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OFFICERS AND EMPLOYEES§ 15.103 15-137 THE RATH PACKING COMPANY Sycamore and Elm, Waterloo, Iowa 50703 Proxy StatementFor the Special Meeting of Stockholders December 30, 1980 INTRODUCTION This Proxy Statement is being mailed to stockholders commencing on or about November 20, 1980, i n connection with the solicitation of proxies by the Board of Directors of The Rath Packing Company (the “Company”) to be used at the special meeting of stockholders to be held at the Con Way Civic Center, 200 West Fourth Street, Waterloo, Iowa, at 2:30 p.m. Central Standard Time, on Monday, Decem ber 30, 1980 or at any adjournments thereof. The enclosed proxy may be revoked at any time before it is exercised by written not ice bearing a later date than the proxy, delivered to the Secretary of the Company at its offices at Sycamore and Elm Streets, Waterloo, Iowa 50703, and any stockholder attending the special meeting may vote in person whether or not he has previously filed a proxy. Purpose of the Special Meeting At the annual meeting of stockholders held on June 16, 1980, stockholders ratified, adopted, and approve d the Company’s Employee Stock Wage Payment Plan (the “Wage Plan”) described in the proxy statement for the annual meeting. The Wage Plan was put into effect commencing with the first full employee pay period in July 1980. Under the Wage Plan, participating Company employees become entitled to ten newly issued shares of the Company’s Common Stock in lieu of a $20 portion of each participating employee’s we ekly wages. Approximately 2,300 Company employees are participating in the Wage Plan, and their weekl y earnings of Common Stock will continue until the 1,800,000 shares of Common Stock set aside for the Wa ge Plan have been issued for the benefit of participating employees. At the special meeting, stockholders are being asked to ratify, adopt, and approve a proposed a mendment to the Wage Plan which would allow employees participating in the Wage Pla n to elect to have the shares of Common Stock they would otherwise receive under the Wage Plan contributed to The Ra th Packing Company Employee Stock Ownership Plan and Trust (the “Plan”). This new Plan, which is also being proposed for stockholder approval at the special meeting, is intended to qualify under section 401(a) of the Internal Revenue Code as a cash or deferred stock bonus plan. Both the amendment to the Wage Plan and the new Plan are discussed in greater detail in subsequent sections of this Proxy Statement. Special Considerations Stockholders should recognize that the amendment to the Wage Plan and the new Plan will not require the issuance of additional shares of Common Stock to participants. The amendment to the Wage § 15.103PROXY STATEMENTS: STRATEGY & FORMS 15-138 © 1985 Jefren Publishing Company, Inc. Plan and the new Plan will merely provide Company employees with alternatives as to the manner in which they will receive shares of Common Stock to which they become entitled under the original Wage Plan approved by stockholders at the annual meeting on June 16, 1980. OFFICERS AND EMPLOYEES§ 15.103 15-139 The amendment to the Wage Plan and the new Plan are expected to result in substantial tax savings to the Company and its employees. See “Cost of the Plan” and “Federal Income Tax Considerations” below. Stockholders should note that the Plan being proposed for stockholder approval will also have the effect of concentrating employee ownership and voting power of the 1,800,000 shares of Common Stock acquired by employees under the Wage Plan. Although it is uncertain how many shares of Common Stock ultimately will be held under the Plan, it is estimated that the Plan and its employee parti cipants could exercise between approximately 43% and approximately 60% of the voting power with respect to all shares of Common Stock expected to he outstanding at the close of the period of distribution of Common Stock under the Wage Plan. Stockholders should consider, among other things, that cumulative voting is not available for the election of directors of the Company, with the result that stockholders representing a majority of voting power of all shares entitled to vote for the election of director s may elect all directors, and the remaining stockholders would not be able to elect any directors. B ecause the Plan will distribute benefits to participants in the form of Common Stock, the ability of the Plan to retain a significant ownership interest in the Company will depend upon the extent of employee elections to defer and have contributed to the Plan cash wages and salary with which the Plan may purchase additional shares of Common Stock on the open market. See “Nature and Purpose of the Plan” below. The Plan will not become effective, and no shares of Common Stock will he contributed to the Plan, unless the amendment to the Wage Plan and the Plan are ratified by a majority of the Company’s stockholders present and entitled to vote at the special meeting. The continuation of the Plan is also dependent upon its ratification by collective bargaining units participating in the Wage Plan and is dependent upon the receipt of a favorable determination by the Internal Revenue Service that the Plan is qualified and the Trust is exempt under sections 401(a) and 501(a) of the Internal Revenue Code. If such a determination is not forthcoming, all shares of Common Stock contributed to the Plan will be distributed to participants immediately, and income and FICA taxes will he imposed on participants and the Company with respect to amounts contributed to the Plan. The shares represented by all properly executed proxies received in time for the spe cial meeting will be voted in accordance with the specification made therein. When no specification i s made, the proxy will be voted in favor of the amendment to the Wage Plan and the new Plan and in the best judgm ent of the proxy holder on any other matter that may properly come before the meeting. Voting Securities and Principal Holders The Board of Directors has fixed November 14, 1980 as the record date for the determination of stockholders entitled to receive notice of, and to vote at, the special meeti ng. As of such date, there were issued and outstanding 1,573,170 shares of Common Stock, which is the only class of security entitled to vote at the meeting, comprised of 1,192,750 shares issued and outstanding as of June 30, 1980, plus 380,420 additional shares issued for employees pursuant to the Wage Plan for pay periods prior to the record date for the special meeting. The 380,420 shares of Common Stock earned by employees under the Wage Plan as of Nove mber 14, 1980 are being held by a nominee for the beneficial owners of those shares. Such shares will be voted at the special meeting only in accordance with each individual beneficiary’s directions t o the nominee, and no shares will be voted for which the beneficiary’s designation has not been effectively made. No person is known by management of the Company to own beneficially more than 5% of the total number of share s of Common Stock outstanding. Manner and Cost of Solicitations It is expected that solicitations will be made only by mail at the Compa ny’s expense. The Company has also retained Georgeson & Co., Inc., Wall Street Plaza, New York, New York 10005, to assist wit h the § 15.103PROXY STATEMENTS: STRATEGY & FORMS 15-140 © 1985 Jefren Publishing Company, Inc. solicitation of proxies, for which that firm will be paid a fee of $4,000 plus expenses. If it a ppears necessary or advisable, proxies may be solicited by directors or employees of the Company (without any a dditional compensation to them) or by representatives of Georgeson & Co., Inc., personally or by telephone and telegraph at the Company’s expense. The Company will reimburse brokers and other persons holding stock in their names, or in the names of nominees, for their expenses in sending proxy materials to principa ls and beneficial holders. OFFICERS AND EMPLOYEES§ 15.103 15-141 AMENDMENT TO THE WAGE PLAN The Wage Plan The Wage Plan approved by stockholders at the annual meeting held on June 16, 1980, was establ ished pursuant to an agreement dated May 13, 1980 between the Company and Local 46, United Food and Commercial Workers International Union, AFL-CIO (“Local 46”). The terms of the Wage Plan, as ratified by Local 46 and other local units, were incorporated into the master collective ba rgaining agreement between the Company and the United Food and Commercial Workers International Union, AFL-CIO (the “Internati onal Union”). Accordingly, all present and future employees of the Company represented by a collect ive bargaining agent included in that master collective bargaining agreement participate in the Wage Plan as currently in effect or as amended from time to time. Approximately 2,223 employees of the Company partici pate in the Wage Plan on a bargaining unit basis, and an additional 77 employees not represented by a collect ive bargaining agent are participating in the Wage Plan on a separate basis by reason of their individual elections to participat e. Pursuant to the Wage Plan currently in effect, a $20 portion of each participating em ployee’s weekly wages is being paid in shares of the Company’s Common Stock to the participating e mployee. Each participating employee earns ten shares of Common Stock each week in lieu of $20 of his weekly wages which would otherwise have been paid to the employee in cash. An aggregate of 1,800,000 shares of Comm on Stock has been set aside for the Wage Plan, and it is estimated that it will t ake until approximately March 1982 to distribute all those shares. In general, an employee participating in the Wage Plan must continue his weekly earnings of Common Stock until all 1,800,000 shares set aside for the Wage Plan are distribute d to participating employees unless the participant’s employment with the Company is terminated prior to that time. Weekly earnings of Common Stock under the Wage Plan result in current income to eac h participating employee as compensation for services, taxable at ordinary rates and subject to withhol ding by the Company for federal income tax purposes. In addition, these wages are taxable under the Federal Insurance Contributions Act (“FICA”) for Social Security taxes computed as a percentage of each employee’s wages up to a maximum level. The amount of wage income received by participating employees and subject to t ax on account of the receipt of Common Stock under the existing Wage Plan is the fair market value of the Common Stock received by them at the time of receipt. For example, when the fair market value of Common Stock is $4 per share, a weekly acquisition of ten shares in lieu of cash wages would result in $40 of taxable incom e, even though the shares of Common Stock are acquired in lieu of what otherwise would be only $20 of cash wages. Under the current Wage Plan, the Company is entitled to a deduction for federal inc ome tax purposes equal to the fair market value of the shares of Common Stock issued to the employee s as wages. The Company is also required to pay the employer’s share of FICA applicable to the fair market va lue of the Common Stock paid as wages. The principal objective of the proposed amendment to the Wage Plan i s to afford participating employees an opportunity to defer their earnings under the Wage Plan, which is expecte d to reduce the tax costs both to employees and the Company resulting from the Wage Plan. Proposed Amendment to the Wage Plan Under the Wage Plan currently in effect, participating employees are regarded as ha ving received compensation equal to the fair market value of the shares of Common Stock earned by them each week. In order to reduce the tax cost of the Wage Plan to participating employees, and to reduce the Company’s FICA tax obligations, Local 46 and the Company have authorized an amendment to the Wage Pla n, subject to stockholder approval and ratification by members of collective bargaining units, which will al low participating employees to elect to have their shares of Common Stock earned under the Wage Plan contribute d on their behalf to the Plan described in subsequent sections of this Proxy Statement. Those participating employees who do not elect to have their shares of Common Stock contributed to the Plan will continue to earn shares of Common Stock under the Wage Plan as before, which shares will be issued directly to such participants on a quarterly basis and § 15.103PROXY STATEMENTS: STRATEGY & FORMS 15-142 © 1985 Jefren Publishing Company, Inc. in any event prior to any record date for a meeting of stockholders. Accordingly, the effect of the amendment to the Wage Plan will be to allow participating employees to make a choice as to the manner in which their shares of Common Stock are credited to them. OFFICERS AND EMPLOYEES§ 15.103 15-143 The elections provided for participating employees under the Wage Plan as proposed to be amended must be made by a collective bargaining agent on behalf of those employees now parti cipating in the Wage Plan on a bargaining unit basis. Participating employees not represented by a collecti ve bargaining agent will be permitted to make the same election on an individual basis. All participants in the Wage Plan are expected to be asked to make their elections during December 1980. For that purpose, the Company intends t o file with the Securities and Exchange Commission during November 1980, a Registration Statement on Form S-8 as required under the Securities Act of 1933. Effective Date of the Amendment The proposed amendment to the Wage Plan will become effective upon the later of January 1, 1981 or upon the date that stockholder approval of the amendment is obtained. The effective da te of the Plan is also January 1, 1981. Accordingly, no contributions of Common Stock into the Plan will be made before Janua ry 1, 1981. As outlined below, however, employees electing to participate in the Plan m ay also elect to contribute to the Plan those shares of Common Stock earned by them under the Wage Plan prior to January 1, 1981 once the Plan becomes effective. DESCRIPTION OF THE PLAN The major features of the Plan are summarized in the following sections of this Proxy Sta tement. The description of the Plan, however, is not intended to be a complete statement of all aspects of the Plan, and is qualified in its entirety by reference to The Rath Packing Company Employee Stock Ownership Plan and The Rath Packing Company Employee Stock Ownership Trust Agreement, which together constitute the Plan. Copies of these documents will be provided without charge, upon the written request of any person e ntitled to vote at the special meeting of stockholders. Such requests should be directed to Mr. John H. Stevens, Secretary, The Rath Packing Company, Sycamore and Elm Streets, Waterloo, Iowa 50703. Nature and Purpose of the Plan The Plan was adopted by the Executive Committee of the Company on October 17, 1980, pursuant to authority delegated by the Board of Directors at its meeting on September 17, 1980. A primary objective of the Plan is to provide Company employees with a means of deferring income taxes that would otherwise become due on account of an employee’s receipt of Common Stock under the existing Wage Pl an. The Plan is intended to be a “qualified plan” under the Internal Revenue Code. All amounts contributed t o the Plan by the Company for the benefit of any employee will be the direct result of that employee’s ele ction to have these amounts contributed to the Plan on his behalf rather than taking them in cash or property as wa ges or salary. See “Company Contributions to the Plan” below. If Common Stock earned by an employee under the Wage Plan is contributed by the Company to a qualified plan, such as the Plan is intended to be, a n employee would not be subject to federal income tax on Common Stock contributed by the Company until such ti me as the employee receives a distribution of his benefits from the qualified plan. Consequently, the Plan, if it is a qualified plan, will have the effect of deferring to later years the federal income taxes of part icipants in the Wage Plan resulting from a receipt of the Common Stock. If the Plan is a qualified plan, the Company and employees will also benefit from the incidental reduction of FICA taxes that would otherwise accrue on am ounts contributed to the Plan. The continued operation of the Plan is dependent upon receipt by the Company of an Internal Revenue Service determination that the Plan is a qualified plan. See “Federal Income Tax Considerations” below. A second objective of the Plan is to consolidate the ownership and control of shares of Common Stock acquired and to be acquired by employees under the Wage Plan. An aggregate of 1,800,000 share s of Common Stock will be distributed to or for the benefit of employees under the Wage Plan, which will be in excess of 60% of the total number of shares of Common Stock expected to be outstanding at the close of the distribution period during which the Wage Plan is in effect. The Plan will enable employee s earning Common Stock under the Wage Plan to have that stock contributed to the Plan on their behalf or to c ontribute Common Stock directly § 15.103PROXY STATEMENTS: STRATEGY & FORMS 15-144 © 1985 Jefren Publishing Company, Inc. as an employee contribution. See “Company Contributions to the Plan” and “Employee St ock Contributions” below. If all employees participating in the Wage Plan elect to OFFICERS AND EMPLOYEES§ 15.103 15-145 participate in the Plan, it is estimated that between approximately 1,300,000 and approximately 1,800,000 shares of Common Stock may be held by the Plan, depending upon the level of employee contri butions of Common Stock earned by employees under the Wage Plan prior to January 1, 1981. See “Empl oyee Stock Contributions” below. That number of shares would represent between 43.4% and 60.1% of all shares of Common Stock expected to be outstanding at the close of the distribution period under the Wage Plan. Additionally, to the extent that cash contributions are made to the Plan subsequent t o the close of the distribution period under the Wage Plan, the Plan may acquire shares of Common Stock in the open market to enhance employee ownership of the Company. See “Company Contributions to the Plan” below. All cash or property contributed to the Plan will be held in the Trust established in connection with the Plan and will be maintained by a Board of Trustees for the exclusive benefit of empl oyee participants. Generally, the Board of Trustees is selected by participants in the Plan and consist s solely of Company employees. See “Administration of the Plan” below. Shares of Common Stock contributed to the Plan, and shares acquired out of cash contributions to the Plan, will be held until distributions are made to employees under the Plan. See “Determination and Distribution of Benefits Under the Plan” below. Whi le such shares are held by the Plan, they will be voted by the Board of Trustees under the Plan, subject t o the rights of participants to direct the voting of such shares. See “Exercise of Voting Rights on Common Stock” below. The Plan provides for a distribution of shares of Common Stock to participants once they becom e entitled to a distribution from the Plan. See “Determination and Distribution of Bene fits Under the Plan” below. Accordingly, unless significant cash contributions are made to the Plan in future years t o allow open market purchases by the Plan of Company Common Stock, the Plan will be unable to maintain i ts original level of ownership of Common Stock. Under the Internal Revenue Code, distributions must be made to part icipants in the form of shares of Common Stock rather than in cash, although legislation has been introduc ed which would allow cash distributions under certain circumstances. If such a law were enacted, it is likely that the Plan would be amended to provide for distributions to participants in cash rather than Common St ock under the terms of the law. However, the ability of the Plan to maintain its significant investment in Common Stock would continue to be dependent upon significant cash contributions to the Plan in future years. Although the Plan may result in tax savings to the Company and its employees (see “Cost of the Plan” and “Federal Income Tax Considerations” below), stockholders should recognize that the Plan i s likely to result in a significant concentration of ownership of Common Stock of the Company, and employees of the Company will be permitted to direct the voting of those shares. See “Exercise of Voting Rights on Common Stock” below. Stockholders should consider, among other things, that cumulative voting is not available in the election of directors of the Company, with the result that stockholders representing a majority of the voting power of all shares entitled to vote for the election of directors may elect all direct ors, and the remaining stockholders would not be able to elect any directors. Participation in the Plan During the period of distribution of 1,800,000 shares of Common Stock under the Wage Plan, only those employees who participate in the Wage Plan will be eligible to participat e in the Plan. Employees participating in the Wage Plan include those present and future employees covered by a collective bargaining agreement containing a provision for participation in the Wage Plan and employees not covered by a collective bargaining agreement who have elected to participate in the Wage Plan on an individual basis. Wage Plan participants may elect to participate in the Plan in a manner similar to their ele ction to participate in the Wage Plan. Employees participating in the Wage Plan on a collective bargaining unit basis may ele ct to participate in the Plan through ratification of a provision in the applicable collective bargaining agreement c alling for participation in the Plan. Wage Plan participants not subject to collective bargaining agreements may el ect to participate in the Plan by execution of an individual election to participate. § 15.103PROXY STATEMENTS: STRATEGY & FORMS 15-146 © 1985 Jefren Publishing Company, Inc. Following the close of the period of distribution of 1,800,000 shares of Common Stock under the Wage Plan, each employee of the Company who is not already a participant will become eligible to participate in the Plan. Employees subject to a collective bargaining agreement already providing for pa rticipation in the Plan will continue as participants in the Plan in the manner called for by the applicabl e collective bargaining agreement. Employees in collective bargaining units that did not previously participate in the Plan may also elect to commence participation in the Plan, following the close of the Wage Plan distribut ion period, upon the inclusion in the applicable collective bargaining agreement of a provision call ing for participation in the Plan on a bargaining unit basis. Following the close of the distribution period under the Wage Plan, all Company employees not represented by a collective bargaining agent will become participa nts in the Plan upon their election to participate if they were not previously participants in the Plan. Company Contributions to the Plan A Wage Plan participant who elects to participate in the Plan will have directed the Company to contribute to the Plan on his behalf all shares of Common Stock that he would become entitled to under the Wage Plan for pay periods subsequent to January 1, 1981. Following the close of the distribution of Com mon Stock under the Wage Plan, the Company will contribute to the Plan on behalf of each participant only that amount of his compensation which the employee elects to have contributed to the Plan rather than receiving that amount as cash wages or salary. Accordingly, cash amounts contributed to the Plan on behalf of employees will not be additional compensation in excess of the participant’s wages and salary but wil l be a deferral of a portion of wages and salary that would otherwise be payable directly to the employees. Employee s participating in the Plan on a collective bargaining unit basis will be permitted to make this e lection only as a collective bargaining unit. Non-bargaining unit employees participating in the Plan by reason of their individual elections will be allowed to make the election on a similar individual basis. The cash amounts c ontributed to the Plan on behalf of employees will be limited to an amount not greater than the amounts specifie d in the master collective bargaining agreement between the Company and the International Union. Employee Stock Contributions The Wage Plan became effective in July 1980. Although the new Plan will not become effective until January 1, 1981, shares of Common Stock will continue to be earned by Wage Plan participants up to January 1, 1981. The Company estimates that, in the aggregate, approximately 500,000 shares of Common St ock will have been earned by Company employees under the Wage Plan prior to January 1, 1981, and these sha res will not be contributed to the Plan as a Company contribution. The Plan allows each partici pant to contribute to the Plan on his own behalf at any time, all or any portion of the Common Stock earned by him under the Wage Plan prior to January 1, 1981 or prior to any subsequent date upon which he commences participation in the Pla n. Participants’ elections to contribute to the Plan those shares of Common Stock alrea dy earned must be made on an individual basis regardless of collective bargaining unit affiliations. See also “E mployee Contributions” under the heading “Federal Income Tax Considerations” below. Allocation of Plan Contributions Amounts contributed to the Plan by or on behalf of a participant will be held for the ac count of the participant until distributed to him following the termination of his employment wit h the Company. See “Determination and Distribution of Benefits Under the Plan” below. Cash or property contributed to the Plan by the Company generally will be allocated to participants’ accounts as of Decem ber 31 each year, according to contributions made on their behalf during that year. Contributions to the Plan in the form of Common Stock will be allocated among partic ipants’ accounts according to the number of shares earned by each participant and contributed to the Pl an during the year. Common Stock will be allocated among participants’ accounts for record-keeping purposes only, and shares may be allocated and reallocated from a participant’s account to another as a result of periodic alloca tions OFFICERS AND EMPLOYEES§ 15.103 15-147 of net income or loss of the Trust from investment of the Plan assets. Accordingly, particular shares of Common Stock contributed to the Plan will not belong to any individual participant. Contributions to the Plan in the form of cash will be allocated among participants’ accounts according to the actual cash amount that the participant elects to have contributed by the Company to the Plan rather than paid to the employee as cash wages or salary. The allocation mechanism described above is subject to the limitations on cont ributions set forth in section 415 of the Internal Revenue Code and related regulations. In general, section 415 l imits the amounts that can accrue to the benefit of an employee participant under all employee benefi t plans sponsored by the Company in which the employee participates during the year. See “Retirement and Pension Plans of the Company” below. In the event that any portion of an employee’s total benefits under the Plan and other Company plans exceeds the limitation imposed by section 415 for any year, the Plan require s that contributions made to the Plan during the year will be returned to the participant or reduced a s necessary to meet the limitation of section 415. Investment of Plan Assets The assets held under the Plan will consist primarily of shares of Common Stock. Cash contributions, if any, held by the Plan may be invested in savings accounts, certificates of deposit or high-gra de short-term securities, and funds required for short term obligations of the Plan may be held in non-interest bearing bank accounts. Generally, however, cash contributions to the Plan will be used to purchase additi onal shares of Common Stock to be distributed as benefits to participants. Such purchases of Common Stock would be made on the open market or from the Company at prices no greater than the fair market value of the shares purchased. Determination and Distribution of Benefits Under the Plan All amounts allocated to a participant’s account under the Plan become distri butable to the participant only following termination of his employment with the Company for any reason. The value of a participant’s benefit under the Plan will be determined as of the December 31 coinciding with or immediately following the termination of his employment and will be subject to re-valuation as of each Dece mber 31 thereafter until his benefit is fully distributed. A participant’s benefit will be distributed in the form of shares of Common Stock, with the value of any fractional shares being paid in cash. Normally, a participant’s distribution will not commence earlier than five years a fter the date the participant commenced participation in the Plan, regardless of when his termination of employment occurred, although the Board of Trustees, at its discretion, may accelerate or postpone the c ommencement of the distribution to a participant. In any event, the distribution of a participant’s benefit under the Plan must commence not later than the sixtieth day following the close of the calendar yea r in which occurs the latest of (1) the participant’s termination of employment, (2) his attainment of age 65, or (3) the tenth anniversary of the year in which he commenced participation in the Plan. Once a participant’s distribution from the Plan is required to commence, the actua l distribution may be made either in a lump sum or in installments payable over a period not to e xceed five years not less frequently than annually. A participant is entitled to indicate which method of distribution is perferred, but the actual determination of how the distribution will be made is subject to the discretion of the Board of Trustees. The timing and form of distributions from the Plan to participants could have a significa nt impact upon thc degree of voting powcr the Board of Trustees may exercise with respect to shares of Common Stock held under the Plan. Accordingly, the Board of Trustees could be expected to defer thc commencem ent of a participant’s distribution to the latest allowable date and could be expected to make that distribution over the full five-year installment period permitted under the Plan. § 15.103PROXY STATEMENTS: STRATEGY & FORMS 15-148 © 1985 Jefren Publishing Company, Inc. Assignment of Interest and Designation of Beneficiary A participant may not assign in any way his interest under the Plan. Nevertheless, ea ch participant may designate a beneficiary to receive his distribution from the Plan in the event of t he participant’s death prior to distribution. Amendment or Termination of the Plan The Company may amend or terminate the Plan at any time so long as no portion of the assets held under the Plan are thereby used for, or directed to, purposes other than for the exclusive benefit of participants in the Plan. The Internal Revenue Service may require some amendments to be ma de to the Plan prior to giving its determination that the Plan is a qualified plan and the Trust is exem pt under the provisions of sections 401(a) and 501(a) of the Internal Revenue Code. See “Federal Income Tax Considerations” below. The Company is unable, in advance of the proposal of any amendment to the Plan, to determine whether it would seek ratification or approval thereof by its stockholders. If the Internal Revenue Service fails to issue a favorable determination as to the qualification of the Plan and exemption for the Trust under sections 401(a) and 501(a) of the Internal Revenue Code, the Pl an will automatically terminate, and participants’ accounts will be distributed imm ediately. Should the Plan be terminated for any reason during the period of distribution of Common Stock under the Wage Pla n, shares of Common Stock thereafter earned by employees under the Wage Plan would be distributed dire ctly to those employees. A failure in the qualification of the Plan would result in the impositi on of income and FICA taxes with respect to amounts contributed to the Plan. It is also likely that, in t he event of any termination of the Plan, a large number of shares of Common Stock would be distributed into the public market in a very short period of time, which could affect the market price of Common Stock. Administration of the Plan The Plan will be administered by a Board of Trustees, consisting initially of five persons. The initial trustees, selected by Local 46, are Earl Murray, Phyllis Walters, Ralph Kimmerle, L arry Wrede, and James Anderson. Beginning with the first annual meeting of Plan participants in 1981, members of the Board of Trustees will be elected for a one year term by a vote of participants. All mem bers of the Board of Trustees are required to be participants in the Plan and may not be officers, agents, or representati ves of any employee collective bargaining agent. In general, the Board of Trustees is responsible for investing assets held under the Plan, administering and interpreting the Plan, determining eligibility of participants, determining the amount and timing of distributions of benefits under the Plan, and determining the validity of claims under the Plan. The Board of Trustees is also empowered to exercise on behalf of participants all ownershi p rights over shares of Common Stock held under the Plan, including the exercise of voting power with respect t o those shares. See “Exercise of Voting Rights on Common Stock” below. Exercise of Voting Rights on Common Stock Under the Plan, the Board of Trustees is empowered to vote all Common Stock held under the Plan on all issues with respect to which the holders of the Company’s Common Stock are entit led to vote. However, the Plan specifically provides that prior to any annual meeting of stockholders of the Company, a meeting shall be held among the participants in the Plan at which time the participants may direct the Board of Trustees as to the voting of Common Stock held under the Plan on any issue scheduled to arise at the annual meeting. The Plan provides the terms of notice to the participants of any scheduled meeting, the manner in which participants vote at such meetings and the ability of any participants to initiate the ca lling of meetings or the raising of issues at these meetings. Cost of the Plan’ OFFICERS AND EMPLOYEES§ 15.103 15-149 The Wage Plan was originally proposed as one of a series of coordinated programs designed to permit the enhanced utilization of up to $17 million in working capital by the Company over a three year period. The Wage Plan will have the effect of reducing the Company’s cash payroll obligations by a n aggregate of $3.6 million over the period of distribution of 1,800,000 shares of Common Stock set aside for the Wage § 15.103PROXY STATEMENTS: STRATEGY & FORMS 15-150 © 1985 Jefren Publishing Company, Inc. Plan. The related arrangements generally involve commitments by Company employees to defer, and make contingent upon annual profitability of the Company, certain fringe benefits and portions of hourly wa ge increases due in 1979 and 1980. The amendment to the Wage Plan and the new Plan proposed for stockholder approval are not e xpected to result in increased employment costs for the Company during the period of distribution of 1,800,000 shares of Common Stock pursuant to the Wage Plan. As outlined above, cash contributions to the Pla n on behalf of participating employees may be made after the completion of the Common Stock di stribution under the Wage Plan, although such cash contributions will be made only out of employee elections to defer into the Plan wages or salaries that would otherwise be payable in cash directly to the employee. If the Plan is a qualified plan within the meaning of section 401(a) of the Internal Revenue Code, that amount of employee wages that is deferred and contributed to the Plan, either i n the form of Common Stock or cash, will continue to be deductible by the Company as an ordinary expense for income ta x purposes, but will not be subject to the employer’s share of FICA taxes that would otherwise be payable by the Company. The employer’s share of FICA taxes payable during 1981 will be 6.65% of each employee’s taxable i ncome up to $29,700 per year. Employees who have contributions made to the Plan on their behalf will ha ve reduced taxable income, with the result that the Company’s FICA obligation will also be reduced. If al l employees now participating in the Wage Plan were to elect to participate in the ne w Plan, and assuming that the market price of the Company’s Common Stock remains at its recent level of approximately $4.50 per share , it is estimated that the Company’s FICA tax obligations would be reduced by approximately $390,000 during the remai ning period of distribution of Common Stock under the Wage Plan. Savings of FICA taxes may also accrue to the benefit of the Company to the extent that cash contributions to the Plan are made on behalf of employees. The Company is obligated to pay all reasonable and necessary expenses of administrat ion of the Plan during the period of distribution of Common Stock under the Wage Plan, other than office rental a nd personnel costs and other than normal brokerage charges incurred in investment of assets held under t he Plan. Following the close of the distribution period under the Wage Plan, the Company will not be obl igated to pay expenses of the Plan in any year in excess of a budgeted amount fixed by mutual agreement between the Company and the Board of Trustees each year. It is estimated that expenses of administration of the Plan should not exceed $50,000 per year, and the portion of those expenses not paid by the Company will be charged against the assets of the Plan. FEDERAL INCOME TAX CONSIDERATIONS The Company has applied for an Internal Revenue Service determination that the Pl an is qualified and that the Trust is tax-exempt under the Internal Revenue Code of 1954. It is anticipat ed that the Internal Revenue Service will issue this determination, although no assurances can be given that it wi ll do so, and it is not possible to predict when such determination will be forthcoming. If that determination from the Internal Revenue Service is not obtained, the Plan will automatically terminate a nd its assets will be distributed to participants, and income and FICA taxes would be imposed upon participants and the Company wi th respect to these amounts contributed to the Plan as Company contributions. Thereafter, Common Stock ea rned under the Wage Plan would be distributed directly to employees participating in the Wage Plan, and none of the advantageous tax effects intended in connection with the Plan would be available . Assuming qualification of the Plan as requested, the principal federal income tax consequences will be as follows: Company Contributions The Company will be entitled to a federal income tax deduction for contributions to the Plan. The amount of the deduction will be equal to the fair market value of each contribution of Common Stock or the OFFICERS AND EMPLOYEES§ 15.103 15-151 amount of cash contributed. These contributions will not be taxable to participants in the Plan at the time these contributions are made or at the time they are used to purchase Common Stock of the Company. § 15.103PROXY STATEMENTS: STRATEGY & FORMS 15-152 © 1985 Jefren Publishing Company, Inc. Under the Wage Plan, employees agreed to forego $20.00 per week in wages and salaries and i nstead receive ten shares of Common Stock having an assumed value of $2.00 per share. In the absence of t he Plan, the employees would be taxed immediately on the fair market value of the Common Stoc k at the time it is received. Assuming the market value of Common Stock remains at its recent level of approximate ly $4.50 per share, it is projected that the Plan would enable participating employees to defer approximatel y $1,500,000 in federal income taxes that would otherwise become due on account of employee acquisitions of Com mon Stock under the Wage Plan after January 1, 1981. Employee Contributions An employee will not be entitled to any tax deduction for his own voluntary Common Stock contributions to the Plan. All shares of Common Stock recieved by employees under the Wage Plan prior to the effectiveness of the Plan will be taxable to the extent of the fair market va lue of such shares at the time of receipt, whether or not the employee elects to contribute those shares to the Pla n. See “Employee Stock Contributions” above. Plan Income Dividends and any other income received by the Plan will not be taxable to a participant when these dividends or other income are earned or received by the Plan. In addition, the Plan will not be subject to tax on these dividends or other income because the Trust will be a tax-exempt trust. Distributions The tax treatment of a distribution of a participant’s benefit from the Plan wil l depend on whether the distribution qualifies as a “lump sum distribution” under the Internal Revenue Code. In gene ral, to so qualify, the distribution must represent the total balance to a participant’s account under t he Plan which has become payable either (1) on account of his death or termination of employment with the Company or (2) after he has attained age 59 1/2, and must be received within a single taxable year of the recipient. If the payment is not made by reason of the participant’s death, it will qualify as a lump sum distributi on only after he has participated in the Plan for five or more taxable years before the taxable year in which the distribution is made . The taxable portion of a distribution is determined by subtracting any voluntary contributions which the participant made to the Plan from the value of the shares of Common Stock (and cash) distributed to him. In the case of a lump sum distribution, if the shares distributed from the Plan have increase d in value from the time they were acquired by the Plan until the time they are distributed, this increa se (called “net unrealized appreciation”) will not be subject to tax at the time of distribution. The reci pient will therefore be taxed at the time of distribution only on the portion of a lump sum distribution representing the price paid for the Common Stock by the Plan (or the fair market value of the Common Stock at the time it was contributed to the Plan by the Company) and any cash included in the distribution as payment in lieu of a fractional share of Common Stock. This amount so taxable will be treated as ordinary compensation income and wil l be eligible for a special ten year averaging method of taxation if elected by the recipient. Also, if t he participant establishes an individual retirement account (“IRA”), and transfers the amount of his distribution from the Plan to the IRA within 60 days of the date he receives the distribution, no amounts will be included i n his gross income at that time. If the participant receives a distribution which is not qualified as a lump sum dist ribution, he will be taxed on the amount by which the value of any Common Stock and cash distributed exceeds (1) the amount of his contributions to the Plan, and (2) the net unrealized appreciation, if any, with respec t to only those distributed shares which consisted of or were purchased by his own contributions. Thus, any net unrealize d appreciation attributable to Common Stock which resulted from, or which were purchased wi th, the Company’s contributions or with dividends or other trust income will be included in his taxable incom e. This amount OFFICERS AND EMPLOYEES§ 15.103 15-153 includable as taxable income will be treated as ordinary compensation to the recipient and will not be eligible for the ten year averaging method which is available in the case of a lump sum di stribution. In addition, this amount cannot be transferred tax-free to an IRA. The Board of Trustees will determine the manner in which a participant’s benefits are distributed from the Plan, and the Board of Trustees should not be expected to make distributions qualifying as a lump sum. See “Determination and Distribution of Benefits Under the Plan” above. OFFICERS AND EMPLOYEES§ 15.104 December 1986/January 1987/February 198715-147A If the value of any shares of Common Stock distributed (plus any cash) is less than the amount of the participant’s own contributions to the Plan, he will not have any tax liability with respect to the distribution whether or not the distribution qualifies a s a lump sum distribution. However, no loss will be recognized for tax purposes at the time of distribution. Subsequent Sale of Distributed Shares If the participant sells shares of Common Stock which are distributed from the Plan, he will recognize capital gain or loss on the sale measured by the difference betwe en the amount received and his basis for the shares sold. In general, his basis for shares distributed from the Plan will be equal to the amount of his own contribution to the Pl an plus the amount subject to tax upon distribution of the shares to him from the Plan. The portion of the gain on a sale attributable to the net unrealized appreciation wi ll be treated as long-term capital gain. The balance of any gain will be treated as long-te rm or short- term capital gain, depending upon whether the participant has held the shares prior to sale for more than one year. § 15.104 To ratify Change of Control Agreements between the corporation and two executive officers which provide that if the executive officers remain in the employ of the corporation for at least 3 months immediately following a change of control of the corporation, each will receive a specified amount as a lump sum payment, but if either terminates his employment during such 3 month period, he will not be entitled to such payment(with a copy of the Change of Control Agreement) PROPOSAL NO. 2: RATIFICATION OF CHANGE IN CONTROL AGREEMENTS In General. The Board of Directors of the Company has unanimously authorized the Company to enter into change in control agreements (the “Change in Control Agreements” ) with two (2) executive officers of the Company. The Change in Control Agreements would provide for the payment of certain benefits to such executive officers of the Company in the event of a change in control of the Compa ny, as more fully discussed below under “PROPOSAL NO. 2: RATIFICATION OF CHANGE IN CONTROL AGREEMENTS— Change in Control Agreements:’ There has been a recent trend toward the accumulation of substantial stock positions in public companies as a prelude to proposing a takeover or a restructuring or liquidation of all or part of the company or other similar extraordinary corporate actions. Such actions are ofte n undertaken without consultation with company management and without advance notice prior to a shareholder’s public filing after it has acquired five percent (5%) or more of the compa ny’s stock. The Board of Directors recognizes that the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it woul d necessarily raise among management, could result in the departure or distraction of management personnel to the detriment of the Company and its shareholders during a peri od when their undivided attention and commitment to the best interests of the Compa ny and its shareholders would be particularly important. Accordingly, the Board of Directors has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Company’s management to their assigned duties wit hout dis- § 15.103PROXY STATEMENTS: STRATEGY & FORMS 15-8 © 1985 Jefren Publishing Company, Inc. traction in the face of potentially disturbing circumstances arising from the possibili ty of a change in control of the Company. Additionally, the Board of Directors believes that the potential threat of removal of the Company’s management in such situations would severely curtail management’s ability to negotiate effectively with such purchaser. Management would be deprived of the time and information necessary to evaluate the takeover proposal, to study alternative proposals, a nd to ensure that any transaction that may ultimately occur would be in the best inte rests of the Company and all of its shareholders. The Change in Control Agreements would promote conditions of continuity and stability in the Company’s business, management, and policies, as well as reduce the threat of potential removal of the Company’s management, in the event of a change in control of the Company, thereby helping to ensure that there would be sufficient time and information to review any proposal, and appropriate alternatives thereto, and to negotiate on behalf of the Company and its shareholders from a position of strength.