<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 / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
THE MORNINGSTAR GROUP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
THE MORNINGSTAR GROUP INC.
5956 Sherry Lane, Suite 1800
Dallas, Texas 75225-6522
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1996
_____________________________
NOTICE IS HEREBY GIVEN that the Annual Meeting of the
Stockholders of The Morningstar Group Inc., a Delaware corporation (the
"Corporation"), will be held on Wednesday, May 22, 1996, at 10:00 a.m., local
time, at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas, for the
following purposes:
1. To elect five (5) directors;
2. To consider and act upon a proposal to approve
Amendment No. 1 to The Morningstar Group Inc. 1994
Incentive and Nonstatutory Stock Option Plan;
3. To consider and act upon a proposal to approve The
Morningstar Group Inc. 1996 Director Stock Option
Plan;
4. To ratify the appointment of Arthur Andersen LLP as
independent auditors of the Corporation for the
ensuing year; and
5. To transact 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 April 5, 1996, will be entitled to notice
of, and to vote at, the meeting or any adjournment thereof. 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/ MICHAEL J. CRAMER
Michael J. Cramer
Secretary
Dallas, Texas
April 23, 1996
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND PROMPTLY
RETURNED IN THE ENCLOSED ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.
<PAGE> 3
THE MORNINGSTAR GROUP INC.
5956 Sherry Lane, Suite 1800
Dallas, Texas 75225-6522
_______________________________
PROXY STATEMENT
April 23, 1996
_______________________________
GENERAL INFORMATION
This proxy statement is furnished to the stockholders of The
Morningstar Group Inc., a Delaware corporation (the "Corporation"), in
connection with the solicitation of proxies to be used in voting at the Annual
Meeting of Stockholders (the "Annual Meeting") to be held at 10:00 a.m., local
time, on Wednesday, May 22, 1996, at the Hotel Crescent Court, 400 Crescent
Court, Dallas, Texas, and at any and all adjournments thereof, and is being
first mailed to the stockholders on or about April 23, 1996. 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. Unless previously revoked, the
shares represented by the enclosed proxy will be voted in accordance with the
stockholder's directions if the proxy is duly executed and returned prior to
the Annual Meeting. If no directions are specified, the shares will be voted
FOR the election of the director nominees recommended by the Board of
Directors, FOR the approval of Amendment No. 1 to The Morningstar Group Inc.
1994 Incentive and Nonstatutory Stock Option Plan ("Amendment to Employee
Plan"), FOR the approval of The Morningstar Group Inc. 1996 Director Stock
Option Plan (the "Director Stock Option Plan"), FOR the ratification of the
appointment of Arthur Andersen LLP as independent auditors of the Corporation
for the ensuing year, and in accordance with the discretion of the named
attorney-in-fact on other matters properly brought before the Annual Meeting.
The Corporation will bear the cost of preparing, printing and
mailing this proxy statement and of soliciting the proxies sought hereby. In
addition to the use of the mails, solicitation may be made in person or by
telephone, facsimile transmission or otherwise by officers, directors and
regular employees of the Corporation, who will not receive additional
compensation for those services. 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.
1
<PAGE> 4
VOTING SECURITIES OUTSTANDING, SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
As of April 5, 1996, the Corporation had 15,246,261 shares of
common stock issued and outstanding. Each share of common stock entitles the
holder to one vote. Only stockholders of record at the close of business on
April 5, 1996, will be entitled to notice of, and to vote at, the Annual
Meeting.
PRINCIPAL STOCKHOLDERS
The following table and notes thereto set forth, as of April
5, 1996, the number of shares of common stock of the Corporation held by each
entity who is known to the Corporation to beneficially own more than five
percent (5%) of the outstanding shares of the Corporation's common stock.
Unless otherwise noted, the Corporation believes that the entities named below
have sole voting and investment power with respect to the shares indicated.
(HMC/Morningstar, L.P. is referred to as "HMCM" throughout this proxy
statement.)
<TABLE>
<CAPTION>
Beneficial Ownership
of Common Stock
---------------------------------
Name and Address of Number of Percent
Beneficial Owner Shares of Class (a)
-------------------------------------------------- --------------- ---------------
<S> <C> <C>
HMCM
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, TX 75201 . . . . . . . . . . . . . . . 5,399,306 (b) 35%
Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004 . . . . . . . . . . . . . . 1,266,700 (c) 8%
Wand/Morningstar Investments, L.P.
c/o Wand Partners, Inc.
30 Rockefeller Plaza
Suite 3226
New York, NY 10112 . . . . . . . . . . . . . . 840,401 (d) 6%
Ryback Management Corporation
7711 Carondelet Avenue
Box 16900
St. Louis, MO 63105 . . . . . . . . . . . . . 1,201,700 (e) 8%
</TABLE>
_____________________
(a) Based on 15,246,261 shares of common stock outstanding.
(b) The following information is based partially on a Schedule 13G, dated
February 10, 1994, filed with the Securities and Exchange Commission
(the "Commission") by Thomas O. Hicks; Hicks, Muse & Co. (TX)
Incorporated ("Hicks Muse"); HMC Partners, L.P. ("HMC Partners"); and
HMCM, as supplemented by information provided to the Corporation by
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.
2
<PAGE> 5
In addition, pursuant to a Stockholders' Agreement (as hereinafter
defined), 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 (see "Related Party Transactions -- Stockholders'
Agreement"). 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 all such
shares of common stock not owned of record by such person.
In June 1995, HMCM distributed those shares of the Corporation's
common stock held of record by HMCM to its limited partners. Pursuant
to the terms of the Stockholders' Agreement, such shares remain
subject to the Stockholders' Agreement until such shares are sold by
the limited partners. Accordingly, the number of shares attributable
to HMCM in the table above is based partially on the Corporation's
best estimate of the number of shares of common stock still subject to
the Stockholders' Agreement.
By virtue of the Stockholders' Agreement, HMCM has shared voting and
dispositive power with respect to the 5,399,306 shares beneficially
owned by it. Accordingly, each of HMC Partners, Hicks Muse and Mr.
Hicks may be deemed to have the same voting and dispositive power with
respect to such shares.
(c) The following information is based on a Schedule 13G, dated January
10, 1996, filed with the Commission by The Goldman Sachs Group, L.P.
("Goldman Sachs"); Goldman, Sachs & Co. and Goldman Sachs Equity
Portfolios, Inc. on behalf of Goldman Sachs Small Cap Equity Fund. The
address of the principal business office of Goldman Sachs and Goldman,
Sachs & Co. is as set forth above. The address of the principal
business office of Goldman Sachs Equity Portfolios, Inc. 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. Goldman Sachs and Goldman, Sachs & Co. have shared voting
and dispositive power with respect to the 1,266,700 shares
beneficially owned by them and Goldman Sachs Equity Portfolios, Inc.
Goldman Sachs Equity Portfolios, Inc. has shared voting and
dispositive power with respect to 1,162,900 shares beneficially owned
by it.
(d) The following information is based on a Schedule 13G, filed with the
Commission on March 24, 1993 by Bruce W. Schnitzer, Wand Partners,
Inc. ("Wand Partners") and Wand/Morningstar Investments, L.P.
("Wand/Morningstar"), as supplemented by information provided to the
Corporation by Wand/Morningstar. The address of the principal
business office of each reporting person is 30 Rockefeller Plaza,
Suite 3226, New York, New York 10112. As of December 31, 1992,
Wand/Morningstar owned, beneficially and of record, 840,401 shares of
common stock. Wand Partners serves as the general partner of
Wand/Morningstar. Mr. Schnitzer owns 66% of the issued and
outstanding common stock of Wand Partners and serves as the Chairman
and Treasurer of Wand Partners. As a result of the foregoing
relationships and stock ownership, Wand/Morningstar, Wand Partners and
Mr. Schnitzer may each be deemed, pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the rules and
regulations promulgated thereunder, to beneficially own the shares of
common stock held by Wand/Morningstar. Each of Wand Partners and Mr.
Schnitzer disclaims beneficial ownership of the shares of common stock
owned by Wand/Morningstar. Wand/Morningstar has sole power to vote or
to direct the vote and sole power to dispose or to direct the
disposition of all shares of common stock owned, beneficially and of
record, by it. By virtue of their deemed beneficial ownership of the
shares of common stock owned directly by Wand/Morningstar, Wand
Partners and Mr. Schnitzer may each be deemed, pursuant to the
Exchange Act and the rules and regulations promulgated thereunder, to
have sole power to vote or to direct the vote and sole power to
dispose or to direct the disposition of such shares of common stock.
3
<PAGE> 6
(e) The following information is based on a Schedule 13G, dated January
25, 1996, filed with the Commission by Ryback Management Corporation.
As of December 31, 1995, Lindner Growth Fund (formerly Lindner Fund,
Inc.) was the beneficial owner of 1,201,700 shares of common stock.
Lindner Growth Fund is an investment company registered under the
Investment Company Act of 1940, as amended, and is managed by Ryback
Management Corporation, an investment adviser registered under the
Investment Advisers Act of 1940, as amended. The address of the
principal business office of Ryback Management Corporation is 7711
Carondelet Avenue, Box 16900, St. Louis, Missouri 63105. Lindner
Growth Fund has sole power to vote or to direct the vote and sole
power to dispose or to direct the disposition of all shares of common
stock owned, beneficially and of record, by it.
DIRECTORS AND OFFICERS
The following table and notes thereto set forth, as of April
5, 1996 (unless otherwise noted below), the number of shares of common stock of
the Corporation beneficially owned by the directors, director nominees, the
Named Executive Officers (as defined under "Executive Management and Director
Compensation -- Executive Compensation") and all directors and executive
officers of the Corporation as a group. Unless otherwise noted, the
Corporation believes that each person named in the following table has sole
voting and investment power with respect to the shares indicated. The
Corporation has been provided such information by its directors, director
nominees and executive officers.
<TABLE>
<CAPTION>
Beneficial Ownership
of Common Stock
---------------------------------------
Number of Percent
Name of Beneficial Owner Shares of Class (a)
---------------------------------------------- ------------------ ------------------
<S> <C> <C>
C. Dean Metropoulos . . . . . . . . . . . . . 620,500(b) 4%
Chairman of the Board and Chief
Executive Officer
John R. Muse . . . . . . . . . . . . . . . . 144,345(c) *
Director
Charles W. Tate . . . . . . . . . . . . . . . 23,382 *
Director
Jack W. Evans . . . . . . . . . . . . . . . . 39,006 *
Director
Jim L. Turner . . . . . . . . . . . . . . . . 39,006 *
Director
L. Hollis Jones . . . . . . . . . . . . . . . -0- *
President and Chief Operating
Officer
Michael J. Cramer . . . . . . . . . . . . . . 20,000(d) *
Vice President, Secretary and
General Counsel
Darron K. Ash . . . . . . . . . . . . . . . . 2,000(e) *
Vice President and Chief Financial
Officer
All Directors and Executive Officers
as a group (8 persons) . . . . . . . . . . 800,512 5%
</TABLE>
4
<PAGE> 7
_____________________
* Represents less than 1%.
(a) Based on 15,246,261 shares of common stock outstanding and calculated
in accordance with Rule 13d-3 under the Exchange Act.
(b) Includes (i) presently exercisable options to purchase 600,000 shares
of common stock held by Mr. Metropoulos; (ii) 3,500 shares of common
stock held directly of record by Mr. Metropoulos; (iii) 4,000 shares
of common stock held by an immediate family member; and (iv) 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.
(c) Includes (i) 133,575 shares of common stock held directly by Mr. Muse;
(ii) 1,000 shares of common stock held by Mr. Muse's wife; (iii) 4,770
shares of common stock held by various trusts for which Mr. Muse is
the custodian; and (iv) 5,000 shares of common stock held by a
children's trust for which Mr. Muse is the trustee.
(d) Presently exercisable options to purchase 20,000 shares of common
stock.
(e) Presently exercisable options to purchase 2,000 shares of common
stock.
5
<PAGE> 8
PROPOSAL FOR THE ELECTION OF DIRECTORS
Action will be taken at the Annual Meeting for the election of
five directors to serve for one-year terms. The Corporation does not have a
nominating committee; the Board of Directors has nominated the persons named
below to stand for election as directors at the Annual Meeting. Each of the
persons nominated presently serves as a director of the Corporation. It is
intended that the attorney-in-fact named in the proxy card will vote FOR the
election of the five nominees listed below, unless instructions to the contrary
are given therein. These nominees have indicated that they are able and
willing to serve as directors. However, if some unexpected occurrence should
require the substitution of some other person or persons for any one or more of
the nominees, it is intended that the attorney- in-fact will vote FOR such
substitute nominees as the Board of Directors may designate. All directors
elected at the Annual Meeting will hold office for their respective terms and
until their respective successors are elected and qualified.
The information appearing in the following table and the notes
thereto, with respect to the principal occupation or employment of each of the
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 . . . . . . . . . . . . . . . 49 May 1996 December 1993
Chairman of the Board and
Chief Executive Officer
Jack W. Evans . . . . . . . . . . . . . . . . . . 73 May 1996 May 1991
Chief Executive Officer and
President of Jack Evans Investments, Inc.
John R. Muse . . . . . . . . . . . . . . . . . . 45 May 1996 March 1991
Managing Director and Principal
of Hicks, Muse, Tate & Furst Incorporated
Charles W. Tate . . . . . . . . . . . . . . . . . 51 May 1996 August 1991
Managing Director and Principal of the New
York affiliate of Hicks, Muse, Tate & Furst
Incorporated
Jim L. Turner . . . . . . . . . . . . . . . . . . 50 May 1996 May 1991
Chairman of the Board and President of
Dr Pepper Bottling Company of Texas
</TABLE>
6
<PAGE> 9
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 was President of the Corporation from March
1994 to December 1995 and has served as Chief Executive Officer of the
Corporation since March 17, 1994.
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.
John R. Muse is Executive Vice President, Managing Director
and Principal of Hicks, Muse, Tate & Furst Incorporated, a private investment
firm and affiliate of Hicks Muse, having served since its inception in May
1989. From 1984 to 1989, Mr. Muse was Managing Director of Prudential
Securities Incorporated ("Prudential Securities") in Dallas, Texas, where he
served as the head of investment/merchant banking activities for the
southwestern region of the United States. Prior to joining Prudential
Securities, Mr. Muse served as senior vice president and a director of
Schneider, Bernet & Hickman, Inc. ("Schneider, Bernet") in Dallas from 1979 to
1983 and was responsible for the company's investment banking activities.
Prior to Schneider, Bernet, he was employed by Bateman, Eichler, Hill Richards
in Los Angeles. Mr. Muse is the Chairman of the Board of Hedstrom Corporation
and Hat Brands, Inc. and serves as a director of Life Partners Group, Inc., The
Morningstar Group Inc. and Olympus Real Estate Corporation. Mr. Muse also
serves on the Boards of Directors for the SMU Edwin L. Cox School of Business,
St. Philip's School and Community Center, University of Texas at Tyler Health
Center, the Dallas Summer Musicals and Goodwill Industries.
Charles W. Tate is an Executive Vice President, Managing
Director and Principal of Hicks, Muse, Tate & Furst Incorporated, a private
investment firm and affiliate of Hicks Muse, 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 ("Morgan Stanley") and last served as a
Managing Director in Morgan Stanley's Merchant Banking Division. Mr. Tate
serves as a director of Berg Electronics Corp., Berg Electronics Group, Inc.,
DESA Holdings Corporation, Hat Brands, Inc., Heileman Holding Company, Heritage
Brands, Inc., and International Wire Holding Company.
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. Mr.
Turner serves as a director of G. Heileman Brewing Company, Inc.
7
<PAGE> 10
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Corporation has a standing Audit Committee, the members of
which are Messrs. Jack W. Evans (Chairman) and Jim L. Turner. Two meetings
were held by such committee during the year ended December 31, 1995. 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, the
members of which are Messrs. Jack W. Evans (Chairman) and Jim L. Turner. One
meeting was held by such committee during 1995. The functions performed by such
committee included making a recommendation to the Board of Directors as to the
salary and bonus of the Chief Executive Officer and administering the
Corporation's stock option plans.
The Corporation has a standing Executive Committee, the
members of which are Messrs. C. Dean Metropoulos and John R. Muse. Mr.
Marquart served as a member of the Executive Committee until his resignation on
January 16, 1995. The Executive Committee did not meet during the year ended
December 31, 1995. 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 of Directors.
The total number of meetings of the Board of Directors held
during the year ended December 31, 1995 was six. The Board of Directors voted
by unanimous consent two times during the last year. During 1995, 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.
8
<PAGE> 11
EXECUTIVE MANAGEMENT AND DIRECTOR COMPENSATION
EXECUTIVE 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 four other most highly compensated executive officers (the Chief Executive
Officer and such other officers collectively referred to as the "Named
Executive Officers") of the Corporation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- ------------
Other Securities All
Annual Underlying Other
Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($) ($) ($) (#) ($)(a)
--------------------------- ----- -------------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
C. Dean Metropoulos . . . 1995 350,000 450,000 -0- -0- 1,981
Chairman of the Board 1994 290,000(b) 450,000 -0- 600,000 -0-
and Chief Executive 1993 111,999(c) -0- -0- -0- -0-
Officer
L. Hollis Jones . . . . . 1995 57,115(e) 50,000 -0- -0- -0-
President and Chief 1994 -- -- -- --
Operating Officer (d) 1993 -- -- -- -- --
--
Michael J. Cramer . . . . 1995 137,500 33,400 -0- 20,000 883
Vice President, 1994 137,500 25,000 -0- -0- -0-
Secretary and General 1993 -- -- -- -- --
Counsel
Darron K. Ash . . . . . . 1995 84,051 18,796 -0- 2,000 249
Vice President and 1994 14,583(g) 7,520 -0- -0- -0-
Chief Financial 1993 -- -- -- -- --
Officer (f)
Clifford L. Marquart . . 1995 102,463 -0- -0- -0- -0-
Executive Vice 1994 391,771 -0- -0- -0- 5,895
President and 1993 391,406 144,321 -0- -0- 4,643
Chief Operating
Officer (h)
</TABLE>
______________________
(a) "All Other Compensation" includes contributions by the Corporation to
its 401(k) savings plan of $1,981, $883 and $249 on behalf of Messrs.
Metropoulos, Cramer and Ash, respectively.
(b) Includes (i) $250,000 in salary and consulting fees and (ii) $40,000
in agreed upon expense reimbursement.
(c) Includes (i) $87,000 in consulting fees and (ii) $24,999 in agreed
upon expense reimbursement.
9
<PAGE> 12
(d) Mr. Jones was elected Chief Operating Officer of the Corporation in
August 1995 and President of the Corporation in December 1995.
(e) Mr. Jones became employed with the Corporation in August 1995.
(f) Mr. Ash was elected Chief Financial Officer of the Corporation in
December 1995.
(g) Mr. Ash became employed with the Corporation in October 1994.
(h) Mr. Marquart resigned as a director, Executive Vice President and
Chief Operating Officer of the Corporation and as an officer of its
subsidiaries on January 16, 1995. Mr. Marquart is included in this
table as an individual for whom disclosure would have been provided
but for the fact that he was not serving as an executive officer at
the end of the last completed fiscal year.
The following table reflects information with respect to option grants
made to the Named Executive Officers during 1995 under the Corporation's stock
option plans.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------
Percent of
Total
Number of Options Exercise
Securities Granted to or
underlying Employees Base Grant Date
options in Fiscal Price Expiration Present
Name Granted (#) (a) Year (%) ($/Sh) Date Value ($) (b)
------------------------------- ----------------- --------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
C. Dean Metropoulos . . . . . -0- -0- --- --- ---
L. Hollis Jones . . . . . . . 30,000 27.0 6.750 07/01/05 87,000
Michael J. Cramer . . . . . . -0- -0- --- --- ---
Darron K. Ash . . . . . . . . -0- -0- --- --- ---
</TABLE>
(a) The options to purchase common stock were granted under The
Morningstar Group Inc. 1994 Incentive and Nonstatutory Stock Option
Plan. The options granted to Mr. Jones become exercisable in three
annual installments commencing on the first anniversary of the date of
grant. All options become exercisable upon a change of control (as
defined).
(b) The grant date present value of such option grant was determined using
a variation of the Black-Scholes option pricing model. The estimated
values presented are based on the following assumptions made for the
option award as of the time of grant: an expected dividend yield of
2.22%; volatility of 33.55%; and a risk-free rate of 6.63%. The actual
value, if any, that an executive officer may realize from the exercise
of the options will be the excess of the fair market value of the
common stock on the date of exercise over the exercise price. See
"Executive Management and Director Compensation -- Aggregated Option
Exercises in Last Fiscal Year and December 31, 1995 Option Values."
10
<PAGE> 13
The following table reflects information with respect to options
exercised by the Named Executive Officers during 1995 and unexercised options
held by the Named Executive Officers at December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1995 OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Under- Value of Unexercised
lying Unexercised Options In-the-Money Options
Shares Value At Fiscal Year-End (#) At Fiscal Year-End ($)(a)
Acquired on Realized ------------------------------- -------------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
C. Dean Metropoulos . . . -0- -0- 600,000 -0- 900,000 -0-
L. Hollis Jones . . . . . -0- -0- -0- 30,000 -0- 37,500
Michael J. Cramer . . . . -0- -0- 20,000 10,000 20,000 10,000
Darron K. Ash . . . . . . -0- -0- 2,000 4,000 2,000 4,000
Clifford L. Marquart . . 306,514 1,572,000 -0- -0- -0- -0-
</TABLE>
- ----------------------------------
(a) Based on the Corporation's stock price of $8.00 on December 31, 1995.
METROPOULOS ADVISORY AGREEMENT
On October 13, 1993, the Corporation entered into an Advisory
Agreement pursuant to which C. Dean Metropoulos agreed to provide advisory
services to the Corporation. The term of the Advisory Agreement is three years
and may be terminated by either party at any time. Subsequent to the execution
of the Advisory Agreement, Mr. Metropoulos was elected to the additional
positions of President and Chief Executive Officer of the Corporation, although
he no longer serves as President of the Corporation. As compensation for all
services rendered by Mr. Metropoulos pursuant to the Advisory Agreement and
pursuant to the terms of his employment as President and Chief Executive Officer
of the Corporation, the Corporation pays Mr. Metropoulos a monthly fee of
approximately $29,000 plus all reasonable expenses incurred in connection with
his services. During 1995, the Corporation paid Mr. Metropoulos a total of
approximately $350,000 in monthly fees and reimbursed him approximately $22,000
in expenses.
EMPLOYMENT AGREEMENTS
During 1995, Messrs. Metropoulos and Cramer entered into employment
agreements with the Corporation. Both employment agreements continue in effect
until terminated pursuant to the provisions thereof. Messrs. Metropoulos and
Cramer serve in their current executive capacities with the Corporation as a
requirement of their respective employment agreements.
Messrs. Metropoulos and Cramer are entitled to annual compensation
packages based on the salary, bonus and allowances, if any, earned by Messrs.
Metropoulos and Cramer, respectively, for the year 1994. The compensation
actually paid to the executives is annualized (the "Annual Compensation"). Each
executive also is entitled to such benefits as are customarily provided to the
executives of the Corporation. Both executives are required to devote sufficient
time, attention and energies to the business of the Corporation to accomplish
the duties set forth in their respective employment agreements.
11
<PAGE> 14
Each employment agreement provides for termination (i) by the
Corporation for cause (as defined in the employment agreement), and (ii) by Mr.
Metropoulos or Mr. Cramer, as applicable, upon giving the applicable written
notice. If the executive's employment is terminated by the Corporation for any
reason other than cause, the executive will receive from the Corporation within
seven (7) days of said termination an amount equal to 1.5 times the executive's
Annual Compensation. In addition, the Corporation will maintain the executive's
medical and dental insurance for a period of one year on the same terms and
conditions which existed prior to the executive's termination.
In the event the Corporation (i) sells a majority of its assets, or
(ii) sells a majority of its shares of common stock, or control of a majority of
the Corporation's shares of common stock changes through a merger, sale,
consolidation, or like occurrence or event (each a "Sale"), Mr. Metropoulos'
employment agreement provides that he may terminate his employment agreement
upon the expiration of any applicable notice periods and shall be paid at the
closing of the Sale the sum of one million dollars. Mr. Cramer's employment
agreement provides that, in the event of a Sale, he may terminate his employment
agreement upon the expiration of any applicable notice periods and shall be paid
at the closing of the Sale a sum calculated in accordance with the provisions of
his employment agreement relating to termination without cause.
COMPENSATION OF DIRECTORS
During 1995, each of Messrs. Evans and Turner received a $12,000
annual retainer plus a $1,000 fee for each regular meeting of the Board of
Directors attended. The remaining directors, who are 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.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During the year ended December 31, 1995, the members of the
Compensation Committee of the Board of Directors were Messrs. Evans and Turner.
Neither Mr. Evans nor Mr. Turner served as an officer or employee of the
Corporation or any of its subsidiaries during 1995.
12
<PAGE> 15
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Overview
The Compensation Committee of the Board of Directors (the
"Compensation Committee") is responsible for reviewing compensation
arrangements for the most senior executive officers of the Corporation and
administering the Corporation's stock option plans. Based on a review of those
matters, the Compensation Committee makes its recommendations to the Board of
Directors for approval.
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 on compensation for senior executives consists of three
components: (i) an annual base salary, (ii) the potential to earn bonuses, the
amount of which is dependent upon the Corporation's operating performance, and
(iii) stock option awards designed to align management and stockholder
interests by providing long-term incentives for the Corporation's senior
executives and other key employees. Generally, the number of stock options
granted to senior executives and other key employees is made after reviewing
proposals by the Chief Executive Officer and considering the relative
responsibilities of, and past grants made to, the option recipients.
Compensation Practices
In making compensation decisions, it has been the practice of
the Compensation Committee to meet with the Chief Executive Officer of the
Corporation to review compensation arrangements for the most senior executive
officers of the Corporation. The Chief Executive Officer typically presents
the Compensation Committee with his proposals as to the appropriate
compensation level for the most senior executive officers (including himself).
The Compensation Committee reviews the Chief Executive Officer's proposals with
a view to ensuring that the proposed compensation arrangements balance rewards
with 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.
The Chief Executive Officer, as part of his responsibility for the day-to-day
operations of the Corporation, has the authority to establish compensation,
subject to the approval of the Compensation Committee and the Board of
Directors, for all other executive officers and employees of the Corporation.
The Compensation Committee believes that the annual salaries
of the most senior executive officers should be competitive with annual
salaries of executives having comparable responsibilities at other companies of
similar size (as measured by revenues). For purposes of such comparisons, the
Corporation does not use the Food and Kindred Products Index reflected on the
Performance Graph on page 14 hereof.
For the year ended December 31, 1995, the cash compensation
paid to Mr. Metropoulos for serving as Chief Executive Officer of the
Corporation was based upon the terms of his advisory agreement and upon a
compensation survey performed in connection therewith, and Mr. Metropoulos'
bonus was based upon the attainment of specified earnings targets. Mr.
Metropoulos was paid a bonus of $450,000 for the year ended December 31, 1995.
Tax Considerations
The $1,000,000 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 Corporation's compensatory deductions for 1996.
The Corporation presently intends to take the necessary steps to conform its
compensation plans to comply with the rules promulgated under Section 162(m) of
the Code to avoid such limitation.
Jack W. Evans, Chairman
Jim L. Turner
13
<PAGE> 16
THE MORNINGSTAR GROUP INC. STOCK PERFORMANCE
The following graph depicts the Corporation's stock 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 29, 1995
relative to the performance of the NASDAQ Stock Market (US Companies) Index 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, 1990 through December 29, 1995. 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.
[GRAPH]
14
<PAGE> 17
RELATED PARTY TRANSACTIONS
STOCKHOLDERS' AGREEMENT
In connection with the completion of the Corporation's public
offering, all of the pre-offering stockholders of the Corporation entered into
a stockholders' agreement (the "Stockholders' Agreement"). During the term of
the Stockholders' Agreement, each party to the Stockholders' Agreement has (i)
agreed to vote such stockholder's shares of common stock for the election to
the Corporation's Board of Directors of all nominees of HMCM, and (ii) 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 earlier to occur of (i) HMCM and the holders of an additional 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
that 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 the registration of such selling stockholders' common stock,
with the exception of fees, discounts and commissions payable to any
underwriters.
Each of John R. Muse and Charles W. Tate is a director,
officer and stockholder of Hicks Muse. Messrs. Muse and Tate are also
directors of the Corporation.
FINANCIAL ADVISORY AGREEMENT
In March 1991, the Corporation entered into a financial
advisory agreement with Hicks Muse pursuant to which Hicks Muse (i) rendered
financial advisory services to the Corporation in connection with the
negotiation and financing of the 1991 restructuring, and (ii) continued to
provide financial advisory services to the Corporation until the agreement was
terminated on September 30, 1995. Pursuant to the financial advisory
agreement, Hicks Muse 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 the Corporation's insurance programs. During
1995, the Corporation paid Hicks Muse an aggregate of approximately $178,000
pursuant to the financial advisory agreement.
15
<PAGE> 18
PROPOSAL TO ADOPT
AMENDMENT NO. 1 TO
THE MORNINGSTAR GROUP INC.
1994 INCENTIVE AND NONSTATUTORY
STOCK OPTION PLAN
THE PLAN
The Corporation has in effect The Morningstar Group Inc. 1994
Incentive and Nonstatutory Stock Option Plan (the "Employee Plan"), adopted by
the Board of Directors with stockholder approval in 1994.
Pursuant to the Employee Plan, the Corporation may grant options to
purchase shares of its common stock to key employees of the Corporation or any
of its subsidiaries, including officers and directors who are also employees,
and certain other eligible persons. The purposes of the Employee Plan are (i)
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, (ii) 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 (iii) to aid the Corporation in
attracting able persons to enter the service of the Corporation and its
subsidiaries.
General. Subject to adjustment for certain changes in the capital
structure of the Corporation, the aggregate number of shares as to which
options may be granted under the Employee Plan currently is 250,000. The
maximum number of shares of the Corporation's common stock with respect to
which options may be granted pursuant to the Employee 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 Employee Plan shall be either
incentive options (which are intended to meet the requirements of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")), or
non-qualified options (which do not meet the requirements of Section 422 of the
Code). Pursuant to the Employee Plan, no incentive options may be granted
after ten (10) years from the date the Employee Plan was 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 the 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) of the Code (and thus
be exempt from the deduction limitation imposed by Section 162(m)) shall not be
less than 100% of the fair market value per share of the common stock on the
date of grant of such options (or 110% in the case of certain incentive
options).
Administration of the Plan. The Employee Plan provides that the
Compensation Committee of the Board of Directors shall serve as the Stock
Option Committee and shall administer the Employee Plan and shall have all of
the powers attendant thereto, including the power to grant options thereunder.
The Employee 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) of the Code. Directors
Jack W. Evans and Jim L. Turner constitute the Stock Option Committee.
Federal Tax Consequences of the Plan. See description beginning on
page 19 hereof.
16
<PAGE> 19
DESCRIPTION OF AMENDMENT NO. 1
At its meeting on April 4, 1996, the Board of Directors of the
Corporation adopted the Amendment to Employee Plan (a copy of which is attached
hereto as Exhibit A) and directed that the Amendment to Employee Plan be
submitted to the stockholders for their approval. The Amendment to Employee
Plan provides for an increase in the aggregate number of shares of common stock
as to which options may be granted under the Employee Plan to 1,440,000 shares.
The following table sets forth the number of shares underlying the
options to be granted under the Employee Plan to (i) the Named Executive
Officers; (ii) the current executive officers of the Corporation as a group;
(iii) the current directors of the Corporation who are not executive officers
as a group; and (iv) all employees, including all current officers who are not
executive officers, as a group.
NEW PLAN BENEFITS
The Morningstar Group Inc. 1994 Incentive and Nonstatutory Stock Option Plan
<TABLE>
<CAPTION>
NAME AND POSITION SHARES
----------------- ------
<S> <C>
C. Dean Metropoulos . . . . . . . . . . . . . . . . . . . 400,000
Chairman of the Board and Chief Executive Officer
L. Hollis Jones . . . . . . . . . . . . . . . . . . . . . 200,000
President and Chief Operating Officer
Michael J. Cramer . . . . . . . . . . . . . . . . . . . . 30,000
Vice President, Secretary and General Counsel
Darron K. Ash . . . . . . . . . . . . . . . . . . . . . . 75,000
Vice President and Chief Financial Officer
All current executive officers
as a group . . . . . . . . . . . . . . . . . . . 705,000
All current directors who are not executive officers
as a group . . . . . . . . . . . . . . . . . . . -0-
All employees, including current officers who are not
executive officers, as a group . . . . . . . . . 485,000
</TABLE>
The Board of Directors favors a vote FOR the proposal to approve the
Amendment to Employee Plan. Unless a contrary indication is specified, the
shares represented by the enclosed proxy will be so voted.
17
<PAGE> 20
PROPOSAL TO ADOPT THE MORNINGSTAR GROUP INC.
1996 DIRECTOR STOCK OPTION PLAN
BACKGROUND AND PURPOSE
At its meeting on April 4, 1996, the Board of Directors of the
Corporation adopted the Director Stock Option Plan (a copy of which is attached
hereto as Exhibit B) and directed that the Director Stock Option Plan be
submitted to the stockholders for their approval. The Director Stock Option
Plan is intended to provide certain non-employee directors who are responsible
for the continued growth of the Corporation an opportunity to acquire a
proprietary interest in the Corporation, and thus to create in such persons an
increased interest in and a greater concern for the welfare of the Corporation.
ELIGIBILITY TO PARTICIPATE IN THE DIRECTOR STOCK OPTION PLAN
All directors of the Corporation who are not employees of the
Corporation are eligible to receive options under the Director Stock Option
Plan (each an "eligible director").
ADMINISTRATION
The Director Stock Option Plan provides that the Option Committee of
the Board of Directors or any other committee thereof appointed by the Board of
Directors to administer the Director Stock Option Plan (either of which is
referred to herein as the "Option Committee") will administer the Director
Stock Option Plan and will have all of the powers attendant thereto. The
Director Stock Option Plan provides that (i) unless otherwise determined by the
Board of Directors, the Option Committee shall consist of no fewer than two
individuals, and (ii) whenever the Corporation has a class of equity securities
registered under Section 12 of the Exchange Act, each member of the Option
Committee shall be a "disinterested person" as defined in Rule 16b-3
promulgated under the Exchange Act and each member of the Option Committee
shall be an "outside director" as such term is used in connection with Section
162(m) of the Code.
GRANT OF OPTIONS
Subject to adjustment for certain changes in the capital structure of
the Corporation, the maximum aggregate number of shares of common stock of the
Corporation that have been reserved for issuance pursuant to the Director Stock
Option Plan is 50,000. The shares of common stock delivered by the Corporation
upon the exercise of options granted pursuant to the Director Stock Option Plan
may be treasury shares, newly issued shares or both. If and to the extent an
option expires or terminates for any reason without having been exercised in
full, the shares of common stock reserved for issuance in connection with such
option shall become available for issuance in connection with new options
granted under the Director Stock Option Plan.
Pursuant to the terms of the Director Stock Option Plan, on April 4,
1996 each eligible director was automatically granted a non-qualified stock
option (an option which does not qualify under Section 422 of the Code) (a
"Non-Qualified Option") to purchase 10,000 shares of common stock. The size of
the option was determined by calculating the value of an option to purchase the
Corporation's common stock equal to $12,000 based upon the Black-Scholes option
pricing method using the following assumptions: (i) expected volatility of
32.0%, (ii) a risk-free rate of return of 6.9%, (iii) a dividend yield of 1.6%,
(iv) the exercise price of the option, (v) the term of the option, and (vi) the
price underlying the stock. Thereafter, each new eligible director shall be
granted a Non-Qualified Option valued at $12,000 based upon the Black-Scholes
option pricing method upon his or her election to the Board of Directors. Such
option grants shall be made in lieu of the $12,000 annual retainer previously
received by non-employee directors of the Corporation. In addition, for each
year following the year in which an eligible director receives his or her first
Non- Qualified Option, such eligible director shall receive a Non-Qualified
Option in lieu of his or her $12,000 annual retainer.
18
<PAGE> 21
EXERCISE PRICE AND OTHER TERMS
Subject to adjustment for certain changes in the capital structure of
the Corporation, the exercise price per share for each option shall be not less
than the greater of (i) the par value per share of such common stock and (ii)
100% of the fair market value of a share of common stock on the date of grant.
Options shall become exercisable in one or more installments as the Option
Committee may determine at the time of grant. Each option shall be exercisable
no later than ten years from the date of grant, unless terminated earlier
pursuant to the terms of the plan.
An option shall be exercisable by delivery during the option term to
the Corporation of (i) written notice of the exercise specifying the number of
shares to be purchased and (ii) full payment in cash or by any other means
acceptable to the Option Committee, including, without limitation, delivery to
the Corporation of shares of common stock owned by the optionee, for the shares
of common stock being acquired thereunder.
NON-TRANSFERABILITY
Options granted pursuant to the Director Stock Option Plan shall not
be assignable or transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code and may be exercised, during the optionee's lifetime, only by the
optionee or his or her guardian or legal representative.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The discussion below is based on federal income tax law and
authorities as of the date of this proxy statement, which are subject to change
at any time. The law is technical and complex and the discussion represents
only a general summary of some of the applicable provisions of federal income
tax law.
Grant of Options
A grantee of an option (a "Holder") will realize no taxable income at
the time an option is granted under the Employee Plan or the Director Stock
Option Plan.
Incentive Stock Options
With regard to incentive stock options granted under the Employee
Plan, no income will be recognized by a Holder upon transfer to such Holder of
shares of common stock pursuant to the exercise of an incentive stock option.
In order to be eligible for this tax benefit, the Holder must make no
disposition of the shares of common stock so received before such Holder has
held such shares for at least one year and at least two years have passed since
the Holder was granted the option. Assuming compliance with this and other
applicable tax provisions, a Holder will realize long-term capital gain or loss
when such Holder disposes of such shares of common stock, measured by the
difference between the exercise price and the amount received for the shares at
the time of disposition. If the Holder 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 lesser of:
(a) the fair market value of the shares on the date the option was
exercised, or
(b) the amount realized upon such disqualifying disposition,
exceeds the exercise 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 than the exercise price, the loss will be treated as
long or short-term
19
<PAGE> 22
capital loss, depending upon the holding period of the shares. In this
connection, the Holder's holding period for shares acquired on exercise of an
option will begin on the day after the date the option is exercised. For
purposes of the alternative minimum tax, the Holder 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 exercise price.
Non-Qualified Stock Options
With regard to non-qualified stock options, whether granted under the
Employee Plan or the Director Stock Option Plan, ordinary income generally will
be realized by the Holder at the time of exercise of an option, except with
respect to shares which are subject to a substantial risk of forfeiture and
which are not transferable on the date of the exercise of the option
("Nonvested Shares"), if any. The amount of income recognized by a Holder on
exercise of a non-qualified option generally will be equal to the difference
between the exercise price and the fair market value of the shares on the date
of exercise. In the case of Holders who are employees, tax withholding is
required on such income. When a Holder 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 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. The optionee's holding period
for shares will begin on the day after the date of exercise.
With respect to any shares acquired upon the exercise of non-qualified
options which are Nonvested Shares, Section 83(b) of the Code permits the
Holder 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 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 excess of the fair
market value of the shares at the time they vest over the exercise price. The
Holder's holding period in Nonvested Shares will begin on the day 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 a Holder pays the exercise price by tendering other vested shares
of common stock then owned by such Holder, 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 Holder's tax basis for an
equal number of acquired shares will be the same as the Holder'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 Holder is required to recognize as income as a result of the exercise
of the option.
In view of recent amendments to Section 16(b) of the Exchange Act and
the rules and regulations thereunder that are related thereto, any Holder who
is an officer of the Corporation or a beneficial owner of more than ten percent
of any class of registered equity securities of the Corporation should consult
with his or her tax advisor as to whether the timing of income recognition is
deferred for any period following the exercise of a non-qualified stock option
(i.e., the "Deferral Period"). If there is a Deferral Period, absent a written
election pursuant to Section 83(b) of the Code filed with the Internal Revenue
Service within thirty days after the date of exercise of the option, income
recognition will be deferred until the expiration of the Deferral Period.
Treatment of the Corporation
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
issued under the Employee Plan. At the time of a disqualifying disposition of
an incentive stock option by a Holder, the Corporation will be entitled to a
deduction for the
20
<PAGE> 23
amount taxable to the optionee as ordinary income. The Corporation will be
entitled to a deduction for federal income tax purposes in the same amount as a
Holder is considered to have realized ordinary income in connection with the
exercise of a non-qualified stock option granted under the Employee Plan or the
Director Stock Option Plan, subject to compliance with the requirements of
Section 162 of the Code. With respect to certain employees (the Chief
Executive Officer and the four most highly-compensated officers (other than the
Chief Executive Officer)), 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 Employee Plan are intended
to qualify for the "performance-based compensation" exception in instances in
which the option exercise price is at least equal to the fair market value of
the stock subject to the option on the date of grant.
STOCKHOLDER APPROVAL
The Director Stock Option Plan became effective on the date on which
it was approved by the Board of Directors of the Corporation and shall be void
retroactively if not approved by the stockholders of the Corporation within
twelve months of the date of approval by the Board of Directors.
The following table sets forth the number of shares underlying the
options to be granted under the Director Stock Option Plan to the non-executive
director group.
NEW PLAN BENEFITS
THE MORNINGSTAR GROUP INC. 1996 DIRECTOR STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION SHARES
----------------- ------
<S> <C>
Non-executive director group . . . . . . . . . . . . . . 40,000
</TABLE>
The Board of Directors favors a vote FOR the proposal to approve the
Director Stock Option Plan. Unless a contrary indication is specified, the
shares represented by the enclosed proxy will be so voted.
PROPOSAL FOR RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Corporation has appointed Arthur
Andersen LLP as independent auditors of the Corporation. Arthur Andersen LLP,
certified public accountants, have been the independent auditors of the
Corporation since April 1988. As a matter of sound corporate practice, the
Board of Directors has decided to submit to the stockholders for ratification
the appointment of Arthur Andersen LLP as the Corporation's independent
auditors. If the stockholders do not ratify the appointment of Arthur Andersen
LLP, 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 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 interests of the Corporation.
A representative of Arthur Andersen LLP 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 LLP. Unless a contrary indication is
specified, the shares represented by the enclosed proxy will be so voted. In
the event the appointment of Arthur Andersen LLP is not ratified by the
stockholders, the Board of Directors will reconsider the appointment and, if
appropriate, will make another appointment to be effective as soon as
reasonably practicable.
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<PAGE> 24
SECTION 16(A) REPORTING
Section 16(a) of the Exchange Act requires the Corporation's
directors and executive officers, and persons who beneficially own more than
10% of the common stock, to file with the Commission initial reports of
beneficial ownership and reports of changes in beneficial ownership of common
stock and other equity securities of the Corporation. Officers, directors and
greater than 10% beneficial owners are required by the Commission to furnish
the Corporation with copies of all Section 16(a) reports they file. To the
Corporation's knowledge, based solely on a review of the copies of such reports
furnished to the Corporation, all Section 16(a) filing requirements applicable
to its officers and directors were complied with for the year ended December
31, 1995, except that the following filings were late: Form 3 for each of L.
Hollis Jones and Darron K. Ash upon their election as officers of the
Corporation in August 1995 and December 1995, respectively.
STOCKHOLDER PROPOSALS
Stockholder proposals to be included in the Corporation's
proxy statement relating to the 1997 Annual Meeting of Stockholders of the
Corporation must be received no later than January 22, 1997 at the
Corporation's principal executive offices, 5956 Sherry Lane, Suite 1800,
Dallas, Texas 75225-6522, Attention: General Counsel. Stockholders of the
Corporation who intend to nominate candidates for election as a director or to
bring other business before the meeting must also comply with the applicable
procedures set forth in the Corporation's Bylaws. See "Stockholder Nomination
of Director Candidates." The Corporation will furnish copies of such Bylaw
provisions upon written request to the Secretary of the Corporation at the
aforementioned address.
OTHER MATTERS
The Board of Directors knows of no other matters to be
brought before the Annual Meeting. However, if any additional matters are
properly brought before the Annual Meeting, it is the intention of the
attorney-in-fact named in the accompanying proxy to vote in accordance with his
judgment on such matters.
VOTING REQUIREMENTS
With regard to the Proposal for the Election of Directors,
votes may be cast for or votes may be withheld from each nominee. Directors
will be elected by plurality vote. Therefore, votes that are withheld will be
excluded entirely from the vote and will have no effect. Abstentions may not
be specified with respect to the election of directors and, under Delaware law,
broker non-votes (as explained below) will have no effect on the outcome of the
election of directors. In general, a broker who holds securities in street
name has limited authority to vote on matters submitted at a stockholders'
meeting in the absence of specific instructions from the beneficial owner. In
the absence of instructions from the beneficial owner or authorization from the
National Association of Securities Dealers, Inc. (the "NASD") to vote on
specific matters without the necessity of obtaining instructions from the
beneficial owner, a broker will specify a "non-vote" on particular matters.
For purposes of Delaware law, a broker non-vote is counted as present for
quorum purposes, but is generally excluded entirely from determining whether a
particular matter has been approved. Typically, however, brokers are permitted
by the NASD to vote for the election of directors without instructions from the
beneficial owner.
With regard to the Proposal for the Approval of the Director
Stock Option Plan, votes may be cast for or against the plan, or stockholders
may abstain from voting on the particular matter. Approval of the plan
requires the affirmative vote of at least a majority of the shares of common
stock present or represented by proxy at the Annual Meeting and entitled to
vote. Therefore, abstentions will have the effect of votes against the
approval of the plan and, under Delaware law, broker non-votes will have no
effect on the outcome.
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<PAGE> 25
With regard to the Proposal for Ratification of Independent
Public Accountants, the affirmative vote of the holders of a majority of the
shares of common stock present in person or represented by proxy at the Annual
Meeting will be 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 cast "against" a particular matter.
Broker non-votes are counted for quorum purposes but will have no effect on the
outcome of the matter.
As discussed under "Related Party Transactions --
Stockholders' Agreement," HMCM, 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. HMCM 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.
If no directions are specified in any duly signed and dated
proxy card received by the Corporation, the shares represented by that proxy
card will be counted as present for quorum purposes and will be voted by the
attorney- in-fact named in the proxy FOR the election of the director nominees
recommended by the Board of Directors, FOR the approval of the Amendment to
Employee Plan, FOR the approval of the Director Stock Option Plan, FOR the
ratification of the appointment of Arthur Andersen LLP as independent auditors
of the Corporation, and in accordance with the discretion of the named
attorney-in-fact on other matters properly brought before the Annual Meeting.
STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES
The Bylaws of the Corporation provide that any stockholder of
record who is entitled to vote for the election of directors at a meeting
called for that purpose may nominate persons for election to the Board of
Directors subject to the following notice requirements.
As described more fully in the Corporation's Bylaws, a
stockholder desiring to nominate a person for election to the Board of
Directors must send a written notice to the Secretary of the Corporation
setting forth (i) as to each person who the stockholder proposes to nominate,
all information required to be disclosed in solicitations of proxies for
election of directors, or as otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected) and (ii) as to the stockholder giving the notice (A) the name and
address of such stockholder as it appears on the Corporation's books and (B)
the class and number of shares of the Corporation that are owned of record by
such stockholder. To be timely, notice of persons to be nominated by a
stockholder as a director at a meeting of stockholders must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 120 days before the first anniversary of the preceding year's annual
meeting.
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.
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<PAGE> 26
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/ MICHAEL J. CRAMER
Michael J. Cramer
Secretary
Dallas, Texas
April 23, 1996
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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 upon receipt by the Corporation of a request addressed to:
Michael J. Cramer
The Morningstar Group Inc.
5956 Sherry Lane, Suite 1800
Dallas, Texas 75225-6522
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<PAGE> 28
EXHIBIT A
AMENDMENT NO. 1 TO THE MORNINGSTAR GROUP INC.
1994 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
I. The first sentence of Section 3 of the Employee Plan shall be deleted
and restated in its entirety as follows:
"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 1,440,000
shares."
<PAGE> 29
EXHIBIT B
THE MORNINGSTAR GROUP INC.
1996 DIRECTOR 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 1996
Director Stock Option Plan (the "Plan"), desires to afford certain non-employee
directors of the Company 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.
The stock options described in Section 6 (the "Options"), and the
shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options are in lieu of a cash payment of $12,000 representing
the directors' annual retainer fee.
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, however, 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 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
the Committee shall administer the Plan so as to comply at all times with the
Exchange Act.
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
may require from time to time.
3. Shares Available.
Subject to the adjustments provided in Section 8, the maximum
aggregate number of shares of common stock, par value $0.01 per share, of the
Company ("Common Stock") which may be granted
<PAGE> 30
for all purposes under the Plan shall be 50,000 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 in its sole discretion.
4. Eligibility and Bases of Participation.
Grants of Initial Options and Annual Options (as both terms are
hereinafter defined) may be made under the Plan, subject to and in accordance
with Section 6, to Director Participants. As used herein, the term "Director
Participants" shall mean any individual who is not an employee of the Company
and serves as a member of the Board of Directors.
5. Authority of Committee.
Subject to and not inconsistent with the express provisions of the
Plan, the Internal Revenue Code of 1986, as amended (the "Code"), and, if
applicable, Rule 16b-3, the Committee shall have plenary authority to:
a. determine 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 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 that number of
shares having a Fair Market Value (as defined in Section 14)
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
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shares in payment of the exercise price of the entire Option,
together with such cash as shall be paid in respect of
fractional shares;
e. provide (in accordance with Section 11 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 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 in connection with such exercise;
f. prescribe, amend, modify and rescind rules and regulations
relating to the Plan; and
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 (as defined in Section 14) 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 or other applicable rules
under the Exchange Act. 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 Option Grants to Director Participants.
Subject to the express provisions of this Plan, each Director
Participant on April 4, 1996 shall be granted a non-qualified stock option
(options which do not qualify under Section 422 of the Code) (the "Initial
Option") to purchase Common Stock. The number of shares subject to the Initial
Option shall be determined by calculating the value of an option to purchase
the Company's Common Stock equal to $12,000 based upon the Black-Scholes option
pricing method. Such Initial Option shall be in lieu of a cash payment of his
or her $12,000 annual directors' retainer fee for 1996. Thereafter, subject to
the express provisions of this Plan, each Director Participant shall be granted
an Initial Option to purchase Common Stock upon his or her initial election to
the Board of Directors. The number of shares subject to the Initial Option
shall be determined by calculating the value of an option to purchase the
Company's Common Stock equal to $12,000 based upon the Black-Scholes option
pricing method. Such Initial Option shall be in lieu of a cash payment of his
or her $12,000 annual directors' retainer fee in respect of the year in which
such Director Participant first becomes a member of the Board of Directors. In
addition, for each year following the year in which the Director Participant
was granted
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<PAGE> 32
the Initial Option, each Director Participant shall receive a non-qualified
option (the "Annual Option") in lieu of a cash payment of his or her $12,000
annual directors' retainer fee. The number of shares of Common Stock underlying
each Initial Option and/or Annual Option shall be determined by dividing the
annual retainer fee of $12,000 by the Fair Value (as hereinafter described) of
a non-qualified option to purchase one share of Common Stock. Fractional
shares resulting from such calculation shall be rounded to the nearest hundred.
For purposes of such calculation, "Fair Value" shall be determined by using the
Black-Scholes option pricing method taking into account as of the grant date
the exercise price and expected life of the Initial Option or Annual Option, as
applicable, the current price of the Common Stock and its expected volatility,
expected dividends on the Common Stock, and the risk-free interest rate for the
expected term of the Initial Option or Annual Option, as applicable. 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,
including the following:
a. Option Exercise Price. The Committee shall establish the
Option exercise price at the time any Initial Option or Annual
Option is granted at such amount as the Committee shall
determine, subject to the following limitation. The Option
exercise price for each share purchasable under any Option
granted hereunder shall be such amount as the Committee shall,
in its best judgment, determine to be not less than the
greater of (i) the par value per share of such Common Stock
and (ii) one hundred percent of the Fair Market Value per
share at the date such Option is granted. The Option exercise
price shall be subject to adjustment in accordance with the
provisions of Section 8 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 7, each
Option shall be exercisable in one or more installments as the
Committee may determine at the time of 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. In the event of the death of a Director Participant,
the estate of such person, 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 7 (but in
no event after the expiration date of such Option).
e. Disability. If a Director Participant's service as a director
of the Company terminates because of his Disability (as
defined in Section 14), 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
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<PAGE> 33
termination unless a longer or shorter period is expressly
provided in such Option or established by the Committee
pursuant to Section 7 (but not after the expiration of the
Option).
f. Other Termination of Relationship. If a Director
Participant's service as a director of the Company terminates
for any reason other than those specified in subsections 6(d)
and (e) above, such optionee shall have the right to exercise
his or her 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 7 (but not after the
expiration date of the Option); provided, however, that if the
optionee is removed from office for cause by action of the
stockholders in accordance with the by-laws of the Company and
the General Corporation Law of the State of Delaware or if
such optionee voluntarily terminates his service without the
consent of the Company, then such optionee shall immediately
forfeit his rights under his Option except as to the shares of
Common Stock already purchased.
7. Change of Control.
If a Change of Control (as defined in Section 14) shall occur, or if
the Company shall enter into an agreement providing for a Change of Control,
all Options outstanding under the Plan shall become exercisable in full as of
the date of such Change of Control. Each Option accelerated 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.
8. 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.
In the event the Company will not be 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.
9. Assignment or Transfer.
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 or pursuant to a qualified domestic relations order
as defined by the Code 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
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<PAGE> 34
a legal representative or guardian has been appointed for an optionee, such
legal guardian or representative.
10. Compliance with Securities Laws.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or any applicable state securities law to permit the
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 or her 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, shall 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.
11. Withholding Taxes.
By acceptance of the Option, the optionee will be deemed to (i)
authorize the Company, in the event that the Company determines that a
withholding obligation is applicable to an optionee, to withhold from a
Director Participant's salary or any cash compensation paid to such Director
Participant an amount sufficient to discharge any federal, state, and local
taxes imposed on the Company, and which otherwise has not been reimbursed by
the Director Participant, in respect of the Director Participant's exercise of
all or a portion of the Option; and (ii) agree that the Company may, in its
discretion and, in the event that the Company determines that a withholding
obligation is applicable to an optionee, hold the stock certificate to which
the Director Participant 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 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.
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<PAGE> 35
12. 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.
13. 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.
14. 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. "Annual Option" shall have the meaning set forth in Section 6
hereof.
c. "Board of Directors" shall have the meaning set forth in
Section 2 hereof.
d. "Change of Control" shall mean the first to occur of the
following events: (i) a majority of the Board of Directors of
the Company shall consist of Persons who are not Continuing
Directors; or (ii) the acquisition by any Person or group of
related Persons for purposes of Section 13(d) of the Exchange
Act 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.
e. "Code" shall have the meaning set forth in Section 5 hereof.
f. "Committee" shall have the meaning set forth in Section 2
hereof.
g. "Common Stock" shall have the meaning set forth in Section 3
hereof.
h. "Company" shall have the meaning set forth in Section 1
hereof.
i. "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
or (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.
j. "Disability" shall mean, with respect to a particular
director, such director's inability to perform the material
duties of serving on the Board of Directors unless another
meaning shall be agreed to in writing by the Committee and the
optionee.
k. "Exchange Act" shall have the meaning set forth in Section 2
hereof.
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<PAGE> 36
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. The term "including" when used herein shall mean "including,
but not limited to".
n. "Initial Option" shall have the meaning set forth in Section 6
hereof.
o. "Options" shall have the meaning set forth in Section 1
hereof.
p. "Person" shall mean any individual, sole proprietorship,
corporation, partnership, limited liability company, trust,
unincorporated association, mutual company, joint stock
company, estate, union, employee organization, or government
or agency or political subdivision thereof.
q. "Plan" shall have the meaning set forth in Section 1 hereof.
r. "Reorganization" shall have the meaning set forth in Section 8
hereof.
s. "Rule 16b-3" shall have the meaning set forth in Section 2
hereof.
t. "Securities Act" shall have the meaning set forth in Section
10 hereof.
15. Amendment of Plan.
The Board of Directors shall have the right to amend, modify, suspend
or terminate the Plan at any time; provided, however, that the provisions of
Section 6 may not be amended more than once every six months, other than to
comport with changes in the Code, ERISA, or the rules thereunder. The Board of
Directors shall be authorized to amend the Plan and the Options granted
thereunder to comply with Rule 16b-3 (or any successor rule) under the Exchange
Act. 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 holders thereof.
16. Effective Date.
The Plan shall become effective on the date on which it is approved by
the Board of Directors of the Company and shall be void retroactively if not
approved by the stockholders of the Company within twelve months of the date of
approval by the Board of Directors.
8
<PAGE> 37
NOTICE OF ANNUAL
MEETING AND
PROXY STATEMENT
THE MORNINGSTAR GROUP
INC.
THE MORNINGSTAR 5956 Sherry Lane, Suite 1800
GROUP INC. Dallas, Texas 75225-6522
BY ORDER OF THE BOARD
OF DIRECTORS
Michael J. Cramer
Secretary
Dallas, Texas
April 23, 1996
<PAGE> 38
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THE MORNINGSTAR GROUP INC. ANNUAL MEETING
MAY 22, 1996 CONTINUED FROM OTHER SIDE
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES AND
FOR PROPOSALS 2, 3 AND 4. 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.
1. ELECTION OF DIRECTORS.
Nominees: C. Dean Metropoulos, John R. Muse, Charles W. Tate, Jack
W. Evans and Jim L. Turner
(Mark only one)
/ / VOTE FOR all nominees listed, except as marked to the contrary
above (if any).
(to withhold your vote for any individual nominee strike a
line through the nominee's name in the list above).
/ / VOTE WITHHELD from all nominees.
2. APPROVAL OF AMENDMENT NO. 1 TO THE MORNINGSTAR GROUP INC. 1994
INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN.
FOR / / AGAINST / / ABSTAIN / /
3. APPROVAL OF THE MORNINGSTAR GROUP INC. 1996 DIRECTOR STOCK OPTION
PLAN.
FOR / / AGAINST / / ABSTAIN / /
4. RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
AUDITORS of the Corporation for the ensuing year.
FOR / / AGAINST / / ABSTAIN / /
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.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
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<PAGE> 39
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THE MORNINGSTAR GROUP INC. ANNUAL MEETING
MAY 22, 1996
The undersigned having received the notice and accompanying Proxy Statement
for said meeting hereby appoints MICHAEL J. CRAMER with full power of
substitution, as the undersigned's proxy and attorney-in-fact to vote at
the Annual Meeting May 22, 1996 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.
This proxy must be dated and signed
exactly as shown hereon.
Dated: , 1996
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Executors, administrators, trustees,
etc., should give full title as such.
If the signer is a corporation,
please sign full corporate name by
duly authorized officer.
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P
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