<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
FABRI-CENTERS OF AMERICA, INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FABRI-CENTERS OF AMERICA, INC.
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 class of nonvoting shares 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)
clarify the circumstances under which the Company may purchase
and sell its own shares in accordance with Ohio General
Corporation Law.
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
June 26, 1995
By Order of the
Board of Directors
<PAGE> 3
FABRI-CENTERS OF AMERICA, INC.
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
SOLICITATION June 26, 1995, 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
ANNUAL MEETING of (1) 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 class of nonvoting shares 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) clarifies the circumstances under which the Company
may purchase and sell its own shares; and (3) transacting such other business
as may properly come before the meeting.
<PAGE> 4
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.
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
SECURITIES business on June 14, 1995, as the record date for
determining shareholders entitled to notice of, and
to vote at, the Annual Meeting. On that date, ______________ 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.
SECURITY The following table sets forth, as of March 31,
OWNERSHIP OF 1995, the amount of the Company's Common Shares
MANAGEMENT beneficially owned by each of 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:
2
<PAGE> 5
<TABLE>
<CAPTION>
NUMBER OF
NAME OF COMMON SHARES PERCENT OF CLASS
BENEFICIAL OWNER BENEFICIALLY OWNED IF 1% OR MORE
---------------- ------------------ ----------------
<S> <C> <C>
Betty Rosskamm 694,479(1)(2) 7.57%
Alan Rosskamm 590,222(1)(3) 6.34%(3)
Alma Zimmerman 547,833(1) 5.97%
Robert Norton 120,034(1)(4) 1.30%(4)
Jane Aggers 104,048(1)(5) 1.13%(5)
Fred Johnson 38,805(1)(6) --
John Stec 37,899(1)(7) --
Samuel Krasney 17,250(8) --
Ira Gumberg 17,250(9) --
Scott Cowen 12,300(10) --
Frank Newman 11,250(9) --
All executive officers
and Directors as a 2,191,370(1)(11) 23.10%(11)
group (11 persons)
<FN>
________________
(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 December 31, 1994, the latest date for which
statements are available.
(2) Includes 19,203 Common Shares held by Mrs. Rosskamm as custodian for
the benefit of her grandchildren.
(3) Includes 129,250 Common Shares subject to stock options granted to Mr.
Rosskamm exercisable on or prior to May 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.
(4) Includes 31,750 Common Shares subject to stock options granted to Mr.
Norton exercisable on or prior to May 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 wife.
3
<PAGE> 6
(5) Includes 56,250 Common Shares subject to stock options granted to Ms.
Aggers exercisable on or prior to May 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 May 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 May 30, 1995 and 10,000 Common Shares
held as restricted stock under the Company's Executive Incentive Plan.
(8) Includes 15,000 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 May 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 May 30, 1995.
(10) Includes 10,000 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 May 30, 1995.
(11) Includes 306,625 Common Shares subject to stock options granted under
the Company's Stock Option Plans and exercisable on or prior to May
30, 1995 and 182,500 Common Shares of restricted stock awarded under
the Company's Executive Incentive Plan.
</TABLE>
SECURITY Unless otherwise indicated, the following table and
OWNERSHIP OF notes thereto set forth information as to the only
CERTAIN persons or groups known to the Company, as of
BENEFICIAL March 31, 1995, to be beneficial owners (as defined
OWNERS 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 listed in the
following table has sole voting and investment power with respect to the Common
Shares set forth opposite their names:
4
<PAGE> 7
<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) 13.47%
Edward C. Johnson 3d
82 Devonshire Street
Boston, MA 02109
Mr. and Mrs. Martin Rosskamm 874,468(2)(3) 9.53%
5555 Darrow Road
Hudson, OH 44236
First Pacific Advisors, Inc. 758,939(1) 8.27%
11400 West Olympic Boulevard
Suite 1200,
Los Angeles, CA 90064
Mr. and Mrs. Justin Zimmerman 687,303(2) 7.49%
5555 Darrow Road
Hudson, OH 44236
Mr. Alan Rosskamm 590,222(2)(4) 6.34%(4)
5555 Darrow Road
Hudson, OH 44236
The State Teachers Retirement 553,900(5) 6.03%
Board of Ohio (STRS)
275 East Broad Street
Columbus, OH 43215
The Capital Group Companies, Inc. 500,000(6) 5.45%
333 South Hope Street
Los Angeles, CA 90071
<FN>
___________________
(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. In such filing, 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.
5
<PAGE> 8
(2) 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 December 31, 1994, the latest date for which
statements are available.
(3) Includes 19,203 Common Shares held by Mrs. Rosskamm as custodian for
the benefit of her grandchildren.
(4) Includes 129,250 Common Shares subject to stock options granted to Mr.
Rosskamm exercisable on or prior to May 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.
(5) 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.
(6) 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 shares or 5.44% of outstanding shares of the class,
which were owned by various institutional investors. Said subsidiary
has no power to direct the vote of the above shares.
</TABLE>
ELECTION OF The Board of Directors of the Company consists of
DIRECTORS nine members 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.
6
<PAGE> 9
NOMINEES TO The following table sets forth certain information
THE BOARD regarding the nominees for election as members of
OF DIRECTORS the Board of 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 March 31, 1995.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION PAST FIVE YEARS, DIRECTOR
NAME OTHER DIRECTORSHIPS AND AGE SINCE
---- ------------------------------------ --------
NOMINEES FOR THE TERM TO EXPIRE IN 1998
<S> <C> <C>
Robert Norton Vice Chairman since March 1993 and Chief 1989
Financial Officer 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 1967
for more than five years; age 82.
Ira Gumberg President of J.J. Gumberg Co. (real estate 1992
(1) management and 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 1976
(1) (2) since September 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 1991
(1) (2) Director of Eckerd 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 1967
and, since December 1991, Senior Vice President;
prior to December 1991, Treasurer of the Company
for more than five years; age 66.
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 1997
<S> <C> <C>
Alan Rosskamm Chief Executive Officer of the Company for more 1985
than five 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 1987
(1)(2) and Professor 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.
<FN>
_____________________
(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.
</TABLE>
Martin and Betty Rosskamm are husband and wife and the parents of Alan
Rosskamm. Justin and Alma Zimmerman are husband and wife.
Ira Gumberg 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.
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.
8
<PAGE> 11
COMPLIANCE WITH Based solely upon a review of Forms 3 and 4 and
SECTION 16(A) amendments thereto furnished to the Company
OF THE with respect to its most recent fiscal year,
EXCHANGE ACT and written representations from reporting
persons that no Form 5 was required, the Company believes
that, during the fiscal year ended January 28, 1995, all filing requirements
applicable to its executive officers and Directors were met.
DIRECTORS' The Company compensates Directors, other than
COMPENSATION officers who are 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
COMPENSATION relating to the 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:
9
<PAGE> 12
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION AWARDS
- -------------------------------------------------------------- -------------------
SECURITIES
OTHER UNDERLYING ALL
ANNUAL OPTIONS/ OTHER
COMPEN- RESTRICTED SARS COMPEN-
NAME AND FISCAL SATION STOCK (E) SATION
PRINCIPAL POSITION YEAR SALARY (A) BONUS (B) (C) AWARD(S)(D) (SHARES) (F)
- ------------------- ------ ---------- --------- ---------- ----------- -------- --------
<S> <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 $311,031 $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 Information 1993 $141,000 $12,000 - $ 75,125 12,500 $3,774
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
<FN>
_________________
(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
10
<PAGE> 13
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.
</TABLE>
11
<PAGE> 14
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
SECURITIES PERCENT
UNDERLYING OF TOTAL EXERCISE
OPTIONS OPTIONS OR BASE
GRANTED GRANTED TO PRICE PER
(SHARES) EMPLOYEES IN COMMON EXPIRATION
NAME (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
<FN>
_________________
(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
12
<PAGE> 15
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.
</TABLE>
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
COMMON OPTIONS AT OPTIONS AT
SHARES ACQUIRED VALUE JANUARY 28, 1995 JANUARY 28, 1995
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.
13
<PAGE> 16
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 as set forth in the table 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 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. Salary levels are generally set above the mid-point of the salary
ranges at companies that are considered comparable. Salary information about
comparable companies is determined by direct reference to public disclosures
made by selected companies in the specialty retail and fabric industries.
These companies include many of the companies in the S&P Retail
14
<PAGE> 17
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 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
15
<PAGE> 18
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.
16
<PAGE> 19
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 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):
o 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%.
o 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 exceeded the goal for
fiscal year 1995 under the plan.
o 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.
o Mr. Rosskamm was awarded 12,500 shares of Restricted Stock
during fiscal 1995.
o As part of his overall compensation package for fiscal 1995,
the Committee approved a split dollar life insurance
arrangement for Mr. Rosskamm and his wife. This arrangement
replaced the Supplemental Retirement Plan provided by
Fabri-Centers to Mr. Rosskamm.
17
<PAGE> 20
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
18
<PAGE> 21
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.
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Fiscal Years
------------
<S> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
FCA 100 192 413 165 176 165
S&P Composite - 500 Index 100 108 133 147 166 167
S&P Retail Specialty Index 100 115 155 204 199 198
<FN>
* 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.
</TABLE>
19
<PAGE> 22
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 class of nonvoting shares 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 shares of Serial Preferred Stock
(the "Serial Preferred"); and (iv) clarify the circumstances under which the
Company may purchase and sell its own shares in accordance with the Ohio
General Corporation Law. 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. Although the Board of
Directors presently intends to file the Recapitalization Amendment promptly
after it is approved by the shareholders, 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. 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
20
<PAGE> 23
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 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.
21
<PAGE> 24
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. Although 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, the Board of Directors appointed a special
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 Kransey, 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.
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,
22
<PAGE> 25
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 Plan. 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
it 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 be 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. The
Recapitalization Committee voted to recommend the Recapitalization Amendment to
the Board of Directors.
At its meeting on May 18, 1995, the full Board of Directors 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 the Board of Directors 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
23
<PAGE> 26
authorized the filing with the Securities and Exchange Commission (the
"Commission") of a preliminary proxy statement.
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, that the Recapitalization Amendment is in the best
interest of the Company and its shareholders. 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.
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.
24
<PAGE> 27
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 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. Moreover, 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.
Key Employees. The Recapitalization Amendment is intended to allow
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.
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
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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. The
following summary should 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, generally relating to proposals that would change the par
value of the Class B Common Shares, alter or change the express terms of those
shares, or otherwise affect them in a substantially prejudicial manner. 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 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
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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) stock dividends 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 Company's bank credit agreement contains restrictions on dividends in
certain circumstances.
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.
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<PAGE> 30
The Class B Protection feature might have an anti-takeover effect by making the
Company a less attractive target for a takeover bid.
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.
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
____________________
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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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) 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
____________________
2 Excluding those shares which are Excluded Shares.
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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.
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
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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.
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After the effectiveness of the Recapitalization Amendment, approximately
9,179,817 shares of each Class A Common Shares and Class B Common Shares would
be issued and outstanding. Additional 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.
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<PAGE> 35
Effect on Market Price. 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. However, it is expected
that the market prices 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 May 11, 1995, the closing sale price of the Existing Common Shares as
reported on the NYSE was $18.625. 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 provision permitting the Board of Directors, in its
discretion, 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 9,179,817 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
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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.
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 as discussed above and to increase the number of shares
reserved for future issuance accordingly. The Committee is not authorized,
however, 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
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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 the
date hereof, the Savings Plan held an aggregate of 273,927 shares of Existing
Common Shares.
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
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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 explicitly include both Class A Common Shares
and Class B Common Shares and provisions will be added to the Rights Plan to
provide that a right will be exercisable for that class of Common Stock
represented by the certificate for the class of Common Stock which evidences
such right.
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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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 tax counsel 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 these tax consequences,
particularly under the laws of jurisdictions other than the United States and
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 conversion of Existing Common Shares to
holders of restricted Existing Common Shares, to the extent such shares remain
unvested at the Effective Time of the Recapitalization Amendment or at the time
of the conversion.
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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 registration 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.
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.
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,
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<PAGE> 41
including those described above under "Certain Effects of the Recapitalization
Amendment" and those set forth below.
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.
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.
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<PAGE> 42
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 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.
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."
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.
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.
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<PAGE> 43
William Blair has 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.
The opinion of William Blair is set out in full in Appendix B to this Proxy
Statement.
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 $______,
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
AUDITORS Company's 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,
SOLICITATION printing and 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 __________________
____________________ as a proxy solicitor and expects the cost of solicitation
to be approximately $__________, including a fee payable to _______________ of
approximately $____________.
SHAREHOLDERS' The deadline for shareholders to submit proposals to
PROPOSALS be considered for inclusion in the Proxy Statement
for the 1996 Annual Meeting of Shareholders is expected to be
February 27, 1996.
ANNUAL The Company's Annual Report for the fiscal year
REPORT ended January 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
June 26, 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."
<PAGE> 46
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:
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
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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.
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)
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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
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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 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:
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(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
(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
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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
A-7
<PAGE> 52
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 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-8
<PAGE> 53
APPENDIX B
----------
WILLIAM BLAIR & COMPANY
222 WEST ADAMS STREET
CHICAGO, ILLINOIS
60606
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
<PAGE> 54
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.
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> 55
This proxy is being solicited by
the Board of Directors.
Please complete, sign, and
return promptly.
FABRI-CENTERS OF AMERICA, INC.
BOARD OF DIRECTORS PROXY
SPECIAL MEETING IN LIEU OF THE ANNUAL MEETING, AUGUST 2, 1995
At the Special Meeting in Lieu of the Annual Meeting of Shareholders 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:
1. Election of Directors. The nominees of the Board of Directors to the
class whose term of office will expire in 1998 are:
Robert Norton, Alma Zimmerman, and Ira Gumberg.
(INSTRUCTIONS: To withhold authority to vote for any individual
nominee(s), write the name(s) of the nominee(s) in the space
provided below.)
____________________________________________
2. Approval of the amendment to the Articles of Incorporation of the Company.
___ FOR ___ AGAINST ___ ABSTAIN
3. In accordance with their best judgment, upon any other matters which may
properly come before the meeting.
___ FOR ___ AGAINST ___ ABSTAIN
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.
Signed this ___ day of _______, 1995.
____________________________________
____________________________________
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.
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.
