<PAGE>
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:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ShopKo Stores, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] 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:
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(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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO OF SHOPKO STORES, INC.]
SHOPKO STORES, INC.
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 13, 1998
TO THE SHAREHOLDERS OF SHOPKO STORES, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of ShopKo
Stores, Inc. (the "Company") will be held on Wednesday, May 13, 1998 at 10:00
a.m., local time, at the Best Western Midway Hotel, 780 Packer Drive, Green
Bay, Wisconsin, for the following purposes:
1) To elect three directors to serve for three-year terms;
2) To vote upon a proposal to change the Company's state of incorporation
from Minnesota to Wisconsin by approval and adoption of an Agreement and
Plan of Merger, pursuant to which the Company will merge into a newly
formed Wisconsin corporation, which is a wholly owned subsidiary of the
Company;
3) To vote upon a proposal to adopt the Company's 1998 Stock Incentive
Plan;
4) To ratify the appointment of Deloitte & Touche LLP to audit the
financial statements of the Company for the fiscal year ending January 30,
1999; and
5) To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on March 20, 1998 are
entitled to one vote for each share held of record at that time.
IMPORTANT: We hope you will be able to attend the meeting in person and you
are cordially invited to attend. If you expect to attend the meeting, please
check the appropriate box on the proxy card when you return your proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND RETURN YOUR
PROXY PROMPTLY. It is important that all shareholders execute, date and return
the proxy, utilizing the enclosed envelope to which no postage need be affixed
if mailed in the United States.
By Order of the Board of Directors
Richard D. Schepp
Secretary
April 10, 1998
<PAGE>
SHOPKO STORES, INC.
700 PILGRIM WAY
P.O. BOX 19060
GREEN BAY, WISCONSIN 54307-9060
PROXY STATEMENT
This proxy statement is furnished for solicitation by the Board of Directors
of ShopKo Stores, Inc. (the "Company") of proxies in the enclosed form from
holders of Common Stock to be voted at the Annual Meeting of Shareholders
("Annual Meeting") to be held on May 13, 1998 at 10:00 a.m., Green Bay time,
at the Best Western Midway Hotel, 780 Packer Drive, Green Bay, Wisconsin, and
at any adjournment of that meeting.
A shareholder may revoke his or her proxy at any time before it is voted by
written notice to the Secretary, or by filing with the Secretary another proxy
bearing a later date, or by appearing and voting at the meeting. All proxies
which are not so revoked will be voted in accordance with the terms thereof.
Unless otherwise indicated, all proxies will be voted for the individuals
nominated to serve as directors, for approval of the proposal to change the
Company's state of incorporation from Minnesota to Wisconsin, for approval of
the 1998 Stock Incentive Plan, and for ratification of the appointment of the
independent auditors. The Board knows of no other matters to be presented for
shareholder action at the Annual Meeting. If any other matters properly come
before the Annual Meeting, or if any of the persons named to serve as
directors or as auditors should decline or be unable to serve, the persons
named in the proxy will vote on the same in their discretion.
This proxy statement and accompanying form of proxy will be first mailed or
given to shareholders on or about April 10, 1998.
The Company's Common Stock, $0.01 par value ("Common Stock"), is the only
class of capital stock currently outstanding, and only the holders of Common
Stock of record at the close of business on March 20, 1998 (the "Record Date")
are entitled to vote at the meeting. Each shareholder is entitled to one vote
for each share held of record on each proposal being voted upon. As of the
Record Date, 25,887,856 shares of Common Stock are eligible to vote at the
meeting. A majority of the shares entitled to vote constitutes a quorum. Any
shares abstaining as to any matter will be considered present and entitled to
vote, but will not be considered to have voted in favor of such matter. Any
shares represented by a proxy which does not grant authority to vote as to any
matters (including broker non-votes), shall not be considered to be present
and entitled to vote with respect to such matters.
ITEM 1
ELECTION OF DIRECTORS
On July 2, 1997, the Company's Board of Directors (the "Board") was expanded
from five members to seven members, and Stephen E. Watson and William J.
Podany were elected to fill the two new Board seats for terms expiring at the
1997 Annual Meeting of Shareholders. Both were re-elected at such Annual
Meeting. Mr. Podany was elected to serve for a term expiring at the 1999
Annual Meeting of Shareholders. Mr. Watson was elected to serve for a term
expiring at the 2000 Annual Meeting of Shareholders.
On April 24, 1997, the Company entered into a Stock Buyback and Secondary
Offering Agreement (the "Stock Buyback Agreement") with Supervalu, Inc.
("Supervalu") and one of Supervalu's wholly owned subsidiaries, pursuant to
which the Company agreed to repurchase 8,174,387 shares of
1
<PAGE>
Common Stock from Supervalu for $18.35 per share (the "Stock Buyback"). The
obligation of the Company and Supervalu to consummate the Stock Buyback was
conditioned upon completion of a secondary public offering of Supervalu's
remaining 6,557,280 shares of Common Stock (the "Offering"). Both the Stock
Buyback and the Offering were consummated on July 2, 1997. Pursuant to the
terms of the Stock Buyback Agreement, Michael W. Wright and Jeffrey C. Girard,
who were executive officers of Supervalu, submitted their resignations from
the Board. In July, 1997, prior to the effectiveness of his resignation from
the Board, Mr. Girard resigned from his position with Supervalu. He has agreed
to continue to serve on the Company's Board, subject to his re-election at the
Annual Meeting. Mr. Wright's resignation from the Board became effective on
August 13, 1997. Also pursuant to the terms of the Stock Buyback Agreement,
Mr. Wright resigned as the Company's Chairman of the Board, effective upon the
closing of the Stock Buyback and the Offering. Mr. Kramer was elected Chairman
of the Board on July 2, 1997.
On August 20, 1997, the Company announced the addition of Dr. James L.
Reinertsen, M.D. to the Board.
Pursuant to the Company's Articles of Incorporation, the Board is divided
into three classes, with the number of directors divided as equally as
possible among the three classes. Directors are elected for staggered terms of
three years. Messrs. Girard, Kramer and Reinertsen are nominated to serve
three-year terms expiring at the 2001 Annual Meeting of Shareholders.
VOTE REQUIREMENT TO ELECT NOMINEES; BOARD RECOMMENDATION
The affirmative vote of a majority of the shares represented at the Annual
Meeting is required for the election of directors. The Board recommends a vote
FOR these nominees. In the absence of instructions to the contrary, the
persons named in the accompanying proxy will vote for the election of these
nominees. The Board is informed that Messrs. Girard, Kramer and Reinertsen are
willing to serve as directors, however, if they are unable to serve or for
good cause will not serve, the proxy may be voted for such other person or
persons as the proxies shall, in their discretion, determine.
Set forth below is certain information, as of January 31, 1998, concerning
each nominee for election as a director of the Company and the four directors
of the Company whose terms of office will continue after the Annual Meeting:
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING AT THE ANNUAL MEETING IN
2001
JEFFREY C. GIRARD; 50; director of the Company since June 1991; President of
Girard & Co. of Minneapolis, Minnesota, a private consulting company, and an
Adjunct Professor at the Carlson School of Management, University of
Minnesota; Executive Vice President and Chief Financial Officer of Supervalu
from October, 1992 to July, 1997; prior thereto, he held the positions of
Executive Vice President, Chief Financial Officer and Treasurer of
Supermarkets General Holdings Corporation (a supermarket company not
affiliated with the Company) and Senior Vice President and Chief Financial
Officer of Supervalu.
DALE P. KRAMER; 58; director of the Company since August 1991; Chairman of the
Board since July, 1997; President and Chief Executive Officer of the Company
since February 1991; prior thereto, he served as the Company's Executive Vice
President from April 1983 to February 1986 and as its Executive Vice
President and Chief Operating Officer from February 1986 to February 1991.
Mr. Kramer has been employed by the Company in various other positions since
1971.
2
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JAMES L. REINERTSEN, M.D., 50; has been a director of ShopKo since August,
1997. He has held several executive positions with HealthSystem Minnesota, a
private provider of health care services, since 1993, including the office of
Chief Executive Officer since 1994. He was Chairman of the Institute for
Clinical Systems Integration in 1993. He was President and Chief Executive
Officer for Park Nicollet Medical Center from 1986 to 1992, and President of
the Park Nicollet Medical Foundation from 1984 to 1986.
DIRECTORS WHOSE TERMS EXPIRE AT
THE ANNUAL MEETING IN 2000
JACK W. EUGSTER; 52; director of the Company since September, 1991; he has
been the Chairman, President and Chief Executive Officer of Musicland Stores
Corporation, a retail music and home video company, since 1986. Mr. Eugster
is also a director of Damark International, Inc., MidAmerican Energy Company,
Donaldson Company, Inc., and Jostens, Inc.
STEPHEN E. WATSON; 53; director of the Company since July, 1997; President,
Chief Executive Officer of Gander Mountain, L.L.C., a private specialty
retailer of outdoor recreational equipment and clothing, since November,
1997; he held various executive officer positions with Dayton-Hudson
Corporation and its corporate predecessors from 1972 until his retirement in
March, 1996, including President, Chairman/Chief Executive Officer of the
Department Store Division and member of the Board of Directors from 1991
until March, 1996.
DIRECTORS WHOSE TERMS EXPIRE
AT THE ANNUAL MEETING IN 1999
WILLIAM J. TYRRELL; 67; director of the Company since March 1974; Vice
Chairman of the Board from August 1991 until August, 1997, and previously
served as the President of the Company from March 1973 to February 1991 and
Chairman of the Company from February 1991 to August 1991.
WILLIAM J. PODANY; 51; director of the Company since July, 1997; Executive
Vice President of the Company since November, 1994; President, Chief
Operating Officer of the Company's retail stores division since November,
1997. From 1992 to 1994, Mr. Podany was Executive Vice President-Merchandise
of Carter Hawley Hale, a federation of four department store chains. He has
held senior merchandising executive officer positions with Allied Stores, May
Department Stores and Carter Hawley Hale since 1978.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board held nine meetings in the fiscal year ended January 31, 1998. Each
incumbent director attended 75 percent or more of the meetings of the Board
and the committees on which they served.
The Board has two standing committees: the Compensation and Stock Option
Committee and the Audit Committee. The Board does not have a standing
nominating committee.
The Compensation and Stock Option Committee is currently comprised of
Messrs. Eugster (Chairman) and Watson. Prior to August 19, 1997, the
Compensation and Stock Option Committee was comprised of Messrs. Eugster
(Chairman) and Wright. The duties of the Compensation and Stock Option
Committee are to provide a general review of the Company's compensation and
benefit plans to ensure that they meet corporate objectives. The Compensation
and Stock Option Committee has the authority to administer the Company's
employee stock option and stock incentive plans. In addition, the Compensation
and Stock Option Committee reviews the President's recommendations on (i)
compensation of all corporate officers, (ii) granting of awards under the
Company's compensation and benefit plans and (iii) adopting and changing major
corporate compensation policies and practices, and reports its recommendations
to the full Board of Directors for approval and to authorize action. The
Compensation and Stock Option Committee met three times in the fiscal year
ended January 31, 1998.
3
<PAGE>
The Audit Committee is currently comprised of Mr. Girard. Prior to August
14, 1997, the Audit Committee was comprised of Mr. Eugster. The duties of the
Audit Committee are to recommend to the full Board the selection of
independent certified public accountants to audit annually the financial
statements of the Company, to review the activities and the reports of the
independent certified public accountants and to report the results of such
review to the full Board. The Audit Committee also monitors the internal audit
controls of the Company. The Audit Committee met three times in the fiscal
year ended January 31, 1998.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company receives an annual
retainer fee of $25,000, a fee of $1,000 for each board meeting attended and a
fee of $1,000 for each committee meeting if such committee meeting is not held
on the same day as a board meeting. Non-employee chairpersons of the Board's
committees receive an additional $2,000 annual retainer fee. The Company
reimburses all non-employee directors for travel and related expenses incurred
in connection with Board and committee meetings.
The Company's 1991 Stock Option Plan ("1991 Plan") and 1995 Stock Option
Plan, as amended ("1995 Plan") provide that each non-employee director will be
granted as of the date of such director's first election to the Board, an
option to purchase that number of shares of Common Stock having a fair market
value as of such date equal to $50,000, which will be exercisable 60 percent
on the second anniversary of the date of grant and an additional 20 percent on
the third and fourth anniversary of the date of grant. Pursuant to these
provisions, on July 2, 1997 Mr. Watson was granted options to purchase 1,942
shares of Common Stock at $25.75 per share and on August 20, 1997, Dr.
Reinertsen was granted options to purchase 1,840 shares of Common Stock at
$27.1875 per share.
The 1991 Plan and the 1995 Plan provide that in addition to the above-
referenced initial stock option grants, each non-employee director will be
granted as of the date of each annual meeting of the Company's shareholders
held during the term of such Plans, if such director's term of office
continues after such annual meeting, an option to purchase that number of
shares of Common Stock having a fair market value as of such date equal to
$15,000, which shall become exercisable in full on the second anniversary of
the date of grant. On August 13, 1997, Messrs. Watson, Tyrrell and Eugster
were each granted options to purchase 523 shares of Common Stock at $28.6875
per share pursuant to these provisions.
On January 14, 1998, the Board of Directors approved and adopted the 1998
Stock Incentive Plan, (the "1998 Plan"), subject to shareholder approval. The
1998 Plan authorizes various stock incentive awards to non-employee directors.
These provisions are described in detail below under Item 3. Upon approval of
the 1998 Plan by the Company's shareholders, no further stock option grants
will be made to non-employee directors pursuant to the 1991 Plan or the 1995
Plan including the grants which would otherwise have been made on the date of
the 1998 Annual Meeting.
The Company has adopted a deferred compensation plan for non-employee
directors that allows non-employee directors to elect to defer for the next
four years their annual retainers and other fees. This Plan provides that (i)
the participating director must defer 100 percent (minus applicable tax
withholding and social security tax) of the director's fees under the Plan;
(ii) amounts deferred under the Plan will, at the election of the
participating director, earn interest either at a rate equal to 120 percent of
the 120-month rolling average of 10-year U.S. Treasury Notes or at a rate
equal to the rate earned under one or more equity portfolios described in the
Plan; and (iii) amounts deferred under the Plan will be payable in ten equal
annual installments commencing upon the earlier of the participating
director's termination as a director for any reason (including death) or the
participating director's reaching age 70 1/2 (extended for up to five years
for a director's initial deferral under the Plan). As of January 31, 1998, no
current non-employee directors have elected to participate in this Plan.
4
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Set forth in the table below is information regarding the beneficial
ownership of shares of the Common Stock by (i) each person or entity known by
the Company to beneficially own 5 percent or more of the total number of
outstanding shares of the Common Stock, (ii) each director of the Company,
(iii) the Company's Chief Executive Officer and four most highly compensated
executive officers other than the Chief Executive Officer, and (iv) the
directors and executive officers of the Company as a group (18 persons).
Except as otherwise noted, information with respect to directors and executive
officers is as of January 31, 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) PERCENT
- ------------------------ ----------------- -------
<S> <C> <C>
Boston Partners Asset Management, L.P. (3)........... 2,608,594 10.1%
One Financial Center
43rd Floor
Boston, Massachusetts 02111
Palisade Capital Management, L.L.C. (4).............. 1,622,000 6.3%
One Bridge Plaza
Suite 695
Fort Lee, New Jersey 07024
Heartland Advisors, Inc. (5)......................... 1,334,000 5.2%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Dale P. Kramer (6), (7).............................. 264,000 1.0%
Jack W. Eugster...................................... 17,429 *
Jeffrey C. Girard (8)................................ 1,000 *
Stephen E. Watson.................................... -- *
William J. Tyrrell................................... 16,429 *
James L. Reinertsen.................................. -- *
William J. Podany (7), (9)........................... 70,000 *
Roger J. Chustz (7).................................. 3,000 *
Jeffrey A. Jones (7)................................. 13,000 *
Michael J. Hopkins (7)............................... -- *
All directors and executive officers as a group (18
persons)............................................ 409,318 1.6%
</TABLE>
- --------
*Less than 1%
(1) Except as otherwise noted, the persons named in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Includes shares which may be acquired within 60 days pursuant to stock
options as follows: Mr. Kramer 174,000 shares, Mr. Podany 45,000 shares,
Mr. Chustz 3,000 shares, Mr. Eugster 16,429 shares, Mr. Tyrrell 16,429
shares, Mr. Jones 13,000 shares and all directors and executive officers
as a group, 289,918 shares.
(3) Based on Amendment No. 1 to Schedule 13G filed on February 13, 1998.
According to this filing, Boston Partners Asset Management, L.P. has
shared voting power and shared dispositive power with respect to all
2,608,594 shares.
(4) Based on Amendment No. 1 to Schedule 13G filed on February 2, 1998.
5
<PAGE>
(5) Based on Amendment No. 1 to Schedule 13G filed on February 6, 1998.
According to this filing, Heartland Advisors, Inc. has sole voting power
with respect to 1,279,800 shares and sole dispositive power with respect
to 1,334,000 shares.
(6) Includes 50,000 shares of restricted stock granted pursuant to the
Company's 1993 Restricted Stock Plan, as amended.
(7) The number of shares shown with respect to the Company's executive
officers does not reflect funds from their respective Profit Sharing and
401(k) Plans invested in Common Stock through the ShopKo Stock Fund. As of
January 30, 1998, such executive officers' approximate ShopKo Stock Fund
account balances were as follows: Mr. Kramer $290,278, Mr. Podany $29,434,
Mr. Jones $616, Mr. Chustz $43,350 and Mr. Hopkins $20,658.
(8) Mr. Girard is a former executive officer of Supervalu. Prior to July 2,
1997, Supervalu and a wholly-owned subsidiary of Supervalu, Supermarket
Operators of America, Inc. ("SOA") beneficially owned 14,731,667 shares of
the Common Stock. These shares were the subject of the Stock Buyback and
Offering described herein. See, "Relationship Between the Company and
Supervalu."
(9) Includes 25,000 shares of restricted stock granted pursuant to the
Company's 1993 Restricted Stock Plan, as Amended.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Based solely upon the Company's review of Forms 3, 4 and 5 received by it
during the last fiscal year pursuant to Section 16 of the Securities Exchange
Act of 1934, as amended, all of such forms were filed on a timely basis by
reporting persons.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table (the "Summary Compensation Table") sets forth the
compensation paid by the Company for each of the last three fiscal years to
the Company's Chief Executive Officer and its other four most highly
compensated executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------- -----------------------
SECURITIES
UNDERLYING
OTHER ANNUAL RESTRICTED OPTIONS/ ALL OTHER
NAME AND PRINCIPAL BONUS COMPENSATION STOCK SARS COMPENSATION
POSITION YEAR (1) SALARY ($) ($) (2) ($) (3) AWARDS ($) (#) ($) (4)
- ----------------------- -------- ---------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dale P. Kramer......... 1998 592,308 720,000 699 245,625(5) 100,000 452,393(7)
Chairman of the Board, 1997 500,000 500,000 5,721 595,000(6) 0 22,332
President & CEO 1996 430,000 174,150 1,131 -- 100,000 20,336
William J. Podany...... 1998 492,308 500,000 2 -- 70,000 233,923(8)
Executive Vice 1997 390,793 312,635 2,750 371,875(6) 0 47,445
President; President, 1996 340,000 121,569 -- -- 50,000 15,391
COO of
Retail Stores Division
Jeffrey A. Jones....... 1998 321,923 325,000 14 -- 10,000 150,431(9)
Sr. Vice President 1997 285,000 228,000 15 -- 0 12,537
& CFO; Executive 1996 285,000 93,641 15 -- 45,000 9,212
Vice President of
ProVantage, Inc.
Roger J. Chustz........ 1998 243,077 171,500 9 -- 40,000 143,044(10)
Sr. Vice President 1997 220,000 154,000 10 -- 0 11,359
GMM/Apparel 1996 202,215 63,698 10 -- 30,000 10,582
Michael J. Hopkins..... 1998 224,000 158,200 200 -- 40,000 138,338(11)
Sr. Vice President 1997 199,231 25,644 -- 0 0 11,334(12)
GMM/Home 1996(13) 28,500 -- -- -- 0 --
</TABLE>
- --------
(1) Refers to fiscal years ended on the following dates: 1996, February 24,
1996; 1997, February 22, 1997; and 1998, January 31, 1998.
(2) Represents bonuses earned with respect to the indicated fiscal year
pursuant to the Company's Executive Incentive Plan, although all or a
portion of the bonus may have been paid during the subsequent fiscal
year.
(3) Represents above market interest earned under the Company's Deferred
Compensation Plan.
(4) All Other Compensation for the listed individuals includes one or more of
the following: Company-paid portion of individual life insurance
policies; 401(k) Company match; Profit Sharing Plan contributions;
Relocation expenses and tax adjustments in connection therewith; and a
Retention Bonus, as described below in the Compensation and Stock Option
Committee Report.
(5) On November 12, 1997, Mr. Kramer was granted 10,000 shares of restricted
stock pursuant to the Company's 1993 Restricted Stock Plan, as amended
("1993 Restricted Stock Plan"). The dollar amount shown equals the number
of restricted shares granted, multiplied by $24.5625, the
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<PAGE>
per-share closing price of the Company's Common Stock on the date of
grant. These valuations do not take into account the diminution in value
attributable to the restrictions applicable to the shares. These
restricted shares vest in full on November 12, 1999. Pursuant to the 1993
Restricted Stock Plan, dividends are paid on all shares of restricted
stock at the same rate as on unrestricted shares.
(6) On April 17, 1996, Mr. Kramer and Mr. Podany were granted 40,000 and
25,000 shares of restricted stock, respectively, pursuant to the 1993
Restricted Stock Plan. The dollar amount shown equals the number of
restricted shares granted, multiplied by $14.875, the per-share closing
price of the Company's common stock on the date of grant. The dollar
value of all restricted stock held at January 31, 1998 based upon the
per-share closing price of $25.50 on January 30, 1998 is: Mr. Kramer,
$1,275,000; and Mr. Podany, $637,500. These valuations do not take into
account the diminution in value attributable to the restrictions
applicable to the shares. Mr. Podany's shares vest in full on April 17,
2001. Mr. Kramer's shares vest upon the achievement of a targeted fair
market value of ProVantage, Inc. and its subsidiaries. Pursuant to the
1993 Restricted Stock Plan, dividends are paid on all shares of
restricted stock at the same rate as on unrestricted shares.
(7) All Other Compensation for Mr. Kramer includes the following: Company
paid portion of individual life insurance policy: $3,288; 401(k) Company
match: $4,750; Profit Sharing Plan contributions: $42,569; and Retention
Bonus: $401,786.
(8) All Other Compensation for Mr. Podany includes the following: Company
paid portion of individual life insurance policy: $1,311; 401(k) Company
match: $4,750; Profit Sharing Plan contributions: $23,098; relocation
expenses and tax adjustments in connection therewith: $3,871; and
Retention Bonus: $200,893.
(9) All Other Compensation for Mr. Jones includes the following: Company paid
portion of individual life insurance policy: $1,802; 401(k) Company
match: $5,927; Profit Sharing Plan contributions: $22,166; and Retention
Bonus: $120,536.
(10) All Other Compensation for Mr. Chustz includes the following: Company
paid portion of individual life insurance policy: $1,004; 401(k) Company
match: $5,484; Profit Sharing Plan contributions: $16,020; and Retention
Bonus: $120,536.
(11) All Other Compensation for Mr. Hopkins in Fiscal Year 1998 includes the
following: Company paid portion of individual life insurance policy:
$1,004; 401(k) Company match: $4,776; Profit Sharing Plan contributions:
$7,530; relocation expenses and tax adjustments in connection therewith:
$4,492 and Retention Bonus: $120,536.
(12) All other compensation for Mr. Hopkins in Fiscal Year 1997 includes the
following: 401(k) Company match: $985; Profit Sharing Plan contributions:
$1,346; and relocation expenses and tax adjustments in connection
therewith: $9,003.
(13) Mr. Hopkins' employment with the Company commenced November 9, 1995.
8
<PAGE>
OPTION GRANTS TABLE
The following table sets forth information about stock option grants during
the fiscal year ended January 31, 1998 to the five executive officers named in
the Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------ ---------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---- ------------ ------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dale P. Kramer (3)...... 100,000(1) 8.10 20.00 4-29-07 1,258,000 3,187,000
William J. Podany (4)... 50,000(1) 4.05 20.00 4-29-07 629,000 1,593,500
20,000(2) 1.62 24.5625 11-12-07 309,000 782,950
Jeffrey A. Jones (5).... 30,000(1) 2.43 20.00 4-29-07 377,400 956,100
30,000(2) 2.43 25.75 7-02-07 485,700 1,231,200
20,000(2) 1.62 24.5625 11-12-07 309,000 782,950
Roger J. Chustz (6)..... 30,000(1) 2.43 20.00 4-29-07 377,400 956,100
10,000(2) 0.81 24.5625 11-12-07 154,500 391,475
Michael J. Hopkins (7).. 30,000(1) 2.43 20.00 4-29-07 377,400 956,100
10,000(2) 0.81 24.5625 11-12-07 154,500 391,475
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- --------
(1) These stock options vest and become exercisable on the second anniversary
of the date of grant. All stock options vest immediately upon a "Change of
Control", as defined in the Company's stock option plans.
(2) Forty percent (40%) of these stock options vest and become exercisable on
the second anniversary of the date of grant, with an additional twenty
percent (20%) of the options vesting and becoming exercisable on each
successive anniversary of the date of grant. All stock options vest
immediately upon a "Change of Control", as defined in the Company's stock
option plans.
(3) On April 25, 1997, Mr. Kramer canceled and surrendered performance vested
options to purchase 100,000 shares of Common Stock.
(4) On April 25, 1997, Mr. Podany canceled and surrendered performance vested
options to purchase 50,000 shares of Common Stock.
(5) On April 25, 1997, Mr. Jones canceled and surrendered performance vested
options to purchase 30,000 shares of Common Stock.
(6) On April 25, 1997, Mr. Chustz canceled and surrendered performance vested
options to purchase 30,000 shares of Common Stock.
(7) On April 25, 1997, Mr. Hopkins canceled and surrendered performance vested
options to purchase 30,000 shares of Common Stock.
9
<PAGE>
OPTION EXERCISE AND FISCAL YEAR END VALUE TABLE
The following table sets forth information with respect to the five
executive officers named in the Summary Compensation Table concerning stock
options exercised during the last fiscal year and the number and value of
options outstanding on January 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
ACQUIRED OPTIONS/SARS AT FISCAL THE-MONEY OPTIONS/SARS AT
ON VALUE YEAR-END (#) FISCAL YEAR-END ($)
EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dale P. Kramer.......... 0 0 174,000 106,000 1,925,880 637,720
William J. Podany....... 0 0 45,000 100,000 697,500 758,750
Jeffrey A. Jones........ 21,000 412,125 13,000 96,000 196,125 424,125
Roger J. Chustz......... 35,000 437,576 3,000 51,000 43,860 302,235
Michael J. Hopkins...... 0 0 0 40,000 0 174,375
</TABLE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide for the indemnification of directors and
officers of the Company to the full extent permitted by the Minnesota
Statutes. The Company has entered into agreements to indemnify its directors,
and may enter into agreements to indemnify certain officers, in addition to
the indemnification provided for in the Bylaws. These agreements will, among
other things, indemnify the Company's directors and certain of its officers to
the full extent permitted by the Minnesota Statutes for any claims,
liabilities, damages, judgments, penalties, fines, settlements, disbursements
or expenses (including attorneys' fees) incurred by such person in any action
or proceeding, including any action by or in the right of the Company, on
account of services as a director or officer of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified persons as directors and officers.
SEVERANCE AGREEMENTS
The Company has entered into change of control severance agreements (the
"Severance Agreements") with certain officers of the Company, including those
officers identified in the Summary Compensation Table above. The Severance
Agreements provide that, if, within two years after a "Change of Control" (as
defined below), the Company terminates the individual's employment other than
for "Cause" (as defined below) or disability, or the individual terminates the
individual's employment for "Good Reason" (as defined below), then the
individual will be entitled to a lump-sum cash payment equal to (1) a multiple
of one, two or three times the individual's annual base salary, plus (2) a
multiple of one, two or three times the individual's average annual bonus for
the three fiscal years immediately preceding the date of termination. The
multiple referred to in this paragraph is three for Mr. Kramer and two for
each of Mr. Podany, Mr. Jones, Mr. Chustz and Mr. Hopkins. Each individual
would also receive his salary through the date of termination and all other
amounts owed to the individual at the date of termination under the Company's
benefit plans. In addition, under such circumstances, the individual will be
entitled to continued health and dental coverage for the individual and the
individual's family for a one, two or three year period after the date of
termination. The Severance Agreements provide that if certain amounts to be
paid thereunder constitute "parachute payments," as defined in Section 280(G)
of the Internal Revenue Code of 1986, as amended (the "Code"), the severance
benefits owed to the individual may be decreased, but only if the result is to
give the individual a larger after-tax benefit than if the payments are not
reduced. The individual is permitted to elect the payments to be reduced.
10
<PAGE>
A "Change of Control" is defined as occurring if (1) any person or group
acquires 20 percent or more of the Company's outstanding common stock or
voting securities, (2) the incumbent directors cease to constitute at least a
majority of the Board of Directors, (3) the shareholders approve a merger,
consolidation, liquidation, dissolution or reorganization of the Company, or
(4) the shareholders approve a complete liquidation or dissolution of the
Company. For purposes of the Severance Agreements, "Cause" means (a) personal
dishonesty by the individual intended to result in his substantial personal
enrichment at the expense of the Company, (b) repeated, willful violations by
the individual of his obligation to devote reasonable time and efforts to
carry out his responsibilities to the Company, or (c) the conviction of the
individual of a felony. "Good Reason" as used in the Severance Agreements
means (i) any reduction of the individual's authority, responsibilities or
compensation (excluding for this purpose specified actions by the Company not
taken in bad faith and which are promptly remedied by the Company upon receipt
of notice), (ii) any required relocation of the individual to a place of
business more than 35 miles from where the individual works at the time of the
Change of Control, (iii) any purported termination of the individual other
than for Cause, or (iv) any failure of a successor to the Company, by merger
or otherwise, to assume the Company's obligations under the Severance
Agreements.
OTHER COMPENSATION
The Company provides certain personal benefits and other noncash
compensation to its executive officers. For the fiscal year ended January 31,
1998, the incremental cost of providing such compensation did not exceed the
minimum amounts required to be disclosed under current Securities and Exchange
Commission rules for each person named in the Summary Compensation Table.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to August 14, 1997, the Compensation and Stock Option Committee
consisted of Messrs. Wright and Eugster. From March 1978 to August 1991, Mr.
Wright was a Vice President of the Company. See also "Relationship between the
Company and Supervalu".
11
<PAGE>
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
OF THE BOARD OF DIRECTORS
EXECUTIVE COMPENSATION PRINCIPLES
The Company's Executive Compensation Program is designed to align executive
compensation with Company values and objectives, its business strategy and
financial performance. In applying these principles, the Compensation and
Stock Option Committee (the "Committee") believes the Executive Compensation
Program must:
Attract and retain key executives critical to the long-term success of
the Company by providing compensation levels comparable to those offered
by other leading companies in the industry.
Reward executives for long-term strategic management and achievement of
business objectives.
Reward executives for the enhancement of shareholder value.
Support a performance oriented environment that rewards achievement of
Company goals and Company performance compared to that of the industry.
Differentiate compensation amounts according to individual performance.
EXECUTIVE COMPENSATION PROGRAM
The executive compensation program is comprised of both cash and equity
based compensation. The annual compensation consists of base salary and an
annual Executive Incentive Plan (the "EIP") payment. The Committee determines
the level of base salary for key executive officers. The Committee determines
the base salary based on competitive norms. These competitive norms are based
on a comprehensive retail study including companies having approximately 2
billion dollars in annual sales and not on the more diverse peer retail group
used for purposes of the performance graph. This narrower focus is believed to
be that most appropriate in fixing salaries. Additionally, the Committee seeks
to fix such salaries in the medium range of those companies used for salary
survey data. In establishing the base salary levels, the Committee considers:
Surveys of external comparable positions.
Position matching validating responsibilities, organizational level and
title with external comparable positions in the industry.
Compensation paid to comparable positions in comparably sized companies
based on sales revenues derived from industry surveys.
Of these three referenced factors, the Committee places the most emphasis on
surveys of external comparable positions. The Committee next weighs the
compensation paid comparable positions in comparably sized companies. Finally,
the Committee validates the information derived from the first two factors by
ensuring accurate position matching by evaluation of responsibilities,
organizational level and title.
The Committee also approves the participation of key executives in the EIP.
Awards for key executive officers vary based on the Company's achievement of
certain financial goals. As with base salary, the EIP is intended to be
competitive with bonuses paid by other retail companies having approximately 2
billion dollars in annual sales but, in the medium range.
An analysis of the survey group compensation level indicates that, as it
relates to base salary, the Company's executives, on an individual basis,
receive compensation comparable to the survey norm. Since the Company has not
granted stock options to its executives on an annual basis, the Company
believes comparisons of the Company's stock option grants to the survey are
not meaningful or appropriate.
12
<PAGE>
Long-term incentives are currently provided primarily through grants of
stock options and restricted stock. Under the Company's 1991 Stock Option Plan
and 1995 Stock Option Plan (the "Stock Option Plans"), the Committee has the
discretion to determine, among other things, the individuals to whom stock
options are awarded, the number of shares subject to each option, and whether
the stock options will be subject to performance criteria. In determining the
award of options, the Committee considers the number of outstanding stock
options held by each Stock Option Plan participant. This consideration is
applied consistently to all Stock Option Plan participants including executive
officers and the Chief Executive Officer. The size of stock option grants are
based upon competitive practice and position level. Stock option grants align
key executive officers' long-range interests with those of the shareholders by
providing the key executive officers with the opportunity to build a
meaningful stake in the Company. All eligible Stock Option Plan participants
were granted stock option awards in the fiscal year ended January 31, 1998.
The Company intends to issue additional stock options to all eligible Stock
Option Plan participants every two years.
Restricted stock granted pursuant to the Company's 1993 Restricted Stock
Plan is intended to encourage recipients to continue to serve the Company and
its shareholders. Although the recipient receives dividends at the same rate
as may be granted to owners of unrestricted shares, the restricted stock
certificates are not delivered and such shares may not be sold, transferred or
pledged until they vest.
Key executive officers also participate in the Company's Profit Sharing
Plan, which is funded entirely by Company contributions to such Plan. In this
regard, key executive officers are treated in the same manner as any other
Profit Sharing Plan participant. Committee approval is not required for
participation by key executives in the Profit Sharing Plan. Key executive
officers may also participate in the Company's 401(k) Plan which is available
to any associate meeting minimum length of service and number of hours worked
standards. Under the 401(k) Plan, the Company contributes one-half of an
associate's personal contribution up to a maximum of 3 percent of the
associate's base earnings. Also, key executive officers may elect to defer
certain annual compensation. Deferred amounts are accounted for as if invested
in various accounts.
On occasion, the Committee may make adjustments to a particular executive's
compensation in any given year based on circumstances unique to such
executive. For example, such adjustments may recognize extraordinary efforts
on a special project, or the need to compensate special talents or expertise
in order to retain a key individual.
The Committee may also award additional bonus payments to certain executives
when it determines that such an award is in the Company's and its
shareholders' best interest. For example, on April 29, 1997, the Committee
authorized certain retention bonus payments to be paid to key executives in
quarterly installments over a two year period, contingent upon such
executives' continued employment with the Company ("Retention Bonuses"). These
Retention Bonuses are intended to enable the Company to retain its key
executives in an industry which has experienced numerous business failures and
significant consolidation.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee determined the Chief Executive Officer's compensation for the
fiscal year ended January 31, 1998 based upon a number of factors and
criteria. The Chief Executive Officer's base salary was established based on:
surveys of external comparable positions; position-matching validating
responsibilities, organizational level and title with external comparable
positions in the industry; compensation paid to comparable positions in
comparably sized companies based on sales revenue derived from industry
surveys; and Committee review of the Chief Executive Officer's individual
performance. Individual performance is evaluated through regular ongoing
personal contact
13
<PAGE>
with Committee members. As with other executive officer salaries, comparison
was based on a comprehensive retail study including companies having
approximately 2 billion dollars in annual sales, as opposed to the more
diverse peer group used in the Performance Graph. It is noted that the base
salary awarded falls well within industry norms. The EIP award consideration
was based on the Company's achievement of certain financial goals which
include after tax earnings. For the fiscal year ended January 31, 1998, it was
determined that an EIP payment should be awarded to the President/Chief
Executive Officer in an amount which was 200 percent of his targeted EIP
payment, or 120 percent of his base salary. This determination was made in
light of the Company's significantly improved financial performance during the
fiscal year.
The Committee also awarded the Chief Executive Officer 10,000 shares of
restricted stock, pursuant to the Company's 1993 Restricted Stock Plan. These
shares will become vested on November 12, 1999. The Committee also awarded the
Chief Executive Officer a Retention Bonus of $937,500, payable in quarterly
installments over two years. The primary basis for the Committee's
determination to grant such restricted stock and Retention Bonus was to
provide a strong incentive for him to continue to serve the Company as Chief
Executive Officer and to increase the value of the Company during the course
of his employment.
The Committee is aware of the limitations imposed by Section 162(m) of the
Internal Revenue Code of 1986, as amended, on the deductibility of non-
performance based compensation paid to certain executive officers of the
Company to the extent it exceeds 1 million dollars per executive. The
Committee believes its primary goal is to design compensation strategies that
further the best interests of the Company and its shareholders. To the extent
they are not inconsistent with that goal, the Committee will attempt where
practical to use compensation policies and programs that preserve the
deductibility of compensation expenses.
Compensation and Stock Option
Committee
Jack W. Eugster, Chairman
Stephen E. Watson
14
<PAGE>
PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
shareholder return on the Company's Common Stock for the last five fiscal
years, with the cumulative total return on the Wilshire 5000 and the
cumulative total return for the S & P Retail Composite Index selected as the
Company's peer group. The comparison assumes $100 was invested on February 26,
1993 in the Company's Common Stock and in each of the comparison groups, and
assumes reinvestment of dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
Corporate Performance Graph
Summary Of Plotted Points
<TABLE>
<CAPTION>
Year Year Year Year Year
Index at Ending Ending Ending Ending Ending
2/26/93 2/25/94 2/24/95 2/23/96 2/21/97 1/31/98
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ShopKo Stores, Inc.: 100 77 63 79 114 189
Wilshire 5000 Index: 100 110 116 156 191 239
S&P Retail Composite Index: 100 100 92 101 125 172
</TABLE>
15
<PAGE>
ITEM 2
PROPOSED REINCORPORATION IN WISCONSIN
GENERAL
The Board of Directors has approved a plan to reincorporate the Company in
Wisconsin (the "Reincorporation"). The Reincorporation involves changing the
Company's state of incorporation from Minnesota to Wisconsin through a merger
of the Company into a newly-formed Wisconsin subsidiary (the "Merger")
pursuant to the Agreement and Plan of Merger dated as of March 31, 1998 (the
"Merger Agreement"), a copy of which is attached hereto as Appendix A.
Following the Reincorporation, the surviving Wisconsin corporation will
continue to be named "ShopKo Stores, Inc." In addition, the Reincorporation
will not involve any change in the business, management, benefit plans,
assets, liabilities or net worth of the Company, and the Company's current
headquarters will remain in Wisconsin. Shareholders of the Company will
automatically become shareholders of the Wisconsin corporation on a share-for-
share basis, and the Wisconsin corporation's shares will continue to be listed
on the New York Stock Exchange under the same symbol (SKO). See "Terms and
Effects of the Merger," below. Shareholders will not have to exchange their
stock certificates. The current certificates will represent stock in the
Wisconsin corporation following the Merger.
The Reincorporation has no material effects upon the shareholders, other
than those described below. See "Certain Material Differences Between the WBCL
and the MBCA."
VOTE REQUIRED TO APPROVE THE MERGER AND THE REINCORPORATION; BOARD
RECOMMENDATION
Under the Minnesota Business Corporation Act ("MBCA") and the Company's
Articles of Incorporation, the affirmative vote of a majority of the shares of
Company Common Stock eligible to vote is required for the adoption and
approval of the Merger Agreement and the Reincorporation. A vote for the
proposal will constitute specific approval of the Merger and the Merger
Agreement and all transactions and proceedings related to the Reincorporation
described in this proxy statement. The Board of Directors recommends a vote
FOR approval of the Reincorporation. Proxies solicited by the Board of
Directors will, unless otherwise directed, be voted in favor of the Merger
Agreement and the Reincorporation.
PRINCIPAL REASONS FOR THE REINCORPORATION
For many years the Company was a wholly-owned subsidiary of Supervalu Inc.
("Supervalu"). Supervalu is headquartered in Minneapolis, Minnesota, and the
Company was incorporated in Minnesota as a matter of convenience. In July of
1997, Supervalu completed the disposition of its Company Common Stock which
had started with the Company's initial public offering in 1991. After
completion of Supervalu's disposition of its interest in the Company, the
Company undertook a review of its corporate structure in light of the fact
that it was now a completely independent public company. This review resulted
in a number of changes including changing the Company's fiscal year to match
the National Retail Federation calendar and adding several new independent
board members. The Company also reviewed several alternatives concerning the
Company's state of incorporation. After a careful review of the alternatives,
the Board of Directors unanimously recommended reincorporating in Wisconsin
for the following reasons: 1) as a major employer in Wisconsin, the Company
believes it will have the ability to influence changes in the state's
corporate law which would be favorable to the Company, 2) the Reincorporation
will conform the Company's legal residence to its principal place of business,
3) Wisconsin has a modern corporate statute, 4) the costs of being
incorporated in Wisconsin are comparable to those of being incorporated in
Minnesota and significantly less than those of being incorporated in Delaware,
and 5) reincorporating in Wisconsin conforms with the practice of many other
large public companies based in Wisconsin.
16
<PAGE>
TERMS AND EFFECT OF THE MERGER
In September 1997, the Board approved and adopted the Merger Agreement. Upon
shareholder approval of the Merger Agreement, the Reincorporation will occur
by merging the Company into New ShopKo, Inc., a Wisconsin corporation recently
organized as a wholly-owned subsidiary of the Company in order to effectuate
the Merger ("New ShopKo"). Upon consummation of the Merger, New ShopKo will be
the surviving corporation, and the Company will cease to exist. New ShopKo's
Articles of Incorporation and By-Laws will become the Articles of
Incorporation and By-Laws of the surviving corporation, except that New
ShopKo's name will be changed from "New ShopKo, Inc." to "ShopKo Stores, Inc."
As a result, following the Reincorporation, the surviving corporation will
continue to be named "ShopKo Stores, Inc."
The Reincorporation will not result in any change in the business,
management, benefit plans, assets, liabilities or net worth of the Company,
and the Company's current corporate headquarters will remain in Wisconsin. All
of the assets, liabilities, subsidiaries (other than New ShopKo) and other
properties of the Company, will, pursuant to the Merger Agreement, become the
assets, liabilities, subsidiaries and other properties of New ShopKo to the
full extent provided by law. At present, New ShopKo has only nominal assets.
The directors and officers of the Company will hold the same positions with
New ShopKo, and outstanding employee stock options will be automatically
converted into identical rights to purchase the same number of shares of New
ShopKo Common Stock, $0.01 par value per share ("New ShopKo Stock"). New
ShopKo Stock will continue to be listed on the New York Stock Exchange under
the same symbol (SKO). In management's judgment, no presently contemplated
activities of the Company will be either favorably or unfavorably affected in
any material respect by adoption of the Reincorporation proposal. Shareholders
should consider, however, that the corporation law of Wisconsin and the
corporation law of Minnesota differ in a number of significant respects,
including differences pertaining to the rights of shareholders, and should
carefully review the discussion of certain of these differences under "Certain
Material Differences Between the WBCL and the MBCA."
At the effective time of the Reincorporation (the "Effective Time"), which
is expected to occur within a few days after the Annual Meeting, each
outstanding share of the Common Stock, $0.01 par value per share, of the
Company ("Company Stock") will be converted automatically into one share of
New ShopKo Stock (other than shares as to which the holder thereof has
properly exercised dissenters' rights under the MBCA). As a result,
shareholders will continue to own the same pro rata interest in New ShopKo
after the Merger as they did in the Company before the Merger. It will not be
necessary for the shareholders of the Company to exchange their existing share
certificates for share certificates of New ShopKo Stock; outstanding
certificates of the Company should not be destroyed or sent to the Company.
Following the Reincorporation, delivery of previously outstanding share
certificates of the Company will constitute "good delivery" in connection with
sales through a broker, or otherwise, of shares of New ShopKo Stock. The
Company currently has authority to issue 95,000,000 shares of capital stock,
of which 75,000,000 are designated as Common Stock and 20,000,000 shares are
designated as Preferred Stock. New ShopKo, on or before the Effective Time,
will have authority to issue exactly the same number of shares of capital
stock with the same designations.
The rights, powers and privileges of, and limitations on, the shareholders
of the Company are presently governed by the MBCA and by the terms and
provisions of the Restated Articles of Incorporation, as amended, and By-Laws
of the Company (the "Company's Articles" and the "Company's By-Laws,"
respectively). After the Reincorporation, the rights, powers and privileges
of, and limitations on, the shareholders of New ShopKo will be governed by the
Wisconsin Business Corporation Act (the "WBCL") and by the terms and
provisions of the Articles of Incorporation and By-Laws of New ShopKo ("New
ShopKo's Articles" and "New ShopKo's By-Laws," respectively). New ShopKo's
Articles (attached as Appendix B) and New ShopKo's By-Laws (attached as
Appendix C) are substantially similar, in all material respects, to the
Company's Articles and the Company's By-Laws
17
<PAGE>
except for changes prompted by the differences between the WBCL and the MBCA,
and except as otherwise described below. Copies of the Company's Articles and
the Company's By-Laws may be obtained without charge by contacting Mr. Richard
D. Schepp, Secretary, ShopKo Stores, Inc., 700 Pilgrim Way, Green Bay,
Wisconsin 54307-9060. On September 24, 1997 (the date of the public
announcement of the proposed Reincorporation), the high and low sales prices
of shares of the Company Stock were $27.25 and $27.00, respectively, as
reported on the New York Stock Exchange Composite Tape.
TERMS OF THE COMMON STOCK--IN GENERAL
Following the Reincorporation, many of the inherent rights of shareholders
of New ShopKo will be virtually identical to the existing rights of
shareholders of the Company. The foregoing descriptions, as well as the other
descriptions herein, are descriptions of the material similarities and
differences in shareholder rights resulting from the Reincorporation, but are
only summaries and are qualified in their entirety by reference to the actual
provisions of the Company's Articles, the Company's By-Laws, New ShopKo's
Articles, New ShopKo's By-Laws, the WBCL and the MBCA.
After the Reincorporation, record holders of New ShopKo Stock will be
entitled to one vote on all matters to be voted on by shareholders for each
share of New ShopKo Stock held. Voting rights will not be cumulative, and,
therefore, holders of a majority of the New ShopKo Stock will be able to elect
all of New ShopKo's directors. Holders of New ShopKo Stock will be entitled to
receive dividends when, as and if declared by the Board of Directors of New
ShopKo in its discretion out of funds legally available therefor. Subject to
the rights of any New ShopKo Preferred Stock, $0.01 par value ("New Preferred
Stock"), outstanding, the holders of New ShopKo Stock will be entitled to
receive on a pro rata basis all assets remaining for distribution to
shareholders. The New ShopKo Stock will not have preemptive or other
subscription rights, any conversion rights or any sinking fund provisions.
New ShopKo's Board of Directors will also be authorized, without further
shareholder action, to issue New Preferred Stock in one or more series and to
fix and determine the relative rights and preferences thereof, including
voting rights, dividend rights, liquidation rights, redemption provisions,
sinking fund provisions and/or conversion rights. Although there is no current
intention to do so, the Board of Directors of New ShopKo may, without
shareholder approval, issue New Preferred Stock with voting, dividend,
liquidation and/or other rights that could adversely affect the holders of New
ShopKo Stock and that could have the effect of delaying, deferring or
preventing a change in control of New ShopKo.
New ShopKo's Articles divide the Board of Directors of New ShopKo into three
classes serving staggered three-year terms. As a result, at least two annual
shareholders meetings will generally be required for shareholders to effect a
change of a majority of the Board of Directors of New ShopKo. Any director, or
the entire Board of Directors, of New ShopKo may be removed from office only
for cause. These provisions in New ShopKo's Articles require a 75 percent vote
of shareholders for amendment or repeal.
New ShopKo's By-Laws establish procedures, including advance notice
procedures, for considering at any annual shareholders meeting the nomination,
other than by the Board of Directors, of candidates for election as directors,
and for other shareholder proposals. In general, notice must be received by
New ShopKo at least 120 days prior to the anniversary date of the annual
meeting of shareholders in the immediately preceding year and must contain
certain specified information concerning, among other things, any person
nominated for director, the shareholder submitting the proposal or nomination,
and the shareholder's interest in any proposal. The Board of Directors
determined to make these changes in the by-laws regardless of whether or not
the Company reincorporated in Wisconsin. These provisions in New ShopKo's By-
Laws may be amended by the Board of Directors or by a 75 percent vote of the
shareholders.
18
<PAGE>
CERTAIN MATERIAL DIFFERENCES BETWEEN THE WBCL AND THE MBCA
Although it is impractical to note all of the differences between the
corporation laws of Wisconsin and Minnesota, summarized below are certain
material differences between the WBCL and the MBCA which could affect the
rights of shareholders. Certain of these differences could be considered to
have an "anti-takeover effect." See "Certain Anti-takeover Effects of the
Reincorporation," below.
Potential Statutory Shareholder Liability for Debts to Employees. The WBCL
provides that shareholders of Wisconsin domestic corporations are personally
liable, up to the par value of the shares ($0.01 per share in the case of the
New ShopKo Stock), for all debts owed by the corporation to employees for
services performed, but not exceeding six month's service in any one case.
While the WBCL specifies that such liability is limited to the par value of
the shares, "par value" has been interpreted by a Wisconsin trial court to
mean the consideration paid to the corporation for its shares. The decision
was affirmed by a split decision of the Wisconsin Supreme Court with one
justice abstaining. Although there is no similar provision under Minnesota
law, Wisconsin courts have held the predecessor of this provision of the WBCL
to be applicable to foreign corporations registered to do business in
Wisconsin. As a result, this provision may already be applicable to the
Company.
Shareholder Action By Consent. Under the MBCA, any action which may be taken
by the shareholders at a meeting may be taken without a meeting only by
unanimous written consent of all shareholders entitled to vote on the action.
Under the WBCL, shareholders of a corporation may take action without a
meeting only by unanimous written consent action or, if a Wisconsin
corporation so elects in its articles of incorporation, by less than unanimous
written consent. New ShopKo's Articles do not provide for shareholder consent
actions to be taken by less than a unanimous written consent. Therefore, any
shareholder action taken after the Effective Time will continue to require a
shareholders' meeting or the consent of every shareholder of New ShopKo.
Amendment of Articles and By-Laws. Under the MBCA, the Company's Articles
generally can be amended if the proposed amendment is approved by the Board of
Directors and by holders of a majority of the shares of the Company Stock. The
Company's Articles require a supermajority vote to amend certain provisions
thereof, including the "Board of Directors," business combination and "Rights"
provisions. The MBCA provides that unless reserved by the articles to the
shareholders, the power to adopt, amend or repeal a corporation's by-laws is
vested in the board, subject to the power of the shareholders to adopt, amend
or repeal the by-laws. After adoption of initial by-laws, the board of
directors of a Minnesota corporation cannot adopt, amend or repeal a by-law
fixing a quorum for meetings of shareholders, prescribing procedures for
removing directors or filling vacancies on the board or fixing the number of
directors or their classifications, qualifications or terms of office, but may
adopt or amend a by-law to increase the number of directors.
Under the WBCL, New ShopKo's Articles can be amended if the shareholder
votes cast in favor of the amendment exceed the shareholder votes cast against
the amendment. The Board of Directors of New ShopKo may condition its
submission to shareholders of a proposed amendment on any basis, including
requiring a greater vote of shareholders to approve the amendment. Consistent
with the Company's Articles, New ShopKo's Articles require a 75 percent vote
of shareholders to amend the provisions thereof relating to the board of
directors and business combinations, and also require a 75 percent vote of
shareholders to amend the provisions relating to amendment of by-laws and
articles of incorporation. New ShopKo's By-Laws can be amended by a vote of
not less than a majority of the entire Board of Directors of New ShopKo, or by
the affirmative vote of the holders of not less than 75 percent of the
outstanding shares of capital stock of New ShopKo and the affirmative vote of
the holders of not less than a majority of the shares of each class or series,
if any, entitled to vote thereon.
Inspection of Shareholders' List and Corporate Records. Under the MBCA, a
shareholder has the right to examine and copy the corporation's share register
and other corporate records upon written demand, which demand states a proper
purpose for the examination of such records. Under the
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WBCL, in order to inspect and copy the corporate records of a corporation,
including the corporation's shareholder list, a shareholder must have been a
shareholder of the corporation for at least six months before making a demand
or the shareholder must hold at least 5 percent of the outstanding stock of
the corporation. Furthermore, a shareholder's demand must be made at least
five business days before the date on which he or she wishes to inspect and
copy the records and must be made in good faith and for a proper purpose. In
addition to the right to inspect corporate records generally, under the WBCL,
all shareholders may inspect the corporation's shareholder list beginning two
business days after the notice of a meeting of shareholders is given and
ending at the conclusion of the meeting.
Dissenters' Rights. Under the MBCA, shareholders have the right, in some
circumstances, to dissent from certain corporate transactions by demanding
payment in cash for their shares equal to the fair value of the shares as
determined by agreement with the corporation or by a court. The MBCA, in
general, affords dissenters' rights in the event of certain amendments to the
articles of incorporation that materially and adversely affect the rights or
preferences of the shares of the dissenting shareholder, the sale or other
disposition of substantially all corporate assets, or certain mergers and
statutory share exchanges involving the corporation, regardless of whether the
shares of the corporation are listed on a national securities exchange or
widely held. Shareholders of the Company have the right to dissent from the
Merger and Reincorporation. See "The Merger--Dissenters' Rights" below.
Under the WBCL, absent a contrary provision in the corporation's articles of
incorporation, dissenters' rights are not available to holders of shares
registered on a national securities exchange, or quoted on the National
Association of Securities Dealers' Automated Quotation system in most
circumstances. As a result, assuming the continued listing of the New ShopKo
Stock on the New York Stock Exchange, shareholders of New ShopKo will not be
entitled to dissenters' rights with respect to any future merger or sale of
all or substantially all of the assets of New ShopKo which might occur
following the Reincorporation, regardless of the form of consideration to be
received by shareholders.
Dividends. Generally, a Minnesota corporation may pay a dividend if its
board of directors determines that the corporation will be able to pay its
debts in the ordinary course of business after paying the dividend and if,
among other things, the dividend payment does not reduce the remaining net
assets of the corporation below the aggregate preferential amount, if any,
payable in the event of liquidation to the holders of the shares having
preferential rights, unless the payment is made to those shareholders in the
order and to the extent of their respective priorities. A Wisconsin
corporation may pay a dividend if its board of directors determines that the
corporation will be able to pay its debts in the ordinary course of business
as they become due and that the total assets of the corporation after the
dividend would not be less than the sum of the corporation's liabilities, plus
the amount that would be needed, if the corporation were to be dissolved at
the time of the distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
Indemnification and Limitation on Director and Officer Liability. Unless
limited by the articles of incorporation or by-laws of a corporation, the MBCA
provides for mandatory indemnification of a director, officer, employee or
committee member against certain liabilities and expenses if such person (i)
acted in good faith; (ii) received no improper personal benefit; (iii) in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
was unlawful; and (iv) depending upon the capacity in which such person was
serving, either believed the conduct was in the best interests of the
corporation or believed that the conduct was not opposed to the best interests
of the corporation. The Company's By-Laws provide for indemnification of its
directors and officers to the extent permitted by the MBCA.
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The WBCL and New ShopKo's By-Laws provide for mandatory indemnification of a
director or officer against certain liabilities and expenses (i) to the extent
such officers or directors are successful in the defense of a proceeding
(i.e., any threatened, pending or completed civil, criminal, administrative or
investigative suit, arbitration or other proceeding, whether formal or
informal, which involves foreign, federal, state or local law and which is
brought by or in the right of the Company or by any other person) and (ii) in
proceedings in which the director or officer is not successful in the defense
thereof, unless it is determined that the director or officer breached or
failed to perform his or her duties to the corporation and such breach or
failure constituted: (a) a willful failure by the director or officer to deal
fairly with the corporation or its shareholders in connection with a matter in
which the director or officer had a material conflict of interest; (b) a
violation of the criminal law, unless the director or officer had reasonable
cause to believe his or her conduct was lawful or had no reasonable cause to
believe his or her conduct was unlawful; (c) a transaction from which the
director or officer derived an improper personal profit; (d) willful
misconduct. The WBCL specifically states that it is the public policy of
Wisconsin to require or permit indemnification in connection with a proceeding
involving federal or state securities regulation, as described therein, to the
extent otherwise required or permitted under the WBCL. In the opinion of the
Securities and Exchange Commission, indemnification for liabilities arising
under the federal securities laws is against public policy and is therefore
unenforceable. New ShopKo's By-Laws also require the advance payment of
directors' and officers' expenses incurred in connection with any proceeding,
provided certain procedural requirements are followed.
The WBCL provides for permissive indemnification of a director or officer in
the corporation's articles of incorporation or by-laws, by resolution of the
corporation's board of directors or by written agreement against certain
liabilities and expenses, provided that it is determined that the director or
officer did not breach or fail to perform a duty that he or she owes to the
corporation which constitutes conduct described in (a)-(d), above. New ShopKo
has currently not elected to expand the rights of indemnification for its
officers and directors beyond that contained in New ShopKo's By-Laws and the
WBCL. The MBCA provides only for mandatory indemnification as described above.
The MBCA permits a corporation to adopt a provision in its articles of
incorporation, which the Company has done, which limits a director's personal
liability to the corporation or its shareholders for monetary damages for
breach of fiduciary duty, except for conduct involving: (i) any breach of the
director's duty of loyalty to the corporation or its shareholders; (ii) acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; (iii) declarations of illegal distributions and
certain violations of Minnesota securities laws; or (iv) participation in a
transaction from which the director received an improper personal benefit.
The WBCL automatically limits the liability of directors of Wisconsin
corporations, unless the corporation's articles of incorporation provide
otherwise. Under the WBCL, the personal liability of a director to the
corporation and its shareholders is eliminated, except where the liability is
based on a breach of the director's duty to the corporation and its
shareholders and such breach constitutes (i) the director's willful failure to
deal fairly with the corporation or its shareholders in connection with a
matter in which the director had a material conflict of interest; (ii) a
violation of criminal law, unless the director had reasonable cause to believe
that his or her conduct was lawful or had no reasonable cause to believe that
his or her conduct was unlawful; (iii) a transaction from which the director
derived an improper personal profit; or (iv) willful misconduct. A director
may also be found personally liable to a corporation for the amount of a
distribution made in violation of the WBCL if the director's vote constitutes
conduct described in the preceding sentence. New ShopKo's Articles do not
limit the director's immunity provided by the WBCL.
To the extent that following the Reincorporation the indemnification and
limitation of director liability provisions are more favorable to directors
and executive officers, these persons have a personal interest in the
Reincorporation.
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The Company's By-Laws provide for director indemnification to the full
extent provided by Minnesota law. Similarly, New ShopKo's By-Laws provide for
director indemnification to the full extent permitted by the WBCL.
Vacancies on the Board of Directors. Under the MBCA, unless a corporation's
articles of incorporation or by-laws provide otherwise, (i) a vacancy on a
corporation's board of directors may be filled by the vote of a majority of
directors then in office, although less than a quorum, (ii) a newly created
directorship resulting from an increase in the number of directors may be
filled by the vote of a majority of the directors serving at the time of the
increase and (iii) any director so elected shall hold office only until a
qualified successor is elected at the next regular or special meeting of
shareholders. The Company's Articles and By-Laws follow these provisions.
Under the WBCL, a director appointed by the directors or shareholders to
fill a vacancy on a corporation's board of directors shall hold office until a
successor is elected at the next annual shareholder meeting, unless the
articles of incorporation or by-laws of such corporation classify the board of
directors into groups, in which case the appointed director holds office for
the remaining term of the class of directors to which he or she was appointed.
Both the Company's Articles and New ShopKo's Articles provide for a classified
board of directors.
Interested Director Transactions. Both the MBCA and WBCL provide for the
ratification of transactions with a corporation in which a director has an
interest. Under the MBCA, a contract or transaction between a corporation and
one or more of its directors, or an entity in or of which one or more of the
corporation's directors are directors, officers or legal representatives, have
a material financial interest, is not void or voidable solely by reason of the
conflict, provided that the contract or transaction is fair and reasonable at
the time it is authorized, is ratified in good faith after full disclosure by
two-thirds of the voting power of the shares of the corporation (excluding the
shares owned by the interested director) or by unanimous vote, is authorized
in good faith by a majority of the disinterested members of the board of
directors or a committee after full disclosure, or is an excluded transaction
under the statute. Approval of interested director transactions under the WBCL
is comparable to the MBCA, except that shareholder approval under the WBCL
requires the affirmative vote of a majority, rather than two-thirds, of the
voting power of shares entitled to vote.
Reliance by Directors or Officers on Reports of Others. The MBCA provides
that directors of a corporation may rely upon reports (including information,
opinions or statements, including financial statements and other financial
data) if such reports are prepared or presented by: (i) officers or employees
of the corporation reasonably believed to be reliable and competent in the
matters presented; (ii) professionals as to matters reasonably believed to be
within such person's professional or expert competence; and (iii) as to
matters within its delegated authority, committees of the corporation's board
of directors (of which committee the director is not a member) reasonably
believed to merit confidence. A director does not have the right to rely on
reports of others if such director has knowledge of the matter which makes
such reliance unwarranted. The right to rely on the reports of others does not
extend to officers of the corporation.
The WBCL provides that, unless a director or officer has knowledge that
makes reliance unwarranted, such director or officer, in discharging his or
her duties to the corporation, may rely on information, opinions, reports or
statements (including valuation reports, financial statements and other
financial data) if prepared or presented by any of the following: (i) an
officer or employee of the corporation whom the director or officer believes
in good faith to be reliable and competent with respect to the matters
presented; (ii) legal counsel, public accountants or other persons as to
matters that the director or officer believes in good faith are within the
person's professional or expert competence; or (iii) in the case of reliance
by a director, a committee of the board of directors of which the director is
not a member if the director believes in good faith that the committee merits
confidence.
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Treasury Shares. Treasury shares are not permitted under the MBCA. If a
corporation acquires its own shares, then any of the acquired shares which are
not pledged by the corporation as security for the future payment of the
purchase price for the shares constitute authorized but unissued shares of the
corporation, unless the articles of incorporation prohibit the reissuance of
such shares. The Company's Articles do not prohibit the reissuance of shares
acquired by the Company. Under the WBCL, unless the corporation's articles of
incorporation or resolutions of the board of directors provide otherwise, if a
corporation acquires its own shares, those shares become treasury shares.
Treasury shares are not outstanding shares, and, therefore, do not receive any
dividends and do not have voting rights. Neither New ShopKo's Articles nor
resolutions of New ShopKo's Board prohibit treasury shares.
Certain Anti-takeover Effects of the Reincorporation--General. Both the MBCA
and the WBCL contain provisions intended to protect shareholders from
individuals or companies attempting a takeover of a corporation in certain
circumstances. One of the consequences of the Reincorporation is that it may
be more difficult for a third party to acquire control of the Company, and,
therefore, directors and executive officers might be considered to have a
personal interest in the Reincorporation.
In addition, certain provisions of New ShopKo's Articles and New ShopKo's
By-Laws are substantially similar to the Company's Articles and the Company's
By-Laws. These provisions, including New ShopKo's classified board of
directors, the inability of New ShopKo shareholders to remove directors
without cause or to take action by consent (other than by unanimous consent),
New ShopKo's advance notice procedures to nominate candidates for directors or
for other shareholder proposals, and the existence of "blank check" Preferred
Stock and the "rights plan," may also have an anti-takeover effects.
The Reincorporation is not recommended in response to any proposed business
combination or effort to accumulate Company Stock, and the Company's Board is
not currently aware of such a proposal or effort. The anti-takeover provisions
of the MBCA and the WBCL differ in a number of respects, and it is not
practical to summarize all such differences here. However, the following is a
summary of certain significant differences.
Business Combination Statutes. Both Wisconsin and Minnesota have business
combination statutes that are intended primarily to deter highly leveraged
takeover bids which propose to use the target's assets as collateral for the
offeror's debt financing and to liquidate the target, in whole or in part, to
satisfy financing obligations. Proponents of the business combination statutes
argue that such takeovers have a number of abusive effects, such as adverse
effects on the community and employees, when the target is broken-up.
Furthermore, proponents argue that if the offeror can wholly finance its bid
with the target's assets, that fact suggests that the price offered is not
fair in relation to the value of the company, regardless of the current market
price.
The MBCA prohibits a publicly held Minnesota corporation from engaging in a
"business combination" (defined to include, subject to certain exceptions, a
merger, a statutory share exchange or a disposition of assets constituting 10
percent or more of the aggregate market value of all the assets or capital
stock of a corporation or of its earning power or net income) with an
"interested shareholder" (defined to include the beneficial owner of at least
10 percent of the voting power of the outstanding shares) for four years
following the date on which such person became an interested shareholder,
unless a committee of all of the board of directors' disinterested directors
approves the business combination or the 10 percent or greater stock ownership
before the interested shareholder's share acquisition date (i.e., the date on
which the shareholder became an interested shareholder). No restrictions apply
to a business combination after the four year period expires. The MBCA permits
a corporation to opt out of the restrictions on business combinations under
certain circumstances. The Company has not opted out of these restrictions.
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For purposes of selecting a committee, a director or person is
"disinterested" if the director or person is neither an officer nor an
employee, nor has been an officer or employee within five years preceding the
formation of the committee, of the public corporation, or of a related
corporation or other organization. The committee must consider and act on any
written, good faith definitive proposal to acquire shares or engage in a
business combination. The committee must consider and take action on the
definitive proposal and within 30 days render a decision in writing regarding
the proposal.
The WBCL prohibits a "resident domestic corporation" (an "RDC," defined to
include a Wisconsin corporation with (i) its principal offices located in
Wisconsin, (ii) significant business operations in Wisconsin, (iii) Wisconsin
residents constituting more than 10 percent of the corporation's shareholders
or (iv) Wisconsin residents holding more than 10 percent of the corporation's
shares) from entering into a "business combination" (defined to include a
merger, share exchange or a disposition of 5 percent or more of the aggregate
market value of all the assets or capital stock of a corporation) with an
"interested stockholder" (defined to include the beneficial owner of at least
10 percent of the voting power of the outstanding stock) for three years
following the stock acquisition date (i.e., the date the person became an
interested stockholder), unless the board of directors approves the business
combination or the purchase of stock by the interested stockholder before the
stock acquisition date. Business combinations after the three-year period
following the stock acquisition date are permitted only if: (i) the board of
directors approved the acquisition of the stock prior to the stock acquisition
date; (ii) the business combination is approved by a majority of the
outstanding voting stock not beneficially owned by the interested stockholder;
or (iii) the consideration to be received by shareholders meets certain
requirements of the statute with respect to form and amount.
The Wisconsin and Minnesota business combination statutes differ in several
respects. An interested shareholder must wait four years in Minnesota to
engage in a business combination, while the waiting period is only three years
in Wisconsin. Certain business combinations in Wisconsin have a lower
threshold for triggering the prohibitions of the business combination statute
than in Minnesota. In addition, Wisconsin continues to prohibit business
combinations after its three year waiting period unless appropriate approval
is received. Finally, the MBCA permits a corporation to opt out of the
business combination statutes in its articles of incorporation or by-laws.
However, neither the Company's Articles nor the Company's By-Laws contain such
an opt out provision. Furthermore, both the Company's Articles and New
ShopKo's Articles require a supermajority vote of shareholders, in addition to
the approval required under the MBCA and the WBCL, respectively, to approve
certain business combinations.
Fair Price Statute. The MBCA prohibits an offeror from acquiring by merger,
share exchange or otherwise shares of a publicly held corporation within two
years following the offeror's last purchase of shares pursuant to a takeover
offer (i.e., a tender offer), unless the shareholder is afforded, at the time
of the proposed acquisition, a reasonable opportunity to dispose of his or her
shares to the offeror upon substantially equivalent terms as those provided in
the earlier takeover offer. This provision of the MBCA does not apply to an
acquisition of shares described above if the proposed acquisition is approved
by a committee of all disinterested directors before the purchase of any
shares by the offeror pursuant to the earlier takeover offer.
The WBCL provides that certain mergers, share exchanges or sales, leases,
exchanges or other dispositions of assets in a transaction involving an RDC
and a "significant shareholder" (or a corporation which is or will be an
affiliate of a significant shareholder) are subject to approval by a
supermajority vote of shareholders, in addition to any approval otherwise
required. A "significant shareholder" is defined as a person who beneficially
owns, directly or indirectly, 10 percent or more of the voting stock of the
RDC or an affiliate of the RDC which beneficially owned, directly or
indirectly, 10 percent or more of the voting stock of the RDC within the last
two years. Such business combination must be approved by 80 percent of the
voting power of the RDC's stock and at least two-
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thirds of the voting power of the RDC's stock not beneficially held by the
significant shareholder who is a party to the relevant transaction (or any of
its affiliates or associates), in each case voting together as a single group,
unless the following fair price standards have been met: (i) the aggregate
value of the per share consideration (cash and non-cash) is equal to the
highest of (a) the highest price paid for any common shares of the corporation
by the significant shareholder in the transaction in which it became a
significant shareholder or within two years before the date of the business
combination, whichever is higher, (b) the market value of the RDC's shares on
the date of commencement of any tender offer initiated by the significant
shareholder, the date on which the person became a significant shareholder or
the date of the first public announcement of the proposed business
combination, whichever is highest, or (c) the highest liquidation or
dissolution distribution to which holders of the shares would be entitled, and
(ii) either cash, or the form of consideration used by the significant
shareholder to acquire the largest number of shares, is offered.
Control Share Acquisition. The MBCA establishes various disclosure and
shareholder approval requirements to be met by individuals or companies
attempting to acquire a substantial number of shares of a Minnesota
corporation. Specifically, the MBCA states that, unless the articles of
incorporation or by-laws approved by the shareholders provide otherwise, if a
person acquires a number of shares that exceed one-fifth, one-third or one-
half of the voting power of a public corporation, those excess shares lose
their voting rights. The voting rights of the acquired shares regain their
voting rights only if (i) the acquiring person discloses certain information
to the issuing public corporation and (ii) the shareholders grant voting
rights to such shares by a resolution approved by a majority of the
outstanding shares and by a majority of the outstanding shares that are not
owned by the acquiring shareholder or officers or directors or employees of
the corporation, at an annual or special meeting. If the acquiring person
fails to disclose certain information to the corporation or the shareholders
fail to approve a resolution granting voting rights to the acquired shares,
the board of directors may redeem all of the excess shares at their market
value. The MBCA control share acquisition statute applies unless the public
corporation opts out of the statute in its articles or by-laws approved by the
shareholders. Neither the Company's Articles nor the Company's By-Laws contain
a provision opting out of the MBCA control share acquisition statute.
Under the WBCL, the voting power of shares, including shares issuable upon
conversion of convertible securities or exercise of options or warrants, of an
RDC held by any person or persons acting as a group in excess of one-fifth of
the voting power in the election of directors is limited to 10 percent of the
full voting power of those excess shares. This restriction does not apply to
shares acquired (a) under an agreement entered into before the corporation was
an RDC, (b) directly acquired from the RDC, (c) in certain specified non-
market transactions (i.e., gifts, distributions upon death and pledges) or (d)
in a transaction in which the corporation's shareholders have approved
restoration of the full voting power of the otherwise restricted shares. The
WBCL does not contain a provision permitting the board of directors to redeem
control shares. The WBCL control share acquisition statute applies unless the
RDC opts out of the statute in its articles or by-laws. Neither New ShopKo's
Articles nor New ShopKo's By-Laws contain a provision opting out of the WBCL
control share acquisition statute.
Anti-Greenmail Statute. Both Minnesota and Wisconsin have statutes which are
intended to preclude a corporation from repurchasing large blocks of its stock
for a premium over its market value. The MBCA provides that a publicly held
corporation is prohibited from purchasing or agreeing to purchase any shares
from a person who beneficially owns more than five percent of the voting power
of the corporation if the shares have been owned by that person for less than
two years and the purchase price would exceed the market value of those
shares. However, such a purchase will not violate the MBCA if the purchase is
approved at a meeting of the corporation's shareholders by a majority of the
voting power of all shares entitled to vote, or if the corporation's offer to
purchase is made to all holders of shares of the class or series and to all
holders of any class or series into which
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the securities may be converted and the offer to purchase from such person is
at least equal in value (per share) to the offer to purchase from the other
shareholders.
The WBCL provides that, in addition to the vote otherwise required by law or
the articles of incorporation of an RDC, the approval by a majority vote of
the holders of the corporation's shares entitled to vote is required before
such RDC can take certain actions while a takeover offer is being made or
after a takeover offer has been publicly announced and before it is concluded.
Under the WBCL, shareholder approval is required for an RDC to (i) acquire
more than 5 percent of the RDC's outstanding voting shares at a price above
the market price from any individual or organization that owns more than 3
percent of the outstanding voting shares of the RDC and has held such shares
for less than two years, unless a similar offer is made to acquire all voting
shares or (ii) sell or option assets of the RDC which amount to at least 10
percent of the market value of the RDC, unless the RDC has at least three
independent directors or a majority of the independent directors vote not to
have this provision apply to the corporation. The Company currently has three
independent directors and, so long as New ShopKo continues to maintain at
least three independent directors, the provisions of the WBCL described in
clause (ii), above, would not apply to New ShopKo after the Reincorporation.
Amendment of Compensation Agreements. The MBCA contains a provision which
prohibits a publicly held corporation from entering into or amending
agreements that increase current or future compensation of any officer or
director (other than routine increases) during any tender offer or request or
invitation for tenders (commonly referred to as a "golden parachute"). The
WBCL does not have a comparable provision.
ACCOUNTING TREATMENT OF THE MERGER
Under generally accepted accounting principles, the Merger and the
Reincorporation will not result in any gain or loss to the Company or New
ShopKo. The assets, liabilities and shareholders' equity of the Company will
become the assets, liabilities and shareholders' equity of New ShopKo, without
any changes in amounts or classifications.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The Merger and Reincorporation will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Accordingly, for federal income tax purposes, no gain or loss will be
recognized by shareholders upon the automatic conversion of the Company's
Stock into New ShopKo Stock in the Merger. Each shareholder whose shares are
converted from the Company's Stock into New ShopKo Stock will have the same
basis in his or her New ShopKo Stock as he or she had in his or her Company
Stock, and his or her holding period of New ShopKo Stock will include the
period during which he or she held the corresponding shares of the Company
Stock (provided that such corresponding shares were held by him or her as a
capital asset on the Effective Date). No gain or loss will be recognized by
the Company or New ShopKo as a result of the Reincorporation.
NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES, IF
ANY, UNDER APPLICABLE STATE, LOCAL OR FOREIGN LAWS, AND EACH SHAREHOLDER IS
ADVISED TO CONSULT HIS OR HER PERSONAL ATTORNEY OR TAX ADVISOR AS TO THE
FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION AND
THE REPORTING THEREOF IN VIEW OF THE SHAREHOLDER'S INDIVIDUAL CIRCUMSTANCES.
It is expected that, following shareholder approval, the Reincorporation
will be consummated as soon as practicable by the filing of Articles of Merger
with the Minnesota Secretary of State and with the Wisconsin Department of
Financial Institutions. No other federal or state regulatory approval is
required in order to consummate the Reincorporation.
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The Board may amend, modify and supplement the Merger Agreement before or
after shareholder approval; provided, however, that no such amendment,
modification or supplement may be made or become effective after shareholder
approval which, in the judgment of the Company's Board of Directors, would
have a materially adverse effect upon the rights of the Company's shareholders
in any manner not permitted under applicable law. Shareholders will be
notified of any change to the Merger Agreement (before or after shareholder
approval), other than immaterial changes. The Merger Agreement may be
terminated and the Reincorporation may be abandoned, notwithstanding
shareholder approval, by the Company's Board of Directors at any time before
consummation of the Reincorporation in the unlikely event that the Board
should determine that in its judgment the Reincorporation is no longer in the
best interests of the Company and its shareholders.
THE MERGER--DISSENTERS' RIGHTS
Sections 302A.471 and 302A.473 of the MBCA grant any shareholder of the
Company of record on March 20, 1998 who objects to the Merger the right to
have the Company purchase the shares owned by the dissenting shareholder at
their fair value immediately prior to the Effective Time of the Merger. It is
the present intention of the Company to abandon the Merger in the event that a
large number of shareholders exercise dissenter's rights and the Company
becomes obligated to make a substantial payment to said dissenting
shareholders.
To be entitled to payment under Sections 302A.471 and 302A.473 of the MBCA,
the dissenting shareholder must file prior to the vote for the Merger
Agreement and Reincorporation a written notice of intent to demand payment of
the fair value of the shares and must not vote in favor of the Merger
Agreement and Reincorporation; provided, however, that such demand shall be of
no force and effect if the Merger and Reincorporation is not effected. The
submission of a blank proxy will constitute a vote in favor of the Merger and
Reincorporation and a waiver of dissenter's rights. The liability of the
Company to the dissenting shareholder for the fair value of the shares shall
also be the liability of New ShopKo when and if the Merger and Reincorporation
is consummated, and any reference to the "Company" in this section means the
surviving corporation after the Effective Time of the Merger. Any shareholder
contemplating exercise of these dissenter's rights should review carefully the
provisions of Sections 302A.471 and 302A.473 of the MBCA, particularly the
procedural steps required to effect such rights. SUCH RIGHTS WILL BE LOST IF
THE PROCEDURAL REQUIREMENTS OF SECTIONS 302A.471 AND 302A.473 ARE NOT FULLY
AND PRECISELY SATISFIED. A COPY OF SECTIONS 302A.471 AND 302A.473 IS ATTACHED
AS APPENDIX D.
The description of dissenters' rights and procedures herein does not purport
to be complete and is qualified in its entirety by reference to Sections
302A.471 and 302A.473.
Shareholders of the Company who do not demand payment for their shares as
provided above and in Section 302A.473 of the MBCA shall not be entitled to
dissenters' rights. A vote against the Merger and Reincorporation, however, is
not necessary to entitle dissenting shareholders to require the Company to
purchase their shares.
If and when the proposed Merger Agreement and Reincorporation is approved by
shareholders of the Company and is not abandoned by the Company's Board of
Directors, the Company shall notify all shareholders who have dissented as
provided above of:
1. The address to which demand for payment and certificates for shares
must be sent to obtain payment and the date by which they must be received;
2. A form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
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3. A copy of Sections 302A.471 and 302A.473 of the MBCA and a brief
description of the procedures to be followed to dissent and obtain payment
of fair values for shares under such sections.
To receive the fair value for the shares, a dissenting shareholder must
demand payment and deposit share certificates within 30 days after the notice
was given by the Company. Under the MBCA, notice by mail is given by the
Company when deposited in the United States mail. A shareholder who fails to
make demand for payment and to deposit certificates within the 30 day period
will lose the right to receive the fair value of the shares, notwithstanding
the timely filing of the first notice of intent to demand payment. After the
Effective Time of the Merger and Reincorporation or the receipt of the demand,
whichever is later, the Company shall remit to the dissenting shareholders who
have complied with the above-described procedures the amount the Company
estimates to be the fair value of such shareholder's shares, plus interest.
For the purpose of dissenters' rights under Sections 302A.471 and 302A.473,
"interest" means interest commencing five days after the Effective Time up to
and including the date of payment, calculated at the rate provided in
Minnesota Statutes Section 549.09 (presently 5.00 percent). The payment must
be accompanied by (i) the Company's closing balance sheet and statement of
income for a fiscal year ending not more than 16 months before the Effective
Time and the Company's latest available interim financial statements, (ii) an
estimate by the Company of the fair value of the shares and a brief
description of the method used by the Company to reach such estimate and (iii)
a copy of Sections 302A.471 and 302A.473, and a brief description of the
procedure to be followed in demanding supplemental payment.
If a dissenting shareholder believes that the amount remitted by the Company
is less than the fair value of the shares, with interest, the shareholder may
give written notice to the Company of the dissenting shareholder's estimate of
fair value, with interest, within 30 days after the Company mails such
remittance and demand payment of the difference. UNLESS A SHAREHOLDER MAKES
SUCH A DEMAND (INCLUDING A WRITTEN NOTICE OF SUCH ESTIMATE) WITHIN SUCH
THIRTY-DAY PERIOD, THE SHAREHOLDER WILL BE ENTITLED ONLY TO THE AMOUNT
REMITTED BY THE COMPANY.
The Company may withhold such remittance with respect to shares for which
the dissenting shareholder demanding payment was not the registered owner (or
the person on whose behalf such dissenting shareholder acts was not the
beneficial owner) as of the first public announcement date of the Merger (the
"Public Announcement Date"). As to each such dissenting shareholder who has
validly demanded payment but with respect to which the Company plans to
withhold remittance, following the Effective Time or the receipt of demand,
whichever is later, the Company will mail to the dissenting shareholder the
materials described in the preceding paragraph, a statement of the reason for
withholding the remittance, and an offer to pay to the dissenting shareholder
the amount listed in the materials, with interest, if any, if the dissenting
shareholder agrees to accept that amount in full satisfaction. If such
dissenting shareholder believes that the Company's offer is for less than the
fair value of the shares with interest, such dissenting shareholder may give
written notice to the Company of the dissenting shareholder's estimate of the
fair value, with interest, within 30 days after the mailing of the Company's
offer and demand payment of this amount. If the dissenting shareholder fails
to give written notice of such estimate to the Company within such thirty day
period, such dissenting shareholder will be entitled only to the amount
offered by the Company.
Within 60 days after the Company receives such a demand from a shareholder
(including both a dissenting shareholder who purchased shares on or prior to
the Public Announcement Date and a dissenting shareholder who purchased shares
thereafter), it will be required (if such shareholder satisfied the statutory
demand requirements) either to pay the shareholder the amount demanded or
agreed to after discussion between the shareholder and the Company or to file
in a court of competent jurisdiction in Hennepin County, Minnesota, a petition
requesting that the court determine the statutory
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fair value of the shares, with interest. All shareholders who have demanded
payment for their shares, but have not reached agreement with the Company,
will be made parties to the proceeding. The court will then determine whether
the shareholders in question have fully complied with the provisions of
Section 302A.473 and for all such shareholders who have fully complied and not
forfeited statutory dissenters' rights, will determine the fair value of the
shares, taking into account any and all factors the court finds relevant
(including the recommendation of any appraisers that may have been appointed
by the court), computed by any method that the court, in its discretion, sees
fit to use, whether or not used by the Company or a shareholder. The fair
value of the shares as determined by the court is binding on all shareholders,
wherever located. Each dissenting shareholder is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the
court, with interest, exceeds the amount, if any, previously remitted by the
Company to the dissenting shareholder. However, under the statute, dissenting
shareholders are not liable to the Company for the amount, if any, by which
payments remitted by the Company to the dissenting shareholders exceed the
fair value of such shares determined by the court, with interest. Under
Section 302A.471, Subd. 2, beneficial owners of shares who desire to exercise
statutory dissenters' rights themselves must obtain and submit the registered
owner's written consent at or before the time they deposit their stock
certificates and demand for payment with the Company. The costs and expenses
of the court proceeding will be assessed against the Company, except that the
court may assess part or all of those costs and expenses against a shareholder
whose action in demanding payment is found to be arbitrary, vexatious or not
in good faith. If the court finds that the Company has failed to comply
substantially with Section 302A.473, the court also may assess against the
Company such fees and expenses, if any, of attorneys and experts as the court
deems equitable. Such fees and expenses may also be assessed against any
person who has acted arbitrarily, vexatiously or not in good faith in bringing
the proceeding, and may be awarded to a party injured by those actions.
Under Section 302A.471, Subd. 2, a shareholder of the Company may not assert
dissenters' rights with respect to less than all of the shares registered in
the shareholder's name, unless the shareholder dissents with respect to all
shares beneficially owned by another person and discloses the name and address
of such other person.
The fair value of the Company's shares means the value of the shares
immediately before the Effective Time of the Merger and Reincorporation. Under
Section 302A.471, a shareholder of the Company has no right at law or equity
to set aside the adoption of the Merger Agreement or the consummation of the
Merger and Reincorporation, unless such adoption or such consummation is
fraudulent with respect to such shareholder or the Company.
Any shareholder making a demand for payment of fair value may withdraw the
demand at any time prior to the determination of the fair value of the shares
by filing written notice of such withdrawal with the Company.
ITEM 3
PROPOSAL TO APPROVE THE COMPANY'S 1998 STOCK INCENTIVE PLAN
The purpose of the 1998 Stock Incentive Plan (the "Plan") is to provide a
means to attract and retain high quality individuals, to motivate key
personnel to achieve the long-term goals of the Company, to provide incentive
compensation opportunities to the key personnel of the Company that are
competitive with those of similar companies, and to further align the
interests of key personnel who participate in the Plan with those of the
Company's shareholders through compensation that is based on the value of the
Company's Common Stock. The Board of Directors adopted the Plan on January 14,
1998, subject to shareholder approval. The following summary of the material
features of the Plan is subject in all respects to the complete text of the
Plan, a copy of which is attached to this Proxy Statement as Appendix E.
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The Board of Directors has delegated administration of the Plan to the
Compensation and Stock Option Committee (the "Committee"). Under the Plan, the
Committee may grant (i) incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) non-
qualified stock options, and (iii) shares of stock or the right to receive
shares of stock in the future (or their cash equivalent or a combination of
both) ("Stock Awards") (options and Stock Awards are collectively referred to
as "Awards"), to certain key personnel of the Company and its related
companies (defined to include any corporation, joint venture, limited
liability company, or other business entity in which the Company has a
significant direct or indirect equity interest). The Committee has final
authority, subject to the express provisions of the Plan, to determine to whom
Awards shall be granted; to determine the types of Awards and the numbers of
shares covered by the Awards; to determine the terms, conditions, performance
criteria, restrictions and other provisions of each Award, and to cancel or
suspend Awards; to determine the terms and provisions of any agreements made
pursuant to the Plan; and to make all other determinations that may be
necessary or advisable for the administration of the Plan. In making such
Award determinations, the Committee may take into account the nature of the
services rendered by the respective personnel, their present and potential
contribution to the Company's success and such other factors as the Committee
deems relevant. The Board of Directors has the non-exclusive power to exercise
the authority of the Committee with respect to Awards to non-employee
directors of the Company and its related companies. The Plan provides for
accelerated vesting of Awards upon the occurrence of certain "change of
control" transactions as described in the Plan.
Incentive stock options may be granted under the Plan to full or part-time
employees, including officers and directors who are also employees, of the
Company and its related companies (as defined above) (together, the
"Employees"). There are presently approximately 700 Employees who could be
selected by the Committee for participation in the Plan. In addition, non-
qualified stock options and Stock Awards may be granted to Employees and non-
employee directors.
Subject to the Committee's authority to adjust the number and kind of shares
subject to each outstanding Award and the exercise price in the event of
certain corporate transactions involving the Company, the aggregate number of
shares of Common Stock which may be issued under the Plan is 1,250,000 shares.
Award limits established under the Plan are as follows: the maximum number of
shares of Common Stock which may be issued pursuant to incentive stock options
is 500,000, the maximum number of shares of Common Stock covered by options
granted to any one individual is 500,000 in any one calendar year, and the
maximum value of Stock Awards granted to any one person is $5,000,000.
The period during which incentive stock options may be granted under the
Plan will expire on January 14, 2008, and the term of each option granted
under the Plan will expire not more than ten years from the date of grant.
Each option granted will specify an exercise price or prices; provided,
however, that no option may be granted with a per share exercise price less
than the fair market value per share of Common Stock on the date of grant. The
Plan does not allow the repricing of options after grant except in the event
of stock splits, stock dividends, and similar transactions. At the discretion
of the Committee, options may be exercised in full at any time, from time to
time or in installments, or upon the occurrence of specified events. An option
may be exercised as to any or all of the shares covered by the option by
delivering written notice of exercise to the Secretary of the Company,
accompanied by full payment of the exercise price for such shares. Payment of
the exercise price must be made in cash, by tendering previously owned shares
of Common Stock or by authorizing a third party to sell shares of the Common
Stock acquired upon exercise of an option and remitting the purchase price to
the Company.
The Plan may be terminated or amended by the Board of Directors of the
Company. The Board of Directors may not, without approval of the shareholders
of the Company, increase the number of shares of Common Stock which may be
delivered pursuant to Awards granted under the Plan, except
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for increases resulting from certain corporate transactions involving the
Company. Awards to be granted under the Plan are not determinable as of the
date of this Proxy Statement. The closing sale price of the Common Stock on
March 27, 1998 was $30.75.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following brief description of the tax consequences of the grant and
exercise of Awards under the Plan is based on federal income tax laws
currently in effect and does not purport to be a complete description of such
federal income tax consequences. Awards granted under the Plan may be either
incentive stock options, non-qualified stock options or shares of stock or the
right to receive shares of stock in the future. Neither the grant nor the
exercise of an incentive stock option will have immediate tax consequences to
the optionee or the Company, although the exercise of an incentive stock
option may give rise to liability for the optionee under the alternative
minimum tax provisions of the Code. Generally, if the optionee disposes of
shares of Common Stock acquired upon the exercise of an incentive stock option
within one year of the date of exercise or within two years from the date of
grant of the option, the optionee will recognize ordinary income and the
Company will be entitled to a deduction for tax purposes in the amount of the
excess of the fair market value of the shares of Common Stock on the date of
exercise over the exercise price (or the gain on sale, if less). Otherwise,
the Company will not be entitled to any deduction for tax purposes upon the
disposition of such shares and the entire gain for the optionee will be
treated as capital gain.
With respect to non-qualified stock options, at the time such options are
granted, the optionee will not recognize any taxable income and the Company
will not be entitled to any deduction. When an optionee exercises a non-
qualified stock option, the optionee, unless subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended, will recognize ordinary income
and the Company will be entitled to a corresponding deduction equal to the
excess of the fair market value of the Common Stock on the date of exercise
over the exercise price. The income arising from an optionee exercising a non-
qualified stock option will be subject to withholding for income and
employment tax purposes, and the Company will be entitled to defer making
delivery of any Common Stock to be issued until satisfactory withholding
arrangements have been made.
With respect to Stock Awards, unless the recipient has made an election
under Section 83(b) of the Code, the recipient will not recognize taxable
income at the time of the Award. At the time any transfer or forfeiture
restrictions applicable to the Stock Award lapse, the recipient will recognize
ordinary income and the Company will be entitled to a corresponding deduction
equal to the excess of the fair market value of such stock at such time over
the amount paid therefor. The income arising from the lapse of any transfer or
forfeiture restrictions will be subject to withholding for income and
employment tax purposes, and the Company will be entitled to defer making
delivery of any Stock Award until satisfactory withholding arrangements have
been made. Any dividends paid to the recipient on the stock while the transfer
or forfeiture restrictions apply will be ordinary compensation income to the
recipient and deductible as such by the Company. If the recipient makes an
election under Section 83(b) of the Code, he or she will be taxed on the Award
at its fair market value on the date of grant (less any amount paid by the
recipient for the Stock Award) and the Company will be entitled to a
corresponding deduction equal to the amount of taxable income recognized by
the recipient. The income arising from the Section 83(b) election will be
ordinary income and will be subject to applicable income and employment tax
withholding. The lapse of the transfer or forfeiture restrictions will not be
a taxable event in this case.
VOTE REQUIRED TO APPROVE PLAN; BOARD'S RECOMMENDATION
Approval of the 1998 Stock Incentive Plan requires the affirmative vote of
holders of a majority of the shares present, or represented, and entitled to
vote at the Annual Meeting. The Board of Directors recommends a vote FOR
approval of the 1998 Stock Incentive Plan. Proxies solicited by the Board
will, unless otherwise directed, be voted for approval of the 1998 Stock
Incentive Plan.
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ITEM 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of its Audit Committee, has
appointed Deloitte & Touche LLP to audit the financial statements of the
Company and its subsidiaries for the fiscal year ending January 30, 1999 and
is seeking the ratification of their appointment by the shareholders. Shares
represented by the accompanying proxy will be voted for ratification unless
the proxy indicates to the contrary.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do
so, and are expected to be available to respond to appropriate questions.
VOTE REQUIRED TO RATIFY SELECTION; BOARD'S RECOMMENDATION
Ratification of Deloitte & Touche LLP as the Company's independent auditors
for the fiscal year ending January 30, 1999 requires the affirmative vote of
holders of a majority of the shares present, or represented, and entitled to
vote at the meeting. The Board recommends a vote FOR such ratification.
Proxies solicited by the Board will, unless otherwise directed, be voted in
favor of such ratification.
RELATIONSHIP BETWEEN THE COMPANY AND SUPERVALU
The following is a summary of the material features of certain agreements,
arrangements and transactions between the Company and Supervalu. The summaries
of each of the following agreements are qualified in their entirety by
reference to the full text of such agreement, a copy of which has been filed
with the Securities and Exchange Commission and the New York Stock Exchange.
These agreements may be modified and additional agreements, arrangements and
transactions may be entered into by the Company and Supervalu. Any such future
modifications, agreements, arrangements and transactions will be determined
through negotiation between the Company and Supervalu.
STOCK BUYBACK AND SECONDARY OFFERING AGREEMENT
Prior to July 2, 1997, Supervalu, through a wholly owned subsidiary,
beneficially owned 14,731,667 shares of the Company's Common Stock. On April
24, 1997, the Company, Supervalu and its subsidiary entered into a Stock
Buyback and Secondary Offering Agreement (the "Stock Buyback Agreement")
pursuant to which the Company agreed to repurchase 8,174,387 shares of Common
Stock from Supervalu for $18.35 per share (the "Stock Buyback"). The
obligation of the Company and Supervalu to consummate the Stock Buyback was
conditioned upon completion of a secondary public offering of Supervalu's
remaining 6,557,280 shares of Common Stock (the "Offering"). Both the Stock
Buyback and the Offering were consummated on July 2, 1997.
Pursuant to the terms of the Stock Buyback Agreement, Messrs. Wright and
Girard, who were executive officers of Supervalu, submitted their resignations
from the Company's Board. In July, 1997, prior to the effectiveness of his
resignation from the Company's Board, Mr. Girard resigned from his position
with Supervalu. He has agreed to continue to serve on the Company's Board,
subject to his re-election at the Annual Meeting. Mr. Wright's resignation
from the Company's Board of Directors became effective on August 13, 1997.
Also in accordance with the terms of the Stock Buyback Agreement, Mr. Wright
resigned as the Company's Chairman of the Board, which resignation became
effective upon the closing of the Stock Buyback and the Offering. Mr. Kramer
was elected as Chairman of the Board on July 2, 1997.
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At the price the shares were sold in the Offering, the Stock Buyback
Agreement required Supervalu to pay the underwriting discount and certain
other expenses of the Offering estimated in the aggregate at $8,500,000. The
Company and Supervalu each paid the costs and expenses of their respective
counsel and the Company paid certain marketing costs.
INITIAL PUBLIC OFFERING AGREEMENTS
The following agreements were developed in connection with the Company's
initial public offering in October 1991 ("Initial Public Offering") when the
Company was a wholly owned subsidiary of Supervalu, and, therefore, were not
the result of arms'-length negotiations between independent parties. As a
result, while it has been the intention of the Company and Supervalu that such
agreements and the transactions provided for therein, taken as a whole, would
accommodate the parties' interests in a manner that is fair to the parties
while continuing certain mutually beneficial arrangements, there can be no
assurance that each of such agreements, or the transactions provided for
therein, has been or will be effected on terms at least as favorable to the
Company as could have been obtained from unaffiliated third parties.
Food Products Supply Agreement
The Company and Supervalu entered into a Food Products Supply Agreement
dated as of October 8, 1991 (the "Supply Agreement") whereby the Company
agreed, under certain conditions, to purchase from Supervalu all of the
Company's requirements for certain products purchased from a wholesaler and
sold in any food store owned or operated by the Company which is located
within the geographic areas serviced by Supervalu until October 16, 1998. The
Supply Agreement was terminated as of July 2, 1997.
Indemnification Agreement
The Company and Supervalu have entered into an Indemnification, Tax Matters
and Guarantee Fee Agreement dated as of October 8, 1991 (the "Indemnification
Agreement") with respect to certain liabilities which may arise after the
Initial Public Offering. In general, the Indemnification Agreement provides
that the Company and Supervalu will each indemnify the other party and that
party's directors, officers, employees and agents against certain liabilities
arising from or based upon the operation of their own respective businesses
prior to and following such offering. Since the Company is no longer eligible
to participate in Supervalu's consolidated income tax returns, the
Indemnification Agreement also contains certain agreements by the parties
intended to clarify responsibilities and procedures for the filing of returns,
the payment of taxes and the resolution of disputes regarding taxes following
such offering. The Company has provided standby letters of credit in lieu of
agreed to fees associated with Supervalu guaranteeing certain obligations of
the Company.
The Company was previously a member of the Supervalu consolidated group for
federal income tax purposes. The Company may be held liable for any unpaid
federal income tax liabilities of the Supervalu consolidated group for each
taxable year in which the Company was a member of the Supervalu consolidated
group during any part of such taxable year. The Indemnification Agreement
between the Company and Supervalu provides that, subject to the limitation set
forth below, Supervalu will indemnify the Company for any income tax liability
of the Company for any taxable year ending on or before October 16, 1991.
Supervalu shall not be required to indemnify the Company against any taxes
attributable to the Company for any tax periods ending on or before October
16, 1991 to the extent that such taxes result, directly or indirectly, from
any adjustment made by a taxing authority to the tax liability of the Company
for any period ending after October 16, 1991. Notwithstanding the above
limitation, the Indemnification Agreement also provides that Supervalu will
indemnify the Company for all income tax liabilities attributable to any
member of the Supervalu consolidated group other than the Company for any
taxable year.
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Insurance Matters Agreement
Prior to the Initial Public Offering, insurance coverage for the Company was
provided under various insurance policies maintained by Supervalu. As a result
of such offering, coverage for the Company ceased under such policies for
certain claims made and occurrences arising after October 16, 1991. The
Company has since obtained its own insurance policies. The Company and
Supervalu have entered into an Insurance Matters Agreement dated as of October
8, 1991 (the "Insurance Matters Agreement") which provides for the allocation
of premiums and premium adjustments under the Supervalu policies after October
16, 1991 in accordance with Supervalu's normal annual allocation process. The
Insurance Matters Agreement also provides that Supervalu and the Company will
cooperate in good faith on the handling of claims by the Company under the
Supervalu policies after October 16, 1991, with Supervalu retaining decision-
making authority in connection with any such policies that are liability
policies.
Registration Rights Agreement
The Company and SOA, a wholly owned subsidiary of Supervalu, entered into a
Registration Rights Agreement dated as of October 8, 1991 (the "Registration
Rights Agreement") pursuant to which the Company granted certain demand and
"piggyback" registration rights to SOA (and to certain affiliates of
Supervalu) with respect to shares of Common Stock owned by SOA (or such
affiliates) following the Initial Public Offering. The Registration Rights
Agreement terminated upon SOA's divestiture of its Common Stock on July 2,
1997.
OTHER MATTERS
Other Proposed Action. The Board of Directors of the Company knows of no
other matters which may come before the meeting. However, if any matter other
than those referred to above should properly come before the meeting, it is
the intention of the persons named in the enclosed proxy to vote such proxy in
accordance with their discretion.
Cost of Solicitation. The cost of soliciting proxies will be borne by the
Company. Arrangements will be made with brokerage houses, custodians, nominees
and other fiduciaries to send proxy materials to their principals, and the
Company will reimburse them for their expenses. In addition to solicitation by
mail, certain officers and directors of the Company, who will receive no
compensation for their services other than their regular salaries, may solicit
proxies by telephone, telecopy and personally.
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Shareholder Proposals. Assuming the Reincorporation is completed,
nominations, other than by or at the direction of the Board of Directors, of
candidates for election as directors at the 1999 Annual Meeting and any other
shareholder proposed business to be brought before the 1999 Annual Meeting
must be submitted to the Company not later than January 13, 1999. Such
shareholder proposed nominations and other shareholder proposed business must
be made in accordance with the Company's By-Laws which upon completion of the
Reincorporation will provide, among other things, that shareholder proposed
nominations must be accompanied by certain information concerning the proposal
and the shareholder submitting the proposal. To be considered for including in
the proxy statement solicited by the Board of Directors, shareholder proposals
for consideration at the 1999 Annual Meeting of Shareholders of the Company
must be received by the Company at its principal executive offices, 700
Pilgrim Way, P.O. Box 19060, Green Bay, Wisconsin 54307-9060 on or before
December 1, 1998. Proposals should be directed to Mr. Richard D. Schepp,
Senior Vice President, General Counsel and Secretary. To avoid disputes as to
the date of receipt, it is suggested that any shareholder proposal be
submitted by certified mail, return receipt requested.
By Order of the Board of Directors
Richard D. Schepp
Secretary
Dated: April 10, 1998
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger, dated as of March 31, 1998, by and between
ShopKo Stores, Inc., a Minnesota corporation ("ShopKo"), and New ShopKo, Inc.,
a Wisconsin corporation and a wholly-owned subsidiary of ShopKo (the
"Surviving Corporation"). ShopKo and the Surviving Corporation are sometimes
hereinafter referred to as the "Constituent Corporations."
Whereas, ShopKo, as of the date hereof, has authority to issue 95,000,000
shares of capital stock, of which 75,000,000 are designated as Common Stock,
$.01 par value (the "ShopKo Common Stock"), and 20,000,000 shares are
designated as Preferred Stock, $.01 par value (the "ShopKo Preferred") and, as
of the date hereof, 25,946,080 shares of ShopKo Common Stock are issued and
outstanding, and no shares of ShopKo Preferred are issued and outstanding; and
Whereas, the Surviving Corporation, on or before the Effective Time of the
Merger (as defined below), will have authority to issue 95,000,000 shares of
capital stock, of which 75,000,000 will be designated as Common Stock, $.01
par value (the "Surviving Corporation Common Stock"), and 20,000,000 shares
will be designated as Preferred Stock, $.01 par value (the "Surviving
Corporation Preferred"); and
Whereas, as of the date hereof, 100 shares of Surviving Corporation Common
Stock are issued and outstanding, all of which are held by ShopKo, and no
shares of Surviving Corporation Preferred are issued and outstanding; and
Whereas, ShopKo and the Surviving Corporation desire that ShopKo merge with
and into the Surviving Corporation and that the Surviving Corporation shall
continue as the surviving corporation in such merger, upon the terms and
subject to the conditions set forth herein and in accordance with the laws of
the State of Wisconsin and the laws of the State of Minnesota; and
Whereas, the respective Boards of Directors of ShopKo and the Surviving
Corporation have approved this Agreement and directed that it be submitted to
a vote of their shareholders.
Now, Therefore, in consideration of the mutual agreements and covenants set
forth herein, the parties hereto agree to merge as follows:
ARTICLE 1
MERGER
1.1. Merger. Subject to the terms and conditions of this Agreement, ShopKo
shall be merged with and into the Surviving Corporation (the "Merger") in
accordance with the Wisconsin Business Corporation Law ("WBCL") and Sections
302A.611, 302A.613, 302A.615 and 302A.651 of the Minnesota Business
Corporation Act (the "MBCA"), the separate existence of ShopKo shall cease,
and the Surviving Corporation shall be the surviving corporation and continue
its corporate existence under the laws of the State of Wisconsin.
1.2. Effect of the Merger. At the Effective Time of the Merger (as
hereinafter defined), the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, of each of ShopKo and the Surviving Corporation; all property, real,
personal and mixed, and all debts due on any account, including subscriptions
for shares, and all other choses in action, and every other interest of or
belonging to or due to each of ShopKo and the Surviving Corporation shall vest
in the Surviving Corporation without any further act or deed; the title to any
real estate or any interest therein vested in ShopKo shall not revert nor in
anyway become
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impaired by reason of the Merger; the Surviving Corporation shall be
responsible and liable for all the liabilities and obligations of each of
ShopKo and the Surviving Corporation; a claim of or against or a pending
proceeding by or against ShopKo or the Surviving Corporation may be prosecuted
as if the Merger had not taken place, or the Surviving Corporation may be
substituted in the place of ShopKo; and neither the rights of creditors nor
any liens upon the property of ShopKo or the Surviving Corporation shall be
impaired by the Merger.
1.3. Effective Time of the Merger. The Merger shall become effective as of
the date and time (the "Effective Time of the Merger") the following actions
are completed: (a) appropriate duly executed articles of merger are filed in
accordance with Section 180.1105 of the WBCL; and (b) appropriate duly
executed articles of merger are filed in accordance with Sections 302A.615 and
302A.641 of the MBCA.
ARTICLE 2
NAME, ARTICLES OF INCORPORATION, BYLAWS,
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
2.1. Name of Surviving Corporation. At the Effective Time of the Merger,
Article I of the Surviving Corporation's Articles of Incorporation shall be
amended to read as follows:
The name of the Corporation is ShopKo Stores, Inc.
2.2. Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation, as amended pursuant to Section 2.1 hereof, shall be the
Articles of Incorporation of the Surviving Corporation from and after the
Effective Time of the Merger by virtue of the Merger and without any further
action by the Constituent Corporations, until amended thereafter as provided
therein or by law.
2.3. By-laws. The By-laws of the Surviving Corporation shall be the By-laws
of the Surviving Corporation from and after the Effective Time of the Merger
by virtue of the Merger and without any further action by the Constituent
Corporations, until amended thereafter as provided therein, in the Surviving
Corporation's Articles of Incorporation, or By-laws.
2.4. Directors and Officers. The directors and officers of ShopKo
immediately prior to the Effective Time of the Merger shall be the directors
and officers, respectively, of the Surviving Corporation from and after the
Effective Time of the Merger and shall hold office in accordance with the
Articles of Incorporation and By-laws of the Surviving Corporation until the
expiration of the terms to which they were elected to serve as directors and
officers of ShopKo and until their successors are duly elected and qualified.
ARTICLE 3
CONVERSION OF SECURITIES
3.1. Conversion. At the Effective Time of the Merger, each of the following
transactions shall be deemed to occur simultaneously and this Section 3.1
shall constitute the manner and basis of converting the capital stock of the
Constituent Corporations into capital stock of the Surviving Corporation and
of consummating the other transactions referred to in this Section 3.1:
(a) Each share of ShopKo Common Stock (other than shares as to which the
holder thereof has properly exercised dissenters' rights under the MBCA)
issued and outstanding immediately prior to the Effective Time of the
Merger shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into and become one validly issued, fully
paid and non-assessable share of Surviving Corporation Common Stock (except
to the extent provided in Section 180.0622(2)(b) of the WBCL).
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(b) Each stock option to purchase shares of ShopKo Common Stock granted
by ShopKo or any of its subsidiaries under any of the stock option plans of
ShopKo and outstanding immediately prior to the Effective Time of the
Merger shall, by virtue of the terms of the stock option plans, the actions
of the Boards of Directors of the Constituent Corporations and the Merger
and without any action on the part of the holder thereof, be converted into
and become a stock option to purchase, upon the same terms and conditions,
the number of shares of Surviving Corporation Common Stock which is equal
to the number of shares of ShopKo Common Stock which the optionee would
have received had he or she exercised his or her option or right in full
immediately prior to the Effective Time of the Merger (whether or not such
option or right was then exercisable). The exercise price per share of the
Surviving Corporation Common Stock under each of such options or warrants
shall be equal to the exercise price per share of ShopKo Common Stock
thereunder immediately prior to the Effective Time of the Merger. A number
of shares of Surviving Corporation Common Stock shall be reserved for
issuance upon the exercise of options equal to the number of shares of
ShopKo Common Stock so reserved immediately prior to the Effective Time of
the Merger.
(c) Each Right issued by ShopKo under the Rights Agreement with Norwest
Bank Minnesota, as agent, dated as of July 3, 1992 (the "Rights Agreement")
and outstanding immediately prior to the Effective Time of the Merger
shall, by virtue of the Rights Agreement, the actions of the Boards of
Directors of the Constituent Corporations and the Merger and without any
action on the part of the holder thereof, be converted into and become a
right to purchase, upon the same terms and conditions, an identical number
of shares of the Surviving Corporation's Series B Junior Participating
Preferred Stock (the "Series B Preferred Stock") (subject to future
adjustments as may be provided in the Rights Agreement). A number of shares
of Series B Preferred Stock of the Surviving Corporation shall be reserved
for issuance upon the exercise of rights equal to the number of shares of
Series B Junior Participating Preferred Stock of ShopKo so reserved
immediately prior to the Effective Time of the Merger.
(d) Each share of Surviving Corporation Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger (each of
which is presently held by ShopKo), without any action on the part of the
holder thereof shall be canceled and cease to exist, and no shares of the
Surviving Corporation or other securities of the Surviving Corporation
shall be issued or other consideration paid in respect thereof.
3.2 Conversion of Certificates. (a) Each stock certificate (other than to
the extent a stock certificate represented shares as to which the holder
thereof has properly exercised dissenters' rights under the MBCA) which,
immediately prior to the Effective Time of the Merger, represented issued and
outstanding shares of ShopKo Common Stock shall not represent shares of ShopKo
Common Stock (which shares shall cease to exist) after the Effective Time of
the Merger but instead shall be and become at the Effective Time of the Merger
a certificate representing an identical number of shares of Surviving
Corporation Common Stock, automatically by virtue of the Merger and without
any action on the part of the holder thereof. Upon the surrender or transfer
following the Effective Time of the Merger of a stock certificate that
represented ShopKo Common Stock immediately prior to the Effective Time of the
Merger, but subject to Section 3.2(b) hereof, a stock certificate representing
the same number of shares of Surviving Corporation Common Stock shall be
reissued to the holder or transferee, as the case may be, thereof, provided
that no holder of a stock certificate that represented ShopKo Common Stock
immediately prior to the Effective Time of the Merger shall be required to
surrender such stock certificate in connection with the Merger and such stock
certificate shall represent the same number of shares of Surviving Corporation
Common Stock until so surrendered.
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(b) If after the Effective Time of the Merger any certificate for shares of
Surviving Corporation Common Stock is to be issued in a name other than that
in which the certificate which immediately prior to the Effective Time of the
Merger represented shares of ShopKo Common Stock surrendered in exchange
therefor is registered, it shall be a condition of such exchange that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and the person requesting such exchange shall pay any
transfer and other taxes required by reason of the issuance of certificates
for such shares of the Surviving Corporation capital stock in a name other
than that of the registered holder of the certificate surrendered, or shall
establish to the satisfaction of the Surviving Corporation or its agent that
such tax has been paid or is not applicable. Notwithstanding the foregoing, no
party hereto shall be liable to a holder of shares of ShopKo capital stock for
any shares of Surviving Corporation capital stock or dividends or
distributions thereon delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
3.3. Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of ShopKo Common Stock that are outstanding immediately prior
to the Effective Time of the Merger and are held or beneficially owned by
shareholders or eligible beneficial owners who, prior to the vote of the
shareholders of ShopKo on the approval of this Agreement, shall have filed
with ShopKo a written notice of intent to demand the fair value of their
shares of ShopKo Common Stock in the manner provided in Section 302A.473 of
the MBCA ("Dissenting Shares") and who shall not have voted such Dissenting
Shares in favor of approval of this Agreement or otherwise withdrawn or lost
their right to payment for their Dissenting Shares under Section 302A.473 of
the MBCA will not be converted into the right to receive shares of Surviving
Corporation Common Stock, but the holders or eligible beneficial owners
thereof will be entitled to payment of the fair value of such shares of ShopKo
Common Stock in accordance with the provisions of such Section 302A.473;
provided, however that if any holder or beneficial owner of Dissenting Shares
shall fail to establish or perfect his, her or its entitlement to dissenters'
rights as provided in such Section 302A.473 or shall fail strictly to comply
with any provision of Section 302A.473 of the MBCA or otherwise withdraws or
loses such dissenters' rights, the shares of ShopKo Common Stock held by such
holder or owned by such beneficial owner shall be automatically converted into
shares of Surviving Corporation Common Stock in accordance with Section
3.1(a).
ARTICLE 4
EMPLOYEE BENEFIT AND COMPENSATION PLANS
At the Effective Time of the Merger, any employee benefit plan or incentive
compensation plan, including any stock option plan, to which ShopKo is then a
party shall be assumed by, and continue to be the plan of, the Surviving
Corporation. To the extent any employee benefit plan or incentive compensation
plan of ShopKo or any of its subsidiaries provides for the issuance or
purchase of, or otherwise relates to, ShopKo capital stock, from and after the
Effective Time of the Merger, such plan shall be deemed to provide for the
issuance or purchase of, or otherwise to relate to, the Surviving Corporation
capital stock.
ARTICLE 5
CONDITIONS
Consummation of the Merger is subject to the satisfaction at or prior to the
Effective Time of the Merger of the following conditions:
5.1. ShopKo Shareholder Approval. This Agreement and the Merger shall have
been adopted and approved by the shareholders of ShopKo in accordance with the
Articles of Incorporation of ShopKo and the applicable provisions of the MBCA.
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5.2. Surviving Corporation Shareholder Approval. This Agreement and the
Merger shall have been adopted and approved by ShopKo as the holder of all the
outstanding shares of Surviving Corporation capital stock prior to the
Effective Time of the Merger.
5.3. Consents, etc. Any and all consents, permits, authorizations, approvals
and orders deemed in the sole discretion of ShopKo to be material to the
consummation of the Merger shall have been obtained.
ARTICLE 6
AGREEMENTS
6.1. No Preferred Stock. Prior to the first to occur of the Effective Time
of the Merger or the termination of this Agreement, the Surviving Corporation
shall not issue Surviving Corporation Preferred.
6.2. Taking of Necessary Action; Further Action. Subject to Section 7.1,
each of ShopKo and the Surviving Company will take all such reasonable and
lawful action as may be necessary or appropriate in order to effectuate the
Merger as promptly as possible. If, at any time after the Effective Time of
the Merger, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges,
powers, and franchises of the Constituent Corporations, the officers and
directors of the Constituent Corporations are fully authorized in the name of
their corporation or otherwise to take, and will take, all such lawful and
necessary action.
6.3. Other Agreements. The Surviving Corporation, from and after the
Effective Time of the Merger, agrees that it may be served with process in the
State of Minnesota in any proceeding for the enforcement of any obligation of
either Constituent Corporation and in any proceeding for the enforcement of
the rights of a dissenting shareholder of ShopKo against the Surviving
Corporation. The Surviving Corporation irrevocably appoints the Secretary of
State of the State of Minnesota as its agent to accept service of process in
any such proceeding. The Surviving Corporation will promptly pay to the
dissenting shareholders of ShopKo the amounts, if any, to which they will be
entitled under Section 302A.473 of the MBCA with respect to the rights of
dissenting shareholders, provided that such dissenting shareholders act in
strict compliance with the provisions of the MBCA governing rights of
dissenting shareholders in the case of a merger. The Surviving Corporation
shall comply with all of its obligations under Section 302A.651, Subd. 4, of
the MBCA.
ARTICLE 7
GENERAL
7.1. Termination and Abandonment. This Agreement may be terminated and the
Merger and other transactions herein provided for abandoned at any time prior
to the Effective Time of the Merger, whether before or after adoption and
approval of this Agreement by the shareholders of ShopKo, by action of the
Board of Directors of ShopKo, if the Board of Directors of ShopKo determines
that the consummation of the transactions provided for herein would not, for
any reason, be in the best interests of ShopKo and its shareholders. In the
event of termination of this Agreement, this Agreement shall become void and
of no effect and there shall be no liability on the part of either ShopKo or
the Surviving Corporation or their respective Boards of Directors or
shareholders, except that ShopKo shall pay all expenses incurred in connection
with the Merger or in respect of this Agreement or relating thereto.
7.2. Amendment. This Agreement may be amended at any time prior to the
Effective Time of the Merger with the mutual consent of the Boards of
Directors of ShopKo and the Surviving Corporation;
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provided, however, that after it has been adopted by the shareholders of
ShopKo, this Agreement may not be amended in any manner which, in the judgment
of the Board of Directors of ShopKo, would have a material adverse effect on
the rights of such shareholders or in any manner not permitted under
applicable law; provided further, however, that any amendment of this
Agreement after its adoption by the sole shareholder of the Surviving
Corporation shall require the prior approval of such shareholder.
7.3. Headings. The headings set forth herein are inserted for convenience or
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
7.4. Counterparts. This Agreement may be executed in two counterparts, each
of which shall constitute an original, and all of which, when taken together,
shall constitute one and the same instrument.
7.5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin without giving effect to
the principles of conflicts of law thereof, except to the extent the laws of
the State of Minnesota are applicable to ShopKo in respect of the Merger, in
which case the laws of the State of Minnesota shall apply without giving
effect to the principles of conflicts of law thereof.
In Witness Whereof, each of the parties hereto has caused this Agreement to
be executed on its behalf and attested by its officers hereunto duly
authorized, all as of the day and year first above written.
Shopko Stores, Inc.
A Minnesota Corporation
By: /s/ Dale P. Kramer
----------------------------------
Dale P. Kramer,
Chairman, President and
Chief Executive Officer
Attest: /s/ Richard D. Schepp
-------------------------------
Richard D. Schepp,
Secretary
New ShopKo, Inc.
A Wisconsin Corporation
By: /s/ Dale P. Kramer
----------------------------------
Dale P. Kramer,
Chairman, President and
Chief Executive Officer
Attest: /s/ Richard D. Schepp
---------------------------------
Richard D. Schepp,
Secretary
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APPENDIX B
ARTICLES OF INCORPORATION
OF
NEW SHOPKO, INC.
The undersigned incorporator, acting as incorporator of a corporation under
the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes,
adopts the following Articles of Incorporation for such corporation:
ARTICLE I
NAME
The name of the Corporation is New ShopKo, Inc.
ARTICLE II
PURPOSES
The Corporation is authorized to engage in any lawful activity for which
corporations may be organized under the Wisconsin Business Corporation Law and
any successor provisions.
ARTICLE III
CAPITAL STOCK
The aggregate number of shares which the Corporation shall have the
authority to issue, the designation of each class of shares, the authorized
number of shares of each class and the par value thereof per share shall be as
follows:
<TABLE>
<CAPTION>
DESIGNATION
OF PAR VALUE AUTHORIZED
CLASS PER SHARE NUMBER OF SHARES
----------- --------- ----------------
<S> <C> <C>
Common Stock.................................. $.01 75,000,000
Preferred Stock............................... $.01 20,000,000
</TABLE>
The preferences, limitations and relative rights of shares of each class and
series thereof, if any, and the authority of the Board of Directors of the
Corporation to create and to designate series of Preferred Stock and to
determine the preferences, limitations and relative rights as between series
shall be as follows:
A. Common Stock.
1. Voting. Except as otherwise provided by law and except as may be
determined by the Board of Directors of the Corporation with respect to
shares of Preferred Stock as provided in Section B, below, only the holders
of shares of Common Stock shall be entitled to vote for the election of
directors of the Corporation and for all other corporate purposes. Except
as otherwise provided by law, upon any such vote, each holder of Common
Stock shall be entitled to one vote for each share of Common Stock held of
record by such shareholder.
2. Dividends. Subject to the provisions of paragraph (2) of Section B,
below, the holders of Common Stock shall be entitled to receive such
dividends as may be declared thereon from time to time by the Board of
Directors of the Corporation, in its discretion, out of any funds of the
Corporation at the time legally available for payment of dividends.
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3. Liquidation. In the event of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, after there have been paid to
or set aside for the holders of shares of Preferred Stock the full
preferential amounts, if any, to which they are entitled as provided in
paragraph (3) of Section B, below, the holders of outstanding shares of
Common Stock shall be entitled to share ratably, according to the number of
shares held by each, in the remaining assets of the Corporation available
for distribution.
B. Preferred Stock.
1. Series and Variations Between Series. The Board of Directors of the
Corporation is authorized, to the full extent permitted under the Wisconsin
Business Corporation Law and the provisions of this Section B, to provide
for the issuance of the Preferred Stock in one or more series, each of such
series to be distinctively designated, and to have such voting rights,
redemption or conversion rights, dividend or distribution rights,
preferences with respect to dividends or distributions, or other
preferences, limitations or relative rights as shall be provided by the
Board of Directors of the Corporation consistent with the provisions of the
Wisconsin Business Corporation Law and this Article III. The Board of
Directors of the Corporation, unless otherwise provided when the series is
established, may increase or decrease the number of shares of any series,
provided that the number of shares of any series shall not be reduced below
the number of shares then outstanding.
2. Dividends. Before any dividends (other than a dividend payable solely
in Common Stock) shall be paid or set apart for payment upon shares of
Common Stock, the holders of each series of Preferred Stock shall be
entitled to receive dividends at the rate (which may be fixed or variable)
and at such times as specified in the particular series, if any. The
holders of shares of Preferred Stock shall have no rights to participate
with the holders of shares of Common Stock in any dividends in excess of
the preferential dividends, if any, fixed for such Preferred Stock.
3. Liquidation. In the event of liquidation, dissolution or winding up
(whether voluntary or involuntary) of the Corporation, the holders of
shares of Preferred Stock shall be entitled to be paid the full amount
payable on such shares upon the liquidation, dissolution or winding up of
the Corporation fixed by the Board of Directors with respect to such
shares, if any, before any amount shall be paid to the holders of the
Common Stock.
C. Designation of Series B Preferred Stock. A series of Preferred Stock is
hereby created and is designated as the "Series B Junior Participating
Preferred Stock" (the "Series B Preferred Stock") and the number of shares
constituting the Series B Preferred Stock shall be 100,000. Such number of
shares of Series B Preferred Stock may be increased or decreased by resolution
of the Board of Directors of the Corporation; provided, however, that no
decrease shall reduce the number of shares of Series B Preferred Stock to a
number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights
or warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series B Preferred Stock. The preferences,
limitations and relative rights of the Series B Preferred Stock shall be as
set forth on the attachment hereto entitled "Preferences, Limitations and
Relative Rights of the Series B Junior Participating Preferred Stock."
ARTICLE IV
BOARD OF DIRECTORS
A. Number. The number of directors (exclusive of directors, if any, elected
by the holders of one or more series of Preferred Stock, voting separately as
a series pursuant to the provision of these Articles of Incorporation
applicable thereto) shall not be less than one (1) nor more than fifteen (15)
directors, the exact number of directors to be determined from time to time by
resolution adopted by the affirmative vote of a majority of the entire Board
of Directors then in office.
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B. Classification of Board. The directors shall be divided into three
classes, designated Class I, Class II and Class III, and the term of office of
directors of each class shall be three years. Each class shall consist, as
nearly as possible, of one-third of the total number of directors constituting
the entire Board of Directors. If the number of directors is changed by
resolution of the Board of Directors pursuant to this Article IV, any increase
or decrease shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, but in no case
shall a decrease in the number of directors shorten the term of any incumbent
director.
C. Tenure and Vacancies. A director shall hold office until the annual
meeting for the year in which his or her term expires and until his or her
successor shall be elected and shall qualify. Any newly created directorship
resulting from an increase in the number of directors and any other vacancy on
the Board of Directors, however caused, shall be filled by the vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Any director so elected to fill any vacancy on the
Board of Directors, including a vacancy created by an increase in the number
of directors, shall hold office for the remaining term of directors of the
class to which he or she has been elected and until his or her successor shall
be elected and shall qualify.
D. Removal of Directors. Exclusive of directors, if any, elected by the
holders of one or more classes or series of Preferred Stock, no director of
the Corporation may be removed from office, except for Cause and by the
affirmative vote of not less than 75% of the outstanding shares of capital
stock of the Corporation entitled to vote at a meeting of shareholders duly
called for such purpose. As used in this Article IV, the term "Cause" shall
mean solely malfeasance arising from the performance of a director's duties
which has a materially adverse effect on the business of the Corporation.
E. Nominations of Directors. No person, except those nominated by or at the
direction of the Board of Directors, shall be eligible for election as a
director at any annual or special meeting of shareholders unless a written
request, in the form established by the Corporation's By-laws, that a person's
name be placed in nomination is received from a shareholder of record by the
Secretary of the Corporation, together with the written consent of such person
to serve as a director, (i) with respect to an election held at an annual
meeting of shareholders, not less than one hundred twenty (120) days prior to
the anniversary date of the annual meeting of shareholders in the immediately
preceding year, or (ii) with respect to an election held at a special meeting
of shareholders for the election of directors, not later than the close of
business on the eighth day following the date of the earlier of public
announcement or notice of such meeting.
F. Amendment. Notwithstanding any other provisions of these Articles of
Incorporation or By-laws of the Corporation (and notwithstanding the fact that
a lesser percentage may be specified by law, these Articles of Incorporation
or the By-laws of the Corporation), this Article IV may be amended, altered or
repealed only by the affirmative vote of the holders of not less than 75% of
the outstanding total shares of stock of the Corporation entitled to vote at a
meeting of shareholders duly called for such purpose and by the affirmative
vote of the holders of not less than a majority of the shares of each class or
series, if any, entitled to vote thereon at such meeting.
ARTICLE V
BUSINESS COMBINATIONS
A. Special Vote for Certain Combinations. Except as otherwise expressly
provided in Section B of this Article V:
(i) any merger or consolidation of the Corporation with or into any other
corporation;
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(ii) any sale, lease, exchange or other disposition of all or any
substantial part of the assets of the Corporation to or with any other
corporation, person or other entity; or
(iii) the issuance or transfer of any securities of the Corporation by
the Corporation to any other corporation, person or other entity in
exchange for assets, cash or securities or a combination thereof (except
assets, cash or securities or a combination thereof so acquired in a single
transaction or a series of related transactions having an aggregate fair
market value of less than $10,000,000);
shall require the affirmative vote of the holders of
(a) at least 75% of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors,
considered for the purposes of this Article V as one class, and
(b) at least a majority of the outstanding shares of capital stock of
the Corporation which are not beneficially owned by such corporation,
person or other entity,
if as of the record date for the determination of shareholders entitled to
notice thereof and to vote thereon, such other corporation, person or
entity is the beneficial owner, directly or indirectly, of 5% or more of
the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purposes of this
Article V as one class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that some lesser
percentage may be specified by law or in any agreement with any national
securities exchange or quotation system.
B. Special Vote Not Required. The provisions of this Article V shall not
apply to any transaction described in clauses (i), (ii), or (iii) of Section A
of this Article V, (a) with another corporation, person or other entity if a
majority of the outstanding equity interests in such other corporation, person
or other entity considered for this purpose as one class is owned of record or
beneficially by the Corporation and/or its subsidiaries; or (b) with another
corporation, person or other entity if the Board of Directors of the
Corporation shall by resolution have approved a memorandum of understanding
with such other corporation, person or other entity with respect to and
substantially consistent with such transaction prior to the time such other
corporation, person or other entity became the beneficial owner, directly or
indirectly, of 5% or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors; or (c)
with another corporation, person or other entity pursuant to a public or
private offering of securities of the Corporation if such public or private
offering does not involve any merger or consolidation of the Corporation with
or into any other corporation and such public or private offering has been
approved by the Board of Directors of the Corporation.
C. Beneficial Ownership. For the purposes of this Article V, a corporation,
person or other entity shall be deemed to be the beneficial owner of any
shares of capital stock of the Corporation (i) which it has the right to
acquire pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise, or (ii) which are beneficially owned,
directly or indirectly (including shares deemed owned through application of
clause (i) above), by any other corporation, person or other entity (a) with
which it or its "affiliate" or "associate" (as defined below) has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of capital stock of the Corporation or (b) which is its
"affiliate" or "associate" as those terms were defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934 as in
effect on September 24, 1997. For the purposes of this Article V, the
outstanding shares of any class of capital stock of the Corporation shall
include shares deemed owned through the application of clauses (i) and (ii) of
this Section C but shall not include any other shares which may be issuable
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise.
D. Determination by Board of Directors. The Board of Directors of the
Corporation shall have the power and duty to determine for the purposes of
this Article V, on the basis of information then known to it, whether (i) any
corporation, person or other entity beneficially owns, directly or indirectly,
5% or
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more of the outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, or is an "affiliate" or an
"associate" (as defined above) of another, (ii) any proposed sale, lease,
exchange or other disposition of part of the assets of the Corporation
involves a substantial part of the assets of the Corporation, (iii) assets,
cash or securities, or a combination thereof, to be acquired in exchange for
securities of the Corporation, have an aggregate fair market value of less
than $10,000,000 and whether the same are proposed to be acquired in a single
transaction or a series of related transactions, and (iv) the memorandum of
understanding referred to above is substantially consistent with the
transaction to which it relates. Any such determination by the Board shall be
conclusive and binding for all purposes of this Article V.
E. Amendment. Notwithstanding any other provisions of these Articles of
Incorporation or By-laws of the Corporation (and notwithstanding the fact that
a lesser percentage may be specified by law, these Articles of Incorporation
or the By-laws of the Corporation), this Article V may be amended, altered or
repealed only by the affirmative vote of the holders of not less than 75% of
the outstanding total shares of stock of the Corporation entitled to vote at a
meeting of shareholders duly called for such purpose and by the affirmative
vote of the holders of not less than a majority of the shares of each class or
series, if any, entitled to vote thereon at such meeting.
ARTICLE VI
PREEMPTIVE RIGHTS
No holder of any shares of the Corporation shall have any preemptive or
subscription rights nor be entitled, as of right, to purchase or subscribe for
any part of the unissued shares of the Corporation or of any additional shares
issued by reason of any increase of authorized shares of the Corporation or
other securities whether or not convertible into shares of the Corporation.
ARTICLE VII
SHARE DIVIDENDS
A dividend payable in shares of any class or series of the Corporation may
be paid in shares of any other class or series.
ARTICLE VIII
SHAREHOLDER ACTION
The shareholders of the Corporation shall not be entitled to take action
without a meeting by less than unanimous consent.
ARTICLE IX
AMENDMENT OF BY-LAWS AND ARTICLES OF INCORPORATION
A. Amendment of By-Laws. Notwithstanding any other provision of these
Articles of Incorporation or the Corporation's By-laws, the Corporation's By-
laws may be amended, altered or repealed, and new By-laws may be enacted, only
by the affirmative vote of the holders of not less than 75% of the outstanding
shares of capital stock of the Corporation entitled to vote at a meeting of
shareholders duly called for such purpose and by the affirmative vote of the
holders of not less than a majority of the shares of each class or series, if
any, entitled to vote thereon at such meeting, or by a vote of not less than a
majority of the entire Board of Directors then in office.
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B. Amendment of Articles of Incorporation. Except as provided in Articles IV
and V and this Article IX, these Articles of Incorporation may be amended,
altered or repealed, and new Articles of Incorporation may be enacted, only by
the affirmative vote of the holders of not less than a majority of the
outstanding total shares of stock of the Corporation entitled to vote at a
meeting of shareholders duly called for such purpose and by the affirmative
vote of the holders of not less than a majority of the shares of each class or
series, if any, entitled to vote thereon at such meeting; provided, however,
that this Article IX shall not limit the power of the Corporation's Board of
Directors to make certain amendments to the Articles of Incorporation under
Chapter 180 of the Wisconsin Statutes and any successor provisions without
shareholder approval.
C. Amendment of this Article IX. Notwithstanding any other provisions of
these Articles of Incorporation or By-laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law,
these Articles of Incorporation or the By-laws of the Corporation), this
Article IX may be amended, altered or repealed only by the affirmative vote of
the holders of not less than 75% of the outstanding total shares of stock of
the Corporation entitled to vote at a meeting of shareholders duly called for
such purpose and by the affirmative vote of the holders of not less than a
majority of the shares of each class or series, if any, entitled to vote
thereon at such meeting.
ARTICLE X
REGISTERED OFFICE
The address of the initial registered office of the Corporation is 44 East
Mifflin Street, Madison, Wisconsin 53703. The name of its initial registered
agent at such address is CT Corporation System.
ARTICLE XI
The name and address of the incorporator is Randall J. Erickson, Godfrey &
Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin 53202.
This instrument was drafted by:
Randall J. Erickson
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
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ATTACHMENT
TO THE
ARTICLES OF INCORPORATION
OF
NEW SHOPKO, INC.
PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF THE SERIES B
JUNIOR PARTICIPATING PREFERRED STOCK
1. Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the
Series B Junior Participating Preferred Stock (the "Series B Preferred
Stock") with respect to dividends, the holders of shares of Series B
Preferred Stock, in preference to the holders of Common Stock, par value
$0.01 per share (the "Common Stock") of the Corporation and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series B Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (i) $10 or (ii)
subject to the provision for adjustment hereinafter set forth, 1,000 times
the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series B Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series B
Preferred Stock were entitled immediately prior to such event under clause
(ii) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series B Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$10 per share on the Series B Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series B Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend
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Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the shares
of Series B Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series B Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which
record date shall be not more than 60 days prior to the date fixed for the
payment thereof.
2. Voting Rights. The holders of shares of Series B Preferred Stock shall
have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each
share of Series B Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series B Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) Except as otherwise provided herein, in any Articles of Amendment or
such other similar document creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series B Preferred Stock
and the holders of shares of Common Stock and any other capital stock of
the Corporation having general voting rights shall vote together as one
class on all matters submitted to a vote of shareholders of the
Corporation.
(c) Except as set forth herein, or as otherwise provided by law, holders
of Series B Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any
corporate action.
3. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Preferred Stock as provided in Section C.1, above,
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series B Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Stock,
except dividends paid ratably on the Series B Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up), to the Series B Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series B Preferred Stock; or
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(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series B Preferred Stock, or any shares of stock ranking on a
parity with the Series B Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(b) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this
Section 3, purchase or otherwise acquire such shares at such time and in
such manner.
4. Reacquired Shares. Any shares of Series B Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in
the Articles of Incorporation, or in any Articles of Amendment or such other
similar document creating a series of Preferred Stock or any similar stock or
as otherwise required by law.
5. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution
or winding up of the Corporation, no distribution shall be made (a) to the
holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred Stock
unless, prior thereto, the holders of shares of Series B Preferred Stock shall
have received $1,000 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, provided that the holders of shares of Series B Preferred Stock
shall be entitled to receive an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 1,000 times the
aggregate amount to be distributed per share to holders of shares of Common
Stock, or (b) to the holders of shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series B
Preferred Stock, except distributions made ratably on the Series B Preferred
Stock and all such parity stock in proportion to the total amounts to which
the holders of all such shares are entitled upon such liquidation, dissolution
or winding up. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the aggregate amount to which holders of shares
of Series B Preferred Stock were entitled immediately prior to such event
under the proviso in clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
6. Consolidation, Merger, etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of Series B
Preferred Stock shall at the same time be similarly exchanged or changed into
an amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 1,000 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares
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of Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth
in the preceding sentence with respect to the exchange or change of shares of
Series B Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
7. No Redemption. The shares of Series B Preferred Stock shall not be
redeemable.
8. Rank. The Series B Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of
any other class of the Corporation's Preferred Stock.
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APPENDIX C
BY-LAWS
OF
NEW SHOPKO, INC.
ARTICLE I
OFFICES
Section 1.1. Principal and Other Offices. The principal office of the
Corporation shall be located at any place either within or outside the State
of Wisconsin as designated in the Corporation's most current Annual Report
filed with the Wisconsin Secretary of State. The Corporation may have such
other offices, either within or outside the State of Wisconsin, as the Board
of Directors may designate or as the business of the Corporation may require
from time to time.
Section 1.2. Registered Office. The registered office of the Corporation
required by the Wisconsin Business Corporation Law to be maintained in the
State of Wisconsin may, but need not, be the same as any of its places of
business. The registered office may be changed from time to time.
Section 1.3. Registered Agent. The registered agent of the Corporation
required by the Wisconsin Business Corporation Law to maintain a business
office in the State of Wisconsin may, but need not, be an officer or employee
of the Corporation. The registered agent may be changed from time to time.
ARTICLE II
SHAREHOLDERS
Section 2.1. Annual Meeting. The annual meeting of shareholders shall be
held on the fourth Wednesday in May of each year at 10:00 a.m. (local time) or
on such other date and at such other time as may be fixed by, or at the
direction of, the Board of Directors, for the purpose of electing directors
and for the transaction of such other business as may have been properly
brought before the meeting in compliance with the provisions of Section 2.5.
If the day fixed for the annual meeting shall be a legal holiday in the State
of Wisconsin, such meeting shall be held on the next succeeding business day.
Section 2.2. Special Meetings. Except as otherwise required by applicable
law, special meetings of shareholders of the Corporation may only be called by
the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive
Officer, the President or by not less than a majority of the Board of
Directors; provided, however, that the Corporation shall hold a special
meeting of shareholders of the Corporation if a signed and dated written
demand or demands by the holders of at least 10% of all the votes entitled to
be cast on any issue proposed to be considered at the proposed special meeting
is delivered to the Corporation as required under the Wisconsin Business
Corporation Law, which demand or demands must describe one or more purposes
for which the shareholders demand a meeting be called, and the shareholders
demanding the meeting pay to the Corporation, or make satisfactory
arrangements with the Corporation for payment of, the Corporation's
anticipated costs of holding the meeting, including the costs of printing and
mailing any proxy materials. Only business within the purpose described in the
notice required by Section 2.4 may be conducted at a special shareholders'
meeting.
Section 2.3. Place of Meeting. The Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the Chief Executive Officer or the
President may designate any place, within
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or outside the State of Wisconsin, as the place of meeting for the annual
meeting or for any special meeting. If no designation is made the place of
meeting shall be the principal office of the Corporation, but any meeting may
be adjourned to reconvene at any place designated by vote of a majority of the
shares represented thereat.
Section 2.4. Notice of Meeting. The Corporation shall notify shareholders of
the date, time and place of each annual and special shareholders' meeting.
Notice of a special meeting shall include a description of each purpose for
which the meeting is called. Notice of all meetings need be given only to
shareholders entitled to vote, unless otherwise required by the Wisconsin
Business Corporation Law, and shall be given not less than ten nor more than
sixty days before the meeting date. The Corporation may give notice in person,
by telephone, teletype, facsimile, electronic mail or other forms of wire or
wireless communication, or by mail or private carrier, and, if these forms of
personal communication are impracticable, notice may be communicated by a
newspaper of general circulation in the area where published, or by radio,
television or other form of public broadcast communication. Written notice
shall be deemed to be effective at the earlier of receipt or mailing and may
be addressed to the shareholder's address shown in the Corporation's current
record of shareholders. The Corporation may give oral notice and such oral
notice shall be deemed to be effective when communicated. Notice by newspaper,
radio, television or other form of public broadcast communication shall be
deemed to be effective on the date of publication or broadcast.
Section 2.5. Advance Notice Shareholder-Proposed Business at Annual Meeting.
At an annual meeting of shareholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be: (a) specified in the notice of
meeting (or any amendment or supplement thereto) given in accordance with
Section 2.4, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, or the President, or (c)
otherwise properly brought before the meeting by a shareholder. In addition to
any other requirements under applicable law, the Articles of Incorporation or
the By-Laws for business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a shareholder's notice must
be received at the principal office of the Corporation not less than 120 days
prior to the anniversary date of the annual meeting of shareholders in the
immediately preceding year. A shareholder's notice to the Secretary shall set
forth as to each matter the shareholder proposes to bring before the annual
meeting (i) the text of such proposal or a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of shares of
the Corporation which are beneficially owned by the shareholder, (iv) any
interest of the shareholder in such business, (v) a representation that the
person sending the notice is a shareholder of record and will remain such
through the record date for the meeting, and (vi) a representation that such
shareholder intends to appear in person or by proxy at such meeting to move
for the consideration of the business set forth in the notice. In addition,
any such shareholder shall be required to provide such further information as
may be requested by the Corporation in order to comply with federal and state
securities laws, and rules and regulations thereunder. The Corporation may
require evidence by any person giving notice under this Section 2.5 that such
person is a bona fide beneficial owner of the Corporation's shares.
Notwithstanding anything in the By-Laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures
set forth in this Section 2.5; provided, however, that nothing in this Section
2.5 shall be deemed to preclude discussion by any shareholder of any business
properly brought before the annual meeting in accordance with said procedure.
The presiding officer at an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions
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of this Section 2.5, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall
not be transacted.
Section 2.6. Procedure for Nomination of Directors. Only persons nominated
in accordance with all of the procedures set forth in the Corporation's
Articles of Incorporation and By-Laws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the Corporation may be made at a meeting of shareholders by or at the
direction of the Board of Directors, by any nominating committee or persons
appointed by the Board, or by any shareholder of the Corporation entitled to
vote for election of directors at the meeting who complies with all of the
notice procedures set forth in this Section 2.6.
Nominations other than those made by or at the direction of the Board of
Directors or any nominating committee or person appointed by the Board shall
be made pursuant to timely notice in proper written form to the Secretary of
the Corporation. To be timely, a shareholder's request to nominate a person
for director, together with the written consent of such person to serve as a
director, must be received by the Secretary of the Corporation at the
Corporation's principal office (i) with respect to an election held at an
annual meeting of shareholders, not less than 120 days prior to the
anniversary date of the annual meeting of shareholders in the immediately
preceding year, or (ii) with respect to an election held at a special meeting
of shareholders for the election of directors, not less than the close of
business on the eighth day following the date of the earlier of public
announcement or notice of such meeting. To be in proper written form, such
shareholder's notice shall set forth in writing (a) as to each person whom the
shareholder proposes to nominate for election or reelection as a director (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number
of shares of stock of the Corporation which are beneficially owned by such
person, and (iv) such other information relating to such person as would be
required to be disclosed in solicitations of proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, and any successor to such Regulation; and (b) as to the shareholder
giving the notice (i) the name and address, as they appear on the
Corporation's books, of such shareholder, (ii) the class and number of shares
of the Corporation which are owned beneficially and of record by such
shareholder, (iii) a representation that the shareholder is a holder of record
of shares of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice, and (iv) a representation that the person sending the
notice is a shareholder of record and will remain such through the record date
for the meeting. The Corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as a director of
the Corporation or the shareholder to nominate the proposed nominee. The
presiding officer at the meeting shall, if the facts so warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures or other requirements prescribed by the Corporation's Articles of
Incorporation and By-Laws; and if he should so determine, such presiding
officer shall so declare to the meeting and the defective nomination(s) shall
be disregarded.
Section 2.7. Fixing of Record Date. For the purpose of determining
shareholders of any voting group entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled
to receive payment of any distribution or dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders. Such record date shall not be more than 70 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. If no record date is so fixed for the
determination of shareholders entitled to notice of, or to vote at a meeting
of shareholders, or shareholders entitled to receive a share dividend or
distribution, the record date for determination of such shareholders shall be
at the close of business on:
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(a) With respect to an annual shareholders meeting or any special
shareholders meeting called by the Board of Directors or any person
specifically authorized by the Board of Directors or these By-Laws to call
a meeting, the day before the first notice is mailed to shareholders;
(b) With respect to a special shareholders meeting demanded by the
shareholders, the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date the Board
of Directors authorizes the share dividend; and
(d) With respect to a distribution to shareholders (other than one
involving a repurchase or reacquisition of shares), the date the Board of
Directors authorizes the distribution.
Section 2.8. Voting Lists. After fixing a record date for a meeting, the
Corporation, shall prepare a list of the names of all its shareholders who are
entitled to notice of a shareholders meeting. The list shall be arranged by
class or series of shares and show the address of and the number of shares
held by each shareholder. The shareholders list must be available for
inspection by any shareholder, beginning two business days after notice of the
meeting is given for which the list was prepared and continuing to the date of
the meeting. The list shall be available at the Corporation's principal office
or at a place identified in the meeting notice in the city where the meeting
is to be held. Subject to the provisions of the Wisconsin Business Corporation
Law, a shareholder or his agent or attorney may, on written demand, inspect
and copy the list during regular business hours at his expense, during the
period that it is available for inspection. The Corporation shall make the
shareholders list available at the meeting, and any shareholder or his agent
or attorney may inspect the list at any time during the meeting or any
adjournment thereof. Refusal or failure to prepare or make available the
shareholders list shall not affect the validity of any action taken at such
meeting.
Section 2.9. Shareholder Quorum and Voting Requirements. Shares entitled to
vote as a separate voting group may take action on a matter at a meeting only
if a quorum of those shares exists with respect to that matter. Unless the
Articles of Incorporation, By-Laws adopted under authority granted in the
Articles of Incorporation or the Wisconsin Business Corporation Law provide
otherwise, a majority of the votes entitled to be cast on the matter by the
voting group constitutes a quorum of that voting group for action on that
matter.
If the Articles of Incorporation or the Wisconsin Business Corporation Law
provide for voting by two or more voting groups on a matter, action on that
matter is taken only when voted upon by each of those voting groups counted
separately. Action may be taken by one voting group on a matter even though no
action is taken by another voting group entitled to vote on the matter.
Once a share is represented for any purpose at a meeting, other than for the
purpose of objecting to holding the meeting or transacting business at the
meeting, it is deemed present for purposes of determining whether a quorum
exists, for the remainder of the meeting and for any adjournment of that
meeting to the extent provided in Section 2.14.
If a quorum exists, action on a matter by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, the By-Laws or the
Wisconsin Business Corporation Law require a greater number of affirmative
votes; provided, however, that for purposes of electing directors, unless
otherwise provided in the Articles of Incorporation, directors are elected by
a plurality of the votes cast by the shares entitled to vote in the election
at a meeting at which a quorum is present. For purposes of electing directors,
(i) a "plurality" means that the individuals with the largest number of votes
are elected as directors up to the maximum number of directors to be chosen at
the election, and (ii) votes against a candidate are not given legal effect
and are not counted as votes cast in an election of directors.
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Section 2.10. Proxies. For all meetings of shareholders, a shareholder may
appoint a proxy to vote or otherwise act for the shareholder by signing an
appointment form, either personally or by a duly authorized attorney-in-fact.
Such proxy shall be effective when filed with the Secretary of the Corporation
or other officer or agent authorized to tabulate votes before or at the time
of the meeting. No proxy shall be valid after eleven months from the date of
its execution, unless otherwise provided in the proxy.
Section 2.11. Voting of Shares. Unless otherwise provided in the Articles of
Incorporation or the Wisconsin Business Corporation Law, each outstanding
share entitled to vote shall be entitled to one vote upon each matter
submitted to a vote at a meeting of shareholders.
No shares in the Corporation held by another corporation may be voted if the
Corporation owns, directly or indirectly, a sufficient number of shares
entitled to elect a majority of the directors of such other corporation;
provided, however, that the Corporation shall not be limited in its power to
vote any shares, including its own shares, held by it in a fiduciary capacity.
Section 2.12. Voting Shares Owned by the Corporation. Shares of the
Corporation belonging to it shall not be voted directly or indirectly at any
meeting and shall not be counted in determining the total number of
outstanding shares at any given time, but shares held by this Corporation in a
fiduciary capacity may be voted and shall be counted in determining the total
number of outstanding shares at any given time.
Section 2.13. Acceptance of Instruments Showing Shareholder Action.
(a) If the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the Corporation, if acting in
good faith, may accept the vote, consent, waiver or proxy appointment and
give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver or proxy appointment
does not correspond to the name of its shareholder, the Corporation, if
acting in good faith, may accept the vote, consent, waiver or proxy
appointment and give it effect as the act of the shareholder if any of the
following apply:
(1) the shareholder is an entity, within the meaning of the Wisconsin
Business Corporation Law, and the name signed purports to be that of an
officer or agent of the entity;
(2) the name signed purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the
shareholder and, if the Corporation or its agent requests, evidence of
fiduciary status acceptable to the Corporation is presented with
respect to the vote, consent, waiver or proxy appointment;
(3) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation or its agent
requests, evidence of this status acceptable to the Corporation is
presented with respect to the vote, consent, waiver or proxy
appointment;
(4) the name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the Corporation
or its agent requests, evidence acceptable to the Corporation of the
signatory's authority to sign for the shareholder is presented with
respect to the vote, consent, waiver or proxy appointment; or
(5) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one
of the co-owners and the person signing appears to be acting on behalf
of all co-owners.
(c) The Corporation may reject a vote, consent, waiver or proxy
appointment if the Secretary or other officer or agent of the Corporation
who is authorized to tabulate votes, acting in good faith, has reasonable
basis for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder.
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Section 2.14. Adjournments. An annual or special meeting of shareholders may
be adjourned at any time, including after action on one or more matters, by a
majority of shares represented, even if less than a quorum. The meeting may be
adjourned for any purpose, including, but not limited to, allowing additional
time to solicit votes on one or more matters, to disseminate additional
information to shareholders or to count votes. Upon being reconvened, the
adjourned meeting shall be deemed to be a continuation of the initial meeting.
(a) Quorum. Once a share is represented for any purpose at the original
meeting, other than for the purpose of objecting to holding the meeting or
transacting business at a meeting, it is considered present for purposes of
determining if a quorum exists, for the remainder of the meeting and for
any adjournment of that meeting unless a new record date is or must be set
for that adjourned meeting.
(b) Record Date. When a determination of shareholders entitled to notice
of or to vote at any meeting of shareholders has been made as provided in
Section 2.7, such determination shall be applied to any adjournment thereof
unless the Board of Directors fixes a new record date, which it shall do if
the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting.
(c) Notice. Unless a new record date for an adjourned meeting is or must
be fixed pursuant to Section 2.14(b), the Corporation is not required to
give notice of the new date, time or place if the new date, time or place
is announced at the meeting before adjournment.
Section 2.15. Polling. In the sole discretion of the presiding officer of an
annual or special meeting of shareholders, polls may be closed at any time
after commencement of any annual or special meeting. When there are several
matters to be considered at a meeting, the polls may remain open during the
meeting as to any or all matters to be considered, as the presiding officer
may declare. Polls will remain open as to matters to be considered at any
adjournment of the meeting unless the presiding officer declares otherwise. At
the sole discretion of the presiding officer, the polls may remain open after
adjournment of a meeting for not more than 72 hours for the purpose of
collecting proxies and counting votes. All votes submitted prior to the
announcement of the results of the balloting shall be valid and counted. The
results of balloting shall be final and binding after announcement of such
results.
Section 2.16. Waiver of Notice by Shareholders. A shareholder may waive any
notice required by the Wisconsin Business Corporation Law, the Articles of
Incorporation or the By-Laws before or after the date and time stated in the
notice. The waiver shall be in writing and signed by the shareholder entitled
to the notice, contain the same information that would have been required in
the notice under any applicable provisions of the Wisconsin Business
Corporation Law, except that the time and place of the meeting need not be
stated, and be delivered to the Corporation for inclusion in the Corporation's
records. A shareholder's attendance at a meeting, in person or by proxy,
waives objection to (i) lack of notice or defective notice of the meeting,
unless the shareholder at the beginning of the meeting or promptly upon
arrival objects to the holding of the meeting or transacting business at the
meeting, and (ii) consideration of a particular matter at the meeting that is
not within the purpose described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.
Section 2.17. Unanimous Consent without Meeting. Any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting only by unanimous written consent or consents signed by all of the
shareholders of the Corporation and delivered to the Corporation for inclusion
in the Corporation's records. Such consent must describe the action taken and
must be delivered to the Corporation for inclusion in the corporate records.
The record date for determining shareholders entitled to take action under
this section is the date that the first shareholder signs the consent. A
consent signed under this section has the effect of a meeting vote and may be
described as such in any document.
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ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation
managed under the direction of, its Board of Directors, subject to any
limitations set forth in the Articles of Incorporation.
Section 3.2. Number, Tenure, Qualifications and Term.
(a) Number. Except as otherwise provided in the Articles of
Incorporation, the number of directors (exclusive of directors, if any,
elected by the holders of one or more series of Preferred Stock, voting
separately as a series pursuant to the provisions of the Articles of
Incorporation) shall be not less than one (1) nor more than fifteen (15)
directors, the exact number of directors to be determined from time to time
by resolution adopted by affirmative vote of a majority of the entire Board
of Directors then in office.
(b) Class. The directors shall be divided into three classes, designated
Class I, Class II and Class III, and the term of office of directors of
each class shall be three years. Each class shall consist, as nearly as
possible, of one-third of the total number of directors constituting the
entire Board of Directors. If the number of directors is changed by
resolution of the Board of Directors pursuant to Section 3.2(a), any
increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible,
but in no case shall a decrease in the number of directors shorten the term
of any incumbent director.
(c) Tenure. A director shall hold office until the annual meeting for the
year in which his term expires and until his successor shall be duly
elected and shall qualify.
(d) Qualifications. A director need not be a resident of the state of
Wisconsin or a shareholder of the Corporation except if required by the
Articles of Incorporation. The Board of Directors, at its discretion, may
establish any qualifications for directors, which qualifications, if any,
shall only be applied for determining qualifications of a nominee for
director as of the date of the meeting at which such nominee is to be
elected or appointed.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual
or special meeting of shareholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Articles of Incorporation applicable thereto. Directors so
elected shall not be divided into classes unless expressly provided by such
Articles, and during the prescribed terms of office of such directors, the
Board of Directors shall consist of such directors in addition to the number
of directors determined as provided in Section 3.2(a).
Section 3.3. Removal. Exclusive of directors, if any, elected by the holders
of one or more classes or series of Preferred Stock, no director of the
Corporation may be removed from office except for Cause and by the affirmative
vote of 75% of the outstanding shares of capital stock the Corporation
entitled to vote at a meeting of shareholders duly called for such purpose. As
used in this Section 3.3, the term "Cause" shall mean solely malfeasance
arising from the performance of a director's duties which has a materially
adverse effect on the business of the Corporation.
Section 3.4. Resignation. A director may resign at any time by delivering
written notice to the Board of Directors, the Chairman of the Board or to the
Corporation (which shall be directed to the Secretary). Such resignation is
effective when the notice is delivered unless the notice specifies a later
effective date.
Section 3.5. Vacancies. Exclusive of a vacancy in directors, if any, elected
by the holders of one or more series of Preferred Stock, any vacancy on the
Board of Directors, however caused, including,
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without limitation, any vacancy resulting from an increase in the number of
directors, shall be filled by the vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. Any
director so elected to fill any vacancy on the Board of Directors, including a
vacancy created by an increase in the number of directors, shall hold office
for the remaining term of directors of the class to which he or she has been
elected and until his or her successor shall be elected and shall qualify. A
vacancy that will occur at a specific later date may be filled before the
vacancy occurs, but the new director will not take office until the vacancy
occurs.
Section 3.6. Committees. The Board of Directors by resolution adopted by the
affirmative vote of a majority of the number of directors fixed by Section
3.2(a) then in office may create one or more committees, appoint members of
the Board of Directors to serve on the committees and designate other members
of the Board of Directors to serve as alternates. Each committee shall consist
of two or more members of the Board of Directors. Unless otherwise provided by
the Board of Directors, members of the committee shall serve at the pleasure
of the Board of Directors. Each committee may exercise those aspects of the
authority of the Board of Directors which are within the scope of the
committee's assigned responsibilities or which the Board of Directors
otherwise confers upon such committee; provided, however, a committee may not
do any of the following:
(a) authorize distributions;
(b) approve or propose to shareholders action that the Wisconsin Business
Corporation Law requires be approved by shareholders;
(c) fill vacancies on the Board of Directors or, unless the Board of
Directors has specifically granted authority to the committee, its
committees;
(d) amend the Articles of Incorporation pursuant to the authority of
directors to do so granted by the Wisconsin Business Corporation Law;
(e) adopt, amend, or repeal by-laws;
(f) approve a plan of merger not requiring shareholder approval;
(g) authorize or approve reacquisition of shares, except according to a
formula or method prescribed by the Board of Directors; or
(h) authorize or approve the issuance or sale or contract for sale of
shares or determine the designation and relative rights, preferences and
limitations of a class or series of shares, except that the Board of
Directors may authorize a committee (or a senior executive officer of the
Corporation, including without limitation the President and any Vice
President) to do so within limits prescribed by the Board of Directors.
Except as required or limited by the Articles of Incorporation, the By-Laws,
the Wisconsin Business Corporation Law, or resolution of the Board of
Directors, each committee shall be authorized to fix its own rules governing
the conduct of its activities. Each committee shall make such reports to the
Board of Directors of its activities as the Board of Directors may request.
Section 3.7. Compensation. Except as provided in the Articles of
Incorporation, the Board of Directors, irrespective of any personal interest
of any of its members, may fix the compensation of directors.
Section 3.8. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this By-Law on the same date as, and
at the same place as, the annual meeting of shareholders, and each adjourned
session thereof. A regular meeting of a committee, if any, shall be at such
date, place, either within or outside the State of Wisconsin, and time as such
committee determines. Other regular meetings of the Board of Directors shall
be held at such dates, times and places, either within or outside the State of
Wisconsin, as the Chairman of the Board determines.
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Section 3.9. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or a
majority of the members of the Board of Directors. Special meetings of a
committee may be called by or at the request of the Chairman of a committee or
a majority of the committee members. The person or persons authorized to call
special meetings of the Board of Directors or a committee may fix any date,
time and place, either within or outside the State of Wisconsin, for any
special meeting of the Board of Directors or committee called by them.
Section 3.10. Notice; Waiver. Notice of meetings shall be given at least 24
hours prior thereto and shall state the date, time and place of the meeting of
the Board of Directors or committee. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
or committee need be specified in the notice of such meeting. Notice may be
communicated in person, by telephone, telegraph, teletype, facsimile or other
form of wire or wireless communication, or by mail or private carrier. Written
notice is effective at the earliest of the following: (1) when received; (2)
on the date shown on the return receipt, if sent by registered or certified
mail, return receipt requested, and the receipt is signed by or on behalf of
the addressee; or (3) two days after it is deposited with a private carrier.
Oral notice is deemed effective when communicated. Facsimile notice is deemed
effective when sent.
A director may waive any notice required by the Wisconsin Business
Corporation Law, the Articles of Incorporation or the By-Laws before or after
the date and time stated in the notice. The waiver shall be in writing, signed
by the director entitled to the notice and retained by the Corporation.
Notwithstanding the foregoing, a director's attendance at or participation in
a meeting waives any required notice to such director of the meeting unless
the director at the beginning of the meeting or promptly upon such director's
arrival objects to holding the meeting or transacting business at the meeting
and does not thereafter vote for or assent to action taken at the meeting.
Section 3.11. Quorum; Voting. Unless otherwise provided in the Articles of
Incorporation or the Wisconsin Business Corporation Law, a majority of the
number of directors fixed by Section 3.2(a) or appointed by the Board of
Directors to a committee shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors or committee; provided,
however, that even though less than such quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice. Except as otherwise provided in the Articles of
Incorporation, the By-Laws or the Wisconsin Business Corporation Law, if a
quorum is present when a vote is taken, the affirmative vote of a majority of
directors present is the act of the Board of Directors or committee.
Section 3.12. Presumption of Assent. A director of the Corporation who is
present and is announced as present at a meeting of the Board of Directors or
a committee thereof at which action on any corporate matter is taken is deemed
to have assented to the action taken unless (i) such director objects at the
beginning of the meeting or promptly upon arrival to holding the meeting or
transacting business at the meeting, (ii) such director dissents or abstains
from an action taken and minutes of the meeting are prepared that show the
director's dissent or abstention from the action taken, (iii) such director
delivers written notice of his dissent or abstention to the presiding officer
of the meeting before its adjournment or to the Corporation (directed to the
Secretary) immediately after adjournment of the meeting, or (iv) such director
dissents or abstains from an action taken, minutes of the meeting are prepared
that fail to show the director's dissent or abstention from the action taken
and the director delivers to the Corporation (directed to the Secretary) a
written notice of that failure promptly after receiving the minutes. A
director who votes in favor of action taken may not dissent or abstain from
that action.
Section 3.13. Informal Action Without Meeting. Any action required or
permitted by the Articles of Incorporation, the By-Laws or the Wisconsin
Business Corporation Law to be taken by the Board of
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Directors or a committee at a meeting may be taken without a meeting if the
action is taken by all of the directors or committee members then in office.
The action shall be evidenced by one or more written consents describing the
action taken, signed by each director and retained by the Corporation. Any
such consent is effective when the last director signs the consent, unless the
consent specifies a different effective date. A consent signed under this
section has the effect of a unanimous vote taken at a meeting at which all
directors were present, and may be described as such in any document.
Section 3.14. Telephonic or Other Meetings. Unless the Articles of
Incorporation provide otherwise, any or all directors may participate in a
regular or special meeting of the Board of Directors or any committee thereof
by, or conduct the meeting through the use of, any means of communication by
which (i) all directors participating may simultaneously hear each other
during the meeting, (ii) all communication during the meeting is immediately
transmitted to each participating director, and (iii) each participating
director is able to immediately send messages to all other participating
directors. If the meeting is to be conducted through the use of any such means
of communication all participating directors shall be informed that a meeting
is taking place at which official business may be transacted. A director
participating in a meeting by this means is deemed to be present in person at
the meeting. Notwithstanding the foregoing, the Chairman of the Board, or
other presiding officer, shall, at any time, have the authority to deem any
business or resolution not appropriate for meetings held pursuant to this
Section 3.14.
ARTICLE IV
OFFICERS
Section 4.1. Number. The principal officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more
Vice Presidents, any number of whom may be designated as Senior Executive Vice
President, Executive Vice President or Senior Vice President, a Secretary and
a Treasurer, each of whom shall be elected by the Board of Directors. Until
such time as the Board of Directors shall deem it desirable to elect a
Chairman of the Board such office may remain vacant, and while such office is
vacant, the powers and duties of the Chairman of the Board shall vest in and
be performed by the Chief Executive Officer of the Corporation. The Board of
Directors may elect or appoint a Vice Chairman of the Board. Such other
officers as may be deemed necessary may be elected or appointed by the Board
of Directors. Such other assistant officers as may be deemed necessary may be
appointed by the Board of Directors, the Chief Executive Officer or the
President for such term as is specified in the appointment. The same natural
person may simultaneously hold more than one office in the Corporation.
Section 4.2. Election and Term of Office. The officers of the Corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after the annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as convenient.
Each officer shall hold office until his successor shall have been duly
elected and qualified or until his death or until he shall resign or shall
have been removed in the manner hereinafter provided.
Section 4.3. Resignation and Removal. An officer may resign at any time by
delivering notice to the corporation. The resignation is effective when the
notice is delivered, unless the notice specifies a later effective date and
the corporation accepts the later effective date. If a resignation is
effective at a later date, the Board of Directors may fill the pending vacancy
before the effective date if the Board of Directors provides that the
successor may not take office until the effective date. The Board of Directors
may remove any officer at any time with or without cause and notwithstanding
the contract rights, if any, of the officer removed. The Board of Directors,
the Chief Executive Officer or the President may remove any assistant officer
who was appointed by the Board, the Chief Executive
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Officer or the President. The appointment of an officer or assistant officer
does not itself create contract rights.
Section 4.4. Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term. A vacancy in any
assistant office because of death, resignation, removal, disqualification or
otherwise may be filled by the Board of Directors, the Chief Executive Officer
or the President.
Section 4.5. Chairman of the Board. The Chairman of the Board shall preside
at all annual and special meetings of shareholders and all regular and special
meetings of the Board of Directors, shall advise and counsel with the Chief
Executive Officer and shall be responsible for the administration and
management of the areas of the business and affairs of the Corporation
assigned to him or her from time to time by the Board of Directors.
Section 4.6. Vice Chairman of the Board. The Vice Chairman of the Board
shall advise and counsel with the Chief Executive Officer and shall be
responsible for the administration and management of the areas of the business
and affairs of the Corporation assigned to him or her from time to time by the
Board of Directors.
Section 4.7. Chief Executive Officer. The Chief Executive Officer shall be
the principal executive officer of the Corporation and, subject to the control
of the Board of Directors, shall have general supervision and control of the
business and affairs of the Corporation and its officers. The Chief Executive
Officer shall have the authority, subject to such rules as may be prescribed
by the Board of Directors, to appoint such agents and employees of the
Corporation as the Chief Executive Officer deems necessary, prescribe their
powers, duties and compensation, and delegate authority to them. Such agents
and employees shall hold offices at the discretion of the Chief Executive
Officer. The Chief Executive Officer shall have authority to sign, execute and
acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds, stock
certificates, contracts, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the
Corporation's regular business or which shall be authorized by the Board of
Directors. Except as otherwise provided by the Wisconsin Business Corporation
Law or the Board of Directors, the Chief Executive Officer may authorize any
other officer or agent of the Corporation to sign, execute and acknowledge
such documents in his place and stead. In general, the Chief Executive Officer
shall have all authority and perform all duties incident to the office of the
chief executive offices and such other duties as may be prescribed by the
Board of Directors from time to time.
Section 4.8. President. In the absence of the Chief Executive Officer or in
the event of his death, inability or refusal to act, the President shall
perform the duties of the Chief Executive Officer, and when so acting shall
have all the powers and duties of the Chief Executive Officer. In addition,
the President shall be responsible for the administration and management of
the areas of the business and affairs of the Corporation assigned to him from
time to time by the Board of Directors or the Chief Executive Officer.
Section 4.9. Vice Presidents. One or more of the Vice Presidents may be
designated as Senior Executive Vice President, Executive Vice President or
Senior Vice President. In the absence of the President or in this event of his
death, inability or refusal to act, the Vice Presidents in the order
designated at the time of their election, shall perform the duties of the
President and when so acting shall have all the powers of and be subject to
all the restrictions upon the President. Any Vice President may sign with the
Secretary or Assistant Secretary certificates for shares of the Corporation.
Any Vice President shall perform such other duties as are incident to the
office of Vice President or as may be prescribed from time to time by the
Board of Directors, the Chief Executive Officer or the President.
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Section 4.10. Secretary. The Secretary shall: (i) keep the minutes of the
shareholders and Board of Directors meetings in one or more books provided for
that purpose, (ii) see that all notices are duly given in accordance with the
provisions of the By-Laws or as required by law, (iii) be custodian of the
Corporation's records and of the seal of the Corporation, (iv) see that the
seal of the Corporation is affixed to all appropriate documents the execution
of which on behalf of the Corporation under its seal is duly authorized, (v)
keep a register of the address of each shareholder which shall be furnished to
the Secretary by such shareholder, and (vi) perform all duties incident to the
office of Secretary and such other duties as may be prescribed from time to
time by the Board of Directors, the Chief Executive Officer or the President.
Section 4.11. Treasurer. The Treasurer shall: (i) have charge and custody of
and be responsible for all funds and securities of the Corporation, (ii)
receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever, and deposit all such moneys in the name of the
Corporation, and (iii) in general perform all of the duties incident to the
office of Treasurer and have such other duties and exercise such other
authority as from time to time may be delegated or assigned by the Board of
Directors, the Chief Executive Officer or the President.
Section 4.12. Assistant Secretaries and Assistant Treasurers. An Assistant
Secretary, if any, when authorized by the Board of Directors, may sign with
the Chief Executive Officer, the President or any Vice President certificates
for shares of the Corporation, the issuance of which shall have been
authorized by a resolution of the Board of Directors. An Assistant Treasurer,
if any, shall, if required by the Board of Directors, give bonds for the
faithful discharge of his duties in such sums and with such sureties as the
Board of Directors shall determine. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties as shall be assigned to them
by the Board of Directors, the Chief Executive Officer, the President, the
Secretary or the Treasurer, respectively.
Section 4.13. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors or a committee authorized by the Board
to fix the same, and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the Corporation or a
member of such committee.
ARTICLE V
CONTRACTS; VOTING OF STOCK IN OTHER CORPORATIONS
Section 5.1. Contracts. The Board of Directors may authorize any officer or
officers, committee, or any agent or agents to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Corporation, and such authorization may be general or confined to specific
instances.
Section 5.2. Voting of Stock in Other Corporations. The Board of Directors
by resolution shall from time to time designate one or more persons to vote
all stock held by this Corporation in any other corporation or entity, may
designate such persons in the alternative and may empower them to execute
proxies to vote in their stead. In the absence of any such designation by the
Board of Directors, the President shall be authorized to vote any stock held
by the Corporation or execute proxies to vote such stock.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 6.1. Certificates for Shares. Certificates representing shares of
the Corporation shall be in such form as shall be determined by, or under the
authority of a resolution of, the Board of Directors,
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which shall be consistent with the requirements of the Wisconsin Business
Corporation Law. Such certificates shall be signed by the Chief Executive
Officer, the President or a Vice President and by the Secretary or an
Assistant Secretary. The validity of a share certificate is not affected if a
person who signed the certificate no longer holds office when the certificate
is issued. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors or
its designee may prescribe.
Section 6.2. Transfer of Shares. Transfer of shares of the Corporation shall
be made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the
Corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes,
except as otherwise required by the Wisconsin Business Corporation Law.
Section 6.3. Stock Regulations. The Board of Directors shall have the power
and authority to make all such further rules and regulations not inconsistent
with the statutes of the State of Wisconsin as they may deem expedient
concerning the issue, transfer and registration of certificates representing
shares of the Corporation, including the appointment or designation of one or
more stock transfer agents and one or more stock registrars.
ARTICLE VII
INDEMNIFICATION; INSURANCE
Section 7.1. Indemnity of Directors, Officers, Designated Employees and
Designated Agents.
(a) Definitions to Indemnification and Insurance Provisions.
(1) "Director, Officer, Employee or Agent" means any of the following:
(i) a natural person who is or was a director, officer, employee or agent
of the Corporation; (ii) a natural person who, while a director, officer,
employee or agent of the Corporation, is or was serving either pursuant to
the Corporation's specific request or as a result of the nature of such
person's duties to the Corporation as a director, officer, partner,
trustee, member of any governing or decision-making committee, manager,
employee or agent of another corporation or foreign corporation,
partnership, joint venture, trust or other enterprise; (iii) a natural
person who, while a director, officer, employee or agent of the
Corporation, is or was serving an employee benefit plan because his duties
to the Corporation also impose duties on, or otherwise involve services by,
the person to the plan or to participants in or beneficiaries of the plan;
or (iv) unless the context requires otherwise, the estate or personal
representative of a director, officer, employee or agent. Notwithstanding
the foregoing, any natural person who is or was an agent or an employee but
is not or was not also a director or officer shall not fall within the
foregoing definition and shall not be entitled to indemnification under
this Section 7.1 unless the Board of Directors or committee appointed
thereby determines such agent or employee shall be entitled to the
indemnification provided herein. This Section 7.1 shall not deny
indemnification due to any person from the Corporation as required by the
Wisconsin Business Corporation Law.
(2) "Expenses" means all reasonable fees, costs, charges, disbursements,
attorneys' fees and any other expenses incurred in connection with a
Proceeding.
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(3) "Liability" means the obligation to pay a judgment, penalty,
assessment, forfeiture or fine, including an excise tax assessed with
respect to an employee benefit plan, the agreement to pay any amount in
settlement of a Proceeding (whether or not approved by a court order), and
reasonable expenses and interest related to the foregoing.
(4) "Party" means a natural person who was or is, or who is threatened to
be made, a named defendant or respondent in a Proceeding.
(5) "Proceeding" means any threatened, pending or completed civil,
criminal, administrative or investigative action, suit, arbitration or
other proceeding, whether formal or informal (including but not limited to
any act or failure to act alleged or determined to have been negligent, to
have violated the Employee Retirement Income Security Act of 1974, or to
have violated Section 180.0833 of the Wisconsin Statutes, or any successor
thereto, regarding improper dividends, distributions of assets, purchases
of shares of the Corporation, or loans to officers), which involves
foreign, federal, state or local law and which is brought by or in the
right of the Corporation or by any other person or entity.
(b) Indemnification of Officers, Directors, Employees and Agents.
(1) The Corporation shall indemnify a Director, Officer, Employee or
Agent to the extent he has been successful on the merits or otherwise in
the defense of any Proceeding, for all reasonable Expenses incurred in the
Proceeding if the Director, Officer, Employee or Agent was a Party because
he is a Director, Officer, Employee or Agent of the Corporation.
(2) In cases not included under subsection (1), the Corporation shall
indemnify a Director, Officer, Employee or Agent against Liability and
Expenses incurred in a Proceeding to which the Director, Officer, Employee
or Agent was a Party because he is a Director, Officer, Employee or Agent
of the Corporation, unless it is determined by final judicial adjudication
that such person breached or failed to perform a duty such person owed to
the Corporation and the breach or failure constitutes any of the following:
(i) A willful failure to deal fairly with the Corporation or its
shareholders in connection with a matter in which the Director,
Officer, Employee or Agent has a material conflict of interest;
(ii) A violation of criminal law, unless the Director, Officer,
Employee or Agent had reasonable cause to believe that his conduct was
lawful or no reasonable cause to believe his conduct was unlawful;
(iii) A transaction from which the Director, Officer, Employee or
Agent derived an improper personal profit; or
(iv) Willful misconduct.
(3) Indemnification under this Section 7.1 is not required to the extent
the Director, Officer, Employee or Agent has previously received
indemnification or allowance of expenses from any person or entity,
including the Corporation, in connection with the same Proceeding.
(4) Indemnification required under subsection (b) (1) shall be made
within 10 days of receipt of a written demand for indemnification.
Indemnification required under subsection (b) (2) shall be made within 30
days of receipt of a written demand for indemnification.
(5) Upon written request by a Director, Officer, Employee or Agent who is
a Party to a Proceeding, the Corporation shall pay or reimburse his
reasonable Expenses as incurred if the Director, Officer, Employee or Agent
provides the Corporation with all of the following:
(i) A written affirmation of his good faith belief that he is
entitled to indemnification under Section 7.1; and
(ii) A written undertaking, executed personally or on his behalf, to
repay all amounts advanced without interest to the extent that it is
ultimately determined that indemnification
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under Section 7.1(b)(2) is prohibited. The undertaking under this
subsection shall be accepted without reference to the ability of the
Director, Officer, Employee or Agent to repay the allowance. The
undertaking shall be unsecured.
(c) Determination that Indemnification is Proper.
(1) Unless provided otherwise by a written agreement between the
Director, Officer, Employee or Agent and the Corporation, determination of
whether indemnification is required under subsection (b) shall be made by
one of the following methods, which in the case of a Director or Officer
seeking indemnification shall be selected by such Director or Officer: (i)
by a majority vote of a quorum of the Board of Directors consisting of
directors who are not at the time Parties to the same or related
Proceedings or, if a quorum of disinterested directors cannot be obtained,
by a majority vote of a committee duly appointed by the Board of Directors
(which appointment by the Board may be made by directors who are parties to
the Proceeding) consisting solely of two or more directors who are not at
the time parties to the same or related Proceedings, (ii) by independent
legal counsel selected by a quorum of the Board of Directors or its
committee constituted as required under (i) above or, if unable to obtain
such a quorum or constitute such committee, by a majority vote of the full
Board of Directors, including directors who are parties to the same or
related Proceedings, (iii) by a panel of three arbitrators consisting of
(a) one arbitrator selected by a quorum of the Board of Directors or its
committee constituted as required under (i), above, or, if unable to obtain
such a quorum or committee, by a majority vote of the full Board of
Directors, including directors who are parties to the same or related
Proceedings, (b) one arbitrator selected by the director or officer seeking
indemnification and (c) one arbitrator selected by the other two
arbitrators, (iv) by an affirmative vote of shareholders as provided under
Section 2.9, except that shares owned by, or voted under the control of,
persons who are at the time parties to the same or related proceedings,
whether as plaintiffs or defendants or in any other capacity, may not be
voted in making the determination, or (v) by a court of competent
jurisdiction as permitted under the Wisconsin Business Corporation Law;
provided, however, that with respect to any additional right to
indemnification permissible under the Wisconsin Business Corporation Law
and granted by the Corporation, the determination of whether such
additional right of indemnification is required shall be made by any method
permissible under the Wisconsin Business Corporation Law, as such methods
may be limited by the grant of such additional right to indemnification.
The termination of a Proceeding by judgment, order, settlement or
conviction, or upon a plea of no contest or an equivalent plea, does not,
by itself create a presumption that indemnification of the Director,
Officer, Employee or Agent is not required under this Article.
(2) A Director, Officer, Employee or Agent who seeks indemnification
under this Section 7.1 shall make a written request to the Corporation. As
a further pre-condition to any right to receive indemnification, the
writing shall contain a declaration that the Corporation shall have the
right to exercise all rights and remedies available to such Director,
Officer, Employee or Agent against any other person, corporation, foreign
corporation, partnership, joint venture, trust or other enterprise, arising
out of, or related to, the Proceeding which resulted in the Liability and
the Expense for which such Director, Officer, Employee or Agent is seeking
indemnification, and that the Director, Officer, Employee or Agent is
hereby deemed to have assigned to the Corporation all such rights and
remedies.
(d) Severability. The provisions of this Section 7.1 shall not apply in any
circumstance where a court of competent jurisdiction determines that
indemnification would be invalid as against public policy, but such provisions
shall not apply only to the extent that they are invalid as against public
policy and shall otherwise remain in full force and effect.
(e) Limitation or Expansion of Indemnification. The right to indemnification
under this Section 7.1 may be limited or reduced only by subsequent
affirmative vote of not less than two-thirds of the Corporation's outstanding
shares entitled to vote on such matters. Any limitation or reduction in the
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right to indemnification may only be prospective from the date of such vote.
The Board of Directors, however, shall have the authority to expand the
indemnification permitted under this Section 7.1 to the fullest extent
permissible under the Wisconsin Business Corporation Law as in effect on the
date of any such resolution with or without further amendment to this Section
7.1.
Section 7.2. Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is a Director, Officer,
Employee or Agent against any Liability asserted against or incurred by the
individual in any such capacity or arising out of his status as such,
regardless of whether the Corporation is required or authorized to indemnify
or allow expenses to the individual under Section 7.1.
ARTICLE VIII
AMENDMENTS
Section 8.1. Amendment by the Board of Directors. The By-Laws of the
Corporation may be amended or repealed by the Board of Directors unless any of
the following apply:
(a) The Articles of Incorporation, the particular by-law or the Wisconsin
Business Corporation Law reserve this power exclusively to the shareholders
in whole or part;
(b) The shareholders in adopting, amending, or repealing a particular by-
law provide expressly within the by-law that the Board of Directors may not
amend, repeal or readopt that by-law; or
(c) The by-law fixes a greater or lower quorum requirement or greater
voting requirement for the Board of Directors, unless the shareholders in
adopting or amending such by-law provide expressly within the by-law that
it may be amended or repealed by a specified vote of the Board of
Directors.
The Corporation's By-Laws may be amended, altered, or repealed, and new By-
Laws may be enacted, only by the affirmative vote of not less than a majority
of the entire Board of Directors then in office. Action by the Board of
Directors to adopt or amend a by-law that changes the quorum or voting
requirement for the Board of Directors must meet the same quorum requirement
and be adopted by the same vote required to take action under the quorum and
voting requirement then in effect, except where a different voting requirement
is specified as provided in Section 8.1(c).
Section 8.2. Amendment by the Corporation's Shareholders. The Corporation's
shareholders may amend or repeal the Corporation's By-Laws or adopt new by-
laws even though the Board of Directors may also amend or repeal the
Corporation's By-Laws or adopt new by-laws. The Corporation's By-Laws may be
amended, altered or repealed, and new By-Laws may be enacted, only by the
affirmative vote of the holders of not less than 75% of the outstanding shares
of the Corporation entitled to vote at a meeting of shareholders duly called
for such purpose and by the affirmative vote of the holders of not less than a
majority of the shares of each class or series, if any, entitled to vote
thereon at such meeting. The adoption or amendment of a by-law that adds,
changes or deletes a greater or lower quorum requirement or a greater voting
requirement for shareholders or the Board of Directors must meet the same
quorum and voting requirement then in effect.
Section 8.3. Implied Amendments. Any action taken or authorized by the Board
of Directors or by the shareholders which would be inconsistent with the By-
Laws then in effect but which is taken or authorized by affirmative vote of
not less than the number of directors or the shares required to amend the By-
Laws so that the By-Laws would be consistent with such action shall be given
the same effect as though the By-Laws had been temporarily amended or
suspended so far, but only so far, as is necessary to permit the specific
action so taken or authorized.
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ARTICLE IX
CORPORATE SEAL
Section 9.1. Corporate Seal. The Board of Directors may provide for a
corporate seal which may be circular in form and have inscribed thereon any
designation including the name of the Corporation, Wisconsin as the state of
incorporation, and the words "Corporate Seal." Any instrument executed in the
corporate name by the proper officers of the Corporation under any seal,
including the words "Seal," "Corporate Seal" or similar designation, is sealed
even though the corporate seal is not used.
ARTICLE X
EMERGENCY BY-LAWS
Section 10.1. Emergency By-Laws. Unless the Articles of Incorporation
provide otherwise, the following provisions of this Article X shall be
effective during an "Emergency," which is defined as a catastrophic event that
prevents a quorum of the Corporation's directors from being readily assembled.
Section 10.2. Notice of Board Meetings. During an Emergency, any one member
of the Board of Directors or any one of the following officers: Chairman of
the Board, Vice Chairman of the Board, Chief Executive Officer, President, any
Vice-President, Secretary or Treasurer, may call a meeting of the Board of
Directors. Notice of such meeting need be given only to those directors whom
it is practicable to reach, and may be given in any practical manner,
including by publication or radio. Such notice shall be given at least six
hours prior to commencement of the meeting.
Section 10.3. Temporary Directors and Quorum. One or more officers of the
Corporation present at the Emergency meeting of the Board of Directors, as is
necessary to achieve a quorum, shall be considered to be directors for the
meeting, and shall so serve in order of rank, and within the same rank, in
order of seniority. In the event that less than a quorum (as determined by
Section 3.11) of the directors are present (including any officers who are to
serve as directors for the meeting), those directors present (including the
officers serving as directors) shall constitute a quorum.
Section 10.4. Actions Permitted To Be Taken. The Board of Directors as
constituted in Section 10.3, and after notice as set forth in Section 10.2
may:
(a) Officers' Powers. Prescribe emergency powers to any officers of the
Corporation;
(b) Delegation of Any Power. Delegate to any officer or director, any of
the powers of the Board of Directors;
(c) Lines of Succession. Designate lines of succession of officers and
agents, in the event that any of them are unable to discharge their duties;
(d) Relocate Principal Place of Business. Relocate the principal place of
business, or designate successive or simultaneous principal places of
business; and
(e) All Other Action. Take any and all other action, convenient, helpful,
or necessary to carry on the business of the Corporation.
Corporate action taken in good faith in accordance with the emergency by-laws
binds the Corporation and may not be used to impose liability on any of the
Corporation's directors, officers, employees or agents.
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APPENDIX D
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS.--Subdivision 1. Actions creating
rights. A shareholder of a corporation may dissent from, and obtain payment
for the fair value of the shareholder's shares in the event of, any of the
following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting
rights; except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court,
or a disposition for cash on terms requiring that all or substantially all
of the net proceeds of disposition be distributed to the shareholders in
accordance with their respective interests within one year after the date
of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B,
to which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their
shares.
Subd. 2. Beneficial owners.
(a) A shareholder shall not assert dissenters' rights as to less than all of
the shares registered in the name of the shareholder, unless the shareholder
dissents with respect to all the shares that are beneficially owned by another
person but registered in the name of the shareholder and discloses the name
and address of each beneficial owner on whose behalf the shareholder dissents.
In that event, the rights of the dissenter shall be determined as if the
shares as to which the shareholder has dissented and the other shares were
registered in the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of
this section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
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Subd. 3. Rights not to apply.
(a) Unless the articles, the bylaws, or a resolution approved by the board
otherwise provide, the right to obtain payment under this section does not
apply to a shareholder of the surviving corporation in a merger, if the shares
of the shareholder are not entitled to be voted on the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1, for the
determination of shareholders entitled to receive notice of and to vote on an
action described in subdivision 1, only shareholders as of the date fixed, and
beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
Subd. 4. Other rights. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at
law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.--Subdivision 1.
Definitions.
(a) For purposes of this section, the terms defined in this subdivision have
the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the share" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to in
section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1 up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved by the
shareholders, a shareholder who is entitled to dissent under section 302A.471
and who wishes to exercise dissenters' rights must file with the corporation
before the vote on the proposed action a written notice of intent to demand
the fair value of the shares owned by the shareholder and must not vote the
shares in favor of the proposed action.
Subd. 4 Notice of procedure; deposit of shares.
(a) After the proposed action has been approved by the board and, if
necessary, the shareholders, the corporation shall send to all shareholders
who have complied with subdivision 3 and to all shareholders entitled to
dissent if no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
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(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all
other rights of a shareholder until the proposed action takes effect.
Subd. 5. Payment; return of shares.
(a) After the corporate action takes effect, or after the corporation
receives a valid demand for payment, whichever is later, the corporation shall
remit to each dissenting shareholder who has complied with subdivisions 3 and
4 the amount the corporation estimates to be the fair value of the shares,
plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) an estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person
who was not a beneficial owner on that date. If the dissenter has complied
with subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for
withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision
4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest,
within 30 days after the corporation mails the remittance under subdivision 5,
and demand payment of the difference. Otherwise, a dissenter is entitled only
to the amount remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a demand under
subdivision 6, it shall, within 60 days after receiving the demand, either pay
to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that
the court determine the fair value of the shares, plus interest. The petition
shall be filed in the county in which the registered office of the corporation
is located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of
the constituent corporation was located. The petition shall name as parties
all dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing
the petition, serve all parties with a summons and copy of the petition under
the rules of civil procedure.
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Nonresidents of this state may be served by registered or certified mail or by
publication as provided by law. Except as otherwise provided, the rules of
civil procedure apply to this proceeding. The jurisdiction of the court is
plenary and exclusive. The court may appoint appraisers, with powers and
authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the
shares, taking into account any and all factors the court finds relevant,
computed by any method or combination of methods that the court, in its
discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding
on all shareholders, wherever located. A dissenter is entitled to judgment in
cash for the amount by which the fair value of the shares as determined by the
court, plus interest, exceeds the amount, if any, remitted under subdivision
5, but shall not be liable to the corporation for the amount, if any, by which
the amount, if any, remitted to the dissenter under subdivision 5 exceeds the
fair value of the shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses.
(a) The court shall determine the costs and expenses of a proceeding under
subdivision 7, including the reasonable expenses and compensation of any
appraisers appointed by the court, and shall assess those costs and expenses
against the corporation, except that the court may assess part or all of those
costs and expenses against a dissenter whose action in demanding payment under
subdivision 6 is found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously,
or not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
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APPENDIX E
SHOPKO STORES, INC.
1998 STOCK INCENTIVE PLAN
SECTION 1
GENERAL
1.1. Purpose. The ShopKo Stores, Inc. 1998 Stock Incentive Plan (the "Plan")
has been established by ShopKo Stores, Inc. (the "Company") (i) to attract and
retain high quality individuals eligible to participate in the Plan; (ii) to
motivate Participants, by means of appropriate incentives, to achieve long-
range goals; (iii) to provide incentive compensation opportunities that are
competitive with those of other similar companies; and (iv) to further align
Participants' interests with those of the Company's shareholders through
compensation that is based on the Company's common stock; and thereby promote
the long-term financial interests of the Company and the Related Companies,
including the growth in value of the Company's equity and enhancement of long-
term shareholder return.
1.2. Participation. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Employees and the Eligible Directors, those persons who will be
granted one or more Awards under the Plan, and thereby become "Participants"
in the Plan. In the discretion of the Committee, a Participant may be granted
any Award permitted under the provisions of the Plan, and more than one Award
may be granted to a Participant. Awards may be granted as alternatives to or
replacement of awards outstanding under the Plan, or any other plan or
arrangement of the Company or a Related Company (including a plan or
arrangement of a business or entity, all or a portion of which is acquired by
the Company or a Related Company).
1.3. Operation and Administration. The operation and administration of the
Plan, including the Awards made under the Plan, shall be subject to the
provisions of Section 4 (relating to operation and administration). Subject to
subsection 5.5 (relating to the Board's authority), the authority to control
and manage the operation and administration of the Plan shall be vested in a
committee of the Board (the "Committee") in accordance with Section 5.
1.4. Definitions. Capitalized terms used herein which are not defined where
such terms first appear shall be defined as set forth in Section 7.
SECTION 2
OPTIONS
2.1. Options. The grant of an "Option" entitles the Participant to purchase
shares of Stock at an Exercise Price established by the Committee. Options
granted under this Section 2 may be either Incentive Stock Options or Non-
Qualified Stock Options, as determined in the discretion of the Committee. An
"Incentive Stock Option" is an Option that is intended to satisfy the
requirements applicable to an "incentive stock option" described in section
422(b) of the Code. A "Non-Qualified Option" is an Option that is not intended
to be an "incentive stock option" as that term is described in section 422(b)
of the Code.
2.2. Exercise Price. The "Exercise Price" of each Option granted under this
Section 2 shall be established by the Committee; except that the Exercise
Price shall not be less than 100% of the Fair Market Value of a share of Stock
as of the Pricing Date. For purposes of the preceding sentence, the "Pricing
Date" shall be the date on which the Option is granted.
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2.3. Exercise. An Option shall be exercisable in accordance with such terms
and conditions and during such periods as may be established by the Committee.
2.4. Payment of Option Exercise Price. The payment of the Exercise Price of
an Option granted under this Section 2 shall be subject to the following:
(a) Subject to the following provisions of this subsection 2.4, the full
Exercise Price for shares of Stock purchased upon the exercise of any
Option shall be paid at the time of such exercise (except that, in the case
of an exercise arrangement approved by the Committee and described in
subsection 2.4(c), payment may be made as soon as practicable after the
exercise).
(b) The Exercise Price shall be payable in cash or by tendering shares of
Stock (by either actual delivery of shares or by attestation, with such
shares valued at Fair Market Value as of the day of exercise), or in any
combination thereof, as determined by the Committee.
(c) The Committee may permit a Participant to elect to pay the Exercise
Price upon the exercise of an Option by authorizing a third party to sell
shares of Stock (or a sufficient portion of the shares) acquired upon
exercise of the Option and remit to the Company a sufficient portion of the
sale proceeds to pay the entire Exercise Price and any tax withholding
resulting from such exercise.
2.5. Expiration Date. The "Expiration Date" with respect to an Option means
the date established as the Expiration Date by the Committee at the time of
the grant; provided, however, that the Expiration Date with respect to any
Option shall not be later than the earliest to occur of:
(a) the tenth anniversary of the date on which the Option is granted;
(b) if the Participant is an Eligible Employee and the Participant's Date
of Termination occurs by reason of death or Disability, the first
anniversary of such Date of Termination;
(c) if the Participant is an Eligible Employee and the Participant's Date
of Termination occurs by reason of Retirement, the second anniversary of
such Date of Termination;
(d) if the Participant is an Eligible Employee and the Participant's Date
of Termination occurs for reasons other than Retirement, death or
Disability, the 90-day anniversary of such Date of Termination; or
(e) if the Participant is an Eligible Director, the third anniversary of
the Participant's Date of Termination.
Notwithstanding the foregoing provisions of this subsection 2.5, if the
Participant dies while the Option is otherwise exercisable, the Expiration
Date may be later than the dates set forth above, provided that it is not
later than the first anniversary of the date of death.
2.6. Settlement of Award. The distribution following exercise of an Option
of shares of Stock, shall be subject to such conditions, restrictions and
contingencies as the Committee may establish. The Committee, in its
discretion, may impose such conditions, restrictions and contingencies with
respect to shares of Stock acquired pursuant to the exercise of an Option as
the Committee determines to be desirable.
SECTION 3
OTHER STOCK AWARDS
3.1. Definition. A Stock Award is a grant of shares of Stock or of a right
to receive shares of Stock (or their cash equivalent or a combination of both)
in the future.
3.2. Restrictions on Stock Awards. Each Stock Award shall be subject to such
conditions, restrictions and contingencies as the Committee shall determine.
These may include continuous
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service and/or the achievement of performance measures. The Committee may
designate a single goal criterion or multiple goal criteria for performance
measurement purposes, with the measurement based on absolute Company or
business unit performance and/or on performance as compared with that of other
publicly-traded companies. The performance measures for such awards may
include: stock price, total shareholder return, earnings, earnings per share,
return on equity, and return on assets. The Committee may define the
performance measures, including, without limitation, defining such performance
measures to exclude non-recurring or extraordinary terms or events.
SECTION 4
OPERATION AND ADMINISTRATION
4.1. Effective Date. Subject to the approval of the shareholders of the
Company at the Company's 1998 annual meeting of its shareholders, the Plan
shall be effective as of January 14, 1998 (the "Effective Date"); provided,
however, that to the extent that Awards are made under the Plan prior to its
approval by shareholders, they shall be contingent on approval of the Plan by
the shareholders of the Company. The Plan shall be unlimited in duration and,
in the event of Plan termination, shall remain in effect as long as any Awards
under it are outstanding; provided, however, that, to the extent required by
the Code, no Incentive Stock Options may be granted under the Plan on a date
that is more than ten years from the date the Plan is adopted or, if earlier,
the date the Plan is approved by shareholders.
4.2. Shares Subject to Plan.
(a) (i) Subject to the following provisions of this subsection 4.2, the
maximum number shares of Stock that may be delivered to Participants and
their beneficiaries under the Plan shall be 1,250,000 shares of Stock.
(ii) Any shares of Stock granted under the Plan that are forfeited
because of the failure to meet an Award contingency or condition shall
again be available for delivery pursuant to new Awards granted under the
Plan. To the extent any shares of Stock covered by an Award are not
delivered to a Participant or beneficiary because the Award is forfeited or
canceled, such shares shall not be deemed to have been delivered for
purposes of determining the maximum number of shares of Stock available for
delivery under the Plan.
(b) Subject to subsection 4.2(c), the following additional maximums are
imposed under the Plan.
(i) The maximum number of shares of Stock that may be issued by Options
intended to be Incentive Stock Options shall be 500,000 shares.
(ii) The maximum number of shares that may be covered by Awards granted
to any one individual pursuant to Section 2 (relating to Options) shall be
500,000 shares in any one calendar year.
(iv) The maximum payment that can be made for awards granted to any one
individual pursuant to Section 3 (relating to Stock Awards) shall be
$5,000,000. If an Award granted under Section 3 is, at the time of grant,
denominated in shares, the value of the shares of Stock for determining
this maximum individual payment amount will be the Fair Market Value of a
share of Stock on the date of grant multiplied by the number of shares
granted.
(c) In the event of a corporate transaction involving the Company
(including, without limitation, any stock dividend, stock split, extraordinary
cash dividend, recapitalization, reorganization, merger, consolidation, split-
up, spin-off, combination or exchange of shares), the Committee may adjust
Awards to preserve the benefits or potential benefits of the Awards. Action by
the Committee may include adjustment of: (i) the number and kind of shares
which may be delivered under the Plan; (ii)
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the number and kind of shares subject to outstanding Awards; and (iii) the
Exercise Price of outstanding Options; as well as any other adjustments that
the Committee determines to be equitable.
4.3. Acceleration on Change of Control. Subject to the provisions of
subsection 4.2(c) (relating to the adjustment of shares), and except as
otherwise provided in the Plan or the Agreement reflecting the applicable
Award, upon the occurrence of a Change of Control:
(a) All outstanding Options shall become fully exercisable.
(b) All Stock Awards shall become fully vested.
4.4. Limit on Distribution. Distribution of shares of Stock or other amounts
under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act of 1933), and the
applicable requirements of any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of shares of Stock, the issuance may
be effected on a noncertificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
4.5. Tax Withholding. Whenever the Company proposes or is required to
distribute Stock under the Plan, the Company may require the recipient to
remit to the Company an amount sufficient to satisfy any Federal, state and
local tax withholding requirements prior to the delivery of any certificate
for such shares or, in the discretion of the Committee, the Company may
withhold from the shares to be delivered shares sufficient to satisfy all or a
portion of such tax withholding requirements. Whenever under the Plan payments
are to be made in cash, such payments may be net of an amount sufficient to
satisfy any Federal, state and local tax withholding requirements.
4.6. Payment Shares. Subject to the overall limitation on the number of
shares of Stock that may be delivered under the Plan, the Committee may use
available shares of Stock as the form of payment for compensation, grants or
rights earned or due under any other compensation plans or arrangements of the
Company or a Related Company, including the plans and arrangements of the
Company or a Related Company acquiring another entity (or an interest in
another entity).
4.7. Dividends and Dividend Equivalents. An Award may provide the
Participant with the right to receive dividends or dividend equivalent
payments with respect to Stock which may be either paid currently or credited
to an account for the Participant, and may be settled in cash or Stock as
determined by the Committee. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in shares of Stock, may be
subject to such conditions, restrictions and contingencies as the Committee
shall establish, including the reinvestment of such credited amounts in Stock
equivalents.
4.8. Transferability. Except as otherwise provided by the Committee or in
the Agreement reflecting the applicable Award, Awards under the Plan are not
transferable except as designated by the Participant by will or by the laws of
descent and distribution.
4.9. Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such
times, in such form, and subject to such restrictions and limitations, not
inconsistent with the terms of the Plan, as the Committee shall require.
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4.10. Agreement With Company. At the time of an Award to a Participant under
the Plan, the Committee may require a Participant to enter into an agreement
with the Company (the "Agreement") in a form specified by the Committee,
agreeing to the terms and conditions of the Plan and to such additional terms
and conditions, not inconsistent with the Plan, as the Committee may, in its
sole discretion, determine.
4.11. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of the
Plan, acquire any right in or title to any assets, funds or property of the
Company or any Related Company whatsoever, including, without limitation,
any specific funds, assets, or other property which the Company or any
Related Company, in their sole discretion, may set aside in anticipation of
a liability under the Plan. A Participant shall have only a contractual
right to the stock or amounts, if any, payable under the Plan, unsecured by
any assets of the Company or any Related Company. Nothing contained in the
Plan shall constitute a guarantee that the assets of such companies shall
be sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and selection
as a Participant will not give any employee the right to be retained in the
employ of the Company or any Related Company, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan. Selection as a Participant will not give any
director the right to be retained or nominated as a director of the Company
or any Related Company. Except as otherwise provided in the Plan, no Award
under the Plan shall confer upon the holder thereof any right as a
shareholder of the Company prior to the date on which the individual
fulfills all conditions for receipt of such rights.
4.12. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting
on it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
4.13. Action by Company or Related Company. Any action required or permitted
to be taken by the Company or any Related Company shall be by resolution of
its board of directors, or by action of one or more members of the board
(including a committee of the board) who are duly authorized to act for the
board, or (except to the extent prohibited by applicable law or applicable
rules of any stock exchange) by a duly authorized officer of the Company.
4.14. Gender and Number. Where the context admits, words in any gender shall
include any other gender, words in the singular shall include the plural and
the plural shall include the singular.
SECTION 5
COMMITTEE
5.1. Selection of Committee. The Committee shall be selected by the Board,
and shall consist of two or more members of the Board.
5.2. Powers of Committee. The authority to manage and control the operation
and administration of the Plan shall be vested in the Committee, subject to
subsection 5.5 hereof and to the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select from among the Eligible Employees and
the Eligible Directors those persons who shall receive Awards, to determine
the time or times of receipt, to determine the types of Awards and the
number of shares covered by the Awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of such Awards,
and (subject to the restrictions imposed by Section 6) to cancel or suspend
Awards. In making such Award determinations, the Committee may take into
account the nature of services rendered by the individual, the individual's
present and potential contribution to the Company's success and such other
factors as the Committee deems relevant.
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(b) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to determine the extent to which Awards under the
Plan will be structured to conform to the requirements applicable to
performance-based compensation as described in Code section 162(m), and to
take such action, establish such procedures, and impose such restrictions
at the time such Awards are granted as the Committee determines to be
necessary or appropriate to conform to such requirements.
(c) The Committee will have the authority and discretion to establish
terms and conditions of Awards as the Committee determines to be necessary
or appropriate to conform to applicable requirements or practices of
jurisdictions outside of the United States.
(d) The Committee will have the authority and discretion to interpret the
Plan, to establish, amend, and rescind any rules and regulations relating
to the Plan, to determine the terms and provisions of any agreements made
pursuant to the Plan, and to make all other determinations that may be
necessary or advisable for the administration of the Plan.
(e) Any interpretation of the Plan by the Committee and any decision made
by it under the Plan is final and binding.
(f) In controlling and managing the operation and administration of the
Plan, the Committee shall act by a majority of its then members, by meeting
or by writing filed without a meeting. The Committee shall maintain and
keep adequate records concerning the Plan and concerning its proceedings
and acts in such form and detail as the Committee may decide.
5.3. Delegation by Committee. Except to the extent prohibited by applicable
law or the applicable rules of a stock exchange, the Committee may allocate
all or any portion of its responsibilities and powers to any one or more of
its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Committee at any time.
5.4. Information to be Furnished to Committee. The Company and Related
Companies shall furnish the Committee with such data and information as may be
required for it to discharge its duties. The records of the Company and
Related Companies as to an employee's or Participant's employment, termination
of employment, leave of absence, reemployment and compensation shall be
conclusive on all persons unless determined to be incorrect. Participants and
other persons entitled to benefits under the Plan must furnish the Committee
such evidence, data or information as the Committee considers desirable to
carry out the terms of the Plan.
5.5. Board Administration. The Board shall have the authority to exercise
all of the powers of the Committee under the Plan with respect to any Award to
an Eligible Director if the Board determines to exercise such authority. The
determination by the Board to make an Award to an Eligible Director shall not
limit the authority of the Committee to also make Awards to Eligible
Directors.
SECTION 6
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan; provided, however,
that:
(a) subject to subsection 4.2(c) (relating to the adjustments of shares),
no amendment or termination may, in the absence of written consent to the
change by the affected Participant (or, if the Participant is not then
living, the affected beneficiary), adversely affect the rights of any
Participant or beneficiary under any Award granted under the Plan prior to
the date such amendment is adopted by the Board; and
(b) without further approval of the shareholders of the Company, no
amendment shall materially increase the number of shares of Stock which may
be delivered pursuant to Awards hereunder, except for increases resulting
from subsection 4.2(c) (relating to the adjustment of shares).
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SECTION 7
DEFINED TERMS
For purposes of the Plan, the terms listed below shall be defined as
follows:
(a) Award. The term "Award" shall mean any award or benefit granted to any
Participant under the Plan, including, without limitation, the grant of
Options and Stock Awards.
(b) Board. The term "Board" shall mean the Board of Directors of the
Company.
(c) Change of Control. The term "Change of Control" shall mean any of the
following events:
(1) the acquisition by an individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (1), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (3) below; or
(2) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then constituting the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a person
other than the Board; or
(3) consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
for which approval of the shareholders of the Company is required (a
"Business Combination"), in each case, unless, immediately following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority
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of the members of the Board of Directors of the corporation resulting from
such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(4) approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
(d) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference to
any successor provision of the Code.
(e) Date of Termination.
(1) With respect to a Participant who is an Eligible Employee, the
Participant's "Date of Termination" shall be the first day occurring on or
after the Agreement Date on which the Participant's employment with the
Company and all Related Companies terminates for any reason; provided that
a termination of employment shall not be deemed to occur by reason of a
transfer of the Participant between the Company and a Related Company or
between two Related Companies; and further provided that the Participant's
employment shall not be considered terminated while the Participant is on a
leave of absence from the Company or a Related Company approved by the
Participant's employer. If, as a result of a sale or other transaction, the
Participant's employer ceases to be a Related Company (and the
Participant's employer is or becomes an entity that is separate from the
Company), the occurrence of such transaction shall be treated as the
Participant's Date of Termination caused by the Participant being
discharged by the employer.
(2) With respect to a Participant who is an Eligible Director, the
Participant's "Date of Termination" shall be the first day occurring on or
after the Agreement Date on which the Participant ceases to be a director
of any of the Company and any Related Companies for any reason.
(f) Disability. Except as otherwise provided by the Committee, the
Participant shall be considered to have a "Disability" during the period in
which the Participant is unable, by reason of a medically determinable
physical or mental impairment, to engage in any substantial gainful activity,
which condition, in the opinion of a physician selected by the Committee, is
expected to have a duration of not less than 120 days.
(g) Eligible Director. The term "Eligible Director" shall mean any director
(or person holding authority comparable to that of a director for business
entities which do not have directors) of the Company or a Related Company who
is not an employee of the Company or a Related Company.
(h) Eligible Employee. The term "Eligible Employee" shall mean any employee
of the Company or a Related Company.
(i) Fair Market Value. For purposes of determining the "Fair Market Value"
of a share of Stock, the following rules shall apply:
(1) If the Stock is at the time listed or admitted to trading on any
stock exchange, then the "Fair Market Value" shall be the last reported
sale price of the Stock on the date in question on the principal exchange
on which the Stock is then listed or admitted to trading. If no reported
sale of Stock takes place on the date in question on the principal
exchange, then the most recent reported sale of the Stock on the principal
exchange shall be determinative of "Fair Market Value."
(2) If the Stock is not at the time listed or admitted to trading on a
stock exchange, the "Fair Market Value" shall be the mean between the
lowest reported bid price and highest reported asked price of the Stock on
the date in question in the over-the-counter market, as such prices are
reported in a publication of general circulation selected by the Committee
and regularly reporting the market price of Stock in such market.
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(3) If the Stock is not listed or admitted to trading on any stock
exchange or traded in the over-the-counter market, the "Fair Market Value"
shall be as determined in good faith by the Committee.
(j) Related Companies. The term "Related Company" means any corporation,
joint venture, limited liability company, or other business entity in which
the Company has a significant direct or indirect equity interest as determined
by the Committee in its sole discretion.
(k) Retirement. "Retirement" of the Participant shall mean the occurrence of
the Participant's Date of Termination after age 55 with ten (10) or more years
of service with the Company or a Related Company, or as otherwise expressly
approved by the Committee.
(l) Stock. The term "Stock" shall mean shares of common stock of the
Company.
----------------
Adopted: January 14, 1998.
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[Logo] SHOPKO STORES, INC. PROXY
700 Pilgrim Way
P.O. Box 19060
Green Bay, Wisconsin 54307
1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints Richard D. Schepp and David A. Liebergen as
the undersigned's agent and proxy, with power of substitution to vote as the
undersigned's proxy in accordance with the specifications appearing below, and,
in their discretion, upon all other matters that may properly come before the
Annual Meeting of Shareholders of ShopKo Stores, Inc., a Minnesota corporation,
to be held on Wednesday, May 13, 1998, at 10:00 a.m., local time, or any
adjournment or adjournments thereof, according to the number of votes that the
undersigned would be entitled to vote if the undersigned were personally present
at said meeting, and hereby revoking all former proxies. The undersigned hereby
acknowledges receipt of the Proxy Statement for the meeting.
1. ELECTION OF DIRECTORS
Nominees: Jeffrey C. Girard, Dale P. Kramer and James L. Reinertsen,
M.D.
[_] VOTE FOR all nominees listed, except those whose name(s) is (are)
written below.
[_] VOTE WITHHELD for all nominees.
--------------------------------------------
2. PROPOSAL TO CHANGE THE COMPANY'S STATE OF INCORPORATION FROM MINNESOTA
TO WISCONSIN BY APPROVAL AND ADOPTION OF AN AGREEMENT AND PLAN OF
MERGER
For [ ] Against [ ] Abstain [ ]
3. PROPOSAL TO APPROVE THE COMPANY'S 1998 STOCK INCENTIVE PLAN
For [ ] Against [ ] Abstain [ ]
4. PROPOSAL TO RATIFY APPOINTMENT OF DELOITTE & TOUCHE LLP
For [ ] Against [ ] Abstain [ ]
(over)
================================================================================
5. In their discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WILL BE VOTED AS DIRECTED, IF NO CHOICE IS SPECIFIED, PROXIES
WILL BE VOTED FOR ALL ITEMS.
Dated: 1998
-----------------------------------,
(Month) (Day)
- ----------------------------------------------
Signature of Shareholder
- ----------------------------------------------
(if there are co-owners both must sign)
The signature(s) should be exactly as the name(s) appear printed to the left.
If a corporation, please sign the corporation name in full be a duly authorized
officer and indicate the office of the signer. When signing as executor,
administrator, fiduciary, attorney, trustee or guardian, or as custodian for a
minor, please give full title as such. When signing pursuant to a power of
attorney, please attach photocopy. If a partnership, sign in the partnership
name by authorized person.
[_] PLEASE CHECK BOX IF YOU ARE ATTENDING THE ANNUAL MEETING IN PERSON. NUMBER
OF SHAREHOLDERS ATTENDING:
----------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
