UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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 ¨
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| x | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to Section 240.14a-12 |
UNIFIED WESTERN GROCERS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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UNIFIED WESTERN GROCERS, INC.
5200 Sheila Street, Commerce, California 90040
Notice of Annual Meeting of Shareholders
February 13, 2007
The annual meeting of shareholders of Unified Western Grocers, Inc., a California corporation, will be held at the Sheraton Cerritos Hotel, 12725 Center Court Drive, Cerritos, CA 90703 on Tuesday, February 13, 2007 at 11:00 a.m. (Pacific Standard Time), for the following purposes:
1. To elect the fifteen members of the Board of Directors for the ensuing year, twelve by the holders of Class A Shares and three by the holders of Class B Shares.
2. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.
The names of the nominees intended to be presented by the Board of Directors for election as directors for the ensuing year are set forth in the accompanying proxy statement.
Only shareholders of record at the close of business on January 8, 2007 will be entitled to notice of and to vote, in person or by proxy, at the meeting or any adjournment or postponement thereof.
All shareholders are cordially invited to attend the meeting in person.
The proxy statement that accompanies this Notice contains additional information regarding the proposals to be considered at the meeting and shareholders are encouraged to read it in its entirety.
As set forth in the accompanying proxy statement, proxies are being solicited by and on behalf of the Board of Directors. All proposals set forth are proposals of the Company. It is expected that these materials first will be mailed to shareholders on or about January 11, 2007.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, IT IS REQUESTED THAT YOU COMPLETE, DATE AND SIGN THE ENCLOSED PROXY RELATING TO THE ANNUAL MEETING AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY REVOKE YOUR PROXY IF YOU ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES IN PERSON. THE PROXY MAY BE REVOKED AT ANY TIME BEFORE ITS EXERCISE.
| By Order of the Board of Directors |
 |
Robert M. Ling, Jr., Executive Vice President, General Counsel and Secretary |
January 11, 2007
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
UNIFIED WESTERN GROCERS, INC.
5200 Sheila Street, Commerce, California 90040
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be Held on Tuesday, February 13, 2007
INTRODUCTION
This proxy statement is furnished in connection with the solicitation by the Board of Directors (the “Board”) of Unified Western Grocers, Inc. (“Unified” or the “Company”) of proxies for use at the annual meeting of shareholders (the “Annual Meeting”) to be held at the Sheraton Cerritos Hotel, 12725 Center Court Drive, Cerritos, CA 90703 on Tuesday, February 13, 2007, at 11:00 am (Pacific Standard Time), or at any adjournment or postponement thereof, for the purposes set forth herein and in the attached Notice of Annual Meeting of Shareholders.
A shareholder giving a proxy may revoke it at any time before it is exercised by filing with the Secretary of the Company a written revocation or a duly executed proxy bearing a later date. A proxy may also be revoked if the shareholder who has executed it is present at the meeting and elects to vote in person.
Only the holders of record of Class A Shares and Class B Shares (the “Shareholders”) at the close of business on January 8, 2007 (the “Record Date”) are entitled to notice of and to vote, in person or by proxy, at the Annual Meeting or any adjournment or postponement thereof. On that date, the Company had outstanding 150,900 Class A Shares and 471,336 Class B Shares.
These proxy materials will be first mailed to Shareholders on or about January 11, 2007. The cost of soliciting the proxies, consisting of the preparation, printing, handling and mailing of the proxies and the related material, will be paid by the Company. Officers and regular employees of the Company may solicit proxies by telephone, facsimile, e-mail or in person. These persons will receive no additional compensation for their services. The total estimated cost of the solicitation of proxies is approximately $20,000, excluding the costs of salaries and wages of regular employees and officers.
VOTING RIGHTS
Shareholders may vote in person or by proxy. Each Shareholder is entitled to one vote, in person or by proxy, per share standing in his or her name on the books of the Company as of the Record Date, for each class of stock, on all matters on which the class is entitled to vote. However, if any Shareholder gives notice of its intention to cumulate its votes in the election of directors, then all Shareholders may cumulate their votes in the election of directors. To be effective, such notice (which need not be written) must be given by the Shareholder at the Annual Meeting before any votes have been cast in such election. Under cumulative voting, each holder of Class A Shares may give one nominee a number of votes equal to the number of Class A Shares which the holder is entitled to vote multiplied by the number of directors to be elected by the holders of Class A Shares (twelve at this meeting) or the holder may distribute such votes among any or all of the nominees as the holder sees fit. Similarly, the Class B Shares entitled to be voted may be voted cumulatively by the holders of such shares for the three directors to be elected by the holders of Class B Shares.
The Company is a retailer-owned, wholesale grocery cooperative; its shareholders are current or former customers of the Company. Such shareholder-customers are typically referred to as members (“Members”). In
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the election of directors, the nominees receiving the highest number of affirmative votes of the class of shares entitled to be voted for them, up to the number of directors to be elected by such class, will be elected; provided that no more than three nominees who are non-Shareholder-Related Directors shall be elected and any additional non-Shareholder-Related Director nominees shall not be elected. A Shareholder-Related Director is a director who is a shareholder, or a partner of a partnership which is a shareholder, or a member of a limited liability company which is a shareholder, or an employee of a corporation, partnership or limited liability company which is a shareholder. Under the California Corporations Code, votes against a nominee and votes withheld shall not be counted in the election of a director.
The proxy holders named on the enclosed form of proxy relating to the Annual Meeting will vote the proxies received in accordance with the Shareholder’s instructions. With respect to the election of directors, Shareholders may vote in favor of all nominees, or withhold their votes as to all nominees or specific nominees. If no instructions are given, the shares will be voted FOR the election of the Board’s nominees. In the unanticipated event that any nominee should become unavailable for election as a director, the proxies will be voted for any substitute nominee named by the present Board. In their discretion, the proxy holders may cumulate the votes represented by the proxies received. If additional persons are nominated for election as directors by persons other than the Board, the proxy holders intend to vote all proxies received by them in such manner as will assure the election of as many of the Board’s nominees as possible, with the specific nominees to be voted for to be determined by the proxy holders.
ELECTION OF DIRECTORS
At the Annual Meeting fifteen directors (constituting the entire Board) are to be elected to serve until the next annual meeting and until their successors are elected and qualified. Twelve directors are to be elected by the holders of the Company’s Class A Shares, and three directors are to be elected by the holders of the Company’s Class B Shares.
Pursuant to the Company’s Bylaws, as amended, all but three of the directors of the Company elected by the Class A Shares are required to be Shareholder-Related Directors (as defined above). Ten of the nominees recommended by the Board for election by the Class A Shares are Shareholder-Related Directors and the remainder of the nominees recommended by the Board for election by the Class A Shares are non-Shareholder-Related Directors. All three of the nominees recommended by the Board for election by the Class B Shares are Shareholder-Related Directors.
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The following table sets forth certain information concerning the nominees for election to the Board. All nominees have consented to being named herein as nominees and to serve as directors if elected.
Name | Age as of 12/31/06 | Year First Elected | Principal Occupation During Last 5 Years | ||||
NOMINEES FOR ELECTION BY CLASS A SHARES | |||||||
Louis A. Amen | 77 | 1974 | Chairman of the Board, Super A Foods, Inc. since 2003; President, Super A Foods, Inc. 1972 – 2002. | ||||
John Berberian | 55 | 1991 | President, Berberian Enterprises, Inc. since 1978. | ||||
Oscar Gonzalez | 36 | — | Co-owner, Northgate Gonzalez Markets, Inc. since 1989. | ||||
Mark Kidd | 56 | 2006 | President, Mar-Val Food Stores, Inc. since 1984. | ||||
John D. Lang (1) | 53 | 2003 | President & Chief Executive Officer, Epson America, Inc. since 2002; Senior Executive Vice President and Chief Operating Officer, Epson America, Inc. 1995 to 2002. | ||||
Jay T. McCormack | 56 | 1993 | President, Rio Ranch Markets since 1986. | ||||
John Najjar | 50 | — | President, Cardiff Seaside Market, Inc. since 1985. | ||||
Peter J. O’Neal | 61 | 1999 | President, White Salmon Foods, Inc., and Estacada Foods, Inc. since 1977; President, Novato Foods, Inc. since 2003. | ||||
Michael A. Provenzano, Jr. | 64 | 1986 | President, Pro & Son’s, Inc., President, Provo, Inc. and President, Pro and Family, Inc. since 1992. | ||||
Thomas S. Sayles (1) | 56 | 2003 | Vice President, Governmental and Community Affairs, Sempra Energy since 1998. | ||||
Kenneth Ray Tucker | 59 | 1999 | President, Evergreen Markets, Inc. since 1989. | ||||
Richard L. Wright | 69 | 1999 | President, Wright’s Foodliner, Inc. since 2000. | ||||
NOMINEES FOR ELECTION BY CLASS B SHARES | |||||||
Darioush Khaledi | 60 | 1989 | (2) | Chairman of the Board and Chief Executive Officer, K.V. Mart Co., operating Top Valu Markets and Valu Plus Food Warehouse since 1977. | |||
Douglas A. Nidiffer | 57 | 2001 | President and Chief Executive Officer, C&K Market, Inc. since 1996. | ||||
Robert E. Stiles | 67 | 1999 | President, Gelson’s Markets since 1996. | ||||
| (1) | Messrs. Lang and Sayles are non-Shareholder-Related Directors. |
| (2) | Mr. Khaledi was first elected to the Board in 1989 and served until 1991. He was re-elected for a second term in 1993. |
None of the directors, nominees for director or executive officers were selected pursuant to any arrangement or understanding, other than with the directors and executive officers of the Company acting within their capacity as such. There are no family relationships among directors or executive officers of the Company and, as of the date hereof, no directorships are held by any director in a company which has a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. Officers serve at the discretion of the Board.
The Board of Directors recommends a vote “FOR” the election of each of the nominees listed above.
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BOARD MEETINGS AND COMMITTEES
Meetings
The Board held a total of six (6) meetings during the Company’s fiscal year ended September 30, 2006 (“fiscal 2006”). Each incumbent director attended at least 75% of the aggregate of the total number of meetings of the full Board and of all committees on which the director served, except John Berberian, who attended four (4) meetings of the Board and three (3) of the seven (7) meetings of all other committees and subsidiary boards on which he served; Darioush Khaledi, who attended five (5) meetings of the Board and six (6) of the ten (10) meetings of all other committees and subsidiary boards on which he served; and Douglas A. Nidiffer, who attended four (4) meetings of the Board and three (3) of the five (5) meetings of all other committees and subsidiary boards on which he served. Each incumbent director attended the 2006 annual meeting, except Robert E. Stiles. The Company does not have a written policy regarding attendance at Board and committee meetings, although attendance is closely monitored and is considered by the Corporate Governance and Nominating Committee (“Corporate Governance Committee”) during its selection of nominees for election to the Board.
Audit Committee
The Company has an Audit Committee that presently consists of Richard L. Wright, Committee Chairman, Darioush Khaledi, John D. Lang, Jay T. McCormack and Kenneth Ray Tucker. Louis A. Amen, Chairman of the Board, is an ex-officio member of the Audit Committee. Messrs. Wright and Lang are considered by the Board to be “Audit Committee financial experts” as defined by the rules promulgated by the Securities and Exchange Commission (the “SEC”). The Audit Committee, which met four (4) times during fiscal 2006, is primarily responsible for (i) overseeing the integrity of the financial statements and financial disclosures, (ii) overseeing the qualification and independence of the independent registered public accounting firm and the internal audit function, (iii) overseeing the performance of the independent registered public accounting firm and the internal audit function, (iv) providing an avenue of communication among the independent registered public accounting firm, management, the internal audit function, and the Board, and (v) overseeing the system of disclosure controls and the system of internal controls regarding finance, accounting, legal compliance, and ethics that management and the Board have established. The Audit Committee performs its duties in accordance with the Charter for the Audit Committee as adopted by the Board.
Compensation Committee
The Company has a Compensation Committee that presently consists of Thomas S. Sayles, Committee Chairman, Dieter Huckestein, John D. Lang, Jay T. McCormack, and Peter J. O’Neal. Louis A. Amen, Chairman of the Board, is an ex-officio member of the Compensation Committee. The Compensation Committee, which met five (5) times during fiscal 2006, is responsible for reviewing salaries and other compensation arrangements of all officers and for making recommendations to the Board concerning such matters.
Corporate Governance and Nominating Committee
The Company has a Corporate Governance and Nominating Committee (“Corporate Governance Committee”) that presently consists of Peter J. O’Neal, Committee Chairman, Mark Kidd, Jay T. McCormack, Michael A. Provenzano, Jr., and Thomas S. Sayles. Louis A. Amen, Chairman of the Board, is an ex-officio member of the Corporate Governance Committee. The Corporate Governance Committee, which met three (3) times during fiscal 2006, is responsible for (i) advising the Board on the governance structure and conduct of the Board and developing and recommending to the Board the Corporate Governance Guidelines of the Company, (ii) identifying individuals qualified to become Board members, and recommending to the Board nominees for election at the next annual or special meeting of shareholders at which directors are to be elected or to fill any vacancies or newly created directorships that may occur between meetings, and (iii) evaluating current directors for re-nomination to the Board and consulting with the Chairman of the Board with regard to appointments to any Board committees.
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The Corporate Governance Committee performs its duties in accordance with the Charter for the Corporate Governance and Nominating Committee as adopted by the Board.
Charters of the Committees
Both the Audit and Corporate Governance Committees of the Board have recommended, and the Board has adopted, and may amend from time to time, written charters, copies of which are available on the Company’s website atwww.uwgrocers.com.
Independence
SEC rules require that a company whose securities are not listed on the New York Stock Exchange (“NYSE”) or the American Stock Exchange (“AMEX”) or quoted on the Nasdaq Stock Market (“Nasdaq”) disclose in its proxy statement whether the members of its Audit Committee and Corporate Governance Committee are “independent.” In determining independence, the Company may select the definition of “independence” under the rules of either the NYSE, AMEX or Nasdaq. The Company has selected the rules of the NYSE.
Except as described below, the Board has determined that each director is independent under the applicable rules of the NYSE and the SEC. However, the rules of the NYSE provide that a director will not be considered independent if, among other things, the director is an employee or executive officer of a company that has made payments to the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of (i) $1 million or (ii) 2% of such company’s consolidated gross revenues. The Company is a retailer-owned, wholesale grocery cooperative whose Members purchase food and related products and services from the Company. Each of the Company’s directors, other than Messrs. Huckestein, Lang and Sayles, is an owner, employee or executive officer of a supermarket operator that has purchased products and services from the Company, in each of the last three fiscal years, in excess of (i) $1 million and (ii) 2% of such grocery store chain’s gross revenues. Except for such purchases, each director would be independent under the applicable rules of the NYSE.
Nominating Procedures and Criteria
Each year the Corporate Governance Committee meets to consider potential nominees that have been recommended by security holders or security holders that have expressed to the Committee their interest in serving as a director. Submissions by security holders must be made to the Committee in writing, and should be accompanied by a description of the proposed nominee’s qualifications, as well as consent to serve. In addition, the Committee considers security holders that the Committee, based on information submitted by the members of the Committee, believes are worthy of consideration. Shareholder recommendations will receive the same consideration that the Committee’s nominees receive. No security holder requested consideration as a nominee for election at the Annual Meeting. Finally, when deemed appropriate and necessary, the Committee has employed the services of a third party search firm to identify potential nominees. The Committee did not employ the services of a third party search firm in connection with selecting the nominees identified in this proxy, although it has done so in the past. Essential criteria for all candidates considered by the Committee include the following: integrity and ethical behavior; maturity; independence and diversity of thought; broad business or professional experience; and an understanding of business and financial affairs and the complexities of business organizations. In evaluating candidates for certain Board positions, the Committee evaluates additional criteria, including the following: management experience and expertise; financial or accounting expertise; experience in the grocery industry, business and other experience relevant to public companies of a size comparable to the Company; and experience in commercial lending or other financing activities.
In selecting director nominees, the Committee evaluates the general and specialized criteria set forth above, identifying the relevant specialized criteria prior to commencement of the recruitment process, considers previous performance if the candidate is a candidate for re-election, and generally considers the candidate’s ability to contribute to the success of the Company.
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The Board’s nominees for the Annual Meeting have been recommended by the Corporate Governance Committee, and have been selected by the full Board.
In addition to the recommendations and actions set forth above, the Committee recommended to the full Board that, under the direction of the Committee, the Company continue its efforts to identify qualified individuals that could be considered as Board members in the future. In this regard, emphasis will be placed on identifying non-shareholders with qualifications and experience that could contribute positively to the Board’s exercise of its oversight responsibilities. This effort is on-going, however, there is no timeframe established for completion of this project.
Communications with Directors
Shareholders may communicate with the respective chairs of the Audit Committee, the Compensation Committee, the Corporate Governance Committee, or with the independent directors, individually or as a group, by writing to any such person or group in care of the Secretary of the Company, at the Company’s office at 5200 Sheila Street, Commerce, California 90040.
Communications are distributed to the Board, or to any individual director, depending on the facts and circumstances set forth in the communication. In that regard, the Board has requested that certain items that are unrelated to the duties and responsibilities of the Board should be excluded, including the following: junk mail and mass mailings; product complaints; product inquiries; new product suggestions; resumes and other forms of job inquiries; surveys; and business solicitations or advertisements. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will not be distributed, with the provision that any communication that is not distributed will be made available to any director upon request.
Communications that include information better addressed by the complaint hotline supervised by the Audit Committee will be delivered to the hotline.
PRINCIPAL STOCKHOLDERS
As of the Record Date, no person was known by the Company to own beneficially more than five percent (5%) of the outstanding Class A Shares of the Company, and the only shareholder known by the Company to own beneficially more than 5% of the outstanding Class B Shares of the Company is as set forth in the table below.
Title of Class | Name and Address of Beneficial Owner | Amount of Ownership | % of Class | ||||
| Class B | Super Center Concepts, Inc. 15510 Carmenita Road Santa Fe Springs, CA 90620 | 29,868 | 6.34 | % |
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SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth the beneficial ownership of the Company’s Class A Shares, Class B Shares and Class E Shares, as of January 8, 2007, by each director and Shareholder-Related Director nominee, and their affiliated companies, and by all directors and their affiliated companies, as a group. Non-Shareholder-Related Directors and officers of the Company do not own any class of the Company’s stock.
| Shares Owned | |||||||||||||||
| Class A Shares | Class B Shares | Class E Shares | |||||||||||||
Name and Affiliated Company * | No. of Shares | % of Total Outstanding | No. of Shares | % of Total Outstanding | No. of Shares | % of Total Outstanding | |||||||||
Louis A. Amen Super A Foods, Inc. | 300 | 0.20 | % | 12,287 | 2.61 | % | 5,237 | 2.81 | % | ||||||
John Berberian Berberian Enterprises, Inc. | 300 | 0.20 | % | 10,276 | 2.18 | % | 2,846 | 1.53 | % | ||||||
Oscar Gonzalez (4) Northgate Gonzalez Markets, Inc. | 300 | 0.20 | % | 12,522 | 2.66 | % | 1,817 | 0.98 | % | ||||||
Dieter Huckestein (5)(6) Yellowstone Club World | 0 | 0.00 | % | 0 | 0.00 | % | 0 | 0.00 | % | ||||||
Darioush Khaledi (1) K.V. Mart Co. | 300 | 0.20 | % | 17,523 | 3.72 | % | 8,830 | 4.74 | % | ||||||
Mark Kidd (5) Mar-Val Food Stores, Inc. | 300 | 0.20 | % | 2,681 | 0.57 | % | 1,808 | 0.97 | % | ||||||
John D. Lang (5) Epson America, Inc. | 0 | 0.00 | % | 0 | 0.00 | % | 0 | 0.00 | % | ||||||
Jay T. McCormack (2) Rio Ranch Markets | 900 | 0.60 | % | 3,515 | 0.75 | % | 876 | 0.47 | % | ||||||
John Najjar Cardiff Seaside Market, Inc. | 300 | 0.20 | % | 257 | 0.05 | % | 167 | 0.08 | % | ||||||
Douglas A. Nidiffer (1) C&K Market, Inc. | 300 | 0.20 | % | 20,187 | 4.28 | % | 16,718 | 8.97 | % | ||||||
Peter J. O’Neal White Salmon Foods, Inc., Estacada Foods, Inc. and Novato Foods, Inc. | 300 | 0.20 | % | 1,065 | 0.23 | % | 123 | 0.07 | % | ||||||
Michael A. Provenzano, Jr. Pro & Son’s, Inc. | 300 | 0.20 | % | 10,677 | 2.26 | % | 786 | 0.42 | % | ||||||
Thomas S. Sayles (5) Sempra Energy | 0 | 0.00 | % | 0 | 0.00 | % | 0 | 0.00 | % | ||||||
Robert E. Stiles (1)(3) Gelson’s Markets | 300 | 0.20 | % | 11,222 | 2.38 | % | 5,025 | 2.70 | % | ||||||
Kenneth Ray Tucker Evergreen Markets, Inc. | 300 | 0.20 | % | 230 | 0.05 | % | 29 | 0.02 | % | ||||||
Richard L. Wright Wright’s Foodliner, Inc. | 300 | 0.20 | % | 3,122 | 0.66 | % | 1,335 | 0.72 | % | ||||||
All directors and their affiliated companies as a group | 4,500 | 3.00 | % | 105,564 | 22.40 | % | 45,597 | 24.48 | % | ||||||
| (1) | Elected by Class B Shareholders. |
| (2) | Mr. McCormack is affiliated with Glen Avon Foods, Inc., which owns 300 Class A Shares (0.20% of the outstanding class of shares), 554 Class B Shares (0.12% of the outstanding class of shares) and 377 Class E Shares (0.20% of the outstanding class of shares), Yucaipa Trading Co., Inc., which owns 300 Class A Shares (0.20% of the outstanding class of shares), 2,407 Class B Shares (0.51% of the outstanding class of |
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shares) and 129 Class E Shares (0.07% of the outstanding class of shares) and Alamo Foods, Inc., which owns 300 Class A Shares (0.20% of the outstanding class of shares), 554 Class B Shares (0.12% of the outstanding class of shares) and 370 Class E Shares (0.20% of the outstanding class of shares). |
| (3) | Shares owned by Arden-Mayfair, Inc., parent corporation of Gelson’s Markets. Mr. Stiles disclaims beneficial ownership of these shares. |
| (4) | Mr. Gonzalez is a shareholder and officer of a family-owned corporation. |
| (5) | Non-Shareholder-Related Director. |
| (6) | Mr. Huckestein is a non-Shareholder-Related Director who will not be standing for re-election to the 2007 Board of Directors. |
| * | The address of each director and executive is in care of the Secretary of the Company, at the Company’s office at 5200 Sheila Street, Commerce, CA 90040. |
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act, the Company’s directors, executive officers and any person holding ten percent or more of the shares of any class are required to report their ownership and any changes in that ownership to the SEC and to furnish the Company with copies of such reports. Specific due dates for these reports have been established and the Company is required to report in this proxy statement any failure to file on a timely basis by such persons. Based solely upon a review of copies of reports filed with the SEC, no officer or director failed to file a report required by Section 16(a) of the Securities Exchange Act of 1934 on a timely basis during the most recent fiscal year.
CODE OF FINANCIAL ETHICS
The Company has adopted a Code of Financial Ethics that applies to its principal executive officer and senior financial officers as required by the rules promulgated by the SEC. The Code of Financial Ethics has been posted to the Company’s Internet website atwww.uwgrocers.com. The Company intends to satisfy disclosure requirements regarding amendments to, or waivers from, any provisions of its Code of Financial Ethics on its website.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation Committee Interlocks and Insider Participation
During fiscal 2006, the Company’s Compensation Committee consisted of Thomas S. Sayles, Committee Chairman, Dieter Huckestein, John D. Lang, Jay T. McCormack, and Peter J. O’Neal, as well as ex-officio member and Chairman of the Board, Louis A. Amen. As Chairman of the Board, Mr. Amen is an officer under the Bylaws of the Company, although he is not an employee and does not receive any compensation or expense reimbursement beyond that to which he is entitled in his capacity as a director or committee member.
In the normal course of business, the Company has made loans and entered into leases, subleases and supply agreements with Members; provided guarantees for other third party loans and leases; and made investments in the businesses of its Members. Refer to “Transactions With Management and Other Persons” on page 19 for a description of transactions the Company has entered into with certain Members with which Members of the Compensation Committee are affiliated.
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Report of the Compensation Committee on Executive Compensation
The Report of the Compensation Committee of the Board of Directors shall not be deemed filed under the Securities Act of 1933, or Securities Act, or under the Securities Exchange Act of 1934, or Exchange Act.
The principal components of the Company’s executive compensation program consist of an annual salary, an annual cash bonus contingent upon individual and Company performance in the preceding fiscal year, auto allowances, relocation expense reimbursements and certain pension, health insurance, retirement and life insurance benefits.
Salary. The Compensation Committee is responsible for the review of salaries of officers other than the Chief Executive Officer (“CEO”) as recommended by the CEO. Such review is conducted in closed session and, with the exception of the CEO and General Counsel (except when the salary of the General Counsel is being discussed), without management personnel present. This process centers on the Compensation Committee’s consideration of the CEO’s evaluation of each officer based on various criteria, including the CEO’s evaluation of officer performance against assigned responsibilities and goals, the relative value and importance of the officer’s contributions toward the overall success of the organization, the relative level of officer responsibilities, changes in the scope of officer responsibilities, officer accomplishments and contributions and the overall financial results for the Company for the most recent fiscal year end. In performing its reviews, from time-to-time, the Compensation Committee engages the services of an independent consultant to render an opinion on, or provide recommendations with respect to, proposed compensation for its most senior executive officers in order to ensure the competitiveness of the Company’s compensation arrangements. During fiscal 2006, the Committee did not utilize the services of an independent consultant for the purposes of examining overall compensation of officers, although independent consultants were engaged to examine certain aspects of officer compensation. Final salary recommendations by the Compensation Committee are presented to the full Board for approval. Salary earned for fiscal 2006 for the Company’s CEO and the four most highly compensated executive officers (the “named executives”) are reflected in the Summary Compensation Table.
The Compensation Committee recommends to the Board adjustments to the CEO’s salary based on its assessment of the CEO’s performance in accordance with the policies and considerations discussed directly above.
The Company has a written employment agreement with its CEO and severance agreements with its executive officers. See “Executive Employment, Termination and Severance Agreements” below.
Annual Bonuses. In recognition of the correlation between the Company’s performance and enhancement of shareholder value, the Company’s officers may be awarded annual cash bonuses. The Company has an annual incentive plan for senior management, under which all of the Company’s officers other than the CEO are eligible for bonuses. The CEO’s annual cash bonus is determined separately by the Board after recommendation by the Compensation Committee and is based on the Company’s and the CEO’s performance against established criteria and performance targets. The Company does not have a long term incentive plan for the CEO or other officers.
Under the annual incentive plan for senior management, bonuses are paid as a percentage of the officer’s base salary. The plan also provides for three levels of bonuses, a minimum bonus, a target bonus and a maximum bonus. If the overall performance level of the Company does not reach an established minimum level, no bonus is paid. The performance level of the officers are measured against a weighted average of (i) a 75% financial threshold based on performance measures established by the Board and (ii) a 25% corporate, divisional, or department strategic goals threshold based on the officer’s individual contributions to the overall performance of the Company or the officer’s specific responsibilities. The Committee recommended that the annual incentive plans for the CEO and senior management should continue in the same form for fiscal 2007, except that (i) certain non-financial measures of the CEO’s performance have been modified and (ii) the relative weighting of performance measures has been changed to provide more emphasis on revenue growth and expense control.
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For fiscal 2006 and fiscal 2007, the performance measures used for the annual incentive plan for senior management are pre-bonus EBITDAP (earnings before interest, taxes, depreciation, amortization and patronage dividends), sales growth and distribution, selling and administrative expense as a percentage of sales. In addition, the Board or CEO may adjust the bonus, plus or minus 20% of the earned incentive, based on individual contributions to the overall performance of the Company. Pursuant to the annual incentive plan for senior management, the Board approved bonuses totaling approximately $2,162,000 for fiscal 2006.
For fiscal 2006, the CEO’s bonus was determined in accordance with criteria and performance targets established by the Board during fiscal 2005. The Compensation Committee evaluates the CEO against the established criteria and performance targets and considers evaluations of the CEO by each member of the Board. The financial performance targets for the Company on which the CEO’s bonus was based included the achievement of pre-patronage dividend income relative to budgeted goals, the achievement of certain efficiency targets and certain strategic initiatives established at the beginning of fiscal 2006. The CEO’s performance was also based on a weighted average of certain criteria such as the CEO’s strategic effectiveness in planning the strategy of the Company in the industry, the CEO’s business management skills including setting clear goals and objectives and setting a good example for ethics and compliance issues, the CEO’s talent management including mentoring senior executives, building team spirit and motivating the employees and the CEO’s personal effectiveness, including the CEO’s relationship with the Board and the Board Committees and communication skills. In recognition of the CEO’s efforts, and pursuant to the criteria of the CEO bonus plan, the Board for fiscal 2006 approved the payment of a bonus to the CEO in the amount of $530,000.
Bonuses awarded to named executives pursuant to the plan in the prior three fiscal years are disclosed in the Summary Compensation Table.
Benefits. Consistent with the Company’s objective to attract and retain qualified executives, the compensation program provides pension benefits to Company employees, including officers, pursuant to the Company’s defined benefit pension plan. The Company also provides supplemental retirement benefits to its officers pursuant to an Executive Salary Protection Plan II (“ESPP II”). Both types of retirement benefits are described in connection with the Pension Plan Table. In addition, Company employees, including officers, may defer income from their earnings through voluntary contributions to the Company’s Sheltered Savings Plan adopted pursuant to Section 401(k) of the Internal Revenue Code and the Company’s Amended and Restated Deferred Compensation Plan which is a nonqualified plan. In the case of those employees who elect to defer income under these plans, the Company makes additional contributions for their benefit. The amount of these additional contributions made during fiscal 2006 for the benefit of the CEO and other named executive officers is set forth in the footnotes to the Summary Compensation Table.
Compensation Committee Members
Thomas S. Sayles, Chairman
Louis A. Amen, Ex-Officio Member
Dieter Huckestein
John D. Lang
Jay T. McCormack
Peter J. O’Neal
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Executive Officer Compensation
The following table summarizes compensation paid to the President and Chief Executive Officer and to certain executive officers of the Company for services to the Company in all capacities for each of the last three fiscal years.
Summary Compensation Table
Named and Principal Position | Year | Annual Compensation | |||||||||
| Salary($) | Bonus Pursuant to Plan($) | Other Annual Compensation($)(1) | All Other Compensation($) | ||||||||
Alfred A. Plamann President and Chief Executive Officer | 2006 2005 2004 | 624,808 595,673 581,250 | 530,000 425,000 414,000 | 24,012 22,884 22,414 | 49,327 50,489 48,591 | (2) | |||||
Robert M. Ling, Jr. Executive Vice President, General Counsel and Secretary | 2006 2005 2004 | 366,538 346,538 330,577 | 260,000 210,000 198,000 | 22,167 21,126 20,692 | 27,917 26,601 26,010 | (3) | |||||
Richard J. Martin Executive Vice President, Finance and Administration and Chief Financial Officer | 2006 2005 2004 | 318,269 308,269 303,846 | 215,000 155,000 160,000 | 22,167 21,126 20,692 | 28,836 25,623 21,072 | (4) | |||||
Philip S. Smith Executive Vice President, Chief Marketing / Procurement Officer | 2006 2005 2004 | 296,539 276,539 258,269 | 205,000 160,000 156,000 | 22,167 20,732 18,968 | 23,323 22,041 20,734 | (5) | |||||
Daniel J. Murphy Senior Vice President, Retail Support Services | 2006 2005 2004 | 252,750 240,442 234,596 | 105,000 85,000 75,000 | 20,321 19,366 18,968 | 20,614 19,868 18,685 | (6) | |||||
| (1) | For 2006, consists of $24,012, $22,167, $22,167, $22,167 and $20,321 in auto allowances paid to Messrs. Plamann, Ling, Martin, Smith and Murphy, respectively. |
| (2) | Consists of a $15,081 Company contribution to the Company’s Sheltered Savings Plan, a $27,907 Company contribution to the Company’s Amended and Restated Deferred Compensation Plan, and $6,339 representing the economic benefit associated with the Company paid premium on the Executive Life Plan. |
| (3) | Consists of a $15,060 Company contribution to the Company’s Sheltered Savings Plan, an $11,549 Company contribution to the Company’s Amended and Restated Deferred Compensation Plan, and $1,308 representing the economic benefit associated with the Company paid premium on the Executive Life Plan. |
| (4) | Consists of a $16,908 Company contribution to the Company’s Sheltered Savings Plan, an $8,582 Company contribution to the Company’s Amended and Restated Deferred Compensation Plan, and $3,346 representing the economic benefit associated with the Company paid premium on the Executive Life Plan. |
| (5) | Consists of a $14,631 Company contribution to the Company’s Sheltered Savings Plan, a $7,006 Company contribution to the Company’s Amended and Restated Deferred Compensation Plan, and $1,686 representing the economic benefit associated with the Company paid premium on the Executive Life Plan. |
| (6) | Consists of a $14,632 Company contribution to the Company’s Sheltered Savings Plan, a $3,859 Company contribution to the Company’s Amended and Restated Deferred Compensation Plan, and $2,123 representing the economic benefit associated with the Company paid premium on the Executive Life Plan. |
The Company has a pension plan (the “Pension Plan”) that covers both non-union and executive employees. The Pension Plan consists of two parts, a defined benefit plan based on final average compensation and a cash balance plan. The defined benefit portion of the Pension Plan provides benefits based on years of service through
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December 31, 2001 and final average compensation. Effective January 1, 2002, the cash balance plan was included as part of the Pension Plan for post January 1, 2002 accruals. Benefits earned under the Pension Plan are equal to the sum of the benefits accrued under both the defined benefit plan and cash balance plans. There is no offset under the Pension Plan for Social Security.
As of December 31, 2001, years of service under the defined benefit plan were grandfathered and will not increase. Employees will receive benefits under the defined benefit plan based on years of service as grandfathered on December 31, 2001 and final average compensation. As of December 31, 2001, credited years of service under the defined benefit plan for named executive officers were: Mr. Plamann, 12 years; Mr. Ling, 5 years; Mr. Martin, 3 years; Mr. Smith, 7 years; and Mr. Murphy, 1 year. Benefits accrued under the defined benefit plan will be paid as an annuity.
The cash balance portion of the Pension Plan is expressed in the form of a hypothetical account balance. Commencing at the end of calendar year 2002 and annually thereafter, a participant’s hypothetical cash balance account will be increased by (i) pay credits based on a percentage of compensation for that year, from 4% to 10% based on years of service and age, and (ii) interest credits based on the participant’s hypothetical account balance at the thirty year U.S. Treasury Bond rate, with a minimum guaranty of 5%. Benefits under the cash balance portion of the plan are generally stated as a cash balance account value and will be distributed as an annuity.
The Company’s Executive Salary Protection Plan II, as amended (“ESPP II”), provides supplemental post-termination retirement income based on each participant’s final salary and years of service as an officer of the Company. The financing of this benefit is facilitated through the purchase of life insurance policies, the premiums of which are paid by the Company.
The ESPP II is intended to provide eligible officers with retirement benefits when they reach age 62. The combination of payments under the ESPP II and the Company’s Pension Plan is designed to provide pension benefits equal to approximately 65% of the participant’s final pay (defined as the highest annualized base salary and car allowance received in the three years prior to separation or retirement). Employees become eligible to participate in the ESPP II after three years of service as an officer of the Company in the position of Vice President or higher. Upon eligibility, officers receive credit for years of service with the Company at the rate of 5% of final pay for each year of service up to a maximum of 13 years. Officers first elected after January 1, 1999 receive credit only for years of service as an officer. Payments under the ESPP II are discounted for executives who retire prior to age 62. In May 2003, the Board approved amendments to the ESPP II (the “Plan Amendments”). The Plan Amendments maintain the eligibility features described above. In addition, officers receive 1% of final pay for each year of service in excess of 13 years. The Plan Amendments also provide that officers elected after the effective date of the Plan Amendments receive service credit for years of service as an officer of the Company at the rate of 4.33% of final average pay (defined as the average of the five highest years of base salary, car allowance and bonus compensation received in the ten years prior to separation or retirement) up to a maximum of 15 years. Thereafter, officers receive an additional 1% of final average pay for each year of service in excess of 15 years. As of December 31, 2006 credited years of service under the ESPP II for named executive officers were: Mr. Plamann, 17 years; Mr. Ling, 10 years; Mr. Martin, 8 years; Mr. Smith, 12 years; and Mr. Murphy, 6 years. Officers employed as of the effective date of the amendments shall receive benefits equal to the greater of the amount calculated pursuant to either the ESPP II, as it existed prior to the Plan Amendments (with the additional 1% of final pay for each year in excess of 13), or as amended.
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The following table summarizes the estimated combined annual benefits payable under both the Pension Plan and ESPP II Plan. The amounts shown represent annual compensation payable on a straight-line basis with respect to the benefits under the Pension Plan and a 15-year annuity with respect to the benefits under the ESPP II for qualifying executives with selected years of service as if such executives had retired on September 30, 2006 at age 65.
PENSION PLAN TABLE
| Years of Service | |||||||||||||||||||
| Compensation | 5 Years | 10 Years | 15 Years | 20 Years | 25 Years | 33 Years | |||||||||||||
| $ | 100,000 | $ | 25,104 | $ | 50,263 | $ | 67,491 | $ | 72,809 | $ | 78,240 | $ | 87,191 | ||||||
| $ | 200,000 | $ | 50,208 | $ | 100,525 | $ | 134,982 | $ | 145,617 | $ | 156,480 | $ | 174,382 | ||||||
| $ | 300,000 | $ | 75,229 | $ | 150,578 | $ | 202,080 | $ | 217,779 | $ | 233,727 | $ | 259,820 | ||||||
| $ | 400,000 | $ | 100,229 | $ | 200,578 | $ | 269,080 | $ | 289,779 | $ | 310,727 | $ | 344,820 | ||||||
| $ | 500,000 | $ | 125,229 | $ | 250,578 | $ | 336,080 | $ | 361,779 | $ | 387,727 | $ | 429,820 | ||||||
| $ | 600,000 | $ | 150,229 | $ | 300,578 | $ | 403,080 | $ | 433,779 | $ | 464,727 | $ | 514,820 | ||||||
| $ | 700,000 | $ | 175,229 | $ | 350,578 | $ | 470,080 | $ | 505,779 | $ | 541,727 | $ | 599,820 | ||||||
| $ | 800,000 | $ | 200,229 | $ | 400,578 | $ | 537,080 | $ | 577,779 | $ | 618,227 | $ | 684,820 | ||||||
| $ | 900,000 | $ | 225,229 | $ | 450,578 | $ | 604,080 | $ | 649,779 | $ | 695,727 | $ | 769,820 | ||||||
| $ | 1,000,000 | $ | 250,229 | $ | 500,578 | $ | 671,080 | $ | 721,779 | $ | 772,727 | $ | 854,820 | ||||||
| $ | 1,100,000 | $ | 275,229 | $ | 550,578 | $ | 738,080 | $ | 793,779 | $ | 849,727 | $ | 939,820 | ||||||
| $ | 1,200,000 | $ | 300,229 | $ | 600,578 | $ | 805,080 | $ | 865,779 | $ | 926,727 | $ | 1,024,820 | ||||||
Executive Employment, Termination and Severance Agreements
The Company has an employment agreement with Alfred A. Plamann, the Company’s President and Chief Executive Officer, with an effective date of September 29, 1999. Mr. Plamann’s contract has a term of three years and is automatically extended for successive one-year terms on the anniversary of the effective date of the contract unless either party provides notice of an intention to terminate the contract at least eleven months prior to such anniversary date. Under the contract, Mr. Plamann serves as the Company’s President and Chief Executive Officer and receives a base salary, set at $630,000 at fiscal year-end. Per Company practice, the Board annually reviews Mr. Plamann’s salary and performance. At its December 13, 2006 meeting the Board adjusted Mr. Plamann’s salary to $660,000. Mr. Plamann is also eligible for annual bonuses based on performance criteria established by the Board at the beginning of each fiscal year. Additionally, Mr. Plamann will receive employee benefits such as life insurance and Company pension and retirement contributions. The contract is terminable at any time by the Company, with or without cause, and will also terminate upon Mr. Plamann’s resignation, death or disability. Except where termination is for cause or is due to Mr. Plamann’s resignation (other than a resignation following designated actions of the Company or its successor which trigger a right by Mr. Plamann to resign and receive severance benefits), death or disability, the amended contract provides that Mr. Plamann will be entitled to receive his highest base salary during the previous three years, plus an annual bonus equal to the average of the most recent three annual bonus payments, throughout the balance of the term of the agreement. Mr. Plamann would also continue to receive employee benefits such as life insurance and Company pension and retirement contributions throughout the balance of the term of the agreement.
The Company and Messrs. Ling, Martin and Smith have executed severance agreements. Each agreement provides for severance payments in the event the executive’s employment is terminated (i) by the Company other than for cause, death or extended disability, (ii) by the executive for good reason, or (iii) by the executive without cause within 12 months following a change in control. The severance payment is equal to two times the highest annual base salary in the three years prior to termination plus two times the highest annual incentive bonus paid during that three-year period. In the event of the occurrence of the specified termination events, the executive is also entitled to Company payment of COBRA health insurance premiums until the earlier of 24 months or the cessation of COBRA eligibility and coverage.
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The Company and Mr. Murphy have also executed a severance agreement providing a severance benefit equal to one year’s salary and bonus based on the highest annual salary and the highest incentive bonus paid over the prior three years in the event of the occurrence of specified termination events. These include termination (i) by the Company other than for cause, death or extended disability, and (ii) by the executive for good reason.
Officer Health Insurance Plan
The Board approved, effective January 1, 2001, a supplemental officer health insurance benefit (“Supplemental Officer Health Insurance Plan”) and an officer retiree medical plan (“Officer Retirement Medical Plan”) for officers and their eligible dependents. Pursuant to the Supplemental Officer Health Insurance Plan, officers will be eligible for payment by the insurance plan of the portion of covered expenses not covered under the Company’s health insurance plan. Under the Officer Retirement Medical Plan, officers who are at least 55 years of age and have seven years service with the Company as an officer will be eligible to participate in the Officer Retirement Medical Insurance Plan following termination of employment. Former officers (and surviving spouses) must enroll in Medicare Parts A and B when they reach age 65 at which time Medicare becomes the primary carrier and the Officer Retirement Medical Plan becomes secondary. Active officers will continue to be obligated to pay the regular premium for the Company health insurance plan they have selected.
Officer Disability Insurance
The Board approved, effective January 1, 2001, a supplemental disability insurance plan for officers that provides 100% of their pre-disability base salary while on a disability leave for up to two years. This disability coverage will be coordinated with existing sick leave, state disability insurance, short-term disability insurance, and long-term disability plans available to all employees so that the officer disability insurance is a supplemental benefit. During the first six months of disability, state disability insurance and short-term disability insurance pays 66 2/3% of the employee’s salary and officer disability insurance pays 33 1/3%. After six months of disability, state disability insurance and long-term disability insurance pays 50% of the employee’s salary and officer disability insurance pays the remaining 50%.
Stock-based Compensation
The Company does not offer any stock-based compensation to its employees or directors.
Director Compensation
Following the annual meeting in 2006, each Shareholder-Related Director received an annual payment of $15,000 as compensation for service as a director of the Company and as a member of any committees of the Board of the Company and any Board of a subsidiary of the Company, if applicable. Directors who are non-Shareholder-Related Directors received an annual payment of $30,000 as compensation for service as a director of the Company and as a member of any committees of the Board of the Company and any Board of a subsidiary of the Company, if applicable. In addition, each director received additional compensation of $1,000 for each Board meeting attended, and $500 for each committee or subsidiary Board meeting attended, not to exceed $1,000 if multiple meetings are attended on any given day. In recognition of the additional duties and responsibilities attendant with such a position, the Chairman of the Board received additional annual compensation of $5,000. In addition, directors are reimbursed for Company related expenses.
During fiscal 2006, the Committee engaged the services of an independent consultant to review current director compensation and to make recommendations for future compensation. Director compensation had not been reviewed or increased since fiscal 2003.
Based on the recommendations of the independent consultant, the Board modified the director compensation plan to be effective following the election of Directors at the 2007 Annual Meeting. Following the Annual
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Meeting in 2007, each Shareholder-Related Director will receive an annual payment of $25,000 as compensation for service as a director of the Company and as a member of any committees of the Board of the Company and any Board of a subsidiary of the Company, if applicable. Directors who are non-Shareholder-Related Directors will receive an annual payment of $45,000 as compensation for service as a director of the Company and as a member of any committees of the Board of the Company and any Board of a subsidiary of the Company, if applicable. In addition, each director will receive additional compensation of $1,500 for each Board meeting attended, and $1,000 for each committee or subsidiary Board meeting attended, not to exceed $2,000 if multiple meetings are attended on any given day. In recognition of the additional duties and responsibilities attendant with such positions, the Chairman of the Board will receive additional annual compensation of $10,000, the 1st and 2nd Vice-Chairmen will receive $3,000, the chairman of the Audit Committee will receive $5,000 and the chairmen of other committees will receive $1,000. In addition, directors are reimbursed for Company related expenses. Finally, effective in 2007, Directors will be eligible to participate in the Company’s Amended and Restated Deferred Compensation Plan.
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AUDIT COMMITTEE REPORT
The Report of the Audit Committee of the Board of Directors shall not be deemed filed under the Securities Act or under the Exchange Act.
The Audit Committee of the Board (the “Audit Committee”) operates pursuant to a written charter as amended by the Board as of December 13, 2005, which is assessed annually for adequacy by the Audit Committee. The Board reviewed the charter during the December 12, 2006 meeting and no amendments were made to the charter. The Audit Committee is responsible for overseeing the Company’s financial reporting process on behalf of the Board. Company management has the primary responsibility for the Company’s financial reporting process, principles and internal controls, as well as preparation of its financial statements. The Company’s independent registered public accounting firm is responsible for performing an audit of the Company’s financial statements and expressing an opinion as to the conformity of such financial statements with the standards of the Public Company Accounting Oversight Board (United States) and expressing an opinion on whether the Company’s financial statements present fairly, in all material respects, the Company’s financial position and results of operations for the periods presented.
The Audit Committee: (1) has reviewed and discussed with management the audited financial statements contained in the Company’s Annual Report on Form 10-K for fiscal 2006; (2) has obtained from management their representation that the Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States; (3) has discussed with Deloitte & Touche LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees) as currently in effect; (4) has received the written disclosures and the letter from Deloitte & Touche LLP required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as currently in effect; (5) has reviewed and discussed with Deloitte & Touche LLP the registered public accounting firm’s independence and (6) has considered whether the provision of non-audit services is compatible with maintaining Deloitte & Touche LLP’s independence.
In performing its functions, the Audit Committee acts only in an oversight capacity. It is not the responsibility of the Audit Committee to determine that the Company’s financial statements are complete and accurate, are presented in accordance with accounting principles generally accepted in the United States or present fairly the results of operations of the Company for the periods presented or that the Company maintains appropriate internal controls. Nor is it the duty of the Audit Committee to determine that the audit of the Company’s financial statements has been carried out in accordance with the standards of the Public Company Accounting Oversight Board (United States) or that the Company’s registered public accounting firm is independent.
Based on the review and discussions described above and the report of the independent registered public accounting firm, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements described in the report of Deloitte & Touche LLP dated December 15, 2006, be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006 for filing with the Securities and Exchange Commission.
Audit Committee Members
Richard L. Wright, Chairman
Louis A. Amen, Ex-Officio Member
Darioush Khaledi
John D. Lang
Jay T. McCormack
Kenneth Ray Tucker
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Pursuant to its charter, the Audit Committee is responsible for appointing the Company’s independent registered public accounting firm. For fiscal 2006 and 2005, the Audit Committee appointed Deloitte & Touche LLP to serve in this capacity. The Audit Committee has not yet selected the Company’s independent registered public accounting firm for fiscal 2007. A representative of Deloitte & Touche LLP will be present at the Annual Meeting and will have the opportunity to make a statement if such representative desires to do so and will also be available to answer appropriate questions from shareholders.
The aggregate fees billed to the Company by Deloitte & Touche LLP with respect to services performed for fiscal 2006 and 2005 are as follows:
| 2006 | 2005 | |||||
Audit fees (1) | $ | 1,247,904 | $ | 1,035,024 | ||
Audit related fees (2) | 131,535 | 133,883 | ||||
Tax fees (3) | 214,441 | 119,726 | ||||
All other fees (4) | 98,554 | — | ||||
Total | $ | 1,692,434 | $ | 1,288,633 | ||
| (1) | Audit fees consisted of fees billed by Deloitte & Touche LLP for professional services rendered for the audit of the Company’s annual financial statements and for reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for fiscal 2006 and 2005. |
| (2) | Audit related fees consisted of fees billed by Deloitte & Touche LLP for services rendered to the Company for SEC registration statement review, services reasonably related to the performance of the audit or review of our financial statements and that are not reported as audit fees and technical accounting assistance for fiscal 2006 and 2005. |
| (3) | Tax fees consisted principally of fees billed by Deloitte & Touche LLP for assistance relating to tax compliance and reporting for fiscal 2006 and 2005. |
| (4) | All other fees consist of fees not reported as audit fees, audit related fees, or tax fees. |
The Audit Committee, pursuant to its policies, administers the Company’s engagement of Deloitte & Touche LLP and pre-approves all audit and permissible non-audit services on a case-by-case basis. In approving non-audit services, the Audit Committee considers whether the engagement could compromise the independence of Deloitte & Touche LLP, and whether for reasons of efficiency or convenience it is in the best interest of the Company to engage its independent registered public accounting firm to perform the services. The Audit Committee, in reliance on management and the independent registered public accounting firm, has determined that the provision of these services is compatible with maintaining the independence of Deloitte & Touche LLP.
Prior to engagement, the Audit Committee pre-approves all independent registered public accounting firm services. The fees are budgeted and the Audit Committee requires the independent registered public accounting firm and management to report actual fees versus budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm on any service activity of $25,000 or larger. The Audit Committee has granted management the right to initiate non-audit service activities for less than $25,000 with subsequent approval by the Audit Committee, with such approval given no later than the completion of the audit.
The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
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CUMULATIVE TOTAL SHAREHOLDER RETURN
The following graph sets forth the five year cumulative total shareholder return on the Company’s shares as compared to the cumulative total shareholder return for the same period of the Company’s Peer Group and the S&P 500 Index. The Company’s Peer Group consists of Nash Finch Company, Spartan Stores, Inc. and Supervalu, Inc. These companies were selected on the basis that the companies, although unlike Unified in that they are not structured as cooperative organizations, have certain operational characteristics that are similar to Unified. For example, each of the companies is a full-line distributor of grocery products. While all shares of the companies included in the Peer Group are publicly traded, the Company’s shares are privately held. The Company exchanges its Class A Shares and Class B Shares with its Members at a price that is based on a formula and is approved by the Board (“Exchange Value Per Share”). Prior to September 30, 2006, the Company computed the Exchange Value Per Share of the Class A and Class B Shares as book value (“Book Value”) divided by the number of Class A and Class B Shares outstanding at the end of the fiscal year. Book Value is computed based on the sum of the fiscal year end balances of Class A and Class B Shares, plus retained earnings, plus (less) accumulated other comprehensive earnings (loss). Effective September 30, 2006, the Company modified its Exchange Value Per Share computation to exclude accumulated other comprehensive earnings (loss) from Book Value. The Company’s Class A and Class B Shares are purchased and sold based on the Exchange Value Per Share of the Company at the close of the last fiscal year end prior to sale or purchase. Accordingly, the graphical presentation of the cumulative total return of the companies included in the Peer Group reflects the incremental change in book value of the shares of those companies, computed based on total equity divided by the number of voting shares as of the dates indicated.
The comparison assumes $100 was invested on September 30, 2001 in the shares of the Company, the shares of the Peer Group and in each of the foregoing indices through September 30, 2006. The historical cost performance on the following graph is not necessarily indicative of future historical cost performance.
This graph shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act or under the Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.
Comparison of Five Year* Cumulative Total Return
Among Unified Western Grocers, Inc., S&P 500 Index and Peer Group
| * | Fiscal years ended, September 28, 2002, September 27, 2003, October 2, 2004, October 1, 2005 and September 30, 2006. |
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TRANSACTIONS WITH MANAGEMENT AND OTHER PERSONS
Members affiliated with directors of the Company make purchases of merchandise from the Company and also may receive benefits and services that are of the type generally offered by the Company to its similarly situated eligible Members.
Since the programs listed below are only available to Members of the Company, it is not possible to assess whether transactions with Members of the Company, including entities affiliated with directors of the Company, are less favorable to the Company than similar transactions with unrelated third parties. However, management believes such transactions are on terms that are generally consistent with terms available to other Members similarly situated.
Following is a brief description of related party transactions with Members affiliated with directors of the Company:
Loans and Loan Guarantees
Unified provides loan financing and loan guarantees to its Members. The Company had the following loans outstanding at December 30, 2006 to Members affiliated with the following directors of the Company:
| (dollars in thousands) | |||||
| Director | Aggregate Loan Balance at December 30, | Maturity Date | |||
Jay T. McCormack. | $ | 11 | 2007 | ||
Peter J. O’Neal | 84 | 2011 | |||
In December 2002, Grocers Capital Company (“GCC”), a wholly owned subsidiary of Unified whose primary function is to provide financing to the Company’s Members, loaned approximately $2.0 million to an entity affiliated with director Michael A. Provenzano, Jr. to finance equipment and leasehold improvements for store expansion purposes. The note was scheduled to mature in December 2007. Principal and interest payments were required monthly. This note was paid in full during fiscal year 2006.
The Company has guaranteed 22% of the principal amount of a third party loan to C&K Market, Inc. (“C&K”), of which director Douglas A. Nidiffer is a shareholder, director and officer. At December 30, 2006, the principal amount of this guarantee was $ 0.2 million.
On August 1, 2006, K.V. Mart, Co. (“KV”), of which director Darioush Khaledi is affiliated, entered into a $1.1 million standby letter of credit agreement with GCC to secure insurance coverage with Springfield Insurance Company, a wholly owned subsidiary of the Company, in the event KV is unable to meet its obligations. The non-transferable standby letter of credit expires August 1, 2007, and is automatically renewable without amendment unless KV provides 30 days’ prior written notice to GCC.
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Lease Guarantees and Subleases
The Company provides lease guarantees and subleases to its Members. The Company has executed lease guarantees or subleases to Members affiliated with directors of the Company at December 30, 2006 as follows:
| (dollars in thousands) | ||||||||||
| Director | No. of Stores | Total Current Annual Rent | Total Guaranteed Rent | Expiration Date(s) | ||||||
Douglas A. Nidiffer | 1 | $ | 693 | $ | 3,294 | 2026 | ||||
Michael A. Provenzano, Jr. | 2 | 351 | 3,592 | 2017 | ||||||
John Berberian | 2 | 310 | 819 | 2008-2012 | ||||||
Peter J. O’Neal | 1 | 144 | 540 | 2010 | ||||||
Mark Kidd | 1 | 121 | 242 | 2009 | ||||||
Richard L. Wright | 1 | 264 | 154 | 2007 | ||||||
Supply Agreements
During the course of its business, the Company enters into individually negotiated supply agreements with Members of the Company. These agreements require the Member to purchase certain agreed amounts of its merchandise requirements from the Company and obligate the Company to supply such merchandise under agreed terms and conditions relating to such matters as pricing and delivery. The Company has executed supply agreements with Members affiliated with directors of the Company at December 30, 2006 as follows:
| Director | Expiration Date | |
Douglas A. Nidiffer | 12/29/2013 | |
Michael A. Provenzano, Jr. | 8/01/2007 |
Direct Investment
Prior to fiscal year 2004, the Company purchased 80,000 shares of preferred stock (the “Series A-1 Preferred Shares”) from C&K for $8.0 million. In connection with a capital restructuring of C&K during fiscal year 2004 (approved by the Company and an unrelated third party lender), the Company exchanged its 80,000 Series A-1 Preferred Shares and $1.5 million of deferred dividends for 95,000 shares of Series A-2 Preferred Shares (the “Series A-2 Preferred Shares”). The original value of the Series A-2 Preferred Shares was $8.0 million and was to accrete to the redemption value of $9.5 million over 10 years. The carrying value of the Series A-2 Preferred Shares was $8.3 million at October 1, 2005.
On February 9, 2006, C&K repurchased the 95,000 shares of Series A-2 Preferred Shares held by Unified for $9.8 million. The payment included $9.5 million for the redemption value of the Series A-2 Preferred Shares and $0.3 million for accrued dividends. The investment was carried at $8.4 million, which represented the original value of the Series A-2 Preferred Shares plus cumulative accretion through the date of repurchase. As a result of the share repurchase, the Company recognized a gain on the difference between the carrying value of the investment and the redemption value of approximately $1.1 million.
Transactions with Executive Officers
In December 2000, to facilitate Senior Vice President Daniel J. Murphy’s relocation to Southern California, the Company loaned to Mr. Murphy, pursuant to a note, $0.1 million with interest of 7.0% per annum payable quarterly and principal due at the option of the holder.
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VOTING ON OTHER MATTERS
As of the date of this proxy statement, the Board knows of no business to be presented for consideration at the Annual Meeting other than as stated in the Notice of Annual Meeting of Shareholders. If, however, other matters are properly brought before the Annual Meeting, including a motion to adjourn the Annual Meeting to another time or place in order to solicit additional proxies in favor of the recommendations of the Board, the proxy holders intend to vote the shares represented by the proxies on such matters in accordance with the recommendation of the Board and the authority to do so is included in the proxy.
SHAREHOLDER PROPOSALS FOR 2008 ANNUAL MEETING
Under certain circumstances, shareholders are entitled to present proposals at shareholder meetings. The 2008 annual meeting of shareholders is presently expected to be held on or about February 15, 2008.
SEC rules provide that any shareholder proposal to be included in the proxy statement for the Company’s 2008 annual meeting must be received by the Secretary of the Company at the Company’s office at 5200 Sheila Street, Commerce, California 90040 on or before September 12, 2007, in the form that complies with applicable regulations. If the date of the 2008 annual meeting is advanced or delayed more than 30 days from the date of the 2007 Annual Meeting, shareholder proposals intended to be included in the proxy statement for the 2008 annual meeting must be received by the Company within a reasonable time before the Company begins to print and mail the proxy statement for the 2008 annual meeting. Upon any determination that the date of the 2008 annual meeting will be advanced or delayed by more than 30 days from the date of the 2007 Annual Meeting, the Company will disclose that change in the earliest practicable Quarterly Report on Form 10-Q.
SEC rules also govern a company’s ability to use discretionary proxy authority with respect to shareholder proposals that were not submitted by the shareholders in time to be included in the proxy statement. In the event a shareholder proposal is not submitted to the Company on or before November 26, 2007, the proxies solicited by the Board for the 2008 annual meeting of shareholders will confer authority on the proxy holders to vote the shares in accordance with the recommendations of the Board if the proposal is presented at the 2008 annual meeting of shareholders without any discussion of the proposal in the proxy statement for such meeting.
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ANNUAL REPORT ON FORM 10-K
The Company’s annual report to shareholders for the fiscal year ended September 30, 2006 accompanies or has preceded this proxy statement, but is not deemed to be a part of the proxy solicitation material. The annual report contains financial statements of the Company and the report thereon of Deloitte & Touche LLP, the Company’s independent registered public accounting firm.
A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006, as filed with the Securities and Exchange Commission, excluding exhibits, may be obtained without charge by writing to the Corporate Secretary of Unified at the address of Unified’s principal executive office shown on the first page of this proxy statement. The Annual Report on Form 10-K is also available on the SEC’s website at http://www.sec.gov.
| By Order of the Board of Directors |
|
| Robert M. Ling, Jr., |
| Executive Vice President, General Counsel and Secretary |
Dated: January 11, 2007
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PROXY
SOLICITED BY THE BOARD OF DIRECTORS OF
UNIFIED WESTERN GROCERS, INC.
FOR ANNUAL MEETING OF SHAREHOLDERS ON FEBRUARY 13, 2007
The undersigned, revoking any previous proxies respecting the subject matter hereof, hereby appoints PETER J. O’NEAL, ALFRED A. PLAMANN and ROBERT M. LING, JR. attorneys and proxies (each with power to act alone and with power of substitution) to vote all of the Class A Shares and Class B Shares which the undersigned is entitled to vote, at the annual meeting of shareholders of Unified Western Grocers, Inc., to be held on February 13, 2007, or at any adjournment or postponement thereof, as follows:
| 1. | ELECTION OF DIRECTORS. |
Election of Twelve Directors by Class A Shares.
Nominees: Louis A. Amen, John Berberian, Oscar Gonzalez, Mark Kidd , John D. Lang, Jay T. McCormack, John Najjar, Peter J. O’Neal, Michael A. Provenzano, Jr., Thomas S. Sayles, Kenneth Ray Tucker and Richard L. Wright
¨ FOR all nominees listed above,except any whose names are crossed out in the above list (the Board of Directors favors an instruction to vote for all nominees).
¨ WITHHOLD AUTHORITY to vote for all nominees listed above.
Election of Three Directors by Class B Shares.
Nominees: Darioush Khaledi, Douglas A. Nidiffer, and Robert E. Stiles
¨ FOR all nominees listed above,except any whose names are crossed out in the above list (the Board of Directors favors an instruction to vote for all nominees).
¨ WITHHOLD AUTHORITY to vote for all nominees listed above.
| 2. | To transact such other business as may properly come before the meeting or any adjournment thereof. |
The Board of Directors recommends that you vote “FOR” the election of each of the nominees in Proposal No. 1. All proposals to be acted upon are proposals of the Company. If any other business is properly presented at the meeting, including, among other things, consideration of a motion to adjourn the meeting to another time or place in order to solicit additional proxies in favor of the recommendations of the Board of Directors, this proxy shall be voted by the proxyholders in accordance with the recommendation of a majority of the Board of Directors.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED IT WILL BE VOTED “FOR” EACH OF THE NOMINEES LISTED IN ITEM 1 AND ACCORDING TO THE RECOMMENDATION OF A MAJORITY OF THE BOARD OF DIRECTORS ON ANY OTHER PROPERLY PRESENTED MATTERS.
DATED: , 2007
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PLEASE READ: Execution should be exactly in the name in which the shares are held; if by a fiduciary, the fiduciary’s full title should be shown; if by a corporation, execution should be in the corporate name by its chairman of the board, president or a vice president, or by other officers authorized by resolution of its board of directors or its bylaws; if by a partnership, execution should be in the partnership name by an authorized person.
PLEASE COMPLETE, DATE, SIGN AND RETURN
THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE