EXHIBIT 2.1
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SUBSCRIPTION AGREEMENT
dated as of April 1, 1997
among
RFM ACQUISITION LLC,
▇▇▇▇▇▇▇'▇ FOOD MARKETS, INC.
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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TABLE OF CONTENTS
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ARTICLE I.
DEFINITIONS
SECTION 1.01. Definitions...................................... 2
SECTION 1.02. Other Defined Terms.............................. 7
SECTION 1.03. Other Definitional Provisions.................... 9
ARTICLE II.
PURCHASE AND SALE
SECTION 2.01. The Purchase and Sale............................ 9
SECTION 2.02. Purchase Price and Payment....................... 9
SECTION 2.03. Closing.......................................... 9
SECTION 2.04. Closing Deliveries by Seller..................... 9
SECTION 2.05. Closing Deliveries by Buyer...................... 10
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 3.01. Organization, Standing and Corporate
Power.......................................... 10
SECTION 3.02. Subsidiaries..................................... 10
SECTION 3.03. Capital Structure................................ 11
SECTION 3.04. Cash and Indebtedness............................ 13
SECTION 3.05. Authority; Noncontravention...................... 14
SECTION 3.06. Financial Information............................ 15
SECTION 3.07. No Undisclosed Liabilities....................... 16
SECTION 3.08. Absence of Certain Changes or Events............. 16
SECTION 3.09. Litigation; Compliance with Laws................. 19
SECTION 3.10. Employees........................................ 20
SECTION 3.11. Tax Returns and Tax Payments..................... 25
SECTION 3.12. Properties....................................... 26
SECTION 3.13. Environmental Matters............................ 29
SECTION 3.14. Contracts........................................ 31
SECTION 3.15. Intellectual Property............................ 33
SECTION 3.16. Insurance........................................ 33
SECTION 3.17. Brokers.......................................... 34
SECTION 3.18. Agreements to Sell Assets, Merge or
Consolidate.................................... 34
SECTION 3.19. Transactions with Certain Persons................ 34
SECTION 3.20. Food Depot, Inc.................................. 35
SECTION 3.21. Board Recommendation............................. 35
SECTION 3.22. Required Seller Vote............................. 35
SECTION 3.23. Information Supplied............................. 35
SECTION 3.24. State Takeover Statutes.......................... 35
SECTION 3.25. Books and Records................................ 36
SECTION 3.26. Effect of Transaction............................ 36
SECTION 3.27. Full Disclosure.................................. 36
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 4.01. Organization, Standing and Corporate
Power.......................................... 36
SECTION 4.02. Authority; Noncontravention...................... 37
SECTION 4.03. Purchase for Investment.......................... 38
SECTION 4.04. Brokers.......................................... 38
ARTICLE V.
COVENANTS
SECTION 5.01. Conduct of Business of Seller.................... 38
SECTION 5.02. Prepayment of Indebtedness and
Redemption of Preferred Stock.................. 39
SECTION 5.03. Additional Financial Statements.................. 40
SECTION 5.04. WARN............................................. 40
SECTION 5.05. Articles of Incorporation........................ 40
SECTION 5.06. Preparation of Proxy/Tender Offer
Statement; Shareholders Meeting................ 40
SECTION 5.07. Access to Information;
Confidentiality................................ 42
SECTION 5.08. Best Efforts..................................... 42
SECTION 5.09. Public Announcements............................. 43
SECTION 5.10. No Solicitation.................................. 44
SECTION 5.11. Directors........................................ 45
SECTION 5.12. Certain Agreements............................... 45
SECTION 5.13. Settlement Agreement............................. 45
SECTION 5.14. ESOP Amendment................................... 45
ARTICLE VI.
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Obligations of Buyer............... 46
SECTION 6.02. Conditions to Obligation of Seller............... 48
ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination...................................... 49
SECTION 7.02. Effect of Termination............................ 50
SECTION 7.03. Amendment........................................ 50
SECTION 7.04. Extension; Waiver................................ 50
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.01. Survival......................................... 50
SECTION 8.02. Indemnification.................................. 51
SECTION 8.03. Indemnification Procedures....................... 53
SECTION 8.04. Tax Limitations.................................. 54
SECTION 8.05. Tax Matters...................................... 54
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ARTICLE IX.
GENERAL PROVISIONS
SECTION 9.01. Fees and Expenses................................ 55
SECTION 9.02. Notices.......................................... 56
SECTION 9.03. Interpretation................................... 57
SECTION 9.04. Counterparts..................................... 58
SECTION 9.05. Entire Agreement; No Third-Party
Beneficiaries.................................. 58
SECTION 9.06. GOVERNING LAW; ARBITRATION....................... 58
SECTION 9.07. Assignment....................................... 58
SECTION 9.08. Enforcement...................................... 59
SECTION 9.09. No Recourse...................................... 59
EXHIBITS
Exhibit A Form of Option
Exhibit B-1 Settlement Agreement
Exhibit B-2 Pleadings
Exhibit C Form of Amendment to Articles of Incorporation
of Seller
Exhibit D Form of Amended and Restated ESOP
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SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of April 1, 1997, among RFM
Acquisition LLC, a Delaware limited liability company ("Buyer"), ▇▇▇▇▇▇▇'▇ Food
Markets, Inc., a Texas corporation ("Seller"), and, solely for purposes of
Sections 8.02(a) and 8.02(b), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
W I T N E S S E T H :
WHEREAS, the Board of Directors of Seller has approved, and deemed
to be advisable and in the best interests of Seller's shareholders, a series of
transactions (the "Transactions") which will result in, among other things (i)
Seller's issuance to Buyer of 18,579,686 newly-issued shares (the "Shares") of
voting common stock of the par value of $0.25 per share of Seller (the "Common
Stock") and of an option to purchase 3,606,881 shares of Common Stock pursuant
to the Option substantially in the form of Exhibit A hereto (the "Option"), (ii)
Seller's incurrence of indebtedness and the making of the Debt Prepayment and
the Preferred Stock Redemption (each as defined herein), and (iii) Seller's
repurchase of up to 1,104,336 shares of Common Stock from Seller's Employee
Stock Ownership Plan (the "ESOP"), up to the 200,435 Putable Shares, and up to
4,280,415 Non-ESOP Shares pursuant to a tender offer (the "Tender Offer")
(provided that the numbers of shares referenced in this clause (iii) shall be
subject to reduction pursuant to Section 5.06(c)) and, if fewer than 4,280,415
Non-ESOP Shares (as such number may be reduced pursuant to Section 5.06(c))
shall be purchased in the Tender Offer, Seller's repurchase of the balance of
such Non-ESOP Shares pursuant to the conditional repurchase commitment of
certain shareholders of Seller pursuant to the Voting, Repurchase and
Shareholders Agreement dated as of the date hereof (the "Shareholders
Agreement") between Seller and certain shareholders of Seller;
WHEREAS, the issuance of the Shares, the shares of Common Stock
issuable upon exercise of the Option (the "Option Shares") and any shares of
Common Stock which may be issuable pursuant to Section 8.02(b) (the "Additional
Shares") require Seller's articles of incorporation (the "Articles") to be
amended to increase the number of authorized shares of Common Stock (the
"Amendment");
WHEREAS, the Board of Directors of Seller has adopted a resolution
approving this Agreement, the Transactions and the Amendment and directing that
such matters (the "Shareholder Approval Matters") be submitted to a vote at a
special meeting (the "Shareholders Meeting") of the holders of Common Stock (the
"Common Shareholders");
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WHEREAS, approval of the Shareholder Approval Matters requires the
affirmative vote of a majority of the shares of the issued and outstanding
Common Stock (the "Shareholder Approval") and certain shareholders of Seller
have agreed, pursuant to the Shareholders Agreement, to vote in favor of the
Shareholder Approval Matters and to take other steps to support the
Transactions;
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Buyer's willingness to enter into
this Agreement, Buyer and certain shareholders of Seller have entered into the
Shareholders Agreement;
WHEREAS, Buyer and Seller desire to make certain representations,
warranties, covenants and agreements in connection with the Transactions and
also to prescribe various conditions to the Transactions; and
WHEREAS, it is intended that the Transactions be recorded as a
recapitalization for financial reporting purposes.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Definitions. For purposes of this Agreement:
"Action" shall mean any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Entity.
"Affiliate" shall mean an "affiliate" as defined in Rule 12b-2 under
the Exchange Act.
"Agreement" shall mean this Subscription Agreement (together with
all Schedules and Exhibits referenced herein), as amended, modified or
supplemented from time to time.
"Business Day" shall mean any day that is not a Saturday, a Sunday
or other day on which banks are required or authorized by law to be closed in
The City of New York.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Confidentiality Agreement" shall mean the confidentiality
agreement, dated as of October 15, 1996, between KKR and Seller.
"Environmental Claim" shall mean any written or oral notice, claim,
demand, action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability (including liability or potential
liability for investigatory costs, cleanup costs, governmental response costs,
natural resource damages, property damage, personal injury, fines or penalties)
arising out of, relating to, based on or resulting from (a) the presence,
discharge, emission, release or threatened release of any Hazardous Materials at
any location, whether or not owned, leased or operated by Seller or any of the
Subsidiaries or (b) circumstances forming the basis of any violation or alleged
violation of any Environmental Law or Environmental Permit or (c) otherwise
relating to Liabilities under any Environmental Laws.
"Environmental Laws" shall mean all applicable federal, state and
local statutes, rules, regulations, ordinances, orders, decrees, judgements and
common law relating in any manner to contamination, pollution or protection of
human health or the environment, including the Comprehensive Environmental
Response, Compensation and Liability Act, the Solid Waste Disposal Act, the
Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the
Occupational Safety and Health Act, the Emergency Planning and
Community-Right-to-Know Act, the Safe Drinking Water Act, all as amended, and
similar state laws.
"Environmental Permits" shall mean all permits, licenses,
registrations and other governmental authorizations required for Seller and the
Subsidiaries and the operations of Seller's and the Subsidiaries' facilities and
otherwise to conduct their business under Environmental Laws.
"Environmental Report" shall mean any report, study, assessment,
audit or similar document that addresses any issue of actual or potential
noncompliance with, or actual or potential Liability under, any Environmental
Law that may in any way affect Seller or any Subsidiary.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"ESOP Shares" shall mean shares of Common Stock held by the ESOP.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
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"Fair Market Value" shall mean, as of any determination date, the
average for the second Trading Day preceding such date of the high and low
reported sales prices regular way of one share of Common Stock on such Trading
Day or, in case no such reported sale takes place on such Trading Day, the
average of the reported closing bid and asked prices regular way of a share of
Common Stock on such Trading Day, in either case on the principal national
securities exchange in the United States on which the shares of Common Stock are
listed or admitted to trading, or if not listed or admitted to trading on any
national securities exchange on such Trading Day, on NASDAQ, or if the shares of
Common Stock are not listed or admitted to trading on any national securities
exchange or quoted on NASDAQ on such Trading Day, the average of the closing bid
and asked prices of a share of Common Stock in the over-the-counter market on
such Trading Day as furnished by any New York Stock Exchange member firm
selected by Buyer and Seller. If, as of any determination date, the Common Stock
is not quoted or listed by any such organization, exchange or market, the Fair
Market Value of one share of Common Stock as of such date shall be (i) the most
recent valuation of one share of Common Stock made in accordance with the
provisions of the ESOP (or any successor 401(k) plan), excluding any adjustment
for minority interest made by such valuation, or (ii) if the valuation of Common
Stock shall no longer be required by the ESOP (or any successor 401(k) plan), as
determined by a nationally recognized investment banking firm, which shall be
mutually acceptable to Buyer and Seller and whose fees and expenses shall be
paid by Seller.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect as of the date hereof.
"Governmental Entity" shall mean any Federal, state or local
government or any court, administrative agency or commission or other
governmental authority or agency, domestic or foreign.
"Governmental Order" shall mean any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Entity.
"HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended.
"Hazardous Materials" shall mean all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any fraction
thereof) and petroleum products, asbestos and asbestos-containing materials,
pollutants, contaminants and all other materials, substances and forces,
including but not limited to electromagnetic fields, regulated pursuant to, or
that could form the basis of liability under, any Environmental Law.
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"Indebtedness" shall mean, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, for borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, but not including trade payables incurred in the ordinary course of
business, (c) all other indebtedness of such Person evidenced by notes, bonds,
debentures or other similar instruments and (d) all indebtedness of others
referred to in clauses (a) through (c) above guaranteed directly or indirectly
in any manner by such Person.
"Intellectual Property" shall mean any copyright, copyright
permission, patent, exclusive right under copyright, trade name, trademark or
service ▇▇▇▇, proprietary right, brand name or design, or any registration
(granted or pending) or applications therefor.
"KKR" shall mean Kohlberg Kravis ▇▇▇▇▇▇▇ & Co. L.P.
"Knowledge" shall mean, with respect to Seller, the actual knowledge
of the officers and employees (as well as any of their successors) of Seller and
the Subsidiaries and, without duplication, the employees in charge of
environmental, tax, labor, employee benefits and real estate matters or any of
the foregoing, in each case after reasonable investigation and inquiry.
"Law" shall mean any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law.
"Liabilities" shall mean any and all Indebtedness and other
liabilities and obligations, whether accrued or fixed, absolute or contingent,
matured or unmatured.
"Lien" shall mean any pledge, mortgage, claim, lien, charge,
encumbrance and security interests of any kind or nature whatsoever.
"Material Adverse Change" or "Material Adverse Effect" shall mean
any change or effect that either individually or in the aggregate with all other
such changes or effects (i) could reasonably be expected to be materially
adverse to the business, assets, operations, properties, condition (financial or
otherwise), results of operations or prospects of Seller and the Subsidiaries,
taken as a whole, (ii) could reasonably be expected to be materially adverse to
Seller's ability to perform its obligations under this Agreement, or (iii) could
reasonably be expected to prevent, hinder or materially delay Seller's ability
to consummate any of the Transactions.
"NASDAQ" shall mean the National Association of Securities Dealers
Automatic Quotation System.
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"Non-ESOP Shares" shall mean shares of Common Stock (other than
Putable Shares) held by holders of Common Stock other than the ESOP.
"Non-Withdrawable Shares" shall mean ESOP Shares which are not
Withdrawable Shares.
"Permits" shall mean all licenses, permits, orders, consents,
approvals, registrations, authorizations, qualifications and filings with and
under all Federal, state, local or foreign laws and governmental or regulatory
bodies and all industry or other non-governmental self-regulatory organizations
(including Environmental Permits).
"Permitted Changes" shall mean: (i) the authorization of the Shares,
the Option, the Option Shares and the Additional Shares, (ii) the issuance of
the Shares and the Option, (iii) the issuance of any shares of Common Stock upon
exercise or conversion of Stock Options or Convertible Preferred Stock, as the
case may be and in each case outstanding on the date of this Agreement and in
accordance with their terms in effect on the date of this Agreement and (iv) the
redemption of shares of Class A Preferred Stock and Convertible Preferred Stock
pursuant to the Preferred Stock Redemption.
"Permitted Liens" shall mean: (a) Liens for taxes, assessments and
governmental charges or levies not yet due and payable, (b) Liens imposed by
Law, (c) pledges or deposits to secure obligations under workers' compensation
laws or similar legislation or to secure public or statutory obligations, (d)
minor survey exceptions, reciprocal easement agreements, rights-of-way,
restrictions and other similar encumbrances on title to real property which do
not detract from the value of the property subject thereto or interfere with the
conduct of business at such property substantially as the same is currently
being conducted or would interfere with the sale, transfer or financing of the
property subject thereto or affected thereby and (e) as to any property in which
Seller and the Subsidiaries have valid leasehold interests, any Lien affecting
the fee interest of the lessor thereof so long as the lease with respect to such
leasehold interest contains a non-disturbance clause; provided that none of the
foregoing, individually or in the aggregate, materially adversely affect the
value of the property to which they relate or materially adversely affect the
continued use of the property to which they relate in the conduct of the
business currently conducted thereat.
"Person" shall mean an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or other enterprise or entity.
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"Pleadings" shall mean the pleadings necessary to seek preliminary
and final approval of the proposed settlement, including the form of release to
be included in the final judgment entered by the court, attached as Exhibit B-2
hereto.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Settlement Agreement" shall mean the Conditional Settlement
Agreement dated as of February 23, 1997 among Seller and the other parties
thereto attached as Exhibit B-1 hereto.
"Subsidiaries" shall mean all corporations, partnerships, joint
ventures, associations, trusts, unincorporated organizations, or other
enterprises or entities which Seller controls, directly or indirectly through
one or more intermediaries. For purposes of this definition, "control" shall
mean "control" as defined in Rule 12b-2 under the Exchange Act.
"Trading Day" shall mean each weekday other than any day on which
any Common Stock is not traded on any national securities exchange, on NASDAQ or
in the over-the-counter market.
"Withdrawable Shares" shall mean ESOP Shares which are attributable
to employee contributions and are subject to the withdrawal provisions of
Section 7.13 of the ESOP.
SECTION 1.02. Other Defined Terms. The following terms shall have
the meanings defined for such terms in the Sections set forth below:
Term Section
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"AAA" 9.06
"Additional Shares" Recitals
"Aetna" 3.09(b)
"Amendment" Recitals
"Annual Financial Statements" 3.06(a)(i)
"Articles" Recitals
"Assigned Shares" 5.06(c)
"Balance Sheet" 3.06(a)(ii)
"Balance Sheet Date" 3.06(a)(ii)
"Buyer" Recitals
"Bylaws" 3.01
"CapEx Budget" 3.08(d)
"Class A Preferred Stock" 3.03(a)
"Closing" 2.03
"Closing Date" 2.03
"Common Shareholders" Recitals
"Common Stock" Recitals
"Consolidated Group" 3.11
"Convertible Preferred Stock" 3.03(a)
"Credit Agreement" 3.04(b)
"Damages" 8.02(a)
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"Debt Prepayment" 5.02
"Development Agreements" 3.12(d)
"ESOP" Recitals
"Financial Statements" 3.06(a)
"Financing" 5.08(c)
"Food Depot" 3.20
"Food Depot Interest" 3.20
"Indemnitee" 8.03(a)
"Indemnitor" 8.03(a)
"Insurance Policies" 3.16
"Interim Financial Statements" 3.06(a)(ii)
"Leased Real Property" 3.12(b)
"Note Purchase Agreement" 3.04(b)
"Notice" 8.03(a)
"Option" Recitals
"Option Shares" Recitals
"Owned Real Property" 3.12(a)
"PBGC" 3.10(d)
"▇▇▇▇ Action" 3.10(j)
"Preferred Stock Redemption" 5.02
"Proxy/Tender Offer Statement" 3.23
"Purchase" 2.01
"Purchase Price" 2.02
"Putable Shares" 3.03(c)
"Real Property Leases" 3.12(b)
"Restricted Shares" 3.03(a)
"Revolving Credit Facility" 3.04(b)
"Seller" Recitals
"Seller Plans" 3.10(a)
"Senior Notes" 3.04(b)
"Serial Preferred Stock" 3.03(a)
"Series A Senior Notes" 3.04(b)
"Series B-1 Senior Notes" 3.04(b)
"Series B-2 Senior Notes" 3.04(b)
"Shareholders Agreement" Recitals
"Shareholder Approval" Recitals
"Shareholder Approval Matters" Recitals
"Shareholders Meeting" Recitals
"Shares" Recitals
"Stock Options" 3.03(a)
"Stock Plans" 3.03(a)
"Taxes" 3.11
"Tax Return" 3.11
"Tender Offer" Recitals
"Tender Offer Price" 5.06(c)
"TBCA" 3.05(b)
"Third Party Leases" 3.12(c)
"Transaction Proposals" 5.10
"Transactions" Recitals
"WARN" 5.04
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SECTION 1.03. Other Definitional Provisions. (a) The words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Article, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE II.
PURCHASE AND SALE
SECTION 2.01. The Purchase and Sale. Subject to the terms and
conditions hereof and on the basis of the representations, warranties, covenants
and agreements contained herein, Seller agrees to issue and sell the Shares and
the Option to Buyer, and Buyer agrees to purchase the Shares and the Option from
Seller (the "Purchase").
SECTION 2.02. Purchase Price and Payment. In consideration for the
issuance and sale of the Shares and the Option, and subject to the terms and
conditions of this Agreement, at the Closing, Buyer shall pay to Seller $225
million, payable by wire transfer in immediately available funds, to a bank
account which Seller shall designate in writing to Buyer no less than two
Business Days prior to the Closing Date (the "Purchase Price").
SECTION 2.03. Closing. Upon the terms and subject to the conditions
of this Agreement, the sale and purchase of the Shares contemplated by this
Agreement shall take place at a closing (the "Closing") to be held at the
offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, at 10:00 a.m., New York City time on the second Business Day following
the satisfaction or waiver of all conditions to the obligations of the parties
set forth in Article VII, or at such other place or at such other time or on
such other date as Seller and Buyer may mutually agree upon in writing (the day
on which the Closing takes place being the "Closing Date").
SECTION 2.04. Closing Deliveries by Seller. At the Closing, Seller
shall deliver to Buyer:
(a) stock certificate evidencing the Shares registered in the name
of Buyer or its nominee, in form satisfactory to Buyer and with all required
stock transfer tax stamps affixed;
(b) the Option;
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(c) a receipt for the Purchase Price; and
(d) the certificate required to be delivered pursuant to Section
6.01(d).
SECTION 2.05. Closing Deliveries by Buyer. At the Closing, Buyer
shall deliver to Seller:
(a) the Purchase Price by wire transfer in immediately available
funds to Seller;
(b) a receipt for the Shares and the Option; and
(c) the certificate required to be delivered pursuant to Section
6.02(d).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
SECTION 3.01. Organization, Standing and Corporate Power. Seller and
each Subsidiary is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated or otherwise organized,
which jurisdiction is set forth on Schedule 3.01, and has full power and
authority to own its properties and to carry on its business as now being
conducted. Each of Seller and each Subsidiary is duly qualified or licensed to
do business as a foreign corporation in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed (individually or in the aggregate) would
not have a Material Adverse Effect. Included on Schedule 3.01 are complete and
correct copies of the Articles, as amended, and Bylaws, as amended (the
"Bylaws"), of Seller, in each case as in effect as of the date hereof. Seller
has delivered to Buyer complete and correct copies of the articles of
incorporation (or other organizational documents) and bylaws of each of the
Subsidiaries, in each case as amended to the date of this Agreement.
SECTION 3.02. Subsidiaries. Set forth on Schedule 3.02 is a list of
the Subsidiaries and the number of authorized, issued and outstanding shares of
capital stock, partnership interests, membership interests, joint venture
interests or other equity interests of each Subsidiary. All the outstanding
shares of capital stock, partnership interests, membership interests, joint
venture interests or other equity interests of each Subsidiary are validly
issued, fully paid and non-assessable,
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have not been issued in violation of any preemptive or similar rights, and,
except as disclosed on Schedule 3.02, are owned (of record and beneficially) by
Seller or a Subsidiary, free and clear of any Liens. Except for the ownership
interests set forth on Schedule 3.02, neither Seller nor any Subsidiary (as
indicated on Schedule 3.02), directly or indirectly, owns any capital stock or
other ownership interest in any Person (including in any joint venture).
SECTION 3.03. Capital Structure. (a) The entire authorized capital
stock of Seller consists of (i) 25,000,000 shares of Common Stock, (ii) 8,250
shares of Class A preferred stock of the par value of $10.00 per share of Seller
(the "Class A Preferred Stock"), and (iii) 5,000,000 shares of serial preferred
stock of the par value of $10.00 per share (the "Serial Preferred Stock"), of
which 292,043 shares have been designated as 8% convertible preferred stock (the
"Convertible Preferred Stock"). There are, and subject to any Permitted Changes
as of the Closing Date there shall be, (i) 17,093,155.3104 shares of Common
Stock issued and outstanding (excluding shares held in the treasury of Seller),
135,382 of which shares are currently subject to restrictions on transfer (the
"Restricted Shares"); (ii) 52,226.6896 shares of Common Stock held in the
treasury of Seller; (iii) 8,250 shares of Class A Preferred Stock issued and
outstanding; (iv) 278,201 shares of Convertible Preferred Stock issued and
outstanding and no other shares of Serial Preferred Stock issued or outstanding;
(v) 762,161 shares of Common Stock reserved for issuance upon exercise of
authorized but unissued outstanding employee or director stock options to
purchase shares of Common Stock ("Stock Options") granted under any stock option
or stock purchase plan, program or arrangement of Seller (the "Stock Plans");
(vi) 602,457 shares of Common Stock issuable upon exercise of outstanding Stock
Options (with an average exercise price of $17.03 and those other options
determined by formula specifically described on Schedule 3.03(b); and (vii)
639,863 shares of Common Stock reserved for issuance upon conversion of the
Convertible Preferred Stock.
(b) Schedule 3.03(b) contains a list, as of the date of this
Agreement, of each record holder of Common Stock, Class A Preferred Stock and
Convertible Preferred Stock and the number of shares of each of such securities
held by each such holder (including an indication of whether any such securities
are Restricted Shares), and a list, as of the date of this Agreement, of each
holder of Stock Options and the number of shares of Common Stock issuable upon
exercise of such Stock Options to each such holder. Schedule 3.03(b) also
describes the restrictions related to each of the Restricted Shares and the
periods over which such restrictions lapse in accordance with the terms of the
Seller Plans or agreements, as applicable, governing such Restricted Shares. All
such restrictions shall lapse as a result of the consummation of the Purchase.
Except as set forth above, no shares of capital stock or other equity securities
of Seller
12
are issued, reserved for issuance or outstanding. All outstanding shares of
capital stock of Seller are, and all shares which may be issued pursuant to the
Stock Plans or upon conversion of the Convertible Preferred Stock will be when
issued, duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive or similar rights. Except for the Convertible Preferred
Stock and Stock Options, there are no outstanding bonds, debentures, notes or
other Indebtedness or other securities of Seller or any Subsidiary having the
right to vote (or convertible into, exercisable or exchangeable for, securities
having the right to vote) on any matters on which shareholders of Seller may
vote. Except as set forth above or as described on Schedule 3.03(b), there are
no outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Seller or any of
the Subsidiaries is a party or by which any of them is bound obligating Seller
or any of the Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other equity or voting
securities of Seller or of any of the Subsidiaries or obligating Seller or any
of the Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking.
Except as set forth on Schedule 3.03(b), no shares of capital stock of Seller
have been issued or may be issued in connection with Seller's acquisition of
▇▇▇▇▇▇ Companies, Inc., including upon the occurrence of any tax contingency.
(c) Other than pursuant to this Agreement, the Stock Options and the
Shareholders Agreement and other than as described on Schedule 3.03(c), (i)
there are no outstanding contractual obligations, commitments, understandings or
arrangements of Seller or any of the Subsidiaries to repurchase, redeem or
otherwise acquire or make any payment in respect of any shares of capital stock
of Seller or any of the Subsidiaries, other than Seller's obligation to
repurchase an aggregate of 613,457 shares of Common Stock (the "Putable Shares")
at a price equal to the fair value per share (as determined in the most recent
valuation of the Common Stock held by the ESOP (or any successor 401(k) Plan),
which determination shall have been made in accordance with the provisions of
the ESOP (or such successor 401(k) Plan)), upon exercise by the respective
holders thereof of such holders' put rights in respect of such shares (the
shares subject to such put rights are described on Schedule 3.03(c) and such
Schedule identifies the holders of such shares, the applicable put prices of
such shares and the applicable agreement pursuant to which the applicable put
rights may be exercised), and (ii) to the Knowledge of Seller, there are no
irrevocable proxies with respect to shares of capital stock of Seller or any of
the Subsidiaries. Schedule B of the Shareholders Agreement, which sets forth the
record and, to the Knowledge of Seller, beneficial ownership of, and voting
power in respect of, the capital stock of Seller with respect to the signatories
to the
13
Shareholders Agreement, is accurate in all material respects. Except for the
Shareholders Agreement and except as described on Schedule 3.03(c), there are no
agreements or arrangements pursuant to which Seller is or could be required to
register shares of Common Stock or other securities under the Securities Act or
other agreements or arrangements with or among any securityholders of Seller
with respect to securities of Seller.
(d) The Shares, the Option Shares and the Additional Shares have
been duly and validly authorized, and, when issued and delivered pursuant to
this Agreement, such Shares, Option Shares and Additional Shares shall be duly
and validly issued and fully paid and non-assessable, and not subject to
preemptive or similar rights. The transfer and delivery of the Shares, the
Option Shares and the Additional Shares by Seller to Buyer as contemplated by
this Agreement will transfer good title to the Shares, the Option Shares and the
Additional Shares to Buyer, free and clear of any Liens, except Liens arising as
a result of any action taken by Buyer.
SECTION 3.04. Cash and Indebtedness. (a) As of February 8, 1997,
Seller had $34.352 million of cash on a consolidated basis.
(b) As of February 8, 1997, the only outstanding Indebtedness of
Seller or any of the Subsidiaries was (i) $152.0 million aggregate principal
amount of loans under a term loan facility provided pursuant to the Credit
Agreement dated as of November 1, 1993, as amended, among Seller, certain of the
Subsidiaries, the banks party thereto and Texas Commerce Bank National
Association, as agent (the "Credit Agreement"), (ii) an Interest Rate Swap
Agreement dated as of June 6, 1995 between Seller and Texas Commerce Bank
National Association with a notional amount of $50 million, (iii) $38.0 million
aggregate principal amount of loans under a $65 million revolving credit
facility (the "Revolving Credit Facility") provided pursuant to the Credit
Agreement, (iv) $39.5 million aggregate principal amount of 8.70% Series A
Senior Notes Due December 1, 2003 (the "Series A Senior Notes") issued pursuant
to the Note Purchase Agreement dated as of November 1, 1993, as amended, among
Seller, certain of the Subsidiaries and the insurance companies party thereto
(the "Note Purchase Agreement"), (v) $71.0 million aggregate principal amount of
9.16% Series B-1 Senior Notes Due December 1, 2005 (the "Series B-1 Senior
Notes") issued pursuant to the Note Purchase Agreement, (vi) $25.0 million
aggregate principal amount of 9.16% Series B-2 Senior Notes Due December 1, 2003
(the "Series B-2 Senior Notes", together with the Series A Senior Notes and the
Series B-1 Notes, the "Senior Notes") issued pursuant to the Note Purchase
Agreement, (vii) Other Long-Term Debt in the amount of $6.010 million relating
to the mortgages on the fee properties of Seller as set forth on Schedule
3.12(a), (viii) $92.176 million of obligations under capitalized leases as of
February 8, 1997 as set forth on Schedule 3.04(b), and (ix)
14
$20.250 million of mortgage Indebtedness as of February 8, 1997 relating to
joint ventures of Seller as set forth on Schedule 3.12(a). The Senior Notes and
all Indebtedness under the Credit Agreement are prepayable in full by Seller as
of the date of this Agreement, and will be prepayable as of the Closing, in
accordance with their respective terms, subject, in the case of the Senior
Notes, to the payment of the Make-Whole Price (as defined in the Note Purchase
Agreement) which shall be calculated in accordance with the methodology set
forth on Schedule 3.04(b) and which shall not exceed the amount calculated
pursuant to such methodology. As of February 8, 1997, there were $1.818 million
aggregate principal amount of letters of credit issued pursuant to the Credit
Agreement under the Revolving Credit Facility. Other than the Senior Notes and
the Indebtedness under the Credit Agreement, no Indebtedness of Seller or any
Subsidiary contains any restriction upon the incurrence of Indebtedness by
Seller or any of the Subsidiaries or restricts the ability of Seller or any of
the Subsidiaries to grant any Liens on its properties or assets.
SECTION 3.05. Authority; Noncontravention. (a) Seller has the
corporate power and authority to execute and deliver this Agreement and the
Settlement Agreement, to perform its obligations hereunder and thereunder,
subject to obtaining the Shareholder Approval with respect to this Agreement and
the Transactions. The execution and delivery of this Agreement and the
Settlement Agreement by Seller, the performance by Seller of its obligations
hereunder and thereunder, and the consummation by Seller of the Transactions and
the transactions contemplated by the Settlement Agreement have been duly
authorized by all necessary corporate action on the part of Seller, subject to
obtaining the Shareholder Approval with respect to this Agreement and the
Transactions. Each of this Agreement and the Settlement Agreement has been duly
executed and delivered by Seller and constitutes a legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other Laws relating to or affecting creditors'
rights generally and general equitable principles (whether considered in a
proceeding in equity or at law).
(b) Except as disclosed on Schedule 3.05(b)I, the execution and
delivery of this Agreement or the Settlement Agreement by Seller do not, and the
consummation of the Transactions and compliance with the provisions hereof or
thereof by Seller will not, conflict with, result in any breach or violation of,
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, or give rise to a right of termination,
amendment or acceleration of a "put" right with respect to any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon any
of the properties or assets of Seller or any
15
of the Subsidiaries under, (i) the Articles or Bylaws or the comparable charter
or organizational documents of any of the Subsidiaries, (ii) any loan or credit
agreement, note, note purchase agreement, bond, mortgage, indenture, lease,
contract, joint venture or other agreement, instrument, permit, concession,
franchise or license applicable to Seller or any of the Subsidiaries or any of
their respective properties or assets, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Law,
Governmental Order or arbitration award applicable to Seller or any of the
Subsidiaries or any of their respective properties or assets, other than, in the
case of clauses (ii) and (iii) with respect to this Agreement and the
Transactions (but not the Settlement Agreement or any of the transactions
contemplated thereby), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that could not, individually or in the aggregate, have a
Material Adverse Effect, provided, however, that Buyer acknowledges having
received the leases set forth on Schedule 3.05(b)(II) and confirms that no
consent is required by such leases to consummate the Purchase. No consent,
approval, order or authorization of, action by, or registration, declaration or
filing with, or notice to, any Governmental Entity is required in connection
with the execution, delivery or performance of this Agreement or the Settlement
Agreement by Seller or the consummation by Seller of the Transactions or the
transaction contemplated by the Settlement Agreement, except for (a) with
respect to this Agreement and the Transactions, (i) the notification
requirements of the HSR Act, (ii) the filing of the Amendment executed in
accordance with the relevant provisions of the Texas Business Corporation Act
(the "TBCA") with the Secretary of State of the State of Texas, (iii) those that
may be required by the nature of the business or ownership of the Shares by
Buyer and (iv) those the failure of which to obtain would not, individually or
in the aggregate, have a Material Adverse Effect and (b) with respect to the
Settlement Agreement and the transactions contemplated thereby, receipt of final
judicial approval.
SECTION 3.06. Financial Information. (a) Schedule 3.06 contains
copies of the following (collectively, the "Financial Statements"):
(i) the audited consolidated balance sheets of Seller and the
Subsidiaries for the fiscal years ended June 29, 1996, June 24, 1995 and
June 25, 1994, and the related audited consolidated statements of
earnings, stockholders' equity and cash flows for each of the fiscal years
then ended, together with the report thereon of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP,
including notes thereto (collectively, the "Annual Financial Statements"),
and
16
(ii) the unaudited consolidated balance sheet of Seller and the
Subsidiaries for the 32-week period ended February 8, 1997 (the "Balance
Sheet" and the date thereof, the "Balance Sheet Date"), and the related
unaudited consolidated statements of earnings and cash flows for the
period then ended (the "Interim Financial Statements").
(b) The Financial Statements are based on the books and records of
Seller, present fairly the consolidated financial condition and results of
operations of Seller as of the respective dates thereof and for the periods
covered thereby, all in accordance with GAAP applied on a consistent basis,
except that the Interim Financial Statements do not contain footnote disclosures
and are subject to normal recurring year-end adjustments which are not,
individually or in the aggregate, material.
SECTION 3.07. No Undisclosed Liabilities. Except as described on
Schedule 3.07, there are no Liabilities that individually or in the aggregate
would reasonably be expected to have a Material Adverse Effect, other than
Liabilities (a) reflected or reserved against on the Balance Sheet, (b) incurred
since the Balance Sheet Date in the ordinary course of business and not in
violation of this Agreement, (c) relating to executory obligations pursuant to
leases or contracts listed on Schedules 3.12(b) or 3.14(a) or leases or
contracts entered into in the ordinary course of business which are not required
to be listed on such Schedules, or (d) relating to obligations to employees or
obligations to employees not required to be listed pursuant to Section 3.10.
SECTION 3.08. Absence of Certain Changes or Events. Except as
expressly contemplated by this Agreement or as described on Schedule 3.08 or
Schedule 3.09, since June 29, 1996, Seller and each of the Subsidiaries have
conducted their respective businesses only in the ordinary course of business
consistent with past practice, and there is not and has not been (a) any
Material Adverse Change or (b) any condition, event or occurrence which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or give rise to a Material Adverse Change. Without
limiting the generality of the foregoing, except as expressly contemplated by
this Agreement or except as described on Schedule 3.08 or Schedule 3.09, neither
Seller nor any of the Subsidiaries has, since June 29, 1996:
(a) incurred any material damage, destruction or loss (whether or
not covered by insurance);
(b) (i) except to the extent specifically required by any Seller
Plan, increased the compensation or benefits of any of the current or
former directors, officers or employees of Seller or any Subsidiary
(except for increases
17
in compensation or benefits to employees who are not directors or officers
of Seller or any Subsidiary in the ordinary course of business consistent
with past practice) or paid to any such individuals any benefit not
required by a Seller Plan or an existing agreement, (ii) granted any
severance or termination pay or entered into any employment or severance
agreement or arrangement with any present or former director, officer or
employee of Seller or any Subsidiary or amendment of any such arrangement
or agreement (including any increase or acceleration of any benefit
payable under Seller's or any Subsidiary's pay policies in effect on the
date hereof), (iii) accelerated the vesting of any stock options, settled
any stock options for cash or authorized the lapse of any restrictions on
any Restricted Shares, or (iv) established, adopted, entered into, amended
or terminated any (1) collective bargaining agreement or (2) plan or
agreement to provide bonuses, profit sharing, stock options, restricted
stock, pensions, retirement benefits, deferred compensation, employment or
benefits upon termination for the benefit of any directors, officers or
any employees of Seller or any Subsidiary, including any amendment to the
ESOP;
(c) incurred any Indebtedness other than Indebtedness incurred in
the ordinary course of business consistent with past practice under the
Revolving Credit Facility, or, other than in the ordinary course of
business consistent with past practice and in an aggregate amount not
exceeding $100,000, incurred, assumed or guaranteed or taken any other act
to become responsible for any Liability of any other Person or made any
loan or advance to any Person;
(d) except as described in Seller's annual capital expenditures
budget for fiscal 1997 (a true and complete copy of which is included on
Schedule 3.08(d)) (the "CapEx Budget"), made any capital expenditure or
commitment for any capital expenditure, other than expenditures in the
ordinary course of business consistent with past practice (provided that
any expenditure or commitment for new stores, store remodelling, store
expansions, warehouse and distribution expansions, property purchases or
leases or sale/leasebacks shall not be considered to be ordinary course);
(e) merged or consolidated with, acquired an interest in, or
purchased any securities or assets of, any Person or otherwise acquired
any assets, except for acquisitions in the ordinary course of business
consistent with past practice;
(f) entered into a joint venture, partnership or similar arrangement
with any Person;
18
(g) leased, sold, assigned or otherwise disposed of any properties
or assets, except for dispositions in the ordinary course of business
consistent with past practice;
(h) terminated, discontinued, closed or disposed of any facility or
business operation or otherwise changed the general character or conduct
of its business;
(i) except for Permitted Changes, authorized, issued, sold or
repurchased any capital stock, notes, bonds or other securities, or any
option, warrant or other right to acquire the same;
(j) declared, set aside or paid any dividends or distributions
(whether in cash, stock or property) in respect of any capital stock of
Seller or any such Subsidiary;
(k) amended its articles of incorporation, bylaws or other
comparable charter or organizational documents;
(l) made any change in the financial or accounting practices or
policies customarily followed by it;
(m) written down the value of any tangible assets or written off as
uncollectible any debt, notes or accounts receivable, or made any other
write-downs or write-offs, except write-downs and write-offs made in the
ordinary course of business in accordance with GAAP and consistent with
past practice;
(n) licensed, mortgaged, pledged or otherwise encumbered or
subjected to any Lien any assets, other than pursuant to Permitted Liens;
(o) let lapse or terminate or failed to renew any Permit, other than
with respect to Permits the failure of which to be in effect would not
have, individually or in the aggregate, a Material Adverse Effect;
(p) entered into any vendor allowance contract or agreement or
similar contract or agreement with a term in excess of one year (including
pursuant to any renewal provision) and which provides for payments (or
pursuant to which payments can reasonably be expected to be made) in
excess of $100,000 during the term of the contract or agreement or taken
any significant steps with respect to entering into any of the foregoing;
(q) entered into any merchandising or distribution or similar
contract or agreement or taken any significant steps with respect to
entering into any of the foregoing, other than in the ordinary course
consistent with past practice
19
with respect to contracts or agreements which do not provide for payments
(or pursuant to which payments can reasonably be expected to be made) in
excess of $100,000 during any one-year period or $250,000 during the term
of the contract or agreement;
(r) other than in the ordinary course consistent with past practice,
engaged in any forward buying or made any change in its customary selling,
pricing, advertising, billing or return practices;
(s) waived, settled or compromised any rights having a value
exceeding $10,000 individually or $50,000 in the aggregate, or settled any
pending or threatened Action in an amount in excess of $10,000
individually or $50,000 in the aggregate;
(t) cancelled any Indebtedness or repaid any Indebtedness;
(u) failed to pay any creditor any amount owed to such creditor when
due (after the expiration of any applicable grace periods) other than in
the ordinary course of business consistent with past practice;
(v) paid any Liability before the same became due in accordance with
its terms other than in the ordinary course of business consistent with
past practice; or
(w) entered into any contract, agreement or arrangement, or made any
commitment, to do any of the foregoing.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as
disclosed on Schedule 3.09(a), there is (i) no Action pending or, to the
Knowledge of Seller, threatened against Seller or any of the Subsidiaries and to
the Knowledge of Seller, no basis for any such Action that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect
and (ii) neither Seller nor any Subsidiary is a party to or subject to or in
default under any Governmental Order or order of an arbitrator which,
individually or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect.
(b) Seller has provided Buyer with a true and complete copy of the
Settlement Agreement and the Pleadings for its review prior to the date hereof.
A true and complete copy of the Settlement Agreement and the Pleadings is
attached as Exhibits B-1, and B-2, respectively. The Settlement Agreement has
been signed by all parties to the related Action and the Settlement Agreement
remains in full force and effect. Seller is not (and, to the Knowledge of
Seller, no other party is) in breach of or default under the Settlement
Agreement and, to the Knowledge of
20
Seller, no event has occurred that, with or without notice or lapse of time or
both, would result in a breach or a default thereunder. Each of the conditions
set forth in paragraphs (a), (b), (c), (d) and (i) of Section 7 of the
Settlement Agreement has been satisfied. The presiding judge in the Action
related to the Settlement Agreement has approved sending a summary of the terms
of the Settlement Agreement to the class members described in the Settlement
Agreement and has scheduled a hearing to be held on June 2, 1997 to approve the
Settlement Agreement. Seller has provided Buyer with a true and complete copy of
the letter agreement dated March 13, 1997 between ▇▇▇▇▇ ▇. ▇▇▇▇▇ of ▇▇▇▇▇▇ &
▇▇▇▇▇▇ L.L.P. on behalf of Seller and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ of Friday, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇ on behalf of the Aetna Casualty and Surety Company ("Aetna") relating to
the payments to be made by Aetna in connection with the settlement of the ▇▇▇▇
Action. Such letter agreement is in full force and effect and constitutes the
entire agreement of Seller and Aetna with respect to Aetna's payment obligations
under Aetna's Pension & Welfare Fund Fiduciary Responsibility Insurance Policy
No. 71 FF 100990553 BCA in connection with the ▇▇▇▇ Action. Seller has no reason
to believe that Aetna will not make the payments contemplated by such letter
agreement.
(c) Except as disclosed on Schedule 3.09(c), Seller and each
Subsidiary is in compliance, and the conduct of their respective businesses are
in compliance, with all Laws applicable thereto, except where the failure to so
comply, individually or in the aggregate, has not had or would not reasonably be
expected to have, a Material Adverse Effect.
(d) No adverse development has occurred with respect to the final
approval by the General Counsel of the U.S. Equal Employment Opportunity
Commission of the consent decree (in the form previously provided to Buyer)
settling the charges described as item 3 of Schedule 3.09.
SECTION 3.10. Employees. (a) Schedule 3.10(a) contains a true and
complete list of each "employee benefit plan" (within the meaning of ERISA
section 3(3) (including multiemployer plans within the meaning of ERISA section
3(37)), stock purchase, stock option, severance, employment, change-in-control,
fringe benefit, collective bargaining, bonus, incentive, deferred compensation
and all other employee benefit plans, agreements, programs, policies or other
arrangements relating to employment, benefits or entitlements, whether or not
subject to ERISA (including any funding mechanism therefor now in effect or
required in the future as a result of the Transactions or otherwise), whether
formal or informal, oral or written, legally binding or not under which any
employee or former employee of Seller has any present or future right to
benefits or under which Seller has any present or future liability. All such
plans, agreements, programs, policies and arrangements shall be collectively
referred to as the "Seller Plans".
21
(b) With respect to each Seller Plan, Seller will deliver to Buyer a
current, accurate and complete copy (or, to the extent no such copy exists, an
accurate description) thereof and, to the extent applicable, (i) any related
trust agreement, annuity contract or other funding instrument; (ii) the most
recent determination letter; (iii) any summary plan description and other
written communications (or a description of any oral communications) by Seller
to its employees concerning the extent of the benefits provided under a Seller
Plan; and (iv) for the most recent year (1) the Form 5500 and attached
schedules, (2) audited financial statements, (3) actuarial valuation reports,
and (4) attorney's response to auditors' requests for information.
(c) Except as disclosed on Schedule 3.10(c), each Seller Plan has
been established and administered in accordance with its terms, and in
compliance with the applicable provisions of ERISA, the Code and other
applicable Laws in all material respects; (ii) each Seller Plan which is
intended to be qualified within the meaning of Section 401(a) of the Code is so
qualified and has received a favorable determination letter as to its
qualification and, to the Knowledge of Seller, nothing has occurred, whether by
action or failure to act, which would cause the loss of such qualification;
(iii) with respect to any Seller Plan, no Actions (other than routine claims for
benefits in the ordinary course) are pending or, to the Knowledge of Seller,
threatened, and no facts or circumstances exist which could give rise to any
such Actions and Seller will promptly notify Buyer in writing of any pending
claims or, to the Knowledge of Seller, any threatened claims arising between the
date hereof and the Closing; (iv) neither Seller nor any other party has engaged
in a prohibited transaction, as such term is defined under Section 4975 of the
Code or ERISA section 406, which would subject Seller or Buyer to any taxes,
penalties or other Liabilities under Section 4975 of the Code or ERISA sections
409 or 502(i) that could, individually or in the aggregate, have a Material
Adverse Effect; (v) no event has occurred and no condition exists which would
subject Seller, either directly or by reason of its affiliation with any member
of its Controlled Group (defined as any organization which is a member of a
controlled group of organizations within the meaning of Sections 414(b), (c),
(m) or (o) of the Code), to any tax, fine or penalty imposed by ERISA, the Code
or other applicable Laws including, but not limited to, the taxes imposed by
Sections 4971, 4972, 4977, 4979, 4980B, 4976(a) of the Code or the fine imposed
by ERISA section 502(c) that could, individually or in the aggregate, have a
Material Adverse Effect; (vi) all insurance premiums required to be paid with
respect to Seller Plans as of the Closing have been or will be paid prior
thereto and adequate reserves have been provided for on the Balance Sheet for
any premiums (or portions thereof) attributable to service on or prior to the
Closing Date; (vii) for each Seller Plan with respect to which a Form 5500 has
been filed, no material change has occurred with respect to the
22
matters covered by the most recent Form 5500 since the date thereof; (viii)
except as disclosed on Schedule 3.10(c), all contributions required to be made
prior to the Closing under the terms of any Seller Plan, the Code, ERISA or
other applicable Laws have been or will be timely made and adequate reserves
have been provided for on the Balance Sheet for all benefits attributable to
service on or prior to the Closing; (ix) no Seller Plan provides for an increase
in benefits on or after the Closing; (x) each Seller Plan may be amended or
terminated without obligation or liability (other than those Liabilities for
which specific assets have been set aside in a trust or other funding vehicle or
reserved for on the Balance Sheet or obligations under plans required by
contracts with labor unions); and (xi) no employee of Seller will be entitled to
any additional benefits or any acceleration of the time of payment or vesting of
any benefits under any Seller Plan as a result of the Transactions.
(d) Except as disclosed on Schedule 3.10(d) and except to the extent
each of the following, individually or in the aggregate, could not result in a
Material Adverse Effect, with respect to any Seller Plan maintained by or
contributed to by Seller or any Subsidiary within six years prior to the date of
this Agreement (i) no "accumulated funding deficiency" as such term is defined
in ERISA section 302 and Section 412 of the Code (whether or not waived) has
been incurred; (ii) no event or condition exists which could be deemed a
reportable event within the meaning of ERISA section 4043 which could result in
a liability to Seller or any member of its Controlled Group and no condition
exists which could subject Seller or any member of its Controlled Group to a
fine under ERISA section 4071; (iii) as of the Closing, Seller and each member
of its Controlled Group have made all required premium payments when due to the
Pension Benefit Guaranty Corporation (the "PBGC"); (iv) neither Seller nor any
member of its Controlled Group is subject to any liability to the PBGC for any
plan termination occurring on or prior to the Closing; (v) no amendment has
occurred which has required or could require Seller or any member of its
Controlled Group to provide security pursuant to Section 401(a)(29) of the Code;
and (vi) neither Seller nor any member of its Controlled Group has engaged in a
transaction which could subject it to liability under ERISA section 4069.
(e) With respect to each of Seller Plans which is not a
multiemployer plan within the meaning of section 4001(a)(3) of ERISA but is
subject to Title IV of ERISA, as of the Closing, except as disclosed on Schedule
3.10(e), the assets of each such Seller Plan are at least equal in value to the
present value of the accrued benefits (vested and unvested) of the participants
in such Seller Plan on an accumulated benefits obligation basis as defined by
SFAS 87.
23
(f) Except as disclosed on Schedule 3.10(f), with respect to any
multiemployer plan (within the meaning of section 4001(a)(3) of ERISA) to which
Seller or any member of its Controlled Group has any liability or contributes
(or has within six years prior to the date of this Agreement contributed or had
an obligation to contribute): (i) Seller and each member of its Controlled Group
has or will have, as of the Closing, made all contributions to each such
multiemployer plan required by the terms of such multiemployer plan or any
collective bargaining agreement; (ii) neither Seller nor any member of its
Controlled Group has incurred any withdrawal liability under Title IV of ERISA
or would be subject to such liability if, as of the Closing, Seller or any
member of its Controlled Group were to engage in a complete withdrawal (as
defined in ERISA section 4203) or partial withdrawal (as defined in ERISA
section 4205) from any such multiemployer plan that could, individually or in
the aggregate, have a Material Adverse Effect; (iii) no such multiemployer plan
is in reorganization or insolvent (as those terms are defined in ERISA sections
4241 and 4245, respectively); and (iv) neither Seller nor any member of its
Controlled Group has engaged in a transaction which could subject it to
liability under ERISA section 4212(c) that could, individually or in the
aggregate, have a Material Adverse Effect.
(g) (i) Each Seller Plan which is intended to meet the requirements
for tax-favored treatment under Subchapter B of Chapter 1 of Subtitle A of the
Code meets such requirements; and (ii) Seller has received a favorable
determination from the Internal Revenue Service with respect to any trust
intended to be qualified within the meaning of Section 501(c)(9) of the Code.
Seller does not have any Knowledge of any facts or circumstances that could
cause the Internal Revenue Service to deny the request made by Seller on June
22, 1995 for a favorable determination letter regarding the qualified status of
the ESOP.
(h) Schedule 3.10(h) sets forth, on a plan by plan basis, the
present value of benefits payable presently or in the future to present or
former employees of Seller under each unfunded Seller Plan.
(i) The valuations of the Common Stock held by the ESOP were most
recently determined as of October 19, 1996 and January 11, 1997, such
determinations were made in accordance with the provisions of the ESOP and such
Common Stock was determined to have a fair value of $15 per share as of October
19, 1996 and $15 per share as of January 11, 1997. There are not more than
1,050,000 Withdrawable Shares.
(j) Subject to the effectiveness of the Settlement Agreement upon
receipt of final judicial approval, except for Liabilities expressly imposed by
the Settlement Agreement and Liabilities in an aggregate amount not to exceed
$25,000 to present or former ESOP participants who have opted out of the
24
class described in the Settlement Agreement, none of Seller or any Subsidiary
shall have any Liability arising out of, resulting from or relating to any act
or failure to act by Seller or any of the Subsidiaries or any of its other
Affiliates or any director, officer, employee, representative of agent or
Seller, any Subsidiary or any such Affiliate in connection with the ESOP or any
facts or circumstances relating to the ESOP, including any Liability alleged in
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Food Markets, Inc., C.V. H-95-5400 (S.D. Tex., Houston Div.)
(the "▇▇▇▇ Action").
(k) Except as disclosed on Schedule 3.10(k), (i) to the Knowledge of
Seller, neither Seller nor any of the Subsidiaries is the subject of any
proceeding asserting that it or any Subsidiary has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages or conditions of employment; (ii) there is no strike, work stoppage or
other labor dispute involving Seller or any of the Subsidiaries pending or, to
the Knowledge of Seller, threatened and, since January 1, 1992, there has not
been any such action; (iii) no Action brought by or on behalf of any employee,
prospective employee, former employee, retiree, labor organization or other
representative of Seller's employees or any Governmental Entity (including the
Equal Employment Opportunity Commission) is pending or, to the Knowledge of
Seller, threatened against Seller or any of the Subsidiaries; (iv) no grievance
is pending or, to the Knowledge of Seller, threatened against Seller or any of
the Subsidiaries relating to employment matters; (v) to the Knowledge of Seller,
no Governmental Entity intends to conduct an investigation relating to any
employees of Seller or any Subsidiary and no such investigation is in progress;
(vi) neither Seller nor any of the Subsidiaries is a party to, or otherwise
bound by, any consent decree with, or citation by, or any other Governmental
Order of, any Governmental Entity (including the Equal Employment Opportunity
Commission) relating to employees or employment practices; (vii) Seller and each
Subsidiary is in compliance with all applicable Laws, agreements, contracts, and
policies relating to employment, employment practices, wages, hours, and terms
and conditions of employment except for failures to comply, if any, that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect; (viii) Seller has paid in full to all employees of
Seller and the Subsidiaries all wages, salaries, commissions, bonuses, benefits
and other compensation due to such employees or otherwise arising under any
policy, practice, agreement, plan, program or Law; (ix) Seller is not liable for
any severance pay or other payments to any employee or former employee arising
from the termination of employment under any benefit or severance policy,
practice, agreement, plan, or program of Seller, nor will Seller have any
liability which exists or arises, or may be deemed to exist or arise, under any
applicable Law or otherwise, as a result of or in connection with the
Transactions or as a result of the termination by Seller of any persons employed
by Seller or any of the Subsidiaries on or prior to the Closing; and
25
(x) to the Knowledge of Seller, no union organizational campaign is in progress
with respect to the employees of Seller or a Subsidiary and no question
concerning representation exists respecting such employees.
SECTION 3.11. Tax Returns and Tax Payments. Except for matters that
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect or matters that are disclosed on Schedule 3.11 or in the
Financial Statements, (a) Seller and each of the Subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which
Seller or any of the Subsidiaries is or has been a member (a "Consolidated
Group") has timely filed all Tax Returns required to be filed by it, has paid
all Taxes due and has provided adequate reserves in the Financial Statements for
any Taxes that have not been paid, whether or not shown as being due on any
returns; (b) all such Tax Returns were and are in all respects true, complete
and correct; (c) neither Seller nor any Subsidiary has requested any extension
of time within which to file any Tax Return, which Tax Return has not since been
filed; (d) except for Taxes not yet due, no claim for unpaid Taxes has become a
Lien against the property of Seller or any of the Subsidiaries or is being
asserted against Seller or any of the Subsidiaries; (e) no audit of any Tax
Return of Seller or any of the Subsidiaries is being conducted by a Tax
authority with regard to any Taxes or Tax Returns of Seller or any Subsidiary
and no issue has been raised by any Tax authority that could, by application of
the same or similar principles, reasonably be expected to result in an
adjustment to any Taxes or Tax Returns of Seller or any Subsidiary in any
subsequent period; (f) no extension of the statute of limitations on the
assessment of any Taxes has been granted by Seller or any of the Subsidiaries
and is currently in effect; (g) no consent under Section 341(f) of the Code has
been filed with respect to Seller or any of the Subsidiaries; (h) neither Seller
nor any of the Subsidiaries is a party to any agreement or arrangement that
would result, separately or in the aggregate, in the actual or deemed payment by
Seller or any Subsidiary of any "excess parachute payments" within the meaning
of Section 280G of the Code; (i) neither Seller nor any of the Subsidiaries is
required to include in income any adjustment pursuant to Section 481(a) of the
Code by reason of a voluntary change in accounting method initiated by Seller or
any Subsidiary, and the Internal Revenue Service has not proposed any such
adjustment or change in accounting method; (j) none of Seller or the
Subsidiaries has been at any time a member of any partnership or joint venture
or the holder of a beneficial interest in any trust for any period for which the
statute of limitations for any Tax has not expired; (k) Seller has not been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code; (l) none of Seller or the Subsidiaries is doing
business in or engaged in a trade or business in any jurisdiction in which it
26
has not filed all required income or franchise tax returns; (m) Seller and each
of the Subsidiaries have made all payments of estimated Taxes required to be
made under Section 6655 of the Code and any comparable state, local or foreign
Tax provision; (n) all Taxes required to be withheld, collected or deposited by
or with respect to Seller and each of the Subsidiaries have been timely
withheld, collected or deposited, as the case may be, and, to the extent
required, have been paid to the relevant taxing authority; (o) neither Seller
nor any of the Subsidiaries has issued or assumed (i) any obligations described
in Section 279(a) of the Code, (ii) any applicable high yield discount
obligations, as defined in Section 163(i) of the Code, or (iii) any
registration-required obligations, within the meaning of Section 163(f)(2) of
the Code, that is not in registered form; (p) there are no written requests from
any Tax authority for information currently outstanding that could reasonably be
expected to affect the Taxes of Seller or any of the Subsidiaries; (q) no power
of attorney that is currently in force has been granted with respect to any
matter relating to Taxes that could affect the Tax liability of Seller or one of
the Subsidiaries; (r) neither Seller nor any Subsidiary is a party to any
agreement relating to the allocation, indemnification or sharing of Taxes; (s)
none of Seller and the Subsidiaries has been a member of an affiliated group
filing consolidated federal income Tax Returns (other than a group the common
parent of which was Seller); and (t) neither Seller nor any of the Subsidiaries
has any liability for Taxes of any Person other than Seller and the Subsidiaries
(i) under Treasury Regulations Section 1.1502-6 (or any similar provision of
state, local or foreign law) as a transferee or successor, (ii) by contract, or
(iii) otherwise. As used herein, "Taxes" shall mean all taxes of any kind,
including those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any Governmental Entity. As
used herein, "Tax Return" shall mean any return, report or statement required to
be filed with any governmental authority with respect to Taxes.
SECTION 3.12. Properties. (a) Schedule 3.12(a) sets forth, by
address, owner and usage, all of the real property owned by Seller and the
Subsidiaries, including all land, easements or rights of way granted to Seller
or the Subsidiaries, any reciprocal easement, operating agreement, management
agreement whereby a third party manages any real property, mortgages and leases
relating thereto, true and complete copies (including all amendments and
supplements thereto) of which have been delivered to Buyer (collectively, the
"Owned Real Property"). Each of Seller and the Subsidiaries has good and
sufficient, valid and marketable fee title to the Owned Real
27
Property free and clear of all Liens, options to purchase or lease, leases,
conditions of limitation, easements, covenants, rights-of-way and other similar
restrictions of any nature whatsoever, except for Permitted Liens and Liens
described on Schedule 3.12(a). Except as set forth on Schedule 3.12(a), there
are (i) no outstanding contracts for any improvements to the Owned Real Property
which have not been fully paid that, other than any such contracts which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect and (ii) no expenses of any kind (including brokerage
and leasing commissions) pertaining to the Owned Real Property which have not
been fully paid. Seller has furnished Buyer with copies of all recorded deeds,
surveys and owner's title policies for the Owned Real Property in the possession
of Seller or any Subsidiary. Seller has furnished Buyer with all Environmental
Reports prepared since January 1, 1992.
(b) Schedule 3.12(b) sets forth, by address, owner and usage, a true
and complete list of all real property agreements (including any amendments
thereto) pursuant to which Seller or the Subsidiaries lease, sublease or
otherwise occupy any real property (the "Real Property Leases" and the property
leased thereunder, the "Leased Real Property"), true and complete (including all
amendments and supplements thereto) copies of which have been furnished to
Buyer. Each of the Real Property Leases is a valid agreement and is in full
force and effect in accordance with the terms thereof. Pursuant to the Real
Property Leases, Seller and the Subsidiaries, as the case may be, have validly
existing and enforceable leasehold, subleasehold or occupancy interests in the
property leased thereunder, in each case free and clear of all Liens, except for
Permitted Liens, and free from defaults and events which with the passage of
time or notice or both would constitute a default, except for defaults which,
individually or in the aggregate, have not had or would not reasonably be
expected to have, a Material Adverse Effect. Subject to the proviso contained in
Section 3.05(b), the consummation of any of the Transactions will not require
any consent or approval of any landlord under any such lease, result in any
increase in rent or penalty to the party which is a tenant thereunder or result
in the early termination of any Real Property Lease. None of Seller or the
Subsidiaries has transferred, assigned, hypothecated, pledged or encumbered any
of its rights or interest under any Real Property Lease.
(c) Schedule 3.12(c) sets forth, by address, owner and usage, a true
and complete list of all real property agreements (including any amendments
thereto) pursuant to which Seller or any of the Subsidiaries leases, subleases
or otherwise permits any third party to occupy any Owned Real Property or Leased
Real Property (collectively, the "Third Party Leases"). Each of the Third Party
Leases is in full force and effect and in each case free and clear of all Liens,
except for Permitted Liens, and free from defaults by Seller or any Subsidiary
and, to the Knowledge
28
of Seller, defaults by any other party thereto and events which with the passage
of time or notice or both would constitute a default (by landlord or tenant
thereunder) except in any instance for defaults which, individually or in the
aggregate, have not had or would not reasonably be expected to have, a Material
Adverse Effect. Except as set forth on Schedule 3.12(c), none of Seller or the
Subsidiaries have transferred, assigned, hypothecated, pledged or encumbered any
of its rights under any of the Third Party Leases. Except as set forth on
Schedule 3.12(c), (i) none of the Third Party Leases grant any options or other
rights to the tenant thereunder to purchase any of the Owned Real Property or
Leased Real Property, and (ii) neither party has any option, right of possession
or interest of any kind in or to any Owned Real Property or Leased Real Property
(except pursuant to the Third Party Leases and except for the terms of the
Leased Real Property as set forth in the applicable Real Property Leases).
(d) Schedule 3.12(d) sets forth a true and complete list of all
agreements and build and lease agreements, including any amendments thereto (as
amended, the "Development Agreements"), pursuant to which (i) any third party
has been given the right (exclusive or otherwise) to develop any real property
for Seller or any of the Subsidiaries or (ii) Seller or any of the Subsidiaries
has agreed to develop, construct or occupy in the future (whether by lease or
other occupancy agreement) any real property. Except as set forth on Schedule
3.12(d), each of the Development Agreements is in full force and effect and in
each case free from defaults by Seller or any Subsidiary and, to the Knowledge
of Seller, defaults by any other party thereto and events which with the passage
of time or notice or both would constitute a default thereunder.
(e) To the Knowledge of Seller, each of Seller and the Subsidiaries
has all Permits and certificates of occupancy necessary to own or operate its
Owned Real Property and Leased Real Property as such is currently being operated
and used. No such Permits will be required, as a result of any of the
Transactions, to be issued, modified or supplemented after the Closing in order
to permit Seller following the Transactions to continue to own or operate its
Owned Real Property and Leased Real Property as such is currently being operated
and used, other than any such Permits which are ministerial in nature.
(f) To the Knowledge of Seller, the operation of the businesses and
all current uses of the Owned Real Property and the Leased Real Property fully
comply with all applicable zoning laws and ordinances affecting the Owned Real
Property and the Leased Real Property other than those, the failure with which
to comply, had not had or would not reasonably be expected to have a Material
Adverse Effect. There are no actual, or to the Knowledge of Seller, threatened
or imminent changes in the present zoning of the Owned Real Property or the
Leased Real
29
Property or any part thereof or any restrictions, limitations or regulations
issued, or to the Knowledge of Seller, proposed or under consideration by any
Governmental Entity having or asserting jurisdiction over the Owned Real
Property or the Leased Real Property or the ownership thereof.
(g) Except as set forth on Schedule 3.12(g), neither Seller nor the
Subsidiaries has received, with respect to any Owned Real Property or Leased
Real Property, any written notice of default or any written notice of
noncompliance with respect to applicable Laws relating to zoning, building,
fire, use restriction or safety or health codes which have not been remedied in
all respects which have had or could reasonably be expected to have, a Material
Adverse Effect. There is no pending or to the Knowledge of Seller, threatened
condemnation, expropriation, eminent domain or other governmental taking of all
or any part of any of the Owned Real Property or Leased Real Property and none
of Seller or the Subsidiaries has received any oral or written notice of any of
the same.
(h) Seller or a Subsidiary is in possession of and has good and
marketable title to, or has valid leasehold interests in, all tangible personal
property used in the business of Seller and the Subsidiaries. All such tangible
personal property is free and clear of all Liens, except for Permitted Liens and
as described on Schedule 3.12(h), and is in all material respects in good
working order and normal operating condition and repair, ordinary wear and tear
excepted. Seller and each Subsidiary has good and marketable title to its
respective inventory and accounts receivable, free and clear of all Liens,
except for Permitted Liens and Liens described on Schedule 3.12(h).
(i) To the Knowledge of Seller, all components of buildings,
structures and other improvements included within the Owned Real Property and
the Leased Real Property, including, but not limited to, the roofs and
structural elements thereof and the heating, ventilation, air conditioning,
plumbing, electrical, mechanical, sewer, waste water, storm water, paving and
parking, and systems and facilities included therein, are in good working order
and repair and free of structural defects (normal wear and tear excepted).
SECTION 3.13. Environmental Matters. Except as disclosed on Schedule
3.13, which disclosed items of non-compliance could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect:
(a) Seller and the Subsidiaries hold and formerly held, and are, and
have been, in compliance with, all Environmental Permits, and Seller and the
Subsidiaries are, and have been, otherwise in compliance with all applicable
Environmental Laws and, to the Knowledge of Seller, there are no existing
conditions that might prevent or interfere with such
30
compliance in the future, except for items of non-compliance or existing
conditions which could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect;
(b) To the Knowledge of Seller, none of Seller or the Subsidiaries
has received any Environmental Claim, and none of Seller or the Subsidiaries is
aware after reasonable inquiry, of any threatened Environmental Claim or of any
circumstances, conditions or events that could reasonably be expected to give
rise to an Environmental Claim, against Seller or any of the Subsidiaries;
(c) None of Seller or the Subsidiaries has entered into or agreed to
any consent decree, order or agreement under any Environmental Law, and none of
Seller or the Subsidiaries is subject to any material judgment, decree, order or
other material requirement relating to compliance with any Environmental Law or
to investigation, cleanup, remediation or removal of regulated substances under
any Environmental Law;
(d) There are no (i) underground storage tanks, (ii) polychlorinated
biphenyls, (iii) asbestos or asbestos-containing materials, (iv)
urea-formaldehyde insulation, (v) sumps, (vi) surface impoundments, (vii)
landfills, (viii) sewers or septic systems or (ix) Hazardous Materials present
at or about any facility currently or formerly owned, leased, operated or
otherwise used by Seller or any of the Subsidiaries that could, individually or
in the aggregate, reasonably be expected to result in a Material Adverse Effect;
(e) There are no past (including with respect to assets or
businesses formerly owned, leased or operated by Seller or any of the
Subsidiaries) or present actions, activities, events, conditions or
circumstances, including the release, threatened release, emission, discharge,
generation, treatment, storage or disposal of Hazardous Materials, or the
presence of wetlands, that could, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect or materially restrict the
use or further development of any asset currently owned, leased or operated by
Seller or any of the Subsidiaries under any Environmental Laws or any contract
or agreement;
(f) No modification, revocation, reissuance, alteration, transfer,
or amendment of the Environmental Permits, or any review by, or approval of, any
third party of the Environmental Permits is required in connection with the
execution or delivery of this Agreement or the consummation of the Transactions
or the continuation of the business of Seller and the Subsidiaries following
such consummation;
31
(g) Hazardous Materials have not been generated, transported,
treated, stored, disposed of, released or threatened to be released at, on, from
or under any of the properties or facilities currently or formerly owned, leased
or otherwise used by Seller or any of the Subsidiaries, in violation of or in a
manner or to a location that could, individually or in the aggregate, result in
a Material Adverse Effect;
(h) Seller and the Subsidiaries have not assumed, contractually or
by operation of Law, any Liabilities under any Environmental Laws; and
(i) Seller and the Subsidiaries have accrued or otherwise provided,
in accordance with general accepted accounting principles, for all damages,
Liabilities, penalties or costs that they may incur in connection with any claim
pending or threatened against them, or any requirement that is or may be
applicable to them, under any Environmental Laws, and such accrual or other
provision is reflected in the Balance Sheet.
SECTION 3.14. Contracts. (a) Except as described on Schedule 3.14(a)
or as specifically described on Schedules 3.12(a), (b) or (c), as of the date of
this Agreement, none of Seller or any Subsidiary is a party to any, written or
oral:
(i) contract or agreement containing covenants limiting the freedom
of Seller or any Subsidiary after the date hereof to engage in any line of
business in any geographic area or to compete with any Person, including
limitations on Seller's freedom to enter into other contracts;
(ii) contract, agreement or instrument (including take-or-pay or
keep-well agreements) under which (1) Seller or any Subsidiary has
incurred any Indebtedness, (2) any Person has directly or indirectly
guaranteed any Liabilities of Seller or a Subsidiary, or (3) Seller or a
Subsidiary has directly or indirectly guaranteed any Liabilities of any
Person;
(iii) mortgage, pledge, security agreement, deed of trust or other
instrument creating or purporting to create a Lien (including with respect
to properties acquired under conditional sales, capital leases or other
title retention or security devices), other than any mortgage, pledge,
security agreement, deed of trust or other instrument creating or
purporting to create a Lien on assets with an aggregate fair market value
which does not exceed $50,000;
32
(iv) contract, agreement or instrument providing for indemnification
by Seller or a Subsidiary of any Person with respect to any Liabilities
other than any contract, agreement or instrument entered into in the
ordinary course of business consistent with past practice;
(v) vendor allowance, merchandising, distribution or similar
contract or agreement which provides for payments (or pursuant to which
payments can reasonably be expected to be made) in excess of $100,000
during the term of the contract or agreement;
(vi) any partnership, joint venture, shareholders' or other similar
contract or agreement with any Person;
(vii) contract, option, right of first refusal, purchase contract or
other contractual right or agreement relating to the disposition or
acquisition or leasing of any properties or assets (other than inventory)
after the date hereof;
(viii) contract or agreement (other than this Agreement) that (1)
limits or contains restrictions on the ability of Seller or any Subsidiary
to declare or pay dividends on, to make any other distribution in respect
of or to issue or purchase, redeem or otherwise acquire its capital stock,
to incur Indebtedness, to incur or suffer to exist any Lien, to change the
lines of business in which it participates or engages or to engage in any
merger or business combination or (2) requires Seller or any Subsidiary to
maintain specified financial ratios or levels of net worth or other
indicia of financial condition;
(ix) contract or agreement which is terminable by the other party
thereto, or gives such other party any right of amendment or acceleration
or pursuant to which Seller or any Subsidiary would lose any benefit
under, upon a change of control or recapitalization of Seller or one of
the Subsidiaries;
(x) power of attorney or similar instrument not made in the ordinary
course of business consistent with past practice since December 31, 1994;
and
(xi) contract or agreement which provides for payments (or pursuant
to which payments can reasonably be expected to be made) after the date
hereof in excess of $100,000 during any one-year period or $200,000 during
the term of the contract or agreement and which is not otherwise listed on
Schedules 3.03(c), 3.10(a), 3.12(a), 3.12(b), 3.12(c), 3.12(d), 3.14(a) or
3.19.
33
(b) Except as set forth on Schedule 3.14(b), neither Seller nor any
Subsidiary is (and, to the Knowledge of Seller, no other party is) in breach of
or default under any contract or agreement listed on Schedules 3.03(c), 3.10(a),
3.12(a), 3.12(b), 3.12(c), 3.12(d), 3.14(a) or 3.19, and, to the Knowledge of
Seller, no event has occurred that, with or without notice or lapse of time or
both, would result in a breach or a default thereunder, in each case except for
breaches, defaults or events which, individually or in the aggregate, have not
had or would not reasonably be expected to have a Material Adverse Effect.
Seller has delivered to Buyer true and complete copies of all the written
contracts or agreements described on the Schedules listed in the preceding
sentence and written summaries of any oral contract or agreement described on
any such Schedule.
SECTION 3.15. Intellectual Property. Except as set forth on Schedule
3.15, to the Knowledge of Seller, Seller or one of the Subsidiaries owns (in
each case, free and clear of any Liens) all rights to all Intellectual Property
used by Seller and each of the Subsidiaries, including the exclusive right to
use the trade names "Randall's", "▇▇▇ Thumb" and "▇▇▇▇▇ ▇▇▇▇▇" and any
variations thereof used by Seller or the Subsidiaries. Except as set forth on
Schedule 3.15, Seller and the Subsidiaries have the exclusive right to use in
the State of Texas the trade names "Randall's", "▇▇▇ Thumb" and "▇▇▇▇▇ ▇▇▇▇▇"
and any variations thereof used by Seller or the Subsidiaries. Except as set
forth on Schedule 3.15, to the Knowledge of Seller, no other Person has a United
States trademark registration in effect, or to the Knowledge of Seller, a United
States trademark application pending, in respect of any of such Intellectual
Property. Except as disclosed on Schedule 3.15, (a) to the Knowledge of Seller,
the use of any Intellectual Property by Seller or the Subsidiaries does not
infringe on the rights of any Person, (b) to the Knowledge of Seller, no Person
is infringing on any right of Seller or any of the Subsidiaries with respect to
any of Seller's Intellectual Property, (c) there is no decree, undertaking or
agreement limiting the scope of Seller's right to use any of its Intellectual
Property and (d) Seller has not granted any license to any Person for the use of
any of Seller's Intellectual Property. Except as set forth on Schedule 3.15, all
trademark registrations are valid and subsisting and in full force and effect
and all affidavits of continuing use have been filed on a timely basis. Except
as set forth on Schedule 3.15, to the Knowledge of Seller, there are no
infringing or diluting uses of Seller's or any Subsidiary's Intellectual
Property.
SECTION 3.16. Insurance. Schedule 3.16 contains a true and complete
list of all insurance policies (the "Insurance Policies") that insure the
business, operations or employees of Seller or any Subsidiary or affect or
relate to the ownership, use or operation of any of the properties of Seller or
any Subsidiary, including a description of whether such insurance policies are
"occurrence based" or "claims made" policies. The
34
Insurance Policies are in such amounts, with such deductibles and against such
risks and losses as are reasonable to insure the businesses, properties, assets
and employees of Seller and the Subsidiaries. None of the Insurance Policies
will terminate or lapse by reason of any of the Transactions. Each of the
Insurance Policies is valid and binding and in full force and effect, no
premiums thereunder have not been paid (within any applicable grace period) and
neither Seller nor any Subsidiary is in default thereunder in any material
respect. No insurer under any such policy has cancelled or generally disclaimed
liability under any such policy or indicated any intent to do so or to
materially increase the premiums payable or not to renew any such policy. All
material claims of which notice has been given to an insurance company under any
Insurance Policy filed since January 1, 1994 are listed on Schedule 3.16 and
have been filed in a timely fashion.
SECTION 3.17. Brokers. No broker, investment banker, financial
advisor or other Person, other than PaineWebber Incorporated, the fees and
expenses of which will be paid by Seller (pursuant to a fee agreement, a copy of
which has been provided to Buyer), is entitled to any brokerage, finder's,
financial advisor's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of Seller.
SECTION 3.18. Agreements to Sell Assets, Merge or Consolidate.
Except as set forth on Schedule 3.18, none of Seller or any Subsidiary has any
agreement, absolute or contingent, with any other Person to sell the capital
stock, assets (other than sales of assets that would not be prohibited under
Section 3.08(g)) or business of Seller or any Subsidiary or to effect any
merger, consolidation (other than mergers and consolidations that would not be
prohibited under Section 3.08(e)) or other reorganization of Seller or any
Subsidiary or to enter into any agreement with respect thereto.
SECTION 3.19. Transactions with Certain Persons. Except as set forth
on Schedule 3.19, no officer, director or employee of Seller or any Subsidiary
nor any Affiliate of any such Person nor any member of any such Person's
immediate family is a party to any contract, agreement, transaction or other
arrangement with Seller or any Subsidiary, (i) providing for the furnishing of
services (except in such Person's capacity as an officer, director or employee)
by, (ii) providing for the rental of real or personal property, (iii) providing
for a loan or advance of funds, or (iv) otherwise requiring payments to (other
than for services as officers, directors or employees of Seller or any
Subsidiary) or from any such Person.
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SECTION 3.20. Food Depot, Inc.. The 51% interest in Food Depot,
Inc., a Texas corporation ("Food Depot"), held by ▇▇▇ ▇▇▇▇▇▇▇ (the "Food Depot
Interest") is freely transferrable without any loss or impairment of any Permits
held by Food Depot as long as the provisions of the Texas Alcoholic Beverage
Code and related regulations, including those setting criteria as to who may own
an entity which has been issued such Permits, are met. ▇▇▇▇▇▇▇'▇ Food & Drugs,
Inc. holds the other 49% interest in Food Depot. Food Depot holds all Permits
necessary for the beer and wine operations conducted on the premises of Seller
and the Subsidiaries and is the owner of the beer and wine inventory located on
such premises.
SECTION 3.21. Board Recommendation. The Board of Directors of
Seller, at a meeting duly called and held, has by unanimous vote of those
directors present (who constituted 100% of the directors then in office) (a)
determined that this Agreement and the Transactions, including the Amendment,
the Purchase, the Option, the Financing and the Tender Offer, taken together are
fair to and in the best interests of the Common Shareholders, and (b) resolved
to recommend that the Common Shareholders approve the foregoing, provided, that
such recommendation need not include a recommendation that the Common
Shareholders accept the Tender Offer.
SECTION 3.22. Required Seller Vote. The approval of the Transactions
by the affirmative vote of a majority of the outstanding shares of Common Stock
is the only vote of the holders of any class or series of Seller's securities
necessary to enable Seller to consummate the Transactions. There is no vote of
the holders of any class or series of Seller's securities necessary to approve
the Shareholders Agreement.
SECTION 3.23. Information Supplied. None of the information supplied
or to be supplied by Seller for inclusion in any proxy statement, tender offer
statement or other communication to the Common Shareholders relating to or in
connection with the Shareholder Approval or the Tender Offer (the "Proxy/Tender
Offer Statement") will, as of the date it is first mailed to the Common
Shareholders, at the time of the Shareholders Meeting or at the time any shares
of Common Stock are purchased pursuant to the Tender Offer, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.
SECTION 3.24. State Takeover Statutes. No state takeover statute or
similar statute or regulation of the State of Texas (and, to the Knowledge of
Seller after due inquiry, of any other state or jurisdiction) applies or
purports to apply to the Agreement or any of the Transactions. No provision of
the Articles, Bylaws or other governing instruments of Seller or the
36
articles of organization, bylaws or other governing instruments of any of the
Subsidiaries would, directly or indirectly, restrict or impair the ability of
Buyer or its Affiliates to vote, or otherwise to exercise the rights of a
shareholder with respect to, securities of Seller and the Subsidiaries that may
be acquired or controlled by Buyer or its Affiliates or permit any shareholder
to acquire securities of Seller on a basis not available to Buyer in the event
that Buyer were to acquire securities of Seller, and neither Seller nor any of
the Subsidiaries has any shareholders rights plan, preferred stock or similar
arrangement which have any of the aforementioned consequences.
SECTION 3.25. Books and Records. The minute books and other similar
records of Seller and the Subsidiaries as made available to Buyer prior to the
execution of this Agreement contain a true and complete record, in all material
respects, of all actions taken at all meetings and by all written consents in
lieu of meetings of the shareholders and the boards of directors (or similar
governing bodies) of Seller and the Subsidiaries. The stock transfer ledgers and
other similar records of Seller and the Subsidiaries as made available to Buyer
prior to the execution of this Agreement accurately reflect all record transfers
prior to the execution of this Agreement in the capital stock of Seller and the
Subsidiaries.
SECTION 3.26. Effect of Transaction. To the Knowledge of Seller, as
of the date of this Agreement, no creditor, employee, client, customer or other
Person having a material business relationship with Seller or any Subsidiary has
informed Seller or any Subsidiary in writing that such Person intends to change
such relationship because of the Agreement or the Transactions.
SECTION 3.27. Full Disclosure. No representation or warranty of
Seller in this Agreement, nor any statement or certificate furnished or to be
furnished to Buyer pursuant to this Agreement, or in connection with the
Transactions, contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein not false or misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
SECTION 4.01. Organization, Standing and Corporate Power. Buyer is
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has full power and authority to own its properties and to
carry on its
37
business as now being conducted. Buyer is duly qualified or licensed to do
business as a foreign entity in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would not have a
material adverse effect on the ability of Buyer to perform its obligations
hereunder.
SECTION 4.02. Authority; Noncontravention. (a) Buyer has the power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder and consummate the Transactions. The execution and
delivery of this Agreement by Buyer, the performance by Buyer of its obligations
hereunder, and the consummation by Buyer of the Transactions have been duly
authorized by all necessary action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes a valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other Laws relating to or affecting creditors'
rights generally and general equitable principles (whether considered in a
proceeding in equity or at law).
(b) Except for the filings required under the HSR Act, the execution
and delivery of this Agreement by Buyer does not, and the consummation of the
Transactions and compliance with the provisions hereof by Buyer will not,
conflict with, result in any breach or violation of, constitute a default (or
event which with the giving of notice or lapse of time, or both, would become a
default) under, or give rise to a right of termination, amendment or
acceleration of a "put" right with respect to any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of the
properties or assets of Buyer under, (i) organizational documents of Buyer, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, lease, contract,
joint venture or other agreement, instrument, permit, concession, franchise or
license applicable to Buyer or its properties or assets, or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any Law, Governmental Order or arbitration award applicable to Buyer or its
properties or assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, breaches, violations, defaults, rights, losses or Liens that
could not, individually or in the aggregate, prevent, hinder or materially delay
the ability of Buyer to consummate the Transactions. No consent, approval, order
or authorization of, action by, or registration, declaration or filing with, or
notice to, any Governmental Entity is required by or with respect to Buyer in
connection with the execution, delivery or performance of this Agreement by
Buyer or the consummation by Buyer of the Transactions, except for (i) the
notification requirements of the HSR Act and (ii) such other
38
consents, approvals, orders, authorizations, registrations, declarations,
filings or notices as may be required.
SECTION 4.03. Purchase for Investment. Buyer acknowledges that the
Shares have not been registered under the Securities Act or under any state
securities laws. Buyer (i) is not an underwriter as such term is defined under
the Securities Act, (ii) is acquiring the Shares solely for investment with no
present intention to distribute any of the Shares to any Person and (iii) will
not sell or otherwise dispose of any of the Shares, except in compliance with
the registration requirements or exemption provisions of the Securities Act and
any other applicable securities laws.
SECTION 4.04. Brokers. No unaffiliated broker, investment banker,
financial advisor or other Person is entitled to any brokerage, finder's,
financial advisor's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of Buyer or its
Affiliates.
ARTICLE V.
COVENANTS
SECTION 5.01. Conduct of Business of Seller. During the period from
the date of this Agreement to the Closing (except as specifically required by
this Agreement), Seller shall, and shall cause the Subsidiaries to, conduct
their respective businesses only in the ordinary course of business consistent
with past practice (including with respect to advertising, promotions, capital
expenditures, inventory levels, payment of employee and officer compensation,
payment of payables and the collection of receivables), and use its and their
respective best efforts to preserve intact its and their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers, licensors,
licensees, advertisers, distributors and others having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired
at the Closing. Without limiting the generality of the foregoing, except as
specifically required by this Agreement or except as described on Schedule 5.01,
Seller shall not, and shall cause the Subsidiaries to not, do any of the
following without the prior written consent of Buyer:
(a) terminate or amend in any material respect any contract or
agreement listed on Schedules 3.03(c), 3.10(a), 3.12(a), 3.12(b), 3.12(c),
3.12(d), 3.14(a) or 3.19;
(b) enter into any contract or agreement of the type described in
Sections 3.03(c), 3.10(a), 3.12(a) 3.12(b), 3.12(c), 3.12(d), 3.14(a) or 3.19,
which contract or agreement would be
39
required to be set forth on any such Schedule if such contract or agreement were
in effect as of the date of this Agreement;
(c) terminate or amend (in any material respect) any Seller Plan or
implement or enter into any plan, agreement, program, policy or arrangement that
would be a Seller Plan if implemented;
(d) grant to any employee, if the annual salary payable to such
employee is at least $75,000, any increase in compensation or benefits, except
as may be required under agreements in effect as of the date of this Agreement
or any Seller Plan;
(e) make any election with respect to Taxes;
(f) amend the CapEx Budget;
(g) make any capital expenditure or commitment for any capital
expenditure, except (i) prior to June 29, 1997, (A) as described in the CapEx
Budget or (B) which does not exceed $100,000 in respect of any project and (ii)
on or after June 29, 1997, which does not exceed $100,000 in respect of any
project, provided, that (1) in no event shall the aggregate amount of capital
expenditures or commitments for capital expenditures in respect of the projects
referenced in clause (i)(B) and (ii) exceed $2 million and (2) no expenditure or
commitment for any expenditure shall be made for new stores, property purchases
or leases or sale/leasebacks without Buyer's prior written consent; or
(h) take any action which could cause any representation or warranty
of Seller contained in this Agreement (including those set forth in Section
3.08) to be or become untrue at Closing or could result in any breach of any
covenant made by Seller in this Agreement.
SECTION 5.02. Prepayment of Indebtedness and Redemption of Preferred
Stock. Seller shall take such action as Buyer may reasonably request, in order
to facilitate the (a) the elimination of any non-compliance by Seller or any
Subsidiary with any of the terms of and the prepayment of the obligations of
Seller and the Subsidiaries under the Credit Agreement and the Note Purchase
Agreement at the Closing including, with respect to the Note Purchase Agreement,
the payment of the Make-Whole Price, in accordance with the terms thereof (the
"Debt Prepayment"), and (b) redemption of the Class A Preferred Stock and the
Convertible Preferred Stock at the Closing, in accordance with the terms thereof
(the "Preferred Stock Redemption").
40
SECTION 5.03. Additional Financial Statements. As soon as reasonably
practicable after the end of the applicable period, Seller shall furnish to
Buyer (a) the quarterly financial statements of Seller and each of the
Subsidiaries for all fiscal periods subsequent to the Balance Sheet Date, which
shall have been prepared in accordance with GAAP applied on a basis consistent
with the Interim Financial Statements, subject to normal year-end adjustments
and the absence of footnote disclosure, (b) all four week period financial
statements of Seller and each of the Subsidiaries (for periods subsequent to
January 11, 1997), which shall have been prepared in a manner consistent with
past practice, and (c) any other financial information of Seller or the
Subsidiaries as may reasonably be requested by Buyer.
SECTION 5.04. WARN. Neither Seller nor any of the Subsidiaries shall
effectuate a "plant closing" or "mass layoff", as those terms are defined in the
Worker Adjustment and Retraining Notification Act of 1988 ("WARN"), affecting in
whole or in part any site of employment, facility, operating unit or employee of
Seller or any Subsidiary, without notifying Buyer or its Affiliates in advance
and without complying with the notice requirements and other provisions of WARN.
SECTION 5.05. Articles of Incorporation. As soon as practicable
following the receipt of the Shareholder Approval, Seller shall file the
Amendment in accordance with the TBCA. The Amendment shall become effective at
such time as the Amendment is duly filed with the Secretary of State of the
State of Texas. The Articles, as amended, shall read in their entirety
substantially in the form set forth as Exhibit C hereto, and, as so amended and
until thereafter further amended as provided therein and under the TBCA, shall
be the articles of incorporation of Seller following the Closing.
SECTION 5.06. Preparation of Proxy/Tender Offer Statement;
Shareholders Meeting. Seller shall, as promptly as practicable following the
date of this Agreement and in consultation with Buyer:
(a) Prepare the Proxy/Tender Offer Statement and cause it to be
mailed to each Common Shareholder of record entitled to vote at the Shareholders
Meeting in accordance with the TBCA. Seller shall not mail the Proxy/Tender
Offer Statement without obtaining the prior approval thereof by Buyer. The
information provided and to be provided by Buyer and Seller, respectively, for
use in the Proxy/Tender Offer Statement shall, at the time that it is given to
the Common Shareholders, on the date of the Shareholders Meeting, and at the
time the shares of Common Stock are purchased pursuant to the Tender Offer, be
true and correct in all material respects and shall not omit to state any
material fact required to be stated therein or necessary in order to make such
information not misleading, and Seller and Buyer each agree
41
to correct any information provided by it for use in the Proxy/Tender Offer
Statement which shall have become false or misleading. The Proxy/Tender Offer
Statement shall set forth the proposed Amendment and the terms of the Tender
Offer or a summary thereof.
(b) Duly call, give notice of, convene and hold the Shareholders
Meeting. Subject to its fiduciary duties under the TBCA, the Board of Directors
of Seller shall recommend approval of the Shareholder Approval Matters to the
Common Shareholders. Seller shall use its best efforts to hold the Shareholders
Meeting as soon as practicable after the date hereof.
(c) Commence the Tender Offer for three separate pools of Common
Stock, the first for up to 1,104,336 ESOP Shares, the second for up to 200,435
Putable Shares and the third for up to 4,280,415 Non-ESOP Shares, each at a
price equal to $16.00 per share of Common Stock, to the Common Shareholders in
cash (the "Tender Offer Price"). Provided that this Agreement shall not have
been terminated in accordance with Section 7.01, Seller shall consummate the
Tender Offer and accept for payment and purchase the shares of Common Stock
tendered pursuant to the Tender Offer concurrently with the consummation of the
Purchase. Without the prior written consent of Buyer, Seller shall not change
the Tender Offer Price, change the number of shares of Common Stock being sought
in the Tender Offer or in any of its component pools, change the form of
consideration payable in the Tender Offer, add additional conditions to the
Tender Offer, or make any other change in the terms or conditions of the Tender
Offer. The Tender Offer shall be made by means of the Proxy/Tender Offer
Statement, which document shall not be supplemented or amended without Buyer's
prior approval. Upon the terms and subject to the conditions of the Tender
Offer, Seller shall purchase all the shares of Common Stock which are validly
tendered on or prior to the expiration of the Tender Offer and not withdrawn,
provided, that, subject to the next two sentences (i) as to any tendered ESOP
Shares attributable to a particular ESOP participant, the ESOP, in respect of
ESOP Shares attributable to such participant, shall be deemed to have tendered
all of the Withdrawable Shares attributable to such participant prior to having
tendered any of the Non-Withdrawable Shares attributable to such participant,
(ii) subject to the provisions of clause (i), if the Tender Offer shall be
oversubscribed by holders of ESOP Shares, Seller shall accept for payment and
purchase the validly tendered (and not withdrawn) shares of Common Stock by such
holders on a pro rata basis, (iii) if the Tender Offer shall be oversubscribed
with respect to the Putable Shares, Seller shall accept for payment and purchase
the validly tendered (and not withdrawn) Putable Shares on a pro rata basis and
(iv) if the Tender Offer shall be oversubscribed by holders of Non-ESOP Shares,
Seller shall accept for payment and purchase the validly tendered (and not
withdrawn) shares of Common Stock by such holders on a pro rata basis (after
giving
42
effect to any assignment described below). The Proxy/Tender Offer Statement will
describe procedures pursuant to which any holder of Non-ESOP Shares may assign
such holder's right to have purchased by Seller in the Tender Offer all or a
portion of such Non-ESOP Shares which have been actually accepted for purchase
by Seller in the Tender Offer (the Non-ESOP Shares subject to any such
assignment, "Assigned Shares"), provided that an assignee cannot as a result of
any such attempted assignment sell as Assigned Shares Shares of such assignee
that have otherwise been accepted for purchase in the Tender Offer. For purposes
of this Section 5.06(c) the term "ESOP" includes any plan, entity or other
Person who succeeds the ESOP as holder of the Common Stock held by the ESOP.
SECTION 5.07. Access to Information; Confidentiality. (a) Seller
shall, and shall cause the Subsidiaries, officers, employees, counsel, financial
advisors and other representatives to, afford to Buyer and its representatives
and to potential financing sources reasonable access during normal business
hours prior to the Closing to its properties, books, contracts, commitments,
personnel and records and, during such period, Seller shall, and shall cause the
Subsidiaries, officers, employees and representatives to, furnish promptly to
Buyer all information concerning its business, properties, financial condition,
operations and personnel as Buyer may from time to time reasonably request.
Except as required by Law, each of Seller and Buyer will hold, and will cause
its respective directors, officers, employees, accountants, counsel, financial
advisors and other representatives and Affiliates to hold, any nonpublic
information in confidence to the extent required by, and in accordance with, the
provisions of the Confidentiality Agreement.
(b) No investigation pursuant to this Section shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 5.08. Best Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of Seller and Buyer agrees to use
its reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other party in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Purchase and the
other Transactions. Buyer and Seller will use their best efforts and cooperate
with one another (i) in promptly determining whether any filings are required to
be made or consents, approvals, waivers, Permits (including all beer, wine
and/or liquor licenses), or authorizations are required to be obtained (or,
which if not obtained, would result in an event of default, termination or
acceleration of any agreement or any "put" right under any agreement) under any
applicable Law or from any Governmental Entity or Person, including parties to
loan
43
agreements or other debt instruments, in connection with the Agreement and the
Transactions, and (ii) in promptly making any such filings, in furnishing
information required in connection therewith and in timely seeking to obtain any
such consents, approvals, Permits or authorizations.
(b) Seller shall cooperate with any reasonable requests of Buyer
related to the recording of the Transactions as a recapitalization for financial
reporting purposes. In furtherance of the foregoing, Seller shall provide to
Buyer for the prior review of Buyer's advisors any description of the
Transactions which is meant to be disseminated.
(c) Seller agrees to provide, and will cause the Subsidiaries and
its and their respective officers and employees to provide, all necessary
cooperation in connection with the arrangement of any financing to be
consummated contemporaneous with or at or after the Closing, including financing
in respect of the Transactions and financing to provide for the working capital
needs of Seller following the consummation of the Transactions (the
"Financing"), including participation in meetings, due diligence sessions, road
shows, the preparation of offering memoranda, private placement memoranda,
prospectuses and similar documents, the execution and delivery of any commitment
letters, underwriting or placement agreements, pledge and security documents,
other definitive financing documents, or other requested certificates or
documents, including a certificate of the chief financial officer of Seller with
respect to solvency matters, comfort letters of accountants and legal opinions
customarily delivered in connection with comparable financings, in each case as
may be requested by Buyer.
(d) Buyer agrees to act in good faith and to use its reasonable best
efforts to arrange the Financing, including using its reasonable best efforts
(i) to assist Seller in the negotiation of definitive agreements with respect
thereto and (ii) to satisfy all conditions applicable to Buyer in such
definitive agreements. Buyer will keep Seller informed of the status of its
efforts to arrange the Financing.
SECTION 5.09. Public Announcements. Neither Buyer, on the one hand,
nor Seller, on the other hand, shall issue any press release or public statement
with respect to the Agreement and Transactions without the other party's prior
consent, except as may be required by applicable Law or court process. In
addition to the foregoing, Buyer and Seller will consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
such press release or other public statements with respect to the Agreement and
Transactions. The parties agree that the initial press release or releases to be
issued with respect to the Transactions shall be mutually agreed upon prior to
the issuance thereof.
44
SECTION 5.10. No Solicitation. Neither Seller nor any of the
Subsidiaries shall (whether directly or indirectly through advisors, agents or
other intermediaries), nor shall Seller or any of the Subsidiaries authorize or
permit any of its or their officers, directors, agents, representatives or
advisors to (a) solicit, initiate or take any action knowingly to facilitate the
submission of inquiries, proposals or offers from any Person relating to any
acquisition or purchase of more than 10% of the assets of Seller or any of the
Subsidiaries or of more than 10% of any class of equity securities of Seller or
any of the Subsidiaries or any tender offer (including a self tender) or
exchange offer that if consummated would result in any Person beneficially
owning 10% or more of any class of equity securities of Seller or any of the
Subsidiaries, or any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving Seller or any of the Subsidiaries (other than the
Transactions) or any other transaction the consummation of which would or could
reasonably be expected to impede, interfere with, prevent or materially delay
any of the Transactions or which would or could reasonably be expected to
materially dilute the benefits to Buyer of the Transactions (collectively,
"Transaction Proposals") or agree to or endorse any Transaction Proposal, or (b)
enter into or participate in any discussions or negotiations regarding any of
the foregoing, or furnish to any other Person any information with respect to
its business, properties or assets or any of the foregoing, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other Person to do or seek any of the foregoing;
provided, however, that the foregoing shall not prohibit Seller from (i)
furnishing information pursuant to an appropriate confidentiality letter
(provided for informational purposes only to Buyer) concerning Seller and its
businesses, properties or assets to a third party who has made an unsolicited
Transaction Proposal, (ii) engaging in discussions or negotiations with such a
third party, (iii) following receipt of a Transaction Proposal, failing to make
or withdrawing or modifying its recommendation referred to in Section 3.21,
and/or (iv) taking any nonappealable, final action ordered to be taken by Seller
by any court of competent jurisdiction, but in each case referred to in the
foregoing clauses (i) through (iv) only to the extent that the Board of
Directors of Seller shall have concluded in good faith on the basis of written
advice from outside counsel that such action is required to prevent the Board of
Directors of Seller from breaching its fiduciary duties to the Common
Shareholders under the TBCA; provided, further, that the Board of Directors of
Seller shall not take any of the foregoing actions referred to in clauses (i)
through (iii) until after reasonable notice to Buyer with respect to such action
and that such Board of Directors shall, to the extent it may do so without
breaching such fiduciary duties, continue to advise Buyer after taking such
action and, in addition, if the Board of Directors of Seller
45
receives a Transaction Proposal, then Seller shall promptly inform Buyer of the
terms and conditions of such proposal and the identity of the Person making it.
Seller will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
SECTION 5.11. Directors. Prior to the Closing, Seller shall deliver
to Buyer evidence satisfactory to Buyer of the resignation of all directors of
Seller and any Subsidiary (other than those individuals listed on Schedule 5.11)
and the appointment as directors of Seller of those individuals designated by
Buyer to Seller no later than two Business Days prior to Closing, which
resignations and appointments shall be effective as of the Closing.
SECTION 5.12. Certain Agreements. Neither Seller nor any Subsidiary
will waive or fail to enforce any provision of any confidentiality or standstill
or similar agreement to which it is a party without the prior written consent of
Buyer.
SECTION 5.13. Settlement Agreement. Seller shall use its best
efforts to obtain final judicial approval of the Settlement contemplated by the
Settlement Agreement and the Pleadings as promptly as practicable following the
date hereof. Seller shall (a) comply with all of its obligations under the
Settlement Agreement and the Pleadings, (b) not amend or modify the Settlement
Agreement or the Pleadings, (c) not waive compliance by any other party to the
Settlement Agreement with any provision thereof, (d) obtain the written consent
of Buyer prior to the appointment of any new auditor, appraiser or trustee for
the ESOP (which consent shall not be unreasonably withheld) and (e) obtain the
written consent of Buyer prior to any withdrawal by Seller from the settlement
contemplated by the Settlement Agreement or termination of the Settlement
Agreement or such settlement.
SECTION 5.14. ESOP Amendment. Seller shall cause the Amended and
Restated ESOP attached as Exhibit D hereto to be effective as of April 1, 1997.
Seller agrees that, after giving effect thereto (i) the transactions set forth
in Section 5.06(c) will be able to be effectuated, (ii) no additional shares of
Common Stock will be purchased by the ESOP or allocated to the account of any
participant thereunder and (iii) the ESOP will be converted to a 401(k) plan
with diversified investment alternatives. As promptly as practicable following
the date hereof, Seller agrees to enter into a new trust agreement related to
the ESOP which reflects the changes to the ESOP reflected in the Amended and
Restated ESOP, provided, that Seller shall obtain the written consent of Buyer
prior to entering into such trust agreement (which consent shall not be
unreasonably withheld).
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ARTICLE VI.
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Obligations of Buyer. The obligations of
Buyer to consummate the Transactions is subject to the following conditions:
(a) Shareholder Approval and the Amendment. The Shareholder Approval
shall have been obtained and the Amendment shall have become effective in
accordance with the TBCA.
(b) HSR Act. The waiting period (including any extension thereof)
applicable under the HSR Act shall have been terminated or shall have expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any Governmental
Entity or other legal restraint or prohibition preventing the consummation of
the Transactions, including the Purchase, shall be in effect; provided, however,
that the parties hereto shall use their best efforts to have any such
injunction, order, restraint or prohibition vacated.
(d) Representations, Warranties and Covenants. All representations
and warranties of Seller contained in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties expressly relate to an earlier date)
as of the Closing Date as if such representations and warranties were made on
and as of the Closing Date, except for changes permitted or contemplated by this
Agreement. Seller shall have performed in all material respects all agreements
and covenants required hereby to be performed by it prior to or at the Closing
Date. There shall be delivered to Buyer a certificate of Seller (signed by an
executive officer of Seller) to the foregoing effect.
(e) Consents. Such Permits (including the continued availability of
all beer, wine and/or liquor licenses), consents, approvals, authorizations,
qualifications and orders of Governmental Entities and other third parties as
are necessary in connection with the Transactions shall have been obtained,
except such Permits, consents, approvals, authorizations, qualifications and
orders which are not, individually or in the aggregate, material to Buyer or
Seller or the failure of which to have received would not (as compared to the
situation in which such Permit, consent, approval, authorization, qualification
or order had been obtained) materially dilute the aggregate benefits to Buyer of
the Transactions.
47
(f) No Litigation. There shall not be pending or threatened by any
Governmental Entity or any Person any Action, (i) challenging or seeking to
restrain or prohibit the consummation of the Purchase or any of the other
Transactions or seeking to obtain from Buyer or any of its Affiliates any
damages that are material to any such party, (ii) seeking to prohibit or limit
the ownership or operation by Seller or any of the Subsidiaries of any material
portion of the business or assets of Seller or any of the Subsidiaries, or
seeking to dispose of or hold separate any material portion of the business or
assets of Seller or any of the Subsidiaries, as a result of the Purchase or any
of the other Transactions or the Shareholders Agreement, or (iii) seeking to
impose limitations on the ability of Buyer to acquire or hold, or exercise full
rights of ownership of, any shares of Common Stock, including the right to vote
Common Stock on all matters properly presented to the Common Shareholders.
(g) Board of Directors. The Board of Directors of Seller shall
consist of those persons listed on Schedule 5.11 and those individuals
designated by Buyer pursuant to Section 5.11.
(h) Financing. Seller shall have received the proceeds of the
Financing on terms reasonably satisfactory to Buyer in an amount equal to or in
excess of $475 million.
(i) Indebtedness and Preferred Stock. Seller shall have consummated
the Debt Prepayment and the Preferred Stock Redemption.
(j) Shareholders Agreement. The Shareholders Agreement shall be in
full force and effect.
(k) Option. Seller shall have executed and delivered the Option to
Buyer.
(l) Settlement Agreement. The Settlement Agreement shall be in full
force and effect, Seller shall have complied with all its obligations thereunder
which are required to be complied with on or prior to the Closing Date, no
provision of the Settlement Agreement or the Pleadings shall have been amended
or modified and Seller shall not have waived compliance by any other party
thereto with any provision thereof or withdrawn from the settlement contemplated
by the Settlement Agreement. In addition, Buyer shall not be required to
consummate the Transactions unless (a) Seller has complied with its obligations
pursuant to the first sentence of Section 5.13, (b) the United States district
court shall have approved the settlement in accordance with its terms and the
terms of the Pleadings and (c) Buyer shall not have any reasonable basis to
believe that final judicial approval will not be obtained.
48
(m) Transfer of Food Depot Interest. Upon request, Seller shall have
caused the Food Depot Interest to be transferred to Buyer or its designee
(without payment of any consideration, other than the Purchase Price).
(n) ESOP Valuations. As of the date of the commencement of the
Tender Offer and the Closing Date, the Common Stock held by the ESOP (or any
successor 401(k) Plan) shall have been determined to have a fair value of no
more than the Tender Offer Price and such determination shall have been made in
accordance with the provisions of the ESOP (or such 401(k) Plan).
SECTION 6.02. Conditions to Obligation of Seller. The obligation of
Seller to consummate the Transactions is subject to the following conditions:
(a) Shareholder Approval and the Amendment. The Shareholder Approval
shall have been obtained and the Amendment shall have become effective in
accordance with the TBCA.
(b) HSR Act. The waiting period (including any extension thereof)
applicable under the HSR Act shall have been terminated or shall have expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any Governmental
Entity or other legal restraint or prohibition preventing the consummation of
the Transactions, including the Purchase, shall be in effect; provided, however,
that the parties hereto shall use their best efforts to have any such
injunction, order, restraint or prohibition vacated.
(d) Representations, Warranties and Covenants. All representations
and warranties of Buyer contained in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the extent
such representations and warranties expressly relate to an earlier date) as of
the Closing Date as if such representations and warranties were made on and as
of the Closing Date, except for changes permitted or contemplated by this
Agreement. Buyer shall have performed in all material respects all agreements
and covenants required hereby to be performed by it prior to or at the Closing
Date. There shall be delivered to Seller a certificate of Buyer (signed by an
executive officer of Buyer) to the foregoing effect.
49
ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated and
abandoned at any time prior to the Closing, whether before or after approval of
the Shareholder Approval Matters by the Common Shareholders:
(a) by mutual written consent of Buyer and Seller;
(b) by either Buyer or Seller in the event that any Governmental
Entity shall have issued a final, nonappealable order, decree or ruling or taken
any other final, nonappealable action enjoining, restraining or otherwise
prohibiting the Transactions and such order, decree, ruling or other action
shall have become final and nonappealable;
(c) by either Buyer or Seller if the Closing shall not have occurred
on or before October 1, 1997 (other than due to the failure of the party seeking
to terminate this Agreement to perform its obligations under this Agreement
required to be performed at or prior to the Closing);
(d) by Buyer, if the Shareholder Approval shall not have been
obtained at the Shareholders Meeting;
(e) by Buyer, if Seller shall have (i) withdrawn, modified or
amended in any respect adverse to Buyer its approval or recommendation of this
Agreement or any of the Transactions, (ii) failed as soon as practicable to mail
the Proxy/Tender Offer Statement to the Common Shareholders or failed to include
in such statement such recommendation, (iii) recommended any Transaction
Proposal from a Person other than Buyer or any of its Affiliates, or (iv)
resolved to do any of the foregoing;
(f) by Buyer, if (i) Seller shall have exercised a right specified
in the first proviso to Section 5.10 with respect to any Transaction Proposal
and shall, directly or through agents or representatives, continue discussions
with any third party concerning such Transaction Proposal for more than 10
Business Days after the date of receipt of such Transaction Proposal; (ii)
Seller shall have taken any action described in clause (iv) of the first proviso
to Section 5.10; or (iii) (1) a Transaction Proposal that is publicly disclosed
shall have been commenced, publicly proposed or communicated to Seller which
contains a proposal as to price (without regard to the specificity of such price
proposal) and (2) Seller shall not have rejected such proposal within 10
Business Days of its receipt or the date its existence first becomes publicly
disclosed, if sooner; or
50
(g) by Seller, if Seller exercises, pursuant to Section 5.10 of this
Agreement, the right specified in clause (iii) of the first proviso to Section
5.10.
SECTION 7.02. Effect of Termination. In the event of termination of
this Agreement by either Seller or Buyer as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Buyer or Seller, other than the provisions of
Section 3.17, the last sentence of Section 5.07(a), this Section 7.02, Section
9.01 and Section 9.05 and 9.06. Nothing contained in this Section 7.02 shall
relieve any party for any breach of the representations, warranties, covenants
or agreements set forth in this Agreement.
SECTION 7.03. Amendment. This Agreement (including the Exhibits and
Schedules hereto) may be amended by the parties at any time before or after any
required approval by the Common Shareholders of matters presented to them in
connection with the Transactions; provided, however, that after any such
approval, there shall be made no amendment that by Law requires further approval
by the Common Shareholders without the further approval of the Common
Shareholders. This Agreement (including the Exhibits and Schedules hereto) may
not be amended except by an instrument in writing signed on behalf of each of
the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Closing,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to Section 7.03,
waive compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.01. Survival. Buyer has the right to rely fully upon the
representations, warranties, covenants and agreements of Seller contained in
this Agreement. Seller has the right to rely fully upon the representations,
warranties, covenants and agreements of Buyer contained in this Agreement. All
the representations and warranties of the parties contained in this Agreement
shall be deemed to be repeated at the Closing for purposes of this Article VIII
and shall survive the execution
51
and delivery hereof and the Closing, and, except as set forth in the proviso
below and in the last sentence of this Section, all the representations,
warranties, covenants and agreements of the parties contained in this Agreement
shall expire on the one-year anniversary of the Closing Date; provided, however,
that any representation, warranty, covenant or agreement shall survive the time
it would otherwise terminate pursuant to this Section 8.01 to the extent that
notice of a breach thereof giving rise to a right of indemnification shall have
been given by a party hereto in accordance with Section 8.03 prior to such time.
All of the covenants and agreements of the parties contained in this Agreement
to be performed on or after the date of this Agreement shall survive the Closing
without limitation as to time. The indemnity contained in clause (iv) of Section
8.02(a) shall expire on the six-year anniversary of the Closing.
SECTION 8.02. Indemnification. (a) Subject to Section 8.02(b),
Seller and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall defend, indemnify and hold harmless Buyer and
its Affiliates (including KKR), each director, officer and employee of Buyer and
such Affiliates, and Buyer's representatives and advisors against any loss,
damage, claim, liability, judgment or settlement of any nature or kind,
including all costs and expenses relating thereto, including interest, penalties
and reasonable attorneys' fees (collectively "Damages"), arising out of,
resulting from or relating to:
(i) subject to Section 8.01, the breach of any representation or
warranty of Seller contained in this Agreement (other than in Sections
3.09(b), 3.10(i) or 3.10(j)) or any certificate delivered pursuant hereto;
provided, however, that Seller shall not be obligated for any
indemnification pursuant to this clause unless, and then only to the
extent that, the aggregate Damages indemnifiable under this clause (i)
exceed $2,500,000;
(ii) subject to Section 8.01, the breach of any representation or
warranty of Seller contained in Section 3.09(b), Section 3.10(i) or
Section 3.10(j) of this Agreement or any certificate delivered pursuant
hereto to the extent such certificate relates to Section 3.09(b), Section
3.10(i) or Section 3.10(j);
(iii) subject to Section 8.01, the breach of any covenant or
agreement (whether to be performed prior to or after the Closing) of
Seller contained in this Agreement or any certificate delivered pursuant
hereto; or
(iv) subject to Section 8.01, any Liability of Seller or any
Subsidiary for any Taxes of Seller and the Subsidiaries relating to the
pre-Closing operations of the ESOP.
52
(b) To the extent any amount is payable by Seller or ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ pursuant to Section 8.02(a), such obligation shall be satisfied as
follows: (i) in respect of the first $10,000,000 of Damages which are
indemnifiable pursuant to Section 8.02(a) (which Damages would be in excess of
the $2,500,000 deductible referenced in the proviso of clause (i) of such
Section with respect to Damages covered by the indemnity under such clause), by
Seller's issuance of Additional Shares to Buyer or its designee calculated in
accordance with Section 8.02(c) or 8.02(d), as appropriate, and (ii) in respect
of the next $3,000,000 of such Damages, by the contribution of cash by ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ to Buyer, in the case of Damages relating to a breach of any
representation or warranty contained in Section 3.03, and otherwise to Seller.
The foregoing amounts shall be payable only in respect of Damages for which a
Notice (as defined in Section 8.03(a)) shall have been delivered to Seller (a)
with respect to clause (i) of the foregoing sentence, prior to the six-year
anniversary of the Closing Date and (b) with respect to clause (ii) of the
foregoing sentence, the one-year anniversary of the Closing Date. Any issuance
of Additional Shares pursuant to this Section shall be deemed to be an
adjustment to the number of shares of Common Stock purchased under this
Agreement and any payment to Buyer or its designee pursuant to this Section
shall be deemed to be an adjustment to the Purchase Price. Except as described
in this Section 8.02(b), no amount shall be payable by Seller or any other
Person pursuant to Section 8.02(a) or 8.02(b).
(c) In the case of Damages relating to a breach of any
representation or warranty contained in Section 3.03, the number of Additional
Shares to be issued pursuant to Section 8.02(b) from time to time shall equal
(1) the amount of Damages incurred by the Indemnitee (as defined in Section
8.03(a)) divided by the Fair Market Value of one share of Common Stock as of the
date such Additional Shares are to be issued divided by (2) 1 minus the quotient
obtained by dividing (A) the sum of (i) such Damages plus (ii) the product of
the Fair Market Value of one share of Common Stock as of such date multiplied by
the number of shares of Common Stock then held by Buyer and its Affiliates by
(B) the product of the Fair Market Value of one share of Common Stock multiplied
by the number of shares of Common Stock outstanding as of the date such
Additional Shares are to be issued.
(d) Except as otherwise provided in Section 8.02(c), the number of
Additional Shares to be issued pursuant to Section 8.02(b) from time to time
shall equal (1) a fraction (A) the numerator of which shall equal the number of
shares of Common Stock outstanding as of the date such Additional Shares are to
be issued minus the number of shares of Common Stock then held by Buyer and its
Affiliates, and (B) the denominator of which shall equal 1 minus a fraction, (i)
the numerator of which shall equal the number of shares of Common Stock then
held by Buyer and its Affiliates multiplied by the Fair Market Value of one
share of
53
Common Stock as of such date, and (ii) the denominator of which shall equal (a)
the number of shares of Common Stock then outstanding multiplied by the Fair
Market Value of one share of Common Stock as of such date minus (b) the amount
of Damages incurred by the Indemnitee minus (2) the number of shares of Common
Stock then outstanding.
(e) For purposes of clause (i) of Section 8.02(a), a "Material
Adverse Effect" (as such term is used in any representation or warranty
contained in Article III) shall be deemed to have occurred if the aggregate of
all Damages related to any such representation or warranty shall exceed $10,000.
(f) The term "Damages" as used in this Article VIII is not limited
to matters asserted by third parties against any party entitled to be
indemnified under this Article VIII, but includes Damages incurred or sustained
by any such party in the absence of third party claims.
SECTION 8.03. Indemnification Procedures. (a) In the event that a
party shall incur or suffer any Damages in respect of which indemnification may
be sought hereunder, such party (the "Indemnitee") may assert a claim for
indemnification by written notice (the "Notice") to the party from whom
indemnification is being sought (the "Indemnitor"), stating the amount of
Damages, if known, and the nature and basis of such claim. In the case of
Damages arising or which may arise by reason of any third party Action, promptly
after receipt by the Indemnitee of written notice of the assertion or the
commencement of any Action with respect to any matter in respect of which
indemnification may be sought hereunder, the Indemnitee shall give Notice to the
Indemnitor with respect thereto, provided that failure of the Indemnitee to give
the Indemnitor prompt notice as provided herein shall not relieve the Indemnitor
of any of its obligations hereunder, except to the extent that the Indemnitor is
materially prejudiced by such failure. If the Indemnitor acknowledges in writing
its obligation to indemnify the Indemnitee hereunder, the Indemnitor shall be
entitled to assume the defense thereof, at its sole expense, by written notice
of its intention to do so to the Indemnitee within 30 days after receipt of the
Notice. If the Indemnitor shall assume the defense of such Action, it shall not
settle such Action or consent to the entry of any judgment without the prior
written consent of the Indemnitee, unless such settlement or judgment (i)
includes as an unconditional term thereof the giving by the claimant or the
plaintiff of a release of the Indemnitee from all liability with respect to such
Action and (ii) does not involve the imposition of equitable remedies or the
imposition of any obligations on such Indemnitee and does not otherwise
adversely affect the Indemnitee, other than as a result of the imposition of
financial obligations for which such Indemnitee will be indemnified hereunder.
As long as the Indemnitor is contesting any such Action in good faith and on a
timely basis, the Indemnitee shall not pay or settle any claims
54
brought under such Action. Notwithstanding the assumption by the Indemnitor of
the defense of any Action as provided in this Section, the Indemnitee shall be
permitted to participate in the defense of such Action and to employ counsel at
its own expense; provided, however, that if such Indemnitee shall have
reasonably concluded that counsel selected by Indemnitor has a conflict of
interest because of the availability of different or additional defenses to such
Indemnitee, such Indemnitee shall have the right to select separate counsel to
participate in the defense of such Action on its behalf, at the expense of the
Indemnitor.
(b) If the Indemnitor shall fail to notify the Indemnitee of its
desire to assume the defense of any such Action within the prescribed period of
time, or shall notify the Indemnitee that it will not assume the defense of any
such Action, then the Indemnitee may assume the defense of any such Action, in
which event it may do so acting in good faith in such manner as it may deem
appropriate, and the Indemnitor shall be bound by any determination made in such
Action. The Indemnitor shall be permitted to join in the defense of such Action
and to employ counsel at its own expense.
(c) Amounts payable by the Indemnitor to the Indemnitee in respect
of any Damages for which such party is entitled to indemnification hereunder
shall be payable by the Indemnitor as incurred by the Indemnitee.
SECTION 8.04. Tax Limitations. The amount of any Damages or other
liability for which indemnification is provided under this Agreement shall be
(a) increased to take account of any Tax cost incurred (grossed up for such
increase) by the Indemnitee arising from the receipt of indemnity payments
hereunder and (b) reduced to take account of any Tax benefit realized by the
Indemnitee arising from the incurrence or payment of any such Damages or other
liability. Such Tax cost or Tax benefit, as the case may be, shall be computed
for any year using the Indemnitee's actual tax liability (or the liability of
its partners or members if the Indemnitee is a pass-thru entity) with and
without (a) the incurrence or payment of any Damages or other liability for
which indemnification is provided under this Agreement or (b) the payment of any
indemnification payments made pursuant to this Agreement in such year. In the
event that the Indemnitee will actually realize a Tax cost or Tax benefit for a
year(s) subsequent to the year in which the indemnity payment is made, a payment
in respect of such Tax cost or Tax benefit shall be made in such subsequent
year(s).
SECTION 8.05. Tax Matters. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
City Transfer Tax and any similar tax imposed in other states or subdivisions),
shall be paid by Seller when due, and Seller shall file, at its own
55
expense, all necessary Tax Returns and other documentation with respect to all
such transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, Buyer will, and will cause its
Affiliates to, join in the execution of any such Tax Returns and other
documentation.
ARTICLE IX.
GENERAL PROVISIONS
SECTION 9.01. Fees and Expenses. (a) If this Agreement shall have
been terminated by either party pursuant to Section 7.01(d), Section 7.01(e),
Section 7.01(f) or Section 7.01(g), unless Buyer shall then be in material
breach of its obligations hereunder, Seller shall pay Buyer or its designee a
fee of $15 million in immediately available funds no later than one Business Day
following such termination. No amount payable pursuant to any of the other
provisions of this Section 9.01 shall reduce the amount of the fee payable
pursuant to this paragraph (a).
(b) If this Agreement shall have been terminated by either party
pursuant to Section 7.01(b) or Section 7.01(c) and if prior to any such
termination any Person (other than Buyer or its Affiliates) shall have made, or
proposed, communicated or disclosed in a manner which is or otherwise becomes
public (or which, directly or indirectly, privately or publicly, is made,
proposed or communicated to Seller, any member of its Board of Directors, any 5%
or greater Common Shareholder, any members of senior management or any
representatives of Seller) a bona fide intention to make a Transaction Proposal
(including by making such a Transaction Proposal), unless Buyer shall then be in
material breach of its obligations hereunder, Seller shall pay Buyer or its
designee a fee of $15 million in immediately available funds no later than one
Business Day following such termination; provided, that if Seller and its
representatives take no action to respond to or encourage any such Transaction
Proposal prior to termination pursuant to Section 7.01(b) or Section 7.01(c), no
fee shall be payable pursuant to this Section 9.01(b) unless, on or prior to the
second anniversary of the termination of this Agreement pursuant to Section
7.01(b) or Section 7.01(c), a Transaction Proposal (whether or not related to
the pre-termination Transaction Proposal) is consummated or any agreement or
understanding with respect thereto is entered into (in which event the fee
payable pursuant to this Section 9.01(b) shall be payable no later than one
Business Day following the earlier of the date of such agreement or
understanding or the date of consummation of such Transaction Proposal). Only
one fee in the aggregate of $15 million shall be payable pursuant to Section
9.01(a) or Section 9.01(b). No amount payable pursuant
56
to any of the other provisions of this Section 9.01 shall reduce the amount of
the fee payable pursuant to this paragraph (b).
(c) In addition to any other amounts which may be payable or become
payable pursuant to any other paragraph of this Section 9.01, unless Buyer shall
then be in material breach of its obligations hereunder, no later than one
Business Day following termination of this Agreement (or from time to time
thereafter), Seller shall reimburse Buyer or its designee for all out-of-pocket
expenses and fees paid or payable by or on behalf of Buyer or its Affiliates
(including KKR), including fees and expenses payable to all banks, investment
banking firms and other financial institutions, and their respective agents and
counsel, and all fees and expenses of counsel, accountants, experts and
consultants to Buyer and its Affiliates (including KKR), whether incurred prior
to, on or after the date hereof, in connection with this Agreement and the
Transactions, but in no event to exceed $2.5 million in the aggregate, provided,
that no amount shall be payable pursuant to this paragraph (c) if (i) this
Agreement shall have been terminated pursuant to Section 7.01(c) and (ii) at the
time of any such termination the waiting period (including any extension
thereof) applicable under the HSR Act shall not have been terminated or expired.
(d) If the Purchase shall be consummated in accordance with this
Agreement, Seller shall pay to KKR or its designee a fee of $8 million in
immediately available funds on the Closing Date. No amount payable pursuant to
any of the other provisions of this Section 9.01 shall reduce the amount payable
pursuant to this paragraph (d).
(e) Except as provided otherwise in this Agreement, all costs and
expenses incurred in connection with the Agreement and the Transactions shall be
paid by the party incurring such expenses, except that Seller shall pay all
costs and expenses (i) in connection with printing and mailing the Proxy/Tender
Offer Statement and (ii) of obtaining any consents of any third party.
SECTION 9.02. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
57
(a) if to Buyer, to
▇/▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. L.P.
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(b) if to Seller, to
▇▇▇▇▇▇▇'▇ Food Markets, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., Esq.
(c) if to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, to
▇▇▇▇▇▇▇'▇ Food Markets, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., Esq.
SECTION 9.03. Interpretation. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation".
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SECTION 9.04. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 9.05. Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the other agreements referred to herein or executed
contemporaneously herewith constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement. This Agreement, other than
as provided in Section 9.07 and in the provisions of Article VIII relating to
indemnification, is not intended to confer upon any Person other than the
parties any rights or remedies.
SECTION 9.06. GOVERNING LAW; ARBITRATION. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN
THAT STATE. ANY CONTROVERSY, DISPUTE, OR CLAIM OF WHATEVER NATURE ARISING OUT
OF, IN CONNECTION WITH, OR RELATING TO THIS AGREEMENT, INCLUDING THE EXISTENCE,
VALIDITY, INTERPRETATION OR BREACH THEREOF AND ANY CLAIM BASED ON CONTRACT, TORT
OR STATUTE, SHALL BE RESOLVED AT THE REQUEST OF EITHER PARTY, BY FINAL AND
BINDING ARBITRATION CONDUCTED IN WASHINGTON, D.C. PURSUANT TO THE FEDERAL
ARBITRATION ACT AND IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION ("AAA"). ARBITRATION HEREUNDER SHALL BE
CONDUCTED BY A SINGLE ARBITRATOR SELECTED JOINTLY BY THE PARTIES HERETO. IF
WITHIN 30 DAYS AFTER A DEMAND FOR ARBITRATION IS MADE, THE PARTIES HERETO ARE
UNABLE TO AGREE ON A SINGLE ARBITRATOR, THREE ARBITRATORS SHALL BE APPOINTED.
EACH PARTY SHALL SELECT ONE ARBITRATOR AND THOSE TWO ARBITRATORS SHALL THEN
SELECT WITHIN 30 DAYS A THIRD NEUTRAL ARBITRATOR. IF THE ARBITRATORS SELECTED BY
THE PARTIES CANNOT AGREE ON THE THIRD ARBITRATOR, THE SELECTION SHALL BE IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF AAA. THE PARTIES AGREE TO
SHARE EQUALLY THE FEES AND EXPENSES OF THE ARBITRATOR(S) HEREUNDER. ANY
DISCOVERY IN CONNECTION WITH ARBITRATION HEREUNDER SHALL BE LIMITED TO
INFORMATION DIRECTLY RELEVANT TO THE CONTROVERSY OR CLAIM IN ARBITRATION.
JUDGMENT UPON ANY ARBITRATION AWARD RENDERED MAY BE ENTERED IN ANY COURT OF
COMPETENT JURISDICTION. AN ARBITRATION AWARD HEREUNDER CANNOT INCLUDE PUNITIVE
DAMAGES. EACH PARTY HERETO UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY SUIT,
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT.
SECTION 9.07. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of Law or otherwise by any of the parties without
the prior written consent of the other party, provided, that Buyer may assign,
in whole or in part, any of its rights and obligations hereunder and under
59
the Option to one or more of its Affiliates without the consent of Seller.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
SECTION 9.08. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
SECTION 9.09. No Recourse. Notwithstanding anything that may be
expressed or implied in this Agreement, Seller covenants, agrees and
acknowledges that no recourse under this Agreement or any documents or
instruments delivered in connection with this Agreement or any of the
Transactions shall be had against any current or future director, officer,
employee, general or limited partner, member, Affiliate (including KKR) or
assignee of Buyer or any of the foregoing, whether by the enforcement of any
assessment or by any legal or equitable proceeding, or by virtue of any statute,
regulation or other applicable law, it being expressly agreed and acknowledged
that no personal liability whatsoever shall attach to, be imposed on or
otherwise be incurred by any current or future officer, agent or employee of
Buyer or any current or future member of Buyer or any current or future
director, officer, employee, general or limited partner, member, Affiliate
(including KKR) or assignee of any of the foregoing, as such for any obligation
of Buyer under this Agreement or any documents or instruments delivered in
connection with this Agreement or any of the Transactions or for any claim based
on, in respect of or by reason of such obligations or their creation.
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IN WITNESS WHEREOF, the parties have signed this Agreement, or
caused this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
RFM ACQUISITION LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
▇▇▇▇▇▇▇'▇ FOOD MARKETS, INC.
By: /s/ R. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇.
-----------------------------------------
Name: R. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇.
Title: President and CEO
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
solely for purposes of
Sections 8.02(a) and 8.02(b); ▇▇. ▇▇▇▇▇▇▇
shall not be deemed a "party" to this
Agreement for any other purposes.