<PAGE> 1
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
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Grossman's Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[Grossman's Logo]
GROSSMAN'S INC.
45 DAN ROAD
CANTON, MASSACHUSETTS 02021-2817
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 12, 1996
PLEASE TAKE NOTICE that the Annual Meeting of Stockholders of Grossman's
Inc. (the "Company") will be held on Thursday, September 12, 1996, at 10:30
a.m., local time, at the Sheraton Tara Hotel, 37 Forbes Road, Braintree,
Massachusetts, for the following purposes:
1. To elect six (6) directors of the Company.
2. To vote upon the approval of Ernst & Young LLP as independent
auditors for the Company for 1996.
3. To vote upon the ratification of the issuance of shares of the
Company's Common Stock upon conversion of certain convertible notes.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof. Management does not know of any other
business to be presented to the Annual Meeting.
Holders of record of the Company's Common Stock at the close of business on
July 17, 1996 are entitled to notice of and to vote at the meeting or any
adjournment thereof. A list of stockholders entitled to vote at the meeting will
be open to examination by stockholders at the meeting and during normal business
hours from August 30, 1996 to the date of the meeting at the offices of Donald
Carvin, 44 Adams Street, Braintree, Massachusetts 02185.
By Order of the Board of Directors
RICHARD E. KENT
Secretary
July , 1996
Whether or not you expect to attend the meeting, please complete, date,
sign and return the enclosed proxy, WHICH IS SOLICITED BY MANAGEMENT, in the
enclosed envelope, which does not require postage if mailed in the United
States.
<PAGE> 3
GROSSMAN'S INC.
45 DAN ROAD
CANTON, MASSACHUSETTS 02021-2817
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the management of Grossman's Inc. (the "Company") for use at the
Annual Meeting of Stockholders of the Company (the "Annual Meeting") to be held
at the Sheraton Tara Hotel, 37 Forbes Road, Braintree, Massachusetts, on
Thursday, September 12, 1996, at 10:30 a.m., local time, and any adjournment
thereof. The Company's Annual Report, including financial statements for the
year ended December 31, 1995, was sent to the Company's stockholders on April
17, 1996. This Proxy Statement and the related proxy card and the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 are being
sent to the Company's stockholders on or about July , 1996.
Please complete, sign, date and return the enclosed proxy. The proxy
solicited hereby may be revoked at any time by executing and delivering a proxy
of a later date, by delivering written notice of revocation to the Secretary of
the Company or by attending the meeting and giving notice of the intention to
vote in person.
Subject to certain restrictions on voting described under the heading
"Restrictions on Accumulation of Common Stock," properly executed, delivered and
unrevoked proxies in the form enclosed will be voted at the Annual Meeting or
any adjournment thereof in accordance with the directions thereon. In the
absence of such directions, the proxy will be voted for the election as
directors of the six nominees nominated by the Board of Directors, for the
approval Ernst & Young LLP as the Company's auditors for 1996, for the
ratification of the issuance of Common Stock of the Company and otherwise in
accordance with the recommendations of management.
Management does not know of any matters other than those set forth herein
which may come before the Annual Meeting. If any other matters are properly
presented to the meeting for action, it is intended that the persons named in
the enclosed form of proxy and acting thereunder will vote in accordance with
their best judgment on such matters.
VOTING SECURITIES
The only class of voting securities of the Company is its Common Stock, par
value $.01 per share ("Common Stock"). The holders of record of the outstanding
shares of Common Stock at the close of business on July 17, 1996 are entitled
to notice of, and to vote at, the Annual Meeting. Holders of Common Stock are
entitled to one vote for each share held on matters properly presented to the
Annual Meeting, except as described below under "Restrictions on Accumulation
of Common Stock."
As of July 17, 1996, there were 26,895,991 shares of Common Stock issued
and outstanding.
The holders of a majority of the issued and outstanding shares of Common
Stock, present in person or represented by proxy and entitled to vote, will
constitute a quorum for the transaction of business at the Annual Meeting.
Directors shall be elected by a plurality of the votes cast at the meeting. The
favorable vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy and entitled to vote thereon is
required for the approval of proposals 2 and 3. Under Delaware law and the
Company's By-Laws, an abstention from voting has no effect on the election of
directors and has the effect of a vote against proposals 2 and 3. When a proxy
is returned and properly signed, the shares represented will be
<PAGE> 4
voted in accordance with your directions. Where choices or abstention are not
indicated, proxies will be voted FOR proposals 2 and 3.
On July 17, 1996, Sydney L. Katz, as trustee under the Company's Savings
Plan for its participating employees, held 71,335 shares of Common Stock,
representing less than 1% of the outstanding Common Stock of the Company. Shares
held by the trustee for the account of employees will be voted in accordance
with written instructions from such employees, and, where no instructions are
received, will not be voted.
PROPOSAL 1:
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS' NOMINATIONS FOR DIRECTORS
The Board of Directors has nominated the six individuals named below for
election as directors at the Annual Meeting, each to serve until the next Annual
Meeting and until a successor is elected and qualified. Each of the nominees is
currently a director of the Company. Unless otherwise directed, the proxies
named in the accompanying form of proxy intend to vote for such nominees. If any
of the nominees should not be available for election, the persons named as
proxies may vote in their discretion for another nominee designated by the Board
of Directors in such person's place. Management has no reason to believe that
any nominee named below will be unavailable for election.
Harold Tanner retired from the Board of Directors in December 1995. The
vacancy on the Board created by Mr. Tanner's retirement was not filled. Wallace
McDowell retired from the Board of Directors in June 1996 and Stephen Oresman
retired from the Board of Directors in July 1996. Accordingly, the size of the
Board has been fixed at six. The Board of Directors accepted the resignations of
Messrs. Tanner, Oresman and McDowell with an expression of appreciation for
their dedicated counsel and years of service to the Company.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES NAMED
BELOW FOR ELECTION AS DIRECTORS.
Except as indicated below, each of the nominees has had the same principal
occupation for the past five years.
RUSSELL COX has been President of Resort Management Inc., a property
management and real estate consulting firm located in New Castle, New Hampshire,
since 1977 and has been a general partner of Real Estate Venture Fund since
1985. He is a graduate of MIT and Harvard Business School. Mr. Cox has been a
director since 1987 and is age 69.
JOHN R. GREY retired as President of Chevron Corporation in 1985. He is a
director of Academy Studio of Novato, California; he retired as a director of
BankAmericorp and Bank of America NT & SA in 1993. Mr. Grey is a graduate of
Stanford University with a B.S. degree in Chemical Engineering. Mr. Grey has
been a director since 1987 and is age 74.
MAURICE GROSSMAN retired as an employee of the Company in 1994 and served
as Chairman of the Board and Chief Executive Officer of the Company from 1986 to
1990. Mr. Grossman is a graduate of Pennsylvania State University and of Boston
University with an MBA degree. Mr. Grossman has been a director since 1987 and
is age 74.
LEO KAHN has been a partner of United Properties, a real estate
partnership, since 1985. Mr. Kahn was Chief Executive Officer of Purity Supreme
Supermarkets, Inc. from 1949 to 1984. He serves as a director of Staples, Inc.,
Big V Supermarkets, Inc. and Cambridge Sound Works, Inc. Mr. Kahn is a graduate
of Harvard
2
<PAGE> 5
College with an AB degree and of Columbia University with an MS degree. Mr. Kahn
has been a director since 1987 and is age 79.
SYDNEY L. KATZ has been President and Chief Executive Officer of the
Company since December 1, 1994; prior to his election as President he had been
Executive Vice President, Chief Financial Officer and Treasurer of the Company
for more than five years. He has been a director since February 1, 1994. Mr.
Katz is a graduate of the University of Connecticut with a B.S. degree, is a
certified public accountant and is age 54.
ROBERT K. SWANSON has been non-executive Chairman of the Board of the
Company since November 23, 1994 and also serves as Chairman of the Board of RKS,
Inc., an investment and marketing consulting firm in Phoenix, Arizona, and U.S.
Games, Inc., a manufacturing company in Atlanta Georgia. He also serves as a
director of American Southwest Concepts, Inc., Arizona Desert Saguaro, Inc. and
The Thursley Group. He was Chairman and Chief Executive Officer of Del Webb
Corporation, a diversified company located in Phoenix, Arizona, engaged in the
management and development of real estate and leisure operations, from 1981 to
1987, when he retired from that position. He graduated from the University of
South Dakota and studied at the University of Melbourne as a Fulbright Scholar.
Mr. Swanson has been a director since 1987 and is age 64.
BOARD MEETINGS; COMMITTEES
The Board of Directors met six times in 1995. In 1995 each of the current
directors attended at least 75% of the aggregate number of meetings of the Board
of Directors and committees of the Board of Directors on which he served, except
that Mr. Cox attended eight of eleven such meetings.
The Company's Board of Directors has four standing committees. The
committee memberships are indicated below.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee
The Executive Committee may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Company during the intervals between the meetings of the Board of Directors,
to the extent permitted by the By-Laws of the Company and applicable law. The
Executive Committee currently consists of Messrs. Cox, Grey, Katz and Swanson.
The Executive Committee met two times in 1995.
Audit and Finance Committee
The Audit and Finance Committee recommends to the Board of Directors the
engagement of independent auditors for the year, subject to approval by the
stockholders of the Company, reviews with the auditors the plan and scope of the
audit engagement, reviews the annual financial statements of the Company and the
management letter, monitors the Company's system of internal control and its
accounting and reporting practices, reviews compliance with the conflict of
interest policy and other policies of the Company, reviews the capital structure
of the Company and advises the Board of Directors with respect to capital
expenditure programs, dividend policies, equity and debt securities, financial
planning and capital and operating budgets for the Company. The Audit and
Finance Committee currently consists of Messrs. Cox, Swanson and Grossman. The
Audit and Finance Committee met three times in 1995.
Compensation Committee
The Compensation Committee reviews and recommends to the Board of Directors
compensation for senior management of the Company and the adoption, amendment
and implementation of incentive
3
<PAGE> 6
compensation plans, stock option plans, retirement programs and other employee
benefit plans and programs for the Company. The Compensation Committee currently
consists of Messrs. Cox, Grey and Kahn. The Compensation Committee met two times
in 1995.
Nominating Committee
The Nominating Committee reviews the composition and organization of the
Board of Directors of the Company and recommends to the Board of Directors
individuals to fill Board vacancies. The Nominating Committee currently consists
of Messrs. Grossman and Swanson. The Nominating Committee met two times in 1995.
Recommendations from stockholders will be considered by the Nominating Committee
and should be sent to the Secretary of the Company.
COMPENSATION OF DIRECTORS
Pursuant to the 1995 Directors Stock and Option Plan, each director who is
not an employee of the Company receives, as an annual fee, Common Stock of the
Company having an equivalent market value on the date of issuance of $15,000. In
addition, each new Director receives a nonqualified stock option to purchase
25,000 shares of the Company's Common Stock at an exercise price equal to the
fair market value of such stock on the date the option is granted. Each option
is immediately exercisable as to 5,000 shares and will become exercisable to the
extent of an additional 5,000 shares on each of the four succeeding
anniversaries of the date the option is granted. The options expire ten years
from the date of the grant.
In addition, each director who is not an employee of the Company receives
an attendance fee of $500 for each meeting at which he is present in person. The
Chairman of each committee of the Board of Directors receives an annual fee of
$2,000. Each member of a committee (other than an employee of the Company)
receives an attendance fee of $500 for each meeting at which he is present in
person. Directors are reimbursed for expenses incurred in performing their
duties.
Mr. Swanson was elected non-executive Chairman of the Board of Directors on
November 23, 1994. In connection with such election, Mr. Swanson entered into a
consulting agreement with the Company. Pursuant to this agreement, in 1995 Mr.
Swanson received a one-time grant of an option covering 50,000 shares of the
Common Stock of the Company and a one-time issuance of shares of Common Stock of
the Company having a fair market value equal to $20,000 for consulting services
performed in 1994. In addition, commencing with the first quarter of 1995 and
continuing thereafter, Mr. Swanson received and will receive for each day that
he worked during the previous quarter on the affairs of the Company, up to a
maximum of 90 days per calendar year, shares of Common Stock of the Company
having a fair market value on the last day of each calendar quarter equal to
$1,000 and $1,000 in cash. He received $88,000 and 49,591 shares of Common Stock
of the Company for services in 1995.
In May through October 1990, Jay H. Shidler and Robert W. Holman, Jr. (the
"Shidler/Holman Group") unsuccessfully solicited written consents of
stockholders of the Company seeking to remove the directors then in office and
to elect their designees. In order to avoid the diversion of management time and
resources and the expense of a proxy contest, on March 13, 1991, the Company
entered into a Standstill Agreement (the "Standstill Agreement") with Messrs.
Shidler and Holman and Mr. Stephen B. Oresman, pursuant to which the Board of
Directors agreed to nominate as directors a representative of the Shidler/Holman
Group and a second person not financially affiliated with the Shidler/Holman
Group. On March 13, 1991, the Board of Directors increased its size by two
members and elected Messrs. Shidler and Oresman as directors. In 1993, Mr.
Shidler resigned as director, and Mr. McDowell was elected to fill the vacancy.
In February 1995, Mr. Shidler relinquished his right to designate one affiliated
and one independent director. The Standstill Agreement expires on the day
following the Company's 1996 Annual Meeting of Stockholders.
4
<PAGE> 7
OWNERSHIP OF EQUITY SECURITIES
<TABLE>
The following table sets forth the beneficial ownership, reported to the
Company as of March 30, 1996, of Common Stock of the Company, including shares
as to which the right to acquire ownership exists by the exercise of stock
options, within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934 (the "Exchange Act"), of each director and nominee, the chief executive
officer, the other current and former executive officers of the Company who are
"Named Executive Officers" as defined below under "Compensation of Executive
Officers," and all directors and executive officers as a group. As of March 30,
1996, Management owned % of the Common Stock of the Company and intends to
vote their shares in favor of Proposals 2 and 3.
<CAPTION>
NUMBER OF
SHARES OF PERCENT
COMMON OF
NAME STOCK(1)(3) CLASS(2)
---- ---------- -------
<S> <C> <C>
Russell Cox...................................................... 20,866 *
Robert L. Flowers(4)............................................. 106,000 *
John R. Grey..................................................... 32,886 *
Maurice Grossman................................................. 219,886 *
Leo Kahn......................................................... 17,886 *
Sydney L. Katz................................................... 426,805 1.5%
Richard E. Kent.................................................. 95,000 *
David T. Krawczyk................................................ 166,250 *
W. Wallace McDowell, Jr.......................................... 21,886 *
Stephen B. Oresman............................................... 17,886 *
Arthur Ryan...................................................... 59,600 *
Robert K. Swanson................................................ 125,662 *
All directors and executive officers as a group (13
persons)(5).................................................... 1,295,613 4.7%
- ---------------
<FN>
Information with respect to stock ownership has been furnished by the persons
named.
(1) The persons named have sole voting and investment power with respect to
shares listed, except as described under "Standstill Agreement."
(2) Asterisks indicate beneficial ownership of less than 1% of the outstanding
Common Stock.
(3) Stock beneficially owned includes shares which may be acquired upon the
exercise of presently exercisable options and options exercisable within 60
days of March 30, 1996 as follows: Mr. Flowers -- 101,000 shares; Mr.
Grossman -- 200,000 shares; Mr. Katz -- 349,583 shares; Mr. Kent -- 88,000
shares; Mr. Krawczyk -- 151,250 shares; Mr. Ryan -- 48,000 shares; Messrs.
Cox, Grey, Kahn, McDowell, and Oresman -- 10,000 shares each; Mr. Swanson --
30,000 shares; and the group -- 1,017,833 shares. Not included are shares
which may be acquired upon the exercise of options which are not presently
exercisable as follows: Mr. Katz -- 150,417 shares; Mr. Kent -- 10,000
shares; Mr Krawczyk -- 48,750 shares; Mr. Ryan -- 5,000 shares; Messrs. Cox,
Grey, Kahn, McDowell, and Oresman -- 15,000 shares each; Mr. Swanson --
45,000 shares and the group -- 344,167 shares.
(4) Mr. Flowers retired as Executive Vice President -- Real Estate of the
Company on March 1, 1996.
(5) The percentage of outstanding Common Stock held by all directors and
executive officers as a group has been calculated on the basis of 26,088,219
shares of Common Stock outstanding on February 1, 1996, plus 2,756,575
shares of Common Stock subject to options exercisable within 60 days of
March 30, 1996 held by such group.
</TABLE>
SECTION 16(A) REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and beneficial owners of more than 10% of its
Common Stock to file initial reports of ownership and reports of changes in
ownership of the Company's securities with the Securities and Exchange
Commission and to furnish the Company with copies of the reports they file.
Michael Shea was engaged as an Executive Vice President and Chief Financial
Officer of the Company in September 1995 when he was awarded a grant of 10,000
shares of Common Stock of the Company pursuant to the Company's Restricted Stock
Plan and a stock option for 80,000 shares of Common Stock of the Company
pursuant to the Company's 1986 Stock Option Plan. Mr. Shea held 1,000 shares of
Common Stock of the Company when he was employed. Mr. Shea reported such
holdings on his Annual Statement on Form 5 which was filed one-day late on
February 15, 1996.
5
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION OF EXECUTIVE OFFICERS
<TABLE>
The following tables sets forth information with respect to compensation
for services to the Company in 1995 paid to or accrued on behalf of (i) the
chief executive officer as of December 31, 1995 and (ii) each of the four most
highly compensated executive officers of the Company, other than the chief
executive officer, as of December 31, 1995 (collectively, the "Named Executive
Officers"):
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION RESTRICTED
STOCK
NAME AND ------------------- AWARD(S) OPTION ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS ($) AWARDS(#) COMPENSATION(1)
------------------ ---- ------ ----- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sydney L. Katz................... 1995 $400,000 $ --0-- $102,400(2) --0-- $ 520
President and CEO 1994 304,125 --0-- 50,000 235,000 520
1993 274,400 75,000 --0-- --0-- 520
David T. Krawczyk................ 1995 243,875 --0-- 40,960(2) --0-- --0--
Executive Vice President 1994 215,250 63,100 --0-- 35,000 --0--
President of Contractors' 1993 173,301 71,750 --0-- 90,000 --0--
Warehouse Division
Robert L. Flowers................ 1995 197,400 166,859(3) 12,800(2) --0-- 520
Executive Vice President -- 1994 191,800 --0-- --0-- 8,000 520
Real Estate 1993 182,476 --0-- --0-- --0-- 520
(Retired March 1, 1996)
Richard E. Kent.................. 1995 167,700 --0-- 12,800(2) --0-- 520
Vice President, Secretary 1994 164,450 --0-- --0-- 8,000 520
and General Counsel 1993 157,976 7,000 --0-- --0-- 520
Arthur S. Ryan................... 1995 142,500 --0-- 25,600(2) --0-- 520
Vice President and Treasurer 1994 133,812 --0-- --0-- 8,000 520
1993 126,333 7,500 --0-- --0-- 520
- ---------------
<FN>
(1) All Other Compensation includes the Company's contributions to accounts of
the Named Executive Officers under the Company's 401(k) Savings Plan.
(2) The awards made in 1995 were made in lieu of cash salary increases for a two
year period for the named individuals. The number and value of the aggregate
restricted stock holdings at the end of the last completed fiscal year are
as follows: Mr. Katz -- 66,222 shares, $74,500; Mr. Krawczyk -- 16,000
shares, $18,000; Mr. Flowers -- 5,000 shares, $5,625; Mr. Kent -- 5,000
shares, $5,625; and Mr. Ryan -- 10,000 shares, $11,250. The named
individuals who received the awards are eligible to receive dividends on
their shares of restricted stock; however, dividends have not been declared
since the date of the grant of the restricted stock.
(3) Mr. Flowers retired as of March 1, 1996. In 1994 the Board of Directors
approved an award for Mr. Flowers payable upon the closing of the sale of
the Company's former headquarters site to Kmart Corporation and in 1995 he
received a bonus of $166,859 in consideration for services in connection
with such sale.
</TABLE>
<TABLE>
The table below sets forth information with respect to the number and value
of unexercised options held by the Named Executive Officers of the Company on
December 31, 1995. No stock options or stock appreciation rights were exercised
by such persons in 1995, and there are no outstanding stock appreciation rights.
YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1995 AT DECEMBER 31, 1995
ACQUIRED ON VALUE ------------------------------ ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sydney L Katz......... --0-- -- 302,500 197,500 --0-- --0--
David T. Krawczyk..... --0-- -- 110,000 90,000 --0-- --0--
Robert L. Flowers..... --0-- -- 81,750 19,250 --0-- --0--
Richard E. Kent....... --0-- -- 79,500 18,500 --0-- --0--
Arthur S. Ryan........ --0-- -- 42,000 11,000 --0-- --0--
</TABLE>
6
<PAGE> 9
EMPLOYMENT AGREEMENTS
The Company has an employment agreement dated December 1, 1994 with Mr.
Katz, providing for his employment as President of the Company for a three-year
rolling term. His annual base salary under the agreement is $400,000, effective
December 1, 1994. In the event of termination of Mr. Katz's employment without
cause, he would be entitled to a lump sum severance payment (the "Severance
Payment") equal to 300% of his base salary in effect at the time of such
termination. In addition, he would be entitled to a pro rata share of his target
bonus for the year, whether or not earned. If such termination is following a
"change of control," as defined in the agreement, the Severance Payment would be
increased to include 300% of the highest cash bonus earned by him during any of
the last three full calendar years. In the event that any portion of the
Severance Payment would constitute an "excess parachute payment" within the
meaning of Section 280G of the Internal Revenue Code, Mr. Katz will receive a
"gross-up payment" from the Company in an amount sufficient to make Mr. Katz
whole for all taxes imposed with respect to the excess parachute payment
(including the gross-up payment) and any associated interest and penalties.
Following a change of control, Mr. Katz may terminate his employment and receive
the Severance Payment. The employment agreement also provides that his benefit
under the Company's ERISA Excess Plan and its Supplemental ERISA Excess Plan is
to be computed on a final pay formula rather than a career average formula.
Accordingly, his straight life pension benefit accrued as of December 31, 1995
was $74,715, and at age 65, assuming annual compensation to age 65 at his
current base salary, would be $151,097 per year.
The Company also has employment agreements with the two other executive
officers of the Company. The agreements provide for employment for a two-year
rolling term. Any increase in annual salary during the employment term increases
the minimum annual salary under the agreements. The current minimum annual
salaries under the agreements for Messrs. Krawczyk and Kent are $250,000 and
$167,700, respectively. In addition, the agreements provide for severance pay
upon involuntary termination without cause in an amount equal to one year's
annual salary plus any bonus received within the preceding 12-month period. Upon
an involuntary termination without cause or a constructive termination, as
defined in each agreement, within one year following a change in control, the
officer so terminated under the agreements is entitled to severance pay equal to
200% of the greater of (i) of the sum of his base annual salary plus any bonus
received within the preceding 12 months and (ii) the average of the sum of
annual base salary plus bonuses paid during the three twelve-month periods
preceding the termination date.
RETIREMENT PLANS
The Company has a non-contributory defined benefit pension plan (the
"Pension Plan"), which covers substantially all of its employees and an ERISA
Excess Plan (the "EEP"), to preserve certain benefits for employees whose
retirement benefits under the Pension Plan are affected by limitations imposed
by the Internal Revenue Code.
7
<PAGE> 10
<TABLE>
The following table shows the estimated annual benefits payable upon
retirement at age 65 under the Pension Plan as supplemented by the EEP for
services performed and compensation earned through December 31, 1995 on a 100%
straight-life annuity basis to persons in specified remuneration and years-of-
service classifications. The straight-life annuity benefit is approximately 110%
of the 10-year certain benefit. Such benefits reflect a reduction for annual
earnings below $20,900 in 1996 to recognize in part the Company's cost of Social
Security benefits related to credited service under the Pension Plan.
<CAPTION>
YEARS OF SERVICE
ANNUAL ------------------------------------------------------------------------
COMPENSATION 10 YRS. 15 YRS. 20 YRS. 25 YRS. 30 YRS. 35 YRS.
- ------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 6,238 $ 9,008 $ 11,778 $ 14,549 $ 17,319 $ 20,089
$ 100,000 $ 13,053 $ 18,857 $ 24,662 $ 30,466 $ 36,270 $ 42,075
$ 150,000 $ 19,868 $ 28,706 $ 37,545 $ 46,383 $ 55,222 $ 64,060
$ 200,000 $ 26,683 $ 38,555 $ 50,428 $ 62,300 $ 74,173 $ 86,046
$ 250,000 $ 33,498 $ 48,404 $ 63,311 $ 78,218 $ 93,124 $108,031
$ 300,000 $ 40,313 $ 58,253 $ 76,194 $ 94,135 $112,075 $130,016
$ 350,000 $ 47,128 $ 68,102 $ 89,077 $110,052 $131,027 $152,002
$ 400,000 $ 53,943 $ 77,951 $101,960 $125,969 $149,978 $173,987
$ 500,000 $ 67,573 $ 97,650 $127,727 $157,804 $187,881 $217,958
$ 600,000 $ 81,203 $117,348 $153,493 $189,638 $225,783 $261,928
$ 700,000 $ 94,833 $137,046 $179,259 $221,473 $263,686 $305,899
$ 800,000 $108,463 $156,744 $205,025 $253,307 $301,588 $349,870
$ 900,000 $122,093 $176,442 $230,792 $285,141 $339,491 $393,840
$1,000,000 $135,723 $196,140 $256,558 $316,976 $377,393 $437,811
</TABLE>
Reference earnings ("Reference Earnings") covered by the Pension Plan and
EEP include all direct compensation payments, including overtime, bonuses,
vested stock awards, commissions and similar payments. Reference Earnings for
any year are determined by reference to payments made during the year, whereas
compensation set forth in the Summary Compensation Table on page [ ] hereof is
determined by reference to payments, whether made during the year or thereafter,
for services during the year. In 1995, Reference Earnings for the Named
Executive Officers were substantially (within a 10% variance) the same as the
annual compensation (salary and bonus) reported in the Summary Compensation
Table.
Benefits are based upon the average of the highest five of the last ten
years for service prior to 1991 and upon annual reference earnings for each year
thereafter. The Summary Compensation Table on page [ ] hereof does not include
the value of retirement benefits earned in 1995.
As of December 31, 1995 the years of credited service for the individuals
named in the Cash Compensation Table above were: Sydney L. Katz, 12 years, David
T. Krawczyk, 20 years, Robert L. Flowers, 26 years, Richard E. Kent, 25 years
and Arthur S. Ryan 8 years. For purposes of the portion of the Pension Plan
formula determined on a final average pay basis for service prior to 1991,
supplemented by the EEP, the covered compensation for service prior to 1991 of
Messrs. Krawczyk, Flowers, Kent and Ryan are $89,054, $169,558, $184,823 and
$105,791, respectively. Messrs. Flowers and Kent received lump sum benefits
under the Pension Plan at age 65 in 1991 and 1994, respectively. Mr. Katz is
entitled to a retirement benefit computed on a final average pay basis for his
entire credited service.
The EEP is an unfunded plan that provides benefits that would otherwise be
provided by the Pension Plan formula but for the limitations in the Internal
Revenue Code for qualified plans on credited compensation ($150,000 per year)
and annual benefit (presently $120,000 per year). The SEEP was adopted pursuant
to the Company's employment agreement with Mr. Katz, the President and Chief
Executive Officer of the Company, applies only to him, is an unfunded plan and
provides for a benefit otherwise provided by the Pension Plan formula and the
EEP but based upon all of his years of service multiplied by his final average
annual compensation (highest five of last ten years).
8
<PAGE> 11
Mr. Grossman does not participate in the EEP or SEEP and is presently
receiving an annual retirement benefit of $124,147. Mr. Kent accrues benefits
under the Pension Plan during employment reflecting the increase in his lump sum
benefits, if any, attributable to such service.
REPORT OF COMPENSATION COMMITTEE ON ANNUAL COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of independent outside directors of the Company. The Committee
is responsible for determining executive compensation including salaries, bonus
awards and stock options.
The Company's executive compensation programs are designed to correlate
with performance and stockholder value creation. In this connection, the Company
has developed a compensation strategy and specific executive variable
compensation plans that allocate a significant portion of an executive's total
compensation upon achievement of specified goals as set forth in the financial
plans for the operation of the Company. The objectives of the compensation
strategy are to attract and retain the highest level of executive talent, to
motivate the executives to achieve the goals defined by the Company's business
strategies, to link executive and stockholder interests through equity based
plans and to provide a compensation package that recognizes competitive practice
and individual contributions as well as the financial results of operations.
In 1993, the Committee engaged an independent compensation consulting firm
to evaluate the effectiveness of the Company's compensation programs. Responsive
to such report, the Committee has sought to provide for compensation for
executive officers related to Company, divisional and individual performance, to
align the economic interests of management with those of the Company's
stockholders and to ensure that compensation and benefits enable the Company to
attract and retain skilled and effective executives. After consideration of such
factors, the Committee exercises its subjective judgment and discretion in
approving compensation levels and providing benefits for the Company's executive
officers. In comparing executive compensation in 1995 to eight other public
companies primarily engaged in the retailing of building materials, with
revenues in 1995 ranging from $178 million to $15 billion, base salaries for
executives of the Company approximated the median of base salaries for
comparable executive officers of such other companies. The eight building
materials retail companies are not necessarily included in the market indices
set forth on the Comparative Stock Performance Chart on page [ ] of this Proxy
Statement. Market indices generally contain organizations which are considerably
larger and which often operate in different sectors of the retail market than
the Company. The Committee targets a competitive level of the executive market
when comparing compensation but allows deviations from that target to reflect
individual situations and the executive's contributions to initiatives by the
Company to restore liquidity and profitability and to increase stockholder
value. In any case, the Committee does not weight the various factors considered
but exercises its subjective judgment and discretion in fixing base salaries.
The Committee sets policies for and determines the compensation of all of
the corporate officers, including the Named Executive Officers. The Committee
and Mr. Katz jointly review the individual performance of each of the executives
other than Mr. Katz.
The key elements of the Company's executive compensation package are base
salary, annual bonus and stock options. The Committee's policies with respect to
each of these elements, including the bases for the compensation awarded to Mr.
Katz, are discussed below. In addition, the Committee considers the full
compensation package offered by the Company to the executive group, including
pension benefits, supplemental retirement benefits, severance plans, employment
agreements, insurance and other benefits.
The Company does not anticipate that compensation to any executive officer
for 1996 will exceed $1 million for purposes of Section 162(m) of the Internal
Revenue Code, which limits the deductibility of
9
<PAGE> 12
compensation in excess of $1 million annually that is not performance based.
However, the Committee will be evaluating its policy in regards to qualifying
its annual and long-term incentive program in terms of the deductibility cap in
future years.
BASE SALARIES
Base salaries for all executive officers are determined by evaluating the
responsibilities of the position and the experience of the individual, with
reference to the marketplace for executive talent, including a comparison to
base salaries for comparable positions with other corporations. Annual salary
adjustments are determined by evaluating the performance of the Company and of
each executive officer with consideration to any new responsibilities of such
officer, including additional responsibilities assumed due to reductions in
personnel. In the case of corporate officers with responsibility for operating
divisions, the financial results of the division are considered in the context
of economic and competitive factors. The Committee also grants appropriate
consideration to such non-financial performance measures as the quality of work,
business relationships and operational efficiency.
During 1995, Michael Shea was employed as Executive Vice President and
Chief Financial Officer and Charles Hofeller was employed as Vice President-Real
Estate of the Company. The annual salary of $175,000 for Mr. Shea was determined
by reference to his experience and the responsibilities of the office. The
Company also entered into a Severance Agreement with Mr. Shea that provides that
he will be entitled to severance of six months salary in the event of
termination without cause within one year of employment and of one year's salary
in the event of termination without cause thereafter. Mr. Hofeller's annual
salary of $120,000 was determined after consideration of his experience and an
evaluation of his ability to market properties on terms advantageous to the
Company.
ANNUAL BONUS
The Company's executive officers are eligible for an annual cash bonus
awarded by reference to an operating income plan for the Company and, where
appropriate, for a division of the Company. The plan is developed at the end of
the preceding year and generally submitted to the Board of Directors for
approval at its meeting in December of the preceding year or early in the plan
year. Pursuant to his employment agreement, Mr. Katz's bonus will be determined
based upon the attainment of objectives (including non-financial objectives,
which for 1995 included the engagement of a chief financial officer and a
replacement for Mr. Flowers upon his retirement, improvement in intra-company
communication and reductions in overhead) to be established in writing by the
Committee prior to the end of the first quarter of each calendar year. Each
executive officer is assigned a target bonus expressed as a percentage of base
salary. Target bonus levels for all executives, including the President, are
periodically evaluated by the Committee to ensure that they represent
competitive pay opportunities for comparable executives in the retail industry.
In 1995, such target percentage rates ranged from 25% to 50% for executive
officers of the Company, with Mr. Katz assigned a 50% opportunity. Bonuses for
executive officers are awarded as a percentage of the target bonus, ranging from
0% to 150% of the target bonus upon achievement of scaled percentages of the
applicable operating income plan.
In 1995, the Company did not achieve its corporate operating income plan,
and accordingly, no incentive bonuses were paid for services in 1995 under the
Plan to any executive officer of the Company, including the President.
No special bonus award was approved in 1995 except a bonus of 22,222 shares
($50,000 in market value) of Company common stock under the Company's Restricted
Stock Plan for Mr. Katz in recognition of his additional responsibilities upon
his election as President and Chief Executive Officer of the Company in late
1994. Special bonus awards are considered by the Company to be non-recurring and
outside the criteria typically utilized in considering bonuses based upon
operating results.
10
<PAGE> 13
For 1996, the incentive bonus plan for executive officers will be based
upon performance for the last nine months of the year, as results for the first
three months, when the Company closed its Grossman's Store Division in the
Northeast, were distorted by a shortage of working capital. The 1996 percentage
bonus will be based upon salary during the last nine months of the year. In
addition, a profit participation pool will be apportioned from operating profits
of the Company in excess of the financial plan for such last nine months for
distribution ratably to management employees participating in the plan. As a
result, the 1996 incentive plan affords participants an opportunity for a bonus
of up to 200% of the participant's target bonus.
In comparing bonus awards to the eight public companies primarily engaged
in the retailing of building materials, referred to above, target bonuses for
executive officers approximate the median bonus plans for such companies. The
largest building materials retailer provides for bonus compensation for certain
officers well in excess of base salary; however, the other building materials
retailers in the group provide for bonus opportunities as a percent of base
salary in the same range as that provided by the Company.
STOCK OPTIONS
Under the Company's 1986 Nonqualified Stock Option Plan, as amended, stock
options are granted from time to time to key employees, including executive
officers, of the Company. Key employees also include merchandise managers,
certain store managers and other managerial employees with significant profit or
administrative responsibilities. The Committee sets guidelines for the size of
stock option awards based upon competitive practice, base salary and other
factors, including contributions to initiatives adopted by the Company to
increase stockholder value, similar to the factors considered in setting base
salary. The Committee also takes into consideration the number of options
currently held by the key employee in determining the size of option grants.
Stock options are designed to align the interests of executives with those
of the stockholders, as part of the compensation objectives of the Company.
Stock options are granted with an exercise price equal to the market price of
the Company's common stock on the date of grant. The options generally vest over
four years. Accordingly, the full benefit of the options is realized only when
stock price appreciation occurs over an extended period.
The Committee has endeavored to motivate executives by granting options
that present executives an opportunity for significant gains commensurate with
gains in stockholder values.
In 1995, the Company also adopted the 1995 Restricted Stock Plan whereby
awards of Common Stock will be issued to officers and key employees as an
incentive to increase the profitability of the Company. In 1995, the Board of
Directors approved awards under the Plan for an aggregate of 162,000 shares of
Common Stock to 16 officers and key employees in lieu of annual salary increases
for 1995 and 1996.
No stock options were granted to Named Executive Officers in 1995.
CONCLUSION
The programs described above correlate a significant portion of the
Company's executive compensation to individual and corporate performance and
stock price appreciation. The Committee intends to continue the policy of
linking executives' compensation to corporate performance and improvement in
stockholder values, recognizing that economic factors beyond management's
control may result in imbalances for particular periods but that consistent
improvement in corporate performance over the long term will inure to the mutual
benefit of the Company's executives and its stockholders.
The Compensation Committee
John R. Grey, Chairman
Russell Cox
Leo Kahn
11
<PAGE> 14
COMPARATIVE STOCK PERFORMANCE
Set forth below is a line graph comparing the performance of the Company's
Common Stock against the S&P Composite -- 500 Stock Index and the S&P Specialty
Retail Composite Index for the five-year period commencing January 1, 1991 and
ending December 31, 1995.
<TABLE>
COMPARISON OF CUMULATIVE TOTAL RETURN
FISCAL YEAR ENDING DECEMBER 31
<CAPTION>
S&P RETAIL
MEASUREMENT PERIOD GROSSMANS STORES-SPE-
(FISCAL YEAR COVERED) INC. S&P 500 CIALTY INDEX
<S> <C> <C> <C>
DEC-90 100 100 100
DEC-91 124 130 152
DEC-92 206 140 203
DEC-93 141 155 203
DEC-94 118 157 191
DEC-95 53 215 186
</TABLE>
PROPOSAL 2:
APPROVAL OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP as independent
auditors for the Company to examine its consolidated financial statements for
the 1996 fiscal year and requests that stockholders approve such appointment.
Representatives of Ernst & Young LLP will be present at the Annual Meeting and
will have an opportunity to make a statement if they so desire and to respond to
appropriate questions from stockholders.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS.
12
<PAGE> 15
PROPOSAL 3:
RATIFICATION OF THE ISSUANCE OF COMMON STOCK OF THE COMPANY
During the fourth quarter of 1995, the Company met with several potential
strategic and financial buyers and lenders to seek sources of capital or
financing to meet its upcoming debt maturities and provide sufficient liquidity
to adequately stock the stores with merchandise for the 1996 spring selling
season. No outside sources of capital for the continuation of the Grossman's
stores were found and the Company's revolving credit agreement did not provide
sufficient availability to enable the stores to secure sufficient inventory for
the 1996 spring selling season. In addition, funds were not available for the
scheduled $17.3 million of principal and interest payments due on the Company's
14% Debentures, which matured in January 1996. As a result, a course of action
was undertaken to liquidate the Grossman's Division stores, offer the owned
closed store properties for sale and provide the requisite liquidity to service
debt and to support the current operations and future expansions of the
Contractors' Warehouse and Mr. 2nd's Bargain Outlet divisions.
The Company continued to seek additional financing in 1996 and, after
lengthy negotiations, a restructuring and refinancing plan was announced on
March 28, 1996, under which the remaining 60 Grossman's Division stores located
in eight Northeastern states were closed and inventories were liquidated for
approximately $34 million. Four related transactions were also committed to in
the same time period: refinancing of the Company's 14% Debentures due January
1996; sale of the note receivable from Kmart Corporation; obtaining a $33
million mortgage loan secured by the Company's owned properties; and a
commitment for a new long-term revolving credit agreement with increased
borrowing availability. A $40.2 million restructuring charge was recorded in the
1996 first quarter financial statements related to store closing expenses
including severance costs, lease payments, inventory liquidation costs and the
net unrecoverable amount of property plant and equipment.
The 14% Debentures (which were owned by the Illinois State Board of
Investment and affiliates of CNA Insurance Companies) were redeemed for a
combination of cash and notes. Cash payments totaled approximately $12 million.
Notes payable of $3 million, due in three years, with interest payable semi-
annually at 10%, were also issued. These notes are convertible at the holder's
option into shares of the Company's Common Stock at $1.30 per share, the
approximate market value of the shares at the time of issuance. An additional
$2.7 million of non-convertible notes payable, with interest payable
semi-annually at 15% per annum, were also issued. These notes are due in three
years and may be repaid prior to maturity from proceeds of real estate sales,
after full repayment of the mortgage notes described below. Interest on these
notes may be paid in cash or additional notes at the Company's option.
The Company's $15.8 million note receivable from Kmart Corporation,
originally discounted for financial reporting purposes to $12.4 million, was
sold for $13 million in cash on March 22, 1996.
In March 1996 the Company closed the 60 stores in its Grossman's Division
and in April 1996 transferred its owned real estate to GRS Realty Company Inc.,
a wholly-owned subsidiary ("GRS"). GRS entered into a series of agreements
pursuant to which it received a loan of $33 million from a third party, secured
by a mortgage on all of the properties owned by GRS. The Notes issued by GRS in
conjucntion with such transaction include a non-interest bearing Note for the
payment of certain fees, which has since been paid in full, and a non-interest
bearing two-year $4 million Note convertible at maturity into Common Stock of
the Company at $0.75 per share. The remaining mortgage Notes bear interest at
15% per annum, and, in the event of default, $2 million in principal is
convertible into Common Stock of the Company at $1.50 per share. Proceeds from
property sales have been and will be applied to the payment of these Notes.
13
<PAGE> 16
All of the convertible Notes include customary anti-dilution provisions and
initially are convertible into an aggregate of 8,974,358 shares of Common Stock
of the Company, or approximately 34% of the Company's presently outstanding
shares.
In accordance with the terms of the agreements entered into by GRS, the
Company is seeking ratification by stockholders of the issuance of the shares of
Common Stock upon conversion of the convertible Notes. Although the Company
believes it is inapplicable to the transactions described above, the National
Association of Securities Dealers has a rule which requires stockholder approval
in the case of the issuance of securities convertible into Common Stock at a
price less than the greater of book or market value which equals 20% or more of
the outstanding Common Stock. Failure to comply with the foregoing rule may
result in the delisting of the Company's Common Stock from the National Market.
In reaching its determination to approve the restructuring described above,
including the issuance of the shares of Common Stock upon conversion of the
convertible Notes, the Board considered, among other things: the inability to
secure alternative financing on more favorable terms; the likelihood that a
court-supervised liquidation was the only other practicable alternative to the
restructuring and refinancing, which would have resulted in nominal, if any
value, being available to holders of Common Stock; advice from its financial
advisor, Blackstone Group, L.P.; and the need to move quickly to improve
liquidity to support the remaining operations of the Company. While no one
factor was conclusive under the circumstances, the Board determined that,
notwithstanding the substantial potential dilutive impact on the holders of
Common Stock, the restructuring and refinancing described above, including the
issuance of the shares of Common Stock upon conversion of the convertible Notes,
was in the best interest of the Company and its stockholders.
Whether or not Proposal 3 is approved by the Company's stockholders,
stockholders will not have any right to demand an appraisal of the fair value of
their shares pursuant to the Delaware General Corporation Law.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE ISSUANCE
OF SHARES OF COMMON STOCK OF THE COMPANY.
PRINCIPAL STOCKHOLDERS
The following table sets forth the name and address of the only persons
known to the Company to beneficially own more than 5% of the Common Stock as of
February 1, 1996, the number of shares beneficially owned and the percentage so
owned:
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED SHARES
- ------------------------------------------------------------------ --------- ----
<S> <C> <C>
Richard L. Wendt.................................................. 2,691,700 10.3%
3250 Lakeport Blvd.
Klamath Falls, OR 97601
Pioneer Funds..................................................... 2,255,500 8.7%
60 State Street
Boston, MA 02109
Dimensional Funds................................................. 1,448,700 5.6%
1299 Ocean Ave.
Santa Monica, CA 90401
Affiliates of CNA Insurance Companies............................. 2,307,692(1) 8.8%
333 S. Wabash - 41 South
Chicago, IL 60685
</TABLE>
- ---------------
(1) 1,923,078 of these shares are shares which may be acquired upon conversion
of certain convertible Notes issued in March 1996. See Proposal 3.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company purchases windows from Wenco Industries, Inc. ("Wenco"), a
major manufacturer of windows and doors and an affiliate of Richard L. Wendt.
In 1995, purchases totaling $13,929,149 were made at prices competitive in the
market. The Company continues to purchase windows from Wenco on competitive
terms but in reduced quantities in view of the closure by the Company of sixty
of its retail stores in the first quarter of 1996.
14
<PAGE> 17
RESTRICTIONS ON ACCUMULATION OF COMMON STOCK
In order to assist in protecting certain tax benefits, Article Ninth of the
Company's Restated Certificate of Incorporation contains provisions restricting
the acquisition of shares of Common Stock by any person (including any
partnership, corporation or other entity), and provides that shares accumulated
in excess of the prescribed number shall not have voting rights.
In general, Article Ninth, as modified and extended by the Board of
Directors, provides that no person may, voluntarily or involuntarily, acquire
any shares of Common Stock on or prior to December 31, 1996 (or such later date
as may be determined by the Board of Directors), if the number of shares
actually and constructively owned by such person (except for shares issued in
1986 to creditors of Evans pursuant to Evan's reorganization plan under Chapter
11 of the Federal Bankruptcy Code) would be more than 5% of the outstanding
Common Stock on any date (any such excess shares being herein called "Excess
Shares"). For the purposes of this provision, shares are deemed to be
constructively owned by a person if they are considered to be owned by such
person under the constructive ownership rules of Section 318 of the Internal
Revenue Code, except that subsections (a)(2)(C) and (a)(3)(C) of such Section
318 shall be applied by substituting "5 percent" for "50 percent." Under this
provision, shares may be deemed to be constructively owned by a person if such
person holds an option to acquire such shares, if such shares are owned by
certain family members or by a partnership in which such person is a partner, by
a trust or estate of which such person is a beneficiary or by a corporation in
which such person owns 5% or more of the stock, and, in case such person is
itself a partnership, trust, estate or corporation, shares may be deemed to be
constructively owned by such person if they are owned (including shares
constructively owned) by any partner, beneficiary or 5% or greater stockholder,
as the case may be.
In case any person attempts to acquire Excess Shares, voluntarily or
involuntarily, such Excess Shares shall be deemed transferred to the Company or
a third party designated by the Company, in either case as trustee (the
"Trustee"), and the purported owner shall have no right to vote such Excess
Shares or to receive dividends thereon or any other rights with respect thereto,
except the right to receive from the net proceeds realized by the Trustee from
the sale of such Excess Shares and certain other funds that may be available to
the Trustee (or to retain from the proceeds of any disposition thereof by the
purported owner, as agent for the Trustee), an amount not in excess of the
amount paid by such purported owner for such Excess Shares, plus broker's
commissions.
Pursuant to such Article Ninth, any holder of shares of Common Stock is
obligated to notify the Company immediately of any purported acquisition of
Excess Shares and to furnish to the Company all information reasonably requested
by it with respect to all shares of Common Stock actually or constructively
owned by such holder.
Under such Article Ninth, the Board of Directors of the Company is
authorized to extend the period of effectiveness of the above-described
restrictions beyond December 31, 1996, increase the 5% percentage referred to
above, or modify the definition of constructive ownership of shares, if
necessary or desirable to preserve the federal income tax net operating loss or
investment tax credit carryforwards of the Company. Any such determination by
the Board of Directors will be filed with the Secretary of the Company, and
copies will be mailed to the stockholders of the Company.
The foregoing restrictions on acquisition of shares of Common Stock may be
waived by the Board of Directors of the Company and are not applicable to an
acquisition of more than 50% of the outstanding shares of Common Stock for cash
consideration pursuant to any tender offer for all of the outstanding shares of
Common Stock, merger or other business combination in which all holders of such
outstanding shares are given the opportunity to participate. The Board of
Directors has waived such restrictions with respect to (a) shares of Common
Stock acquired and held by the Shidler/Holman Group or Mr. Oresman in compliance
15
<PAGE> 18
with the Standstill Agreement described above (b) shares of Common Stock
acquired by Mr. Richard Wendt and (c) shares of Common Stock acquired by
affiliates of Continental Assurance Corporation.
STOCKHOLDER PROPOSALS
It is anticipated that the 1997 Annual Meeting of Stockholders will be held
on April 23, 1997. In accordance with regulations issued by the Securities and
Exchange Commission, stockholder proposals intended for presentation at that
meeting must be received by the Secretary of the Company no later than November
13, 1996, if such proposals are to be considered for inclusion in the Company's
Proxy Statement.
PROXY SOLICITATION
The expense of preparing, printing and mailing this Proxy Statement, and
the proxy solicited hereby, will be borne by the Company. In addition to the use
of the mails, proxies may be solicited by officers, directors and regular
employees of the Company, without additional remuneration, by personal
interviews, telephone or otherwise. The Company will also request brokerage
firms, nominees, custodians and fiduciaries to forward proxy materials to the
beneficial owners of shares held of record and will provide reimbursement for
the cost of forwarding such materials in accordance with customary charges. The
Company has retained Georgeson & Co., Inc. to aid in the solicitation of
proxies, including soliciting proxies from brokerage firms, banks, nominees,
custodians and fiduciaries. The fees of such firm are estimated at $8,000 plus
out-of-pocket costs and expenses.
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended
December 31, 1995 and certain other related financial and business information
of the Company are included in the Company's 1995 Annual Report furnished to the
stockholders on April 17, 1996, and incorporated herein by reference. In
addition, the Company's financial statements for the quarter ended March 31,
1996 and certain other related financial and business information of the Company
are included in the Company's Quarterly Report on Form 10-Q furnished to the
stockholders along with this Proxy Statement.
By Order of the Board of Directors
RICHARD E. KENT
Secretary
July , 1996
16
<PAGE> 19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROXY
GROSSMAN'S INC.
ANNUAL MEETING OF STOCKHOLDERS, JUNE 25, 1996
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GROSSMAN'S INC.
The undersigned hereby appoints Sydney L. Katz, Robert K. Swanson
and Richard E. Kent, and each of them, proxies of the undersigned,
with power of substitution to each, to vote all shares of Common Stock
of Grossman's Inc. (the "Company") that the undersigned is entitled to
vote at the Annual Meeting of Stockholders of the Company to be held
at the Sheraton Tara Hotel, 37 Forbes Road, Braintree, Massachusetts,
on September 12, 1996, at 10:30 A.M., and at any adjournment thereof,
on all matters coming before the meeting, as indicated on the reverse
side hereof.
Election of Directors: Nominees:
Russell Cox, John R. Grey, Maurice Grossman, Leo Kahn, Robert K.
Swanson and Sydney L. Katz.
PLEASE SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
/X/ Please mark votes as in this example.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. The Board of Directors
favors a vote FOR election of the nominees listed on the reverse side
hereof and FOR the other proposals. If no contrary instructions are
indicated, this Proxy will be voted FOR proposals one, two and three
and AGAINST Proposal four.
The Board of Directors recommends a vote FOR Proposals 1, 2 and 3.
1. ELECTION OF DIRECTORS (see reverse) / / FOR / / WITHHELD
--------------------------------------------------------------------
/ / For all nominees except as noted above
2. APPROVAL OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS / / FOR /
/ AGAINST / / ABSTAIN
<PAGE> 20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. RATIFICATION OF THE ISSUANCE OF NOTES OF THE COMPANY CONVERTIBLE
INTO SHARES OF THE COMPANY'S COMMON STOCK.
/ / FOR / / AGAINST / / ABSTAIN
4. OTHER MATTERS. In their discretion, the proxies are authorized to
vote upon such other matters as may properly come before the
meeting.
Signature:
Date:
Signature:
Date:
Please sign name(s) exactly as
printed herein. Joint owners
should each sign. When signing
as attorney, executor,
administrator, parent or
guardian, give full title as
such. if a corporation, sign on
corporate name by President or
other authorized officer. If a
partnership, sign on
partnership name by authorized
person.
PLEASE MARK, SIGN AND DATE THIS PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
