THE GRAND UNION COMPANY
201 WILLOWBROOK BLVD.
WAYNE, NJ 07470
INFORMATION STATEMENT TO STOCKHOLDERS
SEPTEMBER 6, 1996
This is an information statement pursuant to section 14(f) of the
Securities Exchange Act of 1934 and rule 14f-1 thereunder. This information
statement is being mailed on or about September 7, 1996, in connection with the
designation of certain persons to serve as members of the Board of Directors of
the Grand Union Company (the "Company" or "Grand Union"). Such designation has
been made pursuant to a stock purchase agreement among the Company, Trefoil
Capital Investors, II, L.P. ("Trefoil") and GE Investments Private Placement
Partners II, A Limited Partnership ("GEI"). Throughout this statement, the term
"Investors" refers to Trefoil and GEI, collectively. YOU ARE NOT REQUIRED TO
TAKE ANY ACTION IN CONNECTION WITH THIS STATEMENT.
The information contained in this Information Statement (including
information incorporated by reference) concerning Trefoil, GEI and their
Designees (as defined herein) and beneficial owners of the Company's Common
Stock has been furnished to the Company by Trefoil, GEI or their Designees, or
has been obtained from public and other third-party records available to the
Company, and the Company assumes no responsibility for the accuracy
or completeness of such information.
The Company has agreed to increase the Board of Directors to nine
members, of whom five have been designated by the Investors. The Investors have
designated Mr. Roger E. Stangeland, Mr. Clifford A. Miller, Mr. Geoffrey T.
Moore, Mr. James J. Costello, and Mr. J. Richard Stonesifer. To the extent the
Company's Board of Directors will consist of persons who are not Investors'
designees, the Board is expected to consist of those persons who are currently
directors who have not resigned. Information about current members and the
Investors' designees is set forth below under the caption "Directors, Director
Designees and Executive Officers".
INFORMATION CONCERNING THE COMPANY'S COMMON STOCK
The Company's $1.00 par value Common Stock (the "Common Stock") is the
only class of voting securities of the Company currently outstanding. As of
August 31, 1996, the following equity securities of the Company were
outstanding: (i) 10,000,000 shares of Common Stock, (ii) warrants to purchase up
to 900,000 shares of Common Stock, and (iii) stock options under the Company's
1995 Equity Incentive Plan or the Company's 1995 Non-Employee Directors Stock
Option Plan, covering 235,680 shares of Common Stock. Each share of Common
Stock has one vote.
STOCK PURCHASE AGREEMENT
On July 30, 1996, the Company entered into a definitive agreement (the
"Stock Purchase Agreement") to sell $100 million of 8.5% Class A Convertible
Preferred Stock, $1.00 par value per share, with a Stated Value of $50 per share
(the "Preferred Stock") to an investment group comprising Trefoil Capital
Investors II, L.P., a Delaware limited partnership, and GE Investment Private
Placement Partners II, A Limited Partnership, a Delaware limited partnership
(collectively, the "Investors"). Pursuant to the Stock Purchase Agreement, the
Company will sell to the Investors an aggregate of 2,000,000 shares of Preferred
Stock at a purchase price of $50 per share in stages through February 25, 1998.
<PAGE>
The Investors have agreed to purchase, and the Company has agreed to
sell, subject to the satisfaction of certain condition prior to December 31,
1996, an aggregate of 800,000 shares of Preferred Stock for a purchase price of
$50 per share (the "Principal Closing"). The Investors have further agreed to
purchase, and the Company has further agreed to sell, an additional 400,000
shares of Preferred Stock on each of February 25, 1997, August 25, 1997 and
February 25, 1998, in each case at a purchase price of $50 per share. Any or
all of the purchases referred to in the preceding sentence may be accelerated
by the Investors, with or without the approval of the Company. Each of the
purchases are subject to the satisfaction or waiver of certain closing
conditions as specified in the Stock Purchase Agreement. The Principal Closing,
which must occur prior to December 31, 1996, is subject to satisfaction or
waiver of all of the conditions set forth in the Stock Purchase Agreement,
including without limitation the termination or expiration of any required
waiting period pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, stockholder approval (or waiver of such approval by the
National Association of Security Dealers, the "NASD") and consent of the
Company's lenders.
Redemption
- ----------
The Preferred Stock is subject to mandatory redemption on June 1, 2005.
Under certain conditions, the Company may also elect to redeem the Preferred
Stock at any time on or after the second anniversary of the Principal Closing.
If the price of the Company's Common Stock exceeds, for a specified period of
time prior to the call for redemption, 180% of the Conversion Price of the
Preferred Stock (if the redemption is between the second and third anniversaries
of the Principal Closing), or 200% of the Conversion Price (if the redemption is
between the third and fifth anniversaries of the Principal Closing), the
Preferred Stock may be redeemed for $50 per share plus all accrued and unpaid
dividends. Between the fifth and sixth anniversary of the Principal Closing, the
redemption price shall be $51.5938 per share, plus all accrued and unpaid
dividends. Between the sixth and seventh anniversary of the Principal Closing,
the redemption price shall be $51.0625 per share. Between the seventh and eighth
anniversary of the Principal Closing, the redemption price shall be $50.5313 per
share, plus all accrued and unpaid dividends. After the eighth anniversary, the
redemption price shall be $50 per share, plus all accrued and unpaid dividends.
Voting Rights
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Pursuant to the Certificate of Designation of Preferred Stock setting
forth the powers, preferences, rights, qualifications, limitations and
restrictions of such class of preferred stock (the "Certificate of
Designation"), the holders of the Preferred Stock have the right to vote
together with the holders of the Company's Common Stock, as a single class, on
all matters submitted to the Company's stockholders for a vote, including the
election of directors. The number of votes entitled to be cast by the holder of
Preferred Stock is equal to the number of whole votes which could be cast in
such vote by a holder of the shares of Common Stock into which such shares of
Preferred Stock are convertible on the record date for such vote.
Pursuant to the Certificate of Designation, the initial Conversion Price
of the Preferred Stock is $6.375. At the Principal Closing, the Conversion Price
will be adjusted to 120% of the volume-weighted average of the sales prices of
the Company's Common Stock for a period of thirty (30) trading days ending on
the sixth business day prior to the Principal Closing, but not lower than $6.50
nor greater than $7.25.
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<PAGE>
The Investors have agreed pursuant to the Stock Purchase Agreement to
purchase an aggregate of 2,000,000 shares of Preferred Stock, convertible into
an aggregate of up to 15,384,600 shares of Common Stock which could constitute
up to approximately 61% of the total number of shares of Common Stock
outstanding.
The following table shows, for each closing, the dates, number of shares
of Preferred Stock to be issued at such closing and the estimated minimum and
maximum cumulative voting percentages (using conversion prices of $7.25 and
$6.50, respectively), assuming no additional stock issuances.
Cumulative Voting Percentage
Preferred ----------------------------
Closing Date Shares Minimum Maximum
------- ----------------- ---------- ------- -------
Principal unscheduled 800,000 35.56% 38.10%
Third February 25, 1997 400,000 45.28% 48.00%
Fourth August 25, 1997 400,000 52.46% 55.17%
Fifth February 25, 1998 400,000 57.97% 60.61%
The Stock Purchase Agreement grants to Trefoil and GEI the right to
acquire the Shares, subject to the terms and conditions contained therein. Until
Trefoil and GEI acquire the Shares, the Shares will remain unissued by the
Company. Upon issuance of the Shares, Trefoil will have the sole power to direct
the vote and disposition of the 1,000,000 Shares to be purchased by it and the
Conversion Shares into which such Shares are convertible, and GEI will have the
sole power to direct the vote and disposition of the 1,000,000 Shares to be
purchased by it and the Conversion Shares into which such Shares are
convertible, in each case subject to certain restrictions pursuant to the
Stockholders Agreement as described herein.
Dividends
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Pursuant to the Certificate of Designation, the Holders of the Preferred
Stock will be entitled to receive quarterly dividends in the amount of $4.25 per
share per annum. Until the third anniversary of the Principal Closing, such
dividends are payable in additional shares of Preferred Stock or in shares of
Common Stock. From the third anniversary of the Principal Closing to the fifth
anniversary of the Principal Closing, such dividends are payable in cash, unless
the Company's bank credit agreement or the indenture governing its 12% Senior
Notes due 2004 shall prohibit such cash payments, in which case such dividends
may be paid in additional shares of Preferred Stock or shares of Common Stock.
To the extent that any dividends on the Preferred Stock are paid in shares of
Common Stock, the Company is required to pay a premium in additional shares of
Common Stock equal to 33-1/3% of the total number of shares of Common Stock that
would otherwise be paid as the dividend. After the fifth anniversary, all
dividends are payable in cash.
Pre-emptive Rights
- ------------------
The Stock Purchase Agreement provides that, for so long as the Investors
own at least 50% of the total number of Shares purchased by them pursuant to the
Stock Purchase Agreement, the Investors shall have pre-emptive rights with
respect to any sale by the Company of any shares of its Common Stock or
securities convertible into or exchangeable for shares of its Common Stock (with
certain limited exceptions), in proportion to the shares of Preferred Stock then
held by the Investors.
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<PAGE>
Restrictions on Transfer
- ------------------------
The Stock Purchase Agreement also provides that until the third
anniversary of the Principal Closing, if one shall have occurred, the Investors
will not sell more than one-third of the Shares (or shares of Common Stock
issued upon conversion of such Shares the ("Conversion Shares")) purchased by
them pursuant to the Stock Purchase Agreement.
Additional Information Concerning the Investors
- -----------------------------------------------
Trefoil. The general partners of Trefoil are Trefoil Investors II, Inc.,
a Delaware corporation ("Trefoil II"), and Sigma Hedge Partners, G.P., a
Delaware partnership ("Sigma"). The general partners of Sigma are Delta PT
Investors Corporation, a Delaware corporation ("Delta"), and Epsilon Equities,
Inc., a Delaware corporation ("Epsilon"), each of which is wholly owned by the
General Electric Pension Trust, a New York common law trust ("GEPT"). Shamrock
Capital Advisors, Inc. ("SCA") is a closely held company providing management
and consulting services to Trefoil and businesses in which Trefoil invests. The
principal executive offices of Trefoil, Trefoil II and SCA are located at 4444
Lakeside Drive, Burbank, California 91505. The principal executive offices of
Sigma, Delta, Epsilon and GEPT are located at 3003 Summer Street, P.O. Box 7900,
Stamford, Connecticut 06904. Trefoil is an investment partnership organized to
acquire businesses and to make strategic investments in debt or equity
securities. Trefoil II was organized to serve as the managing general partner of
Trefoil.
GEI. GE Investment Management Incorporated, a Delaware Corporation
("GEIM") serves as the managing general partner of GEI. GEIM is a wholly owned
subsidiary of General Electric Company and a registered investment advisor. The
principal executive offices of GEI, GEIM and General Electric Company are
located at 3003 Summer Street, P.O. Box 7900, Stamford, Connecticut 06904.
The Investors have stated that the purpose of the purchase of the
Preferred Stock by the Investors is to acquire a significant equity interest in
the Company, primarily for investment purposes, although the Investors and SCA
expect to be actively involved in the management of the Company, including
having the right to select the nominees for a majority of the members of the
Board of Directors of the Company, and the contractual obligation to vote their
respective shares of Preferred Stock in favor of such nominees.
Source And Amount Of Funds Or Other Consideration
- -------------------------------------------------
By virtue of the Stock Purchase Agreement, Trefoil and GEI may be
deemed to have acquired beneficial ownership of the shares of Common Stock into
which the Preferred Stock is convertible (the "Conversion Shares") for purposes
of Rule 13d-3(d) of the rules and regulations under the Securities Exchange Act
of 1934, as amended (together with such rules and regulations, the "Exchange
Act").
Trefoil. The total amount of funds required by Trefoil to purchase the
Preferred Stock to be purchased by it pursuant to the Stock Purchase Agreement
is $50 million. Sigma expects to obtain the necessary funds from capital
contributions by its partners. Trefoil II, Delta and Epsilon each expects to
obtain the necessary funds to make their respective capital contributions from
capital contributions by their respective stockholders. GEPT expects to obtain
the necessary funds to make its capital contributions from plan assets.
GEI. The total amount of funds required by GEI to purchase the
Preferred Stock to be purchased by it pursuant to the Stock Purchase Agreement
is $50 million. GEI expects to obtain the necessary funds from capital
contributions from its partners.
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<PAGE>
Pursuant to the Stock Purchase Agreement, the Company will pay to each
of SCA (as investment manager for Trefoil) and GEIM (as investment manager for
GEI) one-half of an aggregate transaction fee equal to 4% of the total dollar
amount of Shares to be purchased pursuant to the Stock Purchase Agreement. The
Company has also agreed to pay directly, or reimburse the Investors for, all
fees and expenses incurred by the Investors in connection with the Stock
Purchase Agreement and the transactions contemplated thereby, up to a maximum
amount of $1 million.
The Board of Directors
- ----------------------
From and after the Principal Closing, the Company will have the
obligation to cause (if necessary) the size of its Board of Directors to be
increased to nine members, of whom five shall be selected by the Investors.
Pursuant to the Stock Purchase Agreement, the Company is obligated to include
nominees for such number of directors to be included in the Company's slate of
nominees for election as directors at the Company's 1996 annual meeting of
stockholders and any other meeting of stockholders at which a slate of directors
is presented by the Company with a record date on or prior to September 1, 1997.
Pursuant to the Stock Purchase Agreement, the Investors have agreed that
(i) for so long as the Board of Directors of the Company is composed of a
majority of directors nominated by the Investors and their affiliates, the
Investors will cause the Board of Directors to consist of at least nine members
and to cause any slate of nominees presented by the Company for election as
directors to include not less than a number of Disinterested Directors (as
defined in the Stock Purchase Agreement) equal to one-third (rounded to the
nearest whole number) of all directors, (ii) for so long as the Investors and
their affiliates hold less than 50% but more than 35% of the outstanding voting
securities of the Company, the Investors will use their best efforts to cause
the Board of Directors to consist of at least nine members and to cause any
slate of nominees presented by the Company for election as directors to include
not less than a number of Disinterested Directors equal to four-ninths (rounded
to the nearest whole number) of all directors, and (iii) for so long as the
Investors and their affiliates hold less than 35% of the outstanding voting
securities of the Company, the Investors will use their best efforts to cause
the Board of Directors to consist of at least nine members and to cause any
slate of nominees presented by the Company for election as directors to include
not less than a number of Disinterested Directors equal to five-ninths (rounded
to the nearest whole number) of all directors. In each such case, the number of
Disinterested Directors to be elected shall be calculated without regard to any
directors which the holders of Preferred Stock shall be entitled to elect as a
result of the default by the Company in the payment of six consecutive required
quarterly dividends.
The Stock Purchase Agreement provides that as long as any of the members
of the Board of Directors of the Company are selected by the Investors, the
affirmative vote of at least a majority of the Disinterested Directors shall be
required to take any of the following actions: (i) make any decision to take, or
omit to take, any action on the Company's behalf with respect to the Company's
rights and obligations pursuant to the Stock Purchase Agreements or any of the
Transaction Documents (as defined in the Stock Purchase Agreement); (ii) make
any decision or take, or omit to take, any action on the Company's behalf with
respect to the Preferred Stock, the shares of Preferred Stock purchased by the
Investors pursuant to the Stock Purchase Agreement or the Company's rights and
obligations under the Certificate of Designation; (iii) approve any transactions
between the Company and affiliates of the Investors, or either of them; and (iv)
approve the Disinterested Directors previously nominated by the nominating
committee of the Board of Directors for election as directors at any meeting of
stockholders or the Board of Directors of the Company, which approval shall not
be unreasonably withheld.
The Investors have also agreed in the Stock Purchase Agreement to vote
any shares of Preferred Stock or Conversion Shares held by them from time to
time in favor of the election of such Disinterested
-5-
<PAGE>
Directors, and to waive any right to which it would be entitled to elect
additional directors in the event of the default by the Company in the payment
of six consecutive quarterly dividend payments at any time the Board of
Directors of the Company is composed of a majority of directors selected by the
Investors.
In addition, if the Company shall have failed to pay in full dividends
on the Preferred Stock for six consecutive quarters, the Certificate of
Designation provides that the size of the Board of Directors of the Company
shall be increased by two, and the holders of shares of Preferred Stock, voting
together as a single class, shall have the right to elect such two directors.
The right to elect such two directors terminates upon payment in full of all
dividends payable on the Preferred Stock, at which time the Board of Directors
shall return to its previous size and the directors elected by the holders of
the Preferred Stock shall be removed. In addition, such right to elect two
directors shall not apply where the holders of Preferred Stock have the right to
elect two directors through a class vote.
Other Corporate Governance Matters
- ----------------------------------
Pursuant to the Stock Purchase Agreement, the Investors have agreed to
vote their Shares and Conversion Shares in favor of an amendment to the
Company's Certificate of Incorporation (the "Charter Amendment") and an
amendment to the Company's By-Laws (the "By-Laws Amendment"). Pursuant to the
Charter Amendment, any person who proposes to engage in an extraordinary
transaction involving the Company must either (i) obtain the approval of at
least 75% of the stockholders of the Company (other than such person or any
affiliates of such person), (ii) obtain the prior approval of at least a
majority of the Continuing Directors (as defined in the Charter Amendment), or
(iii) pay to each of the stockholders in such transaction consideration equal to
at least the highest price paid for any share of the Company's Common Stock by
such person during the preceding two years (excluding any Shares or Conversion
Shares purchased by the Investors pursuant to the Stock Purchase Agreement).
Pursuant to the By-Laws Amendment, any person who desires to have a proposal or
any nominees for election as a director of the Company presented to or
considered by the Company's stockholders at any stockholders meeting is required
to follow certain procedures, provide certain information to the Company and
meet certain timing requirements in order for such proposal or nominees to be
properly presented to be acted upon. The provisions of this paragraph are
qualified in their entirety by the provisions of the Charter Amendment and the
By-Laws Amendment, the full text of each of which is hereby incorporated herein
by reference and made part hereof.
The Company has agreed in the Stock Purchase Agreement that the Company
shall include in the slate of directors elected nominated and recommended by the
Board of Directors of the Company one representative designated (i) by Trefoil,
as long as Trefoil, together with its affiliates, owns securities of the Company
representing at least 10% of the total voting power of all of the Company's
outstanding securities, and (ii) by GEI, as long as GEI, together with its
affiliates, owns securities of the Company representing at least 10% of the
total voting power of all of the Company's outstanding securities, and that, if
such nominee is not elected as a director, to permit a representative of such
Purchaser to act as a non-
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<PAGE>
voting observer to the Board of Directors, with equal access to information, and
inclusion in meetings, as though such non- voting observer were a member of the
Board of Directors.
In addition, the affirmative vote of the holders of at least a majority
of the outstanding shares of Preferred Stock, voting separately as a single
class, in person or by proxy, at a special or annual meeting of stockholders
called for the purpose, shall be necessary to take certain other actions, as
more fully described in the Certificate of Designation.
Arrangements between the Investors
- ----------------------------------
Pursuant to a Stockholders Agreement between the Investors, the
Investors have each agreed to vote all of their Shares and Conversion Shares in
favor of all nominees for election as directors selected by each of them. The
Investors have further agreed that the first and third nominees which the
Investors shall be entitled to select shall be selected by Trefoil, the second
and fourth nominees which the Investors shall be entitled to select shall be
selected by GEI, and any further nominees which the Investors shall be entitled
to select shall be selected by mutual agreement between the Investors. The
Investors have further agreed thereunder that if either of them shall agree to
purchase or sell Shares, Conversion Shares or additional shares of Common Stock
(other than on a public exchange), then the Purchaser who shall have entered
into such agreement is required to permit the other Purchaser to participate in
such purchase or sale on a pro rata basis. Pursuant to the Stockholders
Agreement, Trefoil has agreed that GEI shall control the timing of the
conversion by the Investors of Preferred Stock into Conversion Shares.
Management Agreement with SCA
- -----------------------------
Concurrently with the execution of the Stock Purchase Agreement, the
Company entered into a three-year management and consulting agreement with SCA
pursuant to which, commencing on the Principal Closing Date, SCA will consult
with, and provide advice to, the officers and management employees of the
Company concerning matters (i) relating to the Company's financial policies and
the development and implementation of the Company's business plans and (ii)
generally arising out of the business affairs of the Company. SCA will render
such services to the Company on a non-exclusive basis. SCA's compensation for
such management and consulting services will be $300,000 in the first year of
SCA's engagement to provide such services (each such year a "Service Year"),
$400,000 in the second Service Year, and $500,000 in the third Service Year. The
Company will reimburse SCA (or cause SCA to be reimbursed) for all of its
reasonable out-of-pocket costs and expenses in connection with the performance
of its services under such agreement. In addition to the foregoing compensation,
the officers, directors or employees of any of the Investors or their respective
affiliates serving as directors of the Company will also be paid customary
director fees paid to non-employee directors of the Company and will be
reimbursed for all of their reasonable out-of-pocket costs and expenses in
connection therewith.
The foregoing descriptions of the Stock Purchase Agreement, Charter
Amendment, By-Laws Amendment, Certificate of Designation, Registration Rights
Agreement and Stockholder Agreement are qualified in their entirety by reference
to the full text thereof, filed as Exhibits to the Schedule 13D of the
Investors, filed with the Securities and Exchange Commission on August 10, 1996,
incorporated by reference herein and made a part hereof.
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<PAGE>
PREFERRED STOCK OWNERSHIP BY MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Set forth below is certain information as of August 31, 1996, regarding
the beneficial ownership of the Company's Class A Convertible Preferred Stock by
(i) any person known by the Company to beneficially own more than 5% of the
Preferred Stock of the Company; (ii) each director and nominee for director
designated by the Investors or otherwise supported by the Board of Directors;
(iii) each of the Named Executive Officers identified in the Summary
Compensation Table; and (iv) all directors and executive officers as a group.
Except as otherwise indicated, the Company believes, based on information
furnished by such owners, that the beneficial owners of the Company's Preferred
Stock listed below have sole investment and voting power with respect to such
shares, subject to applicable community property laws.
<TABLE>
<CAPTION>
FIVE PERCENT STOCKHOLDERS, NOMINEES FOR DIRECTOR, AMOUNT AND
EXECUTIVE OFFICERS NAMED IN SUMMARY NATURE OF
COMPENSATION TABLE, AND DIRECTORS BENEFICIAL PERCENT
AND EXECUTIVE OFFICERS AS A GROUP OWNERSHIP OF CLASS
------------------------------------------------- --------- --------
<S> <C> <C>
Trefoil Capital Investors II, L.P..................................... 2,000,000 (1)(2)(4) 100.00%
4444 Lakeside Dr.
Burbank, CA 91505
GE Investments Private Placement Partners II, A Limited Partnership... 2,000,000 (1)(3) 100.00%
3003 Summer Street
P.O. Box 7900
Stamford, CT 06904
Clifford A. Miller................................................ 0 *
Geoffrey T. Moore................................................. 0 *
James J. Costello................................................. 0 *
J. Richard Stonesifer............................................. 0 *
Roger E. Stangeland............................................... 0 *
Daniel E. Josephs................................................. 0 *
William G. Kagler................................................. 0 *
Douglas T. McClure, Jr............................................ 0 *
David Y. Ying..................................................... 0 *
Joseph J. McCaig.................................................. 0 *
William A. Louttit................................................ 0 *
Darrell W. Stine.................................................. 0 *
Kenneth R. Baum................................................... 0 *
Gilbert C. Vuolo.................................................. 0 *
All Directors and Executive Officers as a group (10 persons)...... 0 *
</TABLE>
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*......Less than 1%.
(1) Pursuant to the Stock Purchase Agreement, Trefoil and GEI have agreed to
purchase an aggregate of 2,000,000 shares of Preferred Stock. Pursuant
to a Stockholders Agreement between the
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<PAGE>
Investors, the Investors have each agreed to certain joint action
relating to conversion of the Preferred Stock into Common Stock, and
voting and disposition of the Preferred Stock or the Common Stock
issuable on conversion of the Preferred Stock.
(2) Trefoil has agreed pursuant to the Stock Purchase Agreement to purchase
1,000,000 shares of Preferred Stock. Trefoil would hold sole voting
power and sole dispositive power with respect to 1,000,000 shares of
Preferred Stock. Trefoil Investors II, Inc. is the managing general
partner of Trefoil and would hold sole voting power and shared
dispositive power with respect to such 1,000,000 shares of Preferred
Stock.
(3) GEI has agreed pursuant to the Stock Purchase Agreement to purchase
1,000,000 shares of Preferred Stock. GEI would hold sole voting power
and sole dispositive power with respect to such shares. GE Investment
Management, Inc. is the managing general partner of GEI, and would hold
sole voting power and sole dispositive power with respect to such
1,000,000 shares of Preferred Stock.
(4) Trefoil Investors II, Inc. and Sigma Hedge Partners, G.P. are the
general partners of Trefoil. Delta Pt. Investors Corporation and Epsilon
Equities, Inc., each of which is wholly owned by General Electric
Pension Trust, are the general partners of Sigma Hedge Partners, G.P.
Sigma Hedge partners, G.P., Delta Pt. Investors Corporation and the
Trustees of General Electric Pension Trust each would hold shared
dispositive power over 1,000,000 shares of Preferred Stock.
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<PAGE>
COMMON STOCK OWNERSHIP BY MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Set forth below is certain information as of August 31, 1996, regarding
the beneficial ownership of the Company's Common Stock by (i) any person known
by the Company to beneficially own more than 5% of the Common Stock of the
Company; (ii) each director and nominee for director designated by the Investors
or otherwise supported by the Board of Directors; (iii) each of the Named
Executive Officers identified in the Summary Compensation Table; and (iv) all
directors and executive officers as a group. Except as otherwise indicated, the
Company believes, based on information furnished by such owners, that the
beneficial owners of the Company's Common Stock listed below have sole
investment and voting power with respect to such shares, subject to applicable
community property laws.
<TABLE><CAPTION>
FIVE PERCENT STOCKHOLDERS, NOMINEES FOR DIRECTOR, AMOUNT AND
EXECUTIVE OFFICERS NAMED IN SUMMARY NATURE OF
COMPENSATION TABLE, AND DIRECTORS BENEFICIAL PERCENT
AND EXECUTIVE OFFICERS AS A GROUP OWNERSHIP OF CLASS
------------------------------------------------- ----------- ---------
<S> <C> <C>
Trefoil Capital Investors II, L.P.....................................15,384,600 (1)(2)(4) 60.61%
4444 Lakeside Dr.
Burbank, CA 91505
GE Investments Private Placement Partners II, A Limited Partnership...15,384,600 (1)(3) 60.61%
3003 Summer Street
P.O. Box 7900
Stamford, CT 06904
Putnam Investments, Inc............................................... 3,243,830 (5)(6) 12.78%
One Post Office Square
Boston, MA 02109
Putnam Investment Management.......................................... 3,125,089 (5)(7) 12.31%
One Post Office Square
Boston, MA 02109
Putnam High Yield Trust (Equity Convertible).......................... 1,688,770 (5)(8) 6.65%
One Post Office Square
Boston, MA 02109
Kemper Financial Services, Inc........................................ 1,172,683 (7) 4.62%
120 South LaSalle Street
Chicago, IL 60603
Clifford A. Miller................................................ 0 *
Geoffrey T. Moore................................................. 0 *
James J. Costello................................................. 0 *
J. Richard Stonesifer............................................. 0 *
Roger E. Stangeland............................................... 15,000 *
Daniel E. Josephs................................................. 0 *
William G. Kagler................................................. 500 *
Douglas T. McClure, Jr............................................ 0 *
David Y. Ying..................................................... 0 *
Joseph J. McCaig.................................................. 10,000 *
William A. Louttit................................................ 3,000 *
Darrell W. Stine.................................................. 3,000 *
Kenneth R. Baum................................................... 0 *
Gilbert C. Vuolo.................................................. 0 *
All Directors and Executive Officers as a group (10 persons)...... 31,500 *
</TABLE>
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*......Less than 1%.
(1) Pursuant to the Stock Purchase Agreement, Trefoil and GEI have agreed to
purchase an aggregate of 2,000,000 shares of Preferred Stock, which are
convertible into a maximum of 15,384,600 shares of Common Stock, based
on a conversion price of $6.50 per share. Pursuant to a Stockholders
Agreement between the Investors, the Investors have each agreed to
certain joint action relating to voting, disposition, and conversion of
the Preferred Stock into Common Stock.
(2) Trefoil has agreed pursuant to the Stock Purchase Agreement to purchase
1,000,000 shares of Preferred Stock, convertible into a maximum of
7,692,300 shares of Common Stock, based on a conversion price of $6.50
per share. Trefoil would hold sole voting power and sole dispositive
power with respect to such 7,692,300 shares of Common Stock. Trefoil
Investors II, Inc. is the managing general partner of Trefoil and would
hold sole voting power and shared dispositive power with respect to such
7,692,300 shares of Common Stock.
(3) GEI has agreed pursuant to the Stock Purchase Agreement to purchase
1,000,000 shares of Preferred Stock, convertible into a maximum of
7,692,300 shares of Common Stock, based on a conversion price of $6.50
per share. GEI would hold sole voting power and sole dispositive power
with respect to such 7,692,300 shares of Common Stock. GE Investment
Management, Inc. is the managing general partner of GEI, and would hold
sole voting power and sole dispositive power with respect to such
7,692,300 shares of Common Stock.
(4) Trefoil Investors II, Inc. and Sigma Hedge Partners, G.P. are the
general partners of Trefoil. Delta Pt. Investors Corporation and Epsilon
Equities, Inc., each of which is wholly owned by General Electric
Pension Trust, are the general partners of Sigma Hedge Partners, G.P.
Sigma Hedge partners, G.P., Delta Pt. Investors Corporation and the
Trustees of General Electric Pension Trust each would hold shared
dispositive power over 7,692,300 shares of Common Stock, assuming a
conversion price of $6.50 per share.
(5) Putnam Investments, Inc. wholly owns two registered investment advisers:
Putnam Investment Management, Inc. and The Putnam Advisory Company, Inc.
Shares of Common Stock beneficially held by Putnam Investments, Inc. are
as a result of the holdings of various investment funds and other
institutional investors for which Putnam Investment Management, Inc.,
The Putnam Advisory Company or affiliated entities act as investment
advisers. These shares of Common Stock include the shares held by Putnam
High Yield Trust and Putnam Diversified Income Fund, whose holdings are
also separately reported in the table. See Note (8).
(6) Includes 3,243,830 shares held with shared dispositive power, and no
shares held with shared voting power, sole dispositive power or sole
voting power.
(7) Includes 3,125,089 shares held with shared dispositive power, and no
shares held with shared voting power, sole dispositive power or sole
voting power.
(8) Includes 1,688,770 shares held with shared dispositive power and shared
voting power, and no shares held with sole dispositive power or sole
voting power. These shares of Common Stock are also beneficially owned
by Putnam Investment Management. See Note (5) above.
(9) Includes 1,172,683 shares with shared voting power and shared
dispositive power, and no shares with sole dispositive power or sole
voting power.
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<PAGE>
DIRECTORS, DIRECTOR DESIGNEES AND EXECUTIVE OFFICERS
The term of office for each person selected as a director will continue
until the next Annual Meeting of Stockholders or until his successor has been
elected and qualified.
The names and certain information concerning the experience and
background of the current members of the Board of Directors and each person
designated by the Investors as one of their nominees to the Board of Directors
(a "Designee") are set forth below.
<TABLE><CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Roger E. Stangeland 66 Chairman of the Board of Directors
and Designee
Joseph J. McCaig 51 Chief Executive Officer, President
and Director
William A. Louttit 49 Executive Vice President, Chief Operating
Officer and Director
Darrell W. Stine 58 Executive Vice President -Operations
Kenneth R. Baum 48 Senior Vice President, Chief Financial
Officer and Secretary
Gilbert C. Vuolo 52 Senior Vice President, Human Resources
and Labor Relations
Daniel E. Josephs 64 Director
William G. Kagler 64 Director
Douglas T. McClure, Jr. 43 Director
David Y. Ying 41 Director
Clifford A. Miller 68 Designee
Geoffrey T. Moore 39 Designee
James J. Costello 66 Designee
J. Richard Stonesifer 59 Designee
</TABLE>
ROGER E. STANGELAND has been Chairman of the Board and a Director of
Grand Union since June 15, 1995. Mr. Stangeland is a Director and Chairman
Emeritus of The Vons Companies, Inc. ("Vons"), a large Southern California based
grocery retailer. From 1985 until his retirement on May 3, 1995, he was Chairman
of the Board of Vons. Mr. Stangeland is the immediate Past Chairman of the Board
of the Food Marketing Institute, a national supermarket trade organization, and
continues as a Director of that organization. He is also a Director of Quality
Drug Corporation, a retail drug company. Mr. Stangeland is a current director
and is also one of the Investors' Designees.
JOSEPH J. MCCAIG became President and Chief Executive Officer of Grand
Union in July 1989. He served as President and Chief Operating Officer from 1981
until July 1989 and has been a Director of Grand Union since 1981. Mr. McCaig
has been with the Company for 35 years.
WILLIAM A. LOUTTIT has been Executive Vice President and Chief Operating
Officer of Grand Union since July 1989. He served as Executive Vice President in
charge of Merchandising from 1984 until July 1989 and has been a Director of
Grand Union since 1981. Mr. Louttit has been with the Company for 31 years.
DANIEL E. JOSEPHS is currently a self-employed consultant and has been a
Director since June 15, 1995. Mr. Josephs served as Director, President and
Chief Operating Officer of Dominick's Finer Foods, a
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<PAGE>
supermarket chain based in the Chicago area, from 1985 until March 1995. Mr.
Josephs is also a director of Great Lakes Real Estate Investment Trust, which
acquires and manages small suburban office buildings.
WILLIAM G. KAGLER has been a Director since June 15, 1995. Mr. Kagler
served Skyline Chili, Inc. as Chairman of the Executive Committee of the Board
from November 1994 until November 1995, as Chairman of the Board and Chief
Executive Officer from November 1993 until November 1994, and as President and
Chief Executive Officer from November 1991 until November 1993. Prior thereto,
he served as President of The Kroger Co., a Cincinnati based food retailer. He
also serves as a director of The Fifth Third Bank, a bank, Union Central Life
Insurance Co., a life insurance company, and The Ryland Group Inc., a home
builder and mortgage insurance firm.
DOUGLAS T. MCCLURE, JR. has been a Director since June 15, 1995. Mr.
McClure is a managing director of The Private Merchant Banking Company, a
position he has held since February 1996. From April 1992 until February 1994,
he was a managing director of New Street Capital Corp., a merchant banking firm.
From 1987 to 1992 he was a managing director with the investment firm of Drexel
Burnham Lambert. Mr. McClure is a Director of AMPEX Corporation, a manufacturer
and distributor of recording products and systems, and of WestPoint Stevens
Inc., a textile manufacturer.
DAVID Y. YING has been a Director since June 15, 1995. Mr. Ying has been
a managing director at Donaldson, Lufkin & Jenrette Securities Corporation since
January 1993, and is the head of the firm's Restructuring Group. From January
1990 to January 1993, Mr. Ying was a managing director with the investment firm
of Smith Barney.
CLIFFORD A. MILLER has been designated by the Investors to serve as a
director of the Company. Mr. Miller has served as Chairman of The Clifford
Group, Inc., a national business consulting organization, since January 1992.
From December 1986 through December 1991, Mr. Miller was an Executive Vice
President and a Director of Great Western Financial Corporation and Great
Western Bank. Mr. Miller has also served as a Senior Consultant to Shamrock
since 1978 and is a director of First American Corporation and First American
Bankshares, Inc.
GEOFFREY T. MOORE has been designated by the Investors to serve as a
director of the Company. Mr. Moore has been a Managing Director of Shamrock
Capital Advisors since March 1992. Prior to that, he was a First Vice President
with Paine Webber Incorporated. He is also Vice President of Trefoil Investors
II, Inc., and President of Trefoil Natural Foods Company, Inc., and since
October 1994 has been a director of Fantastic Foods, Inc.
JAMES J. COSTELLO has been designated by the Investors to serve as a
director of the Company. Mr. Costello was employed with the General Electric
Company as Comptroller (Chief Accounting Officer) for 14 years prior to his
retirement in 1992.
J. RICHARD STONESIFER has been designated by the Investors to serve as
a director of the Company. Mr. Stonesifer has served as Senior Vice President,
GE Appliances, and an executive officer of the General Electric Company from
January 1992 until his retirement in 1996.
DARRELL W. STINE was appointed Executive Vice President of Grand Union
in July 1994. He served as Senior Vice President with responsibility for the
Company's New York Region from 1988 until July 1994. Mr. Stine has been with the
Company for 42 years.
KENNETH R. BAUM was appointed Senior Vice President, Chief Financial
Officer, and Secretary of Grand Union in July 1994. Mr. Baum served as Vice
President and Controller from 1983 until July 1994 and as a Director of Grand
Union from July 1994 until June 15, 1995. Mr. Baum has been with the Company for
14 years.
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<PAGE>
GILBERT C. VUOLO was appointed Senior Vice President, Human Resources
and Labor Relations, effective April 1, 1996. Prior to that, he served as
Corporate Vice President, Personnel and Labor Relations, and Vice President,
Labor Relations, from 1989 to 1994. Mr. Vuolo has been with the Company for 34
years.
Executive officers of Grand Union are appointed and serve at the
discretion of the Board of Directors. Each director of Grand Union is elected
for a period of one year and will serve until his successor is duly elected and
qualified.
On January 25, 1995, the Company filed a voluntary petition for relief
under Chapter 11 of the federal bankruptcy laws. Prior to June 15, 1995, the
Board of Directors of the Company consisted of Messrs. McCaig, Louttit, Baum,
Gary D. Hirsch (Chairman) and Martin A. Fox. Messrs. McCaig, Louttit and Baum
were also executive officers of the Company within two years prior to the date
of the bankruptcy filing. Mr. McCaig was also a director of Grand Union Capital
Corporation and Grand Union Holdings Corporation, both of which became subject
to Chapter 11 proceedings on February 16, 1995. The current directors of Grand
Union were selected by certain members of the Official Committee of Unsecured
Creditors which was appointed by the United States Trustee for the District of
Delaware, pursuant to the Chapter 11 proceedings discussed above.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company currently comprises seven members
and there are no vacancies on the Board. Each director serves a term of one year
or until his successor is duly elected and qualified or until his earlier death,
resignation or removal. The Board of Directors has two standing committees: a
Compensation Committee and an Audit Committee.
The Board of Directors of the Company held seventeen (17) meetings
during the fiscal year ended March 30, 1996, fifteen of which were held after
June 15, 1995. Prior to June 15, 1995 the Board was comprised of Messrs. Gary D.
Hirsch, Martin A. Fox, Joseph J. McCaig, William A. Louttit, and Kenneth R.
Baum. After June 15, 1996 the Board was comprised of Messrs. Stangeland, McCaig,
Josephs, Kagler, Louttit, McClure, and Ying. Each incumbent Director attended at
least 75% of the aggregate of the number of meetings of the Board and the number
of meetings held by all committees of the Board on which he or she served.
The Audit Committee reviews the results and scope of audit and other
services provided by the Company's independent auditors and considers other
matters related to the financial condition of the Company. The Audit Committee
presently consists of Messrs. Ying, Josephs, and McClure. Former directors
comprised the Audit Committee during the part of the first quarter of 1995,
until the Board was reconstituted effective June 15, 1995, at which time the
current members of the Audit Committee were elected. During the fiscal year
ended March 30, 1996, the Audit Committee held a total of ten (10) meetings, all
of which were held after June 15, 1995.
The Compensation Committee sets the compensation for the chief executive
officer, makes recommendations concerning salaries and incentive compensation
for executive officers and key personnel, and determines to whom stock options
and other equity incentive awards will be granted under the 1995 Equity
Incentive Plan and the terms of those awards. Members of the Compensation
Committee are not eligible to receive discretionary equity incentive awards
while they serve on the Committee, except for formula-based awards made under
the terms of the 1995 Non-employee Directors' Stock Option Plan. The
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<PAGE>
Compensation Committee presently consists of Messrs. Kagler, Josephs and
Stangeland. Former directors comprised the Compensation Committee during the
part of the first quarter of 1995, until the Board was reconstituted effective
June 15, 1995, at which time the current members of the Compensation Committee
were elected. During the fiscal year ended March 30, 1996, the Compensation
Committee held a total of three (3) meetings, all of which were held after June
15, 1995.
The Board of Directors does not have a standing nominating committee.
Instead, the Board of Directors, as a whole, identifies and screens candidates
for membership on the Company's Board of Directors.
Procedures for Nominations for Director by Security Holders
- -----------------------------------------------------------
Nominations of persons for election to the Board of Directors at the
annual meeting or by the written consent of the shareholders, may be made by any
shareholder of the Company entitled to vote for the election of directors at the
meeting who complies with certain notice procedures. A shareholder's nomination
of a person for election to the Board of Directors must be delivered to or
mailed and received at the principal executive offices of the Company, addressed
to the attention of the Secretary of the Company, not less than sixty days prior
to the meeting or the date the shareholders are first solicited for their
consents as the case may be; provided, however, that, in the case of an annual
meeting and in the event that less than fifty days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the earlier
of (a) the close of business on the fifteenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever first occurs, or (b) two days prior to the date of the meeting.
Such shareholder's notice to the Secretary shall set forth (a) as to each person
whom the shareholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of capital stock of the Company which are
beneficially owned by the person, (iv) a statement as to the person's
citizenship, and (v) any other information relating to the person that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, and (b) as to the shareholder
giving the notice, (i) the name and record address of the shareholder and (ii)
the class, series and number of shares of capital stock of the Company which are
beneficially owned by the shareholder. The Company may require any proposed
nominee to furnish such other information as may reasonably be required by the
Company to determine the eligibility of such proposed nominee to serve as a
director of the Company. In connection with any annual meeting, the Chairman of
the Board of Directors shall, if the facts warrant, determine and declare to the
meeting that a nomination not made in accordance with the foregoing procedure,
or otherwise properly made by the Board of Directors, was defective and shall be
disregarded.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or accrued by the
Company to the Company's Chief Executive Officer, and the four other executive
officers whose salary and bonus exceeded $100,000 for the fiscal year ended
March 30, 1996 (collectively, the "Named Executive Officers"), for services
rendered to the Company and its subsidiaries in all capacities during the three
fiscal years ended March 30, 1996:
SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
LONG TERM COMPENSATION AWARDS
SECURITIES ALL OTHER
NAME AND ANNUAL COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS/SARS (#) ($)(2)
------------------ ---- --------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Joseph J. McCaig 1996 454,310 90,000 47,800 181,786
President and Chief 1995 502,165 22,493 - 980,968
Executive Officer 1994 523,712 123,479 - 30,109
William A. Louttit 1996 354,019 71,540 28,000 82,742
Executive Vice President 1995 335,669 15,037 - 437,355
and Chief Operating Officer 1994 349,731 66,392 - 14,038
Darrell W. Stine 1996 281,142 56,780 19,000 40,070
Executive Vice President - 1995 257,077 18,000 - 621,911
Operations 1994 251,134 17,446 - 14,535
Kenneth R. Baum 1996 203,654 42,000 11,720 9,392
Senior Vice President, 1995 152,769 7,154 - 31,691
Chief Financial Officer 1994 143,715 20,603 - 4,739
and Secretary
Gilbert C. Vuolo 1996 145,792 29,440 6,560 4,244
Senior Vice President, Human 1995 132,885 6,231 - 4,450
Resources and Labor Relations 1994 121,399 23,906 - 3,553
</TABLE>
- ---------------
The "Other Annual Compensation" column was omitted since the aggregate amount of
perquisites and other personal benefits in respect of Fiscal 1996, Fiscal 1995
and Fiscal 1994 is less than the lower of $50,000 or 10% of the total annual
salary and bonus reported for each of the named executive officers and no other
compensation of the type required to be described in the "Other Annual
Compensation" column was paid in Fiscal 1996, Fiscal 1995 or Fiscal 1994.
(1) Included in the bonus column for Fiscal 1994 are amounts paid during Fiscal
1995 for performance in Fiscal 1994, and included in the bonus column for Fiscal
1995 are amounts paid during Fiscal 1996 for performance in Fiscal 1995. All
amounts included in the bonus column for Fiscal 1996 are retention payments paid
for remaining in the Company's employ through the bankruptcy and the end of
Fiscal 1996.
(2) "All Other Compensation" includes the following: (i) contributions to the
Company's Savings Plan under Section 401(k) made by the Company in Fiscal 1996,
Fiscal 1995 and Fiscal 1994, respectively, for each of the named executive
officers as follows: Mr. McCaig - $1,414, $1,455, and $2,964; Mr. Louttit -
$1,526, $765, and $2,331; Mr.
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<PAGE>
Stine - $1,563, $1,547, and $2,313; Mr. Baum - $1,546, $1,525, and $1,650; and
Mr. Vuolo - $1,516, $1,526, and $1,439; and (ii) premium payments for life
insurance made by the Company in Fiscal 1996, Fiscal 1995 and Fiscal 1994,
respectively, for each of the named executive officers as follows: Mr. McCaig -
$10,843, $31,090, and $27,145; Mr. Louttit - $4,795, $10,013, and $11,707; Mr.
Stine - $7,795, $13,522, and $12,222; Mr. Baum - $2,741, $3,302, and $3,089; and
Mr. Vuolo - $2,416, $2,612, and $1,802. The Fiscal 1996 and Fiscal 1995 amounts
for Messrs. McCaig, Louttit, Stine and Baum also include the value of securities
distributed from custodial accounts established pursuant to non-competition and
confidentiality agreements entered into by Messrs. McCaig, Louttit, Stine and
Baum in August 1993. Such amounts were distributed as a result of the Company's
filing for bankruptcy in 1995, and offset the Company's obligations to such
executives under Grand Union's Supplemental Retirement Program for Key
Executives. Such distributions were made in Fiscal 1996 and Fiscal 1995,
respectively, in the following amounts: Mr. McCaig - $169,217 and $948,423; Mr.
Louttit - $76,109 and $426,577; Mr. Stine - $30,401 and $606,842; and Mr. Baum -
$4,793 and $26,864.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE><CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term
- ------------------------------------------------------------------- ---------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to Price or
Options/SARs Employees in Base Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- -------- ------------ ---------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
J. McCaig 47,800 22.69% 6.625 Dec 11, 2005 119,155 504,698
W. Louttit 28,000 13.29% 6.625 Dec 11, 2005 116,660 295,639
D. Stine 19,000 9.02% 6.625 Dec 11, 2005 79,162 200,612
K. Baum 11,720 5.56% 6.625 Dec 11, 2005 48,831 123,746
G. Vuolo 6,560 3.11% 6.625 Dec 11, 2005 27,332 69,264
Aggregate Increase for All Stockholders 41,664,269 105,585,438
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options/SARs at FY-End (#) Options/SARs at FY-End ($)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C>
J. McCaig 0 47,800 - $ 0
W. Louttit 0 28,000 - 0
D. Stine 0 19,000 - 0
K. Baum 0 11,720 - 0
G. Vuolo 0 6,560 - 0
</TABLE>
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<PAGE>
PENSION PLAN TABLE
The table below shows, on a combined basis for the Grand Union Company
Employees' Retirement Plan (the "Retirement Plan"), and The Grand Union Company
Supplemental Retirement Program for Key Executives (the "Supplemental Plan"),
the estimated annual benefit payable upon retirement to specified compensation
and years of service classifications of 5, 10 and 15 or more years of service.
The credited years of service under these Plans for Messrs. McCaig, Louttit,
Stine, Baum and Vuolo are 22 years, 20 years, 28 years, 13 years and 22 years,
respectively. The current base compensation set forth in "salary" column of the
Summary Compensation Table does not differ substantially from covered
compensation under these Plans. The retirement benefits shown are based upon
retirement at age 62 and the payment of a single-life annuity to the employee.
Years of Service
Final Average ---------------------------------------
Compensation 5 10 15 or more
----------------- ------- ------- ----------
$100,000 $21,667 $43,333 $65,000
150,000 32,500 65,000 97,500
200,000 43,333 86,667 130,000
250,000 54,167 108,333 162,500
300,000 65,000 130,000 195,000
350,000 75,833 151,667 227,500
400,000 86,667 173,333 260,000
450,000 97,500 195,000 292,500
500,000 108,333 216,667 325,000
550,000 119,167 238,333 357,500
600,000 130,000 260,000 390,000
The benefits actually payable to an individual executive are reduced, in
some cases substantially, through offsets for primary Social Security benefits
and the actuarial equivalent of the value of securities received by those
executives who received distributions from custodial accounts in 1995 and 1994.
Below, for each named executive, is the estimated total offset amount - the
primary social security benefit offset plus and the actuarial equivalent of
amounts distributed from custodial accounts - in each case determined as a
single life annuity payable beginning at age 62.
Estimated Annual Payment Offset Amounts
From Prior Social Total
Distributions Security Offset
------------- -------- ------
J. McCaig $ 209,000 $ 17,000 $ 226,000
W. Louttit 105,000 18,000 123,000
D. Stine 77,000 14,000 91,000
K. Baum 7,000 19,000 26,000
G. Vuolo -- 17,000 17,000
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<PAGE>
THE GRAND UNION COMPANY EMPLOYEES' RETIREMENT PLAN
The Retirement Plan is a tax-qualified, noncontributory retirement plan,
providing retirement benefits for its eligible salaried and hourly non-union
employees, union employees not covered by other pension plans, and all of its
officers. Under the Retirement Plan, a participant's benefit is generally 1.5%
of the average of his five consecutive years of highest annual compensation
multiplied by years of service not in excess of 35 minus primary social security
benefits. Benefits under the plan are paid under several alternatives, including
monthly or lump sum payments at the employee's election. Benefits are normally
payable at age 65, however, the plan provides for early retirement with reduced
benefits commencing at age 55. The Internal Revenue Code places certain limits
on pension benefits which may be paid under plans qualified under the Internal
Revenue Code.
SUPPLEMENTAL RETIREMENT PLAN FOR KEY EXECUTIVES
The Supplemental Plan is a non-qualified pension plan pursuant to which
certain key employees of Grand Union and its affiliates ("Participants"),
including Messrs. McCaig, Louttit, Stine, Baum and Vuolo, earn a supplemental
pension in addition to the pension benefit to which they are entitled under the
Retirement Plan. The pension benefit under the Supplemental Plan is calculated
as an annual pension, payable monthly (i) if the Participant is not married on
his retirement date, for the Participant's life, or (ii) if the Participant is
married on his retirement date, the same amount as described in clause (i) for
the duration of the Participant's life and thereafter 50% of such amount for the
duration of the life of the Participant's surviving spouse. The amount of the
annual pension payable upon retirement at age 62 or later is determined as the
"target benefit" minus the "plan offsets". The "target benefit" is an annual
pension equal to the product of 4-1/3% of the Participant's final year's base
salary rate in effect immediately prior to his separation multiplied by the
Participant's number of years of credited service (up to 15 years) under the
Supplemental Plan. "Plan offsets" for Participants retiring at age 62 or later
are equal to the sum of the Participant's (i) primary Social Security benefits
payable at the later of age 62 or the Participant's actual retirement age, (ii)
benefits under the Retirement Plan payable at the later of age 62 or the
Participant's actual retirement age in the form of a single life annuity, and
(iii) benefits, if any, payable from the qualified retirement plan(s) of the
Participant's previous employer(s). Participants may also retire early (i) at or
after attaining age 50 but prior to attaining age 55, with the consent of Grand
Union (the consent requirement is waived for a Participant who becomes disabled
or is involuntarily terminated other than for cause), or (ii) at or after age
55, without any requirement for consent by Grand Union. For Participants who
retire early, the "target benefit" is reduced by 5% per year for each year the
Participant is under age 62. Supplemental Plan benefits are payable in an
actuarially determined single sum no later than 30 days following the
Participant's date of retirement or other termination of employment. In general,
no Supplemental Plan benefits will be paid to a Participant whose employment
with Grand Union terminates prior to the Participant's attaining age 50. In May
1995, the Bankruptcy Court approved a modification to the Supplemental Plan
which provides that (x) in the case of Joseph J. McCaig, final year's base
salary shall be deemed to be an amount not less than $500,000 and (y)
notwithstanding the general requirement of the Supplemental Plan that benefits
will not be paid to persons who retire prior to age 50, persons who were
Participants in the Supplemental Plan prior to April 1, 1995 will be eligible
for early retirement without forfeiture of benefits under the Supplemental Plan
from and after age 47.
In August 1993, in consideration of non-competition and confidentiality
agreements entered into by certain executives of Grand Union, including Messrs.
McCaig, Louttit, Stine and Baum, Grand Union agreed to transfer to a custodial
account to be held by an independent custodian securities having a
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<PAGE>
specified value intended to approximate the benefits payable to the specified
executives under the Supplemental Plan (plus a reserve for claims and expenses
of the custodian). Such securities were to have been transferred to the
custodian over a four-year period. Pursuant to the terms of the agreements, the
executives for whose benefit securities had been transferred to the custodian
were entitled to receive a distribution of such securities upon Grand Union's
filing of the Chapter 11 petition in January 1995. Accordingly, in February and
September of 1995, securities having an aggregate value of approximately
$1,855,576 (representing securities on deposit with the custodian as of the
Filing Date plus interest thereon) were distributed to the executives entitled
thereto. In addition, under a separate agreement, Mr. Stine received a payment
of $433,650, representing an advance payment of a portion of the benefits to
which he would be entitled had he retired under the SERP. The value of the
securities so distributed to each executive reduced the future amounts payable
to such executive pursuant to the Supplemental Plan. Upon distribution of the
securities to the executives for whose benefit they were held, the custodial
accounts were terminated.
COMPENSATION OF DIRECTORS
Effective from June 15, 1995, each non-employee director other than Mr.
Stangeland receives an annual fee of $25,000 for serving on the Board, and
meeting fees of $1,500 for each Board meeting attended in person, $750 for each
committee meeting attended in person and each telephonic Board meeting attended,
and $375 for each telephonic committee meeting attended. In addition, the
Chairman of the Audit Committee, Mr. Ying, and the Chairman of the Compensation
Committee, Mr. Kagler, receive $500 for each Committee meeting they attend in
person as Chairman and $250 for each telephonic committee meeting they attend as
Chairman. Prior to the June 15, 1995, the directors of Grand Union were not
compensated for their services as such. Directors receive reimbursement of
reasonable expenses incidental to attendance at meetings of the Board of
Directors.
Effective from January 1, 1996, Mr. Stangeland receives an annual
retainer of $100,000 for serving as Chairman of the Board. In addition, Mr.
Stangeland receives a $4,000 daily fee for days spent at the Company and when
undertaking substantial travel on the Company's behalf. Mr. Stangeland absorbs
incidental expenses incurred when working on the Company's behalf from his
office in California. Mr. Stangeland was paid $204,000 in daily fees with
respect to services performed during Fiscal 1996. Mr. Josephs and Mr. Kagler
receive a $2,000 daily fee for activity on the Company's behalf which requires
substantial travel. Mr. Josephs and Mr. Kagler received $11,000 and $9,000,
respectively, with respect to services performed during Fiscal 1996.
Each non-employee director also receives an automatic initial grant of
options to purchase 5,000 shares of Common Stock, and additional grants to
purchase 1,500 shares with each re-election by stockholders. All directors are
reimbursed for expenses incurred on the Company's behalf.
SEVERANCE POLICY
In May 1995, Grand Union adopted a severance policy, which was approved
by the Bankruptcy Court, with respect to its salaried employees whereby a
salaried employee whose employment is terminated without cause or whose
employment is constructively terminated is entitled to receive a lump-sum
severance payment equal to (i) in the case of salaried employees holding the
office of President, Executive Vice President or Senior Vice President, 18
months' base salary; (ii) in the case of salaried employees holding the office
of Corporate Vice President, 12 months' base salary; (iii) in the case of
salaried employees holding the office of appointed vice president or director, 6
months' base salary; and (iv) in the case of all other salaried employees, one
week's base salary for each year of service to the Company up to a
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maximum of 26 weeks. Constructive termination is defined under the policy to
mean an involuntary transfer that would require relocation outside the Company's
current operating area or (x) with respect to persons holding the position of
chief executive officer, chief operating officer or chief financial officer,
either removal from such position, or a reduction in salary of 5% or more in any
year and (y) with respect to any other salaried employee, either a reduction in
salary of 10% or more in any year or a reduction in grade level of more than two
grades in any year.
CHANGE-IN-CONTROL PROVISIONS
Under the Company's 1995 Equity Incentive Plan and 1995 Non-Employee
Directors Stock Option Plan, certain provisions take effect on a
change-in-control of the Company. Under both plans, on the twentieth (20th)
trading day prior to the effective date of the change in control all stock
options not otherwise vested become fully vested, and any restrictions or other
conditions applicable to restricted stock or other incentives awarded under the
1995 Equity Incentive Plan lapse or are deemed satisfied and such awards become
fully vested and/or immediately payable. In addition, the value of any canceled
award is paid out in cash unless the award holder receives either (i) the right
to acquire the same basket of cash and securities available to holders of Common
Stock, or (ii) if pooling of interests is a condition of the transaction, an
equivalent right in a successor security which would enable the transaction to
qualify for pooling of interests. Under both plans, a change-in-control is
defined to include: (1) any person, entity or Group (persons or entities acting
together) is or becomes the beneficial owner of more than 50% of the Voting
Stock of the Company; (2) a consolidation, merger, or sale of substantially all
of the assets of the Company, with the effect that any person, entity or Group
becomes the beneficial owner of more than 50% of the Voting Stock of the Company
or the Company is not the surviving entity; (3) during any consecutive two-year
period commencing July 1, 1996, individuals who constituted the Board of
Directors at the beginning of such period, together with any new directors whose
election by the Board or nomination for election by stockholders was approved by
2/3 of the directors who were in office at the beginning of the period or whose
election or nomination was so approved, cease to constitute a majority of the
Board then in office; or (4) any order, judgment or decree of dissolution or
split-up of the Company, and such order remains undischarged or unstayed for a
period in excess of 60 days. For purposes of determining whether a change in
control has occurred, "more than 50% of the Voting Stock" means more than 50% of
one or more classes of stock pursuant to which the holders have the general
power to vote for the election of members of the Board of Directors, and the
aggregate of such classes for which the person, entity or Group holds more than
50% has the power to elect more than 50% of the members of the Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors maintains a personnel and compensation committee
(the "Compensation Committee") consisting of three directors. Since June 15,
1995, the members of the Compensation Committee have been Messrs. Kagler,
Josephs and Stangeland, with Mr. Kagler acting as Chairman.
No member of the Board participates in decisions regarding his own
compensation as an executive officer of Grand Union.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pre-Bankruptcy Relationships and Transactions.
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On January 25, 1995 the Company filed a petition under Chapter 11 of the
federal bankruptcy laws. The Company emerged from bankruptcy on June 15, 1995,
the effective date of the bankruptcy court's approval of the Company's
reorganization plan. Prior to June 15, 1995, the Company was a wholly owned
subsidiary of Grand Union Capital Corporation ("Capital"), which in turn was a
wholly owned subsidiary of Grand Union Holdings Corporation ("Holdings").
Holdings was controlled by Miller Tabak Hirsch & Co. ("MTH") and its affiliates,
which also control Penn Traffic.
The following applies to relationships which existed prior to June 15,
1995. Mr. Gary D. Hirsch served as Chairman and a Director of Grand Union and
also as Chairman and a Director of Penn Traffic. Mr. Martin A. Fox served as a
Director, Vice President and Assistant Secretary of Grand Union and Vice
Chairman - Finance and Assistant Secretary of Penn Traffic. Messrs. Hirsch and
Fox received compensation from MTH, of which Mr. Hirsch is a general partner of
the managing partner, and Mr. Fox is Executive Vice President. Messrs. Hirsch
and Fox did not receive salaries from Penn Traffic and did not participate in
cash bonus plans of Penn Traffic, and received no compensation in their
capacities as executive officers or directors of Grand Union.
Until May 31, 1995, Mr. McCaig was a member of the Board of Directors of
Penn Traffic, for which he received compensation of $10,000 per annum and $1,000
per Board of Directors meeting attended. Mr. McCaig became a Director of
Holdings in July 1989 and a Director of Capital in July 1992. He became
President of Holdings and Capital in May 1993. Mr. McCaig served as a Director
of Penn Traffic from September 1992 until May 1995.
Mr. Hirsch is no longer a director of the Company, but he is an indirect
beneficiary of the following transactions, entered into while he was a director.
Prior to June 15, 1995, MTH was engaged as financial advisor to Penn Traffic and
as a financial advisor to the Company, in the latter case pursuant to an
agreement (the "MTH Agreement"), under which MTH was to have provided certain
financial consulting and business management services to the Company through
July 1997. In accordance with the Company's post-bankruptcy Reorganization Plan,
the MTH Agreement was terminated on June 15, 1995 and Grand Union executed a
settlement agreement (the "MTH Settlement Agreement"). The MTH Settlement
Agreement provides for the termination of the MTH Agreement, payment by Grand
Union of accrued and unpaid fees under the MTH Agreement through June 15, 1995,
and for the indemnification of MTH and certain entities related to MTH (the "MTH
Entities") from certain claims and liabilities, subject to the terms and
limitations set forth in the MTH Settlement Agreement. During Fiscal 1996,
Fiscal 1995 and Fiscal 1994, the Company paid $315,000, $750,000, and $900,000,
respectively, to MTH, pursuant to the MTH Agreement. In July 1989, Grand Union
and P&C Foods, which is indirectly controlled by MTH, operated stores in some of
the same geographic areas in Vermont and upstate New York. In connection with
the acquisition, agreements were entered into with federal antitrust authorities
which required the divestiture of 16 Grand Union stores or P&C Foods stores. The
divestitures required by these agreements were completed on July 30, 1990.
Thirteen of the sixteen stores divested were P&C Foods stores. In a related
transaction, on July 30, 1990, P&C Foods and Grand Union entered into an
Operating Agreement pursuant to which Grand Union acquired the right to operate
P&C Foods' thirteen remaining stores in New England under the Grand Union name
until July 2000, with an option to extend the term of such operation for an
additional five years. P&C Foods also granted Grand Union an option to purchase
such stores. In connection with these transactions, Grand Union agreed to pay
P&C Foods a minimum annual fee which will average $10.7 million per year during
the ten-year lease term plus, beginning with the year commencing July 31, 1992,
additional contingent fees of up to $700,000 per year based upon sales
performance of the stores operated by Grand Union. In addition, Grand Union paid
P&C Foods $7.5 million for the option to purchase the stores. Pursuant to the
terms of the Operating Agreement, a $15 million prepayment of the annual fee was
made to P&C Foods in connection with the recapitalization of
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the Company in 1992. The Operating Agreement was assumed during the Chapter 11
bankruptcy case and will continue on its current terms. Pursuant to the terms of
the Operating Agreement, in April 1992, Grand Union purchased P&C Foods' White
River Junction, Vermont warehouse for cash consideration of approximately $5
million. From September 1993 until September 1995, Grand Union was in a program
to consolidate the purchasing, storage and distribution of health and beauty
care and general merchandise product with Penn Traffic. Under this program, the
inventory of health and beauty care and general merchandise product was owned by
Penn Traffic and stored in Grand Union's warehouse in Montgomery, New York. The
products were distributed from the warehouse to Grand Union stores and certain
Penn Traffic stores and wholesale customers. Grand Union reimbursed Penn Traffic
for shipments to Grand Union stores based on terms defined in the agreement.
Grand Union purchased the health and beauty care products for both Grand Union
and those Penn Traffic stores and wholesale customers serviced by the warehouse
and was reimbursed by Penn Traffic for such purchases based on terms defined in
the agreement. Penn Traffic purchased the general merchandise product for both
Grand Union and Penn Traffic. Under the arrangement, Grand Union and Penn
Traffic shared the cost of operating the warehouse based on their proportionate
usage of the product. In connection with this agreement, Penn Traffic purchased
all of the health and beauty care and general merchandise inventories previously
owned by Grand Union for approximately $12,821,000. During Fiscal 1996, Fiscal
1995 and Fiscal 1994, Grand Union purchased from vendors approximately
$48,696,000, $120,027,000 and $75,262,000, respectively, of health and beauty
care products under the agreement. Additionally, Grand Union purchased
approximately $30,119,000, $87,208,000 and $48,163,000, respectively, from Penn
Traffic's inventory of health and beauty care and general merchandise products
at cost. At April 1, 1995 and April 2, 1994, respectively, Grand Union had
recorded a net receivable of approximately $7,705,000 and $5,014,000 related to
this agreement.
Post-Bankruptcy Relationships.
Mr. Ying, a director of the Company since June 15, 1995, has been a
managing director of Donaldson Lufkin & Jenrette Securities Corporation ("DLJ")
since January 1993. During Fiscal 1995 and Fiscal 1996, DLJ acted as financial
advisor to the Informal Committee of certain holders of Subordinated Notes in
connection with the restructuring of Grand Union and received compensation from
the Company of $1,278,000 for such services. Near the end of Fiscal 1996, the
Company entered into an agreement with DLJ to provide investment banking
services and advice to the Company. During the term of DLJ's engagement, it has
the exclusive right to act as sole managing underwriter, exclusive placement
agent, sole dealer manager or exclusive solicitation agent with respect to any
public offering of the Company's securities, any private offering of any of the
Company's debt securities, or any exchange offer or refinancing transaction
relating to the Company's Senior Notes or other securities of the Company.
Under the agreement, DLJ receives a retainer fee of $200,000, a
Transaction Fee, and, if a fairness opinion is requested, a Fairness Fee. In the
case of a private placement, the Transaction Fee is 5% of the gross proceeds of
the private placement, offset by the retainer fee, and the Fairness Fee is 1.5%
of the gross proceeds of the private placement. In the case of a divestiture,
the Transaction Fee is a percentage of the aggregate consideration, based on a
sliding scale, from 2% of a $50 million consideration to 0.9% if the aggregate
consideration is $450 million or more. The Fairness Fee in a divestiture is the
greater of $350,000 or 25% of the Transaction Fee. In the case of a sale of 36%
to 100% of the business, securities or assets of the Company, the Transaction
Fee varies ratably from 0.4% of the aggregate consideration to 0.6% of the
aggregate consideration, offset by the retainer fee and the Fairness Fee. In the
case of a sale, the Fairness Fee is $1 million. In connection with the
transaction described above, DLJ is expected to earn aggregate fees of
approximately $4,750,000, plus an additional fee of
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$250,000 for services rendered in connection with solicitation of consents and
waivers from the holders of the Company's Senior Notes.
The agreement also contains various other provisions, including an
obligation by DLJ to keep confidential certain information provided to it by the
Company, and an obligation by the Company to indemnify and hold harmless DLJ,
its parent and its affiliates, and the directors, officers, agents and
employees of DLJ, its parent and its affiliates ("Indemnified Persons"), from
and against various potential losses and liabilities arising out of or in
connection with misstatements or omissions in disclosure documents or in
connection with advice or services rendered by an Indemnified Person.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who beneficially own more than 10% of a
registered class of the Company's equity securities 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 10% beneficial stockholders are required by
regulations promulgated by the Securities and Exchange Commission to furnish the
Company with copies of all Section 16(a) reports they file. Based solely on its
review of the copies of reporting forms furnished to the Company, or written
representations that no annual Form 5 reports were required, the Company
believes that all filing requirements under Section 16(a) of the Securities
Exchange Act of 1934 applicable to its directors, officers and any persons
holding 10% or more of the Company's Common Stock with respect to the Company's
fiscal year ended March 30, 1996, were satisfied.
1995 CHANGE IN CONTROL
On January 25, 1995 the Company filed a voluntary petition for relief
under chapter 11 ("Chapter 11") of Title 11 of the United States Code in the
United States Bankruptcy Court for the District of Delaware. The Court confirmed
the Company's plan of reorganization on May 31, 1995, and the Company emerged
from Chapter 11 on June 15, 1995.
Prior to Chapter 11, the Company was controlled by Mr. Gary D. Hirsch.
Through a network of holding companies and partnerships, Mr. Hirsch was the
beneficial owner of more than 75% of the Company's Common Stock.
Pursuant to the Company's plan of reorganization, effective June 15,
1995, the Company's Senior Subordinated Notes were canceled and former holders
of those notes were issued 10,000,000 shares of the Company's new Common Stock.
Claims in the aggregate amount of $602,494,000 from the holders of those Senior
Subordinated Notes were canceled. Approximately 3,243,830 shares (32.44% of the
voting power currently outstanding) are beneficially owned, directly or
indirectly, by Putnam Investments, Inc. Putnam Investments, Inc. wholly owns
two registered investment advisers: Putnam Investment Management, Inc. and The
Putnam Advisory Company, Inc. Shares of Common Stock beneficially held by
Putnam Investments, Inc. are as a result of the holdings of various investment
funds and other institutional investors for which Putnam Investment Management,
Inc., The Putnam Advisory Company or affiliated entities act as investment
advisers. These shares of Common Stock include the shares held by Putnam High
Yield Trust and Putnam Diversified Income Fund, whose holdings are also
separately reported in the table above. The current directors of the Company
were selected by certain members of the Official Committee of
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Unsecured Creditors which was appointed by the United States Trustee for the
District of Delaware. Putnam Investments, Inc. was also a member of the Official
Committee of Unsecured Creditors.
For further details, see the Company's Second Amended Chapter 11 Plan of
Reorganization, incorporated herein by reference to Exhibit T3E1 to the
Company's Form T-3 dated May 8, 1995 and filed with the Securities and Exchange
Commission.
