<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FABRI-CENTERS OF AMERICA, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FABRI-CENTERS OF AMERICA, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:________
(2) Aggregate number of securities to which transaction applies:___________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:____________________________________
(4) Proposed maximum aggregate value of transaction:_______________________
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid: $125.00
(2) Form, schedule or registration statement no.: Preliminary Proxy
Statement.
(3) Filing party: Fabri-Centers of America, Inc.
(4) Date filed: May 19, 1995
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<PAGE> 2
[FABRI-CENTERS OF AMERICA, INC. LETTERHEAD]
Dear Fellow Shareholder:
You are cordially invited to attend Fabri-Center's Special Meeting in Lieu
of the Annual Meeting of Shareholders at 1:00 p.m., Eastern Time, Wednesday,
August 2, 1995 at the Company's Corporate Offices, 5555 Darrow Road, Hudson,
Ohio. A notice of the meeting and proxy statement and proxy card follow this
letter.
At this year's meeting, in addition to the normal election of Directors,
you are being asked to vote upon a proposed amendment to the Company's Articles
of Incorporation (the "Recapitalization Amendment"), which would, among other
things, (i) create two classes of common stock, one voting class designated as
Class A Common Shares and a new nonvoting class designated as Class B Common
Shares and (ii) change each issued share of the Company's existing Common Shares
into (a) one Class A Common Share and (b) one Class B Common Share. The Class A
Common Shares would have essentially the same voting rights as the existing
Common Shares, and the Class B Common Shares would be nonvoting, except as
otherwise required by law. The specific features of the two classes are
described in the accompanying proxy statement. The amendment requires a majority
vote of all outstanding Common Shares.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE AMENDMENT IS IN THE BEST INTEREST
OF THE COMPANY AND ITS SHAREHOLDERS AS WE GO FORTH INTO THE FUTURE AND
RECOMMENDS A VOTE "FOR" APPROVAL OF THE RECAPITALIZATION AMENDMENT. The reasons
for the Board's recommendation, its potential advantages and disadvantages, and
other information as to the effects of the Recapitalization Amendment on
existing shareholders, including management and members of the founding families
of the Company, are contained in the accompanying proxy statement.
It is important that your shares be represented and voted at the meeting,
regardless of whether or not you plan to attend in person. I urge you to review
the proxy statement carefully and to vote, sign, date and mail the enclosed
proxy in the envelope provided, whether or not you intend to be present at the
Annual Meeting.
Sincerely,
/s/ Alan Rosskamm
Chairman of the Board,
President and Chief Executive
Officer
<PAGE> 3
[FABRI-CENTERS OF AMERICA, INC. LOGO]
5555 Darrow Road
Hudson, Ohio 44236
NOTICE OF SPECIAL MEETING IN LIEU OF
THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 2, 1995
A Special Meeting in Lieu of the Annual Meeting of Shareholders of
Fabri-Centers of America, Inc. will be held at Fabri-Centers Corporate Office,
5555 Darrow Road, Hudson, Ohio, on Wednesday, August 2, 1995, at 1:00 p.m.,
local time, for the following purposes:
1. To elect three Directors of the class whose three-year terms of
office will expire in 1998.
2. To consider and act upon a proposal to amend the Company's Articles
of Incorporation (the "Recapitalization Amendment"), to (i) provide for two
classes of common stock, one voting class designated as Class A Common
Shares, without par value, and a new nonvoting class designated as Class B
Common Shares, without par value; (ii) change each issued share of the
Company's Common Shares, without par value, into (a) one Class A Common
Share and (b) one Class B Common Share, (iii) increase the number of
authorized Common Shares from 75,000,000 to 150,000,000 consisting of
75,000,000 Class A Common Shares and 75,000,000 Class B Common Shares, and
(iv) expressly permit the Company to purchase and sell either class of
Common Stock regardless of whether a lesser purchase price could be paid,
or a greater sale price could be received, by the Company for shares of the
other class.
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on June 14, 1995, as
the record date for determining shareholders who are entitled to notice of, and
to vote at, the meeting.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY IN THE RETURN ENVELOPE PROVIDED FOR THAT PURPOSE, WHETHER OR NOT YOU
EXPECT TO BE PRESENT AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY REVOKE
YOUR PROXY AND VOTE YOUR COMMON SHARES IN PERSON.
The Proxy Statement accompanies this Notice.
BETTY ROSSKAMM, Secretary
July 5, 1995
By Order of the
Board of Directors
<PAGE> 4
[FABRI-CENTERS OF AMERICA, INC. LOGO]
5555 Darrow Road
Hudson, Ohio 44236
1995 SPECIAL MEETING IN LIEU OF
THE ANNUAL MEETING OF SHAREHOLDERS
AUGUST 2, 1995
THE PROXY AND This Proxy Statement is being mailed on or about July 5, 1995,
SOLICITATION to the shareholders of Fabri-Centers of America, Inc. (the
"Company") in connection with the solicitation by the Board
of Directors of the enclosed form of Proxy for the 1995 Special Meeting in lieu
of the Annual Meeting of Shareholders to be held on August 2, 1995 (the "Annual
Meeting"). Pursuant to the Ohio General Corporation Law, any shareholder
signing and returning the enclosed Proxy has the power to revoke it by giving
notice of such revocation to the Company in writing or in the open meeting
before any vote with respect to the matters set forth therein is taken. The
representation in person or by proxy of at least a majority of the outstanding
Common Shares entitled to vote is necessary to provide a quorum at the Annual
Meeting. Properly executed proxies marked "abstain" as well as proxies held in
street name by brokers that are not voted on all proposals to come before the
Annual Meeting ("broker non-votes"), will be considered "present" for purposes
of determining whether a quorum has been achieved at the Annual Meeting. The
nominees for Directors receiving the greatest number of votes will be elected.
As a result, any Common Shares present in person or by proxy at the Annual
Meeting but not voted for any reason have no impact in the election of
Directors, except to the extent that the failure to vote for an individual may
result in another individual receiving a larger number of votes. The proposal
relating to the Recapitalization Amendment must be approved by a majority of the
outstanding Common Shares. Under Ohio law, abstentions and broker non-votes with
respect to such proposal will have the same effect as votes against such
proposal.
PURPOSES OF The Annual Meeting has been called for the purposes of (1)
ANNUAL MEETING electing three Directors of the class whose three-year terms
of office will expire in 1998; (2) considering and acting
upon a proposal to adopt the Recapitalization Amendment that (i) provides for
two classes of common stock, one voting class designated as Class A Common
Shares and a new nonvoting class designated as Class B Common Shares, (ii)
changes each existing Common Share of the Company into one Class A Common
Share and one Class B Common Share, (iii) increases the total number of
authorized shares of Common Stock from 75,000,000 to 150,000,000 consisting of
75,000,000 Class A Common Shares and 75,000,000 Class B Common Shares, and (iv)
expressly permits the Company to purchase and sell either class of Common Stock
regardless of whether a lesser purchase price could be paid, or a greater sales
price could be received, by the Company for shares of the other class; and (3)
transacting such other business as may properly come before the meeting. See
"Recapitalization Amendment -- Reasons for the Recapitalization Amendment;
Recommendation of the Board of Directors" and "-- Certain Potential
Disadvantages of the Recapitalization Amendment."
The three persons named in the enclosed Proxy have been selected by the
Board of Directors and will vote Common Shares represented by valid Board of
Directors' Proxies. They have indicated that, unless otherwise indicated in the
enclosed Proxy, they intend to vote for the election of the nominees listed
below and in favor of the proposal to adopt the Recapitalization Amendment.
1
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The Company has no knowledge of any other matters to be presented at the
Annual Meeting, except the reports of officers on which no action is proposed to
be taken. In the event that other matters do properly come before the Annual
Meeting, the persons named in the Proxy will vote in accordance with their
judgment on such matters.
VOTING The Board of Directors has fixed the close of business on June
SECURITIES 14, 1995, as the record date for determining shareholders
entitled to notice of, and to vote at, the Annual Meeting.
On that date, 9,188,827 Common Shares were outstanding and entitled to one vote
on all matters properly brought before the Annual Meeting. Under the Ohio
General Corporation Law, all of the Common Shares may be voted cumulatively in
the election of Directors if any shareholder gives written notice to the
President, a Vice President or the Secretary of the Company, not less than 48
hours before the time set for the Annual Meeting, and an announcement of the
notice is made at the beginning of the Annual Meeting by the Chairman or the
Secretary or by or on behalf of the shareholder giving such notice. Cumulative
voting permits a shareholder to (1) cast a number of votes equal to the number
of Common Shares owned by the shareholder multiplied by the number of Directors
to be elected and (2) cast those votes for only one nominee or distribute them
among the nominees. In the event that voting at the election is cumulative, the
persons named in the enclosed Proxy will vote the Common Shares represented by
valid Proxies on a cumulative basis for the election of the nominees listed
below, allocating the votes of such Common Shares in accordance with their
judgment. Shareholders of the Company will not be entitled to dissenters' rights
with respect to any matter to be considered at the Annual Meeting.
SECURITY The following table sets forth, as of May 31, 1995, the amount
OWNERSHIP OF of the Company's Common Shares beneficially owned by each of
MANAGEMENT its Directors and nominees for Directors, the Chief Executive
Officer, the four other most highly compensated executive
officers, and all executive officers and Directors of the Company as a group.
Unless otherwise indicated, each of the persons listed in the following table
has sole voting and investment power with respect to the Common Shares set forth
opposite his or her name:
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES
NAME OF BENEFICIALLY PERCENT OF CLASS
BENEFICIAL OWNER OWNED IF 1% OR MORE
---------------- ---------------- ----------------
<S> <C> <C>
Alan Rosskamm........................... 590,332(2) 6.34%(2)
Alma Zimmerman.......................... 547,869(1) 5.96%
Betty Rosskamm.......................... 249,289(1)(3) 2.71%
Robert Norton........................... 120,365(1)(4) 1.31%(4)
Jane Aggers............................. 104,378(1)(5) 1.13%(5)
Fred Johnson............................ 39,096(1)(6) --
John Stec............................... 32,079(1)(7) --
Samuel Krasney.......................... 19,750(8) --
Ira Gumberg............................. 17,250(9) --
Scott Cowen............................. 14,800(10) --
Frank Newman............................ 11,250(9) --
All executive officers and
Directors as a group
(11 persons).......................... 1,746,458(1)(11) 18.39%(11)
</TABLE>
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(1) With respect to Common Shares beneficially owned by such persons under the
Company's Employees' Savings and Profit Sharing Plan, the Common Shares
included are as of April 30, 1995, the latest date for which statements are
available.
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<PAGE> 6
(2) Includes 129,250 Common Shares subject to stock options granted to Mr.
Rosskamm exercisable on or prior to July 30, 1995, 69,500 Common Shares
held as restricted stock under the Company's Executive Incentive Plan, and
an aggregate of 181,751 Common Shares held by his children, spouse, or by
Mr. Rosskamm as trustee for the benefit of family members and charities.
(3) Includes 19,203 Common Shares held by Mrs. Rosskamm as custodian for the
benefit of her grandchildren and 50,000 Common Shares held by The Rosskamm
Family Partnership, with regard to which Mrs. Rosskamm and her spouse each
have voting and dispositive power.
(4) Includes 31,750 Common Shares subject to stock options granted to Mr.
Norton exercisable on or prior to July 30, 1995, 59,500 Common Shares held
as restricted stock under the Company's Executive Incentive Plan, and an
aggregate of 2,250 Common Shares owned by Mr. Norton in a fiduciary
capacity for the benefit of his children and his spouse.
(5) Includes 56,250 Common Shares subject to stock options granted to Ms.
Aggers exercisable on or prior to July 30, 1995 and 36,000 Common Shares
held as restricted stock under the Company's Executive Incentive Plan.
(6) Includes 23,250 Common Shares subject to stock options granted to Mr.
Johnson exercisable on or prior to July 30, 1995, 7,500 Common Shares held
as restricted stock under the Company's Executive Incentive Plan, and an
aggregate of 1,000 Common Shares owned by Mr. Johnson in a fiduciary
capacity for the benefit of his children.
(7) Includes 18,625 Common Shares subject to stock options granted to Mr. Stec
exercisable on or prior to July 30, 1995 and 10,000 Common Shares held as
restricted stock under the Company's Executive Incentive Plan.
(8) Includes 17,500 Common Shares subject to stock options granted to Mr.
Krasney under the 1988 Stock Option Plan for Non-Employee Directors
exercisable on or prior to July 30, 1995.
(9) Includes 11,250 Common Shares subject to stock options granted to Mr.
Gumberg and Mr. Newman under the 1988 Stock Option Plan for Non-Employee
Directors exercisable on or prior to July 30, 1995.
(10) Includes 12,500 Common Shares subject to stock options granted to Mr. Cowen
under the 1988 Stock Option Plan for Non-Employee Directors exercisable on
or prior to July 30, 1995.
(11) Includes 311,625 Common Shares subject to stock options granted under the
Company's Stock Option Plans and exercisable on or prior to July 30, 1995
and 182,500 Common Shares of restricted stock awarded under the Company's
Executive Incentive Plan.
SECURITY Unless otherwise indicated, the following table and notes
OWNERSHIP OF thereto set forth information as to the only persons or
CERTAIN BENEFICIAL groups known to the Company, as of May 31, 1995, to be
OWNERS beneficial owners (as defined by the Securities and Exchange
Commission) of more than five percent of the outstanding
Common Shares of the Company. Unless otherwise indicated, each of the owners
3
<PAGE> 7
listed in the following table has sole voting and investment
power with respect to the Common Shares set forth opposite
their names:
<TABLE>
<CAPTION>
NUMBER OF
NAME AND ADDRESS COMMON SHARES PERCENT
OF BENEFICIAL OWNERS BENEFICIALLY OWNED OF CLASS
-------------------- ------------------ --------
<S> <C> <C>
FMR Corp................................................. 1,236,844(1)(2) 13.46%
Edward C. Johnson 3d
82 Devonshire Street
Boston, MA 02109
Mr. and Mrs. Martin Rosskamm............................. 874,455(3)(4) 9.52%
5555 Darrow Road
Hudson, OH 44236
First Pacific Advisors, Inc.............................. 758,939(1) 8.26%
11400 West Olympic Boulevard
Suite 1200,
Los Angeles, CA 90064
Mr. and Mrs. Justin Zimmerman............................ 687,379(3)(5) 7.48%
5555 Darrow Road
Hudson, OH 44236
Mr. Alan Rosskamm........................................ 590,332(3)(6) 6.34%(6)
5555 Darrow Road
Hudson, OH 44236
The State Teachers Retirement Board of Ohio (STRS)....... 553,900(7) 6.03%
275 East Broad Street
Columbus, OH 43215
The Capital Group Companies, Inc......................... 500,000(8) 5.44%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
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(1) The Common Shares listed are reported on a Schedule 13G filed with the
Securities and Exchange Commission with respect to holdings as of December
31, 1994.
(2) Fidelity Management & Research Company, a wholly owned subsidiary of FMR
Corp. ("Fidelity"), reported beneficial ownership of 1,221,811 Common Shares
as a result of acting as investment advisor to several investment funds that
hold such Common Shares (the "Funds"), including 372,311 Common Shares from
the assumed conversion of $18,150,000 principal amount of 6.25% Convertible
Subordinated Debentures of the Company (the "Debentures") held by such
Funds. The voting of these 1,211,811 Common Shares is directed by each of
the Funds' Boards of Trustees. In addition, Fidelity Management Trust
Company, a wholly owned subsidiary of FMR Corp. ("FMTC"), reported
beneficial ownership of 15,033 Common Shares, including 13,333 Common Shares
from the assumed conversion of $650,000 principal amount of Debentures held
by FMTC.
(3) With respect to Common Shares beneficially owned by such persons under the
Company's Employees' Savings and Profit Sharing Plan, the Common Shares
included are as of April 30, 1995, the latest date for which statements are
available.
(4) Includes 19,203 Common Shares held by Mrs. Rosskamm as custodian for the
benefit of her grandchildren and 50,000 Common Shares held by The Rosskamm
Family Partnership, with regard to which Mr. and Mrs. Rosskamm each have
voting and dispositive power. Of these 874,455 Common Shares, Mr. Rosskamm
disclaims beneficial ownership of 199,289 Common Shares beneficially owned
by his wife and Mrs. Rosskamm disclaims beneficial ownership of 625,166
Common Shares beneficially owned by her husband.
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<PAGE> 8
(5) Of these 687,379 Common Shares, Mr. Zimmerman disclaims beneficial ownership
of 547,869 Common Shares beneficially owned by his wife and Mrs. Zimmerman
disclaims beneficial ownership of 139,510 Common Shares beneficially owned
by her husband.
(6) Includes 129,250 Common Shares subject to stock options granted to Mr.
Rosskamm exercisable on or prior to July 30, 1995, 69,500 Common Shares held
as restricted stock under the Company's Executive Incentive Plan, and an
aggregate of 181,751 Common Shares held by his children, spouse, or by Mr.
Rosskamm as trustee for the benefit of family members and charities.
(7) The Common Shares listed are reported on a Schedule 13G filed with the
Securities and Exchange Commission with respect to holdings as of December
31, 1993. No subsequent amendment to the Schedule 13G has been filed of
record with the Securities and Exchange Commission.
(8) Capital Research and Management Company, a registered investment adviser,
and an operating subsidiary of The Capital Group Companies, Inc., exercised
as of December 31, 1994 investment discretion with respect to 500,000 Common
Shares or 5.44% of outstanding shares of the class, which were owned by
various institutional investors. Such subsidiary has no power to direct the
vote of the above shares.
ELECTION OF The Board of Directors of the Company consists of nine members
DIRECTORS divided into three classes, each consisting of three members.
Since a vacancy remains in the class of Directors whose term
expires in 1995, Ira Gumberg will be a nominee along with Robert Norton and
Alma Zimmerman to be elected at the Annual Meeting for terms of three years
expiring in 1998. Effective with his election to this class of Directors, Mr.
Gumberg will resign as a Director of the class whose term expires in 1997.
Since a suitable replacement nominee has yet to be found, a vacancy will remain
in the class of 1997. The proxies solicited hereby will not be voted for a
greater number of persons than the number of nominees named herein.
In the event of the death of or inability to serve of any of the nominees,
the Proxies will be voted for the election as a Director of such other person as
the Board of Directors may recommend. The Board of Directors has no reason,
however, to anticipate that this will occur.
NOMINEES TO The following table sets forth certain information regarding
THE BOARD the nominees for election as members of the Board of
OF DIRECTORS Directors and Directors whose terms of office will continue
after the Annual Meeting, based upon information furnished to
the Company by such persons, except as otherwise noted, as of
May 31, 1995.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION PAST FIVE YEARS, DIRECTOR
NAME OTHER DIRECTORSHIPS, AND AGE SINCE
---- ------------------------------------- --------
<S> <C> <C>
NOMINEES FOR THE TERM TO EXPIRE IN 1998
Robert Norton Vice Chairman since March 1993 and Chief Financial Officer 1989
for more than five years; Executive Vice President from
September 1988 to March 1993; Chief Administrative Officer
from May 1990 to March 1993; age 48.
Alma Zimmerman Senior Vice President of the Company for more than five 1967
years; age 82.
</TABLE>
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<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION PAST FIVE YEARS, DIRECTOR
NAME OTHER DIRECTORSHIPS, AND AGE SINCE
---- ------------------------------------- --------
<S> <C> <C>
Ira Gumberg President of J.J. Gumberg Co. (real estate management and 1992
(1) development) for more than five years; Director of Mellon
Bank, N.A.; age 41.
DIRECTORS WHOSE TERMS EXPIRE IN 1996
Samuel Krasney Managing Partner, ABBA Capital Enterprises since September 1976
(1)(2) 1993; Chairman of the Board, President and Chief Executive
Officer, Banner Aerospace, Inc. from June 1990 to
September 1993 and prior thereto, Vice Chairman of the
Board, The Fairchild Corporation (formerly Banner
Industries, Inc.) for more than five years; Director of
Banner Aerospace, Inc., and Waxman Industries, Inc.; age
70.
Frank Newman President, Chief Operating Officer and Director of Eckerd 1991
(1)(2) Corporation (retail pharmacy stores) since July 1993;
President and Chief Executive Officer, F & M Distributors
prior to July 1993 for more than five years; age 46.
Betty Rosskamm Secretary of the Company for more than five years and, 1967
since December 1991, Senior Vice President; prior to
December 1991, Treasurer of the Company for more than five
years; age 66.
DIRECTORS WHOSE TERMS EXPIRE IN 1997
Alan Rosskamm Chief Executive Officer of the Company for more than five 1985
years, since April 1993, President, and since July 1992,
Chairman of the Board; prior to July 1992, President of
the Company for more than five years; Director of Charming
Shoppes Inc. (women's apparel retailer); age 45.
Scott Cowen Dean of the Weatherhead School of Management and Professor 1987
(1)(2) of Accounting, Case Western Reserve University, for more
than five years; Director of American Greetings
Corporation, Forest City Enterprises, Inc., LDI
Corporation, Premier Industrial Corporation and Society
National Bank; age 48.
</TABLE>
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(1) Member of the Audit Committee, which met twice during the fiscal year ended
January 28, 1995. This Committee is responsible for reviewing with the
independent auditors of the Company the scope and thoroughness of the
auditors' examination, reviewing the adequacy of the Company's systems of
internal accounting controls with the independent auditors and recommending
to the Board of Directors the appointment of independent auditors for the
fiscal year.
(2) Member of the Compensation Committee, which met three times during the
fiscal year ended January 28, 1995. This Committee has the authority to set
the compensation for executive officers of the Company. The Committee also
makes recommendations to the Board of Directors with respect to the adoption
and amendment of incentive compensation plans and administers those plans
approved by the Board of Directors.
Betty Rosskamm is the mother of Alan Rosskamm.
Ira Gumberg, a Director of the Company, is President and a principal
shareholder of J.J. Gumberg Co. J.J. Gumberg Co. owns or manages numerous
shopping centers, approximately 12 of which contain fabric stores of the
Company. All of the leases with respect to such stores were entered into prior
to Mr. Gumberg becoming a Director of the Company.
6
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During the fiscal year ended January 28, 1995, there were four meetings of
the Company's Board of Directors. Each incumbent Director, except for Samuel
Krasney, attended at least 75% of the Board meetings and meetings held by the
committees on which he or she served. The Board of Directors has no nominating
committee.
COMPLIANCE WITH Based solely upon a review of Forms 3 and 4 and amendments
SECTION 16(A) OF thereto furnished to the Company with respect to its most
THE EXCHANGE ACT recent fiscal year, and written representations from
reporting persons that no Form 5 was required (other than
described below), the Company believes that, during the fiscal year ended
January 28, 1995, all filing requirements applicable to its executive officers
and Directors were met, except that Messrs. Krasney and Cowen each
inadvertently filed a late Form 5 with respect to such fiscal year relating to
an automatic grant of stock options under Directors Plan (as defined below).
DIRECTORS' The Company compensates Directors, other than officers who are
COMPENSATION Directors, for their services on the basis of a $16,000
annual retainer and $1,000 for each day of Board and
committee meetings attended. Effective November 17, 1994, the annual retainer
was increased from its prior level of $10,000. The Company also maintains the
1988 Stock Option Plan for Non-Employee Directors (the "Directors Plan"), which
provides automatic one-time grants of options for 15,000 Common Shares to new
Non-Employee Directors as of the date of their initial election and automatic
grants of options for 10,000 Common Shares to each Non-Employee Director upon
completion of five continuous years of service (commencing in 1989) as a
Director. A total of 115,000 Common Shares are currently available for issuance
upon the exercise of options granted or which may be granted under the Directors
Plan. Each option will terminate on the date that is ten years following the
date of grant; provided, that, in the event of the retirement of a Director
after more than ten years of continuous service, the Compensation Committee may
accelerate the date on which any option (outstanding for a period of more than
twelve months) becomes exercisable. When an optionee ceases to be a Director of
the Company for any reason, that optionee shall continue to have the right to
exercise an outstanding option during the three-month period immediately
following the date of termination of such service.
EXECUTIVE The following table sets forth information relating to the
COMPENSATION annual and long-term compensation for the fiscal years ended
January 28, 1995, January 29, 1994 and January 30, 1993, for
the Chief Executive Officer and the other four most highly compensated
executive officers of the Company:
7
<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
----------------------------
ANNUAL COMPENSATION AWARDS
- ---------------------------------------------------------------------------- ----------------------------
OTHER SECURITIES
ANNUAL UNDERLYING
COMPEN- RESTRICTED OPTIONS/ ALL OTHER
NAME AND FISCAL SATION STOCK SARS (E) COMPEN-
PRINCIPAL POSITION YEAR SALARY (A) BONUS (B) (C) AWARD(S) (D) (SHARES) SATION (F)
------------------ ------- ---------- --------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Alan Rosskamm 1995 $352,884 $264,663 -- $196,875 15,000 $ 79,144
Chairman of the Board, 1994 $341,346 $103,683 -- $ 0 15,000 $ 18,177
President and Chief 1993 $302,375 $ 0 -- $450,750 50,000 $ 18,044
Executive Officer
Robert Norton 1995 $321,031 $233,273 -- $157,500 12,000 $ 16,162
Vice Chairman of 1994 $301,090 $ 91,485 -- $ 0 12,000 $ 19,145
the Board and Chief 1993 $266,208 $ 0 -- $450,750 40,000 $ 19,012
Financial Officer
Jane Aggers 1995 $246,712 $185,034 -- $236,250 12,000 $ 19,194
Executive Vice 1994 $217,468 $ 61,860 -- $136,250 32,000 $ 10,111
President- 1993 $162,171 $ 12,000 -- $187,813 20,000 $ 4,364
Merchandising and
Marketing
Fred Johnson 1995 $172,404 $ 83,616 -- $ 63,000 5,000 $ 2,342
Senior Vice President 1994 $159,231 $ 30,660 -- $ 0 10,000 $ 3,428
Management 1993 $141,000 $ 12,000 -- $ 75,125 12,500 $ 3,774
Information
Systems
John Stec 1995 $170,000 $ 94,150 -- $ 63,000 5,000 $ 1,808
Senior Vice President- 1994 $171,090 $ 32,459 -- $ 0 5,000 $ 3,444
Real Estate 1993 $162,250 $ 12,000 -- $ 0 10,000 $ 4,364
</TABLE>
- ---------------
(A) Includes amounts earned but deferred pursuant to Section 401(k) of the
Internal Revenue Code.
(B) Incentive Bonus Compensation is based on individual percentages established
by the Compensation Committee and is based on achievement of pre-established
performance goals. Amounts represent bonuses earned in the current fiscal
year for which payment is not made until the subsequent fiscal year.
(C) Excludes perquisites and other benefits, unless the aggregate amount of such
compensation is greater than the lesser of $50,000 or 10 percent of the
total of annual salary and bonus reported for the named executive officer.
(D) Restricted stock consists of Common Shares issued and delivered to the
recipient at the time the award is made without payment to the Company, but
which are subject to restrictions on transfer for, and forfeiture in the
event of termination of employment prior to the expiration of, a specified
period of time (generally at the end of a period of five years). The amounts
reported in the table represent the market value at the date of grant. In
fiscal years 1995, 1994, and 1993, the executive officers listed in the
compensation table received the following numbers of restricted shares,
respectively: Alan Rosskamm -- 12,500, 0, 12,000; Robert Norton -- 10,000,
0, 12,000; Jane Aggers -- 15,000, 10,000, 5,000; Fred Johnson -- 4,000, 0,
2,000; John Stec -- 4,000, 0, 0. The aggregate number and value of the
restricted stock holdings at January 28, 1995 were for Mr. Rosskamm 69,500
Common Shares and $1,112,000, Mr. Norton 59,500 Common Shares and $952,000,
Ms. Aggers 36,000 Common Shares and $576,000, Mr. Johnson 7,500 Common
Shares and $120,000, and Mr. Stec 10,000 Common Shares and $160,000, without
giving effect to the diminution of value attributable to the restrictions on
such shares. Currently, the Company does not pay cash dividends on its
Common Shares; however, from time to time the Board of Directors may
re-examine the issue of dividend payments. The Common Shares of restricted
stock would participate the same as other Common Shares of the Company
regarding dividend payment.
(E) The Company's 1990 Employees Stock Option and Stock Appreciation Rights
Plan, as amended, provides for the award of incentive and non-qualified
stock options and stock appreciation rights to key employees of the Company.
(F) Reflects matching contributions, equal to 50% of a participant's first 4%
under the Company's Employees' Savings and Profit Sharing Plan and amounts
accrued by the Company for potential benefits earned under the Company's
1979 Supplemental Retirement Benefit Plan (the "1979 Plan"). The 1979 Plan
provides benefits, subject to forfeiture, to such employees upon normal
retirement, early retirement or total disability. In fiscal years 1995,
1994 and 1993, the Company had accrued, under the 1979 Plan, for the
executive officers listed in the compensation table, the following amounts,
respectively: Alan Rosskamm -- $0, $13,680, $13,680; Robert
Norton -- $14,648, $14,648, $14,648; Jane Aggers -- $17,448, $5,816, $0;
Fred Johnson -- $0, $0, $0; John Stec -- $0, $0, $0. Mr. Rosskamm's
participation under the 1979 Plan has been terminated and has been replaced
with a Split Dollar Life Insurance arrangement with a trust established by
Alan Rosskamm, pursuant to which the Company and that trust will share in
the premium costs of whole life insurance policies that pay death benefits
of not less than $10 million upon the death of Alan or Barbara Rosskamm
(whichever occurs later). The split-dollar insurance arrangement is
structured such that all premium payments are returned to the Company. The
present value of Mr. Rosskamm's insurance arrangement for fiscal year 1995
is $77,427.
8
<PAGE> 12
OPTION GRANTS TABLE
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock option grants
during the last fiscal year for the Chief Executive Officer and the other four
most highly compensated executives of the Company.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (4)
- ------------------------------------------------------------------------------ -------------------------
NUMBER OF PERCENT
SECURITIES OF TOTAL EXERCISE
UNDERLYING OPTIONS OR BASE
OPTIONS GRANTED TO PRICE PER
GRANTED EMPLOYEES IN COMMON EXPIRATION
NAME (SHARES) (1) FISCAL YEAR SHARE DATE (3) 5% 10%
- -------------- ------------- ------------ --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alan Rosskamm 15,000(2) 4.3% $ 15.50 12/15/2004 $ 146,218 $ 370,545
Robert Norton 12,000(2) 3.4% $ 15.50 12/15/2004 $ 116,974 $ 296,436
Jane Aggers 12,000(2) 3.4% $ 15.50 12/15/2004 $ 116,974 $ 296,436
Fred Johnson 5,000(2) 1.4% $ 15.50 12/15/2004 $ 48,739 $ 123,515
John Stec 5,000(2) 1.4% $ 15.50 12/15/2004 $ 48,739 $ 123,515
</TABLE>
- ---------------
(1) The option holder has the right to pay the exercise price by delivering
previously acquired shares of the Company's common stock and to have shares
withheld to satisfy tax withholding requirements in connection with the
exercise of options. Such options become immediately exercisable upon a
Change in Control of the Company, as defined in the option plan. Options are
nontransferable other than by will or the laws of descent and distribution.
(2) Options become exercisable in four equal annual installments commencing
December 16, 1995.
(3) Options were granted for a term of ten years, subject to earlier termination
in certain events related to termination of employment.
(4) The amounts under the columns labeled "5%" and "10%" are included by the
Company pursuant to certain rules promulgated by the Securities and Exchange
Commission and are not intended to forecast future appreciation, if any, in
the price of the Company's stock. Such amounts are based on the assumption
that the named persons hold the options granted for their full ten year term
and that the market value of the shares appreciate, in value from the market
value on the date of grant at the 5% and 10% annualized rates.
9
<PAGE> 13
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information relating to aggregate option
exercises during the last fiscal year and fiscal year-end option values for the
Chief Executive Officer and the other four most highly compensated executives of
the Company.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE MONEY
OPTIONS AT OPTIONS AT
COMMON JANUARY 28, 1995 JANUARY 28, 1995
SHARES ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan Rosskamm 5,250 $ 43,942 129,250 54,250 $ 922,283 $ 149,750
Robert Norton 0 $ 0 31,750 43,500 $ 89,716 $ 119,800
Jane Aggers 0 $ 0 48,750 47,250 $ 251,580 $ 100,075
Fred Johnson 0 $ 0 22,625 19,375 $ 107,074 $ 33,450
John Stec 0 $ 0 18,625 14,750 $ 70,699 $ 33,450
</TABLE>
CHANGE OF CONTROL AND EMPLOYMENT AGREEMENTS
The Company has entered into separate agreements (collectively, the
"Agreements") with Alan Rosskamm, Robert Norton and Jane Aggers. The Agreements
are designed to retain the executives and provide for continuity of management
in the event of any actual or threatened change in the control of the Company.
Each agreement only becomes operative upon a "Change in Control" of the Company
(as defined in the Agreements) and only if the executive is then in the employ
of the Company. After a Change in Control, each Agreement becomes, in effect, a
two-year employment agreement, providing a salary, bonus and other employee
benefits at not less than the levels existing prior to the Change in Control. If
the executive is terminated by the Company without "cause" as defined in the
Agreement or terminates his or her employment following a significant change in
his or her duties, the employee will be entitled to receive compensation and
benefits for the balance of the two-year period. The executive is obligated to
endeavor to mitigate damages by seeking comparable employment elsewhere and, to
the extent the employee receives compensation and benefits from another
employer, the foregoing payments and benefits provided by the Company will be
reduced accordingly. In each Agreement, the executive agrees that the employee
will forfeit the foregoing payments and benefits if the employee engages in
competition with the Company during the period that any payments are made or
benefits provided under the Agreement.
In connection with the Company's recent acquisition of Cloth World, the
Company and Robert Norton entered into an employment agreement wherein Mr.
Norton agreed to continue to serve in his current capacities with the Company,
as well as assist in the integration of Cloth World, through August 31, 1997,
unless terminated earlier by the parties. Under the agreement, Mr. Norton is
entitled to a minimum base salary plus participation in the bonus plan and to
receive certain severance payments if he is terminated without cause or he
terminates his employment with the Company effective on or after July 1, 1996.
In addition, Mr. Norton has agreed not to engage in certain competitive
activities during the course of his employment and for a period of three years
thereafter. In the event of a "Change in Control" (as defined above) during the
term of the agreement, Mr. Norton may only assert his rights under either the
employment agreement or the "Change in Control" agreement described above.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors ("Committee")
establishes levels of compensation for the Chief Executive Officer and the other
four most highly compensated
10
<PAGE> 14
executive officers, as well as the Company's other executive officers. The
Committee also makes recommendations to the Board of Directors with respect to
the adoption and amendment of incentive compensation plans and administers those
plans approved by the Board of Directors. The Committee is composed of three
non-employee Directors and is accountable to the Board of Directors on all
compensation matters regarding executive officers.
The overall strategy of the Committee is to design and implement
compensation programs that will lead to increases in the Company's return on
shareholders' equity over the long-term. The Committee's strategy is to design a
compensation program that will enable the Company to attract, motivate, and
retain key executives and to establish and maintain a performance and
achievement-oriented environment. The principal elements of this strategy, in
addition to competitive salaries, includes an annual bonus program that is based
on operating profit before taxes and long-term equity incentives whose value is
dependent on the market price of the Company's Common Shares. These elements are
designed to operate on an integrated basis that enhances the Company's long-term
business objectives. They are described separately in more detail below.
Salary
The Compensation Committee strives to provide a competitive total
compensation package that helps to attract and retain the best people in the
industry. Salaries are generally set above the average of the salaries of
comparable officers at companies that are considered comparable although the
Committee did not establish specific targets for salaries. Salary information
about comparable companies is determined by direct reference to public
disclosures made by selected, publicly-held companies in the specialty retail
industry as well as companies in the fabric and craft industries, with
consideration given to the relative sales volume of such companies. These
companies include many of the companies in the S&P Retail Specialty Index
reflected in the performance graph set forth below. In addition, the
Compensation Committee from time to time obtains additional information about
industry salary levels from a retail industry employment consultant.
In general, base salary and other components of compensation are tiered by
job responsibility, with the Chief Executive Officer, Chief Financial Officer,
and the Executive Vice President-Merchandising and Marketing occupying the top
tier. During the 1995 fiscal year, the Compensation Committee increased the
average base salaries during the annual performance reviews of the top tier by
4%. In addition, after the Cloth World acquisition, the Executive Vice President
- -Merchandising and Marketing was given an additional 17.5% increase in salary
due to additional responsibilities that would be assumed due to the acquisition.
Increases in base salary were also approved for other senior executives based on
the Company's performance in comparison with other companies in the industry for
fiscal 1994.
Bonus
The Compensation Committee places strong emphasis on annual incentive
compensation as a means for building shareholder value over the long term
through consistent annual progress toward improvement in operating profits. The
Company's Key Management Incentive Plan provides a vehicle for the payment of
significant cash bonuses if predetermined levels of operating profit before
taxes are achieved during the year. This operating profit goal is established at
a level which exceeds the Company's prior year's operating profit. Bonuses are
not payable under this Plan to the individuals in the top tier unless the
minimum operating profit target is achieved. During the fiscal year ended
January 28, 1995, the Company's operating profit exceeded the minimum goal. The
amount payable under this Plan is scaled up to a specified maximum for superior
profit performance. In addition to the corporate operating profit goal, the
specific award payable to an executive officer is adjusted based on the degree
by which he or she also meets individual performance goals suitable for the
particular position, which are also determined annually in advance by the
Compensation Committee in the case of
11
<PAGE> 15
the Chief Executive Officer, and in all other cases by the Chief Executive
Officer or the supervising executive officer.
The Key Management Incentive Plan is administered in such a way as to focus
the efforts of participants on meeting the expectations of customers and
shareholders through teamwork. The Plan's foundation on overall operating
profits is intended to provide a common objective that all participants share,
thereby linking their interests with those of the Company's shareholders.
The amounts available for award under this Plan are determined annually. In
general, the award potential for the Chief Executive Officer and the next two
most highly compensated executive officers is designed to provide a minimum
bonus, if any bonus is payable for the year, of 25 percent of the individual's
base salary and a maximum bonus of 75 percent. Bonuses for other executive
officers are designed to amount to a smaller percentage of salary.
Stock Options and Restricted Stock
The Compensation Committee also selects the recipients and determines the
level of awards of stock options and restricted stock. The option program
includes approximately 1,180 participants, including not only officers but all
levels of the Company's management through the level of store managers. The
number of Common Shares covered by each award is scaled by the Compensation
Committee in its discretion according to compensation level and job
classification. In exercising this discretion, the Committee took into
consideration the overall number of shares available for grant, the number of
options outstanding, the number of shares exercisable, and the option price in
comparison to the market price for the underlying stock. Options granted to the
Chief Executive Officer during the 1995 fiscal year represented only 4.3 percent
of all option grants during the year, and grants to the other four most highly
compensated executives of the Company amounted to less than 10 percent in the
aggregate. This broad participation in the stock option program reflects the
Compensation Committee's strong belief that by providing additional incentives
to key employees who have substantial responsibility for the management and
growth of the Company, the best interests of the shareholders and management
will be closely aligned.
Options granted during the 1995 fiscal year vest at the rate of 25 percent
per year. This vesting schedule reflects the Compensation Committee's
determination that options are designed to have a long-term retention effect and
that benefits are realizable over a period of four years.
The Compensation Committee also awards restricted stock as a compensation
vehicle and to attract and retain key executive managers. Generally, awards are
made upon hire or promotion or to recognize superior performance. Currently,
fifteen participants, each of whom is a Vice President or higher of the Company,
holds an award.
All awards of restricted stock made during the last three fiscal years have
provided for vesting at the end of a period not less than four years and not
more than five years after the date of the award. Since the recipient of such an
award would forfeit all of the Common Shares if he or she were to leave the
Company before the end of the vesting period, the Compensation Committee
believes that these awards are a significant factor in the retention of key
management personnel and induce a long-term view among key executive officers.
Restricted stock is also considered a useful compensation vehicle because, even
after it becomes nonforfeitable, it tends to reinforce the recipient's
commitment to continued growth of the Company and appreciation in the market
price of its Common Shares over the long-term.
Effective January 1, 1994, the Omnibus Budget Reconciliation Act of 1993
added Section 162(m) to the Internal Revenue Code. Section 162(m) generally
provides that certain compensation in excess of $1 million per year paid to a
company's chief executive officer and any of its four other highest paid
executive officers is no longer deductible to a company beginning in the 1994
tax year unless the compensation qualifies for an exception. For fiscal year
1996, the Committee believes that no Executive Officer is likely to be paid
compensation
12
<PAGE> 16
exceeding $1 million. Therefore, the Committee does not expect that Section
162(m) will limit the Company's deductibility of any such compensation.
DISCUSSION OF FISCAL 1995 COMPENSATION FOR THE CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
In considering the compensation for the Chairman and Chief Executive
Officer for fiscal 1995, the Committee reviewed his existing compensation
arrangements and both the Company's and individual's performance during fiscal
1994. The Committee's decisions took into consideration the fact that financial
performance for the year ended January 29, 1994 (fiscal 1994) was improving. The
Committee accordingly made the following determinations regarding Mr. Rosskamm's
compensation for the year ended January 28, 1995 (fiscal 1995):
- Effective March 1, 1994, Mr. Rosskamm's base salary was increased by 4%
from $340,000 to $354,000 based on the Committee's positive assessment of
his performance and contributions during fiscal 1994 as Chairman of the
Board, President and Chief Executive Officer. The average salary increase
for all individuals in the senior management group was 3.9%.
- Based on the financial performance of the Company for fiscal 1995, the
Committee approved an annual incentive compensation award of $264,663.
This represents 75% of Mr. Rosskamm's salary, which represents the
maximum payment under the Key Management Incentive Plan, because the
Company's operating profit of approximately $19,100,000 (which included
the effects of the Cloth World acquisition) exceeded the goal for fiscal
year 1995 under the plan, which was established prior to the start of
fiscal 1995.
- The Committee awarded Mr. Rosskamm stock options for 15,000 Common
Shares. This represented 4.3% of the total number of shares awarded to
all employees during fiscal 1995.
- Mr. Rosskamm was awarded 12,500 shares of Restricted Stock during fiscal
1995.
- As part of his overall compensation package for fiscal 1995 and at Mr.
Rosskamm's request, the Committee approved a split dollar life insurance
arrangement for Mr. Rosskamm and his wife, which replaced at no
additional expense to the Company the Supplemental Retirement Plan
provided by Fabri-Centers to Mr. Rosskamm.
The foregoing report on fiscal year 1995 executive compensation was
submitted by the Compensation Committee and shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission or subject to Regulation 14A promulgated by the Securities and
Exchange Commission or Section 18 of the Exchange Act. The names of the
Directors who serve on the Compensation Committee are set forth below:
COMPENSATION COMMITTEE
SAMUEL KRASNEY (Chairman)
SCOTT COWEN
FRANK NEWMAN
13
<PAGE> 17
PERFORMANCE Set forth below is a line graph comparing the yearly
GRAPH percentage change in the cumulative shareholder return, which
includes the reinvestment of cash dividends (if applicable),
of the Company's Common Shares with the cumulative total return of the S&P
Composite - 500 Stock Index and the S&P Retail Specialty Index for the Company
as of January 31, (the date nearest the end of the Company's fiscal year for
which index data is readily available) for each of the Company's last five
years.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
S&P COM- S&P RETAIL
MEASUREMENT PERIOD POSITE - 500 SPECIALTY
(FISCAL YEAR COVERED) FCA INDEX INDEX
<S> <C> <C> <C>
1990 100 100 100
1991 192 108 115
1992 413 133 155
1993 165 147 204
1994 176 166 199
1995 165 167 198
</TABLE>
* ASSUMES $100 INVESTED ON JANUARY 31, 1990 IN THE COMPANY'S COMMON SHARES, S&P
COMPOSITE - 500 STOCK INDEX & S&P RETAIL SPECIALTY INDEX AND THAT ALL
DIVIDENDS WERE REINVESTED.
14
<PAGE> 18
RECAPITALIZATION AMENDMENT
ITEM NO. 2
SUMMARY DESCRIPTION OF THE RECAPITALIZATION AMENDMENT
At the Annual Meeting, the shareholders of the Company will be asked to
consider and vote upon a proposal to amend the Company's Articles of
Incorporation to (i) provide for two classes of common stock, one voting class
designated as Class A Common Shares, without par value ("Class A Common
Shares"), and a new nonvoting class designated as Class B Common Shares, without
par value ("Class B Common Shares"); (ii) change each issued share of the
Company's Common Shares, without par value (the "Existing Common Shares"), into
(a) one Class A Common Share and (b) one Class B Common Share; (iii) increase
the total number of authorized shares of all classes from 80,000,000 to
155,000,000, consisting of 75,000,000 Class A Common Shares, 75,000,000 Class B
Common Shares and 5,000,000 previously authorized shares of Serial Preferred
Stock (the "Serial Preferred"); and (iv) expressly permit the Company to
purchase and sell either class of Common Stock regardless of whether a lesser
purchase price could be paid, or a greater sales price could be received, by the
Company for shares of the other class. Such proposed amendments are referred to
collectively herein as the "Recapitalization Amendment." The Recapitalization
Amendment is set forth in Appendix A to this Proxy Statement. The Class A Common
Shares and Class B Common Shares are referred to collectively herein as the
"Common Stock."
If the Recapitalization Amendment is approved by the shareholders, the
Board of Directors of the Company intends to prepare and file an amendment to
the Company's 1992 Amended Articles of Incorporation with the Secretary of State
of the State of Ohio shortly after the close of trading on the New York Stock
Exchange (the "NYSE") on the date of the Annual Meeting. Such amendment will be
effective immediately upon acceptance of that filing by the Secretary of State
of the State of Ohio (the "Effective Time"). Upon the filing of the
Recapitalization Amendment, and without any further action by the Company or its
shareholders, each Existing Common Share will automatically be changed into one
Class A Common Share and one Class B Common Share. The Board of Directors
presently intends to file the Recapitalization Amendment promptly after it is
approved by the shareholders. As permitted under Ohio law, the Board of
Directors may decline to file the Recapitalization Amendment, even if the
Recapitalization Amendment is adopted, if the Board of Directors determines that
such action would be in the best interests of the Company under the
circumstances at the time. The Company currently knows of no reason why the
Recapitalization Amendment would not be filed if adopted by the shareholders.
The 1992 Amended Articles of Incorporation after the Effective Time of the
Recapitalization Amendment are referred to herein as the "Amended Articles."
Upon the effectiveness of the Recapitalization Amendment, certificates
formerly representing the Existing Common Shares (the "Old Certificates") will
automatically represent from and after the Effective Time, and without any
further action by the Company or its shareholders, the identical number of Class
A Common Shares. CONSEQUENTLY, SHAREHOLDERS SHOULD RETAIN THEIR OLD
CERTIFICATES, WHICH WILL REPRESENT CLASS A COMMON SHARES. As soon as practicable
after the Effective Time, the Company's transfer agent will mail to each record
holder of Existing Common Shares at the Effective Time a new certificate
representing Class B Common Shares. New certificates representing Class A Common
Shares will be exchanged for the Old Certificates by the Company's transfer
agent in due course upon the sale or other transfer of the Class A Common Shares
by a holder following the Effective Time.
Upon the change of the Existing Common Shares, the Class A Common Shares
would continue to have the present express terms of the Existing Common Shares,
except to the extent voting rights with regard to those shares would be affected
by the Class B Protection provision described below. See "Description of Common
Stock -- Class B Protection." As more fully described below, the new Class B
Common Shares issued as a result of such change would have
15
<PAGE> 19
certain special characteristics. In particular, the holders of Class B Common
Shares would not be entitled to vote on any matters except as otherwise required
by law. At the Effective Time of the Recapitalization Amendment, there would be
no change in the relative voting power or equity interest of any shareholder of
the Company.
BACKGROUND OF THE PROPOSED RECAPITALIZATION AMENDMENT
In recent years a number of publicly-held companies have adopted capital
structures utilizing two classes of common stock. After reviewing the Company's
market liquidity, shareholder positions, growth objectives and capital structure
and after consultation with its financial and legal advisors, the Board of
Directors believes that such a structure offers the Company a number of possible
advantages that outweigh the potential disadvantages.
Management presented the concept of such a recapitalization to the Board of
Directors for its consideration beginning in 1992. A reclassification proposal
was discussed in greater detail at the meeting of the Board of Directors held on
March 11, 1993 at which time a representative of William Blair & Company
("William Blair"), financial advisor to the Company, distributed and reviewed a
written presentation prepared by William Blair. The review included a discussion
of the NYSE rules regarding the listing of both the voting and nonvoting shares,
examples of other companies with two classes of common stock, the potential
impact of the proposal on the total market value of the Company's common equity,
the potential price disparity that may exist between the two classes, the
potential impact on market liquidity of the Company's shares and the general
reaction of institutional investors to similar proposals. The meeting was also
attended by a representative of Jones, Day, Reavis & Pogue, special legal
counsel to the Company, who reviewed the fiduciary responsibilities of the
Board, as well as the details of the recapitalization proposal.
Members of the immediate families of Martin and Betty Rosskamm (the
"Rosskamms") and Justin and Alma Zimmerman (the "Zimmermans"), the founding
families of the Company (collectively, the "Founding Families"), and members of
senior management currently beneficially own approximately 30% of the Company's
Existing Common Shares. The Company is unaware of any plans or agreements among
the members of the Founding Families, other than certain rights of first refusal
discussed herein, with respect to the Company's stock. No single one of these
persons owns more than 10% of the Existing Common Shares. In light of the
possible effects of the Recapitalization Amendment on the ownership interest of,
and other possible effects on, the members of Founding Families and senior
management, to remove even the appearance of a conflict of interest by members
of the Founding Families and to provide for a detailed review of the proposal,
the Board of Directors appointed a committee (the "Recapitalization Committee")
of the four directors who were neither members of the Founding Families nor of
senior management. The four members were Ira Gumberg, Samuel Krasney, Frank
Newman and Scott Cowen, who served as Chairman of the Committee. The
Recapitalization Committee was asked to consider the proposal in detail,
recommend to the Board of Directors whether or not to proceed and if so, the
appropriate terms.
The Recapitalization Committee met twice in 1993 with representatives of
William Blair and special legal counsel to the Company. It reviewed the
objectives sought to be achieved by the proposal and the specific terms of the
proposed recapitalization. The proposal's anticipated benefits and possible
disadvantages were discussed. The Recapitalization Committee also reviewed in
detail the written presentation of William Blair previously distributed to the
Board of Directors, which included analyses of the impact of similar proposals
on aggregate market value of outstanding common equity on companies with dual
classes of common equity, the potential market price differential between voting
and nonvoting shares, the potential impact on market liquidity, the reaction of
institutional investors to nonvoting stock structures and the impact on the
Company's ability to raise capital. William Blair also discussed the market
impact of various features of the nonvoting shares.
16
<PAGE> 20
At its meeting in April 1993, the Recapitalization Committee acknowledged
that the proposal was worthy of the Board's continuing consideration. However,
due to the limited amount of time available before the annual meeting and the
other demands being placed upon senior management's time, the Recapitalization
Committee concluded the proposal should be deferred and reconsidered at a future
date.
The Recapitalization Committee reconvened on April 7, 1995 with
representatives of William Blair and special counsel to the Company present and
reviewed an updated written presentation by William Blair. The proposal's terms,
likely benefits and possible disadvantages were discussed. At this meeting,
among other things, William Blair again presented information on the impact that
similar capital structures in other public companies have had on total market
value of outstanding common equity, potential market-price differentials between
voting and nonvoting shares, potential impact on liquidity, reaction of
institutional investors to nonvoting structures and the ability to raise capital
through the issuance of nonvoting common stock. William Blair confirmed its
earlier conclusions on these matters. The Recapitalization Committee noted that
market liquidity for the Existing Common Shares was limited by the number of
shares owned by the Founding Families and senior management and the increased
ownership of the Company's shares by institutions and mutual funds. The
Committee also explored whether alternative methods were available to achieve
the potential benefits of the Recapitalization Amendment. The Recapitalization
Committee noted that although the Rosskamms and the Zimmermans have executed
reciprocal agreements granting the other couple and then the Company the right
of first refusal with respect to sales of the Company's Existing Common Shares,
the exercise of such right by the Company would not provide the same range of
potential benefits as the Recapitalization Amendment. In addition, the cost of
exercising such right may be substantial and could interfere with the Company's
future capital expenditures and planned growth.
The Recapitalization Committee reported to the full Board of Directors
later on April 7, 1995 that in its view the proposal remained worthy of
consideration. William Blair then reviewed with the full Board of Directors its
updated report distributed in advance to all Directors and the issues discussed
with the Recapitalization Committee. The Recapitalization Committee recommended
that the Board authorize management to submit the proposal to the NYSE for
review. Such authorization was granted.
The Recapitalization Committee met again on May 18, 1995, at which time all
members were present except Mr. Krasney. At this meeting, the Committee reviewed
the opinion of William Blair attached hereto as Appendix B and formulated its
recommendation to the Board of Directors that a new class of nonvoting shares be
authorized and issued in a conversion whereby each Existing Common Share would
be changed into one voting Class A Common Share and one nonvoting Class B Common
Share. The Recapitalization Committee specified that the Board retain the
discretion to pay larger dividends in cash or property on the Class B Common
Shares than on the Class A Common Shares. The Recapitalization Committee's
purpose for the provision, as well as for the features designed to protect
holders of the nonvoting stock in the event of mergers or substantial stock
purchases, was to attempt to minimize any disparity that may exist in the market
prices of the two classes of stock. All of the members of the Recapitalization
Committee present at the meeting voted to recommend the Recapitalization
Amendment to the Board of Directors.
At its meeting on May 18, 1995, the Board of Directors (with all members
present except Mr. Krasney) considered the Recapitalization Committee's
recommendation and reviewed the draft of the proxy statement and the opinion of
William Blair attached hereto as Appendix B, both of which had been delivered to
it prior to the meeting. Following these discussions all members of the Board of
Directors present at the meeting voted to approve the Recapitalization Amendment
and to recommend it to the Company's shareholders. The Board of Directors then
called a special meeting of shareholders in lieu of an annual meeting for August
2, 1995, and
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authorized the filing with the Securities and Exchange Commission (the
"Commission") of a preliminary proxy statement.
FINANCIAL ADVISOR TO THE RECAPITALIZATION COMMITTEE AND BOARD
The Board of Directors has retained William Blair as a financial advisor to
the Recapitalization Committee and the Board in connection with the
recapitalization to be effected through the Recapitalization Amendment. Among
other things, William Blair reviewed a draft of the Company's proxy statement,
studied the historical financial statements of the Company, examined the
historical market and volume data of the Company and of companies with multiple
classes of common stock with different voting rights, reviewed voting rights and
other terms of the classes of common stock for the companies included above and
analyzed data relating to the issuance of stock by companies with multiple
classes of common stock with different voting rights.
Based thereupon, William Blair rendered an opinion to the Recapitalization
Committee and to the Board of Directors, in connection with the Recapitalization
Amendment, providing, generally, that the adoption of the Recapitalization
Amendment will not have a material adverse effect upon (i) the market liquidity
for Class A Common Shares or Class B Common Shares, (ii) the ability of
investors to buy and sell Class A Common Shares or Class B Common Shares, or
(iii) the ability of the Company to raise capital through an offering or
offerings of Class A Common Shares or Class B Common Shares. It is also William
Blair's opinion that from a financial point of view and under current market
conditions, immediately after the announcement and implementation of the
Recapitalization Amendment, the total market value of the Class A Common Shares
and Class B Common Shares will not be materially different than the total market
value of the Existing Common Shares immediately prior to the announcement and
implementation of the Recapitalization Amendment. William Blair attempted to
identify and analyze companies with market capitalizations over $75 million
which had instituted multiple class capital structures, with the emphasis on
companies that had instituted such structures in the last six to eight years.
The opinion of William Blair is set out in full in Appendix B to this Proxy
Statement.
William Blair has been paid a fee of $125,000 and will be paid an
additional $50,000 if the Recapitalization Amendment is approved by
shareholders, plus reimbursement of out-of-pocket expenses. In addition, the
Company has agreed to indemnify William Blair against certain liabilities and
expenses it may incur in connection with such services. William Blair had not
provided any services to the Company prior to being engaged to assist the Board
and the Recapitalization Committee in connection with the Recapitalization
Amendment.
REASONS FOR THE RECAPITALIZATION AMENDMENT; RECOMMENDATION OF THE BOARD OF
DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
RECAPITALIZATION AMENDMENT.
The Board of Directors of the Company believes, after careful consideration
of the potential advantages and disadvantages of the Recapitalization Amendment
and the opinion of William Blair, that the Recapitalization Amendment is in the
best interest of the Company and its shareholders. The material advantages and
disadvantages of the Recapitalization Amendment considered by the
Recapitalization Committee or the Board of Directors are set forth herein. The
Board of Directors believes that the creation of a capital structure with both
voting and nonvoting Common Stock would offer a number of potential benefits to
the Company and its shareholders, which are described below.
Shareholder Flexibility and Liquidity. Shareholders who receive Class B
Common Shares as a result of the effectiveness of the Recapitalization Amendment
and who desire to maintain their voting positions would be able to do so even if
they decide to sell or otherwise dispose of up to 50% of their equity interest
in the Company. The proposed Recapitalization Amendment
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thus would give all shareholders, including members of the Founding Families,
increased flexibility to dispose of a portion of their equity interest in the
Company without affecting their relative voting power. The Company is unaware of
any current plans or arrangements on the part of the members of the Founding
Families to sell their Common Stock. In addition, because shareholders who are
interested in maintaining their voting interest in the Company may be more
willing to sell shares of the Company if such sale does not result in a decrease
in their relative voting power, the Recapitalization Amendment may result in
increased trading of equity securities of the Company, thereby increasing
liquidity. It is anticipated that both the voting and nonvoting shares will be
listed on the NYSE. Furthermore, the presence of both voting and nonvoting
shares will allow holders of Class A Common Shares, including members of the
Founding Families, to increase voting power without increasing equity investment
by selling Class B Common Shares and buying Class A Common Shares with the
proceeds (subject to the Class B Protection provision). The Company believes
that the rights of first refusal granted by the Rosskamms and Zimmermans to the
other couple and then to the Company with respect to their Existing Common
Shares will be applicable to the Class A Common Shares and Class B Common Shares
following the effectiveness of the Recapitalization Amendment.
Continuity. Approval of the Recapitalization Amendment would enable the
Company to issue shares for financing, acquisition and compensation purposes
without immediately diluting the voting power of the Company's existing
shareholders, including members of the Founding Families, although their equity
interests would be diluted. Although the Company is unaware of any current plans
or arrangements on the part of members of the Founding Families to sell or
otherwise dispose of their Common Stock, the Recapitalization Amendment would
permit members of the Founding Families to maintain their existing voting power
with respect to the Company even if they reduce their equity position in the
Company (whether for financial, estate planning or other reasons). Accordingly,
the Recapitalization Amendment is expected to reduce the risk of disruption in
the continuity of the Company's current operating policies and long-range
strategy that might otherwise result if members of the Founding Families were to
dispose of a significant percentage of their shares for estate tax,
diversification or other reasons.
Financing Flexibility. By authorizing the Company to issue either voting
or nonvoting shares, the Recapitalization Amendment would provide the Company
with increased flexibility to issue Common Stock (i) to raise equity capital
(either through direct issuances of stock or through issuances of convertible
securities) to finance future capital expenditures and to finance the future
growth of the Company, (ii) as consideration for future acquisitions, and (iii)
in connection with employee stock plans as a means of attracting, compensating
and retaining key employees, without diluting the voting power of the Company's
existing shareholders. By providing the Company with the ability to issue
nonvoting equity securities as described above, the Recapitalization Amendment
would address any reluctance of members of the Founding Families to support the
issuance of significant additional Existing Common Shares because of the
accompanying voting dilution. The Company has no present plans to issue
additional equity or convertible securities in any acquisition or financing
arrangement.
Key Employees. The Recapitalization Amendment is intended to permit all
employees of the Company to continue to concentrate on their employment
responsibilities by reducing any concern that the future of the Company could be
affected by real or perceived succession issues or by an unsolicited takeover
attempt that might otherwise be triggered by significant sales of shares of the
Company by members of the Founding Families in the future. By reducing these
uncertainties, the Recapitalization Amendment may enhance the ability of the
Company to attract and retain highly qualified key employees. In addition, the
Company's ability to issue Class B Common Shares should increase the Company's
flexibility in structuring compensation plans and arrangements so that employees
may continue to participate in the growth of the Company without diluting the
voting power of existing shareholders, although equity interests may be diluted.
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CERTAIN POTENTIAL DISADVANTAGES OF THE RECAPITALIZATION AMENDMENT
While the Board of Directors has determined that implementation of the
Recapitalization Amendment is in the best interests of the Company and its
shareholders, the Recapitalization Amendment may also be considered to have
certain disadvantages, including those set forth below and those set forth under
"Certain Effects of the Recapitalization Amendment."
Change of Control Impact. Members of the Founding Families and senior
management currently own approximately 30% of the Existing Common Shares. While
the Company is unaware of any agreements among members of the Founding Families
to act in concert, if those members and senior management were to vote together,
they could exercise that degree of voting power over the Company. In the event
that the Recapitalization Amendment is implemented, the Founding Families could
retain such voting power even if some or all of their members choose to reduce
their total equity position by up to 50%. By permitting members of the Founding
Families to sell nonvoting shares while retaining voting shares, implementation
of the Recapitalization Amendment may limit the future circumstances in which a
sale or transfer of equity by members of the Founding Families could lead to a
merger proposal or tender offer or to a proxy contest for the removal of
incumbent directors. Consequently, the Recapitalization Amendment may deprive
shareholders of the Company of an opportunity to sell their shares at a premium
over prevailing market prices and may also make it more difficult to replace the
current Board of Directors and management of the Company.
When and if the Class B Common Shares are converted into Class A Common
Shares, a holder of Class B Common Shares may need to comply with the terms of
the Ohio Control Share Acquisition statute in order to complete such conversion,
depending on whether or not, following conversion, such holder would be entitled
to exercise or direct the exercise of voting power of the Company in excess of
the thresholds provided by such statute, i.e., currently 20%, 33% and 50%. It is
possible that the act of conversion could itself constitute a "control share
acquisition" under the Ohio statute. In general, to comply with the Ohio Control
Share Acquisition statute, any person who proposes to make a "control share
acquisition" must deliver a statement to such effect to the subject corporation.
Such person may proceed with such acquisition if the voting shareholders of the
corporation approve such transaction by a majority vote and such acquisition is
consummated within 360 days of such approval.
State Statutes. Some state securities statutes contain provisions which,
due to the issuance of Class B Common Shares, may restrict an offering of equity
securities by the Company or the secondary trading of its equity securities in
those states. However, due to exemptions available if the Class A Common Shares
and Class B Common Shares qualify for trading on the NYSE and the limited number
of states involved, the Company does not believe that such provisions will have
a material adverse effect on the amount of equity securities that the Company
will be able to offer, or on the price obtainable for such equity securities in
such an offering, or in the secondary trading market for the Company's equity
securities.
Acquisition Accounting. The Class B Common Shares may not be used to effect
a business combination intended to be accounted for using the "pooling of
interests" method. In order for such method to be used, the Company would be
required to issue Class A Common Shares as the consideration for the
combination.
Brokerage Costs; Security For Credit. As is typical in connection with any
stock split, brokerage charges and stock transfer taxes, if any, may be somewhat
higher with respect to purchases and sales of the Company's Common Stock after
the effectiveness of the Recapitalization Amendment, assuming transactions in
the same dollar amount, because of the increased number of shares involved.
The Company does not expect that the adoption of the Recapitalization
Amendment will affect the ability of shareholders to use either the Class A
Common Shares or the Class B
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<PAGE> 24
Common Shares as security for the extension of credit by financial institutions,
securities brokers, or dealers.
Investment By Institutions. Implementation of the Recapitalization
Amendment may affect the decision of certain institutional investors that would
otherwise consider investing in and retaining the Existing Common Shares. The
holding of nonvoting shares may not be permitted by the investment policies of
certain institutional investors or may be less attractive to managers of certain
institutional investors. The Company is not aware of the effect, if any, the
implementation of the Recapitalization Amendment will have on the continued
holdings of those institutional investors who currently own Existing Common
Shares.
DESCRIPTION OF COMMON STOCK
The express terms of the Class A Common Shares and the Class B Common
Shares are set forth in full in Article Fourth of the proposed Recapitalization
Amendment. The rights of the two classes of Common Stock will be identical
except as otherwise described below. An amendment of Article Seventh is proposed
in connection with the amendment of Article Fourth to expressly permit the Board
of Directors to issue and sell shares of any class even if greater consideration
could be received upon the sale of shares of another class and to clarify the
circumstances under which the Company may purchase its own shares of any class,
regardless of whether less consideration could be paid for shares of any other
class. The text of the Recapitalization Amendment comprising amendments of
Articles Fourth and Seventh is set forth in Appendix A to this Proxy Statement
and incorporated herein by reference. Although the following is a summary of all
of the material terms of the Recapitalization Amendment, it should nevertheless
be read in conjunction with, and is qualified in its entirety by reference to,
Appendix A.
Voting. Under the Company's current Articles, each Existing Common Share
has the right to vote on all matters and each such share is entitled to one
vote. As a result of the effectiveness of the Recapitalization Amendment, each
Class A Common Share will, subject to the Class B Protection provision described
below, continue to entitle the holder thereof to vote on all matters on which
shareholders currently are entitled to vote, including the election of
directors. The Class B Common Shares would not entitle the holders thereof to
any votes except as otherwise required by law and except in the event of
conversion as described below. The holders of Class B Common Shares would be
entitled to vote only under those circumstances set forth in the Ohio General
Corporation Law, which generally relate to proposals that would change the par
value of the Class B Common Shares, alter or change the express terms of those
shares in a prejudicial manner, change the express terms of issued shares of a
class senior to the Class B Common Shares in any prejudicial manner to the Class
B Common Shares, authorize shares of another class that are convertible into
Class B Common Shares, reduce the stated capital of the Company or substantially
change the purpose of the Company. The nonvoting status of the Class B Common
Shares is subject to the convertibility provisions described below. The
Recapitalization Amendment would not affect the relative voting power of the
holders of the Existing Common Shares.
After the Effective Time of the Recapitalization Amendment, most actions
submitted to a vote of shareholders would be voted on only by holders of Class A
Common Shares. The holders of Class A Common Shares would be entitled to elect
the entire Board of Directors. In addition, the holders of the Class A Common
Shares could vote to amend the Amended Articles in order to increase or decrease
the number of authorized Class B Common Shares (but not below the number of such
shares outstanding).
Convertibility. None of the Class A Common Shares or the Class B Common
Shares would be convertible into another class of Common Stock or any other
security of the Company, except that all then outstanding Class B Common Shares
would change into Class A Common Shares on a share-for-share basis (i)
automatically at any time when the number of outstanding Class A
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Common Shares falls below 10% of the aggregate number of outstanding Class A
Common Shares and Class B Common Shares; and (ii) upon resolution of the Board
of Directors if, as a result of the existence of the Class B Common Shares,
either the Class A Common Shares or Class B Common Shares or both, are excluded
from trading in the NYSE, the American Stock Exchange and all other principal
national securities exchanges then in use and are also excluded from quotation
on the NASDAQ National Market System and other comparable quotation systems then
in use. Upon any such change, the voting interests of the holders of Class A
Common Shares would be diluted. In addition, to the extent that the market price
of the Class A Common Shares is higher or lower than the market price of the
Class B Common Shares immediately prior to such change, the market price of the
shares held by particular holders may be adversely affected by the change.
Dividends and Distributions. The Recapitalization Amendment provides that
dividends and distributions may be declared and paid to the holders of Class A
Common Shares and Class B Common Shares in cash, property, or other securities
of the Company (including shares of any class whether or not shares of such
class are already outstanding) out of funds legally available therefore. Each
Class A Common Share and each Class B Common Share will have identical rights
with respect to dividends and distributions, subject to the following: (i) at
the discretion of the Board of Directors, a dividend or distribution in cash or
property on a Class B Common Share may be greater (but not less) than any
dividend or distribution in cash or property on a Class A Common Share; (ii) a
stock dividend on Class A Common Shares may be paid in Class A Common Shares or
Class B Common Shares; and (iii) a stock dividend on Class B Common Shares may
be paid only in Class B Common Shares. A stock dividend on Class A Common Shares
paid in Class A Common Shares will be considered identical to a stock dividend
on Class B Common Shares paid in Class B Common Shares. The Company has not paid
a cash dividend since 1987 and currently follows a dividend policy of retaining
earnings for the operation and growth of its business and does not anticipate
paying dividends on its Common Stock in the foreseeable future. Payment of
dividends in the future will be determined by the Board of Directors in light of
existing business conditions. The dividend provisions of the Recapitalization
Amendment provide the Board of Directors with the flexibility to determine
appropriate dividend levels, if any, under the circumstances from time to time.
The Company's bank credit agreement restricts its ability to pay dividends in an
amount greater than 50% of its consolidated net earnings in the event that the
Company's consolidated leverage ratio at the end of its last fiscal year is .35
to 1.00 or greater. The Company currently is not subject to this restriction.
Mergers and Consolidations. In the event of a merger, consolidation or
combination of the Company with another entity (whether or not the Company is
the surviving entity) or in the event of dissolution of the Company, the holders
of Class B Common Shares will be entitled to receive the same per share
consideration as the per share consideration, if any, received by holders of
Class A Common Shares in that transaction, except that any common stock that
holders of Class B Common Shares are entitled to receive in any such event may
have terms substantially similar to those of the Class B Common Shares set forth
in the Recapitalization Amendment.
Class B Protection. After the effectiveness of the Recapitalization
Amendment, voting rights disproportionate to equity ownership could be acquired
through acquisitions of Class A Common Shares without corresponding purchases of
Class B Common Shares. In order to reduce somewhat the likelihood of Class A
Common Shares and Class B Common Shares trading at significantly different
market prices and to give holders of Class B Common Shares the opportunity to
participate in any premium paid in the future relating to the acquisition of 15%
or more of the Class A Common Shares by a buyer who has not acquired a
proportionate number of Class B Common Shares, the Recapitalization Amendment
includes a "Class B Protection" feature, as described below. The Class B
Protection feature might have an anti-takeover effect by making the Company a
less attractive target for a takeover bid. As discussed below, there
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can be no assurance that the Company will in all instances be able to readily
identify persons whose holdings subject them to the Class B Protection
provision.
If any person or group, as defined below (excluding the Company, but
including members of the Founding Families), acquires after the Effective Time
beneficial ownership of 15% or more of the then outstanding Class A Common
Shares1, and such person or group (a "Significant Shareholder") does not then
own an equal or greater percentage of all then outstanding Class B Common
Shares, the Class B Protection provision requires such Significant Shareholder
to commence within a 90-day period beginning the day after becoming a
Significant Shareholder a public cash tender offer to acquire additional Class B
Common Shares, as described below (a "Class B Protection Transaction"). The 15%
ownership threshold of the number of Class A Common Shares which triggers a
Class B Protection Transaction may not be waived by the Board of Directors, nor
may the Board of Directors amend this threshold in the Amended Articles without
shareholder approval, including under current Ohio law and the Amended Articles,
a majority vote of the outstanding Class B Common Shares voting separately as a
class.
For example, if a shareholder owns 4% of the Existing Common Shares prior
to the Effective Time and thereafter purchases an additional 16% of the Class A
Common Shares without purchasing any additional Class B Common Shares, such
shareholder must either commence a tender offer for an additional 16% of the
Class B Common Shares at the prescribed price or he will not be allowed to vote
the 16% of the Class A Common Shares acquired after the Effective Time.
Alternatively, such shareholder could sell 2% of the outstanding Class A Common
Shares, thus dropping his threshold to 14%, leaving him with an aggregate of 18%
of the Class A Common Shares, all of which he could vote.
In a Class B Protection Transaction, the Significant Shareholder must offer
to acquire from holders of the Class B Common Shares at least that number of
additional Class B Common Shares (the "Additional Shares") determined by (i)
multiplying the percentage of the number of outstanding Class A Common Shares
that are beneficially owned by such Significant Shareholder, and were acquired
after the Effective Time of the Recapitalization Amendment, by the total number
of Class B Common Shares outstanding on the date such Person or group became a
Significant Shareholder; and (ii) subtracting therefrom the excess (if any) of
the number of Class B Common Shares beneficially owned on such date over the
number of Class B Common Shares beneficially owned at the Effective Time. The
Significant Shareholder must acquire all Class B Common Shares validly tendered
or, if the number of shares tendered exceeds the number determined pursuant to
such formula, a pro-rata number from each tendering holder (based on the number
of shares tendered by each tendering shareholder).
The offer price for any shares required to be purchased by the Significant
Shareholder pursuant to this provision would be the greatest of: (i) the highest
price per share paid by the Significant Shareholder for any Class A Common Share
or Class B Common Share in the six-month period ending on the date such person
or group became a Significant Shareholder (or such shorter period after the
Effective Time if the date such person or group became a Significant Shareholder
is not more than six months following the Effective Time); (ii) the highest sale
price of a Class A Common Share or Class B Common Share on the NYSE (or such
other securities exchange or quotation system as is then the principal trading
market for such shares)
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1 Excluding for purposes of determining the shares owned by such person or
group, but not for the purposes of determining shares outstanding, (i) shares
beneficially owned at the Effective Time; (ii) shares acquired by will, by
laws of descent and distribution, by gift, or by foreclosure of a bona fide
loan; (iii) shares acquired from the Company; (iv) shares acquired by
operation of law (including a merger or consolidation effected for the purpose
of recapitalizing or reincorporating such person but not for the purpose of
acquiring another person); (v) shares received in exchange for Class B Common
Shares if the Class B Common Shares were acquired by the exchanging party
directly from the Company as a result of the Recapitalization Amendment or any
subsequent stock split or dividend; and (vi) shares acquired by or from a
qualified employee benefit plan of the Company (collectively, (i) through
(vi), "Excluded Shares").
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during the thirty-day period preceding the date such person or group became a
Significant Shareholder; or (iii) the highest reported sale price for a Class A
Common Share or Class B Common Share on the NYSE (or such other securities
exchange or quotation system constituting the principal trading market for such
shares) on the business day preceding the date the Significant Shareholder
commences the required tender offer.
If a Significant Shareholder fails to undertake a Class B Protection
Transaction within the time provided therefor, the voting rights of all of the
Class A Common Shares beneficially owned by such Significant Shareholder which
were acquired after the Effective Time would be automatically suspended until
completion of a Class B Protection Transaction or until divestiture of the
excess Class A Common Shares that triggered such requirement. To the extent that
the voting power of any Class A Common Shares is so suspended, such shares will
not be included in the determination of aggregate voting shares for any purpose.
A Class B Protection Transaction would also be required of any Significant
Shareholder that acquires an additional amount of Class A Common Shares equal to
or greater than the next highest integral multiple of 5% (e.g., 20%, 25%, 30%,
etc.) of the outstanding Class A Common Shares2 after the Effective Time and
such Significant Shareholder does not then own an equal or greater percentage of
all then outstanding Class B Common Shares that such Significant Shareholder
acquired after the Effective Time.
Such Significant Shareholder would be required to offer to buy that number of
Additional Shares prescribed by the formula set forth above; provided that, for
purposes of such formula, the date on which the Significant Shareholder acquired
the next highest integral multiple of 5% of the outstanding Class A Common
Shares will be deemed to be the date on which such person or group became a
Significant Shareholder.
The requirement to engage in a Class B Protection Transaction will be
satisfied by making the requisite offer and purchasing validly tendered shares,
even if the number of shares tendered is less than the number of shares included
in the required offer. If any Significant Shareholder fails to make the required
tender offer, or to purchase shares validly tendered (after proration, if any),
the voting rights of all Class A Common Shares owned by such Significant
Shareholder and acquired after the Effective Time will be automatically
suspended until consummation of an offer as required by the terms of the Class B
Protection feature or until divestiture of the excess Class A Common Shares that
triggered the tender offer requirement.
Neither the Class B Protection Transaction requirement nor the related
possibility of suspension of voting rights applies to any increase in percentage
ownership of Class A Common Shares resulting solely from a change in the total
number of Class A Common Shares outstanding. All calculations with respect to
percentage ownership of outstanding shares of either class of Common Stock shall
be based upon the number of outstanding shares reflected in either the records
of or a certificate from the Company's stock transfer agent or reported in the
last to be filed of the Company's Annual Report on Form 10-K, Quarterly Report
on Form 10-Q, Current Report on Form 8-K or definitive proxy statement.
Since the definition of Significant Shareholder is based on the beneficial
ownership percentage of Class A Common Shares acquired after the Effective Time
of the Recapitalization Amendment, a person or group who is a shareholder of the
Company at the Effective Time will not become a Significant Shareholder unless
such person or group acquires an additional 15% of the then outstanding Class A
Common Shares, regardless of the number of Existing Common Shares owned prior to
the Effective Time of the Recapitalization Amendment. For purposes of the Class
B Protection feature, the terms "beneficial ownership" and "group" generally
have the same meanings as used in Regulation 13D promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), subject to certain
exceptions set forth therein.
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2 Excluding those shares which are Excluded Shares.
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The Class B Protection provision does not prevent any person or group from
acquiring a significant or controlling interest in the Company, provided such
person or group acquires a proportionate percentage of the Class B Common
Shares, undertakes a Class B Protection
Transaction or incurs the suspension of the voting rights of the Class A Common
Shares as provided by the Class B Protection feature. If a Class B Protection
Transaction is required, the purchase price to be paid in such offer may be
higher than the price at which a Significant Shareholder might otherwise be able
to acquire an identical number of Class B Common Shares. Such requirement could
make an acquisition of a significant or controlling interest in the Company more
expensive and, if the Class B Protection Transaction is required, more time
consuming, than if such requirement did not exist. Consequently, a person or
group might be deterred from acquiring a significant or controlling interest in
the Company as a result of such requirement. See "Certain Potential
Disadvantages of the Recapitalization Amendment--Change of Control Impact."
Moreover, by restricting the ability of an acquiror to acquire a significant
interest in the Class A Common Shares by paying a "control premium" for such
shares without acquiring, or paying a similar premium for, Class B Common
Shares, the Class B Protection feature is designed to help reduce or eliminate
any discount on either of these classes of Common Stock.
There can be no assurance that the Company will be able to readily identify
a person or group as a Significant Shareholder. Although the Exchange Act
requires persons or groups holding 5% or more of the Class A Common Shares or
the Class B Common Shares to file reports with the Commission and the Company
specifying the level of their ownership, there can be no assurance that a person
or group will comply with such law or that alternative methods of identifying
such holders will be available. As a result, the benefits of the Class B
Protection feature may be difficult to enforce.
Preemptive Rights. None of the Class A Common Shares or the Class B Common
Shares will carry any preemptive rights enabling a holder to subscribe for or
receive shares of the Company of any class or any other securities convertible
into any class of the Company's shares.
Sales and Repurchases. Ohio law requires that a company's articles of
incorporation empower its board of directors to make repurchases of shares
without a shareholder vote if that authority is desired. The Company's existing
Article Seventh gives such authority. As part of the Recapitalization Amendment,
Article Seventh would be revised to make it clear that the Board of Directors is
authorized to repurchase shares of any class without regard to whether a lesser
price could be paid for the same number of shares of any other class. The
proposed amendment to Article Seventh also makes clear that the Board of
Directors is permitted to authorize the sale of a class of shares even though a
higher price could be obtained by selling shares of another class since the two
classes of Common Stock may have differing values and market prices.
Transferability; Trading Market. The Class A Common Shares and Class B
Common Shares will be freely transferable, subject to the current restrictions
on the Existing Common Shares issued under the Company's executive incentive
plans. It is expected that both the Class A Common Shares and Class B Common
Shares will be approved for trading on the NYSE. The NYSE has advised the
Company that the issuance of nonvoting Class B Common Shares pursuant to the
Recapitalization Amendment would not violate the NYSE's rules and regulations
and would be permitted thereunder. However, there can be no assurance that NYSE
will accept either class for trading. Currently, the Existing Common Shares are
traded on the NYSE.
Increase in Authorized Common Stock. The current Articles of Incorporation
of the Company authorize 75,000,000 Common Shares. The Recapitalization
Amendment would increase the authorized number of shares of Common Stock to
150,000,000, consisting of 75,000,000 Class A Common Shares and 75,000,000 Class
B Common Shares. After the effectiveness of the Recapitalization Amendment,
approximately 9,188,827 shares of each Class A Common Shares and Class B Common
Shares would be issued and outstanding. Additional
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Class A Common Shares and Class B Common Shares would therefore be available for
issuance from time to time in the future for any proper corporate purpose,
including equity financings, stock splits, stock dividends, acquisitions, stock
option plans and other employee benefit plans. No further action or
authorization by the shareholders would be necessary prior to the issuance of
the additional shares of Common Stock authorized pursuant to the
Recapitalization Amendment unless applicable laws or regulations would require
such approval in a given instance. At the date hereof, other than pursuant to
the stock incentive plans of the Company described below or as a result of the
convertibility feature of certain outstanding debentures of the Company, the
Company has no existing agreements, understandings or plans for the issuance of
additional shares of Common Stock.
The Board of Directors of the Company believes that it is desirable to have
the additional authorized shares of Common Stock available for possible future
financings, acquisition transactions, and other general corporate purposes.
Having such additional authorized shares of Common Stock available for issuance
in the future would give the Company greater flexibility and may allow such
shares to be issued without the expense and delay of a special shareholders'
meeting. The Company's Amended Articles would permit the holders of a majority
of the outstanding Class A Common Shares voting as a single class to amend the
Amended Articles to increase the number of authorized shares of any class of
Common Stock. Subject to the possibility of conversion, the holders of Class B
Common Shares would have no right to participate in any such vote.
Shareholder Information. The Company would deliver to the holders of Class
B Common Shares the same proxy statements (without proxies except as required by
law), annual reports and other information and reports as it delivers to holders
of Class A Common Shares.
CERTAIN EFFECTS OF THE RECAPITALIZATION AMENDMENT
Effects on Relative Ownership Interest and Voting Power. Because the
Recapitalization Amendment provides that each issued Existing Common Share would
be changed into one Class A Common Share and one Class B Common Share, the
relative ownership interest and voting power of each record holder at the
Effective Time will be the same immediately after such time as it was
immediately prior thereto.
Shareholders who sell their Class A Common Shares after the Effective Time
of the Recapitalization Amendment would lose a greater amount of voting power in
proportion to equity than they would have prior to such time. At the same time,
shareholders desiring to maintain their voting rights in the Company would be
free to continue to hold the Class A Common Shares and may instead elect to sell
Class B Common Shares.
Effect on Market Value and Price. The market prices of Class A Common
Shares and Class B Common Shares after effectiveness of the Recapitalization
Amendment will depend, as does the price of Existing Common Shares prior to such
time, on many factors, including general market conditions and conditions of
other companies in its business and industry and upon the Company's future
performance. The Company cannot predict the prices at which the Class A Common
Shares and Class B Common Shares will trade following the effectiveness of the
Recapitalization Amendment. Of 47 companies compared by William Blair,
approximately the same number had market adjusted increases as had decreases in
total market value of their common equity comparing market prices one day prior
to the announcement of the dual class plan and one day after announcement. The
average increases and decreases were less than three percent on a market
adjusted basis. The same result was found when comparing total market value one
day prior to approval of the dual class structure and one day after such
approval. When comparing the changes in market value of these companies one day
prior to announcement of the plan to one month after announcement and one day
prior to approval to one month after approval, again approximately the same
number of companies had increases as had decreases in total market value. The
average increases were approximately 8 percent and the average
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<PAGE> 30
decreases were approximately 7 percent on a market adjusted basis. Of 18
companies where both classes of stock were publicly traded after implementation
of the dual class structures, William Blair's analysis indicated that on a
market adjusted basis approximately half the companies exhibited an increase in
value and approximately half exhibited a decrease in value with a mean and
median decrease in value of approximately 1.0 percent and .7 percent,
respectively. Based primarily upon this anaylsis, and supported by its other
analyses, William Blair has opined to the Company and Board of Directors that
from a financial point of view and under current market conditions, immediately
after the announcement and implementation of the Recapitalization Amendment, the
total market value of the Class A Common Shares and Class B Common Shares will
not be materially different than the total market value of the Existing Common
Shares immediately prior to such times.
It is expected that the market prices of the Class A Common Shares and
Class B Common Shares would reflect the effect of a two-for-one stock split.
Based on the advice of William Blair provided to the Recapitalization Committee
and Board of Directors, the Company anticipates that any differential between
the trading prices of the Class A Common Shares and Class B Common Shares will
be modest, but there can be no assurance as to the trading prices of either of
them. On June 22, 1995, the closing sale price of the Existing Common Shares as
reported on the NYSE was $21.875. If the market price of the Class B Common
Shares were to drop significantly below the price of the Class A Common Shares,
the potential benefits of the Recapitalization Amendment with respect to
flexibility for financings by the Company or resales by the shareholders may be
limited.
It is possible that either the Class A Common Shares or Class B Common
Shares may trade from time to time at a premium to the other. The Class B
Protection feature and the flexibility afforded by the provision permitting the
Board of Directors, in its discretion, should it so determine in the future to
declare larger dividends on the Class B Common Shares are expected to reduce
somewhat the reasons for the Class A Common Shares to trade at a premium
compared to the Class B Common Shares. Should a premium on any class of Common
Stock develop, the Recapitalization Amendment permits the Board of Directors to
issue and sell authorized but unissued shares of any class of Common Stock even
if the consideration which could be obtained by issuing or selling shares of
another class may be greater. The Recapitalization Amendment also expressly
permits the Board of Directors to purchase shares of any class of Common Stock
even if the consideration which would be paid for shares of another class may be
less.
It is likely that more voting shares could be acquired for a given amount
of consideration immediately after the Effective Time of the Recapitalization
Amendment as the market price of the Class A Common Shares is expected to adjust
for the effects of such amendment. If so, subject to the requirement to purchase
a proportionate amount of nonvoting Class B Common Shares under certain
circumstances pursuant to the Class B Protection feature discussed above, the
Recapitalization Amendment may permit shareholders, including members of the
Founding Families, to increase their relative voting power at a lower cost. The
Company is not aware of any current plans of members of the Founding Families to
acquire any additional shares of the Company's Common Stock after the Effective
Time of the Recapitalization Amendment (except to the extent such individuals
may participate in director and employee incentive and benefit plans of the
Company).
Trading Market. Upon effectiveness of the Recapitalization Amendment,
approximately 9,188,827 shares of each Class A Common Shares and Class B Common
Shares would be issued and outstanding. Certain members of the Founding Families
have advised the Company that they are more likely over time to sell Class B
Common Shares than Class A Common Shares. Any issuance of additional Class B
Common Shares by the Company or sales of Class B Common Shares by shareholders
may serve to increase market activity in Class B Common Shares relative to the
Class A Common Shares. Greater market activity may result in increased
volatility in pricing and could enlarge any price differential, either higher or
lower, between the Class A Common Shares and Class B Common Shares.
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<PAGE> 31
Benefit Plans. The incentive stock plans of the Company that will be
affected by the Recapitalization Amendment are the (i) 1990 Employee Stock
Option and Stock Appreciation Rights Plan (the "1990 Plan"), (ii) 1988 Stock
Option Plan for Non-Employee Directors (the "Directors Plan"), (iii) 1980
Executive Incentive Plan (the "1980 Executive Plan"), (iv) 1994 Executive
Incentive Plan (the "1994 Executive Plan") and (v) Employees' Savings and Profit
Sharing Plan (the "Savings Plan"). With respect to the 1990 Plan, the
Compensation Committee of the Board of Directors (the "Committee") has authority
under such plan to adjust the aggregate number of shares as to which options or
stock appreciation rights may be granted, the number of shares subject to each
outstanding option and stock appreciation right and the option price for shares
subject to outstanding options. As a result of the Recapitalization Amendment,
the Committee is expected to substitute one Class A Common Share and one Class B
Common Share for each Existing Common Share reserved for future issuance and
each Existing Common Share subject to an outstanding option, and to reduce the
current option exercise price by one half. There are currently no stock
appreciation rights outstanding. In addition, the Board of Directors anticipates
amending the 1990 Plan to provide that options and stock appreciation rights
granted thereunder after the Effective Time may relate solely to Class A Common
Shares, Class B Common Shares, or a combination of the two.
Under the Directors Plan, the Committee is authorized to make the
appropriate adjustments to the aggregate number of shares as to which options
may be granted, the number of shares subject to each outstanding option and the
option price for shares subject to each outstanding option. The Committee is
expected to make the same adjustments to options outstanding under the
Directors' Plan and to increase the number of shares reserved for future
issuance as discussed above, except that the number of shares available for
future option grants shall remain unchanged. The Committee is not authorized to
adjust the number of shares automatically granted to newly-elected non-employee
directors (15,000 shares) or the number of shares awarded to non-employee
directors upon the completion of five continuous years of service (10,000
shares). In light of this limitation on future grants, it is anticipated that
the Plan Committee will make adjustments to the Directors Plan pursuant to the
anti-dilution provisions to provide that options granted thereunder after the
Effective Time will be in Class A Common Shares.
Holders of restricted Existing Common Shares issued under either the 1980
Executive Plan or the 1994 Executive Plan would participate in the
recapitalization as any other holder of Existing Common Shares, and therefore,
after the Effective Time, such holders will hold one Class A Common Share and
one Class B Common Share for each Existing Common Share held immediately before
the Effective Time of the Recapitalization Amendment. All such shares,
regardless of class, will be subject to all restrictions that applied previously
to the Existing Common Shares issued under such plans. With respect to future
awards under the 1994 Executive Plan, the Committee is authorized to make
adjustments in the aggregate number and kind of shares of stock that may be
awarded in the event of a recapitalization or stock split. As a result, the
Company anticipates that the Committee will award either Class A Common Shares,
Class B Common Shares, or a combination of the two, under the 1994 Executive
Plan. (No additional awards may be made under the 1980 Executive Plan.)
As with any shareholder of the Company, each Existing Common Share held by
the Savings Plan would be changed into one Class A Common Share and one Class B
Common Share upon the effectiveness of the Recapitalization Amendment. The Board
of Directors anticipates amending the Savings Plan to permit those employees who
elect to invest in the Company's Common Stock to instruct the trustee to
purchase either Class A Common Shares, Class B Common Shares or a combination of
the two. In addition, the Company will be authorized to make its required
matching contributions under the Savings Plan in either Class A Common Shares,
Class B Common Shares, or a combination of the two. As of May 31, 1995, the
Savings Plan held an aggregate of 284,612 Existing Common Shares.
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<PAGE> 32
Effect on Book Value and Earnings per Share. Although the interest of each
shareholder in the total equity of the Company would remain unchanged as a
result of the Recapitalization Amendment, the change of each Existing Common
Share into one Class A Common Share and one Class B Common Share would cause the
book value per share and earnings per share of the Company to be adjusted to
reflect the increased number of shares outstanding. Although effected in the
form of a conversion, for accounting purposes the Recapitalization Amendment
would have the same effect as a two-for-one stock split.
Effect on Convertible Subordinated Debentures. The Company currently has
outstanding approximately $57 million in aggregate principal amount of 6 1/4%
Convertible Subordinated Debentures due March 1, 2002 (the "Debentures"). The
Debentures are currently convertible in integral multiples of $1,000 by a holder
into Existing Common Shares at a conversion price of $48.75 per share
(equivalent to a conversion rate of approximately 20.513 Existing Common Shares
per $1,000 principal amount of Debentures). Upon the effectiveness of the
Recapitalization Amendment, each Debenture will be convertible into
approximately 20.513 Class A Common Shares and approximately 20.513 Class B
Common Shares per $1,000 principal amount, or a conversion price equal to $24.38
per share.
Effect on Shareholders' Rights Plan. On October 22, 1990, the Board of
Directors of the Company adopted a shareholders' rights plan (the "Rights Plan")
and issued one right for each Existing Common Share then outstanding or issued
subsequent thereto. In general, the rights are exercisable only if a person or
group buys, or announces a tender for, 20% or more of the Existing Common Shares
or the Board of Directors declares a person or group to be an "adverse person."
When exercisable, each right initially entitles a holder to purchase one
Existing Common Share for $211.50 (the "Initial Purchase Price"). Upon the
occurrence of a "flip in" or "flip over" event (as defined in the Rights Plan),
each right will enable the holder thereof to purchase an Existing Common Share
or, in the event the Company is being acquired, one common share of the
acquiring company for $1.00 per share (the "Adjusted Purchase Price"). The Board
of Directors may redeem the rights for $.01 each at any time before a "flip in"
or "flip over" event has occurred (the "Redemption Price").
As a result of the effectiveness of the Recapitalization Amendment, the
Initial Purchase Price, the Adjusted Purchase Price and the Redemption Price
will each be automatically adjusted under the terms of the Rights Plan to be
equal to one half of their current price. In addition, the Company expects to
amend the Rights Plan to clarify certain of its provisions to reflect the
Company's revised capital structure after approval of the Recapitalization
Amendment. Specifically, the definition of "Common Shares" as used in the Rights
Plan will be amended to include only the Class A Common Shares and provisions
will be added to the Rights Plan to provide that rights will only be associated
with Class A Common Shares.
Effect on Fair Price Provision. Article Tenth of the Company's current
Articles requires the affirmative vote of at least 80% of all outstanding shares
of the Company entitled to vote in elections of Directors in order to effect a
merger, consolidation, sale, lease or other disposition of certain amounts of
assets of the Company where the other party to the transaction, including its
affiliates and associated persons, is the holder, directly or indirectly, of 20%
or more of the aggregate voting power of all outstanding shares of the Company
entitled to vote in the elections of Directors (an "Interested Party"). The
requirement for approval by an 80% vote is not applicable to proposals wherein
(i) certain minimum price and form of consideration requirements are met with
respect to the consideration to be received by the Company's shareholders and
(ii) the "Continuing Directors" (as defined in Article Tenth) have approved the
proposed transaction. Upon the effectiveness of the Recapitalization Amendment,
the provisions of Article Tenth will generally be applicable to both Class A
Common Shares and Class B Common Shares except that (i) holders of Class B
Common Shares will not be entitled to vote on the approval of a proposal
transaction with an Interested Party and (ii) a person's ownership of Class B
Common Shares will not be counted in determining whether such person is an
"Interested Party" under Article Tenth.
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<PAGE> 33
Effect on Preferred Stock. The Recapitalization Amendment will not have
any effect on the number of authorized shares of Serial Preferred or the ability
of the Board of Directors to issue shares of Serial Preferred and to fix the
rights, powers or limitations thereof. No shares of Serial Preferred are
outstanding, and the Company has no current plans to issue any such shares of
Serial Preferred.
Tax Consequences. The Company has been advised by the law firm of Jones,
Day, Reavis & Pogue with respect to the principal tax consequences resulting
from the following events: (i) the change of each Existing Common Share into one
Class A Common Share and one Class B Common Share and (ii) the subsequent
conversion of Class B Common Shares into Class A Common Shares pursuant to the
rights of conversion described above. The following discussion is based on
existing United States Federal Income Tax laws, Ohio Franchise Tax laws relating
to the net income measure of that tax and Ohio Individual Income Tax laws.
Shareholders are urged to consult their own tax advisors regarding their
specific circumstances and the tax consequence of the events described above
under the laws of jurisdictions other than the United States or the State of
Ohio.
No taxable income, gain or loss would be recognized by a holder of Existing
Common Shares as a result of the change of an Existing Common Share into one
Class A Common Share and one Class B Common Share. The cost or other basis for
tax purposes of each Existing Common Share held immediately before the
conversion will be allocated between the resulting Class A Common Share and
Class B Common Share in proportion to the fair market value of each such share
of Common Stock at the Effective Time of the Recapitalization Amendment. The
holding period for each Class A Common Share and each Class B Common Share will
be the same as the holding period of the corresponding Existing Common Share.
No taxable income, gain or loss would be recognized by a holder of a Class
B Common Share upon the conversion of such Class B Common Share into a Class A
Common Share pursuant to the convertibility feature described above. The cost or
other basis for tax purposes of the resulting Class A Common Share will be the
same as the cost or other basis for tax purposes of the Class B Common Share
held immediately before the conversion. The holding period for such Class A
Common Share would include the holding period for the corresponding Class B
Common Share held prior thereto.
The above summary of tax consequences discusses only the principal tax
consequences of the events referenced above to United States persons (i.e.,
citizens or residents of the United States and domestic corporations) who hold
Existing Common Shares as capital assets. It, among other things, does not
address the tax consequences of the change of Existing Common Shares or the
conversion of Class B Common Shares to holders of restricted Existing Common
Shares and restricted Class B Common Shares, respectively, to the extent such
shares remain unvested at the Effective Time of the Recapitalization Amendment
or at the time of the conversion, respectively.
Securities Act of 1933. The change of each Existing Common Share to one
Class A Common Share and one Class B Common Share will not constitute an
"offer," "offer to sell," "offer for sale," or "sale" of a security within the
meaning of Section 2(3) of the Securities Act and Rule 145 thereunder.
Consequently, the Company has not for purposes of the Recapitalization Amendment
registered the Class A Common Shares or the Class B Common Shares under the
Securities Act.
Since there would be no sale of either the Class A Common Shares or the
Class B Common Shares at the Effective Time of the Recapitalization Amendment,
shareholders would not be deemed to have acquired such shares separately from
the Existing Common Shares for purposes of the Securities Act and Rule 144
thereunder. Class A Common Shares and Class B Common Shares held immediately
upon effectiveness of the Recapitalization Amendment, other than any such shares
held by affiliates of the Company within the meaning of the Securities Act, may
be offered for sale and sold in the same manner as the Existing Common Shares
without registra-
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<PAGE> 34
tion under the Securities Act. Affiliates of the Company, including certain
members of the Founding Families, and holders of "restricted" shares would
continue to be subject to the restrictions specified in Rule 144 under the
Securities Act with respect to sales of Class A Common Shares and Class B Common
Shares.
NYSE Criteria. The Existing Common Shares are currently traded on the
NYSE. The NYSE has advised the Company that the issuance of nonvoting Class B
Common Shares pursuant to the Recapitalization Amendment would not violate the
NYSE's rules and regulations and would be permitted thereunder. The Company
presently anticipates that both the Class A Common Shares and the Class B Common
Shares would be approved for trading on the NYSE.
The Recapitalization Amendment provides that the Board of Directors may
change the Class B Common Shares into Class A Common Shares if, as a result of
the existence of the Class B Common Shares, the Class A Common Shares or the
Class B Common Shares is, or both are, excluded at any future time from trading
on all principal national stock exchanges and all national quotation systems.
The Company knows of no reason for the shares to be so excluded under current
rules of such exchanges or systems.
Subsequent Amendments. The Recapitalization Amendment would not prevent
the Company from taking any action, or otherwise affect the Company's ability,
with the requisite approval of its shareholders, to adopt any future amendments
to the Amended Articles for the purpose of further changing the Company's
capital structure or for any other lawful purpose.
INTERESTS OF CERTAIN PERSONS
Members of the Founding Families have an interest in the implementation of
the Recapitalization Amendment because, as noted above, they may retain their
current voting power of the Company, even if they dispose of some or all of the
Class B Common Shares received by them as a result of the adoption of
Recapitalization Amendment. In addition, as a result of the Recapitalization
Amendment, members of the Founding Families will be able to increase their
voting power without increasing their equity investment by selling Class B
Common Shares and by purchasing Class A Common Shares with the proceeds (subject
to the Class B Protection provision). For information related to the stock
ownership of certain members of the Founding Families and the Company's officers
and directors, see "Security Ownership of Management" and "Security Ownership of
Certain Beneficial Owners."
EXPENSES
The costs of proceeding with the Recapitalization Amendment (such as
transfer agent's fees, printing and mailing costs, legal fees, financial
advisory fees, and NYSE fees) are estimated to be approximately $400,000,
inclusive of fees of financial and legal advisors.
VOTE REQUIRED
The affirmative vote of holders of a majority of the outstanding Existing
Common Shares is needed to approve the Recapitalization Amendment. Unless
otherwise directed, proxies in the accompanying form will be voted "FOR" the
Recapitalization Amendment.
AS NOTED ABOVE, THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE RECAPITALIZATION AMENDMENT.
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INDEPENDENT Arthur Andersen LLP have been appointed as the Company's
AUDITORS independent auditors for the fiscal year ending January 27,
1996. A representative of Arthur Andersen LLP is expected to
be present at the Annual Meeting with an opportunity to make a statement if he
desires to do so and to answer appropriate questions with respect to that
firm's examination of the Company's financial statements and records for the
fiscal year ended January 28, 1995.
PROXY The Company will bear the expense of preparing, printing and
SOLICITATION mailing this Proxy Statement. In addition to solicitation by
mail, officers and regular employees of the Company may
solicit by telephone the return of Proxies. The Company will request brokers,
banks and other custodians, nominees and fiduciaries to send Proxy material to
beneficial owners and will, upon request, reimburse them for their expense. In
addition, the Company intends to utilize Corporate Investor Communications, Inc.
as a proxy solicitor and expects the cost of the proxy solicitation to be
approximately $5,000.00.
SHAREHOLDERS' The deadline for shareholders to submit proposals to be
PROPOSALS considered for inclusion in the Proxy Statement for the 1996
Annual Meeting of Shareholders is expected to be March 7,
1996.
ANNUAL The Company's Annual Report for the fiscal year ended January
REPORT 28, 1995, including financial statements of the Company and
the report thereon of Arthur Andersen LLP, is being mailed to
shareholders with this Notice of Special Meeting in Lieu of the Annual Meeting
and Proxy Statement.
BETTY ROSSKAMM,
Secretary
By order of the Board of Directors
July 5, 1995
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APPENDIX A
PROPOSED AMENDMENTS TO ARTICLES FOURTH AND SEVENTH
OF THE 1992 AMENDED ARTICLES OF INCORPORATION
OF
FABRI-CENTERS OF AMERICA, INC.
I. The first paragraph of Article Fourth of the 1992 Amended Articles of
Incorporation of the Corporation shall be amended by deleting the existing
first paragraph and replacing it with the following:
FOURTH: The authorized number of shares of the Corporation is 155,000,000,
consisting of 5,000,000 shares of Serial Preferred Stock without par value
("Serial Preferred Shares"), 75,000,000 Class A Common Shares without par value
("Class A Shares") and 75,000,000 Class B Common Shares without par value
("Class B Shares" and together with the Class A Shares, the "Common Stock"). The
shares of each class shall have the express terms set forth in this Article
Fourth.
Upon effectiveness of the Certificate of Amendment setting forth these
amendments under the Ohio General Corporation Law (the "Effective Time"), and
without any further action on the part of the Corporation or its shareholders,
each issued share of Common Stock without par value of the Corporation ("Old
Common Share"), shall automatically be reclassified, changed and converted into
(i) one fully paid and nonassessable Class A Share and (ii) one fully paid and
nonassessable Class B Share. Each certificate formerly representing shares of
Old Common Shares shall automatically represent from and after the Effective
Time of this Certificate of Amendment and without any further action on the part
of the Corporation or any holder thereof, a number of Class A Shares equal to
the number of Old Common Shares shown on the face of such certificate.
After the Effective Time of this Certificate of Amendment, each holder of
any certificate or certificates formerly representing Old Common Shares, upon
surrender of such certificate or certificates to the Corporation or its
designated agent, shall receive a certificate or certificates representing a
number of Class A Shares equal to the number of Old Common Shares shown on the
face of such certificate or certificates. The Corporation may impose reasonable
conditions upon the exchange of certificates formerly representing Old Common
Shares as it may deem to be necessary or desirable and as are consistent with
the provisions of this Article Fourth.
II. Article Fourth shall be further amended by changing the following in
Division A:
In Section 1(g) the words "Common Shares" shall be replaced by "Class A
Shares and/or Class B Shares."
In Section 2 in the first sentence the words "Common Shares" shall be
replaced by "Common Stock."
In Section 3 and Section 5(a) wherever they appear, the words "Common
Shares" shall be replaced by the words "Class A Shares or Class B Shares".
In Section 6(a) in the first sentence the words "Common Shares" shall be
replaced by the words "Class A Shares."
III. Article Fourth shall be further amended by replacing Division B in its
entirety with the following:
<PAGE> 37
DIVISION B: Express Terms of Class A Shares and Class B Shares.
1. General. The Class A Shares and Class B Shares shall be subject to the
express terms of the Serial Preferred Shares and any series thereof. The powers,
preferences and rights of the Class A Shares and Class B Shares and the
qualifications, limitations and restrictions thereof, shall in all respects be
identical, except as otherwise required by law or as expressly provided in these
Amended Articles of Incorporation.
2. Voting.
a. Each shareholder of the Corporation shall be entitled to one vote for
each Class A Share standing in such shareholder's name on the books of
the Corporation on all matters presented to shareholders for their vote,
consent, waiver, release or other action.
b. The holders of Class B Shares shall not be entitled to vote on any
matter submitted to shareholders for their vote, consent, waiver,
release or other action except as otherwise required by law.
3. Dividends and Distributions. Dividends and distributions may be declared
and paid to the holders of Class A Shares and Class B Shares in cash, property,
or other securities of the Corporation (including shares of any class whether or
not shares of such class are already outstanding) out of funds legally available
therefore. Each Class A Share and each Class B Share shall have identical rights
with respect to dividends and distributions subject to the following:
a. subject to Section 4 of Division B of Article Fourth, at the discretion
of the Board of Directors, a dividend or distribution in cash or
property on a Class B Share may be greater (but not less) than any
dividend or distributions in cash or property on a Class A Share;
b. a dividend or distribution in shares of the Corporation on Class A
Shares may be paid or made in Class A Shares or Class B Shares; and
c. a dividend or distribution in shares of the Corporation on Class B
Shares may be paid or made only in Class B Shares.
4. Merger, Consolidation, Combination or Dissolution of the Corporation. In
the event of merger, consolidation or combination of the Corporation with
another entity (whether or not the Corporation is the surviving entity) or in
the event of dissolution of the Corporation, holders of Class B Shares shall be
entitled to receive in respect of each Class B Share the same indebtedness,
other securities, cash, rights, or any other property, or any combination of
shares, evidences of indebtedness, securities, cash, rights or any other
property, as holders of Class A Shares shall be entitled to receive in respect
to each share, except that any common stock that holders of Class B Shares shall
be entitled to receive in any such event may have terms substantially similar to
those of the Class B Shares as set forth in this Division B of Article Fourth.
5. Splits or Combinations of Shares. If the Corporation shall in any manner
split, subdivide or combine the outstanding Class A Shares or Class B Shares,
the outstanding shares of the other such class shall be proportionately split,
subdivided or combined in the same manner and on the same basis as the
outstanding shares of the class that has been split, subdivided or combined.
6. Change in Number of Authorized Class B Shares. The number of authorized
Class B Shares may be increased or decreased (but not below the number then
outstanding) by the affirmative vote of the holders of a majority of the
aggregate number of outstanding Class A Shares entitled to vote in the election
of Directors voting as a single class.
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7. Class B Protection Provisions.
a. If, after the Effective Time, a Person or group, each as defined in
Section 7(k) of Division B of this Article Fourth, acquires beneficial ownership
of shares representing 15% or more of the number of then outstanding Class A
Shares and such Person or group (a "Significant Shareholder") does not then
beneficially own an equal or greater percentage of all then outstanding shares
of the Class B Shares, all of which Class B Shares must have been acquired by
such Significant Shareholder after the Effective Time, such Significant
Shareholder must, within a ninety (90) day period beginning the day after
becoming a Significant Shareholder, make a public cash tender offer in
compliance with all applicable laws and regulations to acquire additional Class
B Shares as provided in this Section 7 of Division B of Article Fourth (a "Class
B Protection Transaction").
b. In each Class B Protection Transaction, the Significant Shareholder must
make a public tender offer to acquire that number of additional Class B Shares
determined by (i) multiplying the percentage of the number of outstanding Class
A Shares beneficially owned and acquired after the Effective Time by such
Significant Shareholder by the total number of Class B Shares outstanding on the
date such Person or group became a Significant Shareholder, and (ii) subtracting
therefrom the number of Class B Shares beneficially owned by such Significant
Shareholder on the date such Person or group became a Significant Shareholder
which were acquired after the Effective Time (as adjusted for stock splits,
stock dividends and similar recapitalizations). The Significant Shareholder must
acquire all shares validly tendered; or if the number of Class B Shares tendered
to the Significant Shareholder exceeds the number of shares required to be
acquired pursuant to this Section 7(b), the number of Class B Shares acquired
from each tendering holder shall be pro rata based on the percentage that the
number of shares tendered by such shareholder bears to the total number of
shares tendered by all tendering holders.
c. The offer price for any Class B Shares required to be purchased by the
Significant Shareholder pursuant to Section 7 of Division B of this Article
Fourth shall be the greatest of (i) the highest price per share paid by the
Significant Shareholder for any Class A Shares or Class B Shares during the six
month period ending on the date such Person or group became a Significant
Shareholder (or such shorter period if the date such Person or group became a
Significant Shareholder is not more than six months following the Effective
Time), (ii) the highest reported sale price of Class A Shares or Class B Shares
on the New York Stock Exchange (or such other securities exchange or quotation
system as is then the principal trading market for such shares) during the 30
day period preceding such Person or group becoming a Significant Shareholder,
and (iii) the highest reported sale price of Class A Shares or Class B Shares on
the New York Stock Exchange (or such other securities exchange or quotation
system as is then the principal trading market for such shares) on the business
day preceding the date the Significant Shareholder makes the tender offer
required by this Section 7 of Division B of this Article Fourth. For purposes of
Section 7(d) of Division B of this Article Fourth, the applicable date for each
calculation required by clauses (i) and (ii) of the preceding sentence shall be
the date on which the Significant Shareholder becomes required to engage in the
Class B Protection Transaction for which such calculation is required. In the
event that the Significant Shareholder has acquired Class A Shares or Class B
Shares in the six month period ending on the date such Person or group becomes a
Significant Shareholder for consideration other than cash, the value of such
consideration per share of Class A Shares shall be as determined in good faith
by the Board of Directors.
d. A Class B Protection Transaction shall also be required to be effected
by any Significant Shareholder each time that the Significant Shareholder
acquires after the Effective Time beneficial ownership of additional Class A
Shares in an amount equal to or greater than the next higher integral multiple
of 5% in excess of 15% (e.g., 20%, 25%, 30%, etc.) of the number of outstanding
Class A Shares if such Significant Shareholder does not then own an equal or
greater percentage of the Class B Shares (all of which Class B Shares must have
been acquired
A-3
<PAGE> 39
by such Significant Shareholder after the Effective Time). Such Significant
Shareholder shall be required to make a public cash tender offer to acquire that
number of Class B Shares prescribed by the formula set forth in Section 7(b) of
Division B of this Article Fourth, and must acquire all shares validly tendered
or a pro rata portion hereof, as specified in such Section 7(b), at the price
determined pursuant to Section 7(c) of Division B of this Article Fourth, even
if a previous Class B Protection Transaction resulted in fewer Class B Shares
being tendered than required in the previous offer.
e. If any Significant Shareholder fails to make an offer required by this
Section 7 of Division B of this Article Fourth, or to purchase shares validly
tendered and not withdrawn (after proration, if any), such Significant
Shareholder shall not be entitled to vote any Class A Shares beneficially owned
by such Significant Shareholder and acquired by such Significant Shareholder
after the Effective Time unless and until such requirements are complied with or
unless and until all Class A Shares causing such offer requirement to be
effective are no longer beneficially owned by such Significant Shareholder. To
the extent that the voting power of any Class A Shares is so suspended, such
shares shall not be included in the determination of aggregate voting shares for
any purpose under these Amended Articles of Incorporation or the Ohio Revised
Code. The requirement to engage in a Class B Protection Transaction is satisfied
by the making of the requisite offer and purchasing validly tendered shares
pursuant to this Section 7 of Division B of this Article Fourth, even if the
number of shares tendered is less than the number of shares included in the
required offer.
f. The Class B Protection Transaction requirement shall not apply to any
increase in percentage beneficial ownership of Class A Shares resulting solely
from a change in the aggregate amount of Class A Shares outstanding, provided
that any acquisition after such change which resulted in any Person or group
beneficially owning fifteen percent (15%) or more of the number of outstanding
Class A Shares (or an additional 5% or more of the number of shares of the Class
A Shares after the last acquisition which triggered the requirement for a Class
B Protection Transaction) shall be subject to any Class B Protection Transaction
requirement that would be imposed pursuant to this Section 7 of Division B of
this Article Fourth.
g. In connection with Sections 7(a) through 7(d) of Division B of this
Article Fourth, the following Class A Shares shall be excluded for the purpose
of determining the Class A Shares beneficially owned by such Person or group but
not for the purpose of determining shares outstanding:
(i) shares beneficially owned by such Person or group at the Effective
Time;
(ii) shares acquired by will or by the laws of descent and
distribution, or by gift that is made in good faith and not for the purpose
of circumventing this Section 7 of Division B of Article Fourth or by
foreclosure of a bona fide loan;
(iii) shares acquired upon issuance or sale by the Corporation;
(iv) shares acquired by operation of law (including a merger or
consolidation effected for the purpose of recapitalizing such Person or
reincorporating such Person in another jurisdiction but excluding a merger
or consolidation effected for the purpose of acquiring another Person);
(v) shares acquired in exchange for Class B Shares by a holder of
Class B Shares (or by a parent, lineal descendant or donee of such holder
of Class B Shares who received such Class B Shares from such holder) if the
Class B Shares so exchanged were acquired by such holder directly from the
Corporation as a result of a stock split effected by these Amended Articles
of Incorporation at the Effective Time or any subsequent stock split or as
a dividend on Class A Shares; and
A-4
<PAGE> 40
(vi) shares acquired by a plan of the Corporation qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended, or any
successor provision thereto, or acquired by reason of a distribution from
such a plan.
h. In connection with Sections 7(a) through 7(b) of this Division B of
Article Fourth, for purposes of calculating the number of shares of Class B
Shares beneficially owned by any Persons or group:
(i) Class B Shares acquired by gift shall be deemed to be beneficially
owned by such Person or member of a group if such gift was made in good
faith and not for the purpose of circumventing the operations of this
Section 7 of Division B of this Article Fourth; and
(ii) only Class B Shares owned of record by such Person or member of a
group or held by others as nominees of such Person or member of a group and
identified as such to the Corporation shall be deemed to be beneficially
owned by such Person or group (provided that Class B Shares with respect to
which such Person or member of a group has sole investment and voting power
shall be deemed to be beneficially owned thereby).
i. All calculations with respect to percentage beneficial ownership of
either issued and outstanding Class A Shares or Class B Shares will be based
upon the numbers of issued and outstanding shares reflected in either the
records of or a certification from the Corporation's stock transfer agent or
reported by the Corporation on the last to be filed of (i) the Corporation's
most recent Annual Report on Form 10-K, (ii) its most recent Quarterly Report on
Form 10-Q, (iii) its most recent Current Report on Form 8-K, and (iv) its most
recent definitive proxy statement filed with the Securities and Exchange
Commission.
j. For purposes of this Section 7 of Division B of this Article Fourth, the
term "Person" means any individual, partnership, corporation, association,
trust, or other entity (other than the Corporation). Subject to Sections 7(g)
and 7(h) of Division B of this Article Fourth, "beneficial ownership" shall be
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), or any successor regulation and the
formation or existence of a "group" shall be determined pursuant to Rule
13d-5(b) under the 1934 Act or any successor regulation, subject to the
following qualifications:
(i) relationships by blood or marriage between or among any Persons
will not constitute any of such Persons as a member of a group with such
other Person, absent affirmative attributes of concerted action; and
(ii) any Person acting in his official capacity as a director or
officer of the Corporation shall not be deemed to beneficially own shares
where such ownership exists solely by virtue of such Person's status as a
trustee (or similar position) with respect to shares held by plans or
trusts for the general benefit of employees or former employees of the
Corporation, and actions taken or agreed to be taken by a Person in such
Person's official capacity as an officer or director of the Corporation
will not cause such Person to become a member of a group with any other
Person.
8. Change of Class B Shares. Each Class B Share (whether or not then
issued) shall be changed automatically into one Class A Share upon the earlier
to occur of (i) at the time the number of outstanding Class A Shares is less
than 10% of the aggregate number of outstanding Class A Shares and Class B
Shares; or (ii) upon resolution of the Board of Directors, if as a result of the
existence of the Class B Shares, either the Class A Shares or Class B Shares or
both are excluded from trading on the New York Stock Exchange, the American
Stock Exchange and all other principal national securities exchanges then in use
and are also excluded from quotation on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") -- National Market System and
other comparable quotation systems then in use. Upon such change, the total
number of Class A Shares the Corporation shall have authority to issue, shall be
150,000,000 and the total number of Class B Shares shall be zero (0) and all
references to Class B Shares shall be of no further force or effect. In making
the determination in
A-5
<PAGE> 41
subparagraphs (i) or (ii), the Board of Directors may conclusively rely on
information and documentation available to it, including but not limited to,
information or certification from its stock transfer agent, filings made with
the Securities and Exchange Commission, any stock exchange, the National
Association of Securities Dealers, Inc., or any other national quotation system.
At the time set forth in (i) or (ii) above, the Class B Shares shall be deemed
changed automatically into shares of Class A Shares and stock certificates
formerly representing Class B Shares shall thereupon and thereafter be deemed to
represent a like number of Class A Shares. The determination of the Board of
Directors that either (i) or (ii) has occurred shall be conclusive and binding
and the change of each Class B Share into one Class A Share shall remain
effective regardless of whether (i) or (ii) has occurred in fact.
IV. Article Seventh of the 1992 Amended Articles of Incorporation of the
Corporation shall be amended by replacing Article Seventh in its entirety
with the following:
SEVENTH: The Board of Directors is hereby authorized to fix and determine
and to vary the amount of working capital of the Corporation, to determine
whether any, and, if any, what part of its surplus, however created or arising,
shall be used or disposed of or declared in dividends, or paid to shareholders,
and, without action by the shareholders, to use and apply such surplus, or any
part thereof, at any time, or from time to time, in the purchase or acquisition
of shares of any one class or combination of classes of shares, voting trust
certificates for shares, bonds, debentures, notes, scrip, warrants, obligations,
evidences of indebtedness of the Corporation or any other securities of the
Corporation, to such extent or amount and in such manner and upon such price and
other terms as the Board of Directors shall deem expedient without regard to the
differences among the classes of shares or other securities in price and other
terms under which shares may be purchased or in the relative number of shares
that may be available for purchase. The Board of Directors hereby is authorized
to fix at any time and from time to time the amount of consideration for which
the Corporation may issue its shares or any other securities, whether or not
greater consideration could be received upon the issue or sale of the same
number of shares of another class.
A-6
<PAGE> 42
APPENDIX B
[WILLIAM BLAIR & COMPANY LETTERHEAD]
May 18, 1995
Board of Directors
and Special Committee
Fabri-Centers of America, Inc.
5555 Darrow Road
Hudson, Ohio 44236
Dear Directors:
In connection with the Recapitalization proposal summarized below
("Recapitalization"), the Board of Directors of Fabri-Centers of America, Inc.
(the "Corporation") and a Special Committee of the Board of Directors appointed
in connection with the Recapitalization Proposal have requested our opinion as
to certain effects of the adoption of the Recapitalization. Specifically, you
have requested our opinion as to the effects of the Recapitalization, from a
financial point of view and under current market conditions, upon the market
liquidity for the Class A Common Shares and Class B Common Shares, upon the
ability of investors to buy and sell Class A Common Shares or Class B Common
Shares and upon the Corporation's ability to raise capital through an offering
or offerings of Class A Common Shares or Class B Common Shares. You have also
asked our opinion as to the effect of the Recapitalization upon the aggregate
market value of the Company's common equity.
The Recapitalization provides for, among other things, (i) an increase in the
number of authorized common shares from 75,000,000 to 150,000,000; (ii) the
reclassification of each current Common Share into one voting Class A Common
Share and one nonvoting Class B Common Share. The Class A Common Shares and the
Class B Common Shares will be substantially identical in all respects except
that the Class B Common Shares will have no voting rights except as required by
law. In addition, (i) dividends in cash or property paid on the Class B Common
Shares may, at the discretion of the Board of Directors, be greater than the
corresponding dividend paid on the Class A Common Shares, (ii) stock dividends
on the Class B Common Shares may only be made in Class B Common Shares, and
(iii) the Recapitalization has a Class B protection provision. It is anticipated
that both the Class A Common Shares and Class B Common Shares would be listed on
the New York Stock Exchange.
In arriving at our opinion, we have (1) reviewed a draft of the Corporation's
Proxy Statement dated May 18, 1995 and assumed that no material changes will be
made in the Recapitalization plan described therein; (2) studied the historical
financial statements of the Corporation; (3) examined the historical market and
volume data of the Corporation and of companies with multiple classes of common
stock with different voting rights; (4) reviewed voting rights and other terms
of the classes of common stock for companies included in (3) above; (5) analyzed
data relating to the issuance of stock by companies with multiple classes of
common stock with different voting rights; and (6) completed other analyses as
we have deemed appropriate.
<PAGE> 43
William Blair & Company, as part of its securities sales and trading business,
is a member of the New York and American Stock Exchanges and a major market
maker in the over-the-counter market for equity securities. William Blair &
Company has acted as financial advisor to the Board of Directors and the Special
Committee appointed by the Board in connection with the Recapitalization.
Based on the foregoing and other factors we deem relevant, it is our opinion
that, from a financial point of view and under current market conditions, the
adoption of the Recapitalization and any subsequent implementation will not have
a material adverse effect (1) upon the market liquidity for the Class A Common
Shares or Class B Common Shares; (2) upon the ability of investors to buy and
sell Class A Common Shares or Class B Common Shares; and (3) upon the
Corporation's ability to raise capital through an offering or offerings of Class
A Common Shares or Class B Common Shares. In addition, it is our opinion that
from a financial point of view and under current market conditions, immediately
after the announcement and implementation of the Recapitalization, the total
market value of the Corporation's Class A Common Shares and Class B Common
Shares will not be materially different than the total market value of the
Corporation's existing Common Shares immediately prior to the announcement and
implementation of the Recapitalization.
Sincerely yours,
/s/ WILLIAM BLAIR & COMPANY
- ----------------------------
WILLIAM BLAIR & COMPANY
B-2
<PAGE> 44
FABRI-CENTERS OF AMERICA, INC.
BOARD OF DIRECTORS PROXY
P
R SPECIAL MEETING IN LIEU OF THE ANNUAL MEETING, AUGUST 2, 1995
O
X At the Special Meeting in Lieu of the Annual Meeting of Shareholders
Y of the Company to be held on August 2, 1995, and at any
adjournment, Betty Rosskamm, Alan Rosskamm, and Scott Cowen, or
any one of them, is hereby authorized to represent me and thereat to
vote my shares on the following:
<TABLE>
<S> <C>
1. Election of Directors. The nominees of the Board of Directors to (change of address)
the class whose term of office will expire in 1998 are:
--------------------------------------
Robert Norton, Alma Zimmerman, and Ira Gumberg --------------------------------------
--------------------------------------
2. Recapitalization Amendment. The Recapitalization Amendment will --------------------------------------
(i) provide for two classes of common stock, one voting and one --------------------------------------
nonvoting class; (ii) change each issued share of the Company's (If you have written in the above space,
Common Shares to one voting and one nonvoting share of common please mark the corresponding box on the
stock; (iii) double the authorized number of Common Shares; and reverse side of this card.)
(iv) expressly permit the Company to purchase and sell either
class of Common Stock regardless of whether a lessor purchase
price could be paid, or a greater sale price could be received, by
the Company for shares of the other class.
PLEASE DATE AND SIGN EXACTLY AS THE NAMES APPEAR ON THE FACE OF THE
PROXY AND RETURN BY MAILING PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE.
SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES WILL BE VOTED AS
SPECIFIED. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE
VOTED FOR THE ELECTION AS DIRECTORS OF THE NOMINEES LISTED
ABOVE AND FOR THE PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION OF
THE COMPANY. SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
DETACH CARD
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C> <C>
[X] PLEASE MARK YOUR SHARES IN YOUR NAME
VOTES AS IN THIS
EXAMPLE.
1. Election of FOR WITHHELD 2. Approval of the FOR AGAINST ABSTAIN
Directors Recapitalization
(see reverse) [ ] [ ] Amendment to [ ] [ ] [ ]
the Articles of
(INSTRUCTIONS: To withhold authority to vote for any Incorporation of
individual nominee(s), write the name(s) of the nomi- the Company.
nee(s) in the space provided below.) (see reverse)
Change
of [ ]
Address
Attend [ ]
Meeting
SIGNATURE(S) ___________________________________________ DATE __________________
SIGNATURE(S) ___________________________________________ DATE __________________
Please give title when signing as executor, administrator, trustee, attorney
or other representative. If shares are registered in the names of joint
tenants or trustees, each joint tenant or trustee should sign.
- ------------------------------------------------------------------------------------------------------------------------------------
DETACH CARD
</TABLE>
<PAGE> 46
CONFIDENTIAL VOTING INSTRUCTIONS
TO: SOCIETY NATIONAL BANK, TRUSTEE UNDER THE FABRI-CENTERS OF AMERICA, INC.
EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN
Pursuant to the provisions of the Fabri-Centers of America, Inc.
Employees' Savings and Profit-Sharing Plan, the undersigned, as a
participant in or beneficiary of the Plan, having received the
Notice and accompanying Proxy Statement for the Special Meeting in
Lieu of the Annual Meeting of Shareholders of the Company to be
held on August 2, 1995, hereby directs the Trustee to vote (in
person or by proxy) shares of Common Stock of the Company credited
to the undersigned's account under the Plan on the record date for
the Special Meeting, and at any adjournment thereof, on the
following:
<TABLE>
<CAPTION>
<S> <C>
1. Election of Directors. The nominees of the Board of Directors to the class
whose term of office will expire in 1998 are:
(change of address)
Robert Norton, Alma Zimmerman, and Ira Gumberg
--------------------------------------------
2. Recapitalization Amendment. The Recapitalization Amendment will (i) provide --------------------------------------------
for two classes of common stock, one voting and one nonvoting class; (ii) --------------------------------------------
change each issued share of the Company's Common Shares to one voting and --------------------------------------------
one nonvoting share of common stock; (iii) double the authorized number of --------------------------------------------
Common Shares; and (iv) expressly permit the Company to purchase and sell (If you have written in the above space,
either class of Common Stock regardless of whether a lesser purchase price please mark the corresponding box on the
could be paid, or a greater sale price could be received, by the Company for reserve side of this card.)
shares of the other class.
</TABLE>
PLEASE SIGN AND DATE EXACTLY AS THE NAME APPEARS ABOVE AND RETURN BY MAILING
PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE.
SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES WILL BE VOTED AS
SPECIFIED. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED SEE REVERSE
FOR THE ELECTION AS DIRECTORS OF THE NOMINEES LISTED ABOVE AND SIDE
FOR THE PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION OF THE
COMPANY.
- --------------------------------------------------------------------------------
DETACH CARD
<PAGE> 47
[X] PLEASE MARK YOUR SHARES IN YOUR NAME
VOTES AS IN THIS
EXAMPLE.
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of [ ] [ ] 2. Approval of the [ ] [ ] [ ]
Directors Recapitalization
(see reverse) Amendment to the
Articles of
Incorporation of
the Company.
(see reverse)
(INSTRUCTIONS: To withhold authority to
vote for any individual nominee(s),
write the name(s) of the nominee(s)
in the space provided below.)
Change
of [ ]
Address
Attend [ ]
Meeting
SIGNATURE(S)___________________________________________ DATE _________________
(Participant or Beneficiary)
These confidential voting instructions will be seen only by authorized
personnel of the Trustee.
- --------------------------------------------------------------------------------
DETACH CARD
