June 16, 1995SENECA FOODS CORPORATION
1162 Pittsford-Victor Road
Pittsford, New York 14534
July 17, 1998
Dear Shareholder:
You are cordially invited to attend athe Annual Meeting of the Shareholdersshareholders
(the "Meeting") of Seneca Foods Corporation a New York corporation (the "Company"), to be held at 9:00
a.m., local time on
August 5, 19957, 1998 at 1:00 p.m., Eastern Daylight Time, at the Company's facility inoffices, 74
Seneca Street, Dundee, New York.
At this important Meeting youIn addition to electing directors and ratifying the appointment of
auditors, the Company's shareholders will be asked to voteapprove the sale of
4,166,667 shares (the "Investment") of a new class of Convertible Participating
Preferred Stock with $0.025 par value per share (the "New Preferred Stock") for
aggregate gross proceeds of up to $50 million. The sale of the election4,166,667 shares
will occur in two simultaneous transactions: (i) a sale of three
directors1.167 million shares
of the New Preferred Stock to a group of investors for gross proceeds of $14
million and (ii) in connection with a rights offering (the "Rights Offering")
pursuant to ratify appointmentwhich the Company will offer to the holders of its common stock the
right to purchase up to 3 million shares of the New Preferred Stock. The
aforementioned group of investors will act as standby purchasers with respect to
a maximum of 2.5 million shares of the New Preferred Stock not purchased by the
BoardCompany's shareholders in the Rights Offering (for a total purchase price of Directorsup
to $30 million). The proceeds of Deloitte &
Touche LLP asthe Investment, between $44 million and $50
million, will be used to reduce the Company's accountants foroutstanding indebtedness.
In connection with the current fiscal year ending March
31, 1996. In addition to those matters, which are presented to shareholders
each year, youInvestment, the Company will also be asked to vote on two special proposals.
The first additional proposal is a proposedseeking
shareholder approval of an amendment to the Company's Restated Certificate of
Incorporation, which will effect a recapitalizationas amended (the "Charter") to (i) increase the number of
authorized shares of the Company
by creating a second class of CommonCompany's Preferred Stock which will be distributed as a stock
dividend to all common shareholders. This very significant proposal is
discussed further in the following paragraphs. The second special proposal will
amend the by-laws to permit the annual shareholders meeting to be held earlier
in the year than is currently permitted by the by-laws; this by-law amendment is
needed because the Company has changed its fiscal year-endwith $0.025 par value per
share from July 31st to
March 31st and the period provided for annual meetings in the existing by-laws
would not be timely in relation to the new fiscal year-end.
The proposed recapitalization amendment would (i) reclassify the existing Common
Stock ("Existing Common Stock" as Class B Common Stock (the "Class B Common
Stock"), (ii) authorize a new class of 10,000,0004,000,000 shares to be designated8,200,000 shares and define the relative rights
preferences and limitations thereof; (ii) increase the number of authorized
shares of the Company's Class A Common Stock, (the "Class$0.25 par value per share ("Class
A Common Stock") from 10,000,000 shares to 20,000,000 shares; (iii) add a
provision to the Charter requiring unanimous approval of the Company's Board of
Directors for certain major corporate actions; and (iii) establish(iv) exempt the express
termsacquisitions
of the New Preferred Stock hereunder by the aforementioned group of investors
from the Class A Common StockSpecial Rights provisions of the Charter (collectively, the
"Charter Amendments").
The Charter Amendments and the Class B Common Stock (the "Proposed
Amendment"). The Class A Common Stock and the Class B Common Stock would have
substantially identical rights with respect to any dividends or distributionsratification of cash or property declared on shares of common stock and rank equally asauditors are subject to
the right to receive proceeds on liquidation or dissolutionaffirmative vote of a majority of the Company after
payment of the Company's indebtedness and liquidation rights to holders of
preferred shares. However, holders of Class B Common Stock would retain their
full vote per share whereasvotes cast by the holders of Class A Common Stock would have
voting rights of 1/20th of oneshares
entitled to vote per share on all mattersthereon as to which
shareholders of the Company are entitled to vote.
If the Proposed Amendment is approved by the shareholders, the Boardclose of Directors intends to prepare and file a certificate to that effect with the
Secretary of State of New York. The Existing Common Stock would be reclassified
as Class B Common Stock. As soon as practical after filing the Proposed
Amendment, the Company will distribute (the "Distribution") one share of Class A
Common Stock for each share of Class B Common Stock outstandingbusiness on July 13, 1998,
the record date for the distribution.Meeting (the "Record Date"). The record date for the Distribution will be the
dateissuance of the Annual Meeting of Shareholders.
Shareholders should retain their current share certificates because, upon
reclassification, such certificates will represent Class B Common Stock without
any need for exchange. At the time of the Distribution, new certificates would
be issued for Class A Common Stock only.
Upon reclassification, the Class B Common Stock would continue to have its
express terms, exceptshares
pursuant to the extent voting rights with regard to those shares
would be affected by the Class A Special Rights provision. See "Description of
Class A Common StockOffering and Class B Common Stock - Class A Special Rights". As
more fully described below, the new Class A Common Stock would have certain
special characteristics as comparedrelated transactions is subject to the
Class B Common Stock, of which the
most significant is the reduction of voting power to 1/20th of a vote per share
of Class A Common Stock. On certain matters where required by law, the Class A
Common Stock would be entitled to vote as a class, so that the separate approval
of the Class A Common Stock would be required to authorize certain actions. In
particular, the holders of Class A Common Stock as such would not be entitled to
vote on any matters except as otherwise provided or required by law. There
would be no change in the relative voting power or equity of any shareholder of
the Company as a result of the Distribution because the Distribution would be
made to all shareholders in proportion to the number of shares of Existing
Common Stock owned by them on the record date for the Distribution.
Following the reclassification, the Company's Class B Common Stock will continue
to be listed for trading on the NASDAQ National Market System ("NASDAQ/NMS"),
the electronic inter-dealer quotation system operated by NASDAQ, Inc. Upon
issuance by the Company, the Class A Common Stock will also be listed for
trading on NASDAQ/NMS.
The Company's Board of Directors recommends shareholder approval of the Proposed
Amendment. The Board of Directors believes that the enhanced flexibility the
reclassification affords the Company in future financings, acquisitions and
employee benefit plans outweighs any of the potential disadvantages described in
the accompanying Proxy Statement and, therefore, solicits your proxy in favor of
approval of the Proposed Amendment. The affirmative vote of the holders of a majority of the outstanding sharestotal votes cast at the Meeting. The
election of directors is subject to the affirmative vote of a plurality of the
Company's Existing Common Stock
represented (in person or by proxy)votes cast at the Meeting is requiredby the shareholders entitled to approve the
Amendment. The Company has been advised that the Company's Chairman and a
director, Arthur S. Wolcott, Kraig H. Kayser, its President, Chief Executive
Officer and a director, and Susan W. Stuart, who is a director and a daughter of
Arthur S. Wolcott, have in the aggregate sole or shared voting power over 35% of
the total voting shares of the Company by reason of their personal ownerships of
voting securities of the Company and their sole or shared voting power as
fiduciaries with respect to other shares. The beneficial ownership of Messrs.
Wolcott and Kayser is sufficient to give them voting control with respect to the
Company.vote thereon.
The Board of Directors urgeshas approved the Investment, the Charter
Amendments, the election of directors and other items to be considered at the
Meeting. The Board of Directors recommends a vote FOR each of the items to be
considered.
As I have already stated publicly, the investment by our shareholders
and the new group of investors, a respected and knowledgeable financial group
with long-standing ties to the Company, is a very welcome development that will
enable us to proceed with our business plan. This equity infusion and the
concomitant reduction of our indebtedness will benefit the Company as well as
its shareholders.
Attached is the formal Notice of Annual Meeting and a Proxy Statement
providing details of the Investment, the Rights Offering, the Charter
Amendments, related transactions and other important information. Please review
the materials carefully.
The proposed transactions are very important to you as a shareholder.
Therefore, whether or not you plan to attend the Meeting, I urge you to complete,give
your immediate attention to the proposals. Please review the enclosed materials,
sign and date and sign the enclosed proxy card and to return it without delaypromptly in the postage paid envelope provided
herewith so that your shares may be representedenclosed
postage-paid envelope. If you are present at the Meeting. If you attend
the Meeting in person, you may, if you wish
vote personally on all matters
brought before the Meeting whether or not you have previously submitted a proxy
card.
The accompanying Proxy Statement which is being furnished in connection with the
solicitation ofwithdraw your proxy by the Company's Board of Directors, describes the
proposed transactionscard and vote in detail and provides certain additional information
regarding the Company. The information in this letter which is condensed for
your convenience, is subject to the more complete discussion in the proxy
statement and the specific language of the Proposed Amendment which is an
exhibit to the Proxy Statement. Please read the Proxy Statement carefully.
Sincerely,
SENECA FOODS CORPORATION
Kraigperson.
Very truly yours,
KRAIG H. KayserKAYSER
President and Chief Executive Officer
SENECA FOODS CORPORATION
1162 Pittsford-Victor Road
Pittsford, New York 14534
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 7, 1998
NOTICE IS HEREBY GIVENgiven that the annual meetingAnnual Meeting (the "Meeting") of the
shareholders of SENECA
FOODS CORPORATIONSeneca Foods Corporation (the "Company") will be held at 74
Seneca Street, Dundee, New York on Saturday, August 5, 1995,7, 1998 at 9:1:00 a.m.p.m., Dundee time,Eastern Daylight
Time, for the following purposes:
1.Election of Directors
(1) To elect twothree directors (including one director designated by the
New Investors (as defined below)) to serve until the annual meetingAnnual Meeting of
shareholders in 19982001, one director (as designated by the New Investors)) to
serve until the Annual Meeting of shareholders in 2000 and one director to serve
until the annual meetingAnnual Meeting of shareholders in 1996,1999, and until each of their
successors areis duly elected and shall qualify.
2.The Investment Proposal
(2) To considerauthorize and act uponapprove the issuance and sale, for an aggregate
purchase price of up to $50 million, of 4,166,667 shares of Convertible
Participating Preferred Stock with $0.025 par value per share (the "New
Preferred Stock"), for a management proposalsubscription price of $12.00 per share (the
"Subscription Price") in connection with (i) the sale of 1.167 million shares of
New Preferred Stock to Carl Marks Strategic Investments, L.P.and related
entities (collectively, the "New Investors") and (ii) a rights offering of up to
$36 million of the New Preferred Stock made to the holders of the Company's
common stock on July 13, 1998, and to the New Investors as standby purchasers
with respect to shares not purchased by such shareholders (collectively, the
"Rights Offering"). Such sale and Rights Offering (collectively, the
"Investment") shall be constituted pursuant to a Stock Purchase Agreement, dated
as of June 22, 1998, between the Company and the New Investors (the "Stock
Purchase Agreement"), attached as Appendix A to the accompanying Proxy
Statement.
(3) To amend the Company's Restated Certificate of Incorporation.
3.Incorporation, as
amended (the "Charter") to increase the number of authorized shares of the
Company's Preferred Stock with $0.025 par value per share ("Class A Preferred
Stock") from 4,000,000 shares to 8,200,000 shares.
(4) To consider and act upon a management proposal to amend the Company's By-
Laws.
4.Charter to increase the number of
authorized shares of Class A Common Stock from 10,000,000 shares to 20,000,000
shares.
(5) To amend the Company's Charter, in accordance with Section 709 of
the New York Business Corporation Law, to require unanimous approval of the
Company's Board of Directors for certain major corporate actions.
(6) To amend the Company's Charter to state that the shares which may
be acquired by the New Investors upon conversion of the New Preferred Stock on a
share-for-share basis into Class A Common Stock have been acquired for an
"equitable price," thereby exempting such acquisitions from the Class A Special
Rights (as hereinafter defined) provisions of the Company's Charter.
Other Matters
(7) To ratify the appointment by the Board of Directors of Deloitte &
Touche LLP as independent auditors for the fiscal year ending March 31, 1996.
5.1999.
(8) To transact such other business as may properly come before the
meetingMeeting or any adjournment thereof.
Accompanying this notice is a Proxyform of proxy and Proxy Statement. If you
are unable to be present in person at the Meeting, please sign the enclosed form
of Proxyproxy and return it in the enclosed envelope. If you attend the meetingMeeting and
vote personally, the Proxyproxy will not be used. Only shareholders of record at the
close of business on June
16, 1995, will beJuly 13, 1998 are entitled to notice of and to vote at the
meeting.Meeting and any adjournment thereof. The prompt return of your Proxyproxy will save
the expense of further communications.
A copy of the Annual Report for the year ended March 31, 1995 also accompanies
this Notice.
By orderOrder of the Board of Directors
JEFFREY L. VAN RIPER
Secretary
DATED: Pittsford, New York
June 16, 1995DATE: July 17, 1998
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND PROMPTLY
RETURNED IN THE ENCLOSED ENVELOPE, SO THAT YOUR SHARES WILL BE REPRESENTED
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
OF
SENECA FOODS CORPORATION
_______________________________
Date of Mailing: June 23, 1995July 17, 1998
Date of Annual Meeting of Shareholders: August 5, 19957, 1998
The enclosed Proxyproxy is solicited by the Board of Directors of Seneca
Foods Corporation (hereinafter, called the "Company"). Any Proxyproxy given pursuant to such
solicitation may be revoked by the shareholder at any time prior to the voting
of the Proxy.proxy. The signing of the form of Proxyproxy will not preclude the shareholder
from attending the meetingAnnual Meeting (the "Meeting") and voting in person.person, which
will also revoke the proxy. Shares represented by this Proxy Statementproxy will be voted in
accordance with the directions of the shareholder. The directors ofIf no choices are specified
on the Company know of no matters to come beforeproxy, the meeting other than those set forthproxy will be voted FOR the proposals discussed in this Proxy
Statement. In the event any
other matter may properly be brought before the meeting, the Proxy holders will
vote the Proxies in their discretion on such matter.
All of the expenses involved in preparing and mailing this Proxy Statement and
the material enclosed herewith will be paid by the Company. The Company will
reimburse banks, brokerage firms and other custodians, nominees and fiduciaries
for expenses reasonably incurred by them in sending proxy material to beneficial
owners of stock.
Only record holders of the voting stock at the close of business on
June 16,
1995July 13, 1998 (the "Record Date") are entitled to vote at the meeting.Meeting. On that
day the following shares were issued and outstanding: (i) 2,796,5553,143,125 shares of
Common Stock, $.25Class A common stock, $0.25 par value per share ("Class A Common Stock"); (ii)
2,796,555 shares of Class B common stock, $0.25 par value per share ("Class B
Common Stock" and, together with the Class A Common Stock, sometimes
collectively referred to as the "Common Stock"); (iii) 200,000 shares of 6%Six
Percent (6%) Cumulative Voting Preferred Stock, $.25$0.25 par value per share ("6%
Preferred Stock"); (iii)(iv) 407,240 shares of 10% Cumulative Convertible Voting
Preferred Stock --- Series A, $.25$0.25 stated value per share ("10% Series A
Preferred Stock"); and (iv)(v) 400,000 shares of 10% Cumulative Convertible Voting
Preferred Stock --- Series B, $.25$0.25 stated value per share ("10% Series B
Preferred Stock"). EachThe shares of Class B Common Stock, 10% Series A Preferred
Stock and 10% Series B Preferred Stock are entitled to one vote per share on all
matters submitted to the Company's shareholders. The shares of Class A Common
Stock are entitled to one-twentieth (20) of one vote per share on all matters
submitted to the Company's shareholders. The shares of 6% Preferred Stock are
entitled to one vote per share, but only with respect to the election of
directors.
At the Meeting, shareholders of the Company will consider and vote upon
the following matters:
Election of Directors
(1) To elect three directors (including one director designated by the
New Investors (as defined below)) to serve until the Annual Meeting of
shareholders in 2001, one director (as designated by the New Investors) to serve
until the Annual Meeting of shareholders in 2000 and one director to serve until
the Annual Meeting of shareholders in 1999, and until each of their successors
is duly elected and shall qualify.
- 1 -
The Investment Proposal
(2) To authorize and approve the issuance and sale, for an aggregate
purchase price of up to $50 million, of 4,166,667 shares of Convertible
Participating Preferred Stock with $0.025 par value per share (the "New
Preferred Stock") for a subscription price of $12.00 per share (the
"Subscription Price") in connection with (i) the sale of 1.167 million shares of
New Preferred Stock to Carl Marks Strategic Investments, L.P. and related
entities (collectively, the "New Investors") and (ii) a rights offering of up to
$36 million of the New Preferred Stock made to the holders of the Company's
Common Stock on July 13, 1998, and to the New Investors as standby purchasers
with respect to shares not purchased by such shareholders (collectively, the
"Rights Offering"). Such sale and Rights Offering (collectively, the
"Investment") shall be constituted pursuant to a Stock Purchase Agreement, dated
as of June 22, 1998, between the Company and the New Investors (the "Stock
Purchase Agreement"), attached as Appendix A to this Proxy Statement.
(3) To amend the Company's Restated Certificate of Incorporation, as
amended (the "Charter") to increase the number of authorized shares of the
Company's Preferred Stock, with $0.025 par value per share ("Class A Preferred
Stock") from 4,000,000 shares to 8,200,000 shares.
(4) To amend the Company's Charter to increase the number of
authorized shares of Class A Common Stock from 10,000,000 shares to 20,000,000
shares.
(5) To amend the Company's Charter, in accordance with Section 709 of
the New York Business Corporation Law (the "BCL"), to require unanimous approval
of the Company's Board of Directors for certain major corporate actions.
(6) To amend the Company's Charter to state that the shares which may
be acquired by the New Investors upon conversion of the New Preferred Stock on a
share-for-share basis into Class A Common Stock (the "Conversion Shares") have
been acquired for an "equitable price," thereby exempting the acquisitions
described herein from the Class A Special Rights (as hereinafter defined)
provisions of the Company's Charter.
Proposals (3) through (6) collectively are referred to as the "Charter
Amendments."
Other Matters
(7) To ratify the appointment by the Board of Directors of Deloitte &
Touche LLP as independent auditors for the fiscal year ending March 31, 1999.
(8) To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors of the Company has approved, by unanimous vote
of directors, and recommends that you vote FOR, each of the items set forth
above. See
- 2 -
"Proposal No. 2--Board of Directors Approval." The Company's directors,
executive officers and certain of the Company's shareholders, including the
Wolcott and Kayser families, The Pillsbury Company, CMCO, Inc., Edwin S. Marks,
Marjorie Boas and Nancy Marks (the latter four of which are related to the New
Investors via common ownership in certain entities and family relationships and
which sometimes collectively are referred to as the "Related Marks
Shareholders") have indicated their intention to vote all shares of voting
securities owned by them, approximately 60% of the voting power of the Company
as of the Record Date, in favor of the Investment Proposal (as defined below)
and for the election of Andrew M. Boas and Arthur H. Baer (the "Investor
Designees") as directors of the Company. The combined voting power of these
persons is sufficient to approve all matters presented to the shareholders at
the Meeting. See "Ownership of Securities."
The New Investors' obligation to consummate the Investment is subject
to, among other things, shareholder approval of the Investment, the election of
the Investor Designees and the filing of the Charter Amendments (collectively,
the "Investment Proposal"). The Company's obligation to consummate the
Investment is subject to, among other things, shareholder approval of the
Investment Proposal. Consummation of the Investment is also subject to these and
other conditions, and there can be no assurance that all such conditions will be
satisfied or waived by the appropriate party to the Stock Purchase Agreement.
See "Proposal No. 2--The Stock Purchase Agreement--Closing Conditions."
- 3 -
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement. Reference is made to, and this Summary is qualified in
its entirety by, the more detailed information contained in this Proxy Statement
and the Appendices hereto. Shareholders are urged to read carefully this Proxy
Statement, including the Appendices hereto, in their entirety.
This Proxy Statement is being furnished to stockholders in connection
with the Meeting of the Company, at which shareholders will consider and vote on
(i) the election of five directors to the Company's Board of Directors; (ii) the
Investment, whereby the Company will issue and sell 4,166,667 shares of New
Preferred Stock in a two-part transaction: (A) 1,166,667 shares to the New
Investors for gross proceeds of $14 million and (B) 3,000,000 shares to be
offered to the Company's shareholders in the Rights Offering for gross proceeds
of up to $36 million; (iii) the amendment of the Charter to: (A) increase the
number of authorized shares of the Company's Preferred Stock with $0.025 par
value per share from 4,000,000 shares to 8,200,000 shares; (B) increase the
total number of authorized shares of the Company's Class A Common Stock from
10,000,000 shares to 20,000,000 shares; (C) require, in accordance with Section
709 of the BCL, unanimous approval of the Company's Board of Directors for
certain major corporate actions; and (D) state that the Conversion Shares were
acquired by the New Investors for an "equitable price," thereby exempting the
acquisitions described herein from the Class A Special Rights provisions of the
Charter; and (iv) the ratification by the Board of Directors of Deloitte &
Touche LLP as independent auditors for the fiscal year ending March 31, 1999.
The Board of Directors has approved, by unanimous vote of directors,
and recommends that you vote FOR, the items set forth above. See "Proposal No.
2--Board of Directors Approval." The Company's directors, executive officers and
certain of the Company's shareholders, including the Wolcott and Kayser
families, The Pillsbury Company and the Related Marks Shareholders have
indicated their intention to vote all shares of voting securities owned by them,
approximately 60% of the voting power of the Company as of the Record Date, in
favor of the Investment Proposal and the election of the Investor Designees. The
combined voting power of these persons is sufficient to approve all matters
presented to the shareholders at the Meeting. See "Ownership of Securities."
The New Investors' obligation to consummate the Investment is subject
to, among other things, shareholder approval of the Investment Proposal. The
Company's obligation to consummate the Investment is subject to, among other
things, shareholder approval of the Investment Proposal. Consummation of the
Investment is also subject to these and other conditions, and there can be no
assurance that all such conditions will be satisfied or waived by the
appropriate party to the Stock Purchase Agreement. See "Proposal No. 2-- The
Stock Purchase Agreement--Closing Conditions."
- 4 -
Upon consummation of the Investment, the New Investors will own
approximately 53.8% of the Class A Common Stock that will then be outstanding
(assuming that the New Investors purchase 3,666,667 shares of New Preferred
Stock in accordance with the Stock Purchase Agreement, the conversion of all
shares of New Preferred Stock into shares of Class A Common Stock and that none
of the Company's existing shareholders exercise their Rights in the Rights
Offering). The Company has made the assumption throughout this Proxy Statement
that none of the Company's existing shareholders will exercise their Rights in
the Rights Offering for purposes of consistency, and the Company has no
knowledge of whether or not any shareholders (other than the Existing
Shareholders (as hereinafter defined) pursuant to the Shareholders Agreement and
Pillsbury pursuant to the Pillsbury Agreement) will exercise their Rights in the
Rights Offering. These assumptions should not be construed to mean that the
Company's existing shareholders, other than the Existing Shareholders (as
hereinafter defined) pursuant to the Shareholders Agreement and Pillsbury
pursuant to the Pillsbury Agreement, will not exercise their Rights in the
Rights Offering.
Because the Conversion Shares have only one-twentieth (1/20) of one
vote per share, the New Investors will control approximately 4.4% of the voting
power of the Company in an election of directors (based upon the assumptions set
forth above) after consummation of the Investment. At such time, the Investor
Designees will assume their positions as directors of the Company and will be
appointed to committees of the Board of Directors so that the Investor Designees
will constitute at least 22% of each committee of the Company's Board of
Directors.
The net proceeds of the Investment will be used by the Company to
reduce its current indebtedness. See "Proposal No. 2--Background" and "--Board
of Directors Approval--Effect of the Investment on the Company's Financial
Condition and Prospects."
The Company
Seneca Foods Corporation, which was founded in 1949, conducts its
business almost entirely in food processing, including canned and frozen
vegetables and fruit and fruit juice products. The Company's food products are
packed under its own brands (including Seneca(R), Libby's(R) (under license),
Aunt Nellie's Farm Kitchen(R), Blue Boy(R) and TreeSweet(R)), private labels and
under the Green Giant(R) brand name.
The New Investors
The New Investors are comprised of two Delaware limited partnerships
and one Cayman Islands corporation. The New Investors are affiliated via common
ownership of certain entities and family relationships with the Related Marks
Shareholders.
- 5 -
The Meeting
Time, Date and Place
The Meeting will be held at the Company's offices, 74 Seneca Street,
Dundee, New York on Friday, August 7, 1998 at 1:00 p.m., Eastern Daylight Time.
Record Date
Holders of record of the Company's capital stock at the close of
business on July 13, 1998, the Record Date, are entitled to receive notice of
and to vote at the Meeting.
Vote Required
Provided that a quorum is present, the Charter Amendments and the
ratification of auditors are subject to the affirmative vote of a majority of
the total votes cast the Meeting. The Investment is subject to the affirmative
vote of a majority of the total votes cast at the Meeting. The election of
directors is subject to the affirmative vote of a plurality of the votes cast at
the Meeting by the shareholders entitled to vote thereon. As of the Record Date,
the following shares were issued and outstanding and entitled to receive notice
of and to vote at the Meeting: 3,143,125 shares of Class A Common Stock;
2,796,555 shares of Class B Common Stock; 200,000 shares of Six Percent (6%)
Voting Cumulative Preferred Stock, $0.25 par value per share (the "6% Preferred
Stock"); 407,240 shares of Ten Percent (10%) Cumulative Convertible Voting
Preferred Stock - Series A, $0.025 stated value per share (the "10% Series A
Preferred Stock") and 400,000 shares of Ten Percent (10%) Cumulative Convertible
Voting Preferred Stock - Series B, $0.025 stated value per share (the "10%
Series B Preferred Stock"). The Class B Common Stock, the Series A Preferred
Stock and the Series B Preferred Stock are each entitled to one vote per share
on all matters presented to the shareholders at the Meeting. The Class A Common
Stock is entitled to one-twentieth (1/20) of one vote per share on all matters
presented to the shareholders at the Meeting. The 6% Preferred Stock is entitled
to one vote per share, but only with respect to the election of directors.
Item 1 -- Election of Directors
Shareholders will be asked to elect: (i) three directors (including one
Investor Designee) to serve until the Company's Annual Meeting of shareholders
in 2001; (ii) one director (an
- 6 -
Investor Designee) to serve until the Company's Annual Meeting of shareholders
in 2000; and (iii) one director to serve until the Company's Annual Meeting of
shareholders in 1999.
Items 2-6 -- The Investment Proposal
Pursuant to the Stock Purchase Agreement, the Company will sell
4,166,667 shares of New Preferred Stock, convertible immediately on a
share-for-share basis into Class A Common Stock, for an aggregate purchase price
of up to $50 million. Upon consummation of the Investment, the New Investors
will own approximately 53.8% of the Class A Common Stock and approximately 4.4%
of the voting power of the Company (assuming the purchase by the New Investors
of 3,666,667 shares of New Preferred Stock, that none of the Company's existing
shareholders exercise their Rights and the conversion of all shares of New
Preferred Stock into Class A Common Stock).
Reasons for the Investment
The Board of Directors of the Company, by unanimous vote of the
directors, determined that the Investment, together with other aspects of the
Investment Proposal, is in the best interests of the Company and its
shareholders. As a result of certain acquisitions and the capital expenditures
necessitated thereby, the Company has substantially increased its indebtedness
in the last four fiscal years. This increased indebtedness potentially reduces
the Company's ability to obtain additional financing, respond to market trends
and carry out its planned operations and capital investment requirements during
economic downturns and other adverse conditions which occur from time to time in
the food processing industry. The net proceeds of the Investment will be used to
reduce the Company's indebtedness.
- 7 -
Effect on Existing Shareholders; Advantages and Disadvantages of the Investment
Proposal
If the Investment is consummated and the New Investors purchase 3.667
million shares of New Preferred Stock, and convert such shares into 3.667
million shares of Class A Common Stock, the New Investors will control 4.4% of
the voting power of the Company or 16.6% when combined with the voting power of
the Related Marks Shareholders (assuming none of the Company's existing
shareholders exercise their rights in the Rights Offering). Certain provisions
in the Stock Purchase Agreement, the Shareholders Agreement (as hereinafter
defined) and the Certificate of Amendment provide other opportunities for the
New Investors to exercise some influence over the Company, including (i) at
least 22% of the representation on the Board of Directors and any committee
thereof and (ii) the requirement of unanimous Board of Director approval for
certain major corporate actions, which effectively gives any director (including
the Investor Designees) a veto power on major issues presented to the Company's
Board of Directors.
Because the Subscription Price of $12.00 per share is less than the
current market value and tangible book value of the Class A Common Stock ($13.50
and $15.00, respectively, on July 6, 1998), the Company's existing shareholders
will suffer potential dilution to the market value and tangible book value of
the Common Stock. Also, the aggregate amount of the discount could be treated as
a preferred stock dividend which could decrease earnings per share or increase
any per share loss reported in the 1999 fiscal year.
Advantages of the Investment to current shareholders include a
reduction in the Company's overall indebtedness, reduction of the Company's
future interest costs, an improvement in the Company's coverage ratios and the
guidance and expertise of the New Investors and the Investor Designees.
Furthermore, the increased capital will potentially improve the Company's
competitiveness and permit the Company to take advantage of various business
opportunities that, absent the Investment, the Company may have been forced to
forego.
Disadvantages of the Investment to current shareholders include
potential dilution of their ownership interest in the Company, a possible
decrease in earnings per share or increase in any per share loss in fiscal year
1999 and the reduced voting power of the existing shareholders due to the
purchase by the New Investors.
Board of Directors Approval
At a meeting of the Company's Board of Directors held April 3, 1998,
the Board, by unanimous vote, determined that the Investment, together with the
other aspects of the Investment Proposal, is in the best interests of the
Company and its shareholders and approved the Investment, the Stock Purchase
Agreement, the Shareholders Agreement, the Registration
- 8 -
Rights Agreement (as hereinafter defined) and the Certificate of Amendment. At a
subsequent Board of Directors meeting held on June 19, 1998, the Board
unanimously reaffirmed its support and approval of the Investment Proposal.
Stock Purchase Agreement
The Stock Purchase Agreement is described in "Proposal No. 2--The
Stock Purchase Agreement" and is attached hereto as Appendix A.
The Shareholders Agreement
The Shareholders Agreement is described in "Proposal No.
2--Shareholders Agreement" and is attached hereto as Appendix B.
The Registration Rights Agreement
The Registration Rights Agreement is described in "Proposal No.
2--Registration Rights Agreement" and is attached hereto as Appendix C.
The Certificate of Amendment
The Certificate of Amendment is described in "Proposal No. 2--The
Charter Amendments" and is attached hereto as Appendix D.
Item 7 -- Ratification of Appointment of Independent Auditors
A resolution will be presented at the meeting.Meeting to ratify Deloitte &
Touche LLP ("Deloitte") by the Board of Directors as independent auditors to
examine the financial statements of the Company and its subsidiaries for the
fiscal year ending March 31, 1999 and to perform other appropriate accounting
services.
The Board of Directors recommends that the shareholders vote FOR the
Investment Proposal (Items 2-6). The Board also recommends that the Company's
shareholders vote for the other items presented at the Meeting.
- 9 -
Appraisal Rights
Under New York Law, shareholders are not entitled to any appraisal or
dissenters' rights with respect to the Investment Proposal or other matters to
be presented at the Meeting.
- 10 -
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Under the By-Laws of the Company (the "By-Laws"), its Board of
Directors is divided into three classes, as equal in number as possible, having
staggered terms of three years each. At this annual meeting twoMeeting (i) three directors
(including one Investor Designee) will be elected to serve until the annual meetingAnnual
Meeting of shareholders in 1998 and one will be elected to serve until the annual meeting
in 19962001 and until their successors are duly elected and
shall qualify; (ii) one director (an Investor Designee) will be elected to serve
until the Annual Meeting of shareholders in 2000 and until his successor is duly
elected and shall qualify; and (iii) one director will be elected to serve until
the Annual Meeting of shareholders in 1999 and until his successor is duly
elected and shall qualify. As a condition to the closing of the Investment, the
Company agreed to nominate the Investor Designees for election as directors with
terms expiring in years 2000 and 2001. To accommodate such agreement and to
maintain an even distribution amongst the classes of directors, it is necessary
to decrease the size of the class whose term expires in year 2000. To facilitate
this, G. Brymer Humphreys has agreed to resign from his position as director
effective immediately prior to the Meeting. The Board of Directors has accepted
such resignation and nominated G. Brymer Humphreys to serve as a director of the
Company (subject to shareholder approval) for a term expiring in 1999.
Unless authority to vote for the election of directors is withheld or
the Proxyproxy is marked to the contrary as provided therein, the enclosed Proxyproxy will
be voted for the election of the three nominees listed below, eachthree of whom isare
presently a
directordirectors of the Company.
Although the directors do not contemplate that any of the nominees
will be unable to serve, should such a situation arise, the Proxyproxy may be voted
for the election of other persons as directors. Each nominee, to be elected as a
director, must receive the affirmative vote of a majorityplurality of the shares present
andvotes cast at
the Meeting by the shareholders entitled to vote at the meeting. Broker non-votes will be counted under the
Company's By-Laws in determining the shares present at the Annual Meeting, but
will not represent a vote in favor of election and, therefore, will have the
same effect as a vote to withhold authority for election.thereon.
- 11 -
The following table sets forth certain information with respect to the
nominees for election as directors and directors whose terms continue beyond the
meeting:
Served
as
Director Director Principal Occupation for Past Five Years (1) Age Director
Years(1) Since
- ------- ---------------------------------- --- --------
Directors Standing for Election
(a)-------------------------------
To serve until the annual meeting of shareholders in 19982001 and until their
successors are duly elected and shall qualify:
David L. Call (2)Emeritus Dean and Professor of the 66 1985
College of Agriculture and Life
Sciences, Cornell University, Ithaca,
New York, since 1995; Dean of the
College of Agriculture and Life
Sciences, 63 1985
Cornell University, Ithaca, New York.until 1995.
Susan W. Stuart (3)Stuart(2) Marketing Consultant, Fairfield, 43 1986
Connecticut.
39 1986
(b)Andrew M. Boas(3)(4) General Partner of Carl Marks 43 ---
Management Company, L.P. since
1987; President of Carl Marks Offshore
Management, Inc. since 1994;
Managing Director of CMCO, Inc.
since 1982; Vice President of CM
Capital since 1988; Vice President of
Carl Marks & Co., Inc. since 1982.
To serve until the annual meeting of shareholders in 19962000 and until his
successor is duly elected and shall qualify:
Michael A. Schaeffer Vice President-Production, Pillsbury BrandsArthur H. Baer(3) President of Grand 47 1995
Metropolitan, PLC, Minneapolis, Minnesota
(manufacturerHudson Valley Publishing, 51 ---
Inc. since 1998; President of food products) since 1995XYAN
Inc. from 1996 to 1998; Dean of the
College of Business and Vice
President-Production, Green Giant BrandsAdministration
Drexel University from 1993 to 1996.
- 12 -
To serve until 1995.the annual meeting of shareholders in 1999 and until his
successor is duly elected and shall qualify:
G. Brymer Humphreys President, Humphreys Farms Inc., New 57 1983
Hartford, New York
Directors Whose Terms Expire
in 19961999
Robert T. Brady President and Chief Executive Officer 57 1989
of Moog Inc., 54 1989 East Aurora, New York
(manufacturer of control systems).(4)(5)
Arthur S. Wolcott (3)Wolcott(2) Chairman of the Company. (5) 6972 1949
Directors Whose Terms Expire
in 19972000
Edward O. Gaylord President of Gaylord & Company, 66 1975
Houston, Texas 63 1975 (venture capital) and
the Chairman of EOTT Energy
Corporation, Houston, Texas (oil
trading and transportation).(6)
G. Brymer Humphreys President, Humphreys Farm Inc., New Hartford, New York. 54 1983
Kraig H. Kayser President and Chief Executive Officer 37 1985
of the Company 34 1985 since 1993 and Vice
President, Secretary and Chief Financial
Officer of the Company from 1991 to 1993;
Vice President of J.P. Morgan Investment Management,
Inc., New York, New York until 1991.
1993.(7)
(1) Unless otherwise indicated, each nominee has had the same principal
occupation for at least the past five years.
(2) Mr. Call is also a director of Stop & Shop Companies, Inc., Braintree,
Massachusetts (supermarket chain).
(3) Arthur S. Wolcott and Susan W. Stuart are father and daughter.
(4) Mr. Brady is also a director of Acme Electric Corporation, East Aurora,
New York (manufacturer of electronic power supplies), Astronics Corporation,
Orchard Park, New York (manufacturer of specialty niche products), First
Empire State Corporation, Buffalo, New York (bank holding company), and
National Fuel Gas Corp, Buffalo, New York (integrated natural gas company).
(5) Mr. Wolcott is also a director of Moog Inc., East Aurora, New York
(manufacturer of control systems).
(6) Mr. Gaylord is also a director of Stant Corporation, Richmond, Indiana
(designer, manufacturer and distributor of automotive tools and accessories) and
Imperial Holly Corporation, Sugarland, Texas (sugar manufacturer).
EXECUTIVE OFFICERS
The following is a listing of the Company's executive officers:
Served as
Officer
Officer Principal Occupation for Past Five Years (1) Age Since
Arthur S. Wolcott See table under "Election of Directors". 69 1949
Kraig H. Kayser See table under "Election of Directors". 34 1991
Alvin L. Gauvin Senior Vice President, Branded Sales and 46 1987
Marketing of the Company since 1995,
Senior Vice President, Sales and Marketing
of the Company from 1992 to 1995 and Senior
Vice President, Sales until 1992.
Ricke A. Kress Senior Vice President, Operations of the 43 1984
Company since 1993, Vice President,
Technical Services from 1991 to 1993 and
Vice President, Research and Development
until 1991.
Devra A. Bevona Treasurer of the Company. 44 1988
Jeffrey L. Van Riper Secretary since 1993 and Controller 38 1986
since 1986 of the Company.
(1) Unless otherwise indicated, each officer has had the same principal
occupation for at least the past five years.
(2) Susan W. Stuart and Arthur S. Wolcott are daughter and father.
(3) The election of Messrs. Boas and Baer as directors of the Company will not
be effective until the closing of the Investment. If the Investment is not
consummated, Messrs. Boas and Baer will not be directors of the Company and
the size of the Board of Directors will not be increased from seven members
to nine members.
- 13 -
(4) Mr. Boas is also a director of the following publicly-held companies:
Thousand Trails, Inc. and Vertientes Camaguey Sugar Company, Inc.
(5) Mr. Brady is also a director of the following publicly-held companies: Acme
Electric Corporation; Astronics Corporation; M&T Bank Corporation (formerly
known as First Empire State Corporation); and National Fuel Gas Corp.
(6) Mr. Gaylord is also a director of the following publicly-held companies:
Essex International Inc.; Kinder Morgan Energy Partners, L.P.; and
Imperial Holly Corporation.
(7) Mr. Kayser is also a director of the following publicly-held company:
Moog Inc.
OWNERSHIP OF SECURITIES
Ownership by Management. The following table sets forth certain
information with respect to beneficial ownership of the Company's outstanding
Class A Common Stock, Class B Common Stock, 6% Preferred Stock, 10% Series A
Preferred Stock and 10% Series B Preferred Stock by each nominee and director and by all
directors nominees and officers as a group as of April 1, 1995July 6, 1998 (assuming (i) the issuance
of 3,666,667 shares of New Preferred Stock to the New Investors; (ii) the
conversion of the New Preferred Stock on a share-for-share basis into 3,666,667
shares of Class A Common Stock by the New Investors; and (iii) that none of the
Company's existing shareholders exercise the Rights to issued to them in the
Rights Offering; ("beneficial ownership" for these purposes is determined in
accordance with applicable Securities and Exchange Commission ["("SEC"]) rules and
includes shares over which a person has sole or shared voting power or
investment power):
Shares (1)
Beneficially Percent
Nominees for ElectionName Title of Class OwnedShares Beneficially
Owned(1) Percent of Class
Prior to After Prior to After
Offering Offering Offering Offering
---- ------------- -------- -------- -------- --------
David L. Call
Edward O. Gaylord Class A Common Stock 600 -%4,544 4,544 --- (2) Susan W. Stuart--- (2)
Class B Common Stock 205,1944,544 4,544 --- (2) --- (2)
G. Brymer Humphreys Class A Common Stock 800 800 --- (2) --- (2)
Class B Common Stock 800 800 --- (2) --- (2)
- 14 -
Kraig H. Kayser Class A Common Stock (3) 7.3269,929 269,929 8.60 3.96
Class B Common Stock (4) 278,329 278,329 10.00 10.00
6% Preferred Stock 25,296 12.6
Directors Whose Terms
do not Expire
Edward O. Gaylord Common Stock 4,544 0.2
G. Brymer Humphreys Common Stock 1,200 - (2)
Kraig H. Kayser Common Stock 297,654 (4) 10.6
6% Preferred Stock(5) 8,000 (5) 4.08,000 4.00 4.00
10% Series A Preferred Stock (6) 173,812 (6) 42.7173,812 42.70 42.70
10% Series B Preferred Stock (7) 165,080 (7) 41.3165,080 41.30 41.30
David L. Call Class A Common Stock (8) 600 600 --- (2) --- (2)
Class B Common Stock (8) 600 600 --- (2) --- (2)
Susan W. Stuart Class A Common Stock (9) 186,151 186,151 5.90 2.73
Class B Common Stock (10) 191,733 191,733 6.90 6.90
6% Preferred Stock 25,296 25,296 12.60 12.60
Arthur S. Wolcott Class A Common Stock 310,302 (8) 11.1(11) 252,549 252,549 8.00 3.70
Class B Common Stock (12) 264,634 264,634 9.50 9.50
6% Preferred Stock (13) 63,288 (9) 31.763,288 31.60 31.60
10% Series A Preferred Stock 212,840(10) 52.2(14) 212,840 212,840 52.30 52.30
10% Series B Preferred Stock 212,200(11) 53.0(15) 212,200 212,200 53.00 53.00
Andrew M. Boas Class A Common Stock (16) 0 3,666,667 --- (2) 53.84
Robert T. Brady 0 0 --- (2) --- (2)
Arthur H. Baer 0 0 --- (2) --- (2)
All directors nomineesand Class A Common Stock 542,430(13) 19.4
and(18) 481,759 4,632,514 15.30 68.02
officers as a group (12)(18) Class B Common Stock (19) 509,826 509,826 18.20 18.20
6% Preferred Stock 96,584(14) 48.3(20) 96,584 296,584 48.30 48.30
10% Series A Preferred Stock 386,652(15) 94.9(21) 386,652 386,652 94.90 94.90
10% Series B Preferred Stock 377,280(16) 94.3(22) 377,280 377,280 94.30 94.30
(1) Unless otherwise stated, each person named in the
table has sole voting and investment power with
respect to the shares indicated as beneficially owned
by that person. No stock options are held by any of
the named individuals or the group. The holdings of
Class A Common Stock and Class B Common Stock listed
in the table do not include the shares obtainable
upon conversion of the 10% Series A Preferred Stock
and the 10% Series B Preferred Stock, which are
currently convertible into Class A Common Stock and
Class B Common Stock on the basis of 20 and 30 shares
of Preferred Stock, respectively, for each share of
Common Stock.
(2) Less than 1.0%.
- 15 -
(3) Mr. Kayser has sole voting and investment power over
51,928 shares of Class A Common Stock owned by him
and sole voting but no investment power over 24,950
shares owned by his siblings and their children which
are subject to a voting trust agreement of which Mr.
Kayser is a trustee. Mr. Kayser has shared voting and
investment power with respect to 76,644 shares held
in two trusts of which he is a co-trustee and in
which he and members of his family are beneficiaries.
Robert Oppenheimer of Rochester, New York is the
other co-trustee of the trusts. The shares in the
table include (i) 6,117 shares held by the Company's
Tax Credit Employee Stock Ownership Plan Trust (the
"PAYSOP"), of which Mr. Kayser is a trustee; (ii)
78,188 shares held by the Seneca Foods Corporation
Employees' Pension Benefit Plan (the "Pension Plan"),
of which Mr. Kayser is a trustee; and (iii) 32,102
shares held by the Seneca Foods Foundation (the
"Foundation"), of which Mr. Kayser is a director. The
shares reported in the table do not include (i)
14,912 shares owned by Mr. Kayser's mother, (ii)
19,000 shares held in trust for Mr. Kayser's mother,
or (iii) 10,534 shares held by the Seneca Foods
Corporation Employees Savings Plan (the "401(k)
Plan"), over which the Company's officers may be
deemed to have shared voting and investment power.
Mr. Kayser has shared voting and investment power
with respect to the shares held by the PAYSOP, the
Pension Plan and the Foundation. He disclaims
beneficial ownership of the shares held by his mother
and in trust for his mother and the shares held by
the 401(k) Plan.
(4) Mr. Kayser has sole voting and investment power over
53,628 shares of Class B Common Stock owned by him
and sole voting but no investment power over 32,650
shares owned by his siblings and their children which
are subject to a voting trust agreement of which Mr.
Kayser is a trustee. Mr. Kayser has shared voting and
investment power with respect to 76,644 shares held
in two trusts of which he is a co-trustee and in
which he and members of his family are beneficiaries.
Robert Oppenheimer of Rochester, New York is the
other co-trustee of the trusts. The shares in the
table include (i) 6,117 shares held by the PAYSOP, of
which Mr. Kayser is a trustee; (ii) 78,188 shares
held by the Pension Plan, of which Mr. Kayser is a
trustee; and (iii) 31,102 shares held by the
Foundation, of which Mr. Kayser is a director. The
shares in the table do not include (i) 14,912 shares
owned by Mr. Kayser's mother; (ii) 19,000 shares held
in trust for Mr. Kayser's mother; and (iii) 3,916
shares held by the 401(k) Plan, over which the
Company's officers may be deemed to have shared
voting and investment power. Mr. Kayser has shared
voting and investment power with respect to the
shares held by the PAYSOP, the Pension Plan and the
Foundation. He disclaims beneficial ownership of the
shares held by his mother and in trust for his mother
and the shares held by the 401(k) Plan.
(5) Does not include 27,536 shares of 6% Preferred Stock
held by Mr. Kayser's brother, as to which Mr. Kayser
disclaims beneficial ownership. See the table under
"--Principal Owners of Voting Stock."
(6) Mr. Kayser has shared voting and investment power
with respect to 141,644 shares of 10% Series A
Preferred Stock held in two trusts described in note
- 16 -
3 above. The total 173,812 shares of 10% Series A
Preferred Stock are convertible into 8,690 shares of
Class A Common Stock and 8,690 shares of Class B
Common Stock.
(7) Mr. Kayser has shared voting and investment power
with respect to 165,080 shares of 10% Series B
Preferred Stock held in two trusts described in notes
3 and 4 above. These shares are convertible into
5,502 shares of Class A Common Stock and 5,502 shares
of Class B Common Stock.
(8) Dr. Call has sole voting and investment power over
200 shares of Class A Common Stock and 200 shares of
Class B Common Stock he owns. He has shared voting
and investment power over 400 shares of Class A
Common Stock and 400 shares of Class B Common Stock
owned jointly with his spouse.
(9) The shares in the table include (i) 11,276 shares of
Class A Common Stock held by Ms. Stuart's husband;
(ii) 2,594 shares owned by her sister's son, of which
Ms. Stuart is the trustee; (iii) 6,117 shares held by
the PAYSOP, of which Ms. Stuart is a trustee; (iv)
78,188 shares held by the Pension Plan, of which Ms.
Stuart is a trustee; and (v) 32,102 shares held by
the Foundation of which Ms. Stuart is a director. Ms.
Stuart has shared voting and investment power with
respect to the shares held by the PAYSOP, the Pension
Plan and the Foundation and sole voting and
investment power with respect to the shares owned by
her sister's son. She disclaims beneficial ownership
of the shares held by her husband.
(10) The shares in the table include (i) 12,668 shares of
Class B Common Stock held by Ms. Stuart's husband;
(ii) 6,392 shares owned by her sister's sons, of
which Ms. Stuart is the trustee; (iii) 6,117 shares
held by the PAYSOP, of which Ms. Stuart is a trustee;
(iv) 78,188 shares held by the Pension Plan, of which
Ms. Stuart is a trustee; and (v) 31,102 shares held
by the Foundation of which Ms. Stuart is a director.
Ms. Stuart has shared voting and investment power
with respect to the shares held by the PAYSOP, the
Pension Plan and the Foundation and sole voting and
investment power with respect to the shares owned by
her sister's sons. She disclaims beneficial ownership
of the shares held by her husband.
(11) The shares in the table include (i) 46,826 shares of
Class A Common Stock held by Mr. Wolcott's wife; (ii)
6,117 shares held by the PAYSOP, of which Mr. Wolcott
is a trustee; (iii) 78,188 shares held by the Pension
Plan, of which Mr. Wolcott is a trustee; and (iv)
32,102 shares held by the Foundation, of which Mr.
Wolcott is a director. The shares reported in the
table do not include (i) 278,540 shares of Class A
Common Stock held directly by Mr. and Mrs. Wolcott's
offspring and their families (including Susan W.
Stuart) or (ii) 10,534 shares held by the 401(k)
Plan, over which the Company's officers may be deemed
to have shared voting and investment power. Mr.
Wolcott has shared voting and investment power with
respect to the shares held by the PAYSOP, the Pension
Plan and the Foundation. He disclaims beneficial
ownership with respect to the shares held by his
wife, his offspring and their families and the 401(k)
Plan.
- 17 -
(12) The shares in the table include (i) 34,338 shares of
Class B Common Stock held by Mr. Wolcott's wife; (ii)
6,117 shares held by the PAYSOP, of which Mr. Wolcott
is a trustee; (iii) 78,188 shares held by the Pension
Plan, of which Mr. Wolcott is a trustee; and (iv)
31,102 shares held by the Foundation, of which Mr.
Wolcott is a director. The shares in the table do not
include (i) 316,516 shares of Class B Common Stock
held directly by Mr. and Mrs. Wolcott's offspring and
their families (including Susan W. Stuart) or (ii)
3,916 shares held by the 401(k) Plan, over which the
Company's officers may be deemed to have shared
voting and investment power. Mr. Wolcott has shared
voting and investment power with respect to the
shares held by the PAYSOP, the Pension Plan and the
Foundation. He disclaims beneficial ownership with
respect to the shares held by his wife, his offspring
and their families and the 401(k) Plan.
(13) Includes 30,444 shares of 6% Preferred Stock held
under a shareholder voting agreement giving Mr.
Wolcott sole voting power of the shares, but not
investment power or beneficial ownership of the
shares. Does not include 101,176 shares of 6%
Preferred Stock held directly by Mr. and Mrs.
Wolcott's offspring (including Susan W. Stuart), as
to which Mr. Wolcott disclaims beneficial ownership.
(14) These shares are convertible into 10,642 shares of
Class A Common Stock and 10,642 shares of Class B
Common Stock.
(15) These shares are convertible into 7,073 shares of
Class A Common Stock and 7,073 shares of Class B
Common Stock.
(16) Includes 3,666,667 shares of Class A Common Stock
(assuming conversion of the shares of New Preferred
Stock) owned by the New Investors as to which Mr.
Boas disclaims beneficial ownership.
(17) Does not include 300 shares of Class A Common Stock
and 300 shares of Class B Common Stock owned by Mr.
Brady's children as to which Mr. Brady disclaims
beneficial ownership.
(18) See notes 3, 8, 9, 11, 16 and 17 above.
(19) See notes 4, 8, 10 and 12 above.
(20) See notes 5 and 13 above.
(21) See notes 6 and 14 above.
(22) See notes 7 and 15 above.
- 18 -
(1) Unless otherwise stated, each person named in the table has sole voting and
investment power with respect to the shares indicated as beneficially owned by
that person. No stock options are held by any of the named individuals or the
group. The holdings of Common Stock listed in the table do not include the
shares obtainable upon conversion of the 10% Series A Preferred Stock and the
10% Series B Preferred Stock, which are currently convertible into Common Stock
on the basis of 20 and 30 preferred shares, respectively, for each share of
Common Stock.
(2) Less than 0.1%.
(3) The shares in the table include (i) 10,182 shares of Common Stock held by
Ms. Stuart's husband, (ii) 1,500 shares owned by her sister's son, of
which Ms. Stuart is the trustee, (iii) 34,942 shares held by the
Company's Tax Credit Employee Stock Ownership Plan Trust (the "PAYSOP"),
of which Ms. Stuart is a trustee, (iv) 78,188 shares held by the Seneca
Foods Corporation Employees' Pension Benefit Plan (the "Pension Plan"), of
which Ms. Stuart is a trustee and (v) 25,602 shares held by the Seneca
Foods Foundation (the "Foundation"), of which Ms. Stuart is a director. Ms.
Stuart has shared voting and investment power with respect to the shares
held by the PAYSOP, the Pension Plan and the Foundation and sole voting and
investment power with respect to the shares owned by her sister's son. She
disclaims beneficial ownership of the shares held by her husband.
(4) Mr. Kayser has sole voting and investment power over 49,628 shares of Common
Stock owned by him and sole voting but no investment power over 32,650 shares
owned by his siblings and their children which are subject to a voting trust
agreement. Mr. Kayser has shared voting and investment power with respect to
76,644 shares held in two trusts of which he is a co-trustee and in which he and
members of his family are beneficiaries. Robert Oppenheimer of Rochester, New
York is the other co-trustee of the trusts. The shares in the table include (i)
34,942 shares held by the PAYSOP, of which Mr. Kayser is a trustee, (ii) 78,188
shares held by the Pension Plan, of which Mr. Kayser is a trustee and (iii)
25,602 shares held by the Foundation, of which Mr. Kayser is a director. The
shares in the table do not include (i) 14,912 shares owned by Mr. Kayser's
mother or (ii) 19,000 shares held in trust for Mr. Kayser's mother. Mr. Kayser
has shared voting and investment power with respect to the shares held by the
PAYSOP, the Pension Plan and the Foundation. He disclaims beneficial ownership
of the shares held by his mother and in trust for his mother.
(5) Does not include 27,536 shares of 6% Preferred Stock held by Mr. Kayser's
brother, as to which Mr. Kayser disclaims beneficial ownership. See also the
table in "Principal Owners of Voting Stock".
(6) Mr. Kayser has shared voting and investment power with respect to 141,644
shares of 10% Series A Preferred Stock held in two trusts described in note 4
above. The total 173,812 shares of 10% Series A Preferred Stock are
convertible into 8,690 shares of Common Stock.
(7) Mr. Kayser has shared voting and investment power with respect to 165,080
shares of 10% Series B Preferred Stock held in two trusts described in note 4
above. These shares are convertible into 5,502 shares of Common Stock.
(8) The shares in the table include (i) 56,672 shares of Common Stock held by
Mr. Wolcott's wife, (ii) 34,942 shares held by the PAYSOP, of which Mr.
Wolcott is a trustee, (iii) 78,188 shares held by the Pension Plan, of which Mr.
Wolcott is a trustee and (iv) 25,602 shares held by the Foundation, of which Mr.
Wolcott is a director. The shares in the table do not include 271,848 shares of
Common Stock held directly by Mr. and Mrs. Wolcott's offspring and their
spouses (including Susan W. Stuart). Mr. Wolcott has shared voting and
investment power with respect to the shares held by the PAYSOP, the Pension
Plan and the Foundation. He disclaims beneficial ownership with respect to
the shares held by his offspring and their spouses and his wife.
(9) Includes 30,444 shares of 6% Preferred Stock held under a shareholder voting
agreement giving Mr. Wolcott sole voting power of the shares, but not investment
power or beneficial ownership of the shares. Does not include 101,176 shares of
6% Preferred Stock held directly by Mr. and Mrs. Wolcott's offspring (including
Susan W. Stuart), as to which Mr. Wolcott disclaims beneficial ownership.
(10)These shares are convertible into 10,642 shares of Common Stock.
(11) These shares are convertible into 7,073 shares of Common Stock.
(12)Does not include 300 shares of Common Stock owned by Mr. Brady's children as
to which Mr. Brady disclaims beneficial ownership.
(13) See notes 3, 4 and 8 above.
(14) See notes 5 and 9 above.
(15) See notes 6 and 10 above.
(16) See notes 7 and 11 above.
Principal Owners of Voting Stock. The following table sets forth, as
of April
1, 1995,July 6, 1998, certain information with respect to persons known by the
Company to be the beneficial owners of more than five percent of the classes of
stock entitled
to vote at the meeting ("beneficial ownership" for these purposes is determined in accordance
with applicable SECCommission rules and includes shares over which a person has
sole or shared voting power or investment power). The holdings of Common Stock
listed in the table do not include the shares obtainable upon conversion of the
10% Series A Preferred Stock and the 10% Series B Preferred Stock, which are
currently convertible into Class A Common Stock and Class B Common Stock on the
basis of 20 and 30 preferred
shares of Preferred Stock, respectively, for each common share.share of
Common Stock. The holdings of Class A Common Stock listed in the table as held
"After Offering" assumes (i) the issuance to the New Investors of 3.667 million
shares of New Preferred Stock and the conversion of those shares on a share-for
share basis Class A Common Stock and (ii) that none of the Company's
existing shareholders exercise their Rights in the Rights Offering.
6% Preferred Stock
Amount of Shares and Nature of Beneficial Ownership
---------------------------------------------------
Sole Voting/ Shared Voting/
Name and Address Sole Voting Shared Voting and Total Percent of Investment Investment Percent
TitleTotal
----- ----------------
of Class Beneficial Owner and Investment Power Investment Power
Total of Class- ------------------- -------------------- ----------------
6% Preferred Stock Arthur S. Wolcott(1)Wolcott (1) 32,844 30,444(2)30,444 (2) 63,288 31.7%31.6%
L. Jerome Wolcott, Sr. Trust - 30,444(3)--- 30,444 (3) 30,444 15.2
Southbury, Connecticut
Kurt C. Kayser 27,536(4) -27,536 (4) --- 27,536 13.8
Sarasota, Florida
Susan W. Stuart 25,296(5) -25,296 (5) --- 25,296 12.6
Fairfield, Connecticut
Bruce S. Wolcott 25,296(5) -25,296 (5) --- 25,296 12.6
Canandaigua, New York
Grace W. Wadell 25,292(5) -25,292 (5) --- 25,292 12.6
Bala Cynwyd, Pennsylvania
Mark S. Wolcott 25,292(5) -25,292 (5) --- 25,292 12.6
Pittsford, New York- 19 -
10% Series A Preferred Stock
Amount of Shares and Nature of Beneficial Ownership
Name and Address Sole Voting Shared Voting and Total Percent of Total
----- ----------------
of Beneficial Owner and Investment Power Investment Power
- ------------------- -------------------- ----------------
Arthur S. Wolcott 212,840(6) - 212,840 52.2
Preferred Stock(6) --- 212,840 52.3%
Kraig H. Kayser(7)Kayser (7) 32,168 141,644(8)141,644 (8) 173,812 42.7
Hannelore Wolcott 20,588 ---- 20,588 5.1
Penn Yan, New York
10% Series B Preferred Stock
Amount of Shares and Nature of Beneficial Ownership
Name and Address Sole Voting Shared Voting and Total Percent of Total
----- ----------------
of Beneficial Owner and Investment Power Investment Power
- ------------------- -------------------- ----------------
Arthur S. Wolcott 212,200(9) - 212,200 53.0
Preferred Stock(9) --- 212,200 53.0%
Kraig H. Kayser - 165,080(10)--- 165,080 (10) 165,080 41.3
Hannelore Wolcott 22,720 --- 22,720 5.7
Class B Common Stock
Amount of Shares and Nature of Beneficial Ownership
Name and Address Sole Voting Shared Voting and Total Percent of Total
----- ----------------
of Beneficial Owner and Investment Power Investment Power
- 22,720 5.7------------------- -------------------- ----------------
Edwin S. Marks (11) (12) 145,000 335,088 480,088 17.2%
Kraig H. Kayser 53,628 224,701 (13) 278,329 10.0
Arthur S. Wolcott 114,889 149,745 (14) 264,634 9.5
CMCO, Inc. (15) 232,568 --- 232,568 8.3
Susan W. Stuart 57,266 134,467 (16) 191,733 6.9
Hansen Fruit & Cold Storage 170,500 --- 170,500 6.1
Co., Inc. (17)
- 20 -
Class A Common Stock
Amount of Shares and Nature of Beneficial Ownership
--------------------------------------------------------
Sole Voting/ Shared Voting/
Name and Address Sole Voting Shared Voting and Total Percent of Investment Investment Percent
TitleTotal
----- ----------------
of Class Beneficial Owner and Investment Power Investment Power
Total of ClassPrior to After Prior to After Prior to After Prior to After
Offering Offering Offering Offering Offering Offering Offering Offering
- ------------------- -------- -------- -------- -------- -------- -------- -------- --------
Common Stock
Edwin S. Marks (11)(18) 145,000 145,000 343,088 343,088 488,088 488,088 15.5% 7.20%
Great Neck, New York
The Pillsbury Company --- --- 346,570 346,570 346,570 346,570 11.0 5.08
Grand Metropolitan plc
Minneapolis, Minnesota (19)
Kraig H. Kayser (20) 51,928 51,928 218,001 218,001 269,929 269,929 8.6 3.96
Arthur S. Wolcott 114,898 195,404(11) 310,302 11.1%
Kraig H. Kayser 49,628 248,026(12) 297,654 10.6(21) 89,316 89,316 163,233 163,233 252,549 252,549 8.0 3.70
CMCO, Inc.(13) 263,868 - 263,868 9.4 (15) 232,568 232,568 --- --- 232,568 232,568 7.4 3.41
New York, New York
Edwin S. Marks (14) 132,500 94,520(15) 227,020 8.1
Great Neck, New York
Susan W. Stuart 54,780 150,414(16) 205,194 7.3(22) 55,874 55,874 130,277 130,217 186,151 186,151 5.9 2.73
Hansen Fruit & Cold Storage 170,500 - 170,500 6.1
Storage--- --- 170,500 170,500 5.4 2.50
Co., Inc. (17)
Yakima, Washington
___________________________
(1) Business address: Suite 1010, 1605 Main Street, Sarasota, Florida 34236.
(2) See note 9 to the table under the heading "OwnershipCarl Marks Strategic --- 2,750,000 --- --- --- 2,750,000 --- 40.38
Investments, L.P.
New York, New York
Carl Marks Strategic --- 825,000 --- --- --- 825,000 --- 12.11
Investments II, L.P.
New York, New York
Uranus Fund, Ltd. --- 91,667 --- --- --- 91,667 --- 1.34
New York, New York
(1) Business address: Suite 1010, 1605 Main Street, Sarasota, Florida 34236.
(2) See note 13 to the table under the heading "--Ownership by Management"
and note 3 below.
(3) The L. Jerome Wolcott, Sr. Trust does not have voting power but has
other attributes of beneficial ownership with respect to these shares,
which are also included in Arthur S. Wolcott's shares (see note 2 above).
(4) These shares are included in the shares described in note 5 to the table
under the heading "Ownership by Management".
(5) These shares are included in the shares described in note 9 to the table
under the heading "Ownership by Management".
(6) See note 10 to the table under the heading "Ownership by Management".
(7) Business address: 1162 Pittsford-Victor Road, Pittsford, New York 14534.
(8) See note 6 to the table under the heading "Ownership by Management".
(9) See note 11 to the table under the heading "Ownership by Management".
(10)See note 7 to the table under the heading "Ownership by Management".
(11)See note 8 to the table under the heading "Ownership by Management".
(12)See note 4 to the table under the heading "Ownership by Management".
(13)Based on a statement on Schedule 13D filed by CMCO, Inc. with the SEC (as
most recently amended in April, 1991). CMCO, Inc. is a private holding
company of which Edwin S. Marks is the President and a shareholder.
(14)Based on a statement on Schedule 13D filed by Edwin S. Marks with the SEC
(as most recently amended in April, 1991). See also note 13 above.
(15)Edwin S. Marks shares voting and dispositive power with respect to these
shares with his wife.
(16) See note 3 to the table under the heading "Ownership by Management".
(17) Based on a statement on Schedule 13D filed with the SEC by Hansen Fruit
& Cold Storage Co., Inc. ("Hansen Fruit") in November, 1988. According to
the Schedule 13D, Gary Hansen, the President and a director of Hansen Fruit,
has sole voting and dispositive power over the indicated shares.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to the
Chief Executive Officer and to the most highly compensated executive officers
whose compensation exceeded $100,000 for services rendered in all capacities to
the Company and its subsidiaries during the fiscal years ended March 31, 1995
(which consists of eight months by reason of a change in accounting periods),
and July 31, 1994 and 1993.
Name of Individual and Fiscal Annual Compensation
Principal Position Year Salary Bonus
Arthur S. Wolcott 1995 $216,000(1) $Wolcott's shares (see note 2
above).
(4) These shares are included in the shares described in note 5 to the
table under the heading "--Ownership by Management."
- Chairman21 -
(5) These shares are included in the shares described in note 13 to the
table under the heading "--Ownership by Management."
(6) See note 14 to the table under the heading "--Ownership by Management."
(7) Business address: 1162 Pittsford-Victor Road, Pittsford, New York 14534.
(8) See note 6 to the table under the heading "--Ownership by Management."
(9) See note 15 to the table under the heading "--Ownership by Management."
(10) See note 7 to the table under the heading "--Ownership by Management."
(11) Based on a statement on Schedule 13D filed by Edwin S. Marks with the
Commission (as most recently amended in July 1998). See also note 16
below.
(12) Edwin S. Marks shares voting and Director 1994 326,500 81,625
1993 326,500dispositive power with respect to
102,520 of these shares with his wife. He disclaims beneficial
ownership of his wife's shares. The balance of the shares in this
column are owned by CMCO, Inc. See notes 11 and 12 above.
(13) See note 4 to the table under the heading "--Ownership by Management."
(14) See note 12 to the table under the heading "--Ownership by Management."
(15) Based on a statement on Schedule 13D filed by CMCO, Inc. with the
Commission (as most recently amended in July 1998). CMCO, Inc. is a
private holding company of which Edwin S. Marks is the President and a
shareholder. See also note 11 above and note 19 below.
(16) See note 10 to the table under the heading "--Ownership by Management."
(17) Based on a statement on Schedule 13D filed with the Commission by
Hansen Fruit & Cold Storage Co., Inc. ("Hansen Fruit") in November
1988. According to the Schedule 13D, Gary Hansen, the President and a
director of Hansen Fruit, has sole voting and dispositive power over
the indicated shares.
(18) Edwin S. Marks shares voting and dispositive power with respect to
110,520 of these shares with his wife and his daughters. He disclaims
beneficial ownership of these shares. The balance of the shares in this
column are owned by CMCO, Inc. See note 16 below.
(19) Based on a statement on Schedule 13D filed by Pillsbury and Grand
Metropolitan with the Commission in March 1996.
(20) See note 3 to the table under the heading "--Ownership by Management."
- Kraig H. Kayser 1995 190,167(1)22 -
President, Chief Executive 1994 262,333 68,250
Officer and Director(2) 1993 145,000 -
Alvin L. Gauvin 1995 77,517(1) -
Senior Vice President, 1994 113,025 28,325
Branded Sales and Marketing 1993 110,000 -
Ricke A. Kress 1995 77,183(1) -
Senior Vice President, 1994 110,000 27,500
Operations 1993 84,500 -
(21) See note 11 to the table under the heading "--Ownership by Management."
(22) See note 9 to the table under the heading "--Ownership by Management."
(1) Represents compensation from August 1994 through March 1995.
(2) Mr. Kayser became the Chief Executive Officer in June 1993; prior to that
he was the Chief Financial Officer.
Pension BenefitsInformation Concerning Operation Of The executive officers of the Company are entitled to participate in the
Company's Pension Plan (referred to in this section as the "Plan"), which is for
the benefit of all employees meeting certain eligibility requirements.
Effective August 1, 1989, the Company amended the Plan to provide improved
pension benefits under the Plan's Excess Formula. The improved Excess Formula
for the calculation of the annual retirement benefit is: total years of
credited service (not to exceed 35) multiplied by the sum of (i) 0.6% of the
participant's average salary (five highest consecutive years, excluding bonus),
and (ii) 0.6% of the participant's average salary in excess of his compensation
covered by Social Security.
Participants who were employed by the Company prior to August 1, 1988 are
eligible to receive the greater of their benefit determined under the Excess
Formula or their benefit determined under the Offset Formula. The Offset
Formula is: (i) total years of credited service multiplied by $120, plus (ii)
average salary multiplied by 25%, less 74% of the primary Social Security
benefit. Pursuant to changes required by the Tax Reform Act of 1986 (the "1986
Act"), the Company amended the plan to cease further accruals under the Offset
Formula as of July 31, 1989. Participants who were eligible to receive a
benefit under the Offset Formula will receive the greater of their benefit
determined under the Excess Formula or their benefit determined under the Offset
Formula as of July 31, 1989. The maximum permitted retirement income under
either formula is $120,000
The following table sets forth estimated annual retirement benefits payable at
age 65 for participants in certain compensation and years of service
classifications using the highest number obtainable under both formulas (based
on the maximum Social Security benefit in effect for the calendar year ending
December 31, 1995):
Five Highest
Consecutive ANNUAL BENEFITS
Years' Earnings 15 Years 25 Years 35 Years
$90,000 $ 14,000 $ 23,300 $32,700
120,000 21,200 32,300 45,300
150,000 28,700 41,300 57,900
180,000 36,200 50,300 70,500
210,000 or higher 39,500 54,400 76,100
Under the Plan, Arthur S. Wolcott, Kraig H. Kayser, Alvin L. Gauvin and Ricke
A. Kress have 46 years, 3 years, 8 years and 13 years of credited service,
respectively. Their compensation during fiscal 1995 covered by the Plan was
$216,000 for Mr. Wolcott, $190,167 for Mr. Kayser, $77,517 for Mr. Gauvin and
$77,183 for Mr. Kress. The Internal Revenue Code limits the amount of
compensation that can be taken into account in calculating retirement benefits
(for 1995 the limit is $150,000).
Directors' Fees
During fiscal year 1995, directors were paid a fee of $1,000 per month. Any
director who is also an officer of the Company receives no director fee.
Stock Options
No options were granted or exercised in the period from August 1, 1994 to the
date of this Proxy Statement, nor were any unexpired options held at the latter
date by any officer or director of the Company.
Profit Sharing Plan
The Company has a profit sharing plan for the officers and certain key
employees of the Company. Under the plan, each Category One Employee, Category
Two Employee and Category Three Employee (described below) receives a cash bonus
equal to fifteen percent, twenty percent and twenty five percent, respectively,
of his annual base salary (the "Bonus Amount") if the Pre-Tax Profit (as
defined) of the Company for that year equals or exceeds the sum of (i) the total
Bonus Amounts of all plan participants plus (ii) ten percent of the consolidated
net worth of the Company as of the end of the prior fiscal year (subject to pro
rata adjustment to reflect significant sales or acquisitions of assets during
the year). The Category Three Employees consist of the individuals who are
named in the executive compensation table above who are directors of the Company
and certain senior executive officers; the Category Two Employees consist of the
other executive officers and other senior management officials; the Category One
Employees consist of various other management-level personnel.
The bonuses earned by the Company's executive officers for the 1995 fiscal
year are included in the executive compensation table above.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed entirely of
outside directors. The Committee is responsible for providing overall guidance
with respect to the Company's executive compensation programs. The goal of the
Committee is to maintain a competitive compensation program in order to attract
and retain well qualified management, to provide management with the incentive
to accomplish the Company's financial and operating objectives and to link the
interest of the Company's executive officers and management to the interests of
its stockholders through bonuses tied to financial performance. The Committee
is composed of three members and meets annually to review the Company's
compensation programs, including executive salary administration and the profit
sharing plan.
The Committee believes that the Company's executives should be rewarded for
their contributions to the Company's attaining annual financial goals, as set
forth in the annual budget which is subject to revision during the year, and
their attaining annual individual objectives. The Company pays its executive
officers two principal types of compensation: base salary and profit sharing
plan, each of which is more fully described below.
Base Salary - The Company has historically established the base salary of its
executive officers on the basis of each executive officer's scope of
responsibility, experience, individual performance and accountability within the
Company. In that regard the Company reviews comparable salary and other
compensation arrangements in similar businesses and companies of similar size to
determine appropriate levels necessary to attract and retain top quality
management.
Profit Sharing Plan - To further align the interests of executive officers
with those of the Company's shareholders, a significant component of an
executive officer's total compensation arrangement is participation in the
annual profit sharing plan. An executive is rewarded with a cash bonus equal to
a percentage of the executive's base salary if the Pre-Tax Profit of the Company
for that year equals or exceeds the sum of the total Bonus Amounts of all plan
participants plus ten percent of the consolidated net worth of the Company as of
the end of the prior fiscal year.
Performance Review - The general policies described above for the compensation
of executive officers also apply to the compensation level approved by the
Compensation Committee with respect to the 1995 compensation for the Chief
Executive Officer. Based on the criteria outlined above, the Compensation
Committee awarded to Kraig H. Kayser the amounts shown in the Executive
Compensation Table. The Committee recognized Mr. Kayser's leadership role in
guiding the overall performance of the Company towards its desired strategic
direction as well as managing costs while growing the business. This effort was
an essential element in the Company achieving its net earnings for the year.
Summary
The Committee is committed to attracting, motivating and retaining executives
who will help the Company meet the increasing challenges of the food processing
industry. The Committee recognizes its responsibility to the Company's
shareholders and intends to continue to establish and implement compensation
policies that are consistent with competitive practice and are based on the
Company's and the executives' performance.
This report has been submitted by the Compensation Committee of the
Corporation's Board of Directors:
David L. Call Edward O. Gaylord Susan W. Stuart
Compensation Committee Interlocks and Insider Participation
Mr. Wolcott (Chairman) serves as a member of the Compensation Committee of
Moog Inc. and a director on its Board. Mr. Brady, who is the President and
Chief Executive Officer of Moog Inc., serves as a director on the Company's
Board.
Transactions with The Pillsbury Company
Michael A. Schaeffer was elected to the Board of Directors by the Board on May
2, 1995. He is Vice President-Production, Pillsbury Brands of Grand
Metropolitan, PLC.
On February 10, 1995, prior to Mr. Schaeffer's election to the Company's
Board, the Company consummated significant agreements with The Pillsbury Company
("Pillsbury") and Grand Metropolitan Incorporated, the parent of Pillsbury and a
wholly-owned subsidiary of Grand Metropolitan, PLC. The Company acquired from
Pillsbury a substantial percentage of tangible assets used by Pillsbury for the
production of its Green Giantr (a registered trademark of The Pillsbury Company)
brand of shelf-stable and frozen vegetable products, including six plants
located in the midwestern and northwestern United States. Five Green Giant
production plants were retained by Pillsbury with the intention to close them.
The purchase price for the acquired assets was $73,025,000, in payment of which
the Company issued to Pillsbury its 8% Secured Nonrecourse Subordinated
Promissory Note due September 30, 2009 (the "Pillsbury Note") in that amount.
The Company has agreed to acquire additional Green Giant assets from Pillsbury
in 1996, and, as a result, the Pillsbury Note will be increased to approximately
$74,913,000. The Pillsbury Note requires the Company to pay annual installments
of principal and a final major principal payment on September 30, 2009.
Concurrently with the acquisition of the Green Giant assets, the Company
entered into an Alliance Agreement with Pillsbury and its parent, Grand
Metropolitan Incorporated (the "Alliance Agreement"). Pursuant to the Alliance
Agreement, the Company will process and sell to Pillsbury cases of shelf-stable
vegetables, primarily in cans, for a price which will be purchased by Pillsbury
on a "cost-plus" basis pursuant to cost-determination procedures set forth in
the Alliance Agreement. The Company will also process certain frozen vegetables
and asparagus for Pillsbury, but, unlike the canned vegetables, some of these
products will not necessarily be processed by the Company through the final
packing stages. Most of the production for Green Giant products is expected to
occur in the plants acquired from Pillsbury (the "Alliance Plants"), but
production will also occur in the Company's existing vegetable processing plants
in Minnesota, Wisconsin and New York. The Company is making substantial capital
improvements in the Alliance Plants and its existing vegetable plants to more
efficiently process Green Giant products for sale to Pillsbury and (subject to
certain production priorities for Pillsbury products in the Alliance Plants)
vegetable products for sale by the Company under its existing brand names or
private label brand names to purchasers such as supermarket chains. The Company
will sell Green Giant products only to Pillsbury. Pillsbury has retained the
ownership of its trademarks such as Green Giant and other intellectual property
and goodwill of its Green Giant brand, as well as the marketing and distribution
assets associated with its Green Giant business.
The Alliance Agreement contains detailed provisions for determining fixed and
variable manufacturing costs (including amortization of certain capital
expenditures mutually agreed upon), warehousing costs, and costs of ancillary
and special services requested by Pillsbury. It also contains provisions
requiring the Company to operate and maintain the Alliance Plants and produce
Green Giant products at high quality standards.
In addition to purchases of products and services, Pillsbury will pay Seneca a
management fee which will be modified from time to time by the parties. The
parties intend that the result of all payments made each fiscal year by
Pillsbury to the Company, exclusive of incentive payments described below, will
result in the Company's having realized a recovery of its allowed costs, plus a
profit on its sales to Pillsbury. The Company and Pillsbury have not publicly
disclosed the profit targets, as they believe that disclosure would give
competitors an unfair advantage. For the periods through March 31, 2000,
Pillsbury will pay certain annual incentive payments which constitute a
specified portion of any cost savings achieved by the Company and passed on to
Pillsbury over targeted cost savings fixed by the parties for each such year.
Pillsbury will submit to Seneca each year its purchase requirements for the
forthcoming pack year, subject to certain subsequent modifications. Except as
it submits to the Company its annual purchase requirements, Pillsbury has no
obligation to purchase any minimum quantity of product throughout the Alliance
Agreement. Inasmuch as Pillsbury will have sold to the Company or closed all
its Green Giant production facilities and hopes to benefit under the Alliance
Agreement paying lower product costs than it might otherwise incur, both parties
expect the Company to be a major supplier of Green Giant vegetable products to
Pillsbury.
Based upon Pillsbury's recent sales volume for the Green Giant products to be
supplied by the Company and the Company's recent sales volume, the Company
expects that in the Company's fiscal year ending March 31, 1996, and in the
foreseeable future while the Alliance Agreement remains in effect, Pillsbury
will be the Company's largest customer.
The Alliance Agreement has an initial term ending December 31, 2014, and will
be automatically extended for additional five year terms unless terminated in
accordance with the next sentence. Either party may terminate the Alliance
Agreement without cause on at least 12 months' notice prior to the end of the
then-current term. Either party may terminate for a substantial and continuing
material breach of the other party on 60 days' prior notice. Other events
permitting one or the other party to terminate the Alliance Agreement are set
forth in that agreement, and include Pillsbury's right to terminate upon a
"change in control" of Seneca as defined in the Alliance Agreement (see
"Amendment to the Company's Certificate of Incorporation-Background of the
Proposal"). Under virtually all the causes of termination enumerated in the
Alliance Agreement, legal title to the Alliance Plants and the other assets
which Seneca acquired from Pillsbury and various financial adjustments between
the parties will occur. Pillsbury holds mortgage and security interests in the
property transferred to the Company and any replacement property to enforce its
rights under the Alliance Agreement and the Pillsbury Note. Pillsbury will look
to that property, and not to the property of the Company, to satisfy its claims
under the Pillsbury Note (except for damages in certain circumstances such as
the Company's fraud or intentional misconduct or its failure to turn over
insurance or condemnation proceeds of the secured property or turn over the
property as required by the Pillsbury Note or comply with the termination
provisions of the Alliance Agreement). The Pillsbury Note has extensive
provisions defining the relative rights and remedies against the Company of
Pillsbury and of the Company's long-term insurance lenders and revolving credit
bank lenders in certain circumstances such as default by the Company.
The Alliance Agreement provides for (1) an Alliance Review Board ("ARB")
consisting of one employee each of the Company and Pillsbury which meets
quarterly or more often if the members desire to resolve operational issues, and
(2) a Strategic Review Board ("SRB"), to be composed of two or four members
equally divided between the Company and Pillsbury who are at a higher managerial
level than the ARB members. The SRB will attempt to resolve disputes between
the parties, any resolution being binding upon the parties. The SRB shall also
approve any proposed capital expenditures by the Company in addition to the
initial capital restructuring program which was approved by the parties. If the
SRB cannot resolve a dispute, the dispute will next be submitted to mediation.
Mr. Schaeffer is the Pillsbury employee on the ARB.
Termination of the Alliance Agreement will entitle the Company's principal
lenders, including long-term insurance lenders and revolving credit bank lenders
(and other bank lenders whose loan agreements incorporated the default
provisions of the Company's long-term debt agreements) to declare a default
under the Company's loan agreements with them. The principal lenders have a
security interest in certain payments to be received by the Company from
Pillsbury on termination of the Alliance Agreement. See "Amendment to the
Company's Certificate of Incorporation-Background of the Proposal". Unless the
Company were to enter into a new substantial supply relationship with Pillsbury
or another major vegetable marketer and were able to acquire substantial
production capacity to replace the Alliance Plants, any such termination would
substantially reduce its sales. If termination were to occur while substantial
indebtedness of the Company to its insurance and revolving credit bank lenders
were outstanding, a restructuring of the debt payment terms might be necessary
to avoid a payment default.
The foregoing summary is not a complete description of the Alliance Agreement
and the other agreements entered into between the Company and Pillsbury, copies
of which (with confidential information deleted) are attached to the Company's
Report on Form 8-K dated February 24, 1995 filed with the Securities and
Exchange Commission.
The Alliance Agreement permits Pillsbury to have a representative present as
an observer at meetings of Seneca's Board of Directors and committees of the
Board. It does not require the Company to elect Mr. Schaeffer or any other
representative of Pillsbury or any of its affiliates to the Company's Board.
The Directors elected Mr. Schaeffer to the Company's Board because they believe
his knowledge and experience in the vegetable industry will make him a valuable
contributor to the Board as a Director.
Common Stock Performance Graph
The following graph shows the cumulative, five-year total return for the
Company's Common Stock compared with the NASDAQ Market Index (which includes the
Company) and a peer group of companies (described below).
Performance data assumes that $100.00 was invested on March 31, 1990 in the
Company's Common Stock, the NASDAQ Market, and the peer group. The data assumes
the reinvestment of all cash dividends and the cash value of other
distributions. Stock price performance shown in the graph is not necessarily
indicative of future stock price performance.
Comparison of Five Year Cumulative Total Return of
Seneca Foods Corporation
NASDAQ Market Group and Peer Group
SENECA PEER NASDAQ
1990 100.00 100.00 100.00
1991 106.17 128.67 110.28
1992 79.01 127.90 116.23
1993 75.31 134.09 130.08
1994 96.30 118.97 150.33
1995 169.14 139.80 159.48
The companies in the peer group are: H.J. Heinz Company, Odwalla Inc., J.M.
Smucker Company, Stokely USA, Inc. and Vacu Dry Company.
INFORMATION CONCERNING THE OPERATION OF THE BOARD OF DIRECTORS
In order to facilitate the handling of various functions of the Board
of Directors, the Board has appointed several committees including an Audit
Committee, a Compensation Committee and a Nominating Committee.
The members of the Audit Committee are Edward O. Gaylord (Chairman),
Robert T. Brady, David L. Call and G. Brymer Humphreys. The Audit Committee
recommends to the full Board of Directors the engagement of independent
auditors, reviews with the auditors the scope and results of the audit, reviews
with the corporate management the scope and results of the Company's internal
auditing procedures, reviews the independence of the auditors and any non-audit
services provided by the auditors, reviews with the auditors and management the
adequacy of the Company's system of internal accounting controls and makes
inquiries into other matters within the scope of its duties.
The Nominating Committee consists of Arthur S. Wolcott (Chairman),
Robert T. Brady and G. Brymer Humphreys. ThisThe Nominating Committee screens and
selects nominees for vacancies in the Board of Directors as they occur.
Consideration will be given to serious candidates for director whichwho are
recommended by shareholders of the Company. (Shareholder recommendations must be
in writing and addressed to the Chairman of the Nominating Committee, c/o
Corporate Secretary, 1162 Pittsford-Victor Road, Pittsford, New York 14534, and
should include a statement setting forth the qualifications and experience of
the proposed candidates and basis for nomination.)
The Compensation Committee consists of David L. Call (Chairman),
Edward O. Gaylord and Susan W. Stuart. ThisThe Compensation Committee establishes
the level of compensation on an annual basis for all executive officers.
As part of the Investment, the Company, the New Investors and certain
existing shareholders of the Company entered into a Shareholders Agreement
whereby the parties agreed that the Investor Designees would be appointed to
fill at least 22% of the positions on any and all committees of the Company's
Board of Directors. See "Proposal No. 2--Description of the Equity Investment"
regarding voting arrangements and nominee rights as set forth in the
Shareholders Agreement.
During the year ended March 31, 1995,1998, the Board of Directors had threefour
meetings, the Audit Committee had three meetings, the Nominating Committee had
one meeting and the Compensation Committee had one meeting. All directors
attended at least 75% of the aggregate of the total number of meetings of the
Board of Directors and the total number of meetings held by any committee of the
Board on which he or she served.
CERTAIN TRANSACTIONS- 23 -
Certain Transactions
Humphreys Farms Inc. is a member of Agrilink Foods, a processing and
marketing cooperative. During fiscal 1995,1998, Humphreys Farms Inc., acting on
behalf of Agrilink Foods, delivered to the Company purchased raw products from Humphreys Farm
Inc.,product with a total
value (including crop, harvesting and trucking payments) of which$219,550. G. Brymer
Humphreys, a director of the Company, is President and a 24%23% shareholder totaling $96,755.
PROPOSAL 2
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
General Description
Atof
Humphreys Farms Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Annual Meeting, the shareholders will be asked to consider and vote
upon a proposal (the "Proposal") to adopt an Amendment toSecurities Exchange Act of 1934 requires that the
Company's Certificate of Incorporation (the "Proposed Amendment") to (i) reclassify the
existing Common Stockdirectors, officers and shareholders owning more than 10% of the
Company (the "Existing Common Stock") as Class B
Common Stock (the "Class B Common Stock"), (ii) authorize a new class of
10,000,000 shares to be designated Class A Common Stock (the "Class A Common
Stock"), and (iii) establishfile reports with the express termsCommission within the first 10 days of the Class A Common Stockmonth
following any purchase or sale of shares in the Company. The Company is not
aware that any director failed to make such filings in a timely manner during
the past year.
Executive Officers
The following is a listing of the Company's executive officers:
Served as
Officer
Officer Principal Occupation for Past Five Years(1) Age Since
- ------- ------------------------------------------- --- ---------
Arthur S. Wolcott See table under "Election of Directors". 72 1949
Kraig H. Kayser See table under "Election of Directors". 37 1991
Philip G. Paras Vice President-Finance of the Company since 37 1996
1996 and Treasurer of the Company since 1997;
Vice President of the Chase Manhattan Bank,
Syracuse, New York, 1993 until 1996.
Jeffrey L. Van Riper Secretary and Controller of the Company. 41 1986
Sarah S. Mortensen Assistant Secretary of the Company. 53 1986
(1) Unless otherwise indicated, each officer has had the same principal
occupation for at least the past five years.
- 24 -
Executive Compensation
The following table sets forth the compensation paid by the Company to
the chief executive officer and to the Class B Common Stock.
Each sharemost highly compensated executive
officers whose compensation exceeded $100,000 (the "Named Officers") for
services rendered in all capacities to the Company and its subsidiaries during
the fiscal years ended March 31, 1998, 1997 and 1996.
Name of Class A Common Stock would rank substantially equal to each
share of Class B Common Stock with respect to receipt of any dividends or
distributions declared on shares of common stockIndividual and the right to receive
proceeds on liquidation or dissolutionFiscal Annual Compensation
Principal Position Year Salary Bonus
---------------------- ------ ------ -----
Arthur S. Wolcott 1998 $336,000 $ --
Chairman and Director 1997 340,000 --
1996 340,000 --
Kraig H. Kayser 1998 $292,000 --
President, Chief Executive 1997 287,000 --
Officer and Director 1996 287,000 --
Pension Benefits
The executive officers of the Company after paymentare entitled to participate in
the Pension Plan (referred to in this section as the "Plan"), which is for the
benefit of all employees meeting certain eligibility requirements. Effective
August 1, 1989, the Company amended the Plan to provide improved pension
benefits under the Plan's Excess Formula. The Excess Formula for the calculation
of the annual retirement benefit is: total years of credited service (not to
exceed 35) multiplied by the sum of (i) 0.6% of the participant's average salary
(five highest consecutive years, excluding bonus), and (ii) 0.6% of the
participant's average salary in excess of his compensation covered by Social
Security.
Participants who were employed by the Company prior to August 1, 1988
are eligible to receive the greater of their benefit determined under the Excess
Formula or their benefit determined under the Offset Formula. The Offset Formula
is: (i) total years of credited service multiplied by $120, plus (ii) average
salary multiplied by 25%, less 74% of the primary Social Security benefit.
Pursuant to changes required by the Tax Reform Act of 1986 (the "1986 Act"), the
Company amended the Plan to cease further accruals under the Offset Formula as
of July 31, 1989. Participants who were eligible to receive a benefit under the
Offset Formula will receive the greater of their benefit determined under the
Excess Formula or their benefit determined under the Offset Formula as of July
31, 1989. The maximum permitted annual retirement income under either formula is
$130,000.
The following table sets forth estimated annual retirement benefits
payable at age 65 for participants in certain compensation and years of service
classifications using the highest number obtainable under both
- 25 -
formulas (based on the maximum Social Security benefit in effect for the
calendar year ending December 31, 1997):
Five Highest
Consecutive ANNUAL BENEFITS
Years' Earnings
--------------- -------------------------------------------------------------------------------------------------------------
15 Years 20 Years 25 Years 30 Years 35 Years
-------- -------- -------- -------- --------
$ 90,000 $ 13,500 $17,900 $22,400 $26,900 $31,300
120,000 19,900 25,100 31,400 37,700 43,900
150,000 27,400 32,300 40,400 48,500 56,500
180,000 or higher 28,400 33,300 41,600 49,900 58,200
Under the Plan, Arthur S. Wolcott and Kraig H. Kayser have 49 years and
6 years of credited service, respectively. Their compensation during fiscal year
1998 covered by the Plan was $336,000 for Mr. Wolcott and $292,000 for Mr.
Kayser. The Code limits the amount of compensation that can be taken into
account in calculating retirement benefits (for 1998 the limit is $160,000).
Directors' Fees
During fiscal year 1998, directors were paid a fee of $1,000 per month.
Any director who is also an officer of the Company receives no director's fee.
Stock Options
No options were granted or exercised in the period from April 1, 1997,
to the date of this Proxy Statement, nor were any unexpired options held at the
latter date by any officer or director of the Company.
Profit Sharing Bonus Plan
The Company has a Profit Sharing Bonus Plan for certain eligible
employees of the Company ("Corporate Profit Sharing" for the officers and
certain key corporate employees and "Operating Unit Profit Sharing" for certain
key operating unit employees). Under Corporate Profit Sharing, some or all of
the Corporate Profit Sharing Pool (10% of the Corporate Bogey as defined below)
will be paid only if Pre-Tax Profits (as defined) equal or exceed the Corporate
Bogey. The bonuses will be distributed at the sole discretion of the Company's
indebtedness and liquidation preference payments to holderschief executive officer upon approval of preferred shares. However, holders of Class A Common Stock will have 1/20th of
one vote per share on all matters requiring a shareholder vote, while holders of
Class B Common Stock will retain their full vote per share.
If the Proposed Amendment is approvedsuch bonuses by the shareholders,Compensation
Committee of the Board of Directors intends to prepare and file a certificate to that effect withDirectors. Under the SecretaryOperating Unit Profit Sharing,
the Operating Unit Profit Sharing pool (10% of State of New York. The Existing Common Stock wouldPre-Tax Profit less the Operating
Unit Bogey as defined below) will be reclassified
as Class B Common Stock. As soon as practical after filingpaid only if the Pre-Tax Profit of the
Proposed
Amendment,Operating Unit equals or exceeds the Company will distribute (the "Distribution") one share of Class A
Common Stock for each share of Class B Common Stock outstanding on the record
date for the Distribution.Operating Unit Bogey. The record date for the Distributionbonuses will be
distributed at the datediscretion of the Annual MeetingOperating Unit President. For fiscal 1998
the Corporate Bogey will be equal to the greater of Shareholders.
Shareholders should retain their current share certificates because, upon
reclassification, those certificates then would represent Class B Common Stock
without any need for exchange. At the time(i) five percent of the
Distribution, new
certificates would be issued for Class A Common Stock only.
Upon reclassification, the Class B Common Stock would continue to have its
express terms, except to the extent voting rights with regard to those shares
would be affected by the Class A Special Rights provision. See "Description of
Class A Common Stock and Class B Common Stock - Class A Special Rights". As
more fully described below, the new Class A Common Stock would have certain
special characteristics as compared to the Class B Common Stock, of which the
most significant is the reduction of voting power to 1/20th of a vote per share
of Class A Common Stock. Where required by law, the Class A Common Stock would
be entitled to vote as a class, so that the separate approval of the holders of
Class A Common Stock would be required to authorize certain actions on certain
matters. See "Description of Class A Common Stock and Class B Common Stock -
Voting". There would be no change in the relative voting power or equity of any
shareholderprior year's Consolidated Net Worth of the Company plus the Pillsbury
Subordinated
- 26 -
Note or (ii) five percent plus the annual increase in the Consumer Price Index
greater than five percent, times the prior year's Consolidated Net Worth of the
Company. The Operating Unit Bogey will be an amount equal to the average gross
assets employed by the Vegetable, Juice or Flight Operations for the preceding
12 months divided by the consolidated average gross assets of the Company for
the same period multiplied by the Corporate Bogey.
The bonuses earned by the Company's Named Officers for the 1998 fiscal
year are included in the executive compensation table above. No bonuses were
earned in 1998, 1997 or 1996 under the Profit Sharing Bonus Plan.
Compensation Committee Interlocks and Insider Participation
Mr. Kayser serves as a resultmember of the Distribution because the
Distribution would be made to all shareholders in proportion to the numberCompensation Committee of shares of Existing Common Stock owned by them on the record date for the
Distribution.
Background of the Proposal
Background Arthur S. Wolcott, the Company's ChairmanMoog
Inc. and as a director Kraig
H. Kayser,on its Board. Mr. Brady, who is the President and Chief
Executive Officer andof Moog Inc., serves as a director on the Company's Board.
Members of the Company's Compensation Committee are David L. Call (Chairman),
Edward O. Gaylord and Susan W. Stuart, who is a director and daughter of Mr. Wolcott, have in the aggregate
sole or shared voting power over 35%Stuart.
Compensation Committee Report On Executive Compensation
The Compensation Committee of the total voting sharesBoard of the Company
by reasonDirectors is composed
entirely of their personal ownerships of voting securities of the Company and
their sole or shared voting power as fiduciaries with respect to other shares.outside directors. The total beneficial stock ownership of Messrs. Wolcott and Kayser and members
of their familiesCompensation Committee is set forth above. See "Ownership of Securities - Principal
Owners of Voting Stock".
The beneficial ownership of Messrs. Wolcott and Kayser is sufficient to give
them voting controlresponsible for
providing overall guidance with respect to the Company. For ease of reference, this
discussionCompany's executive compensation
programs. The goal of the Proposal will refer from timeCompensation Committee is to timemaintain a competitive
compensation program in order to attract and retain well qualified management,
to provide management with the incentive to accomplish the Company's financial
and operating objectives and to link the interests of the Company's executive
officers and management to the stock ownership
or voting powerinterests of its shareholders through bonuses
tied to financial performance. The Compensation Committee is composed of three
members and meets annually to review the Company's compensation programs,
including executive salary administration and the Corporate Profit Sharing plan.
The Compensation Committee believes that the Company's executives
should be rewarded for their contributions to the Company's attaining annual
financial goals, as set forth in the annual budget which is subject to revision
during the year, and their attaining annual individual objectives. The Company
pays its executive officers two principal types of compensation: base salary and
Corporate Profit Sharing plan, each of which is more fully described below.
Base Salary - The Company has historically established the base salary
of its executive officers on the basis of each executive officer's scope of
responsibility, experience, individual performance and accountability within the
Company. In that regard the Company reviews comparable salary and other
compensation arrangements in similar businesses and companies of similar size to
determine appropriate levels necessary to attract and retain top quality
management.
Profit Sharing Plan - To further align the interests of the "Wolcott and Kayser Families," which phrase includes
certain (i) persons and entities identifiedexecutive
officers with those of the Company's shareholders, a significant component of an
executive officer's total compensation arrangement is participation in the
table, including footnotesannual profit sharing plan. An executive is rewarded with a cash bonus equal to
a percentage of the
table, set forth under "Principal Owners of Voting Stock" as having family
relationships to Mr. Wolcott or Mr. Kayser and (ii) entities which are
shareholders- 27 -
executive's base salary if the Pre-Tax Profit of the Company andfor that year
equals or exceeds the Corporate Bogey (see "--Profit Sharing Bonus Plan").
Performance Review - The general policies described above for the
compensation of executive officers also apply to the compensation level approved
by the Compensation Committee with respect to whichthe 1998 compensation for the
Chief Executive Officer. Based on the criteria outlined above, the Compensation
Committee awarded to Kraig H. Kayser a base salary of $292,000 for fiscal year
1998. The Compensation Committee recognized Mr. Wolcott or Mr. Kayser,
or both, serve as fiduciaries and hold sole or shared voting power of sharesKayser's leadership role in
guiding the overall performance of the Company owned by such entities. Reference hereinas well as managing costs while
growing the business.
Summary
The Compensation Committee is committed to attracting, motivating and
retaining executives who will help the Company meet the increasing challenges of
the food processing industry. The Compensation Committee recognizes its
responsibility to the WolcottCompany's shareholders and Kayser
Familiesintends to continue to
establish and implement compensation policies that are consistent with
competitive practice and are based on the Company's and the executives'
performance.
This report has been submitted by the Compensation Committee of the
Company's Board of Directors:
David L. Call Edward O. Gaylord Susan W. Stuart
Common Stock Performance Graph
The following graph shows the cumulative, five-year total return for
the Company's Common Stock compared with the Nasdaq Market Index (which includes
the Company) and a peer group of companies (described below).
Performance data assumes that $100.00 was invested on March 31, 1993,
in the Company's Class B Common Stock, the Nasdaq Market, and the peer group.
The data assumes the reinvestment of all cash dividends and the cash value of
other distributions. Stock price performance shown in the graph is not
intended to designatenecessarily indicative of future stock performance.
===================================================================================================================================
1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Company 100 127.87 224.59 209.84 229.51 219.67
- ------------------------------------------------------------------------------------------------------------------------------------
Nasdaq Market 100 107.73 118.41 159.59 177.02 265.99
- -----------------------------------------------------------------------------------------------------------------------------------
Peer Group 100 100.19 94.65 111.49 135.90 169.33
===================================================================================================================================
- 28 -
The companies in the family members as a "group"peer group are H.J. Heinz Company, J.M. Smucker
Company, Vacu-Dry Company, Chiquita Brands International, Inc.,
Cadbury-Schweppes plc, and Northland Cranberries, Inc.
The companies in the peer group for the purpose of acquiring, holding or disposing of securitiesproxy statement for the fiscal
year ended March 31, 1997, were Ampal-Amer Israel, H.J. Heinz Company, Odwalla,
Inc., J.M. Smucker Company, Stokely USA, Inc. and Vacu Dry Company. Stokely USA,
Inc. was purchased by Chiquita Brands International, Inc. during the past year.
Data available for Odwalla, Inc. did not include data for the complete five-year
period ended March 31, 1998. Although the Company was advised by a consultant
that Ampal-Amer Israel was a competitor; the Company does not have sufficient
information to confirm that fact and does not, in fact, consider Ampal- Amer
Israel to be a competitor of the Company. The performance graph for this Proxy
Statement therefore eliminates Ampal-Amer Israel from the Company's peer group.
The Company believes the peer group used for this Proxy Statement more closely
resembles its own operations than the peer group used for the prior year's proxy
statement.
The Board of Directors of the Company has concluded that it wouldunanimously recommends a vote
FOR approval of the election of directors. Unless otherwise instructed, proxies
will be invoted for the best interestselection of David L. Call, Susan W. Stuart, Andrew M.
Boas, Arthur H. Baer and G. Brymer Humphreys.
- 29 -
PROPOSAL NO. 2
APPROVAL OF THE ISSUANCE OF
4,166,667 SHARES OF NEW PREFERRED
STOCK IN CONNECTION WITH THE INVESTMENT
At the Meeting, shareholders of the Company will be asked to have substantialvote on a
proposal to approve the issuance of 4,166,667 shares of New Preferred Stock. The
purpose of the Investment is to sell 1.167 million shares of New Preferred Stock
to the New Investors in accordance with the Stock Purchase Agreement and to
offer up to 3 million shares of New Preferred Stock to the holders of the
Company's Common Stock in accordance with the Rights Offering, with the New
Investors acting as standby purchasers with respect to shares offered but not
purchased in the Rights Offering by such shareholders. See "--The Rights
Offering." Shareholder approval of this Proposal is required by rule 4460 of the
Nasdaq National Stock Market, the exchange on which the outstanding shares of
Class A Common Stock are listed, which requires shareholder approval when shares
are to be issued which will be equal to or in excess of twenty percent of the
number of shares outstanding prior to such issuance. Pursuant to rule 4460 of
common
stockthe Nasdaq National Stock Market, the affirmative vote of a majority of the
total votes cast on the proposal is required to adopt the proposal.
Description of the Equity Investment
The Company has entered into a Stock Purchase Agreement, dated as of
June 22, 1998 (the "Stock Purchase Agreement"), with the New Investors whereby
the New Investors have agreed to (i) purchase 1.167 million shares of the New
Preferred Stock at a price of $12.00 per share (for total consideration of $14
million) and (ii) purchase at $12.00 per share up to 2.5 million shares of New
Preferred Stock which the Company's shareholders do not purchase in the Rights
Offering. If not less than 2.5 million shares become available for any valid corporate purpose, such as a sale for cash to
increase equity capital or reduce outstanding debt or as consideration in any
future acquisition of assetspurchase by
the Company instead of using cash or incurring
debt to payNew Investors, their total purchase price for the acquisition,2.5 million shares will be
$30 million. Pursuant to the terms of the Stock Purchase Agreement, the New
Investors have the right to purchase up to 1,181,996 shares of New Preferred
Stock (the "Option Shares"). The Option Shares may be purchased at any time
prior to the closing of the Investment and may be purchased even if shareholder
approval of the Investment Proposal is not obtained. The Company will not be
required to issue in connection with the Stock Purchase Agreement and the Rights
Offering (including the Option Shares) more than 4,166,667 shares of New
Preferred Stock, or ifa total sale of up to $50,000,004 (the "$50 Million Limit")
to the New Investors and to shareholders who exercise their purchase rights
under the Rights Offering. This limitation affects only the purchase rights of
the New Investors. Each of the Company's shareholders who is issued Rights under
the Rights Offering may exercise all Rights so received, except for those
shareholders who have agreed not to exercise their Rights as described in the
following paragraphs.
- 30 -
Concurrently with the Stock Purchase Agreement, the Company were to adoptand
certain of its substantial shareholders, including the New Investors and the
Related Marks Shareholders, entered into a plan to
facilitate employee stock ownership, for allocation to such a plan. See
"Reasons for the Proposal, RecommendationShareholders Agreement (the
"Shareholders Agreement") whereby certain substantial holders of the Board of Directors - Financing
Flexibility".
The directors have also unanimously concluded that the best interest of the
Company also require that no material diminution occur in the relative voting
powerCompany's
stock, including members of the Wolcott and Kayser Families. Consequently,families who control the
Company, agreed that they would not exercise, sell or otherwise transfer the
Rights to which they were entitled pursuant to the terms of the Rights Offering
and will vote for the Investment Proposal and the election of the Investor
Designees to the Company's ExistingBoard of Directors. In a separate agreement,
Pillsbury has also agreed that it will not exercise, sell or otherwise transfer
the Rights to which it is entitled pursuant to the terms of the Rights Offering
and that it will vote for the Investment Proposal and the election of the
Investor Designees to the Company's Board of Directors (the "Pillsbury
Agreement").
Inasmuch as certain of the Company's shareholders have agreed not to
exercise, sell or otherwise transfer their Rights distributed on their present
holdings of 1,620,747 shares of Common Stock wouldpursuant to the Shareholders
Agreement and the Pillsbury Agreement, the New Investors are assured of
acquiring not be an appropriate vehicle for financing, acquisition or
employee stock ownership plan purposes, as such useless than 1,977,041 shares of New Preferred Stock in the
Investment, and, subject to the $50 Million Limit, may materially diminish the
present voting powerpurchase additional
shares of New Preferred Stock.
The consummation of the WolcottInvestment Proposal and Kayser Families.
As a meansthe election of ensuring the
availabilityInvestor Designees to the Company's Board of shares for future financing and
other corporate purposes, aDirectors results in significant
participation by the New Investors in the governance of the Company. The number
of publicly-held companies with majority or
controlling ownership by any one person or group of persons have adopted
dual-class capital structures. In reviewingdirectors comprising the Company's capital structureBoard of Directors will be increased from
seven to nine members, with the two new positions being filled by the Investor
Designees. The Investor Designees will continue to be nominated for election to
the Board and possible alternativesshareholders who executed the Shareholders Agreement will continue
to vote for the future,Investor Designees until the Company's management determined thatStock Purchase Agreement is
terminated or such a structure offeredtime as the Company a solution that would permit growthNew Investors no longer own, in the aggregate, at
least 10% of the
Company through sale or issuance of common stock without changing control.
The Company submitted the Proposal to the National Association of Securities
Dealers' National Market System ("NASDAQ/NMS") for review under the NASDAQ/NMS
rules governing common stocks with disproportionate voting rights. The Existing
Common Stock is currently traded on NASDAQ/NMS and provided the Proposal is
approved, NASDAQ/NMS has advised the Company that the Class A Common Stock and
Class B Common Stock will be traded on NASDAQ/NMS. See "Certain Effects(assuming conversion of all shares of the
Proposal - NASDAQ/NMS Requirements"New Preferred Stock into Class A Common Stock). An important factor inThe Shareholders Agreement also
requires that the directors' consideration was the Company's
acquisition in February 1995Investor Designees will comprise at least 22% of a substantial percentageany committee
of the tangible assetsBoard of Directors. The New Investors also required as a condition to
consummation of the Green Giant Division of Pillsbury in exchange forInvestment, that the Pillsbury Note and
the execution of the Alliance Agreement. See "ELECTION OF DIRECTORS -
Transactions with The Pillsbury Company".
To finance capital expenditures which the Company believes are necessary or
appropriate for operation under the Alliance Agreement and for anticipated
capital investment in other operations of the Company, the Company has borrowed
on a long-term basis $75 million from the Prudential Insurance Company of
America ("Prudential"), of which $26.6 million was usedCharter be amended to prepay existing
indebtedness to Prudential and $50 million from John Hancock Mutual Life
Insurance Company ("Hancock"). To finance its working capital requirements,
which have increased substantially by reason of the Alliance Agreement
operations, the Company has obtained a commitment for a revolving line of credit
of $150 million from a group of eleven banks for which The Chase Manhattan
Bank, N.A. ("Chase") is agent and one of the eleven lenders.
The foregoing transactions have resulted in a substantial increase in the
Company's debt at March 31, 1995, the close of the Company's last fiscal year
(consisting of only eight months by reason of a change in accounting periods),
the Company's outstanding indebtedness was $________ as compared to $57,800,000
its indebtedness on July 31, 1994, the previous fiscal year close; total assets
on the respective dates were $________ as compared to $200,600,000; and the
ratio of debt to total assets on the respective dates was ___% as compared to
29%.
Moreover, the Note Agreement dated February 23, 1995, between the Company and
Prudential and Hancock (the "Note Agreement") and the Credit Agreement dated
February 23, 1995, between the Company and the eleven lending banks (the "Credit
Agreement") pursuant to which the Company's borrowings were effected, contain
financial covenants which limit the discretion of the Company to incur future
additional debt. The limitations on the Company's borrowing ability contained
in these agreements create an additional incentive to the Company to have the
option of issuing stock to increase its equity for acquisitions or additional
capital investments.
During the negotiations culminating in the Alliance Agreement, Note Agreement
and Credit Agreement, the respective parties other than the Company expressed to
the Company their concerns if there were a change in control of the Company.
Consequently, those agreements contain provisions which, although differing in
specific provisions and terms, permit the other party to take action adverse to
the Company under circumstances involving a "Change of Control" of the Company
(as defined in the particular agreement) or accumulation of a specified
percentage of total voting power by a person or
group or certain substantial changes in the compositionrequire unanimous
approval of the Company's Board of Directors. If a Change of Control event asDirectors (excluding directors who choose to
abstain) for certain defined in"major corporate actions," including (i) any
amendment or modification to the relevant agreement
were to occur, Pillsbury would be entitled to declare a default by the Company
and terminate the Alliance Agreement, and the lenders would be entitled to
demand immediate payment of the Company's indebtedness to them. The agreements
also contain cross-default provisions; that is, a default by the Company under
one agreement may entitle the other party under another agreement to declare the
Company in default. These provisions are more specifically described below.
The Alliance Agreement states that it may be terminated by Pillsbury atCharter or By-Laws; (ii) any time within 30 days of receiving notice from the Company that a Change of
Control of the Company has occurred, which such Change of Control will be deemed
to have occurred ifbusiness
combination; (iii) any person who is not, as of the date of the Alliance
Agreement, the beneficial owner of 30%sale or more of the combined voting power of
the Company's then outstanding voting securities becomes such a beneficial
owner, or the shareholders of the Company approve certain specified business
transactions, including consolidation or merger, sale, lease, exchange, or other
transfer (in one transaction or a series of related transactions) of all or substantially all of the
assets of the Company; (iv) certain issuances of securities; (v) any
acquisitions or dispositions of assets involving gross consideration in excess
of $15 million; (vi) certain changes in the Company's line of business; (vii)
any change in the Company's certified public accountants; (viii) the settlement
of certain litigation; or (ix) the commencement by the Company of proceedings
relating to bankruptcy, insolvency, reorganization or liquidation or dissolutionrelief of debtors.
- 31 -
If shareholder approval of the Company.Investment is not obtained, the Stock
Purchase Agreement will terminate; however, the New Investors may still purchase
the Option Shares.
Background
In February 1995, the Company entered into the Amended and Restated
Alliance Agreement (the "Alliance Agreement") with Pillsbury which owns the
Green Giant(R) brand of vegetable products. Pursuant to the Alliance Agreement,
the Company began in fiscal year 1996 (April 1, 1995 to March 31, 1996) to
produce and store for Pillsbury, Green Giant brand vegetables, primarily canned
vegetables, but also including frozen vegetables. The Alliance Agreement
provides that the Company will receive payment from Pillsbury based on the
Company's costs plus a per case payment which represents the Company's margin of
profit before general overhead. Pillsbury retained ownership of the Green Giant
brand name and control of marketing, distribution, customer service, and
proprietary seed varieties for Green Giant vegetables.
As a result of the Alliance Agreement, the sale and warehousing of
Green Giant vegetables has become the largest single source of the Company's
revenues. Green Giant products packed by the Company in the Company's fiscal
years ended March 31, 1997 and March 31, 1998 constituted approximately 54% and
40%, respectively, of the Company's sales for such periods.
To operate under the Alliance Agreement, the Company needed to
increase its long-term and working capital indebtedness to a very substantial
extent. The Company acquired Green Giant plants (the "Alliance Plants") and
equipment from Pillsbury at an initial cost of $86.1 million in February 1995.
Subsequent acquisitions of Green Giant equipment and reimbursement for
Pillsbury's capital improvements in the Alliance Plants increased the
acquisition cost to $93.7 million. Except for approximately $13.1 million of
that cost, which was funded out of the Company's working capital, this
acquisition cost was financed by an 8% subordinated nonrecourse promissory note,
due 2009, issued to Pillsbury and secured by the Alliance Plants (the "Pillsbury
Note").
The Company incurred additional indebtedness in 1995 as a result of
the Alliance Agreement was a revolving credit facility from a syndicate of
eleven banks with an original loan limit of $150 million, which, as amended in
July 1998, has a loan limit of $100 million provided by a syndicate of eight
banks. The Company also sold two long term notes in the principal amounts of $75
million and $50 million, respectively, to The Prudential Insurance Company of
America ("Prudential") and The John Hancock Mutual Life Insurance Company
("Hancock"). The Prudential note, with an interest rate of 10.78%, requires
principal repayments beginning in March 1998 with a final payment in 2005. The
Hancock note, with an interest rate of 10.81%, requires principal repayments
beginning in 2001 and a final payment in January 2009.
- 32 -
Approximately $50 million of the note proceeds were used to finance capital
expenditures in connection with the acquisitionAlliance Agreement, $40.4 million refinanced
debt paid in the previous year or paid with the note proceeds, and $34.6 million
financed capital expenditures made in the previous three years and three small
acquisitions made in the previous 18 months.
In September 1997, the Company sold $15 million of long term notes due
in 2002 to finance the fixed asset components of two acquisitions made in the
first quarter of the assets1998 fiscal year. During the second quarter of Green Giant,the 1998
fiscal year, the Company Prudential and Hancock are partiescompleted a modification to the Note Agreementits revolving credit
facility. Under this revolving credit facility which has been extended to June
30, 1999, there is a new "cleandown" provision whereby the Company authorizedmust reduce
its notes payable to below $30 million for a thirty day period during each year.
In addition, on December 1, 1997, the issuance of a $75,000,000, 10.78% Series A Senior Notes Due 2005total available credit was reduced from
$150 million to $130 million and a $50,000,000, 10.81% Series B Senior Notes Due 2009 (the "Notes").subsequently reduced to $100 million on July 7,
1998.
The Note Agreement provides that if within 30 Business Dayspurchase of the date on which
either Prudential or Hancock or any other holder of at least 10%Alliance Plants, the cost of the aggregate principal amountsubstantial
capital improvements necessitated by the Pillsbury acquisition and the
significant increase in the Company's working capital requirements to produce
and hold large inventories of products packed under the Alliance Agreement has
resulted in an increase in both Company debt and the ratio of Company debt to
its assets. The following table illustrates the increased debt to equity ratio
of the NotesCompany at the end of the fiscal years and periods listed below and on a
pro forma basis (assuming a $44 million equity investment pursuant to the
Investment).
Pro Forma
March 31, March 31, March 31, March 31, March 31, July 31,
1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ------
Total outstanding debt (000 $257,703 $301,703 $251,593 $340,264 $227.074 $59,425
omitted)
Current ratio 2.60:1.00 1.79:1.00 2.78:1.00 1.59:1.00 3.30:1.00 2.28:1.00
(current assets:current
liabilities)
Ratio of total assets to total 1.39:1.00 1.23:1.00 1.29:1.00 1.21:1.00 1.31:1.00 1.76:1.00
liabilities
Long-term debt/equity 171% 256% 239% 249% 244% 58%
Total liabilities/equity 257% 433% 344% 476% 324% 131%
The Company currently is in default of certain loan covenants with
certain of its short and long-term lenders. As a remedy for default, each lender
has knowledge that a Change of Control
event has occurred, any such holder maythe right to require the Company to immediately prepay all amounts owing to
the lenders. The agent bank for the short-term lenders has indicated its
intention to waive the Company's defaults subject to securing required consents
from other participating banks. The long-term lenders have unconditionally
- 33 -
waived the defaults as of March 31, 1998 and have amended (or in full
within 10one instance
agreed to amend) the covenants effective in fiscal year 1999 so as to conform to
financial results which the Company believes to be achievable if it successfully
executes its fiscal 1999 business daysplan. The Company can give no assurance that
it will successfully execute the 1999 business plan.
The Company has sought to reduce its debt by means which would not
adversely affect operations. In fiscal 1997 it sold its Moog Inc. Class A Common
Stock to the issuer for a sale price of $12.9 million and sold a food
distribution warehouse in Clifton Park, New York for $4.8 million. These sales
generated pre-tax gains of $7.5 million and $1.6 million, respectively. In
addition, Pillsbury agreed to accept Class A Common Stock in lieu of two annual
installments of principal totalling $6 million, due in September 1996 and accrued interest1997,
on the Notes held byPillsbury Note. These transactions have mitigated, but have not
eliminated, the holder plus an additional sum which is calculated as a Yield Maintenance
Amount in the Note Agreement. Prudential has relinquished its right to demand
such prepayment. Prudential's relinquishment is ineffective as to any
subsequent holder and will become ineffective as to Prudential if any other
holder demands prepayment because of a Change of Control.
For purposesadverse effect of the Note Agreement, a Changehigh debt levels on the Company's
financial results and prospects.
The terms and conditions of Control Event occurs when (i)
the beneficial ownership or acquisition by any Person or group of affiliated
Persons (other than directly or indirectly throughCompany's revolving credit facility
and the Wolcott or Kayser
Families) in any transaction or series of related transactions of sharesother indebtedness of the Company representing more than 50%currently impose limitations that
restrict, among other things, the ability of the voting control of the Company;Company to incur debt, create
liens, pay dividends, make acquisitions and (ii) the Wolcott and Kayser Families shall cease to own, directly or indirectly,
at least 25% of the outstanding votingmake capital stock of the Company.
The Company and Chase, as Agent for the lender banks, entered into a Credit
Agreement dated as of February 23, 1995. The Credit Agreement states that an
Event of Default occurs if (i) any Person or Persons acting in concert acquire,
other than the Wolcott or Kayser Families, beneficial ownership of capital stock
possessing either 30% or more of the total number of votes which the Company's
shareholders shall be entitled to cast or the right to elect 30% or moreexpenditures. Terms of
the Company's Board of Directors, or (ii) during any period of 12 consecutive
months, the individuals who at the beginning of such 12-month period were
directorsindebtedness also require it to satisfy certain financial
covenants on a quarterly basis. The ability of the Company cease for any reason to constitute a majoritymake cash payments
to satisfy its indebtedness and to comply with such financial or similar
covenants as may be contained in future agreements will depend upon its future
operating performance, which is subject to prevailing economic conditions, and
to financial, business and other factors beyond the Company's control. The high
debt to equity ratio of the BoardCompany could affect the Company in the following
circumstances, among others: (i) limiting the Company's ability to withstand
competitive pressures or a downturn in its business or in the economy; (ii)
impairing the Company's ability to obtain additional financing; and (iii)
limiting the Company's flexibility to take advantage of Directorsmarket trends in the
food processing industry.
Based upon the foregoing, the Company determined that it was in its
best interests and the best interests of its shareholders if the Company
substantially reduced its indebtedness. In late 1997, the Company began
exploring its options with respect to reducing its high level of debt to equity
and management determined that an equity investment was the most desirable
option. Early in 1995, the Company and an officer of CMCO, Inc. and general
partner of Carl Marks Management Company, L.P., a general partner of the New
Investors, initiated discussions about a direct investment in the Company. If this EventThese
discussions continued periodically until September 1997 when the current
transaction structure was considered.
After preliminary due diligence by the New Investors, the New
Investors and the Company's management discussed various structures for the
proposed equity investment. The
- 34 -
New Investors continued their due diligence and the parties negotiated a Stock
Purchase Agreement, Shareholders Agreement, Registration Rights Agreement and
proposed form of Default occurs, Chase may
declareCertificate of Amendment (collectively, the outstanding principal and interest of the Notes immediately due and
payable.
At its regular meeting on March 10, 1995,"Transaction
Documents") which was adjournedwere provided to May 2, 1995, the Board of Directors of the Company discussed generally with management and
the Company's legal and financial advisors the featuresas part
of the Proposal and
other possible actionsmaterials to be discussed at a Board of Directors meeting held on April
3, 1998. At that had been considered by management in arriving at the
Proposal.
Reasons for the Proposal; Recommendation ofmeeting, the Board of Directors discussed the merits of the
proposed Investment and its impact on the Company's financial condition and
reviewed the terms and conditions contained in the Transaction Documents. The
Board, by unanimous vote of Directors unanimously recommends that shareholders vote FOR the
adoption of the Proposed Amendment.
After discussions among the Directors concerning the Proposal, the Board of
Directors, including the Company's independent outsideall directors, unanimously
determined to recommend that the shareholders approve of the Proposed Amendment.
In connection with its adoption of the Proposed Amendment, the Board also
(i) authorized the filing of definitive proxy materials relating to the Proposal
with the SecuritiesInvestment and
Exchange Commission, and (ii) declared the dividend in
Class A Common Stock, subject to shareholder approval of the Proposed Amendment,
setting August 5, 1995, the date of the Annual Meeting of Shareholders, as the
record date for such dividend.
The Company's Board of Directors believes that a capital structure having two
classes of common stock offers a number of potential benefits, as described
below, and that adoption of the Proposal isrelated proposals were in the best interests of the Company and all of its shareholders.
Financing Flexibility Implementationstockholders
and approved the Investment, and the Transaction Documents. At a subsequent
meeting of the Company's Board of Directors held on June 19, 1998, the Board
considered all aspects of the Investment Proposal would provideand unanimously reaffirmed
their approval of the Investment and the Investment Proposal.
The Company and the New Investors entered into the Stock Purchase
Agreement, dated as of June 22, 1998. The Company, the New Investors, the
Related Marks Shareholders and the Existing Shareholders (as hereinafter
defined) entered into the Shareholders Agreement, dated as of June 22, 1998. The
Company, the New Investors and the Related Marks Shareholders entered into the
Registration Rights Agreement, dated as of June 22, 1998.
Board of Directors Approval
Effect of the Investment on the Company's Financial Condition and Prospects. In
approving the Investment, the Board considered the current high debt to equity
ratio of the Company with increased flexibilityand the negative effects thereof on the ability of the
Company to withstand competitive pressures and economic downturns, obtain
additional financing and take advantage of market trends in the future to issue commonfood processing
industry.
The infusion of between $44 million and $50 million (less transaction
expenses) of new equity or to
issue senior equity securities convertible into common stock tothe Company and the corresponding reduction of debt
will substantially reduce interest expense and provide funds and flexibility for
sustaining and growing the Company's outstanding debt or for other corporate purposes, including financing
acquisitionsbusiness.
Structure of the Investment. In discussing the structure of the Investment, the
Board noted that the use of the Rights Offering would enable the current
shareholders of the Company to participate in and other future growthshare in any benefits
resulting from the Investment. The Board also considered the support of the
Wolcott and fundingKayser families (who beneficially own 41.9% of employee benefit stock plans
without diluting the voting power of
the Company's existing shareholders,
including the Wolcott and Kayser Families.
The Company is considering the feasibility of a public offering of common
stock for cash in the near future, butelection of directors) for the transaction in light of the
structure of the Investment and the substantial dilution they will experience as
a result of the Investment.
- 35 -
In discussing the structure of the Investment, the Board considered
that the New Investors would designate two of the Company's nine directors and
that such designees would be appointed to fill at least 22% of any committee of
the Company's Board of Directors.
Available Alternatives. The Board considered it has no definitive plans to do so. Ifunlikely that the Company were to engage in any such financing, it iscould
obtain a substantial equity infusion on more likely to offer
Class A Common Stock. The Company does not now have under considerationfavorable terms from any other
proposals for issuanceinvestor or group of any class of common stock.
Shareholder Flexibilityinvestors. The Proposal would protect shareholders, includingBoard also viewed as favorable, as noted
above, the Wolcott and Kayser Families, against dilution of their relative voting power
in the event of future issuances of equity securities by the Company as the
Company currently intendsfact that the Class B Common Stock ordinarily will not be
used for such purposes.
In addition, presentInvestment allows the Company's shareholders would have increased flexibility to
dispose
of a portion ofmaintain their equity interest in the Company without substantially
diminishing their relative voting power. Under(subject to dilution arising from
the Proposal, such shareholders
could sell or otherwise disposeNew Investors' purchase of 1.167 million shares of New Preferred Stock
convertible into Class A Common Stock on a significant portion of their equity
interestshare-for-share basis) and thus
participate in the anticipated benefits of the Investment.
Historical and Recent Market Prices. The purchase price for the shares purchased
by the New Investors and the purchase price for the Rights Offering was
determined as a result of arm's length negotiations between the Company and the
New Investors and was approved by disposingthe Board of Directors of the Company, taking
into account the financial position of the Company and the size of the
Investment. At the time the Subscription Price was approved by the Board of
Directors, the Subscription Price was equal to 70.59% of the then-current market
price of the Class A Common Stock.
Although on the date of this Proxy Statement the Subscription Price
may be less than the market price of the Class A Common Stock, the Subscription
Price may be less than or greater than the market price of the Class A Common
Stock at any time prior to the expiration of the Rights Offering. The following
table shows the high and low trading price for the Class A Common Stock for the
six months immediately preceding the date of this Proxy Statement:
Market Price -- Nasdaq National Stock Market
High Low
----- -----
January 1998 $17.063 $16.750
February 1998 $16.500 $15.875
March 1998 $17.625 $15.750
April 1998 $17.125 $16.750
May 1998 $16.750 $15.625
June 1998 $16.375 $13.500
See "--Effect on Existing Shareholders; Advantages and Disadvantages
of the Investment Proposal--Potential Dilution of Shareholders' Interests."
- 36 -
Effect on Existing Shareholders; Advantages and Disadvantages of the Investment
Proposal
New Investors' Influence On the Company's Policies. Assuming
none of the Company's shareholders exercise their Rights, the New Investors will
be entitled to purchase 3,666,667 shares of New Preferred Stock pursuant to the
Investment, which if immediately converted into 3,666,667 shares of Class A
Common Stock, would give the New Investors ownership of 4.4% of the voting power
of the Company. The combined voting power in the election of directors of the
New Investors and the Related Marks Shareholders (assuming conversion of the New
Preferred Stock into shares of Class A Common Stock and retaining Class
B Common Stock. Dispositionthat none of the
Company's existing shareholders exercise their Rights) will be approximately
16.6%.
Even if the Investment is not consummated, the New Investors
will have the option to purchase 1,181,996 shares of New Preferred Stock which
is immediately convertible into 1,181,996 shares of Class A Common Stock would result in a loss ofStock.
Assuming such immediate conversion the combined voting power equal to only 5%in the election of
directors of the lossNew Investors and the Related Marks Shareholders will be
approximately 14.2%.
Certain provisions in the Stock Purchase Agreement, the
Shareholders Agreement and the Certificate of Amendment provide other
opportunities for the New Investors to exercise influence over the Company. One
such provision requires that the size of the Company's Board of Directors be
increased from seven to nine members and that the Investor Designees be elected
to fill the newly created positions. Another provision assures that the Investor
Designees will comprise at least 22% of the membership of each committee of the
Company's Board of Directors. The Investor Designees may be removed by the New
Investors and the resulting vacancy shall be filled with persons designated by
the New Investors. The New Investors' right to have its designees nominated to
the Company's Board of Directors and serve on committees of the Board of
Directors shall continue until such time as the New Investors, in the aggregate,
own less than 10% of the outstanding Class A Common Stock (assuming conversion
on a share-for-share basis of all shares of New Preferred Stock into Class A
Common Stock).
Furthermore, the Charter will be amended to require that
certain Major Corporate Actions (as hereinafter defined) including, but not
limited to, certain sales of assets, mergers and change in accountants will
require unanimous approval of the Company's Board of Directors. Therefore, any
one director of the Company, including the Investor Designees, will have the
ability to prohibit any of these major decisions from being approved.
Wolcott and Kayser Families' Influence on the Company's
Policies. In comparison to the voting power which would result
from the disposition of the same number of shares of Class B Common Stock. The
Company is not aware of any present intention byNew Investors and the Related
Marks Shareholders, the members of the Wolcott and Kayser Familiesfamilies, which have
been identified in prior Company proxy statements and other Company documents as
collectively in control of the Company, will continue to disposehave 41.9% of any portion of their equity intereststhe total
voting power in the Company. However, if in time some memberselection of directors of all classes of
- 37 -
outstanding stock of the WolcottCompany after issuance of 4.167 million shares of New
Preferred Stock and Kayser Families
electprior to disposeany conversion of somesuch shares into Class A Common
Stock. Assuming that (i) the New Investors acquire the maximum number of shares
which they can acquire in the Investment and the none of the Company's
shareholders exercise their Rights distributed to them as current shareholders;
(ii) the New Investors convert all shares for diversification, liquidity and
estate planning reasons, the Company believes that, if the Proposal is approved,
they would be more likely to dispose of New Preferred Stock acquired by
them into shares of Class A Common Stock rather
than sharesand except for that conversion, neither
reduce nor increase their aggregate holdings of Class B Common Stock.
Continuity Because implementation of the Proposal would allowCompany voting stock; (iii) the
Wolcott and Kayser Families to continue to exercise control over a majorityfamilies neither reduce nor increase their aggregate holdings
of Company voting stock after the Investment; and (iv) the Company issues no
more shares of voting stock after the Investment except in conversion of New
Preferred Stock, the aggregate voting power in the election of directors of the
Company's
voting power even if its total equity position is significantly reduced, the
adoption of the Proposal would reduce the risk of a disruption in the continuity
of the Company's long-term plansNew Investors and objectives that could otherwise result if
membersRelated Marks Shareholders will be 16.6% and, of the Wolcott
and Kayser Families should find it necessary to sell a
significant block of equity stock for diversification, estate tax obligations or
other reasons. Implementation of the Proposalfamilies, will allow management to focus its
attention and the Company's resources on maximizing long-term corporate growth
and profitability without concern for the possibility of an unexpected or
unwanted change in control of the Company.
Business Relationships Asbe 40.0%. The Company cannot predict whether any
assumption stated above, the Company's Alliance Agreement with
Pillsbury and its Note Agreement with long-term lenders and Credit Agreement
with lending banks contain provisions which could permit the other parties to
declare the Company in default and terminate the Alliance Agreement or
accelerate indebtedness under the Note Agreement or the Credit Agreement if
certain events were to occur which constituted a "Change of Control" under the
respective provisions of those agreements. Adoption of the Proposal should
decrease the risk of any such Change of Control as defined
in the respective agreements and may reassure any of the Company's other
customers, suppliers, licensors or lenders who may have concerns about the
possibility of a Change of Control if the voting power of the Wolcott and Kayser
Families were substantially diluted.
Key Employees The Proposal should allow all employees to continue to
concentrate on their responsibilities without undue concern that the future of
the Company could be affected by real or perceived succession of ownership
issues or an unwanted takeover or a default under the agreement referred to in the preceding paragraph that could otherwisesentence will be triggered bycorrect or, if correct, will
occur within any substantial
divestiture bydefinite future period; from time to time, the Wolcott and Kayser Families in the future. In addition, as
discussed above, the abilityCompany will be
obligated to issue Class A Common Stock would increase the
Company's flexibility in structuring compensation so that key employees may
participate in the growth of the Company.
Liquidity Implementation of the Proposal would double the number of shares of
the Company's common stock, and may improve the liquidity of an investment in
the Company. See "Certain Effects of the Proposal - Effect on Trading Market".
Such an improvement in liquidity could result in increased investment in the
Company by large institutional investors. But see "Certain Potential
Disadvantages of the Proposal - Investment by Institutions". Moreover, future
issuances of Class A Common Stock after the Distribution should further enhance
the liquidity of an investment in shares of that class over the long term.
Description of Class A Common Stock and Class B Common Stock
The express terms of the Class A Common Stock and the Class B Common Stock are
set forth in full in Article Third of the Proposed Amendment. The text of the
changes to the current Certificate of Incorporation that would be effected by
adoption of the Proposed Amendment are set forth as Exhibit A to this proxy
statement and incorporated herein by reference. The following summary should be
read in conjunction with, and is qualified in its entirety by reference to
Exhibit A.
Voting Under the Company's current Certificate of Incorporation, the holders
of Existing Common Stock have the right to vote for the election of all
directors and on all other matters submitted to the shareholders of the Company.
Each holder is entitled to cast one full vote per share. Cumulative voting is
not authorized.
Subject to the Class A Special Rights, each share of Class B Common Stock
would continue to entitle the holder thereof to one full vote on all matters on
which shareholders currently are entitled to vote, including the election of
directors. Each share of Class A Common Stock would entitle the holder thereof
to one-twentieth (1/20) of one vote on all matters on which shareholders are
entitled to vote, including the election of directors. The Proposal would
result in the reclassification of the Existing Common Stock into Class B Common
Stock but would not affect the relative voting power of the holders of the
Existing Common Stock.
The Proposed Amendment also entitles the holders of Class A Common Stock to
vote as a separate class on any proposal to amend the Certificate of
Incorporation to increase the authorized number ofadditional shares of Class B Common Stock unlessto satisfy certain
Company contribution requirements under its existing Employees Savings Plan, but
these issuances are not expected to effect in any material way the increased authorization does not exceedallocation of
voting power.
Potential Dilution of Shareholders' Interests. The
consummation of the numberStock Purchase Agreement (including purchase of sharesthe Option
Shares) will decrease the existing shareholders' proportionate interests in the
Company (assuming conversion of Class B Commonthe New Preferred Stock which must be issued in a proposed stock dividend with
respect to shares of Class B Common Stock and an equivalent stock dividend of
shares ofinto Class A Common
StockStock). Those shareholders who do not exercise their Rights will be effected concurrently with respectexperience an
even further dilution of their proportionate interests in the Company. If none
of the Company's existing shareholders exercise their Rights, the New Investors
will purchase up to 3,666,667 shares of New Preferred Stock which (assuming
conversion of the New Preferred Stock into Class A Common Stock.
In addition, Section 804 ofStock) will decrease
the Business Corporation Law of New York confers
onexisting shareholders' proportionate interest in the holders of Class A Common Stock the right to vote as a class on any
amendment to the Certificate of Incorporation which would (1) exclude or limit
the shareholders' right to vote on any matter, except as such rights may be
limited by voting rights given to new shares then being authorized; (2) change
the shares of Class A Common Stock by
(a) reducing the par value, (b) changing
the shares into a different number of the same class or into a different or same
number of shares of a different class, or (c) fixing, changing or abolishing the
designation of Class A Common Stock or any series thereof or any of the relative
rights, preferences, and limitations of the shares; or (3) subordinate their
rights by authorizing shares having preferences which would be in any respect
superior to their rights. Other provisions ofapproximately 46.2%.
The purchase price for the New York Business Corporation
Law would entitle holders of Class A CommonPreferred Stock to vote as a separate class
for approval of any plan of merger, consolidation or exchangeis $12.00 per
share which would effect
any change in Class A Common Stock described inis less than the preceding sentence.
On proposals on which holders of Class A Common Stock are entitled to vote as
a separate class, the proposal must be approved by a majoritymarket price and tangible book value of the Class A
Common Stock votes cast atStock. Accordingly, the meeting at whichCompany's existing shareholders will suffer
potential dilution to the voting occurs.
Consequently, holders of Class A Common Stock, by withholding such approval, can
defeat a proposal notwithstanding that holders of a majority of Class B Common
Stock vote in favormarket value and tangible book value of the proposal.
Dividends and Other Distributions Each share of Class A Common
Stock and of
Class BStock.
Possible Adverse Future Accounting Effect on Earnings Per
Share Allocable to Common Stock will be equal in respect to dividends and other
distributions in cash, stock or property except that (i) if declared, a dividend
or distribution in sharesStock. If, on issuance of the Company on Class A CommonNew Preferred Stock, will be paid in
Class A Common Stock, and (ii) if declared, a dividend or distribution in shares
ofits
$12.00 per share stated value is less than the Company on Class B Common Stock will be paid in Class B Common Stock.
The number of shares so paid as a dividend or distribution on each share of
Class A Common Stock and Class B Common Stock shall be equal, although the class
of the shares so paid shall differ depending upon whether the recipient of the
dividend is a holderthen-current market price of a
share of Class A Common Stock or Class B Commoninto which it is convertible, the excess of that
market price over $12.00, multiplied by the number of shares of New Preferred
Stock issued (the "Aggregate Discount"), will be treated under accounting rules
applicable to the Company as analogous to a dividend with respect to the New
Preferred Stock. Mergers and Consolidations InFor accounting purposes, the event of a merger, consolidation, or
combinationAggregate Discount will be charged
against earnings per share of the Company with another entity (whether or not the Company is
the surviving entity) orCompany's Common Stock in the event of dissolutionfiscal year
ending March 31, 1999. The Company cannot
- 38 -
predict the market price of the Company,Class A Common Stock on the holdersissuance of the New
Preferred Stock, and therefore it cannot now estimate whether an Aggregate
Discount will exist or, if it does exist, the amount of the Aggregate Discount
with respect to any assumed number of shares of New Preferred Stock to be issued
in the Investment.
Solely as an example of the accounting effect, assuming that
(1) the $13.50 reported closing price of Class A Common Stock on July 6, 1998,
was also the price at the time of issuance of the New Preferred Stock and (2)
3,666,667 shares of New Preferred Stock were issued in the Investment, the
Aggregate Discount would be $5,500,001. This Aggregate Discount would reduce
earnings per share (diluted) in the fiscal year ending March 31, 1999, by $0.57
per share (based upon 9,606,347 shares of the Company's Common Stock
outstanding), thereby reducing per share earnings or increasing per share loss
for the fiscal 1999 year.
Advantages of the Investment. Advantages of the Investment to
current shareholders of the Company include a reduction in the Company's overall
indebtedness, reduction of future interest costs of the Company, an improvement
of the Company's coverage ratios, thereby making compliance with certain
financial covenants easier to obtain, and the guidance and expertise of the New
Investors and the Investor Designees. Furthermore, the increased capital will
potentially improve the Company's competitiveness and permit the Company to take
advantage of various business opportunities that, absent the Investment, the
Company may have been forced to forego.
Disadvantages of the Investment. Disadvantages of the
Investment to current shareholders include the potential dilution of their
ownership of the Company, a possible decrease in earnings per share or increase
in any per share loss in fiscal year 1999 and the reduced voting power of
the existing shareholders as a result of the purchase by the New Investors.
The Stock Purchase Agreement
General. The Board of Directors of the Company has approved
the Stock Purchase Agreement, dated as of June 22, 1998, by and among the
Company and the New Investors. The discussion and description of the material
terms of the Stock Purchase Agreement in this Proxy Statement are subject to and
qualified in their entirety by reference to the Stock Purchase Agreement, a copy
of which is attached hereto as Appendix A and which is incorporated herein by
this reference. Pursuant to the Stock Purchase Agreement, and subject to the
approval of the Investment Proposal by the shareholders of the Company, 1.167
million shares of New Preferred Stock will be issued and sold by the Company to
the New Investors in exchange for $14 million, or $12.00 per share, and the New
Investors will act as standby purchasers with respect to up to 2.5 million
shares of New Preferred Stock.
- 39 -
Representations and Warranties. The Stock Purchase Agreement contains
customary representations and warranties of the Company relating to, among other
things: (i) due organization of the Company and similar corporate matters; (ii)
corporate power and authority to execute and deliver and perform its obligations
under the Stock Purchase Agreement, the Shareholders Agreement, the Registration
Rights Agreement (as hereinafter defined) and the Rights; (iii) nonexistence of
certain material transactions with any shareholder, director, officer, employee
or affiliate of the Company; (iv) the absence of certain contraventions,
conflicts, and breaches arising out of the execution, delivery and performance
of the Investment Documents; (v) consents, approvals, authorizations, orders,
registrations, filings or qualifications necessary for the execution, delivery
and performance of the Transaction Documents; (vi) capital structure of the
Company; (vii) nonexistence of a shareholders rights plan, poison pill or
similar arrangement; (viii) nonexistence of certain registration rights
inconsistent with those granted to the New Investors in the Registration Rights
Agreement; (ix) subsidiaries of the Company; (x) delivery and accuracy of
certain documents filed with the Commission; (xi) preparation and delivery of
certain financial statements of the Company; (xii) absence of certain violations
or defaults of the Company and its subsidiaries; (xiii) licenses and permits;
(xiv) sufficient title to all material properties owned by the Company or its
subsidiaries that are necessary for the conduct of the business of the Company
and its subsidiaries; (xv) The Company's intellectual property, environmental
matters, litigation, tax, labor and employee benefits, status of material
adverse events since March 31, 1997, contingent liabilities and absence of
finder's fees; (xvi) the Company not being an "investment company" within the
meaning of the Investment Company Act of 1940, as amended; (xvi) exemption of
the issuance of the New Preferred Stock, Class A Common Stock and the Rights
from registration under the Securities Act; (xvii) use of proceeds; and (xviii)
to the Company's knowledge, full disclosure by the Company in the Stock Purchase
Agreement, the Company's disclosure letter prepared in connection with the Stock
Purchase Agreement, documents filed with the Commission or other documents
delivered by the Company to the New Investors.
The Stock Purchase Agreement contains customary representations and
warranties of the New Investors relating to, among other things: (i) due
organization and other corporate and partnership matters; (ii) power and
authority to enter into the Stock Purchase Agreement, Shareholders Agreement and
Registration Rights Agreement; (iii) the absence of certain contraventions,
conflicts or breaches arising out of the execution, delivery and performance of
the Stock Purchase Agreement, the Shareholders Agreement and the Registration
Rights Agreement; (iv) consents, approvals, authorizations, orders,
registrations, filings or qualifications; (v) the acquisition of the New
Preferred Stock and Class A Common Stock by the New Investors for their own
account and for investment purposes and with no intention of distributing or
reselling the New Preferred Stock and the Class A Common Stock in any
transaction that would be in violation of the Securities Act or the securities
laws of any state; (vi) third party agreements; (vii) finder's fee; (viii)
ownership of common stock by the New Investors; and (ix) full disclosure by the
New Investors in connection with the Company's Registration Statement on Form
S-1 registering the Rights, the New Preferred Stock and the
- 40 -
Conversion Shares (the "Registration Statement") and this Proxy Statement to be
filed by the Company in connection with the 1998 Annual Meeting of its
Shareholders at which the Investment will be voted upon.
The representations, warranties and covenants contained in the Stock
Purchase Agreement survive the execution and delivery and the closing thereof
(the "Closing") for three years after the date of Closing (the "Closing Date");
provided, however, that the representations and warranties regarding corporate
existence, power and authority, capitalization of the Company, environmental
matters, tax matters and employee benefits matters shall survive for an
indefinite time period.
Closing Conditions. The obligations of the New Investors are subject to
satisfaction of the following conditions, among others, at or prior to the
closing (unless waived): (i) the Company and certain of its substantial
shareholders will have complied with and performed in all material respects with
the terms, covenants and conditions of the Stock Purchase Agreement and the
representations and warranties made therein by the Company will be true and
correct at and as of the Closing; (ii) the shareholders will have approved the
Investment (although an affirmative vote on the Investment does not obligate
that shareholder to exercise the Rights or purchase shares of New Preferred
Stock received in the Rights Offering); (iii) the Registration Statement shall
become effective; (iv) the shareholders entitled to receivevote thereon shall have
approved the sameCertificate of Amendment, such amendment shall have been filed with
the Secretary of State of the State of New York (the "Secretary of State") and
such amendment shall be in full force and effect; (v) the Board of Directors
shall increase the size of the Board of Directors from seven to nine members and
shall elect two new members designated by the New Investors to fill the newly
created positions; (vi) all necessary consents shall have been obtained
including any required consents and waivers from the Company's short and
long-term lenders; (vii) no event or events shall have occurred after March 31,
1997 that individually or in the aggregate has had or would reasonably be
expected to have a material adverse effect on the business of the Company;
(viii) the Conversion Shares shall have been approved for listing, subject to
notice of issuance, on the Nasdaq National Stock Market; (ix) the five
consecutive trading day average of the closing price of the Class A Common Stock
(as reported in the Wall Street Journal) for any five consecutive trading day
period after June 22, 1998 shall not be $12.00 per share considerationor lower; (x) the
Company shall have furnished to the New Investors the opinion of its legal
counsel, Jaeckle Fleischmann & Mugel, LLP; (xi) the Board of Directors shall
have taken all necessary action to unconditionally exempt the Investment and any
future transactions between the Company and the New Investors (and their
"affiliates" or "associates" as defined in Section 912 of the BCL) from the
provisions of such Section 912 of the BCL; (xii) the New Investors shall have
received a certificate of an officer of the Company certifying that the closing
conditions have been satisfied; (xiii) the New Investors shall have received a
certificate signed by the Secretary of the Company certifying the truth and
correctness of certain documents; (xiv) there will be no judgment, injunction,
order or decree enjoining the Company or the New Investors from consummating the
transactions contemplated by the Stock Purchase
- 41 -
Agreement; and (xv) no person or group shall have acquired 25% or more of the
voting power of the Company.
The obligations of the Company to consummate the Investment are subject
to satisfaction of the following conditions, among others, at or prior to the
Closing (unless waived): (i) the New Investors will have complied with and
performed in all material respects all of the terms, covenants and conditions of
the Stock Purchase Agreement and the representations and warranties made therein
by the New Investors as of the date of the execution of the Stock Purchase
Agreement will be true and correct as of the closing; (ii) the shareholders of
the Company will have approved the Investment and the Certificate of Amendment;
(iii) all consents, approvals, authorizations, orders, registrations, filings or
qualifications will have been obtained; (iv) the Conversion Shares shall have
been approved for listing, subject to notice of issuance, on the Nasdaq National
Stock Market; and (v) there will be no judgment, injunction, order or decree
enjoining the Company or the New Investors from consummating the transactions
contemplated by the Stock Purchase Agreement. The provisions of the Stock
Purchase Agreement may be modified or amended, and waivers and consents given by
written instrument executed and delivered by the Company and the New Investors.
Pre-Closing Covenants. The Company has agreed that it: (i) will cause a
meeting of its shareholders to be duly called and held as soon as practicable;
(ii) will offer to holders of its Common Stock of record on the Record Date the
right to purchase shares of New Preferred Stock for $12.00 per share on the
basis of one-half right to purchase one share of New Preferred Stock for every
share of Common Stock held; (iii) will promptly prepare and file the
Registration Statement; (iv) will conduct business in the ordinary course and
use its best efforts to preserve intact its business organizations and
relationships with third parties and to keep available the services of the
present directors, officers, and key employees; (v) will grant to each New
Investor the right to purchase the Option Shares prior to Closing; and (vi) will
afford the New Investors and their representatives reasonable access to the
Company's properties, books, contracts, records, personnel and advisors.
The Company and the New Investors mutually have agreed that (i) the
Company and the New Investors shall act with good faith towards, and shall use
their best efforts to consummate, the transactions contemplated by the Stock
Purchase Agreement, and neither the Company nor the New Investors will take any
action that would prohibit or impair their ability to consummate the Investment;
(ii) the Company and the New Investors will make all filings required (if any)
and furnish all information required with respect to the Investment by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Hart-Scott-Rodino
Act"); and (iii) neither the Company nor the New Investors will, without the
consent of the other, make any public announcement or issue any press release
with respect to the Investment.
Purchase of the Option Shares. Pursuant to the terms of the Stock
Purchase Agreement, the New Investors have the option to purchase for $12.00 per
share up to 1,181,996 shares (the
- 42 -
"Option Shares") of New Preferred Stock prior to the Rights Offering and prior
to the closing of the Investment. The New Investors have the right to purchase
the Option Shares even if shareholder approval of the Rights Offering does not
occur. The New Investors may elect to purchase the Option Shares even if
shareholder approval of the Investment and related proposals does not occur and
the conditions to closing set forth above are not satisfied. The New Investors
may elect to purchase the Option Shares by providing written notice to the
Company setting forth the aggregate number of Option Shares to be purchased and
the date of such purchase (which must be prior to the closing and no earlier
than 15 business days after the date of such notice). The New Investors' right
to purchase the Option Shares shall expire immediately prior to the closing of
the Investment.
Indemnification. The Company has agreed to indemnify and hold harmless
the New Investors, their partners, stockholders and affiliates and the officers,
directors, agents, employees, subsidiaries, partners, advisors, representatives
and controlling persons of each of the foregoing (each, the "Indemnified Party")
to the fullest extent permitted by law from and against any and all losses,
claims, damages, expenses (including reasonable fees, disbursements and other
charges of counsel) or other liabilities (collectively, the "Liabilities")
resulting from any legal, administrative or other action brought by any person
or entity, proceedings or investigations (whether formal or informal), or
written threats thereof, based upon, relating to or arising out of the Stock
Purchase Agreement or the transactions contemplated thereby. Notwithstanding the
foregoing, the Company shall not be required to indemnify an Indemnified Party
to the extent (i) that it is finally judicially determined that such Liabilities
resulted primarily from the willful malfeasance of such Indemnified Party or
(ii) of any Liability arising out of the failure to make any filings under the
Hart-Scott-Rodino Act. If any such indemnification is unenforceable for any
reason (other than the immediately preceding sentence), the Company shall make
the maximum contribution to the payment and satisfaction of such indemnified
Liabilities that shall be permissible under applicable laws.
Termination. The Stock Purchase Agreement may be terminated at any time
prior to the Closing: (i) by the New Investors if: (a) the Board of Directors
determines not to give, withdraws, modifies or changes its approval or
recommendation of the sale of the New Preferred Stock to the New Investors, (b)
a person or group acquires 25% or more of the voting power of the Company, (c)
the Company's shareholders fail to approve the sale of the shares of New
Preferred Stock to the New Investors, (d) there has been a material breach of
any representation, warranty, covenant or agreement of the Company which breach
is incurable or has not been cured by the Company within thirty days after
written notice from the New Investors, or (e) if any one or more of the
conditions to the obligation of the New Investors to close has not been
fulfilled as of the closing date; (ii) by the Company if: (a) there has been a
material breach of any representation, warranty, covenant or agreement of the
New Investors which breach is incurable or has not been cured by the New
Investors within thirty days after written notice from the Company, or (b) any
one or more of the conditions to the obligation of the Company to close has not
been fulfilled as of the closing date; (iii) by the Company or the New Investors
if:
- 43 -
(a) the Closing shall not have occurred on or before October 30, 1998; provided,
however, that the right to terminate under this clause shall not be available to
any party whose failure to fulfill any obligation under the Stock Purchase
Agreement has been the cause of, or resulted in, the failure of the Closing to
occur on or before such date, or (b) any judgment, injunction, order or decree
enjoining the Company or the New Investors from consummating the transactions
contemplated by the Stock Purchase Agreement is entered and such judgment,
injunction, order or decree becomes final and nonappealable; provided, however,
that the party seeking to terminate the Stock Purchase Agreement must use all
reasonable efforts to remove such judgment, injunction, order or decree; or (iv)
by mutual written consent of the Company and the New Investors.
Expenses. Except as otherwise provided in the Registration Rights
Agreement, each party to the Stock Purchase Agreement shall bear their own
expenses arising out of the drafting, negotiation and execution of the Stock
Purchase Agreement, the Shareholders Agreement, the Registration Statement, the
Registration Rights Agreement and the transactions contemplated herein and
therein.
Waiver. Performance of the representations, warranties and covenants
contained in the Stock Purchase Agreement may be waived by written instrument
executed and delivered by the Company and the New Investors.
Shareholders Agreement
The following discussion describes the Shareholders Agreement dated as
of June 22, 1998 (the "Shareholders Agreement") by and among the Company, the
New Investors, the Related Marks Shareholders, Arthur S. Wolcott (Chairman of
the Board of the Company) (individually and as a trustee), Audrey S. Wolcott,
Susan W. Stuart (a director of the Company) (individually and as a trustee of
Alexius Lyle Wadell and Kyle Aaron Wadell), Donald Stuart, Kraig H. Kayser
(President, Chief Executive Officer and a director of the Company) (individually
and as a trustee for certain Kayser family trusts), Kurt C. Kayser, Karl E.
Kayser, Marilyn W. Kayser, Robert Oppenheimer, (as trustee of certain Kayser
family trusts), Mark S. Wolcott (individually, and as a trustee for Erin
Lorraine Wolcott and Cassandra Jean Wolcott), Kari R. Wolcott, Bruce S. Wolcott
(individually and as a trustee for Kaitlin Kerr Wolcott, Michael Stanton Wolcott
and Paige Strode Wolcott), Constance Wolcott, Aaron Wadell and Grace W. Wadell
(individually and as a trustee for Sara Elizabeth Stuart, Jennifer Grace Stuart
and Donald Arthur Stuart) (collectively, the "Existing Shareholders"). A copy of
the Shareholders Agreement is attached hereto as Appendix B. This discussion is
qualified in its entirety by the more detailed provisions contained in the
Shareholders Agreement.
The Shareholders Agreement places certain limitations and restrictions
on the Existing Shareholders' ability to sell or otherwise transfer shares of
the Company's capital stock owned
- 44 -
by each of them and also prohibits the Existing Shareholders from participating
in the Rights Offering. Additionally, following the two year restricted period,
if an Existing Shareholder intends to sell any securities to a third party, the
New Investors and the Related Marks Shareholders are granted the right to have
their shares included in such sale.
The Shareholders Agreement also provides the New Investors and the
Related Marks Shareholders with the right (subject to certain limitations), in
the event the Company issues any voting securities, to purchase a certain
percentage of any new issuance to maintain their percentage ownership in the
Company. To the extent an individual New Investor does not purchase its
respective percentage of the new issuance, the remaining New Investors are
granted the right to purchase such percentage.
The Shareholders Agreement requires that the Company's Board of
Directors be increased from seven to nine directors and that two individuals
chosen by the New Investors be elected to fill such vacancies. The Shareholders
Agreement also provides for the Investor Designees to constitute at least 22% of
the members on any committee of the Board. The presence of the Investor
Designees on the Board and committees thereof will give the New Investors
increased representation on the Board and greater ability to direct the
management of the Company.
Registration Rights Agreement
General. None of the shares of New Preferred Stock to be issued to the
New Investors under the Stock Purchase Agreement or pursuant to the Rights
Offering have been registered with the Commission under the Securities Act or
with any state or other jurisdiction under any of their registration or
qualification laws. The securities to be issued to the New Investors will
contain a legend indicating that they may not be resold unless they are
registered with the Commission or are resold pursuant to an exemption from such
registration. Also, the New Investors may be deemed to be affiliates of the
Company as a result of the percentage of stock they own. If the New Investors
are affiliates of the Company, any securities of the Company that they own may
be considered to be control shares and could be resold only (i) pursuant to a
registration statement filed with the Commission; (ii) pursuant to Rule 144 of
the Securities Act which limits the time, volume and manner of any resales; or
(iii) pursuant to another exemption from the registration requirements of the
Securities Act. Because of these restrictions, the Company has granted the New
Investors certain rights relating to the resale of the securities.
Concurrently with the execution of the Stock Purchase Agreement and
the Shareholders Agreement, the Company, the New Investors and the Related Marks
Shareholders entered into a Registration Rights Agreement dated as of June 22,
1998 (a copy of which is attached hereto as Appendix C) (the "Registration
Rights Agreement"). The Registration Rights Agreement
- 45 -
provides that at any time after the first anniversary of the Closing, upon the
written request of one or more holders (the "Initiating Holders") of 10% or more
of (i) the shares of New Preferred Stock purchased by the New Investors under
the Stock Purchase Agreement (including the Option Shares); (ii) the Conversion
Shares; (iii) any other shares of Common Stock or other securities entitled to
vote generally in the election of directors ("Voting Securities") or stock
convertible into Voting Securities of the Company beneficially owned by any New
Investor or Related Marks Shareholder and (iv) any securities of the Company
issued or issuable with respect to any of the foregoing by way of a dividend or
stock split or in connection with a combination of shares, recapitalization,
reclassification, merger, consolidation, reconstitution or other reorganization
or otherwise ("Registrable Securities"), the Company shall effect the
registration of such Initiating Holders' Registrable Securities ("Demand
Registration Rights"). Upon receipt of such demand, the Company will promptly
give written notice to all registered holders of Registrable Securities and the
Company shall use its best efforts to effect, at the earliest possible date, the
registration under the Securities Act of: (i) the Registrable Securities which
the Company has been requested to register by the Initiating Holders and (ii)
all other Registrable Securities which the Company has been requested to
register by the holders thereof. The Initiating Holders and those holders
requesting registration after receipt of such notice collectively are referred
to as the per share consideration, if"Selling Holders." Whenever the Company shall effect a registration
statement pursuant to the Demand Registration Rights no securities other than
Registrable Securities shall be included among the securities covered by such
registration unless the holders of not less than 66-2/3% of all Registrable
Securities to be covered by such registration (assuming conversion of any
received by holders ofRegistrable Securities that are Class B Common Stock into Class A Common Stock)
shall have consented in writing to the inclusion of such other securities. In
addition to the Demand Registration Rights, the New Investors also have
so-called "piggy-back" rights. If the Company at any time proposes to register
any of its Common Stock or any other class of Registrable Securities or any
securities convertible into or exchangeable for any of such securities on any
form other than Forms S-4 or S-8, the New Investors will have the option of
including any or all of the Registrable Securities in such registration.
The Company's obligations to effect the registration of the Registrable
Securities is limited so that transaction. However,in no event will the Company be required to: (i)
effect a registration within the six-month period occurring immediately
subsequent to the effectiveness of a registration statement filed under the
Demand Registration Rights unless a majority of Disinterested Directors (as
defined in the Registration Rights Agreement) determines that effecting a second
registration within the six-month period would not have a material adverse
effect on the market price of the Common Stock or (ii) effect a registration
with respect to any class of Registrable Securities pursuant to the Demand
Registration Rights covering less than such number of Registrable Securities
having an estimated Market Price (as defined in the Registration Rights
Agreement) at the time of such request of at least $5 million.
Expenses. In connection with registrations pursuant to the Demand
Registration Rights, the Selling Holders will pay the following registration
expenses which will be allocated pro rata
- 46 -
based on the number and type of Registrable Securities included in the
registration statement: all registration and filing fees with the Commission,
all filing fees of the National Association of Securities Dealers, Inc., and all
filing fees to comply with securities or blue sky laws which relate solely to
such Registrable Securities (the "Fee Expenses"), all reasonable printing,
messenger and delivery expenses incurred in such registration, the reasonable
fees and disbursements of counsel for the Company and of its independent public
accountants incurred in such registration and the reasonable fees and expenses
of one counsel to the Selling Holders incurred in such registration (the
"Registration Expenses"). The Company will pay all other fees and expenses. If
the registration is withdrawn under certain circumstances, the Company would
also be required to pay the Registration Expenses. Also, if any registration
statement filed pursuant to the Demand Registration Rights includes securities
other than Registrable Securities then the Company shall pay all Registration
Expenses and incidental expenses and the Selling Holders shall pay the Fee
Expenses. If a registration is effected pursuant to the New Investors "piggy
back" rights, then the Company will pay the Registration Expenses and the
Selling Holders will pay all Fee Expenses.
Indemnification. The Company has agreed to indemnify and hold harmless
each seller of any Registrable Securities and each other person who participates
as an underwriter in the offering or sale of such securities and each other
person who controls such seller or underwriter and their respective directors,
officers, partners, agents and affiliates against any losses, claims, damages or
liabilities, joint or several (collectively, "Losses"), to which such person may
become subject under the Securities Act insofar as such Losses arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in a registration statement.
As a condition to including any Registrable Securities in any
registration statement, the Company shall have received a satisfactory
undertaking from the prospective seller to indemnify and hold harmless the
Company and each director, officer and underwriter of the Company and each
person who controls any of the foregoing, from any statement or alleged
statement in or omission or alleged omission from such registration statement,
if such statements or omissions were made in reliance upon and in conformity
with written information furnished to the Company by such seller specifically
for use in the registration statement. This indemnification is limited to the
amount of proceeds received by such indemnifying party in the offering giving
rise to such liability.
The Charter Amendments
In connection with the Investment (assuming the requisite shareholder
approval), the Company will file a Certificate of Amendment which will: (i)
increase the number of shares of common stock
that holdersits Preferred Stock, With $0.025 Par Value Per
Share, Class A from 4,000,000 shares to 8,200,000 shares; (ii) increase the
number of authorized shares of Class A Common Stock become entitledfrom
- 47 -
10,000,000 shares to receive in the
transaction may have terms substantially similar20,000,000 shares; (iii) create a new series of Preferred
Stock, With $0.025 Par Value Per Share, Class A to thebe designated as Convertible
Participating Preferred Stock, $12.00 stated value per share, convertible
immediately into Class A Common Stock themselves. Thus the surviving entity in any such transaction could have a
dual-class capital structure like that of the Company under the Proposed
Amendment and could upon consummationCompany; (iv) pursuant to Section
709 of the merger or consolidation give
full votingBCL, require that certain actions be approved by the unanimous vote
of all members of the Company's Board of Directors; and (v) amend Article 4,
paragraph (a)(C) to state that the acquisition by the New Investors of the
Conversion Shares were deemed made for an "equitable price" thereby removing the
acquisition by the New Investors of the Conversion Shares from operation of the
Class A Special Rights (as hereinafter defined) provisions.
The amendments listed in subparagraphs (i) and (iii) above are
necessary to consummate the Investment. By increasing the number of authorized
shares to the holders of Class B Common Stock and 1/20th voting
shares to the holders of Class A Common Stock.Stock, as set forth in subparagraph (ii) above, the
Company will be able to issue the Conversion Shares and will still have enough
authorized but unissued shares for use in other transactions (i.e., public and
private offerings and acquisitions using capital stock of the Company as
consideration).
The Charter, after filing of the Certificate of Amendment, in
accordance with Section 709 of the BCL, will require unanimous approval of the
Company's Board of Directors (except for directors who choose to abstain) for
the following actions: (i) any amendment or modification to the Company's
Charter or Bylaws; (ii) any business combination; (iii) any sale or transfer of
all or substantially all of the assets of the Company; (iv) any issuance of
securities (except for (a) stock buybacks not to exceed $100,000 in any one
transaction or $1 million in the aggregate or (b) issuances of Class A Special RightsCommon
Stock pursuant to the Seneca Foods Corporation Employees' Savings Plan); (v) any
single acquisition or disposition or series of related acquisitions or
dispositions of assets involving gross consideration in excess of $15 million;
(vi) any change in the Company's line of business except for changes in or
dispositions of existing businesses or acquisitions of new lines of business
that do not exceed 2% of the consolidated net sales of the Company in such
business; (vii) any change in the Company's certified public accountants; (viii)
the settlement of any litigation involving the payment by the Company of an
aggregate amount greater than 5% of the Company's Adjusted Tangible Net Worth
(as hereinafter defined) or involving the consent to any injunctive or similar
relief; or (ix) the commencement by the Company of proceedings relating to
bankruptcy, insolvency, reorganization or relief of debtors (the "Major
Corporate Actions"). The Proposal has been designed withfailure to obtain the intentionaffirmative vote of each of the
Company's directors (excluding directors choosing to abstain) upon consideration
of any of the above Major Corporate Actions would mean that the Company could
not take such action. "Adjusted Tangible Net Worth" shall mean (i) the net book
value (after deducting related depreciation, obsolescence, amortization,
valuation and other proper reserves, which reserves will be determined in
accordance with generally accepted accounting principles) at which certain
assets of the Company are shown on the latest available consolidated balance
sheet of the Company on such date minus (ii) the amount at which the Company's
- 48 -
liabilities are shown on such consolidated balance sheet (including as
liabilities all reserves for contingencies and other potential liabilities as
shown on such consolidated balance sheet).
The amendments to Article 4, paragraph (a)(C) of the Charter were
required by the New Investors as a condition to the consummation of the
Investment. The Company's Charter contains a two-pronged "Class A Special
Rights" provision which ensures that holders of Class A Common Stock will not be
unfairly treated in the event that a person attempts to gain control of the
Company. First, the Class A Special Rights seek to prevent a person who acquires
more than 15% of the outstanding Class B Common Stock after August 5, 1995 from
gaining control of the Company by buying Class B Common Stock without buying
Class A Common Stock. Solely as an example, if a person acquires 20% of the
Class B Common Stock after August 5, 1995 but acquires no Class A Common Stock,
that person would be unable to vote the 5% of the Class B Common Stock acquired
in excess of the 15% threshold. The second prong of the Class A Special Rights
is an "Equitable Price" requirement. It is intended to prevent a person seeking
to acquire control of the Company from paying a discounted price for the Class A
Common Stock required to be purchased by the acquiring person under the first
prong discussed above. Under the proposed Charter Amendment, the acquisition of
the 4,166,667 shares of Class A Common Stock upon conversion of the shares of
New Preferred Stock acquired by the New Investors under the Stock Purchase
Agreement and pursuant to their commitment as standby purchasers in the Rights
Offering will be deemed to have been acquired for an "equitable price" thereby
offsetting any purchases of Class B Common Stock made by the New Investors after
August 5, 1995. The New Investors do not currently own any shares of Class B
Common Stock.
The Rights
General. The Company is distributing the Rights, at no cost, to the
holders of its Common Stock (the "Rights Holders"). The Company will distribute
one-half of a Right for each share of Common Stock held of record on the Record
Date. Upon surrender of a whole Right and upon payment of the Subscription
Price, the Rights Holder will be entitled to receive one share of New Preferred
Stock. The Rights will be evidenced by transferable Subscription Certificates.
No fractional shares of New Preferred Stock will be issued or paid and the
number of shares of New Preferred Stock distributed upon surrender of the
Subscription Certificates will be rounded up to the nearest whole number.
Expiration Date of the Subscription Period. The Rights will expire at
5:00 p.m., Eastern Daylight Time, on the twentieth calendar day after the
Registration Statement becomes effective (the "Expiration Date"). After the
Expiration Date, unexercised Rights will be null and void (the "Expired
Rights"). Failure to pay the Subscription Price on or before the Expiration Date
will lead to the expiration of the Rights. Three business days after the
Expiration Date, the New
- 49 -
Investors shall purchase all shares of New Preferred Stock represented by the
Expired Rights (up to a maximum of 2.5 million shares).
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE SUBSCRIPTION PRIVILEGE, SUCH
EXERCISE MAY NOT BE REVOKED.
Transferability of Rights. Rights may be purchased or sold through
usual investment channels, including banks and brokers commencing on the first
day of the Subscription Period. The Rights evidenced by a single Subscription
Certificate may be transferred in whole by endorsing the Subscription
Certificate for transfer in accordance with the instructions accompanying the
Subscription Certificate. A portion of the Rights evidenced by a single
Subscription Certificate may be transferred by delivering to Sarah S. Mortensen
(the "Subscription Agent"), a Subscription Certificate properly endorsed for
transfer, with instructions to register such portion of the Rights evidenced
thereby in the name of the transferee (and to issue a new Subscription
Certificate to the transferee evidencing such transferred Rights). In such
event, a new Subscription Certificate evidencing the balance of the Rights will
be issued to the Rights Holder or, if the Rights Holder so instructs, to an
additional transferee.
The Company anticipates that the Rights will be eligible for transfer
through, and that the exercise of the subscription privilege may be effected
through, the facilities of the Depository Trust Company. The Rights may not be
exercised by any person, and neither this Proxy Statement, the Registration
Statement nor any Subscription Certificate shall constitute an offer to sell or
a solicitation of an offer to purchase any shares of New Preferred Stock or
Class A Common Stock in any jurisdiction in which such transactions would be
unlawful. The Company believes that any action required to be taken by the
Company has been taken in all jurisdictions of the United States to permit
exercise of the Rights and acquisition of shares of New Preferred Stock and the
Conversion Shares by the New Investors and the Rights Holders. No action has
been taken in any jurisdiction outside the United States to permit offers and
sales of the Rights, the New Preferred Stock or the Conversion Shares.
Consequently, the Company may reject subscriptions pursuant to the exercise of
Rights by any Rights Holder outside the United States, and the Company may also
reject subscriptions from any Rights Holder in jurisdictions within the United
States if it should later determine that it may not lawfully issue shares to
such Rights Holder, even if it could do so by qualifying the shares for sale or
by taking other actions in such jurisdictions.
Certain Federal Income Tax Consequences of the Rights Offering
THE FOLLOWING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE RIGHTS OFFERING TO CERTAIN OF THE COMPANY'S SHAREHOLDERS AND
DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH
SHAREHOLDER'S TAX
- 50 -
STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES
ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH SHAREHOLDER.
ACCORDINGLY, EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE RIGHTS OFFERING, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
The following discussion is a general summary of the material United
States federal income tax consequences of the receipt, transfer, exercise and
lapse of the Rights to the Company's shareholders that receive the Rights in the
Rights Offering. The discussion does not address all aspects of federal income
taxation that may be applicable to the Company's shareholders in light of their
status or personal investment circumstances, nor does it address the federal
income tax consequences to the Company's shareholders that are subject to
special federal income tax treatment, including (without limitation) foreign
persons, insurance companies, tax-exempt entities, retirement plans, dealers in
securities, persons who acquired their Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation, and persons who hold their
New Preferred Stock as part of a "straddle," "hedge" or "conversion
transaction." In addition, the discussion does not address the effect of any
applicable state, local or foreign tax laws, or the effect of any federal tax
laws other than those pertaining to federal income tax. As a result, each of the
Company's shareholders should consult his or her own tax advisor to determine
the specific tax consequences to such shareholder of the receipt, transfer,
exercise or lapse of the Rights. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), regulations proposed or
promulgated thereunder, judicial precedent relating thereto, and current
administrative rulings and practice, all of which are subject to change. Any
such change, which may be retroactive, could alter the tax consequences
discussed herein. The discussion assumes that shares of Common Stock are held as
capital assets (within the meaning of Section 1221 of the Code).
Federal Income Tax Consequences To The Company. The Company will not recognize
gain or loss from the Rights Offering or from the exercise or lapse of the
Rights.
Federal Income Tax Consequences To Shareholders. A shareholder will not
recognize any gain or loss upon the receipt of Rights in the Rights Offering.
A shareholder's tax basis in the Rights received in the Rights Offering
and subsequently allowed to lapse will be zero. Except as provided in the
following sentence, a shareholder's tax basis in the Rights received in the
Rights Offering and subsequently exercised also will be zero. If, however,
either (i) the fair market value of the Rights on the date of the Rights
Offering is 15% or more of the fair market value (on the date of the Rights
Offering) of the stock with
- 51 -
respect to which they are received or (ii) the shareholder properly elects, in
accordance with procedures set forth in Treasury Regulation Section 1.307-2, to
allocate part of his or her basis in such stock to the Rights (the "Basis
Election"), then the shareholder's basis in such stock will be allocated between
the stock and the Rights in proportion to the fair market value of each on the
date of the Rights Offering.
The Company, based on the absence of a current market for the
New Preferred Stock, believes that it is unlikely that the value of a Right on
the proposed date of issuance will be 15% or more of the fair market value of
the stock with respect to which such Right is distributed. As a result,
shareholders desiring to allocate a portion of their stock basis to Rights that
will be exercised may wish to consider making a Basis Election.
A shareholder will not recognize any gain or loss upon the
exercise of Rights received in the Rights Offering. A shareholder's basis in New
Preferred Stock acquired through exercise of the Rights will be equal to the sum
of the Subscription Price therefor and the shareholder's basis in such Rights
(if any). A shareholder's holding period for the New Preferred Stock acquired
through exercise of the Rights will begin on the date the Rights are exercised.
A shareholder will not recognize any gain or loss upon the
lapse of Rights received in the Rights Offering. No adjustment in respect of
Rights allowed to lapse will be made to the basis of New Preferred Stock owned
by such shareholder.
A shareholder who converts New Preferred Stock into Class A
Common Stock will not recognize any gain or loss upon such conversion. A
shareholder's basis in the Class A Common Stock acquired through conversion will
be equal to the basis which the shareholder had in the New Preferred Stock so
converted. A shareholder's holding period for the Class A Common Stock received
in the conversion will begin on the date the New Preferred Stock was acquired.
When stock or stock rights are received in a non-taxable
distribution as is the case with respect to the Rights received in the Rights
Offering, certain restrictions may apply to a subsequent sale of the Rights or
stock acquired on exercise of the Rights. If the rights or stock acquired is
characterized, for federal income tax purposes, as being "stock other than
common stock," then the amount realized from the sale of such stock or rights
may, in whole or in part, be treated as ordinary income. The Company believes
that, because the participation rights granted to holders of the New Preferred
Stock permit full participation in corporate growth, the Rights and the New
Preferred Stock should be treated as common stock for these purposes. There is
no clear statutory definition of the term "stock other than common stock,"
however, and it is possible for the IRS to challenge this position.
- 52 -
Even if the Rights or the New Preferred Stock are classified as
"stock other than common stock," there are several methods available to
shareholders to avoid the adverse tax consequences arising from this
designation. Ordinary income tax treatment will not apply on sale or other
disposition of the Rights or the New Preferred Stock: (i) if the sale terminates
the entire stock interest of the shareholder in the Company; (ii) if the New
Preferred Stock is converted to Class A Common Stock and the sale is of the
Class A Common Stock; (iii) in transactions where gain or loss to the
shareholder is not recognized; or (iv) where it is established to the
satisfaction of the Secretary of the Treasury that the transactions were not in
pursuance of a plan having one of its principal purposes the avoidance of
federal income tax. If the Rights and the New Preferred Stock are not treated as
"stock other than common stock," or if one of the above exceptions apply, then a
shareholder who sells the Rights or the New Preferred Stock will recognize gain
or loss equal to the difference between the sale proceeds and such shareholder's
basis (if any) in the Rights or the New Preferred Stock sold. Such gain or loss
will generally be capital gain or loss for individual U.S. shareholders, short,
mid or long-term depending upon whether the shareholder has held the Rights or
the New Preferred Stock for up to one year (for application of the maximum 39.6%
federal short-term rate), more than one year (for application of the maximum 28%
federal mid-term rate) or more than 18 months (for application of the maximum
20% federal long-term rate).
Pending Legislation. On July 9, 1998 the Senate approved and sent to
President Clinton for his signature the Internal Revenue Service Restructuring
Act of 1998 (H.R. 2676). The President has indicated that he intends to sign the
legislation, and has 10 days from July 9 to do so. The act repeals the
requirement that property held more than 18 months in order to enjoy the maximum
20% federal long-term rate. Retroactive to sales for tax years ending after
1997, the 20% maximum rate will apply for sales of capital gain property held
more that one year.
The Company's directors, executive officers and certain of the
Company's shareholders, including the Wolcott and Kayser families, The Pillsbury
Company and the Related Marks Shareholders have indicated their intention to
vote all shares of voting securities owned by them, approximately 60% of the
voting power of the Company as of the Record Date, in favor of the Investment.
The combined voting power of these persons is sufficient to approve the
Investment.
The Board of Directors of the Company unanimously recommends a vote FOR
approval of the issuance of 4,166,667 shares of New Preferred Stock. Unless
otherwise instructed, proxies will be voted FOR approval of this proposal.
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PROPOSAL NO. 3
AMENDMENT OF THE CHARTER TO INCREASE
THE AUTHORIZED SHARES OF CLASS A PREFERRED STOCK
At the Meeting, the shareholders of the Company will be asked to vote
on a proposal to amend the Company's Charter to increase the number of
authorized shares of Class A Preferred Stock from 4,000,000 shares to 8,200,000
shares (the "Preferred Stock Amendment"). Under the BCL, the affirmative vote of
a majority of all outstanding shares entitled to vote at the Meeting is required
to approve and adopt the Preferred Stock Amendment. The discussion and
description of the material terms of the Preferred Stock Amendment herein are
qualified in their entirety by reference to the Charter Amendments, a copy of
which is attached hereto as Appendix D and which is incorporated herein by this
reference.
The Charter currently provides that the Company may issue up to
4,000,000 shares of Class A Preferred Stock to be issued in series. As of June
30, 1998, the Company has 1.4 million shares of Class A Preferred Stock
designated in two series and has issued, in the aggregate, 807,240 shares of
Class A Preferred Stock. Assuming approval of the Investment, the Company
intends to issue up to 4,166,667 shares of a third series of Class A Preferred
Stock (the New Preferred Stock).
Pursuant to the terms of the Stock Purchase Agreement, the New
Investors may purchase the Option Shares even if shareholder approval of the
Investment Proposals is not obtained. The number of shares of Class A Preferred
Stock that is currently authorized and available for issuance is sufficient to
accommodate the issuance of the Option Shares to the New Investors.
Assuming approval of this proposal, the Board has established the
following rights, preferences and limitations for shares of New Preferred Stock.
Description of New Preferred Stock
Stated Value. The stated value for each share of New Preferred Stock
is $12.00.
Dividends and Distributions. The New Preferred Stock has the right to
receive dividends or distributions at a rate per share equal to the amount of
any dividend or distribution as that declared or made on any shares of the
Company's stock into which the New Preferred Stock is convertible on the date of
such dividend or distribution. Any such dividend or distribution shall be paid
to the holders of the New Preferred Stock at the same time such dividend or
distribution is made to the holders of Class A Common Stock. Dividends and
distributions on the New Preferred Stock shall be cumulative from and after the
date of issuance of the New Preferred Stock, but any arrearage in payment shall
not pay interest.
- 54 -
Voting Rights. The holders of shares of New Preferred Stock shall not
be entitled or permitted to vote on any matter required or permitted to be voted
upon by shareholders of the Company except as required by law and for class
voting on proposals to: (i) authorize the issuance after the first date on which
shares of New Preferred Stock are issued (the "Issue Date") of any class of
capital stock that will rank as to payment of dividends or rights on
liquidation, dissolution or winding up of the Company senior to the New
Preferred Stock, (ii) authorize, adopt or approve an amendment to the Charter
that would increase or decrease the par value of the shares of New Preferred
Stock, (iii) amend, alter or repeal the Charter so as to affect the shares of
New Preferred Stock adversely or (iv) effect the voluntary liquidation,
dissolution, winding up, recapitalization or reorganization of the Company, or
the consolidation or merger of the Company with or into any other person, or the
sale or other distribution to another person of all or substantially all of the
assets of the Company; provided, however, that no separate vote of the holders
of New Preferred Stock shall be required to effect any of the transactions
described in clause (iv) above unless such transaction would either require a
class vote pursuant to clause (i), (ii) or (iii) above or would require a vote
by any shareholders of the Company.
Redemption. The shares of New Preferred Stock shall not be redeemed or
subject to redemption, whether at the option of the Company or any holder
thereof.
Company Acquired Shares. Any shares of New Preferred Stock converted,
exchanged, redeemed, purchased or otherwise acquired by the Company shall be
retired and cancelled promptly after acquisition. The cancelled shares of New
Preferred Stock shall become authorized but unissued shares of New Preferred
Stock, which may (upon filing of an appropriate certificate with the Secretary
of State) be reissued as part of another series of Class A Preferred Stock
subject to certain conditions or restrictions on issuance, but in any event may
not be reissued as shares of New Preferred Stock unless all shares of New
Preferred Stock issued on the closing date of the Investment shall have already
been converted or exchanged.
Conversion. Subject to certain limitations discussed below, any holder
of New Preferred Stock shall have the right, at its option, at any time, to
convert any or all of the holder's shares of New Preferred Stock into such
number of fully paid and non-assessable shares of Class A Common Stock as is
equal to the product of the number of Conversion Shares, multiplied by the
quotient of (i) the Stated Value divided by (ii) the conversion price of $12.00
per share (the "Conversion Price"). Unless prohibited by law on the date of
conversion (the "Conversion Date"), all unpaid dividends declared (whether or
not currently payable) on the New Preferred Stock so converted shall be
immediately due and payable and must accompany the shares of Class A Common
Stock issued upon such conversion. Upon conversion of any shares of New
Preferred Stock, the Company shall not issue any fractional shares or scrip
representing fractional shares and, in lieu thereof, the Company shall issue
cash in lieu of fractional shares in an amount equal to such fraction multiplied
by the current market price of the Class A Common Stock on the business day
preceding the date the shares are converted. The same
- 55 -
rights and limitations apply if the New Preferred Stock is convertible into any
securities or property other than Class A Common Stock.
The Conversion Price shall be subject to adjustment if: (i) the Company
shall at any time or from time to time (A) pay a dividend or make a distribution
on the outstanding shares of Class A Common Stock in Class A Common Stock, (B)
sub-divide the outstanding shares of Class A Common Stock into a larger number
of shares, (C) combine the outstanding shares of Class A Common Stock into a
smaller number of shares or (D) issue any shares of its capital stock in a
reclassification of the Class A Common Stock; (ii) the Company shall at any time
or from time to time issue or sell shares of Common Stock (or securities
convertible into or exchangeable for shares of Common Stock), or any options,
warrants or other rights to acquire shares of Common Stock (other than (x)
options granted to any employee or director of the Company pursuant to a stock
option plan approved by the shareholders of the Company, (y) options, warrants
or rights granted to each holder of Class A Common Stock or (z) rights issued
pursuant to a shareholder right plans, "poison pill" or similar arrangement in
accordance with the Charter) for a consideration per share less than the current
market price (as defined in the Charter) at the record date or issuance date;
(iii) the Company or any subsidiary thereof shall at any time or from time to
time while any of the New Preferred Stock is outstanding, make a purchase by the
Corporation of the Common Stock effected while any of the shares of New
Preferred Stock are outstanding, which purchase is subject to Section 13(e) of
the Exchange Act or is made pursuant to an offer made available to all holders
of Class A Common Stock or Class B Common Stock; or (iv) the Company at any time
or from time to time shall take any action affecting its Class A Common Stock,
other than an action permitted by the Charter.
The Company may make such reductions in the Conversion Price, in
addition to those required by subparagraphs (i) through (iv) above, as the Board
of Directors considers to be advisable in order to avoid or to take overdiminish any
income tax to holders of Class A Common Stock or rights to purchase Class A
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes.
Notwithstanding anything herein to the contrary, no adjustment of the Conversion
Price (i) shall be required by reason of the initial issuance or sale of any of
the 4,166,667 authorized shares of New Preferred Stock or (ii) need to be made
to the Conversion Price unless such adjustment would require an increase or
decrease of at least 1% of the Conversion Price then in effect. Any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment, which, together with any
adjustment or adjustments so carried forward, shall amount to an increase or
decrease of at least 1% of such Conversion Price. Any adjustment to the
Conversion Price carried forward and not theretofore made shall be made
immediately prior to the conversion of any shares of New Preferred Stock
pursuant hereto; provided, however, that any such adjustment shall in any event
be made no later than one year after the occurrence of the event giving rise to
such adjustment.
- 56 -
Participating Distribution upon Liquidation. In addition to the
preferential distribution to holders of New Preferred Stock equal to the stated
value per share (the "Preferential Distribution"), an additional participating
distribution shall be payable to holders of New Preferred Stock upon voluntary
or involuntary liquidation, dissolution or winding up of the Company (the
"Participating Distribution"), with the effect that the total distribution to
holders of the New Preferred Stock shall be the greater of (i) the Preferential
Distribution or (ii) the total distribution which holders of New Preferred Stock
would have received if they had converted all outstanding shares of New
Preferred Stock into shares of Class A Common Stock immediately prior to the
date for calculating the total distribution available to holders of preferred
stocks and common stocks. To achieve the foregoing distribution, the following
calculation shall be made:
(1) Calculate the sum of (a) the total amounts available for
distribution to holders of all classes of Common Stock after payment of all
preferential distributions to all classes of preferred stocks of the
Corporation, including the Preferential Distribution to the holders of all
outstanding shares of New Preferred Stock, plus (b) the total amount of the
Preferential Distribution to holders of all outstanding shares of New Preferred
Stock.
(2) Divide the sum calculated in subparagraph (1) by the total
number of shares of Common Stock into which the New Preferred Stock is
convertible and of all classes of Common Stock deemed outstanding for purposes
of calculating the distribution on liquidation, dissolution or winding up of the
Company. The Proposedproduct of this calculation is the "Per Share Distribution on
Assumed Conversion."
(3) The excess, if any, of the Per Share Distribution on
Assumed Conversion over the Preferential Distribution shall be distributable as
a Participating Distribution to the holders of New Preferred Stock upon
liquidation, dissolution or winding up of the Company.
The Preferred Stock Amendment includes accordinglyalso provides that Article 4, paragraph
(d)(C) be amended to provide for additional or participating distributions to
holders of Class A Preferred Stock upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company. Specifically, the holders
of shares of each series of Class A Preferred Stock then outstanding shall be
entitled to receive out of the assets of the Company, before any distribution or
payment shall be made to holders of Common Stock, an amount equal to the stated
value of the stock plus, in respect of each share with respect to which
dividends are cumulative, a sum computed at the dividend rate or dividend amount
provided for in the Charter from and after the date on which dividends on such
shares became cumulative to and including the date fixed for such payment, less
the aggregate of the dividends theretofore paid thereon, but computed without
interest. If the amounts payable on liquidation in respect to the shares of all
series of Class A Preferred Stock are not paid in full, the shares of all series
of such class shall share ratably in any distribution of assets other than by
way of dividends in accordance with the sums which would be payable in such
distribution if all sums payable were discharged in full. If such
- 57 -
payment shall have been made in full to the holders of all shares of Class A
Preferred Stock on voluntary or involuntary liquidation, dissolution or winding
up of the Company, the remaining assets of the Company shall, except as
otherwise provided herein, be distributed among the holders of each class of
common stock pro rata in accordance with their respective holdings.
The Company's directors, executive officers and certain of the
Company's shareholders, including the Wolcott and Kayser families, The Pillsbury
Company and the Related Marks Shareholders have indicated their intention to
vote all shares of voting securities owned by them, approximately 60% of the
voting power of the Company as of the Record Date, in favor of the Preferred
Stock Amendment.
The Board of Directors of the Company unanimously recommends a vote FOR
approval of the Preferred Stock Amendment. Unless otherwise instructed, proxies
will be voted FOR approval of the Preferred Stock Amendment.
- 58 -
PROPOSAL NO. 4
AMENDMENT OF THE CHARTER
TO INCREASE THE AUTHORIZED SHARES OF CLASS A COMMON STOCK
At the Meeting, the shareholders of the Company will be asked to vote
on a proposal to amend the Company's Charter to increase the number of
authorized shares of Class A Common Stock from 10,000,000 shares to 20,000,000
shares (the "Class A Charter Amendment"). Under the BCL, the affirmative vote of
a majority of all outstanding shares entitled to vote at the Meeting is required
to approve and adopt the Class A Charter Amendment. The discussion and
description of the material terms of the Class A Charter Amendment herein are
qualified in their entirety by reference to the Charter Amendments, a copy of
which is attached hereto as Appendix D and which is incorporated herein by this
reference.
The Charter currently provides that the Company may issue up to
10,000,000 shares of Class A Common Stock. As of June 30, 1998, the Company has
issued or reserved for issuance 3,143,125 shares of Class A Common Stock. If
Proposal No. 2 to approve the Investment is approved by the shareholders at the
Meeting and the shares of New Preferred Stock are issued, the Company will need
to reserve 4,166,667 shares of Class A Common Stock to be issued upon the
conversion of the New Preferred Stock, leaving approximately 2.7 million shares
available for issuance by the Company. If the Class A Charter Amendment is
adopted, 12.7 million shares of Class A Common Stock will be authorized and
available for issuance. The Board of Directors believes that it is important to
have the additional shares of Class A Common Stock available for issuance as and
when needed in order to avoid the delay and expense incident to obtaining
shareholder approval at a later date and to provide the Company greater
flexibility in the consideration of future stock dividends or stock splits,
sales of Class A Common Stock or convertible securities to enhance capital and
possible future acquisitions and other corporate purposes. Pursuant to the Stock
Purchase Agreement, and subject to the approval of Proposal No. 2, the Charter
Amendments will be filed with the Secretary of State, and up to 3,666,667 shares
of New Preferred Stock will be issued to the New Investors three business days
after the Expiration Date. See "Proposal No. 2--Effect on Existing
Shareholders--Potential Dilution of Shareholders' Interests."
The terms and rights of the additional shares of Class A Common Stock
to be authorized if the Class A Charter Amendment is approved will be identical
to those of presently outstanding shares of Class A Common Stock.
None of the holders of the Company's securities have preemptive rights.
The Company may issue some or all of the additional shares of Class A Common
Stock authorized upon approval of this proposal in connection with a merger or
acquisition or the purchase of assets of another company, to raise capital
through a sale of those shares in a public or private offering, in connection
with employee and director stock option plans adopted by the Company
- 59 -
(although the Company has no plans to issue any such shares in connection with
any such matters), in connection with the Company's adoption of a shareholders
rights plan, and for other purposes permitted under its Charter and the BCL. The
increase in the authorized capital and the subsequent issuance of shares of
Class A Common Stock could have the effect of delaying or preventing a change in
control of the Company without further action by the shareholders by diluting
the stock ownership or voting rights of a person seeking to obtain control of
the Company.
The Company's directors, executive officers and certain of the
Company's shareholders, including the Wolcott and Kayser families, The Pillsbury
Company and the Related Marks Shareholders have indicated their intention to
vote all shares of voting securities owned by them, approximately 60% of the
voting power of the Company as of the Record Date, in favor of the Class A
Charter Amendment.
The Board of Directors of the Company unanimously recommends a vote FOR
approval of the Class A Charter Amendment. Unless otherwise instructed, proxies
will be voted FOR approval of the Class A Charter Amendment.
- 60 -
PROPOSAL NO. 5
AMENDMENT TO THE CHARTER REQUIRING
UNANIMOUS APPROVAL OF THE
COMPANY'S BOARD OF DIRECTORS FOR
CERTAIN MAJOR CORPORATE ACTIONS
At the Meeting, the shareholders will be asked to vote upon a proposal
requiring unanimous Board approval of certain major corporate decisions (the
"Unanimous Board Amendment"). Under the BCL, the affirmative vote of a majority
of all outstanding shares entitled to vote at the Meeting is required to approve
and adopt the Unanimous Board Amendment. The discussion and description of the
material terms of the Unanimous Board Amendment herein are qualified in their
entirety by reference to the Charter Amendments, a copy of which is attached
hereto as Appendix D and which is incorporated herein by this reference.
The BCL and the Company's Charter and By-Laws currently require
approval of a majority of the Board of Directors for the approval and
authorization of any and all matters presented to it. Section 709 of the BCL
permits a New York corporation to set forth in its charter higher voting
requirements for all matters or for certain specified matters presented to its
Board of Directors. As a condition to consummation of the Investment, the New
Investors have required that the Company amend its Charter in accordance with
Section 709 of the BCL to provide for unanimous approval of the Company's Board
of Directors (excluding directors who choose to abstain) in the following
instances:
(a) any amendment or modification of the Company's
Charter or By-Laws;
(b) any merger, consolidation, amalgamation, recapitalization
or other form of business combination (other than any acquisition that
would be permitted under paragraph (d) below) involving the Company or
any subsidiary of the Company;
(c) any sale, conveyance, lease, transfer or other disposition
of all or substantially all of the assets of the Company;
(d) any single acquisition or disposition or series of related
acquisitions or dispositions of assets, including stock (whether by
purchase, merger or otherwise), in the Principal Line of Business (as
hereinafter defined) of the Company involving gross consideration in
excess of $15 million;
(e) any change in the line of business (food processing,
packaging, distribution and canning of fruits and vegetables and other
business operations complementary or incidental thereto) of the Company
and its subsidiaries (the "Principal Line of Business"), whether by
acquisition of assets or otherwise; provided, that the Company and its
- 61 -
subsidiaries may change or dispose of any existing business or acquire
any business that, in each case, is not within their Principal Line of
Business, if the consolidated net sales from all such business engaged
in (or proposed to be engaged in) by the Company and its subsidiaries
do not exceed in the aggregate 2% of the consolidated net sales of the
Company and its subsidiaries (determined by reference to the latest
annual or quarterly period in the latest available consolidated
financial statements of the Company and any business proposed to be
acquired);
(f) any issuance of or agreement to issue, or any repurchase,
redemption or other acquisition or agreement to repurchase, redeem or
otherwise acquire, any shares of capital stock of the Company or any of
its subsidiaries or rights of any kind convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any
of its subsidiaries, or any option, warrant or other subscription or
purchase right with respect to shares of capital stock except for (i)
any stock buybacks not to exceed $100,000 in any one transaction or $1
million in the aggregate and (ii) any issuances of shares of Class A
Common Stock pursuant to the terms of Seneca Foods Company Employees'
Savings Plan in effect on the date hereof;
(g) any change in the Company's certified public accountants
from Deloitte & Touche LLP, or any successor of Deloitte & Touche LLP;
(h) the settlement of any litigation to which the Company or
any of its subsidiaries is a party involving the payment by the Company
or its subsidiaries of an aggregate amount greater than 5% of the
Company's Adjusted Tangible Net Worth, or involving the consent to any
injunctive or similar relief; and
(i) the commencement by the Company or any of its subsidiaries
or proceedings under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to
it or its debts, or seeking appointment of a receiver, trustee,
custodian, conservator or other similar official for it or for all or
any substantial part of its assets, or the making by the Company or any
of its subsidiaries of a general assignment for the benefit of its
creditors.
(the "Major Corporate Actions"). To the extent that the above-referenced Board
approval is not obtained with respect to any Major Corporate Action, the Company
may not take or perform such Major Corporate Action. For the purposes of
paragraph (h) above, the Company's "Adjusted Tangible Net Worth" shall mean (i)
the net book value (after deducting related depreciation, obsolescence,
amortization, valuation and other proper reserves, which reserves will be
determined in accordance with generally accepted accounting principles) at which
the
- 62 -
assets of the Company and its subsidiaries on a consolidated basis (except (w)
patents, copyrights, trademarks, trade names, franchises, goodwill and other
similar intangibles, (x) unamortized debt discount, and expense, (y) accounts,
notes and other receivables due from any person directly or indirectly
controlling, controlled by or under common control with the Company, and (z)
write-ups in the book value of any fixed asset resulting from a revaluation
thereof effective after June 22, 1998) are shown on the latest available
consolidated balance sheet of the Company on such date, minus (ii) the amount at
which the liabilities of the Company and its subsidiaries are shown on such
consolidated balance sheet (including as liabilities all reserves for
contingencies and other potential liabilities as shown on such consolidated
balance sheet).
The Company's directors, executive officers and certain of the
Company's shareholders, including the Wolcott and Kayser families, The Pillsbury
Company and the Related Marks Shareholders have indicated their intention to
vote all shares of voting securities owned by them, approximately 60% of the
voting power of the Company as of the Record Date, in favor of the Unanimous
Board Amendment.
The Board of Directors of the Company unanimously recommends a vote FOR
approval of the Unanimous Board Amendment. Unless otherwise instructed, proxies
will be voted FOR approval of the Unanimous Board Amendment.
- 63 -
PROPOSAL NO. 6
EXEMPT THE NEW INVESTORS FROM
THE CLASS A SPECIAL RIGHTS PROVISIONS
At the Meeting, the Company's shareholders will be asked to
vote on a proposal to exempt the acquisition of the Conversion Shares by the New
Investors from operation of the Class A Special Rights provisions in the
Company's Charter (the "Special Rights Amendment"). Under the BCL, the
affirmative vote for a majority of all outstanding shares entitled to vote at
the Meeting is required to approve and adopt the Special Rights Amendment. The
discussion and description of the material terms of the Special Rights Amendment
are qualified in their entirety by reference to the Charter Amendments, a copy
of which is attached hereto as Appendix D and which is incorporated herein by
this reference.
The Charter contains a two-pronged "Class A Special Rights"
provision.provision which ensures that holders of Class A Common Stock will not be
unfairly treated in the event that a person attempts to gain control of the
Company.
First, the Class A Special Rights seek to prevent a person who
has crossed a certain ownership threshold from gaining control of the Company by
acquiring Class B Common Stock without buying Class A Common Stock. Anyone whoIf any
person acquires more than 15% of the outstanding Class B Common Stock after
the date of the
shareholder meeting, August 5, 1995 (the "threshold date""Threshold Date"), and does not acquire after the Threshold
Date a percentage of the Class A Common Stock outstanding at least equal to the
percentage of Class B Common Stock that the person acquired abovein excess of the 15%
threshold, such person will not be allowed to vote shares of Class B Common
Stock acquired in excess of the 15% threshold. For example, if a person acquires
20% of the outstanding Class B Common Stock after the threshold dateThreshold Date but
acquires no Class A Common Stock, that person would be unable to vote the 5% of
the Class B Common Stock acquired in excess of the 15% threshold. With respect
to persons who owned Existing Common Stock of the Company on or prior to the threshold date,Threshold
Date, only shares of Class B Common Stock acquired after the threshold dateThreshold Date will
be counted in determining whether that shareholder has exceeded the 15%
threshold for acquisitions of Class B Common Stock and only acquisitions of
Class A Common Stock after the DistributionThreshold Date will be counted in determining
whether that shareholder's Class A Common Stock acquisitions have been at least
equal to the acquisition of Class B Common Stock in excess of the 15% threshold.
The inability of the person to vote the excess Class B Common Stock will
continue
under the Proposed Amendment until such time as a sufficient number of shares of Class A Common
Stock have been acquired by the person to satisfy the requirements of the Class
A Special Rights.
The second prong of the Class A Special Rights is an
"Equitable Price" requirement. It is intended to prevent a person seeking to
acquire control of the Company from paying a discounted price for the Class A
Common Stock required to be purchased by the acquiring person under the first
prong of the Class A Special Rights. The Proposed Amendment providesThese provisions provide that an Equitable
Price has been paid for shares of Class A Common Stock only when they have been
acquired at a price at least equal to the greater of (i) the highest per share
price paid by the acquiring person, in cash or in non-cash consideration, for
any Class B Common Stock acquired within the 60-day60 day periods preceding and
following the acquisition of the Class A
- 64 -
Common Stock or (ii) the highest closing market sale price of Class B Common
Stock during the 30-day30 day periods preceding and following the acquisition of the
Class A Common Stock. The value of any non-cash consideration will be determined
by the Board of Directors of the Company acting in good faith. The highest
closing market sale price of a share of Class B Common Stock will be the highest
closing sale price reported by NASDAQ/NMSNasdaq National Stock Market or on any such other
securities exchange then constituting the principal trading market for either
class of the common stock.Common Stock. In the event that no quotations are available, the
highest closing market sale price will be the fair market value during the 30-day period30
day periods preceding and following the acquisition of a share of Class B Common
Stock as determined by the Board of Directors of the Company acting in good
faith. The Equitable Price Provision is intended to require a person seeking to
acquire control of the Company to buy the Class B Common Stock and the Class A
Common Stock at virtually the same time and the same price, as might occur in a
tender offer, to ensure that the acquiring person would be able to vote the
Class B Common Stock acquired in excess of the 15% threshold.
Under the Class A Special Rights, an acquisition of Class B
Common Stock would
beis deemed to include any shares that an acquiring Person acquires
directly or indirectly, in one transaction or a series of transactions, or with
respect to which that person acts or agrees to act in concert with any other
person (an "Acquisition"). As used in the preceding sentence, "Person" shall includeincludes
one or more persons and entities who act or agree to act in concert with respect
to the Acquisition or disposition of Class B Common Stock or with respect to
proposing or effecting a plan or proposal to (a)involving (i) a merger, reorganization
or liquidation of the Company or a sale of a material amount of its assets, (b)assets; (ii)
a change in the Company's Board of Directors or management, including any plan
or proposal to fill vacancies on the Board of Directors or change the number or
term of Directors, (c)Directors; (iii) a material change in the business or corporate
structure of the Company,Company; or (d)(iv) any material change in the capitalization or
dividend policy of the Company. Unless there are affirmative attributes of
concerted action, however, "acting or agreeing to act in concert with any other
Person" shalldoes not include acts or agreements to act by Persons pursuant to their
official capacities as directors or officers of the Company or because they are
related by blood or marriage.
For purposes of calculating the 15% threshold, the following
Acquisitions and increases shall beare excluded: (i) shares of Class B Common Stock held
by any Person on the threshold date,Threshold Date; (ii) an increase in a holder's percentage
ownership of Class B Common Stock resulting solely from a change in the total
number of shares of Class B Common Stock outstanding as a result of a repurchase
of Class B Common Stock by the Company since the last date on which that holder
acquired Class B Common Stock,Stock; and (iii) Acquisitions of Class B Common Stock
(1)(a) made pursuant to contracts existing prior to the threshold date,Threshold Date, including
the Acquisition of Class B Common Stock pursuant to the Conversionconversion provisions of
Class A Preferred Stock outstanding prior to the threshold date, (2)Threshold Date, (b) by bequest
or inheritance or by operation of law upon the death or incompetency of any
individual, and (3)(c) by any other transfer made without valuable consideration,
in good faith and not for the purpose of circumventing the Class A Special
Rights. A gift made to a personany Person who is related to the donor by blood or
marriage, a gift made to a charitable organization qualified under Section
501(c)(3) of the Internal Revenue Code of 1986 or a successor provision and a gift to a Person who is a
fiduciary solely for the benefit of, or which is owned entirely by, one or more
persons or entities (a) who are related to the donor by
- 65 -
blood or marriage or (b) which is a tax-qualified charitable organization or (c)
both shallwill be presumed to be made in good faith and not for purposes of
circumventing the restrictions imposed by the Class A Special Rights.
The Class A Special Rights will not apply to any increase in a holder's
percentage ownership of Class B Common Stock resulting solely from a change in
the total number of shares of Class B Common Stock outstanding as a result of a
repurchase of Class B Common Stock by the Company since the last date on which
that holder acquired Class B Common Stock.
The Class A Special Rights also provide that, to the extent
that the voting power of any share of Class B Common Stock cannot be exercised
pursuant to the provision, that share will be excluded from the determination of
the total shares eligible to vote for any purpose for which a vote of
shareholders is taken.
Convertibility The Class B CommonSpecial Rights Amendment amends the definition of "Person"
and declares that the Conversion Shares were acquired for an "equitable price"
to ensure that the New Investors' ability to vote their Conversion Shares is not
limited by the first and second prongs of the Special Rights provisions. The New
Investors required this amendment as a condition to consummation of the
Investment.
Under this proposed Charter Amendment, the acquisition of
3,666,667 shares of New Preferred Stock by the New Investors under the Stock
Purchase Agreement and pursuant to their commitment as standby purchasers in the
Rights Offering will be convertible into Class A
Common Stock atdeemed to have been acquired for an "equitable price,"
thereby offsetting any time on a share-for-share basis. The Class A Common Stock
will not be so convertible unless at any time the number of shares of
outstanding Class B Common Stock falls below 5% of the aggregate number of
outstanding sharespurchase of Class B Common Stock and Class A Common Stock. In that
event, immediately upon the occurrence thereof, all of the outstanding Class A
Common Stock will be converted automatically into Class B Common Stock on a
share-for-share basis. For purposes of this provision, Class B Common Stock or
Class A Common Stock repurchasedmade by the Company andNew
Investors after August 5, 1995. The New Investors do not reissued would not be
considered to be "outstanding" from and after the date of repurchase.
In the event ofcurrently own any such conversion of the Class A Common Stock, certificates
which formerly represented outstanding shares of Class A Common Stock thereafter
will be deemed to represent a like number of shares of Class B Common Stock, and
all common stock then authorized by the Proposed Amendment will be deemed to be
Class B Common Stock.
Preemptive Rights Neither the Class A Common Stock nor the Class B Common
Stock will carry any preemptive rights enabling a holder to subscribe for or
receive shares of the Company of any class or any other securities convertible
into any class of the Company's shares.
Transferability; Trading Market Like the Existing Common Stock, the Class A
Common Stock and the Class B Common Stock will be freely transferable. The
Company is filing applications with the NASDAQ/NMS with respect to both the
Class A Common Stock and the Class B Common Stock and it is expected that both
such classes will be listed for trading on the NASDAQ/NMS.
Increase In Authorized Common Stock If approved, the Proposed Amendment will
increase the Company's authorized common stock from 10,000,000 shares of
Existing Common Stock to 10,000,000 shares of Class A Common Stock and
10,000,000
shares of Class B Common Stock.
Immediately after implementation of
the Proposal, approximately 2,796,555 million shares of Class A Common StockThe Company's directors, executive officers and 2,796,555 million shares of Class B Common Stock will be issued and outstanding.
An additional 33,695 shares of Class A Common Stock and 33,695 of Class B Common
Stock will be reserved for issuance in the event of conversioncertain of the
Company's Class A Preferred Stock, as to which an equal number of shares of Existing
Common Stock are currently reserved. Accordingly, approximately
7,169,750 shares of Class A Common Stock and 7,169,750 shares of Class B Common
Stock will be available for issuance in the future for any proper corporate
purpose,shareholders, including public or private sale, acquisitions, employee incentive
plans and stock dividends. Generally, those issuances may be authorized by the
board of directors without shareholder approval, except that under New York law
a plan to issue stock options or rights to employees, officers or directors must
be authorized by shareholder vote, and the rules of NASDAQ/NMS applicable to
companies listed thereon ordinarily require shareholder approval of a stock
issuance transaction other than a public offering for cash if, among other
things, the number of shares to be issued is or will be 20% or more of common
stock outstanding before the issuance.
The Company currently intends to issue Class A Common Stock rather than Class
B Common Stock for future corporate purposes, such as equity financing,
acquisitions and employee benefit stock plans. The Company has no current
understandings or agreements with respect to any such financings, acquisitions
or benefit plans. The Company does not have any current plans to issue any
additional shares of Class B Common Stock, but it has reserved shares of Class B
Common Stock for any conversion of outstanding Class A Preferred Stock.
Shareholder Information The Company will deliver to holders of Class A Common
Stock the same proxy statements, annual reports and other information and
reports as it will deliver to holders of Class B Common Stock. The Company does
not propose to change its present practices with respect to issuance of reports
and information to shareholders.
Certain Effects of the Proposal
Effects on Relative Ownership Interest and Voting Power The relative
ownership interest and voting power of each holder of Existing Common Stock
would be the same immediately after effectiveness of the Proposed Amendment and
the Distribution as it was immediately prior thereto. The Proposed Amendment
provides that each share of Existing Common Stock will be reclassified and
changed into one share of Class B Common Stock, and the Distribution of one
share of Class A Common Stock will be made to all shareholders in proportion to
the number of shares of Class B Common Stock owned on the record date for the
Distribution by each shareholder.
Under the Proposal, shareholders who sell Class B Common Stock after the
Distribution will lose a greater amount of voting control in proportion to their
common stock equity than they would have had prior to the Distribution.
Conversely, shareholders who sell shares of Class A Common Stock after the
Distribution will retain a greater amount of voting control in proportion to
equity.
Effect on Market Price The market price of Class A Common Stock and Class B
Common Stock after the Distribution will depend, as before the adoption of the
Proposed Amendment, on many factors including, among others, the future
performance of the Company, general market conditions, and conditions relating
to other companies in the food industry. Accordingly, the Company cannot
predict the prices at which the Class A Common Stock and the Class B Common
Stock will trade following the adoption of the Proposed Amendment and the
Distribution, just as the Company could not predict the prices at which the
Existing Common Stock would trade absent the Proposal and the Distribution. It
is expected, however, that the market price will reflect the effect of a
two-for-one split. Absent other factors, the Class A Common Stock and the
Class B Common Stock are therefore expected to trade at approximately one-half
the price of the Existing Common Stock prior to implementation of the
Proposal. On ________________, 1995, the closing price for the Existing
Common Stock on NASDAQ/NMS as reported in The Wall Street Journal was
$____________ .
Under certain circumstances the Class B Common Stock could trade at a premium
compared to the Class A Common Stock. The Board of Directors has included the
Class A Special Rights feature which may help to reduce or eliminate the
economic reasons for the Class B Common Stock to trade at a premium compared to
the Class A Common Stock. The Proposed Amendment expressly permits the Board to
authorize the purchase of shares of any one class or any combination of classes
without regard to differences among them in price and other terms under which
such shares may be purchased. Thus, the Board could authorize the Company to
purchase Class B Common Stock even if the consideration which would be paid by
purchasing Class A Common Stock would be less.
Since the market price of the Class B Common Stock is expected to be
approximately half of the price of the Existing Common Stock, it will be
possible to acquire more voting shares for a given amount of consideration after
the Distribution. Therefore, subject to the requirement of the Class A Special
Rights feature that Class A Common Stock be purchased as well, the Proposal
would permit shareholders to increase their relative voting power at a lower
cost.
Effect of Class B Voting Requirement for Certain Transactions Under the
Proposed Amendment, the holders of the Class B Common Stock will receive the
same consideration per share as the holders of Class A Common Stock in the event
of liquidation or dissolution of the Company. This provision of the Proposed
Amendment would not prevent a holder of a significant amount of the Existing
Common Stock, such as certain members of the Wolcott and Kayser Families, from
sellingfamilies, The Pillsbury
Company and the Related Marks Shareholders have indicated their shareholdings (includingintention to
vote all their Class A Common Stock and Class
B Common Stock) in the Company for a premium to a buyer who intends to operate
the Company following such purchase without acquiring the remaining equity in
the Company, assuming that the buyer observes the Equitable Price provisions of
the Class A Special Rights to the extent the buyer's purchases of Class B Common
Stock exceeds the 15% threshold. See "Description of Class A Common Stock and
Class B Common Stock - Class A Special Rights".
Effect on Trading Market As of the date of this Proxy Statement, 2,796,555 shares of Existing Common Stock are issued and outstanding. Implementation of
the Proposal will result in no change in the number of shares of Existing Common
Stock (redesignated Class B Common Stock) outstanding and will immediately
create an equal number of shares of Class A Common Stock. The increased number
of total outstanding shares may increase the liquidity in the market for the
Company's common stock, although there can be no assurance that this will occur.
The Company currently intends that in the future it will issue Class A Common
Stock rather than Class B Common Stock in any sale of common stock to the public
or in any use of common stock for acquisitions or employee benefit stock plans.
Moreover, the Company expects that if members of the Wolcott and Kayser Families
sell any shares in the future (the Company knows of no current plan to do so),
it is more likely that they will sell shares of Class A Common Stock than shares
of Class B Common Stock. Any such issuances of additional shares of Class A
Common Stockvoting securities owned by the Company or sales of shares of Class A Common Stock by the
Wolcott and Kayser Families or other major shareholders may serve to further
increase market activity in the Class A Common Stock relative to the Class B
Common Stock.
Effect on Book Value and Earnings Per Share Although the interest of each
shareholder in the total equity of the Company will remain unchanged as a result
of the Distribution, the issuance of the Class A Common Stock pursuant to the
Distribution will cause the book value and earnings per share of the Company to
be adjusted to reflect the increased number of shares outstanding. Although
effected in the form of a dividend, for accounting purposes the Distribution
will have the same effect as a two-for-one stock split.
Effect on Retained Earnings and Capital Stock Accounts Although the interest
of each shareholder in the total equity of the Company will remain unchanged,
the Distribution of the Class A Common Stock on a share-for-share basis for each
share of Class B Common Stock outstanding will be accounted for as a stock
dividend. Consequently, the Stockholders' Equity Account of the Company will be
adjusted to increase the Common Stock account by $699,000, the total par value
of the Class A Common Stock to be issued in the Distribution, and to decrease
retained earnings by an equal amount. If the Distribution had occurred as at
March 31, 1995, the Distribution would have resulted in a total Common Stock
account of $2,579,000 as compared to $1,880,000 without the Distribution, and
the retained earnings of the Company would have been $ as
compared to $ without the Distribution.
Federal Income Tax Consequences The following description of certain federal
income tax consequences concerning the Proposal is based upon current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), applicable
Treasury Regulations, and judicial and administrative interpretations thereof.
This description does not, however, address any aspects of state, local or
foreign taxation relating to the Proposal.
The Company believes that, in general, for federal income tax purposes
(i) neither the reclassification of Existing Common Stock into Class B Common
Stock nor the Distribution of Class A Common Stock will be taxable to a
shareholder of the Company, (ii) neither the Class B Common Stock nor the Class
A Common Stock will constitute "Section 306 stock" within the meaning of Section
306(c) of the Internal Revenue Code of 1986, as amended, (iii) the cost basis of
each share of Existing Common Stock will be apportioned between the share of
Class B Common Stock into which it is reclassified and the Class A Common Stock
issued with regard to it in proportion to the fair market value of the shares of
each class on the date of the Distribution, (iv) the holding period for each
share of Class B Common Stock and Class A Common Stock will include the
shareholder's holding period for the Existing Common Stock with respect to which
they were distributed, and (v) no gain or loss will be recognized on any
subsequent conversion of Class A Common Stock into a share of Class B Common
Stock. Gain or loss will be recognized, however, on the subsequent sale of a
share of Class B Common Stock and a share of Class A Common Stock. Shareholders
are urged to seek the advice of their own tax counsel on this matter and on
state or foreign income tax matters.
Conversion of Class A Preferred Stock The Company presently has outstanding
807,240 shares of 10% Cumulative Par Value $.025 Convertible Voting Preferred
Stock ("Class A Preferred Stock"), currently convertible in the aggregate into
33,695 shares of Existing Common Stock. The terms of the Class A Preferred
Stock provide for adjustment of conversion rights in the event of a
recapitalization so as to permit the holders of Class A Preferred Stock to
acquire on conversion securities equivalent to those which they could have
acquired prior to the recapitalization. Consequently, upon the effectiveness of
the Proposed Amendment and the Distribution, the outstanding Class A Preferred
Stock will then be convertible in the aggregate into 33,695 shares of Class A
Common Stock and 33,695 shares of Class B Common Stock.
Securities Act of 1933 The Company is not required to register and has not
registered under the Securities Act of 1933 the issuance of Class B Common Stock
upon reclassification of the Existing Common Stock or the issuance of the Class
A Common Stock in the Distribution. To the extent that any shareholder holds
any Existing Common Stock as restricted securities under Rule 144 under the
Securities Act of 1933, both the Class B Common Stock issued upon the
reclassification of the Existing Common Stock and the Class A Common Stock
issued in the Distribution will be restricted securities. Any affiliate of the
Company under Rule 144 will be subject to the same restrictions in disposing of
Class A Common Stock and Class B Common Stock as the affiliate presently is with
respect to the Existing Common Stock.
NASDAQ/NMS Requirements The Existing Common Stock currently is traded on
NASDAQ/NMS, and application is being made to trade the Class A Common Stock and
the Class B Common Stock on NASDAQ/NMS as well. The Proposal is intended to
comply with the requirements of Section 6(j) of Schedule D of the By-laws of the
National Association of Securities Dealers, which prohibits the listing on
NASDAQ/NMS of equity securities of an issuer which issues a class of security or
takes other corporate action with the effect of nullifying, restricting or
disparately reducing the per share voting rights of holders of an outstanding
class of common stock. The Company has reviewed the proposal with NASDAQ/NMS
and has been advised by NASDAQ/NMS that on issuance, the Class A Common Stock
will be traded on NASDAQ/NMS. Future issuance of a new class of common stock
having proportionately greater voting power than Class A Common Stock or Class B
Common Stock may be subject to the limitations of Section 6(j) of Schedule D,
and NASDAQ/NMS approval may be required in connection with any such future
issuance; the Company has no plans to issue any such new class of common stock.
Subsequent Amendments Implementation of the Proposal will not prevent the
Company from taking any action, or otherwise affect the Company's ability to
adopt any future amendments to the Certificate of Incorporation for the purpose
of further changing the Company's capital structure or for any other lawful
purpose subject to the appropriate approval of the Company's Board of Directors
and shareholders and any listing requirements of any market or exchange on which
the Company's common stock is traded.
Certain Potential Disadvantages of the Proposal
While the Board of Directors has determined that implementation of the
Proposal is in the best interests of the Company and its shareholders, the Board
recognizes that it may result in certain disadvantages, including the following:
Antitakeover Effect Currently, in the opinion of the Board of Directors, no
person could succeed in a takeover of the Company without making an offer
acceptable to members of the Wolcott and Kayser Families, because of their
substantial ownership of voting stock. Implementation of the Proposal will not
materially change the voting power of the Wolcott and Kayser Families, but it
will give the Company more flexibility to issue common stock without substantial
diminutionthem, approximately 60% of the
voting power of the existing shareholders, including the
Wolcott and Kayser Families, and it will give the Wolcott and Kayser Families
the ability to reduce their equity holdings in the Company (by sale of Class A
Common Stock) without materially reducing their voting power. See "Reasons for
the Proposal; Recommendationas of the Board of Directors". If shareholders were
to reject the Proposal and if the Company were to sell a substantial amount of
Existing Common Stock or membersRecord Date, in favor of the Wolcott and Kayser Families were to sell
a substantial amount of Existing Common Stock, the chances of success might
improve for a tender offer or other takeover proposal or a proxy contest which
would remove incumbent directors notwithstanding the opposition of the Wolcott
and Kayser Families. On the foregoing assumptions, the Proposal might be said
to reduce the possibility of the shareholders receiving and accepting hostile
takeover bids, which are usually made at premiums over then-current market
prices of the target company's stock.
The Company does not believe, however, that it would be compelled to sell
additional shares of Existing Common Stock if the Proposal failed to gain
approval, nor is the Company aware of any present intention of members of the
Wolcott and Kayser Families to sell any Existing Common Stock or, if the
Proposal is implemented, to sell any shares of Class A Common Stock or Class B
Common Stock. Moreover, the Company's Certificate of Incorporation currently
provides for staggered voting of directors for three-year terms so that
shareholders desiring to replace the incumbent directors and gain control of the
Board would be required to win at least two successive annual contests before
their nominees constituted a majority of directors.
State Statutes Some state statutes contain provisions which, due to the
issuance of Class A Common Stock, may restrict an offering of equity securities
by the Company or the secondary-trading of its equity securities in those
states. However, due to exemptions or for other reasons, the Company does not
believe that such provisions will have a material adverse effect on the amount
of equity securities that the Company will be able to offer, or on the price
obtainable for such equity securities in such an offering, or in the secondary
trading market for the Company's equity securities.
Acquisition Accounting The Class A Common Stock may not be used to effect a
business combination intended to be accounted for using the "pooling of
interests" method. In order for such method to be used, the Company would be
required to issue Class B Common Stock as the consideration for the combination.
Brokerage Costs; Security for Credit As is typical in connection with any
stock split, brokerage charges and stock transfer taxes, if any, may be somewhat
higher with respect to purchases and sales of the Company's common stock after
the Distribution, assuming transactions in the same dollar amount, because of
the increased number of shares involved.
The Company does not expect that the adoption of the Proposed Amendment and
the Distribution will affect the ability of shareholders to use either the Class
A Common Stock or the Class B Common Stock as security for the extension of
credit by financial institutions, securities, brokers, or dealers.
Investment by Institutions Implementation of the Proposal may affect the
decision of certain institutional investors that would otherwise consider
investing in the Existing Common Stock but who object to the issuance of owner
shares with disproportionately reduced voting power.
Proposed Routine Amendments in the Certificate of Incorporation The issuance
of the new class of common stock as a share-for-share dividend on Class B Common
Stock pursuant to the Proposal requires a change in the conversion provisions of
the Class A Preferred Stock. The anti-dilution provisions of the preferred
stock conversion rights entitle the preferred shareholders to an equitable
adjustment to reflect the additional stock dividend on the shares of Class B
Common Stock which they are entitled to receive on conversion of the convertible
preferred stock. Accordingly the conversion provisions with respect to the
Class A Preferred Stock, Series A, which currently provide that each share is
convertible into one-twentieth of a share of common stock, will state that each
share of Class A Preferred Stock, Series A, is convertible into one-twentieth of
a share of Class A Common Stock and one-twentieth of a share of Class B Common
Stock. Similarly, the provisions respecting Class A Preferred Stock, Series B,
which currently provide that each share is convertible into one-thirtieth of a
share of common stock, will state each share of Class A Preferred Stock, Series
B, is convertible into one-thirtieth of share of Class A Common Stock and one-
thirtieth of a share of Class B Common Stock.
The amendments to the Certificate of Incorporation described in this Proxy
Statement will require the renumbering of various existing provisions of the
Certificate of Incorporation.
Interests of Certain Persons in the Proposal
As noted elsewhere in this proxy statement, members of the Wolcott and Kayser
Families hold approximately 50% of the voting power of the Company. See
"Background of the Proposal". That percentage will not be affected by the
Proposal or the Distribution. Members of the Wolcott and Kayser Families,
however, could sell some or all of the Class A Common Stock received by them in
the Distribution without any material reduction in their voting power, assuming
no other events occur that would affect voting power. Consequently, they have
an interest in implementation of the Proposal. Management is not aware of any
present intention on the part of any member of either family to dispose of
common stock.
Of the eight current members of the Board of Directors, three are Messrs.
Wolcott and Kayser and Ms. Stuart, who is a director and a daughter of Mr.
Wolcott. The remaining five members are neither members of the Wolcott or
Kayser families nor employees of the Company; one of the five, Mr. Brady, is
President and Chief Executive Officer of Moog Inc., in which the Company, the
Pension Plan and the Foundation own a 15.0% voting interest in Class A Common
Stock and a 4.5% voting interest in Class B Common Stock.Special
Rights Amendment.
The Board of Directors suggests that each shareholder carefully read and review in detail the
portions of this proxy statement describing the Proposal and the Distribution
and discussing certain effects thereof.
Vote Required
The affirmative vote of the holders ofCompany unanimously recommends a
majorityvote FOR approval of the aggregate shares of
the Company's preferred stocks and Existing Common Stock represented at the
meeting is required for adoption of the Proposal. As noted above, the Board of
Directors recommends that the shareholders vote FOR the Proposal and the
adoption of the ProposedSpecial Rights Amendment. PROPOSAL 3
AMENDMENT TO THE COMPANY'S BY-LAWS
The Company's Board of Directors recommends that the shareholders approve an
amendment to the Company's By-Laws which would state that the Company's annual
meeting will be held on a date other than a legal holiday within six months
after the close of the Company's fiscal year or at a later date determined by
the Board of Directors. Currently the Company's Annual Meeting is permitted to
be held in November or December of each year. The Company has changed its
fiscal year to commence on April 1st of each year and end on the following March
31st. The change in fiscal year has been effected as of March 31, 1995, on
which date the Company closed its last fiscal year. The change in fiscal year
did not require shareholder approval.
It would be prudent and of greater benefit to shareholders to permit the
Annual Meeting of Shareholders to be held within six months after the end of the
fiscal year instead of in November or December, while giving the Board the
flexibility to select another date. Other changes in the amendment are proposed
to clarify the meaning of the existing language.
The proposed amendment is as follows: Effective with the annual meeting of
shareholders to be held in 1995, Article I, Section 1 of the By-Laws is hereby
amended by deleting the bracketed language and adding the language in bold type
set forth below:
Section 1
ANNUAL MEETINGS
The annual meeting of Stockholders for the election of Directors,
considering reports made to the shareholders [before the
meeting,] and the transaction of other business as may properly
come before [it] the meeting shall be held within or without the
State of New York at a specific place and [such] date that is not
a legal holiday each year within six months after the close of
the Corporation's fiscal year [during November or December] which
shall be [as is] determined by the Board of Directors or at such
later date as may be determined by the Board of Directors.
The Board of Directors unanimously recommends that shareholders vote FOR the
approval and adoption of the By-Law amendment. The affirmative vote of the
holders of two-thirds of the shares present and entitled to vote at the meeting
is required for such approval and adoption. ProxiesUnless otherwise instructed,
proxies will be voted for or
againstFOR approval of the By-Law amendment in accordance with the specifications marked
thereon and will be voted in favor of approval and adoption if no specification
is made.Special Rights Amendment.
- 66 -
PROPOSAL 4NO. 7
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, through its Audit Committee, has selected
Deloitte & Touche LLP, independentcertified public accountants, to act as the independent
auditors for the fiscal year ending March 31, 1996. Deloitte & Touche has served as the Company's
independent auditors for many years.1999.
It is anticipated that representatives of Deloitte & Touche LLP will be
present at the annual meetingMeeting with the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
ManagementThe Board of Directors recommends a vote FOR its proposal to ratify the
appointment of Deloitte & Touche LLP as independent auditors of the Company for
the fiscal year ending March 31, 1996.1999. Unless marked otherwise Proxiesinstructed proxies will
be voted FOR approval of this purpose.proposal.
* * * * *
BROKER NON-VOTES
Broker non-votes will not be treated as votes cast or shares entitled
to vote on matters as to which the applicable rules of national securities
exchanges withhold the broker's authority to vote in the absence of direction
from the beneficial owner.
VOTING OF PROXIES AND ABSTENTIONS
The shares represented by all valid proxies received will be voted in
the manner specified on the proxies. Where a specific choice (including an
abstention) is not indicated, the shares represented by all valid proxies
received will be voted FOR the proposal described in this proxy statement.
OTHER MATTERS AND PROXY SOLICITATION
There are no other matters to come before the Meeting. All of the
expenses involved in preparing, assembling and mailing this proxy statement and
other material furnished to shareholders in connection with the solicitation of
proxies will be paid by the Company. Arrangements will be made with brokerage
houses, nominees, fiduciaries and other custodians to send proxies and proxy
material to beneficial owners of the securities of the Company, and the Company
will reimburse them for expenses reasonably incurred by them in so doing.
- 67 -
Proxies may be solicited personally or by telephone, fax or mail by directors,
officers and regular employees of the Company without additional compensation
for such services.
SHAREHOLDER PROPOSALS
Shareholder proposals must be received at the Company's offices no
later than February 23, 1996March 19, 1999 in order to be considered for inclusion in the
Company's proxy materials for the 19961999 Annual Meeting.
DOCUMENTS INCORPORATED BY REFERENCE
Certain financial and other information required to be set forth
herein, including financial statements, supplementary financial information and
management's discussion and analysis of financial condition and results of
operations, are incorporated by reference to the Company's Annual Report to
security holders, a copy of which is delivered herewith.
MISCELLANEOUS
To assure a quorum at the annual meetingMeeting (the holders of a majority of the
stock entitled to vote thereat constitute a quorum), shareholders are requested
to sign and return promptly the enclosed form of Proxyproxy in the envelope provided.
A shareholder who has delivered a Proxyproxy form may attend the meetingMeeting and, if he
or she desires, vote in person at the meeting.Meeting.
By order of the Board of Directors,
JEFFREY L. VAN RIPER
Secretary
DATED: Pittsford, New York
June 16, 1995
EXHIBIT A
Text of Changes to the Company's Certificate of Incorporation
I. Article 3 of the Company's Certificate of Incorporation is amended to read,
in its entirety, as follows:
3. The Capital Stock of the Corporation shall consist of ten million
(10,000,000) shares of Class A Common Stock of the par value of $0.25
each; ten million (10,000,000) shares of Class B Common Stock of the par
value of $0.25 each; two hundred thousand (200,000) shares of Six
Percent (6%) Voting Cumulative Preferred Stock of the par value of $0.25
each; thirty thousand (30,000) shares of Preferred Stock Without Par
Value, to be issued in series by the Board of Directors, pursuant to the
provisions of Article 4, Section (c) hereof, subject to the limitations
prescribed by law; and four million (4,000,000) shares of Preferred
Stock with $.025 par value, Class A, to be issued by the Board of
Directors pursuant to the provisions of Article 4, Section (d) hereof,
subject to the limitations prescribed by law. The stated capital of the
Corporation as determined pursuant to Section 506 of the Business
Corporation Law shall be increased by _______________________________
dollars ($______________________) and such increase shall be stated
capital in respect of the Corporation's $0.25 par value Class B Common
Stock.
II. Article 4 of the Company's Certificate of Incorporation is amended to
insert a new Section (a) which reads, in its entirety, as follows:
4. The designations, preferences, privileges and voting powers of the
shares of each class of stock which the Corporation is authorized to
issue, and the restrictions or qualifications thereof, shall be as
follows:
(a) Class A Common Stock and Class B Common Stock.
(A) Provisions Applicable to Class A Common Stock and Class B Common
Stock.
(i) The holders of record of Class A Common Stock and the
holders of record of Class B Common Stock shall have equal rights and
rank per share with respect to any and all dividends and distributions
declared on the common stock of the Corporation, and no dividend or
distribution shall be declared or made with respect to either Class A
Common Stock or Class B Common Stock unless that dividend or
distribution is declared and made with respect to both such classes;
except that (subject to conversion rights of any preferred stocks) a
dividend or distribution upon Class A Common Stock which will be paid in
shares of common stock of the Corporation shall be declared and made
only in shares of Class A Common Stock and a dividend or distribution
upon Class B Common Stock which will be paid in shares of common stock
of the Corporation shall be declared and made only in shares of Class B
Common Stock, and if a dividend or distribution is so declared and paid
in shares of one class of common stock to the holder of each share of
that class, a per-share dividend or distribution in an equal number of
shares of the other class of common stock shall be concurrently declared
and paid to the holder of each share of such other class, so that the
number of shares of Class A Common Stock paid as a dividend or
distribution on a share of Class A Common Stock shall be equal to the
number of shares of Class B Common Stock paid as a dividend or
distribution on a share of Class B Common Stock.
(ii) In the event of any voluntary or involuntary liquidation,
dissolution or any winding up of the Corporation, each share of Class A
Common Stock and Class B Common Stock shall rank equally with respect to
any distribution to be received by holders of common stock upon or with
respect to liquidation, dissolution or winding up.
(B) Provisions Applicable to Class A Common Stock.
(i) The holders of Class A Common Stock are entitled to one-
twentieth (1/20th) of one vote per share on all questions presented to
the stockholders. In all elections of directors of the Corporation,
each holder of Class A Common Stock shall have the right to vote in
person or by proxy one-twentieth (1/20th) of one vote for each share of
Class A Common Stock held by such holder for as many Persons as there
are directors to be elected. No cumulative voting for directors shall
be permitted.
The holders of Class A Common Stock are entitled to vote
as a separate class (i) on any proposal to amend the Corporation's
Certificate of Incorporation to increase the authorized number of shares
of Class B Common Stock, unless the increased authorization does not
exceed the number of shares of Class B Common Stock which must be issued
in a proposed stock dividend with respect to shares of Class B Common
Stock and which conforms to the requirements set forth in this Article
with respect to payment of dividends in stock of this Corporation upon
shares of Class B Common Stock and Class A Common Stock and (ii) as
required by applicable law.
(ii) The Class A Common Stock is not convertible into shares
of Class B Common Stock, unless at any time the number of outstanding
shares of Class B Common Stock falls below 5% of the aggregate number of
outstanding shares of Class B Common Stock and Class A Common Stock. At
such time, all of the outstanding Class A Common Stock will be converted
automatically into shares of Class B Common Stock on a share-for-share
basis. For purposes of this Article 4(a)(B)(ii), "outstanding" shares
of Common Stock would not include shares of Class B Common Stock or
shares of Class A Common Stock repurchased by the Corporation and not
reissued.
(C) Provisions Applicable to Class B Common Stock.
(i) Except as provided in paragraph (C)(ii) of this Article
4(a), the holders of Class B Common Stock are entitled to one vote per
share on all questions presented to the stockholders. In all elections
of directors of the Corporation, each holder of Class B Common Stock
shall have the right to vote in person or by proxy the number of shares
of Class B Common Stock held by such holder for as many Persons as there
are directors to be elected. No cumulative voting for directors shall
be permitted. The holders of Class B Common Stock are entitled to vote
as a separate class where required by applicable law. If any share of
Class B Common Stock is ineligible to vote by reason of the limitations
contained in paragraph (c)(ii) of this Article 4(a), that share will be
excluded from the determination of the total shares eligible to vote for
any purpose for which a vote of shareholders is taken.
(ii) The voting rights of holders of shares of Class B Common
Stock are subject to the following restrictions: If a Person acquires
more than 15% (the "15% Threshold Amount") of the outstanding Class B
Common Stock after August 5, 1995 (the "Threshold Date") and does not
acquire after the Threshold Date a percentage of the Class A Common
Stock outstanding at least equal to the percentage of Class B Common
Stock acquired by that Person after the Threshold Date in excess of the
15% Threshold Amount, such Person will not be allowed to vote shares of
Class B Common Stock acquired after the Threshold Date in excess of the
15% Threshold Amount. The inability of the Person to vote the shares of
Class B Common Stock in excess of the 15% Threshold Amount will continue
until such time as a sufficient number of shares of Class A Common Stock
have been acquired by the Person.
For purposes of calculating the 15% Threshold Amount, the
following acquisitions and increases shall be excluded: (i) shares of
Class B Common Stock held by any Person on the Threshold Date, (ii) an
increase in a holder's percentage ownership of Class B Common Stock
resulting solely from a change in the total number of shares of Class B
Common Stock outstanding as a result of a repurchase of Class B Common
Stock by the Corporation since the last date on which that holder
acquired Class B Common Stock, (iii) acquisitions of Class B Common
Stock (1) made pursuant to contracts existing prior to the Threshold
Date, including the acquisition of Class B Common Stock pursuant to the
conversion provisions of Class A Preferred Stock outstanding prior to
the Threshold Date, (2) by bequest or inheritance, or by operation of
law upon the death or incompetency of any individual and (3) by any
other transfer made without valuable consideration, in good faith and
not for the purpose of circumventing the restrictions imposed by the 15%
Threshold Amount. A gift made to any Person who is related to the donor
by blood or marriage, a gift made to a charitable organization qualified
under Section 501(c)(3) of the Internal Revenue Code of 1986 or a
successor provision and a gift to a Person who is a fiduciary solely for
the benefit of, or which is owned entirely by, one or more of the
following persons or entities:
(1) a person who is related to the donor by blood or marriage, or
(2) a charitable organization which is qualified under
Section 501(c)(3) as described above
shall be presumed to be made in good faith and not for purposes of
circumventing the restrictions imposed by the 15% Threshold Amount.
Acquisitions of Class A Common Stock so as to preclude the effect
of the voting restrictions contained in the preceding paragraph must be
made for an "equitable price." For purposes of this paragraph an
"equitable price" is deemed to have been paid only when the shares of Class
A Common Stock have been acquired at a price at least equal to the greater
of (i) the highest per share price paid by the acquiring Person, in cash or
non-cash consideration, for any Class B Common Stock acquired within the 60-
day periods preceding and following the acquisition of the Class A Common
Stock or (ii) the highest closing market sale price of Class B Common Stock
during the 30-day periods preceding and following the acquisition of the
Class A Common Stock. The value of any non-cash consideration will be
determined by the Board of Directors acting in good faith. The highest
closing market sale price of a share of Class B Common Stock will be the
highest closing sale price reported by the principal trading market for
either class of Common Stock.
As used in this Article 4(a)(C)(ii):
"Person" shall include one or more persons and
entities who act or agree to act in concert with respect to the
acquisition or disposition of Class B Common Stock or with
respect to proposing or effecting a plan or proposal to (a) a
merger, reorganization or liquidation of the Corporation or a
sale of a material amount of its assets, (b) a change in the
Corporation's Board of Directors or management, including any
plans or proposal to fill vacancies on the Board of Directors or
change the number or term of Directors, (c) a material change in
the business or corporate structure of the Corporation, or
(d) any material change in the capitalization or dividend policy
of the Corporation. As used in the preceding sentence, "act or
agree to act in concert" shall not include acts or agreements to
act by persons pursuant to their official capacities as Directors
or officers of the Corporation or because they are related by
blood or marriage.
Each reference to acquiring or acquisition of
Class B Common Stock and Class A Common Stock shall include
direct and indirect acquisitions of such stock.
(iii) The holders of Class B Common Stock shall have the
right, at their option, to convert such shares into shares of Class A
Common Stock at any time after the issuance thereof, on a share-per-
share basis. The conversion rights in the preceding sentence shall
expire upon the occurrence of the automatic conversion of all
outstanding shares of Class A Common Stock into Class B Common Stock
pursuant to the provisions of paragraph (B)(ii) of this Article 4(a).
In order to convert shares of Class B Common Stock into shares of Class
A Common Stock, the holder thereof shall surrender at the office of the
Corporation the certificate or certificates therefor, duly endorsed to
the Corporation or in blank, and give written notice at such office that
he elects to convert such shares of Class B Common Stock which shall be
deemed to have been converted as of the date(hereinafter called the
"Class A Conversion Date") of the surrender of such shares for
conversion as provided above, and the person or persons entitled to
receive the shares of Class A Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of
such Class A Common Stock on such date. As soon as practicable on or
after the Class A Conversion Date, the Corporation will deliver at such
office a certificate or certificates for the number of shares of Class A
Common Stock issuable on such conversion.
III. Article 4(i)(D)(iv) of the Company's Certificate of Incorporation is
renumbered 4(d)(D)(iv) and is amended to read in its entirety, as follows:
(D) First Series of Class A Preferred Stock. The first series of
1,000,000 shares of Class A Preferred Stock shall be designated Ten Percent
(10%) Cumulative Convertible Voting Preferred Stock-Series A, $0.25 stated
value (hereinafter called "10% Voting Preferred Stock"), and shall have the
following rights, preferences and limitations:
* * * *
(iv) Conversion. The holders of 10% Voting Preferred Stock
shall have the right, at their option, to convert such shares into
shares of common stock, $0.25 par value, at any time after the issuance
thereof, on and subject to the following terms and conditions:
(a) The 10% Voting Preferred Stock shall be convertible, at the
office of the Corporation or at such other office or offices, if any, as
the Board of Directors may designate, into fully paid and non-assessable
shares of Class A Common Stock and Class B Common Stock (calculated as
to each conversion to the nearest 1/10 of a share) at the conversion
rate, determined as hereinafter provided, in effect at the time of
conversion. The conversion rate shall be one (l) share of Class A
Common Stock and one (1) share of Class B Common Stock for every twenty
(20) shares of 10% Voting Preferred Stock. . . .
IV. Article 4(i)(E)(iv) of the Company's Certificate of Incorporation is
renumbered 4(d)(E)(iv) and is amended to read as follows:
(E) Second Series of Class A Preferred Stock. The second series of
400,000 shares of Class A Preferred Stock shall be designated Ten Percent
(10%) Cumulative Convertible Voting Preferred Stock-Series B, $0.25 stated
value (hereinafter called "Series B Preferred Stock"), and shall have the
following rights, preferences and limitations:
* * *
(iv) Conversion. The holders of Series B Preferred Stock shall
have the right, at their option, to convert such shares into shares of
common stock, $0.25 par value, at any time after the issuance thereof, on
and subject to the following terms and conditions:
(a) The Series B Preferred Stock shall be convertible, at the office
of the Corporation or at such other office or offices, if any, as the Board
of Directors may designate, into fully paid and non-assessable shares of
Class A Common Stock and Class B Common Stock (calculated as to each
conversion to the nearest 1/10 of a share) at the conversion rate,
determined as hereinafter provided, in effect at the time of conversion.
The conversion rate shall be one (1) share of Class A Common Stock and one
(1) share of Class B Common Stock for every thirty (30) shares of Series B
Preferred Stock. . . .
V. Article 4 of the Company's Certificate of Incorporation will be further
amended by renumbering and reordering certain sections and by amending the
address to which notices of conversion are sent.
VI. Article 7 of the Company's Certificate of Incorporation is amended to read,
in its entirety, as follows:
7. The office of the Corporation shall be located in the Village of
Pittsford, County of Monroe, New York, and the address to which the
Secretary of State shall mail a copy of process in any action or proceeding
against the Corporation that may be served upon the Secretary of State is
1162 Pittsford- Victor Road, Pittsford, New York 14534.July 17, 1998
- 68 -
SENECA FOODS CORPORATION
1162 Pittsford-Victor Rd.
Pittsford, New York 14534
PROXY
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 5, 19957, 1998
The undersigned shareholder of SENECA FOODS CORPORATION (the
"Company") hereby appoints and constitutes ARTHUR S. WOLCOTT and KRAIG H.
KAYSER, and either of them, the proxy or proxies of the undersigned, with full
power of substitution and revocation, for and in the name of the undersigned to
attend the annual meeting of shareholders of the Company to be held at 74 Seneca
Street, Dundee, New York, on Saturday,Friday, August 5, 19957, 1998 at 9:1:00 a.m.p.m., Dundee time,Eastern
Daylight Time, and any and all adjournments thereof (the "Meeting"), and to vote
all shares of stock of the Company registered in the name of the undersigned and
entitled to vote at the Meeting upon the matters set forth below:
MANAGEMENT RECOMMENDS A VOTE FOR ITEMS 1 2, 3, AND 4.
1.ElectionTHROUGH 7.
1. Election of Directors: Election of the twofive nominees listed below to serve
until the annual meeting of shareholders in 1998 and the one
nominee listed below to serve until the annual meeting of 19962001, 2000 or 1999 and until
their successors are duly elected and shall qualify:
__[ ] FOR all nominees listed below (except as marked to the
contrary below);
__[ ] WITHHOLD AUTHORITY to vote for all
nominees listed below.
INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through his or her name in the list below:
(a)D.L. Call, S.W. Stuart, A.M. Boas (2001); A.H. Baer (2000); G.
Brymer Humphreys (1999)
2. To serve untilapprove the 1998 annual meeting: D.L. Call;
S.W.Stuart
(b) To serve until the 1996 annual meeting: M.A. Schaeffer
(Continued on back)
2. Management Proposal: Approvalissuance of certain amendments4,166,667 shares of Convertible Participating
Preferred Stock for a subscription price of $12.00 per share in connection
with an equity investment by a group of investors and a rights offering
made to holders of the Company's common stock:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To amend the Company's Restated Certificate of Incorporation.
__ FOR __ AGAINST __ ABSTAIN
3. Management Proposal: ApprovalIncorporation, as amended
(the "Charter") to increase the number of certain amendments toauthorized shares of the
Company's By-Laws.
__Preferred Stock with $0.025 par value per share from 4,000,000
shares to 8,200,000 shares:
[ ] FOR __[ ] AGAINST __[ ] ABSTAIN
4. To amend the Charter to increase the number of authorized shares
of Class A Common Stock from 10,000,000 shares to 20,000,000 shares:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To amend the Charter in accordance with Section 709 of the New York
Business Corporation Law, to require unanimous approval of the Company's
Board of Directors for certain major corporate actions:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. To amend the Charter to state that shares of Class A Common Stock that may
be acquired by certain persons shall be exempt from the Class A Special
Rights provisions of the Charter:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. Appointment of Auditors: Ratification of the appointment of Deloitte &
Touche LLP as independent auditors for the fiscal year ending March 31,
1996.
__1999:
[ ] FOR __[ ] AGAINST __[ ] ABSTAIN
5.8. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournment
thereof.
The shares represented by this Proxy will be voted as directed by the
shareholder. IF NO CHOICES ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEMS 1
2, 3 AND 4.THROUGH 7.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Signature: ___________________________________________________________________
______________________________
Joint owners should each sign.
Executors, administrators, trustees,
guardians and corporate officers should
give their titles.
Dated: _______________________________, 19951998
(PLEASE SIGN AND RETURN PROMPTLY)