<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996
REGISTRATION NO. 333-10525
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
KANSAS 5141
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL 48-1189356
JURISDICTION (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION) 5000 KANSAS AVENUE
KANSAS CITY, KANSAS 66106
(913) 321-1313
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
FRANCES PELLEGRINO PUHL, ESQ.
5000 KANSAS AVENUE
KANSAS CITY, KANSAS 66106
(913) 288-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
SHARI L. WRIGHT, ESQ.
BLACKWELL SANDERS MATHENY WEARY & LOMBARDI L.C.
TWO PERSHING SQUARE
2300 MAIN, SUITE 1100
KANSAS CITY, MISSOURI 64108
(816) 274-6800
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement is declared
effective and all other conditions to the Merger (as defined herein) have been
satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(2) PER SHARE PRICE FEE(3)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 25,000,000
$.01 per share................ shares N/A $27,747,479 $9,568.10
Rights to purchase Common
Stock(1)...................... 25,000,000 N/A N/A N/A
- -------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Rights issuable pursuant to the Company's Shareholder Rights Plan. Under
the Shareholder Rights Plan, each share of Common Stock issued is coupled
with a Right for which no separate consideration is paid.
(2) Based upon the terms of the Agreement and Plan of Merger included in the
Prospectus.
(3) Computed based on Rule 457(f)(2). Based on the book value of the shares of
AWG Common Stock to be exchanged in the Merger, which as of June 15, 1996
was $27,747,479. Paid with the initial filing of the registration
statement.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT/PROSPECTUS
-------------------------------- -------------------------------------------
<S> <C>
A. INFORMATION ABOUT THE
TRANSACTION
1. Forepart of Registration
Statement and Outside Front Facing Page of Registration Statement;
Cover Page of Prospectus...... Cross-Reference Sheet; Outside Front Cover
Page
2. Inside Front and Outside Back
Cover Pages of Prospectus..... Additional Information; Table of Contents
3. Risk Factors, Ratio of
Earnings to Fixed Charges, and Summary of Proxy Statement/Prospectus; Risk
Other Information............. Factors
4. Terms of the Transaction...... Summary of Proxy Statement/Prospectus; The
Merger; Description of AWG Group Common
Stock; Comparison of Shareholder Rights
5. Pro Forma Financial
Information................... Pro Forma Financial Statements
6. Material Contacts with the
Company Being Acquired........ *
7. Additional Information
Required for Reoffering by
Persons and Parties Deemed to
be Underwriters............... *
8. Interests of Named Experts and
Counsel....................... Legal Matters; Experts
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... *
B. INFORMATION ABOUT THE
REGISTRANT
10. Information with Respect to S-
3 Registrants................. *
11. Incorporation of Certain
Information by Reference...... *
12. Information with Respect to S-
2 or S-3 Registrants.......... *
13. Incorporation of Certain
Information by Reference...... *
14. Information with Respect to
Registrants Other Than S-3 or Selected Consolidated Historical and Pro
S-2 Registrants............... Forma Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations; Recent
Developments; Business; Financial
Statements
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-
3 Companies................... *
16. Information with Respect to S-
2 or S-3 Companies............ *
17. Information with Respect to
Companies Other Than S-3 or S- Selected Consolidated Historical and Pro
2 Companies................... Forma Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations; Recent
Developments; Business; Market for Common
Stock; Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT/PROSPECTUS
-------------------------------- -------------------------------------------
<S> <C>
D. VOTING AND MANAGEMENT
INFORMATION
18. Information if Proxies,
Consents or Authorizations are Outside Front Cover Page; Summary of Proxy
to be Solicited............... Statement/Prospectus; The Special Meeting;
The Merger; Management of AWG Group;
Executive Compensation; Certain
Transactions; Security Ownership of Certain
Beneficial Owners and Management
19. Information if Proxies,
Consents or Authorizations are
not to be Solicited or in an
Exchange Offer................. *
</TABLE>
- --------
* Inapplicable or the answer is negative and such information is omitted from
the Proxy Statement/Prospectus.
<PAGE>
(LOGO)
ASSOCIATED WHOLESALE GROCERS, INC.
5000 KANSAS AVENUE
KANSAS CITY, KANSAS 66106
, 1996
To Our AWG Shareholders:
You are cordially invited to attend a Special Meeting of the shareholders
("Shareholders") of Associated Wholesale Grocers, Inc. ("AWG") to be held on
[date] at [time] local time, at [place] , [address] , [city] , [state] .
At this important meeting, you will be asked to consider and to vote upon a
merger (the "Merger") between AWG and a subsidiary of AWG that will result in
the conversion of AWG from a retailer-owned corporation operating in a
cooperative manner to a publicly traded general business corporation that will
continue to be controlled initially by the retailers. Specifically, you are
being asked to approve an Agreement and Plan of Merger pursuant to which (i)
all outstanding shares of AWG common stock will be converted into the right to
receive shares of common stock of Associated Wholesale Grocers Group, Inc.
("AWG Group" or the "Company"), a newly-formed Kansas corporation, and (ii)
AWG will become a wholly-owned subsidiary of AWG Group by merging with AWG
Merger Corp. ("Merger Corp."), a wholly-owned subsidiary of AWG Group. AWG
will be the surviving corporation in the Merger. The Merger will only be
effected in connection with an underwritten initial public offering of shares
of common stock of AWG Group. Accordingly, a vote for the Merger is in effect
a vote to proceed with the initial public offering. The initial public
offering is presently anticipated to generate gross proceeds of $200 million
for AWG Group. The final public equity market valuation of AWG Group and the
resulting price per share at which shares of common stock of AWG Group are
sold in the initial public offering may be above or below the valuation range
and per share price used by AWG Group in connection with the Merger, as
discussed in the accompanying Proxy Statement/Prospectus. As a result of these
transactions, immediately after the Merger and initial public offering,
current AWG Shareholders will own a controlling interest, presently
anticipated to be approximately 71%, in a publicly traded general business
corporation. Your Board of Directors recommends approval of the Merger for the
reasons set forth in the accompanying Proxy Statement/Prospectus.
Your Board of Directors believes the combined Merger and initial public
offering will provide significant benefits to AWG Shareholders. The funds
raised through the initial public offering will be used by AWG Group to redeem
a portion of the patronage certificates, repay member deposits, reduce
obligations under AWG's line of credit, fund expansion activities, fund a
retailer loan program, and for potential strategic acquisitions and general
corporate purposes. In addition, because the Company's stock will be traded on
the New York Stock Exchange, Shareholders will be able to use their shares as
collateral for loans in connection with certain store development financing
transactions and the Company will have access to additional financing sources
through public capital markets for the continued growth of AWG. Presently,
Shareholders who wish to sell their shares of AWG common stock must sell such
shares to AWG at a price equal to their book value. The transaction will
provide Shareholders the opportunity to realize the full public equity market
value of AWG.
The proposed Merger is more fully described in the accompanying Proxy
Statement/Prospectus and its various attachments. I encourage you to study
these materials carefully.
<PAGE>
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT, BELIEVES THAT IT IS IN THE BEST INTERESTS
OF AWG AND ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
MERGER AGREEMENT AS DESCRIBED IN THE ATTACHED PROXY STATEMENT/PROSPECTUS.
The vote of two-thirds of the outstanding shares of AWG Class A and B common
stock, voting as separate classes, is required to approve the Merger
Agreement. Therefore, your vote is very important. PLEASE KEEP IN MIND THAT,
UNDER MISSOURI LAW, THE FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER AGREEMENT. Therefore, to ensure your shares will be
represented at the meeting, whether or not you plan to attend, I urge you to
complete and mail your proxy card promptly in the enclosed self-addressed
envelope, which requires no postage. If you attend the meeting and so desire,
your proxy card will be returned to you so you can vote in person.
The other directors and I look forward to meeting with you at the Special
Meeting.
Sincerely,
J. Fred Ball
Chairman of the Board
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders
("Shareholders") of Associated Wholesale Grocers, Inc., a Missouri corporation
("AWG"), will be held at , , on ,
, 1996, commencing at .m., for the following purposes:
(1) To consider and to vote upon an Agreement and Plan of Merger (the
"Merger Agreement"), a copy of which is attached as Annex A to the Proxy
Statement/Prospectus, pursuant to which (a) the Shareholders of AWG will
become shareholders of Associated Wholesale Grocers Group, Inc. ("AWG
Group"), and (b) AWG will become a wholly-owned subsidiary of AWG Group by
merging with AWG Merger Corp. ("Merger Corp."), a wholly-owned subsidiary
of AWG Group (the "Merger"). Pursuant to the Merger Agreement, all
outstanding shares of common stock of AWG (except those held by dissenting
Shareholders, if any) will be converted into shares of common stock of AWG
Group in accordance with the formula described in the accompanying Proxy
Statement/Prospectus.
(2) To transact such other business as may properly come before the
meeting.
The Merger will only be effected in connection with an underwritten initial
public offering of shares of common stock of AWG Group. Accordingly, a vote
for the Merger is in effect a vote to proceed with the initial public
offering, as discussed in the accompanying Proxy Statement/Prospectus.
The final public equity market valuation of AWG Group and the resulting
price per share at which shares of common stock of AWG Group are sold in the
initial public offering may be above or below the valuation range and per
share price used by AWG Group in connection with the Merger, as discussed in
the accompanying Proxy Statement/Prospectus.
Shareholders who hold shares of Class A common stock of record at the close
of business on, 1996, are entitled to notice of and to vote on each
matter presented at the Special Meeting, voting as a separate class.
Shareholders who hold shares of AWG Class B common stock of record at the
close of business on , 1996, are entitled to notice of and to vote on the
proposal to approve the Merger Agreement, voting as a separate class.
Shareholders who comply with certain provisions of the Missouri General and
Business Corporation Law (the "MGBCL") may dissent from the Merger and demand
payment of the fair value of their shares. A copy of the applicable provisions
of the MGBCL is attached as Annex C to the accompanying Proxy
Statement/Prospectus.
Whether or not you plan to attend the Special Meeting in person, you are
requested to sign, date and return the enclosed proxy card in the enclosed
prepaid envelope as soon as possible. Shareholders attending the Special
Meeting may vote in person even if they have returned a proxy card.
By Order of the Board of Directors,
Joseph L. Campbell, II
Vice President, Treasurer and
Secretary
Kansas City, Kansas
, 1996
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN +
+OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY +
+SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR +
+SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 1, 1996
PROXY STATEMENT
OF
ASSOCIATED WHOLESALE GROCERS, INC.
AND
PROSPECTUS OF
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
This Proxy Statement/Prospectus is being furnished to the holders of
outstanding shares of Class A common stock, $100 par value ("AWG Class A Common
Stock") and Class B common stock, $100 par value ("AWG Class B Common Stock")
(collectively, "AWG Common Stock"), of ASSOCIATED WHOLESALE GROCERS, INC., a
Missouri corporation ("AWG" or the "Company"), in connection with the
solicitation by the Board of Directors of AWG (the "AWG Board") of proxies for
use at the Special Meeting of the shareholders of AWG ("Shareholders") to be
held on , 1996, at p.m., local time, at
,
, , and at any adjournments
thereof (the "Special Meeting").
At the Special Meeting, Shareholders will be asked to approve an Agreement
and Plan of Merger (the "Merger Agreement") pursuant to which (i) outstanding
shares of AWG Common Stock will be converted into the right to receive an
aggregate of 25 million shares of common stock, $.01 par value ("AWG Group
Common Stock"), of Associated Wholesale Grocers Group, Inc., a Kansas
corporation ("AWG Group") and (ii) AWG Merger Corp. ("Merger Corp."), a wholly-
owned subsidiary of AWG Group, will be merged with and into AWG with AWG as the
surviving corporation (the "Merger"). See "THE MERGER--Terms of the Merger."
Shares of AWG Group Common Stock will be entitled to one vote per share on all
matters submitted to a vote of shareholders, and are subject to certain
restrictions on transfer. See "DESCRIPTION OF AWG GROUP CAPITAL STOCK." A copy
of the Merger Agreement appears as Annex A to this Proxy Statement/Prospectus
and should be read in its entirety. The Merger will only be effected in
connection with an underwritten initial public offering of shares of AWG Group
Common Stock. Accordingly, a vote for the Merger is in effect a vote to proceed
with the Initial Public Offering, as defined below.
This Proxy Statement/Prospectus also constitutes the prospectus of AWG Group
with respect to 25 million shares of AWG Group Common Stock to be issued in the
Merger to the holders of AWG Common Stock. See "THE MERGER --Terms of the
Merger."
If the Merger Agreement is approved by the Shareholders, the Board of
Directors of AWG Group intends to proceed with an initial public offering in
which shares of AWG Group Common Stock will be sold to the public (the "Initial
Public Offering"). The Initial Public Offering is presently anticipated to
consist of 10 million shares of AWG Group Common Stock and to generate gross
proceeds of approximately $200 million for AWG Group. The final public equity
market valuation of AWG Group and the resulting price per share at which shares
of AWG Group Common Stock are sold in the Initial Public Offering may be above
or below the valuation range and per share price used by AWG Group in
connection with the Merger. See "THE MERGER--Valuation by Underwriters." See
"THE INITIAL PUBLIC OFFERING." It is presently anticipated that, immediately
following effectiveness of the Merger Agreement and consummation of the Initial
Public Offering, the shares of AWG Group Common Stock held by AWG's
Shareholders will constitute approximately 71% of the outstanding shares of AWG
Group Common Stock. See "THE INITIAL PUBLIC OFFERING."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY A PROSPECTIVE INVESTOR.
THE SECURITIES TO BE ISSUED PURSUANT TO THE MERGER AGREEMENT HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or to make any representation
other than those contained or incorporated by reference in this Proxy
Statement/Prospectus, and, if given or made, such information or representation
should not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to
or from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither
the delivery of this Proxy Statement/Prospectus nor any distribution of
securities pursuant to this Proxy Statement/Prospectus, under any
circumstances, creates an implication that there has been a change in the
affairs of AWG, AWG Group or Merger Corp. or in the information set forth
herein since the date of this Proxy Statement/Prospectus.
<PAGE>
This Proxy Statement/Prospectus does not cover any resale of the securities
to be received by Shareholders of AWG upon consummation of the Merger, and no
person is authorized to make any use of this Proxy Statement/Prospectus in
connection with any such resale.
The date of this Proxy Statement/Prospectus is , 1996. This
Proxy Statement/Prospectus is first being mailed to the Shareholders of AWG on
or about , 1996.
ADDITIONAL INFORMATION
AWG Group has filed a registration statement on Form S-4 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") with
the Securities and Exchange Commission (the "SEC") pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the shares of
AWG Group Common Stock to be issued in connection with the Merger. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the SEC. The Registration Statement is
available for inspection and copying at the Public Reference Room of the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Statements contained in this Proxy Statement/Prospectus as
to the contents of any contract or other document referred to herein or
therein are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF PROXY STATEMENT/PROSPECTUS....................................... 6
Overview of Proposed Transactions......................................... 6
The Special Meeting....................................................... 6
Parties to the Merger..................................................... 7
The Merger................................................................ 8
Conditions to the Merger; Effective Time.................................. 8
Recommendation of Board of Directors...................................... 8
The Initial Public Offering............................................... 9
Current Year Patronage Rebate............................................. 9
Treatment of Outstanding Patronage Certificates and Member Deposits....... 9
Recent Shareholder Option Program......................................... 9
New Retailer Incentive Program............................................ 10
Market for Common Stock and Dividends..................................... 10
Rights of Shares Before and After the Merger.............................. 10
Dissenters' Rights........................................................ 11
Federal Income Tax Consequences........................................... 11
Conflicts of Interest..................................................... 11
RISK FACTORS................................................................ 12
THE COMPANIES............................................................... 13
THE SPECIAL MEETING......................................................... 14
Purpose of Special Meeting................................................ 14
Voting at the Special Meeting............................................. 15
Proxies................................................................... 15
Proxy Solicitation........................................................ 15
Other Matters to be Considered............................................ 15
THE MERGER.................................................................. 16
Reasons for the Merger; Recommendation of the Board of Directors.......... 16
Valuation by Underwriters................................................. 17
Terms of the Merger; Directors and Executive Officers..................... 19
Conversion Formula........................................................ 19
Treatment of Patronage Certificates....................................... 21
Interests of Certain Persons in the Merger................................ 22
Merger Procedures......................................................... 22
Operations after the Merger............................................... 22
Dissenters' Rights........................................................ 22
Federal Income Tax Consequences of the Merger............................. 23
Abandonment and Termination; Amendment of the Merger Agreement............ 24
RETAILER INCENTIVE PROGRAMS................................................. 24
New Retailer Incentive Program............................................ 24
Recent Shareholder Option Program......................................... 25
Federal Income Tax Consequences of Retailer Incentive Programs............ 25
THE INITIAL PUBLIC OFFERING................................................. 26
CAPITALIZATION.............................................................. 27
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA............... 28
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............. 30
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................... 33
Overview................................................................. 33
Twenty-Four Weeks Ended June 15, 1996, Compared to Twenty-Four Weeks
Ended June 17, 1995..................................................... 34
1995 Compared to 1994.................................................... 35
1994 Compared to 1993.................................................... 35
Liquidity and Capital Resources.......................................... 36
BUSINESS................................................................... 37
General.................................................................. 37
Business Strategy........................................................ 38
Growth Strategy.......................................................... 38
Store Development Services............................................... 39
Concept Stores........................................................... 41
Valu Merchandisers....................................................... 41
Private Label Programs................................................... 42
Retailer Support Services................................................ 42
Corporate Sales Development.............................................. 43
Pricing Policy........................................................... 44
Procurement.............................................................. 44
Distribution Centers..................................................... 45
Transportation........................................................... 46
Management Operating Systems............................................. 47
Competition.............................................................. 48
Facilities............................................................... 48
Employee Relations....................................................... 49
Material Customer........................................................ 49
Legal Proceedings........................................................ 49
Regulation............................................................... 50
MANAGEMENT................................................................. 50
Directors and Executive Officers of AWG Group and Certain Key Personnel
of AWG.................................................................. 50
Directors and Executive Officers......................................... 50
Certain Key Personnel.................................................... 51
EXECUTIVE COMPENSATION..................................................... 52
Pension Plans............................................................ 52
Equity Incentive Plan.................................................... 53
Director Compensation.................................................... 53
CERTAIN TRANSACTIONS....................................................... 53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 54
DESCRIPTION OF AWG GROUP CAPITAL STOCK..................................... 55
Common Stock............................................................. 55
Preferred Stock.......................................................... 56
Shareholder Rights Plan.................................................. 56
Limitations on Change of Control......................................... 57
Transfer Restrictions.................................................... 58
COMPARISON OF SHAREHOLDER RIGHTS........................................... 58
General.................................................................. 58
Number of Directors...................................................... 58
Vacancies on the Board of Directors...................................... 59
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Removal of Directors..................................................... 59
Voting................................................................... 59
Special Meetings......................................................... 59
Indemnification; Limitation of Liability................................. 59
Shareholder Inspection................................................... 60
Amendment of Articles of Incorporations.................................. 60
Amendment of Bylaws...................................................... 61
Notice of Shareholder Proposals; Nominations of Directors................ 61
Shareholders' Vote for Mergers........................................... 61
Appraisal Rights......................................................... 62
Anti-takeover Statutes................................................... 62
MARKET FOR COMMON STOCK.................................................... 62
SHARES ELIGIBLE FOR FUTURE SALE............................................ 63
LEGAL MATTERS.............................................................. 63
EXPERTS.................................................................... 63
REPORTS TO SECURITIES HOLDERS.............................................. 64
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
AGREEMENT AND PLAN OF MERGER........................................... ANNEX A
AWG GROUP ARTICLES OF INCORPORATION.................................... ANNEX B
SECTION 351.455 OF THE MGBCL........................................... ANNEX C
AWG GROUP BYLAWS....................................................... ANNEX D
</TABLE>
5
<PAGE>
SUMMARY OF PROXY STATEMENT/PROSPECTUS
The following is a summary of certain important terms and conditions of the
Merger and related information. This summary does not purport to be complete
and is qualified in its entirety by reference to the more detailed information
appearing in this Proxy Statement/Prospectus, including the Annexes hereto.
Shareholders are urged to read this Proxy Statement/Prospectus and the Annexes
in their entirety. References to AWG herein shall include AWG and its direct
and indirect subsidiaries.
OVERVIEW OF PROPOSED TRANSACTIONS
The AWG Board, together with management and with the advice of the Company's
financial and legal advisors, has been studying the possibility of converting
AWG from a corporation operating as a cooperative to a general business
corporation and undertaking an initial public stock offering. The Merger to be
acted upon at the Special Meeting is an essential element of the conversion and
public offering. The proposed conversion will not occur unless AWG Group has
entered into a firm commitment underwriting agreement with respect to the
Initial Public Offering. As a result of the proposed conversion, AWG will no
longer distribute a portion of its profits as patronage to its Shareholders.
Shareholders should carefully consider the impact on their business of the loss
of patronage rebates.
The AWG Board has carefully considered the formula included in the Merger
Agreement that provides for the manner of converting shares of AWG Common Stock
into shares of AWG Group Common Stock and believes the formula is a reasonable
and appropriate way to allocate the value of AWG among its Shareholders. The
formula considers both current stock ownership and the relative purchasing
levels of Shareholders since January 1, 1989. See "THE MERGER--Conversion
Formula."
Following the Merger, a significant amount of cash will be made available to
Shareholders through the payment in the spring of 1997 of 100% of 1996
patronage rebates in cash (approximately $57 million, based on 1996 projected
operating results). In addition, a portion of the proceeds of the Initial
Public Offering will be used to repay all member deposit certificates ("Member
Deposit Certificates") (approximately $12 million) and redeem all patronage
rebate certificates ("Patronage Certificates") held by Shareholders holding
Patronage Certificates with an aggregate principal amount of less than $1
million (approximately $56 million). The Company believes this capital
(approximately $125 million in the aggregate) will allow its retailers to
facilitate additional store openings and remodeling programs, which are
expected to stimulate increased revenue growth for the retailers and, in turn,
for the Company.
Immediately following the Merger and the Initial Public Offering, AWG will
continue to be controlled by its current Shareholders, who will own
approximately 71% of the outstanding AWG Group Common Stock. See "THE INITIAL
PUBLIC OFFERING." The AWG Board believes that retailer ownership is
strategically important to the continued success of AWG. As a result, the AWG
Board has implemented several protections against the loss of such control,
including various corporate anti-takeover provisions and a two-year restriction
on sales of AWG Group Common Stock received by the Shareholders in the Merger.
See "DESCRIPTION OF AWG GROUP CAPITAL STOCK."
THE AWG BOARD RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE MERGER AGREEMENT.
THE SPECIAL MEETING
The Special Meeting will be held on , , at .m.,
local time, at , to consider and to vote upon approval
of the Merger Agreement and such other matters as may properly come before the
Special Meeting. Only Shareholders of record at the close of business on
, 1996 (the "Record Date") will be entitled to notice of, and to vote
at, the Special Meeting. Each outstanding share of AWG Class A Common Stock is
entitled to one vote upon each matter presented at
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the Special Meeting, voting as a separate class. Each outstanding share of AWG
Class B Common Stock is entitled to one vote upon the proposal to approve the
Merger Agreement, voting as a separate class. The presence, in person or by
properly executed proxy, of a majority of the voting power of the shares of AWG
Class A Common Stock issued, outstanding and entitled to vote is necessary to
constitute a quorum of AWG Class A Common Stock at the Special Meeting. The
presence, in person or by properly executed proxy, of a majority of the voting
power of the shares of AWG Class B Common Stock issued, outstanding and
entitled to vote is necessary to constitute a quorum of AWG Class B Common
Stock at the Special Meeting. At the close of business on the Record Date,
and shares of AWG Class A Common Stock and AWG Class B Common
Stock, respectively, were issued, outstanding and entitled to vote. See "THE
SPECIAL MEETING."
Under the Missouri General Business Corporation Law (the "MGBCL"), the
affirmative vote of holders of (i) two-thirds of the outstanding shares of AWG
Class A Common Stock, and (ii) two-thirds of the outstanding shares of AWG
Class B Common Stock, voting as separate classes, is required to approve the
Merger Agreement. All of the members of the Board of Directors of AWG are
affiliated with Shareholders of AWG, constituting % of the shares of AWG
Class A Common Stock and % of the shares of AWG Class B Common Stock entitled
to vote at the Special Meeting. Directors affiliated with Shareholders holding
% of the shares of AWG Class A Common Stock and % of the shares of AWG
Class B Common Stock have indicated to AWG that such Shareholders will vote to
approve the Merger Agreement. Shareholders who do not vote to approve the
Merger Agreement and who otherwise comply with the requirements of the MGBCL
may dissent from the Merger and demand payment of the fair value of their
shares of AWG Common Stock. See "THE MERGER--Dissenters' Rights."
PARTIES TO THE MERGER
AWG. AWG, a Missouri corporation, is a retailer-owned wholesale food
distributor operating on a cooperative basis supplying a wide variety of food
products and non-food items and services to approximately 830 retail grocery
stores and supermarkets located in Arkansas, Illinois, Iowa, Kansas, Kentucky,
Missouri, Nebraska, Oklahoma, Tennessee and Texas. AWG buys, sells and delivers
a wide variety of groceries, frozen foods, meats, produce, dairy products,
bakery, deli, health and beauty products and general merchandise to its
Shareholders. As an integral part of its business and growth strategy, AWG
offers a variety of value-added support services to its Shareholders, including
store development and engineering services, financing assistance, merchandising
and advertising services, technological support and insurance services, all of
which are designed to enhance the Shareholders' retail capabilities. AWG's
principal executive offices are located at 5000 Kansas Avenue, Kansas City,
Kansas 66106 and its telephone number is (913) 288-1000.
AWG Group. AWG Group was formed in August 1996 under Kansas law as a general
business corporation and, prior to the Merger, will be a wholly-owned
subsidiary of AWG. Before the Merger, AWG Group will have only nominal assets
and liabilities and no income. After the Merger, AWG Group will be a holding
company not directly engaged in the operation of any business. AWG Group's
consolidated financial position immediately after the Merger will be
substantially identical to that of AWG immediately before the Merger. AWG
Group's principal executive offices are located at 5000 Kansas Avenue, Kansas
City, Kansas 66106, and its telephone number is (913) 321-1313.
Merger Corp. Merger Corp. was formed in August 1996 under Missouri law as a
general business corporation in order to effect the Merger and, immediately
prior to the Merger, will be a wholly-owned subsidiary of AWG Group. Before the
Merger, Merger Corp. will have only nominal assets and liabilities and no
income. After the Merger, Merger Corp. will be merged with and into AWG and
thereafter will cease to exist. Merger Corp.'s principal executive offices are
located at 5000 Kansas Avenue, Kansas City, Kansas 66106, and its telephone
number is (913) 321-1313.
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THE MERGER
Subject to the approval of the Merger Agreement by the Shareholders and the
satisfaction of certain other conditions, each outstanding share of AWG Common
Stock, except for shares of AWG Common Stock held by Shareholders dissenting
from the Merger ("Dissenting Shares"), will be converted automatically into the
right to receive shares of AWG Group Common Stock in accordance with the
conversion formula included in the Merger Agreement and described herein. A
total of 25 million shares of AWG Group Common Stock will be issued to
Shareholders in the Merger. The conversion formula essentially provides that
outstanding shares of AWG Common Stock will be converted into (i) approximately
6% of the shares of AWG Group Common Stock issued in the Merger based upon the
book value of the AWG Common Stock as of June 15, 1996, and (ii) the balance of
the shares of AWG Group Common Stock to be issued in the Merger based upon the
relative volume of qualifying purchases of each Shareholder from AWG during the
seven fiscal years ended December 30, 1995 and for the year-to-date period
ending September 7, 1996. See "THE MERGER--Conversion Formula."
An informational statement accompanying this Proxy Statement/Prospectus
describes, for the individual Shareholder to whom this Proxy
Statement/Prospectus has been sent, AWG's calculation of such Shareholder's
qualifying purchases and current stock ownership, together with the percentage
of shares of AWG Group Common Stock tentatively issuable to such Shareholder in
the Merger. The actual percentage of shares of AWG Group Common Stock issued to
each Shareholder in the Merger will vary from the percentage shown on the
informational statement in the event there are any Dissenting Shares, any
change in AWG's calculation of qualifying purchases for a particular
Shareholder or any change in outstanding shares of AWG Common Stock. See "THE
MERGER--Conversion Formula."
A copy of the Merger Agreement appears as Annex A to this Proxy
Statement/Prospectus and should be read in its entirety. Upon consummation of
the Merger, AWG will be merged with Merger Corp. with AWG as the surviving
corporation and AWG will become a wholly-owned subsidiary of AWG Group.
CONDITIONS TO THE MERGER; EFFECTIVE TIME
Consummation of the Merger is subject to certain conditions, including
approval of the Merger Agreement by the Shareholders at the Special Meeting and
the execution by AWG Group of a firm commitment underwriting agreement with
respect to the Initial Public Offering. Accordingly, a vote for the Merger is
in effect a vote to proceed with the Initial Public Offering. See "THE INITIAL
PUBLIC OFFERING." The Merger will become effective (the "Effective Time") upon
the issuance of a certificate of merger from the Secretary of State of the
State of Missouri.
RECOMMENDATION OF BOARD OF DIRECTORS
The AWG Board has approved the Merger Agreement and recommends that
Shareholders vote FOR the Merger Agreement. In arriving at its recommendation,
the AWG Board considered the following factors (a) the changing nature of the
wholesale food business, (b) the need for AWG to create a permanent equity base
and to have access to the public capital markets to provide additional
resources to promote continued growth, (c) the desirability of providing
Shareholders a vehicle to realize the full public equity market value of AWG,
(d) the ability to generate significant cash to redeem approximately $68
million in Member Deposit Certificates and Patronage Certificates, which will
provide capital to retailers to allow them to facilitate additional store
openings and remodeling programs, (e) AWG's continuing commitment to the
concept of a retailer-controlled distribution system, (f) AWG's continuing
commitment to maintaining its competitive low-cost position, (g) the ability to
use AWG Group Common Stock as consideration for potential acquisitions, and (h)
the public equity market valuation of AWG provided by the Underwriters (as
defined below). See "THE MERGER--Reasons for the Merger; Recommendation of the
Board of Directors."
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THE INITIAL PUBLIC OFFERING
If the Merger Agreement is approved by the Shareholders, AWG Group will
proceed with the Initial Public Offering of an anticipated 10 million shares of
AWG Group Common Stock. AWG Group expects that the net proceeds of the Initial
Public Offering will be used (i) to redeem a portion of the outstanding
Patronage Certificates and repay outstanding Member Deposit Certificates, (ii)
to reduce amounts outstanding under AWG's revolving credit line that were
borrowed to fund various recently completed capital projects, (iii) to fund
expansion of existing facilities or construction of new facilities, (iv) for
potential strategic acquisitions, (v) to provide financing to retailers for
store development, and (vi) for general corporate purposes. The final public
equity market valuation of AWG Group and the resulting price per share at which
shares of AWG Group Common Stock are sold in the Initial Public Offering may be
above or below the valuation range and per share price used by AWG Group in
connection with the Merger. See "THE INITIAL PUBLIC OFFERING" and "THE MERGER--
Valuation by Underwriters."
CURRENT YEAR PATRONAGE REBATE
AWG's Bylaws provide that patronage rebates shall be declared following the
end of each fiscal year. The Merger will result in a cessation of AWG's
operations as a cooperative, thus creating a short year for the calculation of
patronage rebates. Patronage rebates will be calculated for this short year on
the same basis as in the past; however, 100% of the rebates associated with the
short year will be paid to the Shareholders in cash. Based on 1996 projected
operating results, this payment will be approximately $57 million, is
anticipated to be made in the spring of 1997, and will provide a significant
cash infusion to retailers that will be available for additional store openings
and remodeling programs. Following the Merger, AWG will no longer operate as a
cooperative and, accordingly, will no longer pay rebates to its Shareholders.
See "THE MERGER--Treatment of Patronage Certificates."
TREATMENT OF OUTSTANDING PATRONAGE CERTIFICATES AND MEMBER DEPOSITS
Following consummation of the Initial Public Offering, AWG Group will use a
portion of the proceeds to effect the redemption of certain outstanding
Patronage Certificates and to repay all Member Deposit Certificates. Present
and former Shareholders holding outstanding Patronage Certificates having an
aggregate face value per holder of less than $1 million will have those
Certificates redeemed at face value. The great majority of these funds will be
paid to the Company's smaller retailers and is expected to provide a
significant cash infusion to such retailers that will be available for
additional store openings and remodeling programs. Present and former
Shareholders holding outstanding Patronage Certificates having an aggregate
face value of $1 million or more will not have those Certificates redeemed from
the proceeds of the Initial Public Offering; such Certificates will be paid as
they mature, bearing interest at a fixed rate of 6% per annum. See "THE
MERGER--Treatment of Patronage Certificates."
RECENT SHAREHOLDER OPTION PROGRAM
The retention of existing retailers will be fundamental to the business of
AWG Group. Retailers who became Shareholders in 1996 will receive a smaller
allocation of AWG Group Common Stock than if they had been Shareholders
throughout the purchase allocation measurement period. To encourage such
Shareholders to remain customers, AWG Group will issue stock options to
retailers who became Shareholders subsequent to January 1, 1996. The number of
shares that will be subject to options will, for each recent Shareholder, equal
the difference between the number of shares of AWG Group Common Stock actually
received by such Shareholder in the Merger and the number of shares such
Shareholder would have received in the Merger had it become a Shareholder on
January 1, 1996. The options will be exercisable only during a 90-day period
beginning 90 days after the end of the third full fiscal year after the date of
grant at the price at which shares of AWG Group Common Stock are sold in the
Initial Public Offering and will be forfeited if the retailer does not maintain
a certain level of purchase activity (80% of 1996 annualized purchases) from
AWG each year throughout the three-year period. See "RETAILER INCENTIVE
PROGRAMS."
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NEW RETAILER INCENTIVE PROGRAM
Continuing to attract new retailers after the conversion will also be
important to the business of AWG Group. To encourage retailers to become
customers of AWG after the conversion, AWG Group will implement a program to
grant new customers options to purchase AWG Group Common Stock. AWG Group will
reserve a number of shares equal to 5% of the shares outstanding after the
Initial Public Offering for issuance under this program. The recipients of
options, and the number of shares subject to such options, will be determined
in the sole discretion of the AWG Group Board of Directors. The options will be
exercisable at various times after the third anniversary of the date of grant
at the fair market value of the AWG Group Common Stock on the date of grant and
will be forfeited if the retailer does not maintain a certain level of purchase
activity (currently set at 80% of anticipated purchases) from AWG each year
throughout the three-year period. See "RETAILER INCENTIVE PROGRAMS."
MARKET FOR COMMON STOCK AND DIVIDENDS
No public trading market currently exists for shares of AWG Common Stock.
Shares of AWG Group Common Stock to be received by Shareholders in the Merger
will not be transferable for a period of two years except in certain limited
circumstances. Shares of AWG Group Common Stock to be sold to the public
following the Merger or purchased by Shareholders in the Initial Public
Offering will be freely transferable (subject to applicable securities laws and
regulations) and will be listed on the New York Stock Exchange. No assurance
can be given, however, that a public market will develop for shares of AWG
Group Common Stock. See "DESCRIPTION OF AWG GROUP CAPITAL STOCK."
AWG has operated throughout most of its 70-year history as a retailer-owned
cooperative distributing a portion of profits in the form of patronage rebates
in accordance with the quantity of purchases by each Shareholder during the
prior fiscal year. This practice will be discontinued after the Merger, and AWG
Group will pay dividends on shares of AWG Group Common Stock when and if
declared by the Board of Directors of AWG Group. AWG Group presently
anticipates declaring dividends on shares of AWG Group Common Stock at the
initial annual rate of $.20 per share.
RIGHTS OF SHARES BEFORE AND AFTER THE MERGER
AWG's Bylaws currently provide that shares of AWG Common Stock may be owned
only by retail store owners ("retailers"), who must hold a minimum of 15 shares
of AWG Common Stock and maintain active purchasing accounts. The Bylaws further
provide that any Shareholder who desires to dispose of its shares of AWG Common
Stock must first offer such shares to AWG, and AWG must accept such offer, at a
price equal to their book value. Because AWG operates as a cooperative,
Shareholders may be entitled to receive a distribution of AWG profits as year-
end patronage rebates based upon their purchases from AWG. AWG's Articles of
Incorporation provide that each share of AWG Class A Common Stock is entitled
to one vote on all corporate matters. Shares of AWG Class B Common Stock do not
vote on most corporate matters. Shares of AWG Class B Common Stock will be
entitled to vote on the Merger as a separate class from the AWG Class A Common
Stock.
AWG Group's Articles of Incorporation authorize the issuance of up to 500
million shares of AWG Group Common Stock. Shares of AWG Group Common Stock sold
in the Initial Public Offering will be freely transferable (subject to
applicable securities laws and regulations). Shares of AWG Group Common Stock
to be issued to Shareholders in the Merger will not be transferable for a
period of two years, except (i) as collateral in connection with certain store
development financing transactions if approved by the Company, (ii) in
conjunction with the sale of substantially all of the assets or stock (if a
corporation) of a Shareholder, or (iii) by way of a bona-fide gift, to a family
trust or pursuant to the death of a Shareholder. In each case, with the
exception of persons who acquire shares pursuant to the foreclosure of a
security interest or, in certain circumstances, pursuant to the transferor's
death, the transferee will remain subject to the remaining term of the two-year
transfer restriction. All shares of AWG Group Common Stock are entitled to one
vote per share on all corporate matters. After the Merger, neither AWG nor AWG
Group will operate as a cooperative and thus neither will pay year-end
patronage rebates to retailer shareholders. See "DESCRIPTION OF AWG GROUP
CAPITAL STOCK."
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AWG Group's Articles of Incorporation authorize AWG Group's Board to fix the
rights and preferences and to authorize the issuance of up to 50 million shares
of preferred stock. AWG Group has no plans at this time to issue Preferred
Stock, other than as necessary in conjunction with the Shareholder Rights Plan.
See "DESCRIPTION OF AWG GROUP CAPITAL STOCK--Shareholder Rights Plan." A copy
of the Articles of Incorporation of AWG Group appears as Annex B to this Proxy
Statement/Prospectus and should be read in its entirety. See "DESCRIPTION OF
AWG GROUP CAPITAL STOCK" and "COMPARISON OF SHAREHOLDER RIGHTS."
The Articles of Incorporation of AWG Group provide for the indemnification of
directors and officers and the elimination of their liability for monetary
damages under certain circumstances. See "DESCRIPTION OF AWG GROUP CAPITAL
STOCK."
DISSENTERS' RIGHTS
Under the MGBCL, each Shareholder who dissents from the Merger (a "Dissenting
Shareholder") has the right to have the fair value of such Shareholder's shares
appraised by judicial determination and paid to it in cash. In order to perfect
such dissenters' rights, Dissenting Shareholders must comply with the
procedural requirements of the MGBCL, including, without limitation, filing a
written objection to the Merger Agreement prior to the Special Meeting and,
within 20 days after the Effective Time of the Merger, making a written demand
for payment of the fair value of their shares. See "THE MERGER--Dissenters'
Rights." A copy of the applicable provisions of the MGBCL is attached as Annex
C. The Company believes that the fair value of Dissenting Shares will be equal
to the book value of such shares because, under the AWG Bylaws, that is the
price that a selling Shareholder would receive for its AWG shares absent the
Merger and the Initial Public Offering.
Dissenting Shares will not be converted into shares of AWG Group Common Stock
in the Merger and after the Effective Time of the Merger will represent only
the right to receive such consideration as is determined to be due such
Dissenting Shareholder pursuant to the MGBCL. AWG Common Stock outstanding
immediately prior to the Effective Time and held by a Dissenting Shareholder
who withdraws its demand for dissenters' rights or fails to perfect such rights
will be deemed to be converted at the Effective Time into the right to receive
shares of AWG Group Common Stock, without interest.
FEDERAL INCOME TAX CONSEQUENCES
AWG has received an opinion from KPMG Peat Marwick LLP and an opinion from
Blackwell Sanders Matheny Weary & Lombardi L.C. that the exchange of shares of
AWG Common Stock for shares of AWG Group Common Stock in the Merger will
qualify as a tax-free exchange for federal income tax purposes. See "THE
MERGER--Federal Income Tax Consequences of the Merger."
CONFLICTS OF INTEREST
Each director of AWG is affiliated with a Shareholder of AWG and, as such,
may be deemed to have an interest in those shares of AWG Common Stock held by
such Shareholder that will be converted into shares of AWG Group Common Stock
in the Merger. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
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RISK FACTORS
In addition to the other information set forth in this Proxy
Statement/Prospectus, the following principal risk factors should be
considered carefully before Shareholders determine their vote on the Merger.
Cessation of Operations as a Cooperative; Potential Failure of Retailers to
Continue Purchases. Throughout most of its 70 year history, AWG has operated
as a cooperative. As a cooperative, the substantial majority of its sales were
made to Shareholders who received year-end patronage rebates with respect to
their purchases. After the Merger, AWG will not operate as a cooperative and
will not pay year-end patronage rebates. The cessation of such rebates could
cause retailers to purchase from other wholesalers or could have an adverse
economic impact on some retailers. A significant failure of retailers to
continue their historical level of purchases after the Merger, whether because
they choose a different wholesaler or because they are unable to continue to
operate without the year-end patronage rebate payments, could have a material
adverse effect on the financial condition and results of operations of AWG
Group.
Transfer Restrictions. The shares of AWG Group Common Stock received by
Shareholders in the Merger will not be transferable for a period of two years
from the Effective Date of the Merger except in certain limited circumstances.
See "DESCRIPTION OF AWG GROUP CAPITAL STOCK--Transfer Restrictions." In
addition, there can be no assurance that an active trading market in AWG Group
Common Stock will develop, that the market price of AWG Group Common Stock
will be greater than the price at which AWG Group Common Stock is initially
sold to the public in the Initial Public Offering, or that Shareholders will
be able to sell such shares immediately upon termination of the transfer
restrictions. See "SHARES ELIGIBLE FOR FUTURE SALE."
Competition. Generally, food products are commodities and retailers base
their purchasing decisions principally on the delivered price of the product.
As a result, the grocery industry, including the wholesale food distribution
business, is characterized by intense competition and low profit margins. AWG
competes with a number of local, regional and national grocery wholesalers and
with a number of major businesses that market their products directly to
retailers, including companies having greater assets and larger sales volumes
than AWG. AWG's customers also compete at the retail level with independent
grocery and food retailers and several chain grocery store organizations, some
of which have integrated wholesale and retail operations. Competition among
retailers is intense, based primarily on price, quality and selection of
merchandise. Retailers' ability to compete effectively cannot be assured. See
"BUSINESS--Competition."
No Prior Public Market; Potential Market Dilution from Shares Eligible for
Future Sale. It is expected that AWG Group Common Stock will be approved for
listing on the New York Stock Exchange. There has been no public market for
AWG Group Common Stock and there can be no assurance that an active market
will develop following the Initial Public Offering. In addition, the public
markets experience price and volume volatility. These fluctuations may be
unrelated to the operating performance of particular companies whose shares
are traded on such markets and may adversely affect the market price of AWG
Group Common Stock. The market price could also be subject to significant
fluctuations in response to AWG Group's operating results, the operating
results of its competitors, government regulation, litigation and other
factors. Market prices of AWG Group Common Stock may be adversely affected by
sales of shares of AWG Group Common Stock which become eligible for sale after
the Initial Public Offering. See "SHARES ELIGIBLE FOR FUTURE SALE."
Potential Change in Valuation and Market Price. The initial public offering
price will be determined at the time of the offering by negotiation between
AWG Group and its underwriters will be based on market conditions prevailing
at that time, and will not necessarily reflect current valuations, the market
price of AWG Group Common Stock after the Initial Public Offering or the price
at which AWG Group Common Stock may be sold in the future.
Limitations on Change in Control. AWG Group has implemented a shareholder
rights plan that may have the effect of delaying, deferring or preventing a
change in control of AWG Group or the removal of its existing management.
Additionally, certain provisions in the Articles of Incorporation and Bylaws
of AWG Group could have the same effect. Such anti-takeover provisions may
benefit AWG Group shareholders if a takeover were attempted with a view to
impose a merger, a sale of all or any part of the assets of AWG Group or a
similar
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transaction that may not be in the best interests of all of the shareholders.
On the other hand, anti-takeover provisions could adversely affect
shareholders of AWG Group by discouraging takeovers that are structured in a
way that would be favorable to the interests of the shareholders, including
the receipt of a premium for their shares of AWG Group Common Stock. See
"DESCRIPTION OF AWG GROUP CAPITAL STOCK."
New Board of Directors. The current AWG Board of Directors consists entirely
of representatives of AWG's retailers. Effective upon consummation of the
Merger and Initial Public Offering, the Board of Directors of AWG Group will
consist of Mike DeFabis and Doug Carolan, executive officers of AWG Group, J.
Fred Ball, Jim Queen and Don Woods, Jr., representatives of AWG's retailers,
and four directors who are not affiliated with AWG or its retailers.
Accordingly, the Board of Directors of AWG Group will not consist entirely of
retailer representatives as is the case with the current AWG Board. See
"MANAGEMENT."
Retention of Key Personnel. Continued profitability of AWG is dependent on
the experience and abilities of its senior management, including Mike DeFabis,
President and Chief Executive Officer; Doug Carolan, Executive Vice President
and Chief Operating Officer; Tom Williams, Executive Vice President of
Division Operations; Gary Phillips, Executive Vice President of Finance and
Administration and Chief Financial Officer and Joe Campbell, Vice President,
Secretary and Treasurer. None of these persons is subject to a written
employment or non-compete agreement. There would likely be a difficult
transition period if the services of any of these persons were lost. Moreover,
given the growth plans of AWG, it may be necessary in the future to engage the
services of additional skilled key employees and officers. There is
competition in the wholesale grocery business for qualified personnel and
thus, there is no assurance that AWG will be able to retain its current key
management or attract additional qualified key persons as needed. See
"MANAGEMENT."
Dependence on Homeland. Approximately 50% of sales originated by AWG's
Oklahoma distribution center in 1996 to date have been made to Homeland
Stores, Inc. ("Homeland"). For the 24 weeks ended June 15, 1996, sales to
Homeland represented approximately 10% of the sales of AWG as a whole. The
loss of Homeland as a customer or a substantial decrease in the number of
stores operated by Homeland would significantly reduce the profitability of
AWG's Oklahoma division and could have an adverse impact on the profitability
of AWG as a whole. AWG has entered into a long term supply agreement with
Homeland pursuant to which Homeland has agreed to utilize AWG as its primary
supplier through April 22, 2002. On May 13, 1996, Homeland filed a voluntary
Chapter 11 petition for bankruptcy reorganization. In its plan of
reorganization, which was confirmed by the bankruptcy court on July 19, 1996,
Homeland assumed most of its pending contracts, including the supply agreement
with AWG. Homeland has notified AWG that Homeland believes that the
consummation of the Merger and the Initial Public Offering will constitute a
default by AWG under the supply agreement. The loss of Homeland as a customer,
or a successful claim by Homeland for damages or other relief resulting from
an alleged default by AWG under the supply agreement could have a material
adverse impact on the business or profitability of AWG. However, the Company
has advised Homeland that it believes that no such default has or will occur
as a result of the Merger and the Initial Public Offering. See "BUSINESS--
Material Customer."
Customer Control. Following the Initial Public Offering, shares of AWG Group
Common Stock received by Shareholders in the Merger will constitute
approximately 71% of all outstanding shares and votes eligible to be cast in
any vote of AWG Group's shareholders. See "THE INITIAL PUBLIC OFFERING." These
Shareholders constitute virtually all of AWG's retailers. Accordingly, certain
conflicts of interest may arise between Shareholders and the holders of AWG
Group Common Stock who are not AWG retailers. Such holders of AWG Group Common
Stock will be relying on the Company's management and Board of Directors to
maximize value for all shareholders and to act in accordance with their
fiduciary duties to the Company if such conflicts arise. See "MANAGEMENT."
Loss of a Major Retailer. AWG's five largest retailers accounted for
approximately 34% of its sales in fiscal 1995. Management believes that the
loss of any one of these retailers could have an adverse impact on the
profitability of AWG.
THE COMPANIES
AWG. AWG is a retailer-owned wholesale food distributor operating on a
cooperative basis supplying a wide variety of food products and non-food items
and services to approximately 830 retail grocery stores and supermarkets
located in Arkansas, Illinois, Iowa, Kansas, Kentucky, Missouri, Nebraska,
Oklahoma, Tennessee
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and Texas. AWG buys, sells and delivers a wide variety of groceries, frozen
foods, meats, produce, dairy products, bakery, deli, health and beauty
products and general merchandise to its Shareholders. As an integral part of
its business and growth strategy, AWG offers a variety of value added support
services to its Shareholders, including store development and engineering
services, financing assistance, merchandising and advertising services,
technological support and insurance services, all of which are designed to
enhance the Shareholder's retail capabilities. AWG's principal executive
offices are located at 5000 Kansas Avenue, Kansas City, Kansas 66106 and its
telephone number is (913) 321-1313.
AWG Group. AWG Group was formed in August 1996 under Kansas law as a general
business corporation in order to effect the Merger and, immediately prior to
the Effective Time, will be wholly-owned by AWG. Before the Merger, AWG Group
will have only nominal assets and liabilities and no income. After the Merger,
AWG Group will be a holding company not directly engaged in the operation of
any business. AWG Group's consolidated financial position immediately after
the Merger will be substantially identical to that of AWG immediately before
the Merger. AWG Group's principal executive offices are located at 5000 Kansas
Avenue, Kansas City, Kansas 66106, and its telephone number is (913) 321-1313.
Merger Corp. Merger Corp. was formed in August 1996 under Missouri law as a
general business corporation in order to effect the Merger and, immediately
prior to the Effective Time, will be wholly-owned by AWG Group. Before the
Merger, Merger Corp. will have only nominal assets and liabilities and no
income. In the Merger, Merger Corp. will be merged with and into AWG and will
cease to exist. Merger Corp.'s principal executive offices are located at 5000
Kansas Avenue, Kansas City, Kansas 66106, and its telephone number is (913)
321-1313.
THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to Shareholders in
connection with the solicitation of proxies by the AWG Board from Shareholders
for use at the Special Meeting. This Proxy Statement/ Prospectus is also being
furnished to Shareholders in connection with the offer of the AWG Group Common
Stock to be issued in the Merger.
PURPOSE OF SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote upon (i) a
proposal to approve the Merger Agreement, and (ii) such other matters, if any,
as may properly come before the Special Meeting or any adjournment or
postponement thereof. A vote for the Merger is in effect a vote to proceed
with the Initial Public Offering. The AWG Board is not aware of, as of the
date of mailing of this Proxy Statement/Prospectus, any other business to be
brought before the Special Meeting. The enclosed proxy card authorizes the
voting of shares represented by the proxy on all other matters that may
properly come before the Special Meeting, and any adjournment or postponement
thereof, and it is the intention of the proxy holders to take such action in
connection therewith as shall be in accordance with their best judgment.
At the Effective Time, each share of AWG Common Stock outstanding
immediately prior to the Merger held by Shareholders who do not exercise their
statutory right to dissent from the Merger will be converted into the right to
receive shares of AWG Group Common Stock in accordance with the conversion
formula set forth in the Merger Agreement and more fully described below. See
"THE MERGER--Conversion Formula." AWG and Merger Corp. will merge and AWG will
become a wholly-owned subsidiary of AWG Group. Dissenting Shareholders will
only be entitled to receive the "fair value" of their shares as defined by the
MGBCL. See "THE MERGER--Dissenters' Rights."
AWG Group will file a Certificate of Merger with the Secretary of State of
the State of Missouri only if it has entered into a firm commitment
underwriting agreement with respect to the sale of shares of AWG Group Common
Stock to the public. See "THE INITIAL PUBLIC OFFERING."
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THE AWG BOARD HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, AUTHORIZED THE EXECUTION AND DELIVERY OF THE MERGER
AGREEMENT, AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
VOTING AT THE SPECIAL MEETING
Only Shareholders who hold shares of AWG Common Stock of record as of the
Record Date will be entitled to notice of and to vote at the Special Meeting.
Each share of AWG Class A Common Stock outstanding as of the Record Date is
entitled to one vote upon each matter presented at the Special Meeting,
exercisable at the Special Meeting in person or by properly executed proxy. As
of the Record Date, there were shares of AWG Class A Common Stock
entitled to vote at the Special Meeting. Each share of AWG Class B Common
Stock outstanding as of the Record Date is entitled to one vote upon the
proposal to approve the Merger Agreement, exercisable at the Special Meeting
in person or by properly executed proxy. As of the Record Date, there were
shares of AWG Class B Common Stock entitled to vote at the Special
Meeting. Shares of AWG Class B Common Stock are not entitled to vote upon any
other matter presented at the Special Meeting.
The presence, in person or by properly executed proxy, of a majority of the
shares of AWG Class A Common Stock entitled to vote is necessary to constitute
a quorum of the AWG Class A Common Stock at the Special Meeting. The presence,
in person or by properly executed proxy, of a majority of the shares of AWG
Class B Common Stock entitled to vote is necessary to constitute a quorum of
the AWG Class B Common Stock at the Special Meeting. Under Missouri law, the
affirmative vote of the holders of (i) two-thirds of the shares of AWG Class A
Common Stock, and (ii) two-thirds of the shares of AWG Class B Common Stock,
voting as separate classes, is required to approve the Merger Agreement.
Abstentions and failures to vote will have the same effect as votes cast
against approval of the Merger Agreement.
PROXIES
Shareholders are requested to complete, date, sign and promptly return the
accompanying proxy card in the enclosed envelope. All shares of AWG Common
Stock represented at the Special Meeting by properly executed proxies received
by AWG prior to or at the Special Meeting, unless such proxies have been
revoked, will be voted at the Special Meeting in accordance with the
instructions on the proxy card. If no instructions are specified on the proxy
card, the proxy granted therein will be voted FOR approval of the Merger
Agreement.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted (i) by filing with the Secretary of
AWG written notice of such revocation bearing a later date than the proxy
card, (ii) by duly executing a subsequent proxy card relating to the same
shares and delivering it to the Secretary of AWG, or (iii) by attending the
Special Meeting and voting in person (although attendance at the Special
Meeting will not in and of itself constitute revocation of a proxy). Any
written notice revoking a proxy should be sent to AWG, 5000 Kansas Avenue,
P.O. Box 2932 Kansas City, Kansas 66110-2932, Attention: Joseph L. Campbell,
II, Secretary.
PROXY SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing the proxy materials furnished to Shareholders in connection with the
Special Meeting, will be borne by AWG. In addition to solicitation by use of
the mails, proxies may also be solicited on behalf of AWG by certain
directors, officers and regular employees of AWG in person or by telephone or
telegram. Such persons will receive no additional compensation for their
services. AWG anticipates holding a series of regional and individual
informational meetings with Shareholders before the Special Meeting.
OTHER MATTERS TO BE CONSIDERED
AWG is not aware of any matters other than as described in the accompanying
Notice of Special Meeting that are to come before the Special Meeting. If any
other matters are properly presented to the Special Meeting for action, the
persons named as proxies will have discretion to vote on such matters in
accordance with their best judgment.
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THE MERGER
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
AWG has operated as a retailer-owned cooperative grocery wholesaler
throughout most of its 70-year history. In the fall of 1995, as part of its
long-range planning process, the AWG Board began to study the Company's long
range operating plans and financing alternatives, such as an initial public
offering, additional long-term debt or a change in the amount or form of
patronage payments, for meeting those plans. For the reasons discussed below,
the AWG Board determined that the Initial Public Offering was the best
alternative to implement the Company's long range operating plans.
The AWG Board believes that the continued success of AWG depends upon the
success, growth and profitability of its retailers which, in turn, depend upon
access to capital for expansion and to a reliable and economical product
distribution source. The AWG Board has considered industry trends toward
modernizing distribution facilities and improving efficiencies that have
resulted in industry consolidation and increased competition at the retail and
wholesale levels. AWG believes it must retain existing customers and attract
new customers to maintain and increase its purchasing power and operating
efficiencies.
At a meeting of the AWG Board on September 19, 1995, management of AWG
presented its preliminary analysis of the Merger and Initial Public Offering.
The AWG Board authorized management to continue to explore the issues raised
by the Merger and Initial Public Offering, the feasibility of such a
transaction and the impact on the Shareholders. The AWG Board authorized
management to seek such professional advice as it deemed desirable.
Management has had various discussions with Lazard Freres & Co. LLC
("Lazard"), AWG's financial advisor, and with the Company's legal advisors and
accountants, concerning a possible public offering, including the method of
conversion, the applicable legal requirements, the public equity market
valuation of AWG and the operations of AWG after the Merger and Initial Public
Offering. On June 4, 1996, the AWG Board held a meeting to discuss the outcome
of these discussions. Also present at this meeting were representatives of
Lazard, the Company's accountants and the Company's outside legal counsel. At
this meeting, oral presentations were given by the Company's advisors and
AWG's management concerning the mechanics of the Merger and Initial Public
Offering, a preliminary public equity market valuation of AWG, the structure
of a conversion, the process of holding a special shareholder meeting and the
general legal and financial reporting requirements of conducting an initial
public offering. The AWG Board authorized management to continue its analysis
and to finalize specific details of the Merger and the Initial Public
Offering.
On June 25, 1996, the AWG Board held a meeting, attended only by the AWG
Board and senior management of the Company, at which management presented its
additional analysis. This additional analysis consisted of a report on the
proposed use of proceeds from the Initial Public Offering, the positive impact
on the Company that could result from the liquidity that the proposed
conversion and Initial Public Offering could provide to retailers, and the
fact that management did not foresee any operational changes occurring at the
Company as a result of the conversion and Initial Public Offering. The AWG
Board approved the Merger and the Initial Public Offering, subject to approval
of the details of the conversion formula and the Merger Agreement.
On August 13, 1996, representatives of Lazard, Smith Barney Inc. and George
K. Baum & Company (collectively the "Underwriters") met with the AWG Board to
review and update their jointly derived financial analysis and valuation of
AWG. The Underwriters reviewed with the directors the performance of the
United States equity markets in general, and of certain selected publicly
traded grocery wholesalers, during the period since the June 4, 1996 Board
meeting. In particular, the Underwriters discussed the changes in the public
equity prices and trading multiples of those selected companies. The
Underwriters reviewed with the directors the methodologies used to determine a
public equity market valuation range for AWG and the process by which a public
offering is completed and an offering price obtained. After discussing the
presentation of the Underwriters and reviewing the valuation and related
issues with management and the Company's legal advisors, the AWG
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Board approved the Merger Agreement, including the conversion formula, and
authorized management to proceed with the Merger. See "THE MERGER--Conversion
Formula" and "--Valuation by Underwriters."
In approving the Merger Agreement, the AWG Board structured the Merger and
Initial Public Offering in an attempt to provide the Shareholders with
significant capital and liquidity through the combination of AWG Group Common
Stock and the use of a portion of the Initial Public Offering proceeds to
redeem Patronage Certificates.
In reaching its decision, the AWG Board analyzed industry trends and
considered the advice of management and AWG's professional advisors. The AWG
Board concluded that it is in the best interests of AWG and its Shareholders
to reorganize AWG to enable it to obtain public equity financing. The AWG
Board believes that such financing will provide a permanent equity base upon
which AWG can finance future growth and expansion and increase its customer
base.
In addition, the AWG Board anticipates that a public equity offering will
provide AWG Shareholders a vehicle for realizing the full public equity market
value of AWG. The AWG Bylaws provide that a Shareholder who wishes to sell its
AWG Common Stock must first offer to sell it to AWG at a price equal to the
book value of such shares, and that AWG must accept such offer. Thus, AWG's
Shareholders cannot realize the full public equity market value of AWG to the
extent that value exceeds AWG's book value which, as of June 15, 1996, was
$27.7 million.
In approving the Merger Agreement, the AWG Board considered the
recommendations of management, together with the following factors: (a) the
changing nature of the wholesale food business, (b) the need for AWG to create
a permanent equity base and to have access to the public capital markets to
provide it with additional resources to promote continued growth, (c) the
desirability of providing Shareholders a vehicle to realize the full public
equity market value of AWG, (d) the ability to generate significant cash to
redeem approximately $68 million in Member Deposit Certificates and Patronage
Certificates, which will provide capital to retailers to allow them to
facilitate additional store openings and remodeling programs, (e) AWG's
continuing commitment to the concept of a retailer-controlled distribution
system, (f) AWG's continuing commitment to maintaining its competitive low-
cost position, (g) the ability to use AWG Group Common Stock as consideration
for potential acquisitions, and (h) the public equity market valuation of AWG
provided by the Underwriters. In determining that the Merger was in the best
interest of the Company and Shareholders, the AWG Board considered the above
factors as a whole and did not assign specific or relative weights to them.
AFTER CONSIDERING SUCH MATTERS, THE BOARD OF DIRECTORS OF AWG RECOMMENDS
THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
VALUATION BY UNDERWRITERS
At the August 13 meeting of the AWG Board, representatives of the
Underwriters orally expressed their views to the AWG Board concerning the
potential range of public equity market values of AWG as of such date based,
as more fully described below, upon certain considerations and assumptions and
upon historical and forecasted financial information, the pro forma historical
financial information appearing elsewhere in this Proxy Statement/Prospectus
and other information provided by AWG, as well as publicly available
information.
Prior to expressing their views, the Underwriters reviewed AWG's annual
reports, including financial statements, for 1991 through 1995; reviewed
financial information concerning the business, operations, assets and
prospects of AWG, including financial forecasts and projections; conducted
discussions with members of AWG's management concerning AWG's historical and
current business and its prospects, its anticipated operations as a public
company, and the proposed conversion formula and other terms of the Merger and
the Initial Public Offering; reviewed certain publicly available information
with respect to the historical market prices and trading activities of
publicly traded companies primarily engaged in the wholesale grocery
distribution business and compared their results of operations with those of
AWG; and reviewed recent developments in the market for initial public
offerings.
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<PAGE>
The Underwriters assumed and relied upon the accuracy and completeness of
publicly available information and all information provided by AWG and did not
independently verify such information. The Underwriters assumed that the
financial forecasts, which include positive sales growth projections, and pro
forma historical financial information were reasonably prepared on bases
reflecting the best available estimates and judgments of AWG's management. The
Underwriters assumed that the Merger would constitute a tax-free exchange and
would be accounted for at predecessor cost. The Underwriters did not express
any view as to what the value of the AWG Group Common Stock would be if and
when issued or the price at which it would trade thereafter. The Underwriters
did not make or obtain an independent valuation or appraisal of the assets or
liabilities (contingent or otherwise) of AWG Group or AWG, nor did the
Underwriters make any physical inspection of the properties or assets of AWG
Group or AWG.
Based on a comparison with the reported and publicly estimated financial
performance and current public equity market values and trading multiples of
selected publicly traded wholesale food distribution companies and based on
public equity market, economic and other conditions that existed at the time,
the Underwriters advised the AWG Board that they had jointly derived an
implied public equity market valuation for AWG in the range of $450 million to
$550 million as of August 13, 1996.
The Underwriters selected the publicly traded companies that are primarily
engaged in the full service wholesale grocery distribution business in the
United States as the companies that they deemed most comparable to AWG. Such
companies were Fleming Companies, Inc., Nash-Finch Company, Richfood Holdings,
Inc., Super Food Services, Inc. and SuperValu, Inc. Although the Underwriters
used these companies for comparison purposes, none of them is identical to
AWG. The Underwriters examined certain publicly available data for each of
such companies, including sales, gross margin, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), earnings before interest and
taxes ("EBIT") and earnings per share ("EPS") for fiscal 1991 through fiscal
1995, as well as estimates of EPS for fiscal 1996 and 1997 (as estimated by
research analysts and compiled by Institutional Brokers Estimate System). The
Underwriters also examined the ratio of the aggregate value of common stock
and net debt of each such company to its sales, EBITDA and EBIT for the latest
twelve months as well as to estimates, where available, of sales, EBITDA and
EBIT for fiscal 1996 and 1997.
The Underwriters analyzed the ratio of each such company's share price to
its EPS ("P/E Ratio") for the latest twelve months and to estimates, where
available, of its EPS for fiscal 1996 and 1997. Such analysis indicated that
the range of P/E Ratios for the comparable companies, as of August 9, 1996,
was (i) for the latest twelve months EPS, 9.6x to 24.1x, with a median of
11.4x; (ii) for 1996 estimated EPS, 10.9x to 20.3x, with a median of 13.4x;
and (iii) for 1997 estimated EPS, 9.8x to 16.7x, with a median of 11.8x. The
Underwriters compared AWG's (i) compounded annual growth rate of sales, (ii)
gross margin, (iii) EBITDA, and (iv) EBIT for fiscal 1991 through 1995 with
comparable data, together with P/E Ratios and other data discussed above, for
the comparable companies. Based on this qualitative comparison of AWG to the
comparable companies and the assumption that the public equity market would
perceive that AWG, as a public company, will have a market position and growth
prospects that are more favorable than those of the comparable companies on
average, and after applying a discount for the Initial Public Offering, the
Underwriters concluded that the foregoing P/E Ratios for the comparable
companies supported an indicated range of P/E Ratios for AWG, as a public
company, of (i) for the latest twelve months EPS, 15x to 17.3x; (ii) for 1996
projected EPS, 13.5x to 15.6x; and (iii) for 1997 projected EPS, 12.4x to
14.3x. Such indicated ratios for AWG fall above the respective median ratios
for the comparable companies and below the respective ratios for the best
performing comparable company. The Underwriters applied this range of
indicated P/E Ratios to AWG's latest twelve months net income and AWG's
projected 1996 and 1997 net income to derive the implied public equity market
value for AWG as of August 13, 1996.
On September 25, 1996, the Underwriters orally advised AWG that, as of such
date, they had not changed their views concerning the potential range of
public equity market values of AWG.
The Underwriters' public equity market valuation was directed to the AWG
Board and does not constitute a recommendation as to how Shareholders should
vote with respect to the Merger. The public equity market valuation was based
on information, assumptions, facts and conditions prevailing at the time and
there can be no
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assurance that, following the Initial Public Offering, the trading value of
AWG Group Common Stock will be consistent with the range of implied public
equity market values derived by the Underwriters.
There can be no assurance that the public equity market value of AWG at the
time of the Merger and Initial Public Offering will be within the range of
implied public equity market values derived by the Underwriters. In the event
the Shareholders approve the Merger, the AWG Board will retain the authority
to consummate the Merger and to proceed with the Initial Public Offering with
an aggregate offering price that the AWG Board believes to be in the best
interest of AWG and the Shareholders, including an aggregate offering price
that indicates a public equity market value for AWG that is below the range of
implied public equity market values derived by the Underwriters.
The AWG Board engaged the Underwriters because they are nationally-
recognized investment banking firms regularly engaged in the underwriting of
securities. In connection with such engagement, AWG agreed to appoint the
Underwriters as co-managers of the Initial Public Offering if AWG elects to
proceed with the Initial Public Offering and if the Underwriters agree at that
time to act in such capacity. The Underwriters will not receive any
compensation for their advice, other than in connection with such Initial
Public Offering. AWG has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the federal securities laws, to which
such persons may become subject in connection with such engagement.
TERMS OF THE MERGER; DIRECTORS AND EXECUTIVE OFFICERS
If approved by the Shareholders, the Merger will become effective (the
"Effective Time") upon the issuance of a certificate of merger by the
Secretary of State of the State of Missouri. Subject to the terms and
conditions of the Merger Agreement, it is presently contemplated that the
Effective Time will be as soon as practicable following the Special Meeting
and commencement of the Initial Public Offering. However, the AWG Board will
retain the authority to delay the effectiveness of the Merger until such time,
if any, that the AWG Board determines to be in the best interest of AWG and
its Shareholders.
At the Special Meeting, Shareholders of AWG will be asked to approve the
Merger Agreement pursuant to which (i) all outstanding shares of AWG Common
Stock will be converted into the right to receive shares of AWG Group Common
Stock, (ii) Merger Corp., a wholly-owned subsidiary of AWG Group, will merge
with and into AWG with AWG as the surviving corporation, (iii) all outstanding
shares of AWG Group Common Stock held by AWG will be canceled, and (iv) all
outstanding shares of Merger Corp. will be converted into shares of AWG Class
A Common Stock. A copy of the Merger Agreement appears as Annex A to this
Proxy Statement/Prospectus and should be read in its entirety.
The Articles of Incorporation and Bylaws of AWG Group are attached as
Annexes B and D hereto. Upon consummation of the Merger, the Board of
Directors of AWG Group will consist of Mike DeFabis and Doug Carolan,
executive officers of AWG Group, J. Fred Ball, Jim Queen and Don Woods, Jr.,
representatives of AWG's retailers and four additional directors to be
selected and who will not be affiliated with AWG or any of its retailers. See
"MANAGEMENT." The Board of Directors of AWG Group will appoint the executive
officers of AWG Group. The Board of Directors of AWG Group will also elect the
board of directors of AWG following the Merger.
CONVERSION FORMULA
In determining the appropriate method by which shares of AWG Common Stock
will be converted in the Merger into shares of AWG Group Common Stock, the AWG
Board first determined a reasonable estimate of the public equity market value
of AWG prior to the Initial Public Offering. After reviewing the public equity
market valuation presented by the Underwriters, the AWG Board concluded that
$500 million, the midpoint of the valuation range, was a reasonable estimate
of AWG's equity value on a public company basis as of August 13, 1996. See
"THE MERGER--Valuation by Underwriters." The AWG Board determined, based on
AWG's size and maturity and its desire to appeal to a broad range of potential
investors, that the initial share price in the
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public offering should be approximately $20 per share. Accordingly, the Merger
Agreement provides that an aggregate of 25 million shares of AWG Group Common
Stock will be issued to Shareholders in the Merger (the "Merger Shares"). The
number of shares received by a Shareholder will not change if the Initial
Public Offering price is greater or less than $20 or if the final valuation of
AWG is different than the public equity market valuation presented by the
Underwriters.
AWG operates on a cooperative basis. AWG Common Stock represents a
retailer's participation and membership interest in the cooperative and does
not enable holders to participate, as shareholders, in the earnings of AWG or
in its value as an enterprise to the extent that value exceeds AWG's aggregate
book value. As is customary for cooperatives, AWG has distributed to its
Shareholders a large percentage of its net earnings each year; these
distributions were not made on a per share basis, but were based on each
Shareholder's relative contribution to the total purchases from AWG by all
Shareholders. Also, under AWG's Articles of Incorporation and Bylaws,
Shareholders that wish to sell their shares of AWG Common Stock must offer
such shares to AWG, and AWG must purchase such shares at their book value.
The AWG Board took account of these factors when determining the terms of
the conversion formula for converting AWG Common Stock into the Merger Shares.
The AWG Board believes that the conversion formula adequately reflects AWG's
cooperative status and economic structure and the relative contributions of
its Shareholders to its value as an enterprise and, accordingly, reasonably
and appropriately converts the AWG Common Stock into the Merger Shares.
The conversion formula provides that shares of AWG Common Stock outstanding
immediately before the Effective Time and held by Shareholders that have not
properly dissented from the Merger ("Nondissenting Shareholders") will be
converted into the Merger Shares in two steps. First, the AWG Common Stock
held by Nondissenting Shareholders will be converted into Merger Shares based
on the aggregate book value of the shares of AWG Common Stock as of June 15,
1996, which was $27,747,479. Accordingly, shares of AWG Common Stock will be
converted, first, on the basis of book value, into 1,389,570 Merger Shares
(the "Book Value Conversion"). These Merger Shares will be distributed to
Nondissenting Shareholders based on the percentage that their shares of AWG
Common Stock bears to all such shares held by Nondissenting Shareholders.
Based on the number of shares of AWG Common Stock outstanding on June 15,
1996, Shareholders may calculate the number of Merger Shares they will receive
in the Book Value Conversion, assuming there are no Dissenting Shareholders,
by multiplying the number of shares of AWG Common Stock they hold by $1,365
(the book value per share as of June 15, 1996), dividing the result by 20 and
rounding down any fractional shares.
Second, the outstanding shares of AWG Common Stock held by Nondissenting
Shareholders will be converted into 23,610,430 Merger Shares (the "Purchase
Level Conversion"); such conversion will be based on each Nondissenting
Shareholder's relative percentage of qualifying purchases from AWG for the
fiscal years 1989 through 1995 and for the year-to-date period of 1996 ending
on September 7, 1996. The total dollar amount of qualifying purchases by each
Nondissenting Shareholder during each of the measured periods ("Annual
Purchase Amount") will be determined from AWG historical retailer purchase
records. Qualifying purchases are defined as purchases for products billed or
sold through AWG distribution facilities which are carried in AWG's
warehouses, subject to certain exclusions in accordance with AWG's past
practices for determining year-end patronage rebates. The Annual Purchase
Amount for each period (the "Individual Year Conversion") will then be
multiplied by a percentage, as follows: 1996 purchases--25%, 1995 purchases--
25%, 1994 purchases--14%, 1993 purchases--11%, 1992 purchases--9%, 1991
purchases--7%, 1990 purchases--5%, 1989 purchases--4%. The sum of each
Nondissenting Shareholder's Individual Year Conversion will equal its "Total
Purchase Conversion." The ratio of a Nondissenting Shareholder's Total
Purchase Conversion to the Total Purchase Conversions of all Nondissenting
Shareholders will determine each Nondissenting Shareholder's percentage of the
Purchase Level Conversion. The sum of the Book Value Conversion and the
Purchase Level Conversion for each Nondissenting Shareholder will determine
the aggregate number of shares of AWG Group Common Stock into which such
Nondissenting Shareholder's AWG Common Stock will be converted in the Merger.
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For example, if a Nondissenting Shareholder had $1,000,000 of purchases in
each period, its Individual Year Conversions would be as follows:
<TABLE>
<S> <C> <C> <C>
1996 (through September 7).................. 1,000,000 x 25% = 250,000
1995........................................ 1,000,000 x 25% = 250,000
1994........................................ 1,000,000 x 14% = 140,000
1993........................................ 1,000,000 x 11% = 110,000
1992........................................ 1,000,000 x 9% = 90,000
1991........................................ 1,000,000 x 7% = 70,000
1990........................................ 1,000,000 x 5% = 50,000
1989........................................ 1,000,000 x 4% = 40,000
---------
1,000,000
=========
</TABLE>
The Nondissenting Shareholder's Total Purchase Conversion would therefore be
$1,000,000. If the Total Purchase Conversions for all Nondissenting
Shareholders is $1,000,000,000, this Nondissenting Shareholder's Total
Purchase Conversion would represent 0.1% of such total and such Nondissenting
Shareholder would therefore receive 0.1% of the Purchase Level Conversion or
23,610 Merger Shares. Based on the number of shares of AWG Common Stock
outstanding on June 15, 1996, and assuming that there are no Dissenting
Shareholders and that such Nondissenting Shareholder held 15 shares of AWG
Common Stock, such Shareholder would receive approximately 24,633 Merger
Shares (the sum of 1,023 Merger Shares based on the Book Value Conversion and
23,610 Merger Shares based on the Purchase Level Conversion).
AWG has operated as a cooperative throughout most of its history, paying
patronage rebates according to the relative volume of qualifying purchases by
each Shareholder during the preceding fiscal year. In the absence of any
express Missouri statutory provision with respect to the manner of converting
cooperative shareholder interests into shares of an ordinary stock
corporation, the AWG Board has established the conversion formula based upon
its determination of a reasonable and appropriate division of the fair value
of a Shareholder's interest in AWG.
An informational statement accompanying this Proxy Statement/Prospectus
describes, for the individual Shareholder to whom this Prospectus has been
sent, AWG's present calculation of such Shareholder's Book Value Conversion,
Purchase Level Conversion, current stock ownership and the percentage and
number of Merger Shares tentatively issuable to such Shareholder in the
Merger. The actual percentage and number of Merger Shares issued to each
Shareholder will vary from the percentage and number shown on the
informational statement in the event there are Dissenting Shares, or there is
any change in AWG's calculation of qualifying purchases for a particular
Shareholder or any change in outstanding shares of AWG Common Stock.
TREATMENT OF PATRONAGE CERTIFICATES
AWG Group expects that approximately $68 million of the net proceeds of the
Initial Public Offering will be used by AWG to effect an early redemption of
certain Patronage Certificates and the repayment of all member deposit
certificates. Assuming that 10 million shares of AWG Group Common Stock are
sold in the Initial Public Offering at a price of $20 per share, 30% of the
estimated net proceeds would be used to redeem approximately $56.0 million
aggregate principal amount of Patronage Certificates, constituting
approximately 47% of the aggregate principal amount of certificates
outstanding at June 15, 1996. All Member Deposit Certificates, having an
aggregate principal amount of approximately $12.0 million, will be paid.
Patronage Certificates having an aggregate face value of less than $1 million
will be redeemed by the Company at face value. Patronage Certificates having
an aggregate face value of $1 million or more will not be redeemed and will be
paid as they mature, bearing interest at a fixed rate of 6% per annum.
AWG's Bylaws provide that patronage rebates shall be declared following the
end of each fiscal year. The Merger will result in a termination of the
operation of AWG as a cooperative as of the Effective Time. Patronage rebates
will be calculated for the period January 1 through the Effective Time on the
same basis as in the past;
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however, 100% of the rebate will be paid to the Shareholders in cash. This
payment, which, based on 1996 projected operating results will aggregate
approximately $57 million, is anticipated to be made in the spring of 1997.
Following the Effective Time, neither AWG nor AWG Group will operate as a
cooperative and, accordingly, will not pay rebates to retailers.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Each director of AWG is affiliated with a Shareholder of AWG and, as such,
may be deemed to have an interest in those shares of AWG Common Stock held by
such Shareholder that will be converted into shares of AWG Group Common Stock
in the Merger. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
MERGER PROCEDURES
Promptly after the Effective Time, AWG will cause to be mailed to each
person who was, at the Effective Time, a qualified holder of shares of AWG
Common Stock, a letter of transmittal and instructions for use in effecting
the receipt of shares of AWG Group Common Stock. Each holder will be required
to deliver a sworn statement acknowledging that AWG is in possession of its
stock certificate. Upon receipt of such acknowledgment, together with a
properly executed letter of transmittal, the holder will be entitled to
receive a certificate evidencing the number of shares of AWG Group Common
Stock to which it is entitled pursuant to the Merger Agreement. No fractional
Shares will be paid; the number of Shares of AWG Group Common Stock to which a
Shareholder is entitled shall be rounded down to the nearest whole share. Each
certificate that represented shares of AWG Common Stock immediately before the
Effective Time shall be deemed for all purposes to evidence ownership of the
number of shares of AWG Group Common Stock for which such shares of AWG Common
Stock shall have been converted pursuant to the Merger Agreement, unless the
owner thereof has properly exercised its dissenters' rights. Unless and until
the exchange procedures have been satisfied, no dividend or other
distribution, if any, payable to the holders of shares of AWG Group Common
Stock as of any date on or after the Effective Time, shall be paid to the
owner of such AWG Group Common Stock. Upon compliance with all procedures,
there shall be paid to the record holder the amount, without interest thereon,
of dividends and other distributions, if any, which subsequent to the
Effective Time have become payable with respect to the number of shares of AWG
Group Common Stock represented thereby. Notwithstanding the foregoing, no
person shall be liable to any holder of certificates formerly representing
shares of AWG Common Stock for any amounts paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
OPERATIONS AFTER THE MERGER
AWG does not anticipate any changes in the day-to-day operations, personnel
or management of its business following the Merger and historical levels of
service and product selection should not be affected by the Merger. At the
Effective Time, AWG will cease to operate as a cooperative and will not pay
patronage rebates with respect to its operations after the Effective Time. All
other discounts and allowances, such as Concentrated Purchase Allowance, Store
Order Load Option and pallet allowances, are expected to continue as in the
past.
DISSENTERS' RIGHTS
Section 351.455 of the MGBCL, a copy of which is attached hereto as Annex C,
entitles each holder of AWG Common Stock who dissents from the Merger and who
follows the procedures set forth in Section 351.455 to receive the fair value
of the holder's shares in cash. Under Section 351.455, a holder of AWG Common
Stock may dissent and AWG will pay to such Shareholder, upon surrender of its
certificate or certificates representing such shares, the fair value of such
Shareholder's shares as of the day prior to the Special Meeting, if such
Shareholder (i) files with AWG prior to or at the Special Meeting a written
objection to the Merger; (ii) does not vote in favor thereof; and (iii) within
20 days after the Effective Time makes a written demand to AWG for payment of
the fair value of the shares held by such Shareholder as of the day prior to
the date of the Special
22
<PAGE>
Meeting. Such demand shall state the number and class of the shares owned by
such Dissenting Shareholder. Written objections to the Merger and demands for
the payment of fair value should be addressed to: AWG, 5000 Kansas Avenue,
Kansas City, Kansas 66106, Attention: General Counsel. Shareholders who have
not complied with all of these requirements shall be conclusively presumed to
have consented to the Merger and shall be bound by the terms thereof. AWG will
provide written notice of the Effective Time of the Merger to all Shareholders
who have timely filed written notice of objection and not voted in favor of
the Merger.
A proxy marked "against" the Merger will not be deemed to be a written
notice of objection to the Merger. A Shareholder who wishes to dissent from
the Merger must provide a separate written notice of objection at or prior to
the Special Meeting, must not vote "for" the Merger and must make written
demand for payment within 20 days after the Effective Time of the Merger. A
proxy marked "against" or "abstain" or a Shareholder's failure to vote with
respect to the Merger will suffice as not voting in favor of the Merger.
A beneficial owner of shares who is not the record owner may not assert
dissenters' rights. If the stock is owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, or by a nominee, the written
demand asserting dissenters' rights must be executed by the fiduciary or
nominee. If the stock is owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand must be executed by all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for a shareholder of record; however, the agent must
identify the record owner and expressly disclose the fact that, in executing
the demand, he is acting as agent for the record owner.
If, within 30 days after the Effective Time, the value of such shares is
agreed upon between the Dissenting Shareholder and AWG, payment therefor will
be made within 90 days after the Effective Time upon the surrender by such
Shareholder of the certificate or certificates representing such shares. Upon
payment of the agreed value, the Dissenting Shareholder will cease to have any
interest in such shares or in AWG.
If, within such 30-day period, a Dissenting Shareholder and AWG do not agree
as to value, then the Dissenting Shareholder may, within 60 days after the
expiration of the 30-day period, file a petition in any court of competent
jurisdiction asking for a finding and determination of the fair value of such
shares, and shall be entitled to judgment against AWG for the amount of such
fair value as of the day prior to the date of the Special Meeting, together
with interest thereon to the date of such judgment. The judgment will be
payable only upon, and simultaneously with, the surrender to AWG of the
certificate or certificates representing shares with respect to which
dissenters' rights have been exercised. Upon the payment of the judgment, the
Dissenting Shareholder will cease to have any interest in such shares or in
AWG. Unless the Dissenting Shareholder shall file such petition within the 60-
day period, such shareholder and all persons claiming under such shareholder
will be conclusively presumed to have approved and ratified the Merger and
shall be bound by the terms thereof. The Company believes that the fair value
of shares of AWG Common Stock will be equal to the book value of such shares
at June 15, 1996.
The right of a Dissenting Shareholder to be paid the fair value of its
shares will cease if the Shareholder fails to comply with the procedures set
forth in Section 351.455 or if the Merger Agreement is terminated for any
reason.
The foregoing does not purport to be a complete statement of the procedures
to be followed by Shareholders desiring to exercise appraisal rights. In view
of the fact that exercise of such rights requires strict adherence to the
relevant provisions of the MGBCL, Shareholders who desire to exercise
appraisal rights are advised to review with care all applicable provisions of
law and to obtain legal counsel concerning proper compliance with applicable
provisions of the MGBCL.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the opinions of KPMG Peat Marwick LLP and
Blackwell Sanders Matheny Weary & Lombardi L.C. about the material federal
income tax consequences of the Merger to AWG and the Shareholders. Neither AWG
nor AWG Group has requested, nor will they request, an advance ruling from the
23
<PAGE>
Internal Revenue Service as to the federal income tax consequences of the
Merger. Therefore, there can be no assurance that the Merger will constitute a
tax-free exchange, or that other favorable tax treatment will be made
available to AWG or the Shareholders. This summary is not a complete
description of all the tax consequences of the Merger. Shareholders'
individual circumstances may affect the tax consequences of the Merger under
applicable foreign, state or local laws. Accordingly, Shareholders are advised
to consult their own tax advisors as to the specific tax consequences of the
Merger to them.
The Merger and the public offering of the shares of AWG Group will
constitute parts of a tax-free exchange described in section 351(a) of the
Internal Revenue Code. Consequently: (i) Shareholders of AWG will not
recognize gain or loss on the receipt of AWG Group Common Stock in the Merger;
(ii) AWG will not recognize gain or loss as a result of the Merger; (iii) the
basis of the AWG Group Common Stock in the hands of Shareholders will equal
the basis of stock of AWG Common Stock exchanged; (iv) the holding period of
the AWG Group Common Stock received by Shareholders upon consummation of the
Merger will include the holding period of the AWG Common Stock exchanged; and
(v) the Merger will not affect the basis or holding period of the assets of
AWG.
ABANDONMENT AND TERMINATION; AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be abandoned and terminated before the Effective
Time by the AWG Board or the AWG Group Board if, in the sole judgment of
either of them, they deem consummation of the Merger to be inadvisable for any
reason. The Merger Agreement may be amended at any time before the Effective
Time with the approval of the boards of directors of AWG, AWG Group and Merger
Corp. but no such amendment may (i) alter or change the amount or kind of
shares to be received by holders of AWG Common Stock, (ii) alter or change any
of the terms or conditions of the Merger Agreement if such alteration or
change would adversely affect the shares of AWG Group Common Stock, or (iii)
alter or change any term of AWG Group's Articles of Incorporation.
RETAILER INCENTIVE PROGRAMS
Because AWG operates in a cooperative manner, a retailer that wants to
purchase from AWG must become a Shareholder. When AWG becomes a wholly-owned
subsidiary of AWG Group, and operates as a stock corporation, such ownership
will no longer be required. Obtaining new retailers, and retention of
retailers that have recently joined, will nevertheless be just as important to
AWG Group as retention of retailers that have been Shareholders for a long
period of time. However, such persons will either receive no stock allocation,
because they became a retailer after the Initial Public Offering, or will
receive only a small allocation of stock in the Merger because they had not
been a Shareholder for a significant number of years. In order to provide an
additional incentive to encourage additional retailers to purchase from AWG
after the Merger and to encourage recent Shareholders to remain customers, AWG
Group plans to institute two retailer stock option plans, effective upon the
consummation of the Initial Public Offering.
NEW RETAILER INCENTIVE PROGRAM
Pursuant to the terms of the New Retailer Incentive Program, AWG Group will
reserve a number of shares equal to approximately 5% of the total shares
outstanding after the Initial Public Offering for issuance under options
granted to new retailers. AWG Group will have complete discretion as to the
recipients and the number of shares subject to options. The options will be
granted at the market price of the AWG Group Common Stock at the date of grant
and will be exercisable for a 30-day period beginning (i) 45 calendar days
after the end of the 36th consecutive fiscal month of AWG Group following the
date of grant, if granted during the first three fiscal quarters of a given
fiscal year, or (ii) 90 calendar days after the end of the 36th consecutive
fiscal month of AWG Group following the date of grant, if granted during the
fourth fiscal quarter of a given fiscal year. At the time an option is
granted, AWG Group will establish an anticipated purchasing level for the new
retailer. The retailer must meet a minimum percentage (currently set at 80%)
of that level throughout each of the years during the three year option period
in order for the option to remain exercisable. If the option is not or cannot
be exercised at the end of its term, it will expire. All options granted under
this program are non-transferable.
24
<PAGE>
RECENT SHAREHOLDER OPTION PROGRAM
Retailers who became Shareholders after January 1, 1996 ("Recent
Shareholders") will be eligible to receive stock options under the Recent
Shareholder Option Program on the Effective Date. The number of options
granted to a Recent Shareholder will be determined by comparing the number of
shares actually received by such Recent Shareholder under the stock conversion
allocation formula with the number of shares that would have been received
under the formula had the retailer become a Shareholder on January 1, 1996.
The number of options granted will equal the difference between these two
numbers. For example, if such Shareholder would have been allocated 15,000
shares under the conversion formula if it had become a Shareholder on January
1, 1996, but received only 10,000 shares under the formula because it became a
Shareholder on April 1, 1996, this Recent Shareholder would receive an option
to purchase an additional 5,000 shares. The options will be granted at the
Effective Time and will be exercisable at the price at which shares are sold
to the public in the Initial Public Offering. The options will be exercisable
only during a 90-day period beginning 90 days after the end of the third full
fiscal year after the date of grant. If, at any time throughout each of the
years during the three year period, purchases by such Shareholder decline
below 80% of the level of purchases used to calculate the number of option
shares, the option will lapse and will no longer be exercisable. All options
granted under this program are non-transferable.
FEDERAL INCOME TAX CONSEQUENCES OF RETAILER INCENTIVE PROGRAMS
The proper tax treatment of the retailer incentive programs is not clear.
AWG Group plans to rely on an analogy to stock options provided to employees
and other service providers. It will not treat deliveries of options to
purchase AWG Group Common Stock as causing recipients to recognize income and
will not claim any deductions for such deliveries. It will treat the exercise
of any option under the programs as a taxable event requiring optionees to
treat the excess of the fair market value of the AWG Group Common Stock
received over the option price as ordinary income and will claim deductions
for equal amounts as if they were rebates on the sale of inventory.
Information returns on Form 1099 will be issued for all income that optionees
realize from the exercise of options, unless the amount of reportable income
on any such return does not exceed $600 for the year.
Participants in the retail incentive programs should consult their tax
advisors about the programs because they may wish to adopt a different
interpretation of the income tax laws as they apply to the programs. The most
likely alternative would be to recognize income (which would be ordinary
income in the case of the New Retailer Incentive Program but might be capital
gain in the case of the Recent Shareholder Option Program) equal to the fair
market value of an option when received and recognize no income at the time an
option was exercised. Under this interpretation, AWG Group's deduction would
be limited to the amount of ordinary income that an optionee realized, but
since AWG would not be reporting those amounts on information returns, the
Internal Revenue Service might take the position that it was not entitled to
any deduction. If this interpretation were correct, optionees' basis for their
stock would be limited to the amount they paid plus the amount of income, if
any, recognized on receipt of the option; if the interpretation that AWG Group
plans to adopt is correct, the basis of shares in optionees' hands will be the
fair market value on the date of exercise.
Since the applicable legal authority with respect to the tax treatment of
the retail incentive programs may change, there can be no assurance that AWG
Group's intentions with respect to the reporting of transactions under the
program will not change. AWG Group does not plan to seek a ruling or other
official sanction for the interpretation it adopts.
25
<PAGE>
THE INITIAL PUBLIC OFFERING
It is expected that approximately 10 million shares of AWG Group Common
Stock will be offered in the Initial Public Offering. Such shares will
constitute approximately 29% of the number of shares of the AWG Group Common
Stock outstanding immediately following the Merger and consummation of the
Initial Public Offering. In connection with the Initial Public Offering, AWG
Group will grant the underwriters an option to purchase up to an additional
1.5 million shares of AWG Group Common Stock solely to cover over-allotments.
In the event the over-allotment option is exercised, shares purchased in the
Initial Public Offering will constitute approximately 32% of the outstanding
shares of AWG Group Common Stock. Management of AWG expects that the Initial
Public Offering will occur as soon as practicable after approval of the Merger
Agreement. However, the AWG Board will retain the authority to delay the
effectiveness of the Merger until such time, if any, that the AWG Board
determines to be in the best interest of AWG and its Shareholders. AWG will
not file a certificate of merger with the Secretary of State of the State of
Missouri to effect the Merger unless AWG Group has entered into a firm
commitment underwriting agreement with respect to the Initial Public Offering.
The AWG Board may terminate the Merger Agreement following its approval by the
Shareholders in the event that AWG Group does not enter into a firm commitment
underwriting agreement within a reasonable time following the Special Meeting.
AWG Group currently expects that the offering price for the shares of AWG
Group Common Stock to be sold in the Initial Public Offering will be
approximately $20 per share, but there can be no assurance that AWG Group will
be able to sell the expected number of shares of AWG Group Common Stock at
that price. The final public equity market valuation of AWG Group and
resulting per share price used in the Initial Public Offering will be
determined by the Board of Directors of AWG Group and the underwriters at the
time of the Initial Public Offering and may be above or below $500 million and
$20 per share, respectively. The net proceeds of the Initial Public Offering,
after deduction of negotiated underwriters' commissions, filing fees and other
costs associated with the offering, will be used by AWG Group (i) to redeem a
portion of the outstanding Patronage Certificates and repay outstanding Member
Deposit Certificates, (ii) to reduce amounts outstanding under AWG's revolving
credit line that were borrowed to fund various recently completed capital
projects, (iii) to fund expansion of existing facilities or construction of
new facilities, (iv) for potential strategic acquisitions, (v) to provide
financing to retailers for store development, and (vi) for general corporate
purposes.
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of AWG as of June 15,
1996, and the estimated pro forma adjustments and pro forma capitalization of
AWG Group after giving effect to the Merger and the sale of 10 million shares
of AWG Group Common Stock in the Initial Public Offering at the assumed price
of $20 per share less estimated offering expenses, including underwriters'
commissions. See "THE INITIAL PUBLIC OFFERING." The historical financial data
upon which the following table is based is included in its entirety elsewhere
in this Prospectus. The pro forma adjustments assume that the Merger occurred
and the Initial Public Offering was consummated as of the date thereof, and
that a portion of the net proceeds from the Initial Public Offering was used
to redeem as of the date thereof approximately $68 million aggregate principal
amount of outstanding Patronage Certificates and Member Deposit Certificates
and that $53 million was used to repay other long-term debt.
<TABLE>
<CAPTION>
JUNE 15, 1996
-----------------------------
PRO FORMA PRO
ACTUAL ADJUSTMENTS FORMA
-------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Revolving credit agreement..................... $ 53,000 $ (53,000) $ --
Obligations under supply agreement............. 19,045 -- 19,045
Patronage certificates......................... 109,239 (49,119) 60,120
Member deposit certificates.................... 12,041 (12,041) --
Other.......................................... 7,544 -- 7,544
-------- --------- --------
Total long-term debt......................... $200,869 $(114,160) $ 86,709
Shareholders' equity:
Preferred stock................................ N/A -- --
Class A common stock, par value $100.00 per
share, 12,000 shares authorized, 5,400 shares
issued and outstanding........................ $ 540 $ (540) $ --
Class B common stock, par value $100.00 per
share, 150,000 shares authorized, 14,945
shares issued and outstanding................. 1,494 (1,494) --
Common stock, par value $0.01, 500 million
shares authorized, issued 35 million shares... -- 350 350
Additional paid-in capital..................... 1,932 187,684 189,616
Retained earnings.............................. 23,781 -- 23,781
-------- --------- --------
Total shareholders' equity................... $ 27,747 $ 186,000 $213,747
-------- --------- --------
Total capitalization......................... $228,616 $ 71,840 $300,456
======== ========= ========
</TABLE>
27
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary below sets forth selected consolidated historical financial data
and selected consolidated pro forma financial data with respect to AWG and AWG
Group, respectively. The financial data should be read in conjunction with the
historical consolidated financial statements and related notes thereto of AWG
and in conjunction with the pro forma condensed consolidated financial
statements and related notes thereto of AWG Group included elsewhere in this
Proxy Statement/Prospectus. See "Pro Forma Condensed Consolidated Financial
Statements" and "Consolidated Financial Statements."
The selected financial data presented below under the captions "Historical
Income Statement Data" and "Historical Balance Sheet Data" as of and for each
of the fiscal years in the five-year period ended December 30, 1995 are
derived from the audited consolidated financial statements of AWG. The
consolidated financial statements as of December 31, 1994 and December 30,
1995 and for each of the fiscal years in the three-year period ended December
30, 1995 and the independent auditors' report thereon, are included elsewhere
in this Proxy Statement/Prospectus. The selected financial data under the
captions "Historical Income Statement Data" and "Historical Balance Sheet
Data" as of June 17, 1995 and June 15, 1996 and for each of the twenty-four
week periods then ended are derived from unaudited condensed consolidated
financial statements which are included elsewhere in this Proxy
Statement/Prospectus. The data set forth below should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included
elsewhere in this Proxy Statement/Prospectus.
28
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------------------------
TWENTY-FOUR
FISCAL YEAR ENDED(1) WEEKS ENDED
---------------------------------------------------------------- -----------------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, JUNE 17, JUNE 15,
1991 1992 1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales.............. $2,124.7 $2,279.9 $2,419.2 $2,484.6 $2,836.2 $1,213.5 $1,399.2
Cost of goods sold..... 2,015.2 2,149.5 2,276.5 2,335.4 2,658.5 1,138.8 1,305.5
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 109.5 130.4 142.7 149.2 177.7 74.7 93.7
General &
administrative
expenses.............. 57.3 72.4 84.4 90.5 113.8 44.2 54.6
-------- -------- -------- -------- -------- -------- --------
Operating income....... 52.2 58.0 58.3 58.7 63.9 30.5 39.1
Interest expense....... 9.4 8.1 8.4 6.8 9.3 3.9 5.8
Other income, net...... 4.9 2.8 4.7 5.3 4.8 2.3 3.4
Income tax expense
(benefit)............. 2.5 2.1 1.7 1.9 (0.2) 0.4 1.1
-------- -------- -------- -------- -------- -------- --------
Net income............. $ 45.2 $ 50.6 $ 52.9 $ 55.3 $ 59.6 $ 28.5 $ 35.6
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(2)
------------------------------
TWENTY-FOUR
FISCAL YEAR WEEKS ENDED
ENDED -----------------
DECEMBER 30, JUNE 17, JUNE 15,
1995 1995 1996
------------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT
PER SHARE INFORMATION)
<S> <C> <C> <C>
Pro forma income statement data:
Operating income............................... $63.9 $30.5 $39.1
Interest expense............................... 4.1 1.8 2.4
Other income, net.............................. 4.7 2.3 3.4
Income taxes................................... 25.8 12.4 16.0
----- ----- -----
Net income..................................... $38.7 $18.6 $24.1
===== ===== =====
Pro forma net income per share................. $1.11 $0.53 $0.69
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------------------------------------
TWENTY-FOUR
FISCAL YEAR ENDED(1) WEEKS ENDED
---------------------------------------------------------------- --------------------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, JUNE 17, JUNE 15,
1991 1992 1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Depreciation and
amortization.......... $ 7.4 $ 9.5 $ 9.1 $ 9.3 $ 14.0 $ 4.9 $ 7.5
Capital expenditures
(3)................... 12.8 21.3 5.5 15.1 18.7 4.9 9.6
Statistical Data:
Revenue growth (4)..... 6.47% 7.30% 6.11% 2.70% 14.15% 10.59% 15.30%
Net income growth...... 5.85% 11.95% 4.55% 4.54% 7.78% 13.55% 24.91%
Gross margin........... 5.15% 5.72% 5.90% 6.00% 6.26% 6.15% 6.70%
Operating income
margin................ 2.46% 2.54% 2.41% 2.36% 2.25% 2.51% 2.79%
Inventory turnover..... 25.47x 23.38x 23.23x 23.76x 22.22x 26.01x(5) 24.16x(5)
Balance Sheet Data:
Cash and cash
equivalents........... $ 33.9 $ 27.6 $ 27.1 $ 16.9 $ 18.1 $ 18.9 $ 12.1
Working capital........ 49.1 44.1 54.0 29.9 28.1 12.4 68.3
Total assets........... 309.5 302.7 320.6 339.2 463.9 407.4 456.3
Long-term obligations.. 2.4 1.7 1.2 0.7 52.5 49.3 72.0
Patronage
certificates--long
term.................. 80.9 88.2 94.4 102.0 112.4 112.0 109.2
</TABLE>
- --------
(1) AWG's fiscal year consists of thirteen four-week periods ending on the
last Saturday of December. Fiscal 1994 consisted of 53 weeks.
(2) Pro forma net income reflects reduction of interest expense as a result of
application of a portion of the proceeds from the Initial Public Offering
and provision for income taxes.
(3) Capital expenditures in 1992 included costs of an expansion to the
Springfield warehouse and office expansion in Kansas City.
(4) Revenue growth in 1992 reflects the addition of the Food Barn volume which
peaked and then declined until the Food Barn stores were purchased by AWG
retailers in April of 1994. Revenue growth in 1995 reflects the opening in
April of the Oklahoma City division.
(5) On an annualized basis.
29
<PAGE>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements of AWG
Group have been prepared on the assumption that the Merger had occurred and
the contemplated Initial Public Offering had been completed as of the
beginning of the 1995 fiscal year and the beginning of the periods for the
twenty-four week periods ended June 17, 1995 and June 15, 1996 for the pro
forma condensed consolidated statements of earnings and as of the balance
sheet date for the pro forma condensed consolidated balance sheet. The Merger
will be accounted for at predecessor cost. Adjustments have been made to
reflect the Merger, the Initial Public Offering and the other assumptions
described in the notes to the unaudited pro forma condensed consolidated
financial statements. Management believes that, on the basis of the
assumptions described in the notes to the unaudited pro forma condensed
consolidated financial statements, the pro forma condensed consolidated
financial statements reflect a reasonable estimate of the effects of the
Merger and Initial Public Offering, but are not necessarily indicative of the
financial position or results of operations of the Company, if the Merger and
Initial Public Offering had taken place on the dates indicated and are not
intended to project future financial position or results of operations.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED TWENTY-FOUR WEEKS ENDED TWENTY-FOUR WEEKS ENDED
DECEMBER 30, 1995 JUNE 17, 1995 JUNE 15, 1996
-------------------------------- ------------------------------- --------------------------------
PRO PRO PRO
FORMA FORMA FORMA
ADJUST- ADJUST- ADJUST-
ACTUAL MENTS PRO FORMA ACTUAL MENTS PRO FORMA ACTUAL MENTS PRO FORMA
---------- -------- ---------- ---------- ------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $2,836,216 -- $2,836,216 $1,213,508 -- $1,213,508 $1,399,223 -- $1,399,223
Cost of goods sold..... 2,658,478 -- 2,658,478 1,138,839 -- 1,138,839 1,305,522 -- 1,305,522
---------- -------- ---------- ---------- ------- ---------- ---------- -------- ----------
Gross profit.......... 177,738 -- 177,738 74,669 -- 74,669 93,701 -- 93,701
General and
administrative
expenses.............. 113,782 -- 113,782 44,155 -- 44,155 54,565 -- 54,565
---------- -------- ---------- ---------- ------- ---------- ---------- -------- ----------
Operating income...... 63,956 -- 63,956 30,514 -- 30,514 39,136 -- 39,136
Other income
(expenses):
Interest income....... 4,809 -- 4,809 2,301 -- 2,301 2,329 -- 2,329
Interest expense (note
3)................... (9,330) 5,212 (4,118) (3,859) 2,028 (1,831) (5,794) 3,386 (2,408)
Other, net............ (66) -- (66) 4 -- 4 1,028 -- 1,028
---------- -------- ---------- ---------- ------- ---------- ---------- -------- ----------
(4,587) 5,212 625 (1,554) 2,028 474 (2,437) 3,386 949
---------- -------- ---------- ---------- ------- ---------- ---------- -------- ----------
Income before income
taxes................. 59,369 5,212 64,581 28,960 2,028 30,988 36,699 3,386 40,085
Income taxes
(note 4).............. (203) 26,035 25,832 429 11,966 12,395 1,110 14,924 16,034
---------- -------- ---------- ---------- ------- ---------- ---------- -------- ----------
Net income............ $ 59,572 $(20,823) $ 38,749 $ 28,531 $(9,938) $ 18,593 $ 35,589 $(11,538) $ 24,051
========== ======== ========== ========== ======= ========== ========== ======== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
30
<PAGE>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 15, 1996
------------------------------
PRO FORMA PRO
ASSETS ACTUAL ADJUSTMENTS FORMA
------ --------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 1)................. $ 12,133 $ 62,315 $ 74,448
Receivables, net................................... 88,961 -- 88,961
Inventories........................................ 131,900 -- 131,900
Other current assets............................... 26,395 -- 26,395
--------- -------- --------
Total current assets............................. 259,389 62,315 321,704
--------- -------- --------
Notes receivable from shareholders, maturing after
one year............................................ 37,851 -- 37,851
Property and equipment, net.......................... 94,144 -- 94,144
Intangibles, net of accumulated amortization......... 52,942 -- 52,942
Other assets......................................... 12,000 -- 12,000
--------- -------- --------
Total assets..................................... $ 456,326 $ 62,315 $518,641
========= ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable................................... $ 141,414 -- $141,414
Patronage payable:
Cash portion of current year patronage (notes 1
and 5).......................................... -- 35,589 35,589
Patronage certificates payable within one year... 10,433 (6,881) 3,552
Accrued expenses and other current liabilities
(note 1).......................................... 39,210 (2,644) 36,566
--------- -------- --------
Total current liabilities...................... 191,057 26,064 217,121
--------- -------- --------
Long-term obligations maturing after one year (note
1).................................................. 72,045 (53,000) 19,045
Members' certificates (note 1):
Patronage certificates............................. 109,239 (49,119) 60,120
Deposits........................................... 12,041 (12,041) --
Deferred income and other liabilities................ 8,608 -- 8,608
--------- -------- --------
Total liabilities.............................. 392,990 (88,096) 304,894
Interim net income (notes 1 and 5) 35,589 (35,589) --
Shareholders' equity (notes 1 and 2):
Preferred stock.................................... N/A -- --
Common stock, $100 par value:
Class A, voting.................................. 540 (540) --
Class B, nonvoting............................... 1,494 (1,494) --
Common stock, $.01 par value....................... -- 350 350
Additional paid-in capital......................... 1,932 187,684 189,616
Retained earnings.................................. 23,781 -- 23,781
--------- -------- --------
Total shareholders' equity..................... 27,747 186,000 213,747
--------- -------- --------
Total liabilities and shareholders' equity..... $ 456,326 $ 62,315 $518,641
========= ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Reflects the receipt of the net proceeds from the Initial Public Offering
and application of a portion of those proceeds to repay the outstanding
balances of the revolving credit agreement, mortgage note payable, Member
Deposit Certificates, and to redeem certain Patronage Certificates and
accrued interest thereon.
2. Reflects the exchange of existing Class A and Class B common stock for new
shares of common stock.
3. Reduction of interest expense as a result of application of a portion of
the proceeds from the Initial Public Offering as described in note 1.
4. Provision for estimated income taxes using a 40% effective tax rate.
5. In accordance with the bylaws of the Company, the patronage portion of
income before income taxes is determined annually and distributed to
shareholders of the Company as patronage rebates. Since patronage rebates
are determined only at year end, the amount of interim net income has been
reflected as a separate item in the accompanying unaudited pro forma
condensed consolidated balance sheet. As a result of the Merger and Initial
Public Offering, 100% of 1996 patronage rebates will be paid in cash in
fiscal 1997.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Currently, the Company operates as a cooperative wholesaler owned by its
retailer members. As such, the Company distributes its net income each year to
its retailers as patronage refunds based upon each retailer's relative level
of purchases. The Company does not pay income tax on income distributed to its
retailers. Effective with the consummation of the Merger, the Company will
cease paying patronage refunds and commence paying income tax on its earnings.
The grocery wholesale industry is characterized by high sales volumes and
fixed costs and relatively low operating margins. Wholesalers seek to purchase
products at the lowest cost possible and to reduce operating expenses whenever
possible. Successful wholesalers are able to increase their customer base
through competitive pricing, thus increasing sales and leveraging fixed
operating costs.
Substantially all of the Company's revenues come from the sale of food and
non-food products to retailers. Retailer support services, including store
development and marketing and other support services, are designed to increase
retailer sales (and, consequently, Company sales) and, therefore, are
generally provided on a cost recovery basis. Loans and other direct retailer
financing transactions are also designed to increase sales volumes and,
therefore, are structured to provide a reasonable return to the Company while
providing a cost to the retailer below prevailing market rates. Inflation does
not have a significant impact on the Company's revenue or net income.
Sales of perishable items accounted for over 42% of revenues and 49% of net
warehouse sales in fiscal 1995. Perishables generally have a higher margin
than other food or non-food items. In 1995, the Company began a significant
emphasis on the distribution of health and beauty and general merchandise
products through its new Valu Merchandisers subsidiary, providing additional
product variety and revenue diversification.
Expansion activities have had a financial impact from period to period. The
addition of Valu Merchandisers in the beginning of 1995 and the Company's
Oklahoma City distribution center in April 1995 resulted in additional
operating expense. Subsequent to April 1995, revenues increased from the
Oklahoma expansion as additional retailers were added to the Company's
customer base. As of June 15, 1996, 160 stores were being supplied from the
Oklahoma distribution center. The Company also increases its retailer base by
attracting retailers from other wholesalers and assisting retailers in
upgrading, expanding or developing new stores. Through these expansion
efforts, the Company has increased its retailer base from 700 stores in 1990
to over 830 in 1996 and has substantially increased the overall square footage
of its retailer base.
In April 1995, the Company acquired, among other things, inventory,
fixtures, a distribution center and 29 supermarket properties from Homeland
for cash of $73.3 million. The Company concurrently sold the supermarket
properties acquired from Homeland to existing members for cash of $16.3
million and notes receivable of $14.5 million. In addition, the Company also
entered into an agreement with Homeland whereby the Company supplies the
supermarkets retained by Homeland and Homeland became a member of AWG. The
supply agreement requires the Company to make quarterly payments over the
seven year life of the agreement. The Company recorded the present value of
the payments due under the supply agreement ($26.8 million) as an intangible
asset and a long term obligation. The Company also recorded other intangible
assets of $19.4 million in connection with this transaction representing the
acquisition of wholesale volume. The purpose of the Homeland transaction was
to expand a market territory in the Oklahoma and Texas regions.
In March 1994, the Company acquired 38 supermarket properties and an office
building from Food Barn for cash of $41.0 million. The Company concurrently
sold the supermarket properties acquired from Food Barn to existing members
for cash of $15.1 million and notes receivable of $10.9 million. The Company
also recorded other intangible assets of $13.7 million, representing the
acquisition of wholesale volumes. The purpose of the Food Barn transaction was
to maintain and expand market share in the metropolitan Kansas City area and
Wichita, Kansas area.
33
<PAGE>
The Company operates on a 52/53 week fiscal year ending the last Saturday of
December. The first and second quarter of each fiscal year consist of twelve
weeks, the third quarter consists of sixteen weeks, and the fourth quarter
consists of twelve weeks, with the exception of 53-week years, when the fourth
quarter has 13 weeks.
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this Proxy
Statement/Prospectus. The following table sets forth the major components of
the Company's historical consolidated statements of earnings as a percent of
revenues:
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS
FISCAL YEAR ENDED ENDED
-------------------------------------- -----------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, JUNE 17, JUNE 15,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............... 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of goods sold...... 94.10 94.00 93.74 93.85 93.30
------ ------ ------ ------ ------
Gross margin........... 5.90 6.00 6.26 6.15 6.70
General and
administrative
expenses............... 3.49 3.64 4.01 3.64 3.90
------ ------ ------ ------ ------
Operating income....... 2.41 2.36 2.25 2.51 2.80
Interest expense........ 0.34 0.27 0.33 0.32 0.41
Other income............ 0.19 0.21 0.17 0.19 0.24
Income tax expense
(benefit).............. 0.07 0.08 (0.01) 0.03 0.08
------ ------ ------ ------ ------
Net income............. 2.19% 2.22% 2.10% 2.35% 2.55%
====== ====== ====== ====== ======
</TABLE>
TWENTY-FOUR WEEKS ENDED JUNE 15, 1996, COMPARED TO TWENTY-FOUR WEEKS ENDED
JUNE 17, 1995
Net sales for the twenty-four week period ended June 15, 1996 were $1.4
billion, an increase of $185.7 million or 15.3% compared to the twenty-four
week period ended June 17, 1995. Of the $185.7 million increase in net sales,
$134.9 million was additional volume generated from the April 1995 Oklahoma
City expansion. Net sales for the Company's private label products for the
twenty-four week period ended June 15, 1996 were $147.6 million compared to
$121.6 million for the twenty-four week period ended June 17, 1995. Other
sales increases resulted from a Company-supplied retailer acquiring ten stores
in July of 1995 that were previously owned by a large self-distributing
retailer. Indicative of the sales increase is the growth in AWG sales to the
Company's licensed concept stores in the Kansas City market. See "BUSINESS--
Concept Stores." Increases (decreases) in AWG sales to concept stores on a
same store basis for the 1996 period compared to the 1995 period were: Apple
Market stores, 5.49%; Sun Fresh stores, 9.89%; Thriftway stores, 4.11%; Price
Chopper stores, 5.68% and Country Mart stores, (0.28)%. In computing such
sales, stores open at least 12 months are compared from period to period.
Also, sales increases resulted from the addition of new stores and increased
retail floor space to the Company's customer base. Retail development added
298,000 square feet of retail space during the 1996 period and the Company
added 42 retail stores to its customer base.
Gross margin was 6.70% of net sales or $93.7 million for the 1996 period
compared to 6.15% or $74.7 million for the prior period. The increase in gross
margin was attributable primarily to the change in product mix towards higher
margin perishable products as shown by the following comparison of the 1996
period to the 1995 period product sales data as a percent of warehouse sales:
meat sales, 20.12% versus 19.80%; produce sales, 8.23% versus 7.67%; dairy
sales, 7.20% versus 6.66%; frozen foods sales, 6.32% versus 5.88%; deli sales,
2.19% versus 2.08%; and bakery sales, 1.49% versus 1.36%. Other improvements
in gross margin were attributable to improved inventory management and
procurement practices.
General and administrative expenses were $54.6 million or 3.90% of sales for
the 1996 period compared to $44.2 million or 3.64% of sales for the same
period in 1995. General and administrative expenses increased $7.3 million and
$2.2 million for the Oklahoma City distribution center and Valu Merchandisers,
respectively, for the
34
<PAGE>
1996 period. Oklahoma City began operations in April 1995 and Valu
Merchandisers did not have operations during the comparable 1995 period. Both
the Oklahoma City distribution center and Valu Merchandisers were fully
operational during the 1996 period.
Interest expense was $5.8 million for the 1996 period compared to $3.9
million for the same period in 1995. The increase for the 1996 period was due
to higher average borrowings under a revolving credit facility and imputed
interest related to the Oklahoma City expansion.
Interest income was unchanged for the 1996 period compared to the 1995
period.
1995 COMPARED TO 1994
Fiscal 1995 results of operations reflect the effects of two significant
initiatives that were completed by the Company during the year. In April 1995,
the Company expanded into Oklahoma City and immediately added 102 stores to
its retailer base. In June 1995, the final phases of construction were
completed on the Valu Merchandisers distribution facility at Fort Scott,
Kansas and Valu Merchandisers began distributing product on a limited basis,
adding customers as rapidly as possible.
Net sales for fiscal 1995 were $2.84 billion, an increase of $352 million or
14.15% compared to sales of $2.48 billion for fiscal 1994, which was a 53 week
year, with $36 million attributable to the extra week. The addition of
retailers in Oklahoma City accounted for $212.6 million of the increase in
1995. Net sales for the Company's private label products for fiscal 1995 were
$300 million compared to $288 million for fiscal 1994. Sales increases during
the 1995 fiscal year also resulted from the addition of new stores and
increased retail floor space to the Company's retailer base. The Company began
supplying an additional 39 stores from the Oklahoma City distribution center
that were previously supplied by other wholesalers and a Company-supplied
retailer acquired ten stores in July 1995 that were previously owned by a
large self-distributing retailer. Retail development added 758,000 square feet
of retail space due to retail expansion and new store openings during 1995.
Gross margin was 6.26%, or $177.7 million for fiscal 1995 compared to 6.00%,
or $149.2 million, during fiscal 1994. Margin improvement in 1995 was
attributable to the continued emphasis on improving perishables presentations
and merchandising throughout its retail customer base. Other improvements in
gross margin were attributable to improved inventory management and
procurement practices.
General and administrative expenses were $113.8 million, or 4.01% of sales,
for fiscal 1995 compared to $90.5 million, or 3.64%, in fiscal 1994 as the
non-recurring costs associated with the opening of the Oklahoma City and Valu
Merchandisers distribution centers increased operating expenses.
Interest expense was $9.3 million in fiscal 1995 compared to $6.8 million in
fiscal 1994. The increase in interest expense related to borrowings under a
new revolving credit facility in April 1995 to facilitate the opening of
Oklahoma City and Valu Merchandisers facilities, including purchase of
inventories. Additionally, certain contractual relationships related to the
Oklahoma City expansion resulted in imputed interest expense recognition.
Interest income was $4.8 million in fiscal 1995 compared to $4.1 million in
fiscal 1994.
1994 COMPARED TO 1993
Net sales for fiscal 1994 were $2.48 billion, an increase of $65.4 million
or 2.70% compared to fiscal 1993 sales of $2.42 billion. 1994 was a 53 week
year with $36 million of net sales attributable to the extra week. Net sales
for the Company's private label products for fiscal 1994 were $288 million
compared to $265 million for fiscal 1993. The addition of new retailers and
stores resulted in the remainder of the increase in sales. In March 1994, the
Company acquired and simultaneously sold 38 stores supplied by the Company in
connection with the
35
<PAGE>
bankruptcy of Food Barn Stores, Inc. ("Food Barn"), the owner of the stores.
Many of these stores required substantial remodeling and several of them were
closed by the retailer for an extended period of time for major remodeling,
resulting in lost sales during the 1994 period. The effect of temporarily
closing stores for remodeling decreased sales by AWG to such stores in 1994 by
an estimated $35 million.
Gross margin was 6.00%, or $149.2 million, for fiscal 1994 compared to
5.90%, or $142.7 million, for fiscal 1993.
General and administrative expenses were $90.5 million or 3.64% of sales in
fiscal 1994 compared to $84.4 million or 3.49% of sales in fiscal 1993. There
was an increase in expenses and fees with respect to a truck fleet lease that
had been subleased by the Company from Food Barn and subsequently terminated.
Early developmental costs associated with the construction of the Valu
Merchandisers warehouse in Fort Scott began in 1994, and additional personnel
cost was incurred as the Company began hiring Valu Merchandisers executive
staff.
Interest expense was $6.8 million in 1994 compared to $8.4 million in 1993.
Effective in January 1994, the interest rate paid by the Company to retailers
for outstanding Patronage Certificates was reduced from 8% to 6%, resulting in
a savings of approximately $2 million annually.
Interest income was $4.1 million in fiscal 1994 compared to $3.4 million in
fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flows provided by
operating activities and borrowings under the revolving credit agreement. The
Company generated cash from operating activities of $70.9 million, $78.2
million and $75.3 million for the 1993, 1994 and 1995 fiscal years,
respectively. The Company generated cash from operating activities of $31.9
million and $27.6 million for the twenty-four week periods ended June 17, 1995
and June 15, 1996, respectively. The decrease in cash provided by operating
activities in 1996 was attributable to a reduction in payables, offset in part
by higher net income and lower inventory levels.
The increases in inventories of $50.2 million and accounts payable of $42.8
million at December 30, 1995 as compared to December 31, 1994 are principally
attributable to the addition of the Oklahoma City distribution center and the
opening of the Valu Merchandisers distribution center during 1995. The
increases in intangible assets of $42.5 million and notes receivable from
shareholders of $11.6 million at December 30, 1995 as compared to December 31,
1994 are attributable to the Homeland transaction, as previously described.
The decreases in inventories of $12.9 million and accounts payable of $18.6
million at June 15, 1996 compared to December 30, 1995 are attributable to
lower inventories at the Valu Merchandisers distribution center, as sales
levels continued to increase at this facility during 1996, and the
historically lower level of seasonal inventory items during the summer months.
The Company used net cash in investing activities of $27.9 million, $43.0
million and $59.5 million during the 1993, 1994 and 1995 fiscal years,
respectively. The Company used cash of $25.9 million in fiscal 1994 for the
acquisition of certain Food Barn assets, and $57.0 million in fiscal 1995 for
the acquisition of certain Homeland assets. The increase in capital
expenditures in fiscal 1995 reflects the construction of the new Valu
Merchandisers warehouse facility. The Company used net cash in investing
activities of $28.5 million and $13.1 million during the twenty-four week
periods ended June 17, 1995 and June 15, 1996, respectively. The higher cash
used in 1995 principally reflects the acquisition of certain Homeland assets.
The Company used net cash in financing activities of $43.5 million, $45.5
million and $14.6 million during the 1993, 1994 and 1995 fiscal years,
respectively. The decrease in cash used in financing activities in fiscal 1995
reflects the net proceeds of $31.6 million from borrowings under the revolving
credit agreement. The Company used net cash in financing activities of $1.3
million and $20.4 million during the twenty-four week
36
<PAGE>
periods ended June 17, 1995 and June 15, 1996. The increase in 1996 was
attributable to lower borrowings under the revolving credit agreement and
higher patronage payments.
The Company's working capital and current ratio were $29.9 million and 1.15
to 1, respectively, at December 31, 1994 compared to $28.1 million and 1.11 to
1, respectively, at December 30, 1995. The decreases at December 30, 1995
principally reflect the reduction of short-term investments of $32.4 million
which, along with bank borrowings, were used to finance the Oklahoma City
expansion and capital expenditures. The Company's working capital and current
ratio were $68.3 million and 1.36 to 1, respectively, at June 15, 1996.
In 1995, the Company entered into a revolving credit agreement with a bank
which currently provides for borrowings up to $120 million. Borrowings
outstanding under this agreement were $31.6 million and $53.0 million at
December 30, 1995 and June 15, 1996, respectively. The agreement includes
financial covenants regarding working capital, current ratio, fixed charge
coverage and net worth. At June 15, 1996, $67 million was available under the
revolving credit agreement.
The Company estimates capital expenditures of approximately $46.4 million
for fiscal 1996 of which approximately $20 million relates to an expansion of
the Kansas City warehouse facility.
The Company believes that cash flows from operating activities along with
amounts available under the revolving credit agreement will be adequate to
meet its anticipated cash requirements.
BUSINESS
GENERAL
Based on 1995 industry sales, AWG is the sixth largest wholesale food
distributor in the United States. AWG buys, resells and delivers a wide
variety of groceries, frozen foods, meats, produce, dairy products, bakery,
deli, health and beauty products and general merchandise to over 830 retail
grocery stores throughout a ten state area. AWG offers its retailer customers
a dependable supply and prompt delivery of over 16,000 food and over 16,000
non-food items at competitive prices. Its four distribution centers, located
in Kansas City, Kansas, Springfield, Missouri, Oklahoma City, Oklahoma and
Fort Scott, Kansas, contain over 2,375,000 square feet of space, including
over 736,000 square feet of perishable space and over 400 dock doors. The
Company owns and operates a fleet of approximately 240 tractors and 540
trailers, which travel over 20 million miles a year.
AWG has operated as a retailer-owned cooperative grocery wholesaler
throughout most of its 70 year history and has had 40 consecutive years of
increased sales and has achieved 23 consecutive years of increased
profitability. Since 1992, 118 stores have been added to the Company's
retailer base from other wholesalers.
The Company believes that its success is driven by the success of its
retailers. Accordingly, AWG's ability to deliver low cost of goods and to
provide a comprehensive range of sophisticated support services assists
retailers in increasing sales and profits. These services include store
development and engineering services, financing assistance, merchandising and
advertising services, technological support and insurance services. AWG
provides its retailers the competitive advantages available to self-
distributing retailers, while giving its retailers the autonomy vital to local
merchandising and operating success. This approach combines the purchasing
power, operating efficiency and broad service range available through a large
scale distribution operation with the flexibility and entrepreneurship
provided by a local operator.
The United States wholesale grocery industry is highly competitive and
undergoing consolidation. According to a 1993 study released by the National-
American Wholesale Grocers' Association, the industry experienced an annual
growth rate of 5.6% from 1980 through 1991; and an estimated 56% of total
grocery sales ($410 billion) was supplied by wholesalers, while the remaining
44% was supplied by self-distributing retailers and alternative format
retailers. Management believes that as a result of the Company's acquisition
experience, its improved financial strength following the Merger and the
Initial Public Offering and its ability as a public
37
<PAGE>
company to issue stock in connection with acquisitions, AWG will be well
positioned to take advantage of industry consolidation by pursuing strategic
acquisitions.
BUSINESS STRATEGY
The Company believes that its success depends upon the success of its
retailers. The Company's business strategy is to increase sales and
profitability by employing its purchasing power, distribution expertise and
retail knowledge (i) to control costs, (ii) to maintain highly efficient
distribution centers, (iii) to enhance the competitiveness of its retailers,
and (iv) to assist its retailers in identifying, developing and implementing
opportunities for growth. Key components of this strategy include the
following:
Maintain Close Relationships with Progressive Retailers. AWG strives to
develop and to maintain a close relationship with innovative and aggressive
retailers. Management believes that the Company's focus on its retailers'
success has resulted in a high rate of customer retention and improved
retailer penetration of their markets and enhanced AWG's ability to recruit
new retailers.
Provide Lowest Cost of Goods. The Company leverages the purchasing power of
its retailers' 820 retail stores to obtain what management believes is the
lowest price available on substantially all AWG supplied items. In addition,
distribution costs are minimized through the efficiencies provided by the
Company's large, strategically located distribution centers and the
concentration of AWG's retailers in their respective markets. The Company's
buying power also allows it to provide its retailers significant cost savings
on store equipment, decor and other items. All of the Company's retailer
services and price discount programs are available to every retailer on the
same terms, regardless of the number or size of stores the retailer operates.
Emphasize Store Development. AWG assists retailers in every aspect of store
development, including opening new stores and remodeling or renovating
existing stores. The Company's goal is to establish a progressive retailer in
the optimal location with an effective store concept in order to maximize the
retailer's opportunity for success. To accomplish this, the Company assists in
site selection and acquisition, store design and construction, and market
specific positioning. The Company has developed customized concept stores,
each with a different size, decor and product emphasis, in order to better
serve specific markets. In addition, the Company provides store financing and
real estate leasing to its retailers to encourage store development.
Provide Retailer Support Services. AWG works closely with each retailer to
provide a wide range of support services, including market analysis, product
positioning, advertising, and training for retail employees. In addition, the
Company assists its retailers by providing insurance, financial planning and
management succession services, and other services ancillary to the operation
of the retailer's business. All services are typically provided on a cost
recovery basis.
Sole Focus on Distribution Services. The Company focuses solely on buying,
selling and delivering food and non-food items to retailers. The Company does
not operate retail stores and believes that its single focus allows it to
concentrate on continuing to improve the efficiency and effectiveness of its
distribution services as well as avoiding conflicts with retailers.
GROWTH STRATEGY
AWG's plan for continued growth focuses on increasing sales by existing
retailers, developing new stores for existing retailers, attracting additional
retailers, and pursuing strategic acquisitions. The key components of the
Company's growth strategy include:
Increasing Sales by Existing Retailers. AWG seeks to provide an expanding
list of products to its retailers, such as its recent successful effort to
penetrate health and beauty and general merchandise product sales through its
Valu Merchandisers subsidiary. The Company's strong private label programs,
including Best Choice, Best Choice Value Club and Always Save, assist AWG
retailers in competing effectively in terms of price and quality
38
<PAGE>
against all classes of retail trade. In addition, the Company provides a wide
variety of services designed to help its retailers increase their sales,
including marketing and advertising, product category management, shelf
management and other services.
Developing Additional Stores for Existing Retailers. A key element in the
Company's growth has been the ability of its retailers to open new stores or
to remodel existing stores to expand their markets and market share. The
Company provides a complete array of services to growing retailers, including
market research, real estate acquisition assistance and store design and
decor. The Company has established the Price Chopper, Country Mart, Price
Mart, Apple Market and Sun Fresh customized concept stores which are licensed
to retailers seeking to develop new stores. Each concept store format consists
of stores with customized size, decor and product emphasis designed to meet
the specific requirements of the selected location. In addition, AWG has
actively made store financing and real estate leases available to its
retailers for expansion and remodeling expenses. At June 15, 1996, AWG had
retailer loans outstanding of $44.1 million and had over 115 real estate
leasing transactions in existence with retailers.
Attracting Additional Progressive Retailers. The Company focuses on
attracting additional retailers by offering competitive product pricing and a
full array of retailer support services, all of which are targeted at
increasing retailer sales and profitability. Through these efforts, the
Company has successfully attracted retailers from other wholesalers whose
pricing policies and retailer support services are not as effective in helping
the independent retailer be successful.
Pursuing Strategic Acquisitions. Consolidation trends in the food
distribution industry present opportunities for strategic acquisitions by AWG.
The Company has in the past acquired retail stores, which it promptly resold
to its retailers, and distribution facilities, which it retained and operated,
both to serve new stores and as a hub from which to penetrate new geographic
markets. AWG frequently evaluates acquisition opportunities and will continue
to pursue strategic acquisitions with facilities and capacity to accommodate
growth and to complement AWG's existing operations and geographic service
areas. Stores that were acquired and resold to retailers in recent years
accounted for annualized revenues of $213.6 million in 1995.
In April 1995, AWG purchased a 526,000 square foot distribution center in
Oklahoma City from Homeland Stores, Inc. ("Homeland"), then a self-
distributing grocery retailer. Contemporaneously with this purchase, AWG
arranged for the purchase by certain of its existing retailers of 29 of
Homeland's 102 retail grocery stores located throughout Oklahoma, southern
Kansas and northern Texas. In connection with this transaction, AWG and
Homeland entered into a supply agreement establishing AWG as the primary
supplier of grocery products to the remaining Homeland stores and granting AWG
the right to purchase any of those stores in the event they cease to be
operated by Homeland as retail grocery stores. Since its purchase of the
Homeland distribution center, AWG has added 38 new stores to its Oklahoma
division, which now supplies 166 total stores.
In March 1994, AWG purchased out of bankruptcy certain assets of Food Barn,
including 38 retail grocery stores and an office building. The office building
and most of the grocery stores were located in the Kansas City, Missouri
metropolitan area. The remaining stores were in the Wichita, Kansas area and
rural Kansas and Missouri. All of the grocery stores were sold to AWG
retailers pursuant to an auction process established by AWG management.
Because all of the purchased stores had previously been supplied by AWG, the
transaction allowed AWG to continue to supply the stores and maintain sales
volume.
STORE DEVELOPMENT SERVICES
AWG offers a complete array of store development services designed to
position its retailers at the forefront of the constantly changing food
retailing industry, including market analysis, site acquisition, store
engineering and construction, store decor and store remodeling. AWG believes
these services improve the ability of retailers to compete with all classes of
retail trade. Retailers choose which services to obtain from AWG and,
generally, are charged a fee that enables AWG to recover the cost of providing
the service.
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<PAGE>
Real Estate Services and Store Development. The Company has extensive
experience in real estate development in all types of markets, having
developed store networks in major metropolitan markets as well as single
stores in small rural communities. Once an appropriate location is selected,
the Company's experienced real estate personnel provide complete property
development services to its retailers, and are available to assist retailers
in negotiating to acquire or lease the property. Where deemed appropriate, the
Company will lease a site and sublease it to the retailer.
Working with size or site constraints, marketing information and retailer
preferences, the Company then designs store layout and decor plans that are
both trendsetting and functional. These plans contain the latest marketing
concepts, departments, and labor or consumer timesaving ideas.
The Company coordinates the various trade professionals involved on behalf
of the retailer, assisting the architect/engineer in designing the store, the
contractor in building the store, and the various trade fixture suppliers in
equipping and decorating the store. Through volume purchasing and bid
specifications, the Company endeavors to insure quality equipment packages at
the lowest possible cost. Finally, the Company's design services insure that
the store decor package reinforces the store's marketing philosophy. Once the
decor package is designed, the Company may also fabricate and install the
decor items.
Market Research Services. The Company provides a complete range of market
and consumer research to its retailers. The Company's counselors assist
retailers with a detailed analysis of store operations, pricing, advertising,
delivery schedules, inventory control and merchandising plans to help each
retailer enhance its competitive position. Research services include:
Sales Projection. In analyzing new or expanded store opportunities, the
Company projects trade area potential, analyzes competition, and projects
sales based on a recommended store size and market format. Demographic
studies, traffic pattern surveys, and local consumer purchasing habits are
assessed.
Consumer Research. In an effort to delineate the strengths and weaknesses
of major competitors in the marketplace, the Company conducts consumer
telephone surveys. This research can be followed by focus group research to
further assess consumer impressions.
Customer Origin Survey. For existing stores, the Company can determine the
trade area of the store, the potential of the trade area and the
performance level of the store within the trade area.
Analysis of Underperforming Stores. The Company provides an analysis of
underperforming stores to determine their strengths and weaknesses and
formulates marketing and operational recommendations targeted to improve
performance.
Retailer Credit Terms. AWG supplies products to its retailers under several
types of credit arrangements. Payment schedules range from one to 14 days.
Generally, the more collateral, guarantees or other evidence of financial
strength or ability to pay which a retailer is able to provide, the longer the
payment period for which that retailer qualifies. AWG's management
periodically reviews and establishes the economic parameters that control the
specific level of credit AWG is willing to extend to its retailers. These
parameters include both general economic performance requirements and
financial ratios as well as considerations relating to the historical
performance of specific retailers.
Retailer Financing. AWG also makes loans or otherwise facilitates the
financing needed for expansions or other enhancements of its retailers'
grocery businesses. Interest rates for these loans have generally been one
percent over the prime rate. The criteria for the extension of such financing
include the same considerations used with respect to the extension of credit
for the purchase of goods. In addition, management evaluates the purpose or
program for which the loan is proposed. AWG also actively seeks to assist
retailers in obtaining financing from third-party lenders based on available
collateral and overall financial strength. At June 15, 1996, the Company had
an aggregate of $44.1 million of loans outstanding to its retailers.
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The Company will continue to assist retailers in their financing needs after
the Merger and Initial Public Offering. The Company plans to use a portion of
the proceeds of the Initial Public Offering to continue to fund direct
retailer loans and real estate lease transactions. In addition, the Company
plans to facilitate the ability of retailers to borrow funds by pledging their
shares of AWG Group Common Stock to a third-party bank as collateral for loans
used to improve the retailers' businesses. In connection with the early
payment of Patronage Certificates, which, in many cases, collateralize credit
extensions by AWG, the Company will evaluate whether individual retailers
continue to satisfy its credit requirements and will require new collateral
when necessary to maintain those standards.
In-store Marketing. As a tool to build retail customer loyalty, increase per
customer retail sales and build retailer market share, AWG offers its
retailers a customized point-of-sale coupon and customer incentive system
known as the Catalina Marketing Network. This in-store system allows the
retailer to offer manufacturers' coupons, store coupons and other incentives
to each customer based on that customer's purchases which can only be redeemed
at the specific store. AWG retailers using the Catalina system have
experienced an average monthly redemption rate of over 10%. Presently, the
Catalina system is installed in over 270 of the stores supplied by the Company
and in 1996 the system has generated over 3 million coupons representing
aggregate customer purchase discounts of over $2.5 million.
CONCEPT STORES
The Company has developed four concept store formats designed for use in
different markets. AWG provides specific planning, designing, advertising and
other support services for its concept stores and the retailer is charged a
minimal fee for these services pursuant to a license agreement.
Price Chopper and Price Mart stores range from 50,000 to 80,000 square feet,
are value-priced stores with extensive variety in all departments and place a
significant emphasis on high-quality perishables. They feature a wide range of
health and beauty and general merchandise products, with pharmacies in many
stores. Both of these concept stores are known as value priced super stores.
Price Chopper and Price Mart stores are designed primarily for higher volume
trade areas.
Country Mart stores range from 25,000 to 45,000 square feet and are value-
priced stores with high-quality perishables, including deli, bakery, floral,
expanded health and beauty care and optional pharmacy. These stores are
designated to compete in county seat-type towns and mid-size trade areas, i.e.
serving populations of 5,000 to 25,000.
Apple Market stores range from 15,000 to 25,000 square feet and emphasize
high-quality perishables, a large selection of AWG brands and a high degree of
customer service in neighborhood locations in both rural and metropolitan
areas.
Sun Fresh stores range from 28,000 to 50,000 square feet. The stores have a
large selection of all types of high-quality perishables, including meat,
produce, seafood, deli and bakery. These are primarily upscale stores serving
a demographic of medium to upper income level customers and tailored to meet
the needs of each trade area they service.
VALU MERCHANDISERS
The Company's Valu Merchandisers subsidiary provides retailers a cost
effective general merchandise and health and beauty care program. The single
distribution center provides a centralized distribution point for all three
AWG grocery divisions, providing selection, stocking and redistribution of
approximately 16,000 different products. Valu Merchandisers performs all of
the category management, promotional efforts, and shelf management programs
for the 600 retailers using its services. Availability and variety of seasonal
promotions, focused advertising and the Company's Best Choice private label
program allow the retailer to compete aggressively in this product segment.
41
<PAGE>
Valu Merchandisers also operates the Company's pharmacy program, providing
field consulting to retailers with in-store pharmacies, including direction
for pharmacy placement and operational issues. Due to the combined volume of
its retailers' pharmacy purchases, the Company is able to negotiate
significant price discounts from the Company's suppliers of pharmacy products.
Valu Merchandisers provides a complete range of retail marketing support and
is responsible for developing new business as well as supporting existing
retail stores with merchandising assistance and expertise. Valu Merchandisers
maintains an independent sales department consisting of a full-time customer
service representative, a full-time retail pricing specialist and a twenty-
person field staff dedicated to improving health and beauty and general
merchandise product sales. Similar to the Company's grocery retail support
functions, Valu Merchandisers provides guidelines in areas such as competitive
pricing, space allocation, gross profit objectives and seasonal merchandising
assistance.
PRIVATE LABEL PROGRAMS
AWG's successful private label programs provide retailers with a competitive
advantage in their markets. The Company attempts to ensure consistent quality
in its private label products through various means, including the use of an
in-house quality assurance lab and crop and processing inspections through
field visits. All AWG private label products provide to the consumer a 100%
satisfaction guarantee. To promote private labels, the Company provides
various merchandising events throughout the year, including targeted
advertising, point of purchase materials and theme materials. The Company's
brands are strategically positioned to assist retailers to meet consumer
demand in the marketplace, and accounted for AWG sales of over $300 million in
1995, an increase of 14% over 1994. Case sales in 1995 were 28 million, an
increase of 10% over 1994. AWG's private label programs consist of the
following:
Best Choice provides Grade A Fancy quality products in approximately 1,000
items. This program is designed to provide national brand quality to the
consumer with a 15% to 20% savings.
Always Save is a value label with strong price appeal and consistent
quality in approximately 500 items. This program is designed to provide 20%
to 40% savings to the consumer versus national brands. The Company has from
time to time entered into licensing agreements with other noncompeting
retailers and wholesalers for the rights to distribute Always Save
products.
Valu Merchandisers' Best Choice consists of 410 national brand equivalent
items that represent the best selling products in major categories and is
designed to provide a savings to consumers of 20% to 40% versus national
brand items.
Best Choice Value Club consists of approximately 80 items designed to allow
the retailer to compete with wholesale club packaged merchandise or "bulk
pack". This program is designed to provide a consistent, high-quality
product in sizes and packaging that allow retailers to effectively compete
with wholesale clubs or other classes of trade.
The Company purchases its private label products from over 200 suppliers on
an item-specific bid basis. Commodity items are bid on a periodic basis in
block quantities. The Company changes suppliers from time to time whenever
product quality or pricing improvements are available. No private label
supplier accounts for 10% or more of private label purchases.
RETAILER SUPPORT SERVICES
AWG provides a variety of services to its retailers to enhance retailer
operations, profitability and competitiveness. These are generally provided to
the retailers on a cost-recovery basis. However, because they are instrumental
in enhancing retailer sales and profits, these services have an important, if
indirect, impact on AWG sales.
Operations and Merchandising. Support is available to assist retailers in
improving store or department performance. Various retailer groups are
assigned a marketing team that includes a sales manager, an advertising
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coordinator, and an AWG retail system specialist in specific product areas
such as produce, meat, bakery, deli, and AWG brands. The goals of the
marketing team are to increase retailer sales and productivity and improve
market share.
Advertising. Advertising support is available to all retailers. For concept
store retailers, this support is provided through a dedicated marketing group.
The advertising coordinator for each marketing group develops an advertising
plan based on the group strategy. AWG's in-house advertising department then
produces the print ad on a computerized system and the final product is
contracted out for printing.
Print and Sign Services. AWG offers retailers many of the printed materials
needed to support their operations and merchandising plans. These include
store layouts, consumer bulletins, internal store operations forms and
reports, training manuals, consumer and employee newsletters, deli and bakery
menus, bag stuffers and banners. A complete line of employee uniforms is also
offered. By aggregating retailer orders for these items, AWG is able to pass
on significant cost savings to the retailers.
Point of Sale. Point of sale price file maintenance allows retailers to
manage their own pricing, point of sale maintenance and log maintenance. Point
of sale system, scale system, and hardware and software field support is also
provided.
Shelf Management. AWG provides retailers with state of the art computerized
shelf management programs for grocery, dairy, frozen, meat and processed meat
sections. Using these programs, retailers have the flexibility of revising
their shelf sets at the individual store level. Through the use of shelf
management, retailers are able to maximize sales and profit, reduce inventory
and improve return on investment.
Retail Training. Training is offered for store owners, managers and
department managers throughout the year. Training consists of one-day seminars
and multi-day in-store schools designed to help participants develop their
skills in marketing, merchandising, operations and management. The Company's
training programs address topics such as financial controls and budgeting,
perishables operation and marketing, and personnel management.
Price Modeling. Price modeling is used to develop the appropriate pricing
strategy for a specific market. An AWG pricing specialist assists retailers
using price modeling software to develop strategies based on impact items,
competitive price checks and AWG brand strategy.
Financial Planning. AWG conducts seminars for its retailers in capital
budgeting, cash management and overall financial planning. The Company also
advises retailers of the benefits of and encourages individual estate planning
and ownership succession evaluation by professional advisers.
Insurance Services. The Company operates two insurance subsidiaries to
provide a broad array of insurance coverage services to retailers. These
insurance services include property, casualty, workers' compensation, life,
health, dental, vision and disability insurance. The annualized premium volume
of these services was over $28 million in 1995, resulting in earnings before
taxes of $1.6 million. Additionally, group accident and health, dental and
vision insurance is provided to nearly 4,000 AWG and retailer employees. The
Company's insurance operations are managed by experienced industry
professionals who operate their services as separate businesses. AWG's
insurance subsidiaries are licensed in 31 states, provide their own
underwriting and establish reinsurance relationships to limit the Company's
risks to levels within accepted industry standards, which vary by line of
business.
CORPORATE SALES DEVELOPMENT
AWG has a focused effort on attracting new retailers from other wholesalers
within AWG's geographic service area and on identifying growth opportunities
for the Company and its retailers in adjacent areas. The Company believes
retailers leave other wholesalers primarily to take advantage of AWG's
competitive prices and retail support services. As part of the effort to
attract new retailers, AWG has developed a sophisticated
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<PAGE>
weighted formula that compares identical items to a projected sales mix and
allows the retailer to understand the cost advantages of being supplied by AWG
compared to their current source of supply.
As a result of this corporate sales development program, AWG has been
successful in attracting retailers from other wholesalers, as shown by the
following table:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996(1) TOTAL
---- ----- ----- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
New AWG retailers................. 8 3 6 32 23 72
New stores........................ 18(2) 7 11 40(3) 42 118
First year annualized sales (in
millions)........................ $9.3 $11.7 $25.7 $130.3 $119.4 $296.4
</TABLE>
- --------
(1) Through June 15, 1996.
(2) Excludes 59 Food Barn stores with first year annualized sales of $212.4
million that the Company began supplying in 1992 and that were previously
self-distributing.
(3) Excludes 95 Homeland stores with first year annualized sales of $384.2
million that were added through the Oklahoma City expansion and that were
previously self-distributing.
In addition, the Company focuses on attracting self-supplied retail chains.
During the first twelve months after its acquisition of the former Homeland
distribution center, AWG experienced significant growth in the Oklahoma and
Texas markets. AWG currently supplies 66 Homeland-owned stores and 29 former
Homeland stores that were purchased by AWG retailers and 38 additional stores
attracted from competitors. These 133 stores, plus 33 stores previously
supplied by the Springfield distribution center, gave the Oklahoma division an
annualized sales volume in the first year of operations of $551 million.
PRICING POLICY
The Company's goal is to provide the overall lowest competitive price
possible to every retailer regardless of their size or geographic location.
AWG maintains cost comparisons with competitive wholesalers. These comparisons
show AWG's prices are consistently below those of its competitors and AWG
management anticipates they will remain so after elimination of the year-end
rebate.
PROCUREMENT
AWG supplies a comprehensive selection of national brand and private label
grocery products, dairy products, frozen foods, fresh produce items, fresh and
processed meat items, delicatessen and bakery products from its three modern,
highly-efficient grocery distribution centers. The Company also supplies a
comprehensive selection of health and beauty and general merchandise products
through its dedicated Valu Merchandisers distribution center. AWG continually
enhances its product offerings to meet changing consumer demands.
AWG believes that its size enables it to purchase substantially all of its
products at the lowest possible available manufacturers' price. AWG monitors
manufacturers' offerings to its retailers and to its wholesale and retail
competitors and then attempts to use its buying power to secure similar or
better terms. Order size and frequency is determined based on historical sales
data and ordering information from retailers. When possible, AWG buys long-
term supplies of inventory items offered at a discount by manufacturers. In
particular, AWG purchases sufficient quantities of certain staple items when
offered at a discount by manufacturers to meet anticipated demand until the
next scheduled manufacturer's sale.
Category Management. In July 1996, AWG formally implemented a category
management program. The AWG category management program involves the
centralization of all grocery product negotiation, including product cost,
terms and promotional programs and integrates the wholesaler, the retailer and
the supplier to manage product categories as strategic business units to
produce enhanced sales. AWG has established at its corporate headquarters in
Kansas City category managers who are responsible for leveraging the buying
power of all three grocery divisions. An AWG category manager is responsible
for all aspects of the category including product mix, promotion and
merchandising and the strategic direction of each business unit.
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<PAGE>
Product replenishment is conducted at the divisional level due to the
perishable nature of the product and the regional nature of product selection.
This enhanced procurement system of divisional purchasing and centralized
negotiation and strategic planning affords many benefits including improved
inventory turnover, increased service level to retail stores, enhanced sales
planning, and improved logistics.
MIDAS. AWG uses a sophisticated computerized purchasing system known as
MIDAS. This buying system allows for accurate calculation of the amount and
timing of purchases, maximizing purchasing efficiency near the end of supplier
promotional allowance periods. The MIDAS system operates to minimize inventory
levels and maximize promotional fund income.
Efficient Consumer Response Initiatives. AWG has instituted several
efficient consumer response initiatives. These initiatives include electronic
purchase order and invoicing interchange with many of its suppliers,
continuous product replenishment that are designed to increase inventory
turnover through decreased lead time ordering, and computer-to-computer
product purchasing. These initiatives are intended to improve the Company's
working relationship with its suppliers and manage inventory positions.
Concentrated Purchase Allowance. The concentrated purchase allowance
program, or CPA, rewards AWG retailers for concentrating purchases through the
Company's distribution centers. CPA is paid quarterly and can provide
retailers a savings from 0.10% to 0.75%. CPA provides an incentive for
retailers to purchase as much of their needs as possible through AWG,
contributing to greater wholesale volume.
Reclamation. By processing and billing suppliers for unsaleable goods, AWG
recovers over $14 million in credits for retailers annually. Credits given to
stores for unsaleable product are issued after receipt of the product at the
AWG reclamation center. After all appropriate operating costs are applied,
retailers may receive a refund of up to 95% of list price. This additional
service affords retailers a means to recover the cost of unsaleable and
damaged products, offsetting shrinkage costs at the store level.
DISTRIBUTION CENTERS
The Company's distribution operations are focused on reducing operating
expenses in order to provide its retailers with competitive cost of goods. By
operating large, regional distribution centers and its own truck fleet, the
Company achieves significant economies of scale. These economies, combined
with its distribution operating systems and procedures, provide AWG with a
significant competitive advantage by reducing retailer cost of goods and
maintaining consistently high service levels.
AWG provides retailers significant advantages through its high level of
service. The following table sets forth the Company's service level at its
three grocery distribution centers. Service level is calculated by dividing
the number of cases shipped on a specific order by the total cases ordered by
a retailer on that same order.
<TABLE>
<CAPTION>
1996
DISTRIBUTION CENTER 1994 1995 (THROUGH JUNE 15)
------------------- ----- ----- ------------------
<S> <C> <C> <C>
Kansas City................................ 97.6% 97.5% 97.5%
Springfield................................ 97.3% 97.4% 97.9%
Oklahoma City.............................. N/A 97.9% 98.0%
</TABLE>
The Company operates four distribution centers strategically located
throughout its geographical service areas. The three grocery centers, located
in Kansas City, south central Missouri, and Oklahoma City have an aggregate of
2,167,000 square feet, of which 736,000 is perishable space. The fourth
center, a 208,000 square foot facility located in southeastern Kansas, is
devoted exclusively to the Company's health and beauty and general merchandise
subsidiary, Valu Merchandisers. The Company employs sophisticated management
and operating systems at its distribution centers focused on reducing
operating costs and increasing productivity. These include:
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<PAGE>
Productivity Monitoring System. AWG's Productivity Monitoring System
develops and measures task or goal times to develop an accurate measure of the
time required to perform a given cycle of work. AWG has significantly improved
its case selection productivity through the implementation of its Productivity
Monitoring System.
Order Processing and Receiving. Customer orders are transmitted daily to the
Company's order entry system at scheduled transmission times and fleet loading
and routing are scheduled each day by state-of-the-art computer systems
designed to reduce costs and improve efficiencies. Due to the speed by which
the Company can process orders, a retail customer is able to receive and stock
a delivery before creating its next order. Many retailers can receive same day
order delivery. Through the Company's supplemental order system, an order can
have additional items added until the truck leaves the AWG loading dock.
Slot-It. Slot-It is a warehouse space utilization software package that
optimizes the location of merchandise by selecting the appropriate rack type,
size, location, and family group for each item. Correct product location
within the warehouse increases order selection productivity, reduces employee
injury, enhances warehouse space utilization and reduces product damage.
Organizing the distribution center in product family groupings that correspond
to retailer store layout reduces sorting time for store personnel.
Personal Order Verification. Personal Order Verification, or POV, is a radio
frequency-based order selection system using bar code scanning verification of
individual items. POV provides a high degree of order filling accuracy while
maintaining a high level of order selection productivity. By using radio
communication, order selection can be monitored instantaneously and any
impediment to productivity can be recognized and responded to quickly. The
laser scanner, key pad and radio device weighs less than ten ounces, and
allows the employee to receive selection instructions instantaneously,
eliminating the congestion and delay problems associated with a central order
distribution point.
The use of POV results in several cost savings. POV increases order
accuracy, reducing returns and out of date product. POV allows scanned data to
be electronically transferred to billing files, reducing the need for data
entry staff and increasing invoice accuracy and inventory record reliability.
Productivity also increases because the selection process is more efficient,
and the "time audit trail" created by POV motivates employee performance
improvement. The Company believes that POV has the potential to reduce order
cycle time by 25% because electronic transfer of selection data avoids the
much slower process of printing selection labels.
TRANSPORTATION
AWG owns and operates a fleet of approximately 240 tractors and 540 trailers
from its Kansas City and Springfield distribution centers. The Company's fleet
travels over 20 million miles a year in support of AWG's wholesale operations.
The average age of the tractor fleet is approximately three years, while the
average age of the trailer fleet is approximately five years. As described
below, the Company uses advanced technology to improve efficiency and to
reduce costs by automating fleet operations, processing customer orders and
optimizing truck loads and routes. Both distribution centers in Kansas City
and Springfield include fleet maintenance, fueling, and wash-rack facilities.
The Company utilizes a contract carrier for deliveries from its Oklahoma City
and Fort Scott distribution centers.
AWG provides retailers significant advantages through its high level of on-
time delivery. The following table sets forth the Company's on-time delivery
levels at its three grocery distribution centers. On-time delivery is
calculated by dividing the number of loads departing the distribution centers
within 30 minutes of the scheduled departure time by the total number of loads
departing the distribution center.
<TABLE>
<CAPTION>
1996
DISTRIBUTION CENTER 1994 1995 (THROUGH JUNE 15)
------------------- ----- ----- -----------------
<S> <C> <C> <C>
Kansas City................................. 97.1% 97.0% 97.0%
Springfield................................. 97.9% 96.4% 98.3%
Oklahoma City............................... N/A 97.9% 98.0%
</TABLE>
46
<PAGE>
The Company negotiates the highest possible freight allowance from suppliers
in exchange for arranging to transport products from suppliers to AWG's
distribution centers and, in some cases, directly to retailers in Company
owned or third-party fleets. The size of AWG's owned fleet and its extensive
use of contract carriers allows the Company to operate a significant backhaul
business. In addition, the Company uses a variety of operating techniques and
systems to enhance its transportation operations.
Backhaul. Backhauling allows AWG to obtain freight allowances from suppliers
by using AWG's fleet to transport product from the supplier to AWG
distribution centers. Approximately 40% of AWG out-bound loads return with a
backhaul load, resulting in freight allowances in 1995 of approximately $8.9
million.
Third Party Hauling. AWG uses negotiated rates with contract transportation
companies on approximately one-third of all in-bound loads for delivery to its
distribution centers, creating efficient delivery and low cost shipping within
performance standards established by AWG. Third party in-bound operations
resulted in cost savings of over $4.5 million in 1995.
RoadShow(TM) International Routing Software. The Company focuses on load
planning and work sequencing, electronically drawing customer order data from
the order billing files, verifying delivery types and dates, and consolidating
orders into truckloads using RoadShow(TM) International, a PC-based routing
software system designed to optimize truck space and distance traveled to plan
the most cost effective route. RoadShow(TM) International creates driveable
routes in the most efficient combination of cost, efficiency and utilization
of equipment to ensure delivery within a specified customer delivery window.
Cadec(TM) Onboard Information System. Cadec(TM) onboard computers are
tractor mounted information systems that collect a variety of data from direct
connection to the truck and from driver input, producing an assortment of
management reports on matters such as stops, driver hours of service,
Department of Transportation logs, problem deliveries, pallet and tote
management, engine performance, idle time, and fuel consumption. Cadec(TM)
interfaces with RoadShow(TM) International to produce a planned-versus-actual
analysis of each delivery. Although Cadec(TM) implementation has been spread
across several operating periods to accommodate equipment installation and
driver training, initial results indicate significant savings have been
achieved from reduced equipment idling time and increased operator
productivity.
Direct Retail Routing. Direct Retail Routing, or DRR, is a distribution
process that matches in-bound goods in transit to customer orders and delivers
goods directly to the retailer, bypassing distribution center handling.
Delivery to retailers is accomplished either by redirecting the in-bound truck
to the retailer's store, or by cross-docking the in-bound goods directly onto
a trailer containing the rest of the retailer's order. Significant savings are
possible through DRR because merchandise by-passes the traditionally labor
intensive warehouse functions of receiving, racking, selection and shipping.
Additionally, inventory carrying cost is eliminated because merchandise is
invoiced to the retailer and paid for prior to the supplier invoice becoming
due. Although the program is in the early stages of development, 21 million
pounds of product were moved using DRR in 1995. An estimated 30 million pounds
will be moved to retailers using DRR functions in 1996.
Store Order Load Option. The Store Order Load Option program offers
retailers the opportunity to realize product cost savings by coordinating
direct delivery of full truckload purchases. The retailer can realize a 4.0%
cost savings using this system compared to normal warehouse delivery.
MANAGEMENT OPERATING SYSTEMS
The Company's computing environment consists of a highly integrated blend of
wide and local area networked computers linked to the corporate data center.
Billing, accounts receivable, inventory and other critical data processing are
supported on mainframe and midrange platforms, as well as numerous client
server stations.
Communication. The Company has installed an extensive communications network
linking all of its locations. The majority of internal operating information
is delivered in report form and may either be prepared
47
<PAGE>
as hard copy or as an on-line view with a report distribution system. Selected
data is made available for direct access to authorized staff members through
networked computer workstations for their subsequent retrieval and further
use.
Centralized Accounting. With the recent addition of two divisions, Oklahoma
City and Valu Merchandisers, AWG is moving from a decentralized to a
centralized accounting structure. AWG believes this change will result in
lower operating costs as well as more consistency and standardization in all
accounting related activities. A centralized structure allows AWG to implement
new cost savings systems and methods more efficiently and to improve controls
and consistency in processes dealing with retail customers and vendors.
Electronic Data Interchange. Electronic Data Interchange consists of the
exchange of business documents between companies using a standard format.
Electronic Data Interchange purchase orders are sent to over 120 of the
Company's largest vendors, representing over 70% of AWG's business. The
Company is in the process of implementing electronic receipt of invoices,
advanced shipping notices, price changes and promotional notices. The Company
anticipates having the major portion of its communication with the vendor
community on line electronically by the end of 1996.
PROMPT. AWG is implementing a Payment Reconciliation of Matched Purchase
Order Transactions system, known as PROMPT, that will integrate accounts
payable with purchasing and receiving, providing additional information to
buyers, merchandisers, traffic managers, and accountants for invoice matching
and reconciliation. PROMPT is designed to improve accuracy and reduce clerical
costs. PROMPT accomplishes these improvements in less time than current manual
procedures and is expected to provide cost savings.
COMPETITION
The grocery industry is characterized by intense competition on both the
retail and wholesale levels. AWG competes with a number of other cooperative
and non-cooperative food distribution businesses for its retailers' business.
Some of these competitors are larger than AWG and some have integrated
wholesale and retail operations. AWG's principal wholesale competitors include
Fleming Companies Inc., SuperValu, Inc. and several smaller regional
distributors. The retailers supplied by the Company compete independently with
each other, with other independent store operators, and with large retailer
stores, super centers and wholesale club operators.
The Company believes that its business strategy provides it with a
significant competitive advantage. By leveraging the purchasing power of its
large retail base it can obtain products in all categories at the lowest price
available from its vendors. In addition, the Company's value-added, retailer-
focused support services help its retailers to compete successfully in every
market serviced by the Company. The Company believes that it achieves a
significant competitive advantage by combining the purchasing and operating
efficiencies from its centralized supply and support services with the local
market flexibility and entrepreneurship of its independent retailers.
AWG believes that it can continue to compete successfully on the wholesale
level while supporting the competitive efforts of its retailers by continuing
to provide to individual retailers the lowest competitive cost of goods and
the broad spectrum of support services typical of large retailers. In
addition, AWG will continue to explore opportunities for its retailers to
acquire additional stores as they become available within and adjacent to
AWG's principal service area.
FACILITIES
AWG's three principal facilities, which distribute all food and non-food
products provided by AWG, are located in Kansas City, Kansas; Springfield,
Missouri and Oklahoma City, Oklahoma. The Company also has a facility in Fort
Scott, Kansas which distributes health and beauty supplies.
48
<PAGE>
The Kansas City, Kansas distribution center, together with AWG's corporate
offices, each of which are owned by AWG, are located on approximately 62 acres
and include approximately 605,000 square feet of warehouse space and 83,000
square feet of office space. The Kansas City, Kansas distribution center is
undergoing an expansion that will increase the warehouse space by
approximately 287,000 square feet.
The Springfield, Missouri distribution center is owned by AWG and is located
on approximately 54 acres and includes approximately 751,000 square feet of
warehouse and 43,000 square feet of office space.
The Oklahoma City, Oklahoma distribution center is partially owned and
leased. It is located on approximately 44 acres and includes approximately
526,000 square feet of warehouse and 36,000 square feet of office space.
The Fort Scott, Kansas distribution center is owned by AWG and is located on
approximately 36 acres and includes approximately 208,000 square feet of
warehouse and 10,000 square feet of office space.
The Company has additional office space in Kansas City, Missouri. This
property is owned, sits on approximately two acres and constitutes 38,456
square feet of office space. This office space is used primarily for
information services and to assist the Valu Merchandisers subsidiary.
EMPLOYEE RELATIONS
Management believes that relations with AWG's employees are good. As of June
15, 1996, AWG had 2,198 non-salaried employees, of whom 1,926 served in its
four distribution centers, and 272 served in administrative operations. AWG
also had approximately 604 salaried employees. AWG is a party to three
collective bargaining agreements. The current three-year collective bargaining
agreement with the International Brotherhood of Teamsters for the Kansas City
distribution center expires in October 1997, while the collective bargaining
agreement with the Teamsters at the Springfield and Oklahoma City distribution
centers expire in April 1997 and April 2001, respectively. The Company has not
experienced a work stoppage in over 18 years and believes that it will be able
to continue to negotiate collective bargaining agreements that will allow it
to maintain a competitive labor cost structure.
MATERIAL CUSTOMER
Homeland represented approximately 10% of sales of AWG in the 24 weeks ended
June 15, 1996. No other customer accounts for 10% or more of AWG sales. The
Company and Homeland have entered into a long term supply agreement that
provides that Homeland will purchase its inventory requirements from AWG upon
the same terms and conditions as other retailer Shareholders and provides to
Homeland all applicable discounts and rebates. Homeland has notified the
Company that Homeland believes that the consummation of the Merger and the
Initial Public Offering will constitute a default by the Company under the
supply agreement.The loss of Homeland as a customer, or a successful claim by
Homeland for damages or other relief resulting from an alleged default by the
Company under the supply agreement could have a material adverse impact on the
business or profitability of the Company. However, the Company has advised
Homeland that it believes that no such default has or will occur as a result
of the Merger and the Initial Public Offering.
LEGAL PROCEEDINGS
AWG and its subsidiaries are parties to certain legal proceedings incident
to their businesses. In the opinion of management, none of such matters,
either individually or in the aggregate, is material to AWG's financial
condition or results of operations. Homeland has notified AWG that Homeland
believes that the consummation of the Merger and the Initial Public Offering
will constitute a default by AWG under the supply agreement between Homeland
and AWG. The Company believes that no such default has or will occur as a
result of the Merger and the Initial Public Offering. See "BUSINESS--Material
Customer" and "RISK FACTORS--Dependence on Homeland."
49
<PAGE>
REGULATION
AWG is subject to federal, state and local laws and regulations governing
the purchase, handling, sale and transportation of its products, and is
subject to the jurisdiction of the federal Food and Drug Administration
("FDA"), Interstate Commerce Commission ("ICC") and the Occupational Safety
and Health Administration ("OSHA"). Management believes that AWG is in
material compliance with all FDA, ICC, OSHA and other federal, state and local
laws and regulations governing its business.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF AWG GROUP AND CERTAIN KEY PERSONNEL OF AWG
The directors and executive officers of AWG Group and certain key personnel
of AWG are as set forth below. Subsequent to the Merger and Initial Public
Offering, four additional, independent directors will be added to the AWG
Group Board.
<TABLE>
<CAPTION>
YEARS
WITH
NAME AGE AWG POSITION WITH AWG GROUP
- ---- --- ----- -----------------------
<S> <C> <C> <C>
Directors and Executive
Officers
J. Fred Ball............ 62 23 Director
Jim Queen............... 62 35 Director
Don Woods, Jr........... 51 12 Director
Mike DeFabis............ 64 10 President, Chief Executive Officer
and Director
Doug Carolan............ 54 13 Executive Vice President, Chief
Operating Officer and Director
Tom Williams............ 54 12 Executive Vice President of Division
Operations
Gary Phillips........... 49 22 Executive Vice President of Finance
and Administration, Chief Financial
Officer
Joe Campbell............ 58 21 Vice President, Secretary and
Treasurer
Certain Key Personnel POSITION WITH AWG
-----------------
Jerry Barber............ 50 1 Senior Vice President, Kansas City
Division Manager
Jerry Garland........... 45 5 Senior Vice President, Oklahoma City
Division Manager
Maurice Henry........... 47 10 Senior Vice President, Springfield
Division Manager
Dennis Kinser........... 51 23 Vice President Procurement
Scott Wilmoski.......... 43 13 Vice President Real Estate
Bill Morrison........... 43 5 President Supermarket Insurance
Agency
Dick Swain.............. 63 3 President Valu Merchandisers Company
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Mr. Ball has served as the Chairman of the Board of Directors of AWG Group
since August 1996 and as Chairman of the Board of Directors of AWG since 1977.
He is the President of Four B Corp., an AWG retailer which owns and operates
20 supermarkets in the Kansas City area.
Mr. Queen has served as a director of AWG Group since August 1996 and as a
director of AWG since 1985. He was employed by the Company from 1961 to 1974.
He is the President of Buy Rite, Inc., an AWG retailer which owns and operates
three supermarkets in the Kansas City area. He is the managing member of two
limited liability companies that are AWG retailers, each of which owns and
operates one additional store.
50
<PAGE>
Mr. Woods has served as a director of AWG Group since August 1996 and as a
director of AWG since 1984. He is the President of Woods Super Markets, Inc.,
an AWG retailer which owns and operates seven supermarkets in western
Missouri.
Mr. DeFabis has served as a director and as President and Chief Executive
Officer of AWG Group since August 1996. Mr. DeFabis has served as President
and Chief Executive Officer of AWG since March of 1992 and as Chief Operating
Officer from March 1990 to March 1992.
Mr. Carolan has served as a director and as Executive Vice President and
Chief Operating Officer of AWG Group since August 1996. Mr. Carolan has served
as Executive Vice President and Chief Operating Officer of AWG since September
1995 and as Executive Vice President of AWG from September 1986 to September
1995.
Mr. Williams has served as Executive Vice President of Division Operations
at AWG Group since August 1996. Mr. Williams has served as Executive Vice
President of Division Operations of AWG since September 1995 and as Senior
Vice President and Manager of the Kansas City Division from April 1984 to
September 1995.
Mr. Phillips has served as Chief Financial Officer and Executive Vice
President of Finance and Administration of AWG Group since August 1996. Mr.
Phillips has served as Executive Vice President of Finance and Administration
of AWG since January 1996, Chief Financial Officer of AWG since August 1996
and as Senior Vice President and Manager of the Springfield division from
September 1983 to January 1996.
Mr. Campbell has served as Vice President, Treasurer and Secretary of AWG
Group since August 1996. Mr. Campbell has served as Treasurer of AWG since
1975 and as Vice President of AWG since 1981. He was elected as Secretary of
AWG by the Board of Directors in 1992.
CERTAIN KEY PERSONNEL OF AWG
Mr. Barber has served as Senior Vice President and Manager of the Kansas
City division since 1995. Prior to joining AWG, Mr. Barber was the President
and Chief Executive Officer of Eagle Food Centers from 1990 to 1994 and
Executive Vice President of Sales and Marketing at Nash-Finch Company from
1985 to 1990.
Mr. Garland has served as Senior Vice President and Manager of the Oklahoma
City division since 1995 and as Vice President of Marketing and Procurement
for the Springfield division from 1991 to 1995. Prior to joining AWG, Mr.
Garland was Vice President of Merchandising of Harvest Foods from 1990 to 1991
and Director of Merchandising for Dallas KMA--Kroger Co. from 1986 to 1990.
Mr. Henry has served as Senior Vice President and Manager of the Springfield
division since January, 1996, Vice President of Merchandising of the Kansas
City division from June, 1995 to December 1996 and Executive Director of
Member Services for the Kansas City division from 1985 to 1995.
Mr. Kinser has served as Vice President of Procurement since 1991 and has
held various positions in the purchasing department of AWG since 1973.
Mr. Wilmoski has served as Vice President of Real Estate and Store
Engineering since 1989 and has held various real estate and store engineering
positions with AWG since 1983.
Mr. Morrison has served as President and Chief Executive Officer of
Supermarket Insurance Agency and Benchmark Insurance Company since May 1996,
and as Vice President and Chief Operating Officer of Benchmark Insurance
Company, since 1991. Prior to joining AWG, Mr. Morrison was a self-employed
insurance consultant from January 1990 to April 1991 and Senior Vice President
and Chief Financial Officer of Kensu Holdings, Inc., a holding company of
property and casualty insurance related entities, from 1985 through 1989.
Mr. Swain has served as the President of Valu Merchandisers since 1994 and
as Vice President of General Merchandise from 1993 to 1994. Prior to joining
AWG, Mr. Swain was the Division President of Fleming GMD, the general
merchandise division of Fleming Companies, Inc. from 1985 to 1993.
51
<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation for the
1995 fiscal year of the five highest-paid executive officers of AWG who will
be executive officers of AWG Group. The Company did not provide any
compensation in the form of restricted stock awards, options, stock
appreciation rights or long-term incentive plan payouts.
<TABLE>
<CAPTION>
ALL OTHER
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($)(1)
- --------------------------- ------- ------ ------------
<S> <C> <C> <C>
Mike DeFabis, President and Chief Executive
Officer............................................ 483,000 19,000 4,544
Doug Carolan, Executive Vice President and Chief
Operating Officer.................................. 340,600 13,100 2,031
Tom Williams, Executive Vice President of Division
Operations......................................... 216,130 9,150 4,411
Gary Phillips, Executive Vice President of Finance
and Administration................................. 201,695 7,870 1,946
Joe Campbell, Vice President, Secretary and
Treasurer.......................................... 153,920 6,000 4,136
</TABLE>
- --------
(1) Amounts include a $1,500 Company contribution to the AWG Restated 401(k)
Plan and the remainder for personal use of Company automobiles.
PENSION PLANS
The Company maintains a Restated Retirement Plan and a supplemental Pension
Restoration Plan (together, the "Retirement Plan"). The following table shows
the estimated annual benefits payable to a covered participant at normal
retirement age (age 65) under the Retirement Plan for various levels of
compensation and years of service. Benefit figures shown are amounts payable
on a straight-line annuity assuming retirement by the participant at the
normal retirement age of 65 without a joint survivorship provision and are not
subject to any offsets for Social Security but are offset by Social Security
covered compensation.
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------
AVERAGE
SALARY BASE 5 10 15 20 25 30 35
- ----------- ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
125,000.................. 13,121 26,242 39,363 52,484 65,605 78,726 91,847
150,000.................. 15,909 31,817 47,726 63,634 79,543 95,451 111,360
175,000.................. 18,696 37,392 56,088 74,784 93,480 112,176 130,872
200,000.................. 21,484 42,967 64,451 85,934 107,418 128,901 150,385
225,000.................. 24,271 48,542 72,813 97,084 121,355 145,626 169,897
250,000.................. 27,059 54,117 81,176 108,234 135,293 162,351 189,410
275,000.................. 29,846 59,692 89,538 119,384 149,230 179,076 208,922
300,000.................. 32,634 65,267 97,901 130,534 163,168 195,801 228,435
325,000.................. 35,421 70,842 106,263 141,684 177,105 212,526 247,947
350,000.................. 38,209 76,417 114,626 152,834 191,043 229,251 267,460
375,000.................. 40,996 81,992 122,988 163,984 204,980 245,976 286,972
400,000.................. 43,784 87,567 131,351 175,134 218,918 262,701 306,485
425,000.................. 46,571 93,142 139,713 186,284 232,855 279,426 325,997
450,000.................. 49,359 98,717 148,076 197,434 246,793 296,151 345,510
475,000.................. 52,146 104,292 156,438 208,584 260,730 312,876 365,022
500,000.................. 54,934 109,867 164,801 219,734 274,668 329,601 384,535
</TABLE>
The compensation taken into account for purposes of determining the
aggregate pension benefit under the Retirement Plan is the employee's salary
as set forth in the Summary Compensation Table. As of December 31, 1995, the
years of service for the individuals named in the summary compensation table
were as follows: Mr. DeFabis--8 years, Mr. Carolan--12 years, Mr. Williams--11
years, Mr. Phillips--20 years, and Mr. Campbell--20 years.
52
<PAGE>
EQUITY INCENTIVE PLAN
As a result of a comprehensive review of AWG's executive compensation
programs, the AWG Group Board adopted a compensation plan that allows the use
of equity-related compensation (the "Equity Incentive Plan"). Management
believes that the Equity Incentive Plan will become an important part of AWG
Group's management compensation program by helping to attract and retain
motivated, highly competent employees. By providing stock options and other
equity-related compensation, management believes that the participants will
have a strong incentive to create shareholder value. A copy of the Equity
Incentive Plan has been filed with the SEC as an exhibit to the Registration
Statement of which this Proxy Statement/Prospectus is a part. See "ADDITIONAL
INFORMATION."
The Equity Incentive Plan allows the granting of stock options, stock
appreciation rights, restricted stock awards, performance unit awards and
performance share awards (collectively, "Awards") to eligible participants.
The number of shares authorized to be issued pursuant to Awards granted under
the Equity Incentive Plan is up to 10% of the shares of AWG Group Common Stock
outstanding immediately after the Initial Public Offering, of which no more
than 100,000 shares may be issued in the form of restricted stock. If an Award
expires or is canceled without having been fully exercised or vested, the
unvested or canceled shares generally will be available thereafter for grants
of Awards. The number of shares available for grant under the Equity Incentive
Plan, as well as outstanding Awards and the numerical limits for individual
grants, will be adjusted as appropriate to reflect any stock splits, stock
dividends, recapitalizations, reorganizations or other changes to the capital
structure of AWG Group.
The Equity Incentive Plan will be administered by the Board of Directors or
a committee designated by the Board of Directors. Subject to the terms of the
Equity Incentive Plan, the Board has the sole discretion to determine the
employees and consultants who will be granted Awards, the size and types of
such Awards, and the terms and conditions of such Awards. The exercise price
of options must be at least equal to the fair market value of the common stock
as of the date of grant. Employees and consultants of AWG Group and its
affiliates (i.e., any corporation or any entity controlling, controlled by or
under common control with AWG Group) are eligible to be selected to receive
Awards.
Under the Equity Incentive Plan, the Board of Directors of AWG Group has
approved options for 77 executives totaling 1,115,000 shares, contingent upon
the consummation of the Merger. These options will have an exercise price
equal to the price per share that shares of AWG Group Common Stock are sold to
the public in the Initial Public Offering and will vest in equal installments
on each of the first three anniversaries of the grant date. Under these
grants, the individuals named in the summary compensation table will receive
the following options: Mr. DeFabis--100,000 shares; Mr. Carolan--75,000
shares; Mr. Williams--50,000 shares; Mr. Phillips--50,000 shares; and Mr.
Campbell--25,000 shares. The actual number of employees and consultants who
will receive Awards under the Equity Incentive Plan cannot be determined
because selection for participation in the Equity Incentive Plan is in the
sole discretion of the Board.
DIRECTOR COMPENSATION
The AWG Group Board of Directors has not yet adopted a director compensation
program. Such a program is anticipated to be adopted prior to the Initial
Public Offering.
CERTAIN TRANSACTIONS
The Company makes loans or otherwise facilitates the financing needs for
expansions or other enhancements of its retailers' supermarkets. As of June
15, 1996, the Company had an aggregate of $44.1 million of loans outstanding
to its retailers, including loans aggregating approximately $3.9 million to
Buy Rite, Inc. Queen-Morris Ventures, L.L.C. and Queen Enterprises, L.L.C.,
bearing interest at a rate of 9.25%. Mr. Queen, who is a director of AWG
Group, is a director, officer and shareholder of Buy Rite, Inc. and a member
of the two limited liability companies.
53
<PAGE>
Certain directors of AWG Group are affiliated with Shareholders that
purchase all or a portion of their grocery and non-grocery needs and related
services from AWG. All such purchases are made at prices and on terms,
including volume discounts and rebates, identical to those offered to all
other Shareholders. During the first twenty-eight weeks of 1996, entities
related to the following persons purchased products in the following amounts
from AWG:
<TABLE>
<CAPTION>
NAME OF
SHAREHOLDER
(AFFILIATED
DIRECTOR) PURCHASES FROM AWG
----------- ------------------
(IN MILLIONS)
<S> <C>
Four B Corp. (J. Fred Ball)........................... $112.1
Woods Super Market, Inc. (Don Woods, Jr.)............. 16.6
Buy Rite, Inc. (Jim Queen)............................ 6.6
Queen-Morris Ventures L.L.C. (Jim Queen).............. 4.0
Queen Enterprises, L.L.C. (Jim Queen)................. 4.7
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
No executive officer of AWG owns any shares of AWG Common Stock. No director
of AWG beneficially owns more than 1% of any class of AWG Common Stock. The
directors of AWG as a group beneficially own 4% and 6% of the outstanding
shares of AWG Class A and Class B Common Stock, respectively. The number of
shares of AWG Class A and Class B common stock beneficially owned by members
of the AWG Board, and by all directors of AWG as a group is set forth below,
together with the shares of AWG Group to be owned after the Merger:
<TABLE>
<CAPTION>
SHARES OF AWG
SHARES OF AWG SHARES OF AWG GROUP COMMON
CLASS A CLASS B STOCK TO BE OWNED
NAME COMMON STOCK COMMON STOCK AFTER THE MERGER
- ---- ------------- ------------- -----------------
<S> <C> <C> <C>
David Baker(1)................... 15 75
J. Fred Ball(2).................. 15 75
Dante J. Cosentino(3)............ 60 120
James A. Demme(4)................ 15 --
Floyd G. Garrett(5).............. 15 75
Charles Graas.................... -- --
Gerald L. Harp(6)................ 15 75
Lester E. Horner(7).............. 15 75
Bob Hufford(8)................... 15 75
Kent Laughman(9)................. 15 75
Chuck Murfin(10)................. 15 75
James R. Queen(11)............... 45 75
David A. Trottier(12)............ 15 75
Donald C. Woods, Jr.(13)......... 15 75
--- --- ---
All directors as a group (14
persons)........................ 270 945
</TABLE>
- --------
(1) Each of these shares is owned by Baker Enterprises, Inc. Mr. Baker is a
director, officer and shareholder of Baker Enterprises, Inc.
(2) Each of these shares is owned by Four B Corp. Mr. Ball is a director,
officer and shareholder of Four B Corp.
(3) Class A shares include 15 shares owned by Cosentino Group, Inc., of which
Mr. Cosentino is the Chairman and a shareholder; 15 shares owned by
Cosentino Group II, Inc., of which Mr. Cosentino is the Chairman and a
shareholder; 15 shares owned by Cosco of Kansas, Inc., of which Mr.
Cosentino is the President and a shareholder; and 15 shares owned by Mid
Am Food Enterprises, Inc., of which Mr. Cosentino is a director, officer
and shareholder. Class B shares include 45 shares owned by Cosentino
Group, Inc., of
54
<PAGE>
which Mr. Cosentino is the President and a shareholder and 75 shares owned
by Mid Am Food Enterprises, Inc., of which Mr. Cosentino is a director,
officer and shareholder.
(4) Each of these shares is owned by Homeland Stores, Inc. Mr. Demme is the
President of Homeland Stores, Inc.
(5) Each of these shares is owned by Garrett & Giesy Enterprises, Inc., of
which Mr. Garrett is a director, officer and shareholder.
(6) Each of these shares is owned by Harp's Food Stores, Inc. Mr. Harp is a
director, officer and shareholder of Harp's Food Stores, Inc.
(7) Each of these shares is owned by Horner Foods, Inc. Mr. Horner is a
director, officer and shareholder of Horner Foods, Inc.
(8) Each of these shares is owned by Town & Country Grocers of Fredericktown
Missouri, Inc. ("Town & Country"). Mr. Hufford is a director, officer and
shareholder of Town & Country.
(9) Each of these shares is owned by Falley's, Inc. Mr. Laughman is the
President of Falley's, Inc.
(10) Each of these shares is owned by Ozark Supermarket, Inc. Mr. Murfin is a
director, officer and shareholder of Ozark Supermarket, Inc.
(11) Class A shares include 15 shares owned by Queen Enterprises, L.L.C., of
which Mr. Queen is a member; 15 shares owned by Buy Rite, Inc. of which
Mr. Queen is a director, officer and shareholder; and 15 shares owned by
Queen-Morris Ventures, L.L.C., of which Buy Rite, Inc. is a member. Class
B shares include 75 shares owned by Buy Rite, Inc. of which Mr. Queen is
a director, officer and shareholder.
(12) Each of these shares is owned by Smitty's Supermarkets, Inc. Mr. Trottier
is a director, officer and shareholder of Smitty's Supermarkets, Inc.
(13) Each of these shares is owned by Woods Super Markets, Inc. Mr. Woods is a
director, officer and shareholder of Woods Super Markets, Inc.
DESCRIPTION OF AWG GROUP CAPITAL STOCK
The following statements contain, in summary form, certain information
relating to AWG Group capital stock. They do not purport to be complete or to
reflect or give effect to statutory law and are intended to outline the
information presented in general terms only. Such statements are subject to
the detailed provisions of the AWG Group Articles of Incorporation and Bylaws
which are attached hereto as Annexes B and D.
COMMON STOCK
The Articles of Incorporation of AWG Group authorize the issuance of 500
million shares of common stock, par value $.01 per share. The holders of AWG
Group Common Stock are entitled to receive dividends when and as declared by
the Board of Directors out of funds legally available therefor. Upon
dissolution of AWG Group, the holders of AWG Group Common Stock are entitled
to share pro rata in AWG Group's net assets after payment or provision for
payment of all debts and liabilities of AWG Group, and after provision for any
class of preferred stock or other senior security which may be issued by AWG
Group.
The holders of AWG Group Common Stock are entitled to one vote per share on
all matters submitted to a vote of the shareholders and may not cumulate their
votes for the election of directors. Thus, the holders of a majority of the
shares of AWG Group Common Stock have the power to elect all the directors.
Subject to the voting rights of the holders of preferred stock, if any, the
exclusive voting power for all purposes is vested in the holders of the AWG
Group Common Stock. Each share of AWG Group Common Stock is entitled to
participate on a pro rata basis in dividends and other distributions to
holders of AWG Group Common Stock. There are no redemption, sinking fund,
conversion or preemptive rights with respect to shares of AWG Group Common
Stock. All shares of AWG Group Common Stock are, and the shares to be issued
in the Merger and in the Initial Public Offering will be, fully paid and
nonassessable.
55
<PAGE>
PREFERRED STOCK
AWG Group has the authority, exercisable by its Board of Directors and
without shareholder approval, to issue, in one or more series, up to 50
million shares of preferred stock, par value $.10 per share, from time to time
with such preferences, limitations and relative rights as may be determined by
the Board of Directors for such purposes and for such consideration as it may
deem advisable. Accordingly, the Board of Directors, without shareholder
approval, may authorize the issuance of one or more series of preferred stock
with terms (including terms with respect to redemption, sinking fund,
dividend, liquidation, preemptive, conversion and voting rights and
preferences) that could adversely affect the voting power and other rights of
holders of AWG Group Common Stock.
The creation and issuance of any series of preferred stock and the relative
rights, designations and preferences of such series, if and when established,
will depend upon, among other things, the future capital needs of AWG Group,
then existing market conditions and other factors that, in the judgment of the
Board of Directors, might warrant the issuance of preferred stock. Preferred
stock may have the effect of discouraging an attempt, through acquisition of a
substantial number of shares of AWG Group Common Stock, to acquire control of
AWG Group with a view to effecting a merger, sale or exchange of assets or a
similar transaction. The anti-takeover effects of the preferred stock may deny
shareholders the receipt of a premium on their AWG Group Common Stock and may
also have a depressive effect on the market price of AWG Group Common Stock.
As of the date of this Proxy Statement/Prospectus, except with respect to the
shareholder rights plan discussed below, AWG Group has no arrangements,
undertakings or plans with respect to the issuance of preferred stock.
SHAREHOLDER RIGHTS PLAN
The Company has adopted a Shareholder Rights Plan (the "Rights Plan"),
pursuant to which holders of Common Stock have been granted one preferred
share purchase right (a "Right") attributable to each share of AWG Group
Common Stock. The following description of the Rights is not intended to be
complete and is qualified in its entirety by reference to the Rights Agreement
(the "Rights Agreement"), between the Company and the rights agent. Certain of
the capitalized terms used in the following description have the meanings set
forth in the Rights Agreement.
Each Right, when it becomes exercisable as described below, will entitle the
registered holder to purchase one one-thousandth ( 1/1000th) of a share of
Series A Participating Cumulative Preferred Stock of the Company, $0.10 par
value (the "Preferred Shares"), at an exercise price of $ , subject to
certain adjustments and other specified conditions. Initially, the Rights will
be evidenced by the certificates for AWG Group Common Stock, registered in the
names of the holders thereof and will be transferred with and only with the
AWG Group Common Stock.
The Rights become exercisable upon the occurrence of a Distribution Date,
which is defined in the Rights Plan as the earlier of (i) such time as the
Company learns that a person or group (including any affiliate or associate of
such person or group) has acquired, or has obtained the right to acquire,
beneficial ownership of more than 15% of the outstanding shares of AWG Group
Common Stock, other than pursuant to a Qualifying Offer (as defined below)
(such person or group being an "Acquiring Person"), and (ii) such date, if
any, as may be designated by the Board of Directors of the Company following
the commencement of, or first public disclosure of an intent to commence, a
tender or exchange offer for outstanding AWG Group Common Stock which could
result in such person or group becoming the beneficial owner of more than 15%
of the outstanding AWG Group Common Stock, other than pursuant to a Qualifying
Offer. Upon a person becoming an Acquiring Person, the Rights Plan provides,
among other things, that each holder of a Right (except for the Acquiring
Person) will thereafter have the right to receive, upon exercise, Common Stock
having a value equal to two (2) times the exercise price of the Right.
In the event that the Company is acquired in a merger or other business
combination by an Acquiring Person or an affiliate thereof that is a publicly
traded corporation or 50% or more of the Company's assets or assets
56
<PAGE>
representing 50% or more of the Company's revenues or cash flow are
transferred to an Acquiring Person or an affiliate thereof that is a publicly
traded corporation, each Right will entitle its holder (other than the
Acquiring Person) to purchase common shares of the acquiring corporation
having a market value equal to two (2) times the exercise price of the Right.
If the acquiring entity in such a transaction is not a publicly traded
corporation, each Right will entitle its holder (other than the Acquiring
Person) to purchase (i) common shares of the surviving or acquiring
corporation having a book value equal to two (2) times the exercise price of
the Right; or (ii) if such entity has an affiliate which has publicly traded
common shares, that number of common shares of such affiliate which at the
time of the transaction would have a market value of twice the exercise price
of the Right.
The Rights Plan will not apply to any Qualifying Offer. A Qualifying Offer
generally means an all-cash tender offer for all outstanding shares of Common
Stock and with respect to which the offeror: (i) provides documentation to the
Company that the offer is fully financed, (ii) provides a fairness opinion of
a nationally recognized investment banking firm, (iii) agrees to hold the
offer open for specified periods, not reduce the offering price, change the
consideration or reduce the number of shares being sought, (iv) owns, after
consummation of the offer, shares representing a majority of the outstanding
Common Stock, and (v) agrees to certain terms and conditions if the offeror
does not own a majority of the Common Stock at completion of the offer.
At any time prior to the earlier of such time as an Acquiring Person becomes
such and , 200 , the Board of Directors of AWG Group may redeem the
Rights in whole, but not in part, at a price of $0.01 per Right, subject to
adjustment as provided in the Rights Agreement. The Rights Plan may be amended
from time to time by the Board of Directors of AWG Group without approval of
AWG Group shareholders.
After there is an Acquiring Person, the Board of Directors of AWG Group may
elect to exchange each Right (other than Rights that have become null and void
and nontransferable as described above) for consideration per Right consisting
of one-half of the securities that would be issuable at such time upon the
exercise of one Right pursuant to the terms of the Rights Agreement or cash
equal to the exercise price of the Right.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on substantially all the Rights being acquired.
The Rights will not interfere with any merger or other business combination
pursuant to a Qualifying Offer or with a third party approved by the Board of
Directors of the Company since the Board of Directors may, at its option, at
any time prior to any person becoming an Acquired Person, redeem all but not
less than all of the then outstanding Rights as described above.
LIMITATIONS ON CHANGE OF CONTROL
Certain provisions of the AWG Group Articles of Incorporation could make
more difficult the acquisition of AWG Group by means of a tender offer, a
proxy contest or otherwise and the removal of incumbent officers and
directors. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of AWG Group to first negotiate with the
AWG Group Board of Directors. Management believes that the benefits of
increased protection of AWG Group's ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure AWG Group
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms.
AWG Group's Articles of Incorporation provide that the Board of Directors
will be divided into three classes with staggered three-year terms. The number
of directors shall not be less than five nor more than eleven, with the
classes to be as nearly equal in number as possible. As a result, only one
class of directors will be elected at each annual meeting of shareholders of
AWG Group, with the other classes continuing for the remainder of their
respective three-year terms. The classification of the Board of Directors
makes it more difficult for AWG Group's existing shareholders to replace
quickly the majority of the Board of Directors as well as for
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<PAGE>
another party to obtain control of AWG Group by replacing the majority of the
Board of Directors. Because the Board of Directors has the power to retain and
discharge officers of AWG Group, these provisions also make it more difficult
for existing shareholders or another party to effect quickly a change in
management.
AWG Group's Articles of Incorporation provide that special meetings of
shareholders can be called only by a majority of the Board of Directors. The
AWG Group Bylaws set forth an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors and with regard to other proposals to be
brought before an annual meeting of shareholders of AWG Group. Shareholders
will not be permitted to fill vacancies on the Board of Directors caused by
resignation or newly created directorships.
The AWG Group Articles of Incorporation contain provisions requiring the
affirmative vote of the holders of at least two-thirds of the voting stock of
the Company to amend the foregoing provisions of the AWG Group Articles of
Incorporation. The AWG Group Bylaws also require a two-thirds vote to amend
certain provisions thereof.
TRANSFER RESTRICTIONS
Subject to applicable federal and state securities laws and regulations,
shares of AWG Group Common Stock sold in the Initial Public Offering will be
freely transferable. Shares of AWG Group Common Stock acquired pursuant to the
Merger may not be transferred, directly or indirectly, for a period of two
years except that such shares may be (i) pledged in connection with a bona-
fide loan transaction which has been approved by AWG Group prior to the
pledge, which consent is expected to be given if the loan relates to retail
store development, (ii) transferred as part of the sale of substantially all
of the assets or stock of the grocery business (if a corporation) in which the
Shareholder is engaged, or (iii) transferred by way of a gift to a trust for
the benefit of family members or to the estate of a deceased stockholder. In
each case, with the exception of persons who acquire shares pursuant to the
foreclosure of a security interest or from estates which may be required to
pay estate taxes owed as a result of the transferor's death, the transferee
will remain subject to the remaining term of the two-year transfer
restriction.
COMPARISON OF SHAREHOLDER RIGHTS
GENERAL
AWG is incorporated in the State of Missouri, and AWG Group is incorporated
in the State of Kansas. AWG Shareholders, whose rights are currently governed
by Missouri law (including the MGBCL), the AWG Articles of Incorporation and
the AWG Bylaws, will, upon consummation of the Merger, become shareholders of
AWG Group. After such time, their rights will then be governed by Kansas law,
including the KGCC, the AWG Group Articles of Incorporation and the AWG Group
Bylaws. In addition, after the Merger AWG will no longer operate as a
cooperative and thus will no longer pay retailers year-end patronage rebates.
Material differences that may affect the rights and interests of
shareholders of AWG and the AWG Group are set forth below. This summary is not
intended to be an exhaustive or detailed description of the provisions
discussed. It is qualified in its entirety by reference to the KGCC, MGBCL,
the AWG Articles of Incorporation, the AWG Bylaws, the AWG Group Articles of
Incorporation and the AWG Group Bylaws. All references herein to the AWG Group
Articles of Incorporation and the AWG Group Bylaws refer to such charter and
bylaws as will be in effect at the Effective Time. The AWG Group Articles of
Incorporation and the AWG Group Bylaws are attached to this Proxy
Statement/Prospectus as Annexes B and D, respectively.
NUMBER OF DIRECTORS
Under the AWG Articles of Incorporation, the AWG Board consists of at least
fifteen directors. Under the AWG Group Articles of Incorporation and the AWG
Group Bylaws, the AWG Group Board consists of at least five, but no more than
eleven directors, the exact number to be fixed by the AWG Group Bylaws.
Currently, the AWG Group Board consists of five directors.
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<PAGE>
The AWG Bylaws provide that directors are elected to a three-year term. The
AWG Group Articles of Incorporation and AWG Group Bylaws provide for a
staggered Board of Directors consisting of nine directors (which number is
subject to adjustment) comprised of three classes as nearly equal in size as
practicable. Each class holds office until the third annual meeting for
election of directors following the election of such class.
VACANCIES ON THE BOARD OF DIRECTORS
Under the AWG Bylaws, vacancies on the AWG Board may be filled by the
designee of a majority of the directors then in office, even if less than a
quorum. A director so designated will hold office for a term coinciding with
the term of the director whose vacancy was filled. Vacancies on the AWG Group
Board are filled in the same manner as AWG except the required board vote is
two-thirds of the remaining directors.
REMOVAL OF DIRECTORS
The AWG Articles of Incorporation and the AWG Bylaws are silent as to the
removal of any director, but, under the MGBCL, directors may be removed, with
or without cause, at a meeting of the Shareholders by a vote of the holders of
a majority of the shares then entitled to vote. In addition, if less than the
entire AWG Board is to be removed, no one of the directors may be removed if
the votes cast against removal would be sufficient to elect the director if
then cumulatively voted at an election of the entire AWG Board. The AWG Group
Articles of Incorporation provide that directors of AWG Group may be removed,
but only for "cause" by (i) a two-thirds majority of the shares then entitled
to vote for the election of directors, or (ii) by an affirmative vote of a
majority of the entire AWG Group Board. The term "cause" means (i) conviction
of a felony, (ii) declaration by order of a court that the director is of
unsound mind, or (iii) gross abuse of trust which is proven by clear and
convincing evidence to have been committed in bad faith.
VOTING
The AWG Articles of Incorporation and AWG Bylaws do not provide for
cumulative voting in connection with the election of directors and provide
that each outstanding share entitled to vote under the AWG Articles of
Incorporation is entitled to one vote on each matter submitted to a
Shareholder vote. Under the MGBCL Shareholders have the right to cumulate
their votes for the election of directors in the absence of a provision in the
AWG Articles of Incorporation or AWG Bylaws to the contrary. The AWG Group
Articles of Incorporation state that shareholders do not have cumulative
voting rights in connection with the election of directors and also provide
that each outstanding share entitled to vote is entitled to one vote on each
matter submitted to a shareholder vote.
The AWG Bylaws state that unless required otherwise by law, issues brought
before a meeting of Shareholders will be decided by a vote of the holders of a
majority of the shares represented and entitled to vote. The AWG Group Bylaws
(except with respect to the election of directors who are elected by a
plurality vote) contain a similar provision.
SPECIAL MEETINGS
The AWG Bylaws state that, in general, special Shareholder meetings may only
be called by the President of AWG, by the President upon resolution of the AWG
Board, or at the written request of not less than 20% of the Shareholders. The
AWG Group Articles of Incorporation state that, except as otherwise required
by law, special meetings of AWG Group shareholders may be called by only a
majority of the AWG Group Board.
INDEMNIFICATION; LIMITATION OF LIABILITY
The MGBCL and the KGCC permit indemnification of officers, directors and
others on substantially similar terms. A corporation may indemnify any person
made or threatened to be made a party to any legal proceeding, including any
suit by or in the name of the corporation, by reason of the fact that he is or
was a director, officer,
59
<PAGE>
employee or agent of the corporation, or is or was serving at the request of
the corporation in any capacity with respect to another enterprise, against
expenses and other amounts reasonably incurred by him in connection with such
legal proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the corporation, and,
with respect to any criminal proceeding, had no reasonable cause to believe
his conduct was unlawful. The foregoing notwithstanding, no indemnification
may be made in respect of any claim brought by or in the name of the
corporation as to which such person is adjudged to be liable to the
corporation unless and only to the extent that a proper court determines that
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses that the court deems
proper. These indemnification rights are not exclusive of any other rights to
which the person seeking indemnification is entitled and do not limit a
corporation's right to provide further indemnification.
The AWG Bylaws provide for indemnification of any person made or threatened
to be made a party to a legal proceeding by reason of the fact that the person
is or was a director, officer or general manager of AWG against all expense,
liability or loss (including attorneys' fees and judgments) actually and
reasonably incurred by such person; provided no such person shall be
indemnified as to matters for which they have been adjudged to have been
negligent. The indemnification applies to settlements only if the AWG Board
approves the settlement and makes its own determination that such person was
not negligent.
The AWG Group Articles of Incorporation contain a provision that eliminates
the personal liability of AWG Group's directors and officers to AWG Group or
its shareholders for monetary damages for breach of fiduciary duty to the
fullest extent permitted by the KGCC. Provisions in the AWG Group Articles and
AWG Group Bylaws entitle officers, directors and employees to be indemnified
by AWG Group against costs and expenses, attorneys' fees, judgments, fines and
amounts paid in settlement that are actually and reasonably incurred in
connection with any such action, suit or proceeding, including actions brought
by or in the right of AWG Group, to which such persons are made or threatened
to be made a party, by reason of their being a director or officer of AWG
Group, to the fullest extent permitted by Kansas law. AWG Group may also be
required to advance costs incurred by directors, officers and employees in
such situations.
SHAREHOLDER INSPECTION
Under the KGCC, any shareholder may inspect the corporation's stock ledger,
shareholder list and other books and records for any proper purpose. A "proper
purpose" is defined as a purpose reasonably related to such person's interest
as a shareholder. The KGCC specifically provides that a shareholder may
appoint an agent for the purpose of examining the stock ledger, list of
shareholders or other books and records of the corporation. A shareholder may
apply to the Kansas district court to compel inspection in the event the
shareholder's request to examine the books and records is refused. In general,
the corporation has the burden of proving an improper purpose where that
shareholder requests to examine only the shareholder ledger or the shareholder
list, and in all other circumstances, the shareholder has the burden of
proving a proper purpose. The right of shareholders to inspect under the KGCC
is generally similar to that of shareholders under the MGBCL. Neither the
MGBCL nor Missouri case law, however, provides specific guidance as to whether
a shareholder may appoint an agent for the purpose of examining books and
records or the extent to which a shareholder must have a "proper purpose."
Accordingly, in comparison with the KGCC, in a given situation, a Missouri
shareholder may be provided with less guidance as to the scope of its ability
to inspect the books and records of the corporation.
AMENDMENT OF ARTICLES OF INCORPORATIONS
The AWG Articles of Incorporation are silent as to the amendment of its
provisions. Under the MGBCL the AWG Articles of Incorporation may be amended
upon a resolution of the AWG Board proposing the amendment and its submission
to the Shareholders for their approval by the majority of the shares of AWG
common stock entitled to vote.
The AWG Group Articles of Incorporation provide that provisions of the AWG
Group Articles of Incorporation dealing with the number, election, and removal
of directors, director powers, and certain business
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<PAGE>
combinations may not be repealed or amended without the affirmative vote of
holders of at least two-thirds of the outstanding shares of voting stock. The
AWG Group shareholders may otherwise amend, alter, change or repeal any
provision of the AWG Group Articles of Incorporation as the KGCC, which is
identical to the MGBCL in this respect, provides.
AMENDMENT OF BYLAWS
The AWG Bylaws provide that the Shareholders may make, alter, amend or
repeal the AWG Bylaws by a majority vote of the AWG shares. The AWG Group
Articles of Incorporation authorize the AWG Group Board to make, alter and
repeal bylaws, subject to the rights of shareholders at any regular or special
meeting to alter or repeal bylaws made by the AWG Group Board by a two-thirds
vote of the outstanding shares. Provisions relating to restrictions on
transfer of Common Stock may not be amended by the Shareholders.
NOTICE OF SHAREHOLDER PROPOSALS; NOMINATIONS OF DIRECTORS
The AWG Bylaws do not contain special requirements for providing advance
notice of the introduction by shareholders of business to be transacted at
Shareholder meetings.
The AWG Group Bylaws provide that any shareholder who intends to bring a
matter before a meeting of shareholders must deliver written notice of such
shareholder's intent to the Secretary of AWG Group. Such notice must be
received by the Secretary not later than the later of following dates: (1)
with respect to an annual meeting of shareholders, 130 days in advance of such
meeting; and (2) with respect to any other meeting of shareholders, the close
of business on the tenth day following the date of public disclosure of the
date of such meeting.
Such written notice must set forth (i) the name and address of the
shareholder, (ii) the class and number of shares of capital stock of AWG Group
which are beneficially owned by the shareholder, (iii) any material interest
of the shareholder in the proposed business described in the notice, and (iv)
if such business is a nomination for director, each nomination sought to be
made, together with the reasons for each nomination, a description of the
qualifications and business or professional experience of each proposed
nominee and a statement signed by each nominee indicating his or her
willingness to serve if elected, and disclosing the information about him or
her that is required by the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and the rules and regulations promulgated thereunder, to be
disclosed in the proxy materials for the meeting involved as if he or she were
a nominee of the corporation for election as one of its directors.
SHAREHOLDERS' VOTE FOR MERGERS
In the area of mergers and/or other corporate reorganizations, the KGCC
differs from the MGBCL in a number of respects. A corporation incorporated
under the KGCC must obtain the affirmative vote (except as indicated below and
unless its articles of incorporation provide otherwise) of the holders of a
majority of the outstanding shares of the corporation entitled to vote thereon
to approve a merger with another corporation, the sale of substantially all of
the corporation's assets or the voluntary dissolution of the corporation. In
the same situations, the MGBCL requires the approval of persons holding at
least two-thirds of the outstanding shares entitled to vote thereon.
The KGCC does not require a shareholder vote of the surviving corporation in
a merger if (i) the merger agreement does not amend the existing certificate
of incorporation, (ii) each outstanding share of the surviving corporation
before the merger is unchanged, and (iii) the number of shares to be issued in
the merger does not exceed 20% of the shares outstanding immediately prior to
such issuance. The MGBCL has no such exception.
Neither the MGBCL nor the KGCC requires a vote of a corporation's
shareholders if such corporation is merged with and into a parent corporation
that owns 90% or more of such corporation's stock.
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APPRAISAL RIGHTS
Both the KGCC and the MGBCL provide appraisal rights to shareholders
entitled to vote in merger transactions (except as indicated below). The MGBCL
also provides such rights in a sale of assets, unless pursuant to a voluntary
dissolution of the corporation, whereas the KGCC does not. The KGCC does not
recognize dissenters' rights of appraisal in a merger or consolidation if the
dissenting shares of the corporation are listed on a national securities
exchange, designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 shareholders, or if the corporation is the
surviving corporation and no vote of its shareholders is required, subject to
certain exceptions.
ANTI-TAKEOVER STATUTES
The MGBCL and KGCC contain certain provisions which may be deemed to have an
anti-takeover effect.
The MGBCL also contains a "Control Share Acquisition Statute" which provides
that an "Acquiring Person" who, after any acquisition of shares of a publicly
traded corporation, has the voting power, when added to all shares of the same
corporation previously owned or controlled by the Acquiring Person, to
exercise or direct the exercise of (i) 20% but less than 33 1/3%, (ii) 33 1/3%
or more but less than a majority, or (iii) a majority of the voting power of
outstanding stock of such corporation, must obtain shareholder approval for
the purchase of the "Control Shares." If approval is not given, the Acquiring
Person's shares lose the right to vote. The statute prohibits an Acquiring
Person from voting its shares unless certain disclosure requirements are met
and the retention or restoration of voting rights is approved by both (i) a
majority of the outstanding voting stock, and (ii) a majority of the
outstanding voting stock after exclusion of Interested Shares. "Interested
Shares" are defined as shares owned by the Acquiring Person, by directors who
are also employees, and by officers of the corporation. Shareholders are given
dissenters' rights with respect to the vote on Control Share Acquisitions and
may demand payment of the fair value of their shares.
A number of acquisitions of shares are deemed not to constitute Control
Share Acquisitions, including good faith gifts, transfers pursuant to wills,
purchases pursuant to an issuance by the corporation, mergers involving the
corporation which satisfy the other requirements of the MGBCL, transactions
with a person who owned a majority of the voting power of the corporation
within the prior year, or purchases from a person who has previously satisfied
the provisions of the Control Share Acquisition Statute so long as the
transaction does not result in the purchasing party having voting power after
the purchase in a percentage range (such ranges are as set forth in the
immediately preceding paragraph) beyond the range for which the selling party
previously satisfied the provisions of the statute. Additionally, a
corporation may exempt itself from application of the statute by inserting a
provision in its articles of incorporation or bylaws expressly electing not to
be covered by the statute. The AWG Articles of Incorporation and the AWG
Bylaws do not "opt out" of the Control Share Acquisition Statute.
The KGCC contains a control share acquisition statute similar to that
contained in the MGBCL; however, the AWG Group Articles of Incorporation "opt
out" of its provisions.
MARKET FOR COMMON STOCK
There has been no public market for AWG Common Stock. As of ,
1996, there were outstanding shares of AWG Class A Common Stock
which were held by shareholders of record and shares of AWG
Class B Common Stock which were held by shares of record.
The AWG Bylaws require AWG to distribute all of its net earnings to its
shareholders in the form of patronage rebates. Therefore, AWG has not paid
cash dividends on the AWG Common Stock. Following the Merger and Initial
Public Offering, it is expected that the Company will pay a cash dividend at
the initial annual rate of $.20 per share.
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The AWG Bylaws prohibit the transfer of shares of AWG Common Stock unless
the holder first offers them to AWG at book value. The Company is required to
accept such offer. The AWG Board annually determines the book value of AWG
Common Stock based upon the financial condition of the Company at the prior
fiscal year end. All issuances and purchases of AWG Common Stock are conducted
at the last book value as established by the AWG Board. The book value of the
AWG Common Stock, as established by the AWG Board at its March meeting, was
$1,055, $1,165 and $1,165 in 1994, 1995 and 1996, respectively.
SHARES ELIGIBLE FOR FUTURE SALE
Shares of AWG Group Common Stock issued to Shareholders in the Merger will
be subject to restrictions on transfer for a period of two years. These shares
may not be sold or otherwise transferred except (i) as collateral in
connection with certain store development financing transactions if approved
by the Company, (ii) in conjunction with the sale of substantially all the
assets or stock (if a corporation) of a Shareholder, or (iii) by way of a bona
fide gift, to a family trust or pursuant to the death of a Shareholder. In
each case, with the exception of persons who acquire shares pursuant to the
foreclosure of a security interest or, in certain circumstances, pursuant to
the transferor's death, the transferee will remain subject to the remaining
term of the two year transfer restriction. After such two-year period, such
shares will be freely tradable, subject to the provisions of Rule 144
discussed below.
The shares sold in the Initial Public Offering will be freely tradeable by
persons other than "affiliates" of AWG Group, as that term is defined in the
Securities Act. Beginning 90 days after consummation of the Initial Public
Offering, affiliates who own shares of Common Stock that were acquired from
AWG Group in the Initial Public Offering or in the open market after the
Initial Public Offering, pursuant to Rule 144, may sell within any three month
period that number of shares which does not exceed the greater of 1% of the
then outstanding shares of Common Stock or the average weekly trading volume
of the Common Stock during the four calendar weeks preceding such sale. Sales
pursuant to Rule 144 are subject to certain requirements relating to the
manner of sale, notice and availability of current public information about
AWG Group. If at least three years have elapsed from the date the shares of
AWG Group Common Stock were acquired from AWG Group, or an affiliate of AWG
Group, and the proposed seller has not been an affiliate of AWG Group at any
time during the three months immediately preceding the sale, such person is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above. "Affiliates" are generally deemed to be directors
and executive officers of a company and any shareholder who exercises control
over a company.
LEGAL MATTERS
The validity of the AWG Group Common Stock offered hereby will be passed
upon by Blackwell Sanders Matheny Weary & Lombardi L.C., Kansas City,
Missouri.
EXPERTS
The Consolidated Financial Statements and Schedule of Associated Wholesale
Grocers, Inc. and Subsidiaries as of December 31, 1994 and December 30, 1995,
and for each of the years in the three-year period ended December 30, 1995 and
the balance sheet of Associated Wholesale Grocers Group, Inc. as of August 13,
1996, are included herein and elsewhere in the registration statement in
reliance upon the reports of KPMG Peat Marwick LLP independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
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REPORTS TO SECURITIES HOLDERS
AWG Group intends to furnish to its shareholders annual reports containing
audited consolidated financial statements for each fiscal year.
By Order of the Board of Directors,
Joseph L. Campbell, II, Vice
President, Treasurer and Secretary
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets at December 30, 1995 and June 15,
1996 (Unaudited)......................................................... F-2
Condensed Consolidated Statements of Earnings for the Twenty-four weeks
ended June 17, 1995 and June 15, 1996 (Unaudited)........................ F-3
Condensed Consolidated Statements of Cash Flows for the Twenty-four weeks
ended June 17, 1995 and June 15, 1996 (Unaudited)........................ F-4
Notes to Unaudited Condensed Consolidated Financial Statements............ F-5
Independent Auditors' Report.............................................. F-6
Consolidated Balance Sheets at December 31, 1994 and December 30, 1995.... F-7
Consolidated Statements of Earnings for the Fiscal years ended December
25, 1993, December 31, 1994 and December 30, 1995........................ F-8
Consolidated Statements of Shareholders' Equity for the Fiscal years ended
December 25, 1993, December 31, 1994 and December 30, 1995............... F-9
Consolidated Statements of Cash Flows for the Fiscal years ended December
25, 1993, December 31, 1994 and December 30, 1995........................ F-10
Notes to Consolidated Financial Statements................................ F-11
Independent Auditors' Report.............................................. F-18
Balance Sheet of Associated Wholesale Grocers Group, Inc. as of August 13,
1996..................................................................... F-19
Notes to Balance Sheet.................................................... F-20
</TABLE>
F-1
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1995 AND JUNE 15, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 30, JUNE 15,
ASSETS 1995 1996
------ ------------ --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 18,056 $ 12,133
Receivables, net............................................ 82,045 88,961
Inventories................................................. 144,754 131,900
Other current assets........................................ 33,327 26,395
-------- --------
Total current assets...................................... 278,182 259,389
-------- --------
Notes receivable from shareholders, maturing after one year... 30,236 37,851
Property and equipment, net................................... 89,655 94,144
Intangibles, net of accumulated amortization of $4,203 in 1995
and $7,029 in 1996........................................... 55,768 52,942
Other assets.................................................. 10,041 12,000
-------- --------
Total assets.............................................. $463,882 $456,326
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable............................................ $160,033 $141,414
Patronage payable:
Cash portion of current year patronage.................... 35,257 --
Patronage certificates payable within one year............ 12,472 10,433
Accrued expenses and other current liabilities.............. 42,346 39,210
-------- --------
Total current liabilities............................... 250,108 191,057
-------- --------
Long-term obligations maturing after one year................. 52,531 72,045
Members' certificates:
Patronage certificates...................................... 112,389 109,239
Deposits.................................................... 12,643 12,041
Deferred income and other liabilities......................... 7,334 8,608
-------- --------
Total liabilities....................................... 435,005 392,990
Interim net income (note 1)................................... -- 35,589
Shareholders' equity:
Common stock, $100 par value:
Class A, voting; 12,000 shares authorized; 5,370 and
5,400 shares issued and outstanding in 1995 and 1996... 537 540
Class B, nonvoting; 150,000 shares authorized; 15,975
and 14,945 shares issued and outstanding in 1995 and
1996................................................... 1,598 1,494
Additional paid-in capital................................ 1,602 1,932
Retained earnings......................................... 25,140 23,781
-------- --------
Total shareholders' equity............................ 28,877 27,747
-------- --------
Commitments and contingent liabilities (note 2)
Total liabilities and shareholders' equity............ $463,882 $456,326
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
F-2
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
TWENTY-FOUR WEEKS ENDED JUNE 17, 1995 AND JUNE 15, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-FOUR
WEEKS ENDED
----------------------
JUNE 17, JUNE 15,
1995 1996
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net sales............................................... $1,213,508 $1,399,223
Cost of goods sold...................................... 1,138,839 1,305,522
---------- ----------
Gross profit........................................ 74,669 93,701
General and administrative expenses..................... 44,155 54,565
---------- ----------
Operating income.................................... 30,514 39,136
Other income (expenses):
Interest income....................................... 2,301 2,329
Interest expense...................................... (3,859) (5,794)
Other, net............................................ 4 1,028
---------- ----------
(1,554) (2,437)
---------- ----------
Income before income taxes.............................. 28,960 36,699
Income taxes............................................ 429 1,110
---------- ----------
Net income.......................................... $ 28,531 $ 35,589
========== ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
F-3
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
TWENTY-FOUR WEEKS ENDED JUNE 17, 1995 AND JUNE 15, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-FOUR
WEEKS ENDED
-------------------
JUNE 17, JUNE 15,
1995 1996
--------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 28,531 $ 35,589
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 4,915 7,524
Deferred income taxes................................. (2) 235
Changes in assets and liabilities, net of effects of
assets and liabilities acquired:
Accounts receivable................................. (15,610) (6,916)
Inventories......................................... (2,054) 12,854
Prepaid expenses.................................... 1,454 362
Accounts payable and other liabilities.............. 14,659 (22,042)
--------- --------
Net cash provided by operating activities......... 31,893 27,606
Cash flows from investing activities:
Additions to investments................................ (14,714) (6,535)
Proceeds from maturity of investments................... 42,807 3,555
Loans to shareholders................................... (519) (6,349)
Repayment of loans by shareholders...................... 2,796 5,961
Capital expenditures, net............................... (4,867) (9,622)
Acquisition of assets................................... (56,955) --
Other assets, net....................................... 2,964 (98)
--------- --------
Net cash used in investing activities............. (28,488) (13,088)
Cash flows from financing activities:
Year-end patronage distributions........................ (31,487) (35,257)
Redemption of prior year's patronage certificates....... (1,348) (5,190)
Issuance of common stock................................ 325 441
Redemption of common stock.............................. (1,215) (1,571)
Borrowings under revolving credit agreement............. 26,000 21,400
Payment of other long-term obligations.................. (185) (1,602)
Increase in deferred income and other long-term
liabilities............................................ 6,561 1,940
Increase (decrease) in member deposits, net............. 10 (602)
--------- --------
Net cash used in financing activities............. (1,339) (20,441)
--------- --------
Net increase (decrease) in cash and cash equivalents...... 2,066 (5,923)
Cash and cash equivalents at beginning of period.......... 16,878 18,056
--------- --------
Cash and cash equivalents at end of period................ $ 18,944 $ 12,133
========= ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
F-4
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring accruals) considered necessary to present fairly the
financial position of Associated Wholesale Grocers, Inc. and Subsidiaries (the
Company) for the interim periods presented. Operating results for the twenty-
four week period ended June 15, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ended December 28, 1996.
Cost for approximately 70% of inventory at June 15, 1996 is determined using
the last-in, first-out (LIFO) method. An actual valuation of inventory under
the LIFO method can be made only at the end of each year based on inventory
levels and costs at that time. Interim LIFO calculations must necessarily be
based on management's estimate of expected year-end inventory levels and
costs. Because estimates of future inventory levels and costs are subject to
many factors beyond management's control, interim results are subject to the
final year-end LIFO inventory valuation.
In accordance with the bylaws of the Company, the patronage portion of
income before income taxes is determined annually and distributed to
shareholders of the Company as patronage rebates. Since patronage rebates are
determined only at year-end and are deductible for income tax purposes, no
provision has been made for income taxes on income from cooperative
operations. Accordingly, the amount of interim net income has been reflected
as a separate item in the accompanying unaudited condensed consolidated
balance sheet.
(2) CONTINGENCIES
On March 14, 1996, Homeland Stores, Inc. (Homeland) filed a motion to
include the Company as a third party defendant in a pension withdrawal
liability dispute. In connection with the acquisition of certain Homeland
assets in April 1995, the Company agreed to reimburse Homeland in an amount up
to approximately $3.4 million for any pension withdrawal liability incurred
with respect to "Covered Operations." "Covered Operations" were defined as
distribution center operations related to the assets being purchased by AWG
for which Homeland was currently making pension contributions. The withdrawal
liability dispute does not involve Covered Operations. As a result, the
Company believes that the claim is without merit and will vigorously defend
its position. This lawsuit has been stayed as a result of Homeland's
bankruptcy and will be resolved as part of the ordinary process of claims
resolution in the bankruptcy case. Accordingly, no provision has been made in
the accompanying condensed consolidated financial statements.
The Company and Homeland have entered into a long term supply agreement that
provides that Homeland will purchase its inventory requirements from the
Company. Homeland has notified the Company that Homeland believes that the
consummation of the Merger and the Initial Public Offering will constitute a
default by the Company under the supply agreement. The loss of Homeland as a
customer, or a successful claim by Homeland for damages or other relief,
resulting from an alleged default by the Company under the supply agreement
could have a material adverse on the business or profitability of the Company.
The Company has advised Homeland that it believes that no such default has or
will occur as a result of the Merger and Initial Public Offering. Accordingly,
no provision has been made in the accompanying condensed consolidated
financial statements.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Associated Wholesale Grocers, Inc.:
We have audited the accompanying consolidated balance sheets of Associated
Wholesale Grocers, Inc. and subsidiaries (the Company) as of December 31, 1994
and December 30, 1995, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the fiscal years in the three-
year period ended December 30, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Associated
Wholesale Grocers, Inc. and subsidiaries as of December 31, 1994 and December
30, 1995 and the results of their operations and cash flows for each of the
fiscal years in the three-year period ended December 30, 1995 in conformity
with generally accepted accounting principles.
Kansas City, Missouri
March 1, 1996
KPMG Peat Marwick LLP
F-6
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
ASSETS 1994 1995
------ -------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 16,878 $ 18,056
Short-term investments.......................................... 34,728 2,305
Receivables, net of allowance for doubtful accounts of $432 in
1994 and $807 in 1995:
Trade......................................................... 45,991 61,536
Other......................................................... 18,999 20,509
Inventories..................................................... 94,525 144,754
Other current assets............................................ 11,684 31,022
-------- --------
Total current assets........................................ 222,805 278,182
-------- --------
Notes receivable from shareholders, maturing after one year....... 18,668 30,236
Property and equipment, net (note 4).............................. 79,248 89,655
Intangibles, net of accumulated amortization of $424 in 1994 and
$4,203 in 1995
(note 2)......................................................... 13,318 55,768
Other assets...................................................... 5,139 10,041
-------- --------
Total assets................................................ $339,178 $463,882
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Long-term obligations maturing within one year (note 5)......... $ 455 $ 4,473
Accounts payable................................................ 117,192 160,033
Patronage payable:
Cash portion of current year patronage........................ 31,487 35,257
Patronage certificates payable within one year (note 3)....... 12,050 12,472
Accrued expenses--members....................................... 13,972 14,138
Accrued expenses and other current liabilities.................. 17,769 23,735
-------- --------
Total current liabilities................................... 192,925 250,108
-------- --------
Long-term obligations maturing after one year (note 5)............ 738 52,531
Members' certificates (note 3):
Patronage certificates.......................................... 102,033 112,389
Deposits........................................................ 12,415 12,643
Deferred income taxes (note 6).................................... 2,048 1,727
Deferred income and other liabilities............................. 393 5,607
-------- --------
Total liabilities........................................... 310,552 435,005
Shareholders' equity:
Common stock, $100 par value:
Class A, voting, 12,000 shares authorized; 5,070 and 5,370
shares issued and outstanding in 1994 and 1995............... 507 537
Class B, nonvoting; 150,000 shares authorized; 16,725 and
15,975 shares issued and outstanding in 1994 and 1995........ 1,673 1,598
Additional paid-in capital...................................... 1,099 1,602
Retained earnings............................................... 25,347 25,140
-------- --------
Total shareholders' equity.................................. 28,626 28,877
-------- --------
Commitments and contingent liabilities (notes 7 and 8)............
Total liabilities and shareholders' equity.................. $339,178 $463,882
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEARS ENDED DECEMBER 25, 1993, DECEMBER 31, 1994 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................... $2,419,157 $2,484,559 $2,836,216
Cost of goods sold.......................... 2,276,512 2,335,371 2,658,478
---------- ---------- ----------
Gross profit............................ 142,645 149,188 177,738
General and administrative expenses......... 84,384 90,514 113,782
---------- ---------- ----------
Operating income........................ 58,261 58,674 63,956
Other income (expenses):
Interest income (note 2).................. 3,366 4,063 4,809
Interest expense (note 3)................. (8,417) (6,787) (9,330)
Other, net................................ 1,347 1,217 (66)
---------- ---------- ----------
(3,704) (1,507) (4,587)
---------- ---------- ----------
Income before income taxes.................. 54,557 57,167 59,369
Income taxes (note 6)....................... 1,668 1,885 (203)
---------- ---------- ----------
Net income............................ $ 52,889 $ 55,282 $ 59,572
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED DECEMBER 25, 1993, DECEMBER 31, 1994 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
CLASS A CLASS B CAPITAL EARNINGS TOTAL
------- ------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 26, 1992.... $531 $1,973 $ 655 $22,870 $26,029
Issuance of common stock........ 15 2 134 -- 151
Redemption of common stock...... (30) (126) (18) (1,042) (1,216)
Net income...................... -- -- -- 52,889 52,889
Distribution of year-end
patronage...................... -- -- -- (50,035) (50,035)
---- ------ ------ -------- --------
Balance at December 25, 1993.... 516 1,849 771 24,682 27,818
Issuance of common stock........ 42 4 402 -- 448
Redemption of common stock...... (51) (180) (74) (1,954) (2,259)
Net income...................... -- -- -- 55,282 55,282
Distribution of year-end
patronage...................... -- -- -- (52,663) (52,663)
---- ------ ------ -------- --------
Balance at December 31, 1994.... 507 1,673 1,099 25,347 28,626
Issuance of common stock........ 60 -- 613 -- 673
Redemption of common stock...... (30) (75) (110) (918) (1,133)
Net income...................... -- -- -- 59,572 59,572
Distribution of year-end
patronage...................... -- -- -- (58,861) (58,861)
---- ------ ------ -------- --------
Balance at December 30, 1995.... $537 $1,598 $1,602 $ 25,140 $ 28,877
==== ====== ====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 25, 1993, DECEMBER 31, 1994 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
1993 1994 1995
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 52,889 $ 55,282 $ 59,572
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 9,084 9,333 13,959
Deferred income taxes....................... 321 214 (1,225)
Changes in assets and liabilities, net of
effects of assets and liabilities acquired
(note 2):
Accounts receivable....................... (5,724) 6,784 (17,055)
Inventories............................... 5,991 (3,893) (31,829)
Prepaid expenses.......................... 413 2,020 (277)
Accounts payable and other liabilities.... 7,897 8,740 50,809
Other..................................... 24 (244) 1,324
-------- --------- --------
Net cash provided by operating
activities............................. 70,895 78,236 75,278
Cash flows from investing activities:
Additions to investments...................... (75,074) (107,746) (19,058)
Proceeds from maturity of investments......... 56,421 103,898 46,600
Loans to shareholders......................... (12,469) (1,975) (14,555)
Repayment of loans by shareholders............ 9,275 8,650 9,364
Capital expenditures, net..................... (5,486) (15,063) (18,727)
Acquisition of assets (note 2)................ -- (25,928) (56,955)
Other assets, net............................. (579) (4,791) (6,125)
-------- --------- --------
Net cash used in investing activities... (27,912) (42,955) (59,456)
Cash flows from financing activities:
Year-end patronage distributions.............. (28,196) (29,905) (31,487)
Redemption of prior year's patronage
certificates................................. (13,513) (13,032) (12,725)
Issuance of common stock...................... 151 448 673
Redemption of common stock.................... (1,216) (2,259) (1,133)
Borrowings under revolving credit agreement... -- -- 31,600
Payment of other long-term obligations........ (417) (742) (2,571)
Increase in deferred income and other long-
term liabilities............................. 5 137 771
Increase (decrease) in member deposits, net... (287) (138) 228
-------- --------- --------
Net cash used in financing activities... (43,473) (45,491) (14,644)
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (490) (10,210) 1,178
Cash and cash equivalents at beginning of year.. 27,578 27,088 16,878
-------- --------- --------
Cash and cash equivalents at end of year........ $ 27,088 $ 16,878 $ 18,056
======== ========= ========
Supplemental Schedule of cash paid for interest
and income taxes:
Cash paid for interest (net of capitalized
interest).................................... $ 8,216 $ 8,075 $ 8,587
======== ========= ========
Cash paid for income taxes.................... $ 1,600 $ 1,580 $ 1,136
======== ========= ========
Supplemental schedule of noncash investing and
financing activities:
Notes receivable from sale of supermarket
properties (note 2).......................... $ -- $ 10,900 $ 14,460
======== ========= ========
Supply agreement payable...................... -- -- 26,782
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Associated Wholesale Grocers, Inc. (AWG) operates on a cooperative basis
(see patronage) wholesaling grocery merchandise to its member shareholders
(members) throughout the Midwestern United States. Subsidiaries of AWG are
organized as corporations and primarily provide ancillary service and non-food
merchandise to AWG and its members.
Principles of Consolidation
The consolidated financial statements include the accounts of AWG and its
subsidiaries (Company). All significant intercompany balances and transactions
have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the last Saturday in December. Fiscal 1993
and 1995 included 52 weeks, while fiscal 1994 included 53 weeks of operations.
Business and Credit Concentrations
The majority of the Company's members are located in Kansas, Missouri,
Oklahoma and Arkansas. As a cooperative, substantially all of the Company's
sales are to its members. No single member accounted for more than 10% of the
Company's sales in 1993, 1994 or 1995. The Company also provides financing to
its members for acquisition/expansion of supermarket properties. Trade and
notes receivables from members are generally secured by members inventories
and patronage certificates. The Company establishes an allowance for doubtful
accounts based on the creditworthiness of its members.
Sales
Sales are recognized at the time the product is shipped.
Cash Equivalents
The Company considers all investments with an original maturity of three
months or less to be cash equivalents.
Investments
Short-term investments consist primarily of commercial paper, certificates
of deposit and government agency securities which mature within one year and
for which cost approximates fair value.
Effective December 26, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115 (Statement 115), "Accounting for Certain
Investments in Debt and Equity Securities." The cumulative effect of adopting
Statement 115 was immaterial. Under Statement 115, the Company classifies its
investment securities as available-for-sale.
Inventories
Inventories are valued at the lower of cost or market. Cost for 91% of 1994
inventories and 73% of 1995 inventories is determined by using the last-in,
first-out (LIFO) method. Cost for the remaining inventories (consisting of
certain perishable products, general merchandise and health and beauty
products) is determined using the first-in, first-out (FIFO) method. Had all
inventories been valued on the FIFO method, they would have been increased by
$30,855 at December 31, 1994 and $32,578 at December 30, 1995.
F-11
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Expenditures for improvements
which significantly increase property lives are capitalized. Interest costs
incurred during the construction of facilities are included in the cost of
such properties. Depreciation and amortization are calculated on the straight-
line method over the assets estimated useful lives which range from 31 to 50
years for buildings; 5 to 10 years for equipment; and 3 to 5 years for
vehicles. Leasehold improvements are amortized over the terms of the
respective leases.
Intangible Assets
Intangible assets consist principally of amounts relating to the acquisition
of wholesale volume and are being amortized on a straight-line basis over the
estimated periods benefited (7 to 25 years) (see note 2).
The Company assesses the recoverability of intangible assets by determining
whether the amortization of such intangible assets over their remaining life
can be recovered through undiscounted future operating cash flows of the
operation.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121 (Statement 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Statement
121 establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangible assets and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable
intangible assets to be disposed of. Statement 121 is effective for the
Company in 1996. Management expects that the adoption of Statement 121 will
not have a significant impact on the Company's consolidated financial
statements.
Patronage
Income from cooperative operations, less a nominal amount authorized by the
Board of Directors to be retained, is returned to the members in the form of
year-end patronage. At each year-end, a percentage of net income to be
distributed (60% for 1993, 1994, and 1995) is paid in cash with the remainder
paid in the form of patronage certificates (see note 3). Such amounts are
apportioned to the members based on each member's qualifying warehouse
purchases.
Income Taxes
AWG and its subsidiaries file a consolidated federal income tax return.
Patronage distributions from cooperative operations are deductible for income
tax purposes. The Company accounts for income taxes using the asset and
liability method under Statement of Financial Accounting Standards No. 109.
Deferred income taxes are provided for differences in financial reporting and
tax reporting bases of existing assets and liabilities.
Earnings per Share
Since income from cooperative operations is apportioned annually to members
and distributed in the form of patronage based on qualifying warehouse
purchases, earnings per share information has not been presented.
Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-12
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) CERTAIN TRANSACTIONS WITH MEMBERS
A) Acquisition of Wholesale Volume
In April 1995, the Company acquired, among other things, inventory,
fixtures, a distribution center and 29 supermarket properties from Homeland
Stores, Inc. (Homeland) for cash of $73,287. The Company concurrently sold the
supermarket properties acquired from Homeland to existing members for cash of
$16,332 and notes receivable of $14,460. In addition, the Company also entered
into an agreement with Homeland whereby the Company supplies the supermarkets
retained by Homeland and Homeland became a member of AWG. The supply agreement
requires the Company to make quarterly payments over the life of the
agreement, seven years. The Company recorded the present value of the payments
due under the supply agreement ($26,782) as an intangible asset and a long
term obligation (see note 5). The supply agreement is being amortized on a
straight-line basis over its term. At December 30, 1995, the unamortized
amount of the supply agreement totaled $24,133.
In March 1994, the Company acquired 38 supermarket properties and an office
building from Food Barn Stores, Inc. (Food Barn) for cash of $41,025. The
Company concurrently sold the supermarket properties acquired from Food Barn
to existing members for cash of $15,097 and notes receivable of $10,900.
The Company also recorded other intangible assets in 1995 and 1994 for the
aforementioned Homeland and Food Barn transactions of $19,447 and $13,742,
respectively. The intangible assets, which represent the acquisition of
wholesale volumes, are being amortized on a straight-line basis over twenty-
five years. At December 31, 1994 and December 30, 1995, the unamortized amount
of these intangible assets was $13,318 and $31,635, respectively.
B) Notes Receivable from Members
The Company extends long-term credit to members primarily for the purchase
or construction of new stores, store expansions or improvements and opening
inventory purchases. Loans to members are generally collateralized by the
member's inventory, property and equipment and patronage certificates.
Interest rates are generally one percent over the prime rate (9.75% at
December 31, 1995) and terms of the notes are up to 10 years. For the fiscal
years 1993, 1994 and 1995, the Company recorded interest income of $2,560,
$3,439 and $4,306, respectively, on such loans to members.
(3) PATRONAGE CERTIFICATES, DEPOSITS AND EQUITIES
Patronage certificates are issued annually to members as a part of the year-
end distribution of net income from cooperative operations. Pertinent
provisions of the certificates are as follows: (a) The certificates are not
transferable; (b) AWG has the right to offset but the certificate holder does
not; (c) the Board of Directors of AWG has the authority to set the interest
rate on these certificates, subject to the maintenance of an interest rate of
at least 4% but not in excess of 8%; and (d) the certificates are subordinate
to the claims of all creditors of AWG. Certificates earned interest at 8% per
annum in 1993 and 6% per annum in 1994 and 1995. All certificates issued prior
to 1986 mature ten years from the date of the certificate. All outstanding
patronage certificates issued for 1988, 1989 and 1990 mature eight years from
the date of the certificate. All certificates issued after January 1992 mature
seven years from the date of the certificate. At December 30, 1995, patronage
certificates maturing over the next five years and thereafter are as follows:
1996--$12,472; 1997--$13,646; 1998--$15,583; 1999--$18,778; 2000--$20,010; and
thereafter--$44,372.
Member deposits represent funds held by the Company on behalf of members.
These funds accrue interest at rates ranging from 3.00% to 4.00% in 1993 and
1994 and 4.00% to 5.25% in 1995.
Interest expense incurred on patronage certificates and member deposits in
1993, 1994 and 1995 was $8,305, $6,787, and $7,383, respectively.
F-13
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The by-laws of AWG contain restrictions concerning the transfer of common
stock and provide that member's common stock in AWG serves as collateral to
secure indebtedness to AWG. The by-laws also provide that dividends may not be
paid on common stock and each member holding Class A Common Stock is entitled
to one vote in shareholder matters.
(4) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Land.................................................. $ 2,676 $ 3,588
Buildings............................................. 52,623 59,904
Equipment............................................. 71,635 79,967
Supermarket Properties Leased to Members.............. 11,343 4,787
Construction in progress.............................. 93 4,269
-------- --------
138,370 152,515
Less accumulated depreciation......................... (59,122) (62,860)
-------- --------
Property and equipment, net........................... $ 79,248 $ 89,655
======== ========
</TABLE>
During 1993, 1994, and 1995 the Company capitalized construction period
interest of $50, $139, and $950, respectively.
(5) LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1994 1995
------ -------
<S> <C> <C>
Revolving credit agreement, unsecured..................... $ -- $31,600
Supply agreement.......................................... -- 24,666
8.5% mortgage notes, secured by land and buildings........ 1,193 738
------ -------
1,193 57,004
Less current maturities................................... 455 4,473
------ -------
$ 738 $52,531
====== =======
</TABLE>
In 1995, the Company entered into a revolving credit agreement with a bank
for approximately $122,000 of which $90,146 was available at December 30,
1995. The revolving credit agreement provides for interest at the Federal
Funds Rate plus 1.5% adjusted daily (7.03% at December 30, 1995) and expires
in May 1998. The Company pays commitment fees of 1/8 of 1% annually on the
unused portion of the credit agreement. The Company must maintain certain
financial covenants, including maintaining (i) a current ratio greater than
1.09 to 1; (ii) a ratio of income to fixed charges of at least 10 to 1; and
(iii) indebtedness to tangible net worth of not more than 2.75 to 1. The
Company must also maintain consolidated tangible net worth, as defined, of at
least $110,000 and working capital of at least $25,000. At December 30, 1995,
the Company was in compliance with these covenants.
As described in note 2, the Company entered into a supply agreement with
Homeland to supply supermarkets operated by Homeland. The supply agreement
requires the Company to make quarterly payments, which are directly related to
the volume of purchases by Homeland from the Company, through 2002. The
Company recorded the net present value of the supply agreement payments, using
a discount rate of 7.15%, as a long-term obligation.
Principal payments over the next five years and thereafter on long-term
obligations maturing after December 30, 1995 are as follows: 1996--$4,473;
1997--$3,691; 1998--$35,144; 1999--$3,806; 2000--$4,087; and thereafter--
$5,803.
F-14
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Federal:
Current.......................................... $1,145 $1,421 $ 868
Deferred......................................... 273 182 (1,041)
------ ------ -------
1,418 1,603 (173)
------ ------ -------
State:
Current.......................................... 202 250 154
Deferred......................................... 48 32 (184)
------ ------ -------
250 282 (30)
------ ------ -------
$1,668 $1,885 $ (203)
====== ====== =======
</TABLE>
Actual income tax expense (benefit) attributable to income before income
taxes differs from the "expected" income tax expense using the statutory
federal corporate tax rate of 34% as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense............ $ 18,549 $ 19,437 $ 20,185
Increase (reduction) in income tax expense
attributable to:
Patronage refunds........................ (17,012) (17,905) (20,013)
State income taxes, net of federal income
tax benefit............................. 165 186 (20)
Tax credits.............................. -- -- (632)
Other.................................... (34) 167 277
-------- -------- --------
$ 1,668 $ 1,885 $ (203)
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Pension liability..................................... $ 1,368 $ 1,080
Compensated absences.................................. 803 913
Inventory............................................. 562 1,207
Other................................................. 646 927
------- -------
Total gross deferred assets......................... 3,379 4,127
Deferred tax liabilities:
Depreciation and amortization......................... (3,739) (3,298)
Other................................................. (674) (638)
------- -------
Total gross deferred liability...................... (4,413) (3,936)
------- -------
Net deferred tax asset(liability)................... $(1,034) $ 191
======= =======
</TABLE>
A valuation allowance for deferred tax assets was not necessary at December
31, 1994 or December 30, 1995.
F-15
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) EMPLOYEE BENEFIT PLANS
The Company has a qualified defined benefit pension plan covering
substantially all of its non-union employees. The benefits are based on years
of service and the participant's final average earnings as defined by the
plan. The Company's funding policy is to make annual contributions for current
service cost, interest and amortization of past service cost, to the extent
such contributions are allowed as deductions for federal income tax purposes.
The plan assets primarily consist of U. S. Government obligations, corporate
bonds and common stocks.
The plan's funded status and amounts recognized in the Company's
consolidated financial statements are as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Projected benefit obligation:
Vested benefits...................................... $12,217 $15,359
Nonvested benefits................................... 732 2,030
------- -------
Accumulated benefit obligation..................... 12,949 17,389
Effect of future compensation levels................. 8,084 9,934
------- -------
Projected benefit obligation....................... 21,033 27,323
Fair value of plan assets............................ 16,592 22,111
------- -------
Fair value of plan assets less than projected
benefit obligation................................ (4,441) (5,212)
Unrecognized net assets being amortized over 19
years................................................ (2,164) (1,947)
Unrecognized net loss................................ 873 2,643
Unrecognized prior service cost...................... 1,561 1,431
------- -------
Accrued pension cost............................... $(4,171) $(3,085)
======= =======
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Pension expense is comprised of the
following:
Service cost............................... $ 1,804 $ 2,324 $ 2,021
Interest cost on projected benefit
obligation................................. 1,367 1,401 1,570
Actual return on plan assets............... (1,591) (60) (3,341)
Net amortization and deferral items........ 176 (1,492) 1,655
------- ------- -------
Net pension expense...................... $ 1,756 $ 2,173 $ 1,905
======= ======= =======
Assumed rates used for projected benefit
obligations:
Weighted average discount rate............. 6.00% 7.75% 7.00%
Rate of increase in future compensation.... 5.00% 5.25% 5.25%
Expected long-term rate of return on plan
assets..................................... 9.50% 9.50% 9.50%
</TABLE>
The Company's union employees participate in a multi-employer defined
benefit pension plan. Pension expense for such plan was $7,086, $5,567 and
$6,043 in 1993, 1994 and 1995, respectively.
The Company also has a defined contribution 401(k) plan covering
substantially all salaried and hourly employees not covered by a collective
bargaining agreement. Total expense for the plan amounted to $2,160, $2,146
and $2,110 in 1993, 1994 and 1995, respectively.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," effective January 1, 1995, which covers health care and other
welfare benefits provided to retirees. The adoption of this statement did not
have a significant effect on the consolidated financial statements.
F-16
<PAGE>
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is obligated as lessee under noncancellable long-term
supermarket properties and warehouse operating leases. These leases have
unexpired terms ranging from 1 to 35 years. It is expected in the ordinary
course of business that these leases will be renewed or replaced. The Company
has subleased the supermarket properties to members for substantially the same
lease terms and rental amounts.
Minimum rentals to be paid and minimum sublease rentals to be received on
noncancellable operating leases with remaining terms greater than one year are
as follows:
<TABLE>
<CAPTION>
MINIMUM MINIMUM
LEASE RENTALS SUBLEASE RENTALS NET
FISCAL YEAR TO BE PAID TO BE RECEIVED RENTALS
----------- ------------- ---------------- -------
<S> <C> <C> <C>
1996.............................. $13,910 $13,666 $ 244
1997.............................. 13,430 13,333 97
1998.............................. 13,199 13,169 30
1999.............................. 12,417 12,823 (406)
2000.............................. 11,790 12,386 (596)
</TABLE>
Rental expense under noncancellable operating leases with terms greater than
one year are as follows: 1993--$9,105; 1994--$9,302 and 1995--$11,513. Rental
expense is reduced for sublease rental income of: 1993-- $9,658; 1994--$9,766
and 1995--$11,233.
The Company is involved in various claims and litigation arising in the
normal course of business. In the opinion of management, the ultimate
resolution of these actions will not have a material adverse effect on the
Company's consolidated financial statements.
(9) FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has financial instruments which are comprised of cash and cash
equivalents, commercial paper, municipal bonds, treasury bills, certificates
of deposit, notes receivable, a mortgage note payable, a revolving line of
credit, other long-term obligations, patronage certificates and member
deposits. The carrying amounts reported in the consolidated balance sheets for
the above financial instruments approximate their fair values. The carrying
amounts of cash, cash equivalents, commercial paper and certificates of
deposit approximate fair value because of the short maturity of those
instruments. The fair value of municipal bonds and treasury bills are based on
quoted market prices. The fair value of notes receivable, mortgage note
payable, the revolving line of credit, other long-term obligations, patronage
certificates and member deposits are estimated using current interest rates
for similar instruments.
(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for the fiscal quarters indicated
is presented below. For fiscal year 1994, the first and second quarter each
consist of twelve weeks, the third quarter consists of sixteen weeks and the
fourth quarter consists of thirteen weeks. For fiscal year 1995, the first,
second, and fourth quarters each consist of twelve weeks and the third quarter
consists of sixteen weeks.
Fiscal year ended December 31, 1994:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................. $524,705 $572,622 $747,038 $640,194
Gross profit.......................... 31,231 33,590 48,613 35,754
Net income............................ 11,739 13,339 20,761 9,443
</TABLE>
Fiscal year ended December 30, 1995:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................. $562,286 $651,222 $908,635 $714,073
Gross profit.......................... 34,799 39,870 59,762 43,307
Net income............................ 14,583 13,948 20,250 10,791
</TABLE>
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Associated Wholesale Grocers Group, Inc.:
We have audited the accompanying balance sheet of Associated Wholesale
Grocers Group, Inc. as of August 13, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit of a balance sheet includes examining, on a
test basis, evidence supporting the amounts and disclosures in the balance
sheet. An audit of a balance sheet also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Associated Wholesale Grocers
Group, Inc. as of August 13, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
August 13, 1996
F-18
<PAGE>
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
BALANCE SHEET
AUGUST 13, 1996
<TABLE>
<CAPTION>
1996
-----
<S> <C>
ASSETS
Cash..................................................................... $1.00
-----
Total assets......................................................... $1.00
=====
SHAREHOLDER'S EQUITY
Common stock, $.01 par value; 500,000,000 shares authorized; 1 share
issued and outstanding.................................................. $0.01
Preferred stock, $.10 par value; 50,000,000 shares authorized; no shares
issued and outstanding.................................................. --
Additional paid-in capital............................................... 0.99
Retained earnings........................................................ --
-----
Total shareholder's equity........................................... $1.00
=====
</TABLE>
See accompanying notes to balance sheet.
F-19
<PAGE>
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
NOTES TO BALANCE SHEET
(1) ORGANIZATION
Associated Wholesale Grocers Group, Inc. (AWG Group) was incorporated on
August 13, 1996, and has been inactive since that date. As a result, the
Company has not had any income or expenses. On August 13, 1996, the Company
issued 1 common share to its sole shareholder, Associated Wholesale Grocers,
Inc. for cash.
(2) PLANNED TRANSACTIONS
After the proposed merger, AWG Group will be a holding company not directly
engaged in the operation of any business. AWG Group's consolidated financial
position immediately after the merger will be substantially identical to that
of Associated Wholesale Grocers, Inc. immediately before the merger.
F-20
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
ASSOCIATED WHOLESALE GROCERS, INC.
AND
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
AND
AWG MERGER CORP.
DATED AS OF SEPTEMBER 30, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I--THE MERGER....................................................... 1
Section 1.1 Effects of the Merger......................................... 2
Section 1.2 Effective Time of the Merger.................................. 2
ARTICLE II--TREATMENT OF SHARES............................................. 3
Section 2.1 Effect on Capital Stock of AWG, AWG Group and AWG Merger...... 3
Section 2.2 AWG Dissenting Shares......................................... 4
Section 2.3 Issuance of New Certificates.................................. 4
ARTICLE III--THE CLOSING.................................................... 5
Section 3.1 Closing....................................................... 5
ARTICLE IV--CONDITIONS...................................................... 5
Section 4.1 Conditions to Each Party's Obligation to Effect the Merger.... 5
ARTICLE V--TERMINATION, AMENDMENT AND WAIVER................................ 6
Section 5.1 Termination................................................... 6
Section 5.2 Effect of Termination......................................... 6
Section 5.3 Amendment..................................................... 6
Section 5.4 Waiver........................................................ 6
ARTICLE VI--GENERAL PROVISIONS.............................................. 6
Section 6.1 Miscellaneous................................................. 6
Section 6.2 Interpretation................................................ 6
Section 6.3 Counterparts; Effect.......................................... 6
Section 6.4 Parties' Interest............................................. 6
</TABLE>
A-1
<PAGE>
This Agreement and Plan of Merger (this "Agreement"), is dated as of
September 30, 1996, by and among Associated Wholesale Grocers, Inc., a
Missouri corporation ("AWG"), Associated Wholesale Grocers Group, Inc., a
Kansas corporation ("AWG Group"), and AWG Merger Corp., a Missouri corporation
(the "AWG Merger Corp.").
RECITALS
A. The board of directors of AWG has determined that it is in the best
interests of the company to obtain access to the capital markets through an
initial public offering;
B. Prior to such initial public offering, the board of directors of AWG has
determined that it is in the best interests of the company for AWG to be
reorganized into a holding company structure;
C. In contemplation of such reorganization, AWG Group was formed as a wholly
owned subsidiary of AWG and AWG Merger Corp. was formed as a wholly owned
subsidiary of AWG Group;
D. The respective boards of directors of AWG, AWG Group and AWG Merger Corp.
have approved this Agreement and the merger of AWG Merger Corp. with and into
AWG (the "Merger");
E. For accounting purposes, the Merger is intended to be recorded as a
pooling-of-interests; and
F. For United States federal income tax purposes, the Merger is intended to
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement is
intended to be and is adopted as a plan of reorganization within the meaning
of Section 368 of the Code.
AGREEMENT
In consideration of the premises and the covenants and agreements contained
herein, the parties to this Agreement, intending to be legally bound hereby,
agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effects of the Merger. At the Effective Time (as defined in
Section 1.2), (a) the separate existence of AWG Merger Corp. shall cease and
AWG Merger Corp. shall be merged with and into AWG, (b) the separate corporate
existence of AWG, with all of its rights, privileges, immunities, powers and
franchises, shall continue unaffected by the Merger, (c) the articles of
incorporation of AWG shall remain unchanged by the Merger and shall be the
articles of incorporation of AWG after the Effective Time until duly amended,
(d) the bylaws of AWG shall remain unchanged by the Merger and shall be the
bylaws of AWG after the Effective Time until duly amended, (e) the name of AWG
shall remain unchanged by the Merger, and (f) the Merger shall have all the
effects provided by applicable law.
Section 1.2 Effective Time of the Merger. Subject to the provisions of this
Agreement, on the Closing Date (as defined in Section 3.1), articles of merger
shall be executed and filed by AWG, AWG Group and AWG Merger Corp. with the
Secretary of State of the State of Missouri pursuant to The General and
Business Corporation Law of Missouri (the "MGCL"). The Merger shall become
effective at such time as the Secretary of State of the State of Missouri has
issued a certificate of merger (the "Effective Time").
A-2
<PAGE>
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect on Capital Stock of AWG, AWG Group and AWG Merger Corp.
As of the Effective Time, by virtue of the Merger and without any action on
the part of any holder of any capital stock of AWG, AWG Group or AWG Merger
Corp.:
(a) Capital Stock of AWG. Subject to Section 2.1(b) and Section 2.2, each
issued and outstanding share of Class A common stock, par value $100 per
share, of AWG and Class B common stock, par value $100 per share, of AWG
(collectively, "AWG Common Stock"), in each case not owned (i) directly by
AWG or through a wholly owned subsidiary or (ii) by the holders of record
who are Dissenting Holders (as defined in Section 2.2), shall be converted
into the right to receive fully paid and nonassessable shares of common
stock, par value $0.01 per share, of AWG Group ("AWG Group Common Stock")
as follows:
(i) shares of AWG Common Stock shall be converted into an aggregate
of 25,000,000 shares of AWG Group Common Stock as follows:
a) shares of AWG Common Stock held by holders of record of AWG
Common Stock who have not become Dissenting Holders ("Nondissenting
Shareholders") shall be converted, on a pro rata basis, into the
right to receive an aggregate of 1,389,570 shares of AWG Group
Common Stock; and
b) shares of AWG Common Stock held by Nondissenting Shareholders
shall be converted into the right to receive an aggregate of
23,610,430 shares of AWG Group Common Stock based on each
Nondissenting Shareholder's relative proportion of qualifying
purchases from AWG for the fiscal years 1989 through 1995 and for
the year to date period ending on September 7, 1996. The total
dollar amount of qualifying purchases by each Nondissenting
Shareholder during each of the measured periods ("Annual Purchase
Amount") will be determined from AWG historical retailer purchase
records. Qualifying purchases are defined as purchases for products
billed or sold through AWG distribution facilities which are carried
in AWG's warehouses, subject to certain exclusions in accordance
with AWG's past practices for determining year-end patronage
rebates. The Annual Purchase Amount for each period (the "Individual
Year Conversion") will then be multiplied by a percentage, as
follows: 1996 purchases--25%; 1995 purchases--25%; 1994 purchases--
14%; 1993 purchases--11%; 1992 purchases--9%; 1991 purchases--7%;
1990 purchases--5%; 1989 purchases--4%. The sum of each
Nondissenting Shareholder's Individual Year Conversion will equal
its "Total Purchase Conversion." The 23,610,430 shares will be
distributed based upon the ratio of each Nondissenting Shareholder's
Total Purchase Conversion to the Total Purchase Conversions of all
Nondissenting Shareholders.
All such shares of AWG Common Stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and
each holder of a Certificate (as defined in Section 2.3(b)), formerly
representing any such shares shall cease to have any rights with respect to
such shares, except the right to receive shares of AWG Group Common Stock
to be issued in consideration therefor upon the surrender of such
Certificate in accordance with Section 2.3.
(b) Cancellation of Treasury Stock and Certain AWG Common Stock. Any
shares of AWG Common Stock that are owned by AWG as treasury stock or by
any wholly-owned subsidiary of AWG shall be canceled and retired and shall
cease to exist and no stock of AWG Group or other consideration shall be
issued or delivered in exchange therefor. All such shares of AWG shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a Certificate formerly
representing any such shares shall cease to have any rights with respect
thereto.
(c) Capital Stock of AWG Group. Each issued and outstanding share of AWG
Group Common Stock shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist and no stock or other
consideration shall be issued or delivered in exchange therefor, and each
holder of a certificate formerly representing any such shares shall cease
to have any rights with respect thereto.
A-3
<PAGE>
(d) Capital Stock of AWG Merger Corp. Each issued and outstanding share
of common stock, par value $0.01 per share, of AWG Merger Corp. shall be
converted into and become one fully paid and nonassessable share of Class A
Common Stock, par value $100 per share, of AWG.
Section 2.2 AWG Dissenting Shares. Any issued and outstanding shares of AWG
Common Stock held by a person (as defined below) who objects to the Merger and
complies with all provisions of the MGCL concerning the right of such person
to dissent from the Merger and demands appraisal of such shares ("Dissenting
Holder") shall not be converted as described in Section 2.1(a) but shall, from
and after the Effective Time, represent only the right to receive such
consideration as may be determined to be due to such Dissenting Holder
pursuant to the MGCL; provided, however, that shares of AWG Common Stock
outstanding immediately prior to the Effective Time and held by a Dissenting
Holder who shall, after the Effective Time, withdraw the demand for appraisal
or lose the right of appraisal of such shares, in either case pursuant to the
MGCL, shall be deemed to be converted, as of the Effective Time, into the
right to receive shares of AWG Group Common Stock in accordance with Section
2.1(a), without interest. As used in this Agreement, the term "person" shall
mean any natural person, corporation, general or limited partnership, limited
liability company, joint venture, trust, association or entity of any kind.
Section 2.3 Issuance of New Certificates.
(a) Deposit with Exchange Agent. As soon as practicable after the
Effective Time, AWG Group shall deposit, in trust for the benefit of
holders of the Certificates, with a bank or trust company (the "Exchange
Agent"), certificates representing shares of AWG Group Common Stock
required to effect the issuances referred to in Section 2.1.
(b) Issuance Procedures. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates (the "Certificate") which immediately prior to the Effective
Time represented outstanding shares of AWG Common Stock (the "Canceled
Shares") that, pursuant to Section 2.1, were canceled and became instead
the right to receive shares of AWG Group Common Stock (the "AWG Group
Shares") (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon actual delivery of a sworn statement acknowledging that the
Certificates are in possession of AWG to the Exchange Agent), and (ii)
instructions for use in receiving shares. Upon receipt by the Exchange
Agent of the statement referenced above (or such other agent or agents as
may be appointed), together with a duly executed letter of transmittal and
such other documents as the Exchange Agent shall require, the holder of
such Certificate shall be entitled to receive a certificate or certificates
representing that number of whole AWG Group Shares which such holder has
the right to receive pursuant to the provisions of this Article II. In the
event of a transfer of ownership of Canceled Shares which is not registered
in the transfer records of AWG, a certificate representing the proper
number of AWG Group Shares may be issued to a transferee if the Certificate
representing such Canceled Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer
and by evidence satisfactory to the Exchange Agent that any applicable
stock transfer taxes have been paid. Until surrendered as contemplated by
this Section 2.3, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the Certificate representing AWG Group Shares.
(c) Distributions with Respect to Unsurrendered Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to AWG Group Shares with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to AWG
Group Shares represented thereby, until the holder of record of such
Certificate shall surrender such Certificate. Subject to the effect of
unclaimed property, escheat and other applicable laws, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole AWG Group Shares issued in consideration
therefor, without interest, (i) at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective
Time theretofore paid with respect to such whole AWG Group Shares and (ii)
at the appropriate payment date, the amount of dividends or other
distributions
A-4
<PAGE>
with a record date after the Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole AWG
Group Shares.
(d) No Fractional Securities. The number of AWG Group Shares issued to an
individual in the Merger shall be rounded down to the nearest whole share.
No certificates or scrip representing fractional shares of AWG Group Common
Stock shall be issued upon the surrender for exchange of Certificates and
such fractional shares shall not entitle the owner thereof to vote or to
any other rights of a holder of AWG Group Common Stock.
(e) Termination of Exchange Agent. Any Certificates representing AWG
Group Shares deposited with the Exchange Agent pursuant to Section 2.3(a)
and not exchanged within one year after the Effective Time pursuant to this
Section 2.3 shall be returned by the Exchange Agent to the transfer agent
of AWG Group, which shall thereafter act as Exchange Agent. All funds held
by the Exchange Agent for payment to the holders of unsurrendered
Certificates and unclaimed at the end of one year from the Effective Time
shall be returned to the transfer agent of AWG Group; after which time any
holder of unsurrendered Certificates shall look as a general creditor only
to AWG Group for payment of such funds to which such holder may be due,
subject to applicable law. AWG Group shall not be liable to any person for
such shares or funds delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
ARTICLE III
THE CLOSING
Section 3.1 Closing. The closing of the Merger (the "Closing") shall take
place at the time, date and place as the parties shall mutually agree
following the date on which the last of the conditions set forth in Article IV
hereof is fulfilled or waived (the "Closing Date").
ARTICLE IV
CONDITIONS
Section 4.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Closing Date of the following conditions,
except, to the extent permitted by applicable law, that such conditions may be
waived in writing by the parties hereto:
(a) Shareholder Approvals. The approval of the shareholders of AWG and
AWG Merger Corp. shall have been obtained.
(b) No Injunction. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and be
continuing in effect, and the Merger and the other transactions
contemplated hereby shall not have been prohibited under any applicable
federal or state law or regulation.
(c) Registration Statement. A Registration Statement on Form S-1 of AWG
Group shall have become effective in accordance with the provisions of the
Securities Act of 1933, as amended, and no stop order suspending such
effectiveness shall have been issued and remain in effect.
(d) Underwriting Commitment. AWG Group shall have entered into an
agreement whereby one or more nationally recognized investment banks agree
to purchase, on a firm commitment basis, shares of AWG Group Common Stock
for sale in an underwritten public offering at a time, in an amount, at a
price and with such other terms as the board of directors of AWG Group
shall determine in its sole discretion.
(e) Required Consents. Any governmental or third-party consents shall
have been obtained if the failure to obtain any such consents would have a
material adverse effect on the business, assets, financial condition,
results of operations or prospects of any party hereto.
A-5
<PAGE>
ARTICLE V
TERMINATION, AMENDMENT AND WAIVER
Section 5.1 Termination. This Agreement may be terminated by any party
hereto by written notice to the other parties at any time prior to the Closing
Date, whether before or after approval by the shareholders of the respective
parties.
Section 5.2 Effect of Termination. In the event of termination of this
Agreement there shall be no liability on the part of AWG, AWG Group or AWG
Merger Corp., or their respective officers or directors under this Agreement
to any other party to this Agreement.
Section 5.3 Amendment. This Agreement may be amended by the boards of
directors of the parties hereto, at any time before or after approval hereof
by the shareholders of AWG and prior to the Effective Time, but after such
approval, no such amendment shall (a) alter or change the amount or kind of
shares, rights or any of the proceedings of the treatment of shares under
Article II, or (b) alter or change any of the terms and conditions of this
Agreement if any of the alterations or changes, alone or in the aggregate,
would materially adversely affect the rights of holders of AWG Common Stock.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 5.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, and (b) waive compliance with any
of the agreements or conditions contained herein, to the extent permitted by
applicable law. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1 Miscellaneous. This Agreement (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof, (b) shall not be assigned by operation of law or
otherwise, and (c) shall be governed by and construed in accordance with the
laws of the State of Missouri applicable to contracts executed in and to be
fully performed in such State, without giving effect to its conflicts of law
rules or principles.
Section 6.2 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.
Section 6.3 Counterparts; Effect. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 6.4 Parties' Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
A-6
<PAGE>
In Witness Whereof, AWG, AWG Group and AWG Merger Corp. have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first written above.
Associated Wholesale Grocers, Inc.
/s/ Joseph L. Campbell, II
Attest: _____________________________
/s/ Mike DeFabis
By: _________________________________
Secretary
Mike DeFabis
Name: _______________________________
President
Title: ______________________________
Associated Wholesale Grocers Group,
Inc.
/s/ Joseph L. Campbell, II
Attest: _____________________________
/s/ Mike DeFabis
By: _________________________________
Secretary
Mike DeFabis
Name: _______________________________
President
Title: ______________________________
AWG Merger Corp.
/s/ Doug Carolan
Attest: _____________________________
/s/ Mike DeFabis
By: _________________________________
Secretary
Mike DeFabis
Name: _______________________________
President
Title: ______________________________
A-7
<PAGE>
ANNEX B
ARTICLES OF INCORPORATION
OF
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
ARTICLE ONE
The name of the corporation is Associated Wholesale Grocers Group, Inc. (the
"Corporation").
ARTICLE TWO
The address of the Corporation's registered office in the State of Kansas is
515 S. Kansas, Topeka, Shawnee County, Kansas 66603. The name of its
registered agent at such address is The Corporation Company, Inc.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the Kansas General Corporation Code.
ARTICLE FOUR
1. Authorized Shares. The Corporation has authority to issue five hundred
fifty million (550,000,000) shares of capital stock, consisting of five
hundred million (500,000,000) shares of Common Stock, par value $.01 per share
(the "Common Stock"), and fifty million (50,000,000) shares of Preferred
Stock, par value $.10 per share (the "Preferred Stock").
All of the authorized shares of the Corporation may be issued, from time to
time, without action by the stockholders, for such consideration as may be
fixed, from time to time, by the Board of Directors, or by any duly authorized
committee thereof, and shares so issued, the full consideration for which has
been paid or delivered, will be deemed fully paid and non-assessable stock.
The holders of such shares shall not be liable for any further payment
thereon.
2. Common Stock
a. Voting Rights. The holders of Common Stock shall be entitled to one
vote per share on all matters to be voted on by the stockholders of the
Corporation and shall not be entitled to cumulate their votes.
b. Dividends. To the extent permitted under the Kansas General
Corporation Code and subject to the provisions of the Preferred Stock, as
and when dividends are declared by the Board of Directors or paid thereon,
whether in cash, property or securities of the Corporation, the holders of
Common Stock shall be entitled to participate in such dividends ratably on
a per share basis.
c. Liquidation. Subject to the provisions of the Preferred Stock, the
holders of Common Stock shall be entitled to participate ratably on a per
share basis in all distributions to the holders of Common Stock in any
liquidation, dissolution or winding up of the Corporation.
d. Registration of Transfer. The Corporation shall keep at its principal
office (or such other place as the Corporation reasonably designates) a
register for the registration of shares of Common Stock whether in
certificate or book-entry form. Upon the surrender of any certificate
representing shares of any class of Common Stock at such place, the
Corporation shall, at the request of the registered holder of such
B-1
<PAGE>
certificate, execute and deliver a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares of
such class represented by the surrendered certificate, and the Corporation
forthwith shall cancel such surrendered certificate. Each such new
certificate will be registered in such name and will represent such number
of shares of such class as is substantially identical in form to the
surrendered certificate. The issuance of new certificates shall be made
without charge to the holders of the surrendered certificates for any
issuance tax in respect thereof or other cost incurred by the Corporation
in connection with such issuance. Upon receipt of a transfer instruction by
the owner of any shares of Common Stock registered in book-entry form, the
Corporation shall record the transfer of such shares in the register and
shall deliver to the owner of such shares a written statement describing
the number of shares transferred and the date the transfer was registered.
e. Replacement. Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder will be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing one or more shares of any class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Corporation (provided that if the
holder is a financial institution or other institutional investor its own
agreement will be satisfactory), or in the case of any such mutilation upon
surrender of such certificate, the Corporation shall (at its expense)
execute and deliver in lieu of such certificate a new certificate of like
kind representing the number of shares of such class represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
f. Notices. All notices referred to herein shall be in writing, shall be
delivered personally or by first class mail, postage prepaid, and shall be
deemed to have been given when so delivered or mailed to the Corporation at
its principal executive offices and to any stockholder at such holder's
address as it appears in the stock records of the Corporation (unless
otherwise specified in a written notice to the Corporation by such holder).
g. Restrictions on Transfer. Certain shares of Common Stock, as
designated by the Board of Directors, shall have the restrictions on
transfer set forth in the by-laws of the Corporation. Shares not so
designated shall be free of such restrictions.
3. Preferred Stock
a. Shares of Preferred Stock may be issued in one or more series at such
time or times and for such consideration as the Board of Directors may
determine. Each such series shall be given a distinguishing designation.
All shares of any one series shall have preferences, limitations and
relative rights identical with those of other shares of the same series
and, except to the extent otherwise provided in the description of such
series, with those of other shares of Preferred Stock.
b. The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
i. The distinguishing designation and number of shares constituting
that series, which number may (except where otherwise provided by the
Board of Directors in creating such series) be increased or decreased
from time to time by action of the Board of Directors;
ii. The dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of that series over shares of any other series or over the
Common Stock;
iii. The voting rights, if any, which shares of that series shall
have, and the terms of such voting rights;
iv. Whether the shares of that series shall be convertible into or
exchangeable for cash, shares of stock of any other class or any other
series, indebtedness, or other property or rights, including securities
of another corporation, and, if so, the terms and conditions of such
exchange or conversion, including the rate or rates of conversion, and
whether such rate shall be a designated amount or an
B-2
<PAGE>
amount determined in accordance with a designated formula or by
reference to extrinsic data or events, the date or dates upon or after
which they shall be convertible or exchangeable, the duration for which
they shall be convertible or exchangeable, the event or events upon or
after which they shall be convertible or exchangeable, and whether they
shall be convertible or exchangeable at the option of the Corporation,
the shareholder or another person, and the method (if any) of adjusting
the rate of conversion or exchange in the event of a stock split, stock
dividend, combination of shares or similar event;
v. Whether or not the shares of that series shall be redeemable and,
if so, the terms and conditions of such redemption, including the date
or dates upon or after which the shares of that series shall be
redeemable, whether they shall be redeemable at the option of the
Corporation, the shareholder or another person, the amount per share
payable in the event of redemption (which amount may vary under
different conditions and at different redemption dates), whether such
amount shall be a designated amount or an amount determined in
accordance with a designated formula or by reference to extrinsic data
or events, and whether such amount shall be paid in cash, indebtedness,
securities or other property or rights, including securities of any
other corporation;
vi. Whether that series shall have a retirement or sinking fund for
the purchase or redemption of shares of that series, and, if so, the
terms and amount payable into such fund;
vii. The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series over shares of any other series or over the
Common Stock;
viii. Whether the issuance of any additional shares of such series,
or of any shares of any other series, shall be subject to restrictions
as to issuance, or as to the powers, preferences or rights of any such
other series; and
ix. Any other preferences, powers, privileges, and relative,
participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of the shares of
that series, as the Board of Directors may deem advisable and as shall
not be inconsistent with these Articles of Incorporation or the Kansas
General Corporation Code.
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
The authority to make, amend, alter or repeal the by-laws of the Corporation
is hereby expressly and solely granted to and vested in the Board of Directors
of the Corporation, subject always to the power of the stockholders to make,
amend, alter or repeal the by-laws of the Corporation by the affirmative vote
of the holders of 66 2/3% of the shares of the then outstanding voting stock
of the Corporation, voting together as a single class; provided, however, that
the stockholders may not amend or repeal, or adopt any provisions inconsistent
with, ARTICLE IX of the by-laws.
ARTICLE SEVEN
Meetings of stockholders may be held within or without the State of Kansas,
as the by-laws of the Corporation may provide. The books of the Corporation
may be kept outside the State of Kansas at such place or places as may be
designated from time to time by the Board of Directors or in the by-laws of
the Corporation. Election of directors need not be by written ballot unless
the by-laws of the Corporation so provide.
B-3
<PAGE>
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
Except as otherwise required by law and subject to the right of holders of
any Preferred Stock, special meetings of the stockholders may only be called
by the Board of Directors pursuant to a resolution duly adopted by a majority
of the entire Board of Directors. Special meetings of the stockholders may not
be called by any other person or persons.
ARTICLE EIGHT
The Corporation shall indemnify to the fullest extent permitted by law (as
now or hereafter in effect), any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that he or she is or was a director, officer or employee of the
Corporation, or is or was a director, officer or employee of the Corporation
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of, or in any other capacity with respect to another
corporation, partnership, limited liability company, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding. No amendment to or appeal of this ARTICLE EIGHT shall apply to or
have any effect on any right to indemnification provided hereunder with
respect to any acts or omissions occurring prior to such amendment or repeal.
ARTICLE NINE
To the fullest extent permitted by the Kansas General Corporation Code as
the same exists or may hereafter be amended, a director of this Corporation
shall not be liable to the corporation or its stockholders for monetary
damages for a breach of fiduciary duty as a director. Any repeal or
modification of this ARTICLE NINE shall not adversely affect any right or
protection of a director of the corporation existing at the time of such
repeal or modification.
ARTICLE TEN
The Corporation expressly elects not to be governed by (S)(S) 17-12,100 et.
seq. of the Kansas General Corporation Code.
ARTICLE ELEVEN
1. Number of Directors. The number of directors constituting the entire
Board of Directors shall be not less than five nor more than eleven. Subject
to the rights of the holders of any Preferred Stock then outstanding, the
specific number of directors within such minimum and maximum shall be
authorized from time to time by resolution duly adopted by a two-thirds vote
of the entire Board of Directors. As used in these Articles of Incorporation,
the term "entire Board of Directors" means the total number of directors that
has, at the time of any determination, been specifically authorized by the
Board of Directors pursuant to this Section 1, assuming no vacancies exist
with respect to such number of specifically authorized directors.
2. Classified Board. The Board of Directors shall be classified such that
there will be three classes of directors, with respect to the time that the
directors severally hold office, as nearly equal in number as possible. The
initial directors of the first class shall hold office for one year or until
the first annual election of directors
B-4
<PAGE>
following their election. The initial directors of the second class shall hold
office for two years or until the second annual election of directors
following their election. The initial directors of the third class shall hold
office for three years or until the third annual election of directors
following their election. Each director shall hold office until his or her
successor shall be elected and qualifies, except in the event of the earlier
death, resignation or removal of such director.
At each annual stockholders' meeting following such initial classification
and election, the number of directors equal to the number of the class whose
term expires at the time of such meeting shall be elected by the stockholders
for a full three-year term, as the case may be, to succeed those whose terms
expire.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain, if possible, the equality of
the number of directors in each class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. If such
equality is not possible, the increase or decrease shall be apportioned among
the classes in such a way that the difference in the number of directors in
any two classes shall not exceed one.
3. Vacancies. Subject to the rights of the holders of any Preferred Stock
then outstanding, any vacancies in the Board of Directors for any reasons,
including by reason of any increase in the number of directors, shall, if
occurring prior to the expiration of the term of office of the class in which
such vacancy occurs, be filled only by the Board of Directors, acting by the
affirmative vote of two-thirds of the remaining directors.
4. Removal of Directors. Subject to the rights of the holders of any
Preferred Stock then outstanding, (i) any director, or the entire Board of
Directors, may be removed from office at any time, but only for Cause (as
defined below), by the affirmative vote of the holders of record of
outstanding shares representing at least 66 2/3% of the voting power of all
the shares of capital stock of the Corporation then entitled to vote generally
in the election of directors, voting together as a single class, and (ii) to
the extent permitted by law, any director may be removed from office at any
time, but only for Cause, by the affirmative vote of a majority of the entire
Board of Directors. As used in these Articles of Incorporation, the term
"Cause" means (i) conviction of the director of a felony; (ii) declaration by
order of a court that the director is of unsound mind; or (iii) gross abuse of
trust which is proven by clear and convincing evidence to have been committed
in bad faith.
ARTICLE TWELVE
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed herein and by the laws of the State of Kansas, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
Notwithstanding the above provision or any other provisions of the Articles
of Incorporation or the by-laws of the Corporation, the affirmative vote of
the holders of at least 66 2/3% of the voting power of the shares of the then
outstanding voting stock of the Corporation, voting together as a single
class, shall be required to amend or repeal, or adopt any provisions
inconsistent with, ARTICLES FOUR, SIX, SEVEN, EIGHT, NINE, TEN, ELEVEN, or
this ARTICLE TWELVE of these Articles of Incorporation.
Notwithstanding any other provisions of the Articles of Incorporation or the
by-laws of the Corporation, the stockholders may not amend or repeal, or adopt
provisions inconsistent with, Article FOUR, Section 2(g) of these Articles of
Incorporation.
B-5
<PAGE>
ARTICLE THIRTEEN
The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Shari L. Wright Blackwell Sanders Matheny Weary & Lombardi L.C.
2300 Main Street, Suite 1100
P.O. Box 419777
Kansas City, MO 64141-6777
</TABLE>
In Testimony Whereof, I have subscribed my name this day of ,
1996.
-------------------------------------
Shari L. Wright
State of Missouri ss:
County of Jackson
}
Subscribed and sworn to before me, this day of , 1996.
-------------------------------------
Notary Public
My Commission Expires:
- -------------------------------
B-6
<PAGE>
ANNEX C
SECTION 351.455 OF THE MISSOURI GENERAL
AND BUSINESS CORPORATION LAW
351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES,
WHEN.--1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall
not vote in favor thereof, and such shareholder, within twenty days after the
merger or consolidation is effected, shall make written demand on the
surviving or new corporation for payment of the fair value of his shares as of
the day prior to the date on which the vote was taken approving the merger or
consolidation, the surviving or new corporation shall pay to such shareholder,
upon surrender of his certificate or certificates representing said shares,
the fair value thereof. Such demand shall state the number and class of the
shares owned by such dissenting shareholder. Any shareholder failing to make
demand within the twenty day period shall be conclusively presumed to have
consented to the merger or consolidated and shall be bound by the terms
thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in
the corporation.
3. If within such period of thirty days the shareholder and the surviving or
new corporation do not so agree, then the dissenting shareholder may, within
sixty days after the expiration of the thirty day period, file a petition in
any court of competent jurisdiction within the county in which the registered
office of the surviving or new corporation is situated, asking for a finding
and determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of
such judgment. The judgment shall be payable only upon and simultaneously with
the surrender to the surviving or new corporation of the certificate or
certificates representing said shares. Upon the payment of the judgment, the
dissenting shareholder shall cease to have any interest in such shares, or in
the surviving or new corporation. Such shares may be held and disposed of by
the surviving or new corporation as it may see fit. Unless the dissenting
shareholder shall file such petition within the time herein limited, such
shareholder and all persons claiming under him shall be conclusively presumed
to have approved and ratified the merger or consolidation, and shall be bound
by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall
abandon the merger or consolidation.
C-1
<PAGE>
ANNEX D
BY-LAWS
OF
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
A KANSAS CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Kansas shall be located at 515 South Kansas, Topeka, Kansas
66603. The name of the corporation's registered agent at such address shall be
The Corporation Company, Inc. The registered office and/or registered agent of
the corporation may be changed from time to time by action of the Board of
Directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the state of Kansas, as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the stockholders
shall be held each year within 150 days after the close of the immediately
preceding fiscal year of the corporation for the purpose of electing directors
and conducting such other proper business as may come before the meeting. The
date, time and place of the annual meeting shall be determined by the Board of
Directors of the corporation.
Section 2. Special Meetings. Except as otherwise required by law and subject
to the right of holders of any Preferred Stock, special meetings of the
stockholders may only be called by the Board of Directors pursuant to a
resolution duly adopted by a full majority of the entire Board of Directors.
Special meetings of stockholders may not be called by any other person or
persons.
Section 3. Place of Meetings. The Board of Directors may designate any
place, either within or without the state of Kansas, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting
not less than 10 nor more than 60 days before the date of the meeting. All
such notices shall be delivered, either personally or by mail, by or at the
direction of the Board of Directors, the President or the Secretary, and if
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, addressed to the stockholder at his, her
or its address as the same appears on the records of the corporation.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
D-1
<PAGE>
Section 5. Stockholders List. The officer having charge of the stock ledger
of the corporation shall prepare, at least 10 days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the articles of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy
at the meeting, and entitled to vote at the meeting, may adjourn the meeting
to another time or place. When a quorum is once present to commence a meeting
of stockholders, it is not broken by the subsequent withdrawal of any
stockholders or their proxies.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken;
provided however, that if the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At the adjourned meeting, the corporation may
transact any business which might have been transacted at the original
meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote of
the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of
an applicable law or of the articles of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting Rights. Except as otherwise provided by the Kansas General
Corporation Code or by the articles of incorporation, and subject to Section 3
of Article VI hereof, every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
capital stock having voting power held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or
her by proxy, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether
the interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to
vote, except that when such proxy is coupled with an interest and the fact of
the interest appears on the face of the proxy, the agent named in the proxy
shall have all voting and other rights referred to in the proxy,
notwithstanding the presence of the person executing the proxy. At each
meeting of the stockholders, and before any voting commences, all proxies
filed at or before the meeting shall be submitted to and examined by the
Secretary or a person designated by the Secretary, and no shares may be
represented or voted under a proxy that has been found by the Secretary or a
person designated by the Secretary in his or her sole discretion, to be
invalid or irregular.
Section 11. Proposed Business. Except as may otherwise be required by
applicable law or regulation or be expressly authorized by the Board of
Directors, a stockholder may make a nomination or nominations for director of
the corporation at an annual meeting of stockholders or at a special meeting
of stockholders called for the
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purpose of electing Directors or may bring up any other matter for
consideration and action by the stockholders at a meeting of stockholders only
if the provisions of the following subsections 11(a), 11(b), 11(c) and 11(d)
shall have been satisfied. If such provisions shall not have been satisfied,
any nomination sought to be made or other business sought to be presented by a
stockholder for consideration and action by the stockholders at the meeting
shall be deemed not properly brought before the meeting, is and shall be ruled
by the Chairman of the meeting to be out of order, and shall not be presented
or acted upon at the meeting.
a. The stockholder must be a stockholder of record on the record date for
such meeting, be entitled to vote thereat and must continue to be a
stockholder of record at the time of such meeting.
b. The stockholder must, not less than 130 days before the day of the
meeting or within ten days after the corporation has mailed to stockholders
a notice of an annual meeting of stockholders, whichever is the later,
deliver or cause to be delivered a written notice to the Secretary of the
corporation. The notice shall specify (i) the name and address of the
stockholder as they appear on the books of the corporation, (ii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder; (iii) any material interest of the stockholder in the proposed
business described in the notice; (iv) if such business is a nomination for
director, each nomination sought to be made, together with the reasons for
each nomination, a description of the qualifications and business or
professional experience of each proposed nominee and a statement signed by
each nominee indicating his or her willingness to serve if elected, and
disclosing the information about him or her that is required by the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules
and regulations promulgated thereunder, to be disclosed in the proxy
materials for the meeting involved as if he or she were a nominee of the
corporation for election as one of its directors; (v) if such business is
other than a nomination for director, the nature of the business, the
reasons why it is sought to be raised and submitted for a vote of the
stockholders and if and why it is deemed by the stockholder to be
beneficial to the corporation, and (vi) if so requested by the corporation,
all other information that would be required to be filed with the
Securities and Exchange Commission if, with respect to the business
proposed to be brought before the meeting, the person proposing such
business was a participant in a solicitation subject to Section 14 of the
1934 Act.
c. Notwithstanding satisfaction of the provisions of subsection 11(a) and
11(b), the proposed business described in the notice may be deemed not to
be properly brought before the meeting if, pursuant to state law or to any
rule or regulation of the Securities and Exchange Commission, it was
offered as a stockholder proposal and was omitted, or had it been so
offered, it could have been omitted, from the notice of, and proxy material
for, the meeting (or any supplement thereto) authorized by the Board of
Directors.
d. In the event such notice is timely given pursuant to subsection 11(b)
and the business described therein is not disqualified pursuant to
subsection 11(c), such business (i) may nevertheless not be presented or
acted upon at a special meeting of stockholders unless in all other
respects it is properly before such meeting; and (ii) may not be presented
except by the stockholder who shall have given the notice required by
subsection 11(a) or a representative of such stockholder who is qualified
under the law of the State of Kansas to present the proposal on the
stockholder's behalf at the meeting.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the corporation shall
be managed by or under the direction of the Board of Directors.
Section 2. Number, Election and Term of Office. The number of directors
which shall constitute the Board of Directors shall be nine. Thereafter, the
number of directors shall be established from time to time as provided in the
articles of incorporation. Except as otherwise provided in the articles of
incorporation or in Section 4 of this Article III, the directors shall be
elected at the annual meeting of the stockholders by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote in the election of directors.
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Section 3. Removal and Resignation. Any director or the entire Board of
Directors may be removed at such time and in such manner as provided in the
articles of incorporation. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled only by
the Board of Directors and in the manner provided in the articles of
incorporation. Each director so chosen shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected Board
of Directors shall be held without other notice than this by-law immediately
after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution
of the Board. Subject to Section 11 of this Article III, special meetings of
the Board of Directors may be called by or at the request of the Chairman of
the Board of Directors, President or any two Directors on at least 24 hours
notice to each director, either personally, by telephone, by mail or by
telegraph.
Section 7. Quorum, Required Vote and Adjournment. A majority of the total
number of directors then in office shall constitute a quorum for the
transaction of business. Except as otherwise provided by the articles of
incorporation, the vote of a majority of directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present.
Section 8. Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation, which to the
extent provided in such resolution or these by-laws shall have and may
exercise the powers of the Board of Directors in the management and affairs of
the corporation except as otherwise limited by law. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same
to the Board of Directors when required.
Section 9. Committee Rules. Each committee of the Board of Directors may fix
its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the
committee shall be necessary to constitute a quorum. In the event that a
member and that member's alternate, if alternates are designated by the Board
of Directors as provided in Section 8 of this Article III, of such committee
is or are absent or disqualified, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in place of any such absent or
disqualified member.
Section 10. Communications Equipment. Members of the Board of Directors or
any committee thereof may participate in and act at any meeting of such Board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
Board of Directors or any committee thereof who is present at a meeting shall
be conclusively presumed to have waived notice of such
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meeting except when such member attends for the express purpose of objecting
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened. Such member shall be conclusively
presumed to have assented to any action taken unless his or her dissent shall
be entered in the minutes of the meeting or unless his or her written dissent
to such action shall be filed with the person acting as the Secretary of the
meeting before the adjournment thereof or shall be forwarded by registered
mail to the Secretary of the corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to any member who voted in
favor of such action. Nothing contained in this section shall be construed to
prevent a member of the Board of Directors or any committee thereof from
waiving notice of any meeting in any method in addition to waiver by
attendance at such meeting.
Section 12. Action by Written Consent. Unless otherwise restricted by the
articles of incorporation, any action required or permitted to be taken at any
meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected by the
Board of Directors and shall consist of a Chairman of the Board of Directors,
President, one or more Vice-Presidents, a Secretary, a Treasurer, and such
other officers and assistant officers as may be deemed necessary or desirable
by the Board of Directors. Any number of offices may be held by the same
person except that neither the Chairman of the Board nor the President shall
also hold the office of Secretary. In its discretion, the Board of Directors
may choose not to fill any office for any period as it may deem advisable,
except that the offices of President and Secretary shall be filled as
expeditiously as possible.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon as such election may be
conveniently held thereafter. Vacancies may be filled or new offices created
and filled at any meeting of the Board of Directors. Each officer shall hold
office until a successor is duly elected and qualified or until his or her
earlier death, resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the Board of Directors
may be removed by the Board of Directors whenever in its judgment the best
interests of the corporation would be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term by the Board of
Directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by the
Board of Directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. Chairman of the Board. The Chairman of the Board of Directors
shall preside at all meetings of the Board of Directors and shall preside at
all stockholder meetings. The Chairman of the Board shall also perform any
other duties which the Board of Directors may assign from time to time.
Section 7. The President. The President shall be the chief executive officer
of the corporation; subject to the powers of the Board of Directors, shall
have general charge of the business, affairs and property of the corporation,
and control over its officers, agents and employees; and shall see that all
orders and resolutions of the Board of Directors are carried into effect. The
President shall execute bonds, mortgages and other contracts
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requiring a seal, under the seal of the corporation, except as provided in
Section 8 of this Article IV, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors or the
President to some other officer or agent of the corporation. The President
shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or as may be provided in these by-laws.
Section 8. Vice-Presidents. The Vice-President, or if there shall be more
than one, the Vice-Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President, act with all
of the powers and be subject to all the restrictions of the President. The
Vice-Presidents shall also perform such other duties and have such other
powers as the Board of Directors, the President or these by-laws may, from
time to time, prescribe.
Section 9. The Secretary and Assistant Secretaries. The Secretary shall
attend all meetings of the Board of Directors, all meetings of the committees
thereof (unless a committee shall appoint one of its members to serve as
secretary for the committee) and all meetings of the stockholders and record
all the proceedings of the meetings in a book or books to be kept for that
purpose. Under the President's supervision, the Secretary shall give, or cause
to be given, all notices required to be given by these by-laws or by law;
shall have such powers and perform such duties as the Board of Directors, the
President or these by-laws may, from time to time, prescribe; and shall have
custody of the corporate seal of the corporation. The Secretary, or an
Assistant Secretary, shall have authority to affix the corporate seal to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his or her signature. The
Assistant Secretary, or if there by more than one, the Assistant Secretaries
in the order determined by the Board of Directors, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as
the Board of Directors, the President, or Secretary may, from time to time,
prescribe.
Section 10. The Treasurer and Assistant Treasurer. The Treasurer shall have
the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name
and to the credit of the corporation as may be ordered by the Board of
Directors; shall cause the funds of the corporation to be disbursed when such
disbursements have been duly authorized, taking proper vouchers for such
disbursements; and shall render to the President and the Board of Directors,
at its regular meeting or when the Board of Directors so requires, an account
of the corporation; shall have such powers and perform such duties as the
Board of Directors, the President or these by-laws may, from time to time,
prescribe. If required by the Board of Directors, the Treasurer shall give the
corporation a bond in such sums and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of the office of Treasurer and for the restoration to the corporation,
in case of death, resignation, retirement, or removal from office, of all
books, papers, vouchers, money, and other property of whatever kind in the
possession or under the control of the Treasurer belonging to the corporation.
The Assistant Treasurer, or if there shall be more than one, the Assistant
Treasurers in the order determined by the Board of Directors, shall in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer. The Assistant Treasurers shall perform such other
duties and have such other powers as the Board of Directors, the President or
Treasurer may, from time to time, prescribe.
Section 11. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such
duties as may from time to time be prescribed by resolution of the Board of
Directors.
Section 12. Absence or Disability of Officers. In the case of the absence or
disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any
other person whom it may select.
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ARTICLE V
INDEMNIFICATION
Section 1. Indemnification and Advancement of Expenses. The directors,
officers and employees of this corporation shall be indemnified to the maximum
extent permitted by law. The corporation shall pay all expenses incurred by a
director, officer or employee of this corporation in defending a civil or
criminal action, suit or proceeding in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director, officer or employee to repay such amount if it is ultimately
determined that the director, officer or employee is not entitled to be
indemnified by the corporation as authorized by the Kansas General Corporation
Code. The foregoing right of indemnification and advancement of expenses shall
in no way be exclusive of any other rights of indemnification and advancement
of expenses to which any such director, officer or employee may be entitled by
law, agreement, vote of stockholders or of disinterested directors or
otherwise.
Section 2. Continuation of Rights. All rights of indemnification and
advancement of expenses under Article V of these Bylaws and under the Kansas
General Corporation Code shall continue as to a person who has ceased to be an
officer, director or employee and shall inure to the benefit of the heirs,
executors and administrators of such director, officer or employee.
Section 3. Indemnification Insurance. The corporation may maintain
insurance, at its expense, to protect itself and any director, officer,
employee or agent of the corporation or another corporation, partnership,
joint venture, trust or other enterprise against any such expense, liability
or loss, whether or not the corporation would have the power to indemnify such
person against such expense, liability or loss under the Kansas General
Corporation Code.
Section 4. Determination of Rights. Any indemnification under this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the
director, officer or employee has met the applicable standard of conduct
required by the Kansas General Corporation Code. Such determination shall be
made (1) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (2)
if such quorum is not obtainable, or even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by the
President or a Vice-President and the Secretary or an Assistant Secretary of
the corporation, certifying the number of shares owned by such holder in the
corporation. If such a certificate is countersigned (i) by a transfer agent or
an assistant transfer agent other than the corporation or its employee or (ii)
by a registrar, other than the corporation or its employee, the signature of
any such President, Vice-President, Secretary or Assistant Secretary may be
facsimiles. In case any officer or officers who has or have signed, or whose
facsimile signature or signatures have been used on, any such certificate or
certificates shall cease to be such officer or officers of the corporation
whether because of death, resignation or otherwise before such certificate or
certificates have been delivered by the corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates or whose facsimile
signature or signatures have been used thereon had not ceased to be such
officer or officers of the corporation. All certificates for shares shall be
consecutively numbered or otherwise identified. The name of the person to whom
the shares represented thereby are issued, with the number of shares and date
of issue, shall be entered on the books of the corporation. Shares of stock of
the corporation shall only be transferred on the books of the corporation by
the holder of record thereof or by such holder's attorney duly authorized in
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writing, upon surrender to the corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer, authorization, and
other matters as the corporation may reasonably require, and accompanied by
all necessary stock transfer stamps. In that event, it shall be the duty of
the corporation to issue a new certificate or certificates, and record the
transaction on its books. The Board of Directors may appoint a bank or trust
company organized under the laws of the United States or any state thereof to
act as its transfer agent or registrar, or both in connection with the
transfer of any class or series of securities of the corporation.
Section 2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of the fact by the
person claiming the certificate of stock to be lost, stolen, or destroyed.
When authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be
made against the corporation on account of the loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors,
and which record date shall not be more than 60 nor less than 10 days before
the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of the stockholders shall be the close of business on
the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purposes of any other lawful action, the Board
of Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than 60 days prior to such action. If no record
date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 5. Registered Stockholders. Prior to the surrender of the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers to an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice
thereof.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the articles of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the
capital stock, subject to the provisions of the articles of incorporation.
Before payment of any dividend, there may be set aside out of any
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funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or any other
purpose, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts or other orders for
the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents of the corporation, and in
such manner, as shall be determined by the resolution of the Board of
Directors or a duly authorized committee thereof.
Section 3. Contracts. The Board of Directors may authorize any officer or
officers, or any agent or agents, of the corporation to enter into any
contract or to execute and deliver any instrument in the name of and on behalf
of the corporation, and such authority may be general or confined to specific
instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such a manner as the
Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this section contained shall be
deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
Section 6. Corporate Seal. The Board of Directors shall provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon
the name of the corporation and the words "Corporate Seal, Kansas." The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned by Corporation. Voting securities in any
other corporation held by the corporation shall be voted by the President,
unless the Board of Directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for
business and at the principal executive office of the Corporation to inspect
for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in the State of Kansas or at its principal place of
business.
Section 9. Section Headings. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the articles of
incorporation, the Kansas General Corporation Code or any other applicable
law, the provision of these by-laws shall not be given any effect to the
extent of such inconsistency but shall otherwise be given full force and
effect.
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ARTICLE VIII
AMENDMENTS
Subject to the provisions of the articles of incorporation, these by-laws
may be amended, altered, or repealed and new by-laws adopted at any meeting of
the Board of Directors by a majority vote. The fact that the power to adopt,
amend, alter, or repeal the by-laws has been conferred upon the Board of
Directors shall not divest the stockholders of the same powers to the extent
permitted under the articles of incorporation.
ARTICLE IX
RESTRICTIONS ON TRANSFER
The Board of Directors may designate, in its discretion, shares of the
common stock of the Corporation which shall be subject to the following
restrictions on transfer set forth below. If such designation has not been
made, shares of common stock will not be subject to any restrictions on
transfer.
Shares of common stock which have been so designated may not be transferred,
sold, pledged, hypothecated or assigned, directly or indirectly, for a period
of two years from the date of acquisition of such shares by the stockholder
from the Corporation except in the following circumstances:
(i) A pledge of such shares in a bona fide loan transaction which has
been approved by the Corporation prior to the pledge which approval may be
withheld by the Corporation in its sole discretion. If the pledgee
forecloses on the shares in connection with the default of the loan, the
restriction would be removed as to pledgee;
(ii) In connection with the transfer or sale of substantially all of the
assets or stock of the grocery business, if a corporation, in which the
stockholder is engaged, provided that the transferee of such assets or
stock shall remain subject to the above restriction on transfer; or
(iii) In connection with the transfer by gift to a trust for the benefit
of family members of the stockholder, or in connection with the transfer to
the estate of a deceased stockholder, provided that the two-year transfer
restriction shall remain except to the extent certified by a personal
representative of the deceased stockholder as necessary to meet state or
federal taxes due as a result of the inclusion of the restricted shares in
the taxable estate of the deceased.
The officers of the Company are authorized to place appropriate restrictive
transfer legends on the certificates representing the shares of common stock
which are the subject of the above-referenced restrictions.
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PART II
INFORMATION NOT REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the KGCC, a corporation may indemnify any person made or threatened to
be made a party to any legal proceeding, including any suit by or in the name
of the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation in such a capacity with respect to another
enterprise, against expenses and other amounts reasonably incurred by him in
connection with such legal proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the corporation, and, with respect to any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. The foregoing
notwithstanding, no indemnification may be made in respect of any claim
brought by or in the name of the corporation as to which such person is
adjudged to be liable to the corporation unless and only to the extent that a
proper court determines that in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
that the court deems proper. To the extent a person has been successful in the
defense of any of the foregoing proceedings or as to any particular issue
therein, such person shall be indemnified by the corporation against expenses
reasonably incurred by such person in connection therewith. These
indemnification rights are not exclusive of any other rights to which the
person seeking indemnification is entitled and do not limit a corporation's
right to provide further indemnification.
The AWG Group Articles of Incorporation contain a provision that eliminates
the personal liability of AWG Group's directors to AWG Group or its
shareholders for monetary damages for breach of fiduciary duty to the fullest
extent permitted by the KGCC. Provisions in the AWG Group Articles of
Incorporation and Bylaws entitle existing or former directors, officers and
employees of AWG Group or persons serving in any capacity with respect to any
other enterprise at the request of AWG Group to be indemnified by AWG Group
against costs and expenses, attorneys' fees, judgments, fines and amounts paid
in settlement that are actually and reasonably incurred in connection with any
action, suit or proceeding, whether civil, criminal, investigative or
administrative by reason of the fact that such person served in any of the
foregoing capacities. AWG Group may also be required to advance costs incurred
by directors, officers and employees in such situations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) The exhibits to this Registration Statement are listed in the Exhibit
Index hereto and are incorporated herein by reference.
(b) The financial statement schedule of Associated Wholesale Grocers, Inc.
and subsidiaries for each of the years in the three-year period ended December
30, 1995.
II-1
<PAGE>
SCHEDULE II
ASSOCIATED WHOLESALE GROCERS, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 25, 1993, DECEMBER 31, 1994 AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES AND OTHER OF YEAR
- ----------- ---------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended:
December 25, 1993................. $487 -- 30 $457
==== === === ====
December 31, 1994................. $457 -- 25 $432
==== === === ====
December 30, 1995................. $432 375 -- $807
==== === === ====
</TABLE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the Calculation of
Registration Fee table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(7) Insofar as indemnification, for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions referred
to in Item 20 of this registration statement, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(8) To respond to requests for information that is incorporated by
reference into the Joint Proxy Statement/Prospectus pursuant to Item 4,
10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENTS THERETO TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
KANSAS CITY, AND STATE OF KANSAS ON THE 30TH DAY OF SEPTEMBER, 1996.
Associated Wholesale Grocers Group,
Inc.
/s/ Mike DeFabis
By: _________________________________
Mike DeFabis,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Mike DeFabis President, Chief Executive September 30, 1996
____________________________________ Officer and Director
Mike DeFabis (Principal Executive
Officer)
/s/ Gary Phillips Executive Vice President of September 30, 1996
____________________________________ Finance and Administration
Gary Phillips and Chief Financial
Officer (Principal
Financial and Accounting
Officer)
/s/ Doug Carolan* Director September 30, 1996
____________________________________
Doug Carolan
/s/ J. Fred Ball* Director September 30, 1996
____________________________________
J. Fred Ball
/s/ James Queen* Director September 30, 1996
____________________________________
James Queen
/s/ Donald Woods, Jr.* Director September 30, 1996
____________________________________
Donald Woods, Jr.
</TABLE>
- --------
*Executed by Mike DeFabis as attorney-in-fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S> <C>
*2 Agreement and Plan of Merger, dated as of September 30, 1996
by and among Associated Wholesale Grocers, Inc., Associated
Wholesale Grocers Group, Inc. and AWG Merger Corp. (Included
as Annex A to the Proxy Statement/Prospectus contained in this
Registration Statement)
*3.1 Articles of Incorporation of Associated Wholesale Grocers
Group, Inc. (Included as Annex B to the Proxy
Statement/Prospectus contained in this Registration Statement)
*3.2 By-laws of Associated Wholesale Grocers Group, Inc. (Included
as Annex D to the Proxy Statement/ Prospectus contained in
this Registration Statement)
4.1 Shareholder Rights Plan
4.2 Certificate of Designation
*5 Opinion of Blackwell Sanders Matheny Weary & Lombardi L.C.
*8.1 Opinion of Blackwell Sanders Matheny Weary & Lombardi L.C.
*8.2 Opinion of KPMG Peat Marwick LLP
*10.1 Associated Wholesale Grocers Group, Inc. 1996 Equity Incentive
Plan.
*10.2 Supply Agreement between Associated Wholesale Grocers, Inc.
and Homeland Stores, Inc. dated April 21, 1995.
*10.3 Agreement between Associated Wholesale Grocers, Inc. and Gen-
eral Drivers, Chauffeurs and Helpers Local Union Number 886
dated April 23, 1995.
*10.4 Agreement between Associated Wholesale Grocers, Inc. and De-
partment Store, Package, Grocery, Paper House, Liquor and Meat
Drivers, Helpers and Warehousemen Local Union Number 955 dated
January 12, 1994.
*10.5 Agreement between Associated Wholesale Grocers, Inc. and Team-
ster Local Union Number 245 dated April 30, 1995.
*10.6 Unsecured Credit Agreement among Associated Wholesale Grocers,
Inc. and its subsidiaries and UMB Bank, N.A., Harris Trust and
Savings Bank, NBD Bank and UMB Bank, N.A. as agent dated April
17, 1995.
*10.7 Associated Wholesale Grocers, Inc. Nonqualified Deferred Com-
pensation Plan
*10.8 Associated Wholesale Grocers, Inc. Pension Restoration Plan
23.1 Consent and Report on Schedule
*23.2 Consent of Blackwell Sanders Matheny Weary & Lombardi L.C.
(Included in Exhibits 5 and 8.1).
*24 Powers of Attorney
99.1 Form of Proxy to be used in connection with the Special Meet-
ing of Shareholders of Associated Wholesale Grocers, Inc.--
Class A Common Stock
99.2 Form of Proxy to be used in connection with the Special Meet-
ing of Shareholders of Associated Wholesale Grocers, Inc.--
Class B Common Stock
*99.3 Form of Informational Statement
*99.4 Consent of Lazard Freres & Co. LLC
*99.5 Consent of Smith Barney Inc.
*99.6 Consent of George K. Baum & Company
</TABLE>
- --------
*Filed with the initial filing of this Registration Statement
II-5
<PAGE>
EXHIBIT 4.1
RIGHTS AGREEMENT dated as of ________________________,
199__, between ASSOCIATED WHOLESALE GROCERS GROUP,
INC.,a Kansas corporation (the "Company"), and
_________________________, a _________________________
banking corporation, as Rights Agent (the "Rights
Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one Right (as hereinafter defined) for each share of Common Stock,
par value $0.01 per share, of the Company (the "Common Stock") outstanding at
the Close of Business (as hereinafter defined) on _______________________, 1996
(the "Record Date"), and has authorized the issuance of one Right (as such
number may hereafter be adjusted pursuant to the provisions of this Rights
Agreement) with respect to each share of Common Stock that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date or the Expiration Date (as such terms are hereinafter
defined); provided, however, that Rights may be issued with respect to shares of
Common Stock that shall become outstanding after the Distribution Date and prior
to the earlier of the Redemption Date or the Expiration Date in accordance with
the provisions of Section 23. Each Right shall initially represent the right to
purchase one one-thousandths (1/1000ths) of a share of Series A Participating
Cumulative Preferred Stock, par value $0.10 per share, of the Company (the
"Preferred Shares"), having the powers, rights and preferences set forth in the
Certificate of Designations attached as Exhibit A.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. Certain Definitions. For purposes of this Rights
Agreement, the following terms have the meanings indicated:
"Acquiring Person" shall mean any Person who or which, alone or
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of more than 15% of the Common Shares then outstanding, other
than pursuant to a Qualifying Offer, but shall not include (a) the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any of
its Subsidiaries, or any Person holding Common Shares for or pursuant to the
terms of any such employee benefit plan or (b) any such Person who has become
and is such a Beneficial Owner solely because (i) of a change in the aggregate
number of Common Shares outstanding since the last date on which such Person
acquired Beneficial Ownership of any Common Shares, (ii) it acquired such
Beneficial Ownership in the good faith belief that such acquisition would not
(x) cause such Beneficial Ownership to exceed 15% of the Common Shares then
outstanding and such Person relied in good faith in computing the percentage of
its Beneficial Ownership on publicly filed reports or documents of the Company
which are inaccurate or out-of-date or (y) otherwise cause a Distribution Date
or the adjustment provided for in Section 11(a) to occur or (iii) of shares
acquired directly from the Company in connection with the Company's acquisition
of a business or pursuant to an agreement with the Company stating
<PAGE>
such Person is not intended to become an Acquiring Person as a result of such
acquisition. Notwithstanding clause (b)(ii) of the prior sentence, if any Person
that is not an Acquiring Person due to such clause (b)(ii) does not reduce its
percentage of Beneficial Ownership of Common Shares to 15% or less by the Close
of Business on the fifth Business Day after notice from the Company (the date of
notice being the first day) that such Person's Beneficial Ownership of Common
Shares so exceeds 15%, such Person shall, at the end of such five Business Day
period, become an Acquiring Person (and such clause (b)(ii) shall no longer
apply to such Person). For purposes of this definition, the determination
whether any Person acted in "good faith" shall be conclusively determined by the
Board of Directors of the Company, acting by a vote of those directors of the
Company whose approval would be required to redeem the Rights under Section 24.
"Affiliate" and "Associate," when used with reference to any Person,
shall have the respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
of this Rights Agreement.
A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," and shall be deemed to have "Beneficial Ownership"
of, any securities:
(i) which such Person or any of such Person's Affiliates or Associates
is deemed to "beneficially own" within the meaning of Rule 13d-3 of the
General Rules and Regulations under the Exchange Act, as in effect on the
date of this Rights Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (written or oral), or upon the exercise of
conversion rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, or to have
Beneficial Ownership of, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange thereunder, or (b) the right to vote pursuant to any
agreement, arrangement or understanding (written or oral); provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security if (1) the agreement, arrangement or
understanding (written or oral) to vote such security arises solely from a
revocable proxy or consent given to such Person in response to a public
proxy or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations under the Exchange Act and (2) the
beneficial ownership of such security is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (written or
oral) for the purpose of acquiring,
2
<PAGE>
holding, voting (except pursuant to a revocable proxy as described in
clause (ii)(B) of this definition) or disposing of any securities of the
Company.
Notwithstanding the foregoing, nothing contained in this definition shall cause
a Person ordinarily engaged in business as an underwriter of securities to be
the "Beneficial Owner" of, or to "beneficially own," any securities acquired in
a bona fide firm commitment underwriting pursuant to an underwriting agreement
with the Company.
"Book Value," when used with reference to Common Shares issued by any
Person, shall mean the amount of equity of such Person applicable to each
Common Share, determined (a) in accordance with generally accepted
accounting principles in effect on the date as of which such Book Value is
to be determined, (b) using all the consolidated assets and all the
consolidated liabilities of such Person on the date as of which such Book
Value is to be determined, except that no value shall be included in such
assets for goodwill arising from consummation of a business combination,
and (c) after giving effect to (i) the exercise of all rights, options and
warrants to purchase such Common Shares (other than the Rights), and the
conversion of all securities convertible into such Common Shares, at an
exercise or conversion price, per Common Share, which is less than such
Book Value before giving effect to such exercise or conversion (whether or
not exercisability or convertibility is conditioned upon occurrence of a
future event), (ii) all dividends and other distributions on the capital
stock of such Person declared prior to the date as of which such Book Value
is to be determined and to be paid or made after such date, and (iii) any
other agreement, arrangement or understanding (written or oral), or
transaction or other action prior to the date as of which such Book Value
is to be determined which would have the effect of thereafter reducing such
Book Value.
"Business Combination" shall have the meaning set forth in Section
11(c)(1).
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in
___________________________, ____________________________ or in Kansas
City, Missouri, are authorized or obligated by law or executive order to
close.
"Certificate of Designations" shall mean the Certificate of
Designations of Series A Participating Cumulative Preferred Stock setting
forth the powers, preferences, rights, qualifications, limitations and
restrictions of such series of Preferred Stock of the Company, a copy of
which is attached as Exhibit A.
"Close of Business" on any given date shall mean 5:00 p.m.,
__________________________ time, on such date; provided, however, that, if
such date is not a Business Day, "Close of Business" shall mean 5:00 p.m.,
____________________________ time, on the next succeeding Business Day.
3
<PAGE>
"Common Shares," when used with reference to the company prior to a
Business Combination, shall mean the shares of Common Stock of the Company
or any other shares of capital stock of the Company into which the Common
Stock shall be reclassified or changed. "Common Shares," when used with
reference to any Person (other than the Company prior to a Business
Combination), shall mean shares of capital stock of such Person (if such
Person is a corporation) of any class or series, or units of equity
interests in such Person (if such Person is not a corporation) of any class
or series, the terms of which do not limit (as a maximum amount and not
merely in proportional terms) the amount of dividends or income payable or
distributable on such class or series or the amount of assets distributable
on such class or series upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person and do not provide that such class
or series is subject to redemption at the option of such Person, or any
shares of capital stock or units of equity interests into which the
foregoing shall be reclassified or changed; provided, however, that, if at
any time there shall be more than one such class or series of capital stock
or equity interests of such Person, "Common Shares" of such Person shall
include all such classes and series substantially in the proportion of the
total number of shares or other units of each such class or series
outstanding at such time.
"Common Stock" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement.
"Company" shall have the meaning set forth in the heading of this
Rights Agreement; provided, however, that if there is a Business
Combination, "Company" shall have the meaning set forth in Section
11(c)(III).
The term "Control" with respect to any Person shall mean the power to
direct the management and policies of such Person, directly or indirectly,
by or through stock ownership, agency or otherwise, or pursuant to or in
connection with an agreement, arrangement or understanding (written or
oral) with one or more other Persons by or through stock ownership, agency
or otherwise; and the terms "controlling" and "controlled" shall have
meanings correlative to the foregoing.
"Distribution Date" shall have the meaning set forth in Section 3(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in
effect on the date in question, unless otherwise specifically provided.
"Exchange Consideration" shall have the meaning set forth in Section
11(b)(I).
"Expiration Date" shall have the meaning set forth in Section 7(a).
"Major Part," when used with reference to the assets of the Company
and its Subsidiaries as of any date, shall mean assets (I) having a fair
market value aggregating 50% or more of the total fair market value of all
the assets of the Company and its
4
<PAGE>
Subsidiaries (taken as a whole) as of the date in question, (ii) accounting
for 50% or more of the total value (net of depreciation and amortization)
of all the assets of the Company and its Subsidiaries (taken as a whole) as
would be shown on a consolidated or combined balance sheet of the Company
and its Subsidiaries as of the date in question, prepared in accordance
with generally accepted accounting principles then in effect, or (iii)
accounting for 50% or more of the total amount of earnings before interest,
taxes, depreciation and amortization or of the revenues of the Company and
its Subsidiaries (taken as a whole) as would be shown on, or derived from,
a consolidated or combined statement of income or operations of the Company
and its Subsidiaries for the period of 12 months ending on the last day of
the Company's monthly accounting period next preceding the date in
question, prepared in accordance with generally accepted accounting
principles then in effect.
"Market Value," when used with reference to Common Shares on any date,
shall be deemed to be the average of the daily closing prices, per share,
of such Common Shares for the period which is the shorter of (1) 30
consecutive Trading Days immediately prior to the date in question or (2)
the number of consecutive Trading Days beginning on the Trading Day
immediately after the date of the first public announcement of the event
requiring a determination of the Market Value and ending on the Trading Day
immediately prior to the record date of such event; provided, however,
that, in the event that the Market Value of such Common Shares is to be
determined in whole or in part during a period following the announcement
by the issuer of such Common Shares of any action of the type described in
Section 12(a) that would require an adjustment thereunder, then, and in
each such case, the Market Value of such Common Shares shall be
appropriately adjusted to reflect the effect of such action on the market
price of such Common Shares. The closing price for each Trading Day shall
be the closing price quoted on the principal United States securities
exchange registered under the Exchange Act (or any recognized foreign stock
exchange) on which such securities are listed, or, if such securities are
not listed on any such exchange, the closing price quoted on The NASDAQ
Stock Market or, if such securities are not so quoted, the average of the
closing bid and asked quotations with respect to a share of such securities
on any National Association of Securities Dealers, Inc. quotations system,
or if no such quotations are available, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in
such securities selected by the Board of Directors of the Company. If on
any such Trading Day no market maker is making a market in such securities,
the closing price of such securities on such Trading Day shall be deemed to
be the fair value of such securities as determined in good faith by the
Board of Directors of the Company (whose determination shall be described
in a statement filed with the Rights Agent and shall be binding on the
Rights Agent, the holders of Rights and all other Persons); provided,
however, that for the purpose of determining the closing price of the
Preferred Shares for any Trading Day on which there is no such market maker
for the Preferred Shares the closing price on such Trading Day shall be
deemed to be the Formula Number (as defined in the Certificate of
Designations) times the closing price of the Common Shares of the Company
on such Trading Day.
5
<PAGE>
"Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"Preferred Shares" shall have the meaning set forth in the
introductory paragraph of this Rights Agreement. Any reference in this
Rights Agreement to Preferred Shares shall be deemed to include any
authorized fraction of a Preferred Share, unless the context otherwise
requires.
"Principal Party" shall mean the Surviving Person in a Business
Combination; provided, however, that, if such Surviving Person is a direct
or indirect Subsidiary of any other Person, "Principal Party" shall mean
the Person which is the ultimate parent of such Surviving Person and which
is not itself a Subsidiary of another Person. In the event ultimate control
of such Surviving Person is shared by two or more Persons, "Principal
Party" shall mean that Person that is immediately controlled by such two or
more Persons.
"Purchase Price" with respect to each Right shall mean $_____________,
as such amount may from time to time be adjusted as provided herein, and
shall be payable in lawful money of the United States of America. All
references herein to the Purchase Price shall mean the Purchase Price as in
effect at the time in question.
"Qualifying Offer" shall mean an all cash tender offer for all
outstanding Common Shares which meets all of the following requirements:
(1) on or prior to the date such offer is commenced within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under
the Exchange Act, such Person has, and has provided to the Company on
a non-confidential basis, firm written commitments from responsible
financial institutions, which have been accepted by such Person (or
one of its Affiliates), to provide, subject only to customary terms
and conditions, funds for such offer which, when added to the amount
of cash and cash equivalents which such Person then has available and
has irrevocably committed in writing to the Company to utilize for
purposes of such offer, will be sufficient to pay for all Common
Shares outstanding on a fully diluted basis pursuant to the offer and
the second-step transaction required by clause (5) below and all
related expenses, together with copies of all written materials
prepared by such Person for such financial institutions in connection
with obtaining such financing commitments;
(2) after the consummation of such offer, such Person, alone or
together with any of its Affiliates and Associates, owns Common Shares
representing a majority of the then outstanding Common Shares;
(3) such offer remains open for at least 45 Business Days;
provided, however, that (x) if there is any increase in the price of
such offer, such offer must remain open for at least an additional 20
Business Days after the last such increase,
6
<PAGE>
(y) such offer must remain open for at least 20 Business Days after
the date that any bona fide alternative offer is made which, in the
opinion of one or more investment banking firms designated by the
Company, provides for consideration per share in excess of that
provided for in such offer, and (z) such offer must remain open for at
least 20 Business Days after the date on which such Person reduces the
per share price offered in accordance with clause (5)(y) below;
provided further, however, that such offer need not remain open, as a
result of this clause (3), beyond (i) the time which any other offer
satisfying the criteria for a Qualifying Offer is then required to be
kept open under this clause (3), or (ii) the scheduled expiration
date, as such date may be extended by public announcement on or prior
to the then scheduled expiration date, of any other tender or exchange
offer for Common Shares with respect to which the Board of Directors
has agreed to redeem the Rights immediately prior to acceptance for
payment of Common Shares thereunder (unless such other offer is
terminated prior to its expiration without any Common Shares having
been purchased thereunder);
(4) such offer is accompanied on a nonconfidential basis by a written
opinion, in customary form, of a nationally recognized investment banking
firm which is addressed to the holders of Common Shares other than such
Person and states that the price to be paid to holders pursuant to the
offer is fair from a financial point of view to such holders and includes a
written presentation of such firm showing the analysis and range of values
underlying such conclusions; and
(5) prior to or on the date that such offer is commenced within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under the
Exchange Act, such Person makes an irrevocable written commitment to the
Company (x) to consummate a transaction or transactions promptly upon the
completion of such offer, whereby all Common Shares not purchased in such
offer will be acquired at the same cash price per share paid in such offer,
subject only to the condition that the Board of Directors shall have
granted any approvals required to enable such Person to consummate such
transaction or transactions following consummation of such offer without
obtaining the vote of any other stockholder, (y) that such Person will not
make any amendment to the original offer which reduces the per share price
offered (other than a reduction to reflect any dividend declared by the
Company after the commencement of such offer or any material change in the
capital structure of the Company initiated by the Company after the
commencement of such offer, whether by way of recapitalization,
reorganization, repurchase or otherwise), changes the form of consideration
offered, or reduces the number of shares being sought or which is in any
other respect materially adverse to the Company's stockholders, and (z)
that neither such Person nor of any its Affiliates or Associates will make
any offer for any equity securities of the Company for a period of six
months after the commencement of the original offer if such original offer
does not result in the tender of the number of Common Shares required to be
purchased pursuant to clause (2) above, unless another tender offer by
another
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party for all outstanding Common Shares is commenced that (a)
constitutes a Qualifying Offer or (b) is approved by the Board of
Directors of the Company (in which event, any new offer by such Person
or of any of its Affiliates or Associates must be at a price no less
than that provided for in such approved offer).
"Record Date" shall have the meaning set forth in the introductory
paragraph of this Rights Agreement.
"Redemption Date" shall have the meaning set forth in Section 24(a).
"Redemption Price" with respect to each Right shall mean $.01, as such
amount may from time to time be adjusted in accordance with Section 12. All
references herein to the Redemption Price shall mean the Redemption Price
as in effect at the time in question.
"Registered Common Shares" shall mean Common Shares which are, as of
the date of consummation of a Business Combination, and have continuously
been for the 12 months immediately preceding such date, registered under
Section 12 of the Exchange Act.
"Right Certificate" shall mean a certificate evidencing a Right in
substantially the form attached as Exhibit B.
"Rights" shall mean the rights to purchase Preferred Shares (or other
securities) as provided in this Rights Agreement.
"Securities Act" shall mean the Securities Act of 1933, as in effect
on the date in question, unless otherwise specifically provided.
"Subsidiary" shall mean a Person, at least a majority of the total
outstanding voting power (being the power under ordinary circumstances and
not merely upon the happening of a contingency to vote in the election of
directors of such Person if such Person is a corporation, or to participate
in the management and control of such Person if such Person is not a
corporation) of which is owned, directly or indirectly, by another Person
or by one or more other Subsidiaries of such other Person or by such other
Person and one or more other Subsidiaries of such other Person.
"Surviving Person" shall mean (1) the Person which is the continuing
or surviving Person in a consolidation or merger specified in Section
11(c)(I)(i) or 11(c)(I)(ii) or (2) the Person to which the Major Part of
the assets of the Company and its Subsidiaries is sold, leased, exchanged
or otherwise transferred or disposed of in a transaction specified in
Section 11(c)(I)(iii); provided, however, that, if the Major Part of the
assets of the Company and its Subsidiaries is sold, leased, exchanged or
otherwise transferred or disposed of in one or more related transactions
specified in Section 11(c)(I)(iii) to more than one Person, the "Surviving
Person" in such case shall mean the Person that acquired
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assets of the Company and/or its Subsidiaries with the greatest fair market
value in such transaction or transactions.
"Trading Day" shall mean a day on which the principal national
securities exchange (or principal recognized foreign stock exchange, as the
case may be) on which any securities or Rights, as the case may be, are
listed or admitted to trading is open for the transaction of business or,
if the securities or Rights in question are not listed or admitted to
trading on any national securities exchange (or recognized foreign stock
exchange, as the case may be), a Business Day.
SECTION 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint one or more co-Rights Agents as it may
deem necessary or desirable (the term "Rights Agent" being used herein to refer,
collectively, to the Rights Agent together with any such co-Rights Agents). In
the event the Company appoints one or more co-Rights Agents, the respective
duties of the Rights Agent and any co-Rights Agents shall be as the Company
shall determine.
SECTION 3. Issue of Rights and Right Certificates.
(a) One Right shall be associated with each Common Share outstanding
on the Record Date, each additional Common Share that shall become outstanding
between the Record Date and the earliest of the Distribution Date, the
Redemption Date or the Expiration Date and each additional Common Share with
which Rights are issued after the Distribution Date but prior to the earlier of
the Redemption Date or the Expiration Date as provided in Section 23; provided,
however, that, if the number of outstanding Rights are combined into a smaller
number of outstanding Rights pursuant to Section 12(a), the appropriate
fractional Right determined pursuant to such Section shall thereafter be
associated with each such Common Share.
(b) Until the earlier of (i) such time as the Company learns that a
Person has become an Acquiring Person or (ii) the Close of Business on such
date, if any, as may be designated by the Board of Directors of the Company
following the commencement of, or first public disclosure of an intent to
commence, a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any of
its Subsidiaries, or any Person holding Common Shares for or pursuant to the
terms of any such employee benefit plan and other than a Qualifying Offer) for
outstanding Common Shares, if upon consummation of such tender or exchange offer
such Person could be the Beneficial Owner of more than 15% of the outstanding
Common Shares (the Close of Business on the earlier of such dates being the
"Distribution Date"), (x) the Rights will be evidenced by the certificates for
Common Shares registered in the names of the holders thereof and not by separate
Right Certificates and (y) the Rights, including the right to receive Right
Certificates, will be transferable only in connection with the transfer of
Common Shares. As soon as practicable after the Distribution Date, the Rights
Agent will send, by first-class, postage-prepaid mail, to each
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record holder of Common Shares as of the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate evidencing
one whole Right for each Common Share (or for the number of Common Shares with
which one whole Right is then associated if the number of Rights per Common
Share held by such record holder has been adjusted in accordance with the
proviso in Section 3(a)). If the number of Rights associated with each Common
Share has been adjusted in accordance with the proviso in Section 3(a), at the
time of distribution of the Right Certificates the Company may make any
necessary and appropriate rounding adjustments so that Right Certificates
representing only whole numbers of Rights are distributed and cash is paid in
lieu of any fractional Right in accordance with Section 15(a). As of and after
the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(c) With respect to any certificate for Common Shares, until the
earliest of the Distribution Date, the Redemption Date or the Expiration Date,
the Rights associated with the Common Shares represented by any such certificate
shall be evidenced by such certificate alone, the registered holders of the
Common Shares shall also be the registered holders of the associated Rights and
the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
(d) Certificates issued for Common Shares after the Record Date
(including, without limitation, upon transfer or exchange of outstanding Common
Shares), but prior to the earliest of the Distribution Date, the Redemption Date
or the Expiration Date, shall have printed on, written on or otherwise affixed
to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement dated as of
_____________________________, 1996, as it may be amended from time to time
(the "Rights Agreement"), between Associated Wholesale Grocers Group, Inc.
(the "Company") and ____________________________, as Rights Agent (the
"Rights Agent"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices
of the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. The Rights Agent will mail to
the holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Rights beneficially
owned by Acquiring Persons or their Affiliates or Associates (as such terms
are defined in the Rights Agreement) and by any subsequent holder of such
Rights are null and void and nontransferable.
Notwithstanding this paragraph (d), the omission of a legend shall not
affect the enforceability of any part of this Rights Agreement or the rights of
any holder of Rights.
SECTION 4. Form of Right Certificates. The Right Certificates (and
the form of election to purchase and form of assignment to be printed on the
reverse side thereof) shall be in substantially the form set forth as Exhibit B
and may have such marks of identification or designation and such legends,
summaries or endorsements printed thereon as the Company may
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deem appropriate and as are not inconsistent with the provisions of this Rights
Agreement, or as may be required to comply with any applicable law or with any
rule or regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of sections 7, 11 and 23, the Right
Certificates, whenever issued, shall be dated as of the Distribution Date, and
on their face shall entitle the holders thereof to purchase such number of
Preferred Shares as shall be set forth therein for the Purchase Price set forth
therein, subject to adjustment from time to time as herein provided.
SECTION 5. Execution, Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the Company
by the Chairman of the Board, the Chief Executive Officer, the President, the
Chief Operating Officer, the Treasurer or a Vice President (whether preceded by
any additional title) of the Company, either manually or by facsimile signature,
and have affixed thereto the Company's seal or a facsimile thereof which shall
be attested by the Secretary, an Assistant Secretary or a Vice President
(whether preceded by any additional title, provided that such Vice President
shall not have also executed the Right Certificates) of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid or obligatory for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Right Certificates shall cease to be such an officer of
the Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Right Certificates may nevertheless be
countersigned by the Rights Agent and issued and delivered by the Company with
the same force and effect as though the person who signed such Right
Certificates had not ceased to be such an officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of execution of such Right Certificate, shall be a proper officer of
the Company to sign such Right Certificate, although at the date of execution of
this Rights Agreement any such person was not such an officer of the Company.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office in New York, New York, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced by each of the Right Certificates,
the certificate number of each of the Right Certificates and the date of each of
the Right Certificates.
SECTION 6. Transfer, Split-Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates;
Uncertificated Rights.
(a) Subject to the provisions of Sections 7(e) and 15, at any time
after the Distribution Date, and at or prior to the Close of Business on the
earlier of the Redemption Date or the Expiration Date, any Right Certificate or
Right Certificates may be transferred, split-up, combined or exchanged for
another Right Certificate or Right Certificates representing, in the
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<PAGE>
aggregate, the same number of Rights as the Right Certificate or Right
Certificates surrendered then represented. Any registered holder desiring to
transfer, split-up, combine or exchange any Right Certificate shall make such
request in writing delivered to the Rights Agent and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the Rights Agent; provided, however, that
neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any Right Certificate surrendered for
transfer until the registered holder shall have completed and signed the
certification contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Sections 7(e) and 15, countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split-up, combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a valid Right Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make a new
Right Certificate of like tenor and deliver such new Right Certificate to the
Rights Agent for delivery to the registered owner in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
(c) Notwithstanding any other provision hereof, the Company and the
Rights Agent may amend this Rights Agreement to provide for uncertificated
Rights in addition to or in place of Rights evidenced by Right Certificates.
SECTION 7. Exercise of Rights; Expiration Date of Rights.
(a) Subject to Section 7(e) and except as otherwise provided herein
(including Section 11), each Right shall entitle the registered holder thereof,
upon exercise thereof as provided herein, to purchase for the Purchase Price, at
any time after the Distribution Date and at or prior to the earlier of (i) the
Close of Business on the 10th anniversary of the date of this Rights Agreement
(the Close of Business on such date being the "Expiration Date"), or (ii) the
Redemption Date, one one-thousandths (1/1000ths) of a Preferred Share, subject
to adjustment from time to time as provided in Sections 11 and 12.
(b) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent
in New York, New York, together with payment of the Purchase Price for each one
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<PAGE>
one-thousandths (1/1000ths) of a Preferred Share as to which the Rights are
exercised, at or prior to the earlier of (i) the Expiration Date or (ii) the
Redemption Date.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the Preferred Shares to be purchased together
with an amount equal to any applicable transfer tax, in lawful money of the
United States of America, in cash or by certified check or money order payable
to the order of the Company, the Rights Agent shall thereupon (i) either (A)
promptly requisition from any transfer agent of the Preferred Shares (or make
available, if the Rights Agent is the transfer agent) certificates for the
number of Preferred Shares to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests or (B) if the
Company shall have elected to deposit the Preferred Shares with a depositary
agent under a depositary arrangement, promptly requisition from the depositary
agent depositary receipts representing the number of one one-thousandths
(1/1,000ths) of a Preferred Share to be purchased (in which case certificates
for the Preferred Shares to be represented by such receipts shall be deposited
by the transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with all such requests, (ii) when appropriate,
promptly requisition from the Company the amount of cash to be paid in lieu of
issuance of fractional shares in accordance with Section 15, (iii) promptly
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt promptly deliver such cash to or
upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise fewer than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 15.
(e) Notwithstanding anything in this Rights Agreement to the
contrary, any Rights that are at any time beneficially owned by an Acquiring
Person or any Affiliate or Associate of an Acquiring Person shall be null and
void and nontransferable, and any holder of any such Right (including any
purported transferee or subsequent holder) shall not have any right to exercise
or transfer any such Right.
(f) Notwithstanding anything in this Rights Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder of any Right
Certificates upon the occurrence of any purported exercise as set forth in this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of election to purchase set forth on the
reverse side of the Right Certificate surrendered for such exercise and (ii)
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
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(g) The Company may temporarily suspend, for a period of time not to
exceed 90 calendar days after the Distribution Date, the exercisability of the
Rights in order to prepare and file a registration statement under the
Securities Act, on appropriate form, with respect to the Preferred Shares
purchasable upon exercise of the Rights and permit such registration statement
to become effective; provided, however, that no such suspension shall remain
effective after, and the Rights shall without any further action by the Company
or any other Person become exercisable immediately upon, the effectiveness of
such registration statement. Upon any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended and shall issue a further public announcement at such time
as the suspension is no longer in effect. Notwithstanding any provision herein
to the contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification under the blue sky or securities laws of such
jurisdiction shall not have been obtained or the exercise of the Rights shall
not be permitted under applicable law.
SECTION 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered or presented for the purpose of exercise,
transfer, split-up, combination or exchange shall, and any Right Certificate
representing Rights that have become null and void and nontransferable pursuant
to Section 7(e) surrendered or presented for any purpose shall, if surrendered
or presented to the Company or to any of its agents, be delivered to the Rights
Agent for cancellation or in canceled form, or, if surrendered or presented to
the Rights Agent, shall be canceled by it, and no Right Certificates shall be
issued in lieu thereof except as expressly permitted by this Rights Agreement.
The Company shall deliver to the Rights Agent for cancellation and retirement,
and the Rights Agent shall so cancel and retire, any Right Certificate purchased
or acquired by the Company. The Rights Agent shall deliver all canceled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
SECTION 9. Reservation and Availability of Preferred Shares.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued Preferred Shares
or any authorized and issued Preferred Shares held in its treasury, free from
preemptive rights or any right of first refusal, a number of Preferred Shares
sufficient to permit the exercise in full of all outstanding Rights.
(b) In the event that there shall not be sufficient Preferred Shares
issued but not outstanding or authorized but unissued to permit the exercise or
exchange of Rights in accordance with Section 11, the Company covenants and
agrees that it will take all such action as may be necessary to authorize
additional Preferred Shares for issuance upon the exercise or exchange of Rights
pursuant to Section 11; provided, however, that if the Company is unable to
cause the authorization of additional Preferred Shares, then the Company shall,
or in lieu of seeking any such authorization, the Company may, to the extent
necessary and permitted by applicable law and any agreements or instruments in
effect prior to the Distribution Date to which it is a party, (A)
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upon surrender of a Right, pay cash equal to the Purchase Price in lieu of
issuing Preferred Shares and requiring payment thereof or, (B) upon due exercise
of a Right and payment of the Purchase Price for each Preferred Share as to
which such Right is exercised, issue equity securities having a value equal to
the value of the Preferred Shares which otherwise would have been issuable
pursuant to Section 11, which value shall be determined by a nationally
recognized investment banking firm selected by the Board of Directors of the
Company or (c) upon due exercise of a Right and payment of the Purchase Price
for each Preferred Share as to which such Right is exercised, distribute a
combination of Preferred Shares, cash and/or other equity and/or debt securities
having an aggregate value equal to the value of the Preferred Shares which
otherwise would have been issuable pursuant to section 11, which value shall be
determined by a nationally recognized investment banking firm selected by the
Board of Directors of the Company. To the extent that any legal or contractual
restrictions (pursuant to agreements or instruments in effect prior to the
Distribution Date to which it is party) prevent the Company from paying the full
amount payable in accordance with the foregoing sentence, the Company shall pay
to holders of the Rights as to which such payments are being made all amounts
which are not then restricted on a pro rata basis as such payments become
permissible under such legal or contractual restrictions until such payments
have been paid in full.
(c) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares delivered upon
exercise or exchange of Rights shall, at the time of delivery of the
certificates for such Preferred Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(d) So long as the Preferred Shares issuable upon the exercise or
exchange of Rights are to be listed on any national securities exchange, the
Company covenants and agrees to use its best efforts to cause, from and after
such time as the Rights become exercisable or exchangeable, all Preferred Shares
reserved for such issuance to be listed on such securities exchange upon
official notice of issuance upon such exercise or exchange.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all Federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of Right Certificates or
of any Preferred Shares or Common Shares or other securities upon the exercise
or exchange of the Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a Person other than, or in respect of the issuance or
delivery of certificates for the Preferred Shares or Common Shares or other
securities, as the case may be, in a name other than that of, the registered
holder of the Right Certificate evidencing Rights surrendered for exercise or
exchange or to issue or deliver any certificates for Preferred Shares or Common
Shares or other securities, as the case may be, upon the exercise or exchange of
any Rights until any such tax shall have been paid (any such tax being payable
by the holder of such Right Certificate at the time of surrender) or until it
has been established to the Company's satisfaction that no such tax is due.
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SECTION 10. Preferred Shares Record Date. Each Person in whose name
any certificate for Preferred Shares or Common Shares or other securities is
issued upon the exercise or exchange of Rights shall for all purposes be deemed
to have become the holder of record of the Preferred Shares or Common Shares or
other securities, as the case may be, represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of any Purchase Price (and any
applicable transfer taxes) was made; provided, however, that, if the date of
such surrender and payment is a date upon which the transfer books of the
Company for the Preferred Shares or Common Shares or other securities, as the
case may be, are closed, such Person shall be deemed to have become the record
holder of such Preferred Shares or Common Shares or other securities, as the
case may be, on, and such certificate shall be dated, the next succeeding
Business Day on which the transfer books of the Company for the Preferred Shares
or Common Shares or other securities, as the case may be, are open.
SECTION 11. Adjustments in Rights After There Is an Acquiring
Person; Exchange of Rights for Shares; Business Combinations.
(a) Upon a Person becoming an Acquiring Person, proper provision shall
be made so that each holder of a Right, except as provided in Section 7(e),
shall thereafter have a right to receive, upon exercise thereof for the Purchase
Price in accordance with the terms of this Rights Agreement, such number of one
one-thousandths (1/1,000ths) of a Preferred Share as shall equal the result
obtained by multiplying the Purchase Price by a fraction, the numerator of which
is the number of one one-thousandths (1/1,000ths) of a Preferred Share for which
a Right is then exercisable and the denominator of which is 50% of the Market
Value of the Common Shares on the date on which a Person becomes an Acquiring
Person. As soon as practicable after a Person becomes an Acquiring Person
(provided the Company shall not have elected to make the exchange permitted by
Section 11(b)(I) for all outstanding Rights), the Company covenants and agrees
to use its best efforts to:
(I) prepare and file a registration statement under the Securities
Act, on an appropriate form, with respect to the Preferred Shares
purchasable upon exercise of the Rights;
(II) cause such registration statement to become effective as soon as
practicable after such filing;
(III) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date; and
(IV) qualify or register the Preferred Shares purchasable upon
exercise of the Rights under the blue sky or securities laws of such
jurisdictions as may be necessary or appropriate.
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(b)(I) The Board of Directors of the Company may, at its option, at
any time after a Person becomes an Acquiring Person, mandatorily exchange all or
part of the then outstanding and exercisable Rights (which shall not include
Rights that shall have become null and void and nontransferable pursuant to the
provisions of Section 7(e)) for consideration per Right consisting of either
one-half of the securities that would be issuable at such time upon the exercise
of one Right in accordance with Section 11(a) or, if applicable, Section 9(b)(B)
or (C) or, if applicable the cash consideration specified in section 9(b)(A)
(the consideration issuable per Right pursuant to this Section 11(b)(I) being
the "Exchange Consideration"). The Board of Directors of the Company may, at its
option, issue, in substitution for Preferred Shares, Common Shares in an amount
per Preferred Share equal to the Formula Number (as defined in the Certificate
of Designations) if there are sufficient Common Shares issued but not
outstanding or authorized but unissued. If the Board of Directors of the Company
elects to exchange all the Rights for Exchange Consideration pursuant to this
Section 11(b)(I) prior to the physical distribution of the Rights Certificates,
the Corporation may distribute the Exchange Consideration in lieu of
distributing Right Certificates, in which case for purposes of this Rights
Agreement holders of Rights shall be deemed to have simultaneously received and
surrendered for exchange Right Certificates on the date of such distribution.
(II) Any action of the Board of Directors of the Company ordering the
exchange of any Rights pursuant to Section 11(b)(I) shall be irrevocable and,
immediately upon the taking of such action and without any further action and
without any notice, the right to exercise any such Right pursuant to Section
11(a) shall terminate and the only right thereafter of a holder of such Right
shall be to receive the Exchange Consideration in exchange for each such Right
held by such holder or, if the Exchange Consideration shall not have been paid
or issued, to exercise any such Right pursuant to Section 11(c)(I). The Company
shall promptly give public notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Rights for the Exchange Consideration will be effected and, in the event
of any partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of Rights (other
than Rights which shall have become null and void and nontransferable pursuant
to the provisions of Section 7(e)) held by each holder of Rights.
(c)(I) In the event that, following a Distribution Date, directly or
indirectly, any transactions specified in the following clause (i), (ii) or
(iii) of this Section 11(c) (each such transaction being a "Business
Combination") shall be consummated:
(i) the Company shall consolidate with, or merge with and into, any
Acquiring Person or any Affiliate or Associate of an Acquiring Person;
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(ii) any Acquiring Person or any Affiliate or Associate of an
Acquiring Person shall merge with and into the Company and, in connection
with such merger, all or part of the Common Shares shall be changed into or
exchanged for capital stock or other securities of the Company or of any
Acquiring Person or Affiliate or Associate of an Acquiring Person or cash
or any other property; or
(iii) the Company shall sell, lease, exchange or otherwise transfer or
dispose of (or one or more of its Subsidiaries shall sell, lease, exchange
or otherwise transfer or dispose of), in one or more transactions, the
Major Part of the assets of the Company and its Subsidiaries (taken as a
whole) to any Acquiring Person or any Affiliate or Associate of an
Acquiring Person,
then, in each such case, proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e), shall thereafter have the right to
receive, upon the exercise thereof for the Purchase Price in accordance with the
terms of this Rights Agreement, the securities specified below (or, at such
holder's option, the securities specified in Section 11(a)):
(A) If the Principal Party in such Business Combination has
Registered Common Shares outstanding, each Right shall thereafter represent
the right to receive, upon the exercise thereof for the Purchase Price in
accordance with the terms of this Rights Agreement, such number of
Registered Common Shares of such Principal Party, free and clear of all
liens, encumbrances or other adverse claims, as shall have an aggregate
Market Value equal to the result obtained by multiplying the Purchase Price
by two;
(B) If the Principal Party involved in such Business Combination
does not have Registered Common Shares outstanding, each Right shall
thereafter represent the right to receive, upon the exercise thereof for
the Purchase Price in accordance with the terms of this Rights Agreement,
at the election of the holder of such Right at the time of the exercise
thereof, any of:
(1) such number of Common Shares of the surviving Person in
such Business Combination as shall have an aggregate Book Value
immediately after giving effect to such Business Combination equal to
the result obtained by multiplying the Purchase Price by two;
(2) such number of Common Shares of the Principal Party in such
Business Combination (if the Principal Party is not also the Surviving
Person in such Business Combination) as shall have an aggregate Book
Value immediately after giving effect to such Business Combination
equal to the result obtained by multiplying the Purchase Price by two;
or
(3) if the Principal Party in such Business combination is an
Affiliate of one or more Persons which has Registered Common Shares
outstanding, such number of Registered Common Shares of whichever of
such Affiliates of the
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Principal Party has Registered Common Shares with the greatest
aggregate Market Value on the date of consummation of such Business
Combination as shall have an aggregate Market Value on the date of
such Business Combination equal to the result obtained by multiplying
the Purchase Price by two.
(II) The Company shall not consummate any Business Combination unless
each issuer of Common Shares for which Rights may be exercised, as set forth in
this Section 11(c), shall have sufficient authorized Common Shares that have not
been issued or reserved for issuance (and which shall, when issued upon exercise
thereof in accordance with this Rights Agreement, be validly issued, fully paid
and nonassessable and free of preemptive rights, rights of first refusal or any
other restrictions or limitations on the transfer or ownership thereof) to
permit the exercise in full of the Rights in accordance with this Section 11(c)
and unless prior thereto:
(i) a registration statement under the Securities Act on an
appropriate form, with respect to the Rights and the Common Shares of such
issuer purchasable upon exercise of the Rights, shall be effective under
the Securities Act; and
(ii) the Company and each such issuer shall have:
(A) executed and delivered to the Rights Agent a supplemental
agreement providing for the assumption by such issuer of the
obligations set forth in this Section 11(c) (including the obligation
of such issuer to issue Common Shares upon the exercise of Rights in
accordance with the terms set forth in Sections 11(c)(I) and
11(c)(III)) and further providing that such issuer, at its own
expense, will use its best efforts to:
(1) cause a registration statement under the Securities
Act on an appropriate form, with respect to the Rights and the
Common Shares of such issuer purchasable upon exercise of the
Rights, to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the
Expiration Date;
(2) qualify or register the Rights and the Common Shares
of such issuer purchasable upon exercise of the Rights under the
blue sky or securities laws of such jurisdictions as may be
necessary or appropriate; and
(3) list the Rights and the Common Shares of such issuer
purchasable upon exercise of the Rights on each national
securities exchange on which the Common Shares were listed prior
to the consummation of the Business Combination or, if the
Common Shares were not listed on a national securities exchange
prior to the consummation of the Business Combination, on a
national securities exchange;
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(B) furnished to the Rights Agent a written opinion of
independent counsel stating that such supplemental agreement is a
valid, binding and enforceable agreement of such issuer; and
(C) filed with the Rights Agent a certificate of a nationally
recognized firm of independent accountants setting forth the number of
Common Shares of such issuer which may be purchased upon the exercise
of each Right after the consummation of such Business Combination.
(III) After consummation of any Business Combination and subject to
the provisions of Section 11(c)(II), (i) each issuer of Common Shares for which
Rights may be exercised as set forth in this Section 11(c) shall be liable for,
and shall assume, by virtue of such Business Combination, all the obligations
and duties of the Company pursuant to this Rights Agreement, (ii) the term
"Company" shall thereafter be deemed to refer to such issuer, (iii) each such
issuer shall take such steps in connection with such consummation as may be
necessary to assure that the provisions hereof (including the provisions of
Sections 11(a) and 11(c)) shall thereafter be applicable, as nearly as
reasonably may be, in relation to its Common Shares thereafter deliverable upon
the exercise of the Rights, and (iv) the number of Common Shares of each such
issuer thereafter receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions of Sections 11 and 12 and the provisions of
Sections 7, 9 and 10 with respect to the Preferred Shares shall apply, as nearly
as reasonably may be, on like terms to any such Common Shares.
SECTION 12. Certain Adjustments.
(a) to preserve the actual or potential economic value of the Rights,
if at any time after the date of this Rights Agreement there shall be any change
in the Common Shares or the Preferred Shares, whether by reason of stock
dividends, stock splits, recapitalizations, mergers, consolidations,
combinations or exchanges of securities, split-ups, split offs, spin-offs,
liquidations, other similar changes in capitalization, any distribution or
issuance of cash, assets, evidences of indebtedness or subscription rights,
options or warrants to holders of Common Shares or Preferred Shares, as the case
may be (other than distribution of the Rights or regular quarterly cash
dividends) or otherwise, then, in each such event the Board of Directors of the
Company shall make such appropriate adjustments in the number of Preferred
Shares (or the number and kind of other securities) issuable upon exercise of
each Right, the Purchase Price and Redemption Price in effect at such time and
the number of Rights outstanding at such time (including the number of Rights or
fractional Rights associated with each Common Share) such that following such
adjustment such event shall not have had the effect of reducing or limiting the
benefits the holders of the Rights would have had absent such event.
(b) If, as a result of an adjustment made pursuant to Section 12(a),
the holder of any Right thereafter exercised shall become entitled to receive
any securities other than Preferred Shares, thereafter the number of such
securities so receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
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practicable to the provisions of Sections 11 and 12 and the provisions of
Sections 7, 9 and 10 with respect to the Preferred Shares shall apply, as nearly
as reasonably may be, on like terms to any such other securities.
(c) All Rights originally issued by the Company subsequent to any
adjustment made to the amount of Preferred Shares or other securities relating
to a Right shall evidence the right to purchase, for the Purchase Price, the
adjusted number and kind of securities purchasable from time to time hereunder
upon exercise of the Rights, all subject to further adjustment as provided
herein.
(d) Irrespective of any adjustment or change in the Purchase Price or
the number of Preferred Shares or number or kind of other securities issuable
upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the terms which were expressed in the
initial Right Certificates issued hereunder.
(e) In any case in which action taken pursuant to Section 12(a)
requires that an adjustment be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date
the Preferred Shares and/or other securities, if any, issuable upon such
exercise over and above the Preferred Shares and/or other securities, if any,
issuable before giving effect to such adjustment; provided, however, that the
Company shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional securities upon the
occurrence of the event requiring such adjustment.
SECTION 13. Certificate of Adjustment. Whenever an adjustment is
made as provided in Section 11 or 12, the Company shall (a) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) promptly file with the Rights Agent and with
each transfer agent for the Preferred Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate (or, prior to
the Distribution Date, of the Common Shares) in accordance with Section 25. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
SECTION 14. Additional Covenants.
(a) Notwithstanding any other provision of this Rights Agreement, no
adjustment to the number of Preferred Shares (or fractions of a share) or other
securities for which a Right is exercisable or the number of Rights outstanding
or associated with each Common Share or any similar or other adjustment shall be
made or be effective if such adjustment would have the effect of reducing or
limiting the benefits the holders of the Rights would have had absent such
adjustment, including, without limitation, the benefits under Sections 11 and
12, unless the terms of this Rights Agreement are amended so as to preserve such
benefits.
(b) The Company covenants and agrees that, after the Distribution
Date, except as permitted by Section 26, it will not take (or permit any
Subsidiary of the Company to take) any
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action if at the time such action is taken it is intended or reasonably
foreseeable that such action will reduce or otherwise limit the benefits the
holders of the Rights would have had absent such action, including, without
limitation, the benefits under Sections 11 and 12. Any action taken by the
company during any period after any Person becomes an Acquiring Person but prior
to the Distribution Date shall be null and void unless such action could be
taken under this Section 14(b) from and after the Distribution Date. The Company
shall not consummate any Business Combination if any issuer of Common Shares for
which Rights may be exercised after such Business Combination in accordance with
Section 11(c) shall have taken any action that reduces or otherwise limits the
benefits the holders of the Rights would have had absent such action, including,
without limitation, the benefits under Sections 11 and 12.
SECTION 15. Fractional Rights and Fractional Shares.
(a) The Company may, but shall not be required to, issue fractions of
Rights or distribute Right Certificates which evidence fractional Rights. In
lieu of such fractional Rights, the Company may pay to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 15(a), the
current market value of a whole Right shall be the closing price of the Rights
(as determined pursuant to the second and third sentences of the definition of
Market Value contained in Section 1) for the Trading Day immediately prior to
the date on which such fractional Rights would have been otherwise issuable.
(b) The Company may, but shall not be required to, issue fractions of
Preferred Shares upon exercise of the Rights or distribute certificates which
evidence fractional Preferred Shares. In lieu of fractional Preferred Shares,
the Company may elect to (i) utilize a depository arrangement as provided by the
terms of the Preferred Shares or (ii) in the case of a fraction of a Preferred
Share (other than one one-thousandths (1/1,000ths) of a Preferred Share or any
integral multiple thereof), pay to the registered holders of Right Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one Preferred Share, if any
are outstanding and publicly traded (or the Formula Number times the current
market value of one Common Share if the Preferred Shares are not outstanding and
publicly traded). For purposes of this Section 15(b), the current market value
of a Preferred Share (or Common Share) shall be the closing price of a Preferred
Share (or Common Share) (as determined pursuant to the second and third
sentences of the definition of Market Value contained in Section 1) for the
Trading Day immediately prior to the date of such exercise. If, as a result of
an adjustment made pursuant to Section 12(a), the holder of any Right thereafter
exercised shall become entitled to receive any securities other than Preferred
Shares, the provisions of this Section 15(b) shall apply, as nearly as
reasonably may be, on like terms to such other securities.
(c) The Company may, but shall not be required to, issue fractions of
Common Shares upon exchange of Rights pursuant to Section 11(b), or to
distribute certificates which evidence fractional Common Shares. In lieu of such
fractional Common Shares, the Company may pay to the registered holders of the
Right Certificates with regard to which such fractional
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<PAGE>
Common Shares would otherwise be issuable an amount in cash equal to the same
fraction of the current Market Value of one Common Share as of the date on which
a Person became an Acquiring Person.
(d) The holder of Rights by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right except as provided in this Section 15.
SECTION 16. Rights of Action.
(a) All rights of action in respect of this Rights Agreement are
vested in the respective registered holders of the Right Certificates (and,
prior to the Distribution Date, the registered holders of the Common Shares);
and any registered holder of any Right Certificate (or, prior to the
Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares) may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Rights Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Rights Agreement and shall be entitled to specific
performance of the obligations of any Person under, and injunctive relief
against actual or threatened violations of the obligations of any Person subject
to, this Rights Agreement.
(b) Any holder of Rights who prevails in an action to enforce the
provisions of this Rights Agreement shall be entitled to recover the reasonable
costs and expenses, including attorneys' fees, incurred in such action.
SECTION 17. Transfer and Ownership of Rights and Right Certificates.
(a) Prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares and the Rights
associated with the Common Shares shall be automatically transferred upon the
transfer of the Common Shares.
(b) After the Distribution Date, the Right Certificates will be
transferable, subject to Section 7(e), only on the registry books of the Rights
Agent if surrendered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer.
(c) The Company and the Rights Agent may deem and treat the Person in
whose name a Right Certificate (or, prior to the Distribution Date the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated certificate for
Common Shares made by anyone other than the Company or the Rights Agent) for
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<PAGE>
all purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
SECTION 18. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote or receive
dividends or be deemed, for any purpose, the holder of the Preferred Shares or
of any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company,
including, without limitation, any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders, or to receive dividends or other
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
SECTION 19. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and from time to time, on
demand of the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this Rights
Agreement and the exercise and performance of its duties hereunder.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Rights Agreement in reliance upon any Right
Certificate or certificate for the Common Shares or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
SECTION 20. Merger or Consolidation or Change of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Rights Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto; provided that such corporation would
be eligible for appointment as a successor Rights Agent under the provisions of
Section 22. In case, at the time such successor Rights Agent shall succeed to
the agency created by this Rights Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and, in case at that time any of the Right
Certificates shall not have been
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countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this Rights
Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and, in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Rights Agreement.
SECTION 21. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Rights Agreement upon the following terms
and conditions, by all of which the Company and the holders of Right
Certificates (or, prior to the Distribution Date, of the Common Shares), by
their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken, suffered or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person) be
proved or established by the Company prior to taking, refraining from taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial officer, a Vice President (whether
preceded by any additional title), the Treasurer or the Secretary of the Company
and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Rights Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except as to its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
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(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Rights Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Rights Agreement or in any Right
Certificate; nor shall it be responsible for any adjustment required under the
provisions of Section 11 or 12 or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice of any such adjustment); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any Preferred Shares or Common Shares
to be issued pursuant to this Rights Agreement or any Right Certificate or as to
whether any Preferred Shares or Common Shares will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
the Chief Operating Officer, a Vice President (whether preceded by any
additional title), the Secretary or the Treasurer of the Company, in connection
with its duties and it shall not be liable for any action taken or suffered to
be taken by it in good faith in accordance with instructions of any such
officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Rights Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct provided reasonable care was exercised in the selection
and continued employment thereof.
(j) The Company agrees to indemnify and to hold the Rights Agent
harmless against any loss, liability, damage or expense (including reasonable
fees and expenses of legal counsel) which the Rights Agent may incur resulting
from its actions as Rights Agent pursuant to this Rights Agreement; provided,
however, that the Rights Agent shall not be indemnified or held
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harmless with respect to any such loss, liability, damage or expense incurred by
the Rights Agent as a result of, or arising out of, its own negligence, bad
faith or wilful misconduct. In no case shall the Company be liable with respect
to any action, proceeding, suit or claim against the Rights Agent unless the
Rights Agent shall have notified the Company, by letter or by facsimile
confirmed by letter, of the assertion of any action, proceeding, suit or claim
against the Rights Agent, promptly after the Rights Agent shall have notice of
any such assertion of an action, proceeding, suit or claim or have been served
with the summons or other first legal process giving information as to the
nature and basis of the action, proceeding, suit or claim. The Company shall be
entitled to participate at its own expense in the defense of any such action,
proceeding, suit or claim, and, if the Company so elects, the Company shall
assume the defense of any such action, proceeding, suit or claim. In the event
that the Company assumes such defense, the Company shall not thereafter be
liable for the fees and expenses of any additional counsel retained by the
Rights Agent, so long as the Company shall retain counsel satisfactory to the
Rights Agent, in the exercise of its reasonable judgment, to defend such action,
proceeding, suit or claim. The Rights Agent agrees not to settle any litigation
in connection with any action, proceeding, suit or claim with respect to which
it may seek indemnification from the Company without the prior written consent
of the Company.
SECTION 22. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Rights Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Common Shares and the Preferred Shares by registered
or certified mail, and to the holders of the Right Certificates (or, prior to
the Distribution Date, of the Common Shares) by first-class mail. The Company
may remove the Rights Agent or any successor Rights Agent upon 30 days' notice
in writing, mailed to the Rights Agent or successor Rights Agent, as the case
may be, and to each transfer agent of the Common Shares and the Preferred Shares
by registered or certified mail, and to the holders of the Right Certificates
(or, prior to the Distribution Date, of the Common Shares) by first-class mail.
If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (or, prior to the Distribution Date, of the
Common Shares) (who shall, with such notice, submit his Right Certificate or,
prior to the Distribution Date, the certificate representing his Common Shares,
for inspection by the Company), then the registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Shares) may apply
to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such a
court, shall be a corporation organized and doing business under the laws of the
United States or of the State of [NEW YORK] (or of any other state of the United
States so long as such corporation is authorized to conduct a stock transfer or
corporate trust business in the State of [NEW YORK]), in good standing, having a
principal office in the State of [NEW YORK], which is authorized under such laws
to exercise stock transfer or corporate trust powers and is subject to
supervision or examination by Federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least [$50,000,000]; [PROVIDED
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THAT THE PRINCIPAL TRANSFER AGENT FOR THE COMMON SHARES SHALL IN ANY EVENT BE
QUALIFIED TO BE THE RIGHTS AGENT.] After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares and the Preferred Shares, and mail a notice thereof in writing
to the registered holders of the Right Certificates (or, prior to the
Distribution Date, of the Common Shares). Failure to give any notice provided
for in this Section 22, however or any defect therein shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
SECTION 23. Issuance of Additional Rights and Right Certificates.
Notwithstanding any of the provisions of this Rights Agreement or of the Rights
to the contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change made in accordance with the provisions of this
Rights Agreement. In addition, in connection with the issuance or sale of Common
Shares following the Distribution Date and prior to the earlier of the
Redemption Date and the Expiration Date, the Company (a) shall, with respect to
Common Shares so issued or sold pursuant to the exercise of stock options or
under any employee plan or arrangement, or upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Company, and (b) may,
in any other case, if deemed necessary or appropriate by the Board of Directors
of the Company, issue Right Certificates representing the appropriate number of
Rights in connection with such issuance or sale; provided, however, that (i) no
such Right Certificate shall be issued if, and to the extent that, the Company
shall be advised by counsel that such issuance would create a significant risk
of material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued, and (ii) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
SECTION 24. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) such time as a Person becomes an Acquiring
Person and (ii) the Expiration Date, order the redemption of all, but not fewer
than all, the then outstanding Rights at the Redemption Price (the date of such
redemption being the "Redemption Date"), and the Company, at its option, may pay
the Redemption Price either in cash or Common Shares or other securities of the
Company deemed by the Board of Directors of the Company, in the exercise of its
sole discretion, to be at least equivalent in value to the Redemption Price;
provided, however, that, in addition to any other limitations contained herein
on the right to redeem outstanding Rights (including the occurrence of any event
or the expiration of any period after which the Rights may no longer be
redeemed), for the 120-day period after any date of a change (resulting from a
proxy
28
<PAGE>
or consent solicitation) in a majority of the Board of Directors of the Company
in office at the commencement of such solicitation, the Rights may only be
redeemed if (A) there are directors then in office who were in office at the
commencement of such solicitation ("Prior Directors") and (B) the directors,
with the concurrence of a majority of the Prior Directors, determine that such
redemption is, in their judgment, in the best interests of the Company and its
stockholders.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, and without any further action
and without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price. Within 10 Business Days after the action of the Board of
Directors of the Company ordering the redemption of the Rights, the Company
shall give notice of such redemption to the holders of the then outstanding
Rights by mailing such notice to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Shares. Each such notice of redemption will state the method by which payment of
the Redemption Price will be made. The notice, if mailed in the manner herein
provided, shall be conclusively presumed to have been duly given, whether or not
the holder of Rights receives such notice. In any case, failure to give such
notice by mail, or any defect in the notice, to any particular holder of Rights
shall not affect the sufficiency of the notice to other holders of Rights.
SECTION 25. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of a Right Certificate
(or, prior to the Distribution Date, of the Common Shares) to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
Associated Wholesale Grocers Group, Inc.
5000 Kansas Avenue
Kansas City, KS 66106
Attention: General Counsel
Subject to the provisions of Section 22, any notice or demand authorized by this
Rights Agreement to be given or made by the Company or by the holder of a Right
Certificate (or, prior to the Distribution Date, of the Common Shares) to or on
the Rights Agent shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Company) as follows:
---------------------------------------------
---------------------------------------------
---------------------------------------------
Attention:___________________________________
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to any holder of a Right Certificate (or, prior
to the Distribution Date, of the
29
<PAGE>
Common Shares) shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Shares.
SECTION 26. Supplements and Amendments. At any time prior to the
Distribution Date and subject to the last sentence of this Section 26, the
Company may, and the Rights Agent shall if the Company so directs, supplement or
amend any provision of this Rights Agreement (including, without limitation, the
date on which the Distribution Date shall occur, the time during which the
Rights may be redeemed pursuant to Section 24 or any provision of the
Certificate of Designations) without the approval of any holder of the Rights.
From and after the Distribution Date and subject to applicable law, the Company
may, and the Rights Agent shall if the Company so directs, amend this Rights
Agreement without the approval of any holders of Right Certificates (i) to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision of this Rights
Agreement or (ii) to make any other provisions in regard to matters or questions
arising hereunder which the Company may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Right Certificates
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person). Any supplement or amendment adopted during any period after any Person
has become an Acquiring Person but prior to the Distribution Date shall be null
and void unless such supplement or amendment could have been adopted under the
prior sentence from and after the Distribution Date. Any supplement or amendment
to this Rights Agreement duly approved by the Company that does not amend
Sections 19, 20, 21 or 22 in a manner adverse to the Rights Agent shall become
effective immediately upon execution by the Company, whether or not also
executed by the Rights Agent. Notwithstanding anything contained in this Rights
Agreement to the contrary, during the 120-day period after any date of a change
(resulting from a proxy or consent solicitation) in a majority of the Board of
Directors of the Company in office at the commencement of such solicitation,
this Rights Agreement may be supplemented or amended only if (A) there are
directors then in office who were in office at the commencement of such
solicitation ("Prior Directors") and (B) the directors, with the concurrence of
a majority of the Prior Directors, determine that such supplement or amendment
is, in their judgment, in the best interests of the Company and its stockholders
and, after the Distribution Date, the holders of the Right Certificates. In
addition, notwithstanding anything to the contrary contained in this Rights
Agreement, no supplement or amendment to this Rights Agreement shall be made
which (a) reduces the Redemption Price (except as required by Section 12(a)) or
(b) provides for an earlier Expiration Date.
SECTION 27. Successors. All the covenants and provisions of this
Rights Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 28. Benefits of Rights Agreement; Determinations and Actions
by the Board of Directors, etc.
30
<PAGE>
(a) Nothing in this Rights Agreement shall be construed to give to
any Person other than the Company, the Rights Agent and the registered holders
of the Right Certificates (and, prior to the Distribution Date, of the Common
Shares) any legal or equitable right, remedy or claim under this Rights
Agreement; but this Rights Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, of the Common Shares).
(b) Except as explicitly otherwise provided in this Rights Agreement,
the Board of Directors of the Company shall have the exclusive power and
authority to administer this Rights Agreement and to exercise all rights and
powers specifically granted to the Board of Directors of the Company or to the
Company, or as may be necessary or advisable in the administration of this
Rights Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Rights Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Rights Agreement (including, without limitation, a determination to redeem or
not redeem the Rights or to amend this Rights Agreement and a determination of
whether an offer constitutes a Qualifying Offer and whether there is an
Acquiring Person).
(c) Nothing contained in this Rights Agreement shall be deemed to be
in derogation of the obligation of the Board of Directors of the Company to
exercise its fiduciary duty. Without limiting the foregoing, nothing contained
herein shall be construed to suggest or imply that the Board of Directors shall
not be entitled to reject any Qualifying Offer or any other tender offer, or to
recommend that holders of Common Shares reject any Qualifying offer or any other
tender offer, or to take any other action (including, without limitation, the
commencement, prosecution, defense or settlement of any litigation and the
submission of additional or alternative offers or other proposals) with respect
to any Qualifying offer or any other tender offer that the Board of Directors
believes is necessary or appropriate in the exercise of such fiduciary duty.
SECTION 29. Severability. If any term, provision, covenant or
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
SECTION 30. Governing Law. This Rights Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the law
of the State of Delaware and for all purposes shall be governed by and construed
in accordance with the law of such State applicable to contracts to be made and
performed entirely within such State.
SECTION 31. Counterparts; Effectiveness. This Rights Agreement may
be executed in any number of counterparts and each of such counterparts shall
for all purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument. This Rights Agreement shall
be effective as of the Close of Business on the date hereof.
31
<PAGE>
SECTION 32. Descriptive Headings. Descriptive headings of the
several Sections of this Rights Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
of this Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to
be duly executed as of the day and year first above written.
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
, as Rights Agent,
----------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
32
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS OF SERIES A
PARTICIPATING CUMULATIVE
PREFERRED STOCK OF
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
Pursuant to Section 17-6401 of the General Corporation Code of the
State of Kansas, Associated Wholesale Grocers Group, Inc. (the "Corporation"), a
corporation organized and existing under the General Corporation Code of the
State of Kansas, DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
of the Corporation by Article Fourth of the Articles of Incorporation of the
Corporation (the "Articles of Incorporation"), the Board of Directors of the
Corporation on __________________________, 199___, adopted the following
resolution creating a series of Preferred Stock designated as Series A
Participating Cumulative Preferred Stock:
RESOLVED, that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the
Articles of Incorporation of the Corporation, a series of Preferred Stock
of the Corporation is hereby created and that the designation and number of
shares thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof are as
follows:
SECTION 1. Designation and Number of Shares. The shares of such
series shall be designated as "Series A Participating Cumulative Preferred
Stock" (the "Series A Preferred Stock"), par value $0.10 per share. The number
of shares initially constituting the Series A Preferred Stock shall be
_____________________________; provided, however, that, if more than a total of
___________________________ shares of Series A Preferred Stock shall be issuable
upon the exercise of Rights (the "Rights") issued pursuant to the Rights
Agreement dated as of ____________________________, 199____, between the
Corporation and ___________________________________, a ___________________
corporation, as Rights Agent (the"Rights Agreement"), the Board of Directors of
the Corporation, pursuant to Section 17-6401(g) of the General Corporation Code
of the State of Kansas, shall direct by resolution or resolutions that a
certificate be properly executed, acknowledged, filed and recorded, in
accordance with the provisions of Section 17-6003 thereof, providing for the
total number of shares of Series A Preferred Stock authorized to be issued to be
increased (to the extent that the Articles of Incorporation then permits) to the
largest number of whole shares (rounded up to the nearest whole number) issuable
upon exercise of such Rights.
SECTION 2. Dividends or Distributions.
<PAGE>
2
(i) Subject to the prior and superior rights of the holders of shares
of any other series of Preferred Stock or other class of capital stock of
the Corporation ranking prior and superior to the shares of Series A
Preferred Stock with respect to dividends, the holders of shares of the
Series A Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of the assets of the Corporation
legally available therefor, (1) quarterly dividends payable in cash on the
last day of each fiscal quarter in each year, or such other dates as the
Board of Directors of the Corporation shall approve (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a
share or a fraction of a share of Series A Preferred Stock, in the amount
of $.01 per whole share (rounded to the nearest cent) less the amount of
all cash dividends declared on the Series A Preferred Stock pursuant to the
following clause (2) since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series A
Preferred Stock (the total of which shall not, in any event, be less than
zero) and (2) dividends payable in cash on the payment date for each cash
dividend declared on the Common Stock in an amount per whole share (rounded
to the nearest cent) equal to the Formula Number (as hereinafter defined)
then in effect times the cash dividends then to be paid on each share of
Common Stock. In addition, if the Corporation shall pay any dividend or
make any distribution on the Common Stock payable in assets, securities or
other forms of noncash consideration (other than dividends or distributions
solely in shares of Common Stock), then, in each such case, the Corporation
shall simultaneously pay or make on each outstanding whole share of Series
A Preferred Stock a dividend or distribution in like kind equal to the
Formula Number then in effect times such dividend or distribution on each
share of the Common Stock. As used herein, the "Formula Number" shall be
1,000; provided, however, that, if at any time after
___________________________, 199___, the Corporation shall (i) declare or
pay any dividend on the Common Stock payable in shares of Common Stock or
make any distribution on the Common Stock in shares of Common Stock, (ii)
subdivide (by a stock split or otherwise) the outstanding shares of Common
Stock into a larger number of shares of Common Stock or (iii) combine (by a
reverse stock split or otherwise) the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, then in each such event
the Formula Number shall be adjusted to a number determined by multiplying
the Formula Number in effect immediately prior to such event by a fraction,
the numerator of which is the number of shares of Common Stock that are
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that are outstanding immediately prior
to such event (and rounding the result to the nearest whole number); and
provided further, that, if at any time after _______________________,
199___, the Corporation shall issue any shares of its capital stock in a
merger, reclassification, or change of the outstanding shares of Common
Stock, then in each such event the Formula Number shall be appropriately
adjusted to reflect such merger, reclassification or change so that each
share of Preferred Stock continues to be the economic equivalent of a
Formula Number of shares of Common Stock prior to such merger,
reclassification or change.
<PAGE>
3
(ii) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in Section 2(a) immediately prior to
or at the same time it declares a dividend or distribution on the Common
Stock (other than a dividend or distribution solely in shares of Common
Stock); provided, however, that, in the event no dividend or distribution
(other than a dividend or distribution in shares of Common Stock) shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $0.10 per share on the Series A Preferred Stock
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date. The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
dividend or distribution declared thereon, which record date shall be the
same as the record date for any corresponding dividend or distribution on
the Common Stock.
(iii) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from and after the Quarterly
Dividend Payment Date next preceding the date of original issue of such
shares of Series A Preferred Stock; provided, however, that dividends on
such shares which are originally issued after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and on or prior to the next succeeding
Quarterly Dividend Payment Date shall begin to accrue and be cumulative
from and after such Quarterly Dividend Payment Date. Notwithstanding the
foregoing, dividends on shares of Series A Preferred Stock which are
originally issued prior to the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly
dividend on the first Quarterly Dividend Payment Date shall be calculated
as if cumulative from and after the last day of the fiscal quarter next
preceding the date of original issuance of such shares. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
(iv) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Stock
unless, in each case, the dividend required by this Section 2 to be
declared on the Series A Preferred Stock shall have been declared.
(v) The holders of the shares of Series A Preferred Stock shall not
be entitled to receive any dividends or other distributions except as
provided herein.
SECTION 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(i) Each holder of Series A Preferred Stock shall be entitled to a
number of votes equal to the Formula Number then in effect, for each share
of Series A Preferred Stock held of record on each matter on which holders
of the Common Stock or stockholders generally are entitled to vote,
multiplied by the maximum number of votes
<PAGE>
4
per share which any holder of the Common Stock or stockholders generally
then have with respect to such matter (assuming any holding period or other
requirement to vote a greater number of shares is satisfied).
(ii) Except as otherwise provided herein or by applicable law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock shall vote together as one class for the election of directors
of the Corporation and on all other matters submitted to a vote of
stockholders of the Corporation.
(iii) If, at the time of any annual meeting of stockholders for the
election of directors, the equivalent of six quarterly dividends (whether
or not consecutive) payable on any share or shares of Series A Preferred
Stock are in default, the number of directors constituting the Board of
Directors of the Corporation shall be increased by two. In addition to
voting together with the holders of Common Stock for the election of other
directors of the Corporation, the holders of record of the Series A
Preferred Stock, voting separately as a class to the exclusion of the
holders of Common Stock, shall be entitled at said meeting of stockholders
(and at each subsequent annual meeting of stockholders), unless all
dividends in arrears have been paid or declared and set apart for payment
prior thereto, to vote for the election of two directors of the
Corporation, the holders of any Series A Preferred Stock being entitled to
cast a number of votes per share of Series A Preferred Stock equal to the
Formula Number. Until the default in payments of all dividends which
permitted the election of said directors shall cease to exist, any director
who shall have been so elected pursuant to the next preceding sentence may
be removed at any time, either with or without cause, only by the
affirmative vote of the holders of the shares of Series A Preferred Stock
at the time entitled to cast a majority of the votes entitled to be cast
for the election of any such director at a special meeting of such holders
called for that purpose, and any vacancy thereby created may be filled by
the vote of such holders. If and when such default shall cease to exist,
the holders of the Series A Preferred Stock shall be divested of the
foregoing special voting rights, subject to revesting in the event of each
and every subsequent like default in payments of dividends. Upon the
termination of the foregoing special voting rights, the terms of office of
all persons who may have been elected .directors, pursuant to said special
voting rights shall forthwith terminate, and the number of directors
constituting the Board of Directors shall be reduced by two. The voting
rights granted by this Section 3 (c) shall be in addition to any other
voting rights granted to the holders of the Series A Preferred Stock in
this section 3.
(iv) Except as provided herein, in Section 11 or by applicable law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for authorizing
or taking any corporate action.
<PAGE>
5
SECTION 4. Certain Restrictions.
(i) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not
(1) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(2) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(3) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock; provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(4) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(ii) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(a) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
SECTION 5. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, no distribution
shall be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution
<PAGE>
6
or winding up) to the Series A Preferred Stock unless, prior thereto, the
holders of shares of Series A Preferred Stock shall have received an amount
equal to the accrued and unpaid dividends and distributions thereon, whether or
not declared, to the date of such payment, plus an amount equal to the greater
of (x) $.01 per whole share or (y) an aggregate amount per share equal to the
Formula Number then in effect times the aggregate amount to be distributed per
share to holders of Common Stock or (2) to the holders of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except distributions made ratably on the
Series A Preferred Stock and all other such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
SECTION 6. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash or any other property, then in any such case the then
outstanding shares of Series A Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share equal to the Formula
Number then in effect times the aggregate amount of stock, securities, cash or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is exchanged or changed. In the event both this
Section 6 and Section 2 appear to apply to a transaction, this Section 6 will
control.
SECTION 7. No Redemption; No Sinking Fund.
(i) The shares of Series A Preferred Stock shall not be subject to
redemption by the Corporation or at the option of any holder of Series A
Preferred Stock except as set forth in Section 5 of Article IV of the
Restated Articles of Incorporation of the Corporation; provided, however,
that the Corporation may purchase or otherwise acquire outstanding shares
of Series A Preferred Stock in the open market or by offer to any holder or
holders of shares of Series A Preferred Stock.
(ii) The shares of Series A Preferred Stock shall not be subject to or
entitled to the operation of a retirement or sinking fund.
SECTION 8. Ranking. The Series A Preferred Stock shall rank junior
to all other series of Preferred Stock of the Corporation, unless the Board of
Directors shall specifically determine otherwise in fixing the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series and the qualifications, limitations and restrictions
thereof.
SECTION 9. Fractional Shares. The Series A Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights Agreement in
whole shares or in any fraction of a share that is one one thousandths
(1/1,000ths) of a share or any integral multiple of such fraction which shall
entitle the holder, in proportion to such holder's fractional shares, to receive
dividends, exercise voting rights, participate in distributions and to have the
benefit of all other rights of holders of Series A Preferred Stock. In lieu of
fractional shares, the Corporation,
<PAGE>
7
prior to the first issuance of a share or a fraction of a share of Series A
Preferred Stock, may elect (1) to make a cash payment as provided in the Rights
Agreement for fractions of a share other than one one-thousandths (1/1,000ths)
of a share or any integral multiple thereof or (2) to issue depository receipts
evidencing such authorized fraction of a share of Series A Preferred Stock
pursuant to an appropriate agreement between the Corporation and a depository
selected by the Corporation; provided that such agreement shall provide that the
holders of such depository receipts shall have all the rights, privileges and
preferences to which they are entitled as holders of the Series A Preferred
Stock.
SECTION 10. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock, without designation as to series until such shares
are once more designated as part of a particular series by the Board of
Directors pursuant to the provisions of Section 3 of Article IV of the Articles
of Incorporation.
SECTION 11. Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series A Preferred Stock
as provided herein or in the Articles of Incorporation shall be amended in any
manner which would alter or change the powers, preferences, rights or privileges
of the holders of Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of at least 66-2/3% of the
outstanding shares of Series A Preferred Stock, voting as a separate class;
provided, however, that no such amendment approved by the holders of at least
66-2/3% of the outstanding shares of Series A Preferred Stock shall be deemed to
apply to the powers, preferences, rights or privileges of any holder of shares
of Series A Preferred Stock originally issued upon exercise of a Right after the
time of such approval without the approval of such holder.
<PAGE>
8
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly
executed in its corporate name on this ________ day of ________________ 199___.
ASSOCIATED WHOLESALE GROCERS GROUP, INC.,
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Attest:
- ---------------------
Name:
Title:
STATE OF )
) ss.
COUNTY OF )
On this ______ day of _______________, 19___, before me appeared
______________________, to me personally known, who, being by me duly sworn did
say that (s)he is the ____________________ of Associated Wholesale Grocers
Group, Inc., a corporation of the State of Kansas, and that the seal affixed to
the foregoing instrument is the corporate seal of said corporation and that said
instrument was signed and sealed on behalf of said corporation by authority of
its Board of Directors, and said ____________________ acknowledged said
instrument to be the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal the day and year last above written.
--------------------------------------
Notary Public
My Commission Expires:
- ---------------------
[SEAL]
<PAGE>
EXHIBIT B
[Form of Right Certificate]
Certificate No. [R]-
___________ Rights
NOT EXERCISABLE AFTER _______________________________, OR EARLIER IF
REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE
OPTION OF THE COMPANY, AT $.01 PER RIGHT, ON THE TERMS SET FORTH IN
THE RIGHTS AGREEMENT. RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND BY ANY SUBSEQUENT
HOLDER OF SUCH RIGHTS ARE NULL AND VOID AND NONTRANSFERABLE.
Right Certificate
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
This certifies that _____________, or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights Agreement
dated as of September 7, 1994 (the "Rights Agreement"), between Associated
Wholesale Grocers Group, Inc., a Kansas corporation (the "Company"), and
__________________________________, a ___________________ banking corporation,
as Rights Agent (the "Rights Agent"), unless the Rights evidenced hereby shall
have been previously redeemed by the Company, to purchase from the Company at
any time after the Distribution Date (as defined in the Rights Agreement) and
prior to 5:00 p.m., __________________________ time, on the 10th anniversary of
the date of the Rights Agreement (the "Expiration Date"), at the principal
office of the Rights Agent, or its successors as Rights Agent, in
________________________, ___________________, one one-thousandths (1/1000ths)
of a fully paid, nonassessable share of Series A Participating Cumulative
Preferred Stock, par value $0.10 per share, of the Company (the "Preferred
Shares"), at a purchase price per one one-thousandths (1/1000ths)of a share
equal to $___________ and surrender of this Right Certificate with the Form of
Election to Purchase duly executed.
The Purchase Price and the number and kind of shares which may be
purchased upon exercise of each Right evidenced by this Right Certificate, as
set forth above, are the Purchase Price and the number and kind of shares which
may be so purchased as of __________________________, 1996. As provided in the
Rights Agreement, the Purchase Price and the number and kind of shares which may
be purchased upon the exercise of each Right evidence by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
<PAGE>
2
If the Rights evidenced by the Right Certificate are at any time
beneficially owned by an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement), such
Rights shall be null and void and nontransferable and the holder of any such
Right (including any purported transferee or subsequent holder) shall not have
any right to exercise or transfer any such Right.
This Right Certificate is subject to all the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
reference to the Rights Agreement is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Right Certificates. Copies
of the Rights Agreement are on file at the above-mentioned office of the Rights
Agent and are also available from the Company upon written request.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal stock transfer or corporate trust office of the
Rights Agent, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number and kind of shares as the Rights evidenced by
the Right Certificate or Right Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Right Certificate may be redeemed by the Company at its option at a
redemption price (in cash or shares of Common Stock or other securities of the
Company deemed by the Board of Directors to be at least equivalent in value) of
$0.01 per Right (which amount shall be subject to adjustment as provided in the
Rights Agreement) at any time prior to the earlier of (i) such time as a Person
becomes an Acquiring Person and (ii) the Expiration Date; provided, however,
that, for the 120-day period after any date of a change (resulting from a proxy
or consent solicitation) in a majority of the Board of Directors of the Company
in office at the commencement of such solicitation, the Rights may only be
redeemed if (A) there are directors then in office who were in office at the
commencement of such solicitation ("Prior Directors") and (B) the directors,
with the concurrence of a majority of the Prior Directors, determine that such
redemption is, in their judgment, in the best interests of the Company and its
stockholders.
The Company may, but shall not be required to, issue fractions of Preferred
Shares or distribute certificates which evidence fractions of Preferred Shares
upon the exercise of any Right or Rights evidenced hereby. In lieu of issuing
fractional shares, the Company may elect to make a cash payment as provided in
the Rights Agreement for fractions of a share other than one one-thousandths
(1/1000ths) of a share or any integral multiple thereof or to issue certificates
or utilize a depository arrangement as provided in the terms of the Rights
Agreement and the Preferred Shares.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of
<PAGE>
3
the rights of a stockholder of the Company, including, without limitation, any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or other distributions or subscription rights, or otherwise, until the
Right or Rights evidenced by this Right Certificate shall have been exercised as
provided in accordance with the provision of the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Dated as of: ASSOCIATED WHOLESALE GROCERS GROUP, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
- ----------------------------------
Name:
-----------------------------
Title:
----------------------------
Countersigned:
- -----------------, as Rights Agent,
By:
-------------------------------
Authorized Officer
<PAGE>
4
[On Reverse Side of Right Certificate]
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed by the registered holder
if such holder desires to exercise the Rights represented by this Right
Certificate.)
To the Rights Agent:
The undersigned hereby irrevocably elects to exercise _____________________
Rights represented by this Right Certificate to purchase the Preferred Shares
(or other shares) issuable upon the exercise of such Rights and requests that
certificates for such shares be issued in the name of:
Please insert social security of other identifying number:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
Please insert social security or other identifying number:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated: ________, 19__
-----------------------------------
Signature
Signature Guaranteed:
<PAGE>
5
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder
if such holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED ________________________________________________________
hereby sells, assigns and transfers unto _______________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ______________ Attorney, to
transfer the within Right Certificate on the books of the within-named
Corporation, with full power of substitution.
Dated: ___________, 19__
____________________________________
Signature
Signature Guaranteed:
The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being sold, assigned or transferred by or on behalf of
a Person who is or was an Acquiring Person or an Affiliate or Associate thereof
(as such terms are defined in the Rights Agreement), (2) this Rights Certificate
is not being sold, assigned or transferred to or on behalf of any such Acquiring
Person, Affiliate or Associate, and (3) after inquiry and to the best knowledge
of the undersigned, the undersigned did not acquire the Rights evidenced by this
Right Certificate from any Person who is or was an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement).
____________________________________
Signature
<PAGE>
6
NOTICE
------
The signature on the foregoing Form of Election to Purchase or Form of
Assignment must correspond to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
EXHIBIT 4.2
CERTIFICATE OF DESIGNATIONS OF SERIES A
PARTICIPATING CUMULATIVE
PREFERRED STOCK OF
ASSOCIATED WHOLESALE GROCERS GROUP, INC.
Pursuant to Section 17-6401 of the General Corporation Code of the
State of Kansas, Associated Wholesale Grocers Group, Inc. (the "Corporation"), a
corporation organized and existing under the General Corporation Code of the
State of Kansas, DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
of the Corporation by Article Four of the Articles of Incorporation of the
Corporation (the "Articles of Incorporation"), the Board of Directors of the
Corporation on __________________________, 199___, adopted the following
resolution creating a series of Preferred Stock designated as Series A
Participating Cumulative Preferred Stock:
RESOLVED, that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the
Articles of Incorporation of the Corporation, a series of Preferred Stock
of the Corporation is hereby created and that the designation and number of
shares thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof are as
follows:
SECTION 1. Designation and Number of Shares. The shares of such
series shall be designated as "Series A Participating Cumulative Preferred
Stock" (the "Series A Pre ferred Stock"), par value $0.10 per share. The number
of shares initially constituting the Series A Preferred Stock shall be
_____________________________; provided, however, that, if more than a total of
___________________________ shares of Series A Preferred Stock shall be issuable
upon the exercise of Rights (the "Rights") issued pursuant to the Rights
Agreement dated as of _____________________________, 199____, between the
Corporation and ___________________________________, a ___________________
corporation, as Rights Agent (the"Rights Agreement"), the Board of Directors of
the Corporation, pursuant to Section 17-6401(g) of the General Corporation Code
of the State of Kansas, shall direct by resolution or resolutions that a
certificate be properly executed, acknowledged, filed and recorded, in
accordance with the provisions of Section 17-6003 thereof, providing for the
total number of shares of Series A Preferred Stock authorized to be issued to be
increased (to the extent that the Articles of Incorporation then permits) to the
largest number of whole shares (rounded up to the nearest whole number) issuable
upon exercise of such Rights.
<PAGE>
SECTION 2. Dividends or Distributions.
(a) Subject to the prior and superior rights of the holders of shares
of any other series of Preferred Stock or other class of capital stock of the
Corporation ranking prior and superior to the shares of Series A Preferred Stock
with respect to dividends, the holders of shares of the Series A Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor, (1)
quarterly dividends payable in cash on the last day of each fiscal quarter in
each year, or such other dates as the Board of Directors of the Corporation
shall approve (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or a fraction of a share of Series A Preferred
Stock, in the amount of $.01 per whole share (rounded to the nearest cent) less
the amount of all cash dividends declared on the Series A Preferred Stock
pursuant to the following clause (2) since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Preferred Stock (the total of which shall not, in any event, be less than zero)
and (2) dividends payable in cash on the payment date for each cash dividend
declared on the Common Stock in an amount per whole share (rounded to the
nearest cent) equal to the Formula Number (as hereinafter defined) then in
effect times the cash dividends then to be paid on each share of Common Stock.
In addition, if the Corporation shall pay any dividend or make any distribution
on the Common Stock payable in assets, securities or other forms of noncash
consideration (other than dividends or distributions solely in shares of Common
Stock), then, in each such case, the Corporation shall simultaneously pay or
make on each outstanding whole share of Series A Preferred Stock a dividend or
distribution in like kind equal to the Formula Number then in effect times such
dividend or distribution on each share of the Common Stock. As used herein, the
"Formula Number" shall be 1,000; provided, however, that, if at any time after
____________________________, 199___, the Corporation shall (i) declare or pay
any dividend on the Common Stock payable in shares of Common Stock or make any
distribution on the Common Stock in shares of Common Stock, (ii) subdivide (by a
stock split or otherwise) the outstanding shares of Common Stock into a larger
number of shares of Common Stock or (iii) combine (by a reverse stock split or
otherwise) the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then in each such event the Formula Number shall be
adjusted to a number determined by multiplying the Formula Number in effect
immediately prior to such event by a fraction, the numerator of which is the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
are outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further, that, if at any time after
_______________________, 199___, the Corporation shall issue any shares of its
capital stock in a merger, reclassification, or change of the outstanding shares
of Common Stock, then in each such event the Formula Number shall be
appropriately adjusted to reflect such merger, reclassification or change so
that each share of Preferred Stock continues to be the economic equivalent of a
Formula Number of shares of Common Stock prior to such merger, reclassification
or change.
2
<PAGE>
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in Section 2(a) immediately prior to or at
the same time it declares a dividend or distribution on the Common Stock (other
than a dividend or distribution solely in shares of Common Stock); provided,
however, that, in the event no dividend or distribution (other than a dividend
or distribution in shares of Common Stock) shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $0.010 per
share on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a dividend or distribution declared thereon, which
record date shall be the same as the record date for any corresponding dividend
or distribution on the Common Stock.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from and after the Quarterly Dividend Payment
Date next pre ceding the date of original issue of such shares of Series A
Preferred Stock; provided, however, that dividends on such shares which are
originally issued after the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly dividend and
on or prior to the next succeeding Quarterly Dividend Payment Date shall begin
to accrue and be cumulative from and after such Quarterly Dividend Payment Date.
Notwithstanding the foregoing, dividends on shares of Series A Preferred Stock
which are originally issued prior to the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a quarterly
dividend on the first Quarterly Dividend Payment Date shall be calculated as if
cumulative from and after the last day of the fiscal quarter next preceding the
date of original issuance of such shares. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Stock
unless, in each case, the dividend required by this Section 2 to be declared on
the Series A Preferred Stock shall have been declared.
(e) The holders of the shares of Series A Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.
SECTION 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to a
number of votes equal to the Formula Number then in effect, for each share of
Series A Preferred Stock held of record on each matter on which holders of the
Common Stock or stockholders
3
<PAGE>
generally are entitled to vote, multiplied by the maximum number of votes per
share which any holder of the Common Stock or stockholders generally then have
with respect to such matter (assuming any holding period or other requirement to
vote a greater number of shares is satisfied).
(b) Except as otherwise provided herein or by applicable law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock shall vote together as one class for the election of directors of
the Corporation and on all other matters submitted to a vote of stockholders of
the Corporation.
(c) If, at the time of any annual meeting of stockholders for the
election of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Stock are in
default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two. In addition to voting together with the
holders of Common Stock for the election of other directors of the Corporation,
the holders of record of the Series A Preferred Stock, voting separately as a
class to the exclusion of the holders of Common Stock, shall be entitled at said
meeting of stockholders (and at each subsequent annual meeting of stockholders),
unless all dividends in arrears have been paid or declared and set apart for
payment prior thereto, to vote for the election of two directors of the
Corporation, the holders of any Series A Preferred Stock being entitled to cast
a number of votes per share of Series A Preferred Stock equal to the Formula
Number. Until the default in payments of all dividends which permitted the
election of said directors shall cease to exist, any director who shall have
been so elected pursuant to the next preceding sentence may be removed at any
time, either with or without cause, only by the affirmative vote of the holders
of the shares of Series A Preferred Stock at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such director
at a special meeting of such holders called for that purpose, and any vacancy
thereby created may be filled by the vote of such holders. If and when such
default shall cease to exist, the holders of the Series A Preferred Stock shall
be divested of the foregoing special voting rights, subject to revesting in the
event of each and every subsequent like default in payments of dividends. Upon
the termination of the foregoing special voting rights, the terms of office of
all persons who may have been elected .directors, pursuant to said special
voting rights shall forthwith terminate, and the number of directors
constituting the Board of Directors shall be reduced by two. The voting rights
granted by this Section 3 (c) shall be in addition to any other voting rights
granted to the holders of the Series A Preferred Stock in this Section 3.
(d) Except as provided herein, in Section 11 or by applicable law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for authorizing or taking
any corporate action.
4
<PAGE>
SECTION 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock;
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity with
the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, no distribution
shall be made (1) to
5
<PAGE>
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received an amount equal to the accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus an amount
equal to the greater of (x) $.01 per whole share or (y) an aggregate amount per
share equal to the Formula Number then in effect times the aggregate amount to
be distributed per share to holders of Common Stock or (2) to the holders of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up.
SECTION 6. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, then in any such case the then
outstanding shares of Series A Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share equal to the Formula
Number then in effect times the aggregate amount of stock, securities, cash or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is exchanged or changed. In the event both
this Section 6 and Section 2 appear to apply to a transaction, this Section 6
will control.
SECTION 7. No Redemption; No Sinking Fund.
(a) The shares of Series A Preferred Stock shall not be subject to
redemption by the Corporation or at the option of any holder of Series A
Preferred Stock; provided, however, that the Corporation may purchase or
otherwise acquire outstanding shares of Series A Preferred Stock in the open
market or by offer to any holder or holders of shares of Series A Preferred
Stock.
(b) The shares of Series A Preferred Stock shall not be subject to or
entitled to the operation of a retirement or sinking fund.
SECTION 8. Ranking. The Series A Preferred Stock shall rank junior
to all other series of Preferred Stock of the Corporation, unless the Board of
Directors shall specif ically determine otherwise in fixing the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series and the qualifications, limitations and restrictions
thereof.
SECTION 9. Fractional Shares. The Series A Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights Agreement in
whole shares or in any fraction of a share that is one one thousandths
(1/1,000ths) of a share or any integral multiple of such fraction which shall
entitle the holder, in proportion to such holder's fractional shares, to receive
dividends, exercise voting rights, participate in distributions and to have the
benefit
6
<PAGE>
of all other rights of holders of Series A Preferred Stock. In lieu of
fractional shares, the Corporation, prior to the first issuance of a share or a
fraction of a share of Series A Preferred Stock, may elect (1) to make a cash
payment as provided in the Rights Agreement for fractions of a share other than
one one-thousandths (1/1,000ths) of a share or any integral multiple thereof or
(2) to issue depository receipts evidencing such authorized fraction of a share
of Series A Preferred Stock pursuant to an appropriate agreement between the
Corporation and a depository selected by the Corporation; provided that such
agreement shall provide that the holders of such depository receipts shall have
all the rights, privileges and preferences to which they are entitled as holders
of the Series A Preferred Stock.
SECTION 10. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock, without designation as to series until such shares
are once more designated as part of a particular series by the Board of
Directors pursuant to the provisions of Article Four of the Articles of
Incorporation.
SECTION 11. Amendment. None of the powers, preferences and relative,
participating, optional and other special rights of the Series A Preferred Stock
as provided herein or in the Articles of Incorporation shall be amended in any
manner which would alter or change the powers, preferences, rights or privileges
of the holders of Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of Series A Preferred Stock, voting as a separate class;
provided, however, that no such amendment approved by the holders of at least
66-2/3% of the outstanding shares of Series A Preferred Stock shall be deemed to
apply to the powers, preferences, rights or privileges of any holder of shares
of Series A Preferred Stock originally issued upon exercise of a Right after the
time of such approval without the approval of such holder.
7
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly
executed in its corporate name on this ________ day of _____________1996.
ASSOCIATED WHOLESALE GROCERS GROUP, INC.,
By
-------------------------------------
Name:
Title:
Attest:
- -----------------------------------
Name:
Title:
STATE OF )
) SS.
COUNTY OF )
On this ______ day of _______________, 1996, before me appeared
______________________, to me personally known, who, being by me duly sworn
did say that (s)he is the ____________________ of Associated Wholesale Grocers
Group, Inc., a corporation of the State of Kansas, and that the seal affixed to
the foregoing instrument is the corporate seal of said corporation and that said
instrument was signed and sealed on behalf of said corporation by authority of
its Board of Directors, and said ____________________ acknowledged said
instrument to be the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal the day and year last above written.
----------------------------------
Notary Public
My Commission Expires:
- ---------------------
[SEAL]
8
<PAGE>
EXHIBIT 23.1
CONSENT AND REPORT ON SCHEDULE
The Board of Directors
Associated Wholesale Grocers, Inc.:
and Associated Wholesale Grocers Group, Inc.
The audits referred to in our report dated March 1, 1996, included the
related financial statement schedule of Associated Wholesale Grocers, Inc. and
subsidiaries for each of the years in the three-year period ended December 30,
1995, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the proxy statement/prospectus.
Kansas City, Missouri
September 30, 1996
/s/ KPMG Peat Marwick LLP
<PAGE>
PROXY/VOTING INSTRUCTION CARD EXHIBIT 99.1
ASSOCIATED WHOLESALE GROCERS, INC.
CLASS A COMMON STOCK
This Proxy is solicited on behalf of the Board of Directors of Associated
Wholesale Grocers, Inc. (the "Company") for the Special Meeting on
, 1996. The undersigned hereby constitutes and appoints
, and and each of
them, true and lawful agents and proxies (the "Proxies") with full power of
substitution in each, to represent and to vote, as designated below, all of the
shares of CLASS A common stock of the Company held of record by the undersigned
on September 7, 1996, at the Special Meeting of Shareholders to be held at
, Kansas City, on ,
, 1996, at (Kansas City time) and at any
adjournment or postponement thereof, on all matters coming before said meeting.
This proxy when properly executed will be voted in the manner directed by
you. If no direction is made, this proxy will be voted FOR approval of the
Merger Agreement. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting.
You are encouraged to specify your choice by marking the appropriate box but
you need not mark any box if you wish to vote in accordance with the Board of
Directors' recommendations. However, the Proxies cannot vote your shares unless
you sign and return this card.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
A VOTE FOR THE MERGER AGREEMENT WILL ALSO CONSTITUTE APPROVAL FOR THE COMPANY
TO PROCEED WITH AN INITIAL PUBLIC OFFERING.
1. To approve the Merger Agreement with Associated Wholesale Grocers Group,
Inc. and AWG Merger Corp.
FOR [_]AGAINST [_]ABSTAIN [_]
------------------------------------
Printed Name
------------------------------------
SignatureDate
Title (if applicable) ______________
YOUR VOTE IS IMPORTANT! UNDER MISSOURI LAW, THE FAILURE TO VOTE WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT.
Please follow these steps to ensure that your proxy is properly executed and
returned in time to be counted:
1. Mark your vote for the proposal in one of the three boxes on the other side
of this card.
2. If you are the record owner of shares of CLASS A common stock of the Company
print your name in the space provided. If you are completing this proxy card
on behalf of a corporation, partnership, limited liability company or other
entity that is the record owner of shares of CLASS A common stock of the
Company print the name of that entity in the space provided.
3. Sign in the space provided. Also enter the date. If you are signing on
behalf of a corporation, partnership, limited liability company or other
entity, indicate your position with that entity.
4. Mail the completed card with signature in the enclosed reply envelope to:
Associated Wholesale Grocers, Inc.
Attn: Joseph L. Campbell, II, Secretary
5000 Kansas Avenue
P.O. Box 2932
Kansas City, Kansas 66110-2932
If you have questions regarding completion of this proxy card, contact
at .
<PAGE>
PROXY/VOTING INSTRUCTION CARD EXHIBIT 99.2
ASSOCIATED WHOLESALE GROCERS, INC.
CLASS B COMMON STOCK
This Proxy is solicited on behalf of the Board of Directors of Associated
Wholesale Grocers, Inc. (the "Company") for the Special Meeting on
, 1996. The undersigned hereby constitutes and appoints
, and and each of
them, true and lawful agents and proxies (the "Proxies") with full power of
substitution in each, to represent and to vote, as designated below, all of the
shares of CLASS B common stock of the Company held of record by the undersigned
on September 7, 1996, at the Special Meeting of Shareholders to be held at
, Kansas City, on ,
, 1996, at (Kansas City time) and at any
adjournment or postponement thereof, on all matters coming before said meeting.
This proxy when properly executed will be voted in the manner directed by
you. If no direction is made, this proxy will be voted FOR approval of the
Merger Agreement.
You are encouraged to specify your choice by marking the appropriate box but
you need not mark any box if you wish to vote in accordance with the Board of
Directors' recommendations. However, the Proxies cannot vote your shares unless
you sign and return this card.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
A VOTE FOR THE MERGER AGREEMENT WILL ALSO CONSTITUTE APPROVAL FOR THE COMPANY
TO PROCEED WITH AN INITIAL PUBLIC OFFERING.
1. To approve the Merger Agreement with Associated Wholesale Grocers Group,
Inc. and AWG Merger Corp.
FOR [_]AGAINST [_]ABSTAIN [_]
------------------------------------
Printed Name
------------------------------------
Signature Date
TITLE (if applicable)_______________
YOUR VOTE IS IMPORTANT! UNDER MISSOURI LAW, THE FAILURE TO VOTE WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT.
Please follow these steps to ensure that your proxy is properly executed and
returned in time to be counted:
1. Mark your vote for the proposal in one of the three boxes on the other
side of this card.
2. If you are the record owner of shares of CLASS B common stock of the
Company print your name in the space provided. If you are completing this
proxy card on behalf of a corporation, partnership, limited liability
company or other entity that is the record owner of shares of CLASS B
common stock of the Company print the name of that entity in the space
provided.
3. Sign in the space provided. Also enter the date. If you are signing on
behalf of a corporation, partnership, limited liability company or other
entity, indicate your position with that entity.
4. Mail the completed card with signature in the enclosed reply envelope to:
Associated Wholesale Grocers, Inc.
Attn: Joseph L. Campbell, II, Secretary
5000 Kansas Avenue
P.O. Box 2932
Kansas City, Kansas 66110-2932
If you have questions regarding completion of this proxy card, contact
at .
