SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14
Schultz Sav-O Stores, Inc.
----------------------------
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $20,741.41
2) Form, Schedule or Registration Statement No.: S-4
3) Filing Party: Schultz Holding Company, Inc.
4) Date Filed: February 26, 2001
[GRAPHIC OMITTED]
SCHULTZ SAV-O STORES, INC.
2215 Union Avenue
Sheboygan, Wisconsin 53081
NOTICE OF 2001 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________, 2001
Dear Fellow Shareholder:
We invite you to attend our 2001 annual meeting of shareholders on
______________, 2001 at P.M. at the John Michael Kohler Arts Center, located at
608 New York Avenue, Sheboygan, Wisconsin. As we describe in our accompanying
proxy statement, if you held shares of our common stock on ____________, 2001,
you will be entitled to vote at the annual meeting on the following matters:
1) election of three directors;
2) adoption of the "agreement and plan of share exchange" with
Schultz Holding, our newly-created, wholly-owned subsidiary.
Upon adoption, the plan of share exchange will transform Schultz
Holding into our parent company and you will automatically
receive one share of Schultz Holding's common stock for every
share of our common stock that you own.
3) amendment to our 1995 equity incentive plan to increase by
500,000 the number of shares of our stock available for the
grant of awards under that plan;
4) adoption of a new 2001 nonemployee director stock option plan;
5) ratification of our board of directors' selection of independent
public accountants for 2001; and
6) any other business that may properly come before our annual
meeting.
We have enclosed a proxy card and our 2000 annual report along with
this proxy statement. Your vote is important, no matter how many shares you own.
Even if you plan to attend our annual meeting, please complete, date and sign
the proxy card and mail it as soon as you can in the envelope provided. If you
attend the annual meeting, you can revoke your proxy and vote your shares in
person if you like.
Thank you for your continued support. We look forward to seeing you at
our annual meeting.
Sincerely,
SCHULTZ SAV-O STORES, INC.
/s/ Armand C. Go
Armand C. Go
Vice President, Chief Financial Officer,
Treasurer and Secretary
Sheboygan, Wisconsin
_____________, 2001
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUMMARY OF THE USE OF CERTAIN TERMS
Unless the context indicates otherwise, the terms "company,"
"Schultz," "we," "us" and similar terms refer to Schultz Sav-O Stores, Inc. and
"Schultz Holding" refers to Schultz Holding Company, Inc.
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this prospectus and proxy statement are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements that
describe the company's future plans, objectives, strategies or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties including, but not limited, to the following:
(1) presence of intense competitive market activity in the Company's market
areas; (2) ability to identify and develop new market locations for expansion
purposes; (3) continuing ability to obtain reasonable vendor marketing funds for
promotional purposes; (4) ongoing advancing information technology requirements;
(5) ongoing nominal food price inflation; (6) the company's ability to continue
to recruit, train and retain quality franchise and corporate retail store
operators; and (7) the potential recognition of repositioning charges resulting
from potential closures, conversions and consolidations of retail stores due
principally to the competitive nature of the industry and to the quality of the
company's retail store operators. Shareholders, potential investors and other
readers are urged to consider these factors carefully in evaluating the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements made herein are only
made as of the date of this prospectus and proxy statement and the company
undertakes no obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
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FREQUENTLY ASKED QUESTIONS
Q: Why did I receive this proxy statement?
Our board of directors has sent you this proxy statement to ask for your
vote, as a Schultz shareholder, on certain matters to be voted on at our
upcoming annual shareholders' meeting.
Q: What am I voting on?
You will vote on:
o the election of three directors;
o adoption of the "agreement and plan of share exchange" with Schultz
Holding, our newly-created, wholly-owned subsidiary, which will
transform Schultz Holding into our parent company and our shareholders
into shareholders of Schultz Holding;
o approval of an amendment to our 1995 equity incentive plan to increase
by 500,000 the number of shares of our stock available for the grant
of awards under that plan;
o adoption of a new 2001 nonemployee director stock option plan; and
o the ratification of our board's choice of Arthur Andersen LLP as our
independent public accountants for 2001.
Our board of directors is not aware of any other matter that will be
presented for your vote at the annual meeting.
Q: Do I need to attend the annual meeting in order to vote?
No. You can vote either in person at the annual meeting or by completing
and mailing the enclosed proxy card.
Q: What happens if I sign and return my proxy card but do not mark my vote?
If you return a signed proxy card without indicating whether you wish to
vote for or against the proposals, Walter G. Winding and Elwood F. Winn, as
proxies, will vote your shares:
o to elect the board's nominees for directors;
o to adopt the plan of share exchange with Schultz Holding;
o to approve the amendment to our 1995 equity incentive plan to increase
by 500,000 the number of shares of our stock available for the grant
of awards under that plan;
o to adopt the proposed 2001 nonemployee director stock option plan; and
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o to ratify our board's selection of Arthur Andersen LLP as independent
public accountants for 2001.
Q: What is the plan of share exchange?
The plan of share exchange is the legal document that transforms Schultz
Holding from a wholly-owned subsidiary of the company into a holding
company that owns all of the outstanding shares of our common stock. As a
result of the plan of share exchange, you will automatically receive one
share of Schultz Holding common stock for every share of our common stock
that you own immediately prior to the reorganization. The percentage of
Schultz Holding's common stock that you will own after the reorganization
will be the same percentage of Schultz's common stock that you currently
own. A copy of the plan of share exchange is attached as Appendix C to this
document.
Our corporate structure immediately prior to the share exchange is as
follows:
-----------------------------
Shareholders
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|
|
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Schultz Sav-0 Stores, Inc.
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|
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| |
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PW Trucking, Inc. Schultz Holding Company, Inc.
------------------- -----------------------------
The reorganized corporate structure of the company and Schultz Holding
immediately after the exchange will be as follows:
-----------------------------
Shareholders
-----------------------------
|
|
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Schultz Holding Company, Inc.
-----------------------------
|
|
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Schultz Sav-0 Stores, Inc.
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|
|
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PW Trucking, Inc.
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Q: Why is the company proposing to adopt the plan of share exchange?
We believe that it is in the best interest of our shareholders to actively
pursue growth and expansion initiatives, including the acquisition of
grocery chains and stores that will continue to use names other than the
Piggly Wiggly(R) banner that we currently use and retain their unique
formats and independent corporate structures. The plan of share exchange
will reorganize our corporate structure by creating a holding company that
will, in turn, own as separate subsidiaries, our company and any other
companies that we acquire that own and/or operate their own retail
supermarkets. As noted more fully below, we believe that a holding company
structure has distinct advantages when it comes to such acquisitions and is
similar to ones undertaken by other
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companies in the food wholesale and retail supermarket industry in the past
few years.
Q: After the reorganization, who will operate the company's businesses?
After the acquisition, the company's business will continue to be operated
by our current officers.
Q: Who will manage Schultz Holding?
The initial board of directors of Schultz Holding will consist of the same
directors as our board of directors, including directors elected at our
2001 annual meeting. Schultz Holding's directors will serve terms ending on
the date that their terms as the company's directors are scheduled to end.
The first election of Schultz Holding directors after the reorganization
will be at its annual meeting of shareholders in 2002. In addition, we
anticipate that Schultz Holding and the company will have some common
officers.
Q: How does the plan of share exchange transform Schultz Holding from a
subsidiary of the company into a holding company?
The plan of share exchange provides that each share of our common stock
will automatically be exchanged for one share of Schultz Holding common
stock. As a result, Schultz Holding will own all of our common stock.
Q: Will I have to actually physically exchange my current stock certificates
for new Schultz Holding stock certificates?
No. The plan of share exchange provides that your stock certificates will
automatically represent Schultz Holding common stock instead of our common
stock.
Q: When will the share exchange occur?
If our shareholders approve the plan of share exchange, the share exchange
will become effective when we file articles of share exchange with the
Wisconsin Department of Financial Institutions. We intend to implement the
share exchange as soon as practicable after we receive shareholder
approval.
Q: Will the value of my shares be affected?
The value of a company's stock is affected by a number of factors,
including market and economic conditions. Therefore, we can make no
prediction as to what the value of Schultz Holding common stock will be
after the share exchange. The future performance of Schultz Holding common
stock will depend, in part, on the results of our operations and any other
subsidiaries of Schultz Holding. Schultz is expected to be the largest
subsidiary of Schultz Holding immediately after the share exchange, so we
believe that the Schultz Holding common stock should initially perform as
if it were our common stock. Over time, if other existing subsidiaries
expand or new subsidiaries are
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added by Schultz Holding, the performance of Schultz Holding common stock
will increasingly be affected by the results of operations of subsidiaries
other than Schultz.
Q: Will my dividends be affected?
There is no reason to expect that dividends will be affected by the
reorganization. We intend to pay dividends to Schultz Holding in amounts
which will be sufficient for it to pay dividends when and as declared to
its shareholders. We anticipate that such dividends paid to Schultz Holding
will be sufficient to enable Schultz Holding to pay per share cash
dividends on its common stock on approximately the same dates and in the
same per share amounts that we currently pay dividends. However, we cannot
guarantee what the amount of any quarterly dividend on Schultz Holding
common stock may be. Nor can we guarantee the payment of any future
dividends, since the declaration of such dividends will depend primarily on
the ability of Schultz Holding's subsidiaries to pay dividends to Schultz
Holding. That ability, in turn, will depend on the future earnings, cash
flow and financial condition of those subsidiaries.
Q: Will Schultz Holding have a stock repurchase program similar to the
company's Stock Repurchase Program?
Yes. Schultz Holding will have a stock repurchase program for its common
stock that is identical to our Stock Repurchase Program.
Q: How will my rights as a shareholder be affected?
Following the share exchange, the former holders of our common stock will
automatically become holders of Schultz Holding common stock and their
rights as shareholders will be governed by Schultz Holding's articles of
incorporation and bylaws, which are attached to this proxy statement as
Appendix D and E, respectively. The Schultz Holding articles of
incorporation and bylaws are identical to Schultz's articles of
incorporation and bylaws, except for two changes:
o We eliminated a class of preferred stock that we no longer need and of
which no shares are issued or outstanding; and
o We changed the way that directors can be removed in order to resolve
an inconsistency between our articles of incorporation and bylaws.
(See the discussion set forth under "Comparison of our Common Stock and
Schultz Holding Common Stock" below for more information.)
Q: What are the federal income tax consequences of the exchange?
You will not recognize any gain or loss for federal income tax purposes
when your common stock is exchanged for Schultz Holding common stock. Your
aggregate tax basis in the Schultz Holding common stock you
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receive in the exchange will be the same as your present aggregate tax
basis in your common stock. For purposes of determining long-term capital
gains for federal income tax purposes, the holding period for the Schultz
Holding common stock you receive in the exchange will include the period
during which you held the common stock, provided that you held our common
stock as a capital asset on the date of the exchange.
Q: Where will my Schultz Holding common stock be traded?
We expect the Schultz Holding common stock to be listed on the Nasdaq
National Market and, after the exchange, to trade under the symbol "___."
Q: What shareholder vote is required for approval of the proposed plan of
share exchange?
Approval of the proposed plan of share exchange will require the
affirmative vote, in person or by proxy, of a majority of the outstanding
shares of our common stock entitled to vote. Pursuant to the terms of our
articles of incorporation and the applicable provisions of the Wisconsin
Business Corporation Law, each holder of our common stock entitled to vote
is entitled to one vote per share on the proposed plan of share exchange.
Q: Why is the company proposing to amend its 1995 equity incentive plan?
We believe that the 1995 equity incentive plan, by increasing our key
employees' right to acquire our common stock, helps align the personal
interests of these employees and our shareholders. We are proposing to
amend the plan to increase the number of shares of our stock available for
grant of additional awards under the plan by 500,000 to ensure that we do
not run out of shares available for the grant of awards under the plan.
Q: Why is the company proposing to adopt the 2001 nonemployee director stock
option plan?
We believe that the 2001 nonemployee director stock option plan will serve
at least two important goals. First, this plan will help further align the
personal interests of our nonemployee directors with the interests of our
shareholders. Second, we believe that the options awarded under this plan
will serve as an important part of an overall compensation package that
will allow us to recruit and retain a well-qualified group of nonemployee
directors.
Q: What percentage of Schultz's votes do directors and officers own?
Approximately 10.0% of our shares in total, as of the record date, are
controlled by our directors and officers. See below for more details.
Q: Who is entitled to vote?
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You are entitled to vote if you owned shares as of the close of business on
the __________, 2001 record date. You will be entitled to one vote per
share for each share of our common stock you owned on the record date.
Q: Who will count the votes?
Firstar Bank, N.A., our transfer agent and registrar, will count the votes
and act as inspector of elections at the annual meeting.
Q: How many shares of Schultz's stock are entitled to vote?
A total of 5,475,924 shares of common stock will be entitled to vote at the
annual meeting.
Q: What constitutes a quorum?
A "quorum" refers to the number of shares that must be in attendance at a
meeting to lawfully conduct business. A majority of the shares of our
common stock entitled to be cast will represent a quorum. As a result, at
least 2,737,963 shares must be present at the annual meeting before we can
take the actions called for at the meeting.
Q: Who are the largest shareholders?
Investors holding 5% or more of our outstanding common stock are:
1) Schultz Sav-O Stores Retirement Savings Plan - 16.7%
2) Franklin Resources, Inc. - 11.9%
3) FMR Corp. - 7.6%
4) Dimensional Fund Advisors, Inc. - 6.5%
Q: What do I need to do now?
Just mail your signed proxy card in the enclosed postage-paid return
envelope as soon as possible, so that your shares may be represented at the
Annual Meeting. The meeting will take place on ____________, 2001, at the
John Michael Kohler Arts Center, located at 608 New York Avenue, Sheboygan,
Wisconsin.
7
RISK FACTORS ASSOCIATED WITH THE PLAN OF SHARE EXCHANGE
No assurance that the reorganization will be beneficial to holders of Schultz
Holding common stock
We believe that it is in the best interest of our shareholders to
actively pursue growth and expansion initiatives, some of which may be best
implemented through the acquisition of stores under names other than the Piggly
Wiggly(R) banner that we currently use. The proposed reorganization will, among
other things, establish a corporate structure that will enhance our ability to
expand our business and acquire stores currently operating under different store
names and formats (see the discussion set forth under "Approval of Agreement and
Plan of Share Exchange - Reasons for Plan of Share Exchange" below for more
information). However, there can be no assurance that Schultz Holding will in
fact be able to realize these benefits or that if Schultz Holding does realize
these benefits, that it will be beneficial to holders of Schultz Holding common
stock.
Dividends on Schultz Holding common stock will be dependent on dividends paid to
Schultz Holding
Following consummation of the proposed reorganization, the ability of
Schultz Holding to pay dividends on its common stock will, as a practical
matter, depend on our ability to pay dividends to Schultz Holding. We intend to
pay dividends to Schultz Holding in amounts which will be sufficient for Schultz
Holding to pay dividends to its shareholders on the same dates and in the same
amounts that we currently pay dividends. However, we cannot guarantee what the
amount of the initial quarterly dividend on Schultz Holding common stock may be.
Further, we cannot guarantee the payment of future dividends, since the
declaration of such dividends will depend primarily on the ability of Schultz
Holding's subsidiaries to pay dividends to Schultz Holding. That ability, in
turn, will depend on the future earnings, cash flow and financial condition of
those subsidiaries.
Possible effect of certain Schultz Holding provisions
Certain provisions of Schultz Holding's articles of incorporation and
bylaws could discourage or prevent certain types of transactions that may
involve an actual or threatened change of control of Schultz Holding. By
discouraging potential takeover bids, these provisions might diminish the
opportunity for Schultz Holding's shareholders to sell their shares at a premium
over then-prevailing market prices. However, Schultz Holding's articles of
incorporation and bylaws do not differ from our articles of incorporation and
bylaws with respect to these matters.
ELECTION OF DIRECTORS
At the annual meeting, shareholders will elect three directors to hold
office until the annual meeting held in 2004. Mr. James H. Dickelman, a director
of the company since 1978, has chosen not to stand for
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reelection for another term. The company wishes to express its most sincere
thanks and appreciation to Mr. Dickelman for his 26 years of dedicated service
as a director and employee to the company. The Board has nominated William K.
Jacobson and Steven R. Barth, both current directors of the company, and
________ for initial election at the meeting. Walter G. Winding and Elwood F.
Winn, as proxies, intend to vote for the election of all of the board's
nominees. They will also vote for another person that our board may recommend in
the event that a nominee becomes unable to serve as a director before the annual
meeting.
Under Wisconsin law, shareholders elect directors by a plurality of
the votes cast. This means that the nominees receiving the largest number of
votes, even if less than a majority, will be elected as directors. Any shares
that do not vote, whether by abstention, broker non-vote or otherwise, will not
affect the election of directors.
Our board of directors recommends a vote for William K. Jacobson,
Steven R. Barth and _____________.
The table set forth below lists certain information about our board of
directors and the board committees on which our directors serve, as well as how
many times the board and each committee met in 2000.
Class III - Directors Whose Terms Expire in 2004
- - - -----------------------------------------------------------------------------------------------------------------------------
Stock Strategic
Executive Nominating Audit Compensation Option Planning
Board Nominees Board Committee Committee Committee Committee Committee Committee
- - - -----------------------------------------------------------------------------------------------------------------------------
William K. Jacobson (50), a director -- --
since 1996; Senior Vice President -
Retail Operations and Development and
Assistant Secretary
- - - -----------------------------------------------------------------------------------------------------------------------------
Steven R. Barth (42), a director since -- -- --* --
1998; Partner in the law firm of
Foley & Lardner
- - - -----------------------------------------------------------------------------------------------------------------------------
[New nominee.]
- - - -----------------------------------------------------------------------------------------------------------------------------
Class II - Directors Whose Terms Expire in 2003
- - - -----------------------------------------------------------------------------------------------------------------------------
Stock Strategic
Executive Nominating Audit Compensation Option Planning
Board Member Board Committee Committee Committee Committee Committee Committee
- - - -----------------------------------------------------------------------------------------------------------------------------
Michael R. Houser (49), a director since -- --
1992; Vice Chairman of the Board;
Executive Vice President; Chief
Marketing Officer
- - - -----------------------------------------------------------------------------------------------------------------------------
Bruce J. Olson (51), a director since -- -- -- -- --*
1999; Group Vice President of The
Marcus Corporation - owner of
hotels, resorts, movie theatres and
restaurants
- - - -----------------------------------------------------------------------------------------------------------------------------
Walter G. Winding (59), a director since --* --* -- -- --
1999; Chairman of the Board; owner and
Chief Executive Officer of Winding and
company - a business consulting firm
- - - -----------------------------------------------------------------------------------------------------------------------------
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Class I - Directors Whose Terms Expire in 2002
- - - -----------------------------------------------------------------------------------------------------------------------------
Stock Strategic
Executive Nominating Audit Compensation Option Planning
Board Member Board Committee Committee Committee Committee Committee Committee
- - - -----------------------------------------------------------------------------------------------------------------------------
Martin Crneckiy, Jr. (55), a director -- -- -- -- -- --
since 1989; Executive Vice President of
The Vollrath Company, LLC - a
manufacturer of stainless steel and
plastic wares and light equipment for
the international food service industry
- - - -----------------------------------------------------------------------------------------------------------------------------
R. Bruce Grover (65), a director since -- -- -- --* --*
1989; President and Chief Executive
Officer of VPI, LLC - a manufacturer of
solid vinyl floor products, custom
extruded sheets and sound barrier
materials for automotive applications
- - - -----------------------------------------------------------------------------------------------------------------------------
Elwood F. Winn (50), a director since -- --* --
2000; President and Chief Executive
Officer
- - - -----------------------------------------------------------------------------------------------------------------------------
Meetings Held in 2000 9 1 1 2 2 2 0**
- - - -----------------------------------------------------------------------------------------------------------------------------
* Denotes Chairman
** The Strategic Planning Committee was formed on February 12, 2001.
All of our directors have held the positions indicated on the
preceding charts for at least the last five years, except that:
o William K. Jacobson was our Senior Vice President - Franchise
Operations prior to March 1996 and our Senior Vice President - Retail
Operations from March 1996 until June 1998;
o Michael R. Houser was our Senior Vice President - Marketing and
Merchandising prior to January 1998, became our Executive Vice
President in January 1998, became our Chief Marketing Officer in May
2000 and became our Vice Chairman of the Board in December 2000;
o Elwood F. Winn was President and Chief Executive Officer of Certified
Grocers Midwest Inc. ("CGM") prior to October 1998, a consultant to
CGM from October 1998 until September 1999, our Senior Vice President
- Strategic Planning from September 1999 until May 2000 and our
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Executive Vice President, Chief Financial Officer and Secretary from
May 2000 until December 2000; and
o Walter G. Winding, who serves as an independent director and Chairman
of the Board, was elected Chairman of the Board effective as of
December 8, 2000.
The Executive Committee. The Executive Committee acts on behalf of the
board between board meetings, except with respect to matters upon which
Wisconsin law does not allow a committee to act.
The Nominating Committee. The Nominating Committee's principal
functions include:
o recommending criteria for board members;
o identifying prospective candidates for board membership;
o recommending candidates for each of the board's committees; and
o reviewing our compensation policies for board members who are not
employees.
The Audit Committee. The Audit Committee's principal functions
include:
o annually recommending a firm of independent public accountants to act
as our auditing firm for the coming year;
o reviewing areas of financial risk that could have a material adverse
effect on our results of operations and financial condition with our
principal accounting officers and independent public accountants;
o reviewing annual audit plans with our principal accounting officers
and independent public accountants;
o reviewing our policies as to officers' conflicts of interest with our
principal accounting officers and independent public accountants;
o reviewing plans to engage our independent public accountants for any
non-audit professional services;
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o obtaining from our independent public accountants a written statement
of the non-auditing relationships between the auditors and the
company;
o reviewing the company's and independent public accountants'
evaluations regarding the independence of our public accountants; and
o reviewing, in consultation with our principal accounting officers and
independent public accountants, financial reporting and accounting
practices of comparable companies that differ from our own.
The Compensation Committee. The Compensation Committee's principal
functions include:
o evaluating and setting cash compensation levels for our officers;
o reviewing and establishing the employee benefits we offer to our
officers; and
o determining officers' bonuses under our annual incentive plan.
The Stock Option Committee. The stock option committee's principal
functions include:
o evaluating and granting stock options and other equity incentives to
our officers and other employees; and
o administering our equity incentive plans.
The Strategic Planning Committee. On February 12, 2001, our board of
directors formed a strategic planning committee which acts as a conduit between
our key management personnel and our Board of Directors. In this role, the
strategic planning committee works closely with our key management personnel to
review the development and execution of our long- and short-term strategic goals
and plans. In addition, at least once a year, the strategic planning committee
will meet with our key management personnel to review the progress we have made
toward attaining these plans and goals.
STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
We describe in the following table certain information, as of the
record date, regarding the beneficial ownership of our common stock held by:
o each person or entity that we know beneficially owns more than 5% of
our common stock;
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o each of our directors and those of our executive officers who are
named in the Summary Compensation Table under "Summary Compensation
Information;" and
o all of our directors and officers as a group.
We believe that all of the people listed below have sole voting and
investment power over the listed shares, except as indicated otherwise in the
accompanying footnotes.
Name of Individual or Entity Shares Percentage (1)
---------------------------- ------ --------------
Schultz Sav-O Stores Retirement Savings Plan (2) 914,129 16.7
Franklin Resources, Inc. (3) 652,650 11.9
FMR Corp. (4) 417,600 7.6
Dimensional Fund Advisors Inc. (5) 355,050 6.5
Howard C. Dickelman (6) 233,160 4.3
James H. Dickelman (7) 176,583 3.2
John H. Dahly (8) 147,630 2.7
Michael R. Houser (9) 132,264 2.4
William K. Jacobson (10) 111,990 2.0
Thomas J. Timler (11) 53,610 *
Armand C. Go (12) 13,490 *
Martin Crneckiy, Jr. 7,729 *
Steven R. Barth 5,375 *
R. Bruce Grover 4,729 *
Elwood F. Winn (13) 2,822 *
Bruce J. Olson 1,337 *
Walter G. Winding 1,337 *
All current directors and officers as
a group (12 persons) (14) 579,423 10.0
- - - ---------------------------
* Indicates less than 1%
1) For individuals who hold rights to acquire shares of stock upon exercise of
stock options, the percentages indicated reflect inclusion of certain of
these shares as described in the appropriate footnotes below as well as the
increase in the total number of shares of common stock outstanding that
would result from their exercise of those options.
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2) We obtained the share amount listed from the amended Schedule 13G, dated
February 14, 2001, filed with the Securities and Exchange Commission. The
listed shares were held by Marshall & Ilsley Trust Company ("M&I"), as
trustee for our Retirement Savings Plan. Retirement Savings Plan
participants have investment power over the listed shares held by the
Retirement Savings Plan that are allocated to their accounts. A Plan
Administrative Committee, consisting of William K. Jacobson, Armand C. Go,
Michael G. Isken and Lynn M. Berg, administers the Retirement Savings Plan
and shares voting power for the shares listed with the participants in the
Retirement Savings Plan in that the committee is entitled to vote shares
when participants have provided no voting instructions. The address of M&I
is 770 North Water Street, Milwaukee, Wisconsin 53202. The address for the
individual members of the Plan Administrative Committee is c/o Schultz
Sav-O Stores, Inc., 2215 Union Avenue, Sheboygan, Wisconsin 53081. See
"Executive Compensation--Report on Executive Compensation."
3) We obtained the share amount listed from the amended Schedule 13G, dated
February 9, 2001, filed with the SEC. The address of Franklin Resources,
Inc. is 777 Mariners Island Boulevard, 6th Floor, San Mateo, California
94404.
4) We obtained the share amount listed from the amended Schedule 13G, dated
February 14, 2001, filed with the SEC. The address of FMR Corp. is 82
Devonshire Street, Boston, Massachusetts 02109.
5) We obtained the share amount listed from the amended Schedule 13G, dated
February 2, 2001, filed with the SEC. The address of Dimensional Fund
Advisors Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, California
90401.
6) The share amount listed includes 232,560 shares held by Mr. Dickelman in
the Howard Dickelman Revocable Trust. The share amount does not include
12,430 shares held by Mr. Dickelman's wife in the Dorothy J. Dickelman
Revocable Trust, as to which Mr. Dickelman disclaims beneficial ownership.
7) The share amount listed includes (a) 90,000 shares covered by stock options
that will be exercisable within 60 days following the record date; (b)
19,822 shares held by Mr. Dickelman as trustee for his minor children; and
(c) 21,161 shares held as joint tenant with his wife. The share amount does
not include the following shares as to which Mr. Dickelman disclaims
beneficial ownership: (a) 232,560 shares held by the Howard Dickelman
Revocable Trust; (b) 12,430 shares held by the Dorothy J. Dickelman
Revocable Trust; (c) 9,011 shares held by Mr. Dickelman's adult son; and
14
(d) 4,005 shares held by Mr. Dickelman's adult daughter. Mr. Dickelman's
address is 659 School Street, Kohler, WI 53044.
8) The share amount listed includes (a) 39,996 shares allocated to Mr. Dahly's
account in the Retirement Savings Plan as of December 30, 2000; and (b)
72,000 shares covered by stock options that will be exercisable within 60
days following the record date. The share amount does not include 1,476
shares held by Mr. Dahly's wife to which Mr. Dahly disclaims beneficial
ownership.
9) The share amount listed includes (a) 31,502 shares allocated to Mr.
Houser's account in the Retirement Savings Plan as of December 30, 2000;
(b) 88,267 shares covered by stock options that will be exercisable within
60 days following the record date; and (c) 1,080 shares held as joint
tenant with his wife.
10) The share amount listed includes (a) 47,923 shares allocated to Mr.
Jacobson's account in the Retirement Savings Plan as of December 30, 2000;
and (b) 64,067 shares covered by stock options that will be exercisable
within 60 days following the record date.
11) The share amount listed includes (a) 11,794 shares allocated to Mr.
Timler's account in the Retirement Savings Plan as of December 30, 2000;
and (b) 40,700 shares covered by stock options that will be exercisable
within 60 days following the record date.
12) The share amount listed includes (a) 490 shares allocated to Mr. Go's
account in the Retirement Savings Plan as of December 30, 2000; and (b)
13,000 shares covered by stock options that will be exercisable within 60
days following the record date.
13) The share amount listed includes (a) 322 shares allocated to Mr. Winn's
account in the Retirement Savings Plan as of December 30, 2000; and (b)
2,500 shares covered by stock options that will be exercisable within 60
days following the record date.
14) The share amount listed includes 331,533 shares issuable under stock
options exercisable within 60 days of the record date and 127,189 shares
beneficially held by current directors and executive officers in the
Retirement Savings Plan as of December 30, 2000, but excludes 258,006
shares as to which beneficial ownership is disclaimed by certain of such
individuals. See footnotes 7 and 8 above.
15
AUDIT COMMITTEE REPORT
To the Board of Directors of Schultz Sav-O Stores, Inc.
On May 12, 1999, the Audit Committee adopted an Audit Committee
Charter under which it operates. On December 14, 2000, the Audit Committee
Charter was amended. The Audit Committee Charter, as amended, is attached to
this proxy statement as Appendix A.
Management is responsible for our internal controls, financial
reporting process and the preparation and content of the company's financial
statements. Our independent auditors, Arthur Andersen LLP, are responsible for
performing an independent audit of our consolidated financial statements in
accordance with generally accepted auditing standards and for issuing a report
thereon. As the Audit Committee of the Board, we are responsible for monitoring
and overseeing these processes. This report discusses certain actions we took
in connection with those responsibilities.
Our Audit Committee has reviewed and discussed the audited financial
statements of the company for the year ended December 30, 2000. In connection
with this review and discussion, the Audit Committee separately discussed with
the company's management and independent auditors the quality and adequacy of
the company's internal controls. For example, we have discussed with Arthur
Andersen all communications required by Statement on Auditing Standards No. 61
(SAS 61). SAS 61 requires independent auditors to communicate to audit
committees matters related to the conduct of the audit, including: (a) the
selection of and changes in significant accounting policies, (b) the methods
used to account for significant unusual transactions, (c) the effect of
significant accounting policies in controversial or emerging areas, (d) the
process used by management in formulating particularly sensitive accounting
estimates and the basis for the auditors' conclusion regarding the
reasonableness of those estimates, (e) significant adjustments arising from the
audit, (f) disagreements with management over the application of accounting
principles, (g) the basis for management's accounting estimates, and (h) the
disclosures in the financial statements. Arthur Andersen reported to the
Committee that, based on its inquiries, to its knowledge, the company's internal
controls are adequate and sufficient.
Our Committee also has received the written report, disclosure and the
letter from Arthur Andersen required by Independence Standards Board (ISB)
Statement No. 1, which requires the written disclosure of all relationships
between a company and its auditors that, in the auditor's professional judgment,
may reasonably be thought to bear on independence and confirmation that, in its
professional judgment, it is independent of the company it is auditing. Arthur
Andersen's letter advised our Committee that it provided $600,000 of consulting
services to the company in connection with the company's exploration of
replacement or alternative management information systems, but that the
company's management had taken full responsibility for decisions related to such
exploratory activities and that Arthur Andersen had not assumed any of
management's authority or duties related
16
thereto. Arthur Andersen's letter further advised our Committee that it provided
$102,500 of audit services and $101,000 of other services during the company's
fiscal year ended December 30, 2000. Arthur Andersen also advised the Committee
that it did not believe its audit was impaired by its provision of such
services, particularly in view of the relationship of the related fees to its
annual revenues. As a result, Arthur Andersen confirmed that, as of February 8,
2001, it was an independent accountant with respect to the company within the
meaning of the Securities Act administered by the SEC and the requirements of
the Independence Standards Board.
We have reviewed, evaluated and discussed these (and other) materials
with management of the company and Arthur Andersen and also have discussed with
management of the company and Arthur Andersen such other matters and received
such assurances from them as we deemed appropriate. Based on our discussions
with management and Arthur Andersen, as well as our review of the
representations of management and the report of Arthur Andersen to us, we
recommended to the Board of Directors that the company's audited consolidated
financial statements at and for the year ending December 30, 2000 be included
in the company's Annual Report on Form 10-K for the fiscal year ended December
30, 2000 filed with the Securities and Exchange Commission. We also recommended
the reappointment, subject to shareholder ratification, of the retention of
Arthur Andersen as the company's independent auditors for 2001.
This report and the information herein do not constitute soliciting
material and shall not be deemed to be incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing by or
of the company under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under
such Acts.
By the Audit Committee:
Steven R. Barth, Chairman
Martin Crneckiy, Jr.
R. Bruce Grover
Walter G. Winding
17
EXECUTIVE COMPENSATION
Report on Executive Compensation
Our board's compensation committee and stock option committee evaluate
and establish the compensation of our executive officers and directors. The
committee's compensation policies and practices generally reflect our efforts to
attract, motivate and retain our executive officers and directors by providing a
total compensation package based on corporate and personal performance and which
is competitive within our industry. Executive officers' compensation is
comprised of salary, stock option grants, corporate contributions to our
retirement saving plan and cash bonuses under our officer annual incentive plan.
Nonemployee directors, other than the Chairman of the Board, receive an annual
cash retainer, compensation for each board (and certain committee) meetings
attended and an annual grant of company stock valued at $6,000 (taking into
account a 10% discount for restrictions on transfers under securities law). Our
Chairman of the Board, who is a nonemployee director, receives an annual cash
retainer, compensation for each board (and certain committee) meetings attended,
an annual grant of company stock valued at $6,000 (taking into account a 10%
discount for restrictions on transfers under securities law) and an hourly fee
for his services provided to the company in his capacity as Chairman of the
Board. In addition, upon his initial appointment in December 2000, the Chairman
of the Board received a one-time option grant to purchase 25,000 shares of our
common stock under the 1995 equity incentive plan. As noted below, the stock
option committee has proposed, and the company's board of directors has approved
and submitted for shareholder approval at the meeting, a plan that would provide
nonemployee directors with annual grants of stock options. The company's
directors who are also employees receive no additional compensation for serving
on the board and would not receive stock options under the proposed plan.
The company's executive incentive plan is intended to motivate our
executive officers to achieve annual corporate financial performance goals for
the economic benefit of all shareholders by rewarding executive officers,
individually and as a team, for the achievement of such goals. The annual
incentive plan provides for the establishment of an annual variable bonus pool,
based on our achievement of increased net sales and certain specified levels of
economic value added for the year then ended. For purposes of the annual
incentive plan, economic value added is determined by calculating the difference
between our annual net operating profit after tax and a pre-established target
threshold investment return, based on our weighted average cost of capital.
Our bonus pool for fiscal 2000 is comprised of:
o 10% of the economic value added for the year;
o an additional 5% of any incremental increase in the current year's
economic value added over the prior year's economic value added; and
18
o $25,000 for each 1% increase in our net sales over net sales for the
prior year.
We then distribute 25% of the resulting total incentive pool to all executive
officers, pro rata, according to relative salary levels and 75% based on each
officer's relative achievement of pre-established individual and group
performance goals, as determined by the compensation committee. We established a
total bonus pool of approximately $372,810 in 2000 under the annual incentive
plan, with $347,165 contributed as a result of our economic value added amount
for 2000 and $25,645 as a result of a 1.03% increase in net sales over 1999. The
compensation committee based Mr. Winn's bonus amount of $76,000 for 2000 on his
pro-rata share of the bonus pool established under the annual incentive plan, on
the degree to which he achieved individual and group financial and other goals
and objectives established at the beginning of 2000 by the committee and his
promotion to the positions of president and chief executive officer. These goals
and objectives included specified targeted levels of revenues, earnings and
economic value added.
On February 12, 2001, the compensation committee made several
amendments to the company's executive incentive plan. Beginning in fiscal 2001,
the bonus pool will be comprised of:
o 10% of the economic value added for the year;
o an additional 5% of any incremental increase in the current year's
economic value added over the prior year's economic value added; and
o $25,000 for each 1% increase in our net sales over net sales for the
prior year excluding increases in net sales due to the acquisition of
other supermarkets or businesses.
As in past years, we will distribute 25% of the total incentive pool to all
executive officers, pro rata, according to relative salary levels and 75% based
on each officer's relative achievement of pre-established individual and group
performance goals, as determined by the compensation committee.
In addition, beginning in fiscal 2001, each person eligible under our
executive incentive plan will be eligible to receive a "discretionary bonus."
The factors that the compensation committee will use to determine the
discretionary bonus that each eligible person will receive will be established
by the compensation committee at the end of each fiscal year. The factors that
the compensation committee will consider will generally include:
o the appreciation in price of the company's common stock;
o increases in net sales due to multi-store acquisitions;
19
o the occurrence of extraordinary events that affect the bonus pool that
would otherwise be available;
o any expansion or increase in the person's then current duties and
responsibilities;
o increases in the cost of living;
o the past performance by the person; and
o other factors that the compensation committee determines to be
relevant to the financial performance and growth of the company.
The compensation committee adjusts each executive officer's salary,
including the salary of Elwood Winn, our new president and chief executive
officer, at the end of each fiscal year for the forthcoming fiscal year. The
compensation committee based Mr. Winn's salary as President and Chief Executive
Officer on the duties he would perform in these roles, his experience in our
industry and the salaries paid by our peers to executives with similar
experience and responsibility. The compensation committee establishes objective
performance criteria for each of the officers that it considers in its salary
adjustment decisions and bonus allocations. The compensation committee also
analyzes and evaluates our relative revenues, earnings, return on sales, cost
and expense levels, and balance-sheet strength for the year then ending compared
to historical results, as well as to the current trends and results within our
industry. In addition, in light of the changes in the company's management
structure that took place during 2000, the compensation committee considered the
relative experience and background of each executive and the additional duties
that each executive officer will perform in the coming year.
Based on such analysis and evaluation, the committee determined Mr.
Winn's and the other executives' salaries, in conjunction with the other
elements of each such executive's base compensation package, to fall generally
within a range of the estimated average salaries and compensation packages of
similarly situated executives at other comparable food wholesalers and
retailers, including several companies included in our stock performance peer
group index. In setting the salary levels of our executive officers and in
allocating discretionary bonuses for last year out of the bonus pool for other
executives, the committee considered specifically:
o our earnings, which approached 1999 levels, making 2000 the third most
profitable year in our history;
o our earnings per share, which were the highest in our history;
o our net revenues, which were the highest in our history and increased
for the fifth consecutive year despite significant new competition and
an absence of inflation in the marketplace; and
20
o the new mission statement of each executive to actively pursue growth
and expansion initiatives on behalf of the company.
Our stock option committee - which includes all of the members of the
compensation committee - except Steven R. Barth and Walter G. Winding -
generally grants stock options annually to executive officers shortly after the
end of each year. The committee bases option grants principally on the executive
officer's relative position at the company, his existing and anticipated ability
to directly impact corporate performance, cash compensation, seniority, grants
made in the past, options held and stock ownership. Each executive officer's
individual initiatives and achievements over the prior year also affect the
level of such officer's option grants. Our 1995 equity incentive plan is
intended to promote our best interests and those of our shareholders by
providing key employees with the opportunity to acquire or increase their
ownership interests in the company and thereby develop a stronger incentive to
put forth maximum effort for our continued success and growth. We have
historically granted options at 100% of our common stock's fair market value on
the date of grant, with a term not to exceed seven or ten years and vesting in
increments of one-third on each of the first, second and third anniversaries of
the grant date. Since the economic value of stock options is inherently
dependent upon the level of future market price appreciation of the underlying
common stock, stock options granted by the stock option committee will only
provide executive officers with value to the extent the market price of our
common stock increases above the option exercise price on the grant date. Thus,
the stock option committee believes that stock option grants help better align
the economic interests of our management with those of our shareholders. Under
our 1995 equity incentive plan, the stock option committee has the additional
flexibility to grant other types of equity-based incentive awards - including
stock appreciation rights, restricted stock and performance shares. However, the
stock option committee has, to date, continued its historical practice of
granting only stock options.
In December 2000, our board of directors amended the 1995 equity
incentive plan to extend the time pursuant to which options may be granted under
the plan. In addition, our board of directors also amended the 1995
equity incentive plan, subject to approval of the company's shareholders at the
annual meeting, to increase by 500,000, or 40%, the number of shares of our
stock available for the grant of awards under the plan.
In December 2000, our board of directors adopted a stock option plan
for nonemployee directors pursuant to which, if approved by the company's
shareholders at the annual meeting, nonemployee directors of the company will,
on an annual basis, be granted an option to purchase up to 5,000 shares of our
stock. The nonemployee director plan is intended to promote our best interests
and those of our shareholders by providing nonemployee directors with additional
ownership interests in the company and thereby develop a stronger incentive to
put forth maximum effort for our continued success and growth. In addition, the
stock option committee believes that the plan will help the company retain and
attract an experienced and well-qualified group of nonemployee directors. The
stock option committee will determine the exercise price of options granted
under the plan, provided
21
that the exercise price may not be less than 100% of the fair market value of
our common stock at the date of grant. The committee will also determine the
term of all options, which may not be longer than 10 years. Options granted
under the plan will become exercisable in accordance with a vesting schedule
determined by the committee, but are expected to be immediately vested upon
grant. The nonemployee director stock option plan is attached to this proxy
statement as Appendix B.
Our retirement savings plan is a qualified profit sharing plan that
provides for supplemental income at retirement for all of our eligible - 1,000
hours or more per year - salaried employees. The retirement benefits provided by
the retirement savings plan for each participant are based upon the value of the
participant's account balance at retirement. The retirement savings plan
requires us to make an annual basic contribution which, when added to
forfeitures for the year, is equal to 5% of the participant's salary for the
year. We may also make an additional discretionary contribution as determined by
our board. We allocate basic contributions to each participant's account on the
basis of the participant's eligible compensation, compared to the compensation
of all participants for such year. We allocate discretionary contributions in
the same way, except that our contributions to Social Security benefits are
taken into account in the allocation of discretionary contributions. Our
discretionary contribution to the retirement savings plan in 2000 was
approximately 4.3% of each participant's eligible compensation. The retirement
savings plan permits pretax employee contributions pursuant to Internal Revenue
Code Section 401(k). We provide a 25% matching contribution on pretax employee
contributions up to 4% of pay. Most of our executive officers - including all of
the named executives officers set forth below - have typically invested all, or
a substantial portion, of their annual retirement savings plan allocations in
shares of our common stock. At the end of 2000, our seven current executive
officers, as a group, held 127,189 shares, or approximately 1.82% of the total
outstanding common stock on the record date, in their accounts under the
retirement savings plan. See "Stock Ownership of Management and Others."
We also maintain an executive benefit restoration plan, which is a
supplemental benefit pension plan intended to provide benefits otherwise denied
to participants under the retirement savings plan by reason of limitations
imposed by the Internal Revenue Code. The executive benefit restoration plan
provides benefit accruals on pay in excess of the amount able to be recognized
by the retirement savings plan equivalent to the rate of our basic and
discretionary contributions made under the retirement savings plan for the year.
We believe that our stock option plans have been adopted, and are
being administered, in accordance with the requirements of Internal Revenue Code
Section 162(m). Given the levels of compensation and benefits provided currently
to our named executive officers, we do not otherwise believe it is necessary to
further conform or adjust our compensation policies, plans or practices to
comply with the $1 million executive compensation deductibility cap imposed by
Internal Revenue Code Section 162(m).
22
This report, the information herein and the performance graphs
included elsewhere in this proxy statement do not constitute soliciting material
and shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing by or of the
company under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, and shall not otherwise be deemed filed under such
Acts.
By the Compensation Committee: By the Stock Option Committee:
R. Bruce Grover, Chairman R. Bruce Grover, Chairman
Martin Crneckiy, Jr. Martin Crneckiy, Jr.
Bruce Olson Bruce Olson
Walter Winding
Steven R. Barth
23
Summary Compensation Information
The table below describes the compensation paid for the last three
years to (i) our current Chief Executive Officer, (ii) our four most highly
compensated current officers (other than the Chief Executive Officer), and (iii)
two former officers who, had they been officers at the end of fiscal 2000, would
have been among the five officers who received the most compensation during
fiscal 2000.
Summary Compensation Table
Annual Stock
Compensation Option
Fiscal Grants All Other
Name and Principal Positions Year Salary Bonus (shares)(1) Compensation (2)
- - - ---------------------------- ---- ---------------------- ---------- ----------------
Elwood F. Winn (3) 2000 $162,923 $76,000 7,500 $21,133
President and Chief Executive Officer 1999 $40,382 $6,000 -0- -0-
Michael R. Houser 2000 $172,000 $75,000 20,000 $42,808
Vice Chairman of the Board, Executive Vice 1999 $172,000 $83,000 18,000 $39,148
President, Chief Marketing Officer 1998 $156,000 $68,000 18,000 $31,191
William K. Jacobson 2000 $120,000 $40,000 14,000 $20,692
Senior Vice President - Retail Operations and 1999 $120,000 $46,000 13,500 $20,619
Development and Assistant Secretary 1998 $94,300 $41,000 13,500 $15,522
Thomas J. Timler 2000 $92,000 $31,000 12,000 $15,866
Vice President and Chief Information Officer 1999 $92,000 $42,000 10,500 $15,237
1998 $87,000 $34,000 10,500 $13,600
Armand C. Go 2000 $80,697 $32,000 9,000 $12,351
Vice President, Chief Financial Officer, 1999 $78,750 $30,000 6,000 $11,354
Treasurer and Secretary 1998 $76,378 $22,000 6,000 $7,627
James H. Dickelman 2000 $325,000 $82,000 45,000 $85,950
Former President, Chief Executive 1999 $325,000 $140,000 45,000 $81,538
Officer and Chairman of the Board 1998 $300,000 $121,000 45,000 $71,315
John H. Dahly 2000 $166,000 $19,000 18,000 $38,423
Former Executive Vice President 1999 $166,000 $70,000 18,000 $36,579
1998 $156,000 $63,000 18,000 $30,952
- - - ---------------------
(1) Granted at 100% fair market value on the date of grant. See footnote (1) to the table set forth under "Stock
Options--Option Grants in 2000" below for additional information.
24
(2) For Messrs. Houser, Dickelman and Dahly, amounts set forth for 2000 under this column represent (a) benefit
accruals of $21,513, $64,655 and $17,128, respectively, under our Executive Benefit Restoration Plan, and (b) our
contributions of $21,295 to the Retirement Savings Plan for each such executive officer. For Messrs. Winn,
Jacobson, Timler and Go, the amounts represent our contributions to our Retirement Savings Plan. See "Severance and
Change in Control Arrangements" below with respect to certain severance arrangements between us and certain of the
named executive officers in the event that we experience a "change of control."
(3) Mr. Winn joined the company in September 1999.
Stock Options
The only stock option plan currently in place is our 1995 equity
incentive plan. The following table lists the option grants under the 1995 plan
that we made during 2000, as well as certain other information relating to those
grants.
Option Grants In 2000
Percentage of
Shares Total Options Grant
Underlying Granted to Exercise Date
Options All Employees Price (per Present
Name Granted (1) in 2000 (2) share) (3) Expiration Date Value (4)
- - - ---- ----------- ------------- ---------- --------------- ---------
Elwood F. Winn 7,500 4.23% $12.00 January 27, 2010 $29,775
Michael R. Houser 20,000 11.27% $12.00 January 27, 2010 $79,400
William K. Jacobson 14,000 7.89% $12.00 January 27, 2010 $55,580
Thomas J. Timler 12,000 6.76% $12.00 January 27, 2010 $47,640
Armand C. Go 9,000 5.07% $12.00 January 27, 2010 $35,730
James H. Dickelman 45,000 25.35% $12.00 January 27, 2010 $178,650
John H. Dahly 18,000 10.14% $12.00 January 27, 2010 $71,460
All Officers (5) 159,200 85.0%
Non-Officer Employees 28,000 15.0%
- - - ---------------------
1) The options reflected in the table are nonqualified stock options under the Internal Revenue Code and,
with the exception of the option granted to our Chairman of the Board on December 14, 2000, were granted
on January 27, 2000. The exercise price of each option granted was equal to 100% of the fair market value
of our common stock on the date of grant, as determined by our stock option committee. The options become
exercisable in increments of one-third on each of the first, second and third anniversaries of the grant
date; provided, however, that no options may be exercised more than ten years after the date of grant.
The options are subject to early vesting in the event of the optionee's death, disability or retirement.
Under the stock option agreements evidencing the options, upon a "change of control" of the company (as
defined in such stock option agreements), all options then outstanding will become immediately
exercisable in full for the remainder of their term and each optionee will have the right, for a period
of 30 days, to require us to purchase his outstanding options for cash at an aggregate "acceleration
price" for all shares of common stock then subject to such options, provided that at least six months has
elapsed since the grant date.
25
2) These percentages exclude the option granted to our Chairman of the Board (who is not an employee of the
company).
3) The exercise price of options may be paid in cash, by delivering previously issued shares of common stock
or any combination thereof.
4) The option values presented are based on the Black-Scholes pricing model, adapted for use in valuing
stock options. The actual value, if any, that an optionee may realize upon exercise will depend on the
excess of the market price of our common stock over the option exercise price on the date the option is
exercised. There is no assurance that the actual value realized by an optionee upon the exercise of an
option will be at or near the value estimated under the Black-Scholes model. The estimated values under
the Black-Scholes model are based on arbitrary assumptions as to variables such as interest rates, stock
price volatility and future dividend yield, including the following: (a) an assumed United States
Treasury bond rate of 6.80%; (b)
stock price volatility of 28.49% (based on 36-month stock price history ending January 30, 2000); and (c)
a current dividend yield of 3.20%.
5) This row includes the option granted to our Chairman of the Board (who is an officer of the company).
Set forth below is certain information about the cash values realized
by named executive officers who exercised stock options during 2000 and the
number and value of unexercised stock options held by named executive officers
as of the end of 2000.
2000 Year-End Value Table
Number of Number of Shares Value of Unexercised
Shares Value Underlying Options at End of In-the-Money Options at End
Acquired Upon Fiscal 2000 Of Fiscal 2000 (2)
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- - - ---- -------- ------------ ----------- ------------- ----------- -------------
Elwood F. Winn 0 0 0 7,500 0 0
Michael R. Houser 0 0 69,600 38,000 $95,040 0
William K. Jacobson 0 0 50,400 27,500 $66,030 0
Thomas J. Timler 15,000 $81,645 29,700 22,500 $13,266 0
26
Armand C. Go 0 0 6,000 15,000 0 0
James H. Dickelman 159,000 $467,970 45,000 90,000 0 0
John H. Dahly 0 0 54,000 36,000 $23,940 0
- - - --------------------------
1) The dollar value reflects the difference between the fair market value of the underlying shares at the
time of exercise and the applicable exercise price of the options exercised.
2) The dollar values reflect the difference between the fair market value of the underlying shares of common
stock at the end of fiscal 2000 and the various applicable exercise prices of the named executive
officers' outstanding options. The dollar values do not reflect any options that had an exercise price in
excess of the fair market value of the underlying shares at the end of fiscal 2000. The fair market value
at the end of fiscal 2000 was $10.75, the closing sale price per share on December 30, 2000, the last
trading day of the fiscal year.
Director Compensation
Our directors who are also our employees or whose employers provide
professional services to the company receive no additional compensation for
serving on the board. We compensate our other nonemployee directors, other than
our Chairman of the Board, by paying:
o an annual cash retainer of $6,000;
o $1,000 for each attended board meeting and $500 for each attended
committee meeting not held in conjunction with a board meeting; and
o an annual grant of unregistered shares of the our common stock with a
value of $6,000, taking into account a 10% discount for restrictions
on transfer under securities laws.
We compensate our nonemployee Chairman of the Board by paying him:
o an annual cash retainer of $25,000;
o $1,000 for each attended board meeting and $500 for each attended
committee meeting not held in conjunction with a board meeting;
o a fee of $200 per hour for his services provided to the company in his
capacity as Chairman of the Board;
27
o an annual grant of unregistered shares of the our common stock with a
value of $6,000, taking into account a 10% discount for restrictions
on transfer under securities laws; and
o a one-time grant of an option to purchase 25,000 shares of our common
stock under the 1995 equity incentive plan when he or she is elected
as Chairman of the Board.
In addition to the foregoing, if the proposed stock option plan for
nonemployee directors is approved by the shareholders, all of our nonemployee
directors will also receive an annual grant of an option to purchase 5,000
shares of our common stock.
Severance and Change of Control Arrangements
We have severance agreements with Elwood F. Winn, Michael R. Houser,
William K. Jacobson, Thomas J. Timler and Armand C. Go that provide that,
following a "change of control" of the company (as defined in the severance
agreements), such executive officer will be employed:
o in the same position for three years in the case of Messrs. Winn,
Houser and Jacobson and two years in the case of Messrs. Timler and
Go;
o performing equivalent duties; and
o at the same location as immediately prior to the change of control.
During the employment period, each such officer would be entitled to:
o receive a salary equal to his compensation rate in effect at the date
of the change of control - subject to increase by the board of
directors' compensation committee; and
o inclusion in benefit plans available to employees of comparable
status.
If the officer elects to terminate his employment within one year
after the change of control or if, at any time during the employment period, the
officer's employment is terminated other than for "cause" - as defined in the
severance agreements - or the officer's disability, or if the officer's duties
are changed substantially without his written consent and the officer terminates
his employment as a result, the officer would be entitled to receive:
o a lump sum payment equal to the officer's base salary for the greater
of the remainder of the employment period or one year;
28
o the actuarially determined present value of the benefit accruals that
would have been made through the end of the employment period under
our retirement plans applicable to the officer; and
o along with his eligible dependents, coverage under medical benefit
plans through the end of the employment period.
Additionally, upon a "change of control" of the company:
o stock options granted to the named executive officers will become
fully exercisable; and
o the optionee will have the right to require the company to purchase
his outstanding options for cash at an aggregate "acceleration price"
for all shares of common stock subject to such options.
Compensation Committee and Stock Option Committee Interlocks and Insider
Participation
Steven R. Barth, a member of our compensation committee, is a partner
in the law firm of Foley & Lardner, which has provided legal services to the
company for over 40 years. Walter G. Winding, our nonemployee Chairman of the
Board and a member of our compensation committee, provides services to the
company in his capacity as Chairman of the Board, for which he is paid an hourly
fee of $200. Under our bylaws, the Chairman of the Board is an officer of the
company.
STOCK PERFORMANCE INFORMATION
The line graph appearing below compares the total return on our common
stock during the last five years with the total return of:
o companies in the Wilshire 5000 Index;
o companies in a group of food retailers and wholesalers included as a
peer group in past proxy statements. This group included: Arden Group,
Inc., Delchamps, Inc., Marsh Supermarkets, Inc., Nash Finch Co.,
RichFood Holdings, Inc., and Seaway Food Town, Inc. The performance
for this group only reflects the performance of (i) Delchamps, Inc.
until November 1997, when Delchamps was acquired, (ii) RichFood
Holdings, Inc. until August 1999, when RichFood Holdings was acquired
and (iii) Seaway Food Town, Inc. until August 2000, when Seaway Food
Town was acquired. The shareholder returns of each of the companies
have been weighted based on each company's relative market
capitalization as of the beginning of each period; and
29
o companies in a newly selected peer group of food retailers and
wholesalers which includes: Arden Group, Inc., Marsh Supermarkets,
Inc., Nash Finch Co., SUPERVALU Inc., Fleming Companies, Inc. and
Spartan Stores, Inc. We have selected this peer group in good faith,
and the shareholder returns of each of the companies have been
weighted based on each company's relative market capitalization as of
the beginning of each period.
We have chosen a new peer group this year for the following reasons.
First, the acquisitions of Delchamps, Inc., RichFood Holdings, Inc., and Seaway
Food Town, Inc. in the past three years have significantly decreased the number
of companies within the old peer group. In our opinion, these changes have made
the old peer group significantly less representative of our business than when
it was originally chosen. Second, after the acquired companies are removed from
the old peer group, it contains one food wholesaler and two companies that are
primarily food retailers. We believe that a peer group with this two-to-one
ratio is not representative of our business which consists of a "virtual chain"
of retail stores served by a vertically-integrated wholesaler. Therefore, we
added SUPERVALU Inc., Fleming Companies, Inc., and Spartan Stores, Inc. to the
remaining companies in our old peer group because these companies operate as
both food wholesalers and retailers. We believe that this new peer group
represents the business that we are engaged in better than the old peer group.
30
Comparison of Five-Year Total Shareholder Returns
(on a dividend reinvested basis)
[GRAPHIC OMITTED]
12/30/95 12/28/96 1/3/98 1/2/99 1/1/00 12/30/00
-------- -------- ------ ------ ------ --------
Company Index $100 97.4 167.6 178.9 141.3 123.0
Wilshire 5000 Index $100 123.2 151.7 212.5 394.9 237.6
Old Peer Group Index $100 125.4 152.4 126.6 85.4 112.8
New Peer Group Index $100 94.7 122.0 149.2 111.9 89.8
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain items from the company's Consolidated
Statements of Earnings as a percent of net sales and the year-to-year percentage
changes in the amounts of such line items.
- - - ------------------------------------------------------------------------------------------------------
Percent of net sales Percentage change
- - - ------------------------------------------------------------------------------------------------------
2000 1999
2000 1999 1998 vs. 1999 vs. 1998
- - - ------------------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0% 1.0% 2.5%
Gross Margin 16.5% 16.2% 16.1% 3.0% 2.9%
Operating and administrative
expenses 14.0% 13.5% 13.3% 5.0% 3.9%
Earnings before income taxes 2.5% 2.7% 2.9% (6.6%) (1.9%)
Net earnings 1.6% 1.7% 1.8% (5.3%) (1.9%)
- - - ------------------------------------------------------------------------------------------------------
2000 vs. 1999
Net Sales
Net sales for 2000 were $502.1 million, compared to $497.0 million for
1999. The increase of $5.1 million, or 1.0%, was due to increased net wholesale
sales. This was the first time in the company's history that the half-billion
dollar annual sales volume milestone was reached. Net wholesale sales in 2000
increased 2.1% to $294.5 million, compared to $288.5 million in 1999. The net
wholesale sales improvement was attributable to the following:
o The successful conversion to the Piggly Wiggly program of two new
market franchise stores in Niagara and Winneconne, Wisconsin from
other wholesalers during the third quarter of 1999;
o The successful conversion to the Piggly Wiggly program of one new
market franchise unit in Markesan, Wisconsin from another wholesaler
in January 2000; and
32
o The completion of one new market franchise supermarket in Kewaskum,
Wisconsin in June, 2000.
The conversion of one franchise supermarket into a corporate store in
November 1999 and additional competitive activities in certain franchise market
areas offset some of the net wholesales sales volume increase. Retail sales
decreased nominally to $207.5 million in 2000, compared to $208.4 million in
1999. This decrease was principally attributable to several of the company's
retail stores experiencing intense competitive pressures.
As part of the company's continuing efforts to expand the "virtual
chain" program, a new 55,000 square-foot franchise replacement supermarket was
completed in January, 2001 in Slinger, Wisconsin. There are currently four
additional facility projects in various phases of planning or construction with
completions scheduled throughout 2001. These projects include one replacement
franchise unit in Campbellsport, Wisconsin, one expanded franchise store in
Mequon, Wisconsin, and two replacement corporate stores in Sheboygan, Wisconsin
and Zion, Illinois, respectively. Additionally, the company announced on January
31, 2001 an agreement to convert a retail supermarket owned and operated by
Kohler company into a Piggly Wiggly franchise unit before the end of the second
quarter of 2001. These five facility projects and one new market franchise store
will increase aggregate selling space by nearly 75,000 square feet. Based on the
company's internal wholesale price index, inflation did not have a significant
effect on sales between years.
Gross Margin
Gross margin, as a percent of sales, increased to 16.5% in 2000 from
16.2% in 1999. This improvement, primarily due to retail operations, was
attributable to merchandising and product promotional mix changes that were
initiated in the beginning of 2000. During 1999, gross margin was also adversely
impacted by certain merchandising promotional events such as the 50th
anniversary of Piggly Wiggly promotion.
Operating and Administrative Expenses
Operating and administrative expenses, as a percent of sales,
increased to 14.0% in 2000, compared to 13.5% in 1999. This increase of 0.5%, or
$3.4 million, was principally attributable to the following factors:
o Due primarily to three retail union health and accident rate increases
between September 1, 1999 and February 1, 2000, the company incurred
additional expenses of approximately $1.1
33
million, or an increase of 33%, compared to 1999 levels. The company
anticipates that further rate increases are possible during 2001.
o Due to extremely tight labor market in Wisconsin, especially in
Sheboygan, additional overtime hours were utilized for the
distribution operations. As such, the company incurred incremental
distribution payroll costs approximating $500,000.
o As the company continued its efforts to evaluate various strategic
alternatives, one-time professional fees in excess of $400,000 was
incurred. The company continues to evaluate various acquisition and
strategic alternatives.
Due to the continuing competitive nature of the industry, certain
franchise operators and corporate retail stores continue to experience
operational challenges in their respective marketplaces. As a result, the
company continues to incur significant receivable realization charges from a
number of under-performing franchise operators. Total 2000 and 1999 realization
charges relating to wholesale bad debts and retail subsidies were $1.7 million
and $2.3 million, respectively. Although certain franchise retail operations
have improved, the company continues to evaluate various business initiatives
relating to the operations of its under-performing and non-competitive stores.
These initiatives include, but are not limited to, the sale and subsequent
conversion of these stores, the closure of these supermarkets or the
implementation of other operational changes. As with prior years, implementation
of any of these options can result in the company incurring certain
repositioning or restructuring charges involving the termination costs of
replaced, sold or closed stores. These actions can negatively impact earnings
results in the short-term, but the company believes that such actions will help
the company's long-term profitability. During 2000, the company incurred nominal
repositioning charges, compared to none for 1999.
Net Earnings
The company's fiscal 2000 operating income decreased 7.4% to $12.3
million, compared to $13.2 million in 1999. After allocating wholesale operating
profits on sales through the company's corporate stores to retail, the wholesale
segment yielded $9.4 million in operating income while the retail segment
contributed $2.9 million compared to $9.9 million wholesale and $3.3 million
retail for fiscal 1999. Fiscal 2000 earnings before income taxes decreased 6.6%
to $12.8 million, compared to $13.7 million in 1999. As a percent of sales,
earnings before income taxes decreased to 2.5% in 2000 from 2.7% in 1999.
34
Net earnings for 2000 decreased 5.3% to $7.9 million, compared to $8.4
million in 1999. Due principally to the intense competitiveness in certain
market areas, the company's net earnings-to-sales ratio decreased nominally to
1.58% in 2000, compared to 1.68% in 1999. Diluted earnings per share for 2000
increased 2.3% to $1.33 from $1.30 in 1999. As a result of significant company
stock repurchases in 2000 and 1999, the weighted average common shares and
equivalents were 5,951,000 and 6,438,000 for 2000 and 1999, respectively.
1999 vs. 1998
Net Sales
Net sales for 1999 were $497.0 million, compared to $484.9 million for
1998. The increase of $12.1 million, or 2.5%, was due to increased wholesale and
retail sales volume. Net wholesale sales in 1999 increased 3.0% to $288.5
million, compared to $280.1 million in 1998. The wholesale sales improvement was
attributable to the following:
o The completion of two Wisconsin franchise store facility projects
during the second quarter of 1998;
o The completion of five Wisconsin franchise store facility projects
during the first half of 1999;
o The opening of one new market franchise store in May 1999;
o The successful conversion to the Piggly Wiggly program of two new
market franchise stores from other wholesalers during the third
quarter of 1999; and
o A series of successful marketing events, including the 50th
anniversary of Piggly Wiggly in Wisconsin held in October and November
of 1999.
Net wholesale sales were, however, negatively impacted by the
company's two consolidations which were completed in November 1998 and January
1999 resulting in two franchise store closures.
Retail sales increased 1.8% to $208.4 million in 1999, compared to
$204.8 million in 1998. This improvement in retail sales volume was primarily
attributable to the company's opening of its replacement corporate store in
Appleton, Wisconsin in August 1998 and the continued success of various
35
marketing and promotional events. To a lesser extent, retail sales also
increased due to the conversion of one franchise store into a corporate store in
November 1999. Competitive pressures in certain market areas, however, had an
adverse impact on the company's retail sales in 1999.
During 1999, the company had seven facility projects, all but one of
which were completed in 2000. These projects included expansions in Kaukauna and
Jackson, Wisconsin; one corporate replacement store in Racine, Wisconsin; two
replacement supermarkets in Pardeeville and New Holstein, Wisconsin; and one new
market store in Kewaskum, Wisconsin.
Gross Margin
Gross margin, as a percent of sales, increased nominally to 16.2% in
1999 from 16.1% in 1998. This nominal increase was offset by lower margin sales
from the successful 50th anniversary promotion.
Operating and Administrative Expenses
Operating and administrative expenses, as a percent of sales,
increased to 13.5% in 1999, compared to 13.3% in 1998. This increase of 0.2%, or
$2.5 million, was principally attributable to a number of factors. From the
retail business segment, the company incurred additional expenses of
approximately $850,000 relating to both the Appleton store that was opened in
August 1998 and to the Oshkosh store that was converted from a franchise store
to a corporate store in November 1999. From the wholesale business segment, the
company incurred additional realization charges of nearly $800,000 in 1999
compared to 1998. Additionally, the company incurred and expensed more than
$500,000 for its comprehensive analysis and evaluation of the company's ongoing
core business (non-Y2K related) requirements.
Due to the continuing competitive nature of the industry, certain
franchise operators and corporate retail stores experienced operational
difficulties in their respective marketplaces. As a result, the company
continued to incur significant realization charges from a number of
under-performing franchise operators. Total 1999 and 1998 realization charges
relating to wholesale bad debts and retail subsidies were $2.3 million and $1.5
million, respectively. Although certain franchise retail operations improved,
the company continued to evaluate various business initiatives relating to the
operations of its under-performing and non-competitive stores. These initiatives
included, but were not limited to, the sale and subsequent conversion of these
stores, the closure of these supermarkets or the implementation of other
operational changes. During 1999, the company did not incur any repositioning
charges, compared to $200,000 for 1998.
36
Net Earnings
The company's fiscal 1999 operating income decreased 1.8% to $13.2
million, compared to $13.5 million in 1998. After allocating wholesale operating
profits on sales through the company's corporate stores to retail, the wholesale
segment yielded $9.9 million in operating income while the retail segment
contributed $3.3 million. Fiscal 1999 earnings before income taxes decreased
1.9% to $13.7 million, compared to $13.9 million in 1998. As a percent of sales,
earnings before income taxes decreased to 2.7% in 1999 from 2.9% in 1998.
Net earnings for 1999 decreased 1.9% to $8.4 million, compared to $8.5
million in 1998. Due principally to the intense competitiveness in certain
market areas, the company's net earnings-to-sales ratio decreased to 1.68% in
1999, compared to 1.76% in 1998. Diluted earnings per share for 1999 increased
5.7% to $1.30 from $1.23 in 1998. Although net earnings decreased nominally in
1999 compared to 1998, diluted earnings per share increased due to the company's
repurchases of 821,600 shares which reduced the weighted average shares and
equivalents outstanding.
Liquidity and Capital Resources
During fiscal 2000, the primary source of liquidity was cash generated
from operations. Total cash generated from operations for fiscal 2000 was $21.3
million, compared to $5.5 million in 1999. Cash flow from operations increased
significantly between years due principally to timing of cash receipts, cash
payments and changes in short-term financing to the company's wholesale
customers.
Net cash outflows for investing activities totaled $4.9 million in
2000 compared to $2.5 million in 1999. This increase in outflows was primarily
attributable to increased capital expenditures in 2000, compared to 1999. Of the
total capital expenditures of $5.3 million, the company invested more than $2.2
million for retail upgrades. Approximately 55% of the retail expenditures
related to equipment purchases for the replacement supermarket in Racine,
Wisconsin. The remainder of the retail expenditures were used for other
corporate retail store equipment and technological upgrades. The wholesale and
corporate capital expenditures of $3.1 million compared to $1.3 million were
principally technology-related upgrades. For 2001, the company's capital budget
is estimated at $7.1 million, of which $4.15 million has been committed as of
December 30, 2000. Of this $7.1 million total, the company has allocated $4.5
million for retail replacement units and upgrades, $1.1 for technology hardware
and software, and $1.1 for distribution upgrades. This capital budget of $7.1
million is exclusive of any capital expenditure the company may incur in 2001 as
a result of its comprehensive evaluation of the core business systems. The
company expects to finance these projects from internally generated capital. If
the
37
company decides to channel its working capital to certain strategic growth
needs, the company can also avail of its current unused and unsecured bank
revolving line of credit totaling $16 million.
Net cash outflows for financing activities were $7.4 million in 2000
compared to $14.9 million in 1999. The company repurchased 558,540 shares of its
own stock in 2000 aggregating $6.1 million, compared to 821,600 shares or $12.9
million during 1999. The company's Board of Directors amended the stock
repurchase program twice during 2000, increasing the stock repurchase program
from $15 million to eventually $25 million of its common stock from time to time
in the open market, pursuant to privately negotiated transactions, or otherwise.
As of December 30, 2000, only $7.4 million remained available for stock
repurchases. Since the first stock repurchase program commenced in January 1992,
the company has repurchased nearly 3,500,000 shares, or approximately 40%, of
its issued common stock.
In summary, cash and equivalents for fiscal 2000 increased $8.9
million, resulting in a year-end balance of $31.3 million. Of this year-end cash
balance, approximately $21.9 million was invested in short-term investments with
maturities of less than three months, such as taxable money market funds and
commercial paper with strong credit ratings. The company does not use any form
of derivative securities for hedging or for other reasons.
The company is generally the prime lessee of new retail store
facilities, which it then subleases to independent franchise operators. All new
facilities in 2000 were financed through operating lease agreements. The company
also leases transportation equipment, principally tractors and trailers,
corporate office space and certain office equipment. Some leases contain
contingent rental provisions based on sales volume at retail stores or miles
traveled for transportation equipment. Contingent rentals for 2000 and 1999 were
both approximately $1.0 million. At December 30, 2000, the company had recorded
$11.6 million of minimum lease payments required to be paid under operating
leases in 2001. Additionally, at December 30, 2000, the company had $8.3 million
of long-term capital lease obligations, $4.2 million of which represented
long-term receivables from wholesale customers under capital leases.
The company typically provides short-term financing support to its
wholesale customers for the purchase of facilities and equipment for new or
remodeled stores. After being provided, this financing support is subsequently
refinanced, typically through banks, with the company being reimbursed. As part
of the financing program, the company had contingent liabilities under bank note
guarantees totaling nearly $18.0 million at December 30, 2000. All of the loan
guarantees are substantially collateralized, principally with equipment and
inventory and, to a lesser extent, with building facilities.
38
At December 30, 2000, the company's ratio of total liabilities to
shareholders' investment was 1.12, compared to a ratio of 0.95 at January 1,
2000.
The company believes its cash, working capital and debt-to-equity
positions continue to compare very favorably to most industry competitors.
Additionally, the company believes that its financial condition and cash flow
from operations will continue to provide it with adequate long-term flexibility
to finance anticipated capital requirements without adversely impacting its
financial position or liquidity.
Company Business
The company is engaged in distributing food and related products at
wholesale and retail. At December 30, 2000, the company franchised 71 and
operated 19 corporate retail supermarkets under the Piggly Wiggly name in its
eastern and northeastern Illinois market areas.
The company is the prime supplier to its franchised and corporate
supermarkets. The company also serves as a wholesaler to other smaller
independent retail stores in its market areas. The company supplies grocery,
frozen food, dairy and produce to its customers through its 364,000 square foot
distribution center in Sheboygan, Wisconsin. Also, the company provides its
customers with fresh, frozen and processed meats, eggs and deli items through a
third party distribution facility in Milwaukee, Wisconsin on a contract basis.
The company employs approximately 1,750 persons, nearly 1,300 of whom
are employed in the corporate retail segment operations. A majority of the
company's retail employees are employed on a part-time basis. Of the company's
remaining employees, approximately 200 are engaged in warehousing, distribution
and trucking activities, and nearly 250 are corporate and administrative
personnel.
39
APPROVAL OF AGREEMENT AND PLAN OF SHARE EXCHANGE
Overview
We propose to reorganize our operations by forming a holding company
structure. Under the terms of the Agreement and Plan of Share Exchange, which is
attached as Appendix C, all of the outstanding shares of our common stock will
be exchanged on a share-for-share basis for Schultz Holding common stock. When
the exchange is completed, each person who owned our common stock immediately
prior to the exchange will own a corresponding number of shares (and percentage)
of Schultz Holding common stock. Similarly, Schultz Holding will own all of the
outstanding shares of our common stock. In short, the exchange will transform
Schultz Holding from a wholly-owned subsidiary of the company into the company's
sole shareholder. If the exchange is implemented, shareholders will not be
required to surrender their existing Schultz stock certificates for stock
certificates of Schultz Holding.
Our corporate structure immediately prior to the share exchange is as
follows:
-----------------------------
Shareholders
-----------------------------
|
|
-----------------------------
Schultz Sav-0 Stores, Inc.
-----------------------------
|
------------------
| |
------------------- -----------------------------
PW Trucking, Inc. Schultz Holding Company, Inc.
------------------- -----------------------------
40
The reorganized corporate structure of the company and Schultz Holding
immediately after the exchange will be as follows:
-----------------------------
Shareholders
-----------------------------
|
|
-----------------------------
Schultz Holding Company, Inc.
-----------------------------
|
|
-----------------------------
Schultz Sav-0 Stores, Inc.
-----------------------------
|
|
-------------------
PW Trucking, Inc.
-------------------
The company's board of directors believes that the plan of share
exchange is in the best interests of the company's shareholders. The plan of
share exchange has been approved by the boards of directors of both the company
and Schultz Holding and by the company in its capacity as Schultz Holding's sole
shareholder, and has been executed by authorized officers of each company. If
our shareholders approve the plan of share exchange, the exchange will become
effective when the we file articles of exchange with Wisconsin Department of
Financial Institutions, which we intend to do as soon as practicable after we
receive shareholder approval.
Approval of the plan of share exchange by our shareholders will also
result in amendments to our 1995 equity incentive plan and, if adopted at the
annual meeting, our 2001 nonemployee director stock option plan to substitute
Schultz Holding common stock for our Common Stock (see the discussion set forth
under "The Agreement and Plan of Share Exchange--Stock Incentive Plans" below
for more information). Such amendments provide for the future use of Schultz
Holding common stock instead of our common stock under the common stock plans.
Moreover, after the exchange is completed, Schultz Holding will become the
sponsor of the common stock plans instead of the company. However, approval of
the plan of share exchange will not constitute approval of the proposal to amend
the 1995 equity incentive plan or the proposal to adopt the 2001 nonemployee
director stock option plan.
41
After the exchange, Schultz Holding shareholders will have the right
to vote on corporate action concerning Schultz Holding (but not the company) in
accordance with the Wisconsin Business Corporation Law. The exchange will not
result in any change in the outstanding indebtedness of the company, which will
continue to be indebtedness of the company after the exchange.
Present Overview
We are the primary supplier to our 90 franchised and corporate-owned
Piggly Wiggly supermarkets. We also serve as a wholesaler to a number of
smaller, independently operated retail supermarkets and convenience stores in
our market areas.
We believe that we have established ourselves as a niche food marketer
in small to mid-size markets by delivering the product variety, quality of
perishable products, pricing and promotional programs traditionally found only
in large metropolitan markets. As a hybrid retailer and wholesaler, we have
created a "virtual chain" of retail stores served by a vertically-integrated
wholesaler. In 2000, our virtual chain had approximately $800 million in
retail sales. The virtual chain encompasses all Piggly Wiggly supermarkets, both
franchised and corporate, in a single, coordinated merchandising and advertising
program which typically includes:
o a weekly newspaper ad insert;
o outdoor boards;
o television and radio spots;
o sponsorship of entertainment and charitable events; and
o our Piggly Wiggly Preferred Club(R)Card and E-Savings programs.
We believe that this coordinated program allows us to leverage the
combined buying power of all our franchised and corporate stores and deliver a
powerful and effective promotional vehicle for our participating vendor
partners. Additionally, we believe that we provide our franchised stores with
cost-effective administrative support services and financial resources that
enable the operation of efficient, contemporary supermarkets, while the
independent retail ownership of our franchisees provides the entrepreneurial
spirit and community involvement that we believe is an integral part of
marketing in smaller markets. The successful combination of these elements
creates the partnership between us and our franchisee retailers that results in
a virtual chain of coordinated and integrated retail food distribution. By
operating as a virtual chain, we are able to achieve superior performance
compared to traditional
42
wholesalers, yet avoid significant direct capital investments at the retail
level to grow our business. Our franchisee retailer, as part of the virtual
chain, benefits from lower cost of products and the coordinated promotional
activity normally associated only with larger retail grocery chains. We believe
that this structure enables us to leverage the favorable elements of both a
wholesaler and a retailer, giving us and our franchisees a unique advantage in
our marketplace. We believe that this advantage has been a key component in our
success over the past few years as the virtual chain concept has evolved.
We supply a variety of products to our franchised and corporate
supermarkets and other wholesale customers, primarily from our warehouse and
distribution center in Sheboygan, Wisconsin. We also provide our franchised and
corporate supermarkets and other customers with fresh, frozen and processed
meat, eggs and deli products from a third-party distribution facility in
Milwaukee, Wisconsin. Through arrangements with several vendors, we also offer a
line of carbonated soft drinks, fruit drinks and drinking and distilled water
under our Springtime(TM) label.
In the absence of acquisition or consolidation activity, we expect the
near-term prognosis for the industry and our company to be continued moderate
growth. As a result, we continue to evaluate acquisition opportunities,
particularly any that might allow us to expand our core competencies and meet
our return on investment and profitability requirements. As part of implementing
our corporate strategy to improve the profitability of our corporate retail
operations, we continue to seek opportunities to expand and acquire corporate
and franchise stores, to convert or close underperforming stores and to enter
new markets. We will focus primarily on:
o growth initiatives that leverage our core competencies in marketing
and merchandising food products and services to our franchise,
corporate, and retail customers;
o profitability initiatives that drive EBITDA as a rate to sales; and
o development of new business systems to support and facilitate our
strategic initiatives.
Our significant accomplishments since the beginning of fiscal 2000
include the:
o conversion of a formerly independent operator into a franchisee in
Markesan, Wisconsin in January 2000;
o closing an older corporate store and replacing it with a more
competitive and larger facility in Racine, Wisconsin in May 2000;
43
o opening a new market franchise store in Kewaskum, Wisconsin in June
2000; and
o closing older franchise stores and replacing them with more
competitive and larger facilities in Pardeeville, New Holstein and
Slinger, Wisconsin in April 2000, September 2000 and January 2001,
respectively;
The following projects are scheduled for completion in 2001:
o replacement of existing franchise supermarket Campbellsport,
Wisconsin; and
o replacement of existing corporate supermarkets in Sheboygan, Wisconsin
and Zion, Illinois.
We are a Wisconsin corporation organized in 1912 and maintain our corporate
headquarters at 2215 Union Avenue, Sheboygan, Wisconsin 53081. You can visit our
internet website at http://www.shopthepig.com.
Wholesale Operations
For several years, we have emphasized our wholesale distribution
business and the associated refinement of our franchise store base which,
combined with our unique marketing and merchandising program, has created an
effective and efficient virtual chain.
We believe that one of the competitive advantages we provide to our
franchised supermarkets through our virtual chain strategy is our value-oriented
customer merchandising and community-specific marketing support program,
pursuant to which franchisees participate with corporate stores in systemwide
promotions and other merchandising events. Through a variety of partnering,
merchandising and marketing programs, we benefit our franchisees through
additional sales resulting from heightened consumer name recognition and
in-store merchandising programs, combined with special promotional pricing.
Additional services that we provide to our franchisees include:
o retail performance counseling and supervision;
o retail accounting;
o preparation of store payrolls;
o preparation of print, electronic and outdoor media advertising
(including various point-of-sale materials);
44
o assistance in the selection and analysis of store locations;
o financing and lease negotiations;
o merchandising planning;
o equipment selection and sourcing;
o engineering services, including store design, floor layout and
facility project management;
o retail technology implementation and support;
o labor planning and scheduling; and
o product category supervision.
We provide some of these services as part of the franchise
relationship, while other services are provided under a separate fee arrangement
intended to cover our costs.
We are the primary supplier to all of our franchised and corporate
supermarkets. We also serve as a wholesaler to other smaller independent retail
stores in our market area, accounting for less than 2% of our 2000 net sales.
Franchisees pay us fees determined by the retail sales of their
supermarkets. We do not charge an initial fee to franchisees for granting a
franchise. Consistent with industry practice, in certain situations, we provide
credit enhancements to certain qualified franchisees by (i) leasing the
franchisee's supermarket premises and, in turn, subleasing the premises to the
franchisee and/or (ii) guaranteeing a portion of the franchisee's bank
borrowings.
Under our Piggly Wiggly Master Franchise Agreement, our franchise
territory includes all of Wisconsin, the upper peninsula of Michigan and
designated counties in northern Illinois, southeastern Minnesota and eastern
Iowa. Our franchise rights are of unlimited duration and are not subject to any
specific termination provision. We are required to pay franchise fees to the
current franchisor in parts of our market areas. The only other material
obligation imposed on us in our franchise territory is that the supermarkets
operated under the Piggly Wiggly name must comply with the standards imposed on
supermarkets in the Piggly Wiggly system. We believe that our own franchised and
corporate store standards exceed the Piggly Wiggly system standards.
45
Retail Operations
Our franchised and corporate supermarkets stock a comprehensive
selection of groceries, frozen foods, prepared foods, fresh produce, meat,
poultry, eggs and dairy products. Our franchised and corporate supermarkets also
allocate display space to non-food items, such as health and beauty aids,
housewares, magazines and periodicals, video cassette rentals, flowers and
plants, greeting cards and general merchandise. Our franchised and corporate
supermarkets carry a broad range of branded merchandise and private-label store
branded product alternatives to branded merchandise. In general, the
private-label products carried by our franchised and corporate supermarkets have
lower selling prices, but higher gross profit margins, than branded merchandise.
Consistent with trends generally within the industry, we continue to experience
increases in retail customer demand for store brands and believe that our
Topco-procured line of branded products is satisfying this consumer trend. See
"Purchasing and Distribution." [Based on our internal wholesale price index,
inflation did not have a significant effect on sales between 2000 and 1999,
except with regard to tobacco products and fuel costs incurred transporting
products to our franchised and corporate stores. Although inflation had a
significant effect on our fuel costs, we were able to recover most of this
increase by imposing a fuel surcharge on our franchised stores.]
The Piggly Wiggly Preferred Club(R) Card marketing program, a
customer-friendly, card-based system, is in place in all our corporate and
franchised supermarkets. We designed the Piggly Wiggly Preferred Club(R) Card to
reward current customers and attract new customers by offering "clipless
coupons" on weekly advertised specials and "automatic" savings on monthly store
specials. The card, processed by a standardized front-end point-of-sale system,
allows us to maintain a valuable, integrated database that we use to identify
our best customers and their preferences so that the virtual chain of stores can
better serve its customers. We will never sell customer-specific information in
our data base for use by third parties. The card also doubles as a check-cashing
and video rental identification card. Additionally, the Piggly Wiggly Preferred
Club(R) Card program affords the ability to issue point-of-sale coupons
redeemable on future purchases.
In December 2000, we partnered with ValuPage(R) to launch Piggly
Wiggly E-Savings, the industry's first and most personalized online and in-store
grocery savings program. Customers register for the Piggly Wiggly E-Savings
program by providing their e-mail addresses and Piggly Wiggly Preferred Club(R)
Card numbers. After registering, customers receive a weekly e-mail with store
specials and coupons customized for their shopping preferences as well as
special savings and sweepstakes. We believe that the Piggly Wiggly Preferred
Club(R) Card and E-Savings program and the coordinated marketing and
merchandising program they support will be key components to our future growth.
46
Our franchised supermarkets range in size from 10,400 square feet to
54,400 square feet, with an average of 25,770 square feet. Our corporate
supermarkets range in size from 19,980 square feet to 54,850 square feet, with
an average of 34,990 square feet. All of our franchised and corporate
supermarkets contain several perishable or specialty service departments,
including:
o fresh and processed meat;
o take-home entrees and snacks;
o fresh fruits and vegetables;
o fresh seafood;
o delicatessen;
o flowers and plants; and
o baked goods.
Several supermarkets also contain or provide one or more of the
following:
o wine and spirit sales;
o video rentals;
o lottery sales;
o photo processing services;
o TicketMaster(R)ticket centers;
o in-house banking services;
o in-house dry cleaning stores;
o automated teller machines; and
o on-line debit and credit card check-out services.
Certain franchised and corporate stores continue to fail to meet
certain financial performance goals. In order to further improve our results of
operations, we continue to evaluate various business alternatives relating to
underperforming operations, including the sale or conversion of these stores,
closing stores and implementing other operational changes.
47
Summary of Our Stores
The following table shows our development of, and changes in, our
franchised and corporate retail supermarkets for the periods presented:
Franchise Supermarkets Corporate Supermarkets
-------------------------------------------|--------------------------------------------
Number of Supermarkets |
1996 1997 1998 1999 2000 | 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- | ---- ---- ---- ---- ----
|
|
Beginning of Year 66 68 68 68 69 | 19 16 18 18 19
|
New Market Supermarkets(a) 1 1 1 1 1 | -- 1 -- -- --
|
Replacement Supermarkets(b) 2 1 1 1 2 | -- -- 1 -- 1
|
Converted to/from 1 (1) -- (1) -- | (1) 1 -- 1 --
Franchise(c) |
|
Terminated Operations(d) (2) (2) (2) (2) (2) | (2) -- (1) -- (1)
|
New Franchises(e) -- 1 -- 2 1 | -- -- -- -- --
|
End of Year 68 68 68 69 71 | 16 18 18 19 19
|
Remodeled Supermarkets(f) 1 3 2 4 2 | -- -- -- --
|
- - - ---------------
(a) New market supermarkets are newly constructed supermarkets in market areas not recently served by us.
(b) Replacement supermarkets are newly constructed supermarkets whose opening corresponds with the closure of a nearby
franchised or corporate supermarket.
(c) Supermarkets that are converted from corporate to franchise units, or vice versa, are included as reductions to
supermarket totals in one category and corresponding additions to totals in the other category.
(d) Terminated operations represent supermarkets that are no longer going concerns, including replaced supermarkets.
(e) New franchises are additions to our franchise group other than through conversion from corporate supermarkets.
(f) Remodeled supermarkets represent supermarkets that have undergone substantial expansion and/or remodeling totaling
at least $300,000.
Purchasing and Distribution
We purchase groceries in sufficient volume to qualify for favorable
price brackets for most items. We purchase brand name grocery merchandise
directly from the manufacturers or processors and purchase produce, meat and
seafood from a variety of sources. We purchase substantially all of our private
label items and fresh meats through Topco Associates, Inc. Topco is a national
purchasing cooperative whose member-owners consist of more than 25 regional
supermarket chains and food services organizations who collectively operate more
than 2,600 stores. According to Topco data, its member-owners accounted for
approximately [10%] of United States grocery store sales volume in [2000]. In
2000, purchases through Topco accounted for approximately [13%] of our total
inventory purchases. We also
48
purchase store and warehouse equipment and supplies, primarily bags and
packaging material, through Topco. Topco's size and purchasing power enable it
to employ large-volume, low-cost purchasing techniques on behalf of its
member-owners.
In January 2000, we became a member of "World Brands," a Topco
division dedicated to using the combined purchasing power and marketing strength
of its members to obtain favorable treatment from national brand manufacturers.
To attain this goal, World Brands, together with its members, negotiates with
each vendor for the benefit of all of its members in a manner similar to the way
that a retailer would do on behalf of its entire organization. There are
currently sixteen members of World Brands, all of which are also members of
Topco. According to World Brands data, the combined retail sales of its members
surpasses that of all but four of the grocery retailers in the United States.
The World Brands programs in which we have participated lead us to believe that
World Brands presents us with an opportunity to qualify for more favorable
prices and promotions than we could attain on our own.
We and our direct-contract, third-party distribution center supplied
more than [73%] of the products supplied to our franchised and corporate stores
in 2000. The remainder were supplied by direct store delivery vendors. We own
our 364,000 square-foot distribution center in Sheboygan, Wisconsin. With the
exception of fresh, frozen and processed meat, eggs and deli products, we
distribute all products that we supply from our Sheboygan facility. While we
perform the buying function, a third-party contractor in Milwaukee, Wisconsin
performs the distribution services for our meat operations. We believe that this
arrangement provides us with operating cost efficiencies and the ability to
expand our wholesale product offerings and better satisfy wholesale customer
delivery schedules through improved capacity.
As described above under "Wholesale Operations," we believe that one
of our competitive advantages is the community-oriented marketing programs that
we provide to franchisees as part of our virtual chain strategy. Coordinated
weekly newspaper ad inserts, high-visibility outdoor billboard advertising and
television and radio advertising stress the value and customer service provided
by our local Piggly Wiggly supermarkets. We also sponsor local events and
festivals throughout the marketing area to improve our Piggly Wiggly name
recognition, such as the Midwest's largest fireworks display at Milwaukee's
Summerfest lakefront music festival.
We operate a leased, full-service trucking fleet, which consists of 22
tractors and 41 refrigerated trailers. We augment our transportation
requirements with temporary leasing arrangements as conditions warrant. PW
Trucking, Inc., our wholly-owned subsidiary, provides contract and common
carrier services throughout our operating territory. Revenues from unrelated
parties generated by this business were nominal in 2000 and are expected to be
nominal in 2001.
49
Competition
The wholesale and retail food industry is highly competitive. At the
wholesale level, we compete with regional and national wholesalers, such as
Fleming Companies, Inc., SUPERVALU Inc., Roundy's, Inc. and Nash Finch Co. We
believe that key competitive factors include the provision of the following
services to franchise customers:
o credit enhancements and working capital support;
o advertising;
o retail performance and supervision counseling;
o accounting and financial services;
o merchandising;
o facilities engineering;
o design and project management; and
o retail technology support.
We believe that our distribution facilities and the wide range of
support and marketing services provided to our franchised and corporate retail
supermarkets allow us to provide prompt and efficient, low-priced, high-quality
products and important supplemental services to our franchised and corporate
supermarkets and other customers.
The degree of competition at the retail level varies with store
location. In most of our franchised and corporate supermarket locations, we
compete primarily with local retail operators, virtually all of whom are
affiliated with competing wholesalers through arrangements similar to those we
have with our franchisees. In some of our supermarket locations, however, we
also compete with national and regional retail chain stores, such as Sentry Food
Stores, Pick `N Save, Cub Foods, Jewel Food Stores, Dominicks Finer Foods, Copps
Supermarkets and Kohl's Food Stores. Other competitors include the general
merchandise, wholesale club and supercenter format stores, such as Wal-Mart
Stores, Inc., K-Mart Corp., ShopKo Stores, Inc. and others. We believe that the
principal retail competitive factors include:
o price;
50
o product quality and variety;
o store location and appearance; and
o the quality of a store's perishable product and service departments.
We believe our supermarkets' emphasis on low-cost, high-quality
products, community-based multi-media marketing and merchandising programs and a
high degree of in-store customer service and friendliness provide our franchised
and corporate supermarkets with a competitive advantage in many retail market
areas.
Certain of our competitors at both the wholesale and retail level may
have a competitive advantage resulting from utilizing lower-cost, non-union
workforces. Certain of our competitors have greater financial resources and
marketing budgets than we do. Also, certain competitors using the general
merchandise, wholesale club format or supercenter format may choose to carry and
market a less extensive variety of products, which may allow them to sell such
items at a lower per unit cost than we do.
Employees
As of December 30, 2000, we employed approximately 1,750 persons,
including approximately 1,300 in the operation of our corporate retail
supermarkets. A majority of our corporate retail employees are employed on a
part-time basis. Of our remaining employees, approximately 200 are engaged in
warehousing and trucking activities and approximately 250 are corporate and
administrative personnel. Three retail collective bargaining agreements,
covering a total of approximately 250 employees expire in 2001. We do not
currently anticipate any strikes, work stoppages or slowdowns in connection with
renewing such agreements.
PW Trucking, Inc.
PW Trucking, Inc. is a wholly-owned subsidiary of Schultz that
provides contract and common carrier services throughout our operating
territory.
Schultz Holding Company, Inc.
Schultz Holding, a Wisconsin corporation, was organized in 2001.
Schultz Holding is currently a direct subsidiary of the company. Upon the
consummation of the share exchange, Schultz Holding will become our parent
company. Thus, all the business and operations conducted by
51
the company and its subsidiary immediately before the share exchange will
continue to be conducted by Schultz Holding and its subsidiaries (including the
company) immediately after the exchange. Similarly, the consolidated assets and
liabilities of the company and its subsidiaries immediately before the exchange
will be the same as the consolidated assets and liabilities of Schultz Holding
and our subsidiaries (including the company) immediately after the share
exchange.
Schultz Holding currently conducts no business and has virtually no
assets and exists solely for the purpose of serving as a holding company.
Schultz Holding is not expected to be an operating company. After the
reorganization is completed, Schultz Holding will engage in business activities
through certain of its subsidiaries (including the company). As business
conditions warrant, additional subsidiaries of Schultz Holding, or of one or
more of its subsidiaries, may be formed.
Quantitative and Qualitative Disclosures About Market Risk
We believe that our exposure to market risk related to changes in
foreign currency exchange rates, interest rate fluctuations and trade accounts
receivable is immaterial.
Reasons for Plan of Share Exchange
We believe that it is in the best interests of our shareholders to
actively pursue growth and expansion initiatives. As in the past, such expansion
may occur through the addition of individual stores, which will likely operate
under the Piggly Wiggly(R) name, to our virtual chain on a store-by-store basis.
Because opportunities to expand in this manner are limited, however, we intend
to pursue multi-store acquisitions. If we are successful in completing this type
of acquisition, it is likely that the acquired stores will operate under brand
names other than Piggly Wiggly(R) and will retain their independent corporate
cultures and structures.
We believe that the proposed reorganization would help us:
o retain the corporate cultures associated with the brand names of
acquired stores;
o maintain the distinct teams required to operate stores under different
names and formats;
o improve our ability to differentiate stores operating under different
brand names in the marketplace;
o provide flexibility to meet future financing needs;
52
o create one entity - Schultz Holding - that will be recognized by the
shareholders, the public, financial institutions and other business
partners; and
o isolate certain liabilities so that the impact of these liabilities on
our shareholders is minimized.
The proposed reorganization is similar to transactions undertaken by
other companies in the food wholesale and retail industry in the past few years.
Termination or Amendment of the Plan of Share Exchange
Even if the shareholders approve the plan of share exchange, the
boards of directors of the company and Schultz Holding may terminate the plan of
share exchange by mutual consent if the boards determine that the reorganization
would be inadvisable or if certain required consents or approvals have not been
obtained within a reasonable time. In addition, the boards of directors of the
company and Schultz Holding, acting together, may amend the plan of share
exchange at any time prior to its effectiveness. Once the shareholders have
approved the plan of share exchange, our board of directors may amend, modify or
supplement the plan of share exchange only if the amendment, modification or
supplement does not, in the sole judgment of the board of directors, materially
and adversely affect the rights of our shareholders.
Conditions to Plan of Share Exchange
The plan of share exchange will not be completed unless certain
conditions are satisfied, including:
o Approval of the plan of share exchange by our shareholders;
o Approval for listing of Schultz Holding common stock by the Nasdaq
National Market; and
o Receipt of an opinion from Foley & Lardner, our general counsel, as to
the validity of Schultz Holding common stock to be issued under the
plan of exchange.
53
Rights of Dissenting Shareholders
Under the Wisconsin Business Corporation Law, holders of our common
stock will not have dissenters' rights in connection with the plan of share
exchange.
Stock Incentive Plans
We currently maintain a 1995 Equity Incentive Plan. In addition, if
approved at the annual meeting, we will also maintain the 2001 Nonemployee
Director Stock Option Plan. Once the exchange is completed, Schultz Holding will
become the sponsor of these plans. Thereafter, Schultz Holding common stock will
be used instead of our common stock whenever stock is required in connection
with the plans. Amendments to the common stock plans to provide for the
foregoing will take effect at the same time as the exchange. Shareholder
approval of the plan of share exchange will also constitute shareholder approval
of such amendments to the common stock plans.
Listing of Schultz Holding Common Stock
We expect the Schultz Holding common stock to be approved for listing
on the Nasdaq National Market and to trade under the stock symbol "___." At the
time of the listing of Schultz Holding common stock, we will delist our common
stock.
Transfer Agent and Registrar
The transfer agent and registrar for Schultz Holding common stock will
be Firstar Bank, N.A. The address for the transfer agent and registrar is
Corporate Trust Department, 1555 North Rivercenter Drive, Suite 301, Milwaukee,
Wisconsin 53212.
Price Range of Common Stock
Our common stock is currently listed on the Nasdaq National Market.
The high and low sales prices of Schultz's common stock during the twelve months
ended December 30, 2000 were $13.00 and $9.88, respectively. The high and low
price on February 23, 2001 was $11.38.
54
Dividend Policy
The most recent quarterly dividend declared on our common stock was
$0.09 per share payable on March 9, 2001. We expect that Schultz Holding will
pay quarterly dividends on its common stock on the same dates and in the same
amounts that we currently pay dividends on our common stock. We expect that for
the foreseeable future the funds required by Schultz Holding to enable it to pay
dividends will be derived predominantly from the dividends paid by the company.
However, we cannot guarantee what the amount of the initial quarterly dividend
on Schultz Holding common stock may be. Nor can we guarantee the payment of
future dividends, since the declaration of such dividends will depend primarily
on the ability of Schultz Holding's subsidiaries to pay dividends to Schultz
Holding. That ability, in turn, will depend on the future earnings, cash flow
and financial condition of those subsidiaries.
Our ability to make dividend payments to Schultz Holding will depend
upon the availability of retained earnings and the needs of its business. We
intend to pay dividends to Schultz Holding, if available, in amounts which will
be sufficient for Schultz Holding to pay cash dividends and to pay its expenses,
including operating expenses, if any.
Directors and Executive Officers
The initial board of directors of Schultz Holding will consist of the
same directors as the board of directors of the company, including directors
elected at the 2001 annual meeting. Schultz Holding's directors will serve terms
ending on the date that their terms as our directors are scheduled to end. The
first election of Schultz Holding directors after the reorganization will be at
its annual meeting of shareholders in 2002. In addition, we anticipate that
Schultz Holding and the company will have some common officers.
Description of Schultz Capital Stock
We are authorized to issue:
o 20,000,000 shares of common stock having a par value of $0.05 per
share, of which 5,475,924 shares were issued and outstanding as of
February 22, 2001; and
o 1,000,000 shares of preferred stock having a par value of $0.05 per
share, of which no shares were issued and outstanding as of February
22, 2001.
55
The preferred stock, if any shares were outstanding, would have
preference over the common stock as to dividends and assets on liquidation.
Description of Schultz Holding Capital Stock
Schultz Holding is authorized to issue:
o 20,000,000 shares of common stock having a par value of $0.05 per
share, of which 100 shares were issued and outstanding, and held by
the company, as of February 22, 2001; and
o 1,000,000 shares of preferred stock having a par value of $0.05 per
share, of which no shares were issued and outstanding as of February
22, 2001.
Preferred Stock. Like our articles of incorporation, the Schultz
Holding articles of incorporation provide that, to the extent permitted by the
Wisconsin Business Corporation Law, the board of directors is authorized, at any
time or from time to time, to divide the preferred shares into one or more
series and to fix the number of shares and the relative rights, preferences and
limitations of each such series. Currently, there are no plans to issue shares
of preferred stock.
Dividends. After giving effect to any prior rights of Schultz Holding
preferred stock, if any should become outstanding, Schultz Holding will pay
dividends on its common stock as determined by its board of directors out of
legally available funds.
Voting Rights. As is true for our shareholders, the holders of Schultz
Holding common stock are entitled to one vote for each share held by them on all
matters submitted to the shareholders of Schultz Holding. Holders of Schultz
Holding common stock do not have cumulative voting rights in the election of
directors. Provided that a quorum exists, the Schultz Holding articles of
incorporation and bylaws generally require the affirmative vote of a majority of
the shares voted at a shareholder meeting or shareholder action. However, the
Schultz Holding articles of incorporation and bylaws require the affirmative
vote of the holders of a greater number of shares in order to amend or adopt any
provision inconsistent with certain specified provisions of the Schultz Holding
articles of incorporation and bylaws.
Liquidation. As is the case for holders of our preferred stock, in the
event Schultz Holding is liquidated or dissolved, either voluntarily or
involuntarily, the holders of any Schultz Holding preferred stock, if any should
become outstanding, would have priority (after Schultz Holding's creditors)
56
with respect to the distribution of Schultz Holding's assets. After the holders
of any such preferred stock are paid, the holders of Schultz Holding common
stock would be entitled, to the exclusion of the holders of any such preferred
stock, to share ratably (according to the number of shares held by them) in all
remaining assets of Schultz Holding available for distribution.
Preemptive and Other Rights. The holders of Schultz Holding common
stock (like the holders of our common stock) do not have any preemptive rights
to purchase shares of Schultz Holding common or preferred stock (or their
equivalents). The Schultz Holding common stock is not subject to redemption or
to any further calls or assessments and is not entitled to the benefit of any
sinking fund provisions. Except as provided by Section 180.0622(2)(b) of the
Wisconsin Business Corporation Law, the shares of Schultz Holding common stock
to be issued in connection with the exchange will be fully paid and
nonassessable once the exchange is completed.
Comparison of our Common Stock and Schultz Holding Common Stock
As Wisconsin corporations, both the company and Schultz Holding are
governed by the Wisconsin Business Corporation Law. As a result of the exchange,
holders of our common stock, whose rights as shareholders are currently governed
by our articles of incorporation and bylaws, will become holders of Schultz
Holding common stock, whose rights as shareholders will be governed by the
Schultz Holding articles of incorporation and bylaws. The Schultz Holding
articles of incorporation and bylaws are identical to our articles of
incorporation and bylaws, except that we have made two changes:
o we eliminated a class of preferred stock that we no longer need and of
which no shares are issued or outstanding; and
o we changed the way that directors can be removed in order to resolve
an inconsistency between our articles of incorporation and bylaws.
The following table summarizes and compares the principal rights of
Schultz Holding shareholders and the rights of our shareholders. It is qualified
in its entirety, however, by reference to the full texts of the articles of
incorporation and bylaws of each of Schultz Holding and the company. We have
attached the Schultz Holding articles of incorporation and bylaws as Appendix D
and Appendix E, respectively, for your convenience. Our articles of
incorporation and bylaws are included as exhibits to Schultz Holding's Annual
Report on Form 10-K for the year ended December 30, 2000.
57
- - - ------------------------------------------------------------------------------------------------------------------
SCHULTZ
HOLDING
RIGHT OR COMMON
PREFERENCE SCHULTZ COMMON SHAREHOLDERS SHAREHOLDERS
- - - ------------------------------------------------------------------------------------------------------------------
Authorized Shares 20,000,000 shares of common stock and 1,000,000 shares of Same.
preferred stock.
- - - ------------------------------------------------------------------------------------------------------------------
Preemptive Rights None. Same.
- - - ------------------------------------------------------------------------------------------------------------------
Number of Directors Minimum of one. The actual number is set by the board of Same.
directors.
- - - ------------------------------------------------------------------------------------------------------------------
Change in Number of The shareholders or the board of directors can change the Same.
Directors maximum and minimum limits by amending the bylaws.
- - - ------------------------------------------------------------------------------------------------------------------
Classified Board Three classes of directors, each serving three-year terms. Same.
- - - ------------------------------------------------------------------------------------------------------------------
Nominations of By the board of directors or by a shareholder who complies with Same.
Directors the bylaws' notice requirement.
- - - ------------------------------------------------------------------------------------------------------------------
Cumulative Voting for None. Same.
Directors
- - - ------------------------------------------------------------------------------------------------------------------
Removal of Directors The shareholders at a meeting called for the purpose of Same.
removing the director with cause by an affirmative vote of a
majority of the outstanding shares of our stock. Under limited
circumstances, shareholders may remove directors without cause.
- - - ------------------------------------------------------------------------------------------------------------------
Election of Temporary By the shareholders or by the board of directors. Same.
Directors
- - - ------------------------------------------------------------------------------------------------------------------
Special Meetings of May be called by the board of directors, any officer or upon Same.
Shareholders demand of the holder or holders of 10% of the votes entitled to
be cast at such a meeting.
- - - ------------------------------------------------------------------------------------------------------------------
Setting of Business to be By the board of directors, or by a shareholder who
be Transacted at an complies with the bylaws' notice requirement. Same.
Annual Meeting
- - - ------------------------------------------------------------------------------------------------------------------
58
- - - ------------------------------------------------------------------------------------------------------------------
SCHULTZ
HOLDING
RIGHT OR COMMON
PREFERENCE SCHULTZ COMMON SHAREHOLDERS SHAREHOLDERS
- - - ------------------------------------------------------------------------------------------------------------------
Shareholder Action by Only if unanimous. Same.
Written Consent
- - - ------------------------------------------------------------------------------------------------------------------
Supermajority Voting 75% vote to amend or repeal certain provisions of the articles of Same.
Requirements incorporation or bylaws.
- - - ------------------------------------------------------------------------------------------------------------------
Possible Anti-Takeover Effect of Certain Schultz Holding Provisions and
Wisconsin Law
Schultz Holding Articles of Incorporation and Bylaws. Certain
provisions of the Schultz Holding articles of incorporation and bylaws could
have the effect of delaying, discouraging or preventing tender offers or other
unsolicited attempts to acquire the business of Schultz Holding. These
provisions, all of which also exist under our articles of incorporation and
bylaws, include:
o the existence of authorized but unissued common and preferred stock;
o the ability of the directors to increase the number of directors and
to elect, by majority vote, the additional directors;
o the division of the board into three classes of directors;
o the requirement that shareholders give advance notice of nominations
of directors and proposals to transact business at an annual or
special meeting;
o the inability of shareholders to remove directors other than for cause
without the approval of more than two-thirds of the directors in
office;
o the absence of cumulative voting for directors;
o the inability of shareholders to act by written consent unless the
consent is unanimous; and
59
o the requirement of supermajority voting in order to amend or adopt
certain provisions of the articles of incorporation and bylaws.
By discouraging potential takeover bids, these provisions might
diminish the opportunity for Schultz Holding's shareholders to sell their shares
at a premium over then-prevailing market prices. We decided to retain such
provisions to ensure that Schultz Holding's board of directors would have the
ability to evaluate any proposed acquisition or change in control based on the
interests of Schultz Holding and all of its constituencies without undue
pressure.
Certain Statutory Provisions. Sections 180.1140 through 180.1144 of
the Wisconsin Business Corporation Law (which apply to both us and to Schultz
Holding) prohibit a "resident domestic corporation" such as us or Schultz
Holding from engaging in certain business combinations with an "interested
stockholder" (generally, the beneficial owner of 10% or more of a corporation's
voting stock) for three years following the date on which such shareholder
became an interested stockholder. However, if the corporation's board of
directors approved the business combination or the transaction which resulted in
the shareholder becoming an interested stockholder, such prohibition does not
apply. If the interested stockholder fails to obtain such approval from the
board of directors, then even after the expiration of the three-year period, a
business combination with the interested stockholder may only be consummated
with the approval of the holders of a majority of the voting stock not held by
such interested stockholder, unless the business combination satisfies certain
adequacy-of-price standards intended to provide a fair price for shares held by
shareholders other than the interested stockholder.
Existing Indebtedness
The share exchange will not result in any change in our existing
indebtedness, which will continue to be our indebtedness after the share
exchange. The indebtedness will be neither assumed nor guaranteed by Schultz
Holding in connection with the exchange. It is possible, however, that our banks
will, as a result of the reorganization, require Schultz Holding to be a party
to our loan agreements.
Accounting Treatment
The consolidated assets and liabilities of Schultz Holding and its
subsidiaries (including the company) immediately after the exchange will be the
same as the consolidated assets and liabilities of the company and its
subsidiaries (including Schultz Holding) immediately before the exchange.
Schultz Holding, on an unconsolidated basis, will record its investment in the
company at its net book value. The exchange will result in Schultz Holding
becoming the owner of all of the outstanding shares of our common stock. This
change in ownership will have no accounting effect on the company.
60
Federal Income Tax Consequences
General. The following discussion is based on a legal opinion of Foley
& Lardner, our general counsel. For federal income tax purposes, the exchange
will qualify as a tax-free exchange under Section 351 of the Internal Revenue
Code of 1986.
Tax Implications to the Shareholders. For federal income tax purposes,
no gain or loss will be recognized by the shareholders from the exchange. The
aggregate tax basis of the Schultz Holding common stock received by each
shareholder will be the same as the shareholder's present aggregate tax basis in
his or her Schultz common stock (typically, when a shareholder sells his or her
stock, the tax basis, or initial cost, of the stock is subtracted from the
proceeds of the sale to determine the taxable amount of the shareholder's gain).
For purposes of determining long-term capital gains for federal income tax
purposes, the holding period of the Schultz Holding common stock received by
each shareholder will include the period during which such shareholder held our
common stock, provided that our common stock was held as a capital asset on the
date of the exchange.
Tax Implications to the company and Schultz Holding. Neither the
company nor Schultz Holding will recognize any gain or loss for federal income
tax purposes upon the exchange of our common stock and Schultz Holding common
stock. For federal income tax purposes, the basis of the company's stock
received by Schultz Holding will be the same as our net asset basis immediately
prior to the exchange, subject to certain adjustments under Treasury regulations
relating to consolidated groups. Schultz Holding's holding period in our common
stock received in the exchange will include the periods during which such stock
was held by our shareholders.
Other Tax Aspects. Apart from United States federal income tax
aspects, we have made no attempt to determine any tax that may be imposed on
shareholders by the country, state or jurisdiction in which such shareholders
reside or are citizens. Shareholders subject to special treatment because of
their personal tax circumstances should consult their tax advisors as to the
application of state or local income tax and other laws.
Legal Opinions
Foley & Lardner, our general counsel, will pass upon the validity of
the Schultz Holding common stock and on certain tax matters.
61
Vote Required
A majority of outstanding shares of our common stock must vote to
adopt the plan of share exchange for it to be adopted. Therefore, abstentions
and broker non-votes will have the effect of votes against the plan of share
exchange. Walter G. Winding and Elwood F. Winn, as proxies intend to vote to
adopt the plan of share exchange.
Recommendation of the board of directors
Our board of directors recommends a vote to adopt the plan of share
exchange.
PROPOSAL TO AMEND OUR 1995 EQUITY INCENTIVE PLAN
We designed our 1995 equity incentive plan, which our shareholders
approved on May 10, 1995, to promote our best interests and those of our
shareholders by providing key employees with the opportunity to acquire, or
increase their, proprietary interest in the company. By providing this
opportunity, we hoped to promote continuity of management and increased
incentive and personal interest in the welfare of the company by those key
employees who are primarily responsible for shaping or carrying out our
long-range plans and securing our continued growth and financial success.
As of March 20, 2001, 915,200 shares had been issued or reserved for
issuance pursuant to outstanding options under the plan, leaving only 334,800
shares available for future grants. In order to provide for greater share
availability to allow for additional grants of awards in future years, our board
of directors has voted, subject to approval by shareholders, to increase the
total number of shares that can be issued under the 1995 equity incentive plan
from 1,250,000 shares to 1,750,000 shares.
Eligibility
All of our key employees, including executive officers and
employee-directors, are eligible to receive grants under the plan. Our Chairman
of the Board, an officer of the company under our by-laws, is eligible to
receive grants under the plan. Information regarding the number of grants
actually made under the plan in 2000 can be found above.
62
Types of Awards
The plan authorizes the grant of (a) incentive stock options,
qualified for special tax treatment Section 422 of the Internal Revenue Code,
(b) nonqualified stock options, (c) stock appreciation rights, (d) restricted
stock, and (e) performance shares.
Terms of Awards
Options. The stock option committee determines the exercise price of
options granted under the plan, provided that the exercise price may not be less
than 100% of the fair market value of our common stock at the date of grant. The
committee also determines the term of all options, which may not be longer than
10 years. Options granted under the plan become exercisable in accordance with a
vesting schedule determined by the committee. Options may be exercised by
payment of the exercise price in cash or other property having equivalent value,
or by tendering previously issued shares of our common stock. To date,
nonqualified stock options are the only type of grant the stock option committee
has made under the plan.
Stock Appreciation Rights. Stock appreciation rights allow the grantee
the right to receive - either in cash or in shares of our common stock - the
excess of the fair market value of shares of our common stock over the grant
price established by the stock option committee, which may not be less than 100%
of the fair market value of our common stock on the date of the grant. The grant
price, term, methods of exercise, methods of payment and other terms and
conditions of stock appreciation rights are determined by the committee. To
date, no stock appreciation rights have been granted under the plan.
Restricted Stock. The plan allows us to grant stock to key employees,
which may be subject to restrictions as determined by the stock option
committee, such as restrictions on the right to vote or to receive dividends
with respect to such stock. At the time of grant, the committee determines the
times at which such restrictions will lapse. No more than 75,000 shares of
restricted stock may be granted to any key employee under the plan. To date, no
restricted stock has been granted under the plan.
Performance Shares. The stock option committee may also grant
performance shares to key employees, which do not allow the employee to vote as
a shareholder, but which may be exchanged for unrestricted shares of common
stock when the performance goals established by the committee are met. To date,
no performance shares have been granted under the plan.
63
Adjustments
To ensure that the benefits of an award under the plan are not
unfairly diminished or increased, the stock option committee has the authority
to adjust the number of shares of common stock covered by the plan and the
number of shares covered by individual grants under the plan whenever a stock
split or similar recapitalization event occurs.
Limits on Transferability
In order to preserve the incentive nature of the plan, awards under
the plan may only be transferred by the grantee to family members or trusts or
other entities established for their benefit, or upon his or her death.
Certain Federal Income Tax Consequences Relating to Stock Options
The grant of stock options under the plan will create no income tax
consequences to us or to the key employee.
A key employee who receives a nonqualified stock option will generally
recognize ordinary income at the time of exercise in an amount equal to the
excess of the fair market value of the our common stock at such time over the
exercise price. We are entitled to a corresponding deduction at the time of
exercise. A subsequent sale of the shares acquired by the key employee at the
time of exercise will give rise to capital gain or loss for the key employee if
the amount realized from the sale is different than the key employee's tax basis
- - - - i.e., the fair market value of the shares at the time of exercise. Such
capital gain or loss will be long-term or short-term, depending on the length of
time between the date of exercise and the date of sale.
A key employee who receives an incentive stock option will recognize
no gain or loss upon the exercise of his or her option. A key employee will
generally have a capital gain or loss when he or she sells shares acquired upon
exercise of an incentive stock option, but we will have no corresponding
deduction. However, if the key employee fails to hold the shares acquired upon
exercise of an incentive stock option until at least two years after the grant
date and at least one year after the date of exercise, the key employee will
recognize ordinary income, at the time the shares are sold, equal to the gain
realized or the excess of the fair market value of the shares at the date of
exercise over the exercise price, whichever is less. In such event, we would
then enjoy a corresponding deduction. Any additional gain realized by the key
employee over the fair market value at the time of exercise will be taxed as
capital gain.
64
To date, the committee has only granted nonqualified stock options
under the plan. None of the existing grants under the plan are contingent on the
approval by shareholders of this proposal.
Vote Required
A majority of shares present and voting at the annual meeting must
vote for the proposed amendment to the plan for it to be approved. Therefore,
abstentions will have the effect of a vote against the proposal. Broker
non-votes will not be counted as voting at the meeting and will, therefore, have
no impact on the voting. Walter G. Winding and Elwood F. Winn, as proxies,
intend to vote for the proposed amendment to the plan.
Our board of directors recommends a vote for the proposed amendment to
our 1995 equity incentive plan to increase the number of shares that we may
issue under the plan from 1,250,000 shares to 1,750,000 shares.
PROPOSAL TO ADOPT THE 2001 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
Our proposed 2001 nonemployee director stock option plan is designed
to promote our best interests and those of our shareholders by providing our
nonemployee directors with the opportunity to acquire or increase their
proprietary interest in the company. By providing this opportunity, we hope to
enhance the incentives and personal interests in the welfare of the company by
our nonemployee directors who are responsible for shaping the long-range plans
of the company and securing the company's continued growth and financial
success.
Eligibility
All of our directors who are not employees of the company are eligible
to receive grants under the plan. If Messrs. Jacobson, Barth and _____ are
elected as directors at the 2001 shareholder meeting, there will be six
directors eligible to receive options under the plan, each of which will be
entitled to receive an option to purchase 5,000 shares of our common stock each
year.
Type and Number of Awards
The plan authorizes the grant of nonqualified stock options only. A
maximum of 200,000 shares may be covered by options under the plan. If any
shares subject to options under the plan are forfeited or if an options
terminates, such shares will be available for the granting of new options under
65
the plan. Shares delivered when an option is exercised may be either shares held
by us in treasury or shares that have never previously been issued.
Terms of Awards
The stock option committee will determine the exercise price of
options granted under the plan, provided that the exercise price may not be less
than 100% of the fair market value of our common stock at the date of grant. The
committee will also determine the term of all options, which may not be longer
than 10 years. Options granted under the plan will become exercisable in
accordance with a vesting schedule determined by the committee, but are expected
to be immediately vested upon grant. Options may be exercised by payment of the
exercise price in cash or other property having equivalent value, or by
tendering previously issued shares of our common stock.
Adjustments
To ensure that the benefits of an award under the plan are not
unfairly diminished or increased, the stock option committee has the authority
to adjust the number of shares of common stock covered by the plan and the
number of shares covered by individual grants under the plan whenever a stock
split or similar recapitalization event occurs.
Limits on Transferability
In order to preserve the incentive nature of the plan, awards under
the plan may only be transferred by the grantee to family members or trusts or
other entities established for their benefit or upon his or her death.
Certain Federal Income Tax Consequences Relating to Stock Options
The grant of stock options under the plan will create no income tax
consequences to us or to the nonemployee directors.
A nonemployee director who receives a nonqualified stock option will
generally recognize ordinary income at the time of exercise in an amount equal
to the excess of the fair market value of the our common stock at such time over
the exercise price. We are entitled to a corresponding deduction at the time of
exercise. A subsequent sale of the shares acquired by the nonemployee director
at the time of exercise will give rise to capital gain or loss for the
nonemployee director if the amount realized from the sale is different than the
nonemployee director's tax basis - i.e., the fair market value of the shares at
66
the time of exercise. Such capital gain or loss will be long-term or short-term,
depending on the length of time between the date of exercise and the date of
sale.
Vote Required
A majority of shares present and voting at the annual meeting must
vote for the proposed plan for it to be approved. Therefore, abstentions will
have the effect of a vote against the proposal. Broker non-votes will not be
counted as voting at the meeting and will, therefore, have no impact on the
voting. Walter G. Winding and Elwood F. Winn, as proxies, intend to vote for the
proposed plan.
Our board of directors recommends a vote for the adoption of the
proposed plan.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Our Independent Public Accountants
Our board has reappointed Arthur Andersen LLP to serve as our
independent public accountants for 2001. Arthur Andersen has served as our
independent public accountants for many years. We expect that representatives of
Arthur Andersen will be at the annual meeting and will have a chance to make a
statement if they would like to do so. They will also be available to respond to
your questions. Walter G. Winding and Elwood F. Winn, as proxies, intend to vote
for ratification of the board of directors' reappointment of Arthur Andersen as
our independent public accountants for 2001.
Our board of directors recommends a vote for ratification of its
selection of Arthur Andersen LLP as our independent public accountants for 2001.
MISCELLANEOUS
We expect that the (i) election of directors, (ii) adoption of the
plan of share exchange with Schultz Holding, a wholly-owned subsidiary of the
company, (iii) ratification of our selection of 2001 independent public
accountants, (iv) amendment to our 1995 equity incentive plan to increase by
500,000 the number of shares of our stock available under that plan, and (v)
adoption of a new 2001 nonemployee director stock option plan will be the only
matters that will be presented for shareholder consideration at the annual
meeting. Other matters may properly come before the annual meeting and the
proxies named in the accompanying proxy will vote on them in accordance with
their best judgment.
67
We will bear the cost of soliciting proxies. We expect to solicit
proxies mainly by mail. Some of our employees may also solicit proxies
personally and by telephone. We do not anticipate that we will retain anyone to
solicit proxies or that we will pay compensation to anyone for that purpose. We
will, however, reimburse brokers and other nominees for their reasonable
expenses in communicating with the persons for whom they hold common stock.
If you would like to receive a copy of our 2000 annual report on Form
10-K - without exhibits - please write to our Secretary at 2215 Union Avenue,
Sheboygan, Wisconsin 53081, and we will provide you with a copy free of charge.
If you wish to include a proposal in our proxy statement for the 2002
annual meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
you should forward your proposal to our Secretary by January 12, 2002. If you
submit a proposal after this date, your proposal will be considered untimely
under our by-laws and we will not be required to present your proposal at the
2002 annual meeting. If the board chooses to present your proposal despite its
untimeliness, the people named in the proxies solicited by the board of
directors for the 2002 annual meeting will have the right to exercise
discretionary voting power with respect to your proposal.
Sincerely,
SCHULTZ SAV-O STORES, INC.
Armand C. Go
Vice President, Chief Financial Officer,
Treasurer and Secretary
Sheboygan, Wisconsin
_____________, 2001
68
SCHULTZ SAV-O STORES, INC. AND SUBSIDIARIES
Page
Management's Responsibilities for Financial Reporting........................F-2
Report of Independent Public Accountants.....................................F-3
Five-Year Financial Highlights...............................................F-4
Consolidated Balance Sheets as of December 31, 2000 and January 1, 2000......F-5
Consolidated Statements of Earnings for Fiscal Years 2000, 1999 and 1998.....F-6
Consolidated Statements of Cash Flows for Fiscal Years 2000, 1999 and 1998...F-6
Consolidated Statements of Shareholders' Investment
for Fiscal Years 2000, 1999 and 1998..................................F-7
Notes to Consolidated Financial Statements...................................F-8
F-1
MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING
The management of Schultz Sav-O Stores, Inc. is responsible for the
preparation, objectivity and integrity of the company's consolidated financial
statements contained in this proxy statement and prospectus. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles and include amounts that are based on management's best
estimates and informed judgments.
To help assure that financial information is reliable and assets are
safeguarded, management maintains a system of internal controls and procedures
which it believes is effective in accomplishing these objectives. These controls
and procedures are designed to provide reasonable assurance, at appropriate
costs, that transactions are executed and recorded in accordance with
management's authorization.
The Company's consolidated financial statements have been audited by
its independent public accountants, Arthur Andersen LLP, whose report was based
on audits conducted in accordance with generally accepted auditing standards and
is presented below. As part of its audit, it performs a review of the company's
system of internal controls for the purpose of determining the amount of
reliance to place on those controls relative to the audit tests it performs.
The Audit Committee of the Board of Directors, composed of directors
who are not officers or employees of the company, meets periodically with Arthur
Andersen LLP and management to satisfy itself that each is properly discharging
its responsibilities. The independent public accountants have direct access to
the Audit Committee.
Elwood F. Winn Armand C. Go
President and Vice President, Chief Financial Officer
Chief Executive Officer Treasurer, and Secretary
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Schultz Sav-O Stores, Inc.:
We have audited the accompanying consolidated balance sheets of
Schultz Sav-O Stores, Inc. (a Wisconsin Corporation) and its subsidiary as of
December 30, 2000 and January 1, 2000 and the related consolidated statements of
earnings, cash flows and shareholders' investment for each of the three fiscal
years in the period ended December 30, 2000. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Schultz Sav-O Stores, Inc. and its subsidiary as of December 30, 2000 and
January 1, 2000, and the results of their operations and their cash flows for
each of the three fiscal years in the period ended December 30, 2000, in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Milwaukee, Wisconsin
February 8, 2001
F-3
FIVE-YEAR FINANCIAL HIGHLIGHTS
==============================================================================================================================
(dollars in thousands, except per share data) Fiscal Year (a) (b)
- - - ------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- - - ------------------------------------------------------------------------------------------------------------------------------
Consolidated statements of earnings
data:
Net sales $ 502,056 $ 496,959 $ 484,885 $ 473,006 $ 453,921
Gross profit 82,753 80,350 78,070 73,907 72,429
Earnings before income taxes 12,762 13,656 13,916 12,418 10,512
Provision for income taxes 4,849 5,298 5,398 4,781 4,047
Net earnings 7,913 8,358 8,518 7,637 6,465
Earnings per share - basic 1.33 1.32 1.26 1.11 0.93
Earnings per share - diluted 1.33 1.30 1.23 1.06 0.90
Cash dividends per share 0.36 0.34 0.30 0.27 0.24
Weighted average shares and equivalents
outstanding (c) 5,951 6,438 6,923 7,148 7,187
Net earnings-to-sales ratio 1.58% 1.68% 1.76% 1.61% 1.42%
Consolidated balance sheet data
(at fiscal year-end):
Working capital $ 30,721 $ 29,797 $ 32,884 $ 29,217 $ 28,579
Total assets 104,899 93,627 104,316 98,866 98,204
Current obligations under capital leases
and current maturities of long-term
debt 954 842 792 866 1,047
Long-term debt 2,685 2,865 3,021 3,165 3,375
Long-term obligations under capital
leases 8,284 9,069 9,764 11,177 12,368
Total shareholders' investment 49,513 47,969 53,085 50,384 47,035
Other data:
Capital additions $ 5,278 $ 3,209 $ 3,847 $ 4,868 $ 3,420
Depreciation and amortization 5,215 4,959 5,075 4,517 4,451
NOTES: (a) The Company's fiscal year ends on the Saturday closest to
December 31. The 1997 fiscal year was a 53-week period. All other
fiscal years presented were 52-week periods.
(b) All data should be read in conjunction with the company's audited
consolidated financial statements and "Management's discussion
and analysis of financial condition and results of operations" as
set forth in this Annual Report.
(c) The weighted average shares and equivalents outstanding for 1997
and 1996 have been retroactively restated to account for the
three-for-two stock split on September 5, 1997.
F-4
CONSOLIDATED BALANCE SHEETS
As of December 30, 2000 and January 1, 2000
- - - -----------------------------------------------------------------------------------------------------------------------
Assets 2000 1999
- - - -----------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and equivalents $ 31,309,000 $ 22,433,000
Receivables 11,691,000 6,629,000
Inventories 24,259,000 26,313,000
Other current assets 2,916,000 3,410,000
Deferred income taxes 4,102,000 3,900,000
- - - -----------------------------------------------------------------------------------------------------------------------
Total current assets 74,277,000 62,685,000
- - - -----------------------------------------------------------------------------------------------------------------------
Noncurrent receivable under capital subleases 4,163,000 4,531,000
Property under capital leases, net 3,051,000 3,462,000
Other noncurrent assets 1,995,000 2,664,000
Property and equipment, net 21,413,000 20,285,000
- - - -----------------------------------------------------------------------------------------------------------------------
Total assets $ 104,899,000 $ 93,627,000
=======================================================================================================================
Liabilities and Shareholders' Investment
- - - -----------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 27,700,000 $ 19,545,000
Accrued salaries and benefits 5,673,000 5,284,000
Accrued insurance 3,032,000 3,002,000
Retail repositioning reserve 495,000 450,000
Other accrued liabilities 5,702,000 3,765,000
Current obligations under capital leases 785,000 696,000
Current maturities of long-term debt 169,000 146,000
- - - -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 43,556,000 32,888,000
- - - -----------------------------------------------------------------------------------------------------------------------
Long-term obligations under capital leases 8,284,000 9,069,000
Long-term debt 2,685,000 2,865,000
Deferred income taxes 861,000 836,000
Shareholders' investment:
Common stock, $0.05 par value, authorized 20,000,000 shares,
issued 8,750,342 in 2000 and 1999 438,000 438,000
Additional paid-in capital 15,174,000 14,961,000
Retained earnings 69,767,000 63,995,000
Treasury stock at cost, 3,165,213 shares in 2000 and 2,808,997
shares in 1999 (35,866,000) (31,425,000)
- - - -----------------------------------------------------------------------------------------------------------------------
Total shareholders' investment 49,513,000 47,969,000
- - - -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' investment $ 104,899,000 $ 93,627,000
=======================================================================================================================
See notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF EARNINGS
For fiscal years 2000, 1999 and 1998
- - - ------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- - - ------------------------------------------------------------------------------------------------------------------------
Net sales $ 502,056,000 $ 496,959,000 $ 484,885,000
Cost of products sold 419,303,000 416,609,000 406,815,000
- - - ------------------------------------------------------------------------------------------------------------------------
Gross profit 82,753,000 80,350,000 78,070,000
Operating and administrative expenses 70,488,000 67,108,000 64,580,000
- - - ------------------------------------------------------------------------------------------------------------------------
Operating income 12,265,000 13,242,000 13,490,000
Interest income 1,349,000 1,175,000 1,242,000
Interest expense (852,000) (761,000) (816,000)
- - - ------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 12,762,000 13,656,000 13,916,000
Provision for income taxes 4,849,000 5,298,000 5,398,000
- - - ------------------------------------------------------------------------------------------------------------------------
Net earnings $ 7,913,000 $ 8,358,000 $ 8,518,000
- - - ------------------------------------------------------------------------------------------------------------------------
Earnings per share - basic $1.33 $1.32 $1.26
========================================================================================================================
Earnings per share - diluted $1.33 $1.30 $1.23
========================================================================================================================
See notes to consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
For fiscal years 2000, 1999 and 1998
- - - ------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- - - ------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net earnings $ 7,913,000 $ 8,358,000 $ 8,518,000
Adjustments to reconcile net earnings to net cash
Provided by operating activities:
Depreciation and amortization 5,215,000 4,959,000 5,075,000
Deferred income taxes (177,000) 481,000 (422,000)
Changes in current assets and liabilities:
Receivables (5,062,000) (1,176,000) 4,265,000
Inventories 2,054,000 (2,362,000) (2,210,000)
Other current assets 544,000 (630,000) 1,222,000
Accounts payable 8,155,000 (4,473,000) 2,713,000
Accrued liabilities 2,612,000 310,000 2,264,000
- - - ------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 21,254,000 5,467,000 21,425,000
- - - ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures (5,278,000) (3,209,000) (3,847,000)
Receipt of principal amounts under capital subleases 326,000 407,000 443,000
Acquisition of retail stores - - -
Other investing activities 8,000 311,000 300,000
- - - ------------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities (4,944,000) (2,491,000) (3,104,000)
- - - ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Payment for acquisition of treasury stock (6,067,000) (12,864,000) (5,031,000)
Payment of cash dividends (2,141,000) (2,155,000) (2,025,000)
Exercise of stock options 1,602,000 924,000 806,000
(696,000) (655,000) (665,000)
Principal payments on long-term debt (156,000) (146,000) (210,000)
Other financing activities 24,000 19,000 14,000
- - - ------------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities (7,434,000) (14,877,000) (7,111,000)
- - - ------------------------------------------------------------------------------------------------------------------------
Cash and equivalents
Net change 8,876,000 (11,901,000) 11,210,000
Balance, beginning of year 22,433,000 34,334,000 23,124,000
- - - ------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 31,309,000 $ 22,433,000 $ 34,334,000
========================================================================================================================
See notes to consolidated financial statements.
F-7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For fiscal years 2000, 1999 and 1998
- - - -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- - - -----------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
- - - ------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.05 par
Beginning of year 8,750,342 438,000 8,750,342 38,000 8,750,342 438,000
- - - ------------------------------------------------------------------------------------------------------------------------------
End of year 8,750,342 438,000 8,750,342 438,000 8,750,342 438,000
- - - ------------------------------------------------------------------------------------------------------------------------------
Additional Paid-in Capital
Beginning of year 14,961,000 14,359,000 13,940,000
Tax benefits from exercise of
stock options 213,000 602,000 419,000
- - - ------------------------------------------------------------------------------------------------------------------------------
End of year 15,174,000 14,961,000 14,359,000
- - - ------------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Beginning of year 63,995,000 57,792,000 51,299,000
Net earnings 7,913,000 8,358,000 8,518,000
Cash dividends
Common stock ($0.36 per
share in 2000, $0.34 per share
in 1999 and $0.30 per share in
1998) (2,141,000) (2,155,000) (2,025,000)
- - - ------------------------------------------------------------------------------------------------------------------------------
End of year 69,767,000 63,995,000 57,792,000
- - - ------------------------------------------------------------------------------------------------------------------------------
Treasury Stock
Beginning of year (2,808,997) (31,425,000) (2,155,463) (19,504,000) (1,938,463) (15,293,000)
Acquisition of treasury stock (558,540) (6,067,000) (821,600) (12,864,000) (335,950) (5,031,000)
Exercise of stock options 200,100 1,602,000 166,750 924,000 118,050 806,000
Other 2,224 24,000 1,316 19,000 900 14,000
- - - ------------------------------------------------------------------------------------------------------------------------------
End of year (3,165,213) (35,866,000) (2,808,997) (31,425,000) (2,155,463) (19,504,000)
- - - ------------------------------------------------------------------------------------------------------------------------------
Shareholders' investment, end of
year $49,513,000 $47,969,000 $53,085,000
- - - ------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For fiscal years 2000, 1999 and 1998
(1) Description of Business
The Company is engaged in the food distribution business through
franchised and corporate retail supermarkets and as a supplier to independent
food stores. The franchised and corporate retail Piggly Wiggly(R) supermarkets
and independent food stores supplied by the company are located in eastern
Wisconsin and northeastern Illinois. In an agreement with the owner of the
Piggly Wiggly franchise in 1998, the company expanded its geographic marketing
area to include all of Wisconsin, Michigan's Upper Peninsula, portions of
Minnesota and Iowa, and additional counties in Illinois.
(2) Summary of Significant Accounting Policies
Fiscal year
The Company's fiscal year ends on the Saturday closest to December 31.
The 2000, 1999 and 1998 fiscal years were 52-week periods ended December 30,
2000, January 1, 2000, and January 2, 1999, respectively.
Principles of consolidation
The financial statements include the accounts of Schultz Sav-O Stores,
Inc. and its wholly-owned subsidiary, PW Trucking, Inc. Any intercompany
accounts and transactions have been eliminated.
Cash and equivalents
Cash and equivalents consist of demand deposits at commercial banks
and highly liquid investments with a maturity of three months or less when
purchased. Cash equivalents are stated at cost which approximate market value.
F-9
Receivables
Receivables are shown net of allowance for doubtful accounts of
$3,850,000 and $4,300,000 at December 30, 2000 and January 1, 2000,
respectively.
Inventories
Inventories, substantially all of which consist of food, groceries and
related products for resale, are stated at the lower of cost or market value.
Cost is determined primarily on the last-in, first-out (LIFO) method. For meat
and produce, cost is determined on the first-in, first-out (FIFO) method. At
December 30, 2000 and January 1, 2000, 79% and 81%, respectively, of all
inventories were accounted for under the LIFO method.
The excess of current cost over the stated LIFO cost of inventory was
$10,284,000 and $9,872,000 at December 30, 2000 and January 1, 2000,
respectively.
Other current assets
Other current assets at December 30, 2000 and January 1, 2000
consisted of the following:
-------------------------------------------------------------
2000 1999
-------------------------------------------- ----------------
Prepaid expenses $1,417,000 $1,500,000
Property held for resale 647,000 1,088,000
Retail systems and
supplies for resale 484,000 496,000
Receivable under capital
subleases 368,000 326,000
-------------------------------------------------------------
Other current assets $2,916,000 $3,410,000
=============================================================
Property and equipment, net
Property and equipment are stated at cost. Depreciation is amortized
on the straight-line method over the estimated useful lives of the assets.
Equipment generally has a useful life of 4 to 7 years, computer hardware and
software have a useful life of 3 to 5 years, buildings and land improvements
have a useful life of 10 to 35 years, and leasehold improvements generally have
a useful life of 10 to 20 years. Facility remodeling and upgrade costs on leased
stores are capitalized as leasehold
F-10
improvements and are amortized over the shorter of the remaining lease term or
the useful life of the asset. Upon disposal, the appropriate asset cost and
accumulated depreciation are retired. Gains and losses on disposition are
included in earnings.
Property and equipment, net, at December 30, 2000 and January 1, 2000
consisted of the following:
-------------------------------------------------------------
2000 1999
-------------------------------------------------------------
Land and buildings $18,939,000 $18,842,000
Leasehold improvements 5,609,000 5,772,000
Equipment and fixtures 39,032,000 35,375,000
-------------------------------------------------------------
63,580,000 59,989,000
Less accumulated
depreciation and
amortization (42,167,000) (39,704,000)
-------------------------------------------------------------
Property and equipment, net $21,413,000 $20,285,000
=============================================================
Other noncurrent assets
Other noncurrent assets, net of accumulated amortization of $3,385,000
and $2,716,000, at December 30, 2000 and January 1, 2000 consisted of the
following:
-------------------------------------------------------------
2000 1999
-------------------------------------------------------------
Capitalized software, net $ 963,000 $1,475,000
Goodwill, net 717,000 777,000
Other intangibles, net 136,000 227,000
Other 179,000 185,000
-------------------------------------------------------------
Total $1,995,000 $2,664,000
=============================================================
The Company regularly reviews the carrying value of capitalized
software cost. A loss may be recognized when the value of estimated undiscounted
cash flow benefit related to the asset falls below the unamortized cost.
F-11
Accounts payable
Accounts payable includes $11,537,000 and $6,277,000 at December 30,
2000 and January 1, 2000, respectively, of issued checks that have not cleared
the company's disbursing bank accounts.
Retail repositioning reserve
Estimated repositioning and termination expenses associated with the
closure, replacement or disposal of stores, consisting primarily of lease
payments, charges to reduce assets to net realizable value and severance
payments, are charged to operating and administrative expenses upon the decision
to close, replace or dispose of a store as soon as the amounts are reasonably
estimated. Due to inherent uncertainties in estimating these repositioning and
termination costs, it is at least reasonably possible that the company's
estimates may change in the near term.
Supplementary disclosure of cash flow information
Interest and taxes paid included in the company's cash flow from
operations were as follows:
----------------------------------------------------------
2000 1999 1998
----------------------------------------------------------
Interest paid $ 851,000 $ 760,000 $ 822,000
Taxes paid 4,873,000 4,649,000 4,956,000
----------------------------------------------------------
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Advertising costs
Costs incurred for producing and communicating advertising are
generally expensed when incurred.
F-12
Reclassifications
Certain 1999 and 1998 amounts previously reported have been
reclassified to conform to the 2000 presentation.
(3) Long-Term Debt
The company has a loan agreement providing unsecured revolving credit
facilities totaling $16,000,000 through April 30, 2003. This arrangement
provides for borrowings at rates not to exceed the bank's prime rate. There are
no compensating balance requirements. There were no borrowings under this
agreement during 2000 or 1999.
Long-term debt at December 30, 2000 and January 1, 2000 consisted of
the following:
-------------------------------------------------------------
2000 1999
-------------------------------------------------------------
Mortgage note, 9.675%, due in
monthly installments of
$33,026 including interest
due through June 2012 $2,754,000 $2,878,000
Land contract, 10.0%, due in
annual installments of
$33,333 through March 2003 100,000 133,000
-------------------------------------------------------------
2,854,000 3,011,000
Less current maturities (169,000) (146,000)
-------------------------------------------------------------
Long-term debt $2,685,000 $2,865,000
=============================================================
At December 30, 2000, the fair value of the financial instruments were
not materially different from the carrying value. The revolving credit and term
note agreements contain various covenants including, among others, the
maintenance of defined working capital, net worth requirements, certain
debt-equity ratios, restrictions against pledging of or liens upon certain
assets, mergers, significant changes in ownership and limitations on restricted
payments.
The total amount of long-term debt due in each of the fiscal years
2001 through 2005 will be $157,000, $182,000, $196,000, $180,000 and $198,000,
respectively, and $1,941,000 from 2006 to 2012.
F-13
Interest expense consisted of the following:
---------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------
Interest on long-term debt $287,000 $302,000 $315,000
Imputed interest-capital leases 565,000 445,000 473,000
Other - 14,000 28,000
---------------------------------------------------------------------
Interest expense $852,000 $761,000 $816,000
=====================================================================
(4) Income Taxes
The difference between the statutory federal income tax rate and the
effective rate is summarized as follows:
---------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------
Federal income tax 34.0% 34.0% 34.2%
State income taxes, net of
federal income tax benefit 4.8 4.5 4.7
Other, net (0.8) 0.3 (0.1)
---------------------------------------------------------------------
Effective income tax rate 38.0% 38.8% 38.8%
=====================================================================
Components of provision for income taxes consisted of the following:
---------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------
Currently payable
Federal $4,076,000 $3,934,000 $4,779,000
State 950,000 883,000 1,041,000
Deferred (177,000) 481,000 (422,000)
---------------------------------------------------------------------
Provision for income taxes $4,849,000 $5,298,000 $5,398,000
=====================================================================
F-14
The components of deferred income tax assets and liabilities at
December 30, 2000 and January 1, 2000 were as follows:
---------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------
Deferred income tax assets:
Bad debt reserve $1,502,000 $1,677,000
Accrued insurance 1,195,000 1,182,000
Capital lease accounting 743,000 727,000
Vacation pay 718,000 652,000
Retail repositioning reserve 146,000 176,000
Other 632,000 747,000
---------------------------------------------------------------------
Total deferred income tax
assets 4,936,000 5,161,000
---------------------------------------------------------------------
Deferred income tax
liabilities:
Property and equipment (1,618,000) (2,025,000)
Pension (77,000) (72,000)
---------------------------------------------------------------------
Total deferred income tax
liabilities (1,695,000) (2,097,000)
---------------------------------------------------------------------
Net deferred income tax assets $3,241,000 $3,064,000
=====================================================================
The company currently has no requirements for a valuation allowance
for its deferred income tax assets. The net deferred income tax assets as of
December 30, 2000 and January 1, 2000 were classified in the balance sheet as
follows:
---------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------
Current deferred income tax asset $4,102,000 $3,900,000
Noncurrent deferred income tax
liability (861,000) (836,000)
---------------------------------------------------------------------
Net deferred income tax assets $3,241,000 $3,064,000
=====================================================================
(5) Commitments and Contingent Liabilities
The company has projected capital expenditures for fiscal 2001 at
$7,100,000. Commitments approximating $4,150,000 were made as of December 30,
2000.
As of December 30, 2000, the company was contingently liable under
guarantees of bank note agreements of wholesale customers totaling $17,985,000.
All of the loan guarantees are
F-15
substantially collateralized, principally with equipment and inventory, and to a
lesser extent, with building facilities.
(6) Retirement Plans
The company has a trusteed retirement savings defined contribution
plan, which includes provisions of Section 401(k) of the Internal Revenue Code,
for the benefit of its non-union eligible employees. Annual provisions are based
on a mandatory 5% of eligible participant compensation and additional amounts at
the sole discretion of the Board of Directors. Provisions for the three fiscal
years ended 2000, 1999 and 1998 were $975,000, $930,000 and $890,000,
respectively. The plan allows participants to make pretax contributions. The
company then matches certain percentages of employee contributions. The
company's matching contributions for 2000, 1999 and 1998 were $95,000, $90,000
and $82,000, respectively.
The company has union-administered multi-employer pension plans
covering all hourly paid employees represented by collective bargaining
agreements. Total pension expense was $1,814,000, $1,696,000 and $1,616,000 in
fiscal years 2000, 1999 and 1998, respectively.
(7) Leases
The Company leases most of its retail stores under lease agreements
with original lease periods of 15 to 20 years and typically with five-year
renewal options. Exercise of such options is dependent on, among others, the
level of business conducted at the location. Executory costs, such as
maintenance and real estate taxes, are generally the company's responsibility.
In a majority of situations, the company will enter into a lease for a store and
sublease the store to a wholesale customer. Additionally, the company leases
transportation equipment, principally tractors and trailers, corporate office
space and certain office equipment. Some leases contain contingent rental
provisions based on sales volume at retail stores or miles traveled for tractors
and trailers. Contingent rental expense associated with the company's capital
leases and sublease income was not material to the company's financial
statements.
F-16
Capitalized leases were calculated using interest rates appropriate at
the inception of each lease. A summary of real property utilized by the company
under capital leases at December 30, 2000 and January 1, 2000 was as follows:
--------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------
Investments in leased property
under capital leases $6,514,000 $6,514,000
Less accumulated amortization (3,463,000) (3,052,000)
--------------------------------------------------------------------
Property under capital leases, net $3,051,000 $3,462,000
====================================================================
Amortization of leased property under capital leases, included in
operating and administrative expenses, amounted to $412,000, $287,000 and
$287,000 in fiscal years 2000, 1999, 1998, respectively.
The following is a schedule of future minimum lease payments under
capital leases and subleases and the present value of such payments as of
December 30, 2000:
--------------------------------------------------------------------
Capital Capital
lease sublease
obligations receivables
--------------------------------------------------------------------
2001 $ 1,841,000 $ 907,000
2002 1,841,000 907,000
2003 1,852,000 918,000
2004 1,656,000 923,000
2005 1,698,000 932,000
2006-2009 5,391,000 2,567,000
--------------------------------------------------------------------
Total minimum lease payments 14,279,000 7,154,000
Less interest (5,210,000) (2,623,000)
--------------------------------------------------------------------
Present value of minimum lease
payments and amounts receivable 9,069,000 4,531,000
Less current portion (785,000) (368,000)
--------------------------------------------------------------------
Long-term obligations and receivable $8,284,000 $4,163,000
====================================================================
The following is a schedule of future minimum lease payments required
under operating leases for retail stores, transportation equipment, corporate
office space and office equipment that have noncancelable lease terms in excess
of one year as of December 30, 2000:
F-17
------------------------------------------------------------
2001 $ 11,641,000
2002 11,523,000
2003 11,309,000
2004 10,860,000
2005 10,437,000
2006-2020 87,468,000
------------------------------------------------------------
143,238,000
Total minimum lease payments
Less minimum amounts receivable
under noncancelable subleases (106,787,000)
------------------------------------------------------------
Net minimum lease payments $ 36,451,000
------------------------------------------------------------
Rental expenses, net of rental income from subleases, for all
operating leases amounted to $5,260,000, $5,010,000 and $4,589,000 in fiscal
years 2000, 1999 and 1998, respectively. These amounts include $1,035,000,
$1,054,000 and $957,000, respectively, for contingent rentals.
(8) Stock Option Plans
The company has stock option plans which provide for the grant of
either incentive or nonqualified stock options to key employees. The exercise
price of each option is equal to the market price of the company's stock on the
date of grant. Prior to year 2000, options granted are exercisable for seven
years from the date of grant. Beginning in January 2000, options granted are now
exercisable for ten years from the date of grant. The options continue to vest
ratably over the first three years. Such vesting may be accelerated by the Stock
Option Committee of the Board of Directors or upon a change in control of the
company, as defined by the plans.
F-18
Financial Accounting Standard (FAS) No. 123 allows entities to
continue to apply the provisions of APB 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair value-based method defined in FAS No.
123 has been applied. In fiscal 1996, the company adopted the disclosure
requirements of FAS No. 123. Had the company determined compensation cost based
on the fair value at the grant date for its stock options under FAS No. 123, the
company's net earnings would have been reduced to the following pro forma
amounts below:
-----------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------
Net earnings
As reported $7,913,000 $8,358,000 $8,518,000
Pro forma 7,577,000 8,012,000 8,181,000
-----------------------------------------------------------
Earnings per
share-diluted
As reported $1.33 $1.30 $1.23
Pro forma 1.27 1.24 1.18
===========================================================
Since the compensation cost is reflected over the vesting period of
three years and compensation cost for options granted prior to January 1, 1995
is not considered, the full impact of calculating the compensation cost under
FAS No. 123 is not reflected in the pro forma net earnings presented above for
1998. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2000, 1999 and 1998:
------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------
Dividend yield 2.00% 2.00% 2.00%
Expected volatility 25.01% 25.91% 26.81%
Risk-free interest rate 6.57% 4.75% 5.49%
Expected term of grant 5.5 years 5.5 years 5.5 years
============================================================
The fair values of each option granted in 2000, 1999 and 1998 were
$3.48, $4.27 and $4.28, respectively.
As of December 30, 2000, no incentive stock options have been granted.
Following is a summary of the status of nonqualified stock options for the
fiscal years 2000, 1999 and 1998:
F-19
-----------------------------------------------------------
Number Weighted average
of shares exercise prices
-----------------------------------------------------------
Shares under option at
January 3, 1998 639,300 $ 7.40
Granted 151,500 15.00
Exercised (118,050) 6.83
-----------------------------------------------------------
Shares under option at
January 2, 1999 672,750 9.21
Granted 165,700 16.13
Exercised (166,750) 5.54
Forfeited (27,500) 14.81
-----------------------------------------------------------
Shares under option at
January 1, 2000 644,200 11.70
Granted 187,200 11.84
Exercised (200,100) 8.01
Forfeited (28,600) 14.38
-----------------------------------------------------------
Shares under option at
December 30, 2000 602,700 12.85
===========================================================
Shares reserved for grant at
December 30, 2000 424,600
===========================================================
Options granted in
February 2001 252,000 $11.31
===========================================================
When options were exercised, the company realized certain income tax
benefits. These benefits resulted in a decrease in current income taxes payable
and a corresponding increase in additional paid-in capital.
Exercise prices for options outstanding as of December 30, 2000 ranged
from $6.50 to $16.13. The weighted average remaining contractual life of these
options is approximately 4 years. Nonqualified stock options outstanding at
December 30, 2000, January 1, 2000 and January 2, 1999 were exercisable for
289,500, 363,900 and 402,750 shares. These shares were exercisable at the
weighted average prices of $12.09, $9.29 and $6.96 at December 30, 2000, January
2, 1999 and January 3, 1998, respectively.
F-20
(9) Common Stock
Prior to January 6, 1999, common shares issued and issuable included
one associated common stock purchase right which entitled shareholders to
purchase one share of common stock from the company at an exercise price
equivalent to $14 per share. The rights became exercisable after a person
acquired beneficial ownership of 20% or more of the company's common stock. The
rights did not have any voting rights and would have been redeemed at a price of
$0.0067 per right. On January 6, 1999, these rights expired pursuant to their
terms.
(10) Earnings Per Share
Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share is computed by dividing net earnings by the weighted
average number of shares of common stock outstanding and common stock
equivalents during the year. Common stock equivalents used in computing diluted
earnings per share related to stock options which, if exercised, would have a
dilutive effect on earnings per share.
The company's calculations of earnings per share-basic and earnings
per share-diluted were as follows:
-------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------
Net earnings available for
common shareholders $7,913,000 $8,358,000 $8,518,000
Weighted average shares
outstanding 5,935,000 6,336,000 6,749,000
Earnings per share-basic $1.33 $1.32 $1.26
-------------------------------------------------------------------
Net earnings available for
common shareholders $7,913,000 $8,358,000 $8,518,000
Weighted average shares
outstanding 5,935,000 6,336,000 6,749,000
Stock options' dilutive effect 16,000 102,000 174,000
Weighted average shares and
equivalents outstanding 5,951,000 6,438,000 6,923,000
Earnings per share-diluted $1.33 $1.30 $1.23
-------------------------------------------------------------------
F-21
(11) Segment Reporting
The company's operations are classified into two reportable business
segments, wholesale and retail. The operational performance of both wholesale
and retail segments are managed and evaluated by management.
The wholesale segment represents the company's business activities
relating to food wholesale distribution. At December 30, 2000, the company
provided products to 71 franchised units, 19 corporate stores and a number of
independent retail stores. The wholesale segment includes warehousing,
transportation and other logistical functions, and derives its revenues
primarily from the sale of groceries, produce, dairy, meat and cigarette
products to the company's franchised, corporate and independent retail
customers. The retail segment relates to the company's retail supermarket
activities. Revenues are realized through the sale of groceries, dairy, produce,
meat, bakery, deli and other merchandise by the company's corporate retail
stores to retail consumers.
The accounting policies of the two segments are the same as those
described in the Summary of Significant Accounting Policies. The company's
management utilizes several measurement tools in evaluating each segment's
performance and each segment's resource requirements. However, the principal
measurement tools are consistent with the company's consolidated financial
statements and accordingly are reported on a similar basis. Wholesale operating
profits on sales through the company's corporate stores are allocated to the
retail segment. The "corporate" heading includes corporate-related items,
principally cash and equivalents. As it relates to operating income, "corporate"
heading includes corporate-related items allocated to the appropriate segments.
F-22
Summarized financial information concerning the company's reportable
segments is shown in the following table (in thousands).
-----------------------------------------------------------------
Sales 2000 1999 1998
-----------------------------------------------------------------
Wholesale sales $ 409,437 $ 411,913 $ 404,047
Intracompany sales (114,910) (123,376) (123,912)
--------- --------- ---------
Net wholesale sales 294,527 288,537 280,135
Retail sales 207,529 208,422 204,750
-----------------------------------------------------------------
Total $ 502,056 $ 496,959 $ 484,885
=================================================================
-----------------------------------------------------------------
Earnings before income taxes 2000 1999 1998
-----------------------------------------------------------------
Wholesale $ 9,351 $ 9,870 $ 9,749
Retail 2,914 3,372 3,741
--------- --------- ---------
Total operating income 12,265 13,242 13,490
Interest income 1,349 1,175 1,242
Interest expense (852) (761) (816)
-----------------------------------------------------------------
Earnings before income taxes $ 12,762 $ 13,656 $ 13,916
=================================================================
-----------------------------------------------------------------
Capital Expenditures 2000 1999 1998
-----------------------------------------------------------------
Wholesale $ 378 $ 199 $ 149
Retail 2,214 1,869 2,443
Corporate 2,686 1,141 1,255
--------- --------- ---------
Total $ 5,278 $ 3,209 $ 3,847
=================================================================
-----------------------------------------------------------------
Depreciation and Amortization 2000 1999 1998
-----------------------------------------------------------------
Wholesale $ 829 $ 820 $ 933
Retail 3,001 2,450 2,457
Corporate 1,385 1,689 1,685
--------- --------- ---------
Total $ 5,215 $ 4,959 $ 5,075
=================================================================
-----------------------------------------------------------------
Identifiable Assets 2000 1999 1998
-----------------------------------------------------------------
Wholesale $ 31,764 $ 33,941 $ 32,040
Retail 28,260 28,546 26,550
Corporate 44,875 31,140 45,726
--------- --------- ---------
Total $ 104,899 $ 93,627 $ 104,316
=================================================================
F-23
Unaudited Quarterly Financial Information
The company generally includes sixteen weeks in its first quarter and
twelve weeks in each subsequent quarter. Summarized quarterly and annual
financial information for fiscal years 2000 and 1999 follows:
- - - ---------------------------------------------------------------------------------------------------------------------------
(dollars and shares in thousands, except per share data) Fiscal Year Ended December 30, 2000
- - - ---------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth Year
- - - ---------------------------------------------------------------------------------------------------------------------------
Net sales $147,688 $116,459 $116,341 $121,568 $502,056
Gross profit 24,459 19,471 18,843 19,980 82,753
Net earnings 1,869 1,903 1,555 2,586 7,913
Earnings per share - basic 0.31 0.32 0.26 0.44 1.33
Earnings per share - diluted 0.31 0.32 0.26 0.44 1.33
Weighted average shares and
equivalents outstanding 5,999 5,989 5,951 5,916 5,951
- - - ---------------------------------------------------------------------------------------------------------------------------
- - - ---------------------------------------------------------------------------------------------------------------------------
(dollars and shares in thousands, except per share data) Fiscal Year Ended January 1, 2000
- - - ---------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth Year
- - - ---------------------------------------------------------------------------------------------------------------------------
Net sales $146,951 $115,124 $113,406 $121,478 $496,959
Gross profit 23,796 18,748 18,353 19,453 80,350
Net earnings 1,831 2,038 1,673 2,816 8,358
Earnings per share - basic 0.28 0.32 0.27 0.47 1.32
Earnings per share - diluted 0.27 0.31 0.26 0.46 1.30
Weighted average shares and
equivalents outstanding 6,756 6,601 6,421 6,095 6,438
- - - ---------------------------------------------------------------------------------------------------------------------------
Common Stock Information
The company's common stock is traded over-the-counter on the Nasdaq
Stock Market under the symbol SAVO. There are approximately 1,200 beneficial
holders of the company's common stock. An analysis of the high and low last sale
stock prices by quarter and for the last three years are as follows:
- - - ------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
First Second Third Fourth Year
- - - ------------ ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
High Low High Low High Low High Low High Low
2000 $13.00 $ 9.88 $12.00 $10.25 $12.06 $10.50 $12.00 $10.63 $13.00 $ 9.88
1999 17.38 15.88 17.13 16.00 16.50 15.75 15.75 11.25 17.38 11.25
1998 17.75 15.00 17.50 15.50 16.00 15.13 16.50 15.50 17.75 15.00
- - - ------------ ---------- ----------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- ----------
F-24
Cash dividends paid per share were:
- - - --------------------------------------------------------------------------------
First Second Third Fourth Year
- - - --------------------------------------------------------------------------------
2000 $0.09 $0.09 $0.09 $0.09 $0.36
1999 0.08 0.08 0.09 0.09 0.34
1998 0.07 0.07 0.08 0.08 0.30
- - - --------------------------------------------------------------------------------
Under the company's loan agreements, approximately $6,000,000 of
retained earnings were available for the payment of cash dividends, stock
repurchases and other restricted payments at December 30, 2000.
F-25
APPENDIX A
-----------------------
AS ADOPTED 12/14/00
-----------------------
SCHULTZ SAV-O STORES, INC.
Amended and Restated Audit Committee Charter
December 14, 2000
In order to assist the Audit Committee (the "Committee") of the Board
of Directors of Schultz Sav-O Stores, Inc. (the "Company") in carrying out its
duties and responsibilities, the following is the Amended and Restated Audit
Committee Charter (the "Charter"). This Charter, however, is not intended to,
and does not, create any legal or fiduciary duties or responsibilities or form
the basis for a breach of fiduciary duty or potential liability if not complied
with.
1. The Committee shall consist of no fewer than three directors, all
of whom are able to read and understand fundamental financial statements, and at
least one of whom shall have past employment experience in finance or
accounting, professional certification in accounting or other comparable
experience or background, such as a current or past position as a chief
executive or financial officer or other senior officer with financial oversight
responsibility. Generally, no director may serve on the Committee if he or she
has:
> been employed by the Company or its affiliates in the current or
past three years;
> personally accepted any compensation from the Company or its
affiliates in excess of $60,000 during the previous fiscal year (except for
board service, retirement plan benefits or non-discretionary compensation);
> been a partner, controlling shareholder or an executive officer of
any for-profit business to which the Company made, or from which it received,
payments (other than those which arise solely from investments in the Company's
securities) that exceed 5% of the organization's consolidated gross revenues for
that year, or $200,000, whichever is more, in any of the past three years;
> an immediate family member who is, or has been during the past three
years, employed by the Company or its affiliates as an executive officer; or
Appendix A-1
> been employed as an executive of another entity where any of the
Company's executives serve on that entity's compensation committee;
provided, however, that one member of the Committee, who is not a current
employee or officer of the Company, may fall into one or more of the categories
above if (a) the Board of Directors of the Company determines it to be in the
best interests of the Company and its shareholders, and (b) the Board's reasons
for making such determination are disclosed in the Company's next annual meeting
proxy statement.
2. Absent unusual circumstances, the Committee shall attempt to meet
at least twice annually. Special meetings shall be held as circumstances require
as determined by the Chairman of the Audit Committee or by any two other members
of the Committee.
3. The Committee's principal functions shall include the following:
a. To recommend annually a firm of independent certified public
accountants to serve as the Company's independent auditing
firm for the forthcoming year (it being understood that such
accountants shall be accountable to the Company's Board of
Directors and the Committee in their capacity as
representatives of the shareholders). See Item 8.
b. To be well-informed about the Company's quarterly and annual
financial reports by receiving copies of all such reports.
c. To review with the Company's chief executive officer, chief
financial officer and/or its principal accounting officer
and the Company's independent auditing firm the areas of
financial risk that could have a material adverse effect on
the Company's results of operation or financial condition.
d. To review with the Company's chief executive officer, chief
financial officer and/or its principal accounting officer
the Company's annual audit plans.
e. To review with the Company's chief executive officer, chief
financial officer and/or its principal accounting officer
the Company's in-house policies and procedures for regular
review of officers' conflicts of interest.
Appendix A-2
f. To obtain from the Company's independent auditing firm a
formal, written statement of the non-auditing relationships
between the auditors and the Company.
g. To review annually management's and the Company's auditor's
evaluations of factors related to the independence of the
Company's public accountant.
h. To review management's plans for engaging the Company's
independent public accountant to perform management advisory
services during the coming year; provided, that to the
extent the Company's independent public accountant's
independence from the Company is not compromised, management
may engage the Company's independent public accountant to
perform such services and report the extent and outcome of
such services to the Committee at its next meeting.
i. To periodically review and analyze with the Company's chief
executive officer, chief financial officer and/or its
principal accounting officer and the Company's independent
auditing firm comparable public company financial reporting
and accounting policies and practices that differ from those
of the Company.
j. To review annually the adequacy of this Charter. When
reviewing the adequacy of this Charter, the Committee should
seek the input of the Company's independent auditing firm,
the Company's chief executive officer, chief financial
officer and/or chief accounting officer.
4. The Committee shall have unrestricted lines of communication with
the chief executive officer, chief financial officer and/or its principal
accounting officer of the Company, as well as the Company's independent
auditors, at all times.
5. The Committee shall advise the Company's chief executive officer,
chief financial officer and/or chief accounting officer that it expects to be
consulted before the Company seeks a second opinion on any significant
accounting issue from an auditing firm other than the Company's auditing firm.
6. The Committee, through its Chairman, shall report its activities to
the full Board after each Committee meeting so that the Board is kept informed
of its activities on a current basis.
Appendix A-3
7. The Committee shall meet with the Company's outside counsel, when
appropriate, to discuss legal matters that may have a significant impact on the
Company's financial statements.
8. Factors to be considered in selecting or retaining an independent
public accountant to serve as the Company's independent auditing firm shall
include, without limitation, the following:
a. Opinions by appropriate management personnel on the
capabilities, resources and performance of the public
accounting firm;
b. The firm's proposed audit fee and explanations for any
material fee changes from prior years;
c. The expected level of participation by the firm's partner
designated to the Company's account and other management
personnel in the audit examination and the mix of skills and
experience of the firm's staff and its staff rotation policy
with respect to the Company;
d. If a new public accounting firm is being considered, the
steps planned to ensure a smooth and effective transition;
e. If a new public accounting firm is being considered, the
report of the firm's latest peer review conducted pursuant
to a professional quality control program and any
significant litigation problems or disciplinary actions by
the SEC or others;
f. If a new public accounting firm is being considered, the
proposed firm's credentials, capabilities and reputation and
a list of clients in the same geographical area and in the
same industry; and
g. The auditing firm's independence from the Company.
9. The following are general post-audit review considerations and
guidelines:
a. The Committee should attempt to obtain from the Company's
chief financial officer and/or chief accounting officer
explanations for all significant variances in the financial
statements between years.
Appendix A-4
b. The Committee should attempt to request an explanation from
management and the independent public accountant of changes
in accounting standards or rules promulgated by the FASB,
SEC or other regulatory bodies that have or will have a
material effect on the Company's financial statements or
accounting policies or practices.
c. The Committee should attempt to inquire about the existence
and substance of any significant accounting accruals,
reserves or estimates made by management that had or will
have a material impact on the financial statements.
d. The Committee should attempt to meet privately with the
independent public accountant to request its opinion on
various matters, including the quality of financial and
accounting personnel.
e. The Committee should attempt to ask the independent public
accountant what its greatest concerns were in the course of
the audit and if it believes anything else should be
discussed with the Committee while not in the presence of
management or the Company's chief financial officer and/or
principal accounting officer.
f. The Committee should attempt to review the letter of
management representations given to the independent public
accountant and inquire whether it encountered any
difficulties in obtaining the letter or any specific
representations therein.
g. The Committee should attempt to discuss with management and
the independent public accountant the substance of any
significant issues raised by outside counsel concerning
litigation, contingencies, claims or assessments. The
Committee should attempt to understand how such matters are
reflected in the Company's financial statements.
h. The Committee should attempt to inquire with the Company's
chief executive officer, chief financial officer and chief
accounting officer whether there are any significant tax
matters that have been or might be reasonably disputed by
the IRS or state agencies, and inquire as to the status of
the related tax reserves.
Appendix A-5
i. The Committee, at least through its Chairman, should attempt
to review with management the MD&A section of the Company's
annual report and ask the extent to which the independent
public accountant reviewed the MD&A section. Similar efforts
should be attempted, at least on a post-filing basis, with
respect to the Company's quarterly reports. The Committee
should ask the independent public accountant whether the
other sections of the annual report to shareholders are
consistent with the information reflected in the financial
statements.
Appendix A-6
APPENDIX B
--------------------------
AS ADOPTED 12/14/00
--------------------------
SCHULTZ SAV-O STORES, INC.
2001 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
ARTICLE 1
ESTABLISHMENT, PURPOSE AND DURATION.
Section 1.1. Establishment of the Plan. Schultz Sav-O Stores, Inc.
hereby establishes an incentive compensation plan to be known as "Schultz Sav-O
Stores, Inc. 2001 Nonemployee Director Stock Option Plan" (the "Plan"), as set
forth in this document. The Plan permits the grant of Nonqualified Stock Options
to Nonemployee Directors, subject to the terms and provisions set forth herein.
The Plan shall be effective upon the date that the Company's shareholders
approve the Plan so long as such approval occurs on or before December 14, 2001
(the "Effective Date") and no Grants shall be made prior to the Effective Date.
Section 1.2. Purpose of the Plan. The purpose of the Plan is to
promote the best interests of the Company and its shareholders by providing
Nonemployee Directors (as defined below) with an opportunity to acquire a, or
increase their, proprietary interest in the Company. It is intended that the
Plan will enhance the incentives and personal interests in the welfare of the
Company by the Nonemployee Directors who are responsible for shaping the
long-range plans of the Company and securing the Company's continued growth and
financial success.
Section 1.3. Duration of the Plan. The Plan shall commence on the
Effective Date and shall remain in effect, subject to the right of the Board of
Directors to terminate the Plan at any time pursuant to ARTICLE 7 herein, until
all Shares subject to it shall have been purchased or acquired according to the
Plan's provisions. However, in no event may an Option be granted under the Plan
on or after the tenth anniversary of the Effective Date.
ARTICLE 2
DEFINITIONS.
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word or words is capitalized:
Appendix B-1
(a) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
(b) "Board" or "Board or Directors" means the Board of Directors of
the Company, and includes any committee of the Board of Directors designated by
the Board to administer part or all of the Plan consistent with the terms of the
Plan.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" shall mean the Stock Option Committee of the Board of
Directors of the Company (or any other committee or committees thereof
designated by such Board to administer the Plan); provided, however, that the
Committee is composed of not less than two directors, each of whom is a
"disinterested person" within the meaning of Rule 16b-3.
(e) "Company" means Schultz Sav-O Stores, Inc., a Wisconsin
corporation, or any successor thereto as provided in Section 8.6 herein.
(f) "Director" means any individual who is a member of the Board of
Directors.
(g) "Employee" means any full-time or part-time employee of the
Company or any of its subsidiaries. For purposes of the Plan, an individual
whose only employment relationship with the Company or its subsidiaries is as a
Director or a consultant shall not be deemed to be an Employee.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(i) "Fair Market Value" means, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee.
(j) "Grant" means a grant of Nonqualified Stock Options under the
Plan.
(k) "Nonemployee Director" means any Director who is not otherwise an
Employee.
(l) "Nonqualified Stock Option" means an Option to purchase Shares
granted under ARTICLE 6 herein.
Appendix B-2
(m) "Option" means a Nonqualified Stock Option granted under the Plan.
(n) "Option Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Grant granted under the Plan.
(o) "Option Price" means the exercise price at which a Share may be
purchased under an Option.
(p) "Participant" means a Nonemployee Director of the Company who has
outstanding a viable Grant under the Plan.
(q) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
(r) "Shares" shall mean shares of common stock of the Company, $0.05
par value, and such other securities or property as may become subject to Grants
pursuant to an adjustment made under ARTICLE 4 of the Plan.
ARTICLE 3
ADMINISTRATION.
Section 3.1. The Committee. The Plan shall be administered by the
Committee; provided, however, that if at any time the Committee shall not be in
existence, the functions of the Committee as specified in the Plan shall be
exercised by those members of the Board of Directors of the Company who qualify
as "disinterested persons" under Rule 16b-3.
Section 3.2. Administration by the Committee. The Committee shall have
the full power, discretion and authority to interpret and administer the Plan in
a manner which is consistent with the Plan's provisions. However, in no event
shall the Committee have the power to determine eligibility to participate in
the Plan, or to determine the number, the value, the vesting or exercise period
or the timing of Grants to be made under the Plan (all such determinations are
automatic pursuant to the provisions of the Plan). Any action taken by the
Committee with respect to the administration of the Plan which would violate
Rule 16b-3(c)(2) under the Exchange Act (or any successor provision) shall be
null and void.
Appendix B-3
Section 3.3. Decisions Binding. Unless otherwise expressly provided in
the Plan, all designations, determinations, interpretations and other decisions
under or with respect to the Plan or any Grant shall be within the sole
discretion of the Committee, may be made at any time or from time to time, and
shall be final, conclusive and binding upon all Persons, including the Company,
any affiliate, any Nonemployee Director, any holder or beneficiary of any Grant,
any shareholder and any employee of the Company or of any Affiliate.
ARTICLE 4
SHARES SUBJECT TO THE PLAN.
Section 4.1. Number of Shares. Subject to adjustment as provided in
Section 4.1(e):
(a) Number of Shares Available. The number of Shares with respect to
which Grants may be granted under the Plan shall be 200,000.
(b) Accounting for Grants. The number of Shares covered by a Grant
under the Plan, or to which such Grant relates, shall be counted on the date of
grant of such Grant against the number of Shares available for granting Grants
under the Plan.
(c) Sources of Shares Deliverable Under Grants. Any Shares delivered
pursuant to a Grant may consist, in whole or in part, of authorized and unissued
Shares or of treasury Shares.
(d) Lapsed Grants. If any Share under an Option granted under the Plan
terminates, expires or lapses for any reason, such Share again shall become
automatically available for issuance pursuant to other Grants under the Plan.
However, in the event that prior to the Option's termination, expiration or
lapse, the holder of the Options at any time received one or more "benefits of
ownership" pursuant to such Options (as defined by the Securities and Exchange
Commission, pursuant to any rule or interpretation promulgated under Section 16
of the Exchange Act), the Shares subject to such Options shall not be made
available for regrant under the Plan.
(e) Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, stock split, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares (excluding cash
dividends), the Committee may make such adjustments to outstanding Options
(including, without limitation, the number of Shares subject to the Options and
the Option Price) as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or diminishment of a
Grant and to otherwise appropriately adjust the remaining number of Shares
reserved and available for
Appendix B-4
Grants under Section 4.1 of the Plan; provided, however, that no such adjustment
shall be made if the adjustment may cause the Plan to fail to comply with the
"formula award" exception, as set forth in Rule 16b-3(c)(2)(ii)(A) under the
Exchange Act (or any successor provision).
ARTICLE 5
ELIGIBILITY AND PARTICIPATION.
Section 5.1. Eligibility. Persons eligible to participate in the Plan
are limited to Nonemployee Directors.
Section 5.2. Actual Participation. Each Nonemployee Director during
the term of this Plan shall receive a Grant pursuant to the terms and provisions
set forth in ARTICLE 6 herein.
ARTICLE 6
NONQUALIFIED STOCK OPTIONS.
Section 6.1. Automatic Grants. Subject to adjustment as provided in
Section 4.1(e), on the date of initial election or appointment of a Nonemployee
Director during the term of the Plan or, on the Effective Date in the case of
each Nonemployee Director who is serving as such on the Effective Date, each
such Nonemployee Director shall be automatically granted an Option to purchase
5,000 Shares. Subject to adjustment as provided in Section 4.1(e), thereafter,
on the final day of each fiscal year of the Company during the term of the Plan,
each then serving Nonemployee Director shall be automatically granted an Option
to purchase 5,000 Shares. The specific terms and provisions of such Grants shall
be consistent with the terms of the Plan and incorporated into Option
Agreements, executed pursuant to Section 6.3 of the Plan.
Section 6.2. Limitation on Grants. Other than the automatic Grants
provided in Section 6.1 herein, no additional Options shall be granted under the
Plan.
Section 6.3. Option Agreements. Each Grant shall be evidenced by an
Option Agreement that shall specify the Option Price, the duration of the
Option, the number of Shares available for purchase under the Option Agreement,
and such other provisions as the Committee shall determine appropriate,
consistent with the terms of the Plan.
Section 6.4. Option Price. The exercise price per Share of an Option
granted pursuant to this Section 6.4 shall be determined by the Committee;
provided, however, that such exercise price shall not be less than 100% of the
Fair Market Value of a Share on the date of grant of such Option.
Appendix B-5
Section 6.5. Option Term. The term of each Option shall be fixed by
the Committee; provided, however, that in no event shall the term of any Option
exceed a period of ten years from the date of its grant.
Section 6.6. Exercisability of Shares Subject to Option. Subject to
Section 6.7, an Option shall become exercisable in such manner and within such
period or periods and in such installments or otherwise as shall be determined
by the Committee. The Committee also shall determine the method or methods by
which, and the form or forms, including, without limitation, cash, Shares, other
securities, other Grants, other property or any combination thereof, having a
Fair Market Value on the exercise date equal to the relevant exercise price, in
which payment of the exercise price with respect to any Option may be made or
deemed to have been made.
Section 6.7. Termination of Directorship. If a Participant ceases to
be a Director for any reason, including death, disability or retirement, all
Options granted to such Participant which remain outstanding shall remain
exercisable for six months following the date the Nonemployee Director's service
on the Board terminates, or until the respective Options' expiration date,
whichever period is shorter.
Section 6.8. Restrictions on Share Transferability. Shares acquired
pursuant to the exercise of an Option under the Plan shall be subject to
applicable restrictions under applicable federal securities laws, under the
requirements of any national securities exchange or market upon which such
Shares are then listed and/or traded, and under any blue sky or state securities
laws applicable to such Shares.
Section 6.9. Nontransferability of Options. Except as otherwise
provided by the Board of Directors of the Company or the Committee, Grants
granted under the Plan shall not be transferable other than as designated by the
Nonemployee Director by will or by the laws of descent and distribution. In the
event that the Board of Directors of the Company or the Committee shall permit a
transfer of a Grant, any permitted transferee shall have all of the rights of
the Nonemployee Director under the Plan, as if the Nonemployee Director had
retained such Grant.
ARTICLE 7
AMENDMENT, MODIFICATION AND TERMINATION.
Section 7.1. Amendments to and Termination of the Plan. The Board of
Directors of the Company may at any time amend, alter, suspend, discontinue or
terminate the Plan; provided, however, that shareholder approval of any
amendment of the Plan shall also be obtained if otherwise required by: (i) the
rules and/or regulations promulgated under Section 16 of the Exchange Act (in
order
Appendix B-6
for the Plan to remain qualified under Rule 16b-3); (ii) the Code or any rules
promulgated thereunder (in order to allow for Incentive Stock Options to be
granted under the Plan); or (iii) the quotation or listing requirements of the
Nasdaq National Market or any principal securities exchange or market on which
the Shares are then traded (in order to maintain the quotation or listing of the
Shares thereon). Termination of the Plan shall not affect the rights of
Nonemployee Directors with respect to Grants previously granted to them, and all
unexpired Grants shall continue in force and effect after termination of the
Plan except as they may lapse or be terminated by their own terms and
conditions.
Section 7.2. Correction of Defects, Omissions and Inconsistencies. The
Committee may in its discretion correct any defect, supply any omission or
reconcile any inconsistency in any Grant or Option Agreement in the manner and
to the extent it shall deem desirable to carry the Plan into effect.
ARTICLE 8
MISCELLANEOUS.
Section 8.1. Gender and Number. Except where otherwise indicated by
the context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
Section 8.2. Severability. In the event any provision of the Plan
shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision had not been
included.
Section 8.3. No Right of Nomination or Directorship. Nothing in the
Plan or any Option Agreement shall be deemed to create any obligation on the
part of the Board to appoint or nominate any Director or other Person for
election or appointment to the Board or any right of any Person to serve as a
Director. Nothing herein or in any Option Agreement shall interfere in any way
with the right of the Company, its Board or its shareholders to terminate a
Participant's status as a Director at any time consistent with the Company's
Articles of Incorporation and Bylaws.
Section 8.4. Shares Available. The Shares made available pursuant to
Grants under the Plan may be either authorized but unissued Shares, or Shares
which have been or may be reacquired by the Company, as determined from time to
time by the Board.
Section 8.5. Additional Compensation. Options granted under the Plan
shall be in addition to any annual retainer, attendance fees, expense
reimbursements or other compensation or benefits payable to each Participant as
a result of his or her service on the Board or otherwise.
Appendix B-7
Section 8.6. Successors. All obligations of the Company under the
Plan, with respect to Grants hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation or otherwise, of all or substantially
all of the business, stock and/or assets of the Company or its subsidiaries.
Section 8.7. Requirements of Law. Grants under the Plan shall be
subject to all applicable laws rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
Section 8.8. Governing Law. The Plan and all Option Agreements
hereunder shall be construed in accordance with and governed by the internal
laws of the State of Wisconsin.
Appendix B-8
APPENDIX C
AGREEMENT AND PLAN OF SHARE EXCHANGE
AGREEMENT AND PLAN OF SHARE EXCHANGE (the "Agreement"), dated February
20, 2001, between SCHULTZ SAV-O STORES, INC., a Wisconsin corporation
("Schultz") and Schultz Holding Company, Inc., a Wisconsin corporation ("Schultz
Holding").
WHEREAS, Schultz has authority to issue 20,000,000 shares of common
stock, par value $0.05 per share (the "Schultz Common Stock"), of which
5,475,924 shares were issued and outstanding on February 15, 2001;
WHEREAS, Schultz Holding has authority to issue 20,000,000 shares of
common stock, par value $0.05 per share (the "Schultz Holding Common Stock"), of
which 100 shares are issued and outstanding and owned beneficially and of record
by Schultz;
WHEREAS, the respective Boards of Directors of Schultz and Schultz
Holding have determined that it is advisable and in the best interests of such
corporations and their shareholders to effect an exchange of the issued and
outstanding shares of Schultz Common Stock for shares of Schultz Holding Common
Stock upon the terms and conditions herein provided (the "Exchange") for the
purpose of reorganizing Schultz into a holding company structure; and
WHEREAS, the respective Boards of Directors of Schultz and Schultz
Holding have, and Schultz has, in its capacity as Schultz Holding's sole
shareholder, duly adopted and approved this Agreement and directed that it be
executed by the undersigned officers and that it be submitted for a vote of the
Schultz shareholders.
NOW, THEREFORE, in consideration of the mutual agreements and
covenants set forth herein, the parties hereby agree as follows:
Appendix C-1
ARTICLE 1
NAMES OF ACQUIRED CORPORATION AND
ACQUIRING CORPORATION
Section 1.1. The Acquired Corporation. The name of the corporation the
shares of which are proposed to be acquired by Schultz Holding in the Exchange
is SCHULTZ SAV-O STORES, INC.
Section 1.2. The Acquiring Corporation. The name of the corporation
proposing to acquire shares of Schultz in the Exchange is Schultz Holding
Company, Inc.
ARTICLE 2
TERMS AND CONDITIONS OF PROPOSED EXCHANGE
Section 2.1. General. At the Effective Time (as hereinafter defined)
the shares of Schultz Common Stock then issued and outstanding shall be
exchanged for shares of Schultz Holding Common Stock.
Section 2.2. Effective Time. The "Effective Time" of the Exchange
shall be the close of business on the day on which Articles of Share Exchange
with respect thereto, substantially in the form attached hereto as Exhibit I,
are filed with the Department of Financial Institutions of the State of
Wisconsin in accordance with the Wisconsin Business Corporation Law (the "WBCL")
or such later time as may be designated in the Articles of Share Exchange.
ARTICLE 3
MANNER AND BASIS OF EXCHANGING SHARES
OF CAPITAL STOCK IN THE EXCHANGE
Section 3.1. Exchange of Schultz Common Stock for Schultz Holding
Common Stock. At the Effective Time, automatically by virtue of the Exchange and
without further action on the part of the holder thereof, each share of Schultz
Common Stock outstanding immediately prior to the Effective Time shall be
exchanged for one share of Schultz Holding Common Stock, which shall
Appendix C-2
thereupon be validly issued, fully paid and nonassessable except for liability
which may be imposed on the holders thereof under Section 180.0622(2) of the
WBCL.
Section 3.2. Cancellation of Schultz Holding Common Stock. Each share
of Schultz Holding Common Stock issued and outstanding immediately prior to the
Effective Time shall be cancelled and restored to the status of authorized and
unissued Schultz Holding Common Stock.
Section 3.3. Fractional Shares. No fractional shares of Schultz
Holding Common Stock shall be issued in the Exchange.
Section 3.4. Stock Certificates. (a) Following the Effective Time,
each holder of a certificate or certificates theretofore representing
outstanding shares of Schultz Common Stock may, but shall not be required to,
surrender the same to Schultz Holding or its transfer agent for cancellation or
transfer, and each such holder or transferee will be entitled to receive a
certificate or certificates representing the same number of shares of Schultz
Holding Common Stock as the number of shares of Schultz Common Stock previously
represented by such stock certificates so surrendered. Until so surrendered or
presented for transfer, each outstanding certificate which prior to the
Effective Time represented shares of Schultz Common Stock shall be deemed for
all purposes to represent the ownership of the same number of shares of Schultz
Holding Common Stock as though such surrender and transfer had taken place. If
any certificate representing shares of Schultz Holding Common Stock is to be
issued in a name other than that of the registered holder of the certificate
formerly representing shares of Schultz Common Stock presented for transfer, it
shall be a condition of issuance that (i) the certificate so surrendered shall
be properly endorsed or accompanied by a stock power and shall otherwise be in
proper form for transfer and (ii) the person requesting such issuance shall pay
to Schultz Holding's transfer agent any transfer or other taxes required by
reason of issuance of certificates representing Schultz Holding Common Stock in
a name other than that of the registered holder of the certificate presented, or
establish to the satisfaction of Schultz Holding or its transfer agent that such
taxes have been paid or are not applicable; (b) immediately following the
Effective Time, Schultz shall cause to be delivered to Schultz Holding, a
certificate registered in the name of Schultz Holding for the number of shares
of Schultz Common Stock issued and outstanding at the Effective Time.
Appendix C-3
ARTICLE 4
OTHER PROVISIONS WITH RESPECT TO THE EXCHANGE
Section 4.1. Further Assurances. Each of Schultz and Schultz Holding
shall take all such action as may be necessary or appropriate in order to
effectuate the Exchange. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the officers and directors of each of Schultz and Schultz Holding
shall take all such further action.
Section 4.2. Conditions to the Exchange. The consummation of the
Exchange is subject to the satisfaction of the following conditions prior to the
Effective Time:
(a) The Exchange shall have received the approval of the holders of
Schultz Common Stock and Schultz Holding Common Stock (which has already been
received) to the extent required by the WBCL and the respective Articles of
Incorporation and By-laws of Schultz and Schultz Holding;
(b) A registration statement or registration statements relating to
the shares of Schultz Holding Common Stock to be issued as a result of the
Exchange shall be effective under the Securities Act of 1933, as amended, and
shall not be the subject of any "stop order";
(c) The shares of Schultz Holding Common Stock to be issued as a
result of the Exchange shall have been approved for listing, upon official
notice of issuance, by the Nasdaq National Market;
(d) Schultz shall have received an opinion from Foley & Lardner,
counsel to Schultz, substantially to the effect that, on the basis of the facts,
assumptions and qualifications set forth in such opinion, for federal income tax
purposes: (1) no gain or loss will be recognized by Schultz Holding or the
holders of Schultz Common Stock who receive Schultz Holding Common Stock by
reason of the consummation of the Exchange; (2) the basis of Schultz Holding
Common Stock received by a holder of Schultz Common Stock in the Exchange will
be the same as the basis of the Schultz Common Stock exchanged for such Schultz
Holding Common Stock; and (3) each holder who holds Schultz Common Stock as a
capital asset will include in his holding period for Schultz Holding Common
Stock which he receives in the Exchange his holding period for such Schultz
Common Stock exchanged for Schultz Holding Common Stock; and
Appendix C-4
(e) Schultz shall have received an opinion, in form and substance
satisfactory to Schultz from Foley & Lardner, counsel to Schultz, as to the
validity of Schultz Holding Common Stock to be issued in the Exchange.
Section 4.3. Amendment; Waiver. The parties hereto, to the extent
permitted by law, by mutual consent of their respective Boards of Directors, may
amend, modify or supplement this Agreement or waive any condition set forth in
Section 4.02 hereof in such manner as may be agreed upon by them in writing, at
any time before or after approval of this Agreement by the shareholders of
Schultz; provided, however, that no such amendment, modification, supplement or
waiver shall, in the sole judgment of the Board of Directors of Schultz,
materially and adversely affect the rights of the shareholders of Schultz.
Section 4.4. Deferral. Consummation of the transactions herein
provided for may be deferred by the Boards of Directors of Schultz and Schultz
Holding for a reasonable period of time if said Boards determine that such
deferral would be in the best interests of Schultz and its shareholders.
Section 4.5. Termination. This Agreement may be terminated and the
Exchange and other transactions herein provided for abandoned at any time before
the Effective Time, whether before or after approval of this Agreement by the
shareholders of Schultz, by the parties hereto, by mutual consent of their
respective Boards of Directors, if such Boards of Directors determine for any
reason that the consummation of the transactions provided for herein would for
any reason be inadvisable, or that any consents or approvals deemed necessary or
advisable by such Boards of Directors have not been obtained within a reasonable
time after approval by the shareholders of Schultz.
Section 4.6. Counterparts. This Agreement may be executed in two or
more counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
Section 4.7. Headings. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of, or to
affect the meaning or interpretation of, this Agreement.
Appendix C-5
Section 4.8. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Wisconsin.
IN WITNESS WHEREOF, Schultz and Schultz Holding have executed this
Agreement by their respective duly authorized officers as of the date first
written above.
SCHULTZ SAV-O STORES, INC.
/s/ Elwood F. Winn
---------------------------------------
Elwood F. Winn
President and Chief Executive Officer
/s/ Armand C. Go
---------------------------------------
Armand C. Go
Vice President, Chief Financial Officer,
Treasurer and Secretary
SCHULTZ HOLDING COMPANY, INC.
/s/ Elwood F. Winn
---------------------------------------
Elwood F. Winn
President and Chief Executive Officer
/s/ Armand C. Go
---------------------------------------
Armand C. Go
Vice President, Chief Financial Officer,
Treasurer and Secretary
Appendix C-6
EXHIBIT I
ARTICLES OF SHARE EXCHANGE
SCHULTZ SAV-O STORES, INC.
(a Wisconsin corporation)
The Acquired Corporation
AND
SCHULTZ HOLDING COMPANY, INC.
(a Wisconsin corporation)
The Acquiring Corporation
In accordance with and pursuant to Section 180.1105 of the Wisconsin
Business Corporation Law ("WBCL"), SCHULTZ HOLDING COMPANY, INC., a Wisconsin
corporation ("Acquiring Corporation"), as of the 20th day of February, 2001,
does hereby execute the following Articles of Share Exchange:
ARTICLE 1
The Agreement and Plan of Share Exchange by and between the Acquiring
Corporation and Schultz Sav-O Stores, Inc., a Wisconsin corporation (the
"Acquired Corporation"), dated as of February 20, 2001 ("Plan of Share
Exchange"), a true and correct copy of which is attached hereto as Exhibit A and
hereby incorporated by reference herein, was approved and adopted in accordance
with Section 180.1103 of the WBCL.
ARTICLE 2
The Board of Directors of Acquired Corporation, in accordance with the
Acquired Corporation's Restated Articles of Incorporation and By-Laws and the
WBCL, approved and adopted the Plan of Share Exchange and the transactions
contemplated thereby and directed the submission of the Plan of Share Exchange
to the shareholders of the Acquiring Corporation on February 12, 2001.
Appendix C-7
ARTICLE 3
The shareholders of Acquired Corporation, in accordance with the
Acquired Corporation's Restated Articles of Incorporation and By-Laws and the
WBCL, approved and adopted the Plan of Share Exchange and the transactions
contemplated thereby on May 9, 2001.
ARTICLE 4
The Board of Directors of the Acquiring Corporation, in accordance
with the Acquiring Corporation's Articles of Incorporation and By-Laws and the
WBCL, approved and adopted the Plan of Share Exchange and the transactions
contemplated thereby and directed the submission of the Plan of Share Exchange
to the sole shareholder of the Acquiring Corporation on February 20, 2001.
ARTICLE 5
Acquired Corporation, as the then sole shareholder of the Acquiring
Corporation, in accordance with the Acquiring Corporation's Articles of
Incorporation and By-Laws and the WBCL, approved and adopted the Plan of Share
Exchange and the transactions contemplated thereby on February 20, 2001.
ARTICLE 6
These Articles of Share Exchange shall be effective, and the exchange
of shares provided for under the Plan of Share Exchange shall take effect, upon
the filing of these Articles of Share Exchange with the office of the Department
of Financial Institutions of the State of Wisconsin.
Appendix C-8
IN WITNESS WHEREOF, the Acquiring Corporation has caused these
Articles of Share Exchange to be executed by its duly authorized officers as of
the day and year first above written.
SCHULTZ SAV-O STORES, INC.
SCHULTZ SAV-O STORES, INC.
/s/ Elwood F. Winn
---------------------------------------
Elwood F. Winn
President and Chief Executive Officer
/s/ Armand C. Go
---------------------------------------
Armand C. Go
Vice President, Chief Financial Officer,
Treasurer and Secretary
SCHULTZ HOLDING COMPANY, INC.
/s/ Elwood F. Winn
---------------------------------------
Elwood F. Winn
President and Chief Executive Officer
/s/ Armand C. Go
---------------------------------------
Armand C. Go
Vice President, Chief Financial Officer,
Treasurer and Secretary
This instrument was drafted by and should be returned to Steven R. Barth, Foley
& Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. This document
should be recorded in the Office of the Register of Deeds of Sheboygan County.
Appendix C-9
APPENDIX D
ARTICLES OF INCORPORATION
OF
SCHULTZ HOLDING COMPANY, INC.
The following Articles of Incorporation of Schultz Holding Company,
Inc., a Wisconsin corporation (the "Corporation"), were duly adopted in
accordance with the Wisconsin Business Corporation Law.
ARTICLE I. Name
The name of the Corporation shall be "Schultz Holding Company, Inc."
ARTICLE II. Purpose
The purpose for which this Corporation is organized is to engage in
any lawful activity within the purposes for which corporations may be organized
under the Wisconsin Business Corporation Law.
ARTICLE III. Capital Stock
A. Authorized Shares. The aggregate number of shares which the
Corporation shall have authority to issue, itemized by classes and par value of
shares, is as follows:
Class No. of Shares Par Value Per Share
- - - ----- ------------- -------------------
Common Shares (designated common stock) 20,000,000 $ 0.05
Preferred Shares 1,000,000 $ 0.05
B. Preferred Shares.
----------------
1. General.
-------
Any series of preferred shares may be issued:
a. Subject to the right of the Corporation to redeem or
exchange any of such shares at the rate and for the consideration
specified in the particular series;
Appendix D-1
b. Convertible into common shares or into shares of any
other series of the preferred shares, as specified in the
particular series; and
c. Having such voting rights, including the right to vote as
a separate class, as specified in the particular series.
2. Dividends.
---------
Before any dividends shall be paid or set apart for payment upon the
common shares, the holders of each series of preferred shares shall be entitled
to receive dividends at the rate per annum specified in the particular series
payable quarterly upon the first business day of January, April, July and
October of each year out of any funds legally available for the payment of such
dividends, when and if declared by the Board of Directors. Such dividends shall
accumulate on each preferred share from the date of issuance. All dividends on
preferred shares shall be cumulative so that if the Corporation shall not pay
the quarterly dividend, or any part thereof, on the preferred shares then issued
and outstanding, such deficiency shall thereafter be fully paid, but without
interest, before any dividend shall be paid or set apart for payment on the
common shares.
Any dividend paid upon the preferred shares at a time when any
accumulated dividends for any prior period are delinquent shall be expressly
declared as a dividend in whole or partial payment of the accumulated dividend
for the earliest dividend period for which dividends are then delinquent, and
shall be so designated to each shareholder to whom payment is made. All
preferred shares shall rank equally and shall share ratably, in proportion to
the rate of dividend of the series, in all dividends paid or set aside for
payment for any dividend period or part thereof upon any such shares.
Except to the limited extent hereinafter provided, so long as any
preferred shares shall be outstanding, no dividend, whether in cash, stock or
otherwise, shall be paid or declared nor shall any distribution be made, on the
common shares, nor shall any common shares be purchased, redeemed or otherwise
acquired for value by the Corporation, nor shall any moneys be paid to or set
aside or made available for a sinking fund for the purchase or redemption of any
common shares, unless:
a. All dividends on the preferred shares of all series for all
past quarterly dividend periods shall have been paid or shall have
been declared and a sum sufficient for the payment thereof set apart;
and
Appendix D-2
b. The Corporation shall have set aside all amounts theretofore
required to be set aside as and for all sinking fund accounts, if any,
for the redemption or purchase of all series of preferred shares for
all past sinking fund payment periods or dates.
The foregoing provisions shall not, however, apply to, or in any way restrict
(i) any acquisition of common shares in exchange solely for common shares; (ii)
the acquisition of common shares through application of the proceeds of the sale
of common shares; or (iii) stock dividends or distributions payable only in
shares of stock having rights and preferences subordinate to the preferred
shares.
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
In case of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of each series of preferred shares
shall be entitled to receive out of the assets of the Corporation in money or
money's worth the amount specified in the particular series for each share at
the time outstanding together with all accrued but unpaid dividends thereon,
before any of such assets shall be paid or distributed to holders of common
shares. In case of the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, if the assets of the Corporation shall be
insufficient to pay the holders of all preferred shares then outstanding the
entire amounts to which they may be entitled, the holders of each outstanding
series of the preferred shares shall share ratably in such assets in proportion
to the respective amounts payable in liquidation.
4. Authority to Establish Series.
-----------------------------
The Board of Directors shall have the authority, to the maximum extent
permitted by Wisconsin law, to divide the preferred shares into series and to
fix and determine the relative rights and preferences of any series so
established.
ARTICLE IV. Preemptive Rights
No shareholder of the Corporation shall have any preemptive or
preferential right to subscribe for or purchase any of the unissued shares of
stock of the Corporation, whether now or hereafter authorized, or any shares of
this Corporation purchased or otherwise acquired by this Corporation or by its
nominee or nominees, or any bonds, certificates of indebtedness, debentures, or
other securities convertible into stock of this Corporation, or any right of
subscription to any thereof other than such, if any, as the Board of Directors
in its discretion may from time to time determine.
Appendix D-3
ARTICLE V. Board of Directors
The general powers, number, classification and qualifications of
directors shall be as set forth in Article III, Sections 1 and 2 of the
Corporation's Bylaws and such Article III, Sections 1 and 2 of the Bylaws, or
any provision thereof, shall be amended, altered, changed or repealed only by
the affirmative vote of shareholders possessing at least three-fourths of the
voting power of the then outstanding shares of all classes of stock of the
Corporation generally possessing voting rights in elections of directors,
considered for this purpose as one class; provided, however, that the Board of
Directors, by a resolution adopted by the Requisite Vote (as hereinafter
defined), may amend, alter, change or repeal Sections 1 and 2 of Article III of
the Bylaws, or any provision thereof, without the vote of the shareholders. As
used herein, the term "Requisite Vote" shall mean the affirmative vote of at
least two-thirds of the directors then in office plus one director.
Any director may be removed from office, but only for "cause" (as
hereinafter defined) by the affirmative vote of shareholders possessing at least
a majority of the voting power of the then outstanding shares of all classes of
stock of the Corporation generally possessing voting rights in elections of
directors, considered for this purpose as one class; provided, however, that if
the Board of Directors by a resolution adopted by the Requisite Vote shall have
recommended removal of a director, then the shareholders may remove such
director from office by the foregoing vote without cause. As used herein,
"cause" shall be construed to exist only if the director whose removal is
proposed has been convicted of a felony by a court of competent jurisdiction and
such conviction is no longer subject to direct appeal or has been adjudged by a
court of competent jurisdiction to be liable for willful misconduct in the
performance of his duty to the Corporation in a matter which has a materially
adverse effect on the business of the Corporation and such adjudication is no
longer subject to direct appeal.
Any vacancy occurring in the Board of Directors, including a vacancy
created by the removal of a director or an increase in the number of directors,
may be filled by the affirmative vote of a majority of the directors then in
office, though less than a quorum of the Board of Directors, or by a sole
remaining director. Any director so elected shall serve until the next election
of the class for which such director shall have been chosen and until his
successor shall be elected and qualified.
Notwithstanding any other provisions of these Articles of
Incorporation, the provisions in this Article V shall be amended, altered,
changed or repealed only by the affirmative vote of shareholders possessing at
least three-fourths of the voting power of the then outstanding shares of all
Appendix D-4
classes of stock of the Corporation generally possessing voting rights in
elections of directors, considered for this purpose as one class.
Notwithstanding the foregoing and the provisions of the Bylaws of the
Corporation, whenever the holders of any one or more series of preferred shares
issued by the Corporation, pursuant to Article III hereof, shall have the right,
voting separately as a class or by series, to elect directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the series of preferred shares applicable thereto, and such directors
so elected shall not be divided into classes unless expressly provided by the
terms of the applicable series.
ARTICLE VI. Sale of Real Property
The Board of Directors of the Corporation is authorized to sell,
lease, exchange, mortgage, pledge or otherwise convey or dispose of all or any
part of the real property, fixtures, improvements or chattels real of the
Corporation, by instruments duly executed according to law, and no authorization
or consent of the shareholders shall be required.
ARTICLE VII. Registered Office and Agent
The address of the registered office at the time of the adoption of
these Articles of Incorporation is 2215 Union Avenue, Sheboygan, Wisconsin
53081, and the name of its registered agent at such address is Elwood F. Winn.
The name and address of the registered agent may be changed from time to time by
the Board of Directors in the manner set forth in the Bylaws.
----------------------------------------------
The undersigned officers of Schultz Holding Company, Inc., a Wisconsin
corporation with its registered office in Sheboygan County, do hereby certify
that:
Appendix D-5
FIRST: The foregoing Articles of Incorporation of this Corporation
("Articles") were duly adopted by the sole shareholder of the Corporation by
unanimous written consent on February 22, 2001.
Executed in duplicate and seal affixed this 22nd day of February,
2001.
By: /s/ Elwood F. Winn
---------------------------------------
Elwood F. Winn
President and Chief Executive Officer
By: /s/ Armand C. Go
---------------------------------------
Armand C. Go
Secretary/Incorporator
2216 Union Avenue, Sheboygan, WI 53081
---------------
This instrument was drafted by and should be returned to Steven R. Barth, Foley
& Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. This document
should be recorded in the Office of the Register of Deeds of Sheboygan County.
---------------
Appendix D-6
Appendix E
BYLAWS
OF
SCHULTZ HOLDING COMPANY, INC.
(a Wisconsin corporation)
Appendix E-1
ARTICLE I OFFICES
1.01 Principal and Business Offices. The corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02 Registered Office. The registered office of the corporation
required by the Wisconsin Business Corporation Law to be maintained in the State
of Wisconsin may be, but need not be, identical with the principal office in the
State of Wisconsin, and the address of the registered office may be changed from
time to time by the Board of Directors or by the registered agent. The business
office of the registered agent of the corporation shall be identical to such
registered office.
ARTICLE II SHAREHOLDERS
2.01 Place of Meetings. Meetings of the shareholders of the
corporation shall be held at such place as may be designated from time to time
by resolution of the Board of Directors of the corporation. If no such place is
designated, then the meeting shall be held at the general office of the
corporation in Sheboygan County, Wisconsin.
2.02 Annual Meeting. The annual meeting of the shareholders shall be
held on the second Wednesday of May of each year. If such day is a legal holiday
then the meeting shall be held on the next secular day.
2.03 Special Meetings. Special meetings of the shareholders may be
called by any officer of the corporation, the Board of Directors, or by the
holders of not less than one tenth of all the shares entitled to vote at the
meeting.
2.04 Notice of Shareholders' Meetings. Written notice stating the
place, day and hour of the meeting, and in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than fifty days before the date of the meeting, either
personally or by mail, by or at the direction of the president, the secretary,
or the officer or person calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his address as it appears on the stock record books or similar records of the
corporation, with postage thereon prepaid.
Appendix E-2
2.05 Meetings Without Notice. Any meeting of the shareholders of the
corporation at which all of the shareholders entitled to vote are present,
either in person or by proxy, shall be a legal meeting of the shareholders
without notice. The shareholders may transact any business at such meeting which
may lawfully be transacted at any meeting of the shareholders regularly called
and notified.
2.06 Voting of Shares. Each outstanding share, entitled to vote, shall
be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. A shareholder may vote either in person or by proxy appointed in
writing by the shareholder, or by his duly authorized attorney-in-fact. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
2.07 Quorum. A majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at the meeting of shareholders. If
a quorum is not present at a meeting, the majority present in person or by proxy
may adjourn from time to time, without notice other than by announcement at the
meeting, until the holders of the amount of shares requisite to constitute a
quorum shall attend. At any such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally notified.
2.08 Conduct of Meetings. The Chairman of the Board, and in his
absence, the Vice Chairman of the Board, and in his absence, the President, and
in his absence, a Vice President in the order provided under Section 4.09, and
in their absence, any director chosen by the directors present, in their
absence, any shareholder entitled to vote chosen by the shareholders present
shall call the meeting of the shareholders to order and shall act as chairman of
the meeting, and the Secretary of the corporation shall act as secretary of all
meetings of the shareholders, but, in the absence of the Secretary, the
presiding officer may appoint any shareholder entitled to vote to act as
secretary of the meeting.
2.09 Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than fifty
days and, in case of a meeting of shareholders, not less than ten days prior to
the date on which the particular action requiring such determination of
shareholders is to be taken. If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders or
shareholders entitled to
Appendix E-3
receive payment of a dividend, the close of business on the date on which notice
of the meeting is mailed or on the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting has been made as provided in this
section, such determination shall be applied to any adjournment thereof.
ARTICLE III BOARD OF DIRECTORS
3.01 General Powers and Number. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation managed under the direction of, the Board of Directors. The number
of directors of the corporation shall be determined from time to time by the
Board of Directors and shall be divided into three classes designated as Class
I, Class II and Class III, respectively.
At the first annual meeting of shareholders, the Class I directors
shall be elected, at the second annual meeting of shareholders the Class II
directors shall be elected and at the third annual meeting of shareholders the
Class III directors shall be elected. Each director shall be elected for a term
to expire at the third annual meeting of shareholders after his or her election,
and until their successors are elected and qualify.
A director may resign at any time by delivering written notice which
complies with the Wisconsin Business Corporation Law to the Board of Directors,
to the Chairman of the Board of Directors or to the corporation. A director's
resignation is effective when the notice is delivered unless the notice
specifies a later effective date.
From time to time, the Board of Directors may elect one or more former
or retiring directors as Directors Emeritus of the corporation. Directors
Emeritus shall be invited to attend and participate in all meetings of the Board
of Directors (and shall be provided with all information and documents provided
to directors generally) but shall not have a vote on any matter before the Board
of Directors and shall not be counted in determining the presence of a quorum at
any meeting of the Board of Directors. Each Director Emeritus of the corporation
shall be deemed a "Director" for purposes of Article VIII of these bylaws and
shall be entitled to such compensation as may be determined by the Board of
Directors.
Appendix E-4
3.02 Qualifications. Directors need not be residents of the State of
Wisconsin or shareholders of the corporation. No other restrictions, limitations
or qualifications may be imposed on individuals for service as a director.
3.03 Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw immediately after the annual
meeting of shareholders and each adjourned session thereof. The place of such
regular meeting shall be the same as the place of the meeting of shareholders
which precedes it, or such other suitable place as may be communicated to the
directors at or prior to such meeting of shareholders. To the extent
practicable, the date, time and place, either within or without the State of
Wisconsin, for the holding of additional regular meetings of the Board of
Directors shall be communicated amongst and generally agreed upon by the
directors at any meeting of the Board of Directors.
3.04 Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the President or any two directors. The
President or Secretary may fix any place, either within or without the State of
Wisconsin, as the place for holding any special meeting of the Board of
Directors, and if no other place is fixed the place of the meeting shall be the
principal business office of the corporation in the State of Wisconsin.
3.05 Notice; Waiver. Notice of each special meeting of the Board of
Directors shall be given by written notice delivered or communicated in person,
by telegraph, teletype, facsimile or other form of wire or wireless
communication, or by mail or private carrier, to each director at his business
address or at such other address as such director shall have designated in
writing filed with the Secretary, in each case not less than twenty-four hours
prior to the meeting. The notice need not prescribe the purpose of the special
meeting of the Board of Directors or the business to be transacted at such
meeting. If mailed, such notice shall be deemed to be effective when deposited
in the United States mail so addressed, with postage thereon prepaid. If notice
is given by telegram, such notice shall be deemed to be effective when the
telegram is delivered to the telegraph company. If notice is given by private
carrier, such notice shall be deemed to be effective when delivered to the
private carrier. Whenever any notice whatever is required to be given to any
director of the corporation under the articles of incorporation or these bylaws
or any provision of the Wisconsin Business Corporation Law, a waiver thereof in
writing, signed at any time, whether before or after the date and time of
meeting, by the director entitled to such notice shall be deemed equivalent to
the giving of such notice. The corporation shall retain any such waiver as part
of the permanent corporate records. A director's attendance at or participation
in a meeting waives any required notice to him or her of the meeting unless the
director at the beginning of the meeting or promptly upon his or her arrival
objects to
Appendix E-5
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
3.06 Quorum. Except as otherwise provided by the Wisconsin Business
Corporation Law or by the articles of incorporation or these bylaws, a majority
of the number of directors specified in Section 3.01 of these bylaws shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors. Except as otherwise provided by the Wisconsin Business Corporation
Law or by the articles of incorporation or by these bylaws, a quorum of any
committee of the Board of Directors created pursuant to Section 3.12 hereof
shall consist of a majority of the number of directors appointed to serve on the
committee. A majority of the directors present (though less than such quorum)
may adjourn any meeting of the Board of Directors or any committee thereof, as
the case may be, from time to time without further notice.
3.07 Manner of Acting. The affirmative vote of a majority of the
directors present at a meeting of the Board of Directors or a committee thereof
at which a quorum is present shall be the act of the Board of Directors or such
committee, as the case may be, unless the Wisconsin Business Corporation Law,
the articles of incorporation or these bylaws require the vote of a greater
number of directors.
3.08 Conduct of Meetings. The Chairman of the Board, and in his
absence, the Vice Chairman of the Board, and in his absence, the President, and
in his absence, a Vice President in the order provided under Section 4.09, and
in their absence, any director chosen by the directors present, shall call
meetings of the Board of Directors to order and shall act as chairman of the
meeting. The Secretary of the corporation shall act as secretary of all meetings
of the Board of Directors but in the absence of the Secretary, the presiding
officer may appoint any other person present to act as secretary of the meeting.
Minutes of any regular or special meeting of the Board of Directors shall be
prepared and distributed to each director.
3.09 Vacancies. Except as provided below, any vacancy occurring in the
Board of Directors, including a vacancy resulting from an increase in the number
of directors, may be filled by any of the following: (a) the shareholders; (b)
the Board of Directors; or (c) if the directors remaining in office constitute
fewer than a quorum of the Board of Directors, the directors, by the affirmative
vote of a majority of all directors remaining in office. If the vacant office
was held by a director elected by a voting group of shareholders, only the
holders of shares of that voting group may vote to fill the vacancy if it is
filled by the shareholders, and only the remaining directors elected by that
voting group may vote to fill the vacancy if it is filled by the directors. A
vacancy that will occur at a
Appendix E-6
specific later date, because of a resignation effective at a later date or
otherwise, may be filled before the vacancy occurs, but the new director may not
take office until the vacancy occurs. Any vacancy resulting from a director's
death, resignation, removal, disqualification or otherwise shall be filled for
the unexpired portion of such director's term.
3.10 Compensation. The Board of Directors, irrespective of any
personal interest of any of its members, may establish reasonable compensation
of all directors for services to the corporation as directors, officers or
otherwise, or may delegate such authority to an appropriate committee. The Board
of Directors also shall have authority to provide for or delegate authority to
an appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers and employees
and to their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the corporation.
3.11 Presumption of Assent. A director who is present and is announced
as present at a meeting of the Board of Directors or any committee thereof
created in accordance with Section 3.12 hereof, when corporate action is taken,
assents to the action taken unless any of the following occurs: (a) the director
objects at the beginning of the meeting or promptly upon his or her arrival to
holding the meeting or transacting business at the meeting; (b) the director's
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (c) the director delivers written notice that complies with the
Wisconsin Business Corporation Law of his or her dissent or abstention to the
presiding officer of the meeting before its adjournment or to the corporation
immediately after adjournment of the meeting. Such right of dissent or
abstention shall not apply to a director who votes in favor of the action taken.
3.12 Committees. The Board of Directors, by resolution adopted by the
affirmative vote of a majority of all of the directors then in office, may
create one or more committees, appoint members of the Board of Directors to
serve on the committees and designate other members of the Board of Directors to
serve as alternates. Each committee shall have two or more members who shall,
unless otherwise provided by the Board of Directors, serve at the pleasure of
the Board of Directors. A committee may be authorized to exercise the authority
of the Board of Directors, except that a committee may not do any of the
following: (a) authorize distributions; (b) approve or propose to shareholders
action that the Wisconsin Business Corporation Law requires to be approved by
shareholders; (c) fill vacancies on the Board of Directors or, unless the Board
of Directors provides by resolution that vacancies on a committee shall be
filled by the affirmative vote of the remaining committee members, on any Board
committee; (d) amend the corporation's articles of incorporation;
Appendix E-7
(e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring
shareholder approval; (g) authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the Board of Directors; and (h)
authorize or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences and limitations of a
class or series of shares, except that the Board of Directors may authorize a
committee to do so within limits prescribed by the Board of Directors. Unless
otherwise provided by the Board of Directors in creating the committee, a
committee may employ counsel, accountants and other consultants to assist it in
the exercise of its authority.
3.13 Telephonic Meetings. Except as herein provided and
notwithstanding any place set forth in the notice of the meeting or these
bylaws, members of the Board of Directors (and any committees thereof created
pursuant to Section 3.12 hereof) may participate in regular or special meetings
by, or through the use of, any means of communication by which all participants
may simultaneously hear each other, such as by conference telephone. If a
meeting is conducted by such means, then at the commencement of such meeting the
presiding officer shall inform the participating directors that a meeting is
taking place at which official business may be transacted. Any participant in a
meeting by such means shall be deemed present in person at such meeting. If
action is to be taken at any meeting held by such means on any of the following:
(a) a plan of merger or share exchange; (b) a sale, lease, exchange or other
disposition of substantial property or assets of the corporation; (c) a
voluntary dissolution or the revocation of voluntary dissolution proceedings; or
(d) a filing for bankruptcy, then the identity of each director participating in
such meeting must be verified by the disclosure at such meeting by each such
director of each such director's social security number to the secretary of the
meeting before a vote may be taken on any of the foregoing matters. For purposes
of the preceding clause (b), the phrase "sale, lease, exchange or other
disposition of substantial property or assets" shall mean any sale, lease,
exchange or other disposition of property or assets of the corporation having a
net book value equal to 20% or more of the net book value of the total assets of
the corporation on and as of the close of the fiscal year last ended prior to
the date of such meeting and as to which financial statements of the corporation
have been prepared. Notwithstanding the foregoing, no action may be taken at any
meeting held by such means on any particular matter which the presiding officer
determines, in his or her sole discretion, to be inappropriate under the
circumstances for action at a meeting held by such means. Such determination
shall be made and announced in advance of such meeting.
3.14 Action without Meeting. Any action required or permitted by the
Wisconsin Business Corporation Law to be taken at a meeting of the Board of
Directors or a committee thereof created pursuant to Section 3.12 hereof may be
taken without a meeting if the action is taken by all members of
Appendix E-8
the Board or of the committee. The action shall be evidenced by one or more
written consents describing the action taken, signed by each director or
committee member and retained by the corporation. Such action shall be effective
when the last director or committee member signs the consent, unless the consent
specifies a different effective date.
ARTICLE IV OFFICERS
4.01 Number. The principal officers of the corporation shall be a
Chairman of the Board, a Vice Chairman of the Board, a President, the number of
Vice Presidents as authorized from time to time by the Board of Directors, a
Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors. Such other officers and assistant officers as may be deemed necessary
may be elected or appointed by the Board of Directors. The Board of Directors
may also authorize any duly authorized officer to appoint one or more officers
or assistant officers. Any two or more offices may be held by the same person.
4.02 Election and Term of Office. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as is practicable.
Each officer shall hold office until his or her successor shall have been duly
elected or until his or her prior death, resignation or removal.
4.03 Removal. The Board of Directors may remove any officer and,
unless restricted by the Board of Directors or these bylaws, an officer may
remove any officer or assistant officer appointed by that officer, at any time,
with or without cause and notwithstanding the contract rights, if any, of the
officer removed. The election or appointment of an officer does not of itself
create contract rights.
4.04 Resignation. An officer may resign at any time by delivering
notice to the corporation that complies with the Wisconsin Business Corporation
Law. The resignation shall be effective when the notice is delivered, unless the
notice specifies a later effective date and the corporation accepts the later
effective date.
4.05 Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term. If a resignation of an
officer is effective at a later date as contemplated by Section 4.04 hereof,
Appendix E-9
the Board of Directors may fill the pending vacancy before the effective date if
the Board provides that the successor may not take office until the effective
date.
4.06 Chairman of the Board. The Chairman of the Board shall preside
when present at all meetings of directors and shareholders. He shall also
perform all such other functions and duties as may be assigned to him by the
Board of Directors. He shall also have authority to sign documents and
instruments in the absence of the President.
4.07 Vice Chairman of the Board. The Vice Chairman of the Board shall,
when present and when the Chairman of the Board is not present, preside at all
meetings of the directors and shareholders. The Vice Chairman shall also perform
all other functions and duties as may be assigned to him by the Board of
Directors or the Chairman of the Board.
4.08 President. The President shall be the principal executive officer
of the corporation and, subject to the direction of the Board of Directors,
shall in general supervise and control all of the business and affairs of the
corporation. In the absence of the Chairman and the Vice Chairman, the President
shall, when present, preside at all meetings of the directors and shareholders.
He shall have authority, subject to such rules as may be prescribed by the Board
of Directors, to appoint such agents and employees of the corporation as he
shall deem necessary, to prescribe their powers, duties and compensation, and to
delegate authority to them. Such agents and employees shall hold office at the
discretion of the President. He shall have authority to sign, execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock
certificates, contracts, leases, reports and all other documents or instruments
necessary or proper to be executed in the course of the corporation's regular
business, or which shall be authorized by resolution of the Board of Directors;
and, except as otherwise provided by law or the Board of Directors, he may
authorize any Vice President or other officer or agent of the corporation to
sign, execute and acknowledge such documents or instruments in his place and
stead. In general, he shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Board of Directors
from time to time.
4.09 The Vice Presidents. In the absence of the President or in the
event of the President's death, inability or refusal to act, or in the event for
any reason it shall be impracticable for the President to act personally, the
Vice President (or, in the event there be more than one Vice President, the
Executive Vice President, or in his absence the Vice Presidents in the order
designated by the Board of Directors, or in the absence of any designation, then
in the order of their election) shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the Secretary
or Assistant
Appendix E-10
Secretary, certificates for shares of the corporation; and shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him or her by the President or by the Board of Directors. The
execution of any instrument of the corporation by any Vice President shall be
conclusive evidence, as to third parties, of his or her authority to act in the
stead of the President.
4.10 The Secretary. The Secretary shall: (a) keep minutes of the
meetings of the shareholders and of the Board of Directors (and of committees
thereof) in one or more books provided for that purpose (including records of
actions taken by the shareholders or the Board of Directors (or committees
thereof) without a meeting); (b) see that all notices are duly given in
accordance with the provisions of these bylaws or as required by the Wisconsin
Business Corporation Law; (c) be custodian of the corporate records and of the
seal of the corporation and see that the seal of the corporation is affixed to
all documents the execution of which on behalf of the corporation under its seal
is duly authorized; (d) maintain a record of the shareholders of the
corporation, in a form that permits preparation of a list of the names and
addresses of all shareholders, by class or series of shares and showing the
number and class or series of shares held by each shareholder; (e) sign with the
President, or a Vice President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and have such other duties and exercise such authority as from time to
time may be delegated or assigned by the President or by the Board of Directors.
4.11 The Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
maintain appropriate accounting records; (c) receive and give receipts for
moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies or other depositaries as shall be selected in accordance with the
provisions of Section 5.04; and (d) in general perform all of the duties
incident to the office of Treasurer and have such other duties and exercise such
other authority as from time to time may be delegated or assigned by the
President or by the Board of Directors. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of his or her duties
in such sum and with such surety or sureties as the Board of Directors shall
determine.
4.12 Assistant Secretaries and Assistant Treasurers. There shall be
such number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors or the President may from time to time authorize. The Assistant
Secretaries may sign with the President or a Vice President certificates for
shares of the corporation the issuance of which shall have been authorized by a
Appendix E-11
resolution of the Board of Directors. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the Board of
Directors shall determine. The Assistant Secretaries and Assistant Treasurers,
in general, shall perform such duties and have such authority as shall from time
to time be delegated or assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
4.13 Other Assistants and Acting Officers. The Board of Directors and
the President shall have the power to appoint, or to authorize any duly
appointed officer of the corporation to appoint, any person to act as assistant
to any officer, or as agent for the corporation in his or her stead, or to
perform the duties of such officer whenever for any reason it is impracticable
for such officer to act personally, and such assistant or acting officer or
other agent so appointed by the Board of Directors or an authorized officer
shall have the power to perform all the duties of the office to which he or she
is so appointed to be an assistant, or as to which he or she is so appointed to
act, except as such power may be otherwise defined or restricted by the Board of
Directors, the President or the appointing officer.
ARTICLE V CONTRACTS, LOANS, CHECKS
AND DEPOSITS; SPECIAL CORPORATE ACTS
5.01 Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages and instruments of assignment or
pledge made by the corporation shall be executed in the name of the corporation
by the President or one of the Vice Presidents and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or
an Assistant Secretary, when necessary or required, shall affix the corporate
seal, if any, thereto; and when so executed no other party to such instrument or
any third party shall be required to make any inquiry into the authority of the
signing officer or officers.
5.02 Loans. No indebtedness for borrowed money shall be contracted on
behalf of the corporation and no evidences of such indebtedness shall be issued
in its name unless authorized by or under the authority of a resolution of the
Board of Directors. Such authorization may be general or confined to specific
instances.
Appendix E-12
5.03 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
or under the authority of a resolution of the Board of Directors.
5.04 Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as may be selected by or under the
authority of a resolution of the Board of Directors.
5.05 Voting of Securities Owned by this Corporation. Subject always to
the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders of such other
corporation by the President of this corporation if he be present, or in his
absence by any Vice President of this corporation who may be present, and (b)
whenever, in the judgment of the President, or in his absence, of any Vice
President, it is desirable for this corporation to execute a proxy or written
consent in respect to any shares or other securities issued by any other
corporation and owned by this corporation, such proxy or consent shall be
executed in the name of this corporation by the President or one of the Vice
Presidents of this corporation, without necessity of any authorization by the
Board of Directors, affixation of corporate seal, if any, or countersignature or
attestation by another officer. Any person or persons designated in the manner
above stated as the proxy or proxies of this corporation shall have full right,
power and authority to vote the shares or other securities issued by such other
corporation and owned by this corporation the same as such shares or other
securities might be voted by this corporation.
ARTICLE VI CERTIFICATES FOR SHARES; TRANSFER OF SHARES
6.01 Certificates for Shares. Certificates representing shares of the
corporation shall be in such form, consistent with the Wisconsin Business
Corporation Law, as shall be determined by the Board of Directors. Such
certificates shall be signed by the President or a Vice President and by the
Secretary or an Assistant Secretary. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer shall
be cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except as
provided in Section 6.06.
Appendix E-13
6.02 Facsimile Signatures and Seal. The seal of the corporation, if
any, on any certificates for shares may be a facsimile. The signature of the
President or Vice President and the Secretary or Assistant Secretary upon a
certificate may be facsimiles if the certificate is manually signed on behalf of
a transfer agent, or a registrar, other than the corporation itself or an
employee of the corporation.
6.03 Signature by Former Officers. The validity of a share certificate
is not affected if a person who signed the certificate (either manually or in
facsimile) no longer holds office when the certificate is issued.
6.04 Transfer of Shares. Prior to due presentment of a certificate for
shares for registration of transfer the corporation may treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to have and exercise all the rights and power of an
owner. Where a certificate for shares is presented to the corporation with a
request to register for transfer, the corporation shall not be liable to the
owner or any other person suffering loss as a result of such registration of
transfer if (a) there were on or with the certificate the necessary
endorsements, and (b) the corporation had no duty to inquire into adverse claims
or has discharged any such duty. The corporation may require reasonable
assurance that such endorsements are genuine and effective and compliance with
such other regulations as may be prescribed by or under the authority of the
Board of Directors.
6.05 Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
6.06 Lost, Destroyed or Stolen Certificates. Where the owner claims
that certificates for shares have been lost, destroyed or wrongfully taken, a
new certificate shall be issued in place thereof if the owner (a) so requests
before the corporation has notice that such shares have been acquired by a bona
fide purchaser, (b) files with the corporation a sufficient indemnity bond if
required by the Board of Directors or any principal officer, and (c) satisfies
such other reasonable requirements as may be prescribed by or under the
authority of the Board of Directors.
6.07 Consideration for Shares. The Board of Directors may authorize
shares to be issued for consideration consisting of any tangible or intangible
property or benefit to the corporation, including cash, promissory notes,
services performed, contracts for services to be performed or other securities
of the corporation. Before the corporation issues shares, the Board of Directors
shall determine that the consideration received or to be received for the shares
to be issued is adequate. The
Appendix E-14
determination of the Board of Directors is conclusive insofar as the adequacy of
consideration for the issuance of shares relates to whether the shares are
validly issued, fully paid and nonassessable. The corporation may place in
escrow shares issued in whole or in part for a contract for future services or
benefits, a promissory note, or otherwise for property to be issued in the
future, or make other arrangements to restrict the transfer of the shares, and
may credit distributions in respect of the shares against their purchase price,
until the services are performed, the benefits or property are received or the
promissory note is paid. If the services are not performed, the benefits or
property are not received or the promissory note is not paid, the corporation
may cancel, in whole or in part, the shares escrowed or restricted and the
distributions credited.
6.08 Stock Regulations. The Board of Directors shall have the power
and authority to make all such further rules and regulations not inconsistent
with law as it may deem expedient concerning the issue, transfer and
registration of shares of the corporation.
ARTICLE VII SEAL
7.01 The Board of Directors may provide for a corporate seal for the
corporation.
ARTICLE VIII INDEMNIFICATION
8.01 Provision of Indemnification. The corporation shall, to the
fullest extent permitted or required by Sections 180.0850 to 180.0859,
inclusive, of the Wisconsin Business Corporation Law, including any amendments
thereto (but in the case of any such amendment, only to the extent such
amendment permits or requires the corporation to provide broader indemnification
rights than prior to such amendment), indemnify its Directors and Officers
against any and all Liabilities, and advance any and all reasonable Expenses,
incurred thereby in any Proceeding to which any such Director or Officer is a
Party because he or she is or was a Director or Officer of the corporation. The
corporation shall also indemnify an employee who is not a Director or Officer,
to the extent that the employee has been successful on the merits or otherwise
in defense of a Proceeding, for all Expenses incurred in the Proceeding if the
employee was a Party because he or she is or was an employee of the corporation.
The rights to indemnification granted hereunder shall not be deemed exclusive of
any other rights to indemnification against Liabilities or the advancement of
Expenses which a Director, Officer or employee may be entitled under any written
agreement, Board resolution, vote of shareholders, the Wisconsin Business
Corporation Law or otherwise. The corporation may, but shall not be required to,
supplement the foregoing rights to indemnification against Liabilities and
advancement of Expenses under this Section 8.01 by the purchase of insurance on
behalf of any one or more of such Directors,
Appendix E-15
Officers or employees, whether or not the corporation would be obligated to
indemnify or advance Expenses to such Director, Officer or employee under this
Section 8.01. All capitalized terms used in this Article VIII and not otherwise
defined herein shall have the meaning set forth in Section 180.0850 of the
Wisconsin Business Corporation Law.
ARTICLE IX AMENDMENTS
9.01 By Shareholders. These bylaws may be amended or repealed and new
bylaws may be adopted by the shareholders at any annual or special meeting of
the shareholders at which a quorum is in attendance.
9.02 By Directors. Except as otherwise provided by the Wisconsin
Business Corporation Law, the articles of incorporation or these bylaws, these
bylaws may also be amended or repealed and new bylaws may be adopted by the
Board of Directors provided, however, that the shareholders in adopting,
amending or repealing a particular bylaw may provide therein that the Board of
Directors may not amend, repeal or readopt that bylaw and provided, further,
that the Board of Directors shall have no power to amend or repeal any
provisions of Article II.
9.03 Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors which would be inconsistent with the
bylaws then in effect but which is taken or authorized by affirmative vote of
not less than the number of shares or the number of directors required to amend
the bylaws so that the bylaws would be consistent with such action shall be
given the same effect as though the bylaws had been temporarily amended or
suspended so far, but only so far, as is necessary to permit the specific action
so taken or authorized.
ARTICLE X SHAREHOLDER PROPOSALS
10.01 Annual Meetings.
(a) Nominations of persons for election to the Board of Directors of
the corporation and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders by any shareholder
of the corporation who (i) is a shareholder of record at the time of giving of
notice provided for in this Section 10.01, (ii) is entitled to vote at the
meeting, and (iii) complies with the notice procedures set forth in this Section
10.01.
Appendix E-16
(b) For nominations or other business to be properly brought before an
annual meeting of shareholders by a shareholder, such shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice shall be received by the Secretary of the
corporation at the principal offices of the corporation not later than the
earlier of (i) the date 45 days prior to the first anniversary (the "Anniversary
Date") of the date set forth, in the corporation's proxy statement for the last
annual meeting of shareholders held by the corporation, as the date on which the
corporation first mailed definitive proxy materials for such annual meeting of
shareholders and (ii) the later of (x) the date 70 days prior to the annual
meeting of shareholders before which the shareholder providing notice desires to
bring the business set forth in the notice and (y) the date 10 days following
the day on which public announcement of the date of such meeting is first made.
Such shareholder's notice shall be signed by the shareholder of record who
intends to make the nomination or introduce the other business (or his duly
authorized proxy or other representative), shall bear the date of signature of
such shareholder (or proxy or other representative) and shall set forth: (A) the
name and address, as they appear on the corporation's books, of such shareholder
and the beneficial owner or owners, if any, on whose behalf the nomination or
other proposal is made; (B) the class and number of shares of the corporation
that are beneficially owned by such shareholder or beneficial owner or owners;
(C) a representation that such shareholder is a holder of record of shares of
the corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to make the nomination or introduce the other
business specified in the notice; (D) in the case of any proposed nomination for
election or re-election as a director, (i) the name and residential address of
the person or persons to be nominated, (ii) a description of all arrangements or
understandings between such shareholder or beneficial owner or owners and each
nominee and any other person or persons (naming such person or persons) pursuant
to which the nomination is to be made by such shareholder, (iii) such other
information regarding each nominee proposed by such shareholder as would be
required to be disclosed in solicitations of proxies for elections of directors,
or would be otherwise required to be disclosed, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934 (the "Exchange Act"),
including any information that would be required to be included in a proxy
statement filed pursuant to Regulation 14A had the nominee been nominated by the
Board of Directors and (iv) the written consent of each nominee to be named in a
proxy statement and to serve as a director of the corporation if so elected; and
(E) in the case of any other business that such shareholder proposes to bring
before the meeting, (i) a brief description of the business desired to be
brought before the meeting and, if such business includes a proposal to amend
these bylaws, the language of the proposed amendment, (ii) such shareholder's
and beneficial owner's or owners' reasons for conducting such business at the
meeting and (iii) any material interest in such business of such shareholder and
beneficial owner or owners.
Appendix E-17
(c) Notwithstanding the foregoing provisions of this Section 10.01 to
the contrary, in the event that the number of directors to be elected to the
Board of Directors of the corporation is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board of Directors made by the corporation at least 45 days prior
to the Anniversary Date, a shareholder's notice required by this Section 10.01
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be received by the Secretary at
the principal offices of the corporation not later than the close of business on
the 10th day following the day on which such public announcement is first made
by the corporation.
10.02 Special Meetings.
(a) Only such business shall be conducted at a special meeting of the
shareholders of the corporation as is described in the notice of such meeting
sent to shareholders in accordance with Section 2.04 of these bylaws.
(b) Nominations of persons for election to the Board of Directors at a
special meeting of shareholders at which directors are to be elected may be made
a shareholder only if such shareholder (i) is a shareholder of record at the
time of giving of notice of such meeting, (ii) is entitled to vote at the
meeting, and (iii) complies with the notice procedures set forth in this Section
10.02.
(c) Any shareholder desiring to nominate persons for election to the
Board of Directors at such a special meeting shall cause a written notice to be
received by the Secretary of the corporation at the principal offices of the
corporation not earlier than ninety days prior to such special meeting and not
later than the close of business on the later of (x) the date 60 days prior to
such special meeting and (y) the date 10 days following the day on which public
announcement is first made of the date of such special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. Such
written notice shall be signed by the shareholder of record who intends to make
the nomination (or his duly authorized proxy or other representative), shall
bear the date of signature of such shareholder (or proxy or other
representative) and shall set forth: (i) the name and address, as they appear on
the corporation's books, of such shareholder and the beneficial owner or owners,
if any, on whose behalf the nomination is made; (ii) the class and number of
shares of the corporation which are beneficially owned by such shareholder or
beneficial owner or owners; (iii) a representation that such shareholder is a
holder of record of shares of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to make the
nomination specified in the notice; (iv) the name and residence address of the
person or persons to be nominated; (v) a description of all arrangements or
understandings between such shareholder or beneficial owner or owners and
Appendix E-18
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination is to be made by such shareholder; (vi) such
other information regarding each nominee proposed by such shareholder as would
be required to be disclosed in solicitations of proxies for elections of
directors, or would be otherwise required to be disclosed, in each case pursuant
to Regulation 14A under the Exchange Act, including any information that would
be required to be included in a proxy statement filed pursuant to Regulation 14A
had the nominee been nominated by the Board of Directors; and (vii) the written
consent of each nominee to be named in a proxy statement and to serve as a
director of the corporation if so elected.
10.03 General.
(a) Only persons who are nominated by or at the direction of the Board
of Directors or nominated by shareholders of the corporation in compliance with
the procedures set forth in this Article X shall be eligible to serve as
directors. Only such business shall be conducted at an annual meeting or special
meeting of shareholders as shall have been brought before such meeting by or at
the direction of the Board of Directors or by a shareholder in compliance with
the procedures set forth in this Article X. The chairman of any meeting of
shareholders shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was made in accordance
with the procedures set forth in this Article X and, if any proposed nomination
or business is not in compliance with this Article X, to declare that such
defective proposal shall be disregarded.
(b) For purposes of this Article X, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(c) In addition to complying with the foregoing provisions of this
Article X, a shareholder shall comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Article X. Nothing in this Article X shall be deemed
to limit the corporation's obligation to include shareholder proposals in its
proxy statement if such inclusion is required by Rule 14a-8 under the Exchange
Act.
Appendix E-19
SCHULTZ SAV-O STORES, INC.
2001 ANNUAL MEETING OF SHAREHOLDERS - _____, 2001 PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Walter G. Winding and Elwood F. Winn,
and each or either of them as proxies, each with the power to appoint his
substitute, and hereby authorizes each or either of them to represent and to
vote, as designated below, all the shares of Common Stock of Schultz Sav-O
Stores, Inc. held of record by the undersigned on ________, 2001 at the 2001
annual meeting of shareholders scheduled to be held on ________, 2001 and any
adjournment thereof.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made, this
proxy will be voted:
o FOR the three specified director nominees;
o FOR the adoption of the plan of share exchange with Schultz
Holding Company, Inc.;
o FOR the amendment to our 1995 equity incentive plan to
increase, by 500,000, the number of shares of our stock
available under the plan;
o FOR the approval the proposed 2001 nonemployee director
stock option plan;
o FOR the ratification of Arthur Andersen LLP as the Company's
2001 independent public accountants;
o and on such other business as may properly come before the
meeting in accordance with the best judgment of the proxies
named herein.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting and accompanying Proxy Statement relating to the Company's 2001 Annual
Meeting of Shareholders, and the Company's 2000 Annual Report.
++ DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED ++
- - - ---------- -----------
SCHULTZ SAV-O STORES, INC. 2001 ANNUAL MEETING
1. ELECTION OF DIRECTORS: 1-William K. Jacobson 2-Steven R. Barth WITHHOLD
3- FOR all nominees AUTHORITY to
[ ] listed to the left [ ] vote for all
(except as specified nominees listed
below). to the left.
-----------------------------------------------
(Instructions: To withhold authority to vote for any indicated
nominee, write the number(s) of the nominee(s) in the box -------->
provided to the right.)
-----------------------------------------------
2. Adoption of the plan of share exchange with Schultz Holding Company, Inc. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the amendment to our 1995 equity incentive plan to increase, [ ] FOR [ ] AGAINST [ ] ABSTAIN
by 500,000, the number of shares of our stock available under the plan.
4. Adoption of the 2001 nonemployee director stock option plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Ratification of Arthur Andersen LLP as the Company's independent public [ ] FOR [ ] AGAINST [ ] ABSTAIN
accounts for 2001.
6. In their discretion, upon such other business as may properly come before
the meeting and at any adjournment thereof.
Date _____________________ NO. OF SHARES
Check appropriate box
Indicate changes below: [ ] Name [ ]
Address Change? Changes?
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Signature(s) in Box
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
HEREON. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give your full title as
such. If a corporation, please sign in full
corporate name by the president or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
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