<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant / /
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
The Morningstar Group Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
The Morningstar Group Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $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 transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
$125.00
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / 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.:
0-19075
- --------------------------------------------------------------------------------
(3) Filing party:
The Morningstar Group Inc.
- --------------------------------------------------------------------------------
(4) Date filed:
4/15/94
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
THE MORNINGSTAR GROUP INC.
5956 SHERRY LANE, SUITE 1100
DALLAS, TEXAS 75225-6522
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 12, 1994
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
The Morningstar Group Inc. will be held at the Hotel Crescent Court - Crescent
I, 400 Crescent Court, Dallas, Texas, on May 19, 1994, at 9:00 a.m., local
time, for the purpose of considering and voting upon the following matters;
1. The election of seven (7) directors;
2. Approval of The Morningstar Group Inc. 1994 Incentive and
Nonstatutory Stock Option Plan;
3. The ratification of the appointment of Arthur Andersen &
Co. as independent auditors of the Corporation for the
ensuing year; and
4. Such other business as may properly come before the meeting
or any adjournment thereof.
The transfer books will not be closed, but only stockholders of record
at the close of business on March 31, 1994, will be entitled to notice of and
to vote at the meeting. A complete list of the stockholders entitled to vote
at the meeting shall be open to the examination of any stockholder, for any
purpose germane to the meeting, at the offices of the Corporation during the
ten days preceding the meeting and will also be available for inspection at the
meeting.
You are cordially invited to attend the meeting. Even if you plan to
attend, you are respectfully requested to date, sign and return the enclosed
proxy at your earliest convenience in the enclosed return envelope. You may
revoke your proxy at any time prior to exercise.
By Order of the Board of Directors,
/s/ JOHN P. CLARSON
John P. Clarson
Secretary
Dallas, Texas
April 12, 1994
<PAGE> 3
THE MORNINGSTAR GROUP INC.
5956 SHERRY LANE, SUITE 1100
DALLAS, TEXAS 75225-6522
PROXY STATEMENT
This proxy statement is furnished to the stockholders of The Morningstar
Group Inc. (hereinafter referred to as the "Corporation" or "Registrant") in
connection with the solicitation of proxies to be used in voting at the Annual
Meeting of Stockholders to be held on May 19, 1994, and is being first mailed
to the stockholders on or about April 12, 1994. THE ENCLOSED PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION.
A person giving the enclosed proxy has the power to revoke it by giving
notice to the Secretary in person, or by written notification actually received
by the Secretary (including by delivery of a later dated proxy card), at any
time prior to its being exercised. You may also revoke a previously given
proxy by appearing at the meeting and voting at the meeting. Your appearance
at the meeting will not, in and of itself, constitute a revocation of any proxy
previously given.
The Corporation will bear the cost of soliciting proxies. Solicitation
may be made by mail, telephone or telegraph or personally by officers,
directors and regular employees of the Corporation. It may be that further
solicitation of proxies will be made by telephone or oral communication with
some stockholders of the Corporation following the original solicitation. All
such further solicitations will be made by regular employees and officers of
the Corporation, who will not be additionally compensated therefor, and the
cost will be borne by the Corporation.
VOTING SECURITIES OUTSTANDING, SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
As of March 31, 1994, 14,376,312 shares of common stock of the
Corporation were outstanding, and each share is entitled to one vote. Only
holders of stock of record at the close of business on March 31, 1994, will be
entitled to vote at the meeting.
Except as set forth below, the following table sets forth as of March
31, 1994, the number of shares of common stock of the Corporation held by each
entity who is known to the Corporation to own beneficially more than five
percent (5%) of the outstanding shares of the Corporation's common stock.
Unless otherwise noted, the entity named has sole voting and investment powers
over the shares reflected opposite its name. (HMC/Morningstar, L.P. is
referred to as "HMCM" throughout this proxy statement.)
<PAGE> 4
<TABLE>
<CAPTION>
Amount and
Name and Address of Nature of
Beneficial Owner Beneficial Ownership Percent of Class
------------------ -------------------- ----------------
<S> <C> <C>
HMCM
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, TX 75201 . . . . . . . . . . . . . 7,478,892 (a) 52.3%
Goldman-Sachs &Co.
85 Broad Street
New York, NY 10004 . . . . . . . . . . . 956,700 (b) 6.7%
</TABLE>
(a) The following information is based on a Schedule 13G dated
February 10, 1994, filed with the Securities and Exchange
Commission by Thomas O. Hicks; Hicks, Muse & Co. (TX)
Incorporated, now Hicks, Muse, Tate & Furst Incorporated; ("Hicks
Muse"); HMC Partners, L.P. ("HMC Partners"); and HMCM. The
address of the principal business office of each reporting person
is 200 Crescent Court, Suite 1600, Dallas, Texas 75201. As of
December 31, 1993, HMCM owned, beneficially and of record,
3,473,100 shares of common stock. In addition, pursuant to a
Stockholders' Agreement (see "Stockholders' Agreements"), holders
of 4,005,792 shares of common stock have agreed to vote their
shares of common stock in favor of HMCM's nominees to the Board
of Directors. HMC Partners is the sole general partner of HMCM,
Hicks Muse is the managing general partner of HMC Partners, and
Mr. Hicks is the controlling shareholder of Hicks Muse.
Accordingly, each of HMCM, HMC Partners, Hicks Muse and Mr. Hicks
may be deemed to beneficially own all such shares of common
stock. Each of HMCM, HMC Partners, Hicks Muse and Mr. Hicks
disclaims beneficial ownership of the shares of common stock not
owned of record by such person.
HMCM has sole voting and dispositive power with respect to the
3,473,100 shares of common stock owned of record and beneficially
by it and, by virtue of the Stockholders' Agreement, has shared
voting power with respect to the remaining 4,005,792 shares
beneficially owned by it. Each of HMC Partners, Hicks Muse and
Mr. Hicks may be deemed to have the same voting or dispositive
power with respect to such shares as HMCM.
(b) The following information is based on a Schedule 13G dated
February 7, 1994, filed with the Securities and Exchange
Commission by The Goldman-Sachs Group, L.P., ("Goldman Sachs");
Goldman, Sachs & Co. and Goldman Sachs Equity Portfolios, Inc. on
behalf of GS Small Cap Equity Fund. The address of the principal
business office of Goldman Sachs and Goldman, Sachs & Co. is as
set forth above and for Goldman Sachs Equity Portfolios, Inc. the
address of the principal business office is 32 Old Slip, New
York, New York 10005. Goldman Sachs is the parent holding
company for Goldman, Sachs & Co., a registered investment advisor
and Goldman Sachs Equity Portfolios, Inc., a registered
investment company and both have shared voting power with respect
to the 956,700 shares beneficially owned by them and Goldman
Sachs Equity Portfolios, Inc. may be deemed to have the same
shared voting or dispositive power with respect to 940,000 shares
beneficially owned by it.
2
<PAGE> 5
The following table and notes thereto set forth, as of March 31, 1994
(unless otherwise noted below), the number of shares of common stock of the
Corporation beneficially owned by all directors and nominees for directors of
the Corporation, the Named Executive Officers (as defined under "Executive
Management Compensation") and all directors and executive officers of the
Corporation as a group. Unless otherwise noted, the person named has sole
voting and investment power over the shares reflected opposite his name. The
Corporation has been provided such information by its directors, nominees for
directors and executive officers.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name of Beneficial Owner Ownership of Class
------------------------- --------- ---------
<S> <C> <C>
James A. Bach . . . . . . . . . . . . . . . . . . . . 488,583 (a) 3.40%
Clifford L. Marquart . . . . . . . . . . . . . . . . . 386,016 (a) 2.69
Tracy L. Noll . . . . . . . . . . . . . . . . . . . . 95,194 (a) .66
John P. Clarson . . . . . . . . . . . . . . . . . . . 8,355 (a) .58
Thomas O. Hicks . . . . . . . . . . . . . . . . . . . 7,822,946 (b) 54.41
C. Dean Metropoulos . . . . . . . . . . . . . . . . . 20,500 (c) .14
John R. Muse . . . . . . . . . . . . . . . . . . . . . 56,618 (d) .39
Charles W. Tate . . . . . . . . . . . . . . . . . . . 23,382 .16
Arnold L. Chavkin . . . . . . . . . . . . . . . . . . 712,900 (e) 4.96
Jack W. Evans . . . . . . . . . . . . . . . . . . . . 39,006 .27
Jim L. Turner . . . . . . . . . . . . . . . . . . . . 39,006 .27
All Directors and
Executive Officers as a group . . . . . . . . . . . . 9,203,923 (f) 64.02
</TABLE>
(a) Includes presently exercisable options to purchase 395,374;
313,514; 89,194; and 5,383 shares of common stock, held by
Messrs. Bach, Marquart, Noll and Clarson, respectively. Mr.
Bach, on March 17, 1994, resigned as a director, President and
Chief Executive Officer of the Corporation and as an officer of
its subsidiaries.
(b) Includes (i) 203,002 shares of common stock held directly of
record by Mr. Hicks; (ii) 141,052 shares held by various trusts
for which Mr. Hicks is either the custodian or a trustee; (iii)
3,473,100 shares of common stock held directly of record by HMCM;
and (iv) 4,005,792 shares of common stock subject to a
Stockholders' Agreement pursuant to which the holders have agreed
to vote their shares for HMCM's nominees to the Board of
Directors. For a discussion of the relationship of Mr. Hicks to
HMCM, see note (a) to the first table appearing above. Mr.
Hicks disclaims beneficial ownership of all shares of common
stock not held of record by him.
(c) Includes (i) 3,500 shares of common stock held directly of record
by Mr. Metropoulos; (ii) 4,000 shares of common stock held by an
immediate family member; and (iii) 13,000 shares of common stock
for which Mr. Metropoulos is either the custodian or trustee.
Mr. Metropoulos disclaims beneficial ownership of any common
stock not directly held of record by him.
On December 14, 1993, the Board of Directors of the Corporation
authorized the Compensation Committee to grant to Mr. Metropoulos
options to purchase up to 600,000 shares of common stock of the
Corporation at the fair market value of such shares as determined
on the date of grant. On February 15, 1994, the Compensation
Committee approved a form of stock option agreement pursuant to
which the Corporation would grant to Mr. Metropoulos such
options. Pursuant to the terms of such agreement, one-third of
such options will be immediately vested. The remaining options
will vest in equal amounts on the first and second anniversary
dates of the original grant.
(d) Includes (i) 51,848 shares of common stock held directly by Mr.
Muse and (ii) 4,770 shares of common stock held by various trusts
for which Mr. Muse is the custodian.
(e) Mr. Chavkin holds no shares of common stock directly. Mr.
Chavkin is a general partner of Chemical Venture Partners which
is the general partner of Chemical Equity Associates ("CEA")
which directly holds all the shares listed. Accordingly, Mr.
Chavkin may be deemed to be the beneficial owner of shares of
common stock held by CEA. Mr. Chavkin disclaims beneficial
ownership of any common stock not directly held of record by him.
(f) Excludes 488,583 shares of common stock beneficially owned by Mr.
Bach.
3
<PAGE> 6
DIRECTORS AND OFFICERS
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Corporation has a standing Audit Committee, the members of which are
Messrs. Jack W. Evans and Jim L. Turner. Two meetings were held by such
committee during the year ended December 31, 1993. The principal functions
performed by such committee included nomination of the independent auditors of
the Corporation, review of the proposed scope of the independent audits and the
results thereof, review with management personnel of the independent auditors'
observations on financial policy, controls and personnel, and conferring with
the chief financial officer concerning the audit.
The Corporation has a standing Compensation Committee consisting of
Messrs. Jim L. Turner and Jack W. Evans. Mr. Hicks served as a member of the
Compensation Committee until his resignation December 14, 1993. Mr. Turner was
appointed to the Compensation Committee on December 14, 1993. The committee,
as a stock option committee, acted twice by unanimous consent during the last
fiscal year. The functions performed by such committee included making a
recommendation to the Board of Directors as to the salaries and bonuses of the
three most senior executive officers and administering the Corporation's stock
option plans.
The Corporation has a standing Executive Committee consisting of Messrs.
C. Dean Metropoulos, Clifford L. Marquart and John R. Muse. Mr. Bach served as
a member of the Executive Committee until his resignation March 17, 1994. Mr.
Metropoulos was appointed to the Executive Committee on March 17, 1994. No
meetings were held by such committee during the last fiscal year and the
committee did not vote by unanimous consent during the past fiscal year. The
functions performed by such committee include managing the business affairs of
the Corporation during the interval between regular and special meetings of the
Board of Directors. The committee is subject at all times to the control and
direction of the Board.
The total number of meetings of the Board of Directors held during the
year ended December 31, 1993 was five. The Board of Directors voted by
unanimous consent three times during the last fiscal year. During 1993, no
director of the Corporation attended less than 75% of the total number of
meetings of the Board of Directors and all committees on which such director
served. Mr. Hicks resigned on December 14, 1993 from the Board of Directors and
all committees on which he served. Mr. Metropoulos was appointed Chairman and
a member of the Board of Directors on December 14, 1993.
At the annual meeting seven directors are to be elected to serve for
one-year terms and until their respective successors are elected and qualified,
in accordance with the provisions of the Bylaws. The Corporation does not have
a nominating committee; the Board of Directors has nominated the directors to
stand for election at the annual meeting. Each of the persons nominated
presently serves as a director of the Corporation. The Board of Directors will
accept for consideration stockholders' nominations of directors if made in
writing. The nominee's written consent to the nomination and sufficient
background information on the candidate must be included to enable the Board of
Directors to make an informed judgement as to his or her qualifications.
Nominations must be addressed to the Chairman of the Board of Directors and
must be received no later than December 12, 1994 in order to be considered for
the next annual meeting.
Unless a stockholder requests that voting of the proxy be withheld for
any one or more of the nominees for director by so directing on the proxy card,
the shares represented by an executed proxy will be voted for election,
4
<PAGE> 7
as directors, of the seven nominees hereinafter named. If any nominee becomes
unavailable for any reason (which event is not anticipated), the shares
represented by an executed proxy may be voted for such other person as may be
determined by the holders of such proxy. The vote of a plurality of the
Corporation's stock represented in person or by proxy at the annual meeting
will be necessary for the election, as director, of each nominee. Only shares
of common stock that are voted in favor of a nominee will be counted toward
that nominee's achievement of a plurality. Votes "withheld" or abstaining from
voting are counted for quorum purposes, but since they are not cast "for" a
particular matter, they will have the same effect as negative votes or votes
"against" a particular matter. Broker non-votes (shares not voted by
broker-dealers because they are not authorized to vote in absence of
instructions from beneficial owners) are counted for quorum purposes, but will
have no effect on the outcome of the election of directors. As discussed under
"Stockholders' Agreements," HMCM, through shares owned directly by it and
through shares it has the power to vote pursuant to a conditional irrevocable
proxy, controls more than a majority of the outstanding shares of common stock
of the Corporation, and has indicated that it will vote in favor of the
nominees to the Board of Directors, thus ensuring the election as a director of
each nominee named herein.
INFORMATION CONCERNING NOMINEES AND DIRECTORS
The information appearing in the following table and the notes thereto,
with respect to the principal occupation or employment of each of the directors
and nominees during the past five years and their present directorships, has
been furnished to the Corporation by the respective nominees. Unless otherwise
stated, the Corporation is the organization in which the nominee holds the
position indicated.
<TABLE>
<CAPTION>
Date Term
Name and Principal Occupation Age Expires Director Since
----------------------------- --- ---------- --------------
<S> <C> <C> <C>
C. Dean Metropoulos 47 May 1994 December 1993
Chairman of the Board, President and
Chief Executive Officer
Arnold L. Chavkin 42 May 1994 October 1991
General Partner of Chemical Venture Partners
Jack W. Evans 71 May 1994 May 1991
Chief Executive Officer and
President of Jack Evans Investments, Inc.
Clifford L. Marquart 54 May 1994 April 1990
Executive Vice President and
Chief Operating Officer
John R. Muse 43 May 1994 March 1991
Managing Director and Principal
of Hicks, Muse, Tate & Furst Incorporated
Charles W. Tate 49 May 1994 August 1991
Managing Director and Principal of the New York
affiliate of Hicks, Muse, Tate & Furst Incorporated
Jim L. Turner 48 May 1994 May 1991
Chairman of the Board and President of
Dr Pepper Bottling Company of Texas
</TABLE>
5
<PAGE> 8
C. Dean Metropoulos is the Chairman of the Board and Chief Executive
Officer of C. Dean Metropoulos & Partners of New York, a private investment
firm, having served since its inception in November, 1993. From 1983 to June
1993 Mr. Metropoulos was Chairman and Chief Executive Officer of Stella Foods,
Inc. a national manufacturer, marketer and distributor of specialty cheeses.
Mr. Metropoulos, on March 17, 1994, was elected President and Chief Executive
Officer of the Corporation.
Arnold L. Chavkin is a general partner of Chemical Venture Partners
("CVP") and the President of Chemical Investments, Inc., an affiliate of CVP.
Mr. Chavkin has been a general partner of CVP since January 1992 and has served
as the President of Chemical Investments, Inc. since March 1991. CVP is a
general partnership which invests in leveraged buyouts, recapitalizations,
growth equities and venture situations. CVP and Chemical Investments, Inc. are
affiliates of Chemical Banking Corporation. Mr. Chavkin is also a director of
Reading & Bates Corporation, Multi Market Communications and RHI Entertainment,
Inc. Prior to joining Chemical Investments, Inc. in August 1985, Mr. Chavkin
was a specialist in investment and merchant banking at Chemical Bank for six
years.
Jack W. Evans is the Chief Executive Officer and President of Jack Evans
Investments, Inc. and a director of Brinker International. Prior to forming his
private investment firm in October 1990, Mr. Evans was Chairman, President and
Chief Executive Officer of the Cullum Companies, the parent corporation of the
Tom Thumb grocery store chain, from June 1983 until his retirement in October
1990. Mr. Evans also served as Mayor of the City of Dallas from 1981 to 1983.
Mr. Evans serves as a director of Randall's Food Markets, American Title
Company and Texas Utilities.
Clifford L. Marquart was the President and Chief Executive Officer of S.
Gumpert & Co. Inc. and American Kitchen Products Corporation (two affiliated
food processing companies) from April 1986 until joining the Corporation in
February 1989. From November 1983 to April 1986, Mr. Marquart was the President
of Fleur de Lait Foods Limited (an international cheese corporation) based in
the United States. From 1978 to 1986, Mr. Marquart held several senior
marketing positions with Bongrain, S.A. (an international foods corporation)
based in France and the United States.
John R. Muse is Executive Vice President, Managing Director and
Principal of Hicks Muse, a private investment firm, having served since its
inception in May 1989. From 1984 to 1989, Mr. Muse was Managing Director of
Prudential Securities Incorporated in Dallas, Texas, where he served as head of
investment/merchant banking activities for the southwestern region of the
United States. Mr. Muse serves as a director of Hat Brands, Inc., Life
Partners Group, Inc., The Morningstar Group Inc., Neodata Corporation, and
Trident NGL, Inc.
Charles W. Tate is an Executive Vice President, Managing Director and
Principal of Hicks Muse, a private investment firm, having served since joining
Hicks Muse in 1991. Prior to joining Hicks Muse, Mr. Tate was employed for 19
years by Morgan Stanley & Co. Incorporated and last served as a Managing
Director in Morgan Stanley's Merchant Banking Division. Mr. Tate serves as a
director of Berg Electronics, Inc., DESA International, Inc., Hat Brands, Inc.,
G. Heileman Brewing Company, Inc., The Morningstar Group Inc., and
Wirekraft/Burcliff Industries, Inc.
Jim L. Turner is the Chairman of the Board and President of Dr Pepper
Bottling Company of Texas, one of the largest independent bottling companies in
the United States. Prior to joining Dr Pepper Bottling Company of Texas in
March 1985, Mr. Turner was a senior vice-president (bottling operations) of the
Dr Pepper Company from February 1982 to March 1985.
6
<PAGE> 9
COMPENSATION OF DIRECTORS
During 1993, Messrs. Evans and Turner received $1,000 for each meeting
they attended and $1,000 per month as compensation for their services as
directors, the remaining directors, who were affiliates of the Corporation,
received no compensation for their services as directors. The Corporation
reimbursed all of its directors for expenses reasonably incurred by them in the
discharge of their duties. The Corporation expects to continue such director
compensation policy.
The Corporation entered into an Advisory Agreement dated October 1,
1993, pursuant to which C. Dean Metropoulos will provide advisory services to
the Corporation. The term of this Agreement is three years and is cancelable
by either party at any time. As compensation for such services, the
Corporation pays Mr. Metropoulos a monthly fee of $20,833 plus all reasonable
expenses incurred in connection with his services. During 1993, the
Corporation paid a total of $62,500 in monthly fees and reimbursed $25,000 in
expenses pursuant to this Agreement.
EXECUTIVE MANAGEMENT COMPENSATION
CASH COMPENSATION
The following table sets forth all compensation, including bonuses,
stock option awards and other payments, paid or accrued by the Corporation
during the fiscal years shown below, to or for the Chief Executive Officer and
the three other most highly compensated executive officers (the Chief Executive
Officer and such other officers collectively being the "Named Executive
Officers") of the Corporation. The Named Executive Officers of the Registrant
constitute all of the executive officers of the Registrant. Pursuant to
transition rules promulgated by the Securities and Exchange Commission, no
information for "All Other Compensation" is presented for the year ended
December 31, 1991.
7
<PAGE> 10
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------- ----------------------
Name and Securities Awards All
Principal Underlying Other
Position Year Salary ($) Bonus ($) Options (#) Compensation ($) (a)
- -------- ---- ---------- --------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
James A. Bach 1993 469,438.30 164,714.39 -0- 4,421.19
President and Chief 1992 396,699.23 145,891.96 -0- 1,990.08
Executive Officer 1991 321,153.89 282,528.59 395,374
Clifford L. Marquart 1993 391,406.47 137,334.80 -0- 4,643.19
Executive Vice President 1992 335,907.27 121,641.06 18,000 2,212.08
and Chief Operating Officer 1991 275,961.51 232,424.50 307,514
Tracy L. Noll 1993 239,963.14 84,197.09 -0- 7,239.58
Vice President and 1992 203,467.45 74,575.59 16,000 5,874.24
Chief Financial Officer 1991 173,269.28 151,710.70 87,861
John P. Clarson 1993 114,807.77 27,743.26 -0- 2,541.83
Vice President, Secretary 1992 108,653.85 23,648.58 4,000 1,675.41
and General Counsel 1991 102,846.13 30,096.07 4,050
</TABLE>
(a) "All Other Compensation" includes premiums of $2,964, $2,964 and
$2,964 paid by the Corporation for insurance for Messrs. Bach,
Marquart and Noll, respectively, and contributions by the Corporation
to its 401(k) savings plan of $1,391.19, $1,391.19, $4,173.58 and
$2,530.61 on behalf of Messrs. Bach, Marquart, Noll and Clarson,
respectively.
STOCK OPTION PLANS
There were no stock options granted to the Named Executive Officers during
1993.
The following table reflects information with respect to option exercises
during 1993 and unexercised options granted under the Corporation's stock
option plans and held by the Named Executive Officers at December 31, 1993.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
DECEMBER 31, 1993 OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-the-Money Options
Shares Unexercised Options At Fiscal Year End At Fiscal Year End
Acquired Value -------------------------------------- ---------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Bach 0 $ 0 308,290 107,084 1,301,508 404,531
Clifford L. Marquart 0 0 240,599 84,915 1,012,295 314,628
Tracy L. Noll 4,000 28,760 68,362 31,499 271,970 89,890
John P. Clarson 0 0 3,583 4,467 9,709 7,767
</TABLE>
8
<PAGE> 11
THE MORNINGSTAR GROUP INC. STOCK PRICE PERFORMANCE
The following graph depicts the Corporation's stock price performance
from April 24, 1992 (the date on which quotations for the Corporation's common
stock first appeared on the NASDAQ National Market System) through December 31,
1993 relative to the performance of the NASDAQ Stock Market (US Companies) and
the NASDAQ Food and Kindred Products Index (published by the Center for
Research in Security Prices of the University of Chicago Graduate School of
Business). The following graph also illustrates the performance of the NASDAQ
Stock Market (US Companies) Index and the NASDAQ Food and Kindred Products
index from December 31, 1987 through December 31, 1993. All indices shown in
the graph have been reset to a base of 100 as of April 24, 1992, and assume an
investment of $100 on that date and the reinvestment of dividends paid since
that date.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
{GRAPH}
<TABLE>
<CAPTION>
12/30/88 12/29/89 12/31/90 12/31/91 4/24/92 12/31/92 12/31/93
-------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
The Morningstar Group 100.0 109.1 67.0
Nasdaq Stock Market (US Companies) 62.0 75.2 63.8 102.4 100.0 119.1 135.9
Food and Kindred Products 58.0 79.4 83.1 106.6 100.0 113.2 120.9
</TABLE>
9
<PAGE> 12
EMPLOYMENT AGREEMENTS
The Corporation has entered into employment agreements with each of
Messrs. Bach, Marquart and Noll, which (i) specify each executive's initial
base salary and provide for adjustments of this base salary each year during
the executive's employment based upon a published inflation index; (ii) provide
for a quarterly bonus ranging from zero to 200% of base salary based upon a
formula related to the Corporation's cash flow; (iii) provide fully paid
medical and dental insurance for the executive and his family; (iv) provide for
reimbursement of an amount equal to 150% of premiums for disability insurance
policies for coverage should the executive become disabled for more than six
months; (v) provide for the grant of stock options to each such executive; (vi)
provide for payments totalling two and one-half times the executive's then
annual base salary if such executive's employment is terminated without cause
or by each such executive after either a change of control (as defined) or a
material change in the terms or duties of the executive's employment; (vii)
with respect to Messrs. Bach and Marquart, provide for their election to the
Corporation's Board of Directors during the term of their employment
agreements; and (viii) terminate on February 28, 1995, unless terminated
earlier due to death, disability or otherwise. The base salaries set for
Messrs. Bach, Marquart and Noll under their employment agreements in 1993 were
$469,876, $391,771 and $240,187 respectively. Messrs. Bach, Marquart and Noll
have waived any quarterly bonus payments that might be otherwise due under
their employment agreements in connection with the Corporation's performance
during 1994. Mr. Bach, on March 17, 1994, resigned as a director, President
and Chief Executive Officer of the Corporation and as an officer of the
Corporation's subsidiaries. Pursuant to the terms of Mr. Bach's Employment
Agreement, Mr. Bach will receive severance payments totaling $1,174,690 in
cash.
APPROVAL OF THE CORPORATION'S
1994 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
The Corporation is submitting for approval the Corporation's 1994
Incentive and Nonstatutory Stock Option Plan (the "Plan"). The following
provides a summary of the material terms of the Plan, a copy of which is
attached hereto and incorporated herein by reference. Reference is hereby made
to the Plan, and the description of its terms contained herein shall be deemed
qualified in its entirety by such reference.
The Corporation is seeking approval of the Plan by the holders of a
majority of the outstanding common stock in order to qualify the Plan under
Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Qualification of the Plan under Rule 16b-3 will exempt certain
transactions by Plan participants from the short-swing liability provisions of
Section 16(b) of the Exchange Act. In addition, the Corporation is seeking
approval of the Plan by the separate vote of the holders of a majority of the
outstanding common stock in order to qualify for the "performance-based
compensation" exception of Section 162(m)(4)(C) of the Internal Revenue Code of
1986, as amended (the "Code"), to the newly-enacted limitation on the deduction
of certain compensation payments to certain employees in excess of $1,000,000.
Any options granted under the Plan with an exercise price less than the Fair
Market Value (as defined) of the Corporation's common stock on the date of
grant will be subject to the Section 162(m) deduction limitation.
Pursuant to the Plan, the Corporation will grant options to purchase
shares of its common stock to key employees of the Corporation or its
subsidiaries (including officers and directors who are also employees) and
certain other eligible persons. Key employees are employees of the Corporation
(or a related entity) who are regularly employed on a salaried basis on the
date of grant of the option whom the Stock Option Committee (as defined below)
identifies as having a direct and significant effect on the performance of the
Company (or a related entity).
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Other eligible persons are persons or entities that the Stock Option Committee
designates as eligible for options grants because such person or entity
performs bona fide consulting, advisory or other services for the Corporation
(or a related entity) and the Board of Directors or the Stock Option Committee
determines that such person or entity has a direct or significant effect on the
financial development of the Corporation (or a related entity). The purpose of
the Plan is to provide an incentive to certain key employees of the Corporation
and its subsidiaries and certain other eligible persons to remain in the
service of the Corporation, to provide an opportunity for employees to acquire
a proprietary interest in the Corporation so that they will apply their best
efforts for the benefit of the Corporation, and to aid the Corporation in
attracting able persons to enter the service of the Corporation and its
subsidiaries.
THE PLAN
General. The Plan was approved and adopted by the Corporation's Stock
Option Committee on March 30, 1994 and ratified by the Corporation's Board of
Directors on April 1, 1994. The Plan shall not become effective until the
holders of a majority of the outstanding shares of common stock of the
Corporation have approved the Plan in a separate vote. The aggregate number of
shares as to which options may be granted under the Plan is 250,000 (all stock
numbers used herein are subject to adjustment in the event of stock splits,
reverse stock splits, and certain corporate reorganizations). The maximum
number of shares of the Corporation's common stock with respect to which
options may be granted pursuant to the Plan to a key employee or other eligible
person is 225,000 (including any options which are cancelled or expire).
Options granted pursuant to the Plan shall be either incentive options
(which are intended to meet the requirements of Section 422 of the Code) or
non-qualified options (which do not meet the requirements of Section 422 of the
Code). Pursuant to the Plan, no incentive options may be granted after ten
(10) years from the date the Plan is adopted by the Corporation. Subject to
certain additional limitations, no option by its terms shall be exercisable
after the expiration of ten (10) years from the date of grant of such option,
or such other period (in the case of non-qualified options) or such shorter
period (in the case of incentive options) as the Stock Option Committee in its
sole discretion may determine. The exercise price of any non-qualified option
may not be less than par value of the common stock on the date of the grant of
such option. The exercise price of any incentive options or options intended
to comply with Section 162(m)(4)(C) of the Code (and be exempt from the
deduction limitation imposed by Section 162(m)) shall not be less that 100% of
the fair market value (as defined below) per share of the common stock on the
date of grant of such options (or 110% in the case of certain incentive
options). The fair market value of the common stock shall mean the last
reported sale price of such common stock as reported on the principal national
securities exchange on which the shares of common stock are then listed on the
date of such grant, or if such common stock is not listed on a national
securities exchange, the last reported bid price in the over-the-counter
market, or if such shares are not traded in the over-the-counter market, the
value of such common stock on such date as determined by the Stock Option
Committee in good faith.
Subject to certain limitations in the case of incentive options, an
optionee under the Plan must pay the full option price upon exercise of an
option either (i) in cash, (ii) by any other means acceptable to the Stock
Option Committee, by delivery of shares of common stock already owned by such
optionee (including shares to be received upon exercise of the option) and
having a fair market value at least equal to the exercise price. The
Corporation may require the optionee to satisfy the Corporation's federal tax
withholding obligations with respect to the exercise of options by (i)
additional withholding from the optionee's salary, (ii) requiring the optionee
to pay cash, or (iii) reducing the number of shares of common stock to be
issued (except in the case of incentive options).
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Options granted under the Plan are not transferable other than by will
or the laws of descent and distribution and are exercisable during an
optionee's lifetime only by such optionee or by such optionee's legal guardian
or legal representative. In the event of the death of any optionee, the estate
of such optionee shall have the right, at any time and from time to time within
one (1) year after the date of death, unless a longer or shorter period is
expressly provided in such option or established by the Stock Option Committee
(but not after the expiration date of the option), to exercise such optionee's
option. If the employment of any optionee is terminated because of Disability
(as defined in the Plan), such optionee shall have the right to exercise such
option within one (1) year after the date of death, unless a longer or shorter
period is expressly provided in such option or established by the Stock Option
Committee (but not after the expiration date of the option), after the date of
such termination. If an optionee's employment was terminated for any reason
other than such optionee's death or Disability, such optionee shall have the
right to exercise his option in accordance with its terms, within 30 days after
the date of such termination, unless a longer or shorter period is provided in
such option or established by the Stock Option Committee (but not after the
expiration date of the option). In the case of incentive options, (i) the
option agreement shall not permit an optionee to exercise an incentive option
more than three months after termination of employment and (ii) unless the
option expressly provides otherwise, if such optionee's employment was
terminated by the Corporation for good cause (as defined), or if the optionee
voluntarily terminates employment without the consent of the Corporation, such
optionee shall immediately forfeit all rights under his option except as to
shares of stock already purchased.
If a Change of Control, as defined in the Plan, shall occur, or if the
Corporation shall enter into an agreement providing for a Change of Control,
the Stock Option Committee may declare any or all options outstanding under the
Plan to be exercisable in full at such time or times as the Stock Option
Committee shall determine, notwithstanding the express provisions of such
options. Each option accelerated by the Stock Option Committee in connection
with a Change of Control pursuant to the preceding sentence shall terminate,
notwithstanding any express provision thereof or any other provision of the
Plan, on such date (not later than the stated exercise date) as the Stock
Option Committee shall determine.
Notwithstanding the foregoing and subject to certain exceptions, the
Plan provides that the Board of Directors may amend, modify, or terminate the
Plan at any time, with respect to options which are granted in the future under
the Plan. The Board of Directors shall be authorized to amend the Plan and the
options granted thereunder (i) to qualify as "incentive stock options" with the
meaning of Section 422 of the Code, (ii) to comply with Rule 16b-3 (or any
successor rule) promulgated under the Exchange Act, or (iii) to qualify the
Plan under Section 162(m)(4)(C) of the Code.
Administration of the Plan. The Plan provides that the Compensation
Committee of the Board of Directors shall serve as the Stock Option Committee
who will administer the Plan and will have all of the powers attendant thereto,
including the power to grant options thereunder. The Plan provides that (i)
unless otherwise determined by the Board of Directors, the Stock Option
Committee shall consist of no fewer than two members of the Board of Directors,
(ii) as long as the Corporation has a class of equity securities registered
under Section 12 of the Exchange Act, each member of the Stock Option Committee
shall be a "disinterested person" as defined in Rule 16b-3(c)(2)(i) promulgated
under the Exchange Act and (iii) each member of the Stock Option Committee
shall be an "outside director" as such term is used in connection with Section
162(m)(4)(C) of the Code. Directors, Jack Evans and Jim Turner constitute the
Stock Option Committee.
The affirmative vote of the holders of a majority of the shares of the
common stock present in person or represented by proxy at the meeting is
required for approval of the Plan. Votes "withheld" or abstaining from voting
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are counted for quorum purposes, but since they are not cast "for" a particular
matter, they will have the same effect as negative votes or votes "against" a
particular matter. Broker non-votes (shares not voted by broker-dealers
because they are not authorized to vote in absence of instructions from
beneficial owners) are counted for quorum purposes, but will have no effect on
the outcome of the election of directors.
A representative of the Corporation will be present at the meeting and
will be available to respond to appropriate questions concerning the Plan.
The Board of Directors favors a vote for the approval of the Plan.
Unless a contrary indication is specified, the shares presented by the enclosed
proxy will be so voted.
FEDERAL TAX CONSEQUENCES
OF THE PLAN
An optionee will realize no taxable income at the time a stock option is
granted under the Plan.
With regard to incentive stock options, no income will be recognized by
an optionee upon transfer to him of shares pursuant to his exercise of an
incentive stock option. In order to avail himself of this tax benefit, the
optionee must make no disposition of the shares so received before he has held
such shares for at least one year and at least two years have passed since he
was granted the option. Assuming compliance with this and other applicable tax
provisions, an optionee will realize long-term capital gain or loss when he
disposes of his shares, measured by the difference between the option price and
the amount received for the shares at the time of disposition. If the optionee
disposes of shares acquired by exercise of the option before the expiration of
the above-noted periods, any amount realized from such disqualifying
disposition will be taxable as ordinary income in the year of disposition to
the extent that the lessor of:
(a) the fair market value of the shares on the date the option was
exercised, or
(b) the amount realized upon such disposition,
exceeds the option price. Any amount realized in excess of fair market value
on the date of exercise will be treated as long or short-term capital gain,
depending upon the holding period of the shares. If the amount realized upon
such disposition is less that the option price, the loss will be treated as
long or short-term capital loss, depending upon the holding period of the
shares. In this connection, the optionee's holding period for shares acquired
on exercise of an Option will begin on the date after the date the Option is
exercised. For purposes of the alternative minimum tax, the optionee shall
recognize income upon the transfer of shares to him pursuant to the exercise of
the incentive stock option in an amount equal to the difference between the
fair market value of the shares and the option price.
With regard to non-qualified options, ordinary income generally will be
realized by the optionee at the time of his exercise of an option, except with
respect to shares which are subject to a substantial risk of forfeiture on the
date of the exercise of the option ("Nonvested Shares"), if any. The amount of
income generally will be equal to the difference between the option price and
the fair market value of the shares on the date of exercise. Tax withholding
is required on such income. When an optionee disposes of shares acquired upon
the exercise of the option, any amount received in excess of the fair market
value of the shares on the date of exercise will be treated as long or
short-term capital gain, depending upon the holding period of the shares, and
if the amount received is
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less than the fair market value of the shares on the date of exercise, the loss
will be treated as long or short-term capital loss, depending upon the holding
period of the shares. Again, the optionee's holding period for shares will
begin on the day after the date of exercise.
With respect to any Nonvested Shares, Section 83(b) of the Code permits
the optionee to elect, not more than 30 days after the date of exercise of the
option to acquire the Nonvested Shares, to include as ordinary income the
difference between the fair market value of the Nonvested Shares and the option
exercise price at the time of exercise. If no Section 83(b) election is made,
then the ordinary income inclusion occurs on the date the Nonvested Shares
become vested (because they are no longer subject to a substantial risk of
forfeiture or are transferable), and the amount of such inclusion will be the
spread between the option exercise price and fair market value of the shares at
the time they vest. The optionee's holding period in Nonvested Shares will
begin on the date after the date of exercise, if a Section 83(b) election is
made; otherwise, the holding period will begin the day after the shares vest.
If the optionee pays the option price by tendering other vested shares
of common stock of the Corporation then owned by the optionee, the difference
between the fair market value and adjusted basis of the tendered shares will
not produce a taxable gain or loss to the optionee; however, the optionee's tax
basis for an equal number of acquired shares will be the same as the optionee's
tax basis for the tendered shares. The remaining acquired shares will have an
original tax basis equal to the sum of the amount paid in cash, if any, plus
any amount which the optionee is required to recognize as income as a result of
the exercise of the option.
Special rules may apply to optionees who are subject to Section 16(b) of
the Exchange Act as a consequence of their exercise of an option. While an
exercise of an option will not be a "purchase" of a security for purposes of
Section 16(b) of the Exchange Act unless the option is out-of-the-money, the
optionee may nonetheless be subject to Section 16(b) of the Exchange Act if the
optionee has exercised the option within six months of grant or if the optionee
has purchased other shares within six months before the exercise of the option.
In that case, the common stock received upon exercise of the option may be
treated as restricted property subject to a substantial risk of forfeiture
(i.e., as Nonvested Shares) for purposes of Section 83 of the Code until such
shares are no longer subject to Section 16(b) of the Exchange Act for purposes
of Section 83 of the Code. Unless the optionee makes a Section 83(b) election,
the optionee would recognize ordinary income when his shares are no longer
subject to Section 16(b) for purposes of Section 83 of the Code (i.e., up to
six months after the date on which the shares are acquired), in the amount by
which the fair market value of the common stock at such later date exceeds the
option price. Under Section 83(b), the optionee may elect to recognize income
as of the date the option is exercised in an amount equal to the excess of the
fair market value of the shares acquired on such date (determined without
regard to Section 16(b) restrictions) over the option price.
No deduction will be allowed to the Corporation for federal income tax
purposes at the time of the grant or exercise of an incentive stock option. At
the time of a disqualifying disposition by an optionee, the Corporation will be
entitled to a deduction for the amount taxable to the optionee as ordinary
income. The Corporation generally will be entitled to a deduction for federal
income tax purposes at the same time and in the same amount as the employee is
considered to have realized ordinary income in connection with the exercise of
a non-qualified option, assuming compliance with required federal tax
withholding and the requirements of Section 162 of the Code. In the event that
the Corporation has publicly held equity securities at the time the employee
realizes ordinary income as a consequence of the exercise of an option granted
under the Plan, then with respect to certain employees (the Chief Executive
Officer and the four most highly-compensated executive officers (other than the
Chief Executive Officer)),
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the deduction for compensation during the taxable year is limited to $1,000,000
for each such person unless the requirements for the "performance-based
compensation" exception of Section 162(m)(4)(C) of the Code have been
satisfied. Options issued under the Plan may or may not qualify for the
performance based compensation "exception depending on whether the option
exercise price is at least the Fair Market Value of the Corporation's common
stock on the date of grant.
The foregoing discussion is based upon present federal income tax laws,
and thus is subject to change when laws change.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
As the members of the Compensation Committee of the Board of Directors,
it is our responsibility to review compensation matters related to the three
most senior executive officers of the Corporation and to administer the
Corporation's stock option plans. Based on our review of those matters, the
Compensation Committee makes its recommendations to the Board of Directors for
approval. As a matter of practice, the Chief Executive Officer, as part of his
responsibility for the day-to-day operations of the Corporation, has the
authority to establish compensation for executive officers other than the three
most senior executive officers and for all other employees of the Corporation.
The Compensation Committee believes that senior executive compensation
should be closely aligned with the performance of the Corporation on both a
short-term and long-term basis. To that end, the Compensation Committee's
policy is that the compensation for senior executives should consist of three
components: (i) an annual base salary, (ii) the potential to earn bonuses each
fiscal quarter, the amount of which is dependent on the Corporation's operating
performance during the prior fiscal quarter and (iii) stock option awards
designed to align stockholder interests with those of management by providing
long-term incentives for the Corporation's key employees. The number of stock
options granted to employees generally is made after reviewing proposals made
by the Chief Executive Officer and consideration of the relative
responsibilities of the option recipients, past grants made to the recipients
and (in the case of the three most senior executive officers) the terms of
applicable employment agreements. No stock options were awarded to the Named
Executive Officers during 1993 as the Committee determined that such Named
Executive Officers had sufficient incentives by virtue of options previously
granted.
In making compensation decisions, it has been the practice of the
Compensation Committee to meet with the Chief Executive Officer of the
Corporation at such times as he believes appropriate to review compensation
matters relating to the three most senior executive officers of the
Corporation. The Chief Executive Officer typically has presented the
Compensation Committee with his proposals as to the appropriate compensation
level for the three most senior executive officers (including himself). The
Compensation Committee reviews the Chief Executive Officer's proposals in light
of compensation surveys prepared by outside compensation consultants and with a
view to ensuring that the proposed compensation balances rewards for short-term
and long-term corporate performance. Based on its review of the Chief
Executive Officer's proposals, the Compensation Committee recommends senior
executive compensation packages to the Board of Directors for approval. When
appropriate, the three most senior executive officers' employment agreements
have been amended, or certain provisions waived, to reflect the compensation
arrangements approved by the Board of Directors. For the year ended December
31, 1993, the Chief Executive
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Officer's compensation (salary, bonus and stock option awards) was determined
by reference to the terms of his employment agreement. See "Executive
Management Compensation -- Employment Agreements."
It has been the policy of the Compensation Committee that the annual
salary of the three most senior executive officers should be competitive, but
not at the highest level earned by executives having comparable
responsibilities at other companies of similar size as measured by revenues,
however this group is not necessarily comprised of the Food and Kindred
Products Company reflected on the Performance Graph on page 9 hereof. Instead,
a significant portion of each senior executive's annual compensation is "at
risk" in that those officers are provided with the opportunity to earn
significant quarterly bonuses based on the Corporation's performance against
specified cash flow targets. On an annual basis, bonuses may range from zero
(if the Corporation fails to attain at least 90% of its cash flow target) to
200% of the executives' base salary (if the Corporation attains 120% or more or
its cash flow target). The formula for determining the amount of available
bonuses is specified in the employment agreements relating to the three most
senior executive officers. However, the cash flow targets against which these
bonuses are earned are established by the Board of Directors and have increased
year to year. During the year ended December 31, 1993, the bonuses paid to the
three most senior executive officers approximated 35% of their annual salary
for that year. Messrs. Bach and Noll have waived any bonus payments that might
be otherwise due them in connection with the Corporation's performance during
1994. A similar bonus plan is in effect for other operating management of the
Corporation.
The new $1 million compensation limit prescribed by Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), is not expected to
apply to or limit any of the Company's compensatory deductions for 1993. With
the exception of options to be granted to Mr. Metropoulos, the Company
presently intends to take the necessary steps to conform its compensation plans
to comply with the rules promulgated under such Section 162(m) of the Code to
avoid such limitation.
Jim L. Turner, Chairman
Jack D. Evans
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During the year ended December 31, 1993, the members of the Compensation
Committee of the Board of Directors were Mr. Hicks (who resigned from the
Compensation Committee on December 14, 1993), Mr, Evans and Mr. Turner who was
appointed to the Compensation Committee on December 14, 1993. Neither Mr.
Hicks, Mr. Evans nor Mr. Turner served as an officer or employee of the
Corporation or any of its subsidiaries during fiscal 1993.
Mr. Hicks is the Chairman of the Board, Chief Executive Officer and
controlling stockholder of Hicks Muse, which in turn is the ultimate general
partner of HMCM. Hicks Muse and HMCM have certain relationships with the
Corporation described below.
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STOCKHOLDERS' AGREEMENTS
In connection with the completion of the Corporation's public offering
all the pre-offering stockholders of the Corporation entered into a
stockholders' agreement (the "Stockholders' Agreement") which superseded and
replaced two other stockholders' agreements. During the term of the
Stockholders' Agreement, each party to the Stockholders' Agreement has agreed
to vote such stockholder's shares of common stock for the election to the
Corporation's Board of Directors of (i) all nominees of HMCM and (ii) during
the terms of their employment agreements, James A. Bach and Clifford L.
Marquart, and has granted to HMCM a conditional irrevocable proxy in order to
ensure compliance with the voting provisions of the Stockholders' Agreement.
The holders of a majority of the Corporation's outstanding shares of common
stock are parties to the Stockholders' Agreement. The Stockholders' Agreement
will be effective until the earliest to occur of (i) HMCM and holders of at
least 662/3% of the shares of common stock subject to the Stockholders'
Agreement consenting to the termination thereof, (ii) HMCM and its affiliates
ceasing to own at least 5% of the Corporation's outstanding shares of common
stock or (iii) February 5, 2002.
During the term of the Stockholders' Agreement, in the event the
Corporation proposes to file a registration statement under the Securities Act
of 1933, as amended, the Corporation will notify the parties to the
Stockholders' Agreement and will, subject to certain exceptions (including
limitations imposed by any underwriters in connection with any offering),
include in such registration statement the aggregate amount of common stock
requested by such holders. The Corporation will pay all expenses incurred in
connection with such registration of such selling stockholders' common stock,
with the exception of fees, discounts and commissions payable to any
underwriter.
Thomas O. Hicks and John R. Muse are directors, officers and
stockholders of Hicks Muse and Charles W. Tate is a director, officer and
stockholder of Hicks Muse. Messrs. Muse and Tate are also directors of the
Corporation. See "Voting Securities Outstanding, Security Ownership of
Management and Principal Stockholders" and "Directors and Officers -
Information Concerning Nominees and Directors".
FINANCIAL ADVISORY AGREEMENTS
In March 1991, the Corporation entered into a financial advisory
agreement with Hicks Muse pursuant to which Hicks Muse rendered financial
advisory services to the Corporation in connection with the negotiation and
financing of the 1991 restructuring and continues to provide financial advisory
services to the Corporation. Such financial advisory agreement obligates the
Corporation to offer Hicks Muse the opportunity to provide the Corporation with
financial advisory services as necessary for future transactions on terms to be
agreed upon between the Corporation and Hicks Muse. Pursuant to the financial
advisory agreement, Hicks Muse has performed a variety of financial advisory
services for the Corporation including, among other things, assisting the
Corporation in negotiating its senior credit facilities, negotiating with
underwriters in anticipation of the public offering, recruiting independent
directors for the Corporation's Board of Directors, analyzing potential
acquisitions and divestitures, and consolidating its insurance programs. The
term of such financial advisory agreement, as amended as of April 30, 1992 and
December 15, 1993, is ten years from April 30, 1992 and will continue from year
to year thereafter, unless terminated by either party. As compensation for
such services, the Corporation has agreed to pay Hicks Muse a fee of $28,500
per quarter during 1994, together with all reasonable expenses incurred in
connection with its financial advisory services. During fiscal 1993, the
Corporation paid Hicks Muse an aggregate of approximately $221,000 pursuant to
the financial advisory agreement.
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On February 1, 1993, the Corporation and Hicks Muse entered into a
letter agreement pursuant to which the Corporation engaged Hicks Muse as its
exclusive financial advisor with respect to the March 31, 1993 acquisition of
Favorite Foods, Inc. a subsidiary of Nestl# U.S.A. Inc. As compensation for
its services, upon the closing of the acquisition, Hicks Muse received a fee of
$420,000.00.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Corporation has appointed Arthur Andersen
& Co. as independent auditors of the Corporation. Arthur Andersen & Co.,
certified public accountants, have been the independent auditors of the
Corporation since April 1988. Although not formally required, the appointment
of the independent auditors of the Corporation has been directed by the Board
of Directors to be submitted to the stockholders for ratification as a matter
of sound corporate practice. If the stockholders do not ratify the appointment
of Arthur Andersen & Co., the appointment of the independent auditors will be
reconsidered by the Board of Directors. If the stockholders ratify the
appointment, the Board of Directors, in its discretion, may still direct the
appointment of new independent auditors at any time during the year if the
Board of Directors believes that such a change would be in the best interest of
the Corporation.
The affirmative vote of the holders of a majority of the shares of the
common stock present in person or represented by proxy at the meeting is
required for ratification of the appointment of the independent auditors.
Votes "withheld" or abstaining from voting are counted for quorum purposes, but
since they are not cast "for" a particular matter, they will have the same
effect as negative votes or votes "against" a particular matter. Broker
non-votes (shares not voted by broker-dealers because they are not authorized
to vote in absence of instructions from beneficial owners) are counted for
quorum purposes, but will have no effect on the outcome of the election of
directors.
A representative of Arthur Andersen & Co. will be present at the
meeting. Such representative will be given the opportunity to make a statement
if he desires to do so and will be available to respond to appropriate
questions.
The Board of Directors favors a vote for the proposal to ratify the
appointment of Arthur Andersen & Co. Unless a contrary indication is
specified, the shares presented by the enclosed proxy will be so voted. In the
event the appointment of Arthur Andersen & Co. should not be ratified by the
stockholders, the Board of Directors will make another appointment, to be
effective at the earliest feasible date.
STOCKHOLDERS' PROPOSAL
Proposals by stockholders intended to be presented at the 1995 Annual
Meeting of Stockholders must be received by the Corporation prior to December
12, 1994 in order for the proposals to be included in the proxy statement and
proxy card relating to such meeting. It is suggested that proponents submit
their proposals by certified mail, return receipt requested.
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OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Annual Meeting of Stockholders; however, if any additional matters are
properly brought before the meeting, the persons named in the enclosed proxy
form will vote the proxies in their discretion in the manner they believe to be
in the best interest of the Corporation.
The enclosed form of proxy has been prepared at the direction of the
Corporation, of which you are a stockholder, and is sent to you at the request
of the Board of Directors. The proxies named herein have been designated by
your Board of Directors.
The Board of Directors of the Corporation urges you, even if you
presently plan to attend the meeting in person, to execute the enclosed proxy
and mail it as indicated immediately. You may revoke your proxy and vote in
person if you are in fact able to attend.
THE MORNINGSTAR GROUP INC.
By Order of the Board of Directors
/s/ JOHN P. CLARSON
John P. Clarson
Secretary
Dallas, Texas
April 12, 1994
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<PAGE> 22
THE MORNINGSTAR GROUP INC.
1994 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
1. Purpose.
The Morningstar Group Inc., a Delaware corporation (herein, together
with its successors, referred to as the Company"), by means of this 1994
Incentive and Nonstatutory Stock Option Plan (the "Plan"), desires to afford
certain individuals and key employees of the Company and any parent corporation
or subsidiary corporation thereof now existing or hereafter formed or acquired
(such parent and subsidiary corporations sometimes referred to herein as
"Related Entities") who are responsible for the continued growth of the Company
an opportunity to acquire a proprietary interest in the Company, and thus to
create in such persons an increased interest in and a greater concern for the
welfare of the Company and any Related Entities. As used in the Plan, the
terms "parent corporation" and "subsidiary corporation" shall mean,
respectively, a corporation within the definition of such terms contained in
Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
The stock options described in Sections 6 and 7 (the "Options"), and
the shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options are a matter of separate inducement and are not in
lieu of any salary or other compensation for services.
2. Administration.
The Plan shall be administered by the Option Committee, or any
successor thereto, of the Board of Directors of the Company (the "Board of
Directors"), or by any other committee appointed by the Board of Directors to
administer this Plan (the "Committee"); provided, the entire Board of Directors
may act as the Committee if it chooses to do so. The number of individuals
that shall constitute the Committee shall be determined from time to time by a
majority of all the members of the Board of Directors, and, unless that
majority of the Board of Directors determines otherwise, shall be no less than
two individuals. A majority of the Committee shall constitute a quorum (or if
the Committee consists of only two members, then both members shall constitute
a quorum), and subject to the provisions of Section 5, the acts of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by all members of the Committee, shall be the acts of the
Committee. Whenever the Company shall have a class of equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), each member of the Committee shall be required to
be (i) a "disinterested person" within the meaning of Rule 16b-3, as amended
("Rule 16b-3"), or other applicable rules under Section 16(b) of the Exchange
Act and (ii) an "outside director" within the meaning of Section 162(m)(4)(C)
of the Code and any regulations promulgated thereunder (hereinafter,
collectively "Section 162"), and the Committee shall administer the Plan so as
to comply at all times with the Exchange Act and Section 162.
The members of the Committee shall serve at the pleasure of the Board
of Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the
Committee may be with or without cause. Any individual serving as a member of
the Committee shall have the right to resign from membership in the Committee
by written notice to the Board of Directors. The Board of Directors, and not
the remaining members of the Committee, shall have the power and authority to
fill vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be below two or, if the Company has a class of equity securities registered
pursuant to Section 12 of the Exchange Act, any other number that Rule 16b-3 or
Section 162 may require from time to time.
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3. Shares Available.
Subject to the adjustments provided in Section 9, the maximum
aggregate number of shares of Common Stock, par value $0.01 per share, of the
Company ("Common Stock") which may be granted for all purposes under the Plan
shall be 220,000 shares. If, for any reason, any shares as to which Options
have been granted cease to be subject to purchase thereunder, including the
expiration of such Option, the termination of such Option prior to exercise, or
the forfeiture of such Option, such shares shall thereafter be available for
grants to such individual or other individuals under the Plan. Options granted
under the Plan may be fulfilled in accordance with the terms of the Plan with
(i) authorized and unissued shares of the Common Stock, (ii) issued shares of
such Common Stock held in the Company's treasury, or (iii) issued shares of
Common Stock reacquired by the Company in each situation as the Board of
Directors or the Committee may determine from time to time.
4. Eligibility and Bases of Participation.
Grants of Incentive Options (as hereinafter defined) and Non-Qualified
Options (as hereinafter defined) may be made under the Plan, subject to and in
accordance with Section 6, to Key Employees. As used herein, the term "Key
Employee" shall mean any employee of the Company or any Related Entity,
including officers and directors of the Company or any Related Entity who are
also employees of the Company or any Related Entity, who are regularly employed
on a salaried basis and who are so employed on the date of such grant, whom the
Committee identifies as having a direct and significant effect on the
performance of the Company or any Related Entity.
Grants of Non-Qualified Options may be made, subject to and in
accordance with Section 7, to any Eligible Non-Employee. As used herein, the
term "Eligible Non-Employee" shall mean any person or entity of any nature
whatsoever, specifically including an individual, a firm, a company, a
corporation, a partnership, a trust, or other entity (collectively, a
"Person"), that the Committee designates as eligible for a grant of Options
pursuant to this Plan because such Person performs bona fide consulting,
advisory, or other services for the Company or any Related Entity (other than
services in connection with the offer or sale of securities in a
capital-raising transaction) and the Board of Directors or the Committee
determines that the Person has a direct and significant effect on the financial
development of the Company or any Related Entity.
The adoption of this Plan shall not be deemed to give any Person a
right to be granted any Options.
5. Authority of Committee.
Subject to and not inconsistent with the express provisions of the
Plan, the Code and, if applicable, Rule 16b-3 and Section 162, the Committee
shall have plenary authority to:
a. determine the Key Employees and Eligible Non-Employees to whom
Options shall be granted, the time when such Options shall be
granted, the number of Options, the purchase price or exercise
price of each Option, the period(s) during which such Options
shall be exercisable (whether in whole or in part), the
restrictions to be applicable to Options and all other terms
and provisions thereof (which need not be identical);
b. require, as a condition to the granting of any Option, that
the Person receiving such Option agree not to sell or
otherwise dispose of such Option, any Common Stock acquired
pursuant to such Option, or any other "derivative security"
(as defined by Rule 16a-1(c) under the Exchange Act) for a
period of six months following the later of (i) the date of
the grant of such Option or (ii) the date when the exercise
price of such
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Option is fixed if such exercise price is not fixed at the
date of grant of such Option, or for such other period
as the Committee may determine;
c. provide an arrangement through registered broker-dealers
whereby temporary financing may be made available to an
optionee by the broker-dealer, under the rules and regulations
of the Board of Governors of the Federal Reserve, for the
purpose of assisting the optionee in the exercise of an
Option, such authority to include the payment by the Company
of the commissions of the broker-dealer;
d. provide the establishment of procedures for an optionee (i) to
have withheld from the total number of shares of Common Stock
to be acquired upon the exercise of an Option (other than an
Incentive Option) that number of shares having a Fair Market
Value (as defined in Section 17) which, together with such
cash as shall be paid in respect of fractional shares, shall
equal the Option exercise price, and (ii) to exercise a
portion of an Option by delivering that number of shares of
Common Stock already owned by such optionee having an
aggregate Fair Market Value which shall equal the partial
Option exercise price and to deliver the shares thus acquired
by such optionee in payment of shares to be received pursuant
to the exercise of additional portions of such Option, the
effect of which shall be that such optionee can in sequence
utilize such newly acquired shares in payment of the exercise
price of the entire Option, together with such cash as shall
be paid in respect of fractional shares; provided, however,
that in the case of an Incentive Option, no shares shall be
used to pay the exercise price unless such shares were not
acquired through the exercise of an Incentive Option or, if so
acquired, have been held for more than two years since the
grant of such Option and for more than one year since the
exercise of such Option;
e. provide (in accordance with Section 12 or otherwise) the
establishment of a procedure whereby a number of shares of
Common Stock or other securities may be withheld from the
total number of shares of Common Stock or other securities to
be issued upon exercise of an Option (other than an Incentive
Option) to meet the obligation of withholding for income,
social security and other taxes incurred by an optionee upon
such exercise or required to be withheld by the Company or a
Related Entity in connection with such exercise;
f. prescribe, amend, modify and rescind rules and regulations
relating to the Plan;
g. make all determinations permitted or deemed necessary,
appropriate or advisable for the administration of the Plan,
interpret any Plan or Option provision, perform all other
acts, exercise all other powers, and establish any other
procedures determined by the Committee to be necessary,
appropriate, or advisable in administering the Plan or for the
conduct of the Committee's business. Any act of the
Committee, including interpretations of the provisions of the
Plan or any Option and determinations under the Plan or any
Option shall be final, conclusive and binding on all parties.
The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee or any Person to whom it has delegated duties as aforesaid may employ
one or more Persons to render advice with respect to any responsibility the
Committee or such Person may have under the Plan; provided, however, that
whenever the Company has a class of equity securities registered under Section
12 of the Exchange Act, the Committee may not delegate any duties to a member
of the Board of Directors who, if elected to serve on the Committee, would not
qualify as a "disinterested person" to administer the Plan as contemplated by
Rule 16b-3, as amended, or other applicable rules under the Exchange Act, or as
an "outside director"
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pursuant to Section 162. The Committee may employ attorneys, consultants,
accountants, or other Persons and the Committee, the Company, and its officers
and directors shall be entitled to rely upon the advice, opinions, or
valuations of any such Persons. No member or agent of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan and all members and agents of the Committee
shall be fully protected by the Company in respect of any such action,
determination or interpretation.
6. Stock Options for Key Employees.
Subject to the express provisions of this Plan, the Committee shall
have the authority to grant incentive stock options pursuant to Section 422 of
the Code ("Incentive Options"), to grant non-qualified stock options (options
which do not qualify under Section 422 of the Code) ("Non-Qualified Options"),
and to grant both types of Options to Key Employees. No Incentive Option shall
be granted pursuant to this Plan after the earlier of ten years from the date
of adoption of the Plan or ten years from the date of approval of the Plan by
the stockholders of the Company. Notwithstanding anything in this Plan to the
contrary, Incentive Options may be granted only to Key Employees. The terms
and conditions of the Options granted under this Section 6 shall be determined
from time to time by the Committee; provided, however, that the Options granted
under this Section 6 shall be subject to all terms and provisions of the Plan
(other than Section 7), including the following:
a. Option Exercise Price. The Committee shall establish the
Option exercise price at the time any Option is granted at
such amount as the Committee shall determine, which shall not
in any event be less than the par value per share for each
share of Common Stock issuable upon exercise of such Option;
provided, that, in the case of an Incentive Option or an
Option intended to qualify under Section 162, such price shall
be not less than the Fair Market Value per share of Common
Stock at the date the Option is granted; and provided,
further, that in the case of an Incentive Option granted to a
person who, at the time such Incentive Option is granted, owns
shares of the Company or any Related Entity which possess more
than 10% of the total combined voting power of all classes of
shares of the Company or of any Related Entity, the option
exercise price shall not be less than 110% of the Fair Market
Value per share of Common Stock at the date the Option is
granted. The Option exercise price shall be subject to
adjustment in accordance with the provisions of Section 10 of
the Plan.
b. Payment. The price per share of Common Stock with respect to
each Option exercise shall be payable at the time of such
exercise. Such price shall be payable in cash or by any other
means acceptable to the Committee, including delivery to the
Company of shares of Common Stock owned by the optionee or by
the delivery or withholding of shares pursuant to a procedure
created pursuant to Section 5.d. of the Plan (but, with
respect to Incentive Options, subject to the limitations
described in such Section 5.d.). Shares delivered to or
withheld by the Company in payment of the Option exercise
price shall be valued at the Fair Market Value of the Common
Stock on the day preceding the date of the exercise of the
Option.
c. Continuation of Employment. Except as otherwise provided in
subsections 6(e) and 6(f) of the Plan, each Incentive Option
shall require the optionee to remain in the continuous employ
of the Company or any Related Entity from the date of grant of
the Incentive Option until no more than three months prior to
the date of exercise of the Incentive Option.
d. Exercisability of Stock Option. Subject to Section 8, each
Option shall be exercisable in one or more installments as the
Committee may determine at the time of the grant. No
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<PAGE> 26
Option by its terms shall be exercisable after the expiration
of ten years from the date of grant of the Option, unless, as
to any Non-Qualified Option, otherwise expressly provided in
such Option; provided, however, no Incentive Option shall be
exercisable after the expiration of ten years from the date
such Option is granted; and provided, further, that no
Incentive Option granted to a person who, at the time such
Option is granted, owns stock of the Company, or any Related
Entity, possessing more than 10% of the total combined voting
power of all classes of stock of the Company, or any Related
Entity, shall be exercisable after the expiration of five
years from the date such Option is granted.
e. Death. If any optionee's employment with the Company or a
Related Entity terminates due to the death of such optionee,
the estate of such optionee, or a Person who acquired the
right to exercise such Option by bequest or inheritance or by
reason of the death of the optionee, shall have the right to
exercise such Option in accordance with its terms at any time
and from time to time within one year after the date of death
unless a longer or shorter period is expressly provided in
such Option or established by the Committee pursuant to
Section 8 (but in no event after the expiration date of such
Option).
f. Disability. If the employment of any optionee terminates
because of his Disability (as defined in Section 17), such
optionee or his legal representative shall have the right to
exercise the Option in accordance with its terms at any time
and from time to time within one year after the date of such
termination unless a longer or shorter period is expressly
provided in such Option or established by the Committee
pursuant to Section 8, (but not after the expiration date of
the Option); provided, however, that in the case of an
Incentive Option, the optionee or his legal representative
shall in any event be required to exercise the Incentive
Option within one year after termination of the optionee's
employment due to his Disability.
g. Other Termination of Employment. If the employment of an
optionee with the Company or a Related Entity terminates for
any reason other than those specified in subsections 6(e) and
(f) above, such optionee shall have the right to exercise his
Option in accordance with its terms, within 30 days after the
date of such termination, unless a longer or shorter period is
expressly provided in such Option or established by the
Committee pursuant to Section 8 (but not after the expiration
date of the Option); provided, that, except as otherwise
provided in subsections 6(e) and 6(f), no Incentive Option
shall be exercisable more than three months after such
termination; and, provided, further, that, unless the Option
expressly provides otherwise, if such optionee's employment
was terminated by the Company or any Related Entity for Good
Cause (as defined below), or if the optionee voluntarily
terminates employment without the consent of the Company or
any Related Entity, such optionee shall immediately forfeit
all rights under his Option except as to the shares of stock
already purchased. The determination that there exists Good
Cause for termination shall be made by the Option Committee
(unless otherwise agreed to in writing by the Company and the
optionee).
h. Maximum Exercise. The aggregate Fair Market Value of stock
(determined at the time of the grant of the Option) with
respect to which Incentive Options are exercisable for the
first time by an optionee during any calendar year under all
plans of the Company and any Related Entity shall not exceed
$100,000.
i. Maximum Number of Options to be Issued to a Key Employee. The
maximum number of shares of Common Stock with respect to which
Options may be granted to any Key
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Employee or Eligible Non-Employee hereunder is 225,000
(including any Options which are cancelled or expire).
7. Stock Option Grants to Eligible Non-Employees.
Subject to the express provisions of this Plan, the Committee shall
have the authority to grant Non-Qualified Options to Eligible Non-Employees;
provided, however, that whenever the Company has any class of equity securities
registered pursuant to Section 12 of the Exchange Act, no Eligible Non-Employee
then serving on the Committee (or such other committee then administering the
Plan) shall be granted Options hereunder if the grant of such Options would
cause such Eligible Non-Employee to no longer be a "disinterested person" as
set forth in Section 2 hereof or an "outside director" pursuant to Section 162.
The terms and conditions of the Options granted under this Section 7 shall be
determined from time to time by the Committee; provided, however, that the
Options granted under this Section 7 shall be subject to all terms and
provisions of the Plan (other than Section 6), including the following:
a. Option Exercise Price. The Committee shall establish the
Option exercise price at the time any Non-Qualified Option is
granted at such amount as the Committee shall determine, which
shall not in any event be less than the par value per share
for each share of Common Stock issuable upon exercise of such
Option. The Option exercise price shall be subject to
adjustment in accordance with the provisions of Section 9 of
the Plan.
b. Payment. The price per share of Common Stock with respect to
each Option exercise shall be payable at the time of such
exercise. Such price shall be payable in cash or by any other
means acceptable to the Committee, including delivery to the
Company of shares of Common Stock owned by the optionee or by
the delivery or withholding of shares pursuant to a procedure
created pursuant to Section 5.d. of the Plan. Shares delivered
to or withheld by the Company in payment of the Option
exercise price shall be valued at the Fair Market Value of the
Common Stock on the day preceding the date of the exercise of
the Option.
c. Exercisability of Stock Option. Subject to Section 8, each
Option shall be exercisable in one or more installments as the
Committee may determine at the time of the grant. No Option
shall be exercisable after the expiration of ten years from
the date of grant of the Option, unless otherwise expressly
provided in such Option.
d. Death. If the retention by the Company or any Related Entity
of the services of any Eligible Non-Employee terminates
because of his death, the estate of such optionee, or a Person
who acquired the right to exercise such Option by bequest or
inheritance or by reason of the death of the optionee, shall
have the right to exercise such Option in accordance with its
terms, at any time and from time to time within one year after
the date of death unless a longer or shorter period is
expressly provided in such Option or established by the
Committee pursuant to Section 8 (but in no event after the
expiration date of such Option).
e. Disability. If the retention by the Company or any Related
Entity of the services of any Eligible Non-Employee terminates
because of his Disability, such optionee or his legal
representative shall have the right to exercise the Option in
accordance with its terms at any time and from time to time
within one year after the date of the optionee's termination
unless a longer or shorter period is expressly provided in
such Option or established by the Committee pursuant to
Section 8 (but not after the expiration of the Option).
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f. Other Termination of Relationship. If the retention by the
Company or any Related Entity of the services of any Eligible
Non-Employee terminates for any reason other than those
specified in subsections 7(d) and (e) above, such optionee
shall have the right to exercise his or its Option in
accordance with its terms within 30 days after the date of
such termination, unless a longer or shorter period is
expressly provided in such Option or established by the
Committee pursuant to Section 8 (but not after the expiration
date of the Option); provided, that, in the case of an
Eligible Non-Employee serving as a director of the Company or
of any Related Entity, unless the Committee provides
otherwise, if the optionee is removed from office for cause by
action of the stockholders in accordance with the by-laws of
the Company or such Related Entity, as applicable, and the
General Corporation Law of the State of Delaware or if such
optionee voluntarily terminates his service without the
consent of the Company or any Related Entity, then such
optionee shall immediately forfeit his rights under his Option
except as to the shares of stock already purchased.
g. Ineligibility for Other Grants. Any Eligible Non-Employee who
receives an Option pursuant to this Section 7 shall be
ineligible to receive any Options under any other Section of
the Plan.
8. Change of Control.
If a Change of Control shall occur, or if the Company shall enter into
an agreement providing for a Change of Control, the Committee may declare any
or all Options outstanding under the Plan to be exercisable in full at such
time or times as the Committee shall determine, notwithstanding the express
provisions of such Options. Each Option accelerated by the Committee in
connection with a Change of Control pursuant to the preceding sentence shall
terminate, notwithstanding any express provision thereof or any other provision
of the Plan, on such date (not later than the stated expiration date) as the
Committee shall determine.
9. Adjustment of Shares.
Unless otherwise expressly provided in a particular Option, in the
event that, by reason of any merger, consolidation, combination, liquidation,
reorganization, recapitalization, stock dividend, stock split, split-up,
split-off, spin-off, combination of shares, exchange of shares or other like
change in capital structure of the Company (collectively, a "Reorganization"),
the Common Stock is substituted, combined, or changed into any cash, property,
or other securities, or the shares of Common Stock are changed into a greater
or lesser number of shares of Common Stock, the number and/or kind of shares
and/or interests subject to an Option and the per share price or value thereof
shall be appropriately adjusted by the Committee to give appropriate effect to
such Reorganization. Any fractional shares or interests resulting from such
adjustment shall be eliminated. Notwithstanding the foregoing, (i) each such
adjustment with respect to an Incentive Option shall comply with the rules of
Section 424(a) of the Code, and (ii) in no event shall any adjustment be made
which would render any Incentive Option granted hereunder other than an
"incentive stock option" for purposes of Section 422 of the Code.
In the event the Company is not the surviving entity of a
Reorganization and, following such Reorganization, any optionee will hold
Options issued pursuant to this Plan which have not been exercised, cancelled,
or terminated in connection therewith, the Company shall cause such Options to
be assumed (or cancelled and replacement Options issued) by the surviving
entity or a Related Entity.
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10. Assignment or Transfer.
Except as otherwise expressly provided in any Nonqualified Option, no
Option granted under the Plan or any rights or interests therein shall be
assignable or transferable by an optionee except by will or the laws of descent
and distribution, and during the lifetime of an optionee, Options granted to
him or her hereunder shall be exercisable only by the optionee or, in the event
that a legal representative has been appointed in connection with the
Disability of an optionee, such legal representative.
11. Compliance with Securities Laws.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act or any applicable state
securities law to permit exercise of any Option or to issue any Common Stock in
violation of the Securities Act or any applicable state securities law. Each
optionee (or, in the event of his death or, in the event a legal representative
has been appointed in connection with his Disability, the Person exercising the
Option) shall, as a condition to his right to exercise any Option, deliver to
the Company an agreement or certificate containing such representations,
warranties and covenants as the Company may deem necessary or appropriate to
ensure that the issuance of shares of Common Stock pursuant to such exercise is
not required to be registered under the Securities Act or any applicable state
securities law.
Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED
FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE
ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH
OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Common Stock issued
pursuant to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.
12. Withholding Taxes.
By acceptance of the Option, the optionee will be deemed to (i) agree
to reimburse the Company or Related Entity by which the optionee is employed
for any federal, state, or local taxes required by any government to be
withheld or otherwise deducted by such corporation in respect of the optionee's
exercise of all or a portion of the Option; (ii) authorize the Company or any
Related Entity by which the Grantee is employed to withhold from any cash
compensation paid to the optionee or in the optionee's behalf, an amount
sufficient to discharge any federal, state, and local taxes imposed on the
Company, or the Related Entity by which the optionee is employed, and which
otherwise has not been reimbursed by the optionee, in respect of the optionee's
exercise of all or a portion of the Option; and (iii) agree that the Company
may, in its discretion, hold the stock certificate to which the optionee is
entitled upon exercise of the Option as security for the payment of the
aforementioned withholding tax liability, until cash sufficient to pay that
liability has been accumulated, and may, in its discretion, effect such
withholding by retaining
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shares issuable upon the exercise of the Option having a Fair Market Value on
the date of exercise which is equal to the amount to be withheld.
13. Costs and Expenses.
The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any Option nor to any employee
receiving an Option.
14. Funding of Plan.
The Plan shall be unfunded. The Company shall not be required to make
any segregation of assets to assure the payment of any Option under the Plan.
15. Other Incentive Plans.
The adoption of the Plan does not preclude the adoption by appropriate
means of any other incentive plan for employees.
16. Effect on Employment.
Nothing contained in the Plan or any agreement related hereto or
referred to herein shall affect, or be construed as affecting, the terms of
employment of any Key Employee except to the extent specifically provided
herein or therein. Nothing contained in the Plan or any agreement related
hereto or referred to herein shall impose, or be construed as imposing, an
obligation on (i) the Company or any Related Entity to continue the employment
of any Key Employee, and (ii) any Key Employee to remain in the employ of the
Company or any Related Entity.
17. Definitions.
In addition to the terms specifically defined elsewhere in the Plan,
as used in the Plan, the following terms shall have the respective meanings
indicated:
a. "Affiliate" shall mean, as to any Person, a Person that
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control
with, such Person.
b. "Board of Directors" shall have the meaning set forth in
Section 2 hereof.
c. "Change of Control" shall mean the first to occur of the
following events: (i) any sale, lease, exchange, or other
transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group"), other than
to Hicks, Muse & Co. Incorporated or any of its Affiliates or
their employees, officers, and directors (the "HMC Group");
(ii) a majority of the Board of Directors of the Company or
shall consist of Persons who are not Continuing Directors; or
(iii) the acquisition by any Person or Group (other than the
HMC Group) of the power, directly or indirectly, to vote or
direct the voting of securities having more than 50% of the
ordinary voting power for the election of directors of the
Company.
d. "Code" shall have the meaning set forth in Section 1 hereof.
e. "Committee" shall have the meaning set forth in Section 2
hereof.
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f. "Common Stock" shall have the meaning set forth in Section 3
hereof.
g. "Company" shall have the meaning set forth in Section 1 hereof.
h. "Continuing Director" shall mean, as of the date of
determination, any Person who (i) was a member of the Board of
Directors of the Company on the date of adoption of this Plan,
(ii) was nominated for election or elected to the Board of
Directors of the Company with the affirmative vote of a
majority of the Continuing Directors who were members of such
Board of Directors at the time of such nomination or election,
or (iii) is a member of the HMC Group.
i. "Disability" shall mean permanent disability as defined under
the appropriate provisions of the long-term disability plan
maintained for the benefit of employees of the Company or any
Related Entity who are regularly employed on a salaried basis
unless another meaning shall be agreed to in writing by the
Committee and the optionee; provided, however, that in the
case of an Incentive Option "disability" shall have the
meaning specified in Section 22(e)(3) of the Code.
j. "Eligible Non-Employee" shall have the meaning set forth in
Section 3 hereof.
k. "Exchange Act" shall have the meaning set forth in Section 2
hereof.
l. "Fair Market Value" shall, as it relates to the Common Stock,
mean the average of the high and low prices of such Common
Stock as reported on the principal national securities
exchange on which the shares of Common Stock are then listed
on the date specified herein, or if there were no sales on
such date, on the next preceding day on which there were
sales, or if such Common Stock is not listed on a national
securities exchange, the last reported bid price in the
over-the-counter market, or if such shares are not traded in
the over-the-counter market, the per share cash price for
which all of the outstanding Common Stock could be sold to a
willing purchaser in an arms length transaction (without
regard to minority discount, absence of liquidity, or transfer
restrictions imposed by any applicable law or agreement) at
the date of the event giving rise to a need for a
determination. Except as may be otherwise expressly provided
in a particular Option, Fair Market Value shall be determined
in good faith by the Committee.
m. "Good Cause" shall mean (unless another definition is agreed
to in writing by the Company and the optionee) termination by
action of the Board of Directors because of: (A) the
optionee's conviction of, or plea of nolo contendere to, a
felony or a crime involving moral turpitude; (B) the
optionee's personal dishonesty, incompetence, willful
misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or
breach of fiduciary duty which involves personal profit; (C)
the optionee's commission of material mismanagement in the
conduct of his duties as assigned to him by the Board of
Directors or the President of the Company; (D) the optionee's
willful failure to execute or comply with the policies of the
Company or his stated duties as established by the Board of
Directors or the President of the Company, or intentional
failure to perform his stated duties; or (E) substance abuse
or addiction on the part of the optionee.
n. "Grantor" has the meaning set forth in Section 9 hereof.
o. "Incentive Options" shall have the meaning set forth in
Section 6 hereof.
A-10
<PAGE> 32
p. The term "including" when used herein shall mean "including,
but not limited to".
q. "Key Employee" shall have the meaning set forth in Section 3
hereof.
r. "Non-Qualified Options" shall have the meaning set forth in
Section 6 hereof.
s. "Options" shall have the meaning set forth in Section 1 hereof.
t. "Person" shall have the meaning set forth in Section 3 hereof.
u. "Plan" shall have the meaning set forth in Section 1 hereof.
v. "Related Entities" shall have the meaning set forth in Section
1 hereof.
w. "Reorganization" shall have the meaning set forth in Section 9
hereof.
x. "Rule 16b-3" shall have the meaning set forth in Section 3
hereof.
y. "Section 162" shall have the meaning set forth in Section 2
hereof.
18. Amendment of Plan.
The Board of Directors shall have the right to amend, modify, suspend
or terminate the Plan at any time; provided, that no amendment shall be made
which shall increase the total number of shares of the Common Stock which may
be issued and sold pursuant to Options granted under the Plan or decrease the
minimum Option exercise price in the case of an Incentive Option, or modify the
provisions of the Plan relating to eligibility with respect to Incentive
Options unless such amendment is made by or with the approval of the
stockholders. The Board of Directors shall be authorized to amend the Plan and
the Options granted thereunder (i) to qualify as "incentive stock options"
within the meaning of Section 422 of the Code, (ii) to comply with Rule 16b-3
(or any successor rule) under the Exchange Act or (iii) to comply with Section
162 of the Code (or any successor law) and the regulations (including any
temporary regulations) promulgated thereunder. No amendment, modification,
suspension or termination of the Plan shall alter or impair any Options
previously granted under the Plan, without the consent of the holder thereof.
19. Effective Date.
The Plan shall become effective on the date on which it is established
by the Compensation Committee and shall be void retroactively if not ratified
by the Board of Directors of the Company and if not approved by the
stockholders of the Company within twelve months of the date of ratification by
the Board of Directors.
A-11
<PAGE> 33
10-K REPORT AVAILABLE
A copy of the Corporation's annual report on Form 10-K,
as filed with the Securities and Exchange Commission, will be
furnished without charge to stockholders on request to:
John P. Clarson
The Morningstar Group Inc.
5956 Sherry Lane, Suite 1100
Dallas, Texas 75225-6522
<PAGE> 34
X Please mark your
votes as in this
example.
FOR WITHHOLD
1. Election of ( ) ( )
Directors
(see reverse side)
For, except vote withheld from the following nominee(s):
____________________________________________________
FOR AGAINST ABSTAIN
2. Approval of the Corporation's 1994 Incentive and ( ) ( ) ( )
Nonstatutory Stock Option Plan.
3. Ratification of the appointment of Arthur ( ) ( ) ( )
Andersen & Co. as Independent Auditors of the
Corporation for the ensuing year.
If any other business is properly brought before
the meeting, the undersigned acknowledges that the
above named proxy will vote in his discretion on
such other business.
( ) Change
of
address
( ) I plan
on attending
the meeting
SIGNATURES(S)______________________ DATE__________
SIGNATURES(S)______________________ DATE__________
NOTE: Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such.
PROXY
THE MORNINGSTAR GROUP INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE MORNINGSTAR GROUP INC. FOR THE ANNUAL MEETING MAY 19, 1994
The undersigned having received the notice and accompanying Proxy Statement for
said meeting hereby appoints JOHN P. CLARSON with full power of substitution,
as the undersigned's proxy and attorney-in-fact to vote at the annual meeting
May 19, 1994 or at any adjournment thereof all shares of The Morningstar Group
Inc. which the undersigned may be entitled to vote. The above proxy is hereby
instructed to vote as shown on the reverse side of this card.
Election of Directors:
C. Dean Metropoulos John R. Muse
Charles W. Tate Clifford L. Marquart
Arnold L. Chavkin Jack W. Evans
Jim L. Turner
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES AND FOR
PROPOSALS 2 AND 3. This proxy will be voted as specified. IF NO SPECIFIC
DIRECTIONS ARE GIVEN, ALL OF THE VOTES ATTRIBUTABLE TO YOUR VOTING SHARES WILL
BE VOTED FOR THE NOMINEES.
