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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ 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
CERTIFIED GROCERS OF CALIFORNIA, LTD.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PRELIMINARY COPY
CERTIFIED GROCERS OF CALIFORNIA, LTD.
2601 SOUTH EASTERN AVENUE, LOS ANGELES, CALIFORNIA 90040
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 15, 1997
The Annual Meeting of Shareholders of Certified Grocers of California, Ltd.,
a California corporation, will be held at the Wyndham Garden Hotel, 5757
Telegraph Road, City of Commerce, California, on April 15, 1997 at 9:00 a.m.,
for the following purposes:
1. To elect the fifteen members of the Board of Directors for the
ensuing year, twelve by the holders of Class A Shares and three by the
holders of Class B Shares.
2. To approve an amendment to the Articles of Incorporation, approval of
such amendment to be voted upon by the holders of Class A Shares.
3. To approve of and authorize entry into Indemnification Agreements,
such approval and authorization to be voted upon by the holders of Class A
Shares.
4. To approve a plan under which loans to or guaranties of the
obligations of patrons or directors of the Company of the type and
satisfying the conditions described in the accompanying proxy statement may
be approved by the members of the Company's Credit Committee, approval of
such plan to be voted upon by the holders of Class A Shares.
5. To transact such other business as may properly come before the
meeting.
The names of the nominees intended to be presented by the Board of Directors
for election as Directors for the ensuing year are set forth in the accompanying
proxy statement.
Only shareholders of record at the close of business on February 14, 1997
will be entitled to vote at the meeting.
All shareholders are cordially invited to attend the meeting in person.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, IT IS REQUESTED THAT YOU
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY RELATING TO THE ANNUAL MEETING AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY REVOKE YOUR PROXY IF YOU
ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT M. LING, JR., CORPORATE SECRETARY
February 24, 1997
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PRELIMINARY COPY
CERTIFIED GROCERS OF CALIFORNIA, LTD.
2601 SOUTH EASTERN AVENUE, LOS ANGELES, CALIFORNIA 90040
------------------------
PROXY STATEMENT
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INTRODUCTION
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of
Certified Grocers of California, Ltd. (the "Company") of proxies for use at the
Annual Meeting of Shareholders to be held April 15, 1997, or at any adjournment
thereof.
A shareholder giving a proxy may revoke it at any time before it is
exercised by filing with the Secretary of the Company a written revocation or a
fully executed proxy bearing a later date. A proxy may also be revoked if the
shareholder who has executed it is present at the meeting and elects to vote in
person.
Only the holders of Class A Shares of record and the holders of Class B
Shares of record at the close of business on February 14, 1997 are entitled to
vote at the Annual Meeting. On that date, the Company had outstanding 47,700
Class A Shares and 364,624 Class B Shares.
On all matters coming before the Annual Meeting, other than the election of
directors, each Class A Share is entitled to one vote and, except as may be
required by California law, each Class B Share has no vote. California law
extends to non-voting shares the right to vote upon certain matters such as
certain amendments to the Articles of Incorporation which affect the rights of
non-voting shares, certain reorganizations in which other securities are to be
issued in exchange for the non-voting securities, and voluntary dissolution. No
such matter is proposed to be submitted by management at the Annual Meeting and
management is not aware that any such matter will be submitted by any other
person.
These proxy materials were first mailed to shareholders on or about February
24, 1997. The cost of soliciting the proxies, including the printing, handling
and mailing of the proxies and related material, will be paid by the Company.
Proxies may be solicited by officers and regular employees of the Company by
telephone or in person. These persons will receive no additional compensation
for their services.
SOLICITATION REGARDING ELECTION OF DIRECTORS
ELECTION OF DIRECTORS
At the Annual Meeting 15 directors (constituting the entire board) are to be
elected to serve until the next Annual Meeting and until their successors are
elected and qualified. Twelve directors are to be elected by the holders of the
Company's Class A Shares and 3 directors are to be elected by the holders of the
Company's Class B Shares.
The following table sets forth certain information concerning the Board of
Directors' nominees for election. All of the nominees are currently serving as
directors of the Company, except for Mr. Fujieki and Ms. Rice. As of the date of
this proxy statement, all nominees have consented to being named herein as
nominees and to serve as directors if elected.
<TABLE>
<CAPTION>
YEAR
AGE AS OF FIRST PRINCIPAL OCCUPATION
NAME 12/31/96 ELECTED DURING LAST 5 YEARS
- ------------------------------ --------- ------- ----------------------------------------
<S> <C> <C> <C>
NOMINEES FOR ELECTION
BY CLASS A SHARES
Louis A. Amen 67 1974 President, Super A Foods, Inc.
John Berberian 45 1991 President, Berberian Enterprises, Inc.,
operating Jons Markets
John T. Fujieki 47 -- President and COO, Star Markets since
1995; formerly Senior Vice President
</TABLE>
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<TABLE>
<CAPTION>
YEAR
AGE AS OF FIRST PRINCIPAL OCCUPATION
NAME 12/31/96 ELECTED DURING LAST 5 YEARS
- ------------------------------ --------- ------- ----------------------------------------
Darioush Khaledi 50 1993 Chairman of the Board and Chief Execu-
tive Officer, K.V. Mart Co., operating
Top Valu Markets and Valu Plus Food
Warehouse
<S> <C> <C> <C>
Mark Kidd 46 1992 President, Mar-Val Food Stores, Inc.
Willard R. MacAloney 61 1981 President and Chief Executive Officer,
Mac Ber, Inc., operating Jax Market
Jay McCormack 46 1993 Owner-Operator, Alamo Market;
Co-owner, Glen Avon Market
Morrie Notrica 67 1988 President and Chief Operating Officer,
Joe Notrica, Inc., operating The
Original 32nd Street Market
Michael A. Provenzano 54 1986 President, Pro & Son's, Inc., operating
Southland Market since 1993; formerly
President, Carlton's Market, Inc.
Gail Gerrard Rice 48 -- Executive Vice President, Gerrard's,
Inc.,
operating Gerrard's Cypress Center
James R. Stump 58 1982 President, Stump's Market, Inc.
Kenneth Young 52 1994 Vice President, Jack Young's Super-
markets; Vice President, Bakersfield
Food City, Inc. dba Young's Markets
NOMINEES FOR ELECTION BY CLASS
B SHARES
Michael Bonfonte(1) 55 1995 Chairman, President and Chief Executive
Officer, Nob Hill General Store, Inc.
Harley J. DeLano 59 1995 President, Cala Foods, Inc.,
Division of Ralphs Grocery Company
Roger K. Hughes 62 1985 Chairman of the Board and Director,
Hughes Markets, Inc.
</TABLE>
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(1) Mr. Bonfonte previously served on the Company's Board of Directors from
September 1989 until January 1992.
VOTING RIGHTS
Each class of shares is entitled to one vote for each share on those matters
with respect to which the class is entitled to vote. However, if any shareholder
gives notice of his intention to cumulate his votes in the election of
directors, then all shareholders may cumulate their votes in the election of
directors. To be effective, such notice (which need not be written) must be
given by the shareholder at the Annual Meeting before any votes have been cast
in such election. Under cumulative voting, each holder of Class A Shares may
give one nominee a number of votes equal to the number of Class A Shares which
the holder is entitled to vote multiplied by the number of directors to be
elected by the holders of Class A Shares (12 at this meeting) or the holder may
distribute such votes among any or all of the nominees as he sees fit.
Similarly, the Class B Shares entitled to be voted may be voted cumulatively by
the holders of such shares for the 3 directors to be elected by the holders of
Class B Shares. Discretionary authority to cumulate votes is solicited. The
proxy holders named on the enclosed form of proxy relating to the Annual Meeting
have no present intention to give notice of their intention to cumulate votes,
but they may elect to do so in the event of a contested election or any
presently unexpected circumstances.
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In the election of directors, the nominees receiving the highest number of
affirmative votes of the class of shares entitled to be voted for them, up to
the number of directors to be elected by such class, will be elected. Under the
California Corporations Code, votes against a nominee and votes withheld have no
legal effect.
The proxy holders named on the enclosed form of proxy relating to the Annual
Meeting will vote the proxies received by them for the election of the above
nominees unless such authority is withheld as provided in the proxy. In the
unanticipated event that any nominee should become unavailable for election as a
director, the proxies will be voted for any substitute nominee named by the
present Board of Directors. In their discretion, the proxy holders may cumulate
the votes represented by the proxies received. If additional persons are
nominated for election as directors by persons other than the Board of
Directors, the proxy holders intend to vote all proxies received by them in such
manner in accordance with cumulative voting as will assure the election of as
many of the above nominees as possible, with the specific nominees to be voted
for to be determined by the proxy holders.
The Board of Directors recommends a vote "FOR" the election of each of the
nominees listed above.
SOLICITATION REGARDING AMENDMENT
TO ARTICLES OF INCORPORATION
INTRODUCTION
At the Company's Annual Meeting of March 8, 1988, the shareholders voted
upon and approved an amendment to the Articles of Incorporation to add Article
Eighth. Clause (b) of Article Eighth authorizes the Company to indemnify
directors, officers and other corporate agents of the Company to the full extent
permitted by California law. Clause (b) of Article Eighth as added in 1988
presently reads as follows:
"(b) The corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the Corporations Code) for breach of duty to
the corporation and its stockholders through bylaws provisions or through
agreements with the agents, or both, in excess of the indemnification
otherwise permitted by Section 317 of the Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 of the
Corporations Code."
The amendment was made in order to take advantage of state legislation
enacted in September 1987 which affected all corporations incorporated under the
laws of the State of California. One of the principal purposes of that
legislation is to permit California corporations to indemnify directors,
officers and other corporate agents under a broader range of circumstances than
was permitted under prior California law, including circumstances in which
indemnification would otherwise be discretionary.
The language of clause (b) of Article Eighth as added by the amendment to
the Company's Articles of Incorporation mirrored language promulgated and
approved for use by the Office of the California Secretary of State, based upon
its interpretation of the legislation at that time. After the Articles of
Incorporation were amended to add Article Eighth as approved at the 1988 Annual
Meeting, it was brought to the attention of the Office of the California
Secretary of State that such language failed to provide the full protection
permitted under the 1987 legislation. Specifically, such language limited the
indemnification protection of the new legislation to legal actions asserting
"breach of duty to the corporation and its stockholders," that is, derivative
actions asserting breach of fiduciary duty, and failed to extend such protection
to legal actions asserting other bases of liability. The Office of the
California Secretary of State subsequently revised its interpretation of the
1987 legislation and currently accepts reformulated language (such as is
proposed below) in the articles of incorporation of California corporations
which recognizes the full protection afforded by the 1987 legislation.
REASONS FOR THE AMENDMENT
Recent years have seen an increasing incidence of claims against corporate
directors, officers and other agents asserting liability for actions taken by
them in the course of the performance of their duties.
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The expense of defending such matters, whether they are meritorious or
frivolous, is often beyond the financial means of the corporate defendant.
Additionally, the potential damages and the costs of defense are often
disproportionately high when compared to the compensation received by the
defendant from the corporation. This is particularly, although not exclusively,
true with regard to corporate directors who, as in the case of the Company's
directors, serve the corporation for relatively nominal consideration. Concern
over exposure to possible monetary expense and liability can have a limiting
effect on the willingness of corporate directors, officers and agents to perform
their duties with creativity and vigor and in a manner they believe to be
beneficial to the corporation and its shareholders.
It is believed that in order to continue to attract and retain highly
qualified and motivated directors, officers and other corporate agents,
amendment of the Company's Articles of Incorporation in the manner proposed is
essential. While not yet experienced by the Company, other corporations have had
persons resign due to the absence of suitable provisions for indemnification.
Additionally, it is believed that failure of the Company to provide for
indemnification to the fullest extent permitted by law places the Company at a
competitive disadvantage with other corporations which provide such protection
and may thus be in a better position to attract the services of highly qualified
individuals.
THE PROPOSED AMENDMENT
At this year's Annual Meeting, it is proposed to amend clause (b) of Article
Eighth of the Company's Articles of Incorporation to entirely restate the
indemnification language set forth therein to read as follows:
"(b) The corporation is authorized to indemnify agents (as defined in
Section 317 of the Corporations Code) of the corporation to the fullest
extent permissible under California law."
Amendment of clause (b) of Article Eighth to read as proposed above will
revise the indemnification provisions of the Company's Articles of Incorporation
to enable the Company to provide directors, officers and other corporate agents
the full indemnification protections allowed by California law. Absent approval
of the proposed amendment, the present Articles of Incorporation only permit
indemnification where a derivative action is brought by a shareholder who
asserts that there has been a breach of duty to the Company and its
shareholders. Indemnification protections are not authorized where the action is
one brought by a third party asserting any different basis of liability.
Approval by the shareholders of the proposed amendment would eliminate this
difference in coverage and would permit the Company to authorize such
indemnification both with respect to shareholder actions asserting breach of
duty to the Corporation and its shareholders, as well as actions by third
parties asserting other bases of liability. Thus, approval of the proposed
amendment will authorize the Company to expand indemnification protections such
that they are as broad as is legally permissible.
Insofar as the proposed amendment would authorize or provide indemnification
for liabilities of directors or officers arising under the Securities Act of
1933, the Company has been informed that in the opinion of the Securities and
Exchange Commission such indemnification for such liabilities is against public
policy as expressed in said Act and is therefore unenforceable.
VOTING RIGHTS
Only the holders of Class A Shares of record at the close of business on
February 14, 1997 are entitled to vote with respect to approval of the proposed
amendment to the Company's Articles of Incorporation. Class A Shares are
entitled to one vote for each share, and there is no right to cumulate votes.
Approval of the proposed amendment requires that a majority of such outstanding
Class A Shares vote "IN FAVOR" of the proposal. Since approval of the proposed
amendment requires the affirmative vote of a majority of the outstanding Class A
Shares entitled to vote, the withholding by a shareholder of a proxy or an
abstention by a shareholder amounts to a vote by such shareholder against the
approval of the proposed amendment.
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The enclosed form of proxy provides boxes whereby the person giving the
proxy may designate how it is to be exercised and voted, and the proxy holders
will exercise and vote the shares represented by the proxy in the manner
designated. If no designation is made, the proxy holders will vote the shares
represented by the proxy as if the box labeled "IN FAVOR" had been marked.
The Board of Directors recommends a vote "IN FAVOR" of the proposed
amendment to the Company's Articles of Incorporation.
INTEREST OF CERTAIN PERSONS
While presently the Company's directors and officers are protected by
insurance purchased by the Company insuring them against certain liabilities
incurred in their status as directors and officers, nevertheless, inasmuch as
present directors, as well as future directors, may benefit from the protections
authorized by the proposed amendment, such directors have a potential interest
in the approval of the proposed amendment. At present, to the Company's
knowledge, there is no pending or threatened litigation involving present or
former directors or officers where indemnification would be required or
permitted under either the existing or proposed language in the Articles of
Incorporation.
SOLICITATION REGARDING APPROVAL OF
AND AUTHORIZATION TO ENTER INTO
INDEMNIFICATION AGREEMENTS
INTRODUCTION
In addition to proposing an amendment to clause (b) of Article Eighth of the
Company's Articles of Incorporation (see "SOLICITATION REGARDING AMENDMENT TO
ARTICLES OF INCORPORATION"), and in order to provide more complete protection to
the Company's directors, officers and other agents, the Board of Directors has
approved and included for shareholder authorization and approval indemnification
agreements in substantially the form which is attached to this Proxy Statement
as Exhibit A (the "Indemnification Agreements").
If the proposal to amend clause (b) of Article Eighth of the Company's
Articles of Incorporation is approved by the shareholders, and if the proposal
to approve and authorize entry into the Indemnification Agreements is approved
by the shareholders, it is anticipated that the Company will enter into
Indemnification Agreements substantially in the form approved by the
shareholders with its present and future directors and with such of its present
and future officers and other agents as may be designated from time to time by
the Board of Directors. If the proposed amendment to the Articles of
Incorporation is not approved, the Company will not enter into the proposed
Indemnification Agreements absent a change in California law.
EXISTING PROTECTIONS
1. INDEMNIFICATION UNDER STATE LAW.
The Company is subject to the California General Corporation Law, which
provides a detailed statutory framework covering indemnification of any officer,
director or other agent of a corporation who is made or threatened to be made a
party to any legal proceeding by reason of his or her service on behalf of the
corporation. Such law provides that indemnification against expenses actually
and reasonably incurred in connection with any such proceeding shall be made to
any such person who has been successful "on the merits" in the defense of any
such proceeding, but does not require indemnification in any other circumstance.
The law provides that a corporation may indemnify any agent of the corporation,
including officers and directors, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in a third party
proceeding against such person by reason of his or her services on behalf of the
corporation, provided the person acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the corporation. The law
further provides that in derivative suits (that
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is, suits by a shareholder on behalf of the corporation) the corporation may
indemnify such a person against expenses incurred in such a proceeding, provided
such person acted in good faith and in a manner he or she reasonably believed to
be in the best interests of the corporation and its shareholders.
Indemnification is not available in derivative actions (i) for amounts paid or
expenses incurred in connection with a matter that is settled or otherwise
disposed of without court approval or (ii) with respect to matters for which the
agent shall have been adjudged to be liable to the corporation unless the court
shall determine that such person is entitled to indemnification for expenses.
The law permits the advancing of expenses incurred in defending any
proceeding against a corporate agent by reason of his or her service on behalf
of the corporation upon the giving of a promise to repay any such sums in the
event it is later determined that such person is not entitled to be indemnified.
Finally, the law provides that the indemnification provided by the statute is
not exclusive of other rights to which those seeking indemnification may be
entitled by bylaw, agreement or otherwise, to the extent the additional rights
are authorized in a corporation's articles of incorporation. The law further
permits a corporation to procure insurance on behalf of its directors, officers
and agents against any liability incurred by any such individual, even if a
corporation would not otherwise have the power under applicable law to indemnify
the director, officer or agent for such expenses.
As discussed above under the caption "SOLICITATION REGARDING AMENDMENT TO
ARTICLES OF INCORPORATION--Introduction," the Company's Articles of
Incorporation were amended with shareholder approval in 1988 to expand the
indemnification available to directors, officers and other corporate agents, and
approval of a further amendment to the Articles of Incorporation (the "Article
Amendment") is now being sought to more fully implement the applicable statutory
framework and to provide for indemnification of directors, officers and other
corporate agents to the fullest extent permissible under the law.
2. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE.
The Company presently maintains a policy of directors' and officers'
liability insurance. However, there is no assurance that such coverage will
continue to be available with such breadth of coverage as the Company deems
advisable and at reasonable expense. Accordingly, the Board of Directors
believes that it serves the Company's interest to supplement any coverage which
the Company may maintain in the future by agreeing by contract to indemnify
directors and officers to the fullest extent permitted under applicable law.
REASONS FOR THE INDEMNIFICATION AGREEMENTS
It is believed that the reasons set forth in support of the proposed
amendment to the Company's Articles of Incorporation apply with equal force to
approval of and authorization to enter into the proposed Indemnification
Agreements--see, "SOLICITATION REGARDING AMENDMENT TO ARTICLES OF
INCORPORATION--Reasons for the Amendment." Moreover, while amendment of the
Articles of Incorporation to provide for indemnification to the fullest extent
permitted by law is considered to be highly desirable, entry into the
Indemnification Agreements will provide directors, officers and other corporate
agents with a greater degree of certainty as to their rights in this regard.
Whereas provisions in the Articles of Incorporation are subject to later
amendment or repeal by the shareholders, the Indemnification Agreements provide
for a binding contractual obligation which cannot be amended or eliminated
without the consent of the party entitled to indemnification. Additionally, the
Indemnification Agreements will establish rights to indemnification by the
Company in instances where directors' and officers' liability insurance
coverages may be limited or unavailable.
THE PROPOSED INDEMNIFICATION AGREEMENTS
The proposed Indemnification Agreements attempt to provide to the Company's
current and future directors, and such current and future officers and other
agents of the Company as the directors may
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designate, the maximum indemnification allowed under applicable law. The
Indemnification Agreements provide indemnification which expands the scope of
indemnification provided by Section 317 of the California General Corporation
Law (the "Statute"). It has not yet been determined, however, to what extent the
indemnification expressly permitted by the Statute may be expanded, and
therefore the validity and scope of indemnification provided by the
Indemnification Agreements may be subject to future judicial interpretation.
Any award of indemnification to a director, officer or other agent would
come directly from the assets of the Company, thereby affecting a shareholder's
investment. It should be noted that if the Indemnification Agreements are
approved by the shareholders, they will by their terms apply to the conduct of
the Company's directors, officers and other agents occurring prior to the
effective date of such Agreements. However, under California law,
indemnification may not be permissible for acts occurring prior to the filing of
the Article Amendment with the California Secretary of State, if such
indemnification exceeds the scope of the Statute.
The indemnification Agreements set forth a number of procedural and
substantive matters which are not addressed or are addressed in less detail in
the Statute, including the following:
1. The Indemnification Agreements provide that litigation expenses shall
be advanced to an indemnified party at the indemnified party's request
provided that the indemnified party undertakes to repay the amount advanced
if it is ultimately determined that the indemnified party is not entitled to
indemnification for such expenses. The Statute provides that such expenses
may be advanced against such an undertaking upon authorization by the board
of directors.
2. The Indemnification Agreements explicitly provide that in a
derivative suit the indemnified party will be entitled to indemnification
against amounts paid in settlement, to the fullest extent permitted by law,
where the indemnified party meets the applicable standard of conduct (that
is, where the indemnified party acted in good faith and in a manner the
indemnified party reasonably believed to be in the best interests of the
Company and its shareholders). As noted above, indemnification of any such
amount would be paid out of the Company's funds. The Statute does not
provide for such indemnification without court approval. The enforceability
of the provisions in the Indemnification Agreements providing for settlement
payments in derivative suits has not been judicially interpreted by the
courts and may be subject to public policy limitations.
3. In the event the Company does not pay a requested indemnification
amount, the Indemnification Agreements allow the indemnified party to
contest this determination by bringing an action against the Company to
recover the unpaid amount. In the event of such a contest, the burden of
proving that the indemnified party did not meet the applicable standard of
conduct will be on the Company. If the Company fails to establish that the
applicable standard of conduct has not been met, the indemnified party will
be entitled to indemnification. Additionally, the indemnified party will be
entitled to recover all court costs and expenses, including reasonable
attorneys' fees, unless the court determines that each of the material
assertions made by the indemnitee as a basis for the action were not made in
good faith or were frivolous. The Statute does not set forth any procedure
for contesting a corporation's determination of a party's right to
indemnification or establish which party bears the burden of proof with
respect to a challenge to such a determination.
4. The Indemnification Agreements explicitly provide for partial
indemnification of costs and expenses in the event that an indemnified party
is not entitled to full indemnification under the terms of the
Indemnification Agreements. The Statute does not specifically address this
issue. It does, however, provide that to the extent that an indemnified
party has been successful on the merits, the indemnified party shall be
entitled to such indemnification.
5. The Indemnification Agreements automatically incorporate future
changes in the laws which increase the protection available to the
indemnitee. Such changes will apply to the Company without further
shareholder approval and may further impair shareholders' rights or subject
the Company's assets to risk of loss in the event of large indemnification
claims.
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6. The Indemnification Agreements explicitly provide that actions by an
indemnified party serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise shall be covered by the indemnification.
The Statute provides that a corporation may so indemnify such parties. It
should be noted that by agreeing by contract to indemnify such parties, the
Company may be exposed to liability for actions of an entity over which it
may not exercise control, which liability could adversely affect the
Company's financial position.
DISCUSSION HEREIN OF THE INDEMNIFICATION AGREEMENTS IS ONLY SUMMARY IN
NATURE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FORM OF
INDEMNIFICATION AGREEMENT ATTACHED TO THIS PROXY STATEMENT, WHICH YOU ARE URGED
TO READ AND CONSIDER CAREFULLY.
Insofar as the Indemnification Agreements would authorize or provide
indemnification for liabilities of directors or officers arising under the
Securities Act of 1933, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification for such liabilities is
against public policy as expressed in said Act and is therefore unenforceable.
VOTING RIGHTS
Section 310 of the California General Corporation Law provides that no
contract between a corporation and one or more of its directors is either void
or voidable because such director or directors are parties to such contract if
the material facts as to the transaction and as to such directors' interests are
disclosed or known to the shareholders and such contract is approved by the
affirmative vote of a majority of the shares entitled to vote and voting at the
meeting, with the shares owned by the interested directors not entitled to vote
thereon, or the contract has been approved by a disinterested majority of the
Board of Directors. If the contract has not been so approved, the contract is
not void or voidable if the person asserting the validity of the contract
sustains the burden of proving that the contract was just and reasonable to the
corporation at the time it was authorized.
Although the Company believes that the form of Indemnification Agreement is
just and reasonable to the Company, and that shareholder approval may not
therefore be required to validate the Indemnification Agreements, the Company
believes that it is appropriate to submit the Indemnification Agreements to the
shareholders for their consideration. If the Indemnification Agreements are
approved by the shareholders, they will not be void or voidable and the
Company's shareholders may not later assert a claim that the Indemnification
Agreements are invalid due to improper authorization; however, the shareholders
may challenge the validity of the Indemnification Agreements on other grounds.
If the Article Amendment is approved by the shareholders, but the
Indemnification Agreements are not approved by the shareholders, the Company may
reconsider the implementation of such agreements. Whether or not the
shareholders approve the Article Amendment and the Indemnification Agreements,
the Board of Directors may in the future approve other forms of indemnification
agreements which may or may not be submitted to shareholders for approval. If
such agreements were implemented in the absence of shareholder approval, the
invalidity of such agreements could thereafter be asserted by any shareholder.
In such instance, the person asserting the validity of the contracts would bear
the burden of proving that they were just and reasonable to the Company at the
time they were authorized.
Only the holders of Class A Shares of record at the close of business on
February 14, 1997 are entitled to vote with respect to approval of and
authorization to enter into the Indemnification Agreements. Class A Shares are
entitled to one vote for each share, and there is no right to cumulate votes.
Approval of and authorization to enter into the Indemnification Agreements
requires that a majority of the Class A Shares present and voting at the Annual
Meeting vote "IN FAVOR", without counting for purposes of the vote as either
present or voting any Class A Shares owned by any director of the Company. Since
approval requires the affirmative vote of a majority of the outstanding Class A
Shares present and voting at the Annual Meeting, the withholding of a proxy or
an abstention by a shareholder has no effect.
8
<PAGE>
The enclosed form of proxy provides boxes whereby the person giving the
proxy may designate how it is to be exercised and voted, and the proxy holders
will exercise and vote the shares represented by the proxy in the manner
designated. If no designation is made, the proxy holders will vote the shares
represented by the proxy as if the box labeled "IN FAVOR" had been marked.
The Board of Directors recommends a vote "IN FAVOR" of approval of and
authorization to enter into the proposed Indemnification Agreements.
INTEREST OF CERTAIN PERSONS
While presently the Company's directors and officers are protected by
insurance purchased by the Company insuring them against certain liabilities
incurred in their status as directors and officers, nevertheless, inasmuch as
present directors, as well as future directors, may benefit from the protections
provided by the Indemnification Agreements, such directors have a potential
interest in the approval of the proposed Indemnification Agreements. At present,
to the Company's knowledge, there is no pending or threatened litigation
involving present or former directors or officers where indemnification would be
sought under the Indemnification Agreements.
9
<PAGE>
SOLICITATION REGARDING APPROVAL OF PLAN
RESPECTING LOANS OR GUARANTIES
INTRODUCTION
The Company and its subsidiaries may make available to qualified patrons of
the Company, including patrons holding the Class A Shares and Class B Shares of
the Company and patrons serving as directors of the Company, or patrons
affiliated with persons serving as directors, various forms of retail and
financial assistance. Among these is assistance in the form of loans by the
Company or its subsidiaries to such patrons, or guaranties by the Company or its
subsidiaries of the obligations of such patrons. The Company presently intends
to enter into loans or guaranties with qualified patrons for such purposes as
the acquisition of inventory and equipment, the remodeling or expansion of
existing retail locations, the acquisition, leasing or development of new retail
locations, and other general business purposes of such patrons.
Where such loans or guaranties are made to shareholding patrons, they are
made upon the security of the Class A Shares and Class B Shares of such patrons
in that it is a condition of share ownership in the Company that the shares of
such patrons be pledged as security for all their obligation to the Company. It
is also important to the Company that those patrons serving as directors of the
Company, and those patrons affiliated with persons serving as directors of the
Company, not be precluded by the fact of such service from receiving such loans
or guaranties from the Company and its subsidiaries when such would be available
to them under the Company's retail and financial assistance programs absent such
service. However, the California General Corporations Law provides that unless
approved by a majority of the shareholders entitled to act thereon (which in the
case of the Company means the holders of Class A Shares), a corporation may not
make any loan of money or property to, or guarantee the obligation of, (1) any
person upon the security of shares of such corporation or its parent if such
corporation's recourse in the event of default is limited to the security for
the loan or guaranty, unless the loan or guaranty is adequately secured without
considering these shares, or (2) any director or officer of such corporation or
its parent.
THE PLAN
At the Annual Meeting, shareholders will be asked to vote upon the approval
of a proposed plan under which the members of the Company's Credit Committee
would be authorized, in their discretion, to approve loans of money or property
by the Company or any of its subsidiaries to, or guaranties by the Company or
any of its subsidiaries of the obligations of, (1) any patron of the Company
upon the security of the shares of stock of the Company held by such patron, or
(2) any director of the Company, provided that, in each case, the loan or
guaranty is of the type and satisfies the conditions described herein. Under the
proposed plan, the members of the Company's Credit Committee will not have the
authority to approve loans or guaranties in favor of officers of the Company.
If the proposed plan is approved, in order for such loans or guaranties to
be approved by the members of the Company's Credit Committee, such loans or
guaranties would have to be of the type and satisfy the conditions described
herein. In addition, at least two of the members of the Company's Credit
Committee would have to exercise their discretion to approve the loan or
guaranty, and in the case of a loan or guaranty in favor of a director of the
Company, approval would be required by at least two of the members of the
Company's Credit Committee, excluding any member affiliated with the director.
To be eligible for financial assistance in the form of loans or guaranties,
the applicant must be a patron in good standing which is in compliance with all
member requirements and policies and is not in default of any obligations to the
Company or its subsidiaries. In addition to appropriate credit searches, and
lien and title searches where security is involved, financial statements for two
complete years are required, as well as interim and pro forma financial
information. Additionally, the patron must make application and the transaction
must be approved by the Company's Loan Committee and, in certain instances, the
Finance
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Committee of the Board of Directors. Where the transaction involves a director
or a patron affiliated with a director, Board of Directors approval (without
counting the vote of any interested director) is also required.
The terms of loan transactions vary depending upon the type of loan
involved. Loans for the purpose of purchasing equipment are limited to a maximum
term of seven years in the case of new equipment and five years in the case of
used equipment. The maximum loan amount is 95% of the equipment cost, and is
less depending upon the age and condition of the equipment. Loans for the
purpose of purchasing inventory are limited to a maximum term of five years, and
the maximum loan amount is 75% of the inventory cost. Loans for the purpose of
satisfying deposit fund requirements are limited to a maximum term of five
years, and the maximum loan amount is 100% of the deposit fund requirement.
Loans for the purpose of purchasing an existing retail market location are
limited to a maximum term of seven years, and the maximum loan amount is 75% of
fair market value.
With the exception of deposit fund loans, all loans are collateralized by
the assets being financed. Proceeds of deposit fund loans are retained by the
Company to satisfy deposit fund requirements and, thus, are available for
offset. Loans are not made on a non-recourse basis, although the Company would
be an unsecured creditor or as to any amounts owing in excess of amounts
realized from collateral sales.
Guaranty transactions principally involve patron lease obligations and are
generally limited to base rent, common area maintenance charges, taxes and
insurance. Guaranties of percentage rent and continuous operation requirements
are not provided absent Board of Directors approval. Approval of lease
guaranties requires favorable site evaluations respecting the rentals involved
and the suitability of the site for the operation of a retail market of the type
proposed. Guaranties of non-lease obligations arise infrequently and involve
terms which are less standardized. The Company generally seeks to limit such
guaranties to only a portion of the underlying obligation amount. Additionally,
obligations guaranteed must relate to the patron's grocery business purposes,
such as the remodeling, expansion or acquisition of market locations. All
guaranty transactions are subject to the patron eligibility requirements and
application and approval process previously discussed, including Board of
Directors approval. In connection with guaranties, patrons are required to
execute agreements providing for the reimbursement and indemnification of the
Company with respect to all liabilities under the guaranty. Additionally,
patrons are required to pay a monthly guaranty fee equal to 5% of the monthly
base rent under the lease or 5% of the guaranty amount in the case of non-lease
obligations.
VOTING RIGHTS
Only the holders of Class A Shares of record at the close of business on
February 14, 1997 are entitled to vote with respect to approval of the proposed
plan. Class A Shares are entitled to one vote for each share, and there is no
right to cumulate votes. Approval of the proposed plan requires that a majority
of the Class A Shares present and voting at the Annual Meeting vote "IN FAVOR"
without counting for purposes of the vote as either present or voting any Class
A Shares owned by any director of the Company. Since approval requires the
affirmative vote of a majority of the outstanding Class A Shares present and
voting at the Annual Meeting, the withholding by a shareholder of a proxy or an
abstention by a shareholder has no effect.
The enclosed form of proxy provides boxes whereby the person giving the
proxy may designate how it is to be exercised and voted, and the proxy holders
will exercise and vote the shares represented by the proxy in the manner
designated. If no designation is made, the proxy holders will vote the shares
represented by the proxy as if the box labeled "IN FAVOR" had been marked.
The Board of Directors recommends a vote "IN FAVOR" of the proposed plan.
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<PAGE>
INTEREST OF CERTAIN PERSONS
Inasmuch as the enclosed form of proxy is being solicited in part for the
purpose of approving a plan respecting the approval of loans or guaranties of
the foregoing types to directors of the Company, all directors of the Company
and all persons nominated for election as directors of the Company, have a
potential interest in the matter. Patrons serving as directors or nominated for
election as directors, and patrons affiliated with such directors and nominees,
have sought such loans or guaranties from the Company and its subsidiaries in
the past and may be expected to do so in the future. As such, they would have a
direct interest in the approval of the plan.
PRINCIPAL STOCKHOLDERS
As of February 14, 1997, no person is known by the Company to own
beneficially more than five percent (5%) of the outstanding Class A Shares of
the Company, and the only shareholders known by the Company to own beneficially
more than 5% of the outstanding Class B Shares of the Company are Cala Foods,
Inc., Bay Area Warehouse Stores, Inc. and Ralphs Grocery Company, 1100 West
Artesia Boulevard, Compton, California 90220 (24,702 Class B Shares or
approximately 6.78% of the outstanding Class B Shares) (Cala Foods, Inc. and Bay
Area Warehouse Stores, Inc. are wholly owned by Ralphs Grocery Company which is
in turn wholly owned by The Yucaipa Companies, 10000 Santa Monica Boulevard, Los
Angeles, California 90067); and Hughes Markets, Inc., 14005 Live Oak Avenue,
Irwindale, California 91706 (22,739 Class B Shares or approximately 6.24% of the
outstanding Class B Shares).
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Class A Shares and Class B Shares, as of February 14, 1997, by each director and
nominee, or their affiliated companies, and by all directors and nominees, and
their affiliated companies, as a group. No officer of the Company owns shares of
any class of the Company's stock.
<TABLE>
<CAPTION>
SHARES OWNED
----------------------------------------------
CLASS A SHARES CLASS B SHARES
-------------------- -----------------------
NAME AND NO. % OF TOTAL NO. % OF TOTAL
AFFILIATED COMPANY SHARES OUTSTANDING SHARES OUTSTANDING
---------------------------------------- ------ ----------- --------- -----------
<S> <C> <C> <C> <C>
Louis A. Amen
Super A Foods, Inc..................... 100 0.21% 9,613 2.64%
Michael Bonfonte
Nob Hill General Store, Inc.(1)....... 100 0.21% 12,465 3.42%
John Berberian
Berberian Enterprises, Inc............ 100 0.21% 7,615 2.09%
Harley DeLano
Ralphs Grocery Company(1)(2).......... 100 0.21% 24,702 6.78%
John T. Fujieki
Star Markets.......................... 100 0.21% 8,380 2.30%
Lyle A. Hughes
Yucaipa Trading Co., Inc.(3)(4)(5).... 100 0.21% 103 0.03%
Roger K. Hughes
Hughes Markets, Inc.(1)(4)............ 100 0.21% 22,739 6.24%
Darioush Khaledi
K. V. Mart Co. ....................... 100 0.21% 15,967 4.38%
Mark Kidd
Mar-Val Food Stores, Inc. ............ 100 0.21% 1,950 0.53%
Willard R. MacAloney
Mac Ber, Inc.......................... 100 0.21% 2,523 0.69%
Jay McCormack
Alamo Market(6)....................... 100 0.21% 732 0.20%
Morrie Notrica
Joe Notrica, Inc. .................... 100 0.21% 8,945 2.45%
Michael A. Provenzano
Pro & Son's, Inc. .................... 100 0.21% 679 0.19%
Gail Gerrard Rice
Gerrard's, Inc........................ 100 0.21% 1,414 0.39%
Allan Scharn
Gelson's Markets(3)(7)................ 100 0.21% 6,836 1.87%
James R. Stump
Stump's Market, Inc. ................. 100 0.21% 2,131 0.58%
Kenneth Young
Jack Young's Supermarkets(8).......... 100 0.21% 2,660 0.73%
------ --- --------- -----
1,700 3.55% 129,472 35.51%
------ --- --------- -----
------ --- --------- -----
</TABLE>
- ------------------------
(1) Elected by holders of Class B Shares.
(2) These Class B Shares are owned by Ralphs Grocery Company and its affiliates,
Cala Foods, Inc. and Bay Area Warehouse Stores, Inc.
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<PAGE>
(3) These directors will not stand for election at the Annual Meeting.
(4) Messrs. Lyle A. Hughes and Roger K. Hughes are unrelated.
(5) Mr. Lyle Hughes is also affiliated with Yucaipa Food Fair, Inc. which owns
429 Class B Shares (0.12% of the outstanding Class B Shares). Yucaipa
Trading Co., Inc. and Yucaipa Food Fair, Inc. are not affiliated with The
Yucaipa Companies.
(6) Mr. McCormack also is affiliated with Glen Avon Food, Inc. which owns 100
Class A Shares and 361 Class B Shares (0.10% of the outstanding Class B
Shares) and Yucaipa Trading Co., Inc. which owns 100 Class A Shares and 103
Class B Shares (0.03% of the outstanding Class B Shares).
(7) These shares are owned by Arden Mayfair, Inc., the parent company of
Gelson's Markets.
(8) Mr. Young also is affiliated with Bakersfield Food City, Inc. dba Young's
Markets which owns 100 Class A Shares and 355 Class B Shares. (0.10% of the
outstanding Class B Shares).
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of seven meetings during
the fiscal year ended August 31, 1996. Each incumbent director who was in office
during such year attended more than 75% of the aggregate of the total number of
meetings of the board and the total number of meetings held by those committees
of the board on which he served.
The Company has an Audit Committee which presently consists of Lyle A.
Hughes, Mark Kidd and Kenneth Young, who are directors of the Company. Willard
R. MacAloney, Chairman of the Board of Directors, is an ex-officio member of the
Committee. This Committee, which met three times during the Company's last
fiscal year, is primarily responsible for approving and reviewing the services
performed by the Company's independent auditors, reviewing the annual results of
their audit, and reviewing the Company's accounting practices and system of
internal accounting controls.
The Company has a Personnel and Executive Compensation Committee which
presently consists of Louis A. Amen, Roger K. Hughes, Darioush Khaledi, Jay
McCormack and James R. Stump, who are directors of the Company. Willard R.
MacAloney, Chairman of the Board of Directors, is an ex-officio member of this
Committee. This Committee, which met five times during the Company's last fiscal
year, is responsible for reviewing salaries and other compensation arrangements
of all officers and for making recommendations to the Board of Directors
concerning such matters.
The Company has a Nominating Committee which presently consists of Mark
Kidd, Jay McCormack, Morrie Notrica and James R. Stump who are directors of the
Company. Willard R. MacAloney, Chairman of the Board of Directors, and Alfred A.
Plamann, President and CEO, are ex-officio members of this Committee. This
Committee, which met five times during the Company's last fiscal year, is
responsible for selecting nominees to be submitted by the Board of Directors to
the shareholders for election to the Board of Directors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted under the caption "Board Meetings and Committees", the Company's
Personnel and Executive Compensation Committee (presently consisting of
Directors Louis A. Amen, Roger K. Hughes, Darioush Khaledi, Jay McCormack, James
R. Stump, and ex-officio member and Chairman of the Board, Willard R. MacAloney)
is responsible for reviewing salaries and other compensation arrangements of the
officers of the Company and for making recommendations to the Board of Directors
concerning such matters.
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<PAGE>
As Chairman of the Board, Mr. MacAloney is an officer under the Bylaws of
the Company, although he is not an employee and does not receive any
compensation or expense reimbursement beyond that to which other directors are
entitled. Mr. McCormack was employed by the Company as a senior sales
representative from November 1975 to May 1986, but has not been employed by the
Company since that time. The Company's President and Chief Executive Officer,
Alfred A. Plamann, is a member of the Board of Directors of K.V. Mart Co., of
which Committee member and director Darioush Khaledi is Chairman and Chief
Executive Officer.
The Company guarantees annual rent and certain other obligations of Mr.
MacAloney as lessee under a lease of store premises located in La Puente,
California. Annual rent under the lease is $62,487, and the lease term expires
in April 1997. The Company also guarantees annual rent and certain other
obligations of G & M Company, Inc., of which Mr. MacAloney is a shareholder,
under a lease of store premises located in Santa Fe Springs, California. The
initial term of the lease expires in October 2007, but may be extended for one
option term expiring in October 2012. Annual rent under the lease is $100,000,
increasing to $110,000 in November 1997. Thereafter, annual rent increases by
$15,000 every five years during the balance of the term, including the extension
term. However, the Company's guaranty is such that the Company's obligation
thereunder is limited to not exceed sixty monthly payments (which need not be
consecutive) of the obligations guaranteed. In consideration of its guarantees,
the Company receives a monthly fee from G & M Company, Inc. equal to 5% of the
base monthly rent under each lease.
The Company has entered into a lease of store premises located in Riverside,
California, which it will in turn sublease to Jax Apple Market No. 5, a
corporation of which Mr. MacAloney is a shareholder. The lease will be for an
initial term of 15 years, but may be extended for three periods of 5 years each
and one period of 4 years and 11 months. Monthly rent during the initial term is
$22,234, increasing to $24,457, $26,903, $29,596 and $32,561 during the
extension terms. The sublease will be on the same terms and conditions, except
that the monthly rent during the first ten years of the initial term will be
$17,734, after which it will increase to an amount equal to the monthly rent
under the Company's lease. The difference between the monthly rent under the
lease and the monthly rent under the sublease is accounted for by the fact that
the Company will receive a lump sum allowance of $350,000 from the landlord
under the lease. The Company will retain this allowance but is passing its
benefit along to the sublessee in the form of reduced monthly rent. The Company
believes that the reduction in sublease rent is fairly and adequately offset by
the benefit to the Company of retaining the allowance. Under the sublease, the
Company will also receive a monthly fee from G & M Company equal to 5% of the
monthly rent.
GCC guarantees a portion of a loan made by National Consumer Cooperative
Bank ("NCCB") to K.V. Mart Co., of which director Darioush Khaledi is the
President and a shareholder, and KV Property Company, of which director Darioush
Khaledi is a general partner. The term of the loan is eight years, maturing
January 1, 2002, and the loan bears interest at a floating rate based on the
commercial loan base rate of NCCB. The loan is collateralized by certain real
and personal property. The guarantee by GCC is limited to 10% of the $2.1
million principal amount of the loan. In consideration of its guarantee, GCC
receives an annual fee from K.V. Mart Co. equal to approximately 5% of the
guarantee amount.
GCC guarantees a portion of a revolving loan made by NCCB to K.V. Mart Co.
in November 1995. The loan has an initial maturity of two years, with the
outstanding balance then converting to a five year term loan. The loan bears
interest at a floating rate based on the commercial loan rate of NCCB. The loan
is collateralized by certain real and personal property of K.V. Mart Co. The
guaranty of GCC is limited to 10% of the outstanding principal amount of the
loan, which principal amount may not exceed $5,000,000. Since its inception, the
highest outstanding principal amount of the loan has been and is presently
$785,000. In consideration of its guaranty, GCC receives an annual fee from K.V.
Mart Co. equal to 5% of the guaranty amount.
In April 1996, the Company guaranteed rent and certain other obligations of
K.V. Mart Co. for a period of seven years under a lease of store premises
located in Lynwood, California. Annual rent under the lease is $408,000. In
consideration of its guaranty, the Company will receive an annual fee from K.V.
Mart Co. equal to 5% of the annual rent.
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<PAGE>
In April 1996, the Company guaranteed rent and certain other obligations of
K.V. Mart Co. for a period of seven years under a lease of store premises under
construction in Canoga Park, California. The landlord under the lease is a
corporation in which a family trust established by Mr. Khaledi has an indirect
interest through certain partnerships which in turn have an interest in the
landlord corporation. Annual rent under the lease is $353,976. The lease term
will commence upon the earlier of the opening of the store for business or 180
days after occupancy. The guarantee will become effective upon the commencement
date of the lease. In consideration of its guaranty, the Company will receive an
annual fee from K.V. Mart equal to 5% of the annual rent.
In November 1996, the Company guaranteed rent and certain other obligations
of K.V. Mart Co. under a lease of store premises in Los Angeles, California. The
guaranty is in place during the first fifteen years of the lease term, which is
thirty-four years and eight months. Annual rent under the lease is $212,664
during the first twenty months of the lease term; $332,664 during the next
thirty-eight months; $382,560, $439,944, and $505,944, respectively, during the
three succeeding sixty month periods; and thereafter increasing by 15% every
sixty months during the balance of the term. In consideration of its guaranty,
the Company will receive an annual fee from K.V. Mart Co. equal to 5% of the
annual rent.
In December 1995, GCC purchased 10% of the common stock of K.V. Mart Co. for
a purchase price, based upon appraised values, of approximately $3,000,000. In
connection with this purchase, K.V. Mart Co., GCC, Mr. Khaledi and the other
shareholders of K.V. Mart Co. agreed that GCC will have certain preemptive
rights to acquire additional common shares, rights to have its common shares
included proportionately in any transfer of common shares by the other
shareholders, and rights to have its common shares included in certain
registered public offerings of common stock which may be made by K.V. Mart Co.
In addition, GCC has the option to require the repurchase of its shares for any
reason after December 2000, and until that time has the option to require
repurchase upon the occurrence of certain specified events, including a material
breach of the supply agreement referred to below, changes in management or
control, and noncompliance with financial ratios. After December 1999, the
repurchase price is fair market value as determined by appraisal, and until that
time is the greater of a declining premium over fair market value or the
original purchase price of the shares plus an agreed annual compounded rate of
return. K.V. Mart Co. has the option to repurchase GCC's shares at any time and
also in the event of a change in control of GCC or the Company or a material
breach by the Company under the supply agreement referred to below. In the
absence of a change in control or a material breach under the supply agreement,
and until December 1999, the repurchase price is the greater of a declining
premium over fair market value or the original purchase price of the shares plus
an agreed annual compounded rate of return, and after December 1999 is fair
market value. In the event of a change in control or a material breach under the
supply agreement, and until December 1999, the repurchase price is the lesser of
a declining discount from fair market value or the original purchase price of
the shares, and after December 1999 is fair market value. In connection with
these transactions, K.V. Mart Co. entered into a seven year supply agreement
with the Company whereunder K.V. Mart Co. is required to purchase a substantial
portion of its merchandise requirements from the Company. Fiscal 1996 purchases
totalled approximately $75,300,000. The supply agreement is subject to earlier
termination in certain situations.
The Company guarantees annual rent and certain other obligations of Stump's
Market, Inc., of which director James R. Stump is the President and a
shareholder, as leasee under a lease of store premises located in San Diego,
California. Annual rent under the lease is $26,325, and the lease term expires
in May 1998. The Company also guarantees annual rent and certain other
obligations of Stump's Market, Inc. as lessee under a lease of store premises at
a second location in San Diego, California. Annual rent under this lease is
$36,075, and the lease term expires in November 1997. In consideration of these
guaranties, the Company receives a fee from Stump's Market, Inc. equal to 5% of
the base monthly rent under these leases.
Since the Company's retail and financial assistance programs are only
available to persons and entities which are patrons of the Company, it is not
possible to assess whether the foregoing transactions are less favorable to the
Company than similar transactions with unrelated third parties. However,
management
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<PAGE>
believes that each such transaction is on terms no more favorable to the patron
than those which would be available to other similar patrons.
REPORT OF PERSONNEL AND EXECUTIVE COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION
The principal components of the Company's executive compensation program
consist of an annual salary, an annual cash bonus the payment of which is
dependent upon the Company performance during the preceding fiscal year, and
certain pension, retirement and life insurance benefits.
SALARY
In providing for increases in officer salaries for calendar year 1996, the
Committee took note of continuing process improvements and cost control efforts
implemented by the officer team under the direction of the CEO. The Committee
also recognized the substantial efforts made under the CEO's leadership toward
restructuring of Company operations. Under the Company's newly launched
comprehensive strategic initiative, labeled "C(3)" for "Certified's Commitment
to Customers," an in-depth examination of Company operations, services and
business practices was begun, with a focus on commitment to growth, quality,
cost efficiency and superior service. These efforts resulted in the addition of
significant new customer volume, pricing efficiencies which were passed on to
the Company's membership, substantial savings in operating costs, improved cash
flow management, and improved efficiency of internal operations. As a result,
the Company recorded strong volume gains, produced major improvement in
patronage dividends, and is better positioned to compete for more new business
in the future.
The Committee's procedure in approving officers' salaries, including that of
the CEO, involves meeting in closed session and without the CEO or other
management personnel being present. In addition to the considerations mentioned
above, this process, which is subjective in nature, centers on the Committee's
consideration of the CEO's evaluation of each individual officer based on the
CEO's perception of their performance in accordance with individual officer
responsibilities as defined by personal and organizational goals and objectives,
the relative value and importance of individual officer contribution toward
organizational success, relative levels of officer responsibilities and changes
in the scope of officer responsibilities and officer accomplishments and
contributions during the preceding fiscal year. The Committee also reviews and
discusses the salary recommendations made by the CEO for each officer. These
recommendations do not include any recommendation as to the CEO's salary, and
the Committee sets the CEO's salary based on its assessment of his performance
in light of the foregoing policies and considerations. The salaries as approved
by the Committee are submitted to the Board of Directors, which made no changes
in the salaries submitted for 1996.
ANNUAL BONUSES
In recognition of the relationship between Company performance and
enhancement of shareholder value, Company officers may be awarded annual cash
bonuses. Bonuses are paid from a bonus pool which is created if the Company has
achieved an established minimum level of net income for the preceding fiscal
year. The amount of the bonus pool is calculated as a percentage of net income ,
with the percentage varying depending on the level of net income as a percentage
of net sales. Amounts in the bonus pool are allocated among the Company's
officers by the CEO, subject to the approval of the Board of Directors. The CEO
does not participate in the bonus pool. However, a bonus may be awarded to the
CEO in an amount determined by the Board of Directors based on its evaluation of
the CEO's performance during the preceding fiscal year.
Bonuses awarded to the CEO and the named executives are disclosed in the
Summary Compensation Table.
BENEFITS
Consistent with the objective of attracting and retaining qualified
executives, the compensation program includes the provision of pension benefits
to Company employees, including officers, under the Company's defined benefit
pension plan, which is described in connection with the Pension Plan Table. In
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addition, Company employees, including officers, may defer income from their
earnings through voluntary contributions to the Company's Employees' Sheltered
Savings Plan adopted pursuant to Section 401(k) of the Internal Revenue Code and
the Company's Employee's Excess Benefit Plan which is a nonqualified plan. In
the case of those officers who elect to defer income under these plans, the
Company makes additional contributions for their benefit. The amount of these
additional contributions made during fiscal year 1995 for the benefit of the CEO
and other named executive officers is set forth in the footnotes to the Summary
Compensation Table. The Company also provides additional retirement benefits to
its officers pursuant to an Executive Salary Protection II, which is described
in connection with the Pension Plan Table.
Personnel and Executive Compensation Committee Members
Darioush Khaledi, Chairman
Louis A. Amen
Roger K. Hughes
Jay McCormack
Willard R. MacAloney
James R. Stump
EXECUTIVE OFFICER COMPENSATION
The following table sets forth information respecting the compensation paid
during the Company's last three fiscal years to the President and Chief
Executive Officer (CEO) and to certain other executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
- ------------------------------
OTHER
FISCAL ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) COMPENSATION($)
- ------------------------------ ------ ------------ -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Alfred A. Plamann 1996 352,500 100,000 840 27,895(2)
President & CEO 1995 322,150 50,000 24,290
1994 236,827 205 31,431
Daniel T. Bane 1996 215,000 55,000 605 14,446(3)
Senior Vice President & CFO 1995 200,000 20,000 195 1,231
1994 21,539
Charles J. Pilliter 1996 183,000 46,500 295 14,459(4)
Senior Vice President 1995 172,000 15,000 13,174
1994 167,577 127 20,591
Corwin J. Karaffa (6) 1996 151,000 30,600 150 6,458(5)
Vice President - Distribution 1995 89,231 7,000
Don W. Hawks (6) 1996 139,500 28,200 203 10,636(7)
Vice President - Marketing 1995 33,750 2,000 41,017
and Procurement
</TABLE>
- ------------------------
(1) It should be noted that while the table presents salary information on a
fiscal year basis, salary is determined by the Company on a calendar year
basis. Thus, salary information with respect to any given fiscal year
reflects salary attributable to portions of two calendar year salary periods
of the Company.
(2) Consists of a $9,135 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $17,500 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
and $1,260 representing the economic benefit associated with the Company
paid premium on the Executive Life Plan.
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<PAGE>
(3) Consists of a $9,600 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $4,303 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
and $543 representing the economic benefit associated with the Company paid
premium on the Executive Life Plan.
(4) Consists of a $9,300 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $4,717 Company contribution to the Company's
Employees' Excess Benefit Plan and Supplemental Deferred Compensation Plan,
and $442 representing the economic benefit associated with the Company paid
premium on the Executive Life Plan.
(5) Consists of a $6,203 Company contribution to the Company's Employees'
Sheltered Savings Plan, and $255 representing the economic benefit
associated with the Company paid premium on the Executive Life Plan.
(6) Messrs. Karaffa and Hawks became officers of the Company in fiscal 1995.
(7) Consists of a $9,572 Company contribution to the Company's Employees'
Sheltered Savings Plan, a $759 Company contribution to the Company's
Employee Excess Benefit and Supplemental Deferred Compensation Plan, and
$305 representing the economic benefit associated with the Company paid
premium on the Executive Life Plan.
The Company has a supplemental executive pension plan (effective January 4,
1995) which provides retirement income based on each participant's final salary
and years of service with the Company. The plan, called the Company's Executive
Salary Protection Plan II ("ESPP II"), provides additional post-termination
retirement income based on each participant's final salary and years of service
with the Company. The funding of this benefit is facilitated through the
purchase of life insurance policies, the premiums of which are paid by the
Company and participant contributions. The Company also has a defined benefit
pension plan covering its non-union and executive employees. Benefits under the
defined benefit plan are equal to credited service times the sum of 95% of
earnings up to the covered compensation amount plus 1.45% of earnings in excess
of the covered compensation amount. The covered compensation is based on IRS
Tables.
The following table sets forth the estimated annual benefits under the
defined benefit plan and the ESPP II plan which qualifying officers with
selected years of service would receive if they had retired on August 31, 1996
at the age of 65.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------------------
REMUNERATION 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 33 YEARS
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$100,000.............................. $ 25,984 $ 51,968 $ 67,952 $ 68,936 $ 69,920 $ 71,495
125,000............................... 32,506 65,012 85,018 86,274 87,530 89,539
150,000............................... 39,028 78,056 102,084 103,611 105,139 107,584
175,000............................... 45,278 90,556 115,057 119,861 121,389 123,834
200,000............................... 51,528 103,056 115,057 125,242 135,428 140,084
225,000............................... 57,778 104,871 115,057 125,242 135,428 151,725
250,000............................... 64,028 104,871 115,057 125,242 135,428 151,725
300,000............................... 76,528 104,871 115,057 125,242 135,428 151,725
350,000............................... 89,028 104,871 115,057 125,242 135,428 151,725
400,000............................... 94,685 104,871 115,057 125,242 135,428 151,725
450,000............................... 94,685 104,871 115,057 125,242 135,428 151,725
</TABLE>
The Company's ESPP II is designed to provide a retirement benefit up to 65%
of a participant's final compensation, based on a formula which considers an
executive's final compensation and years of service.
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<PAGE>
Remuneration under ESPP II is based upon an executive's highest annual base wage
during the previous three completed years, which includes his or her annual
salary as determined by the Board of Directors plus an automobile allowance with
a 4% annual increase. The benefit is subject to an offset of the annual benefit
which would be received from the defined benefit plan, calculated as a single
life annuity at age sixty-two. To qualify for participation in the benefit, the
executive must complete three years of service as an officer elected by the
Board of Directors of the Company. Executives will vest at a rate of 5% per year
with all years of continuous service credited. The ESPP II maximum annual
benefit upon retirement for calendar 1996 shall not exceed $84,800 and will be
paid over a 15-year certain benefit. The benefit will increase annually
thereafter at the rate of 6%. Lesser amounts are payable if the executive
retires before age sixty-five. The maximum annual amount payable by years of
service is reflected within the table at the compensation level of $450,000. As
of August 31, 1996, credited years of service for named officers are: Mr.
Plamann, 7 years; Mr. Bane, 2 years; Mr. Pilliter, 20 years; Mr. Karaffa, 1
year; and Mr. Hawks, 12 years.
EXECUTIVE EMPLOYMENT AND TERMINATION AGREEMENT
The Company is a party to an employment contract with Alfred A. Plamann, the
Company's President and Chief Executive Officer. The contract has a three year
term, presently expiring in February 1999, but provides for annual extensions to
the contract if there is mutual agreement. Under the contract, Mr. Plamann
serves as the Company's President and Chief Executive Officer and receives a
base salary, currently $365,000, subject to annual review and upward adjustment
at the discretion of the Board of Directors. Mr. Plamann is also eligible for
annual bonuses at the discretion of the Board of Directors based upon a review
of his performance. The exact formula for future bonuses has not yet been
determined and will be added as an amendment to the contract at a later date.
Additionally, Mr. Plamann will receive employee benefits such as life insurance
and Company pension and retirement contributions.
The contract is terminable at any time by the Company, with or without
cause, and will also terminate upon Mr. Plamann's resignation, death or
disability. Except where termination is for cause or is due to Mr. Plamann's
resignation, death or disability, the contract provides that Mr. Plamann will be
entitled to receive his highest base salary during the previous three years,
plus an annual bonus equal to the average of the most recent three annual bonus
payments, throughout the balance of the term of the agreement. Mr. Plamann would
also continue to receive employee benefits such as life insurance and Company
pension and retirement contributions throughout the balance of the term of the
agreement.
DIRECTOR COMPENSATION
Each director receives a fee of $500 for each regular board meeting
attended, $200 for each committee meeting attended and $200 for attendance at
each board meeting of a subsidiary of the Company on which the director serves.
Prior to April 3, 1996, directors received $300 for each regular board meeting,
$100 for each committee meeting, and $100 for each board meeting of a subsidiary
of the Company. In addition, directors are reimbursed for Company related
expenses.
CUMULATIVE TOTAL SHAREHOLDER RETURN
The following graph sets forth the five year cumulative total shareholder
return on the Company's common stock as compared to the cumulative total return
for the same period of the S&P 500 Index and Peer Issuers consisting of Spartan
Stores, Inc. and Roundy's, Inc. Like the Company, Spartan Stores and Roundy's
are retailer-owned wholesale grocery distributors. While Spartan Stores pays a
dividend on its stock, the Company and Roundy's do not. The shares of the
Company and the Peer Issuers are not traded on any exchange and there is no
established public market for such shares. The price of the Company's shares
during each of its fiscal years is the book value of such shares as of the end
of the prior fiscal year.
20
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE COMPANY, S&P 500 INDEX AND PEER ISSUERS**
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPANY S&P 500 PEER ISSUERS
<S> <C> <C> <C>
1990 100 100 100
1991 94.1 122.6 104.9
1992 89.5 128.4 110.8
1993 90.1 143.7 117.8
1994 89.9 147.4 125.9
1995 91.4 174.2 136.6
</TABLE>
Assumes $100 invested on August 30, 1991 in Company common stock, S&P 500 Index
and Peer Issuers common stock
* Total return assumes reinvestment of dividends
** Fiscal years ended August 29, 1992, August 28, 1993, September 3, 1994,
September 2, 1995 and August 31, 1996
TRANSACTIONS WITH MANAGEMENT AND PERSONS
NAMED IN THE ADVISORY BALLOT
All directors of the Company and all persons named in the Advisory Ballot
who are not directors (or the firms with which such directors and persons are
affiliated) purchase groceries, related products and store equipment from the
Company or its subsidiaries in the ordinary course of business at prices and on
terms available to patrons generally. Except for Ralphs Grocery Company, which
with its affiliated companies accounted for approximately 5.5% of consolidated
sales, during the fiscal year ended August 31, 1996, no director of the Company
or person named in the Advisory Ballot who is not a director (nor the firms with
which such directors and persons are affiliated) accounted for in excess of 5%
of the Company's consolidated sales.
In September 1992, the Company guaranteed the obligations of Mar-Val Food
Stores, Inc., of which director Mark Kidd is the President and a shareholder,
under a lease of market premises located in Valley Springs, California. The
guarantee is of the obligations of Mar-Val Food Stores, Inc. to pay base rent,
common area costs, real estate taxes and insurance during the initial fifteen
year term of the lease. Base rent under the lease is $10,080 per month. The
Company's total obligation under the guarantee, however, is limited to the sum
of $736,800. In consideration of its guarantee, the Company receives a monthly
fee from Mar-Val Food Store, Inc. equal to 5% of the base monthly rent under the
lease.
The Company leases its produce warehouse to Joe Notrica, Inc., of which
director Morrie Notrica is the President and a shareholder. The lease is for a
term of five years expiring in November 1998 and contains an option to extend
for an additional five year period. Monthly rent during the initial term is
$24,000. If the option to extend is exercised, rent during the option period
will be the lesser of fair rental
21
<PAGE>
value or the monthly rent during the initial term as adjusted to reflect the
change in the Customer Price Index during the initial term.
Cala Foods, Inc. (a patron affiliated with Ralphs Grocery Company) acquired
the stock of Bell Markets, Inc. in June 1989. In connection with the
acquisition, the Company guaranteed the lease obligations of Bell Markets, Inc.
during a 20-year period under a lease relating to two retail grocery stores
located in San Francisco, California. Annual rent under the lease is $327,019.
Grocers General Merchandise Company ("GM"), a subsidiary, and Food 4 Less
GM, Inc. ("F4LGM"), an indirect subsidiary of Food 4 Less Supermarkets, Inc.,
are parties to a joint venture agreement. Under the agreement, GM and F4LGM are
partners in a joint venture partnership known as Golden Alliance Distribution
("GAD"). The partnership was formed for the purpose of providing for the shared
use of the Company's general merchandise warehouse located in Fresno,
California, and each of the partners entered into a supply agreement with GAD
providing for the purchase of general merchandise products from GAD. The Company
is currently in discussions with Ralphs regarding the future of the GAD
partnership.
The Company guarantees certain obligations under a sublease of market
premises located in Pasadena, California, and under which Berberian Enterprises,
Inc., of which Director John Berberian is the President and a shareholder, is
the sublessor. The guaranty is of the obligations of the sublessee to pay
minimum rent, common area costs, real estate taxes and insurance during the
first seven years of the term of the sublease, which commenced in September
1995. Minimum rent under the sublease is $10,000 per month. In consideration of
its guaranty, the Company receives a monthly fee from the sublessee equal to 5%
of the monthly amounts guaranteed.
The Company proposes to lease store locations in Arvin and Delano,
California, which it will in turn sublease on the same rental terms to a
corporation to be formed by director Michael A. Provenzano. The subleases will
have twenty year terms. Annual rent under the Arvin lease will be $165,088
during the first ten years and $166,448 during the balance of the term. Annual
rent under the Delano lease will be $183,334 during the first ten years and
$174,080 during the balance of the term. In addition, under each of these
subleases, the Company will receive an annual fee equal to 5% of the annual
rent.
Since the Company's retail and financial assistance programs are only
available to persons and entities which are patrons of the Company, it is not
possible to assess whether the foregoing transactions are less favorable to the
Company than similar transactions with unrelated third parties. However,
management believes that each such transaction is on terms no more favorable to
the patron than those which would be available to other similar patrons.
On February 1, 1995, GCC made a loan of $69,000 to Corwin J. Karaffa, the
Company's Vice President-Distribution. The loan was for the purpose of assisting
Mr. Karraffa in acquiring a home in connection with his becoming employed by the
Company. The loan bears interest at 8% per annum and is secured by a second deed
of trust on the home. The loan has a term of eight years, with interest only
payable during the first five years.
Certain other transactions involving other directors of the Company are
described under the caption "COMPENSATION OF DIRECTORS AND EXECUTIVE
OFFICERS--Compensation Committee Interlocks and Insider Participation."
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Effective April 3, 1996, the Company terminated Coopers & Lybrand L.L.P. as
its principal accountant to audit the financial statements of the Company. The
reports issued by Coopers & Lybrand L.L.P. on the financial statements for the
two years preceding termination did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. The decision to change accountants was
recommended by the Audit Committee of the
22
<PAGE>
Company following the solicitation and review of bids from other independent
accountants, including Coopers & Lybrand L.L.P., and was approved by the Board
of Directors on April 3, 1996. During the two preceding fiscal years and the
1996 fiscal year, there were no disagreements with Coopers & Lybrand L.L.P. on
matters of accounting principles or practices, financial statement disclosure,
or auditing scope procedure.
Effective April 3, 1996, the Company engaged Deloitte & Touche LLP as its
principal accountant to audit the financial statements of the Company for the
fiscal year ended August 31, 1996. The Board of Directors has selected that firm
to continue as the Company's independent public accountants for the current
fiscal year. A representative of Deloitte & Touche is expected to be available
at this year's Annual Meeting to respond to appropriate questions and to make a
statement if such firm desires to do so.
SHAREHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
Under the present rules of the Securities and Exchange Commission (the
"Commission"), the deadline for shareholders to submit proposals to be
considered for inclusion in the Company's proxy statement for next year's Annual
Meeting of Shareholders is expected to be October 27, 1997. Such proposals may
be included in next year's proxy statement if they comply with certain rules and
regulations promulgated by the Commission. Such proposals should be submitted to
the Secretary of the Company at the address of the Company's principal executive
office shown on the first page of this proxy statement.
23
<PAGE>
OTHER BUSINESS
The Board of Directors is not aware of any other matters which may be
presented for action at the Annual Meeting. If any matters not referred to in
the form of proxy relating to the Annual Meeting come before the Annual Meeting,
the proxy holders named in such form will vote the shares represented thereby in
accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Dated: February 24, 1997
ROBERT M. LING, JR., CORPORATE SECRETARY
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND
EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED AUGUST 31, 1996, EXCLUDING
EXHIBITS, MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO THE CORPORATE SECRETARY
OF THE COMPANY AT THE ADDRESS OF THE COMPANY'S PRINCIPAL EXECUTIVE OFFICE SHOWN
ON THE FIRST PAGE OF THIS PROXY STATEMENT.
24
<PAGE>
EXHIBIT A
CERTIFIED GROCERS OF CALIFORNIA, LTD.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of by
and between CERTIFIED GROCERS OF CALIFORNIA, LTD., a California corporation (the
"Company"), and ("Indemnitee").
RECITALS
A. The Company believes that it is essential to its best interest to attract
and retain highly capable persons to serve as directors, officers and other
agents of the Company.
B. The Company and Indemnitee recognize the increased risk of litigation
and other claims being asserted against directors, officers and other agents of
corporations.
C. In recognition of the need for substantial protection against personal
liability to attract and retain the services of qualified individuals, such as
Indemnitee, to serve as directors, officers and other agents of the Company and
to induce Indemnitee to provide or continue to provide services to the Company
as a director, officer or other agent, the Company wishes to provide in this
Agreement for the indemnification of and the advancement of expenses to
Indemnitee to the fullest extent permitted by law and as set forth in this
Agreement.
IN CONSIDERATION of the foregoing and of Indemnitee's providing or
continuing to provide services to the Company directly or at its request with
another enterprise, the parties agree as follows:
1. INDEMNIFICATION.
(A) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) (i) by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, or
(ii) by reason of the fact that Indemnitee is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
(but only if such settlement is approved in advance by the Company) actually and
reasonably incurred by Indemnitee in connection with such action or proceeding
if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe Indemnitee's conduct
was unlawful. The termination of any action or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, create a presumption that (i) Indemnitee did not act in
good faith, (ii) Indemnitee did not act in a manner which Indemnitee reasonably
believed to be in the best interests of the Company, or (iii) with respect to
any criminal action or proceeding, Indemnitee had no reasonable cause to believe
that Indemnitee's conduct was unlawful.
(B) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor (i) by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, or
(ii) by reason of the fact that Indemnitee is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and, to the fullest extent permitted by law, amounts
paid in settlement, in each case to the extent actually and
25
<PAGE>
reasonably incurred by Indemnitee in connection with the defense or settlement
of such action or proceeding if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the best interests of the Company and
its shareholders, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of Indemnitee's duty to the Company and
its shareholders unless and only to the extent that the court in which such
action or proceeding is or was pending shall determine upon application that, in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for expenses and then only to the extent that the court
shall determine.
2. INDEMNIFICATION PROCEDURE AND DETERMINATION.
(A) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action or proceeding referenced in Section
1(a) or (b) hereof (but not amounts actually paid in settlement of any such
action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company.
(B) NOTICE AND COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three business days after the date
postmarked if sent by domestic certified or registered mail, properly addressed;
otherwise notice shall be deemed received when such notice shall actually be
received by the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
lndemnitee's power.
(C) DETERMINATION OF RIGHT TO INDEMNITY. Any indemnification provided
for in Section 2 shall be made no later than forty-five (45) days after receipt
of the written request of Indemnitee. If a claim under this Agreement, under any
statute, or under any provision of the Company's Articles of Incorporation or
Bylaws providing for indemnification, is not paid in full by the Company within
forty-five (45) days after a written request for payment thereof has first been
received by the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 13 of this Agreement, Indemnitee shall also be entitled
to be paid for the expenses (including attorneys' fees) reasonably incurred of
bringing such action. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in connection with any
action or proceeding in advance of its final disposition) that Indemnitee has
not met the standards of conduct which make it permissible under applicable law
for the Company to indemnify Indemnitee for the amount claimed, but the burden
of proving such defense shall be on the Company, and Indemnitee shall be
entitled to receive interim payments of expenses pursuant to Subsection 2(a)
unless and until such defense may be finally adjudicated by court order or
judgment from which no further right of appeal exists.
It is the parties' intention that if the Company contests Indemnitee's right
to indemnification, the question of Indemnitee's right to indemnification shall
be for the court to decide, and neither the failure of the Company (including
its Board of Directors, any committee or subgroup of the Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
that indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct required by applicable
law, nor an actual determination by the Company (including its Board of
Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its shareholders) that
26
<PAGE>
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.
(D) NOTICE TO INSURERS. If, at the time of the receipt of a notice of
a claim pursuant to Section 2(b) hereof, be Company has director and officer
liability insurance in effect; the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(E) SELECTION OF COUNSEL. In the event the Company shall be obligated
under any provision of this Agreement to indemnify Indemnitee or to pay the
expenses of any proceeding against Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by Indemnitee, which approval shall not be unreasonably withheld, upon
the delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ his counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the reasonable fees and expenses of Indemnitee counsel shall be
at the expense of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(A) SCOPE. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee for acts, omissions or
transactions while acting in the capacity of, or in the course of serving as, a
director, officer or other agent of the Company or any subsidiary of the
Company, or as a director, officer or other agent of another corporation,
partnership, joint venture, trust or other enterprise if Indemnitee is or was
serving at the request of the Company, to the fullest extent permitted by law,
notwithstanding that such indemnification is not specifically authorized by the
other provisions of this Agreement, the Company's Articles of Incorporation, the
Company's Bylaws or by statute. In the event of any change, after the date of
this Agreement, in any applicable law, statute or rule which expands the right
of a California corporation to indemnify a member of its board of directors, an
officer or other agent, such changes shall be, IPSO FACTO, within the purview of
Indemnitee's rights and Company's obligations, under this Agreement. In the
event of any change in any applicable law, statute or rule which narrows the
right of a California corporation to indemnify a member of its Board of
Directors, an officer or other agent, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(B) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its Bylaws, any agreement, any
vote of shareholders or disinterested directors, the General Corporation Law of
the State of California, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in such capacity at the time of
any action or other covered proceeding.
4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him
in the investigation, defense, appeal or settlement of any civil or
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criminal action or proceeding, but not, however, for the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
6. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company in its
discretion may, from time to time, purchase and maintain insurance on behalf of
any person who is a director, officer, employee or other agent against any
liability asserted against such person and incurred by him in such capacity or
arising out of his status as such, whether or not the Company would be required
to indemnify such person against such liability under the provisions of this
Agreement.
7. SEVERABILITY. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Section 7. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
8. EXCEPTIONS. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(A) EXCLUDED ACTS. To indemnify Indemnitee for any acts or omissions
or transactions from which a director may not be relieved of liability under the
California General Corporation Law.
(B) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 317 of the California General Corporation Law, but such indemnification
or advancement of expenses may be provided by the Company in specific cases if
the Board of Directors has approved the initiation or bringing of such suit; or
(C) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with the respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(D) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Company; or
(E) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation (of Section 16(b) of the Securities Exchange Act of
1934, as amended, or any similar successor statute.
9. EFFECTIVENESS OF AGREEMENT. To the extent that the indemnification
permitted under the terms of certain provisions of this Agreement exceeds the
scope of the indemnification provided for in the California General Corporation
Law, such provisions shall not be effective unless and until the Company's
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Articles of Incorporation authorize such additional rights of indemnification.
In all other respects, the balance of this Agreement shall be effective as of
the date set forth on the first page and may apply the acts or omissions of
Indemnitee which occurred prior to such date if Indemnitee was an officer,
director, employee or other agent of the Company, or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, at the time such act or
omission occurred.
10. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of that payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of any documents necessary to enable the Company effectively to bring suit to
enforce such rights.
11. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents, so that if
Indemnitee is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For the purposes of this Agreement, "agent" means any person who is or
was a director, officer, employee or other agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise. "Proceeding" means any threatened, pending or completed action
or proceeding, whether civil, criminal and administrative or investigative.
(c) For purposes of this Agreement, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on Indemnitee with respect to an employee benefit plan; and
references to "serving at the request of the Company" shall include any service
as a director, officer, employee or agent of the Company which imposes duties
on, or involves services by, such director, officer, employee or agent with
respect to an employee benefit plan, its participants, or beneficiaries.
(d) Where used in this Agreement, the masculine gender includes the feminine
gender.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including reasonable attorneys' fees,
incurred by Indemnitee in defense of such action (including with respect to
Indemnitee counterclaims and cross-claims made in such action), unless as a part
of such action the court determines that each of Indemnitee material defenses to
such action were made in bad faith or were frivolous.
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<PAGE>
14. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
16. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed in accordance within the laws of the State of California as applied to
contracts between California residents entered into and to be performed entirely
within California.
17. ENTIRE AGREEMENT, AMENDMENT. This Agreement contains the entire
integrated Agreement between the parties hereto concerning the subject matter
hereof and supersedes all prior negotiations, representations or agreements,
whether written or oral, except for the Company's Articles of Incorporation and
Bylaws. It may be amended only by a written instrument signed by a duly
authorized officer of Company and by Indemnitee.
18. SECTION HEADINGS. The Section and Subsection headings in this
Agreement are solely for convenience and shall not be considered in its
interpretation.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CERTIFIED GROCERS OF CALIFORNIA, LTD.
By:
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Title:
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Address:
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AGREED TO AND ACCEPTED:
INDEMNITEE:
- ------------------------
Address:
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30
<PAGE>
PRELIMINARY COPY
P R O X Y
SOLICITED BY THE BOARD OF DIRECTORS OF
CERTIFIED GROCERS OF CALIFORNIA, LTD.
FOR ANNUAL MEETING OF SHAREHOLDERS ON APRIL 15, 1997
The undersigned, revoking any previous proxies respecting the subject matter
hereof, hereby appoints WILLARD R. MACALONEY, ALFRED A. PLAMANN and ROBERT M.
LING, JR. attorneys and proxies (each with power to act alone and with power of
substitution) to vote all of the Class A Shares which the undersigned is
entitled to vote and all of the Class B Shares which the undersigned is entitled
to vote, with all powers which the undersigned would possess if personally
present, at the Annual Meeting of Shareholders of Certified Grocers of
California, Ltd. (the "Company"), to be held on April 15, 1997, notice of which
meeting and the proxy statement accompanying the same have been received by the
undersigned, or at any adjournment thereof, as follows:
1. ELECTION OF DIRECTORS.
ELECTION OF TWELVE DIRECTORS BY CLASS A SHARES.
Nominees: Louis A. Amen, John Berberian, John T. Fujieki, Darioush
Khaledi, Mark Kidd, Willard R. MacAloney, Jay McCormack, Morrie Notrica,
Michael A. Provenzano, Gail Gerrard Rice, James R. Stump and Kenneth
Young
/ / FOR all nominees listed above, EXCEPT ANY WHOSE NAMES ARE CROSSED OUT
IN THE ABOVE LIST (the Board of Directors favors an instruction to vote
for all nominees).
/ / WITHHOLD AUTHORITY to vote for all nominees listed above.
ELECTION OF THREE DIRECTORS BY CLASS B SHARES.
Nominees: Michael Bonfonte, Harley J. DeLano and Roger K. Hughes
/ / FOR all nominees listed above, EXCEPT ANY WHOSE NAMES ARE CROSSED OUT
IN THE ABOVE LIST (the Board of Directors favors an instruction to vote
for all nominees).
/ / WITHHOLD AUTHORITY to vote for all nominees listed above.
2. APPROVAL BY CLASS A SHARES OF THE AMENDMENT TO THE ARTICLES OF
INCORPORATION.
/ / IN FAVOR / / AGAINST / / ABSTAIN
3. APPROVAL BY CLASS A SHARES OF AND AUTHORIZATION TO ENTER INTO
INDEMNIFICATION AGREEMENTS.
/ / IN FAVOR / / AGAINST / / ABSTAIN
4. APPROVAL BY CLASS A SHARES OF THE PLAN RESPECTING LOANS OR GUARANTIES.
/ / IN FAVOR / / AGAINST / / ABSTAIN
5. In their discretion, on such other matters as may properly come before
the meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED, BUT IF NO
DIRECTION IS INDICATED IT WILL BE VOTED "FOR" ITEM 1, "IN FAVOR" OF ITEMS 2, 3
AND 4, AND ACCORDING TO THE DISCRETION OF THE PROXIES ON ANY OTHER PROPERLY
PRESENTED MATTERS.
<TABLE>
<S> <C>
DATED: ----------------, 1997
- ------------------------------------------------- -------------------------------------------------
Signature Title
- ------------------------------------------------- -------------------------------------------------
Signature Title
- ------------------------------------------------- -------------------------------------------------
Signature Title
</TABLE>
PLEASE READ: Execution should be exactly in the name in which
the shares are held; if by a fiduciary, the fiduciary's full
title should be shown; if by a corporation, execution should be
in the corporate name by its chairman of the board, president or
a vice president, or by other officers authorized by resolution
of its board of directors or its bylaws; if by a partnership,
execution should be in the partnership name by an authorized
person.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
