7M shares for Grace directors

Source: Financial Gleaner, June 7, 2002

AS part of an effort to attract and retain the "best possible" minds at Grace, Kennedy and Company, shareholders will be asked to ratify a plan to reward its 12 directors with seven million shares.

The proposal, made by Professor Gordon Shirley, chairman of the company's compensation committee and an external director of the company, is to be put to shareholders during the annual general meeting on June 25.

The committee has proposed that seven million of the authorised but unissued shares of $1 each be set aside to establish a directors' stock option plan. Up to 6.3 million shares of the total would be allotted to the six executive directors and the remaining 700,000 to the six non-executive or external directors.

Justification for the proposal "is that it is necessary to reward the directors of the company and, in particular, the executive directors, so as to reinforce alignment of the interests of the directors with the interests of the shareholders," Professor Shirley wrote, in a document inserted in Grace, Kennedy's annual 2001 report.

He said "it will also assist in attracting and retaining the best possible persons to work for the company, and encourage them to think long term."

Professor Shirley said the final recommended proposal has been developed from meetings between the compensation and corporate governance committees, as well as with PricewaterhouseCoopers who were engaged as consultants to develop the best possible plan, taking account of international and regional best practices.

The factors taken into account in determining the allocation among the executive directors include the level of responsibility, age and potential value creation for the company. The allocation will be determined by the compensation committee.

With respect to non-executive directors, allocation will be made on an equal basis but all other terms and conditions would be the same as those applicable to the executive directors.

Options will be granted at a price equivalent to the mid-market price on the Jamaica Stock Exchange (JSE) on the day of the original grant.

The plan will be for 10 years with the options vested over the first five years at 20 per cent per year. This means that an executive director who is granted an option of 500,000 shares will vest the option for 100,000 shares each year at the price on the date of the original grant. Therefore, only 100,000 shares will vest and can be exercised at any time after the five-year period up to 10 years after the original grant of the option.

Professor Shirley said that upon resignation, retirement, disability or death, the director or his estate would have the right to exercise the vested but unexercised options. Using the 500,000 shares allocated to an executive director, he explained that if the director resigned during year three, he would be entitled to exercise his option with respect to 300,000 shares. On dismissal, the director would forfeit his right to exercise his option over any vested but unexercised options.

The plan will be managed and administered by the board of directors which can delegate its powers under the plan to the compensation committee.

In September, last year, Grace, Kennedy's board of directors decided to reduce its membership from 22 to 12 following the executive directors' annual retreat. The new board structure became effective on January 1, this year, and comprise the chairman and chief executive officer, the finance director , the divisional directors and six external directors.

Mr. Orane, in a report to shareholders for the upcoming annual general meeting, said a smaller board, coupled with an increasingly higher percentage of external directors, was in keeping with trends of corporate governance practices worldwide.

In November 2000, shareholders approved at an extra-ordinary general meeting a stock offer to Grace, Kennedy's staff in order to encourage an ownership culture among employees. Mr. Orane said the first tranche of the stock offer was made in April 2001 and the response has been very positive.