-------------------------------------------------------------------------------
AGREEMENT OF
SETTLEMENT AND RELEASE
BY AND BETWEEN
▇▇▇▇'▇ SUPERMARKETS, INC.
AND
▇▇▇▇▇▇▇ COMPANIES, INC.
DATED AS OF OCTOBER 23, 1997
-------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 3
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II THE SALE. . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 The Investment Banker . . . . . . . . . . . . . . . . . . 8
2.2 The Offering. . . . . . . . . . . . . . . . . . . . . . . 9
(a) With the El Paso PSC. . . . . . . . . . . . . . . . . 9
(b) Without the El Paso PSC . . . . . . . . . . . . . . . 9
(c) The El Paso PSC Costs and the Liquidation Costs . . . 10
(d) The Acquisition Agreement . . . . . . . . . . . . . . 10
(e) Representations and Covenants . . . . . . . . . . . . 10
2.3 Minimum Bid Price . . . . . . . . . . . . . . . . . . . . 12
2.4 Stockholders Bids . . . . . . . . . . . . . . . . . . . . 13
2.5 Calculation of Amounts to be Paid to Holders of
Issued Common Stock, Options, Warrants and SARs . . . . . 14
ARTICLE III THE RELEASES. . . . . . . . . . . . . . . . . . . . . . . 14
3.1 Furr's Release. . . . . . . . . . . . . . . . . . . . . . 14
3.2 ▇▇▇▇▇▇▇ Release . . . . . . . . . . . . . . . . . . . . . 14
3.3 Arbitration . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 Dissolution Action. . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV THE SUPPLY AGREEMENT AND FURR'S ELECTION. . . . . . . . . 15
4.1 The Supply Agreement. . . . . . . . . . . . . . . . . . . 15
(a) Sale of Furr's. . . . . . . . . . . . . . . . . . . . 15
(b) No Sale . . . . . . . . . . . . . . . . . . . . . . . 16
4.2 Furr's Election . . . . . . . . . . . . . . . . . . . . . 16
4.3 Furr's Election to Purchase the El Paso PSC . . . . . . . 16
4.4 Furr's Elects Not to Purchase the El Paso PSC . . . . . . 16
4.5 Credit Policies . . . . . . . . . . . . . . . . . . . . . 17
4.6 Other Indebtedness. . . . . . . . . . . . . . . . . . . . 17
4.7 Payments. . . . . . . . . . . . . . . . . . . . . . . . . 17
4.8 Reduction in Charges. . . . . . . . . . . . . . . . . . . 17
4.9 Union Agreement . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE V THE STOCKHOLDERS AGREEMENT. . . . . . . . . . . . . . . . 20
5.1 The Stockholders Agreement. . . . . . . . . . . . . . . . 20
5.2 Standstill. . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 22
6.1 Other Conditions. . . . . . . . . . . . . . . . . . . . . 22
6.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.5 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.6 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . 23
6.7 Binding On Successors . . . . . . . . . . . . . . . . . . . . . . 23
6.8 Entire Agreement; Assignment. . . . . . . . . . . . . . . . . . . 24
6.9 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.11 Modifications and Amendments. . . . . . . . . . . . . . . . . . . 24
6.12 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
EXHIBITS
Exhibit A Definition of Minimum Bid Price
Exhibit B-1 Special Release (Furr's)
Exhibit B-2 Special Release (Windward Group)
Exhibit B-3 Special Release (▇▇▇▇▇▇▇)
Exhibit B-4 Special Release (Management)
Exhibit B-5 Special Release (Officers and Employees)
Exhibit C Dismissal With Prejudice - Action
Exhibit D-1 Dismissal With Prejudice - Delaware Litigation
Exhibit D-2 Dismissal With Prejudice - Texas Litigation
Exhibit E ▇▇▇▇▇▇▇ EBITDA Report
Exhibit F Form of Asset Purchase Agreement
Exhibit G Form of Escrow Agreement
Exhibit H Windward Waiver
-ii-
AGREEMENT OF SETTLEMENT AND RELEASE
THIS AGREEMENT OF SETTLEMENT AND RELEASE (this "Agreement"), entered into
as of the 23rd day of October, 1997, by and between ▇▇▇▇'▇ SUPERMARKETS,
INC., a Delaware corporation ("Furr's"), and ▇▇▇▇▇▇▇ COMPANIES, INC., an
Oklahoma corporation ("▇▇▇▇▇▇▇"). ▇▇▇▇▇▇▇ and Furr's are herein sometimes
referred to as the "Parties".
W I T N E S S E T H :
WHEREAS, Furr's has filed a lawsuit against ▇▇▇▇▇▇▇, two of its officers
(the "Officers") and two other present or former employees (the "Employees")
styled ▇▇▇▇'▇ SUPERMARKETS, INC. ▇. ▇▇▇▇▇▇▇ COMPANIES, INC., ET AL., Case No.
CIV-97-0410 JC/RLP, United States District Court for the District of New
Mexico seeking the termination of the ten (10) year supply agreement dated
March 11, 1991 between Furr's and ▇▇▇▇▇▇▇ (as previously amended and as
modified and amended in accordance with SECTION 4.8 hereof, the "Supply
Agreement"), claiming that it was overcharged for products under the Supply
Agreement, breach of contract, misrepresentation, fraud and violation of
certain New Mexico trade practices statutes and other claims (the "Action"),
and the Local Unions, on behalf of themselves and a class of former and
present employees of Furr's moved to intervene in the Action against ▇▇▇▇▇▇▇
(the claims asserted in the motion to intervene, together with any related
claims which could be asserted by the Local Unions in other actions, the
"Union Claim"); and
WHEREAS, Furr's has petitioned the court to amend its complaint in the
Action to describe allegations against ▇▇▇▇▇▇▇ and the Officers under the
Racketeer Influenced Corruption and Organizations Act and other claims
seeking damages in excess of $75 million; and
WHEREAS, ▇▇▇▇▇▇▇, in response to Furr's alleged competitive bid submitted
under paragraph 2 of the Supply Agreement, has commenced the Arbitration
Proceeding (as herein defined); and
WHEREAS, ▇▇▇▇▇▇▇ (i) has filed a derivative lawsuit against Furr's,
certain members of the Windward Group (as herein defined), members of the
Board and members of Management (as herein defined) styled ▇▇▇▇▇▇▇ COMPANIES,
INC. V. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ET AL., In the Court of Chancery, State of Delaware,
Case No. 15830 alleging conspiracy, mismanagement and waste (the "Delaware
Litigation"), (ii) has advised Furr's it will file a complaint against Furr's
for appointment of a receiver to effect corporate dissolution in the Court of
Chancery, State of Delaware if the Action is not dismissed in accordance with
this Agreement (the "Dissolution Action") and (iii) has filed an action
styled ▇▇▇▇▇▇▇ COMPANIES, INC. ▇. ▇▇▇▇'▇ SUPERMARKETS, INC., Case No. 3-97 CU
2271-D in the United States District Court for the Northern District of Texas
seeking indemnification from Furr's of its obligations with respect to the
Union Claim (the "Texas Action"); and
WHEREAS, ▇▇▇▇▇▇▇ and Furr's are desirous of settling the Action, the
Delaware Litigation, the Texas Action and the Arbitration Proceeding and that
the Dissolution Action not be pursued; and
WHEREAS, the authorized capital stock of Furr's consists of 1,000 shares
of preferred stock, $.01 par value, none of which is issued, 4,200,000 shares
of Class A Common Stock, $.01 par value (the "Class A Common Stock"), of
which 1,581,984 shares are issued and outstanding, and 50,000 shares of Class
B Common Stock (non-voting), $.01 par value (the "Class B Common Stock"), of
which 26,494 shares are issued and outstanding (the issued and outstanding
Class A Common Stock and Class B Common Stock and the authorized but unissued
Class A Common Stock issuable upon the exercise of the Options, Warrants and
SARs are together referred to herein as the "Common Stock"); and
WHEREAS, the Windward Group, ▇▇▇▇▇▇▇, Management and certain directors of
Furr's own the following shares of Common Stock: the Windward Group owns
927,933 shares of Class A Common Stock (which does not include 14,493 shares
beneficially owned by a Director Holder and held by the Windward Group) and
26,494 shares of Class B Common Stock; ▇▇▇▇▇▇▇ owns 550,550 shares of Class A
Common Stock; Management owns 60,240 shares of Class A Common Stock; and the
Director Holders own 43,261 shares of Class A Common Stock (which includes
14,493 shares beneficially owned by a Director Holder and held by the
Windward Group) (all such shares of issued and outstanding Common Stock are
collectively referred to herein as the "Issued Common Stock"); and
WHEREAS, the Windward Group owns warrants to purchase 496,667 shares of
Class A Common Stock (which does not include the ▇▇▇▇▇▇ Warrants held by the
Windward Group) at an exercise price of $.01 per share (the "Windward
Warrants"), the ▇▇▇▇▇▇ Warrants are owned by a Director Holder and held by
the Windward Group and ▇▇▇▇▇▇▇ owns warrants to purchase 182,176 shares of
Class A Common Stock at an exercise price of $.01 per share (the "▇▇▇▇▇▇▇
Warrants" and together with the Windward Warrants and the ▇▇▇▇▇▇ Warrants,
the "Warrants"); and
WHEREAS, Management and other employees of Furr's and the Director
Holders, prior to consummation of the sale of Furr's in accordance with
Article II hereof, will hold options (vested and unvested) to purchase shares
of Class A Common Stock as follows: Management and other employees of Furr's
hold options to purchase 251,764 shares of Class A Common Stock (and may be
granted options to purchase up to an additional 27,985 shares of Class A
Common Stock immediately prior to the execution or closing of the Acquisition
Agreement); and the Director Holders hold options to purchase 17,000 shares
of Class A Common Stock (and may be issued previously allocated options to
purchase up to an additional 3,000 shares of Class A Common Stock immediately
prior to the execution or closing of the Acquisition Agreement) (together,
all such options are referred to herein as the "Options"); and
WHEREAS, Management holds 107,900 SARs (as herein defined); and
-2-
WHEREAS, the Special Committee has engaged the services of the Banker (as
herein defined) to assist it in exploring strategic alternatives available to
Furr's.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants, agreements, representations and warranties herein contained, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
"ACTION" shall have the meaning set forth in the first "Whereas"
clause.
"ACQUISITION AGREEMENT" means that certain acquisition agreement by
and between Furr's and the Purchaser substantially in the form approved by
the Board which will provide for the acquisition of Furr's by the Purchaser
in accordance with Article II hereof.
"ADVISOR" shall mean Windward Capital Partners, L.P., a Delaware
limited partnership.
"AFFILIATE(S)" shall have the meaning as set forth in Rule 144(a)(1)
of the Securities Act of 1933, as amended.
"AGREEMENT" means this Agreement of Settlement and Release dated
October 23, 1997, by and between Furr's and ▇▇▇▇▇▇▇.
"ARBITRATION PROCEEDING" shall mean that certain arbitration
proceeding (Case No. 71 181 0010897) commenced by ▇▇▇▇▇▇▇ on March 28, 1997
pursuant to paragraph 2(b) of the Supply Agreement.
"ASSET PURCHASE AGREEMENT" shall mean an asset purchase agreement
substantially in the form attached hereto as EXHIBIT F relating to the sale
of the El Paso PSC to the Purchaser or Furr's, as applicable.
"ASSET SALES PERIOD" shall have the meaning set forth in SECTION 4.3
hereof.
"BANKER" shall mean ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co.
-3-
"BOARD" shall mean the duly elected board of directors of Furr's.
"CLASS A COMMON STOCK" shall have the meaning set forth in the sixth
"Whereas" clause.
"CLASS B COMMON STOCK" shall have the meaning set forth in the sixth
"Whereas" clause.
"COMMON STOCK" shall have the meaning set forth in the sixth
"Whereas" clause.
"DELAWARE LITIGATION" shall have the meaning set forth in the fourth
"Whereas" clause.
"DIRECTOR HOLDERS" shall mean certain members of the Board who hold
shares of Issued Common Stock and who are not employees of Furr's, ▇▇▇▇▇▇▇ or
any member of the Windward Group.
"DISSOLUTION ACTION" shall have the meaning set forth in the fourth
"Whereas" clause.
"DISTRIBUTION DATE" shall have the meaning set forth in SECTION 2.1
hereof.
"EBITDA" means the earnings before interest, taxes, depreciation and
amortization for a twelve month period.
"EL PASO PSC" means the assets of ▇▇▇▇▇▇▇ to be conveyed to Furr's
or the Purchaser, as the case may be, pursuant to the Asset Purchase
Agreement, as more fully described in such agreement including, without
limitation, the ▇▇▇▇▇▇▇ product supply center located at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇ ▇▇▇▇, ▇▇▇▇▇, the El Paso PSC Leases, leasehold improvements, furniture,
fixtures, equipment and Inventory.
"EL PASO PSC COSTS" shall have the meaning set forth in SECTION
2.2(a) hereof.
"EL PASO PSC LEASES" means (i) the Furr's Warehouse El Paso Lease
(▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇, ▇▇▇▇▇) dated March 1, 1973; (ii) the
Refrigeration Lease; (iii) the Railroad Drive Warehouse Lease (▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇, ▇▇▇▇▇) dated June 15, 1996; and (iv) ▇▇▇▇ ▇▇▇▇▇▇▇ Office
Lease (▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇, ▇▇▇▇▇) dated November 1, 1996.
"EMPLOYEES" shall have the meaning set forth in the first "Whereas"
clause.
"ESCROW AGREEMENT" shall mean an escrow agreement substantially in
the form attached hereto as EXHIBIT G relating to the escrow of the
Liquidation Costs.
-4-
"EQUITY CONSIDERATION" shall mean the portion of the Purchase Price
that remains after deducting (i) all amounts to repay indebtedness for
borrowed money of Furr's, including subordinated debt, and (ii) payments to
be made in respect of transaction fees, and adding the aggregate exercise
price payable to Furr's by holders upon exercise of all Options, Warrants and
SARs.
"FINANCIAL ADVISORY SERVICES AGREEMENT" shall mean that certain
Financial Advisory Services Agreement dated as of June 30, 1995, between
Furr's and the Advisor.
"FIRST PERIOD" shall have the meaning set forth in SECTION 4.1(a)
hereof.
"▇▇▇▇▇▇▇" means ▇▇▇▇▇▇▇ Companies, Inc., an Oklahoma corporation.
"▇▇▇▇▇▇▇ WARRANTS" shall have the meaning set forth in the eighth
"Whereas" clause.
"FMP" means the ▇▇▇▇▇▇▇ Flexible Marketing Plan under which FMP
Products are being supplied to Furr's from the El Paso PSC and other
distribution centers of ▇▇▇▇▇▇▇.
"FMP PRODUCTS" means all grocery, frozen and dairy products (other
than Perishable Products) supplied to Furr's by ▇▇▇▇▇▇▇ under the Supply
Agreement and the FMP.
"FURR'S" means ▇▇▇▇'▇ Supermarkets, Inc., a Delaware corporation.
"HSR ACT" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended, and the regulations promulgated thereunder.
"INVENTORY" shall have the meaning set forth in SECTION 4.3 hereof.
"ISSUED COMMON STOCK" shall have the meaning set forth in the
seventh "Whereas" clause.
"LIQUIDATION COSTS" shall have the meaning set forth in SECTION
2.2(b) hereof.
"LOCAL NO. 745" shall mean the Teamsters Local No. 745, affiliated
with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and
Helpers of America.
"LOCAL UNIONS" shall mean United Food and Commercial Workers Union,
Local Number 1564 of New Mexico and Local Number 540.
"LOWER ACCEPTABLE BID" shall have the meaning set forth in SECTION
2.3 hereof.
-5-
"MANAGEMENT" means ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇.
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
"MARKETABLE SECURITIES" means any of the following: (i) if a
security is an equity security, it must be freely tradable and (a) listed on
the New York Stock Exchange ("NYSE"), or (b) listed on the National
Association of Security Dealers Automated Quotations ("NASDAQ"), or (c)
listed on the American Stock Exchange ("ASE"); or (ii) if a security is a
debt security, it must be rated "BBB+" or better by Standard & Poor's
Corporation and/or rated "Baa1" by ▇▇▇▇▇'▇ and listed on the NYSE or the
NASDAQ or the ASE.
"MATCH NOTICE" shall have the meaning set forth in SECTION 2.3
hereof.
"MINIMUM BID PRICE - EL PASO PSC" shall have the meaning set forth
in EXHIBIT A hereto.
"MINIMUM BID PRICE - LIQUIDATION" shall have the meaning set forth
in EXHIBIT A hereto.
"▇▇▇▇▇▇ WARRANTS" shall mean 14,307 warrants to purchase 14,307
shares of Class A Common Stock beneficially owned by ▇▇▇▇▇ ▇▇▇▇▇▇, a Director
Holder and held by the Windward Group.
"OFFER NOTICE" shall have the meaning set forth in SECTION 2.3
hereof.
"OFFERING MEMORANDUM" shall have the meaning set forth in SECTION
2.1 hereof.
"OFFICERS" shall have the meaning set forth in the first "Whereas"
clause.
"OPTIONS" shall have the meaning set forth in the ninth "Whereas"
clause.
"PARTIES" shall have the meaning set forth in the first paragraph of
this Agreement.
"PAYMENT AMOUNT" means the cash refund to be made to Furr's by
▇▇▇▇▇▇▇ in accordance with the provisions of SECTION 4.8 hereof.
"PERIOD" means one of thirteen (13) four (4) week periods of time in
any fiscal year as established by ▇▇▇▇▇▇▇ for accounting purposes.
"PERISHABLE PRODUCTS" shall mean produce, meat, bakery and deli
products sold to Furr's by ▇▇▇▇▇▇▇ from the El Paso PSC or other distribution
centers of ▇▇▇▇▇▇▇.
"PLAN" means that certain ▇▇▇▇'▇ Supermarkets, Inc. 1993 Phantom
Stock Plan, as amended.
-6-
"PRODUCT SUPPLY DOCUMENTS" shall have the meaning set forth in
SECTION 4.8(d) hereof.
"PURCHASE PRICE" shall mean the aggregate value of the consideration
(cash and/or Marketable Securities) offered or paid, as applicable, by a bona
fide bidder in connection with the sale of Furr's consisting of (i) all
amounts to repay indebtedness for borrowed money of Furr's, including
subordinated debt, (ii) all amounts in respect of the Issued Common Stock,
(iii) all amounts in respect of cancellation of SARs, Warrants and Options
equal to the excess of the Share Price over the respective exercise prices
thereof, and (iv) payments to be made in respect of transaction fees but
excluding payments in respect of El Paso PSC Costs or Liquidation Costs,
which is accepted by the Board in accordance with Article II of this
Agreement.
"PURCHASER" means the entity who is the successful bidder for Furr's
in accordance with Article II of this Agreement.
"PURCHASER TRANSITION PERIOD" shall mean an approximate nine (9)
month period, subject to adjustment by the Purchaser in accordance with
SECTION 4.1(a) hereof, commencing on the day of the consummation of the
transactions contemplated by the Acquisition Agreement if the Purchaser
elects to purchase Furr's without the El Paso PSC.
"REFRIGERATION LEASE" shall mean the El Paso Outside Refrigeration
Warehouse Lease (▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇, ▇▇▇▇▇) dated July 15, 1995.
"SALE OFFER" shall have the meaning set forth in SECTION 2.3 hereof.
"SALES PERIOD" shall have the meaning set forth in SECTION 2.2
hereof.
"SARS" means those stock appreciation rights granted under the Plan.
"SECOND PERIOD" shall have the meaning set forth in SECTION 4.1(a)
hereof.
"SHARE PRICE" shall mean the per share dollar figure obtained by
dividing (i) the Equity Consideration, by (ii) the sum of (A) the number of
shares of Issued Common Stock, and (B) the number of shares of Common Stock
that would be issued if all Options, Warrants and SARs were exercised.
"SPECIAL COMMITTEE" shall have the meaning set forth in SECTION 2.3
hereof.
"STOCKHOLDERS" means collectively the Windward Group, ▇▇▇▇▇▇▇,
Director Holders and Management.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement dated June
30, 1995, by and among Furr's and the Stockholders.
-7-
"SUPPLY AGREEMENT" shall have the meaning set forth in the first
"Whereas" clause.
"TEXAS ACTION" shall have the meaning set forth in the fourth
"Whereas" clause.
"TRANSITION PERIOD" shall mean an approximate nine (9) month period
commencing on the day following Furr's' election of the option described in
SECTION 4.2(b) hereof if Furr's is not sold under the provisions of Article
II hereof.
"TRANSPORTATION AGREEMENT" shall mean that certain Transportation
Services Agreement (Dedicated Contract Carrier) made and executed on November
7, 1994, by and between ▇▇▇▇▇▇▇ Companies, Inc. and TNT Dedicated Services,
Inc., as amended.
"UNION AGREEMENT" shall mean that certain Agreement dated January
28, 1996 by and between ▇▇▇▇▇▇▇ Companies, Inc. and Local No. 745.
"UNION AGREEMENT AMENDMENT" shall have the meaning set forth in
SECTION 4.9 hereof.
"UNION CLAIM" shall have the meaning set forth in the first
"Whereas" clause.
"WARRANTS" shall have the meaning set forth in the eighth "Whereas"
clause.
"WINDWARD GROUP" shall mean WINDWARD CAPITAL ASSOCIATES, L.P., a
Delaware limited partnership, WINDWARD/MERCHANT, L.P., a Delaware limited
partnership, WINDWARD/PARK FSI, L.L.C., a Delaware limited liability company,
WINDWARD/NORTHWEST, L.P., a Delaware limited partnership and WINDWARD/MERBAN,
L.P., a Delaware limited partnership.
"WINDWARD WAIVER" shall have the meaning set forth in SECTION 5.1(b)
hereof.
"WINDWARD WARRANTS" shall have the meaning set forth in the eighth
"Whereas" clause.
ARTICLE II
THE SALE
2.1 THE INVESTMENT BANKER. The Special Committee has engaged the
services of the Banker for the purpose of advising the Special Committee in
the possible sale of Furr's. The Banker, Furr's and the Special Committee, in
conjunction with the Advisor and ▇▇▇▇▇▇▇, have cooperated in the preparation
of an offering circular or memorandum (the "Offering Memorandum") to be sent
to prospective bidders and to be used in conducting a sale of Furr's to the
bidder which, based on the recommendation of the Special Committee (subject
to the provisions and
-8-
limitations of SECTION 2.3 below), presents the best available alternative to
Stockholders in accordance with the terms and provisions of this Agreement.
The Parties agree that they shall continue to use reasonable commercial
efforts to complete the Offering Memorandum and that the Offering Memorandum
shall begin to be distributed to prospective bidders upon the earlier to
occur of the completion of the Offering Memorandum or ten business days
following the date hereof (the date of such initial distribution, the
"Distribution Date"). Additionally, in accordance with the terms of the
Financial Advisory Services Agreement, Furr's shall continue to pay to the
Advisor fees and expenses payable to the Advisor in accordance with the terms
thereof. Except as provided in this Agreement and for consideration payable
to Stockholders in consideration for the sale or transfer of Common Stock,
Options, Warrants or SARs pursuant to the Acquisition Agreement, none of the
Stockholders nor any of their respective Affiliates shall be entitled to
receive any fees or other compensation as a result of the sale of Furr's.
2.2 THE OFFERING. Furr's covenants and agrees to use its reasonable
commercial efforts to market Furr's for a period of six (6) months from the
Distribution Date (herein the "Sales Period") all in accordance with the
terms of this Article II. Furr's shall be marketed and the Offering
Memorandum shall describe that prospective bidders may bid for Furr's in the
alternative, i.e., with the purchase of the El Paso PSC or without the El
Paso PSC.
(a) WITH THE EL PASO PSC. A potential purchaser may offer to
purchase Furr's with the El Paso PSC. In the event of a sale of Furr's under
such circumstances, ▇▇▇▇▇▇▇ agrees to transfer the El Paso PSC to the
Purchaser or to Furr's (as the Purchaser shall request) in accordance with
SECTION 4.1(a) hereof, and the Parties agree that ▇▇▇▇▇▇▇ shall receive the
El Paso PSC Costs in consideration for such transfer, payable in accordance
with SECTION 2.2(c) below. For purposes of this Agreement, the "El Paso PSC
Costs" shall mean an amount equal to the sum of (i) $6,586,000, (ii) $300,000
if, but only if, the obligations under the Refrigeration Lease are not
assumed by the Purchaser or Furr's, and (iii) the value of the Inventory,
valued in accordance with SECTION 4.3 hereof; PROVIDED, however that the El
Paso PSC Costs shall be increased by an amount equal to the cost of any
capital expenditures relating to purchasing new assets other than Inventory
made by ▇▇▇▇▇▇▇ after the date hereof which were approved by Furr's (which
approval shall not be unreasonably withheld) prior to the commitment by
▇▇▇▇▇▇▇ to such capital expenditure having been made.
(b) WITHOUT THE EL PASO PSC. A potential purchaser may also offer
to purchase Furr's without the El Paso PSC. In the event of a sale of Furr's
under such circumstances, the Parties agree that ▇▇▇▇▇▇▇ shall be paid
$9,994,000, by Furr's or the Purchaser, as the case may be, in order to
defray the cost of ▇▇▇▇▇▇▇'▇ liquidation and disposition of the El Paso PSC
(the "Liquidation Costs"), with such amount payable in accordance with
SECTION 2.2(c) below; PROVIDED, however that in the event that neither the
Purchaser nor Furr's, as the case may be, assumes the rights and obligations
of ▇▇▇▇▇▇▇ pursuant to the Transportation Agreement, the Liquidation Costs
shall be $10,794,000.
-9-
(c) THE EL PASO PSC COSTS AND THE LIQUIDATION COSTS. The Parties
agree that ▇▇▇▇▇▇▇ shall be paid (i) the El Paso PSC Costs, if the Purchaser
or if Furr's, as the case may be, has elected to acquire the El Paso PSC,
upon consummation of the sale of the El Paso PSC to the Purchaser or to
Furr's, as the case may be, in accordance with the terms of the Asset
Purchase Agreement; or (ii) the Liquidation Costs, if the Purchaser elects to
purchase Furr's without the El Paso PSC or if Furr's elects to continue to
purchase products from ▇▇▇▇▇▇▇ during the Transition Period and terminate the
Supply Agreement in accordance with SECTION 4.2(b) hereof, in either case, on
the first day following the end of the Purchaser Transition Period or the
Transition Period, as applicable. In the event of a sale of Furr's without
the El Paso PSC in accordance with this Article II, the Acquisition Agreement
shall provide that an amount received from the Purchaser equal to the
Liquidation Costs shall be placed into escrow in accordance with the Escrow
Agreement attached hereto as EXHIBIT G in order that Furr's or the Purchaser,
as the case may be, may pay the Liquidation Costs when payable in accordance
with the foregoing clause (ii), which amount shall be escrowed before the
Stockholders receive their proportionate share of the net proceeds of the
sale in accordance with the Acquisition Agreement.
(d) THE ACQUISITION AGREEMENT. Furr's shall require and the
Offering Memorandum shall reflect that the Purchaser and Furr's will be
required to enter into the Acquisition Agreement during the Sales Period and
to close the acquisition of Furr's within one hundred twenty (120) days from
the acceptance of any prospective purchaser's bid by Furr's; PROVIDED, that
such one-hundred twenty (120) day period shall be extended such that all
waiting periods, if any, applicable to the transactions contemplated by the
Acquisition Agreement under the HSR Act shall have expired or been
terminated; PROVIDED, further that in the event any order, decree, ruling,
injunction or other action shall have been entered, promulgated, threatened
or enforced by any court or governmental authority of competent jurisdiction
which prohibits or restricts (or threatens to prohibit or restrict) such
transaction, such one hundred twenty (120) day period shall be extended until
such time as such order, decree, ruling, injunction or other action shall
become final and non-appealable. In the event of the failure of the
Purchaser to consummate the transactions contemplated by the Acquisition
Agreement, for purposes of this Agreement a sale of Furr's shall be deemed to
have been unsuccessful and Furr's shall be entitled to make an election in
accordance with SECTION 4.2 hereof. Furr's shall provide ▇▇▇▇▇▇▇ a
reasonable opportunity to review and comment on the form of the Acquisition
Agreement prior to its distribution to potential bidders; PROVIDED, however
that Furr's shall be under no obligation to revise such draft Acquisition
Agreement in any manner based on any such comments other than in respect to
agreements, covenants, representations and warranties of ▇▇▇▇▇▇▇, contained
therein, if any, and to conform such draft to the provisions of this
Agreement.
(e) REPRESENTATIONS AND COVENANTS.
(i) ▇▇▇▇▇▇▇ REPRESENTATION AND COVENANT. ▇▇▇▇▇▇▇ represents
that (i) the Supply Agreement EBITDA for the twelve months ended July 12,
1997 was in excess of $17 million and (ii) under the Supply Agreement,
approximately 98% of product is supplied from the El Paso PSC and
approximately 2% of product is supplied from the ▇▇▇▇▇▇▇ product supply
-10-
center located in Lubbock, Texas. ▇▇▇▇▇▇▇ covenants with Furr's, with the
exception of the El Paso PSC Costs and the Liquidation Costs, that (i) it
will negotiate in good faith during the Sales Period with any potential
purchaser of Furr's the Asset Purchase Agreement, as provided in SECTION
4.1(a) hereof, in the case the Purchaser elects to purchase the El Paso PSC
or the termination or continuation of the Supply Agreement if the Purchaser
elects not to purchase the El Paso PSC, (ii) it will use its reasonable
commercial efforts to assist Furr's in the collection of accounts receivable
owing to Furr's from ▇▇▇▇▇▇▇'▇ vendors but only with respect to transactions
as to which ▇▇▇▇▇▇▇ was the supplier or otherwise a party and to assist
Furr's in researching and collecting amounts owing to Furr's from Topco
Associates, Inc. (iii) it will use its reasonable commercial efforts to
assist Furr's, the Banker and the Special Committee to market Furr's during
the Sales Period in accordance with this Article II, (iv) it will, during the
Transition Period or the Purchaser Transition Period, if any, use its
reasonable commercial efforts to cooperate with and assist Furr's in Furr's'
conversion to a new information technology system from that used by ▇▇▇▇▇▇▇
but only to the extent permitted in accordance with applicable law and by
existing agreements governing the use of ▇▇▇▇▇▇▇'▇ existing information
technology system, and (v) it will use its reasonable commercial efforts to
maintain the operation of the El Paso PSC in the ordinary and usual course
consistent with past practice (other than the anticipated depletion and
replenishment of Inventory and as otherwise provided herein) through the
Purchaser Transition Period or the Transition Period, if any, or through the
sale of the El Paso PSC, if applicable, including, without limitation,
through the maintenance of the necessary workforce required to operate the El
Paso PSC other than any reduction in employees associated with the depletion
in Inventory and reduction of services and the sale of the El Paso PSC or its
liquidation, as the case may be, in accordance with this Agreement. In no
event shall ▇▇▇▇▇▇▇ be under any obligation or duty to agree to, modify or
amend the purchase price or any other significant term or condition with
respect to the sale of the El Paso PSC which would be less beneficial to
▇▇▇▇▇▇▇ than those contained herein or in the Asset Purchase Agreement and is
under no duty to act other than in the best interest of ▇▇▇▇▇▇▇ and its
stockholders, it being understood and agreed to by the Parties that the
actions in accordance with this Agreement, including without limitation, the
rights, obligations and agreements of ▇▇▇▇▇▇▇ hereunder, are in the best
interest of ▇▇▇▇▇▇▇ and its stockholders.
(ii) FURR'S COVENANTS. Furr's covenants with ▇▇▇▇▇▇▇ that it
will negotiate in good faith during the Sales Period with any potential
purchaser of Furr's the Acquisition Agreement, as provided in SECTION 2.2(d)
hereof. In no event shall Furr's be under any obligation or duty to agree
to, modify or amend the purchase price any other significant term or
condition with respect to the sale of Furr's which would be less beneficial
to Furr's than those contained herein or in the Acquisition Agreement and is
under no duty to act other than in the best interest of Furr's and its
stockholders, it being understood and agreed to by the Parties that the
actions in accordance with this Agreement, including, without limitation, the
rights, obligations and agreements of Furr's hereunder, are in the best
interest of Furr's and its stockholders. Furr's covenants and agrees that,
subject to the caveat set forth in SECTION 2.4, it will require the Special
Committee to make interim reports to the Board with respect to the progress
of the sales process and to provide all Stockholders with such information.
Furr's further covenants and agrees that during the Sales Period and, upon
execution of the Acquisition Agreement, if applicable, through
-11-
and until the consummation of the acquisition transactions contemplated
thereby or the termination thereof, it shall not issue any capital stock or
any securities convertible into capital stock (including, without limitation,
any additional shares of Common Stock, Options, Warrants or SARs) except as
set forth in the ninth "Whereas" clause hereof or as otherwise contemplated
by this Agreement.
2.3 MINIMUM BID PRICE. The Parties agree if a bona fide bid is received
as a result of the sale process described in this Article II that equals or
exceeds (a) the Minimum Bid Price - El Paso PSC, in case the Purchaser's bid
includes the El Paso PSC, or (b) the Minimum Bid Price - Liquidation, in case
the Purchaser's bid excludes the El Paso PSC, in either case, the Board,
based on the recommendation of the Special Committee, shall accept the bid
which it considers, in its sole judgment, to be the best available
alternative for maximizing shareholder value (without being required to take
into account any impact of the inclusion or exclusion of the El Paso PSC in
such a transaction with respect to calculating such shareholder value) so
long as the bid accepted qualifies as a Minimum Bid Price - El Paso PSC or
Minimum Bid Price -Liquidation. The Parties further agree that if only one
bid is received by Furr's under the provisions of Article II hereof that
qualifies, the Board shall accept such qualified bid. If neither a Minimum
Bid Price - El Paso PSC nor a Minimum Bid Price -Liquidation is attained
through the sale process as herein provided, the sale process shall be
terminated at the end of the Sales Period; PROVIDED, however, if there is a
bona fide bid of less than the Minimum Bid Price - El Paso PSC or the Minimum
Bid Price - Liquidation, the Board, in its sole judgement, based on the
recommendation of the Special Committee, may elect to accept such bid (a
"Lower Acceptable Bid"); PROVIDED further, however, that prior to the
acceptance of such bid, Furr's shall have complied with the provisions of the
following paragraph.
Prior to the Board's acceptance, based on the recommendation of the
Special Committee, of a Lower Acceptable Bid, Furr's shall notify ▇▇▇▇▇▇▇ in
writing of its intent to accept a Lower Acceptable Bid (the "Offer Notice")
and offer (the "Sale Offer") to sell Furr's to ▇▇▇▇▇▇▇ at a per share price
and on such terms and conditions as are specified in such Offer Notice.
▇▇▇▇▇▇▇ shall have fifteen (15) days following the delivery to ▇▇▇▇▇▇▇ of
such Offer Notice in which to accept in writing the Sale Offer. If ▇▇▇▇▇▇▇
does accept the Sale Offer, ▇▇▇▇▇▇▇ and Furr's shall enter into a binding
agreement in the form of the acquisition agreement representing the Lower
Acceptable Bid. If ▇▇▇▇▇▇▇ does not accept the Sale Offer, the Board shall
be free to accept, but shall not be obligated to accept, a Lower Acceptable
Bid at any price and on any terms and conditions for the remainder of the
Sales Period; PROVIDED, however that in the event a Lower Acceptable Bid
includes a per share price that is less than ninety percent (90%) of the per
share price previously set forth in the Offer Notice, ▇▇▇▇▇▇▇ shall have a
right of first refusal with respect to such Lower Acceptable Bid pursuant to
which, if ▇▇▇▇▇▇▇ desires to purchase Furr's at the same price and on the
same terms and conditions as offered in such Lower Acceptable Bid, ▇▇▇▇▇▇▇
would have ten (10) days following notification to it by Furr's (the "Match
Notice") that the Board has made such election in which to notify Furr's of
its exercise of its right of first offer and of its binding acceptance of the
terms set forth in the Match Notice, in which case the Parties shall enter
into an agreement in the form of the Acquisition
-12-
Agreement and thereafter close such transaction within a reasonable period.
If ▇▇▇▇▇▇▇ does not exercise such right of first refusal within such ten (10)
day period, the Board shall be free to accept, but shall not be obligated to
accept, such Lower Acceptable Bid for the remainder of the Sales Period but
only at the per share price and on the terms and conditions set forth in the
Match Notice.
The Board has designated a special committee of the Board (the
"Special Committee") consisting of the following members: ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇
▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇. The Special Committee will work with the
Banker and such other legal and financial advisors as it elects to utilize in
connection with the sale process set forth in this Article II in order to set
the procedures to be followed by parties participating in the process, to
identify and contact potential purchasers, to conduct negotiations with
potential purchasers, to make decisions relating to the sale process and to
such negotiations during the Sales Period (including with respect to the
terms and conditions of any particular transaction and the agreements
relating thereto) and to make a determination as to the best available
alternative for maximizing shareholder value. In making any such
determination, the Special Committee shall be free to consider any and all
factors reasonably relevant to such determination including without
limitation the value of consideration offered, provided that the Special
Committee may only value such consideration that is in cash and/or Marketable
Securities irrespective of whether non-Marketable Securities are offered by a
prospective purchaser as such consideration; any regulatory and governmental
approvals required; financing terms and financial credibility of bidders; the
bona fide nature of a particular bid or bidder; and any risks associated with
a particular bid. The Parties acknowledge and agree that the decisions of
the Special Committee will be final, determinative and binding on the Parties
with respect to the transactions contemplated by this Agreement, so long as
such decisions are consistent with the terms and provisions of this
Agreement. The Special Committee shall recommend to the Board the
transaction, if any, which it determines to be the best available alternative
for maximizing shareholder value (without taking into account any impact of
the inclusion or exclusion of the El Paso PSC in such a transaction with
respect to calculating such shareholder value), so long as such decisions are
consistent with the terms and provisions of this Agreement. The Parties
hereby agree and covenant that Furr's and all of the members of the Board and
the Special Committee shall be released of all claims that could be asserted
in connection with the sale process contemplated hereby including without
limitation any claim relating to its selection of the best available
alternative in the sale process or any determinations regarding valuation of
various alternative proposals (including whether a selected transaction had a
higher or lower shareholder value than any other alternative) and the
benefits and risks associated therewith, so long as such decisions are
consistent with the terms and provisions of this Agreement.
2.4 STOCKHOLDERS BIDS. Nothing herein contained shall restrict the
Stockholders from bidding for Furr's in accordance with the sale process set
forth in this Article II; PROVIDED, that in the event a Stockholder elects to
participate in the bidding process, such Stockholder and its representatives
(including without limitation, any employee, agent or designee of such
Stockholder
-13-
to the Board (a "Designee")) shall not be provided any information by the
Banker, the Special Committee or Furr's regarding the sale process or any
other participants in the sale process (including without limitation any
information regarding the identity of participants, terms of any offer
(including price) and status of negotiations); PROVIDED, however the Parties
recognize that Management will be involved in the sales process at the
direction of, and to the extent required by, the Special Committee, the Board
and the Banker. At such time, however, that a Stockholder who has indicated
to Furr's of its (his) intention to bid and has consequently been excluded
from the receipt of information regarding the sales process in accordance
with the foregoing sentence, either notifies Furr's in writing of its (his)
agreement to refrain from bidding or, having bid, irrevocably withdraws its
(his) bid, such Stockholder shall thereafter be entitled to all such
information regarding the sales process provided to other Stockholders and
such Stockholder's Designees shall thereafter be entitled to all such
information provided to the members of the Board by the Special Committee.
The Special Committee shall not include any member of the Board who is an
employee, agent or designee of any Stockholder who has indicated to Furr's
its intention to bid.
2.5 CALCULATION OF AMOUNTS TO BE PAID TO HOLDERS OF ISSUED COMMON STOCK,
OPTIONS, WARRANTS AND SARS. Upon consummation of the sale of Furr's in
accordance with the terms and provisions of this Article II, as of the date
of the closing of the transactions contemplated by the Acquisition Agreement,
the Acquisition Agreement shall provide that (i) holders of Issued Common
Stock shall be entitled to receive the Share Price for each share of Common
Stock they own, and (ii) holders of Options, Warrants and SARs shall be
entitled to receive the Share Price less the applicable exercise price for
each share of Common Stock they would have owned had they exercised their
right to obtain Common Stock. Furr's shall be entitled to deduct from the
amounts payable holders of Options, Warrants and SARs any amounts that Furr's
is required to withhold and to pay over such deductions to the appropriate
federal or state, local or other tax authorities under applicable law with
respect to such amounts.
ARTICLE III
THE RELEASES
3.1 FURR'S RELEASE. Concurrent with the Parties' execution of this
Agreement, Furr's shall execute and deliver to ▇▇▇▇▇▇▇ and the Windward Group
the Special Release (Furr's) in the form attached hereto as EXHIBIT B-1 and
Furr's and ▇▇▇▇▇▇▇ shall cause the dismissal with prejudice of the Action in
substantially the form attached hereto as EXHIBIT C to be filed within five
(5) business days.
3.2 ▇▇▇▇▇▇▇ RELEASE. Concurrent with the Parties' execution of this
Agreement, ▇▇▇▇▇▇▇ shall execute and deliver to Furr's, the Windward Group
and Management the Special Release (▇▇▇▇▇▇▇) in the form attached hereto as
EXHIBIT B-3 and ▇▇▇▇▇▇▇ and Furr's shall cause the dismissal with prejudice
of the Delaware Litigation in substantially the form attached hereto
-14-
as EXHIBIT D-1 and the Texas Action in substantially the form attached hereto
as EXHIBIT D-2 to be filed within five (5) business days.
3.3 ARBITRATION. Concurrent with the Parties' execution of this
Agreement, ▇▇▇▇▇▇▇ and Furr's shall dismiss the Arbitration Proceeding.
During the Sales Period, and either the Purchaser Transition Period or the
Transition Period, if any, Furr's waives any and all rights to resubmit a
competitive bid pursuant to paragraph 2(b) of the Supply Agreement.
3.4 DISSOLUTION ACTION. ▇▇▇▇▇▇▇ hereby agrees that it will not pursue
the Dissolution Action or take any action related thereto or in connection
therewith (including, without limitation, any similar proceeding regarding
the dissolution, liquidation or winding up of the affairs of Furr's, either
in the state of Delaware or otherwise) from and after the date hereof based
on any action occurring prior to the date hereof.
ARTICLE IV
THE SUPPLY AGREEMENT AND FURR'S ELECTION
4.1 THE SUPPLY AGREEMENT.
(a) SALE OF FURR'S. (i) In the event of the sale of Furr's to a
Purchaser who has elected to purchase the El Paso PSC, ▇▇▇▇▇▇▇ and Furr's (or
the Purchaser, as the case may be) shall enter into an asset purchase
agreement covering the El Paso PSC substantially in the form of the Asset
Purchase Agreement with such changes the parties thereto may agree, which
transaction shall be closed within one hundred twenty (120) days from the
acceptance of the Purchaser's bid by Furr's subject to the terms and
conditions set forth in the Asset Purchase Agreement, which agreement, among
other terms and conditions as therein contained, shall require Purchaser to
agree to the El Paso PSC Costs as the purchase price of the El Paso PSC. The
Supply Agreement shall terminate on the closing of the Asset Purchase
Agreement. Pending such closing, ▇▇▇▇▇▇▇ will sell food and related products
to the Purchaser or Furr's, as the case may be, and the Purchaser or Furr's
shall purchase from ▇▇▇▇▇▇▇ food and related products as the case may be, in
accordance with the Supply Agreement
(ii) Upon the sale of Furr's to a Purchaser who has elected
NOT to purchase the El Paso PSC, unless ▇▇▇▇▇▇▇ and the Purchaser have
previously mutually agreed otherwise, ▇▇▇▇▇▇▇ shall continue the sale and
delivery of food and related products to Furr's under the terms and
provisions and for the fees set forth in the Supply Agreement for the
duration of the Purchaser Transition Period. During the first seven (7)
months of the Purchaser Transition Period (the "First Period"), Furr's shall
continue to maintain an annualized volume of purchases pursuant to the Supply
Agreement of at least $435 million; PROVIDED, however that the Purchaser may
elect, in its sole discretion to shorten the First Period or to avoid the
First Period completely and proceed directly to the Second Period by
providing written notice to ▇▇▇▇▇▇▇ at least 5 days prior to the closing of
the sale of Furr's to such Purchaser. During the last two (2) months of the
-15-
Purchaser Transition Period (the "Second Period"), Furr's and ▇▇▇▇▇▇▇ shall
phase down the purchase of products under the Supply Agreement; PROVIDED,
however, ▇▇▇▇▇▇▇ will sell food and related products to Furr's during the
Purchaser Transition Period in accordance with the Supply Agreement.
Following the Purchaser Transition Period, Purchaser or Furr's shall pay to
▇▇▇▇▇▇▇ the Liquidation Costs in accordance with the provisions of the Escrow
Agreement as set forth in SECTION 2.2(c) hereof.
(b) NO SALE. In the event Furr's and the Banker are unsuccessful
in the sale of Furr's as provided in Article II hereof, the Supply Agreement
shall terminate in accordance with the provisions of either SECTION 4.3 or
SECTION 4.4, as the case may be.
4.2 FURR'S ELECTION. If there is no sale of Furr's as provided in
Article II hereof, Furr's shall elect, by delivery of written notice to
▇▇▇▇▇▇▇ within thirty (30) days following the end of the Sales Period, to
either (a) purchase the El Paso PSC at the El Paso PSC Costs (in which case
the Supply Agreement shall terminate on the closing of such purchase) as
provided in SECTION 4.3 below or (b) continue to purchase products from
▇▇▇▇▇▇▇ during the Transition Period and pay ▇▇▇▇▇▇▇ the Liquidation Costs at
the end of the Transition Period (at which time the Supply Agreement shall
terminate) as provided in SECTION 4.4 below.
4.3 FURR'S ELECTION TO PURCHASE THE EL PASO PSC. If Furr's elects to
purchase the El Paso PSC, as provided by the election set forth in SECTION
4.2(a) hereof, such sale shall be consummated in accordance with an asset
purchase agreement covering the El Paso PSC substantially in the form of the
Asset Purchase Agreement with such changes the parties thereto may agree,
which transaction shall be closed within one hundred twenty (120) days
following delivery of notice regarding such sale subject to the terms and
conditions set forth in the Asset Purchase Agreement, which agreement, among
other terms and conditions, shall require Furr's to agree to the El Paso PSC
Costs as the purchase price of the El Paso PSC. The period of time from the
end of the Sales Period and the closing of the sale of the El Paso PSC to
Furr's shall be known as the "Asset Sales Period." The Supply Agreement
shall terminate on the closing of the Asset Purchase Agreement. During the
Asset Sales Period, ▇▇▇▇▇▇▇ shall provide food and related products to Furr's
in accordance with the Supply Agreement.
With respect to the Inventory (as defined in the Asset Purchase
Agreement) located in the El Paso PSC, Furr's agrees to purchase such
Inventory under and in accordance with the inventory terms attached as
Exhibit A to and made a part of the Asset Purchase Agreement. The Asset
Purchase Agreement shall describe the Purchased Assets, the Assumed
Liabilities and the Excluded Assets (each as defined in the Asset Purchase
Agreement). Furr's shall not be entitled to the business of any other
customer of the El Paso PSC who shall be transferred to another ▇▇▇▇▇▇▇
product supply center.
4.4 FURR'S ELECTS NOT TO PURCHASE THE EL PASO PSC. If Furr's elects the
option set forth in SECTION 4.2(b) hereof, ▇▇▇▇▇▇▇ shall continue the sale
and delivery of food and related products to Furr's under the terms and
provisions and for the fees set forth in the Supply Agreement for
-16-
the duration of the Transition Period. During the first seven (7) months of
the Transition Period, Furr's shall continue to maintain an annualized volume
of purchases pursuant to the Supply Agreement of at least $435 million.
During the last two (2) months of the Transition Period, Furr's and ▇▇▇▇▇▇▇
shall phase down the purchase of products under the Supply Agreement, each
using its best efforts working together to minimize the amount of Inventory
in the El Paso PSC at the end of the Transition Period. All Inventory
remaining in the El Paso PSC at the end of the Transition Period in excess of
$500,000 (except for Inventory held for sale to customers of ▇▇▇▇▇▇▇ other
than Furr's) shall be transferred to Furr's at Furr's sole cost and expense
which amount shall be paid for in accordance with the terms of the Supply
Agreement within ten (10) days from the end of the Transition Period. Within
such ten (10) day period, Furr's shall also pay to ▇▇▇▇▇▇▇ the Liquidation
Costs in accordance with the provisions of the Escrow Agreement as set forth
in SECTION 2.2(c) hereof.
Nothing herein contained shall require ▇▇▇▇▇▇▇ to sell food and
related products to Furr's under the Supply Agreement or otherwise following
the end of the Transition Period.
4.5 CREDIT POLICIES. Furr's and ▇▇▇▇▇▇▇ recognize and agree that as
long as the Supply Agreement shall remain in effect, ▇▇▇▇▇▇▇ shall extend to
Furr's the normal trade credit it has heretofore extended; PROVIDED, however,
if Furr's fails to make timely payment in readily available funds for
inventory and fees under, or otherwise breaches, the Supply Agreement, or
fails to make timely payment in readily available funds for general
merchandise products purchased from any ▇▇▇▇▇▇▇ GMD facility and fees in
connection therewith, ▇▇▇▇▇▇▇ shall have the right in its sole and exclusive
determination to establish stricter credit policies, including, but not
limited to, a policy of C.O.D. For calendar year 1997, ▇▇▇▇▇▇▇'▇ extension
to Furr's of normal trade credits includes, without limitation, a credit
policy for holiday turkeys as set forth in that certain Letter Agreement
between Furr's and ▇▇▇▇▇▇▇ dated October 7, 1997. For calendar years after
1997, ▇▇▇▇▇▇▇ will consider credit extensions for holiday turkeys based on
the then credit of Furr's. In addition and notwithstanding such credit
policies, Furr's recognizes and agrees that ▇▇▇▇▇▇▇ has the right in its sole
discretion to refrain from supplying food, grocery and related food products
or general merchandise products if, for any reason, Furr's fails to make
timely payment for such products under ▇▇▇▇▇▇▇'▇ credit policies established
by it from time to time.
4.6 OTHER INDEBTEDNESS. Upon the termination of the Supply Agreement
and as a condition to such termination, Furr's shall pay ▇▇▇▇▇▇▇ any and all
other indebtedness owed to it under the Supply Agreement, evidenced by
promissory note(s), open account or otherwise.
4.7 PAYMENTS. All payments to be made by Furr's to ▇▇▇▇▇▇▇ under this
Agreement shall be made by wire transfer in readily available funds to an
account to be designated by ▇▇▇▇▇▇▇ to Furr's at least three days prior to
such payment. Payments under the Supply Agreement shall continue to be made
in accordance with the provisions of the Supply Agreement.
-17-
4.8 REDUCTION IN CHARGES. ▇▇▇▇▇▇▇ and Furr's agree, commencing as of
the date hereof, that the Supply Agreement shall be amended and modified as
follows:
(a) PAYMENT AMOUNT. For purposes of settling the Action and the
delivery of the releases pursuant to Article III hereof, ▇▇▇▇▇▇▇ will refund
to Furr's $738,500 per Period (equivalent to $800,000 per month) of its fees
and charges for the balance of the term of the Supply Agreement as modified
by the terms of this Agreement, except with respect to the last two (2)
months of the Transition Period and the Second Period, if either shall be
applicable, during which ▇▇▇▇▇▇▇ will refund to Furr's $369,250 per Period
(equivalent to $400,000 per month) of its fees and charges, herein referred
to as the "Payment Amount."
(b) PAYMENT. ▇▇▇▇▇▇▇ will pay Furr's the Payment Amount by wire
transfer within three business days of the end of each Period for the
previous Period (or portion thereof).
(c) EFFECTIVE DATE. The Payment Amount will be effective upon
signing of this Agreement and if this Agreement is executed in the middle of
a Period, the modification will be pro rated and be effective for that
portion of the Period from the date of signing hereof.
(d) COST OF GOODS. The costs of goods, fees and all other charges
to be paid by Furr's and charged by ▇▇▇▇▇▇▇ under the Supply Agreement, the
Sell Plan attached to the Supply Agreement for Perishable Products, and FMP
for FMP Products (collectively, the "Product Supply Documents"), shall be
determined, calculated and charged in accordance with ▇▇▇▇▇▇▇'▇ past
practices. Furr's ratifies and agrees that ▇▇▇▇▇▇▇'▇ past practices are
consistent with the Product Supply Documents and agrees those practices will
be employed for the remaining term of the Supply Agreement; PROVIDED,
however, ▇▇▇▇▇▇▇ will do nothing to:
(i) directly or indirectly increase the cost of goods purchased
under the Supply Agreement, except to pass on any actual net increases in
costs charged by vendors; or
(ii) directly or indirectly increase the fees it charges to
Furr's under the Supply Agreement and the Product Supply Documents,
including without limitation (a) "upcharge" fees, (b) storage, base
handling, or transportation fees, (c) corporate staff service charges, or
(d) IT service charges; or
(iii) otherwise manipulate or alter the cost of goods or the
fee structure in such a way as to reduce the benefit of the Payment Amount.
▇▇▇▇▇▇▇ and Furr's agree that FMP as introduced to Furr's in August 1995 and
as amended to the date of this Agreement will be used to price and sell FMP
Products to Furr's.
(e) FURR'S VOLUME OF PURCHASES. Furr's will continue to purchase
substantially the same amount of all categories and mix of products it has
purchased from ▇▇▇▇▇▇▇ during the
-18-
trailing 12 months from July 12, 1997, at a Teamwork Score as defined in the
Supply Agreement of at least 60%; PROVIDED, HOWEVER, Furr's shall be under no
obligation to discontinue buying goods from existing alternative suppliers.
Furr's agrees to make maximum use of ▇▇▇▇▇▇▇'▇ "▇▇▇▇-through" program.
(f) ▇▇▇▇▇▇▇ PERIOD RESULTS. ▇▇▇▇▇▇▇ agrees that during the
remaining term of the Supply Agreement, as modified by this Agreement, it
will provide Furr's within ten business days after the end of each Period (or
portion thereof) commencing with the first Period (or portion of a Period)
following the execution of this Agreement, with a report of ▇▇▇▇▇▇▇'▇
operational results evidencing the EBITDA ▇▇▇▇▇▇▇ realized from Furr's
business in the form reflected for the trailing 12 months from July 12, 1997
and set forth as EXHIBIT E attached hereto.
(g) FURR'S MANAGEMENT OF THE PAYMENT AMOUNT. Furr's and ▇▇▇▇▇▇▇
recognize and agree that it is Furr's sole responsibility to manage the
disposition of the Payment Amount and if such amount fails to appear as net
income to Furr's it shall not be the responsibility of ▇▇▇▇▇▇▇.
(h) PRODUCT SUPPLY DOCUMENTS. Except as modified herein, the
Product Supply Documents and each of the terms and conditions contained
therein shall remain in full force and effect for the balance of the term of
the Supply Agreement, as herein provided.
(i) SUPPLY AGREEMENT. The Parties recognize and agree that a
portion of the El Paso PSC Costs payable to ▇▇▇▇▇▇▇ in the event of the sale
of the El Paso PSC and a portion of the Liquidation Costs payable to ▇▇▇▇▇▇▇
in the event El Paso PSC is not sold includes an amount representing a
portion of ▇▇▇▇▇▇▇'▇ unamortized cost of acquiring the right to supply Furr's
under the Supply Agreement.
4.9 UNION AGREEMENT. In the event Furr's or the Purchaser, as the case
may be, elects to purchase the El Paso PSC, Furr's or the Purchaser, as the
case may be, shall negotiate with Local No. 745 an amendment, modification,
or replacement of the Union Agreement (the "Union Agreement Amendment");
which shall provide, inter alia, that ▇▇▇▇▇▇▇'▇ liability and obligation
under the Union Agreement will terminate and that ▇▇▇▇▇▇▇ will no longer be
liable for any prospective obligations with respect to the Union Agreement
accruing following the date hereof or otherwise accruing in connection with
the transactions contemplated by this Agreement or the Asset Purchase
Agreement, except as follows:
(a) in the event Furr's, the Purchaser or ▇▇▇▇▇▇▇, as the case may
be, pays severance to any union members that will not be hired by Furr's or
the Purchaser, ▇▇▇▇▇▇▇ shall be liable for the first $200,000 of such
severance obligation, and Furr's or the Purchaser, as the case may be, shall
be liable for any additional amount; and
(b) Furr's or the Purchaser, as the case may be, shall pay ▇▇▇▇▇▇▇
$500,000 in cash at the closing of the Acquisition Agreement, and ▇▇▇▇▇▇▇
shall be solely responsible for,
-19-
and shall indemnify Furr's or the Purchaser, as the case may be, against, any
and all liability with respect to any multiemployer pension plans which cover
the employees of the El Paso PSC arising as of or prior to the closing of the
Asset Purchase Agreement.
▇▇▇▇▇▇▇ agrees that it is solely responsible for any and all severance
obligations to managerial and other employees who are not covered under the
Union Agreement.
ARTICLE V
THE STOCKHOLDERS AGREEMENT
5.1 THE STOCKHOLDERS AGREEMENT. (a) With the exception of the rights
provided by and the terms and provisions of Article II of the Stockholders
Agreement, ▇▇▇▇▇▇▇ hereby covenants and agrees that it will take no action or
otherwise exercise any right pursuant to the Stockholders Agreement from and
after the date hereof until the date following the expiration of the Sales
Period. ▇▇▇▇▇▇▇ further covenants and agrees that, upon execution of the
Acquisition Agreement, if applicable, through and until the closing of the
acquisition transactions contemplated by such agreement or the termination
thereof, it hereby waives its rights under the Stockholders Agreement:
(1) in connection with the transactions contemplated thereby as
follows:
(i) the provisions of Section 3.2 of the Stockholders
Agreement regarding the right of first refusal with respect to a transfer of
Common Stock, including the notice provisions relating thereto;
(ii) the provisions of Section 5.3 of the Stockholders
Agreement requiring that in the event of the sale of assets of Furr's, the
applicable purchase agreement shall provide that the purchaser will assume
any supply agreement between ▇▇▇▇▇▇▇ and Furr's then in effect;
(iii) the provisions of clause (f) of Section 5.4 of the
Stockholders Agreement with respect to notice to ▇▇▇▇▇▇▇ regarding the terms,
provisions and documents relating to a transaction involving Furr's;
(iv) the provisions of Section 5.7 of the Stockholders
Agreement regarding the right of first offer with respect to a transfer of
Common Stock, including the notice provisions relating thereto; and
(v) the provisions of Section 6.1 of the Stockholders
Agreement regarding preemptive rights; or
-20-
(2) which are inconsistent with the provisions of this Agreement
(or the other agreements contemplated hereby), including but not limited to
the provisions of Article III (Restrictions on Transfer; Rights of First
Refusal), Article IV (Tag-Along Rights); Article V (Right to Compel Sale or
IPO Event); Article VI (Preemptive Rights); and Article VII (Put and Call
Rights on Management Stock).
(b) Concurrently with the Parties' execution of this Agreement,
each of the members of the Windward Group shall have executed and delivered
to ▇▇▇▇▇▇▇ and Furr's a waiver, in form attached hereto as EXHIBIT H (the
'Windward Waiver"), by the terms and provisions of which each member of the
Windward Group, with the exception of the rights provided by and the terms
and provisions of Article II of the Stockholders Agreement, shall covenant
and agree to take no action or otherwise exercise any right pursuant to the
Stockholders Agreement from and after the date of this Agreement until the
date following the expiration of the Sales Period. The waiver shall also
provide and each member of the Windward Group shall further covenant and
agree that, upon the execution of the Acquisition Agreement, if applicable,
through and until the closing of the acquisition transactions contemplated
thereby or the termination thereof, each of them shall waive their respective
rights under the Stockholders Agreement:
(1) in connection with the transactions contemplated thereby as
follows:
(i) the provisions of Section 3.2 of the Stockholders
Agreement regarding the right of first refusal with respect to a transfer of
Common Stock, including the notice provisions relating thereto;
(ii) the provisions of Section 5.1 of the Stockholders
Agreement regarding the right to compel sale generally;
(iii) the provisions of Section 5.2 of the Stockholders
Agreement regarding the right of compelled sale pursuant to a sale of the
Common Stock;
(iv) the provisions of Section 5.3 of the Stockholders
Agreement regarding the right of compelled sale other than pursuant to a sale
of Common Stock;
(v) the provisions of Section 5.4 of the Stockholders
Agreement regarding the cooperation of each Stockholder;
(vi) the provisions of Section 5.6 of the Stockholders
Agreement relating to the rights to compel an IPO Event, as defined in the
Stockholders Agreement; and
(vii) the provisions of Section 6.1 of the Stockholders
Agreement regarding preemptive rights; or
-21-
(2) which are inconsistent with the provisions of this Agreement
(or the other agreements contemplated hereby), including but not limited to
the provisions of Article III (Restrictions on Transfer; Rights of First
Refusal), Article IV (Tag-Along Rights); Article V (Right to Compel Sale or
IPO Event); Article VI (Preemptive Rights); and Article VII (Put and Call
Rights on Management Stock).
The waiver described herein shall also provide that each member of the
Windward Group agrees that it will not transfer, pledge or in any manner
hypothecate or dispose of its Common Stock during the Sales Period except (i)
as provided in this Agreement or (ii) to a Permitted Transferee (as defined
in the Stockholders Agreement) who agrees to take such Common Stock subject
to the provisions of this Agreement applicable to the Windward Group.
5.2 STANDSTILL. ▇▇▇▇▇▇▇ agrees that it will not transfer, pledge or in
any manner hypothecate or dispose of its Common Stock during the Sales Period
except (i) as provided in this Agreement or (ii) to a Permitted Transferee
who agrees to take such Common Stock subject to the provisions of this
Agreement applicable to ▇▇▇▇▇▇▇. Furr's covenants and agrees that, upon the
execution of the Acquisition Agreement, if applicable, through and until the
closing of the acquisition transactions contemplated thereby or the
termination thereof, it hereby waives any and all rights it may have under
Section 3.2 of the Stockholders Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 OTHER CONDITIONS. Concurrently with the Parties' execution of this
Agreement (i) each member of the Windward Group shall have executed and
delivered (A) to ▇▇▇▇▇▇▇ and Management the Special Release (Windward Group)
in the form attached hereto as EXHIBIT B-2 and the Windward Waiver, and (B)
to Furr's an acknowledgment that Furr's shall be sold in accordance with the
provisions of Article II hereof, including without limitation the minimum bid
price provisions of, and the designation of the Special Committee's authority
contained in, SECTION 2.3 hereof as set forth in the Windward Waiver, (ii)
each of Management shall have executed and delivered to ▇▇▇▇▇▇▇, the Windward
Group and Furr's the Special Release (Management) in the form attached hereto
as EXHIBIT B-4, and (iii) each of the Officers and Employees shall have
executed and delivered to Furr's, the Windward Group, ▇▇▇▇▇▇▇ and Management
the Special Release (Officers and Employees) in the form attached hereto as
EXHIBIT B-5.
6.2 CONFIDENTIALITY. Except as otherwise required by law, the Parties
shall not disclose any information regarding the terms and provisions of this
Agreement, the Offering Memorandum and the transactions contemplated hereby
except as specifically contemplated hereby or as mutually agreed to by the
Parties.
6.3 NOTICES. All notices that are required or may be given pursuant to
this Agreement must be in writing and delivered personally, by a recognized
courier service, by a recognized
-22-
overnight delivery service, by telecopy or by registered or certified mail,
postage prepaid, to the Parties at the following addresses (or to the
attention of such other person or such other address as any party may provide
to the other parties by notice in accordance with this SECTION 6.3):
if to Furr's: with copies to:
▇▇▇▇'▇ Supermarkets, Inc. Jacobvitz, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
Windward Capital Partners, L.P. Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
Americas Tower, 42nd floor ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
1177 Avenue of the Americas
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇ Simon, Esq.
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
if to ▇▇▇▇▇▇▇: with copies to:
▇▇▇▇▇▇▇ Companies, Inc. McAfee & ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇. Two Leadership Square
Oklahoma City, OK 73126 Tenth Floor
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
President and Chief Attn: ▇▇▇▇ ▇. ▇▇▇, Esq.
Operating Officer Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
6.4 GOVERNING LAW. This Agreement and the attached releases shall be
governed by the law of the State of Delaware.
6.5 ATTORNEYS' FEES. In the event of any litigation, arbitration or other
adjudicative proceeding arising out of or relating to this Agreement, or either
of the attached releases, the prevailing party shall recover its attorneys' fees
and costs against the other party or parties.
6.6 FURTHER ASSURANCES. Each of the Parties shall use reasonable and
diligent efforts to proceed promptly with the transactions contemplated herein,
to fulfill the conditions precedent, and to execute such further documents and
perform such further acts as may be reasonably required or appropriate to
effectuate the purpose and intent of this Agreement.
-23-
6.7 BINDING ON SUCCESSORS. This Agreement shall inure to the benefit of
and be binding upon the Parties hereto and their respective partners,
officers, directors, shareholders, employees, agents, independent contractors
and the affiliates, successors, assigns, heirs, executors, administrators and
representatives of each of the foregoing.
6.8 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement constitutes and is
intended to constitute the entire agreement of the Parties concerning the
subject matter hereof. No covenants, agreements, representations or
warranties of any kind whatsoever have been made by any party hereto, except
as specifically set forth herein. All prior discussions and negotiations
with respect to the subject matter hereof are superseded by this Agreement.
The Parties agree that the Purchaser or Furr's, as the case may be, may
assign its rights pursuant to SECTION 4.1(a) or SECTION 4.3, as applicable,
to purchase the El Paso PSC to a third party in connection with a sale of
Furr's in accordance with Article II hereof or pursuant to SECTION 4.2(a).
6.9 CONSTRUCTION. The Parties hereby acknowledge that they are
sophisticated commercial entities or business people. The Parties also
acknowledge that each of them has been represented by independent counsel of
their own choice throughout all negotiations preceding the execution of this
Agreement, and that they have executed the same upon the advice of their
independent counsel. The Parties and their respective counsel cooperated in
the drafting and preparation of this Agreement such that it shall be deemed
their joint work product and may not be construed against any of the Parties
by reasons of its preparation.
6.10 SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable, in whole or
in part, the remaining provisions, and any partially invalid or unenforceable
provisions, to the extent valid and enforceable, shall nevertheless be
binding and valid and enforceable.
6.11 MODIFICATIONS AND AMENDMENTS. This Agreement may not be modified or
terminated orally and no modification, termination or waiver shall be valid
unless in writing and signed by all of the Parties.
6.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-24-
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
the day and year first above written.
FURR'S: ▇▇▇▇'▇ SUPERMARKETS, INC., a Delaware corporation
By
--------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Chief Executive Officer and Chairman of
the Board
▇▇▇▇▇▇▇: ▇▇▇▇▇▇▇ COMPANIES, INC., an Oklahoma corporation
By
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
President
-25-