<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
GRAND UNION COMPANY
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(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):
/ / 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:
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(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:
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(4) Date Filed:
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<PAGE>
October 16, 1996
To our Stockholders:
You are cordially invited to attend the 1996 Annual Meeting of Stockholders
of the Grand Union Company, to be held Thursday, November 7, 1996, at 10:00 am
at the Sheraton Crossroads Hotel, 1 International Blvd., Mahwah, New Jersey,
07495. The formal notice and proxy statement for the Annual Meeting are
attached to this letter.
It is important that your shares be represented at the Annual Meeting.
Accordingly, whether or not you plan to attend the meeting, we urge you to
complete, date and sign the enclosed proxy card as soon as possible and return
it in the envelope provided.
On behalf of the Board of Directors, I would like to thank you for your
continued support and look forward to seeing you on November 7.
Sincerely,
Roger E. Stangeland
Chairman of the Board
<PAGE>
THE GRAND UNION COMPANY
201 WILLOWBROOK BLVD.
WAYNE, NJ 07470
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 7, 1996
The Annual Meeting of Stockholders of The Grand Union Company (the
"Company") will be held at the Sheraton Crossroads Hotel, 1 International
Blvd., Mahwah, New Jersey, 07495, beginning at 10:00 a.m. on Thursday,
November 7, 1996, for the following purposes as more fully described in the
accompanying Proxy Statement:
(1) To elect the following nine (9) nominees to serve as directors: Roger
E. Stangeland, Joseph J. McCaig, James J. Costello, Daniel E. Josephs, William
G. Kagler, Clifford A. Miller, Geoffrey T. Moore, J. Richard Stonesifer and
David Y. Ying.
(2) To approve the 1995 Non-Employee Directors' Stock Option Plan and
the issuance of up to one hundred thousand (100,000) shares of Common Stock
pursuant to that plan.
(3) To approve the 1995 Equity Incentive Plan and the issuance of up to
nine hundred thousand (900,000) shares of Common Stock pursuant to that plan.
(4) To amend the Company's Certificate of Incorporation to increase the
number of shares of authorized Common Stock to sixty million (60,000,000) and to
reduce the par value to $.01 per share.
(5) To amend the Company's Certificate of Incorporation to provide holders
of the Company's Common Stock with price protection in connection with
certain business combination transactions (the "Fair Price" amendment).
(6) To amend the Company's Certificate of Incorporation to permit
stockholder action by written consent.
(7) To ratify the appointment of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending March 29, 1997.
(8) To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on September 23,
1996, will be entitled to vote at the meeting or any adjournment or
postponement thereof. A list of such stockholders is kept at the Company's
offices, 201 Willowbrook Blvd., Wayne, New Jersey, and at the place of the
meeting for the ten days prior to the meeting. The meeting will be open to
all stockholders of record and proxyholders, and to others by invitation
only. Beneficial owners of shares held by a broker or nominee must bring
with them or have delivered to the Company an appropriate proxy from their
broker to vote such shares.
By Order of the Board of Directors
Kenneth R. Baum
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
October 16, 1996
PLEASE USE THE ENCLOSED STAMPED ENVELOPE TO RETURN YOUR PROXY.
RETURNING YOUR PROXY WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE ANNUAL
MEETING.
<PAGE>
THE GRAND UNION COMPANY
201 WILLOWBROOK BLVD.
WAYNE, NJ 07470
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
The Grand Union Company, a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
Sheraton Crossroads Hotel, One International Place, Mahwah, New Jersey,
beginning at 10:00 a.m. on November 7, 1996, and at any adjournment or
postponement thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders.
These proxy solicitation materials, and the Annual Report to Stockholders
for the fiscal year ended March 30, 1996, including financial statements, are
being first mailed on or about October 15, 1996, to all stockholders entitled to
vote at the Annual Meeting.
RECORD DATE AND SHARES OUTSTANDING
Stockholders of record at the close of business on the record date,
September 23, 1996, are entitled to notice of and to vote at the Annual Meeting.
The Company has two classes of voting equity securities outstanding: Common
Stock, $1.00 par value ("Common Stock"), and Class A Convertible Preferred
Stock, $1.00 par value ("Preferred Stock"). At the close of business on the
record date, 10,000,000 shares of Common Stock were issued and outstanding, and
800,000 shares of Preferred Stock were issued and outstanding.
VOTING AND REVOCABILITY OF PROXIES
Any proxy given in the form accompanying this proxy statement may be
revoked or superseded by the person giving it prior to exercise. A proxy may
be revoked by delivering to the Secretary of the Company a later dated proxy
or a written notice of revocation, or by attending the Annual Meeting and
voting in person. A proxy, when executed and not so revoked, will be voted
in accordance with the instructions given in the proxy. If a choice is not
specified in the proxy, the proxy will be voted "FOR" the nominees for
election of directors named in this Proxy Statement, "FOR" approval of the
1995 Non-Employee Directors' Stock Option Plan, "FOR" approval of the 1995
Equity Incentive Plan, "FOR" the amendment to the Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
sixty million (60,000,000) and reduce the par value of the Common Stock to
$.01 per share, "FOR" the amendment to the Certificate of Incorporation to
provide holders of the Company's Common Stock with price protection in
connection with certain business combination transactions (the "Fair Price"
amendment), "FOR" the amendment to the Certificate of Incorporation to
permit stockholder actions by written consent, "FOR" the ratification of the
appointment of Price Waterhouse LLP as the Company's auditors for the current
fiscal year, and according to the discretion of the proxyholders on any other
matters that properly come before the meeting.
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<PAGE>
Any stockholder present at the meeting may withdraw his or her proxy and
vote in person on each matter brought before the meeting. Stockholders
attending the meeting whose shares are held in the name of a broker or other
nominee must bring with them or cause to be delivered to the Company a proxy
from that broker or nominee in order to vote those shares.
Each holder of shares of Common Stock outstanding at the record date
will be entitled to one vote for each share of Common Stock held, and each
holder of shares of Preferred Stock outstanding on the record date will be
entitled to the number of votes equal to the number of shares of Common Stock
into which all shares of Preferred Stock held by the same holder are
convertible. Shares of Preferred Stock outstanding on the record date are
convertible at a conversion ratio of 6.8966. If more than one share of
Preferred Stock is held by any holder of Preferred Stock, the total number of
votes which such holder shall be entitled to cast shall be computed on the
basis of conversion of the total number of shares of Preferred Stock held by
such holder, with any then remaining fractional share disregarded. Any such
disregarded fractional shares will also be disregarded for purposes of
determining a quorum, and for purposes of determining the number of votes
necessary to approve a proposal and whether such proposal has been approved.
With respect to the shares outstanding at the close of business on the record
date, holders of the Common Stock are entitled to an aggregate of 10,000,000
votes, and holders of the Preferred Stock are entitled to an aggregate of
5,517,280 votes, for a combined aggregate of 15,517,280 votes entitled to be
cast with respect to matters presented at the meeting.
Members of the Board of Directors shall be elected by a plurality of the
votes cast, with all shares of Common Stock and Preferred Stock voting
together. The affirmative vote of a majority of the votes cast on the matter
by holders of shares of Common Stock and Preferred Stock, voting together,
shall be necessary to approve the 1995 Non-Employee Directors' Stock Option
Plan, the 1995 Equity Incentive Plan and ratification of the appointment of
the Company's independent accountants. The affirmative vote of a majority of
all votes entitled to be cast by the holders of all outstanding shares of
Common Stock and Preferred Stock, voting together, shall be necessary to
approve the proposed amendments to the Company's Certificate of
Incorporation, other than the amendment to the Certificate of Incorporation
to increase the number of authorized shares of Common Stock and to reduce the
par value of the Common Stock. The affirmative vote of a majority of the
outstanding shares of Common Stock, voting separately as a class, and the
affirmative vote of a majority of all votes entitled to be cast by the
holders of all outstanding shares of Common Stock and Preferred Stock, voting
together, shall be necessary to approve the proposed amendment to the
Certificate of Incorporation to increase the number of authorized shares of
Common Stock and to reduce the par value of the Common Stock. With respect
to any other matter that may properly come before the Annual Meeting, each
holder of shares of Common Stock or of Preferred Stock will generally have
the rights described above, except where applicable law or the Company's
Certificate of Designation of Preferred Stock provide otherwise.
The presence in person or by proxy of shares entitled to cast a majority
of the votes of all outstanding shares is necessary to establish a quorum at
the Annual Meeting of Stockholders. Abstentions and broker non-votes are
counted for purposes of determining the presence or absence of a quorum for
the transaction of business. The effect of abstentions and broker non-votes
on the calculation of the required vote on specific proposals to be brought
before the Annual Meeting of Stockholders is discussed under each proposal,
where applicable. Inasmuch as the amendments to the Certificate of
Incorporation require approval of a majority of the votes entitled to be cast
by outstanding shares, abstentions and broker non-votes on these matters have
the same effect as a vote against the amendment. "Broker non-votes" are
shares held by brokers or nominees which are present in person or represented
by proxy, but which are not voted on a particular matter. Broker non-votes
occur when a broker votes on some matters, but does not vote on other
matters, because under applicable rules of the Nasdaq Stock Market the broker
cannot vote
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<PAGE>
on the matter in the absence of instructions from the beneficial owner. Due to
the timing of the mailing of this proxy statement relative to the annual
meeting, in the absence of instructions from beneficial owners, the Company
believes that brokers will not have discretionary authority to vote on any of
the matters herein.
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation of proxies,
including costs incurred in connection with the preparation, assembly,
printing and mailing of this Proxy Statement, the proxy and any additional
information furnished to the Company's stockholders in relation to the Annual
Meeting. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Proxies also
may be solicited by certain of the Company's directors, officers and regular
employees, without additional compensation, personally or by telephone,
facsimile, telegram or any other means of communication. The Company has
retained Corporate Investor Communications, Inc., professional proxy
solicitors, to assist in the soliciting of proxies. Employees of the
soliciting firm may solicit proxies personally, by telephone, facsimile and
telegram, and by any other means of communication. The Company expects to
pay the soliciting firm a fee of $4,500 plus normal out-of-pocket expenses
for its assistance in preparing soliciting material and soliciting proxies,
for an anticipated total cost of approximately $6,000.
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<PAGE>
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is certain information as of September 30, 1996,
regarding the beneficial ownership of the Company's Preferred Stock and
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. Included in the table are shares which the holder has the right to
acquire within 60 days from the date above. Except as indicated otherwise,
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>
AMOUNT AND
NATURE OF
TITLE BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OF CLASS OWNERSHIP(1) OF CLASS(1)
- ------------------------ -------- ------------ -----------
<S> <C> <C> <C>e
Trefoil Capital Investors II, L.P. Preferred 2,002,644(2)(3)(5) 100.00%
GE Investment Private Placement Partners II, Preferred 2,002,644(2)(4) 100.00%
A Limited Partnership
Trefoil Capital Investors II, L.P. Common 13,811,434(6)(7)(9) 58.00%
GE Investment Private Placement Partners II, Common 13,811,434(6)(8) 58.00%
A Limited Partnership
Putnam Investments, Inc. Common 3,243,830(10)(11) 32.44%
Putnam Investment Management Common 3,125,089(10)(12) 31.25%
Putnam High Yield Trust (Equity Convertible) Common 1,688,770(10)(13) 16.89%
Putnam Diversified Income Trust (High Yield) Common 539,505(10)(14) 5.40%
Kemper Financial Services, Inc. Common 1,172,683(15) 11.73%
Roger E. Stangeland Common 20,000(16) *
Daniel E. Josephs Common 5,000(16) *
William G. Kagler Common 5,500(16) *
David Y. Ying Common 5,000(16) *
James J. Costello Common 1,666(17) *
Clifford A. Miller Common 1,666(6)(17) *
Geoffrey T. Moore Common 1,666(6)(17) *
J. Richard Stonesifer Common 1,666(17) *
Joseph J. McCaig Common 57,800(18) *
William A. Louttit Common 31,000(19) *
Darrell W. Stine Common 22,000(20) *
Kenneth R. Baum Common 11,720(21) *
Gilbert C. Vuolo Common 6,560(22) *
All Directors and Executive Officers Common 171,244(23) 1.69
as a group
(13 persons)
- ----------
* Less than 1%
</TABLE>
(1) Beneficial ownership is determined pursuant to SEC Regulation 13d-3 as
applied by Item 403 of Regulation S-K. Pursuant to these rules, percentage
ownership is calculated by including in the denominator for an owner
shares which the owner has the right to acquire within 60 days.
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<PAGE>
(2) Includes 1,200,000 shares as to which Trefoil and GEI have the right to
accelerate their obligation to purchase such shares under the Stock
Purchase Agreement to a date within sixty days of September 30, 1996.
Each of Trefoil and GEI may be deemed to beneficially own all of the
shares of Preferred Stock held by the Investors due to a Stockholders
Agreement between the Investors pursuant to which the Investors
have each agreed to certain joint action relating to voting and
disposition of the Preferred Stock and the Common Stock issuable on
conversion of the Preferred Stock.
(3) Includes 401,322 shares which Trefoil holds directly and 600,000 shares
as to which Trefoil has the right to accelerate its obligation to purchase
such shares under the Stock Purchase Agreement to a date within sixty days
of September 30, 1996. Trefoil holds sole voting power and sole
dispositive power with respect to such shares of Preferred Stock which it
currently holds or has the right to purchase. Trefoil II holds sole voting
power and shared dispositive power with respect to such shares.
(4) Includes 401,322 shares which GEI holds directly and 600,000 shares as
to which GEI has the right to accelerate its obligation to purchase such
shares under the Stock Purchase Agreement to a date within sixty days
of September 30, 1996. GEI holds sole voting power and sole
dispositive power with respect to such shares of Preferred Stock which it
currently holds or has the right to purchase. GEIM holds sole voting
power and sole dispositive power with respect to such shares. The
principal executive offices of GEI and GEIM are located at 3003 Summer
Street, P.O. Box 7900, Stamford, Connecticut 06904.
(5) Sigma, Delta, Epsilon and the Trustees of General Electric Pension Trust
("GEPT") each would hold shared dispositive power over the shares of
Preferred Stock held by Trefoil. (See ownership discussion on page 26
hereof.) The principal executive offices of Sigma, Delta, Epsilon and
GEPT are located at 3003 Summer Street, P.O. Box 7900, Stamford,
Connecticut 06904.
(6) Pursuant to the Stock Purchase Agreement, Trefoil and GEI together hold
402,644 shares of Preferred Stock and have the obligation to purchase an
additional 1,200,000 shares of Preferred Stock, which together are
convertible into 13,811,434 shares of Common Stock, based on a conversion
ratio of 6.8966 shares of Common Stock for each share of Preferred Stock.
Trefoil and GEI have the right to accelerate such purchase and conversion
to a date within 60 days from September 30, 1996. Each of Trefoil and GEI
may be deemed to beneficially own all of the shares of Preferred Stock
held by the Investors due to a Stockholders Agreement between the
Investors pursuant to which the Investors have each agreed to certain
joint action relating to voting and disposition of the Preferred Stock
and the Common Stock issuable on conversion of the Preferred Stock.
(7) Includes 6,905,717 shares as to which Trefoil has the right to acquire
within 60 days from September 30, 1996, through the purchase of
additional shares of Preferred Stock and the right to convert such
shares, including current holdings of Preferred Stock, into Common Stock
at a ratio of 6.8966 shares of Common Stock for each share of Preferred
Stock. Trefoil holds sole voting power and sole dispositive power with
respect to shares of Preferred Stock which it currently holds or has the
right to purchase. Trefoil II holds sole voting power and shared
dispositive power with respect to such shares.
(8) Includes 6,905,717 shares as to which GEI has the right to acquire
within 60 days from September 30, 1996, through the purchase of
additional shares of Preferred Stock and the right to convert such
shares, including current holdings of Preferred Stock, into Common Stock
at a ratio of 6.8966 shares of Common Stock for each share of Preferred
Stock. GEI holds sole voting power and sole dispositive power with respect
to such shares of Preferred Stock which it currently holds or has the right
to purchase. GEIM is the managing general partner of GEI and holds sole
voting power and sole dispositive power with respect to such shares.
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<PAGE>
(9) Sigma, Delta, Epsilon and the Trustees of General Electric Pension Trust
each hold shared dispositive power over the shares of Preferred Stock
held by Trefoil and the shares of Common Stock into which such shares of
Preferred Stock are convertible. (See ownership discussion on page 26
hereof.)
(10) 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. The address for each of the Putnam
entities is One Post Office Square, Boston, MA 02109. See also Notes
(13) and (14).
(11) 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.
(12) 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.
(13) 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 (10) above.
(14) Includes 539,505 shares held with shared dispositive power and shared
voting power, and no shares held with sole voting power or sole
dispositive power. All of the shares held by Putnam Diversified
Income Fund are also beneficially owned by Putnam Investment
Management. See Note (10) above.
(15) Includes 1,172,683 shares with shared voting power and shared
dispositive power, and no shares with sole dispositive power or sole
voting power. The address for Kemper Financial Services is 120 South
LaSalle Street, Chicago, IL 60603.
(16) Includes 5,000 shares subject to acquisition pursuant to options
exercisable on stockholder approval of the 1995 Non-Employee Directors'
Stock Option Plan.
(17) Includes 1,666 shares subject to acquisition pursuant to options
exercisable on stockholder approval of the 1995 Non-Employee Directors'
Stock Option Plan.
(18) Includes 47,800 shares subject to acquisition pursuant to options
exercisable on stockholder approval of the 1995 Equity Incentive Plan.
(19) Includes 28,000 shares subject to acquisition pursuant to options
exercisable on stockholder approval of the 1995 Equity Incentive Plan.
(20) Includes 19,000 shares subject to acquisition pursuant to options
exercisable on stockholder approval of the 1995 Equity Incentive Plan.
(21) Includes 11,720 shares subject to acquisition pursuant to options
exercisable on stockholder approval of the 1995 Equity Incentive Plan.
(22) Includes 6,560 shares subject to acquisition pursuant to options
exercisable on stockholder approval of the 1995 Equity Incentive Plan.
(23) Includes 139,744 shares subject to acquisition pursuant to options
exercisable on stockholder approval of the 1995 Equity Incentive Plan.
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<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The names and certain information concerning the experience and background
of each nominee for election as director ("Nominee") and the executive officers
of the Company are set forth below.
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Roger E. Stangeland 67 Chairman of the Board of Directors and Nominee
Daniel E. Josephs 65 Current Director and Nominee
William G. Kagler 64 Current Director and Nominee
David Y. Ying 41 Current Director and Nominee
James J. Costello 66 Current Director and Nominee
Clifford A. Miller 68 Current Director and Nominee
Geoffrey T. Moore 39 Current Director and Nominee
J. Richard Stonesifer 60 Current Director and Nominee
Joseph J. McCaig 52 Chief Executive Officer, President, Current
Director and Nominee
William A. Louttit 50 Executive Vice President and Chief Operating
Officer
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
ROGER E. STANGELAND has been Chairman of the Board and a director of the
Company since June 15, 1995 and has also been designated by the Investors to
serve as a director of the Company. Mr. Stangeland is a director and Chairman
Emeritus of The Vons Companies, Inc. ("Vons"), a large supermarket chain based
in Southern California. From January 1986 through May 1994 he was Chief
Executive Officer and 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.
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 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 large supermarket
chain based in Cincinnati. 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.
DAVID Y. YING has been a director since June 15, 1995. Mr. Ying has been
a managing director at Donaldson, Lufkin & Jenrette Securities Corporation, an
investment banking firm, since January 1993,
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<PAGE>
and is the head of the firm's Restructuring Group. From January 1990 to
January 1993, Mr. Ying was a managing director with Smith Barney, an
investment banking firm.
JAMES J. COSTELLO has been a director of the Company since September 17,
1996 and has been designated by the Investors to serve as a director of the
Company. Mr. Costello was employed with the General Electric Company, a
conglomerate, as Comptroller (Chief Accounting Officer) for 12 years prior to
his retirement in 1992. Mr. Costello also serves as a director of Arkwright
Mutual Insurance Co. and Radio Equity Partners, Inc.
CLIFFORD A. MILLER has been a director of the Company since September
17, 1996 and has been designated by the Investors to serve as a director of
the Company. Mr. Miller has served as a Senior Consultant to Shamrock
Holdings, Inc. since 1978. From December 1986 through December 1991, Mr.
Miller served as an Executive Vice President and a director of Great Western
Financial Corporation and Great Western Bank, both financial institutions.
Mr. Miller also served as a director of First American Corporation and First
American Bankshares, Inc., both of which are financial institutions, and L.A.
Gear, Inc., a footwear company.
GEOFFREY T. MOORE has been a director of the Company since September
17, 1996 and 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, Inc., an investment management company, since March 1992. From 1985
to 1992 he was an investment banker with Paine Webber Incorporated. He
currently serves as a director of Fantastic Foods, Inc., a manufacturer of
natural foods, Olympic Realty Advisors, a real estate investment
management company, and Cascadian Farms, Inc., an organic foods
manufacturer.
J. RICHARD STONESIFER has been a director of the Company since September
17, 1996 and has been designated by the Investors to serve as a director of the
Company. Mr. Stonesifer was employed with the General Electric Company, a
conglomerate, for 37 years, serving most recently as President and CEO of GE
Appliances, and an executive officer and Senior Vice President of the General
Electric Company from January 1992 until his retirement in 1996.
JOSEPH J. MCCAIG became President and Chief Executive Officer of the
Company in July 1989. He served as President and Chief Operating Officer from
1981 until July 1989 and has been a director of the Company 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 the Company since July 1989. He served as Executive Vice President
in charge of Merchandising from 1984 until July 1989 and was a director of the
Company from 1981 until September 17, 1996. Mr. Louttit has been with the
Company for 31 years.
DARRELL W. STINE was appointed Executive Vice President of the Company 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 the Company in July 1994. Mr. Baum served as Vice
President and Controller from 1983 until July 1994 and as a director of the
Company 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 the Company are appointed and serve at the discretion
of the Board of Directors. Each director of the Company is elected to 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
date on which the Company emerged from Chapter 11, 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 (then the parent and indirect parent of the
Company, respectively), both of which became subject to Chapter 11 proceedings
on February 16, 1995. The current directors of the Company, other than the
designees of the Investors, 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.
NOMINEES
A board of nine (9) directors is to be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the nine (9) nominees named below, all of whom are presently directors
of the Company. If any such nominee is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee who the proxy holders in their discretion may designate to fill the
vacancy. The Company is not aware of any nominee who will be unable or will
decline to serve as a director. The term of office for each person elected as a
director will continue until the next Annual Meeting of Stockholders or until
his successor has been elected and qualified.
The election of directors shall be by the affirmative vote of the votes
represented by shares present in person or represented by proxy at the
meeting, with Common Stock and Preferred Stock voting together. The nine
persons receiving the greatest number of votes will be elected as directors.
There is no cumulative voting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE ELECTION OF ALL THE FOLLOWING NOMINEES FOR ELECTION AS DIRECTOR:
Roger E. Stangeland, Joseph J. McCaig, James J. Costello, Daniel E. Josephs,
William G. Kagler, Clifford A. Miller, Geoffrey T. Moore, J. Richard
Stonesifer and David Y. Ying.
Pursuant to the Stock Purchase Agreement, the Company is obligated to
include the five nominees designated by the Investors 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.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company currently comprises nine (9) members
and there are no vacancies on the Board. Each director serves until the next
annual meeting of stockholders 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.
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<PAGE>
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 comprised Messrs. Hirsch, Fox,
McCaig, Louttit and Baum. From June 15, 1996 until September 17, 1996, the
Board was comprised of Messrs. Stangeland, McCaig, Josephs, Kagler, Louttit,
Ying and Douglas T. McClure, Jr. Mr. Louttit and Mr. McClure resigned from the
Board effective September 17, 1996. 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 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
currently consists of Messrs. Costello, Josephs and Ying. Former directors
comprised the Audit Committee until the Board was reconstituted effective June
15, 1995, at which time Messrs. Josephs, Ying and McClure were elected members
of the Audit Committee and served in that capacity for the rest of the fiscal
year. 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 during the fiscal year ended
March 30, 1996, determined to whom stock options and other equity incentive
awards would be granted under the 1995 Equity Incentive Plan and the terms of
those awards. Members of the Compensation Committee are eligible to receive
formula-based awards made under the terms of the 1995 Non-employee Directors'
Stock Option Plan. The Compensation Committee presently consists of Messrs.
Kagler, Miller and Stonesifer. Former directors comprised the Compensation
Committee until the Board was reconstituted effective June 15, 1995, at which
time Messrs. Kagler, Josephs and Stangeland were elected members of the
Compensation Committee and served in that capacity for the rest of the fiscal
year. 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.
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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 each of the four other most highly
paid executive officers whose salary and bonus exceeded $100,000 for the fiscal
year ended March 30, 1996 (collectively, the "Named Executive Officers"), for
services rendered to the Company and its subsidiaries in all capacities during
the three fiscal years ended March 30, 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS
SECURITIES ALL OTHER
NAME AND FISCAL ANNUAL COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS/SARS (#)(2) ($)(3)
------------------- ---- --------- ----------- ------------------- ------
<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) Each of the options listed is fully vested and its exercise is subject to
stockholder approval of the 1995 Equity Incentive Plan.
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(3) "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. 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 1995 Chapter 11 filing, and offset
the Company's obligations to such executives under the Company'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 $26,864.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at Assumed
Annual Rates of Stock
Individual Grants Price Appreciation for Option Term
- ------------------------------------------------------------------------------------- -------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to Price or
Options/SARs Employees in Base Price Expiration
Name Granted Fiscal Year ($/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
</TABLE>
(1) Each of the options listed above carries the following material terms:
each option is fully exercisable, subject to approval by the stockholders of
the Company's 1995 Equity Incentive Plan; grants are divisible and may be
exercised in groups of one or more shares; the exercise price may be paid in
cash or in shares; and the exercise price is equal to the fair market value
on the grant date, December 11, 1995.
(2) Columns (f) and (g) assume annual rates of appreciation, as specified in
SEC regulations, calculated over the ten-year option term. Such rates are
unrelated to historical or anticipated rates of appreciation with respect to
the Company. If the stock price does not increase above the exercise price,
compensation to the named executives will be zero.
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Name Exercisable Unexercisable (1) Exercisable Unexercisable (2)
- ---- ----------- ------------- ----------- -------------
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
(1) Each of the options listed in the preceding table is fully exercisable,
subject to approval by the stockholders of the Company's 1995 Equity
Incentive Plan.
(2) At March 30, 1996, the fair market value of the Company's Common Stock as
reported by the Nasdaq Stock Market exceeded the exercise price.
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 the "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
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<PAGE>
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
THE GRAND UNION COMPANY EMPLOYEES' RETIREMENT PLAN
The Retirement Plan is a tax-qualified, noncontributory retirement plan,
providing retirement benefits for the Company's 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 or her 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 the Company 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 the Company (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 the Company.
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
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<PAGE>
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 the Company 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 the Company, including Messrs.
McCaig, Louttit, Stine and Baum, the Company agreed to transfer to a custodial
account to be held by an independent custodian securities having a 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 the Company'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 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 June 15, 1995, the directors of the Company were not compensated for
their services as such. Directors receive reimbursement of reasonable expenses
incidental to attendance at meetings of the Board of Directors or its
committees.
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.
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<PAGE>
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.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of its
directors and executive officers pursuant to which the Company has agreed to
indemnify such persons to the fullest extent permitted by law against expenses,
judgments, fines, penalties or amounts paid in settlement actually and
reasonably incurred by such person in connection with legal proceedings in which
the person was involved by reason of being a director or officer of the Company.
Under current law, such indemnification generally is available if such person
acted in good faith and in a manner he or she reasonably believed to be in the
best interests of the Company and, with respect to criminal proceedings, had no
reasonable cause to believe his or her conduct was unlawful. Under current law,
such person is not indemnified in respect of matters as to which he or she has
been adjudged liable to the Company unless a court determines that, under the
circumstances, he or she is reasonably entitled to such indemnification.
Comparable indemnification rights are also provided pursuant to the Company's
Certificate of Incorporation.
SEVERANCE POLICY
In May 1995, the Company 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 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
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<PAGE>
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.
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<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for the
Company, the Standard & Poors 500 ("S&P 500"), and the Standard & Poors Retail
(Food Chains) Index, for the period that commenced on June 15, 1995, and ended
on March 30, 1996, with data points for June 15, 1995 and March 30, 1996. The
graph assumes that all dividends have been reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
(THE GRAND UNION COMPANY, S&P 500, S&P RETAIL (FOOD CHAINS) INDEX)
[Line Graph]
JUNE 15, 1995 MARCH 30, 1996
- ----------------------------------------------------------------------------
THE GRAND UNION COMPANY 100 39
S&P 500 100 123
S&P RETAIL (FOOD CHAINS) 100 129
-18-
<PAGE>
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY
STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND THE PERFORMANCE GRAPH
ON PAGE 18 SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS, NOR
SHALL THEY BE DEEMED TO BE SOLICITING MATERIAL OR DEEMED FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT, OR UNDER THE
EXCHANGE ACT.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee sets the compensation of the Chief Executive
Officer ("CEO"), reviews the design, administration and effectiveness of
compensation programs for other key executives, and administers the Company's
1995 Equity Incentive Plan. The compensation philosophy of the Company is
applied by the Compensation Committee to the CEO, and by the CEO with the
Committee's review and approval to the compensation of the other officers of the
Company. The Compensation Committee is comprised entirely of non-employee
directors.
As part of the proceedings related to the Company's reorganization under
the federal bankruptcy laws, the compensation of the CEO and other named
executive officers was established. The current Compensation Committee was not
involved with that decision or other decisions which took place prior to June
15, 1995, the effective date of the reorganization.
COMPENSATION PHILOSOPHY AND POLICIES
Historically, the compensation philosophy of the Company has been to
provide a balanced mix of base compensation, annual incentives, and retirement
income, to attract and retain top-quality people who will contribute to the
long-term performance and long-term growth of the Company. Annual and long-term
incentives have been designed to link corporate and individual performance with
compensation, and to align employee interests with stockholder interests.
Special incentives and awards have been provided as circumstances warrant.
ANNUAL SALARY
Historically, the annual salaries of the CEO and other executive officers
have been determined by reference to the mid-range of a varying mix of other
supermarket retailers with comparable revenues and/or geographic coverage. In
July 1994, the CEO accepted a ten percent (10%) reduction in annual salary. In
May 1995, as part of the Company's reorganization proceedings, the CEO's
salary/bonus mix was further adjusted, reducing his annual salary by nearly
eight percent (8%) in exchange for opportunities for an increased bonus, and he
did not receive a five percent (5%) salary restoration and four percent (4%)
market adjustment other executive officers received at that time.
The annual salaries of other executive officers were similarly reduced by
ten percent (10%) in July 1994. In May 1995, as part of the Company's
reorganization proceedings, the annual salaries of the other four executive
officers were increased by amounts which reflected restoration of one-half of
the prior year's reduction, plus an additional four percent (4%) market
adjustment. The market adjustment was determined based on the average increases
by other large food retailers and manufacturers headquartered in the same
geographic area as the Company. In addition, two executive officers received
promotions which were accompanied by more substantial increases.
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ANNUAL PERFORMANCE INCENTIVES
Annual bonuses are directly dependent on corporate performance, and are
paid twice annually, based on performance during each half of the fiscal year.
Bonuses for the fiscal year ending March 30, 1996 were based on the Company
achieving specific targets of EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) during each of the two half-year periods. No
annual incentive bonuses were earned by executive officers with respect to
performance in the fiscal year ending March 30, 1996.
LONG-TERM INCENTIVES
The Company maintains two equity incentive plans, one for directors who are
not also employees and the other for employees. Grants under these plans
provide an immediate and direct link to stockholder interests. The Company and
its stockholders benefit from the increased morale and productivity that the
Company believes are associated with these grants, as well as the ability to
retain key employees through the vesting provisions contained in the plans.
Option grants to executive officers have been based on the executive's
corporate level of responsibility. To date, executive officers have received
only one grant of stock options, the exercisability of which is subject to
stockholder approval of the 1995 Equity Incentive Plan.
The Compensation Committee unanimously recommends that the 1995 Equity
Incentive Plan be approved, in order to confirm the 1995 grants and authorize
the Company to continue making awards of this type of cost-effective,
performance-based compensation.
OTHER COMPENSATION
Executive Officers, along with all other eligible employees, participate in
the Company's pension plan, 401(k) plan, and other health and life insurance
benefits. The top five executive officers participate in a Supplemental
Retirement Program (SERP), which provides a total retirement income of up to 65%
of average annual compensation, reduced by amounts payable through social
security, under the company-wide pension plan and under a predecessor SERP.
The past year was a difficult transition year for the Company, both
financially and structurally. The Company has been concerned with retaining key
personnel who might otherwise have been attracted by incentives offered by
competitors, or other business opportunities. Accordingly, prior to the tenure
of the current Compensation Committee, certain executives were promised
retention payments, payable to those executives who remained in the Company's
employ through April 1, 1996. Such bonuses were paid on April 4, 1996. The
Committee believes these payments were a material element in securing executive
management's commitment to preserving and improving the Company's performance
throughout the bankruptcy process, and to repositioning the Company during
fiscal year end 1996.
TAX POLICY
Internal Revenue Code ("IRC") Section 162(m) limits deductions for
certain executive compensation in excess of $1 million. Certain types of
compensation are deductible only if performance criteria are specified in
detail, and payments are contingent on stockholder approval of the
compensation arrangement.
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Compensation paid to executive officers during the last fiscal year did not
exceed the deductibility threshold. The Compensation Committee believes it is
more likely than not that the Company will be able to fully deduct all
compensation paid in the foreseeable future.
The Company has endeavored to structure its long-term and other incentives
to achieve maximum deductibility under Section 162(m) with minimal sacrifices in
flexibility and corporate objectives. To that end, the Company's 1995 Equity
Incentive Plan limits the number of shares which may be covered by stock
options granted to any one individual. However, since long-term incentives
allow an individual to concentrate significant compensation in a single year,
and because corporate objectives may not always be consistent with the
requirements for full deductibility, it is conceivable that circumstances might
arise under which some payments are not deductible under Section 162(m).
CONCLUSION
The Compensation Committee believes that long-term stockholder value is
enhanced by corporate and individual performance achievements. Through the
plans described above, during the past fiscal year a significant portion of the
Company's executive compensation was based on corporate performance, with
industry-competitive pay practices establishing a baseline. The Committee
believes equity compensation, in the form of stock options and restricted stock,
is vital to the long-term success of the Company. The Company remains committed
to this policy, recognizing the competitive market for talented executives may
result in highly variable compensation for a particular time period.
June 12, 1996 William G. Kagler, Chairman
Daniel E. Josephs
Roger E. Stangeland
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 the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 Exchange Act applicable to its directors,
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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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRE-BANKRUPTCY RELATIONSHIPS AND TRANSACTIONS
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 the Penn Traffic Company ("Penn Traffic"), a supermarket
chain.
The following applies to relationships which existed prior to June 15,
1995. Mr. Gary D. Hirsch served as Chairman and a Director of the Company and
also as Chairman and a Director of Penn Traffic. Mr. Martin A. Fox served as a
Director, Vice President and Assistant Secretary of the Company 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 the Company.
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. While he was a
director, the Company entered into the following transactions, with respect
to which Mr. Hirsch is or was an indirect beneficiary. 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 the Company executed a
settlement agreement (the "MTH Settlement Agreement"). The MTH Settlement
Agreement provides for the termination of the MTH Agreement, payment by the
Company 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. The Company
deposited $3.0 million relating to the indemnification in escrow on June 15,
1995. During Fiscal 1996, the Company paid $315,000 to MTH pursuant to the
MTH Agreement. On July 30, 1990, P&C Foods, which is indirectly controlled
by MTH, and the Company entered into an Operating Agreement pursuant to which
the Company acquired the right to operate thirteen P&C Foods' 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 the Company an option to purchase such stores. Pursuant to the
Operating Agreement, the Company agreed to pay P&C Foods a minimum annual fee
averaging $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 the
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Company. In addition, the Company 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 the Company in 1992. The Operating Agreement
was assumed during the Chapter 11 bankruptcy case and will continue on its
current terms. From September 1993 until September 1995, the Company
participated in a program to consolidate the purchasing, storage and
distribution of health and beauty care and general merchandise product with
Penn Traffic. During Fiscal 1996, the Company purchased from Penn Traffic's
inventory of health and beauty care and general merchandise products at cost
approximately $30.1 million for store operations and approximately $12.8
million at the termination of the 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 the Company 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 had 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. 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. In calendar 1996, the
Company entered into the transaction described beginning on page 26, in
connection with which DLJ rendered various services pursuant to the
agreement, including a Fairness Opinion. In connection with the agreement
DLJ received in calendar 1996 aggregate payments of $5,088,000, reflecting a
Transaction Fee of $3,753,000, a Fairness Fee of $1,000,000 (for a fairness
opinion), and reimbursement of expenses in the amount of $85,000. In
addition, DLJ received a fee of $250,000 for services rendered in connection
with solicitation of consents and waivers from the holders of the Company's
Senior Notes.
Mr. Geoffrey T. Moore, a nominee for director, is a managing director and
executive officer of Shamrock Capital Advisors, Inc. ("SCA"). Pursuant to a
three-year management services agreement (the "Services Agreement") dated July
30, 1996 between the Company and SCA, SCA shall 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. The Services Agreement expires by its
terms in September 1999. SCA's compensation for such management and consulting
services under the Services Agreement is expected to be $300,000 in the fiscal
year ending in 1997. The Company will also reimburse SCA for its reasonable
out-of-pocket costs and expenses incurred in connection with the performance of
its services under the Services Agreement. The Company has also agreed to
indemnify SCA against all claims, liabilities, expenses, losses or damages (or
actions in respect thereof) related to or arising out of actions taken (or
omitted to be taken) by SCA pursuant to the terms of the Services Agreement;
provided that such liabilities did not result primarily from actions taken, or
omitted to be taken, by SCA in bad faith or due to SCA's gross negligence or
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willful misconduct. The Company's obligations to indemnify SCA survive the
expiration of the Services Agreement.
CERTAIN ARRANGEMENTS WITH THE INVESTORS
Pursuant to the Stock Purchase Agreement, the Investors have agreed to
cause (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
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; PROVIDED, that if 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 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 PROVIDED FURTHER, that if
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 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 on the Preferred
Stock.
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. The Investors have
agreed in the Stock Purchase Agreement to waive any right to which they 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 on the
Preferred Stock at any time the Board of Directors of the Company is composed
of a majority of directors (other than Disinterested Directors) selected by
the Investors.
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 or
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 Agreement 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. Each Investor has also agreed in the Stock
Purchase Agreement to vote any shares of Preferred Stock or Conversion Shares
held by it from time to time in favor of the election of such Disinterested
Directors.
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The Company has agreed in the Stock Purchase Agreement that the Company
shall include in the slate of directors 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 either such nominee is not elected as a director, to permit a
representative of such Investor to act as a non-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
that purpose, shall be necessary to take certain other actions, as more fully
described in the Certificate of Designation.
Pursuant to a Stockholders Agreement between the Investors, the Investors
have each agreed to vote all of their Preferred Stock and Common Stock received
on conversion of the Preferred Stock ("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), the Investor who shall have entered into such agreement is
required to permit the other Investor 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.
1995 CHANGE IN CONTROL
Prior to the Company's filing for relief from bankruptcy under 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,
within the meaning of SEC regulations, 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
Common Stock 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 on page 4 above. The directors of the Company
who took office on June 15, 1995 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.
1996 CHANGE IN CONTROL
On July 30, 1996, the Company entered into a definitive agreement (the
"Stock Purchase Agreement") to sell $100 million of Preferred Stock to an
investment group comprised of Trefoil Capital Investors II, L.P. ("Trefoil"),
a Delaware limited partnership, and GE Investment Private Placement Partners
II, A Limited Partnership ("GEI"), a Delaware limited partnership
(collectively, the "Investors"). Pursuant to the Stock Purchase Agreement,
the Investors have agreed to purchase, and the Company has agreed to sell, an
aggregate of 2,000,000 shares of Preferred Stock at a purchase price of $50
per share in stages through February 25, 1998. On September 17, 1996, the
first stage of the transaction was closed, and the Investors acquired 800,000
shares of Preferred Stock for an aggregate purchase price of $40 million. Any
or all of the remaining purchases may be accelerated by the Investors, with
or without the approval of the Company. Each of the remaining purchases is
subject to the satisfaction or waiver of certain closing conditions as
specified in the Stock Purchase Agreement.
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"). Trefoil II is the managing general partner of
Trefoil. 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"). The principal
executive offices of Trefoil and Trefoil II 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. 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.
Pursuant to the Stock Purchase Agreement, the Investors may be deemed to
have acquired beneficial ownership of the shares of Common Stock into which
the Preferred Stock issued to them is convertible. On September 17, 1996, the
Company closed the first tranche pursuant to the Stock Purchase Agreement,
and five of the Investors' designees were appointed to the Board. Pursuant
to these actions, the Investors have effectively acquired control of the
Board of Directors of the Company. (See the discussion beginning on page 24,
above.) The Investors currently have the right, by exercising their rights to
acquire Preferred Stock and convert that stock into shares of Common Stock,
to acquire sufficient shares to give them a majority of the shares of Common
Stock outstanding, assuming no additional shares of Common Stock are issued.
Pursuant to the terms of the Preferred Stock, the holders of Preferred Stock
are entitled to vote the shares of Preferred Stock on an as-converted basis,
and accordingly, conversion of their shares of Preferred Stock into shares of
Common Stock will not be required for the Investors to exercise voting
control with respect to any matters which are subject solely to the approval of
a majority of the votes entitled to be cast by holders of Common Stock and
Preferred Stock, voting together.
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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. 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.
Pursuant to the Stock Purchase Agreement, the Company paid to each of
SCA (as investment manager for Trefoil) and GEIM (as investment manager for
GEI) a $2,000,000 transaction fee. 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.
PROPOSAL TWO
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Board of Directors has adopted two equity compensation plans from
which to grant stock options: the 1995 Non-Employee Directors' Stock Option
Plan, for non-employee directors, and the 1995 Equity Incentive Plan, for
employees of the Company. The Company believes such plans are essential to
recruit and retain high-caliber personnel to serve as members of the Board of
Directors and in management.
Your Board recommends a vote "FOR" the 1995 Non-Employee Directors'
Stock Option Plan, as amended, and the authorization to issue up to one
hundred thousand (100,000) shares of Common Stock thereunder. The Directors'
Plan must be approved by the affirmative vote of a majority of the votes
present in person or represented by proxy and entitled to be cast on the
matter by holders of Common Stock and Preferred Stock voting together.
Abstentions are counted in tabulating the total votes cast, but broker
non-votes are not. Brokers who have not received instructions from their
beneficial owners are not authorized to vote such shares on the proposal.
The 1995 Non-Employee Directors' Stock Option Plan was originally approved
by the Board of Directors on December 12, 1995, and amended thereafter on June
13, 1996. The term "Directors' Plan" refers to the 1995 Non-Employee Directors'
Plan, as amended. The authorization to issue stock options pursuant to the Plan
expires December 12, 2005, unless terminated earlier by the Board of Directors.
The principal features of the Directors' Plan are summarized below, but the
summary is qualified in its entirety by reference to the Directors' Plan itself,
attached hereto as Appendix A.
ELIGIBILITY AND PURPOSE
The Directors' Plan provides for the grant by the Company of options to
purchase up to an aggregate of one hundred thousand (100,000) shares of
Common Stock of the Company to those members of the Board of Directors who
are not also employees of the Company. As of the record date, four (4)
current non-employee directors and one former director were eligible to
participate in the Directors' Plan. The purpose of the Directors' Plan is to
enable the Company to attract and retain persons who can make significant
contributions to the success
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of the Company by serving as members of the Board of Directors, and to reward
and motivate such persons by providing them with an equity participation in
the Company.
NUMBER OF SHARES GRANTED
The Company's Common Stock is quoted on the NASDAQ National Market
System under the symbol GUCO. On the record date, the last reported sale
price for the Common Stock was $6.00 per share. As of the record date,
options to purchase an aggregate of 25,000 shares of Common Stock (net of
canceled options) have been granted under the Directors' Plan, to the persons
indicated below, and options to purchase an additional 210,680 shares were
granted to employees under the 1995 Equity Incentive Plan (see page 30). The
following table shows the options granted and currently outstanding under the
Directors' Plan. Those options become fully exercisable if the Directors'
Plan is approved by stockholders. The exercise price for the options
identified in the table below is $5.75 per share.
NAME NUMBER OF SHARES FUTURE
COVERED BY CURRENT ANNUAL
OPTIONS VESTED GRANTS
Roger E. Stangeland 5,000 1,500
Daniel E. Josephs 5,000 1,500
William G. Kagler 5,000 1,500
Douglas T. McClure, Jr. 5,000 --
David Y. Ying 5,000 1,500
In addition, the following nominees for director would receive, on their
initial election by stockholders, stock options covering 5,000 shares, and on
each re-election by stockholders future annual grants of stock options covering
1,500 shares: James J. Costello, Clifford A. Miller, Geoffrey T. Moore, and J.
Richard Stonesifer. Each such grant becomes vested after six months as to one-
third of the shares, after no longer than one year as to an additional one-third
of the shares, and after no longer than two years as to the remaining one-third.
PLAN ADMINISTRATION
The Directors' Plan provides that it is to be administered by a
committee appointed by the Board of Directors, or in the absence of such
appointment, by the Board itself. Presently, no committee has been appointed
by the Board to administer the Directors' Plan. The Committee (or Board) may
at any time or times amend the plan for any purpose which may at the time be
permitted by law, but in no event (except to comply with the provisions of
the Internal Revenue Code, the Employee Retirement Income Security Act or the
rules thereunder) more than once in any six-month period.
TERMS OF DIRECTOR OPTIONS
NUMBER AND VESTING. Under the Directors' Plan as amended, each new
director who is not also an employee receives automatically a nonqualified
option covering 5,000 shares, granted the date the director is first elected
by the stockholders. Each director also receives, on re-election by the
stockholders, an option covering 1,500 shares. The exercise price of each
such director option is fair market value on the date of election or
re-election, as applicable. Director options currently outstanding, in the
amount of 5,000 per director, vested in full on August 19, 1996, pursuant to
the change in control provisions of the Directors' Plan. All options granted
after July 1, 1996, vest in increments of approximately one-third each six
months after election, on the earlier of the first anniversary of election or
the stockholder meeting closest thereto, and on the earlier of the second
anniversary of election or the stockholder meeting closest thereto. Options
also vest in certain circumstances involving a change in control.
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EXPIRATION DATE. Director formula options expire ten years after the date
of grant, or earlier in the event of termination of service as a director, death
or disability. Director options expire no later than one year after a director
dies or becomes disabled, and no later than one year after the person ceases
to be a director for any other reason. If a director dies or becomes disabled,
all options which are not vested within 30 days after the date of death or
disability are terminated. If a director terminates service as a director for
any reason other than death or disability, all options which are not vested on
the last day of his service are terminated.
Effective September 17, 1996, Mr. Douglas T. McClure, Jr. resigned from the
Board. Mr. McClure's stock option covering 5,000 shares became fully vested on
August 19, 1996, and subject to stockholder approval of the Plan will be
exercisable from the date of such approval through September 16, 1997. Options
currently held by Messrs. Stangeland, Josephs, Kagler and Ying also became
fully vested on August 19, 1996, pursuant to the change of control provision in
the Directors' Plan, subject to stockholder approval of the Plan.
PAYMENT. Payment for shares upon exercise of an option must be made in
full at the time of exercise. The form of consideration payable upon exercise
of an option shall, at the discretion of the Stock Option Committee, be (i) by
tender of United States dollars in cash, check, bank draft or money order;
(ii) subject to any legal restriction against the Company's acquisition or
purchase of the Company's shares of Common Stock, by delivery of shares of
Common Stock, which have been held by the optionee for at least six months and
which shall be deemed to have a value equal to the aggregate fair market value
of such shares determined on the date preceding the date of exercise or purchase
as described in the immediately preceding paragraph hereof; (iii) by the
issuance of a promissory note bearing an interest rate not less than the prime
rate as reported in the Wall Street Journal, plus two percent; (iv) by the
issuance by a broker of an undertaking to deliver the exercise price; or
(v) pursuant to any combination of the above methods or such other methods as
may be provided for in the Directors' Plan from time to time.
CHANGE-IN-CONTROL PROVISIONS
In the event of a change in control of the Company, certain provisions take
effect to accelerate the vesting of outstanding options and to provide for cash
payment in settlement of unexercised options. 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. In addition, the value of any unexercised
option 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. 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,
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entity or Group holds more than 50% has the power to elect more than 50% of
the members of the Board of Directors.
ADJUSTMENTS IN CAPITALIZATION
In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution to common stockholders other than normal cash dividends, after the
effective date of the Directors' Plan, the Committee will make any appropriate
adjustments to the maximum number of shares that may be delivered under an
option granted pursuant to the Directors' Plan.
FEDERAL TAX CONSEQUENCES
The following is a brief summary of the tax effects under the Internal
Revenue Code (the "Code") with respect to options granted under the Directors'
Plan.
Only nonqualified stock options are granted under the Directors' Plan,
i.e., options not qualified for favorable tax treatment under Section 422 of the
Code. No taxable income is recognized by an optionee upon the grant of a
nonqualified stock option. Upon exercise, the optionee will recognize ordinary
income in the amount by which the fair market value of the shares purchased, on
the date of exercise, exceeds the exercise price paid for such shares. The
Company will be entitled to a tax deduction equal to the amount of ordinary
income recognized by the optionee.
ACCOUNTING TREATMENT
Generally, for an option granted with an exercise price at fair market
value at the time of grant, the Company will not incur a compensation charge.
For options outstanding at the time of stockholder approval, the Company will
incur a charge based on the amount by which the fair market value of shares
subject to the option on the date of stockholder approval exceeds the exercise
price of the option.
PROPOSAL THREE
1995 EQUITY INCENTIVE PLAN
The Company maintains two equity compensation plans from which it grants
stock options: the 1995 Equity Incentive Plan, for employees of the Company,
and the Directors' Plan, for non-employee directors. The Company believes
such plans are essential to recruit and retain high-caliber personnel to
serve as members of the Board of Directors and in management.
Your Board recommends a vote "FOR" the 1995 Equity Incentive Plan, and
the authorization to issue up to nine hundred thousand (900,000) shares of
Common Stock thereunder. The Plan must be approved by the affirmative vote
of a majority of the votes cast on the matter by holders of Common Stock and
Preferred Stock, voting together. Abstentions are counted in tabulating the
total votes cast, but broker non-votes are not. Brokers who have not
received instructions from their beneficial owners on this proposal are not
authorized to vote such shares on the proposal.
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The 1995 Equity Incentive Plan was originally approved by the Board of
Directors on October 26, 1995, and amended thereafter on June 13, 1996,
October 3, 1996, and October 9, 1996. The principal features of the 1995
Equity Incentive Plan are summarized below, but the summary is qualified in
its entirety by reference to the Plan itself, attached hereto as Appendix B.
ELIGIBILITY
The 1995 Equity Incentive Plan, as amended (referred to hereafter as the
"Employee Plan"), provides for the grant by the Company of options
and/or rights to purchase up to an aggregate of nine hundred thousand
(900,000) shares of Common Stock of the Company to its officers, employees, or
other persons or entities who are in a position to make a significant
contribution to the success of the Company or its subsidiaries. As of the
record date, five (5) executive officers and 29 other employees were eligible to
participate in the Plan. The purpose of the Employee Plan is to enable the
Company to attract and retain persons of ability as employees, officers and
consultants and to motivate such persons by providing them with an equity
participation in the Company. The authorization to grant Awards under the plan
expires October 26, 2005, unless terminated earlier by the Board of Directors.
Awards outstanding prior to that date continue to be governed by the Employee
Plan until they are exercised, canceled, or expire by their terms.
NUMBER OF SHARES GRANTED
The Company's Common Stock is quoted on the NASDAQ National Market
System under the symbol GUCO. On the record date, the last reported sale
price for the Common Stock was $6.00 per share. As of the record date,
options to purchase an aggregate of 210,680 shares of Common Stock (net of
canceled options) have been granted under the Plan, to the following persons
indicated below, and options to purchase an additional 25,000 shares were
granted to directors who are not also employees under the Directors' Plan.
The following table shows the options granted and currently outstanding, all
of which are fully vested and become immediately exercisable if the Employee
Plan is approved by stockholders. The exercise price for each of the options
identified below is $6.625 per share.
NAME AND POSITION NUMBER OF SHARES COVERED BY OPTION
Joseph J. McCaig 47,800
President, Chief Executive Officer and Director
William A. Louttit 28,000
Executive Vice President and Chief Operating Officer
Darrell W. Stine 19,000
Executive Vice President, Operations
Kenneth R. Baum 11,720
Senior Vice President, Chief Financial Officer and Secretary
Gilbert C. Vuolo 6,560
Senior Vice President, Human Resources and Labor Relations
All Current Executive Officers as a group 113,080
All Other Employees as a group 97,600
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TYPES OF AWARDS
The Employee Plan permits the grant of stock options, restricted stock,
stock appreciation rights, unrestricted stock awards, deferred stock awards,
performance awards, supplemental grants and other incentive awards
(collectively, "Awards") to executive officers and key personnel.
TERMS OF STOCK OPTIONS
Options granted under the Employee Plan may be either "incentive stock
options", within the meaning of Section 422 of the Internal Revenue Code, or
"nonqualified stock options".
EXERCISE PRICE. The exercise price of options that are intended to be
incentive stock options must be at least equal to the fair market value of
the Common Stock of the Company as of the date of grant.
NUMBER OF SHARES. No optionee may be granted incentive stock options
under the Employee Plan to the extent that the aggregate fair market value
(determined as of the date of grant) of the shares of Common Stock with
respect to which incentive options are exercisable for the first time by the
optionee during any calendar year would exceed $100,000. No optionee may
receive under the Employee Plan an aggregate of options and rights covering
more than 500,000 shares.
VESTING. Employees may only exercise vested options. Unless specified
otherwise in the option agreement, options granted under the Employee Plan
become vested in increments of 25% each on the first, second, third and fourth
anniversaries of the date of grant. Options also become vested in certain
circumstances involving a change in control (see below).
EXPIRATION DATE. Options granted under the Employee Plan expire ten
years after the date of grant, or earlier in the event of death, disability,
or termination of service. In general, options expire no later than one year
after an optionee dies or becomes disabled, and no later than one year after
termination of service. An employee on leave of absence is deemed to have
terminated service six months after the leave commences, unless the leave is
approved by the Committee administering the Employee Plan or the employee has
received a written guarantee of right of reemployment. Except as otherwise
determined by the Committee, all options which are not vested immediately
prior to death, disability, last day of employment or date of a change in
status are terminated.
PAYMENT. Payment for shares must be made in full at the time of
exercise, with respect to a stock option, or at the time of issuance, with
respect to restricted stock. The form of consideration payable upon exercise
of an option or purchase of restricted stock shall, at the discretion of the
Committee, be (i) by tender of United States dollars in cash, check or bank
draft; (ii) subject to any legal restriction against the Company's
acquisition or purchase of the Company's shares of Common Stock, by delivery
of shares of Common Stock, which shall be deemed to have a value equal to the
aggregate fair market value of such shares determined on the date of exercise
or purchase as described in the Employee Plan; (iii) by the issuance of a
promissory note acceptable to the Committee administering the Employee Plan;
(iv) by the issuance by a broker of an undertaking to deliver the exercise
price; or (v) pursuant to any combination of the above methods or such other
methods as may be provided for in the Employee Plan from time to time.
TERMS OF OTHER AWARDS
STOCK APPRECIATION RIGHTS. Stock Appreciation Rights ("SARs") allow an
individual to receive cash based on stock price appreciation. Generally, on
exercise of an SAR, the holder receives cash in the amount by which the fair
market value on the date of exercise exceeds the fair market value on the date
the SAR was
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awarded, times the number of shares with respect to which the SAR is
exercised, although the amount payable under an SAR may also be linked to or
adjusted for changes in a stock index or indices or one or more other stocks.
SARs may be granted alone or in tandem with stock options. In the event the
SAR is granted in tandem with an option, the exercise of the SAR will reduce
the number of shares exercisable under the option. SARs have the same
exercise periods following death, disability or termination of service as are
applicable to stock options.
RESTRICTED STOCK AWARDS. Restricted Stock Awards are shares of stock
purchased by an individual at par value, but which may not be sold, transferred,
pledged, assigned or otherwise encumbered until certain conditions are
satisfied. The holder of restricted stock has voting rights and the right to
receive dividends with respect to the shares. If the individual terminates
service with the Company before the conditions are satisfied and the
restrictions lapse, whether by reason of death, disability or otherwise, the
restricted stock must be resold to the Company at par value.
DEFERRED STOCK AWARDS. Deferred Stock Awards are rights to receive future
delivery of unrestricted shares of stock. Such delivery may be contingent on
satisfaction of specified conditions. If the individual terminates service with
the Company before the Award is vested, whether by reason of death, disability
or otherwise, the Award terminates.
PERFORMANCE AWARDS. Performance Awards are rights to receive cash or stock
on the satisfaction of certain performance conditions or goals, whether
corporate, individual, industry, or some other goal or combination of goals. If
the individual terminates service with the Company before the Award is vested,
whether by reason of death, disability or otherwise, the Award terminates.
LOANS. Participants may also receive, at the discretion of the Committee,
a loan to purchase stock under an Award or to pay federal, state and local
income taxes with respect to income recognized as a result of an Award. Such
loans may not exceed ten years in duration.
SUPPLEMENTAL GRANTS. Supplemental Grants are cash amounts designed to make
a participant whole with respect to tax liabilities, by providing for payment to
the participant of a tax gross-up payment in an amount which, net of taxes, does
not exceed the tax liability with respect to an Award (assuming the highest
marginal rate for federal, state and local income taxes). If the individual
terminates service with the Company before the Award is vested, whether by
reason of death, disability or otherwise, the Award terminates.
PLAN ADMINISTRATION
The Employee Plan provides that it is to be administered by a committee
of the Board of Directors, or in the absence of such appointment, by the
Board itself. Presently, the Board of Directors administers the Plan and
fulfills the functions of the committee. The Committee has broad discretion
to determine the persons entitled to receive options and/or other Awards
under the Plan, the terms and conditions on which options and/or Awards are
granted and the number of shares subject thereto. The Committee also has
discretion to determine the nature of the consideration to be paid upon the
exercise of an option and/or right to purchase granted under the Plan. The
Committee may at any time or times amend the Plan or any outstanding Award
for any purpose which may at the time be permitted by law, or may at any time
terminate the Plan as to any further grants of Awards, provided that (except
to the extent expressly required or permitted by the Plan) no such amendment
will, without the approval of the stockholders of the Company, effectuate a
change for which stockholder approval is required in order for the Plan to
continue to qualify for the award of ISOs under Section 422 of the Code or
for the award of performance-based compensation under Section 162(m) of the
Code or for the Plan to continue to qualify under Rule 16b-3 promulgated
under Section 16 of the Exchange Act.
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CHANGE-IN-CONTROL PROVISIONS
In the event of a change in control of the Company, certain provisions
take effect to accelerate the vesting of outstanding options and to provide
for cash payment in settlement of unexercised options. 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 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. 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.
ADJUSTMENTS IN CAPITALIZATION
In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution to common stockholders other than normal cash dividends, after the
effective date of the Employee Plan, the Committee will make any appropriate
adjustments to the maximum number of shares that may be delivered under an Award
granted pursuant to the Employee Plan.
FEDERAL TAX CONSEQUENCES
Options granted under the Employee Plan may be either "incentive stock
options," within the meaning of Section 422 of the Internal Revenue Code, or
"nonqualified stock options." The following is a brief summary of the tax
effects under the Internal Revenue Code (the "Code") that may accrue to
participants in the Plan.
NONQUALIFIED STOCK OPTIONS. No taxable income is recognized by an optionee
upon the grant of a nonqualified stock option. Upon exercise, the optionee will
recognize ordinary income in the amount by which the fair market value of the
shares purchased, on the date of exercise, exceeds the exercise price paid for
such shares. The income recognized by the optionee will be subject to income tax
withholding by the Company out of the optionee's current compensation. If such
compensation is insufficient to pay the taxes due, the optionee will be required
to make a direct payment to the Company for the balance of the tax withholding
obligation. The
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Company will be entitled to a tax deduction equal to the amount of ordinary
income recognized by the optionee, provided the applicable withholding and/or
reporting requirements are satisfied.
INCENTIVE STOCK OPTIONS. No taxable income will be recognized by an
optionee under the Employee Plan upon the grant of an incentive stock option.
If the optionee holds the stock for at least two years after the grant of the
options and one year after the exercise of the option, no taxable income will be
recognized on the exercise of an incentive stock option, and the optionee will
recognize capital gains on the sale of the stock. If an incentive stock option
is exercised more than three months after a termination of service, it will be
treated as an exercise of a nonqualified option. If shares received on exercise
of an incentive stock option are sold within one year after exercise or two
years after the grant date, the tax treatment of the gain or loss realized will
depend upon how long the shares were held before their sale or disposition. The
Company receives no tax benefit from incentive stock options granted unless the
optionee fails to meet the timing requirements set forth above and the option is
taxable as a nonqualified option.
RESTRICTED STOCK, DEFERRED STOCK, STOCK APPRECIATION RIGHTS AND PERFORMANCE
AWARDS. The receipt of restricted stock, deferred stock rights, stock
appreciation rights or performance awards will not result in a taxable event
until the applicable period(s) of restriction lapse and the award becomes fully
vested and exercisable, at which time the participant must recognize ordinary
income equal to the fair market value of the Award, less any payments made.
With respect to restricted stock, a participant may make an election under
Section 83(b) of the Code to be taxed as of the date of grant. If a
Section 83(b) election is made, the participant will recognize ordinary income
in an amount equal to the excess of the fair market value of such shares on the
date of grant over the amount paid for such shares. If no amount is paid for
such shares, the participant will recognize ordinary income in an amount equal
to the fair market value of such shares on the date of the grant.
COMPANY DEDUCTION. Generally, the Company will be entitled to a deduction
in the amount of any ordinary income recognized by an employee with respect to
an Award. Internal Revenue Code ("IRC") Section 162(m) limits deductions for
certain executive compensation in excess of $1 million. Stock options granted
with exercise prices at fair market value will be deductible without regard to
the $1 million limit if the options are granted by a committee of outside
directors who meet the requirements specified under Section 162(m). Other types
of compensation are deductible only if performance criteria are specified in
detail, and payments are contingent on stockholder approval of the compensation
arrangement. Compensation paid to executive officers during the last fiscal
year did not exceed the deductibility threshold. The Compensation Committee
believes it is more likely than not that the Company will be able to fully
deduct all compensation paid in the foreseeable future. The Company has
endeavored to structure its long-term and other incentives to achieve maximum
deductibility under Section 162(m) with minimal sacrifices in flexibility and
corporate objectives. To that end, the Company's 1995 Equity Incentive Plan
limits the number of shares which may be covered by stock options granted to
any one individual. However, since long-term incentives allow an individual to
concentrate significant compensation in a single year, because corporate
objectives may not always be consistent with the requirements for full
deductibility, and because the directors on the committee granting awards may
not always meet the requirements under Section 162(m), it is conceivable that
circumstances might arise under which some payments are not deductible under
Section 162(m).
ACCOUNTING TREATMENT
Generally, for an option granted with an exercise price at fair market
value at the time of grant, the Company will not incur a compensation charge.
For options outstanding at the time of stockholder approval, the Company will
incur a charge based on the amount by which the fair market value of shares
subject to the option, determined on the date of stockholder approval,
exceeds the exercise price of the option. For restricted stock, the Company
will incur a charge taken ratably over the vesting period of the stock, based
on the fair market value at
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the time of the award. For other Awards, generally the Company will incur a
charge taken ratably over the vesting period, and increased or decreased
each quarter to take into account changes in market value.
PROPOSAL FOUR
INCREASE IN AUTHORIZED COMMON STOCK
The Board of Directors on August 15, 1996 unanimously adopted a
resolution proposing an amendment of the Company's Restated Certificate of
Incorporation to increase the number of shares of Common Stock authorized to
be issued by the Company from 30,000,000 to 60,000,000, and to reduce the par
value of Common Stock from $1.00 per share to $.01 per share. Your Board
recommends a vote "FOR" the amendment to the certificate of incorporation to
increase the number of authorized shares of Common Stock to 60,000,000 and to
reduce the par value of Common Stock to $.01 per share. The affirmative vote
of the majority of all outstanding shares of Common Stock, voting separately
as a class, in addition to the affirmative vote of a majority of the votes
entitled to be cast by the holders of all outstanding shares of Preferred
Stock and of Common Stock, voting together, shall be necessary to approve the
amendment. The Company is also seeking the affirmative vote of the majority
of the votes entitled to be cast by holders of all outstanding shares of
Preferred Stock, voting as a class. Inasmuch as the amendment requires for
approval the affirmative vote of a majority of the votes entitled to be cast
by outstanding shares, abstentions and broker non-votes have the same effect
as a vote against the amendment. Brokers who have not received instructions
from their beneficial owners on this proposal are not authorized to vote such
shares on the proposal. The full text of Article Fourth, as such article is
proposed to be amended, is set forth in full as Appendix C to this proxy
statement.
As of September 30, 1996, the Company had 10,000,000 shares of Common
Stock outstanding, 900,000 shares of Common Stock reserved for issuance on
exercise of warrants issued by the Company, and 1,000,000 shares of Common
Stock reserved for issuance pursuant to options authorized under the
Company's 1995 Equity Incentive Plan and 1995 Non-Employee Directors' Stock
Option Plan. In addition, 13,811,434 shares are issuable on conversion of
Preferred Stock currently outstanding or to be issued pursuant to the Stock
Purchase Agreement. The terms of the Preferred Stock call for the Company to
pay dividends, which the Company may elect to pay in cash or issuing
additional shares of Preferred Stock or Common Stock. If all of the Preferred
Stock dividends are paid in additional shares of Preferred Stock, without the
proposed increase in authorized Common Stock there would not be sufficient
shares of authorized and unissued Common Stock to pay non-cash dividends for
the full five years during which the Company may otherwise be permitted to do
so. Other than as described in this paragraph, the Company has no specific
understandings, arrangements or agreements with respect to any future
acquisitions or other transactions which would require the Company to issue
any new shares of its Common Stock.
The Board of Directors believes that it is in the best interest of the
Company to have a greater number of authorized and unissued shares of Common
Stock. In addition to enhancing the Company's ability to pay dividends on the
Preferred Stock in additional shares of Preferred Stock and Common Stock, a
greater number of authorized shares will give the Company added flexibility
in its corporate planning and in responding to developments in the Company's
business, including possible financings, investment opportunities,
acquisitions, mergers, share exchanges, stock splits or dividends, without
incurring the expense and delay of a special stockholders' meeting where the
vote of the Company's stockholders is not otherwise required. The Board of
Directors believes that the availability of such additional authorized shares
will help the Company attract and
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retain talented employees through the grant of stock options and other
stock-based incentives. The issuance of additional shares of Common Stock
may have a dilutive effect on earnings per share and, for a person who does
not purchase or have the opportunity to purchase additional shares to
maintain his or her pro rata interest, on a stockholder's percentage voting
power. The additional shares of Common Stock to be authorized will be
issuable without further authorization by vote or consent of the stockholders
and on such terms and for such consideration as may be determined by the
Board of Directors, except as may be required by applicable laws or the rules
of any stock exchange or national securities association trading system on
which the securities may be listed or traded.
The change in par value will allow the Company to transfer from stated
capital to surplus an amount of $9,900,000, the difference between the
current aggregate par value of the shares currently outstanding and the new
par value of the shares currently outstanding. Such transfer will have no
negative effect on the cash position or other assets of the Company, and may
enhance the ability of the Company to pay a dividend at some time in the
future.
Although any issuance of Common Stock by the Board of Directors would
be based on its judgment as to the best interests of the Company and its
stockholders, increasing the number of authorized shares of Common Stock
could, in certain circumstances, render more difficult or discourage a
merger, takeover or proxy contest, and thus potentially have an anti-takeover
effect, if additional shares of Common Stock were issued under circumstances
intended to discourage or make more difficult an attempt by a person or
organization to gain control of the Company. Such an effect could deter
certain types of transactions which might be proposed, whether or not such
transactions were favored by a majority of the stockholders, and could
enhance the ability of officers and directors to retain their positions. The
Board of Directors does not, however, view the proposed increase as part of
an "anti-takeover" strategy and does not presently intend to propose at
future meetings of the stockholders other measures that could be considered
"anti-takeover" in nature. As described on page 26 of this proxy statement,
the Company recently entered into an agreement pursuant to which two new
investors, Trefoil and GEI, have acquired control of the Company. A majority
of the Board's current slate of nominees for director have been designated by
these Investors, and these Investors control or have the right to acquire
sufficient shares to impede or prevent a third party from taking control of
the Company, without regard to whether the amendment to increase shares of
authorized Common Stock is adopted.
The additional shares of Common Stock for which authorization is sought
will be a part of the existing class of Common Stock and, if and when issued,
will have the same rights and privileges as the shares of Common Stock
presently outstanding. No holder of Common Stock has any preemptive rights.
PROPOSAL FIVE
"FAIR PRICE" AMENDMENT
In connection with the negotiation of the Stock Purchase Agreement, the
Company asked for, and the Investors agreed to support, an amendment to the
Certificate of Incorporation to add a new Article (the "Fair Price
Amendment"). The Fair Price Amendment is designed, with limited exceptions,
to allow holders of the Company's Common Stock to receive for their shares
the same consideration paid by an Interested Stockholder for other shares of
Common Stock. The full text of the proposed new article is set forth in full
as Appendix D to this proxy statement.
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The Fair Price Amendment was unanimously approved by the Company's Board
of Directors on August 15, 1996. Pursuant to the Fair Price 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 Fair Price 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 Preferred Stock
purchased by the Investors pursuant to the Stock Purchase Agreement).
Your Board recommends a vote "FOR" the Fair Price Amendment to the
Company's Certificate of Incorporation. The Amendment must be approved by
the affirmative vote of a majority of the votes entitled to be cast by the
holders of all outstanding shares of Preferred Stock and of Common Stock,
voting together. The Company is also seeking the affirmative vote of the
majority of the votes entitled to be cast by holders of all outstanding
shares of Preferred Stock, voting as a class, and the affirmative vote of the
majority of votes entitled to be cast by holders of all outstanding shares of
Common Stock, voting as a class. Inasmuch as the amendment requires for
approval the affirmative vote of a majority of the votes entitled to be cast
by all outstanding shares, abstentions and broker non-votes have the same
effect as a vote against the amendment. Brokers who have not received
instructions from their beneficial owners on this proposal are not authorized
to vote such shares on the proposal. Pursuant to the Stock Purchase
Agreement, the Investors agreed to vote their shares in favor of the proposed
amendment.
The Fair Price Amendment is designed, with limited exceptions, to allow
holders of the Company's Common Stock to receive for their shares the same
consideration paid by an Interested Stockholder for other shares of Common
Stock. The Fair Price Amendment would make it more difficult for a third
party to engage in two-tier pricing and similar inequitable tactics in a
takeover attempt. The Fair Price Amendment is not designed to prevent or
discourage tender offers for the Company. The Fair Price Amendment would
discourage some takeover attempts by persons intending to acquire the Company
in two steps and to eliminate remaining stockholder interests by means of
certain business combination transactions involving less consideration per
share than the acquiring person had paid for its initial interest in the
Company.
In connection with the negotiation of the Stock Purchase Agreement, the
Company asked for, and the Investors agreed to support certain amendments to
the Company's By-laws which were unanimously adopted by the Board of
Directors on August 15, 1996. These By-law amendments impose certain timing,
disclosure and other procedural requirements on a stockholder that desires to
propose nominees for election as directors or to present other proposals for
action to be taken at an annual meeting of stockholders.
DESCRIPTION OF THE FAIR PRICE AMENDMENT
Under the proposed amendment, the affirmative vote of at least 75% of
the outstanding voting stock not beneficially owned by any "Interested
Stockholder" (as defined below and including any "Affiliate" or "Associate"
thereof as defined in the provision) is needed to approve a "Business
Combination," unless certain exceptions are satisfied. A "Business
Combination" is defined to include certain transactions by the Company or any
of its Subsidiaries, including, without limitation, (i) any merger or
consolidation with an Interested Stockholder or the Affiliate or Associate of
an Interested Stockholder; (ii) any merger or consolidation of the Company
with any of its subsidiaries which has the effect, directly or indirectly, of
increasing the proportion of outstanding shares that an Interested
Stockholder beneficially owns of any class or series of Company capital stock
or securities convertible into capital stock of the Company or a subsidiary
thereof; and (iii) any agreement, contract or other arrangement providing for
an action specified in (i) or (ii). An "Interested Stockholder" is defined
as any person who (i) is or has
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announced or publicly disclosed an intent to become the beneficial owner of
voting stock of the Company representing 50% or more of the votes entitled to
be cast by holders of voting stock. The Investors are excluded from the
definition of Interested Stockholder. A "Continuing Director" is defined as
any member of the Board of Directors who is not an Affiliate or Associate or
representative of the Interested Stockholder and was a member of the Board of
Directors prior to the time that an Interested Stockholder became an
Interested Stockholder, and any successor to a Continuing Director who is not
an Affiliate or Associate or representative of the Interested Stockholder and
is recommended or elected to succeed the Continuing Director by a majority of
Continuing Directors.
Where a Business Combination DOES involve the payment of consideration
to holders of the Company's outstanding capital stock, the 75% voting
requirement referred to above does not apply if the Business Combination
meets either of the following conditions (i) or (ii): (i) a majority of the
Continuing Directors approves such Business Combination, or (ii) each of the
following conditions (a) through (d) is satisfied: (a) the aggregate amount
of cash and fair market value of consideration other than cash received per
share by holders of the Company's Common Stock equals the highest price per
share that the Interested Stockholder paid to beneficially own such stock
during the two years prior to announcing publicly the Business Combination
(the "Announcement Date"), or in the transaction in which it became an
Interested Stockholder, whichever is higher; (b) the aggregate amount of cash
and the fair market value of consideration other than cash received per share
by holders of any class or series of outstanding capital stock, other than
the Company's Common Stock, equals at least the highest per share price that
the Interested Stockholder paid for beneficial ownership of such stock (x)
during the two years preceding the Announcement Date, or (y) in the
transaction in which it became an Interested Stockholder, whichever is
higher; (c) the consideration received by holders of a particular class or
series of outstanding capital stock of the Company is cash, or if the
Interested Stockholder acquired beneficial ownership of shares of such class
or series for consideration in a form other than cash, in that form; and (d)
a proxy statement in compliance with the requirements of the Exchange Act
describing the proposed Business Combination will have been mailed to Company
stockholders at least 30 days before the Business Combination is consummated.
The fact that a Business Combination complies with these provisions will not
impose a fiduciary duty on the Company's Board of Directors or on any
director to approve the Business Combination or recommend it to stockholders.
Where the Business Combination DOES NOT involve the payment of
consideration to holders of the Company's outstanding capital stock, the 75%
voting requirement referred to above does not apply if a majority of the
Continuing Directors approves such Business Combination.
A majority of the Company's Continuing Directors has the power and duty to
determine for the purposes of any such Business Combination, on the basis of
information known to them after reasonable inquiry, all relevant questions,
including, without limitation, (i) whether a person is an Interested
Stockholder; (ii) the number of shares of capital stock of the Company that a
person beneficially owns; (iii) whether a person is an Affiliate or Associate of
another; and (iv) whether a proposed action is with, proposed by, or on behalf
of an Interested Stockholder.
FACTORS IN CONSIDERING THE FAIR PRICE AMENDMENT
It is possible in corporate takeovers for a purchaser to pay cash to
acquire a controlling equity interest in a company, by tender offer or other
transaction, and then to acquire the remaining equity interest in the company
by paying the remaining stockholders a price for their shares that is lower
than the price the purchaser paid to acquire its original interest in the
company or by paying a different and possibly less desirable form of
consideration (such as securities of the purchaser instead of cash).
Generally, in a two-
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step acquisition involving a tender offer followed by a business combination
that is effected for a lower price or different form of consideration,
arbitrageurs and other professional investors, because of their
sophistication and expertise in the takeover area, may be better able to take
advantage of the more lucrative first-step tender offer than other
stockholders.
The Fair Price Amendment is designed to make it more difficult for a
purchaser to engage in two-tier pricing and similar inequitable tactics in
the event of an attempt to take over the Company. The Fair Price Amendment
is not designed to prevent or discourage tender offers for the Company. It
does not limit the ability of a third party that owns or can obtain the
affirmative vote of at least 75% of the Voting Stock (as defined in the Fair
Price Amendment) to effect a Business Combination involving the Company in
which the equity interest of the minority stockholders is eliminated. It
also does not impede an offer for at least 75% of the Voting Stock of the
Company or an offer which the Board of Directors has approved in the manner
described herein. Except for the restrictions on Business Combinations, the
Fair Price Amendment will not prevent a holder of a controlling interest in
the Company, such as the Investors, from exercising control over or
increasing its interest in the Company.
The Fair Price Amendment is designed to help assure that, if the Company is
taken over by a party other than the Investors, each stockholder will be treated
fairly in comparison to every other stockholder. Although the Fair Price
Amendment is designed to help assure fair treatment of each stockholder in
comparison to every other stockholder in the event of a takeover of the Company,
it is not the purpose of the Fair Price Amendment to assure that stockholders
will receive a premium price, or even a fair price, for their shares in a
takeover. Accordingly, the Board believes that the adoption of the Fair Price
Amendment would not preclude the Board's opposition to any future takeover
proposal that it believes not to be in the best interest of the Company and its
stockholders, whether or not such a proposal satisfies the minimum price
criteria and procedural requirements of the Fair Price Amendment.
The Fair Price Amendment is designed to protect those stockholders who have
not tendered or otherwise sold their shares to a purchaser who is attempting to
acquire control by ensuring that at least the same price and form of
consideration are paid to such stockholders in a business combination as were
paid to stockholders in the initial step of the acquisition. In the absence of
the Fair Price Amendment, a successful purchaser who acquired control of the
Company could subsequently, by virtue of such control, force minority
stockholders to sell or exchange their shares at a price that would not reflect
any premium such purchaser may have paid in order to acquire its controlling
interest, but at a price that would instead effectively be set by such
purchaser. The price established by the purchaser may be lower than the price
paid by the purchaser in acquiring control or may be in a less desirable form of
consideration. The Fair Price Amendment is designed to eliminate the pressure on
stockholders faced with the decision whether to accept an offer for the purchase
of their shares of stock or being forced to accept a lower price for all of
their shares of stock, without having the opportunity to make a considered
investment choice between refusing to accept the offer or disposing of their
stock. If the tender offer is over-subscribed for this reason, even
stockholders who wish to tender their shares may be compelled to accept the less
valuable consideration for some or all of their shares.
In many situations, the minimum price and procedural requirements of the
Fair Price Amendment would require that a purchaser pay stockholders a higher
price for their shares or structure the transaction differently. Accordingly,
the Board believes that, to the extent a Business Combination was involved as
part of a plan to acquire control of the Company, adoption of the Fair Price
Amendment will increase the likelihood that a purchaser would negotiate directly
with the Company. The Board believes that it is in a better position than the
individual stockholders of the Company to negotiate effectively on behalf of all
stockholders because the Board is likely to be in a better position than any
individual stockholder to assess
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the business and prospects of the Company. Accordingly, the Board also
believes that negotiations between the Company and the purchaser could
increase the likelihood that stockholders would receive a higher price for
their shares from anyone desiring to obtain control of the Company through a
Business Combination or otherwise.
Although not all acquisitions of the Company's stock are made with the
objective of acquiring control of the Company through a subsequent business
combination transaction, in most cases a purchaser desires to have the option
to consummate such a transaction. Assuming that to be the case, the Fair
Price Amendment may tend to discourage purchasers whose objective is to seek
control of the Company at a relatively low price, since acquiring the
remaining equity interest would not be assured unless the minimum fair price
and procedural requirements were satisfied or a majority of the Continuing
Directors were to approve the transaction. The Fair Price Amendment may also
discourage the accumulation of large blocks of the Company's stock, which the
Board believes could disrupt the stability of the Company's vitally important
relationships with its employees, customers, communities in which it operates
and lenders, and which could precipitate a change of control of the Company
on terms unfavorable to the Company's other stockholders.
Tender offers or other non-open market acquisitions of stock are usually
made at prices above the prevailing market price of a company's stock. In
addition, acquisitions of stock by persons attempting to acquire control
through market purchases may cause the market price of the stock to reach
levels that are higher than would otherwise be the case. The Fair Price
Amendment may discourage such purchases, particularly those of less than 75%
of the Voting Stock, and may thereby deprive holders of the Company's stock
of an opportunity to sell their stock at a temporarily higher market price.
Because of the higher percentage requirements for stockholder approval of any
subsequent Business Combination and the possibility of having to pay a higher
price to other stockholders in such a Business Combination, it may become
more costly for a purchaser to acquire control of the Company. The Fair
Price Amendment may therefore decrease the likelihood that a tender offer
will be made for less than 75% of the outstanding Voting Stock and, as a
result, may adversely affect those stockholders who would desire to
participate in such a tender offer. A potential purchaser of stock seeking
to obtain control may also be discouraged from purchasing stock because a 75%
stockholder vote would be required to change or eliminate these provisions.
It should be noted that the provisions of the Fair Price Amendment would not
necessarily discourage persons who might be willing to seek control of the
Company by acquiring the shares held by the Investors, or by acquiring 75% of
the outstanding Voting Stock even though they have no intention of acquiring
the remaining 25%.
The provisions of the Fair Price Amendment may produce other effects on
potential purchasers of the Company's securities. In certain cases, the Fair
Price Amendment's minimum price provisions, while providing objective pricing
criteria, could be arbitrary and not indicative of value. In addition, an
Interested Stockholder may be unable, as a practical matter, to comply with
all of the procedural requirements of the Fair Price Amendment. Under these
circumstances, unless a potential purchaser was willing to purchase 75% of
the Voting Stock as the first step in a Business Combination, it would be
forced either to negotiate with the Board of Directors and offer terms
acceptable to it or to abandon the proposed Business Combination.
Another effect of adoption of the Fair Price Amendment would be to give
veto power to the holders of a minority of the voting power of the Voting
Stock with respect to a business combination which is opposed by the Board,
but which a majority of stockholders may believe to be desirable and
beneficial (although compliance by the Interested Stockholder with the
minimum price, form of consideration and procedural requirements would
eliminate such veto power). In addition, since only the Continuing
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Directors will have the authority to reduce to a simple majority or eliminate
the 75% stockholder vote required for proposed Business Combinations, the
Fair Price Amendment may tend to insulate current management against the
possibility of removal in the event of a takeover bid. As of August 25, 1997,
the Investors are expected to control over 50% of the Voting Stock of the
Company. Thus, even without the Fair Price Amendment, the Investors could
block any transaction requiring stockholder approval even if such transaction
were desired by a majority of the remaining holders of the Company's voting
securities.
Adoption of the Fair Price Amendment may have a significant effect on the
ability of stockholders of the Company to benefit from certain transactions that
are opposed by the incumbent Board of Directors. Accordingly, stockholders are
urged to read carefully the following sections of this proxy statement and
Appendix D hereto, which sets forth the full text of the Fair Price Amendment.
REGULATORY AND DELAWARE LAW REQUIREMENTS.
Federal securities laws and regulations applicable to business combinations
govern the disclosure required to be made to stockholders to consummate such a
transaction but do not assure stockholders that the terms of the business
combination (that is, the type and amount of consideration that stockholders
will receive for their shares) will be fair to them or that they can effectively
prevent its consummation.
Under Delaware law, most mergers and consolidations, the sale of all or
substantially all of the Company's assets, the reclassification of securities
or a plan for the dissolution of the Company must be approved by a majority
of the voting power of all outstanding shares entitled to vote thereon.
Section 203 of the Delaware General Corporation Law ("Section 203")
prohibits certain "Business Combination" (as defined in Section 203)
transactions between a publicly held Delaware corporation, such as the
Company, and any "Interested Stockholder" (as defined in Section 203) for a
period of three years after the date the Interested Stockholder became an
Interested Stockholder, unless (a) prior to the Interested Stockholder's
becoming an Interested Stockholder, either the proposed Business Combination
or the proposed acquisition of stock which would make the Interested
Stockholder an Interested Stockholder is approved by the corporation's board
of directors, (b) in the same transaction in which the Interested Stockholder
becomes an Interested Stockholder, the Interested Stockholder acquires at
least 85% of the Voting Stock of the corporation, or (c) the Interested
Stockholder obtains the approval of the corporation's board of directors and
the approval of the holders of at least two thirds of the outstanding shares
of the corporation's Voting Stock other than any shares of Voting Stock held
by the Interested Stockholder.
For purposes of Section 203, an "Interested Stockholder" is any person that
(a) beneficially owns 15% or more of the outstanding Voting Stock of the
corporation or (b) is an affiliate or associate of the corporation and at any
time within the preceding three-year period was the beneficial owner of 15% or
more of the outstanding Voting Stock of the corporation, together, in each case,
with the affiliates and associates of such person. The terms "beneficially
own", "affiliate" and "associate" have substantially the same meanings under
Section 203 as under the Fair Price Amendment.
The "Business Combination" transactions to which Section 203 applies
include (a) any merger or consolidation of the corporation or any of its
majority-owned subsidiaries with an Interested Stockholder; (b) any disposition
or pledge to an Interested Stockholder (except proportionally as a stockholder
of the corporation) of assets of the corporation or any of its majority-owned
subsidiaries having an aggregate market value equal to 10% or more of either the
aggregate market value of all of the assets of the corporation and its
subsidiaries or of all of the outstanding stock of the corporation; (c) any
issuance or transfer of stock to the Interested Stockholder except pursuant to
the exercise of previously outstanding
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options or rights to purchase stock or to exchange or convert other
securities into stock, or pursuant to options or rights to purchase stock or
to exchange or convert other securities into stock offered on the same terms
or distributed pro rata by the corporation to all stockholders so long as the
Interested Stockholder's percentage ownership is not increased thereby; (d)
any transaction involving the corporation or any of its majority-owned
subsidiaries that has the effect of increasing the Interested Stockholder's
percentage ownership; and (e) any loan or other financial benefit provided by
or through the corporation or any of its majority-owned subsidiaries to the
Interested Stockholder, except proportionately as a stockholder of such
corporation.
RELATIONSHIP BETWEEN THE FAIR PRICE AMENDMENT AND SECTION 203.
The Fair Price Amendment is intended partially to fill gaps in the Federal
and Delaware law and to prevent certain of the potential inequities of business
combinations that involve two or more steps by requiring, to complete a business
combination that is not approved by a majority of the Continuing Directors, a
purchaser must either acquire or obtain the affirmative vote of at least 75% of
the Company's Voting Stock prior to the business combination, or be prepared to
meet the minimum price and procedural requirements of the Fair Price Amendment.
The purpose of the Fair Price Amendment is to provide greater assurance
that the Company's stockholders will receive fair treatment in a Business
Combination involving an Interested Stockholder or its affiliates or
associates. The Board of Directors of the Company believes that the adoption
of the Fair Price Amendment is desirable notwithstanding the existence of
Section 203 and notwithstanding certain other provisions of Delaware law that
provide that stockholders who object to a merger or consolidation may, under
certain circumstances, have the statutory right to dissent, have their shares
"appraised" and receive the "fair value" of their shares in cash. Moreover,
the statutory right of the stockholders of a company who elect not to tender
their shares of stock or to dissent in connection with certain business
combinations and receive the "fair value" of their shares in cash may involve
significant expense, delay and uncertainty to dissenting stockholders.
Dissenting stockholders have no assurance that such "fair value" would be as
high as the minimum price determined pursuant to the Fair Price Amendment.
In the case of many business combinations, including reclassification or
recapitalization of the outstanding shares of any class of a company's stock,
the statutory right of dissent may not be available at all.
Both the Fair Price Amendment and Section 203 should encourage persons
interested in acquiring the Company to negotiate in advance with the Board of
Directors since the higher stockholder voting requirements imposed would not be
invoked if, in the case of the Fair Price Amendment, such person obtains the
approval of a majority of the Continuing Directors for the proposed Business
Combination transaction and, in the case of Section 203, such person, prior to
acquiring 15% of Company's Voting Stock, obtains the approval of the Board of
Directors for the stock acquisition or for the proposed Business Combination
transaction unless such person acquires 85% or more of the Company's Voting
Stock in such transaction. In the event of a proposed acquisition of the
Company, the Board of Directors believes that the interest of the Company's
stockholders will best be served by a transaction that results from negotiations
based upon careful consideration of the proposed terms, such as the price to be
paid to minority stockholders, the form of consideration paid, and the tax
effects of the transaction.
In addition, both the Fair Price Amendment and Section 203 should tend to
prevent certain of the potential inequities of Business Combinations which are
part of a "two-tier" transaction, since any merger, consolidation or similar
transaction following a partial tender offer not approved by the Board under
Section 203 and the Continuing Directors under the Fair Price Amendment would
have to be approved by the holders of at least 75% of the Voting Stock under the
Fair Price Amendment or, in the case of Section
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203, unless the acquiror obtains 85% or more of the Company's Voting Stock in
such partial offer. The Fair Price Amendment and Section 203 should also
tend to discourage the accumulation of large blocks of the Company's stock by
third parties which the Board of Directors believes can be disruptive to the
stability of the Company's important relationships with its employees,
customers, communities in which it operates and major lenders, since the
acquiror would run the risk of being required to wait three years if the
two-thirds stockholder vote could not be obtained under Section 203 and pay
the minimum price and satisfy the procedural conditions required by the Fair
Price Amendment in order to eliminate the remaining public stockholders of
the Company if the 75% stockholder vote could not be obtained.
Notwithstanding the similarities of the Fair Price Amendment and Section
203, the Board believes that the Fair Price Amendment should be adopted.
Depending on the circumstances at the time, the Fair Price Amendment could
afford additional protection to the Company's stockholders based on the
following differences between the Fair Price Amendment and Section 203:
1. The term "Business Combination" is defined differently in the Fair
Price Amendment than it is in Section 203, and, as a result, the Fair Price
Amendment may afford protection to the Company's stockholders in certain
situations in which Section 203 would not apply.
2. The approval by the Board of Directors required for a Business
Combination under Section 203 is a simple majority. The Fair Price Amendment
requires a majority of Continuing Directors to approve a Business Combination.
As a result, it may be more difficult for an Interested Stockholder to get a
Business Combination approved by the Board of Directors under the Fair Price
Amendment.
3. Section 203 provides that in determining whether an Interested
Stockholder acquires at least 85% of the Voting Stock of a corporation, shares
owned by individuals who are both directors and officers and shares owned by
employee stock plans in which the participants do not have the right to
determine confidentially whether shares held subject to the plans will be
tendered in a tender or exchange offer are excluded for purposes of determining
the number of shares outstanding. Under the Fair Price Amendment, the minimum-
price and procedural requirements may be avoided if 75% of all outstanding
shares of Voting Stock are voted in favor of a Business Combination. Depending
upon the number of shares held by persons who are officers and directors and by
employee stock plans, obtaining a vote of 75% of the outstanding shares of
Voting Stock (or purchasing 75% of the outstanding shares of Voting Stock )
could pose a higher burden on the Interested Stockholder than meeting the 85%
test under Section 203.
4. Section 203 does not apply, or ceases to apply, to Business
Combinations with Interested Stockholders in situations where the Company
proposes to enter into certain types of Business Combinations with other
persons. The Fair Price Amendment is applicable to all Business Combinations.
Neither the Fair Price Amendment nor Section 203 will prevent a hostile
takeover of the Company. They may, however, make more difficult or discourage
a takeover of the Company, the acquisition of control of the Company or the
removal of incumbent management by a principal stockholder. Some stockholders
may find this disadvantageous in that they may not be afforded the
opportunity to participate in takeovers which are not approved by the
Continuing Directors but in which they might receive, for at least some of
their shares, a substantial premium above the market price at the time of a
tender offer or other acquisition transaction. The adoption of the Fair
Price Amendment should not, however, in the opinion of the Board of
Directors, have the effect of generally discouraging tender offers or other
acquisition transactions not already discouraged by the existence of Section
203, and should not prevent or discourage transactions in which the acquiring
person is willing to negotiate in good faith with the
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Company's Board of Directors and is prepared to pay the same price to all
stockholders of each class of the Company's Voting Stock.
The Fair Price Amendment is permitted under Delaware corporation law and is
consistent with the rules of the Nasdaq Stock Market, upon which the Company's
Common Stock is listed and traded.
The Fair Price Amendment would become effective upon the filing of a
Certificate of Amendment with the Secretary of State of Delaware, which is
expected to be made shortly following the adoption of the Fair Price Amendment
at the annual stockholders' meeting.
PROPOSAL SIX
STOCKHOLDER CONSENT AMENDMENT
The Certificate of Incorporation of the Company currently prohibits
stockholder action by written consent in lieu of a meeting, so long as the
Company has a class of stock registered pursuant to the Exchange Act. This
provision, Article Seventh of the Certificate of Incorporation, prohibits a
significant stockholder or group of stockholders from authorizing action which
is subject to stockholder approval under Delaware law without a meeting at which
all stockholders would be entitled to participate, even where such stockholders
hold shares of Common Stock and Preferred Stock sufficient to authorize the
action.
The Company believes that the delay and expense involved in holding such
a meeting are unwarranted if the holders of sufficient votes to adopt the
proposed action are in favor of the action. The Company does intend to
continue to hold annual meetings of stockholders. In addition, the rules of
the Nasdaq Stock Market, on which the Company's Common Stock is listed,
require the holding of stockholder meetings in connection with certain
actions, unless such requirement is waived by Nasdaq.
A provision prohibiting stockholder action by written consent in lieu of a
meeting is often considered to be part of an antitakeover defensive strategy.
In light of the acquisition of Preferred Stock by Trefoil and GEI and related
transactions as described in this proxy statement, the members of the
Board of Directors believe that this provision is no longer appropriate for the
Company.
The Board of Directors has approved amending the Company's Certificate of
Incorporation to delete Article Seventh and recommends a vote "FOR" the
amendment. The Amendment must be approved by the affirmative vote of a majority
of the votes entitled to be cast by the holders of all outstanding shares of
Common Stock and Preferred Stock, voting together. Inasmuch as the amendment
requires for approval the affirmative vote of a majority of the votes entitled
to be cast by outstanding shares, abstentions and broker non-votes have the same
effect as a vote against the amendment. Brokers who have not received
instructions from their beneficial owners on this proposal are not authorized to
vote such shares on the proposal.
The full text of the current Article Seventh is set forth in full as
Appendix E to this proxy statement.
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PROPOSAL SEVEN
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Price Waterhouse LLP, independent
accountants, to audit the financial statements of the Company for the fiscal
year ending March 29, 1997, and recommends that stockholders vote "FOR"
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Representatives of Price Waterhouse LLP are expected to be present at the
meeting with the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
OTHER MATTERS TO COME BEFORE THE MEETING
The Company knows of no other matters to come before the Annual Meeting.
If any other matter not mentioned in this Proxy Statement properly comes before
the meeting, it is the intention of the proxy holders named in the enclosed
Proxy to vote the shares they represent as the Board of Directors may recommend.
STOCKHOLDER NOMINATIONS FOR ELECTION OF DIRECTORS
Nominations of persons for election to the Board of Directors at the
annual meeting or by the written consent of the stockholders may be made by
any stockholder of the Company entitled to vote for the election of directors
at the meeting who complies with certain notice procedures. A stockholder'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 stockholders 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 stockholders, notice by the stockholder 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 stockholder's notice to the Secretary
shall set forth (a) as to each person whom the stockholder 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 stockholder giving the
notice, (i) the name and record address of the stockholder and (ii) the
class, series and number of shares of capital stock of the Company which are
beneficially owned by the stockholder. 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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STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT MEETING
Federal proxy rules specify what constitutes timely submission for a
stockholder proposal to be included in a subsequent proxy statement. Proposals
of stockholders that are intended to be presented by such stockholders at the
Company's 1997 Annual Meeting of Stockholders generally must be received by the
Company at its principal executive offices no later than May 29, 1997, in order
to be considered for inclusion in the Company's proxy statement relating to
that meeting. In addition, to be properly brought before the meeting, a
stockholder's notice must be received at the principal executive offices of
the Company, addressed to the attention of the Secretary of the Company,
within the time specified in the federal proxy rules for timely submission of
a stockholder proposal or, if not within such time, then not less than sixty
days nor more than ninety days prior to the meeting; PROVIDED, HOWEVER, that
in the event that less than fifty days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received by the earlier of (a) the close
of business on the fifteenth day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure was made,
whichever first occurs, and (b) two days prior to the date of the meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting,
(ii) the name and record address of the stockholder proposing such business,
(iii) the class and number of shares of the Company which are beneficially
owned by the stockholder, and (iv) any material interest of the stockholder
in such business.
The Chairman of the Board of Directors shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section I, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
The Board of Directors
The Annual Report to Stockholders of the Company for the fiscal year ended
March 30, 1996, is being mailed concurrently with this proxy statement to all
stockholders of record. The Annual Report is not to be regarded as proxy
soliciting material or as a communication by means of which any solicitation is
to be made.
COPIES OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 30, 1996, INCLUDING
FINANCIAL STATEMENTS AND SCHEDULES, WILL BE PROVIDED TO STOCKHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST TO THE SECRETARY, THE GRAND UNION COMPANY, 201
WILLOWBROOK BLVD., WAYNE, NJ 07470
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APPENDIX A
THE GRAND UNION COMPANY
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1995 Non-Employee Directors' Stock Option
Plan (the "Plan") is to advance the interests of The Grand Union Company (the
"Company") by enhancing the ability of the Company to attract and retain non-
employee directors who are in a position to make significant contributions to
the success of the Company and to reward directors for such contributions
through ownership of shares of the Company's Common Stock (the "Stock").
2. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") of the Board of Directors (the "Board") of the Company designated
by the Board for that purpose. Unless and until a Committee is appointed, the
Plan shall be administered by the entire Board, and references in the Plan to
the "Committee" shall be deemed references to the Board. The Committee shall
have authority, not inconsistent with the express provisions of the Plan (a) to
issue options granted in accordance with the formula set forth in this Plan to
Eligible Directors as defined below; (b) to prescribe the form or forms of
instruments evidencing awards and any other instruments required under the Plan
and to change such forms from time to time; (c) to adopt, amend and rescind
rules and regulations for the administration of the Plan; and (d) to interpret
the Plan and to decide any questions and settle all controversies and disputes
that may arise in connection with the Plan. Such determinations of the
Committee shall be conclusive and shall bind all parties.
3. ELIGIBILITY OF DIRECTORS FOR STOCK OPTIONS. Directors eligible to
receive options under the Plan ("Eligible Directors") shall be those directors,
who are not, at the time they become an Eligible Director, employees of the
Company or of any subsidiary of the Company AND (i) who are directors on the
Effective Date of this Plan (which shall be the eligibility date for such
directors) or (ii) who are first elected a director of the Company after the
Effective Date of this Plan (which election date shall be the eligibility date
for any such director).
4. GRANT OF OPTIONS; EXERCISE PRICE. Each individual who is an Eligible
Director shall, on his or her eligibility date as determined under Section 3,
automatically be granted an option ("Option") to purchase 5,000 shares of Stock
of the Company (subject to adjustment as provided in Sections 5 and 10) at an
exercise price equal to the Fair Market Value of the Stock on the effective date
of grant. Thereafter, on each date that an Eligible Director is elected to a new
one-year term of office, such Eligible Director shall automatically be granted
an Option to purchase 1,500 shares of Stock of the Company (subject to
adjustment as provided in Sections 5 and 10) at an exercise price equal to the
Fair Market Value of the Stock on the effective date of grant. All options
shall expire ten years after the effective date of grant.
5. NUMBER OF SHARES. The number of shares of Stock of the Company
which may be issued upon the exercise of Options granted under the Plan,
including shares forfeited pursuant to Section 7, shall not exceed 100,000 in
the aggregate, subject to increase under Section 10, which increases and
appropriate
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adjustments as a result thereof shall be made by the Committee, whose
determination shall be binding on all persons.
6. STOCK TO BE DELIVERED. Shares of Stock to be delivered pursuant to an
Option granted under this Plan may constitute an original issue of authorized
Stock or may consist of previously issued Stock acquired by the Company, as
shall be determined by the Board. The Board and the proper officers of the
Company shall take any appropriate action required for such delivery. No
fractional shares shall be delivered under the Plan.
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan (a) until all conditions of the Option have been satisfied, (b)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulation have been complied with, (c) if the outstanding Stock is at
the time listed on the New York Stock Exchange or any other stock exchange,
until the shares to be delivered have been listed or authorized to be listed on
the New York Stock Exchange or such other exchange upon official notice of
notice of issuance, and (d) until all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
Options, such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
If an Option is exercised by the Eligible Director's legal representative,
the Company will be under no obligation to deliver Stock pursuant to such
exercise until the Company is satisfied as to the authority of such
representative.
7. EXERCISABILITY; EXERCISE; PAYMENT OF EXERCISE PRICE.
All Options granted under the Plan prior to July 1, 1996, shall, subject to
initial stockholder approval of the Plan, become exercisable immediately as to
one-third of the shares, on the first anniversary of the grant date as to the
second third of the shares and as to one share of any remainder, and on the
second anniversary of the grant date as to the last third of the shares and the
second share of any two-share remainder.
All Options granted under the Plan on or after July 1, 1996, shall, subject
to initial stockholder approval of the Plan, become exercisable six months after
the grant date as to one-third of the shares, on the earlier of the first
anniversary of the grant date or the annual meeting of stockholders closest
thereto as to the second third of the shares and as to one share of any
remainder, and on the earlier of the second anniversary of the grant date or the
annual meeting of stockholders closest thereto as to the last third of the
shares and the second share of any two-share remainder.
Any exercise of an Option must be in writing, signed by the proper person
and delivered or mailed to the Company, accompanied by (1) any documents
required by the Committee and (2) payment in full as provided below for the
number of shares for which the Option is exercised.
The exercise price of Stock purchased on exercise of an Option must be
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or money
order payable to the order of the Company or (2) through the delivery of
shares of
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Stock which have been outstanding and held by the Option holder for at least
six months and which have a Fair Market Value on the last business day
preceding the date of exercise equal to the exercise price, or (3) by
delivery of a two year-term promissory note of the Eligible Director to the
Company, bearing interest on amounts outstanding at a rate equal to the prime
rate as published in THE WALL STREET JOURNAL on the effective date of grant
plus 2%, or (4) by delivery of an unconditional and irrevocable undertaking
by a broker to deliver promptly to the Company sufficient funds to pay the
exercise price, or (5) by any combination of the permissible forms of payment.
To the extent shares of Stock covered under an Option are not delivered
because the Option lapses or is terminated, such forfeited shares may be
regranted in another Option within the limits set forth in Section 5.
8. TERMINATION OF OPTIONS.
a. DEATH OR DISABILITY. If an Eligible Director ceases to be a director
by reason of death or total and permanent disability (as determined by the
Committee), the following will apply:
All Options held by the Eligible Director that are not exercisable on the
thirtieth day after termination of the Eligible Director's status as a director
will terminate as of such date. All Options that are exercisable as of said
thirtieth day will continue to be exercisable until the earlier of (1) the first
anniversary of the date on which the Eligible Director's status as a director
ended or (2) the date on which the Option would have terminated had the Eligible
Director remained a director. If the Eligible Director has died or is totally
or permanently disabled, the Option may be exercised within such limits by the
Eligible Director's legal representative.
b. OTHER TERMINATION. If an Eligible Director's service with the Company
terminates for any reason other than death or incapacity as provided above, all
Options held by the director that are not then exercisable shall terminate.
Options that are exercisable on the date of such termination (other than
termination upon a removal for cause, in which event all Options shall
immediately terminate) shall continue to be exercisable until the earlier of (1)
one year thereafter or (2) the date on which the Option would have terminated
had the director remained an Eligible Director, and after completion of that
period, such Options shall terminate to the extent not previously exercised,
expired or terminated.
c. CERTAIN CORPORATE TRANSACTIONS. In the event of a Change of Control of
the Company, each outstanding Option not otherwise exercisable shall become
immediately exercisable in full on the twentieth (20th) trading day prior to the
effective date of the Change of Control. Subject to the last paragraph of this
section, the Company shall pay to those Option holders whose Options have been
terminated, an amount equal to the Option Value, such payment to be made by cash
or certified check within 30 days after the Change in Control. The Option Value
shall be determined as the difference between the exercise price of the Option
and the Market Price times the number of shares covered by the Option. The
Market Price shall be determined as the average of the Fair Market Value, as
determined under section 11, for the period of twenty (20) trading days ending
on the effective date of the Change of Control.
"Change of Control" means any of the following: (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
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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 this provision, "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.
Notwithstanding the foregoing, the termination of Options and the payment
of Option Values described in the first paragraph of this section shall not
apply with respect to any transaction in which the Option Holder receives
either (i) a replacement option allowing the Option Holder to receive, on the
same terms as in the original Option, the greatest amount of securities, cash or
other property to which such holder would have been entitled as a holder of
Common Stock upon consummation of the transaction if such holder had exercised
the rights represented by the Option held by such holder immediately prior to
the transaction, or (ii) if pooling of interests is a condition of the
transaction, a replacement equity interest which enables the transaction to
qualify for pooling of interests.
9. GENERAL PROVISIONS
a. DOCUMENTATION OF OPTIONS. Options will be evidenced by written
instruments prescribed by the Committee from time to time. Such instruments may
be in the form of agreements, to be executed by both an Eligible Director and
the Company, or certificates, letters or similar instruments, which need not be
executed by an Eligible Director but acceptance of which will evidence agreement
to the terms thereof.
b. RIGHTS AS A STOCKHOLDER. An option holder shall not have the rights of
a stockholder with respect to Options under the Plan except as to Stock actually
received by him or her under the Plan.
c. TAX WITHHOLDING. The Eligible Director or other appropriate person
shall remit to the Company an amount sufficient to satisfy the withholding
requirements, or make other arrangements satisfactory to the Committee with
regard to such requirements, prior to the delivery of any Stock. If and to the
extent that such withholding is required, the Committee may permit the Eligible
Director such other person to elect at such time and in such manner as the
Committee provides to have the Company hold back from the shares to be
delivered, or to deliver to the Company, Stock having a value calculated to
satisfy the withholding requirement.
d. NONTRANSFERABILITY OF OPTIONS. No Option may be transferred other
than by will or by the laws of descent and distribution, and during a
director's lifetime an Option may be exercised only by the director (or, in
the event of the director's incapacity, the person or persons legally
appointed to act on the director's behalf).
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10. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
a. In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution to common stockholders other than normal cash dividends, the
Committee will make any appropriate adjustments to the maximum number of shares
that may be delivered under the Plan under Section 5 above.
b. In any event referred to in paragraph (a), the Committee will also make
any appropriate adjustments to the number and kind of shares of stock or
securities subject to Options then outstanding or subsequently granted, exercise
prices relating to Options and any other provision of Options affected by such
change. The Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions, or
any other event, if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan.
11. FAIR MARKET VALUE. For purposes of the Plan, Fair Market Value of a
share of Stock on any date will be the last sale price as reported by the
principal exchange on which the Stock is traded or by the National Association
of Securities Dealers, Inc. Automated Quotations System or such other similar
system then in use, on that date; or, if on any such a date such Stock is not
quoted by any such organization, the average of the closing bid and asked prices
with respect to such Stock, as furnished by a professional market maker making a
market in such Stock selected by the Committee; or if such prices are not
available, the fair market value of such Stock as of such date as determined in
good faith by the Committee.
12. EFFECTIVE DATE AND TERM. This Plan, having been approved by the Board
of Directors on December 12, 1995, shall become, in accordance with the term of
the approving vote of the Board, effective on December 12, 1995 (the "Effective
Date"), subject to approval of this Plan by vote of a majority of the
shareholders of the Company present and eligible to vote on the question at an
annual or special meeting of stockholders held not later than December 12, 1996.
Options may be granted under the Plan prior to the date of stockholder approval,
and options so granted shall be effective on the effective date of grant subject
to stockholder approval of the Plan as provided in this Section. No Options may
be awarded under this Plan after December 12, 2005, but the Plan shall continue
thereafter while previously awarded Options remain subject to the Plan.
13. EFFECT OF TERMINATION, AND AMENDMENT. Neither adoption of the Plan
nor the grant of Options to an Eligible Director shall confer upon any person
any right to continued status as a director with the Company or any subsidiary
or affect in any way the right of the Company or subsidiary to terminate a
director relationship at any time or shall affect the Company's right to grant
to such director options or other stock awards that are not subject to the Plan,
to issue to such director stock as a bonus or otherwise, or to adopt other plans
or arrangements under which stock may be issued to directors. The Committee may
at any time terminate the Plan as to any further grants of Options. The
Committee may at any time or times amend the Plan for any purpose which may at
the time be permitted by law, but in no event (except to comply with the
provisions of the Internal Revenue Code, the Employee Retirement Income
Security Act or the rules thereunder) more than once in any six-month period.
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APPENDIX B
THE GRAND UNION COMPANY
1995 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance the
interests of The Grand Union Company (the "Company") by enhancing its ability to
attract and retain employees and other persons or entities who are in a position
to make significant contributions to the success of the Company and its
subsidiaries through ownership of shares of the Company's common stock
("Stock").
The Plan is intended to accomplish these goals by enabling the Company to
grant Awards in the form of Options, Stock Appreciation Rights, Restricted Stock
or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, Loans
or Supplemental Grants, or combinations thereof, all as more fully described
below.
2. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of the
Board of Directors (the "Board") of the Company designated by the Board for that
purpose. Unless and until a Committee is appointed, the Plan shall be
administered by the entire Board, and references in the Plan to the "Committee"
shall be deemed references to the Board. A majority of the members of the
Committee shall constitute a quorum, and all determinations of the Committee
shall be made by a majority of its members. Any determination of the Committee
under the Plan may be made without notice or meeting of the Committee by a
writing signed by a majority of the Committee members.
The Committee will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award; (c) determine the type or types of each Award; (d) determine the terms
and conditions of each Award; (e) waive compliance by a Participant (as defined
below) with any obligations to be performed by the Participant under an Award
and waive any term or condition of an Award; (f) amend or cancel an existing
Award in whole or in part (and if an Award is canceled, grant another award in
its place on such terms as the Committee shall specify), except that the
Committee may not, without the consent of the holder of an Award, take any
action under this clause with respect to such Award if such action would
adversely affect the rights of such holder; (g) prescribe the form or forms of
instruments that are required or deemed appropriate under the Plan, including
any written notices and elections required of Participants, and change such
forms from time to time; (h) adopt, amend and rescind rules and regulations for
the administration of the Plan; and (i) interpret the Plan and decide any
questions and settle all controversies and disputes that may arise in connection
with the Plan. Such determinations and actions of the Committee, and all other
determinations and actions of the Committee made or taken under authority
granted by any provision of the
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Plan, will be conclusive and will bind all parties. Nothing in this
paragraph shall be construed as limiting the power of the Committee to make
adjustments under Section 7.3 or Section 8.6.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by the
stockholders of the Company. Grants of Awards under the plan may be made prior
to that date (but after Board adoption of the Plan), subject to such approval of
the Plan.
No Award may be granted under the Plan after October 26, 2005, but Awards
previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the aggregate
number of shares of Stock that may be delivered under the Plan will be 900,000.
If any Award requiring exercise by the Participant for delivery of Stock
terminates without having been exercised in full, or if any Award payable in
Stock or cash is satisfied in cash rather than Stock, the number of shares of
Stock as to which such Award was not exercised or for which cash was substituted
will be available for future grants.
Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
Subject to Section 8.6(a), the maximum number of shares of Stock as to
which Options or Stock Appreciation Rights may be granted under the Plan to any
Participant is 500,000. For purposes of this paragraph, except as otherwise
provided in regulations or other guidelines issued under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), any repricing of an
Option or Stock Appreciation Right shall be treated as an original grant.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants") will be
"employees" or "salaried employees" of the Company or any of its subsidiaries
("Employees") and other persons or entities (including without limitation non-
Employee directors of the Company or a subsidiary of the Company) who, in the
opinion of the Committee, are in a position to make a significant contribution
to the success of the Company or its subsidiaries. A "subsidiary" for purposes
of the Plan will be a corporation in which the Company owns, directly or
indirectly, stock possessing 50% or more of the total combined voting power of
all classes of stock.
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6. TYPES OF AWARDS
6.1. OPTIONS.
(a) NATURE OF OPTIONS. An Option is an Award entitling the recipient on
exercise thereof to purchase Stock at a specified exercise price.
Both "incentive stock options," as defined in Section 422 of the Code (any
Option intended to qualify as an incentive stock option being hereinafter
referred to as an "ISO"), and Options that are not incentive stock options, may
be granted under the Plan. ISOs shall be awarded only to Employees.
(b) EXERCISE PRICE. The exercise price of an Option will be determined
by the Committee subject to the following:
(1) The exercise price of an ISO shall not be less than 100% (110% in
the case of an ISO granted to a ten-percent shareholder) of the fair market
value of the Stock subject to the Option, determined as of the time the
Option is granted. A "ten-percent shareholder" is any person who at the
time of grant owns, directly or indirectly, or is deemed to own by reason
of the attribution rules of Section 424(d) of the Code, stock possessing
more than 10% of the total combined voting power of all classes of stock of
the Company or of any of its subsidiaries.
(2) In no case may the exercise price paid for Stock which is part of
an original issue of authorized Stock be less than the par value per share
of the Stock.
(3) The Committee may reduce the exercise price of an Option at any
time after the time of grant, but in the case of an Option originally
awarded as an ISO, only with the consent of the Participant.
(c) DURATION OF OPTIONS. The latest date on which an Option may be
exercised will be the tenth anniversary (fifth anniversary, in the case of an
ISO granted to a ten-percent shareholder) of the day immediately preceding the
date the Option was granted, or such earlier date as may have been specified by
the Committee at the time the Option was granted.
(d) EXERCISE OF OPTIONS. Options granted under any single Award will
become exercisable at such time or times, and on such conditions, as the
Committee may specify; PROVIDED, HOWEVER, that if the Committee does not so
specify, 25% of the shares subject to the Award may be purchased commencing one
year after the date of grant, and an additional 25% of such shares may be
purchased commencing on the second, third and fourth anniversaries of the grant.
The Committee may at any time and from time to time accelerate the time at which
all or any part of the Option may be exercised.
Any exercise of an Option must be in writing, signed by the proper person
and delivered or mailed to the Company, accompanied by (1) any documents
required by the Committee and (2) payment in full in accordance with paragraph
(e) below for the number of shares for which the Option is exercised.
(e) PAYMENT FOR STOCK. Stock purchased on exercise of an Option must be
paid for as follows:
(1) in cash or by check (acceptable to the Company in accordance with guidelines
established for this purpose), bank draft or money order payable to the order of
the Company or (2) if so permitted by the instrument
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evidencing the Option (or in the case of an Option which is not an ISO, by
the Committee at or after grant of the Option), (i) through the delivery of
shares of Stock which have been outstanding for at least six months (unless
the Committee expressly approves a shorter period) and which have a fair
market value on the last business day preceding the date of exercise equal to
the exercise price, or (ii) by delivery of a promissory note of the Option
holder to the Company, payable on such terms as are specified by the
Committee, or (iii) by delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to the Company sufficient funds
to pay the exercise price, or (iv) by any combination of the permissible
forms of payment; PROVIDED, that if the Stock delivered upon exercise of the
Option is an original issue of authorized Stock, at least so much of the
exercise price as represents the par value of such Stock must be paid other
than by the Option holder's promissory note or personal check.
(f) DISCRETIONARY PAYMENTS. If the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2 below) exceeds the exercise price
of the Option at the time of its exercise, the Committee may cancel the Option
and cause the Company to pay in cash or in shares of Common Stock (at a price
per share equal to the fair market value per share) to the person exercising the
Option an amount equal to the difference between the fair market value of the
Stock which would have been purchased pursuant to the exercise (determined on
the date the Option is canceled) and the aggregate exercise price which would
have been paid. The Committee may exercise its discretion to take such action
only if it has received a written request from the person exercising the Option,
but such a request will not be binding on the Committee.
6.2. STOCK APPRECIATION RIGHTS.
(a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is
an Award entitling the recipient on exercise of the Right to receive an amount,
in cash or Stock or a combination thereof (such form to be determined by the
Committee), determined in whole or in part by reference to appreciation in Stock
value.
Except as provided below, a Stock Appreciation Right entitles the
Participant to receive, with respect to each share of Stock as to which the
Right is exercised, the excess of the share's fair market value on the date of
exercise over its fair market value on the date the Right was granted. The
Committee may provide at the time of grant that the amount the recipient is
entitled to receive will be adjusted upward or downward under rules established
by the Committee to take into account the performance of the Stock in comparison
with the performance of other stocks or an index or indices of other stocks.
The Committee may also grant Stock Appreciation Rights providing that following
a change in control of the Company, as determined by the Committee, the holder
of such Right will be entitled to receive, with respect to each share of Stock
subject to the Right, an amount equal to the excess of a specified value (which
may include an average of values) for a share of Stock during a period preceding
such change in control over the fair market value of a share of Stock on the
date the Right was granted.
(b) GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may
be granted in tandem with, or independently of, Options granted under the
Plan. A Stock Appreciation Right granted in tandem with an Option which is
not an ISO may be granted either at or after the time the Option is granted.
A Stock Appreciation Right granted in tandem with an ISO may be granted only
at the time the Option is granted.
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(c) RULES APPLICABLE TO TANDEM AWARDS. When Stock Appreciation Rights
are granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only at such
time or times, and to the extent, that the related Option is exercisable
and will be exercisable in accordance with the procedure required for
exercise of the related Option.
(2) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option, except
that a Stock Appreciation Right granted with respect to less than the full
number of shares covered by an Option will not be reduced until the number
of shares as to which the related Option has been exercised or has
terminated exceeds the number of shares not covered by the Stock
Appreciation Right.
(3) The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only with the
related Option.
(5) A Stock Appreciation Right granted in tandem with an ISO may be
exercised only when the market price of the Stock subject to the Option
exceeds the exercise price of such option.
(d) EXERCISE OF INDEPENDENT STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right not granted in tandem with an Option will become exercisable
at such time or times, and on such conditions, as the Committee may specify.
The Committee may at any time accelerate the time at which all or any part of
the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be in writing,
signed by the proper person and delivered or mailed to the Company, accompanied
by any other documents required by the Committee.
6.3. RESTRICTED AND UNRESTRICTED STOCK.
(a) NATURE OF RESTRICTED STOCK AWARD. A Restricted Stock Award entitles
the recipient to acquire, for a purchase price equal to par value, shares of
Stock subject to the restrictions described in paragraph (d) below ("Restricted
Stock").
(b) ACCEPTANCE OF AWARD. A Participant who is granted a Restricted Stock
Award will have no rights with respect to such Award unless the Participant
accepts the Award by written instrument delivered or mailed to the Company
accompanied by payment in full of the specified purchase price, if any, of the
shares covered by the award. Payment may be by certified or bank check or other
instrument acceptable to the Committee.
(c) RIGHTS AS A STOCKHOLDER. A Participant who receives Restricted Stock
will have all the rights of a stockholder with respect to the Stock, including
voting and dividend rights, subject to the restrictions described in paragraph
(d) below and any other conditions imposed by the Committee at the time of
grant. Unless the Committee otherwise determines, certificates evidencing
shares of Restricted Stock will remain in the possession of the Company until
such shares are free of all restrictions under the Plan.
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(d) RESTRICTIONS. Except as otherwise specifically provided by the Plan,
Restricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered or disposed of, and if the Participant ceases to be an Employee or
otherwise suffers a Status Change (as defined at Section 7.2(a) below) for any
reason, must be offered to the Company for purchase for the amount of cash paid
for the Stock, or forfeited to the Company if no cash was paid. These
restrictions will lapse at such time or times, and on such conditions, as the
Committee may specify. Upon lapse of all restrictions, Stock will cease to be
restricted for purposes of the Plan. The Committee may at any time accelerate
the time at which the restrictions on all or any part of the shares will lapse.
(e) NOTICE OF ELECTION. Any Participant making an election under Section
83(b) of the Code with respect to Restricted Stock must provide a copy thereof
to the Company within 10 days of the filing of such election with the Internal
Revenue Service.
(f) OTHER AWARDS SETTLED WITH RESTRICTED STOCK. The Committee may, at the
time any award described in this Section 6 is granted, provide that any or all
the Stock delivered pursuant to the Award will be Restricted Stock.
(g) UNRESTRICTED STOCK. The Committee may, in its sole discretion,
approve the sale to any Participant of shares of Stock free of restrictions
under the Plan for a price which is not less than the par value of the Stock.
6.4. DEFERRED STOCK.
A Deferred Stock Award entitles the recipient to receive shares of Stock to
be delivered in the future. Delivery of the Stock will take place at such time
or times, and on such conditions, as the Committee may specify. The Committee
may at any time accelerate the time at which delivery of all or any part of the
Stock will take place. At the time any award described in this Section 6 is
granted, the Committee may provide that, at the time Stock would otherwise be
delivered pursuant to the Award, the Participant will instead receive an
instrument evidencing the Participant's right to future delivery of Deferred
Stock.
6.5. PERFORMANCE AWARDS; PERFORMANCE GOALS.
(a) NATURE OF PERFORMANCE AWARDS. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) following the
attainment of Performance Goals. "Performance Goals" are goals which may be
related to personal performance, corporate performance, departmental performance
or any other category of performance deemed by the Committee to be important to
the success of the Company. The Committee will determine the Performance Goals,
the period or periods during which performance is to be measured and all other
terms and conditions applicable to the award.
(b) OTHER AWARDS SUBJECT TO PERFORMANCE CONDITIONS. The Committee may, at
the time any Award described in this Section 6 is granted, impose the condition
(in addition to any conditions specified or authorized in this Section 6 or any
other provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any payment or benefit under the Award.
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6.6. LOANS AND SUPPLEMENTAL GRANTS.
(a) LOANS. The Company may make a loan to a Participant ("Loan"), either
on the date of or after the grant of any Award to the Participant. A Loan may
be made either in connection with the purchase of Stock under the Award or with
the payment of any Federal, state and local income tax with respect to income
recognized as a result of the Award. The Committee will have full authority to
decide whether to make a Loan and to determine the amount, terms and conditions
of the Loan, including the interest rate (which may be zero), whether the Loan
is to be secured or unsecured or with or without recourse against the borrower,
the terms on which the Loan is to be repaid and the conditions, if any, under
which it may be forgiven. However, no Loan may have a term (including
extensions) exceeding ten years in duration.
(b) SUPPLEMENTAL GRANTS. In connection with any award, the Committee may
at the time such Award is made or at a later date, provide for and grant a cash
award to the Participant ("Supplemental Grant") not to exceed an amount equal to
(1) the amount of any federal, state and local income tax on ordinary income for
which the Participant may be liable with respect to the Award, determined by
assuming taxation at the highest marginal rate, plus (2) an additional amount on
a grossed-up basis intended to make the Participant whole on an after-tax basis
after discharging all the Participant's income tax liabilities arising from all
payments under this Section 6. Any payments under this subsection (b) will be
made at the time the Participant incurs Federal income tax liability with
respect to the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. DEATH.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be exercised by
the Participant's executor or administrator or the person or persons to whom the
Option or Right is transferred by will or the applicable laws of descent and
distribution, at any time within the one year period ending with the first
anniversary of the Participant's death (or such shorter or longer period as the
Committee may determine), and shall thereupon terminate. In no event, however,
shall an Option or Stock Appreciation Right remain exercisable beyond the latest
date on which it could have been exercised without regard to this Section 7.
Except as otherwise determined by the Committee, all Options and Stock
Appreciation Rights held by a Participant immediately prior to death that are
not then exercisable shall terminate at death.
(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant must be transferred to the Company (and, in the
event the certificates representing such Restricted Stock are held by the
Company, such Restricted Stock will be so transferred without any further
action by the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to death will be forfeited and the Award canceled as of the time
of death, unless otherwise determined by the Committee.
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7.2. TERMINATION OF SERVICE (OTHER THAN BY DEATH).
If a Participant who is an Employee ceases to be an Employee for any reason
other than death, or if there is a termination (other than by reason of death)
of the consulting, service or similar relationship in respect of which a non-
Employee Participant was granted an Award hereunder (such termination of the
employment or other relationship being herein referred to as a "Status Change"),
the following will apply:
(a) Except as otherwise determined by the Committee, all Options and Stock
Appreciation Rights held by the Participant that were not exercisable
immediately prior to the Status Change shall terminate at the time of the Status
Change. Any ISOs granted prior to July 1, 1996 that were immediately exercisable
prior to the Status Change will continue to be exercisable for a period of one
year from the date of the Status Change and shall thereupon terminate unless the
Status Change results from a discharge for cause which in the opinion of the
Committee casts such discredit on the Participant as to justify immediate
termination of the Option. Any other Options or Rights that were exercisable
immediately prior to the Status Change will continue to be exercisable for a
period of one year from the date of the Status Change (or such other period as
the Committee may determine), and shall thereupon terminate, unless the Award
provides by its terms for immediate termination in the event of a Status Change
or unless the Status Change results from discharge for cause which in the
opinion of the Committee casts such discredit on the Participant as to justify
immediate termination of the Award. In no event, however, shall an Option or
Stock Appreciation Right remain exercisable beyond the latest date on which it
could have been exercised without regard to this Section 7. For purposes of
this paragraph, in the case of a Participant who is an Employee, a Status Change
shall not be deemed to have resulted by reason of (i) a sick leave or other bona
fide leave of absence of one year or less or approved for purposes of the Plan
by the Committee, or (ii) a transfer of employment between the Company and a
subsidiary or between subsidiaries, or to the employment of a corporation (or a
parent or subsidiary corporation of such corporation) issuing or assuming an
option in a transaction to which section 424(a) of the Code applies.
(b) Except as otherwise determined by the Committee, all Restricted Stock
held by the Participant at the time of the Status Change must be transferred to
the Company (and, in the event the certificates representing such Restricted
Stock are held by the Company, such Restricted Stock will be so transferred
without any further action by the Participant) in accordance with Section 6.3
above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to the Status Change will be forfeited and the Award canceled as
of the date of such Status Change unless otherwise determined by the Committee.
7.3. CERTAIN CORPORATE TRANSACTIONS.
(a) Subject to paragraph (c) below, as of the twentieth (20th) trading day
prior to the effective date of a Change of Control, (1) each outstanding Option
and each outstanding Stock Appreciation Right shall become exercisable in full,
(2) the restrictions shall be removed from each outstanding share of Restricted
Stock, (3) the Company shall make all payments and provide all benefits under
each outstanding Deferred Stock Award, Performance Award, and Supplemental Grant
which would have been made or provided with the passage of time had the
transaction not occurred and the Participant not suffered a Status Change (or
died), (4) subject to paragraph (c) of this section, the Company shall pay to
each holder of Options and Restricted Stock whose Options (other than ISOs
granted prior to July 1, 1996) and Restricted Stock have been terminated, an
amount equal to the Award Value with respect to such Options or Restricted
Stock,
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such payment to be made by cash or certified check within 30 days after
the Change in Control, and (5) the Committee may, in its sole discretion,
forgive all or any portion of the principal of or interest on a Loan. For
purposes of this section, the Award Value shall be determined as the difference
between (i) the exercise price of the Option or the purchase price of the
Restricted Stock and (ii) the Market Price, times (iii) the number of shares
covered by the Option or the Restricted Stock award, as the case may be. The
Market Price shall be determined as the average of the fair market value of the
Stock for the period of twenty (20) trading days ending on the effective date of
the covered transaction.
(b) "Change of Control" means any of the following: (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 this provision, "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.
(c) Notwithstanding the foregoing, the termination of Options and the
payment of Award Values described in paragraph (a) of this section shall not
apply with respect to any transaction in which the holder of an Option or
Restricted Stock receives either: (i) replacement options or restricted stock,
as the case may be, allowing the holder to receive, on the same terms as in the
original Option or Restricted Stock, the greatest amount of securities, cash or
other property to which such holder would have been entitled as a holder of
Common Stock upon consummation of the transaction if such holder had exercised
the rights represented by the Option or restricted stock held by such holder
immediately prior to the transaction, or (ii) if pooling of interests is a
condition of the transaction, a replacement equity interest which enables the
transaction to qualify for pooling of interests.
8. GENERAL PROVISIONS
8.1. DOCUMENTATION OF AWARDS.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to the terms
thereof.
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8.2. RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a stockholder; the Participant will obtain such
rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Stock. However, the Committee may,
on such conditions as it deems appropriate, provide that a Participant will
receive a benefit in lieu of cash dividends that would have been payable on any
or all Stock subject to the Participant's Award had such Stock been outstanding.
Without limitation, the Committee may provide for payment to the Participant of
amounts representing such dividends, either currently or in the future, or for
investment of such amounts on behalf of the Participant.
8.3. CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove restriction from shares previously delivered under the
Plan (a) until all conditions of the Award have been satisfied or removed, (b)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, (c) if the outstanding Stock is at
the time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official notice of
issuance, and (d) until all other legal matters in connection with the issuance
and delivery of such shares have been approved by the Company's counsel. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the certificates
evidencing such Stock bear an appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the company is satisfied as to the authority of such representative.
8.4. TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant to an Award
an amount sufficient to satisfy all federal, state and local withholding tax
requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock.
If and to the extent that such withholding is required, the Committee may permit
the Participant or such other person to elect at such time and in such manner as
the Committee provides to have the Company hold back from the shares to be
delivered, or to deliver to the Company, Stock having a value calculated to
satisfy the withholding requirement.
If at the time an ISO is exercised, the Committee determines that the
Company could be liable for withholding requirements with respect to a
disposition of the Stock received upon exercise, the Committee may require as a
condition of exercise that the person exercising the ISO agree (a) to inform the
Company promptly of any disposition (within the meaning of section 424(c) of the
Code) of Stock receiving upon
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exercise, and (b) to give such security as the Committee deems adequate to
meet the potential liability of the Company for the withholding requirements
and to augment such security from time to time in any amount reasonably
deemed necessary by the Committee to preserve the adequacy of such security.
8.5. NONTRANSFERABILITY OF AWARDS.
Unless otherwise provided in the Participant's agreement, no Award (other
than an Award in the form of an outright transfer of cash or Unrestricted Stock)
may be transferred other than by will or by the laws of descent and
distribution, and during a Participant's lifetime an Award requiring exercise
may be exercised only by him or her (or in the event of the Participant's
incapacity, the person or persons legally appointed to act on the Participant's
behalf).
8.6. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization, or
other distribution to common stockholders other than normal cash dividends,
after the effective date of the Plan, the Committee will make any appropriate
adjustments to the maximum number of shares that may be delivered under the Plan
under Section 4 above .
(b) In any event referred to in paragraph (a), the Committee will also
make any appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change. The Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions, or
any other event, if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan.
8.7. EMPLOYMENT RIGHTS, ETC.
Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continued retention by the Company or any
subsidiary as an Employee or otherwise, or affect in any way the right of the
Company or any subsidiary to terminate an employment, service or similar
relationship at any time. Except as specifically provided by the Committee
in any particular case, the loss of existing or potential profit in Awards
granted under the Plan will not constitute an element of damages in the event
of termination of an employment, service or similar relationship event if the
termination is in violation of an obligation of the Company to the
Participant.
8.8. DEFERRAL OF PAYMENTS.
The Committee may agree at any time, upon request of the Participant, to
defer the date on which any payment under an Award will be made.
8.9. PAST SERVICES AS CONSIDERATION.
Where a Participant purchases Stock under an Award for a price equal to the
par value of the Stock the Committee may determine that such price has been
satisfied by past services rendered by the Participant.
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9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock be issued to
Employees.
The Committee may at any time or times amend the Plan or any outstanding
Award for any purpose which may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of Awards, provided that
(except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify for the award of ISOs under Section 422 of the Code
or for the award of performance-based compensation under Section 162(m) of the
Code and to continue to qualify under Rule 16b-3 promulgated under Section 16 of
the 1934 Act.
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APPENDIX C
PROPOSED AMENDED ARTICLE FOURTH
(Changes in Authorized Common Stock)
FOURTH: (A) The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 70,000,000, of which 10,000,000
shares shall be Preferred Stock of the par value of $1.00 per share and
60,000,000 shares shall be Common Stock of the par value of $.01 per share.
(B) The Board of Directors is expressly authorized, by resolution or
resolutions, to provide for the issue of all or any shares of the Preferred
Stock, in one or more series, and to fix for each such series such voting
powers, full or limited, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereon, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series (a "Preferred Stock Designation") and as may be permitted
by the DGCL and as are consistent with paragraph (C) of this Article FOURTH. The
number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of a majority of the holders of the voting power of all the then
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock") voting together as a
single class, without a separate vote of the holders of the Preferred Stock, or
any series thereof, unless a vote of any such holders is required pursuant to
any Preferred Stock Designation.
(C) The Corporation is subject to the requirements of Section 1123(a)(6)
of the United States Bankruptcy Code (11 U.S.C. 1123(a)(6)) ("Section
1123(a)(6)") and shall be prohibited from issuing any nonvoting equity
securities, and shall, at all times, provide, as to the several classes of
securities from time-to-time possessing voting power, an appropriate
distribution of power among such classes. A Preferred Stock Designation shall
not authorize the issuance of such nonvoting equity securities, and shall
include in its provisions, if the class designated by such Preferred Stock
Designation has a preference in respect of dividends, adequate provisions for
the election of directors representing such preferred class in the event of
default in the payment of such dividends consistent with the requirements of
Section 1123(a)(6).
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APPENDIX D
PROPOSED NEW ARTICLE EIGHTH
(Fair Price Provision)
Article Eighth:
(1) In addition to any affirmative vote required by law or this
Certificate of Incorporation or the By-laws of the Corporation, and except as
otherwise expressly provided in Section 2 of this Article, a Business
Combination (as hereinafter defined) with, or proposed by or on behalf of, any
Interested Stockholder (as hereinafter defined) or any Affiliate or Associate
(as hereinafter defined) of any Interested Stockholder or any person who
thereafter would be an Affiliate or Associate of such Interested Stockholder
shall require the affirmative vote of not less than seventy-five percent (75%)
of the votes entitled to be cast by the holders of all the then outstanding
shares of Voting Stock, voting together as a single class, excluding Voting
Stock beneficially owned by such Interested Stockholder. Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or that
a lesser percentage or separate class vote may be specified, by law or in any
agreement with any national securities exchange or otherwise.
(2) The provisions of Section 1 of this Article shall not be applicable to
any particular Business Combination, and such Business Combination shall require
only such affirmative vote, if any, as is required by law or by any other
provision of this Certificate of Incorporation or the By-laws of the
Corporation, or any agreement with any national securities exchange or the
Nasdaq National Market, if all of the conditions specified in either of the
following Paragraphs (a) or (b) are met, or in the case of a Business
Combination not involving the payment of consideration to the holders of the
Corporation's outstanding Capital Stock (as hereinafter defined), if the
conditions specified in the following Paragraph (a) are met:
(a) The Business Combination shall have been approved, either
specifically or as a transaction which is within an approved category of
transactions, by a majority (whether such approval is made prior to or
subsequent to the acquisition of, or announcement or public disclosure of
the intention to acquire, beneficial ownership of the Voting Stock that
caused the Interested Stockholder to become an Interested Stockholder) of
the Continuing Directors (as hereinafter defined).
(b) All of the following conditions shall have been met; provided,
however, that for purposes of all calculations set forth in this Section
2(b), all acquisitions of Preferred Stock or Common Stock by Trefoil
Capital Investors II, L.P. and GE Investment Private Placement Partners II,
A Limited Partnership (collectively, the "Purchasers") pursuant to the
Stock Purchase Agreement dated July 30,1996 (the "Stock Purchase
Agreement") and all acquisitions of Common Stock by the Purchasers upon the
conversion of such Preferred Stock will be excluded:
(i) The aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the
Business Combination, of consideration other than cash to be received
per share by holders of Common Stock in such Business Combination
shall be at least equal to the amount determined under clause (A)
below:
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(A) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of Common Stock in connection with the acquisition by the
Interested Stockholder of beneficial ownership of shares of
Common Stock (x) within the two-year period immediately prior to
the first public announcement of the proposed Business
Combination (the "Announcement Date") or (y) in the transaction
in which it became an Interested Stockholder, whichever is
higher, in either case as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification with
respect to the Common Stock.
(ii) The aggregate amount of cash and the Fair Market Value, as
of the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by holders of
shares of any class or series of outstanding Capital Stock, other than
Common Stock, shall be at least equal to the amount determined under
clause (A) below:
(A) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of such class or series of Capital Stock in connection with
the acquisition by the Interested Stockholder of beneficial
ownership of shares of such class or series of Capital Stock (x)
within the two-year period immediately prior to the Announcement
Date or (y) in the transaction in which it became an Interested
Stockholder, whichever is higher, in either case as adjusted for
any subsequent stock split, stock dividend, subdivision or
reclassification with respect to such class or series of Capital
Stock.
(iii) The consideration to be received by holders of a particular
class or series of outstanding Capital Stock shall be in cash or in
the same form as previously has been paid by or on behalf of the
Interested Stockholder in connection with its direct or indirect
acquisition of beneficial ownership of shares of such class or series
of Capital Stock. If the consideration so paid for shares of any
class or series of Capital Stock varied as to form, the form of
consideration for such class or series of Capital Stock shall be
either cash or the form used to acquire beneficial ownership of the
largest number of shares of such class or series of Capital Stock
previously acquired by the Interested Stockholder.
(iv) If a proxy or information statement is required to be mailed
pursuant to the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (the "Exchange Act") (or any
subsequent provisions replacing such Exchange Act, rules or
regulations), a proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Exchange Act shall be mailed to all stockholders of the Corporation at
least 30 days prior to the consummation of such Business Combination.
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(3) The following definitions shall apply with respect to this Article:
(a) The term "Business Combination" shall mean, with respect to any
particular Interested Stockholder, any event described in clauses (i), (ii)
or (iii) of this Section 3(a) which occurs during the two-year period
commencing on the date on which the Interested Stockholder becomes an
Interested Stockholder:
(i) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (x) any Interested
Stockholder or (y) any other corporation (whether or not itself an
Interested Stockholder) which is or after such merger or consolidation
would be an Affiliate or Associate of an Interested Stockholder; or
(ii) any merger or consolidation of the Corporation with any of
its Subsidiaries that has the effect, directly or indirectly, of
increasing the proportionate share of any class or series of Capital
Stock, or any securities convertible into Capital Stock or into equity
securities of any Subsidiary, that is beneficially owned by any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
(iii) any agreement, contract or other arrangement providing for
any one or more of the actions specified in the foregoing clauses (i)
or (ii).
(b) The term "Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article Fourth
of this Certificate of Incorporation, and the term "Voting Stock" shall
mean all Capital Stock which by its terms may be voted on all matters
submitted to stockholders of the Corporation generally.
(c) The term "person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Capital Stock.
(d) The term "Interested Stockholder" shall mean any person (other
than the Corporation or any Subsidiary and other than any profit-sharing,
employee stock ownership or other employee benefit plan of the Corporation
or any Subsidiary or any trustee of or fiduciary with respect to any such
plan when acting in such capacity) who is or has announced or publicly
disclosed a plan or intention to become the beneficial owner of Voting
Stock representing fifty percent (50%) or more of the votes entitled to be
cast by the holders of all then outstanding shares of Voting Stock. For
purposes of this Article, the Purchasers will not be considered an
Interested Stockholder with respect to any acquisition of Preferred Stock
pursuant to the Stock Purchase Agreement or with respect to the acquisition
of Common Stock by the Purchasers upon the conversion of such Preferred
Stock.
(e) A person shall be a "beneficial owner" of any Capital Stock (i)
which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (ii) which such person or any of its Affiliates or
Associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange
D-3
<PAGE>
rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding; or (iii) which is
beneficially owned, directly or indirectly, by any other person with which
such person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of Capital Stock. For the purpose of determining
whether a person is an Interested Stockholder pursuant to Paragraph (d) of
this Section (3), the number of shares of Capital Stock deemed to be
outstanding shall include shares deemed beneficially owned by such person
through application of this Paragraph (e) of Section (3), but shall not
include any other shares of Capital Stock that may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(f) The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Exchange Act as in
effect on the date of filing of this Certificate of Incorporation with the
Secretary of State of the State of Delaware (the term "registrant" in said
Rule 12b-2 meaning in this case the Corporation).
(g) The term "Subsidiary" means any company of which a majority of
any class of equity security is beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph (d) of this Section (3), the term
"Subsidiary" shall mean only a company of which a majority of each class of
equity security is beneficially owned by the Corporation.
(h) The term "Continuing Director" means any member of the Board of
Directors, while such person is a member of the Board of Directors, who is
not an Affiliate or Associate or representative of the Interested
Stockholder and was a member of the Board of Directors prior to the time
that an Interested Stockholder became an Interested Stockholder, and any
successor of a Continuing Director while such successor is a member of the
Board of Directors, who is not an Affiliate or Associate or representative
of the Interested Stockholder and is recommended or elected to succeed the
Continuing Director by a majority of Continuing Directors. For purposes of
this Article, Roger Stangeland will be considered a Continuing Director.
(i) "Fair Market Value" means (i) in the case of cash, the amount of
such cash; (ii) in the case of stock, the highest closing sale price during
the 30-day period immediately preceding the date in question of a share of
such stock on the Composite Tape for New York Stock Exchange-Listed Stocks,
or, if such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Exchange
Act on which such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing bid quotation with respect to a share of
such stock during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations
System or any similar system then in use, or, if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by a majority of the Continuing Directors in good
faith; and (iii) in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as determined in good
faith by a majority of the Continuing Directors.
(j) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in Paragraphs (b)(i) and (b)(ii) of
D-4
<PAGE>
Section (2) of this Article shall include the shares of Common Stock and/or
the shares of any other class or series of Capital Stock retained by the
holders of such shares.
(4) A majority of the Continuing Directors shall have the power and duty
to determine for the purpose of this Article, on the basis of information known
to them after reasonable inquiry, all questions arising under this Article,
including, without limitation, (i) whether a person is an Interested
Stockholder, (ii) the number of shares of Capital Stock or other securities
beneficially owned by any person, (iii) whether a person is an Affiliate or
Associate of another, and (iv) whether a proposed action is with, or proposed
by, or on behalf of an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder. Any such determination made in good faith shall be
binding and conclusive on all parties.
(5) Nothing contained in this Article shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
(6) The fact that any Business Combination complies with the provisions of
Section (2) of this Article shall not be construed to impose any fiduciary
duty, obligation or responsibility on the Board of Directors, or any member
thereof, to approve such Business Combination or recommend its adoption or
approval to the stockholders of the Corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of, or actions and responses
taken with respect to, such Business Combination.
(7) For the purposes of this Article, a Business Combination is presumed
to have been proposed by, or on behalf of, an Interested Stockholder or an
Affiliate or Associate of an Interested Stockholder or a person who thereafter
would become such if (i) after the Interested Stockholder became such, the
Business Combination is proposed following the election of any director of the
Corporation who, with respect to such Interested Stockholder, would not qualify
to serve as a Continuing Director or (ii) such Interested Stockholder,
Affiliate, Associate or person votes for or consents to the adoption of any such
Business Combination, unless as to such Interested Stockholder, Affiliate,
Associate or person, a majority of the Continuing Directors makes a good-faith
determination that such Business Combination is not proposed by or on behalf of
such Interested Stockholder, Affiliate, Associate or person, based on
information known to them after reasonable inquiry.
(8) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-laws of the Corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Certificate of Incorporation or the By-laws of the Corporation), the affirmative
vote of the holders of not less than seventy-five percent (75%) of the votes
entitled to be cast by the holders of all the then outstanding shares of Voting
Stock, voting together as a single class, excluding Voting Stock beneficially
owned by such Interested Stockholder, shall be required to amend or repeal, or
adopt any provisions inconsistent with, this Article; provided, however, that
this Section (8) shall not apply to, and such seventy-five percent (75%) vote
shall not be required for, any amendment, repeal or adoption unanimously
recommended by the Board of Directors if all of such directors are persons who
would be eligible to serve as Continuing Directors within the meaning of
Section (3), Paragraph (h) of this Article.
D-5
<PAGE>
APPENDIX E
CURRENT ARTICLE SEVENTH, PROPOSED FOR DELETION
SEVENTH: If at any time the Corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, for so long
as such class is so registered, any action by the stockholders of such class
must be taken at an annual or special meeting and may not be taken by written
consent.
E-1
<PAGE>
PROXY CARD
THE GRAND UNION COMPANY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS NOVEMBER 7, 1996
The undersigned hereby nominates, constitutes and appoints Roger E.
Stangeland and Joseph J. McCaig, and each of them individually, the attorney,
agent and proxy of the undersigned, with full power of substitution, to vote
all stock of THE GRAND UNION COMPANY which the undersigned is entitled to
represent and vote at the Annual Meeting of Stockholders of the Company to be
held at the Sheraton Crossroads Hotel, 1 International Blvd., Mahwah, New
Jersey, 07495, at 10:00 a.m. on November 7, 1996, and at any and all
adjournments or postponements thereof, as fully as if the undersigned were
present and voting at the meeting, as follows:
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER ON THE REVERSE SIDE. WHERE NO DIRECTION IS GIVEN, SUCH SHARES
WILL BE VOTED "FOR" THE ELECTION OF THE DIRECTORS NAMED ON THE REVERSE SIDE
OF THIS PROXY, "FOR" APPROVAL OF THE 1995 NON-EMPLOYEE DIRECTORS' PLAN, AS
AMENDED, "FOR" APPROVAL OF THE 1995 EQUITY INCENTIVE PLAN, AS AMENDED, "FOR"
THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK TO SIXTY MILLION (60,000,000) AND REDUCE
THE PAR VALUE OF THE COMMON STOCK TO $.01 PER SHARE, "FOR" THE AMENDMENT TO
THE CERTIFICATE OF INCORPORATION TO PROVIDE HOLDERS OF THE COMPANY'S COMMON
STOCK WITH PRICE PROTECTION UNDER CERTAIN BUSINESS COMBINATIONS (THE "FAIR
PRICE" AMENDMENT), "FOR" THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO PERMIT STOCKHOLDER ACTION BY WRITTEN CONSENT, "FOR" RATIFICATION OF PRICE
WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS, AND IN THE
DISCRETION OF THE PROXYHOLDERS ON ANY OTHER MATTER WHICH MAY PROPERLY COME
BEFORE THE MEETING.
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1, 2, 3, 4, 5, 6 and 7.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND RETURN
THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
IMPORTANT--PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY
[X] Please mark your votes as in this example using dark ink only.
1. ELECTION OF DIRECTORS
Election of the following nominees as directors: Roger E. Stangeland, Joseph J.
McCaig, James J. Costello, Daniel E. Josephs, William G. Kagler, Clifford A.
Miller, Geoffrey T. Moore, J. Richard Stonesifer and David Y. Ying.
[ ] FOR [ ] WITHHELD
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike through that nominee's name in the list above.)
2. APPROVAL OF THE 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN, AS AMENDED,
AND THE ISSUANCE OF UP TO 100,000 SHARES OF COMMON STOCK UNDER THAT PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF THE 1995 EQUITY INCENTIVE PLAN, AS AMENDED, AND THE
ISSUANCE OF UP TO 900,000 SHARES OF COMMON STOCK UNDER THAT PLAN:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE TO SIXTY MILLION THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, AND REDUCE THE PAR VALUE TO
$.01 PER SHARE:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
5. AMEND THE CERTIFICATE OF INCORPORATION TO ADD A "FAIR PRICE" PROVISION:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. AMEND THE CERTIFICATE OF INCORPORATION TO PERMIT ACTION BY STOCKHOLDERS BY
WRITTEN CONSENT:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. RATIFICATION OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. IN THEIR DISCRETION, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
<PAGE>
__________________________________ _____________
(Signature(s)) Date
IMPORTANT-Please sign your name exactly
as it appears hereon. Executors,
administrators, guardians, officers of
corporations, and others signing in a
fiduciary capacity should state their
full titles as such.
