<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to _______________
Commission File Number 1-542
GROSSMAN'S INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 38-0524830 -
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
45 Dan Road, Canton, Massachusetts 02021
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(Address of principal executive offices) (Zip Code)
(617) 830-4000
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange
Title of Class on Which Registered
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Common Stock, par value $0.01 per share The Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 31, 1997 was $5,317,362 (For this purpose directors
have been deemed affiliates)
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes______ No________
<PAGE> 2
The Company filed a Voluntary Petition pursuant to the provisions of
Chapter 11 of the U.S. Bankruptcy Code on April 7, 1997. No Plan has been
submitted to the Court.
The number of shares of the registrant's class of Common Stock ($.01 par
value) outstanding on March 31, 1997 was 27,978,074.
Documents Incorporated By Reference
This amendment files Part III, Items 10, 11, 12, and 13, incorporated by
reference to this amendment into the Company's Annual Report on Form 10-K.
Part III
Capitalized terms used herein without definition have the meanings
specified in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "1996 Form 10K").
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
As of March 31, 1997, the following seven directors,
constituting the Board of Directors of the Company, were either elected by a
vote of stockholders or appointed by remaining directors to fill vacancies
on the Board of Directors:
Thomas E. Arnold Jr. Age: 52
Mr. Arnold has been President of Thomas E. Arnold & Associates,
a real estate investment firm headquartered in Phoenix, Arizona since 1992.
Mr. Arnold also served as Chairman of the Board of Trustees responsible for
the liquidation of certain assets of Executive Life Insurance Company from
1994 to 1997 and served as court-appointed Chairman of the Board, President
and Chief Executive Officer, in the liquidation of American Continental
Corporation, a real estate investment Company, from 1990 to 1994. Mr.
Arnold has been a director of the Company since December, 1996 when he was
appointed by the Board of Directors to fill a vacancy on the Board.
Russell Cox Age: 70
Mr. Cox has been President of Resort Management Inc., a property
management and real estate consulting firm located in Waterville Valley, New
Hampshire, since 1977 and has been general partner of Real Estate Venture
Fund since 1985. Mr. Cox has been a director of the Company since 1987.
Theodore H. Schnormeier Age: 62
Mr. Schnormeier has been Senior Vice President and a director of JELD-
WEN, inc., a window, door, and mill work manufacturer headquartered in
Klamath Falls, Oregon since 1965. He also serves as a director of Arial
Corporation, a manufacturer of compressors of Mount Vernon, Ohio, and
Palmer-Snyder Company, a furniture manufacturer of Milwaukee Wisconsin. He
has been a director of the Company since February 1997 when he was appointed
by the Board of Directors to fill a vacancy on the Board of Directors.
2
<PAGE> 3
Robert K. Swanson Age: 65
Mr. Swanson has been non-executive Chairman of the Board of the
Company since November 23, 1994 and served as Chief Executive Officer from
October 1996 to February 1997. He also serves as Chairman of the Board of
RKS, Inc., an investment and marketing consulting firm in Phoenix, Arizona.
He also serves as a director of American Southwest Concepts, Inc. and
Arizona Desert Saguaro Inc. 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.
Richard L. Wendt Age: 66
Mr. Wendt has been Chairman of the Board of JELD-WEN, inc., a window,
door and millwork manufacturer headquartered in Klamath Falls, Oregon since
1965. Mr. Wendt has been a director of the Company since February 1997 when
he was appointed by the Board of Directors to fill a vacancy on the Board of
Directors.
Lawrence V. Wetter Age: 63
Mr. Wetter has been a Vice Chairman of JELD-WEN, inc. since 1992. Mr.
Wetter has been a Director of the Company since February 1997 when he was
appointed by the Board of Directors to fill a vacancy on the Board of
Directors.
Dr. Abraham Zaleznik Age: 73
Dr. Zaleznik is Professor of Leadership Emeritus at Harvard Business
School and has been a business and government consultant since 1990. He
also serves as Chairman of the Board of King Ranch Inc., and as a director
of Ogden Corp., Ardco Inc., Timberland Co., Freedom Communication Inc.,
American Greetings Corporation and Butcher Inc. Dr. Zaleznik was a director
of the Company from 1987 to 1994 and rejoined the Board as a director in
December 1996 when he was appointed by the Board of Directors to fill a
vacancy on the Board of Directors.
.
The above elections and appointments to the Board of Directors of the
Company are effective until successor directors are elected and qualified.
The Company anticipates that the Board of Directors will call a meeting of
the stockholders of the Company when practicable to elect directors and vote
upon certain other matters. Messrs. Schnormeier, Wendt and Wetter were
appointed to the Board of Directors pursuant to the Registrant's loan
agreement with G.D.I. Company, Inc., which agreement was filed as an exhibit
to the Registrant's Form 8-K dated March 1997. Under that agreement the
Registrant agreed to use its best efforts to elect Messrs. Schnormeier,
Wendt and Wetter to the Board and, as long as the loan under the agreement
is outstanding, to include the JELD-WEN nominees among the nominees for its
seven member Board of Directors for whom proxies are solicited by the
Registrants' proxy material for Annual Meetings of Stockholders.
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<PAGE> 4
(b) Identification of Executive Officers
Seymour Kroll Age: 69
Mr. Kroll has been President and Chief Executive Officer of the
Company since February 1997. He was President of Sugarcreek Window and Door
Company of Ann Arbor, Michigan from May 1995 to February 1997 and from 1992
to 1994 was President of Acorn Window Systems, Inc. of Quincy, Michigan.
Thomas A. Ford Age: 40
Mr. Ford has been Executive Vice President and Chief Operating Officer
since February 7, 1997. Prior to that time he was President of the
Company's Mr. 2nd's Bargain Outlet Division, a position held since December
8, 1996. From 1994 through such date he was Divisional Vice President and
General Manager of the Bargain Outlet Division, and from 1992 to 1994 he was
Vice President of Operations in the Company's Eastern Division. Mr Ford has
been employed by the Company in a variety of operational positions since
1973.
Richard E. Kent Age: 68
Mr. Kent has been Vice President, Secretary and General Counsel of the
Company for more than five years and has been with the Company 26 years.
Arthur S. Ryan Age: 52
Mr. Ryan has been Vice President and Treasurer of the Company since
December 1994 and was Vice President - Taxes for more than three years prior
to December 1994. He has been with the Company 9 years.
Steven L. Shapiro Age: 39
Mr. Shapiro has been Vice President - Controller of the Company since
September 1995, was Controller from 1993 to 1995 and prior to that time was
Assistant Controller. He has been with the Company 12 years.
(c) Identification of Certain Significant Employees
Not applicable
(d) Family Relationships
Not applicable
(e) Business Experience
The business experience of each director of the Company is set forth
in Item 10(a) hereof, "Identification of Directors", and the business
experience of each executive officer of the Company is set forth in Item
10(b) hereof, "Identification of Executive Officers".
(f) Involvement in certain Legal Proceedings
None
(g) Promoters and Control Persons
Not applicable
4
<PAGE> 5
Item 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information with respect to
compensation for services to the Company in 1996 paid to or accrued on
behalf of (i) all persons serving as the chief executive officer during
1996, and (ii) each of the four most highly compensated executive officers
of the Company, other than the chief executive officer, as of December 31,
1996 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
Long Term
Annual Compensation(1)
Name and Compensation ------------
Principal ----------------- Option All Other
Position Year Salary Bonus Awards # Compensation(5)
---------------------- ---- -------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Robert K. Swanson(2) 1996 $ -0- $75,000 500,000 $172,000
Chairman of the 1995 -0- -0- 75,000 88,000
Board of Directors 1994 -0- -0- -0- 89,500
Sydney L. Katz(3) 1996 306,154 -0- 200,000 506,967
President and CEO 1995 400,000 234,000 -0- 520
1994 304,125 235,000 520
Michael J. Shea(4) 1966 175,000 40,000 -0- 520
Executive Vice 1995 58,333 15,000 80,000 -0-
President/CFO 1994 -0- -0- -0- -0-
Thomas A. Ford 1996 150,000 76,800 100,000 520
Executive Vice Pres. 1995 144,167 40,500 -0- 520
and Pres., Bargain 1994 127,529 -0- 35,000 520
Outlet Division
Richard E. Kent 1996 167,700 -0- -0- 520
Vice President 1995 167,700 -0- -0- 520
Secretary General 1994 164,450 -0- 8,000 520
Counsel
Arthur S. Ryan 1996 145,000 20,000 -0- 520
Vice President 1995 142,500 -0- -0- 520
and Treasurer 1994 133,812 -0- 8,000 520
</TABLE>
<F1>
(1) In addition Mr. Swanson was awarded 100,000 shares and Mr. Katz was
awarded 200,000 shares of Common Stock of the Company in 1996. Named
Executive Officers also received awards of Restricted Common Stock under the
Company's Restricted Stock Plan, as follows: Mr. Katz received 50,000
shares in 1994 and 102,500 shares in 1995; Mr. Shea 10,000 shares in 1995;
Mr. Ford 8,000 shares in 1995; Mr. Kent 5,000 shares in 1994 and Mr. Ryan
10,000 shares in 1994.
<F2>
(2) Mr. Swanson served as Chief Executive Officer from October 4, 1996 until
February 7, 1997. In accordance with Mr. Swanson's engagement agreement,
the stock option granted on October 4, 1996 for 500,000 shares of the
Company's Common Stock at an exercise price of $1.375 per share is subject
to stockholder approval at the next Annual Meeting of Stockholders, and if
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<PAGE> 6
not so approved the Company is to pay Mr. Swanson 500,000 times the
difference upon subtracting $1.375 from the market price for the Company's
stock on the date of the meeting or December 31, 1997, whichever is higher.
Mr. Swanson's compensation shown in the table includes compensation received
as a director of the Company.
<F3>
(3) Mr. Katz served as Chief Executive Officer until October 4, 1996. His
retirement benefit is included under "all other compensation" in the table.
<F4>
(4) Mr. Shea was employed by the Company from September 1995 to March 1997.
<F5>
(5) "All Other Compensation" for the Named Executive Officers other than Mr.
Swanson includes a $520 Company contribution under the Company's 401(k)
Savings Plan.
The table below sets forth the information with respect to options
granted to the Named Executive Officers in 1996. The options listed below
are reflected in the Summary Compensation Table above. No stock
appreciation rights were granted by the Company in 1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------- AT ASSUMED ANNUAL
% OF RATES OF STOCK
TOTAL PRICE APPRECIATION
OPTIONS EXERCISE FOR OPTION TERM
OPTIONS TO PRICE EXPIRATION ------------------
GRANTED EMPLOYEES ($/SH) DATE 5% $ 10% $
------- --------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert K. Swanson(1)500,000 36.5 $1.37 10/04/06 432,400 $1,095,700
Sydney L. Katz.... 200,000 14.6 $1.625 08/21/06 204,400 $ 518,000
Thomas A. Ford.... 100,000 7.3 $1.625 08/21/06 102,200 $ 259,000
</TABLE>
<F1>
(1) The option to acquire 500,000 shares of the Company's stock is subject
to stockholder approval; if not so approved his engagement agreement (see
Employment and Other Agreements) provides for a cash payment equal to the
number of shares times stock appreciation.
<TABLE>
<CAPTION>
YEAR-END OPTION VALUES
Number of Value of Unexercised
Options In-the-Money Options
Shares at December 31, 1996 at December 31, 1996
Acquired --------------------- --------------------
on Value Exer- Unexer- Exer- Unexer-
Name Exercise Realized cisable cisable cisable cisable
--------------- -------- -------- --------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Ford - - 32,500 117,500 - -
Richard E. Kent - - 94,000 4,000 - -
Robert K. Swanson - - 30,000 545,000 - -
Arthur S. Ryan - - 49,000 4,000 - -
Michael J. Shea - - 20,000 -0- - -
</TABLE>
6
<PAGE> 7
EMPLOYMENT AND OTHER AGREEMENTS
The Company had 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 was
$400,000. Upon termination without cause, the contract provided for a lump
sum severance payment ("Severance Payment") equal to 300% of his base salary
in effect at the time of such termination plus his target bonus for the
current year (50% of base salary for 1996). The agreement also provided for
continued medical and other benefits for three years and additional
severance in the event of termination following a "change of control." In
addition the agreement provided that his benefits under the Company's ERISA
Excess Plan and Supplemental ERISA Excess Plan were to be computed on a
final pay formula rather than a career average formula. As of October 4,
1996, Mr. Katz resigned from the offices of President and Chief Executive
Officer and entered into a negotiated Retirement Agreement that terminated
the employment agreement except for provisions preserving (i) the
continuation of medical and other benefits for three years following
termination, (ii) his right to a "gross-up payment" in the event he is
subject to a surtax on any excess parachute payment, (iii) his agreement not
to disclose confidential information and (iv) his agreement not to compete
with the Company for one year. Under the Retirement Agreement Mr. Katz
received a payment of $506,447 and 200,000 shares of the Company's common
stock on October 4, 1996. He was due to receive payments of $356,445 plus
accrued interest on January 3, and April 4, 1997, each; however such amounts
have not been paid.
On October 5, 1996, Mr. Swanson was elected as Chief Executive Officer
of the Company in addition to his continuing duties as Chairman of the Board
of Directors. The Company entered into an Amended and Restated Agreement
("Engagement Agreement") with Mr. Swanson providing, among other terms,
for (i) continuation of his $15,000 annual retainer as a director, payable
in stock, $2,000 per year in cash for service as Chairman of the Executive
Committee, and $500 in cash for attending each meeting of the Board or any
Board committee of which he is a member (ii) $1,000 in cash plus $1,000 in
Company stock for each day up to a maximum of 150 days per calendar year for
services rendered as Chief Executive Officer and Chairman of the Board of
Directors, (iii) a stock option for 500,000 shares of common stock at an
exercise price of $1.375 per share and (iv) the issuance to Mr. Swanson of
100,000 shares of common stock. The agreement also provided for stock
bonuses based upon increases in stock values and severance upon termination
by the Company without cause. Mr. Swanson resigned as Chief Executive
Officer effective February 7, 1997 and his Engagement Agreement was
terminated; however, the Company agreed to continue to pay Mr. Swanson at
the rate of $2,000 per day for services rendered as Chairman of the Board of
Directors.
Effective April 3, 1997 Mr. Swanson's prior agreements were restated
to provide among other terms, for continuation of his compensation as a
director, including attendance fees, plus $2,000 per day for up to 40 days
from April 3, 1997 to July 7, 1997 and up to 60 days from July 8, 1997 to
December 31, 1997. The term of the restated agreement expires on the
earlier of December 31, 1997 or the date upon which JELD-WEN or an affiliate
sells or disposes of its position as a lender to the Company ("Termination
Date"). In the event of termination by either the Company or Mr. Swanson
prior to the Termination Date, Mr. Swanson will receive $200,000 less
amounts previously paid as per diem compensation.
7
<PAGE> 8
Thomas E. Arnold had a consulting agreement with the Company, dated
February 16, 1996, to raise capital from borrowings secured by or proceeds
from the sale of the Eastern Division stores. The Company paid Mr. Arnold a
retainer of $15,000 and if he had been successful, a success fee of 2 1/2%
of the funds received by the Company would have been payable. In addition
on April 15, 1997 the Company engaged Mr. Arnold to supervise the Company's
Chapter 11 proceeding at a rate of $2,000 per day plus certain other
benefits to be incorporated into an agreement, which will be subject to
approval by the Bankruptcy Court. No fees, other than the $15,000 retainer,
were paid to Mr. Arnold for consulting services in 1996.
Mr. Shea left the Company on March 3, 1997. He had an Amended and
Restated Employment and Severance Agreement dated December 12, 1996 that
provided for a lump sum severance payment equal to his annual base salary of
$200,000 upon termination by the Company and 200% of such amount upon
termination following certain events. In addition, he had been awarded a
bonus of 10,000 shares of the Company's common stock subject to a restricted
stock agreement dated in November 1995. The restricted stock agreement
provided for forfeiture of the stock in the event he resigned prior to April
25, 1998 unless the Company agreed to waive such forfeiture. Mr. Shea was
also awarded a bonus of $40,000 on January 16, 1997 pursuant to an agreement
to repay such amount if he left the employment of the Company prior to May
30, 1997. Neither the 10,000 shares of the Company's stock nor the $40,000
bonus has been returned to the Company; however, the Company has withheld
certain amounts otherwise due to Mr. Shea to partially off-set such amounts
and other obligations due by Mr. Shea to the Company.
The Company also awarded bonuses to Messrs. Ford and Ryan on January
16, 1997 in the amounts of $76,800 and $20,000, respectively pursuant to
agreements providing for forfeiture of such amounts in the event they leave
the employment of the company before May 30, 1997. Mr. Ryan also has been
advised by the Company that he will receive his normal severance (annual
salary plus bonus) in a lump sum payment plus an additional amount equal to
his target bonus ($36,250) if he does not leave the Company prior to
December 31, 1997. In addition he was advised that the Company would
continue his medical and certain other benefits for six months following an
involuntary termination.
The Company has an employment agreement with Mr. Kent providing for
his employment for a two-year rolling term. Mr. Kent's minimum salary under
his agreement $167,700. In addition, upon involuntary termination without
cause he would be entitled to severance equal to his annual salary plus any
bonus received within the preceding 12-month period. Upon such a
termination or a constructive termination, following a change in control, he
would be entitled to 200% of the greater of (i) his annual salary plus any
bonus received within the preceding 12 months and (ii) the average of his
annual base salary plus bonuses paid during the preceding three years.
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 payable in
Common Stock of the Company having an equivalent market value on the date of
issuance of $15,000. In addition, each such new Director receives a
nonqualified stock option to purchase 25,000 shares of the Company's Common
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<PAGE> 9
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 and $200 for each telephonic meeting lasting more than one hour.
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 and $200 for each telephonic meeting lasting more than one
hour. 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 Prior to his
agreement effective October 5, 1996 (see above under "Employment and Other
Agreements"), Mr Swanson received for each day that he worked 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
$136,000 and 176,152 shares of Common Stock of the Company for services in
1996 in addition to the 100,000 shares received upon becoming Chief
Executive Officer in October 1996.
Item 12. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
MANAGEMENT AND DIRECTORS
The following table sets forth the beneficial ownership, reported to
the Company as of March 30, 1997, 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, the current
chief executive officer, each of the "Named Executive Officers" as defined
above under "Compensation of Executive Officers," and all directors and
executive officers as a group.
9
<PAGE> 10
<TABLE>
<CAPTION>
Number of Shares of Percent of
Name Common Stock (1)(3) Class (2)
------------------------------------------- ------------------- ---------
<S> <C> <C>
Thomas E. Arnold, Jr....................... 19,873 *
Russell N. Cox............................. 30,440 *
Thomas A. Ford............................. 42,500 *
Sydney L. Katz............................. --0---
Richard E. Kent............................ 97,000 *
Seymour Kroll.............................. --0--- *
Arthur S. Ryan............................. 63,100 *
Theodore H. Schnormeier.................... 39,047 *
Michael J. Shea............................ --0---
Robert K. Swanson.......................... 525,296 1.8%
Richard L. Wendt........................... 3,147,200 10.0%
Lawrence V. Wetter......................... 39,047 *
Dr. Abraham Zaleznik....................... 30,873 *
All of the directors and executive officers
as a group (13 persons) ................ 4,034,376 13.0%
</TABLE>
Information with respect to stock ownership has been furnished by the
persons named or reported by reference to filings with the Securities and
Exchange Commission, except with respect to Messrs. Katz and Shea, whose
holdings are based solely upon ownership of record (see also "Employment and
other Agreements")
<F1>
(1) The persons named have sole voting and investment power with respect
to shares listed.
<F2>
(2) Asterisks indicate beneficial ownership of less than 1% of the
outstanding Common Stock.
<F3>
(3) Stock beneficially owned includes the following shares which may be
acquired upon the exercise of options within 60 days of March 31, 1997, as
follows: Mr. Arnold -- 5,000 shares; Mr. Cox -- 10,000 shares; Mr. Ford --
34,000 shares; Mr. Kent -- 95,000 shares; Mr. Ryan --50,000 shares; Mr.
Schnormeier -- 5,000 shares; Mr. Swanson -- 30,000 shares; Mr. Wendt --
5,000 shares; Mr. Wetter -- 5,000 shares; Dr. Zaleznik -- 5,000 shares; and
the group -- 235,000 shares. Not included are shares which may be acquired
upon the exercise of options which are not presently exercisable by May 31,
1997 as follows: Mr. Arnold 20,000 shares; Mr. Cox 15,000 shares; Mr. Ford
115,000 shares; Mr. Kent -- 3,000 shares; Mr. Ryan 3,000 shares; Mr.
Swanson --545,000 shares; Messrs. Schnormeier, Wendt, Wetter Zaleznik 20,000
shares each; and the group -- 781,000 shares.
<F4>
(4) The percentage of outstanding Common Stock held by all directors and
executive officers as a group has been calculated on the basis of 27,978,074
shares of Common Stock outstanding on March 30, 1997, plus 742,000 shares of
Common Stock subject to stock options exercisable by May 31, 1997 held by
such group.
<F5>
(5) Mr. Katz resigned as President and Chief Executive Officer of the
Company on October 4, 1996 and Mr. Shea, Executive Vice President and Chief
Financial Officer of the Company, left the Company on March 3, 1997 (See
Employment and Other Agreements).
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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.
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, 1996 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 $21,800 in 1997 to recognize in part the
Company's cost of Social Security benefits related to credited service under
the Pension Plan.
<TABLE>
<CAPTION>
Years of Service
Annual ----------------------------------------------------------
Compensation 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 6,103 $ 8,681 $ 11,310 $ 13,938 $ 16,567 $ 19,195
100,000 12,844 18,275 23,807 29,338 34,870 40,401
150,000 19,584 27,869 36,304 44,738 53,173 61,608
200,000 26,325 37,463 48,801 60,138 71,476 82,814
250,000 33,066 47,056 61,297 75,539 89,780 104,021
300,000 39,807 56,650 73,794 90,939 108,083 125,227
350,000 46,547 66,244 86,291 106,339 126,386 146,434
400,000 53,288 75,838 98,788 121,739 144,689 167,640
500,000 66,770 95,025 123,782 152,539 181,296 210,053
600,000 80,251 114,213 148,776 183,339 217,903 252,466
700,000 93,733 133,401 173,770 214,140 254,509 294,879
800,000 107,214 152,588 198,764 244,940 291,116 337,292
900,000 120,696 171,776 223,758 275,740 327,722 379,704
1,000,000 134,177 190,963 248,752 306,540 364,329 422,117
</TABLE>
Reference earnings ("Reference Earnings") covered by the Pension Plan, and
EEP include all direct compensation payments, including overtime, bonuses,
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 is determined by
reference to payments, whether made during the year or thereafter, for
services during the year. In 1996, 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 does not include the
value of retirement benefits earned in 1996.
11
<PAGE> 12
As of December 31, 1996 the years of credited service for the employees
named in the Cash Compensation Table above were: Sydney L. Katz, 13 years,
Thomas A. Ford, 23 years, Richard E. Kent, 26 years and Arthur S. Ryan, 9
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. Ford,
Kent and Ryan are $75,060, $184,823, and $105,791, respectively. Mr. Kent
received lump sum benefits under the Pension Plan at age 65 in each of 1994
and 1995 and has not accrued any additional benefit since 1995. Mr. Katz is
entitled to a retirement benefit computed on a final average pay basis for
his entire credited service. Mr. Shea does not have any vested benefit
under the plan.
REPORT OF COMPENSATION COMMITTEE
BASE SALARIES
Base salaries for new 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. 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.
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. 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 1996, 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 in 1996
from 0% to 200% of the target bonus upon achievement of scaled percentages
of the applicable operating income plan for the last three quarters of the
year.
In 1996, the Company did not achieve its corporate operating income
plan, however, bonuses were paid to certain executive officers, including
certain Named Executive Officers, in recognition of strong performance, and
contributions to the Company during a difficult year. Special bonus awards
are considered by the Company to be non-recurring and outside the criteria
typically utilized in considering pay competitiveness.
12
<PAGE> 13
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. 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.
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. Options for an aggregate of
1,022,500 shares were granted in 1996. The only stock options granted to
Named Executive Officers in 1996 were granted in August 1996 to Mr. Katz for
200,000 shares and to Mr. Ford for 100,000 shares at an exercise price of
$1.625 per share and in October 1996 to Mr. Swanson for 520,000 shares at
$1.375 per share, which option, however, is subject to stockholder approval.
The grant to Mr. Katz was immediately exercisable.
The Plan expired in September 1996, and no further options may be granted
under the plan.
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 1996, the
Board of Directors approved awards under the Plan for an aggregate of 21,000
shares of Common Stock to key employees, executive officers did not receive
any shares under the Plan in 1996.
CONCLUSION
The programs described above correlate a significant portion of the
Company's executive compensation to individual and corporate performance and
stock price appreciation. During 1996 the Compensation Committee was
composed of Russell Cox, John R. Grey, and Stephen Oresman until June of
1996 when Mr. Oresman resigned as a director. He was replaced on the
Committee by Leo Kahn and in February 1997 the Committee was reconstituted.
The Company does not have an Option Plan for corporate and divisional
officers. The Company has considered an omnibus plan for incentive awards,
but further consideration has been deferred until the Company's financial
recovery is confirmed.
The Compensation Committee
Richard L. Wendt, Chairman
Larry V. Wetter
Dr. Abraham Zaleznik
13
<PAGE> 14
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 March 31, 1997, the number of shares beneficially owned and the
percentage so owned:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED OUTSTANDING SHARES
------------------------- ------------------- --------------------
<S> <C> <C>
Richard L. Wendt 3,147,200 11%
3250 Lakeport Blvd.
Klamath Falls, OR 97601
Merrill Lynch & Co., Inc. 2,284,000 8
World Financial Center,
North Tower
250 Vesey Street
New York, NY 10281
Pioneering Management Corp. 2,235,000 8
60 State Street
Boston, MA 02109
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 7, 1997 the Company and two of its subsidiaries filed
voluntary petitions in the United States District Court for the District of
Delaware for debtor-in-possession reorganization under Chapter 11 of the
Bankruptcy Code.
The Bankruptcy Court has approved debtor-in-possession financing by
G.D.I. Company, Inc. to fund the Company's operations through the Chapter
11 proceeding. The financing is described in the Company's report on Form
8-K, dated April 22, 1997, which is incorporated herein by reference.
The Company purchases windows from Wenco Industries, Inc. ("Wenco"), a
major manufacturer of windows and doors and an affiliate of Richard L.
Wendt, JELD-WEN, inc. and G.D.I. Company Inc. In 1996 purchases of
approximately $7.5 million were made at prices competitive in the market.
The terms of the transactions have been at least as favorable as those that
would have been obtained from unaffiliated third parties. The Company
continues to purchase windows from Wenco on such competitive terms, and is
negotiating a product supply agreement with JELD-WEN.
14
<PAGE> 15
Part IV
Item 14c. EXHIBITS
Exhibit
Number
10(iii)(o)-3 Second Amended and Restated Agreement, dated April 3, 1997
between Grossman's Inc. and Robert K. Swanson, filed
herewith.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
GROSSMAN'S INC.
Company
Date: April 30, 1997 By /s/ Steven L. Shapiro
------------------------------
Steven L. Shapiro
Vice President - Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert K. Swanson Chairman of the Board April 30, 1997
-----------------------------
Robert K. Swanson
/s/ Seymour Kroll President and Chief April 30, 1997
----------------------------- Executive Officer
Seymour Kroll (Principal Executive
Officer)
/s/ Steven L. Shapiro Vice President - Controller April 30, 1997
----------------------------- (Principal Accounting
Steven L. Shapiro Officer)
/s/ Thomas E. Arnold, Jr.
----------------------------- Director April 30, 1997
Thomas E. Arnold, Jr.
/s/ Russell Cox Director April 30, 1997
-----------------------------
Russell Cox
/s/ Theodore H. Schnormeier Director April 30, 1997
-----------------------------
Theodore H. Schnormeier
/s/ Richard L. Wendt Director April 30, 1997
-----------------------------
Richard L. Wendt
/s/ Larry V. Wetter Director April 30, 1997
-----------------------------
Larry V. Wetter
/s/ Dr. Abraham Zaleznik Director April 30, 1997
-----------------------------
Dr. Abraham Zaleznik
16
</TABLE>
SECOND AMENDED AND RESTATED AGREEMENT
This is the Second Amended and Restated Agreement (the "Agreement")
between Robert K. Swanson ("Swanson") and Grossman's Inc. ("Grossman's" or
the "Company") intended to be effective as of April 3, 1997.
WHEREAS, Swanson has served as a director of Grossman's since 1987;
and
WHEREAS, in November 1994, Swanson was elected to serve as Chairman
of the Board in accordance with the terms of an agreement effective as of
November 23, 1994 (the "Original Agreement"); and
WHEREAS, in connection with the retirement of the President and
Chief Executive Officer of Grossman's, Swanson was elected to serve in the
additional capacity of Chief Executive Officer and in light of additional
services to be performed by Swanson, an Amended and Restated Agreement
("the Amended and Restated Agreement") was entered into between Swanson
and Grossman's which superseded the Original Agreement in all respects
from and after October 4, 1996; and
WHEREAS, Swanson ceased all duties as Chief Executive Officer
effective February 7, 1997;
WHEREAS, financial circumstances made it prudent and necessary for
Grossman's to file for reorganization pursuant to Title 11 of the United
States Code and Swanson, at the request of the Board of Grossman's, shall
continue to serve as Chairman of the Board of Grossman's and hold other
Board positions and to devote time to Grossman's affairs in those
capacities in 1997; and
WHEREAS, this Agreement is intended to supersede both the Original
Agreement and the Amended and Restated Agreement in all respects from and
after April 3, 1997 and all obligations pursuant to such other Agreements
shall be deemed to have been satisfied as of the Effective Date of this
Agreement; and
WHEREAS, in recognition of the foregoing and the services to be
performed by Swanson during periods on and after April 3, 1997, the Board
has authorized the arrangements set forth in this Agreement subject to any
approval or modification which may be required by the United States
Bankruptcy Court for the District of Delaware where the Grossman's case is
pending;
NOW, THEREFORE, the parties hereby agree to agree as follows:
1. Effective April 3, 1997, Swanson shall serve as (a) Chairman
of the Board of Grossman's; (b) a member of the Executive Committee of the
Board of Grossman's, and (c) a member of the Nominating Committee of
Grossman's.
<PAGE> 2
2. For Swanson's services in the positions listed in paragraph 1,
Grossman's will pay to Swanson: (a) $2,000; (b) $500 for each meeting of
the Board or each meeting of any Committee of the Board of which Swanson
is a member attended in person by Swanson; (c) $200 for any such Board or
Committee meeting attended by Swanson by telephone for each such meeting
which is one (1) hour or more in duration; and (d) reimbursement of all
actual and necessary business expenses incurred by Swanson in connection
with attendance at or participation in Board and Committee meetings
including, without limitation, his reasonable travel expenses (upon
submission by Swanson of reasonable substantiation thereof).
3. Swanson also agrees that as Chairman of the Board he will be
available to devote his time to Grossman's affairs for up to 40 calendar
days between April 3, 1997 and July 7, 1997, and up to 60 calendar days
between July 8, 1997 and December 31, 1997 and such additional days as the
Board shall deem necessary and appropriate. For these services, Swanson
shall be compensated by Grossman's at the rate of $2,000 per day plus the
cost of actual and necessary expenses incurred in the performance of such
duties, including, without limitation, his reasonable travel expenses
(subject to submission by him of reasonable substantiation thereof). The
foregoing days of service and payments therefore shall be in addition to
the meeting days and payments therefore provided in paragraph 2 above.
4. Either Swanson or Grossman's may terminate this Agreement at
will with or without cause, immediately effective upon written notice.
Unless earlier terminated, this Agreement shall terminate on December 31,
1997 or upon Jeld Wen's or affiliates ("Jeld Wen") sale or other
disposition of its position as Grossman's lender (unless some or all of
such interest is converted to equity as party of a Plan of Grossman's),
whichever is earlier. Upon termination of this Agreement, Grossman's will
pay Swanson payments due under paragraphs 2 and 3 for services performed
and expenses incurred prior to termination. Grossman's shall have no
further obligation to Swanson except as provided in paragraph 9 below and
as provided in the following sentence. In the event that Jeld Wen
continues its financial support of Grossman's at the same level as
committed on April 3, 1997 (i.e. a $50 million DIP facility in addition to
the pre-petition loans), and this Agreement is terminated prior to
December 31, 1997, in addition to payments to Swanson pursuant to
paragraphs 2 and 3 above for services performed prior to termination,
Grossman's shall pay to Swanson an amount equal to the product of: $2,000
times 100 minus the number of days Swanson performed services for
Grossman's between April 3, 1997 and the date of termination. For
purposes of calculation in the preceding sentence, days Swanson spent in
Board or Committee meetings shall not be counted for purposes of the
subtraction from 100 days provided above.
2
<PAGE> 3
5. All notices and other communications shall be in writing,
either hand delivered or mailed by first class registered mail, postage
prepaid, if to Swanson at the address set forth below under Swanson's
signature, or, if to Grossman's, at 45 Dan Road, Canton, Massachusetts
02021, attention of the Secretary, or at such other address as either
party shall designate by written notice to the other. No notice shall be
deemed to have been given until actually received by the party to whom it
is addressed; provided, that a certified or registered mail return receipt
shall be conclusive evidence of such receipt.
6. This Agreement may not be changed, waived, discharged or
terminated orally, but only by an instrument in writing, signed by the
party against which enforcement of such change, waiver, discharge or
termination is sought, or by order of a court with jurisdiction and
authority to enter such order.
7. Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the written consent of the other,
except that this Agreement will be binding upon and inure to the benefit
of any successor or successors of Grossman's whether by merger,
consolidation, sale of assets or otherwise and reference herein to
Grossman's is intended to include any such successor or successors.
8. Grossman's agrees to pay the reasonable fees and expenses of
Swanson's counsel in connection with the negotiation of this Agreement.
9. From the effective date of this Agreement, Swanson will be
entitled to indemnification by Grossman's and limitation of liability for
acts and omissions in his capacity as a director of Grossman's or any
subsidiary to the fullest extent provided by the Restated Certificate of
Incorporation and By-laws of Grossman's as in effect or the effective date
of this Agreement or to any greater extent provided by any amendment to
those documents.
10. This Agreement shall be governed by and construed in
accordance with the internal laws of The Commonwealth of Massachusetts.
This Agreement embodies the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior agreements and
understandings, including the Original Agreement and the Amended and
Restated Agreement. If any one or more of the provisions of this
Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such provision shall be in effective to the
extent, but only to the extent, of such invalidity, illegibility or
unenforceability without invalidating the remainder of such invalid,
illegal or unenforceable provision or provisions or any other provision
hereof.
11. Nothing in this Agreement shall be construed to make Swanson
an employee of Grossman's it being understood that Swanson is an
independent contractor and is entitled to no rights as an employee of
Grossman's.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
GROSSMAN'S INC.
By: ____________________________
Name:
Title:
________________________________
Robert K. Swanson
c/o RKS, Inc.
5600 North Palo Cristi Road
Paradise Valley, Arizona 85253
4
