SEAWAY FOOD TOWN, INC.
1020 Ford Street - P. O. Box 892 -
Maumee, Ohio 43537-0892
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF SEAWAY FOOD TOWN, INC.:
Notice is hereby given that the ANNUAL MEETING of the shareholders of Seaway
Food Town, Inc., an Ohio corporation, will be held at the Pinnacle II,
1772 Indian Wood Circle, Maumee, Ohio, on Thursday, the 7th of January,
1999, at 2:00 p.m., Eastern Standard Time, for the purpose of considering and
acting upon:
(1) The election of three (3) Directors to serve as members of Class II
during the ensuing three years and until their successors are elected and
qualified.
(2) A proposal to ratify the selection of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending August 28, 1999.
(3) A proposal to amend the Articles of Incorporation by adding a modified
version of the Ohio Share Acquisition Statute under which the Board of
Directors may reject certain proposals to acquire Company stock without
submitting the proposals to a vote of the shareholders.
(4) A proposal to amend the Code of Regulations to provide that members of
the Board of Directors may be removed only for good cause.
(5) A proposal to amend the Code of Regulations to require that any
shareholder wishing to nominate a candidate for the Board of Directors must
do so at least 90 days before the annual shareholders meeting or 30 days before
a special meeting held for the purpose of electing directors.
(6) A proposal to amend the Code of Regulations to provide that a special
meeting of the Board of Directors may be called with 48 hours notice.
(7) A proposal to amend the Articles of Incorporation to increase the number
of authorized shares of Company common stock from 12,000,000 to 24,000,000.
(8) A proposal to amend the Company's Articles of Incorporation
(a) To provide that if a majority of the Board of Directors has
approved a merger or similar transaction, then the vote of holders of a
simple majority of the voting power of the Company will suffice to approve
the transaction;
(b) To broaden the transactions covered by the above provision to
include "combinations" and "majority share acquisitions" as defined in the
Ohio Revised Code.
(9) The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business November 20, 1998
will be entitled to vote at the meeting or any adjournment thereof.
Accompanying this notice is a copy of the Annual Report of the Company
reflecting operations for the 1997-1998 fiscal year.
By the Order of the Board of Directors
GARY D. SIKKEMA
Secretary
Maumee, Ohio
December 4, 1998
Shareholders who do not expect to be present in person on January 7, 1999
are requested to sign, date and return the attached proxy as promptly as
possible.
<PAGE>
PROXY STATEMENT
of
SEAWAY FOOD TOWN, INC.
1020 Ford Street, P. O. Box 892, Maumee, Ohio 43537-0892
December 4, 1998
THE ACCOMPANYING PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF SEAWAY
FOOD TOWN, INC., for use at the Annual Meeting of Shareholders to be held
January 7, 1999, and at any adjournment thereof. This proxy statement
and the accompanying form of proxy are being mailed to security holders on
or about December 11, 1998. Any shareholder giving a proxy may revoke it
by giving written notice to the Secretary of the Company, or in open
meeting, at any time before it is voted. The Company will bear the cost
of the solicitation and will reimburse brokers or other persons holding
Common Stock of the Company in their names, or in the name of their nominees,
for reasonable expenses in forwarding the proxy and proxy statement to
the beneficial owners of such shares.
STOCK SPLIT
On April 9, 1998, the Board of Directors of the Company declared a three-
for-two stock split, whereby each shareholder of record as of April 21, 1998
would, following the split, own three shares of common stock for each two
shares held as of the record date. The stock split was effective on May 6,
1998. All share holdings and values of Common Stock set forth in this Proxy
Statement reflect this stock split.
VOTING SECURITIES
At the close of business on November 20, 1998, the record date for
the determination of shareholders entitled to vote at the Annual Meeting,
there were outstanding 6,648,928 shares of Common Stock, without par
value (stated value $2 per share). The voting power of the shareholders of
the Company is vested exclusively in the holders of such Common Stock.
The presence in person or by proxy of the holders of a majority of the
outstanding shares will constitute a quorum at the Annual Meeting of
Shareholders. Holders of Common Stock of record at the close of business
on November 20, 1998 will be entitled to one vote per share on all business
which is conducted at the meeting, except that shareholders have cumulative
voting rights in the election of directors. Cumulative voting means that
each shareholder is entitled to multiply the number of shares he is
entitled to vote by the number of directors to be elected and to
allocate the resulting aggregate votes among the nominees for election
in such manner as desired. In order to exercise the right to vote
cumulatively upon the election of directors, a shareholder must give
notice in writing to the President, the Treasurer or the Secretary of the
Company, which notice must be given on or before 2:00 P.M., January 5,1999,
and shall state the desire of the shareholder to exercise cumulative voting
rights in the election of directors. Announcement thereof must be given
at the meeting, as provided by Section 1701.55(C) of the Ohio Revised Code,
and thereupon all shareholders shall have the right to vote cumulatively.
The Chairman of the meeting or the Secretary will make an
announcement at the meeting if any such notice has been received.
ELECTION OF DIRECTORS
(Proposal 1)
The maximum number of Directors on the Board of Directors of the Company
under the Code of Regulations is twelve (12). The Board of Directors is now
operating with nine (9) members.
The Board of Directors of the Company is divided into three (3) Classes,
each consisting of three (3) Directors. The terms of office for the members
of Class II will expire with this Annual Meeting and until their successors
are elected and qualified. The terms of office of the nominees for Class
II, if elected, will expire with the Annual Meeting held subsequent to the
close of the fiscal year ending August 26, 2001, and until their successors
are elected and qualified.
It is presently intended that the shares represented by management proxies
will, unless a contrary intent is expressed, be voted for the election of
the nominees listed below, each to serve as a member of Class II for a
three-year term and to hold office until a successor is elected and qualified.
<PAGE>
All nominees have consented to being named in this Proxy Statement and
have agreed to serve if elected. If any nominee subsequently declines or is
unable to accept such nomination to serve as a Director, an event which the
management does not now expect, the persons voting the shares represented
by management proxies will vote for such substitute nominee as may be named by
the Board of Directors.
An affirmative vote of the holders of a majority of the shares represented
at the Annual Meeting is required to elect a nominee unless cumulative
voting rights are exercised. Proxies cannot be voted for a greater number
of persons than the number of nominees named in Class II to be elected at
the Annual Meeting. The holders of management proxies will have
discretionary authority to cumulate votes.
INFORMATION CONCERNING NOMINEES AND DIRECTORS
The following table sets forth certain information as of November 20, 1998
with respect to those persons who are Directors and/or nominees for
election as Directors:
<TABLE>
<CAPTION>
Year Common Stock
Name and Age Term Beneficially Percent
of Director Principal Occupation Director Since Expires Owned (1)(2)(3) Of
Class
CLASS II DIRECTORS (NOMINEES FOR ELECTION)
<S> <C> <C> <C> <C> <C>
Waldo E. Yeager Chief Financial Officer, 1987 1999 10,619(6) *
Age 62 Treasurer
Richard B. Iott Chief Executive Officer 1987 1999 554,607(6)(7) 8.3%
Age 47 and President of the
Company
Eugene R. Wos Former Managing Partner 1996 1999 200 *
Age 67 Ernst & Young LLP, Certified Public
Accountants, Toledo, Ohio. (5)
CLASS III DIRECTORS (CONTINUING IN OFFICE)
Wallace D. Iott Chairman of the Board 1957 2000 1,272,682(6)(8)19.1%
Age 83 of the Company
W. Geoffrey Lyden III Chairman of the Board 1997 2000 450 *
Age 46 and Chief Executive Officer,
The Lyden Company,
Toledo, Ohio
David J. Walrod Executive Vice President-- 1987 2000 90,026(6) 1.4%
Age 51 Operations of the Company
CLASS I DIRECTORS (CONTINUING IN OFFICE)
Thomas M. O'Donnell Past Chairman 1970 2001 10,800(9) *
Age 62 McDonald Investments Inc.
A KeyCorp company,
Cleveland, Ohio
Richard K. Ransom President, Ransom Consult- 1989 2001 6,000 *
Age 79 ing Partnership; Former Chairman
of the Board and President of
Hickory Farms of Ohio, Inc.
Joel A. Levine Of Counsel, Spengler 1995 2001 525 *
Age 60 Nathanson,
Attorneys at Law (4)
* Less than 1%
</TABLE>
<PAGE>
The Board of Directors has appointed an Audit Committee whose members
for the fiscal year ended August 29, 1998 were Eugene R. Wos, Thomas M.
O'Donnell, Richard K. Ransom, Joel A. Levine, and W. Geoffrey Lyden.
The Committee's purpose is to recommend outside auditors and to review
the scope of audit procedures, audit reports and other matters with
respect to the Company's financial reporting. This Committee met two (2)
times during the fiscal year.
The Board of Directors appointed an Executive Compensation Committee
whose members for the fiscal year ended August 29, 1998 were Wallace D. Iott,
Richard B. Iott, Thomas M. O'Donnell, Joel A. Levine and Eugene R. Wos.
This Committee's purpose is to review compensation paid to the members of the
Board of Directors and the corporate officers of the Company and
recommend changes in their compensation. This Committee met one (1) time
during the fiscal year.
The Board of Directors appointed a Nominating Committee for the fiscal
year ended August 29, 1998 whose members were Wallace D. Iott, Richard B.
Iott, Thomas M. O'Donnell, Joel A. Levine, and Eugene R. Wos. This
Committee's purpose is to review the desirability of new members of the Board
of Directors and to seek out and recommend candidates for positions on the
Board of Directors. Shareholders who desire to have an individual considered
by the Nominating Committee for the next vacant position on the Board of
Directors should submit the recommendation in writing to the Secretary of the
Company before the September 1 preceding the next Annual Meeting of the
Shareholders and include biographical information and qualifications for
service as a director. The Nominating Committee met one (1) time during
the fiscal year.
During the fiscal year ended August 29, 1998, the Board of Directors
met a total of four (4) times. All Directors attended at least 75% of the
aggregate of the meetings of the Board of Directors and the committees on
which they served.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth, as of November 20, 1998, the names
and addresses of beneficial owners, amounts beneficially owned, and the
percentage of common stock owned beneficially by those persons (including
any "group" as the term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934) known to management to be the beneficial owner of more than 5%
of the Company's Common Stock:
<TABLE>
<CAPTION>
Name and address Amount Beneficially Percent of
of Beneficial Owner Owned (1)(2)(3) Class
<S> <C> <C>
Wallace D. Iott 1,272,682 (6) (8) 19.1%
3402 Chapel Drive
Toledo, Ohio 43615
Evergreen Asset 432,000 (11) 6.5_%
Management Group
2500 Westchester
Purchase, New York 10577
CIGNA Retirement & 729,517 (12) 11.0%
Investment, Trustee
280 Trumbull St. HO6A
1 Commerce Plaza
Hartford, CT 06103
Richard B. Iott 554,607 (6) (7) 8.3%
5245 Keener Road
Monclova, Ohio 43542
Constance J. Braciak 470,379 (13) 7.1%
6744 Sweet Bush
Sylvania, Ohio 43560
Paul L. Pope 372,366 (10) 5.6%
4532 Sanderling Lane
Quail Ridge No. 73
Boynton Beach, Florida 33436
All executive officers 1,945,709 (6) 29.3%
and directors
as a group (9 persons)
</TABLE>
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
The Company leases supermarkets in Temperance, Michigan and Sylvania,
Ohio and a Floral Operations Center in Toledo, Ohio, from MS Associates, a
limited partnership controlled by members of the Wallace D. Iott family.
The primary term for the Temperance supermarket lease expires in the year
2002; $128,217 in rent was paid during the fiscal year for the Temperance
location. The primary term for the Sylvania supermarket lease expires in
the year 2004; $306,821 in rent was paid during the fiscal year for the
Sylvania location. The primary term for the Toledo Floral Operations Center
lease expired in the year 1997, the new lease option expires in the year 2002;
$18,750 in rent was paid during the fiscal year for the Floral Operation
Center. On September 29, 1997 the Company entered into a long-term
agreement with Maumee Associates, an Ohio General Partnership, for the
construction and lease of a new store facility in Maumee, Ohio. The
primary term of the lease would have expired 20 years from the date the
<PAGE>
facility opened for business. The Company terminated this lease arrangement
after conducting an updated market survey. A fee of $500,000 was paid
to Maumee Associates at termination. Director Richard K. Ransom is a
20% owner of Maumee Associates.
The Company believes that the terms of the foregoing leases and
other transactions are at least as favorable as those that could have been
obtained from non-affiliated parties for comparable properties or goods.
Section 16(a) Beneficial Ownership Reporting Compliance
There were three errors in filing Form 4 reports during fiscal year 1998.
First, the November, 1997 report filed on behalf of Richard B. Iott did not
include 100 shares sold and 1,950 shares given by Mr. Iott in that month.
Second, gifts of 3,200 shares received by Mr. Iott and his family in January,
1998 were not reported for that month. Both errors were corrected in filings
made on June 3, 1998. Finally, the acquisition of 300 shares by W. Geoffrey
Lyden on October 28, 1997 was not reported until the Form 4 filing for the
month of November, 1997.
EXECUTIVE COMPENSATION
Summary Compensation Table
The Summary Compensation Table shows certain compensation information
for the Chairman of the Board and the three other most highly compensated
executive officers for services rendered in all capacities during the fiscal
years ended August 31, 1996, August 30, 1997 and August 29, 1998. This
information includes the dollar value of base salaries and certain other
compensation. The Company does not award bonuses or Stock Appreciation
Rights ("SARs"). In addition, the Company's stock option plan expired in
1993, and there are no unexercised options outstanding.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
___Long-Term Compensation__
Annual Compensation Awards Payouts
Other Restric- All
Ann. ted Optio LTIP Other
Name and Compen- Stock ns/ Payouts Compen-
Principal Year Salary Bonus sation Award(s)SARs ($) sation
Position ($) ($) ($) (A) ($) (#) ($)(B)
(C)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wallace D. Iott 1998 300,000 0 -- 0 0 0 60,700
Chairman of 1997 300,923 0 -- 0 0 0 60,150
the Board 1996 310,000 0 -- 0 0 0 60,150
Richard B. Iott 1998 219,519 0 -- 0 0 0 13,300
Chief 1997 213,128 0 -- 0 0 0 13,430
Executive 1996 191,062 0 -- 0 0 0 12,639
Officer
and President
David J. Walrod 1998 200,219 0 -- 0 0 0 14,800
Executive 1997 193,731 0 -- 0 0 0 14,719
Vice-Presi- 1996 181,290 0 -- 0 0 0 14,144
dent, Operations
Waldo E. Yeager 1998 184,777 0 -- 0 0 0 19,800
Chief Finan- 1997 178,237 0 -- 0 0 0 19,699
cial Officer 1996 166,429 0 -- 0 0 0 19,154
& Treasurer
</TABLE>
(A) Perquisites and other benefits for each executive officer amount to less
than 10% of salary and bonus.
(B) Includes amounts paid by the Company on behalf of the executive for
some or all of the following: Matching 401(k) Contributions ("401(k)"),
contributions which were formerly made to the ESOP which has been merged with
the 401(k); insurance premiums on life insurance for the executive paid by the
Company and fully included on the executive's W-2 ("Premiums"); insurance
remiums paid by the Company pursuant to a "split-dollar" arrangement
with the executive ("Insurance").
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Wallace D. Iott:
401(k) $4,800 $4,500 $4,500
ESOP $4,000 $3,750 $3,750
Premiums $51,900 $51,900 $51,900
Richard B. Iott:
401(k) $4,800 $5,180 $4,389
ESOP $4,000 $3,750 $3,750
Insurance $4,500 $4,500 $4,500
David J. Walrod
401(k) $4,800 $4,969 $4,394
ESOP $4,000 $3,750 $3,750
Insurance $6,000 $6,000 $6,000
Waldo E. Yeager
401(k) $4,800 $4,949 $4,404
ESOP $4,000 $3,750 $3,750
Insurance $11,000 $11,000 $11,000
</TABLE>
(C) Under the terms of a split-dollar insurance arrangement between the
Company and the executive, upon surrender of the policy, the executive
is entitled to the cash surrender value in excess of premiums paid by the
Company. Currently, premiums paid by the Company exceed the cash surrender
value.
Option/SAR Grants in Last Fiscal Year
The Company does not currently sponsor any program through which options or
SARs are granted.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The Company has not awarded and does not award SARs and has no unexercised
options outstanding.
Long-Term Incentive Plans/Awards in Last Fiscal Year
The Company does not maintain any long-term incentive plans. No
long-term incentive awards were made in the last fiscal year.
COMPENSATION COMMITTEE REPORT
The Company's compensation program is designed to motivate, reward and
retain the management talent needed to achieve the Company's business
objectives and maintain its competitive position in an industry
characterized by complexity, competitiveness and change.
The compensation of the Company's top executives is reviewed and
approved annually by the Compensation Committee. The Compensation
Committee makes recommendations to the Board of Directors as to the salaries
of the Chairman, CEO and the President, and sets the salaries of other
elected officers, and reviews salaries of other senior executives. There
are now no incentive programs in place for Company executives.
Base Salary
The goal of the compensation program is to reward each employee based on
his or her performance and level of responsibility. Assessments of both
individual and corporate performance influence executives' compensation
levels. It is important to encourage a performance-based environment
that motivates individual performance by recognizing the past year's results
while simultaneously providing incentives for further improvement in the
future. This includes the ability to implement the Company's business
plan as well as reacting to unanticipated external factors that can
have a significant impact on the Company's performance. At the same time,
however, executive compensation must be competitive within the supermarket
industry. Inflation and other general economic factors, and
competitive positioning within the industry are the chief consider-
ations in establishing the budget for salary expenditures.
<PAGE>
With respect to the determination of compensation for Wallace D. Iott,
the Company's Chairman of the Board, the following factors in addition
to those described previously were considered: Comparable Executive
Compensation within the Supermarket Industry, Mr. Iott's 40-year tenure with
the Company, his present and cumulative contributions to the Company, both
personally and in his capacity as an officer of the Company, the sales and
gross profit margin of the Company and its various subsidiaries and
affiliates, and other intangible criteria. Based on these factors, the
Compensation Committee approved a increase for Mr. Iott in 1996.
However, Mr. Iott declined to accept this increase, and requested a
decrease in his compensation. His 1997 and 1998 base salaries of $300,923.00
and $300,000 respectively, reflect this decrease, and are shown under the
caption "Salary" in the Summary Compensation Table.
Summary
The Compensation Committee has the responsibility for ensuring that
the Company's compensation program continues to be in the best interest
of its shareholders while adequately compensating its executives.
The Compensation Committee believes that the compensation program is not
only appropriate but competitive within the Supermarket Industry. The
Compensation Committee is also reviewing new forms of compensation and
incentive programs that may further enhance the productivity of its
management and promote their retention by the Company, thus increasing
growth and profitability.
Share Investment Performance
The following graph compares the yearly percentage change in the
cumulative total shareholder return, including reinvested dividends, of
Seaway Food Town, Inc. Common Stock, with three other indexes.
SEE GRAPH DESCRIPTION BELOW
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
<S> <C> <C> <C> <C> <C> <C>
8/93 8/94 8/95 8/96 8/97 8/98
Seaway Food Town,Inc. 100 89 150 179 404 416
Peer Group 100 87 89 115 130 141
NASDAQ Stock Market 100 104 140 158 221 210
Standard & Poor's
(Retail Food Chains) 100 103 123 158 166 237
</TABLE>
The peer group companies are: Buttrey Food & Drug Stores (went public in
1991), Eagle Food Centers, Inc., Foodarama Supermarkets, Inc., Ingles
Markets, Inc., Marsh Supermarkets, Inc. and Village Supermarket, Inc.
These are moderately capitalized companies engaged in the same line of
business as the Company.
<PAGE>
Compensation Committee Interlocks and Insider Participation
Two members of the Compensation Committee are Executive Officers of the
Company. Wallace D. Iott is the Chairman of the Board, and Richard B. Iott
is Chief Executive Officer and President of the Company.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who have not previously served and who
are not currently serving as employees of the Company are paid an annual
fee of $12,000 for service as a Director of the Company. Non-employee
Directors are paid $1,500 for each Board meeting attended and $600 for
each day Committee meetings are attended on a day other than a day the
entire Board of Directors meets.
EXECUTIVE OFFICERS
David J. Walrod has served as an executive officer of the Company
since 1979. Waldo E. Yeager has served as an executive officer of the
Company since 1974. Richard B. Iott was elected to executive officer
status in 1984 and was elected to Chief Executive Officer in January, 1996.
He has been employed by the Company since 1971 in a variety of capacities.
Prior to his election to the office of President he was employed primarily
in the marketing and merchandising areas. Richard B. Iott is the son of
Wallace D. Iott, Chairman of the Board. Gary D. Sikkema is the Company
Secretary and is a partner of the law firm of Spengler Nathanson. Mr.
Sikkema has been a partner of Spengler Nathanson for the most recent
five (5) year period. No fees for services as Secretary of the Company
were paid to Mr. Sikkema. Legal fees are paid to Spengler
Nathanson as compensation for his services in connection with Board and
Committee activities. The term of office for all executive officers is one
(1) year.
FOOTNOTES:
(1) Based in part on information furnished by the nominees and
directors or their agents, and in part on Company records.
(2) The inclusion of shares owned by the spouse or any of the
minor children of any of the nominees or directors as being beneficially
owned shall not be construed as an admission of beneficial ownership by
such director or nominee.
(3) No shares reported hereunder are owned of record but not owned
beneficially.
(4) Spengler Nathanson has served as general counsel to the Company
since incorporation in 1957 and will remain as such in the current fiscal
year. Fees paid to said firm by the Company for legal services amounted
to $372,747 during the Company's fiscal year ended August 29, 1998.
(5) Mr. Wos is also a member of the Board of Directors of General
Alum & Chemical Corporation.
(6) Includes the number of shares allocated as of the record date
under the Seaway Food Town, Inc. 401(k) Plan.
(7) Includes 110,042 shares owned by Richard B. Iott as custodian for
his minor children and 34,874 shares owned by his wife.
(8) Includes 557,600 shares owned by Wallace D. Iott's wife.
(9) Includes 1,200 shares owned by Mr. O'Donnell's wife.
(10) Includes 95,358 shares owned independently by Mr. Pope's wife.
(11) Based on information in Schedule 13G filed with the Securities
and Exchange Commission on or about June 25, 1987, and any amendments
thereto and information provided by the beneficial owner.
(12) Held as Trustee for Seaway Food Town, Inc. 401(k) Plan.
(13) Includes 33,555 shares owned by Constance J. Braciak as custodian
for her minor child, and 6,000 shares owned by Mrs. Braciak's husband.
<PAGE>
RATIFICATION OF SELECTION OF AUDITORS
(Proposal 2)
At the Annual Meeting, shareholders will consider and act upon the
approval of auditors for the Company's fiscal year ending August 28, 1999.
The Board of Directors, upon recommendation of its Audit Committee and
subject to such approval, has selected the independent certified public
accounting firm of Ernst & Young LLP as such auditors. Ernst & Young LLP
have been auditors for the Company for many years. Representatives of Ernst
& Young LLP are expected to be present at the annual meeting and will have
an opportunity to make a statement if they desire to do so and are expected
to be available to respond to questions.
The Board of Directors of the Corporation recommends a vote for approval
of the selection of Ernst & Young LLP. Unless otherwise specified,
shares represented by proxies will be voted for approval of Ernst &
Young LLP as auditors. Although the submission of this matter for approval
by shareholders is not required legally, the Board of Directors believes that
such submission follows sound corporate practice and is in the best
interests of shareholders. If approval of Ernst & Young LLP by an
affirmative vote by the holders of a majority of the shares presented is
not received, the selection of a firm as auditors for the Corporation will
be considered by the Audit Committee and the Board of Directors.
AMENDMENTS TO THE COMPANY'S ARTICLES OF INCORPORATION
The following summarizes certain proposed amendments to the Articles of
Incorporation and Code of Regulations of the Company which were unanimously
approved by the Board of Directors at the meeting of the Board held on October
21, 1998. The purpose of the amendments is to enable the Board to maintain
sufficient control if an unsolicited offer is made for the Company so that the
Board can adequately evaluate the offer and act in the best interest of the
Company and its shareholders.
General
The Board is unaware of any specific effort to accumulate the Company's
stock or to obtain control of the Company. However, because of the recent
consolidation trend in the food industry, the Board has determined that the
Company should periodically review its ability to adequately respond to
potential suitors. The Board, while not desiring either to entrench itself or
management, has decided that it is in the best interest of shareholders,
employees, vendors, and customers of the Company to ensure that the Company is
not vulnerable to an undesirable acquisition.
The Board recognizes that it is neither desirable nor possible to retain
the ultimate power to determine whether to accept or reject an acquisition
offer. However,as the elected governing body of the Company, the Board desires
to maintain sufficient control over any potential acquisition so that it may
serve the best interests of all stakeholders in the Company.
The Board has considered a number of potential defensive measures to
present to the shareholders. The Board has tried to strike a balance between
the Directors' desire to safeguard the interests of both the Company and its
shareholders against the shareholders' ultimate authority to decide the fate of
the Company which they own.
The Directors decided that the following proposals strike this balance
with a minimum of complexity and expense. The proposed amendments: (1)
restrict the ability of shareholders to nominate directors unless done so at
least 90 days in advance of the annual meeting or 30 days in advance of a
special meeting called for that purpose; (2) provide that directors can be
removed only for good cause shown; (3) provide that special directors'
meetings can be called on as little as 48 hours notice; (4) increase the
number of authorized shares of common stock to ensure an adequate supply
not only for defensive purposes, but also for future stock splits or
other uses of common stock; (5) amend the provisions concerning
shareholder approval of mergers, consolidations, sales or similar
transactions, by adding combinations or majority share acquisitions; and
(6) enact a version of Ohio's Control Share Acquisition Statute which
modifies the Statute by vesting in the Board the authority to decline
a proposed control share acquisition under certain circumstances.
Except as noted below, the provisions of the Articles of Incorporation
and Code of Regulations will remain unchanged, and the Board has no present
<PAGE>
intention to propose other anti-takeover measures in future proxy solici-
tations.
THE OVERALL EFFECT OF THESE PROPOSALS MAY BE TO RENDER MORE DIFFICULT THE
ACCOMPLISHMENT OF MERGERS OR THE ASSUMPTION OF CONTROL BY A PRINCIPAL
STOCKHOLDER, AND THUS TO MAKE DIFFICULT THE REMOVAL OF MANAGEMENT, EVEN IF
SUCH TRANSACTION OR SUCH REMOVAL IS FAVORABLE TO SHAREHOLDERS. PLEASE
READ THE PROPOSALS AND ACCOMPANYING MATERIAL CAREFULLY. However, these
Amendments will strengthen the Board's ability to respond to unsolicited
inquiries for the Company and to negotiate effectively with persons
desiring to acquire substantial blocks of Company stock or control of the
Company.
The Company's stock is currently sold on the NASDAQ National Market
System. Adoption of the Board's proposals will not cause NASDAQ to de-list
the Company's stock.
The Amendments to the Articles of Incorporation will become effective as
soon as they are filed with the Secretary of State of the State of Ohio,
which the Company expects to occur as soon as practical after the annual
meeting. The Amendments to the Code of Regulations will become effective
immediately upon approval by the shareholders.
CURRENT PROVISIONS OF THE ARTICLES OF INCORPORATION
AND CODE OF REGULATIONS HAVING AN ANTI-TAKEOVER EFFECT
The Company already has a number of provisions in its Articles of
Incorporation and Code of Regulations which could have an inhibiting effect on
an unsolicited takeover attempt. Most important, Article FIFTH, Section 2, of
The Articles of Incorporation requires that: "Any merger or consolidation of
the Corporation with or into any other corporation, any dissolution, or any
sale, lease, exchange or other disposition of all or substantially all of
the assets of the Corporation to or with any other corporation, person
or entity, shall require the affirmative vote of the holders of at least
two-thirds of each class or classes of the outstanding shares of capital
stock of the Corporation issued and outstanding and entitled to vote."
The provisions of this section only apply to those transactions which are
not unanimously approved by the Board of Directors. If the Board gives its
unanimous approval, only a majority of the shares is needed to approve the
transaction.
Ohio law provides that the Articles of Incorporation of a corporation may
be amended by a two-thirds vote unless otherwise provided in those articles.
Article FIFTH, Section 2, also provides that it may not be amended except by
two-thirds vote. However, most provisions of the Articles of Incorporation
are amendable upon the affirmative vote of a majority of the shareholders.
The Articles of Incorporation currently authorize 300,000 shares of
"Serial Preferred Shares" to be issuable at the discretion of the Board of
Directors. The Board has the authority to specify the annual dividend rate
of the series, redemption rights, and prices for the shares, the terms of
any sinking fund, the amounts payable upon the liquidation, dissolution or
winding up of the affairs of the corporation, the convertibility of
the shares and any further restrictions on the issuance of such shares.
Accordingly, the Directors already have the authority and the ability to place
a block of preferred shares of the Company in the hands of a potential suitor
or otherwise friendly investor in the event of an acquisition attempt which
is not deemed by the Board of Directors to be in the best interests of the
shareholders and other stakeholders of the Company.
The Code of Regulations also contains provisions that might inhibit an
unwanted acquisition of the Company: The Board of Directors is divided into
three classes. Each class serves for a three year term, and the terms are
staggered, so only one-third of the Directors is elected at each annual
meeting. Accordingly, a potential acquirer seeking to control the Board of
Directors would need at least two years to be able to elect a majority of
directors to the Board and thus gain control of the operation of the Company.
Removal of Directors can only be accomplished by the affirmative vote of
two-thirds of the voting power of the Company. Thus, a potential suitor would
need the voting power of two-thirds of the shares of the Company, whether by
ownership or proxy, to remove the Board of Directors and install the suitor's
own board.
Accordingly, aside from the proposals made by way of this proxy, the
Board already has in place certain provisions which would tend to inhibit or
at least deter the unwanted acquisition of the Company. However, it is the
recommendation of the Board that the proposals contained herein also be
enacted to strengthen the ability of the corporation to fend off an unwanted
acquisition.
In light of the foregoing, the Board of Directors unanimously recommends
that the following proposals be adopted by the shareholders at the annual
meeting to be held January 7, 1999.
<PAGE>
THE OHIO CONTROL SHARE ACQUISITION STATUTE
(Proposal 3)
The Company is now subject to the Ohio Control Share Acquisition Statute
(Ohio Revised Code Section 1701.831). Under this statute, a "control share
acquisition" is deemed to occur upon a person's acquisition of Company voting
shares within the ranges of (i) one-fifth or more to one-third, (ii) one-third
or more to one-half, and (iii) a majority or more. Any person or entity making
a control share acquisition may do so only if both (a) the shareholders, by a
majority vote, approve such acquisition at a special meeting called for that
purpose, and (b) the shareholders, excluding shares owned by the acquiring
person, by an officer of the corporation or by an employee of the corporation
who is also a director, approve the transaction. The transaction must then be
consummated within 360 days following such authorization.
Certain transactions are exempted from the statute. These are acquisi-
tions: (1) occurring prior to the enactment of the statute; (2) pursuant
to a contract existing prior to the enactment of the statute; (3) by bequest or
inheritance;(4) pursuant to a pledge or other security interest; (5) pursuant
to a merger, consolidation, combination, or majority share acquisition
authorized by shareholder vote; or (6) pursuant to a transaction which has
already been authorized within the range of voting power to which the
transaction applies. However, the statute contemplates that shares acquired by
bequest or inheritance or pursuant to a pledge or other security interest be
acquired in good faith and not for the purpose of circumventing the require-
ments of the statute.
Any person proposing to acquire shares of the Company within any of the
specified voting ranges must provide notice to the Company and the Company
must in turn call a special shareholders' meeting within 10 days in order
to approve or disapprove of the transaction. If the shareholders approve
the transaction, the control share acquisition may proceed.
Modifications made by this Proposal
The proposal before the shareholders modifies the Control Share
Acquisition Statute in only one material way. The proposal provides that
when the Board receives a control share acquisition notice, it shall call a
special meeting of the shareholders within 10 days unless the Board
determines that: (1) the acquisition proposal is not made in good faith;
(2) the acquisition would not be in the best interest of the Company and
its shareholders or others whose interest the Board may take into
consideration; (3) the person who delivers the notice fails to adequately
demonstrate that he, she or it has the financial capacity to make the
acquisition; or (4) the acquisition would be contrary to law if
consummated. Accordingly, the Board is vested with the power to
disapprove a control share acquisition without seeking the input of the
shareholders.
Reasons for the Proposal
The Board has determined that it is in the best interests of the Company
and the shareholders to retain a significant degree of control over the
approval of any control share acquisition. The effect of the Control Share
Acquisition Statute is to almost immediately present to the shareholders any
given proposal to acquire a significant number of the shares of the
Company, possibly precluding due deliberation by the Board. The Board believes
that by retaining control over this process, it will be in a better position
to evaluate any given offer and to formulate a response to that offer.
Such a response might be to accept the offer, to refuse such a request for
an acquisition altogether, or, if necessary, to negotiate the sale of a
significant number of shares to the person filing the notice or to another
party. It may even be necessary to search for a potential buyer of the
Company.
This is important in light of recent consolidation in the food
industry. The Board of Directors recognizes that while the Company is not
currently the subject of an acquisition attempt, it may be in the future.
In that event, it will be necessary to fully evaluate any potential offer
and to make considered recommendations to the shareholders of the
corporation. By retaining control over that process, the Board believes
that it will be able to formulate the best possible recommendation to the
shareholders.
The Overall Effect of the Proposal
The effect of the proposal is to vest in the Board the power to protect
the best interests of the shareholders either by preventing the sale of a
block of shares to a party whose plans for the Company are not in the best
interest of the Company or the shareholders, or to provide for the sale of the
Company for a fair price and on fair terms for all.
This proposal alone does not have the effect of giving the Board the
power to disapprove any takeover attempt, but could significantly affect the
ability of any potential suitor to acquire a significant stake in the Company.
This may result in the disapproval of a transaction that may be in the best
interests of the shareholders.
<PAGE>
Advantages and Disadvantages of the Proposal
This proposal will ensure that an approval of any substantial acquisition
of stock will not be rushed to the shareholders but will be carefully
evaluated by the Board of Directors. This will give the directors an
opportunity to determine whether an acquisition is in the best interests of
the company and its shareholders, or, if necessary, to look for other
potential suitors who will more likely act in the best interests of the
corporation and the shareholders.
Further, the Board would have the ability to avoid the inconvenience and
expense involved in calling a special shareholders meeting if it determined
that the meeting would not further the best interests of the Company
or its shareholders or if the person causing such meeting were not financially
able to consummate the transaction.
This proposal will vest in the Board the ability to hinder or prevent
transactions which might lead to the acquisition of the Company. In addition,
the proposal restricts the rights of shareholders to sell or buy shares. As
previously stated, under this proposal, no shareholder would be able to
purchase in excess of 20%, 33% or a majority of the shares of the Company
without a special meeting of the shareholders and an authorization of the
purchase. However, as previously stated, the Company is already subject
to the Ohio Control Share Acquisition Statute, which also requires
such authorization. Finally, this proposal may vest in the Board the
power to protect its own incumbency.
Vote Required for Approval
This proposal must be approved by the affirmative vote of the holders of
at least a majority of the shares of the Company.
Text of the Proposal
The full text of this proposal is attached hereto as Exhibit A.
REMOVAL OF DIRECTORS
(Proposal 4)
The Board of Directors recommends that the shareholders approve
an amendment to the Code of Regulations that would allow for the
removal of directors only for good cause and upon the affirmative vote of
holders of two-thirds of the voting power of the Corporation. Currently
the Articles provide for the removal of Directors for any cause upon the
affirmative vote of the holders of two-thirds of the voting power of the
Corporation. The current provision would allow a potential acquirer having
the power to vote two-thirds of the shares of the Corporation to remove all
of the Directors at a meeting of the shareholders and install its own slate
of directors, thus gaining control of the Corporation. Enactment of the
proposal would require such a potential acquirer to demonstrate malfeasance
on the part of any director removed.
Reasons for the Proposal
The Board believes that the threat of its removal would significantly
weaken its bargaining strength in the face of an unwanted solicitation of the
Company. The Directors would be deprived of the time necessary to effectively
evaluate any given proposal, to study alternatives to that proposal, and to
make adequately informed recommendations to the shareholders.
The Overall Effects of the Proposal
The effect of this proposal is to make removal of the Directors more
difficult. The proposal may also have the effect of making a takeover or
change in control of the Company more difficult. The proposal may also have
an adverse effect on the willingness of large shareholders to purchase
shares of the Company.
The effect of the proposals, in the aggregate, may be to discourage
tender offers and proxy fights and could deprive shareholders of the
opportunity to participate in such occurrences if they so desire. The
proposal could also have the effect of discouraging the accumulation of a
substantial number of shares by any person or entity which would tend to
reduce temporary fluctuations in the price of shares and potentially deprive
shareholders of the ability to sell shares at temporarily inflated prices.
<PAGE>
Advantages and Disadvantages
By impeding the ability of shareholders to remove the Directors, the
shareholders may be deprived of the ability to participate in tender offers
and proxy contests if they so desire, at the expense of protecting the
Board and management. Conversely, the proposal will vest in the Board
the ability to negotiate with a potential suitor without feeling the pressure
that they will be removed from office if they do not move in a hasty fashion.
Vote Required for Approval
This proposal must be approved by the affirmative vote of the holders of
at least two-thirds of the shares of the Company.
Text of the Proposal
The full text of this proposal is attached hereto as Exhibit B.
NOMINATION OF DIRECTORS
(Proposal 5)
The Board of Directors recommends that the shareholders adopt a proposal
to amend the Company's Code of Regulations to require that any shareholder
wishing to nominate a candidate for director must do so at least 90 days in
advance of the annual shareholders meeting at which such election is to
take place or 30 days prior to a special meeting held for the purpose of
electing directors.
Reasons for the Proposal
This provision is intended to prevent a potential acquirer from electing
or attempting to elect his own slate of directors at an annual or special
meeting of the shareholders without warning to the Company. The Board
believes that a sudden and unexpected loss of power would make the Company
and its shareholders vulnerable to takeover by a person or entity who would
not necessarily consider the best interests of the corporation and its other
shareholders. By requiring advance notice of any attempt to elect a new
slate of directors, the Board believes it will best be able to
anticipate a possible unwanted change of control and that it would have
adequate time to address such a threat.
Overall Effect of the Proposal
The proposal would make it significantly harder to elect new directors if
not nominated in accordance with the above time constraints. Thus, one effect
of this proposal may be to entrench management and the Board of Directors in
their present offices. Further, this proposal could have the effect of
discouraging potential acquirers of the Company from attempting any takeover
whatsoever. Accordingly, shareholders wishing to participate in such a
takeover may be denied that opportunity.
Advantages and Disadvantages
This proposal will allow the Board of Directors a significant amount of
lead time to react to any potential acquisition of the company. The 90 day
advance notice period will allow the directors to determine whether there is a
potential threat, to evaluate that threat, and to respond accordingly.
This proposal may discourage potential suitors from purchasing shares of
the Company or making overtures of any kind to the Company. Accordingly,
shareholders who might desire a change in the control of the corporation may
see those desires go unfulfilled. Shareholders may also be deprived of the
ability to sell their shares into a market made strong by the accumulation
of a large number of shares. This proposal would also restrict the ability
of shareholders unhappy with the performance of the current Board from
nominating their own slate of Directors.
Vote Required for Approval
This proposal must be approved by the affirmative vote of the holders of
at least a majority of the shares of the Company.
Text of the Proposal
<PAGE>
The full text of this proposal is attached hereto as Exhibit C.
NOTICE OF SPECIAL MEETINGS
OF THE BOARD OF DIRECTORS
(Proposal 6)
The Board of Directors recommends amending the Code of Regulations so
that a special meeting of the Board may be called on as little as 48 hours
notice. Currently, the Code of Regulations provides that a special meeting
may be called only upon 7 days notice.
Reasons for the Proposal
The Code of Regulations now restricts the ability of the Board to meet
and respond quickly to emergent situations. The Board, to have a valid
meeting, must give 7 days notice to each director. In light of state
and federal takeover regulations, which in some instances require a response
to an overture for the Company within 10 days, the Board deems it advisable
to shorten the length of the time to call a special meeting so that it may
have more time to evaluate any given offer and to adequately explore any
options it may have.
Vote Required for Approval
This proposal must be approved by the affirmative vote of the holders of
at least two-thirds of the shares of the Company.
Text of the Proposal
The full text of this proposal is attached hereto as Exhibit D.
INCREASE IN THE AUTHORIZED SHARES OF
COMMON STOCK OF THE COMPANY
(Proposal 7)
The Board of Directors recommends the authorization of an increase in
available common shares of the Company from 12,000,000 to 24,000,000. The
Company, as of November 20, 1998, has issued and outstanding 6,648,928 shares.
Reasons for the Proposal
The Directors have decided to propose an increase in the available
common shares for a number of reasons. First, the Board wishes to have
available shares with which to declare a stock split, if one should be
necessary in the foreseeable future. Second, the Board wishes to have shares
available by which to make acquisitions if opportunities arise. Third, as
part of the defensive structuring of the Company, the Board believes
it is desirable to have authorized but unissued common shares available
to use in its defense.
Overall Effect of the Proposal
The overall effect of an increase in shares, as it pertains to the anti-
takeover posture of the Company, is that the Board of Directors will have at
its disposal common shares which it may use in a variety of ways to fend
off a takeover. These include: (1) the issuance of a poison pill, although
the Board does not now plan to take such a step; (2) the issuance of shares
to a friendly investor predisposed to vote against a change in control; or
(3) the issuance of shares to a more suitable candidate with an interest in
acquiring the Company.
These measures could result in the dilution of the current share value if
the Company were to issue shares for below market value, and could act to
exclude the shareholders from participating in a change in control
transaction, if they desired that course of action for the Company.
Advantages and Disadvantages
The use of common shares for the purpose of fending off a hostile
takeover can result in the dilution of the value of shares owned by other
shareholders. The Company may place shares, at a discount to the prevailing
market price, in the hands of an investor supportive of the Board, or it
could use the shares to institute a poison pill whereby existing shareholders
would have the right to purchase shares at significantly less than fair
market value. If these defensive measures were successful, the existing
shareholders of the Company could be deprived of participating in a buyout
of the Company or a similar change in control.
<PAGE>
Having excess shares available to it would allow the Board the
flexibility to issue shares to investors supportive of management or to a
potential acquirer whose acquisition of the Company would be in the best
interests of the Company. Further, with such shares, the Board could,
in the face of a hostile acquisition, issue an option to another investor
or acquirer which would make acquisition significantly more difficult.
Vote Required for Approval
This proposal must be approved by the affirmative vote of the holders of
at least a majority of the shares of the Company.
Text of the Proposal
The full text of this proposal is attached hereto as Exhibit E.
VOTE REQUIRED FOR
COMBINATION AND MAJORITY SHARE ACQUISITIONS
(Proposal 8)
The Board of Directors recommends that the shareholders approve an
amendment to the Articles of Incorporation that would require any combination
or majority share acquisition involving the Company to be approved
by the affirmative vote of the holders of two-thirds of the voting power
of the Company. Currently, the Articles of Incorporation require that
mergers, consolidations, dissolution, or any sale, lease, exchange, or other
disposition of all or substantially all of the assets of the Company be
approved by such a two-thirds vote. The Articles also now provide that a
simple majority of the shareholders may approve any such transaction if
approved by the unanimous vote of the Directors. This proposal would reduce
the vote required of the Directors to a simple majority in order to
allow the shareholders to approve by a majority.
Reasons for the Proposal
The Board of Directors believes that this amendment brings consistency to
the voting provisions of the Articles of Incorporation. Currently, the
Articles generally require a majority vote to amend most provisions, but
require the affirmative vote of the holders of two-thirds of the shares
to effect, among other things, mergers, consolidations, a dissolution, or
any sale, lease, exchange, or other disposition of all or substantially all
of the assets of the Company, unless unanimously approved by the Board of
Directors.
The Ohio Revised Code, in addition to those transactions already
provided for in the Articles, defines two further transactions: the combina-
tion, and the majority share acquisition. The term "combination" is defined
as a transaction, other than a merger or consolidation, which involves the
transfer of all or substantially all of the assets of the Company to
another corporation in consideration of voting shares of that corporation.
The term "majority share acquisition" is defined as the acquisition of a
majority of the shares of the Company in exchange for the issuance or
transfer of the voting stock of another corporation.
The Board has determined that these two transactions are significantly
similar to the transactions already requiring a two-thirds vote to approve. As
a result, the Board believes that the transactions warrant the same treatment
as other similar transactions have been accorded.
Further, the Board believes that requiring unanimous approval of the
Board before submitting such a transaction to its shareholders is unduly
restrictive on the power of the shareholders and could create the
possibility that one Director could veto a transaction which may be in
the best interests of the shareholders. The Board has determined that
one Director should not be able to block a transaction in this manner.
The Overall Effects of the Proposal
The effect of this proposal is that combinations and majority
share acquisitions involving the Company must be approved by the affirmative
vote of two-thirds of the holders of shares of the Company, unless previously
approved by the Board. This will make the involvement of the Company in such
transactions more difficult and may have the effect of sustaining the
Directors in their positions even though a majority of the shareholders of the
Company may wish to participate in such a transaction if the opportunity
should present itself.
<PAGE>
The amendment also provides that any of the above-mentioned transactions
may be approved by a simple majority of the shareholders if previously
approved by a simple majority of the Board. This will remove the power of
a single Director or minority group of Directors to veto a transaction and
will make any such transaction more likely to be presented to the shareholders
for approval by a majority of votes.
Advantages and Disadvantages
The advantage of this proposal is that it will remove any confusion that
might result over the proper scope of the current Articles of Incorporation
and their applicability to a transaction which would be classified as a
combination or majority share acquisition. It currently could be argued
that these two transactions are not covered under the language contained in
the Articles. This proposal removes all doubt that these transactions are
covered under the pertinent section of the Articles.
This proposal also will make it more difficult for the Board of Directors
to require a two-thirds vote of the shareholders to approve such a transaction.
No longer will one Director, voting alone, have the power to require
the shareholders to approve such a transaction by more than a
majority. Accordingly, this proposal may make it easier for shareholders to
participate in such a transaction if they so desire.
Vote Required for Approval
This proposal must be approved by the affirmative vote of the holders of
at least two-thirds of the shares of the Company.
Text of the Proposal
The full text of this proposal is attached hereto as Exhibit F.
EXHIBIT A
At the meeting, the shareholders will vote on the following
resolution:
RESOLVED, that the Articles of Incorporation of the
Corporation be, and they hereby are, amended by the addition
thereto of Article FIFTH, Section 3, as follows:
"SECTION 3: No Person shall make a Control Share Acquisition without the
prior authorization of the Corporation's shareholders.
(A) In order to obtain the shareholder's authorization of a Control
Share Acquisition, a Person shall deliver a notice (the "Notice") to the
Corporation at its principal place of business that sets forth all of
the following information:
(1) The identity of the Person who is giving the Notice;
(2) A statement that the Notice is given pursuant to this Article
FIFTH;
(3) The number and class of shares of the Corporation owned,
directly or indirectly, by the Person who gives the Notice;
(4) The range of voting power under which the proposed Control
Share Acquisition would, if consummated, fall;
(5) A description in reasonable detail of the terms of the
proposed Control Share Acquisition; and
(6) Representations, supported by reasonable evidence, that
the proposed Control Share Acquisition, if consummated, would not be
contrary to law and that the Person who is giving the Notice has the financial
capacity to make the proposed Control Share Acquisition.
(B) Within ten (10) days after receipt by the Corporation of a Notice
that complies with paragraph (A), the Board of Directors of the Corporation
shall call a special meeting of shareholders to consider the proposed Control
Share Acquisition. Such special meeting shall be held not later than fifty
(50) days after receipt of the Notice by the Corporation, unless the Person
who delivered the Notice agrees to a later date. However, the Board of
Directors shall have no obligation to call such meeting if it makes a
determination within ten (10) days after receipt of the Notice (i) that
the Notice was not given in good faith, (ii) that the proposed Control Share
Acquisition would not be in the best interest of the Corporation and its
<PAGE>
shareholders or others whose interests the Board of Directors may take into
consideration, or (iii) that the Person who delivered the Notice has
failed to adequately demonstrate (a) that such Person has the financial
capacity to make the proposed Control Share Acquisition, or (b) that the
proposed Control Share Acquisition would not be contrary to law if
consummated. The Board of Directors may adjourn such meeting if, prior to
such meeting, (i) the Corporation has received a Notice from any other
Person, or (ii) a merger, consolidation or sale of assets of the
Corporation has been approved by the Board of Directors and the Board of
Directors has determined that the Control Share Acquisition proposed by
such other Person or the merger, consolidation or sale of assets of the
Corporation should be presented to shareholders at an adjourned meeting
or at a special meeting held at a later date.
If the Board of Directors determines that a special meeting of
shareholders should not be called pursuant to this paragraph (B), the
determination shall not be deemed void or voidable merely because one or
more of the directors or officers who participated in making such
determination may be deemed to be other than disinterested if the
material facts of the relationship giving rise to a basis for self-interest
are known to the directors and the directors, in good faith reasonably
justified by the facts, make such determination by the affirmative
vote of a majority of the disinterested directors, even though the
disinterested directors constitute less than a quorum. For purposes of
this paragraph, "disinterested directors" shall mean directors whose
material contacts with the Corporation are limited principally to
activities as a director or shareholder. Persons who have substantial,
recurring business or professional contacts with the Corporation shall
not be deemed to be "disinterested directors" for purposes of this
provision. A director shall not be deemed to be other than a "disinterested
director" merely because he or she would no longer be a director if the
proposed Control Share Acquisition were approved and consummated.
(C) The Corporation shall give notice of such special meeting to
all shareholders of record as of the record date set for such meeting as
promptly as practicable. Such notice shall include or be accompanied by a
copy of the Notice and by a statement of the Corporation, authorized by the
Board of Directors, of its position or recommendation, or that it is taking
no position or making no recommendation, with respect to the proposed Control
Share Acquisition.
(D) The Person who delivered the Notice may make the proposed Control
Share Acquisition if both the following occur: (i) the shareholders of the
Corporation authorize such acquisition at the special meeting called by the
Board of Directors and held for that purpose, and at which a quorum is
present, by an affirmative vote of a majority of the voting shares represented
at such meeting in person or by proxy, and by a majority of the portion of
such voting shares represented at such meeting in person or by proxy
excluding the votes of Interested Shares; and (ii) such acquisition is
consummated, in accordance with the terms so authorized, not later than
three hundred sixty (360) days following such shareholder authorization of
the Control Share Acquisition.
(E) Shares issued or transferred to any Person in violation of this
Article FIFTH shall be valid only with respect to such amount of shares as
does not result in a violation of this Article FIFTH, and such issuance or
transfer shall be null and void with respect to the remainder of such
shares (any such remainder of shares being hereinafter called "Excess
Shares"). If the second clause of the foregoing sentence is determined to
be invalid by virtue of any legal decision, statute, rule or regulation,
any Person who holds Excess Shares in violation of this Article FIFTH
shall be conclusively deemed to have acted as an agent on behalf of the
Corporation in acquiring such Excess Shares and to hold such Excess
Shares on behalf of the Corporation. While held by any Person in violation
of this Article FIFTH, Excess Shares shall not be entitled to any voting
rights, shall not be considered to be outstanding for quorum or voting
purposes, and shall not be entitled to receive dividends or any
other distribution with respect to such Excess Shares. Any such Person who
receives dividends or any other distribution with respect to Excess Shares
shall hold the same as agent for the Corporation and, following a permitted
transfer, for the transferee thereof. Notwithstanding the foregoing, any
holder of Excess Shares may transfer the same (together with any
distributions thereon) to any Person who, following such transfer, would
not own shares in violation of this Article FIFTH. Upon such permitted
transfer, the Corporation shall pay or distribute to the transferee any
dividends or other distributions on the Excess Shares not previously
paid or distributed.
(F) As used in this Article FIFTH:
(1) "Person" includes, without limitation, an individual, a
corporation (whether nonprofit or for profit), a partnership, an unincorporated
society or association, and two or more persons having a joint or
common interest.
(2)(a) "Control Share Acquisition" means the acquisition, directly
or indirectly, by any Person of shares of the Corporation that, when added to
all other shares of the Corporation in respect of which such Person may
exercise or direct the exercise of voting power as provided in this paragraph
(F)(2)(a), would entitle such Person, immediately after such acquisition,
directly or indirectly to exercise or direct the exercise of voting power of
the Corporation in the election of directors within any of the following
ranges of such voting power:
(i) One-fifth or more but less than one-third of such voting
power;
(ii) One-third or more but less than a majority of such voting
power;
<PAGE>
(iii) A majority or more of such voting power.
A bank, broker, nominee, trustee, or other Person who acquires shares in
the ordinary course of business for the benefit of others in good faith and
not for the purpose of circumventing this Article FIFTH shall, however, be
deemed to have voting power only of shares in respect of which such Person
would be able to exercise or direct the exercise of votes without further
instruction from others at a meeting of shareholders called under this
Article FIFTH. For purposes of this Article FIFTH, the acquisition of
securities immediately convertible into shares of the Corporation with voting
power in the election of directors shall be treated as an acquisition of such
shares.
(b) The acquisition of any shares of the Corporation
does not constitute a Control Share Acquisition for the purpose of this
Article FIFTH if the acquisition is consummated in any of the following
circumstances:
(i) By underwriters, in good faith and not for the purpose of
circumventing this Article FIFTH, in connection with an offering of the
securities of the Corporation to the public;
(ii) By bequest or inheritance, by operation of law upon the
death of any individual, or by any other transfer without valuable
consideration, including a gift, that is made in good faith and not for the
purpose of circumventing this Article FIFTH;
(iii) Pursuant to the satisfaction of a pledge or other
security interest created in good faith and not for the purpose of
circumventing this Article FIFTH;
(iv) Pursuant to a merger or consolidation adopted, or a
combination or majority share acquisition authorized, by shareholder vote in
compliance with the provisions of Article FIFTH, Section Two, of these
Articles of Incorporation and 1701.78 or 1701.83 of the Ohio Revised
Code, if the Corporation is the surviving or new corporation in the merger
or consolidation or is the acquiring corporation in the combination or
majority share acquisition and if the vote of shareholders of the surviving,
new, or acquiring corporation is required by the provisions of 1701.78 or
1701.83 of the Ohio Revised Code;
(v) Prior to January 7, 1999;
(vi) Pursuant to a contract existing prior to January 7, 1999;
or
(vii) The Person's being entitled, immediately thereafter, to
exercise or direct the exercise of voting power of the Corporation in the
election of directors within the same range theretofore attained by that
person either as a result of compliance with the provisions of this
section or as a result solely of the Corporation's purchase of shares
issued by it.
The acquisition by any Person of shares of the Corporation in a manner
described under this paragraph (F)(2)(b) shall be deemed to be a Control
Share Acquisition authorized pursuant to this Article FIFTH within the range
of voting power under paragraph (F)(2)(a)(i), (ii) or (iii) of this Article
FIFTH that such Person is entitled to exercise after such acquisition,
provided that, in the case of an acquisition in a manner described under
paragraph (F)(2)(b)(ii) or (iii), the transferor of such shares to such
Person had previously obtained any authorization of shareholders required
under this Article FIFTH in connection with such transferor's acquisition
of shares of the Corporation.
(c) The acquisition of shares of the Corporation in good faith
and not for the purpose of circumventing this Article FIFTH, which
(i) had previously been authorized by shareholders in compliance with this
Article FIFTH or (ii) would have constituted a Control Share Acquisition
but for paragraph (F)(2)(b), does not constitute a Control Share Acquisition
for the purpose of this Article FIFTH unless such acquisition entitles any
Person, directly or indirectly, to exercise or direct the exercise of
voting power of the Corporation in the election of directors in excess of
the range of such voting power authorized pursuant to this Article FIFTH, or
deemed to be so authorized under paragraph (F)(2)(b).
(3) "Interested Shares" means voting shares with respect to which
any of the following Persons may exercise or direct the exercise of the
voting power:
(a) any Person whose Notice prompted the calling of the
meeting of shareholders;
(b) any officer of the Corporation elected or appointed
by the directors of the Corporation; and
(c) any employee of the Corporation who is also a director
of the Corporation.
<PAGE>
(G) No proxy appointed for or in connection with the shareholder
authorization of a Control Share Acquisition pursuant to this Article FIFTH is
valid if it provides that it is irrevocable. No such proxy is valid unless
it is sought, appointed, and received both:
(1) In accordance with all applicable requirements of law; and
(2) Separate and apart from the sale or purchase, contract or
tender for sale or purchase, or request or invitation for tender for sale
or purchase, of shares of the Corporation.
(H) Proxies appointed for or in connection with the shareholder
authorization of a Control Share Acquisition pursuant to this Article FIFTH
shall be revocable at all times prior to the obtaining of such shareholder
authorization, whether or not coupled with an interest.
(I) Notwithstanding any other provisions of these Articles of
Incorporation or the Code of Regulations of the Corporation,as the same may be
in effect from time to time, or any provision of law that might otherwise
permit a lesser vote of the directors or shareholders, the affirmative vote
of at least two-thirds (2/3) of the voting shares shall be required to
alter, amend or repeal this Article FIFTH or adopt any provisions
in the Articles of Incorporation or Code of Regulations of the Corporation,
as the same may be in effect from time to time, that are inconsistent with
the provisions of this Article FIFTH. This provision shall be in addition
to any affirmative vote of the directors or the holders of any particular
class or series of shares required by law, the Articles of Incorporation
or the Code of Regulations of the Corporation, as the same may be in effect
from time to time.
(J) The provisions of 1701.831 of the Ohio Revised Code, as amended
from time to time, or any successor provision or provisions to said
section, shall apply to this Corporation with respect to any
particular Control Share Acquisition attempt, as such is defined in 1701.831
of the Ohio Revised Code, only if (a) there is a determination by a court of
competent jurisdiction with respect to which no appeal is pending that the
provisions of Article FIFTH of these Articles of Incorporation shall not be
applicable to a particular Control Share Acquisition attempt, or (b) in
the event that Article FIFTH of these Articles of Incorporation, as such
Articles of Incorporation may be amended from time to time, ceases to be an
Article of these Articles of Incorporation, disregarding any renumbering of
such Article FIFTH resulting from any amendment of these Articles of
Incorporation.
EXHIBIT B
At the meeting, the shareholders will vote on the following
resolution:
RESOLVED, that the last two sentences of Article II, Section
4, of the Code of Regulations of Seaway Food Town, Inc., be
deleted and the following paragraphs placed in their stead:
"Notwithstanding any other provision of this Code
of Regulations, any director, or the entire Board
of Directors, may be removed at any time, at a
meeting of the stockholders called for that
purpose, but only for good cause shown and only by
the affirmative vote of the holders of two-thirds
(2/3) or more of the voting power of the
Corporation entitled to vote generally in the
election of directors.
Any director may resign at any time by oral
statement to that effect made at a meeting of the
Board, or in writing to that effect. Such
resignation shall be effective immediately or at
such other time as the director may specify."
EXHIBIT C
At the meeting, the shareholders will vote on the following
resolution:
RESOLVED, that the second paragraph of Article II, Section
3, of the Code of Regulations of Seaway Food Town, Inc. be
amended to read as follows:
"At a meeting of shareholders at which directors
are to be elected, only persons nominated as
candidates shall be eligible for election as
directors, and the candidates receiving the
greatest number of votes shall be elected.
<PAGE>
Any shareholder wishing to nominate a director
must do so in a signed writing to the Company at
least Ninety (90) days in advance of the annual
meeting at which the director is to run for office
or Thirty (30) days in advance of a special
meeting called for that purpose. The signed
writing must contain background information
sufficient to include in the Company's proxy
statement, and must be accompanied by a
certification by the nominated director that such
person will, if elected, accept the position."
EXHIBIT D
At the meeting, the shareholders will vote on the following
resolution:
RESOLVED, that the last three sentences of Article II,
Section 7, of the Code of Regulations of Seaway Food Town,
Inc. be amended to read as follows:
"Notice of the time and place of each special
meeting shall be given by letter or telegram or in
person not less than Forty-eight (48) hours prior
to such time. Notice of any special meeting may
be waived in writing and will be waived by any
director by his attendance thereat. Unless
otherwise indicated in the notice thereof, any
business may be transacted at any meeting held by
the Board of Directors."
EXHIBIT E
At the meeting, the shareholders will vote on the following
resolution:
RESOLVED, that the first paragraph of Article FOURTH of the
ARTICLES OF INCORPORATION is hereby amended to read as
follows:
"The number of shares which the Corporation is
authorized to have outstanding is 24,300,000,
consisting of 24,000,000 Common Shares, without
par value ("Common Shares"), and 300,000 Serial
Preferred Shares, without par value ("Serial
Preferred Shares")."
EXHIBIT F
At the meeting, the shareholders will vote on the following
resolution:
RESOLVED, that Section 2, Article FIFTH of the ARTICLES OF
INCORPORATION is hereby amended to read as follows:
"SECTION 2. Any merger or consolidation of the
Corporation with or into any other corporation,
any combination or majority share acquisition
involving the Corporation, or any dissolution, or
any sale, lease, exchange or other disposition of
all or substantially all of the assets of the
Corporation to or with any other corporation,
person or entity, shall require the affirmative
vote of the holders of at least two-thirds (2/3)
of each class or classes of the outstanding shares
of capital stock of the Corporation issued and
outstanding and entitled to vote. The provisions
of this Section 2 of Article FIFTH shall not apply
to any transaction described in the preceding
sentence which has been approved by resolution
adopted by the Directors at a meeting of the Board
of Directors of the Corporation at which a quorum
is present."
SHAREHOLDER PROPOSALS
Shareholders may submit proposals for consideration at a meeting of
the shareholders if the shareholder desiring to do so complies with
the proxy solicitation rules of the Securities and Exchange Commission. In
order for such a proposal to be included in the proxy statement for the
Annual Meeting in 2000, the proposal must be received by the Secretary no l
ater than September 1, 1999.
<PAGE>
OTHER MATTERS
At the date of this proxy statement the Management knows of no other
business to be presented at the meeting. However, if any other business
should come before the meeting, the persons named in the accompanying proxy
will vote in accordance with their best judgment.
By Order of the Board of Directors
Gary D. Sikkema, Secretary
SEAWAY FOOD TOWN, INC.
December 4, 1998
Maumee, Ohio
<PAGE>
