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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997
REGISTRATION NO. 333-31945
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
QUALITY FOOD, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 5411 91-1829342
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
300 ATLANTIC STREET
STAMFORD, CONNECTICUT 06901
(203) 969-7354
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
FREDRICK S. MEILS
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
QUALITY FOOD, INC.
300 ATLANTIC STREET
STAMFORD, CONNECTICUT 06901
(203) 969-7354
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
SCOTT L. GELBAND WALTER S. LOWRY
PERKINS COIE ROSENBERG & LIEBENTRITT, P.C.
1201 THIRD AVENUE, 40TH FLOOR 2 NORTH RIVERSIDE PLAZA
SEATTLE, WASHINGTON 98101-3099 CHICAGO, ILLINOIS 60606
(206) 583-8888 (312) 466-3769
------------------------
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AND ALL OTHER
CONDITIONS TO THE REORGANIZATION OF THE REGISTRANT AND ITS SUBSIDIARIES,
INCLUDING QUALITY FOOD CENTERS, INC., A WASHINGTON CORPORATION, PURSUANT TO THE
AGREEMENT AND PLAN OF MERGER DESCRIBED IN THE ENCLOSED PROXY
STATEMENT/PROSPECTUS 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. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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[LOGO]
DEAR SHAREHOLDER:
You are cordially invited to attend the Quality Food Centers, Inc. (the
"Company") Annual Meeting of Shareholders to be held at 10:00 a.m. on ,
October , 1997, at the Doubletree Hotel Bellevue, 300 112th Avenue S.E.,
Bellevue, Washington.
Information concerning the business to be conducted at the meeting,
including a proposed reorganization of the Company and its subsidiaries, is
included in the accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement/Prospectus. At the meeting, we also will report on the operations of
the Company and respond to questions.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the meeting,
it is important that your shares be represented. Therefore, we urge you to mark,
sign, date and promptly return the enclosed proxy in the enclosed postage-paid
envelope. If you attend the meeting, you will, of course, have the right to vote
in person.
I look forward to greeting you personally, and on behalf of the Board of
Directors and management, I would like to express our appreciation for your
interest in the Company.
Sincerely,
QUALITY FOOD CENTERS, INC.
Stuart M. Sloan
CHAIRMAN
August , 1997
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QUALITY FOOD CENTERS, INC.
10112 N.E. 10TH STREET
BELLEVUE, WASHINGTON 98004
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER , 1997
------------------------
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Quality Food Centers, Inc. (the
"Company") will be held at 10:00 a.m. on , October , 1997, at the
Doubletree Hotel Bellevue, 300 112th Avenue S.E., Bellevue, Washington, for the
following purposes:
1. To elect four Class I directors and one Class II director;
2. To consider and act upon a proposal to amend the Company's 1993
Executive Stock Option Plan to reserve an additional 1,000,000 shares of
the Company's common stock for issuance upon exercise of options granted
under the plan and to provide that no person shall be eligible to receive
in any fiscal year options to purchase more than 500,000 shares of the
Company's common stock under the plan;
3. To consider and act upon a proposal to approve and ratify the Company's
Directors' Stock Unit Plan;
4. To consider and act upon a proposal to approve and ratify the Company's
1997 Stock Option Plan;
5. To consider and act upon a proposal to reorganize the Company's
corporate structure to that of a publicly traded holding company with a
series of operating subsidiaries, as described in the accompanying Proxy
Statement/Prospectus. As a result of the reorganization (a) the Company,
Hughes Markets, Inc. and KU Acquisition Corporation each will become an
indirect wholly owned subsidiary of Quality Food, Inc., a recently formed
Delaware corporation ("New Parent"), and (b) each outstanding share of
common stock, par value $.001 per share, of the Company (other than
shares held by holders who have properly exercised dissenters' rights
under Washington law) will be converted into one share of common stock,
par value $.001 per share, of New Parent; and
6. To transact such other business as may properly come before the meeting.
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Further information as to the matters to be considered and acted upon at the
Annual Meeting of Shareholders can be found in the accompanying Proxy
Statement/Prospectus.
Only shareholders of record at the close of business on August 22, 1997 are
entitled to notice of, and to vote at, the meeting.
By Order of the Board of Directors
Susan Obuchowski
SECRETARY
Bellevue, Washington
August , 1997
EACH SHAREHOLDER IS URGED TO MARK, SIGN, DATE AND RETURN PROMPTLY THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE, TO WHICH NO POSTAGE NEED BE AFFIXED
IF MAILED IN THE UNITED STATES.
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SUBJECT TO COMPLETION, DATED AUGUST 22, 1997
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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
QUALITY FOOD CENTERS, INC.
10112 N.E. 10TH STREET
BELLEVUE, WASHINGTON 98004
PROXY STATEMENT
---------------------
QUALITY FOOD, INC.
300 ATLANTIC STREET
STAMFORD, CONNECTICUT 06901
PROSPECTUS
---------------------
This Proxy Statement/Prospectus and the accompanying form of proxy are
furnished in connection with the solicitation of proxies by the Board of
Directors of Quality Food Centers, Inc. (the "Company") for use at the Annual
Meeting of Shareholders of the Company to be held at on ,
October , 1997, and at any adjournment or postponement thereof (the "Annual
Meeting"). Only shareholders of record at the close of business on August 22,
1997 (the "Record Date") will be entitled to notice of, and to vote at, the
Annual Meeting.
At the Annual Meeting, shareholders will be asked to approve, among other
things, a reorganization of the Company's corporate structure to that of a
publicly traded holding company with a series of operating subsidiaries.
The reorganization will be effected pursuant to an Agreement and Plan of
Merger dated as of August 21, 1997 (the "Merger Agreement"), by and among the
Company, Quality Food, Inc., a recently formed Delaware corporation and a wholly
owned subsidiary of the Company ("New Parent"), and QFC Sub, Inc., a recently
formed Washington corporation and an indirect wholly owned subsidiary of New
Parent ("Merger Sub") (such reorganization, including the Merger (as hereinafter
defined), the "Reorganization"). The Merger Agreement, a copy of which is
attached hereto as ANNEX A, contemplates, among other things, that Merger Sub
will merge with the Company, with the Company as the surviving corporation (the
"Merger"). As a result of the Merger (i) each of the Company, Hughes Markets,
Inc., a California corporation ("Hughes"), and KU Acquisition Corporation, a
Washington corporation ("KUA") (each of which currently is a subsidiary of the
Company), will become an indirect wholly owned subsidiary of New Parent and (ii)
each outstanding share of common stock, par value $.001 per share, of the
Company ("Company Common Stock"), other than shares held by holders who have
properly exercised dissenters' rights under Washington law, will be converted
into one share of common stock, par value $.001 per share, of New Parent ("New
Common Stock"). See "Proposal V: The Reorganization."
If the Reorganization is approved by shareholders and implemented, it will
not be necessary for holders of Company Common Stock to surrender their existing
stock certificates for stock certificates representing shares of New Common
Stock. See "Proposal V: The Reorganization--Exchange of Certificates Not
Required."
This Proxy Statement/Prospectus also serves as the prospectus for New Parent
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the issuance of up to 25,463,645 shares of New Common Stock in
connection with the Reorganization. Further information concerning the shares
offered hereby is contained in "Proposal V: The Reorganization--Certain
Substantive Differences in Corporation Laws" and "--Description of New Parent
Capital Stock."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The principal executive offices of the Company are located at 10112 N.E.
10th Street, Bellevue, Washington 98004. The principal executive offices of New
Parent are located at 300 Atlantic Street, Stamford, Connecticut 06901. It is
anticipated that this Proxy Statement/Prospectus and the accompanying proxy will
first be sent to shareholders on or about August , 1997. A copy of the
Company's Annual Report was previously sent to shareholders.
The presence in person or by proxy of holders of record of a majority of the
outstanding shares of Company Common Stock is required to constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
nonvotes are counted for purposes of determining the presence of a quorum for
the transaction of business at the Annual Meeting.
If the accompanying form of proxy is properly executed and returned, the
shares represented thereby will be voted in accordance with the instructions
specified therein. In the absence of instructions to the contrary, such shares
will be voted "FOR" each of the proposals set forth therein. Any shareholder
executing a proxy has the power to revoke it at any time prior to the voting
thereof on any matter (without, however, affecting any vote taken prior to such
revocation) by delivering written notice to Susan Obuchowski, Secretary of the
Company, by executing another proxy dated as of a later date or by voting in
person at the Annual Meeting.
------------------------
The date of this Proxy Statement/Prospectus is August , 1997.
<PAGE>
TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 1
FORWARD-LOOKING STATEMENTS............................................................ 2
SUMMARY............................................................................... 3
Election of Directors............................................................... 3
Amendment of 1993 Executive Stock Option Plan....................................... 3
Directors' Stock Unit Plan.......................................................... 3
1997 Stock Option Plan.............................................................. 3
The Reorganization.................................................................. 4
VOTING SECURITIES AND PRINCIPAL HOLDERS............................................... 8
PROPOSAL I: ELECTION OF DIRECTORS..................................................... 10
Nominees for Election............................................................... 11
Continuing Directors................................................................ 12
Board and Committee Meetings........................................................ 12
Directors' Fees..................................................................... 13
EXECUTIVE COMPENSATION................................................................ 14
Annual Compensation................................................................. 14
Option Grants in Fiscal 1996........................................................ 15
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS........................................................................ 16
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION............................... 16
Compensation Philosophy............................................................. 17
Principal Compensation Elements..................................................... 17
CEO Compensation.................................................................... 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION........................... 19
PERFORMANCE GRAPH..................................................................... 19
PROPOSAL II: AMENDMENT OF 1993 EXECUTIVE STOCK OPTION PLAN............................ 20
Federal Income Tax Information...................................................... 22
PROPOSAL III: DIRECTORS' STOCK UNIT PLAN.............................................. 22
Federal Income Tax Information...................................................... 23
PROPOSAL IV: 1997 STOCK OPTION PLAN................................................... 24
Federal Income Tax Information...................................................... 26
PROPOSAL V: THE REORGANIZATION........................................................ 28
Current Corporate Structure......................................................... 28
The Reorganization.................................................................. 29
Recommendation of the Board; Reasons for the Reorganization......................... 30
Vote Required....................................................................... 31
Exchange of Certificates Not Required............................................... 31
Certain Federal Income Tax Consequences; Accounting Treatment....................... 31
Merger Agreement.................................................................... 34
New Parent Restated Certificate of Incorporation and Bylaws......................... 34
Description of New Parent Capital Stock............................................. 34
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Certain Information Regarding New Parent............................................ 35
Certain Effects of the Reorganization............................................... 36
Certain Substantive Differences in Corporation Laws................................. 38
Regulatory Matters.................................................................. 41
Rights of Dissenting Shareholders................................................... 41
INDEPENDENT AUDITORS.................................................................. 42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 42
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE............................... 43
OTHER BUSINESS........................................................................ 43
LEGAL OPINION......................................................................... 43
TAX OPINION........................................................................... 44
EXPERTS............................................................................... 44
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS..................... 45
SOLICITATION OF PROXIES............................................................... 45
ANNEX A: AGREEMENT AND PLAN OF MERGER................................................. A-1
ANNEX B: RESTATED CERTIFICATE OF INCORPORATION OF QUALITY FOOD, INC................... B-1
ANNEX C: CHAPTER 23B.13 OF THE WASHINGTON BUSINESS CORPORATION ACT (DISSENTERS'
RIGHTS)............................................................................. C-1
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AVAILABLE INFORMATION
The Company is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy and information statements and other information filed by the
Company can be inspected and copied at the public reference facilities of the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as at the following Commission Regional Offices: Seven World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies can be obtained from
the Commission by mail at prescribed rates. Requests should be directed to the
Commission's Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Certain securities of the Company are listed on the New York Stock
Exchange, Inc. (the "NYSE"), where reports, proxy statements and other
information concerning the Company may also be inspected. Following completion
of the Reorganization, New Parent and Quality Food Holdings, Inc., a recently
formed Delaware corporation and wholly owned subsidiary of New Parent ("Holding
Company"), will file such reports and other information as required under the
Exchange Act and the rules of the NYSE.
New Parent has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act registering the New Common Stock that will
be issued in the Reorganization. See "Proposal V: The Reorganization." This
Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted from this Proxy
Statement/Prospectus in accordance with the rules and regulations of the
Commission. Statements made in this Proxy Statement/Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. Items omitted from
this Proxy Statement/Prospectus but contained in the Registration Statement may
be inspected and copied as described above.
Upon completion of the Reorganization, the New Common Stock will be listed
on the NYSE and will trade under the current ticker symbol "XQ". At the time of
such listing, the Company Common Stock will be withdrawn from listing on the
NYSE and from registration under Section 12 of the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-15590)
pursuant to the Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996, as amended by Forms 10-K/A filed with the Commission on March
31, 1997, May 16, 1997 and July 23, 1997,
(2) The Company's Quarterly Report on Form 10-Q for the 12 weeks ended March
22, 1997, as amended by Forms 10-Q/A filed with the Commission on May 20, 1997
and July 23, 1997,
(3) The Company's Quarterly Report on Form 10-Q for the 12 weeks ended June
14, 1997, and
(4) The Company's amended Current Reports on Form 8-K/A filed with the
Commission on February 20, 1997, March 17, 1997 and July 23, 1997.
In addition, all reports and other documents filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Proxy Statement/Prospectus, and prior to the termination of the offering
shall be deemed to be incorporated by reference in this Proxy Statement/
Prospectus and to be a part hereof from the date of filing such documents. Any
statement contained in a
1
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document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/ Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS
(OTHER THAN EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE THEREIN) ARE AVAILABLE UPON WRITTEN OR ORAL REQUEST WITHOUT CHARGE BY
EACH PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED FROM THE
TREASURER OF THE COMPANY, 10112 N.E. 10th STREET, BELLEVUE, WASHINGTON 98004
(TELEPHONE NUMBER (206) 455-3761). IN ORDER TO ENSURE TIMELY DELIVERY OF
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1997.
No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this Proxy
Statement/Prospectus, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or New Parent.
This Proxy Statement/Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. This Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than those to which it relates. The delivery of this Proxy
Statement/Prospectus at any time does not imply that the information herein or
therein is correct as of any time subsequent to its date.
FORWARD-LOOKING STATEMENTS
Certain information contained herein or incorporated herein by reference
contains forward-looking statements that involve a number of risks and
uncertainties. A number of factors could cause results to differ materially from
those anticipated by such forward-looking statements. These factors include, but
are not limited to, the competitive environment in the supermarket industry in
general and in the Company's specific market areas, changes in prevailing
interest rates and the availability of financing, inflation, changes in costs of
goods and services, economic conditions in general and in the Company's specific
market areas, labor disturbances, demands placed on management by the
substantial increase in the size of the Company due to recent acquisitions,
changes in the corporate and management structure of New Parent and the Company
following the Reorganization and changes in the Company's acquisition plans. In
addition, such forward-looking statements are necessarily dependent upon
assumptions (including but not limited to assumptions regarding the application
of tax or other laws to the Reorganization and other transactions), estimates
and data that may be incorrect or imprecise. Accordingly, any forward-looking
statements included herein or incorporated herein by reference do not purport to
be predictions of future events or circumstances and may not be realized.
Forward-looking statements contained herein include statements relating to the
management and business focus of New Parent and the Company following completion
of the Reorganization and certain tax consequences of the Reorganization,
including statements in "Proposal V: The Reorganization--The Reorganization,"
"--Recommendation of the Board; Reasons for the Reorganization," "--Certain
Federal Income Tax Consequences; Accounting Treatment" and "--Certain
Information Regarding New Parent." Forward-looking statements included in
documents incorporated herein by reference are described in such documents.
2
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE, OR INCORPORATED BY REFERENCE, IN THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. SHAREHOLDERS ARE URGED TO READ THIS
PROXY STATEMENT/PROSPECTUS AND THE ANNEXES IN THEIR ENTIRETY.
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ELECTION OF DIRECTORS............. Four persons have been nominated for election as Class I
Directors of the Company for terms expiring at the
annual meeting of shareholders to be held in the year
2000 and until their successors are duly elected and
qualified. One person has been nominated for election as
a Class II Director of the Company for a term expiring
at the annual meeting of shareholders to be held in the
year 1998 and until his successor is duly elected and
qualified.
The nominees are John W. Creighton, Jr., Marc H.
Rapaport, Samuel Zell, Roger K. Hughes and Christopher
A. Sinclair, each of whom currently serves as a
director. See "Proposal I: Election of Directors." If
the Reorganization is approved, the persons currently
serving as directors of the Company (as well as those
elected at the Annual Meeting) will serve as the
directors of New Parent.
AMENDMENT OF 1993 EXECUTIVE STOCK
OPTION PLAN..................... The Board of Directors of the Company (the "Board of
Directors") has amended the Company's 1993 Executive
Stock Option Plan (the "Executive Plan"), subject to
shareholder approval, to increase from 700,000 to
1,700,000 the number of shares of Company Common Stock
available for issuance upon exercise of options granted
thereunder and to provide that no person shall be
eligible to receive under the Executive Plan in any
fiscal year options to purchase more than 500,000 shares
of Company Common Stock. The purpose of the Executive
Plan is to retain the services of valued key executive
officers of the Company and related companies through
significant proprietary incentives which reflect the
success of the Company and to serve as an aid and
inducement in hiring new executives. See "Proposal II:
Amendment of 1993 Executive Stock Option Plan."
DIRECTORS' STOCK UNIT
PLAN............................ The Board of Directors has adopted the Company's
Directors' Stock Unit Plan (the "Stock Unit Plan"),
subject to shareholder approval, which provides that
200,000 shares of Company Common Stock be reserved for
issuance upon conversion of stock units ("Stock Units")
granted thereunder. The purpose of the Stock Unit Plan
is to compensate nonemployee, nonaffiliated directors of
the Company. Stock Units may be awarded under the Stock
Unit Plan to all directors who are not officers or
otherwise employed by the Company, and who are not
affiliated with Sloan Capital Companies. See "Proposal
III: Directors' Stock Unit Plan."
1997 STOCK OPTION PLAN............ The Board of Directors has adopted the Company's 1997
Stock Option Plan (the "Option Plan"), subject to
shareholder
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approval, which provides that 1,000,000 shares of
Company Common Stock be reserved for issuance upon
exercise of stock options granted thereunder. The Option
Plan is intended to replace the Company's 1987 Incentive
Stock Option Plan, which has expired (the "Incentive
Plan"). The purposes of the Option Plan are to retain
the services of valued key employees, to encourage such
persons to acquire a greater proprietary interest in the
Company, thereby strengthening their incentive to
achieve the objectives of the shareholders, and to serve
as an aid and inducement in hiring new employees. See
"Proposal IV: 1997 Stock Option Plan."
THE REORGANIZATION
The Reorganization................ The Board of Directors has approved the Reorganization
pursuant to which, subject to shareholder approval, the
Company's corporate structure will be realigned to that
of a publicly traded holding company with Hughes and KUA
each becoming an indirect subsidiary of New Parent. As a
result of the Merger, each outstanding share of Company
Common Stock (other than shares held by holders who have
properly exercised dissenters' rights under Washington
law) will be converted into one share of New Common
Stock. After the Reorganization, New Parent's operations
will be carried out primarily through the Company,
Hughes and KUA, as operating subsidiaries of New Parent.
See "Proposal V: The Reorganization--The
Reorganization."
Recommendation of the Board;
Reasons for the
Reorganization.................. The Board of Directors has approved the Reorganization
and adopted the Merger Agreement and unanimously
recommends the approval of the Reorganization (which
includes approval of the Merger Agreement) by the
shareholders of the Company. In making its decision to
recommend the Reorganization to the shareholders, the
Board of Directors considered a number of factors,
including (i) flexibility for both the management and
business of the Company and New Parent within the
resulting corporate structure, (ii) control of the
Company's national growth strategy, (iii) broader
alternatives for future financing, and (iv) the modern,
comprehensive and flexible nature of the Delaware
General Corporation Law (the "DGCL"). See "Proposal V:
The Reorganization--Recommendation of the Board; Reasons
for the Reorganization."
Vote Required..................... The affirmative vote of the holders of not less than a
majority of the outstanding shares of Company Common
Stock is required to approve the Reorganization.
Abstentions and broker nonvotes will be counted as votes
against approval of the Reorganization. See "Proposal V:
The Reorganization--Vote Required."
Certain Federal Income Tax
Consequences; Accounting
Treatment....................... While not entirely free from doubt, as discussed below,
Bogle & Gates P.L.L.C. ("Bogle & Gates") is of the
opinion that for federal income tax purposes (i) the
Merger should qualify as an
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exchange pursuant to Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"), (ii) no gain or
loss should be recognized by the holders of Company
Common Stock as a result of the conversion of Company
Common Stock solely into New Common Stock pursuant to
the Merger, (iii) the tax basis of the New Common Stock
received by each such holder pursuant to the Merger
should be the same as the holder's basis in Company
Common Stock converted in the Merger, (iv) the holding
period of such New Common Stock should include the
period during which such holder held the Company Common
Stock converted in the Merger, provided that such
Company Common Stock was held as a capital asset on the
date of the exchange, and (v) dissenting holders of
Company Common Stock who receive solely cash in exchange
for all of their Company Common Stock should recognize
gain or loss equal to the difference between the cash
received and their adjusted tax basis in the shares of
Company Common Stock effectively exchanged therefor and
will be subject to ordinary income tax on any interest
received.
Notwithstanding the foregoing, the Reorganization could
adversely affect the federal income tax characterization
and consequences of a prior acquisition referred to
herein as the KUI Transactions. See "Proposal V: The
Reorganization--Certain Federal Income Tax Consequences;
Accounting Treatment."
Each holder of Company Common Stock should consult his
or her own tax advisor to determine the particular tax
consequences of the Merger to him or her.
The Merger will not result in a new basis of accounting,
and, as a result, the historical book basis of the
Company's assets and accounting methods will carry over
after consummation of the Reorganization. See "Proposal
V: The Reorganization--Certain Federal Income Tax
Consequences; Accounting Treatment."
Merger Agreement.................. The Merger Agreement has been unanimously adopted and
approved by the Board of Directors of each of the
Company, New Parent and Merger Sub, and by the sole
shareholder of each of New Parent and Merger Sub, and
each of these companies has executed the Merger
Agreement. The Merger Agreement provides, among other
things, that (i) Merger Sub will be merged with the
Company, with the Company being the surviving
corporation, and (ii) each outstanding share of Company
Common Stock outstanding immediately prior to the
Effective Time (as hereinafter defined) (other than
shares held by holders who have properly exercised
dissenters' rights under Washington law) will
automatically be converted into one share of New Common
Stock.
As a result of the Merger and certain related
transactions, the Company, Hughes and KUA each will
become an indirect wholly owned subsidiary of New
Parent.
The Merger Agreement provides that the Company, New
Parent and Merger Sub may by written agreement amend the
Merger Agreement at any time prior to the Effective
Time, and that the
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Merger Agreement may be terminated and abandoned at any
time by unilateral action of the Board of Directors. See
"Proposal V: The Reorganization--Merger Agreement."
Directors and Management.......... If the Reorganization is approved by the shareholders
and implemented, the persons elected as directors of the
Company at the Annual Meeting, as well as those persons
whose terms as directors of the Company shall continue,
will serve as the directors of New Parent. It is
expected that the executive officers of New Parent
following the completion of the Reorganization will
include Christopher A. Sinclair, President and Chief
Executive Officer, Fredrick S. Meils, Senior Vice
President for Corporate Development and William P.
Ketcham, Senior Vice President for Marketing and Public
Affairs. See "Proposal V: The Reorganization--Certain
Information Regarding New Parent--Directors and
Management."
Dividend Policy................... The Company currently does not pay cash dividends on
Company Common Stock, and the Company (and, upon
consummation of the Reorganization, New Parent) intends
to retain available funds to finance the growth and
operations of its business. In addition, the payment of
dividends is restricted by certain credit agreements of
the Company. See "Proposal V: The
Reorganization--Certain Information Regarding New
Parent--Dividend Policy."
Stock Exchange Listing............ New Parent has applied to list the New Common Stock on
the NYSE. It is expected that such listing will become
effective at the Effective Time, subject to the rules of
the NYSE, and New Parent will be identified on the NYSE
by the Company's current symbol, "XQ". See "Proposal V:
The Reorganization--Certain Information Regarding New
Parent--Stock Exchange Listing."
Transfer Agent and Registrar...... ChaseMellon Shareholder Services L.L.C., the Transfer
Agent and Registrar of the Company Common Stock, will
serve in the same capacities for the New Common Stock.
Certain Effects of
the Reorganization.............. The Company's current credit facility (the "New Credit
Facility") consists of (i) a $250 million term loan
facility (the "Term Loan Facility"), (ii) a $125 million
revolving credit facility (the "Revolving Credit
Facility"), and (iii) a $225 million reducing revolving
credit facility (the "Acquisition Facility"). The New
Credit Facility will remain in place following
consummation of the Reorganization, subject to certain
changes thereto. See "The Reorganization--Certain
Effects of the Reorganization."
The Company currently has outstanding $150 million
aggregate principal amount of its 8.70% Senior
Subordinated Notes due March 15, 2007 (the "Notes"). The
Notes will remain outstanding following consummation of
the Reorganization, subject to certain changes relating
to the guarantors thereof. See "The
Reorganization--Certain Effects of the Reorganization."
Upon consummation of the Merger, in accordance with the
terms of the Merger Agreement, New Parent will assume
certain obligations and liabilities of the Company,
including certain of the Company's obligations under the
current employment
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
agreements with Christopher A. Sinclair, Dan
Kourkoumelis and Marc W. Evanger and the Company's
obligations under each of the Executive Plan, the Stock
Unit Plan, the Option Plan, the Incentive Plan, the 1990
Employee Stock Purchase Plan (the "Purchase Plan") and
the Directors' Nonqualified Stock Option Plan (the
"Directors' Plan"). A vote in favor of the
Reorganization, including the Merger, will constitute
approval of New Parent's assumption of the Company's
obligations under such plans. See "Proposal V: The
Reorganization--Certain Effects of the Reorganization."
Certain Substantive Differences in
Corporation Laws................ As a result of the Merger, New Parent's business and
legal affairs will be governed by the laws of the State
of Delaware. There are certain differences between the
corporation laws of Washington and Delaware, which will
result in changes in the rights of shareholders if the
Merger is consummated, including differences with
respect to (i) the indemnification of officers and
directors, (ii) provisions affecting hostile takeovers,
(iii) mergers or sales of substantially all of a
corporation's assets, (iv) special meetings of
shareholders, (v) dissenters' rights, (vi) amendments to
the articles/certificate of incorporation, (vii)
shareholder action taken without a meeting, and (viii)
transactions with officers and directors. See "Proposal
V: The Reorganization--Certain Substantive Differences
in Corporation Laws."
Rights of Dissenting
Shareholders.................... A record holder of Company Common Stock will have the
right to dissent with respect to the Merger and, subject
to certain conditions, will be entitled to receive a
cash payment equal to the fair value of his or her
shares under the Washington business corporation act
(the "WBCA"). Any Company shareholder who intends to
exercise his or her dissenter's rights must not vote his
or her shares in favor of the Reorganization and must
satisfy the procedural requirements concerning
dissenters' rights specified in Chapter 23B.13 of the
WBCA, which is attached hereto as ANNEX C. See "Proposal
V: The Reorganization--Rights of Dissenting
Shareholders."
Regulatory Matters................ The Company is not aware of any material governmental
approvals or actions that may be required for
consummation of the Reorganization, including the
Merger. See "Proposal V: The Reorganization--Regulatory
Matters."
</TABLE>
7
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS
The only voting securities of the Company are shares of Company Common
Stock, each of which is entitled to one vote. Holders of Company Common Stock do
not have any cumulative voting rights. On the Record Date, there were
issued and outstanding shares of Company Common Stock. The closing price of a
share of Company Common Stock on the NYSE Composite Tape on , 1997
was .
The following table sets forth certain information as of August 1, 1997 with
respect to (i) all holders known by the Company to be the beneficial owners of
five percent or more of the outstanding shares of Company Common Stock, (ii)
each director and nominee, (iii) each of the executive officers named in the
Summary Compensation Table, and (iv) all executive officers, directors and
nominees of the Company as a group. Except as noted below, each person has sole
voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF SHARES
NAME AND ADDRESS (1) OWNERSHIP(2) OUTSTANDING(2)
- ------------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Zell/Chilmark Fund, L.P. (3)(4).......................................... 3,975,000 18.95%
FMR Corp. (5)............................................................ 2,199,000 10.48
Stuart M. Sloan (6)...................................................... 1,667,882 7.89
Christopher A. Sinclair.................................................. 500,000 2.33
Dan Kourkoumelis......................................................... 152,323 *
John W. Creighton, Jr.................................................... 16,708 *
Roger K. Hughes.......................................................... 0 --
Maurice F. Olson......................................................... 503,074 2.40
Marc H. Rapaport......................................................... 5,300 *
Sheli Z. Rosenberg (3)(4)................................................ 3,981,300 18.97
Ronald A. Weinstein...................................................... 299,192 1.43
Samuel Zell (3)(4)....................................................... 3,983,633 18.98
Marc W. Evanger.......................................................... 70,251 *
All executive officers, directors and nominees as a group (13 persons)... 7,204,663 32.87%
</TABLE>
- ------------------------------
* Denotes less than 1%.
(1) The business address of Zell/Chilmark Fund, L.P. ("Zell Chilmark"), Mr. Zell
and Ms. Rosenberg is Two North Riverside Plaza, Chicago, Illinois 60606. The
business address of FMR Corp. is 82 Devonshire Street, Boston, Massachusetts
02109. The business address of Mr. Sloan is 10112 N.E. 10th Street,
Bellevue, Washington 98004.
(2) Includes shares that may be acquired within 60 days through the exercise of
stock options or Stock Units, as follows: Mr. Sloan, 168,900 shares; Mr.
Sinclair, 500,000 shares; Mr. Kourkoumelis, 146,185 shares; Mr. Creighton,
12,833 shares; Mr. Olson, 8,633 shares; Mr. Rapaport, 5,300 shares; Ms.
Rosenberg, 5,300 shares; Mr. Weinstein, 14,633 shares; Mr. Zell, 8,633
shares; Mr. Evanger, 65,484 shares; and all executive officers and directors
as a group, 935,901 shares.
(3) By virtue of their positions with the entities that indirectly control the
general partner of Zell Chilmark, Mr. Zell and Ms. Rosenberg may be deemed
to beneficially own the shares of Company Common Stock beneficially owned by
Zell Chilmark. Mr. Zell and Ms. Rosenberg each disclaim beneficial ownership
of such shares.
(4) In connection with the Company's recapitalization that was completed in
March 1995 (the "Recapitalization"), Zell Chilmark and the Company entered
into a Standstill Agreement dated as of January 14, 1995 (the "Zell Chilmark
Standstill Agreement") pursuant to which Zell Chilmark agreed that it and
certain of its affiliates will not take any of the following actions without
the approval of a majority of the Company's disinterested directors, subject
to specified limited exceptions: (a) increase their ownership of Company
Common Stock (or securities convertible into or exchangeable for Company
Common Stock or other options or rights to acquire Company Common Stock)
prior to June 30, 2000 beyond 30% of the outstanding shares of Company
Common Stock; (b) sell or otherwise dispose of any Company Common Stock
prior to March 29, 1997; (c) sell or otherwise dispose of any Company Common
Stock during the two-year period following March 29, 1997 to any person or
group that would thereafter own (to Zell Chilmark's knowledge) more than 5%
of the outstanding Company Common Stock after such transfer; (d) form, join
or participate in any other way in a partnership, voting trust or other
"group" (as such term is defined under
8
<PAGE>
Section 13(d) of the Exchange Act), or enter into any agreement or
arrangement or otherwise act in concert with any other person, for the
purpose of acquiring, holding, voting or disposing of Company Common Stock;
(e) engage in certain specified takeover actions or take any other actions,
alone or in concert with any other person, to seek control of the Company or
otherwise seek to circumvent any of the foregoing limitations; or (f) engage
in any material transaction with the Company. See "Proposal I: Election of
Directors" and "Certain Relationships and Related Transactions."
(5) Based on a Schedule 13G dated May 8, 1997 filed with the Commission by FMR
Corp., a parent holding company, on behalf of itself and Fidelity Management
& Research Company, a wholly owned subsidiary of FMR Corp. and an investment
advisor ("Fidelity Management"), Edward C. Johnson 3d in his individual
capacity and as Chairman and a predominant shareholder of FMR Corp. and
Abigail Johnson in her individual capacity and as a director and a
predominant shareholder of FMR Corp. Fidelity Management reports that it is
the beneficial owner of 2,199,000 shares of Company Common Stock as a result
of acting as investment adviser to various investment companies registered
under Section 8 of the Investment Company Act of 1940 (the "Funds"), and
that one of the Funds, Fidelity Contrafund, owns 1,055,500 shares of the
Company Common Stock. FMR Corp. and Mr. Johnson report that they have sole
dispositive power with respect to 2,199,000 shares. Mr. Johnson and FMR
Corp. report that they do not have power to vote or direct the voting of
these shares, which power is held by the Boards of Trustees of each of the
Funds. Fidelity Management carries out the voting of the shares under
written guidelines established by the Funds' Boards of Trustees.
(6) In connection with the Recapitalization, Mr. Sloan and the Company entered
into a Standstill Agreement dated as of January 14, 1995 (the "Sloan
Standstill Agreement") pursuant to which Mr. Sloan agreed that he will not
take any of the following actions, subject to specified limited exceptions:
(a) sell or otherwise dispose of any Company Common Stock prior to March 29,
1997 (except (i) for the sale by Mr. Sloan to Zell Chilmark of 2,975,000
shares of Company Common Stock (which occurred on January 16, 1996); (ii) in
response to certain tender or exchange offers; and (iii) for charitable
donations of Company Common Stock in an amount not to exceed 200,000
shares); (b) form, join or participate in any other way in a partnership,
voting trust or other "group" (as such term is defined under Section 13(d)
of the Exchange Act), or enter into any agreement or arrangement or
otherwise act in concert with any other person, for the purpose of
acquiring, holding, voting or disposing of Company Common Stock; (c) engage
in any material transaction with the Company without the approval of a
majority of the Company's disinterested directors; or (d) engage in certain
specified takeover actions or take any other actions, alone or in concert
with any other person, to seek control of the Company or otherwise seek to
circumvent any of the foregoing limitations. See "Certain Relationships and
Related Transactions."
9
<PAGE>
PROPOSAL I:
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that the Board of Directors
is divided into three classes: Class I, Class II and Class III, each Class to be
as nearly equal in number as possible. Currently, the Board of Directors
consists of 10 persons. Unless a director has been appointed to fill a vacancy
or to fill a position that was created by increasing the number of directors,
each director serves for a term ending at the third annual shareholders meeting
following the annual meeting at which he or she was elected. Each director
serves until his or her successor is elected and qualified or until his or her
earlier death, resignation or removal. Four Class I directors and one Class II
director are to be elected at the Annual Meeting.
Information as to the nominees and as to each other director whose term will
continue after the Annual Meeting is provided below. The candidates elected will
be those receiving the largest numbers of votes cast by the shares entitled to
vote in the election, up to the number of directors to be elected by such
shares. Shares held by persons who abstain from voting on the election and
broker nonvotes will not be counted in the election. Unless otherwise
instructed, it is the intention of the persons named in the accompanying form of
proxy to vote shares represented by properly executed proxies for the nominees
of the Board of Directors named below. Although the Board of Directors
anticipates that the nominees will be available to serve as directors of the
Company, should any of them not accept the nomination, or otherwise be unwilling
or unable to serve, it is intended that the proxies will be voted for the
election of a substitute nominee or nominees designated by the Board of
Directors.
Two designees of Zell Chilmark (Mr. Zell and Ms. Rosenberg) are members of
the Board of Directors in accordance with the terms of the Recapitalization and
Stock Purchase and Sale Agreement, dated as of January 14, 1995 (the
"Recapitalization Agreement"), among the Company, Stuart M. Sloan and Zell
Chilmark. In addition, the Zell Chilmark Standstill Agreement provides that (i)
Zell Chilmark will continue to have two representatives on the Board of
Directors as long as Zell Chilmark owns at least 10% of the outstanding Company
Common Stock, (ii) the Company will not increase the size of its Board beyond
nine members as long as Zell Chilmark is entitled to two Board designees (which
covenant was waived with respect to the appointment of Mr. Hughes as a tenth
director of the Company), and (iii) with certain exceptions, Zell Chilmark will
vote its Company Common Stock for the election or removal of directors of the
Company either (a) in accordance with the recommendations of a majority of the
Company's disinterested directors or (b) in the same proportion as the other
shareholders vote on such matter. The Zell Chilmark Standstill Agreement also
imposes limitations on how Zell Chilmark may vote its Company Common Stock with
respect to any matter that would relate to a possible change in control of the
Company.
The terms of the Agreement and Plan of Merger, dated as of November 20,
1996, among the Company, QHI Acquisition Corporation and Hughes (the "Hughes
Merger Agreement"), provided that at the request of Roger K. Hughes, the Company
would cause Mr. Hughes to be appointed as a director of the Company promptly
following the closing of the transactions contemplated by the Hughes Merger
Agreement and to cause Mr. Hughes to be nominated for reelection as a director,
if he should so desire, at the next meeting of shareholders at which directors,
or the class of directors to which he is appointed, stand for reelection. Mr.
Hughes was appointed to the Board of Directors in July 1997.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES. PROXIES
WILL BE VOTED FOR ALL NOMINEES UNLESS INSTRUCTIONS TO THE CONTRARY ARE GIVEN.
10
<PAGE>
NOMINEES FOR ELECTION
CLASS I DIRECTORS (TERMS TO EXPIRE IN 2000)
John W. Creighton, Jr., 64, became a director of the Company in December
1989. He has served since 1988 as President and a director, and since August
1991 as Chief Executive Officer, of Weyerhaeuser Company, a forest products
company. Mr. Creighton also serves as a director of NHP, Inc. and Unocal
Corporation.
Marc H. Rapaport, 40, became a director of the Company in May 1996. Mr.
Rapaport is currently Chairman and lead investor in LA Soccer Partners, L.P. He
was a co-founder of the Capital Division of Jefferies and Company, Inc. in 1990
and served as Executive Vice President and director of corporate finance until
1994. Prior to 1990, Mr. Rapaport served as Executive Vice President and
co-director of Domestic Capital Markets at Drexel Burnham Lambert Inc. Mr.
Rapaport is a member of the Board of Governors of Cedars-Sinai Hospital.
Samuel Zell, 55, became a director of the Company in March 1995. Mr. Zell is
Chairman of the Board of Directors of Equity Group Investments, Inc., an owner,
manager and financier of real estate and corporations ("EGI"), Equity
Residential Properties Trust, a self-administered, self-managed equity real
estate investment trust specializing in multi-family housing ("EQR"), American
Classic Voyages Co., an owner and operator of cruise lines ("American Classic"),
Equity Office Properties Trust, a self-administered, self-managed equity real
estate investment trust specializing in office buildings ("EOP"), Anixter
International, Inc., a provider of integrated network and cabling systems
("Anixter"), Manufactured Home Communities, Inc., a self-administered and
self-managed real estate investment trust specializing in the ownership and
management of manufactured home communities ("MHC"), Jacor Communications, Inc.,
an owner and operator of radio stations ("Jacor"), and Capital Trust, a
specialized real estate finance company ("Capital Trust"). Mr. Zell is also
Chairman of the Board and Chief Executive Officer of Capsure Holdings Corp., a
holding company whose principal subsidiaries are specialty property and casualty
insurers ("Capsure"). He is also a director of Sealy Corporation, a bedding
manufacturer ("Sealy"), Ramco Energy PLC, an independent oil company based in
the United Kingdom, TeleTech Holdings, Inc., a provider of telephone and
computer-based customer care solutions ("TeleTech") and Chart House Enterprises,
Inc., an owner and operator of restaurants.
Roger K. Hughes, 71, became a director of the Company in July 1997. Mr.
Hughes is Chairman and a director of Hughes, a wholly owned subsidiary of the
Company. Mr. Hughes joined Hughes in 1952, and served as Chairman and Chief
Executive Officer from 1983 until May 1997. Mr. Hughes served as Chairman of the
California Growers Association from October 1989 until September 1990 and
currently serves as both Past Chairman and Past President. In addition, Mr.
Hughes serves on the Board of Directors of Certified Grocers of California and
as Past Chairman thereof and is a member of the Board of Regents, and the Board
of Trustees, of Mt. St. Mary's College.
CLASS II DIRECTOR (TERM TO EXPIRE IN 1998)
Christopher A. Sinclair, 46, has been a director and President and Chief
Executive Officer of the Company since September 1996. From 1984 to July 1996,
Mr. Sinclair served as a senior executive officer of PepsiCo, Inc. and most
recently served as Chairman and Chief Executive Officer of PepsiCola Company.
Prior to 1984, Mr. Sinclair was a marketing executive with General Foods
Company, Frito-Lay Company and Newsweek, Inc. Mr. Sinclair also serves as a
director of Mattel, Inc., Perdue Farms Incorporated and Woolworth Corporation.
If the Reorganization is approved by the Company's shareholders and implemented,
Mr. Sinclair will serve as President and Chief Executive Officer of New Parent
and Holding Company. See "Proposal V: The Reorganization."
11
<PAGE>
CONTINUING DIRECTORS
CONTINUING CLASS II DIRECTORS (TERMS TO EXPIRE IN 1998)
Maurice F. Olson, 52, became a director of the Company in March 1995. Mr.
Olson was Chairman and Chief Executive Officer of Olson's Food Stores, Inc. Mr.
Olson is the controlling member of Olson Management Group, LLC, a real estate
development and management company. He also serves as a director of Associated
Grocers, Incorporated ("Associated Grocers").
Stuart M. Sloan, 53, became a director of the Company in 1985 and has been
Chairman of the Board since June 1986. Mr. Sloan served as Chief Executive
Officer of the Company from June 1986 to February 1987 and again from April 1991
to September 1996. Mr. Sloan is the founder and a principal of Sloan Capital
Companies, a private investment company. Mr. Sloan also serves as a director of
Anixter, TeleTech and Cucina! Cucina!, Inc.
CONTINUING CLASS III DIRECTORS (TERMS TO EXPIRE IN 1999)
Dan Kourkoumelis, 45, became a director of the Company in April 1991. He
joined the Company as a courtesy clerk in 1967 and his experience includes
several ranks of store management and executive positions. Mr. Kourkoumelis was
appointed Executive Vice President in 1983, Chief Operating Officer in 1987,
President in 1989 and Chief Executive Officer in September 1996. In late May
1997, Mr. Kourkoumelis was appointed President and Chief Executive Officer of
Hughes. Mr. Kourkoumelis is a director of the Western Association of Food Chains
and Washington Food Industry, Associated Grocers and Expeditors International of
Washington, Inc. See "Proposal V: The Reorganization."
Sheli Z. Rosenberg, 55, became a director of the Company in April 1996. Ms.
Rosenberg has been President and Chief Executive Officer of EGI since November
1994 and has been its chief executive officer and a director for more than the
past five years. She has been a principal of the law firm of Rosenberg &
Liebentritt, P.C. since 1980. Ms. Rosenberg also serves as a director of
Anixter, Capsure, CVS Corporation, an owner and operator of drugstores, Illinova
Inc. and its subsidiary, Illinois Power Company, a supplier of electricity and
natural gas in Illinois, MHC, Sealy, American Classic and Jacor and is a trustee
of EQR, EOP and Capital Trust. Ms. Rosenberg was a Vice President of First
Capital Benefit Administrators, Inc., which filed a petition under the federal
bankruptcy laws in January 1995, which resulted in its liquidation in November
1995.
Ronald A. Weinstein, 55, served as a director of the Company from June 1986
to March 1987 and became a director again in February 1988. He was a principal
of Sloan Capital Companies, a private investment company, from 1984 to July
1991. From February 1989 until April 1991, Mr. Weinstein served as Executive
Vice President of Merchandising at Egghead, Inc., a reseller of microcomputer
software. Mr. Weinstein also serves as Chairman of B & B Auto Parts, Inc. and as
a director of Molbak's, Inc. and Coinstar, Inc.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held nine meetings during the fiscal year ended
December 28, 1996. In addition, as allowed by Washington law, the Board of
Directors took certain actions without a formal meeting five times during the
last fiscal year. Each of the present directors attended over 75% of the total
number of meetings of the Board of Directors and of its committees which he or
she was eligible to attend.
The Company has an Audit Committee consisting of Messrs. Creighton,
Rapaport, Olson and Weinstein. Two meetings of the Audit Committee were held
during fiscal 1996. The functions of the Audit Committee include (i) reviewing
the plan, scope and results of the annual independent audit and reporting to the
full Board of Directors whether financial information is fairly presented and
whether generally accepted accounting principles are followed; (ii) monitoring
the internal accounting and financial functions of the Company to ensure quality
of staff and proper internal controls; and (iii) investigating conflicts of
interest, ethics and compliance with laws and regulations.
12
<PAGE>
The Company has a Compensation Committee consisting of Messrs. Creighton,
Weinstein and Zell and Ms. Rosenberg. Five meetings of the Compensation
Committee were held during fiscal 1996 and, as allowed by Washington law, the
Compensation Committee took certain actions without formal meetings five times
during fiscal 1996. The functions of the Compensation Committee include setting
the compensation of the Company's executive officers and administering certain
of the Company's stock option plans.
The Company has a Nominating Committee consisting of Messrs. Sloan,
Weinstein and Zell. The Nominating Committee identifies potential candidates for
election to the Board of Directors, conducts background research and interviews
with respect to such candidates and makes recommendations to the full Board of
Directors. The Nominating Committee will consider nominees recommended by
shareholders of the Company in the manner set forth in the Company's charter and
as described under "Shareholder Proposals for the 1998 Annual Meeting of
Shareholders." The Nominating Committee did not meet independently of the full
Board of Directors in fiscal 1996.
DIRECTORS' FEES
Through April 30, 1996, directors who were not employees of the Company,
excluding Mr. Sloan, were paid an annual retainer of $10,000 plus $1,000 for
each Board of Directors meeting attended in person and $250 for each
teleconference, were reimbursed for their expenses incurred in attending such
meetings and were granted stock options under the Directors' Plan.
Under the Directors' Plan, each nonemployee (nonaffiliated) director of the
Company is granted a nonqualified option to purchase 10,000 shares of Company
Common Stock upon becoming a director. Prior to May 31, 1996, each director also
was granted a nonqualified option to purchase 1,000 shares of Company Common
Stock on an annual basis. Such options vest in equal annual installments over
three years and terminate, to the extent not previously exercised, upon the
occurrence of the first of the following events: (i) 10 years after the date of
grant; (ii) termination as a director for any reason other than death or
disability; or (iii) 30 days after termination as a director due to death or
disability. The option exercise price is the fair market value of Company Common
Stock on the date of grant. Upon exercise, the exercise price may be paid in
cash, by certified or cashier's check or in shares of Company Common Stock owned
by a director. Options to purchase up to 100,000 shares of Company Common Stock
are authorized under the Directors' Plan. At the end of fiscal 1996, options to
acquire an aggregate of 64,200 shares pursuant to the Directors' Plan were held
by six directors at an average exercise price of $24.24 per share. Options to
purchase 10,000 shares were granted pursuant to the Directors' Plan to each of
Ms. Rosenberg and Mr. Rapaport upon their joining the Board of Directors on
April 30, 1996 and May 28, 1996, respectively, at option prices of $26.00 and
$27.00 per share, respectively.
Effective April 29, 1996 through December 31, 1996, and on a calendar year
basis thereafter, directors who are not employees or officers of the Company and
who are not affiliated with Sloan Capital Companies will continue to be eligible
for the one-time grant of options noted above upon becoming a director. In
addition, in lieu of the annual retainer, meeting attendance fees and annual
stock option grants, each eligible director will receive $45,000, which will be
payable at the direction of the director in either cash or Stock Units pursuant
to the Stock Unit Plan. Pursuant to the terms of the Stock Unit Plan, each
eligible director will receive, on January 1 of each year, that number of Stock
Units equal to $45,000 (less the amount, if any, which the director elects to
receive in cash) divided by the fair market value of the Company Common Stock on
the date of the award. Stock Units vest in equal quarterly installments and may
be exercised and converted on a one-for-one basis into shares of Company Common
Stock on a date designated by each director prior to grant. For fiscal 1997,
1,334 Stock Units were awarded to each of six directors (for a total of 8,004
Stock Units). For fiscal 1996, the award value was prorated to $30,000,
resulting in 967 Stock Units being awarded to each of six directors (for a total
of 5,802 Stock Units). Stock Units convertible into 200,000 shares of Company
Common Stock may be issued pursuant to the Stock Unit Plan. The Stock Unit Plan
is subject to shareholder approval. See "Proposal III: Directors' Stock Unit
Plan."
13
<PAGE>
If the Reorganization is approved by the shareholders and implemented, the
Directors' Plan and the Stock Unit Plan will be assumed by New Parent and each
outstanding option or right under such plans will be converted into options or
rights to purchase or acquire shares of New Common Stock.
EXECUTIVE COMPENSATION
ANNUAL COMPENSATION
The following table shows the compensation for services rendered for each
person who served as the Chief Executive Officer of the Company and for each of
the other named executive officers who earned in excess of $100,000 during
fiscal 1996 (together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)(1)
- --------------------------------------------- ----------- ------------ ---------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Stuart M. Sloan.............................. 1996 $ 952,816 $ 250,000 50,000 $ 0
Chairman, Chief Executive 1995 981,068 0 58,900 0
Officer (2) 1994 1,131,757 0 50,000 0
Christopher A. Sinclair...................... 1996 173,077 87,500 500,000
President, Chief Executive 1995 0 0 0 0
Officer (3) 1994 0 0 0 0
Dan Kourkoumelis............................. 1996 285,000 195,000 35,000 35,009
President, Chief Executive 1995 275,000 145,000 130,000 35,996
Officer (4) 1994 233,528 143,000 30,000 20,862
Marc W. Evanger.............................. 1996 155,000 100,000 30,000 17,443
Vice President, Chief Financial 1995 150,000 75,000 100,000 17,663
Officer 1994 121,093 73,000 20,000 12,929
</TABLE>
- ------------------------------
(1) Of these amounts, $10,474 represents the accrued Company contributions made
on behalf of Messrs. Kourkoumelis and Evanger to the Quality Food Centers,
Inc. Defined Contribution Plan. The remaining amounts consist of cash
compensation of $24,535 and $6,969 payable to Mr. Kourkoumelis and Mr.
Evanger, respectively, representing the contributions that could not be made
to the Defined Contribution Plan on behalf of such individuals due to the
$150,000 limitation on compensation imposed on tax-qualified plans by the
Code.
(2) Mr. Sloan served as the Chief Executive Officer of the Company until
September 1996. Mr. Sloan continues to serve as Chairman of the Board of the
Company. Mr. Sloan received only management fees from the Company for fiscal
1994 and 1995. From August 17, 1986 to June 18, 1996, Sloan Capital
Companies, which is controlled by Mr. Sloan, received from the Company a
management fee of 0.2% of the Company's total sales pursuant to a management
agreement. The management fee was not adjusted during the term of the
management agreement, which expired on June 18, 1996, except that for the
fourth quarter of fiscal 1995, the parties agreed that Mr. Sloan would
accept options to purchase 58,900 shares of Company Common Stock in lieu of
a cash management fee, which would have been approximately $479,000. For the
period from December 31, 1995 through June 18, 1996, Sloan Capital Companies
was paid 0.2% of sales, or $683,585, under the agreement. For the period
from June 18, 1996 through December 28, 1996, Sloan Capital Companies was
paid an aggregate of $269,231, plus a bonus payment of $250,000. See
"Certain Relationships and Related Transactions."
(3) Mr. Sinclair was appointed President and Chief Executive Officer of the
Company in September 1996. See "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements."
(4) Mr. Kourkoumelis was appointed Chief Executive Officer of the Company in
September 1996. See "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements."
14
<PAGE>
OPTION GRANTS IN FISCAL 1996
The Company maintains stock option plans pursuant to which options to
purchase Company Common Stock are granted to officers and key employees of the
Company. The following tables show stock option grants in fiscal 1996 to the
Named Executive Officers and the year-end value of unexercised options. No
options were exercised in fiscal 1996 by any of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------------------ -------------- --------------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Stuart M. Sloan............... 50,000(3) 6.3 $ 22.25 2/12/2006 $ 699,500 $ 1,773,000
Christopher A. Sinclair....... 500,000(4) 63.3 31.50 9/17/2006 9,905,000 25,100,000
Dan Kourkoumelis.............. 35,000(5) 4.4 31.00 9/19/2006 682,500 1,729,350
Marc W. Evanger............... 30,000(5) 3.8 31.00 9/19/2006 585,000 1,482,300
</TABLE>
- ------------------------------
(1) The Company's stock option plans are administered by the Compensation
Committee of the Board of Directors, which determines to whom the options
are granted, the number of shares subject to each option, the vesting
schedule and the exercise price. Stock options granted to Messrs. Sloan,
Sinclair, Kourkoumelis and Evanger were granted pursuant to the Executive
Plan. See "Proposal II: Amendment of 1993 Executive Stock Option Plan."
(2) Potential realizable value is based on the assumption that the stock price
of the Company Common Stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the 10-year option term.
These numbers are calculated based on the requirements promulgated by the
Commission and do not reflect the Company's estimate of future stock price
performance. No gain to the optionee is possible without an increase in the
price of Company Common Stock, which would benefit all holders of Company
Common Stock commensurately.
(3) The options were granted pursuant to the Executive Plan on February 12,
1996, at fair market value and vest in equal installments over five years.
(4) The options were granted pursuant to the Executive Plan on September 17,
1996, at fair market value, vest subject to continued employment and are
100% exercisable at the earlier of seven years and such time as the Company
Common Stock trades at $40.00 per share for any consecutive 10-day trading
window. Such options became exercisable in January 1997.
(5) The options were granted pursuant to the Executive Plan on September 19,
1996, at fair market value and vest in equal installments over five years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR-END
YEAR-END (#) ($)(1)
----------------------- -----------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Stuart M. Sloan................................................ 138,900/120,000 $ 1,210,975/1,052,500
Christopher A. Sinclair........................................ 0/500,000(2) 0/1,000,000(2)
Dan Kourkoumelis............................................... 105,985/166,000 1,301,651/1,701,750
Marc W. Evanger................................................ 65,484/128,000 745,729/1,290,500
</TABLE>
- ------------------------------
(1) Value is based on (a) the fair market value of Company Common Stock at the
end of fiscal 1996 ($33.50 per share) less the option exercise price times
(b) the number of shares underlying the options.
(2) Such options became exercisable in January 1997.
15
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
Mr. Sinclair is employed pursuant to an agreement which provides for
continuation of his employment through September 16, 1999, subject to earlier
termination under various circumstances. The agreement provides for an annual
base salary of $600,000, subject to increase by the Compensation Committee, as
well as an annual bonus, targeted at 50% of annual base salary, although the
actual amount of bonus paid is based on criteria established from time to time
by the Company's Compensation Committee, which amount may be more or less than
50% of annual base salary. Pursuant to the agreement, Mr. Sinclair was granted
options to purchase a total of 500,000 shares of Company Common Stock at an
exercise price of $31.50 per share pursuant to the Executive Plan. See
"Executive Compensation--Option Grants in Fiscal 1996" and "Proposal II:
Amendment of 1993 Executive Stock Option Plan" for a more complete description
of such options. The agreement also provides for additional grants of stock
options to Mr. Sinclair on the first and second anniversaries thereof, based on
a formula which generally provides for options equal to three times base salary
and target bonus, divided by the market price of Company Common Stock on or
prior to the date of each such grant. If Mr. Sinclair's employment is terminated
under certain circumstances prior to September 16, 1999 (including within 90
days after a change in control of the Company), Mr. Sinclair would be entitled
to severance payments equal to his base salary through September 16, 1999, plus
the target bonus applicable to the period during which such termination
occurred. The agreement expressly provides for adoption of the holding company
structure, and the obligations under the agreement would be assumed by New
Parent upon consummation thereof. See "Compensation Committee Report on
Executive Compensation" and "Proposal V: The Reorganization."
Mr. Kourkoumelis is employed pursuant to an agreement which provides for
continuation of his employment through September 1, 1999, subject to earlier
termination under various circumstances. The agreement provides for an annual
base salary of $283,246, subject to increase by the Compensation Committee. In
the event Mr. Kourkoumelis' employment is terminated under certain circumstances
prior to September 1, 1999 (including termination by the Company within 180 days
after a change in control of the Company), Mr. Kourkoumelis would be entitled to
severance payments equal to the sum of his base salary plus bonus for a period
of two years from the date of such termination, and all options to purchase
shares of Company Common Stock then held by Mr. Kourkoumelis would immediately
vest. See "Compensation Committee Report on Executive Compensation." Beginning
in late May 1997, Mr. Kourkoumelis was appointed President and Chief Executive
Officer of Hughes at an annual base salary of $355,000.
Mr. Evanger is employed pursuant to an agreement which provides for
continuation of his employment through September 1, 1999, subject to earlier
termination under various circumstances. The agreement provides for an annual
base salary of $154,498, subject to increase by the Compensation Committee. In
the event Mr. Evanger's employment is terminated under certain circumstances
prior to September 1, 1999 (including termination by the Company within 180 days
after a change in control of the Company), Mr. Evanger would be entitled to
severance payments equal to the sum of his base salary plus bonus for a period
of two years from the date of such termination, and all options to purchase
shares of Company Common Stock then held by Mr. Evanger would immediately vest.
See "Compensation Committee Report on Executive Compensation."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is determined by the
Compensation Committee, which is comprised solely of directors who have never
served as officers or employees of the Company. The Company and the Compensation
Committee have also retained independent compensation consultants to assist in
developing, and periodically assessing the reasonableness of, the compensation
program for executive officers.
16
<PAGE>
COMPENSATION PHILOSOPHY
The philosophy of the Compensation Committee in determining executive
compensation is that such compensation should (i) reflect Company performance,
(ii) reward individual performance, (iii) align the interests of the executives
with the long-term interests of the shareholders, and (iv) assist the Company in
attracting and retaining key executives critical to the long-term success of the
Company. Historically, it has been the Company's policy to set compensation for
its senior executives at or near the median for other companies of similar size
in the food and consumer goods industry. In 1996, the Company made a commitment
to raise the overall compensation levels of its senior executives above the
industry median through the payment of enhanced performance-based bonuses and
long-term incentives, and to thereby be in a position to attract and retain
executives of the highest quality. In addition, such commitment was made in
connection with the Company's determination to seek to implement the
Reorganization and the Company's objective to become a leading multi-regional
operator of premium supermarkets.
PRINCIPAL COMPENSATION ELEMENTS
Executive compensation, other than for the Company's Chairman, consists
primarily of (i) base salary, (ii) a bonus, and (iii) the grant of stock
options. Base salary is determined at or about the beginning of a fiscal year,
while bonuses are determined at the end of the fiscal year, thereby allowing the
Compensation Committee to take into account Company and individual performance
in determining a significant portion of an executive's compensation. Stock
option grants generally are determined at the end of the fiscal year but may
occur at any time.
BASE SALARY. In fiscal 1996, the Compensation Committee continued its
practice of fixing base salaries for its executive officers at levels it
believed are at or below the median for the salaries paid to executive officers
holding comparable positions at other similarly sized companies in the food and
consumer goods industry based upon reports, salary surveys and input from
compensation consultants. Some of the companies considered relevant for salary
comparison purposes are included in the S&P Retail Stores--Food Chains Index
which is plotted in the performance graph following this report.
BONUSES. In fiscal 1996, the Compensation Committee began fixing bonuses at
levels it believed are at or above the level of bonuses paid to executive
officers holding comparable positions at similar companies. Bonuses are
discretionary and are determined subjectively, with the Compensation Committee
taking into account Company and individual performance. Target bonuses have been
established for certain senior executives. Both financial and nonfinancial
factors, including the Company's growth, increases in operating income and
increases in an executive's responsibilities, are considered.
STOCK OPTIONS. The Compensation Committee grants stock options to its
executive officers pursuant to the Executive Plan. Such awards are designed to
align a significant portion of executive compensation with shareholder
interests, as well as provide long-term incentives to the executive. The
Compensation Committee considers the amount of options granted to the executive
officer in prior years, as well as his or her position and responsibilities.
Except with respect to Mr. Sinclair, stock option grants for fiscal 1996 were
discretionary and determined subjectively. There is no target percentage or
range of overall executive compensation that the Compensation Committee expects
to be represented by stock option grants; however, in fiscal 1996, the
Compensation Committee made a commitment that the Company be in the top quartile
of similarly sized companies in the food and consumer goods industry when ranked
on the basis of stock option grants to senior executives.
CEO COMPENSATION
MR. SLOAN. Mr. Sloan served as Chief Executive Officer of the Company until
September 1996 and continues to serve as Chairman of the Company. For fiscal
1996, Mr. Sloan, through Sloan Capital Companies, received a management fee of
0.2% of the Company's total sales for the first two fiscal
17
<PAGE>
quarters of 1996 pursuant to a management agreement entered into in 1986, which
expired on June 18, 1996. The management fee was negotiated between Mr. Sloan
and the Company in connection with Mr. Sloan's acquisition of the Company in
1986. Although the Company made a decision in 1996 to conduct a search for a new
Chief Executive Officer, and Mr. Sinclair began serving in such position in
September, 1996, the Compensation Committee agreed to pay Mr. Sloan, through
Sloan Capital Companies, a fee of $269,231 plus a bonus of $250,000 for the
period from June 18, 1996 to December 28, 1996. In determining Mr. Sloan's
compensation during the period following expiration of the management agreement,
the Compensation Committee placed considerable importance on Mr. Sloan's
leadership and overall contribution toward the acquisition of Hughes and of
Keith Uddenberg, Inc. ("KUI"). Effective January 1, 1997, Mr. Sloan's
compensation was reduced to $150,000 per year.
The Compensation Committee granted Mr. Sloan stock options to purchase
50,000 shares of Company Common Stock pursuant to the Executive Plan at fair
market value on February 12, 1996 to provide Mr. Sloan with additional incentive
to improve the long-term performance of Company Common Stock from current
levels. An additional grant of stock options to purchase 50,000 shares of
Company Common Stock at then current fair market value was made on January 23,
1997 as further recognition of Mr. Sloan's contribution to the Hughes
acquisition.
MR. SINCLAIR. Mr. Sinclair has served as Chief Executive Officer of the
Company since September 1996. The salary and bonus opportunities for Mr.
Sinclair were set by his employment agreement. His annual base salary is
$600,000, of which $173,077 was paid in 1996, and his target bonus is 50% of
base salary. For 1996, Mr. Sinclair was awarded a bonus of $87,500, or 100% of
his 50% target bonus. Pursuant to his employment agreement, Mr. Sinclair was
also granted stock options to purchase 500,000 shares of Company Common Stock
pursuant to the Executive Plan. The compensation paid to Mr. Sinclair reflects
the commitment of the Compensation Committee to raise the overall compensation
level of its senior executives above the median for other public companies in
the retail food chain industry, and thereby be in a position to attract and
retain executives of outstanding quality.
MR. KOURKOUMELIS. Mr. Kourkoumelis has served as Chief Executive Officer of
the Company since September 1996. Previously, he served as President and Chief
Operating Officer of the Company. Mr. Kourkoumelis received a base salary of
$285,000 in 1996 and was paid a bonus of $195,000. He also was granted stock
options for 35,000 shares of Company Common Stock pursuant to the Executive
Plan.
Certain compensation paid to the Named Executive Officers may not be
deductible by the Company due to the limitations imposed by Section 162(m) of
the Code, which generally limits to $1 million a public corporation's annual
federal tax deduction for compensation paid to certain of its most highly
compensated executive officers, including the chief executive officer. However,
certain qualified performance-based compensation is not subject to the $1
million deduction limit if the requirements of Section 162(m) and the
regulations thereunder are satisfied. Although it is the policy of the Company
to attempt to structure its executive compensation program in a manner which
will avoid the limitations of Section 162(m), to the extent it can reasonably do
so consistent with its goal of retaining and motivating its executives, a
portion of the compensation payable to the Named Executive Officers may not
constitute qualified performance-based compensation and will therefore not be
deductible by the Company.
The Compensation Committee believes that the Company's compensation program
properly rewards its executive officers and other employees for achieving
improvements in the Company's performance and serving the interest of its
shareholders.
COMPENSATION COMMITTEE
Samuel Zell, Chairman
John W. Creighton, Jr.
Sheli Z. Rosenberg
Ronald A. Weinstein
18
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Creighton, Weinstein and
Zell and Ms. Rosenberg. Mr. Sloan, the Company's Chairman, is a director and
serves on the compensation committee of Anixter. Mr. Zell is the Chairman of the
Board of Anixter and Ms. Rosenberg is a director of Anixter.
In connection with the Recapitalization, the Company issued to Zell Chilmark
1,000,000 shares of Company Common Stock at $25.00 per share on March 29, 1995.
Mr. Zell and Ms. Rosenberg indirectly control the general partner of Zell
Chilmark. See "Certain Relationships and Related Transactions."
During fiscal 1996, the Company and certain of its subsidiaries incurred
legal fees for services provided by Rosenberg & Liebentritt, P.C., a law firm of
which Ms. Rosenberg, a director, is a principal. Such legal fees were for
certain legal services, including services performed in connection with various
general corporate matters.
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG QUALITY FOOD CENTERS, INC.,
S&P 500 INDEX AND S&P RETAIL STORES--FOOD CHAINS INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOTAL SHAREHOLDER RETURNS
<S> <C> <C> <C>
Years Ended QUALITY FOOD CENTERS, INC. RETAIL (FOOD CHAINS) - 500 S&P 500 INDEX
Dec-91 $100.00 $100.00 $100.00
Dec-92 $113.95 $130.78 $107.62
Dec-93 $77.13 $126.84 $118.46
Dec-94 $75.87 $135.76 $120.03
Dec-95 $89.33 $173.91 $165.13
Dec-96 $108.38 $201.90 $203.05
</TABLE>
The above comparison assumes $100 invested in Company Common Stock, the S&P
500 Index and the S&P Retail Stores--Food Chains Index on December 31, 1991.
Effective February 20, 1997, the Company's shares were listed for trading on the
NYSE.
19
<PAGE>
PROPOSAL II:
AMENDMENT OF
1993 EXECUTIVE STOCK OPTION PLAN
The Board of Directors has amended the Executive Plan to increase from
700,000 to 1,700,000 the number of shares of Company Common Stock available for
issuance upon exercise of options to acquire Company Common Stock granted under
the Executive Plan, subject to approval by the shareholders at the Annual
Meeting. The Executive Plan was also amended to provide that no person shall be
eligible to receive under such plan in any fiscal year more than 500,000 shares
of Company Common Stock, subject to approval by the shareholders at the Annual
Meeting. The amendments will be approved if the number of votes cast in their
favor exceeds the number cast against (provided that the total votes cast on the
proposal represent over 50% in interest of all securities entitled to vote on
the proposal). Abstentions and broker nonvotes will not be counted. Unless
otherwise instructed, it is the intention of the persons named in the
accompanying form of proxy to vote shares represented by properly executed
proxies for the amendments to the Executive Plan.
As of August 1, 1997, options to purchase 1,160,900 shares of Company Common
Stock had been granted under the Executive Plan (460,900 of which are subject to
shareholder approval of the amendments).
The Executive Plan was adopted by the Board of Directors in January 1993 and
approved by the shareholders in April 1993. The Executive Plan currently
provides that 700,000 shares of Company Common Stock are reserved for issuance
upon the exercise of options granted thereunder, subject to adjustment for stock
dividends, stock splits, reverse stock splits and other similar changes in the
Company's capitalization. Shares of Company Common Stock received or withheld by
the Company as payment upon exercise of options are added to the number of
shares as to which options may be granted. Shares subject to options that expire
unexercised also are available for new option grants.
The purpose of the Executive Plan is to retain the services of valued key
executive officers (individually, an "Executive") of the Company and related
companies through significant proprietary incentives which reflect the success
of the Company and to serve as an aid and inducement in hiring new Executives.
Primary authority for administration of the Executive Plan is held by the
Board of Directors, except that the Board may establish a committee to
administer the Executive Plan (the Board or such committee hereinafter referred
to as the "Plan Administrator"). In January 1993, the Board of Directors
delegated to the Compensation Committee the responsibility to administer the
Executive Plan and authorized the Compensation Committee to serve as the Plan
Administrator.
Options may be granted under the Executive Plan to any Executive that the
Plan Administrator may select. An Executive who has been granted an option may,
if he or she is otherwise eligible, be granted an additional option or options
under the other stock option plans of the Company.
The exercise price for options granted pursuant to the Executive Plan must
not be less than the fair market value of the Company Common Stock on the date
of grant, as determined by the Plan Administrator. No option is exercisable
until it has vested. The Plan Administrator may specify the vesting schedule for
an option when it is granted. If no vesting schedule is specified, 20% of the
shares covered by an option will become exercisable on each anniversary of the
date of grant.
The Plan Administrator may accelerate the vesting of options. The Executive
Plan also provides that all options outstanding upon the declaration by the
Company of an Extraordinary Dividend or at the date of a Change in Control (as
those terms are defined in the Executive Plan) will become fully vested and
immediately exercisable for the duration of the option term as of the date of
the Change in Control or declaration of the Extraordinary Dividend.
20
<PAGE>
Options are nontransferable except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order. With certain
exceptions, each outstanding option terminates, to the extent not previously
exercised, upon the occurrence of the first of the following: (i) the expiration
of the option term, as specified by the Plan Administrator at the time of grant
of the option (generally 10 years); (ii) the expiration of 90 days from the date
of an optionee's termination of employment or contractual relationship with the
Company for any reason other than death or disability, unless extended by the
Plan Administrator until a date no later than the expiration date of the option;
or (iii) the expiration of a one-year period from the date of an optionee's
death or the cessation of an optionee's employment with the Company by reason of
disability, unless extended by the Plan Administrator until a date not later
than the expiration of the option.
Options may be exercised, either in whole or in part, at any time after
vesting, until termination (subject to any applicable holding period
requirements of Exchange Act Rule 16b-3) by giving the Plan Administrator an
executed notice of election to exercise specifying the number of shares to be
purchased. Upon exercise, the exercise price may be paid in cash or by certified
or cashier's check or, upon approval of the Plan Administrator, by (i)
delivering shares of Company Common Stock previously held, (ii) having shares
withheld from the number of shares to be received, (iii) delivering an
irrevocable subscription agreement obligating the Executive to take and pay for
the underlying shares of Company Common Stock to be purchased within one year of
the date of exercise, or (iv) complying with any other payment mechanisms the
Plan Administrator may approve.
The Plan Administrator may amend or modify the Executive Plan, except that
no amendment with respect to an outstanding option may be made over the
objection of the holder of the option and no amendment that would permit the
granting of options to a class of persons other than those currently eligible to
receive options under the Executive Plan or that would cause the Executive Plan
to no longer comply with Exchange Act Rule 16b-3 or any successor rule may be
made without the approval of the holders of a majority of the Company's
outstanding shares of voting capital stock represented at a meeting at which a
quorum is present.
Options granted under the Executive Plan are not intended to qualify under
Section 422 of the Code. The Executive Plan is not subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and is not
qualified under Section 401(a) of the Code. The Plan Administrator may take such
measures as it deems appropriate to ensure that the applicable requirements of
federal and state securities laws and the withholding provisions of the Code
have been met.
Options granted under the Executive Plan will be exercisable for shares of
Company Common Stock prior to consummation of the Reorganization and for shares
of New Common Stock after consummation of the Reorganization and the assumption
of the Executive Plan by New Parent (if the Reorganization is approved by
shareholders and implemented). The Company cannot now determine the number of
options to be received in the future by individual Executives or all executive
officers as a group under the Executive Plan. Six persons are currently eligible
to participate in the Executive Plan.
Set forth below is certain information with respect to options granted that
prior to the exercise thereof require shareholder approval of the amendments to
the Executive Plan.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING EXERCISE
OPTIONS GRANTED PRICE EXPIRATION
NAME (#) (#/SH) DATE
- ------------------------------------------------------------------- --------------- ------------- ------------
<S> <C> <C> <C>
Stuart M. Sloan.................................................... 50,000 $ 39.250 1/22/2001
Christopher A. Sinclair............................................ 500,000 31.500 9/17/2006
Fredrick S. Meils.................................................. 32,000 34.125 1/05/2007
William P. Ketcham................................................. 19,000 40.250 3/18/2007
</TABLE>
21
<PAGE>
FEDERAL INCOME TAX INFORMATION
See the discussion of the federal income tax consequences for Non-Qualified
Stock Options (as hereinafter defined) under "Proposal IV: 1997 Stock Option
Plan--Federal Income Tax Information."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE PROPOSED AMENDMENTS TO THE 1993 EXECUTIVE STOCK OPTION PLAN. PROXIES WILL BE
VOTED FOR THE PROPOSED AMENDMENT UNLESS INSTRUCTIONS TO THE CONTRARY ARE GIVEN.
PROPOSAL III:
DIRECTORS' STOCK UNIT PLAN
The Board of Directors adopted the Stock Unit Plan effective April 29, 1996,
subject to approval by the shareholders at the Annual Meeting. The Stock Unit
Plan will be approved if the number of votes cast in its favor exceeds the
number cast against (provided that the total votes cast on the proposal
represent over 50% in interest of all securities entitled to a vote on the
proposal). Abstentions and broker nonvotes will not be counted. Unless otherwise
instructed, it is the intention of the persons named in the accompanying form of
proxy to vote shares represented by properly executed proxies for the approval
and ratification of the Stock Unit Plan.
The Stock Unit Plan provides that 200,000 shares of Company Common Stock be
reserved for issuance upon the conversion of Stock Units granted thereunder,
subject to adjustment for stock dividends, stock splits, reverse stock splits
and other like changes in the Company's capitalization. If any outstanding Stock
Units expire or are terminated for any reason, those shares of Company Common
Stock allocable to the unvested portion of such Stock Units may again be subject
to a Stock Unit. The purpose of the Stock Unit Plan is to compensate certain
directors of the Company.
Stock Units may be awarded under the Stock Unit Plan to all directors who
are not officers or otherwise employed by the Company or any of its
subsidiaries, and who are not affiliated with Sloan Capital Companies.
Pursuant to the terms of the Stock Unit Plan, each eligible director will
receive, on January 1, 1997 and subsequent years, that number of Stock Units
equal to $45,000 (less the amount, if any, which the director elects to receive
in cash) divided by the fair market value of the Company Common Stock on the
date of the award. With respect to the partial year beginning April 29, 1996 and
ending December 31, 1996, each eligible director received a grant of 967 Stock
Units, determined by dividing $30,000 by the $31.00 per share fair market value
of the Company Common Stock on the date the Stock Unit Plan was adopted by the
Board. Each eligible director may, by written notice delivered to the Company no
later than 15 days prior to each grant date, elect to receive all or any portion
(but not less than $20,000) of his or her annual retainer in the form of cash
instead of Stock Units, which amount shall be payable no later than 60 days
after the grant date.
Stock Units vest in equal quarterly installments and may be exercised and
converted on a one-for-one basis into shares of Company Common Stock. Pursuant
to the terms of the Stock Unit Plan, each eligible director shall provide
written notice not later than 15 days prior to each grant date indicating the
date or dates upon which any or all of the Stock Units to be granted to such
director on such grant date shall be exercised and converted into shares of
Company Common Stock; provided, however, that no Stock Unit shall be exercisable
prior to the later of (i) the day on which it has vested and (ii) November 28,
1997. If no such election is made, such director shall be deemed to have elected
to exercise and convert all applicable Stock Units immediately upon his or her
resignation, removal or other termination of membership on the Board of
Directors.
Stock Units are nontransferable except by will or the laws of descent and
distribution. Each unvested Stock Unit granted under the Stock Unit Plan shall
terminate, and cash amounts, if any, paid with respect to an annual retainer
shall be subject to recapture (on a pro rata basis), upon the director's
resignation,
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removal or other termination as a director of the Company for any reason
whatsoever. Vested Stock Units will continue to be exercisable in accordance
with the Stock Unit Plan following a director's resignation, removal or
termination.
Stock Units awarded under the Stock Unit Plan are not intended to qualify
under Section 422 of the Code. The Stock Unit Plan is not subject to ERISA and
is not qualified under Section 401(a) of the Code.
Upon the exercise and conversion of any Stock Unit, the Company shall
withhold any amount which it is required to withhold under any applicable state
or federal tax laws or regulations.
Stock Units awarded under the Stock Unit Plan may be converted, in
accordance with the terms of the Stock Unit Plan, into shares of Company Common
Stock prior to consummation of the Reorganization, and into shares of New Common
Stock after consummation of the Reorganization and the assumption of the Stock
Unit Plan by New Parent (if the Reorganization is approved by shareholders and
implemented). For fiscal 1997, 1,334 Stock Units were awarded to each of six
directors (for a total of 8,004 Stock Units). For fiscal 1996, the award value
was prorated to $30,000, resulting in 967 Stock Units being awarded to each of
six directors (for a total of 5,802 Stock Units). Currently, six persons are
eligible to participate in the Stock Unit Plan.
FEDERAL INCOME TAX INFORMATION
The following description addresses the federal income tax consequences of
participation in the Stock Unit Plan and is intended merely to provide basic
information with respect to the tax treatment applicable to the Stock Unit Plan.
Although the Company believes the following statements are correct, the
statements are based upon legislative, administrative and judicial authority
that is subject to revision and differing interpretations. Each participant in
the Stock Unit Plan should consult his or her own tax advisor concerning the tax
consequences of the grant, exercise or conversion of Stock Units and the sale or
other disposition of any shares of Company Common Stock (or New Common Stock)
acquired pursuant to the exercise and conversion of a Stock Unit. Individual
financial and tax situations may vary and state and local tax considerations may
be significant.
There will be no federal income tax consequences to the director or the
Company upon the grant of Stock Units. Directors generally will recognize
ordinary taxable income at the time the Stock Units are exercised and converted
into shares of Company Common Stock (or New Common Stock) in an amount equal to
the fair market value of the shares acquired. However, a director will not
recognize taxable income at the time of the exercise and conversion if the sale
of the shares received could subject the director to suit under Section 16(b) of
the Exchange Act, but instead will recognize ordinary income equal to the fair
market value of the shares received on the first day that such a sale is no
longer subject to Section 16(b). Alternatively, a director subject to Section
16(b) may elect under Section 83(b) of the Code, within 30 days after receipt of
shares of Company Common Stock (or New Common Stock), to recognize income at the
time of the automatic exercise and conversion in an amount equal to the fair
market value of such shares on such date. Directors who elect to receive all or
a portion of their annual retainer in the form of cash will recognize ordinary
taxable income upon receipt of the cash retainer payment.
Generally, the Company will be entitled to an income tax deduction at the
same time and in the same amount as the director recognizes ordinary taxable
income.
Company Common Stock (or New Common Stock) acquired through the automatic
exercise and conversion of Stock Units will be a capital asset in the hands of
the director. Upon disposition of the shares of Company Common Stock (or New
Common Stock), the holder will recognize a capital gain or loss equal to the
difference between the consideration received for such shares less the holder's
adjusted basis. The sale of Company Common Stock (or New Common Stock) has no
tax impact on the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE APPROVAL AND RATIFICATION OF THE DIRECTORS' STOCK UNIT PLAN. PROXIES WILL BE
VOTED FOR THE PROPOSED PLAN UNLESS INSTRUCTIONS TO THE CONTRARY ARE GIVEN.
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PROPOSAL IV:
1997 STOCK OPTION PLAN
In May 1997, the Board of Directors adopted the Option Plan, subject to
approval by the shareholders at the Annual Meeting. The Option Plan will be
approved if the number of votes cast in its favor exceeds the number of votes
cast against (provided that the total votes cast on the proposal represent over
50% in interest of all securities entitled to a vote on the proposal).
Abstentions and broker "nonvotes" will not be counted. Unless otherwise
instructed, it is the intention of the persons named in the accompanying form of
proxy to vote shares represented by properly executed proxies for the approval
and ratification of the Option Plan.
The Option Plan provides that 1,000,000 shares of Company Common Stock be
reserved for issuance upon the exercise of options ("Options") to acquire
Company Common Stock granted thereunder, subject to adjustment for stock
dividends, stock splits, reverse stock splits and other similar changes in the
Company's capitalization. The Option Plan provides for the discretionary grant
of incentive stock options within the meaning of Section 422 of the Code
("Incentive Stock Options") to employees and the discretionary grant of
nonqualified stock options ("Non-Qualified Stock Options") to employees and such
other persons as the Plan Administrator (as hereinafter defined) may select.
Shares subject to Options that are cancelled or expire unexercised also are
available for new Option grants.
The purposes of the Option Plan are to retain the services of valued key
employees of the Company and such other persons as the Plan Administrator shall
select in accordance with the terms of the Option Plan, to encourage such
persons to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the shareholders, and
to serve as an aid and inducement in hiring new employees and to provide an
equity incentive to other persons selected by the Plan Administrator.
Primary authority for administration of the Option Plan is held by the Board
of Directors, except that the Board may establish a committee to administer the
Option Plan (the Board or such committee hereinafter referred to as the "Plan
Administrator"). In May 1997, the Board of Directors delegated to the
Compensation Committee the responsibility to administer the Option Plan and
authorized the Compensation Committee to serve as the Plan Administrator.
Incentive Stock Options may be granted to any individual who, at the time
the Option is granted, is an employee of the Company or any related corporation
("Employee"). Non-Qualified Stock Options may be granted to Employees and to
such other persons other than directors who are not Employees as the Plan
Administrator shall select. An Employee who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or options
under the Company's other stock options plans. No person shall be eligible to
receive in any fiscal year Options to purchase more than 50,000 shares of
Company Common Stock (subject to adjustment for stock dividends, stock splits,
reverse stock splits and other similar changes in the Company's capitalization).
The exercise price for Options granted pursuant to the Option Plan shall be
fixed by the Plan Administrator at whatever price the Plan Administrator may
determine in the exercise of its sole discretion; provided, however, that the
per share exercise price for an Incentive Stock Option or any Option granted to
a "covered employee," as such term is defined for purposes of Section 162(m) of
the Code, shall not be less than the fair market value per share of Company
Common Stock at the date of grant as determined by the Plan Administrator in
good faith; provided further, that with respect to Incentive Stock Options
granted to greater-than-ten percent shareholders of the Company (as determined
by reference to Section 424(d) of the Code), the exercise price per share shall
not be less than 110% of the fair market value per share of Company Common Stock
at the date of grant as determined by the Plan Administrator in good faith.
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No Option is exercisable until it has vested. The Plan Administrator may
specify the vesting schedule for an Option when it is granted. If no vesting
schedule is specified, 20% of the shares covered by an Option will become
exercisable on each anniversary of the date of grant. The Plan Administrator may
accelerate the vesting of Options.
The Plan Administrator may specify a vesting schedule for all or any portion
of an Option based on the achievement of performance objectives established in
advance of the commencement by the optionee of services related to the
achievement of performance objectives, which shall be expressed in terms of one
or more of the following: return on equity, return on assets, share price,
market share, sales, earnings per share, costs, net earnings, net worth,
inventories, cash and cash equivalents, gross margin or the Company's
performance relative to its internal business plan. Performance objectives may
be in respect of the performance of the Company as a whole (whether on a
consolidated or unconsolidated basis), a related corporation, or a subdivision,
operating unit, product or product line of either of the foregoing.
Options are nontransferable except by will or the laws of descent and
distribution or (except in the case of an Incentive Stock Option) pursuant to a
qualified domestic relations order; provided, however, that any option agreement
may provide or be amended to provide that a Non-Qualified Stock Option to which
it relates is transferable without payment of consideration to immediate family
members of the optionee or to trusts, partnerships or limited liability
companies established exclusively for the benefit of the optionee and his or her
immediate family members.
With certain exceptions, each outstanding Option terminates, to the extent
not previously exercised, upon the occurrence of the first of the following: (i)
the expiration of the Option term, as specified by the Plan Administrator at the
time of grant (generally 10 years, or, with respect to Incentive Stock Options
granted to greater-than-ten percent shareholders, a maximum of five years); (ii)
the date of an optionee's termination of employment or contractual relationship
with the Company for cause; (iii) the expiration of three months from the date
of an optionee's termination of employment or contractual relationship with the
Company for any reason other than cause, death or disability, unless, in the
case of a Non-Qualified Stock Option, extended by the Plan Administrator to a
date no later than the expiration date of the Option; or (iv) the expiration of
one year from the date of an optionee's death or the cessation of an optionee's
employment with the Company by reason of disability, unless, in the case of a
Non-Qualified Stock Option, extended by the Plan Administrator to a date not
later than the expiration of the Option.
In addition, if an optionee is demoted (whether voluntarily or
involuntarily), he or she shall be entitled to exercise all vested Options not
otherwise terminated until such Options expire in accordance with the terms of
the Option Plan. Each unvested Option granted to the demoted optionee shall
terminate on the date of demotion; provided, however, that the Plan
Administrator may, in its discretion, accelerate the vesting of any unvested
Options to increase the number of vested Options to that number which would be
granted to an employee in the position to which the optionee has been demoted.
Options may be exercised, either all or in part, at any time after vesting,
until termination (subject to any applicable holding period requirements of
Exchange Act Rule 16b-3) by giving written notice to the Plan Administrator
specifying the number of shares to be purchased. Upon exercise, the exercise
price may be paid in cash or by certified or cashier's check or by (i)
delivering shares of Company Common Stock previously held, (ii) having shares
withheld, sold or margined from the number of shares to be received, or (iii)
complying with any other payment mechanisms that the Plan Administrator may
approve.
The Plan Administrator may amend or modify the Option Plan, except that no
amendment with respect to an outstanding Option may be made over the objection
of the holder of the Option (other than those provisions triggering acceleration
of vesting of outstanding Options).
Options granted under the Option Plan will be exercisable, in accordance
with the terms thereof, for Company Common Stock prior to consummation of the
Reorganization, and for New Common Stock after
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consummation the Reorganization and the assumption of the Option Plan by New
Parent (if the Reorganization is approved by shareholders and implemented).
On May 15, 1997, the Compensation Committee granted to 233 persons Options
to purchase an aggregate of 30,600 shares of Company Common Stock at an exercise
price of $37.625 per share, subject to shareholder approval of the Option Plan.
Such Options have a 10-year term and vest 20% on each anniversary of the date of
grant.
The Company cannot now determine the number of Options to be received in the
future by individual Employees or all Employees as a group under the Option
Plan. Currently, approximately 11,000 persons are eligible to participate in the
Option Plan.
The Option Plan is not subject to ERISA and is not qualified under Section
401(a) of the Code.
FEDERAL INCOME TAX INFORMATION
The following description addresses the federal income tax consequences for
both Incentive Stock Options, and Non-Qualified Stock Options, and is intended
to provide basic information with respect to the tax treatment applicable to the
Option Plan. Although the Company believes the following statements are correct,
the statements are based upon legislative, administrative and judicial authority
that is subject to revision and differing interpretations. Each participant
should consult his or her own tax advisor concerning the tax consequences of the
grant, exercise or surrender of an Option and the sale or other disposition of
any shares of stock acquired pursuant to the exercise of an Option. Individual
financial and federal tax situations may vary, and state and local tax
considerations may be significant.
NON-QUALIFIED STOCK OPTIONS
Options that do not meet all the requirements of Section 422 of the Code are
commonly referred to as Non-Qualified Stock Options, the grant of which does not
have income tax consequence implications for either the Company or the
recipient. Upon exercise of the Option, and possibly subject to the later
expiration of any substantial risk of forfeiture, the optionee must recognize
ordinary taxable income in an amount equal to the difference between the fair
market value of the shares acquired and the amount paid to exercise the option.
The optionee exercising a Non-Qualified Stock Option will have a tax liability
even though the shares giving rise to the liability may not have been sold and
converted to cash. The optionee receives a tax basis in the shares equal to the
amount of income reported plus the amount of cash or basis of other property
exchanged in the exercise. At the time of exercise, if the sale of the shares
received could subject the optionee to suit under Section 16(b) of the Exchange
Act, such optionee will instead recognize ordinary taxable income on the first
day that such sale would no longer subject him or her to such suit.
Alternatively, an optionee subject to Section 16(b) may elect under Section
83(b) of the Code, within 30 days after receipt of the shares, to recognize
income at the time of exercise.
Subject to Section 162(m) of the Code, the Company will be entitled to an
income tax deduction at the same time, and in the same amount, as the optionee
recognizes ordinary taxable income, provided that the total compensation is
reasonable and the Company has met any applicable federal income tax withholding
obligations in connection with the optionee's income.
Stock acquired through the exercise of a Non-Qualified Stock Option is a
capital asset in the hands of the optionee. When the underlying stock is sold,
the holder will recognize a capital gain or loss on the sale and the adjusted
basis of the stock sold. The sale of stock has no tax impact on the Company.
INCENTIVE STOCK OPTIONS
An Incentive Stock Option must meet all the requirements of Section 422 of
the Code. Optionees do not recognize regular taxable income upon the grant or
upon the exercise of an Incentive Stock Option. However, the difference between
the exercise price and the fair market value of such shares as of the date
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of exercise will be an adjustment for the purpose of calculating alternative
minimum taxable income. The alternative minimum tax is payable only to the
extent that it exceeds the regular income tax. If the alternative minimum tax
applies, it may be possible to recover some, if not all, of the alternative
minimum tax paid through a credit carried forward to a tax year where regular
tax liability exceeds the alternative minimum tax.
So long as the stock acquired through an Incentive Stock Option is held for
at least one year from the date of exercise and two years from the date of the
grant, any sale is not considered to be a disqualifying disposition. Any gain or
loss, measured by the difference between the amount realized and the adjusted
basis, will be treated as proceeds from the sale of a long-term capital asset.
In general, the adjusted basis will be the cash or adjusted basis of other
property exchanged to exercise the Option. If there is no disqualifying
disposition, the Company will not receive an income tax deduction with respect
to the grant, exercise or sale of the stock or Option.
Stock which is sold in a disqualifying disposition (other than in an
insolvency proceeding) requires the seller to recognize ordinary income in an
amount equal to the amount of the gain, but not more than the gain measured by
the fair market value of the stock at exercise, as ordinary income and any
remaining gain as capital gain. Any loss sustained on the disposition of the
shares is a capital loss. If the optionee recognizes ordinary income in a
disqualifying disposition, the Company, subject to Section 162(m) of the Code,
will receive an income tax deduction so long as the total compensation is
reasonable and the Company has met any applicable federal income tax withholding
obligations in connection with the optionee's income.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE APPROVAL AND RATIFICATION OF THE 1997 STOCK OPTION PLAN. PROXIES WILL BE
VOTED FOR THE PROPOSED PLAN UNLESS INSTRUCTIONS TO THE CONTRARY ARE GIVEN.
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PROPOSAL V:
THE REORGANIZATION
CURRENT CORPORATE STRUCTURE
Pursuant to two separate transactions that were unrelated to the proposed
Reorganization, the Company recently acquired Hughes, which operates
supermarkets under the "Hughes Family Markets" name in Southern California, and
KUI, which operates supermarkets primarily in the southern Puget Sound region
and the Olympic Peninsula of the State of Washington. The Hughes acquisition was
effected through the merger of Hughes and a wholly owned subsidiary of the
Company (created for the sole purpose of effecting such acquisition), with
Hughes surviving the merger and retaining its former name. The KUI acquisition
was effected through the merger of KUI and a wholly owned subsidiary of the
Company (created for the sole purpose of effecting such acquisition), which
subsidiary survived such merger under the name "KU Acquisition Corporation."
Prior to the KUI acquisition, KUI spun off to its shareholders the shares of an
entity holding certain assets not intended to be part of the Company's
acquisition (the "KUI Spin-Off" and, together with the KUI acquisition, the "KUI
Transactions").
The Company recently organized three direct or indirect wholly owned
subsidiaries in anticipation of the holding company restructure: (i) New Parent,
a wholly owned subsidiary of the Company, (ii) Holding Company, a wholly owned
subsidiary of New Parent, and (iii) Merger Sub, a wholly owned subsidiary of
Holding Company. Each of New Parent, Holding Company and Merger Sub was created
solely for the purpose of implementing the Reorganization, and none of such
corporations has conducted any business (other than with respect to certain
guarantees of indebtedness of the Company entered into by New Parent and Holding
Company in anticipation of the Reorganization). See "--Certain Effects of the
Reorganization."
The current corporate structure of the Company, its significant subsidiaries
and its subsidiaries that were formed for purposes of implementing the
Reorganization is as follows:
[Boxed diagram depicting the current corporate structure of the Company prior to
the Reorganization]
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THE REORGANIZATION
The Company, New Parent and Merger Sub have entered into the Merger
Agreement pursuant to which (subject to approval by the Company's shareholders)
Merger Sub will merge with the Company, with the Company as the surviving
corporation. Pursuant to the terms of the Merger, each share of Company Common
Stock outstanding immediately prior to the Effective Time (other than shares
held by holders who have properly exercised dissenters' rights under Washington
law) will be converted into one share of New Common Stock. A copy of the Merger
Agreement is attached as ANNEX A to this Proxy Statement/ Prospectus. As a
result of the Reorganization, (i) Holding Company will become a wholly owned
subsidiary of New Parent and (ii) each of the Company, Hughes and KUA will
become indirect subsidiaries of New Parent. Following the Reorganization, New
Parent's operations will be conducted primarily through the Company, Hughes and
KUA as operating subsidiaries of New Parent.
The Merger Agreement contemplates that the Merger will become effective, and
all other steps in the Reorganization will be completed, as soon as practicable
after the required shareholder and regulatory approvals have been received and
shares of New Common Stock shall have been approved for listing on the NYSE,
subject only to official notice of issuance (such effective time of the Merger,
the "Effective Time").
The corporate structure resulting from the Reorganization will be as
follows:
[Boxed diagram depicting corporate structure of the Company following the
Reorganization]
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RECOMMENDATION OF THE BOARD; REASONS FOR THE REORGANIZATION
The Board of Directors has adopted the Merger Agreement and unanimously
recommends approval of the Reorganization (which includes approval of the Merger
Agreement) by the shareholders of the Company. The Board of Directors and
management believe that the Reorganization is in the best interests of the
Company and its shareholders. In making its decision to recommend the
Reorganization to shareholders, the Board of Directors considered a number of
factors, including, without limitation, the following:
FOCUSED ADMINISTRATION AND MANAGEMENT. The Board of Directors believes that
the Reorganization will provide flexibility for both the management and business
of the Company and New Parent within the resulting corporate structure, which
structure the Board of Directors believes will facilitate control of the
Company's national growth strategy at the New Parent and Holding Company levels,
with regional subsidiary operating units, thereby facilitating administrative
and operational decisions and the establishment of an appropriate management
chain of command. In connection with this phase of the Company's development, in
September 1996 the Company hired a new Chief Executive Officer, Christopher A.
Sinclair, to, among other things, focus on identifying, evaluating and acting on
acquisition opportunities at the New Parent level and integrating and
implementing "best practices" across the operating companies and delivering the
benefits of greater scale. In addition to Mr. Sinclair, in January 1997 the
Company hired Fredrick S. Meils as Senior Vice President for Corporate
Development, and in March 1997 hired William P. Ketcham, as Senior Vice
President for Marketing and Public Affairs. The Board expects that concentrating
such efforts at the New Parent level will allow other members of senior
management to remain focused on operations. If the Reorganization is
consummated, Mr. Sinclair will be the Chief Executive Officer of New Parent,
and, among other things, will work closely with Messrs. Meils and Ketcham in
pursuit of the Company's strategic objectives. Beginning in late May 1997, Dan
Kourkoumelis assumed the position of President and Chief Executive Officer of
Hughes, and Marc W. Evanger assumed the position of Senior Vice President of
Administration and Finance, and Michael E. Huse assumed the position of Senior
Vice President and Chief Operating Officer, of the Company. Roger K. Hughes will
remain Chairman of Hughes. See "--Certain Information Regarding New
Parent--Directors and Management."
FLEXIBLE FINANCING OPPORTUNITIES. The Board of Directors also believes that
the holding company structure will broaden the alternatives for future
financing, allowing for (i) the potential expansion into and financing of
unrelated lines of business at the New Parent level, (ii) the possibility of
separate financings at subsidiary levels (subject to applicable debt covenants),
and (iii) the financing of future acquisitions through Holding Company directly
(with the Company, Hughes and other subsidiaries having secondary liability). In
addition, the proposed structure should provide insulation of the operating
subsidiaries from nonbank debt liabilities of sister companies.
REINCORPORATION TO DELAWARE. As a result of the Reorganization, the
Company's shareholders will hold shares of New Parent, a Delaware corporation,
rather than shares of the Company, a Washington corporation. The primary reason
for incorporating New Parent in Delaware and issuing shares of New Parent in the
Merger is the modern, comprehensive and flexible nature of the DGCL. The
predictable nature of the Delaware corporate laws is another reason for the
Reorganization. The Delaware Chancery Court is expert in corporate law and lends
clarity and consistency to the judicial development of the statutory law and
corporate common law. Delaware courts have established a long line of case law
precedent interpreting the Delaware corporate laws, thereby providing Delaware
corporations with greater predictability as to how certain corporate affairs and
transactions will be treated under Delaware law. See "--Certain Substantive
Differences in Corporation Laws."
Shareholders should be aware, on the other hand, that certain aspects of
Delaware law have been publicly criticized on the ground that they do not afford
minority stockholders the same substantive rights as are available in a number
of other states, and that Delaware law may be regarded as more protective of
management than the laws of other states. On balance, however, the greater
flexibility and predictability of
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Delaware law leads the Board of Directors to conclude that the Merger would be
in the best interests of the Company and its shareholders.
VOTE REQUIRED
The affirmative vote of the holders of not less than a majority of the
outstanding shares of Company Common Stock is required to approve the
Reorganization (which includes approval of the Merger Agreement). Abstentions
and broker nonvotes will be counted as votes against approval of the
Reorganization.
EXCHANGE OF CERTIFICATES NOT REQUIRED
IF THE REORGANIZATION IS CONSUMMATED, IT WILL NOT BE NECESSARY FOR HOLDERS
OF COMPANY COMMON STOCK TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR NEW
COMMON STOCK CERTIFICATES. By virtue of the Merger, holders of Company Common
Stock will become holders of New Common Stock, and their stock certificates will
represent shares of New Common Stock. After the Reorganization, whenever
presently outstanding certificates are presented for transfer, new certificates
bearing the name of New Parent will be issued.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES; ACCOUNTING TREATMENT
GENERAL. The following summary reflects the opinion of Bogle & Gates
regarding certain U.S. federal income tax consequences of the Reorganization
under current law with respect to U.S. persons who hold Company Common Stock as
capital assets for investment purposes (the "Tax Opinion"). The Tax Opinion does
not address all U.S. federal income tax matters potentially relevant to the
Reorganization, does not take into account or anticipate any state, local or
foreign tax considerations, and is not intended as tax advice. The Tax Opinion
does not apply to any shares of Company Common Stock acquired by shareholders
who are not citizens or residents of the United States or to other categories of
shareholders subject to special treatment under federal income tax laws, such as
dealers in securities, banks, insurance companies and tax-exempt entities.
The Tax Opinion does not discuss and no opinion is given with respect to the
impact of the Reorganization, if any, on the tax consequences to the Company,
New Parent, Holding Company, Merger Sub, KUA, Hughes or a holder of Company
Common Stock arising from any prior or subsequent transaction involving any of
such entities or any predecessor(s) or successor(s) thereto, except as discussed
below under "--Certain Tax Considerations."
The Tax Opinion is based on the sections of the Code, Treasury regulations,
published Internal Revenue Service ("IRS") rulings, published administrative
positions of the IRS and court decisions that are currently applicable, any or
all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time. The conclusions reached in the Tax Opinion also
rely on factual representations by New Parent, Holding Company, the Company and
Merger Sub. The Tax Opinion does not consider the potential effects, both
adverse and beneficial, of any proposed legislation which, if enacted, could be
applied, possibly on a retroactive basis, at any time. Tax laws are frequently
changed, and there can be no assurance that the federal income tax treatment
described herein will continue to apply unchanged at the time of the completion
of the Reorganization. No ruling has been requested from the IRS, the Tax
Opinion is not binding on the IRS and the courts and there can be no assurance
that the IRS and the courts will not disagree with the conclusions and analysis
set forth herein and in the Tax Opinion.
GENERAL CONSEQUENCES TO HOLDERS. While not entirely free from doubt, as
discussed below under
"--Certain Tax Considerations," for federal income tax purposes (i) the Merger
should qualify as an exchange under Section 351 of the Code, (ii) no gain or
loss should be recognized by the holders of Company Common Stock as a result of
the conversion of Company Common Stock solely for New Common Stock pursuant to
the Merger (iii) the tax basis of the New Common Stock received by each
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holder pursuant to the Merger will be the same as the holder's basis in Company
Common Stock converted in the Merger, (iv) the holding period of such New Common
Stock will include the period during which such holder held the Company Common
Stock converted in the Merger, (v) no gain or loss should be recognized by New
Parent as a result of the conversion of Company Common Stock solely for New
Common Stock pursuant to the Merger, and (vi) no gain or loss should be
recognized by Holding Company as a result of the Merger.
Dissenting holders of Company Common Stock who receive solely cash in
exchange for all of their shares of Company Common Stock (including shares held
directly, indirectly or through attribution) will recognize gain or loss equal
to the difference between (i) the cash received by such shareholder (other than
in respect of interest) pursuant to the Merger and (ii) the adjusted tax basis
of such shareholder in the shares of Company Common Stock effectively exchanged
therefor. Any amount received as interest income will be taxed as ordinary
income.
DEFERRED INTERCOMPANY TRANSACTIONS. Under the Reorganization, certain
transactions involving the New Credit Facility, Term Loan Facility, Revolving
Credit Facility and Acquisition Facility may result in one or more deferred
intercompany gains or losses to New Parent, Holding Company and/or the Company,
which deferred intercompany gains or losses, if any, should not be recognized
unless a subsequent recognition event occurs under the applicable Treasury
regulations and IRS rulings.
CERTAIN TAX CONSIDERATIONS. Although gain or loss should not be recognized
by holders of Company Common Stock solely as a result of the Merger, the
Reorganization could adversely and materially affect the tax characterization of
the KUI Transactions and the tax consequences of the KUI Transactions to the
Company, KUA, KUI and the former shareholders of KUI who participated in the KUI
Transactions. A fundamental principle of U.S. federal income tax law is that
taxation should be based on the substance, not the form, of the transactions
consummated by the parties thereto. One aspect of the "substance over form"
doctrine is the "step transaction" doctrine under which courts and the IRS may,
in certain circumstances, amalgamate a series of formally separate transactions
and treat them as a single transaction if the transactions are in substance
integrated and focused toward a particular result. The step transaction doctrine
may be applied whenever a series of transactions occurs close in time or may be
viewed as part of an overall plan.
The step transaction doctrine may be applied to transactions such as the
Reorganization and the KUI Transactions. If the step transaction doctrine is
applied to the Reorganization and the KUI Transactions, one possible
characterization of the combined transaction is that it qualifies as one or more
transactions under Section 351 of the Code and/or Section 368(a) of the Code.
The application of the step transaction doctrine, however, could result in the
KUI Transactions being characterized as fully taxable transactions to KUI, KUA
as the successor to KUI, and the former KUI shareholders who participated in the
KUI Transactions, subjecting such persons and entities to tax, interest and,
possibly, penalties. If the IRS were to successfully assert the step transaction
doctrine in a manner which results in the KUI Transactions being fully taxable
transactions: (i) each former shareholder of KUI who participated in the KUI
Transactions may recognize (a) gain or loss equal to the difference, if any,
between the fair market value of the Company Common Stock and cash received in
the KUI acquisition (determined as of the date such Company Common Stock was
received) and such shareholder's adjusted tax basis in the KUI shares exchanged
therefor and (b) a dividend equal to the fair market value of any assets of KUI
directly or indirectly received in the KUI Spin-Off (determined as of the date
such KUI assets were received) and (ii) KUI and KUA, as the successor to KUI,
may recognize gain or loss equal to the difference, if any, between the fair
market value of the assets of KUI (determined as of the date of the KUI
Transactions) and KUI's adjusted tax basis in its assets (determined as of the
date of the KUI Transactions). Such characterization could result in a
significant liability to the Company or KUA.
The application of the step transaction doctrine is based on an analysis of
the particular facts and circumstances of each series of transactions. There are
no controlling Treasury regulations, published
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rulings or judicial decisions involving the possible application of the step
transaction doctrine to transactions such as the Reorganization and the KUI
Transactions. There are facts and circumstances which both do not support and do
support the application of the step transaction doctrine to the Reorganization
and the KUI Transactions. While not entirely free from doubt, based on the
representations of the Company and the analysis set forth in the Tax Opinion, in
Bogle & Gates' opinion, the better reasoned analysis is that the Reorganization
and the KUI Transactions not be treated as a single integrated transaction under
the step transaction doctrine. A copy of the Tax Opinion has been filed as an
exhibit to the Registration Statement of which this Proxy Statement/Prospectus
is a part. However, there can be no assurance that the IRS and the courts will
not successfully apply the step transaction doctrine to the Reorganization and
the KUI Transactions in a manner which is adverse to the Company, KUA, KUI and
the former KUI shareholders.
Generally, in an exchange under Section 351 of the Code, the transferors
directly transfer property to a corporation in exchange for shares of stock in
such corporation. In the Merger, instead of a direct transfer of Company Common
Stock by the Company shareholders to New Parent in exchange for New Common
Stock, the Company shareholders will exchange Company Common Stock for New
Common Stock as part of the Merger of Merger Sub with the Company. In three
Private Letter Rulings the IRS has ruled that transactions similar to the Merger
qualified as exchanges under Section 351 of the Code. Private Letter Rulings may
only be relied upon by the taxpayers who requested such rulings. However,
Private Letter Rulings are an indication of the manner in which the IRS would
rule in similar transactions. The merger in the most recent of the three Private
Letter Rulings is substantially similar to the Merger. Thus, Bogle & Gates
believes that the IRS should apply the same analysis to the Merger. However,
there can be no assurance that the IRS would not apply a different analysis to
the Merger and the Reorganization and hold that the Merger does not qualify as
an exchange under Section 351 of the Code.
NO RULING. No ruling will be requested from the IRS regarding the tax
consequences of the Reorganization and the KUI Transactions and the
applicability of the step transaction doctrine to the Reorganization and the KUI
Transactions. The Tax Opinion is not binding on the IRS and the courts and there
can be no assurance that the IRS and the courts will not disagree with the
conclusions and analysis set forth in the Tax Opinion.
THE TAX DISCUSSION SET FORTH HEREIN AND THE OPINION OF BOGLE & GATES IS
INCLUDED FOR GENERAL INFORMATION ONLY AND IT IS NOT INTENDED TO BE, NOR SHOULD
IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY HOLDER OR PROSPECTIVE HOLDER
OF COMPANY COMMON STOCK OR NEW COMMON STOCK. IN VIEW OF THE INDIVIDUAL NATURE OF
TAX CONSEQUENCES, EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES OF THE REORGANIZATION AND MERGER TO HIM OR
HER, INCLUDING THE EFFECT AND APPLICABILITY OF FEDERAL, STATE, LOCAL OR OTHER
TAX LAWS.
ACCOUNTING. The Merger will not result in a new basis of accounting, and,
as a result, the historical book basis of the Company's assets and accounting
methods will carry over after consummation of the Reorganization.
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MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached hereto as ANNEX A and incorporated herein by
reference. The summary is qualified in its entirety by reference to the complete
text of the Merger Agreement, which provides, among other things, that:
(i) Merger Sub will be merged with the Company, with the Company being
the surviving corporation;
(ii) each share of Company Common Stock outstanding immediately prior to
the Effective Time (other than shares held by holders who have properly
exercised dissenters' rights under Washington law) will automatically be
converted into one share of New Common Stock; and
(iii) the New Common Stock presently held by the Company will be
canceled.
As a result of the Merger, the Company will become an indirect wholly owned
subsidiary of New Parent and all the New Common Stock outstanding immediately
after consummation of the Effective Time will be owned by the holders of Company
Common Stock outstanding immediately prior to the Effective Time.
The Merger Agreement provides that the Company, New Parent and Merger Sub
may by written agreement amend the Merger Agreement at any time prior the
Effective Time, and that the Merger Agreement may be terminated and abandoned at
any time by unilateral action of the Board of Directors.
NEW PARENT RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
The Restated Certificate of Incorporation of New Parent (the "New Parent
Certificate"), a copy of which is attached as ANNEX B hereto, is substantially
similar to the Articles of Incorporation of the Company (the "Company
Articles"). However, certain differences between the corporation laws of
Delaware and of Washington will result in certain differences between the New
Parent Certificate and the Company Articles on the one hand, and the Bylaws of
New Parent and the Bylaws of the Company, on the other, as well as certain
changes in the rights of shareholders. See "--Certain Substantive Differences in
Corporation Laws."
DESCRIPTION OF NEW PARENT CAPITAL STOCK
The following summary of the capital stock of New Parent is qualified in its
entirety by reference to the complete text of the New Parent Certificate, a copy
of which is attached as ANNEX B hereto.
New Parent will be authorized by the New Parent Certificate to issue
60,000,000 shares, par value $.001 per share, of New Common Stock and 1,000,000
shares, par value $.001 per share, of preferred stock ("New Preferred Stock").
Such authorized shares of capital stock may be issued from time to time by the
Board of Directors of New Parent (the "New Parent Board") without the necessity
of obtaining further consent of holders of New Common Stock, except as required
by the NYSE. Shares of New Parent capital stock may be issued for money,
services or property, or as a distribution to stockholders, and upon such terms
as the New Parent Board may in its absolute discretion determine.
The holders of New Common Stock will be entitled to receive dividends when,
as and if declared by the New Parent Board out of funds legally available
therefor, subject to the rights of any shares of New Preferred Stock at the time
outstanding (see "--Certain Information Regarding New Parent--Dividend Policy").
The holders of New Common Stock will be entitled to one vote for each share on
all matters voted on by stockholders under the New Parent Certificate, including
the election of directors, and will not have any cumulative voting, conversion,
redemption or preemptive rights. In the event of dissolution, liquidation or
winding up of New Parent, holders of New Common Stock will share ratably in any
assets of New Parent remaining after the satisfaction in full of creditors,
including holders of New Parent's
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indebtedness, and subject to the aggregate liquidation preference and
participation rights of any New Preferred Stock then outstanding.
New Preferred Stock may be issued by the New Parent Board in one or more
classes or series within a class and shall have such designations, preferences,
voting rights, voting powers, full or limited, or no voting preferences,
relative rights, qualifications, limitations or restrictions, all as may be
determined by the New Parent Board and as are permitted by the DGCL and the
NYSE.
The additional shares of authorized stock available for issuance by New
Parent may be issued at such times and under such circumstances as to have a
dilutive effect on earnings per share and on the equity ownership of the holders
of capital stock of New Parent. The New Parent Board's authority to issue New
Preferred Stock could enhance the New Parent Board's ability to negotiate on
behalf of the stockholders of New Parent in a takeover situation. However, the
New Parent Board could authorize the issuance of New Preferred Stock with terms
and conditions that could make a change in control more difficult or discourage
a takeover or other transaction in which such holders might receive a premium
for their shares of stock over the then market price of such shares that holders
of some or a majority of shares of New Common Stock might believe to be in their
best interests.
CERTAIN INFORMATION REGARDING NEW PARENT
DIRECTORS AND MANAGEMENT. Currently, the directors of New Parent are Samuel
Zell and Sheli Z. Rosenberg, each of whom is also a director of the Company. The
current officers of New Parent, each of whom presently is also an officer of the
Company, are as follows:
<TABLE>
<CAPTION>
NAME OFFICE
- ------------------------------------ --------------------------------------------------------
<S> <C>
Christopher A. Sinclair............. President and Chief Executive Officer
Fredrick S. Meils................... Senior Vice President and Chief Financial Officer
Susan Obuchowski.................... Secretary
</TABLE>
It is expected that in addition to those persons listed above, following
consummation of the Reorganization, William P. Ketcham, the Company's Senior
Vice President for Marketing and Public Affairs, will be appointed to the same
position with New Parent. If the Reorganization is effected, those persons
elected as directors of the Company at the Annual Meeting, as well as those
persons whose terms as directors of the Company shall continue, will serve as
the directors of New Parent from the Effective Time until their successors are
elected at the annual meeting of stockholders of New Parent at which such
person, by virtue of his or her designated class, stands for reelection.
DIVIDEND POLICY. The Company currently does not pay cash dividends on
Company Common Stock, and the Company (and, upon consummation of the
Reorganization, New Parent) intends to retain available funds to finance the
growth and operations of its business. Subject to certain exceptions, the New
Credit Facility (described below) restricts the payment of cash dividends on
Company Common Stock, and the Indenture (described below) entered into in
connection with the issuance of the Notes (described below) restricts the making
of certain payments, including cash dividends, by the Company on Company Common
Stock. Upon consummation of the Reorganization, such restrictions will apply to
the making of certain payments, including cash dividends, by New Parent on the
New Common Stock. In addition to the restrictions described above, future
dividends on the New Common Stock, if any, will depend primarily upon the
earnings, financial condition and capital requirements of New Parent's
subsidiaries.
STOCK EXCHANGE LISTING. New Parent has applied to list the New Common Stock
on the NYSE. It is expected that such listing will become effective at the
Effective Time, subject to the rules of the NYSE, and New Parent will be
identified on the NYSE by the Company's current symbol, "XQ". The high and low
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sales prices on the NYSE for a share of Company Common Stock on July 7, 1997,
the date prior to that on which the Board of Directors approved the
Reorganization, was $38.813 and $37.875, respectively.
TRANSFER AGENT AND REGISTRAR. ChaseMellon Shareholder Services L.L.C., the
Transfer Agent and Registrar of the Company Common Stock, will serve in the same
capacities for the New Common Stock.
CERTAIN EFFECTS OF THE REORGANIZATION
CREDIT FACILITY. In connection with the Hughes and KUI acquisitions, the
Company entered into the New Credit Facility consisting of (i) the $250 million
Term Loan Facility, (ii) the $125 million Revolving Credit Facility, and (iii)
the $225 million Acquisition Facility. Principal repayments under the Term Loan
Facility are due in quarterly installments from June 30, 1998 through the final
maturity of the New Credit Facility in March 2004, and the Company is required
to repay borrowings under the Term Loan Facility with the proceeds from certain
asset sales and, under certain circumstances, with cash flow in excess of
certain specified amounts. The Revolving Credit Facility is available for
working capital and other general corporate purposes, including permitted
acquisitions, and any outstanding amounts thereunder will become due on March
31, 2004. The Acquisition Facility is to be used to consummate permitted
acquisitions and will become due on March 31, 2004. In addition, the maximum
amount of available borrowings under the Acquisition Facility will decline by
$30 million each year commencing March 31, 2000, and the borrower thereunder
will be required to repay borrowings thereunder to the extent that they exceed
the reduced amount of the Acquisition Facility. Additionally, the Revolving
Credit Facility and the Acquisition Facility may be used to make investments in
Santee Dairies, Inc., a California corporation ("Santee"), of which Hughes owns
50% of the issued and outstanding capital stock, in an amount not to exceed $80
million to finance construction of Santee's new dairy.
On the date the New Credit Facility became effective, the Company borrowed
$250 million under the Term Loan Facility. At the Company's option, the interest
rate per annum applicable to the New Credit Facility will either be (i) the
greater of one of the bank agents' reference rate or 0.5% above the federal
funds rate, in each case plus a margin (initially 0%) or (ii) IBOR plus a margin
(initially 0.875%), in each case with margin adjustments dependent on the
borrower's senior funded debt to earnings before interest, taxes, depreciation
and amortization ("EBITDA") ratio from time to time.
Although the Company currently is the sole borrower under the New Credit
Facility, as a result of the Reorganization, Holding Company will become the
borrower under both the Revolving Credit Facility and the Acquisition Facility,
while the Company will remain the borrower under the Term Loan Facility. Hughes,
KUA, Holding Company and New Parent have initially guaranteed the Company's
borrowings under the New Credit Facility. After consummation of the
Reorganization, borrowings by the Company under the Term Loan Facility are
expected to be guaranteed by New Parent, Holding Company and certain
subsidiaries of New Parent (including KUA and Hughes), and borrowings by Holding
Company under the Revolving Credit Facility and the Acquisition Facility are
expected to be guaranteed by New Parent, the Company, and certain subsidiaries
of New Parent (including KUA and Hughes).
Borrowings and other obligations under the New Credit Facility and the
guarantees thereof currently are secured by a pledge of the capital stock of
Holding Company, Hughes and KUA and certain intercompany indebtedness and, after
the Reorganization, such obligations and guarantees will be secured by a pledge
of the capital stock of Holding Company, the Company, Hughes and KUA and certain
intercompany indebtedness, in each case together with the proceeds and products
thereof. The New Credit Facility contains a number of significant covenants
that, among other things, restrict the ability of the Company (and, after the
Reorganization, New Parent) and its subsidiaries to incur additional
indebtedness and liens on their assets, in each case subject to specified
exceptions, impose specified financial tests as a precondition to acquisitions
of other businesses by the Company (and, after the Reorganization, New Parent)
and its subsidiaries and limit the Company (and, after the Reorganization, New
Parent) and its subsidiaries from making certain restricted payments (including
dividends and repurchases of stock),
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subject, in certain circumstances, to specified financial tests. In addition,
New Parent and its subsidiaries will be required to comply with specified
financial ratios and tests, including an interest and rental expense coverage
ratio, a total funded debt to EBITDA ratio, a senior funded debt to EBITDA ratio
and a minimum net worth test.
The New Credit Facility contains customary events of default, including (i)
a default in the payment of outstanding indebtedness in excess of $15 million,
which permits the acceleration thereof, (ii) the acquisition by any person or
group of beneficial ownership of 20% or more of the Company (or, after the
Reorganization, New Parent) if such amount is a greater percentage than that
beneficially owned by Zell Chilmark and its affiliates, (iii) a majority of the
Board of Directors (or, after the Reorganization, the New Parent Board) shall
not be continuing directors, and (iv) a "Change of Control," as defined in the
Indenture for the Notes. Upon the occurrence of an event of default, lenders
holding more than 50% in principal amount of the outstanding borrowings and
commitments would be able to declare all borrowings under the New Credit
Facility to be due and payable and, upon the occurrence of an event of default
triggered by certain events of bankruptcy, insolvency or reorganization, such
borrowings would become due and payable. Upon such an acceleration, the lenders
would also be able to seek to liquidate the collateral pledged as security for
the New Credit Facility and enforce the related guarantees.
Borrowings and other obligations of the borrowers under the New Credit
Facility, and the guarantees thereof, are general unsubordinated obligations of
the borrowers and the guarantors and will constitute "Senior Debt" for purposes
of the Indenture.
NOTES. The Company currently has outstanding $150 million aggregate
principal amount of Notes. The Notes bear interest at 8.70% per annum, will
mature in 2007 and are redeemable, in whole or in part, at the option of the
Company beginning on March 15, 2002, at redemption prices declining over time
from a specified percentage of the principal amount in the year 2002 to 100% of
the principal amount in the year 2005 and thereafter, in each case plus accrued
and unpaid interest to the redemption date. In addition, at any time prior to
March 15, 2000, the Company may redeem up to 20% of the aggregate principal
amount of the Notes originally issued at a specified percentage of the principal
amount thereof, plus accrued and unpaid interest to the date of redemption, with
the net cash proceeds of one or more public offerings of Company Common Stock
(or, after the Reorganization, New Common Stock), provided that at least 80% of
the aggregate principal amount of the Notes originally issued remains
outstanding immediately after the occurrence of such redemption.
Currently, the Notes are fully and unconditionally guaranteed on an
unsecured senior subordinated basis jointly and severally by Holding Company,
Hughes and KUA and, after the Reorganization, will be guaranteed jointly and
severally by Holding Company and all of Holding Company's existing and future
subsidiaries (excluding the Company (which will remain the obligor on the Notes)
and certain subsidiaries (including certain foreign subsidiaries) of Holding
Company). The Notes are not, and will not be, guaranteed by New Parent.
The Company currently is offering to exchange, pursuant to an exchange
offer, up to $150 million aggregate principal amount of its new 8.70% Series B
Senior Subordinated Notes due 2007 (the "Exchange Notes") for a like principal
amount of outstanding Notes. The terms of the Exchange Notes are identical in
all material respects (including principal amount, interest rate and maturity)
to the Notes, except that the Exchange Notes are freely transferable by the
holders thereof.
EMPLOYMENT AGREEMENTS, STOCK PLANS AND STOCK UNIT PLAN. Upon consummation
of the Merger, in accordance with the terms of the Merger Agreement, New Parent
will assume certain obligations and liabilities of the Company, including the
Company's obligations under the current employment agreement with Mr. Sinclair
and certain of the Company's obligations under the current employment agreements
with Messrs. Kourkoumelis and Evanger. See "Employment Contracts and Termination
of Employment and Change in Control Agreements." In addition, New Parent will
assume the Company's obligations under each of the following plans: the
Incentive Plan, the Purchase Plan, the Directors' Plan, the Executive Plan
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(see "Proposal II: Amendment to 1993 Executive Stock Option Plan"), the Stock
Unit Plan (subject to approval by the shareholders of the Company (see "Proposal
III: Directors' Stock Unit Plan")) and the Option Plan (subject to approval by
the shareholders of the Company (see "Proposal IV: 1997 Stock Option Plan")),
and the rights to acquire shares of Company Common Stock under such plans shall,
upon consummation of the Merger, be converted into the right to receive shares
of New Common Stock, subject to the terms of each such plan and the agreements
entered into pursuant to any such plan. A vote in favor of the Reorganization,
including the Merger, will constitute approval of New Parent's assumption of the
Company's obligations under such plans.
EMPLOYEE BENEFIT PLANS. Upon consummation of the Merger, in accordance with
the terms of the Merger Agreement, New Parent will assume, as plan sponsor, the
Quality Food Centers, Inc. Defined Contribution Plan, the Quality Food Centers,
Inc. 401(k) Retirement Plan and all other material employee benefit plans
currently sponsored by the Company. A vote in favor of the Reorganization
(including the Merger Agreement) will constitute approval of New Parent's
assumption of such plans.
CERTAIN SUBSTANTIVE DIFFERENCES IN CORPORATION LAWS
The following is a summary of certain significant differences between the
corporation laws of Washington and Delaware, which will result in changes in the
rights of shareholders if the Merger is consummated. The summary is qualified by
and should be read in conjunction with the New Parent Certificate, a copy of
which is attached as ANNEX B to this Proxy Statement/Prospectus.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Although Washington and Delaware
have similar provisions with respect to the indemnification of directors and
officers of corporations, there is a significant difference in the treatment of
a potential indemnitee who is successful on one or more but less than all claims
or issues in a proceeding. Under Washington law, a person is not entitled to
mandatory indemnification unless he or she is wholly successful on the merits,
or otherwise, in the entire proceeding. Delaware law makes indemnification
mandatory to the extent that a person is wholly successful on the merits, or
otherwise, as to one or more, but less than all, claims or issues in a
proceeding. Thus, under Delaware law, an indemnitee may be entitled to partial
indemnification even if he or she is found liable for one or more counts of an
action if one or more of the other counts is dismissed.
In addition, under Delaware law, a corporation may indemnify its directors
or officers for payments made in settlement of derivative actions only to the
extent the directors or officers acted in good faith and in a manner the
director or officer believed to be in or not opposed to the best interests of
the corporation; provided, however, that no indemnification shall be made if
such officer or director is adjudged liable to the corporation unless a court
determines in view of all the circumstances of the case that such officer or
director is fairly and reasonably entitled to indemnity for expenses.
BUSINESS COMBINATION STATUTE. Both Washington and Delaware law contain
provisions that may have the effect of delaying or discouraging a hostile
takeover of a corporation, although the statutes differ in certain respects. A
brief summary of such provisions follows. However, it should initially be noted
that as with the Company Articles, the New Parent Certificate generally requires
66 2/3% shareholder approval of certain transactions involving New Parent and a
5% or more shareholder.
Washington law contains certain provisions that may have the effect of
delaying or discouraging a hostile takeover of the Company. Chapter 23B.19 of
the WBCA prohibits a "Target Corporation" (as defined in the WBCA), with certain
exceptions, from engaging in certain significant business transactions with an
"Acquiring Person" (defined generally as a person who acquires 10% or more of
the corporation's voting securities without the prior approval of the
corporation's board of directors) for a period of five years after such
acquisition. The prohibited transactions include, among others, a merger or
share exchange with, disposition of assets to, or issuance or redemption of
stock to or from, the Acquiring Person, or a reclassification of securities that
has the effect of increasing the proportionate share of the
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outstanding securities held by the Acquiring Person. An Acquiring Person may
avoid the prohibition against effecting certain significant business
transactions with the Target Corporation if the board of directors of the Target
Corporation, at the time of the share acquisition, approves the proposed
significant business transaction. After the five-year moratorium, an Acquiring
Person may avoid the prohibition against effecting certain significant business
transactions with a Target Corporation if (i) the per share consideration paid
to holders of outstanding shares of common stock and other classes of stock of
the Target Corporation meets certain minimum criteria, although the Company, in
the Company Articles, has expressly elected not to be covered by such statutory
exception or (ii) the significant business transaction is approved at an annual
or special meeting of shareholders by a majority of the votes entitled to be
counted within each voting group entitled to vote separately on the transaction
(excluding shares beneficially owned by an Acquiring Person).
MERGER, SALE OF ASSETS. Under Washington law, a merger, share exchange,
dissolution or sale of all or substantially all the assets of a corporation must
be approved by each voting group entitled to vote separately by two-thirds of
all the votes entitled to be cast, unless otherwise provided in the articles of
incorporation. Under Washington law, a company may provide for a lesser vote, so
long as the vote provided for each voting group entitled to vote separately is
not less than a majority of all the votes to be cast. Consistent with the
foregoing, the Company Articles contain, and the New Parent Certificate
contains, a provision requiring majority approval of any merger, share exchange,
dissolution or sale of all or substantially all the assets involving the
Company, except with respect to certain business combinations with a 5% or more
shareholder, which require 66 2/3% shareholder approval.
Delaware law generally requires majority stockholder approval of mergers and
consolidations, with certain exceptions, including transactions in which the
common stock of the surviving Delaware corporation to be issued or delivered in
connection with the merger does not exceed 20% of the outstanding stock of such
corporation. In light of the general rule under Delaware law requiring majority
stockholder approval of mergers, unlike the Company Articles, the New Parent
Certificate does not include a specific requirement regarding stockholder
approval of mergers that would supersede the specific exceptions to stockholder
approval under Delaware law.
SPECIAL MEETINGS OF SHAREHOLDERS. Under Washington law, the holders of 10%
or more of the outstanding stock of a corporation may call a special meeting of
the shareholders, unless in the case of a publicly held corporation such
corporation's articles of incorporation provide otherwise. Delaware law states
that such special meetings may be called only by the board of directors, unless
the certificate of incorporation or bylaws provide otherwise. The Company
Articles presently do not permit the shareholders to call a special meeting.
Accordingly, the New Parent Certificate contains no provision for calling a
special stockholders meeting by New Parent stockholders and therefore the
holders of New Common Stock will generally not be permitted to call a special
meeting of the New Parent stockholders.
DISSENTERS' RIGHTS. Both Washington and Delaware law provide shareholders
who object to certain corporate transactions with the right to receive the fair
cash value of their shares. Delaware law, however, eliminates that requirement
where the corporation's shares are either listed on a national securities
exchange or held by more than 2,000 stockholders of record. Following the
Merger, the New Common Stock will be publicly traded and may be held by more
than 2,000 persons, and, therefore, dissenters' rights will not be available if
New Parent subsequently is involved in a merger or consolidation.
Notwithstanding the foregoing, dissenters' rights are available in connection
with the proposed Merger. See "--Rights of Dissenting Shareholders."
LIABILITY OF DIRECTORS. Both Washington and Delaware allow charter
documents to eliminate or limit the personal liability of directors. However,
the two statutes prescribe different limitations. Under Washington law, the
articles of incorporation may not eliminate or limit the liability of a director
for (i) acts or omissions involving intentional misconduct or a knowing
violation of law, (ii) approval of certain distributions or loans contrary to
law, or (iii) any transaction from which the director personally receives a
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benefit in money, property or services to which the director is not legally
entitled. The Delaware statute further excludes any limitation of director
liability (a) where a director has breached the duty of loyalty to the
corporation or its stockholders or (b) for acts or omissions not in good faith.
Each of the Company's Articles and the New Parent Certificate provides for the
limitation or elimination of liability of directors to the fullest extent
permitted by law.
AMENDMENT OF ARTICLES/CERTIFICATE OF INCORPORATION. Washington law
authorizes a corporation's board of directors to make various changes to the
corporation's articles of incorporation, including changes of corporate name,
changes in the number of outstanding shares in order to effectuate a stock split
or stock dividend in the corporation's own shares and to change or eliminate
provisions with respect to the par value of its stock. Other amendments to a
corporation's articles of incorporation must be recommended to the shareholders
by the board of directors (unless the board determines that, because of a
conflict of interest or other special circumstances, it should make no
recommendations), and approved by a majority of all votes entitled to be cast by
each voting group which has a right to vote on such amendment.
Under Delaware law, amendments to a corporation's certificate of
incorporation require the approval of stockholders holding a majority of the
outstanding stock entitled to vote thereon unless a different proportion is
specified in the certificate of incorporation.
ACTION WITHOUT A MEETING. Under Washington law, shareholder action may be
taken without a meeting if written consents setting forth such action are signed
by all holders of outstanding shares entitled to vote thereon.
Delaware law authorizes stockholder action without a meeting if consents are
received from holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize such action at a meeting at
which all shares entitled to vote thereon were present and voted.
Notwithstanding the foregoing, the New Parent Certificate requires that
stockholder action may be taken without a meeting only upon unanimous written
consent.
TRANSACTIONS WITH OFFICERS OR DIRECTORS. Washington law sets forth a safe
harbor for transactions between a corporation and one or more of its directors.
A conflicting interest transaction may not be enjoined, set aside or give rise
to damages if (i) it is approved by a majority, but no fewer than two, of the
"qualified directors" on the board of directors or a duly appointed committee of
the board, (ii) it is approved by the affirmative vote of a majority of all
"qualified shares," or (iii) at the time of the commitment, the transaction is
established to have been fair to the corporation. For the purposes of this
provision, a "qualified director" is one who does not have (a) a conflicting
interest respecting the transaction or (b) a familial, financial, professional
or employment relationship with a second director, which relationship would be
reasonably expected to exert an influence on the first director's judgment when
voting on the transaction. "Qualified shares" are defined generally as shares
other than those beneficially owned, or the voting of which is controlled, by a
director who has a conflicting interest respecting the transaction or a related
person of such director.
Delaware law provides that contracts or transactions between a corporation
and one or more of its officers or directors or an entity in which they have an
interest is not void or voidable solely because of such interest or the
participation of the director or officer in a meeting of the board or a
committee which authorizes the contract or transaction if (i) the material facts
as to the relationship or interest and as to the contract or transaction are
disclosed or are known to the board or the committee, and the board or committee
in good faith authorizes the contract or transaction by the affirmative vote of
a majority of disinterested directors, (ii) the material facts as to the
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by a vote of the
shareholders, or (iii) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified by the board of directors,
a committee thereof or the stockholders.
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REGULATORY MATTERS
The Company is not aware of any material governmental approvals or actions
that may be required for consummation of the Reorganization, including the
Merger. Should any approval or action be required, it is presently contemplated
that such approval or action would be sought. There can be no assurance,
however, that any such approval or action, if needed, could be obtained and
would not be conditioned in a manner that would cause the Board of Directors to
abandon the Merger and the Reorganization.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of Company Common Stock are entitled to dissenters' rights with
respect to the Merger under Chapter 23B.13 of the WBCA. The following discussion
is not a complete statement of the law pertaining to dissenters' rights under
the WBCA and is qualified in its entirety by the full text of Chapter 23B.13 of
the WBCA, which is reprinted in its entirety as ANNEX C to this Proxy Statement/
Prospectus.
A record shareholder of Company Common Stock will have the right to dissent
with respect to the Merger and, subject to certain conditions, will be entitled
to receive a payment of the fair value of his or her shares under the WBCA. Each
beneficial owner asserting dissenters' rights (each a "Company Dissenting
Holder") must assert such rights with respect to all shares of which such
shareholder is the beneficial owner or over which such shareholder has power to
direct the vote, and such shareholder must submit to the Company, with or prior
to such beneficial owner's assertion of dissenters' rights, the record
shareholder's written consent to such dissent. A record shareholder may assert
dissenters' rights as to fewer than all the shares registered in such
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one person and notifies the Company in writing of the
name and address of each person on whose behalf such shareholder asserts
dissenters' rights. A Company Dissenting Holder (i) must deliver to the Company,
before the vote on the Merger is taken, written notice of such shareholder's
intent to demand payment for such shareholder's shares if the Merger is
effectuated and (ii) must not vote his or her shares in favor of the Merger.
Such notice must be delivered to the Company at its principal executive offices,
10112 N.E. 10th Street, Bellevue, Washington 98004, Attention: Susan Obuchowski,
Secretary. A shareholder who does not satisfy both these requirements will not
be entitled to dissenters' rights.
If the Merger is approved by the shareholders of the Company, the Company
shall send written notice not later than 10 days after the Effective Time to
each Company Dissenting Holder (i) stating where such shareholder must send his
or her written payment demand, (ii) stating where and when certificates
representing Company Common Stock must be deposited, (iii) containing a form for
demanding payment which requires that the dissenter certify whether or not he or
she acquired beneficial ownership before the first public announcement of the
terms of the Merger, and (iv) setting a date by which such written payment
demand must be received. Such notice must be accompanied by a copy of Chapter
23B.13 of the WBCA. A Company Dissenting Holder who does not demand payment in
accordance with the terms of such notice will not be entitled to dissenters'
rights.
The Company shall pay to each Company Dissenting Holder who complies with
the procedures described above, within 30 days after the Effective Time, the
amount that the Company estimates to be the fair value of such dissenter's
shares, plus accrued interest. The Company will provide, along with such
payment, certain financial information, including the Company's balance sheet,
income statement and statement of changes in shareholders' equity for its last
fiscal year and its latest available interim financial statements, if any, an
explanation of how the Company estimated the fair value of the shares, an
explanation of how the accrued interest was calculated and certain other
information; provided, however, that the Company may elect to withhold such
payment from any dissenter who was not the beneficial owner of the shares of
Company Common Stock as to which dissenters' rights are asserted before the date
of first public announcement of the Merger. Any Company Dissenting Holder who is
dissatisfied with such
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payment or such offer may, within 30 days of such payment or offer for payment,
notify the Company in writing of such shareholder's estimate of fair value of
his or her shares and the amount of interest due, and demand payment thereof.
If any Company Dissenting Holder's demand for payment is not settled within
60 days after receipt by the Company of such demand, the WBCA requires that the
Company commence a proceeding in King County Superior Court, and petition the
court to determine the fair value of the shares and accrued interest, naming all
the Company Dissenting Holders whose demands remain unsettled as parties to the
proceeding. The court may appoint one or more persons as appraisers to receive
evidence and recommend the fair value of the shares. The dissenters will be
entitled to the same discovery rights as parties in the other civil actions.
Each dissenter made a party to the proceeding will be entitled to judgment for
the amount, if any, by which the court finds the fair value of his or her
shares, plus accrued interest, exceeds the amount paid by the Company.
Court costs and approval fees will be assessed against the Company, except
that the court may assess such costs against some or all of the dissenters to
the extent that the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment. The court may also assess the fees and
expenses of counsel and experts of the respective parties in amounts that the
court finds equitable (i) against the Company, if the court finds that it did
not substantially comply with certain provisions of the WBCA concerning
dissenters' rights and (ii) against either the dissenter or the Company, if the
court finds that the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously or not in good faith. If the court finds that services
of counsel for any dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees should not be assessed against the
Company, the court may award to such counsel reasonable fees to be paid out of
the amounts awarded to all dissenters who benefited from the proceedings.
A shareholder entitled to dissent and obtain payment for such shareholder's
shares of Company Common Stock under Chapter 23B.13 of the WBCA may not
challenge the Merger unless the Company fails to comply with the procedural
requirements imposed by the WBCA, Sections 25.10.900 through 25.10.955 of the
Revised Code of Washington, the Company Articles or the Bylaws of the Company or
is fraudulent with respect to the shareholder or the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE REORGANIZATION (WHICH INCLUDES APPROVAL OF THE MERGER AGREEMENT). PROXIES
WILL BE VOTED FOR THE PROPOSED REORGANIZATION UNLESS INSTRUCTIONS TO THE
CONTRARY ARE GIVEN.
INDEPENDENT AUDITORS
Deloitte & Touche LLP served as the Company's independent auditors for the
fiscal year ended December 28, 1996, and continues to serve in such capacity.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting and to have the opportunity to make a statement if they so desire
and to respond to appropriate questions.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a management agreement dated August 17, 1986 with Sloan Capital
Companies (the "Management Agreement"), the Company paid Sloan Capital Companies
a management fee in an amount not greater than 0.2% of the Company's total sales
in exchange for general advisory and policy-making services. Stuart M. Sloan,
the Company's Chairman (and Chief Executive Officer through September 9, 1996),
controls Sloan Capital Companies. Pursuant to the Management Agreement, which
expired June 18, 1996, a total of $683,585 in management fees was paid for the
period from December 31, 1995 through June 18, 1996. For the remainder of 1996,
a management fee aggregating $269,231 was paid to
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Sloan Capital Companies. In addition, Mr. Sloan, through Sloan Capital
Companies, was paid a bonus of $250,000 in January 1997. The management fee
payable for 1997 will be $150,000.
In August 1993, two partnerships which include Mr. Sloan as a partner
acquired the 24-acre University Village Shopping Center, where one of the
Company's stores is located and which is adjacent to an 8.8 acre parcel of land
the Company acquired in 1991. The Company negotiated with the partnerships for
certain property rights and lease modifications, which included a 15-year lease
term extension, the right to be the exclusive grocery store in the center, and
the right to relocate its store to the adjacent site. The Company paid
approximately $5.0 million for these rights, which is being amortized over the
life of the lease as leasehold interest. In August 1996, the Company completed
construction of its flagship store on the adjacent property, moved its store and
terminated the existing lease agreement, paying the partnership a $300,000 lease
termination fee. The Company retained all other property rights. Rentals and
common area and real estate tax reimbursements paid to the partnerships were at
the same rates paid to the previous owner of the center and totaled
approximately $500,000 for the fiscal year ended December 28, 1996.
Pursuant to the Recapitalization Agreement, the Company on March 29, 1995
(i) issued to Zell Chilmark 1,000,000 newly issued shares of Company Common
Stock at $25.00 per share, (ii) completed a tender offer, purchasing 7,000,000
shares of Company Common Stock at $25.00 per share (the "Offer"), and (iii)
entered into a credit facility to finance the Offer. Samuel Zell and Sheli Z.
Rosenberg, who became directors of the Company as a result of the
Recapitalization, indirectly control the general partner of Zell Chilmark. See
"Proposal I: Election of Directors." The Recapitalization was approved by a
special committee of the Board of Directors consisting solely of outside
directors.
In connection with the Recapitalization Agreement, Mr. Sloan and Zell
Chilmark entered into a Stock Purchase and Sale Agreement dated as of January
14, 1995, pursuant to which Mr. Sloan sold to Zell Chilmark on January 16, 1996,
2,975,000 shares of Company Common Stock owned by Mr. Sloan at $25.00 per share
plus an additional amount equal to a 5% annual return on that base price
calculated from March 17, 1995 through January 16, 1996.
Also in connection with the Recapitalization Agreement, Mr. Sloan and the
Company entered into the Sloan Standstill Agreement and Zell Chilmark and the
Company entered into the Zell Chilmark Standstill Agreement. See "Voting
Securities and Principal Holders."
In connection with the merger of Olson's Food Stores, Inc. ("Olson's") into
the Company in 1995, Maurice F. Olson, a director of the Company, leases one of
the former Olson's stores included in the merger to the Company. Annual lease
payments to Mr. Olson under the lease were approximately $164,000 for fiscal
1996.
The Company purchased $1,792,240 in wholesale bakery goods from Signature
Bakery, L.L.C., which is owned by members of Mr. Olson's immediate family, in
fiscal 1996.
During fiscal 1996, Messrs. Kourkoumelis and Olson were each directors of
Associated Grocers, which is one of the Company's major suppliers. Amounts paid
to Associated Grocers for products and services totaled $57.7 million for fiscal
1996.
The Company believes that the transactions described above were on terms
comparable to those that would be agreed upon through arm's-length negotiations.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Officers and directors of the Company and persons who own more than 10% of
the Company Common Stock are required to report to the Commission ownership and
changes in ownership of Company Common Stock. Regulations promulgated by the
Commission require the Company to disclose to its shareholders those filings
that were not made on a timely basis. Based solely on its review of copies of
such reports received by it, or written representations received from reporting
persons that no such forms
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were required for those persons, the Company believes that, during fiscal 1996,
its officers and directors complied with all applicable filing requirements.
OTHER BUSINESS
Management knows of no other business that will be presented for action at
the Annual Meeting. If other business requiring a vote of the shareholders
should come before the Annual Meeting, the persons designated as proxies will
vote or refrain from voting in accordance with their best judgment.
LEGAL OPINION
The legality of the shares of New Common Stock to be issued in connection
with the Reorganization is being passed upon for New Parent by Perkins Coie,
Seattle, Washington.
Section 203 of the DGCL contains similar provisions which may have the
effect of delaying or discouraging a hostile takeover of the Company. The
Delaware statute applies to certain business combinations between a corporation
and a stockholder who owns 15% or more or a corporation (an "Interested
Stockholder") during the three-year period after the Interested Stockholder
achieved such level of ownership, in contrast to the 10% ownership and five-year
criteria provided for under Washington law. However, Delaware law permits
business combinations with an Interested Stockholder if approved by the board of
directors or holders of 66 2/3% of the outstanding voting stock of the
corporation. Although, as with Washington law, Delaware law permits a
corporation to opt out of the Interested Stockholder restrictions through a
provision to such effect in the corporation's certificate of incorporation, New
Parent has not elected to opt out of such restrictions.
TAX OPINION
Certain of the United States federal income tax consequences of the
Reorganization to the Company, New Parent and Holding Company are being passed
upon by Bogle & Gates P.L.L.C., Seattle, Washington.
EXPERTS
The financial statements of Quality Food Centers, Inc., incorporated by
reference herein from the Company's Annual Report on Form 10-K/A dated July 23,
1997 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference, and such financial
statements are incorporated by reference herein in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Hughes Markets, Inc. incorporated
by reference herein from Quality Food Centers, Inc.'s Current Report on Form
8-K/A dated February 20, 1997 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said report.
The financial statements of Keith Uddenberg, Inc. incorporated by reference
herein from Quality Food Centers, Inc.'s Current Report on Form 8-K/A dated
February 20, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference,
and such financial statements are incorporated by reference herein in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
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SHAREHOLDER PROPOSALS FOR THE
1998 ANNUAL MEETING OF SHAREHOLDERS
Shareholder proposals to be presented at the 1998 Annual Meeting of
Shareholders must be received at the Company's executive offices by ,
in order to be included in the Company's proxy statement and form of proxy
relating to that meeting.
The Company Articles provide that advance notice of nominations for the
election of directors or the proposal of business at an annual meeting must be
submitted in writing and delivered to or mailed and received by the Secretary of
the Company not less than 30 nor more than 60 days prior to the meeting;
provided, however, that if less than 40 days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholders to be timely must be received not later than the close of business
on the tenth day following the date on which notice of the meeting was mailed or
such public disclosure was made. The notice must contain, among other things:
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address of the shareholder who intends to make the
nomination or proposal, (iii) the class and number of shares of stock of the
Company which are beneficially owned by such shareholder, (iv) a disclosure of
any material interest of such shareholder in such business, and (v) such other
information regarding each nominee or proposal as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Commission. The chairman of the meeting may in his or her discretion determine
and declare to the meeting that a proposal was not made in accordance with the
foregoing procedures, and if he or she should so determine, he or she shall so
declare to the meeting and the proposal shall be disregarded. The New Parent
Certificate provides identical procedures for advance notice of nominations and
proposals of other business by shareholders.
SOLICITATION OF PROXIES
This solicitation is made on behalf of the Board of Directors. Proxies may
be solicited by officers, directors and employees of the Company, none of whom
will receive additional compensation for their services. Solicitations of
proxies may be made personally, or by mail, telephone, telegraph, facsimile or
messenger.
The Company will pay persons holding shares of Company Common Stock in their
names or in the names of nominees, but not owning such shares beneficially, such
as brokerage houses, banks and other fiduciaries, for the expense of forwarding
soliciting materials to their principals. All the costs of soliciting proxies
will be paid by the Company.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of August 21,
1997, among Quality Food Centers, Inc., a Washington corporation (the
"Company"), Quality Food, Inc., a Delaware corporation and a direct wholly owned
subsidiary of the Company ("New Parent"), and QFC Sub, Inc., a Washington
corporation and an indirect wholly owned subsidiary of New Parent ("Merger
Sub").
WHEREAS, the Company and Merger Sub desire to merge on the terms and subject
to the conditions set forth in this Agreement;
WHEREAS, the sole shareholder of each of New Parent and Merger Sub and the
board of directors of each of the Company, New Parent and Merger Sub have
approved the merger of Merger Sub with the Company on the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the Washington business corporation act (the "WBCA"), at
the Effective Time (as hereinafter defined) Merger Sub shall be merged with the
Company and the separate corporate existence of Merger Sub shall thereupon cease
(the "Merger"). The Company shall be the surviving corporation in the Merger
(hereinafter sometimes referred to as the "Surviving Corporation").
SECTION 1.2 EFFECTIVE TIME
The Merger shall become effective as of the date and at such time (the
"Effective Time") as a copy of this Agreement pursuant to Section 23B.11.050 of
the WBCA and any other documents necessary to effect the Merger in accordance
with the WBCA shall be filed with the Secretary of State of the State of
Washington and become effective.
SECTION 1.3 EFFECTS OF THE MERGER
The Merger shall have the effects set forth in Section 23B.11.060 of the
WBCA.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 ARTICLES OF INCORPORATION AND BYLAWS
(a) At the Effective Time, the Articles of Incorporation of the Company, as
in effect immediately prior to the Effective Time, shall be amended so that the
operative provisions read in their entirety exactly as the Articles of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, except that the name of the corporation specified therein shall be
"Quality Food Centers, Inc."
(b) At the Effective Time, the Bylaws of the Company, as in effect
immediately prior to the Effective Time, shall be amended so that they read in
their entirety exactly as the Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, except that the name of the corporation specified
therein shall be "Quality Food Centers, Inc."
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SECTION 2.2 DIRECTORS AND OFFICERS
At and after the Effective Time, the board of directors of the Surviving
Corporation shall be comprised of the directors of Merger Sub immediately prior
to the Effective Time, and the officers of the Surviving Corporation shall be
the officers of the Company immediately prior to the Effective Time, in each
case until their respective successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 CONVERSION OF SHARES
At the Effective Time, by virtue of the Merger and without any action on the
part of any holder of any capital stock of the Company, New Parent or Merger
Sub:
(a) each share of common stock, par value $.001 per share, of the Company
("Company Common Stock") issued and outstanding immediately prior to the
Effective Time shall, subject to Section 3.3 hereof, be converted into and
become one share of common stock, $.001 par value, of New Parent ("New Common
Stock");
(b) each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock, par value $.001 per share, of the Surviving Corporation;
and
(c) each share of New Common Stock issued and outstanding immediately prior
to the Effective Time shall be canceled and shall cease to exist and no payment
or distribution shall be made with respect thereto.
SECTION 3.2 STOCK CERTIFICATES
At and after the Effective Time, each certificate theretofore representing
shares of Company Common Stock, without any action on the part of the Company,
New Parent or the holder thereof, shall be deemed to represent an equivalent
number of shares of New Common Stock and shall cease to represent any rights in
any shares of Company Common Stock.
SECTION 3.3 DISSENTING SHARES
(a) Notwithstanding anything to the contrary contained in this Agreement,
holders of Company Common Stock with respect to which dissenters' rights, if
any, are granted by reason of the Merger under the WBCA and who do not vote in
favor of the Merger and otherwise comply with Chapter 23B.13 of the WBCA
("Dissenting Shares"), shall not be entitled to shares of New Common Stock
pursuant to Section 3.01 hereof, unless and until the holder thereof shall have
failed to perfect or shall have effectively withdrawn or lost such holder's
right to dissent from the Merger under the WBCA, and shall be entitled to
receive only the payment provided for by Chapter 23B.13 of the WBCA. If any such
holder shall have failed to perfect or shall have effectively withdrawn or lost
such holder's dissenters' rights under the WBCA, such holder's Dissenting Shares
shall thereupon be deemed to be outstanding shares of New Common Stock.
(b) Any payments relating to Dissenting Shares shall be made solely by the
Surviving Corporation and no funds or other property have been or will be
provided by New Parent or any of its other direct or indirect subsidiaries for
such payment.
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SECTION 3.4 CLOSING OF TRANSFER BOOKS
From and after the Effective Time, the stock transfer books of the Company
(but not of the Surviving Corporation) shall be closed and no transfer of shares
of Company Common Stock shall thereafter be made. If, after the Effective Time,
certificates formerly representing shares of Company Common Stock are presented
to the Surviving Corporation, they shall be canceled and exchanged for
certificates representing shares of New Common Stock as set forth in Section 3.1
hereof.
ARTICLE IV
CONDITIONS TO MERGER
The obligation of the Company under this Agreement to effect the Merger is
subject to (a) approval of this Agreement by the holders of not less than a
majority of the outstanding shares of Company Common Stock in accordance with
the Articles of Incorporation of the Company, and (b) shares of New Common Stock
having been approved for listing on the New York Stock Exchange, Inc., subject
only to official notice of issuance.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 OPTIONS
At the Effective Time, each option to purchase shares or other right to
acquire shares of Company Common Stock granted under the Quality Food Centers,
Inc. Amended and Restated 1987 Incentive Stock Option Plan, the Quality Food
Centers, Inc. Directors' Nonqualified Stock Option Plan, the Quality Food
Centers, Inc. Amended and Restated 1990 Employee Stock Purchase Plan, the
Quality Food Centers Inc. Amended and Restated 1993 Executive Stock Option Plan,
the Quality Food Centers, Inc. Directors' Stock Unit Plan, and the Quality Food
Centers, Inc. 1997 Stock Option Plan (collectively, the "Option Plans"), which
is outstanding immediately prior to the Effective Time, shall be converted into
and become an option or right to purchase or acquire the same number of shares
of New Common Stock at the same option price per share, upon the same terms and
subject to the same conditions set forth in the option and in the applicable
Option Plan as in effect at the Effective Time. The same number of shares of New
Common Stock shall be reserved for purposes of the Option Plans as is equal to
the number of shares of Company Common Stock so reserved as of the Effective
Time. As of the Effective Time, New Parent will assume the Option Plans and all
obligations of the Company under the Option Plans, including the outstanding
options granted pursuant to the Option Plans.
SECTION 5.2 OTHER EMPLOYEE BENEFIT PLANS
At the Effective Time, New Parent will assume the Quality Food Centers
Defined Contribution Plan and all other employee benefit plans sponsored by the
Company (and all obligations of the Company thereunder) in effect as of the
Effective Time or with respect to which employee rights or accrued benefits are
outstanding as of the Effective Time.
SECTION 5.3 AMENDMENT
This Agreement may be amended by written agreement of the parties hereto at
any time prior to the Effective Time.
SECTION 5.4 ABANDONMENT
At any time prior to the Effective Time, this Agreement may be terminated
and abandoned by the unilateral action of the Board of Directors of the Company.
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SECTION 5.5 COUNTERPARTS
This Agreement may be executed in two or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties.
SECTION 5.6 GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Washington, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
<TABLE>
<S> <C> <C>
QUALITY FOOD CENTERS, INC.
/s/ CHRISTOPHER A. SINCLAIR
---------------------------------------------
By: Christopher A. Sinclair
Its: CHIEF EXECUTIVE OFFICER
QUALITY FOOD, INC.
/s/ CHRISTOPHER A. SINCLAIR
---------------------------------------------
By: Christopher A. Sinclair
Its: CHIEF EXECUTIVE OFFICER
QFC SUB, INC.
/s/ FREDRICK S. MEILS
---------------------------------------------
By: Fredrick S. Meils
Its: PRESIDENT
</TABLE>
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ANNEX B
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
QUALITY FOOD, INC.
ARTICLE I
NAME
The name of this corporation (the "Corporation") is:
Quality Food, Inc.
ARTICLE II
DEFINITIONS
For the purposes of this Restated Certificate of Incorporation:
A. "Affiliate" and "Associate" have the meanings set forth in Rule 12b-2
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
in effect on the date hereof.
B. "Beneficially owns" has the meaning set forth in Rule 13d-3 under the
Exchange Act as in effect on the date hereof.
C. "Business Combination" means (i) any merger, consolidation, combination
or reorganization of the Corporation or a Subsidiary of the Corporation
(collectively referred to as the Corporation) with or into an Interested Person
or of an Interested Person with or into the Corporation; (ii) any sale, lease,
exchange, transfer, liquidation or other disposition, including, without
limitation, a mortgage or any other security device, of assets of the
Corporation constituting a Substantial Part of the Corporation to an Interested
Person; (iii) any sale, lease, exchange, transfer, liquidation or other
disposition, including, without limitation, a mortgage or any other security
device, of assets of an Interested Person (including, without limitation, any
voting securities of a subsidiary of such Interested Person) constituting a
Substantial Part of such Interested Person to the Corporation; (iv) the issuance
or transfer of any securities (other than by way of a pro rata distribution to
all stockholders) of the Corporation to an Interested Person which, when
aggregated with all prior issuances and transfers to such Interested Person of
securities of the Corporation during the preceding 365 days, constitutes five
percent (5%) or more of the outstanding shares of any class or series of
securities of the Corporation; (v) the acquisition by the Corporation of any
securities issued by an Interested Person if, after giving effect thereto, the
Corporation would own an aggregate of one percent (1%) or more of (a) the
outstanding shares of any class or series of any equity security issued by the
Interested Person or (b) the outstanding principal amount of any class or series
of any debt security issued by the Interested Person (for purposes of such
calculation, the Corporation shall be deemed to own at the time of such
calculation any such equity or debt securities of the Interested Person that may
then or thereafter be acquired (1) upon the exercise of any options, warrants or
other rights then owned by the Corporation or (2) upon the conversion or
exchange of any other security then owned by the Corporation); (vi) any
recapitalization or reorganization that would have the effect, directly or
indirectly, of increasing the voting power of an Interested Person; and (vii)
any agreement, contract or other arrangement providing for any of the
transactions described in this definition of a Business Combination.
D. "Continuing Director" means any member of the Board of Directors of the
Corporation (the "Board") who, as to any Interested Person, (i) is unaffiliated
with the Interested Person and is not the Interested Person and (ii) became a
member of the Board prior to the time that the Interested Person
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became an Interested Person, and any successor of a Continuing Director who is
recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board.
E. "Disinterested Shares" means, as to any Interested Person, shares of
Voting Stock held by stockholders other than such Interested Person.
F. "Fair Market Value" means (i) in the case of stock, the highest closing
sale price during the thirty (30) day period immediately preceding and including
the date in question of a share of such stock on the Composite Tape for
securities listed on the New York Stock Exchange, or, if such stock is not
quoted on the Composite Tape, on the New York Stock Exchange, or if such stock
is not listed on such Exchange, on the principal United States securities
exchange registered under the Exchange Act on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such stock during the thirty (30) day period
preceding and including the date in question on the National Association of
Securities Dealers, Inc. Automated Quotation system or any other quotation
reporting system then in general use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock as
determined by the Continuing Directors in good faith, which determination shall
be final; and (ii) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by the
Continuing Directors in good faith, which determination shall be final. In
making such determinations, the Board may rely in good faith upon the books of
account or other records of the Corporation or Statements prepared by its
officers or by independent accountants or by an appraiser selected with
reasonable care by the Board.
G. "Interested Person" means any individual, corporation, partnership or
other person or entity, or any group of two or more of the foregoing that have
agreed to act together, which, together with its Affiliates and Associates,
Beneficially Owns, in the aggregate, five percent (5%) or more of the
outstanding Voting Stock, who did not, on March 4, 1987, own five percent (5%)
or more of the Voting Stock; provided, that for purposes of this Article II(G),
the term "Voting Stock" shall also be a reference to shares of Quality Food
Centers, Inc. ("QFC") for all periods prior to which QFC became a wholly owned,
indirect subsidiary of the Corporation.
H. "Subsidiary" means any corporation in which the Corporation owns,
directly or indirectly, securities which entitle the Corporation to elect a
majority of the board of directors of such corporation or which otherwise give
to the Corporation the power to control such corporation.
I. "Substantial Part" means more than ten percent (10%) of the fair market
value of the total consolidated assets of the corporation in question and its
subsidiaries as of the end of its most recent fiscal year ending prior to the
time the determination is being made.
J. "Voting Stock" means all outstanding shares of capital stock of the
Corporation, entitled to vote generally in the election of directors of the
Corporation, and each reference to a percentage or portion of shares of Voting
Stock shall refer to such percentage or portion of the votes entitled to be cast
by such shares.
ARTICLE III
REGISTERED OFFICE
The address of the registered office of the Corporation is 15 East North
Street, Dover, Kent County, Delaware 19901, and the name of the registered agent
at such address is Lexis Document Services Inc.
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ARTICLE IV
AUTHORIZED CAPITAL STOCK
Section 1. CLASSES. The Corporation shall be authorized to issue two classes
of shares of stock to be designated, respectively, "Common Stock" and "Preferred
Stock;" the total number of shares which the Corporation shall have authority to
issue is sixty-one million (61,000,000); the total number of shares of Common
Stock shall be sixty million (60,000,000) and each such share shall have a par
value of $.001; the total number of shares of Preferred Stock shall be one
million (1,000,000) and each such share shall have a par value of $.001.
Section 2. PREFERRED STOCK. Shares of Preferred Stock may be issued from
time to time in one or more series. Shares of Preferred Stock which may be
redeemed, purchased or acquired by the Corporation may be reissued except as
otherwise provided by law. The Board of Directors of the Corporation is hereby
authorized to fix the designations and powers, preferences and relative,
participating, optional or other rights, if any, and qualifications, limitations
or other restrictions thereof, including, without limitation, the dividend rate
(and whether dividends are cumulative), conversion rights, if any, voting
rights, rights and terms of redemption (including sinking fund provisions, if
any), redemption price and liquidation preferences of any wholly unissued series
of Preferred Stock and the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding.
Section 3. PREEMPTIVE RIGHTS. Subject to the rights of the holders of any
series of Preferred Stock, stockholders of the Corporation shall have no
preemptive rights to acquire additional shares issued by the Corporation.
ARTICLE V
STOCKHOLDER RIGHTS
Section 1. NO CUMULATIVE VOTING. Subject to the rights of the holders of any
series of Preferred Stock outstanding, in any election for directors of the
Corporation, a holder of any class or series of stock then entitled to vote has
the right to vote in person or by proxy the number of shares of stock held by
him for as many persons as there are directors to be elected. No cumulative
voting for directors shall be permitted.
Section 2. NOTICE OF STOCKHOLDER NOMINEES. Nominations of persons for
election to the Board of the Corporation shall be made only at a meeting of
stockholders and only (i) by or at the direction of the Board or (ii) by any
stockholder of the Corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section 2.
Such nominations, other than those made by or at the direction of the Board,
shall be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than thirty (30) days nor more than sixty (60) days prior to the meeting;
PROVIDED, HOWEVER, that if less than forty (40) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business of the tenth (10th) day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. For purposes
of this Section 2, any adjournment(s) or postponement(s) of the original meeting
whereby the meeting will reconvene within thirty (30) days from the original
date shall be deemed for purposes of notice to be a continuation of the original
meeting, and no nominations by a stockholder of persons to be elected directors
of the Corporation may be made at any such reconvened meeting unless pursuant to
a notice which was timely for the meeting on the date originally scheduled. Such
stockholder's notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, all information
relating to such person that is required to be disclosed in solicitations of
proxies
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for election of directors, or is otherwise required, in each case pursuant to
the Exchange Act (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); and (b)
as to the stockholder giving the notice, (i) the name and address, as they
appear on the Corporation's books, of such stockholder, and (ii) the class and
number of shares of stock of the Corporation which are beneficially owned by
such stockholder. Notwithstanding the foregoing, nothing in this Section 2 shall
be interpreted or construed to require the inclusion of information about any
such nominee in any proxy statement distributed by, at the direction of, or on
behalf of the Board.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 2, and if he should so determine, he shall
so declare to the meeting, and the defective nomination shall be disregarded.
Section 3. STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS. Business may be
properly brought before an annual meeting by a stockholder only upon the
stockholder's timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
thirty (30) days nor more than sixty (60) days prior to the meeting as
originally scheduled: PROVIDED, HOWEVER, that if less than forty (40) days
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. For purposes of this Section 3, any adjournment(s) or
postponement(s) of the original meeting whereby the meeting will reconvene
within thirty (30) days from the original date shall be deemed for purposes of
notice to be a continuation of the original meeting, and no business may be
brought before any reconvened meeting unless such timely notice of such business
was given to the Secretary of the Corporation for the meeting as originally
scheduled. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (a) a brief
description of the business desired to be brought before the annual meeting; (b)
the name and address, as they appear on the Corporation's books, of such
stockholder; (c) the class and number of shares of the Corporation which are
beneficially owned by such stockholder; and (d) any material interest of such
stockholder in such business. Notwithstanding the foregoing, nothing in this
Section 3 shall be interpreted or construed to require the inclusion of
information about any such proposal in any proxy statement distributed by, at
the discretion of, or on behalf of the Board.
The chairman of an annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 3, and if he should so
determine, he shall so declare to the meeting, and any such business not
properly brought before the meeting shall not be transacted.
Section 4. ACTION BY UNANIMOUS WRITTEN CONSENT. No action that is required
or permitted to be taken by the stockholders of the Corporation at any annual or
special meeting of stockholders may be effected by less than the unanimous
written consent of the stockholders in lieu of an annual or special meeting of
stockholders.
ARTICLE VI
DIRECTORS
The number of directors which shall constitute the whole Board shall be
specified in the Bylaws of the Corporation as the same may be amended from time
to time.
Section 1. CLASSIFIED BOARD. The Board shall be divided into three classes:
Class I Directors, Class II Directors and Class III Directors. Each such class
of directors shall be as nearly equal in number of directors as possible. Each
director shall serve for a term ending at the third annual stockholders' meeting
following the annual meeting at which such director was elected; PROVIDED,
HOWEVER, that the directors first
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elected as Class I Directors shall serve for a term ending at the annual meeting
to be held in the year following the first election of directors by classes, the
directors first elected as Class II Directors shall serve for a term ending at
the annual meeting to be held in the second year following the first election of
directors by classes and the directors first elected as Class III Directors
shall serve for a term ending at the annual meeting to be held in the third year
following the first election of directors by classes. Notwithstanding the
foregoing, each director shall serve until his or her successor shall have been
elected and qualified or until his earlier death, resignation or removal.
At each annual election, the directors chosen to succeed those whose terms
then expire shall be identified as being of the same class as the directors they
succeed, unless, by reason of any intervening changes in the authorized number
of directors, the Board shall designate one or more directorships whose terms
then expire as directorships of another class in order more nearly to achieve
equality in the number of directors among the classes. When the Board fills a
vacancy resulting from the death, resignation or removal of a director, the
director chosen to fill that vacancy shall be of the same class as the director
he or she succeeds, unless, by reason of any previous changes in the authorized
number of directors, the Board shall designate the vacant directorship as a
directorship of another class in order more nearly to achieve equality in the
number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly equal in
number of directors as possible, upon any change in the authorized number of
directors, each director then continuing to serve as such will nevertheless
continue as a director of the class of which he or she is a member, until the
expiration of his or her current term or his or her earlier death, resignation
or removal. If there are any newly created directorships or vacancies on the
Board, the Board shall allocate any such directorship or vacancy to that of the
available classes of directors which term of office is due to expire at the
earliest date following such allocation.
Section 2. DIRECTORS ELECTED BY PREFERRED STOCK. During any period when the
holders of Preferred Stock or any one or more series thereof, voting as a class,
shall be entitled to elect a specified number of directors by reason of dividend
arrearages or other contingencies giving them the right to do so, then and
during such time as such right continues: (a) the then otherwise authorized
number of directors shall be increased by such specified number of directors,
and the holders of the Preferred Stock or such series thereof, voting as a
class, shall be entitled to elect the additional directors so provided for,
pursuant to the provisions of such Preferred Stock or series; (b) the additional
directors shall be members of those respective classes of directors in which
vacancies are created as a result of such increase in the authorized number of
directors; and (c) each such additional director shall serve until the annual
meeting at which the term of office of his or her class shall expire and until
his or her successor shall be elected and shall qualify, or until his or her
right to hold such office terminates pursuant to the provisions of such
Preferred Stock or series, whichever occurs earlier. Whenever the holders of
such Preferred Stock or series thereof are divested of such rights to elect a
specified number of directors, voting as a class, pursuant to the provisions of
such Preferred Stock or series, the terms of office of all directors elected by
the holders of such Preferred Stock or series, voting as a class pursuant to
such provisions, or elected to fill any vacancies resulting from the death,
resignation or removal of directors so elected by the holders of such Preferred
Stock or series, shall forthwith terminate and the authorized number of
directors shall be reduced accordingly.
Section 3. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, at any meeting of stockholders called
expressly for that purpose, the entire Board, or any member thereof, may be
removed from office at any time, but only (i) for cause and (ii) by the
affirmative vote of the holders of the majority of the Voting Stock; PROVIDED,
HOWEVER, that if a proposal to remove a director is made by or on behalf of an
Interested Person or a director affiliated with an Interested Person, then in
addition to (i) and (ii) above, such removal shall require the affirmative vote
of the holders of a majority of the Disinterested Shares.
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ARTICLE VII
LIMITATION OF LIABILITY OF DIRECTORS
To the fullest extent that the General Corporation Law of the State of
Delaware or any other law of the State of Delaware as it exists or as it may
hereafter be amended permits the limitation or elimination of the liability of
directors, no director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. No amendment or repeal of this Article VII shall apply to or have any
effect on the liability of any director of the Corporation for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal.
ARTICLE VIII
BUSINESS COMBINATIONS
Section 1. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS. Except as
otherwise expressly provided in Section 2 of this Article VIII, and in addition
to any voting rights granted to or held by holders of Preferred Stock, the
approval or authorization of any Business Combination shall require the
affirmative vote of the holders of not less than sixty-six and two-thirds
percent (66 2/3%) of the outstanding shares of Voting Stock.
Section 2. EXCEPTIONS.
A. Section 1 of this Article VIII shall not be applicable to any particular
Business Combination, and such Business Combination shall require, in addition
to any voting rights granted to or held by holders of the Preferred Stock, only
the affirmative vote of the holders of not less than a majority of the
outstanding shares of Voting Stock, if the Business Combination shall have been
approved by a majority of the Continuing Directors.
B. Section 1 of this Article VIII shall not be applicable to any particular
Business Combination in which stockholders of the Corporation, in one or more
transactions, are to receive cash, securities or other property in exchange for
their shares of capital stock of the Corporation, and such Business Combination
shall require, in addition to any voting rights granted to or held by holders of
Preferred Stock, the affirmative vote of the holders of not less than a majority
of the outstanding shares of Voting Stock if all of the following conditions are
met:
1. The aggregate amount of cash plus the Fair Market Value, as of the
date of the consummation of the Business Combination, of any consideration
other than cash to be received per share by holders of Common Stock in such
Business Combination shall be at least equal to the higher of the following:
a. the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid or agreed to be paid by
the Interested Person for any shares of Common Stock acquired by it (i)
within the period of eighteen (18) months immediately prior to and
including the date of the most recent public announcement of the proposal
of the Business Combination (the "Announcement Date") or (ii) in the
transaction or series of transactions in which it became an Interested
Person; and
b. the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested Person became an
Interested Person (such latter date is referred to as the "Determination
Date"), whichever is higher; and
2. The aggregate amount of the cash plus the Fair Market Value as of
the date of the consummation of the Business Combination of any
consideration other than cash to be received per share by holders of shares
of any of a particular class or series of outstanding capital stock, other
than Common Stock, shall be at least equal to the highest of the following
(it being intended that the
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requirements of this paragraph B.2 shall be required to be met with respect
to every class or series of outstanding capital stock, other than Common
Stock, whether or not the Interested Person has previously acquired any
shares of that particular class or series of capital stock):
a. the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid or agreed to be paid by
the Interested Person for any shares of such class or series of capital
stock acquired by it (i) within the period of eighteen (18) months
immediately prior to and including the Announcement Date or (ii) in the
transaction or series of transactions in which it became an Interested
Person; and
b. the redemption price of the shares of such class or series of
capital stock, or if such shares have no redemption price, the highest
amount per share which such class or series of capital stock was entitled
to receive upon liquidation of the Corporation as of the Announcement
Date or the Determination Date, whichever is higher; and
c. the Fair Market Value per share of such class or series of
capital stock on the Announcement Date or on the Determination Date,
whichever is higher; and
3. The consideration to be received by holders of a particular class or
series of outstanding capital stock (including, without limitation, Common
Stock) shall be in cash or in the same form that the Interested Person has
previously paid for shares of such class or series of capital stock. If the
Interested Person has paid for shares of any class or series of capital
stock with varying forms of consideration, the form of consideration for
such class or series of capital stock shall be either cash or the form used
to acquire the largest number of shares of such class or series of capital
stock previously acquired by the Interested Person; and
4. The Business Combination is approved by the affirmative vote of the
holders of a majority of the Disinterested Shares.
Section 3. DETERMINATION OF COMPLIANCE. A majority of the total number of
Continuing Directors shall have the power and duty to determine, on the basis of
information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article VIII, including, without limitation (a)
whether a person is an Interested Person; (b) the number of shares of capital
stock Beneficially Owned by any person; (c) whether a person is an Affiliate or
Associate of another; (d) whether the applicable conditions set forth in
paragraph B of Section 2 of this Article VIII have been met with respect to any
Business Combination; and (e) whether the proposed transaction is a Business
Combination.
ARTICLE IX
INDEMNIFICATION AND LIABILITY OF OFFICERS
DIRECTORS, EMPLOYEES AND AGENTS
The Corporation shall, to the full extent permitted by Section 145 of the
Delaware General Corporation Law, as amended from time to time, indemnify all
persons whom it may indemnify pursuant thereto.
ARTICLE X
MEETINGS
Section 1. MEETINGS GENERALLY. Meetings of stockholders may be held within
or without the State of Delaware, as the Bylaws of the Corporation may provide.
Section 2. CALL OF SPECIAL MEETING. Special meetings of the stockholders of
the Corporation for any purpose or purposes may be called at any time by the
Chairman of the Board, or by a majority of the
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members of the Board; PROVIDED, HOWEVER, that when a proposal requiring
stockholder approval is made by or on behalf of an Interested Person or director
affiliated with an Interested Person, or when an Interested Person otherwise
seeks action requiring stockholder approval, then the affirmative vote of a
majority of the Continuing Directors shall also be required to call a special
meeting of stockholders for the purpose of considering such proposal or
obtaining such approval. Such special meeting may not be called by any other
person or persons or in any other manner.
ARTICLE XI
AMENDMENT OF CORPORATE DOCUMENTS
Section 1. RESTATED CERTIFICATE OF INCORPORATION. In addition to any
affirmative vote required by applicable law and any voting rights granted to or
held by the holders of Preferred Stock, any alteration, amendment, repeal or
rescission (any "Change") of any provision of this Restated Certificate of
Incorporation must be approved by a majority of the directors of the Corporation
then in office and by the affirmative vote of the holders of a majority of the
outstanding Voting Stock; PROVIDED, HOWEVER, that if any such Change relates to
Article II, IV, V, VI, VII, VIII, IX or X hereof or to this Article XI, such
Change must also be approved either (i) by a majority of the authorized number
of directors and, if one or more Interested Persons exist, by a majority of the
directors who are Continuing Directors with respect to all Interested Persons,
or (ii) by the affirmative vote of the holders of not less than sixty-six and
two-thirds percent (66 2/3%) of the outstanding Voting Stock of the Corporation.
Section 2. BYLAWS. In furtherance and not in limitation of the powers
conferred upon it by law, the Board of Directors is expressly authorized to
adopt, repeal or amend the Bylaws of the Corporation by the vote of a majority
of the entire Board of Directors. In addition to any requirements of law and any
other provision of this Restated Certificate of Incorporation or any resolution
or resolutions of the Board adopted pursuant to Article IV of this Restated
Certificate of Incorporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Restated Certificate of Incorporation
or any such resolution or resolutions), any proposed Change of Section 3.2 of
the Bylaws of the Corporation, or the adoption of any resolution changing the
number of directors or creating any vacancy on the Board must be approved either
(i) by a majority of the authorized number of directors and, if one or more
Interested Persons exist, by a majority of the directors who are Continuing
Directors with respect to all Interested Persons, or (ii) by the affirmative
vote of the holders of not less than sixty-six and two-thirds percent (66 2/3%)
of the outstanding Voting Stock of the Corporation.
Subject to the foregoing, the Board shall have the power to make, alter,
amend, repeal or rescind the Bylaws of the Corporation.
IN WITNESS WHEREOF, I, Christopher A. Sinclair, President and Chief
Executive Officer of Quality Food, Inc., have executed this Restated Certificate
of Incorporation as of the day of August, 1997, and DO HEREBY CERTIFY under
the penalties of perjury that the facts stated in this Restated Certificate of
Incorporation are true.
<TABLE>
<S> <C>
------------------------------------
Christopher A. Sinclair
President and Chief Executive Officer
</TABLE>
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ANNEX C
CHAPTER 23B.13 OF THE
WASHINGTON BUSINESS CORPORATION ACT
(DISSENTERS' RIGHTS)
23B.13.010 DEFINITIONS
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under RCW 23B.13.020 and who exercises that right when and in the
manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial shareholder.
23B.13.020 RIGHT TO DISSENT
(1) A shareholder is entitled to dissent from, and obtain payment of the fair
value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party (i)
if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is
entitled to vote on the merger, or (ii) if the corporation is a
subsidiary that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to
court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially reduces
the number of shares owned by the shareholder to a fraction of a share if
the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
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(e) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the shareholder's
shares under this chapter may not challenge the corporate action creating
the shareholder's entitlement unless the action fails to comply with the
procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent
with respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair value of
the shareholder's shares shall terminate upon the occurrence of any one of
the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030 DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than all
shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and notifies
the corporation in writing of the name and address of each person on whose
behalf the shareholder asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to which
the dissenter dissents and the dissenter's other shares were registered in
the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held on
the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of which
such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200 NOTICE OF DISSENTERS' RIGHTS
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter and be accompanied by a copy of this
chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights must (a) deliver to the corporation
before the vote is taken written notice of the shareholder's intent to
demand payment for the shareholder's shares if the proposed action is
effected, and (b) not vote such shares in favor of the proposed action.
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(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under
this chapter.
23B.13.220 DISSENTERS' NOTICE
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective date
of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after
the date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230 DUTY TO DEMAND PAYMENT
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220 must
demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's share
certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for the shareholder's shares under this chapter.
23B.13.240 SHARE RESTRICTIONS
(1) The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until the effective date of
the proposed corporate action.
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<PAGE>
23B.13.250 PAYMENT
(1) Except as provided in RCW 23B.13.270, within thirty days of the later of the
effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied
with RCW 23B.13.230 the amount the corporation estimates to be the fair
value of the shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity
for that year, and the latest available interim financial statements, if
any;
(b) An explanation of how the corporation estimated the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260 FAILURE TO TAKE ACTION
(1) If the corporation does not effect the proposed action within sixty days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any
transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it
must send a new dissenters' notice under RCW 23B.13.220 and repeat the
payment demand procedure.
23B.13.270 AFTER-ACQUIRED SHARES
(1) A corporation may elect to withhold payment required by RCW 23B.13.250 from
a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under subsection
(1) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation
of how the interest was calculated, and a statement of the dissenter's right
to demand payment under RCW 23B.13.280.
23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(1) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under
RCW 23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and
demand payment of the dissenter's estimate of the fair value of the
dissenter's shares and interest due, if:
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<PAGE>
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within sixty
days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not return
the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section unless the
dissenter notifies the corporation of the dissenter's demand in writing
under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
23B.13.300 COURT ACTION
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of the
county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder who
claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that
such shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other
civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment (a)
for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation, or (b) for the fair value, plus accrued interest, of the
dissenter's after-acquired shares for which the corporation elected to
withhold payment under RCW 23B.13.270.
23B.13.310 COURT COSTS AND COUNSEL FEES
(1) The court in a proceeding commenced under RCW 23B.13.300 shall determine all
costs of the proceeding, including the reasonable compensation and expenses
of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the
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<PAGE>
costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145, as amended, of the Delaware General Corporation Law (the
"DGCL") provides that a Delaware corporation may indemnify, among others, its
officers, directors, employees and agents under the circumstances described in
the statute. Article IX of the Restated Certificate of Incorporation of the
registrant (Exhibit 3.1 hereto) provides that the registrant shall, to the full
extent permitted by Section 145 of the DGCL, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
In addition, Section 102 of the DGCL allows a corporation to eliminate the
personal liability of a director of a corporation to the corporation or to any
of its stockholders for monetary damage for a breach of his or her fiduciary
duty as a director, except in the case where the director (i) breaches his or
her duty of loyalty, (ii) fails to act in good faith, (iii) engages in
intentional misconduct or knowingly violates a law, (iv) authorizes the payment
of a dividend or approves a stock repurchase in violation of the DGCL, or (v)
obtains an improper benefit. Article VII of the Restated Certificate of
Incorporation of the registrant provides for the limitation or elimination of
liability of directors to the fullest extent permitted by the DGCL or Delaware
law as it exists currently or as it may hereafter be amended.
The directors and officers of the registrant are covered by insurance
policies indemnifying against certain liabilities, including certain liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act"),
which might be incurred by them in such capacities and against which they cannot
be indemnified by the registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger (attached to Proxy Statement/Prospectus as ANNEX A)
3.1 Form of Restated Certificate of Incorporation of Quality Food, Inc. (attached to Proxy
Statement/Prospectus as ANNEX B)
3.2 Form of Bylaws of Quality Food, Inc.
5.1* Form of Opinion of Perkins Coie as to the legality of the securities being registered
8.1 Form of Opinion of Bogle & Gates P.L.L.C. as to certain federal income tax consequences
21.1* List of Subsidiaries
23.1* Consent of Perkins Coie (contained in opinion filed as Exhibit 5.1 hereto)
23.2 Consent of Bogle & Gates P.L.L.C. (contained in opinion filed as Exhibit 8.1 hereto)
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Deloitte & Touche LLP
23.5 Consent of Arthur Andersen LLP
99.1* Form of Proxy
</TABLE>
- ------------------------
* Previously filed.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(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;
(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 end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission (the "Commission") pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act), that is incorporated by reference in this
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.
(c) (1) The undersigned registrant hereby undertakes as follows: 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.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities 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, 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.
II-2
<PAGE>
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form S-4, 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.
The undersigned registrant hereby undertakes 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 Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on the 21st day of August, 1997.
QUALITY FOOD, INC.
By: /s/ FREDRICK S. MEILS
-----------------------------------------
Fredrick S. Meils,
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------- -------------
/s/ CHRISTOPHER A. SINCLAIR President, and Chief Executive
- ------------------------------ Officer (Principal Executive August 21,
Christopher A. Sinclair Officer) 1997
Senior Vice President and Chief
/s/ FREDRICK S. MEILS Financial Officer (Principal August 21,
- ------------------------------ Financial and Accounting 1997
Fredrick S. Meils Officer)
SHELI Z. ROSENBERG*
- ------------------------------ Director August 21,
Sheli Z. Rosenberg 1997
SAMUEL ZELL*
- ------------------------------ Director August 21,
Samuel Zell 1997
/s/ FREDRICK S. MEILS
- ------------------------------ August 21,
Fredrick S. Meils 1997
ATTORNEY-IN-FACT
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger (attached to Proxy Statement/Prospectus as ANNEX A)
3.1 Form of Restated Certificate of Incorporation of Quality Food, Inc. (attached to Proxy
Statement/Prospectus as ANNEX B)
3.2 Form of Bylaws of Quality Food, Inc.
5.1* Form of Opinion of Perkins Coie as to the legality of the securities being registered
8.1 Form of Opinion of Bogle & Gates P.L.L.C. as to certain federal income tax consequences
21.1* List of Subsidiaries
23.1* Consent of Perkins Coie (contained in opinion filed as Exhibit 5.1 hereto)
23.2 Consent of Bogle & Gates P.L.L.C. (contained in opinion filed as Exhibit 8.1 hereto)
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Deloitte & Touche LLP
23.5 Consent of Arthur Andersen LLP
99.1* Form of Proxy
</TABLE>
- ------------------------
* Previously filed
<PAGE>
EXHIBIT 3.2
FORM OF
BYLAWS
OF
QUALITY FOOD, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
Section 1.1. DELAWARE OFFICE. The principal office of the Corporation in
the State of Delaware shall be located in the City of Dover, County of Kent, and
the name and address of its registered agent is Lexis Document Services Inc., 15
East North Street, Dover, Delaware 19901.
Section 1.2. OTHER OFFICES. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
Section 1.3. BOOKS AND RECORDS. The books and records of the Corporation
may be kept at the Corporation's headquarters or at such other locations outside
the State of Delaware as may from time to time be designated by the Board of
Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1. ANNUAL MEETINGS. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 2.2. SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board or a
majority of the members of the Board of Directors; PROVIDED, HOWEVER, that when
a proposal requiring stockholder approval is made by or on behalf of an
Interested Person (as defined in the Certificate of Incorporation) or director
affiliated with an Interested Person, or when an Interested Person otherwise
seeks action requiring stockholder approval, then the affirmative vote of a
majority of the Continuing Directors (as defined in the Certificate of
Incorporation) shall also be required to call a special meeting of stockholders
for the purpose of considering such proposal or obtaining such approval. Such
special meetings may not be called by any other person or persons or in any
other manner.
Section 2.3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the Certificate of Incorporation or
these Bylaws, the written notice of any meeting shall be given not less than ten
or more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
Corporation.
Section 2.4. ADJOURNMENTS. Any meeting of stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned
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<PAGE>
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Corporation may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Section 2.5. QUORUM. Except as otherwise provided by law, the Certificate
of Incorporation or these Bylaws, at each meeting of stockholders the presence
in person or by proxy of the holders of shares of stock having a majority of the
votes which could be cast by the holders of all outstanding shares of stock
entitled to vote at the meeting shall be necessary and sufficient to constitute
a quorum. In the absence of a quorum, the stockholders so present may, by
majority vote, adjourn the meeting from time to time in the manner provided in
Section 2.4 of these Bylaws until a quorum shall attend. Shares of its own stock
belonging to the Corporation or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the Corporation, shall neither be entitled
to vote nor be counted for quorum purposes; PROVIDED, HOWEVER, that the
foregoing shall not limit the right of the Corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.
Section 2.6. ORGANIZATION. Meetings of stockholders shall be presided over
by the Chairman of the Board, or in his or her absence by the President, or in
his or her absence by a Vice President, or in the absence of the foregoing
persons by a chairman designated by the Board of Directors, or in the absence of
such designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his or her absence the chairman of the meeting
may appoint any person to act as secretary of the meeting.
Section 2.7. VOTING; PROXIES. Except as otherwise provided by the
Certificate of Incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
him or her which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders 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 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 stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by delivering a proxy in accordance
with applicable law bearing a later date to the Secretary of the Corporation.
Voting at meetings of stockholders need not be by written ballot; PROVIDED,
HOWEVER, that any election for directors must be by ballot if demanded by any
stockholder at the meeting before the election has begun. At all meetings of
stockholders for the election of directors a plurality of the votes cast shall
be sufficient to elect directors. All other elections and questions shall,
unless otherwise provided by law, the Certificate of Incorporation or these
Bylaws, be decided by the vote of the holders of shares of stock having a
majority of the votes which could be cast by the holders of all shares of stock
outstanding and entitled to vote thereon.
Section 2.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. 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, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose 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 by
the Board of Directors and which record date: (i) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting and (ii) in the case of any
other action, shall not be more than sixty days prior to such other action. If
no record date is fixed: (i) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close
2
<PAGE>
of business on the day next 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 and (ii) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. 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 2.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and 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 ten 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. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. The stock ledger shall be the only evidence as to which
stockholders are entitled to examine the stock ledger, the list of stockholders
or the books of the Corporation, or to vote in person or by proxy at any meeting
of stockholders.
Section 2.10. CONDUCT OF MEETINGS. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
Corporation, their duly authorized and constituted proxies or such other persons
as the chairman of the meeting shall determine; (iv) restrictions on entry to
the meeting after the time fixed for the commencement thereof; and (v)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
Section 2.11. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The
Board of Directors by resolution may appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives of the Corporation, to act at the meeting and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act, or if all inspectors or alternates who have been appointed are
unable to act, at a meeting of stockholders, the chairman of the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
discharging his or her duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his or her ability. The inspectors shall have the duties prescribed by the
General Corporation Law of the State of Delaware. The chairman of the meeting
shall fix and announce at the meeting the date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a
meeting.
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ARTICLE III
BOARD OF DIRECTORS
Section 3.1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by law, by the Certificate of
Incorporation or by these Bylaws required to be exercised or done by the
stockholders.
Section 3.2. NUMBER; QUALIFICATIONS. The Board of Directors shall consist
of not less than two or more than ten members, the exact number to be determined
from time to time by resolution of the Board of Directors. Directors need not be
stockholders or residents of the State of Delaware.
Section 3.3. ELECTION; RESIGNATION; REMOVAL. Subject to the rights of
holders of any series of Preferred Stock outstanding, at each annual meeting of
stockholders beginning with the first annual meeting of stockholders, the
successors of the class of directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of stockholders
to be held in the third year following the year of their election, with each
director in each such class to hold office until his or her successor is duly
elected and qualified or until his or her earlier death, resignation or removal.
Any director, or the entire Board of Directors, may be removed only (i) for
cause and (ii) by the affirmative vote of the holders of a majority of shares
then entitled to vote at the election of directors; PROVIDED, HOWEVER, that if a
proposal to remove a director is made by or on behalf of an Interested Person or
a director affiliated with and Interested Person, then in addition to clauses
(i) and (ii) above, such removal shall require the affirmative vote of the
holders of a majority of the Disinterested Shares (as defined in the Certificate
of Incorporation). Any director may resign at any time upon written notice to
the Board of Directors, the President or the Secretary of the Corporation. Such
resignation shall be effective upon receipt unless the notice specifies a later
time for that resignation to become effective.
Section 3.4. VACANCIES. Any newly created directorship resulting from an
increase in the authorized number of directors or any vacancy occurring in the
Board of Directors by reason of death, resignation, retirement,
disqualification, removal from office or any other cause may be filled by the
affirmative vote of the remaining members of the Board of Directors, though less
than a quorum of the Board of Directors, and each director so elected shall hold
office until the expiration of the term of office of the director whom he or she
has replaced or until his or her successor is elected and qualified. If there
are no directors in office, then an election of directors may be held in the
manner provided by statute. No decrease in the number of directors constituting
the whole Board shall shorten the term of any incumbent director.
Section 3.5. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine, and if so
determined notices thereof need not be given.
Section 3.6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the Chairman of the Board, the President, the Secretary, or
by any two members of the Board of Directors. Notice of the date, time and place
of a special meeting of the Board of Directors shall be delivered by the person
or persons calling the meeting personally, by facsimile or by telephone to each
director or sent by first-class mail or telegram, charges prepaid, addressed to
each director at that directors' address as it is shown on the records of the
Corporation. If the notice is mailed, it shall be deposited in the United States
mail at least four days before the time of the holding of the meeting. If the
notice is delivered personally or by telephone or telegraph, it shall be
delivered at least forty-eight hours before the time of the holding of the
special meeting. If by facsimile transmission, such notice shall be transmitted
at least twenty-four hours before the time of holding of the special meeting.
Any oral notice given personally or by telephone may be communicated either to
the director or to a person at the office of the director who the person giving
the notice has
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reason to believe will promptly communicate it to the director. The notice need
not specify the purpose or purposes of the special meeting or the place of the
special meeting, if the meeting is to be held at the principal office of the
Corporation.
Section 3.7. TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Bylaw shall constitute presence in person at such meeting.
Section 3.8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. At all
meetings of the Board of Directors a majority of the whole Board of Directors
shall constitute a quorum for the transaction of business. Except in cases in
which the Certificate of Incorporation or these Bylaws otherwise provide, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. A majority of the directors
present, whether or not a quorum, may adjourn any meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four hours. If the
meeting is adjourned for more than twenty-four hours, then notice of the time
and place of the adjourned meeting shall be given to the directors who were not
present at the time of the adjournment in the manner specified in Section 3.6.
Section 3.9. ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by the
President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 3.10. INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, 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 of
Directors or such 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
of Directors or such committee.
Section 3.11. FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Directors. This Section 3.11 shall not be construed to preclude any
director from serving the Corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those services.
ARTICLE IV
COMMITTEES
Section 4.1. COMMITTEES. The Board of Directors may designate from among
its members an Executive Committee and one or more other standing or special
committees, each committee to consist of one or more of the directors of the
Corporation. 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. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or she or they 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. Any such
committee, to the extent permitted by law and to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it.
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Section 4.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these Bylaws.
Section 4.3. MINUTES OF MEETINGS. All committees appointed in accordance
with Section 4.1 shall keep regular minutes of their meetings and shall cause
them to be recorded in books kept for that purpose in the office of the
Corporation.
ARTICLE V
OFFICERS
Section 5.1. DESIGNATIONS. The officers of the Corporation shall be a
Chairman of the Board, a President, a Secretary and, at the discretion of the
Board of Directors, one or more Vice-Presidents (one or more of whom may be
Executive Vice-Presidents), a Treasurer, Assistant Secretaries and Assistant
Treasurers. The Board of Directors shall appoint all officers. Any two or more
offices may be held by the same individual.
Section 5.2. APPOINTMENT AND TERM OF OFFICE. The officers of the
Corporation shall be appointed annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of the
shareholders. Each officer shall hold office until a successor shall have been
appointed and qualified, or until such officer's earlier death, resignation or
removal.
Section 5.3. POWERS AND DUTIES. If the Board appoints persons to fill the
following positions, such officers shall have the power and duties set forth
below:
(a) THE CHAIRMAN: The Chairman shall have general control and management
of the Board of Directors and may also be the chief executive officer of the
Corporation. Except where by law the signature of the President is required,
the Chairman shall possess the same power as the President to sign all
certificates, contracts and other instruments of the Corporation. During the
absence or disability of the President, the Chairman shall exercise all the
powers and discharge all of the duties of the President. He or she shall
preside at all meetings of the Board of Directors at which he or she is
present; and, in his or her absence, the President shall preside at such
meetings. He or she shall have such other powers and perform such other
duties as from time to time may be conferred or imposed upon him or her by
the Board of Directors.
(b) THE PRESIDENT: The President of the Corporation shall be the chief
executive officer of the Corporation, unless such position is held by the
Chairman. During the absence or disability of the Chairman, he or she shall
exercise all of the powers and discharge all of the duties of the Chairman.
He or she shall be generally responsible for the proper conduct of the
business of the Corporation. He shall possess power to sign all
certificates, contracts and other instruments of the Corporation. He or she
shall preside at all meetings of the shareholders and, in the absence of the
Chairman, of the Board of Directors. He or she shall perform all such other
duties as are incident to his or her office or are properly required of him
or her by the Board of Directors.
(c) VICE PRESIDENT: During the absence or disability of the President,
the Executive Vice-Presidents, if any, and the Vice-Presidents in the order
designated by the Board of Directors, shall exercise all the functions of
the President. Each Vice-President shall have such powers and discharge such
duties as may be assigned to him or her from time to time by the Board of
Directors.
(d) SECRETARY AND ASSISTANT SECRETARIES: The secretary shall issue
notices for all meetings, shall keep minutes of all meetings, shall have
charge of the seal and the corporate books, and shall make such reports and
perform such other duties as are incident to his or her office, or are
properly required of him or her by the Board of Directors. The Assistant
Secretary, or Assistant Secretaries in
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order designated by the Board of Directors, shall perform all of the duties
of the Secretary during the absence or disability of the Secretary, and at
other times may perform such duties as are directed by the President or the
Board of Directors.
(e) THE TREASURER: The Treasurer shall have the custody of all moneys
and securities of the Corporation and shall keep regular books of account.
He or she shall disburse the funds of the Corporation in payment of the just
demands against the Corporation or as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render
to the Board of Directors from time to time as may be required of him or her
an account of all his or her transactions as Treasurer and of the financial
condition of the Corporation. He or she shall perform such other duties
incident to his or her office as are properly required of him or her by the
Board of Directors. The Assistant Treasurer, or Assistant Treasurers in the
order designated by the Board of Directors, shall perform all of the duties
of the Treasurer in the absence or disability of the Treasurer, and at other
times may perform such other duties as are directed by the President or the
Board of Directors.
Section 5.4. DELEGATION. In the case of the absence or inability to act of
any officer of the Corporation and of any person herein authorized to act in
such officer's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer or any director or other
person whom it may in its sole discretion select.
Section 5.5. VACANCIES. Vacancies in any office arising from any cause may
be filled by the Board of Directors at any regular or special meeting of the
Board. The appointee shall hold office for the unexpired term and until his or
her successor is duly elected and qualified.
Section 5.6. OTHER OFFICERS. The Board of Directors, or a duly appointed
officer to whom such authority has been delegated by Board resolution, may
appoint such other officers and agents as it shall deem necessary or expedient,
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors.
Section 5.7. RESIGNATION. An officer may resign at any time by delivering
notice to the Corporation. Such notice shall be effective when delivered unless
the notice specifies a later effective date. Any such resignation shall not
affect the Corporation's contract rights, if any, with the officer.
Section 5.8. REMOVAL. Any officer elected or appointed by the Board of
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of the whole Board of Directors, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 5.9. BONDS. The Board of Directors may, by resolution, require any
and all of the officers to give bonds to the Corporation, with sufficient surety
or sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI
STOCK
Section 6.1. ISSUANCE OF SHARES. No shares of the Corporation shall be
issued unless authorized by the Board of Directors or a duly constituted
committee thereof. Such authorization shall include the number of shares to be
issued, the consideration to be received and a statement regarding the adequacy
of the consideration.
Section 6.2. CERTIFICATES. Every holder of stock shall be entitled to have
a certificate signed by or in the name of the Corporation by the Chairman or
Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation certifying the number of shares owned
by him or her in the Corporation. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer
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agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
Section 6.3. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his or her legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 6.4. TRANSFERS OF STOCK.
(a) Transfers of stock shall be made only upon the stock transfer records of
the Corporation, which records shall be kept at the registered office of the
Corporation or at its principal place pf business, or at the office of its
transfer agent or registrar. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register and to record transfers of shares therein.
(b) Shares of certificated stock shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing on the
back of the certificates or an assignment separate from the certificate, or by a
written power of attorney to sell, assign and transfer the same, signed by the
holder of said certificate. No shares of certificated stock shall be transferred
on the records of the Corporation until the outstanding certificates therefor
have been surrendered to the Corporation or to its transfer agent or registrar.
Section 6.5. SHARES OF ANOTHER CORPORATION. Shares owned by the
Corporation in another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the Board of Directors may determine or, in the
absence of such determination, by the President of the Corporation.
ARTICLE VII
INDEMNIFICATION
Section 7.1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he or she, or a person for whom he or
she is the legal representative, is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity, including
service with respect to employee benefit plans, against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
person. Notwithstanding the preceding sentence, the Corporation shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
Section 7.2. PREPAYMENT OF EXPENSES. The Corporation shall pay the
expenses (including attorneys' fees) incurred in defending any proceeding in
advance of its final disposition; PROVIDED, HOWEVER, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be ultimately
determined that the director or officer is not entitled to be indemnified under
this Article VII or otherwise.
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Section 7.3. CLAIMS. If a claim for indemnification or payment of expenses
under this Article VII is not paid in full within sixty days after a written
claim therefor has been received by the Corporation, the claimant may file suit
to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In any
such action the Corporation shall have the burden of proving that the claimant
was not entitled to the requested indemnification or payment of expenses under
applicable law.
Section 7.4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Article VII shall not be exclusive of any other rights which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, these Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 7.5. OTHER INDEMNIFICATION. The Corporation's obligation, if any,
to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
Section 7.6. AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 8.2. SEAL. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 8.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
Section 8.4. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (i) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a
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committee thereof, or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
Section 8.5. BOOKS AND RECORDS. The Corporation shall maintain appropriate
accounting records and shall keep as permanent records minutes of all meetings
of its stockholders and Board of Directors, a record of all actions taken by the
Board of Directors without a meeting and a record of all actions taken by a
committee of the Board of Directors. In addition, the Corporation shall keep at
its registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its stockholders, giving the names and
addresses of all stockholders in alphabetical order by class of shares showing
the number and class of the shares held by each. Any books, records and minutes
may be in written form or any other form capable of being converted into written
form within a reasonable time.
Section 8.6. AMENDMENT OF BYLAWS. In furtherance and not in limitation of
the powers conferred upon it by law, the Board of Directors is expressly
authorized to adopt, repeal or amend the Bylaws of the Corporation by the vote
of a majority of the entire Board of Directors. In addition to any requirements
of law, the Certificate of Incorporation or any resolution or resolutions of the
Board of Directors adopted pursuant to Article IV of the Certificate of
Incorporation (and notwithstanding the fact that a lesser percentage may be
specified by law, the Certificate of Incorporation or any such resolution or
resolutions), any proposed Change (as defined in the Certificate of
Incorporation) of Section 3.2 of the Bylaws of the Corporation, or the adoption
of any resolution changing the number of directors or creating any vacancy on
the Board must be approved either (i) by a majority of the authorized number of
directors and, if one or more Interested Persons exist, by a majority of the
directors who are Continuing Directors with respect to all Interested Persons,
or (ii) by the affirmative vote of the holders of not less than sixty-six and
two-thirds percent of the outstanding Voting Stock (as defined in the
Certificate of Incorporation) of the Corporation. Subject to the foregoing, the
Board shall have the power to make, alter, amend, repeal or rescind the Bylaws
of the Corporation.
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EXHIBIT 8.1
Quality Food Centers, Inc.
300 Atlantic Street
Stamford, Connecticut 06901
Re: Reorganization of Quality Food Centers, Inc. ("Company") and its
wholly owned subsidiaries.
Ladies and Gentlemen:
We have been asked, as counsel to Company, a Washington
corporation, to render this opinion regarding certain material U.S. federal
income tax consequences of the proposed reorganization of Company and its
wholly owned subsidiaries (the "Reorganization"), which is described below
under "Description of the Reorganization." Capitalized terms not otherwise
defined herein shall have the same meanings given to them in the Agreement
(defined below) and the Form S-4 Registration Statement.
In connection with this opinion, we have examined the originals,
photocopies or certified copies of the Agreement and all other documents that
we have deemed necessary or appropriate as a basis for the opinions
hereinafter set forth. In such examination and in connection with this tax
opinion, we have assumed: (i) the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
to the original documents of all documents submitted to us as photocopies or
certified copies; (ii) that each party to each document submitted to us has
all requisite power and authority (corporate and otherwise) to execute and
deliver, and to perform its obligations under, such document; (iii) that the
execution and delivery by the parties to each document, and the performance
by each such party of its obligations under each document, have been duly
authorized by all necessary corporate and other action; (iv) that each
document, instrument and certificate submitted to us has been duly executed
and delivered, pursuant to all requisite power and authority (corporate and
otherwise), by or on behalf of all persons and entities that are signatories
thereto; and (v) that each document constitutes a valid and binding
obligation of each party thereto, enforceable against each such party in
accordance with its terms.
With your permission, as to questions of fact material to our
opinions, we have relied solely upon statements and representations by
officers and representatives of Company without independent verification,
including those statements and representations contained in that certain
Company Tax Matters Certificate dated the date hereof attached as EXHIBIT A
(the "Tax Matters Certificate"), and upon the
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assumptions contained herein. Without reliance on the Tax Matters
Certificate, we would not render this opinion.
This opinion does not discuss and no opinion is given with respect
to the impact of the Merger and the Reorganization, if any, on the tax
consequences to Company, New Parent, Holding Company, Merger Sub, KUA, Hughes
or any holder of Company Common Stock arising from any prior or subsequent
transaction involving any of such entities or any predecessor(s) or
successor(s) thereto, except as discussed below with respect to possible
application of the step transaction doctrine. This opinion does not address
consequences peculiar to Company shareholders subject to special provisions
of federal income tax law, including, without limitation, tax-exempt
organizations, qualified retirement plans, individual retirement accounts and
other tax-deferred accounts, financial institutions, insurance companies,
real estate investment trusts, regulated investment companies,
broker-dealers, nonresident alien individuals and foreign entities. This
opinion is limited to shareholders who own Company Common Stock as capital
assets.
In rendering this opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, published Internal Revenue Service ("IRS") rulings,
published administrative positions of the IRS and court decisions that are
currently applicable, any or all of which could be materially and adversely
changed, possibly on a retroactive basis, at any time. This opinion does not
consider the potential effects, both adverse and beneficial, of any recently
proposed legislation which, if enacted, could be applied, possibly on a
retroactive basis, at any time. All section references, unless otherwise
indicated, are to the Code.
DESCRIPTION OF THE REORGANIZATION
Our opinion is based upon the following facts as more fully
described in the Agreement and Plan of Merger dated as of August 21, 1997
(the "Agreement") and the Form S-4 Registration Statement. Company is the
100% owner of KU Acquisition Corporation, a Washington corporation ("KUA"),
and Hughes Markets, Inc., a California corporation ("Hughes"). The Company
recently organized three direct or indirect, wholly owned subsidiaries: (i)
New Parent, a wholly owned direct subsidiary of the Company, (ii) Holding
Company, a wholly owned subsidiary of New Parent, and (iii) Merger Sub, a
wholly owned subsidiary of Holding Company. Each of New Parent, Holding
Company and Merger Sub was created solely for the purpose of implementing the
Reorganization, and none of such corporations has conducted any business
(other than with respect to certain guarantees of indebtedness of the Company
entered into by New Parent and Holding Company in anticipation of the
Reorganization).
Merger Sub will merge with Company (the "Merger") pursuant to the
Agreement, with the Company as the Surviving Corporation. Each issued and
outstanding share of Merger Sub voting common stock will be converted into a
share of the voting common stock of the Surviving Corporation.
Pursuant to the terms of the Merger, each share of Company Common
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Stock outstanding immediately prior to the Effective Time of the Merger
(other than held by holders who have properly exercised dissenters' rights
under Washington law) will be converted into one share of issued and
outstanding voting stock of New Parent ("New Common Stock").
As a result of the Reorganization, (i) Holding Company will become
a wholly owned subsidiary of New Parent, (ii) each of Company, Hughes and KUA
will become indirect subsidiaries of New Parent and (iii) Company will become
a wholly owned subsidiary of Holding Company. Following the Reorganization,
New Parent's operations will be conducted primarily through Company, Hughes
and KUA as operating subsidiaries held indirectly by New Parent.
FACTUAL ASSUMPTIONS
For purposes of this opinion, we have assumed the following, based
upon representations and statements contained in the Agreement and the Tax
Matters Certificate:
1. The Merger is being undertaken by Company, New Parent and Holding
Company for reasons germane to their respective businesses.
2. The fair market value of the New Common Stock received by each
Company shareholder will be approximately equal to the fair market value of
the Company Common Stock surrendered in the Merger.
3. Except for the New Common Stock which is owned by Company prior to
the Merger and which will be canceled and retired in the Reorganization, New
Parent has no plan or intention to redeem or otherwise reacquire any of the
New Common Stock issued in the Merger. Holding Company has no plan or
intention to acquire any of the New Common Stock issued in the Merger.
4. There is no plan or intention by the Company shareholders to sell,
exchange or otherwise dispose of a number of shares of New Common Stock
received in the Merger that would reduce the Company shareholders' ownership
of New Common Stock to a number of shares having a value, as of the date of
the Merger, of less than 50% of the value of all of the formerly outstanding
Company Common Stock as of the same date. For purposes of this
representation, shares of Company Common Stock surrendered by dissenters will
be treated as outstanding Company Common Stock on the date of the Merger.
Moreover, shares of Company Common Stock and shares of New Common Stock held
by Company shareholders and otherwise sold, redeemed or disposed of prior or
subsequent to the Merger will be considered in making this representation.
5. After the Merger, Company will not issue additional shares of its
stock or other equity interest. After the Merger, Holding Company will not
issue additional shares of its stock or other equity interest.
6. After the Merger, Holding Company will own 100% of the outstanding
equity interests in Company (including any right to acquire an equity
interest). Holding Company has no plan or intention to liquidate Company, to
merge Company into another corporation, to cause Company to sell or otherwise
dispose of any of its assets, except in the ordinary course of business, to
sell, distribute or otherwise dispose of any of the Company Common Stock
acquired in the Merger, or to cause Company to issue additional stock or
other equity interests.
7. After the Merger, New Parent will own 100% of the outstanding equity
interests in Holding Company (including any right to acquire an equity
interest). New Parent has no plan or intention to liquidate Holding Company, to
merge Holding Company into another corporation, to cause Holding Company to sell
or otherwise dispose of any of its assets, except in the ordinary course of
business, or to sell, distribute or otherwise dispose of any of the shares of
stock of Holding Company or cause Holding Company to issue additional stock or
other equity interests.
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8. Holding Company will acquire Company Common Stock solely as a
result of the Merger. For purposes of this representation, Company
Common Stock redeemed for cash or other property furnished by New Parent or
Holding Company will be considered as acquired by Holding Company.
9. Except for Holding Company's becoming the borrower under the
Revolving Credit Facility and the Acquisition Facility, no liabilities of
Company will be assumed by New Parent or Holding Company or settled at a
discount. The New Credit Facility, Revolving Credit Facility and the
Acquisition Facility were incurred by Company in the ordinary course of
business. No liabilities of the Company shareholders will be assumed by New
Parent or Holding Company. Immediately after the effective time of the
Merger, no Company Common Stock will be subject to any liabilities.
10. Immediately after the effective time of the Merger, Company will
not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any person could acquire any equity
interest in Company.
11. Immediately after the effective time of the Merger, Holding Company
will not have outstanding any warrants, options, convertible securities or
any other type of right pursuant to which any person could acquire any equity
interest in Holding Company.
12. None of New Parent, Holding Company or any member of a controlled
group within the meaning of Section 1563, determined without regard to
Section 1563(b)(2) ("Controlled Group") in which New Parent is also a member
("New Parent Controlled Group"), owns, or has owned, directly or indirectly,
during the past five years, any Company Common Stock.
13. Following the Merger, Company will continue its historic business
or use a significant portion of its historic business assets in a business as
a wholly-owned subsidiary of Holding Company.
14. Company will pay its dissenting shareholders the value of their
Company Common Stock out of its own funds. No funds will be supplied for that
purpose, directly or indirectly, by New Parent, Holding Company or Merger
Sub, nor will New Parent, Holding Company or Merger Sub directly or
indirectly reimburse Company for any payments to dissenters. Any cash
contributed to Merger Sub by Holding Company to satisfy initial
capitalization requirements will be returned to Holding Company following the
Merger. Nondissenting Company shareholders will receive no consideration
other than New Common Stock.
15. On the date of the Merger, the fair market value of the assets of
Company will exceed the sum of its liabilities plus the liabilities, if any,
to which the assets are subject.
16. At all times prior to the Merger, New Parent has owned all of the
outstanding equity interests of Holding Company (including rights to acquire
an equity interest in Holding Company, if any). Prior to the Merger, New
Parent will be in control of Holding Company within the meaning of Section
368(c). Holding Company formed Merger Sub solely for the purpose of
effectuating the Merger and at all times prior to the Merger, Merger Sub has
not and will not conduct any business or investment activities.
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17. In connection with the Merger, no Company shareholder is acting on
behalf of, or as an agent for, New Parent or any New Parent Controlled Group
member.
18. No shares of Holding Company stock have been or will be used as
consideration or issued to the shareholders of Company in the Merger.
19. New Parent, Holding Company, Company, Merger Sub and the Company
shareholders will each pay separately its or their own expenses, if any,
incurred in connection with the Merger, except that all filing fees payable
to the Commission and fees incurred in connection with the Form S-4
Registration Statement and printing of documents distributed to Company
shareholders will be paid by Company.
20. Any compensation paid to Company shareholders who enter into an
employment, consulting or noncompetition agreement, if any, with New Parent,
Holding Company or Company (or any member of a Controlled Group in which New
Parent or Holding Company is also a member) will be for services actually
rendered or to be rendered and will be commensurate with amounts paid to
those parties bargaining at arm's length for similar services. None of such
compensation represents consideration for the exchange of Company Common
Stock for New Common Stock. None of the New Common Stock to be received by
Company shareholders in the Merger will be separate consideration for or
otherwise allocable to anything other than Company Common Stock, such as for
services or any covenant not to compete.
21. There is no intercorporate indebtedness existing between New Parent
and Company or between Holding Company and Company that was issued, acquired
or will be settled at a discount as a result of the Merger.
22. Company has no plan or intention to liquidate, to merge with or
into another corporation, to sell or otherwise dispose of any of its assets,
except in the ordinary course of business, or issue additional stock or other
equity interests.
23. For the tax period ending on or immediately prior to the Merger,
Company, New Parent, Holding Company and Merger Sub will constitute a
controlled group within the meaning of Section 1563, determined without
regard to Section 1563(b)(2), with Company as the common parent corporation,
and such controlled group will file a consolidated federal income tax return
for such tax period with Company as the common parent corporation.
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24. None of Company, New Parent, Holding Company or Merger Sub is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code or under Section 351(e)(1) and Treasury regulation 1.351-1(c)(1)(ii).
25. None of Company, New Parent, Holding Company or Merger Sub is
under the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code and the New Common Stock
received by Company shareholders in the Merger will not be used to satisfy
any indebtedness of Company, New Parent, Holding Company or Merger Sub.
26. The information contained in the Form S-4 Registration Statement to
which this opinion is attached is true, accurate and complete in all respects.
27. The Merger will be consummated pursuant to the Agreement.
28. Except for guarantees by New Parent, Holding Company, Hughes and KUA
with respect to the New Credit Facility, no Company shareholder or affiliate of
any Company shareholder has guaranteed, pledged collateral with respect to or
otherwise provided security for, any borrowing, liability or other obligation of
the Company, Hughes or KUA. Except with respect to the Hughes acquisition and
the KUI acquisition, no funds borrowed under the New Credit Facility has or will
be directly or indirectly distributed to or otherwise transferred to Company
shareholders.
29. No fractional shares of New Common Stock will be issued in the Merger.
30. No New Parent stock or securities will be issued for services
rendered or to be rendered to or for the direct or indirect benefit of New
Parent in connection with the Reorganization, and no stock or securities will
be issued for indebtedness of New Parent that is not evidenced by a security
or for interest on indebtedness of New Parent which accrued on or after the
beginning of the holding period of the Company shareholders for the debt.
31. None of the Company Common Stock to be converted into New Common
Stock in the Merger is "section 306 stock."
32. The Reorganization is not the result of the solicitation by a
promoter, broker, or investment house.
33. The Company shareholders will not retain any rights in the Company
Common Stock.
34. With respect to each Company shareholder, the adjusted basis and
the fair market value of the Company Common Stock converted into New Common
Stock in the Merger will, in each instance, be equal to or exceed the sum of
the liabilities of Company shareholders to be assumed by Holding Company and
New Parent plus any liabilities of Company shareholders to which such Company
Common Stock is subject.
35. There is no indebtedness between New Parent and the Company
shareholders or between the Holding Company and Company shareholders and
there will be no indebtedness created in favor of the Company shareholders,
New Parent or Holding Company as a result of the Reorganization.
36. No liabilities of the Company shareholders will be assumed by New
Parent or Holding Company in the Reorganization and the Company Common Stock to
be converted into New Common Stock will not be subject to any liabilities of
Company shareholders.
37. The Merger and Reorganization will occur under a plan agreed upon
before the Merger in which the rights of New Parent, Holding Company,
Company and Merger Sub are defined.
38. All the steps in the Reorganization will occur on approximately the
same date.
39. Taking into account any issuance of additional shares of New Common
Stock; any issuance of shares of New Common Stock for services; the exercise
of any New Common Stock rights, warrants, or subscriptions; a public offering
of New Common Stock; and the sale, exchange, transfer by gift, or other
disposition of any of the shares of New Common Stock to be received in the
exchange, immediately after the effective time of the Merger, the Company
shareholders (both including and excluding the former shareholders of KUI)
will be in "control" of New Parent within the meaning of section 368(c) of
the Code.
40. Each nondissenting Company shareholder will receive New Common Stock
approximately equal to the fair market value of his or her Company Common
Stock immediately prior to the effective time of the Merger.
41. New Parent will remain in existence after the Reorganization.
42. The Company shareholders are not under the jurisdiction of a court
in a Title 11 or similar case (within the meaning of section 368(a)(3)(A) of
the Code) and the shares of New Common Stock received in the exchange will
not be used to satisfy the indebtedness of such debtor.
43. New Parent will not be a "personal service corporation" within the
meaning of section 269A of the Code.
44. None of the shares of Company Common Stock to be converted into New
Common Stock under the Merger was received by the Company shareholders, or
shares of Company Common Stock acquired or held by Holding Company were
acquired, as part of the liquidation of another corporation affiliated with
New Parent, Holding Company, Company, Hughes, KUA or KUI.
45. No stock or securities of Holding Company will be issued for services
rendered to or for the benefit of Holding Company in connection with the
Reorganization, and no stock or securities will be issued for indebtedness of
Holding Company that is not evidenced by a security or for interest on
indebtedness of Holding Company which accrued on or after the beginning of the
holding period of New Parent for the debt.
46. After the Merger, New Parent will not have any ownership or
creditor rights or right to acquire any ownership or creditor interest in any
Company Common Stock except for indirect rights arising from New Parent
holding shares of Holding Company stock.
47. There is no indebtedness between Holding Company and New Parent and
there will be no indebtedness created in favor of New Parent as a result of the
Reorganization.
48. There is no plan or intention on the part of Holding Company to redeem
or otherwise acquire any New Common Stock to be issued in the Merger or any
Holding Company stock.
49. Taking into account any issuance of additional shares of Holding
Company stock; any issuance of shares for services; the exercise of any
Holding Company stock rights, warrants, or subscriptions; a public offering
of Holding Company stock; and the sale, exchange, transfer by gift, or other
disposition of any of the stock of Holding Company, New Parent will be in
"control" of Holding Company within the meaning of section 368(c) of the
Code. In addition, no person or entity has or will have any option or other
right to acquire any equity interest in Holding Company.
50. New Parent will not receive additional shares of stock of Holding
Company as a result of the Reorganization because New Parent already owns all of
Holding Company's stock.
51. After the Reorganization, Holding Company will remain in existence
and retain the Company Common Stock received in the Merger.
52. There is no plan or intention by Holding Company to dispose of any
Company Common Stock.
53. Before and after the Reorganization, the only equity interests (as
determined for federal income tax purposes) in New Parent shall be the New
Common Stock. Before and after the Reorganization, the only equity interests
(as determined for federal income tax purposes) in Company shall be the
Company Common Stock. Before and after the Reorganization, the only equity
interests (as determined for federal income tax purposes) in Holding Company
shall be the common shares of Holding Company.
54. Holding Company will not be a "personal service corporation" within
the meaning of section 269A of the Code.
55. The former shareholders of KUI who participated in the KUI
acquisition received, in the aggregate, 10% or less of the outstanding
Company Common Stock (as determined at the time of the KUI acquisition) in
the KUI acquisition, currently hold, in the aggregate, 10% or less of the
outstanding Company Common Stock and, after the Reorganization, will hold 10%
or less of the outstanding New Common Stock.
56. No Company shareholder acquired Company Common Stock with the plan,
intent or purpose of participating in the Reorganization.
57. Such other matters set forth in the Tax Matters Certificate.
OPINIONS
Based on the Tax Matters Certificate and the factual assumptions
contained herein, and subject to the discussion below, while not entirely
free from doubt, we are of the opinion that for U.S. federal income tax
purposes:
1. The Merger should qualify as an exchange under Section 351 and
may qualify as a reorganization under Section 368(a).
2. No gain or loss should be recognized by the holders of Company
Common Stock on their exchange of Company Common Stock solely for New Common
Stock pursuant to the Merger.
3. The tax basis of the New Common Stock received by each holder
pursuant to the Merger should be the same as the holder's basis in Company
Common Stock surrendered in the Merger, and the holding period of such New
Common Stock should include the period during which such holder held the
Company Common Stock surrendered in the Merger, provided that such Company
Common Stock was held as a capital asset on the date of the exchange.
4. No gain or loss should be recognized by New Parent on the exchange
of Company Common Stock solely for New Common Stock pursuant to the Merger.
5. No gain or loss should be recognized by Holding Company on the
exchange of Company Common Stock solely for New Common Stock pursuant to the
Merger.
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6. Under the Reorganization, certain transactions involving the New
Credit Facility, Term Loan Facility, Revolving Credit Facility and
Acquisition Facility may result in one or more deferred intercompany gains or
losses to New Parent, Holding Company and/or Company, which deferred
intercompany gains or losses, if any, should not be recognized unless a
subsequent recognition event occurs under the applicable Treasury regulations
and IRS rulings.
7. Dissenting holders of Company Common Stock who receive solely
cash in exchange for all of their shares of Company Common Stock (including
shares held directly, indirectly or through attribution) should recognize
gain or loss equal to the difference between (i) the cash received by such
holder (other than in respect of interest) pursuant to the Merger and (ii)
the adjusted tax basis of such shareholder in his shares of Company Common
Stock. Any amount received as interest income will be taxed as ordinary
income.
Generally, in an exchange under Section 351, the transferors
directly transfer property to a corporation in exchange for shares of stock
in such corporation. Under the Merger, instead of a direct transfer of the
Company Common Stock by the Company shareholders to New Parent in exchange
for New Common Stock, the Company shareholders will exchange Company Common
Stock for New Common Stock as part of the Merger of Merger Sub into Company.
In three Private Letter Rulings the IRS has ruled that transactions similar
to the Merger qualified as exchanges under Section 351. See Priv. Ltr. Ruls.
9151032 (9/24/91), 9033037 (5/21/90) and 8635048 (6/3/86).
In Private Letter Ruling 9151032, Parent, a publicly traded
company, held all of the outstanding stock of Holding, Holding held all of
the outstanding stock of Holding Sub and Holding Sub held all of the
outstanding stock of Merger Subsidiary. Pursuant to a merger agreement,
Merger Subsidiary merged with and into Parent, with Parent as the surviving
entity. As a result of the merger, Parent became a second tier subsidiary of
Holding and a first tier subsidiary of Holding Sub. Merger Subsidiary was
formed solely for the purpose of participating in the merger. The IRS ruled
that although the transaction was structured as a merger of Merger Subsidiary
into Parent, the substance of the transaction was an exchange by the
nondissenting shareholders of Parent of their Parent stock for Holding stock,
followed by the immediate transfer of the Parent stock by Holding to Holding
Sub. Under this recharacterization of the merger, the IRS ruled that the
transaction qualified as an exchange by the nondissenting shareholders of
Parent of Parent stock for Holding stock under Section 351.
Private Letter Rulings may only be relied upon by the taxpayers who
requested such rulings. However, Private Letter Rulings are a good indication
of the manner in which the IRS would rule in similar transactions. The merger
transaction in Private Letter Ruling 9151032 is substantially similar to the
Merger. Thus, we believe that the IRS should apply the same analysis to the
Merger. However, there can be no assurances that the IRS would not apply a
different analysis to the Merger and the Reorganization and hold that the
Merger does not qualify as an exchange under Section 351.
Although gain or loss should not be recognized by holders of
Company Common Stock on their exchange of such stock solely for New Common
Stock in the Merger, the Reorganization could effect the tax characterization
of the KUI Transactions (as defined below) and the tax consequences of the
KUI Transactions to KUI, KUA and the former shareholders of KUI. The
Reorganization could have such an effect because a fundamental principle of
U.S. federal income tax law is that taxation should be based on the
substance, and not the form, of the transactions consummated by the parties
thereto. One aspect of the "substance over form" doctrine is the "step
transaction" doctrine under which courts and the IRS may, in certain
circumstances, amalgamate a series of formally separate transactions and
treat them as a single transaction if the transactions are in substance
integrated and focused toward a particular result. See Penrod v.
Commissioner, 88 T.C. 1415 (1987); Bittker & Eustice, Federal Income Taxation
of Corporations and Shareholders, Para. 12.61[3] (6th ed.). In applying the
step transaction doctrine, courts may also examine the proximity of one
transaction to another. Weikel v. Commissioner, T.C. Memo 1986-58, n.19.
Thus, the step transaction doctrine is potentially applicable whenever a
series of transactions occurs close in time or may be viewed as part of an
overall plan.
We understand that on December 18, 1996, the Company entered into
an agreement to acquire certain assets of Keith Uddenberg, Inc. ("KUI")
through a merger of KUI into a wholly owned subsidiary of the Company, KUA.
KUA, which was formed for the sole purpose of effecting the acquisition, was
the surviving corporation in the merger (the "KUI acquisition"). The KUI
acquisition was completed on February 14, 1997 and was intended to qualify as
a reorganization under Section 368(a)(1). Prior to the KUI acquisition, KUI
caused a Washington corporation ("Spin-Off Co.") to be incorporated and
transferred certain property to Spin-Off Co. in exchange for the issuance of
all of the shares of Spin-Off Co. capital stock to KUI, which capital stock
KUI then distributed to its shareholders in a transaction intended to qualify
as a spin-off under Section 355 (the "Spin-Off"). The KUI acquisition and
the Spin-Off are referred to collectively as the "KUI Transactions." We
understand that at the time Company was considering the KUI Transactions,
Company also intended to undertake the Reorganization after obtaining the
approval of the Company's shareholders.
The step transaction doctrine applies to transactions such as the
Reorganization and to transactions such as the KUI Transactions. Because the
Reorganization and the KUI Transactions would occur close in time and because
the Company was considering the Reorganization at the time of the KUI
Transactions, the Reorganization and the KUI Transactions could be viewed
under the
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step transaction doctrine as integrated transactions that were part of an
overall plan. If the step transaction doctrine was applied to the
Reorganization and the KUI Transactions, one possible characterization of the
transaction is that it qualified as one or more transactions under Section
351 and/or Section 368(a). The application of the step transaction doctrine,
however, could also result in the KUI Transactions being characterized as
fully taxable transactions to KUI and the former shareholders of KUI who
exchanged their KUI shares for shares of Company Common Stock, subjecting
KUI, KUA and such former shareholders of KUI to tax, interest and, possibly,
penalties.
If the IRS were to successfully assert the step transaction
doctrine in a manner which results in the KUI Transactions being fully
taxable transactions: (1) each former shareholder of KUI who participated in
the KUI Transactions may recognize (a) gain or loss equal to the difference,
if any, between the fair market value of the Company Common Stock and cash
received in the KUI acquisition (determined as of the date such Company
Common Stock was received) and such shareholder's adjusted tax basis in the
KUI shares exchanged therefor, and (b) a dividend equal to the fair market
value of any assets of KUI directly or indirectly received in the KUI
Spin-Off (determined as of the date such KUI assets were received) and (2)
KUI and KUA, as the successor to KUI, may recognize gain or loss equal to the
difference, if any, between the fair market value of the assets of KUI (as
determined as of the date of the KUI Transactions) and KUI's adjusted tax
basis in its assets (as determined as of the date of the KUI Transactions).
In addition, the tax attributes of KUI would not be acquired by KUA as part
of the KUI acquisition.
Courts have formulated three tests to determine whether separate
transactions should be treated as a single integrated transaction under the
step transaction doctrine. One test is the "interdependence" test under
which separate transactions are stepped together if the transactions were so
interdependent that the action would have been fruitless without completing
all of the steps. McDonald's Restaurants of Illinois, Inc. v. Commissioner,
688 F.2d 520, 540 (7th Cir. 1982). A second, and the most restrictive, test
is the "binding commitment" test under which separate steps are treated as a
single transaction if, after the final step in a transaction is taken, there
is a binding commitment to complete the later steps. Commissioner v. Gordon,
391 U.S. 83 (1968); McDonald's Restaurants of Illinois, 688 F.2d at 525. The
most far-reaching of the tests is the "end result" test under which the step
transaction doctrine is invoked if it appears that a series of formally
separate steps are really prearranged parts of a single transaction intended
from the beginning to reach the ultimate result. Penrod, 88 T.C. at 1429.
The end result test focuses on the parties' actual intent to determine what
end result the parties sought. Weikel v. Commissioner, T.C. Memo 1986-58.
An example of the application of the step transaction doctrine is
the case of King Enterprises, Inc. v. United States, 418 F.2d 511 (Ct. Cl.
1969). In that case, the court applied the step transaction doctrine to treat
an acquisition of a target corporation's stock by an acquiring corporation
and the subsequent merger of the target
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into the acquiring corporation as a single transaction. The court concluded
that the merger was the intended result of the transaction from the outset
and that the initial acquisition of the target's stock by the acquiring
corporation was "a mere transitory step." In reaching this conclusion, the
court relied on the fact that (a) officers of the acquiring corporation
considered merging its existing subsidiaries into the acquiring corporation
before the initial agreement to acquire the target's stock; (b) the acquiring
corporation instituted steps to consummate the merger of the target into the
acquiring corporation shortly after the acquisition of the target's stock;
and (c) the merger was motivated primarily by a desire to avoid additional
income tax and to obtain other tax advantages.
As noted above, the application of the step transaction doctrine to
the Reorganization and the KUI Transactions could be supported by the fact
that the Reorganization and the KUI Transactions would occur close in time
and that Company was considering the Reorganization at the time of the KUI
Transactions. However, the time interval between transactions is not, by
itself, the decisive factor in determining the application of the step
transaction doctrine. Mintz and Plumb, Step Transactions in Corporate
Reorganizations, 12 N.Y.U. Inst. On Fed. Tax'n, 247, 249 (1954) (citing
cases); Paul and Zimet, Selected Studies in Federal Taxation, Step
Transactions, 200, 226-227 (1938) (citing cases). In addition, even if the
Reorganization and the KUI Transactions could be viewed as part of a single
plan, the existence of an overall plan does not alone justify application of
the step transaction doctrine. Esmark, Inc. & Affiliated Companies v.
Commissioner, 90 T.C. 171, 195 (1988), aff'd without published opinion, 886
F.2d 1318 (7th Cir. 1989). Moreover, unlike the facts in the King
Enterprises, Inc. case discussed above, the Reorganization does not involve a
transfer of the assets of KUI which were acquired by KUA in the KUI
acquisition. In addition, the Company has represented below that the
Reorganization is not being undertaken to avoid federal income taxes, to
obtain any specific tax advantages, or to effect a transfer of the assets of
KUI which were acquired by KUA in the KUI acquisition.
In addition, the IRS has stated that threshold steps will not be
disregarded under the step transaction doctrine if such steps result in "a
permanent alteration of a previous bona fide business relationship" and that
the substance of each step will be recognized and the step transaction
doctrine will not apply, if each such step "demonstrates independent economic
significance, is not subject to attack as a sham, and was undertaken for
valid business purposes and not mere avoidance of taxes." Rev. Rul. 79-250,
1979-2 C.B. 156; Rev. Rul. 78-330, 1978-2 C.B. 147. The step transaction
doctrine, therefore, generally combines a series of "individually
meaningless" or "unnecessary" steps into a single transaction. Esmark, Inc.,
90 T.C. at 195.
Company has represented and, for the purposes of this opinion,
we have assumed the following:
1. Company is not obligated to undertake the Reorganization
by the terms or provisions of the KUI Transactions or by any other agreement
between Company and KUI or the former shareholders of KUI.
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2. The KUI Transactions were not dependent upon Company's
initiating or consummating the Reorganization and will not be affected, in
any manner, by the consummation or failure to consummate the Reorganization.
3. Company intended to undertake the Reorganization regardless of
whether the KUI Transactions were consummated and the proposal of the
Reorganization by Company and the consummation of the Reorganization were not
dependent upon the consummation of the KUI acquisition.
4. No negotiations have taken place between Company and KUI or
the former shareholders of KUI regarding the implementation, terms or
provisions of the Reorganization.
5. The KUI Transactions were undertaken for business reasons that
were unrelated to the Reorganization.
6. The Reorganization was first considered by Company and is
being proposed for business reasons that are unrelated to the KUI
Transactions.
7. The Reorganization is not being undertaken to avoid federal
income taxes, to obtain any tax advantages or to effect a transfer of the
assets of KUI which were acquired by KUA in the KUI Transactions.
The application of the step transaction doctrine is based on an
analysis of the particular facts and circumstances of each series of
transactions. There are no controlling Treasury regulations, published
rulings or judicial decisions involving the possible application of the step
transaction doctrine to transactions such as the Reorganization and the KUI
Transactions. There are facts and circumstances which both do not support and
do support the application of the step transaction doctrine to the
Reorganization and the KUI Transactions. The foregoing analysis and opinion
of Bogle & Gates, P.L.L.C. with respect to the possible application of the
step transaction doctrine are based upon all of the facts and circumstances
and upon administrative pronouncements and judicial decisions involving
situations that are considered to be relevant to the Reorganization and the
KUI Transactions. While not entirely free from dobut, based on the above
representations and the foregoing analysis, in our opinion the better
reasoned analysis is that the Reorganization and the KUI Transactions not be
treated as a single integrated transaction under the step transaction
doctrine.
Because application of the step transaction doctrine is based on an
analysis of the facts and circumstances of a particular series of
transactions and because the successful application of the doctrine to the
Reorganization and the KUI Transactions by the IRS may result in a
significant tax liability, interest and, possibly, penalties to KUI, KUA and
the former shareholders of KUI, Company, KUA and the former KUI shareholders
may have to pursue their position regarding the non-application of the step
transaction doctrine through administrative and court proceedings. If the
application of the step transaction doctrine is litigated in court, no
assurance can be given that the courts will not disagree with the opinions
and analysis set forth herein and make a contrary ruling. We caution that
our opinion is based on the federal income tax laws as they exist on the date
of this opinion. This opinion does not address and should not be
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interpreted as making any statement regarding the viability of any potential
cause of action against New Parent, Holding Company, Company or KUA
relating to or arising out of the Reorganization and/or the KUI Transactions.
In addition, the IRS and the courts may successfully apply the step
transaction doctrine to the Reorganization and the KUI Transactions in a
manner which causes the Merger to fail to qualify as a reorganization under
Section 368. However, in our opinion, the IRS should not be able to
successfully apply the step transaction doctrine to the Reorganization and
the KUI Transactions in a manner which causes the Merger to fail to qualify
as an exchange under Section 351. However, if the IRS were to successfully
apply the step transaction doctrine to the Merger in a manner which causes
the Merger to fail to qualify as an exchange under Section 351 and a
reorganization under Section 368, the Company shareholders would recognize
gain or loss equal to the difference between the fair market value of the New
Common Stock (as determined at the time of the Merger) and cash received in
the Merger, and their adjusted tax basis in the Company Common Stock
exchanged therefor.
It is our understanding that Company will not request a ruling from
the IRS regarding the Reorganization and the application of the step
transaction doctrine to the Reorganization and the KUI Transactions. You
should be aware that our opinion is not binding on the IRS and the courts and
that there can be no assurances that the IRS and the courts will not disagree
with the opinions and analysis set forth herein and the IRS will not
successfully assert a contrary position. This opinion, therefore, does not
constitute a guarantee that the IRS will not successfully challenge the tax
treatment of the Reorganization or the KUI Transactions. No assurance can be
given that future legislative or administrative changes or court decisions
will not significantly modify the statements and opinions expressed herein.
Any such changes may be retroactive with respect to transactions completed
prior to the effective dates of such changes. Changes in the Code, the
regulations or rulings, or court decisions after the date of this letter may
alter the anticipated tax treatment discussed herein.
Our opinion is limited to the specific matters described above with
respect to the Merger. Except as otherwise described above, no opinion is
given regarding the tax consequences of transactions other than the Merger or
the tax impact of the Merger on other transactions. We give no opinion with
respect to other tax matters, whether federal, state or local, that may
relate to the Reorganization, or to any transaction whatsoever, including the
Merger and the Reorganization, if all the transactions described in the Form
S-4 Registration Statement are not consummated as described in the Form S-4
Registration Statement and in accordance with the terms of the Agreement and
without waiver or breach of any material provision thereof or if all the
representations, warranties, statements and assumptions upon which we relied
are not true and accurate at all relevant times. Specifically and without
limiting the generality of the foregoing, no opinion is given regarding the
tax consequences of the New Credit Facility, Term Loan Facility, Revolving
Credit Facility, Acquisition Facility, Holding Company becoming the borrower
under the Revolving Credit Facility and the Acquisition Facility, the Notes,
the Exchange Notes, any stock option plan, any stock unit plan, any other
employee compensation plan and any employee benefit plan.
This opinion is furnished to you solely in connection with the
Reorganization and the preparation and filing of the Registration Statement
on Form S-4 (Registration No. 333-31945) by New Parent. The opinions
expressed in this letter may not be used for any other purpose. Except for
inclusion in the Registration Statement, this opinion may not be quoted or
reproduced, in whole or in part, without our prior written consent. We
disclaim any obligation to update this letter or otherwise to advise you of
any matters (including, but not limited to, any subsequently enacted,
published or reported laws, rules, regulations or judicial decisions having
retroactive effect) which may come to our attention after the date of this
letter and which affect any of the opinions expressed in this letter. In
addition, the opinions set forth herein are based solely on the documents we
have examined, the information contained in the Tax Matters Certificate, the
factual assumptions set forth above, and the representations that have been
made to us, and this opinion letter cannot be relied upon if any of the facts
contained in such documents, the Tax Matters Certificate, such factual
assumptions, or if such additional information is, or later becomes,
inaccurate, or if any of the representations made to us is, or later becomes,
inaccurate. We hereby consent to the filing of this opinion as an exhibit to
the Form S-4 Registration Statement and to the use of our name under the
headings "The Reorganization--Certain Federal Income Tax Consequences;
Accounting Treatment" and "Tax Opinion." In giving this consent, we do not
thereby admit that we are in
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the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
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EXHIBIT A
TAX MATTERS CERTIFICATE
OF
QUALITY FOOD CENTERS, INC.
The representations set forth below are provided by the undersigned
parties in connection with the Form S-4 Registration Statement dated as of
_________ __, 1997 (the "Registration Statement") and the Agreement and Plan
of Merger dated as of August 21, 1997 (the "Agreement"), by and among Quality
Food Centers, Inc. ("Company"), Quality Food, Inc. ("New Parent"), and QFC
Sub, Inc. ("Merger Sub"). Each of the individuals who signs below hereby
declares that he or she is an officer of the company under whose name he or
she has signed and has the title set forth below and has knowledge of the
facts that are the subject matter of the following representations. Each of
the undersigned understands that this certificate will be relied upon by
Bogle & Gates P.L.L.C. in connection with its opinion to be attached as an
exhibit to the Registration Statement and will be discussed therein under the
heading "Certain Federal Income Tax Consequences; Accounting Treatment."
Capitalized terms used but not defined herein have the meanings given to them
in the Agreement and the Registration Statement. The terms "equity," "equity
interest," "borrowings," "loan," "debt," "indebtedness," "liability" and
similar terms shall have the meanings given to them under applicable federal
income tax law. The undersigned recognizes that to the extent representations
are made to the knowledge or best knowledge of any person(s) or entity(ies),
Bogle & Gates P.L.L.C. will be relying in its opinion on the accuracy of the
underlying statements as if represented without such qualification.
1. The Merger is being undertaken by Company, New Parent and Holding
Company for reasons germane to their respective businesses.
2. The fair market value of the New Common Stock received by each
Company shareholder will be approximately equal to the fair market value of
the Company Common Stock surrendered in the Merger.
3. Except for the New Common Stock which is owned by Company prior to
the Merger and which will be canceled and retired in the Reorganization, New
Parent has no plan or intention to redeem or otherwise reacquire any of the
New Common Stock issued in the Merger. Holding Company has no plan or
intention to acquire any of the New Common Stock issued in the Merger.
4. To the knowledge of New Parent, Holding Company, Company and Merger
Sub, there is no plan or intention by the Company shareholders who own five
percent of more of the Company Common Stock and there is no plan or intention
on the part of the remaining Company shareholders to sell, exchange or
otherwise dispose of a number of shares of New Common Stock received in the
Merger that would reduce the Company shareholders' ownership of New Common
Stock to a number of shares having a value, as of the date of the Merger, of
less than 50% of the value of all of the formerly outstanding Company Common
Stock as of the same date. For purposes of this representation, shares of
Company Common Stock surrendered by dissenters will be treated as outstanding
Company Common Stock on the date of the Merger. Moreover, shares of Company
Common Stock and shares of New Common Stock held by Company shareholders and
otherwise sold, redeemed or disposed of prior or subsequent to the Merger
will be considered in making this representation.
5. After the Merger, Company will not issue additional shares of its
stock or other equity interest. After the Merger, Holding Company will not
issue additional shares of its stock or other equity interest.
6. After the Merger, Holding Company will own 100% of the outstanding
equity interests in Company (including any right to acquire an equity
interest). Holding Company has no plan or intention to liquidate Company, to
merge Company into another corporation, to cause Company to sell or otherwise
dispose of any of its assets, except in the ordinary course of business, to
sell, distribute or otherwise dispose of any of the Company Common Stock
acquired in the Merger, or to cause Company to issue additional stock or
other equity interests.
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7. After the Merger, New Parent will own 100% of the outstanding equity
interests in Holding Company (including any right to acquire an equity
interest). New Parent has no plan or intention to liquidate Holding Company, to
merge Holding Company into another corporation, to cause Holding Company to sell
or otherwise dispose of any of its assets, except in the ordinary course of
business, or to sell, distribute or otherwise dispose of any of the shares of
stock of Holding Company or cause Holding Company to issue additional stock or
other equity interests.
8. Holding Company will acquire Company Common Stock solely as a
result of the Merger. For purposes of this representation, Company Common
Stock redeemed for cash or other property furnished by New Parent or Holding
Company will be considered as acquired by Holding Company.
9. Except for Holding Company's becoming the borrower under the
Revolving Credit Facility and the Acquisition Facility, no liabilities of
Company will be assumed by New Parent or Holding Company or settled at a
discount. The New Credit Facility, Revolving Credit Facility and the
Acquisition Facility were incurred by Company in the ordinary course of
business. No liabilities of the Company shareholders will be assumed by New
Parent or Holding Company. Immediately after the effective time of the
Merger, no Company Common Stock will be subject to any liabilities.
10. Immediately after the effective time of the Merger, Company will
not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any person could acquire any equity
interest in Company.
11. Immediately after the effective time of the Merger, Holding Company
will not have outstanding any warrants, options, convertible securities or
any other type of right pursuant to which any person could acquire any equity
interest in Holding Company.
12. None of New Parent, Holding Company or any member of a controlled
group within the meaning of Section 1563, determined without regard to
Section 1563(b)(2) ("Controlled Group") in which New Parent is also a member
("New Parent Controlled Group"), owns, or has owned, directly or indirectly,
during the past five years, any Company Common Stock.
13. Following the Merger, Company will continue its historic business
or use a significant portion of its historic business assets in a business as
a wholly owned subsidiary of Holding Company.
14. Company will pay its dissenting shareholders the value of their
Company Common Stock out of its own funds. No funds will be supplied for that
purpose, directly or indirectly, by New Parent, Holding Company or Merger
Sub, nor will New Parent, Holding Company or Merger Sub directly or
indirectly reimburse Company for any payments to dissenters. Any cash
contributed to Merger Sub by Holding Company to satisfy initial
capitalization requirements will be returned to Holding Company following the
Merger. Nondissenting Company shareholders will receive no consideration
other than New Common Stock.
15. On the date of the Merger, the fair market value of the assets of
Company will exceed the sum of its liabilities plus the liabilities, if any,
to which the assets are subject.
16. At all times prior to the Merger, New Parent has owned all of the
outstanding equity interests of Holding Company (including rights to acquire
an equity interest in Holding Company, if any). Prior to the Merger, New
Parent will be in control of Holding Company within the meaning of Section
368(c). Holding Company formed Merger Sub solely for the purpose of
effectuating the Merger and at all times prior to the Merger, Merger Sub has
not and will not conduct any business or investment activities.
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17. In connection with the Merger, no Company shareholder is acting on
behalf of, or as an agent for, New Parent or any New Parent Controlled Group
member.
18. No shares of Holding Company stock have been or will be used as
consideration or issued to the shareholders of Company in the Merger.
19. New Parent, Holding Company, Company, Merger Sub and the Company
shareholders will each pay separately its or their own expenses, if any,
incurred in connection with the Merger, except that all filing fees payable
to the Commission and fees incurred in connection with the Form S-4
Registration Statement and printing of documents distributed to Company
shareholders will be paid by Company.
20. Any compensation paid to Company shareholders who enter into an
employment, consulting or noncompetition agreement, if any, with New Parent,
Holding Company or Company (or any member of a Controlled Group in which New
Parent or Holding Company is also a member) will be for services actually
rendered or to be rendered and will be commensurate with amounts paid to
those parties bargaining at arm's length for similar services. None of such
compensation represents consideration for the exchange of Company Common
Stock for New Common Stock. None of the New Common Stock to be received by
Company shareholders in the Merger will be separate consideration for or
otherwise allocable to anything other than Company Common Stock, such as for
services or any covenant not to compete.
21. There is no intercorporate indebtedness existing between New Parent
and Company or between Holding Company and Company that was issued, acquired
or will be settled at a discount as a result of the Merger.
22. Company has no plan or intention to liquidate, to merge with or
into another corporation, to sell or otherwise dispose of any of its assets,
except in the ordinary course of business, or issue additional stock or other
equity interests.
23. For the tax period ending on or immediately prior to the Merger,
Company, New Parent, Holding Company and Merger Sub will constitute a
controlled group within the meaning of Section 1563, determined without
regard to Section 1563(b)(2), with Company as the common parent corporation,
and such controlled group will file a consolidated federal income tax return
for such tax period with Company as the common parent corporation.
24. None of Company, New Parent, Holding Company or Merger Sub is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code or under Section 351(e)(1) and Treasury regulation 1.351-1(c)(1)(ii).
25. None of Company, New Parent, Holding Company or Merger Sub is under
the jurisdiction of a court in a Title 11 or similar case within the meaning
of Section 368(a)(3)(A) of the Code and the New Common Stock received by
Company shareholders in the Merger will not be used to satisfy any
indebtedness of Company, New Parent, Holding Company or Merger Sub.
26. To the knowledge of New Parent, Holding Company, Company and Merger
Sub, the information contained in the Registration Statement is true,
accurate and complete in all respects.
27. The Merger will be consummated pursuant to the Agreement.
28. Company is not obligated to undertake the Reorganization by the
terms or provisions of the KUI Transactions or by any other agreement between
the Company and KUI or the former shareholders of KUI.
29. The KUI Transactions were not dependent upon Company initiating or
consummating the Reorganization and will not be affected, in any manner, by
the consummation or failure to consummate the Reorganization.
30. Company intended to undertake the Reorganization regardless of
whether the KUI Transactions were consummated and the proposal of the
Reorganization by Company and the consummation of the Reorganization were not
dependent upon the consummation of the KUI acquisition.
31. No negotiations have taken place between Company and KUI or the
former shareholders of KUI regarding the implementation, terms or provisions
of the Reorganization.
32. The KUI Transactions were undertaken for business reasons that were
unrelated to the Reorganization.
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33. The Reorganization was first considered by Company and is being
proposed for business reasons that are unrelated to the KUI Transactions.
34. The Reorganization is not being undertaken to avoid federal income
taxes, to obtain any tax advantages or to effect a transfer of the assets of
KUI which were acquired by KUA in the KUI Transactions.
35. Except for guarantees by New Parent, Holding Company, Hughes and
KUA with respect to the New Credit Facility, no Company shareholder or
affiliate of any Company shareholder has guaranteed, pledged collateral with
respect to or otherwise provided security for, any borrowing, liability or
other obligation of Company, Hughes or KUA. No funds borrowed under the New
Credit Facility has or will be directly or indirectly distributed to or
otherwise transferred to Company shareholders.
36. No fractional shares of New Common Stock will be issued in the Merger.
37. No New Parent stock or securities will be issued for services
rendered or to be rendered to or for the direct or indirect benefit of New
Parent in connection with the Reorganization, and no stock or securities will
be issued for indebtedness of New Parent that is not evidenced by a security
or for interest on indebtedness of New Parent which accrued on or after the
beginning of the holding period of the Company shareholders for the debt.
38. None of the Company Common Stock to be converted into New Common
Stock in the Merger is "section 306 Stock."
39. The Reorganization is not the result of the solicitation by a
promoter, broker, or investment house.
40. The Company shareholders will not retain any rights in the Company
Common Stock of Company shareholders.
41. With respect to each Company shareholder, the adjusted basis and
the fair market value of the Company Common Stock converted into New Common
Stock in the Merger will, in each instance, be equal to or exceed the sum of
the liabilities of Company shareholders to be assumed by Holding Company and
New Parent plus any liabilities of Company shareholders to which such Company
Common Stock is subject.
42. There is no indebtedness between New Parent and the Company
shareholders or between the Holding Company and Company shareholders and
there will be no indebtedness created in favor of the Company shareholders,
New Parent or Holding Company as a result of the Reorganization.
43. No liabilities of the Company shareholders will be assumed by New
Parent or Holding Company in the Reorganization and the Company Common Stock
to be converted into New Common Stock will not be subject to any liabilities
of Company shareholders.
44. The Merger and Reorganization will occur under a plan agreed upon
before the Merger in which the rights of New Parent, Holding Company,
Company and Merger Sub are defined.
45. All the steps in the Reorganization will occur on approximately the
same date.
46. Taking into account any issuance of additional shares of New
Common Stock; any issuance of shares of New Common Stock for services; the
exercise of any New Common Stock rights, warrants, or subscriptions; a public
offering of New Common Stock; and the sale, exchange, transfer by gift, or
other disposition of any of the stock of New Common Stock, immediately after
the effective time of the Merger, the Company shareholders (both including
and excluding the former shareholders of KUI) will be in "control" of New
Parent within the meaning of section 368(c) of the Code.
47. Each nondissenting Company shareholder will receive New Common
Stock approximately equal to the fair market value of his or her Company
Common Stock immediately prior to the effective time of the Merger.
48. New Parent will remain in existence after the Reorganization.
49. To the best of the knowledge of the management of Company, the
Company shareholders are not under the jurisdiction of a court in a Title 11
or similar case (within the meaning of section 368(a)(3)(A) of the Code) and
the shares of New Common Stock received in the exchange will not be used to
satisfy the indebtedness of such debtor.
50. New Parent will not be a "personal service corporation" within the
meaning of section 269A of the Code.
51. None of the shares of Company Common Stock to be converted into New
Common Stock under the Merger was received by the Company shareholders or
shares of Company Common Stock acquired by or held by Holding Company were
acquired, as part of the liquidation of another corporation affiliated with
New Parent, Holding Company, Company, Hughes, KUA or KUI.
52. No stock or securities of Holding Company will be issued for services
rendered to or for the benefit of Holding Company in connection with the
Reorganization, and no stock or securities will be issued for indebtedness of
Holding Company that is not evidenced by a security or for interest on
indebtedness of Holding Company which accrued on or after the beginning of
the holding period of New Parent for the debt.
53. After the Merger, New Parent will not have any ownership or creditor
rights or right to acquire any ownership or creditor interest in any Company
Common Stock except for indirect rights arising from New Parent holding
shares of Holding Company stock.
54. There is no indebtedness between Holding Company and New Parent and
there will be no indebtedness created in favor of New Parent as a result of
the Reorganization.
55. There is no plan or intention on the part of Holding Company to
redeem or otherwise acquire any New Common Stock to be issued in the Merger
or any Holding Company stock.
56. Taking into account any issuance of additional shares of Holding
Company stock; any issuance of shares for services; the exercise of any
Holding Company stock rights, warrants, or subscriptions; a public offering
of Holding Company stock; and the sale, exchange, transfer by gift, or other
disposition of any of the stock of Holding Company, New Parent will be in
"control" of Holding Company within the meaning of section 368(c) of the
Code. In addition, no person or entity has or will have any option or other
right to acquire any equity interest in Holding Company.
57. New Parent will not receive additional shares of stock of Holding
Company as a result of the Reorganization because New Parent already owns all
of Holding Company's stock.
58. After the Reorganization, Holding Company will remain in existence
and retain the Company Common Stock received in the Merger.
59. There is no plan or intention by Holding Company to dispose of any
Company Common Stock.
60. Before and after the Reorganization, the only equity interests in New
Parent shall be the New Common Stock. Before and after the Reorganization,
the only equity interests in Company shall be the Company Common Stock.
Before and after the Reorganization, the only equity interests in Holding
Company shall be the common shares of Holding Company.
61. Holding Company will not be a "personal service corporation" within
the meaning of section 269A of the Code.
62. The former shareholders of KUI who participated in the KUI
acquisition received, in the aggregate, 10% or less of the outstanding
Company Common Stock (as determined at the time of the KUI acquisition) in
the KUI acquisition, currently hold, in the aggregate, 10% or less of the
outstanding Company Common Stock and, after the Reorganization, will hold, in
the aggregate, 10% or less of the outstanding New Common Stock.
63. To the knowledge of New Parent, Holding Company, Company and Merger
Sub, no Company shareholder acquired Company Common Stock with the plan,
intent or purpose of participating in the Reorganization.
August [____], 1997
QUALITY FOOD CENTERS, INC.
By: _______________________________
Name:
Title:
QUALITY FOOD, INC.
By: _______________________________
Name:
Title:
QUALITY FOOD HOLDINGS, INC.
By: _______________________________
Name:
Title:
QFC SUB, INC.
By: _______________________________
Name:
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 1 to the Registration Statement No.
333-31945 of Quality Food, Inc. ("QFI") on Form S-4 of our report dated March
21, 1997, included in the Annual Report on Form 10-K/A, dated July 23, 1997, of
Quality Food Centers, Inc. for the fiscal year ended December 28, 1996
incorporated by reference in the Proxy Statement/Prospectus, which is part of
this Registration Statement, and to the reference to us under the "Experts"
section in such Proxy Statement/Prospectus.
DELOITTE & TOUCHE LLP
Seattle, Washington
August 20, 1997
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 1 to the Registration Statement No.
333-31945 of Quality Food, Inc. ("QFI") on Form S-4 of our report dated February
10, 1997 (February 14, 1997 as to notes 1, 3, 9, and 10) on the financial
statements of Keith Uddenberg, Inc. included in Form 8K/A, dated February 20,
1997 for the fiscal year ended December 28, 1996 incorporated by reference in
the Proxy Statement/ Prospectus, which is part of this Registration Statement,
and to the reference to us under the "Experts" section in such Proxy
Statement/Prospectus.
DELOITTE & TOUCHE LLP
Seattle, Washington
August 20, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report for Hughes Markets, Inc.
and Subsidiaries dated May 10, 1996, except for the matters disclosed in Note 11
for which the date is November 20, 1996, included in Quality Food Centers,
Inc.'s previously filed Form 8-K/A dated February 20, 1997 and to the reference
to our firm under the "Experts" section included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
August 20, 1997
