 (3) 14,052 (1) 15,000 14,963 (4)
Secretary
Byron O. Magafas, 1999 $124,790 $45,785 (1) 0 $ 8,198 (10)
Vice President, 1998 116,686 0 (1) 10,000 17,857 (8)
Human Resources 1997 28,750 (3) 10,253 (1) 15,000 13,000 (4)
Vincent J. Faulhaber, Jr., 1999 $109,999 $40,359 (1) 15,000 $9,947 (10)
Vice President, 1998 16,923 (5) 0 (1) 10,000 5,000 (4)
Non-Perishables 1997 0 0 0 0 0
Frank A. Klun, 1999 $102,500 $37,983 (1) 10,000 $46,420 (10)
Vice President, 1998 96,000 (5) 0 (1) 15,000 7,059 (4)
Support Systems 1997 0 0 0 0 0
</TABLE>
Notes:
(1) Received other annual compensation consisting of perquisites and personal
benefits valued at less than the lesser of ten percent of total annual
salary and bonus or $50,000.
(2) Amount represents the full dollar value of premiums paid by the Company
on compensatory split-dollar executive life insurance policies and a
401(k) matching contribution paid by the Company for Mr. Kelly.
(3) Mr. Plumley and Mr. Magafas began working for the Company in September
and November, respectively, in Fiscal Year 1997.
5
<PAGE>
(4) Mr. Plumley received a signing bonus of $10,000 plus temporary living
expenses of $3,000 and taxable moving expenses of $1,963. Mr. Magafas
received a signing bonus of $10,000 plus temporary living expenses of
$3,000. Mr. Faulhaber received temporary living expenses of $5,000 and
Mr. Klun received temporary living expenses of $3,000, non-taxable moving
expenses of $182 and a 401(k) matching amount of $3,877.
(5) Mr. Klun and Mr. Faulhaber began working for the Company in February and
December, respectively, in Fiscal Year 1998.
(6) Mr. Kelly received a signing bonus of $500,000 at his contract extension
date of April 12, 1998.
(7) Mr. Kelly received a taxable reimbursement for moving expenses of
$96,425, full dollar value of premiums paid by the Company on
compensatory split-dollar executive life insurance policies of $4,048,
debt forgiveness of $248,673, including taxes, for a note given to the
Company regarding the purchase of stock and a 401(k) matching amount of
$5,000.
(8) Mr. Plumley received taxable moving expenses of $35,914, non-taxable
moving expenses of $8,567 and a 401(k) matching amount of $5,000. Mr.
Magafas received taxable moving expenses of $6,697, non-taxable moving
expenses of $6,160 and a 401(k) matching amount of $5,000.
(9) Mr. Kelly received full dollar value of premiums paid by the Company on a
compensatory split-dollar executive life insurance policy of $14,073,
full dollar value of premiums paid by the Company on Executive Term Life
policy of $10,386, debt forgiveness of $248,673, including taxes, for a
note given to the Company regarding the purchase of stock and a 401(k)
matching amount of $5,000.
(10) Mr. Plumley, Mr. Magafas and Mr. Klun each received a 401(k) matching
amount of $5,000. Mr. Faulhaber and Mr. Klun received taxable moving
expenses of $1,197 and $21,600, respectively and non-taxable moving
expenses of $6,808 and $12,301, respectively. Mr. Plumley, Mr. Magafas,
Mr. Faulhaber and Mr. Klun each received full dollar value of premiums
paid by the Company on Executive Term Life policies of $2,272, $3,198,
$1,942, and $7,519 respectively.
OPTIONS/SAR GRANTS IN FISCAL YEAR 1999
As part of individual employment agreements, options were granted to S.
Patric Plumley, Senior Vice President and Chief Financial Officer, Vincent J.
Faulhaber, Jr., Vice President, Non Perishables and Frank A. Klun, Vice
President, Support Systems. No other named Executive Officer was granted stock
options in fiscal year 1999.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1999
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
NUMBER OF PERCENT OF VALUE AT
SECURITIES TOTAL OPTIONS ASSUMED
UNDERLYING GRANTED TO EXERCISE OR ANNUAL RATES OF
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERM (5)
NAME GRANTED (#) FISCAL YEAR ($/SH) (4) DATE(4) 5% 10%
---- ------------- ----------- ---------- ----------- -- ---
<S> <C> <C> <C> <C> <C> <C>
S. Patric Plumley (1) 15,000 13.10% 2.9375 04-01-2009 27,711 70,224
Vincent J. Faulhaber, Jr. (2) 15,000 13.10% 1.2500 12-07-2009 11,792 29,883
Frank A. Klun (3) 10,000 8.73% 3.6880 02-02-2009 23,194 58,777
</TABLE>
Notes:
(1) Options were granted for a term of ten years on April 1, 1999. One-fourth
of the options become exercisable on each of the first four anniversaries
of the grant date.
(2) Options were granted for a term of ten years on December 7, 1999.
One-fourth of the options become exercisable on each of the first four
anniversaries of the grant date.
(3) Options were granted for a term of ten years on February 2, 1999.
One-fourth of the options become exercisable on each of the first four
anniversaries of the grant date.
(4) Represents the market price of the common stock of the Company at the
closing date of the grant. On May 31, 2000, these options were canceled
and reissued with an exercise price of $1.25 and a term shortened by two
years.
(5) Caution is recommended in interpreting the financial significance of
these figures. The amounts under the columns labeled "5%" and "10%" are
included pursuant to certain rules promulgated by the Securities and
Exchange Commission and are not intended to forecast future appreciation,
if any, in the price of the common stock of the Company. These amounts
are based on the assumption that the named executive holds the options
granted for the full term of the options and that the market price of the
underlying security appreciates in value from the date of the grant to
the end of the option term at the annualized rates of 5% and 10%,
respectively,
6
<PAGE>
compounded annually over the term of the options. The actual value of the
options will vary in accordance with the market price of the common stock
of the Company.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUES
The following table shows information regarding the values of certain
unexercised options owned by the named executive officers at the end of the last
completed fiscal year. No options or stock appreciation rights were exercised
during the fiscal year. No stock appreciation rights were granted during fiscal
1999 or were outstanding at the end of fiscal 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR END OPTION/SAR VALUES TABLE
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ON VALUE OPTIONS AT JANUARY 29, 2000 AT JANUARY 29, 2000 (1)
EXERCISE REALIZED EXERCISABLE (#) NON-EXERCISABLE (#) EXERCISABLE ($) NON-EXERCISABLE ($)
-------- -------- --------------- ------------------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Kelly 0 0 600,000 0 0 0
S. Patric Plumley 0 0 10,000 30,000 0 0
Byron O. Magafas 0 0 10,000 15,000 0 0
Vincent J. Faulhaber, 0 0 2,500 22,500 0 0
Jr.
Frank A. Klun 0 0 3,750 21,250 0 0
</TABLE>
Notes:
(1) Market value of underlying securities at January 29, 2000 ($1.094) minus
the base price.
COMPENSATION COMMITTEE REPORT
The Compensation Committee for fiscal 1999 was composed of two non-employee
members from the Board of Directors. The members were Mr. Reitman and Mr.
Friedman. Mr. Kelly attended meetings as a non-voting member. The Committee
establishes objectives for the executive compensation program and reviews and
approves all salary and other remuneration for the executive officers of the
Company. The objectives of the executive compensation program are to:
1. Promote the attainment of Company goals by emphasizing a greater portion
of compensation subject to performance goals.
2. Attract and retain qualified talent.
3. Enhance shareholder value by providing opportunities for equity ownership
through performance-based programs.
The executive officer compensation program is comprised of salary, cash
incentive compensation and other benefits, including pension and medical
benefits which are available to other employees of the Company.
BASE SALARY
There is no formal Compensation Committee policy regarding the determination
of salaries; however, consideration is given to several factors, including
individual work experience, performance, and comparable salaries within the
retail food industry.
ANNUAL INCENTIVE BONUSES
Annual bonus potentials depend upon job levels and are set at a stated
percent of the base compensation. Bonuses are paid based on an allocation
formula primarily derived from performance against budgeted sales and earnings
targets. The corporate plan paid out above target amounts in 1999 and 1997 based
on the financial results for each year. The corporate plan did not provide a
bonus payout for 1998.
LONG-TERM INCENTIVE
The Committee intends to utilize stock options as the vehicle to provide a
long-term focus. Stock options were issued in fiscal year 1999 and again in
fiscal year 2000.
7
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
On December 15, 1999, the Company and Robert Kelly entered into a contract
pursuant to which the Company agreed to extend his employment through December
31, 2001 and Mr. Kelly agreed to continue as Chairman of the Board of Directors.
Prior to December 15, 1999, Mr. Kelly's Employment Contract provided for a base
salary of $360,500. Mr. Kelly's current Employment Agreement provides for a base
salary of $350,000 per year during the agreed upon period of transition of
duties to the new Chief Executive Officer. After the transition period the
agreement provides Mr. Kelly with $190,000 per year as Chairman of the Board of
Directors and for services provided in the ongoing operation of the Company
through December 31, 2001.
Also, through Fiscal Year 1999, Mr. Kelly was eligible to receive bonus
compensation, in an amount determined by the Board of Directors based upon
mutually acceptable performance targets, of 50% of the base salary with a
maximum potential of 100% should the Company exceed budgeted expectations. The
bonus compensation for Mr. Kelly was: $214,317 in 1997, $0 in 1998 and $225,957
in 1999.
Mr. Kelly purchased 125,000 shares of common stock of the Company at the time
of his original employment by delivering to the Company a promissory note with
the purchase price of the shares based upon the closing sale price of the common
stock of the Company on the business day immediately preceding the date of the
Employment Contract. Under the April 12, 1998 amendment to his Employment
Contract, the foregoing loan (and interest) was forgiven in 50% increments for
each year of service completed by Mr. Kelly, commencing as of December 31, 1997.
The company also provided Mr. Kelly with a tax gross up of the loan forgiveness.
Mr. Kelly has an option to purchase 200,000 shares of stock of the Company at
$2.50 per share, 200,000 shares at $3.50 per share and 200,000 shares at $4.50
per share.
Under the recent amendments to his Employment Contract, Mr. Kelly will also
be entitled (1) in the event of a Change of Control of the Company occurring
within two years of termination of his employment for any reason other than
cause, to an extended exercise period for each group of options, based on a one
year extension for each completed year of service from December 31, 1997 (up to
a maximum exercise period of the ten year expiration period as provided for
under the stock incentive plans of the Company), and (2) upon termination of his
employment for any reason other than cause, extended payment by the Company of
all premiums associated with the split dollar life insurance policy in effect
for Mr. Kelly, for a period equal to each year of service from December 31,
1997. The recent amendments to the Employment Contract of Mr. Kelly also subject
Mr. Kelly to a one year non-competition restriction following the termination of
his employment, prohibiting Mr. Kelly from engaging in any supermarket business
conducted in the service area of the Company.
As of January 31, 2000, the Company retained Mr. Jeffrey Little as its
President and Chief Executive Officer. The Company and Mr. Little entered into
an Employment Contract with an initial term of three years ending January 31,
2003. The Employment Contract provides for a base salary at the rate of $325,000
per year. In addition, the Company paid a signing bonus of $100,000 at the
commencement of his employment. Also, Mr. Little will be eligible to receive
bonus compensation, in an amount determined by the Board of Directors based upon
mutually acceptable performance targets, of 50% of the base salary, with a
maximum potential of 100% should the Company exceed budgeted expectations. In
the event the Company terminates Mr. Little's Employment other than for "cause",
Mr. Little will receive a payment in a lump sum equal to eighteen (18) months of
compensation, continued health and dental insurance coverage for a period of
eighteen (18) months, any accrued and unused vacation pay and professional
outplacement services up to the sum of $20,000.
The Company has also granted Mr. Little the option to purchase up to 600,000
shares of stock of the Company. Under the terms of his option, up to 200,000
shares may be purchased by Mr. Little on or after the first anniversary date of
his employment at $1.26 per share, up to an additional 200,000 shares may be
purchased on or after the second anniversary of his employment at $2.26 per
share and the final 200,000 shares may be purchased on or after the third
anniversary of the employment of Mr. Little at $3.26 per share. This option
becomes immediately exercisable in the event of the termination of employment of
Mr. Little by reason of his death or permanent disability, by the Company for
any reason other than "cause" (as defined in the Employment Agreement), or by
Mr. Little for "good reason" (as defined in the Employment Agreement). Mr.
Little received relocation and temporary housing expenses and is entitled to
regular Company benefits and four weeks of vacation per year.
8
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER INFORMATION
The Compensation Committee is comprised exclusively of directors who are not
and have never been Company employees. No Company executive officer serves on
the Compensation Committee or as a director of another company for which any
member of the Compensation Committee serves as a director or executive officer.
SUMMARY OF COMPENSATION PLANS
RETIREMENT PLAN
The Company maintains a tax-qualified defined benefit pension plan covering
both salaried and non-union hourly employees. The benefit formula under such
plan is the sum of 1% of annual compensation for each year up to the Social
Security Wage Base for that year and 1.33% of annual compensation over the
Social Security Wage Base with a minimum benefit of $360 per year multiplied by
years of credited service. There is full vesting of benefits after five years of
service. All contributions are made by the Company. Effective October 1, 1990,
the pension plans were amended to provide for voluntary early retirement at age
55. Assuming continued employment with the Company until retirement at age 65,
the estimated annual benefits payable beginning at age 65 to the executive
officers are as follows: Mr. Kelly--$29,269; Mr. Little--$31,279; Mr.
Plumley--$32,331; Mr. Magafas--$47,200; Mr. Faulhaber--$32,927 and Mr.
Klun--$28,105. Mr. Kelly currently has plans to retire December 31, 2001, in
which case his estimated annual benefits payable beginning at age 65 would be
$13,436.
STOCK INCENTIVE PLAN
The Company has a Stock Incentive Plan which was ratified by the shareholders
at the 1995 Annual Shareholders Meeting. The Plan provides the Compensation
Committee with the discretion to make grants until June 20, 2005 to all salaried
employees of the Company who are not in a bargaining unit, in the form of
Non-qualified Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Limited Stock Appreciation Rights and Restricted Stock. Grants of Stock
Appreciation Rights, Limited Stock Appreciation Rights and Restricted Stock are
intended to be confined to key employees in special situations. The Plan
originally authorized two million shares of common stock. There were 808,813
shares available as of January 29, 2000 for future grants. On January 31, 2000
the Company granted Mr. Little, the new President and Chief Executive Officer,
the option to purchase up to 600,000 shares of stock of the Company reducing
shares available for future grants to 208,813.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Robert J. Kelly, Chairman of the Board of Directors, has an employment
contract which is described above.
Jeffrey L. Little, President and Chief Executive Officer, has an employment
contract which is described above.
The Company has an Employment Agreement effective as of September 15, 1997
with S. Patric Plumley, Senior Vice President - Chief Financial Officer and
Secretary of the Company. Under the terms of this Agreement, Mr. Plumley
received a signing bonus of $10,000 and a base salary of $80,000. The $80,000
salary was increased as of March 30,1998 to $120,000 upon his promotion to Vice
President and Chief Financial Officer and increased to $156,990 as of March 1,
1999 upon the promotion of Mr. Plumley to Senior Vice President and Chief
Financial Officer. The base salary was increased to $180,000 effective February
5, 2000. In addition, Mr. Plumley is entitled to participate in the Eagle Bonus
Plan at the Senior Vice President targeted norm of 50% of average annual salary
with a maximum potential of 100% should the Company exceed budgeted
expectations. On May 31, 2000, the Company canceled stock options for 15,000
shares issued to Mr. Plumley on September 15, 1997 at $5.00 per share and
replaced them with stock options for 15,000 shares at $1.25 per share with
amounts exercisable as follows: 7,500 shares on June 1, 2000, 3,750 shares on
September 15, 2000 and 3,750 shares on September 15, 2001, with the option term
shortened by two years to September 15, 2005. On May 31, 2000, the Company
canceled stock options for 10,000 shares issued to Mr. Plumley on September 15,
1998 at $2.50 per share and replaced them with stock options for 10,000 shares
at $1.25 per share with amounts exercisable as follows: 2,500 shares on June 1,
2000, 2,500 shares on September 15, 2000, 2,500 shares on September 15, 2001 and
2,500 shares on September 15, 2002, with the option term shortened by two years
to September 15, 2006. On May 31, 2000, the Company canceled stock options for
15,000 shares issued to Mr. Plumley on April 1, 1999 at $2.938 per share and
replaced them with stock options for 15,000 shares at $1.25 per share with
amounts exercisable as follows: 3,750 shares on June 1, 2000, 3,750 shares on
April 1, 2001, 3,750 shares on April 1, 2002, and 3,750 shares on April 1, 2003,
with the
9
<PAGE>
option term shortened by two years to April 1, 2007. On May 31, 2000, the
Company awarded Mr. Plumley stock options for 60,000 shares at $1.25 per share
with amounts exercisable as follows: 15,000 shares on May 31, 2001, 15,000
shares on May 31, 2002, 15,000 shares on May 31, 2003 and 15,000 shares on May
31, 2004, with options expiring on May 31, 2010. Mr. Plumley received relocation
and temporary housing expenses and is entitled to regular Company benefits and
four weeks of vacation per year. In addition, Mr. Plumley has entered into a
Change in Control Agreement with the Company dated June 1, 2000 which provides
eighteen months of salary, continued health and dental insurance for eighteen
months, as well as outplacement assistance if his employment is terminated due
to a change of control (defined below).
The Company has an Employment Contract effective as of May 8, 2000, as
revised, with a term of three years with Stan Stephens, Senior Vice President,
Retail of the Company. Under the terms of this Contract, Mr. Stephens received a
signing bonus of $30,000 and a base salary of $170,000. In addition, Mr.
Stephens is entitled to participate in the Eagle Bonus Plan at the Senior Vice
President targeted norm of 50% of average annual salary with a maximum potential
of 100% should the Company exceed budgeted expectations. The Company also
awarded Mr. Stephens stock options for 75,000 shares at the lowest closing price
within a twenty (20) day period after the Company's stock begins trading again
after the current suspension of trading ends (option price shall not exceed one
dollar and fifty cents) with 25,000 shares to vest at the first anniversary of
the employment date, 25,000 shares to vest at the second anniversary of the
employment date at the original option price plus one dollar and 25,000 shares
to vest at the third anniversary of the employment date at the original option
price plus two dollars. Mr. Stephens received relocation and temporary housing
expenses and is entitled to regular Company benefits and four weeks of vacation
per year. In addition, Mr. Stephens has entered into a Change in Control
Agreement with the Company dated April 11, 2000 which provides eighteen months
of salary, continued health and dental insurance for eighteen months, as well as
outplacement assistance if his employment is terminated due to a change of
control (defined below).
The Company has an Employment Agreement effective as of May 8, 2000, as
revised, with Clark Jordan, Vice President of Operations of the Company. Under
the terms of this Agreement, Mr. Jordan received a signing bonus of $25,000 and
a base salary of $145,000. In addition, Mr. Jordan is entitled to participate in
the Eagle Bonus Plan at the targeted norm of 50% of average annual salary with a
maximum potential of 100% should the Company exceed budgeted expectations. The
Company also awarded Mr. Jordan stock options for 50,000 shares at the lowest
closing price within a twenty (20) day period after the Company's stock begins
trading again after the current suspension of trading ends (option price shall
not exceed one dollar and fifty cents) with 20,000 shares to vest at the first
anniversary of the employment date, 15,000 shares to vest at the second
anniversary of the employment date at the original option price plus one dollar
and 15,000 shares to vest at the third anniversary of the employment date at the
original option price plus two dollars. Mr. Jordan received relocation and
temporary housing expenses and is entitled to regular Company benefits and four
weeks of vacation per year. In addition, Mr. Jordan has entered into a Change in
Control Agreement with the Company dated April 11, 2000 which provides eighteen
months of salary, continued health and dental insurance for eighteen months, as
well as outplacement assistance if his employment is terminated due to a change
of control (defined below).
The Company has an Employment Agreement effective as of November 3, 1997 with
Byron O. Magafas, Vice President - Human Resources of the Company. Under the
terms of this Agreement, Mr. Magafas received a signing bonus of $10,000 and a
base salary of $115,000. The base salary was increased to $124,789 effective
February 1, 1999. The base salary was increased to $126,200 effective February
5, 2000. In addition, Mr. Magafas is entitled to participate in the Eagle Bonus
Plan at the Administrative Vice President targeted norm of 30% of average annual
salary with a maximum potential of 60% should the Company exceed budgeted
expectations. On May 31, 2000, the Company canceled stock options for 15,000
shares issued to Mr. Magafas on November 3, 1997 at $4.75 per share and replaced
them with stock options for 15,000 shares at $1.25 per share with amounts
exercisable as follows: 7,500 shares on June 1, 2000, 3,750 shares on November
3, 2000 and 3,750 shares on November 3, 2001, with the option term shortened by
two years to November 3, 2005. On May 31, 2000, the Company canceled stock
options for 10,000 shares issued to Mr. Magafas on November 3, 1998 at $3.625
per share and replaced them with stock options for 10,000 shares at $1.25 per
share with amounts exercisable as follows: 2,500 shares on June 1, 2000, 2,500
shares on November 3, 2000, 2,500 shares on November 3, 2001 and 2,500 shares on
November 3, 2002, with the option term shortened by two years to November 3,
2006. On May 31, 2000, the Company awarded Mr. Magafas stock options for 3,000
shares at $1.25 per share with amounts exercisable as follows: 750 shares on May
31, 2001, 750 shares on May 31, 2002, 750 shares on May 31, 2003 and 750 shares
on May 31, 2004, with options expiring on May 31, 2010. Mr. Magafas also
received relocation and temporary housing expenses and is entitled to regular
Company benefits and four weeks of vacation per year. In addition, Mr. Magafas
has entered into a Change in
10
<PAGE>
Control Agreement with the Company dated June 1, 2000 which provides eighteen
months of salary, continued health and dental insurance for eighteen months, as
well as outplacement assistance if his employment is terminated due to a change
of control (defined below).
The Company has an Employment Agreement effective as of December 7, 1998 with
Vincent J. Faulhaber, Jr., Vice President, Non Perishables of the Company. Under
the terms of this Agreement, Mr. Faulhaber received a base salary of $110,000.
The base salary was increased to $112,300 effective February 5, 2000. In
addition, Mr. Faulhaber is entitled to participate in the Eagle Bonus Plan at
the Administrative Vice President targeted norm of 30% of average annual salary
with a maximum potential of 60% should the Company exceed budgeted expectations.
On May 31, 2000, the Company canceled stock options for 10,000 shares issued to
Mr. Faulhaber on December 7, 1998 at $3.438 per share and replaced them with
stock options for 10,000 shares at $1.25 per share with amounts exercisable as
follows: 2,500 shares on June 1, 2000, 2,500 shares on December 7, 2000, 2,500
shares on December 7, 2001 and 2,500 shares on December 7, 2002, with the option
term shortened by two years to December 7, 2006. On May 31, 2000, the Company
canceled stock options for 15,000 shares issued to Mr. Faulhaber on December 7,
1999 at $1.25 per share and replaced them with stock options for 15,000 shares
at $1.25 per share with amounts exercisable as follows: 3,750 shares on December
7, 2000, 3,750 shares on December 7, 2001, 3,750 shares on December 7, 2002 and
3,750 shares on December 7, 2003, with the option term shortened by two years to
February 2, 2007. Mr. Faulhaber also received relocation and temporary housing
expenses and is entitled to regular Company benefits and four weeks of vacation
per year. In addition, Mr. Faulhaber has entered into a Change in Control
Agreement with the Company dated June 1, 2000 which provides twelve months of
salary, continued health and dental insurance for twelve months, as well as
outplacement assistance if his employment is terminated due to a change of
control (defined below).
The Company has an Employment Agreement effective as of February 2, 1998 with
Frank A. Klun, Vice President, Support Systems of the Company. Under the terms
of this Agreement, Mr. Klun received a base salary of $95,000. The base salary
was increased to $107,646 effective February 5, 2000. In addition, Mr. Klun is
entitled to participate in the Eagle Bonus Plan at the Administrative Vice
President targeted norm of 30% of average annual salary with a maximum potential
of 60% should the Company exceed budgeted expectations. On May 31, 2000, the
Company canceled stock options for 15,000 shares issued to Mr. Klun on February
2, 1998 at $4.063 per share and replaced them with stock options for 15,000
shares at $1.25 per share with amounts exercisable as follows: 7,500 shares on
June 1, 2000, 3,750 shares on February 2, 2001 and 3,750 shares on February 2,
2002, with the option term shortened by two years to February 2, 2006. On May
31, 2000, the Company canceled stock options for 10,000 shares issued to Mr.
Klun on February 2, 1999 at $3.625 per share and replaced them with stock
options for 10,000 shares at $1.25 per share with amounts exercisable as
follows: 2,500 shares on June 1, 2000, 2,500 shares on February 2, 2001, 2,500
shares on February 2, 2002 and 2,500 shares on February 2, 2003, with the option
term shortened by two years to February 2, 2007. On May 31, 2000, the Company
awarded Mr. Klun stock options for 3,000 shares at $1.25 per share with amounts
exercisable as follows: 750 shares on May 31, 2001, 750 shares on May 31, 2002,
750 shares on May 31, 2003 and 750 shares on May 31, 2004, with options expiring
on May 31, 2010. Mr. Klun also received relocation and temporary housing
expenses and is entitled to regular Company benefits and three weeks of vacation
for 1998 and beginning in 1999 four weeks of vacation per year. In addition, Mr.
Klun has entered into a Change in Control Agreement with the Company dated June
1, 2000 which provides twelve months of salary, continued health and dental
insurance for twelve months, as well as outplacement assistance if his
employment is terminated due to a change of control (defined below).
In order to protect all of the rights of the participant in the event of a
Change in Control of the Company, the 1995 Stock Incentive Plan provides for the
immediate vesting of all outstanding awards upon the occurrence of such an
event. A Change in Control of the Company is deemed to occur if any one or more
of the following conditions are fulfilled: (i) any person or entity (with the
exception of Odyssey Partners) acquires 50% or more of the voting securities of
the Company; (ii) the shareholders approve a plan of complete liquidation, an
agreement for sale or disposition of substantially all of the assets of the
Company, or a materially dilutive merger or consolidation of the Company; or
(iii) the Board of Directors agrees by a two-thirds vote that a Change in
Control has occurred or is about to occur and within six months actually does
occur. However, in no event shall a Change in Control be deemed to occur with
respect to any Plan participant who is a material equity participant of the
purchasing group that consummates a Change in Control.
11
<PAGE>
RETENTION AGREEMENT
The Company has entered into a Retention Agreement with certain key employees
in the event that the Company commences a voluntary case under Chapter 11 of the
United States Bankruptcy Code. The agreement provides a bonus for continuing
services provided that the employee is still employed by the Company six months
after consummation of a plan of reorganization in the Chapter 11 Case. On May
31, 2000 the Retention Agreements were modified to provide for the payment of
the bonuses should the employee's employment by the Company be terminated prior
to such six month period as a result of (i) a sale of all or substantially all
of the assets of the Company, whether in separate transaction or as part of a
plan of reorganization for the company, or (ii) a merger, consolidation,
liquidation, dissolution or similar transaction involving the Company. The
Company did commence Chapter 11 on February 29, 2000. On July 7, 2000 the United
States District Court for the District of Delaware confirmed the Company's plan
of reorganization, which plan the Company consummated on or about August 7,
2000.
PERFORMANCE GRAPH
Shown below is a line graph comparing a five-year cumulative total
shareholder return for the Company, the S&P Retail Stores (Food) and the Russell
2000.
[GRAPH OMITTED]
Note: Companies comprising the S&P Retail Stores (Food) Index include:
Albertson's, Inc., Great Atlantic & Pacific Tea Co., Kroger Co., Safeway, Inc.
and Winn-Dixie Stores, Inc.
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<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of Common Stock by (a) each person or group that is known to
the Company to be the beneficial owner of more than 5% of the outstanding
shares, (b) each director and named executive officer of the Company, and (c)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAMES OF BENEFICIAL OWNERS OWNERSHIP (1) CLASS (2)
-------------------------- ------------- ----------
<S> <C> <C>
Odyssey Partners, L.P. (3)(7) 4,211,730 38.50%
Robert J. Kelly (5) 725,000 6.63%
Dimensional Fund Advisors, Inc. (4) 751,800 6.87%
Jerome Levy Foundation (9) 632,136 5.78%
Steven M. Friedman (7)(8) 227,345 2.08%
Peter B. Foreman 151,022 1.38%
The Friedman Family Foundation (8) 40,000 *
S. Patric Plumley (10) 13,750 *
Byron O. Magafas (11) 10,000 *
Frank A. Klun (12) 10,000 *
Vincent J. Faulhaber, Jr. (13) 2,500 *
William J. Snyder (6) 1,000 *
Alain M. Oberrotman 0 *
Jerry I. Reitman 0 *
Directors and Executive Officers as a group (11 persons)
including certain of the persons listed above. 1,194,367 10.92%
</TABLE>
Notes:
*Owns less than 1% of the total outstanding Common Stock of the Company.
1) Unless otherwise noted, each person has sole investment and voting power
with respect to the shares indicated.
2) 10,939,048 shares of Common Stock were outstanding on July 28, 2000.
3) The business office address of Odyssey Partners L. P. is 280 Park Avenue,
West Tower, 21st Floor, New York, NY 10017.
4) Dimensional Fund Advisors Inc. (Dimensional), a registered investment
adviser, is deemed to have beneficial ownership of 751,800 shares of Eagle
Food Centers, Inc. stock as of December 31, 1999, all of which shares are
held in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in series of the DFA Investment Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares. The business
office address of Dimensional Fund Advisors Inc. is 1299 Ocean Avenue, 11th
Floor, Santa Monica, CA 90401.
5) Mr. Kelly purchased 125,000 shares of Common Stock of the Company at the
time of the execution of his Employment Agreement. The beneficial ownership
includes 600,000 shares which are exercisable under a stock option awarded
in fiscal 1995.
6) The profit sharing plan of Snyder, Schwarz, Park & Nelson P.C., the law
firm of which Mr. Snyder is a member, owns 1,000 shares of Common Stock.
7) Odyssey Partners L.P., a private investment partnership in liquidation,
owns 4,211,730 shares, which may be deemed to be beneficially owned by each
of Messrs. Stephen Berger, Leon Levy, Jack Nash, Joshua Nash and Brian
Wruble, who collectively constitute all of the general partners of Odyssey
Partners, L.P. Includes 227,345 shares of Common Stock in which Steven M.
Friedman, a director of the Company and former general partner of Odyssey
Partners, L.P., has an economic interest. Odyssey Partners, L.P. retains
sole voting power over the shares owned by Odyssey Partners, L.P. in which
Mr. Friedman has an interest. Does not include shares of Common Stock owned
by The Friedman Family Foundation, or The Jerome Levy Foundation (see
footnotes (9) and (10) below) or 461,201 shares of Common Stock owned by
The Nash Family Foundation, a charitable foundation, as to which Messrs.
Nash may be deemed to have beneficial ownership.
8) Represents 40,000 shares of Common Stock owned by The Friedman Family
Foundation, a charitable foundation, as to which Steven M. Friedman may be
deemed to have beneficial ownership. Does not include 227,345 shares owned
by Odyssey Partners, L.P. in which Mr. Friedman has an economic interest.
13
<PAGE>
9) Represents 632,136 shares of Common Stock owned by The Jerome Levy
Foundation, a charitable foundation, as to which Leon Levy may be deemed to
have beneficial ownership. Does not include 4,211,730 shares owned by
Odyssey Partners, L.P., as to which Mr. Levy may be deemed to have
beneficial ownership by virtue of being a general partner of Odyssey
Partners, L.P.
10) The beneficial ownership represents the exercisable portion of 40,000
shares under three stock options of 15,000, 10,000 and 15,000 shares issued
May 31, 2000 in exchange for previously issued options. A total of 13,750
shares have vested as of July 28, 2000.
11) The beneficial ownership represents the exercisable portion of 25,000
shares under two stock options of 15,000 and 10,000 shares issued May 31,
2000 in exchange for previously issued options. A total of 10,000 shares
have vested as of July 28, 2000.
12) The beneficial ownership represents the exercisable portion of 25,000
shares under two stock options of 15,000 and 10,000 shares issued May 31,
2000 in exchange for previously issued options. A total of 10,000 shares
have vested as of July 28, 2000.
13) The beneficial ownership represents the exercisable portion of 25,000
shares under two stock options of 10,000 and 15,000 shares issued May 31,
2000 in exchange for previously issued options. A total of 2,500 shares
have vested as of July 28, 2000.
OWNERSHIP OF PRINCIPAL SHAREHOLDERS
Odyssey Partners, L.P., Beneficial Owners and Company Directors and Officers
currently hold the right to vote, or have the right to acquire through the
exercise of options, shares of Common Stock of the Company representing 54.12%
of shares that would be outstanding upon the exercise of such options. As long
as Odyssey Partners, L.P., Beneficial Owners and Company Directors and Officers
own a majority of the outstanding voting stock of the Company, they will be
able, acting together as a group, to elect the entire Board of Directors of the
Company and to approve any action requiring shareholder approval.
STOCK ISSUED IN CONJUNCTION WITH THE COMPANY'S PLAN OF REORGANIZATION
The Company filed a voluntary petition under Chapter 11 of the Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware on
February 29, 2000. Pursuant to the Company's Plan of Reorganization, 15% of the
fully-diluted common stock of the Company was issued to the holders of the
Senior Notes, of which 10% will be returned to the Company if the Company is
sold or the debt is retired prior to October 15, 2001. If the Company is sold or
the debt is retired prior to October 15, 2002, 5% of the common stock will be
returned to the Company. None of the common stock will be returned to the
Company if the Company is not sold or the debt retired prior to October 15,
2002.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the directors
of the Company and executive officers, and persons who own more than ten percent
of a registered class of the equity securities of the Company, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. To the knowledge of the Company, based solely on review of the copies
of such reports furnished to the Company and written representations that no
other reports were required, during the two fiscal years ended January 29, 2000,
all Section 16(a) filing requirements applicable to its officers, directors, and
greater than ten-percent beneficial owners were in compliance.
14
<PAGE>
RATIFICATION OF THE
2000 STOCK INCENTIVE PLAN
PROPOSAL 2
SUMMARY OF THE 2000 STOCK INCENTIVE PLAN
Subject to ratification by shareholders at the 2000 Annual Meeting, on July
28, 2000, the Board of Directors adopted the Eagle Food Centers, Inc. 2000 Stock
Incentive Plan (the "Plan"). A copy of the Plan Document can be obtained by
written request to the Secretary of Eagle Food Centers, Inc. addressed or
directed to the Company's corporate offices as provided in the first page of the
Proxy statement. The Plan will provide an incentive for employees to promote the
success and enhance the value of the Company by linking the personal interests
of employees to those of Company shareholders. The Board of Directors has
appointed the Compensation Committee of the Board as the Committee with the
power to administer the Plan. The Plan will provide flexibility to the
Compensation Committee in its ability to motivate, attract, and retain the
services of key employees.
The Plan provides the Compensation Committee with the discretion to make
grants during the next ten years to all salaried employees and officers of the
Company who are not in a bargaining unit in the form of Non-qualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights, and Restricted
Stock.
The extent to which executive officers and non-executive officer employees
will participate and receive benefits under the Plan is not presently
determinable.
ADMINISTRATION
The Plan will be administered by the Compensation Committee of the Board of
Directors, which shall have the authority (i) to select employees to whom awards
are granted; (ii) to determine the size and type of awards; (iii) to determine
the terms and conditions of such awards in a manner consistent with the Plan;
(iv) to interpret the Plan and any instrument or agreement entered into under
the Plan; (v) to establish such rules and regulations relating to the
administration of the Plan as it deems appropriate; and (vi) to make all other
determinations which may be necessary or advisable for the administration of the
Plan.
With the approval of the Board, at any time and from time to time, the
Committee may terminate, amend, or modify the Plan in a manner consistent with
the Plan's provisions, provided the plan may not be amended without shareholder
approval if shareholder approval is required by any law, regulation or stock
exchange rule.
SHARES SUBJECT TO THE PLAN
The Board has proposed that 1,000,000 shares of Common Stock be established
as the number of shares of Common Stock of the Company which shall be available
for grant under the Plan. If any award terminates, expires, or lapses, the
related stock shall again become available for grant. In the event of a change
in the Corporate structure that affects the shares (for example, a merger,
re-capitalization, or stock dividend) the Committee shall make adjustments to
the number of shares available to the Plan and to the number and/or price of
outstanding awards to prevent dilution or enlargement of rights.
15
<PAGE>
STOCK OPTIONS
Stock options may be granted by the Committee in the form of Non-qualified
Stock Options ("NQSOs"), Incentive Stock Options ("ISOs"), or a combination
thereof. All grants of ISOs must be within the limitations of Section 422 of the
Internal Revenue Code. The purchase price per share under any option will be
determined by the Committee, but shall not be less than 50% (100% in the case of
any ISO, and 110% in the case of an ISO granted to a ten-percent shareholder) of
the fair market value of a share of Company common stock on the date of grant.
The term of each option shall be fixed by the Committee, provided that no ISO
shall have a term extending beyond ten years from the date the option is
granted. Options shall be subject to such terms and conditions and shall be
exercisable at such time or times as determined by the Committee, provided
however, that no option shall become exercisable any earlier than 12 months
after the date of grant, and generally will vest 33% on each of the three
anniversaries of the grant date unless the committee decides otherwise. Options
shall be exercised by payment of the purchase price in cash, in previously
acquired shares of Company common stock, or a combination thereof. Upon
termination of employment, all options that have not yet become exercisable
shall be forfeited; vested options may remain exercisable for a specified time
period, the length of which is dependent upon the reason for the employment
termination.
STOCK APPRECIATION RIGHTS
Stock Appreciation Rights ("SARs") may be granted on a stand alone basis,
independent of any other award, with a grant price not less than 50% of the fair
market value of a share of Company stock on the date of grant. The term of each
SAR shall be fixed by the Committee, provided that no SAR shall have a term
extending beyond ten years from the date of grant. SARs shall be subject to such
terms and conditions and shall be exercisable at such time or times as
determined by the Committee. Upon exercise, the SAR holder is entitled to
receive for each SAR exercised the difference between the fair market value of a
share of Company's common stock on the date of exercise over the grant price of
each SAR. Payment of this amount by the Company upon exercise may be in cash, in
shares of Company common stock of equal value, or a combination thereof, as the
Committee shall determine. Upon termination of employment, all SARs that have
not yet become exercisable shall be forfeited. Vested SARs may remain
exercisable for a specified time period, the length of which is dependent upon
the reason for the employment termination.
RESTRICTED STOCK/STOCK BONUSES
A Restricted Stock award consists of a grant of Company common stock that is
subject to a promise of continued performance by the recipient for a specific
period of time and is nontransferable by the recipient during this period. This
"Period of Restriction" is established by the Compensation Committee at the time
of grant and must extend for at least 12 months. During the Period of
Restriction, a restricted stockholder shall have the right to vote the shares
and to receive all dividends paid thereto. Upon fulfillment of the Period of
Restriction employment requirement, a recipient shall receive a clean,
completely transferable stock certificate. However, if a recipient's employment
is terminated for any reason before the Period of Restriction ends, all
non-vested restricted shares are forfeited, subject to the right and the
discretion of the Compensation Committee to waive the forfeiture.
NON-EMPLOYEE DIRECTOR OPTIONS
The Plan contains a provision allowing non-employee Directors of the Company
to elect annually to receive payment of all or any portion of the fees for their
services as Directors in the form of options ("Non-Employee Director Options")
to acquire Company Common Stock. By allowing non-employee Directors to receive
Non-Employee Director Options in lieu of cash compensation, the Plan further
encourages stock ownership in the Company by its non-employee Directors.
Under the Plan, non-employee Directors may elect annually to receive part or
all of their compensation for services as a Director for the following year (not
including reimbursement of expenses) in the form of Non-Employee Director
Options. The Non-Employee Director Options will be granted at the commencement
of the 12-month period for which the election has been made. The number of
Non-Employee Director Options granted to an electing non-employee Director in
any year shall be an amount whose value, as determined by an independent
valuation expert retained by the employee members of the Board of Directors, is
equivalent on the date of grant to the cash compensation which the Director
would otherwise have been entitled to receive for the year.
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In general, Non-Employee Director Options become exercisable one year after
the date of grant (or such longer period as the employee members of the Board of
Directors may set) and are exercisable at a price equal to the market price of
the Company's Common Stock at the close of business on the day prior to the date
of grant. Non-Employee Director Options become immediately exercisable upon a
Director's death, disability or upon a Change in Control. If a Director's tenure
ends for a reason other than death, disability or Change in Control, then the
number of Non-Employee Director Options granted for the year in which the tenure
ends shall be reduced to reflect the amount of compensation actually earned by
the Director in that year and the remaining Non-Employee Director Options
granted in that year shall be immediately exercisable. The tax treatment on
Non-Employee Director Options will be the same as the tax treatment of
Non-qualified Stock Options.
Subject to shareholder approval of the Plan, non-employee Directors may elect
on September 13, 2000 to receive Non-Employee Director Options for the year
period commencing on that date.
AWARDS NONTRANSFERABLE
No award may be assigned, transferred, pledged, or otherwise encumbered by a
participant, other than by will or by the laws of descent and distribution. Each
award may be exercised during the participant's lifetime only by the
participant.
LOANS OR FORM OF PAYMENT
The Plan allows the Committee to accept payment for options in the form of
cash or shares of the Company's common stock. The Committee is also empowered to
withhold shares for the payment of income taxes on the exercise of options. The
Company may also make loans to Participants to allow them to exercise options
subject to specified terms, and secured by a pledge of shares.
CHANGE IN CONTROL
In order to protect all of the participant's rights in the event of a Change
in Control (as defined below) of the Company, the Plan provides for the
immediate vesting of all outstanding awards upon the occurrence of such an
event.
A Change in Control of the Company shall be deemed to have occurred if any
one or more of the following conditions are fulfilled: (i) any person or entity
acquires 50% or more of the voting securities of the Company; (ii) the
shareholders approve a plan of complete liquidation, an agreement for sale or
disposition of substantially all of the assets of the Company, or a materially
dilutive merger or consolidation of the Company; or (iii) the Board of Directors
agrees by a two-thirds vote that a Change in Control has occurred or is about to
occur and within six months actually does occur. However, in no event shall a
Change in Control be deemed to occur with respect to any Plan participant who is
a material equity participant of the purchasing group that consummates a Change
in Control. Officers or employees of the Company granted Stock Options, Stock
Appreciation Rights, and Restricted Stock, particularly with terms such as those
regarding the effect of a Change of Control of the Company, may be able to
acquire control of the Company and may discourage potential acquirers from
making proposals which certain of the Company's shareholders might find
attractive due to the increased percentage of ownership of the Company by
management. Management is not aware of any proposal or attempt to acquire
control of the Company and has no intention of utilizing any of the
aforementioned items for specific purposes of contesting any proposed change in
control.
FEDERAL INCOME TAX CONSIDERATIONS
Under current law, the Federal income tax treatment of options, SARs, and
Restricted Stock granted under the Plan is summarized below.
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NON-QUALIFIED STOCK OPTIONS (NQSO)
The grant of a NQSO will have no immediate tax consequences to the Company or
to the employee. The exercise of a NQSO will require an employee to include in
his gross income the amount by which the fair market value of the acquired
shares on the exercise date exceeds the option price. Provided the applicable
withholding requirements are met, the Company will be entitled to a deduction at
the same time and in the same amount as the employee in receipt of income in
connection with the exercise of a NQSO. Upon a subsequent sale or taxable
exchange of shares acquired upon NQSO exercise, an employee will recognize long
or short-term capital gain or loss equal to the difference between the amount
realized on the sale and the tax basis of such shares. Under current law,
capital gains are taxed at the same rate as ordinary income, except that
long-term capital gains are subject to a maximum rate of 20%.
INCENTIVE STOCK OPTIONS (ISO)
The grant of an ISO will have no immediate tax consequences to the Company or
the employee. If the employee exercises an ISO and does not dispose of the
acquired shares within two years after the grant of the option nor within one
year after the date of the transfer of such shares to the employee (a
"disqualifying disposition"), the employee will realize no compensation income,
and any gain or loss that is realized on a subsequent disposition of such shares
will be treated as long-term capital gain or loss. However, for purposes of
computing the employee's alternative minimum tax, if any, the spread between the
option price and the stock's fair market value on the date of ISO exercise is a
preference item.
If any employee causes a disqualifying disposition of the ISO-acquired stock,
the employee will be treated as having exercised a NQSO for tax purposes (see
above). The Company also will receive NQSO tax treatment upon the disqualifying
disposition. However, if the employee fulfills the holding period requirements,
and avoids a disqualifying disposition, a tax deduction will not be available to
the Company.
SARS
There are no tax consequences to the Company or the employee upon the grant
of a SAR. Upon exercise of the SAR, the employee will be deemed to have received
taxable ordinary income in the amount of any cash plus the fair market value of
any shares issued or transferred. The Company will receive a tax deduction in
the same amount, at the same time.
RESTRICTED STOCK
The Company will receive a deduction at the time that restrictions lapse. The
deduction will be in the amount of the fair market value of the stock upon
vesting. For the employee, since the stock is subject to a substantial risk of
forfeiture (the requirement that employment be continued for the restriction
period), the employee has no taxable income until the restrictions lapse. The
employee may elect to be taxed at the time the restricted stock is awarded
rather than as the restrictions lapse by filing an election under Section 83(b)
of the Internal Revenue Code within 30 Days from the date of the award.
ACCOUNTING TREATMENT
Under present accounting rules, the grant or exercise of NQSOs or ISOs may
result in a charge against the Company's earnings. The excess, if any, of the
fair market value of the Common Stock over the exercise price of SARs will be
charged against the Company's earnings in each accounting period. The amount of
the charge will increase or decrease based on changes in the market value of the
Common Stock during the particular accounting period. NQSOs or ISOs also may
result in a charge against earnings, depending upon the terms of the options.
For Restricted Stock, upon grant, the Company must amortize the fair market
value of the restricted shares over the restriction period. Changes in the
market value of the Common Stock will not affect the amount of this charge
(future appreciation in the value of the restricted shares will not cause a
charge to earnings).
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RECOMMENDATION OF THE BOARD
The Board of Directors unanimously recommends the adoption of the proposal to
adopt the Eagle Food Centers, Inc. 2000 Stock Incentive plan and your proxy is
solicited for that purpose. Shareholders are urged to vote in favor of this
proposal by marking "FOR" in the appropriate box on the accompanying proxy and
signing and returning the proxy to the Company as indicated thereon. If no
direction is given the proxy will be voted FOR the proposal to adopt the 2000
Stock Incentive Plan.
RATIFICATION OF THE
SELECTION OF AN INDEPENDENT AUDITOR
PROPOSAL 3
Deloitte & Touche LLP, 101 W. Second Street, Davenport, Iowa, independent
certified public accountants, have performed an audit of the financial
statements of the Company for the fiscal year ended January 29, 2000. Services
provided by Deloitte & Touche LLP included work related to the examination of
the annual financial statements, reviews of unaudited quarterly financial
information, audits of pension plans and preparation of state and federal income
tax returns.
The Board of Directors, upon recommendation of its Audit Committee, on July
28, 2000 made the decision to change the Company's independent accountants and
appointed KPMG LLP, 666 Grand Avenue, Des Moines, Iowa, to audit the books and
accounts of the Company for the fiscal year ending February 3, 2001 and is
seeking ratification of this appointment by the Shareholders. It is intended
that the shares represented by the proxy will be voted (unless the proxy
indicates to the contrary) for ratification of the appointment. If ratification
is not received, the appointment will be reconsidered.
The reports of Deloitte & Touche LLP on the financial statements of the
Company for the two fiscal years ended January 29, 2000 contain no adverse
opinion or disclaimer of opinion and were not qualified or modified as to any
uncertainty, audit scope or accounting principle, except that the report for the
year ended January 29, 2000 indicated that the uncertainty of the Company about
if or when it will emerge from Chapter 11 Bankruptcy raised substantial doubt
about the Company's ability to continue as a going concern and that the Company
changed its method of accounting for goodwill. In connection with the audits for
the past two fiscal years and through July 28, 2000, there were no disagreements
with Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Deloitte & Touche LLP would
have caused the firm to make reference thereto in its report on the financial
statements for such years. During the past two fiscal years and through July 28,
2000, Deloitte & Touche LLP has not advised the Company of any reportable events
(as defined in Item 304(a)(1)(v) of Regulation S-K issued by the Securities and
Exchange Commission), except that Deloitte & Touche has informed the Audit
Committee that certain reportable conditions existed during fiscal year 1998
relating to segregation of duties in the cash disbursements and payroll
processes and reconciliation of accounts receivable and, during fiscal year 1999
relating to segregation of duties in the cash disbursements process and the
reconciliation of cash, accounts receivable and warehouse inventory. The events
did not result in a disagreement or difference in opinion between the Company
and Deloitte & Touche LLP. Deloitte & Touche LLP furnished a letter addressed to
the Securities and Exchange Commission in which it stated that it agreed with
the foregoing statements in this paragraph.
Representatives from Deloitte & Touche LLP and KPMG LLP are expected to
attend the annual meeting of shareholders and will be provided the opportunity
to make a statement, if desired, and are expected to be available to respond to
appropriate questions.
The Board of Directors recommends a vote "FOR" the ratification of the
selection of KPMG LLP as independent auditor.
2001 SHAREHOLDER PROPOSALS
Any shareholder who desires to present a proposal qualified for inclusion in
the proxy materials of the Company for the 2001 Annual Shareholders Meeting must
forward the proposal in writing to the Secretary of the Company at the address
shown on the first page of this proxy statement in time to arrive at the Company
no later than April 16, 2001.
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ADDITIONAL INFORMATION
Included with this Proxy Statement is the Annual Report of the Company
indicating the general scope and nature of the business of the Company together
with a summary of the activities and financial results of the Company for fiscal
1999. Shareholders may upon written request and without charge, obtain a copy of
the Securities and Exchange Commission Annual Report on Form 10-K of the
Company. Exhibits to the Form 10-K are also available. The Company will require
payment of a fee covering its reasonable expenses in furnishing such exhibits.
Address any request to Mr. S. Patric Plumley, Secretary, Eagle Food Centers,
Inc., Rt. 67 and Knoxville Rd., Milan, Illinois, 61264.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which may
come before the meeting. However, if any matters other than those referred to
above should properly come before the meeting, it is the intent of the persons
named in the enclosed proxy to vote such proxy in accordance with their
discretion.
BY ORDER OF THE BOARD OF DIRECTORS
S. Patric Plumley, Secretary
Dated August 14, 2000
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