<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / 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
Crown Vantage 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/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(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>
[LETTERHEAD]
[LOGO]
April 1, 1998
Dear Shareholder:
I invite you to the third Annual Meeting of Shareholders of Crown
Vantage Inc. The meeting will be held at 11:00 a.m. (Pacific Daylight Time)
on Tuesday, May 5, 1998, at the Kaiser Center Auditorium, 2nd Floor, 300
Lakeside Drive, Oakland, California.
A Notice of Annual Meeting and a Proxy Statement covering the formal
business of the meeting are enclosed, along with the Company's Annual Report
to Shareholders for the 1997 fiscal year. During the meeting, I will provide
a review of operations and the outlook for the future.
It is important to your Company that your shares be represented at the
meeting, whether or not you expect to attend. Please promptly sign, date and
return the proxy card in the accompanying postage-paid envelope.
Sincerely,
/s/ ERNEST S. LEOPOLD
---------------------------------------
ERNEST S. LEOPOLD
Chairman and
Chief Executive Officer
<PAGE>
CROWN VANTAGE INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 5, 1998
TO THE SHAREHOLDERS OF
CROWN VANTAGE INC.
Notice is hereby given that the Annual Meeting of Shareholders of
Crown Vantage Inc. (the "Company") will be held at 11:00 a.m., local time, on
Tuesday, May 5, 1998, at Kaiser Center Auditorium, 2nd Floor, 300 Lakeside
Drive, Oakland, California, for the following purposes:
1. To elect a Board of Directors consisting of seven (7)
persons to serve for the ensuing year;
2. To consider and vote upon a proposal to increase the
maximum number of shares of common stock of the Company
that may be issued upon the exercise of options and grant
of awards of restricted stock, incentive stock and deferred
stock under the 1995 Incentive Stock Plan by 300,000 shares
to 1,700,000 shares; and
3. To transact such other business as may properly come before
the meeting.
The close of business on March 3, 1998, has been fixed as the record
date to determine the shareholders entitled to vote at the Annual Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED.
Shareholders, whether or not they expect to attend the meeting in person, are
requested to date, sign and return the enclosed proxy card in the envelope
provided, on which no postage is needed if mailed in the United States.
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 28, 1997, is being mailed to you with this Notice and the
Proxy Statement.
You are cordially invited to attend the meeting.
By order of the Board of Directors
April 1, 1998 Christopher M. McLain
SECRETARY
<PAGE>
CROWN VANTAGE INC.
300 LAKESIDE DRIVE
OAKLAND, CALIFORNIA 94612
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 1998
This Proxy Statement, which is being mailed to shareholders on or
about April 1, 1998, is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Crown Vantage Inc. ("Crown Vantage" or
the "Company") of proxies in the form accompanying this Proxy Statement to be
voted at the Annual Meeting of Shareholders to be held at 11:00 a.m. local
time on Tuesday, May 5, 1998 at Kaiser Center Auditorium, 2nd Floor, 300
Lakeside Drive, Oakland, California, and any adjournment thereof (the
"Meeting").
The cost of solicitation of proxies will be borne by the Company.
Solicitation will be made initially by mail; however, the Directors, officers
and employees of the Company and its subsidiaries may, without additional
compensation, solicit proxies by telephone, facsimile or personal interview.
The Company has engaged Georgeson & Co. to solicit proxies from brokers,
banks and other institutional holders at an estimated fee of approximately
$7,500 plus reimbursable expenses.
Any proxy given pursuant to this solicitation may be revoked by the
filing with and receipt by the Secretary of the Company of a written
revocation or duly executed proxy bearing a later date and does not preclude
the shareholder from voting in person at the Meeting. The persons named in
the form of proxy solicited by the Board will vote all proxies that have been
properly executed. If a shareholder specifies on such proxy a choice with
respect to the proposal to be acted upon, the proxy will be voted in
accordance with such specification. Where no choice is specified, the proxy
will be voted FOR the election of the nominees for Directors named herein and
FOR Proposal 2.
Certain information below refers to a spin-off (the "Spin-Off") in
which all of the Company's outstanding shares were distributed (the
"Distribution") ratably on August 25, 1995, to the holders of record on that
date of the common stock of Fort James Corporation (formerly known as James
River Corporation of Virginia) ("Fort James"). Prior to the Spin-Off, the
Company was a wholly owned subsidiary of Fort James.
VOTING SECURITIES
The only class of voting stock is the Company's common stock, no par
value ("Common Stock"). Holders of record of the Common Stock at the close of
business on March 3, 1998, (the "Record Date") will be entitled to receive
notice of, and to vote at, the Meeting and any adjournment thereof. As of the
Record Date, there were 9,677,954 shares of Common Stock outstanding. Each
share of Common Stock is entitled to one vote on each matter presented to the
shareholders.
Presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting will
constitute a quorum. Shares for which the holder has elected to abstain or
has withheld authority to vote (including broker non-votes) on a matter will
count toward a quorum but will have no effect on the outcome of the vote on
such matter. A "broker non-vote" is a vote withheld by a broker on a
particular matter in accordance with stock exchange regulations because the
broker has not received instructions from the customer for whose account the
shares are held. With respect to matters submitted to shareholders, an action
is approved if the votes cast in favor of it exceed the votes opposing it,
except that with respect to Proposal 1 (Election of Directors), the seven
nominees receiving the greatest number of votes cast for the election of
Directors will be elected.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table lists shareholders who are known by the Company
to be beneficial owners of more than five percent of the outstanding shares
of Common Stock as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OF
OF BENEFICIAL OWNER OWNED CLASS(1)
--------------------------------- ------------- ---------
<S> <C> <C>
R.B. Haave Associates, Inc. 1,400,600(2) 14.47%
36 Grove Street
New Canaan, Connecticut 06840
Pioneering Management Corporation 760,200(3) 7.85%
60 State Street
Boston, Massachusetts 02109-1820
Brandywine Asset Management, Inc. 729,750(4) 7.54%
3 Christina Centre, Suite 1200
201 North Walnut Street
Wilmington, Delaware 19801-3933
Crown Vantage Inc. Employee Stock 1,402,223(5) 14.49%
Ownership Plan Trust
c/o The Bank of New York
One Wall Street
New York, New York 10286
</TABLE>
- - ----------------------
(1) Percentage calculations are based on shares outstanding as of the Record
Date as adjusted under rules of the Securities and Exchange Commission.
(2) As reported on a Schedule 13G dated January 27, 1998, R.B. Haave
Associates, Inc. had sole voting power, and sole dispositive power, over
1,400,600 shares.
(3) As reported on a Schedule 13G dated January 5, 1998, Pioneering
Management Corporation had sole voting power, and sole dispositive power,
over 760,200 shares.
(4) As reported on a Schedule 13G dated February 24, 1997, Brandywine Asset
Management, Inc. had sole voting and dispositive power as to 627,590
shares, and shared voting and dispositive power as to 102,160 shares.
(5) As reported on a Schedule 13G dated February 11, 1998, The Bank of New
York, as Trustee for the Crown Vantage Inc. StockPlus Employee Stock
Ownership Plan Trust, had shared voting and dispositive power as to
1,402,223 shares of the Common Stock, which shares were held for the
exclusive benefit of participants and beneficiaries in the Crown Vantage
Inc. Employee Stock Ownership Plan pursuant to the terms of the Plan and
the Plan trust agreement.
PROPOSAL 1
ELECTION OF DIRECTORS
Although the Company anticipates that all of the nominees will be
able to serve, if at the time of the Meeting any nominee is unable or
unwilling to serve, shares represented by properly executed proxies will be
voted at the discretion of the persons named therein for such other person or
persons as the Board may designate.
2
<PAGE>
The following table sets forth the names, ages and principal
occupations of the nominees for Director, together with certain other
information.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE PRINCIPAL OCCUPATION AND OTHER INFORMATION
- - ---- --- -------- ------------------------------------------
<S> <C> <C> <C>
George B. James 60 1995 Senior Vice President and Chief Financial Officer of Levi
Strauss & Co., San Francisco, California.
Ernest S. Leopold 64 1995 Has been Chairman and Chief Executive Officer since creation of
the Company in 1995. Previously served as Executive Vice
President, Communications Papers of Fort James Corporation of
Virginia.
Joseph T. Piemont 74 1995 Management Consultant, Bluestone Management Corporation,
Charlotte, North Carolina. Serves as a Director of Silicon
Gaming, Palo Alto, California. Previously served as a Director
of Fort James Corporation of Virginia.
E. Lee Showalter 61 1995 Forest products industry consultant since 1995. Previously
served as Senior Vice President, Fiber Business of Fort James,
March 1994 to December 1995. From November 1992 to March 1994,
served as Senior Vice President, Strategic Services of Fort
James. From June 1987 to November 1992, served as Senior Vice
President, Corporate Development for Fort James.
William D. Walsh 67 1996 General Partner of Sequoia Associates, Menlo Park, California.
Serves as a Director of Consolidated Freightways Corp. (Chairman
of the Board), Menlo Park, California; URS Corporation, San
Francisco, California; Newcourt Credit Corp., Toronto, Ontario,
Canada; and UNOVA, Beverly Hills, California.
James S. Watkinson 70 1995 Chairman and formerly Chief Executive Officer of Morton G.
Thalhimer, Inc., Richmond, Virginia.
Donna L. Weaver 54 1995 Chairman of Weaver, Field & London, Inc., San Francisco,
California. Serves as a Director of Hancock Fabrics, Inc.,
Tupelo, Mississippi, and Ross Stores, Inc., Newark, California.
</TABLE>
COMMON STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table lists the number of shares of Common Stock that are
owned beneficially by each Director, the Executive Officers named in the
"Summary Compensation Table" below, and all Directors and Executive Officers as
a group, as of the Record Date, according to data furnished by the persons
named.
3
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED(1)
---- ---------------------
<S> <C>
DIRECTORS:
George B. James 27,121 (2)(3)(4)
Ernest S. Leopold 127,550 (4)(6)(7)
Joseph T. Piemont 12,325 (2)
E. Lee Showalter 22,164 (2)(5)
William D. Walsh 28,832 (2)
James S. Watkinson 19,253 (2)
Donna L. Weaver 26,091 (2)(3)
OTHER NAMED EXECUTIVE OFFICERS:
C. Neil Henderson 36,234 (6)(7)
Christopher M. McLain 43,810 (4)(6)(7)
Robert A. Olah 42,351 (6)(7)
R. Neil Stuart 35,792 (6)(7)
475,917
All Directors and Executive Officers as
a group (16 persons)
</TABLE>
- - ---------------------
(1) Represents shares held as of the Record Date directly and with sole
voting and investment power (or with voting and investment power shared
with a spouse) unless otherwise indicated. The number of shares owned by
each Director or Executive Officer represents less than 1%, and as to all
Directors and Executive Officers as a group represents 4.92%, of the
outstanding shares of Common Stock (except that Mr. Leopold held 1.32% of
such shares).
(2) Includes, as to each non-employee Director, 5,000 shares (except 3,000
shares as to Mr. Walsh) that may be acquired upon the exercise of
Directors stock options, all of which are currently exercisable. Includes
deferred restricted stock awards to non-employee Directors that vest at
various times, as follows: Mr. James, 191 shares; Mr. Piemont, 5,091
shares; Mr. Showalter, 9,091 shares; Mr. Walsh, 2,448 shares; Mr.
Watkinson, 7,153 shares; and Ms. Weaver, 2,154 shares. These shares are
considered outstanding for purposes of calculating each Director's
percentage ownership.
(3) Includes restricted stock awards to non-employee Directors that vest in
less than 12 months and as to which the Director has the right to vote
the shares, as follows: Mr. James, 3,553 shares; and Ms. Weaver, 3,553
shares.
(4) Includes shares held by family trusts as to which the following named
Director or executive officer and their spouses have shared voting and
investment power: Mr. James, 12,000 shares; Mr. Leopold, 5,856 shares;
and Mr. McLain, 2,000 shares.
(5) Excludes 1,402 shares held by Mr. Showalter's wife, as to which he has no
voting or investment power and as to which he disclaims beneficial
ownership, and includes 970 shares held in an Individual Retirement
Account.
(6) Includes restricted stock awards to Executive Officers that vest at
various times, all within four years, and as to which the officer has the
right to vote the shares, as follows: Mr. Leopold, 68,188 shares
(including 12,100 shares deferred to 2000 or earlier retirement, and
including 50,000 shares deferred to 2001 or earlier retirement); Mr.
Henderson, 12,804 shares; Mr. McLain, 14,900 shares; Mr. Olah, 16,411
shares; Mr. Stuart, 16,394 shares; and all Directors and Executive
Officers as a group, 177,361 shares. Also includes shares issuable upon
exercise of stock options exercisable prior to or within 60 days after
the Record Date, as follows: Mr. Leopold, 52,776 shares; Mr. Henderson,
14,778 shares; Mr. McLain, 18,092 shares; Mr. Olah, 15,963 shares; and
Mr. Stuart, 15,258 shares.
(7) Includes shares held under the Crown Vantage StockPlus Employee Stock
Ownership Plan on December 31, 1997, and as to which the participant has
shared voting and investment power, as follows: Mr. Leopold, 731 shares;
Mr. Henderson, 2,066 shares (Crown Vantage UK Share Accumulation Plan);
Mr. McLain, 861 shares; Mr. Olah, 3,515 shares; Mr. Stuart, 614 shares;
and all Directors and Executive Officers as a group, 21,046 shares.
4
<PAGE>
CERTAIN INFORMATION CONCERNING THE
BOARD OF DIRECTORS AND ITS COMMITTEES
COMMITTEES OF THE BOARD
The Board has established an Executive Committee, an Audit
Committee, a Compensation Committee, a Nominating Committee and a Safety,
Environmental and Legal Committee.
The Executive Committee of the Board consists of Messrs. Leopold
(Committee Chairman), James and Showalter. The Executive Committee exercises
the power and authority of the Board as may be necessary during intervals
between meetings of the Board, subject to such limitations as are provided by
law, the Company's Articles of Incorporation, Bylaws or resolutions of the
Board.
The Audit Committee of the Board, whose members are Ms. Weaver
(Committee Chairman) and Messrs. James, Showalter and Watkinson, consists
only of Directors who are not employees of the Company ("Outside Directors").
The Audit Committee meets periodically with management, members of the
Company's internal audit staff and representatives of the Company's
independent auditors. The Audit Committee reviews the scope of internal and
external audit activities and the results of such audits and is responsible
for making the annual recommendation to the Board of the firm of independent
accountants to be retained by the Company to perform the annual audit.
The Compensation Committee, whose members are Messrs. James
(Committee Chairman), Piemont, and Walsh and Ms. Weaver, consists only of
Outside Directors. The Compensation Committee is responsible for recommending
the salaries and compensation programs for Executive Officers to the Board.
This committee is also responsible for administering the Company's profit
sharing plan for salaried employees, its incentive stock plan and other
benefit programs. None of the members of the Compensation Committee is
entitled to participate in any of the Company's benefit plans other than the
Stock Option Plan for Outside Directors and the Stock Award Plan for Outside
Directors (as described below).
The Nominating Committee, whose members are Messrs. Watkinson
(Committee Chairman), James and Showalter and Ms. Weaver, consists only of
Outside Directors. This committee recommends to the Board the candidates for
election as Directors of the Company and members of the Board committees. The
Nominating Committee also considers candidates recommended by shareholders
entitled to vote for the election of Directors. Shareholder recommendations
for director candidates should include the candidate's name and
qualifications and may be submitted in writing to the Company's Secretary.
The Safety, Environmental and Legal Committee, whose members are
Messrs. Showalter (Committee Chairman), Piemont, Walsh and Watkinson,
consists only of Outside Directors. This committee reviews the Company's
performance in its commitment to an accident-free, injury-free work
environment, as well as the Company's environmental strategy, policies and
performance. The committee also periodically reviews material legal matters.
The Board may establish other committees as it deems advisable.
ATTENDANCE AT MEETINGS
During 1997, the Board held seven meetings, the Compensation
Committee four meetings, the Audit Committee two meetings, the Nominating
Committee one meeting, and the Safety Environmental and Legal Committee two
meetings. The Executive Committee did not meet during 1997. All Directors
attended at least 75% of the meetings of the Board and the committees to
which they were assigned.
5
<PAGE>
COMPENSATION OF DIRECTORS
MEETING FEES. Outside Directors receive $2,000 for attendance at
each meeting of the Board, $1,000 for attendance at each meeting of a
committee of the Board on which they serve, and $600 for participating in a
Board or committee meeting by telephone. The Company also reimburses Outside
Directors for usual and ordinary expenses of attending meetings. Directors
who are employees of the Company do not receive any fees for service on the
Board or its committees.
STOCK AWARD PLAN FOR OUTSIDE DIRECTORS. Outside Directors
participate in the Company's Stock Award Plan for Outside Directors (the
"Award Plan"). For 1996 and 1995, this Plan provided that the Company would
award each Outside Director on the first business day of each fiscal year
that number of whole shares of Common Stock that, when multiplied by the fair
market value of Common Stock, would as nearly as possible equal, but not
exceed, $25,000. This Plan also required that a minimum of 500 shares would
be awarded to each Outside Director each fiscal year.
The Award Plan was amended for years beginning with 1997. The Award
Plan provides to each Outside Director on the first business day of each
fiscal year an award of that number of whole shares of Common Stock that,
when multiplied by the fair market value of Common Stock, would as nearly as
possible equal, but not exceed, $12,500. The fair market value of the stock
is based on the mean of the average of the high and low trading prices of the
stock for each of the ten trading days immediately preceding the award date.
The minimum award is 250 shares. The Award Plan provides for annual cash
compensation to Outside Directors as may be determined from time to time by
the Board. The Board has set this annual cash compensation for 1997 and 1998
at $12,500, payable quarterly. Outside Directors may elect, in lieu of the
annual cash compensation, to receive on the first business day of the fiscal
year that number of whole shares of Common Stock that, when multiplied by the
fair market value of Common Stock, shall as nearly as possible equal, but not
exceed, 1.2 times the amount of annual cash compensation under this Plan. For
1997, each Outside Director elected to receive 1,846 shares of Common Stock
in lieu of the annual cash compensation, except that Mr. Piemont elected to
receive payment of $12,500.
The Award Plan reserved a total of 75,000 shares for issuance. An
Outside Director who joins the Board during a Fiscal Year receives a pro rata
portion of the annual award (shares and cash compensation) based on the
number of days remaining in the fiscal year. Awards of stock under this Plan
vest one year after the award date if the Director continues to be a member
of the Board during the year following the date of the award. The award also
vests if a Director retires from the Board at or after age 65, dies or ceases
to be a Director as a result of a change of control as defined in the Award
Plan. Directors may sell shares awarded under the Plan after the shares have
vested, subject to any applicable restrictions under securities laws. The
shares may not be sold or otherwise transferred or encumbered before they
vest. Outside Directors may vote and are entitled to receive dividends, if
any, declared on shares issued under the Award Plan.
A Director may elect to defer receipt of stock under the Stock Award
Plan, in which case issuance of the shares will be made after the Director
ceases to be a Director or at an earlier date designated by the Director at
the time of the deferral. The election to defer the receipt of shares must be
made with respect to at least 40% of the shares granted under an award, is
irrevocable and must be made before the award is granted. If a Director
elects to defer the receipt of shares, a book account is created by the
Company in the Director's name, and hypothetical shares of Common Stock are
credited to the book account. Such hypothetical shares are adjusted to
reflect cash and stock dividends (if any) paid with respect to Common Stock.
If an Outside Director continues as a member of the Board during the entire
one-year period following the date of an award, the Director is entitled to
payment of the deferred shares of Common Stock as of the date designated in
the Director's deferral election. If an Outside Director ceases to be an
Outside Director during such one-year period (other than on account of
retirement on or after attaining age 65, death or a change of control), the
Outside Director will forfeit all of the Director's interest in his book
account except for the portion attributable to cash dividends declared on
Common Stock during the one-year period. Payments from an Outside Director's
book account are made in whole shares of Common Stock.
6
<PAGE>
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. Outside Directors also
participate in the Company's Stock Option Plan for Outside Directors (the
"Directors' Option Plan"), which has reserved 100,000 shares for issuance.
Under the Directors' Option Plan, each person shall automatically receive an
option to purchase 3,000 shares of Common Stock upon becoming an Outside
Director. As of each April 15, each Outside Director who has been a Director
for at least nine months will automatically receive an option to purchase
1,000 shares of Common Stock. The option price will be equal to the fair
market value of the stock on the date of grant, which shall be based on the
mean of the average of the high and low trading prices for each of the ten
trading days immediately preceding the date of grant. Options are exercisable
for ten years after the date of grant or for a specified period of time after
the optionee ceases to be a Director. A Director may exercise options by
paying cash, by tendering shares of Common Stock or by delivering an exercise
notice with instructions to a broker to deliver to the Company the amount of
sale or loan proceeds from an appropriate amount of the option shares to pay
the exercise price.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and SEC
regulations thereunder require the Company's Directors, certain officers and
holders of more than 10% of the Common Stock to file reports of ownership on
Form 3 and changes in ownership on Forms 4 or 5 with the SEC. The Company
undertakes to file such forms for its Directors and officers pursuant to
powers of attorney given to certain attorneys-in-fact. Such Directors,
officers and shareholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) reports they file. Based solely on
its review of copies of such reports received or written representations from
such officers, Directors and shareholders, the Company believes that, during
the fiscal year ended December 28, 1997, all Section 16(a) filing
requirements applicable to such Directors, officers and shareholders were met.
PROPOSAL 2
PROPOSED AMENDMENT TO 1995 INCENTIVE STOCK PLAN TO INCREASE
SHARES AUTHORIZED FOR ISSUANCE UNDER PLAN
The Board recommends the approval of an amendment to the 1995
Incentive Stock Plan (the "Incentive Plan") to increase the number of shares
authorized for issuance under the Plan by 300,000 shares to a total of
1,700,000 shares. The Incentive Plan was adopted by the Company's Board and
approved by James River as sole shareholder at the time of the Spin-Off of
the Company. The Incentive Plan is a long-term incentive plan designed to
align the efforts and rewards of officers and key employees with the
maximization of Company performance and increases in shareholder value. The
Board has appointed the Compensation Committee to administer the Incentive
Plan. As used herein, the term "Administrator" means the Compensation
Committee so appointed by the Board. The sole amendment to the Incentive Plan
subject to shareholder vote pursuant to this Proposal 2 would increase the
total number of shares of Common Stock issuable by the Administrator for all
purposes under the Plan from 1,400,000 to 1,700,000 shares. The Board
believes this increase is desirable because, as indicated in the Compensation
Committee Report, the ability of the Board to issue stock under the Incentive
Plan is the only means at the Board's disposal to provide long-term rewards
for superior performance by key personnel.
The Administrator selects the individuals who will participate in
the Incentive Plan. An individual may be selected to participate in the
Incentive Plan if he or she is an employee of the Company. The Administrator
may, from time to time, grant stock options or award shares of restricted
stock, incentive stock, or deferred stock to participants. The Plan limits
the number of stock options that an employee may receive during a
twelve-month period to 200,000 shares.
7
<PAGE>
Stock options under the Incentive Plan will be Incentive Stock
Options ("ISOs") that comply with the requirements of Section 422 of the Code
and/or nonqualified stock options. A stock option will entitle the
participant to purchase shares of Common Stock from Crown Vantage at the
option price. Non-qualified stock options will be granted with an option
price of not less than 85% of the fair market value of Common Stock on the
date of the grant. The option price of ISOs will not be less than 100% of the
fair market value of Common Stock on the date of grant (110% of the fair
market value, in the case of ISOs granted to a 10% shareholder). The
Administrator will determine the terms of options, including the period
during which options may be exercised, any vesting provisions and the
provisions for exercise of options after termination of employment.
In exercising options, the optionee may pay the purchase price as
follows: in cash; by delivering, or causing to be withheld from the option
shares, shares of Common Stock; by delivering a promissory note; or by
delivering an exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan proceeds
from the option shares to pay the exercise price. The Administrator may, in
its discretion, provide that an employee who exercises an option by
delivering already owned shares of Common Stock will automatically be granted
a new option in an amount equal to the number of shares delivered to exercise
the option. The Administrator may grant options that are transferable to
family members or family trusts or partnerships.
Participants may also be awarded shares of restricted stock. Under
the Incentive Plan, restricted stock awards will be authorized in lieu of, or
in combination with, stock options as the Administrator deems appropriate.
Restricted shares of Common Stock will vest over varying lengths of time. The
actual award value realized by the participant will be dependent on his or
her continued employment and the performance of the Common Stock. The
Administrator may, as it deems appropriate, tie performance acceleration
parameters to restricted stock grants whereby all, or a portion, of the
restricted stock award will vest, based on the Company's achievement of
established performance objectives. The Administrator will determine the
vesting schedule, acceleration schedule and Company performance criteria on a
per grant basis.
Incentive stock may be issued to participants in connection with
incentive programs established from time to time by the Administrator when
specified performance criteria have been achieved. The Administrator may
award shares of deferred stock, under which hypothetical shares of Common
Stock will be credited to book accounts on the records of the Company.
Restricted stock may only be awarded to management or highly compensated
employees of the Company. Restricted stock will vest over periods of time
established by the Administrator. At least annually, dividends that would
have accrued on the shares of deferred stock will be credited to each
participant's account in the form of additional hypothetical shares.
Restricted stock will be paid either as the stock becomes vested or upon
termination of employment, according to the election made by the participant
at the time the deferred stock is awarded. Participants may elect a
pre-retirement form of payment or payments following attainment of age 65.
The Administrator will distribute restricted stock benefits in the form of
Common Stock or a combination of Common Stock and cash, as the Administrator
determines.
Under the Incentive Plan, the Administrator may include provisions
regarding a change of control in stock option agreements, may provide in the
restricted stock awards that restrictions will lapse upon a change of
control, and may provide that incentive stock may be issued upon a change of
control even though the performance goals set by the Administrator have not
been met. The Administrator may also take other actions upon a change of
control, a significant corporate change or a spin-off of a subsidiary as
provided in the Plan.
Under the Incentive Plan, a maximum of 1,400,000 shares of Common
Stock can currently be issued upon the exercise of options and under awards
of restricted stock, incentive stock and deferred stock. As noted above, this
Proposal 2 would increase the total number of shares of Common Stock
available for Plan purposes to 1,700,000. This limitation may also be
adjusted, as the Administrator determines is appropriate, in the event of a
change in the number of outstanding shares of Crown Vantage Common Stock by
reason of a stock dividend, stock split, combination, reclassification,
recapitalization or other similar event. The terms of outstanding awards also
may be adjusted by the Administrator to reflect such changes.
8
<PAGE>
After grants of options totaling 827,589 shares to 143 employees,
and grants of restricted stock totaling 258,141 shares to 45 employees, only
314,270 shares remain available as of the Record Date under the Incentive
Plan for future grants of options or restricted shares, which is insufficient
to allow the Administrator to provide long-term incentive compensation to key
employees.
The Board may, without further action by shareholders, terminate or
suspend the Incentive Plan in whole or in part. The Plan will terminate on
August 1, 2005, if not earlier terminated. The Board may amend the Incentive
Plan, except that, if required by the applicable securities laws, an
amendment that increases the number of shares of Crown Vantage Common Stock
that may be issued under the Incentive Plan, changes the class of individuals
who may be selected to participate in the Incentive Plan, or materially
increases benefits will not become effective until it is approved by
shareholders.
The Company will receive a tax deduction when an employee exercises
a nonqualified stock option, but generally will not receive such a deduction
when an employee exercises an ISO. An employee generally will be taxed on the
amount by which the fair market value of the Crown Vantage Common Stock
exceeds the exercise price on the date the underlying Common Stock is sold
for an ISO and on the date of exercise for a nonqualified stock option. An
employee may be subject to an alternative minimum tax upon the exercise of an
ISO on the amount by which the fair market value of the Crown Vantage Common
Stock exceeds the exercise price on the date of exercise. There are generally
no federal income tax consequences to the Company or to the employee at the
time an option is granted.
The Company will generally receive a tax deduction when the
restrictions on restricted stock lapse, when cash or shares of Crown Vantage
Common Stock are distributed as a result of the vesting of deferred stock,
and when shares of Crown Vantage Common Stock are issued to employees in
connection with incentive stock, and the employee generally will be taxed on
the value of the Crown Vantage Common Stock at that time. An employee who
receives restricted stock may elect to recognize income at the time the
restricted stock is granted, in which case the Company will receive a tax
deduction at that time. If an employee elects to defer receipt of deferred
stock, the tax consequences to the employee and the Company's tax deduction
are postponed until the deferred stock benefits are distributed.
As of the Record Date, approximately 3,800 employees were eligible
to participate in the Incentive Plan. Awards under the Plan are granted at no
cost to the employee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
AMENDMENT TO THE COMPANY'S 1995 INCENTIVE STOCK PLAN TO INCREASE THE NUMBER
OF SHARES AUTHORIZED FOR ISSUANCE UNDER THE PLAN BY 300,000 SHARES TO A TOTAL
OF 1,700,000 SHARES. THIS IS IDENTIFIED AS PROPOSAL 2 ON THE ENCLOSED FORM OF
PROXY.
9
<PAGE>
COMPENSATION AND CERTAIN INFORMATION
REGARDING EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth compensation and other information
for the Company's Chief Executive Officer and each of the four other most
highly compensated Executive Officers for 1997, 1996, and the period from
August 28, 1995 through December 31, 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------------------------- ---------------------------------------------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL OCCUPATION YEAR SALARY BONUS COMPENSATION(1) AWARD(S)(2)(3) OPTIONS/SARS COMPENSATION(4)
- - ----------------------- ---- -------- -------- --------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ernest S. Leopold 1997 $469,231 -0- $ 76,351 70,685(5) $402,521
Chairman and Chief 1996 $450,000 -0- $783,938 34,590 $21,308
Executive Officer (and 1995 $143,077 $135,463 $217,265 65,300 $830,471
until December 1997,
President)
C. Neil Henderson 1997 $210,325 $39,485 $ 18,236 24,053(5) $6,852
Senior Vice President, 1996 $185,942 $61,350 $231,543 8,250 $5,167
Uncoated Printing & 1995 $53,038 $19,500 -0- 18,400 -0-
Publishing Papers
Christopher M. McLain 1997 $205,846 -0- $ 21,075 24,212(5) $7,128
Senior Vice President 1996 $200,000 -0- $270,048 9,540 $1,786
& General Counsel, 1995 $50,000 $37,609 -0- 23,800 -0-
Secretary
(served since October 1995)
Robert A. Olah 1997 $201,000 -0- $ 18,236 34,690(5) $7,555
President and Chief 1996 $175,000 -0- $231,543 8,250 $5,793
Operating Officer (since 1995 $53,846 $39,990 $128,511 18,400 $ 973
December 1997)
Senior Vice President,
Packaging Papers
(1995-1997)
R. Neil Stuart 1997 $230,385 -0- $ 21,075 20,465(5) $82,767
Senior Vice President, 1996 $129,808 -0- $265,645 16,900 -0-
Chief Financial Officer
(served since May 1996)
</TABLE>
- - ----------------------
(1) None of the named Executive Officers received Other Annual Compensation
in excess of the lesser of $50,000 or 10% of combined salary and bonus
for the periods reported.
(2) The 1995 restricted stock awards were granted in connection with the
Spin-Off to replace deferred stock previously granted under Fort James'
Deferred Stock Plan that was forfeited by the named Executive Officers
at the Spin-Off. The 1995 restricted stock awards to Mr. Leopold vest
as follows: 4,639 shares vested on June 14, 1996, 2,255 shares vested
on June 14, 1997 and 2,254 shares will vest on June 14, 1998. The 1995
restricted stock awards to Mr. Olah vest as follows: 902 shares vested
on each June 14 for 1996 and 1997, 902 shares will vest on each June 14
for 1998 through 2000, and 901 shares on June 14, 2001. The 1996
restricted stock awards were granted to executives in January, May and
August 1996 as follows: Mr. Leopold, 50,000 shares (January, receipt
deferred until 2001 or earlier retirement) and 5,750 shares (August);
Mr. Henderson, 15,000 shares (January) and 1,370 shares (August): Mr.
McLain, 17,500 shares (January) and 1,590 shares (August); Mr. Olah,
15,000 shares (January) and 1,370 shares (August); and Mr. Stuart,
15,000 shares (May) and 1,580 shares (August). Except as to deferred
shares, the 1996 restricted stock awards will vest as to one-fifth of
the January or May award on each anniversary date of the January or May
1996 awards, commencing January or May 1997, and as to one-third of the
August award on each anniversary date of the August 1996 awards,
commencing August 1997. The 1997 restricted stock awards
10
<PAGE>
were granted to the named executives in April 1997 as follows: Mr.
Leopold, 12,100 shares (receipt deferred until 2000 or earlier
retirement); Mr. Henderson, 2,890 shares; Mr. McLain, 3,340 shares;
Mr. Olah, 2,890 shares; and Mr. Stuart, 3,340 shares. Except as to
deferred shares, the 1997 restricted stock awards will vest at to
one-third of the award on each anniversary date of the award,
commencing April 1998. The recipients of the restricted stock awards
(unless deferred) are entitled to vote the shares and receive any
dividends or other distributions paid thereon.
(3) The number and value of the aggregate restricted stock award holdings
(including deferrals) at December 28, 1997, for the named Executive
Officers were as follows: Mr. Leopold, 68,188 shares, $528,457; Mr.
Henderson, 15,804 shares, $122,481; Mr. McLain, 18,400 shares,
$142,600; Mr. Olah, 19,411 shares, $150,435; and Mr. Stuart 16,394
shares, $127,053. Such values were determined by the market price for
the Company's Common Stock at the end of the latest fiscal year
($7.75).
(4) The amount disclosed for Mr. Leopold for 1995 includes (i) $826,370,
which represents the amount that the Company reimbursed in 1995 to Fort
James for the payment of taxes owed by Mr. Leopold on an annuity
purchased to satisfy a supplemental executive retirement plan benefit
earned by Mr. Leopold while employed by Fort James (See "Employee
Pension Plans") and (ii) $4,101, which represents the Company's portion
of premiums paid in 1995 on an enhanced life insurance plan. The amount
for Mr. Leopold for 1996 includes $15,819 for the Company's portion of
premiums paid in 1996 for the enhanced life insurance plan and $5,489
as the Company's contributions to the Crown Vantage StockPlus Employee
Stock Ownership Plan and Supplemental Deferral Plan. The amount for Mr.
Leopold for 1997 includes (i) $373,079, which is the amount the Company
paid for an annuity (including gross up for taxes) to satisfy a
supplemental executive retirement plan benefit earned by Mr. Leopold,
(ii) $15,806, for the Company's portion of premiums paid in 1997 for
the enhanced life insurance policy, and (iii) $13,636, which represents
the Company's contributions to the Crown Vantage StockPlus Employee
Stock Ownership Plan and Supplemental Deferral Plan. The amount
included for Mr. Henderson includes $4,667 and $6,309 as the Company's
contributions to the Crown Vantage UK Share Accumulation Plan in 1996
and 1997, respectively, and the Company's portion of premiums paid for
private health insurance, being $500 in 1996 and $543 in 1997.
The amounts included for Messrs. McLain, Olah and Stuart represent the
Company's contributions to the Crown Vantage StockPlus Employee Stock
Ownership Plan and Supplemental Deferral Plan, and in the case of Mr.
Stuart, $78,383 as reimbursement for moving and relocation costs.
(5) Includes the following described Substitute Options. During 1997,
certain options previously granted under the Company's 1995 Incentive
Stock Plan to optionees, including the named Executive Officers, that
were exercisable at prices which exceeded the current market value of
the stock were cancelled, and options for a lesser number of shares
having an exercise price of current market value were granted in
substitution therefor (the "Substitute Options"). The number of shares
subject to Substitute Options granted to the named Executive Officers
are as follows: Mr. Leopold, 42,445 shares; Mr. Henderson, 17,323
shares; Mr. McLain, 16,422 shares; Mr. Olah, 11,960 shares; and Mr.
Stuart, 12,675 shares.
11
<PAGE>
SEVERANCE AND EMPLOYMENT AGREEMENTS
SEVERANCE AGREEMENTS. The Company has entered into severance agreements
with each of the Executive Officers named in the Summary Compensation Table. The
agreements provide that, if the executive is terminated other than for cause,
retirement or disability within three years after a change of control of the
Company or if the executive terminates his employment for good reason within
such three-year period or voluntarily during the 30-day period following the
first anniversary of the change of control, the executive is entitled to receive
a lump sum severance payment equal to three times the sum of his highest actual
or target annual compensation during the three years immediately preceding the
change in control, together with certain other payments and benefits, including
continuation of employee welfare benefits. An additional payment is required to
compensate the executive for certain excise taxes imposed with respect to
payments or benefits received due to a change of control (and for any income
taxes imposed with respect to such additional payment).
EMPLOYMENT AGREEMENT WITH CEO. The Company has entered into an
employment agreement with Mr. Leopold for a period ending on his 65th birthday
or earlier retirement. Provisions under the agreement provide Mr. Leopold with
continuation of his annual base salary, incentive plans and benefits during the
term of the agreement. If Mr. Leopold is terminated other than for cause, or Mr.
Leopold terminates his employment for good reason, Mr. Leopold will be entitled
to receive a lump sum severance payment equivalent to that provided in the
severance agreements described above, with such payment reduced proportionately
if termination was within three years of his 65th birthday. If Mr. Leopold
becomes disabled or dies during the term of the agreement, he or his estate
would be entitled to receive a lump sum payment equivalent to one year of salary
plus two times his then target bonus. If there were a change of control of the
Company during the term of the agreement, Mr. Leopold would be entitled to the
same payments and terms provided in the severance agreements described above.
STOCK OPTION GRANTS AND HOLDINGS
The following tables set forth information concerning stock options and
stock appreciation rights ("SARs") granted to the Chief Executive Officer and
the other named Executive Officers of the Company and exercises of such options
and SARs by such persons during 1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1997(1)
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF
UNDERLYING OPTIONS/SARS STOCK PRICE
OPTIONS/ GRANTED TO EXERCISE APPRECIATION FOR
SARS EMPLOYEES IN PRICE EXPIRATION OPTION TERM(3)
NAME GRANTED(2) FISCAL YEAR PER SHARE DATE 5% 10%
---- ----------- ----------- --------- ---- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Ernest S. Leopold 70,685 9.0% $6.31 (4) $280,501 $710,845
C. Neil Henderson 24,053 3.1% $6.31 (4) $95,450 $241,889
Christopher M. McLain 24,212 3.1% $6.31 (4) $96,081 $243,488
Robert A. Olah 18,690 2.4% $6.31 (4) $74,168 $187,956
Robert A. Olah 6,000 .8% $6.56 (4) $24,753 $62,730
Robert A. Olah 10,000 1.3% $9.38 (4) $58,990 $149,493
R. Neil Stuart 20,465 2.6% $6.31 (4) $81,212 $205,807
</TABLE>
- - -------------------------
(1) Includes Substitute Options granted in 1997 as described in the "Ten-Year
Option Repricings" table below.
12
<PAGE>
(2) These option grants under the 1995 Incentive Stock Plan become
exercisable in three equal cumulative annual amounts beginning one year
after the grant date. The exercise price for each option is equal to the
fair market value per share of the Common Stock on the grant date. The
1995 Incentive Stock Plan provides for the acceleration of the vesting of
options in certain circumstances, including a change of control or
corporate change. No SARs were granted in 1997.
(3) These options were granted for a term of ten years. As permitted by the
Securities and Exchange Commission, the amounts disclosed are the result
of calculations at five and ten percent assumed rates of appreciation
over the ten-year term of the options. These amounts are not intended to
forecast potential future appreciation of the Common Stock price.
(4) As to Mr. Leopold, 28,240 on April 29, 2007 and 42,445 on April 29, 2005;
as to Mr. Henderson, 6,730 on April 29, 2007, 5,363 on April 29, 2006 and
11,960 on April 29, 2005; as to Mr. McLain, 7,790 on April 29, 2007 and
16,422 on April 29, 2005; as to Mr. Olah, 10,000 on December 8, 2007,
6,730 on April 29, 2007, 6,000 on March 28, 2007 and 11,960 on April 29,
2005; as to Mr. Stuart, 7,790 on April 29, 2007 and 12,675 on April 29,
2005.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND FISCAL YEAR END OPTION/SAR VALUES
No stock options were exercised during 1997 by the Chief Executive
Officer or any of the other named Executive Officers of the Company.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY
SHARES AS OF OPTIONS/SARS
ACQUIRED VALUE 12/28/97 AS OF 12/28/97(1)
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ernest S. Leopold 0 $0 32,752 72,523 $30,560 $71,227
C. Neil Henderson 0 $0 7,676 16,286 $11,184 $23,452
Christopher M. McLain 0 $0 11,391 22,361 $11,824 $23,041
Robert A. Olah 0 $0 8,730 34,210 $ 8,611 $25,442
R. Neil Stuart 0 $0 9,494 20,441 $ 9,127 $20,343
</TABLE>
- - ----------------------
(1) The value of unexercised in-the-money options as of December 28, 1997, is
calculated as the fair market value of the Common Stock on the last day
of the Company's fiscal year ($7.75 per share) minus the exercise price.
No SARs were granted in 1997.
13
<PAGE>
TEN-YEAR OPTION REPRICINGS
The following table sets forth information concerning repriced stock
options granted to the Chief Executive Officer and other Executive Officers of
the Company in substitution of options previously granted since formation of the
Company in 1995.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE OPTION TERM
UNDERLYING NUMBER STOCK AT PRICE AT REMAINING
OPTIONS OF NEW TIME OF TIME OF NEW AT DATE OF
REPRICED OPTIONS REPRICING REPRICING EXERCISE REPRICING
NAME DATE OR AMENDED GRANTED OR AMENDMENT OR AMENDMENT PRICE OR AMENDMENT
---------------------- ---- ---------- ------- ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ernest S. Leopold 4/29/97 65,300 42,445 $6.31 $23.00 $6.31 8 years,
Chairman and Chief 5 months
Executive Officer
C. Neil Henderson 4/29/97 18,400 11,960 $6.31 $23.00 $6.31 8 years,
Senior Vice President, 5 months
Uncoated Printing & 4/29/97 8,250 5,363 $6.31 $10.00 $6.31 9 years,
Publishing Papers 4 months
Christopher M. McLain 4/29/97 23,800 16,422 $6.31 $20.50 $6.31 8 years,
Senior Vice President & 5 months
General Counsel, Secretary
Robert A. Olah 4/29/97 18,400 11,960 $6.31 $23.00 $6.31 8 years,
President and Chief 5 months
Operating Officer
R. Neil Stuart 4/29/97 16,900 12,675 $6.31 $16.62 $6.31 9 years,
Senior Vice President, 1 month
Chief Financial Officer
F. Allen Byrd 4/29/97 18,400 11,960 $6.31 $23.00 $6.31 8 years,
Senior Vice President, 5 months
Coated Printing & 4/29/97 8,250 5,363 $6.31 $10.00 $6.31 9 years,
Publishing Papers 4 months
Katie Cutler 4/29/97 5,100 3,315 $6.31 $23.00 $6.31 8 years,
Senior Vice President, 5 months
Corporate Communications 4/29/97 2,430 1,580 $6.31 $10.00 $6.31 9 years,
4 months
Antoinette S. Gabriel 4/29/97 13,700 8,905 $6.31 $23.00 $6.31 8 years,
Senior Vice President, 5 months
Chief Administrative 4/29/97 6,680 4,342 $6.31 $10.00 $6.31 9 years,
Officer 4 months
Michael J. Hunter 4/29/97 5,400 4,212 $6.31 $14.25 $6.31 8 years,
Vice President, Chief 9 months
Accounting Officer 4/29/97 2,500 1,625 $6.31 $10.00 $6.31 9 years,
4 months
David A. Nelson 4/29/97 13,700 8,905 $6.31 $23.00 $6.31 8 years,
Senior Vice President, 5 months
Uncoated Printing & 4/29/97 8,250 5,363 $6.31 $10.00 $6.31 9 years,
Publishing Papers 4 months
</TABLE>
14
<PAGE>
EMPLOYEE PENSION PLANS
Under the Company's Retirement Plan for Salaried and Other
Non-Bargaining Unit Employees (the "Salaried Retirement Plan"), participating
employees contribute 1% of their pensionable earnings. Pensionable earnings
include base salary, overtime compensation, profit sharing, bonuses and
commissions. Annual benefits payable under the Plan are currently equal to
the product of the participant's years of service while contributing to the
Plan, up to 35 years, multiplied by the sum of 1.05% of a participant's
"Final Average Pay" (the average of a participant's highest five consecutive
years of pensionable earnings) plus .65% of a participant's Final Average Pay
in excess of covered compensation (the average of the taxable Social Security
wage bases during a participant's work lifetime, up to 35 years). A
participant will be vested in the portion of benefits attributable to the
Company's contributions (i) after five years of service or (ii) if the
participant's contributions remain in the Plan until age 65. Participants
received credit under the Salaried Retirement Plan for covered service with
Fort James or its predecessors, if applicable.
Messrs. Leopold and Olah also participate in the Company's Frozen
Retirement Plan for Salaried and Other Non-Bargaining Unit Employees (the
"Frozen Plan"). The executives' benefits under the Frozen Plan are the
benefits that they had accrued as participants under Fort James' Retirement
Plan for Salaried and Other Non-Bargaining Unit Employees prior to the
Spin-Off. The executives are not entitled to accrue additional benefits under
the Frozen Plan. However, the executives' service with Crown Vantage is taken
into account under the Frozen Plan for purposes of determining whether they
will be vested in the portion of benefits attributed to Fort James'
contribution to the Plan, and the executives' eligibility to receive payment
of their benefits. The amount of benefits payable to the executives from the
Salaried Retirement Plan is offset by the amount of benefits payable to them
from the Frozen Plan.
Effective in 1997 under Internal Revenue Service regulations, the
maximum annual benefit that may be paid to any retiree from the Salaried
Retirement Plan and the Frozen Plan (if applicable), attributable to employer
contributions, is $125,000. In addition, pensionable earnings over $160,000
are not taken into account for purposes of calculating plan benefits. These
limits may be increased to take into account increases in the cost of living.
The Company's Supplemental Benefit Plan provides eligible individuals with
the difference between the benefits they actually accrue under the Salaried
Retirement Plan and accrued under the Frozen Plan (if any), and the benefits
they would have accrued under such plans but for the maximum benefit and
compensation limitations imposed by law. The Supplemental Benefit Plan
provides an additional benefit for senior employees. These employees will
receive the retirement benefit that would have been provided by the Salaried
Retirement Plan, the Frozen Plan (if applicable) and the Supplemental Benefit
Plan, had the employee's service with a predecessor company been taken into
account, reduced by the total benefit payable to the employee from the
Company's pension plans and pension plans of a predecessor company of Fort
James or the Company. Participants in the Supplemental Benefit Plan are
general creditors of the Company. The supplemental benefits are to be paid by
the Company as the benefits become payable, except as described below.
The Supplemental Benefit Plan provides that the accrued benefits
under the Plan may be distributed at the discretion of the Company. The
Company may make distributions to certain eligible individuals providing each
such individual with cash or an annuity, on an after tax basis, approximating
the individual's accrued benefit under the Supplemental Benefit Plan as of a
specified date.
15
<PAGE>
APPROXIMATE ANNUAL PENSION BENEFIT AT AGE 65
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ----------------------------------------------------------------------
PAY 10 15 20 25 30 35
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 32,320 $ 48,480 $ 64,640 $ 80,800 $ 96,960 $113,120
400,000 66,320 99,480 132,640 165,800 198,960 232,120
600,000 100,320 150,480 200,640 250,800 300,960 351,120
800,000 134,320 201,480 268,640 335,800 402,960 470,120
1,000,000 168,320 252,480 336,640 420,800 504,960 589,120
</TABLE>
The pensionable earnings of each of the named Executive Officers are
not materially different from the amounts disclosed as annual compensation in
the Summary Compensation Table. The estimated years of benefit service, as of
normal retirement at age 65, for the named Executive Officers are as follows:
Ernest S. Leopold, 35 years; Christopher M. McLain, 13 years; Robert A. Olah,
26 years; and R. Neil Stuart, 24 years. The above table shows the approximate
annual pension benefit that would be provided to salaried employees under the
current benefit formula under the Salaried Retirement Plan and the Frozen
Plan upon retirement at age 65, assuming that a single life annuity has been
elected. The amounts in the table are not subject to reduction for Social
Security or other offset amounts. The pension table includes benefits under
the Supplemental Benefit Plan, some of which will be provided by the
annuities purchased, if any, as described above. Mr. Henderson will receive
an annual pension benefit at retirement pursuant to the Curtis Fine Papers
Pension Plan.
In addition to the benefits payable to Mr. Leopold under the pension
plans described above, in 1995 Mr. Leopold received an annuity from Fort
James which, on an after tax basis, approximated his accrued benefit under
the Fort James Supplemental Benefit Plan as of a specified date. In 1995, the
Company reimbursed Fort James $887,853 for the cost of the annuity contract.
In 1997, the Company provided an annuity to Mr. Leopold which, on an after
tax basis, approximated his accrued benefit under the Crown Vantage
Supplemental Benefit Plan as of a specified date. See Footnote 4 to Summary
Compensation Table. These annuities will be payable by an insurance company
under annuity contracts owned by Mr. Leopold.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)
THE COMPENSATION PROGRAM
Crown Vantage's compensation program is designed to enhance
shareholder value by linking a large part of executive compensation directly
to performance, which is highly correlated with stock price. The objective is
to provide executives an opportunity to achieve total compensation above that
of their peers over time when performance exceeds expected results. A
principal focus for 1997 was to increase cash flow through superior operating
results, which would provide funds to reduce debt. The primary components of
the 1997 compensation program were base salary, an annual cash bonus based
mostly on the Company's excess cash flow and a long-term opportunity to
participate in increased shareholder value through grants of stock options
and restricted stock.
- - ----------------------
(1) The material in this report and under the caption "Performance Graph" is
not "soliciting material," is not deemed to be filed with the SEC and is
not to be incorporated by reference in any filing of the Company under
the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, whether made before or after the date of this Proxy
Statement and irrespective of any general incorporation language therein.
16
<PAGE>
RESPONSIBILITIES OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of Crown
Vantage (the "Committee") is comprised solely of independent, non-employee
Directors. The Committee reviews and approves incentive plans, executive
benefit programs and the overall compensation structure for the Company. The
Committee reviews and approves base salaries, bonuses and any other cash
payments to Executive Officers and other key employees. The Committee also
grants stock options and restricted stock, approves the terms of such awards
and interprets incentive plans, as required. As administrator of the
incentive plans, the Committee establishes the targets for performance and
awards at the beginning of the plan year, and approves payment of actual
awards under the plan.
The Committee engaged an executive compensation consultant in 1996
to review the compensation structure and components for appropriateness for
Crown Vantage. The consultant reviewed the Company's program against other
companies for competitiveness and considered the current constraints on the
Company's financial position. The Committee met with the consultant without
management present to discuss the program and the consultant's findings. The
Committee also met without management present to discuss the Chief Executive
Officer's performance against pre-established objectives and his compensation.
ELEMENTS OF THE COMPENSATION PROGRAM
The primary elements of the Company's compensation program for the
Chief Executive Officer ("CEO") and other Executive Officers of Crown Vantage
are described below.
BASE SALARY. Base salaries are reviewed annually by the Committee
with input as to competitive practices provided by the compensation
consultant, using industry and national trends. Individual salaries may be
adjusted based on this information and the performance of the executive
during the preceding year against pre-established goals. The objective of the
Committee is to set base salaries at the median of salaries of similar
positions in comparable companies.
ANNUAL INCENTIVE PLANS. The Profit Sharing Plan for 1997 was
established to reward management for meeting individual performance
objectives and an overall Company excess cash flow target established by the
Committee prior to the plan year. Actual awards were to be granted by the
Committee based on management's performance against these targets. Such
awards were the only annual incentive to be granted to management for 1997.
Due to performance against plan, the Profit Sharing Plan for 1997 generated
no payments of awards for 1997 for any plan participant, including the CEO
and the other named executives in the Summary Compensation Table (except that
Mr. Henderson received an award under a separate plan based on the Company's
operations in the United Kingdom).
STOCK OPTION AND RESTRICTED STOCK AWARDS. The Committee believes
that stock options and grants of restricted stock are a superior incentive to
motivate key employees to act in the best interests of shareholders. The
Committee also feels it is important for the key managers to have the
potential for a significant ownership interest in Crown Vantage. Because of
the need to utilize cash to repay debt, stock options and grants of
restricted stock are a key element in the Company's compensation structure.
Stock options and restricted stock are the only long-term incentives that the
CEO and other named Executive Officers receive.
The Committee made awards of stock options in 1997 under the 1995
Incentive Stock Plan. The awards were based on a number of factors, including
the competitive level of long-term incentive awards, the prospective level of
total compensation, and the individual's responsibilities and ability to
influence shareholder value. The Committee also made awards of restricted
stock in 1997 to certain executives as part of the long-term incentive
program of the Company.
Based on these factors, the Committee granted the CEO stock options
and restricted stock in 1997 with an option exercise price equal to the fair
market value on the date of grant. The options and restricted stock vest
17
<PAGE>
over a three-year employment period and the options generally expire no later
than ten years after grant. Stock options and restricted stock awarded to
other named Executive Officers were determined in a similar fashion.
In April 1997, certain options previously granted under the
Company's 1995 Incentive Stock Plan to employees, including the CEO and other
named Executive Officers, were exercisable at prices that substantially
exceeded the then current market value of the Common Stock. Under these
circumstances, the value of previously granted options to retain employees
and provide incentives had diminished. Therefore, on April 28, 1997, subject
to the agreement of the employee, the Committee canceled those outstanding
options and granted substitute options for approximately 65% of the number of
shares underlying the original options, having an exercise price of the then
current market value (the "Substitute Options"). The purpose of canceling
those outstanding options and granting the Substitute Options is to reinstate
the incentive for employees at all levels, including the Executive Officers,
to remain with, and to continue to work for the success of, the Company. The
Substitute Options have an exercise price of $6.31 per share, the average of
the high and low prices of the common stock on April 29, 1997. Certain
additional information concerning the Substitute Options granted to the CEO
and other named Executive Officers is set forth in the table entitled
"Ten-Year Option Repricing" in the Proxy Statement in which this report
appears.
POLICY REGARDING DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code limits the federal
income tax deductibility of compensation paid to the Company's CEO and to
each of the other four most highly compensated Executive Officers. The
Company generally may deduct compensation paid to such an officer only to the
extent the compensation does not exceed $1 million during any fiscal year or
is "performance based" as defined in Section 162(m). The Committee considers
the net cost to Crown Vantage in making compensation decisions. While the
Committee does not expect the Company's current compensation program will
result in compensation of $1 million or more to any Executive Officer, the
annual incentive plans and the stock option plan have been designed to permit
compensation paid thereunder to qualify as performance-based compensation for
purposes of the Internal Revenue Code.
COMPENSATION COMMITTEE MEMBERS
George B. James, CHAIRMAN
Joseph T. Piemont
William D. Walsh
Donna L. Weaver
18
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return
on the Company's Common Stock with the S&P 500 Composite Stock Price Index
and the S&P Paper and Forest Products Composite Index, for the period from
August 28, 1995 (the date on which the Common Stock first traded) through
year-end, assuming an initial investment of $100 and the reinvestment of all
dividends.
[GRAPH]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Crown Vantage $100.00 $100.00 $100.00 $ 52.78 $ 31.48 $ 25.93
S & P 500 $100.00 $100.00 $100.00 $110.77 $136.21 $181.65
S & P Paper & $100.00 $100.00 $100.00 $ 88.77 $98.19 $105.28
Forest Products
Group
</TABLE>
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
SPIN-OFF OF COMPANY BY FORT JAMES
In connection with a restructuring, Fort James in August 1995
implemented the Spin-Off of certain of its assets. To provide financing for
the Spin-Off, the Company's principal operating subsidiary, Crown Paper Co.
("Crown Paper") issued $250,000,000 aggregate principal amount of 11% Senior
Subordinated Notes due 2005 and incurred $295 million (including $42 million
under letters of credit) of initial borrowings under a $350 million Bank
Credit Facility. The proceeds of these financings were (i) paid to Fort James
as a return of its capital investment in the Company; and (ii) used to pay
certain transaction expenses associated with the financings and the
Distribution. In connection with the Spin-Off, Crown Vantage also issued to
Fort James three 11.45% Senior Pay-in-Kind Notes due 2007 in aggregate
principal amount of $100,000,000.
Since the Spin-Off, the Company has operated independently of Fort
James. However, in order to govern certain on-going relationships between the
Company and Fort James and to provide mechanisms for an orderly transition,
the Company and Fort James prior to the Spin-Off entered into a Contribution
Agreement, which provides for, among other things, the principal corporate
transactions that were required to effect the transfer of the Fort James
assets to the Company and the Distribution, and certain related agreements
and transition agreements. The related and transition agreements generally
provide for the allocation of assets, resources, employees, benefit plans,
taxes, liabilities and certain administrative and other services, and for the
purchase and sale of products between the Company and Fort James. Generally,
these agreements reduce or eliminate over time. In 1997, under all such
agreements, the Company made payments to Fort James totaling approximately
$43.8 million, and Fort James made payments to the Company totaling
approximately $60.4 million. As discussed under "Election of Directors,"
Messrs. Leopold and Showalter, both of whom are currently Directors and are
nominated to continue as Directors of the Company, were Executive Officers of
Fort James before the Spin-Off. Mr. Leopold terminated his employment with
Fort James in connection with the Spin-Off, and Mr. Showalter retired from
Fort James effective December 31, 1995.
19
<PAGE>
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP was the accounting firm selected by the Board of
Directors to examine and report on the Company's financial statements for the
1997 fiscal year. It is expected that representatives of the firm will be
present at the meeting to make any statements they desire to make and to
answer questions directed to them.
In June 1996, the Audit Committee recommended and the Board of
Directors selected Ernst & Young as independent accountants for the Company
replacing Coopers & Lybrand LLP. The Company has had no disagreements with
Coopers & Lybrand during the 1994 or 1995 fiscal years or the subsequent
interim period to June 1996 on any matter of accounting principle or
practices, financial statement disclosure, or auditing scope or procedure,
which if not resolved to the satisfaction of Coopers & Lybrand, would have
caused Coopers & Lybrand to make reference to the subject matter of the
disagreement in connection with its report. The reports of Coopers & Lybrand
on the Company's financial statements for the 1994 and 1995 fiscal years did
not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principle.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
The Company has no present knowledge of any other matters to be
presented at the Annual Meeting of Shareholders. If any other matters should
properly come before the meeting, and any adjournment thereof, it is the
intention of the persons named in the accompanying proxy to vote such proxy
with respect to any such other matter in accordance with their best judgment.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any shareholder desiring to make a proposal to be acted upon at the
1999 annual meeting of shareholders must present such proposal to the
Secretary of the Company, whose address is 300 Lakeside Drive, Oakland,
California 94612, not later than December 1, 1998, in order for the proposal
to be considered for inclusion in the Company's Proxy Statement. Any such
proposal must meet the applicable requirements of the Securities Exchange Act
of 1934 and the rules and regulations thereunder.
The Company's Bylaws prescribe the procedure that a shareholder must
follow to bring any business before an annual meeting of shareholders: The
shareholder must be a shareholder of record entitled to vote on the matter
and must give notice to the Secretary as specified in the Bylaws between
January 2 and February 1 of the year in which the annual meeting is to occur,
unless the date of such meeting has been moved more than 30 days from the
meeting date specified in the Bylaws (the second or third Thursday in April),
in which case the required notice should be given not less than 60 days
before such meeting date, except that if the shareholder wants a proposal to
be considered for inclusion in the Company's Proxy Statement, such proposal
must be presented not later than December 1, 1998, as explained above. Each
such shareholder's notice shall set forth as to each such matter (i) the name
and address, as they appear on the Company's stock transfer books, of the
shareholder proposing such business, (ii) the class and number of shares of
stock of the Corporation beneficially owned by such shareholder, (iii) a
representation that such shareholder is a shareholder of record and intends
to appear in person or by proxy at such meeting to bring before the meeting
the business specified in the notice, (iv) a brief description of the
business desired to be brought before the meeting, including the complete
text of any resolutions to be presented at the meeting and the reasons for
wanting to conduct such business, (v) any material interest that the
shareholder has in such business, and (vi) if applicable, certain other
information concerning any director candidate to be nominated by the
shareholder. Any shareholder may obtain a copy of the Company's Bylaws,
without charge, upon written request to the Secretary at the Company's
headquarters.
20
<PAGE>
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
December 28, 1997, is being mailed to you with this Notice and Proxy
Statement. No part of the Annual Report shall be regarded as proxy soliciting
material.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 28, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION MAY BE OBTAINED BY ANY SHAREHOLDER AFTER APRIL 1, 1998, FREE OF
CHARGE, UPON WRITTEN REQUEST TO CROWN VANTAGE INC., ATTENTION: INVESTOR
RELATIONS, 300 LAKESIDE DRIVE, OAKLAND, CALIFORNIA 94612, OR BY CALLING (510)
874-3400.
By Order of the Board of Directors
Christopher M. McLain
SECRETARY
21
<PAGE>
CROWN VANTAGE INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY The undersigned hereby appoints Donna L. Weaver
and George B. James as Proxies, each with the
power to appoint his or her substitute, and hereby
authorizes them or either of them to represent and
to vote, as designated below, all the shares of
common stock of Crown Vantage Inc. held of record
by the undersigned on March 3, 1998 at the annual
meeting of shareholders to be
held on May 5, 1998 or any adjournment thereof.
1. ELECTION OF DIRECTORS
/ / FOR ALL NOMINEES LISTED BELOW / / WITHHOLD AUTHORITY
TO VOTE FOR ALL NOMINEES LISTED BELOW
G. James, E. Leopold, J. Piemont, E. Showalter, W. Walsh, J. Watkinson, D.
Weaver
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.)
- - --------------------------------------------------------------------------------
2. PROPOSAL TO AMEND THE COMPANY'S 1995 INCENTIVE STOCK PLAN TO INCREASE
THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE UNDER THE PLAN BY 300,000 SHARES TO
1,700,000 SHARES.
/ / FOR / / AGAINST / / ABSTAIN
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
<PAGE>
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR Proposal 1 and FOR Proposal 2.
Please print exact name(s) in which shares are registered, and sign exactly
as your name appears. When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by an authorized person.
Dated:
- - -------------------------------------------------------------------------------,
1998
-------------------------------------------
Print Name
-------------------------------------------
Signature
-------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. PLEASE SUBMIT A COMPLETED CARD EVEN IF YOU INTEND TO ATTEND
THE MEETING.
